All Things FinReg


On October 13, 2023, the US Securities and Exchange Commission (SEC) adopted Rule 10c-1a requiring the reporting and dissemination of certain details regarding securities lending transactions.

New Rule 10c-1a under the Securities Exchange Act of 1934 requires generally that

  • specified information about securities loans be reported to the Financial Industry Regulatory Authority Inc. (FINRA) in accordance with rules that FINRA will eventually adopt for these purposes; and
  • FINRA make publicly available certain information about these transactions within certain timeframes and keep confidential certain information it receives.

Who Must Report?

Rule 10c-1a will require any “covered person” who agrees to a “covered securities loan” to provide specified information to FINRA.

A covered person means

  • any person that agrees to a covered securities loan on behalf of the lender (intermediary) other than a clearing agency when providing only the functions of a central counterparty or a central securities depository;
  • any person that agrees to a covered securities loan as the lender when an intermediary is not used; or
  • the broker or dealer when borrowing fully paid or excess margin securities.

A covered securities loan means any transaction in which one person—either on that person’s own behalf or on behalf of one or more other persons—lends a “reportable security” to another person, with exclusions for (1) positions at a registered clearing agency that result from central counterparty services or central depository services and (2) the use of margin securities by a broker or dealer unless such broker or dealer lends such securities to another person.

A reportable security is a security for which information is already reported or required to be reported in accordance with existing reporting regimes.

What Must Be Reported?

The final rule prescribes specific data elements that must be reported, including the legal name of the issuer of the securities to be borrowed; platform used; ticker symbol; time and date of the loan; amount of reportable securities loaned; rates, fees, charges, and rebates for the loan; collateral type and the percentage of the collateral to the value of the reportable securities loaned;  termination date; and borrower type.

In addition, confidential elements that must be reported to, but not made publicly available by, FINRA include (1) the legal names of the parties to the covered securities loan; (2) when the lender is a broker-dealer, whether the reportable security loaned to its customer is loaned from the broker-dealer’s inventory; and (3) whether the covered securities loan will be used to close out a fail to deliver under Regulation SHO or the loan is being used to close out a fail to deliver outside of Regulation SHO.

Key Changes from Proposal

As explained by SEC Chair Gary Gensler in his opening comments, final Rule 10c-1a differs from its proposed form, as we unpacked here, in several important ways, including the following:

  • Rather than requiring that securities lending transactions and modifications be reported within 15 minutes, the final rule requires end-of-day reporting.
  • Instead of creating a ticker-tape for securities lending transactions, the final rule would require that FINRA report aggregate data the next day that includes rate information on securities, with individual loan information being delayed for 20 days.
  • Broker-dealers and clearing agencies can act as reporting agents, whereas the proposal only included broker-dealers as reporting agents.
  • The final rule removes the “available to lend” requirement as a reportable data element.

What’s Next?

Rule 10c-1a will become effective 60 days following the date of publication of the adopting release in the Federal Register. The compliance dates for Rule 10c-1a require that

  • FINRA propose rules to implement Rule 10c-1a within four months of the final rule’s effective date and that FINRA’s rules become effective no later than 12 months after the effective date of Rule 10c-1a;
  • covered persons report the information required by Rule 10c-1a to FINRA starting on the first business day 24 months after the effective date of Rule 10c-1a (the reporting date); and
  • FINRA make specified information publicly available within 90 calendar days of the reporting date.

Initial Thoughts

While we are still digesting the final rule and expect to publish a fuller analysis in the coming days, the changes to the final rule do reflect SEC consideration of many of the comment letters received (e.g., aggregate reporting, end-of-day reporting rather than 15-minute reporting).

We note the FINRA’s rulemaking requirements and timelines will be tight, and it should take care in crafting its rules in light of recent challenges it has faced to its rulemaking. Further, based on commissioner comments during the open meeting, the final rule would apply to digital asset securities although, as noted during the open meeting, there is still uncertainty as to which digital assets are in scope as securities.