(Article from Registered Funds Regulatory Update, January 2022)
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The SEC proposed Exchange Act Rule 10c-1, which will require lenders of securities to report the material terms of securities lending transactions to a national securities association (e.g., the Financial Industry Regulatory Authority). The national securities association would then be required to make certain information reported to it public. In accordance with Congress’ mandate in the Dodd-Frank Act, proposed Rule 10c-1 is intended to strengthen the transparency and efficiency of the securities lending market by providing market participants, the public and regulators access to timely and comprehensive information.
Calling the securities lending market “opaque,” SEC Chair Gary Gensler explained that although private data vendors collect and sell some securities lending data, the information is incomplete, as not all market participants choose to participate. Market participants must pay to subscribe to multiple feeds to access even the limited data
available. In Gensler’s view, this has resulted in information asymmetries between borrowers and lenders, creating inefficiencies in this market.
Under proposed Rule 10c-1, data regarding securities lending transactions would be reported to a national securities association within 15 minutes. Further, at the end of each business day, lenders would be required to report the number of shares of each security they have lent out, as well as the number of shares available to borrow.
“In today’s fast-moving financial markets, it’s important that market participants have access to fair, accurate, and timely information. I believe this proposal would bring securities lending out of the dark,” Gensler said.
Comments to the proposed amendments were due on January 7, 2022. In comments received by the SEC, market participants expressed concerns regarding the proposed 15-minute reporting requirement, noting that the proposed time frame could undermine the intent of the proposed amendments by resulting in incomplete and erroneous market data being published and impose significant costs on securities lenders. Commenters also cautioned the SEC on the timing for implementing the proposed mandates. Comments included recommendations for a minimum two-year implementation period as well as a phase-in approach by asset type.
Reporting of Securities Loans, SEC Release No. 34-93613 (Nov. 18, 2021), available at https://www.sec.gov/rules/proposed/2021/34-93613.pdf.
Gary Gensler, SEC Chair, Statement, Proposed Updates to Securities Lending Market (Nov. 18, 2021), available at https://www.sec.gov/news/statement/gensler-securities-lending-market-20211118.