SEC Rule10c-1 and FINRA’s Securities Lending Transparency Engine (SLATE)

Securities Loan? Put it on the SLATE

The Financial Industry Regulatory Authority (FINRA) published a proposed rule change to adopt the FINRA Rule 6500 Series (Securities Lending and Transparency Engine) ‘SLATE’ on 1 May 2024.

US Securities Lending Reporting Takes Shape

SLATE proposals take the SEC’s Final Rule 10c-1a of 13 October 2023 and start to map out what the securities lending transparency regime will look like in the USA once it goes live on 2 January 2026 (assuming no delay by the SEC). This in turn will lead to the publication of individual loan and aggregated securities lending data by FINRA from 2 April 2026. The FINRA rule is subject to a consultation, albeit scheduled to end on 28 May – a mere 21 days after its appearance in the Federal Register. At this stage, we have quite a detailed text outline but no schemas, validation rules or exacting field specifications.

Requirements for Trade Reporting ++

The industry has been somewhat surprised by the proposed rule. What first appeared ahead of the FINRA announcement to be simple trade reporting of approximately 12 data elements is shaping up to be a great deal more complex and expensive to implement and report under. This is end of day transaction and lifecycle reporting (on T) by the lender or their agent and subsequent significant loan transparency on T+1. 

Elements of the scope remain TBC

The exact scope, potential extra-territoriality and potential dual reporting (to FINRA and the OFR) remain somewhat uncertain. FINRA have identified 609 ‘Covered persons’ who will need to register and report to SLATE, broken down as 434 persons effecting a loan as lender without intermediary, 34 broker dealers borrowing excess margin securities, 4 broker dealer intermediaries, 31 non-broker intermediaries, 97 broker dealers acting as reporting agents and 9 clearing agencies acting as reporting agents. There is no further detail as to who they are or how they came to this estimate.

Devil will be in the detail regarding reporting taxonomy

The reporting requirements break down into around 15 public data fields, together with confidential fields relating to identifiers for parties to the loan, indications where securities are sourced from broker/dealer inventory and whether the loan is being used to close out a fail. Depending upon how you count them, we can see effectively up to 45 reportable fields.

It is the conditional fields (referred to as modifiers and identifiers), full disclosure of all lifecycle events with sequencing, the need to report all modifications (changes and terminations) and the requirement to ingest FINRA generated unique trade identifiers (UTI) and reuse them for all subsequent lifecycle reporting that ramp up the complexity.

Same day reporting

Unfortunately for “covered person” reporters, FINRA requires not only the end of day snapshot of any modification but individual reports for each and every change to the terms of the transaction. All by 8pm ET on trade date (if ‘effected’ by 7:45pm ET).

The modifiers and identifiers required are: Exclusive Arrangements (the lender has with a borrower or intermediary), Loan to Affiliate, Unsettled Loan, Terminated Loan and Rate or Fee Adjustment. To an SFTR veteran, these have the look and feel of counterparty fields in the case of the first two, an error action type (where the loan ultimately wasn’t good), a termination report and a modification of the rebate rate field or lending fee field. It may make the reporting more intuitive to frame these as optional fields (where applicable) and action types (new, modify, error or terminate) or similar, rather than “modifiers and identifiers.”

Security Lending Data Published T+1

The public data will be shared by FINRA during the morning of T+1 (excluding the loan amount) at both the individual loan level and in the form of daily loan statistics (e.g. aggregate loan activity and the distribution of loan rates). This data will incorporate both new loans and loan modifications. On T+20, loan amounts will also be shared. This data will be on the FINRA website free of charge for personal, non-commercial use only. For other uses, FINRA will require fees to obtain SLATE data.   

Reporting requirements exceed remit and could jeopardize effective transparency

The Financial Stability Board’s (FSB) 2015 proposals around securities financing data collection globally generally were to focus on periodic, settled, position level reporting. The primary objective here (and the substance behind the majority of the c.2000 consultation responses received by the SEC) was to provide greater retail level transparency around the securities lending market and how this market in turn facilitates short sellers in the US equity market. By insisting on pre-settlement trade level data, every modification, incorporating loans that never actually conclude and the modifiers and identifiers (rather than simply excluding biased data from the daily tape) runs the risk of blinding the public with science rather than in providing an invaluable level playing field of transparency with enhanced competition.

If you are concerned about your reporting obligations under SEC 10c-1, the OFR’s Uncleared Bilateral Repo Reporting requirements or other global money market reporting obligations generally, please get in touch.