The countdown begins! Securities lending reporting in the United States is set to go live in 2025, after the US Securities and Exchange Commission (SEC) published the ‘Final Rule on Reporting of Securities Loans’ on Friday 13 October 2023. We’ll have more precise timing as soon as the adopting release is published in the Federal Register (not less than 30 days following the publication of the Final Rule). Securities lending reporting could be upon us as soon as January 2025.
Our view on the Final Rule
Following more than 2,000 consultation responses to the proposed rule from every spectrum of investor and market participant, it seems the SEC has listened and allayed many concerns. It was always going to be a fine balance between satisfying the requirements to monitor, supervise and ensure an efficient, orderly market while providing much greater transparency and a more level playing field, while not appearing punitive towards market professionals or creating an operationally unworkable regime.
The final report appears to be less alarming and less onerous than the draft rule published back in November 2021.
In particular, the proposal that securities lenders would be required to disclose details of securities “available to loan” and securities “on loan” to the registered national securities association (being FINRA – Financial Industry Regulatory Authority) which would be required to publish this information to the general public have both been removed. Also, the most sensitive aspects relating to transaction level loan amounts and individual loan and security identifying information will now be subject to a 20-day deferral period prior to publication.
Finally, much to the relief of securities lending operations teams across the USA, the 15-minute reporting proposal has been shelved, replaced by “the end of the day on which the covered securities loan is effected.” End of day reporting will be required for new loans and loan modifications.
Implementation and firms in scope
FINRA is the organisation that will implement the rules regarding the format and manner to administer collection of information. They must propose rules within four months of the effective date of Rule 10c-1a (with the effective date set 60 days following the publication of the adopting release in the Federal Register).
Scope of the reporting:
- Single-sided reporting from lenders only
- Any person/entity who loans a security on behalf of itself or another ‘person’
- Alternatively, reporting may be submitted by banks, clearing agencies, brokers, dealers, intermediaries (such as agent lenders) who act on behalf of beneficial owners.
What must be reported?
The Final Rule identifies 12 reportable data elements. We anticipate FINRA’s implementation may involve more than 12 fields but the data elements required to report are as follows:
- Legal name of the security issuer, and the LEI (Legal Entity Identifier) of the issuer, if the issuer has a non-lapsed LEI
- Ticker symbol, ISIN, CUSIP, or FIGI of the security, if assigned, or other identifier
- Date the loan was effected
- Time the loan was effected
- Name of the platform or venue for loans executed on a venue or platform
- Amount, such as size, volume, or both, of the reportable securities loaned
- Securities lending fee or rate, or any other fee or charges for loans not collateralised by cash
- Type of collateral used to secure the loan of securities
- Rebate rate or any other fee or charges for a loan collateralised by cash
- Percentage of collateral to value of loaned reportable securities required to secure such loan
- Termination date of the loan, if applicable
- Whether the borrower is a broker or dealer, a customer (if the person lending securities is a broker or dealer), a clearing agency, a bank, a custodian, or other person.