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SEC Proposes to Require Detailed Information on Securities Lending – Corporate / Commercial Law


United States: SEC proposes to require detailed information on securities lending

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The second offers a rule that would impose extensive reporting requirements on anyone lending a security. The SEC said the proposed rule aims to improve transparency in the securities lending market, as the information available to regulators and the public in this market is limited.

Under proposed SEA 10c-1 (“Securities Lending Transparency”), securities lenders would be required to report certain terms of their transactions to FINRA within 15 minutes of the transaction, which FINRA would then make public.

Conditions that a securities lender should provide to FINRA include:

  • the corporate name of the issuer of the securities concerned and its ticker;
  • the time and date of the loan;
  • the name of any platform or location used;
  • the number of securities loaned;
  • loan rates, fees, charges and discounts;
  • what collateral was provided for the loan and what percentage of the collateral was “provided at the value of the securities loaned”;
  • the date of termination of the loan; and
  • the type of borrower.

The proposed rule would also require securities lenders to provide information to FINRA that will not be made public, including:

  • the legal names of the parties to the loans;
  • if the lender is a broker, if the loaned security comes from the broker’s inventory; and
  • whether the loan will be used to meet a delivery default, whether or not in accordance with the SHO regulations.

The proposed rule would also require that information about securities loaned or available for loan be provided to FINRA, which would then make the information public in an aggregate manner.

Comments on the proposed rule must be received within 30 days of its publication in the Federal Register.

SEC Chairman Gary Gensler rented the proposal as a step in the pursuit of the SEC’s mission to improve market transparency and competition.

Comment Steven Lofchie

The requirement to report such detailed information as securities lending will cause a huge change in the market.

The proposed press release says the transparency requirements will serve to reduce the costs of short selling. It’s also reasonable to question whether the rule’s requirements will further drive small lenders and market participants away from the business, as the requirements impose another significant technological cost.

One aspect of the rule, assuming it is applied, that probably should be changed is the requirement that information on securities lending be reported within 15 minutes of any securities lending. It is not clear whether this is practical or particularly useful. It should be enough for the information to be reported at the end of the day, or perhaps a day or more later. The mechanics and pricing of a securities lending work differently than a cash market transaction or entering a swap, and a good volume of securities lending is likely done through operational processes. ordinary ones that operate at the end of the trading day.

Market participants should be aware that this rule is not limited to brokers. The requirement applies to “any person who lends a security”, including banks, insurance companies, investment companies and individuals. There is no discussion in the proposal as to how the requirement will apply to foreign people lending to US people.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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