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Rule 10c-1a’s purpose is to increase transparency and for the securities lending market to be more efficient. This is the US equivalent to the European SFTR regulation which requires the reporting of Securities Financing Transactions (SFTs) to trades repositories.
The final rules have been effective since 2 January 2024 (Effective Date), however, of the various phases of compliance, the compliance date for ‘covered persons’ that have agreed to a ‘covered securities loan’ is the 1st business day 2 years after the Effective Date i.e. from 2 January 2026 onwards.
Reporting of specified information about securities loans to the Registered National Securities Association (RNSA) will be required (and note that currently, the Financial Industry Regulatory Authority (FINRA) is the sole RNSA). FINRA will then make certain information it receives from ‘covered persons’ available to the public by including daily information on transaction activities and loan rates for reportable securities.
What has to be reported and by whom?
Rule 10c-1a applies to: ‘covered persons’ and they must have entered into ‘covered securities loans’.
A ‘covered person’ is either a broker or dealer when borrowing margin securities (fully paid or in excess) or a party that has entered into a ‘covered securities loan’:
- on behalf of a lender (intermediary) excluding clearing agencies that have only provided central counterparty or central depository services;
- as a lender where no intermediary is present.
‘Covered securities loans’ needs to be reported under Rule 10c-1a. These are transactions where a ‘reportable security’ is loaned out by one party (and may be on behalf of someone else) to another.
A ‘reportable security’ is one where information relating to the relevant security is reported or needs to be reported subject to the Consolidated Audit Trail (CAT), Trade Reporting and Compliance Engine (TRACE) or Municipal Securities Rulemaking Board Real Time Reporting System (MSRB RTRS). This excludes:
- securities loans where a broker or dealer uses margin securities unless they loan out the securities to another party; and
- a registered clearing agency’s positions arising from services of central counterparties or central depositories.
Terms requiring reporting to FINRA
Some of the terms concerning the ‘covered securities loan’ which need to be reported to FINRA include:
- Security issuer’s legal name
- Loan effective and termination dates
- Platform or venue name (if applicable)
- Amount of the securities lent out
- Details around the rates, fees, charges and if any rebate is applicable
- Type of collateral (and percentage) provided for the covered securities loan
- Borrower type e.g. bank, broker, custodian etc.
Some of the other details required to be reported, but would not be made public, include:
- Parties’ legal names
- For broker dealer lenders, information of whether or not the security lent is from their own capital/inventory
How can TRAction assist?
If you need assistance on more information relating to Rule 10c-1a and in determining whether you are a covered person and if your securities loans fall are reportable under the SEC regime, please get in touch with us.
