SEC 10c-1

What is the proposed SEC Rule 10c-1?

As most Americans were preparing for the Thanksgiving week ahead, the Securities and Exchange Commission (SEC) were busy putting the finishing touches on a voluminous proposal that could alter the landscape of the securities lending industry in the U.S. and around the world. On November 18th the SEC released for comment proposed Rule 10c-1 under the Securities Exchange Act of 1934. Comments are due 30 days after publication in the Federal Register.

The objective of this proposal is to increase transparency in the securities finance market by requiring any person lending securities to report that transaction to a registered national securities association (RNSA). The RNSA being proposed here is FINRA, which will collect and publicly disseminate information about each transaction and aggregate information.

Is this the U.S. version of the Securities Financing Transaction Regulation (SFTR) which ushered in a wave of reporting requirements in Europe in 2020? Does it look more like the derivatives reporting regulations requirements under Dodd-Frank in the U.S. or something closer to FINRA’s CAT NMS or TRACE?

Let’s examine some of the key elements of the proposal:

Who needs to report under SEC Rule 10c-1?

Any lender or lending agent would be required to report. A lending agent is identified as an intermediary such as a bank, broker-dealer or clearing agency who helps lend securities on behalf of the beneficial owners (which includes banks, insurance companies, pension funds). For example:

  • Where insurance or pension funds employ an agent lender to loan their securities, the agent lender would be responsible to report. If an agent lender is not used and the beneficial owner lends securities directly then the responsibility lies with the beneficial owner
  • Clients of broker-dealers who take part in fully paid lending programs would have their loans reported by their broker-dealer
  • Clearing agencies who have programs that lend on behalf of beneficial owners would be responsible for providing the stock lending activity

As we have seen with other regimes, the reporting could be delegated by the client to another party and there is a point in the proposal where a reporting agent can be designated through a written agreement.

What needs to be reported under SEC Rule 10c-1?

Any securities lending trade involving equities or fixed income would need to be reported. If we compare the SEC’s 10c-1 proposal against ESMA’s SFTR we can see that participants who are in scope for reporting under SFTR would be well versed in retrieving the vast majority of fields required for 10c-1, as most of them are reported in SFTR. Although there are similarities in terms of data required, they both have different purposes; the SEC are looking to improve transparency in the market whilst ESMA wanted to measure risk and exposure in the securities finance market, which additionally includes repos, buy sell backs and margin loans.

The below table covers the data points requested by the SEC proposal. The fields in black indicate information that would be made public and the ones in green would be kept away from the public eye.

SEC 10C-1 proposed fields SFTR # SFTR field names Comment
Legal name of the issuer of the securities to be borrowed,
LEI of issuer if available
2.54 LEI of the issuer SEC’s approach to potentially allow Legal Names of the Issuer instead of only the LEI would be well received as we have found that for all the securities that we enrich, US issuers are the main offenders to not have a LEI.
Ticker symbol/ ISIN/ cusip /other identifier of those securities 2.41 Security identifier
Time and date of the loan 2.12 Execution timestamp
Name of the platform or venue, if one is used 2.08 Trading venue In addition to providing MIC codes of the trading venues, SFTR also allows for XOFF (traded off exchange) and XXXX (OTC)
Amount of securities loaned 2.46 Quantity or nominal amount
Rates, fees, charges and rebates for the loan as applicable 2.58;

2.59;

2.66;

2.67

Fixed rebate rate;Floating rebate rate;

Spread of the rebate rate;

Lending Fee

Type of collateral provided for the loan and the collateral margin percentage 2.75;

2.89

Type of collateral component;

Haircut or margin

Termination date of the loan if applicable 2.14 Maturity date (End date)
Borrower type, e.g. broker, dealer, bank, customer, clearing agency, custodian N/A No equivalent IHS Markit platforms currently store regulatory classifications for SFTR, Dodd Frank, EMIR and others.  Additionally, each participant must stipulate what kind of entity they are (Custodian, Corporation, Dealer, Asset Manager, etc).  These fields could be leveraged to populate a transaction report.
The legal names of the parties to the loan 1.03;

1.11

Reporting counterparty;

Other counterparty

SFTR also include branches of the counterparty when trades are conducted by a branch
When the lender is a broker-dealer, whether the security loaned to its customer is loaned from the broker-dealer’s inventory N/A No equivalent
Whether the loan will be used to close out a fail to deliver pursuant to Rule 204 of Regulation SHO or whether the loan is being used to close out a fail to deliver outside of Regulation SHO N/A No equivalent


How should the trades be reported under SEC Rule 10c-1?

For those who have been involved in trade and transaction reporting, there is a concept of reporting a trade with a unique trade identifier otherwise known as the UTI. In general, the way this has worked for other regimes, was that the UTI could have been system-generated by a trading venue, or CCP-generated if trades are cleared or for those involved in dual sided regimes generated by one of the counterparties. However, in the SEC proposal it seems that subsequent modifications would need to be reported by a RNSA-assigned UTI. This mean when a market participant submits a new trade to the RNSA, the RNSA would have to acknowledge the trade, assign a UTI to it, send it back and only then would the client be able to submit subsequent modifications associated with that trade with the same UTI. The SEC proposal around UTI is similar to the current CFTC derivatives obligations in that a trade repository (Swap Data Repository) would create the UTI when the reporting party is a non-registered entity (non-SD, non-MSP, etc.)

The format in which the reports need to be compiled is still unspecified and there is an open question as to whether this should be defined by the SEC or the RNSA. What we do know is that the reporting agent is required to submit the necessary information to the RNSA within 15 minutes after the securities loan is effected or the terms of the loan are modified. In addition to this, the proposal requires each lender to submit their on-loan balances, as well as their available-to-loan inventory at the end of each business day.

Stay tuned for any additional developments. In the meantime, if you have any questions around US regulatory reporting, feel free to contact us.

Igor Kaplun
About the author: Igor Kaplun
Mr. Kaplun serves as Global Head of Regulatory Reporting Business Development, S&P Global Market Intelligence responsible for leading the expansion of the regulatory reporting capabilities in the Americas. Mr. Kaplun has deep expertise in OTC derivatives, G20 regulatory reporting and post trade services. Prior to joining S&P Global Market Intelligence, Mr. Kaplun spent 11 years at CME Group, most recently as Head of the North America Trade Repository business. In his early career at CME he worked in the data business focusing on data monetization, strategy, licensing and distribution. Mr. Kaplun holds a Bachelor’s in Business Administration and Master’s in International Business from the University of Florida