Insight
Kevin McNulty, Head of EquiLend RegTech Solutions, reflects on speculation around the incoming SEC 10c-1 rule and considers the impact on markets and liquidity.
Kevin McNulty
September 2023
The Securities and Exchange Commission published a rule proposal on November 18, 2021 requiring lenders of securities to report material terms of securities lending transactions to FINRA. The SEC declared that the rule is designed to offer additional transparency to the securities lending market; some of the data will be disseminated from FINRA to the public. The proposal differed significantly from the European reporting rule (SFTR) implemented in 2020, 10c-1 will amongst other things introduce a requirement to report transactions and modifications within 15 minutes of execution. With our focus on RegTech, EquiLend has been analyzing the proposed rule and monitoring developments since its publication with an aim to support firms in complying to SEC 10c-1 when it comes into force.
Although 10c-1 had been widely anticipated for several years following the Financial Stability Board’s post global financial crisis regulatory proposals, the market reaction has been strong. This can be attributed to the anticipated increased workload and compliance costs for firms and some of the unique terms the SEC has proposed. The industry has heavily pushed-back on several of the proposed requirements, such as the 15-minute reporting timeframe, and the reporting and disclosure of lenders’ availability and loans to customers for short sale coverage. Firms’ concerns were echoed by major trade associations such as SIFMA, RMA, and ISLA. Outside of the industry however, members of the public and some academics expressed support for the proposal arguing broadly that the transparency measures would benefit all investors.
Most recently (July, 2023) 13 members of Congress published a second bipartisan letter to the SEC, in line with the concerns of the industry, recommending the final rule should require trade activities be reported for regulatory purposes only and no public data dissemination should be included as part of the regulation. The letter challenges that the current proposal would release sensitive information which may mislead the public and “impair market liquidity.” AIMA added to this again in a comment letter dated August 11, 2023, in which they made the point that the aggregate effect of 10c-1, together with other proposed measures, such as those for short sale disclosures and the regulation of security-based swaps, could actually harm market efficiency.
At the time of writing, the target expected final action date set for 10c-1 by the SEC remains as October 2023; however, this does not necessarily mean that the SEC will publish a final rule by then. Given the strength of feedback received by the SEC, some industry participants believe amendments may be made to the proposal, possibly followed by another comment period, further delaying the expected final action date. Against this there is clearly pressure on the SEC, dating back to Dodd Frank, to develop transparency measures for securities lending, and in recent years there has been a clear determination to push through regulatory reforms. Whilst we wait and see what happens next, EquiLend continues to monitor developments on this regulation in readiness to implement a regulatory reporting solution for clients to serve their end-to-end securities lending needs.
EquiLend is a global financial technology firm offering Trading, Post-Trade, Data & Analytics, RegTech and Platform Solutions for the securities finance industry. EquiLend has offices in North America, EMEA and Asia-Pacific and is regulated in jurisdictions around the globe. The company is Great Place to Work Certified™ in the U.S., UK, Ireland and India and was named Best Post-Trade Service Provider Globally, Best Market Data Provider Globally and awarded for its Diversity & Inclusion in the Securities Finance Times Industry Excellence Awards 2023.
