Demystifying 10c-1a: EquiLend Navigates the Path to Transparency

Kevin McNulty

March 2024

As the securities lending industry prepares for the SEC’s 10c-1a rule, EquiLend RegTech Solutions is developing a comprehensive solution that supports clients in meeting their regulatory reporting needs. EquiLend’s 10c-1a solution will act as a reporting agent for both agent lenders and broker-dealers, reporting transaction data directly to FINRA. 

Navigating the intricate details of implementation requires careful consideration. As the industry awaits the rule’s interpretation from FINRA by May 2, we have identified a number of 10c-1a implementation ambiguities, which we have raised in our conversations with FINRA as requiring additional explanation and guidance. 

In this article we highlight and provide some high-level analysis of three of these issues.  

Implementation hurdles in reporting trades when effected

The SEC’s 10c-1a rule mandates that reporting of securities lending transactions should occur when loan agreement is effected, but a key distinction emerges that has attracted discussion in the market about the difference between effected and settled trades. The rule, as it is written, raises questions surrounding the reporting of effected trades, which occur when the agreement is reached, versus settled trades, which mark the actual transfer of securities. The distinction presents the following potential challenges: 

  • Data accuracy concerns: The information available at the effected stage may not always be final. Changes can occur during the settlement process, potentially leading to inaccurate or incomplete initial reports requiring subsequent amendments. For example, the parties agree a loan over the phone, but the beneficial owner simultaneously sells the security and the loan is cancelled before settlement.  
  • Increased reporting volume: Reporting effected trades leads to a significant increase in reported transactions compared to just settled trades, due to the need to report both corrections and cancels to the RNSA. This can potentially strain market participants’ processing and reporting capabilities.  
  • Operational complexities: Broker-dealers and agent lenders need to ensure their internal workflows capture and report data at the effected stage, rather than the settled stage.   

From our discussions with our clients and FINRA, EquiLend maintains that the best method to meet the regulatory requirement is for market participants to report effected trades, modifications and cancels. Adding the requirement to report cancels will enable FINRA to reconcile effected trades that may have been modified or cancelled prior to settlement. EquiLend’s suite of products support this logic and clients can be confident in support across the complete lifecycle.   

Reporting Evergreen Trades

Evergreen trades are another ambiguity in the regulation that presents a unique challenge for accurate and efficient reporting. Evergreen trades are characterized by continuous automatic extensions and raise the following issues: 

  • Identifying renewal events: Accurately identifying and capturing renewal events within long-term agreements can be difficult, especially for older or less sophisticated systems, potentially leading to missed or inaccurate reporting.  
  • Data redundancy: Repeated reporting of the same core trade details at each renewal creates redundant data, which can complicate data analysis and potentially hinder FINRA’s ability to gain meaningful insights.  

EquiLend supports the identification of evergreen trades, and we are committed to working with FINRA to define the best way to identify and handle the renewal events associated with these trades.  

The Omnibus vs. Allocation Trade Reporting Conundrum

It is our position that there is significant ambiguity on whether transactions should be reported at the omnibus or allocation level and without further clarity this could lead to confusion and inconsistent reporting practices. Let’s delve into the complexities of these trade types and where the complexities occur.  

  • Omnibus trades: In these transactions, an agent lender lends a specific quantity of a security to a borrower, which the agent then allocates using an algorithm to its underlying principal lenders (beneficial owners). At the time of the omnibus trade, the lender may not know exactly which beneficial owners of the securities will be used for the allocations as their algorithms may run in batch processes through the day. This information will become clearer at a later point in time, prior to settlement. 
  • Allocation trades: Allocated trades reflect the specific allocation of securities from an omnibus loan to individual beneficial owners within the lending agent’s client base.  

The rule, which requires reporting counterparty information is clear, but the level of detail needed for beneficial owners in omnibus trades remains unclear.   

  • Should the lender report only the agent lender as the lending party? In other words, report the trade only at the omnibus level? Or 
  • Should the lender report all beneficial owners used to fulfill the loan quantity? This raises the question of the effective time of the trade. Additionally, this raises questions relating to agent re-allocations of the security to different beneficial owners before the loan settles.  

We continue to engage with FINRA to pursue more clarity on this issue, as there are important process and solution design principles that this affects. Reporting loans when effected at the beneficial owner level is more complicated and will result in higher volumes of reported transactions and events. At EquiLend, we support reporting at the allocation level with our SFTR Solution, granting us a real understanding of the complexities around this type of reporting. Whatever the outcome of our discussions with the regulators, EquiLend’s solution will meet our clients’ needs.

EquiLend: Navigating 10c-1a Implementation Challenges 

EquiLend RegTech Solutions was created to enable us to provide holistic support to our securities finance clients. Our experience in securities finance gives us an in-depth understanding of the complexities surrounding the reporting of effected trades, evergreen trades and omnibus vs allocation reporting. Our 10c-1a reporting solution will offer functionalities such as:  

  • Data standardization: EquiLend’s platform is equipped to handle the diverse data formats used in the market.  
  • Streamlined reporting workflows: Our solutions integrate seamlessly with existing workflows, minimizing disruption and reducing the burden on the clients to supply additional data.  
  • Industry collaboration: EquiLend actively participates in industry-wide dialogues and collaborates with regulators and market participants to ensure a smooth implementation process.  
  • Data validation and cleansing: Embedded data validation and cleansing tools within the solution ensure the accuracy and completeness of reported data before submission.  

By fostering transparency and collaboration, we can navigate the complexities of 10c-1a together, paving the way for a more efficient and robust securities lending market.

Note to Broker-Dealers and Agent Lenders: 

You can contact the EquiLend RegTech team at regtech@equilend.com with any questions you may have. We will work with you and FINRA to ensure that your questions and concerns are addressed, in order to ensure a smooth and compliant transition. We stand ready to support you every step of the way.

Who We Are

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.