SEC Adopts New Rules for Securities Lending

This month, the Securities and Exchange Commission (SEC) adopted new Rule 10c-1a which will require covered persons to report information about securities loans to a registered national securities association (RNSA) and require RNSAs to make certain information that they receive regarding those lending transactions publicly available. According to the new rule, a covered person refers to (1) any person that agrees to a covered securities loan on behalf of the lender (intermediary) other than a clearing agency when providing only the functions of a central counterparty or a central securities depository, (2) any person that agrees to a covered securities loan as the lender when an intermediary is not used, or (3) the broker or dealer when borrowing fully paid or excess margin securities. According to Sidley Austin’s client alert, “Currently, the Financial Industry Regulatory Authority (FINRA) is the only RNSA, so it is expected FINRA will play this role.” Furthermore, according to Sidley, the rule will increase operational and compliance obligations on a number of market participants, “most notably broker-dealers, custodian banks acting as agent lenders, investment advisers, and funds effecting securities loans, and certain clearing agencies.”

In his statement on the rule, SEC Chair Gary Gensler noted, “In the Dodd-Frank Act, Congress mandated that the Commission enhance the transparency of the securities lending market. Such transparency gets to the heart of the SEC’s mission. It promotes competition. It promotes fair, orderly, and efficient markets.” The rule will become effective 60 days after the date the adopting release is published in the Federal Register. After that, FINRA must propose rules to implement Rule 10c-1a within four months of the effective date.

Click here to read an SEC press release on the changes to the securities lending market.
Click here to read a client alert from Sidley Austin on the new rule.