Notice2024-17684
Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule To Adopt the FINRA Rule 6500 Series (Securities Lending and Transparency Engine (SLATETM))
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
August 9, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 154 (Friday, August 9, 2024)</title>
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[Federal Register Volume 89, Number 154 (Friday, August 9, 2024)]
[Notices]
[Pages 65441-65451]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-17684]
[[Page 65441]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100655; File No. SR-FINRA-2024-007]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Order Instituting Proceedings To Determine Whether To
Approve or Disapprove a Proposed Rule To Adopt the FINRA Rule 6500
Series (Securities Lending and Transparency Engine (SLATETM))
August 5, 2024.
I. Introduction
On May 1, 2024, the Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission
(``Commission'' or ``SEC''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Exchange Act'' or ``SEA'') \1\ and
Rule 19b-4 thereunder,\2\ a proposed rule change to adopt the new FINRA
Rule 6500 Series (Securities Lending and Transparency Engine
(SLATE<SUP>TM</SUP>)) to (1) require reporting of securities loans; and
(2) provide for the public dissemination of loan information. The
proposed rule change was published for comment in the Federal Register
on May 7, 2024.\3\ The Commission received comments in response to the
proposal.\4\ On June 10, 2024, the Commission extended until August 5,
2024, the time period within which to approve the proposed rule change,
disapprove the proposed rule change, or institute proceedings to
determine whether to disapprove the proposed rule change.\5\ This order
institutes proceedings pursuant to Section 19(b)(2)(B) of the Exchange
Act \6\ to determine whether to approve or disapprove the proposed rule
change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 100046 (May 1,
2024), 89 FR 38203 (May 7, 2024) (``Notice''). All defined terms
herein have the same meaning as they do in the Notice.
\4\ Comments received on the proposed rule change are available
at: <a href="https://www.sec.gov/comments/sr-finra-2024-007/srfinra2024007.htm">https://www.sec.gov/comments/sr-finra-2024-007/srfinra2024007.htm</a>.
\5\ See Securities Exchange Act Release No. 100305 (June 10,
2024), 89 FR 50644 (June 14, 2024).
\6\ 15 U.S.C. 78s(b)(2)(B).
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II. Summary of the Proposed Rule Change
As described in more detail in the Notice, FINRA stated it is
proposing, consistent with Exchange Act Rule 10c-1a, to adopt the new
FINRA Rule 6500 Series (Securities Lending and Transparency Engine
(SLATE<SUP>TM</SUP>)) to establish reporting requirements for covered
securities loans and to provide for the dissemination of individual and
aggregate covered securities loan information and loan rate statistics.
These proposed rules would define key terms for the reporting of
covered securities loans and specify the reporting requirements with
respect to both initial covered securities loans and loan
modifications, including prescribing required modifiers and
indicators.\7\ FINRA stated that it intends to file separately a
proposed rule change to establish covered securities loan reporting
fees and securities loan data products and associated fees.\8\
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\7\ Notice, 89 FR 38206.
\8\ Notice, 89 FR 38206.
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According to FINRA, the proposed Rule 6500 Series is designed to
improve transparency and efficiency in the securities lending market,
consistent with Section 15(A)(b)(6) of the Exchange Act, Rule 10c-1a,
and Section 984 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act.\9\ FINRA stated that the proposed rule change would do
so by facilitating the collection of specified securities loan
information from Covered Persons and Reporting Agents, which include
non-FINRA members, and providing access to such information to market
participants, the public, and regulators.\10\
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\9\ Notice, 89 FR 38213.
\10\ Notice, 89 FR 38213.
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A. Reporting Initial Covered Securities Loans
Proposed Rule 6530(a) would govern the reporting requirements
applicable to Covered Persons for reporting Initial Covered Securities
Loans.\11\ Proposed Rule 6510(e) would define ``Initial Covered
Securities Loan'' as a new Covered Securities Loan not previously
reported to SLATE. The definitions of ``Covered Person'' and ``Covered
Securities Loan'' for the purposes of this proposed rule change would
be the same as set forth in Rule 10c-1a. Initial Covered Securities
Loans would be required to be reported within the time periods outlined
in proposed Rule 6530(a)(1) (When and How Initial Covered Securities
Loans Are Reported). Specifically, for Initial Covered Securities Loans
effected on a business day at or after 12:00:00 a.m. Eastern Time
(``ET'') through 7:45:00 p.m. ET, the required information must be
reported the same day before 8:00:00 p.m. ET.\12\ For Initial Covered
Securities Loans effected on a business day after 7:45:00 p.m. ET, the
required information must be reported no later than the next business
day (T+1) before 8:00:00 p.m. ET; \13\ and Initial Covered Securities
Loans effected on a Saturday, a Sunday, a federal or religious holiday
or other day on which SLATE is not open at any time during that day
(determined using Eastern Time) must be reported the next business day
(T+1) before 8:00:00 p.m. ET.\14\
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\11\ As described in more detail in the Notice, a Covered Person
may engage a Reporting Agent to comply with the reporting
obligations on its behalf.
\12\ See proposed Rule 6530(a)(1)(A).
\13\ See proposed Rule 6530(a)(1)(B).
\14\ See proposed Rule 6530(a)(1)(C).
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Proposed Rule 6530(a)(2) (Loan Information To Be Reported) would
specify the items of information that must be reported to FINRA.
Specifically, proposed Rule 6530(a)(2)(A) through (N) would require
that Initial Covered Securities Loan reports must contain the below
non-confidential data elements:
(1) The legal name of the security issuer and the LEI of the issuer
(if the issuer has a non-lapsed LEI);
(2) Security symbol, CUSIP, ISIN, or FIGI, if any;
(3) The date the Covered Securities Loan was effected;
(4) The time the Covered Securities Loan was effected;
(5) The expected settlement date of the Covered Securities Loan;
(6) The platform or venue where the Covered Securities Loan was
effected;
(7) The amount of the Reportable Securities loaned;
(8) The type of collateral used to secure the Covered Securities
Loan;
(9) For a Covered Securities Loan collateralized by cash, the
rebate rate;
(10) For a Covered Securities Loan not collateralized by cash, the
securities lending fee;
(11) Any other fees or charges;
(12) The percentage of collateral to value of Reportable Securities
loaned required to secure such Covered Securities Loan;
(13) For a Covered Securities Loan with a specified term, the
termination date of the Covered Securities Loan; \15\
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\15\ FINRA stated that this field would remain blank if
reporting a Covered Securities Loan without a specified term (i.e.,
an open-ended loan). However, upon the termination of an open-ended
loan, as is the case with a term loan, a Covered Person would be
required to submit a Loan Modification appending the terminated loan
indicator pursuant to proposed Rule 6530(c)(4).
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(14) Whether the borrower is a Broker or Dealer, a customer (if the
person lending securities is a Broker or Dealer), a Clearing Agency, a
Bank, a Custodian, or other person.
Proposed Rule 6530(a)(2)(O) through (U) would also require that
Initial Covered Securities Loan reports contain the below confidential
data elements:
(1) If known, the legal name of each party to the Covered
Securities Loan (other than the customer from whom a
[[Page 65442]]
Broker or Dealer borrows fully paid or excess margin securities
pursuant to SEA Rule 15c3-3(b)(3));
(2) If known, the CRD Number or IARD Number of each party to the
Covered Securities Loan, if applicable;
(3) If known, the MPID of each party to the Covered Securities
Loan;
(4) If known, the LEI of each party to the Covered Securities Loan;
(5) If known, whether each party to the Covered Securities Loan is
the lender, the borrower, or an intermediary between the lender and the
borrower;
(6) If the person lending securities is a Broker or Dealer and the
borrower is its customer, whether the security is loaned from the
Broker's or Dealer's securities inventory to the customer of such
Broker or Dealer; and
(7) If known, whether the Covered Securities Loan is being used to
close out a fail to deliver pursuant to Rule 204 of SEC Regulation SHO
or to close out a fail to deliver outside of Regulation SHO.
Additionally, proposed Rule 6530(a)(2)(V) through (Y) would require
a Covered Person to report:
(1) Whether the Covered Person is the lender, borrower or
intermediary;
(2) The unique internal identifier assigned to the Covered
Securities Loan by the Covered Person responsible for reporting the
loan to SLATE;
(3) If the Covered Securities Loan is an allocation of an omnibus
loan effected pursuant to an agency lending agreement, the unique
internal identifier for the associated omnibus loan assigned by the
Covered Person responsible for reporting the Covered Securities Loan to
SLATE;
(4) Such modifiers and indicators as required by either the Rule
6500 Series or the SLATE Participant specification.
FINRA stated that the modifiers and indicators--set forth in
proposed Rule 6530(c) (Modifiers and Indicators)--would apply to
specific scenarios where additional detail is appropriate to clarify
the information required to be reported pursuant to proposed Rule
6530(a)(2) and (b)(2). FINRA stated that it intends to use these
modifiers and indicators to provide regulators and the public with
important information regarding the reported securities loan.
Specifically, proposed Rule 6530(c)(1) (Exclusive Arrangement) would
require a Covered Person to append an indicator to identify a loan made
pursuant to an exclusive arrangement with the borrower or intermediary.
Proposed Rule 6530(c)(2) (Loan to Affiliate) would require a Covered
Person to append an indicator to identify a loan made to an Affiliate
of the lender or intermediary.
Proposed Rule 6530(c)(3) (Unsettled Loan) would require a Covered
Person to append an indicator to identify an Initial Covered Securities
Loan or modification to the amount of Reportable Securities loaned that
did not settle by the close of SLATE System Hours on the expected
settlement date reported to SLATE. Proposed Rule 6530(c)(4) (Terminated
Loan) would require a Covered Person to indicate when a Covered
Securities Loan has been terminated. The terminated loan indicator
would therefore be required to be appended on reports of: (1) an
Initial Covered Securities Loan that did not and will not settle; and
(2) Loan Modifications reporting the termination of a Covered
Securities Loan (whether an open-ended or a term loan).
Proposed Rule 6530(c)(5) (Rate or Fee Adjustment) would require a
Covered Person to report the appropriate modifier if a loan rebate rate
or lending fee accounts for: (1) a billing adjustment or correction to
amounts previously rebated or charged; or (2) the value of a
distribution or other economic benefit associated with the Reportable
Security, e.g., a corporate action. Similarly, proposed Rule 6530(c)(6)
(Basket Loan) would require a Covered Person to report the appropriate
modifier if a loan rebate rate or lending fee reflects a rate or fee
involving a basket of at least 10 unique Reportable Securities for a
single agreed rate or fee for the entire basket. In each of these
scenarios, the modifier would help to identify loans where the rate or
fee may not reflect the current market. FINRA stated that it plans to
use these modifiers for data validation (e.g., in instances where
FINRA's data validation logic identifies the reported rate as
potentially erroneous) in addition to enhancing the disseminated data
and its value to market participants.
B. Reporting Securities Loan Modifications
Proposed Rule 6530(b) would govern the reporting requirements
applicable to Covered Persons for reporting Loan Modifications.
Proposed Rule 6510(f) would define ``Loan Modification'' as a change to
any ``Data Element'' with respect to a Covered Securities Loan
(irrespective of whether such Covered Securities Loan was previously
reported to SLATE), where ``Data Element'' refers to the required non-
confidential data elements and modifiers reported pursuant to proposed
Rule 6530(a)(2). Proposed Rule 6530(b)(1) (When and How Loan
Modifications Are Reported) would require that Loan Modifications be
reported within the same timeframes applicable to the reporting of
Initial Covered Securities Loans. Specifically, for Loan Modifications
effected on a business day at or after 12:00:00 a.m. ET through 7:45:00
p.m. ET, the required information must be reported the same day before
8:00:00 p.m. ET. For Loan Modifications effected on a business day
after 7:45:00 p.m. ET, the required information must be reported no
later than the next business day (T+1) before 8:00:00 p.m. ET; and Loan
Modifications effected on a Saturday, a Sunday, a federal or religious
holiday or other day on which SLATE is not open at any time during that
day (determined using Eastern Time) must be reported the next business
day (T+1) before 8:00:00 p.m. ET.
Proposed Rule 6530(b)(2) (Loan Modifications--Information To Be
Reported) would specify the items of information that must be reported
to FINRA. Specifically, proposed Rule 6530(b)(2)(A) through (I) would
require that each Loan Modification report contain the information
below:
(1) The unique identifier assigned by FINRA to the Initial Covered
Securities Loan, or, if a unique identifier has not yet been assigned
by FINRA, the unique internal identifier assigned to the Covered
Securities Loan by the Covered Person responsible for reporting the
loan to SLATE;
(2) If the Covered Securities Loan is an allocation of an omnibus
loan effected pursuant to an agency lending agreement, the unique
internal identifier for the associated omnibus loan assigned by the
Covered Person responsible for reporting the Covered Securities Loan to
SLATE;
(3) The MPID of the Covered Person;
(4) The date of the Loan Modification;
(5) The time of the Loan Modification;
(6) The expected settlement date for modifications to the loan
amount (if the expected settlement date is a date other than the date
of the Loan Modification), or the effective date for all other Loan
Modifications (if the effective date is a date other than the date of
the Loan Modification); \16\
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\16\ FINRA stated that Covered Persons must report a decrease to
the loan amount resulting from a return of securities only once the
securities have been delivered because returns are not considered
``effected'' until the securities are actually returned. However,
Covered Persons must report all other Loan Modifications on the date
that the Loan Modification was agreed upon and, in such instances,
must report the effective date (pursuant to proposed Rule
6530(b)(2)(F)) unless the effective date is the same as the Loan
Modification date (reported pursuant to 6530(b)(2)(D)).
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(7) Whether the Covered Person is the lender, borrower or
intermediary;
(8) The modified Data Elements for a Loan Modification to a Covered
Securities Loan previously reported to
[[Page 65443]]
SLATE or all Data Elements for a Loan Modification to a Covered
Securities Loan that was not previously required to be reported to
SLATE; \17\
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\17\ As defined by proposed Rule 6510(d), ``Data Element''
includes any item of information that a Covered Person must report
under Exchange Act Rule 10c-1a(c) and proposed Rule 6530(a)(2)(A)
through (N) and such modifiers and indicators required by proposed
Rule 6530(a)(2)(Y). Accordingly, a modification to a Covered
Securities Loan that would require the addition or removal of a
modifier or indicator required to be reported pursuant to proposed
Rule 6530(a)(2)(Y) would require a Covered Person to report a Loan
Modification as set forth in proposed Rule 6530(b).
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(9) Such modifiers and indicators as required by either the Rule
6500 Series or the SLATE Participant specification.
Proposed Rule 6530.01 (Intraday Loan Modifications) addresses a
Covered Person's reporting obligations when multiple Loan Modifications
occur on a given day. Specifically, if a Covered Securities Loan
(whether or not previously reported to SLATE) is modified multiple
times throughout the day, a Covered Person must report each Loan
Modification that occurs on a given day as set forth in proposed Rule
6530(b). Proposed Rule 6530.02 (Changes to the Parties of a Covered
Securities Loan) provides that, with respect to a previously reported
Covered Securities Loan, following the addition or removal of a party
required to be identified pursuant to Rule 6530(a)(2)(O) a Covered
Person must: (1) report the termination of the previously reported
Covered Securities Loan as a Loan Modification pursuant to Rule 6530(b)
that reflects the date and time the party was added or removed and
select the terminated loan indicator; and (2) report an Initial Covered
Securities Loan pursuant to Rule 6530(a) that reflects the new parties
to the loan, if known (other than the customer from whom a Broker or
Dealer borrows fully paid or excess margin securities pursuant to SEA
Rule 15c3-3(b)(3)).
C. Compliance With Reporting Obligations
FINRA is proposing to adopt proposed Rule 6530(d) (Compliance with
Reporting Obligations) to implement provisions regarding Covered
Persons' ongoing reporting obligations and the use of third parties in
meeting Exchange Act Rule 10c-1a and FINRA 6500 Rule Series
obligations.\18\ Specifically, proposed Rule 6530(d)(1) provides that
Covered Persons (other than Covered Persons that engage a Reporting
Agent) have an ongoing obligation to report Initial Covered Securities
Loans and Loan Modifications to FINRA timely, accurately, and
completely. In addition, a Covered Person may employ an agent for the
purpose of submitting loan information to SLATE; however, unless the
Covered Person has retained a Reporting Agent as permitted under
Exchange Act Rule 10c-1a, the primary responsibility for the timely,
accurate, and complete reporting of loan information to SLATE remains
the non-delegable duty of the Covered Person with the reporting
obligation. Also, similar to requirements that exist with respect to
reporting obligations under other FINRA rules, proposed Rule 6530(d)(2)
provides that a member's pattern or practice of late reporting without
exceptional circumstances may be considered conduct inconsistent with
high standards of commercial honor and just and equitable principles of
trade, in violation of FINRA Rule 2010.\19\
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\18\ See, e.g., Rule 6380A(h); Rule 6622(h); Rule 6730(a)(6).
\19\ See, e.g., Rule 6380A(a)(4); Rule 6622(a)(4); Rule 6623;
Rule 6730(f).
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FINRA also is proposing to adopt a provision to specify that, even
where a member employs a Reporting Agent consistent with Rule 10c-
1a(a)(2), the member must nonetheless take reasonable steps to ensure
that the Reporting Agent is in fact complying with the securities
lending reporting requirements of Rule 10c-1a and proposed FINRA Rule
6530 on its behalf.\20\ Proposed Rule 6530(d)(3) would provide that a
member relying on a Reporting Agent has an obligation under FINRA Rule
3110 (Supervision) to take reasonable steps to ensure that the
Reporting Agent is complying with Rule 10c-1a and FINRA Rule 6530 on
its behalf. In executing this obligation, FINRA would expect, for
example, that the member review the Covered Securities Loan reporting
data made available to it by the Reporting Agent or through FINRA's
system to evaluate the accuracy and timeliness of the Covered
Securities Loan reports submitted on its behalf by the Reporting Agent.
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\20\ See proposed Rule 6530(d)(3).
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Proposed Rule 6530(d)(4) would provide that, if a Covered Person
makes a good faith determination that it has a reporting obligation
under Rule 10c-1a and this Rule 6500 Series, the Covered Person or
Reporting Agent, as applicable, must report the Covered Securities Loan
as provided in proposed Rule 6530. If the Reportable Security is not
entered into the SLATE system, proposed Rule 6530(d)(4) would also
require the Covered Person or Reporting Agent, as applicable, to
promptly notify and provide FINRA Operations, in the form and manner
required by FINRA, the information specified in Rule 6530(a)(2)(A) and
(B), along with such other information as FINRA deems necessary to
enter the Reportable Security for reporting through SLATE.
D. Participation in SLATE
Proposed Rule 6520 (Participation in SLATE) would establish the
requirements applicable to Covered Persons and Reporting Agents with
respect to participation in SLATE. Rule 6510(h) would define a ``SLATE
Participant'' as ``any person that reports securities loan information
to SLATE, directly or indirectly.'' ``SLATE Participant'' therefore
would include both persons who connect to SLATE directly to report
Covered Securities Loan information, including Reporting Agents, as
well as any Covered Person who has engaged a Reporting Agent or other
agent.
Paragraph (1) of proposed Rule 6520(a) (Mandatory Participation)
would provide that participation in SLATE is mandatory for purposes of
reporting Covered Securities Loans. Such mandatory participation would
obligate a Covered Person to submit Covered Securities Loan information
to SLATE in conformity with Rule 10c-1a and the FINRA Rule 6500 Series.
Proposed Rule 6520(a)(2) would provide that participation in SLATE
would be conditioned on the SLATE Participant's initial and continuing
compliance with specified requirements. Specifically, SLATE
Participants must: (1) obtain an MPID for reporting Covered Securities
Loans to SLATE; (2) execute and comply with the SLATE Participant
application agreement and all applicable rules and operating procedures
of FINRA; and the SEC; and (3) maintain the physical security of the
equipment located on the premises of the SLATE Participant to prevent
unauthorized entry of information into SLATE. Proposed Rule 6520(a)(3)
would provide that SLATE Participants would be obligated to inform
FINRA of non-compliance with, or changes to, any of these mandatory
participation requirements.
Proposed Rule 6520(b) (Reporting Agents) would set forth the
participation requirements specific to Reporting Agents. Proposed Rule
6520(b) would require a SLATE Participant acting as a Reporting Agent
to provide FINRA with a list naming each Covered Person on whose behalf
the Reporting Agent is providing information to SLATE and any changes
to the list of such persons by the end of the day on which any such
change occurs, in the form and manner specified by FINRA.
[[Page 65444]]
Finally, proposed Rule 6520(c) (SLATE Participant Obligations)
would provide that, upon execution and receipt by FINRA of the SLATE
Participant application agreement, a SLATE Participant may commence
input of Covered Securities Loan reports into SLATE. Proposed Rule
6520(c) would also require that a SLATE Participant must report Covered
Securities Loan information using its MPID, and would provide that a
SLATE Participant may access SLATE via a FINRA-approved facility during
SLATE System Hours.
E. Dissemination of Loan Information
Proposed Rule 6540 (Dissemination of Loan Information) would
provide for the public dissemination of securities loan data reported
to SLATE and information pertaining to the aggregate loan transaction
activity and distribution of loan rates for each Reportable Security.
The publicly available data would include: (1) next day (T+1) loan-
level data dissemination for Initial Covered Securities Loans and Loan
Modifications (except for the loan amount); (2) T+20 dissemination of
the loan amount for Initial Covered Securities Loans and Loan
Modifications; and (3) daily loan statistics (i.e., aggregate loan
activity and distribution of loan rates).
1. T+1 Loan-Level Data Dissemination
Under proposed Rule 6540(a) (Next Day Dissemination), for each
Initial Covered Securities Loan and Loan Modification reported to SLATE
on a given business day, no later than the morning of the next business
day, FINRA would make publicly available: (1) the unique identifier
assigned by FINRA to the Covered Securities Loan; (2) the security
identifier(s) specified in Rule 6530(a)(2)(A) or (B) that FINRA
determines is appropriate to disseminate; and (3) the requisite Data
Elements.
With respect to each Initial Covered Securities Loan reported to
SLATE, proposed Rule 6540(a)(3)(A) would specify that FINRA make
publicly available no later than the morning of the next business day
all other reported Data Elements, except the amount of Reportable
Securities loaned (reported pursuant to Rule 6530(a)(2)(G)) and any
modifier or indicator required by either the Rule 6500 Series or the
SLATE Participant specification that FINRA determines shall not be
publicly disseminated.
With respect to each Loan Modification to a Covered Securities Loan
reported to SLATE on the same or a prior business day, proposed Rule
6540(a)(3)(B) would specify that FINRA make publicly available no later
than the morning of the next business day the modified Data Elements
reported to SLATE, except the amount of Reportable Securities loaned
and any modifier or indicator required by either the Rule 6500 Series
or the SLATE Participant specification that FINRA determines shall not
be publicly disseminated.
In the case of a Loan Modification to a Covered Securities Loan
that was not previously required to be reported to SLATE (e.g., because
the Initial Covered Securities Loan occurred prior to the effectiveness
of the Rule 6500 Series), proposed Rule 6540(a)(3)(C) would specify
that FINRA make publicly available the unique loan identifier assigned
by FINRA to the loan, the security identifier, and all other reported
Data Elements, except the amount of Reportable Securities loaned and
any modifier or indicator required by either the Rule 6500 Series or
the SLATE Participant specification that FINRA determines shall not be
publicly disseminated.
2. T+20 Loan Amount Dissemination
Pursuant to Rule 6540(b) (Delayed Dissemination), for each Initial
Covered Securities Loan and Loan Modification reported to SLATE, 20
business days after the date on which the Initial Covered Securities
Loan was effected or the loan amount was modified, FINRA would make
publicly available: (1) the unique identifier assigned by FINRA to the
Covered Securities Loan, (2) the security identifier(s) specified in
Rule 6530(a)(2)(A) or (B) that FINRA determines is appropriate to
disseminate, and (3) the amount of Reportable Securities loaned
reported to SLATE. For Initial Covered Securities Loans, the 20-day
delay period would begin the day after the Covered Securities Loan is
effected (even in the case of late reports).
3. Daily Loan Statistics
In addition to T+1 loan-level data disseminated pursuant to
proposed Rule 6540(a), FINRA would disseminate statistics regarding
Covered Securities Loans reported to FINRA, including aggregate loan
activity and distribution of loan rebate rates and lending fees.
4. Aggregate Loan Transaction Activity
Pursuant to paragraph (1) of proposed Rule 6540(c) (Aggregate Loan
Transaction Activity), for each Reportable Security for which an
Initial Covered Securities Loan or Loan Modification is reported to
SLATE on a given business day, FINRA would disseminate, no later than
the morning of the next business day, aggregated loan activity in the
Reportable Security (along with the security identifier specified in
Rule 6530(a)(2)(A) or (B) that FINRA determines is appropriate to
identify the relevant Reportable Security). The aggregated data would
include, for each Reportable Security, under proposed Rule
6540(c)(1)(A), the aggregate volume of securities (both in total and
broken down by collateral type) subject to an Initial Covered
Securities Loan or modification to the amount of Reportable Securities
loaned reported on the prior business day, and, under proposed Rule
6540(c)(1)(B), the aggregate volume of securities (both in total and
broken down by collateral type) subject to a rebate rate or fee
modification reported on the prior business day.
Pursuant to Rule 6540(c)(1)(C), FINRA would also disseminate the
aggregate volume of securities subject to an Initial Covered Securities
Loan or modification to the amount of Reportable Securities loaned
subject to a term loan (i.e., a loan with a specified term) and subject
to an open loan (i.e., a loan without a specified term) reported on the
prior business day. Pursuant to Rule 6540(c)(1)(D), FINRA would also
disseminate the aggregate volume of securities subject to an Initial
Covered securities Loan or modification to the amount of Reportable
Securities loaned broken down by borrower type (as specified in
proposed Rule 6530(a)(2)(N) on the prior business day. Pursuant to
proposed Rule 6540(c)(1)(E), FINRA would disseminate the aggregate
number of Initial Covered Securities Loans and terminated Covered
Securities Loans (both in total and broken down by collateral type)
reported on the prior business day.
5. Loan Rate Distributions
Pursuant to paragraph (2) of proposed Rule 6540(c) (Loan Rate
Distribution Data), for each Reportable Security for which an Initial
Covered Securities Loan or Loan Modification is reported to SLATE on a
business day, FINRA would also disseminate, not later than the morning
of the next business day, the security identifier (specified in Rule
6530(a)(2)(A) or (B)) that FINRA determines is appropriate to identify
the relevant Reportable Security and information pertaining to the
distribution of loan rebate rates or lending fees, as applicable,
including: the highest rebate rate, lowest rebate rate, and volume
weighted average of the rebate rates reported to SLATE for Initial
Covered Securities Loans collateralized by cash and, separately,
[[Page 65445]]
for Loan Modifications collateralized by cash (where the Loan
Modification involved a change to the rebate rate). FINRA would also
disseminate the highest lending fee, lowest lending fee, and volume
weighted average of the lending fees reported for Initial Covered
Securities Loans not collateralized by cash and, separately, for Loan
Modifications not collateralized by cash (where the Loan Modification
involved a change to the lending fee).
Proposed Rule 6540(d) (Loan Transaction Information Not
Disseminated) would specify the information reported to FINRA that
would not be disseminated. As prescribed by Exchange Act Rule 10c-
1a(g)(4), proposed Rule 6540(d)(1) provides that the Confidential Data
Elements reported to FINRA would not be disseminated. In addition,
proposed Rule 6540(d)(2) would provide that FINRA may determine not to
publicly disseminate any modifier or indicator required by either the
Rule 6500 Series or the SLATE Participant specification. FINRA stated
that it may determine not to disseminate a modifier or indicator where
the use of such information is intended for regulatory purposes only or
its public disclosure may otherwise be inappropriate (e.g., where it
may result in information leakage).
As proposed in Rule 6540.02 (Means of Data Dissemination), FINRA
would make the data pursuant to proposed Rule 6540(a) through (c)
available on FINRA's website free of charge for personal, non-
commercial purposes only. For other uses, FINRA would publish or
distribute SLATE data for fees that have been filed with the SEC
pursuant to Rule 19b-4 under the Exchange Act.
F. Other Provisions
Proposed Rule 6550 (Emergency Authority) would provide that, as
market conditions may warrant, FINRA, in consultation with the
Commission, may suspend the reporting or dissemination of certain
Covered Securities Loans, or the reporting of certain Data Elements or
Confidential Data Elements or the dissemination of certain Data
Elements for such period of time as FINRA deems necessary.
III. Summary of Comments
The Commission received comments on the proposed rule change.\21\
Some commenters stated their ``strong general support'' for FINRA's
proposed rules.\22\ One commenter stated that SLATE will ``aid in the
protection of investors by ensuring they are appropriately informed
about the terms of securities loans and the parties involved'' and that
the proposed ``requirement to report comprehensive data elements will
contribute to a fair and orderly market.'' \23\ Another commenter
stated that FINRA's proposal ``is a great idea.'' \24\
---------------------------------------------------------------------------
\21\ See supra note 4.
\22\ See, e.g., Form Letter A. See also Letter from vetvec (May
14, 2024).
\23\ Letter from Jennifer (May 15, 2024).
\24\ Letter from Suzanne Shatto (May 22, 2024).
---------------------------------------------------------------------------
A. Data Elements, Modifiers, and Indicators
Some commenters stated that FINRA's proposed rules would impose on
market participants reporting requirements that go beyond the
Commission's requirements under Rule 10c-1a,\25\ which would result in
the disclosure of highly sensitive and complex information and
contribute to significant increased costs and burdens for
implementation and compliance.\26\ Some commenters stated that the
additional data and information requirements specified in the proposed
Rule 6500 Series that are not specifically mentioned in Rule 10c-1a
should be removed.\27\
---------------------------------------------------------------------------
\25\ See, e.g., Letter from Robert Toomey, Managing Director and
Associate General Counsel, and Joseph Corcoran, Managing Director
and Associate General Counsel, Securities Industry and Financial
Markets Association, to Vanessa Countryman, Secretary, SEC (May 28,
2024) (``SIFMA Letter''), at 3; Letter from Sarah A. Bessin, Deputy
General Counsel, Investment Company Institute, to Vanessa
Countryman, Secretary, SEC (May 24, 2024) (``ICI Letter 1''), at 2;
Letter from Paul Cellupica, General Counsel and Kimberly Thomasson
Assistant General Counsel, Investment Company Institute, to Vanessa
A. Countryman, Secretary, SEC (July 30, 2024) (``ICI Letter 2''), at
2; Letter from Brian P. Lamb, CEO, EquiLend Holdings LLC, to Vanessa
Countryman, Secretary, SEC (May 28, 2024) (``EquiLend Letter''), at
6-7; Letter from Fran Garrett, Head of Business, and Mark Whipple,
Chairman of the Board of Directors, International Securities Lending
Association Americas, to Vanessa Countryman, Secretary, SEC (July
16, 2024) (``ISLA Americas Letter''), at 4; Letter from Tony
Holland, Director of Market Practice, International Securities
Lending Assoc., to Vanessa Countryman, Sec'y, SEC (May 28, 2024)
(``ISLA Letter 1''), at 9; Letter from Jennifer W. Han, Executive
Vice President, Chief Counsel and Head of Global Regulatory Affairs,
MFA, to Vanessa A. Countryman, Secretary, SEC (July 31, 2024) (``MFA
Letter''), at 2; Letter from William C. Thum, Managing Director and
Associate General Counsel, Securities Industry and Financial Markets
Association Asset Management Group, to Vanessa A. Countryman,
Secretary, SEC (July 31, 2024) (``SIFMA AMG Letter 2''), at 2.
\26\ See, e.g., Letter from Lindsey Weber Keljo, Esq., Head, The
Asset Management Group, and William C. Thum, Managing Director and
Associate General Counsel, Securities Industry and Financial Markets
Association Asset Management Group, to Vanessa Countryman,
Secretary, SEC (May 28, 2024) (``SIFMA AMG Letter 1''), at 2; SIFMA
AMG Letter 2, at 2, 4-6; SIFMA Letter, at 4; ISLA Letter 1, at 2;
ISLA Americas Letter, at 4; ICI Letter 2, at 3-4; MFA Letter, at 2.
\27\ See, e.g., EquiLend Letter, at 1, 7; SIFMA Letter, at 4;
SIFMA AMG Letter 2, at 2; ICI Letter 2, at 2-3; MFA Letter, at 7.
---------------------------------------------------------------------------
One commenter stated that some of these additional fields and
indicators ``may not currently be captured by market participants at
the trade level'' and ``could not have been contemplated in the cost
benefit analysis undertaken by the SEC in their analysis of the impact
of Rule 10c-1a.'' \28\ This commenter stated that the addition of these
data elements ``would constitute an impermissible end-run around the
Commission rulemaking process . . . without being subject to the public
comments and economic analyses required to be performed under such
rulemaking process.'' \29\ Another commenter also stated that ``the
significant increase in reportable fields and complexity of the
Proposed Rule Change warrant a proper cost-benefit analysis as required
under Federal agency rulemaking.'' \30\ This commenter also stated that
the increased number of reportable data fields, in turn, increases the
likelihood that a covered person would need to rely on a reporting
agent to fulfill its regulatory requirements.\31\ Another commenter
stated that ``these additional requirements may serve to increase the
cost and complexity of reporting without sufficient regard for their
benefits.'' \32\
---------------------------------------------------------------------------
\28\ EquiLend Letter, at 6.
\29\ SIFMA Letter, at 4.
\30\ ISLA Americas Letter, at 4-5.
\31\ See ISLA Americas Letter, at 8-9.
\32\ EquiLend Letter, at 1. See also ICI Letter 1, at 2; ICI
Letter 2, at 3.
---------------------------------------------------------------------------
One commenter stated that Rule 10c-1a requires the reporting of 18
data fields, while FINRA's proposed rules would require the reporting
of 30 data fields.\33\ Some commenters identified the data elements
that would be required to be reported under FINRA's proposed rules that
they stated were not included under Rule 10c-1a: (1) the expected
settlement date of the covered securities loan; (2) the dollar cost of
any fees or charges (in addition to the rebate rate or securities
lending fee specifically mentioned in Rule 10c1-a); (3) whether the
covered person is the lender, borrower, or intermediary; (4) the unique
internal identifier assigned to the covered securities loan by the
covered person responsible for reporting the loan to SLATE; (5) if the
covered securities loan is an allocation of an omnibus loan effected
pursuant to an agency lending agreement, the unique internal identifier
for the associated omnibus loan assigned by the covered
[[Page 65446]]
person responsible for reporting the covered securities loan to SLATE;
(6) the expected settlement date for modifications to the loan amount
(if the expected settlement date is a date other than the date of the
loan modification) or the effective date for all other loan
modifications (if effective date is a date other than the date of the
loan modification); and (7) such modifiers and indicators as are
required by FINRA under the Rule 6500 Series or the SLATE Participant
specification.\34\
---------------------------------------------------------------------------
\33\ See ISLA Letter 1, at 2-3.
\34\ See SIFMA Letter, at 3-4. See also EquiLend Letter, at 6-7;
ISLA Letter 1, at 2.
---------------------------------------------------------------------------
Commenters also identified proposed modifiers and indicators as
data elements that they stated were not addressed by Rule 10c-1a: (1)
loans associated with exclusive arrangements; (2) loans with
affiliates; (3) unsettled loans; (4) terminated loans; (5) loans with
rate or fee adjustments; and (6) basket loans.\35\ One commenter stated
that the affiliate indicator required by proposed Rule 6510(a) would
``not add any additional value to the reporting and could potentially
expose confidential information.'' \36\ The commenter also stated that
``the intermediary negotiating the loan may not be aware of an
affiliate relationship between the borrower and underlying lender,''
requiring additional resources to monitor whether an affiliate
relationship was established.\37\ Another commenter stated that the
affiliate loan flag should be removed from the proposed required
reporting and that inclusion of this requirement ``will require
beneficial owners to expend additional resources to monitor and report
to their lending agents the existence of an affiliate relationship''
and ``at least warrants a cost-benefit analysis.'' The commenter also
stated that ``use of the affiliate indicator can also expose
confidential data elements.'' \38\
---------------------------------------------------------------------------
\35\ See, e.g., SIFMA Letter, at 3-4; EquiLend Letter, at 6-7.
\36\ ISLA Letter 1, at 8.
\37\ ISLA Letter 1, at 8.
\38\ ISLA Americas Letter, at 14.
---------------------------------------------------------------------------
One commenter stated that the reporting requirements for security
issuer LEIs should be removed or made optional, stating that ``security
issuer LEIs are not easily accessible and are not always available.''
\39\ Another commenter stated that, because ``a large percentage of
third-country issuers have not obtained LEIs . . . requirements should
be amended to make the provision of the LEI's for third-country issuers
optional.'' \40\
---------------------------------------------------------------------------
\39\ ISLA Letter 1, at 7.
\40\ ISLA Americas Letter, at 15.
---------------------------------------------------------------------------
One commenter requested clarification of whether the reporting of
the ``expected settlement date for modifications to the loan amount''
required by proposed Rule 6530(f) means ``contractual settlement'' or
``actual settlement.'' \41\ This commenter also requested clarification
of the requirement that Covered Persons ``separately report the dollar
costs of any other fees or charges'' to ``make clear how to populate
this field clearly and in what format.'' \42\
---------------------------------------------------------------------------
\41\ ISLA Letter 1, at 8.
\42\ ISLA Letter 1, at 5.
---------------------------------------------------------------------------
One commenter requested confirmation whether, if FINRA does not
generate a ``UTI'' for a covered securities loan, the covered person
responsible for reporting it would be required to generate a UTI.\43\
The commenter also stated that ``[u]nder SFTR firms agree the UTI
before you trade and agree who is going to generate and distribute the
UTI beforehand.'' \44\ The commenter recommended that ``FINRA should
follow the SFTR waterfall protocol, where possible for generation and
distribution of UTI's, as many firms will already be familiar with this
method for the purposes of reporting their EU securities loans.'' \45\
---------------------------------------------------------------------------
\43\ ISLA Letter 1, at 9. The proposed FINRA rules do not use
the acronym ``UTI,'' which the commenter did not define but may
refer to the term ``unique transaction identifier'' and, under the
proposed FINRA rules, ``the unique identifier assigned by FINRA to
the loan.''
\44\ ISLA Letter 1, at 9.
\45\ ISLA Letter 1, at 9.
---------------------------------------------------------------------------
B. Timing for Reporting
One commenter requested a ``clear and concise definition of the
term `effected.' '' \46\ The commenter stated that it ``would like to
understand if (A) `effected' is equivalent to an `event date' file
i.e., the event date that the trade took place (B) is the `effected'
date more similar to an execution timestamp that would carry both date
and time or (C) is the `effected['] date when a trade is verbally
agreed upon.'' \47\
---------------------------------------------------------------------------
\46\ ISLA Letter 1, at 4.
\47\ ISLA Letter 1, at 3-4.
---------------------------------------------------------------------------
Another commenter recommended that the ``interpretation for time
`effected' and `agrees to a covered securities loan' is prior to loan
settlement but only once all contractual terms, including the identity
of the lender, are agreed.'' \48\ The commenter further stated that
``[u]ntil all contractual terms of a securities loan (including the
final details related to the identity of the lender) are agreed between
the lending agent as agent for the lender and the borrower, the trading
desk will view the borrower's offer discussions as a `potential loan'--
not an actual loan'' and will book the securities loan into its system
when all contractual terms are agreed.\49\ This commenter stated that
``[o]nly when the securities loan is booked into the lending agent's
trading system, will the lending agent view it to be `effected'--an
actual securities loan pending settlement.'' \50\ Regarding
allocations, this commenter stated that ``[t]his analysis applies
equally to securities loans that have been settled and need to be
reallocated'' and ``until the reallocation is finalized, there is no
utility to requiring a covered person to report potential loan
modifications.'' \51\
---------------------------------------------------------------------------
\48\ ISLA Americas Letter, at 6.
\49\ ISLA Americas Letter, at 6.
\50\ ISLA Americas Letter, at 6.
\51\ ISLA Americas Letter, at 6.
---------------------------------------------------------------------------
Another commenter stated that the proposed rule would require that
``all Partials and Full Returns to be checked for settlement first,
prior to being reported'' and that ``[i]n contrast the EU [Securities
Financing Transactions Regulation (``SFTR'')] only requests the final
close out of a trade to be reported, i.e., under SFTR, partials only
have to be reported on a contractual settlement basis as opposed to an
actual settlement basis.'' \52\ The same commenter, ``encourage[d]
alignment with the EU's SFTR where possible.'' \53\ This commenter
stated that ``market participants would have to consider how to monitor
settlement separately to what they are reporting for regulatory
purposes under the proposed rule'' and that ``this will create a
challenge for systems from a books & records perspective.'' \54\ The
commenter also stated that ``[i]ncluding partials that follow the
settlement driven reporting requirement i.e., the need to check for
successful settlement prior to regulatory reporting, is going to create
several challenges for market participants.'' \55\
---------------------------------------------------------------------------
\52\ ISLA Letter 1, at 4.
\53\ ISLA Letter 1, at 4.
\54\ ISLA Letter 1, at 5.
\55\ ISLA Letter 1, at 5.
---------------------------------------------------------------------------
One commenter stated ``that including settlement status as a
contextual indicator will greatly increase reporting complexity and
increase the odds that reported data will be unclear or confusing.''
\56\ This commenter stated that it is ``generally accepted market
practice to cancel loans that remain unsettled, and since the
cancelation of a previously reported trade is already contemplated
elsewhere within the reporting rules, [the commenter] believe[s] this
additional settled/unsettled status indicator is unnecessary and can be
removed.'' \57\
---------------------------------------------------------------------------
\56\ ISLA Americas Letter, at 11.
\57\ ISLA Americas Letter, at 11.
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[[Page 65447]]
C. Reporting of Intraday Loan Modifications
Several commenters stated that FINRA's proposed rules include a
requirement that all intraday changes be reported as loan
modifications, which commenters stated was not adopted as part of Rule
10c-1a because the Commission removed the proposed 15-minute intraday
reporting requirement and replaced it with an end-of-day reporting
requirement.\58\ One commenter stated that it ``understood the
Commission to be saying that a securities loan, and any subsequent
modification to such loan, is not required to be reported until the end
of the day when the terms have been finally agreed to by the parties.''
\59\ This commenter stated that FINRA's proposed rule ``is inconsistent
with the Commission's intent to eliminate the submission of
`incomplete' data that lacks `any utility' and directly contradicts
Rule 10c-1a as adopted'' \60\ and that the ``inclusion of intraday
activity as required reporting would be misleading to the public and
inconsistent with the intent of the Commissioners who voted to adopt
the final rule.'' \61\
---------------------------------------------------------------------------
\58\ See ISLA Americas Letter, at 6-7; ISLA Letter 1, at 4;
SIFMA AMG Letter 1, at 2; SIFMA AMG Letter 2, at 2; SIFMA Letter, at
5; ICI Letter 1, at 2; ICI Letter 2, at 5-6.
\59\ ISLA Americas Letter, at 7.
\60\ ISLA Americas Letter, at 8.
\61\ ISLA Americas Letter, at 8.
---------------------------------------------------------------------------
Another commenter stated that FINRA's proposal ``seeks to require
covered persons to report information on all intraday adjustments to a
new or existing covered securities loan--which would effectively
reinstate the reporting of interim intraday terms . . . that the
Commission removed from the final SEC Rule 10c-1a as a direct result of
notice and comment rulemaking.'' \62\ This commenter ``urge[ed] that
the reporting of intraday adjustments to initial covered securities
loans or loan modifications be removed'' from the proposal and that
``FINRA instead implement the single, consolidated, end-of-day
reporting requirement contemplated by SEC Rule 10c-1a.'' \63\
---------------------------------------------------------------------------
\62\ SIFMA Letter, at 5-6. See also ICI Letter 1, at 2; SIFMA
AMG Letter 1, at 2.
\63\ SIFMA Letter, at 6.
---------------------------------------------------------------------------
One commenter stated that ``[i]t is not clear that FINRA has
adequately analyzed the costs and benefits of [this]'' deviation from
Rule 10c-1a.\64\ Another commenter also stated that the intraday
reporting requirements are ``costly and burdensome'' \65\ and that
``the costs and complexity of reporting these intraday loan
modifications greatly undermines any purported utility.'' \66\ The same
commenter stated that to differentiate from ``other securities lending
industry participants, such as prime brokers, engaged in intraday
activities that could be reported as lifecycle events, . . . FINRA and
the Commission . . . consider the inclusion of a flag that identifies a
party as a lending agent, in which case, such intraday lifecycle events
would not need to be reported.'' \67\
---------------------------------------------------------------------------
\64\ ICI Letter 1, at 2.
\65\ ISLA Americas Letter, at 8.
\66\ ISLA Americas Letter, at 8.
\67\ ISLA Americas Letter, at 8.
---------------------------------------------------------------------------
One commenter requested clarification of whether an initial loan
that is modified on the same day that it is effected could have both
the initial loan and modification reported together at 6:00 p.m.\68\
The commenter also requested clarification of whether the termination
of a loan due to a change to the parties to the loan and corresponding
initiation of a new loan due to a change in the parties would require
intraday reporting.\69\ The same commenter also asked for clarification
of whether there is a specific sequence in which firms would need to
report initial loans and modifications and suggested ``sending all
lifecycle events in chronological order for ease.'' \70\
---------------------------------------------------------------------------
\68\ ISLA Letter 1, at 9.
\69\ ISLA Letter 1, at 9.
\70\ ISLA Letter 1, at 9-10.
---------------------------------------------------------------------------
D. Disseminated Information
Two commenters addressed the granularity of the aggregated
information that FINRA would disseminate pursuant to the proposed rule.
Both commenters stated that the Commission had afforded FINRA deference
to determine the aggregate information that should be published
publicly.\71\ However, one of the commenters stated that such
``deference is limited to the manner in which aggregate data at the
level of the entire dataset of reported coved securities loans is
reported, and does not permit FINRA to break down the dataset into
smaller published subsets, or `slices,' based on specific criteria''
and that ``the granularity of the smaller subsets of data that the
Proposed Rule Change would intend to make publicly available (e.g.,
data broken down by borrower type) raises significant concerns that
sensitive, proprietary trading strategy information may be disclosed.''
\72\ Both commenters addressed the publication of more granular
aggregated data potentially allowing market participants to
``extrapolate'' or ``back into'' individual loan amounts on a T+1
basis.\73\ Further, one of the commenters stated that the proposed
breakdown for aggregate transaction activity and distribution of loan
rates ``should have been included in the SEC Proposing Release and
subjected to a cost-benefit analysis and formal SEC notice and comment
period.'' \74\ The commenter recommended ``that FINRA reevaluate its
proposed structure and instead propose a revised, less granular
structure.'' \75\
---------------------------------------------------------------------------
\71\ SIFMA Letter, at 7; ISLA Americas Letter, at 16.
\72\ SIFMA Letter, at 7.
\73\ SIFMA Letter, at 7; ISLA Americas Letter, at 16.
\74\ SIFMA Letter, at 7.
\75\ SIFMA Letter, at 7.
---------------------------------------------------------------------------
Two commenters stated that the proposed rule's de minimis threshold
\76\ is set too low.\77\ One of the commenters stated that the
application of the threshold ``should be mandatory and not an optional
exclusion for confidentiality reasons.'' \78\ The other commenter
requested clarification of whether ``FINRA `will omit' or `may omit' de
minimis loan details.'' \79\
---------------------------------------------------------------------------
\76\ Proposed Rule 6540 Supplementary Material .01 (De Minimis
Loan Transaction Activity) would provide that FINRA may omit from
the aggregate loan activity volume information for Reportable
Securities for which there were three or fewer types of Initial
Covered Securities Loan and Loan Modification events reported to
SLATE in total on the prior business day. See Notice, 89 FR 38212
n.74.
\77\ ISLA Letter 1, at 10; ISLA Americas Letter, at 16.
\78\ ISLA Letter 1, at 10.
\79\ ISLA Americas Letter, at 16.
---------------------------------------------------------------------------
E. Data Confidentiality, Security, and Integrity
One commenter stated that ``it is unclear what the fee-based
service and data would look like'' and that a ``more customized or
enhanced data set also raises confidentiality concerns.'' \80\ One
commenter stated there is ``increased complexity that FINRA has
introduced with its Proposed Rule Change by significantly increasing
the number of reportable data fields, requiring the reporting of all
intraday activity, and imposing a data validation process has created
commercial opportunities for data service providers at the expense of
market participants, and ultimately end investors.'' \81\
---------------------------------------------------------------------------
\80\ ISLA Letter 1, at 11.
\81\ ISLA Americas Letter, at 9.
---------------------------------------------------------------------------
This commenter also stated that increased reliance on reporting
agents raises data security issues and that ``the expansion of the
number of reportable fields from fifteen to over forty'' could require
covered persons ``to share with a third party very sensitive
transaction level details, including the identity of each party to the
transaction.'' \82\ The
[[Page 65448]]
commenter also stated that ``[s]hould this data become exposed by a
data security incident, we have significant concerns that lenders would
choose to restrict lending, which could negatively impact lendable
supply and market liquidity.'' \83\
---------------------------------------------------------------------------
\82\ ISLA Americas Letter, at 9.
\83\ ISLA Americas Letter, at 9.
---------------------------------------------------------------------------
Another commenter requested clarification of the use of fee and
rebate adjustment modifiers for data validation, and whether ``FINRA
will be performing validation testing to a defined tolerance level and
a rejection/correction process.'' \84\ The commenter stated that if
FINRA will perform such validations ``there is the potential for a
large number of rejections that could result in a substantial amount of
manual intervention.'' \85\
---------------------------------------------------------------------------
\84\ ISLA Letter 1, at 7.
\85\ ISLA Letter 1, at 7.
---------------------------------------------------------------------------
One commenter stated that ``FINRA's proposed rules introduce the
concept of a Service Bureau that [it] understand[s] can provide the
same service as a Reporting Agent without the oversight or regulatory
responsibility of a Reporting Agent.'' \86\ The commenter stated that
``the permissible activities of so-called `Service Bureaus' demands
further clarification and an express set of qualification criteria that
distinguishes such permissible activities from those that are inherent
in the formal `reporting agent'/Covered Person agency relationship'' to
avoid providing ``a back door through which a `Service Bureau' can
escape SEC and FINRA oversight and liability as a `reporting agent.' ''
\87\
---------------------------------------------------------------------------
\86\ EquiLend Letter, at 1.
\87\ EquiLend Letter, at 6.
---------------------------------------------------------------------------
F. Burdens, Costs, and RNSA Fees
Two commenters addressed Rule 6530(d)(4), which requires that if a
``Reportable Security is not entered into the SLATE system, the Covered
Person or Reporting Agent, as applicable, must promptly notify and
provide FINRA Operations, in the form and manner required by FINRA.''
\88\ One commenter stated that ``this is a highly manual process and
could lead to a time-lag when setting up new static data that does not
already exist within the SLATE system.'' \89\ The commenter stated that
``the current process as outlined would be highly inefficient and open
to manual error.'' \90\ The commenter also stated that it would ``like
to understand, what agreements are in place if a vendor does not report
and what liability here is placed on the covered person.'' \91\
---------------------------------------------------------------------------
\88\ ISLA Letter, at 3; ISLA Americas Letter, at 15.
\89\ ISLA Letter 1, at 3.
\90\ ISLA Letter 1, at 3.
\91\ ISLA Letter 1, at 13.
---------------------------------------------------------------------------
Another commenter stated that ``it is not an appropriate delegation
of duties to require a covered person . . . to notify FINRA of
reportable securities not included in FINRA's SLATE system'' and that
it ``would be an inefficient and burdensome manner in which to update
FINRA's record of covered securities.'' \92\ The commenter recommended
that the notification requirement either be ``revised or removed.''
\93\ The commenter stated that ``FINRA's Proposed Rule deviates from
the final rule in a manner that could impact the very point of engaging
a reporting agent'' because it ``shift[s] reporting compliance (outside
of a written agreement and timely access to data) back to the covered
person creating a reconciliation loop that will be time consuming,
costly and operationally intensive.'' \94\
---------------------------------------------------------------------------
\92\ ISLA Americas Letter, at 15.
\93\ ISLA Americas Letter, at 15.
\94\ ISLA Americas Letter, at 10.
---------------------------------------------------------------------------
Another commenter stated that it ``remain[s] concerned about the
disproportionate allocation of compliance costs [to lenders],'' and
urged FINRA to exempt lenders from any fees associated with accessing
SLATE data for commercial purposes to ``ensure that those who bear the
primary costs of the SLATE system have equitable access to industry-
wide data.'' \95\ The commenter also requested that any data trust
organized by securities lenders also be exempt from fees for the
commercial use of SLATE data.\96\
---------------------------------------------------------------------------
\95\ See Letter from David Schwartz, Executive Director, Center
for the Study of Financial Market Evolution, to Vanessa Countryman,
Sec'y, SEC (May 28, 2024) (``CSFME Letter''), at 2-3.
\96\ CSFME Letter, at 4.
---------------------------------------------------------------------------
One commenter stated that ``FINRA has yet to provide any clarity on
what the fees will be or how they will be allocated.'' \97\ The
commenter also stated that the ``RNSA fees should be borne by market
participants more broadly and not just Covered Persons submitting data
(primarily lending agents and direct lenders).'' \98\ Another commenter
requested clarification regarding ``contemplated fees for commercial
use of data and the differences between the `fee' data and the `free'
data.'' \99\ Another commenter stated that ``the fees and fee structure
associated with registering and reporting securities lending
information to FINRA have yet to be defined'' and ``the fees associated
with the disseminated outbound data to commercial users been
divulged,'' requesting that ``the associated comment period to allow
for changes, should not be concluded until all the pieces required to
understand the complexity of this regulation are revealed and
understood.'' \100\ Another commenter stated that ``[c]onsidering
proposed RNSA fees and costs have not yet been published, any cost-
benefit analysis is impossible.'' \101\ This commenter recommended
``that any final rule promulgated by FINRA be conditional upon
publication of proposed costs and public comment.'' \102\
---------------------------------------------------------------------------
\97\ ISLA Letter 1, at 12.
\98\ ISLA Letter 1, at 12, 14.
\99\ SIFMA Letter, at 8.
\100\ EquiLend Letter, at 7.
\101\ ISLA Americas Letter, at 5.
\102\ ISLA Americas Letter, at 11.
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G. Foreign Securities and Jurisdictional Issues
One commenter requested clarification of the reporting requirements
for foreign securities traded within and outside the U.S. Regarding
foreign securities traded within the U.S., the commenter asked whether
foreign securities that have `` `F-share' tickers'' are
reportable.\103\ The commenter stated its understanding that, ``[a]n
`F' share is created in the US when a broker-dealer files a Form 211
with FINRA, to create a US ticker symbol in order to report trades in
the US in a foreign company's shares.'' \104\ The commenter also stated
its understanding that ``dual listed securities are in scope for
reporting in SLATE (as they are required to be reported under CAT) and
that foreign securities that are traded OTC in the US may also be
reportable in SLATE.'' \105\ Regarding foreign securities traded
outside the U.S., the commenter asked, ``when a security has multiple
Sedol's/tickers, where only one of which is CAT reportable, and the
securities lending trade references one of the other Sedol/tickers
(i.e., the foreign ticker traded on a foreign exchange, and thus not
the `F' shares ticker[)], would the securities lending trade be
reportable under 10c-1a in the US?'' \106\ The commenter requested
confirmation that such a transaction would not be reportable under Rule
10c-1a.\107\ This commenter asked, ``from a cybersecurity perspective
what processes, policies or procedures . . . FINRA members have in
place and [whether] this requirement [would] appl[y] to both domestic
and non-US
[[Page 65449]]
trading parties.'' \108\ This commenter requested clarity on FINRA's
proposed enforcement policy on non-FINRA members, specifically as it
related to ``being compliant for reporting to the SLATE system'' and
``violations or failures to pay when due and SLATE reporting fees.''
\109\
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\103\ Letter from Tony Holland, Director of Market Practice,
International Securities Lending Assoc., to Vanessa Countryman,
Sec'y, SEC (July 16, 2024) (``ISLA Letter 2''), at 2-3.
\104\ ISLA Letter 2, at 3.
\105\ ISLA Letter 2, at 4.
\106\ ISLA Letter 2, at 4. The acronym ``SEDOL'' stands for
``Stock Exchange Daily Official List,'' which is a list of security
identifiers used in the United Kingdom and Ireland for clearing
purposes.
\107\ ISLA Letter 2, at 5.
\108\ ISLA Letter 1, at 13.
\109\ ISLA Letter 1, at 14.
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One commenter stated that there ``has been no clarity or guidance
provided in the FINRA Rule regarding extraterritoriality or requirement
for reporting for non-US market participants engaging in securities
lending of US securities.'' \110\ The commenter requested that ``FINRA
confirm the extraterritorial scope requirements'' of the proposed rules
and ``that FINRA confirm enforcement rules for non-US firms for
incorrect reporting.'' \111\ Another commenter requested additional
guidance on the jurisdictional scope of the rules, including the
applicability to foreign entities and foreign securities.\112\
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\110\ ISLA Letter 1, at 2.
\111\ ISLA Letter 1, at 2.
\112\ SIFMA Letter, at 8.
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H. Emergency Authority
Many of these commenters addressed the suspension of reporting or
dissemination of Covered Securities Loans under proposed Rule 6550
(Emergency Authority). Commenters stated that the proposed suspension
of the reporting or dissemination of certain Covered Securities Loans
or Data Elements for periods deemed necessary by FINRA would undermine
the transparency that the proposed FINRA Rule 6500 Series aims to
promote.\113\ These commenters stated that the proposed suspension
``would inadvertently create an information asymmetry, thus
disadvantaging end borrowers and beneficial owners who rely on this
data for making prudent investment decisions'' and ``strongly
advocate[d] for stringent guidelines governing the suspension of
reporting requirements to avoid undermining these goals.'' \114\
Another commenter ``strongly advocate[d] for . . . the publication of
the reasons and timeframe for suspension to avoid undermining [the
proposed rule's] goals.'' \115\
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\113\ See Form Letter A.
\114\ See Form Letter A.
\115\ Letter from Jennifer (May 15, 2024).
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I. SLATE Participant Reporting Specifications
One commenter provided recommendations for specific proposed
reporting requirements in FINRA's proposed rules and the associated
SLATE Participant Reporting Specs, including:
<bullet> Lending Fees and Loan Rebate Rates: The commenter stated
that Covered Persons should be permitted ``to report lending fees and
loan rebate rates as actually negotiated, rather than requiring them to
report a lending fee for all non-cash collateralized loans and a loan
rebate rate for all loans collateralized by cash regardless of the
facts of the negotiation.'' \116\
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\116\ ISLA Americas Letter, at 12.
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<bullet> Benchmark Pricing: The commenter stated that ``[t]he
Proposed Rule Change . . . requires the lending fee or the loan rebate
rate to be reported as a percentage and does not afford covered persons
the option to report pricing data as a spread to a reference rate.''
This commenter requests, ``flexibility in the reporting format of fees
to allow covered persons to report loan fees as: (1) a lending fee, (2)
a loan rebate rate, or (3) a spread to a benchmark rate along with the
associated benchmark rate.'' \117\
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\117\ ISLA Americas Letter, at 12.
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<bullet> Other Fees or Charges: The commenter requested the removal
of ``the requirements related to reporting of `other fees or
charges,''' because, ``it is not clear how these ``fees or charges''
relate to the fees negotiated in respect of the particular loan'' and
``[Rule 10c-1a] does not contemplate the inclusion of additional fees
or charges.'' \118\
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\118\ ISLA Americas Letter, at 12.
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<bullet> Rate Fee Modifier: The commenter stated that the
``addition of a Rate Fee Modifier expands the scope of reportable
information under Rule 10c-1a and exceeds FINRA's authority to
`implement rules regarding the format and manner of its collection of
information described' in Rule 10c-1a(c) through (e),'' and ``such
codes or modifiers should be removed.'' \119\
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\119\ ISLA Americas Letter, at 13.
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<bullet> Rate Fee Override Flag: The commenter expressed concern
``with a potential warning or rejection system regarding lending fees
and/or loan rebate rates based on a tolerance level developed by FINRA
from previously collected lending data that may or may not reflect the
current market conditions.'' \120\ The commenter stated that ``this
requirement is not included in the final rule'' and ``urge[d] the
Commission to recommend deletion of the requirement to report data
validation flags.'' \121\
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\120\ ISLA Americas Letter, at 13.
\121\ ISLA Americas Letter, at 13-14.
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<bullet> Event Types: The commenter recommended that the six event
types listed in the SLATE Participant Reporting Specs should be
consolidated. The commenter specifically recommended consolidating the
Modify and Correction Loan Events and the Cancel and Delete Loan
Events. The commenter stated that such consolidations could make the
reporting requirements less costly and onerous for market
participants.\122\
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\122\ ISLA Americas Letter, at 17.
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This commenter recommended that ``FINRA develop the SLATE system so
that it can accept files transmitted outside of [the SLATE system]
hours for processing the following business day.'' \123\ The commenter
stated that its recommended timeframe for the SLATE system to accept
files could be helpful to market participants with non-U.S. staff.\124\
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\123\ ISLA Americas Letter, at 17.
\124\ ISLA Americas Letter, at 17.
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J. Comment Period Extension
Commenters stated that the length of the comment period for FINRA's
proposed rule change was too short, requesting that the comment period
be extended.\125\ One commenter stated that a longer comment period is
needed because certain information ``ha[s] not been publicly shared
yet, such as the technical specifications for reporting and fees for
commercial use of published data.'' \126\ Another commenter stated that
it needed more time to provide additional comments on ``potential
issues,'' including FINRA's proposal of rules relating to FINRA's
maintaining of the security and confidentiality of reported
confidential information as required by Rule 10c-1a(h)(4); specific
details of the technical specifications proposed by FINRA in order to
understand the information that must be reported (e.g., how terminated
loans are to be reported, including a partial termination; how ``as
of'' modifications are to be reported; how changes to interest rate
benchmarks should be reported; the categories for type of collateral to
be reported); the proposed duty of covered persons to report to FINRA a
reportable security not currently reflected in SLATE; that the
``proposed de minimis exclusion is set too low and also should be
mandatory rather than discretionary; adjusting the proposed cutoff
times for reporting of initial covered securities loans and loan
modifications; the effect of the new Rule 6500 Series on the existing
FINRA short interest reporting regime; the treatment of impactful
corporate actions under the new
[[Page 65450]]
reporting requirements; whether firms are expected to consume
information from SLATE as part of their ordinary-course securities
lending operations; and considerations regarding the reporting
compliance date and firms' end-of-year code freeze.\127\
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\125\ See, e.g., ISLA Letter 1, at 1-2; SIFMA AMG Letter 1, at
2; ICI Letter 1, at 3; SIFMA AMG Letter 2, at 2.
\126\ See SIFMA AMG Letter 1, at 2.
\127\ SIFMA Letter, at 7-8.
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One commenter stated, ``[g]iven that FINRA's proposed SLATE rules
would implement and add to the requirements of Rule 10c-1a, it is
especially important for the Commission to ensure it takes the time
necessary to closely review FINRA's proposed rules and obtain fulsome
public feedback.'' \128\ Another commenter stated that it ``hope[s]
that the SEC will consider the extension request in order to
appropriately address the challenges that the FINRA Rule 6500 Series
presents.'' \129\
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\128\ ICI Letter 1, at 3.
\129\ ISLA Letter 1, at 1.
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Following the Commission's publication of its Notice of Designation
of a Longer Period for Commission Action on a Proposed Rule Change to
Adopt the FINRA Rule 6500 Series,\130\ numerous commenters submitted
comments stating their concerns about (what they called) a 45-day
``delay'' in implementing the FINRA Rule 6500 Series. Some commenters
opposed the Commission's designation of a longer period within which to
take action on FINRA's proposed rule change.\131\ Some commenters
called the extension ``unacceptable'' or stated that the delay in the
implementation of the FINRA rules could undermine transparency, weaken
investor confidence, or undermine the market.\132\
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\130\ See Notice of Designation of a Longer Period for
Commission Action on a Proposed Rule Change to Adopt the FINRA Rule
6500 Series (Securities Lending and Transparency Engine
(SLATE<SUP>TM</SUP>)), Release No. 34-100305 (June 10, 2024), 89 FR
50644 (June 14, 2024).
\131\ See, e.g., Form Letter C.
\132\ See, e.g., Form Letter C.
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IV. Proceedings To Determine Whether To Approve or Disapprove SR-FINRA-
2024-007 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2) of the Exchange Act \133\ to determine whether the proposed
rule change should be approved or disapproved. Institution of
proceedings is appropriate at this time in view of the legal and policy
issues raised by the proposed rule change. Institution of proceedings
does not indicate, however, that the Commission has reached any
conclusions with respect to any of the issues involved. Rather, as
described below, the Commission seeks and encourages interested persons
to provide comments on the proposed rule change.
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\133\ 15 U.S.C. 78s(b)(2).
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Pursuant to Section 19(b)(2)(B) of the Exchange Act,\134\ the
Commission is providing notice of the grounds for disapproval under
consideration. The Commission is instituting proceedings to allow for
additional analysis of the proposed rule change's consistency with
Section 15A(b)(6) of the Exchange Act, which requires, among other
things, that FINRA rules promote just and equitable principles of
trade, foster cooperation and coordination with persons engaged in
regulating, clearing, settling, processing information with respect to,
and facilitating transactions in securities, remove impediments to and
perfect the mechanism of a free and open market, and, in general,
protect investors and the public interest.\135\ The Commission asks
that commenters address the sufficiency of FINRA's statements in
support of the proposal, which are set forth in the Notice, in addition
to any other comments they may wish to submit about the proposed rule
change. In particular, the Commission is instituting proceedings to
allow for additional analysis of, and input from commenters with
respect to, the scope and implementation of the proposed rules.
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\134\ 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the
Exchange Act also provides that proceedings to determine whether to
disapprove a proposed rule change must be concluded within 180 days
of the date of publication of notice of the filing of the proposed
rule change. See id. The time for conclusion of the proceedings may
be extended for up to 60 days if the Commission finds good cause for
such extension and publishes its reasons for so finding, or if the
self-regulatory organization consents to the longer period. See id.
\135\ 15 U.S.C. 78o-3(b)(6).
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V. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their data, views, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposed rule change. In particular, the Commission invites
the written views of interested persons concerning whether the proposed
rule change is consistent with the Exchange Act and the rules and
regulations thereunder.
Although there do not appear to be any issues relevant to approval
or disapproval that would be facilitated by an oral presentation of
data, views, and arguments, the Commission will consider, pursuant to
Rule 19b-4 under the Exchange Act,\136\ any request for an opportunity
to make an oral presentation.\137\
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\136\ 17 CFR 240.19b-4.
\137\ Section 19(b)(2) of the Exchange Act, as amended by the
Securities Acts Amendments of 1975, Public Law 94-29, 89 Stat. 97
(1975), grants the Commission flexibility to determine what type of
proceeding--either oral or notice and opportunity for written
comments--is appropriate for consideration of a particular proposal
by a self-regulatory organization. See Securities Acts Amendments of
1975, Report of the Senate Committee on Banking, Housing, and Urban
Affairs to Accompany S. 249, S. Rep. No. 75, 94th Cong., 1st Sess.
30 (1975).
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Interested persons are invited to submit written data, views, and
arguments regarding whether the proposed rule change should be approved
or disapproved by August 30, 2024. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
September 13, 2024.
Comments may be submitted by any of the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#681a1d040d450b0705050d061c1b281b0d0b460f071e"><span class="__cf_email__" data-cfemail="582a2d343d753b3735353d362c2b182b3d3b763f372e">[email protected]</span></a>. Please include
file number SR-FINRA-2024-007 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-FINRA-2024-007. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of
[[Page 65451]]
FINRA. Do not include personal identifiable information in submissions;
you should submit only information that you wish to make available
publicly. We may redact in part or withhold entirely from publication
submitted material that is obscene or subject to copyright protection.
All submissions should refer to file number SR-FINRA-2024-007 and
should be submitted on or before August 30, 2024. Rebuttal comments
should be submitted by September 13, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\138\
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\138\ 17 CFR 200.30-3(a)(57).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-17684 Filed 8-8-24; 8:45 am]
BILLING CODE 8011-01-P
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