Notice2024-27742
Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt Fees in FINRA Rule 7720 (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
November 27, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 229 (Wednesday, November 27, 2024)</title>
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[Federal Register Volume 89, Number 229 (Wednesday, November 27, 2024)]
[Notices]
[Pages 93750-93757]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-27742]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101697; File No. SR-FINRA-2024-020]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Adopt Fees in FINRA Rule 7720 (Securities
Lending and Transparency Engine (SLATE<SUP>TM</SUP>))
November 21, 2024.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on November 20, 2024, the Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by FINRA. FINRA has
designated the proposed rule change as ``establishing or changing a
due, fee or other charge'' under Section 19(b)(3)(A)(ii) of the Act \3\
and Rule 19b-4(f)(2) thereunder,\4\ which renders the proposal
effective upon receipt of this filing by the Commission. The Commission
is publishing this notice to solicit comments on the proposed rule
change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(ii).
\4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to adopt new FINRA Rule 7720 (Securities Lending
and Transparency Engine (SLATE<SUP>TM</SUP>)) to establish securities
loan reporting fees and securities loan data products with associated
fees in connection with FINRA's separately proposed Rule 6500 Series
(Securities Lending and Transparency Engine (SLATE)) establishing
securities loan reporting and data dissemination requirements.\5\
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\5\ See infra note 6.
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The text of the proposed rule change is available on FINRA's
website at <a href="http://www.finra.org">http://www.finra.org</a>, at the principal office of FINRA and
at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, FINRA included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. FINRA has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
(i) Background
On October 13, 2023, the Commission adopted new SEA Rule 10c-1a \6\
to require any ``covered person'' \7\ who agrees to a ``covered
securities loan'' \8\ to
[[Page 93751]]
provide specified information to a registered national securities
association (``RNSA'').\9\ The RNSA is then required to make publicly
available information regarding reported securities loans, as described
in SEA Rule 10c-1a.\10\ In its Adopting Release, the Commission stated
its belief that SEA Rule 10c-1a would increase transparency in the
securities lending market, resulting in a reduction in the information
disadvantage faced by end borrowers and beneficial owners, improve
price discovery, increase competition among providers of securities
lending analytics services, reduce costs associated with tracking
market conditions for broker-dealers and lending programs, and improve
decision-making by investors, beneficial owners, and other market
participants.\11\
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\6\ See 17 CFR 240.10c-1a (``SEA Rule 10c-1a''); Securities
Exchange Act Release No. 98737 (October 13, 2023), 88 FR 75644
(November 3, 2023) (Reporting of Securities Loans) (``Adopting
Release'').
\7\ SEA Rule 10c-1a(j)(1) defines a ``covered person'' as (i)
any person that agrees to a covered securities loan on behalf of a
lender (``intermediary'') other than a clearing agency when
providing only the functions of a central counterparty pursuant to
Rule 17Ad-22(a)(2) of the Exchange Act or a central securities
depository pursuant to Rule 17Ad-22(a)(3) of the Exchange Act; or
(ii) any person that agrees to a covered securities loan as a lender
when an intermediary is not used unless paragraph (j)(1)(iii) of
this section applies; or (iii) a broker or dealer when borrowing
fully paid or excess margin securities pursuant to Rule 15c3-3(b)(3)
of the Exchange Act.
\8\ SEA Rule 10c-1a(j)(2) defines a ``covered securities loan''
as a transaction in which any person on behalf of itself or one or
more other persons, lends a reportable security to another person,
with exclusions for a position at a clearing agency that results
from central counterparty services pursuant to Rule 17Ad-22(a)(2) of
the Exchange Act or central securities depository services pursuant
to Rule 17Ad-22(a)(3) of the Exchange Act, and the use of margin
securities, as defined in Rule 15c3-3(a)(4) of the Exchange Act, by
a broker or dealer. ``Reportable security'' is defined in SEA Rule
10c-1a(j)(3) as any security or class of an issuer's securities for
which information is reported or required to be reported to the
consolidated audit trail as required by Sec. 242.613 of the
Exchange Act and the CAT NMS Plan (``CAT''), the Financial Industry
Regulatory Authority's Trade Reporting and Compliance Engine
(``TRACE''), or the Municipal Securities Rulemaking Board's Real-
Time Transaction Reporting System (``RTRS''), or any reporting
system that replaces one of these systems.
\9\ SEA Rule 10c-1a(j)(5) defines an ``RNSA'' as an association
of brokers and dealers that is registered as a national securities
association pursuant to 15 U.S.C. 78o-3 of the Exchange Act. FINRA
currently is the only RNSA.
\10\ See SEA Rule 10c-1a(g).
\11\ See Adopting Release, 88 FR 75644, 75692.
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SEA Rule 10c-1a(f) requires an RNSA that is collecting the
information required to be reported under the rule to implement rules
regarding the format and manner of its collection of information
described in paragraphs 10c-1a(c) through 10c-1a(e) of SEA Rule 10c-1a
and make publicly available such information in accordance with rules
promulgated by the RNSA pursuant to Section 19(b) of the Exchange Act
and Rule 19b-4 thereunder. In accordance with this requirement, on May
1, 2024, FINRA filed with the Commission a proposed rule change to
adopt the new FINRA Rule 6500 Series (Securities Lending and
Transparency Engine (SLATE)) to establish reporting requirements for
Covered Securities Loans \12\ and to provide for the public
dissemination of loan information.\13\
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\12\ A ``Covered Securities Loan'' means a ``covered securities
loan'' as defined in SEA Rule 10c1-a(j)(2).
\13\ See Securities Exchange Act Release No. 100046 (May 1,
2024); 89 FR 38203 (May 7, 2024) (Notice of Filing of File No. SR-
FINRA-2024-007) (Proposed Rule Change to Adopt the FINRA Rule 6500
Series (Securities Lending and Transparency Engine)) (``SLATE
Proposal'').
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In its Adopting Release, the Commission recognized that an RNSA
would incur costs to develop and maintain systems to comply with the
covered securities loan reporting and data dissemination requirements
of SEA Rule 10c-1a \14\ and expressly permitted an RNSA to establish
and collect reasonable fees pursuant to rules established under Section
19(b) of the Exchange Act and Rule 19b-4 thereunder.\15\ The purpose of
this proposed rule change is to establish a SLATE fee structure to
allow FINRA to recover reasonably estimated incremental direct ongoing
costs associated with complying with SEA Rule 10c-1a.\16\
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\14\ See Adopting Release, 88 FR 75644, 75717.
\15\ See Adopting Release, 88 FR 75644, 75648.
\16\ FINRA does not have regulatory authority over Covered
Persons or Reporting Agents that are non-FINRA members. As FINRA
does today, FINRA would refer to the SEC potential violations of the
federal securities laws and rules by non-members, including failures
to comply with SEA Rule 10c-1a and FINRA rules adopted pursuant to
SEA Rule 10c-1a (e.g., potential SLATE reporting violations or
failures to pay when due any SLATE fees).
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Among other things, the SLATE Proposal would establish the
requirements for reporting Initial Covered Securities Loans \17\ and
Loan Modifications \18\ to SLATE and would require that such reports be
submitted to FINRA timely, accurately, and completely.\19\ In the SLATE
Proposal, FINRA stated its intention to file separately a proposed rule
change to establish covered securities loan reporting fees and to
establish securities loan data products with associated fees.\20\ The
SLATE Proposal also provided that FINRA would make specified securities
loan information available on its website free of charge for personal,
non-commercial purposes only.\21\ In the instant filing, FINRA proposes
to establish such reporting fees and to establish SLATE data products
with associated fees, as described below.
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\17\ ``Initial Covered Securities Loan'' means a new Covered
Securities Loan not previously reported to SLATE. See proposed Rule
6510(d).
\18\ ``Loan Modification'' means 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). See
proposed Rule 6510(e).
\19\ See proposed Rule 6530(c)(1); see also SLATE Proposal, 89
FR 38203, 38210.
\20\ See SLATE Proposal, 89 FR 38203, 38206.
\21\ See SLATE Proposal, 89 FR 38203, 38212 n.80. The SLATE data
that FINRA will make available (pursuant to FINRA Rule 6540.02) will
be displayed (viewable) free of charge on the FINRA website for
personal, non-commercial purposes and will not be available in
downloadable form through this means. Persons interested in
receiving from FINRA downloadable files of SLATE data must subscribe
to the appropriate data product made available pursuant to proposed
Rule 7720.
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(ii) Proposed Rule Change
FINRA is proposing to establish new Rule 7720 to provide for
reporting fees for: (1) SLATE system connectivity; (2) Initial Covered
Securities Loan reporting; (3) Loan Modification reporting; (4) late
reporting; and (5) reporting cancellations, corrections, and deletions.
Rule 7720 also establishes data products with associated fees for SLATE
Loan-Level Data and Daily Loan Statistics; \22\ and Historic SLATE
Data.\23\
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\22\ ``SLATE Loan-Level Data and Daily Loan Statistics'' means
the data described in proposed Rule 6540(a) through (c).
\23\ ``Historic SLATE Data'' means SLATE Loan-Level Data and
Daily Loan Statistics from the beginning of SLATE data reporting
through the end of the most recent calendar year.
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SLATE Reporting Fees
Previously proposed new Rule 6530(a) would establish the
requirements relating to the reporting of Initial Covered Securities
Loans to SLATE. Proposed Rule 7720(b)(1) provides that, for each such
Initial Covered Securities Loan report, a SLATE Participant will be
subject to a reporting fee of $0.07 per submission. Previously proposed
new Rule 6530(b) would establish the requirements relating to the
reporting of Covered Securities Loan Modifications to SLATE. Proposed
Rule 7720(b)(2) provides that, for each such Loan Modification report,
a SLATE Participant will be subject to a reporting fee of $0.03 per
submission.
Proposed Rule 7720 also establishes fees for the reporting of
cancellations, corrections, and deletions of previously submitted
Covered Securities Loans and for the late submission of Initial Covered
Securities Loan and Loan Modification reports, which is consistent with
the requirement that Covered Persons report timely, accurately, and
completely to SLATE,\24\ and facilitates the dissemination of accurate
and complete information to regulators and the public.\25\
Specifically,
[[Page 93752]]
pursuant to proposed Rule 7720(b)(3), a SLATE Participant will be
charged a cancel,\26\ correct,\27\ or delete \28\ fee of $0.10 per
canceled, corrected, or deleted Covered Securities Loan report. In
addition, proposed Rule 7720(b)(4) establishes a late fee of $0.20 per
Initial Covered Securities Loan report or Loan Modification report that
is not timely reported to SLATE as required pursuant to the Rule 6500
Series.\29\
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\24\ See proposed Rule 6530(c)(1). Proposed Rule 6530(c)(2)
further 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. See SLATE Proposal, 89 FR 38203, 38210.
\25\ ``[SEA Rule 10c-1a] is designed to provide access to
timely, comprehensive securities loan information to market
participants, the public, and regulators, which will help provide
borrowers and lenders with better tools to assess the terms of their
securities loans and enhance the ability of regulators to oversee
the securities lending market.'' Adopting Release, 88 FR 75644,
75648.
\26\ A ``cancellation'' is used to remove a single event from
the SLATE system. See Draft SLATE Participant Reporting
Specifications, available at <a href="https://www.finra.org/filing-reporting/slate">https://www.finra.org/filing-reporting/slate</a>.
\27\ A ``correction'' is used to replace fields in a prior
reported event. See Draft SLATE Participant Reporting
Specifications, available at <a href="https://www.finra.org/filing-reporting/slate">https://www.finra.org/filing-reporting/slate</a>.
\28\ A ``deletion'' is used to remove an entire loan and all
corresponding loan events (i.e., modifications, corrections, etc.).
See Draft SLATE Participant Reporting Specifications, available at
<a href="https://www.finra.org/filing-reporting/slate">https://www.finra.org/filing-reporting/slate</a>.
\29\ While FINRA will seek to address late or inaccurate SLATE
reporting through its customary means, FINRA believes it is
appropriate to establish fees to promote timely and accurate
reporting. See also SLATE Proposal, 89 FR 38203, 38206 n.17.
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Proposed Rule 7720 also sets forth the fees for connecting to
SLATE. Specifically, proposed Rule 7720(a) provides that a SLATE
Participant may choose to report Covered Securities Loans to FINRA
pursuant to the Rule 6500 Series either via: (1) the SLATE web browser;
or (2) a third-party reporting intermediary (and such third party must
use the SLATE web browser). The fee for connecting to the SLATE web
browser is $25 per month per user ID and will be assessed for
connecting to SLATE through the browser, whether a Covered Person
Reporting Agent, or other third party.\30\
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\30\ The $25 per month fee for connecting to the SLATE web
browser is assessed per user (not per entity). Therefore, a single
SLATE Participant will be charged $25 per month times the number of
users that it determines to authorize for connecting to SLATE
through the browser for SLATE reporting. This connectivity fee is
not applicable to, or assessed on, SLATE data product subscribers
for the purposes of receiving SLATE data.
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SLATE Loan-Level Data and Daily Loan Statistics
FINRA is proposing Rule 7720(c) to establish the SLATE Loan-Level
Data and Daily Loan Statistics data product with associated fees. As
defined in Rule 7720(e)(2), ``SLATE Loan-Level Data and Daily Loan
Statistics'' means the data described in proposed Rule 6540
(Dissemination of Loan Information) paragraph (a), which addresses
next-day dissemination; \31\ paragraph (b), which addresses delayed
dissemination; \32\ and paragraph (c), which addresses daily loan
statistics (i.e., aggregate loan transaction activity \33\ and loan
rate distribution data \34\). Proposed Rule 7720(c) sets forth the fees
applicable to subscribers that are persons and organizations other than
qualifying Tax-Exempt Organizations \35\ and subscribers that are
qualifying Tax-Exempt Organizations. Recipients of the SLATE Loan-Level
Data and Daily Loan Statistics product described herein will be
required to execute appropriate agreements with FINRA to subscribe to
SLATE Loan-Level Data and Daily Loan Statistics.
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\31\ SLATE data that is subject to next day dissemination
generally consists of the data set forth in Rule 6540(a): (1) the
unique identifier assigned by FINRA to the loan; (2) the security
identifier(s) specified in Rule 6530(a)(2)(A) or (B) that FINRA
determines is appropriate to disseminate; (3)(a) for each Initial
Covered Securities Loan, all other Data Elements reported to SLATE,
except the amount of securities loaned and confidential data
elements; (b) for each Loan Modification, the modified Data Elements
reported to SLATE, except the amount of securities loaned and
confidential data elements; or (c) for each Loan Modification to a
Covered Securities Loan that was not previously required to be
reported to SLATE, all other Data Elements reported to SLATE, except
the amount of securities loaned and confidential data elements.
\32\ SLATE data that is subject to delayed dissemination (20
business days after the date on which the Initial Covered Securities
Loan was effected or the loan was modified) generally consists of
the data set forth in Rule 6540(b): (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
securities loaned reported to SLATE.
\33\ Aggregate loan transaction activity data generally consists
of the data set forth in Rule 6540(c)(1); specifically, the security
identifier specified in Rule 6530(a)(2)(A) or (B) that FINRA
determines is appropriate to disseminate and the aggregate volume of
securities subject to an Initial Covered Securities Loan or
modification to the amount of Reportable Securities loaned, reported
on the prior business day.
\34\ Loan rate distribution data generally consists of: (1) the
security identifier specified in Rule 6530(a)(2)(A) or (B) that
FINRA determines is appropriate to identify the relevant Reportable
Security; (2) the highest rebate rate, lowest rebate rate, and
volume weighted average of the rebate rates by U.S. currency and
non-U.S. currency, as applicable, reported for Initial Covered
Securities Loans collateralized by cash and for Loan Modifications
collateralized by cash (where the Loan Modification involved a
change to the rebate rate); and (3) the highest lending fee or rate,
lowest lending fee or rate, and volume weighted average of the
lending fees or rates reported for Initial Covered Securities Loans
not collateralized by cash and for Loan Modifications not
collateralized by cash (where the Loan Modification involved a
change to the lending fee or rate).
\35\ A ``Tax-Exempt Organization'' means an organization that is
described in Section 501(c) of the Internal Revenue Code (26 U.S.C.
501(c)) and has received recognition of the exemption from federal
income taxes from the Internal Revenue Service. See Proposed Rule
7720(e)(3).
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Under proposed Rule 7720(c)(1)(A), a fee of $3,000 per month will
apply for daily receipt of the SLATE Loan-Level Data and Daily Loan
Statistics, except for qualifying Tax-Exempt Organizations. The data is
enabled for unlimited internal use through any number of display
applications; separate fees and uses apply to qualifying Tax-Exempt
Organizations (as discussed below). As further provided in proposed
Rule 7720(c)(1)(A), the fee of $3,000 per month entitles subscribers to
use SLATE Loan-Level Data and Daily Loan Statistics in one or more of
the following ways: internal operational and processing systems,
internal monitoring and surveillance systems, internal price
validation, internal portfolio valuation services, internal analytical
programs leading to purchase/sale or other trading decisions, and other
related activities, and the repackaging of market data for delivery and
dissemination outside the organization, such as indices or other
derivative products. Bulk redistribution of SLATE Loan-Level Data and
Daily Loan Statistics \36\ is not permitted under this subscription
type, which is limited to internal use. In addition, any derivative
products shall not permit end users to determine underlying SLATE Loan-
Level Data and Daily Loan Statistics.
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\36\ Bulk redistribution of SLATE data refers to the
redistribution of the SLATE data files described in proposed Rule
7720. Bulk redistribution of SLATE data generally is not permitted,
except for qualifying Tax-Exempt Organizations, subject to specified
restrictions, as described in proposed Rule 7720(c)(2) and (d)(2).
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Under proposed Rule 7720(c)(1)(B), a vendor display redistribution
fee of $10,000 per month will apply for the display of SLATE Loan-Level
Data and Daily Loan Statistics through any number of external display
applications. However, bulk redistribution of SLATE Loan-Level Data and
Daily Loan Statistics is not permitted. Therefore, any party wishing to
receive a distribution of SLATE Loan-Level Data and Daily Loan
Statistics files must subscribe directly with FINRA.
Proposed Rule 7720(c)(2) establishes a monthly fee of $1,500
applicable to qualifying Tax-Exempt Organizations for the daily receipt
of SLATE Loan-Level Data and Daily Loan Statistics. FINRA is
establishing a fee level for qualifying Tax-Exempt Organizations that
is half of the fee that will be assessed on parties other than
qualifying Tax-Exempt Organizations. The data is enabled for unlimited
internal use. A Tax-Exempt Organization qualifies to receive SLATE
Loan-Level Data and Daily Loan Statistics if it does not redistribute
such data in bulk, or it redistributes such data in bulk or otherwise
(e.g., unlimited external display) at no charge solely to other
[[Page 93753]]
Tax-Exempt Organizations that agree to be subject to the same
restrictions.
Historic SLATE Data
FINRA also is proposing Rule 7720(d) to establish the Historic
SLATE Data product with associated fees. As defined in Rule 7720(e)(1),
``Historic SLATE Data'' means ``SLATE Loan-Level Data and Daily Loan
Statistics'' from the beginning of SLATE data reporting (currently
scheduled to commence on January 2, 2026) through the end of the most
recent calendar year. Historic SLATE Data will be made available within
one month of year-end (e.g., Historic SLATE Data for calendar year 2026
will be available by January 31, 2027; Historic SLATE Data for calendar
year 2027 will be available by January 31, 2028, and so on). Proposed
Rule 7720(d) sets forth the fees for Historic SLATE Data applicable to
subscribers that are persons and organizations other than qualifying
Tax-Exempt Organizations, and subscribers that are qualifying Tax-
Exempt Organizations. Recipients of the Historic SLATE Data product
described herein will be required to execute appropriate agreements
with FINRA.
Under proposed Rule 7720(d)(1)(A), a single fee of $2,000 will
apply to persons or organizations other than qualifying Tax-Exempt
Organizations for development and set-up to begin receiving Historic
SLATE Data. The set-up fee is a one-time fee. Proposed Rule
7720(d)(1)(B) provides that a fee of $5,000 per calendar year will
apply for receipt of Historic SLATE Data, except for qualifying Tax-
Exempt Organizations. The data is enabled for unlimited internal use
through any number of display applications. As further provided in
proposed Rule 7720(d)(1)(B), the fee of $5,000 per calendar year
entitles persons or organizations other than qualifying Tax-Exempt
Organizations to use Historic SLATE Data in one or more of the
following ways: internal operational and processing systems, internal
monitoring and surveillance systems, internal price validation,
internal portfolio valuation services, internal analytical programs
leading to purchase/sale or other trading decisions, and other related
activities, and the repackaging of market data for delivery and
dissemination outside the organization, such as indices or other
derivative products. Bulk redistribution of Historic SLATE Data is not
permitted under this subscription type, which is limited to internal
use. In addition, any derivative products shall not permit end users to
determine underlying SLATE Loan-Level Data and Daily Loan Statistics.
Proposed Rule 7720(d)(2) establishes the fees applicable to
qualifying Tax-Exempt Organizations for receipt of Historic SLATE Data.
A Tax-Exempt Organization qualifies to receive Historic SLATE Data if
it does not redistribute such data in bulk, or it redistributes such
data in bulk or otherwise at no charge solely to other Tax-Exempt
Organizations that agree to be subject to the same restrictions. Under
proposed Rule 7720(d)(2)(A), a single fee of $1,000 will apply to any
qualifying Tax-Exempt Organization for development and set-up to begin
receiving Historic SLATE Data. The set-up fee is a one-time fee and was
established to amount to half of the fee that would be assessed on
parties other than qualifying Tax-Exempt Organizations for data set up.
Proposed Rule 7720(d)(2)(B) provides that a fee of $2,500 per calendar
year will apply to any qualifying Tax-Exempt Organization for receipt
of Historic SLATE Data, which is half of the fee that would be assessed
on parties other than qualifying Tax-Exempt Organizations for these
data. Historic SLATE Data is enabled for unlimited internal use and may
be redistributed by a qualifying Tax-Exempt Organization in bulk or
otherwise (e.g., unlimited external display) subject to the
restrictions in paragraph (d)(2) (i.e., redistributed at no charge
solely to other Tax-Exempt Organizations that agree to be subject to
the same restrictions prescribed in the rule).
SLATE Cost Recovery
As further discussed below in the Economic Impact Assessment, the
proposed fees described herein are designed to permit FINRA to recover
costs associated with the operation of the SLATE program, as expressly
permitted for an RNSA under the Exchange Act and SEA Rule 10c-1a.\37\
FINRA currently estimates an average of approximately $4.5 million in
incremental direct ongoing costs per year from 2026 through 2028
(including the incremental direct ongoing costs incurred in 2024 and
2025 to be recovered over the 3-year period),\38\ and approximately
$4.4 million in annual incremental direct ongoing costs thereafter. In
an effort to make SLATE financially self-sustaining on an ongoing
basis, the proposed fees are designed to generate an amount of revenue
that is calibrated to align with the estimated incremental direct
ongoing costs associated with the SLATE program, to enable FINRA to
meets its obligations pursuant to the SEA Rule 10c-1a mandate, as
further described below.
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\37\ See 10c-1a(i); see also Adopting Release 88 FR 75644,
75687.
\38\ While SEA Rule 10c-1a does not require that securities loan
reporting commence until January 2026 or that loan data
dissemination commence until April 2026, FINRA has necessarily
already begun making financial expenditures in response to the SEC's
adoption of Rule 10c-1a so that FINRA will be positioned to comply
with all of the obligations applicable to an RNSA under that rule.
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Specifically, FINRA's incremental direct costs associated with
operating the SLATE program include costs for cloud resources (compute
and storage), data validation, business rule processing, reference
data, data dissemination, billing generation, technology operations
monitoring and support, and alert escalation and remediation.
Additional costs include staffing related to product management,
application management, ongoing business and operational support for
the user interface, and administration of participant information and
applicable agreements.\39\
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\39\ To the extent possible, FINRA will leverage existing
systems, personnel, and processes in connection with FINRA's SLATE
program consistent with FINRA's structure as a not-for-profit self-
regulatory organization.
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FINRA intends to reassess the SLATE reporting fees and data
products and associated fees after the commencement of SLATE reporting
and dissemination and obtaining additional information regarding
reporting volumes and subscription interest. To the extent that FINRA
determines that a change to the SLATE fee structure would be
appropriate to better align SLATE revenues with the incremental direct
ongoing costs incurred in connection with the SLATE program, FINRA
would file a proposed rule change with the Commission pursuant to
Section 19(b) of the Exchange Act and Rule 19b-4 thereunder.
FINRA has filed the proposed rule change for immediate
effectiveness. The Commission's release adopting SEA Rule 10c-1a
specified the compliance dates applicable to securities loan reporting
and data dissemination.\40\ Accordingly, if the Commission approves
FINRA's proposed rules establishing the reporting and dissemination
requirements, unless an extension is provided pursuant to Commission
order, the implementation date of the proposed FINRA rules establishing
the securities loan reporting fees will correspond to the commencement
of reporting to SLATE, and the implementation date of the proposed
FINRA rules establishing the securities loan data products with
associated fees will correspond to the commencement of SLATE data
[[Page 93754]]
dissemination. If the SEC extends the compliance dates for SEA Rule
10c-1a's reporting or dissemination requirements, FINRA's proposed
rules addressing covered securities loan reporting fees and securities
loan data products with associated fees would become effective
consistent with the SEC's extended timeframe for reporting and data
dissemination, respectively.
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\40\ See supra note 6.
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2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(5) of the Act, which requires, among other
things, that FINRA rules provide for the equitable allocation of
reasonable dues, fees, and other charges among members and issuers and
other persons using any facility or system that FINRA operates or
controls.\41\ FINRA also believes that the proposed rule change is
consistent with the provisions of Section 15A(b)(6) of the Act, which
requires, among other things, that FINRA rules are not designed to
permit unfair discrimination between customers, issuers, brokers, or
dealers.\42\
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\41\ 15 U.S.C. 78o-3(b)(5).
\42\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------
Consistent with Section 984(b) of the Dodd-Frank Act, which
mandates that the Commission increase the transparency of information
available to brokers, dealers, and investors regarding securities loan
activity, on October 13, 2023, the Commission adopted SEA Rule 10c-
1a.\43\ SEA Rule 10c-1a requires a Covered Person who agrees to a
Covered Securities Loan to provide specified information to an
RNSA.\44\ The RNSA that is collecting the information required to be
reported under the rule is then required to make publicly available
information regarding reported securities loans, as described in SEA
Rule 10c-1a.\45\ Because FINRA is an RNSA, FINRA proposed to adopt the
SLATE rules and is building a system (the proposed SLATE system) to
which Covered Securities Loan information would be reported. SEA Rule
10c-1a sets forth other related requirements for an RNSA, as described
in SEA Rule 10c-1a and the Adopting Release.\46\ These mandates
increase costs to FINRA, as an RNSA, that necessitate funding.
---------------------------------------------------------------------------
\43\ See generally Adopting Release, 88 FR 75644. See also
Public Law 111-203, 124 Stat. 1376 (2010).
\44\ See SEA Rule 10c1-a(a)(1).
\45\ See SEA Rule 10c-1a(g).
\46\ As noted above, SEA Rule 10c-1a anticipates that an RNSA
will propose rules consistent with the Commission's mandate. See SEA
Rule 10c-1a(i). Section 984(a) of the Dodd-Frank Wall Street Reform
and Consumer Protection Act (``Dodd-Frank Act'') added section
10(c)(1) to the Exchange Act to provide the Commission with
authority over securities lending. See 15 U.S.C. 78j(c)(1). Section
984(b) of the Dodd-Frank Act mandates that the Commission increase
the transparency of information available to brokers, dealers, and
investors with respect to the loan or borrowing of securities. See
Public Law 111-203, 124 Stat. 1376 (2010).
---------------------------------------------------------------------------
Section 15A(b)(2) of the Act requires that an RNSA be ``so
organized and [have] the capacity to be able to carry out the
purposes'' of the Act and ``to comply, and . . . to enforce compliance
by its members and persons associated with its members,'' with the
provisions of the Exchange Act.\47\ FINRA therefore believes it is
consistent with the Act that FINRA impose reasonable fees that are
designed to support FINRA with regard to expenditures to meet its
regulatory obligations in connection with the securities loan reporting
and transparency initiative. In addition, FINRA notes that SEA Rule
10c-1a itself explicitly provides that the RSNA may establish and
collect reasonable fees, pursuant to rules that are promulgated
pursuant to Section 19(b) and Rule 19b-4 of the Exchange Act.\48\
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\47\ 15 U.S.C. 78o-3(b)(2).
\48\ See SEA Rule 10c-1a(i).
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As discussed above, and further below in the Economic Impact
Assessment, FINRA is establishing a fee structure to implement
reasonable fees relating to the SLATE program; specifically: (1) SLATE
system connectivity fees; (2) fees in connection with reporting Covered
Securities Loan information to SLATE; and (3) SLATE data products and
associated fees. The fees being proposed herein are reasonable,
including because they are designed to generate an amount of revenue
that is calibrated to align with the estimated incremental direct
ongoing costs associated with the SLATE program and to enable FINRA to
meet its regulatory obligations.
FINRA believes it is equitable, reasonable, and consistent with the
Exchange Act that the proposed SLATE system connectivity and reporting
fees be assessed directly on the parties that have been designated by
the Commission as bearing the underlying regulatory responsibility for
reporting securities loan information to an RNSA--i.e., Covered Persons
that report to the SLATE system (and their agents).\49\ In the Adopting
Release, the Commission stated that ``. . . RNSAs may establish and
collect reasonable fees, pursuant to rules that are effective pursuant
to section 19(b) of the Exchange Act and Rule 19b-4 thereunder, from
each person who provides any data set forth in paragraphs (b) through
(e) of this section directly to an RNSA.'' \50\ The Adopting Release
also stated that ``[t]the final rule will also impose direct costs on
an RNSA responsible for collecting, maintaining, and distributing the
data, who may pass on these costs by imposing fees on entities that
provide Rule 10c-1a information to an RNSA and/or consumers of Rule
10c-1a data.'' \51\
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\49\ ``Under the Exchange Act, RNSAs are allowed to adopt rules
that impose the equitable allocation of reasonable fees among
members and issuers, and other persons that use an RNSA facility or
system.'' (citation omitted). See Adopting Release, 88 FR 75644,
75687.
\50\ See Adopting Release, 88 FR 75644, 75687.
\51\ See Adopting Release, 88 FR 75644, 75693.
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FINRA also believes that it is equitable, reasonable, and
consistent with the Exchange Act to require that the parties reporting
data to SLATE be directly responsible for paying SLATE fees because the
reporting process is a primary driver of the costs that the proposed
fees are intended to recover. Thus, assessing the SLATE system
connectivity and reporting fees on Covered Persons (and their agents)
aligns the direct responsibility for SLATE cost recovery with the
parties generating the information collection costs.\52\
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\52\ FINRA understands that many members shift at least some of
the regulatory fees incurred to other parties. For instance, it is
regular practice among clearing and trading firms to ``pass
through'' the Trading Activity Fee (``TAF'') to the underlying firm
executing the trade. Further, FINRA understands that executing firms
commonly pass the TAF directly on to their customers. See Securities
Exchange Act Release No. 90176 (October 14, 2020), 85 FR 66592,
66603 (October 20, 2020) (Notice of Filing and Immediate
Effectiveness of File No. SR-FINRA-2020-032). ``The entities that
provide Rule 10c-1a information to an RNSA may absorb these costs in
the form of lower profits or may pass them on to their customers in
the form of increased fees for broker-dealer services or lending
program services.'' See Adopting Release 88 FR 75644, 75693.
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The proposed SLATE data products are offered on equal terms to
similarly situated parties that choose to access the data products.
Thus, FINRA believes that the proposed SLATE data fees are not designed
to permit unfair discrimination between customers, issuers, brokers, or
dealers, as provided for in Section 15A(b)(6).\53\ Under the proposal,
with one exception (qualifying Tax-Exempt Organizations), the content
of the information in the data products and the data products' usage
rights are offered on the same terms to interested parties. Thus, any
party (except for a qualifying Tax-Exempt Organization) that seeks to
access SLATE Loan-Level Data and Daily Loan Statistics will pay a fee
depending upon whether such party seeks the right to use the data
solely internally, as described in
[[Page 93755]]
proposed Rule 7720(c)(1)(A) ($3,000 per month), or whether such party
seeks the right to display the data externally, as described in
proposed Rule 7720(c)(1)(B) ($10,000 per month).\54\ The higher fee of
$10,000 per month proposed in Rule 7720(c)(1)(B) is not unfairly
discriminatory (as compared to the $3,000 per month fee for internal
use only) given the significantly expanded usage rights authorized
under proposed Rule 7720(c)(1)(B), which permits the display of SLATE
Loan-Level Data and Daily Loan Statistics through any number of
external display applications.\55\ All interested parties (except
qualifying Tax-Exempt Organizations) will be assessed the same fee,
with the same usage rights, for Historic SLATE Data.
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\53\ 15 U.S.C. 78o-3(b)(6).
\54\ See proposed Rule 7720(c)(1)(A)-(B).
\55\ See proposed Rule 7720(c)(1)(B).
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Proposed Rule 7720 would apply a lower fee to qualifying Tax-Exempt
Organizations for both the SLATE Loan-Level Data and Daily Loan
Statistics as well as the Historic SLATE Data. As is the case with
other data products offered by FINRA, e.g., TRACE,\56\ FINRA offers
data products at a reduced fee to qualifying Tax-Exempt Organizations
that have received recognition of the exemption from federal income
taxes from the Internal Revenue Service.\57\ In the proposed rule
change, FINRA has established the proposed fees applicable to
qualifying Tax-Exempt Organizations as half of the amounts that will be
assessed to parties other than qualifying Tax-Exempt Organizations.
FINRA also notes that Tax-Exempt Organizations only qualify for the
reduced fees offered under the rule if they do not redistribute the
data in bulk, or redistribute the data in bulk or otherwise at no
charge solely to other Tax-Exempt Organizations that agree to be
subject to the same restrictions.\58\ FINRA believes this aspect of the
proposed rule change is appropriate given the not-for-profit nature of
such organizations and therefore is not designed to permit unfair
discrimination between customers, issuers, brokers, or dealers, as
provided for in Section 15A(b)(6).\59\
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\56\ See Rule 7730(d)(1)(B).
\57\ See supra note 35.
\58\ See proposed Rule 7720(c)(2) and (d)(2).
\59\ 15 U.S.C. 78o-3(b)(6).
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FINRA also believes that the amounts of the proposed SLATE fees are
equitable, reasonable, and consistent with the Exchange Act. As further
discussed in the Economic Impact Assessment, in developing reporting
activity estimates, FINRA used data gathered through outreach to
industry participants, including data vendors, agent lenders, prime
brokers, retail brokers, and beneficial owners. FINRA believes that the
proposed SLATE data subscription fees also are reasonable given the
usage rights and the use cases for the data. Because the proposed SLATE
data products are a new product offering, it is difficult to estimate
subscription levels and associated revenue. In addition, based on
FINRA's experience, subscribership to data products may be slower
initially, with interest building over time. As a result, FINRA has
initially sought to rely primarily on revenues through SLATE reporting
to offset the costs that FINRA seeks to recover in connection with the
SEA Rule 10c-1a mandate. As such, the proposed fees generally are
consistent with FINRA's efforts to align its operating expenses with
its operating revenues, target break-even cash flows, and continue to
responsibly manage expenses driven by mandatory initiatives in a manner
consistent with FINRA's public Financial Guiding Principles.\60\ The
proposed SLATE fees will be applied consistently to all similarly
situated parties that are required to report Covered Securities Loans
(and their agents) (i.e., SLATE Participants) and to those that choose
to subscribe to SLATE data products.\61\
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\60\ See FINRA's Financial Guiding Principles, <a href="https://www.finra.org/sites/default/files/finra_financial_guiding_principles_0.pdf">https://www.finra.org/sites/default/files/finra_financial_guiding_principles_0.pdf</a>. As discussed above, FINRA
intends to reassess the SLATE reporting fees and data products and
associated fees after gaining experience with the operation of SLATE
and obtaining additional information regarding reporting volumes and
subscription interest. To the extent that FINRA determines that a
change to the SLATE fee structure would be appropriate to better
align SLATE revenues with the incremental direct ongoing costs
incurred in connection with the SLATE program, FINRA would file a
proposed rule change with the Commission pursuant to Section 19(b)
of the Exchange Act and Rule 19b-4 thereunder.
\61\ The proposed data products will be offered on the same
terms to any similarly situated party that seeks to subscribe.
---------------------------------------------------------------------------
For the reasons discussed herein, FINRA believes that the proposed
rule change is consistent with Section 15A(b)(5) of the Exchange Act,
including that the proposal provides for the equitable allocation of
reasonable dues, fees and other charges among members and issuers and
other persons using any facility or system that FINRA operates or
controls.\62\ FINRA likewise believes that the proposed rule change is
consistent with Section 15A(b)(6) of the Act, which requires, among
other things, that FINRA rules are not designed to permit unfair
discrimination between customers, issuers, brokers, or dealers.\63\
---------------------------------------------------------------------------
\62\ 15 U.S.C. 78o-3(b)(5).
\63\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
Section 15A(b)(9) of the Act requires that FINRA's rules not impose
any burden on competition that is not necessary or appropriate in
furtherance of the purpose of the Exchange Act.\64\ FINRA does not
believe that the proposed rule change will result in any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Act.
---------------------------------------------------------------------------
\64\ 15 U.S.C. 78o-3(b)(9).
---------------------------------------------------------------------------
Economic Impact Assessment
FINRA has undertaken an economic impact assessment, as set forth
below, to analyze the regulatory need for the proposed rule change, its
potential economic impacts, including distributional and competitive
effects, and the alternatives considered in assessing how to best meet
FINRA's regulatory objectives. The regulatory need is discussed above.
Economic Baseline
In its Adopting Release, the SEC estimated that 609 Covered Persons
and Reporting Agents would be affected by SEA Rule 10c-1a, of which 255
were Providing Covered Persons, 248 were Non-Providing Covered Persons,
and 106 were Reporting Agents.\65\ FINRA has estimated that
approximately 125,000 Initial Covered Securities Loan reports and
200,000 Loan Modification reports per day may be reported to SLATE.\66\
FINRA estimates that approximately 0.5% of Initial Covered Securities
Loan reports and Loan Modification reports could result in corrections,
cancellations, or deletions, and approximately 0.5% could be reported
late.\67\ FINRA anticipates that the volume of erroneous and late
reports
[[Page 93756]]
will decrease over time as Covered Persons gain experience with SLATE
reporting.
---------------------------------------------------------------------------
\65\ ``Providing Covered Persons'' would provide information
directly to an RNSA while ``Non-Providing Covered Persons'' would
use a reporting agent to provide information to an RNSA. See
Adopting Release, 88 FR 75644, 75718. ``Reporting Agent'' is defined
in SEA Rule 10c-1a(j)(4).
\66\ The quantity of Loan Modification reports will be impacted
by Covered Persons' reporting decisions, among other factors. For
example, the extent to which Covered Persons choose to report rates
as a spread to benchmark will affect the quantity of Loan
Modification reports due to be reported, which in turn will impact
fee revenues.
\67\ This estimate is based on FINRA's experience with TRACE
reporting. As of August 2024, the correction rate was approximately
0.8% for corporate bond reports and 0.68% for U.S. Treasury reports.
The rate of late reports was 0.61% for corporate bonds and 0.42% for
U.S. Treasury Securities. The correction and late reporting rates
may be lower for SLATE reporting because proposed Rule 6530
generally provides a longer timeframe for reporting Covered
Securities Loans to SLATE than is provided for corporates and U.S.
Treasury Securities under the TRACE reporting regime.
---------------------------------------------------------------------------
Economic Impacts
The economic impact of the currently proposed reporting fees, data
products and associated subscription fees are discussed below.
SLATE Reporting Fees
As discussed above, Covered Persons will incur fees for reporting
Initial Covered Securities Loans and Loan Modifications. Specifically,
FINRA proposes that, for each Initial Covered Securities Loan report, a
SLATE Participant will be subject to a fee of $0.07 per submission and
for each Loan Modification report, a SLATE Participant will be subject
to a fee of $0.03 per submission. FINRA also proposes that a SLATE
Participant will be charged a cancel, correct, or delete fee of $0.10
per canceled, corrected, or deleted Covered Securities Loan report, and
a late fee of $0.20 per Initial Covered Securities Loan or Loan
Modification that is not reported timely to SLATE.
Developing estimates for the anticipated number and type of SLATE
reports is challenging due to the availability of only limited
information upon which to base estimates. In developing estimates,
FINRA used data gathered through outreach to industry participants,
including data vendors, agent lenders, prime brokers, retail brokers,
and beneficial owners. These estimates were used to develop the
proposed fee structure, which is intended to align SLATE revenues with
the incremental direct ongoing costs incurred in connection with the
SLATE initiative.
Given the estimated number of reports and proposed reporting fees
discussed above, FINRA approximates that annual revenues from reporting
fees would be $2,205,000 for Initial Covered Securities Loan
reports,\68\ $1,512,000 for Loan Modification reports,\69\ $40,950 for
corrections, cancellations, and deletions,\70\ and $81,900 for late
reports.\71\ SLATE Participants will incur a $25 fee per user per month
for connecting to the SLATE web browser. Given the estimated number of
Covered Persons and Reporting Agents from the SEC's Adopting
Release,\72\ FINRA estimates the total connection fees per year would
be $365,400.\73\ Together, FINRA estimates SLATE reporting fees would
total $4,205,250 per year.\74\
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\68\ FINRA arrived at $2,205,000 by multiplying the estimated
number of daily Initial Loan Reports (125,000) by the proposed fee
rate of $0.07 by the number of business days per year (252 days).
\69\ FINRA arrived at $1,512,000 by multiplying the estimated
number of daily Loan Modification Reports (200,000) by the proposed
fee rate of $0.03 by the number of business days per year (252
days).
\70\ FINRA arrived at $40,950 by multiplying the sum of the
estimated number of daily Initial Loan Reports (125,000) and the
estimated number of daily Loan Modification Reports (200,000) by the
estimated rate of reports requiring a correction, cancellation, or
deletion (0.5%) by the proposed fee rate of $0.10 by the number of
business days per year (252 days).
\71\ FINRA arrived at $81,900 by multiplying the sum of the
estimated number of daily Initial Loan Reports (125,000) and the
estimated number of daily Loan Modification Reports (200,000) by the
estimated rate of late reports (0.5%) by the proposed fee rate of
$0.20 by the number of business days per year (252 days).
\72\ See Adopting Release, 88 FR 75644, 75718.
\73\ FINRA arrived at $365,400 by multiplying the estimated
number of Covered Persons and Reporting Agents (609) by an assumed 2
user accounts per Covered Person by the proposed fee rate of $25 per
month by 12 months per year.
\74\ FINRA arrived at $4,205,250 by adding the estimated annual
revenue from reporting fees for Initial Covered Securities Loan
Reports ($2,205,000), the estimated annual revenue from reporting
fees for Loan Modification Reports ($1,512,000), the estimated
annual revenue from correction, cancellation, and deletion fees
($40,950), the estimated annual revenue from fees for late reports
($81,900), and the estimated annual revenue from connection fees
($365,400).
---------------------------------------------------------------------------
FINRA considered the potential impact of the proposed SLATE
reporting fee structure on securities lending activities. Covered
Persons' securities lending activities will impact the amount of
reporting fees that they would incur. Some types of Covered Persons,
such as lending agents, may incur relatively larger reporting fees
compared to other Covered Persons due to their function in the
securities lending market (e.g., agent lenders generally transact as
Covered Persons in higher volumes relative to other securities lending
market participants). Lending agents may pass along fully or partially
the reporting fees to beneficial owners, for instance, in the form of a
direct charge or higher fees charged for lending services. The
reporting fees also may affect how Covered Persons structure or conduct
their securities lending business--e.g., how lending agents determine
to structure pool or lending programs. However, Covered Persons'
choices are also affected by other factors, including counterparty risk
and business models.
SLATE Data Products and Associated Fees
As described above, FINRA is proposing to establish SLATE data
products and associated fees.\75\ Specifically, FINRA is proposing to
make SLATE Loan-Level Data and Daily Loan Statistics available on a
subscription basis to qualifying Tax-Exempt Organizations (for $1,500/
month) as well as to persons and organizations other than qualifying
Tax-Exempt Organizations (for $3,000/month). Also as described above,
vendors may subscribe to display externally SLATE Loan-Level Data and
Daily Loan Statistics (for $10,000/month). The proposed SLATE data
products will enable a broader range of market participants to access
comprehensive securities lending data than would otherwise be available
in the absence of the proposed data products, which will further
enhance market transparency and efficiency. As discussed in the
Adopting Release, the broader availability of securities lending
information may lead to increased competition for data analytics
services as the barriers to entry for providing such services decline
and new entrants compete to provide analytics services.\76\
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\75\ Separate from the SLATE data products and associated fees
proposed herein, FINRA intends to make T+1 data, T+20 data, and
daily loan statistics available on FINRA's website free of charge
for personal, non-commercial purposes only. See supra note 21.
\76\ See Adopting Release, 88 FR 75644, 75712.
---------------------------------------------------------------------------
The proposed fees associated with the SLATE Loan-Level Data and
Daily Loan Statistics product apply only to market participants that
choose to subscribe. Market participants likely will assess the costs
and benefits of having access to these data as compared to their
existing sources of securities lending data.\77\ Vendors externally
displaying SLATE Loan-Level Data and Daily Loan Statistics may charge
for access to SLATE data. If vendors use securities lending data
obtained from FINRA to replace existing, more expensive sources of
securities lending data, they may pass some or all of the savings on to
their clients.
---------------------------------------------------------------------------
\77\ For a discussion of the current state of transparency in
securities lending, see Adopting Release, 88 FR 75644, 75696-75700.
---------------------------------------------------------------------------
As described above, in addition to SLATE Loan-Level Data and Daily
Loan Statistics, FINRA also will make Historic SLATE Data available:
(1) to qualifying Tax-Exempt Organizations (for a $1,000 set-up fee and
$2,500 per calendar year); and (2) to persons and organizations other
than qualifying Tax-Exempt Organizations (for a $2,000 set-up fee and
$5,000 per calendar year). Historic SLATE loan information would
facilitate the availability of securities lending data to interested
parties, such as academics, in connection with research efforts.\78\
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\78\ See Adopting Release, 88 FR 75644, 75705, 75717.
---------------------------------------------------------------------------
Given the substantial uncertainty in future subscribership for new
data products and the likelihood that interest may grow slowly over
time, FINRA's
[[Page 93757]]
best and conservative estimation of potential initial future revenues
from data product subscriptions is $250,000. Together with the
estimated reporting fee revenues discussed above, FINRA estimates
approximately $4.2 million in annual revenue from reporting fees and
$250,000 in revenue from data product subscriptions for total annual
revenue of approximately $4.5 million. This aligns with FINRA's
estimated incremental direct ongoing costs of approximately $4.5
million per year from 2026 through 2028, and approximately $4.4 million
in incremental direct ongoing costs thereafter.
Alternatives Considered
In developing the proposed rule change, FINRA considered various
alternatives and the potential costs and benefits of those
alternatives. Among other things, FINRA considered a volume-based
reporting fee structure where reporting fees would vary depending on
loan size. However, because loan size may not be proportional to the
potential revenue from reportable securities loans, a volume-based
reporting fee structure may create distortions in the market. For
example, the ratio of lending revenue to loan volume for short-term
financing or balance sheet management is generally lower than for
securities lending transactions used for accessing hard-to-borrow
securities. Volume-based reporting fees also could result in a
substantial concentration of reporting fees on Covered Persons with a
higher share of large-volume loans. Therefore, FINRA believes that a
flat fee rate per report will distribute fees in a more equitable
manner across market participants.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \79\ and paragraph (f)(2) of Rule 19b-4
thereunder.\80\ At any time within 60 days of the filing of the
proposed rule change, the Commission summarily may temporarily suspend
such rule change if it appears to the Commission that such action is
necessary or appropriate in the public interest, for the protection of
investors, or otherwise in furtherance of the purposes of the Act. If
the Commission takes such action, the Commission shall institute
proceedings to determine whether the proposed rule should be approved
or disapproved.
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\79\ 15 U.S.C. 78s(b)(3)(A).
\80\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. 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#cbb9bea7aee6a8a4a6a6aea5bfb88bb8aea8e5aca4bd"><span class="__cf_email__" data-cfemail="285a5d444d054b4745454d465c5b685b4d4b064f475e">[email protected]</span></a>. Please include
file number SR-FINRA-2024-020 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-2024-020. 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 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-2024-020 and should be submitted
on or before December 18, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\81\
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\81\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-27742 Filed 11-26-24; 8:45 am]
BILLING CODE 8011-01-P
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This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.