Notice2025-00179
Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving a Proposed Rule Change, as Modified by Partial Amendment No. 1, 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
January 8, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 5 (Wednesday, January 8, 2025)</title>
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[Federal Register Volume 90, Number 5 (Wednesday, January 8, 2025)]
[Notices]
[Pages 1563-1585]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-00179]
[[Page 1563]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102093; File No. SR-FINRA-2024-007]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Order Approving a Proposed Rule Change, as Modified by
Partial Amendment No. 1, To Adopt the FINRA Rule 6500 Series
(Securities Lending and Transparency Engine (SLATE\TM\))
January 2, 2025.
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\ 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.\4\ On August 5, 2024, the Commission instituted proceedings to
determine whether to approve or disapprove the proposed rule change,
and allow for additional analysis of, and input from commenters with
respect to, the scope and implementation of the proposed rules.\5\ On
October 28, 2024, the Commission designated January 2, 2025, as the
date by which the Commission shall either approve or disapprove the
proposed rule change.\6\ On November 14, 2024, FINRA filed a partial
amendment to the original proposed rule change. On November 15, 2024,
the Commission published notice of Partial Amendment No. 1.\7\ The
Commission received comment letters in response to publications of the
Notice, OIP, and Partial Amendment No. 1,\8\ as well as a response
letter from FINRA.\9\ This order approves the proposed rule change, as
modified by Partial Amendment No. 1 (collectively, ``Proposal'').\10\
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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'').
\4\ See Securities Exchange Act Release No. 100305 (June 10,
2024), 89 FR 50644 (June 14, 2024).
\5\ See Securities Exchange Act Release No. 100655 (August 5,
2024), 89 FR 65441 (August 9, 2024) (``OIP'').
\6\ See Securities Exchange Act Release No. 101450 (October 28,
2024), 89 FR 87448 (November 1, 2024).
\7\ See Securities Exchange Act Release No. 101645 (November 15,
2024), 89 FR 92228 (November 21, 2024) (``Partial Amendment No.
1''). All defined terms herein have the same meaning as they do in
the Notice and in Partial Amendment No. 1, as applicable.
\8\ Comments 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>.
\9\ See Letter from Racquel L. Russell, Senior Vice President,
Director of Capital Markets Policy, Office of General Counsel, FINRA
(November 14, 2024), available at <a href="https://www.sec.gov/comments/sr-finra-2024-007/srfinra2024007-540615-1548002.pdf">https://www.sec.gov/comments/sr-finra-2024-007/srfinra2024007-540615-1548002.pdf</a> (``FINRA Letter'').
\10\ The term ``Proposal'' as used herein refers to the proposed
rule change, as amended by Partial Amendment No. 1.
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II. Description of the Proposed Rule Change, as Modified by Partial
Amendment No. 1
As described in more detail in the Notice \11\ and in Partial
Amendment No. 1,\12\ FINRA stated that it proposed, consistent with
Exchange Act Rule 10c-1a (``Rule 10c-1a''),\13\ 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. FINRA stated its intent to file, and has filed,
separately a proposed rule change to establish Covered Securities Loan
reporting fees and securities loan data products and associated
fees.\14\
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\11\ See Notice, 89 FR 38204-06.
\12\ See Partial Amendment No. 1, 89 FR 92229.
\13\ 17 CFR 240.10c-1a.
\14\ Notice, 89 FR 38206. See infra Part III.I.
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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.\15\ 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, both of which
may include non-FINRA members, and providing access to such information
to market participants, the public, and regulators.\16\
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\15\ Notice, 89 FR 38213.
\16\ 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.\17\ Proposed Rule 6510 \18\ 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, as modified by Partial Amendment No.
1, for Initial Covered Securities Loans effected on a business day at
or after 12:00:00 a.m. Eastern Time (``ET'') through 7:00:00 p.m. ET
the required information must be reported the same day by 11:59:59 p.m.
ET.\19\ Additionally, as modified by Partial Amendment No. 1, for
Initial Covered Securities Loans effected on a business day after
7:00:00 p.m. ET, the required information must be reported no later
than the next business day (T+1) by 11:59:59 p.m. ET; \20\ 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 ET) must be reported the next
business day (T+1) by 11:59:59 p.m. ET.\21\
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\17\ As described in more detail in the Notice, as well as
below, in Part II.C, a Covered Person may engage a Reporting Agent
to comply with the reporting obligations on its behalf.
\18\ Partial Amendment No. 1 modified originally proposed Rule
6510 by removing the subparagraph providing the definition of
``Affiliate,'' re-lettering all subsequent subparagraphs under
proposed Rule 6510, and updating cross-references in proposed Rule
6510 to other SLATE provisions.
\19\ See proposed Rule 6530(a)(1)(A). As originally proposed in
the Notice, an Initial Covered Securities Loan effected on a
business day at or after 12:00:00 a.m. ET through 7:45:00 p.m. ET
would have been reported the same day before 8:00:00 p.m. ET.
\20\ See proposed Rule 6530(a)(1)(B). As originally proposed in
the Notice, an Initial Covered Securities Loan effected on a
business day after 7:45:00 p.m. ET would have been reported no later
than the next business day (T+1) before 8:00:00 p.m. ET.
\21\ See proposed Rule 6530(a)(1)(C). As originally proposed in
the Notice, an Initial Covered Securities Loan 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 ET) would have been reported the next business day (T+1)
before 8:00:00 p.m. ET.
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[[Page 1564]]
Proposed Rule 6530(a)(2) (Loan Information To Be Reported) would
specify the items of information that must be reported to FINRA.
Specifically, as modified by Partial Amendment No. 1,\22\ proposed Rule
6530(a)(2)(A) through (L) would require that Initial Covered Securities
Loan reports must contain the below non-confidential data elements:
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\22\ As originally proposed in the Notice, each SLATE report
would have contained the expected settlement date of the Covered
Securities Loan. Partial Amendment No. 1 removed this proposed data
element. In addition, as originally proposed in the Notice, each
SLATE report would have contained the data element ``[a]ny other
fees or charges'' separately from the data element concerning the
rebate rate, as applicable to a Covered Securities Loan
collateralized by cash or a Covered Securities Loan not
collateralized by cash. FINRA stated that, when reporting a rebate
rate or lending fee pursuant to (originally) proposed Rule
6530(a)(2)(I) or (J), respectively, a Covered Person must report the
rebate rate or lending fee as a percentage, and separately report
the dollar cost of any other fees or charges. See Notice, 89 FR
38206 n.30. The data element ``[a]ny other fees or charges'' has
been removed by Partial Amendment No. 1. In light of the removal of
these data elements, Partial Amendment No. 1 re-lettered the
paragraphs under proposed Rule 6530(a)(2). Changes from Partial
Amendment No. 1 regarding specific data elements are discussed below
with respect to such data elements.
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(A) The legal name of the security issuer and the Legal Entity
Identifier (``LEI'') of the issuer (if the issuer has a non-lapsed
LEI);
(B) Security symbol, CUSIP, ISIN, or FIGI, or other security
identifier; \23\
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\23\ Partial Amendment No. 1 added the text ``or other security
identifier'' to this list.
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(C) The date the Covered Securities Loan was effected;
(D) The time the Covered Securities Loan was effected;
(E) The name of the platform or venue where the Covered Securities
Loan was effected; \24\
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\24\ Partial Amendment No. 1 added the text ``name of the''
before the word ``platform.'' FINRA stated that it will make
available a list of platforms/venues and their associated
identifiers for reporting purposes; if a loan occurs on a platform/
venue not yet included on the FINRA list, the Covered Person must
enter the name of the platform/venue in the SLATE report. See
Notice, 89 FR 38206 n.28.
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(F) The amount of the Reportable Securities loaned; \25\
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\25\ Proposed Rule 6530(a)(3) specifies that, for a Covered
Securities Loan of a security reportable to CAT, a Covered Person
must report the number of shares loaned. For a Covered Securities
Loan of a security reportable to Trade Reporting and Compliance
Engine (``TRACE'') or the Municipal Securities Rulemaking Board's
Real-Time Transaction Reporting System (``RTRS''), a Covered Person
must report the total par value of the securities loaned. Notice, 89
FR 38206 n.29.
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(G) The type of collateral used to secure the Covered Securities
Loan;
(H) For a Covered Securities Loan collateralized by cash, the
rebate rate or any other fee or charges; \26\
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\26\ Partial Amendment No. 1 modified this proposed data element
by adding the text ``or any other fee or charges.''
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(I) For a Covered Securities Loan not collateralized by cash, the
securities lending fee or rate, or any other fee or charges; \27\
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\27\ Partial Amendment No. 1 modified this proposed data element
by adding the text ``or rate, or any other fee or charges.''
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(J) The percentage of collateral to value of Reportable Securities
loaned required to secure such Covered Securities Loan;
(K) The termination date of the Covered Securities Loan; \28\
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\28\ As originally proposed in the Notice, such information
would have been provided in connection with a Covered Securities
Loan with a specified term. Partial Amendment No. 1 modified this
data element by removing the modifying text ``[f]or a Covered
Securities Loan with a specified term.''
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(L) 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.\29\
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\29\ Proposed Rule 6510 would define the terms ``Broker,''
``Dealer,'' ``Clearing Agency,'' ``Bank,'' and ``Custodian'' by
reference to their respective definitions under section 3(a) of the
Exchange Act. See Notice, 89 FR 38207 nn.32-36.
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As modified by Partial Amendment No. 1,\30\ proposed Rule
6530(a)(2)(M) through (U) would also require that Initial Covered
Securities Loan reports contain the below confidential data elements:
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\30\ As originally proposed in the Notice, each SLATE report
would have specified whether the Covered Person is the lender,
borrower or intermediary; 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; and such modifiers and indicators
as required by either the Rule 6500 Series or the SLATE Participant
(defined in proposed Rule 6510(g)) specification. Partial Amendment
No. 1 removed these proposed data elements. Changes from Partial
Amendment No. 1 regarding specific data elements are discussed below
with respect to such data elements.
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(M) If known, the market participant identifier (``MPID'') of the
Covered Person; \31\
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\31\ Partial Amendment No. 1 added this data element to the list
of loan information to be reported. FINRA stated that the conforming
change to proposed Rule 6530(a)(2) to require a Covered Person to
submit their MPID, if known, when reporting an Initial Covered
Securities Loan, consistent with the requirement in proposed Rule
6530(b)(2)(C) for Loan Modification reports, will identify in the
audit trail the party on whose behalf a SLATE report is submitted.
Partial Amendment No. 1, 89 FR 92231.
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(N) If known, the legal name of each party to the Covered
Securities Loan (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));
(O) If known, the CRD Number or Investment Adviser Registration
Depository (``IARD'') Number of each party to the Covered Securities
Loan; \32\
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\32\ Partial Amendment No. 1 removed the text ``if applicable''
at the end of this data element.
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(P) If known, the MPID of each party to the Covered Securities
Loan;
(Q) If known, the LEI of each party to the Covered Securities Loan;
(R) If known, whether each party to the Covered Securities Loan is
the lender, the borrower, or an intermediary between the lender and the
borrower;
(S) 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 a \33\ customer of such
Broker or Dealer;
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\33\ Partial Amendment No. 1 replaced the word ``the'' with the
word ``a'' before the text ``customer of such Broker or Dealer.''
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(T) 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; and \34\
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\34\ Partial Amendment No. 1 added the word ``and'' between
originally proposed paragraphs (a)(2)(T) and (a)(2)(U).
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(U) Where a Covered Person's daily submission includes two or more
reports related to the same Covered Securities Loan (e.g., an Initial
Covered Securities Loan and a Loan Modification to terminate the
Covered Securities Loan) and FINRA has not yet assigned a unique
identifier to the Initial Covered Securities Loan, a unique identifier
assigned to the Covered Securities Loan by the Covered Person
responsible for reporting the loan to SLATE.\35\
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\35\ As originally proposed in the Notice, this data element
would have provided the following: ``The unique internal identifier
assigned to the Covered Securities Loan by the Covered Person
responsible for reporting the loan to SLATE.''
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FINRA originally proposed six modifiers and indicators set forth in
proposed Rule 6530(c), which would have applied 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).\36\ These modifiers or indicators would have been appended to
all SLATE reports.\37\ FINRA stated that it planned to use these
modifiers for data validation purposes (e.g., in instances where
FINRA's data
[[Page 1565]]
validation logic identified the reported rate as potentially
erroneous).\38\ Partial Amendment No. 1 removed the proposed
requirement to append to each SLATE report specified modifiers and
indicators. Partial Amendment No. 1 also modified proposed Rule 6510
(Definitions) by removing the definition of the term ``affiliate''
because that term is no longer needed given the deletion of the related
indicator.\39\
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\36\ See Notice, 89 FR 38207-08.
\37\ These modifiers and indicators would have been the
following: Exclusive Arrangement; Loan to Affiliate; Unsettled Loan;
Terminated Loan; Rate or Fee Adjustment; and Basket Loan. For a
discussion of each of these modifiers and indicators, see Notice, 89
FR 38208.
\38\ See Notice, 89 FR 38208.
\39\ See supra note 18.
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Partial Amendment No. 1 added proposed Rule 6530(a)(4) (Reporting
Loan Rates Based on a Spread to a Benchmark or Reference Rate) to
permit Covered Persons to--as an alternative to reporting the rebate
rate or lending fee or rate for a Covered Securities Loan--report the
spread and identity of the benchmark or reference rate for Covered
Securities Loans that are priced based on a spread to a benchmark or
reference rate. Specifically, new proposed Rule 6530(a)(4)(B) would
provide that, where a rebate rate or lending fee or rate is determined
based on a spread to a benchmark or reference rate, a Covered Person
may report: (1) the rebate rate or lending fee or rate as of the date
the Covered Securities Loan was effected; (2) the spread; and (3) the
identity of the benchmark or reference rate. Alternatively, a Covered
Person may report only the rebate rate or lending fee or rate.
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 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 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, as modified by Partial Amendment No. 1,
for Loan Modifications effected on a business day at or after 12:00:00
a.m. ET through 7:00:00 p.m. ET, the required information must be
reported the same day by 11:59:59 ET.\40\ As modified by Partial
Amendment No. 1, for Loan Modifications effected on a business day
after 7:00:00 p.m. ET, the required information must be reported no
later than the next business day (T+1) by 11:59:59 ET; \41\ 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 ET) must be reported the next business day
(T+1) by 11:59:59 ET.\42\
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\40\ As originally proposed in the Notice, a Loan Modification
effected on a business day at or after 12:00:00 a.m. ET through
7:45:00 p.m. ET would have been reported the same day by 8:00:00
p.m. ET.
\41\ As originally proposed in the Notice, a Loan Modification
effected on a business day after 7:45:00 p.m. ET would have been
reported no later than the next business day (T+1) by 8:00:00 p.m.
ET.
\42\ As originally proposed in the Notice, a Loan Modification
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 ET) would have been reported the next business day
(T+1) by 8:00:00 p.m. ET.
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Proposed Rule 6530(b)(2) (Loan Modifications--Information To Be
Reported) would specify the items of information that must be reported
to FINRA. Specifically, as modified by Partial Amendment No. 1,\43\
proposed Rule 6530(b)(2)(A) through (E) would require that each Loan
Modification report contain the information below:
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\43\ As originally proposed in the Notice, for Loan
Modifications, each SLATE report would have contained the following
data elements: 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; 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); whether the Covered person is the lender,
borrower or intermediary; and such modifiers and indicators as
required by either the Rule 6500 Series or the SLATE Participant
specification. Partial Amendment No. 1 removed these proposed data
elements. In light of the removal of these data elements, Partial
Amendment No. 1 re-lettered the paragraphs under proposed Rule
6530(b)(2). Changes from Partial Amendment No. 1 regarding specific
data elements are discussed below with respect to such data
elements.
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(A) The unique identifier assigned by FINRA to the Initial Covered
Securities Loan, or where a Covered Person's daily submission includes
two or more reports related to the same Covered Securities Loan and
FINRA has not yet assigned a unique identifier to the Covered
Securities Loan, the identifier reported pursuant to paragraph
(a)(2)(U) of this Rule; \44\
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\44\ As originally proposed in the Notice, the following
information concerning this requirement would have been reported
with respect to Loan Modifications: 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.
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(B) If known, the MPID of the Covered Person; \45\
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\45\ Partial Amendment No. 1 added the text ``[i]f known'' to
the beginning of this data element.
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(C) The date of the Loan Modification;
(D) The time of the Loan Modification; and \46\
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\46\ Partial Amendment No. 1 added the word ``and'' between
paragraphs (b)(2)(D) and (b)(2)(E).
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(E) (i) If the Loan Modification occurs after the Data Elements for
such Covered Securities Loan are reported to SLATE, and results in a
change to information previously required to be reported to SLATE, the
specific modification and the specific Data Elements being modified, or
(ii) If the Loan Modification is to a Covered Securities Loan for which
reporting to SLATE was not required on the date the loan was agreed to
or last modified and results in a change to any of the Data Elements,
all Data Elements as of the date of modification and an identifier
described in paragraph (a)(2)(U) of this Rule.\47\
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\47\ As originally proposed in the Notice, this data element
would have concerned ``[t]he modified Data Elements for a Loan
Modification to a Covered Securities Loan previously reported to
SLATE or all Data Elements for a Loan Modification to a Covered
Securities Loan that was not previously required to be reported to
SLATE.'' Partial Amendment No. 1 replaced that text with the text
included above.
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As originally proposed in the Notice, Rule 6530.01 (Intraday Loan
Modifications) would have addressed 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) were modified multiple times throughout the day,
proposed Rule 6530.01 would have set forth the requirement for a
Covered Person to report each Loan Modification that occurred on a
given day as set forth in proposed Rule 6530(b).\48\ Partial Amendment
No. 1 removed proposed Rule 6530.01.
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\48\ See Notice, 89 FR 38209.
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As originally proposed in the Notice, Rule 6530.02 (Changes to the
Parties to a Covered Securities Loan) would have provided 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
[[Page 1566]]
excess margin securities pursuant to SEA Rule 15c3-3(b)(3)). Partial
Amendment No. 1 removed originally proposed Rule 6530.02.
C. Compliance With Reporting Obligations
FINRA proposed to adopt, as modified by Partial Amendment No. 1,
proposed Rule 6530(c) (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.\49\ Specifically,
proposed Rule 6530(c)(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. Similar to requirements
that exist with respect to reporting obligations under other FINRA
rules,\50\ proposed Rule 6530(c)(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.
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\49\ Partial Amendment No. 1 re-lettered this provision
paragraph to (c).
\50\ See, e.g., FINRA Rule 6380A(a)(4); FINRA Rule 6622(a)(4);
FINRA Rule 6623; FINRA Rule 6730(f).
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As originally proposed in the Notice, even where a member employs a
Reporting Agent consistent with Rule 10c-1a(a)(2), the member would
nonetheless have been required to 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. Originally proposed Rule 6530(d)(3) \51\ would have
provided 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. Partial Amendment No. 1 removed this proposed
requirement.
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\51\ See supra note 49.
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As modified by Partial Amendment No. 1, proposed Rule 6530(c)(3)
\52\ would provide that, if a Covered Person makes a good faith
determination that it has a reporting obligation under Rule 10c-1a,\53\
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(c)(3) 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.
FINRA stated that this requirement would enable FINRA to set the
security up in its systems and facilitate reporting of the Covered
Securities Loan to SLATE, as required by Rule 10c-1a and proposed Rule
6530.\54\
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\52\ As originally proposed in the Notice, this paragraph would
have been (d)(4). Partial Amendment No. 1 re-lettered and re-
numbered this paragraph to (c)(3).
\53\ As originally proposed in the Notice, this requirement
would have applied with respect to a reporting obligation under both
Rule 10c-1a and SLATE. Partial Amendment No. 1 removed the text
``and this Rule 6500 Series'' from proposed Rule 6530(c)(3).
\54\ Notice, 89 FR 38210.
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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 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 the participation
requirements set forth in paragraph (a)(2) of this Rule.
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 updates
\55\ 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. FINRA
stated that this requirement is consistent with Rule 10c-1a(b)(4).\56\
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\55\ Partial Amendment No. 1 changed the word ``changes,'' as
originally proposed in the Notice, to ``updates.''
\56\ Notice, 89 FR 38210.
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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) also would 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.\57\
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\57\ As originally proposed in the Notice, SLATE System Hours
would have meant the hours SLATE is open, which would be 6:00:00
a.m. ET through 7:59:59 p.m. ET on a business day, unless otherwise
announced by FINRA. Partial Amendment No. 1 modified this proposed
text from ``7:59:59 p.m. Eastern Time'' to ``11:59:59 p.m. Eastern
Time.''
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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.
[[Page 1567]]
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), as modified
by Partial Amendment No. 1, 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) for an Initial Covered Securities Loan,\58\ the
unique identifier assigned by FINRA to the Covered Securities Loan; (2)
for a Loan Modification, the unique identifier assigned by FINRA to the
Covered Securities Loan if reported to SLATE or otherwise identified by
FINRA; \59\ (3) the security identifier(s) specified in Rule
6530(a)(2)(A) or (B) that FINRA determines is appropriate to
disseminate; and (4) the requisite Data Elements,\60\ except the amount
of Reportable Securities loaned.\61\
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\58\ Partial Amendment No. 1 added the text ``for an Initial
Covered Securities Loan.''
\59\ Partial Amendment No. 1 added this paragraph (a)(2) to
proposed Rule 6540 and re-numbered the subsequent paragraphs under
proposed Rule 6540(a).
\60\ See Notice, 89 FR 38211.
\61\ See Partial Amendment No. 1, 89 FR 92234-35.
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2. T+20 Loan Amount Dissemination
As discussed in greater detail in the Notice,\62\ and as described
in Partial Amendment No. 1,\63\ 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) for an
Initial Covered Securities Loan,\64\ the unique identifier assigned by
FINRA to the Covered Securities Loan; (2) for a Loan Modification, the
unique identifier assigned by FINRA to the Covered Securities Loan if
reported to SLATE or otherwise identified by FINRA; \65\ (3) the
security identifier(s) specified in Rule 6530(a)(2)(A) or (B) that
FINRA determines is appropriate to disseminate; and (4) the amount of
Reportable Securities loaned reported to SLATE. FINRA stated that, 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).\66\
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\62\ See Notice, 89 FR 38211.
\63\ See Partial Amendment No. 1, 89 FR 92235.
\64\ Partial Amendment No. 1 added the text ``for an Initial
Covered Securities Loan.''
\65\ Partial Amendment No. 1 added this paragraph (b)(2) to
proposed Rule 6540 and re-lettered the subsequent paragraphs under
proposed Rule 6540(b).
\66\ Notice, 89 FR 38211.
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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.
Pursuant to paragraph (1) (Aggregate Loan Transaction Activity) of
proposed Rule 6540(c), 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
disseminate). As modified by Partial Amendment No. 1, the aggregated
data would include, for each Reportable Security, under proposed Rule
6540(c)(1), the aggregate volume of securities \67\ subject to an
Initial Covered Securities Loan or modification to the amount of
Reportable Securities loaned, reported on the prior business day.
---------------------------------------------------------------------------
\67\ Partial Amendment No. 1 removed the text ``(both in total
and by collateral type)'' following the word ``securities.''
---------------------------------------------------------------------------
FINRA stated that these data would provide the public with useful
information concerning the daily lending activity in Reportable
Securities, including insight into how this activity is distributed
across collateral types.\68\ To that end, proposed Rule 6540.01 (De
Minimis Loan Transaction Activity), as modified by Partial Amendment
No. 1, would state that FINRA will not include aggregate volume
information for a Reportable Security unless there were reports
submitted to SLATE on the prior business day for at least ten distinct
Covered Securities Loans in the Reportable Security (represented by
different FINRA-assigned unique loan identifiers).\69\
---------------------------------------------------------------------------
\68\ Notice, 89 FR 38212.
\69\ As originally proposed in the Notice, Rule 6540.01 (De
Minimis Loan Transaction Activity) would have provided 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. Notice, 89 FR
38212 n.74.
---------------------------------------------------------------------------
Partial Amendment No. 1 also removed four other originally proposed
provisions related to FINRA's dissemination of aggregate loan
transaction activity. As originally proposed in the Notice, the
aggregated loan transaction activity data disseminated pursuant to
proposed Rule 6540(c)(1) would also have included under: (1) 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; (2) proposed Rule
6540(c)(1)(C), the aggregate volume of securities subject to an Initial
Covered Securities Loan or modification to the amount of Reportable
Securities loaned subject to a loan with a specified term and subject
to a loan without a specified term reported on the prior business day;
(3) proposed Rule 6540(c)(1)(D), the aggregate volume of securities
subject to an Initial Covered Securities Loan or modification to the
amount of Reportable Securities loaned to one or more borrower types
specified in Rule 6530(a)(2)(N) reported on the prior business day; and
(4) proposed Rule 6540(c)(1)(E), 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.
Pursuant to paragraph (2) (Loan Rate Distribution Data) of proposed
Rule 6540(c), 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 or rates, as
applicable,\70\ including: 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,\71\ reported to SLATE for
[[Page 1568]]
Initial Covered Securities Loans collateralized by cash and,
separately, 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 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,
separately, for Loan Modifications not collateralized by cash (where
the Loan Modification involved a change to the lending fee or rate).
FINRA stated that these rate distribution metrics would provide market
participants with both an overall view of the range of daily loan
pricing for each Reportable Security, as well as insight into the
relationship between loan rates/fees and loan amounts.\72\
---------------------------------------------------------------------------
\70\ FINRA stated that, in addition to the items of information
specified in paragraphs (A) and (B) of proposed Rule 6540(c)(2),
FINRA may, in its discretion, publish or distribute additional
metrics regarding loan rebate rates and lending fees free of charge.
Notice, 89 FR 38212 n.79.
\71\ Partial Amendment No. 1 added the text ``by U.S. currency
and non-U.S. currency, as applicable.'' FINRA stated that the
modification made by Partial Amendment No. 1 is appropriate because
the currency used as collateral will impact the rebate rate reported
to SLATE and, therefore, separating the rate information by U.S.
currency collateral and non-U.S. currency collateral will make the
disseminated information more useful. Partial Amendment No. 1, 89 FR
92232.
\72\ Notice, 89 FR 38212.
---------------------------------------------------------------------------
Proposed Rule 6540(d) (Loan Transaction Information Not
Disseminated), as modified by Partial Amendment No. 1, would specify
that FINRA will not disseminate any Confidential Data Elements reported
to SLATE.\73\ 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.
---------------------------------------------------------------------------
\73\ As originally proposed in the Notice, FINRA would not have
disseminated any modifier or indicator required by either the Rule
6500 Series or the SLATE Participant specification that FINRA
determines shall not be publicly disseminated. Partial Amendment No.
1 removed this language.
---------------------------------------------------------------------------
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. FINRA stated
that this proposed rule is consistent with FINRA's rules governing
other reporting facilities that it operates.\74\
---------------------------------------------------------------------------
\74\ Notice, 89 FR 38212 (citing FINRA Rule 6770).
---------------------------------------------------------------------------
FINRA stated that, if the Commission approves the proposed rule
change, unless an extension is provided pursuant to Commission order,
the implementation date of the proposed FINRA rules establishing the
reporting requirements will be January 2, 2026; and the implementation
date of the proposed FINRA rules establishing the dissemination
requirements will be April 2, 2026.\75\
---------------------------------------------------------------------------
\75\ Notice, 89 FR 38213.
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III. Summary of Comments, FINRA's Response, and Commission Findings
After reviewing the Notice, Partial Amendment No. 1, and comment
letters received, the Commission finds that the Proposal is consistent
with the requirements of the Exchange Act and the rules and regulations
thereunder applicable to a national securities association.\76\ In
particular, the Commission finds that the Proposal is consistent with
Section 15A(b)(6) of the Exchange Act,\77\ which requires, among other
things, that FINRA rules be designed to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in
securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general, to
protect investors and the public interest; and are not designed to
permit unfair discrimination between customers, issuers, brokers, or
dealers. The Commission also finds that the Proposal is consistent, in
particular, with Section 15A(b)(9) of the Exchange Act,\78\ which
requires that FINRA rules do not impose any burden on competition not
necessary or appropriate in furtherance of the purposes of the Exchange
Act.
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\76\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f). See also infra Part
III.E.
\77\ 15 U.S.C. 78o-3(b)(6).
\78\ 15 U.S.C. 78o-3(b)(9).
---------------------------------------------------------------------------
In adopting Rule 10c-1a, the Commission stated that the rule's
requirements are designed to increase the transparency of information
available to brokers, dealers, and investors with respect to loans or
borrowing securities.\79\ Rule 10c-1a requires, among other things,
that FINRA implement rules regarding the format and manner of its
collection of information described in Rule 10c-1a(c) through (e) and
make publicly available such information in accordance with rules
promulgated pursuant to Section 19(b) and Rule 19b-4.\80\ Rule 10c-1a
also requires that FINRA make publicly available, in accordance with
Rule 10c-1a's specified timeframes, certain securities loan information
that FINRA receives.\81\ As discussed in greater detail below, in Part
III, the Proposal is consistent with these requirements.
---------------------------------------------------------------------------
\79\ Reporting of Securities Loans, Securities Exchange Act
Release No. 98737 (October 13, 2023), 88 FR 75644 (November 3, 2023)
(``Rule 10c-1a Adopting Release''), at 75646.
\80\ 17 CFR 240.10c-1a(f).
\81\ See 17 CFR 240.10c-1a(g).
---------------------------------------------------------------------------
Price transparency plays a fundamental role in promoting fairness
and efficiency of U.S. capital markets. The Proposal, by implementing
the applicable requirements of Rule 10c-1a, would increase transparency
in the securities lending market through improvements to the
comprehensiveness, breadth, accuracy, and accessibility of securities
lending data.\82\ The loan information filed in SLATE reports and
disseminated by FINRA will be more comprehensive and include additional
data fields than the data currently offered by commercial data
vendors.\83\ Moreover, this information will be available to all market
participants.\84\ This increased transparency will, among other things,
allow end borrowers and beneficial owners to determine the extent to
which their broker-dealers and lending agents are obtaining terms that
are better, worse, or consistent with current market conditions for
loans with similar characteristics.\85\ The Proposal would facilitate
this comparison by providing comprehensive transaction-by-transaction
information about the cost to borrow and other loan characteristics
that are currently mostly unavailable to end borrowers and beneficial
owners.\86\ Furthermore, the Proposal, by implementing the applicable
requirements of Rule 10c-1a, will increase transparency in the
securities lending market, which will have positive effects on capital
formation, in particular, by improving price discovery in securities
markets and improving balance sheet management by financial
institutions.\87\
---------------------------------------------------------------------------
\82\ See Rule 10c-1a Adopting Release, 88 FR 75706.
\83\ See Rule 10c-1a Adopting Release, 88 FR 75706-7.
\84\ See Rule 10c-1a Adopting Release, 88 FR 75707.
\85\ See Rule 10c-1a Adopting Release, 88 FR 75707.
\86\ See Rule 10c-1a Adopting Release, 88 FR 75707.
\87\ See Rule 10c-1a Adopting Release, 88 FR 75724.
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[[Page 1569]]
The Proposal, by improving transparency and efficiency in the
securities lending market consistent with Rule 10c-1a, would thus help
protect investors and promote just and equitable principles of trade,
consistent with Section 15A(b)(6). By implementing the requirements of
Rule 10c-1a, the Proposal would improve upon current data sources that
identifies the parties to the loans, indicates when a broker-dealer
loans its own securities to its customers, and indicates whether the
purpose of such a loan was to close out a failure to deliver.\88\
Further, the improved access and comprehensiveness and reduced bias of
the publicly available data will also accrue to FINRA and the
Commission, as well as any other regulators using these data.\89\ This
access will benefit investors by enhancing regulatory tools employed to
promote fair and orderly securities markets. In particular, investors
may benefit from improved surveillance and enforcement uses, market
reconstruction uses, and market research uses.\90\
---------------------------------------------------------------------------
\88\ See Rule 10c-1a Adopting Release, 88 FR 75715-16.
\89\ See Rule 10c-1a Adopting Release, 88 FR 75716.
\90\ See Rule 10c-1a Adopting Release, 88 FR 75716.
---------------------------------------------------------------------------
The disclosure of party identities and purpose information under
the Proposal may facilitate better surveillance by FINRA for regulatory
compliance by its members and may improve its ability to enforce such
regulations. For example, for FINRA, the information on whether the
security is loaned from a broker-dealer's securities inventory to its
customer may assist FINRA in determining whether a broker-dealer is
charging lending fees or paying rebates commensurate with the market.
Thus, beneficial owners and end borrowers, who engage in securities
lending transactions, will be better protected against potential unfair
pricing of securities loans by broker-dealers.\91\ FINRA's enhanced
surveillance capabilities facilitated by the Proposal could better
protect investors by helping to ensure that entities engaging in
certain securities lending transactions are authorized to do so and are
in compliance with applicable regulations.\92\ FINRA can also use the
information to monitor when broker-dealers are building up risk,
thereby protecting broker-dealers' customers against potential
instabilities.\93\ FINRA can use data on the identity and activity of
its members to provide an early warning with regard to the behavior of
its members during a short squeeze.\94\
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\91\ See Rule 10c-1a Adopting Release, 88 FR 75716.
\92\ See Rule 10c-1a Adopting Release, 88 FR 75716.
\93\ See Rule 10c-1a Adopting Release, 88 FR 75716.
\94\ See Rule 10c-1a Adopting Release, 88 FR 75716.
---------------------------------------------------------------------------
The Commission received comments on the proposed rule change.\95\
Some commenters expressed general support for the proposed rule
change.\96\ One commenter stated that the proposed rule change 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.'' \97\ Another
commenter stated that the proposed rule change ``is a great idea.''
\98\ One commenter stated its agreement with the proposed rule change
and that it will ``build a stronger market.'' \99\ Comments regarding
specific aspects of the proposed rule change are discussed below, in
Parts III.A through III.J.
---------------------------------------------------------------------------
\95\ See supra note 8.
\96\ See, e.g., Letter from Anonymous (May 14, 2024); Letter
from Jimit Raithatha (August 7, 2024); Letter from Patrick O'Ney
(August 9, 2024); Letter from Heinrich M. (August 9, 2024); Letter
from Corey (September 12, 2024); Letter from Anonymous (September
16, 2024). See also Form Letter A; Form Letter D; Form Letter E;
Letter from Freddy Lo (August 9, 2024); Letter from Graham Ladner
(August 9, 2024); Letter from Kevin McNulty, Managing Director, Head
of RegTech, EquiLend Holdings LLC (August 27, 2024) (``EquiLend
Letter 2''), at 1; Letter from Jane Plumberg (September 10, 2024);
Letter from Traci Olafson (September 12, 2024).
\97\ Letter from Jennifer (May 15, 2024).
\98\ Letter from Suzanne Shatto (May 22, 2024). See also Letter
from Suzanne Shatto (August 21, 2024).
\99\ Letter from Derek Madden (September 12, 2024).
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A. Loan Information To Be Reported
1. Data Elements Not Included in Rule 10c-1a
Some commenters stated that the proposed rule change, as originally
proposed in the Notice, would impose on market participants reporting
requirements that go beyond the requirements of Rule 10c-1a.\100\ Some
commenters identified the data elements that would be required to be
reported under the proposed rule change, as originally proposed in the
Notice, that they stated were not included under Rule 10c-1a,
including: (1) the expected settlement date of the Covered Securities
Loan; (2) any other fees or charges (i.e., the dollar cost of any other
fees or charges in addition to the rebate rate or securities lending
fee separately required to be reported); \101\ (3) whether the Covered
Person is the lender, borrower, or intermediary; (4) 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; (5) 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); (6) such modifiers and indicators as are required by
FINRA under the Rule 6500 Series or the SLATE Participant
specification; and (7) the unique internal identifier assigned to the
Covered Securities Loan by the Covered Person responsible for reporting
the loan to SLATE.\102\ Some commenters stated that the additional data
and information requirements that are not specifically mentioned in
Rule should be removed.\103\ Some commenters stated that the proposed
[[Page 1570]]
rule change, as originally proposed in the Notice, would result in the
disclosure of highly sensitive information and contribute to
significant increased costs, burdens, and complexity for implementation
and compliance due to the introduction of additional data elements that
go beyond the requirements of Rule 10c-1a.\104\
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\100\ 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 (May 28, 2024) (``SIFMA Letter''), at
3; Letter from Sarah A. Bessin, Deputy General Counsel, Investment
Company Institute, et al. (May 24, 2024) (``Associations Collective
Letter''), at 2; Letter from Paul Cellupica, General Counsel and
Kimberly Thomasson Assistant General Counsel, Investment Company
Institute, et al. (July 30, 2024) (``ICI Letter''), at 2; Letter
from Brian P. Lamb, CEO, EquiLend Holdings LLC (May 28, 2024)
(``EquiLend Letter 1''), at 6-7; Letter from Fran Garritt, Head of
Business, and Mark Whipple, Chairman of the Board of Directors,
International Securities Lending Association Americas (July 16,
2024) (``ISLA Americas Letter 1''), at 4; Letter from Tony Holland,
Director of Market Practice, International Securities Lending
Association (May 28, 2024) (``ISLA Letter 1''), at 2-3; Letter from
Jennifer W. Han, Executive Vice President, Chief Counsel and Head of
Global Regulatory Affairs, Managed Funds Association (July 31, 2024)
(``MFA Letter''), at 2; Letter from Lindsey Weber Keljo, Esq.,
Head--Asset Management Group, and William C. Thum, Managing Director
and Associate General Counsel, Securities Industry and Financial
Markets Association Asset Management Group (May 28, 2024) (``SIFMA
AMG Letter 1''), at 2; Letter from William C. Thum, Managing
Director and Associate General Counsel, Securities Industry and
Financial Markets Association Asset Management Group (July 31, 2024)
(``SIFMA AMG Letter 2''), at 2; Letter from Matt Billings,
President, Robinhood Financial, LLC and Robinhood Securities, LLC
(August 30, 2024) (``Robinhood Letter''), at 2; Letter from Robert
Sloan, Managing Partner, S3 Partners, LLC (August 5, 2024) (``S3
Partners Letter''), at 4.
\101\ See Notice, 89 FR 38206 n.30.
\102\ See SIFMA Letter, at 3-4. See also EquiLend Letter 1, at
6-7; ISLA Letter 1, at 2, 5, 8.
\103\ See, e.g., EquiLend Letter 1, at 1, 6-7; SIFMA Letter, at
4; ICI Letter, at 2-3; MFA Letter, at 7.
\104\ See, e.g., 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 1, at 4, 9; ICI Letter, at 3-4; EquiLend Letter 1, at 1, 6-7.
See also Associations Collective Letter, at 2; MFA Letter, at 2;
Letter from Senator Bill Hagerty (October 25, 2024) (``Hagerty
Letter''), at 1.
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Some commenters stated that the ``increased complexity'' of the
securities loan information in the proposed rule change, as originally
proposed in the Notice, as compared to the Rule 10c-1a information,
could increase Covered Persons' reliance on Reporting Agents for
compliance purposes, which could increase costs and data security risks
for the industry.\105\ One commenter stated that the expansion of the
number of reportable fields under the proposed rule change, as
originally proposed in the Notice, could require Covered Persons using
a Reporting Agent to share with that Reporting Agent ``very sensitive
transaction level details, including the identity of each party to the
transaction.'' \106\ The commenter also stated its concern that, if
this data were to become exposed by a data security incident, ``lenders
would choose to restrict lending, which could negatively impact
lendable supply and market liquidity.'' \107\
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\105\ See ISLA Americas Letter 1, at 8-9; ISLA Letter 1, at 7;
SIFMA AMG Letter 2, at 7.
\106\ ISLA Americas Letter 1, at 9.
\107\ ISLA Americas Letter 1, at 9.
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One commenter stated that some of the additional data fields in the
proposed rule change, as originally proposed in the Notice, may not
currently be captured by market participants at the trade level and
were not considered in the Commission's cost-benefit analysis of Rule
10c-1a.\108\ Another commenter stated that the addition of these data
elements in the proposed rule change, as originally proposed in the
Notice, ``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.'' \109\ Another commenter stated that the proposed
rule change, as originally proposed in the Notice, ``significantly
exceed[s]'' FINRA's rulemaking mandate under Rule 10c-1a.\110\ Another
commenter stated that ``the significant increase in reportable fields
and complexity'' of the proposed rule change, as originally proposed in
the Notice, warrants ``a proper cost-benefit analysis as required under
Federal agency rulemaking.'' \111\
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\108\ See EquiLend Letter 1, at 7.
\109\ SIFMA Letter, at 4. See also Robinhood Letter, at 2; MFA
Letter, at 2-3.
\110\ MFA Letter, at 2-3.
\111\ ISLA Americas Letter 1, at 4-5. See also SIFMA AMG Letter
2, at 7-8; Hagerty Letter, at 1-3. FINRA rule filings are not agency
rulemakings. As discussed above, in Part I, FINRA filed the Proposal
with the Commission pursuant to Section 19(b)(1) Exchange Act and
Rule 19b-4 thereunder.
---------------------------------------------------------------------------
In response, Partial Amendment No. 1 removed the following data
elements from the proposed rule change's reporting requirements for
Initial Covered Securities Loans and Loan Modifications: (1) the
expected settlement date of the Covered Securities Loan; (2) any other
fees or charges (i.e., the dollar cost of any other fees or charges in
addition to the rebate rate or securities lending fee separately
required to be reported); (3) whether the Covered Person is the lender,
borrower, or intermediary; \112\ (4) 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; (5) 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 (6) such modifiers
and indicators as are required by FINRA under the Rule 6500 Series or
the SLATE Participant specification. With the exception of the data
element concerning the unique identifier assigned to the Covered
Securities Loan by the Covered Person responsible for reporting the
loan to SLATE, where a Covered Person's daily submission includes two
or more reports related to the same Covered Securities Loan, and FINRA
has not yet assigned a unique identifier to the Initial Covered
Securities Loan,\113\ all of the additional data elements listed above
that commenters objected to as being beyond the scope of Rule 10c-1a
were removed in Partial Amendment No. 1.
---------------------------------------------------------------------------
\112\ FINRA stated that the removal of this data element is
appropriate because it simplifies the initial reporting framework.
FINRA also stated that the file submission process would provide
information sufficient to allow FINRA to identify the submitting
party and therefore the ability to ascertain whether a SLATE report
is being submitted by the Covered Person, a Reporting Agent, or
another party. See Partial Amendment No. 1, 89 FR 92231. Some
commenters supported Partial Amendment No. 1's removal of originally
proposed Rules 6530(a)(2)(V) and 6530(b)(2)(G). See Letter from Fran
Garritt, Head of Business, and Mark Whipple, Chairman of the Board
of Directors, International Securities Lending Association Americas
(Dec. 6, 2024) (``ISLA Americas Letter 2''), at 5; Letter from
Robert Toomey, Managing Director and Associate General Counsel, et
al. (December 6, 2024) (``SIFMA and SIFMA AMG Letter''), at 3.
\113\ See infra Part III.A.3 (discussing why the Proposal's data
element concerning the unique identifier assigned to the Covered
Securities Loan by the Covered Person responsible for reporting the
loan to SLATE is necessary to be reported in order for FINRA to
comply with the requirements of Rule 10c-1a(g)).
---------------------------------------------------------------------------
In light of the removal of the text ``any other fees or charges''
as a data element that must be reported separately from the rebate rate
(for a Covered Securities Loan collateralized by cash) or the
securities lending fee (for a Covered Securities Loan not
collateralized by cash), as applicable, Partial Amendment No. 1 also
added the text ``or any other fee or charges'' to the Covered
Securities Loan information specified in proposed Rule 6530(a)(2)(H)
and the text ``or rate, or any other fee or charges'' to the Covered
Securities Loan information specified in proposed Rule 6530(a)(2)(I).
Proposed Rules 6530(a)(2)(H) and 6530(a)(2)(I) mirror Rule 10c-1a(c)(8)
and (c)(9), respectively, which helps to ensure the collection of data
elements required to be reported pursuant to Rule 10c-1a(c) through
(e). The Proposal is reasonably designed to facilitate the collection
of pricing information, which is a material term of a Covered
Securities Loan, consistent with Rule 10c-1a.\114\
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\114\ See Rule 10c-1a Adopting Release, 88 FR 75669.
---------------------------------------------------------------------------
FINRA stated that, while Partial Amendment No. 1 removed several of
the originally proposed fields and the indicators and modifiers to
facilitate a timely initial implementation of SLATE, the absence of
these elements may impact the quality and completeness of the resultant
SLATE data.\115\ FINRA stated that, in some cases, FINRA has identified
alternative means of addressing the data gap.\116\ In other cases,
FINRA plans to reassess the need for the data after gaining experience
[[Page 1571]]
with the operation of SLATE and the initial data set and will revisit
whether changes are appropriate,\117\ including to improve the quality
and completeness of SLATE data, and that any such efforts would be
subject to a separate proposed rule change filed with the Commission
and subject to notice and comment.\118\
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\115\ Partial Amendment No. 1, 89 FR 92229 n.21.
\116\ FINRA Letter, at 4. FINRA provided the example that a
Covered Person that agrees to a Covered Securities Loan that
ultimately does not settle would still be required to report the
termination of that loan pursuant to proposed Rule 6530(b)(2) by
submitting a Loan Modification to terminate a Covered Securities
Loan. However, because the securities were never transferred to the
borrower, the Loan Modification termination report would not modify
the loan amount to zero (unlike in the case of a loan that was
terminated because the shares were returned, which would modify the
loan amount to zero), which would allow FINRA to identify the loan
as being terminated because it was unsettled as opposed to a return
of shares. FINRA Letter, at 4 n.19.
\117\ FINRA Letter, at 4.
\118\ Partial Amendment No. 1, 89 FR 92229 n.21. See FINRA
Letter, at 4.
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The data elements required to be included in SLATE reports are
consistent with the data elements required to be reported pursuant to
Rule 10c-1a. Further, as discussed below, in Part III.A.3, the data
element concerning the unique identifier assigned to the Covered
Securities Loan by the Covered Person responsible for reporting the
loan to SLATE is consistent with Rule 10c-1a. The Proposal is
reasonably designed to facilitate the collection of loan information
consistent with Rule 10c-1a. FINRA's inclusion of the data elements in
proposed Rules 6530(a)(2) and 6530(b)(2) is reasonably designed to
facilitate the timely implementation of SLATE while helping to ensure
the collection of data elements required to be reported pursuant to
Rule 10c-1a(c) through (e) and the publication of data required
pursuant to Rule 10c-1a(g).
2. Modifiers and Indicators Not Included in Rule 10c-1a
Commenters identified modifiers and indicators in the proposed rule
change, as originally proposed in the Notice, as data elements that
they stated were not specified in Rule 10c-1a: (1) Exclusive
Arrangement; (2) Loan to Affiliate; (3) Unsettled Loan; (4) Terminated
Loan; (5) Rate or Fee Adjustment; and (6) Basket Loan.\119\ Some
commenters stated that the additional data and information requirements
that are not specifically mentioned in Rule 10c-1a should be
removed.\120\
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\119\ See, e.g., SIFMA Letter, at 3-4; EquiLend Letter 1, at 6-
7; ICI Letter, at 2-3. See also ISLA Americas Letter 1, at 13-14.
\120\ See, e.g., EquiLend Letter 1, at 1, 6-7; SIFMA Letter, at
4; ICI Letter, at 2-3; MFA Letter, at 7.
---------------------------------------------------------------------------
Some commenters stated that the Loan to Affiliate indicator would
not provide useful information and could potentially expose
confidential information.\121\ Some commenters stated that the
intermediary negotiating a loan may not be aware of an affiliate
relationship between the borrower and lender, requiring additional
resources to monitor whether an affiliate relationship was
established.\122\ Another commenter stated that, because requiring the
reporting of the Loan to Affiliate indicator ``may be costly'' and
require ``additional resources'' for compliance, this proposed
requirement ``at least warrants a cost-benefit analysis.'' \123\ One
commenter stated that the inclusion of the Unsettled Loan indicator
will greatly increase reporting complexity and increase the odds that
reported data will be ``unclear or confusing.'' \124\ The commenter
stated that the Unsettled Loan indicator is unnecessary because,
according to the commenter, it is ``generally accepted market practice
to cancel loans that remain unsettled'' and because the cancelation of
a previously reported trade is already contemplated elsewhere within
the proposed rule change.\125\
---------------------------------------------------------------------------
\121\ See ISLA Americas Letter 1, at 14; SIFMA AMG Letter 2, at
6; ISLA Letter 1, at 8.
\122\ See ISLA Letter 1, at 8; ICI Letter, at 4-5; ISLA Americas
Letter 1, at 14; SIFMA AMG Letter 2, at 6. See also S3 Partners
Letter, at 5.
\123\ ISLA Americas Letter 1, at 14.
\124\ ISLA Americas Letter 1, at 11.
\125\ ISLA Americas Letter 1, at 11.
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In the Notice, FINRA stated that it planned to use the proposed
modifiers for data validation purposes.\126\ One commenter stated that
there is ``increased complexity'' and that ``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.'' \127\ One
commenter requested clarification of the use of the Rate or Fee
Adjustment modifier for data validation and whether ``FINRA will be
performing validation testing to a defined tolerance level and a
rejection/correction process.'' \128\ The commenter stated that, if
FINRA were to perform such validations, ``there is the potential for a
large number of rejections that could result in a substantial amount of
manual intervention.'' \129\
---------------------------------------------------------------------------
\126\ See Notice, 89 FR 38208.
\127\ ISLA Americas Letter 1, at 9.
\128\ ISLA Letter 1, at 7. See Robinhood Letter, at 2.
\129\ ISLA Letter 1, at 7.
---------------------------------------------------------------------------
In response, Partial Amendment No. 1 removed the originally
proposed requirement to append the applicable modifiers or indicators
as specified by FINRA to all SLATE reports: (1) Exclusive Arrangement;
(2) Loan to Affiliate; (3) Unsettled Loan; (4) Terminated Loan; \130\
(5) Rate or Fee Adjustment; and (6) Basket Loan. FINRA stated that it
removed these modifiers and indicators in the interest of achieving the
timely implementation of SLATE and the new Rule 6500 Series.\131\ In
proposing the inclusion of these modifiers and indicators in SLATE
reports, FINRA stated that it intended to use the modifiers and
indicators to provide regulators and the public with important
information regarding the reported securities loan.\132\ In later
removing this proposed requirement, FINRA stated its plans to (1)
reassess the need for the data after gaining experience with the
operation of SLATE and the initial data set and (2) revisit whether
changes are appropriate. FINRA stated that any such efforts would be
subject to a separate proposed rule change filed with the Commission
and as such, subject to notice and comment.\133\ All of the modifiers
and indicators listed above that commenters objected to as being beyond
Rule 10c-1a were removed in Partial Amendment No. 1. Some commenters
supported Partial Amendment No. 1's removal of these modifiers and
indicators.\134\
---------------------------------------------------------------------------
\130\ FINRA stated that, while FINRA removed the requirement
that Covered Persons append a Terminated Loan indicator, FINRA is
retaining the requirement that Covered Persons populate a field with
the termination date of the Covered Securities Loan, which is
expressly required to be reported to an RNSA under Rule 10c-
1a(c)(11). Accordingly, FINRA stated that, when reporting to SLATE
an Initial Covered Securities Loan that is an open loan, a Covered
Person would be required to leave the termination date field blank;
when reporting an Initial Covered Securities Loan that is a term
loan, a Covered Person would report the loan's termination date in
the termination date field. Partial Amendment No. 1, 89 FR 92229
n.20.
\131\ See FINRA Letter, at 4.
\132\ See Notice, 89 FR 38208.
\133\ Partial Amendment No. 1, 89 FR 92229 n.21. See FINRA
Letter, at 4.
\134\ See ISLA Americas Letter 2, at 4; SIFMA and SIFMA AMG
Letter, at 2.
---------------------------------------------------------------------------
The Proposal is reasonably designed to facilitate the collection of
loan information consistent with Rule 10c-1a. The list of data elements
in proposed Rules 6530(a)(2) and 6530(b)(2) is reasonably designed to
facilitate the timely implementation of SLATE while helping to ensure
the collection of data elements required to be reported pursuant to
Rule 10c-1a(c) through (e).
3. Data Elements Modified by Partial Amendment No. 1
The Commission received comments on the proposed rule change, as
originally proposed in the Notice, addressing the reporting to SLATE of
rebate rates based on a spread to a benchmark. Commenters requested
flexibility to report the loan fees as a lending fee, a loan rebate
rate, or a spread to a benchmark rate along with the associated
benchmark rate, reducing the number of modifications that would be
required to be reported as a result of fluctuations in the
benchmark.\135\ Some commenters stated that FINRA should allow for the
reporting of a spread and
[[Page 1572]]
a benchmark rate because reporting benchmark rate changes would be
onerous and costly and would not provide useful information.\136\ In
addition, one commenter recommended that FINRA ensure that SLATE can
accommodate negative rebates, stating that even for cash collateral
loans, there may be scenarios where the loan is negotiated at a fee
rather than a rebate (e.g., when a security is particularly hard to
borrow).\137\
---------------------------------------------------------------------------
\135\ See ISLA Americas Letter 1, at 12; ICI Letter, at 7; SIFMA
AMG Letter 2, at 7; FIF Letter, at 7.
\136\ See SIFMA AMG Letter 2, at 7; ICI Letter, at 7; FIF
Letter, at 7.
\137\ ISLA Americas Letter 1, at 11.
---------------------------------------------------------------------------
In response, Partial Amendment No. 1 added proposed Rule 6530(a)(4)
to permit Covered Persons to--in addition to reporting the rebate rate
or lending fee or rate for a Covered Securities Loan--also report the
spread and identity of the benchmark or reference rate for Covered
Securities Loans that are priced based on a spread to a benchmark.
Specifically, proposed Rule 6530(a)(4)(B) provides that, where a rebate
rate or lending fee or rate is determined based on a spread to a
benchmark or reference rate, a Covered Person may report: (1) the
rebate rate or lending fee or rate as of the date the Covered
Securities Loan was effected; (2) the spread; and (3) the identity of
the benchmark or reference rate. Alternatively, a Covered Person may
report only the rebate rate or lending fee or rate. One commenter on
Partial Amendment No. 1 supported proposed Rule 6530(a)(4).\138\
---------------------------------------------------------------------------
\138\ See ISLA Americas Letter 2, at 4-5.
---------------------------------------------------------------------------
FINRA stated that this will provide Covered Persons with additional
options regarding the manner in which they may report a rebate rate or
lending fee or rate, and that these proposed amendments are appropriate
to provide Covered Persons flexibility with how they must report the
rebate rate or lending fee.\139\ FINRA stated that this flexibility
should address commenters' concern that Covered Persons would be
required to report loan rate modifications when the rebate rate changes
solely as a result of a change to the underlying benchmark rate (where
there is no change in the negotiated spread or identity of the
benchmark). To accommodate market practices and rebate rate
variability, FINRA stated that it intends to accept negative values in
the rebate rate field if the collateral type is reported as cash.
SLATE's validation logic will accept a wide range of values in the
rebate rate/lending fee or rate fields, and SLATE will not reject
reports because a cash collateral loan is reported with a negative
rebate rate.\140\
---------------------------------------------------------------------------
\139\ See Partial Amendment No. 1, 89 FR 92230. FINRA stated
that a Covered Person would be required to report a Loan
Modification pursuant to proposed Rule 6530(b)(2) in the event of a
change to the negotiated spread or to the identity of the benchmark
or reference rate. Partial Amendment No. 1, 89 FR 92230 n.29. See
Rule 10c-1a Adopting Release, 88 FR 75672 (stating that if a
registered national securities association (``RNSA'') chooses to
allow market participants to report a spread and a benchmark, then
no modification would be required to be reported from day to day
unless there were a change in the negotiated spread or benchmark).
\140\ See FINRA Letter, at 8.
---------------------------------------------------------------------------
Proposed Rule 6530(a)(4) (Reporting Loan Rates Based on a Spread to
a Benchmark or Reference Rate) is reasonably designed to facilitate the
collection of pricing information, which is a material term of a
Covered Securities Loan.\141\ It also is consistent with Rule 10c-
1a(c)(8).\142\ Proposed Rule 6530(a)(4) is reasonably designed to
provide the flexibility that commenters requested while helping to
ensure the collection of data elements required to be reported pursuant
to Rule 10c-1a(c) through (e).
---------------------------------------------------------------------------
\141\ See Rule 10c-1a Adopting Release, 88 FR 75669.
\142\ See Rule 10c-1a Adopting Release, 88 FR 75668-71.
---------------------------------------------------------------------------
As discussed above in Part III.A.2, commenters stated that the
internal loan and omnibus loan identifiers, as originally proposed in
the Notice, extended beyond the data elements specified in Rule 10c-1a
and increased the proposed rule change's complexity and implementation
burdens.\143\ In response, Partial Amendment No. 1 removed these
provisions.\144\ However, to allow FINRA to link same-day T+0 reports
that relate to the same Covered Securities Loan in fulfilling its data
dissemination obligations under Rule 10c-1a(g), Partial Amendment No. 1
added proposed Rule 6530(a)(2)(U), which is a targeted provision
providing that, where a Covered Person's daily submission includes two
or more reports related to the same Covered Securities Loan (e.g., an
Initial Covered Securities Loan and a Loan Modification to terminate
the Covered Securities Loan), and FINRA has not yet assigned a unique
identifier to the Initial Covered Securities Loan, the Covered Person
must report a unique identifier assigned to the Covered Securities Loan
by the Covered Person responsible for reporting the loan to SLATE.
FINRA stated that this requirement is limited to instances where a
Covered Person's daily submission includes two or more T+0 reports
related to the same Covered Securities Loan--which is the circumstance
that gives rise to the audit trail gap sought to be addressed by the
requirement.\145\ Similarly, with respect to Loan Modifications, where
a Covered Person's daily submission includes two or more T+0 reports
related to the same Covered Securities Loan, the Covered Person must
report the identifier that was provided with respect to the associated
same-day report for that Covered Securities Loan. One commenter
supported proposed Rule 6530(a)(2)(U).\146\
---------------------------------------------------------------------------
\143\ See, e.g., SIFMA Letter, at 3; ICI Letter, at 2. As
originally proposed in the Notice, Rules 6530(a)(2)(W) and
6530(b)(2)(A) would have required Covered Persons to report the
unique internal identifier assigned to the covered securities loan.
With respect to an allocation of an omnibus loan effected pursuant
to an agency lending agreement, proposed Rules 6530(a)(2)(X) and
6530(b)(2)(B) would have required Covered Persons to report the
unique internal identifier for the associated omnibus loan.
\144\ See Partial Amendment No. 1, 89 FR 92231. FINRA stated
that it had intended originally to use the reported information to
identify where multiple loan reports were related to a single
omnibus loan, thereby providing additional clarity in the loan
activity statistics disseminated to the public and to improve the
completeness of the audit trail available to regulators. Partial
Amendment No. 1, 89 FR 92231.
\145\ See Partial Amendment No. 1, 89 FR 92231.
\146\ See ISLA Americas Letter 2, at 5.
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FINRA stated that, without a way to link such reports, it would be
unable to accurately incorporate modifications into the daily loan
statistics where FINRA cannot identify the amount of securities
impacted by the modification.\147\ Further, it would be unable to
determine the information necessary to incorporate the modification
into the volume information described in proposed Rule 6540(c)(1).
FINRA stated that this requirement involving a unique identifier is
appropriate and necessary in that it streamlines initial SLATE
reporting requirements while continuing to allow FINRA to accurately
record and disseminate information on transactions reported pursuant to
Rule 10c-1a. FINRA stated that this requirement is necessary to allow
FINRA to link same-day reports that relate to the same Covered
Securities Loan, which allows FINRA to accurately record transactions
reported pursuant to Rule 10c-1a and to incorporate modifications into
the daily loan statistics.\148\
---------------------------------------------------------------------------
\147\ Partial Amendment No. 1, 89 FR 92231.
\148\ FINRA Letter, at 5.
---------------------------------------------------------------------------
Proposed Rule 6530(a)(2)(U) is reasonably designed to allow FINRA
to link same-day reports that relate to the same Covered Securities
Loan and accurately record transactions reported pursuant to Rule 10c-
1a.\149\ The Proposal addresses comments that the originally proposed
internal loan and omnibus loan identifiers reporting
[[Page 1573]]
requirements are not included in Rule 10c-1a while helping to ensure
the collection of data elements required to be reported pursuant to
Rule 10c-1a(c) through (e) and the publication of data required by Rule
10c-1a(g). Rule 10c-1a(g) requires that an RNSA, as soon as
practicable, and not later than the morning of the business day after
the covered securities loan is effected, assign a unique identifier to
the covered securities loan and make certain information publicly
available.\150\ In adopting Rule 10c-1a, the Commission stated that the
assignment of unique identifiers is necessary for an RNSA to easily
track certain covered securities loans and facilitate the
identification and reporting of any subsequent modifications.\151\
Although the data element in proposed Rule 6530(a)(2)(U) does not
mirror a particular data element included in Rule 10c-1a, as one
commenter stated,\152\ its reporting is necessary for FINRA to
accurately record, incorporate, and disseminate modifications to daily
loan statistics to fulfill the requirements of Rule 10c-1a(g). The
Proposal is reasonably designed to facilitate the collection and
dissemination of loan information consistent with Rule 10c-1a.
---------------------------------------------------------------------------
\149\ See Rule 10c-1a Adopting Release, 88 FR 75667 n.365.
\150\ See Rule 10c-1a(g)(1)(i)(A), (g)(3).
\151\ See Rule 10c-1a Adopting Release, 88 FR 75685.
\152\ See SIFMA Letter, at 3-4.
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4. Data Elements Not Modified by Partial Amendment No. 1
One commenter stated that the proposed data element concerning the
LEI of the issuer should be removed or made optional to include in a
SLATE report because, according to the commenter, issuer LEIs are not
easily accessible and are not always available.\153\ Another commenter
stated that it would be ``highly costly'' for market participants to
build out their systems to obtain LEI information (as compared to using
existing identifiers) because LEI information is ``not available to
market participants in a systematic way.'' \154\ One commenter stated
that it should be optional to use the LEI of a ``third-country issuer''
(i.e., a non-European Union (``EU'') issuer) because ``a large
percentage of third-country issuers have not obtained LEIs.'' \155\
Another commenter requested that FINRA clarify whether a Covered Person
would be permitted to report an issuer's LEI even if such LEI has
lapsed.\156\
---------------------------------------------------------------------------
\153\ ISLA Letter 1, at 7. See EquiLend Letter 2, at 2; SIFMA
AMG Letter 2, at 7.
\154\ SIFMA AMG Letter 2, at 7.
\155\ ISLA Americas Letter 1, at 15. See ISLA Americas Letter 2,
at 8.
\156\ FIF Letter, at 10.
---------------------------------------------------------------------------
In response, FINRA stated that the comments regarding the reporting
of an issuer's LEI, if the issuer has a non-lapsed LEI, are examples of
requirements that are established directly by Rule 10c-1a and cannot be
amended by FINRA.\157\ FINRA also stated that proposed Rule
6530(a)(2)(A)'s requirement to report the LEI of an issuer, if non-
lapsed, mirrors the requirement in Rule 10c-1a(c)(1).\158\ The
Commission agrees that this proposed requirement that the LEI of the
issuer must be included in a SLATE report if the issuer has a non-
lapsed LEI is consistent with Rule 10c-1a(c)(1). FINRA's proposed
limitation for SLATE regarding the LEI of an issuer, which requires
reporting only if the issuer has a non-lapsed LEI (i.e., instead of
including lapsed LEIs, too), is consistent with the requirements of
Rule 10c-1a(c)(1).\159\ The reporting of the issuer's LEI, to the
extent the issuer has a non-lapsed LEI, facilitates the identification
of the security about which the Covered Securities Loan information is
being provided. The proposed inclusion of an issuer's LEI, if the
issuer has a non-lapsed LEI, is reasonably designed to facilitate the
collection and dissemination of loan information consistent with Rule
10c-1a.\160\
---------------------------------------------------------------------------
\157\ FINRA Letter, at 10.
\158\ FINRA Letter, at 10 n.39.
\159\ See 17 CFR 240.10c-1a(c)(1).
\160\ See Rule 10c-1a Adopting Release, 88 FR 75670-71.
---------------------------------------------------------------------------
One commenter recommended that, as opposed to each SLATE reporter
tracking the status of a Covered Securities Loan, the SLATE system
``should perform the calculations of loan status'' (e.g., Initial
Covered Securities Loan, Loan Modification, pre-existing Loan
Modifications) and other derived information, centrally.\161\ This
commenter stated that ``[c]entralization within SLATE of these
functions should not only reduce costs but also increase data
quality.'' \162\ The commenter's suggestion that SLATE should ``perform
the calculations of loan status'' would require the daily reporting of
the full list of loan positions, including those that were effected
prior to SLATE implementation, and those that have not changed. Such
information is not included in the securities loan information that is
required to be reported pursuant to Rule 10c-1a nor did FINRA include
it in its proposal. As discussed above, in Parts III.A.1 and III.A.2,
the Proposal aligns the loan information reported to SLATE with the
data elements in Rule 10c-1a(c) through (e) and is reasonably designed
to facilitate the timely implementation of SLATE while helping to
ensure the collection of data elements required to be reported pursuant
to Rule 10c-1a(c) through (e). Rule 10c-1a requires, among other
things, that Covered Persons provide to FINRA specified loan
information that relates to the loan status.\163\ Further, the
reporting of loan information as it relates to loan status is necessary
for FINRA to link reports and disseminate volume information as is
required in Rule 10c-1a(g)(5). The Proposal, which requires Covered
Persons to track the status of a reported Covered Securities Loan, is
reasonably designed to facilitate the collection and dissemination of
loan information consistent with Rule 10c-1a.
---------------------------------------------------------------------------
\161\ See S3 Partners Letter, at 2.
\162\ S3 Partners Letter, at 2-3.
\163\ See, e.g., 17 CFR 240.10c-1a(d)(1), (d)(2).
---------------------------------------------------------------------------
Some commenters stated, without providing any specificity, that
``broader transparency measures'' than those required by Rule 10c-1a
are necessary and beneficial to the market.\164\
---------------------------------------------------------------------------
\164\ See Form Letter D; Letter from Freddy Lo (August 9, 2024);
Letter from Jane Plumberg (September 10, 2024); Letter from Traci
Olafson (September 12, 2024); Letter from Anonymous (September 16,
2024).
---------------------------------------------------------------------------
Rule 10c-1a sets forth a list of specified loan information that
Covered Persons must report and that FINRA must collect and make
publicly available. Further, the Commission also agrees with the
comment discussed above that the proposed rule change 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.'' \165\ The Proposal's list of
required data elements is appropriately tailored to help increase the
transparency of information available to brokers, dealers, and
investors with respect to the loan or borrowing of securities
consistent with the transparency goals of Rule 10c-1a.\166\
---------------------------------------------------------------------------
\165\ Letter from Jennifer (May 15, 2024).
\166\ See Rule 10c-1a Adopting Release, 88 FR 75715.
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5. Requests for Clarification
One commenter on the proposed rule change, as originally proposed
in the Notice, 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.\167\
[[Page 1574]]
The commenter also stated that, under the EU's Securities Finance
Transaction Regulation (``SFTR''), firms agree which party will be
responsible for generating and distributing the UTI prior to a
trade.\168\ The commenter recommended that FINRA ``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.'' \169\
---------------------------------------------------------------------------
\167\ 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 rule change, as originally proposed in the Notice, the
``unique internal identifier assigned to the Covered Securities Loan
by the Covered Person responsible for reporting the loan to SLATE.''
Notice, 89 FR 38207, 39209.
\168\ ISLA Letter 1, at 9.
\169\ ISLA Letter 1, at 9. Another commenter recommended that
FINRA ``assign a Submission Unique Identifier based on the
concatenation of fields in the full data inventory file that will
uniquely identify a submission.'' S3 Partners Letter, at 3. As
discussed in the Rule 10c-1a Adopting Release, it is appropriate to
allow the administrative details of the process of assigning a
unique identifier under Rule 10c-1a to be left to the discretion of
an RNSA. See Rule 10c-1a Adopting Release, 88 FR 75685.
---------------------------------------------------------------------------
As discussed above, proposed Rule 6530(a)(2)(U) would provide that,
where a Covered Person's daily submission includes two or more reports
related to the same Covered Securities Loan for which FINRA has not yet
assigned a unique loan identifier, the Covered Person must report a
unique identifier assigned to the Covered Securities Loan by the
Covered Person responsible for reporting the loan to SLATE. This is the
only scenario in which the Covered Person is responsible for generating
and reporting a unique loan identifier. In response to the commenter's
suggestion that FINRA follow the SFTR waterfall protocol, the
assignment of a unique identifier may be appropriate for consistency
with FINRA's rules and systems, even if a Covered Securities Loan
already has an identifier that is reported to the SFTR.\170\ FINRA is
required by Rule 10c-1a(g)(1) to assign a unique identifier to each
covered securities loan. Proposed Rule 6530(a)(2)(U) is reasonably
designed to facilitate the dissemination of accurate loan information
consistent with Rule 10cndash;1a(g).
---------------------------------------------------------------------------
\170\ See Rule 10c-1a Adopting Release, 88 FR 75685.
---------------------------------------------------------------------------
B. Timing for SLATE Reports
One commenter on the proposed rule change, as originally proposed
in the Notice, 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.'' \171\ The commenter
stated that restricting SLATE file submissions to U.S. hours, given the
``extra-territorial scope'' of Rule 10c-1a, could cause compliance
difficulties because firms have staff located outside of the U.S.\172\
Other commenters also recommended an expansion of the SLATE reporting
hours in the proposed rule change, as originally proposed in the
Notice.\173\ One commenter asked whether the SLATE system would provide
feedback outside of the SLATE system hours.\174\
---------------------------------------------------------------------------
\171\ ISLA Americas Letter 1, at 17. Other commenter letters
provided similar comments on Partial Amendment No. 1. See ISLA
Americas Letter 2, at 7; SIFMA and SIFMA AMG Letter, at 7 (providing
an alternative that the SLATE system could open at 6:00:00 a.m. ET).
\172\ ISLA Americas Letter 1, at 17.
\173\ See FIF Letter, at 4-5 (stating that SLATE should accept
files until 11:59 p.m. ET); EquiLend Letter 2, at 1-2 (stating that
the reporting deadline should be extended to 8:30 p.m. ET for
Reporting Agents to allow for additional time to collect and prepare
Covered Persons' data).
\174\ See FIF Letter, at 4.
---------------------------------------------------------------------------
In response, Partial Amendment No. 1 extended the reporting
deadline to 11:59:59 p.m. ET and made a corresponding change to the
definition of ``SLATE System Hours'' in proposed Rule 6510 to specify
that the SLATE system is open through 11:59:59 p.m. ET. FINRA stated
that the extension of SLATE System Hours is appropriate to provide
additional time to process SLATE submissions at the end of the day.
FINRA stated that, while the SLATE system will provide reporters
feedback on submissions that are submitted during SLATE System Hours,
the SLATE system will not accept reports submitted after the close of
the SLATE system.\175\ One commenter on Partial Amendment No. 1 stated
that the extension of the SLATE System Hours will ease the reporting
burden on covered firms.\176\ Another commenter on Partial Amendment
No. 1 stated that it appreciates that FINRA extended the cut-off time
for SLATE reports to be filed.\177\ The Proposal's timing requirements
for filing a SLATE report regarding an Initial Covered Securities Loan
are reasonably designed to facilitate the collection of transaction
data. FINRA's response to the comments regarding the extension of SLATE
System Hours to provide additional time to process SLATE submissions,
as well as provide reporters feedback on such submissions, at the end
of the day, is reasonable and appropriate, as well as consistent with
Rule 10c-1a's end-of-day reporting requirements for covered securities
loans. Additionally, the Proposal's timing requirements for filing a
SLATE report, including those with respect to filing a SLATE report
outside of SLATE System Hours, are consistent with FINRA's experience
in establishing and maintaining systems that are designed to capture
transaction reporting.\178\
---------------------------------------------------------------------------
\175\ FINRA Letter, at 9 n.34.
\176\ See ISLA Americas Letter 2, at 7.
\177\ See SIFMA and SIFMA AMG Letter, at 7.
\178\ See, e.g., Rule 10c-1a Adopting Release, 88 FR 75682,
75685; FINRA Rule 6730(a); FINRA Rule 6273.
---------------------------------------------------------------------------
Some commenters stated that the originally proposed 7:45:00 p.m. ET
cut-off time for same-day reporting would not capture certain end-of-
day activity, which would make end of day processes challenging.\179\
One commenter stated that the cut-off time for same-day reporting
should be moved up to 4:00 p.m. ET to align with the ``close of
trading'' such that loans effected after 4:00 p.m. would not need to be
reported until the next business day.\180\
---------------------------------------------------------------------------
\179\ See EquiLend Letter, at 1; FIF Letter, at 4-5.
\180\ See FIF Letter, at 5.
---------------------------------------------------------------------------
In response, Partial Amendment No. 1 changed the reporting cut-off
time in proposed Rule 6530(a)(1)(A) and (b)(1)(A) to 7:00:00 p.m. ET.
FINRA stated that the modification of the proposed loan cut-off time
from 7:45:00 p.m. ET to 7:00:00 p.m. ET would provide additional time
to report loans that are effected near the end of the day, including
time to complete any necessary security set up in SLATE.\181\ The
Proposal's inclusion of 7:00:00 p.m. ET instead of 4:00 p.m. ET, as the
commenter suggested, for the cut-off time for same-day reporting is
reasonable because it provides, in response to comments,\182\
additional time to process submissions to SLATE (that contain Rule 10c-
1a information) and to provide feedback on such submissions, at the end
of the day.\183\ Thus, the Proposal is reasonably designed to
facilitate the collection of loan information consistent with Rule 10c-
1a.
---------------------------------------------------------------------------
\181\ See Partial Amendment No. 1, 89 FR 92232.
\182\ See, e.g., EquiLend Letter, at 1; FIF Letter, at 4-5.
\183\ Rule 10c-1a Adopting Release, 88 FR 75648 n.72. FINRA
stated that, given the operation of the securities lending market,
including that many loans will not be finalized until after the
traditional 4:00 p.m. ET close of the U.S. equities markets, FINRA
does not believe it would be appropriate to move the cut-off time
for same-day reporting to 4:00 p.m. ET. FINRA also stated that the
fixed income markets generally have later trading hours, and the
same-day reporting cut-off time for transactions in many TRACE-
eligible securities is 6:15:00 p.m. ET. FINRA Letter, at 9 n.34.
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[[Page 1575]]
C. When and How Loan Information Is Reported
1. Initial Covered Securities Loans
One commenter on the proposed rule change, as originally proposed
in the Notice, requested a ``clear and concise'' definition of the term
``effected.'' \184\ The commenter stated that it would like to
understand if the term ``effected'' means (1) ``an `event date' file
i.e., the event date that the trade took place,'' (2) ``an execution
timestamp that would carry both date and time,'' or (3) the date when a
trade is verbally agreed upon.\185\ 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.''
\186\ The commenter further stated that, until 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 upon.\187\ 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.'' \188\ Whether a securities loan must be reported
as an Initial Covered Securities Loan will depend upon the facts and
circumstances, including the structure of such lending program.\189\
---------------------------------------------------------------------------
\184\ ISLA Letter 1, at 4.
\185\ ISLA Letter 1, at 3-4.
\186\ ISLA Americas Letter 1, at 6.
\187\ ISLA Americas Letter 1, at 6.
\188\ ISLA Americas Letter 1, at 6.
\189\ See, e.g., Rule 10c-1a Adopting Release, at 88 FR 75664.
---------------------------------------------------------------------------
The requirement for covered persons to report to FINRA, by the end
of the day on which a covered securities loan is effected, specified
loan information--which includes, among others, the date the covered
securities loan was effected, the time the covered securities loan was
effected, and the name of the platform or venue where the covered
securities loan was effected--is established by Rule 10c-1a(c)(3)-
(c)(5). In adopting Rule 10c-1a, the Commission stated that whether or
not a loan has been effected is a legal/factual question, and a delay
in settlement (or if one of the agreed to loan terms is modified the
next day) does not impact the initial requirement to report all loans
(and modifications) within the required timeframes under Rule 10c-
1a.\190\
---------------------------------------------------------------------------
\190\ See Rule 10c-1a Adopting Release, 88 FR 75681.
---------------------------------------------------------------------------
Further, the Commission stated that use of the term ``agrees to''
in the definition of covered person under Rule 10c-1a clarifies that
covered securities loans are required to be reported after the parties
agree to the loan, which is before settlement.\191\ Parties to a
securities loan may agree to some of the basic terms initially, but
some or many of the securities loan terms may not be agreed to (or may
be updated throughout the day and, thus, not finalized) until the end
of the day.\192\ The Proposal's requirement for end-of-day reporting
after a Covered Securities Loan has been ``effected'' is consistent
with the requirement in Rule 10c-1a(c) that a covered person shall
provide specified loan information to FINRA by the end of the day on
which the covered securities loan is effected. The Proposal's end-of-
day reporting requirement, therefore, is reasonably designed and is
appropriately balanced to facilitate the collection of timely
information while helping to prevent an excessive number of incomplete
or slightly modified reports that otherwise would occur throughout the
day yet without providing sufficient incremental value.\193\
---------------------------------------------------------------------------
\191\ See Rule 10c-1a Adopting Release, 88 FR 75666, 75666
n.358.
\192\ See, e.g., Rule 10c-1a Adopting Release, 88 FR 75680-81.
\193\ See Rule 10c-1a Adopting Release, 88 FR 75680.
---------------------------------------------------------------------------
One commenter stated that a Covered Person should instead be
required to file a SLATE report only for a loan that has been settled,
whereby the Covered Person would report the date and time that it
recorded the Covered Securities Loan in its books and records.\194\ The
commenter stated that in many cases where a lending agent is involved,
the parties to the loan do not know the identity of the counterparty
until the loan is settled.\195\
---------------------------------------------------------------------------
\194\ See FIF Letter, at 4.
\195\ See FIF Letter, at 4.
---------------------------------------------------------------------------
Consistent with the requirements of Rule 10c-1a, an Initial Covered
Securities Loan is required to be reported prior to settlement.\196\ As
discussed above, in this Part, settlement does not impact the initial
requirement to report all loans (and modifications) within the required
timeframes under Rule 10c-1a.\197\ With respect to the comment that the
parties to the loan do not know the identity of the counterparty until
the loan is settled,\198\ proposed Rule 6530(a)(2)(N) uses the
qualifier ``if known'' with respect to the requirement for a SLATE
report for an Initial Covered Securities Loan to include the legal name
of each party to the Covered Securities Loan (other than the customer
from whom a Broker or Dealer borrows fully paid or excess margin
securities pursuant to Rule 15c3-3(b)(3)). FINRA's use of the qualifier
``if known'' in proposed Rule 6530(a)(2)(N) mirrors that used in Rule
10c-1a(e)(1), which concerns the legal name of each party to a covered
securities loan. Proposed Rule 6530(a)(2)(N), therefore, is reasonably
designed to facilitate the collection of loan information consistent
with Rule 10c-1a(e)(1).
---------------------------------------------------------------------------
\196\ See Rule 10c-1a Adopting Release, 88 FR 75666.
\197\ See Rule 10c-1a Adopting Release, 88 FR 75681.
\198\ See FIF Letter, at 4.
---------------------------------------------------------------------------
One commenter on Partial Amendment No. 1 stated that unsettled
loans are not transactions because no loan transaction ``occurs'' and
that, therefore, unsettled loans should not be required to be reported
to SLATE.\199\ The commenter stated that a Covered Person may have to
incur incremental costs to report unsettled loans to SLATE, given that
these ``unconsummated transactions'' may not be captured on the books
and records of the Covered Person ``comparably to how consummated loan
transactions are recorded.'' \200\
---------------------------------------------------------------------------
\199\ See SIFMA and SIFMA AMG Letter, at 4.
\200\ SIFMA and SIFMA AMG Letter, at 4.
---------------------------------------------------------------------------
The term ``Covered Securities Loan'' under proposed Rule 6510(j)
mirrors the definition under Rule 10c-1a, which means a transaction in
which any person on behalf of itself or one or more other persons lends
a reportable security to another person. In adopting Rule 10c-1a, the
Commission stated that the reporting requirement did not require ``that
the loan be settled'' and also acknowledged that various entities will
incur costs in developing recording and reporting systems to comply
with Rule 10c-1a.\201\ The Proposal's requirement regarding the
reporting of unsettled loans that are Covered Securities Loans is
consistent with Rule 10c-1a. The Proposal is reasonably designed to
facilitate the collection of loan information consistent with Rule 10c-
1a.
---------------------------------------------------------------------------
\201\ See Rule 10c-1a Adopting Release, 88 FR 75662, 75662
n.288, 75717.
---------------------------------------------------------------------------
2. Loan Modifications
Proposed Rules 6530.01 (Intraday Loan Modifications) and 6530.02
(Changes to the Parties to a Covered Securities Loan), as originally
proposed in the Notice, included a requirement
[[Page 1576]]
that all intraday changes to a Covered Securities Loan be reported as
Loan Modifications, which several commenters stated is inconsistent
with the requirements of Rule 10c-1a.\202\ One commenter stated that
the proposed rule change's inclusion of intraday activity as required
reporting would be misleading to the public.\203\ One commenter stated
that the intraday reporting requirements in the proposed rule change,
as originally proposed in the Notice, are ``costly and burdensome'' and
that ``the costs and complexity of reporting these intraday loan
modifications greatly undermines any purported utility.'' \204\ Another
commenter stated that it is not clear that FINRA has ``adequately
analyzed the costs and benefits'' of the proposed rule change's
intraday reporting requirement.\205\ One commenter recommended
consolidating Loan Modification and Loan Correction events, as well as
Loan Cancellation and Delete Loan events, stating that tracking
multiple event types would be complex and burdensome.\206\
---------------------------------------------------------------------------
\202\ See ISLA Americas Letter 1, at 6-8; ISLA Letter 1, at 4;
SIFMA AMG Letter 1, at 2; SIFMA AMG Letter 2, at 2-4; SIFMA Letter,
at 4-6; Associations Collective Letter, at 2; ICI Letter, at 5-7;
FIF Letter, at 2-3; Robinhood Letter, at 2. See also S3 Partners
Letter, at 2.
\203\ See ISLA Americas Letter 1, at 8.
\204\ ISLA Americas Letter 1, at 8. See ICI Letter, at 6-7;
Robinhood Letter, at 2.
\205\ Associations Collective Letter, at 2.
\206\ See ISLA Americas Letter 1, at 17; ISLA Americas Letter 2,
at 8.
---------------------------------------------------------------------------
In response, FINRA stated that Covered Persons must report Loan
Modifications consistent with Rule 10c-1a.\207\ FINRA stated that
proposed Rule 6530 is not intended to alter when loan events are
required to be reported as Loan Modifications (including terminations)
or when new loans must be reported under Rule 10c-1a.\208\ To the
extent a loan event is not reportable under Rule 10c-1a, there would
likewise be no SLATE reporting obligations. FINRA stated that, to make
this clearer, Partial Amendment No. 1 removed originally proposed Rules
6530.01 (Intraday Loan Modifications) and 6530.02 (Changes to the
Parties to a Covered Securities Loan).\209\ Some commenters supported
Partial Amendment No. 1's removal of these two originally proposed
provisions.\210\
---------------------------------------------------------------------------
\207\ See Partial Amendment No. 1, 89 FR 92229.
\208\ See Partial Amendment No. 1, 89 FR 92229.
\209\ See Partial Amendment No. 1, 89 FR 92229. See also FINRA
Letter, at 5.
\210\ See ISLA Americas Letter 2, at 3-4; SIFMA and SIFMA AMG
Letter, at 2.
---------------------------------------------------------------------------
The Commission agrees that the Proposal's inclusion of an end-of-
day reporting requirement for Initial Covered Securities Loans and Loan
Modifications is consistent with the requirements of Rule 10c-1a.
Consistent with Rule 10c-1a, which requires the individual reporting of
the specific modification and the specific data element being
modified,\211\ under proposed Rule 6510(e), the term 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). This definition is reasonably designed
to facilitate the collection of Loan Modification information and is
consistent with the requirements of paragraphs (d)(1)(ii) and (d)(2) of
Rule 10c-1a, which require the reporting of modified data elements by
the end of the day on which a covered securities loan is modified.
---------------------------------------------------------------------------
\211\ See Rule 10c-1a Adopting Release, 88 FR 75671.
---------------------------------------------------------------------------
Commenters on the proposed rule change, as originally proposed in
the Notice, recommended that FINRA clarify that loan information
concerning intraday events is not required to be reported until all
terms of a loan are agreed upon.\212\ In response, FINRA stated its
understanding that, based on the Rule 10c-1a Adopting Release, Loan
Modifications are required to be reported to an RNSA pursuant to Rule
10c-1a once the Loan Modification is finalized, and that indicative
terms are not reportable.\213\ FINRA stated that the Rule 10c-1a
Adopting Release explains that Rule 10c-1a's ``final end-of-day
requirement was intended to better capture final loan information.''
\214\ FINRA also stated that whether or not a loan has been effected is
a legal/factual question and that Covered Persons must report loan
events, including Loan Modifications, in a manner consistent with Rule
10c-1a.\215\ FINRA's response regarding the reporting of information
concerning Loan Modifications, as well as the Proposal's requirement
for the reporting of information concerning Loan Modifications, are
consistent with the requirements of Rule 10c-1a. Further, the Proposal
is reasonably designed to facilitate the collection of information
regarding Loan Modifications consistent with Rule 10c-1a.
---------------------------------------------------------------------------
\212\ See ICI Letter, at 8. See also FIF Letter, at 3.
\213\ FINRA Letter, at 6 (citing Rule 10c-1a Adopting Release,
88 FR 75679-80).
\214\ FINRA Letter, at 6 (citing Rule 10c-1a Adopting Release,
88 FR 75679-80).
\215\ FINRA Letter, at 6 (citing Rule 10c-1a Adopting Release,
88 FR 75681).
---------------------------------------------------------------------------
One commenter on the proposed rule change, as originally proposed
in the Notice, requested clarification as to whether intraday reporting
of ``lifecycle events'' is required, and whether there is a specific
sequence in which firms must report.\216\ As discussed above, in this
Part, FINRA stated that Covered Persons must report Loan Modifications
consistent with Rule 10c-1a.\217\ The Proposal is consistent with Rule
10c-1a's requirement for the end-of-day reporting of same-day loan
modifications. In adopting Rule 10c-1a, the Commission stated that
whether there is a change that will trigger the reporting of a Loan
Modification data element may involve a facts-and-circumstances-based
determination.\218\ There may be certain lifecycle events in the course
of an open-ended loan and that some market participants may view as a
modification to an existing loan that other market participants might
view as a termination of an existing loan and the entry into a new
loan.\219\ In these cases, the Covered Person (or Reporting Agent) may
elect to report the required information as either a termination (and
therefore a modification) of an existing loan and a creation of a new
loan, or as two modifications to an open-ended loan.\220\ SLATE does
not impose a timing sequence for the reporting of Loan Modifications
that are effected on the same day, as the commenter asked,\221\ and the
Proposal would not prohibit a Covered Person (or its Reporting Agent)
from reporting Loan Modifications in chronological order so long as
such reporting is done in accordance with the Proposal and Rule 10c-1a.
---------------------------------------------------------------------------
\216\ ISLA Letter 1, at 9-10 (suggesting that reporting
``lifecycle events'' be done in ``chronological order for ease'').
\217\ See FINRA Letter, at 6.
\218\ See, e.g., Rule 10c-1a Adopting Release, 88 FR 75672.
\219\ See Rule 10c-1a Adopting Release, 88 FR 75672.
\220\ See Rule 10c-1a Adopting Release, 88 FR 75672.
\221\ See ISLA Letter 1, at 9-10.
---------------------------------------------------------------------------
One commenter stated that it sought clarity as to whether a market
participant who ``books a loan'' that is not reported ``at the time,''
and such loan is modified that same day, could report the Initial
Covered Securities Loan along with all ``subsequent lifecycle events,''
at 6:00 p.m., by reporting the Initial Covered Securities Loan and Loan
Modification.\222\ Proposed Rule 6530(a)(2)(U) and proposed Rule
6530(a)(b)(A) are designed to permit such reporting (i.e., reporting
the Initial Covered Securities Loan along with all ``subsequent
lifecycle events,'' at 6:00 p.m., by reporting the Initial Covered
Securities
[[Page 1577]]
Loan and Loan Modification) while allowing FINRA to link same-day
reports that relate to the same Covered Securities Loan, accurately
record transactions reported pursuant to Rule 10c-1a, and incorporate
Loan Modification information into the daily loan statistics.\223\ The
Proposal is reasonably designed to facilitate end-of-day reporting for
same-day Initial Covered Securities Loans and Loan Modifications not
previously reported consistent with Rule 10c-1a.
---------------------------------------------------------------------------
\222\ See ISLA Letter 1, at 9.
\223\ See FINRA Letter, at 5.
---------------------------------------------------------------------------
One commenter suggested that, to differentiate from ``other
securities lending industry participants, such as prime brokers,
engage[d] in intraday activities that could be reported as lifecycle
events, . . . FINRA and the Commission . . . [should] 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.'' \224\ As discussed above, in this Part, FINRA stated that
Covered Persons must report Loan Modifications consistent with Rule
10c-1a.\225\ The commenter's suggested flag is not required by Rule
10c-1a to be reported to an RNSA. FINRA's decision not to include a
flag that identifies a party as a lending agent, as suggested by the
commenter,\226\ is consistent with Rule 10c-1a.\227\
---------------------------------------------------------------------------
\224\ ISLA Americas Letter 1, at 8.
\225\ See Rule 10c-1a Adopting Release, 88 FR 75681-82.
\226\ ISLA Americas Letter 1, at 8.
\227\ See Rule 10c-1a Adopting Release, 88 FR 75667 n.365
(describing Rule 10c-1a as allowing FINRA ``the necessary
flexibility to propose and implement rules regarding the format and
manner with respect to the collection of information'').
---------------------------------------------------------------------------
Another commenter sought clarification on the ``treatment of
corporate actions'' under the proposed rule change, as originally
proposed in the Notice, where, according to the commenter, firms may
need to adjust the terms of an existing Covered Securities Loan (e.g.,
during a tender offer).\228\ This commenter stated that FINRA should
``propose specific guidelines that recognize such changes and
adjustments and consider the utility to investors of reporting based on
what may be outlier events and that may occur long after the actual
lending activity,'' without providing any specificity as to what the
``guidelines'' should address.\229\ FINRA's decision not to include in
the Proposal ``specific guidelines,'' as the commenter suggested, is
reasonable because covered Persons must report Loan Modifications
consistent with Rule 10c-1a, and Loan Modifications are required to be
reported once they are finalized.\230\ The Proposal is reasonably
designed to facilitate the reporting of Loan Modification information
consistent with Rule 10c-1a(d).
---------------------------------------------------------------------------
\228\ See Robinhood Letter, at 2.
\229\ Robinhood Letter, at 2.
\230\ See Rule 10c-1a Adopting Release, 88 FR 75667 n.365.
---------------------------------------------------------------------------
With regard to allocations of securities loans by lending agents,
one commenter stated that, ``until the reallocation is finalized, there
is no utility to requiring a covered person to report potential loan
modifications.'' \231\ Another commenter requested confirmation that an
intermediary would not report a block (i.e., omnibus) transaction to
SLATE and would instead report the allocations for the block
transaction once the allocations have been finalized.\232\ One
commenter stated that requiring the reporting of allocations of an
omnibus loan contradicted the Commission's decision in Rule 10c-1a
``not to treat reallocations among a pooled loan's underlying
constituents as a new covered loan or as a modification.'' \233\
---------------------------------------------------------------------------
\231\ ISLA Americas Letter 1, at 6.
\232\ FIF Letter, at 6.
\233\ ICI Letter, at 7. See FIF letter, at 6 (requesting
confirmation that an intermediary would not be required to report an
omnibus transaction to SLATE and would report only finalized
allocations). In response, FINRA cited the Rule 10c-1a Adopting
Release, which states that ``[w]hether the parties to a covered
securities loan change for purposes of the reporting requirements
under final Rule 10c-1a(e)(1) depends on how a pool or lending
program is structured (e.g., whether the pool or lending program
itself or the individual underlying participants are the party or
parties identified as the lender for the loan).'' Rule 10c-1a
Adopting Release, 88 FR 75664 (citation omitted).
---------------------------------------------------------------------------
As discussed above, FINRA stated its understanding that, under Rule
10c-1a(d), loan modifications are required to be reported once they are
finalized, and that indicative terms are not reportable.\234\ FINRA
stated that, in the context of omnibus loans and reallocations,
proposed Rule 6530 does not alter which entities must be reported as
parties to a loan, whether a change to the parties to a loan triggers a
reporting obligation, or whether such report must reflect a
modification or a new loan (and therefore, also a termination of the
prior loan); rather, these obligations are prescribed by Rule 10c-1a as
discussed in the Rule 10c-1a Adopting Release.\235\ FINRA stated its
understanding that Rule 10c-1a generally requires that a change in the
parties to a loan be reported as a termination of the prior loan and
the initiation of a new loan (reflecting the new parties, if
known).\236\ In adopting Rule 10c-1a, the Commission stated that
whether a reallocation of a loan among participants in a lending
program requires the reporting of a new covered securities loan depends
upon the facts and circumstances, including the structure of such
lending program.\237\ The Proposal's information reporting requirements
concerning omnibus loans that are Covered Securities Loans, by
mirroring the requirements in Rule 10c-1a(e)(1), are reasonably
designed to facilitate the collection of loan information consistent
with Rule 10c-1a.\238\
---------------------------------------------------------------------------
\234\ FINRA Letter, at 6.
\235\ FINRA Letter, at 7.
\236\ FINRA Letter, at 7 (citing Rule 10c-1a Adopting Release,
88 FR 75664).
\237\ See Rule 10c-1a Adopting Release, 88 FR 75664.
\238\ See Rule 10c-1a Adopting Release, 88 FR 75664.
---------------------------------------------------------------------------
Another commenter stated that the proposed rule change, as
originally proposed in the Notice, would require that ``all Partials
and Full Returns to be checked for settlement first, prior to being
reported.'' \239\ This commenter suggested to align SLATE with the
SFTR, which the commenter stated ``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.'' \240\ The commenter stated that, under the proposed
rule change, as originally proposed in the Notice, ``market
participants would have to consider how to monitor settlement
separately to what they are reporting for regulatory purposes,'' which
the commenter stated would be challenging for systems from a books a
records perspective.\241\ 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.'' \242\
---------------------------------------------------------------------------
\239\ ISLA Letter 1, at 4.
\240\ ISLA Letter 1, at 4.
\241\ ISLA Letter 1, at 4. See S3 Partners Letter, at 4.
\242\ ISLA Letter 1, at 4-5.
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As discussed above in Part III.A.1, Partial Amendment No. 1 removed
the originally proposed requirement for the reporting of certain
information, including the Unsettled Loan indicator, the expected
settlement date for Covered Securities Loans, and 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). FINRA stated that it eliminated the settlement-related
elements in the interest of achieving the timely
[[Page 1578]]
implementation of SLATE.\243\ FINRA also stated that it plans to
reassess the need for some data after gaining experience with the
operation of SLATE and the initial data set, and that any such efforts
would be subject to a separate proposed rule change filed with the
Commission and as such, subject to notice and comment. SLATE is
designed to be consistent with Rule 10c-1a, which imposes a unique and
different regulatory regime from the SFTR, with differences in their
underlying objectives.\244\ FINRA's decision in the Proposal not to
require the reporting of settlement-related data elements--the
Unsettled Loan indicator, the expected settlement date for Covered
Securities Loans, and 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)--addresses comments concerning the
potential need to monitor the settlement of Covered Securities
Loans.\245\ Further, the Proposal is consistent with Rule 10c-1a
because above-mentioned settlement-related data elements are not
required to be reported pursuant to Rule 10c-1a(c) through (e).
---------------------------------------------------------------------------
\243\ FINRA Letter, at 4.
\244\ See Rule 10c-1a Adopting Release, 88 FR 75681.
\245\ See, e.g., ISLA Letter 1, at 4; S3 Partners Letter, at 4.
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Commenters stated that the proposed rule change, as originally
proposed in the Notice, should allow reporters to submit a single,
consolidated daily file. One commenter stated that the proposed rule
change should ``implement the single, consolidated, end-of-day
reporting requirement contemplated by SEC Rule 10c-1a.'' \246\ Another
commenter recommended to allow reporters to submit a single daily file
of all required elements associated with their current inventory''
including ``every loan required to be reported including new and
modified loans.'' \247\ FINRA's decision not to accept SLATE reports in
the form of a single daily file is reasonable . In adopting Rule 10c-
1a, the Commission provided FINRA with the necessary flexibility to
propose and implement rules regarding the format and manner with
respect to the collection of information.\248\ As such, the Proposal's
requirements concerning the manner of reporting are consistent with
FINRA's experience in establishing and maintaining systems that are
designed to capture transaction reporting \249\ as well as the
requirements of Rule 10c-1a.\250\ As discussed above, in Part III.C.2,
the Proposal's requirement for reporting information concerning Loan
Modifications is consistent with the requirements of Rule 10c-1a.
---------------------------------------------------------------------------
\246\ See SIFMA Letter, at 6. See also Robinhood Letter, at 2;
SIFMA AMG Letter 2, at 3.
\247\ S3 Partners Letter, at 1.
\248\ See Rule 10c-1a Adopting Release, 88 FR 75667 n.365.
\249\ See, e.g., Rule 10c-1a Adopting Release, 88 FR 75682,
75685; FINRA Rule 6730.
\250\ See Rule 10c-1a Adopting Release, 88 FR 75671.
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D. Definitions
One commenter stated that the proposed rule change, as originally
proposed in the Notice, appears to sustain ``the ongoing lack of
clarity regarding whether certain uses of securities that are not
documented or priced as securities loans in the market may nonetheless
be reportable under Rule 10c-1a as `covered securities loans.' '' \251\
The commenter stated that rehypothecating shares to make delivery on
short positions should not be treated as a Covered Securities Loan for
purposes of Rule 10c-1a.\252\ Another commenter stated that the
delivery by a broker-dealer of securities to settle a short sale--and
the consequent carrying of a short position in a brokerage account--is
not reportable under Rule 10c-1a as a ``covered securities loan.''
\253\
---------------------------------------------------------------------------
\251\ MFA Letter, at 5.
\252\ See MFA Letter, at 5.
\253\ SIFMA Letter, at 8-9.
---------------------------------------------------------------------------
In response, FINRA stated that whether a particular transaction is
a ``covered securities loan'' is an example of an issue that is not
related to determinations that FINRA has made regarding the proposed
reporting requirements or dissemination provisions of SLATE.\254\ FINRA
stated that these comments are addressed in the Rule 10c-1a Adopting
Release. Further, FINRA stated that, with respect to a Covered
Securities Loan used to close out a fail-to-deliver pursuant to Rule
204 of Regulation SHO, where the broker-dealer is complying by entering
into a bona fide arrangement to borrow the security by no later than
the beginning of regular trading hours on the settlement day following
the settlement date in question, firms would view such loans as having
been agreed to in the morning consistent with the timing parameters of
Rule 204 of Regulation SHO (albeit that the loan is not required to be
reported until the end of the day under Rule 10c-1a).\255\ One
commenter on Partial Amendment No. 1 sought clarity on whether certain
conduct constitutes ``effecting, accepting, or facilitating'' a lending
transaction.\256\
---------------------------------------------------------------------------
\254\ See FINRA Letter, at 9-10.
\255\ FINRA Letter, at 6-7. The Commission agrees with FINRA.
See 17 CFR 242.204(b).
\256\ See Letter from Tony Holland, Director of Market Practice,
International Securities Lending Association (December 20, 2024).
---------------------------------------------------------------------------
The Commission agrees with FINRA that the definition of ``covered
securities loan'' is addressed by Rule 10c-1a(j)(2) and is discussed in
the Rule 10c-1a Adopting Release.\257\ In adopting Rule 10c-1a, the
Commission stated that the definition of covered securities loan
excludes the use of margin securities by a broker or dealer (e.g.,
rehypothecation) other than the lending of such margin securities by a
broker or dealer, as well as a position at a clearing agency that
results from certain central counterparty or central securities
depository services.\258\ Because the definitions of Covered Securities
Loan and Reportable Security in SLATE mirror the definitions of
``covered securities loan'' and ``reportable security'' in Rule 10c-1a,
respectively, FINRA has reasonably set forth the scope of SLATE reports
and distinguished Covered Securities Loans from other types of
transactions that are not required to be reported.\259\ The definitions
under the Proposal are reasonably designed to facilitate compliance
with, and clarify the scope of, SLATE reporting consistent with Rule
10c-1a.
---------------------------------------------------------------------------
\257\ See, e.g., Rule 10c-1a Adopting Release, 88 FR 75658,
75661-67, 75689.
\258\ Rule 10c-1a Adopting Release, 88 FR 75649.
\259\ See Rule 10c-1a Adopting Release, 88 FR 75666-67.
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Commenters on the proposed rule change, as originally proposed in
the Notice, sought clarity on the jurisdictional scope of the proposed
rule change, including the applicability to foreign entities and
foreign securities.\260\ One commenter asked whether securities that
are traded within the U.S. and have `` `F-share' tickers'' are
Reportable Securities under Rule 10c-1a.\261\ With regard to foreign
securities traded outside of the U.S., the commenter asked if a
transaction would be reportable under Rule 10c-1a in the U.S. if the
security has multiple SEDOLs/tickers, where only one of which is
Consolidated Audit Trail (``CAT'') reportable, and the securities
lending trade references one of the other SEDOLs/tickers (i.e., the
foreign ticker traded on a foreign exchange, and thus not the ``F-
shares ticker'').\262\
---------------------------------------------------------------------------
\260\ See, e.g., SIFMA Letter, at 8; ISLA Letter 1, at 2.
\261\ Letter from Tony Holland, Director of Market Practice,
International Securities Lending Association (July 16, 2024) (``ISLA
Letter 2''), at 2-3.
\262\ ISLA Letter 2, at 4-5. 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.
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[[Page 1579]]
In response, FINRA listed these comments as examples of issues not
related to determinations that FINRA has made regarding the proposed
reporting requirements or dissemination provisions of SLATE but instead
are addressed in the Rule 10c-1a Adopting Release.\263\ As discussed
above, in this Part, Rule 10c-1a(j) defines the terms ``reportable
security,'' which in part sets the scope of Rule 10c-1a(a).
Accordingly, a security is a ``reportable security'' under Rule 10c-1a
if it is a 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 Rule 613 of the Exchange Act and the CAT NMS
Plan, TRACE, or RTRS, or any reporting system that replaces one of
these systems.\264\ With respect to the cross-border application of
Rule 10c-1a, the Commission stated that, section 10(c) of the Exchange
Act, by its terms, requires reporting when, directly or indirectly, a
person has ``effect[ed], accept[ed], or facilitate[d]'' a transaction
involving the loan or borrowing of securities.\265\ Based on that
language, the Commission concluded in the Rule 10c-1a Adopting Release
that the relevant domestic conduct that triggers the Commission's
regulatory authority under section 10(c) is conduct within the U.S.
that comprises (in whole or in part) effecting, accepting, or
facilitating of a borrowing or lending transaction.\266\ The Commission
further stated that, because Rule 10c-1a is intended to be co-extensive
with the regulatory scope of section 10(c), it is of the view that Rule
10c-1a's reporting requirements will generally be triggered whenever a
covered person effects, accepts, or facilitates (in whole or in part)
in the U.S. a lending or borrowing transaction.\267\
---------------------------------------------------------------------------
\263\ See FINRA Letter, at 9-10.
\264\ See 17 CFR 240.10c-1a(j)(3).
\265\ Rule 10c-1a Adopting Release, 88 FR 75689.
\266\ Rule 10c-1a Adopting Release, 88 FR 75689.
\267\ Rule 10c-1a Adopting Release, 88 FR 75689.
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E. Compliance With Reporting Obligations
One commenter stated that the proposed rule change, as originally
proposed in the Notice, differs from Rule 10c-1a because the proposed
rule change would allow third-party service providers, who may not be
registered in any capacity with the Commission, to provide the same
service as a Reporting Agent ``without the oversight or regulatory
responsibility of a Reporting Agent,'' whereas Rule 10c-1a
``specifically allows for Covered Persons to use the services of a
Reporting Agent only.'' \268\ The commenter stated that ``the
permissible activities'' of these third-party service providers
``demands further clarification and an express set of qualification
criteria that distinguishes such permissible activities from those that
are inherent'' with respect to Reporting Agents and Covered Persons to
avoid providing ``a back door'' through which the third-party service
providers ``can escape SEC and FINRA oversight and liability'' as a
Reporting Agent.\269\
---------------------------------------------------------------------------
\268\ See EquiLend Letter 1, at 1.
\269\ EquiLend Letter 1, at 6.
---------------------------------------------------------------------------
In response, FINRA stated that nothing in the Proposal modifies the
parameters the Commission set forth regarding the use of a ``reporting
agent,'' which is a defined term under Rule 10c-1a(j), for purposes of
reporting loan information pursuant to Rule 10c-1a. FINRA stated that,
while the Commission established the role of a reporting agent (in the
Rule 10c-1a Adopting Release), it did not preclude firms from using
other types of third parties to facilitate reporting (albeit that
covered persons may not rely on such other parties in the same manner
reserved for reporting agents under Rule 10c-1a).\270\
---------------------------------------------------------------------------
\270\ See FINRA Letter, at 15 (citing Rule 10c-1a Adopting
Release, 88 FR 75655).
---------------------------------------------------------------------------
The Commission agrees with FINRA that the Proposal does not, and
cannot, modify Rule 10c-1a's definition of ``reporting agent.'' In
adopting the definition of ``reporting agent'' under Rule 10c-1a, the
Commission stated that the definition strikes a balance between
increasing participation and competition in the marketplace for such
services, while applying the definition only to entities over which the
Commission has direct oversight.\271\ The ability to use a Reporting
Agent does not prevent Covered Persons from contracting privately with
third-party vendors to assist in reporting. The use of other third-
party vendors that are not Reporting Agents would not relieve a Covered
Person of its obligation to report Rule 10c-1a information to FINRA, as
reliance on a Reporting Agent would.\272\ Allowing clearing agencies,
as well as brokers or dealers, to act as reporting agents under Rule
10c-1a should help facilitate low-cost service providers, introduce
more competition, and not unduly restrict the market for Reporting
Agent services to only brokers or dealers.\273\
---------------------------------------------------------------------------
\271\ See Rule 10c-1a Adopting Release, 88 FR 75655.
\272\ See 17 CFR 240.10c-1a(a)(2); Rule 10c-1a Adopting Release,
88 FR 75655.
\273\ Rule 10c-1a Adopting Release, 88 FR 75655.
---------------------------------------------------------------------------
Commenters on the proposed rule change addressed Rule
6530(c)(3),\274\ which requires, among other things, that, if a Covered
Person makes a good faith determination that it has a reporting
obligation under Rule 10c-1a and the Rule 6500 Series, the Covered
Person or Reporting Agent, as applicable, must report the Covered
Securities Loan as provided in proposed Rule 6530, and 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, 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.\275\ Commenters stated that requiring a
Covered Person or Reporting Agent to notify FINRA to add securities to
SLATE would be burdensome,\276\ inefficient,\277\ open to manual
error,\278\ and duplicative and unnecessary.\279\ One commenter stated
that this is a highly manual process that could ``lead to a time-lag
when setting up new static data that does not already exist within the
SLATE system.'' \280\ One commenter recommended that the notification
requirement be revised or removed, and stated that it is ``not an
appropriate delegation of duties'' to require a Covered Person to
notify FINRA Operations of Reportable Securities not included in the
SLATE system.\281\ One commenter stated that FINRA should have primary
responsibility for adding Reportable Securities to the SLATE system and
not impose this obligation on Covered Persons.\282\ One commenter
requested clarification on if the Covered Person could be subject to
``liability'' for failing to notify FINRA about Reportable Securities
not entered into SLATE.\283\ Another commenter stated that FINRA should
consider the example of the CAT, where, the commenter stated, ``there
is no separate process for an
[[Page 1580]]
industry member to request that a symbol be added to CAT.'' \284\
---------------------------------------------------------------------------
\274\ As originally proposed in the Notice, this provision was
included as proposed Rule 6530(d)(4). See supra Part II.C.
\275\ ISLA Letter 1, at 3; ISLA Americas Letter 1, at 15; ISLA
Americas Letter 2, at 9; ICI Letter, at 8.
\276\ ICI Letter, at 8; ISLA Americas Letter 1, at 15; ISLA
Americas Letter 2, at 9.
\277\ ICI Letter, at 8; ISLA Letter 1, at 3; ISLA Americas
Letter 1, at 15.
\278\ ISLA Letter 1, at 3.
\279\ FIF Letter, at 8-9.
\280\ See ISLA Letter 1, at 3.
\281\ ISLA Americas Letter 1, at 15. See ISLA Americas Letter 2,
at 9.
\282\ ICI Letter, at 8.
\283\ ISLA Letter 1, at 13.
\284\ See FIF Letter, at 8-9.
---------------------------------------------------------------------------
In response, FINRA stated that, under Rule 10c-1a, it is the
covered person's (or, where applicable, a reporting agent's)
responsibility to ensure that it submits required reports in compliance
with applicable rules; Rule 10c-1a does not assign to an RNSA the
responsibility to identify all reportable securities.\285\ FINRA stated
that, as FINRA typically does with its other over-the-counter
facilities, FINRA intends to create a SLATE security list that it will
make available to Covered Persons and other SLATE participants
(leveraging reference data from the CAT NMS list, TRACE, and the
MSRB).\286\ FINRA stated, however, that a Covered Person remains
obligated to determine whether a securities loan transaction that it
has engaged in is reportable under Rule 10c-1a, regardless of whether
the security appears on FINRA's SLATE security list.\287\ FINRA stated
that, for this reason, proposed Rule 6530(c)(3), as modified by Partial
Amendment No. 1, requires that, if a Covered Person makes a good faith
determination that it has a reporting obligation under Rule 10c-1a with
respect to a securities loan, and the Reportable Security is not
already entered into the SLATE system, the Covered Person (or its
Reporting Agent) must promptly notify FINRA and work with FINRA
Operations to enter the Reportable Security into the SLATE system.\288\
One commenter on Partial Amendment No. 1 stated that FINRA should
publish a SLATE securities list daily based on a consolidated feed of
TRACE, RTRS, and CAT eligible securities.\289\
---------------------------------------------------------------------------
\285\ See FINRA Letter, at 15.
\286\ FINRA Letter, at 15-16.
\287\ FINRA Letter, at 16.
\288\ FINRA Letter, at 16.
\289\ SIFMA and SIFMA AMG Letter, at 5.
---------------------------------------------------------------------------
FINRA's decision to require Covered Persons or Reporting Agents, as
applicable, to promptly notify and provide FINRA Operations with a
Reportable Security that is not entered into the SLATE system is
reasonable.\290\ In proposing Rule 6530(c)(3), FINRA stated that the
requirement would enable FINRA to set the security up in its systems
and facilitate reporting of the Covered Securities Loan to SLATE, as
required by Rule 10c-1a and proposed Rule 6530.\291\ The proposed
requirement to add Reportable Securities to the SLATE system is
reasonably designed to facilitate the collection of loan information
consistent with Rule 10c-1a.\292\
---------------------------------------------------------------------------
\290\ See Rule 10c-1a Adopting Release, 88 FR 75667 n.365. In
adopting Rule 10c-1a, the Commission stated that there may be costs
for reporting entities associated with determining whether a loan is
a covered securities loan, including whether a particular security
is a reportable security. Rule 10c-1a Adopting Release, 88 FR 75718
n.974.
\291\ Notice, 89 FR 38210.
\292\ See Rule 10c-1a Adopting Release, 88 FR 75667 n.365.
---------------------------------------------------------------------------
Some commenters addressed the statement in the Notice that ``the
member must nonetheless take reasonable steps to ensure that the
Reporting Agent is in fact complying with the securities lending
reporting requirements of SEA Rule 10c-1a and proposed FINRA Rule 6530
on its behalf.'' \293\ One commenter stated that such a requirement
deviates from Rule 10c-1a and 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.'' \294\ Another commenter stated
that the costs of increased reliance on Reporting Agents for compliance
purposes would be compounded by the proposed requirement that Covered
Persons ensure that Reporting Agents file timely, accurate, and
complete data.\295\
---------------------------------------------------------------------------
\293\ See Notice, 89 FR 38210.
\294\ ISLA Americas Letter 1, at 10.
\295\ SIFMA AMG Letter 2, at 7.
---------------------------------------------------------------------------
In response, Partial Amendment No. 1 removed from the proposed rule
change the requirement that a Covered Person take reasonable steps to
ensure that the Reporting Agent is in fact complying with the
securities lending reporting requirements of Rule 10c-1a. In doing so,
FINRA stated that, in its oversight of member compliance with Rule 10c-
1a, in addition to reviewing whether members have complied with the
requirements of Rule 10c-1a(a)(2) with respect to the use of Reporting
Agents, FINRA also will review the timeliness and accuracy of SLATE
reports submitted by Reporting Agents in light of a Reporting Agent's
obligations under Rule 10c-1a(b) and the underlying requirements of
Rule 10c-1a. FINRA stated that, after gaining experience with the SLATE
program, FINRA will reevaluate whether any additional measures are
appropriate.\296\ Any such efforts would be subject to a separate
proposed rule change filed with the Commission and subject to notice
and comment. Some commenters supported Partial Amendment No. 1's
removal of this originally proposed requirement.\297\ The Proposal,
which is consistent with Rule 10c-1a \298\ and similar requirements in
rules concerning other FINRA trade reporting systems,\299\ is
reasonably designed to facilitate the oversight of compliance with Rule
10c-1a, given FINRA's expertise in administering other FINRA trade
reporting systems.\300\
---------------------------------------------------------------------------
\296\ Partial Amendment No. 1, 89 FR 92229 n.21.
\297\ See ISLA Americas Letter 2, at 5; SIFMA and SIFMA AMG
Letter, at 3.
\298\ See 17 CFR 240.10c-1a(a), (b).
\299\ See, e.g., FINRA Rule 6730(f).
\300\ See Rule 10c-1a Adopting Release, 88 FR 75683.
---------------------------------------------------------------------------
F. Participation in SLATE
One commenter requested that FINRA confirm its enforcement rules
for non-U.S. firms for incorrect reporting.\301\ This commenter
requested clarity on FINRA's proposed enforcement policy on non-FINRA
members, specifically as it related to compliance for reporting to the
SLATE system and violations or failures to pay SLATE reporting
fees.\302\ The commenter also asked, from a cybersecurity perspective,
what processes, policies, or procedures FINRA members have in place and
whether the proposed requirement in Rule 6520(a)(2)(C) regarding the
maintenance of the physical security of the equipment located on the
premises of the SLATE Participant would apply to both domestic and non-
U.S. trading parties.\303\
---------------------------------------------------------------------------
\301\ ISLA Letter 1, at 2.
\302\ ISLA Letter 1, at 14.
\303\ ISLA Letter 1, at 13.
---------------------------------------------------------------------------
In response to comments regarding incorrect reporting, FINRA stated
that it will review the timeliness and accuracy of reports to the SLATE
system in light of the requirements under Rule 10c-1a(b) and the
underlying requirements of Rule 10c-1a. FINRA also stated that, after
gaining experience with the SLATE program, FINRA will reevaluate
whether any additional measures are appropriate.\304\ Any such efforts
would be subject to a separate proposed rule change filed with the
Commission and subject to notice and comment. Further, in the Notice,
FINRA stated that it may validate and reject submissions to SLATE that
FINRA believes are noncompliant or otherwise inconsistent with Rule
10c-1a or with the form and manner specified by FINRA for the data (as
provided in FINRA rules, guidance, and technical documents and
specifications), and may exclude any such information from disseminated
SLATE data. FINRA stated that it may also block or reject any activity
to the extent such activity puts the normal functioning of the SLATE
system at risk.\305\
---------------------------------------------------------------------------
\304\ FINRA Letter, at 4 n.18.
\305\ Notice, 89 FR 38206.
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[[Page 1581]]
Incorrect reporting can result in a violation of Rule 10c-1a.\306\
The Proposal, which contains security- and confidentiality-related
provisions that supplement existing FINRA cybersecurity-related rules
for certain SLATE Participants,\307\ is reasonably designed to address
cybersecurity concerns regarding the SLATE system. The proposed
requirement for a SLATE Participant to maintain the physical security
of the equipment located on its premises to prevent unauthorized entry
of information into SLATE is reasonably designed to help prevent risk
to the SLATE system that could hamper access to information regarding
securities loans or compromise the integrity of the data reported to
and disseminated by SLATE. The Proposal is consistent with the
requirement in Rule 10c-1a(h)(4) that FINRA establish, maintain, and
enforce reasonably designed written policies and procedures to maintain
the security and confidentiality of the confidential information
required to be reported to it. It also is reasonably designed to
address the risk that disclosure of certain loan information would
identify market participants or reveal information about the internal
operations of market participants.\308\ The Proposal is reasonably
designed to facilitate and enforce the integrity of the collected data
that is designed to improve transparency and efficiency in the
securities lending market consistent with Rule 10c-1a.
---------------------------------------------------------------------------
\306\ See Rule 10c-1a(a).
\307\ Cybersecurity, FINRA (last visited December 16, 2024),
<a href="https://www.finra.org/rules-guidance/key-topics/cybersecurity#rules">https://www.finra.org/rules-guidance/key-topics/cybersecurity#rules</a>.
In adopting Rule 10c-1a, the Commission stated that the rule
collects sensitive information and that the costs of a data breach
could be substantial. See Rule 10c-1a Adopting Release, 88 FR 75721
n.1011. While Reporting Agents that are not FINRA members (e.g.,
registered clearing agencies and certain brokers or dealers) are not
subject to these cybersecurity-related FINRA rules, they
nevertheless may be subject, as applicable, to existing Commission
rules designed to address cybersecurity-related concerns, such as
Regulation SCI, which has provisions requiring, among other things,
that policies and procedures be in place to help ensure the
robustness and resiliency of market technology systems, see 17 CFR
242.1001(a)(1), or Regulation S-P, which has provisions requiring
policies and procedures aimed at protecting customer records or
information and customer report information, see 17 CFR 248.30.
\308\ See Rule 10c-1a Adopting Release, 88 FR 75687.
---------------------------------------------------------------------------
G. Dissemination of Loan Information
Under the proposed rule change, as originally proposed in the
Notice, FINRA would have disseminated, by the morning of the next
business day, aggregate loan transaction activity, including
information broken down into several subcategories (e.g., by borrower
type or whether a loan is an open or term loan).\309\ Some commenters
addressed the granularity of the aggregated data that FINRA would
disseminate pursuant to the proposed rule change, as originally
proposed in the Notice. Two commenters stated that, in Rule 10c-1a, the
Commission had afforded FINRA deference as to the manner in which
aggregate information is compiled and presented publicly.\310\ One
commenter 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,'' without permitting FINRA to break
down the dataset into smaller published subsets, or ``slices,'' based
on specific criteria.\311\ Some commenters also stated such granular
data (e.g., data broken down by borrower type) raises significant
concerns that sensitive, proprietary trading strategy information may
be disclosed.\312\ Commenters stated their concerns that the
publication of more granular aggregated data potentially could allow
market participants to ``extrapolate'' or ``back into'' individual loan
amounts on a T+1 basis.\313\ One commenter stated that the proposed
rule change's breakdown for aggregate transaction activity and
distribution of loan rates should have been included in the proposing
release for Rule 10c-1a and subjected to a cost-benefit analysis and
formal rulemaking notice and comment period.\314\ The commenter
recommended that FINRA ``reevaluate its proposed structure and instead
propose a revised, less granular structure.'' \315\
---------------------------------------------------------------------------
\309\ See Notice, 89 FR 38212.
\310\ See SIFMA Letter, at 7; ISLA Americas Letter 1, at 16.
\311\ SIFMA Letter, at 7. See SIFMA AMG Letter 2, at 5.
\312\ SIFMA Letter, at 7. See ICI Letter, at 9; SIFMA AMG Letter
2, at 5; Hagerty Letter, at 3.
\313\ See SIFMA Letter, at 7; ISLA Americas Letter 1, at 16; MFA
Letter, at 5-6.
\314\ See SIFMA Letter, at 6-7.
\315\ SIFMA Letter, at 7. See MFA Letter, at 7; SIFMA AMG Letter
2, at 5.
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In response, Partial Amendment No. 1 removed the subcategories of
volume data from the aggregate loan transaction activity to be
disseminated until experience is gained with the impact of
disseminating volume data.\316\ In particular, Partial Amendment No. 1
removed paragraphs (c)(1)(A) through (E) and amended proposed Rule
6540(c)(1) to provide that FINRA will disseminate 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. In the FINRA Letter, FINRA stated that Rule
10c-1a requires an RNSA to disseminate ``information pertaining to the
aggregate transaction activity and distribution of loan rates for each
reportable security.'' \317\ FINRA stated that the Commission did not
specify the precise manner in which aggregate transaction activity or
the distribution of loan rates would be compiled and disseminated by an
RNSA, thereby providing FINRA with discretion as to the formulation of
the data (so long as the ``aggregate transaction activity'' represented
the absolute value of loan transactions).\318\ FINRA stated that, in
determining what aggregate data is appropriate for public
dissemination, it remains very sensitive to concerns regarding
potential information leakage.\319\
---------------------------------------------------------------------------
\316\ See FINRA Letter, at 14.
\317\ FINRA Letter, at 13 (citing 17 CFR 240.10c-1a(g)(5)).
\318\ FINRA Letter, at 14 (citing Rule 10c-1a Adopting Release,
88 FR 75684).
\319\ FINRA Letter, at 14.
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Further, in response to comments, FINRA stated that this change is
appropriate and that FINRA would revisit the possibility of enhancing
the aggregate loan transaction activity in the future, after gaining
experience with the impact of disseminating volume data and analyzing
what additional information could be useful (while continuing to be
sensitive to potential information leakage concerns).\320\ FINRA stated
that any future amendments to the dissemination provisions would be
subject to a separate proposed rule change filed with the Commission
and subject to notice and comment. Some commenters supported Partial
Amendment No. 1's removal of the subcategories of volume data from the
aggregate loan transaction activity to be publicly disseminated,\321\
one of whom supported FINRA's decision to revisit SLATE's dissemination
provisions.\322\ The Proposal is reasonably designed to facilitate
access to data that market participants can use to mitigate information
asymmetries while taking account of commenter concerns regarding data
security and confidentiality. The Proposal also is consistent with the
requirements for the publication of data in Rule 10c-1a(g) and the
broader transparency goals of Rule 10c-1a.\323\
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\320\ See Partial Amendment No. 1, 89 FR 92232.
\321\ See ISLA Americas Letter 2, at 6; SIFMA and SIFMA AMG
Letter, at 3.
\322\ See ISLA Americas Letter 2, at 6.
\323\ See Rule 10c-1a Adopting Release, 88 FR 75726. See also
Rule 10c-1a Adopting Release, 88 FR 75707 n.849.
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[[Page 1582]]
The Proposal is reasonably tailored to help ensure that the
absolute value of transactions is disseminated such that net position
changes should not be discernable in the data. This should help to
address commenter concerns regarding potential exposure of proprietary
information while still providing volume transparency to market
participants. The Proposal is reasonably designed to facilitate the
dissemination of loan information consistent with Rule 10c-1a.
One commenter on Partial Amendment No. 1 stated that the Commission
and FINRA should require that unsettled loans be excluded from any
public dissemination of individual loan transaction data pursuant to
proposed Rule 6540(a) and (b) and from any daily loan statistics
published pursuant to proposed Rule 6540(c).\324\ The commenter stated
that it does not see the value to the market in publishing data
regarding unsettled loans and that including unsettled loans in
publicly disseminated loan information ``would be misleading and cause
investor confusion.'' \325\ The Commission disagrees that the inclusion
of unsettled loans (that are Covered Securities Loans) in data
disseminated pursuant to proposed Rule 6540 would be misleading and
cause investor confusion, as the commenter suggested and instead
believes that the omission of this data would be inconsistent with Rule
10c-1a's broader transparency goals.\326\ For instance, the
dissemination of data regarding unsettled loans that are Covered
Securities Loans would provide information regarding the material terms
of securities loans that have been agreed to.\327\ FINRA's decision to
disseminate, pursuant to proposed Rule 6540, data regarding unsettled
loans that are Covered Securities Loans is consistent with Rule 10c-
1a(g), which applies to ``covered securities loans,'' generally,
without distinguishing those that are unsettled.
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\324\ See SIFMA and SIFMA AMG Letter, at 4.
\325\ SIFMA and SIFMA AMG Letter, at 4.
\326\ See, e.g., Rule 10c-1a Adopting Release, 88 FR 75707.
\327\ See Rule 10c-1a Adopting Release, 88 FR 75662 n.288.
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Some commenters stated that the de minimis loan transaction
activity threshold, as originally proposed in the Notice, was set too
low.\328\ One commenter stated that the threshold of three loans is too
low, ``especially when viewed in conjunction with the possibility that
FINRA will publish granular volume buckets.'' \329\ Commenters stated
that FINRA should consider whether the application of the threshold
``should be mandatory and not an optional exclusion for confidentiality
reasons.'' \330\ Another commenter stated that the discretionary
authority to exclude de minimis loan transaction activity would ``have
no mitigating effect whatsoever'' on the consequences of publicly
disclosing sensitive, granular loan information.\331\ One commenter
requested clarification as to whether FINRA ``will'' or ``may'' omit de
minimis loan transaction activity.\332\
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\328\ See, e.g., ISLA Letter 1, at 10; ISLA Americas Letter 1,
at 16; ICI Letter, at 9; SIFMA AMG Letter 2, at 5.
\329\ ISLA Americas Letter 1, at 16.
\330\ ISLA Letter 1, at 10. See ICI Letter, at 9.
\331\ MFA Letter, at 6.
\332\ ISLA Americas Letter 1, at 16.
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In response, Partial Amendment No. 1 modified proposed Rule 6540.01
to clarify that FINRA's application of the de minimis threshold will be
non-discretionary and to provide that FINRA will not include aggregate
volume information for a security unless there were reports submitted
to SLATE on the prior business day for at least 10 distinct Covered
Securities Loans in the Reportable Security (represented by different
FINRA-assigned unique loan identifiers).\333\ In the FINRA Letter,
FINRA stated that the de minimis exclusion was not intended to provide
FINRA with discretion on a case-by-case basis as to whether to omit
volume information that met the de minimis criteria.\334\ Some
commenters supported Partial Amendment No. 1's increase to the de
minimis threshold and clarification that application of the de minimis
threshold is non-discretionary.\335\ One commenter stated that FINRA
should consider further whether 10 distinct Covered Securities Loans
may still be too low of a threshold.\336\ The commenter stated, without
providing any support for its suggested figure, that a higher threshold
of 25 distinct Covered Securities Loans would be more appropriate to
address concerns that sophisticated market participants could use the
aggregated volume information to extrapolate sensitive information by
pairing the aggregate transaction activity data with data on individual
loan transactions.\337\ Another commenter, however, stated that the
threshold of 10 distinct Covered Securities Loans--in addition to the
provision's use of the phrase ``will not include'' to clarify that the
application of the de minimis threshold is non-discretionary--will
facilitate the prevention of information leakage and enhance the
integrity of securities loan reporting.\338\ The Commission agrees with
this comment and that the Proposal's de minimis threshold of 10
distinct Covered Securities Loans is reasonable. The threshold of 10
distinct Covered Securities Loans will facilitate the prevention of
information leakage and is less likely than the commenter's suggested
threshold of 25 distinct Covered Securities Loans to reduce the
transparency value of the disseminated information. The Proposal is
consistent with the publication of data requirements of Rule 10c-1a(g),
the data protection requirements in Rule 10c-1a(h)(4), and the broader
transparency goals of Rule 10c-1a.\339\
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\333\ FINRA stated that it will not have insight into all of the
relevant loan details necessary to generate the statistics described
in proposed Rule 6540(c) with respect to modifications to loans for
which reporting was not required pursuant to Rule 10c-1a(c) at the
time the loan was agreed to or last modified (i.e., modifications
reported to SLATE pursuant to Rule 10c-1a(d)(2)). FINRA stated that,
therefore, the daily loan statistics that FINRA will publish will
only reflect modifications to Covered Securities Loans that were
previously reported to SLATE.
\334\ FINRA Letter, at 14 n.52. This proposed de minimis
provision is intended to address potential information leakage in
circumstances where there are multiple reported events associated
with the same loan on a given day. Partial Amendment No. 1, 89 FR
92233 n.49.
\335\ See ISLA Americas Letter 2, at 6; SIFMA and SIFMA AMG
Letter, at 7.
\336\ SIFMA and SIFMA AMG Letter, at 7.
\337\ SIFMA and SIFMA AMG Letter, at 7.
\338\ See ISLA Americas Letter 2, at 6.
\339\ See Rule 10c-1a Adopting Release, 88 FR 75726. See also
Rule 10c-1a Adopting Release, 88 FR 75687-88, 75707 n.849.
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H. Other Provisions
1. Emergency Authority
Some 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, as discussed above in
Part II.F, would undermine the transparency that the proposed FINRA
Rule 6500 Series aims to promote.\340\ 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.'' \341\ Another commenter ``strongly advocate[d] for . . . the
publication of the reasons and timeframe for suspension to avoid
undermining [the proposed rule's] goals.'' \342\
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\340\ See, e.g., Form Letter A; Form Letter D.
\341\ See, e.g., Form Letter A; Form Letter D.
\342\ Letter from Jennifer (May 15, 2024).
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[[Page 1583]]
In response, FINRA stated that it does not believe that the
proposed provision, which would provide FINRA with limited, emergency
authority regarding the suspension of the reporting or dissemination of
certain Covered Securities Loans or Data Elements, would reduce the
transparency intended to be provided under Rule 10c-1a. FINRA stated
that, should the proposed emergency authority be used, any such action
would be taken only as market conditions warrant and only in
consultation with the SEC.\343\ FINRA stated that it has similar
authority in connection with other transaction reporting facilities
that it operates, and that it believes that such emergency authority is
appropriate to maintain fair and orderly markets.\344\ This emergency
authority is consistent with existing FINRA rules governing other
transparency regimes.\345\ The Commission agrees that the proposed
Emergency Authority provision of SLATE is reasonably designed to
maintain fair and orderly markets as market conditions may warrant.
Such authority, pursuant to proposed Rule 6550, could be exercised only
in consultation with the Commission, which should help to ensure that
the emergency authority is used in a manner consistent with the
requirements and goals of Rule 10c-1a.
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\343\ FINRA Letter, at 13.
\344\ FINRA Letter, at 13.
\345\ See, e.g., FINRA Rule 6770 (Emergency Authority);
Securities Exchange Act Release No. 60726 (September 28, 2009), 74
FR 50991 (October 2, 2009), at 50996.
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I. Costs and RNSA Fees
Commenters stated that FINRA has yet to publish information about
its contemplated Covered Securities Loan reporting fees and securities
loan data products and associated fees, and requested that FINRA
provide such information.\346\ Commenters stated that market
participants and the Commission cannot adequately assess the costs and
benefits of the Proposal without knowing what reporting fees FINRA
plans to charge.\347\ Commenters also requested time to consider
FINRA's contemplated SLATE reporting fees and data product fees.\348\
One commenter recommended in the absence of a proposed fee schedule
``that any final rule promulgated by FINRA be conditional upon
publication of proposed costs and public comment.'' \349\
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\346\ See Notice, 89 FR 38206. See, e.g., ISLA Letter 1, at 12;
Associations Collective Letter, at 3; MFA Letter, at 2 n.7;
Robinhood Letter, at 3 n.14; EquiLend Letter 1, at 7; SIFMA AMG
Letter 1, at 2.
\347\ See Associations Collective Letter, at 3; ICI Letter, at
9; ISLA Americas Letter, at 5.
\348\ See SIFMA Letter, at 7-8; SIFMA AMG Letter 1, at 2;
EquiLend Letter 1, at 7.
\349\ ISLA Americas Letter, at 11.
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On November 20, 2024, FINRA filed this proposed rule change with
the Commission. Specifically, pursuant to Section 19(b)(1) of the
Exchange Act and Rule 19b-4 thereunder, FINRA filed a proposed rule
change to set forth in new FINRA Rule 7720 securities loan reporting
fees and securities loan data products with associated fees.\350\ FINRA
designated the SLATE Fee Filing as ``establishing or changing a due,
fee or other charge'' under Section 19(b)(3)(A)(ii) of the Act and Rule
19b-4(f)(2) thereunder, which renders it effective upon filing with the
Commission. In addition, within the SLATE Fee Filing, FINRA estimates
the costs it expects, at this juncture, to incur to build and operate
SLATE, as well as the revenues it expects to receive from its proposed
fees.\351\ To solicit comments on the proposed rule change from
interested persons, the Commission published notice of the SLATE Fee
Filing on its website on November 21, 2024, and publication of that
notice in the Federal Register occurred on November 27, 2024, with a
21-day comment period beginning on the date of Federal Register
publication and expiring on December 18, 2024.\352\ The SLATE Fee
Filing is responsive to commenters seeking the ability and time to
understand what fees FINRA proposes to charge in connection with SLATE
reporting and public dissemination of SLATE data, and what costs FINRA
expects to incur, at this juncture, to build and operate SLATE.
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\350\ See Securities Exchange Act Release No. 101697 (Nov. 21,
2024), 89 FR 93750 (Nov. 27, 2024) (``SLATE Fee Filing''). With
respect to reporting, proposed FINRA Rule 7720 sets forth fees for:
(1) SLATE system connectivity; (2) Initial Covered Securities Loan
reporting; (3) Loan Modification reporting; (4) late reporting; and
(5) reporting cancellations, corrections, or deletions. These
reporting fees would be paid by SLATE Participants. See SLATE Fee
Filing, 89 FR 93751. With respect to data products, proposed FINRA
Rule 7720 sets forth fees for: (1) SLATE Loan-Level Data and Daily
Loan Statistics, which refers to the data described in proposed
FINRA Rule 6540(a)-(c); and (2) Historic SLATE Data, which refers to
SLATE Loan-Level Data and Daily Loan Statistics from the beginning
of SLATE data reporting through the end of the most recent calendar
year. See SLATE Fee Filing, 89 FR 93751. These data product fees
would be paid by any person or organization subscribing to receive
from FINRA downloadable files of SLATE data for commercial purposes.
See SLATE Fee Filing, 89 FR 93751. Pursuant to proposed FINRA Rule
6540.02, which is part of the Proposal, FINRA would display (i.e.,
make viewable) SLATE data free of charge on its website for
personal, non-commercial uses. See SLATE Fee Filing, 89 FR 93751.
Additional detail regarding FINRA's proposed SLATE reporting fees
and SLATE data product fees, as well as FINRA's related cost and
revenue estimates, can be found in the SLATE Fee Filing.
\351\ SLATE Fee Filing, 89 FR 93753. FINRA stated in the SLATE
Fee Filing that it 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 data product subscription interest.
See SLATE Fee Filing, 89 FR 93753. And FINRA stated that, to the
extent it 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 to
revise the proposed SLATE fees. See SLATE Fee Filing, 89 FR 93753.
\352\ See SLATE Fee Filing, 89 FR 93750. Comments received in
response to the SLATE Fee Filing can be found on the Commission's
website at <a href="https://www.sec.gov/comments/sr-finra-2024-020/srfinra2024020.htm">https://www.sec.gov/comments/sr-finra-2024-020/srfinra2024020.htm</a>.
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Commenters on the Proposal also expressed views on how FINRA should
allocate, via SLATE fees, the SLATE costs that it incurs.\353\ One
commenter recommended that the Commission ensure FINRA imposes ``the
costs of building and operating the reporting system equally on lenders
and borrowers, instead of solely on lenders.'' \354\ Similarly, another
commenter stated that the SLATE fees should ``be borne by market
participants more broadly'' rather than solely by Covered Persons
submitting data.\355\ One commenter expressed concern regarding the
``disproportionate allocation of compliance costs'' to lenders and
urged FINRA to exempt lenders (including lenders who may pool their
data) from any fees associated with accessing SLATE data for commercial
purposes to ensure equitable access to industry wide-data.\356\
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\353\ See, e.g., ICI Letter, at 9-10; ISLA Letter 1, at 12, 14;
Letter from David Schwartz, Executive Director, Center for the Study
of Financial Market Evolution (May 28, 2024) (``CSFME Letter''), at
2-3. See also ISLA Americas Letter 2, at 9.
\354\ ICI Letter, at 9-10.
\355\ ISLA Letter 1, at 12, 14.
\356\ CSFME Letter, at 2-3.
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That FINRA will incur costs to build and maintain SLATE and
proposes to pass them to market participants through SLATE fees is
consistent with Rule 10c-1a and what the Commission stated when
adopting the rule, and also consistent with the Exchange Act.\357\ Rule
10c-1a requires Covered Persons to report to an RNSA the required data
elements set forth in the rule for Covered Securities loans, and
requires the RNSA to make reported data publicly available. In the
Adopting Release, the Commission stated that Rule 10c-1a will impose
costs on an
[[Page 1584]]
RSNA, and that the RNSA may pass on these costs by imposing fees on
entities that provide Rule 10c-1a information to the RNSA and/or
consumers of the Rule 10c-1a data.\358\ This is what FINRA, the lone
RNSA, has proposed to do in the SLATE Fee Filing. The proposed SLATE
reporting fees would be paid by SLATE Participants under the SLATE Fee
Filing, the effect of which may be that SLATE reporting fees are paid
primarily by, and related SLATE costs borne by, Covered Person lenders
and lending agents, i.e., entities that will provide Rule 10c-1a
information to FINRA. And the proposed SLATE data product fees would be
paid by, and related SLATE costs borne by, any person or organization
subscribing to receive from FINRA downloadable files of SLATE data for
commercial purposes, i.e., consumers of the Rule 10c-1a data.
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\357\ As stated elsewhere herein, the Commission has found that
the Proposal, by implementing Rule 10c-1a, would help protect
investors and promote just and equitable principles of trade,
consistent with Section 15A(b)(6) of the Exchange Act. See, e.g.,
supra Part III.
\358\ See Rule 10c-1a Adopting Release, 88 FR 75693. The
Commission also understands that lenders may pass on their reporting
costs to their customers. See Rule 10c-1a Adopting Release, 88 FR
75693. In addition, a commenter has stated that it is more than
likely that lending agents will pass on any fees that they bear. See
ISLA Americas Letter 2, at 9. The Commission believes, however, that
investors will ultimately benefit from the improved transparency
provided by SLATE, as a result of enhanced price discovery and an
improved ability to determine the extent to which their broker-
dealers and lending agents are obtaining terms consistent with
market conditions for loans with similar characteristics. See supra
notes 79-90 and accompanying text.
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To the extent commenters express views on what SLATE fees FINRA
should charge or how FINRA should allocate SLATE fees,\359\ these
comments are relevant to the Slate Fee Filing and not to this Proposal.
Pursuant to the Section 19(b)(3)(A) and Rule 19b-4 procedures
applicable to the SLATE Fee Filing, the Commission will separately
consider whether the proposed fees set forth in the SLATE Fee Filing
are consistent with Section 15A of the Exchange Act, and in particular
Section 15A(b)(5),\360\ which requires that FINRA's 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 which FINRA operates or controls. If it appears to the
Commission that it is necessary or appropriate in the public interest,
for the protection of investors, and otherwise in furtherance of the
purposes of the Act, the Commission summarily may temporarily suspend
the SLATE Fee Filing and institute proceedings to determine whether the
SLATE Fee Filing should be approved or disapproved.\361\
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\359\ See, e.g., ISLA Americas Letter 2, at 9 (urging the
Commission and FINRA to ensure that the cost structure related to
the reporting of covered securities loans is equitable, and
expressing an intention to submit comments with respect to the SLATE
Fee Filing in a separate letter); CSFME Letter at 2-3 (urging that
lenders be exempt from fees for SLATE data products to ensure
equitable access to data).
\360\ See 15 U.S.C. 78o-3(b)(5).
\361\ See 15 U.S.C. 78s(b)(3)(C), 78s(b)(2)(B). The proposed
SLATE reporting fees would not be implemented before January 2,
2026, and the proposed SLATE data product fees would not be
implemented before April 2, 2026. See SLATE Fee Filing, 89 FR 93753-
54 (stating that implementation of SLATE reporting fees and data
product fees will correspond with Rule 10c-1a's compliance dates for
the commencement of reporting to SLATE and SLATE data dissemination,
respectively); Rule 10c-1a Adopting Release, 88 FR 75691 (setting
forth Rule 10c-1a's compliance schedule). Should the Commission
determine to suspend and institute proceedings on the SLATE Fee
Filing, those proceedings would conclude before the January 2, 2026,
implementation date for SLATE reporting fees. See 15 U.S.C.
78s(b)(3)(C), 78s(b)(2)(B).
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J. Other Issues Raised by Commenters Regarding the Proposal
1. Comment Period Extension
Commenters on the proposed rule change, as originally proposed in
the Notice, stated that the length of the comment period for FINRA's
proposed rule change was too short, requesting that the comment period
be extended.\362\ Commenters stated that a longer comment period was
necessary to consider certain aspects of the proposed rule change, as
originally proposed in the Notice.\363\ One commenter stated that,
given that the proposed rule change, as originally proposed in the
Notice, included requirements beyond those 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.'' \364\
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\362\ See, e.g., ISLA Letter 1, at 1-2; SIFMA AMG Letter 1, at
2; Associations Collective Letter, at 3; SIFMA AMG Letter 2, at 2,
8.
\363\ See SIFMA AMG Letter 1, at 2; SIFMA Letter, at 7-8.
\364\ Associations Collective Letter, at 3.
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As discussed above, in Part I, 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. On August
5, 2024, the Commission instituted proceedings to determine whether to
approve or disapprove the proposed rule change, and allow for
additional analysis of, and input from commenters with respect to, the
scope and implementation of the proposed rules. On October 28, 2024,
the Commission designated January 2, 2025, as the date by which the
Commission shall either approve or disapprove the proposed rule change.
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, some commenters submitted comments
stating their concerns about--what commenters called--a 45-day
``delay'' in implementing SLATE. Some commenters opposed the
Commission's designation of a longer period within which to take action
on FINRA's proposed rule change.\365\ Some commenters called the
extension ``unacceptable'' or stated that the delay in the
implementation of the FINRA rules could undermine the stability and
transparency of the financial system and weaken investor
confidence.\366\ 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 did not delay the
implementation of SLATE. Pursuant to Rule 10c-1a, the date for the
Proposal to be effective is no later than 12 months after the effective
date of Rule 10c-1a, which is January 2, 2025.\367\
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\365\ See, e.g., Form Letter C.
\366\ See, e.g., Form Letter C.
\367\ See Rule 10c-1a Adopting Release, 88 FR 75691 (requiring
that the proposed FINRA rules are effective no later than 12 months
after the effective date of final Rule 10c-1a, and that covered
persons must start reporting Rule 10c-1a information to an RNSA
starting on the first business day 24 months after the effective
date of final Rule 10c-1a).
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2. SLATE Compliance Period(s)
One commenter recommended that FINRA provide SLATE Participants
with six months of user acceptance testing.\368\ The commenter stated
that such testing ``will be a critical component of the development
lifecycle--reducing risk and increasing the quality of submissions.''
\369\ Whether FINRA decides to provide for such testing, taking account
of the applicable Rule 10c-1a compliance periods, is within FINRA's
discretion to structure its systems and processes as it sees fit.\370\
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\368\ S3 Partners Letter, at 5.
\369\ S3 Partners Letter, at 5.
\370\ See, e.g., Rule 10c-1a Adopting Release, 88 75667 n.365.
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A commenter stated that the Commission should pause the Rule 10c-1a
compliance dates until the legal challenge regarding Rule 10c-1a is
resolved.\371\ Another commenter stated that the SEC and FINRA should
``avoid pursuing'' the Proposal until the legal challenge is
adjudicated.\372\ In general, the filing of a legal challenge to an
agency rule does not itself alter the
[[Page 1585]]
compliance date(s) set forth in the rule. Accordingly, the challenge to
Rule 10c-1a does not change the compliance date(s) set forth therein or
the need for affected parties to comply with Rule 10c-1a.
---------------------------------------------------------------------------
\371\ See Robinhood Letter, at 3 (referencing Nat'l Assoc. Priv.
Fund Mgr. v. SEC, No. 23-60626 (5th Cir.)).
\372\ See Hagerty Letter, at 3.
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Another commenter stated that the Commission should work with FINRA
to afford FINRA an appropriate amount of additional time to address the
feedback FINRA may receive on Partial Amendment No. 1, such as by
allowing FINRA to consent to additional time for Commission
consideration of the Proposal.\373\ As discussed above, in Parts I and
III.J.1, January 2, 2025, is the date by which the Commission shall
either approve or disapprove the Proposal and is the compliance date
under Rule 10c-1a for the Proposal to be effective. The commenter's
suggestion to allow additional time for the Proposal to be considered
would extend consideration of the Proposal beyond, and therefore would
be inconsistent with, the Rule 10c-1a compliance date for the Proposal
to be effective.
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\373\ See SIFMA and SIFMA AMG Letter, at 2. The commenter
suggested that the Commission ``allow[ ] FINRA to consent to
additional time for Commission consideration of the SLATE proposal
under Section 19(b)(2)(B)(ii) of the Exchange Act.'' SIFMA and SIFMA
AMG Letter, at 2.
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[…truncated; see source link]Indexed from Federal Register on January 8, 2025.
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.