`[Federal Register Volume 88, Number 212 (Friday, November 3, 2023)]
[Rules and Regulations]
[Pages 75644-75742]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-23052]



[[Page 75643]]

Vol. 88

Friday,

No. 212

November 3, 2023

Part II





Securities and Exchange Commission





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17 CFR Part 240





Reporting of Securities Loans; Final Rule

  Federal Register / Vol. 88 , No. 212 / Friday, November 3, 2023 / 
Rules and Regulations  

[[Page 75644]]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 240

[Release No. 34-98737; File No. S7-18-21]
RIN 3235-AN01


Reporting of Securities Loans

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: The Securities and Exchange Commission (``SEC'' or 
``Commission'') is adopting a new rule under the Securities Exchange 
Act of 1934 (``Exchange Act'') to increase the transparency and 
efficiency of the securities lending market by requiring certain 
persons to report information about securities loans to a registered 
national securities association (``RNSA''). The new rule also requires 
certain confidential information to be reported to an RNSA to enhance 
an RNSA's oversight and enforcement functions. Further, the new rule 
requires that an RNSA make certain information it receives, along with 
daily information pertaining to the aggregate transaction activity and 
distribution of loan rates for each reportable security, available to 
the public.

DATES: 
    Effective date: January 2, 2024.
    Compliance date: The applicable compliance dates are discussed in 
Part VIII of this release.

FOR FURTHER INFORMATION CONTACT: Elizabeth Sandoe, Senior Special 
Counsel, James Curley, Special Counsel, Elisabeth Van Derslice, 
Attorney-Advisor, Theresa Hajost, Special Counsel, Brendan McLeod, 
Attorney-Advisor, Roland Lindmayer, Attorney-Advisor, Josephine J. Tao, 
Assistant Director, Office of Trading Practices, or Carol McGee, 
Associate Director, Office of Derivatives Policy and Trading Practices, 
Division of Trading and Markets, Securities and Exchange Commission, 
100 F Street NE, Washington, DC 20549-7010, at (202) 551-5777.

SUPPLEMENTARY INFORMATION: The Commission is adopting 17 CFR 240.10c-1a 
(``final Rule 10c-1a'' or ``final rule'') under the Exchange Act, which 
requires covered persons to provide to an RNSA information concerning 
certain securities loans, in the format and manner required by an RNSA, 
and within specified time periods. The final rule requires an RNSA to 
make publicly available certain information it receives, within 
specified time periods, and to keep confidential certain information it 
receives. The final rule contains requirements regarding an RNSA's data 
retention and availability and permits an RNSA to establish and collect 
reasonable fees.

Table of Contents

I. Introduction
II. Background
III. Statutory Mandate
IV. Proposed Rule 10c-1
V. Overview of Final Rule
VI. Overview of Changes From Proposed Rule
VII. Discussion of the Final Rule
    A. Scope of Persons With Reporting Obligations--10c-1a(j)(1)
    B. Reporting Agent Overview
    1. Use of a Reporting Agent--Rule 10c-1a(a)(2)
    2. Reporting Agent Definition--Rule 10c-1a(j)(4)
    C. Reporting Agent Requirements--Rule 10c-1a(b)
    1. Reporting Agent Reporting Requirements--Rule 10c-1a(b)
    2. Recordkeeping Requirements of a Reporting Agent--Rule 10c-
1a(b)(5)
    D. Scope of Securities Required To Be Reported--Rule 10c-
1a(j)(3)
    E. Scope of Transactions Required To Be Reported--Rule 10c-
1a(j)(2)
    F. Information To Be Provided to an RNSA
    1. Loan Data Elements--Rule 10c-1a(c)
    2. Loan Modification Data Elements--Rule 10c-1a(d)
    3. Confidential Data Elements--Rule 10c-1a(e)
    4. Removal of Securities Available to Loan Data Element
    5. Removal of Securities on Loan Data Element
    G. Timing of Required Reporting to an RNSA
    1. Timing of Reporting of Loans
    2. Timing of Reporting of Loan Modification
    3. Timing of Reporting of Confidential Data Elements
    H. Definition of Registered National Securities Association--
10c-1a(j)(5)
    I. RNSA Rules To Administer the Collection of Information--Rule 
10c-1a(f)
    J. RNSA Publication of Data--10c-1a(g)
    K. RNSA Data Retention, Availability, Fees, and Security
    1. Data Retention--Rule 10c-1a(h)(1)
    2. Data Availability to the Public--Rule 10c-1a(h)(3)
    3. RNSA Fees--Rule 10c-1a(i)
    4. Data Security--Rule 10c-1a(h)(4)
    L. Data Availability to the Commission and Other Persons--Rule 
10c-1a(h)(2)
    M. Cross-Border Application of Rule 10c-1a
    N. Additional Comments
VIII. Compliance Date
IX. Economic Analysis
    A. Introduction and Market Failure
    1. Introduction
    2. Market Failures
    B. Economic Baseline
    1. Securities Lending
    2. Current State of Transparency in Securities Lending
    3. Characteristics of the Securities Lending Market
    4. Structure of the Securities Lending Market
    5. Structure of the Market for Securities Lending Data and 
Analytics
    6. Short Selling Transparency
    C. Economic Effects of the Final Rule
    1. Benefits of Increased Transparency in the Securities Lending 
Market
    2. Regulatory Benefits
    3. Direct Compliance Costs
    4. Other Costs
    5. Reduced Benefits From Alternative Arrangements
    D. Impact on Efficiency, Competition, and Capital Formation
    1. Efficiency
    2. Competition
    3. Capital Formation
    E. Alternatives
    1. Report Loan Sizes Without a Delay
    2. Alternative Timeframes for Reporting or Dissemination
    3. Only Require Dissemination of Aggregate or Wholesale 
Statistics
    4. Require Reporting of Shares Available To Lend and Shares on 
Loan
    5. Restrict Covered Persons to Broker-Dealers
    6. Expand Reporting Agents Beyond Broker-Dealers and Clearing 
Agencies
    7. Publicly Releasing the Information in 10c-1a(e)
    8. Additional Information in the Reported or Disseminated 
Information
    9. Only Allow an RNSA To Charge Fees to Data Reporters
    10. Longer Holding Period Requirement
    11. Longer Implementation Period
    12. Report to the Commission Rather Than to an RNSA
    13. Report Through an NMS Plan
X. Paperwork Reduction Act
XI. Regulatory Flexibility Act Certification
XII. Other Matters

I. Introduction

    The securities lending market is opaque.\1\ There is a general lack 
of comprehensive information on current market conditions in the 
securities lending market. Although various market participants, such 
as certain registered investment companies (``investment companies''), 
are required to periodically make certain disclosures regarding their 
securities lending activities,\2\ parties to securities lending

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transactions are not currently required to report the material terms of 
those transactions.\3\ The lack of public information and data gaps 
creates inefficiencies in the securities lending market. The gaps in 
securities lending data render it difficult for end borrowers and 
lenders alike to ascertain market conditions and to know whether the 
terms that they receive are consistent with market conditions. These 
gaps also impact the ability of the Commission, RNSAs and other self-
regulatory organizations (``SROs''), and other Federal financial 
regulators to oversee transactions that are vital to fair, orderly, and 
efficient markets.\4\ Indeed, the size of the U.S. securities lending 
market can only be estimated as the data currently available with 
respect to securities lending transactions are ``spotty and 
incomplete.'' \5\ Further, the FSOC 2020 Annual Report noted data gaps 
in certain important financial markets including transaction data for 
securities lending arrangements.\6\
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    \1\ See Reporting of Securities Loans, Release No. 34-93613 
(Nov. 18, 2021), 86 FR 69802 (Dec. 8, 2021) (``Proposing Release''), 
86 FR 69804-21.
    \2\ See, e.g., Form N-CEN, Item C.6 (requiring general 
disclosures relating to an investment company's securities lending 
activities); Form N-PORT, Items B.4 and C.12 (requiring disclosure 
by certain investment companies of certain aggregate information on 
borrowers of loaned securities and collateral received for loaned 
securities); 17 CFR 274.101; 17 CFR 274.150. See also Investment 
Company Reporting Modernization, Release No. 34-79095 (Oct. 13, 
2016), 81 FR 81870 (Nov. 18, 2016) (discussing, among other things, 
requirements for securities lending disclosures on Form N-PORT by 
certain investment companies).
    \3\ See Proposing Release, 86 FR 69803.
    \4\ In its 2021 Annual Report, the Financial Stability Oversight 
Council (``FSOC'') provides that ``[c]entralized monitoring of 
securities lending activities is difficult due to the lack of 
comprehensive, standardized statistics on securities lending 
activities . . . the estimated value of securities on loan globally 
was $3.1 trillion at the end of September 2021, up from $2.5 
trillion at the end of September 2020 . . . U.S. securities continue 
to account for the majority of global securities on loan, accounting 
for 58 percent of global securities on loan as of the end of 
September 2021.'' See FSOC 2021 Annual Report, at 46, available at 
https://home.treasury.gov/system/files/261/FSOC2021AnnualReport.pdf. 
See also Viktoria Baklanova, Adam Copeland & Rebecca McCaughrin, 
Reference Guide to U.S. Repo and Securities Lending Markets (Off. of 
Fin. Research, Working Paper No. 15-17, 2015), at 5, available at 
https://www.financialresearch.gov/working-papers/files/OFRwp-2015-17_Reference-Guide-to-U.S.-Repo-andSecurities-Lending-Markets.pdf 
(``Office of Financial Research Reference Guide'' or ``OFR Reference 
Guide'').
    \5\ OFR Reference Guide, at 5, available at https://www.financialresearch.gov/working-papers/files/OFRwp-2015-17_Reference-Guide-to-U.S.-Repo-and-Securities-Lending-Markets.pdf.
    \6\ See FSOC 2020 Annual Report, at 187. See also the FSOC 2020 
Annual Report describing securities lending as ``support[ing] the 
orderly operation of capital markets, principally by enabling the 
establishment of short positions and thereby facilitating price 
discovery and hedging . . . it is estimated that at the end of 
September 2020 the global securities lending volume outstanding was 
$2.5 trillion, with around 57 percent of it attributed to the U.S,'' 
at 45, available at https://home.treasury.gov/system/files/261/FSOC2020AnnualReport.pdf.
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    Private vendors have attempted to address the opacity in the 
securities lending market by offering systems that provide data to 
borrowers and lenders of securities, such as systems that are only 
available to those who voluntarily provide their transaction data to 
the data vendor.\7\ However, data gaps remain despite the private 
vendor attempts to address opacity in the securities lending market. 
The private systems are limited to voluntary submissions of data. 
Further, the data captured by these private vendors is not available to 
the general public without a subscription, and is not available in one 
centralized location. Only subscribers to the private vendor have 
access to such data, which only provides a limited view into securities 
lending activity. No single vendor has access to pricing information 
that reflects all securities lending transactions that take place. In 
addition, data from certain private vendors is limited to loans from a 
lending program to a broker or dealer and do not capture loans from a 
broker or dealer to an end borrower. There have also been calls from 
industry observers and market participants for the Commission to 
consider measures to provide additional transparency in the securities 
lending market.\8\
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    \7\ See OFR Reference Guide, at 64, available at https://www.financialresearch.gov/working-papers/files/OFRwp-2015-17_Reference-Guide-to-U.S.-Repo-and-Securities-Lending-Markets.pdf.
    \8\ See Proposing Release, 86 FR 69803 n.11.
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II. Background

    Securities lending is the market practice by which securities are 
transferred temporarily from one party, a securities lender, to 
another, a securities borrower, for a fee.\9\ A securities loan is 
typically a fully collateralized transaction. Securities lenders are 
generally large institutional investors including investment companies, 
central banks, sovereign wealth funds, pension funds, endowments, and 
insurance companies.\10\ Owners of large, static, unleveraged 
portfolios, mainly pension funds, increasingly cite securities lending 
as an important income-enhancing strategy with minimal, or at least 
controlled, risk.\11\ This incremental income not only helps defined-
benefit pension funds to generate income, but also provides investment 
company investors with additional returns.\12\
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    \9\ See Proposing Release, 86 FR 69804.
    \10\ See Proposing Release, 86 FR 69804.
    \11\ See Proposing Release, 86 FR 69804.
    \12\ See Proposing Release, 86 FR 69804.
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    Traditionally, securities lending and borrowing transactions have 
been conducted on a bilateral basis.\13\ Generally, when an end 
investor wishes to borrow securities, it may obtain a loan from its 
broker or dealer from the broker's or dealer's inventory or through 
customer margin accounts, or the broker or dealer will borrow the 
securities from a lending agent with whom it has a relationship and 
will then re-lend the securities to its customer. Loans from lending 
programs to brokers or dealers occur in what is referred to by market 
participants as the ``Wholesale market,'' while loans from a broker or 
dealer to the end borrower occur in what is referred to by market 
participants as the ``Customer market'' (sometimes also known as the 
``retail market''). Obtaining a securities loan often involves an 
extensive search for counterparties by brokers or dealers.\14\
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    \13\ See Proposing Release, 86 FR 69805.
    \14\ See Proposing Release, 86 FR 69805.
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    Brokers and dealers are the primary borrowers of securities; they 
borrow for their market making activities or on behalf of their 
customers.\15\ Brokers and dealers who borrow securities typically re-
lend those securities or use the securities to cover fails to deliver 
or short sales arising from proprietary or customer transactions.\16\ 
While the identities of the ultimate securities borrowers are usually 
unknown, anecdotally, hedge funds rank among the largest securities 
borrowers and access the lending market mainly through their prime 
brokers.\17\ Brokers and dealers may also lend securities that are 
owned by the broker or dealer, customer securities that have not been 
fully paid for (i.e., have been purchased with a margin loan from the 
broker or dealer), and the securities of customers who have agreed to 
participate in a fully paid securities lending program offered by their 
broker or dealer.\18\
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    \15\ See Proposing Release, 86 FR 69805.
    \16\ See Proposing Release, 86 FR 69805.
    \17\ See Proposing Release, 86 FR 69805.
    \18\ See Proposing Release, 86 FR 69805.
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    Other securities lending transactions are often facilitated by a 
third party. Custodian banks have traditionally been the primary 
lending agent or intermediary \19\ and lend securities on behalf of 
their customers for a fee.\20\ Advances in technology and operational 
efficiency have made it easier to separate securities lending services 
from custody services. Such developments have given rise to specialist 
third party agent lenders, who have established themselves as an 
alternative to custodian banks.\21\ Agent lenders provide potential 
borrowers with the inventory of securities available for lending on a 
daily basis.\22\
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    \19\ As discussed below, in Part VII.A, the final rule defines 
the term ``intermediary'' as a person that agrees to a covered 
securities loan on behalf of the lender.
    \20\ See infra Part VII.A.
    \21\ See Proposing Release, 86 FR 69805.
    \22\ See Proposing Release, 86 FR 69805.

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III. Statutory Mandate

    Section 984(a) of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (``Dodd-Frank Act'') added section 10(c) to the Exchange 
Act to provide the Commission with authority over securities 
lending.\23\ Section 984(b) of the Dodd-Frank Act mandates that the 
Commission increase transparency of information available to brokers, 
dealers, and investors.\24\
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    \23\ Section 984(a) of the Dodd-Frank Act, now section 10(c)(1) 
of the Exchange Act, makes it unlawful for any person, directly or 
indirectly, by the use of any means or instrumentality of interstate 
commerce or of the mails, or of any facility of any national 
securities exchange to effect, accept, or facilitate a transaction 
involving the loan or borrowing of securities in contravention of 
such rules and regulations as the Commission may prescribe as 
necessary or appropriate in the public interest or for the 
protection of investors. 15 U.S.C. 78j(c)(1). Section 10(c)(2) of 
the Exchange Act states that nothing in section 10(c)(1) may be 
construed to limit the authority of the appropriate Federal banking 
agency (as defined in 12 U.S.C. 1813(q)), the National Credit Union 
Administration, or any other Federal department or agency having a 
responsibility under Federal law to prescribe rules or regulations 
restricting transactions involving the loan or borrowing of 
securities in order to protect the safety and soundness of a 
financial institution or to protect the financial system from 
systemic risk. 15 U.S.C. 78j(c)(2).
    \24\ Section 984(b) of the Dodd-Frank Act directs the SEC to 
``promulgate rules that are designed to increase the transparency of 
information available to brokers, dealers, and investors with 
respect to loan or borrowing securities.'' Public Law 111-203, sec. 
984(b), 124 Stat. 1376 (2010).
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    On November 18, 2021, to supplement the publicly available 
information involving securities lending, close the data gaps in this 
market, and minimize information asymmetries between market 
participants, the Commission proposed Rule 10c-1 under the Exchange Act 
(``proposed Rule 10c-1'' or ``proposed rule'').\25\ Proposed Rule 10c-1 
was designed to provide investors and other market participants with 
access to pricing and other material information regarding securities 
lending transactions in a timely manner. The Commission stated that the 
data collected and made available by the proposed rule would improve 
price discovery in the securities lending market and lead to a 
reduction of the information asymmetry faced by end borrowers and 
beneficial owners in the securities lending market.\26\ In addition, 
the Commission stated its preliminary belief that the proposed rule 
would close securities lending data gaps, increase market efficiency, 
and lead to increased competition among providers of securities lending 
analytics services and reduced administrative costs for broker-dealers 
and lending programs.\27\ On balance, the final rule requirements are 
designed to achieve the objectives of the proposed rule,\28\ as 
discussed below, in Parts VII and IX, and are designed to increase the 
transparency of information available to brokers, dealers, and 
investors with respect to loans or borrowing securities.
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    \25\ See Proposing Release, 86 FR 69851-53.
    \26\ Proposing Release, 86 FR 69804.
    \27\ Proposing Release, 86 FR 69804.
    \28\ See Proposing Release, 86 FR 69804.
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IV. Proposed Rule 10c-1

    The Commission proposed that any person that loans a security on 
behalf of itself or another person (a ``Lender'') provide certain 
securities lending information (``Rule 10c-1 information'') to an RNSA 
\29\ in the time periods specified by the proposed rule (e.g., 
transaction data elements and confidential data elements would be 
reported within 15 minutes after each loan is effected).\30\ As 
proposed, all securities would be within the scope of the rule.\31\
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    \29\ See proposed Rule 10c-1(a). Proposed Rule 10c-1 referred to 
``Rule 10c-1 information'' as ``the information in paragraphs (b) 
through (e) of this section.'' These paragraphs specifically 
included transaction data elements, loan modification data elements, 
confidential data elements, and securities available to loan and 
securities on loan.
    \30\ See, e.g., proposed Rules 10c-1(b) and (d).
    \31\ See Proposing Release, 86 FR 69807 n.60.
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    The proposed rule stated that a bank, clearing agency, broker, or 
dealer that acts as an intermediary to a loan of securities (lending 
agent) on behalf of a person that owns the loaned securities 
(beneficial owner) shall provide the Rule 10c-1 information to an RNSA 
on behalf of the beneficial owner within the time periods specified by 
the proposed rule or enter into a written agreement with a broker or 
dealer that agrees to provide the Rule 10c-1 information to an RNSA 
(reporting agent) in accordance with the proposed rule's 
requirements.\32\ The proposed rule also provided that a beneficial 
owner would not be required to provide Rule 10c-1 information to an 
RNSA if a lending agent acts as an intermediary to the loan of 
securities on behalf of the beneficial owner.\33\
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    \32\ See proposed Rule 10c-1(a)(1)(i)(A).
    \33\ See proposed Rule 10c-1(a)(1)(i)(B).
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    The proposed rule would have permitted persons required to report 
(including intermediaries) to enter into a written agreement with a 
reporting agent that is a broker or dealer to provide the Rule 10c-1 
information to an RNSA.\34\ Such a reporting agent would be required to 
establish, maintain, and enforce policies and procedures as well as 
preserve records.\35\ The reporting agent would also be required to 
provide an RNSA with an updated list of persons on whose behalf the 
reporting agent is providing information under the proposed rule.\36\
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    \34\ See proposed Rule 10c-1(a)(1)(ii)(A).
    \35\ See proposed Rules 10c-1(a)(2)(i) and (2)(iv).
    \36\ See proposed Rule 10c-1(a)(2)(iii).
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    The proposed rule would have required that an RNSA make certain 
reported information publicly available as soon as practicable but no 
later than the next business day.\37\ To track the securities lending 
transaction, the proposed rule would require an RNSA to assign each 
securities lending transaction with a unique transaction 
identifier.\38\ Loan modifications would be provided to an RNSA if the 
modifications to the loan involved any of the terms required to be 
reported.\39\ The terms of the loan modification, but not the parties 
to the loan, would be made public.\40\ In addition, proposed Rule 10c-1 
required that by the end of each business day information concerning 
securities ``on loan'' and ``available to loan'' would be provided to 
an RNSA.\41\ Such information would be made publicly available by an 
RNSA on an aggregated basis per security.\42\
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    \37\ See proposed Rule 10c-1(e).
    \38\ See proposed Rule 10c-1(b).
    \39\ See proposed Rule 10c-1(c).
    \40\ See proposed Rule 10c-1(c).
    \41\ See proposed Rule 10c-1(e).
    \42\ See proposed Rule 10c-1(e)(3).
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    Not all information reported to an RNSA would have been made 
publicly available under the proposed rule. Certain information 
reported to an RNSA would be necessary for regulatory functions, but 
would not have been made publicly available due to the likelihood that 
it would identify market participants or reveal investment 
decisions.\43\ Proposed Rule 10c-1 would have required an RNSA to keep 
certain information confidential, subject to the provisions of 
applicable law.\44\
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    \43\ See Proposing Release, 86 FR 69816.
    \44\ See proposed Rules 10c-1(d) and (e)(3).
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    The proposed rule would have allowed an RNSA to charge fees to 
lenders, but prohibited an RNSA from charging for or limiting the use 
of the publicly reported data. Specifically, the proposed rule would 
have required an RNSA to make the published information available 
without use restrictions and without charge, for at least five 
years.\45\
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    \45\ See proposed Rule 10c-1(g)(3).
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    In response to the Proposing Release, the Commission received 
numerous comments expressing a diversity of

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perspectives,\46\ which are discussed in detail below. Many commenters 
supported enhanced transparency of information about securities 
loans.\47\ Other commenters did not support the rule.\48\ Certain 
commenters addressed the scope of the proposed rule and the timing for 
reporting information to an RNSA as discussed below, in Parts VII.A 
through VII.G.
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    \46\ Comment letters to the proposed rule are available at 
https://www.sec.gov/comments/s7-18-21/s71821.htm.
    \47\ See, e.g., Letter from Jaime Klima, Chief Regulatory 
Officer, NYSE Group, Inc. (Jan. 7, 2022) (``NYSE Letter 2''), at 1 
(stating that ``regulatory oversight of the securities lending 
market will be meaningfully enhanced if Rule 10c-1 is adopted''); 
Letter from Marcia E. Asquith, Executive Vice President, FINRA, 
(Jan. 7, 2022) (``FINRA Letter''), at 1 (stating that ``the public 
dissemination of securities lending information under the Proposal 
will, among other benefits, improve price discovery in the 
securities lending market, reduce information asymmetries, close 
data gaps, and increase market efficiency''); Letter from Kevin 
Kennedy, Senior Vice President, Nasdaq, Inc. (Jan. 11, 2022) 
(``Nasdaq Letter''), at 3 (supporting the proposal to make ``certain 
data elements publicly available, thereby increasing the 
transparency of the securities lending market and reducing 
competitive advantages that may exist in the marketplace''); Letter 
from Andrew Park, Americans for Financial Reform Education Fund 
(Jan. 7, 2022) (``AFREF Letter 1''), at 1, 3 (stating ``there is an 
urgent need to require securities lenders to provide greater details 
of their loans to a registered national securities association 
(RNSA) . . . [m]arket participants and regulators alike will greatly 
benefit from the greater transparency that comes from reporting 
every securities lending transaction as a result of the proposed 
changes to Rule 10c-1 . . .''); Letter from Stephen W. Hall, Legal 
Director and Securities Specialist, and Jason Grimes, Senior 
Counsel, Better Markets, Inc. (Jan. 7, 2022) (``Better Markets 
Letter''), at 5 (stating that ``increasing transparency into the 
securities lending market, as the Proposal would do, is sound public 
policy. It will increase the transparency that investors, other 
market participants, and regulators (including the SEC) have into 
the opaque securities lending market.''); Letter from James J. 
Angel, Ph.D., CFP, CFA, Associate Professor of Finance, McDonough 
School of Business, Georgetown University (Jan. 4, 2022) (``James J. 
Angel Letter''), at 2 (stating that ``increasing transparency in the 
securities lending market will reduce the price dispersion seen in 
the market. Better information about the price and availability of 
securities lending will allow asset owners . . . to make sure that 
they are getting proper value for their securities lending.''); 
Letter from Gregory Babyak, Global Head of Regulatory Affairs, 
Bloomberg L.P. (Jan. 31, 2022) (``Bloomberg L.P. Letter''), at 1 
(stating ``[w]e appreciate the Commission's endeavor to improve the 
transparency and efficiency of the securities lending market by 
increasing the availability of information regarding securities 
lending transactions.''); see also Letter from Brian Lamb, CEO, 
Equilend Holdings, LLC (Mar. 29, 2022) (``Equilend Letter'') 
(expressing general support for the proposed rule); Letter from 
Chris Iacovella, Chief Executive Officer, American Securities 
Association (Jan. 7, 2022) (``ASA Letter''), at 1 (stating 
``investors, especially retail investors, have no idea what the cost 
to borrow a security in the market is at any given time. The SEC and 
the public need transparency into what a loan costs . . .''); Letter 
from Aron Szapiro, Head of Retirement Studies and Public Policy, 
Morningstar, Inc. (Jan. 7, 2022) (``Morningstar Letter''), at 4 
(expressing general support for increasing transparency in the 
securities lending market and that the public will obtain a ``well-
informed view'' of the securities lending market from the proposed 
data publication); Letter from Joseph P. Kamnik, Chief Regulatory 
Counsel, Options Clearing Corp. (Jan. 7, 2022) (``OCC Letter''); 
Form Letter from John Burkle, et al. (Aug. 16, 2022) (expressing 
support for increased transparency in the securities lending 
market); Letter from Aaron Swaney (Jan. 4, 2022) (``Requiring 
entities with significant involvement in the markets to report their 
activities . . . is quite reasonable and very necessary.''); Letter 
from Peter Antosh, Lawyer (Jan. 4, 2022) (``. . . the information 
received and shared via this proposed rule would also . . . increase 
the public's access to reliable pertinent market information, 
improving overall market efficiency''); Letter from Tim DG (Aug. 16, 
2022) (``This rule is essential to give retail and more importantly, 
the regulators more insight to keep fraudulent behaviors at bay.''); 
Letter from Adam Slee (Aug. 16, 2022) (``We need greater 
transparency in the market to help ordinary people be able to better 
understand what is going on[;] this is a good step in the right 
direction.''); Letter from Tim R. (Aug. 16, 2022) (``This proposal 
will help true price discovery.''); Letter from Don M. Cromer (Oct. 
31, 2022) (``I believe strongly in the transparency of our markets, 
and I feel that this rule is a strong step in the right direction, 
and I hope to see many more like it.'').
    \48\ See, e.g., Letter from Kevin To, Data Boiler Technologies, 
LLC (Jan. 7, 2022) (``Data Boiler Technologies Letter''), at 4; 
Letter from Stephen John Berger, Managing Director, Global Head of 
Government & Regulatory Policy, Citadel (Apr. 4, 2022) (``Citadel 
Letter'').
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V. Overview of Final Rule

    The final rule requires covered persons \49\ to provide securities 
loan information concerning reportable securities \50\ to an RNSA,\51\ 
in the format and manner required by an RNSA,\52\ and within specified 
time periods \53\ (``Rule 10c-1a information'').\54\ The term ``covered 
person'' is defined to mean: (1) any person that agrees to a covered 
securities loan on behalf of a lender (``intermediary''); (2) any 
person that agrees to a covered securities loan as a lender when an 
intermediary is not used unless 17 CFR 240.10c-1a(j)(1)(iii) (``final 
Rule 10c-1a(j)(1)(iii)'') applies to a broker or dealer borrowing fully 
paid or excess margin securities; \55\ or (3) a broker or dealer when 
borrowing fully paid or excess margin securities.\56\ In addition, 17 
CFR 240.10c-1a(a) (``final Rule 10c-1a(a)'') specifies that any covered 
person that agrees to a covered securities loan must comply with the 
rule.\57\
---------------------------------------------------------------------------

    \49\ See infra Part VII.A (discussing the definition of the term 
``covered person'').
    \50\ See 17 CFR 240.10c-1a(j)(3) (``final Rule 10c-1a(j)(3)'').
    \51\ See 17 CFR 240.10c-1a(j)(5) (``final Rule 10c-1a(j)(5)'').
    \52\ See 17 CFR 240.10c-1a(f) (``final Rule 10c-1a(f)'').
    \53\ See 17 CFR 240.10c-1a(c) (``final Rule 10c-1a(c)''); 17 CFR 
240.10c-1a(d) (``final Rule 10c-1a(d)''); 17 CFR 240.10c-1a(e) 
(``final Rule 10c-1a(e)'').
    \54\ The change in designation from proposed Rule 10c-1 to final 
Rule 10c-1a conforms with Federal Register requirements for rule 
designations.
    \55\ See Proposing Release, 86 FR 69803 n.9.
    \56\ See 17 CFR 240.10c-1a(j)(1)(i) (``final Rule 10c-
1a(j)(1)(i)''); 17 CFR 240.10c-1a(j)(1)(ii) (``final Rule 10c-
1a(j)(1)(ii)''); final Rule 10c-1a(j)(1)(iii).
    \57\ In addition, as discussed below, in Part VII.E, the use of 
the term ``agrees to a covered securities loan'' clarifies that the 
Rule 10c-1a information is not limited to securities loans that have 
been settled. If there are multiple lenders to the same loan, to 
avoid duplicative reporting, the parties could coordinate to file a 
single, combined report.
---------------------------------------------------------------------------

    If any person agrees to a covered securities loan on behalf of the 
lender (an ``intermediary''), the intermediary has the obligation to 
provide Rule 10c-1a information to an RNSA.\58\ If an intermediary is 
not used, the lender is required to provide Rule 10c-1a information to 
an RNSA.\59\ If a covered securities loan consists of a broker or 
dealer borrowing fully paid or excess margin securities, only the 
broker or dealer is required to provide the Rule 10c-1a information to 
an RNSA, not the lender.\60\
---------------------------------------------------------------------------

    \58\ See final Rule 10c-1a(j)(1)(i).
    \59\ See final Rule 10c-1a(j)(1)(ii).
    \60\ See final Rule 10c-1a(j)(1)(iii).
---------------------------------------------------------------------------

    However, in a change from the proposed rule, as discussed below, in 
Part VII.A, the final rule excludes from the definition of the term 
``covered person'' a clearing agency when providing only the functions 
of a central counterparty as defined pursuant to 17 CFR 240.17Ad-
22(a)(3) (``Rule 17Ad-22(a)(2)'') of the Exchange Act or a central 
securities depository as defined pursuant to 17 CFR 240.17Ad-22(a)(3) 
(``Rule 17Ad-22(a)(3)'') of the Exchange Act.\61\ Thus, a clearing 
agency is not required to report Rule 10c-1a information to an RNSA for 
a covered securities loan when acting in the capacity or engaged in 
activities as a central counterparty or a central securities depository 
in connection with a covered securities loan.
---------------------------------------------------------------------------

    \61\ See final Rule 10c-1a(j)(1)(i).
---------------------------------------------------------------------------

    The final rule permits a covered person to rely on a reporting 
agent that is a broker, dealer, or registered clearing agency to 
provide Rule 10c-1a information to an RNSA to fulfill such covered 
person's reporting obligation.\62\ To do so, the covered person must 
enter into a written agreement with a reporting agent, that agrees to 
provide Rule 10c-1a information to an RNSA, and provide such reporting 
agent with timely access to such information.\63\ If the reporting 
agent receives the Rule 10c-1a information from the covered person on a 
timely basis, the reporting agent assumes responsibility for

[[Page 75648]]

compliance with the reporting requirements under the final rule.
---------------------------------------------------------------------------

    \62\ See 17 CFR 240.10c-1a(a)(2) (``final Rule 10c-1a(a)(2)'').
    \63\ See 17 CFR 240.10c-1a(a)(2)(i) (``final Rule 10c-
1a(a)(2)(i)''); 17 CFR 240.10c-1a(a)(2)(ii) (``final Rule 10c-
1a(a)(2)(ii)'').
---------------------------------------------------------------------------

    The final rule defines a ``covered securities loan'' as a 
transaction in which any person on behalf of itself or one or more 
other persons, lends a ``reportable security'' to another person 
(except for a position at a clearing agency that results from certain 
central counterparty or central securities depository services).\64\ In 
addition, the use of margin securities, as defined in 17 CFR 240.15c3-
3(a)(4) (``Rule 15c3-3(a)(4)''), by a broker or dealer is not a covered 
securities loan for purposes of the final rule unless the broker or 
dealer lends such margin securities to another person.\65\
---------------------------------------------------------------------------

    \64\ See 17 CFR 240.10c-1a(j)(2)(i) (``final Rule 10c-
1a(j)(2)(i)''); 17 CFR 240.10c-1a(j)(2)(ii) (``final Rule 10c-
1a(j)(2)(ii)'').
    \65\ See 17 CFR 240.10c-1a(j)(2)(iii) (``final Rule 10c-
1a(j)(2)(iii)'').
---------------------------------------------------------------------------

    The term ``reportable security'' is defined as any security or 
class of an issuer's securities for which information is reported or 
required to be reported to the consolidated audit trail as required by 
Rule 613 of the Exchange Act and the CAT NMS Plan (``CAT''), the 
Financial Industry Regulatory Authority's Trade Reporting and 
Compliance Engine (``TRACE''), or the Municipal Securities Rulemaking 
Board's (``MSRB'') Real-Time Transaction Reporting System (``RTRS''), 
or any reporting system that replaces one of these systems.\66\
---------------------------------------------------------------------------

    \66\ See final Rule 10c-1a(j)(2)(ii).
---------------------------------------------------------------------------

    The final rule requires a covered person, directly or indirectly 
through a reporting agent, to report three types of data, which 
together comprise the Rule 10c-1a information. The first type of data 
concerns the material terms of the covered securities loan and must be 
provided to an RNSA by the end of the day on which the covered 
securities loan is effected (``data elements'').\67\ The second type of 
data concerns modifications to a covered securities loan and must be 
provided to an RNSA by the end of the day on which a covered securities 
loan is modified, if the modification occurs after other information 
about the covered securities loan has already been provided to an RNSA, 
and results in a change to such information.\68\ The third type of data 
concerns confidential information in connection with a covered 
securities loan and must be provided to an RNSA by the end of the day 
on which a covered securities loan is effected.\69\ The final rule 
requires that an RNSA keep the third type of information confidential 
subject to applicable law.\70\ The final rule also requires an RNSA to 
make the Rule 10c-1a information available to the Commission; or other 
persons as the Commission may designate by order upon a demonstrated 
regulatory need.\71\
---------------------------------------------------------------------------

    \67\ See final Rule 10c-1a(c).
    \68\ See 17 CFR 240.10c-1a(d) (``final Rule 10c-1a(d)'').
    \69\ See final Rule 10c-1a(e).
    \70\ See 17 CFR 240.10c-1a(g)(4) (``final Rule 10c-1a(g)(4)'').
    \71\ See 17 CFR 240.10c-1a(h)(2) (``final Rule 10c-1a(h)(2)'').
---------------------------------------------------------------------------

    An RNSA is required to make publicly available the following 
information not later than the morning of the business day \72\ after 
the covered securities loan is effected: \73\ (1) the unique identifier 
assigned to a covered securities loan by an RNSA \74\ and the security 
identifier; \75\ (2) the data elements, except for loan amount; \76\ 
and (3) information pertaining to the aggregate transaction activity 
and the distribution of rates among loans and lenders (``distribution 
of loan rates'') \77\ for each reportable security and related unique 
identifier.\78\ An RNSA is also required to make publicly available the 
loan amount on the twentieth business day after the covered securities 
loan is effected along with loan and security identifying 
information.\79\
---------------------------------------------------------------------------

    \72\ Similar to the proposed rule, the final rule does not 
specify, for purposes of compliance with the final rule, exactly 
what time is the ``end of the business day,'' ``morning of the 
business day,'' or what holidays should not be considered a 
``business day,'' to give an RNSA the discretion to structure its 
systems and processes as it sees fit and implement its rules 
accordingly. See, e.g., Proposing Release, 86 FR 69816 n.104. The 
Commission did not receive any comments addressing this point. As an 
example, for times set by an RNSA for other reporting regimes, an 
RNSA has set reporting for 6 p.m. (see, e.g., https://www.finra.org/filing-reporting/regulatory-filing-systems/short-interest) or times 
depending on whether transactions are executed during or after 
system hours or on non-business days (see, e.g., https://www.finra.org/rules-guidance/rulebooks/finra-rules/6730).
    \73\ See 17 CFR 240.10c-1a(g)(1) (``final Rule 10c-1a(g)(1)'').
    \74\ See 17 CFR 240.10c-1a(g)(1)(i)(A) (``final Rule 10c-
1a(g)(1)(i)(A)'').
    \75\ See 17 CFR 240.10c-1a(g)(1)(i)(C) (``final Rule 10c-
1a(g)(1)(i)(C'') and 17 CFR 240.10c-1a(g)(5) (``final Rule 10c-
1a(g)(5)'').
    \76\ See 17 CFR 240.10c-1a(g)(1)(i)(B) (``final Rule 10c-
1a(g)(1)(i)(B)'').
    \77\ See infra Part IX.C.1 (Benefits of Increased Transparency 
in the Securities Lending Market).
    \78\ See final Rule 10c-1a(g)(5).
    \79\ See 17 CFR 240.10c-1a(g)(2) (``final Rule 10c-1a(g)(2)'').
---------------------------------------------------------------------------

    In addition, an RNSA is required to make publicly available any 
modification to the data elements, except for modification to the loan 
amount, not later than the morning of the business day after the 
covered securities loan is modified.\80\ An RNSA is also required to 
make publicly available modifications to the loan amount on the 
twentieth business day after the loan amount is modified along with 
loan and security identifying information.\81\
---------------------------------------------------------------------------

    \80\ See 17 CFR 240.10c-1a(g)(3)(i) (``final Rule 10c-
1a(g)(3)(i)'').
    \81\ See 17 CFR 240.10c-1a(g)(3)(ii) (``final Rule 10c-
1a(g)(3)(ii)'').
---------------------------------------------------------------------------

    The final rule requires an RNSA to implement rules regarding the 
format and manner of its collection of information and make publicly 
available such information in accordance with rules promulgated 
pursuant to 15 U.S.C. 78s(b) (``section 19(b)'') and 17 CFR 240.19b-4 
(``Rule 19b-4'') of the Exchange Act.\82\ The final rule also contains 
requirements regarding an RNSA's data retention and availability.\83\ 
Specifically, an RNSA must maintain the information on its website or a 
similar means of electronic distribution, without use restrictions, for 
a period of at least five years.\84\ In addition, the final rule 
permits an RNSA to establish and collect reasonable fees pursuant to 
rules promulgated pursuant to section 19(b) and Rule 19b-4.\85\
---------------------------------------------------------------------------

    \82\ See final Rule 10c-1a(f).
    \83\ See 17 CFR 240.10c-1a(h) (``final Rule 10c-1a(h)'').
    \84\ See 17 CFR 240.10c-1a(h)(3) (``final Rule 10c-1a(h)(3)'').
    \85\ See 17 CFR 240.10c-1a(i) (``final Rule 10c-1a(i)'') and 
section 19(b). See also 15 U.S.C. 78o-3 (``section 15A'').
---------------------------------------------------------------------------

    Final Rule 10c-1a is designed to provide access to timely, 
comprehensive securities loan information to market participants, the 
public, and regulators, which will help provide borrowers and lenders 
with better tools to assess the terms of their securities loans and 
enhance the ability of regulators to oversee the securities lending 
market. In addition, the final rule will result in the public 
availability of new information for investors and other market 
participants to consider in the mix of information about the securities 
lending market and the securities markets generally to better inform 
their decisions.\86\ The final rule will also provide regulators with 
information that may be used in conjunction with other

[[Page 75649]]

information that is currently available to regulators to help assess 
market events.
---------------------------------------------------------------------------

    \86\ As discussed in the Proposing Release, currently available 
data on the securities lending market are incomplete, as private 
vendors do not have access to pricing information that reflects all 
transactions. This, in part, reflects the voluntary submission of 
transaction information by subscribers to vendors and is compounded 
by the uncertain comparability of data due to, among other things, 
the variability of the transaction terms disseminated, as well as 
how those terms are defined. As no single vendor has information for 
all securities lending transactions that take place, some persons 
pay to subscribe to multiple vendors' systems in order to capture as 
much of the currently available data as they determine to purchase, 
which can be expensive. See Proposing Release, 86 FR 69807 (citing 
Beneficial Owners Demand Independent Benchmarking, Global Inv., 2017 
WLNR 5380098 (Feb. 2, 2017)).
---------------------------------------------------------------------------

VI. Overview of Changes From Proposed Rule

    The Commission is adopting final Rule 10c-1a with certain 
modifications from the proposed rule made in response to comments. The 
final rule:
     Modifies the scope of persons required to report by:
    [cir] Specifying the persons who have a reporting obligation with a 
new definition of ``covered person'' to distinguish persons who have a 
reporting obligation from those persons who do not; \87\ specifically, 
requiring reporting by any person that agrees to a covered securities 
loan on behalf of the lender, any person that agrees to a covered 
securities loan as a lender if an intermediary is not used, or a broker 
or dealer when borrowing fully paid or excess margin securities, and 
providing that an intermediary need not be a certain type of entity;
---------------------------------------------------------------------------

    \87\ See 17 CFR 240.10c-1a(j)(1) (``final Rule 10c-1a(j)(1)'').
---------------------------------------------------------------------------

    [cir] Excluding clearing agencies from the new definition of 
``covered person'' when engaged only in certain central counterparty or 
central securities depository activities;
    [cir] Separating the requirements for covered persons and reporting 
agents into distinct paragraphs; \88\ and
---------------------------------------------------------------------------

    \88\ See final Rules 10c-1a(a) and 17 CFR 240.10c-1a(b) (``final 
Rule 10c-1a(b)'').
---------------------------------------------------------------------------

    [cir] Adding a new definition for ``reporting agent'' to specify 
that a covered person may rely on a reporting agent that is a broker, 
dealer, or registered clearing agency \89\ provided there is a written 
agreement between the covered person and the reporting agent under 
which the reporting agent agrees to establish, maintain, and enforce 
policies and procedures to ensure compliance with the final rule and if 
the covered person provides timely information to the reporting 
agent.\90\
---------------------------------------------------------------------------

    \89\ See 17 CFR 240.10c-1a(j)(4) (``final Rule 10c-1a(j)(4)'').
    \90\ See final Rule 10c-1a(a)(2).
---------------------------------------------------------------------------

     Modifies the scope of securities for which loans must be 
reported by adding a new definition for ``reportable security'' to mean 
any security or class of an issuer's securities for which information 
is reported or required to be reported to the CAT, TRACE, or RTRS, or 
any reporting system that replaces one of these systems; \91\ and
---------------------------------------------------------------------------

    \91\ See final Rule 10c-1a(j)(3).
---------------------------------------------------------------------------

     Specifies the type of loan transaction to which the final 
rule applies by defining a new term ``covered securities loan,'' which 
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.\92\
---------------------------------------------------------------------------

    \92\ See 17 CFR 240.10c-1a(j)(2) (``final Rule 10c-1a(j)(2)'').
---------------------------------------------------------------------------

     Streamlines information required to be reported by:
    [cir] Removing the requirements in paragraph (e) of the proposed 
rule to provide securities ``available to loan'' and securities ``on 
loan'' information to an RNSA and the requirement for an RNSA to make 
such information public; \93\ and
---------------------------------------------------------------------------

    \93\ See proposed Rule 10c-1(e).
---------------------------------------------------------------------------

    [cir] Replacing the requirement to report a description of the loan 
modification with a requirement to report the specific modification and 
the specific data element being modified.\94\
---------------------------------------------------------------------------

    \94\ See 17 CFR 240.10c-1a(d)(1)(ii) (``final Rule 10c-
1a(d)(1)(ii)'').
---------------------------------------------------------------------------

     Specifies that all data elements for covered securities 
loans that were not required to be reported on the date agreed to or on 
the date last modified, but which subsequently become covered 
securities loans, must be reported when the covered securities loan is 
modified.\95\
---------------------------------------------------------------------------

    \95\ See 17 CFR 240.10c-1a(d)(2) (``final Rule 10c-1a(d)(2)'').
---------------------------------------------------------------------------

     Modifies the timing of reporting by:
    [cir] Replacing the requirements to report data elements and 
confidential data elements to an RNSA within 15 minutes after each loan 
is effected with requirements to report such elements by the end of the 
day on which a covered securities loan is effected; \96\ and
---------------------------------------------------------------------------

    \96\ See final Rules 10c-1a(c) and 10c-1a(e).
---------------------------------------------------------------------------

    [cir] Replacing the requirement to report loan modification data 
elements to an RNSA within 15 minutes after each loan is modified with 
a requirement to report such elements by the end of the day on which a 
covered securities loan is modified.\97\
---------------------------------------------------------------------------

    \97\ See final Rule 10c-1a(d).
---------------------------------------------------------------------------

     Specifies the treatment of open-ended loans in existence 
prior to the final rule.\98\
---------------------------------------------------------------------------

    \98\ See final Rule 10c-1a(d)(2).
---------------------------------------------------------------------------

     Modifies the responsibilities of an RNSA by:
    [cir] Defining the term ``RNSA'' to specify that such term refers 
to an association of brokers and dealers that is registered as a 
national securities association pursuant to 15 U.S.C. 78o-3 (``section 
15A'') of the Exchange Act; \99\
---------------------------------------------------------------------------

    \99\ See final Rule 10c-1a(j)(5).
---------------------------------------------------------------------------

    [cir] Separating an RNSA's data publication requirements into new 
paragraph (g) of the final rule to more clearly delineate an RNSA's 
requirements from the reporting requirements applicable to covered 
persons and reporting agents; \100\
---------------------------------------------------------------------------

    \100\ See 17 CFR 240.10c-1a(g) (``final Rule 10c-1a(g)'').
---------------------------------------------------------------------------

    [cir] Replacing the requirement for an RNSA to publish the loan 
amount (as well as any modifications to loan amount) as soon as 
practicable and instead: (1) make the loan amount public on the 
twentieth business day after the covered security loan is effected (or 
modified), and (2) make specified loan and security identifying 
information public on the twentieth business day after the covered 
security loan is effected (or modified); \101\
---------------------------------------------------------------------------

    \101\ See final Rule 10c-1a(g)(2).
---------------------------------------------------------------------------

    [cir] Adding a new requirement to paragraph (g) of the final rule 
for an RNSA to publish, on a daily basis, information pertaining to the 
aggregate transaction activity and distribution of loan rates for each 
reportable security in order to provide market participants with timely 
access to loan rate information that incorporates information about 
loan sizes; \102\ and
---------------------------------------------------------------------------

    \102\ See final Rule 10c-1a(g)(5).
---------------------------------------------------------------------------

    [cir] Removing the requirement in paragraph (g) of the proposed 
rule that collected information be made available to the public 
``without charge,'' and removing the requirement in paragraph (h) of 
the proposed rule that fees only be paid from persons who provide Rule 
10c-1a information directly to an RNSA.\103\
---------------------------------------------------------------------------

    \103\ See proposed Rule 10c-1(h).
---------------------------------------------------------------------------

    In addition, the final rule includes some technical modifications, 
such as modifying the rule designation to conform with Federal Register 
requirements as well as additional technical or conforming 
modifications that are minor and not substantive. Responses to comments 
requesting clarification about the cross-border scope of the rule are 
also provided below, in Part VII.M. Further, the Commission is 
providing compliance dates requiring that: (1) RNSAs propose rules 
pursuant to final Rule 10c-1a(f) within four months of the effective 
date of final Rule 10c-1a; (2) the proposed RNSA rules are effective no 
later than 12 months after the effective date of final Rule 10c-1a; (3) 
covered persons report Rule 10c-1a information to an RNSA starting on 
the first business day 24 months after the effective date of final Rule 
10c-1a (the ``reporting date''); and (4) RNSAs publicly report Rule 
10c-1a information pursuant to final Rules 10c-1a(g) and (h)(3) within 
90 calendar days of the reporting date.

[[Page 75650]]

VII. Discussion of the Final Rule

A. Scope of Persons With Reporting Obligations--10c-1a(j)(1)

Proposed Rule
    The proposed rule would have required that any person that loans a 
security on behalf of itself or another person shall provide Rule 10c-1 
information to an RNSA.\104\ The Proposing Release stated that the term 
``person,'' for purposes of the Exchange Act, means a natural person, 
company, government, or political subdivision, agency, or 
instrumentality of a government.\105\
---------------------------------------------------------------------------

    \104\ See proposed Rule 10c-1(a). See also Proposing Release, 86 
FR 69807.
    \105\ See Proposing Release, 86 FR 69807 (citing 15 U.S.C. 
78c(a)(9)).
---------------------------------------------------------------------------

    The proposed rule also stated that ``a bank, clearing agency, 
broker, or dealer, that acts as an intermediary to a loan of securities 
(lending agent) on behalf of a person that owns the loaned securities 
(beneficial owner) shall . . . provide the Rule 10c-1 information to an 
RNSA . . . .'' \106\ However, if a person loaned a security on behalf 
of itself, and an intermediary did not act on its behalf, such person 
would be the one required to provide the Rule 10c-1 information to an 
RNSA.\107\
---------------------------------------------------------------------------

    \106\ See proposed Rules 10c-1(a)(1)(i)(A)(1) and 10c-
1(a)(1)(i)(B) (stating that ``[a] beneficial owner is not required 
to provide the Rule 10c-1 information to an RNSA if a lending agent 
acts as an intermediary to the loan of securities on behalf of the 
beneficial owner'').
    \107\ See proposed Rule 10c-1(a)(1).
---------------------------------------------------------------------------

    The Commission proposed that when ``a bank, clearing agency, 
broker, or dealer'' acts as an intermediary (or ``lending agent'') on 
behalf of a person that owns loaned securities the lending agent would 
have the reporting obligation.\108\ When discussing the rationale for 
this requirement, the Commission stated that lending agents are in the 
best position to know when securities have been loaned from the 
portfolios that the lending agent represents, and that the owner may 
not know that the lending agent has lent securities from their 
portfolio until after the time prescribed by proposed Rule 10c-1 to 
provide Rule 10c-1 information to an RNSA.\109\ The Proposing Release 
also stated that custodian banks have traditionally been the primary 
lending agent or intermediary and lend securities on behalf of their 
customers.\110\
---------------------------------------------------------------------------

    \108\ See proposed Rule 10c-1(a)(1)(i)(A).
    \109\ See Proposing Release, 86 FR 69809.
    \110\ See Proposing Release, 86 FR 69805.
---------------------------------------------------------------------------

    The Commission proposed a single-sided approach of only applying 
the rule's reporting requirements to securities lenders and 
intermediaries acting on behalf of lenders, and not to borrowers. The 
Proposing Release explained that such an approach could avoid the 
potential double counting of transactions.\111\ It also explained that 
lenders are more likely to have access to the Rule 10c-1 information, 
but a borrower may not be privy to all of the information required to 
be provided to an RNSA under the proposed rule.\112\ The Commission 
also stated that to the extent smaller entities engage in securities 
lending, they generally employ lending agent intermediaries, which 
would relieve them from having to provide proposed Rule 10c-1 
information to an RNSA.\113\ Accordingly, the Commission stated its 
preliminary belief that requiring only securities lenders or 
intermediaries to a loan of securities to provide the proposed Rule 
10c-1 information will alleviate the potential for the double counting 
of transactions and limit the burdens of proposed Rule 10c-1 to larger 
institutions.\114\
---------------------------------------------------------------------------

    \111\ See Proposing Release, 86 FR 69807.
    \112\ See Proposing Release, 86 FR 69807.
    \113\ See Proposing Release, 86 FR 69808.
    \114\ See Proposing Release, 86 FR 69808.
---------------------------------------------------------------------------

Final Rule
    Many commenters requested additional clarity regarding the market 
participants that would be required to provide the proposed Rule 10c-1 
information to an RNSA.\115\ As discussed below in this part, to 
address commenter concerns, and to specify which persons are required 
to provide Rule 10c-1a information to an RNSA, the final rule defines 
the term ``covered person'' to mean: (1) any person that agrees to a 
covered securities loan on behalf of a lender (``intermediary'') other 
than a clearing agency when providing only the functions of a central 
counterparty or central securities depository; (2) any person that 
agrees to a covered securities loan as a lender when an intermediary is 
not used, unless the borrower is a broker or dealer borrowing fully 
paid or excess margin securities; or (3) a broker or dealer when 
borrowing fully paid or excess margin securities.\116\ Accordingly, if 
a person uses an intermediary, such as a lending agent that is a 
custodian bank, to run its lending program to lend securities to other 
persons on its behalf, the custodian bank is the covered person for 
purposes of the final rule.\117\ If,

[[Page 75651]]

however, a person does not use an intermediary to lend securities on 
their behalf, such person is the covered person for purposes of the 
final rule. For example, a fund is a covered person for purposes of the 
final rule if that fund runs its own lending program and lends 
securities to other persons without the use of an intermediary, such as 
custodian bank. Further, a broker or dealer who borrows fully paid or 
excess margin securities from its customer is the covered person for 
purposes of the final rule, and the customer of the broker or dealer is 
not a covered person.
---------------------------------------------------------------------------

    \115\ See Letter from Susan Olson, General Counsel, and Sarah A. 
Bessin, Associate General Counsel, Investment Company Institute 
(Jan. 7, 2022) (``ICI Letter 1''), at 8 (``there is a lack of 
clarity in the Proposal regarding the concepts of `lender,' 
`beneficial owner,' `lending agent,' and `reporting agent' ''); 
Letter from Peter J. Germain, Chief Legal Officer, Federated Hermes, 
Inc. (Jan. 7, 2022) (``Federated Hermes Letter''), at 2; Letter from 
Elizabeth Kent, Managing Director, Global Public Policy Group, and 
Roland Villacorta, Managing Director, Securities Lending, BlackRock 
(Jan. 7, 2022) (``BlackRock Letter''), at 2 (``We recommend the 
Commission provide more clarity on the scope of lenders and loans 
subject to the proposed requirements.''). In addition, one commenter 
stated that empowering the owner of the securities to determine the 
manner of reporting would reduce the implementation costs for 
lenders and mitigate the risk of inaccurate data being reported. The 
commenter further stated that responsibility for reporting 
obligations would then be included in either the master securities 
lending agreement between lender and borrower or in the securities 
lending agent agreement between lender and lending agent, or both. 
See Letter from Jennifer W. Han, Executive Vice President, Chief 
Counsel & Head of Global Regulatory Affairs, Managed Funds 
Association (Aug. 4, 2023) (``MFA Letter 3''), at 7. The final rule 
permits covered persons to contract with reporting agents that are 
brokers, dealers, or registered clearing agencies under certain 
conditions intended to ensure that the reporting obligations are 
met. A beneficial owner cannot assign the reporting obligation when 
an intermediary is used, as the intermediary has the reporting 
obligation under final Rule 10c-1a(j)(1)(i). However, the final rule 
allows persons other than banks, brokers, dealers, and clearing 
agencies to act as intermediaries (i.e., lending agents), which 
could increase competition among such entities. The final rule also 
permits covered persons to use third party vendors to help 
facilitate the fulfillment of their reporting obligation. These 
elements of the final rule should address some of the implementation 
costs raised by the commenter. As the Commission stated in the 
Proposing Release, lending agents are in the best position to know 
when securities have been loaned from the portfolios that the 
lending agent represents. Indeed, a beneficial owner might not know 
that the lending agent has lent securities from the portfolio until 
after the time prescribed by final Rule 10c-1a to provide Rule 10c-
1a information to an RNSA. See Proposing Release, 86 FR 69809. 
Expanding reporting requirements further, as the commenter suggests, 
could reduce the timeliness of the information required to be 
reported.
    \116\ See final Rule 10c-1a(j)(1). The final rule's approach of 
requiring reporting by an intermediary if one is used, and by the 
lender if an intermediary is not used, is comparable to one 
commenter's recommendation ``to include a set reporting hierarchy . 
. . to determine the counterparty that will be responsible to report 
the required information.'' See Letter from Linklaters LLP (Apr. 1, 
2022) (``Linklaters Letter''), at 5.
    \117\ One commenter recommended that ``[lending] agents should 
not be liable for the failure to report any information that they do 
not control as the intermediary unless such information has been 
provided to them by the principal in a timely manner. The rule 
should also reflect that a lending agent should not be liable for 
the content of information provided to it by a principal unless the 
agent has actual knowledge that the information is inaccurate.'' See 
Letter from Briget Polichene, Chief Executive Officer, Institute of 
International Bankers (Jan. 7, 2022) (``IIB Letter''), at 10. 
However, the Commission continues to believe that lending agents, as 
parties to the loan, are well positioned to provide the required 
Rule 10c-1a information and often are in possession of more 
information concerning the loan than the principal (or beneficial 
owner). See Proposing Release, 86 FR 69109-10 (``responsibility for 
failing to provide 10c-1 information to an RNSA should be on the 
lending agent and not the beneficial owners because the lending 
agent is directly responsible for the loan of securities'').
---------------------------------------------------------------------------

    The definition of ``covered person'' uses the term ``agrees to'' 
instead of ``loans a security'' as proposed to make clear that a 
customer of a broker or dealer that loans a reportable security to the 
broker or dealer in a fully paid lending arrangement is not required to 
comply with the final rule. Instead, the broker or dealer that borrows 
the reportable security is required to comply with the final rule and 
must report Rule 10c-1a information on the covered securities loan. 
Further, as discussed below, in Part VII.E, the term ``agrees to a 
covered securities loan'' also provides that Rule 10c-1a information is 
not limited to covered securities loans that have been settled.
    One commenter recommended that the Commission not ``limit permitted 
`lending agents' for purposes of the rule to banks, clearing agencies, 
brokers, or dealers, as proposed,'' but instead ``permit any lending 
agent that acts as an intermediary to a loan of securities to report on 
behalf of a beneficial owner.'' \118\ The commenter stated that as long 
as a lending agent could meet the requirements of the proposed rule, 
such an expansion would ``reflect the variety of lending agents that 
funds use'' and ``would facilitate reporting by beneficial owners that 
prefer to use non-broker-dealer lending agents to report their 
securities loans.'' \119\ The Commission agrees, and has modified the 
final rule to define ``covered person'' to encompass ``[a]ny person 
that agrees to a covered securities loan on behalf of the lender.'' 
\120\
---------------------------------------------------------------------------

    \118\ See ICI Letter 1, at 5.
    \119\ See ICI Letter 1, at 5.
    \120\ See final Rule 10c-1a(j)(1)(i). Although the Commission is 
not limiting who can act as an intermediary for the purposes of this 
rule, other regulatory requirements may apply to persons who 
intermediate transactions such as loans of securities. See, e.g., 15 
U.S.C. 240.78o (section 15(b) of the Exchange Act) (registration 
requirements); 15 U.S.C. 240.78c (sections 3(a)(4) and (5) of the 
Exchange Act) (definitions of broker and dealer).
---------------------------------------------------------------------------

    One commenter sought clarification of whether a ``branch or the 
entity'' would be responsible for proposed Rule 10c-1 information 
reporting if the branch enters into a covered securities loan, although 
the commenter did not define the terms ``branch'' or ``entity.'' \121\ 
Determining the ``person'' required to report in complex organizational 
structures will depend on the facts and circumstances. A branch or 
office of a covered person, as opposed to a subsidiary or affiliate, 
may not constitute a distinct covered person, but rather different 
parts of the same covered person.\122\ The designation of a business 
unit as a branch, office, or otherwise, is not dispositive of whether 
such business unit has the obligation to report Rule 10c-1a 
information.\123\ One commenter sought confirmation that a clearing 
agency's provision of depository or central clearing services, 
including novation, processing, settlement, netting, and incidental 
services, do not make the clearing agency an intermediary to a loan of 
securities.\124\ The Commission agrees that a clearing agency's 
provision of depository or central clearing services \125\ to 
securities lending transactions is not the type of activity that final 
Rule 10c-1a is designed to cover. By acting as a central counterparty, 
including by novating a loan, a clearing agency steps into the shoes of 
the parties to the loan and technically may become a person that agrees 
to a loan on its own behalf or on behalf of another person. However, 
requiring reporting by a registered clearing agency providing such 
central counterparty or securities depository services would not 
provide additional transparency and would be duplicative of the 
reporting requirements that apply to the loan's lender or intermediary 
prior to it being cleared. Accordingly, the final rule specifically 
excludes from the ``covered person'' definition a clearing agency when 
providing only the functions of a central counterparty pursuant to 17 
CFR 240.17Ad-22(a)(2) (``Rule 17Ad-22(a)(2)'') or a central securities 
depository pursuant to 17 CFR 240.17Ad-22(a)(3) (``Rule 17Ad-
22(a)(3)'').\126\ The exclusion would not apply when the clearing 
agency is acting in a different capacity (e.g., as an intermediary 
providing the services of a lending agent).\127\
---------------------------------------------------------------------------

    \121\ See Letter from Mary Jane Schuessler, Canadian Securities 
Lending Association (Jan. 12, 2022) (``CASLA Letter''), at 3.
    \122\ See Regulation SBSR--Reporting and Dissemination of 
Security-Based Swap Information, Release No. 34-74244 (Feb. 11, 
2015), 80 FR 14564, 14652 n.813 (Mar. 19, 2015) (discussing foreign 
branches and stating that ``because a branch or office has no 
separate legal existence under corporate law, the branch or office 
would be an integral part of the U.S. person itself''). See also 
infra Part VII.M (discussing the cross-border application of final 
Rule 10c-1a).
    \123\ See infra Part VII.M.
    \124\ See Letter from Michele Hillery, Managing Director, 
General Manager of Equity Clearing and DTC Settlement Service, DTCC 
(Jan. 7, 2022) (``DTCC Letter''), at 3-4. See also DTCC Letter, at 1 
(stating that ``requiring the clearing agency to assume the 
obligations of traditional lending agents for providing [traditional 
securities depository, central counterparty, or incidental services] 
would misplace the burden of responsibility and result in double 
reporting.''); OCC Letter, at 9 (recommending that a clearing agency 
should not assume the reporting obligations as an intermediary to a 
loan of securities under the proposed rule when it is not actively 
involved with the lending of securities of beneficial owners or for 
their own account, but providing only central counterparty 
services).
    \125\ See DTCC Letter, at 2-3 (stating that it is ``a central 
securities depository that . . . holds securities on behalf of its 
participants and effects transfers between participant accounts by 
book entry, including to facilitate the settlement of securities 
lending transactions.'' Also, that ``depository activities and 
related incidental services do not affect supply or demand in the 
securities lending market, the pricing of securities lending 
transactions, or other relevant data regarding the securities 
lending market'').
    \126\ See final Rule 10c-1a(j)(1)(i). Rule 17Ad-22(a)(2) of the 
Exchange Act defines ``central counterparty'' to mean a clearing 
agency that interposes itself between the counterparties to 
securities transactions, acting functionally as the buyer to every 
seller and the seller to every buyer. Rule 17Ad-22(a)(3) of the 
Exchange Act defines ``central securities depository'' to mean a 
clearing agency that is a securities depository as described in 
section 3(a)(23)(A) of the Exchange Act. Section 3(a)(23)(A) 
describes a securities depository as a person who: (i) acts as a 
custodian of securities in connection with a system for the central 
handling of securities whereby all securities of a particular class 
or series of any issuer deposited within the system are treated as 
fungible and may be transferred, loaned, or pledged by bookkeeping 
entry without physical delivery of securities certificates; or (ii) 
otherwise permits or facilitates the settlement of securities 
transactions or the hypothecation or lending of securities without 
physical delivery of securities certificates.
    \127\ The Commission understands that clearing agencies do not 
currently provide services related to securities loans beyond acting 
as a central counterparty or central securities depository. 
Registered clearing agencies that wish in the future to expand 
services relating to securities loans, will be required to submit 
rule filings under section 19(b) and Rule 19b-4 in which they will 
be required to describe how the proposed changes would comply with 
existing federal securities laws, including the final rule. Clearing 
agencies that are operating under an exemption from registration 
will be required to seek modifications to their exemptions that are 
compliant with the final rule in order to expand the services they 
provide in relation to securities loans. See section 19(b) and Rule 
19b-4 of the Exchange Act.
---------------------------------------------------------------------------

    Certain commenters supported the proposed single-sided reporting 
structure (i.e., requiring reporting by any person that loans a 
security on behalf of itself or another person, but not requiring 
reporting by the borrower) to alleviate concerns about double counting 
loans of securities.\128\ One

[[Page 75652]]

commenter stated that ``we strongly support the Proposal's approach of 
requiring single-sided reporting . . . the approach would reduce the 
potential for double counting of securities lending transactions and 
limit the burden on lenders. A single-sided reporting regime avoids 
problems with reconciling reports by each party to a transaction.'' 
\129\ Other commenters supported the application of the final rule's 
reporting requirements to all lenders to facilitate a comprehensive 
view of the securities lending market.\130\ In consideration of these 
comments, the final rule generally employs a single-sided approach to 
reporting, with the Rule 10c-1a information reporting obligations 
placed on either an intermediary that agrees to a covered securities 
loan on behalf of the lender, or any person that agrees to a covered 
securities loan as a lender when an intermediary is not used.\131\ 
Consistent with the proposed rule, this approach is designed to avoid 
the potential for the double counting of transactions that could arise 
if both sides, borrowers and lenders, were required to report final 
Rule 10c-1a information to an RNSA.\132\
---------------------------------------------------------------------------

    \128\ See, e.g., ICI Letter 1, at 5; Letter from Phoebe 
Papageorgiou, Vice President, Trust Policy, American Bankers 
Association (Jan. 7, 2023) (``ABA Letter''), at 2-3; Letter from 
Thomas Deinet, Executive Director, The Standards Board of 
Alternative Investments (Jan. 21, 2022) (``SBAI Letter''), at 1 
(``We support single-sided reporting, i.e., requiring the lenders 
(or their agents) to report, but not duplicating the framework by 
requiring borrowers to report as well.''); Letter from Joseph J. 
Barry, Senior Vice President and Global Head of Regulatory Affairs, 
State Street Corp. (Apr. 1, 2022) (``State Street Letter''), at 3 
(stating that ``we do not object to the imposition of a single-sided 
reporting obligation on the lender of a security (or its agent)'').
    \129\ See ICI Letter 1, at 5.
    \130\ See Morningstar Letter, at 3-4 (stating that ``we 
recommend that all persons who lend should be required to report. As 
some lenders may not be registrants, the public will not have a 
comprehensive picture of securities lending transactions if only 
those registered with the Commission are required to report to an 
RNSA.''); Nasdaq Letter, at 2 (stating that ``the inclusion of all 
market participants who lend provides investors with comprehensive 
information from which to formulate investing strategies'').
    \131\ See final Rules 10c-1a(j)(1)(i) and (ii). Final Rule 10c-
1a(j)(1)(ii) includes a technical change from the proposed rule to 
add the phrase ``unless paragraph (j)(1)(iii) of this section 
applies'' to clarify that only the broker or dealer when borrowing 
fully paid or excess margin securities, and not the lender, has the 
obligation to report in that instance.
    \132\ See Proposing Release, 86 FR 69808.
---------------------------------------------------------------------------

    However, one commenter opposed the proposed single-sided reporting 
approach, and recommended that the final rule require reporting by SEC-
registered brokers or dealers only and for transactions in which they 
act as borrowers, lenders, or lending agents.\133\ The commenter stated 
that ``whether acting as borrower or lender acting in a principal or 
agency capacity, [requiring SEC-registered broker-dealers to report] 
would substantially reduce overall implementation costs, would not 
impose costs on a single side of the market and would still provide for 
sufficient market data.'' \134\ The commenter reasoned that reporting 
costs would be lower, due to brokers or dealers having existing 
reporting infrastructure and connectivity.\135\ The commenter cited to 
the Office of the Financial Research Pilot Survey (``OFR Pilot 
Survey'') \136\ to support the view that although such a structure 
would be ``less comprehensive than lender reporting, the data loss 
entailed should not be substantial'' and ``would be substantially 
captured'' and ``sufficient.'' \137\ The commenter also stated that its 
proposed structure ``would also provide better data integrity as 
broker-dealers are better positioned than beneficial owners and Lending 
Agents to evaluate whether a securities loan is made for the purpose of 
facilitating short sales or settlement of fails rather than some other 
purpose.'' \138\
---------------------------------------------------------------------------

    \133\ See Letter from Fran Garritt, Director, Securities Lending 
& Market Risk, and Mark Whipple, Chairman, Committee on Securities 
Lending, Risk Management Association (Jan. 7, 2022) (``RMA 
Letter''), at 3.
    \134\ See RMA Letter, at 3.
    \135\ See RMA Letter, at 13 n.19.
    \136\ See A Pilot Survey of Agent Securities Lending Activity, 
Off. Of Fin. Research, Working Paper No. 16-08, 2016 at 7-8, 
available at https://www.financialresearch.gov/working-papers/2016/08/23/pilot-survey-of-agent-securities-lending-activity/ (In its 
annual reports, the FSOC identified a lack of data about securities 
lending activity as a priority for the Council. This pilot data 
collection was a step toward addressing this critical data need. The 
voluntary pilot collection included end-of-day loan-level data for 
three non-consecutive business days from seven securities lending 
agents. Most but not all participating lending agents were 
subsidiaries of banks.).
    \137\ See RMA Letter, at 13 (stating that ``roughly 85% of loans 
made by Lending Agents are to registered broker-dealer borrowers'') 
(citing the OFR Pilot Survey, at 8).
    \138\ See RMA Letter, at 14.
---------------------------------------------------------------------------

    The Commission is not adopting the commenter's recommended 
reporting structure. Requiring reporting by brokers or dealers acting 
as borrowers, lenders, or lending agents introduces the same double 
counting problem that the final rule's single-sided reporting approach 
is designed to address.\139\ Additionally, under the final rule brokers 
or dealers are permitted to act as reporting agents provided specified 
requirements are met. The Commission also does not agree with the 
commenter that the data lost if its recommended reporting structure 
were adopted would not be substantial. The OFR Pilot Survey cited by 
the commenter states that banks, credit unions, pension funds, and 
hedge funds, all of whom would not be required to report covered 
securities loans under the commenter's proposed structure, are the 
borrowers of nearly 15 percent of the value of all outstanding 
securities loans.\140\ Based on the survey, the Commission estimated 
that brokers or dealers facilitate between 60 percent and 90 percent of 
transactions in the equity lending market.\141\ Accordingly, while the 
Commission acknowledges that the precise percentage of broker or dealer 
facilitated transactions is unknown, the survey indicates that a 
significant percentage of transactions in the equity lending market, 
between 10 percent and 40 percent, are facilitated by non-brokers or 
dealers.\142\ Therefore, the commenter's recommended approach would 
exclude a significant percentage of securities lending transactions 
from being reported. Any improved ``data integrity'' achieved by the 
commenter's proposed structure would be undermined by its exclusion of 
securities loans that do not involve an SEC-registered broker or dealer 
acting as borrower, lender, or lending agent. Additionally, excluding 
certain types of entities from reporting would create incentives for 
market participants to agree to covered securities loans through such 
excluded entities, which would further diminish the comprehensiveness 
of the reported information. Instead, the Commission agrees with one 
commenter's statement that, ``all lenders (or their lending or 
reporting agents) should be required to report, whether or not they are 
registered with the Commission. Otherwise, the data will be 
incomplete.'' \143\ As such, the final rule's definition of ``covered 
person'' is not limited to brokers or dealers.
---------------------------------------------------------------------------

    \139\ See Proposing Release, 86 FR 69807.
    \140\ See OFR Pilot Survey, at 7-8.
    \141\ See Proposing Release, 86 FR 69807 n.68.
    \142\ See Proposing Release, 86 FR 69807 n.68 (stating that, 
``[w]hile the Commission preliminarily believes that the majority of 
transactions involve broker-dealers the precise percentage is 
currently unknown. Based on 2015 survey data the Commission stated 
that it estimated that broker-dealers facilitate between 60% and 90% 
of transactions in the equity lending market.''), citing the OFR 
Pilot Survey, at 7-8. Further, custodian banks have traditionally 
been the primary lending agent or intermediary and lend securities 
on behalf of their customers for a fee. See, e.g., Proposing 
Release, 86 FR 69805 (citing Comptroller's Handbook: Custody 
Services/Asset Management, Off. Of the Comptroller of the Currency, 
at 27 (Jan. 2002), available at https://www.occ.treas.gov/publications-and-resources/[]publications/comptrollers-handbook/
files/custody-services/index-custody-services.html).
    \143\ See Letter from Howard Myerson, Managing Director, 
Financial Information Forum (Jan. 19, 2022) (``FIF Letter''), at 7. 
See also Letter from JD Cumpson (Mar. 14, 2022).
---------------------------------------------------------------------------

    One possible alternative to address double counting under the 
commenter's

[[Page 75653]]

suggestion of requiring only brokers or dealers to report as lenders 
and borrowers would be to require identification (such as using a flag) 
of loans reported by borrowers and loans reported by lenders. However, 
this would not address the lack of securities loan data from persons 
that are not brokers or dealers, or the incentives to avoid reporting 
by migrating to such persons. Further, expanding the reporting 
obligation generally to all lenders and borrowers, and requiring each 
to identify whether they are reporting as a lender or borrower, would 
increase burdens unnecessarily, resulting in the collection of 
duplicative (albeit identified) data by more persons.
    One commenter suggested that ``it would be appropriate for the 
borrower broker-dealer (not the lender customer) to provide the Rule 
10c-1 information to an RNSA where such broker-dealer borrows a 
customer's fully paid securities.'' \144\ The Commission agrees with 
this recommendation. Such an approach would help avoid placing a 
reporting obligation on customers who, upon lending fully paid or 
excess margin securities, may not have timely access to the required 
information and less familiarity with reporting information to RNSAs 
than their broker or dealer.\145\ Therefore, the definition of the term 
``covered person'' under the final rule generally does not apply to a 
borrower,\146\ except in the instance of a broker or dealer borrowing 
fully paid or excess margin securities from a customer.\147\ The 
definition specifically includes a broker or dealer when borrowing 
fully paid or excess margin securities pursuant to 17 CFR 240.15c3-
3(b)(3) (``Rule 15c3-3(b)(3)'').\148\ This definition will result in a 
broker or dealer (as opposed to the customer) being responsible for 
reporting Rule 10c-1a information to an RNSA if it borrows fully paid 
or excess margin shares from one of its customers. Pursuant to final 
Rule 10c-1a, the broker or dealer would also be responsible for 
reporting Rule 10c-1a information to an RNSA should the broker or 
dealer act as a lender of those shares to a third-party.\149\
---------------------------------------------------------------------------

    \144\ See Letter from Kenneth E. Bentsen, Jr., President and 
CEO, SIFMA (Jan. 7, 2022) (``SIFMA Letter 1''), at 18 n.66 (stating 
that it ``understands this would apply where a broker-dealer borrows 
securities it carries in a customer's account'').
    \145\ For example, a lender may not necessarily know when a 
broker or dealer has borrowed securities from its fully paid or 
excess margin account if it has not reviewed the schedule of 
borrowed securities provided to it pursuant to 17 CFR 240.15c3-
3(b)(3)(ii) (``Rule 15c3-3(b)(3)(ii)'') or if the collateral for the 
securities loan is not provided to the lender before the close of 
the business day pursuant to 17 CFR 240.15c3-3(b)(3)(iii)(A) (``Rule 
15c3-3(b)(3)(iii)(A)''), whereas the broker or dealer will know that 
such securities have been lent by the customer upon the broker or 
dealer borrowing them. See 17 CFR 240.15c3-3 (``Rule 15c3-3''). See 
also SIFMA Letter 1, at 13 (stating that ``in fully paid lending 
arrangements, collateral is not required to be delivered until the 
end of the business day on which the loan is entered into'').
    \146\ See final Rules 10c-1a(j)(1)(i) and (ii).
    \147\ See final Rule 10c-1a(j)(1)(iii).
    \148\ See final Rule 10c-1a(j)(1)(iii). Paragraph (b)(3) of Rule 
15c3-3 under the Exchange Act addresses a broker-dealer's borrowing 
of fully paid or excess margin securities of a customer. This rule 
requires, among other things, that a broker-dealer borrowing fully 
paid or excess margin securities from a customer to enter into a 
written agreement with the customer that, among other things, 
specifies that the broker-dealer must undertake to: (1) provide the 
lender collateral that fully secures the loan consisting of cash, 
U.S. Treasuries, an irrevocable letter of credit issued by a bank, 
or such other collateral as the Commission designates as 
permissible; (2) mark the loan to market not less than daily and 
provide additional collateral as necessary to fully collateralize 
the loan; and (3) notify the lender that the provisions of the 
Securities Investor Protection Act may not protect the lender and 
that, therefore, the collateral delivered to the lender may 
constitute the only source of satisfaction of the broker-dealer's 
obligation to return the securities. In the adopting release for 
these requirements, the Commission stated that the rule will 
``compel the firm to turn over the collateral physically to the 
lender.'' See Net Capital Requirements for Brokers and Dealers, 
Release No. 34-18737 (May 13, 1982), 47 FR 21759, 21768 (May 20, 
1982).
    \149\ See final Rule 10c-1a(j)(1)(ii).
---------------------------------------------------------------------------

B. Reporting Agent Overview

1. Use of a Reporting Agent--Rule 10c-1a(a)(2)
Proposed Rule
    The Commission proposed that ``[a] person required to provide Rule 
10c-1 information . . . including a lending agent, may enter into a 
written agreement with a broker or dealer that agrees to provide the 
Rule 10c-1 information to an RNSA (reporting agent).'' \150\ The 
proposed rule stated that a ``reporting agent is required to provide 
the Rule 10c-1 information to an RNSA if it has entered into [the 
required] written agreement . . . and is provided timely access to the 
Rule 10c-1 information.'' \151\ The proposed rule also stated that 
``[a]ny person that enters into [the required] written agreement . . . 
with a reporting agent is not required to provide the Rule 10c-1 
information to an RNSA if the reporting agent is provided timely access 
to the Rule 10c-1 information.'' \152\ Therefore, under the proposed 
rule, only when a person fulfilled the requirements of: (i) entering 
into a written agreement with a broker or dealer that agrees to provide 
the Rule 10c-1 information; \153\ and (ii) providing the reporting 
agent with timely access to the Rule 10c-1 information,\154\ would the 
person shift its Rule 10c-1 information reporting obligation for a loan 
of securities from itself to a reporting agent.
---------------------------------------------------------------------------

    \150\ See proposed Rule 10c-1(a)(1)(ii)(A).
    \151\ See proposed Rule 10c-1(a)(1)(ii)(B).
    \152\ See proposed Rule 10c-1(a)(1)(ii)(C).
    \153\ See proposed Rule 10c-1(a)(1)(ii)(C).
    \154\ See proposed Rule 10c-1(a)(1)(ii)(C).
---------------------------------------------------------------------------

    The Commission in the Proposing Release stated its preliminary 
belief that it is appropriate that lenders, including a lending agent, 
be able to enter into a written agreement with a broker or dealer 
acting as a reporting agent to provide Rule 10c-1 information to an 
RNSA on behalf of the lender because such an arrangement would ease 
burdens on lenders, including lending agents, that do not have and do 
not want to establish connectivity to an RNSA.\155\ The Commission also 
stated that the use of reporting agents could reduce the costs for non-
RNSA-members, because rather than incurring the costs associated with 
directly reporting Rule 10c-1 information, such persons would have the 
option to use a third-party to provide the Rule 10c-1 information to an 
RNSA.\156\
---------------------------------------------------------------------------

    \155\ See Proposing Release, 86 FR 69810.
    \156\ See Proposing Release, 86 FR 69809.
---------------------------------------------------------------------------

Final Rule
    The Commission received broad support from commenters for the 
proposed rule's provisions permitting covered persons to use a 
reporting agent if certain conditions are met.\157\ One commenter 
stated that it ``agree[s] with the Commission that permitting the use 
of reporting agents to report 10c-1 information will `ease burdens on 
Lenders, including lending agents, that do not have or do not want to 
establish connectivity to an RNSA.' '' \158\ The Commission continues 
to believe it is appropriate to permit a covered person to use a 
reporting agent to help fulfill Rule 10c-1a information reporting 
obligations. Furthermore, many entities that may act as reporting 
agents may have existing RNSA connectivity, experience with reporting 
information to an RNSA, and economies of scale that could benefit 
covered persons with final Rule 10c-1a reporting obligations.
---------------------------------------------------------------------------

    \157\ See, e.g., infra note 173 (listing commenters that 
requested an expansion of the types of entities that could act as 
reporting agents under the final rule).
    \158\ See DTCC Letter, at 4.
---------------------------------------------------------------------------

    Thus, consistent with the proposed rule, the final rule requires 
that, in order to use a reporting agent to fulfill its Rule 10c-1a 
information reporting obligations, a covered person must: (1) enter 
into a written agreement with the reporting agent, and (2) provide the 
reporting agent with timely access to the

[[Page 75654]]

required Rule 10c-1a information.\159\ Requiring a written agreement 
between the covered person and the reporting agent will memorialize the 
contractual obligations for the reporting agent to provide the Rule 
10c-1a information to an RNSA.\160\ Consistent with the Proposing 
Release, for purposes of final Rule 10c-1a, ``timely access'' means 
that the reporting agent has access to the Rule 10c-1a information with 
sufficient time to provide such information to an RNSA (i.e., in the 
format and manner required by the rules of an RNSA and within the time 
periods specified in paragraphs (c) through (e) of the final rule). 
However, this definition of ``timely access'' differs from the 
Proposing Release in that the timing of the required reporting of 
certain securities loan information to an RNSA has changed (i.e., to no 
longer require reporting ``within the fifteen minutes after the 
securities loan is effected or the terms of the loan are 
modified'').\161\ As discussed below, in Part VII.G, the required 
timing for the reporting of data elements pursuant to final Rules 10c-
1a(c), (d), and (e) is now by the end of the day on which a covered 
securities loan is effected or modified.\162\
---------------------------------------------------------------------------

    \159\ See final Rule 10c-1a(a)(2).
    \160\ See Proposing Release, 86 FR 69822 n.129.
    \161\ See Proposing Release, 86 FR 69810.
    \162\ See final Rules 10c-1a(c), (d), and (e).
---------------------------------------------------------------------------

    If the reporting agent is unable to provide Rule 10c-1a information 
to an RNSA because it lacks timely access to it, the covered person who 
enters into the written agreement with the reporting agent is 
responsible for providing such information to an RNSA.\163\ Ultimately, 
responsibility for non-compliance will be a facts and circumstances 
determination. For instance, if the covered person fails to provide the 
reporting agent with access to accurate Rule 10c-1a information, then 
the covered person remains responsible for compliance with Rule 10c-
1a.\164\ However, if the reporting agent that receives timely and 
accurate information from the covered person provides late or 
inaccurate information to an RNSA, as discussed below in Part VII.C.1, 
the reporting agent is responsible for compliance with final Rule 10c-
1a.\165\
---------------------------------------------------------------------------

    \163\ For example, if a reporting agent establishes an automated 
system that pulls Rule 10c-1a information directly from the records 
management system of a beneficial owner, but the beneficial owner 
disables the connectivity to the automated system for any reason, 
the reporting agent would not have access to the Rule 10c-1a 
information. As a result, the beneficial owner is required to 
provide Rule 10c-1a information to an RNSA under final Rule 10c-
1a(a)(2).
    \164\ See 17 CFR 240.10c-1a(a)(1) (``final Rule 10c-1a(a)(1)'').
    \165\ See 17 CFR 240.10c-1a(b) (``final Rule 10c-1a(b)'').
---------------------------------------------------------------------------

2. Reporting Agent Definition--Rule 10c-1a(j)(4)
Proposed Rule
    The Commission proposed that, ``[a] person required to provide Rule 
10c-1 information . . . may enter into a written agreement with a 
broker or dealer that agrees to provide the Rule 10c-1 information to 
an RNSA (reporting agent) within the time periods specified in Rule 
10c-1.'' \166\ The Proposing Release stated that limiting who can act 
as a reporting agent to a broker or dealer that is regulated directly 
by the Commission, would aid the Commission in overseeing compliance 
with proposed Rule 10c-1 and provide RNSAs with the ability to oversee 
the activity of its members that perform a reporting agent 
function.\167\ The Proposing Release also stated that if reporting 
agents were to include other, non-broker or dealer entities, the 
Commission might lack an efficient way to oversee how the entity is 
complying with its responsibility to provide Rule 10c-1 information to 
an RNSA.\168\
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    \166\ See proposed Rule 10c-1(a)(1)(ii)(A).
    \167\ See Proposing Release, 86 FR 69810-11.
    \168\ See Proposing Release, 86 FR 69811.
---------------------------------------------------------------------------

Final Rule
    The Commission received numerous comments discussing what types of 
entities should be permitted to act as a reporting agent, including 
differing views on the proposed rule's restriction to only brokers or 
dealers.\169\ The Commission also received comment stating that there 
was a lack of clarity in the Proposing Release around the term 
``reporting agent.'' \170\
---------------------------------------------------------------------------

    \169\ See, e.g., ICI Letter 1, at 4-5; DTCC Letter, at 4; FIF 
Letter, at 7; James J. Angel Letter, at 6; IIB Letter, at 10; Letter 
from Edward M. Marhefka, Managing Director, Global Head of Equities 
Data and Analytics, IHS Markit (Jan. 4, 2022) (``IHS Markit 
Letter''), at 4; Letter from Robert Zekraus, COO & Head of Americas, 
Pirum Systems Limited (Jan. 7, 2022) (``Pirum Letter''), at 4-5; 
Letter from Robert Sloan, Managing Partner, S3 Partners, LLC (Apr. 
1, 2022) (``S3 Partners Letter''), at 12; Letter from Boaz Yaari, 
CEO, Sharegain Ltd. (Jan. 7, 2022) (``Sharegain Letter''), at 2. But 
see RMA Letter, at 13.
    \170\ See ICI Letter 1, at 8.
---------------------------------------------------------------------------

    The Commission received a comment supporting the requirement that 
reporting agents be registered brokers or dealers and stating that it 
``would allow an RNSA to oversee the activity of reporting agents and 
enable it to fulfill an essential regulatory function that promotes 
just and equitable principles of trade.'' \171\ Another commenter 
expressed support for permitting brokers or dealers to act as reporting 
agents.\172\ However, other commenters recommended that entities other 
than brokers or dealers should be eligible to act as reporting 
agents.\173\
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    \171\ See Nasdaq Letter, at 2.
    \172\ See Equilend Letter, at 1 (stating that it ``maintains two 
FINRA registered and SEC registered broker-dealers . . . and 
welcomes the opportunity to act as a reporting agent for the 
Proposed Rule'').
    \173\ See, e.g., FIF Letter, at 7 (stating that ``[f]or other 
reporting systems established by the Commission (such as CAT), 
vendors that are not broker-dealers are permitted to submit reports 
on behalf of reporting parties. The same approach should apply for 
the proposed securities loan reporting system''); James J. Angel 
Letter, at 6; IIB Letter, at 10; IHS Markit Letter, at 4-5; 
Sharegain Letter, at 2 (stating that ``the qualification criteria 
and application process to become a broker-dealer go far beyond the 
scope of reporting services under the proposed Rule and would 
unfairly restrict the market''); Letter from Tyler Gellasch, 
Executive Director, Healthy Markets Association (Mar. 2, 2022) 
(``HMA Letter''), at 8 (stating that ``by opening up the reporting 
agent role to non-broker entities, the Proposal could promote more 
competition amongst intermediaries--including lending agents--in the 
securities lending marketplace''); DTCC Letter, at 4 (``we do not 
believe it is necessary to limit the scope of entities that may be 
reporting agents exclusively to broker-dealers'').
---------------------------------------------------------------------------

    One commenter recommended that registered clearing agencies should 
be eligible to serve as a reporting agent because such agencies are 
subject to regulation and examination by the Commission and have 
experience providing the infrastructure that would be used by, and 
function as, a reporting agent.\174\ Another commenter suggested that 
reporting agents should include clearing agencies that operate stock 
lending platforms.\175\ Having considered the commenters' 
recommendations, the Commission agrees that registered clearing 
agencies should be permitted to act as reporting agents on behalf of 
covered persons, and therefore be included under the final rule's 
definition of the term ``reporting agent.'' \176\ Allowing registered 
clearing agencies to act as reporting agents will facilitate cost-
effective and efficient reporting.\177\ Additionally, like brokers and 
dealers, registered clearing agencies are subject to the Commission's 
direct oversight and examination functions.\178\
---------------------------------------------------------------------------

    \174\ See DTCC Letter, at 4.
    \175\ See James J. Angel Letter, at 6 (stating that lending 
platforms operated by clearing agencies ``could provide low-cost 
reporting solutions to market participants'').
    \176\ See final Rule 10c-1a(j)(4).
    \177\ See IHS Markit Letter, at 15 (stating that ``[a]llowing 
entities other than FINRA-registered broker-dealers to facilitate 
reporting is a cost-effective and efficient way to achieve the SEC's 
objectives . . . . The Commission should encourage a variety of 
organizations to provide innovative and cost-effective solutions to 
meet this regulation.'')
    \178\ See, e.g., 15 U.S.C. 240.78q(b) (section 17(b) of the 
Exchange Act).

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[[Page 75655]]

    Some commenters stated that allowing non-brokers or dealers to act 
as reporting agents could facilitate low-cost service providers.\179\ 
Another commenter stated that ``by opening up the reporting agent role 
to non-broker entities, the Proposal could promote more competition 
amongst intermediaries--including lending agents--in the securities 
lending marketplace.'' \180\ One commenter stated that limiting the 
reporting agents to only brokers or dealers would unfairly restrict the 
market for such services.\181\ Other commenters specifically stated 
that certain non-brokers or dealers have existing technological 
capability to be able to act as a reporting agent (e.g., data vendors 
and entities that report information for other regulatory 
purposes).\182\ One such commenter supported leveraging the existing 
technology of non-broker-dealers to reduce implementation time and 
staff training costs relating to the implementation of proposed Rule 
10c-1.\183\
---------------------------------------------------------------------------

    \179\ See IIB Letter, at 10 (stating that many lenders already 
rely on non-broker or dealer third-party vendors to ``perform 
similar functions, and such vendors would likely be willing to 
provide securities lending reporting services and be low-cost 
providers''). See also Letter from Edmon Blount, Executive Director, 
Advanced Securities Consulting (Jan. 7, 2022) (``Advanced Securities 
Consulting Letter''), at 1.
    \180\ See HMA Letter, at 8.
    \181\ See Sharegain Letter, at 2.
    \182\ See S3 Partners Letter, at 12; Sharegain Letter, at 2; IIB 
Letter, at 10.
    \183\ See S3 Partners Letter, at 12.
---------------------------------------------------------------------------

    Allowing clearing agencies, as well as brokers or dealers, to act 
as reporting agents 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.\184\ Expanding the 
definition of reporting agent to include registered clearing agencies 
strikes a balance between increasing participation and competition in 
the marketplace for such services, while only applying the definition 
to entities over which the Commission has direct oversight.\185\ 
Limiting who can act as a reporting agent to brokers, dealers, and 
registered clearing agencies, all of which are regulated directly by 
the Commission, will assist the Commission in overseeing compliance 
with final Rule 10c-1a. Including other entities would leave the 
Commission without an efficient way to oversee how the entity is 
complying with its responsibility to provide Rule 10c-1a information to 
an RNSA on behalf of a covered person. Two commenters stated that some 
non-brokers or dealers should be eligible to serve as reporting agents 
because they are already permitted to report information in connection 
with other Commission reporting regimes and have experience doing 
so.\186\ The commenters identified the CAT, TRACE, and FINRA's Large 
Options Positions Report (``LOPR'') as examples of reporting regimes 
that allow brokers or dealers to use non-brokers or dealers as 
reporting agents. In each of the reporting regimes identified by the 
commenters, the reporting requirements apply to entities that are 
registered with the Commission or are a member of an RNSA or an 
exchange,\187\ and that retain legal liability for compliance 
notwithstanding the existence of an agreement for a third party to 
provide connectivity services on behalf of the registrant.\188\
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    \184\ See infra Part IX.E.6 (stating that ``expanding reporting 
agents to entities other than broker-dealers would serve to increase 
the number of entities that would compete to provide lenders and 
lending agents with reporting services. Thus, expanding the 
eligibility of reporting agents would serve to promote more 
competition in this market, potentially leading to lower fees for 
lenders and lending agents that would rely on these reporting agents 
for these services.'').
    \185\ See Standards for Covered Clearing Agencies, Release No. 
34-71699 (Mar. 12, 2014), 79 FR 29508, 29510 (May 22, 2014) (``If 
the Commission registers a clearing agency, the Commission oversees 
the clearing agency to facilitate compliance with the Exchange Act 
using various tools that include, among other things, the rule 
filing process for self-regulatory organizations (`SROs') and on-
site examinations by Commission staff. The Commission also oversees 
registered clearing agencies through regular contact, including 
onsite visits, by Commission staff with clearing agency senior 
management and other personnel and ongoing interactions of 
Commission staff with the registered clearing agencies regarding 
current and expected proposed rule changes under section 19(b) of 
the Exchange Act.'').
    \186\ See FIF Letter, at 7-8; S3 Partners Letter, at 12.
    \187\ See FINRA Rule 6810(u) (```Industry Member' means a member 
of a national securities exchange or a member of a national 
securities association that is required to record and report 
information pursuant to the CAT NMS Plan and this Rule 6800 
Series''); FINRA Rule 6730(a) (applying the TRACE reporting 
obligations to FINRA members); FINRA Rule 2360(b)(5)(A)(i)b (``FINRA 
member firms that conduct a business in standardized options but are 
not themselves members of the options exchange on which such options 
are listed and traded . . . are required under FINRA Rule 
2360(b)(5)(A)(i)b to report to the LOPR system positions in 
standardized options covering the same underlying security or index 
that meet the 200 contract reporting threshold.'').
    \188\ See, e.g., Nasdaq Rulebook, General Equity and Options 
Rules--General 7: Consolidated Audit Trail Compliance, at section 
8(c)(3), available at, https://listingcenter.nasdaq.com/rulebook/nasdaq/rules. See also FINRA Regulatory Notice 21-29 (Aug. 13, 
2021), available at, https://www.finra.org/rules-guidance/notices/21-29 (FINRA guidance on outsourcing to third party vendors and the 
retention of responsibility by the FINRA member).
---------------------------------------------------------------------------

    The Commission is also clarifying that the ability to use a 
reporting agent does not prevent covered persons from contracting 
privately with third-party vendors to assist in reporting. The proposed 
rule required that ``[a]ny person that loans a security on behalf of 
itself . . . shall provide to a [RNSA] the [Rule 10c-1 information].'' 
\189\ However, the proposed rule did not address the use of a third-
party vendor by a lender to help facilitate its reporting obligations. 
The rule as adopted does not prohibit the use of third-party vendors by 
covered persons. The use of third-party vendors by covered persons to 
help facilitate the reporting of Rule 10c-1a information should allow 
covered persons flexibility and decrease costs,\190\ and help address a 
commenter's concerns with the ability of certain covered persons to 
report.\191\ The difference between a covered person relying on a 
reporting agent to fulfill its Rule 10c-1a reporting requirements and 
using a third-party vendor to help facilitate its Rule 10c-1a reporting 
is solely with respect to liability and responsibility under final Rule 
10c-1a. When a covered person uses a reporting agent and meets the 
conditions of the rule, the covered person may rely on a reporting 
agent to fulfill its reporting obligations.\192\ However, 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 an RNSA, as reliance on a reporting agent would.\193\
---------------------------------------------------------------------------

    \189\ See proposed Rule 10c-1(a)(1). See also Proposing Release, 
86 FR 69809 (stating that a lender that did not use a lending agent 
or reporting agent to provide Rule 10c-1 information to an RNSA must 
directly provide such information to an RNSA).
    \190\ See infra Parts IX.C.3 and IX.E.6. Additionally, the use 
of third party vendors by covered persons could enable the 
innovation and development of novel reporting services, such as the 
data trusts described by one commenter. See Advanced Securities 
Consulting Letter, at 1-3.
    \191\ See ICI Letter 1, at 12 (stating that ``beneficial owners 
will not have the infrastructure to report'').
    \192\ See final Rule 10c-1a(a)(1).
    \193\ See final Rule 10c-1a(a)(2) (stating that ``a covered 
person may rely on a reporting agent to fulfill its reporting 
obligations under paragraph (a)(1)'' of the final rule, if certain 
conditions are met)
---------------------------------------------------------------------------

    Some commenters stated that providing the proposed Rule 10c-1 
information to a reporting agent that is a broker or dealer could 
reveal confidential information to such broker or dealer relating to 
covered securities loans.\194\ One such commenter stated that 
``[w]ithout an alternative, beneficial owners would either be forced to 
build their own direct reporting to RNSAs to mitigate these concerns, 
thereby significantly increasing their costs, or to exit the market 
entirely, thereby

[[Page 75656]]

reducing overall liquidity.'' \195\ Another commenter mentioned 
operational and confidentiality considerations involved with appointing 
a reporting agent.\196\
---------------------------------------------------------------------------

    \194\ See S3 Partners Letter, at 12; IHS Markit Letter, at 4; 
Advanced Securities Consulting Letter, at 1-3.
    \195\ See Pirum Letter, at 5.
    \196\ See BlackRock Letter, at 3, 9.
---------------------------------------------------------------------------

    Brokers, dealers, and clearing agencies, like all persons, are 
subject to prohibitions on misuse of material non-public information. 
Brokers, dealers, and clearing agencies are subject to Commission 
examination for compliance with this,\197\ and other, requirements. To 
the extent that a covered person may, nonetheless, be concerned about 
providing sensitive information to another person, it may elect to hire 
third party vendors for specific tasks to help with compliance 
obligations. As noted above, the covered person would retain legal 
responsibility for reporting.
---------------------------------------------------------------------------

    \197\ See, e.g., 15 U.S.C. 240.78q(b) (section 17(b) of the 
Exchange Act).
---------------------------------------------------------------------------

    One commenter appeared to believe that all reporting required by 
the proposed rule must be done through members of FINRA (the only 
currently existing RNSA).\198\ The final rule does not require that all 
covered persons that are required to report Rule 10c-1a information to 
an RNSA be members of that RNSA.\199\ The final rule requires only that 
reporting agents, if relied upon by a covered person to fulfill its 
reporting obligations, must be a broker, dealer, or registered clearing 
agency.\200\ Covered persons, including persons that are not RNSA 
members, that elect not to use a reporting agent, are responsible for 
providing the Rule 10c-1a information to an RNSA directly and may do so 
without becoming RNSA members.\201\
---------------------------------------------------------------------------

    \198\ See James J. Angel Letter, at 6.
    \199\ See final Rule 10c-1a(j)(1).
    \200\ See final Rule 10c-1a(j)(4).
    \201\ See final Rule 10c-1a(a)(1).
---------------------------------------------------------------------------

    Having considered the commenters' recommendations discussed above, 
in this part, and for the foregoing reasons, the final rule defines the 
term ``reporting agent'' to mean ``a broker, dealer, or registered 
clearing agency that enters into a written agreement with a covered 
person under paragraph (a)(2) of [the final rule].'' \202\ Therefore, 
the final rule adds ``registered clearing agencies'' to the proposed 
rule's scope of entities that are permitted to act as reporting agents, 
which was limited to brokers or dealers.\203\
---------------------------------------------------------------------------

    \202\ See final Rule 10c-1a(j)(4).
    \203\ See proposed Rule 10c-1(a)(1)(ii)(A).
---------------------------------------------------------------------------

C. Reporting Agent Requirements--Rule 10c-1a(b)

1. Reporting Agent Reporting Requirements--Rule 10c-1a(b)
Proposed Rule
    As discussed above, in Part VII.B, paragraph (a)(1)(ii)(B) of the 
proposed rule required the reporting agent to provide the Rule 10c-1 
information to an RNSA if the reporting agent had entered into a 
written agreement (with the covered person) to provide the Rule 10c-1 
information to an RNSA pursuant to paragraph (a)(1)(ii)(A) \204\ of the 
proposed rule and the reporting agent had been provided timely access 
to such Rule 10c-1 information by the covered person. The proposed 
rule, in paragraphs (a)(2)(i) through (a)(2)(iv),\205\ also included 
requirements for the reporting agent to assist both an RNSA and the 
Commission with surveillance and compliance with RNSA requirements and 
proposed Rule 10c-1.\206\ In proposing the specific requirements for 
reporting agents, the Commission preliminarily believed it was 
appropriate for a reporting agent to be responsible for providing Rule 
10c-1 information to an RNSA, provided the reporting agent has 
contractually agreed to provide such information to an RNSA and the 
reporting agent has also been provided with timely access to such 
information.\207\
---------------------------------------------------------------------------

    \204\ See Proposing Release, 86 FR 69810 (stating ``[s]uch 
written agreements under proposed Rule 10c-1(a)(1)(ii)(A) would 
memorialize and provide proof of the contractual obligations for the 
reporting agent to provide the Rule 10c-1 information to an 
RNSA.'').
    \205\ The reporting-related requirements specific to the 
reporting agent, as proposed, included: paragraph (a)(2)(i) of the 
proposed rule's policies and procedures requirement; paragraph 
(a)(2)(ii) of the proposed rule's written agreement with an RNSA 
requirement; and, paragraph (a)(2)(iii) of the proposed rule's list 
of names requirement. See proposed Rules 10c-1(a)(2)(i) through 
(a)(2)(iii). Proposed paragraph (a)(2)(iv) is discussed below, in 
Part VII.C.2, regarding a reporting agent's recordkeeping 
requirements.
    \206\ See Proposing Release, 86 FR 69809.
    \207\ See Proposing Release, 86 FR 69810.
---------------------------------------------------------------------------

    In addition, the proposed rule's requirement that the reporting 
agent enter into a written agreement with an RNSA was intended to 
evidence the explicit permission the reporting agent has to provide 
Rule 10c-1 information on behalf of the covered person.\208\ Similarly, 
the reporting agent would also have been required to provide an RNSA 
with a list of each covered person on whose behalf the reporting agent 
would be providing the Rule 10c-1 information (and also to update the 
list by the end of the day when the list changes).\209\ As the 
Commission explained in the Proposing Release, requiring the reporting 
agent to provide the identities of each covered person on whose behalf 
the reporting agent is providing Rule 10c-1 information to an RNSA is 
intended to provide the Commission with the ability to obtain the 
identities of the covered persons from an RNSA in order to aid the 
Commission with its oversight of the covered persons that have entered 
into agreements with reporting agents, including with their compliance 
with the proposed rule.\210\ In addition, the proposed requirement for 
a reporting agent to have written policies and procedures was intended 
to provide regulators with a means to examine and enforce a reporting 
agent's compliance with proposed Rule 10c-1. Moreover, the proposed 
recordkeeping requirements were intended to help facilitate the 
Commission's oversight of reporting agents and to review the reporting 
agents' compliance with the requirements to provide the Rule 10c-1 
information to an RNSA.\211\
---------------------------------------------------------------------------

    \208\ See Proposing Release, 86 FR 69810.
    \209\ See Proposing Release, 86 FR 69810.
    \210\ See Proposing Release, 86 FR 69810-11.
    \211\ See Proposing Release, 86 FR 69811.
---------------------------------------------------------------------------

Final Rule
    The Commission sought specific comment regarding the role and 
requirements of a reporting agent. The Commission received a number of 
reporting agent-related comments in response; however, most of these 
comments focused primarily on a covered person's use of a reporting 
agent or the eligibility requirements for a reporting agent, as 
discussed above, in Part VII.B.2, rather than the requirements of an 
already eligible reporting agent, as relevant here.\212\ The Commission 
is adopting the specific reporting agent requirements, substantially as 
proposed, but with some non-substantive modifications.
---------------------------------------------------------------------------

    \212\ One commenter, however, stated that it is clearer and more 
efficient to impose the obligation directly on the lending and 
reporting entities when the conditions of the proposed rule are 
satisfied. See ICI Letter 1, at 4 (discussing a reporting agent's 
role in terms of its obligation to report for purposes of compliance 
with the requirements of the proposed rule).
---------------------------------------------------------------------------

    First, the requirements are relocated into a separate paragraph (b) 
under the final rule.\213\ This non-substantive, technical modification 
is intended to streamline and simplify the proposed rule text, by 
combining into one paragraph, the requirements specific to a reporting 
agent (as distinguished from the requirements applicable to the covered 
person) in order to help clarify which party is ultimately responsible

[[Page 75657]]

for providing the Rule 10c-1a information to an RNSA.
---------------------------------------------------------------------------

    \213\ See final Rules 10c-1a(b) through (b)(5).
---------------------------------------------------------------------------

    Second, to reduce redundancy and complexity in the proposed rule 
text, paragraph (b) of the final rule requires that ``any reporting 
agent'' that assumes the reporting obligation on behalf of the covered 
person, pursuant to paragraph (a)(2) of the final rule, comply with the 
specific requirements in paragraph (b) of the final rule.\214\ A 
covered person that enters into a written agreement with a reporting 
agent to provide the Rule 10c-1a information to an RNSA on behalf of 
the covered person as required by the final rule, and that provides the 
reporting agent with timely access to the Rule 10c-1a information, may 
rely on the reporting agent to fulfill the covered person's reporting 
obligations under paragraph (a)(1) of the final rule.
---------------------------------------------------------------------------

    \214\ See final Rule 10c-1a(j)(4), defining ``reporting agent'' 
to mean a broker, dealer, or registered clearing agency that enters 
into a written agreement with a covered person under paragraph 
(a)(2) of final Rule 10c-1a.
---------------------------------------------------------------------------

    Lastly, the final rule combines the reporting-related requirements 
that were previously located in paragraphs (a)(1)(ii)(B) and (a)(2) of 
the proposed rule with the proposed reporting agent recordkeeping 
requirements in paragraphs (a)(1)(ii)(A) and (a)(1)(ii)(B), into 
paragraph (b) in the final rule.\215\
---------------------------------------------------------------------------

    \215\ See final Rule 10c-1a(b). Paragraph (b)(1) of the final 
rule clarifies that the reporting agent is required to comply with 
the rules of an RNSA in terms of the format and manner of reporting 
the required information to an RNSA and comply with the specific 
time periods set forth in paragraphs (c) through (e) of final Rule 
10c-1a.
---------------------------------------------------------------------------

    Paragraph (b) of the final rule's specific inclusion of the term 
``reporting agent,'' which is defined in final Rule 10c-1a(j)(4) to 
mean a broker, dealer, or registered clearing agency that enters into a 
written agreement with a covered person under paragraph (a)(2) of the 
final rule, as well as inclusion of the ``assumes the reporting 
obligation'' language, sets forth the reporting agent's ultimate 
responsibility for reporting Rule 10c-1a information to an RNSA. The 
final rule provides that a reporting agent will be required to provide 
the Rule 10c-1a information to an RNSA under the new reporting regime 
only when the covered person has both: (1) entered into the required 
written agreement with the reporting agent, and (2) provided the 
reporting agent with timely access to the Rule 10c-1a information.\216\ 
Thus, if a reporting agent is unable to provide the Rule 10c-1a 
information to an RNSA because it lacks timely access to it, the 
covered person who enters into the written agreement with the reporting 
agent under paragraph (a)(2)(i) of the final rule remains responsible 
for providing the required Rule 10c-1a information to an RNSA, 
consistent with the proposed rule.
---------------------------------------------------------------------------

    \216\ See final Rule 10c-1a(b)(1). See also final Rule 10c-
1a(a)(2).
---------------------------------------------------------------------------

    Additionally, the Commission is adopting: 17 CFR 240.10c-1a(b)(1) 
(``final Rule 10c-1a(b)(1)''); 17 CFR 240.10c-1a(b)(2) (``final Rule 
10c-1a(b)(2)''); and 17 CFR 240.10c-1a(b)(3) (``final Rule 10c-
1a(b)(3)'') as new paragraphs (b)(1) through (b)(3) of the final rule, 
the specific reporting-related requirements \217\ of a reporting agent, 
substantially as they were proposed in paragraphs (a)(2)(i) through 
(a)(2)(iii) of the proposed rule.\218\ Paragraph (b)(2) of final Rule 
10c-1a will require a reporting agent to establish, maintain, and 
enforce written policies and procedures that are reasonably designed to 
provide Rule 10c-1a information to an RNSA. However, in the final rule, 
as modified with non-substantive, technical, or clarifying changes to 
the rule text consistent with the other changes made to the overall 
final rule text, such Rule 10c-1a information is provided (by the 
reporting agent) to an RNSA on behalf of a ``covered person'' (which is 
a newly defined term in the final rule, rather than the term ``another 
person,'' as was used in the proposed rule); and, also consistent with 
the proposed rule, such information is to be provided ``in the format 
and manner required by the applicable rule(s) of an RNSA, and within 
the time periods specified in paragraphs (c) through (e)'' \219\ (which 
is designed to clarify the proposed rule text, ``in the manner, format, 
and time consistent with Rule 10c-1'' \220\). Apart from the 
aforementioned changes, the policies and procedures requirement of the 
reporting agent remains unchanged from the proposed rule.
---------------------------------------------------------------------------

    \217\ See supra note 205 regarding paragraph (a)(2)(i) of the 
proposed rule's policies and procedures requirement; paragraph 
(a)(2)(ii) of the proposed rule's written agreement with an RNSA 
requirement; and paragraph (a)(2)(iii) of the proposed rule's list 
of names requirement.
    \218\ Specifically, once the covered person enters into the 
required written agreement with the reporting agent, and the covered 
person provides the reporting agent with timely access to the Rule 
10c-1a information, paragraph (b)(1) of the final rule specifically 
requires the reporting agent to provide the Rule 10c-1a information 
to an RNSA on behalf of a covered person (in the format and manner 
required by the rule(s) of such RNSA and within the time periods 
specified in paragraphs (c) through (e) of final Rule 10c-1a). See 
final Rule 10c-1a(b)(1).
    \219\ See final Rule 10c-1a(b)(2).
    \220\ See proposed Rule 10c-1(a)(2)(i).
---------------------------------------------------------------------------

    Additionally, consistent with the proposed rule, paragraph (b)(3) 
of the final rule requires the reporting agent to enter into a written 
agreement with an RNSA that permits the reporting agent to provide the 
required Rule 10c-1a information to an RNSA (e.g., establish the 
required connectivity with such RNSA) on behalf of a covered person. 
More specifically, the final rule provides that a reporting agent shall 
``[e]nter into a written agreement with an RNSA that permits the 
reporting agent to provide Rule 10c-1a information to an RNSA on behalf 
of a covered person.'' \221\ Other than replacing the proposed term 
``another person'' with the newly defined term ``covered person'' in 
the final rule, the written agreement requirement of the reporting 
agent remains unchanged from the proposed rule.
---------------------------------------------------------------------------

    \221\ See final Rule 10c-1a(b)(3) (replacing term ``another 
person'' from paragraph (a)(2)(ii) of the proposed rule with the 
term ``covered person'').
---------------------------------------------------------------------------

    Moreover, the Commission is adopting 17 CFR 240.10c-1a(b)(4) 
(``final Rule 10c-1a(b)(4)''), which requires the reporting agent to 
``provide an RNSA with a list naming each covered person on whose 
behalf the reporting agent is providing Rule 10c-1a information to an 
RNSA,'' consistent with the proposed rule, although paragraph (b)(4) of 
final Rule 10c-1a adds the term ``naming'' to replace the less-
descriptive term ``of,'' as was used in the proposed rule. For 
consistency, the final rule also includes the newly defined term 
``covered person'' in place of ``person and lending agent,'' as was 
used in paragraph (a)(2)(iii) of the proposed rule. Moreover, paragraph 
(b)(4) of the final rule clarifies the proposed rule by streamlining 
the text, ``provide an RNSA with any updates to the list of such 
persons by the end of the day such list changes,'' by removing the 
extra ``on the day'' in the sentence. Also, the final rule slightly 
modifies the rule text ``an updated list'' to read instead ``any 
updates to the list'' to clarify that any updates (or changes) to the 
list (and the updated list itself) must be provided to an RNSA ``by the 
end of the day such list changes.'' \222\ A reporting agent's written 
policies and procedures will need to address the above requirements.
---------------------------------------------------------------------------

    \222\ See final Rule 10c-1a(b)(4).
---------------------------------------------------------------------------

2. Recordkeeping Requirements of a Reporting Agent--Rule 10c-1a(b)(5)
Proposed Rule
    Paragraph (a)(2)(iv) of the proposed rule would have required that 
the reporting agent maintain certain information for a period of three 
years, the first two in an easily accessible place.\223\ The 
information required to be maintained included the Rule 10c-1 
information provided by the covered

[[Page 75658]]

person to the reporting agent, including the time of receipt, as well 
as the Rule 10c-1 information that the reporting agent provided to an 
RNSA, and time of transmission. Additionally, under the proposed rule, 
the reporting agent would have to retain the written agreements between 
the reporting agents and beneficial owners, lending agents, and an 
RNSA.\224\ As the Commission explained, the proposed recordkeeping 
requirements were designed to help facilitate the Commission's 
oversight of reporting agents and review the reporting agents' 
compliance with the requirement to provide the Rule 10c-1 information 
to an RNSA.\225\
---------------------------------------------------------------------------

    \223\ See proposed Rule 10c-1(a)(2)(iv).
    \224\ See Proposing Release, 86 FR 69811.
    \225\ See Proposing Release, 86 FR 69811.
---------------------------------------------------------------------------

Final Rule
    One commenter stated that it was redundant and unnecessary for the 
reporting agent to retain data, as FINRA already has the data.\226\ 
However, pursuant to 17 CFR 240.10c-1a(b)(5) (``final Rule 10c-
1a(b)(5)''), the reporting agent would not only be required to retain 
data that it submitted to an RNSA (including time of transmission), but 
would also be required to retain the data it received from the covered 
person (including time of receipt), which would demonstrate compliance 
with the timeliness requirements of the rule or whether the reporting 
agent itself received the data in an untimely manner from the covered 
person, as well as the written agreements required in order to be 
eligible as a reporting agent. Such records would be helpful to 
regulators in identifying and reconstructing the reasons for missing, 
incomplete, or untimely data (e.g., whether it was the result of 
untimely receipt by the reporting agent or issues with the reporting 
agent's operations). The data would also help reporting agents respond 
to Commission inquiries as to whether the reporting agent or the 
covered person appropriately complied with the final rule. The records 
of data submitted to an RNSA would provide context for such inquiries, 
as well as allow for a comparison of data received (by the reporting 
agent) and submitted to an RNSA, to the data published by an RNSA, 
allowing regulators to determine whether there are issues with an 
RNSA's processing of data received.
---------------------------------------------------------------------------

    \226\ See James J. Angel Letter, at 7.
---------------------------------------------------------------------------

    Accordingly, the Commission is adopting, in paragraph (b)(5) of 
final Rule 10c-1a without substantive changes, the proposed 
recordkeeping requirements contained in paragraphs (a)(2)(iv)(A) and 
(B) of the proposed rule that provide for the reporting agent to 
preserve for a period of not less than three years, the first two years 
in an easily accessible place, both the Rule 10c-1a information 
obtained by the reporting agent from the covered person pursuant to 
paragraph (a)(2) of the final rule, including the time of receipt, and 
the corresponding Rule 10c-1a information provided by the reporting 
agent to an RNSA, including the time of transmission to an RNSA \227\; 
and, the written agreements as required under paragraphs (a)(2) and 
(b)(3) of the final rule.\228\
---------------------------------------------------------------------------

    \227\ See final Rule 10c-1a(b)(5); 17 CFR 240.10c-1a(b)(5)(i) 
(``final Rule 10c-1a(b)(5)(i)''); 17 CFR 240.10c-1a(b)(5)(ii) 
(``final Rule 10c-1a(b)(5)(ii)'').
    \228\ While the term ``Rule 10c-1a information'' has stayed the 
same in the final rule, as also explained below, in Part VII.F, the 
scope of the information required by the final rule has been 
modified with the deletion of the proposed requirement to provide 
information regarding the total amount of ``securities on loan'' and 
``available to lend'' data, as was originally proposed.
---------------------------------------------------------------------------

D. Scope of Securities Required To Be Reported--Rule 10c-1a(j)(3)

Proposed Rule
    In the Proposing Release, the Commission stated its preliminary 
belief that proposed Rule 10c-1 should apply to all securities ``to 
ensure that a complete picture of transactions involving the loan of 
securities is provided to the RNSA.'' \229\ Accordingly, the proposed 
rule would have required the reporting of loans of any security (e.g., 
both equity and debt).\230\
---------------------------------------------------------------------------

    \229\ See Proposing Release, 86 FR 69808.
    \230\ See proposed Rule 10c-1(a)(1). See also Proposing Release, 
86 FR 69808. See, e.g., 17 CFR 230.902 (defining ``Debt securities'' 
as ``any security other than an equity security'' and an ``equity 
security'' as defined in 17 CFR 230.405).
---------------------------------------------------------------------------

    Specifically, the Commission stated that, ``if the Commission were 
to limit the scope of the proposed Rule (e.g., to only equity 
securities) then a significant number of securities lending 
transactions would be excluded and the market efficiencies and 
reduction of information asymmetry that the Commission anticipates will 
result from proposed Rule 10c-1 would not accrue to non-equity 
securities.'' \231\
---------------------------------------------------------------------------

    \231\ See Proposing Release, 86 FR 69808 (citing A Pilot Survey 
of Agent Securities Lending Activity, Off. Of Fin. Research, Working 
Paper No. 16-08, 2016, at 8, available at https://www.financialresearch.gov/working-papers/files/OFRwp-2016-08_Pilot-Survey-of-Securities-Lending.pdf).
---------------------------------------------------------------------------

Final Rule
    In response to proposed Rule 10c-1, some commenters expressed 
general support for increased transparency and price discovery in the 
securities lending market by increasing the amount and availability of 
data in the market.\232\ Other commenters offered support for the 
inclusion of all loans of securities.\233\ Another commenter expressed 
the view that ``[t]here is an urgent need to require securities lenders 
to provide greater details of their loans to a RNSA as outlined by the 
proposed changes to Rule 10c-1 . . . [m]arket participants and 
regulators alike will greatly benefit from the greater transparency 
that comes from reporting every securities lending transaction as a 
result of the proposed changes to Rule 10c-1, just as they have from 
the trade-by-trade reporting that was instituted in the corporate bond 
market since TRACE was introduced.'' \234\
---------------------------------------------------------------------------

    \232\ See supra note 47.
    \233\ See Nasdaq Letter, at 2; Morningstar Letter, at 4.
    \234\ See AFREF Letter 1, at 3.
---------------------------------------------------------------------------

    One commenter recommended that the Commission make explicit ``the 
types of securities loans to which Rule 10c-1 applies so that market 
participants have clarity as to which types of securities loans must be 
reported.'' \235\ The final rule makes explicit the types of 
transactions to which the final rule applies and the securities that 
are within the scope of the final rule through two newly defined terms: 
``covered securities loan'' and ``reportable security.'' The definition 
of the term ``covered securities loan'' in paragraph (j)(2) of the 
final rule makes explicit the types of loans to which the final rule 
applies, as discussed below, in Part VII.E. The definition of the term 
``covered securities loan'' refers to a transaction in which any person 
on behalf of itself or one or more other persons, lends a ``reportable 
security'' to another person.\236\ The final rule defines the term 
``reportable security'' as ``any security or class of an issuer's 
securities for which information is reported or required to be reported 
to the consolidated audit trail as required by Sec.  242.613 (``Rule 
613'') of the Exchange Act and the CAT NMS Plan (``CAT''), the 
Financial Industry Regulatory Authority's Trade Reporting and 
Compliance Engine (``TRACE''), or the Municipal Securities Rulemaking 
Board's Real Time Reporting System (``RTRS''), or any reporting system 
that replaces one of these systems.'' \237\ The definition of the term 
``reportable security'' aligns the securities for which loans must be 
reported with securities for which transactions are currently being 
reported to existing reporting regimes, specifically, the CAT, TRACE, 
and RTRS. At this time, data on

[[Page 75659]]

securities loans should be consistent with existing reporting regimes 
for other transactions in the same securities.
---------------------------------------------------------------------------

    \235\ ICI Letter 1, at 7.
    \236\ Final Rule 10c-1a(j)(2).
    \237\ Final Rule 10c-1a(j)(3).
---------------------------------------------------------------------------

    Aligning the scope of securities for covered securities loans with 
existing transaction reporting systems will provide a number of 
benefits. For instance, such alignment will allow regulators to obtain 
a more complete view across the different types of transactions for the 
same securities. In addition, many market participants are already 
familiar with the existing systems, either as reporting entities or, in 
the case of TRACE and RTRS, as users of the data.
    Presently, securities that fall outside of the existing reporting 
regimes include: (1) for TRACE: fixed-income transactions in securities 
with a maturity of one calendar year or less, such as money market 
instruments,\238\ and non-U.S. dollar-denominated debt are excluded 
from reporting requirements in TRACE; \239\ (2) for the CAT: equity 
transactions in ``restricted securities,'' as that term is defined in 
17 CFR 230.144(a)(3) (``Rule 144'') of the Securities Act,\240\ are 
generally not reportable to the CAT because they are not subject to 
prompt last sale reporting rules; \241\ and (3) for RTRS: municipal 
securities transactions excepted under MSRB Rule G-14,\242\ including a 
small number of transactions for securities without assigned Committee 
on Uniform Securities Identification Procedure (``CUSIP'') numbers, 
municipal fund securities (i.e., 529 Plans, ABLE programs, local 
government investment pools), and inter-dealer transactions ineligible 
for comparison of trade settlement date at a clearing agency.\243\ To 
provide consistency with existing reporting regimes, final Rule 10c-1a 
also incorporates these exclusions.
---------------------------------------------------------------------------

    \238\ See, e.g., FAQ 3.1.43, available at https://www.finra.org/filing-reporting/trace/faq (``[a]s stated in Rule 6710(a), the 
definition of TRACE-Eligible Security does not include a Money 
Market Instrument. Under recent amendments to Rule 6710(o) 
pertaining to discount notes, ``Money Market Instrument'' means a 
debt security that at issuance has a maturity of one calendar year 
or less, or, if a discount note issued by an Agency, as defined in 
Rule 6710(k), or a Government-Sponsored Enterprise, as defined in 
Rule 6710(n), a maturity of one calendar year and one day or less 
(i.e., not later than 366 days from the date of issuance, or if a 
leap year, not later than 367 days from the date of issuance).'').
    \239\ See, e.g., https://www.finra.org/filing-reporting/trace/trace-foreign-sovereign-debt.
    \240\ See, e.g., https://www.catnmsplan.com/faq (see FAQ B11 
describing the types of products in scope for reporting to the CAT).
    \241\ Under the CAT NMS Plan, ``Eligible Security'' includes: 
(i) all NMS Securities, meaning ``any security or class of 
securities for which transaction reports are collected, processed, 
and made available pursuant to an effective transaction reporting 
plan, or an effective national market system plan for reporting 
transactions in Listed Options,'' and (ii) all OTC Equity 
Securities, meaning ``any equity security, other than an NMS 
Security, subject to prompt last sale reporting rules of a 
registered national securities association and reported to one of 
such association's equity trade reporting facilities.'' Further, 
while the CAT NMS Plan does not define ``prompt last sale reporting 
rules,'' the Operating Committee has determined that transactions in 
``restricted securities'' (as defined by Rule 144(a)(3)) are not 
reportable to the CAT because they are not subject to prompt last 
sale reporting rules. However, transactions in direct participation 
programs must be reported to the CAT in Phase 2c of Industry Member 
reporting.
    \242\ Brokers, dealers, and municipal securities dealers 
(``municipal dealers'') must report transactions in municipal 
securities pursuant to MSRB Rule G-14. Pursuant to Rule G-14, each 
municipal dealer reports to the MSRB or its designee information 
about each purchase and sale transaction effected in municipal 
securities to RTRS in the manner prescribed by Rule G-14, available 
at https://www.sec.gov/rules/sro/msrb/2018/34-83038-ex5.pdf.
    \243\ See, e.g., Specifications for Real-Time Reporting of 
Municipal Securities Transactions (Nov. 2022), at 15 (``1.2.1 
Securities that Must be Reported[:] In the real-time environment, 
all customer trades in municipal securities issues that have CUSIP 
numbers assigned by the CUSIP Service Bureau of Standard & Poor's 
must be reported, except municipal fund securities. Dealers should 
not report (a) customer transactions in issues ineligible for CUSIP 
number assignment and (b) municipal fund securities. For inter-
dealer trades, transactions must be reported in all municipal 
securities issues eligible for comparison in RTTM [the National 
Securities Clearing Corporation's (``NSCC'') Real-Time Trade 
Matching (``RTTM'') web-based trade input method]. In addition, Rule 
G-14 requires that the role of a clearing broker in RTTM-eligible 
agency transactions effected by an introducing broker against the 
principal positions of the clearing broker shall be reported . . .. 
If an issue is not RTTM-eligible (because of the lack of a CUSIP 
number for the security or other reasons), inter-dealer trades in 
the issue are not subject to the reporting requirement.'') 
(footnotes omitted), available at https://www.msrb.org/sites/default/files/RTRS-Specifications.pdf.
---------------------------------------------------------------------------

    The Commission also received comments with suggestions to limit the 
scope of securities for which loans must be reported under the proposed 
rule.\244\ One commenter favored narrowing the proposed scope of 
securities to only equity securities that transact in significant 
volume in the U.S., namely equity securities listed or traded on a 
national securities exchange ``to avoid uncertainty for non-U.S. 
borrowers and lenders transacting in securities that are primarily 
relevant in non-U.S. markets and to provide for a measured approach in 
introducing data reporting and dissemination into the marketplace.'' 
\245\ Investors will also benefit from the increased transparency into 
loans of equity securities that are not listed or traded on a national 
securities exchange (i.e., loans of equities that are traded over-the-
counter (``OTC'')) provided by the final rule. The Commission 
understands that existing lending transparency systems currently 
include information about loans of exchange-listed and OTC securities. 
Thus, lenders should generally already be accustomed to providing and 
receiving such data. Further, OTC securities tend to be less liquid and 
publicly available information about an issuer of an OTC security may 
be limited or nonexistent,\246\ and thus such securities may be harder 
to borrow. Accordingly, data concerning loans of less liquid 
securities, such as OTC securities, will be beneficial to market 
participants by reducing information asymmetries and improving pricing 
efficiency by facilitating benchmarking for the loans of less liquid 
securities.\247\
---------------------------------------------------------------------------

    \244\ See, e.g., Federated Hermes Letter, at 2; Letter from 
Ji[rcaron][iacute] Kr[oacute]l, Deputy CEO, Global Head of 
Government Affairs, Alternative Investment Management Association 
(Jan. 7, 2022) (``AIMA Letter 1''), at 5; RMA Letter, at 5; ICI 
Letter 1, at 7; ABA Letter, at 4.
    \245\ See, e.g., RMA Letter, at 15.
    \246\ See, e.g., Publication or Submission of Quotations Without 
Specified Information, Release No. 34-89891 (Sept. 16, 2020), 85 FR 
68124 at 68125 (Oct. 27, 2020) (Adopting Release) (``However, in 
other cases, there is no or limited current public information 
available about certain issuers of quoted OTC securities to allow 
investors or other market participants to make informed investment 
decisions.'').
    \247\ See infra Part IX.C.1 (discussing the benefits of 
increased transparency in less liquid lending markets).
---------------------------------------------------------------------------

    Commenters also requested clarification regarding which types of 
securities would be reportable,\248\ and some suggested limiting the 
scope of reportable securities. For example, one commenter suggested 
limiting the scope to equities for a period of time while the 
Commission evaluates whether to expand the scope of reporting to 
additional asset classes.\249\ Another commenter stated that the final 
rule should ``capture the most relevant and appropriate securities for 
the reporting regime [referring to equity securities] while not 
precluding the inclusion of other securities over time as the SEC and 
market participants gain more experience with the reporting regime.'' 
\250\ The definition of the term ``reportable security'' in the final 
rule is not limited to equities for the reasons discussed below, in 
this part. The definition of the term ``reportable

[[Page 75660]]

security'' in paragraph (j)(3) of the final rule will help provide 
certainty to non-U.S. borrowers and lenders regarding the securities 
that are within the scope of the final rule (i.e., securities or any 
class of an issuer's securities for which information is reported or 
required to be reported to the CAT, TRACE, or RTRS, or any reporting 
system that replaces one of these systems). In addition, Part VII.M 
below discusses the domestic application of the final rule, which 
should also help provide certainty to non-U.S. borrowers and lenders 
transacting in securities that are primarily relevant in non-U.S. 
markets about the application of the final rule. With respect to taking 
a measured approach in introducing data reporting and dissemination 
into the marketplace, the Commission is establishing the specific 
compliance dates discussed below in Part VIII. Such compliance dates 
should provide adequate time for covered persons to implement systems 
for data reporting and for RNSAs to implement data dissemination 
systems. Another commenter recommended that the Commission begin with 
reporting requirements for loans of U.S. equity securities because such 
loans ``mostly occur on electronic trading platforms, making the 
generation of trade data for these loans more straightforward than 
loans of other asset classes.'' \251\ As discussed above, the 
Commission has provided a compliance date that will provide adequate 
time for covered persons to comply with the final rule, even for loans 
of securities that may not occur on an electronic trading platform, and 
will not further delay transparency for OTC investors, which are 
primarily retail.\252\
---------------------------------------------------------------------------

    \248\ See, e.g., BlackRock Letter, at 2 (``as securities lending 
market dynamics differ by the asset class, we recommend the 
Commission provide further clarity on which asset classes are in 
scope''); ICI Letter 1, at 6.
    \249\ See ICI Letter 1, at 7.
    \250\ See RMA Letter, at 17 (supporting an initial definition of 
``securities'' to include ``equity securities that are part of the 
national market system'' because that definition ``captures the most 
relevant and appropriate securities for the reporting regime while 
not precluding the inclusion of other securities over time as the 
SEC and market participants gain more experience with the reporting 
regime'').
    \251\ BlackRock Letter, at 9.
    \252\ See Andrew Ang et al., Asset Pricing in the Dark: The 
Cross-Section of OTC Stocks, 26 Rev. Fin. Stud. 2985-3028 (2013).
---------------------------------------------------------------------------

    Some commenters requested a phased approach to the overall 
implementation of the final rule, which is discussed below, in Part 
VIII, including a recommendation that implementation of the final rule 
begin with loans of equity securities.\253\ However, current lending 
systems include data on loans of fixed income securities.\254\ Thus, 
lenders should generally be accustomed to providing and analyzing data 
on loans of fixed income securities. Further, as discussed below, in 
Part VIII, such a phased approach is not provided for in the final rule 
because it would unduly delay the public availability of Rule 10c-1a 
information and limit the initial benefits of the final rule.
---------------------------------------------------------------------------

    \253\ See infra note 688 and accompanying text.
    \254\ See Equilend Letter, at 1 (Data Explorers was acquired by 
S&P Global and manages a dataset of over $37 trillion of global 
securities from 20,000 institutional funds, and over three million 
intraday transactions), available at https://www.spglobal.com/marketintelligence/en/mi/products/securities-finance.html.
---------------------------------------------------------------------------

    One commenter suggested excluding debt from the proposed rule, 
particularly corporate debt and asset-backed securities, which the 
commenter described as having small issuance sizes, diverse 
characteristics, and a small number of lending transactions.\255\ 
However, information about loans on such securities will be beneficial 
to lenders, investors, and regulators precisely because of such 
characteristics. Data on such loans may be useful for lenders to assess 
rates and for regulators and investors to understand the lending market 
for such securities. For example, market participants will be able to 
use the information made publicly available by the final rule and pool 
such information across debt securities to help market participants 
compare the terms of a loan of one debt security with loans of other 
debt securities that have similar characteristics or time horizons. 
Thus, including debt securities in the final rule will help improve the 
ability of market participants to benchmark their loans of debt 
securities.
---------------------------------------------------------------------------

    \255\ See RMA Letter, at 16.
---------------------------------------------------------------------------

    The Commission also received comment regarding the size of the debt 
market. One commenter stated that ``[w]hile the number of publicly 
traded equity securities of U.S. issuers is around 3,600, there are 
over two million unique issuances of corporate and government bonds and 
asset-backed securities in circulation.'' \256\ The same commenter 
stated that utilization rates decrease as products become more 
individualized and there is only a small market for shorting 
bonds.\257\ Less liquid markets should benefit from the increased 
transparency provided by the final rule because improving securities 
lending transparency, even in the debt market, can lead to reduced 
information asymmetry and increased pricing efficiency.\258\
---------------------------------------------------------------------------

    \256\ RMA Letter, at 16.
    \257\ See RMA Letter, at 16.
    \258\ See infra Part IX.C.1 (discussing how the final rule will 
affect markets with low lending volume such as corporate bonds).
---------------------------------------------------------------------------

    One commenter suggested excluding government securities from the 
proposed rule because ``there is sufficient liquidity and demand for 
these securities on platforms and venues that have a high degree of 
transparency,'' but did not provide details regarding the transparency 
of the platforms and venues.\259\ As discussed below, in Part IX.B.2, 
there is some transparency in the government securities lending market, 
but some information may not be as timely or as robust (i.e., the data 
may contain aggregated volume information) as under the final rule. The 
final rule includes loans of U.S. Government securities between market 
participants to help ensure that comprehensive and timely information 
about these loans is made publicly available so that market 
participants in the government securities lending market benefit from 
increased transparency.
---------------------------------------------------------------------------

    \259\ RMA Letter, at 16.
---------------------------------------------------------------------------

    Some commenters requested clarification on whether ``crypto 
assets'' or as some commenters referred to them, ``cryptocurrencies'' 
would be covered by proposed Rule 10c-1.\260\ A crypto asset, which is 
also sometimes referred to as a ``digital asset,'' may meet the 
definition of a ``security'' under the federal securities laws.\261\ As 
defined in the final rule, paragraph 10c-1a(j)(3) applies to reportable 
securities, which are securities for which transactions are reported to 
the CAT, TRACE, and RTRS. Accordingly, if a crypto asset is a security 
that meets one of these same criteria, the crypto asset is a reportable 
security.
---------------------------------------------------------------------------

    \260\ See, e.g., James J. Angel Letter, at 5; Letter from Jay 
Rivera (Mar. 2, 2022); Letter from Treveri Capital LLC (Dec. 22, 
2021) (``Treveri Capital Letter''), at 1.
    \261\ See, e.g., Report of Investigation Pursuant to Section 
21(a) of the Securities Exchange Act of 1934: The DAO, Release No. 
34-81207 (July 25, 2017) (``DAO 21(a) Report''), available at 
https://www.sec.gov/litigation/investreport/34-81207.pdf. See also 
SEC v. W.J. Howey Co., 328 U.S. 293 (1946).
---------------------------------------------------------------------------

    One commenter believed that infrequent lending of debt securities 
could result in a ``far greater risk of loss of anonymity and the use 
of such data to anticipate or reverse engineer the trading of 
competitors.'' \262\ The final rule's requirements for end-of-day 
reporting of data elements and loan modification data elements in 
paragraphs (c) and (d) and delaying the publication of loan amount and 
modifications to loan amount in paragraph (g) should help reduce the 
potential to anticipate and reverse engineer the trading of 
competitors. In addition, paragraph (g)(4) of the final rule requires 
that following the receipt of confidential information pursuant to 
paragraph (e) ``an RNSA shall keep such information confidential, in 
accordance with the provisions of paragraph (h) of this section and 
applicable law.'' \263\ Further, 17 CFR 240.10c-1a(h)(4) (``final Rule 
10c-1a(h)(4)'') requires that an RNSA ``[e]stablish, maintain, and 
enforce reasonably designed written

[[Page 75661]]

policies and procedures to maintain the security and confidentiality of 
confidential information required by paragraph (e) of this section.'' 
\264\ Thus, the only existing RNSA's experience with managing nonpublic 
information, coupled with the explicit requirements for protecting 
confidential information in paragraphs (g)(4) and (h)(4) of the final 
rule, will help ensure that an RNSA implements data security measures 
that will protect anonymity.
---------------------------------------------------------------------------

    \262\ RMA Letter, at 16.
    \263\ Final Rule 10c-1a(g)(4).
    \264\ Final Rule 10c-1a(h)(4).
---------------------------------------------------------------------------

E. Scope of Transactions Required To Be Reported--Rule 10c-1a(j)(2)

Proposed Rule
    The Commission proposed that any person that ``loans a security'' 
on behalf of itself or another person shall provide Rule 10c-1 
information to an RNSA.\265\ The Commission did not define the term 
``loans a security,'' but requested comment on whether a definition was 
necessary.\266\ In the Proposing Release, the Commission stated its 
preliminary belief that any person that loans a security on behalf of 
itself or another person should be required to provide the material 
terms to an RNSA to ensure that proposed Rule 10c-1 is appropriately 
``designed to increase the transparency of information available to 
brokers, dealers, and investors, with respect to the loan or borrowing 
of securities.'' \267\
---------------------------------------------------------------------------

    \265\ See proposed Rule 10c-1(a).
    \266\ See Proposing Release, 86 FR 69808 (Question 8).
    \267\ See Proposing Release, 86 FR 69807. See also Public Law 
111-203, sec. 984(b), 124 Stat. 1376 (2010).
---------------------------------------------------------------------------

Final Rule
    Many commenters requested clarification of the scope of securities 
loan transactions to which the rule's reporting requirements would 
apply.\268\ One commenter stated that the proposed rule sought to 
regulate ``a host of transactions that do not involve the `loan or 
borrowing of securities.' '' \269\ Other commenters recommended that a 
definition of the term ``loans a security'' refer only to lending for a 
particular purpose.\270\ Some of those commenters expressed concerns 
about including data for loans that were not considered traditional 
loans in the industry, particularly loans for which the parties did not 
enter into a written contract or transfer collateral, and that such 
loans might ``skew the data and negatively impact the utility of the 
information provided.'' \271\ Other commenters recommended that the 
final rule include a defined term for the types of transactions that 
are covered by the rule.\272\
---------------------------------------------------------------------------

    \268\ See, e.g., Fidelity Letter, at 2; SIFMA Letter 1, at 9; 
Letter from Wim Mijs, CEO, European Banking Federation (Jan. 17, 
2022) (``EBF Letter''), at 1; Citadel Letter, at 4.
    \269\ See Citadel Letter, at 12.
    \270\ See, e.g., CASLA Letter, at 2 (recommending ``a definition 
of `securities loan' . . . based on the purpose of a loan'').
    \271\ See, e.g., BlackRock Letter, at 6-7.
    \272\ See, e.g., Fidelity Letter, at 2; Sharegain Letter, at 3; 
Letter from Kenneth E. Bentsen, Jr., President and CEO, SIFMA (Apr. 
1, 2022) (``SIFMA Letter 2''), at 3; Letter from Lindsey Weber 
Keljo, Asset Management Group--Acting Head, SIFMA Asset Management 
Group (Jan. 7, 2022) (``SIFMA AMG Letter''), at 9; CASLA Letter, at 
2; EBF Letter, at 1; RMA Letter, at 14-15; IIB Letter, at 9; FIF 
Letter, at 2-3.
---------------------------------------------------------------------------

    To address commenters seeking greater clarity and commenters 
recommending a definition as to what types of transactions are required 
to be reported, the final rule includes a definition of the term 
``covered securities loan'' to mean ``a transaction in which any person 
on behalf of itself or one or more other persons, lends a reportable 
security to another person,'' with certain exceptions.\273\ As 
discussed below, in this part, the exceptions remove from the scope of 
the final rule's reporting requirements certain clearing agency 
positions \274\ and certain uses of margin securities by a broker or 
dealer \275\ that are not consistent with, or traditionally recognized 
as, securities lending transactions.
---------------------------------------------------------------------------

    \273\ See final Rule 10c-1a(j)(2).
    \274\ See final Rule 10c-1a(j)(2)(ii).
    \275\ See final Rule 10c-1a(j)(2)(iii).
---------------------------------------------------------------------------

    The Commission received a comment recommending that the term 
``loans a security'' be limited to lending to unaffiliated 
borrowers.\276\ Other commenters suggested that information on 
securities lending transactions between affiliates not be disseminated 
under the rule,\277\ with one stating that, ``loans between a broker-
dealer and its affiliates, may not represent the actual rates available 
in the securities lending market and therefore could cause confusion 
and lead to misinterpretation if published.'' \278\ The Commission does 
not agree that it would be appropriate to exclude loans to affiliated 
borrowers from the scope of the final rule. Inter-affiliate loans may 
be arms-length transactions and excepting such loans would result in 
the loss of data relevant to the lending market.\279\
---------------------------------------------------------------------------

    \276\ See SIFMA AMG Letter, at 9 (recommending a definition of 
the term ``loans a security'' to mean to ``enter into a transaction 
in which one person, on behalf of itself or another person . . . 
will temporarily lend to an unaffiliated person,'' among other 
things).
    \277\ See, e.g., SIFMA Letter 1, at 15; RMA Letter, at 15; CASLA 
Letter, at 2; IIB Letter, at 10.
    \278\ See SIFMA Letter 1, at 15. See also RMA Letter, at 15 
(stating that ``inter-affiliate loans frequently do not represent 
market prices and should be excluded from such dissemination'').
    \279\ To reduce any potential confusion and misinterpretation of 
the data, an RNSA could determine to, if it is able, develop 
methodologies to separate or identify such loans.
---------------------------------------------------------------------------

    In addition, an exclusion for inter-affiliate loans could result in 
market practices to circumvent reporting obligations. For instance, in 
arranged financing, a broker or dealer ``may offer arranged financing 
programs (sometimes called `enhanced lending' or `short arranging 
products') through which a customer can borrow shares from the firm's 
domestic or foreign affiliate and use those shares to close out a short 
position in the customer's account.'' \280\ In describing arranged 
financing, a market participant has stated that ``[w]ith respect to . . 
. arranged financing/enhanced lending models at member firms, certain 
ones may involve the loan of shares to customers from domestic 
affiliates and others may involve the loan of shares to customers from 
foreign affiliates.'' \281\ Thus, if the broker or dealer agrees to 
provide a customer the covered securities loan through an affiliate, 
such as a foreign affiliate, an exclusion for inter-affiliate loans 
could exclude the securities loan entirely. Moreover, one researcher 
has observed that ``owners of large portfolios . . . often conduct 
their own lending programs with an affiliated agent lender . . . .'' 
\282\ An exclusion for inter-affiliate loans would not capture such 
loans. Therefore, under the final rule a covered person is required to 
report covered securities loans with affiliates.
---------------------------------------------------------------------------

    \280\ See FINRA Regulatory Notice 21-19 (June 4, 2021), 
available at https://www.finra.org/rules-guidance/notices/21-19.
    \281\ See, e.g., Robert Toomey, Managing Director, and Joseph 
Corcoran, Managing Director, SIFMA, SIFMA Comment on Short Interest 
Position Reporting Enhancements and Other Changes Related to Short 
Sale Reporting (FINRA Regulatory Notice 21-19) (Sept. 30, 2010), 
available at https://www.sifma.org/wp-content/uploads/2021/10/SIFMA-Comments-on-FINRA-RN-21-19-Final.pdf.
    \282\ See, e.g., BIS Working Papers No. 768: Over-the-Counter 
Market Liquidity and Securities Lending, Nathan Foley-Fisher, et 
al., Bank of International Settlement (Feb. 2019), available at 
https://www.bis.org/publ/work768.pdf.
---------------------------------------------------------------------------

    Certain commenters recommended that a definition of the term 
``loans a security'' refer only to transactions made pursuant to a 
written lending agreement \283\ or documented as a securities loan on 
the lender's books

[[Page 75662]]

and records.\284\ One commenter stated that such an approach would 
``ensure consistent reporting and avoid confusion and misinterpretation 
of data by the public.'' \285\ Another commenter stated that it could 
avoid ``the public dissemination of incomplete, inaccurate, and 
misleading information that could have an adverse impact on the 
securities lending market.'' \286\ The Commission disagrees that the 
definition of the term ``covered securities loan'' should require that 
the transaction be agreed to pursuant to a written securities lending 
agreement such as the Master Securities Loan Agreement, or a 
transaction documented as a securities loan on a lender's books and 
records. Such a requirement could provide an easy way to avoid the 
requirement, particularly for unregulated entities not otherwise 
subject to documentation and books and records requirements. Moreover, 
such a requirement could cause competitive harm to entities that are 
subject to such requirements or who follow such practices as risk 
management tools. Requiring the reporting of only securities loans made 
pursuant to a written agreement or subject to a covered person's books 
and records requirements would create confusion by introducing such 
distinctions, which may be interpreted or applied differently across 
the different types of persons that meet the definition of ``covered 
person.'' Additionally, such requirements would result in data that 
excludes reporting by covered persons that do not use written 
agreements or have books and records requirements. Such gaps in the 
data could contribute to the misinterpretation of data by the public, 
instead of ameliorating it as the commenter suggests.\287\ Thus, the 
final rule covers a wide variety of loans without limitation as to a 
particular loan's design or structure by including all loans that occur 
when a covered person ``agrees to a covered securities loan.'' \288\
---------------------------------------------------------------------------

    \283\ See, e.g., SIFMA Letter 1, at 10; SIFMA AMG Letter, at 9; 
RMA Letter, at 15; Federated Hermes Letter, at 2 (recommending to 
``limit reporting only to traditional lending agreements made 
pursuant to the Master Securities Loan Agreement''); S3 Partners 
Letter, at 10-11.
    \284\ See, e.g., SIFMA Letter 1, at 3; SIFMA AMG Letter, at 9.
    \285\ See SIFMA Letter 1, at 3.
    \286\ SIFMA AMG Letter, at 2.
    \287\ See SIFMA Letter 1, at 3.
    \288\ See final Rule 10c-1a(a). The final rule's requirement 
that a covered person who ``agrees to'' a covered securities loan 
must report Rule 10c-1a information to an RNSA (or rely on a 
reporting agent to do so) is designed to be broad regarding when a 
securities loan is required to be reported. This is designed to 
ensure that differently structured securities loans are captured by 
the final rule to prevent evasion (e.g., by not including specific 
characteristics, like a written agreement, that can be easily 
avoided), and to prevent undue delay of reporting (e.g., by not 
requiring that the loan be settled, which may take days or longer 
after the material terms of a securities loan have been agreed to).
---------------------------------------------------------------------------

    Some commenters recommended that the term ``loans a security'' 
specifically refer to the temporary lending of securities against a 
transfer of collateral.\289\ One of the commenters stated that such a 
provision would help ``ensure consistent reporting and avoid confusion 
and misinterpretation of data by the public.'' \290\ Another stated 
that defining the term ``loan of securities'' to include a transfer of 
collateral would ``better achieve the Commission's goals'' by avoiding 
``the public dissemination of incomplete, inaccurate, and misleading 
information.'' \291\ Such a definition would have been consistent with 
the Proposing Release's statement that a securities loan is typically a 
fully collateralized transaction.\292\ However, the proposed rule did 
not limit the application of its reporting requirements to securities 
loans that were fully collateralized, as it was designed to capture all 
loans of securities and provide a more complete and timely picture of 
trading for securities loans.\293\ While the provision of collateral is 
currently a common industry practice for securities loans, it is not 
necessarily a characteristic of all securities loans. For example, some 
lenders may structure securities loans to include a bank guaranty, 
insurance policy, or other credit enhancement in lieu of 
collateral.\294\ Therefore, limiting the scope of loans covered by the 
final rule to only include lending against a transfer of collateral 
could leave certain loans out of the scope of the final rule's 
reporting requirements. The exclusion of uncollateralized loans could 
decrease the availability of pricing and activity information in the 
securities lending market, resulting in the reporting and dissemination 
of incomplete, inaccurate, and misleading information for which the 
commenters voiced concern.\295\ Furthermore, the reporting of 
uncollateralized loans would provide additional data to market 
participants, and would not result in misleading duplicative 
information like other types of transactions that are discussed below 
in this part (e.g., loans arising from certain clearing agency 
services). Additionally, such a restriction could incentivize market 
participants to use credit enhancement mechanisms that differ from 
collateral (e.g., bank guaranties or insurance policies) in order to 
avoid the final rule's reporting requirements. Therefore, the scope of 
final Rule 10c-1a's reporting requirements is not limited to only 
include loans against a transfer of collateral.\296\
---------------------------------------------------------------------------

    \289\ See, e.g., SIFMA Letter 1, at 16; SIFMA AMG Letter, at 9; 
RMA Letter, at 15.
    \290\ See SIFMA Letter 1, at 3.
    \291\ See SIFMA AMG Letter, at 2.
    \292\ See Proposing Release, 86 FR 69804.
    \293\ See Proposing Release, 86 FR 69812.
    \294\ See, e.g., 17 CFR 240.15c3-3(b)(3)(iii) (``Rule 15c3-
3(b)(3)(iii)'') (stating that a broker or dealer borrowing fully 
paid or excess margin securities ``[m]ust provide to the lender, 
upon the execution of the agreement or by the close of the business 
day of the loan if the loan occurs subsequent to the execution of 
the agreement, collateral, which fully secures the loan of 
securities, consisting exclusively of cash or United States Treasury 
bills and Treasury notes or an irrevocable letter of credit issued 
by a bank'').
    \295\ See SIFMA AMG Letter, at 2; SIFMA Letter 1, at 3.
    \296\ But see supra note 148 (discussing requirements for the 
provision of collateral by borrowers in the instance of fully paid 
and excess margin securities).
---------------------------------------------------------------------------

    One commenter recommended that the Commission limit the scope of 
the rule's reporting requirements to securities loans where a lender 
seeks to earn compensation or a return from the transaction.\297\ The 
commenter stated that, ``[l]imiting the scope in such a way would help 
focus reporting on primary transactions of interest, where the borrower 
is seeking to `gain access to the security itself,' and distinguish it 
from repurchase and other agreements, which are `typically used for 
short-term financing.' '' \298\ Another commenter proposed limiting the 
scope of securities loans to transactions in which a borrower obtains 
use of the securities for a fee.\299\ However, a limitation of the 
final rule's reporting requirements to only securities loans made by a 
lender seeking to earn compensation or a return from the transaction, 
or for a fee could potentially result in evasion, as securities loans 
could be structured (e.g., via over-collateralization, haircuts, or use 
of non-cash collateral with varying maturities, credit ratings, or 
income characteristics) to avoid the identification of a fee. At the 
very least, such a requirement could result in confusion or 
inconsistent reporting as market participants may interpret differently 
the loan structures that incorporate a fee or are made by lenders

[[Page 75663]]

seeking to earn compensation or a return from the transaction. If the 
final rule only applied to securities loans agreed to for compensation, 
a fee, or for the purpose of earning a return, securities loans made to 
affiliates could be structured to fall outside the final rule's 
reporting requirement (i.e., made without an expectation of return or 
for no fee), while a loan still would have occurred, and the affiliate 
would still benefit from possession of the loaned securities. Further, 
the final rule does not exclude securities loans based on the purpose 
or duration of the loan, such as for ``short-term financing,'' in order 
to capture a wide variety of loans regardless of purpose or duration. 
Finally, the final rule provides that a covered securities loan is a 
transaction in which a person lends a reportable security, which 
distinguishes covered securities loans from other agreements.
---------------------------------------------------------------------------

    \297\ See, e.g., ABA Letter, at 3 (recommending ``[t]he SEC 
should define covered securities lending transactions to those where 
the lender is seeking to earn compensation from the transaction'').
    \298\ See ABA Letter, at 3-4 (quoting the Proposing Release, 86 
FR 69844 n.246). See also infra in this part, a discussion of final 
Rules 10c-1a(j)(2)(iii) and (j)(2)(iii)(A) and the exclusion from 
the final rule's reporting requirements of certain uses of margin 
securities by a broker or dealer, which can include ``funding 
trades,'' repurchase agreements, and uses of margin securities that 
are not a loan to another person (e.g., rehypothecation).
    \299\ See BlackRock Letter, at 7 (recommending ``the SEC should 
limit the scope to traditional securities lending transactions where 
the parties have entered into the loan transaction in order for a 
borrower to obtain use of the securities for a fee'').
---------------------------------------------------------------------------

    Multiple commenters were concerned that the proposed rule would 
require that short sales or short positions be reported as securities 
loans. Such commenters requested clarification of whether the proposed 
rule would treat short sales as loans of securities.\300\ To provide 
such clarification, under the final rule covered persons will not be 
required to report short sales as defined by 17 CFR 242.200(a) (``Rule 
200(a)''),\301\ but will be required to report loans that are used for 
short sales.
---------------------------------------------------------------------------

    \300\ See Citadel Letter, at 4 (stating that ``[t]he scope of 
the Commission's proposal is unclear'' and that ``[c]ustomer short 
sales . . . are not typically documented under securities lending 
agreements, booked as securities loans, or treated as securities 
loans for financial reporting purposes''); See also Fidelity Letter, 
at 3 (stating that ``inclusion of short positions in the required 
reporting . . . would be inappropriate from a securities lending 
market perspective, as well as potentially misleading, as it could 
result in inaccurate double counting of loans''); IHS Markit Letter, 
at 3 (stating that securities loans and short sales ``are two 
separate and distinct markets with different drivers, participants, 
and data points and should not be conflated''); SIFMA Letter 1, at 
9-12 (recommending that the Commission exclude short positions from 
the scope of loans required to be reported to an RNSA); AIMA Letter 
1, at 3-4; Letter from Ji[rcaron][iacute] Kr[oacute]l, Deputy CEO, 
Global Head of Government Affairs, Alternative Investment Management 
Association (Apr. 1, 2022) (``AIMA Letter 2''), at 3 (short 
positions would be reported under the rule proposed by the 
Commission pursuant to section 929X of the Dodd-Frank Act); Letter 
from Richard Karoly, Managing Director, Legal, Charles Schwab & Co., 
Inc. (Jan. 7, 2022) (``Charles Schwab Letter''), at 1-2 (short 
positions are already reported under other reporting regimes such as 
FINRA's Rule 4560. Short-Interest Reporting); MFA Letter 3, at 4 
(stating that the Commission should ``distinguish short positions 
from stock loans''). The Commission agrees with commenters who 
stated that short positions are not subject to a written securities 
lending agreement, nor carried on a firm's books and records as 
securities loans, nor treated as securities loans for financial 
reporting purposes. See, e.g., FIF Letter, at 2-3; See also SIFMA 
AMG Letter, at 5 (stating that short positions are ``similar in some 
respects but are outside of the securities lending activity'' 
targeted by the proposed rule).
    \301\ Rule 200(a) provides, ``The term short sale shall mean any 
sale of a security which the seller does not own or any sale which 
is consummated by the delivery of a security borrowed by, or for the 
account of, the seller.''
---------------------------------------------------------------------------

    The Commission stated in the Proposing Release that it was not 
proposing to include repurchase and sale agreements (commonly known as 
``repos'') within the scope of the proposed rule because section 984 of 
the Dodd-Frank Act focuses on the loan or borrowing of securities.\302\ 
The Proposing Release detailed distinctions between the typical 
securities lending and repo markets, including that repos typically are 
primarily used for short-term financing while other securities loans 
typically are used to gain access to the security itself, and that 
loans generally allow the lender to recall the security on demand while 
repos do not.\303\ Some commenters agreed with the Commission, 
recommending that repos should not fall within the meaning of the term 
``loans a security'' in the proposed rule.\304\ One commenter suggested 
that loans of a security should be distinguished from repos.\305\ 
However, one commenter stated that there is ``significant overlap in 
the functionality between repos and securities lending transactions.'' 
\306\ The commenter also suggested ``a broad anti-evasion provision 
that prohibits any person from engaging in any practice intended to 
evade the rule's reporting requirements.'' \307\ The same commenter 
recommended defining the term ``securities loan'' to include 
repos.\308\ The Office of Financial Research (``OFR'') recently 
proposed a rule to collect data on repos.\309\ Accordingly, at this 
time, it is not necessary to include repos within the scope of the 
final rule's information reporting requirements, as a potential OFR 
rule, if adopted, could address any potential reporting gaps, thereby 
reducing the incentives to evade final Rule 10c-1a.
---------------------------------------------------------------------------

    \302\ See Proposing Release, 86 FR 69803 n.2.
    \303\ See Proposing Release, 86 FR 69843 n.246.
    \304\ See, e.g., SIFMA Letter 1, at 9 (noting that ``the 
Commission is not intending to include within the scope of the 
Proposed Rule the entry into repurchase agreements, which we believe 
is the proper approach''); SIFMA Letter 2, at 3; BlackRock Letter, 
at 2 (describing securities lending market trades as ``transactions 
whereby a lender lends securities to a borrower in exchange for 
collateral but excluding repurchase transactions where the purpose 
of the trade is to provide cash financing in exchange for non-cash 
collateral'').
    \305\ See ABA Letter, at 3-4 (stating that ``[t]he SEC should 
define covered securities lending transactions . . . and distinguish 
it from repurchase and other agreements'').
    \306\ See Better Markets Letter, at 10. See also James J. Angel 
Letter, at 6-7.
    \307\ See Better Markets Letter, at 10. See also S3 Partners 
Letter, at 11 (expressing concern with securities lending 
transactions being repapered as repos); James J. Angel Letter, at 7 
(stating that ``[t]he final rule needs to define securities lending 
in such a way that it deters such evasion, while not ensnaring 
normal repo in the reporting requirements'').
    \308\ See Better Markets Letter, at 10 (``Accordingly the SEC 
should consider . . . a definition of `securities loan' or 
`securities lending' that will ensure sufficient coverage of 
relevant transactions, i.e., those where securities are temporarily 
transferred from one party to another, for compensation, with a 
commitment to return those securities in the future'').
    \309\ See, e.g., OFR Factsheet: OFR's Proposed Data Collection 
(Mar. 2023), available at https://www.financialresearch.gov/data/files/NCCBR_factsheet.pdf; Office of Financial Research Releases 
Proposal to Collect Data on Certain Repo Transactions (Jan. 5, 
2023), available at https://www.financialresearch.gov/press-releases/2023/01/05/office-of-financial-research-releases-proposal-to-collect-data-on-certain-repo-transactions.
---------------------------------------------------------------------------

    The Commission also received comment requesting that the final rule 
``make clear that the novation and processing of a securities lending 
transaction by a registered clearing agency does not give rise to a new 
loan or the modification of an existing loan subject to reporting under 
Rule 10c-1.'' \310\ The same commenter also stated that ``[n]ovation is 
. . . the legal mechanism through which NSCC guarantees to each 
counterparty the performance of the obligations under a transaction 
that the counterparties already negotiated and executed away from the 
NSCC and that was already subject to a reporting obligation.'' \311\ 
Another commenter directly responded to the Proposing Release's request 
for comment asking whether the Commission should define what it means 
to ``loan a security.'' \312\ The commenter stated that the definition 
should ``expressly exclude loan positions that result from the central 
counterparty novation function that a clearing agency like OCC provides 
to securities loans.'' \313\ The commenter, which is an SEC-registered 
clearing agency, also stated that it ``does not have access to the 
majority of information sought under proposed Rule 10c-1 . . . and, 
therefore could not report such information to an RNSA.'' \314\ The 
Commission agrees with the commenters' recommendations that positions 
that result from central counterparty services by a clearing agency, 
including the novation and processing of a securities lending 
transaction, should not give rise to any

[[Page 75664]]

reporting obligation under the final rule, including the requirement to 
report loan modification data elements under paragraph (d) of the final 
rule. As discussed above, in Part VII.A, clearing agencies providing 
the functions of a central counterparty or central securities 
depository do not lend or borrow shares on their own behalf, but 
instead novate or process the loans of lenders and borrowers (i.e., 
central counterparty or central securities depository services) for the 
purpose of efficient clearance and settlement.\315\ Although novation 
of the loan by the clearing agency technically creates a new loan in 
which the clearing agency would step into the shoes of the 
counterparties,\316\ the clearing agency would not be modifying the key 
terms of the loan (other than changing the identities of the 
counterparties to that of the clearing agency), such as the rate or 
size, and requiring clearing agencies to report such loans would result 
in the misleading appearance of additional loan volume containing 
otherwise duplicative loan information.\317\ Therefore, the final rule 
excludes from the ``covered securities loan'' definition ``a position 
at a clearing agency that results from central counterparty services 
pursuant to Rule 17Ad-22(a)(2) of the Exchange Act or central 
securities depository services pursuant to Rule 17Ad-22(a)(3) of the 
Exchange Act.'' \318\
---------------------------------------------------------------------------

    \310\ See DTCC Letter, at 3; See also OCC Letter, at 10.
    \311\ See DTCC Letter, at 4.
    \312\ See Proposing Release, 86 FR 69808 (Question 8).
    \313\ See OCC Letter, at 12.
    \314\ See OCC Letter, at 12.
    \315\ See DTCC Letter, at 1 (stating that the ``processing of a 
securities loan transaction, including through novation and netting, 
does not constitute a modification or a new transaction for 
reporting purposes. Such processing does not constitute new market 
activity or modify the material economic terms of the transaction, 
which the parties will have already reported'' and that ``[n]ovation 
is simply the legal mechanism through which NSCC guarantees to each 
counterparty the performance of the obligations under a transaction 
that the counterparties already negotiated and executed away from 
NSCC and that was already subject to a reporting obligation'').
    \316\ Under Rule 17Ad-22(a)(2), a clearing agency performs the 
functions of a central counterparty when it interposes itself 
between the counterparties to securities transactions, acting 
functionally as the buyer to every seller and the seller to every 
buyer.
    \317\ See final Rule 10c-1a(j)(2)(ii). If a clearing agency 
acted on behalf of the beneficial owner of the loaned security to 
effect a covered securities loan, then the clearing agency would be 
a ``covered person'' under paragraph (j)(1)(i) of the final rule.
    \318\ See final Rule 10c-1a(j)(2)(ii).
---------------------------------------------------------------------------

    The Commission also received a comment stating that ``it is not 
uncommon for a lending agent to pool together available supply of a 
given security across multiple lenders in their lending program'' to 
satisfy a large loan of securities and reallocate such loan among the 
lenders in the program, as the inventory of individual lenders changes, 
to avoid recalling a loan.\319\ The commenter also stated that, in such 
instances, ``[g]iven no change in the economics of the trade or any 
physical movement of securities, these intraday record entries are not 
market trades and should not be reported as such.'' \320\ However, the 
proposed rule did not limit its information reporting requirements to 
securities loans arising from ``market trades'' or the ``physical 
movement of securities,'' neither of which the commenter has defined or 
described in the context of the securities lending market. Changing the 
party or parties to a covered securities loan, which is required to be 
confidentially reported under 17 CFR 240.10c-1(e)(1) (``final Rule 10c-
1a(e)(1)''), creates a new covered securities loan that would require 
reporting as a new covered securities loan to an RNSA under final Rule 
10c-1a(a)(1), and not as a modification under final Rule 10c-1a(d). The 
identity of the lender or lenders is a material term of a covered 
securities loan.\321\ The identity of the lender is not made public, 
but is important information for regulatory purposes, such as 
surveillance of activity pertaining to the individual loan.\322\ 
Whether 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 \323\ 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). For 
example, if a lending program as an individual entity is the party that 
is the lender of the covered securities loan, changes to the underlying 
participants, inventory providers, or customers of that lending program 
will not constitute a change to the parties of the covered securities 
loan. In that instance, unlike the lending program, the individual 
participants will not be lenders directly to the borrower of the 
covered securities loan. In that case, where a covered securities loan 
remains open and the only change that occurs is a reallocation among 
the pool's underlying constituents, that is not a change that will 
require reporting as a new covered securities loan or as a modification 
under paragraph (d) because there will be no change to a data element 
in paragraph (c) of the final rule.
---------------------------------------------------------------------------

    \319\ See BlackRock Letter, at 7. See also, SIFMA AMG Letter, at 
10 (stating that ``for bulk loans, reporting at the lending agent 
level rather than the beneficial owner would reflect the actual 
market loan and would avoid the reporting of loan components which 
may shift throughout the allocation process'').
    \320\ BlackRock Letter, at 7.
    \321\ See final Rule 10c-1a(e)(1).
    \322\ If the covered person is a pool (and thus is a lender of 
covered securities), it is the pool that is required to be 
confidentially reported as the party to the covered securities loan 
pursuant to final Rule 10c-1a(e)(1). See also Proposing Release, 86 
FR 69804 (``The data elements provided to an RNSA . . . are also 
designed to provide the RNSA with data that could be used for 
important regulatory functions, including facilitating and improving 
its in-depth monitoring of member activity and surveillance of 
securities markets.'').
    \323\ The term ``pool'' is used here in the same manner it is 
described by the commenter quoted above in this paragraph. See 
BlackRock Letter, at 6-7 (also using the term ``pooled pass-through 
account'').
---------------------------------------------------------------------------

    However, if the multiple, individual participants are all parties 
identified as lenders to the loan, with no lending program or other 
entity interposed between them and the borrower, a change in their 
composition (the removal or addition of a lender) would constitute an 
assignment of the loan and therefore would require reporting as a new 
loan pursuant to final Rule 10c-1a(a)(1). 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.
    One commenter recommended a definition of the term ``loans a 
security'' that would apply at a minimum ``any time the lender loses 
the right to vote the securities during the time of the loan.'' \324\ 
Voting rights do not provide an adequate criterion to define what a 
securities loan is because not all reportable securities necessarily 
carry voting rights (e.g., some preferred stock, options, fixed-income 
securities, and treasuries). However, the facts and circumstances, 
including the loss of voting rights, may be an indicator as to whether 
a transaction is a loan.
---------------------------------------------------------------------------

    \324\ See Morningstar Letter, at 4.
---------------------------------------------------------------------------

    The Commission also received comment letters expressing support for 
limiting the reporting required under the proposed rule to the 
Wholesale market \325\ of the securities lending market.\326\ Some 
commenters

[[Page 75665]]

recommended narrowing the scope of loans to the Wholesale market due to 
what they characterized as potential negative effects on short selling 
from data that could be revealed through loans in the Customer 
market.\327\ One of the commenters stated that ``immediately publicly 
disclosing short selling activity would signal to all other market 
participants that a short position is being established.'' \328\ Such 
concerns are largely addressed by requiring that an RNSA delay public 
disclosure of the loan amount by 20 business days. This modification 
should significantly reduce the novelty of the information disseminated 
under the final rule regarding short sellers' positions, such that it 
is less timely than pre-existing sources of short selling transparency, 
such as FINRA's bimonthly short interest data.
---------------------------------------------------------------------------

    \325\ Traditionally, securities lending and borrowing 
transactions have been conducted on a bilateral basis. Generally, 
when an end investor wishes to borrow securities, and its broker-
dealer does not have those securities available in its own inventory 
or through customer margin accounts to loan, the broker-dealer will 
borrow the securities from a lending agent with whom it has a 
relationship. The broker-dealer will then re-lend the securities to 
its customer. Loans from lending programs to broker-dealers occur in 
what is referred to by market participants as the Wholesale market, 
while loans from a broker-dealer to the end borrower occur in what 
is referred to by market participants as the Customer market (also 
known as the ``retail market''). See Proposing Release, 86 FR 69805. 
For purposes of this release, this market is referred to as the 
Customer market. See supra Part II.
    \326\ See AIMA Letter 1, at 2; AIMA Letter 2, at 3; Citadel 
Letter, at 11; SBAI Letter, at 2; Letter from John L. Thornton, Co-
Chair, Hal S. Scott, President, R. Glenn Hubbard, Co-Chair, 
Committee on Capital Markets Regulation (Jan. 6, 2022) (``CCMR 
Letter''), at 2.
    \327\ See CCMR Letter, at 2; AIMA Letter 1, at 2.
    \328\ See AIMA Letter 1, at 2. See also Letter from 
Ji[rcaron][iacute] Kr[oacute]l, Deputy CEO, Global Head of 
Government Affairs, Alternative Investment Management Association 
(Aug. 11, 2023) (``AIMA Letter 3''), at 4 (stating that ``[b]y 
including loans used to effect short sales in the Securities Lending 
Proposal, the Commission will be making it more expensive to engage 
in short selling'').
---------------------------------------------------------------------------

    Another commenter suggested that retail loans may not be structured 
as securities lending, but rather structured as brokerage agreements, 
and thus may not be suitable for standardized data collection.\329\ 
This commenter may be referring to the use of margin securities by a 
broker or dealer in which the broker or dealer does not lend such 
margin securities to another person (e.g., a rehypothecation).\330\ The 
final rule's exclusion of such uses from the definition of ``covered 
securities loan,'' as discussed below, in this part, should address the 
commenter's concern.
---------------------------------------------------------------------------

    \329\ See SBAI Letter, at 2.
    \330\ See also James J. Angel Letter, at 4 (asking ``when and 
how are loans from customer margin accounts to be reported?'').
---------------------------------------------------------------------------

    A commenter stated that the Commission had not fully explained why 
greater transparency, or transaction-by-transaction data, in the 
Customer market would be valuable.\331\ More broadly, limiting data to 
Wholesale market loans would significantly reduce the benefits of the 
rule stemming from increased transparency into the securities lending 
market. In the Proposing Release, the Commission stated that the rule 
``is designed to address . . . inefficiencies in the securities lending 
market by making more comprehensive information regarding securities 
lending transactions publicly available, which could better protect 
investors by eliminating certain information asymmetries.'' \332\ Data 
regarding Customer market loans will, for example, provide end-
borrowers with valuable information as to the competitiveness of the 
rates they are being charged for their loans. Such data will also 
provide information to customers that have agreed to loan their fully 
paid securities as to the competitiveness of the rates they are 
receiving from brokers or dealers borrowing such securities. Excluding 
such a fundamental part of the securities lending market from the scope 
of transactions to which the rule's reporting requirements apply is 
inconsistent with the Commission's stated goal of making comprehensive 
information regarding securities loans publicly available. Therefore, 
the definition of ``covered securities loan'' in the final rule does 
not distinguish between the Wholesale market and Customer market and is 
not limited to Wholesale market transactions.
---------------------------------------------------------------------------

    \331\ See Citadel Letter, at 9 (using the term ``Retail Market'' 
in place of Customer market). But see Better Markets Letter, at 4 
(stating that ``high short interest can lead to a destabilizing 
short squeeze, which can in turn lead to significant volatility in 
the price of the shorted stock, if not the broader markets . . . If 
regulators and the public had better and more timely information 
about the amount of shares of . . . meme stocks that had been lent 
and borrowed, they may have been able to proactively head off or 
mitigate the impact of the destabilizing events of January 2021 
before they occurred''). See also infra Part IX.C.2 (discussing the 
potential implications of the provision of securities lending 
activity to market participants in and around the market events of 
January 2021).
    \332\ See Proposing Release, 86 FR 69807.
---------------------------------------------------------------------------

    One commenter recommended that the term ``loans a security'' 
specifically refer to securities loaned ``for a permitted purpose 
pursuant to Regulation T of the Board of Governors of the Federal 
Reserve System.'' \333\ However, limiting the final rule's reporting 
requirements to only securities loans made for permitted purposes 
pursuant to Regulation T of the Board of Governors of the Federal 
Reserve System, would be overly narrow as the principal purpose of 
Regulation T is to regulate extensions of credit by brokers and 
dealers.\334\ As the commenter states, the ``permitted purposes'' 
contemplated under section 220.10(a) of Regulation T are limited to 
``allowing the borrower to make delivery of the borrowed securities in 
the case of short sales, failure to receive securities required to be 
delivered, or other similar situations.'' \335\ Regulation T states 
that ``[i]ts principal purpose is to regulate extensions of credit by 
brokers and dealers; it also covers related transactions within the 
Board's authority under the Act. It imposes, among other obligations, 
initial margin requirements and payment rules on certain securities 
transactions.'' \336\ However, the securities loan market includes 
lenders other than brokers and dealers and may involve loans of 
securities for purposes other than short sales, failures to receive 
securities required to be delivered, and similar situations.\337\ 
Furthermore, the purpose of final Rule 10c-1a is to increase the 
transparency of information available to broker, dealers, and 
investors, with respect to the loan and borrowing of securities without 
limitation to the purpose of the loan or borrow, whereas the stated 
purpose of Regulation T is regulating extensions of credit. Thus, 
Regulation T does not provide an appropriate framework to limit final 
Rule 10c-1a's information reporting requirements.
---------------------------------------------------------------------------

    \333\ See SIFMA AMG Letter, at 9.
    \334\ 12 CFR 220.10(a) (``Regulation T'').
    \335\ See SIFMA AMG Letter, at 9 (quoting section 220.10(a) of 
Regulation T).
    \336\ 12 CFR 220.10(a).
    \337\ For example, it is the Commission's understanding that 
securities are borrowed by banks managing liquidity on their balance 
sheet and financial entities obtaining the type of collateral 
required by other agreements they are trying to enter into, and that 
some investors may lend and borrow securities to obtain certain tax 
treatment for dividends and dividend substitutes. See Proposing 
Release, 86 FR 69831.
---------------------------------------------------------------------------

    The Commission also received comment expressing support for a de 
minimis threshold for reporting loans of securities.\338\ In some 
contexts, reporting thresholds may be useful to reduce burdens on 
persons required to report, or to reduce the possibility that 
strategies or identities of reporters will be revealed. However, a de 
minimis reporting threshold is not necessary in light of modifications 
from the proposed rule to require end-of-day \339\ (versus 15 minute) 
reporting, as well as the delay \340\ in publication of size 
information,\341\ which are expected to reduce the possibility that 
strategies or identities of reporting entities will be revealed. 
Including a de minimis threshold, which would primarily affect data for 
smaller securities loans, could provide the public with a distorted 
view of securities loan activity. For example, a large volume of 
relatively small securities loans could constitute a significant amount 
of the overall lending activity for an individual security. 
Alternatively, a single, small securities loan could constitute the 
only outstanding loan for an issuer, and its

[[Page 75666]]

exclusion would leave market participants without information about the 
lending market for the security. The Proposing Release stated that 
``granular information about certain material terms of securities 
lending transactions would allow investors, including borrowers and 
lenders, to evaluate not only the rates for such transactions, but also 
any signals that such rates provide.'' \342\ The public disclosure of 
information for securities lending transactions of all sizes will help 
improve price discovery in the securities lending market.\343\ 
Additionally, providing a de minimis threshold could result in 
avoidance of the final rule's reporting requirements if industry 
participants structure otherwise reportable securities loans into 
smaller tranches in order to fit below a reporting threshold.
---------------------------------------------------------------------------

    \338\ See Federated Hermes Letter, at 2.
    \339\ See, e.g., 17 CFR 240.10c-1a(c)(6) (``final Rule 10c-
1a(c)(6)'').
    \340\ See final Rule 10c-1a(g)(2).
    \341\ See final Rule 10c-1a(c).
    \342\ See also Proposing Release, 86 FR 69804.
    \343\ See infra Part IX.C.1 (stating that ``increased 
information will result in benefits in the form of . . . improved 
market stability and price discovery both in the securities lending 
market and the market for the underlying security''). See also 
Proposing Release, 86 FR 69804.
---------------------------------------------------------------------------

    The Commission received a comment recommending that the final rule 
not capture a ``broker-dealer hypothecation of customer margin \344\ 
securities.'' \345\ Another commenter stated that it understood the 
proposed rule to exclude rehypothecation of a customer's margin 
securities.\346\ When a broker or dealer hypothecates (or uses) 
customer margin securities, the customer is not loaning them to the 
broker or dealer as the customer has already pledged the securities in 
a margin account to the broker or dealer, as collateral for a margin 
loan.\347\ Accordingly, the final rule excludes hypothecation of 
securities, but provides that the loan of such customer margin 
securities by a broker or dealer to another person is a covered 
securities loan.\348\ Specifically, the definition of the term 
``covered securities loan'' under the final rule includes the provision 
that, ``the use of margin securities, as defined in Rule 15c3-3(a)(4) 
of the Exchange Act, by a broker or dealer will not be a covered 
securities loan for purposes of this rule.'' \349\ It also provides 
that ``if a broker or dealer lends such margin securities to another 
person, the loan to the other person is a covered securities loan'' for 
purposes of the final rule.\350\ Therefore, should a broker or dealer 
use a customer's margin securities for purposes other than to lend them 
to another person, such a transaction would not fall within the 
definition of the term ``covered securities loan'' under the final 
rule. Additionally, if a broker or dealer borrows fully paid or excess 
margin securities from a customer, that loan is a covered securities 
loan,\351\ and the broker or dealer borrowing the fully paid securities 
is responsible for reporting the loan to an RNSA.\352\
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    \344\ Margin securities are securities carried for the account 
of a customer in a margin account, as well as securities carried in 
any other account other than securities that are fully paid 
securities. See 17 CFR 240.15c3-3(a)(3) (``Rule 15c3-3(a)(3)'') and 
Rule 15c3-3(a)(4) of the Exchange Act defining the terms ``fully 
paid securities'' and ``margin securities.''
    \345\ See SIFMA AMG Letter, at 5.
    \346\ See SIFMA Letter 1, at 9 n.39.
    \347\ This distinction is made only within the context of a 
broker or dealer's hypothecation (or rehypothecation) of customer 
margin securities. It does not imply that a hypothecation or use of 
securities in a different context could not constitute a loan of 
securities.
    \348\ See final Rule 10c-1a(j)(2)(iii);17 CFR 240.10c-
1a(j)(2)(iii)(A) (``final Rule 10c-1a(j)(2)(iii)(A)'').
    \349\ See final Rule 10c-1a(j)(2)(iii).
    \350\ See final Rule 10c-1a(j)(2)(iii)(A).
    \351\ A broker or dealer must maintain the physical possession 
or control of all fully paid securities and excess margin securities 
carried by the broker or dealer for the accounts of customers. See 
17 CFR 240.15c3-3(b)(1) (``Rule 15c3-3(b)(1)''). Additionally, a 
broker or dealer must enter into a written agreement pursuant to 
Rule 15c3-3(b)(3) in order to not be deemed to be in violation of 
the provisions of Rule 15c3-3(b)(1) when borrowing fully paid or 
excess margin securities from any person. See Rule 15c3-3(b)(3).
    \352\ See final Rule 10c-1a(j)(1)(iii).
---------------------------------------------------------------------------

    The Commission also received comment recommending that the final 
rule not apply to ``funding trades.'' \353\ The commenter further 
stated its belief that such transactions, which are defined as loans of 
cash against securities being pledged as collateral, are not the type 
of activity that should be captured through the proposed rule.\354\ To 
the extent that such funding transactions constitute a use of margin 
securities by a broker or dealer pursuant to paragraph (j)(2)(iii), 
they would not fall within the final rule's definition of ``covered 
securities loan.'' Otherwise, commenters were not specific as to 
whether there would be variations of transactions used to ``fund 
trades.'' The final rule does not specifically exclude transactions to 
``fund trades.'' Whether a transaction to ``fund trades'' is a covered 
securities loan will depend on the facts and circumstances of each 
transaction.\355\
---------------------------------------------------------------------------

    \353\ See SIFMA AMG Letter, at 5. See also SIFMA Letter, at 15; 
BlackRock Letter, at 7 (stating that ``the SEC should limit the 
scope to traditional securities lending transactions where the 
parties have entered into the loan transaction in order for a 
borrower to obtain use of the securities for a fee, rather than to 
provide a lender with cash financing that is collateralized with 
non-cash collateral'').
    \354\ See SIFMA AMG Letter, at 9 (stating that ``[a] `non-
purpose' transfer of securities against cash collateral, 
economically resembles a borrowing of cash by the security's 
`lender' against a pledge of securities collateral to the securities 
`borrower.' However, such transactions are more properly categorized 
as `funding' transactions (as loans of cash against securities being 
pledged as collateral) and, therefore, are not the type of activity 
SIFMA AMG believes the SEC is, or should be, seeking to capture 
through the Proposed Rule.'').
    \355\ See final Rule 10c-1a(j)(2)(i).
---------------------------------------------------------------------------

    After considering commenters' concerns and perspectives regarding 
the proposed scope of transactions for which proposed Rule 10c-1 
reporting would have been required, the final rule defines the term 
``covered securities loan'' to mean ``[a] transaction in which any 
person on behalf of itself or one or more other persons, lends a 
reportable security to another person.'' \356\ Further, in paragraph 
(a) of the final rule, the term ``loans a security'' is replaced with 
the phrase ``agrees to a covered securities loan'' in its reporting 
requirement for covered persons.\357\ In response to commenters' 
request for clarification as to whether a loan should be reported 
before or after it is settled, the term ``agrees to'' clarifies that 
covered securities loans are required to be reported after the parties 
agree to the loan, which is before settlement.\358\
---------------------------------------------------------------------------

    \356\ See final Rule 10c-1a(j)(2)(i).
    \357\ See final Rule 10c-1a(a).
    \358\ See HMA Letter, at 9 (recommending that reporting should 
include effected, but not-yet-settled loans, and stating that ``the 
Commission and FINRA rules have long required reporting of 
securities orders, modification, and trades, not just settled 
transactions, because all of that information is relevant to 
understanding the markets''). But see Fidelity Letter, at 2 
(requesting that the Commission clarify when a loan can be 
considered ``effected'' for purposes of report, and stating that 
``in the marketplace, a securities loan is not considered `effected' 
by the parties until the loan has been contractually booked and 
settled'').
---------------------------------------------------------------------------

    For the reasons described above, in this part, the definition of 
the term ``covered securities loan'' in the final rule further provides 
that ``a position at a clearing agency that results from central 
counterparty services pursuant to Rule 17Ad-22(a)(2) of the Exchange 
Act or central securities depository services pursuant to Rule 17Ad-
22(a)(3) of the Exchange Act will not be a covered securities loan for 
purposes of this rule.'' \359\ The final rule also provides that ``the 
use of margin securities, as defined in Rule 15c3-3(a)(4) of the 
Exchange Act, by a broker or dealer, will not be considered a covered 
securities loan for purposes of this rule,'' provided, however, that 
``if a broker or dealer loans such margin securities, such loan will be 
considered a covered securities loan for purposes of this rule.'' \360\
---------------------------------------------------------------------------

    \359\ See final Rule 10c-1a(j)(2)(ii).
    \360\ See final Rule 10c-1a(j)(2)(iii).
---------------------------------------------------------------------------

    The definition of the term ``covered securities loan,'' in 
conjunction with the definition of the term ``reportable security,'' 
discussed above, in Part VII.D,\361\ sets forth the scope of the final

[[Page 75667]]

rule and distinguishes ``covered securities loans'' from other types of 
transactions that are not required to be disclosed under final Rule 
10c-1a. The final rule's definition of the term ``covered securities 
loan'' will facilitate the public availability of information regarding 
securities lending transactions. The definition's scope, encompassing 
transactions in which any person, on behalf of itself or one or more 
other persons, lends a reportable security to another person, is 
designed to provide market participants, the public, and regulators 
with information that broadly captures activity in the securities 
lending market. The defined scope of transactions required to be 
reported to an RNSA under final Rule 10c-1a will contribute to better 
decision-making by investors, reduced costs of business for brokers or 
dealers, improved performance and reduced costs for lending programs, 
new business opportunities for data vendors, improvements to 
shareholder monitoring, and improved market stability and price 
discovery in the securities lending market.\362\ Additionally, the 
exceptions to the definition of ``covered securities loan'' under the 
final rule should help prevent the double counting of securities loans 
and support the integrity of publicly available data by excluding 
redundant and potentially misleading information.
---------------------------------------------------------------------------

    \361\ See final Rule 10c-1a(j)(3).
    \362\ See infra Part IX.C.1.
---------------------------------------------------------------------------

F. Information To Be Provided to an RNSA

    To facilitate transparency of the securities lending market, the 
Commission proposed Rules 10c-1(b) through (e) to require certain loan-
level data elements (i.e., specified material terms of securities 
loans) to be provided to an RNSA.\363\ Because an RNSA would be 
required to implement rules regarding the format and manner to 
administer the collection of information,\364\ proposed Rule 10c-1 
lists the data elements that persons would be required to provide to an 
RNSA, but does not specify granular instructions for data elements or 
the formatting required for submission of the information to an 
RNSA.\365\
---------------------------------------------------------------------------

    \363\ While pricing-related data elements regarding 
collateralized loans were included in the loan-level data elements 
proposed to be required to be reported to an RNSA, the proposed rule 
did not require that securities lenders or their agents report 
information on how they used collateral. Some commenters stated that 
because of the potential threats to financial stability arising from 
collateral re-use, the Commission should consider requiring that 
securities lenders and their agents report information on how they 
use collateral. See, e.g., Better Markets Letter, at 7-8. (commenter 
stating support for requiring disclosure regarding the type of 
collateral); See Sharegain Letter, at 3 (stating that ``[c]ollateral 
information is essential to understanding fees--e.g., a loan 
collateralized with equities would typically command a higher fee 
than a loan collateralized with US treasuries''); see also IHS 
Markit Letter, at 6-7 (recommending that proposed data elements 
include reporting of a ``trade reference'' and ``lending agent trade 
indicator'').
    \364\ See proposed Rule 10c-1(f).
    \365\ See proposed Rule 10c-1(b). See also Proposing Release, 86 
FR 69813. This is done in order to allow an RNSA the necessary 
flexibility to propose and implement rules regarding the format and 
manner with respect to the collection of information. One commenter 
stated that the proposed rule does not ``provide any details as to 
the format of such data, whether it would be presented loan-by-loan, 
the manner in which rates would be presented, whether the loan had 
its inception as an open-ended loan or a term loan, whether the loan 
was the subject of a portfolio-based auction, or whether it was part 
of a conduit lending program.'' See Sharegain Letter, at 3. 
Consistent with the Proposing Release, the Commission is not 
specifying the details as to the format of the required data, the 
manner in which rates would be presented, or other detailed 
information requested, to give an RNSA the discretion to structure 
its systems and processes as it sees fit and propose rules 
accordingly, provided they are consistent with the final rule as 
adopted as well as other requirements of the Exchange Act applicable 
to an RNSA. See, e.g., Proposing Release, 86 FR 69816 n.104.
---------------------------------------------------------------------------

1. Loan Data Elements--Rule 10c-1a(c)
Proposed Rule
    To facilitate transparency in the securities lending market, the 
proposed rule required certain loan transaction data elements to be 
provided to an RNSA, on a transaction-by-transaction basis, within 15 
minutes of the loan being effected, followed by an RNSA assigning each 
loan a unique transaction identifier, and then making such information 
publicly available as soon as practicable. The proposed rule included 
twelve transaction data elements required to be provided to an 
RNSA.\366\
---------------------------------------------------------------------------

    \366\ See Proposing Release, 86 FR 69813-14, 69851-52 
(describing each of the proposed transaction data elements).
---------------------------------------------------------------------------

    In proposing the list of loan data elements required to be provided 
to an RNSA, the Commission explained that the data elements in 
paragraphs (b)(1) through (b)(5) of the proposed rule, which include 
the legal name and legal entity identifier (``LEI'') of the issuer; 
ticker symbol, International Securities Identification Number 
(``ISIN''), CUSIP, or Financial Instrument Global Identifier (``FIGI'') 
or other security identifier; date and time loan was effected; and 
platform or venue loan was effected, identify each loan of 
securities.\367\ In particular, the Commission explained, they contain 
material terms that are not negotiated between the parties but are 
elements that would provide important information to allow market 
participants and regulators to track, understand, and perform analyses 
on the negotiated terms contained in paragraphs (b)(6) through (b)(12) 
of the proposed rule, which include the amount of security loaned; 
securities lending fee or rate (or any other fee or charges); type of 
collateral used; rebate rate (or any other fee or charges); percentage 
of collateral to value of loaned securities; termination date of loan; 
and, whether the borrower is a broker/dealer/customer/clearing agency/
bank/custodian/other person.\368\ The Commission also explained that 
the proposed data elements in paragraphs (b)(1) through (b)(5) of the 
proposed rule would provide an RNSA with enough information to create a 
unique transaction identifier as required by the proposed rule.\369\
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    \367\ See Proposing Release, 86 FR 69813.
    \368\ See Proposing Release, 86 FR 69814.
    \369\ See Proposing Release, 86 FR 69813. As stated by the 
Commission in the Proposing Release, ``[p]aragraphs (1) and (2) of 
proposed Rule 10c-1 identify the particular security being lent. 
Paragraph (1) is designed to provide information on the issuer, and 
paragraph (2) is designed to provide information on the particular 
security. These paragraphs are designed to be flexible and 
comprehensive so that every security that can be loaned is able to 
be identified. In particular, with respect to paragraph (b)(1), the 
Commission preliminarily believes that an issuer that lacks an LEI 
would have a legal name. With respect to paragraph (b)(2), the 
Commission preliminarily believes that securities usually would have 
at least one of the items listed assigned to it. If not, the RNSA 
could require an ``other identifier'' for further flexibility under 
paragraph (2).'' Id.
---------------------------------------------------------------------------

    In proposing the negotiated data elements in paragraphs (b)(6) 
\370\ through (b)(12) of the proposed rule, the Commission explained 
that, because the data elements reflect material terms that are 
negotiated when securities loans are arranged, increasing the 
transparency of information will provide market participants with 
meaningful data that could be used when structuring, pricing, or 
evaluating loans of securities.\371\ The Commission also explained that 
increasing transparency would allow market participants to analyze 
signals obtained from the securities lending market when considering 
investment or trading decisions for a security; and, would also permit 
an RNSA to perform in-depth monitoring and surveillance of securities 
lending transactions to

[[Page 75668]]

identify trends and any anomalous market patterns.\372\
---------------------------------------------------------------------------

    \370\ See Proposing Release, 86 FR 69814. In proposing the data 
element in paragraph (b)(6) ``the amount of the security loaned''--
the Commission did not specify the parameters of ``the amount of the 
security'' in order to allow an RNSA flexibility to propose rules 
that identify, for different types of securities, what information 
constitutes the ``amount of the security.''
    \371\ See Proposing Release, 86 FR 69814.
    \372\ See Proposing Release, 86 FR 69814. Additionally, the 
Commission explained that the data element in proposed paragraph 
(b)(11), regarding termination date, is intended to provide market 
participants with an understanding of the potential future demand 
and supply of securities; whereas proposed paragraph (b)(12), which 
requires the borrower type for each transaction, is intended to 
provide context for evaluating, and also enhance the transparency 
provided by, the other data elements.
---------------------------------------------------------------------------

Final Rule
    The Commission sought comment with respect to each of the proposed 
transaction data elements.\373\ In response, commenters were generally 
supportive of the Commission's stated goals of increasing transparency 
and price discovery in the securities lending market by increasing the 
amount and availability of data in the market.\374\ For example, one 
commenter stated in support of the proposed rule that, ``certain data 
elements [should be made] publicly available, thereby increasing 
transparency of the securities lending market and reducing competitive 
advantages that may exist in the marketplace.'' \375\ Another commenter 
also stated in support that the proposed public dissemination of 
securities lending information will, among other things, improve price 
discovery in the securities lending market, reduce information 
asymmetries, close data gaps, and increase market efficiency.\376\ 
Another commenter stated that, ``Proposed Rule 10c-1 represents a 
properly-tailored way to bring more transparency to this dark area of 
the market.'' \377\ According to this commenter, ``[t]he Proposal would 
establish a system for the reporting and dissemination of the material 
terms of securities lending transactions without attribution, providing 
issuers, investors, and regulators the necessary data . . . while 
protecting the identity and intellectual property of any individual 
market participant.'' \378\ Another commenter expressed support for the 
proposed rule's inclusion of standards as part of the proposed data 
elements to be reported, as well as the Commission's efforts to include 
the LEI in the data elements for the identification of issuers and 
parties to a lending transaction.\379\ Another commenter supported the 
proposal allowing a choice in use of identifiers, such as the [FIGI], 
as a possible required data element to be collected and disseminated by 
an RNSA.'' \380\ Another commenter, in response to the Commission's 
specific request for comment, stated that retail investors/borrowers 
without LEIs should not be required to obtain a LEI as ``[r]egulators 
can easily identify who we are by going to our brokers.'' \381\ Another 
commenter suggested that the Commission should modify the proposal to 
require ``lending agent'' be a reported field (instead of requiring the 
lender's LEI to be disclosed) ``to avoid the potentially confusing 
appearance of tens or even hundreds of individual loans that are, in 
reality, part of the same overall loan transaction negotiated between a 
borrower and a lending agent or third-party intermediary on behalf of 
the underlying lender(s) for an aggregate notional amount.'' \382\
---------------------------------------------------------------------------

    \373\ The language ``transaction data elements'' in proposed 
Rule 10c-1(b) has been revised to ``covered securities loan data 
elements'' in final Rule 10c-1a(c) to be consistent with the use of 
the newly defined term ``covered securities loan,'' to which the 
elements refer, in the final rule.
    \374\ See, e.g., SBAI Letter, at 1 (agreeing with the 
Commission's assessment of the important role of the securities 
lending market, as well as supporting the Commission's objective to 
increase transparency in this area).
    \375\ Nasdaq Letter, at 3.
    \376\ See FINRA Letter, at 1 (stating that the proposed rule 
will provide the Commission and other regulators with data that 
would be used for important regulatory, i.e., monitoring and 
surveillance, functions); see also AFREF Letter 1, at 1, 3 (stating 
``[t]here is an urgent need to require securities lenders to provide 
greater details of their loans to an RNSA as outlined by the 
proposed changes to Rule 10c-1 . . . market participants and 
regulators alike will greatly benefit from the greater transparency 
that comes from reporting every securities lending transaction as a 
result of the proposed changes to Rule 10c-1.'').
    \377\ Letter from Hope M. Jarkowski, General Counsel, NYSE 
Group, Inc. (Jan. 6, 2022) (``NYSE Letter 1''), at 2.
    \378\ NYSE Letter 1, at 1-2.
    \379\ See Letter from Stephen Wolf, CEO, Global Legal Entity 
Identifier Foundation, at 3 (stating that the Commission and an RNSA 
may benefit from the data that accompanies an LEI, i.e., company 
legal name can be retrieved automatically or verified from a LEI 
record).
    \380\ See Bloomberg L.P. Letter, at 1; see also HMA Letter, at 9 
(agreeing with using publicly available methods to identify 
financial instruments beyond CUSIPs). Consistent with the proposed 
rule, the data elements required in paragraphs (b)(1) and (b)(2) of 
the proposed rule are designed to be flexible as well as 
comprehensive so that every loaned security is able to be 
identified. See Proposing Release, 86 FR 69813. In the Proposing 
Release, the Commission stated with respect to paragraph (b)(1), 
that it ``preliminarily believes that an issuer that lacks an LEI 
would have a legal name. With respect to paragraph (b)(2), the 
Commission preliminarily believes that securities usually would have 
at least one of the items listed assigned to it. If not, the RNSA 
could require an ``other identifier'' for further flexibility under 
paragraph (2).'' See Proposing Release, 86 FR 69813. Thus, 
consistent with the Proposing Release, the Commission is not 
determining whether and how all of the items in paragraph (c)(2) in 
the final rule must be reported, to give an RNSA the discretion to 
structure its systems and processes as it sees fit and propose rules 
accordingly, provided they are consistent with the final rule as 
adopted as well as other requirements of the Exchange Act applicable 
to an RNSA. See id.
    \381\ See James J. Angel Letter, at 7 (expressing strong support 
for the proposed rule but encouraged the Commission not to 
micromanage the contractual terms between the reporting agents and 
an RNSA). As this commenter explained, ``let FINRA work out the 
details, as they have the experience, resources, and capability to 
do a good job and the flexibility to update terms based on 
experience.'' Id. at 7. In response, the final rule, as modified to 
streamline and clarify rule text, and the modifications to update or 
modernize the reporting requirements as needed are responsive to the 
commenter.
    \382\ See, e.g., BlackRock Letter, at 3-4; see also FIF Letter, 
at 9 (stating that reporting an LEI is duplicative and likely not 
useful).
---------------------------------------------------------------------------

    With regard to the proposed ``rebate rate or any other fee or 
charges'' data element for cash collateralized loans,\383\ several 
commenters pointed out that the relevant data point is actually the 
lending spread to the reference rate (most commonly the Overnight Bank 
Funding Rate or ``OBFR'') as the rebate rate will change daily based on 
the current level of the reference rate, even as the negotiated lending 
spread remains fixed.\384\ Thus, commenters requested that the 
Commission clarify (where applicable) that pricing data may be reported 
as a spread to a benchmark rate and, as discussed below in Part F.2, 
that such pricing data element does not need to be updated for changes 
in the value of the benchmark rate.\385\
---------------------------------------------------------------------------

    \383\ See proposed Rule 10c-1(b)(9).
    \384\ See ICI Letter 1, at 5 n.19 (providing this as another 
example of how the SEC's understanding of the securities lending 
market structure appears to be inaccurate); see also BlackRock 
Letter, at 2 (recommending that, to improve the transaction level 
data collected, the transaction record for cash collateralized loans 
should include the name of the reference rate used and the spread to 
that reference rate instead of reporting the rebate rate). According 
to this commenter, while there is a market convention of using the 
OBFR as the reference rate, this is a negotiable term between the 
parties to the lending transaction. See id. Moreover, according to 
this commenter, the price negotiation centers on the spread to that 
reference rate, not the rebate, and the rebate will fluctuate daily 
as the reference rate value changes. See id. See also MFA Letter 3, 
at 5 (recommending that the SEC pare back several of the granular 
reporting elements that would be difficult to apply and/or 
misleading, such as pricing, stating that ``the Proposed Securities 
Lending Rule's requirements, for example, requires the rebate rate 
to be reported in the pricing field, even though the rebate rate 
will fluctuate potentially daily, as the reference rate--typically 
the OBFR--changes, and as such would be subject to frequent 
amendment that could be confusing to market participants'').
    \385\ See, e.g., BlackRock Letter, at 2; RMA Letter, at 4; see 
also FIF Letter, at 9 (stating that ``[f]or securities loans that 
are priced based on a spread to a benchmark, the Commission should 
provide reporting parties the option to report pricing by reference 
to the benchmark and the spread'').
---------------------------------------------------------------------------

    Another commenter expressed concern that fee and rebate data could 
be misleading in the absence of additional contextual information, 
stating that ``[f]ee/rebate data, without consideration of firm(s) 
collateral requirements, counterparty/asset exposure(s), applied 
lending restrictions or jurisdictional obligations, may create an 
unrealistic and misleading portrayal

[[Page 75669]]

of prevailing rates.'' \386\ The final rule requires pricing 
information in 17 CFR 240.10c-1a(c)(8) (``final Rule 10c-1a(c)(8)'') 
and 17 CFR 240.10c-1a(c)(9) (``final Rule 10c-1a(c)(9)'') because 
pricing is a material term of a covered securities loan. Further, 
paragraph (g)(5) of the final rule requires that an RNSA will make a 
distribution of loan rates for each reportable security publicly 
available to help market participants compare the pricing of their 
covered securities loan against the pricing of other covered securities 
loans. Information about the distribution of loan rates recognizes that 
the cost-to-borrow securities can be influenced by a number of factors 
and can give market participants information to help compare the 
pricing of their loan against other loans. Another commenter requested 
clarification that only one identifier for a security is required to be 
reported under the rule (i.e., ticker or ISIN or CUSIP or FIGI) rather 
than all of them.\387\ The final rule permits a covered person to 
determine which identifier to report, or if it prefers, it may also 
report multiple identifiers, but one identifier is required to be 
reported. Further, the final rule also permits the covered person to 
report a different identifier than the ticker symbol, ISIN, CUSIP, or 
FIGI. In addition, this commenter requested further clarification on 
what type of system would represent a ``platform or venue'' for 
purposes of proposed paragraph (b)(5).\388\ The final rule does not 
specify what type of systems are a ``platform or venue'' for purposes 
of the data elements required to be reported under 17 CFR 240.10c-
1a(c)(5) (``final Rule 10c-1a(c)(5)''). The terms are intended to 
capture a wide variety of potential vehicles that covered persons might 
use to transact securities loans. Further, an RNSA has discretion to 
determine, pursuant to rules that would be subject to the section 19(b) 
and Rule 19b-4 process, whether to categorize such vehicles (e.g., on-
line venue, exchange, OTC).
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    \386\ Letter from Adrian Dale, Head of Regulation, Digital & 
Market Practice, ISLA (Jan 7, 2022) (``ISLA Letter''), at 2 
(suggesting that such fee/rebate data could not be relied upon to 
support price discovery in the same manner as other markets).
    \387\ See, e.g., FIF Letter, at 9. Consistent with the Proposing 
Release, paragraph (b)(2) in the final rule states, ``securities 
usually will have at least one of the items listed assigned to it. 
If not, the RNSA will be able to require an `other identifier' for 
further flexibility under paragraph (2).'' See Proposing Release, 86 
FR 69813. As such, the Commission is not providing further details 
concerning the required data elements in order to give an RNSA the 
discretion to structure its systems and processes as it sees fit and 
propose rules accordingly, provided they are consistent with the 
rule as adopted as well as other requirements of the Exchange Act 
applicable to an RNSA. See also supra notes 369 and 380. See Letter 
from Robert Toomey, Head of Capital Markets, Managing Director & 
Associate General Counsel, SIFMA (May 15, 2023) (``SIFMA Letter 
3''), at 4-5 (stating that ``[m]any of the granular reporting 
elements for securities loan transactions proposed by the SEC are 
not applicable to short positions, or do not apply to short 
positions in the same way as they apply to securities loans, and 
would necessarily lead to incomplete, inaccurate, and misleading 
data (e.g., percentage of collateral to value of loaned securities 
required to secure the loan, type of collateral, and lending fee/
rebate fee)'').
    \388\ See FIF Letter, at 10 (stating that FIF members request 
further clarification on what type of system would represent ``a 
platform or venue'' for purposes of proposed paragraph (b)(5)'s data 
element).
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    Many commenters suggested that the proposed transaction-by-
transaction reporting requirement be replaced with an aggregated-only 
requirement (i.e., with some of the commenters wanting both the 
reporting and publishing of the data elements to be on an aggregated 
basis only, while other commenters were supportive of reporting to an 
RNSA on a transaction-by-transaction basis, but then any dissemination 
to the public must be made by an RNSA on an aggregated-only 
basis).\389\ For instance, one commenter recommended ``transaction-by-
transaction data be reported to an RNSA and made available to 
regulators, but that the RNSA analyze and normalize the reported 
transaction data to provide aggregated and, where appropriate, averaged 
transaction terms that do not expose firm and customer investment 
strategies, and that better reflect the transaction terms available to 
lenders and borrowers in the securities lending market.'' \390\ Another 
commenter stated that the Commission should narrow the scope of 
transaction data information to be reported to an RNSA (and thereafter 
made public by an RNSA) to only aggregated transaction data.\391\ Some 
of the comments appeared to be focused on an RNSA's publication or 
dissemination obligations when they stated that the final rule should 
require an RNSA to publish aggregated pricing and volume data (rather 
than transaction-by-transaction data).\392\ However, this was not 
always clear as many of the comments received were less specific in 
that their comments on aggregated disclosure were phrased in reference 
to the proposed rule's reporting requirement \393\ or ``reveal short 
selling trading strategies'' \394\ or disclosing all individual 
customer short selling positions on a transaction-by-transaction 
basis.\395\
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    \389\ Although it seems as though the terms ``reporting'' and 
``dissemination'' (or ``disclosure'') are used interchangeably by 
some of the commenters, there appears to be agreement by commenters 
that it is the public disclosure of the data elements by an RNSA 
that should be required on an aggregated-only basis (rather than 
requiring disclosure on a transaction-by-transaction basis). See, 
e.g., ICI Letter 1, at 11 (although the commenter states, for 
confidentiality reasons, that the Commission should only require 
``reporting'' on an aggregated basis at the end of the day (and to 
avoid front running risks and other predatory trading practices), 
from the context of the letter, it appears to be the case that 
concern is focused on information being disclosed to the public/
market); SBAI Letter, at 2; AIMA Letter 1, at 5; RMA Letter, at 18; 
See also Letter from Matthew R. Cohen, CEO, Provable Markets LLC 
(Jan. 7, 2022) (``PM Letter 2'') (while highly supportive of the 
proposal's objective to increase transparency of information 
available to brokers, dealers, and investors, commenter expressed 
concerns that the Commission carefully consider and describe the 
context of the information provided publicly to the market, and the 
underlying benefits of each category published to the proposed 
consolidated tape (similar reproduction of data) to the market). 
However, one group of commenters disfavored any public dissemination 
of information (i.e., before a study of the collected data are 
conducted by the Commission and the Commission consults stakeholders 
before making any determinations about the specifics of a public 
dissemination regime) and stated the concern that the ``proposals 
could compromise the [rule's] objectives by revealing sensitive and 
potentially misleading information to the public . . . [and that the 
Commission should] adopt an approach that requires reporting solely 
for regulatory purposes.'' See Letter from Members of the U.S. House 
of Representatives Frank D. Lucas, David Scott, Blaine Luetkemeyer, 
Bill Foster, Glenn ``GT'' Thompson, Alma S. Adams, Ph.D., Bill 
Huizengia, Vicente Gonzalez, Andy Barr, Josh Gottheimer, Ann Wagner, 
Wiley Nickel, and Bryan Steil (July 12, 2023) (``Letter from 
Representative Lucas, et al.''), at 1. See infra Part VIII regarding 
the implementation period for the final rule.
    \390\ See SIFMA Letter 2, at 4.
    \391\ See SIFMA AMG Letter, at 6-7.
    \392\ See, e.g., RMA Letter, at 4; IIB Letter, at 10; EBF 
Letter, at 2 (commenters use the terms ``public dissemination'' or 
``publicly disseminating'' when referring to aggregated information 
or transaction data).
    \393\ See generally Letter from Jennifer Han, Executive Vice 
President, Chief Counsel & Head of Regulatory Affairs, Managed Funds 
Association (Apr. 1, 2022) (``MFA Letter 2'').
    \394\ See SIFMA AMG Letter, at 7.
    \395\ See CCMR Letter, at 5.
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    The requirements in paragraph (b) of final Rule 10c-1a are limited 
in scope to the reporting agent's obligation to provide certain 
specified data elements to an RNSA on behalf of a covered person. As 
such, the discussion in this part is limited to the reporting agent's 
provision of the Rule 10c-1a information directly and solely to an 
RNSA, which does not involve or require any public disclosure or public 
dissemination of such information. By contrast, the dissemination or 
disclosure of the required information is the obligation of an RNSA, 
and paragraph (g) of the final rule, and Part VII.J below, discuss an 
RNSA's responsibilities with respect to disseminating certain Rule 10c-
1a information to the public.
    After considering the comments received recommending that the final 
rule require only aggregated pricing and volume data to be publicly 
disclosed (discussed below in Part VII.J), the

[[Page 75670]]

Commission has determined not to modify the proposed transaction-by-
transaction reporting requirement with respect to the provision of Rule 
10c-1a information to an RNSA. Such a modification to paragraph (c) of 
the final rule is unnecessary because the requirement involves 
reporting of the information directly and only to an RNSA (and not to 
the public). As such, the reporting requirement does not present the 
concerns raised by commenters that would warrant requiring the 
reporting of the data elements on an aggregated-only basis, as was 
suggested by some commenters.\396\ Likewise, another commenter 
suggested that, to decrease the likelihood that published data will be 
potentially misleading or confusing or that it could reveal short 
trading strategies that could prompt short sellers to exit the market, 
the Commission should adjust the information that is made publicly 
available by an RNSA to be only aggregated securities lending data, 
including, among other things, a volume-weighted average borrowing fee 
aggregated across all firms, for each security loaned.\397\ Similarly, 
for the same aforementioned reasons, it is unlikely that providing data 
information directly and solely to an RNSA will reveal such short 
trading strategies or mislead or confuse the public to warrant such a 
modification to the final rule. Instead, because paragraph (c) of the 
final rule only requires the reporting of information to an RNSA 
(rather than to disclose the information to the public), the risk of 
revealing short trading strategies or confusing the public is not 
applicable. Moreover, an RNSA's responsibilities with respect to the 
subsequent publication of certain Rule 10c-1a information are subject 
to the requirements and limitations set forth in paragraph (g) of the 
final rule,\398\ which are discussed below, in Part VII.J.\399\ Thus, 
the Commission is adopting the proposed requirement to report Rule 10c-
1a information, on a transaction-by-transaction basis, directly and 
solely to an RNSA.\400\
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    \396\ See infra Part VII.J, for discussion regarding the 
responsibilities of an RNSA with respect to the dissemination of 
certain Rule 10c-1a information (particularly with respect to the 
amount, such as size, volume, or both of the reportable securities 
loaned) that an RNSA receives.
    \397\ See SIFMA Letter 1, at 18-19. The commenter further stated 
that it does not object to the proposal to report by the end of the 
day information on ``securities on loan.'' See id.
    \398\ See final Rule 10c-1a(g).
    \399\ Some commenters stated that requiring public disclosure of 
securities lending activity on a transaction-by-transaction basis, 
especially within the proposed 15-minute timeframe, would reduce 
overall short selling activity by inhibiting and increasing the cost 
of building short positions and, thus, negatively affect market 
liquidity and pricing efficiency (i.e., by making it more costly to 
build short positions and thus inhibit market participants from 
doing so). See, e.g., SIFMA AMG Letter, at 5-7; see also CCMR 
Letter, at 5 (stating the disclosure of such activity would increase 
the costs associated with establishing a short position through 
information leakage and slippage; or lead to copycat short selling 
activity, which could also increase the cost to borrow the security 
due to increased demand or could facilitate ``short squeezes''). 
However, as discussed above, modifying the required timeframe for 
reporting the data elements to an RNSA, and an RNSA's dissemination 
of such information to the public, as discussed below, in Part 
VII.J, should help to address the disclosure-related concerns raised 
by the commenters.
    \400\ See also infra Part VII.J regarding the responsibilities 
of an RNSA, particularly with respect to the dissemination of Rule 
10c-1a information (including with respect to the amount, such as 
size, volume, or both, of the reportable security loaned) an RNSA 
receives, keeping together in the release the various RNSA-related 
provisions.
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    In addition, the Commission is adopting, essentially unchanged, the 
twelve data elements originally set forth in paragraphs (b)(1) through 
(b)(12) in the proposed rule, except the Commission is making the 
following non-substantive changes to the language of some of the 
proposed data elements.\401\ Specifically, the Commission is modifying 
the language of the ``the amount of the security loaned'' data element 
in paragraph (b)(6) of the proposed rule (i.e., by adding the language 
``such as the size, volume, or both)'' so that it instead reads, as 
adopted, ``the amount, such as size, volume, or both, of the reportable 
securities loaned.'' \402\ This change will help ensure the compliance 
and accuracy of the Rule 10c-1a information submissions to an RNSA, by 
specifying in the final rule that the term ``amount'' means ``size, 
volume, or both.'' \403\
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    \401\ The proposed time periods for reporting the specified 
information to an RNSA are discussed below, in Part VII.G.
    \402\ With respect to the covered securities loan data element 
in paragraph (c)(6) of the final rule, the amount of the security 
loaned or borrowed, other than to add the clarifying language ``such 
as size, volume, or both'' the Commission is not ``specifying the 
parameters of `the amount of the security' to allow an RNSA 
flexibility to propose rules that identify for different types of 
securities what information constitutes the `amount of the 
security.' For example, an RNSA could propose rules that require the 
number of shares be provided for equity securities and the par value 
of debt securities to accommodate differences in the markets for 
these securities.'' See Proposing Release, 86 FR 69814.
    \403\ See final Rule 10c-1a(c)(6) (requiring reporting of ``the 
amount, such as size, volume, or both, of the reportable security 
loaned.''). Modifying this loan data element to clarify that the 
``amount'' means ``size, volume, or both'' helps to address the 
concern raised by a commenter that had suggested a ``unit'' field to 
accompany the proposed ``amount'' data element in paragraph (b)(6) 
of the proposed rule so as to allow the ``amount'' to be defined 
``unambiguously as a quantity, a notional value or similar as 
appropriate.'' See Letter from Jim Kaye, Americas Regional Director, 
FIX Trading Community (Jan. 4, 2022) (``FIX Trading Letter''), at 2 
(requesting further clarification on and the use of common standards 
for details of the data to be published, similar to the technical 
standards used by ESMA and SFTR, and a ``security id'' filed to 
accompany ``security identifier'' as certain crypto assets do not 
have ISINs so the list of eligible securities identifier types needs 
to allow for this, i.e., support ISO standards for digital token 
identifiers).
---------------------------------------------------------------------------

    The Commission also is modifying proposed paragraph (b)(6) by 
changing ``security'' to ``securities'' (thus, making it plural, 
consistent with the term ``securities'' in paragraph (b)(10)); and, 
also modifying both proposed paragraphs (b)(6) and (b)(10) by adding 
the term ``reportable'' to each, so that they are both consistent with 
the final rule's newly defined term, ``reportable securities.'' The 
Commission also is modifying language in proposed paragraph (b)(1) by 
changing the term ``active LEI'' to ``non-lapsed LEI'' for accuracy 
(i.e., by focusing more precisely on the status of the application for 
the LEI-indicator, rather than on the entity itself).\404\ The 
Commission has modified proposed paragraph (b)(2) by providing the full 
names of specified security identifiers and retaining the corresponding 
abbreviations within a parenthetical with quotes to 17 CFR 240.10c-
1a(c)(2) (``final Rule 10c-1a(c)(2)'').
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    \404\ See 17 CFR 240.10c-1a(c)(1) (``final Rule 10c-1a(c)(1)'').
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    The required pricing data, ``[f]or a loan collateralized by cash, 
the rebate rate or any other fee or charges,'' in paragraph (c)(8) of 
the final rule generally should include when the pricing data element 
is negotiated or agreed-to as a spread to an identified benchmark or 
reference rate.\405\ The Commission recognizes that the pricing data 
element is a material term of the loan that is often negotiated or 
agreed to between the parties. Consistent with paragraph (b)(9) of the 
proposed rule, as well as the final rule, this benchmark type of 
pricing, as described by the commenter, will be captured by the final 
rule text language ``the rebate rate or any other fee or charges.'' 
\406\ For the aforementioned reasons, negotiated or agreed-to pricing 
data, including as a spread to an identified benchmark or reference 
rate, is required to be reported to an RNSA pursuant to the rule as 
adopted.\407\ This requirement should generally help to address 
commenters' concerns that may stem from an overly narrow application of 
the pricing data element in paragraph (b)(9) of the

[[Page 75671]]

proposed rule.\408\ However, because there are various pricing terms or 
arrangements that can be negotiated or agreed to by parties to a 
securities loan, the final rule does not specify or endorse one 
particular pricing method over another and, thus, is adopting the 
sufficiently broad pricing data element rule text for purposes of the 
final rule without modification from the proposed rule text.\409\ An 
RNSA, nevertheless, could address in its rules details regarding the 
manner in which pricing data must be reported, such as further 
clarifying how lending cost information is to be reported. As such, an 
RNSA has the necessary flexibility and discretion to structure its 
systems and processes as it determines, consistent with its obligations 
under the final rule as well as other applicable provisions of the 
Exchange Act.
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    \405\ See proposed Rule 10c-1(b)(9).
    \406\ See final Rule 10c-1a(c)(8).
    \407\ See final Rule 10c-1a(c)(8).
    \408\ See supra note 385 (citing commenters who requested that 
the Commission clarify, where applicable, that pricing data may be 
reported as a spread to a benchmark rate).
    \409\ See supra note 385 and accompanying text (commenters 
requesting the Commission to clarify, where applicable, that pricing 
data may be reported as a spread to a benchmark rate, and that such 
pricing does not need to be updated for changes in the value of the 
benchmark rate).
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2. Loan Modification Data Elements--Rule 10c-1a(d)
Proposed Rule
    Subject to terms agreed to by the parties, covered securities loans 
may be modified after they are made. To ensure that the loan data 
elements reported pursuant to proposed Rule 10c-1(b) would accurately 
reflect currently outstanding covered securities loans and to prevent 
evasion, proposed Rule 10c-1(c) required that certain loan modification 
data elements be provided to an RNSA within 15 minutes after each loan 
is modified if the modification resulted in a change to information 
required to be provided to an RNSA under paragraph (b) of the proposed 
rule (and then for an RNSA to make such information available to the 
public as soon as practicable).\410\ More specifically, the proposed 
loan modification data elements in paragraphs (c)(1) through (c)(3) of 
the proposed rule required the following data elements to be provided 
to an RNSA: (1) the date and time of the modification; (2) a 
description of the modification; and (3) the unique transaction 
identifier of the original loan.\411\
---------------------------------------------------------------------------

    \410\ See proposed Rule 10c-1(c).
    \411\ Proposed Rule 10c-1(c).
---------------------------------------------------------------------------

    In the Proposing Release, the Commission explained that it 
preliminarily believed the proposed loan modification data elements in 
proposed paragraph (c) are necessary to allow an RNSA to identify which 
loan was being modified, categorize the type of modification, and make 
information about the modification publicly available.\412\ In 
addition, as proposed, the requirement to provide the loan modification 
information to an RNSA was conditioned on the modification resulting in 
a change to the Rule 10c-1 information required to be provided to an 
RNSA under paragraph (b) of the proposed rule.\413\
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    \412\ See Proposing Release, 86 FR 69815.
    \413\ See Proposing Release, 86 FR 69815. Consistent with the 
Proposing Release, an example of a modification that will trigger a 
reporting requirement under paragraph (d) of the final rule 
includes: the termination of an open-ended loan that results in a 
reduction of the quantity of the securities initially provided to an 
RNSA for that loan under paragraph (c)(6)'s data element--i.e., 
amount of the security loaned. See also Proposing Release, 86 FR 
69815. An example of a modification that will not trigger the loan 
modification data element reporting requirement in paragraph (d) of 
the final rule is if a borrower posts additional collateral in 
response to an increase in the value of the loaned securities. Id. 
Under such circumstance, information about this change will not be 
required to be reported under paragraph (d) because, while paragraph 
(c)(11) requires the covered person to provide the percentage of 
collateral to value of loaned securities required to secure such 
loan, it does not require information about the value of collateral 
posted in dollar terms. See also id. at n.96.
---------------------------------------------------------------------------

Final Rule
    The Commission is adopting the loan modification data elements 
substantially as proposed.\414\ However, the final rule includes a 
change to the loan modification data elements requirement in response 
to commenters.\415\ Other commenters sought clarification as to when 
loan modifications should be reported, which is discussed below. In 
addition, the final rule has been modified to address comments 
regarding loans that pre-exist the reporting date.
---------------------------------------------------------------------------

    \414\ See 17 CFR 240.10c-1a(d)(1)(i) (``final Rule 10c-
1a(d)(1)(i)''); 17 CFR 240.10c-1a(d)(1)(ii) (``final Rule 10c-
1a(d)(1)(ii)''); 17 CFR 240.10c-1a(d)(1)(iii) (``final Rule 10c-
1a(d)(1)(iii)'').
    \415\ The Commission also received comments that relate to the 
two loan modification data elements in paragraphs (d)(1)(i) and 
(d)(1)(iii) of the final rule. These comments are addressed 
separately below, in Parts VII.G.2 and VII.J, with respect to the 
timing modifications to paragraph (d) in the proposed rule, and 
regarding an RNSA's obligations with respect to assigning the unique 
identifiers in compliance with the final rule.
---------------------------------------------------------------------------

    Paragraphs (d)(1)(i) through (iii) of the final rule set forth the 
data elements that a covered person must report by the end of the day 
on which a covered securities loan is modified. Paragraph (d)(1)(i) 
requires covered persons to report ``[t]he date and time of the 
modification;'' paragraph (d)(1)(ii) requires covered persons to report 
``[t]he specific modification and the specific data element in 
paragraph (c) of this section being modified; and paragraph (d)(1)(iii) 
requires the covered person to report ``[t]he unique identifier 
assigned to the original covered securities loan under paragraphs 
(g)(1) or (g)(3) of this section.'' \416\
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    \416\ See final Rules 10c-1a(d)(1)(i) and (d)(1)(iii).
---------------------------------------------------------------------------

    With respect to paragraph (d)(1)(ii), to help ensure the provision 
of relevant and useful loan modification reports to an RNSA, the 
Commission has revised this loan modification data element from the 
proposed requirement by removing the phrase ``[a] description of'' and, 
instead, adding both ``the specific modification'' as well as ``and 
specific data element in paragraph (c) being modified'' (i.e., with 
respect to the loan modification data element being reported to an 
RNSA). The revised language ``the specific modification'' makes 
explicit that the actual modification must be reported (e.g., the 
amount of the security loaned increased by 200 shares), not a vague 
description of the modification (e.g., the amount of the security 
loaned was increased). The Commission is making this change because it 
will result in the collection of more accurate and useful information 
concerning the modification being reported. The Commission is also 
modifying paragraph (d)(1)(iii) to require the reporting of a 
previously assigned unique identifier whether assigned at the time of 
execution of the loan, or, with respect to a pre-existing securities 
loan as discussed below in this section, at the time of the 
modification. As a result, the Commission is adopting paragraph 
(d)(1)(iii) of the final rule, with a slight modification from the 
proposal such that the rule text of (d)(1)(iii) will require the unique 
identifier assigned to the original covered securities loan under 
paragraphs (g)(1) or (g)(3) of this section.'' \417\
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    \417\ See final Rules 10c-1a(d)(1)(i) and (d)(1)(iii).
---------------------------------------------------------------------------

    The Commission also received comment seeking clarity regarding how 
to report various modifications to a loan.\418\ Other commenters who 
discussed the loan modification data elements discussed the different 
types of modifications that can occur frequently throughout the 
day,\419\ or

[[Page 75672]]

sought further information on what types of modifications would likely 
trigger a loan modification reporting obligation under the final 
rule.\420\ One commenter stated that, in the context of cash 
collateralized loans, the rebate will fluctuate daily as the reference 
rate value changes, but suggested that loans where the selected 
reference rate and spread to that reference rate do not change should 
be deemed out of scope of the required loan modification 
reporting.\421\ As an example, this commenter stated that, where a loan 
is collateralized by cash and the negotiated pricing data element is a 
spread to a benchmark rate, such pricing does not need to be updated 
for changes in the value of the benchmark rate (i.e., not a reportable 
loan modification for purposes of the final rule).\422\ The same 
commenter stated more generally that certain modifications to loan 
information that has already been provided to an RNSA pursuant to 
proposed Rule 10c-1 should not be required to be provided to an RNSA, 
claiming that could make data that was already made public potentially 
misleading.\423\ As discussed above, in Part VII.F.1, the pricing data 
elements required to be reported by paragraph (c)(8) include benchmark 
pricing, such as a reference to the OBFR in a manner determined by an 
RNSA. Paragraph (d) of the final rule, requiring reporting of 
modifications to a paragraph (c) data element, including pricing in 
paragraph (c)(8), will also capture benchmark pricing. The extent to 
which the commenter's concern is realized will be determined by how an 
RNSA chooses to structure the reporting of this variable. For instance, 
if an RNSA chooses to allow market participants to report a spread and 
a benchmark, then no modifications will be required to be reported from 
day to day unless there were a change in the negotiated spread or 
benchmark. However, if an RNSA chooses to require market participants 
to report the total fee, then market participants will be required to 
report changes to the fee if the benchmark changes, which can require 
daily revisions.\424\ However, the Commission does not expect that this 
will cause confusion. The Commission understands that market 
participants know that rebates can change regularly and, thus, 
revisions would not be unexpected. Further, gathering loan modification 
data is important to facilitate the accurate computation of statistics 
regarding the cost to borrow by an RNSA and other market participants.
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    \418\ See FIX Trading Letter, at 3. The commenter provided 
hypotheticals, including: (1) as a result of a corporate action, a 
loan is closed and two or more loans are created; (2) a 
consolidation of multiple loans with the same counterparty and for 
the same security into one loan; and (3) the splitting of a single 
loan into multiple loans where the lender requires the return of 
some of the shares.
    \419\ Comments received by the Commission that focus primarily 
on the proposed 15-minute timing requirement for reporting required 
loan modification information--including commenters' recommendations 
with respect to the final rule's timing requirement--are discussed 
separately, below, in Part VII.G.1.
    \420\ See, e.g., Pirum Letter, at 2 (discussing that for 
modifications to previously reported loan transactions, a 
significant number of these will typically happen in ``batch'' 
processes at specific times throughout the day, stating one of the 
most common modifications is the daily marked-to-market exercise 
whereby the price of the loan (loan value and required collateral 
value) and potentially the associated collateral amounts are 
adjusted to reflect market value changes in the underlying security 
on loan).
    \421\ See BlackRock Letter, at 2.
    \422\ See BlackRock Letter, at 2.
    \423\ See BlackRock Letter, at 7. According to this commenter, 
open loans are commonly marked-to-market to the closing price of the 
relevant security from the previous business day, plus margin and 
rounding. See id. As a result, the actual modification of open loans 
tends to happen across all positions the next day and at relatively 
common times across the market. See id. The Commission recognizes 
that, subject to terms agreed to by the parties, covered securities 
loans may be modified after they are made or are often not finalized 
until the end of the day. The end-of-day timing modifications to the 
final rule, as discussed below, in Part VII.G, will help to reduce 
these concerns raised by the commenters.
    \424\ See infra Part IX.C.1 (discussing an RNSA's discretion 
with respect to benchmark pricing).
---------------------------------------------------------------------------

    One commenter suggested that the termination of a loan should be 
reported based on the return of securities by the borrower.\425\ Under 
the final rule, if a borrower returns a portion of loaned shares, the 
reduction in the amount of shares remaining on loan will be reported as 
a modification.\426\ Similarly, under the final rule, a termination of 
a covered securities loan is a modification for which information, 
including the termination date and the reduction of the loaned shares 
(if any), is required to be reported to an RNSA.\427\
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    \425\ See FIF Letter, at 10 (stating ``termination of a 
securities loan should be reported based on the return of securities 
by the borrower against the return of the collateral by the lender. 
The same approach as proposed for reporting new loans and loan 
terminations should apply for reporting loan modifications.'').
    \426\ Under the final rule, a reduction (or increase) in the 
loan amount is required to be reported to an RNSA under paragraph 
(d) of the final rule as a modification to the loan amount in 
paragraph (c)(6). If the parties to the covered securities loan 
regard/treat the reduction as termination of the covered securities 
loan, that is also required to be reported to an RNSA under 
paragraph (d) of the final rule as a modification to the termination 
date of the covered securities loan in 17 CFR 240.10c-1a(c)(11) 
(``final Rule 10c-1a(c)(11)''). Moreover, if the parties to the 
covered securities loan terminate their loan and such termination 
involves a reduction in the loan size, this would qualify as a 
reportable modification under paragraph (d) of the final rule as a 
modification resulting in a change to the amount or size data 
element in paragraph (c)(6).
    \427\ See also Proposing Release, 86 FR 69815 (stating ``a 
termination of a loan would be a modification for which information 
would need to be provided to an RNSA . . . because the termination 
would result in a reduction of the quantity of securities initially 
provided to an RNSA for that loan under paragraph (b)(6)'').
---------------------------------------------------------------------------

    Events such as consolidations and splitting of loans are required 
to be reported. A consolidation would be reported as the termination 
(and therefore modification) of existing loans and entry into a new 
loan, including the reporting of all required data elements for those 
modifications and for the new loan. Similarly, the splitting of an 
existing loan into separate loans could be reported as a modification 
and termination of the original loan and entry into multiple separate 
loans.\428\ However, that there may be certain life-cycle events in the 
course of an open-ended loan 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. For example, when all outstanding loaned securities are returned 
to the lender and additional (or the same) shares are subsequently lent 
under an open-ended loan, one lender may view that event as a 
termination (and therefore a modification) of an existing loan and a 
creation of a new loan, whereas another lender may view a similar 
transaction as two modifications (the return of, and subsequent loan 
of, securities under the same open-ended loan). In such cases, the 
lender (or lending agent or reporting agent) may elect to report the 
required information as either a modification (and termination), or as 
two modifications to an open-ended loan.
---------------------------------------------------------------------------

    \428\ In addition, to help reduce concerns about potential 
confusion and misinterpretation of the data, an RNSA could determine 
to develop methodologies to identify events as a consolidation or 
the splitting of existing covered securities loans.
---------------------------------------------------------------------------

Reporting of Data Elements for Pre-Existing Securities Loans
    The Commission also received comment seeking clarification on what 
some commenters called day-one loans, or loans that are agreed to prior 
to the reporting date of the final rule.\429\ One commenter described 
the day-one problem and stated, ``we suggest the Commission find a 
solution to ensure these loans do not go unreported under a new 
reporting regime.'' \430\ Other commenters stated that the Commission

[[Page 75673]]

should consider ways to report and identify such loans.\431\
---------------------------------------------------------------------------

    \429\ See BlackRock Letter, at 3, 9; AIMA Letter 1, at 5; ICI 
Letter 1, at 13 n.45 (stating that, given the difficulties the EU 
faced with ``day one'' issue regarding implementation of SFTR, ICI 
recommends that the SEC or FINRA provide clarity regarding 
applicability of any final rule to securities loans that are 
outstanding on the rule's implementation date); FIX Trading Letter, 
at 3 (stating ``It is not clear how the rule handles loans created 
prior to the rule coming into effect but modified after the rule 
comes into effect . . . . We recommend some wording be added to the 
rule to clarify a) whether loans already in existence prior to the 
rule coming into effect need to be reported, b) how modifications 
should be handled for such loans.'').
    \430\ AIMA Letter 1, at 5.
    \431\ See, e.g., Letter from JD Cumpson (Mar. 14, 2022), at 1 
(stating ``[t]his should be required to be back-dated for all 
current lending; no hidden `legacy' deals that are underreported''); 
BlackRock Letter, at 3 (stating ``the Commission should consider 
ways to report and identify open securities loans initiated before 
the first day any new requirements are effective; this is the `day-
one problem' . . . either the Commission or the designated RNSA will 
need to devise a solution for appropriately incorporating them into 
the data set'').
---------------------------------------------------------------------------

    Certain commenters stated that many loans are open-ended and 
continuously modified,\432\ and sought clarity regarding the treatment 
of loans in existence prior to the final rule's reporting date for 
covered persons that are subsequently modified, which commenters 
characterized as the day-one problem.\433\ For example, one commenter 
stated that the proposal does not consider a key implementation 
question regarding the day-one problem for reporting existing loans, 
specifically, that ``most loans are open-ended without a set 
termination date. Accordingly, loans are continually resized and 
rerated until either the lender or the borrower recalls or returns all 
shares, respectively. Given the longevity of the average loan, there 
will be a substantial number of loans that exist prior to the 
implementation date of the reporting requirements, and such loans will 
likely continue to be modified as long as they remain outstanding.'' 
\434\ This commenter provided three possible paths for handling such 
day-one loans: ``(1) report each loan the first time it is modified 
after the implementation date as if it were a new loan, (2) provide all 
existing loans with an identifier on the day of implementation, or (3) 
exclude all existing loans from all reporting obligations, including 
reporting of modifications made to those loans after implementation 
date.'' \435\
---------------------------------------------------------------------------

    \432\ See, e.g., BlackRock Letter, at 9; AIMA Letter 1, at 5.
    \433\ See, e.g., BlackRock Letter, at 9; AIMA Letter 1, at 5; 
ICI Letter 1, at 13.
    \434\ BlackRock Letter, at 9.
    \435\ BlackRock Letter, at 9.
---------------------------------------------------------------------------

    The commenter's first alternative for reporting each ``day-one'' 
loan the first time it is modified provides an appropriate means of on-
boarding data for such loans, as discussed below.\436\ As discussed 
below, in Part IX.C.1, the lack of information about these loans would 
harm data quality because it would render the data less complete and 
would thus limit market participants' ability to determine conditions 
in the lending market. Accordingly, paragraph (d)(2) of the final rule 
provides that if a modification is made to a covered securities loan 
for which reporting under paragraph (a) of the final rule was not 
required on the date the loan was agreed to or last modified (a ``pre-
existing covered securities loan'') and results in a change to any of 
the data elements in paragraph (c) of the final rule, there is an 
obligation to report each of the data elements in paragraph (c) of the 
final rule as of the date of the modification.\437\ Paragraph (d)(2) 
will provide a snap shot of a pre-existing covered securities loan the 
first time it is modified on or after the reporting date. If, for 
example, under the final rule, a pre-existing covered securities loan 
is first modified two months after the reporting date and the 
modification results in a change to a data element in paragraph (c) of 
the final rule, the covered person must provide each of the data 
elements under paragraph (c) to an RNSA, including the date and time 
the pre-existing covered securities loan was effected pursuant to 17 
CFR 240.10c-1a(c)(3) (``final Rule 10c-1a(c)(3)'') and 17 CFR 240.10c-
1a(c)(4) (``final Rule 10c-1a(c)(4)''), which will indicate that this 
is a pre-existing covered securities loan. Reporting of the date and 
time that the pre-existing covered securities loan was originally 
effected will provide market participants and regulators with a more 
complete picture as to the duration of the outstanding loan that is 
being modified.
---------------------------------------------------------------------------

    \436\ See infra note 974 (stating that the Commission does not 
expect significant additional costs to result from this requirement 
as it is not expected to impact the need for reporting agents to 
develop and maintain systems for reporting securities lending 
information but will simply require the inclusion of some additional 
data transfers that occur largely around the reporting date. Since 
the cost of individual transmissions are expected to be small, this 
aspect of the final rule is expected to have a small impact on the 
compliance costs of the final rule). See also infra note 1029 (The 
requirement to report information once a loan modification occurs 
after that loan qualifies for reporting will further support the 
benefits of the final rule, including reduced information 
asymmetries and enhanced price competition, by helping to ensure a 
level playing field during the earlier phases of implementation. 
This provision will prevent lenders, that have a higher number of 
long-term loans that did not initially qualify for final Rule 10c-1a 
reporting, from gaining a competitive advantage by being able to see 
the loans of other market participants without disclosing the terms 
of their own loans).
    \437\ See final Rule 10c-1a(d)(2). This approach also responds 
to the various requests from commenters, including ICI and 
BlackRock, requesting that the SEC or FINRA provide clarity 
regarding the applicability of the final rule to day-one loans 
(i.e., securities loans that are outstanding on implementation 
data).
---------------------------------------------------------------------------

    In addition to the date and time that the pre-existing covered 
securities loan was effected (i.e., information in paragraphs (c)(3) 
and (c)(4)), the covered person must also provide information in 
paragraphs (c)(1), (c)(2), and (c)(5) through 17 CFR 240.10c-1a(c)(12) 
(``final Rule 10c-1a(c)(12)'') as of the date of the modification. The 
date and time of the modification will provide market participants with 
specificity and context regarding the terms of the modifications, 
including the rates available for modification at that date and time 
(which may be different than rates available for new loans). Including 
the date and time will be important because it will indicate if a 
report of a modification is not filed in a timely fashion.
    If, for example, a pre-existing covered securities loan is first 
modified, either on or after the reporting date, and it is a 
modification to the loan amount, the covered person will be required to 
report the number of shares as modified under paragraph (c)(6) of the 
final rule to an RNSA, as well as each of the other data elements in 
paragraph (c), including the date and time the pre-existing covered 
securities loan was effected, by the end of the day on which such loan 
was modified. In that same example, the date and time of the 
modification will be required to be reported. Recognizing that a unique 
identifier will not yet exist for the loan and no data about the loan 
was previously reported or made publicly available under the final 
rule, the data elements in (d)(1)(ii) and (d)(1)(iii) will not be 
required to be reported for such pre-existing covered securities 
loans.\438\ However, any subsequent modifications going forward will be 
subject to the modification reporting requirements under paragraph 
(d)(1) of the final rule such that only the information in paragraphs 
(d)(1)(i) through (iii) of paragraph (d) will be required to be 
reported to an RNSA. Pre-existing covered securities loans that do not 
have a modification to a data element in paragraph (c) will not be 
subject to the reporting obligation under paragraph (d)(2) of the final 
rule.\439\
---------------------------------------------------------------------------

    \438\ See final Rule 10c-1a(d)(2).
    \439\ See final Rule 10c-1a(d)(2).
---------------------------------------------------------------------------

    The Commission is not adopting the commenter's alternative of 
requiring reporting of all pre-existing covered securities loans on the 
first reporting date. Such an alternative would result in costs and 
burdens for an RNSA to build out the capacity to handle a much larger 
number of reports on the first reporting date. The Commission is also 
not adopting the commenter's alternative of omitting all pre-existing 
covered securities loans, as the data regarding such loans will be 
useful to investors as well as regulators and the on-boarding of data 
for such loans when modified will help reduce information

[[Page 75674]]

asymmetries.\440\ These modifications to the final rule address the 
concerns of other commenters seeking certainty regarding such day one 
loans.
---------------------------------------------------------------------------

    \440\ See supra note 436 (discussing costs that result from the 
requirement to report information once a loan modification occurs 
after the loan qualifies for reporting).
---------------------------------------------------------------------------

    The commenter also recommended ``provid[ing] all existing loans 
with an identifier on the day of implementation.'' \441\ However, 
simply providing an identifier to a pre-existing loan without data 
about the loan would not provide transparency about the terms of the 
loan. Instead, the final rule requires that an RNSA assign a unique 
identifier to the pre-existing covered securities loan when it is 
reported to an RNSA.
---------------------------------------------------------------------------

    \441\ BlackRock Letter, at 9.
---------------------------------------------------------------------------

    Specifically, 17 CFR 240.10c-1a(g)(3) (``final Rule 10c-1a(g)(3)'') 
requires that an RNSA assign a unique identifier to a pre-existing 
covered securities loan that is reported to it pursuant to paragraph 
(d)(2). Consistent with covered securities loans, an RNSA is also 
required to make publicly available the data elements in paragraphs (c) 
and (d)(1)(i) reported to it, other than loan amount data element in 
paragraph (c)(6), not later than the morning of the business day after 
the covered securities loan is modified.\442\ In addition, an RNSA is 
required to make the loan amount publicly available on the twentieth 
business day after the pre-existing covered securities loan is 
modified.\443\ These requirements for pre-existing covered securities 
loans that are modified after the reporting date are necessary so that 
the data reported regarding these modified loans are also made publicly 
available in a manner similar to loans that are covered securities 
loans under paragraph (g) of the final rule.
---------------------------------------------------------------------------

    \442\ See final Rule 10c-1a(g)(3)(i).
    \443\ See final Rule 10c-1a(g)(3)(ii).
---------------------------------------------------------------------------

3. Confidential Data Elements--Rule 10c-1a(e)
Proposed Rule
    The Commission also proposed certain material transaction data 
elements to be provided to, and retained by, an RNSA, but not made 
public (``confidential data elements''). As proposed, the confidential 
data elements provision of the rule is designed to have certain data 
information used solely by regulators to better understand securities 
lending, including interest in short selling and price discovery for 
securities lending, yet without identifying market participants or 
revealing sensitive information about their internal operations to the 
rest of the market. Paragraph (d) of the proposed rule also required 
the confidential data elements to be provided to an RNSA within 15 
minutes after each securities loan was effected (and then an RNSA would 
be required to keep such information confidential, subject to the 
provisions of applicable law).
    As proposed, the confidential data elements included:
    (i) The legal name of each party to the securities loan; where 
applicable, CRD or IARD Number, MPID, and the LEI of each party to the 
transaction, and whether such person is the lender/borrower/
intermediary between the lender and the borrower (if known); \444\
---------------------------------------------------------------------------

    \444\ In proposed Rule 10c-1(d)(1), the Commission stated its 
preliminary belief that provision of this first data element to an 
RNSA would allow regulators to understand buildups in risk at market 
participants. It would also provide an RNSA with information that 
would be required to administer the collection of all data elements 
provided to it under paragraphs (b) and (d) of proposed Rule 10c-1, 
such as ensuring the completeness of submissions, contacting persons 
that have errors in their provided data, and troubleshooting person-
specific technical issues. See Proposing Release, 86 FR 69815.
---------------------------------------------------------------------------

    (ii) If the person lending securities is a broker or dealer and the 
borrower is its customer, to report whether the security is loaned from 
a broker's or dealer's securities inventory to a customer of such 
broker or dealer; \445\ and
---------------------------------------------------------------------------

    \445\ In proposed Rule 10c-1(d)(2), the Commission stated its 
preliminary belief that this second data element would provide 
regulators with information on the strategies that broker-dealers 
use to source securities that are lent to their customers. The 
Commission also explained that this data element would not apply to 
lenders that are not broker-dealers. The Commission also stated that 
it preliminarily believed that making this information available to 
the public would be detrimental because it may reveal confidential 
information about the internal operations of a broker-dealer. See 
Proposing Release, 86 FR 69815-16.
---------------------------------------------------------------------------

    (iii) If known, whether the securities loan is being used to close 
out a fail to deliver either pursuant to 17 CFR 242.204 (``Rule 204'') 
of Regulation SHO or outside of Regulation SHO.
Final Rule
    The Commission sought and received comment regarding the proposed 
provision that would require lenders or their agents \446\ to provide 
the confidential data items to an RNSA within 15 minutes after each 
loan is effected.\447\ Commenters stated that the Commission should 
impose explicit confidentiality obligations on FINRA so as to protect 
the confidential securities lending information that would be 
reported.\448\ Paragraph (h)(4) of the final rule requires that an RNSA 
establish, maintain, and enforce reasonably designed written policies 
and procedures to maintain the security and confidentiality of the 
collected information, which should enhance protection of the 
confidential data that it collects under the final rule.
---------------------------------------------------------------------------

    \446\ The term ``lenders or their agents'' in proposed Rule 10c-
1 is replaced in the final rule by the term ``covered person'' (as 
defined in final Rule 10c-1a(j)). See also discussion of ``covered 
person'' above, in Part VII.A.
    \447\ See proposed Rule 10c-1(d).
    \448\ ICI Letter 1, at 11 (stating that, ``to protect the 
confidential securities lending information that would be reported 
to FINRA under proposed rule 10c-1, the SEC should impose explicit 
confidentiality obligations on FINRA . . . [and] should also ensure 
that FINRA implements adequate data security measures, given that 
FINRA will serve as a repository of a large amount of sensitive and 
non-public securities lending data.''). See also Federated Hermes 
Letter, at 2 (stating that it fully endorses and supports the ICI's 
comments, particularly ICI's proposal to protect confidential data, 
which, as described includes imposing explicit confidentiality 
obligations on FINRA and ensuring that FINRA implements adequate 
data security measures, given that FINRA will serve as a repository 
of a large amount of sensitive and non-public securities lending 
data); ISLA Letter, at 2 (expressing concern that if there is too 
much disclosure of information it could lead to less securities 
lending activity, particularly if the required data are 
disproportional or considered unreasonable); MFA Letter 3, at 8 
(recommending ``that the Commission exercise its regulatory 
oversight of FINRA to ensure that FINRA implements adequate data 
security measures''). See, e.g., IIB Letter, at 3 (recommending that 
the final rule require RNSAs to adopt certain data security 
measures, including masking or encryption); Charles Schwab Letter, 
at 2.
---------------------------------------------------------------------------

    One commenter suggested that the final rule include masking or 
further additional redactions to better protect an individual's 
personal non-public information.\449\ Another commenter stated that a 
retail client has increased confidentiality concerns compared to an 
institutional client.\450\ These concerns appear to arise primarily 
from the potential identification of a broker or dealer's individual 
fully paid customers. Paragraph (e)(1) of the final rule specifies that 
a broker or dealer is not required to provide the legal name of (or 
otherwise make identifiable) the customer when reporting loans of fully 
paid excess margin securities pursuant to Rule 15c3-3(b)(3). Thus, a 
broker or dealer may redact or mask such information prior to 
submitting the information to an RNSA.
---------------------------------------------------------------------------

    \449\ See Charles Schwab Letter, at 2; see also FIF Letter, at 
7.
    \450\ See Charles Schwab Letter, at 2.
---------------------------------------------------------------------------

    Another commenter supported the Commission's proposed requirement 
that lenders provide to an RNSA the identities of borrowers of 
securities loans (although they would not be publicly disclosed), 
explaining that this information is essential for effective market 
oversight, and failure to collect this information would materially

[[Page 75675]]

weaken the efficacy of the rule.\451\ Under the final rule, the names 
and identities of lenders (other than customers in a fully paid lending 
arrangement) will be required to be reported to an RNSA. This data will 
be fully captured by the final rule requiring a broker or dealer (as 
the ``borrower'' under the ``fully paid'' exception) to report such 
loans. With regard to fully paid arrangements, the final rule requires 
the broker or dealer to report such loans as the borrower. Although 
brokers or dealers will not be required to report the customer names to 
an RNSA, the brokers or dealers will be required to retain such 
information and make it available to the Commission and its 
representatives \452\ and will be required to retain per RNSA 
rules.\453\
---------------------------------------------------------------------------

    \451\ See, e.g., HMA Letter; NYSE Letter 1, at 2 (supporting the 
proposed confidential treatment of the proposed confidential data 
elements, particularly the parties to each transaction and further 
stating that ``[p]roposed Rule 10c-1(c)(3) guards against this 
concern by providing that all identifying information about lending 
agents, reporting agents, and other persons using reporting agents, 
will not be made publicly available and the RNSA will be required to 
keep such information confidential. Thus, the investment strategies 
of market participants will be appropriately protected through 
reporting and dissemination of securities lending transactions on an 
unattributed basis.'').
    \452\ See, e.g., 15 U.S.C. 78q (section 17(b) of the Exchange 
Act; see also 17 CFR 240.17a-4(j) (``Rule 17a-4(j)'') (requiring a 
broker-dealer to furnish records promptly to the Commission); Rule 
15c3-3(b)(3) (requiring a broker-dealer to enter into a written 
agreement with each fully paid lending customer); 17 CFR 240.17a-
4(b)(7) (``Rule 17a-4(b)(7)'') (requiring the broker-dealer to 
retain written agreements relating to its business as broker-
dealer).
    \453\ See, e.g., FINRA Rule 4511 (regarding preservation of 
records), available at https://www.finra.org/rules-guidance/key-topics/books-records.
---------------------------------------------------------------------------

    Another commenter suggested that, to make the rule more useful to 
investors, in addition to loan characteristics, there should also be a 
requirement to publicly disclose the legal names of the parties to the 
loan (in contrast to keeping that information confidential).\454\ In 
fact, multiple retail investor commenters stated that real reform for 
securities lending must include notifying the public about who is 
borrowing and lending shares (not just which company's shares are being 
borrowed or lent).\455\ One commenter stated that there is no reason 
for any of the information that is proposed to be provided to an RNSA 
to be restricted from public view and, thus, it should be made 
public.\456\ However, making this information available to the public 
could be detrimental because it could identify specific market 
participants or reveal confidential information about the internal 
operations or investment decisions of specific market 
participants.\457\
---------------------------------------------------------------------------

    \454\ See Morningstar Letter, at 3. However, if the Commission 
decides not to require public disclosure of legal names to the 
public, this commenter suggested, as an alternative, the Commission 
require detailed information about the fund type and borrower type 
be provided to the public by an RNSA. See Morningstar Letter, at 3.
    \455\ See, e.g., Letter from Susanne Trimbath, STP Advisory 
Services (Dec. 3, 2021) (whose remarks/comments have been 
extensively quoted/paraphrased by a multitude of commenters on the 
Proposing Release, i.e., Form A Letters and Form B Letters) 
(``Trimbath Letter'').
    \456\ See Letter from Jimit Raithatha (Oct. 11, 2022).
    \457\ See Proposing Release, 86 FR 69815.
---------------------------------------------------------------------------

    Others commented more generally on the importance of the securities 
lending disclosure requirements not adversely impacting the market 
(e.g., by revealing investors' short selling strategies). To avoid such 
adverse impacts, these commenters stated that there should be more 
prescriptive measures (than requiring policies and procedures, for 
instance) to prevent an RNSA, or the reporting agent, from releasing 
any of the confidential transaction data that are provided, under the 
final rule.\458\ Paragraph (h)(4) of the final rule sets forth a multi-
part requirement that mandates: (1) written policies and procedures; 
(2) that such policies and procedures must be reasonably designed; and 
(3) that an RNSA establishes, maintains, and enforces such policies and 
procedures. This approach is intended to provide flexibility to an RNSA 
to tailor policies and procedures that will appropriately maintain the 
security and confidentiality of the confidential information required 
by paragraph (e) of the final rule, based on its experience with the 
multiple types of sensitive and confidential trading data that it 
routinely handles as an RNSA. Policies and procedures generally are 
regularly monitored, tested, reviewed, and, if needed, updated to 
ensure that they remain continuously effective and, thus, should be 
particularly useful in helping to ensure that an RNSA adjusts to ever-
changing technologies intended to circumvent data safeguards. Further, 
an RNSA's policies and procedures are subject to Commission 
oversight.\459\
---------------------------------------------------------------------------

    \458\ See, e.g., Letter from Managed Funds Association (Jan. 7, 
2022) (``MFA Letter 1''), at 4 (suggesting the Commission explicitly 
require an RNSA to maintain strict confidentiality and information 
security standards. While the commenter applauded the Commission's 
efforts to ensure that FINRA has policies and procedures in place to 
protect the confidentiality of information that is submitted to it, 
the commenter believes that the Commission should require, among 
other things, more prescriptive measures similar to Rule 613 of 
Regulation NMS (consolidated audit trail) to ensure the security and 
confidentiality of information, as well as information barriers, 
information security systems, user confirmation, and access 
audits.); MFA Letter 3, at 3. Given the confidential and proprietary 
nature of some of the information that an RNSA will be collecting, 
this commenter stated it is imperative that the Commission 
ultimately ensure that FINRA adopt more prescriptive confidentiality 
and information security in connection with any final rule. As 
discussed above, the requirements of paragraph (h)(4) of the final 
rule provide an appropriate level of flexibility to an RNSA 
regarding specific prescriptive measures to use to maintain the 
security and confidentiality of the confidential information 
required by paragraph (e) of the final rule while, at the same time, 
placing strict requirements around such choices.
    \459\ See also ICI Letter 1, at 11 (suggesting a proposal to 
protect confidential data to include imposing explicit 
confidentiality obligations on FINRA and ensuring that FINRA 
implements adequate data security measures, given that FINRA will 
serve as a repository of a large amount of sensitive and non-public 
securities lending data); ISLA Letter, at 2 (expressing concern that 
if there is too much disclosure of information it could lead to less 
securities lending activity, particularly if the required data are 
disproportional or considered unreasonable).
---------------------------------------------------------------------------

    Some commenters expressed concerns about reporting agents 
maintaining confidential data received from covered persons.\460\ 
Consistent with the proposed rule, a covered person has the option of 
whether or not to entrust its confidential information with a reporting 
agent or to report such information directly to an RNSA. Further, 
paragraph (a)(2)(i) of the final rule requires that a covered person 
who relies on a reporting agent to fulfill its reporting obligations 
under the final rule must enter into a written agreement with such 
reporting agent. Such agreement could be used by the covered person and 
reporting agent to memorialize any measures that they agree to 
regarding the protection of the covered person's Rule 10c-1a 
information. Further, registered brokers and dealers and registered 
clearing agencies are subject to provisions such as section 15(g) of 
the Exchange Act and thus, have experience with implementing, 
maintaining, and enforcing policies and procedures and other means of 
protecting and preventing the misuse of information.\461\
---------------------------------------------------------------------------

    \460\ See S3 Partners Letter, at 12; IHS Markit Letter, at 4; 
Pirum Letter, at 5; BlackRock Letter, at 9.
    \461\ See 15 U.S.C. 78o.
---------------------------------------------------------------------------

    One commenter recommended that the proposed rule be modified to 
permit an RNSA to confidentially provide regulatory-related information 
to SROs that are not RNSAs, such as NYSE Regulation, without first 
obtaining a Commission order.\462\ Under the final

[[Page 75676]]

rule, an RNSA is required to establish, maintain, and enforce policies 
and procedures specifically tailored to protect the confidential 
information enumerated in the final rule. To address commenters' 
concerns regarding the potential market impact of loan information 
required to be provided to an RNSA by the final rule, the Commission 
may designate by order upon a demonstrated regulatory need, 
dissemination to persons other than an RNSA. Thus, as discussed further 
below, in Part VII.K, it is appropriate to provide such information to 
persons (other than the Commission) by order, on a case-by-case basis, 
upon a demonstrated regulatory need. Such case-by-case determination 
strikes the proper balance between protecting confidential information 
and facilitating the regulatory function, such as those of an SRO. 
Another commenter requested that the Commission clarify whether the 
``if known'' parenthetical, included at the end of paragraph (d)(1) of 
the proposed rule, was meant to apply to each of the confidential data 
elements (i.e., CRD, IARD, MPID) in that paragraph.\463\ In reviewing 
this provision, the Commission recognizes that the proposed rule text, 
by locating the ``if known'' language at the end of paragraph (d)(1) in 
the proposed rule (rather than at the beginning as was done with other 
``if known'' language that was used for the confidential data elements 
in paragraph (d)(3) of the proposed rule), the scope of this ``if 
known'' language with respect to the individual confidential data 
elements in paragraph (d)(1) was not entirely clear. Thus, the 
placement of the ``if known'' language similarly at the beginning of 
the paragraph (e)(1) of the final rule clarifies that each piece of 
information enumerated in that paragraph (i.e., following the ``if 
known'' language) is required to be reported only to the extent that 
piece of information is known by the covered person. To clarify this 
intent, it is appropriate to modify proposed paragraph (d)(1) by moving 
the placement of the ``if known'' language that is currently proposed 
at the end of paragraph (d)(1) (in the proposed rule), and relocating 
it to the beginning of paragraph (e)(1) in the final rule, consistent 
with the same ``if known'' language at the beginning of 17 CFR 240.10c-
1a(e)(3) (``final Rule 10c-1a(e)(3)'').
---------------------------------------------------------------------------

    \462\ See, e.g., NYSE Letter 2, at 1-3; Nasdaq Letter, at 3-4 
(supporting regulators having access to information that is not 
publicly available and advocating for the SEC to make non-public 
information available to other regulators). See also paragraph 
(h)(2) of final Rule 10c-1a regarding an RNSA making certain 
information available to the Commission; or other persons as the 
Commission may designate by order upon a demonstrated regulatory 
need.
    \463\ See OCC Letter, at 9.
---------------------------------------------------------------------------

    To the extent the data elements of final Rule 10c-1a(e)(1) are 
known, providing these data elements to an RNSA will allow regulators 
to understand buildups in risk at market participants and may otherwise 
assist an RNSA in monitoring and surveilling the security markets. The 
data elements will also provide an RNSA with the necessary information 
to administer the collection of all the other data elements provided to 
it under final Rules 10c-1a(c) and (d), such as ensuring the 
completeness of submissions, contacting persons that have errors in 
their provided data, and troubleshooting person-specific technical 
issues.\464\
---------------------------------------------------------------------------

    \464\ See, e.g., Proposing Release, 86 FR 69815 (regarding 
information collected pursuant to paragraphs (c) through (e) of the 
final rule available to the Commission; or other persons as the 
Commission may designate by order upon a demonstrated regulatory 
need).
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    The Commission also proposed requiring that information be reported 
(but not publicly disclosed) on whether the securities loan is being 
used to close out a fail to deliver pursuant to Rule 204 of Regulation 
SHO \465\ or to close out a fail to deliver outside of Regulation SHO. 
Rule 204 of Regulation SHO generally requires closing a firm's fail to 
deliver position in equity securities at a registered clearing agency 
by purchasing or borrowing securities of like kind and quantity. 
Accordingly, under the final rule, this data element will provide 
regulators with information both about the loans used by brokers or 
dealers to close out fails to deliver as required by Regulation SHO, as 
well as additional insight into the use of loans, particularly the 
extent that loans are used to cover account-level fail to deliver 
positions in reportable securities.
---------------------------------------------------------------------------

    \465\ 17 CFR 242.204.
---------------------------------------------------------------------------

    Several commenters were supportive of this confidential data 
element, as proposed, with one commenter noting the benefits of such 
data for regulatory oversight,\466\ and yet other commenters requested 
that this data element be required to be publicly reported.\467\ Final 
Rule 10c-1a(e)(3), adopts this data element as proposed. The Commission 
has elected to adopt without modification (i.e., not requiring public 
dissemination) this specific data element in paragraph (d)(3) of the 
proposed rule because, as a commenter stated,\468\ such information 
could be abused and is designed to be primarily useful for regulatory 
purposes.\469\ As the Commission has stated, fails to deliver may 
result from long sales as well as short sales, and may be closed out by 
either purchasing or borrowing shares. Fails to deliver can occur for 
various reasons, such as ``human or mechanical errors or processing 
delays can result from transferring securities in custodial or other 
form rather than book-entry form, thereby causing a fail to deliver on 
a long sale.'' \470\ Such data will be useful to regulators in 
determining both the extent of the use of securities loans for fails to 
deliver, as well as how and when fails to deliver are being addressed 
by securities loans. However, the Commission agrees with the commenter 
that such information, if made public, could be abused. For example, 
market participants that become aware of fails to deliver may seek to 
short squeeze the security knowing that the person failing to deliver 
has a time-sensitive need to cover its short position.
---------------------------------------------------------------------------

    \466\ See FINRA Letter, at 2 n.4 (stating that fail to deliver 
data in particular ``would significantly enhance FINRA's Regulation 
SHO surveillance programs''). This commenter stated that it agrees 
that the proposed rule will provide the Commission, FINRA, and other 
regulators with data that could be used for important regulatory 
functions, including facilitating and improving FINRA's in-depth 
monitoring of members' activity and surveillance of the securities 
markets in stating, ``this additional data would facilitate better 
surveillance by FINRA for regulatory compliance by its members'' and 
improve FINRA's ability to enforce relevant regulations. See id. at 
1-2. More specifically, ``the additional data, including in 
particular the identification of whether a loan will be used to 
close out a fail to deliver, would significantly enhance FINRA's 
Regulation SHO surveillance programs.'' Id. at 4.
    \467\ See, e.g., Hindley Letter (``In my opinion, this data not 
being made publicly available is wrong.''); Errick R. Letter (``I 
believe the terms . . . should also be made public.'').
    \468\ See Citadel Letter, at 11.
    \469\ See FINRA Letter, at 1-2.
    \470\ Amendments to Regulation SHO, Release No. 34-60388 (July 
17, 2009); 74 FR 38266, 38271 (July 31, 2009) (Adopting Release).
---------------------------------------------------------------------------

    Another commenter stated that, in addition to the data elements in 
paragraph (d)(1) of the proposed rule, it will not have knowledge of 
whether the loan was used to cover a fail to deliver at the time of 
providing the confidential report to an RNSA, as would be required by 
paragraph (d)(3) of the proposed rule.\471\ The final rule adopts as 
proposed the requirement that such information must be reported if 
known.\472\
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    \471\ See OCC Letter, at 9 (stating that OCC does not know the 
CFT, IARD, MPID, or LEI of the lending or borrowing clearing members 
or whether the lending or borrowing clearing members are acting as 
intermediaries--and does not know if the loan is being used to close 
out a fail to deliver pursuant to SEC Regulation SHO or otherwise). 
See also BlackRock Letter, at 5.
    \472\ See final Rules 10c-1a(e)(1) and (e)(3).
---------------------------------------------------------------------------

    As non-substantive changes to the rule, the Commission is replacing 
the word ``person'' with the defined term ``covered person'' as 
discussed above, in Part VII.A. Thus, as adopted, paragraph (e) of 
final Rule 10c-1a requires, consistent with the Proposing Release, that 
``[i]f required by paragraph (a) of this section, a covered person 
directly,

[[Page 75677]]

or indirectly using a reporting agent shall provide the following 
information to an RNSA, if applicable, by the end of the day on which a 
covered securities loan is effected.'' \473\ As non-substantive changes 
to the rule, the Commission is replacing the word ``person'' with the 
defined term ``covered person'' as discussed above, in Part VII.A. 
Thus, as adopted, paragraph (e) of final Rule 10c-1a requires, 
consistent with the Proposing Release, that ``[a] covered person shall 
provide the following information to an RNSA, if applicable, by the end 
of the day on which a covered securities loan is effected.'' \474\
---------------------------------------------------------------------------

    \473\ See final Rule 10c-1a(e) (referring to ``Confidential data 
elements'' in paragraphs (e)(1) through (3)).
    \474\ See final Rule 10c-1a(e) (referring to ``Confidential data 
elements'' in paragraphs (e)(1) through (3)).
---------------------------------------------------------------------------

4. Removal of Securities Available to Loan Data Element
Proposed Rule
    Among the securities lending data elements required to be reported 
to an RNSA, the Commission included in the proposed rule a requirement 
to report the total amount of each security that is not subject to 
legal or other restrictions that prevent it from being lent 
(``available to lend'').\475\ The Commission also required that certain 
identifying information, including the legal name of the security, and 
the ticker symbol or other identifier, be reported with the available 
to lend data.\476\ The Commission stated in the Proposing Release that 
it designed the securities available to loan data elements to allow for 
the calculation of a ``utilization rate'' for each security.\477\ The 
utilization rate, which could be calculated by dividing the total 
number of shares on loan by the total number of shares available for 
loan, could then be used by market participants to evaluate whether the 
security will be difficult or costly to borrow.\478\
---------------------------------------------------------------------------

    \475\ See proposed Rule 10c-1(e)(1)(iii).
    \476\ See proposed Rules 10c-1(e)(1)(i) and (ii).
    \477\ See Proposing Release, 86 FR 69817.
    \478\ See Proposing Release, 86 FR 69817.
---------------------------------------------------------------------------

Final Rule
    The Commission received numerous comments regarding the ``available 
to lend'' data element \479\ of the proposed rule. Certain commenters 
expressed concern that such data could be inaccurate,\480\ with some 
highlighting a variety of limitations on securities lending that could 
make the data unreliable.\481\ Commenters expressed concern that the 
available to lend data could be underreported if it omitted data from 
persons that were not required to provide information to an RNSA or 
that did not have an open securities loan.\482\ One commenter stated 
that ``data would be particularly misleading for large international 
banking organizations with substantial operations outside of the United 
States.'' \483\ Other commenters expressed general concern that the 
proposed ``available to lend'' data element could discourage securities 
lending.\484\ Two commenters recommended replacing the ``available to 
lend'' metric for the calculation of a utilization rate with publicly 
available information on the issuer's total share float.\485\ However, 
other commenters supported the reporting of ``available to lend'' 
data.\486\
---------------------------------------------------------------------------

    \479\ The term ``available to lend data'' refers to both the 
``total amount of each security that is not subject to legal or 
other restrictions that prevent it from being lent'' information 
proposed to be reported by a lending agent under proposed Rule 10c-
1(e)(1)(iii), and the ``total amount of each specific security that 
is owned by the person and available to lend'' information proposed 
to be reported by persons that do not use a lending agent under 
proposed Rule 10c-1(e)(2)(iii).
    \480\ See RMA Letter, at 11; IIB Letter, at 8; SIFMA Letter 1, 
at 15; ICI Letter 1, at 8-9; SIFMA AMG Letter, at 8; State Street 
Letter, at 4-5; Fidelity Letter, at 4; ABA Letter, at 4; CASLA 
Letter, at 2; Federated Hermes Letter, at 2; S3 Partners Letter, at 
11-12; Sharegain Letter, at 3; Linklaters Letter, at 5; MFA Letter 
3, at 6-7; EBF Letter, at 2 (expressing general support for comments 
from SIFMA and IIB addressing the reporting of ``available to lend'' 
data).
    \481\ See, e.g., State Street Letter, at 4 (``Although clients 
who participate in securities lending programs generally agree to 
lend all portfolio assets, or categories of assets, securities 
lending authorization agreements typically place limits on both 
portfolio and counterparty exposure. Furthermore, the actual supply 
of available securities may be impacted by additional client 
instruction resulting from various idiosyncratic or market events, 
as well as discretionary transfers in and out of investment 
portfolios.''). See also IIB Letter, at 8 (``Portfolio limits, 
concentration limits and simple lending preferences and strategies 
may substantially limit both the individual securities that a party 
may be willing to lend and the amount of lending that they are 
willing to provide on aggregate.''); ICI Letter 1, at 2 n.8 (``A 
fund may not have on loan at any time securities representing more 
than one-third of the fund's total value.'' Further stating that 
``[t]his restriction stems from section 18 of the Investment Company 
Act.''); SBAI Letter, at 2 (``However, funds managed under 1940 Act 
regulations have restrictions on their approach to securities 
lending (e.g., limit on lending: A fund may not have on loan at any 
time securities representing more than one-third of the fund's total 
value), thereby not allowing an accurate calculation of `securities 
available to lend' on an individual security basis.''); RMA Letter, 
at 12 (``. . . securities lending in a portfolio provided to a 
Lending Agent by a beneficial owner may be limited by (i) negotiated 
or legal portfolio limits that impact the amounts and types of 
securities that may be lent, (ii) ad hoc or periodic beneficial 
owner instructions to limit lending in particular ways based on 
idiosyncratic preferences . . . or external factors and (iii) 
discretionary transfers in and out of custody accounts unrelated to 
securities lending interest, and other factors.''); Linklaters 
Letter, at 5; James J. Angel Letter, at 4.
    \482\ See, e.g., IIB Letter, at 8. See also RMA Letter, at 11.
    \483\ See IIB Letter, at 8.
    \484\ See, e.g., State Street Letter, at 5 (stating that ``[i]n 
our experience, the prospect of being obligated to disclose, even in 
aggregate form, all portfolio holdings may be enough to drive 
certain clients out of the securities lending market, with important 
implications for liquidity''). See also ICI Letter 1, at 8; IIB 
Letter, at 8-9; RMA Letter, at 13; IHS Markit Letter, at 11 (stating 
that ``[b]eneficial owners, especially sovereign wealth funds and 
other sensitive investors, may have policies that could force them 
to withdraw from securities lending if they are required to submit 
available to lend data to a broker-dealer'').
    \485\ See State Street Letter, at 4; IHS Markit Letter, at 7, 9 
(responding to Questions 25 and 49).
    \486\ See HMA Letter, at 7 (stating that such information ``is 
essential to building a comprehensive view of the markets''); FINRA 
Letter, at 2 (stating that ``the information subject to reporting 
under the Proposal regarding the aggregate quantity of shares . . . 
available to loan would provide useful information in monitoring the 
levels of short selling activity occurring in a security and 
determining when a security is hard to borrow''); ASA Letter, at 3.
---------------------------------------------------------------------------

    One of the Commission's goals in proposing the ``available to 
lend'' data requirements was ``to allow for the calculation of a 
`utilization rate' for each particular security,'' which in turn 
``could be used by market participants to evaluate whether the security 
will be difficult or costly to borrow.'' \487\ The Commission stated in 
the Proposing Release that ``the information provided under paragraph 
(e) [of the proposed rule] should allow market participants to 
calculate a utilization rate that is likely to be reliable.'' \488\ 
However, many commenters expressed concerns that there may be 
significant challenges to the accurate reporting of ``available to 
lend'' data.\489\ One commenter stated, before highlighting barriers to 
obtaining accurate ``available to lend'' data, that the ``[c]alculation 
of the utilization rate requires an accurate measure of the `securities 
available to lend' for all market participants.'' \490\
---------------------------------------------------------------------------

    \487\ See Proposing Release, 86 FR 69817 (stating that the 
utilization rate ``would be calculated by dividing the total number 
of shares on loan by the total number of shares available for 
loan'').
    \488\ See Proposing Release, 86 FR 69817 n.113.
    \489\ See, e.g., ICI Letter 1, at 8-9; Federated Hermes Letter, 
at 2; ABA Letter, at 4; RMA Letter, at 11; State Street Letter, at 
4-5; IIB Letter, at 8; SBAI Letter, at 2; Sharegain Letter, at 3.
    \490\ See SBAI Letter, at 2 (stating that ``funds managed under 
1940 Act regulations have restrictions on their approach to 
securities lending . . . thereby not allowing an accurate 
calculation of `securities available to lend' on an individual 
security basis'').
---------------------------------------------------------------------------

    Upon consideration, the Commission agrees with commenters' concerns 
with the potential for underreported or inaccurate ``available to 
lend'' data being reported. Therefore, final Rule 10c-1a has been 
amended from the proposed rule to remove the reporting of ``available 
to lend'' data, as described under proposed Rules 10c-1(e)(1)(iii) and 
(e)(2)(iii), and to remove the

[[Page 75678]]

corresponding requirement that an RNSA make such information publicly 
available, as described under proposed Rule 10c-1(e)(3). Additionally, 
final Rule 10c-1a removes the reporting requirements for the 
identifying information (e.g., legal name of the security, LEI of the 
issuer, ticker symbol, ISIN, CUSIP, FIGI, or other identifier) of such 
``available to lend'' securities, as listed under proposed Rules 10c-
1(e)(1)(i) and (ii) and 10c-1(e)(2)(i) and (ii). Therefore, final Rule 
10c-1a does not include a requirement that ``available to lend'' data 
be reported to an RNSA, by a lending agent, a person that does not 
employ a lending agent, or otherwise. The elimination of this 
requirement from the proposed rule responds to commenter concerns, will 
limit the burden of the final rule's reporting requirements on covered 
persons, and will preempt the potential for inaccurate or unreliable 
data to be made publicly available to market participants.
5. Removal of Securities On Loan Data Element
Proposed Rule
    The Commission proposed a requirement that, by the end of each 
business day that a lending agent was required to provide Rule 10c-1 
information to an RNSA or had an open securities loan about which it 
was required to provide information to an RNSA, the lending agent shall 
provide to an RNSA the total amount of each security on loan that has 
been contractually booked and settled (``security on loan'').\491\ The 
proposed rule also required that by the end of each business day that a 
person that does not use a lending agent provides Rule 10c-1 
information to an RNSA, or had an open securities loan about which it 
was required to provide information to an RNSA, the person shall also 
provide to an RNSA the total amount of each security on loan that has 
been contractually booked and settled (``security on loan'').\492\ The 
Commission also proposed that ``[f]or each security about which the 
RNSA receives [such] information . . . . The RNSA shall make available 
to the public only aggregated information for that security.'' \493\
---------------------------------------------------------------------------

    \491\ See proposed Rule 10c-1(e)(1)(iv).
    \492\ See proposed Rule 10c-1(e)(2)(iv).
    \493\ See proposed Rule 10c-1(e)(3).
---------------------------------------------------------------------------

    The Commission stated its preliminary belief that securities on 
loan data could help market participants plan their borrowing 
activity.\494\ The Commission also stated that it designed the proposed 
securities on loan data element to allow for the calculation of a 
``utilization rate'' for each particular security.\495\ The utilization 
rate could then be used by market participants to evaluate whether the 
security will be difficult or costly to borrow.\496\
---------------------------------------------------------------------------

    \494\ See proposed Rule 10c-1(e)(3).
    \495\ See Proposing Release, 86 FR 69817.
    \496\ See Proposing Release, 86 FR 69817.
---------------------------------------------------------------------------

Final Rule
    Commenters provided differing views on the proposed reporting 
requirement for the securities on loan data element. Certain commenters 
supported or did not object to the requirement to report securities on 
loan data \497\ in the proposed rule.\498\ One commenter recommended 
that more granular securities on loan data be made available, including 
that the ``total number of shares of each stock on loan [should be] 
disaggregated by lender.'' \499\ Multiple commenters supported the 
proposed requirement for an RNSA to make securities on loan data 
publicly available on an aggregate basis,\500\ with one recommending 
that ``[f]or each security, FINRA could disseminate the total volume of 
securities on loan by shares or principal value (as applicable) and as 
a percentage of the shares or principal value (as applicable) of all 
securities that are outstanding.'' \501\ Another commenter disapproved 
of the proposed securities on loan data reporting requirement, 
expressing concerns that the data ``may be misleading,'' and 
recommended removing it.\502\ The commenter stated that some brokers 
use approaches to calculating securities on loan data that ``routinely 
misrepresent the true number of borrowed shares.'' \503\
---------------------------------------------------------------------------

    \497\ The term ``securities on loan data'' refers to both the 
``total amount of each security on loan that has been contractually 
booked and settled'' information proposed to be reported by lending 
agents under proposed Rule 10c-1(e)(1)(iv), and the ``total amount 
of each specific security that is owned by the person'' information 
proposed to be reported by persons that do not use a lending agent 
under proposed Rule 10c-1(e)(2)(iv).
    \498\ See SIFMA Letter 1, at 4 n.9; SIFMA AMG Letter, at 11; 
FINRA Letter, at 2 (stating that ``the information subject to 
reporting under the Proposal regarding the aggregate quantity of 
shares on loan . . . would provide useful information in monitoring 
the levels of short selling activity occurring in a security and 
determining when a security is hard to borrow.''); Better Markets 
Letter, at 6.
    \499\ See Letter from Americans for Financial Reform Education 
Fund, at 3 (Apr. 1, 2022) (``AFREF Letter 2'').
    \500\ See FIF Letter, at 11; ICI Letter 1, at 11.
    \501\ See FIF Letter, at 11.
    \502\ See S3 Partners Letter, at 12 (stating that ``prime 
brokers often use their own internal inventory of shares which means 
no actual `borrowing' takes place. By failing to take this 
`internalization' into account, approaches that use `securities on 
loan' routinely misrepresent the true number of borrowed shares.'').
    \503\ See S3 Partners Letter, at 12.
---------------------------------------------------------------------------

    Similar to the concerns described above, in Part VII.F.4, about the 
proposed securities available to loan data element, the Commission 
agrees with the commenters that there may be challenges to the 
collection of accurate securities on loan data.\504\ Additionally, 
aggregated information similar to the proposed securities on loan data 
will be made available by RNSAs, without the additional, potentially 
duplicative, reporting requirements of proposed Rule 10c-1(e)(1)(iv) 
and (e)(2)(iv).\505\ Under the final rule, RNSAs will be required to 
design and provide not only information pertaining to the aggregate 
transaction activity \506\ for each reportable security, but also 
distribution of loan rates for each reportable security.\507\ These 
requirements should provide market participants with information to 
help plan their borrowing activity, while avoiding potentially 
duplicative reporting obligations. Such aggregated data would be 
consistent with some commenters' support for requiring RNSAs to make 
``securities on loan'' data available on an aggregated basis.\508\ 
Additionally, RNSAs will be required to make the disaggregated ``amount 
of the security loan'' data publicly available,\509\ comparable to the 
disaggregated ``securities on loan'' data recommended by one 
commenter.\510\ However, as discussed below, in Part VII.J, such 
disaggregated data will only be publicly available on a delayed basis, 
on the twentieth business day after the covered securities loan is 
effected, in order to protect the sensitive nature of individual 
securities lending ``amount'' information (e.g., such as size or 
volume).\511\ Furthermore, for the reasons described above, in Part 
VII.F.4, final Rule 10c-1a will not require the reporting of an 
available to loan data element, which therefore would not be available 
to pair with the proposed securities on loan data element in order

[[Page 75679]]

to calculate a ``utilization rate'' metric.\512\ Therefore, while 
certain benefits derived by market participants from the reporting and 
disclosing of securities available to lend data and securities on loan 
data elements together may not be realized, market participants may 
benefit from the public availability of aggregate transaction activity 
and distribution of loan rates.\513\
---------------------------------------------------------------------------

    \504\ See FIF Letter, at 10; S3 Partners Letter, at 11-12; 
Linklaters Letter, at 5-6.
    \505\ See final Rule 10c-1a(c).
    \506\ See final Rule 10c-1a(g)(5). The term ``aggregate 
transaction activity'' used in the final rule refers to information 
pertaining to the absolute value of transactions such that net 
position changes could not be discerned in the data. The addition of 
the term ``aggregate transaction activity'' in the final rule limits 
the possibility of publishing proprietary information while still 
providing volume transparency to market participants.
    \507\ See final Rule 10c-1a(g)(5).
    \508\ See SIFMA Letter 1, at 18-19; SIFMA AMG Letter, at 10.
    \509\ See final Rule 10c-1a(g).
    \510\ See AFREF Letter 2, at 3.
    \511\ See final Rule 10c-1a(g)(2).
    \512\ See Proposing Release, 86 FR 69817 (``The utilization 
rate, which would be calculated by dividing the total number of 
shares on loan by the total number of shares available for loan, 
could be used by market participants to evaluate whether the 
security will be difficult or costly to borrow.'').
    \513\ See Proposing Release, 86 FR 69817.
---------------------------------------------------------------------------

    For the foregoing reasons, final Rule 10c-1a has been changed from 
the proposed rule to remove the reporting of securities on loan data, 
as described under proposed Rule 10c-1(e)(1)(iv) and (e)(2)(iv), and to 
remove the corresponding requirement that an RNSA make such information 
publicly available, as described under proposed Rule 10c-1(e)(3). 
Therefore, final Rule 10c-1a does not include a requirement that a 
lending agent or other covered person report securities on loan data to 
an RNSA.

G. Timing of Required Reporting to an RNSA

1. Timing of Reporting of Loans
Proposed Rule
    As discussed above, in Part VII.F.1, paragraph (b) of the proposed 
rule would have required certain loan transaction data elements to be 
reported to an RNSA, on a transaction-by-transaction basis, within 15 
minutes of the loan being effected, followed by an RNSA assigning each 
loan a unique transaction identifier and then making such information 
publicly available as soon as practicable. As part of the proposed 
rule, the Commission sought specific comment as to the proposed 15-
minute requirement for reporting specified data elements to an RNSA.
Final Rule
    While the proposed 15-minute reporting requirement received some 
support,\514\ most of the comments received by the Commission from 
larger institutional market participants strongly opposed the proposed 
rule's requirement that the specified data elements be reported to an 
RNSA within 15 minutes after a loan is effected (i.e., in addition to 
the data being publicly disseminated on a transaction-by-transaction 
basis). For example, most of these larger market participants explained 
that the terms of securities loans change during the day and are 
generally not finalized until the end of the day.\515\ These changes 
include reallocations of securities loans among lenders, re-pricings, 
and changes in collateral.\516\ As a result, the commenters stated that 
requiring transaction-by-transaction reporting, particularly on a 15-
minute/intraday basis, would result in significant unintended negative 
consequences, including the public dissemination of incomplete or 
misleading information, which could adversely impact the securities/
lending markets.\517\ Another commenter also stated that the proposed 
15-minute reporting requirement is impractical and logistically 
challenging and would ``create noise and misleading information in the 
market.'' \518\ In addition commenters stated that there would be costs 
to participants to create and maintain an entirely new infrastructure 
for loan data reporting and dissemination.\519\
---------------------------------------------------------------------------

    \514\ Some commenters did express support for the proposed 15-
minute reporting requirement. These commenters were primarily 
smaller retail investors who stressed the benefits of real-time 
intraday reporting. See, e.g., Letter from Nick Morgan (May 4, 2023) 
(advocating for transaction-by-transaction reporting and the 15-
minute reporting requirement, as well as promoting transparency in 
securities lending, which will benefit retail investors and 
strengthen the SEC's ability to fulfill its mandate while also 
guarding against economic fragility and potential national security 
threats). See also Letter from Edwin Liew (May 4, 2023) (supporting 
the 15-minute reporting requirement saying the cost and effort are 
justified to prevent fraud and prevent hiding in loopholes). In 
fact, one commenter stated that at a minimum ``the final rule should 
significantly shorten the 15-minute reporting timeframe.'' Better 
Markets Letter, at 8. This commenter urged the Commission to 
finalize the proposed rule without undue delay and without diluting 
the proposal in any way absent credible, specific evidence that such 
dilution will not have an impact on the utility of the data 
reported. See id. This commenter also stated that ``the SEC should 
also shorten the required timeframes for the reporting'' and 
identified ``potential shortcomings of these timeframes, including 
how they hamper real-time regulatory oversight or allow manipulative 
activity based on information leakage or other means of exploiting 
the 15-minute reporting delay . . . for public disclosure.'' Id. 
Other commenters expressed support for the proposed rule and 
specifically noted that it is a leading provider of data and 
analytics in the securities lending market and is currently able to 
do intraday reporting. See, e.g., Equilend Letter; see also 
Morningstar Letter, at 4 (stating its support for the proposed 15-
minute reporting requirement). The Commission acknowledges the above 
benefits stated by these commenters regarding the proposed 15-minute 
reporting requirement and has considered the comments that argued in 
favor of end-of-day reporting. As discussed below, in this part, the 
Commission has determined to replace the proposed intraday 15-minute 
reporting requirement with an end of day requirement that will allow 
covered persons additional time in which to collect and report their 
Rule 10c-1a information in compliance with final Rule 10c-1a's 
requirements.
    \515\ See Fidelity Letter, at 2-3 (stating that ``[t]he 
reporting timeframe for transactions should be no earlier than end 
of day''). See also MFA Letter 1, at 8; MFA Letter 2.
    \516\ See FIF Letter, at 3.
    \517\ See, e.g., SIFMA AMG Letter, at 3 (stating that the 
proposed 15-minute requirement would lead to the reporting of 
superfluous information benefitting neither market transparency nor 
regulatory oversight). See also SIFMA Letter 1, at 13-14; SIFMA 
Letter 2, at 5. See also State Street Letter, at 2-3 (stating the 
15-minute reporting requirement will result in incomplete or error 
prone information because it ignores that loans are usually 
finalized by the end of day). See also AIMA Letter 1, at 4; ICI 
Letter 1, at 6.
    \518\ See, e.g., CCMR Letter, at 5 (stating that disclosing 
securities loan activity on a transaction-by-transaction basis as 
soon as 15 minutes after they are effected would likely signal to 
the market that a short selling position is being actively 
established in that security, which could have potential negative 
effects on short sellers, increase costs associated with 
establishing a short position through information leakage and 
slippage; or lead to ``short squeezes''). See also SBAI Letter, at 
2; AIMA Letter 1, at 3-4 n.11; RMA Letter, at 18.
    \519\ See MFA Letter 1, at 3.
---------------------------------------------------------------------------

    Other commenters stated that the proposed 15-minute reporting time 
period would exponentially increase the number of execution (and 
modification) reports that would be required to be filed.\520\ Another 
commenter stated that requiring reporting every 15 minutes gives away 
too much proprietary information to the market regarding closely 
guarded trading strategies, risking exposures to short squeezes, front 
running, reverse-engineering--particularly with hard-to-borrow 
securities.\521\ Another commenter raised the concern that a 15-minute 
reporting requirement may be unnecessarily frequent and that there did 
not appear to be any stated rationale in the Proposing Release for how 
a 15-minute reporting interval would be helpful to market participants 
or why this frequency is appropriate.\522\
---------------------------------------------------------------------------

    \520\ See also RMA Letter, at 9.
    \521\ See AIMA Letter 1, at 4-5 (stating that in response to the 
proposed rule market participants may adjust their trading 
strategies or exit the borrowing market when they otherwise would be 
active participants thereby reducing liquidity and increasing 
volatility).
    \522\ See Letter from Tom Quaadman, Executive Vice President, 
Center for Capital Markets Competitiveness, U.S. Chamber of Commerce 
(Jan. 7, 2022) (``Chamber of Commerce Letter''). But see Nasdaq 
Letter, at 3 (stating ``the data reported should be made available 
to investors within a reasonable timeframe to utilize the 
information effectively to make informed investment decisions. To 
that end, it is unclear whether the fifteen-minute timeframe for 
reporting certain data is optimal and is supported by sufficient 
research or other justification. When compared to the speed at which 
markets operate, the fifteen-minute delay may be excessive and, on 
the other hand, there may be little benefit to investors in 
receiving such information after a fifteen-minute delay as opposed 
to a longer period, such as the end of the day. . . .''). See also 
RMA Letter, at 9 (stating that ``[r]equiring reporting on an 
intraday basis as proposed would be operationally impractical in 
many respects and would provide little to no incremental value 
compared to end-of-day reporting''). See also Federated Hermes 
Letter, at 1 (stating that ``the requirement to report securities 
loans within 15 minutes of `being effected' or modified does not 
appear to reflect the reality that the terms of securities loans are 
fluid and frequently modified throughout a business day''). Thus, 
the commenter states it is difficult to identify a particular 
intraday point that a given loan has been ``effected.'' See id. 
According to the commenter, even if it were possible to determine 
such an intraday point, 15 minutes is too short of a timeframe to 
collect and accurately report the required transaction data. Thus, 
the commenter stated that given the imprecision of defining the 
exact intraday moment at which a lending transaction is effected, 
and the frequency with which the transaction's details are modified, 
new reporting requirements will be expensive and operationally 
difficult to implement. See id. See also IHS Markit Letter, at 2 
(opposing the proposed 15-minute reporting requirement and stating 
``the frequency with which loans would be reported and disseminated 
would be both an immense hurdle and costly burden for the industry 
and could also lead to reduced market liquidity and participants 
withdrawing from lending altogether'').

---------------------------------------------------------------------------

[[Page 75680]]

    To address these concerns, commenters offered possible 
modifications for the final rule. Many of the commenters who suggested 
an alternative approach favored an ``end-of-day'' reporting 
requirement.\523\ They explained that end-of-day reporting would make 
more sense and result in more worthwhile information being reported as 
it takes into account that most securities loan trades are not 
finalized until end of day.\524\ One of the commenters explained how 
most securities loan market participants already use/rely on ``end-of-
day'' data because they view it as the most relevant and reliable 
measurement of market activity.\525\ This commenter also stated that, 
even though intraday data may already be available from service 
providers, it is still widely seen as indicative in nature and subject 
to frequent correction.\526\
---------------------------------------------------------------------------

    \523\ See, e.g., FIF Letter, at 4 (stating that reporting should 
be end of day; however, the letter still discusses implementation 
challenges for broker-dealers and complexity in requiring even end 
of day reporting).
    \524\ See SIFMA Letter 1, at 3; see also ASA Letter, at 2-3 
(stating an ``end-of-day requirement to report securities lending 
transactions would be appropriate and provide investors with 
sufficient transparency regarding the terms of these 
transactions''); ICI Letter 1, at 6 (claiming any information 
reported within 15 minutes risks being misleading to investors and 
``noise'' as it would not reflect the parties' final terms); 
Sharegain Letter, at 4 (stating its support for a longer reporting 
time period than 15 minutes, ``[i]n our view, decreasing the 
frequency of reporting to twice a day, or end-of-day reporting, 
would render compliance with the timing requirement much more 
reasonable'').
    \525\ See IHS Markit Letter, at 5.
    \526\ See IHS Markit Letter, at 2 (stating that ``[i]ntraday 
data is also difficult to ingest and analyze and therefore 
accessible to only the largest and most sophisticated participants 
in the securities lending market''); see also ICI Letter 1, at 6 
n.22 (stating ``it is well understood by market participants . . . 
that intraday data may be incomplete and is subject to change'').
---------------------------------------------------------------------------

    Other commenters suggested reporting by end of the next day (i.e., 
on a T+1 basis similar to what the EU/UK's Securities Financing 
Transactions Regulation (``SFTR'') reporting regime requires).\527\ For 
example, one commenter stated it did not believe there is any 
additional value to investors in providing intraday data, given the 
nature of pricing for securities lending transactions, the potential 
for intraday data to confuse investors, and the unnecessary costs and 
burdens it would pose to market participants.\528\ Another commenter 
who favored next day reporting maintained that it was a way to avoid 
the operational challenges, disproportionate costs, and compliance 
complexities associated with the proposed 15-minute reporting 
requirement.\529\ Another commenter asked the Commission to amend the 
15-minute reporting requirement in favor of end-of-day reporting on a 
next day (T+1) basis and stated that the 15-minute reporting 
requirement would be impractical, and that a T+1 standard would address 
transparency, reduce implementation costs, and align with the existing 
SFTR securities loan reporting regime.\530\ Another commenter suggested 
that the proposed rule be modified to allow the lending agent to have 
until the following business day to make the required report to avoid 
reporting errors.\531\
---------------------------------------------------------------------------

    \527\ See, e.g., SIFMA AMG Letter, at 3 (suggesting ``end of 
next day, T+1, or at least no more frequently than by the end of 
each business day''); See also BlackRock Letter, at 2-3 (requesting 
a T+1 reporting requirement); see also IIB Letter, at 2 (suggesting 
``end-of-day'' reporting on a T+1 basis instead of intraday 
reporting); ABA Letter, at 4 (suggesting ``until the following 
business day''); RMA Letter, at 3 (suggesting ``end-of-day reporting 
on a next day, T+1 basis'' instead of a 15-minute reporting 
requirement because it aligns with the existing SFTR securities 
loans reporting regime); S3 Partners Letter, at 3 (stating the 
Commission should revise the proposed rule to require aggregate, not 
transaction level, reporting on T+1). See also EBF Letter, at 2 
(stating that it supports IIB's and SIFMA's EOD and T+1 reporting 
comments); Citadel Letter, at 2 (referencing the significant costs 
associated with transaction-by-transaction reporting and the 
Commission's conclusion [albeit in another SEC release] that 
aggregated and delayed disclosure of short sale positions was 
preferable to transaction-by-transaction and intraday disclosure). 
See also MFA Letter 3, at 5 (stating ``the SEC's proposal to require 
the reporting of the material terms of a securities loan within 15 
minutes of a loan ``being effected'' is unworkable in a securities 
loan context''). According to this commenter, securities loans do 
not involve an outright purchase or sale but may be on-loan for 
extended periods, can be returned at any time, and may subsequently 
be re-lent. The terms of a securities loan are typically negotiated 
throughout the day and often not finalized until the end of the day 
or the next day.'' Id at 5. See also Morningstar Letter, at 2-4 
(stating support for loan-level data to be made publicly available 
by next business day in order to provide investors with a more 
transparent and complete depiction of a fund's lending activities).
    \528\ See BlackRock Letter, at 2-4.
    \529\ See Pirum Letter, at 2.
    \530\ See RMA Letter, at 3.
    \531\ See ABA Letter, at 4.
---------------------------------------------------------------------------

    Commenters also stated that next day or T+1 reporting would provide 
more appropriate flexibility for developing systems and processes for 
reporting at substantially lower cost.\532\ Some commenters expressed 
support for modifying the reporting requirement to require next 
business day (i.e., on T+1 basis) but also for an earlier reporting 
requirement (i.e., end of the same day) provided that the Commission 
provides clarity regarding the precise time period for such reporting 
(e.g., the exact point in time that will constitute ``end of day'' for 
purposes of the final rule) so that market participants will have the 
clarity and certainty they will need to comply and report 
accurately.\533\
---------------------------------------------------------------------------

    \532\ See, e.g., RMA Letter 1, at 11 (stating next-day reporting 
would provide more appropriate flexibility for developing systems 
and processes for reporting at substantially lower cost).
    \533\ See ICI Letter 1, at 6 (stating that for anything earlier 
than T+1, the SEC should provide clarity regarding the timeframe for 
such reporting to ensure it is feasible).
---------------------------------------------------------------------------

    After reviewing and considering the public comments and 
recommendations regarding the proposed 15-minute reporting requirement, 
the Commission is adopting final Rule 10c-1a(c), substantially as 
proposed, but with targeted modifications to the proposed rule's 
reporting period to address commenters' concerns about the proposed 
timing requirement being unworkable and overly burdensome by replacing 
the proposed 15-minute reporting period with end-of-day reporting, as 
well as bringing the different regulatory regimes in closer alignment 
with the final rule's public dissemination requirements. Adopting the 
final rule with an end-of day reporting requirement will help reduce 
the concerns raised by the commenters, while still furthering the 
underlying objectives of the final rule.\534\
---------------------------------------------------------------------------

    \534\ Consistent with the proposed rule, the Commission is not 
specifying the time that will be the ``end of each business day'' or 
what holidays are a ``business day'' to give an RNSA the discretion 
to structure its systems and processes as it sees fit and propose 
rules accordingly, provided they are consistent with the rule as 
adopted. See also Proposing Release, 86 FR 69816 n.104. See supra 
note 72 (regarding an example for times set by an RNSA for other 
reporting regimes).
---------------------------------------------------------------------------

    As modified, the final rule's end-of-day reporting requirement will 
help prevent an excessive number of incomplete or slightly modified 
reports that otherwise would occur throughout the day yet without 
providing any incremental value. Thus, in modifying the final rule to 
include an end-of-day reporting requirement, rather than requiring 
frequent intraday reporting, the Commission understands the frequency 
with which parties to a securities loan may agree to some of the

[[Page 75681]]

basic terms initially, but that 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.\535\ Nonetheless, 
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 the final rule.\536\
---------------------------------------------------------------------------

    \535\ See RMA Letter, at 10 (expressing the concern that, ``data 
reported during the course of the day would fluctuate substantially, 
would be incomplete in many respects and would likely include 
meaningful levels of exception reporting, outcomes that could be 
mitigated by giving borrowers and lenders the ability to conduct 
reconciliations at the end of the day prior to reporting''). 
According to this commenter, most market participants would prefer 
(trust) verified data with a time delay, which the commenter 
believed would likely be more accurate than real-time data. See id.
    \536\ Under final Rule 10c-1a, in those instances where a 
covered securities loan is not settled or finalized until the next 
day, i.e., T+1, a covered person will still be required to report 
the covered securities loan by the end of the day on which such 
covered securities loan is effected by the parties. It will not need 
to be reported again when it does settle the next day, on T+1--
unless the reported covered securities loan is modified the next 
day, on T+1, when it does settle. See final Rules 10c-1a(c) and (d).
---------------------------------------------------------------------------

    As adopted, paragraph (c) of the final rule requires a covered 
person (directly, or indirectly using a reporting agent) to provide the 
Rule 10c-1a information, if applicable, to an RNSA ``by the end of the 
day on which a covered securities loan is effected.'' \537\ By 
replacing the proposed 15-minute reporting requirement with a more 
flexible end-of-day (or ``EOD'') reporting requirement in final Rule 
10c-1a(c), the Commission recognizes that many covered securities loans 
are not likely to be finalized within that 15-minute time period or 
until the end of the day. Unlike SFTR in Europe, final Rule 10c-1a's 
reporting requirement (i.e., to an RNSA) will not extend until the next 
day, on a T+1 basis. While final Rule 10c-1a and the SFTR both deal 
with securities lending, they are two unique and different regulatory 
regimes, with differences in their underlying objectives and scope of 
regulations. Final Rule 10c-1a, however, does allow an RNSA until the 
morning of the next business day (thus on T+1, the same as SFTR) to 
disseminate the Rule 10c-1a information it receives the night before. 
This allows an RNSA sufficient time it needs between receipt of the 
Rule 10c-1a information and its dissemination to the public, which 
necessitates the Rule 10c-1a information being collected no later than 
the night before.
---------------------------------------------------------------------------

    \537\ Final Rule 10c-1a(c). See also infra note 541 and 
accompanying text.
---------------------------------------------------------------------------

2. Timing of Reporting of Loan Modification
Proposed Rule
    As discussed above, in Part VII.F.2, paragraph (c) of the proposed 
rule would have required that certain loan modification data elements 
be provided to an RNSA within 15 minutes after each loan is modified if 
the modification results in a change to the Rule 10c-1 information that 
is already required to be provided to an RNSA under paragraph (b) of 
the proposed rule (and for an RNSA to make such information available 
to the public as soon as practicable).\538\ In issuing the proposed 
rule, the Commission sought comment specifically regarding the proposed 
timing requirement in paragraph (c), which would have required 
specified loan modification data elements to be reported to an RNSA 
within 15 minutes after a loan is modified.
---------------------------------------------------------------------------

    \538\ See proposed Rule 10c-1(c).
---------------------------------------------------------------------------

Final Rule
    Most of the comments received by the Commission on the proposed 
loan modification data elements in paragraph (c) of the proposed rule 
were focused on the proposed 15-minute loan modification reporting 
requirement, with many of the commenters suggesting that it be replaced 
with end-of-day reporting (i.e., similar to the end-of-day timing 
modification discussed above with respect to the securities loan data 
elements information originally reported to an RNSA).
    In addition to the comments discussed above, in Part VII.F.2, 
commenters opposing the proposed 15-minute reporting requirement also 
raised concerns that new trades can be executed for market delivery at 
any time during the day before the close of settlement at DTC and, as a 
result, that some market participants will book trades in ``batches'' 
or at their discretion, as opposed to individually when agreed.\539\ 
Some commenters stated that other reporting regimes do not require 
intraday reporting, as certain activity reported intraday might 
ultimately not result in an executed trade.\540\
---------------------------------------------------------------------------

    \539\ See, e.g., Pirum Letter, at 2 (explaining the batch 
process and how the majority of the data are processed and received 
in batches and, thus, end-of-day reporting, rather than the proposed 
15-minute reporting requirement, will thereby allow sufficient time 
for necessary control processes to take place to ensure the accuracy 
of data submissions).
    \540\ See, e.g., SIFMA Letter 1, at 14; SIFMA Letter 2, at 5 
(supporting concerns raised in the SIFMA Letter 1, at 14); ICI 
Letter 1, at 6; RMA Letter, at 9; MFA Letter 1, at 9; Fidelity 
Letter, at 3; IIB Letter, at 6-7; IHS Markit Letter, at 10.
---------------------------------------------------------------------------

    Reporting the loan modification data elements for each covered 
securities loan that is modified is important to ensure that data 
elements previously reported to an RNSA accurately reflect currently 
outstanding covered securities loans and to prevent evasion of the 
rule. However, in response to commenters' concerns, particularly with 
respect to operational difficulties associated with the proposed 15-
minute loan modification reporting requirement and uncertainties as to 
the scope of its intended application, the Commission is adopting the 
loan modification data elements provision in paragraph (d) of the final 
rule, substantially as proposed, but with a modification as to the 
timing of the reporting period and some clarifying changes to the 
proposed rule text.
    More specifically, to promote the integrity and consistency of the 
reporting under the final rule, the Commission has determined to remove 
the proposed requirement to report loan modification data elements to 
an RNSA within 15 minutes after each loan is modified and to replace it 
with the same end-of-day reporting the Commission is requiring for the 
original loan data elements under paragraph (c) of the final rule.\541\ 
For the same reasons discussed above, in Part VII.F.1, allowing covered 
persons until the end of the day to report any required loan 
modification data information to an RNSA is appropriate because it will 
help to address commenters' concerns and operational difficulties with 
frequent intraday reporting while still furthering the transparency 
objectives of the final rule.
---------------------------------------------------------------------------

    \541\ See final Rules 10c-1a(c) through (e) (as modified, and 
for consistency, all three data elements paragraphs require end-of-
day reporting, rather than the proposed 15-minute reporting 
requirement).
---------------------------------------------------------------------------

    As modified, the final rule requires the specified loan 
modification data elements to be provided by the covered person 
(directly or indirectly using a reporting agent) to an RNSA, by the end 
of the day on which a covered securities loan is modified.\542\ By 
replacing the proposed 15-minute reporting requirement with a more 
flexible end-of-day reporting requirement in final Rule 10c-1a(d), the 
timing modification should help reduce the concerns raised by 
commenters, that is, by allowing covered persons and reporting agents

[[Page 75682]]

additional time (until the end of each day, rather than just within 15 
minutes), to report any required loan modification information to an 
RNSA and also to help reduce the overall implementation cost for market 
participants, and allow such participants to better manage the flow of 
data in line with the existing internal processes for reporting.\543\
---------------------------------------------------------------------------

    \542\ See final Rule 10c-1a(d).
    \543\ See, e.g., Proposing Release, 86 FR 69815 n.96 (providing 
an example of a modification that would not trigger as the 
requirement in paragraph (c) of the proposed rule (i.e., when a 
borrower posts additional collateral in response to an increase in 
value of the loaned securities). Information about this change would 
not have needed to be provided under proposed paragraph (c) because, 
while proposed paragraph (b)(10) requires the Lender to provide the 
percentage of collateral to value of loaned securities required to 
secure such loan, it did not require information about the value of 
collateral posted in dollar terms. See also supra note 413 
(discussing an example of a non-qualifying modification).
---------------------------------------------------------------------------

3. Timing of Reporting of Confidential Data Elements
Proposed Rule
    As discussed above, in Part VII.F.3, the Commission also proposed 
that certain confidential data elements would be provided to, and 
retained by an RNSA,\544\ but not made publicly available by an 
RNSA.\545\ Such confidential data was intended to provide regulators 
with specific information about the loan (such as the identity of the 
parties to the loan) that would be kept confidential due to concerns 
about potential misuse of such information. The Commission proposed 
that such information be reported to an RNSA within 15 minutes after 
the loan is effected.
---------------------------------------------------------------------------

    \544\ See proposed Rule 10c-1(c).
    \545\ See proposed Rule 10c-1(g).
---------------------------------------------------------------------------

Final Rule
    The Commission is modifying the proposed timing requirement for 
reporting the confidential data elements, as adopted in paragraph (e) 
of the final rule, similar to the timing revisions the Commission made 
with respect to the proposed loan and loan modification data elements 
adopted in paragraphs (c) and (d) of the final rule (i.e., by replacing 
the proposed 15-minute reporting requirement with the similar end-of-
day reporting period). As modified, and otherwise consistent with the 
rule as proposed, paragraph (e) of the final rule will continue to 
require that any confidential data elements be reported to an RNSA; 
\546\ however, an RNSA will be required to keep such information 
confidential, ``in accordance with the provisions of paragraph (h) of 
this section and applicable law.'' \547\
---------------------------------------------------------------------------

    \546\ See final Rules 10c-1a(e)(1) through (e)(3).
    \547\ See final Rule 10c-1a(g)(4). Similar to the other data 
element provisions under the final rule, modifying paragraph (e)'s 
reporting time period in this manner will not only help to ensure 
market participants' compliance with final Rule 10c-1a's 
confidential transaction data requirements but will respond to many 
of the concerns raised by commenters regarding a more frequent and 
burdensome intraday timeframe, as was originally proposed.
---------------------------------------------------------------------------

H. Definition of Registered National Securities Association--10c-
1a(j)(5)

Proposed Rule
    The Commission proposed that any person that loans a security on 
behalf of itself or another person shall provide to an RNSA certain 
specified information.\548\ However, the Commission did not include a 
definition of the term ``RNSA.'' The Proposing Release stated that the 
only existing RNSA has experience establishing and maintaining systems 
that are designed to capture transaction reporting, similar to the 
requirements of final Rule 10c-1a.\549\
---------------------------------------------------------------------------

    \548\ See proposed Rule 10c-1(a)(1).
    \549\ See Proposing Release, 86 FR 69808.
---------------------------------------------------------------------------

Final Rule
    The Commission received comments stating that FINRA, as the only 
existing RNSA, is best positioned for such a role.\550\ To provide 
additional clarity regarding the regulatory body that Rule 10c-1a 
information must be reported to, the final rule defines the term 
``RNSA'' to mean ``an association of brokers and dealers that is 
registered as a national securities association pursuant to 15 U.S.C. 
78o-3 (`section 15A') of the Exchange Act.'' \551\ This definition 
applies to any association of brokers and dealers that is registered as 
a national securities association pursuant to section 15A of the 
Exchange Act now or in the future.\552\
---------------------------------------------------------------------------

    \550\ See, e.g., OCC Letter, at 12 (stating that ``FINRA is 
currently best positioned to serve in this role given FINRA's 
experience and expertise to date in administering other trade 
reporting systems''). See also HMA Letter, at 7; Nasdaq Letter, at 
3-4; IHS Markit Letter, at 1; FINRA Letter, at 2; AFREF Letter 1, at 
4 (stating that FINRA ``is the only RNSA that exists now, and the 
Commission should rely on FINRA to aggregate and disseminate the 
additional data on the securities lending market'').
    \551\ See final Rule 10c-1a(j)(5).
    \552\ See 15 U.S.C. 78o-3.
---------------------------------------------------------------------------

I. RNSA Rules To Administer the Collection of Information--Rule 10c-
1a(f)

Proposed Rule
    The Commission proposed that ``[t]he RNSA shall implement rules 
regarding the format and manner to administer the collection of 
information in paragraphs (b) through (d) of [the proposed rule] and 
distribute such information in accordance with the rules approved by 
the Commission pursuant of section 19(b) of the Exchange Act and Rule 
19b-4 thereunder.'' \553\ In the Proposing Release the Commission 
stated its preliminary belief that permitting an RNSA to implement 
rules regarding the administration of the collection of securities 
lending transactions would enable an RNSA to maintain and adapt 
potential technological specifications and any changes that might occur 
in the future.\554\ The Commission also affirmed that it would retain 
oversight of an RNSA's adoption of rules to administer the collection 
of information under proposed Rule 10c-1.\555\
---------------------------------------------------------------------------

    \553\ See proposed Rule 10c-1(f).
    \554\ See Proposing Release, 86 FR 69819.
    \555\ 15 U.S.C. 78s(b).
---------------------------------------------------------------------------

Final Rule
    The Commission asked in the Proposing Release whether Rule 10c-1 
should require that lenders provide material information to an entity 
other than an RNSA.\556\ One commenter stated that FINRA, the only 
existing RNSA, is best positioned to serve in such a role due to its 
expertise and experience in administering trade reporting rules.\557\ 
Other commenters also supported the role of RNSAs in collecting and 
distributing information under the proposed rule,\558\ with one 
specifically stating that the format and manner through which 
information will be provided to an RNSA should be defined by an RNSA 
and should not be specified in proposed Rule 10c-1.\559\ The Commission 
agrees with the commenters that an RNSA is well positioned to define, 
consistent with section 19(b) and Rule 19b-4 of the Exchange Act as 
well as an RNSA's own internal business requirements and systems 
designs, the format and manner in which it collects Rule 10c-1a 
information.
---------------------------------------------------------------------------

    \556\ See Proposing Release, 86 FR 69809 (Question 13).
    \557\ See OCC Letter, at 12 (stating that it ``believes that 
FINRA is currently best positioned to serve in this role given 
FINRA's experience and expertise to date in administering other 
trade reporting systems'').
    \558\ See HMA Letter, at 7. See also Nasdaq Letter, at 3-4.
    \559\ See IHS Markit Letter, at 11.
---------------------------------------------------------------------------

    Alternatively, another commenter recommended that the Commission 
should eventually transition the collection and dissemination of the 
data collected under proposed Rule 10c-1 to an internal process at the 
Commission to enhance enforcement of the proposed rule and allow the 
Commission to share

[[Page 75683]]

relevant data.\560\ However, in addition to providing securities 
lending information to the public, the final rule is intended to 
provide additional tools to RNSAs to enhance RNSAs' surveillance over 
the securities markets. An RNSA is appropriately suited for collecting 
and analyzing such data for such surveillance purposes.
---------------------------------------------------------------------------

    \560\ See AFREF Letter 1, at 4.
---------------------------------------------------------------------------

    Some commenters expressed concerns or provided recommendations for 
an RNSA's administration of information collected under the final rule. 
One commenter stated the importance of RNSAs' compliance with section 
19(b) and Rule 19b-4 of the Exchange Act when implementing RNSA rules 
required by final Rule 10c-1a.\561\ Consistent with the proposed 
rule,\562\ any proposed changes to an RNSA's rules required by final 
Rule 10c-1a, including its Rule 10c-1a information collection and 
dissemination practices, will also be subject to notice, public 
comment, and Commission review pursuant to section 19(b) and Rule 19b-4 
prior to implementation. This requirement, including the notice and 
opportunity for public comment, will help the Commission ensure that 
the direct reporting to an RNSA by covered persons is logistically 
feasible, prior to the effectiveness and implementation of such RNSA 
rule, and that its methodology helps ensure the accuracy and quality of 
the reported data.
---------------------------------------------------------------------------

    \561\ See Bloomberg L.P. Letter, at 4 (stating ``the importance 
of RNSAs' compliance with section 19(b) of the Exchange Act and Rule 
19b-4 thereunder when implementing rules pertaining to the 
securities lending data'').
    \562\ See Proposing Release, 86 FR 69819 n.116.
---------------------------------------------------------------------------

    Another commenter expressed concern that the proposed rule ``would 
provide no mechanism for quality assurance.'' \563\ An RNSA could 
choose to include mechanisms for quality assurance in its rules to 
implement the system under the final rule. Further, all RNSA rules 
implementing the system under the final rule will be subject to notice, 
public comment, and Commission review under section 19(b) and Rule 19b-
4.
---------------------------------------------------------------------------

    \563\ See S3 Partners Letter, at 5.
---------------------------------------------------------------------------

    Another commenter stated that the Commission ``should ensure that 
direct reporting to the RNSA is logistically feasible for entities that 
are not broker-dealers.'' \564\ The final rule permits such entities to 
enter into agreements with reporting agents that are brokers, dealers, 
or registered clearing agencies to fulfill their reporting obligations 
on their behalf, should they determine that direct reporting is not the 
most appropriate choice for them.\565\
---------------------------------------------------------------------------

    \564\ See BlackRock Letter, at 3.
    \565\ See final Rule 10c-1a(a)(2).
---------------------------------------------------------------------------

    One commenter recommended that the collection, maintenance, and 
publication of securities lending data, which an RNSA was required to 
perform under the proposed rule, be subject to a competitive bidding 
process to select a technology vendor or vendors to provide such 
services.\566\ However, the oversight that the Commission maintains 
over RNSAs, including oversight of their rules to administer the 
collection of Rule 10c-1a information pursuant to section 19(b) and 
Rule 19b-4, would not apply to the more general population of 
``technology vendors'' that the commenter proposes should participate 
in a competitive bidding process to collect, maintain, and distribute 
Rule 10c-1a information.\567\ The commenter's proposed approach would 
not be appropriate in the absence of such oversight. The Commission 
agrees with one commenter's statement that the existing RNSA is well 
positioned to serve in this role under final Rule 10c-1a given its 
expertise in administering other trade reporting systems.\568\
---------------------------------------------------------------------------

    \566\ See S3 Partners Letter, at 12-13.
    \567\ See S3 Partners Letter, at 12-13.
    \568\ See OCC Letter, at 12.
---------------------------------------------------------------------------

    Having considered commenters' submissions, for the foregoing 
reasons, the Commission is adopting the requirement that an RNSA shall 
implement rules regarding the format and manner to administer the 
collection and dissemination of certain information, substantially as 
proposed. The final rule includes minor changes to reflect that the 
relevant Rule 10c-1a information paragraphs have been renumbered to 
align with the format of the final rule,\569\ to provide citations to 
the statutory provision and regulation that such rules must be 
promulgated pursuant to, the term ``distribute such information'' has 
been modified to ``make publicly available such information'' to more 
accurately reflect an RNSA's responsibilities for the publication of 
data under final Rule 10c-1a(g), and the term ``approved by the 
Commission'' has been modified to ``promulgated'' to more accurately 
reflect the process by which RNSA rules are implemented pursuant to 
section 19(b) and Rule 19b-4 of the Exchange Act.
---------------------------------------------------------------------------

    \569\ See final Rule 10c-1a(g). References to the relevant 
collected information in paragraphs (b) through (e) of the proposed 
rule have been amended to reference paragraphs (c) through (e) of 
the final rule.
---------------------------------------------------------------------------

J. RNSA Publication of Data--10c-1a(g)

Proposed Rule
    The proposed rule would have required an RNSA to make available to 
the public the information required by proposed paragraph (b), 
including the legal name of the security issuer, and the LEI of the 
issuer, if the issuer has an active LEI,\570\ and the ticker symbol, 
ISIN, CUSIP, or FIGI of the security, if assigned, or other 
identifier.\571\ In addition, modifications that resulted in a change 
to the data elements required to be provided to an RNSA under paragraph 
(b) of the proposed rule would also have been made public by an 
RNSA.\572\ An RNSA would have also provided identifying information for 
each security for which aggregate information would be made 
public.\573\ Paragraph (e)(3) of the proposed rule further required 
that an RNSA keep identifying information about lending agents, 
reporting agents, and other persons using reporting agents 
confidential, subject to applicable law.\574\ In addition, the 
confidential data elements in proposed Rules 10c-1(d)(1) through (3) 
would be kept confidential so as to not identify market participants or 
reveal information about the internal operations of market 
participants.\575\ The proposed rule also required an RNSA to assign a 
unique transaction identifier to each loan.\576\
---------------------------------------------------------------------------

    \570\ See proposed Rule 10c-1(b)(1).
    \571\ See proposed Rule 10c-1(b)(2).
    \572\ See proposed Rule 10c-1(c).
    \573\ See proposed Rule 10c-1(g).
    \574\ See proposed Rule 10c-1(e)(3).
    \575\ See Proposing Release, 86 FR 69812 n.85.
    \576\ See proposed Rule 10c-1(b).
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Final Rule
    The Commission received many comments that expressed support for 
increasing transparency and price discovery in the securities lending 
market by increasing the amount and availability of data to the 
public.\577\ Commenters were generally supportive of the requirement 
that an RNSA be responsible for making reportable data publicly 
available.\578\
---------------------------------------------------------------------------

    \577\ See, e.g., FINRA Letter, at 1 (stating that it ``agrees 
with the Commission that the public dissemination of securities 
lending information under the Proposal will, among other benefits, 
improve price discovery in the securities lending market.''); Nasdaq 
Letter, at 3; AFREF Letter 1, at 3; Better Markets Letter, at 4-7; 
Bloomberg L.P. Letter, at 1 (``[w]e appreciate the Commission's 
endeavor to improve the transparency and efficiency of the 
securities lending market by increasing the availability of 
information regarding securities lending transactions''); ASA 
Letter, at 1; Letter from N. Abanes (Aug. 15, 2023); Letter from 
Brandon Smith (Aug. 15, 2023).
    \578\ See, e.g., HMA Letter, at 7.
---------------------------------------------------------------------------

    The proposed rule combined reporting requirements with RNSA

[[Page 75684]]

publication requirements, which resulted in commenters addressing these 
respective requirements in conjunction with one another.\579\ The 
Commission did not intend to conflate the requirements. The final rule 
separates an RNSA's publication responsibilities from a covered 
person's reporting requirements to improve the structure of the final 
rule. Therefore, final Rule 10c-1a is modified to separate the 
requirements of an RNSA from the reporting requirements applicable to 
covered persons and reporting agents. Final Rule 10c-1a now places an 
RNSA's publication of data elements into new paragraph (g).
---------------------------------------------------------------------------

    \579\ See, e.g., proposed Rule 10c-1(b).
---------------------------------------------------------------------------

    In response to the comments received that the disclosure of 
reported information by an RNSA on a transaction-by-transaction basis 
could increase the risk of revealing short sale strategies,\580\ final 
Rule 10c-1a bifurcates paragraph (g) requirements such that certain 
data elements will be made publicly available on a transaction-by-
transaction basis and aggregate transaction activity and distribution 
of loan rates) will also be made publicly available in an aggregated 
format for each reportable security. With respect to aggregated data, 
the final rule includes a new requirement for an RNSA to make 
``information pertaining to the aggregate transaction activity and 
distribution of loan rates for each reportable security and the 
security identifier(s) under paragraphs (c)(1) or (2) of the final rule 
for which an RNSA determines is appropriate to identify'' publicly 
available ``as soon as practicable, and not later than the morning of 
the business day after the covered securities loan is effected or 
modified.'' \581\ The term ``aggregate transaction activity,'' as used 
in the final rule, refers to information pertaining to the absolute 
value of transactions such that net position changes should not be 
discernable in the data, and is intended to help ensure that only 
aggregate information about net positions changes, rather than 
individualized information, is provided to the public. The addition of 
the term ``aggregate transaction activity'' responds to commenters' 
concerns about the potential exposure of proprietary information, while 
still providing volume transparency to market participants. Providing 
information about the distribution of loan rates \582\ for each 
security recognizes that the cost-to-borrow for loans of securities is 
influenced by a number of factors (e.g., counterparty-creditworthiness) 
and, thus, information about loan rates on a transaction-by-transaction 
basis may not facilitate a perfect comparison of such rates between 
loans of the same security. Consequently, knowing the distribution of 
loan rates for a given security can give market participants 
information to help market participants compare the pricing of their 
covered securities loan against the pricing of other covered securities 
loans. This can facilitate conversations between beneficial owners and 
their lending agents or end borrowers with their brokers or dealers 
regarding the terms of their loan.
---------------------------------------------------------------------------

    \580\ See, e.g., supra note 399 and accompanying text.
    \581\ See final Rule 10c-1a(g)(5).
    \582\ ``Loan rate'' refers to aggregate fee and rebate 
information provided to an RNSA in final Rule 10c-1a(c)(8) and final 
Rule 10c-1a(c)(9). The loan rate for a security is reported 
differently depending on whether the securities loan is cash or non-
cash collateralized. For cash-collateralized loans, the ``loan 
rate'' is indicated by the rebate rate (as reflected in final Rule 
10c-1a(c)(8)); for non-cash-collateralized loans, the ``loan rate'' 
is the lending fee (as reported in final Rule 10c-1a(c)(9)).
---------------------------------------------------------------------------

    Additionally, the final rule delays an RNSA's publication of loan 
amount, on a transaction-by-transaction basis in paragraph (c)(6), to 
the twentieth business day after the covered securities loan is 
effected along with the loan and security identifying information 
specified in paragraphs (g)(1)(i)(A) and (C) of this section.\583\ The 
final rule also delays an RNSA's publication of a modification to loan 
amount, on a transaction-by-transaction basis, in paragraph (c)(6), to 
the twentieth business day after the covered securities loan is 
modified with the loan and security identifying information specified 
in paragraphs (g)(1)(i)(A) and (C).\584\
---------------------------------------------------------------------------

    \583\ See final Rule 10c-1a(g)(2).
    \584\ See final Rule 10c-1a(g)(3).
---------------------------------------------------------------------------

    For purposes of compliance with the final rule, the countdown to 
the ``twentieth business day'' starts the day after the covered 
securities loan is effected. For example, if a covered securities loan 
were effected at 4:00 p.m. on a Wednesday, and the applicable Rule 10c-
1a information is received by an RNSA by the end of that day, that 
Thursday after the Wednesday on which the covered securities loan is 
effected will start the 20-business day period, assuming that Thursday 
is not a holiday.
    The final rule contains requirements for an RNSA to make data 
elements other than loan amount publicly available as soon as 
practicable, and not later than the morning of the business day after 
the covered securities loan is effected.\585\ Similarly, the final rule 
requires an RNSA to make loan modifications, excluding modifications to 
loan amount, publicly available, as soon as practicable, and not later 
than the morning of the business day after the covered securities loan 
is modified.\586\ The final rule also requires that an RNSA make the 
data elements in paragraph (c) of the final rule, other than loan 
amount, publicly available as soon as practicable, and not later than 
the morning of the business day after the covered securities loan is 
effected, if a securities loan is modified when such covered securities 
loan is a pre-existing covered securities loan (i.e., a covered 
securities loan for which reporting under paragraph (a) was not 
required on the date the loan was agreed to or last modified).\587\ 
This requirement is designed to provide transparency for covered 
securities loans that have not been previously reported to an RNSA 
prior to having a data element of paragraph (c) modified. As discussed 
above, in Part VII.F.2, the final rule also requires that an RNSA make 
publicly available the data elements in paragraph (c) of the final rule 
for pre-existing covered securities loans. The final rule also contains 
a requirement for an RNSA to keep confidential data elements 
confidential, in accordance with subparagraph (h) and consistent with 
applicable law.\588\ Final Rule 10c-1a also contains updated 
terminology from the proposed Rule 10c-1, including that the ``unique 
transaction identifier'' is updated to ``unique identifier;'' and 
references to ``loan'' are updated to ``covered securities loan.'' 
\589\ Revisions to final Rule 10c-1a(g) are updated with the relevant 
paragraphs renumbered to align with the format of the final rule.\590\
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    \585\ See final Rule 10c-1a(g)(1).
    \586\ See final Rule 10c-1a(g)(3).
    \587\ See final Rule 10c-1a(g)(3)(i).
    \588\ See final Rule 10c-1a(g)(4).
    \589\ See final Rule 10c-1a(g).
    \590\ See final Rules 10c-1a(g)(3)(i) and (ii).
---------------------------------------------------------------------------

    Final Rule 10c-1a requires an RNSA to assign each covered 
securities loan a unique identifier in paragraphs (g)(1)(i)(A) and 
(g)(3). The final rule makes a revision to terminology by replacing the 
term ``unique transaction identifier'' assigned by an RNSA to the 
original loan, as used in the proposed rule, with ``unique identifier'' 
assigned by an RNSA to the original covered securities loan. The 
removal of ``transaction'' is to avoid confusion with the defined term 
``covered securities loan,'' which is the accurate description

[[Page 75685]]

of what the ``unique identifier'' represents.
    While the final rule continues to require an RNSA to ``assign each 
covered securities loan a unique identifier,'' a general theme received 
from commenters was about the operational efficiency of allowing market 
participants to create and submit their own unique identifiers.\591\ In 
response to the Proposing Release, one commenter stated that 
``beneficial owners or those reporting on their behalf should have 
flexibility to generate their own Transaction Identifiers provided they 
meet minimum standards for integrity and identification'' and that 
``this Transaction Identifier [be used] in connection with any loan 
modification reporting in connection with the relevant loan.'' \592\ 
Another commenter recommended that ``allowance is made for the UTI to 
be provided to the RNSA by the reporting party, with an on-receipt 
issuance model only available should firms have no existing UTI for a 
reportable transaction.'' \593\ Another commenter agreed that firms 
should be allowed to internally assign UTIs and report them to an RNSA, 
but alternatively suggested that if the UTI is required to be assigned 
by an RNSA then an RNSA should return this internal identifier to the 
reporting firm along with an RNSA-assigned UTI in order to link a 
modification to the original reported loan.\594\ This commenter also 
recommended that, under either approach, UTIs should be different in 
the U.S. and other jurisdictions, as applicable.\595\ Another commenter 
stated that under the final rule, if there was a loan that was reported 
to both an RNSA and the SFTR, the loan would have an identifier for 
each system and prevent global aggregation.\596\
---------------------------------------------------------------------------

    \591\ See, e.g., State Street Letter, at 6; ABA Letter, at 4.
    \592\ See RMA Letter, at 1, 19.
    \593\ Pirum Letter, at 4.
    \594\ See FIF Letter, at 8-9.
    \595\ See FIF Letter, at 9.
    \596\ See Pirum Letter, at 4.
---------------------------------------------------------------------------

    The Commission understands that for many reporting entities, 
obtaining a unique identifier from an RNSA on a post-trade basis and 
then tagging it to the trade for accurate reporting may add 
complication and expense and introduces operational risk for post-trade 
errors in aligning trades with transaction identifiers (particularly if 
a trade has been modified during the course of intraday trade 
reporting). According to one commenter, ``the objective of a 
Transaction Identifier is to uniquely identify a particular 
transaction; so long as that objective is satisfied, the SEC should be 
neutral as to the manner in which the Transaction Identifier is 
produced.'' \597\ Doing so, the commenter suggests, ``would [provide] 
the flexibility to an RNSA to allow reporting parties to provide their 
own Transaction Identifiers [which] would likely materially reduce 
costs for any such parties.'' \598\ According to the commenter, this 
approach has been successfully deployed in Europe, under the SFTR, and 
the U.S. in connection with security-based swap reporting rules.\599\ 
Accordingly, this commenter urged the Commission to permit the 
reporting agent to generate the transaction identifiers prior to 
reporting to an RNSA, with an RNSA available to provide Transaction 
Identifiers as a back-up for those reporting parties who are unable, 
for whatever reason, to generate their own transaction 
identifiers.\600\ Another commenter stated that while the data elements 
required to be reported are sufficient to allow for an RNSA to identify 
loans and to create a unique transaction identifier, the Commission 
should specify how such identifier will be shared with the 
reporter.\601\
---------------------------------------------------------------------------

    \597\ RMA Letter, at 19.
    \598\ RMA Letter, at 19.
    \599\ See RMA Letter, at 19.
    \600\ See RMA Letter, at 19.
    \601\ See IHS Markit Letter, at 8.
---------------------------------------------------------------------------

    Having a unique identifier assigned to each covered securities loan 
is necessary for an RNSA to easily track the loan and facilitate the 
identification and reporting of any subsequent modifications to a 
particular covered securities loan. The Commission agrees with the 
comment that the objective is to have a unique identifier for tracking 
and that the Commission should be neutral as to the manner in which the 
unique identifier is produced,\602\ and that it is appropriate to allow 
administrative details of the process to be left to the discretion of 
an RNSA, rather than dictated by the Commission.\603\ It is appropriate 
to require an RNSA to assign a unique identifier to the loan, even if 
such loan already has an identifier that is reported to the SFTR, for 
consistency with an RNSA's rules and systems. Further, the final rule 
requires an RNSA to create a system capable of generating unique 
identifiers, but does not preclude market participants from creating 
their own unique identifiers when submitting information to an RNSA.
---------------------------------------------------------------------------

    \602\ See RMA Letter, at 19.
    \603\ See OCC Letter, at 12 (stating that ``FINRA is currently 
best positioned to serve in this role given [its] experience and 
expertise to date in administering other trade reporting 
systems.'').
---------------------------------------------------------------------------

    The Commission agrees that FINRA, as the sole existing RNSA, has 
the experience and controls to implement an appropriate system for 
market participants, including, if appropriate, how an identifier will 
be shared with a reporter. Structuring the final rule to provide an 
RNSA with flexibility to accept unique identifiers and/or use an RNSA 
assigned unique identifier to publish data is operationally practical. 
Accordingly, final Rule 10c-1a(g) maintains that an RNSA shall assign a 
unique identifier to the covered securities loan and make publicly 
available as soon as practicable, and not later than the morning of the 
business day after the covered securities loan is effected.\604\
---------------------------------------------------------------------------

    \604\ See final Rule 10c-1a(g).
---------------------------------------------------------------------------

K. RNSA Data Retention, Availability, Fees, and Security

1. Data Retention--Rule 10c-1a(h)(1)
Proposed Rule
    Under the proposed rule the Commission required that RNSAs retain 
the information collected pursuant to paragraphs (b) through (e) of the 
proposed rule in a convenient and usable standard electronic data 
format that is machine readable and text searchable without any manual 
intervention for a period of five years.\605\ In the Proposing Release, 
the Commission stated that requiring an RNSA to retain records for five 
years was consistent with other retention obligations of records that 
Exchange Act rules impose on an RNSA.\606\ As examples, the Commission 
identified Rule 17a-1 \607\ and 17 CFR 242.613(e)(8) (``Rule 
613(e)(8)'') of Regulation NMS, both of which require RNSAs to keep 
documents for a period of not less than five years.
---------------------------------------------------------------------------

    \605\ See proposed Rule 10c-1(g)(1).
    \606\ See Proposing Release, 86 FR 69819.
    \607\ See 17 CFR 240.17a-1.
---------------------------------------------------------------------------

Final Rule
    The Commission received limited comments concerning this element of 
the proposed rule. One commenter stated that a retention period of six 
years plus the current year would simplify GDPR and UK tax 
compliance.\608\ The Commission recognizes the importance of compliance 
with other regulatory regimes; however, requiring RNSAs to retain 
records for not less than five years is consistent with other record 
retention obligations that Exchange Act rules

[[Page 75686]]

impose on RNSAs.\609\ Including a retention period that is consistent 
with other rules applicable to RNSAs could reduce the burden for an 
RNSA to comply with the retention requirements in proposed Rule 10c-1 
because RNSAs will have developed experience and controls around 
administering similar record retention programs.\610\ Therefore, the 
Commission is adopting RNSA data retention requirements as proposed 
(i.e., in a convenient and usable standard electronic data format that 
is machine readable and text searchable without any manual intervention 
for a period of five years), with the relevant paragraphs renumbered to 
align with the format of the final rule.\611\
---------------------------------------------------------------------------

    \608\ See Letter from Andrew Robinson (Jan. 7, 2022) (``Robinson 
Letter''), at 12.
    \609\ See Proposing Release, 86 FR 69819. Rule 17a-1 requires 
RNSAs to keep documents for a period of not less than five years. 
Similarly, Rule 613(e)(8) of Regulation NMS, on which the retention 
period for proposed Rule 10c-1 is modeled, requires the central 
repository to retain information in a convenient and usable standard 
electronic data format that is directly available and searchable 
electronically without any manual intervention for a period of not 
less than five years.
    \610\ See Proposing Release, 86 FR 69819.
    \611\ See 17 CFR 240.10c-1a(h)(1) (``final Rule 10c-1a(h)(1)''). 
References to the relevant collected information in paragraphs (b) 
through (e) of the proposed rule have been updated to accurately 
reflect their place in paragraphs (c) through (f) of the final rule.
---------------------------------------------------------------------------

2. Data Availability to the Public--Rule 10c-1a(h)(3)
Proposed Rule
    The Commission proposed that RNSAs make certain data \612\ 
available to the public in a convenient and usable standard electronic 
data format on its website or similar means of electronic distribution, 
without charge and without use restrictions, for at least a five-year 
period.\613\ The Commission stated its preliminary belief that 
requiring an RNSA to provide certain information to the public would 
further the direction by Congress in section 984(b) of the Dodd-Frank 
Act for the Commission to promulgate rules that are designed to 
increase the transparency of information to brokers-dealers and 
investors, with respect to the loan or borrowing of securities.\614\ 
The Commission acknowledged that establishing and maintaining a system 
to provide public access to Rule 10c-1 information is not without cost, 
and expressed the preliminary belief that such costs should be borne by 
an RNSA in the first instance and be permitted to be recouped by an 
RNSA from market participants who report securities lending 
transactions to an RNSA.\615\ The Commission also stated its belief 
that any restrictions on how the publicly available Rule 10c-1 
information is used could impede the utility of such information and 
limit the ability of investors, commercial vendors, and other third 
parties, such as academics, from developing uses and analyses of the 
information.\616\
---------------------------------------------------------------------------

    \612\ See proposed Rule 10c-1(g)(3) (specifically including the 
information collected under paragraphs (b) and (c) of the proposed 
rule and the aggregate of the information provided pursuant to 
paragraph (e) of the proposed rule).
    \613\ See proposed Rule 10c-1(g)(3).
    \614\ See Proposing Release, 86 FR 69819.
    \615\ See Proposing Release, 86 FR 69819-20.
    \616\ See Proposing Release, 86 FR 69820.
---------------------------------------------------------------------------

Final Rule
    It is appropriate to remove the phrase ``without charge'' from an 
RNSA's availability of information requirements in final Rule 10c-
1a(h)(3). Some commenters supported the Commission making certain 
securities lending information available without charge, as 
proposed.\617\ One commenter stated generally that it would be 
extremely helpful to have freely available data.\618\ The Commission 
agrees that having access to securities lending data without charge 
will benefit market participants. As discussed below, in Part VII.K.3, 
the Commission received comment recommending that RNSAs be permitted to 
charge fees to entities other than lending agents and beneficial 
owners.\619\ After considering commenter input, the Commission is 
removing the ``without charge'' requirement from the final rule to 
provide RNSAs with greater flexibility to structure reasonable fees. As 
discussed below, in Part VII.K.3, and as proposed,\620\ any such fees 
will have to be filed with the Commission pursuant to section 19(b) of 
the Exchange Act and Rule 19b-4, and would be published for notice and 
public comment. Additionally, consistent with the Proposing 
Release,\621\ and the provisions that govern RNSAs under the Exchange 
Act,\622\ the final rule requires that RNSAs may only establish and 
collect fees that are reasonable.\623\ Furthermore, as proposed, the 
final rule prohibits use restrictions on the publicly available 
information.\624\ Any restrictions on how the publicly available Rule 
10c-1a information is used could impede its utility and limit the 
ability of investors, commercial vendors, and other third parties, such 
as academics, from developing uses and analyses of the 
information.\625\
---------------------------------------------------------------------------

    \617\ See James J. Angel Letter, at 3; Morningstar Letter, at 4 
(stating that an ``RNSA's free and unrestricted disclosures to the 
public increase transparency'').
    \618\ See James J. Angel Letter, at 2.
    \619\ See ABA Letter, at 2-3.
    \620\ See Proposing Release, 86 FR 69820.
    \621\ See proposed Rule 10c-1(h).
    \622\ See 15 U.S.C. 78o(b) (section 15A(b) of the Exchange Act).
    \623\ See final Rule 10c-1a(i).
    \624\ See final Rule 10c-1a(h)(3).
    \625\ The requirement to provide the Rule 10c-1a information in 
the same manner such information is maintained pursuant to final 
Rule 10c-1a(h)(1) and without use restrictions is not intended to 
preclude an RNSA from creating alternative means to provide 
information to the public or subscribers. For example, an RNSA might 
choose to file with the Commission proposed rules to establish data 
feeds of the Rule 10c-1a information that vendors might subscribe to 
(including fee-based subscriptions) and repackage for onward 
distribution.
---------------------------------------------------------------------------

    The Proposing Release included a request for comment asking if a 
period of five years is the appropriate length of time for an RNSA to 
make information available to the public.\626\ One commenter responded, 
stating that, ``transparency is a good thing, and lessons can be 
learned from history, `in perpetuity' would be the ideal period of 
time.'' \627\ The Commission acknowledges the value of historical 
studies of securities markets, and the final rule does not preclude an 
RNSA from making certain reported data public in perpetuity. However, 
requiring that RNSAs make certain information publicly available 
indefinitely could prove unduly burdensome on RNSAs when compared with 
the utility of old and potentially less informative data. Furthermore, 
making information available in a convenient and usable standard 
electronic data format indefinitely would necessitate that RNSAs retain 
the data indefinitely, which would be inconsistent with the final 
rule's data retention requirements \628\ and other retention 
obligations of records that Exchange Act rules impose on RNSAs.\629\ 
Five years is the appropriate length of time for an RNSA to be required 
to make information available to the public, because such a time period 
will provide broker-dealers and investors with an opportunity to 
identify trends occurring in the market and in individual securities 
based on changes to the material terms of securities lending 
transactions.
---------------------------------------------------------------------------

    \626\ See Proposing Release, 86 FR 69820 (Question 58).
    \627\ See Robinson Letter, at 12.
    \628\ See final Rule 10c-1a(h)(1).
    \629\ See supra note 609.
---------------------------------------------------------------------------

    For the foregoing reasons the Commission is adopting the collected 
information availability requirements for RNSAs, with respect to making 
certain collected information available to the public, substantially as 
proposed, with the phrase ``without charge'' removed and the relevant 
paragraphs renumbered to align with the format of the final rule.\630\
---------------------------------------------------------------------------

    \630\ See final Rule 10c-1a(h)(3). References to the relevant 
collected information in paragraphs (b) and (c) of the proposed rule 
have been updated to reference paragraphs (c) and (d) of the final 
rule. The proposed rule's reference to ``the aggregate of the 
information provided pursuant to paragraph (e) of this section'' has 
been removed from the final rule as discussed above, in Parts 
VII.F.4 and VII.F.5. Additionally, the word ``provide'' at the 
beginning of proposed Rule 10c-1(g)(3) has been replaced by ``make'' 
in final Rule 10c-1a(h)(3) for consistency.

---------------------------------------------------------------------------

[[Page 75687]]

3. RNSA Fees--Rule 10c-1a(i)
Proposed Rule
    The Commission proposed that RNSAs may establish and collect 
reasonable fees, pursuant to rules that are effective pursuant to 
section 19(b) of the Exchange Act and Rule 19b-4 thereunder, from each 
person who provides any data set forth in paragraphs (b) through (e) of 
this section directly to an RNSA.\631\ Under the Exchange Act, RNSAs 
are allowed to adopt rules that impose the equitable allocation of 
reasonable fees among members and issuers, and other persons that use 
an RNSA facility or system.\632\ In the Proposing Release the 
Commission stated its preliminary belief that it would be appropriate 
to establish and collect reasonable fees from each person who directly 
provides the information set forth in the rule to an RNSA.
---------------------------------------------------------------------------

    \631\ See proposed Rule 10c-1(h).
    \632\ See 15 U.S.C. 78o-3(b)(5) (``The rules of the association 
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 the association operates or controls.'').
---------------------------------------------------------------------------

Final Rule
    One commenter supported an RNSA acting in accordance with section 
19(b) of the Exchange Act and Rule 19b-4 thereunder when implementing 
rules regarding fees.\633\ Another commenter recommended that reporting 
costs should not only be borne by persons who provide data directly to 
an RNSA and recommended that ``costs incurred by FINRA . . . be shared 
among all those that benefit from securities lending activity, not 
solely on lending agents and beneficial owner clients.'' \634\ 
Similarly, another commenter recommended ``that the costs incurred by 
the RNSA to establish and operate the reporting system for securities 
lending data should be equitably shared by both borrowers and lenders, 
along with a tiered fee structure that eliminates costs for General 
Collateral (``GC'') transactions.'' \635\
---------------------------------------------------------------------------

    \633\ See Bloomberg L.P. Letter, at 3 (stating that ``[t]he 
rules of an RNSA, including those pertaining to any fees, should 
thus comport with the requirements of the Exchange Act''). See also 
HMA Letter, at 7 and 10 (stating that ``it will be essential for the 
Commission to ensure that the RNSA's . . . fees related to the 
development and operations of the reporting and dissemination 
systems contemplated by the Proposal are subject to meaningful 
scrutiny'' and recommending ``that any fees are imposed pursuant to 
filings that are subject to Commission review, and approved only if 
determined to be consistent with the Exchange Act and Commission 
Rules'').
    \634\ See ABA Letter, at 3.
    \635\ See State Street Letter, at 2.
---------------------------------------------------------------------------

    The Commission recognizes that additional flexibility may be 
warranted in how costs incurred by an RNSA are recouped. To provide 
more flexibility in the establishment and collection of reasonable fees 
by RNSAs, the final rule has been amended from the proposed rule to 
remove the requirement that fees only be collected ``from each person 
who provides any data set forth in paragraphs (b) through (e) of this 
section directly to the RNSA.'' \636\ The final rule provides that an 
RNSA may ``establish and collect reasonable fees, pursuant to rules 
that are promulgated pursuant to section 19(b) and Rule 19b-4 of the 
Exchange Act.'' \637\ These changes from the proposed rule will provide 
RNSAs with greater flexibility to structure reasonable fees, including 
permitting the charging of fees to entities that use certain value-
added services, as discussed above in Part VII.K.2, when accessing the 
information made publicly available by an RNSA.\638\
---------------------------------------------------------------------------

    \636\ See proposed Rule 10c-1(h).
    \637\ Final Rule 10c-1a(i).
    \638\ See supra Part VII.K.2 (discussing the removal of the 
phrase ``without charge'' from proposed Rule 10c-1(g)(3) concerning 
the requirements for RNSAs to make certain information available to 
the public).
---------------------------------------------------------------------------

4. Data Security--Rule 10c-1a(h)(4)
Proposed Rule
    The Commission proposed a requirement that RNSAs establish, 
maintain, and enforce reasonably designed written policies and 
procedures to maintain the security and confidentiality of certain 
confidential information required by the proposed rule.\639\ In the 
Proposing Release the Commission stated its preliminary belief that an 
RNSA needs to protect Rule 10c-1 information from intentional or 
inadvertent disclosure to protect investors that provide such 
information by establishing reasonably designed written policies and 
procedures because the distribution of such information would identify 
market participants or could reveal information about the internal 
operations of market participants, which could be adverse to those 
providing information to an RNSA.\640\
---------------------------------------------------------------------------

    \639\ See proposed Rule 10c-1(h)(4) (specifically including the 
information collected pursuant to paragraphs (d) and (e)(3) of the 
proposed rule).
    \640\ See Proposing Release, 86 FR 69820.
---------------------------------------------------------------------------

Final Rule
    For the reasons discussed above, in Part VII.F.3, the Commission is 
adopting the final rule as proposed and requiring an RNSA to establish, 
maintain, and enforce written policies and procedures to maintain the 
confidentiality of the confidential data elements collected under the 
final rule.\641\
---------------------------------------------------------------------------

    \641\ See final Rule 10c-1a(h)(4).
---------------------------------------------------------------------------

L. Data Availability to the Commission and Other Persons--Rule 10c-
1a(h)(2)

Proposed Rule
    The Commission proposed that RNSAs be required to make certain 
information, including confidential information, collected pursuant to 
the proposed rule available to the Commission or other persons as the 
Commission may designate by order upon a demonstrated regulatory 
need.\642\
---------------------------------------------------------------------------

    \642\ See proposed Rule 10c-1(g)(2) (specifically including the 
information collected pursuant to paragraph (a)(2)(iii) and 
paragraphs (b) through (e) of the proposed rule).
---------------------------------------------------------------------------

Final Rule
    Two commenters recommended that the final rule require RNSAs to 
make collected confidential information available to SROs without 
obtaining an SEC order.\643\ However, another commenter recommended 
that access to such information by securities exchanges should require 
a clear regulatory purpose.\644\ The Commission recognizes that other 
regulators and SROs may require access to the confidential information 
reported to RNSAs pursuant to final Rule 10c-1a for regulatory 
purposes. However, it is appropriate to only provide such information 
by order of the Commission upon a demonstrated regulatory need.\645\ 
Imposing this condition on access to reported information should help 
ensure the security of the reported data elements, while taking into 
account that other regulators may require access. For the foregoing 
reasons the Commission is adopting the requirement that RNSAs make 
collected information available to the

[[Page 75688]]

Commission, and make it available to other persons as the Commission 
may designate by order upon a demonstrated regulatory need, with a 
technical edit,\646\ with the relevant paragraphs renumbered to align 
with the format of the final rule.\647\
---------------------------------------------------------------------------

    \643\ See NYSER Letter 2, at 2 (stating that ``[t]here may be 
NYSER inquiries or investigations where securities lending 
information would be important, and where time could be of the 
essence''); Nasdaq Letter, at 4.
    \644\ See HMA Letter, at 11 (stating that any access by 
exchanges ``must be narrowly tailored to achieve a clear, specific 
regulatory purpose, and subject to significant oversight by the 
Commission'').
    \645\ See Proposing Release, 86 FR 69852. See also final Rule 
10c-1a(h)(2). Restrictions on the availability of reported Rule 10c-
1a information to other persons is subject to applicable law, as an 
RNSA could be compelled to provide information pursuant to a court 
order or other legal authority (such as a subpoena).
    \646\ The Commission is also making a technical edit to specify 
that its own access to the information collected pursuant to 
paragraph (b)(1)(iv) and paragraphs (c) through (e) is not limited. 
Final Rule 10c-1a(h)(2) has been formatted to distinguish the 
Commission's access from ``other persons as the Commission may 
designate.''
    \647\ See final Rule 10c-1a(h)(2). References to the relevant 
collected information in paragraphs (a)(2)(iii) and (b) through (e) 
of the proposed rule have been updated to reference paragraphs 
(b)(4) and (c) through (e) of the final rule.
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M. Cross-Border Application of Rule 10c-1a

    The Commission received a number of comments about the rule's 
intended cross-border application.\648\ Many of these comments 
requested that the Commission provide cross-border guidance to help 
promote legal certainty and competitive equity, and that in doing so 
the Commission rely on existing definitions for U.S. and non-US market 
participants to avoid new documentation requirements.\649\ Among other 
things, these commenters requested clarification or specific guidance 
as to when non-U.S. persons would be subject to the final rule \650\ 
and clarity as to the circumstances under which a securities loan will 
be deemed to be within the U.S. market for purposes of applying 
reporting requirements.\651\ Some commenters stated that because the 
rule would apply broadly to ``any person'' that loans a security on 
behalf of itself or another person, that could mean the rule would 
apply to ``all lenders'' \652\ regardless of whether the lender loans a 
U.S. security or a non-U.S. security and whether or not the lender was 
a U.S. person or not.\653\ Other commenters, in contrast, warned that, 
because a significant amount (up to 18 percent) of lender transactions 
in the U.S. market are provided by funds outside of the U.S., the 
Commission risks not capturing this considerable volume of activity if 
it does not clarify cross-border scope of the final rule.\654\ Many of 
these commenters raised questions about the scope of the Commission's 
cross-border regulatory authority under section 10(c).\655\
---------------------------------------------------------------------------

    \648\ See, e.g., Letter from Mark A. Steffensen, Senior 
Executive Vice President and General Counsel for HSBC North American 
Holdings Inc. and HSBC Bank USA, N.A. (Jan. 24, 2023) (``HSBC Letter 
1''), at 1-2 (expressing concern that the cross-border application 
of the proposed rule is unclear and overbroad, which makes it 
difficult for firms to assess the scope of the new reporting 
obligations and challenging to implement internal programs, 
policies, procedures to ensure compliance with the new reporting 
regime. Further, an expansive cross-border application could lead to 
questions regarding the Commission's authority to promulgate the 
rule, and its commitment to respecting the decisions of peer EU/UK 
regulators.). See also Linklaters Letter, at 2 (stating that, 
``because the proposed rule would apply to `any person,' ``the scope 
of the proposed rule, particularly outside the U.S., is unclear and 
potentially overbroad''). The commenter, however, offered 
suggestions for clarifying the proposed rule's extraterritorial 
scope, including recommending that the Commission clarify that the 
proposed rule ``does not apply to non-U.S. persons that do not use 
any U.S. jurisdictional means in connection with a securities 
lending transaction or, alternatively, exclude Canadian institutions 
from the scope of the proposed rule.'' See id. To provide legal 
certainty as to its cross-border application, the commenter also 
suggested that the Commission should clarify that, given that it 
would be promulgated under section 10(c)(1) of the Exchange Act, 
final Rule 10c-1a would not apply to non-U.S. persons that do not 
use any U.S. jurisdictional means to effect, accept, or facilitate a 
securities lending transaction. See id. at 2-3. See also ICI Letter 
1, at 7-8 (encouraging the Commission to analyze and clarify the 
cross-border implications of the final rule to ensure that the final 
rule does not have inappropriate cross-border reach). See also IIB 
Letter, at 4-5; RMA Letter, at 17-18; Federated Hermes Letter, at 2 
(agreeing with ICI's comment regarding the Commission needing to 
clarify the cross-border ramifications of the final rule); EBF 
Letter, at 1-2 (stating that the SEC needs to clarify the cross-
border reach of the proposed rule by following the same approach as 
used for foreign broker-dealer registration, with the goal of being 
able to define the precise territorial scope of the proposed rule).
    \649\ See RMA Letter, at 18.
    \650\ One commenter stated that it believed the rule should not 
apply to non-U.S. persons who do not facilitate, effect, or accept 
loans in the U.S. That commenter also suggested the Commission 
consider taking a risk-based approach that advances the goals of 
section 984 of the Dodd-Frank Act by more precisely targeting the 
segment of the securities lending market that presents the greatest 
risks to the U.S. financial system, by excluding certain categories 
of market participants, such as Canadian Institutions. The commenter 
did not further explain the parameters of their suggested approach. 
See Linklaters Letter, at 3. The cross-border scope of the rule 
should be focused on facilitating, effecting, or accepting loans in 
the U.S. rather than the alternative approach the commenter suggests 
that would exclude Canadian Institutions and thereby limit 
transparency regarding loans of securities that are facilitated, 
effected, or accepted in the U.S. Another commenter stated that, 
despite the legislative history of section 10(c) and the 
Commission's statements in the proposal, ``the intent of proposed 
Rule 10c-1 was to increase transparency of securities lending 
information with respect to the U.S. markets for the benefit of U.S. 
brokers, dealers, and investors'' but that the reach of the rule to 
all lenders is broader. See ICI Letter 1, at 7-8. See also SIFMA 
Letter 1, at 19-20. See MFA Letter 3, at 6 (stating that the 
Commission should ``clarify the cross-border implications of any 
final securities lending reporting rule it adopts,'' and also stated 
that ``it would be inappropriate to apply the Proposed Securities 
Lending Rules to non-U.S. entities such as UCITS, AIFs, or other 
funds that are subject to reporting under SFTR and not otherwise 
subject to U.S. regulatory requirements''). See also HSBC Letter 1, 
at 2 (stating that, ``[g]iven that complying with any new reporting 
regime is likely to be costly and operationally complex regardless 
of its ultimate scope--especially for large firms with global 
operations . . . it is essential that the Commission clarify the 
cross-border application and certain other aspects of each of the 
proposed rules in line with the Commission's authority to promulgate 
rules only where necessary and appropriate in the U.S. public 
interest or for the protection of U.S. investors''). Another 
commenter urged the Commission to define the jurisdictional scope of 
the transactions to be reported under the final rule, including 
which securities must be reported and which parties are required to 
report. See FIF Letter, at 8.
    \651\ See, e.g., RMA Letter, at 17 (stating that, ``[w]ithout 
such definition, non-U.S. beneficial owners and agent lenders would 
be left with substantial legal uncertainty''). According to this 
commenter, the ``reach of the-reporting requirements should be 
limited territorially, setting explicit rules on when transactions 
involving non-U.S. entities are deemed to be within scope.'' Id. See 
also IHS Markit Letter, at 3 (requesting clarity regarding whether 
international broker-dealers lending U.S. securities are within the 
scope of the proposed rule).
    \652\ See, e.g., SIFMA AMG Letter, at 3 (urging the Commission 
to ``address extraterritorial issues such as the scope of securities 
(US or non-US) and lenders (US or non-US) as the present drafting 
potentially addresses all securities (US and non-US) lent by US 
lenders and/or all US securities lent by all lenders (US and non-
US)''). See also Pirum Letter, at 3 (stating that, as proposed, any 
person that loans a security on behalf of itself or another person 
has a reporting requirement yet without the rule specifying whether 
it is the domicile of the person lending the security, the security 
itself or a combination of both, which brings a transaction into 
scope for reporting).
    \653\ See, e.g., ICI Letter 1, at 7-8 (stating that the rule's 
cross-border reach needs to be clarified because the proposed rule 
currently applies to ``any person'' (very broad) and it is unclear 
whether it could apply to non-U.S. entities). In requesting this 
clarification, this commenter points out the legislative history of 
section 10(c) and its focus on U.S. markets and increasing 
transparency for the benefit of U.S. broker-dealers. See id.
    \654\ See ISLA Letter, at 2.
    \655\ See, e.g., MFA Letter 1, at 12 (suggesting the Commission 
limit the scope of the proposed rule to U.S. securities and stating 
that applying the rule to all securities irrespective of the 
jurisdiction that principally regulates such offerings goes beyond 
what is intended by section 10(c). According to this commenter, 
Congress did not intend to capture cross-border lending activities 
when it added section 10(c) to the Exchange Act, and capturing such 
activities would not further the transparency goals of the proposed 
rule but, instead, could inadvertently result in market participants 
segregating their foreign lending activities so as to limit U.S. 
assertion of jurisdiction activities).
---------------------------------------------------------------------------

    Although the Proposing Release did not propose rule text addressing 
the cross-border aspects of proposed Rule 10c-1 or otherwise discuss 
the rule's cross-border reach, the Commission is addressing commenters' 
contentions about the Commission's cross-border authority under section 
10(c) and offering general guidance as to the rule's cross-border 
scope. As an initial matter, the Commission advises that final Rule 
10c-1a is intended to reach the full scope of the cross-border 
authority provided for by section 10(c).\656\
---------------------------------------------------------------------------

    \656\ Because final Rule 10c-1a is co-extensive with the full 
cross-border authority of section 10(c), by definition, it cannot 
exceed the cross-border authority that Congress afforded.
---------------------------------------------------------------------------

    Turning to the cross-border scope of section 10(c), the 
Commission's understanding of that provision's cross-

[[Page 75689]]

border reach is based on the territorial approach that the Commission 
has applied when crafting rules to implement other provisions of the 
Exchange Act.\657\ Consistent with that territorial approach (which is 
based on Supreme Court precedent, including Morrison v. National 
Australia Bank, Ltd. and its progeny) the Commission examined the 
relevant statutory provision to determine the domestic conduct that is 
covered by the provision.\658\ By its terms, section 10(c) 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. Based on that language, the Commission 
concludes 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. Because the 
Commission intends final Rule 10c-1a to be co-extensive with the 
regulatory scope of section 10(c), the Commission is of the view that 
the rule'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.
---------------------------------------------------------------------------

    \657\ See, e.g., Regulation SBSR--Reporting and Dissemination of 
Security-Based Swap Information, Release No. 34-74244 (Feb. 11, 
2015), 80 FR 14563, 14649 (Mar. 19, 2015) (discussing the 
territorial approach to the cross-border application of Title VII 
requirements for regulatory reporting and public dissemination of 
security-based swap transactions).
    \658\ 561 U.S. 247. See, e.g., Abitron Austria GmbH v. Hetronix 
Int'l, Inc, 600 U.S. 412, 418 (June 29, 2023) (stating that ``[the 
Supreme Court has] repeatedly and explicitly held that courts must 
`identif[y] ``the statute's `focus''' and as[k] whether the conduct 
relevant to that focus occurred in United States territory'').
---------------------------------------------------------------------------

    One significant exclusion proposed by commenters concerned non-U.S. 
residents. Having considered those comments, such an exclusion would 
not be appropriate. Section 10(c) is focused on increasing transparency 
regarding lending and borrowing transactions that are effected, 
accepted, or facilitated (in whole or in part) within the U.S. 
Excluding borrowing and lending transactions by non-U.S. persons when 
those transactions are effected, accepted, or facilitated (in whole or 
in part) within the U.S. could impact the completeness of the data, 
providing less transparency and potentially resulting in U.S. market 
participants receiving misleading information as a result of those 
omissions. Moreover, the exclusion of non-U.S. persons suggested by the 
commenters could cause competitive harm to U.S. market participants as 
it would allow non-U.S. persons engaging in the same activities as U.S. 
persons to benefit from the transparency about the U.S. securities 
lending market provided by final Rule 10c-1a without contributing to 
that transparency. For these reasons, the Commission declines to adopt 
such an exclusion.
    Commenters suggested several other exclusions from final Rule 10c-
1a that the Commission has also decided not to adopt, including that 
the final rule should apply only to loans of U.S.-exchange traded 
securities offered by a U.S. lender.\659\ One commenter stated ``that 
market participants--particularly those outside of the United States--
might determine to limit or cease trading or interacting with U.S. 
intermediaries, or leave the U.S. markets altogether'' in order to 
prevent public disclosure of their transactions.\660\ Another commenter 
stated that capturing such activities would not further the 
transparency goals of the rule but, instead, could inadvertently result 
in market participants segregating their foreign lending activities so 
as to avoid reporting under final Rule 10c-1a.\661\ Other commenters 
suggested that final Rule 10c-1a should apply only to loans of 
securities in which: (1) the country of issue and primary trading 
market of the securities is the U.S., and (2) the beneficial owner/
lender or Lending Agent is a U.S. person.\662\ Having considered these 
comments, as a policy matter, it is not appropriate to exclude any of 
these categories of lending transactions. Each of these types of 
transactions could have a potential direct impact upon U.S. markets and 
U.S. market participants and, thus, consistent with the breadth of the 
cross-border scope of section 10(c) it is appropriate to retain these 
categories of transactions within the rule's reporting requirements so 
as to enhance overall transparency in the U.S. securities market.\663\
---------------------------------------------------------------------------

    \659\ See, e.g., HSBC Letter 1, at 3; Mark A. Steffensen, Senior 
Executive Vice President and General Counsel, HSBC Bank USA, N.A. 
(Feb. 5, 2023) (``HSBC Letter 2''), at 1-2; SIFMA Letter 1, at 4; 
SIFMA Letter 2, at 3; see also MFA Letter 1, at 12; MFA Letter 3, at 
12.
    \660\ HSBC Letter 1, at 5. But see HSBC Letter 2, at 1 (stating, 
in response to a question regarding whether the rule should be 
limited to U.S. lenders that the commenter ``would expect the depth 
and liquidity of the U.S. market to act as a disincentive for U.S. 
asset managers to avoid U.S. lenders altogether, and [the commenter] 
cannot envision any incentive for U.S. asset managers to prefer non-
U.S. lenders that are themselves subject to similar reporting 
requirements in their home jurisdictions'').
    \661\ See MFA Letter 1, at 12. The commenter stated that 
applying the rule to all securities irrespective of the jurisdiction 
that principally regulates such offerings goes beyond what is 
intended by section 10(c), but for the reasons already discussed the 
Commission does not agree.
    \662\ See SIFMA Letter 1, at 19-20 (stating that proposed Rule 
10c-1 should ``apply only to loans of securities where (i) the 
country of issue and primary trading market of the securities are 
the U.S. and (ii) the beneficial owner lender or lending agent is a 
U.S. person''). See also FIF Letter, at 8.
    \663\ The Commission acknowledges some market participants may 
seek to restructure their activities to avoid reporting, but on 
balance it is appropriate that the rule operate within the full 
scope of the cross-border authority that Congress established when 
it adopted section 10(c).
---------------------------------------------------------------------------

    Finally, some commenters asked the Commission to consider the issue 
of potential overlap with the SFTR that is already implemented in the 
EU and UK.\664\ These commenters stated that the SFTR uses the domicile 
of the transacting entities (i.e., both the lender and the borrower) to 
determine which entity has the reporting obligation and expressed 
concern about potential adverse impacts from regulatory overlap with 
Rule 10c-1a to the extent it covers non-U.S. persons.\665\ One 
commenter suggested that the Commission, at a minimum, include a carve-
out from proposed Rule 10c-1 (or allow for substituted compliance with 
respect to the rule) for loans by EU or UK lenders that are subject to 
reporting under the EU or UK SFTR.\666\ The Commission acknowledges 
that there will be some overlap with the SFTR, however, the overlap 
that may occur with respect to entities established in the EU or UK (or 
to the EU or UK branch of a non-EU/UK entity) is not sufficient to 
warrant an exclusion. To the extent transactions are subject to both 
the EU or UK SFTR reporting rules and Rule 10c-1a, this overlap will be 
due to the occurrence

[[Page 75690]]

within the U.S. of the relevant domestic activities as specified by 
section 10(c). For the reasons discussed above, related to transparency 
and competition within the U.S. market, Rule 10c-1a will apply to those 
transactions notwithstanding any potential overlap and resulting 
adverse impacts.
---------------------------------------------------------------------------

    \664\ See, e.g., BlackRock Letter, at 3 (stating that, when 
determining scope, the SEC should look to avoid overlap or 
duplication with SFTR reporting in Europe and encouraging the SEC to 
minimize the number of individual loans required to be reported 
under both regimes); IIB Letter, at 5 (expressing the concern that 
the SEC should provide clear guidelines, as well as follow the 
registered broker-dealer registration model).
    \665\ See Pirum Letter, at 3; Fidelity Letter, at 4 (expressing 
the concern that the Commission does not address whether the 
proposed rule is intended to require the reporting of loans of non-
U.S. securities and recommending that the final rule not require the 
reporting of loans of non-U.S. securities as such loans are already 
subject to reporting under the EU's SFTR); See Regulation (EU) 2015/
2365 of the European Parliament and of the Council of 25 Nov. 2015 
on transparency of securities financing transactions and of reuse 
and amending Regulation (EU) No 648/2012; see also ICI Letter 1, at 
12-13 (expressing concern regarding the apparent broad reach of the 
rule and how it potentially could apply to non-U.S. entities, 
including those entities already subject to SFTR's reporting regime 
and citing Article 4 of (EU) 2015/2365, available at https://www.esma.europa.eu/policy-activities/post-trading/sftr-reporting). 
See also CASLA Letter, at 3 (stating that the SEC should clarify if 
the domicile of the underlying client/agent lender would apply from 
territorial approach scope perspective).
    \666\ See HSBC Letter 2, at 1.
---------------------------------------------------------------------------

N. Additional Comments

    One commenter stated that the Commission has already exhausted its 
rulemaking authority under section 984(b) of the Dodd-Frank Act, that 
the authority to promulgate rulemaking has expired, and that the 
Commission is seeking to regulate transactions outside the scope of the 
intended Congressional authority.\667\ Section 984(a) of the Dodd-Frank 
Act, codified in section 10(c)(1) of the Exchange Act, has no deadline 
for Commission action. Although, section 984(b) includes such a date, 
the ``[p]assage of the statutory action deadline does not deprive the 
agency of the power to act.'' \668\ Section 984(b) of the Dodd-Frank 
Act provides that the Commission shall promulgate ``rules'' and does 
not limit the number of any such rules. The Commission did not 
``exhaust'' its authority under sections 984(a) and (b) by adopting the 
Investment Company Reporting Modernization rules.\669\
---------------------------------------------------------------------------

    \667\ See Citadel Letter, at 12-14.
    \668\ Hickman and Pierce. Administrative Law Treatise Section 
4.9 (6th Edition, 2023-1 Cum. Supp. 2018). When are Agencies 
Required to Act by Rule? (citing Brock v. Pierce County, 476 U.S. 
253 (1986); Southwestern Bell Telephone Co. v. Federal 
Communications Commission, 138 F.3d 746 (8th Cir. 1998).
    \669\ Investment Company Reporting Modernization, Release No. 
34-79095 (Oct. 13, 2016) 81 FR 81870, 81887-88 n.192 (Nov. 18, 
2016).
---------------------------------------------------------------------------

    The commenter also stated that, by ``linking'' securities loan 
transactions entered into in order to fulfill delivery obligations 
arising from customer short sales,\670\ the Commission would be 
exceeding the scope of its rulemaking authority.\671\ With regard to 
authority, section 10(c)(1) of the Exchange Act confers the Commission 
with plenary authority over both short sales and the loan or borrowing 
of securities, with a limited exception to authority over securities 
loans related to the safety and soundness or systemic risk of certain 
financial institutions such as banks and credit unions.\672\ A loan of 
a security may be used for short sales or other purposes, and the use 
of a securities loan to facilitate a short sale is separate and 
distinct from the short sale itself. While it is possible that some 
persons may seek out short sale information through securities lending 
information that will be provided under this rule, the modifications 
made from the proposed rule, in particular delaying the publication of 
the amount of the loan, should make it more difficult for such persons 
to succeed at such efforts, thereby addressing the potential negative 
consequences of such ``linking'' of securities loan information to 
short sale information (e.g., short sellers seeking to use securities 
lending information to alter their short selling strategies, thereby 
potentially reducing liquidity and harming investors) raised by the 
commenter.
---------------------------------------------------------------------------

    \670\ See Citadel Letter, at 13.
    \671\ See Citadel Letter, at 14.
    \672\ See 15 U.S.C. 240.78j(c) (section 10(c)(1) of the Exchange 
Act).
---------------------------------------------------------------------------

    Some commenters urged the Commission to take additional or 
different regulatory and non-regulatory actions than the approaches 
that were proposed, including actions that the Commission did not 
propose. These suggestions covered a variety of areas, including: 
notifications to retail investors; \673\ securities lending transaction 
terms; \674\ other SEC regulations; \675\ SEC enforcement actions and 
penalty provisions; \676\ studies, audits, and roundtables; \677\ 
reporting technologies; \678\ broker-dealer revenue; \679\ and ``onward 
lending.'' \680\ These issues are outside the scope of the proposal, 
and the final amendments appropriately further the Commission's 
objectives of promoting investor protection, enhancing market 
efficiency, and facilitating capital formation by implementing the 
requirements of section 984(b) of the Dodd-Frank Act and enhancing the 
transparency of securities lending and borrowing.
---------------------------------------------------------------------------

    \673\ See, e.g., Form Letters A and B; Trimbath Letter; Letter 
from Adam Rensel (Aug. 16, 2022); Letter from Kevin Hagemann (Aug. 
16, 2022); Letter from Sam Wood (Sept. 1, 2022).
    \674\ See, e.g., Trimbath Letter; Form Letters A and B.
    \675\ See, e.g., Letter from Marc Pecnik (Dec. 6, 2022); Letter 
from A K Tran, MD, Ph.D. (Nov. 26, 2021); Letter from Christian 
Bashnick (Aug. 16, 2022); Letter from Doyoung Park (Aug. 16, 2022); 
Letter from Dakota Glassburn (Aug. 16, 2022); Form Letter from 
Brandon Gallagher, et al. (Aug. 16, 2022); Letter from Adrian 
Convery (Aug. 16, 2022); Letter from Antonio Franco (Aug. 16, 2022); 
Letter from Cam Johnson (Aug. 16, 2022); Letter from Patrick 
Barragan (Aug. 16, 2022); Letter from M. A. Uit den Boogaard (Aug. 
16, 2022); Letter from Fulton (Aug. 16, 2022).
    \676\ See, e.g., Letter from DWK (Oct. 8, 2022); Letter from 
Curtis Higgins (Mar. 2, 2022); Letter from Enrique Deaguila (Oct. 
29, 2022); Letter from Matt Hyland (Feb. 19, 2022); Letter from Ryan 
Deolall (Oct. 30, 2022); Letter from Dave Cazza (Aug. 15, 2023).
    \677\ See, e.g., Letter from Edmon Blount, Founder and Director 
Emeritus, Center for the Study of Financial Market Evolution (Dec. 
15, 2021) (``CSFME Letter 1''), at 6; Letter from Edmon Blount, 
Founder and Director Emeritus, Center for the Study of Financial 
Market Evolution (Apr. 26, 2022) (``CSFME Letter 4''), at 1; Letter 
from Edmon Blount, Founder and Director Emeritus, Center for the 
Study of Financial Market Evolution (Nov. 1, 2022) (``CSFMA Letter 
5''); see also Letters from Dr. Radek Stech, CEO, Global Principles 
for Sustainable Securities Lending (Global PSSL) and Senior 
Lecturer, University of Exeter Law School (Jan. 7, 2022, Apr. 7, 
2022, and Nov. 1, 2022); ISLA Letter, at 2-3.
    \678\ See, e.g., Letter from David S. Schwartz, Managing 
Director, Center for the Study of Financial Market Evolution (Mar. 
17, 2022) (``CSFME Letter 3''), at 1-2; Advanced Securities 
Consulting Letter, at 1-3; Letter from Matthew Cohen, Provable 
Markets (Jan. 7, 2002); Data Boiler Technologies Letter LLC; Letter 
from Alan Konevsky, interim Chief Executive Officer and Chief Legal 
Officer, tZERO (Jan. 7, 2022); Letter from Dan Liefwalker (Dec. 17, 
2021); Letter from Jordan Cox (Jan. 4, 2022); Letter from Samuel 
Hudock (Mar. 10, 2022); Letter from Enzo Villani (Jan. 19, 2022).
    \679\ See, e.g., Trimbath Letter, at 1-2.
    \680\ See, e.g., Form Letters A and B; Trimbath Letter; Letter 
from Julian Young (Aug. 16, 2022); Letter from Helmut Herglotz (Oct. 
31, 2022); Letter from Juan Camarena (Oct. 30, 2022).
---------------------------------------------------------------------------

VIII. Compliance Date

    The Proposing Release did not include a specific proposed 
compliance date for the final rule, but commenters expressed a range of 
views on the length and structure of an implementation period.\681\
---------------------------------------------------------------------------

    \681\ With respect to the compliance period, several commenters 
requested the Commission to consider interactions between the 
proposed rule and other recent Commission rules. In determining 
compliance periods, the Commission considers the benefits of the 
rules as well as the costs of delayed compliance periods and 
potential overlapping compliance periods. For the reasons discussed 
throughout this release, to the extent that there are costs from 
overlapping compliance periods, the benefits of the rule justify 
such costs. See infra Part IX.B for a discussion of the interactions 
of the final rule with certain other Commission rules.
---------------------------------------------------------------------------

    The Commission received several comments recommending an 
implementation period that runs from the time that technical 
specifications are published by an RNSA.\682\ One commenter proposed an 
``initial compliance period of at least 18 months to develop necessary 
systems and otherwise prepare for compliance.'' \683\ Another commenter 
proposed a period of ``at least 18 months after publication of 
technical specifications by the registered national securities 
association to come into compliance with the new

[[Page 75691]]

requirements.'' \684\ Another commenter recommended that the Commission 
``provide a minimum two-year implementation period'' for the final 
rule.\685\ One commenter stated that ample time should be provided for 
covered persons to develop ``procedures and protocols and properly 
train their compliance and trading personnel before subjecting them to 
additional regulation.'' \686\ However, other commenters encouraged the 
Commission to expedite the adoption of the final rule.\687\
---------------------------------------------------------------------------

    \682\ See FIF Letter, at 2; BlackRock Letter, at 9 (recommending 
a timeline that allows persons that make covered securities loans to 
establish internal reporting regimes ``after the designated RNSA has 
completed their technology database and requisite testing''); EBF 
Letter, at 2 (recommending a period of ``at least 18 months after 
publication of technical specifications by the [RNSA] to come into 
compliance with the new requirements''); SIFMA Letter 1, at 20 
(recommending ``that market participants . . . be given a minimum of 
18 months following the RNSA's finalization of the technical 
specifications for reporting''). See also ASA Letter, at 2 (stating 
that ``[v]endors would need time to modify and upgrade their 
technology systems to comply with any new standards'').
    \683\ See IIB Letter, at 3.
    \684\ See EBF Letter, at 2.
    \685\ See Fidelity Letter, at 2. The commenter also recommended 
that ``[t]he Commission should also provide necessary guidance to 
market participants on the final rule a full year in advance of the 
implementation date.'' An RNSA may elect to provide updates as it 
develops its rules for compliance with final Rule 10c-1a. As 
discussed below in this part, the compliance date for covered 
persons, referred to throughout this release as the ``reporting 
date'', will be the first business day 24 months after the effective 
date of final Rule 10c-1a. See also Nasdaq Letter, at 2 (stating 
that ``a two-year implementation period would provide adequate time 
for market participants to comply with the Proposal'').
    \686\ See S3 Partners Letter, at 5.
    \687\ See HMA Letter, at 1 (stating that the Commission should 
``revise and adopt the Proposal without delay''); Better Markets 
Letter, at 1 (recommending that the Commission ``finalize this long-
overdue, mandatory rulemaking without delay or dilution'').
---------------------------------------------------------------------------

    Certain commenters requested a phased approach to implementation, 
including a recommendation that the implementation of the final rule 
begin only with loans of U.S. equity securities.\688\ Other commenters 
recommended initially reporting only securities listed or traded on a 
U.S. exchange and reporting other U.S. equity securities or debt 
securities after further study.\689\ Other commenters recommended 
deferring public dissemination of data to allow the Commission to gain 
experience with the data.\690\ Similarly, one commenter supported ``an 
approach to implementation that requires confidential reporting for 
regulatory purposes to give the SEC experience with the data to refine 
it as necessary to ensure it serves its purpose. Any further stages 
that would require public dissemination of the data should only be 
considered following additional economic analysis and public 
consultation.'' \691\
---------------------------------------------------------------------------

    \688\ See, e.g., BlackRock Letter, at 3; ICI Letter 1, at 7; 
Federated Hermes Letter, at 2; AIMA Letter, at 5; MFA Letter 3, at 
6; SIFMA AMG Letter, at 11 (recommending that ``[o]nce the SEC and 
the RNSA become familiar with the data they are receiving and can 
assess the data's potential utility to the market, the SEC could 
then propose rules on making data available to the public''); ABA 
Letter, at 4 (``The SEC should limit covered securities lending 
transactions, at least during the initial stages of reporting, to 
National Market System equity securities and not include fixed-
income securities, such as government securities.''); S3 Partners 
Letter, at 15 (recommending ``that the Commission phase-in 
implementation in a manner consistent with best practices in 
technology and policy implementation'').
    \689\ See CASLA Letter, at 2; RMA Letter, at 15-17. See also 
SBAI Letter, at 2; MFA Letter 3, at 6.
    \690\ See CASLA Letter, at 2; RMA Letter, at 17; MFA Letter 3, 
at 7.
    \691\ See Letter from Members of the U.S. House of 
Representatives Alma S. Adams, Ph.D., Frank D. Lucas, Madeleine 
Dean, Bill Huizenga, Bill Foster, Blaine Luetkemeyer, Vicente 
Gonzalez, Ann Wagner, Josh Gottheimer, Andy Barr, Al Lawson, French 
Hill, David Scott, Tom Emmer, and Bryan Steil (Nov. 22, 2022), at 2. 
See also Letter from Representative Lucas, et al., at 1; MFA Letter 
3, at 8.
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    Another commenter recommended that ``[a]ny proposed timeline should 
carefully consider the universe of entities required to report 
transactions for the first time.'' \692\ The Commission recognizes that 
covered persons may have differing degrees of expertise and familiarity 
with existing RNSA reporting systems, and that lacking such familiarity 
could increase the time needed to prepare for compliance with final 
Rule 10c-1a's requirements. However, the Commission also recognizes 
that the final rule permits the use of reporting agents, as well as 
other third party vendor service providers, either of which could help 
facilitate preparation for fulfillment of the final rule's reporting 
requirements by less experienced covered persons. For example, some 
commenters stated that existing third party vendors have experience and 
technological capacity to be able to provide reporting-related services 
(e.g., data vendors and entities that report information for other 
regulatory purposes).\693\
---------------------------------------------------------------------------

    \692\ See BlackRock Letter, at 7-8.
    \693\ See S3 Partners Letter, at 12; Sharegain Letter, at 2; IIB 
Letter, at 10.
---------------------------------------------------------------------------

    Another commenter proposed means of expediting the implementation 
of the final rule, including initially: (1) applying it to only larger 
market participants; (2) requiring only certain data elements; and (3) 
not enforcing it for several years.\694\ However, limiting the 
reporting of Rule 10c-1a information (i.e. to larger market 
participants or only requiring certain data elements) would provide the 
public with a narrow and incomplete view of the securities lending 
market activity.\695\ Similarly, not enforcing the rule for several 
years could incentivize non-reporting and skew the reported data to 
disproportionally represent market participants that voluntarily 
report.
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    \694\ See James J. Angel Letter, at 10.
    \695\ See Proposing Release, 86 FR 69807 (stating that 
``available data are incomplete, as private vendors do not have 
access to pricing information that reflects all transactions. This, 
in part, reflects the voluntary submission of transaction 
information by subscribers to vendors''); id. at 69807 (stating that 
``participation in the give-to-get data product is purely voluntary, 
meaning that the data could be missing observations in a systematic 
fashion, thus biasing the impression it creates of the lending 
market'').
---------------------------------------------------------------------------

    Taking into consideration commenters' wide-ranging recommendations, 
the following compliance dates strike an appropriate balance between 
making securities loan information publicly available and providing 
adequate time for industry participants to come into compliance. 
Specifically, the final rule's compliance dates require that: (1) an 
RNSA propose rules pursuant to final Rule 10c-1a(f) within four months 
of the effective date of final Rule 10c-1a; (2) the proposed RNSA rules 
are effective no later than 12 months after the effective date of final 
Rule 10c-1a; (3) covered persons report Rule 10c-1a information to an 
RNSA starting on the first business day 24 months after the effective 
date of final Rule 10c-1a (the ``reporting date''); and (4) RNSAs 
publicly report Rule 10c-1a information pursuant to final Rules 10c-
1a(g) and (h)(3) within 90 calendar days of the reporting date for 
covered persons to report Rule 10c-1a information to an RNSA. 
Additionally, upon the reporting date requiring covered persons to 
report Rule 10c-1a information to an RNSA, RNSAs are required to 
fulfill the data retention and availability requirements--including 
relevant information security policies and procedures--pursuant to 
paragraphs (h)(1), (h)(2), and (h)(4), and may establish and collect 
reasonable fees pursuant to paragraph (i) of final Rule 10c-1a.
    This approach to the final rule's compliance dates balances the 
Commission's goal of increasing transparency in the securities lending 
market with providing RNSAs and market participants with adequate time 
to implement systems and processes to comply with the final rule's 
reporting requirements. The Commission has also taken into 
consideration that the technology to collect and disseminate Rule 10c-
1a information already exists. Specifically, FINRA, which is currently 
the only RNSA, already operates facilities that collect and disseminate 
transaction information, including TRACE.\696\ FINRA's extensive 
experience in developing and operating such facilities will enable it 
to design and propose rules regarding the format and manner of its 
collection of

[[Page 75692]]

information within four months following the effective date of the 
final rule. Additionally, requiring that RNSA rules are effective no 
later than 12 months after the effective date of final Rule 10c-1a will 
help to ensure that information improving the transparency of the 
securities lending market is made available to the public without 
unnecessary delay.
---------------------------------------------------------------------------

    \696\ See FINRA Letter, at 2 (stating that ``FINRA has extensive 
experience establishing and maintaining systems that are designed to 
capture and disseminate transaction information--similar to the 
system contemplated by the Commission under the Proposal'').
---------------------------------------------------------------------------

    A reporting date for covered persons of 24 months after the 
effective date of final Rule 10c-1a is sufficient for covered persons 
(and eligible reporting agents) to prepare for compliance with the 
final rule's reporting requirements. Two commenters recommended an 
implementation period of two years,\697\ and another commenter 
recommended a compliance period of at least 18 months.\698\ One 
commenter's proposed implementation period of eighteen months after 
publication of technical specifications by an RNSA could provide more 
or less implementation time to covered persons than the final rule 
does. Depending on when an RNSA adopts rules pursuant to final Rule 
10c-1a(f), covered persons could potentially have more than 12 months 
to begin reporting Rule 10c-1a information, including more than the 18 
months the commenter recommends. Further, the final rule has been 
modified to reduce certain burdens, such as requiring end-of-day 
reporting rather than reporting in 15-minute increments, and removal of 
the available to lend and securities on loan requirements, which should 
reduce the amount of time required to prepare for compliance. As stated 
above, in this part, the reporting date for covered persons strikes a 
balance between making securities loan information publicly available 
and providing industry participants with sufficient time to come into 
compliance. Covered persons' permitted reliance on reporting agents and 
ability to use third party vendors \699\ to help facilitate the 
fulfillment of reporting obligations will allow for the outsourcing of 
certain functions to prepare for and comply with the final rule's 
requirements.
---------------------------------------------------------------------------

    \697\ See Fidelity Letter, at 2 (recommending that the 
``Commission should provide a two-year implementation period for any 
final rulemaking on the Proposal''); Nasdaq Letter, at 2 (``a two-
year implementation period would provide adequate time for market 
participants to comply with the Proposal'').
    \698\ See IIB Letter, at 3 (recommending that the ``SEC should 
provide reporting entities an initial compliance period of at least 
18 months to develop necessary systems and otherwise prepare for 
compliance with the requirements of the rule'').
    \699\ Numerous commenters have mentioned their experience in the 
market for reporting services. See, e.g., IHS Markit Letter, at 1; 
Pirum Letter, at 1; DTCC Letter, at 4; Sharegain Letter, at 2. See 
also Equilend Letter, at 1 (stating that it ``welcomes the 
opportunity to act as a reporting agent for the Proposed Rule'').
---------------------------------------------------------------------------

    A compliance date that requires RNSAs to publicly report Rule 10c-
1a information within 90 calendar days of the reporting date for 
covered persons reporting Rule 10c-1a information to an RNSA will help 
ensure the utility of such data once it is made publicly available. 
Providing RNSAs with up to 90 calendar days between covered persons 
being required to publicly report Rule 10c-1a information and RNSAs 
being required to make such information available to the public 
pursuant to final Rules 10c-1a(g) and (h)(3) will help RNSAs resolve 
any initial issues with collecting, aggregating, and publishing Rule 
10c-1a information following the reporting date for covered persons. 
Additionally, upon the reporting date for covered persons an RNSA is 
required to fulfill the data retention and availability requirements--
including relevant information security policies and procedures--
pursuant to paragraphs (h)(1), (h)(2), and (h)(4), and may establish 
and collect reasonable fees pursuant to paragraph (i) of final Rule 
10c-1a.

IX. Economic Analysis

A. Introduction and Market Failure

1. Introduction
    The Commission has considered the economic effects of final Rule 
10c-1a and, wherever possible, the Commission has quantified the likely 
economic effects of the final rule.\700\ The Commission is providing 
both a qualitative assessment and quantified estimates of the potential 
economic effects of the final rule where feasible. The Commission has 
incorporated data and other information to assist it in the analysis of 
the economic effects of the final rule. However, as explained in more 
detail below, because the Commission does not have, and in certain 
cases does not believe it can reasonably obtain, data that may inform 
the Commission on certain economic effects, the Commission is unable to 
quantify certain economic effects.\701\ Further, even in cases where 
the Commission has some data, quantification is not practicable due to 
the number and type of assumptions necessary to quantify certain 
economic effects, which render any such quantification unreliable. Our 
inability to quantify certain costs, benefits, and effects does not 
imply that such costs, benefits, or effects are less significant.
---------------------------------------------------------------------------

    \700\ Section 3(f) of the Exchange Act requires the Commission, 
whenever it engages in rulemaking and is required to consider or 
determine whether an action is necessary or appropriate in the 
public interest, to consider, in addition to the protection of 
investors, whether the action would promote efficiency, competition, 
and capital formation. Additionally, section 23(a)(2) of the 
Exchange Act requires the Commission, when making rules under the 
Exchange Act, to consider the impact such rules would have on 
competition. Section 23(a)(2) of the Exchange Act prohibits the 
Commission from adopting any rule that would impose a burden on 
competition not necessary or appropriate in furtherance of the 
purposes of the Exchange Act.
    \701\ For example, while the Commission believes that certain 
currently available securities lending data products may be biased 
due to missing observations, the extent of the biases cannot be 
quantified as the data that would be needed to assess the extent of 
the bias are missing. See infra note 759 and corresponding text for 
further discussion.
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    Commenters raised a number of concerns with the analyses and 
conclusions in the Proposing Release. The Commission reviewed all of 
the comments received and, in a few instances, have modified the 
subsequent economic analysis in response to additional information 
provided by commenters. We have also conducted analyses of changes to 
the proposed rule text.
    The Commission believes that the final rule will increase 
transparency in the securities lending market by making available the 
public portion of Rule 10c-1a information, which is more comprehensive 
than existing data, and by making such data available to a wider range 
of market participants and other interested persons than currently are 
able to access existing data.
    The subsequent benefits include a reduction of the information 
disadvantage faced by end borrowers and beneficial owners in the 
securities lending market, improved price discovery in the securities 
lending market, increased competition among providers of securities 
lending analytics services, reduced costs associated with tracking 
market conditions for broker-dealers and lending programs, and improved 
decision-making by investors, beneficial owners and other market 
participants.\702\ The Commission believes that final Rule 10c-1a will 
also likely reduce the borrowing costs of some securities,\703\ which 
will improve price discovery, liquidity, and capital formation in the 
underlying security markets. The Commission also believes the final 
rule will benefit investors by increasing the ability of regulators to 
surveil, study, and provide oversight of

[[Page 75693]]

both the securities lending market and individual market participants.
---------------------------------------------------------------------------

    \702\ See infra Part IX.C.1 for further discussion of the 
expected benefits of final Rule 10c-1a.
    \703\ See infra Part IX.C.1 for further discussion of the 
expected effects of final Rule 10c-1a on short selling. See infra 
note 853 and corresponding text for further discussion of why the 
effects discussed above are likely to be concentrated among stocks 
that have higher borrowing costs.
---------------------------------------------------------------------------

    The Commission believes that the final Rule 10c-1a will result in 
costs. The final rule will lead to direct compliance costs as entities 
providing Rule 10c-1a information to an RNSA will have to build or 
adjust systems to meet the requirements of the final rule. The entities 
that provide Rule 10c-1a information to an RNSA may absorb these costs 
in the form of lower profits or may pass them on to their customers in 
the form of increased fees for broker-dealer services or lending 
program services. The final rule will also impose direct costs on an 
RNSA responsible for collecting, maintaining, and distributing the 
data, who may pass on these costs by imposing fees on entities that 
provide Rule 10c-1a information to an RNSA and/or consumers of Rule 
10c-1a data (``Rule 10c-1a data''). Additionally, the Commission 
believes that the final rule could render existing securities lending 
data services less valuable, potentially leading to less revenue for 
the firms currently compiling and distributing these data for a 
fee.\704\ Also, broker-dealers and lending programs will have costs in 
the form of lost information advantage when dealing with beneficial 
owners and end borrowers in the securities lending market. For 
securities lending data that are currently not reported, or to which 
access is limited, making the data public may affect the profitability 
of certain trading strategies as investors use the data to learn about 
market sentiment and adjust their trading strategies accordingly.
---------------------------------------------------------------------------

    \704\ See supra Part IX.D.2 discussing why existing data 
providers may retain certain advantages in the market for securities 
lending data and analytics.
---------------------------------------------------------------------------

2. Market Failures
    In the securities lending market, the cost to borrow a given 
security depends on a number of factors, including the current demand 
for the security, the length of the loan, and the type and amount of 
collateral used, among others.\705\ Information about loan prices along 
with information about loan characteristics helps inform market 
participants about whether the price of a given securities loan is 
consistent with the current market rate. At the same time, the 
securities lending market is characterized by information frictions 
that stem from the fact that access to timely securities lending data 
is limited for some market participants.\706\ This means that, at any 
point in time, there is incomplete information on market conditions and 
some market participants have better information than others on 
borrowing costs and transactions. Such incomplete information and 
asymmetric information may lead to inefficient prices for securities 
loans (including loans of equity securities and fixed income 
securities).\707\
---------------------------------------------------------------------------

    \705\ See infra note 723 and corresponding text for a discussion 
of factors that could be important drivers of borrowing costs.
    \706\ See infra Part IX.B.2 for further discussion of the 
current state of transparency in the securities lending market. In 
response to commenters, the Baseline has been expanded to include a 
more robust discussion of data products that are currently available 
from commercial data vendors. See infra Part IX.B.5 for additional 
discussion.
    \707\ The Commission believes that the issues discussed in this 
part regarding a need for additional market transparency apply to 
all reportable securities, though, as pointed out by commenters 
(see, e.g., RMA Letter, at 16 and IIB Letter, at 6) and discussed 
below in Part IX.B.2, the market for securities lending may 
currently be more transparent for some reportable securities as 
compared to others. The Commission recognizes that, to the extent 
that crypto asset securities qualify as reportable securities under 
final Rule 10c-1a(j)(3), the benefits and costs of the final Rule 
10c-1a in the market for crypto asset security lending may vary 
based on the characteristics of that market. The Commission is 
unable to describe the lending market in reportable crypto asset 
securities, however, in part because there is insufficient reporting 
of crypto asset security transactions to the CAT, TRACE, or RTRS to 
allow for meaningful analysis.
---------------------------------------------------------------------------

    There is a general lack of comprehensive information on current 
market conditions in the securities lending market. Most providers of 
commercial securities lending data currently focus on loans from 
lending programs to broker-dealers (``Wholesale'' loans) \708\ and 
largely use a ``give-to-get'' model, where entities who wish to obtain 
securities lending data are typically required to: (1) be participants 
in the Wholesale lending market themselves, with data that they could 
provide, and (2) provide their data to the commercial vendor in order 
to access the full dataset provided by the vendor. This means that only 
those market participants with data to report for themselves are able 
to access the data, and other market participants have a very limited 
view into the Wholesale market. Furthermore, participation in give-to-
get data products is voluntary, meaning that relevant observations 
could be missing from the data in a systematic fashion, thus biasing 
the impression it creates of the lending market.\709\
---------------------------------------------------------------------------

    \708\ The Proposing Release defined ``Retail'' loans as those 
from a broker-dealer to an end borrower, while loans from lending 
programs to broker dealers constitute ``Wholesale'' loans (See 
Proposing Release, 86 FR 69805, 69831). To avoid confusion with the 
common use of the term ``retail'' to refer to a non-institutional 
(i.e., individual) investor, this release will refer to loans from a 
broker-dealer to an end borrower as ``Customer'' loans or loans in 
the Customer market, and loans from a lending program to a broker-
dealer or others as ``Wholesale'' loans, or loans in the Wholesale 
market. One commenter expressed concern that the Proposing Release 
did not adequately address the implications of the Rule for Short 
Sale Linked Activity (see Citadel Letter, at 5), by which the 
commenter stated that they are referring to what the Proposing 
Release calls the ``retail market'' (see Citadel Letter, at 1). The 
Economic Analysis uses the terms Wholesale market and Customer 
market to make clear the implications of the final rule for the 
different segments of the market.
    \709\ See infra Part IX.B.2 for further discussion of the 
potential for biases related to selection issues in commercial 
securities lending databases.
---------------------------------------------------------------------------

    Some commenters disagreed with the Commission's assessment of the 
current opacity of the securities lending market. One commenter pointed 
out that there are some commercial securities lending datasets that are 
available to all subscribers,\710\ and another commenter stated that 
``the `give-to-get' model is not the only model for commercial data for 
securities lending.'' \711\ Based on the Commission's experience, the 
collection of data for these currently available commercial datasets 
that are not give-to-get largely relies on surveying asset managers, 
and potentially others, in the Customer segment of the market about 
their borrowing experiences.\712\ To differentiate this data from the 
give-to-get data, this type of dataset will be referred to going 
forward as ``Customer market survey'' data.
---------------------------------------------------------------------------

    \710\ See S3 Partners Letter, at 5.
    \711\ See Citadel Letter, at 8.
    \712\ See Proposing Release, 86 FR 69832, referring to this data 
by stating ``Other firms provide a different approach to securities 
lending data by surveying fund managers about their borrowing 
experience, such as the fees they paid to borrow, from which they 
provide estimates of lending fees.'' See Antonio Garango, Short 
Selling Activity and Future Returns: Evidence from FinTech Data 
(Nov. 2020), at 1, 3, available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3775338 (retrieved from SSRN Elsevier 
database) (``Garango 2020'').
---------------------------------------------------------------------------

    One commenter stated that ``the Commission does not explain why 
[Customer market] survey data is inadequate or unavailable.'' \713\ The 
Commission acknowledges that Customer market survey data may be more 
widely available, as access to these datasets is generally not 
restricted in terms of which entities can purchase the data. However, 
the Commission believes that Customer market survey datasets are 
inadequate for two reasons. First, since they rely on surveys of 
borrowers in the Customer segment of the market, they lack 
comprehensiveness and have limited insight into the Wholesale 
market.\714\ Second, similar to the give-to-get datasets, Customer 
market survey datasets may also contain biases as they rely on 
voluntary submissions of data from a potentially limited subset of

[[Page 75694]]

market participants.\715\ As discussed above, these two types of 
datasets differ in terms of the market segments that they cover, and in 
terms of their accessibility.\716\
---------------------------------------------------------------------------

    \713\ See Citadel Letter, at 8.
    \714\ See supra note 708 for a definition of ``Customer'' loans.
    \715\ See infra Part IX.B.2 for further discussion of the 
potential for biases related to selection issues in commercial 
securities lending databases.
    \716\ See infra Part IX.B.2 for additional discussion of the 
characteristics of, and differences between, customer market survey 
data and give-to-get data.
---------------------------------------------------------------------------

    One commenter stated that the Commission ``has overstated the level 
of opacity in the securities lending market,'' that both the number of 
data vendors and the detail of their data products have increased over 
time, and that market participants generally have access to one or more 
securities lending datasets.\717\ However, based on the Commission's 
experience, the commercial securities lending data products that are 
currently available lack comprehensiveness and likely suffer from 
biases.\718\ Furthermore, while some market participants could 
potentially have access to multiple datasets, this would generally be 
possible only for a limited set of market participants who have access 
to give-to-get data, and who may find it cumbersome or costly to 
combine different types of data.\719\ The Commission is not aware of 
any commercially available securities lending dataset that currently 
provides securities lending data as comprehensive, accessible, and 
informative about all segments of the securities lending market (i.e., 
both the Wholesale market and Customer market), as the data provided by 
the final rule.\720\
---------------------------------------------------------------------------

    \717\ Specifically, the commenter stated that ``the level of 
detail in the data provided by data vendors has improved 
drastically'' and ``the number of data vendors present in the market 
has been growing,'' such that ``the vast majority of parties 
involved in the lending of securities have access to at least one 
securities lending data vendor, and in many cases multiple 
vendors.'' See IHS Markit Letter, at 13.
    \718\ See infra Part IX.B.2 for further discussion of the biases 
and lack of comprehensiveness in commercial securities lending 
datasets.
    \719\ See infra notes 768 through 770 and corresponding text for 
further discussion of limitations related to combining multiple 
securities lending datasets.
    \720\ See infra Part IX.B.2 for an additional discussion of this 
data.
---------------------------------------------------------------------------

    One commenter stated that lending agents frequently provide their 
clients with benchmark reports based on market data, and that 
beneficial owners currently benefit from substantial information 
obtained from lending agents.\721\ However, the Commission believes 
that, even if some lending agents or broker-dealers are incentivized to 
provide their clients with information about the quality of their 
securities lending services, it is unlikely that they have incentives 
to provide information in a standardized fashion. Therefore, it is 
unlikely that market participants would be able to use this information 
to compare the quality of securities lending services across lending 
agents or broker-dealers.
---------------------------------------------------------------------------

    \721\ See RMA Letter, at 5-6.
---------------------------------------------------------------------------

    The Commission believes that the problems of incomplete information 
and information asymmetries in the securities lending market are 
unlikely to be solved by market forces. Specifically, these information 
problems are unlikely to be solved by the availability of commercial 
securities lending data products. Firstly, there is a general a lack of 
incentives to improve the accessibility of give-to-get datasets. This 
is because market participants may be discouraged from contributing 
their data to give-to-get datasets if these datasets are widely 
available, e.g., to sophisticated investors such as hedge funds who 
could use this information to learn about the other participants' 
trading or hedging strategies.\722\ Therefore, for give-to-get data 
vendors, restricting access is likely seen as necessary in order to 
persuade market participants to contribute to the vendors' data 
products, and information asymmetry would be expected to persist as a 
result. Secondly, and more generally, as commercial data vendors lack 
the authority to mandate the reporting of securities loans, both the 
commercial data products that currently exist (both give-to-get and 
Customer market survey models), as well as any new commercial data 
product that could presumably emerge, can only be based on the 
voluntary contribution of data. Market participants who choose not to 
contribute data may so choose because they believe it is in their 
interest to keep their data out of public view. This makes it unlikely 
that any securities lending data vendor will be able to produce a 
securities lending data product that is comprehensive and free from 
biases.\723\ Thirdly, as discussed above, the information that lending 
agents or broker-dealers are incentivized to provide to their clients 
is unlikely to be standardized and thus useful for comparing the 
quality of securities lending services across lending agents or broker-
dealers. Thus, the availability of this information would also be 
unlikely to solve the problems of incomplete and asymmetric information 
in the securities lending market.
---------------------------------------------------------------------------

    \722\ See infra Part IX.B.2 for further discussion of market 
participants' incentives to provide data to give-to-get data 
vendors.
    \723\ See infra Part IX.B.2 for further discussion of the 
potential for biases related to selection issues in commercial 
securities lending databases.
---------------------------------------------------------------------------

A. Economic Baseline

    The baseline against which the costs, benefits, and the effects on 
efficiency, competition, and capital formation of the final rule are 
measured consists of the current state of the securities lending 
market, current practice as it relates to securities lending and 
availability of data about securities lending, and the current 
regulatory framework. The economic analysis appropriately considers 
existing regulatory requirements, including recently adopted rules, as 
part of its economic baseline against which the costs and benefits of 
the final rule are measured.\724\
---------------------------------------------------------------------------

    \724\ See, e.g., Nasdaq v. SEC, 34 F.4th 1105, 1111-15 (D.C. 
Cir. 2022). This approach also follows SEC staff guidance on 
economic analysis for rulemaking. See Staff's ``Current Guidance on 
Economic Analysis in SEC Rulemaking,'' (Mar. 16, 2012), available at 
https://www.sec.gov/divisions/riskfin/rsfi_guidance_econ_analy_secrulemaking.pdf (``The economic 
consequences of proposed rules (potential costs and benefits 
including effects on efficiency, competition, and capital formation) 
should be measured against a baseline, which is the best assessment 
of how the world would look in the absence of the proposed 
action.''); Id. at 7 (``The baseline includes both the economic 
attributes of the relevant market and the existing regulatory 
structure.''). The best assessment of how the world would look in 
the absence of the proposed or final action typically does not 
include recently proposed actions, because that would improperly 
assume the adoption of those proposed actions.
---------------------------------------------------------------------------

    Several commenters requested the Commission to consider 
interactions between the economic effects of the proposed rule and 
other recent Commission rules.\725\ The Commission

[[Page 75695]]

recently adopted four of the rules mentioned by commenters as 
potentially impacting the economic effects of the final Rule 10c-1a, 
namely the recent Amendments to Form N-PX Adoption,\726\ the Settlement 
Cycle Adoption,\727\ the May 2023 SEC Form PF Amending Release,\728\ 
and the Beneficial Ownership Amending Release.\729\ These recently 
adopted rules were not included as part of the baseline in the 
Proposing Release because they were not adopted at that time. In 
response to commenters, this economic analysis considers potential 
economic effects arising from the extent to which there is any overlap 
between the compliance period for final Rule 10c-1a and the compliance 
periods for each of these four adopted rules.\730\
---------------------------------------------------------------------------

    \725\ See, e.g., AIMA Letter 3, at 4 (``Because the . . . 
Proposals have aggregate and overlapping effects, they should be 
considered holistically and their potential adoption should be 
appropriately sequenced . . . .''); Letter from Eric J. Pan, 
President and CEO, Investment Company Institute, Aug. 17, 2023 
(``ICI Letter 2''), at 1 (``The Commission has issued a wide range 
of interconnected rule proposals . . . [that] in the aggregate 
warrant further analysis by the Commission.''). Commenters indicated 
there could be interactions between this rulemaking and the 
following rules: Enhanced Reporting of Proxy Votes by Registered 
Management Investment Companies; Reporting of Executive Compensation 
Votes by Institutional Investment Managers, Release Nos. 34-93169, 
IC-34389 (Sept. 29, 2021) 86 FR 57478 (Oct. 15, 2021) (``Amendments 
to Form N-PX Proposal'') (see, e.g., HMA Letter, at 4); Short 
Position and Short Activity Reporting by Institutional Investment 
Managers, Release No. 34-94313 (Feb. 25, 2022) 87 FR 14950 (Mar. 16, 
2022) (see, e.g., Overdahl Letter, at 14; AIMA Letter 3, at 2); 
Prohibition Against Fraud, Manipulation, or Deception in Connection 
With Security-Based Swaps; Prohibition Against Undue Influence Over 
Chief Compliance Officers; Position Reporting of Large Security-
Based Swap Positions, Release No. 34-93784 (Dec. 15, 2021) 87 FR 
6652 (Feb. 4, 2022) (see, e.g., Overdahl Letter, at 14; AIMA Letter 
3, at 2; ICI Letter 2, at n. 13); Modernization of Beneficial 
Ownership Reporting, Release Nos. 33-11030, 34-94211 (Feb. 10, 2022) 
87 FR 13846 (Mar. 10, 2022) (see, e.g., Overdahl Letter, at 14; ICI 
Letter 2, at n.13); Private Fund Advisers; Documentation of 
Registered Investment Adviser Compliance Reviews, Release No. IA-
5955 (Feb. 9, 2022) 87 FR 16886 (Mar 24, 2022) (``SEC Private Fund 
Advisers Proposal'') (see, e.g., Overdahl Letter, at 14); and 
Amendments to Form PF to Require Event Reporting for Large Hedge 
Fund Advisers and Private Equity Fund Advisers and to Amend 
Reporting Requirements for Large Private Equity Fund Advisers, 
Release No. IA-5950 (Jan. 26, 2022) 87 FR 9106 (Feb. 17, 2022) 
(``February 2022 SEC Form PF Proposing Release'') (see Overdahl 
Letter, at 14); Shortening the Securities Transaction Settlement 
Cycle, Release Nos. 34-94196, IA-5957 (Feb. 9, 2022) 87 FR 10436 
(Feb. 24, 2022) (see SIFMA Letter 1, at 20-21). See also Citadel 
Letter, at 10 (stating that Rule 10c-1a ``must be assessed along 
with the additional public disclosure contemplated in recent 
Commission proposals regarding large security-based swap positions, 
beneficial ownership reporting and short position and activity 
reporting'').
    \726\ Enhanced Reporting of Proxy Votes by Registered Management 
Investment Companies; Reporting of Executive Compensation Votes by 
Institutional Investment Managers, Release Nos. 33-11131, 34-96206, 
IC-34745 (Nov. 2, 2022) 87 FR 78770 (Dec. 22, 2022) (``Amendments to 
Form N-PX Adoption''). The Form N-PX amendments require funds to 
report publicly their proxy voting records on an annual basis, and 
apply to most registered management investment companies. The 
effective date is July 1, 2024.
    \727\ Settlement Cycle Adoption, supra note 738. The Settlement 
Cycle amendments shorten the standard settlement cycle for most 
broker-dealer transactions from two business days after the trade 
date to one business day after the trade date (``T+1''). The 
implementation date, May 28, 2024, will occur before the 
implementation of these rules, and we therefore expect that all 
reports made pursuant to this rule will occur after the 
implementation of the T+1 settlement cycle. Further, because of the 
need for an RNSA to develop and implement rules before reporting can 
begin, we believe that the May 2024 implementation date for T+1 will 
precede any significant compliance costs incurred by market 
participants pursuant to this final rule.
    \728\ Form PF; Event Reporting for Large Hedge Fund Advisers and 
Private Equity Fund Advisers; Requirements for Large Private Equity 
Fund Adviser Reporting, Release No. IA-6297 (May 3, 2023) 88 FR 
38146 (June 12, 2023) (``May 2023 SEC Form PF Amending Release''). 
The Form PF amendments require large hedge fund advisers and all 
private equity fund advisers to file reports upon the occurrence of 
certain reporting events. The compliance dates are December 11, 
2023, for the event reports in Form PF sections 5 and 6, and June 
11, 2024, for the remainder of the Form PF amendments.
    \729\ Modernization of Beneficial Ownership Reporting, Release 
Nos. 33-11253, 34-98704 (Oct. 10, 2023) (``Beneficial Ownership 
Amending Release''). Among other things, the amendments shorten the 
filing deadlines for beneficial ownership reports filed on Schedules 
13D and 13G. The compliance dates are 90 days after the effective 
date, for Schedule 13D amended filing deadlines; September 30, 2024, 
for the Schedule 13G amended filing deadlines; and December 18, 
2024, for the structured data requirement. We anticipate that the 
implementation of amendments to Schedules 13D and 13G will precede 
any significant compliance costs incurred by market participants 
pursuant to final Rule 10c-1a.
    \730\ Since proposing this rule, the Commission adopted another 
proposed rule identified by a commenter, the SEC Private Fund 
Advisers Proposal. See Overdahl Letter at 14; Private Fund Advisers; 
Documentation of Registered Investment Adviser Compliance Reviews, 
Release No. IA-6383 (Aug. 23, 2023) 88 FR 63206 (Sep.14, 2023) 
(``SEC Private Fund Advisers Adopting Release''). However, the 
Commission believes there are no potential significant effects from 
overlapping requirements to comply with final Rule 10c-1a. 
Specifically, one of the rules from the SEC Private Fund Advisers 
Adopting Release requires registered investment advisers to private 
funds to, among other things, provide transparency to their 
investors regarding the fees and expenses and other terms of their 
relationship with private fund advisers and the performance of such 
private funds. The Commission anticipates that most registered 
investment advisers would either not face any reporting obligations 
under final Rule 10c-1a(a) or, to the extent they are involved in 
the lending of securities, would not report loans directly, but 
would do so through a reporting agent. As a result, the Commission 
does not anticipate the compliance costs associated with final Rule 
10c-1a to be incurred directly by those who are impacted by the SEC 
Private Fund Advisers Adopting Release.
---------------------------------------------------------------------------

    Other rules mentioned by commenters remain at the proposal stage. 
To the extent those proposals are adopted, the baseline in those 
subsequent rulemakings will reflect the regulatory landscape that is 
current at that time.
1. Securities Lending
    A securities loan is typically a fully collateralized transaction 
whereby the lender, also known as the beneficial owner, temporarily 
transfers legal right to a security to the borrower, the counterparty, 
in exchange for compensation. The form of compensation depends on the 
type of collateral used to secure the transaction. There are two 
general types of collateral: cash and non-cash.
    In the U.S., the most common form of collateral for equity security 
loans is cash. The borrower of the security deposits collateral, 
typically 102 percent or 105 percent of the current value of the asset 
being loaned. The lender then reinvests this collateral, usually in 
low-risk interest-bearing securities, then rebates a portion of the 
interest earned back to the borrower. The difference between the 
interest earned and what is rebated to the borrower is the lending fee 
earned by the lender. The portion of the interest earned on the 
reinvested collateral that is returned to the borrower is called the 
rebate rate, and is a guaranteed amount set forth in the terms of the 
loan. It is possible for the lender to lose money on the loan if the 
interest earned on the reinvestment of the collateral does not exceed 
the rebate rate. If the security is in high demand in the borrowing 
market, the rebate rate may be negative, indicating that the borrower 
does not receive any rebate and must also provide additional 
compensation to the lender. In contrast, borrowers of loans that are 
collateralized other than with cash typically must pay a lending fee. 
The following will refer to ``cost to borrow'' or ``borrowing costs'' 
being higher when rebate rates are lower (or negative) in the case of 
cash-collateralized loans, and lending fees are higher in the case of 
non-cash-collateralized loans.\731\
---------------------------------------------------------------------------

    \731\ In many datasets, rebate rates for loans collateralized by 
cash are converted to fees using the conventional method of 
subtracting the rebate rate from the Federal funds rate; see, e.g., 
the footnote in Table 1.
---------------------------------------------------------------------------

    Borrowing costs are influenced by the current demand for the given 
security, the potential difficulty a particular broker-dealer may face 
finding an alternative source of loans, the length of the loan, the 
collateral used, the creditworthiness of the counterparty, and the 
relative bargaining power of the parties involved, among other 
factors.\732\ Consequently, there is usually a significant range of 
borrowing costs for loans of the same security on the same day to 
different entities.\733\
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    \732\ Among other factors that can influence borrowing costs, 
commenters also pointed out that the size and stability of the 
lender's position (see HMA Letter, at 2), the lender's propensity to 
recall the loan (see Overdahl Letter, at 6), interest rate stability 
and supply concentration (see SIFMA AMG Letter, at 6), and factors 
idiosyncratic to the parties, such as capital and opportunity costs 
(see RMA Letter, at 6). One commenter pointed out that fees in the 
Customer market can depend on additional factors, such as whether a 
borrower/client has exclusive access to a lenders' portfolio, the 
volume of a client's borrow business, and other prime brokerage 
services being offered, among others (see MFA Letter 1, at 5).
    \733\ See infra Part IX.B.3 for statistics on the range of 
borrowing costs.
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    In the Wholesale market, securities loans are most commonly 
obtained through bilateral negotiations between lending programs and 
broker-dealers, often with a phone call.\734\ Generally, when an end 
investor wishes to borrow a share, and their broker-dealer does not 
have the share available in their own inventory or through customer 
margin

[[Page 75696]]

accounts to loan,\735\ their broker-dealer will borrow a share from a 
lending agent with whom they have a relationship. Obtaining a 
securities loan often involves extensive search for counterparties by 
broker-dealers.\736\
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    \734\ Most broker dealers are regulated by FINRA and are subject 
to securities lending rules such as FINRA Rules 4314, 4320, and 
4330.
    \735\ See infra Part IX.B.4 for further discussion of the 
sourcing of shares by broker-dealers for securities loans.
    \736\ See, e.g., Adam C. Kolasinski, et al., A Multiple Lender 
Approach to Understanding Supply and Search in the Equity Lending 
Market, 68 J. Fin. 559, 559-95 (2013) (``Kolasinski (2013)'') 
(providing an examination of the effect of high search cost in the 
securities lending market).
---------------------------------------------------------------------------

    Investors borrow securities in the Customer market for a variety of 
reasons. In the equity market, a primary reason for borrowing shares is 
to facilitate a short sale. Investors use short sales to take a 
directional position in a security, or to hedge an existing 
position.\737\ When investors execute a short sale, they do not borrow 
the shares on the day of the short sale. Rather, because the stock 
market settles up to two business days after a transaction occurs 
(``T+2'') and the lending market has same-day settlement, the loan 
actually occurs on the settlement day.\738\
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    \737\ Market makers in the equity market also use short selling 
to facilitate liquidity provision in the absence of sufficient 
inventory. However, these short sales are not considered here 
because they are almost always reversed intraday and thus do not 
result in a securities loan.
    \738\ Equity settlement moves to T+1 on May 28, 2024; See 
Shortening the Securities Transaction Settlement Cycle, Release Nos. 
34-96930, IA-6239 (Feb. 15, 2023), 88 FR 13872 (Mar. 6, 2023) 
(``Settlement Cycle Adoption'').
---------------------------------------------------------------------------

    Options market activity can also be a source of demand for security 
loans as short selling is a critical component of delta hedging. Delta 
hedging occurs when options market participants, particularly options 
market makers, holding directional positions hedge their inventory 
exposure by taking offsetting positions in the underlying stock.\739\ 
Equity options markets are often significantly less liquid than the 
markets for their underlying securities. Delta hedging a long call or 
short put position requires short selling, which in turn requires 
borrowing the underlying asset.
---------------------------------------------------------------------------

    \739\ For a given option contract, a quantity known as the 
``delta'' captures the sensitivity of the option's price to a $1 
increase in the price of the underlying security. When hedging 
inventory, the market maker determines the appropriate position size 
in the underlying stock according to the delta.
---------------------------------------------------------------------------

    Equity security loans can also occur to close out a fail to 
deliver. Fail to delivers occur when one party of a transaction is 
unable to deliver at settlement the security that they previously sold. 
Fail to delivers can occur for multiple reasons.\740\ Rule 204 of 
Regulation SHO generally requires a participant of a registered 
clearing agency to close out any fail to deliver at the registered 
clearing agency by purchasing or borrowing securities of like kind and 
quantity. Thus, a broker or dealer that is required to close out a fail 
to deliver can borrow shares in the lending market to comply with Rule 
204 of Regulation SHO.\741\ Doing so allows more time for the 
individual to source the shares or purchase them in the open market.
---------------------------------------------------------------------------

    \740\ See, e.g., Amendments to Regulation SHO, Release No. 34-
58775 (Oct. 14, 2008), 73 FR 61690 n.8 (Oct. 17, 2008).
    \741\ See 17 CFR 242.204.
---------------------------------------------------------------------------

    The financial management activity of banks also drives securities 
loans, particularly in the Wholesale fixed-income securities lending 
market. It is the Commission's understanding that a significant 
fraction of debt security loans occurs as banks manage liquidity on 
their balance sheets. Securities loans help banks manage liquidity on 
their balance sheets because when a security is on loan, legal claim to 
the security transfers to the borrower.\742\ Thus, banks lacking 
sufficient high-quality liquid assets on their balance sheet may borrow 
such high-quality assets to bolster their liquidity ratios.\743\ U.S. 
Treasury/Agency bonds are often lent for this purpose, and consequently 
are the most commonly lent securities.\744\
---------------------------------------------------------------------------

    \742\ See, e.g., Concept Release on the U.S. Proxy System, 
Release No. 34-62495 (July 13, 2010), 75 FR 42982, 42994 (July 22, 
2010) (``When an institution lends out its portfolio securities, all 
incidents of ownership relating to the loaned securities, including 
voting rights, generally transfer to the borrower for the duration 
of the loan'').
    \743\ These loans are generally collateralized with securities 
instead of cash. A market participant can increase the liquidity of 
their portfolio by borrowing highly liquid securities and 
collateralizing the loan with less liquid securities.
    \744\ See OFR Pilot Survey, at 7; supra note 136.
---------------------------------------------------------------------------

    Also, the Commission understands that some financial entities may 
use securities loans to obtain the type of collateral required for 
other agreements they are trying to enter into. For example, if a 
contract requires a certain kind of fixed income security as 
collateral, a firm may borrow that security to collateralize the 
contract.
    While a security is on loan, the borrower is the legal owner of the 
security and receives any dividends, interest payments, and, in the 
case of equity security loans, holds the voting rights associated with 
the shares.\745\ Voting rights remain with the borrower until the 
loaned securities are returned. Usually, the terms of the loan 
stipulate that dividends and interest payments must be passed back to 
the beneficial owner in the form of so-called ``substitute dividends.'' 
Because dividends and substitute dividends are sometimes taxed 
differently, an investor for whom a substitute dividend is taxed at a 
lower rate than a dividend may loan its shares to an investor for whom 
dividends are taxed at a lower rate than substitute dividends.\746\
---------------------------------------------------------------------------

    \745\ See, e.g., OFR Reference Guide, supra note 4.
    \746\ This is known as dividend arbitrage. While the IRS has 
issued regulations to try to combat this type of dividend arbitrage, 
there is evidence that it still occurs. See Peter N. Dixon, et al., 
To Own or Not to Own: Stock Loans around Dividend Payments, 140 J. 
Fin. Econ 539,539-59 (2021) (``Dixon, et al., (2021)'').
---------------------------------------------------------------------------

    Several commenters pointed out additional reasons for borrowing 
securities. One commenter stated that there are many reasons for 
securities lending that are unrelated to short selling.\747\ Another 
commenter purported that securities lending can be used to gain 
influence in the voting of equity securities.\748\
---------------------------------------------------------------------------

    \747\ See IHS Markit Letter, at 3.
    \748\ See HMA Letter, at 3.
---------------------------------------------------------------------------

    However, the Commission expects that the majority of equity 
securities lending, particularly in the Customer market, occurs to 
facilitate short selling. Investors' ability to use securities loans 
for purposes other than short selling is limited by the ``permitted 
purpose requirement'' of the Board of Governors of the Federal Reserve 
System's Regulation T. Regulation T broadly governs the lending 
activities of broker-dealers, and specifies that a broker- dealer may 
generally borrow or lend U.S. securities from or to a (non-broker-
dealer) customer solely ``for the purpose of making delivery of the 
securities in the case of short sales, failure to receive securities 
required to be delivered, or other similar situations,'' unless an 
exemption applies.\749\ This limitation results in a close correlation 
between information about aggregate Customer loan sizes and short 
interest.\750\
---------------------------------------------------------------------------

    \749\ See 12 CFR 220.10(a).
    \750\ See infra Part IX.B.6 for further discussion of the 
correlation between securities loan information and short interest.
---------------------------------------------------------------------------

2. Current State of Transparency in Securities Lending
    As described above, currently available securities lending data are 
produced by commercial data vendors, and are based on voluntary data 
contributions, either using a give-to-get model or from Customer market 
surveys.\751\ Some commenters expressed their belief that the Proposing 
Release did not adequately analyze the impact of Customer market survey 
data.\752\ This

[[Page 75697]]

baseline, and the discussion following have been expanded to provide a 
more detailed discussion of the Customer market survey data and its 
impact on securities lending transparency. The available data have 
limitations. Specifically, they lack comprehensiveness in that they are 
based on voluntary data contributions. The reliance on voluntary data 
contributions increases the likelihood that data are missing in a non-
random manner which can introduce biases into the data. Lastly, not all 
market participants have access to all existing commercial datasets 
resulting in information asymmetries between market participants.
---------------------------------------------------------------------------

    \751\ See supra Part IX.A.2 for a description of these types of 
datasets.
    \752\ For example, one commenter stated that, while they agree 
``with the Commission's concerns regarding the inadequacy and 
information asymmetry issues inherent in the give-to-get model,'' 
the give-to-get model is ``is not the industry standard.'' See S3 
Partners Letter, at 5. Similarly, another commenter stated that 
``the `give-to-get' model is not the only model for commercial data 
for securities lending.'' See Citadel Letter, at 8.
---------------------------------------------------------------------------

    Some commercial data vendors obtain information on Wholesale loans 
using a give-to-get model.\753\ Access to data collected using a give-
to-get model is largely restricted, as only certain entities can 
purchase the data. The Commission understands entities with access to 
the give-to-get Wholesale market data access that data using various 
means such as an application programming interface (API), spreadsheet 
add-in applications, file downloads, or directly from the distributor's 
website. It is the Commission's understanding that some large 
institutional investors who would like the give-to-get data, such as 
hedge funds, cannot access it, even for a fee, because they do not 
provide lending data to the commercial vendors and so are not qualified 
to purchase the data. Additionally, distributing the data to these 
investors may discourage other market participants from contributing 
their data to the data vendors. Because securities loans are often 
entered into to facilitate various trading and hedging strategies, if 
the give-to-get data providers expanded access to their data, some 
securities lending market participants may be discouraged from 
contributing data. Consequently, if sophisticated traders such as hedge 
funds can access the data, then some market participants may be leery 
of contributing data to the give-to-get data vendors for fear of hedge 
funds learning about their trading or hedging strategies. Additionally, 
while some data vendors do allow non-lending market participants, such 
as academics and regulators, to access the data for a fee, they 
sometimes place usage restrictions on the data that make it unusable 
for regulatory and some academic functions.\754\ The Commission 
believes, based on conversations with industry participants and our 
staff's use of some of the data, that the coverage and timeliness of 
the three biggest give-to-get Wholesale data vendors are roughly 
comparable.\755\
---------------------------------------------------------------------------

    \753\ See supra Part IX.A.2 for a description of the give-to-get 
model of data collection.
    \754\ For example, some data providers retain the right to 
review and reject any use of the data at their own discretion.
    \755\ See infra note 812 for evidence of this from the academic 
literature. The Commission expressed this belief in the Proposing 
Release (See Proposing Release, 86 FR 69832) and specifically 
requested comment regarding the baseline of the economic analysis as 
well as specific comment about ``sources of insight'' into 
securities lending activity (See Proposing Release, 86 FR 69849, 
questions 77 and 78). The Commission did not receive comment on this 
point and thus continues to believe that the data from the three 
biggest give-to-get Wholesale data vendors are roughly comparable.
---------------------------------------------------------------------------

    Other commercial data vendors provide a different approach to 
securities lending data by surveying asset managers and others in the 
Customer segment of the market about their borrowing experience, such 
as their costs to borrow, from which they provide estimates of lending 
fees.\756\ One commenter stated that the Commission ``offers no reason 
to believe that the [Customer market] survey and `give-to-get' data are 
materially different.'' \757\ Customer market survey data have some 
characteristics that make them distinct from the give-to-get data 
provided by the vendors of Wholesale market data discussed above. 
First, Customer market survey data vendors generally aggregate 
information from respondents in the Customer market--that is, the end 
borrowers that engage in securities borrowing to facilitate short 
selling--and thus cover a different segment of the securities lending 
market.\758\ Second, while Wholesale market data are mostly available 
only on a restricted basis, Customer market survey data are generally 
available to any purchaser. However, despite these differences, 
Customer market survey data face a similar issue to the give-to-get 
data, in that they only contain information about the subset of those 
end borrowers that choose to provide data. Since it is unlikely that 
the full universe of lending programs and borrowers contribute all data 
to any given data vendor, the Commission believes that both give-to-get 
and Customer market survey data lack comprehensiveness.
---------------------------------------------------------------------------

    \756\ See Garango 2020, supra note 712.
    \757\ See Citadel Letter, at 8.
    \758\ For reasons below infra note 769, there is uncertainty 
regarding the strength of the correlation between Wholesale and 
Customer borrowing costs, particularly for stocks that are not hard-
to-borrow. Therefore, it is unclear whether customer survey data 
could be used to glean information about the Wholesale market.
---------------------------------------------------------------------------

    Furthermore, as stated in the Proposing Release and restated here, 
the Commission believes that the give-to-get data are likely biased due 
to non-random omissions that result from the voluntary nature of data 
submissions.\759\ The Commission also believes that, since Customer 
market survey data are also based on voluntary submissions, these data 
also suffer from bias due to non-random omissions. As will be further 
detailed below, data based on voluntary submissions can contain biases 
because market participants that choose not to disclose their data 
likely make that choice because it is in their strategic interest not 
to disclose, resulting in non-random omissions.
---------------------------------------------------------------------------

    \759\ See Proposing Release, 86 FR 69832.
---------------------------------------------------------------------------

    One commenter stated that the Commission's statements in the 
Proposing Release that give-to-get data could be systematically biased 
has ``no basis beyond mere speculation.'' \760\ The Commission 
disagrees. It is true that it is not possible to empirically analyze or 
quantify the extent of this bias using existing data because there 
currently does not exist a complete dataset with which to compare the 
existing data, and comparing a biased sample to an unbiased sample is 
generally the only data-based means of determining the extent of the 
bias in a non-random sample. Instead, the determination that data are 
likely to not contain a representative sample is routinely made in 
economic studies (as well as data analysis generally) based on an 
understanding of how the sample is created, which alone can be 
sufficient to determine the likely validity of the sample. The fact 
that non-random data omissions result in biased data is well 
established in statistics and data science, and simply stems from the 
logic that, if the reporting subsample is systematically different from 
the population, then statistics based on the reporting sample will only 
reflect the reporting sample, and will not be reflective of the whole 
population.\761\
---------------------------------------------------------------------------

    \760\ See Citadel Letter, at 8. Similarly, another commenter 
asked for an assessment of the current accuracy of existing data; 
See S3 Partners Letter, at 4. However, neither commenter provided 
any supplemental analysis challenging the assumption of non-random 
omissions, nor did they provide additional insight into the nature 
of any bias. Neither did either commenter provide a pathway to 
overcoming obstacles related to such an empirical analysis.
    \761\ See, e.g., James J. Heckman, Selection Bias and Self-
Selection, in Econometrics, 201-224 (John Eatwell, et al., eds., 
Palgrave Macmillan, London 1990) (``Heckman (1990)'').
---------------------------------------------------------------------------

    In the context of commercial securities lending datasets, the

[[Page 75698]]

Commission believes that, because market participants can choose 
whether or not they want to contribute data to commercial 
datasets,\762\ it is likely that the sample of securities lending data 
that is reported to commercial data vendors is, on average, different 
from the sample that is not reported. As such, there are well-
established theoretical reasons as to why these data are likely biased. 
These reasons are largely based on the fact that market participants 
that voluntarily contribute data to commercial datasets ``self-select'' 
the data that they would like to be included in the dataset. The 
practice of having entities under study ``self-select'' into the 
dataset used to study them is widely acknowledged in the empirical 
economics literature to be very likely to lead to biased data.\763\ 
This is because the incentives to provide data are likely connected to 
the incentives that drive the behavior under study, such that the 
behavior of those market participants that do contribute data are 
likely to be systematically different from the behavior of those that 
do not contribute. Trying to draw inferences from such a dataset about 
the entire population of market participants would thus result in a 
biased view of the market.
---------------------------------------------------------------------------

    \762\ See infra of this part for a discussion of investors' 
incentives related to voluntarily contributing data to commercial 
datasets, and why this may result in systematic differences between 
those that choose to contribute as compared to those that do not.
    \763\ See Heckman (1990), supra note 761.
---------------------------------------------------------------------------

    The Commission has identified examples of such incentives that 
would likely introduce such ``self-selection biases'' into commercially 
available securities lending datasets. First, there may be competitive 
reasons for market participants to selectively choose which loans to 
contribute to a securities lending dataset. For example, to attract 
more beneficial owner customers, lending programs would like their 
average terms to appear better than the benchmark average terms. Thus, 
they are incentivized to voluntarily contribute information about their 
lending activity for loans with higher-than-average borrowing costs--
skewing the average cost to borrow in the resulting dataset up and 
making the lender's performance appear better than it actually 
was.\764\ This could lead the reported borrowing costs in commercial 
datasets to be systematically higher than the actual borrowing costs in 
the securities lending market.\765\
---------------------------------------------------------------------------

    \764\ One commenter stated that lending agents frequently 
provide their clients with benchmark reports based on market data, 
and that beneficial owners currently benefit from substantial 
information obtained from lending agents. See RMA Letter, at 2; see 
also supra note 721 and infra note 772 and corresponding text. 
However, even if this is the case, many beneficial owners do not 
have access to securities lending data, particularly give-to-get 
Wholesale data, and so could likely not independently benchmark 
transactions.
    \765\ Note that the reverse could also be true, as lenders, in 
order to attract more customers in the market for borrowers, may be 
incentivized to voluntarily contribute information about loans with 
lower-than-average borrowing costs, which would skew the average 
cost to borrow downwards. Ultimately, the Commission is not able to 
determine the potential direction of the self-selection bias, which 
could also vary over time. This would complicate any attempt to 
adjust for the bias when performing analyses on the data.
---------------------------------------------------------------------------

    Similarly, some market participants may choose not to voluntarily 
contribute data to securities lending datasets for their own strategic 
reasons, such as a desire to keep their activity private. The decision 
to not to participate is, in itself, indicative that such market 
participants are likely not reflective of those who do choose to 
participate. For example, market participants that choose not to 
contribute data may be more likely to be sophisticated investors with 
greater incentives to protect their trading and hedging strategies. 
This matters because the terms of securities loans are influenced by 
the characteristics of the parties involved,\766\ and so it follows 
that the borrowing costs for market participants that do not 
voluntarily contribute data are systematically different than the 
borrowing costs for market participants that do contribute data.
---------------------------------------------------------------------------

    \766\ See infra Part IX.B.3 for further discussion of the 
factors that influence the prices of securities loans.
---------------------------------------------------------------------------

    In addition to the issue of self-selection bias, currently there is 
no securities lending dataset that contains information about both the 
Customer and Wholesale segments of the market. The give-to-get datasets 
lack significant coverage of the Customer segment of the market, while 
the Customer market survey data lack significant coverage of the 
Wholesale segment of the market.\767\ While some, but not all, market 
participants could potentially gain access to data on both the 
Wholesale markets and Customer markets by subscribing to both give-to-
get and Customer market survey datasets, this would generally be 
possible only for market participants that contribute data (and thus 
have access) to give-to-get datasets and would also not surmount the 
problems of incomplete or potentially biased data. Different types of 
data may also be cumbersome to combine.\768\ There are also limitations 
to using the Customer market survey data to assess conditions in the 
Wholesale market.\769\ Furthermore, the need to subscribe to multiple 
datasets increases market participants' overall costs of data 
access.\770\
---------------------------------------------------------------------------

    \767\ One industry publication noted in an interview with a 
market participant engaged in Wholesale market lending that they 
feel unable to benchmark the performance of their lending programs 
using commercial data because they have very little insight into the 
Customer market. See, e.g., Bob Currie, The Power of Reinvention, 
Sec. Fin. Times (Aug. 31, 2021), at 20, available at https://www.securitiesfinancetimes.com/sltimes/SFT_issue_285.pdf, 
interviewing Matthew Chessum, who stated that ``as a lender, we 
monitor fees paid to us by the agent, but we only see one side of 
the trade. We have no sight of the pricing paid by a hedge fund or 
prime broker, for example, when they borrow those securities.'' One 
commenter questioned the applicability of this citation and stated 
their opinion that, ``[t]hat a single person would like to see 
certain data is not evidence that requiring the disclosure of that 
data is worth the massive cost,'' the commenter also states that 
``the Commission neglects to estimate the number of market 
participants that are seeking the same disclosure'' (see Citadel 
Letter, at 10). The Commission received numerous comment letters 
from industry members and organizations expressing support for the 
public disclosure of securities lending data. See, e.g., Nasdaq 
Letter, at 1-2; AFREF Letter 1, at 1; Better Markets Letter, at 1; 
NYSE Letter 1, at 1-2; ASA Letter, at 1; and Morningstar Letter, at 
2; The Commission also received letters from academics and 
individuals supporting additional transparency. See, e.g., James J. 
Angel Letter, at 1; Letter from Carl Nyborg (Dec. 15, 2021), at 1; 
Letter from Eric Olsen (Jan. 24, 2022); Letter from Scott Clark 
(Jan. 22, 2022).
    \768\ For example, commercial data vendors often convert rebate 
rates (for cash collateralized loans) into fees, in order to combine 
with information about lending fees for non-cash collateralized 
loans and cash collateralized loans; see, e.g., infra note 786. 
Different commercial data vendors may use different methodologies 
for this conversion, which would make it difficult to combine and 
compare information about borrowing costs across different datasets.
    \769\ Borrowing costs in the Customer market are often 
contractually negotiated in the brokerage agreement between a 
customer and their broker-dealer. It is common for these brokerage 
agreements to stipulate a fixed rate for general collateral stocks 
and some predetermined process to determine rates for stocks on 
special, such as referencing Wholesale market rates plus some mark-
up. For this reason, there is uncertainty regarding how strong the 
correlation might be between Wholesale and Customer borrowing costs, 
particularly for general collateral stocks.
    \770\ One commenter stated that, ``while the Proposal stated 
that purchasing multiple vendor systems is expensive, there was no 
quantification of actual vendor costs. Nor was there data provided 
on how many firms actually use multiple vendors'' (see S3 Partners 
Letter, at 4). The Commission cannot provide such analysis because 
we do not have, and commenters did not provide, typical costs paid 
to vendors for such data. The Commission understands that such 
pricing is dynamic and individualized, and is generally not aware of 
publicly available price lists or client lists.
---------------------------------------------------------------------------

    As an additional source of securities lending data, some market 
participants that have many connections within the securities lending 
market, such as large broker-dealers and lending programs, can query 
other market participants directly about current conditions. These 
centrally connected market participants are also likely to have access 
to both give-to-get Wholesale data and customer

[[Page 75699]]

market survey data. Consequently, the largest and most centrally 
connected broker-dealers and lending programs likely have access to 
better information about the current state of the lending market than 
other participants, including their customers, the beneficial owners, 
and end borrowers. This asymmetric information between those on the 
periphery of the lending market and those in the center, who have 
access to both Wholesale and Customer market commercial datasets as 
well as queried data from their connections, may lead to inferior terms 
for those on the periphery in the form of lower performance and less 
favorable prices for beneficial owners and end borrowers.\771\ Because 
of the above-described issues with the comprehensiveness and 
accessibility of existing commercial datasets, the availability of 
commercial data products for the securities lending market does not 
alleviate this information asymmetry.
---------------------------------------------------------------------------

    \771\ For example, broker-dealers acting on behalf of customers 
have an incentive to lend from their inventory, even if lower cost 
borrowing options exists, because they keep the whole lending fee in 
such a transaction. The limited data available to the end borrower 
about the state of the lending market make it difficult for the end 
borrower to monitor the performance of its broker-dealer for 
situations like this.
---------------------------------------------------------------------------

    One commenter disagreed with the Commission's view that there are 
information asymmetries between those in the center of the lending 
markets and beneficial owners and borrowers on the periphery, because 
beneficial owners benefit from the information obtained by their 
lending agents.\772\ However, the Commission believes that, even if 
lending agents provide beneficial owners with benchmark reports based 
on commercial securities lending data, this would not eliminate all 
information asymmetries. The lending agent, or other centrally located 
entity, has access to the raw data, as well as the potential to 
influence that data through their own contributions of data to 
commercial data vendors, whereas the beneficial owner would need to 
rely on a subset of the processed data that their lending agent chooses 
to provide to them, if any.
---------------------------------------------------------------------------

    \772\ See RMA Letter, at 6 (stating ``[w]hile the Proposing 
Release repeatedly asserts that information asymmetries exist 
between those `in the center' of the lending markets and beneficial 
owners and borrowers on the `periphery,' in point of fact beneficial 
owners currently benefit from substantial information obtained by 
Lending Agents acting on their behalf and pricing remains highly 
competitive'').
---------------------------------------------------------------------------

    In addition to the specific problem of information asymmetry 
between various market participants, the lack of comprehensive and 
widely available data on securities lending activity likely means that 
the prices at which securities loans take place are not efficient, 
relative to the hypothetical case in which complete information about 
securities lending activity were widely available. Asymmetric 
information in general deters outsiders from entering the market, as 
they anticipate not being able to transact on the same terms. This 
limits both liquidity (because fewer participants enter to transact) 
and price discovery (because not all information enters prices). 
Moreover, even lenders with many connections in the securities lending 
market lack a complete picture of the lending market, implying that the 
loan prices that they quote may not be completely efficient.
    Commenters stated that the lending market for U.S. Government 
securities is already transparent ``because there is sufficient 
liquidity and demand for loans of these types of securities on 
platforms and venues that have a high degree of transparency.'' \773\ 
However, the commenters did not provide additional explanation as to 
why a high degree of liquidity would entail a transparent market, or 
additional details regarding the transparency of the platforms and 
venues that trade in U.S. Government securities.
---------------------------------------------------------------------------

    \773\ See, e.g., RMA Letter, at 16; IIB Letter, at 6.
---------------------------------------------------------------------------

    The Commission believes that information asymmetries may still be 
present in the lending market for U.S. Government securities. Some 
information about U.S. Government securities loans is available from 
the commercial securities lending datasets described above. In 
addition, the Commission understands that information about loans of 
U.S. Government securities that are awarded to primary dealers through 
the Federal Reserve Bank of New York's System Open Market Account 
(SOMA) portfolio is available from the Federal Reserve Bank of New 
York.\774\ While volume and rate information from these auctions may be 
informative to participants about benchmark lending rates, these data 
do not contain information about activity in the broader U.S. 
Government securities lending market. Furthermore, certain aggregate 
data from the Federal Reserve's FR 2004 reports, which collect weekly 
and daily position, transaction, financing, and fails data of primary 
dealers in U.S. Government securities and other selected fixed income 
securities, are published in the Federal Reserve Bank of New York's 
press release, ``Weekly Release of Primary Dealer Transactions.'' \775\ 
This dataset contains aggregate volume information about securities 
lent and borrowed by primary dealers. It does not contain information 
about lending rates, and also does not contain information about the 
U.S. Government loans of market participants other than primary 
dealers.
---------------------------------------------------------------------------

    \774\ Through its System Open Market Account (SOMA) portfolio, 
the Federal Reserve Bank of New York awards U.S. Government 
securities loans to primary dealers (i.e., financial institutions 
that are permitted to trade directly with the Federal Reserve 
System) that have elected to participate in the program based on 
competitive bidding in a multiple price auction held each business 
day at noon. Participation by primary dealers is entirely voluntary 
and summary results are released to the public following each day's 
auction. See Fed. Res. Bank of N.Y., ``Securities Lending,'' 
available at https://www.newyorkfed.org/markets/domestic-market-operations/monetary-policy-implementation/securities-lending, last 
visited Aug. 23, 2023. For a list of current primary dealers, see 
https://www.newyorkfed.org/markets/primarydealers. These data 
include both daily and historical data on aggregate volumes and 
rates, as well as transaction-by-transaction data disseminated with 
a two-year lag. The latter dataset contains identifying information 
for the security lent (e.g., CUSIP), as well as the lending fee, 
collateral amount, and the identity of the counterparty, see Fed. 
Res. Bank of N.Y., ``Historical Transaction Data,'' available at 
https://www.newyorkfed.org/markets/omo_transaction_data, last 
visited Aug. 23, 2023.
    \775\ The Federal Reserve's weekly Form FR 2004 provides weekly 
volume statistics about primary dealers' financing activity in U.S. 
Government securities, including aggregated volumes in securities 
lending and repo. See Fed. Res. Bank of N.Y., ``Primary Dealer 
Statistics,'' available at https://www.newyorkfed.org/markets/counterparties/primary-dealers-statistics, last visited Aug. 23, 
2023.
---------------------------------------------------------------------------

    Furthermore, some market participants may be able to infer some 
information about the securities lending market from the market for 
repos; \776\ this is particularly the case for securities with a very 
active repo market, such as U.S. Government securities. A fixed-

[[Page 75700]]

term cash collateralized securities loan is economically similar to a 
repo. Consequently, an investor wishing to gather information about 
fixed-term loans in the securities lending market could use prevailing 
terms in the repo market to infer information about borrowing costs for 
the same securities. However, as majority of securities loans do not 
have a fixed term,\777\ information from the repo market would only be 
useful for a small subset of securities loans.
---------------------------------------------------------------------------

    \776\ In a repo, one party sells an asset, usually a Treasury 
security or other fixed-income security, to another party with an 
agreement to repurchase the asset at a later date at a slightly 
higher price. Repos are a common form of short-term corporate 
financing. In a repo, the party selling the security is similar to 
the lender in a securities lending agreement; the party purchasing 
the security is similar to a borrower in cash collateralized 
securities lending. In both cases, the transaction is facilitated by 
cash transferring from the purchaser (borrower) to the seller 
(lender). In a securities loan, the cash is in the form of 
collateral while in a repo transaction the cash is payment for the 
security. In both cases, the purchaser or borrower becomes the legal 
owner of the security. To unwind the repo or securities loan, cash 
transfers back to the purchaser in terms of the repurchase cost for 
a repo or in the form of returned collateral in a securities loan. 
Repos and securities loans differ in that repos typically are 
primarily used for short-term financing while securities loans 
typically are used to gain access to the security itself. Also loans 
generally allow the lender to recall the security on demand while 
repos do not. Additionally, the cash received by the seller of a 
repo is often not re-invested but is used to finance the operations 
of a company whereas the cash received in a securities loan is 
generally re-invested in low risk fixed-income securities for the 
life of the loan. See, e.g., Gary Gorton & Andrew Metrick, 
Securitized Banking and the Run on Repo, 104 J. Fin. Econ 425 
(2012).
    \777\ The OFR Pilot Survey (supra note 136, at 9) estimates that 
81% of the loans in their data were open loans for which no maturity 
date is specified.
---------------------------------------------------------------------------

3. Characteristics of the Securities Lending Market
    The value of securities available to be loaned generally far 
exceeds the total value on loan. The OFR Pilot Survey documents that in 
2015 only about 10 percent of the value of securities available for 
lending were on loan.\778\ However, for a specific security it is not 
always the case that shares available to loan far exceeds shares on 
loan. For some securities, particularly highly shorted securities, it 
can be extremely difficult and expensive to find securities to borrow. 
Securities that are difficult to borrow are said to be ``on special'' 
and can have average borrowing costs many times higher than a security 
that is not on special.\779\
---------------------------------------------------------------------------

    \778\ See OFR Pilot Survey, supra note 136. Note that the number 
of shares available for loan must be interpreted carefully. The 
Commission understands that some beneficial owners may report a 
supply of shares available that, if borrowed, would exceed the total 
amount of securities lending they are willing to engage in, so that 
not all shares reported as available could in fact be borrowed at 
once. Investment companies that engage in securities lending 
consistent with SEC staff's current guidance generally limit 
securities lending to no more than one third of the value of their 
portfolio on loan at a given point in time. Some investment 
companies may set individual portfolio limits lower.
    \779\ In contrast, easy-to-borrow stocks are often referred to 
as ``general collateral'' stocks, which tend to have lower borrowing 
costs.
---------------------------------------------------------------------------

    Securities loans also exhibit a wide range of borrowing costs for 
the same security on the same day. The range of borrowing costs for the 
same security can be influenced by a number of characteristics, such as 
the creditworthiness of the borrower, the type of collateral used, and 
the terms of the loan.\780\ As discussed in further detail below, the 
range of borrowing costs likely also represents asymmetric information 
between the parties to the loan negotiation, such that one party is 
able to charge a higher price than would be possible if the other party 
had better information regarding the current loan prices for that 
security.\781\ It may also represent a general lack of price efficiency 
stemming from incomplete information, as market participants operate 
without a clear view of the market as a whole.
---------------------------------------------------------------------------

    \780\ See supra note 732 for additional factors pointed out by 
commenters that could be important drivers of borrowing costs.
    \781\ See supra Part IX.B.2 for a discussion of information 
asymmetries in the securities lending market, specifically between 
end borrowers and broker-dealers and between beneficial owners and 
lending programs. See also supra note 771 for an example.
---------------------------------------------------------------------------

    Table 1 provides descriptive statistics illustrating these 
characteristics of the securities lending market. The data come from 
Fidelity National Information Services, Inc. (FIS) and reflect 
conditions in the Wholesale market for U.S. equity loans on the same 
days as the OFR Pilot Survey,\782\ for the sample of lenders that 
provide data to FIS.\783\
---------------------------------------------------------------------------

    \782\ We limited our sample to the same period of time as the 
OFR Pilot Survey (Oct. 9, 2015, Nov. 10, 2015, and Dec. 31, 2015) 
for ease of comparison. Additionally, while the data presented here 
is limited to equity loans, final Rule 10c-1a applies to loans of 
both equity and fixed-income securities. The Commission believes 
that there is a similar lack of transparency for fixed-income loans 
and equity loans, and thus the same economic structure likely 
applies to both the fixed-income and equity lending markets.
    \783\ FIS data are collected using a give-to-get model and thus 
is unavailable for many entities other than those that provide their 
data to FIS.
---------------------------------------------------------------------------

    Panel A of Table 1 provides the distribution of utilization rates 
(defined as the percent of shares currently on loan relative to the 
total number of shares available for lending). This panel highlights 
that utilization rates are highly positively skewed. For most stocks 
supply significantly outstrips demand with median utilization rates of 
approximately 12 percent. For stocks at the 90th percentile, 
utilization rates are near 70 percent, implying that an investor 
seeking to find shares of such a stock to borrow may have a difficult 
time doing so.
    Table 1 only presents utilization rates for equity lending 
transactions. However, at least one commenter states that utilization 
rates vary significantly across asset classes, stating that data from 
the OFR Pilot Survey show that utilization rates are lower for more 
individualized securities, such as corporate bonds.\784\ Meanwhile, 
referencing the OFR Pilot Survey, the commenter pointed out that the 
utilization rate for U.S. Treasuries and agencies is higher than that 
of equities.\785\
---------------------------------------------------------------------------

    \784\ The commenter states that ``the corporate and asset-backed 
debt markets in particular are characterized by relatively small 
issuance sizes and substantial differences in instrument 
characteristics,'' and that ``while the number of publicly traded 
equity securities of U.S. issuers is around 3,600, there are over 
two million unique issuances of corporate and government bonds and 
asset-backed securities in circulation.'' See RMA Letter, at 16.
    \785\ See RMA Letter, at 16.
---------------------------------------------------------------------------

    Panel B of Table 1, which presents borrowing costs in term of 
lending fees,\786\ shows that the lending fees paid for equity loans 
exhibit a wide range.\787\ Stocks that are on special can have fees 
many times higher than the median stock. Specifically, stocks at the 
90th percentile of lending fees have an average lending fee of 7 
percent per year while the median stock has a lending fee of about 0.6 
percent per year. Even when loans involve the same stock, and on the 
same day, there can be a significant range in fees paid to borrow 
securities.
---------------------------------------------------------------------------

    \786\ FIS converts rebate rates to fees using by subtracting the 
rebate rate from the Federal funds rate. See supra note 731 and the 
footnote of Table 1.
    \787\ This result is consistent with the academic literature. 
See, e.g., Dixon, et al., (2021), supra note 746. Also consistent 
with the academic literature, average fees for each stock each day 
are computed by FIS as the share weighted average fee across all 
loans outstanding reported to FIS for a given stock on a given day. 
Stocks are sorted by average fee and percentiles are determined.
---------------------------------------------------------------------------

    Panel C of Table 1 highlights the range of lending fees charged for 
the same stock on the same day. The range in fees is defined as the 
difference in the maximum and minimum fees reported to FIS for loans of 
the same stock on the same day. This range can be quite substantial. 
For the median stock the range is about three percentage points, or 
approximately five times the median fee charged for securities lending 
transactions.

                                             Table 1--Distribution of Lending Fees for U.S. Common Stocks *
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                         p10      p20      p30      p40     Median    Mean     p60      p70      p80      p90       N
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                       Panel A: Distribution of Utilization Rates
--------------------------------------------------------------------------------------------------------------------------------------------------------
9-Oct-15.............................................     1.02     2.94     5.42     8.28    12.06    22.70    17.21    24.83    39.35    68.98    3,638

[[Page 75701]]

 
10-Nov-15............................................     0.94     2.82     5.18     8.19    11.72    22.51    16.87    24.59    38.59    68.10    3,638
31-Dec-15............................................     0.75     2.35     4.52     7.31    11.17    22.25    16.49    25.02    40.42    67.64    3,639
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                      Panel B: Distribution of Average Lending Fees
--------------------------------------------------------------------------------------------------------------------------------------------------------
9-Oct-15.............................................     0.48     0.56     0.58      0.6     0.65     3.76     0.76     1.24     2.62     7.07    3,727
10-Nov-15............................................     0.47     0.56     0.59     0.61     0.66     3.77     0.77     1.32     2.76     7.36    3,725
31-Dec-15............................................     0.37     0.46      0.5     0.54     0.58     3.86     0.66     1.12     2.77     7.51    3,725
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                     Panel C: Distribution of Range of Lending Fees
--------------------------------------------------------------------------------------------------------------------------------------------------------
9-Oct-15.............................................     1.01     1.35     1.85     2.27     2.85     8.42     3.57     5.21     7.76    10.41    3,727
10-Nov-15............................................     0.93     1.31     1.81     2.36     2.98     8.39     3.78     5.51     7.73    11.16    3,725
31-Dec-15............................................     1.15     1.48     1.84     2.25     2.68     8.20     3.43     4.20     6.36    11.41    3,725
--------------------------------------------------------------------------------------------------------------------------------------------------------
* This table provides descriptive statistics using data from FIS on securities lending fees and utilization rates for U.S. Common stocks during sample
  period that matches the OFR Pilot Survey's sample dates (Oct. 9, 2015, Nov. 10, 2015, and Dec. 31, 2015). For loans collateralized by cash, rebate
  rates are converted to fees using the conventional method of subtracting the rebate rate from the Federal funds rate. Fees are converted to annual
  percent. N reports the number of observations from which FIS has reported the relevant statistics. Panel A shows the distribution of utilization
  rates, where the utilization rate is computed as the percent of shares on loan relative to total shares available for lending. Panel B provides
  estimates of the distribution of average lending fees for each stock and provides percentile thresholds for lending fees. Since there is a
  distribution of fees levied for the same stock on the same day, the average fee is computed as the value weighted average fee across all loans for a
  given stock on a given day. Panel C shows statistics for the range of fees levied for the same stock on the same day defined as the maximum fee minus
  the minimum fee. In all panels `Mean' is equal-weighted.

    One commenter argued that the Proposing Release offered ``no 
evidence to suggest that lending fees broker-dealers charge are so 
meaningfully different (after controlling for various commercial 
factors).'' \788\ As the Commission acknowledged in the Proposing 
Release and continues to acknowledge here, there are a number of 
factors that can drive variations in borrowing costs including, e.g., 
the creditworthiness of the borrower.\789\ However, the Commission is 
unaware of the existence of data that would allow for a full analysis 
of all possible factors contributing to borrowing costs, and the 
commenter did not provide any roadmap for performing such an analysis 
accurately. That the observed range in borrowing costs is likely 
driven, at least in part, by asymmetric information and a general lack 
of price efficiency in the securities lending market is supported by 
academic literature, which finds that asymmetric information drives 
dispersion in prices, particularly in opaque markets with limited 
transparency.\790\ One implication of the results from this literature 
is that price dispersion should be higher when transparency is lower. 
Indeed, there is evidence that the dispersion in borrowing costs is 
higher in securities lending markets with less transparency, in which 
information asymmetry is expected to be higher. For example, the OFR 
Pilot Survey shows that the range of lending fees is higher in the U.S. 
equity lending market than it is in the U.S. Treasury/Agency lending 
market, where transparency is arguably higher.\791\
---------------------------------------------------------------------------

    \788\ See Citadel Letter, at 10.
    \789\ See Proposing Release, 86 FR 69833.
    \790\ See, e.g., Richard C. Green, Presidential Address: 
Issuers, Underwriter Syndicates, and Aftermarket Transparency, 62 J. 
Fin. 1529 (2007), whose theoretical model shows that, in opaque 
dealer markets, if the costs of gathering price information are high 
for some investors, this can result in price dispersion. One key 
feature of this model is that ``the dealings of a particular 
customer with a dealer are not transparent to other customers,'' at 
1542. See also Richard C. Green, et al., Dealer Intermediation and 
Price Behavior in the Aftermarket for New Bond Issues (EFA 2006 
Zurich Meetings Paper, June 17, 2006) 86 J. Fin. Econ 643, available 
at https://ssrn.com/abstract=909352 (retrieved from SSRN Elsevier 
database), who argue that differences in investors' access to 
information about municipal bond prices leads to a high level of 
price dispersion.
    \791\ Specifically, using data from Table 8 of the OFR Pilot 
Survey and defining the range in lending fees as the difference 
between the 95th percentile and the 5th percentile, the range in 
lending fees, averaged across the three days in the OFR Pilot Survey 
sample, is around 303% of the mean lending fee in the equity lending 
market, and 234% of the mean lending fee in the Treasury lending 
market. See supra Part IX.B.2 for further discussion of why 
transparency may be higher in the Treasury lending market.
---------------------------------------------------------------------------

    Furthermore, the Commission views it as unlikely that one of the 
pricing factors frequently mentioned by commenters, namely the 
creditworthiness or counterparty risk of the borrower,\792\ can fully 
explain the large range in borrowing costs. Table 1 shows that the 
median range of fees is about 400 percent larger than the median fee 
itself--implying that some investors were paying at least four times as 
much to borrow the same security on the same day as other 
investors.\793\ Based on staff experience, securities loans are 
virtually always fully collateralized, and so counterparty risk is 
unlikely to be sufficient to explain such a large dispersion in 
borrowing costs.
---------------------------------------------------------------------------

    \792\ See, e.g., HMA Letter at 2, Overdahl Letter at 6, and ISLA 
Letter at 2.
    \793\ The OFR Pilot Survey at Table 8 provides similar 
statistics and finds similar dispersion for U.S. Equities.
---------------------------------------------------------------------------

    Other commenters expressed support for the notion that price 
dispersions in the securities lending market were due to information 
asymmetries and a lack of informational efficiency.\794\ While at least 
one commenter questioned the need to improve transparency in the 
corporate bond and U.S. Treasury/Agency lending market due to 
structural differences between those markets and the equity 
market,\795\ there is evidence that there is a dispersion of borrowing 
costs within these asset classes as well. Information from the OFR 
Pilot Survey indicate a large dispersion of lending fees and rebates 
across all asset classes, including for U.S. Treasury/Agency and 
corporate bond securities.\796\ For the reasons discussed above, the 
Commission believes that the observed variation in borrowing costs in 
these

[[Page 75702]]

markets is likely also at least partially driven by asymmetric 
information and a general lack of price efficiency in the securities 
lending market.
---------------------------------------------------------------------------

    \794\ See, e.g., James J. Angel Letter, at 2 (expressing his 
belief that the increased transparency of the rule would reduce 
price dispersion in the securities lending market implying that a 
lack of transparency currently causes some of the currently 
experienced dispersion in fees).
    \795\ See RMA Letter, at 16.
    \796\ See Table 8 and Table 9 in the OFR Pilot Survey which 
shows, for example that on October 9, 2015, the dispersion between 
the 5th and 95th percentile fee for treasuries was 200% of the mean 
fee, for corporate bonds it was 111%, and for equities it was 319%.
---------------------------------------------------------------------------

4. Structure of the Securities Lending Market
    The securities lending market is made up of borrowers, lenders, and 
intermediaries that can facilitate a transaction. End borrowers can 
borrow securities either through their broker-dealers, or by themselves 
if they maintain their own relationships with lending programs. If they 
borrow through their broker-dealer, then they transact in the Customer 
market. If they maintain their own relationships and borrow directly 
from lending programs, then they transact in the Wholesale market.\797\ 
Beneficial owners can either supply shares to the lending market by 
contracting with a lending program, or they can run their own lending 
program and lend directly to entities such as large hedge funds with 
which they maintain relationships. In either case, such a transaction 
occurs in the Wholesale market. Lenders can also be broker-dealers who 
lend to end borrowers. These lenders transact in the Customer market.
---------------------------------------------------------------------------

    \797\ See supra note 708 for further discussion of the 
distinction between Wholesale and Customer loans.
---------------------------------------------------------------------------

    A market participant such as a short seller wishing to borrow 
shares usually does so through its broker-dealer, who offers to find 
shares to borrow as part of its suite of services offered to customers. 
A broker-dealer may start by providing a security loan to its customer 
with shares from its own inventory or out of another customer's margin 
account.\798\ The Commission understands that in order to facilitate 
the amount of borrowing customers wish to do, a broker-dealer will 
sometimes have to find other sources of shares. To that end, broker-
dealers maintain securities lending relationships with customers in 
fully paid accounts as well as relationships with various external 
lending programs.
---------------------------------------------------------------------------

    \798\ The notion that broker-dealers will first source shares 
from internal inventory before accessing lending markets was 
mentioned in the Proposing Release (see Proposing Release, 86 FR 
69834) and was supported by at least one comment. See, e.g., James 
J. Angel Letter, at 4 (stating that if ``the broker has shares 
available for lending from its customer margin accounts, it does not 
need to go out and borrow any more shares.'').
---------------------------------------------------------------------------

    Additionally, some large institutions, such as banks, credit 
unions, pension funds, and hedge funds, choose to maintain their own 
relationships with lending programs. These entities bypass broker-
dealers to search for borrowable shares themselves. This option is not 
feasible for smaller institutions, who lack both the scale to make it 
cost effective, and the creditworthiness to be an acceptable 
counterparty for the lending programs in the absence of an 
intermediary, e.g., a broker-dealer.
    The OFR Pilot Survey estimated that there were approximately $1 
trillion of shares on loan.\799\ The OFR primarily focused on the 
Wholesale market, and consequently the overwhelming majority of 
borrowers were broker-dealers; the OFR Pilot Survey does not provide 
much insight into who the end borrowers are for securities lent by 
broker-dealers. Figure 1 provides the fraction of total securities on 
loan by type of borrower based on the OFR Pilot Survey across three 
trading days in 2015.\800\
---------------------------------------------------------------------------

    \799\ See OFR Pilot Survey at Table 1.
    \800\ These dates are Oct. 9, 2015, Nov. 10, 2015, and Dec. 31, 
2015.
[GRAPHIC] [TIFF OMITTED] TR03NO23.000

---------------------------------------------------------------------------
Source: OFR Pilot Survey of Agent Securities Lending Activity

    There is currently no common source that those seeking security 
loans can use to find shares available to lend, which is why broker-
dealers rely on relationships with lending programs to secure loans. 
This situation has contributed to high search costs in this 
market.\801\ High search costs imply that transactions cannot take 
place without a costly effort to find a favorable counterparty. The 
need for such costly effort can inhibit market efficiency.
---------------------------------------------------------------------------

    \801\ See, e.g., Kolasinski (2013), supra note 736.
---------------------------------------------------------------------------

    One commenter stated that the level of opacity in the securities 
lending market does not lead to high search cost or inhibit the 
efficiency of the securities lending market, because the level of 
detail in data provided by data vendors has improved drastically, the 
number of data vendors in the market has been growing, and the vast 
majority of parties in securities lending markets have

[[Page 75703]]

access to one or more sources of data.\802\ While these facts are 
generally associated with declining search costs and increased 
efficiency, they do not, by themselves, imply low search costs or an 
efficient market. As discussed above, the Commission continues to 
believe that the datasets provided by commercial data vendors are 
characterized by incomplete and potentially biased data.\803\ As a 
result, market participants that want information on whether a given 
loan price or quote is competitive, or how a given lending agent or 
broker-dealer is performing relative to a benchmark, may need to 
consult multiple datasets, if they have access to such data, or request 
and receive multiple quotes in order to confirm that a given quote is 
consistent with market conditions. A need to consult multiple sources 
of information implies high search costs. When the cost of acquiring 
additional information is high, it may not be economical to acquire the 
information, resulting in less efficient terms for loans. The Proposing 
Release also cited academic research characterizing the securities 
lending market as having high search costs, which was not rebutted by 
the commenter.\804\ Consequently, the Commission continues to believe 
that, despite the availability of commercial datasets, opacity in the 
securities lending market contributes to high search costs and 
inefficiencies in that market.\805\
---------------------------------------------------------------------------

    \802\ See IHS Markit Letter, at 13.
    \803\ See supra Part IX.B.2 for further discussion of issues 
related to the current availability and comprehensiveness of 
securities lending data.
    \804\ See Kolasinski (2013), supra note 736, cited in the 
Proposing Release with regard to search costs. See Proposing 
Release, 86 FR 69805, 69831, and 69832.
    \805\ See discussion on this point in supra Parts IX.B.2 and 
IX.B.3.
---------------------------------------------------------------------------

    Broker-dealers possess some market power over their customers. 
Generally, broker-dealers assist investors in finding shares to borrow 
as part of a suite of services and the cost of switching to a new 
broker-dealer can be high. This relationship can make it difficult for 
investors to change broker-dealers if they underperform in one area 
because it is not just a securities lending relationship that would be 
changed, but the whole suite of broker-dealer services that would be 
affected.\806\
---------------------------------------------------------------------------

    \806\ Some entities, such as some hedge funds, have multiple 
prime brokers. For such institutions it would be less difficult to 
switch between broker-dealers if one is performing poorly as they 
could redirect securities lending business to their top performing 
prime-broker.
---------------------------------------------------------------------------

    Additionally, the relationship nature of the lending market favors 
larger broker-dealers who can maintain high-volume relationships with 
more lending programs. The limited availability of comprehensive data 
makes it difficult for customers to evaluate the performance of broker-
dealers.\807\ Customers as well as lenders thus rely on relationships 
and reputation, a situation that also tends to favor larger broker-
dealers.
---------------------------------------------------------------------------

    \807\ See supra Part IX.B.2 for further discussion of issues 
related to the current availability and comprehensiveness of 
securities lending data.
---------------------------------------------------------------------------

    The primary sources of shares to loan in the Wholesale market are 
long-term investors such as investment firms, pension and endowment 
funds, governmental entities, and insurance companies. These entities 
generally make their shares available to lend either through a lending 
program run by a lending agent or by running their own lending program. 
Broker-dealers borrow shares from lending programs in order to 
facilitate clearing and settlement on a net-basis, though they may 
additionally source shares for this purpose from their own inventory, 
from fully paid shares, and from customer margin accounts.\808\
---------------------------------------------------------------------------

    \808\ See supra note 798 and corresponding text for further 
discussion of broker-dealers' sources of shares for securities 
loans.
---------------------------------------------------------------------------

    As described above, a beneficial owner seeking to lend shares will 
generally provide those shares to a lending agent, who runs a lending 
program. There are two broad categories of lending programs: custodian 
banks and third-party lending programs. In the case of custodian banks, 
the lending program is generally offered as part of their general 
custodian services.
    Both types of lending programs will generally pool shares across 
accounts with which they have lending agreements to create a common 
pool of shares available to lend. As shares are lent out, the revenue 
earned from the pool of shares is generally distributed across all 
accounts contributing shares to the pool of shares on loan on a pro-
rata basis. Pooled lending programs generally split the fees generated 
from lending with the beneficial owners. Based on the staff's 
experience, the Commission believes that the lending program will 
usually take about a third of the fees earned. In the case of custodian 
banks, the custodian bank may, rather than return the lending revenue 
directly to the beneficial owner, instead apply the beneficial owner's 
portion of the lending revenue to other fees charged by the custodian 
bank for other services.
    Lending programs typically indemnify the beneficial owner from 
default by the borrower. This indemnity gives the lending program an 
incentive to ensure the creditworthiness of the borrower, and a lending 
program may assess higher fees to borrowers it deems as less 
creditworthy.
    Over the past two decades, auction-based security lending has 
become an alternative for lender-borrower interactions. In this 
setting, unlike with the directed lending programs, positions of 
different beneficial owners are not pooled to cater to security-
specific demand from borrowers. Instead, after determining the desired 
income streams, the lender's entire portfolio, or its segments, are 
offered via blind single-bid auctions.
    In some cases, a beneficial owner may choose to set up its own 
lending program. This course is more common among very large funds that 
have the resources to build up the expertise necessary to operate a 
lending program.\809\
---------------------------------------------------------------------------

    \809\ Based on a review of N-CEN reports, the Commission 
estimates that 226 (out of 684) lenders do not employ a lending 
agent. See infra Part X. Most of these lenders are likely to operate 
their own lending programs.
---------------------------------------------------------------------------

    The current relationship and network structure of lending programs 
and broker-dealers favors larger lending programs that have the 
resources to maintain relationships with more and larger broker-
dealers. Thus, the Commission believes that the market for lending 
services is likely dominated by a few large lending programs, including 
those run by the large custodian banks.
    The OFR Pilot Survey estimated that as of the latter part of 2015 
there were approximately $9.5 trillion worth of shares available for 
lending.\810\ Figure 2 provides a breakout of the percent of shares 
available for lending provided by the various entities.
---------------------------------------------------------------------------

    \810\ Commercial vendors typically report a value for securities 
available to loan that is larger than what is reported in the OFR 
Pilot Survey. This difference is likely due to sample construction. 
The commercial vendors likely have a larger sample of lending 
programs to draw from, particularly the lending programs based 
outside of the U.S. See also supra note 778 for a discussion of 
issues related to estimating the number of shares available for 
lending.

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[[Page 75704]]

[GRAPHIC] [TIFF OMITTED] TR03NO23.001

Source: OFR Pilot Survey of Agent Securities Lending Activity
5. Structure of the Market for Securities Lending Data and Analytics
    The market to collect and disseminate securities lending data is an 
outgrowth of the market for securities lending market analytics.\811\ 
This market consists of a few established vendors that specialize in 
geographic areas (i.e., U.S. and non-U.S.) but seek to compete in all 
geographic areas. Most vendors collect the data to support the analysis 
business in which they provide data-based service to institutions and 
other lending programs. Others collect data through their facilitation 
of security loans. As such, the data vendor business is often an 
outgrowth of another business. The Commission understands that the 
current practice by commercial data vendors is to provide preliminary 
statistics on the same day based on the intraday data collected by the 
vendors, while the main data are disseminated one day later.
---------------------------------------------------------------------------

    \811\ See the business model descriptions in IHS Markit's 2021 
comment letter responding to FINRA's Regulatory Notice 21-19, 
available at https://www.finra.org/sites/default/files/NoticeComment/IHS%20Markit_Paul%20Wilson_21-19_9.30.2021%20-%20IHSM%20Cmt%20Ltr%20re%20FINRA%20RFC%20Short%20Interest%20Position%20Reporting.pdf.
---------------------------------------------------------------------------

    The Commission believes that the data provided by the various data 
vendors operating in the give-to-get Wholesale data market are largely 
comparable.\812\ However, the entities providing data to the vendors 
are also their customers. This relationship limits the market power of 
the vendors with respect to their clients who provide data but results 
in the clients' incentives limiting the competitiveness of the 
market.\813\ This results in the market being largely inaccessible for 
many entities that could use the data for their own benefit or the 
benefit of the market as a whole.\814\
---------------------------------------------------------------------------

    \812\ See Truong X. Duong, et al., The Information Value of 
Stock Lending Fees: Are Lenders Price Takers?, 21 Rev. Fin. 2353, 
2353-2377 (2017) (``Duong, et al., (2017)''),who provide a 
comparative analysis of the datasets of two of the main commercial 
data vendors and find very high correlations between the values 
presented in the different datasets.
    \813\ See supra Part IX.B.2 for further discussions of data 
providers' incentives when providing data to data vendors under a 
give-to-get model.
    \814\ See supra Part IX.B.2 for further discussion of the 
current limits to transparency in the securities lending market.
---------------------------------------------------------------------------

    The give-to-get model for securities lending data is a significant 
barrier to entry to any firm seeking to provide analytics services 
regarding Wholesale loans. Firms cannot provide analytics services 
without data, and the biggest three data vendors have established 
relationships with data contributors to collect data. Such data 
contributors have an incentive to also control who can access that 
data. Consequently, the Commission understands that the market for 
securities lending data and securities lending analytics in the 
Wholesale space is largely concentrated among the three biggest data 
vendors.
    One commenter stated that the give-to-get model is ``is not the 
industry standard'' in the securities lending data market and pointed 
out that there are some commercial securities lending datasets that are 
available to all subscribers.\815\ The Commission understands that the 
collection of these data largely relies on surveying Customer market 
participants about their borrowing experiences. Data vendors then 
aggregate and sell these data, or derivative products that combine the 
survey data with other data sources to provide derived metrics in areas 
such as short selling. For example, the Commission staff understands 
that, based on interactions with vendors of such data, that the 
customer market survey data are used largely as an input to proprietary 
algorithms that combine information from multiple data sources--such as 
FINRA's bimonthly short interest--to produce a short selling metric 
that is then used by consumers.\816\ Building relationships with a 
large number of Customer market participants is a significant barrier 
to entry and thus the Commission understands that data provision and 
analytics regarding customer market survey data is concentrated among 
the top two biggest data vendors.
---------------------------------------------------------------------------

    \815\ See S3 Partners Letter, at 5.
    \816\ See infra Part IX.B.6 for further discussion of FINRA's 
bimonthly short interest data.
---------------------------------------------------------------------------

6. Short Selling Transparency
    Multiple commenters stated that granular securities lending data 
generally provide information about investors' short selling positions 
and strategies.\817\ This section provides

[[Page 75705]]

information about existing sources of short selling data to facilitate 
an analysis of the impact of the Rule on short selling transparency.
---------------------------------------------------------------------------

    \817\ See, e.g., Overdahl Letter, at 4, 9; Citadel Letter, at 5-
6. One commenter stated their belief that the rule would not provide 
further transparency into the short interest market because ``not 
all securities loan trades facilitate a short sale, and that the 
securities lending market is not a mirror of the short interest 
market''; See IHS Markit Letter, at 3. See supra Part IX.B.1 for a 
discussion of the potential reasons for borrowing and lending 
securities apart from to facilitate a short trade.
---------------------------------------------------------------------------

Securities Lending Data
    Because of the need to borrow securities to facilitate a short 
sale, securities lending data can be used to gain insight into short 
interest and short sentiment, and market participants use both give-to-
get Wholesale data and customer market survey data on Customer loans to 
gain insights into short selling. For example, some academics have used 
securities lending data to study short selling in published 
research.\818\ Additionally, while access to Wholesale market data is 
generally limited,\819\ the Commission understands that some third-
party data providers combine Wholesale market data with other sources 
of short selling data, such as bimonthly short interest data, to 
provide retail clients with estimated short selling metrics. The 
Commission also understands that commercial data vendors use securities 
lending data as an input to proprietary algorithms that combine 
information from multiple data sources--such as biweekly short 
interest--to produce a short selling metric that is then used by 
consumers.
---------------------------------------------------------------------------

    \818\ See, e.g., Steven Lecce, et al., The Impact of Naked Short 
Selling on the Securities Lending and Equity Market (Macquarie 
Business School Research Paper, Feb. 1, 2012) at 83, available at 
https://ssrn.com/abstract=3591994 (retrieved from SSRN Elsevier 
database) stating that ``securities lending is a commonly used proxy 
for the level of covered short selling''; see also, e.g., Gene 
D'avolio, The Market for Borrowing Stock, 66 J. Fin. Econ. 271 
(2002).
    \819\ See supra Part IX.B.2 for further discussion of the give-
to-get model.
---------------------------------------------------------------------------

    Data on Wholesale securities loans provide only a noisy 
approximation of short interest at the security level. This is because 
Wholesale loans are made largely to facilitate clearing and settlement 
on a net basis at a clearing broker, rather than by transaction or 
position. Thus, Wholesale loans are not traceable to individual short 
sellers. Further, the Commission understands that broker-dealers will 
usually source shares to meet their net clearing and settlement 
requirements from other sources before engaging in Wholesale 
loans.\820\
---------------------------------------------------------------------------

    \820\ These sources include, e.g., their own inventory, customer 
margin accounts, and fully paid accounts at the broker-dealer with 
lending agreements in place. See supra note 798 and corresponding 
text for further discussion. Also, the fact that give-to-get 
Wholesale market data are not comprehensive (see supra Part IX.B.2 
for further discussion), means that there is additional noise with 
regards to using Wholesale market data to estimate short sale 
information.
---------------------------------------------------------------------------

    The Commission believes that information about Customer loans is 
more likely to be informative about short selling activity than 
information about Wholesale loans.\821\ This is because, unlike 
Wholesale loans, Customer loans are used to facilitate individual short 
positions. The size of a Customer loan when first created is the same 
as the size of a short position as of the end of the day on which the 
short position was created. Should the customer increase or decrease 
the size of their short position, the Commission understands that the 
original loan would be modified accordingly. Thus, individual Customer 
loans can be tracked to reveal the size and changes in individual short 
positions. However, existing Customer market datasets, like Wholesale 
market datasets, lack comprehensiveness.\822\
---------------------------------------------------------------------------

    \821\ This is also supported by one commenter, who states that, 
``there is a perfect correlation between a short sale and the 
associated Short Sale Linked Activity, which facilitates the 
customer fulfilling the delivery obligations arising from the short 
sale.'' See Citadel Letter, at 5. The commenter states that by 
``Short Sale Linked Activity,'' they are referring to what the 
Proposing Release calls the ``retail market.'' See Citadel Letter, 
at 1. This is equivalent to what is referred to as the Customer 
market in this release.
    \822\ See supra Part IX.B.2 for further discussion of why the 
Commission believes that Customer market survey datasets are not 
comprehensive.
---------------------------------------------------------------------------

    Most commercially available datasets are currently produced with a 
one-day lag. As a result of the difference in settlement cycles between 
the equity and securities lending market, there is therefore typically 
a three-day lag between the availability of the securities lending data 
and the change in short interest that corresponds to the securities 
loans.\823\
---------------------------------------------------------------------------

    \823\ See supra note 738 and corresponding text. This lag will 
decrease to two days when equity settlement moves to T+1 on May 28, 
2024.
---------------------------------------------------------------------------

Bimonthly Short Interest Data From FINRA
    One of the primary data sources for information about aggregate 
short positions is the bimonthly short interest data collected by 
FINRA.\824\ FINRA collects aggregate short interest information in 
individual securities on a bimonthly basis as the total number of 
shares sold short in a given stock as of the middle and end of each 
month.\825\ In the case of U.S. exchange-listed stocks, FINRA shares 
the data with the listing exchange.\826\ FINRA then publishes short 
interest data for all exchange-listed and OTC equity securities on its 
Equity Short Interest Data page free for the investing public.\827\ 
Specifically, aggregate positions in each security are provided for 
publication on the seventh business day after the reporting settlement 
date.\828\
---------------------------------------------------------------------------

    \824\ See, e.g., Division of Economic and Risk Analysis, Short 
Sale Position and Transaction Reporting 6-7, (June 5, 2014), at 17-
18, available at https://www.sec.gov/files/short-sale-position-and-transaction-reporting0.pdf. This is a study of the Staff of the U.S. 
Securities and Exchange Commission, which represents the views of 
Commission staff, and is not a rule, regulation, or statement of the 
Commission. The Commission has neither approved nor disapproved the 
content of this study and, like all staff statements, it has no 
legal force or effect, does not alter or amend applicable law, and 
creates no new or additional obligations for any person.
    \825\ Specifically, the mid-month short interest report is based 
on short positions held on the settlement date of the 15th of each 
month or, if the 15th falls on a weekend or holiday, the previous 
business day. The end-of-month short interest report is based on 
short positions held on the last business day of the month on which 
transactions settle. See FINRA, Equity Short Interest Data Catalog, 
available at https://www.finra.org/finra-data/browse-catalog/equity-short-interest, last visited Aug. 23, 2023.
    \826\ See FINRA, Short Interest--What It Is, What It Is Not 
(Jan. 25, 2023), available at http://www.finra.org/investors/insights/short-interest.
    \827\ See id. See also FINRA, Equity Short Interest Data, 
available at https://www.finra.org/finra-data/browse-catalog/equity-short-interest/data, last visited Aug. 24, 2023.
    \828\ See FINRA Equity Short Interest Data Catalog, supra note 
825. See also FINRA, Short Interest Reporting, available at https://www.finra.org/filing-reporting/regulatory-filing-systems/short-interest.
---------------------------------------------------------------------------

    FINRA computes short interest using information it receives from 
its broker-dealer members pursuant to FINRA Rule 4560 reflecting all 
trades cleared through clearing broker-dealers.\829\ FINRA Rule 4560 
generally requires that broker-dealers that are FINRA members report 
``short positions'' in customer and proprietary firm accounts in all 
equity securities twice a month through FINRA's web-based Regulation 
Filing Applications (RFA) system.\830\ FINRA defines ``short 
positions'' for this purpose simply as those resulting from ``short 
sales'' as defined in Rule 200(a) of Regulation SHO under the Exchange 
Act.\831\ Member firms must report their short positions to FINRA 
regardless of position size.\832\
---------------------------------------------------------------------------

    \829\ Id. (Short interest for a listed security at any date 
reported by FINRA is ``a snapshot of the total open short positions 
in a security existing on the books and records of brokerage firms 
on a given date.'').
    \830\ FINRA Rule 4560 excludes short sales in ``restricted 
equity securities,'' as defined in Rule 144, from the reporting 
requirement.
    \831\ See FINRA Rule 4560(b)(1). See supra note 301 for the 
definition of a short sale.
    \832\ See FINRA, Short Interest Reporting Instructions 
(reporting instructions to FINRA member firms), available at https://www.finra.org/filing-reporting/short-interest/regulation-filing-applications-instructions, last visited Aug. 23, 2023.
---------------------------------------------------------------------------

    These short interest data are widely available and are used by 
academics and other market participants. These short interest data are 
found to predict future stock and market returns over the

[[Page 75706]]

monthly and annual horizons, suggesting that the bimonthly short 
interest data capture short selling strategies based on fundamental 
research.\833\ However, the transparency offered by these data is 
limited in at least two ways. First, the information content is delayed 
by at least seven business days, and also does not provide insight into 
the timing with which short positions are established or covered within 
the two-week reporting period. This precludes the possibility of 
understanding the behavior of aggregate short selling in the two weeks 
leading up to the reporting date of the positions. Second, given that 
the data are aggregated at the security level, they prevent the public 
from understanding certain aspects of the underlying proprietary short 
selling strategies. For example, the data can't inform on whether short 
positions are distributed across a large or small number of market 
participants.
---------------------------------------------------------------------------

    \833\ See, e.g., Peter N. Dixon & Eric K. Kelley, Business Cycle 
Variation in Short Selling Strategies: Picking During Expansions and 
Timing During Recessions, 57 J. Fin. Quantitative Analysis 3018 
(2022); see also Ekkehart Boehmer, et al., The Good News in Short 
Interest, 96 J. Fin. Econ., 80-97 (2010); Stephen Figlewski, The 
Informational Effects of Restrictions on Short Sales: Some Empirical 
Evidence, 16 J. Fin. Quantitative Analysis 463 (1981).
---------------------------------------------------------------------------

Short Selling Volume and Transaction Data From SROs
    This section discusses data that exist on daily and intraday short 
volume data, which provide different information relative to the 
bimonthly short interest data discussed above.\834\ The bimonthly short 
interest data provides an aggregate measure of outstanding short 
interest whereas the data discussed in this section provides 
information about the flow of short sales in the market. It is less 
useful in determining total short interest outstanding because it is 
not accompanied by data regarding when short sales are covered but 
allows market participants to observe the actual trades of short 
sellers.
---------------------------------------------------------------------------

    \834\ See supra Part IX.B.6 for more information about FINRA's 
bimonthly short interest data.
---------------------------------------------------------------------------

    Since 2009, many SROs have been publishing two short selling 
datasets, including same-day publication of daily aggregated short sale 
volume in individual securities \835\ and publication of short sale 
transaction information with a delay of up to two months.\836\ Some 
SROs make the historical daily short volume data available to market 
participants at a fee.\837\
---------------------------------------------------------------------------

    \835\ See Division of Economic Research and Analysis, Securities 
and Exchange Commission (DERA), Short Sale Volume and Transaction 
Data (June 5, 2014), available at https://www.sec.gov/answers/shortsalevolume.htm; (showing hyperlinks to the websites where SROs 
publish these data). See also FINRA, Daily Short Sale Volume Files, 
available at https://www.finra.org/finra-data/browse-catalog/short-sale-volume-data/daily-short-sale-volume-files (providing aggregated 
volume by security on all short sale trades executed and reported to 
a FINRA reporting facility during normal market hours) and FINRA, 
Information Notice: Publication of Daily and Monthly Short Sale 
Reports (Sept. 29, 2009), available at http://www.finra.org/web/groups/industry/@ip/@reg/@notice/documents/notices/p120044.pdf.
    \836\ See FINRA, Monthly Short Sale Transaction Files, available 
at https://www.finra.org/finra-data/browse-catalog/short-sale-volume-data/monthly-short-sale-volume-files (providing detailed 
trade activity of all short sale trades reported to a consolidated 
tape), last visited Aug. 24, 2023. See also Investor.gov, Short Sale 
Volume and Transaction Data, available at https://www.sec.gov/answers/shortsalevolume.htm. Additional transaction data have been 
available at various times, including transaction data from the 
Regulation SHO Pilot, which have been discontinued by most exchanges 
in July 2007 when the uptick rule was removed. See Release No. 34-
55970 (June 28, 2007), 72 FR 36348 (July 3, 2007), available at 
https://www.sec.gov/rules/final/2007/34-55970.pdf. The Pilot data 
comprised short selling records available from each of nine markets: 
American Stock Exchange, Archipelago Exchange, Boston Stock 
Exchange, Chicago Stock Exchange, NASD, Nasdaq Stock Market, New 
York Stock Exchange, National Stock Exchange, and the Philadelphia 
Stock Exchange. See SEC Division of Trading and Markets, Regulation 
SHO Pilot Data FAQ, available at https://www.sec.gov/spotlight/shopilot.htm#pilotfaq.
    \837\ See, e.g., NYSE.com, TAQ Group Short Sale & Short Volume, 
available at https://www.nyse.com/market-data/historical/taq-nyse-group-short-sales (for short sale data relating to all NYSE owned 
exchanges). See Nasdaqtrader.com, Short Sale Volume and Transaction 
Reports, available at https://nasdaqtrader.com/Trader.aspx?id=shortsale (for short sale data for Nasdaq exchanges); 
See also Chicago Board Options Exchange (Cboe.com), U.S. Equity 
Short Volume and Trades (for Cboe exchanges), available at https://datashop.cboe.com/us-equity-short-volume-and-trades.
---------------------------------------------------------------------------

    Despite offering higher granularity, there is a concern that the 
SRO short volume data may over-represent the total volume of short 
sales occurring in the market. This is because Regulation SHO provides 
specific criteria regarding what is a long sale.\838\ If a market 
participant is unclear whether their trade would meet all the 
requirements at settlement to be marked a long sale, then they may 
choose to mark the trade as short to not run afoul of Regulation SHO 
requirements, even if the trade is likely economically equivalent to a 
long sale.\839\ For instance, the market participant may be deemed to 
own the security but does not reasonably believe they can deliver the 
security in time for settlement, and thereby must mark the order as 
short regardless of their ownership of the security. Aggregate short 
selling volume data and short selling transactions data typically have 
different lags with which they are available, though aggregate short 
selling volume data can be disseminated as early as the same day of the 
short sale.\840\
---------------------------------------------------------------------------

    \838\ Rule 200(g) of Regulation SHO specifies when an order can 
be marked as long. See also Section III.B (adopting release of 
Regulation SHO), available at https://www.sec.gov/rules/final/34-50103.htm#VI.
    \839\ See Proposed rule: Short Position and Short Activity 
Reporting by Institutional Investment Managers, Release No. 34-94313 
(Feb. 25, 2022) 87 FR 14950, 14989 (Mar. 16, 2022) at note 230 
(citing 2009 Letter from SIFMA commenting on an alternative short 
sale price test, and expressing concern that compliance with 
Regulation SHO short selling marking requirements ``will result in a 
substantial over-marking of orders as ``short'' in situations where 
firms are, in fact, ``long'' the securities being sold'').
    \840\ For example, FINRA posts daily aggregate short volume data 
for each security no later than 6:00 p.m. ET of the same day on the 
relevant trade date; see FINRA, Daily Short Sale Volume Files, supra 
note 835. Meanwhile, FINRA posts files including the transaction 
time, price, and number of shares for every off-exchange short sale 
transaction in an exchange-listed stock only on a monthly basis; see 
FINRA, Monthly Short Sale Volume Files, supra note 836. See also 
FINRA, Information Notice 5/10/19: Understanding Short Sale Volume 
Data on FINRA's website (May 10, 2019), available at https://www.finra.org/rules-guidance/notices/information-notice-051019.
---------------------------------------------------------------------------

B. Economic Effects of the Final Rule

1. Benefits of Increased Transparency in the Securities Lending Market
    The Commission believes that the primary impact of final Rule 10c-
1a will be to increase transparency in the securities lending market 
through improvements to the comprehensiveness, breadth, accuracy,\841\ 
and accessibility of securities lending data. These impacts will reduce 
information asymmetries in the securities lending market and improve 
informational efficiency leading to a more efficient securities lending 
market.\842\
---------------------------------------------------------------------------

    \841\ Accuracy in this sense refers to less potential bias in 
the loans reported and thus in the statistics obtained from the 
loans reported. See supra Part IX.B.2 for a discussion of bias in 
existing securities lending datasets and how this can lead to 
inaccurate inference.
    \842\ The Commission expects that the benefits of final Rule 
10c-1a will be similar for all reportable securities lending markets 
that have a similar need for additional market transparency. It is 
possible that some markets may be more transparent than others. See 
infra note 958 for further discussion.
---------------------------------------------------------------------------

    Final Rule 10c-1a will reduce information asymmetries and improve 
informational efficiency in three ways. First, the data provided by 
final Rule 10c-1a will be more comprehensive than the data currently 
offered by commercial data vendors because it will not rely on 
voluntary data submissions but will result from mandated disclosure 
from both the Wholesale and Customer segments of the market.\843\ 
Second, Rule 10c-1a data will improve

[[Page 75707]]

informational efficiency by including certain data fields that are not 
currently offered by commercial data vendors, contributing to the 
breadth of available securities lending data. In addition, Rule 10c-1a 
data will contain detailed security loan modification information. 
Third, the final rule will expand the accessibility of the data by 
allowing all market participants to access Rule 10c-1a data, possibly 
subject to a fee.\844\
---------------------------------------------------------------------------

    \843\ See supra Part IX.B.2 for further discussion of selection 
issues in commercial securities lending databases based on voluntary 
data submissions.
    \844\ See infra Part IX.C.3 for a discussion of the fees that an 
RNSA could charge to data consumers. See also supra Part VII.K.3 for 
further discussion of final Rule 10c-1a(i), which allows an RNSA to 
``establish and collect reasonable fees, pursuant to rules that are 
promulgated pursuant to section 19(b) and Rule 19b-4 of the Exchange 
Act.''
---------------------------------------------------------------------------

    The increased transparency from final Rule 10c-1a will result in 
several notable economic benefits. First, the final rule will reduce 
information asymmetries, which will benefit investors by reducing 
borrowing costs, increasing price efficiency, and increasing 
competition between broker-dealers and lending programs.\845\ Second, 
by reducing the borrowing costs for some securities, the final rule 
will lower the cost of short selling these securities and improve 
market efficiency. Third, improvements in the information available to 
various market participants will lead to a variety of benefits for 
these participants, including increased profits and reduced costs of 
business due to easier access to information and more informed 
decisions.
---------------------------------------------------------------------------

    \845\ Consequently, some market participants may see returns 
decrease due to more competitive fee pricing, which may lower 
securities lending revenues for some lenders. See infra Part IX.C.4 
for further discussion.
---------------------------------------------------------------------------

Reduction in Information Asymmetry
    The Commission believes that the transparency created by final Rule 
10c-1a will reduce information asymmetries between more centrally 
connected securities lending market participants and those on the 
periphery. Specifically, it will reduce the information asymmetries 
between broker-dealers and end borrowers, and between beneficial owners 
and lending programs. This will result in increased competition between 
dealers and between lending programs, ultimately leading to better loan 
terms for some securities.\846\
---------------------------------------------------------------------------

    \846\ A reduction in the cost to borrow may result in lower 
securities lending revenues for some lenders. See infra Part IX.C.4 
for further discussion.
---------------------------------------------------------------------------

    The Commission believes that the transparency created by the final 
rule will benefit end borrowers by reducing the information 
disadvantage they have with their broker-dealers when borrowing shares. 
Most security loans obtained by end borrowers are facilitated through 
broker-dealers.\847\ Rule 10c-1a data will allow end borrowers to 
determine the extent to which their broker-dealers are obtaining terms 
that are better, worse, or consistent with current market conditions 
for loans with similar characteristics. It will 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.\848\ For 
example, end borrowers will be able to compare the lending terms 
provided by their broker-dealers to the terms of similar loans, such as 
loans with the same collateral and borrower types. End borrowers will 
also be able to compare loans of similar sizes, though with a delay of 
20 business days. The Commission believes that, despite the delay in 
dissemination, loan size information will still be useful for end 
borrowers, who can use this information to compare the prices of their 
loans to other loans with similar terms (e.g., size, collateral type, 
loan type, etc.), that were effected approximately one month prior. 
Additionally, to the extent that an RNSA publicly disseminates daily 
volume-weighted cost-to-borrow statistics as part of its requirement to 
disseminate daily aggregate information, these statistics will provide 
end borrowers with access to information about loan prices that 
incorporates information about loan size information even prior to the 
public dissemination of loan sizes.\849\
---------------------------------------------------------------------------

    \847\ See supra Part IX.B.4 for further information about the 
market for borrowing services.
    \848\ See supra Part IX.B.2 discussing the lack of 
comprehensiveness of both Customer market data collected through 
Customer market surveys and Wholesale market data collected using a 
give-to-get model, the latter of which is also often unavailable to 
end borrowers due to usage restrictions.
    \849\ See final Rule 10c-1a(g)(5), requiring an RNSA to 
disseminate aggregated daily information. In general, the ability of 
market participants to use the aggregate information provided by an 
RNSA to compare loan rates across similar loans may depend on the 
specific form of loan rate information that an RNSA chooses to 
publish. For example, if an RNSA chooses to publish cost to borrow 
statistics that are very granular (e.g., it provides separate 
statistics for Customer and Wholesale loans and/or according to 
other loan characteristics), then end borrowers would be able to 
benchmark their transactions to these statistics with increased 
accuracy. To the extent that an RNSA chooses to publish less 
granular statistics, then the end borrower could still benchmark 
relative to the cost to borrow statistics provided by an RNSA, but 
the benchmark would be noisier. See also infra Part IX.C.1 for 
further discussion of the Commission's uncertainty related to an 
RNSA's discretion.
---------------------------------------------------------------------------

    Similarly, the Commission believes that the final rule will benefit 
beneficial owners by reducing their information disadvantage with 
respect to their lending programs. By allowing beneficial owners to 
more easily benchmark their lending programs through access to data on 
loan prices and other characteristics of recently transacted security 
loans, as well as the statistics provided by an RNSA on the next 
business day, the final rule will provide beneficial owners with an 
improved ability to determine the quality of the loans that their 
lending program executes on their behalf relative to other loans with 
similar characteristics. The ability to view the cost to borrow in both 
the Customer markets and Wholesale markets will also provide beneficial 
owners with additional information that they can use to benchmark the 
performance of their lending programs.\850\
---------------------------------------------------------------------------

    \850\ See, e.g., supra note 767 and corresponding text 
describing how a market participant engaged in Wholesale lending 
stated in an interview that they feel unable to benchmark the 
performance of their lending programs using commercial data because 
they have very little insight into the Customer market.
---------------------------------------------------------------------------

    Financial institutions such as banks and broker-dealers use the 
securities lending market in order to manage collateral needed for 
other transactions.\851\ These entities can face the same asymmetric 
information concerns as do end borrowers and beneficial owners, and 
thus an increase in market transparency may lead financial institutions 
to receive better loan terms, and thus improve their ability to manage 
collateral. Banks also borrow securities to manage their balance 
sheets,\852\ and the Commission believes that this too will become 
easier as a result of the final Rule 10c-1a due to a more competitive 
lending market, leading to the benefit of improved balance sheet 
management by banks.
---------------------------------------------------------------------------

    \851\ See supra Part IX.B.1 for further discussion of financial 
institutions' use of securities loans for collateral and balance 
sheet management.
    \852\ See id.
---------------------------------------------------------------------------

    At the same time, as access to securities lending data increases, 
competition for securities lending analytics may increase as well.\853\ 
Increased competition for and availability of securities lending 
analytics would further reduce information asymmetries by reducing the 
cost of and increasing access to securities lending analytics for both 
end borrowers and beneficial owners.
---------------------------------------------------------------------------

    \853\ See infra Part IX.D.2 for a discussion of the expected 
impact of the final rule on competition for securities lending data 
analytics services.
---------------------------------------------------------------------------

    If an end borrower or beneficial owner believes that a particular 
broker-dealer or lending agent is consistently underperforming, the 
final rule will provide that market participant with the

[[Page 75708]]

tools to identify such underperformance and address it with their 
broker-dealer or lending agent, or to find a new broker-dealer or 
lending agent.\854\ For example, a beneficial owner or end borrower 
could use the transaction-by-transaction Rule 10c-1a data to create a 
bespoke benchmark of recently transacted loans that are similar to a 
loan they wish to effect, and compare this benchmark to the terms 
offered by their lending agent or broker dealer for that loan. A 
beneficial owner or end borrower could also use the daily information 
disseminated by an RNSA about the distribution of loan prices to assess 
how the terms offered by their broker-dealer or lending agent compare 
more generally to the distribution of recently transacted loans in the 
same security. An increased ability to compare loan performance will 
increase competition between broker-dealers and between lending agents, 
which will ultimately improve lending terms for both end borrowers and 
beneficial owners.\855\
---------------------------------------------------------------------------

    \854\ One commenter questioned the usefulness of transaction-by-
transaction reporting and asserted that the Proposing Release did 
not explain how an investor would make use of these data (see 
Citadel Letter, at 9). This part, along with Part VI.C.1.a in the 
Proposing Release, discuss the ways in which investors could use the 
data. The Commission acknowledges that not every factor affecting 
prices, such as counterparty risk, is accounted for in the data 
provided by the final rule. See infra in this part for further 
discussion. Furthermore, the ability of end borrowers to switch 
broker-dealers may be limited by switching costs; see infra in this 
part for further discussion on switching costs. At least one 
commenter expressed concern that the proposed rule may result in 
increased costs when switching lending agents. See CSFME Letter 1, 
at 5. See infra Part IX.C.4 for further discussion.
    \855\ See infra Part IX.D.2 for a discussion of the expected 
impact of the final rule on competition between broker-dealers and 
between lending programs.
---------------------------------------------------------------------------

    The Commission expects improved terms to be concentrated among 
securities that are ``on special'' and have higher borrowing costs. 
This is because general collateral securities lending is a low margin 
business and lending supply for these securities far outstrips lending 
demand.\856\ Combined, these two factors mean that there is likely not 
much room for fees to improve for general collateral securities.\857\ 
As securities become on special (i.e., harder to borrow), lending rates 
and utilization rates increase. Higher utilization rates mean that 
there are fewer shares available to borrow and lend. In this 
environment, high search costs and asymmetric information are 
significant contributors to both the level and dispersion of fees, and 
reducing asymmetric information has a better chance of leading to 
better terms.\858\ Beneficial owners that currently lend shares of 
hard-to-borrow securities for rates that are consistently below the 
market average could receive higher lending rates for these securities 
as their lending agents both have better access to information and 
become more accountable for their performance due to beneficial owners 
also having access to the same information. Similarly, end borrowers 
whose borrowing costs are currently higher than the market average for 
hard-to-borrow securities may see their borrowing costs decrease as 
both their broker-dealers' information access and their ability to 
monitor to their broker-dealers improve. These two effects suggest that 
the dispersion of borrowing costs for hard-to-borrow securities will 
diminish.
---------------------------------------------------------------------------

    \856\ See, e.g., State Street Letter, at 5; See also RMA Letter, 
at 5, 8 (discussing low margins in securities lending more 
generally); See also infra Part IX.C.4 for additional discussion.
    \857\ See Panel A of Table 1 in supra Part IX.B.3, showing that 
for most stocks the lending supply significantly outstrips demand 
with median utilization rates of approximately 12%.
    \858\ See, e.g., Kolasinski (2013) (finding that when demand for 
lendable shares outstrips supply, lending fees increase and the 
dispersion of lending fees is high, particularly when search costs 
are high).
---------------------------------------------------------------------------

    That transparency can result in improved market quality is 
consistent with the experience in other markets. The implementation of 
TRACE improved transparency in the corporate bond market, and research 
has shown that TRACE lowered the average cost of transacting and 
increased competition between dealers in this market.\859\ 
Additionally, recent research from Brazil has shown that improving 
securities lending transparency led to lower fees, increased liquidity, 
and increased price efficiency in that country.\860\ In both cases, 
researchers have identified reduced information asymmetry as a key 
mechanism leading to improved market outcomes.\861\
---------------------------------------------------------------------------

    \859\ See, e.g., Amy K. Edwards, et al., Corporate Bond Market 
Transaction Costs and Transparency, 62 J. Fin. 1421, 1421-1451 
(2007), Michael Goldstein, et al., Transparency and Liquidity: A 
Controlled Experiment on Corporate Bonds, 20 Rev. Fin. Stud. 235 
(2007), Hendrik Bessembinder, et al., Market Transparency, Liquidity 
Externalities, and Institutional Trading Costs in Corporate Bonds, 
82 J. Fin. Econ. 251 (2006), and Hendrik Bessembinder & William 
Maxwell, Markets: Transparency and the Corporate Bond Market, 22 J. 
Econ. Perspectives 217(2008) (``Bessembinder & Maxwell (2008)''). In 
addition to these papers, the Proposing Release also cited a paper 
showing a lower dispersion of transaction costs in the corporate 
bond market following the introduction of TRACE; see Proposing 
Release, 86 FR 69837 note 222 and corresponding text. Since the 
Proposing Release the Commission has become aware that this result 
has been removed from a more recent version of the paper after 
results suggested ``that reduced price dispersion is more likely 
attributable to market changes other than transparency''; see 
Michael A. Goldstein, et al, Dealer Behavior and the Trading of 
Newly Issued Corporate Bonds, (June 21, 2021), at 19 n.21, available 
at https://ssrn.com/abstract=1022356 (retrieved from SSRN Elsevier 
database). Nonetheless, the general result that information 
asymmetries can lead to price dispersion in fixed-income and dealer 
markets has been well-documented in other literature; see, e.g., the 
papers cited in supra note 790.
    \860\ See F[aacute]bio Cereda, et al., Price Transparency in OTC 
Equity Lending Markets: Evidence from a Loan Fee Benchmark, 143 J. 
Fin. Econ. 569, 569-592 (2022) (``Cereda (2022)'').
    \861\ See, e.g., Bessembinder & Maxwell (2008), at 226, stating 
that the results from the academic literature on the introduction of 
TRACE shows that it ``reduced dealers' information advantage 
relative to customers,'' and that, ``with transaction reporting, 
customers are able to assess the competitiveness of their own trade 
price by comparing it to recent and subsequent transactions in the 
same and similar issues.'' See also Cereda (2022), at 587, stating 
that their results are consistent with the idea that ``[g]ood 
benchmarks mitigate search frictions by lowering the informational 
asymmetry among market participants.''
---------------------------------------------------------------------------

    While some commenters supported the applicability of evidence from 
TRACE,\862\ other commenters questioned the applicability of evidence 
from TRACE \863\ and from the Brazilian policy change.\864\ 
Specifically, commenters argued that, because bond transactions are 
irrevocable and fungible, the identity and characteristics of the 
counterparty are less relevant to prices in bond transactions than in 
securities loans, and thus the Commission's reliance on TRACE studies 
to draw inferences about the securities lending market is 
misplaced.\865\ At least one commenter disputed the Commission's use of 
the Brazilian policy change to draw inferences about the potential 
benefits of proposed Rule 10c-1 because the Brazilian policy ``did not 
involve the trade-by-trade disclosure of stock lending terms'' and is 
thus not comparable to the Rule.\866\ The Commission continues to 
believe that both events provide meaningful information about the 
potential impacts of the final Rule 10c-1, as evidence from both events 
illustrates how a reduction in asymmetric information between market 
participants has the effect of improving market quality.
---------------------------------------------------------------------------

    \862\ See James J. Angel Letter, at 2.
    \863\ See, e.g., Overdahl Letter, at 6; Citadel Letter, at 8. At 
least one commenter stated that the evidence from TRACE was 
applicable.
    \864\ See Overdahl Letter, at 5-7.
    \865\ See Overdahl Letter, at 6.
    \866\ See Overdahl Letter, at 7.
---------------------------------------------------------------------------

    First, the introduction of TRACE, which introduced transaction-by-
transaction transparency into a market that previously did not have 
such transparency, represents a policy change that is markedly similar 
to that under the final Rule 10c-1a. The Commission acknowledges that 
the market setting for TRACE is different from that of final Rule 10c-
1a, for example, because of the

[[Page 75709]]

importance of counterparty risk in securities loans prices as compared 
to prices of corporate bonds.\867\ However, the fact that corporate 
bond prices are less sensitive to the identities of the counterparties 
than securities loans does not invalidate using TRACE to illustrate the 
effect of decreasing information asymmetry. Instead, it simply implies 
that the baseline dispersion in corporate bond prices prior to TRACE 
was likely less than it currently is in the securities lending 
market.\868\
---------------------------------------------------------------------------

    \867\ See, e.g., discussions in supra Part IX.B.3, acknowledging 
that a variety of factors can drive the pricing of securities loans, 
including counterparty risk. The Commission also acknowledged this 
in the Proposing Release by noting that counterparty characteristics 
played a role in pricing loans; See Proposing Release, 86 FR 69831. 
See also Proposing Release, 86 FR 69837, stating that ``the data 
would allow end borrowers to determine the extent to which their 
broker-dealer is obtaining terms that are better, worse, or 
consistent for current market conditions for loans with similar 
characteristics'' (emphasis added).
    \868\ See supra note 790 for a discussion of theoretical and 
empirical evidence that information asymmetry drives dispersion in 
prices. It could also be the case that securities lending 
transactions are more sensitive to idiosyncratic factors, such as 
``the identities of the transacting parties'' as mentioned by a 
commenter (see Overdahl Letter, at 6), because there is a lack of 
transparency in the market about what a standardized price for a 
given set of loan characteristics should be, which could drive 
idiosyncrasies in loan prices. If prevailing market prices become 
more generally available, it could be the case that an increase in 
competition lessens the importance of idiosyncratic factors for the 
pricing of securities loans. In this case, final Rule 10c-1a may 
make the securities lending market behave more similarly to more 
fungible markets such as the corporate bond market, making an 
analysis of TRACE more applicable to the securities lending market.
---------------------------------------------------------------------------

    Second, while the Brazilian study takes place in a similar market 
setting as Rule 10c-1a (i.e., the securities lending market) it is true 
that the policy details differ. In particular, the Brazilian policy 
change involved an increase in transparency not through the creation of 
a transaction-by-transaction report, but through an increase in the 
informativeness of an available loan fee ``benchmark.'' \869\ However, 
despite the differences in details, the policy had a similar target to 
that of Rule 10c-1a: namely, an improvement in the transparency of the 
securities lending market.\870\ The Brazilian study shows that this 
increase in transparency improved market quality through the economic 
channel of reduced information asymmetry. This study is thus directly 
relevant for final Rule 10c-1a, as the Commission expects that many of 
the economic effects of the rule will be realized through the same 
economic channel (i.e., a reduction in information asymmetry).
---------------------------------------------------------------------------

    \869\ According to the authors, this loan fee benchmark is 
publicly reported by a centralized platform maintained by the 
Brazilian Stock Exchange, on which all securities lending 
transactions are registered by brokers. See Cereda (2020), at 570.
    \870\ See Cereda (2020), at 570, referencing statements from the 
Brazilian stock exchange that `` . . . the purpose of this change is 
to make the securities lending service ever more transparent, in 
order to attract more securities lenders and borrowers and to meet 
the demand of institutional investors.''
---------------------------------------------------------------------------

    Additionally, in support of their concern over the applicability of 
TRACE research, one commenter stated that, ``while there is no reason 
for the supply of corporate bonds to decrease in response to increased 
trade transparency, greater transparency in the securities lending 
market may well reduce the lending supply.'' \871\ This commenter cited 
industry research showing that increased short selling transparency can 
decrease beneficial owners' willingness to lend shares,\872\ as well as 
academic research calling into question the applicability of TRACE to 
securities lending ``since greater loan fee transparency could reduce 
the lending supply.'' \873\
---------------------------------------------------------------------------

    \871\ See Overdahl Letter, at 6.
    \872\ See Overdahl Letter, at 6, citing The Effects of Short-
Selling Public Disclosure Regimes on Equity Markets (2010), 
OliverWyman.com, at 4, 16-17, available at https://www.oliverwyman.com/our-expertise/insights/2010/feb/the-effects-of-short-selling-public-disclosure-regimes-on-equity.html.
    \873\ See Overdahl Letter, at 9, citing Cereda et al. (2022).
---------------------------------------------------------------------------

    The Commission believes that the industry study cited by the 
commenter has empirical limitations that make it difficult to extract 
robust empirical conclusions from the study. These limitations are 
acknowledged by the author of the study; specifically, the author 
states that, during the sample period, which occurs during the height 
of the 2008 financial crisis, ``equity markets were in a relatively 
disordered state,'' and that ``such extreme change in markets has the 
consequence of making it complicated to establish a control group of 
stocks such that all variables, except regulatory variables, remain 
constant. This, in effect, makes it difficult to attribute causality 
solely to the regulatory variables.'' \874\ The Commission agrees that 
the extreme market volatility during 2008-2009 increases the likelihood 
that the decrease in beneficial owners' appetite to lend out shares 
documented by the author may have been driven by other market events 
concurrent to but distinct from changes to regulatory regime for short 
selling and, as a result, ``causality is still difficult to prove.'' 
\875\
---------------------------------------------------------------------------

    \874\ See Oliver Wyman, supra note 872, at 11. Specifically, the 
report examines a short selling ban that took place in the UK 
between Sept. 18, 2008, and Jan. 16, 2009, and compares this to a 
``pre-ban'' period between Jan. 1, 2008, and Sept. 17, 2008, and a 
``post-ban'' period beginning on Jan. 17, 2009.
    \875\ See id.
---------------------------------------------------------------------------

    The Brazilian study, also cited by the commenters, occurred during 
a less volatile period rendering potentially cleaner empirical results. 
The authors of that study indeed suggest that the loan supply could 
decrease ``if the lower loan fees received by lenders were not 
sufficient to cover the potential losses from not selling a stock when 
shorting activity increases.'' \876\ However, later in that same 
paragraph, the authors reject this hypothesis and conclude that their 
results were not consistent with increased transparency affecting 
liquidity in the lending market.\877\
---------------------------------------------------------------------------

    \876\ See Cereda (2022), at 571. Specifically, the authors state 
that their ``findings, however, indicate that the increased 
transparency had positive effects overall; it reduced loan fees, 
increased lending volume, did not affect lenders' total revenue, and 
favored more efficient lenders.''
    \877\ See id.
---------------------------------------------------------------------------

Improved Market Quality Due to Lower Short Selling Costs
    The Commission expects that final Rule 10c-1a will produce 
countervailing effects through its impact on short selling, but 
ultimately that the net result will be positive. On one hand, the final 
rule will benefit short sellers by lower borrowing costs for securities 
that are hard to borrow, which will improve market quality through 
increased price efficiency, managerial oversight, and liquidity.\878\ 
On the other hand, the final rule could potentially harm market quality 
by making it easier for other investors to discern short sellers' 
trading strategies, thereby discouraging the costly fundamental 
research that underlies some short selling strategies.\879\ On balance, 
the Commission expects that the final rule, which delays the 
dissemination of loan volume information by 20 business days, is not 
likely to significantly expand market participants' abilities to 
discern short selling strategies.
---------------------------------------------------------------------------

    \878\ See supra in this part for a discussion on why the 
Commission expects the economic effects of the final rule to be 
concentrated among hard-to-borrow stocks.
    \879\ See, e.g., Overdahl Letter, at 3; Citadel Letter, at 5-7, 
11; MFA Letter 3, at 3-4, 8.
---------------------------------------------------------------------------

    The Commission expects that final Rule 10c-1a will lower short 
selling costs by decreasing borrowing costs, especially for hard-to-
borrow securities.\880\ Academic research

[[Page 75710]]

indicates that, when short selling costs diminish, investors increase 
their fundamental research because it is easier to trade on any 
negative information that they uncover (e.g., poor earnings).\881\ This 
increase in fundamental research may in turn lead to better investment 
decisions by these investors.\882\ Additionally, by facilitating more 
research, the final rule will benefit market participants by improving 
price discovery. Academic research shows that short sellers, through 
their research, contribute to price efficiency by gathering and trading 
on relevant private information.\883\
---------------------------------------------------------------------------

    \880\ See discussions in above and below in this part regarding 
the impact of the final rule on borrowing costs. This effect may be 
concentrated among stocks that are ``on special'' and have higher 
borrowing costs, in which there are more opportunities for an 
increase in price efficiency to lower fees. See supra in this part 
for a discussion on why the Commission expects the economic effects 
of the final rule to be concentrated among hard-to-borrow stocks.
    \881\ See Dixon, et al., (2021), supra note 746 and Peter Dixon, 
Why Do Short Selling Bans Increase Adverse Selection and Decrease 
Price Efficiency? Rev. Asset Pricing Stud. 122 (2021) (``Dixon 
(2021)''). It is not necessary that the information uncovered by 
this research be negative in nature for this to be true. The 
possibility of easier securities borrowing ensures that if the 
information happens to be negative, it will still be profitable. 
Thus, the risk of engaging in costly research decreases and more 
information, both positive and negative, is uncovered as a result.
    \882\ See infra this part for further discussion on how 
increased information for participants in the securities lending 
market may increase the profitability of some investors' trading 
strategies more generally.
    \883\ See, e.g., Jesse Blocher, et al., Connecting Two Markets: 
An Equilibrium Framework for Shorts, Longs and Stock Loans, 108 J. 
Fin. Econ, 302, 302-22 (2021) and Dixon (2021) supra note 881.
---------------------------------------------------------------------------

    Short sellers also serve as valuable monitors of management. Extant 
research has demonstrated that when management knows that short sellers 
may be studying their firms, they are less likely to engage in 
inappropriate or value-destroying behavior.\884\ Research also 
indicates that when short selling becomes easier the effectiveness of 
short sellers as monitors increases.\885\
---------------------------------------------------------------------------

    \884\ See, e.g., Eric C. Chang, et al., Does Short-Selling 
Threat Discipline Managers in Mergers and Acquisitions Decisions?, 
J. Acct. & Econ. 101223 (2019). See also Massimo Massa, et al., The 
Invisible Hand of Short Selling: Does Short Selling Discipline 
Earnings Management?, 28 Rev. Fin. Stud. 1701 (2015).
    \885\ See, e.g., Vivian W. Fang, et al., Short Selling and 
Earnings Management: A Controlled Experiment, 71 J. Fin. 1251 
(2016).
---------------------------------------------------------------------------

    Reducing the costs of short selling may also have the benefit of 
increasing liquidity in the underlying securities markets. Short 
sellers are key contributors to liquidity in both equity and options 
markets and existing research shows that, when short selling is 
constrained by tightness in the securities lending market, the stock 
market is less liquid.\886\ Lower short selling costs could have 
potential benefits for options market liquidity as well. Securities 
lending affects liquidity in the options market through its impact on 
how easily options market makers can delta hedge.\887\ Less costly 
delta hedging may therefore increase liquidity in the options market. 
Also, since some price discovery occurs in the options market, to the 
extent that the final rule increases the ease with which investors can 
trade in options, the proposal may further enhance price efficiency in 
the options market.\888\
---------------------------------------------------------------------------

    \886\ See Dixon, et al. (2021), supra note 746.
    \887\ See supra Part IX.B.1 for a discussion of option market 
makers' use of securities lending markets to engage in delta 
hedging.
    \888\ See, e.g., David Easley, et al., Option Volume and Stock 
Prices: Evidence on Where Informed Traders Trade, 53 J. Fin. 431, 
431-65 (1998); Jun Pan & Allen M. Poteshman, The Information in 
Option Volume for Future Stock Prices, 19 Rev. Fin. Stud. 871 
(2006); Sophie Ni, et al., Stock Price Clustering on Option 
Expiration Dates, 78 J. Fin. Econ. 49 (2005).
---------------------------------------------------------------------------

    Commenters to the proposed Rule 10c-1, which did not include a 
delay in the dissemination of any information that would be collected 
under the rule, expressed concern that the dissemination of Rule 10c-1a 
data could harm short sellers, and thus U.S. financial and capital 
markets in general, and that this outcome was not analyzed in the 
Proposing Release.\889\ Some commenters expressed concern that 
information about Customer loans collected under the rule in particular 
could be used to determine individual short positions with a high 
degree of accuracy,\890\ and that this could result in harm to short 
sellers,\891\ resulting in negative outcomes for market quality, such 
as reductions in liquidity, price efficiency and shareholder 
engagement.\892\
---------------------------------------------------------------------------

    \889\ See, e.g., Overdahl Letter, at 9-11; Citadel Letter, at 5-
7; AIMA Letter 2, at 2; CCMR Letter, at 1; AIMA Letter 3, at 2; MFA 
Letter 3, at 3-4, 8. The Proposing Release acknowledged that the 
Rule could diminish the value of collecting and trading on negative 
information by revealing some new short selling information to the 
market, and that these dynamics could mitigate some of the benefits 
discussed. See Proposing Release, Part VI.C.1.c.
    \890\ See, e.g., Citadel Letter, at 5; Overdahl Letter, at 4; 
SIFMA AMG Letter, at 5. Other commenters expressed concern that the 
data provided under proposed Rule 10c-1 could allow for reverse 
engineering of trading strategies more generally; see, e.g., MFA 
Letter 1, at 8; MFA Letter 2, at 5; RMA Letter, at 18.
    \891\ Commenters pointed to a number of ways that short sellers 
could be harmed, including increased costs to establishing short 
positions, particularly large positions that require time to build 
up (see, e.g., Citadel at 6), and increased risks of copycat 
strategies (see, e.g., Overdahl Letter, at 9-10; Citadel Letter, at 
6; MFA Letter 1, at 7; AIMA Letter 2, at 2-3), frontrunning (see, 
e.g., SBAI Letter, at 2), issuer retaliation (see, e.g., Citadel 
Letter, at 6), negative impacts on activities that rely on short 
selling for hedging purposes (see, e.g., Citadel Letter, at 6), and 
short squeezes (see, e.g., Citadel Letter, at 6; Overdahl Letter, at 
11; MFA Letter 1, at 7; S3 Partners Letter, at 7). One commenter 
cites a number of academic studies supporting the notion that 
disclosure of short selling positions can be harmful to markets, 
including Truong X. Duong et al., The Costs and Benefits of Short 
Sale Disclosure, 53 J. Banking & Fin. 124 (2015) and Stephan Jank, 
et al., Flying Under the Radar: The Effects of Short-Sale Disclosure 
Rules on Investor Behavior and Stock Prices, J. Fin. Econ. 209 
(2021) (see Overdahl Letter, at 8).
    \892\ See, e.g., Citadel Letter, at 6; MFA Letter 1, at 2 and 7; 
SIFMA AMG Letter, at 5 and 7; SIFMA Letter 1, at 12, 15; AIMA Letter 
1, at 2; Overdahl Letter, at 4; CCMR Letter, at 1. One commenter 
referred to increased short selling disclosure as a wealth transfer 
that is not necessarily welfare enhancing. See Overdahl Letter, at 
3.
---------------------------------------------------------------------------

    The Commission acknowledges these commenters' concerns about the 
effect of proposed Rule 10c-1 on short sellers, and believes that these 
concerns are mitigated by the final rule's inclusion of a delay in 
disseminating loan size information.\893\ Specifically, the Commission 
acknowledges that activity in certain segments of the securities 
lending market are tightly linked to short selling positions, in 
particular the market for Customer loans.\894\ Thus, the sum of loans 
identified in Rule 10c-1a data as being to ``a customer (if the person 
lending securities is a broker or dealer)'' \895\ could give a strong 
indication of aggregate short interest. However, under the final rule, 
this information will only be directly available to Rule 10c-1a data 
consumers after a delay of 20 business days,\896\ which significantly 
reduces the novelty of this information compared to the proposed rule. 
In particular, this delay means that the loan size information, which 
is the portion of the data most

[[Page 75711]]

directly related to short selling activity, disseminated under final 
Rule 10c-1a will generally be less timely than pre-existing sources of 
short selling transparency, such as FINRA's bimonthly short interest 
data.\897\
---------------------------------------------------------------------------

    \893\ The proposed rule, which commenters expressed concern, 
would have required market participants to report transactions to an 
RNSA within 15 minutes of the terms being settled with an RNSA 
disseminating the data to the public as soon as practicable 
thereafter.
    \894\ See supra Part IX.B.6 for further discussion of why the 
market for Customer loans is tightly linked to short selling 
positions.
    \895\ See 17 CFR 240.10c-1a(c)(7) (``final Rule 10c-1a(c)(7)''), 
which requires a covered person to report, for a covered securities 
loan, 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. While most loans that 
facilitate short sales will likely be associated the category of 
borrowers that are ``a customer (if the person lending securities is 
a broker or dealer),'' not all will. Some large market participants 
do not use broker-dealers as an intermediary when sourcing loans; 
instead, they maintain relationships directly with lending programs 
to source shares when they wish to sell short. These transactions 
would show up in the data as a loan to ``other person.'' Lastly, to 
the extent that a broker-dealer borrows shares to facilitate their 
own short selling, the loan would show up in the data as a loan to a 
``broker or dealer.'' However, by summing up all loans to ``a 
customer (if the person lending securities is a broker or dealer)'' 
and ``other person,'' market participants could likely estimate 
outstanding short interest with considerable accuracy.
    \896\ Note that, the difference in settlement cycles between the 
equity and lending markets means that the size of equity loans that 
facilitate short sales won't be made public until approximately 22 
business days after the short sale occurs in the stock market. See 
supra note 738 and corresponding text.
    \897\ See supra Part IX.B.6 for a discussion of the FINRA 
bimonthly short interest data which are made available for 
publication on the seventh business day after the reporting 
settlement dates, which occurs bimonthly.
---------------------------------------------------------------------------

    Additionally, the Commission does not believe that market 
participants will have more timely access to indicators of aggregate 
short interest from the daily information disseminated by an RNSA 
pertaining to the aggregate transaction activity for each reportable 
security.\898\ This is because the term ``aggregate transaction 
activity'' refers to information pertaining to the absolute value of 
transactions, and excludes information that could reveal net 
transaction activity information.\899\ Therefore, it would not be 
possible to use this information to discern information about, for 
example, changes in net short sale positions.
---------------------------------------------------------------------------

    \898\ See final Rule 10c-1a(g)(5), requiring an RNSA to 
disseminate aggregated daily information.
    \899\ See supra Part VII.J for further discussion.
---------------------------------------------------------------------------

    The loan amount data disseminated under final Rule 10c-1a will 
provide some novel information about short positions, although only on 
a look-back basis after the 20-business-day dissemination delay has 
lapsed. In particular, since each loan likely relates to a unique 
market participant, the public dissemination of such transaction-by-
transaction volume data under final Rule 10c-1a, albeit delayed, will 
provide an indication of the distribution of short sentiment, i.e., 
whether short interest is concentrated among a few short sellers with 
large positions, or whether it is spread out over many short 
sellers.\900\ It can also give an indication about when individual 
market participants increased or decreased their short positions by 
examining the change in the size of a loan from the reported data. As 
most currently available sources of short selling information only 
contain information about aggregated short selling activity,\901\ this 
could represent an increase in the granularity of market participants' 
information about past short positions and, in this way, could provide 
information about short sellers' strategies. Specifically, market 
participants could examine the historical securities lending data to 
try to identify factors that may be indicative of short selling 
activity. However, it is not clear that such an analysis, which would 
be inherently noisy, would provide actionable insights into future 
short selling activity that could harm short sellers' abilities to 
profit from negative information.
---------------------------------------------------------------------------

    \900\ Note that this may only be possible with noise to the 
extent that some borrowers, such as institutional investors, break 
their loans up across multiple prime brokers. See supra note 806 for 
more information about the use of multiple prime brokers by some 
institutional investors.
    \901\ See discussion of the FINRA bimonthly short interest data 
and SRO short selling volume and transaction data above in Part 
IX.B.6.
---------------------------------------------------------------------------

Economic Effects From Improved Securities Lending Data Quality
    The Commission believes that final Rule 10c-1a will increase the 
information about the state of the securities lending markets that is 
generally available to market participants. As discussed in this 
section, increased information will result in benefits in the form of 
better decision-making by investors, beneficial owners and other market 
participants, reduced costs of business for broker-dealers, improved 
performance and reduced costs for lending programs, new business 
opportunities for data vendors, improvements to shareholder monitoring 
and, ultimately, improved market stability and price discovery both in 
the securities lending market and the market for the underlying 
security.\902\
---------------------------------------------------------------------------

    \902\ One commenter expressed concern that the Proposing Release 
did not explain how market participants would use the data (See 
Citadel Letter, at 9). However, the Proposing Release provided 
specific examples of how the data could be used (See Proposing 
Release, 86 FR 69829, 69836, 69840). These examples, and more, are 
also provided throughout the current Economic Analysis and 
particularly in this part. Similarly, some commenters expressed 
concern that the Proposing Release did not identify who, other than 
regulators, would benefit from certain data (see, e.g., ICI Letter 
1, at 9). However, the same discussions of how market participants 
would use the data also provide discussions of how various market 
participants would benefit from the data. In this vein, this part 
discusses a variety of uses and benefits of Rule 10c-1a data.
---------------------------------------------------------------------------

    Overall, the data provided by the final rule will significantly 
improve market participants' views into lending rates for various 
securities. It does so first through the comprehensiveness of the data. 
By mandating the disclosure of certain information about all securities 
loans, the data provided by the Rule will be comprehensive and thus not 
prone to biases that occur due to non-random observations.\903\ 
Comprehensive reporting also means that the data provided by the final 
rule covers both the Wholesale and Customer segments of the market, 
allowing market participants to compare trends in both markets 
simultaneously. The data will also be more granular than existing data. 
In addition to information about the size of the loan and the loan fee, 
the data provided by the final rule contains a number of other data 
fields which allow market participants to parse the data to analyze the 
subset of transactions that are most relevant to their needs.
---------------------------------------------------------------------------

    \903\ See supra Part IX.B.2 for additional discussion of bias in 
existing securities lending data.
---------------------------------------------------------------------------

    There are a few dimensions where data provided by commercial data 
providers may be similar to or provide information not provided by the 
Rule. The data provided by the final rule is disseminated next day, 
which is similar to the timeliness of much of the data provided by the 
commercial data providers except that some commercial data providers 
offer subsets of intraday transaction data that is timelier than the 
data provided by the final rule. Additionally, the data provided by the 
Rule masks loan size for 20 business days. Consequently, existing data 
providers' information regarding shares on loan will be considerably 
timelier than the data provided by the Rule. Lastly, the Rule does not 
provide information about utilization rates, and so market participants 
wishing to observe utilization rates will need to maintain access to 
commercial datasets.
    First, the improvement in securities lending rate information and 
the ability to create bespoke benchmarks will improve the quality of 
information that market participants rely on to make decisions 
regarding investment strategies that require borrowing securities and 
the cost of those strategies.\904\ An increase in the quality of 
information regarding the costs of borrowing a security may decrease 
risk and thereby increase the risk-adjusted profits of pursuing 
investment strategies that require borrowing securities, such as short 
sales.\905\ For example, prior to a short sale transaction, the end 
borrower will be able to get a better sense of the likely costs 
associated with such an investment strategy by examining the data 
regarding recently transacted securities loans, as well as information 
provided by an RNSA about aggregate transaction activity and cost to 
borrow.\906\
---------------------------------------------------------------------------

    \904\ See supra in this part for a discussion of how the final 
rule will improve transparency through increased comprehensiveness, 
breadth, and accessibility of securities lending data.
    \905\ See supra this part for further discussion of the expected 
economic effects of the final rule through its impact on short 
selling.
    \906\ See infra this part for a discussion of the Commission's 
uncertainty regarding how the aggregated information disseminated by 
an RNSA will compare to currently available data and the range of 
analyses that market participants will be able to perform using this 
information.
---------------------------------------------------------------------------

    Access to Rule 10c-1a data may also benefit investors by enabling 
them to make more informed decisions about whether to buy, hold, or 
sell a given

[[Page 75712]]

security. This will occur as they will have increased certainty 
regarding lending rates and which securities are most likely to be 
profitably lent or not, leading to better risk allocations, investment 
decisions, and ultimately risk-adjusted returns. Extant research has 
demonstrated that securities lending data have information relevant to 
the prices of the underlying security.\907\ By making securities 
lending information both more granular and more accessible for market 
participants, final Rule 10c-1a will enable investors to utilize data 
to gain insights into the underlying security. As investors become more 
informed, their investment decisions are expected to improve.
---------------------------------------------------------------------------

    \907\ See Duong, et al. (2017) supra note 812. This study shows 
that, after controlling for the level of short selling, securities 
lending fees are predictive of future stock returns with higher fees 
associated with lower future returns. These results imply that, all 
things equal, lenders charge higher fees to lend their shares when 
they have negative information about a company. See also Kaitlin 
Hendrix & Gavin Crabb, Borrowing Fees and Expected Stock Returns 
(Nov. 6, 2020), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3726227 (retrieved from SSRN Elsevier 
database).
---------------------------------------------------------------------------

    Additionally, an improved view of current lending market conditions 
for various securities may help inform beneficial owners in making 
better decisions concerning which shares to make available for lending, 
potentially leading to more profitable lending. For example, to the 
extent that beneficial owners do not currently have a clear means of 
determining which securities have high average lending rates Rule 10c-
1a data may alert them about securities with high borrowing costs, 
which would enable them to better optimize which shares in their 
portfolio to make available for lending.\908\ Furthermore, as a result 
of having better access to information about the securities lending 
market, financial institutions will be able to improve their collateral 
and balance sheet management.\909\
---------------------------------------------------------------------------

    \908\ This decision can be important because beneficial owners 
that engage in securities lending activities consistent with the SEC 
staff's current guidance limit the portion of their portfolios that 
can be on loan at any point in time. See supra note 778. This 
additional information may help a beneficial owner that is close to 
its program limit optimally choose which shares to make available 
for lending.
    \909\ See supra Part IX.B.1 for further discussion of the use of 
securities lending by financial institutions for collateral and 
balance sheet management.
---------------------------------------------------------------------------

    Second, a clearer understanding of lending market conditions, and 
specifically lending market rates, facilitated by the dissemination of 
Rule 10c-1a data may benefit broker-dealers by decreasing the search 
costs incurred to obtain a locate in order to facilitate a short sale 
on behalf of a customer.\910\ The increase in transparency under the 
final rule will allow broker-dealers to better ascertain current 
prevailing lending rates for security loans with certain 
characteristics prior to calling lending programs to get competing 
quotes. Broker-dealers tend to find loans for their customers through 
the network of lending programs with which they have relationships, 
after they have exhausted their own inventory and customer margin 
accounts.\911\ Rule 10c-1a data will enable them to determine with 
greater ease whether a quote from a lending program is competitive. It 
is possible that new broker-dealers may choose to enter the market for 
lending services \912\ because of this reduction in cost, which may 
further increase competition between broker-dealers.\913\
---------------------------------------------------------------------------

    \910\ Regulation SHO requires a broker-dealer to have reasonable 
grounds to believe that a security can be borrowed so that it can be 
delivered on the date delivery is due before effecting a short sale 
order in any equity security. This ``locate'' must be made and 
documented prior to effecting the short sale. See 17 CFR 
242.203(b)(1) and (2). See also Key Points about Regulation SHO, 
available at https://www.sec.gov/investor/pubs/regsho.htm.
    \911\ See supra note 798 discussing broker-dealers' preferences 
for sourcing shares for loans. See also supra Parts IX.B.1 and 
IX.B.4 discussing the role of broker-dealers in facilitating 
borrowing by customers.
    \912\ See supra Part IX.B.4 for further discussion of the market 
for lending services.
    \913\ See infra Part IX.D.2 for further discussion of the 
expected effects of the final rule on competition between broker-
dealers.
---------------------------------------------------------------------------

    Third, final Rule 10c-1a will benefit lending programs by providing 
a means by which they may improve the performance of their lending. 
Rule 10c-1a data will provide lending programs with a source of 
securities lending market data that is more comprehensive than existing 
commercial data. With these data, the lending programs will have an 
improved ability to determine prevailing market conditions as they 
compete to lend shares, which may improve their lending performance.
    Fourth, more comprehensive, granular, and accessible securities 
lending information may also lead to additional business opportunities 
for commercial securities lending data vendors.\914\ In addition to 
data products, commercial data vendors also provide analytics to their 
customers,\915\ and may be able to support these analytics data 
services with the data provided by the final rule. Further, because the 
commercial data vendors would be less dependent on their data providers 
for data, they may be able to provide analytics to more market 
participants. This may result in increased competition for data 
analytics services as the barriers to entry for providing analytics 
services decline and new entrants compete to provide analytics 
services.\916\ While this effect may lower what the data vendors can 
charge for analytics services, to the extent that the commercial data 
vendors offer their customers other securities lending services, such 
as execution services, the final rule may enhance their other business 
lines by providing more comprehensive data to support other securities 
lending market services. To the extent that there is a demand for 
covered persons to contract privately with third party vendors to 
assist in reporting under final Rule 10c-1a, this would likely also 
lead to additional business opportunities for commercial securities 
lending data vendors, as these vendors already have experience with 
handling and disseminating securities lending data and could leverage 
that experience to offer such services to customers.\917\
---------------------------------------------------------------------------

    \914\ The Commission acknowledges that the final rule may also 
result in lost revenue for commercial securities lending data 
vendors. See infra Part IX.C.4 for further discussion.
    \915\ See supra Part IX.B.5.
    \916\ See infra Part IX.D.2 for further discussion of the 
expected effects of the final rule on competition for securities 
lending data analytics services.
    \917\ While covered persons can use third party vendors to help 
prepare their reports, such vendors would not be reporting agents 
under final Rule 10c-1a. See supra Part VII.B.2.
---------------------------------------------------------------------------

    Ultimately, the improved information access will result in improved 
market quality in the security lending market. More informed investment 
decisions facilitated by the final rule may improve market stability by 
allowing investors to better manage risk. Furthermore, as all 
participants in the securities lending market will be able to obtain 
better data on that market, utilize the insights contained in the data, 
and then improve their decisions based on it, the price discovery 
process will improve. This will lead to more efficient prices for 
securities loans.\918\ This improved information access may also 
improve price discovery in the market for the securities underlying the 
security loans, as information about the underlying security will have 
a greater opportunity to incorporate into the price of the underlying 
security.\919\
---------------------------------------------------------------------------

    \918\ This effect may be concentrated among stocks that are ``on 
special'' and have higher borrowing costs, in which there are more 
opportunities for an increase in price efficiency to lower fees. See 
supra in this part for a discussion on why the Commission expects 
the economic effects of the final rule to be concentrated among 
hard-to-borrow stocks.
    \919\ See infra Part IX.D.1 for further discussion of the 
expected effects of the final rule on price efficiency.
---------------------------------------------------------------------------

    The requirement to report all of the data elements under paragraph 
(c) the first time the modification of a ``day-one'' loan (that is, 
loans in existence

[[Page 75713]]

prior to the final rule's reporting date for covered persons) occurs 
will avoid the exclusion of certain loan information during the early 
phases of implementation.\920\ This will enhance the extent to which 
Rule 10c-1a data improves informational efficiency during the earlier 
phases of implementation. In the Wholesale market lending largely 
facilitates clearing and settlement, and for commonly lent securities 
it is possible that a broker dealer could have a continuous need to 
borrow the security. In this case the broker dealer likely would enter 
into a loan that is kept open for an extended period of time, but with 
frequent size and/or rate modifications to match their ongoing 
settlement needs and market conditions.\921\ Therefore, absent such a 
requirement, all the terms of such a lending arrangement would not be 
fully reportable unless the existing loan is closed out and a new one 
is opened. It could take a considerable amount of time for this to 
occur and thus the data collected by the Rule would lack the full 
context for such loans until they were closed and then re-entered into. 
The lack of information about these loans would harm data quality 
because it would render the data less complete and would thus limit 
market participants' ability to determine conditions in the lending 
market and would thus mitigate the benefits described in this section. 
Ensuring that these loans are included upon their first modification 
improves the quality of the data in the earlier phases of reporting 
which would in turn speed up the time when the benefits articulated 
will become fully available to market participants.
---------------------------------------------------------------------------

    \920\ Several commenters sought clarification on issues related 
to ``day-one'' loans. See supra note 429 and corresponding text for 
a discussion of and response to these commenters.
    \921\ For example, FIS data on returned securities suggest that 
while the average security returned in the Wholesale market had been 
on loan for about a month, some loans were open for up to a year or 
more. See also Blackrock Letter, at 9 and supra note 434 and 
surrounding text.
---------------------------------------------------------------------------

Potential Limits to Benefits and Sources of Uncertainty
    Commenters mentioned a number of factors that may limit the extent 
to which the rule increases transparency in the securities lending 
market, and thereby limit the associated benefits as well. However, 
despite these potential limitations, the Commission expects that final 
Rule 10c-1a will improve the transparency and efficiency of the 
securities lending market, which will improve market participants' 
access to information and lower their information asymmetry.
    Commenters noted that loan fees are determined by a variety of 
factors, some of which are not directly included in Rule 10c-1a 
data.\922\ Though the Commission believes that the final rule will 
improve market participants' ability to compare loans, the Commission 
recognizes that the data provided will not include information about 
all of the factors that are relevant to the pricing of securities 
loans. As such, two loans may appear to be similar based on the Rule 
10c-1a data but may not have the same fees due to factors not recorded 
in the data, such as the counterparty risk or the stability of the 
portfolio. Some commenters expressed concern that failing to provide 
all information relevant to pricing would lead the data to be either 
not useful, potentially misleading, or even harmful.\923\
---------------------------------------------------------------------------

    \922\ See, e.g., Citadel Letter, at 9; Overdahl Letter, at 6; 
RMA Letter, at 6; MFA Letter 1, at 5; SIFMA Letter 1, at 15. See 
also supra note 780 and corresponding text.
    \923\ See, e.g., Citadel Letter, at 9, stating that the 
``Commission does not explain why it would be useful for one 
investor to know what another investor paid on a loan without 
knowing any of the material facts of the other investor's 
relationship with its broker-dealer.'' Similarly, see RMA Letter, at 
6 (stating that ``there is no reason to believe that securities 
lending transactions are fully fungible or that pricing can be 
represented in a single 'spot' market price''); see Overdahl Letter, 
at 6 (stating that ``the fact that one market participant borrowed a 
security at a certain rate is not necessarily informative about the 
value of a loan with a different market participant.''). 
Furthermore, several commenters expressed concern that such 
information could be misleading. See, e.g., MFA Letter 1, at 9 
(stating that, since ``rates in the [Customer] Market are based on 
many variables specific to a broker-dealer-client contractual 
relationship,'' transaction-by-transaction loan data ``may actually 
result in a distorted representation of the actual market.''). See 
also ISLA Letter, at 2, who similarly state that fee/rebate data 
``may create an unrealistic and misleading portrayal of prevailing 
rates.'' See also SIFMA Letter 1, at 14, stating that ``intraday 
loan-by-loan data can be misleading based on circumstances unique to 
certain securities loan transactions.'' See also supra note 732 and 
corresponding text for a discussion of the variety of factors that 
can affect the pricing of securities loans. Other commenters 
expressed their opinion that pricing information would be valuable 
to market participants. See, e.g., James J. Angel Letter, at 2-3.
---------------------------------------------------------------------------

    The Commission recognized in the Proposing Releases and continues 
to acknowledge that Rule 10c-1a data will not contain all information 
needed to perfectly price loans.\924\ However, compared to the baseline 
level of information available to market participants, the more 
granular, comprehensive, and accessible data provided by the final rule 
will improve market participants' abilities to compare loans and 
provide numerous benefits to market participants.\925\ The Commission 
does not believe that this information will be misleading or harmful 
because, as the commenters make clear, it is well understood in this 
market that the pricing of loans is determined by many factors.\926\ 
Knowing this, beneficial owners and end borrowers will be able to use 
this information to create, for example, an expected range of borrowing 
costs and use these data to facilitate conversations with their lending 
agent or broker dealer about why certain loans have prices that they 
do, or why a specific loan falls where it does in the distribution of 
similar loans. Further, to the extent that the distribution of 
borrowing costs provides information that is relevant to stock prices, 
this information alone could improve price efficiency in the underlying 
securities market.\927\
---------------------------------------------------------------------------

    \924\ See, e.g., Proposing Release, 86 FR 69839, recognizing 
that benefits would be somewhat limited by the fact that the data 
does not contain ``all information necessary to perfectly compare 
the fees on different loans,'' but concluding that ``the proposed 
Rule improves the ability to compare loans.''
    \925\ See supra in this part for a discussion of these benefits.
    \926\ See, e.g., the information provided by commenters in supra 
note 732.
    \927\ See, e.g., Duong, et al. (2017), who find that information 
derived from securities lending data can be used to predict stock 
returns.
---------------------------------------------------------------------------

    One commenter questioned the utility of information about borrowing 
costs, asserting their belief that the cost to borrow is not as 
important to the execution of short sale strategies as whether there 
are shares available to borrow.\928\ The Proposing Release acknowledged 
that information on shares available is useful to markets.\929\ Rule 
10c-1a data will not specifically provide information on shares 
available. Market participants seeking such information may need to 
contract with current commercial data vendors, if they can, for 
estimates of shares available and utilization rates. However, since 
borrowing costs are correlated with the ease of locating securities to 
borrow, the improved access to fee information provided by the final 
rule will provide market participants with increased information 
regarding the availability of shares to lend.\930\
---------------------------------------------------------------------------

    \928\ See S3 Partners Letter, at 9 (stating that ``We do not 
believe the Commission has explored if the costs to borrow are 
material to the execution of a short sale strategy. We believe a 
bigger issue may be the lack of shares to borrow, not the cost of 
borrowing.''); Other commenters, however, did believe that loan 
pricing information would provide useful and meaningful information. 
See, e.g., PM Letter 2, at 3; and James J. Angel Letter, at 1.
    \929\ See, e.g., Proposing Release, 86 FR 69834, 69840.
    \930\ See Kolasinski (2013) supra note 736 (writing on the link 
between the cost to borrow and availability of shares to lend).

---------------------------------------------------------------------------

[[Page 75714]]

    Some commenters expressed concern that the data may be too granular 
to be directly usable by market participants,\931\ and at least one 
commenter expressed concern that the final rule could increase 
information asymmetries if the complexity of the data are such that 
only the largest and most sophisticated market participants would be 
able to benefit.\932\ The Commission is mindful that the reports 
prepared according to the final rule will contain a large volume of 
statistical data, and as a result it may be difficult for some market 
participants to review and digest the reports. However, by requiring 
reporting entities to report transaction-level information in a uniform 
manner rather than aggregated data, the final rule will make it 
possible for market participants and other interested parties to make 
their own determinations about how to group securities or loans when 
comparing across loan transactions. Requiring more detailed data will 
also help ameliorate potential concerns about overly general 
statistics, or about the specific categorization of loans and selection 
of aggregated metrics, by allowing market participants and other 
interested parties to conduct their own analysis based on alternative 
categorizations of the underlying data. Should certain market 
participants not have the means to directly analyze the detailed 
statistics, third parties, such as commercial securities lending data 
vendors, likely will respond to the needs of investors by analyzing the 
disclosures and producing more digestible information using the 
data.\933\ Additionally, this concern is mitigated somewhat by the 
requirement that an RNSA provide information about the distribution of 
loan rates at the security level,\934\ which could be more easily used 
similar to current data models.
---------------------------------------------------------------------------

    \931\ See, e g., IHS Markit Letter, at 13; RMA Letter, at 18.
    \932\ See IHS Markit Letter, at 14.
    \933\ See supra Part IX.B.5 for a discussion of commercial data 
vendors' current offering of securities lending data analytics 
services, and above in this part for a discussion of the expected 
effects of the final rule on creating new business opportunities for 
providers of securities lending data analytics services.
    \934\ See final Rule 10c-1a(g)(5), requiring an RNSA to 
disseminate aggregated daily information.
---------------------------------------------------------------------------

    One commenter suggested that the inclusion of short positions data 
would lead to double counting and could confuse market 
participants.\935\ Short positions are not required to be reported, but 
loans from a broker-dealer to an end customer--such as might support a 
short position--will be marked in the data as loans to a ``customer (if 
the lender is a broker-dealer).'' The Commission does not believe that 
the inclusion of such data constitutes double counting because a loan 
from a broker-dealer to their customer (e.g., to facilitate a short 
sale and where the broker-dealer is the lender) is a distinct economic 
activity from a loan that the broker-dealer may engage in as the 
borrower (e.g., to meet their own clearing and settlement 
obligations).\936\ The Commission does not believe that such data will 
lead to confusion because these loans are marked in the data in a way 
that allows market participants to separate customer loans from other 
loans in their analysis.
---------------------------------------------------------------------------

    \935\ See MFA Letter 3, at 4.
    \936\ See supra Part IX.B.2.
---------------------------------------------------------------------------

    One commenter suggested that including rebate data could lead to 
confusion because rebates are often fixed to benchmarks that can change 
from day to day, potentially leading to many, perhaps daily, 
modifications of the loan needing to be submitted and that the volume 
of these data could confuse market participants.\937\ The extent to 
which the commenter's concern is realized will be determined by how an 
RNSA chooses to structure the reporting of this variable.\938\ For 
instance, if an RNSA chooses to allow market participants to report a 
spread and a benchmark, then no modifications would be required to be 
reported from day to day unless there were a change in the negotiated 
spread or benchmark. However, if an RNSA chooses to require market 
participants to report the total fee, then market participants would be 
required to report changes to the fee if the benchmark changes, which 
could require daily revisions.\939\ However, the Commission does not 
believe that this will cause confusion. The Commission expects that 
market participants know that rebates can change regularly and thus 
revisions would not be unexpected. Further, gathering loan modification 
data is important to facilitate the accurate computation of statistics 
regarding the cost to borrow by an RNSA and other market participants.
---------------------------------------------------------------------------

    \937\ See MFA Letter 3, at 5.
    \938\ See supra Part VII.F.1 for additional discussion of the 
reporting of this data.
    \939\ See the last paragraph of Part VII.F.1 and surrounding 
text for additional discussion of the latitude granted to an RNSA in 
determining the specific format required for the loan cost 
information.
---------------------------------------------------------------------------

    At least one commenter suggested that some of the benefits of the 
Rule from reducing information asymmetries may be limited as a result 
of switching costs.\940\ The Commission acknowledges that the cost of 
switching to a new broker-dealer can be high,\941\ and that high 
switching costs may make it more difficult for some end borrowers to 
easily switch their broker-dealer for one that would offer them better 
terms on a loan.\942\ However, at the same time, by increasing end 
borrowers' access to comprehensive information about the securities 
lending market, final Rule 10c-1a will improve end borrowers' ability 
to determine which broker-dealers are offering better loan terms, as 
well as to negotiate better terms with broker-dealers. Both of these 
will increase the benefits to end borrowers from switching broker-
dealers. Holding switching costs constant,\943\ final Rule 10c-1a could 
thus still result in more end borrowers finding it beneficial to switch 
to better-performing broker-dealers. Furthermore, as discussed in the 
Proposing Release,\944\ even for those borrowers for which switching 
broker-dealers would not be cost effective, the data would provide 
benchmark statistics that may enable smaller borrowers to select higher 
performing broker-dealers initially.
---------------------------------------------------------------------------

    \940\ See, e.g., Citadel Letter, at 8. One commenter suggested 
that switching costs between lenders and lending agents could 
increase because of the rule; See CSFME Letter 1, at 5. The 
Commission acknowledges this possibility and discusses further below 
in Part IX.C.4. See also S3 Partners Letter, at 9, stating ``[p]rice 
transparency does not change a borrower's need to execute a short 
sale strategy with the brokers that they already have existing 
agreements with.'' See also supra in this part for a discussion of 
studies of the introduction of TRACE and the impact of transparency 
on price.
    \941\ See supra Part IX.B.4 for a discussion of costs related to 
switching broker-dealers.
    \942\ However, several factors may mitigate high switching 
costs. For example, some institutional investors are likely to have 
multiple prime brokers, which would facilitate the transfer of 
business to better-performing broker-dealers (see supra note 806), 
and, for individual investors, transferring between retail brokers 
may be less costly, for example, because some retail brokers will 
compensate new customers for transfer fees that their outgoing 
broker-dealer may charge them. See, e.g., Chad Morris, ACAT Fee: 
Account Transfer Fee in 2023, Brokerage-Review.com, available at 
https://www.brokerage-review.com/discount-broker/acat-account-transfer-fees.aspx, last visited Aug. 28, 2023 (providing a list of 
fees for different brokers). The effect of switching costs on 
competition may also depend on the variability of the quality of 
broker-dealers' lending services over time. For example, if the 
quality of any broker-dealer's lending quality varies significantly 
over time, customers of those broker-dealers may find it optimal to 
switch between broker-dealers with some frequency, which would 
increase their overall switching costs. On the other hand, if the 
quality of broker-dealers' lending services is relatively constant 
over time, the number of times that a customer would optimally want 
to switch between broker-dealers would likely be more limited, and 
in this case switching costs may be a relatively small and/or short-
term friction.
    \943\ At least one commenter expressed concern that the proposed 
rule may result in increased costs when switching lending agents. 
See CSFME Letter 1, at 5.
    \944\ See Proposing Release, 86 FR 69837 n.221.
---------------------------------------------------------------------------

    The benefits of the final rule may be limited if the rule results 
in a reduction

[[Page 75715]]

in the supply of securities loans. A lower supply of securities loans, 
for example, could weaken or even counteract the rule's expected effect 
on lowering borrowing costs.\945\ As previously discussed, the 
Commission believes that the empirical evidence does not show an 
increase in securities lending transparency would result in a decrease 
in the supply of securities loans.\946\ However, another possibility 
that was pointed out by commenters is that the supply of securities 
loans could decrease if compliance costs are passed on to lenders and 
beneficial owners, who are then less willing or able to participate in 
the securities lending market as a result.\947\ The Commission 
recognizes that some market participants, including beneficial owners, 
may experience reduced revenue from securities lending as a result of 
the rule.\948\ However, the Commission expects that beneficial owners 
and lenders will for the most part benefit from the final rule, as a 
result of increased information about the securities lending market and 
reduced information asymmetry.\949\ This benefit, which could even 
encourage more beneficial owners and lenders to enter the securities 
lending market, would serve to mitigate an increase in cost and a 
subsequent decrease in lending, to the extent that it would occur.
---------------------------------------------------------------------------

    \945\ See supra in this part for discussions of the Commission's 
expectation that the final rule will lower borrowing costs for some 
securities.
    \946\ See supra in this part for further discussion for this 
literature.
    \947\ See, e.g., State Street Letter, at 4, stating that 
``greater costs are also likely to create additional dis-incentives 
for institutional investors to participate in the securities lending 
market, with broadly negative implications for liquidity.''
    \948\ See infra Part IX.C.4 for further discussion of the 
expected effect of the final rule on securities lending revenues.
    \949\ See supra in this part for a discussion of the expected 
benefits of the final rule from reduced information asymmetry 
between beneficial owners and lending programs.
---------------------------------------------------------------------------

    One commenter stated that securities lending data would be less 
useful for corporate bonds and asset-backed securities (ABS) because, 
due to the ``the greater diversity of bond characteristics, data from 
one set of bonds cannot be as easily used as benchmarks for others,'' 
and as a result ``there is little indication that data from corporate 
bond or ABS lending transactions would be sufficiently useful to 
justify the reporting costs.'' \950\ As discussed above, the Commission 
acknowledges that the data provided will not include information about 
all of the factors that are relevant to the pricing of securities 
loans. It is possible that this limitation on the benefits may be 
higher for certain infrequently loaned securities, such as corporate 
bonds. However, the Commission believes that, even for less liquid 
lending markets, Rule 10c-1a will still reduce information asymmetries 
and improve pricing efficiency by facilitating better benchmarking than 
is currently possible, and thus will represent an improvement relative 
to the baseline similar to other assets discussed. For example, market 
participants will be able to use Rule 10c-1a data to pool information 
across similar securities and/or similar time horizons to create their 
own bespoke benchmarks for loan terms.
---------------------------------------------------------------------------

    \950\ See RMA Letter, at 16.
---------------------------------------------------------------------------

    The commenter also stated that securities lending data would be 
less useful for U.S. Government securities because ``the market for 
these products is already fairly transparent,'' and thus ``imposing 
reporting obligations would not provide sufficient additional data to 
justify the compliance burden.'' \951\ As discussed in the Baseline, 
the Commission believes that information asymmetries in the lending 
market for U.S. Government securities loans are unlikely to be fully 
addressed by the currently available datasets, and thus this market 
will ultimately still benefit from an increase in transparency.\952\
---------------------------------------------------------------------------

    \951\ See RMA Letter, at 16.
    \952\ See supra Part IX.B.2 for further discussion of the 
Commission's understanding of the current state of transparency in 
the market for U.S. Government securities lending. The Commission 
also acknowledges that, in addition to the market for U.S. 
Government securities lending, there may be other securities lending 
markets with higher transparency. However, the Commission believes 
the regulatory benefits discussed in this part will still apply, as 
will the benefits for data consumers from the additional context 
provided by the Rule 10c-1a data, such as information about 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.
---------------------------------------------------------------------------

    While the adoption of final Rule 10c-1a will lead to benefits from 
an overall increase in transparency, the Commission acknowledges that, 
in some areas, there is uncertainty as to how the information content 
of Rule 10c-1a data will compare to that of existing data. The 
requirement for an RNSA to disseminate daily information about 
aggregate transaction activity and distribution of loan rates will also 
provide market participants with information about the securities 
lending market.\953\ However, how the aggregate information 
disseminated by an RNSA will compare to the information available from 
current commercially available datasets, and the range of analyses that 
market participants will be able to perform using this information, 
will depend on the specific aggregate statistics that an RNSA chooses 
to publish.
---------------------------------------------------------------------------

    \953\ See final Rule 10c-1a(g)(5).
---------------------------------------------------------------------------

    The Commission bases its estimates on an RNSA providing daily 
information that is at least as informative as comparable statistics 
that are currently provided by the commercial datasets. This is 
because, consistent with section 19(b) of the Exchange Act, any changes 
to an RNSA rules required by final Rule 10c-1a, including its Rule 10c-
1a information collection and dissemination practices, would have to be 
filed with the Commission pursuant to section 19(b) and Rule 19b-4 
prior to implementation.\954\ Such rules would also be subject to 
public comment.\955\ This process offers market participants the 
opportunity to provide feedback on the potential specific statistical 
form of the aggregated daily information based on, e.g., their 
experience using information from commercial datasets. As such, the 
daily information provided by an RNSA could be at least as informative 
as those statistics provided by current data providers. Therefore, at a 
minimum, the Commission expects that the final rule will result in a 
positive benefit to market participants in the form of increased 
securities lending market transparency. This is because, while the 
aggregate information released by an RNSA may be the same or similar to 
what is currently provided by commercial datasets, the 
comprehensiveness and accessibility of the Rule 10c-1a data is expected 
to be better than that of commercial data, such that aggregate 
information produced using Rule 10c-1a data can be expected to be 
better than that produced using currently available commercial 
data.\956\
---------------------------------------------------------------------------

    \954\ See supra Part II.J for further discussion of how the 
final rule handles RNSA Rules to administer the collection of 
information.
    \955\ 15 U.S.C. 78s(b). See also FINRA, FINRA Rulemaking 
Process, available at https://www.finra.org/rules-guidance/rulemaking-process, last visited Aug. 24, 2023.
    \956\ See supra Part IX.B.2 for a discussion of issues related 
to the currently available commercial securities lending datasets. 
For example, in contrast to commercial datasets, since it is not 
based on voluntary submissions, final Rule 10c-1a data will be less 
likely to be prone to bias, and thus aggregate information that is 
constructed using final Rule 10c-1a data will be less prone to 
biases as well.
---------------------------------------------------------------------------

2. Regulatory Benefits
    Final Rule 10c-1a will improve upon current data sources by 
providing an RNSA (i.e., FINRA) \957\ and the

[[Page 75716]]

Commission access to securities lending information 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.\958\ 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. 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.
---------------------------------------------------------------------------

    \957\ Currently, FINRA is the only RNSA. Although the final rule 
applies to ``an RNSA,'' this portion of our analysis describes 
benefits to and involving FINRA so that we can discuss specific 
FINRA Rules and practices that will be affected.
    \958\ See final Rule 10c-1a(e).
---------------------------------------------------------------------------

Surveillance and Enforcement Uses
    The party identities and purpose information \959\ may facilitate 
better surveillance by FINRA for regulatory compliance by its members, 
and may improve its ability to enforce such regulations. Additionally, 
FINRA will be able to notify another regulator as permitted.
---------------------------------------------------------------------------

    \959\ See id.
---------------------------------------------------------------------------

    For example, for FINRA, the information on whether the security is 
loaned from a broker-dealer's securities inventory to its customer 
\960\ 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. In addition, FINRA can 
use the data more generally to assist in its surveillance of FINRA 
Rules 4314, 4320, and 4330 regarding securities lending and short 
selling that primarily intend to reduce information asymmetry in the 
securities lending markets. For instance, the final rule can help FINRA 
identify broker-dealers who tend to lend to or borrow from non-FINRA 
members to examine compliance with provisions of FINRA Rules 4314 and 
4330 that entail agreement, disclosure, and other requirements for this 
activity. In addition, the information on how much borrowing particular 
FINRA members engage in can assist FINRA in identifying which broker-
dealers to examine for compliance with FINRA Rule 4320, which contains 
short sale delivery requirements. These types of activities will 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. FINRA can also use the 
information to monitor when broker-dealers are building up risk, 
thereby protecting broker-dealers' customers against potential 
instabilities. 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.
---------------------------------------------------------------------------

    \960\ See 17 CFR 240.10c-1a(e)(2) (``final Rule 10c-1a(e)(2)'').
---------------------------------------------------------------------------

    Additionally, the information on whether the loan is being used to 
close out a fail to deliver \961\ is relevant to Rule 204 compliance. 
Importantly, being able to estimate the securities lending revenues and 
costs of particular participants may help to fine tune disgorgement 
estimations. The Commission and FINRA can also use Rule 10c-1a data to 
oversee broker-dealer compliance with Exchange Act Rule 15c3-3.\962\
---------------------------------------------------------------------------

    \961\ See final Rule 10c-1a(e)(3).
    \962\ See 17 CFR 240.15c3-3.
---------------------------------------------------------------------------

    The Commission believes that the requirement pursuant to Rule 10c-
1a to identify all parties to securities lending transactions with 
LEIs, if such parties have LEIs, will facilitate the Commission and 
FINRA's efforts to monitor securities lending.\963\ Reporting of LEIs 
by legal entity securities loan participants that have LEIs will help 
provide a more precise and consistent means of identification for loan 
participants as compared to using loan participant names and, if 
available, CRDs, IARD Numbers, or MPIDs.\964\ In that regard, obtaining 
an LEI requires that an entity's identity be verified by a third party 
upon issuance of the LEI and upon annual renewal of the LEI.\965\ 
Additionally, LEIs contain ``Level 2'' information about the linkages 
between the entities being identified and their parent and child 
entities,\966\ which can better enable Commission staff and market 
participants to understand the relationships between various firms with 
an eye toward potential aggregations of risk. Furthermore, requiring 
LEI disclosure for loan participants that have LEIs also will 
facilitate the linkage of data reported about securities loans with any 
relevant data, such as data on short sales or positions, from other 
sources.\967\ However, because the Commission is not requiring loan 
participants without LEIs to obtain and report them, the aforementioned 
benefits will only arise for reported securities loans in which 
participants have LEIs.
---------------------------------------------------------------------------

    \963\ Examples of other regulatory entities and jurisdictions 
that use LEIs include the U.S. Commodity Futures Trading Commission 
(``CFTC''), Alberta Securities Commission (Canada), European Markets 
and Securities Authority, and Monetary Authority of Singapore. See 
Global LEI Foundation, Regulatory Use of the LEI (Aug. 21, 2023), 
available at https://www.gleif.org/en/lei-solutions/regulatory-use-of-the-lei.
    \964\ More than 2.2 million LEIs have been issued. See Office of 
Fin. Res., Legal Entity Identifier, available at https://www.financialresearch.gov/data/legal-entity-identifier/, last 
visited Aug. 23, 2023.
    \965\ See Global LEI System, LEIROC.com, available at https://www.leiroc.org/lei.htm, last visited Aug. 23, 2023. Information 
associated with the LEI includes the ``official name of the legal 
entity as recorded in the official registers[,]'' the entity's 
address, country of incorporation, and the ``legal form of the 
entity.'' See Financial Stability Board (``FSB''), Options to 
Improve Adoption of the LEI, in Particular for Use in Cross-Border 
Payments (July 7, 2022), available at https://www.fsb.org/2022/07/options-to-improve-adoption-of-the-lei-in-particular-for-use-in-cross-border-payments/.
    \966\ See Global LEI Foundation, Level 2 Data: Who Owns Whom, 
available at https://www.gleif.org/en/lei-data/access-and-use-lei-data/level-2-data-who-owns-whom, last visited Aug. 22, 2023.
    \967\ For example, the European Union's SFTR requires legal 
entity parties to securities financing transactions to provide their 
own LEIs and the LEIs of their counterparties to trade repositories. 
See ESMA Updates Its Statement on the Implementation of LEI 
Requirements for Third-Country Issuers Under the SFTR Reporting 
Regime (Apr. 13, 2021), available at https://www.esma.europa.eu/press-news/esma-news/esma-updates-its-lei-statement. The EU has 
numerous LEI requirements for entities operating in its securities 
markets, including, inter alia, for credit and financial 
institutions (pursuant to the Capital Requirements Regulation) and 
for fund and fund managers (pursuant to the Alternative Investment 
Funds Directive). See id. Likewise, as mentioned, the CFTC requires 
counterparties identify themselves to the agency with LEIs in 
connection with swap trades, including long-and-short equity index 
swap trades. See 17 CFR 45.6.
---------------------------------------------------------------------------

    One commenter expressed concern that, to the extent that there is a 
wide variance in interpretation of data, the rule could result in 
``false positive'' enforcement actions.\968\ Conversely, the Commission 
believes that improvements in securities lending data will enhance the 
ability of FINRA and the Commission to oversee the securities lending 
market and more efficiently detect potential rule violations, such as 
those described above. This will result in more targeted actions, which 
will benefit market participants by resulting in more efficient 
oversight.
---------------------------------------------------------------------------

    \968\ See S3 Partners Letter, at 8.
---------------------------------------------------------------------------

Market Reconstruction Uses
    Final Rule 10c-1a may help regulators reconstruct market events. 
For example, in January 2021, trading in so-called ``meme'' stocks led 
to many questions about securities lending being asked by lawmakers, 
investors, and the media as well as calls by some for increased 
regulation in some areas.\969\ Rule 10c-1a data will allow for more 
detailed evaluations of such events in the future

[[Page 75717]]

than was possible with existing data during January 2021. For example, 
January 2021 information on market participants' securities lending 
activity would have provided FINRA and Commission staff a more timely 
and comprehensive view of who was entering into new loans and who was 
no longer borrowing securities. This would have facilitated a deeper 
understanding of how the events were or were not impacting market 
participants. Such analyses can help determine if further regulatory 
intervention in markets is warranted and can inform the nature of any 
intervention.
---------------------------------------------------------------------------

    \969\ See, e.g., Proposing Release, 86 FR 69803 n.11.
---------------------------------------------------------------------------

Market Research Uses
    Greater access and more comprehensive data on the securities 
lending market will improve the quality and expand the scope of 
research by both academics and regulators, which will better inform the 
regulators. In particular, improving the information available for 
their policy decisions will promote fair, orderly, and efficient 
markets and the protection of investors. For example, the data could 
facilitate research on the effectiveness of regulations such as 
Regulation SHO or FINRA Rules 4320 and 4330. Additionally, research 
conducted by academic researchers and market participants could also 
improve the value of public comment letters on Commission and FINRA 
proposals, which will also better inform policy decisions.
3. Direct Compliance Costs
    Final Rule 10c-1a will require various entities to enter into 
contracts and develop recording and reporting systems to comply with 
the final rule. This section provides estimates of those costs. We note 
that the Commission has provided certain estimates for purposes of 
compliance with the Paperwork Reduction Act of 1995 (``PRA''), as 
further discussed below, in Part X. Those estimates, while useful to 
understanding the collection of information burden associated with the 
final rules, do not purport to reflect the full economic costs 
associated with making the required disclosures.

                                   Table 2--Total Quantified Compliance Costs
----------------------------------------------------------------------------------------------------------------
                                                                              Total initial       Total annual
                                                                 #            industry cost      industry cost
----------------------------------------------------------------------------------------------------------------
Covered Persons and Reporting Agents...................                609   \a\ $522,590,000   \b\ $233,260,000
RNSA...................................................                  1      \c\ 3,880,000      \d\ 2,760,000
----------------------------------------------------------------------------------------------------------------
\a\ $522,590,000 [ap] sum of estimates in infra Table 3 note m and Table 4 note h. The Commission estimates the
  wage rate associated with these burden hours based on salary information for the securities information
  compiled by SIFMA. The estimated wage figure for attorneys, for example, is based on published rates for
  attorneys, modified to account for a 1,800 hour work-year and multiplied by 5.35 to account for bonuses, firm
  size, employee benefits, and overhead yielding an effective hourly rate for 2013 of $380 for attorneys. See
  Securities Industry and Financial Markets Association, Management & Professional Earnings in the Securities
  Industry--2013. These estimates are adjusted for an inflation rate of 29.89% based on the Bureau of Labor
  Statistics data on CPI-U between Sept. 2013 and May 2023. See U.S. Bureau of Labor Statistics, CPI Inflation
  Calculator, available at https://www.bls.gov/data/inflation_calculator.htm. Therefore, the current inflation-
  adjusted effective hourly wage rates are estimated at $494 ($380 x 1.2989) for attorneys, $409 ($315 x 1.2989)
  for compliance managers, $338 ($260 x 1.2989) for senior systems analysts, and $83 ($64 x 1.2989) for
  compliance clerks.
\b\ $233,260,000 = estimate in infra Table 3 note n.
\c\ 10,924 hours x (0.75 x $338/hour + 0.25 x $409/hour) [ap] $3,880,000. See infra note 1196 and note a.
\d\ 7739.5 hours x (0.75 x $338/hour + 0.25 x $409/hour) + 52 hours x $83/hour [ap] $2,760,000. See infra note
  1199 and note a.

    Table 2 shows that the Commission believes that final Rule 10c-1a 
will impose a one-time cost of $3.88 million and ongoing expenses of 
$2.76 million on FINRA, the only RNSA. An RNSA will incur these costs 
to develop systems to take and disseminate data required by the final 
rule. These include larger costs associated with creating and 
maintaining the infrastructure to enable providing covered persons and 
reporting agents to provide an RNSA with Rule 10c-1a information and 
entering into written agreements with providing covered persons and 
reporting agents, as well as smaller costs associated with providing 
such information to the public.\970\ These costs will be somewhat 
mitigated by the fact that final Rule 10c-1a requires an RNSA to 
disseminate the data ``as soon as practicable,'' \971\ which gives an 
RNSA some flexibility to build systems that mitigate costs.
---------------------------------------------------------------------------

    \970\ As discussed in supra Part VII.B.2, covered persons, 
including persons that are not RNSA members, that elect not to use a 
reporting agent are responsible for providing the Rule 10c-1a 
information to an RNSA directly and may do so without becoming RNSA 
members. Therefore, these costs may include costs to an RNSA of 
establishing connections to persons that are not members of an RNSA.
    \971\ See final Rule 10c-1a(g)(1).
---------------------------------------------------------------------------

    Table 2 also shows that covered persons and reporting agents will, 
in aggregate, incur roughly $523 million in initial costs and $233 
million annually in ongoing costs to comply with the final rule.\972\ 
These costs come from costs to develop and maintain systems and from 
costs to enter into agreements.\973\ Tables 3 and 4 break these costs 
down by those incurred by reporting agents, and by covered persons 
based on the decision by covered persons to self-report or use a 
reporting agent.
---------------------------------------------------------------------------

    \972\ As discussed in supra Part VII.A, the Commission is 
adopting an exception to the general approach that reporting 
requirements do not apply to the borrower in a securities lending 
transaction, specifying that the borrower is responsible for the 
reporting obligation in the instance of a broker or dealer borrowing 
fully paid or excess margin securities from a customer; see final 
Rule 10c-1a(j)(1). Absent this exception, reporting obligations may 
have fallen on broker-dealer customers who may not have timely 
access to the required information, and may have less familiarity 
with reporting information to an RNSA than their broker or dealer; 
see supra note 145.
    \973\ The Commission expects that the costs associated with 
developing a reporting system to be lower under the final rule as 
compared to the proposed rule as a result of the change from the 
proposed rule to impose an end-of-day reporting requirement. As 
described by some commenters, an intraday reporting framework would 
have required substantial technology development and cost for those 
providing covered persons and reporting agents that may have lacked 
the capacity to do so. See, e.g., SBAI Letter, at 1, and IHS Markit, 
at 13. Removing the intraday reporting requirement removes the need 
for those providing covered persons to acquire this capacity, thus 
lowering at least their initial burden associated with system design 
and configuration. See supra Part IX.B.1 for further discussion.

[[Page 75718]]



    Table 3--Quantified Compliance Costs for Systems Development and
          Maintenance Incurred by Lenders and Reporting Agents
------------------------------------------------------------------------
                                           Total initial   Total annual
                                    #      industry cost   industry cost
                                            (millions)      (millions)
------------------------------------------------------------------------
Providing Covered Persons \a\..  \b\ 255     \c\ $272.01     \d\ $122.40
Non-Providing Covered Persons    \f\ 248      \g\ 132.27       \h\ 59.52
 \e\...........................
Reporting Agents \i\...........  \j\ 106      \k\ 113.07       \l\ 51.34
                                ----------------------------------------
    Total......................      609      \m\ 517.34      \n\ 233.26
------------------------------------------------------------------------
\a\ Providing covered persons would provide information directly to an
  RNSA.
\b\ The estimated number of providing covered persons includes 4 broker-
  dealer intermediaries, 217 persons that effect a covered securities
  loan as the lender when an intermediary is not used, and 34 broker-
  dealers borrowing fully paid or excess margin securities. See infra
  Part X.
\c\ 3,000 hours x 255 x (0.75 x $338/hour + 0.25 x $409/hour) [ap]
  $272,010,000. See infra note 1157 and supra Table 2 note a.
\d\ 1,350 hours x 255 x (0.75 x $338/hour + 0.25 x $409/hour) [ap]
  $122,400,000. See infra note 1161 and supra Table 2 note a.
\e\ Non-providing covered persons would use a reporting agent to provide
  information to an RNSA.
\f\ The estimated number of non-providing covered persons would include
  31 non-broker-dealer intermediaries and 217 persons that effect a
  covered securities loan as the lender when an intermediary is not
  used. See infra Part X.
\g\ 1,500 hours x 248 x (0.75 x $338/hour + 0.25 x $409/hour) [ap]
  $132,270,000]. See infra note 1163 and supra Table 2 note a.
\h\ 675 hours x 248 x (0.75 x $338/hour + 0.25 x $409/hour) [ap]
  $59,520,000. See infra note 1167 and supra Table 2 note a.
\i\ Reporting agents would provide information directly to an RNSA.
\j\ The number of reporting agents includes 97 broker-dealers and 9
  clearing agencies. See infra Part X.
\k\ 3,000 hours x 106 x (0.75 x $338/hour + 0.25 x $409/hour) [ap]
  $113,070,000. See infra note 1180 and supra Table 2 note a.
\l\ 1,350 hours x 106 x (0.75 x $338/hour + 0.25 x $409/hour) + 52 hours
  x 106 x $83/hour [ap] $51,340,000. See infra notes 1181 and 1191 supra
  Table 2 note a.
\m\ $517.34 million [ap] sum of estimates in supra notes c, g, and k.
\n\ $233.26 million [ap] sum of estimates in supra notes d, h, and l.

    Table 3 shows that covered persons and reporting agents would incur 
an aggregate of roughly $517 million in initial costs and $233 million 
annually in ongoing costs to develop and maintain systems for reporting 
securities lending information. These include larger costs associated 
with developing and reconfiguring their current systems to capture the 
required data elements, as well as smaller costs associated with 
implementing changes and monitoring systems, most of which would be 
incurred by covered persons who provide the Rule 10c-1a information to 
an RNSA instead of relying on a reporting agent to do so.\974\ It is 
possible that some providing covered persons could privately contract 
with third party vendors to assist them with their reporting 
obligations.\975\ The potential for third party vendors, such as 
existing securities lending data vendors, to leverage their existing 
experience with collecting and disseminating securities lending data as 
well as economics of scale could result in lower compliance costs. If 
this is the case, the compliance costs for providing covered persons 
could be lower than what is reflected in Table 3.
---------------------------------------------------------------------------

    \974\ In addition, there may be costs for reporting entities 
associated with determining whether a loan is a covered securities 
loan according to final Rule 10c-1a(j)(2), including whether a 
particular security is a reportable security. However, these costs 
are likely to be negligible, as many covered persons and reporting 
agents, including broker-dealers, are already required to determine 
whether a security is reportable to the CAT, TRACE, or RTRS are part 
of their compliance with other regulatory obligations. The 
Commission believes that many covered persons that do not have the 
resources or expertise to determine whether a security is a 
reportable security will be likely to use reporting agents, who, as 
broker-dealers and/or clearing agencies, will likely have access to 
this information. These costs may also include costs to covered 
persons that are not members of an RNSA of establishing connections 
to an RNSA. See supra note 970. We do not expect significant 
additional costs to result from the requirement to report 
information once a loan modification occurs after that loan 
qualifies for reporting. This is because the primary costs 
associated with the rule are those associated with developing and 
reconfiguring their current systems to capture the required data 
elements. The variable cost of each individual transmission to an 
RNSA is expected to be very small. This requirement is not expected 
to impact the need for reporting agents to develop and maintain 
systems for reporting securities lending information, because 
reporting agents will be required to develop these systems to meet 
the other provisions of the final rule. Rather, this will simply 
require the inclusion of some additional data transfers that occur 
largely around the reporting date. Since the cost of individual 
transmissions are expected to be small, this aspect of the final 
rule is expected to have a small impact on the compliance costs of 
the rule.
    \975\ Note that, while covered persons can use third party 
vendors to help prepare their reports, such vendors would not be 
reporting agents under final Rule 10c-1a. See supra Part VII.B.2.

                        Table 4--Quantified Compliance Costs of Entering Into Agreements
----------------------------------------------------------------------------------------------------------------
                                                                                   Total initial   Total annual
                                              #        Agreement  counterparty     industry cost   industry cost
----------------------------------------------------------------------------------------------------------------
Non-Providing Covered Persons \a\........  \b\ 248  Reporting Agent.............  \c\ $3,670,000              $0
Reporting Agents \d\.....................  \d\ 106  Person who Provides 10c-1a     \f\ 1,570,000               0
                                                     Information.
                                           .......  RNSA........................       \g\ 8,800               0
                                          ----------------------------------------------------------------------
    Total................................      354  ............................   \h\ 5,250,000               0
----------------------------------------------------------------------------------------------------------------
\a\ See supra note Table 3 note e.
\b\ See supra note Table 3 note f.
\c\ 30 hours x 248 x $494/hour [ap] $3,670,000. See infra note 1171 and supra Table 2 note a.
\d\ See supra note Table 3 note i.
\e\ See supra note Table 3 note j.
\f\ 30 hours x 106 x $494/hour [ap] $1,570,000. See infra note 1185 and supra Table 2 note a.
\g\ 1 hour x 106 x $83/hour [ap] $8,800. See infra note 1188 and supra Table 2 note a.
\h\ $5,250,000 [ap] sum of estimates in supra notes c, f, and g.


[[Page 75719]]

    Table 4 shows that covered persons and reporting agents will incur 
an aggregate of $5.25 million in initial costs and $0 annually in 
ongoing costs to enter into agreements for reporting securities lending 
information. These include costs associated with drafting, negotiating, 
and executing agreements with counterparties, most of which will be 
incurred by covered persons that directly employ a reporting agent. 
There will not be ongoing costs because, once an agreement is signed, 
there will be no need to modify the written agreement or take 
additional action after it is executed.
    One commenter expressed concern some of the compliance costs 
incurred by lending agents could be passed along to lenders and 
beneficial owners, including funds and their shareholders.\976\ The 
Commission acknowledges that it is possible that some compliance costs 
may be passed along to beneficial owners, for instance, in the form of 
higher fees charged for lending services or lower pro-rated lending 
revenue.\977\ Compliance costs may also be passed along by broker-
dealers to end borrowers in the form of higher borrowing costs.\978\ 
Ultimately, the extent to which either beneficial owners or end 
borrowers may bear some of the costs of complying with final Rule 10c-
1a will depend on the extent to which covered persons, including 
lending agents and broker-dealers, pass on their compliance costs to 
their customers and/or split these costs across different types of 
customers. However, this effect is expected to be mitigated by the fact 
that the projected compliance costs of the final rule as a fraction of 
an estimate of the total lending fee revenue generated is likely small 
enough to be within the bounds of a positive profit margin.\979\
---------------------------------------------------------------------------

    \976\ See, e.g., ICI Letter 1, at 10 (stating that ``fund 
shareholders will absorb part of the substantial costs of Rule 10c-1 
. . . these costs ultimately will come directly out of the pockets 
of beneficial owners, including funds and their shareholders, to the 
detriment of their long-term interests''). See also State Street 
Letter, at 5 (stating that the rule ``approach has the practical 
effect of imposing all systems-related cost for the new reporting 
mandate solely on agent lenders and their clients (i.e., 
institutional investors, such as pension plans and mutual funds)'').
    \977\ See supra Part IX.B.4 for a description of the market for 
lending services.
    \978\ This possibility is discussed further in infra Part 
IX.C.4.
    \979\ See estimates in infra note 993.
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    In addition to the above enumerated costs, the estimated 361 
reporting entities (i.e., providing covered persons and reporting 
agents), as well as subscribers to Rule 10c-1a data, may be required to 
pay fees to an RNSA.\980\ The fees that these entities may be required 
to pay will depend on a number of factors, including the number of 
reporting entities and subscribers, along with how an RNSA will choose 
to split any such fees between these different types of entities.
---------------------------------------------------------------------------

    \980\ One commenter stated that the ``the estimated costs are 
understood to be incomplete'' in the Proposing Release because ``the 
RNSA (i.e., FINRA) is also entitled to recover its costs from market 
participants who report securities lending transactions to the 
RNSA.'' See CSFME Letter 1, at 4. However, this possibility was 
acknowledged by the Commission in the Proposing Release. See 
Proposing Release, 86 FR 69843, stating that ``the estimated 409 
reporting entities would also be required to pay reporting fees to 
the RNSA.''
---------------------------------------------------------------------------

    Some commenters expressed concern that an RNSA would have monopoly 
pricing power over the resulting data.\981\ However, any fee that an 
RNSA would charge must be consistent with the Exchange Act and rules 
thereunder, and are subject to Commission review, notice and public 
comment.\982\ Consequently, the Commission believes that an RNSA is 
unlikely to exert monopoly pricing in terms of fees for the data, and 
that their fees will be reasonably related to costs. As shown in Table 
2, the Commission expects an RNSA to incur ongoing costs of $2.76 
million per year. If the 361 providing covered persons and reporting 
agents were the only entities to subscribe to the data, dividing the 
cost incurred by an RNSA by the 361 entities results in an annual fee 
per reporting entity of approximately $7,600, or approximately $633 per 
month. This cost would decrease to the extent that entities other than 
covered persons choose to subscribe to Rule 10c-1a data, which would 
allow an RNSA to spread its costs across more entities. At the same 
time, this estimate represents a lower bound on the estimated fees 
levied by an RNSA as an RNSA likely will need to recoup some of the 
initial fixed costs associated with administering the data.\983\
---------------------------------------------------------------------------

    \981\ See, e.g., Bloomberg L.P. Letter, at 4; HMA Letter, at 11.
    \982\ RNSA rule filings are subject to notice, comment and 
Commission review pursuant to section 19(b) of the Exchange Act and 
Rule 19b-4. An RNSA must demonstrate that proposed fees satisfy the 
Exchange Act requirements under section 15A(b), including that such 
proposed fees equitably allocate reasonable dues, fees and other 
charges among members and issuers and other persons using the SRO's 
facilities. Further, such proposed fees cannot not impose any burden 
on competition not necessary or appropriate in furtherance of the 
purposes of the Exchange Act.
    \983\ The numbers provided in this section are estimates. To the 
extent the Commission has over- or underestimated burden hours or 
hourly costs, or the number of entities subject to each reporting 
requirement, the actual compliance costs may be higher or lower. 
However, the Commission views the estimates provided herein as best 
estimates based on the information currently available to the 
Commission.
---------------------------------------------------------------------------

    One commenter stated that, by considering proposed Rule 10c-1 ``in 
isolation'' from other recent Commission rules, ``the Commission is not 
providing a comprehensive picture of the compliance and other direct 
costs,'' and that ``these costs will aggregate and will burden market 
participants with higher costs when considered jointly.'' \984\ But, 
consistent with its long-standing practice, the Commission's economic 
analysis in each adopting release considers the incremental benefits 
and costs for the specific rule--that is, the benefits and costs 
stemming from that rule compared to the baseline. In doing so, the 
Commission acknowledges that in some cases resource limitations can 
lead to higher compliance costs when the compliance period of the rule 
being considered overlaps with the compliance period of other rules. In 
determining compliance periods, the Commission considers the benefits 
of the rules as well as the costs of delayed compliance periods and 
potential overlapping compliance periods.
---------------------------------------------------------------------------

    \984\ See Overdahl Letter, at 15. Another commenter stated that 
because ``[t]he resources of market participants are not infinite,'' 
that commenter ``believe[s that] unnecessary and aggressively timed 
regulatory changes will impact costs, complexity, competition and 
the ability of smaller market participants to enter into or remain 
in the markets.'' ICI Letter 2, at 12. See also AIMA Letter 3, at 4 
(recommending that rule adoptions ``should be appropriately 
sequenced and their compliance periods appropriately aligned'' so 
that ``market participants'' will not face ``unnecessary costs''); 
Citadel Letter, at 10 (noting the Commission ``has not assessed the 
cumulative impact of its myriad of recent position and activity 
disclosure-related proposals on market participants'').
---------------------------------------------------------------------------

    We considered here whether recently adopted rules identified by 
commenters that affect market participants subject to the final rule 
\985\ have overlapping implementation timeframes with the final rule. 
We found, however, that the compliance dates for these rules do not

[[Page 75720]]

significantly overlap with the expected industry compliance dates of 
final Rule 10c-1a,\986\ and therefore we do not expect significant 
effects on compliance costs arising from overlapping compliance 
periods. We acknowledge that to the extent such overlap occurs, there 
could be costs, but we do not expect these to be significant 
costs.\987\
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    \985\ Specifically, we considered the Amendments to Form N-PX 
Adoption, the Settlement Cycle Adoption, the May 2023 SEC Form PF 
Amending Release, and the Beneficial Ownership Amending Release. We 
expect that few if any entities subject to the May 2023 SEC Form PF 
Amending Release will face direct reporting obligations, and thus 
incur compliance costs, under final Rule 10c-1a. Form PF is required 
for private fund advisers. See supra Part IX.B. We do not expect 
private fund advisers to face direct implementation costs under 
final Rule 10c-1a, although we acknowledge that their lending 
programs and/or broker-dealers may pass along compliance costs to 
them. Entities subject to the Amendments to Form N-PX Adoption, the 
Settlement Cycle Adoption, or the Beneficial Ownership Amending 
Release could have reporting obligations under final Rule 10c-1a; 
however we anticipate no or little overlap between the 
implementation periods for those rules and this one.
    \986\ See supra Part VIII on the compliance date for this final 
rule, and supra notes 726 through 728 for compliance dates of other 
recent rules discussed here.
    \987\ See also infra Part IX.D.2 (discussing possible effects of 
overlap on competition).
---------------------------------------------------------------------------

    The Commission does not believe that loan participants will incur 
costs associated with obtaining and renewing LEIs, because only those 
loan participants that have non-lapsed LEIs will be required to report 
them. One commenter stated that borrowers should be required to obtain 
an LEI if they do not already have one, because the lack of an LEI 
would make it more challenging to identify entities.\988\ We agree that 
wider LEI adoption and reporting would likely lead to more consistent 
and precise identification of legal entities, which could enhance 
analysis of the reported information.\989\ We also recognize that any 
mandatory LEI reporting requirement for LEI-eligible loan participants 
would also generate additional costs for loan participants that do not 
currently have them, although such costs would likely be modest.\990\
---------------------------------------------------------------------------

    \988\ See IHS Markit Letter, at 9.
    \989\ We note in this regard the recently enacted Financial Data 
Transparency Act of 2022, which directs the Commission and other 
financial regulators to establish data standards for collections of 
information. See James M. Inhofe National Defense Authorization Act 
for Fiscal Year 2023, 117-263, tit. LVIII, 136 Stat. 2395, 3421-39 
(2022).
    \990\ A U.S. entity can currently obtain and renew an LEI from 
one of eleven LEI operating units. See Global Legal Entity 
Identifier Foundation, Get an LEI: Find LEI Issuing Organizations, 
available at https://www.gleif.org/en/about-lei/get-an-lei-find-lei-issuing-organizations, last visited Aug. 29, 2023. One LEI operating 
unit currently discloses an initial fee of $60 and a renewal fee of 
$40. See Bloomberg LEI, Frequently Asked Questions, ``Fees, Payments 
& Taxes,'' Bloomberg LEI v. 1.4.71, available at https://lei.bloomberg.com/docs/faq#what-fees-are-involved, last visited Aug. 
29, 2023.
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4. Other Costs
Increase in Borrowing Costs
    The Commission acknowledged in the Proposing Release that increased 
compliance costs could lead to some consolidation in the securities 
lending market and impose some costs on market participants, including 
potentially higher prices associated with reduced competitive 
pressures.\991\ However, the Commission believes that this effect by 
itself is unlikely to lead to higher overall borrowing costs due to the 
fact that the value of securities available to be loaned generally far 
exceeds the total value on loan.\992\ For general collateral 
securities, which make up the majority of loans, a modest decline in 
shares available to lend would not eliminate the slack in the market 
and thus would not likely increase fees. For securities ``on special'' 
with less available supply relative to demand, it is possible that a 
decline in shares available to lend could result in higher borrowing 
costs for some securities. However, the Commission believes that, to 
the extent that it occurs, these fee increases would likely be small 
and have minimal downstream economic effects. This minimal effect is 
expected for two reasons. First, the projected compliance cost of the 
final rule is a relatively small fraction of the likely total lending 
fee revenue generated, which makes it likely that most broker-dealers 
and lending programs would continue to earn a positive profit margin 
after accounting for these costs.\993\ Second, academic research 
suggests that very small increases in lending fees are unlikely to 
result in significant downstream economic effects.\994\ As a result, 
the Commission expects that any increase in borrowing costs that may 
result from consolidation among broker-dealers or lending programs 
would be minimal, and therefore likely offset by a simultaneous 
decrease in borrowing costs due to improved transparency and efficiency 
in the securities lending market which, as described above, are 
expected to concentrate among stocks that are on special.\995\
---------------------------------------------------------------------------

    \991\ See Proposing Release, 86 FR 69843.
    \992\ See Panel A of Table 1 above in Part IX.B.3, showing that 
for most stocks the lending supply significantly outstrips demand 
with median utilization rates of approximately 12%.
    \993\ Averaging the fees across all three surveyed days from 
Table 8 of the OFR Pilot Survey and then multiplying those fees by 
the average dollar value of securities lent across all three days 
surveyed produces an estimated $2.7 billion in lending fees 
collected in 2015. These fees only account for the Wholesale market, 
so multiplying this estimate by two to, conservatively, account for 
fees collected in the Customer market yields an estimate of $5.4 
billion in lending fees collected annually. See supra, in Part 
IX.C.3, the total direct compliance costs associated with the Rule 
are approximately $236 million per year. Under a conservative 
assumption that 100% of the direct compliance costs will be 
transferred to borrowers in the form of higher fees spread equally 
across all loans, this would increase lending fees by $236 million/
$5.4 billion ~ 4.7%. For perspective, for U.S. equities the OFR 
Pilot Survey reports the average lending fee across the three days 
surveyed was approximately 33 basis points (bps). A 4.7% increase in 
this lending fee would be an increase of 1.44 basis points. For U.S. 
Treasury/Agency securities, the average lending fee reported in the 
OFR Pilot Survey was approximately 16 bps. A 4.7% increase in this 
lending fee would be 0.70 bps. These numbers are estimates and could 
be somewhat higher or lower depending on various assumptions. If 
lenders absorb some of the direct compliance costs, the increase in 
fees will be smaller; if the total size of shares on loan increases, 
the increase would be smaller still. If the increase becomes 
concentrated among just a subset of stocks, such as general 
collateral stocks, the increase in fees would be larger. Regardless, 
these calculations illustrate that the economic magnitude of an 
increase in lending fees is likely to be small.
    \994\ Research shows that an exogenous shock to the lending 
supply affects loan prices, but that the downstream effects of these 
fee changes are modest or non-identifiable. See Dixon, et al. 
(2021), supra note 746. See also Steven N. Kaplan, Tobias J. 
Moskowitz, & Berk A. Sensoy, The Effects of Stock Lending on 
Security Prices: An Experiment, 68 J. Fin. 1891 (2013). The loan fee 
effects reported in these studies tend to be multiples of the 
potential loan fee effects discussed in this section. Consequently, 
the resulting economic impact of any such fee increase would also 
likely be correspondingly smaller.
    \995\ See supra Part IX.C.1 discussing the expected effects of 
the final rule on lowering borrowing costs for investors, as well as 
for a discussion on why the Commission expects the economic effects 
of the final rule to be concentrated among hard-to-borrow stocks.
---------------------------------------------------------------------------

Lower Revenues From Securities Lending
    Commenters expressed concern that, to the extent that lenders are 
not able to pass on compliance costs to borrowers through increased 
fees, the rule could lead to decreased profit from securities lending 
for some market participants.\996\ However, the Commission estimates 
that, as the projected compliance cost of the final rule is a 
relatively small fraction of the likely total lending fee revenue 
generated, most market participants will continue to be able to earn a 
positive profit margin from securities lending.\997\
---------------------------------------------------------------------------

    \996\ See, e.g., State Street Letter, at 5 (stating that ``there 
is, in our view, no practical way for agent lenders to try to 
recuperate even a portion of these new costs from borrowers through 
changes to existing market pricing conventions. In effect therefore, 
the costs associated with the establishment and maintenance of the 
reporting system for securities lending transactions envisioned by 
the Commission will substantially narrow, if not eliminate, existing 
revenue streams for agent lenders and their clients in what is 
already a low margin business.''); See also RMA Letter, at 8 
(stating that ``for structural reasons, Lending Agents are also 
unlikely to be able to fully pass on the costs of implementation to 
borrowers,''); CSFME Letter 1, at 4-5 (stating that ``most 
beneficial owners participate in securities lending to generate 
marginal income. If lenders are forced to bear the final cost of 
compliance with Rule 10c-1, they may find their margins so thin that 
they can no longer justify their lending activities, pulling their 
liquidity from the market.'').
    \997\ See supra note 993 for a description of this estimate.
---------------------------------------------------------------------------

    In addition, as acknowledged in the Proposing Release, a reduction 
in information asymmetry may result in reduced revenue for some broker-
dealers and lending programs in at least two ways.\998\ First, a 
reduction in securities lending revenues could occur

[[Page 75721]]

because end borrowers and beneficial owners will have more information 
about the state of the lending market. As a result, broker-dealers and 
lending programs who consistently underperform, the market may lose 
customers to better-performing broker-dealers and lending programs or 
begin offering better terms to their customers. Both possibilities 
represent a reduction in revenue for some broker-dealers and lending 
programs. It is possible that some broker-dealers and lending programs 
may choose to exit some or all of the market for lending services as a 
result of this loss of revenue.\999\ The loss of revenue will in part 
be a transfer to the end borrowers and beneficial owners that switch to 
better-performing lending programs and better-performing broker-
dealers, as well as the better-performing lending programs and broker-
dealers that attract additional customers. The Commission is not able 
to quantify the potential loss in revenue that could occur for 
underperforming broker-dealers and lending programs because the 
Commission is not able to quantify the extent to which these broker-
dealers and lending programs' current revenues are driven by asymmetric 
information.\1000\
---------------------------------------------------------------------------

    \998\ See Proposing Release, 86 FR 69837.
    \999\ See infra Part IX.D.2 for a discussion of the implications 
of the final rule for competition between broker-dealers.
    \1000\ As discussed in supra Part IX.B.3, the observed 
dispersion in loan fees may give a rough upper bound on the extent 
to which loan fees are driven by asymmetric information, which may 
provide some insights into a potential loss in revenue due to the 
reduction of asymmetric information. For example, the results from 
Table 1 showed that the most that some borrowers pay above the 
median market loan price for loans of the same security is around 
400%. However, this would be an extreme upper bound, as the vast 
majority of borrowers, to the extent they overpay, would overpay 
less than 400% above median market prices, the dispersion loan fees 
is likely driven by factors other than asymmetric information (see 
supra note 789), and it is not necessarily the case that the final 
rule will fully eliminate the impact of asymmetric information on 
loan fees.
---------------------------------------------------------------------------

    Second, lending programs may also experience reduced profitability 
through the lower rates offered by broker-dealers to their 
customers.\1001\ If a given lending program has become skilled in 
cultivating relationships with broker-dealers currently willing to pay 
higher fees, then the increased competition that broker-dealers face as 
a result of the rule may lead to lower overall fees being charged for 
security loans--lowering the total lending revenue produced by 
securities lending.\1002\ While the Commission expects that beneficial 
owners will benefit from the final Rule as a result of the reduction in 
information asymmetry,\1003\ in some cases lower lending revenues and 
potentially increased costs may reduce the revenue earned by some 
beneficial owners.\1004\ As acknowledged in the Proposing Release, this 
would represent a partial transfer from beneficial owners to the end 
borrowers who may receive better terms on average as a result of 
decreased information asymmetries.\1005\ Ultimately, the Commission is 
not able to quantify the net impact of the rule on beneficial owners' 
lending revenues, as the Commission is not able to quantify, among 
other items, the extent to which end borrowers may receive better terms 
on average as a result of decreased information asymmetries.\1006\
---------------------------------------------------------------------------

    \1001\ See, e.g., ICI Letter 1, at 10 (stating that ``fund 
shareholders will absorb part of the substantial costs of Rule 10c-
1. . . these costs ultimately will come directly out of the pockets 
of beneficial owners, including funds and their shareholders, to the 
detriment of their long-term interests.''). Furthermore, while the 
Commission expects the net impact of the final rule on borrowing 
costs to be negative, see supra Part IX.C.4 for a discussion of the 
possibility that compliance costs may increase borrowing costs.
    \1002\ See id.
    \1003\ See supra Part IX.C.1 for a discussion of how a decrease 
in information asymmetries will benefit end borrowers and beneficial 
owners.
    \1004\ See supra note 976 and corresponding text for a 
discussion of how compliance costs may affect beneficial owners to 
the extent that they are passed on to them by lending programs.
    \1005\ See Proposing Release, 86 FR 69837. See supra Part IX.C.1 
for a discussion of the expected effects of the final rule on 
reducing information asymmetries between end borrowers and broker-
dealers.
    \1006\ See supra note 1000 for further discussion of a potential 
rough estimate of the extent to which securities lending prices are 
driven by asymmetric information.
---------------------------------------------------------------------------

Lower Revenues for Securities Lending Data Vendors
    Commenters expressed concern that the increase in securities 
lending information provided by the rule will also result in costs in 
the form of lost revenue for commercial securities lending data 
vendors, which could lead some data vendors to pare back their product 
offerings.\1007\ The Commission acknowledges that this may occur for a 
number of reasons. First, commercial data vendors may pare back their 
offerings if demand for their products decreases because their 
customers switch to using Rule 10c-1a data. Second, some market 
participants who currently contribute data under a give-to-get model 
may find it less worthwhile to do so when the rule provides an 
alternative source of data. This effect would diminish the quality of 
the give-to-get data currently provided by commercial data vendors and 
may lead to fewer market participants being willing to purchase the 
data. Both of these effects could result in lower revenues. To the 
extent that data vendors do pare back their product offerings and/or if 
the quality of their data products are diminished, then this could 
reduce transparency in the securities lending market in cases where 
these datasets contain information that is not collected and 
disseminated by the final rule, such as utilization rates and shares 
available to lend.
---------------------------------------------------------------------------

    \1007\ See, e.g., Overdahl Letter, at 4.
---------------------------------------------------------------------------

    The Commission believes that a potential mitigating factor that may 
reduce or even offset the severity of this loss in revenue will be that 
commercial data vendors may offset some of the impact of lowered demand 
for their data by enhancing their related data analytics businesses 
using Rule 10c-1a data.\1008\ Furthermore, to the extent that customers 
value the availability of information about securities available to 
lend and utilization rates, the fact that commercial data vendors will 
continue to have superior access to this information \1009\ will likely 
mitigate or even offset a decrease in demand, as investors would 
continue to purchase commercial datasets in order to gain access to 
this information. The Commission is unable to quantify the potential 
impact of the final rule on securities lending data vendors' revenues 
because this would require knowledge of the baseline level of such 
revenues, which the Commission does not have access to and about which 
commenters did not provide information.
---------------------------------------------------------------------------

    \1008\ See supra Part IX.C.1 for further discussion of the 
expected effects of the final rule in creating new business 
opportunities for providers of securities lending data analytics 
services.
    \1009\ Note, however, that the information about shares 
available to lend collected by commercial data vendors is likely 
subject to the issues discussed in supra Part IX.B.2, including 
self-selection biases and a lack of comprehensiveness.
---------------------------------------------------------------------------

Miscellaneous Costs
    Some commenters expressed concern that the rule requires the 
reporting of sensitive information and thus could present a risk to 
individuals in the case of a data breach.\1010\ The Commission 
recognizes that the final rule collects sensitive information and that 
the costs of a data breach could can be substantial.\1011\ These costs 
include, but

[[Page 75722]]

are not limited to, the following: (1) trading losses that could occur 
due to the revelation of private trading strategies or economic 
positions which may enable identifying and trading opportunistically 
around such strategies, such as facilitating a short squeeze; (2) 
business disruptions that could occur if the data breach results in 
temporary system down time; (3) data breach response costs as market 
participants must devote resources to determining how to respond to the 
data breach; and (4) reputational harm to an RNSA. While the potential 
costs of a breach, to the extent that one occurs could be severe, 
RNSAs, as well as ATSs and SROs, are currently subject to existing 
regulations that aim to improve the resiliency and oversight of 
securities market technology infrastructure, such as Regulation Systems 
Compliance and Integrity (``Regulation SCI'').\1012\ Adherence to 
regulations that seek to ensure the resiliency and integrity of 
technology systems can reduce the probability of a data breach and 
mitigate the costs associated with a breach, should it occur.
---------------------------------------------------------------------------

    \1010\ See, e.g., IIB Letter, at 11; Charles Schwab Letter, at 
2.
    \1011\ See, e.g., Proposed Rule, Cybersecurity Risk Management 
Rule for Broker-Dealers, Clearing Agencies, Major Security-Based 
Swap Participants, the Municipal Securities Rulemaking Board, 
National Securities Associations, National Securities Exchanges, 
Security-Based Swap Data Repositories, Security-Based Swap Dealers, 
and Transfer Agents (``Proposed Cybersecurity Rule''), 88 FR 20212 
(Apr. 5, 2023) (``In 2020, the average loss in the financial 
services industry was $18.3 million, per company per incident. The 
average cost of a financial services data breach was $5.85 
million.'') (citing Jennifer Rose Hale, The Soaring Risks of 
Financial Services Cybercrime: By the Numbers, Diligent (Apr. 9, 
2021).
    \1012\ See 79 FR 72252. See also SEC, Spotlight on Regulation 
SCI, available at https://www.sec.gov/spotlight/regulation-sci.
---------------------------------------------------------------------------

    Some commenters expressed concern that the rule could inhibit 
innovation in securities lending, such as the potential adoption of 
blockchain technology, by diverting resources away from innovation and 
towards compliance.\1013\ While such diversion is possible, we expect 
that market participants will continue to pursue innovation that 
creates a competitive advantage or for which there is a market demand. 
One commenter suggested that innovations such as blockchain technology 
could obviate the need for transaction reporting systems.\1014\ The 
Commission acknowledges this possibility; however, such innovations 
would need to overcome the market failures described earlier in this 
analysis.\1015\
---------------------------------------------------------------------------

    \1013\ See, e.g., RMA Letter, at 8; ISLA Letter, at 3.
    \1014\ See, e.g., RMA Letter, at 8 (stating that ``financial 
technologies like blockchain that could ultimately obviate the need 
for special transaction reporting systems and make transactions 
viewable on their native ledgers.'').
    \1015\ See supra Part IX.A.2.
---------------------------------------------------------------------------

    One commenter expressed concern that, ``with lenders dependent upon 
their agents for reporting to the RNSA, the rule could make it more 
difficult for lenders to switch agents.'' \1016\ To the extent that 
there would be any bespoke reporting services offered by lending 
agents, it is possible that the final rule could increase a lender's 
dependence on their lending agent, and thus marginally increase their 
costs of switching agents. However, the Commission expects this 
increased cost, to the extent it occurs, to be minimal. The Commission 
expects that many covered persons, including lending agents, will rely 
on reporting agents to provide the Rule 10c-1a information directly to 
an RNSA. This would generally result in an unbundling of lending and 
reporting services, such that an increased dependence on a lending 
agent for their reporting services would be unlikely. To the extent 
that a lender requests or requires bespoke reporting services from 
their lending agent, that lender could examine such a service among the 
package of lending services--including reporting services--that a 
prospective agent offers, and decide accordingly while taking into 
account the potentially higher costs of switching to a new lending 
agent.
---------------------------------------------------------------------------

    \1016\ See CSFME Letter 1, at 5.
---------------------------------------------------------------------------

    To the extent that there are entities that would like to serve as 
reporting agents but are not currently registered as broker-
dealers,\1017\ the cost of registering as a broker-dealer may be 
another cost associated with the final rule.\1018\ However, the final 
rule does not require any entity to serve as a reporting agent, and as 
such this cost would only accrue to those entities that make the 
business decision to become a reporting agent. It is likely that an 
entity that is not currently registered as a broker or dealer will only 
make the business decision to become a reporting agent if they believe 
that the cost of registering as a broker-dealer is more than offset by 
the revenue that they will earn as a reporting agent.
---------------------------------------------------------------------------

    \1017\ One commenter that is not a broker-dealer requested that 
the Commission allow non-broker-dealers to become reporting agents 
because they already have connections to firms for the reporting of 
securities loans. See S3 Partners Letter, at 12.
    \1018\ See final Rule 10c-1a(ii)(A), requiring a reporting agent 
to be a broker or dealer.
---------------------------------------------------------------------------

5. Reduced Benefits From Alternative Arrangements
Economically Similar Arrangements
    The Commission recognizes a risk that the comprehensiveness of Rule 
10c-1a data, and hence the benefits that accrue due to the 
comprehensive nature of the data, could be diminished to the extent 
that market participants choose to use arrangements that are 
economically similar to securities lending agreements. For example, 
market participants may substitute repo for securities lending 
agreements.\1019\ This substitution may occur because a fixed term cash 
collateralized securities loan is economically very similar to a 
repo.\1020\ While the Commission is unaware of short sales of equities 
currently being facilitated by repo contracts, the Commission 
understands that in fixed-income it is fairly common for entities 
wishing to short sell a bond to facilitate that transaction with a repo 
instead of a securities loan.
---------------------------------------------------------------------------

    \1019\ See supra note 776 for a definition and discussion of 
repo contracts.
    \1020\ See supra note 777 for evidence of this from the OFR 
Pilot Survey.
---------------------------------------------------------------------------

    The Commission believes that this risk varies across asset classes. 
In equities, the Commission believes that the current risk of such 
migration may be minimal because of the lack of a well-developed repo 
market for equities. However, this risk may increase if the market for 
equity repos becomes more developed in the future.\1021\ Among fixed-
income securities the risk is substantially greater due to a well-
developed repo market for fixed-income securities and the established 
practice of using both securities loans and repo transactions to 
facilitate short sales of fixed-income securities. In all asset 
classes, if the final Rule 10c-1a leads to improvements in the 
functioning of the securities lending market, then the risk of 
migration may diminish to the extent that improved efficiency in the 
securities lending market diminishes the incentive to transfer activity 
to potentially less developed repo markets.
---------------------------------------------------------------------------

    \1021\ The Commission views it as unlikely that the equity repo 
market will develop to a similar extent as the fixed income repo 
market in the near future. Repos are primarily used for short term 
finance and due to the volatility of equities relative to fixed-
income securities, equities are a significantly riskier collateral 
type, limiting their appeal as ``collateral'' for short term 
finance.
---------------------------------------------------------------------------

    Should this substitution affect a significant volume of securities 
lending, certain benefits and costs discussed above may decline. The 
less comprehensive data could reduce the extent to which the Rule 
reduces any biases or gaps in the data. For instance, market 
participants who use the data to price securities loans will have a 
less accurate and potentially biased view of the market, which will 
limit the benefits from increased transparency.\1022\ Additionally, 
regulators using the data to determine lending market conditions at the 
time of, for example, a Reg SHO

[[Page 75723]]

violation will be using less precise data--limiting the benefits of Reg 
SHO enforcement. On the other hand, such substitution could reduce 
compliance costs for some. Obviously, those substituting into repo will 
incur lower compliance costs from the final rule, including one-time 
implementation costs if they replace all securities lending with repo. 
Further, a significant substitution will reduce the ongoing costs of an 
RNSA because an RNSA will not have to collect and process as many 
transaction reports.
---------------------------------------------------------------------------

    \1022\ See supra Part IX.C.1 for a discussion of expected 
benefits from the final rule related to increasing the transparency 
of the securities lending market. One commenter states that the 
benefits of the rule are likely to be limited for fixed-income (see 
RMA Letter, at 16; see also supra note 950), which, as discussed in 
this section, is also the asset class most likely to see 
circumvention through the use of repo markets. As discussed in supra 
Part IX.C.1, the Commission expects the fixed-income market to 
benefit from the final rule. However, to the extent that this asset 
class sees lower overall benefits from final Rule 10c-1a, this would 
also serve to limit the amount to which the benefits of final Rule 
10c-1a would be lowered as a result of circumvention.
---------------------------------------------------------------------------

Cross-Border Application
    One commenter expressed concern that ``an overly broad or ambiguous 
reach of Proposed Rule 10c-1 could reduce liquidity and place U.S. 
intermediaries . . . at a competitive disadvantage,'' because ``market 
participants--particularly those outside of the United States--might 
determine to limit or cease trading or interacting with U.S. 
intermediaries (or leave the U.S. markets all together) in order to 
prevent public disclosure of their transactions.'' \1023\ The 
Commission acknowledges some market participants could be incentivized 
to restructure their activities to avoid reporting. Specifically, in an 
effort to avoid having their lending activities fall within the reach 
of section 10(c), participants could relocate overseas any of their 
current U.S.-based conduct that constitutes effecting, accepting, or 
facilitating a lending transaction. However, the Commission believes 
that this risk is low. As pointed out by the same commenter, there are 
disincentives for market participants to move lending activity outside 
of the U.S. market, including ``the depth and liquidity of the U.S. 
market,'' as well as few incentives for ``U.S. asset managers to prefer 
non-U.S. lenders that are themselves subject to similar reporting 
requirements in their home jurisdictions.'' \1024\
---------------------------------------------------------------------------

    \1023\ See supra note 660, citing HSBC Letter 1.
    \1024\ See supra note 660, citing HSBC Letter 2.
---------------------------------------------------------------------------

C. Impact on Efficiency, Competition, and Capital Formation

1. Efficiency
    In the securities lending market, the availability of Rule 10c-1a 
data for market participants will lead to more efficient prices for 
securities loans.\1025\ The reduction in asymmetric information in the 
market for lending programs and broker-dealers may also make those 
markets more efficient.\1026\ Additionally, the Commission believes 
that final Rule 10c-1a may have secondary effects that will increase 
price efficiency in the underlying securities markets and option 
markets.\1027\ Also, the increased ease with which banks and other 
financial institutions will be able to manage collateral and balance 
sheets as a result of the final rule \1028\ could lead to increased 
efficiency in their functioning and in those markets in which they play 
a role.
---------------------------------------------------------------------------

    \1025\ See supra Part IX.C.1 for a discussion of how an increase 
in transparency in the securities lending market will improve market 
efficiency. More efficient prices do not imply that all securities 
loans will have the same price. There are many factors that affect 
the cost of a securities loan and can lead to a range of prices for 
securities loans. See supra note 780 and corresponding text.
    \1026\ See supra Part IX.C.1 for a discussion of the final 
rule's expected benefits from reducing asymmetric information in the 
securities lending market.
    \1027\ See supra Part IX.C.1 for a discussion of the final 
rule's expected benefits for markets related to the securities 
lending market, and for a discussion of the final rule's benefits 
for the underlying securities market from reducing short selling 
costs.
    \1028\ See supra Part IX.C.1 for a discussion of the final 
rule's expected benefits from improved financial management for 
financial institutions.
---------------------------------------------------------------------------

2. Competition
    The Commission believes that the net impact of final Rule 10c-1a on 
competition is difficult to predict, in that some aspects will likely 
increase competition and some aspects will likely reduce competition. 
Competition will likely be impacted in the markets for broker-dealer 
services, lending programs, and securities lending data vendors.
    The Commission believes that one effect from the final rule's 
reduction of information asymmetry between end borrowers and broker-
dealers, and between beneficial owners and lending programs, will be to 
increase competition between broker-dealers and between lending 
programs.\1029\ A reduction in information asymmetry will permit better 
monitoring of the performance of these entities by their respective 
customers, and will likely force these entities to do more to match the 
performance of their competitors, to the extent that they do not 
already do so. One commenter stated that the effect of the final rule 
on competition between broker-dealers may be attenuated by the presence 
of high switching costs.\1030\ The Commission does not believe that 
switching costs for most market participants are high enough such that 
this is a likely outcome.\1031\
---------------------------------------------------------------------------

    \1029\ See supra Part IX.C.1 for a discussion of the expected 
effects of the rule in terms of reducing information asymmetries 
between end borrowers and broker-dealers, and between beneficial 
owners and lending programs. See also supra note 855 and 
corresponding text. The requirement to report information once a 
loan modification occurs after that loan qualifies for reporting 
will further support the benefits of the final rule, including 
reduced information asymmetries and enhanced price competition, by 
helping to ensure a level playing field during the earlier phases of 
implementation. This provision will prevent lenders that have a 
higher number of long-term loans that did not initially qualify for 
final Rule 10c-1a reporting from gaining a competitive advantage by 
being able to see the loans of other market participants without 
disclosing the terms of their own loans. See supra Part IX.C.1.
    \1030\ See Citadel Letter, at 8.
    \1031\ See supra Part IX.C.1 for a discussion of why switching 
costs may be limited.
---------------------------------------------------------------------------

    Furthermore, the increased ability for broker-dealers to monitor 
conditions in the lending market may encourage new broker-dealers to 
enter the market, further increasing competition for broker-dealer 
services. This same argument may be true for platforms that engage in 
securities lending. Improved data may allow for better evaluation of 
the performance of such platforms and may also lower barriers to entry 
for new platforms, thus enhancing competition among securities lending 
platforms.
    Commenters expressed concern that competition in the securities 
lending market could decrease if lenders are driven out of the market 
because of compliance costs.\1032\ The Commission does not believe that 
compliance costs are such that this would be a likely scenario because 
the projected compliance costs associated with final Rule 10c-1a are 
likely to be a relatively small fraction of total lending fee 
revenues.\1033\ At the same time, the reduction in asymmetric 
information in the securities lending market that will result from the 
final rule may diminish broker-dealer and lending program profits to 
the extent that it reduces their current information advantage over 
their customers.\1034\ To this end, some broker-dealers and lending 
programs whose profitability primarily depends on economic 
inefficiencies associated with asymmetric information may exit the 
market for facilitating securities loans.
---------------------------------------------------------------------------

    \1032\ See, e.g., RMA Letter, at 5.
    \1033\ See supra note 993 and corresponding text for an estimate 
of compliance costs as a fraction of securities lending revenues.
    \1034\ See supra Part IX.C.4 for further discussion. This was 
also acknowledged by the Commission in the Proposing Release; See 
Proposing Release, 86 FR 69837, stating that a ``reduction in 
information asymmetry could result in reduced revenue for some 
broker-dealers and lending programs.''
---------------------------------------------------------------------------

    The Commission also recognizes that, given the significant fixed 
costs of implementing the systems required by the final rule for 
lending programs to report to an RNSA, some smaller \1035\

[[Page 75724]]

lending programs and broker-dealers may consolidate or exit the lending 
market. The Commission believes that a mitigating factor leading to 
less consolidation is that the current relationship and network 
structure of lending programs and broker dealers already favors larger 
lending programs and broker-dealers who have the resources to maintain 
relationships with more and larger securities lending counterparties. 
Consequently, the Commission believes that the market for lending 
programs and broker-dealer security borrowing services is already 
likely dominated by larger lending programs and broker-dealers that the 
Commission does not believe will cease operating as a result of these 
fixed costs.\1036\ The Commission recognizes that smaller lending 
agents may have unique business models that are not currently offered 
by competitors, but the Commission believes a competitor could create 
similar business models if demand were adequate.\1037\
---------------------------------------------------------------------------

    \1035\ The term ``smaller'' in the Economic Analysis does not 
mean that these are ``small businesses'' or ``small entities'' for 
purposes of the Regulatory Flexibility Act. See infra Part XI. 
Rather, smaller is meant to convey the size of these entities in 
relation to larger market participants engaged in securities lending 
transactions.
    \1036\ An additional mitigating factor in the case of broker-
dealers is that the Commission views it as likely that smaller 
broker-dealers currently contract with larger broker-dealers to help 
facilitate securities loans for their customers, and thus, may be 
able to easily contract with these larger broker-dealers to also act 
as a reporting agent on their behalf. This dynamic may limit the 
potential for new entrants to the broker-dealer space to compete 
with established broker dealers.
    \1037\ The Commission believes that this effect will be enhanced 
under the final rule as compared to the proposed rule. While 
proposed Rule 10c-1 only allowed a ``bank, clearing agency, broker, 
or dealer'' to act as a lending agent or ``intermediary'' (see 
proposed Rule 10c-1(a)(1)(i)(A)), the final rule applies the term 
``intermediary'' more broadly to ``any person that effects a covered 
securities loan on behalf of the lender'' (see final Rule 10c-
1a(j)(1)(i)). Permitting other types of persons who can act as 
lending agents in addition to banks, clearing agencies, brokers, or 
dealers will support the ability of new lending agents to enter the 
market, promoting competition in the market for lending services.
---------------------------------------------------------------------------

    The Commission believes that the dissemination of Rule 10c-1a data 
collected under the final rule will change the competitive landscape 
for securities lending data analytics services by increasing 
opportunities for enhancing products and services that depend on 
securities lending data and lowering barriers to entry concerning who 
can provide those services.\1038\ Increased competition in this space 
will likely lead to more options for consumers of analytics services, 
lower prices, and improved analytics services. The new information 
available through an RNSA as a result of the final rule will produce an 
alternative to existing data vendors' commercial securities lending 
data products. Existing data vendors may retain a competitive 
advantage, however, as they will likely continue to have access to 
information on utilization rates and shares available for lending, 
which are not provided by the final rule.
---------------------------------------------------------------------------

    \1038\ See supra note 853 and corresponding text. However, the 
Commission acknowledges that the final rule may result in some loss 
of revenue or product quality for some commercial data vendors. See 
supra Part IX.C.4.
---------------------------------------------------------------------------

    Some commenters expressed concern that the rule would cause lending 
activity to migrate overseas to avoid the reporting obligation under 
final Rule 10c-1a, which would make the U.S. securities lending market 
less competitive.\1039\ While it is possible that some market 
participants could move their activity to other jurisdictions in 
attempt to circumvent the reporting obligation of final Rule 10c-1a, 
the Commission believes that it is unlikely that this would occur on a 
large scale. This is because the final Rule imposes a reporting 
obligation on any qualifying loan regardless of whether the person is 
located abroad or is a non-U.S. person when the transaction 
occurs.\1040\
---------------------------------------------------------------------------

    \1039\ See, e.g., HSBC Letter 1, at 5.
    \1040\ See supra Part VII.M for further discussion of the cross-
border applicability of final Rule 10c-1a.
---------------------------------------------------------------------------

    In addition, as stated above, some commenters requested the 
Commission consider interactions between the economic effects of the 
proposed rule and other recent Commission rules, as well as practical 
realities such as implementation timelines. One commenter stated that 
because ``[t]he resources of market participants are not infinite,'' 
that commenter ``believe[s that] unnecessary and aggressively timed 
regulatory changes will impact costs, complexity, competition and the 
ability of smaller market participants to enter into or remain in the 
markets.'' \1041\ As discussed above, the Commission acknowledges that 
simultaneous compliance periods may in some cases increase costs. This 
may be particularly true for smaller entities with more limited 
compliance resources. This effect can negatively impact competition 
because these entities may be less able to absorb or pass on these 
additional costs, making it more difficult for them to remain in 
business or compete. However, we determined that the rules highlighted 
by commenters either did not impose implementation costs on the same 
entities as this final rule and/or had compliance dates that did not 
significantly overlap with the expected industry compliance dates of 
this final rule, and therefore we do not expect these effects on 
competition to be significant.\1042\ We acknowledge that to the extent 
such overlap (in scope or timing) occurs, there could be costs which 
could affect competition, but we do not expect these costs to be 
significant.
---------------------------------------------------------------------------

    \1041\ See ICI Letter 2, at 12. See also supra Part IX.B.6 for a 
description of related comments.
    \1042\ See also supra Part IX.C.3.
---------------------------------------------------------------------------

3. Capital Formation
    The Commission believes that the impact of final Rule 10c-1a will 
have mostly positive effects on capital formation. In particular, 
improved price discovery in securities markets \1043\ and improved 
balance sheet management by financial institutions \1044\ could 
facilitate improvements in the provision of capital. In addition, to 
the extent that the final rule reduces the costs of short selling it 
may facilitate more effective discovery of negative information that in 
turn could lead to more efficient allocation of capital.\1045\ However, 
to the extent that the Rule increases the cost of short selling for 
some stocks in some situations, it could also lead to less efficient 
allocation of capital in these instances.\1046\
---------------------------------------------------------------------------

    \1043\ See supra Part IX.C.1 for further discussion of the 
expected benefits of the final rule from increased transparency in 
the securities lending market, including improvements in price 
discovery. See also supra Part IX.D.1.
    \1044\ See supra Part IX.C.1 for further discussion of the 
expected benefits of the final rule related to improved financial 
management for financial institutions.
    \1045\ See supra Part IX.C.1.
    \1046\ See supra Part IX.C.1 discussing instances where the cost 
of short selling could increase, consistent with the views of some 
commenters.
---------------------------------------------------------------------------

D. Alternatives

1. Report Loan Sizes Without a Delay
    The Commission considered an alternative requiring that an RNSA 
disseminate loan sizes at the same time as it disseminates all other 
loan information (i.e., without a 20-business-day delay). This 
alternative would increase the timeliness of securities lending 
information available to the public, which could improve market quality 
by reducing information asymmetries as well as providing additional 
transparency to the securities lending market. However, it could also 
harm market quality by providing novel information about short 
positions with a greater timeliness than the short selling information 
that is currently available.\1047\
---------------------------------------------------------------------------

    \1047\ See supra Part IX.B.6 for further discussion of the 
timeliness of current sources of short selling information.
---------------------------------------------------------------------------

    To the extent that the aggregate cost-to-borrow statistics that an 
RNSA publicly disseminates are volume-weighted, these statistics will 
provide end borrowers with access to

[[Page 75725]]

information about loan prices that incorporates information about loan 
sizes even prior to the public dissemination of loan sizes.\1048\ 
However, disseminating securities loan sizes as well as modifications 
of securities loan sizes on the next business day after a loan is 
effected or modified would allow market participants to produce their 
own custom cost-to-borrow metrics that are most tailored to their 
business needs. This would allow market participants to focus on the 
aspects of the market that are most relevant to their business needs. 
This effect would increase the benefits of final Rule 10c-1a from 
increased transparency in the securities lending market.\1049\
---------------------------------------------------------------------------

    \1048\ If an RNSA chooses to publish cost to borrow statistics 
that are very granular and, for example, provide separate statistics 
for Customer and Wholesale loans and/or according to other loan 
characteristics, then end borrowers would be able to benchmark their 
transactions to these statistics with increased accuracy. To the 
extent that an RNSA chooses to publish less granular statistics, 
then the end borrower could still benchmark relative to the cost to 
borrow statistics provided by an RNSA, but the benchmark would be 
noisier.
    \1049\ See supra Part IX.C.1 for further discussion of the 
expected benefits of the final rule from increasing the transparency 
of the securities lending market.
---------------------------------------------------------------------------

    However, the information could also be used to estimate short 
selling positions with more accuracy than is possible under the final 
rule. A market participant wishing to gain insight into short selling 
sentiment could aggregate the sizes of all open loans that are 
associated with categories of borrowers that are likely to be short 
sellers.\1050\ If information about these loans is available the day 
after the loans are effected then, given the settlement cycles for 
equity short sales and equity loans,\1051\ this would be equivalent to 
three business days after an equity short sale took place. These data 
would be considerably timelier than existing short interest data such 
as the FINRA data. Additionally, market participants could follow 
individual short positions with a three-business-day lag for equity 
short positions. This is a capacity that is not possible using existing 
data. This could be accomplished by tracking individual loans that are 
marked as being to a customer if the lender is a broker dealer. While 
the identity of the borrower would not be available to the public, 
market participants could discern whether changes in short interest 
were due to changes across many positions or few.
---------------------------------------------------------------------------

    \1050\ See supra note 895 and corresponding text for more 
information about, since activity in the Customer market for 
securities loans are tightly linked to short selling positions, the 
sum of loans identified in the Rule 10c-1a data as being to ``a 
customer (if the person lending securities is a broker or dealer)'' 
could give a strong indication of aggregate short interest.
    \1051\ See supra note 738 and corresponding text.
---------------------------------------------------------------------------

    This additional information that market participants could extract 
about short selling could enable copycat investing strategies that seek 
to mimic what the short sellers do. This could increase the costs of 
establishing a short position, thus making it costlier for short 
sellers to profit from their research. If the profitability of research 
diminishes, there is the risk that less market research could be 
performed and, if this occurs, there could be negative impacts on 
market quality and corporate monitoring.\1052\
---------------------------------------------------------------------------

    \1052\ See supra Part IX.C.1 for further discussion of the 
potential negative consequences of revealing short sellers' 
strategies.
---------------------------------------------------------------------------

2. Alternative Timeframes for Reporting or Dissemination
    The Commission also considered an alternative requiring different 
timeframes for reporting or disseminating the securities lending 
transaction information.
    First, the Commission considered requiring covered persons to 
provide an RNSA with Rule 10c-1a information earlier than the end of 
each business day on which a covered securities loan is affected.\1053\ 
For example, the Commission could require covered persons to provide an 
RNSA with information about a loan within a fixed period after the loan 
has been effected, such as 15 minutes. This alternative would increase 
the timeliness of securities lending information, potentially 
increasing some of the benefits of final Rule 10c-1a, such as 
regulators' access to this information for regulatory and surveillance 
use.\1054\ Furthermore, if an RNSA were required to make the 
information publicly available as soon as practicable after an, e.g., 
15-minute reporting timeframe, this could increase the benefits of the 
final rule for transparency in the securities lending market by making 
the data available up to one business day sooner than under the final 
rule.\1055\ It would, however, likely increase compliance costs to an 
RNSA as they would be required to build out systems capable of intraday 
dissemination.
---------------------------------------------------------------------------

    \1053\ See final Rule 10c-1a(c).
    \1054\ See supra Part IX.C.2 for further discussion of the 
regulatory benefits of the final rule.
    \1055\ See supra Part IX.C.1 for further discussion of the 
expected benefits of the final rule from increasing transparency in 
the securities lending market.
---------------------------------------------------------------------------

    At the same time, several commenters pointed out numerous costs 
associated with more timely and frequent reporting. For example, some 
commenters suggested many loan terms are not finalized until the end of 
the day,\1056\ and so a 15 minute reporting requirement increases the 
risk that the data provided by the final rule could be less accurate 
and more prone to errors that would later have to be corrected, which 
would mitigate the usefulness of the final rule. This alternative would 
also require greater compliance costs because, as commenters also 
pointed out, securities lending systems would need greater adaptations 
to comply with a more stringent reporting time horizon.\1057\
---------------------------------------------------------------------------

    \1056\ See, e.g., SIFMA AMG Letter, at 4 (stating that ``the 
securities lending market is not an `intraday market,' as the terms 
are not settled at the exact time a loan `is agreed to by the 
parties.' Rather, terms such as collateral type, fees, and even loan 
size are worked out between the parties before ultimately being 
settled, typically at the end of the business day''); Charles Schwab 
Letter, at 2 (stating that ``some loans are not finalized until the 
end of the trading day''); BlackRock Letter, at 2 (stating that 
``the nature of the securities lending markets poses a number of 
logistical hurdles that will make intraday reporting impractical'').
    \1057\ See, e.g., IHS Markit Letter, at 13 (stating that ``most 
lenders will not be able to meet the 15-minute requirement without 
substantial technology development and cost''); Charles Schwab 
Letter, at 2 (stating that ``the proposed 15-minute reporting window 
would . . . [create] a significant operational burden on firms'').
---------------------------------------------------------------------------

    The Commission could also require covered persons to provide an 
RNSA with Rule 10c-1a information later than the end of each business 
day on which a covered securities loan is effected, for example, by the 
end of the next business day after a covered securities loan is 
effected. This alternative may lead to lower compliance costs, as 
reporting entities would have more time to prepare the Rule 10c-1a 
information for reporting; however, the Commission believes that longer 
reporting horizons would likely not decrease the cost substantially due 
to the automated nature of the securities lending transactions and the 
need to build out systems regardless. Furthermore, a longer reporting 
horizon would delay the dissemination and availability of securities 
loan information, potentially reducing some of the benefits of the 
final rule.
    In general, because securities loan terms cannot be disseminated 
until after they are reported, alternative reporting timeframes reflect 
different tradeoffs between the value of disseminating security loan 
terms close to the time that the loan is effected, and the compliance 
costs associated with reporting loans at shorter time horizons.
    The Commission also considered alternatives requiring an RNSA to 
distribute the collected data required in paragraph (c) at different 
horizons, such

[[Page 75726]]

as by the end of the following day.\1058\ This alternative would allow 
an RNSA to process the data during regular business hours, potentially 
limiting the amount of data validation an RNSA could perform prior to 
distributing the data. However, this would delay market participants' 
abilities to benefit from Rule 10c-1a data by at least a business day. 
Furthermore, given the automated nature of the data, the compliance 
costs associated with this alternative are not likely to be 
significantly lower than those associated with the final rule. 
Alternative dissemination timeframes reflect different tradeoffs 
between price discovery and price efficiency benefits on one hand and 
harmful information leakage on the other, as well as the cost of 
reporting at a faster or slower horizon.
---------------------------------------------------------------------------

    \1058\ The final rule requires an RNSA to disseminate 
transaction-level information (apart from loan size) as soon as 
practicable, but no later than the morning of the business day after 
the covered securities loan is affected. See final Rule 10c-1a(g). 
For a discussion of an alternative in which loan size information is 
released without a delay, see supra Part IX.E.1.
---------------------------------------------------------------------------

    An alternative dissemination timeline could require delayed 
dissemination of size information about large loans (i.e., loans larger 
than a certain size threshold) while disseminating size information 
about smaller loans the next business day. This alternative would 
provide more information to the market than the final rule because it 
would not mask the size of smaller loans, and thus could enhance the 
final rule's benefits due to increased transparency.\1059\ However, 
this alternative would increase the amount of novel information about 
short positions that the market could learn from Rule 10c-1a data, 
which would increase the risk of negative effects due to over-exposing 
short selling information.\1060\ This alternative would also increase 
the complexity of the Rule as determinations would need to be made 
regarding the optimal threshold size level, as well as how to handle 
loan modifications that could potentially move a given loan size above 
or below the given threshold.
---------------------------------------------------------------------------

    \1059\ See supra Part IX.C.1.
    \1060\ See supra Part IX.C.1 for further discussion of the 
potential negative consequences of revealing short sellers' 
information.
---------------------------------------------------------------------------

3. Only Require Dissemination of Aggregate or Wholesale Statistics
    The Commission also considered an alternative whereby an RNSA would 
produce only aggregate statistics and no transaction-by-transaction 
reports.\1061\ Specifically, an RNSA could aggregate transaction data 
elements and produce various aggregated statistics at the end of the 
business day following the date that the loans were effectuated, 
without disseminating the raw transaction-by-transaction data.
---------------------------------------------------------------------------

    \1061\ This was suggested by some commenters. See, e.g., RMA 
Letter, at 4; SIFMA Letter 1, at 3-4, MFA Letter 3, at 4-5.
---------------------------------------------------------------------------

    This alternative would not change the reporting requirements for 
covered persons relative to the final rule and thus would have the same 
initial and ongoing compliance costs as the final rule for covered 
persons. This alternative would be somewhat less costly to implement 
for an RNSA than the final rule, which requires an RNSA to produce 
daily aggregate information,\1062\ similar to this alternative, but 
also requires dissemination of loan-by-loan information, which this 
alternative would not do.
---------------------------------------------------------------------------

    \1062\ See final Rule 10c-1a(g)(5).
---------------------------------------------------------------------------

    This alternative would increase the amount of information available 
to the public relative to the baseline and thus would mitigate 
information asymmetries relative to the baseline. Aggregate statistics 
would also make it more difficult for market participants to use the 
data to discern information about short positions, which would reduce 
the risk of exposing short selling strategies relative to the adopted 
Rule.\1063\
---------------------------------------------------------------------------

    \1063\ See supra Part IX.C.1 for further discussion of the 
potential negative consequences of revealing short sellers' 
information.
---------------------------------------------------------------------------

    However, only having daily aggregate data would not provide the 
same transparency benefits as final Rule 10c-1a. Without comprehensive 
transaction data, it would be more difficult for market participants to 
study and understand pricing dynamics in the securities lending market. 
The alternative would also make it more difficult for end investors to 
determine if the terms that their broker-dealer offers are consistent 
with current market terms for similar loans, rendering it more 
difficult for investors to evaluate the performance of their broker-
dealer. Similarly, without transaction data, beneficial owners would be 
hampered in their ability to determine whether the terms for loans 
secured by their lending agents were consistent with market conditions 
for loans with similar characteristics, rendering it more difficult for 
beneficial owners to evaluate the performance of their lending agents. 
A lack of publicly disseminated transaction data may also hinder 
broker-dealers from determining if the terms being offered by a lending 
agent for a loan are consistent with market conditions for similar 
loans. These effects would reduce the benefits of final rule for 
improved competition.
    The diminished transparency of this alternative relative to the 
final rule may also lead to less improvement in the efficiency of the 
securities lending market, leading to fewer benefits for traders in the 
form of increased trading profits.\1064\ This alternative would also 
hamper research into the securities lending market by some market 
participants and academics, relative to the final rule, by preventing 
researchers from performing analysis using individual transactions.
---------------------------------------------------------------------------

    \1064\ See supra Part IX.C.1 for a discussion of how improvement 
in securities lending information could lead to increased profits 
for some investors by increasing their certainty regarding 
investment strategies that require borrowing securities.
---------------------------------------------------------------------------

    The Commission also considered several alternatives related to the 
applicability of the rule to market for Customer loans, including an 
alternative in which Customers loan are excluded from reporting 
requirements, and an alternative in which Customer loans are reported, 
but not disseminated to the public. One commenter stated that ``the 
Commission should limit the Proposal to the `wholesale' market,'' 
because including Customer market loans in a securities lending 
reporting regime would be akin to a ``transaction-by-transaction short 
sale public reporting regime.'' \1065\
---------------------------------------------------------------------------

    \1065\ See Citadel Letter, at 11. The commenter refers to Short 
Sale Linked Activity, by which the commenter stated that they are 
referring to what the Proposing Release calls the ``retail market'' 
(see Citadel Letter, at 1). The Economic Analysis uses the terms 
Wholesale market and Customer market to make clear the implications 
of the final rule for the different segments of the market. See also 
MFA Letter 3, at 4 (stating that ``it is critical that the Proposed 
Securities Lending Rules be revised to capture only wholesale 
securities lending activity'').
---------------------------------------------------------------------------

    The Commission believes that limiting the applicability of the rule 
for Customer loans would significantly limit the benefits of the rule 
for increasing transparency in the securities lending market. In 
particular, end borrowers would not benefit from a reduction in their 
information disadvantage vis-[agrave]-vis their broker-dealers in the 
securities lending market.\1066\ As a result, the effects of the rule 
on competition between broker-dealers, which would be expected to lower 
borrowing costs for hard-to-borrow stocks and thus reduce costs for 
short sellers, would not materialize.\1067\ Market participants would 
also not be able to use Rule 10c-1a data to compare trends in both the 
Wholesale and

[[Page 75727]]

Customer markets simultaneously.\1068\ Furthermore, while the 
Commission acknowledges that information about Customers loans can 
correspond closely to information about short positions,\1069\ the 
Commission believes that concerns about whether the dissemination of 
Customer loan information will harm short sellers are largely addressed 
by requiring that an RNSA delay public disclosure of the loan amount by 
20 business days. This modification should significantly reduce the 
novelty of the information disseminated under the final rule regarding 
short sellers' positions, such that it is less timely than pre-existing 
sources of short selling transparency, such as FINRA's bimonthly short 
interest data.\1070\
---------------------------------------------------------------------------

    \1066\ See supra Part IX.C.1 for a discussion of the expected 
effects of the final rule on reducing information asymmetry.
    \1067\ See supra Part IX.C.1 for a discussion of the expected 
effects of the final rule on short sellers.
    \1068\ See supra Part IX.C.1 for a discussion of this benefit.
    \1069\ See supra Part IX.B.6 for further discussion of why the 
market for Customer loans is tightly linked to short selling 
positions.
    \1070\ See supra Part IX.B.6 for a discussion of the FINRA 
bimonthly short interest data which are made available for 
publication on the seventh business day after the reporting 
settlement dates, which occur bimonthly.
---------------------------------------------------------------------------

    Second, excluding Customer loans from reporting requirements 
altogether would not only reduce the benefits of the rule from 
increased transparency as described above, but would also reduce the 
regulatory benefits of the rule, as the Commission and FINRA would no 
longer benefit from an improved ability to use Rule 10c-1a data for 
surveillance and enforcement, market reconstruction, and market 
research in Customer segment of the lending market.\1071\ Furthermore, 
it is unclear whether the costs of the rule for short sellers would be 
significantly reduced by the exclusion of Customer loans from reporting 
requirements compared to excluding them from dissemination, as the 
commenter's concerns related to the inclusion of Customer loans stem 
primarily from the public dissemination of this information.
---------------------------------------------------------------------------

    \1071\ See supra Part IX.C.2 for a discussion of the expected 
regulatory benefits associated with final Rule 10c-1a.
---------------------------------------------------------------------------

4. Require Reporting of Shares Available To Lend and Shares on Loan
    The Commission also considered an alternative requiring market 
participants to report shares available to lend and shares on loan to 
an RNSA. An RNSA would then produce aggregate statistics by security 
regarding shares available to loan and shares on loan. This alternative 
would increase the amount of information available to market 
participants regarding conditions in the securities lending market, 
which would increase the benefits of the rule from increased 
transparency.\1072\ It could also benefit consumers of Rule 10c-1a data 
by lowering barriers to entry for firms to start providing securities 
lending analytics services, as they could incorporate shares available 
into their analysis without purchasing data from the current commercial 
data vendors. This could lead to benefits in the form of increased 
competition for securities lending analytics.\1073\
---------------------------------------------------------------------------

    \1072\ See supra Part IX.C.1 for further discussion of the 
expected effects of the final rule on increase transparency in the 
securities lending market.
    \1073\ See supra Part IX.D.2 for further discussion of the final 
rule's expected effects on competition between securities lending 
data analytics firms.
---------------------------------------------------------------------------

    However, commenters opposed the inclusion of shares available on 
the grounds that any measure of shares available would be inherently 
noisy.\1074\ The Commission does not believe that requiring reporting 
entities to report shares available would result in a measure that is 
inherently noisier than the current estimates provided by commercial 
data vendors, which research shows can be informative.\1075\ As such a 
measure would be more comprehensive than existing estimates, it would 
likely be more informative than existing data estimates. However, the 
Commission acknowledges that any estimate of shares available to lend 
would be noisy for numerous reasons, including the reasons mentioned by 
commenters,\1076\ and that this noise limits the benefits of requiring 
the reporting of information about shares available to lend.
---------------------------------------------------------------------------

    \1074\ See, e.g., AIMA Letter 1, at 2; SIFMA AMG Letter, at 8, 
11; CASLA Letter, at 2; MFA Letter 3, at 6-7.
    \1075\ See, e.g., Dixon, et al. (2021) supra note 746.
    \1076\ See, e.g., SBAI Letter, at 2 (stating that ``funds 
managed under 1940 Act regulations have restrictions on their 
approach to securities lending (e.g., limit on lending: A fund may 
not have on loan at any time securities representing more than one-
third of the fund's total value), thereby not allowing an accurate 
calculation of 'securities available to lend' on an individual 
security basis'');'' MFA Letter 1, at 10 (stating that ``while a 
lender's portfolio holdings may be eligible securities for lending, 
they are unlikely to be `available to lend' at all times.''); See 
also SIFMA Letter 1, at 15 (stating that ``the number of securities 
in accounts of customers who have agreed to participate in a fully 
paid lending program and margin customer accounts will lead to a 
gross over-inflation of the number of securities available to lend. 
Customer margin inventory can be impacted due to volatility of 
customers (e.g., market makers and hedge funds) who often move 
positions in and out quickly. Customer balances often change and can 
also swing between debits/credits, resulting in positions being 
locked/released.'').
---------------------------------------------------------------------------

    This alternative would also increase the costs to the commercial 
data vendors that currently offer utilization rate and shares available 
information because it would provide market participants with alternate 
access to such information. This effect could lower demand for the data 
currently provided by commercial data vendors, leading to a loss of 
business for these data vendors.\1077\
---------------------------------------------------------------------------

    \1077\ See supra Part IX.C.4 for further discussion of the final 
rule's expected effects on securities lending data vendors' 
revenues.
---------------------------------------------------------------------------

    Regarding shares on loan information, the Commission believes that 
the benefit of requiring covered person to report aggregate information 
about shares on loan would also be limited, as this information is 
rendered somewhat redundant by the requirement that an RNSA disseminate 
aggregated transaction activity information for each security.\1078\ At 
the same time, requiring covered persons to report aggregate 
information about both shares on loan and shares available would 
increase the compliance costs relative to the final rule by requiring 
an additional report (i.e., a report on aggregated securities lending 
activities) to be reported to an RNSA in addition to the transaction-
by-transaction securities lending data.
---------------------------------------------------------------------------

    \1078\ See final Rule 10c-1a(g)(5).
---------------------------------------------------------------------------

5. Restrict Covered Persons to Broker-Dealers
    The Commission also considered an alternative requiring only 
broker-dealers, rather than any person that qualifies as a ``covered 
person'' under the definition in the rule,\1079\ to report securities 
lending transactions to an RNSA. The Commission believes that this 
alternative would be less costly overall than final Rule 10c-1a. 
Specifically, covered persons that are not broker-dealers would not 
incur any of the costs of reporting. As a result, fewer entities would 
incur costs. Further, most broker-dealers already have connections to 
FINRA, the only RNSA, so the overall implementation costs associated 
with connecting to an RNSA for the purposes of reporting would be 
lower.
---------------------------------------------------------------------------

    \1079\ See final Rule 10c-1a(j)(1) for a definition of ``covered 
person.''
---------------------------------------------------------------------------

    In addition, because most broker-dealers currently have 
relationships with FINRA, the Commission preliminarily believes that 
this alternative could be implemented sooner, allowing the market and 
market participants to benefit from an increase securities lending 
transparency sooner.\1080\
---------------------------------------------------------------------------

    \1080\ See supra Part IX.C.1 for further discussion of the 
expected benefits from the final rule stemming from increased 
transparency in the securities lending market.
---------------------------------------------------------------------------

    However, under this alternative, Rule 10c-1a data would not provide 
a comprehensive view into the securities lending market. Even though 
broker-dealer activity makes up a significant

[[Page 75728]]

percentage of securities lending transactions in the Customer market, 
the alternative would exclude market participants such as lending 
programs that are significant players in the securities lending market, 
particularly in the Wholesale market.\1081\ Thus, the alternative would 
obscure a large swath of the Wholesale market, making it more difficult 
for lending institutions, for example, to benefit from securities 
lending transparency because the included data would provide a less 
relevant benchmark.
---------------------------------------------------------------------------

    \1081\ See, e.g., Table 3 in the OFR Pilot Survey, which 
estimates that loans from broker-dealers only account for around 
1.57% of shares on loan and around 1.33% of shares available to loan 
in the Wholesale market.
---------------------------------------------------------------------------

    Requiring only broker-dealers to report data could also create a 
competitive advantage for non-broker-dealer entities that engage in 
securities lending. Such entities would not be required to report their 
transactions and thus would have lower costs. They would also be in a 
position to attract business from borrowers or beneficial owners 
seeking to keep their transactions out of the public view, further 
tilting the competitive landscape in their favor. This could create an 
uneven playing field for entities engaged in the securities lending 
market, diminishing the benefits of the rule for competition and 
transparency.
6. Expand Reporting Agents Beyond Broker-Dealers and Clearing Agencies
    The Commission also considered an alternative expanding who can act 
as a reporting agent to entities other than broker-dealers and clearing 
agencies.\1082\ Commenters expressed concern that restricting reporting 
agents to only broker-dealers would result in conflicts of interest 
between broker-dealers acting as reporting agents on the one hand, and 
beneficial owners and lenders who transact with these broker-dealers in 
the primary market on the other.\1083\ Since information about an 
entities' lending activities is likely to correspond closely to that 
entities' inventory levels, it is possible that such a risk of 
information leakage may be a significant cost for some lenders and 
lending agents who are ``highly concerned about visibility into 
inventory levels.'' \1084\
---------------------------------------------------------------------------

    \1082\ See final Rule 10c-1a(j)(4) for a definition of 
``reporting agent.''
    \1083\ See, e.g., IHS Markit Letter, at 2, 10-11; S3 Partners 
Letter, at 12.
    \1084\ See IHS Markit Letter, at 2.
---------------------------------------------------------------------------

    Furthermore, expanding reporting agents to entities other than 
broker-dealers and clearing agencies would serve to increase the number 
of entities that would compete to provide lenders and lending agents 
with reporting services. Thus, expanding the eligibility of reporting 
agents would serve to promote more competition in this market,\1085\ 
potentially leading to lower fees for lenders and lending agents that 
would rely on these reporting agents for these services.
---------------------------------------------------------------------------

    \1085\ This was supported by commenters. See, e.g., HMA Letter, 
at 8 (stating that ``having separate reporting agents who are not 
brokers may enable lenders to more freely shop amongst multiple, 
competing lending agents'').
---------------------------------------------------------------------------

    However, the Commissions believes that expanding reporting agent 
eligibility beyond broker-dealers and clearing agencies would increase 
the costs associated with the rule. The Commission's oversight over 
reporting agents that are neither broker-dealers nor clearing agencies 
could be limited, which could shift the costs of monitoring reporting 
agents for accuracy and compliance onto the lenders and lending agents 
that would hire them. This would serve to increase covered persons' 
ongoing costs.
    In addition, to the extent that covered persons are concerned about 
contracting with broker-dealers as reporting agents because of 
potential conflicts of interest, to the extent that there are clearing 
agencies that would act as reporting agents, these covered persons 
could contract with these entities. Furthermore, covered persons are 
not restricted from contracting privately to use third-party vendors to 
assist in reporting.\1086\ Therefore, those market participants that 
are concerned about revealing sensitive inventory information to 
broker-dealers but would still benefit from reporting assistance could 
privately contract with third-party vendors. Since covered persons 
could not rely on third-party vendors to fulfill their regulatory 
obligations,\1087\ contracting with a third-party vendor for assistance 
in reporting may require covered persons to incur some amount of 
monitoring costs; however, this option should provide covered persons 
with additional flexibility and a way to potentially mitigate reporting 
costs.\1088\
---------------------------------------------------------------------------

    \1086\ Note that, while covered persons can use third party 
vendors to help prepare their reports, such vendors would not be 
reporting agents under final Rule 10c-1a. See supra Part VII.B.2.
    \1087\ See id.
    \1088\ See supra Part IX.C.3 for a further discussion about how 
contracting with third party vendors may allow covered persons to 
lower their compliance costs.
---------------------------------------------------------------------------

7. Publicly Releasing the Information in 10c-1a(e)
    The Commission also considered an alternative requiring public 
disclosure of the information in Rule 10c-1a(e), namely available 
identifiers for each party to the transaction, whether the security is 
loaned from a broker's or dealer's securities inventory to a customer 
of such broker or dealer, and if known whether the loan is being used 
to close out a fail to deliver.
    Information on who the parties to the transaction are and whether a 
broker or dealer is lending to its own customer could refine the 
context around the other data elements in Rule 10c-1a that are public. 
Such refinement would be likely to alter trading strategies, which 
could have both positive and negative effects on market quality. For 
example, this information could allow the market to identify the 
positions of large short sellers. Empirical studies support the idea 
that short sellers are informed, suggesting that additional information 
about short selling could help investors better value securities.\1089\ 
Professional traders might seek to profit by developing trading 
strategies based on signals from the identities of those borrowing 
securities, particularly those borrowing a high volume. In addition, 
the information could be used to reduce the search costs in the 
securities lending market.
---------------------------------------------------------------------------

    \1089\ See, e.g., Joseph E. Engleberg, et al., How are Shorts 
Informed?: Short Sellers, News, and Information Processing, 105 J. 
Fin. Econ. 260 (2012); David E. Rapach, et al., Short Interest and 
Aggregate Stock Returns, 121 J. Fin. Econ. 46 (2016). However, one 
academic study finds that prices react to short sales even when 
short sales are not transparent to the market. See Michael J. 
Aitken, et al., Short Sales Are Almost Instantaneously Bad News: 
Evidence from the Australian Stock Exchange, 53 J. Fin. 2205 (1998).
---------------------------------------------------------------------------

    However, the information on whether the security loan is being used 
to close out a fail to deliver may be of little use to anyone other 
than regulators. At this time, the Commission is unaware of potential 
non-regulatory uses of such information that would be beneficial to the 
market.
    The alternative would result in higher costs to an RNSA, to those 
who access the data, and to participants in the securities lending 
market. An RNSA would incur higher costs to release the greater volume 
of data and those who access the data would incur higher costs to 
import and process the data. Trading strategies incorporating the 
identities of borrowers and lenders could negatively impact those 
borrowers and lenders in ways that could ultimately degrade price 
efficiency. In particular, identifying large short sellers could 
facilitate ``copycat strategies'' that seek to profit by copying the 
activity of others believed to have better information or by trading 
ahead of them.\1090\ If it facilitates such trading

[[Page 75729]]

strategies, releasing the identities of short sellers could act as a 
constraint on fundamental short selling, reducing the incentives to 
conduct fundamental research.\1091\ Less fundamental research could 
potentially result in over- or underpricing, because prices would not 
incorporate information short sellers would have otherwise collected 
and traded on. Revealing the identities of participants and when they 
are borrowing to close failures to deliver in the securities lending 
market could also result in pressure on lenders to recall loans or 
negative campaigns against short sellers.\1092\
---------------------------------------------------------------------------

    \1090\ See SEC Division of Economic Research and Analysis 
(DERA), Short Sale Position and Transaction Reporting (May 5, 2014), 
available at https://www.sec.gov/files/short-sale-position-and-transaction-reporting%2C0.pdf, at 52-53.
    \1091\ See Sanford J. Grossman & Joseph E. Stiglitz, On the 
Impossibility of Informationally Efficient Markets, 70 Am. Econ. 
Rev. 393 (1980), available at https://ssrn.com/abstract=228054 
(retrieved from SSRN Elsevier database).
    \1092\ See supra Part IX.C.1 for further discussion of the 
potential negative consequences of revealing short sellers' 
information.
---------------------------------------------------------------------------

8. Additional Information in the Reported or Disseminated Information
    The Commission also considered alternatives requiring additional 
data fields to be reported and requiring an RNSA to compute derived 
fields for public dissemination.
    For example, the Commission could require entities to report in 
their lending transactions whether a given loan was transacted on their 
own behalf, or on behalf of a customer, i.e., whether the loan was 
transacted on a principal or agent basis. This alternative would allow 
FINRA and the Commission to oversee compliance with various 
regulations. These data could allow for the review of transactions that 
occur by an entity on a principal and agent basis to look for 
systematically different terms between the two different types of 
transactions by the same broker-dealer. Such differences may flag to 
regulators that broker-dealers are not fulfilling their obligations and 
may be in violation of existing rules. Requiring such data would add 
complexity and additional cost to the rule. However, these costs may be 
minimal for broker-dealers, who are FINRA members, as the Commission 
understands that FINRA members already collect much of this 
information.\1093\ The Commission is unaware of any regulation or rule 
requiring non-FINRA members to collect this information, and this 
alternative may significantly increase costs for non-FINRA members who 
would be required to build out systems to collect and report such 
information.
---------------------------------------------------------------------------

    \1093\ See, e.g., FINRA Rule 4314.
---------------------------------------------------------------------------

    As discussed in the Proposing Release,\1094\ the Commission 
considered including in Rule 10c-1a(e) information on whether, if the 
lender is a broker or dealer, the securities are borrowed from 
customers who have agreed to participate in fully paid lending programs 
or from securities owned in its margin customers' accounts. Such 
information could help protect investors by improving the efficiency of 
surveillance of, for example, compliance with Rule 15c3-3(b)(3) related 
to providing the lender collateral to secure the loans of securities 
when broker-dealers lend shares from fully paid or excess margin 
securities from customers. However, the Commission has since come to 
understand that it may not be feasible for broker-dealers to identify 
which customers' shares are being loaned.\1095\
---------------------------------------------------------------------------

    \1094\ See Proposing Release, 86 FR 69846.
    \1095\ See, e.g., James J. Angel Letter, at 3 (stating that 
shares available for lending from a brokerage firm's customers' 
margin accounts are in ``fungible bulk'' and that ``the firm may not 
even have identified which customer's shares are being loaned out 
when it makes its delivery'' to the DTC to settle its net delivery 
obligation).
---------------------------------------------------------------------------

9. Only Allow an RNSA To Charge Fees to Data Reporters
    The Commission also considered an alternative that would allow an 
RNSA to charge fees to reporters of Rule 10c-1a information, but not to 
subscribers to access the securities lending data. The effect on costs 
of this alternative would be that any fees levied by an RNSA to help 
pay for costs to collect and disseminate the data would shift onto 
covered persons providing data to an RNSA. The Commission believes that 
many of the market participants providing data to an RNSA under the 
final rule will also be consumers of the data. If all 361 entities 
providing data were the only entities to subscribe to the data, for 
these market participants it is unclear how much difference this shift 
in fees would make. However, to the extent that more market 
participants subscribe to the data, prohibiting an RNSA from this 
additional source of revenue would likely result in higher reporting 
fees than under the final rule.
    This alternative would potentially increase the benefits of the 
final rule for increased transparency, in that providing access to Rule 
10c-1a data for free may increase the number of market participants who 
access it.\1096\ However, TRACE has been successful in mitigating 
inefficiencies in the corporate bond market despite the fact that it is 
only available for fee.\1097\ Furthermore, the Commission expects that 
most of the entities likely in a position to affect the securities 
lending market or to use information from the securities lending market 
to affect other markets would subscribe to the data regardless of 
whether there was a cost to subscribing. Therefore, the Commission does 
not believe that disallowing an RNSA from charging fees to data 
subscribers would result in significant additional benefits to the 
securities lending market relative to the final rule.
---------------------------------------------------------------------------

    \1096\ See supra Part IX.C.1 for further discussion of the 
expected benefits from the final rule on increased transparency in 
the securities lending market.
    \1097\ See supra Part IX.C.1 for a discussion of empirical 
evidence that the introduction of TRACE improved efficiencies in the 
corporate bond market.
---------------------------------------------------------------------------

10. Longer Holding Period Requirement
    The Commission also considered an alternative requiring an RNSA to 
retain and make publicly available the data for a period longer than 
the 5 years specified (e.g., 10 or 20 years). This alternative would 
ensure that the data are available to regulators and market 
participants at longer horizons. For instance, if regulators or market 
participants wanted to evaluate how the lending market reacts to 
different market events, such as across the business cycle, then five 
years of data may not be sufficient. The average business cycle is 3-5 
years, and so to study the dynamics of the lending market across the 
business cycle would require at least 10 years, if not more, of data. 
Additionally, because there is likely persistence in conditions in the 
securities lending market, a five-year time horizon may not be 
sufficient for certain statistical analyses.\1098\ Improved 
understanding of the dynamics of the securities lending market across 
various market conditions may benefit both regulators and investors by 
providing more precise information with which to make regulatory and 
investment decisions--enhancing many of the benefits described 
above.\1099\ For example, longer term data may enable superior 
statistical analysis by market participants of the dynamics of the 
securities lending market in various environments, which in turn may 
lead to better investment decisions and thus improved market 
performance. Additionally, the Commission could use longer term data to 
provide more precise estimates of damages in, for example Reg SHO 
violations or violations of

[[Page 75730]]

Exchange Act Rule 15c3-3 (Customer Protection Rule), to calculate 
disgorgement.
---------------------------------------------------------------------------

    \1098\ Persistence in conditions implies that observations are 
not independent. When this is the case even relatively large 
datasets may lack statistical power for some modeling applications, 
such as factor models. The solution in such cases is to 
significantly increase the sample size.
    \1099\ See supra Parts IX.C.1 and IX.C.2.
---------------------------------------------------------------------------

    The Commission believes that the alternative would impose 
additional costs on an RNSA not required by the final rule in terms of 
storing and maintaining historical data. However, since the final rule 
already requires an RNSA to build systems to collect and disseminate 
five years of data, these costs would likely be relatively small 
because the Commission understands that the cost of storing data is 
relatively small compared to the cost of producing and maintaining the 
systems needed to collect, process, and disseminate the data.
    While the final rule allows FINRA to destroy the data after five 
years, the Commission believes that it is unlikely that FINRA would do 
so. This is because the cost of retaining the data is likely relatively 
small and the data may have commercial value. For instance, an RNSA 
could levy additional fees for access to historical data. If this is 
the case, and an RNSA chooses to keep the historical data under the 
final rule, then the cost difference to an RNSA between the final rule 
and this alternative would likely be minimal given that this 
alternative would require an RNSA to comply with a requirement that 
they may already choose to do on their own.
11. Longer Implementation Period
    The Commission considered alternatives that would allow for a 
longer implementation period. Several commenters requested 
implementation periods of 18 or 24 months,\1100\ which may be longer 
than the final rule's implementation period.\1101\ Some commenters 
requested a phased-in approach to implementation, for example, by first 
only requiring information to be reported for certain types of 
securities, or initially delaying the public dissemination of 
data.\1102\ The Commission recognizes that a longer implementation 
period would give reporting entities additional time and flexibility 
while building out the systems necessary to facilitating the reporting 
required under the final rule, which may allow a more efficiency 
allocation and resources and thus reduce their implementation costs. 
Similarly, delaying the public dissemination of data would give an RNSA 
additional time and flexibility to build out systems related to 
dissemination, which may reduce their implementation costs.
---------------------------------------------------------------------------

    \1100\ See, e.g., SIFMA Letter, at 4 (recommending ``an 18-month 
build-out period following the RNSA's finalization of the technical 
specifications for reporting''); Fidelity Letter, at 5 (recommending 
a two-year implementation period).
    \1101\ See final Rule 10c-1a(f) and supra Part VIII for 
additional discussion of the implementation timeline.
    \1102\ See, e.g., Chamber of Commerce Letter, at 4 (recommending 
at ``phased implementation by asset class'') and SIFMA Letter 1, at 
4 (recommending ``a staged reporting regime to allow regulators 
sufficient time to analyze collected data before public 
dissemination of any information'').
---------------------------------------------------------------------------

    However, the Commission also recognizes that any delay in the 
implementation period would also delay the realization of the benefits 
of final Rule 10c-1a, both those related to increased transparency in 
the securities lending market,\1103\ as well as the regulatory 
benefits.\1104\ Furthermore, while an initial delay in the public 
dissemination of the data would maintain the regulatory benefits of the 
rule, as regulators would still have access to the data, other market 
participants' access to the information would be delayed, which would 
delay the benefits of the Rule related to increased transparency. Thus, 
a choice of implementation period requires balancing the need to allow 
for sufficient time to build out reporting systems, on the one hand, 
and ensuring that market participants have timely access to Rule 10c-1a 
information on the other.
---------------------------------------------------------------------------

    \1103\ See supra Part IX.C.1 for a discussion of the benefit of 
the final rule related to increased transparency in the securities 
lending market.
    \1104\ See supra Part IV.C.2 for a discussion of the regulatory 
benefits of the final rule.
---------------------------------------------------------------------------

12. Report to the Commission Rather Than to an RNSA
    The Commission also considered an alternative requiring that 
covered persons disclose Rule 10c-1a information directly to the 
Commission--for example, through EDGAR, rather than to an RNSA. Such an 
alternative could alter which entities incur costs and would likely 
increase overall costs relative to the final rule because, for example, 
many entities who possess reporting capabilities to an RNSA, e.g., 
members of FINRA, would need to establish comparable reporting 
relationships with the Commission. In particular, many broker-dealers 
already have connectivity to FINRA systems that support the kind of 
submission process required for providing Rule 10c-1a 
information.\1105\ Establishing similar connectivity with EDGAR may 
require additional effort for covered persons compared to the proposal. 
Additionally, FINRA has expertise creating repositories similar to that 
called for in the final rule, suggesting that the final rule will 
likely be more efficient than this alternative.
---------------------------------------------------------------------------

    \1105\ For example, FINRA's TRACE system.
---------------------------------------------------------------------------

    The Commission is uncertain of how some benefits of this 
alternative would compare to certain benefits of the final rule. 
Specifically, while this alternative would not alter the content of the 
data in the final rule, the accessibility and timeliness of the data 
under this alternative depend on how the Commission would develop the 
functionality for distributing the data. In particular, we cannot at 
this time assess whether the alternative would result in more or less 
timely or accessible data or if the differences would be meaningful. 
For example, data obtained from the Commission could be less accessible 
if the Commission could not develop functionality allowing market 
participants to access the data with the same ease an RNSA could 
provide, given an RNSA has more experience collecting and disseminating 
similar data (e.g., TRACE). Thus, this alternative could result in 
significantly higher compliance costs than the final rule.
    Additionally, the regulatory benefits of the alternative relative 
to the final rule will depend on whether the Commission chose to grant 
an RNSA direct access to the confidential data. If the Commission chose 
to do so, then the regulatory benefits of this alternative would be the 
same as the current proposal. If the Commission chose not to grant an 
RNSA access to the confidential data, then the regulatory benefits 
would decline significantly as many of the regulatory benefits, such as 
improved monitoring of broker-dealers for compliance with various legal 
requirements, require access to the confidential data.\1106\ Thus, the 
regulatory benefits of the rule could be severely diminished.
---------------------------------------------------------------------------

    \1106\ See supra Part IX.C.2 for further discussion of the 
expected regulatory benefits of the final rule.
---------------------------------------------------------------------------

13. Report Through an NMS Plan
    Because the nature of securities lending data is similar to the 
transaction data governed by the NMS data plans, such as the CT 
Plan,\1107\ the Commission considered proposing a new NMS Plan to set 
up a reporting and dissemination process that mirrors the CT Plan. 
Reporting entities could report the data to Transaction Reporting 
Facilities operated by competing

[[Page 75731]]

consolidators,\1108\ who would consolidate and distribute the data for 
a fee. The NMS Plan would set the fee paid by (or rebate collected by) 
the reporting entities to (or from) the competing consolidators for the 
collection of the data.\1109\ We did not receive public comments 
addressing this alternative.
---------------------------------------------------------------------------

    \1107\ Joint Industry Plan; Order Approving, as Modified, a 
National Market System Plan Regarding Consolidated Equity Market 
Data, Release No. 34-92586, 86 FR.44142 (Aug. 11, 2021), available 
at https://www.sec.gov/rules/sro/nms/2021/34-92586.pdf, appeal 
filed, Nasdaq Stock Market LLC v. SEC, No. 21-1167 (D.C. Cir. Aug. 
9, 2021).
    \1108\ A competing consolidator is a ``securities information 
processor required to be registered pursuant to 17 CFR 242.614 
(``Rule 614'') or a national securities exchange or national 
securities association that receives information with respect to 
quotations for and transactions in NMS stocks and generates a 
consolidated market data product for dissemination to any person.'' 
17 CFR 242.600(b)(16).
    \1109\ The Proposing Release described this alternative slightly 
differently, with the data collected by an SRO rather than by 
competing consolidators. On further consideration we believe the 
scenario described here is more likely because it is similar to the 
Market Data Infrastructure rule, but both scenarios would result in 
economic competition on data price, and we considered both versions 
of this alternative.
---------------------------------------------------------------------------

    This alternative is more likely than the final rule to improve the 
competitiveness of the market for securities lending data. Under this 
alternative, current data vendors, who have experience collecting and 
disseminating securities lending information, could compete as 
competing consolidators for securities lending data and have the same 
access to the supply of consolidated data as any other competing 
consolidator, including an RNSA or SRO. Conversely, as final Rule 10c-
1a gives RNSAs the authority to implement rules regarding the format 
and manner of collection and dissemination of Rule 10c-1a data,\1110\ 
the final rule may be more likely to result in a situation in which a 
current vendor may need to compete with an RNSA that has exclusive 
access to the raw Rule 10c-1a data. However, since final Rule 10c-1a 
does not require the reporting of shares available to lend,\1111\ to 
the extent that commercial data vendors' superior access to information 
about shares available to lend and utilization rates provides them with 
a competitive advantage under the final rule,\1112\ it may not 
necessarily be the case that this alternative would result in 
significantly better outcomes for current data vendors than the final 
rule. This alternative would, however, reduce the barriers to entry in 
the market for securities lending data because all new entrants would 
have access to the same data for consolidation and distribution.
---------------------------------------------------------------------------

    \1110\ See supra Part VII.I for further discussion.
    \1111\ See supra Part IX.C.1 for further discussion related to 
the fact that Rule 10c-1a data will not specifically provide 
information on shares available.
    \1112\ See supra Part IX.D.2 for further discussion of the 
impact of the final rule on competition in the market for securities 
lending data and analytics.
---------------------------------------------------------------------------

    This alternative could provide for the public dissemination of 
securities lending transaction information without the reliance on an 
RNSA alone. It could also leverage the processes of the NMS Plan, but 
would require compliance costs by one or more SROs that chose to set up 
and operate a Transaction Reporting Facility. Fees for reporting 
transactions could offset such compliance costs. While the Commission 
cannot be sure how these fees under this alternative would compare to 
the fees under the final rule, competition between competing 
consolidators could result in reporting facilities that are more 
efficient than that of an RNSA. However, as most SROs (including all of 
the national securities exchanges) do not necessarily have expertise 
that is specific to the dissemination of securities lending data, 
compliance costs may be higher than those proposed under the CT Plan, 
for which national securities exchanges do have relevant experience as 
they disseminate equity market data through their proprietary data 
feeds. A need to coordinate between multiple SROs in order to establish 
an NMS Plan may also imply higher coordination costs in this 
alternative as compared to the final rule.

X. Paperwork Reduction Act

    Certain provisions of final Rule 10c-1a contain ``collection of 
information'' requirements within the meaning of the Paperwork 
Reduction Act of 1995 (``PRA'').\1113\ The hours and costs associated 
with complying with the final rule's reporting requirements, RNSA rule 
implementation requirements, publication of data requirements, and data 
retention requirements, as applicable, constitute PRA burdens.
---------------------------------------------------------------------------

    \1113\ 44 U.S.C. 3501 through 3521. The burdens associated with 
the information collection requirements are referred to as ``PRA 
burdens.''
---------------------------------------------------------------------------

    In accordance with the PRA, the Commission is submitting the final 
rule amendments to the Office of Management and Budget (``OMB'') for 
review.\1114\ The Commission published a notice requesting comment on 
these collections of information requirements in the Proposing Release 
and submitted these requirements to the OMB for review in accordance 
with the PRA. An agency may not conduct or sponsor, and a person is not 
required to respond to, a collection of information unless it displays 
a currently valid control number. The title and control number for 
these collections of information are OMB Control No. 3235-0788.
---------------------------------------------------------------------------

    \1114\ See 44 U.S.C. 3507(d); 5 CFR 1320.11.
---------------------------------------------------------------------------

    The Commission received limited comments on the PRA burden 
estimates included in the Proposing Release.\1115\ One commenter stated 
that the Commission has covered most of the impacts of the proposed 
rule.\1116\ Another commenter stated that the proposed rule's reporting 
regime would require considerable time to develop, test, launch, and 
monitor.\1117\ Comments on specific parts of the Proposing Release's 
PRA burden estimates are discussed below, in this part, as they relate 
to the particular PRA burden estimates that are the subject of those 
comments. The Commission acknowledges the PRA burdens that will be 
assumed by covered persons, reporting agents, and RNSAs in complying 
with the final rule, and its estimates of the collection of information 
for the amendments, as adopted, have been updated from the estimates 
included in the Proposing Release, as appropriate, with the updated 
estimates based on the modifications in the final rule, comments 
received, and more recently available data.
---------------------------------------------------------------------------

    \1115\ See, e.g., CSFME Letter 1, at 3; IHS Markit Letter, at 
13.
    \1116\ IHS Markit Letter, at 13.
    \1117\ See MFA Letter 3, at 8.
---------------------------------------------------------------------------

    The information collections are necessary to remediate certain 
issues present in the securities lending market. As discussed above, in 
Part I, the Commission is adopting amendments to close securities 
lending data gaps and increase market efficiency. Final Rule 10c-1a is 
designed to increase the transparency of information available to 
brokers, dealers, and investors with respect to the loan or borrowing 
of securities. Additionally, final Rule 10c-1a is designed to provide 
an RNSA with data that might be used for in-depth monitoring and 
surveillance. Further, the data elements are designed to provide 
regulators with information to understand whether broker-dealers are 
building up risk; what strategies broker-dealers use to source 
securities that are lent to their customers; and what loans broker-
dealers provide to their customers with fail to deliver positions.
    To achieve these objectives, the Commission is adopting the 
requirements discussed above, in Parts VII.A through M. Under final 
Rule 10c-1a, certain persons are required to report information about 
securities loans to an RNSA. The final rule also requires that an RNSA 
make certain information provided to an RNSA, along with daily 
information pertaining to the aggregate

[[Page 75732]]

transaction activity and distribution of loan rates for each reportable 
security, publicly available. Further, the final rule requires certain 
confidential information to be reported to an RNSA to enhance RNSA 
oversight and enforcement functions.

A. Respondents

    As a preliminary matter, the opacity of the securities lending 
market makes estimating the number of respondents difficult. Indeed, as 
discussed above, an objective of Rule 10c-1a is to close the data gaps 
in this market.\1118\ Despite these data gaps, the Commission has 
estimated the number of respondents who are a covered person, reporting 
agent, or RNSA.
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    \1118\ See supra Part I; see also supra Part IX.B.2.
---------------------------------------------------------------------------

    As described in detail below, in this part, the respondents under 
final Rule 10c-1a are: (1) covered persons and (2) reporting agents 
capturing the applicable Rule 10c-1a information and providing it to an 
RNSA, in the format and manner required by the applicable rule(s) of 
such RNSA, and within the time periods specified in paragraphs (c) 
through (e) of the final rule, as applicable to the covered securities 
loan; \1119\ and (3) an RNSA complying with the final rule's 
requirements to implement rules regarding the format and manner of its 
collection of Rule 10c-1a information, publish the information 
specified in final Rule 10c-1a(g) in accordance with the time frames 
required for such publication, and retain and make available to the 
Commission, or any other persons designated by the Commission, certain 
specified information. Given the differences in the information 
collections applicable to these parties, as discussed below, in this 
part, the discussion of burdens applicable to covered persons and 
reporting agents are separated from the discussion of those applicable 
to an RNSA.
---------------------------------------------------------------------------

    \1119\ The Proposing Release separated such persons into the 
following categories: lending agents, reporting agents, and lenders 
that would not employ a lending agent. The final rule differs from 
the proposed rule in that different categories of persons are used 
to describe those who have or may have a reporting requirement, as 
applicable, and as discussed above, in Parts VII.A and VII.B. 
Therefore, the categories of persons included herein, as well as the 
estimates, vary from those included in the Proposing Release. For 
instance, this release uses the term ``intermediaries,'' which is 
comparable to the Proposing Release's use of the term ``lending 
agents.''
---------------------------------------------------------------------------

1. Covered Persons
    As discussed above, in Part VII.A, under final Rule 10c-1a(j)(1), a 
covered person is any intermediary other than a clearing agency when 
providing only the functions of a central counterparty pursuant to Rule 
17Ad-22(a)(2) of the Exchange Act or a central securities depository 
pursuant to Rule 17Ad-22(a)(3) of the Exchange Act; any person that 
agrees to a covered securities loan as a lender when an intermediary is 
not used unless paragraph (j)(1)(iii) of the final rule applies; or a 
broker or dealer when borrowing fully paid or excess margin securities 
pursuant to Rule 15c3-3(b)(3) of the Exchange Act.
    In the Proposing Release, the Commission estimated, based on a 
review of Forms N-CEN filed with the Commission that identify the 
lending agents used by investment companies, that there would be 37 
lending agent intermediaries, 3 of which would provide information 
directly to an RNSA and 34 of which would provide information to a 
reporting agent.\1120\ Using updated figures based on a review of Forms 
N-CEN filed with the Commission, it is estimated that there are 35 
intermediaries. Of the 35 intermediaries identified, four are broker-
dealers. Broker-dealers have experience providing information directly 
to RNSAs. The Commission estimates that those four intermediaries would 
provide information directly to an RNSA. The other 31 intermediaries 
are not broker-dealers. Therefore, the Commission estimates that they 
would provide information to a reporting agent rather than establish 
connectivity directly to an RNSA.
---------------------------------------------------------------------------

    \1120\ Proposing Release, 86 FR 69822.
---------------------------------------------------------------------------

    In the Proposing Release, the Commission estimated, based on the 
number of funds within investment companies that do not employ a 
lending agent based on a review of Forms N-CEN filed with the 
Commission, that there would be 278 lenders that would not employ a 
lending agent, 139 of which would provide information to an RNSA and 
139 of which would provide information to a reporting agent.\1121\ One 
commenter stated that this was an underestimate that accounted for only 
those lenders that are registered with the Commission.\1122\ The 
Commission agrees with the commenter and is updating the estimate 
regarding unregistered entities, which comprise approximately 67 
percent of the securities available for lending.\1123\ The unregistered 
portion of the securities lending market, therefore, is estimated to be 
1,389 entities.\1124\ However, according to the OFR Pilot Survey, only 
about 15 percent of securities loans are not intermediated and go 
directly to end borrowers.\1125\ Therefore, it is estimated that the 
number of unregistered lenders that would not use an intermediary is 
208 entities.\1126\ Accordingly, the Commission estimates that there 
are 434 persons that agree to a covered securities loan as the lender 
when an intermediary is not used, based on a review of Forms N-CEN 
filed with the Commission showing the number of investment companies 
that do not employ an intermediary.\1127\ Consistent with the estimated 
ratio included in the Proposing Release,\1128\ of these 434 persons, 
the Commission estimates that 217 persons will provide information to 
an RNSA (including by using a third-party vendor) and that 217 persons 
will provide information to a reporting agent.
---------------------------------------------------------------------------

    \1121\ Proposing Release, 86 FR 69822-23.
    \1122\ See CSFME Letter 1, at 3.
    \1123\ See OFR Pilot Survey, Table 2, at 7. (($2.519 trillion + 
$1.563 trillion + $663 billion + $1.585 trillion)/$9.443 trillion * 
100% [ap] 67%).
    \1124\ (684 registered investment companies that agree to a 
covered securities loan as the lender x (0.67/0.33) [ap] 1,389 
unregistered entities.
    \1125\ See OFR Pilot Survey, at 7-8.
    \1126\ 1,389 unregistered entities x 0.15 [ap] 208 unregistered 
entities.
    \1127\ 226 registered investment companies that agree to a 
covered securities loan as the lender when an intermediary is not 
used + 208 unregistered entities = 434 persons that effect a covered 
securities loan as the lender when an intermediary is not used.
    \1128\ Proposing Release, 86 FR 69823.
---------------------------------------------------------------------------

    As discussed above, in Part VII.A, paragraph (j)(1)(iii) was added 
to the proposed rule to specify that, if a broker or dealer is 
borrowing fully paid or excess margin securities in the covered 
securities loan, the broker or dealer is required to provide the Rule 
10c-1a information to an RNSA. Based on a review of FOCUS Reports Part 
II, Item 4350, it is estimated that there are 34 brokers or dealers 
borrowing fully paid or excess margin securities pursuant to Rule 15c3-
3(b)(3) of the Exchange Act. Consistent with the estimate for the 
number of intermediaries who are brokers or dealers and would provide 
information directly to an RNSA, the Commission estimates that the 34 
brokers or dealers borrowing fully paid or excess margin securities 
would provide information directly to an RNSA.
    Consistent with the estimate included in the Proposing 
Release,\1129\ the Commission is not estimating that persons who agree 
to a covered securities loan on behalf of themselves or another person 
and employ a lending agent assume any PRA burdens because those persons 
would not be responsible for providing information to an RNSA. 
Accordingly, the Commission estimates that 503 covered persons \1130\ 
will be

[[Page 75733]]

subject to PRA burdens under final Rule 10c-1a(a). As set forth in 
paragraph (a)(1) of the final rule, any covered person who agrees to a 
covered securities loan on behalf of itself or another person is 
required to provide Rule 10c-1a information directly to an RNSA; \1131\ 
however, a covered person may enter into a written agreement with a 
reporting agent for the reporting agent to provide information to an 
RNSA.\1132\ Of the 503 covered persons, the Commission estimates that 
255 are providing covered persons \1133\ and that 248 are non-providing 
covered persons.\1134\
---------------------------------------------------------------------------

    \1129\ See Proposing Release, 86 FR 69822.
    \1130\ 35 intermediaries + 434 persons that agree to a covered 
securities loan as the lender when an intermediary is not used + 34 
brokers or dealers borrowing fully paid or excess margin securities 
pursuant to Rule 15c3-3(b)(3) of the Exchange Act = 503 covered 
persons.
    \1131\ For the purposes of the PRA estimates included in this 
release, such covered person is referred to as a ``providing covered 
person.''
    \1132\ For the purposes of the PRA estimates included in this 
release, such covered person is referred to as a ``non-providing 
covered person.''
    \1133\ 4 broker-dealer intermediaries + 217 persons that agree 
to a covered securities loan as the lender when an intermediary is 
not used and will provide information to an RNSA + 34 brokers or 
dealers borrowing fully paid or excess margin securities = 255 
providing covered persons.
    \1134\ 31 non-broker-dealer intermediaries + 217 persons that 
agree to a covered securities loan as the lender when an 
intermediary is not used and will provide information to a reporting 
agent = 248 non-providing covered persons.
---------------------------------------------------------------------------

2. Reporting Agents
    Under the proposed rule, the term ``reporting agent'' referred 
specifically to certain broker-dealers. In the Proposing Release, the 
Commission estimated, based on the number of broker-dealers that lent 
securities in 2020, that there would be 94 reporting agents.\1135\ 
Under final Rule 10c-1a(j)(4), a reporting agent means a broker, 
dealer, or registered clearing agency that enters into a written 
agreement with a covered person under final Rule 10c-1a(a)(2). Based on 
the number of broker-dealers that lent securities as of December 2022 
(97),\1136\ as well as the number of registered clearing agencies in 
2023 (9),\1137\ it is estimated that there are 106 reporting agents 
\1138\ that may be subject to PRA burdens under final Rule 10c-1a(b).
---------------------------------------------------------------------------

    \1135\ Proposing Release, 86 FR 69822.
    \1136\ These persons likely have experience providing RNSAs with 
information through other trade-reporting requirements and have 
experience with securities lending. It is possible that some of 
these broker-dealers may choose not to be a reporting agent and that 
other persons may choose to be a reporting agent. Given uncertainty 
and a lack of granular data about the current market, however, the 
Commission continues to believe that an estimate based on the number 
of broker-dealers that lent securities in is reasonable with regard 
to the estimate of the number of reporting agents. See Proposing 
Release, 86 FR 69822.
    \1137\ See Cybersecurity Risk Management Rule for Broker-
Dealers, Clearing Agencies, Major Security-Based Swap Participants, 
the Municipal Securities Rulemaking Board, National Securities 
Associations, National Securities Exchanges, Security-Based Swap 
Data Repositories, Security-Based Swap Dealers, and Transfer Agents, 
Release No. 34-97142 (Mar. 15, 2023), 88 FR 20212 (Apr. 5, 2023), 88 
FR 20294. For purposes of this PRA burden estimate, all registered 
clearing agencies are included as respondents who are reporting 
agents. A registered clearing agency may elect not to be a reporting 
agent, in which case the PRA burden estimate may decrease due to the 
decrease in number of respondents.
    \1138\ 97 broker-dealers that lent securities + 9 registered 
clearing agencies = 106 reporting agents. This estimate differs from 
that included in the Proposing Release because the final rule adds 
registered clearing agencies to the list of persons who are eligible 
to be reporting agents.
---------------------------------------------------------------------------

3. RNSA
    Under final Rule 10c-1a(j)(5), an RNSA is an association of brokers 
and dealers that is registered as a national securities association 
pursuant to section 15A of the Exchange Act. Consistent with the 
estimate included in the Proposing Release,\1139\ it is estimated that 
there is one RNSA that will be subject to PRA burdens under paragraphs 
(f), (g), and (h) of the final rule.
---------------------------------------------------------------------------

    \1139\ See, e.g., Proposing Release, 86 FR 69829.
---------------------------------------------------------------------------

B. Collection of Information Related to Covered Persons

    Final Rule 10c-1a applies to any covered person who agrees to a 
covered securities loan on behalf of itself or another person. Under 
final Rule 10c-1a(a)(1), a covered person who agrees to a covered 
securities loan on behalf of itself or another person shall provide to 
an RNSA the Rule 10c-1a information, in the format and manner required 
by the applicable rule(s) of such RNSA, and within the time periods 
specified in paragraphs (c) through (e) of the final rule. As discussed 
above, in this part, this type of covered person is referred to as a 
providing covered person. However, a covered person may rely on a 
reporting agent to fulfill the covered person's reporting obligations 
under final Rule 10c-1a(a) if the covered person: (1) enters into a 
written agreement with the reporting agent that agrees to provide the 
Rule 10c-1a information to an RNSA on behalf of such covered person, in 
accordance with the requirements set forth in Rule 10c-1a(b)(1), and 
(2), provides the reporting agent with timely access to the Rule 10c-1a 
information. As discussed above, in this part, this type of covered 
person is referred to as a non-providing covered person.
    One commenter stated that the Commission should consider that not 
all ``reporters'' have licenses to multiple instrument identifiers 
required for reporting, meaning that smaller firms would need to 
purchase additional data licenses and thereby add to their cost 
structure.\1140\ As discussed above, in this part, unlike providing 
covered persons who are estimated to have experience in providing 
information directly to an RNSA, persons who do not have the necessary 
licenses and systems are estimated to use a reporting agent as non-
providing covered persons for purposes of the PRA estimates. Therefore, 
as non-providing covered persons, they are not estimated to acquire any 
additional licenses for purposes of compliance with the final rule.
---------------------------------------------------------------------------

    \1140\ See IHS Markit Letter, at 13.
---------------------------------------------------------------------------

    The below analysis is separated into categories of persons who may 
provide the Rule 10c-1a information to an RNSA.\1141\ These categories 
are providing covered persons and non-providing covered persons.\1142\ 
Both providing covered persons and non-providing covered persons assume 
PRA burdens in complying with final Rule 10c-1a(a)(1).
---------------------------------------------------------------------------

    \1141\ As more fully discussed below, there would be some 
variation between covered persons that are in the same category. The 
analysis provided herein is organized so that the discussion of 
covered persons who share commonalities allows for a logical 
presentation and discussion of burdens. This structure for the 
analysis is consistent with that provided in the PRA included in the 
Proposing Release. See Proposing Release, 86 FR 69822 n.130.
    \1142\ As an example of variability between covered persons in 
the same category, the parties within the intermediary category and 
a person that agrees to a covered securities loan as a lender when 
an intermediary is not used may choose to employ a reporting agent. 
As discussed below, this choice will result in information 
collection burdens being different for covered persons within the 
same category.
---------------------------------------------------------------------------

1. Providing Covered Persons
    In the Proposing Release, the Commission estimated that lending 
agents who would be required to provide Rule 10c-1 information to an 
RNSA and lenders who run their own securities lending program rather 
than employ a lending agent and provide Rule 10c-1 information directly 
to an RNSA would assume certain burdens related to developing and 
reconfiguring their current systems to capture the required Rule 10c-1 
information. The Proposing Release referred to such persons as 
``providing lending agents'' and ``self-providing lenders,'' 
respectively. The PRA burden estimates for providing lending agents and 
self-providing lenders are summarized in PRA Table 1 of the Proposing 
Release.\1143\
---------------------------------------------------------------------------

    \1143\ Proposing Release, 86 FR 69827.
---------------------------------------------------------------------------

a. Initial Burden
    Providing covered persons assume PRA burdens related to developing 
and

[[Page 75734]]

reconfiguring their current systems to capture the required Rule 10c-1a 
information.\1144\ Providing covered persons, in complying with the 
final rule, will also be required to establish connections that will 
allow them to provide the information to an RNSA, which involves 
establishing connections with an RNSA and the persons on whose behalf 
they are lending securities.
---------------------------------------------------------------------------

    \1144\ While providing covered persons may already track the 
data elements as a part of the regular course of business, capturing 
this information would be a new regulatory requirement.
---------------------------------------------------------------------------

    As stated in the Proposing Release,\1145\ the PRA burden for this 
requirement is similar to that of establishing the appropriate systems 
and processes required for collection and transmission of the required 
information in complying with the CAT \1146\ because of the general 
similarity between the systems established under that rule and the 
systems that would be required to be established under final Rule 10c-
1a. One commenter argued that the Proposing Release's operational PRA 
burden estimates were inappropriate because the CAT would not capture 
loan modifications.\1147\ However, the PRA burden estimates included in 
the Proposing Release accounted for loan modifications.\1148\ Further, 
the Commission continues to believe that the CAT-related burden 
estimates serve as an appropriate basis for the PRA burdens associated 
with compliance with the final rule, as both the CAT and final Rule 
10c-1a require the provision of trade information to a third-party 
information repository.\1149\ The systems complying with final Rule 
10c-1a will be significantly less complex than those required by the 
CAT because the systems required for compliance with final Rule 10c-1a 
will need to capture less information overall.\1150\
---------------------------------------------------------------------------

    \1145\ See Proposing Release, 86 FR 69823.
    \1146\ See Joint Industry Plan, Order Approving the National 
Market System Plan Governing the Consolidated Audit Trail, Release 
No. 34-79318 (Nov. 15, 2016), 81 FR 84696 (Nov. 23, 2016) (``CAT 
Approval Order''), 81 FR 84921.
    \1147\ CSFME Letter 1, at 3.
    \1148\ See, e.g., Proposing Release, 86 FR 69822.
    \1149\ The burden estimates included in the CAT Approval Order 
are based on a study of cost estimate calculations. See CAT Approval 
Order, 81 FR 84857.
    \1150\ 17 CFR 242.613 (``Rule 613(c)(1)'') of the Exchange Act 
requires the CAT NMS Plan to provide for an accurate, time-sequenced 
record of certain orders beginning with the receipt or origination 
of an order by a broker-dealer, and further documenting the life of 
the order through the process of routing, modification, 
cancellation, and execution (in whole or in part) of the order. 
Final Rule 10c-1a requires the reporting of loan modification data, 
as applicable, but does not require that order information be 
provided to an RNSA. Additionally, more trades that are reportable 
to the CAT are executed than securities lending transactions.
---------------------------------------------------------------------------

    The PRA burden estimates for systems development and monitoring are 
based on the burdens applicable to non-Order Audit Trail System 
(``OATS'') reporters under the CAT.\1151\ The Commission determined to 
use this estimate due to the factors it considered, as part of the CAT 
Approval Order, in categorizing firms and estimating burdens.\1152\ 
Non-OATS reporters were estimated to assume the least amount of burdens 
under the CAT NMS Plan due to the limited scope of their reportable 
activity.\1153\ In addition, non-OATS reporters assumed new reporting 
burdens in complying with the CAT, similar to how providing covered 
persons will assume new PRA burdens in complying with the final rule's 
reporting requirements. Based on the overall size of the securities 
lending market and the number of providing covered persons that may 
provide information directly to an RNSA, the Commission believes that 
the volume of securities lending transactions for providing covered 
persons will be, on average, of a similar scope to the volume of 
reports estimated by non-OATS reporters under the CAT Approval Order.
---------------------------------------------------------------------------

    \1151\ CAT Approval Order, 81 FR 84887.
    \1152\ See Proposing Release, 86 FR 69823.
    \1153\ The CAT Approval Order estimated that non-OATS reporters 
would have fewer than 350,000 reportable events each month. CAT 
Approval Order, 81 FR 84928.
---------------------------------------------------------------------------

    In the Proposing Release, the Commission, estimated that each 
providing lending agent and self-providing lender would assume 3,600 
PRA burden hours in developing and reconfiguring their current systems 
to capture the required data elements, with a total industry-wide 
burden of 511,200 hours.\1154\ One commenter stated that most lenders 
will not be able to meet the proposed 15 minute reporting requirement 
without substantial technology development and cost.\1155\ As discussed 
above, in Part VII.G.1, the change from the proposed rule to impose an 
end-of-day reporting requirement should help to reduce the number and 
frequency of reports that would otherwise be required to be provided to 
an RNSA throughout the day. An intraday reporting system would have 
required a level of automation and data processing capacity that some 
providing covered persons would not currently have implemented. 
Implementing an end-of-day reporting requirement in place of the 
intraday reporting requirement removes the need for those providing 
covered persons to acquire this level of automation and processing 
capacity, thus lowering at least their initial burden associated with 
system design and configuration. Therefore, the Commission estimates 
that providing covered persons each will assume 3,000 PRA burden hours 
in developing and reconfiguring their current systems to capture the 
required data elements,\1156\ with a total industry-wide burden of 
765,000 hours.\1157\
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    \1154\ 10,800 hours assumed by providing lending agents + 
500,400 hours assumed by self-providing lenders = 511,200 total 
hours.
    \1155\ IHS Markit Letter, at 13.
    \1156\ In the CAT Approval Order, the Commission estimated that, 
on average, the initial burden for non-OATS reporters would be two 
full-time-equivalent (``FTE'') employees working for one year (2 
FTEs x 1,800 working hours per year = 3,600 hours). See CAT Approval 
Order, 81 FR 84938. Consistent with the estimate included in the 
Proposing Release, the estimate used in this release is based on the 
CAT Approval Order's estimate for non-OATS reports due to the 
similarities between the requirements applicable to providing 
covered persons under final Rule 10c-1a and the requirements 
applicable to non-OATS reporters under the CAT Approval Order. 
However, in light of the change from the proposed intraday reporting 
requirement to an end-of-day reporting requirement, as discussed 
above, in this paragraph, it is appropriate to adjust the estimate 
to the following: 2 FTEs x 150 working hours per month x 10 months = 
3,000 burden hours. The figure for 150 working hours was determined 
by dividing 1,800 working hours by 10 months.
    \1157\ 3,000 hours x 255 providing covered persons = 765,000 
hours.
---------------------------------------------------------------------------

b. Ongoing Annual Burden
    Once a providing covered person has established the appropriate 
systems and processes required for the collection and provision of the 
Rule 10c-1a information to an RNSA,\1158\ it is estimated that 
providing covered persons will assume ongoing annual PRA burdens 
associated with, among other things, providing the Rule 10c-1a 
information to an RNSA, monitoring systems, implementing systems 
changes, and troubleshooting errors. The Commission estimates that the 
ongoing annual PRA burden will be equivalent to the ongoing burden 
estimated for non-OATS reporters in the CAT Approval Order, as adjusted 
for the change from the proposed intraday reporting requirement to the 
end-of-day reporting requirement, for the same reasons discussed above 
with respect to automation and processing. In the Proposing Release, 
the Commission, estimated that each providing lending agent and self-
providing lender would assume 1,350 PRA burden hours associated with 
monitoring systems,

[[Page 75735]]

implementing systems changes, and troubleshooting errors, with a total 
industry-wide burden of 191,700 hours.\1159\ Consistent with the 
Proposing Release, it is estimated that each providing covered person 
will assume 1,350 PRA burden hours per year,\1160\ leading to a total 
industry-wide ongoing annual burden of 344,250 hours.\1161\
---------------------------------------------------------------------------

    \1158\ Such process of providing the applicable Rule 10c-1a 
information to an RNSA is estimated to be highly automated, so the 
Commission is including the burden for doing so in this estimate.
    \1159\ 4,050 hours assumed by providing lending agents + 187,650 
hours assumed by self-providing lenders = 191,700 hours.
    \1160\ In the CAT NMS Plan Release, the Commission estimated 
that, on average, the ongoing annual burden non-OATS reporters would 
be 0.75 FTE employees (0.75 FTEs x 1,800 working hours per year = 
1,350 burden hours). See CAT Approval Order, 81 FR 84938. The 
Commission is using this estimate because of the similarities 
between the requirements applicable to providing covered persons 
under the final rule and the requirements applicable to non-OATS 
reporters under the CAT NMS Plan.
    \1161\ 1,350 hours x 255 providing covered persons = 344,250 
hours.
---------------------------------------------------------------------------

2. Non-Providing Covered Persons
    In the Proposing Release, the Commission estimated that lending 
agents who enter into a written agreement with a reporting agent to 
provide information to an RNSA (``non-providing lending agents'') and 
lenders that directly employ a reporting agent would assume certain 
burdens related to developing and reconfiguring their current systems 
to capture the required Rule 10c-1a information, as well as in entering 
into an agreement with a reporting agent. The PRA burden estimates for 
non-providing lending agents and lenders that directly employ a 
reporting agent are summarized in PRA Table 1 of the Proposing 
Release.\1162\ As discussed above, in Part IX.A.1, in light of the rule 
text changes from the proposed rule, the PRA burdens included in the 
Proposing Release with regard to such persons are estimated in this 
release with regard to non-providing covered persons.
---------------------------------------------------------------------------

    \1162\ Proposing Release, 86 FR 69827.
---------------------------------------------------------------------------

    Non-providing covered persons will assume distinct PRA burdens from 
those applicable to providing covered persons. First, non-providing 
covered persons will assume fewer initial and ongoing PRA burdens 
related to systems development and monitoring because non-providing 
covered persons will not, for purposes of compliance with final Rule 
10c-1a(a), need to establish connectivity to an RNSA and may have 
flexibility with regard to the format in which it provides the Rule 
10c-1a information to the reporting agent. Second, non-providing 
covered persons will assume the initial burden of negotiating and 
executing a written agreement with the reporting agent, as required by 
final Rule 10c-1a(a)(2) but are not estimated to assume an ongoing 
annual PRA burden associated with such written agreement.
a. Systems Development and Monitoring
i. Initial Burden
    Non-providing covered persons will assume the initial burden of 
developing and reconfiguring their current systems to capture Rule 10c-
1a information. Non-providing covered persons will assume fewer PRA 
burdens than providing covered persons will because non-providing 
covered persons may have the flexibility to collaborate with a 
reporting agent to determine the most efficient means of establishing 
systems that comply with the final rule's reporting requirements. For 
example, if agreed to by both the non-providing covered person and the 
reporting agent, the non-providing covered person could have the 
flexibility to provide to the reporting agent the applicable Rule 10c-
1a information that does not meet the specific format requirements of 
an RNSA if the reporting agent is able to reformat the information once 
received. Given these and other potential efficiencies, the Commission 
estimates that a non-providing covered person will assume half of the 
initial burden hours that a providing covered person will assume to 
develop and reconfigure their current systems to capture the Rule 10c-
1a information. The Commission, therefore, estimates that each non-
providing covered person will assume an initial PRA burden of 1,500 
hours, leading to a total industry-wide initial PRA burden for this 
requirement of 372,000 hours.\1163\ This method of deriving the burden 
hours for non-covered persons is consistent with that used in the 
Proposing Release with regard to non-providing lending agents and 
lenders that directly employ a lending agent.\1164\ However, as 
discussed above, in Part IX.B.1, the estimated number of initial burden 
hours assumed has been lowered in light of the change from the proposed 
intraday reporting requirement to an end-of-day reporting requirement.
---------------------------------------------------------------------------

    \1163\ 1,500 hours x 248 non-providing covered persons = 372,000 
hours.
    \1164\ See Proposing Release, 86 FR 69824, 69826. The estimated 
PRA burden included in the Proposing Release was 1,800 hours per 
providing lending agent or Lender that would directly employ a 
reporting agent, with an initial industry-wide PRA burden of 311,400 
hours. 61,200 hours for non-providing lending agents + 250,200 hours 
for lenders that would directly employ a reporting agent = 311,400 
total hours.
---------------------------------------------------------------------------

ii. Ongoing Annual Burden
    Once a non-providing covered person has established the necessary 
systems and processes for the collection and provision of the Rule 10c-
1a information to the reporting agent, such person will assume ongoing 
annual PRA burdens associated with, among other things, providing the 
data to the reporting agent, monitoring systems, implementing systems 
changes, and troubleshooting errors.\1165\ As with the initial PRA 
burden estimate for the systems development and monitoring requirement, 
the ongoing annual PRA burden estimate for non-providing covered 
persons is estimated to be less than that for providing covered persons 
because non-providing covered persons may have the flexibility to 
collaborate with a reporting agent to determine the most efficient 
means of establishing systems for purposes of compliance with the final 
rule. For example, the reporting agent could design programs that 
create direct links to a non-providing covered person's systems to 
facilitate the gathering of information such that ongoing intervention 
would not be required by the non-providing covered person. In addition, 
non-providing covered persons and reporting agents could negotiate 
terms that may allow the non-providing covered person to avoid 
providing certain Rule 10c-1a information that can be gleaned from 
another data element, such as an issuer's legal name if a security has 
a valid CUSIP.
---------------------------------------------------------------------------

    \1165\ See final Rule 10c-1a(a)(2)(ii) (requiring that the 
covered person provide the reporting agent with timely access to the 
Rule 10c-1a information).
---------------------------------------------------------------------------

    Given these and other potential efficiencies, the Commission 
estimates that a non-providing covered person will assume half of the 
ongoing annual PRA burden that a providing covered person will assume 
with regard to the development and reconfiguration of current systems 
to capture the Rule 10c-1a information. The Commission, therefore, 
estimates that each non-providing covered person will assume an ongoing 
annual PRA burden of 675 hours,\1166\ leading to a total industry-wide 
ongoing annual PRA burden for this requirement of 167,400 hours.\1167\ 
This method of deriving the ongoing burden hours for non-providing 
covered persons is consistent with that used in the Proposing Release 
with regard to non-providing lending agents and

[[Page 75736]]

lenders that directly employ a reporting agent.\1168\
---------------------------------------------------------------------------

    \1166\ 1,350 hours (ongoing burden applicable to providing 
covered persons) x 50% = 675 hours.
    \1167\ 675 hours x 248 non-providing covered persons = 167,400 
hours.
    \1168\ See Proposing Release, 86 FR 69824, 69826. The estimated 
PRA burden included in the Proposing Release was 675 hours per 
providing lending agent or lender that would directly employ a 
reporting agent, with an ongoing industry-wide PRA burden of 116,775 
hours. 22,950 hours for non-providing lending agents + 93,825 hours 
for lenders that would directly employ a reporting agent = 116,775 
total hours.
---------------------------------------------------------------------------

b. Entering Into Written Agreement With Reporting Agent
    Final Rule 10c-1a(a)(2)(i) requires a covered person to enter into 
a written agreement with a reporting agent in order to rely on the 
reporting agent to fulfill the covered person's reporting obligations 
under paragraph (a)(1) of the final rule. In meeting this requirement, 
non-providing covered persons may assume initial PRA burdens associated 
with drafting, negotiating, and executing the agreements.
    These agreements are estimated to be standardized across the 
industry because the data elements are consistent for all 
persons.\1169\ The Commission estimates that the only terms that may 
require negotiation are price and the format in which the information 
will be provided. To account for negotiation and any administrative 
tasks related to processing and executing agreements, the Commission is 
estimating that non-providing covered persons will spend 30 hours on 
this task.\1170\ Accordingly, the Commission estimates that the total 
industry-wide initial PRA burden attributed to this requirement is 
7,440 hours.\1171\ However, consistent with the Proposing Release, 
there should be no associated ongoing annual PRA burden once the 
agreement is signed, as the final rule does not separately impose a 
requirement to modify the written agreement or take additional action 
after the agreement is executed.
---------------------------------------------------------------------------

    \1169\ See final Rules 10c-1a(c) through (e).
    \1170\ Each covered person is estimated to execute one such 
agreement because of the efficiencies gained from using only one 
reporting agent and the commoditized information that would be 
provided. Accordingly, the estimate of 30 hours would be the initial 
PRA burden required for one agreement. This estimate is consistent 
with that included in the Proposing Release. See Proposing Release, 
86 FR 69824.
    \1171\ 30 hours x 248 non-providing covered persons = 7,440 
hours. This method of deriving the initial burden hours for non-
providing covered persons is consistent with that used in the 
Proposing Release with regard to non-providing lending agents and 
Lenders that directly employ a lending agent. See Proposing Release, 
86 FR 69824, 69826-27.
---------------------------------------------------------------------------

D. Collection of Information Related to Reporting Agents

    Under final Rule 10c-1a(b), any reporting agent that assumes the 
reporting obligation on behalf of a covered person pursuant to Rule 
10c-1a(a)(2) shall do all of the following: (1) provide such Rule 10c-
1a information to an RNSA, in the format and manner required by the 
applicable rule(s) of such RNSA, and within the time periods specified 
in paragraphs (c) through (e) of the final rule; \1172\ (2) establish, 
maintain, and enforce written policies and procedures that are 
reasonably designed to provide the Rule 10c-1a information to an RNSA 
on behalf of the covered person in the format and manner required by 
the applicable rule(s) of an RNSA, and within the time periods 
specified in paragraphs (c) through (e) of the final rule; \1173\ (3) 
enter into a written agreement with an RNSA that permits the reporting 
agent to provide Rule 10c-1a information to an RNSA on behalf of the 
covered person; \1174\ (4) provide an RNSA with a list naming each 
covered person on whose behalf the reporting agent is providing Rule 
10c-1a information to an RNSA and provide an RNSA with any updates to 
the list of such persons by the end of the day such list changes; 
\1175\ and (5) preserve for a period of not less than three years, the 
first two years in an easily accessible place, the Rule 10c-1a 
information obtained by the reporting agent from the covered person 
pursuant to Rule 10c-1a(a)(2), including the time of receipt, and the 
corresponding Rule 10c-1a information provided by the reporting agent 
to an RNSA, including the time of transmission to an RNSA, and the 
written agreements under paragraphs (a)(2) and (b)(3) of the final 
rule.\1176\
---------------------------------------------------------------------------

    \1172\ See final Rule 10c-1a(b)(1).
    \1173\ See final Rule 10c-1a(b)(2).
    \1174\ See final Rule 10c-1a(b)(3).
    \1175\ See final Rule 10c-1a(b)(4).
    \1176\ See final Rules 10c-1a(b)(1) through (b)(5).
---------------------------------------------------------------------------

    Reporting agents will assume PRA burdens associated with their 
compliance with three requirements in final Rule 10c-1a(b).\1177\ 
First, to facilitate the provision of Rule 10c-1a information to an 
RNSA, reporting agents will assume burdens related to the development 
and monitoring of systems. This includes establishing, maintaining, and 
enforcing written policies and procedures that are reasonably designed 
to provide the Rule 10c-1a information to an RNSA on behalf of the 
covered person in the format and manner required by the applicable 
rule(s) of an RNSA, and within the time periods specified in paragraphs 
(c) through (e) of the final rule. It also includes the provision of an 
updated list of persons on whose behalf they are providing Rule 10c-1a 
information. Second, reporting agents will assume burdens in entering 
into written agreements with non-providing covered persons. Third, 
reporting agents will assume burdens in entering into agreements with 
an RNSA to provide Rule 10c-1a information on behalf of a non-providing 
covered person.
---------------------------------------------------------------------------

    \1177\ The Rule 10c-1a information provided to an RNSA would be 
the same; however, certain aspects of the requirements applicable to 
reporting agents differ slightly from those applicable to providing 
covered persons. For example, reporting agents, unlike providing 
covered persons, will need to design systems to establish 
connectivity with the non-providing covered persons on whose behalf 
they are providing information to an RNSA. In addition, reporting 
agents, unlike providing covered persons, are required under final 
Rule 10c-1a(b)(4) to provide to an RNSA the identity of the person 
on whose behalf it is providing Rule 10c-1a information. Further, 
reporting agents, unlike either type of covered person--providing 
covered person or non-providing covered person--are required to 
establish, maintain, and enforce reasonably designed written 
policies and procedures to provide information to an RNSA. See final 
Rule 10c-1a(b)(2). Despite these differences, the estimates used in 
the CAT approval Order are an appropriate basis from which to 
estimate the burdens for reporting agents and providing covered 
persons, as discussed above, because they both must provide Rule 
10c-1a information to an RNSA in complying with final Rule 10c-1a. 
Accordingly, and consistent with the PRA burden estimates included 
in the Proposing Release, the PRA burden estimates for reporting 
agents are not being adjusted incrementally from the estimates for 
providing covered persons. See Proposing Release, 86 FR 69825 n.156.
---------------------------------------------------------------------------

1. Systems Development and Monitoring
    Reporting agents will provide Rule 10c-1a information to an RNSA on 
behalf of non-providing covered persons. In doing so, because reporting 
agents will need to change their internal systems to collect the Rule 
10c-1a information, they will assume initial PRA burdens related to 
developing and reconfiguring their current systems to capture the 
required data elements. In addition, reporting agents will need to 
establish, maintain, and enforce written policies and procedures that 
are reasonably designed to provide Rule 10c-1a information to an RNSA 
on behalf of non-providing covered persons, in the format and manner 
required by the applicable rule(s) of an RNSA, and within certain time 
periods specified paragraphs (c) through (e) of the final rule.\1178\ 
Because reporting agents will provide to an RNSA the same type of Rule 
10c-1a information that providing covered persons will provide,\1179\ 
the Commission estimates that the initial and ongoing annual PRA 
burdens related to the development and monitoring of systems that 
facilitate the provision of Rule 10c-1a information to an RNSA are the 
same. Therefore,
---------------------------------------------------------------------------

    \1178\ See final Rule 10c-1a(b)(2).
    \1179\ See final Rules 10c-1a(a)(1) and (b)(1).

---------------------------------------------------------------------------

[[Page 75737]]

consistent with the Commission's estimate included above, in Part 
IX.B.1, the Commission estimates that each reporting agent will assume 
an initial PRA burden of 3,000 hours in developing and reconfiguring 
current systems to capture the required data elements. Accordingly, the 
industry-wide initial PRA burden is estimated to be 318,000 
hours.\1180\
---------------------------------------------------------------------------

    \1180\ 3,000 hours x 106 reporting agents = 318,000 hours. The 
estimated initial burden per reporting agent is reduced from that 
included in the Proposing Release in light of the final rule's 
inclusion of an end-of-day reporting requirement as opposed to an 
intraday reporting requirement, as discussed above, in Part IX.B.1.
---------------------------------------------------------------------------

    Once a reporting agent has established the appropriate systems and 
processes required for the collection and provision of the applicable 
Rule 10c-1a information, the reporting agent will assume ongoing annual 
PRA burdens associated with providing such information to an RNSA, in 
addition to an updated list of persons on whose behalf they are 
providing information, monitoring systems, implementing changes, and 
troubleshooting errors. As discussed above, in this part, because 
reporting agents provide to an RNSA the same information that providing 
covered persons provide, the Commission estimates that each reporting 
agent will assume an ongoing annual PRA burden of 1,350 hours related 
to this requirement. Accordingly, the total industry-wide ongoing 
annual PRA burden is estimated to be 143,100 hours.\1181\
---------------------------------------------------------------------------

    \1181\ 1,350 hours x 106 reporting agents = 143,100 hours. This 
methodology is consistent with that used in the Proposing Release 
with respect to reporting agents. See Proposing Release, 86 FR 
69825.
---------------------------------------------------------------------------

2. Entering Into Written Agreements With Non-Providing Covered Persons
    To fulfill a covered person's reporting obligation under final Rule 
10c-1a(a), any reporting agent must enter into a written agreement with 
the covered person on whose behalf they are providing Rule 10c-1a 
information to an RNSA.\1182\ In meeting this requirement, reporting 
agents will assume initial PRA burdens related to drafting, 
negotiating, and executing such an agreement. Compliance with this 
requirement, however, should not create any ongoing annual burdens once 
the agreement is executed. This is because the final rule does not 
impose any requirement for reporting agents to modify the written 
agreement or take additional action after the agreement is executed.
---------------------------------------------------------------------------

    \1182\ See final Rule 10c-1a(a)(2)(i).
---------------------------------------------------------------------------

    These agreements are estimated to be standardized across the 
industry because the data elements are consistent for all 
persons.\1183\ The only terms (of an agreement between a non-providing 
covered person and a reporting agent) that may require negotiation are 
the price and the format in which the information would be provided. 
This process is estimated to be highly automated. Reporting agents are 
estimated to require the same amount of time to comply with this 
requirement as non-providing covered persons will require. Accordingly, 
the Commission estimates that each reporting agent will spend 30 hours 
on this task.\1184\ As a result, the total industry-wide initial PRA 
burden related to this requirement is estimated to be 3,180 
hours.\1185\
---------------------------------------------------------------------------

    \1183\ See supra note 1169 and accompanying text.
    \1184\ See supra note 1170 and accompanying text.
    \1185\ 30 hours x 106 reporting agents = 3,180 hours. This 
methodology is consistent with that used in the Proposing Release 
with respect to reporting agents. See Proposing Release, 86 FR 
69825.
---------------------------------------------------------------------------

3. Entering Into Written Agreements With an RNSA
    Any reporting agent that assumes the reporting obligation on behalf 
of a covered person pursuant to final Rule 10c-1a(a)(2) must also enter 
into a written agreement with an RNSA that permits the reporting agent 
to provide Rule 10c-1a information to an RNSA on behalf of the covered 
person.\1186\ Because the Rule 10c-1a information is standardized for 
all reporting agents, there are no terms of these agreements that will 
need to be negotiated. Instead, an RNSA may create a form agreement for 
all reporting agents. Because these agreements are estimated to be 
standardized, the Commission estimates that reporting agents will 
assume a one-hour initial PRA burden to account for any administrative 
tasks related to processing and executing these agreements.\1187\ 
Reporting agents that enter into written agreements with an RNSA should 
not incur any ongoing annual burden to comply with this requirement 
once the agreement is executed, as the Rule 10c-1a information is 
standardized. Accordingly, the Commission estimates that the industry-
wide initial PRA burden for this requirement is 106 hours.\1188\
---------------------------------------------------------------------------

    \1186\ See final Rule 10c-1a(b)(3).
    \1187\ For example, a reporting agent may need to enter the 
written agreement into a contract management system or scan an 
executed paper agreement into an electronic format.
    \1188\ 1 hour x 106 reporting agents = 106 hours. This 
methodology is consistent with that used in the Proposing Release 
with respect to reporting agents. See Proposing Release, 86 FR 
69825.
---------------------------------------------------------------------------

4. Record Preservation Requirement
    Any reporting agent that assumes the reporting obligation on behalf 
of a covered person pursuant to final Rule 10c-1a(a)(2) must also 
preserve for a period of not less than three years, the first two years 
in an easily accessible place, the Rule 10c-1a information it obtained 
from the covered person pursuant to paragraph (a)(2) of the final rule, 
including the time of receipt, and the corresponding Rule 10c-1a 
information provided by the reporting agent to an RNSA, including the 
time of transmission to an RNSA, and the written agreements that the 
reporting agent entered into with the covered person and with an 
RNSA.\1189\ The initial PRA burden associated with preserving the 
collected Rule 10c-1a information is related to the reporting agent's 
burden of developing and reconfiguring its current systems to capture 
the required data elements. Therefore, an initial burden associated 
with the preservation of information under final Rule 10c-1a(b)(5) is 
not separately estimated.
---------------------------------------------------------------------------

    \1189\ See final Rule 10c-1a(b)(5).
---------------------------------------------------------------------------

    Compliance with this record preservation requirement is estimated 
to be highly automated. The Commission, therefore, estimates that 
reporting agents will spend one hour per week on upkeep and testing of 
records to ensure accuracy in complying with this requirement. 
Reporting agents each will assume an ongoing annual PRA burden of 52 
hours per year.\1190\ Accordingly, the Commission estimates that the 
industry-wide ongoing annual PRA burden for this requirement is 5,512 
hours.\1191\
---------------------------------------------------------------------------

    \1190\ This estimate is consistent with the ongoing annual 
burden estimate for national securities exchanges and RNSAs 
regarding the data collection and reporting for Rule 17a-1, which 
requires that every national securities exchange, national 
securities association, registered clearing agency, and the MSRB 
keep on file for a period of not less than five years, the first two 
years in an easily accessible place, at least one copy of all 
documents, including all correspondence, memoranda, papers, books, 
notices, accounts, and other such records made or received by it in 
the course of its business as such and in the conduct of its self-
regulatory activity. See Paperwork Reduction Act Extension Notice 
for Exchange Act Rule 17a-1, 84 FR 57920 (Oct. 29, 2019), 84 FR 
57921.
    \1191\ 52 hours x 106 reporting agents = 5,512 hours. This 
methodology is consistent with that used in the Proposing Release 
with respect to reporting agents. See Proposing Release, 86 FR 
69825-26.

[[Page 75738]]



               PRA Table 1--Summary of Estimated Burdens for Covered Persons and Reporting Agents
----------------------------------------------------------------------------------------------------------------
                                                                     Number of     Total initial   Total annual
      Type of respondent          Rule 10c-1a      Type of PRA       entities        industry        industry
                                  requirement         burden         impacted     burden (hours)  burden (hours)
----------------------------------------------------------------------------------------------------------------
Providing Covered Persons....  Systems           Third-Party                 255         765,000         344,250
                                Development and   Disclosure.
                                Monitoring.
Non-providing Covered Persons  Systems           Third-Party                 248         372,000         167,400
                                Development and   Disclosure.
                                Monitoring.
Non-providing Covered Persons  Entering into     Third-Party                 248           7,440               0
                                Agreement with    Disclosure.
                                Reporting Agent.
Reporting Agents.............  Systems           Third-Party                 106         318,000         143,100
                                Development and   Disclosure.
                                Monitoring.
Reporting Agents.............  Entering into     Third-Party                 106           3,180               0
                                Agreement with    Disclosure.
                                Non-providing
                                Covered Person.
Reporting Agents.............  Entering into     Third-Party                 106             106               0
                                Agreement with    Disclosure.
                                RNSA.
Reporting Agents.............  Record            Recordkeeping..             106               0           5,512
                                Preservation
                                Requirement.
----------------------------------------------------------------------------------------------------------------

E. Collection of Information Related to RNSAs

    RNSAs will assume new PRA burdens in complying with final Rule 10c-
1a(f) through (h). The PRA burdens associated with an RNSA's compliance 
with paragraphs (f) through (h) are discussed below. All estimates 
included in this Part X are consistent with the Commission's estimates 
included in the Proposing Release for an RNSA.\1192\
---------------------------------------------------------------------------

    \1192\ See Proposing Release, 86 FR 69827-29.
---------------------------------------------------------------------------

1. Burden Estimates Related to RNSA Rule Implementation
    Under final Rule 10c-1a(f), an RNSA is required to implement rules 
regarding the format and manner of its collection of Rule 10c-1a 
information and make publicly available such information in accordance 
with rules promulgated pursuant to section 19(b) and Rule 19b-4 of the 
Exchange Act. The PRA burden associated with filing any proposed rule 
changes by an RNSA is already included under the collection of 
information requirements contained in Rule 19b-4 under the Exchange 
Act.\1193\ Therefore, a separate PRA burden estimate is not included 
for the purposes of the PRA included for this rulemaking.
---------------------------------------------------------------------------

    \1193\ See Proposed Rule Changes of Self-Regulatory 
Organizations, Release No. 34-50486 (Oct. 5, 2004), 69 FR 60287 
(Oct. 8, 2004), 69 FR 60293.
---------------------------------------------------------------------------

2. Burden Estimates Related to the Publication of Data
    As discussed above, in Part VII.J, an RNSA will be required, 
following the receipt of information pursuant to paragraph (c) or (d) 
of the final rule, to assign a unique identifier to the covered 
securities loan and make certain information publicly available (on its 
website or similar means of electronic distribution, without use 
restrictions, for a period of at least five years) \1194\ within the 
time frames specified in paragraph (g) of the final rule. In complying 
with these requirements, an RNSA will need to create, implement, and 
maintain the infrastructure to enable providing covered persons and 
reporting agents to provide an RNSA with the Rule 10c-1a information. 
This includes establishing technical requirements and specifications 
for such infrastructure, creating a system that can generate unique 
identifiers, meeting with industry participants to gather feedback on 
the proposed infrastructure, drafting written policies and procedures 
to protect the confidentiality of certain information, and entering 
into written agreements with providing covered persons and reporting 
agents. In addition, the infrastructure employed will need to comply 
with paragraphs (h)(1) and (h)(2) of the final rule, which require an 
RNSA to retain the collected Rule 10c-1a information in a convenient 
and usable standard electronic data format that is machine readable and 
text searchable without any manual intervention, for a period of five 
years, and to make the information collected pursuant to paragraphs 
(b)(4) and (c) through (e) of the final rule available to the 
Commission, or other persons as the Commission may designate by order 
upon a demonstrated regulatory need, respectively.
---------------------------------------------------------------------------

    \1194\ See final Rule 10c-1a(h)(3).
---------------------------------------------------------------------------

    The initial burden assumed by an RNSA in creating and implementing 
the infrastructure for providing covered persons and reporting agents 
to provide the applicable Rule 10c-1a information to an RNSA, and for 
an RNSA to make such information publicly available, is similar to the 
initial burden assumed by national securities exchanges and RNSAs in 
complying with the requirement to establish the appropriate systems and 
processes for the collection and transmission of the required 
information under the CAT. However, the systems that are implemented to 
comply with Rule 10c-1a should be significantly less complex than those 
that are implemented to comply with the CAT. This is because the Rule 
10c-1a systems will need to capture less information overall than what 
the CAT requires.\1195\ Further, as discussed above, in Part IX.A.3, 
there is only one RNSA that will need to create and implement the 
infrastructure for providing covered persons and reporting agents to 
provide Rule 10c-1a information, in contrast to the multiple national 
securities exchanges that create systems to comply with the CAT. In 
addition, an RNSA will have internal staff that can create and 
implement the infrastructure for providing covered persons and 
reporting agents to provide Rule 10c-1a information, unlike certain 
tasks required under the CAT that may require outsourcing. Accordingly, 
the PRA burden estimates for this collection of information are 
substantially reduced as compared to those for the CAT, as discussed 
below, in this part.
---------------------------------------------------------------------------

    \1195\ See supra note 1150 and accompanying text.
---------------------------------------------------------------------------

    The Commission estimates that it would take an RNSA approximately 
10,924 hours of internal legal, compliance, information technology, and 
business operations time to develop the infrastructure to enable 
providing covered persons and reporting agents to provide the Rule 10c-
1a information to an RNSA, and for an RNSA to assign a unique 
identifier to the covered

[[Page 75739]]

securities loan and make the specified information publicly 
available.\1196\ The RNSA is not estimated to assume external costs for 
the implementation of the infrastructure to enable providing covered 
persons and reporting agents to provide the Rule 10c-1a information, 
assign a unique identifier to the covered securities loan, and make the 
final rule's specified information publicly available. This is because 
the sole RNSA currently existing, FINRA, has experience in implementing 
systems to collect information from its member broker-dealers.\1197\ 
Therefore, the Commission estimates that the average one-time initial 
PRA burden related to developing the infrastructure to enable providing 
covered persons and reporting agents to provide the Rule 10c-1a 
information, assign a unique identifier to the covered securities loan, 
and make the final rule's specified information publicly available is 
10,924 hours.\1198\
---------------------------------------------------------------------------

    \1196\ This estimate is based on the Commission's initial burden 
estimate for national securities exchanges and RNSAs regarding the 
data collection and reporting for the consolidated audit trail which 
was approximately 43,696.80 burden hours in total. See CAT Approval 
Order, 81 FR 84921. Given the size of the overall equity market in 
comparison to the size of the securities lending market, the 
Commission believes equating the PRA burden hours (to develop the 
infrastructure for the provision of Rule 10c-1a information and for 
an RNSA to assign a unique identifier to the covered securities loan 
and make the specified information publicly available) with the CAT 
burden hours would overestimate the burden hours. The initial burden 
in complying with final Rule 10c-1a's requirements related to an 
RNSA's publication of data should be calculated based on the size of 
the securities lending market in comparison to the size of the 
equities market. Consistent with the Commission's estimate in the 
Proposing Release, the Commission estimates that the average daily 
dollar value of securities lending transactions is approximately 
$120 billion dollars compared to the average daily equity trading 
volume of $475 billion. See Proposing Release, 86 FR 69828. 
Accordingly, the size of the securities lending market is 
approximately 25% of the U.S. equity market. Therefore, it is 
estimated that the initial PRA burden to develop and implement the 
needed systems changes to capture and publish the Rule 10c-1a 
information is 25% of the burden hours for the CAT, which is 10,924 
burden hours.
    \1197\ See, e.g., supra Part VII.H.
    \1198\ 1 RNSA x 10,924 hours = 10,924 hours.
---------------------------------------------------------------------------

    Once an RNSA has developed the infrastructure to enable providing 
covered persons and reporting agents to provide the Rule 10c-1a 
information, assign a unique identifier to the covered securities loan, 
and make the final rule's specified information publicly available, the 
Commission estimates that an RNSA will assume ongoing annual PRA 
burdens of 7,739.5 hours related to ensuring that the infrastructure is 
up-to-date and remains in compliance with the final rule, for an 
estimated annual ongoing burden of 7,739.5 hours.\1199\
---------------------------------------------------------------------------

    \1199\ The PRA burdens assumed in complying with this 
requirement are similar to the burdens assumed by national 
securities exchanges and RNSAs in complying with the data collection 
and reporting requirements for the CAT. This was estimated to be 
approximately 30,958.20 total hours. See CAT Approval Order, 81 FR 
84922. Consistent with the Commission's initial PRA burden estimates 
related to an RNSA's publication of data in accordance with the 
proposed rule, as such burden estimate relates to the Commission's 
estimates in the CAT Approval Order, the Commission estimates for 
purposes of compliance with the final rule that the annual ongoing 
burden related to the publication of the specified data is similarly 
25% of the hours required for compliance with CAT. This is estimated 
to be 7,739.5 hours.
---------------------------------------------------------------------------

3. Burden Estimates Related to Data Retention and Availability
    Under final Rule 10c-1a(h)(1), an RNSA must retain the collected 
Rule 10c-1a information in a convenient and usable standard electronic 
data format that is machine readable and text searchable without any 
manual intervention for a period of five years. The initial burden 
associated with retaining the collected Rule 10c-1a information is 
assumed in an RNSA's burdens related to implementing and maintaining 
the infrastructure for providing covered persons and reporting agents 
to provide Rule 10c-1a information to an RNSA, as discussed above, in 
Part X.2. Therefore, the Commission is not separately assessing an 
initial burden associated with the retention of collected Rule 10c-1a 
information. The Commission, however, estimates that an RNSA will 
assume an ongoing annual PRA burden of 52 hours to retain the collected 
information,\1200\ for an estimated annual industry-wide burden of 52 
hours.
---------------------------------------------------------------------------

    \1200\ See supra note 1190. The resulting burden hours that are 
assumed in addition to those that already exist for Rule 17a-1, for 
purposes of this PRA estimate, are appropriate because an RNSA may 
be required to retain records related to Rule 10c-1a information 
provided by covered persons or reporting agents that are not RNSA 
members.

                               PRA Table 2--Summary of Estimated Burdens for RNSA
----------------------------------------------------------------------------------------------------------------
                                                                     Number of     Total initial   Total annual
        Rule 10c-1a requirement            Type of PRA burden        entities        industry        industry
                                                                     impacted      burden hours    burden hours
----------------------------------------------------------------------------------------------------------------
Publication of Data...................  Reporting and Third-                   1          10,924         7,739.5
                                         Party Disclosure.
Data Retention and Availability.......  Recordkeeping...........               1               0              52
----------------------------------------------------------------------------------------------------------------

F. Collection of Information Is Mandatory

    Each collection of information discussed above is a mandatory 
collection of information.

G. Confidentiality of Responses to Collection of Information

    The Commission may receive confidential information as a result of 
this collection of information, such as the identity of covered 
persons. The final rule does not permit an RNSA to make such 
information publicly available.\1201\ Aside from this information, the 
collection of information is broadly expected to be publicly available 
information. To the extent the Commission receives confidential 
information pursuant to this collection of information, through its 
examination and oversight program, through an investigation, or by some 
other means, such information will be kept confidential, subject to the 
provisions of applicable law.
---------------------------------------------------------------------------

    \1201\ See final Rule 10c-1a(g)(4).
---------------------------------------------------------------------------

H. Retention Period for Record Preservation Requirement

    Pursuant to final Rule 10c-1a(h)(1), an RNSA is required to retain 
the collected Rule 10c-1a information in a convenient and usable 
standard electronic data format that is machine readable and text 
searchable without any manual intervention for a period of five years. 
Pursuant to final Rule 10c-1a(b)(5), a reporting agent that assumes the 
reporting obligation on behalf of a covered person pursuant to 
paragraph (a)(2) of the final rule is required to preserve the Rule 
10c-1a information obtained by the reporting agent from the covered 
person pursuant to final Rule 10c-1a(a)(2), including the time of 
receipt, and the corresponding Rule 10c-1a information provided by the 
reporting agent to an RNSA, including the time of transmission to an 
RNSA, as well as the written agreements under paragraphs (a)(2) and 
(b)(3) of the final rule, for a period of not less than three years, 
the first two years in an easily accessible place.

[[Page 75740]]

XI. Regulatory Flexibility Act Certification

    The Regulatory Flexibility Act (``RFA'') \1202\ requires Federal 
agencies, in promulgating rules, to consider the impact of those rules 
on ``small entities,'' \1203\ a term that includes ``small 
businesses.'' \1204\ Section 603(a) \1205\ of the Administrative 
Procedure Act,\1206\ as amended by section 604(a) of the RFA, requires 
the Commission to undertake a final regulatory flexibility analysis of 
rules it is adopting, unless the Commission certifies that the rules 
would not have a significant impact on a substantial number of small 
entities.\1207\
---------------------------------------------------------------------------

    \1202\ 5 U.S.C. 601 et seq.
    \1203\ 5 U.S.C. 605(b).
    \1204\ Although section 601(b) of the RFA defines the term 
``small business,'' the statute permits agencies to formulate their 
own definitions. The Commission has adopted definitions for the term 
``small business'' for the purposes of Commission rulemaking in 
accordance with the RFA. Those definitions, as relevant to this 
rulemaking, are set forth in 17 CFR 240.0-10 (``Rule 0-10''). Rule 
0-10 also provides that the Commission may, if warranted by the 
circumstances, use a different definition for particular 
rulemakings. See 17 CFR 240.0-10.
    \1205\ 5 U.S.C. 603(a).
    \1206\ 5 U.S.C. 551 et seq.
    \1207\ 5 U.S.C. 605(b).
---------------------------------------------------------------------------

    Small entities include broker-dealers with total capital (net worth 
plus subordinated liabilities) of less than $500,000 on the date in the 
prior fiscal year as of which its audited financial statements were 
prepared pursuant to 17 CFR 240.17a-5(d) (``Rule 17a-5(d)''), or, if 
not required to file such statements, a broker-dealer who had total 
capital (net worth plus subordinated liabilities) of less than $500,000 
on the last day of the preceding fiscal year (or in the time it has 
been in business, if shorter), and is not affiliated with any person 
(other than a natural person) who is not a small business or small 
organization.\1208\ A small business or small organization, for 
purposes of ``issuers'' or ``person'' other than an investment company, 
is defined as a person who, on the last day of its most recent fiscal 
year, had total assets of $5 million or less.\1209\ In the Proposing 
Release, the Commission certified, pursuant to section 605(b) of the 
RFA, that the proposed rule would not have a significant economic 
impact on a substantial number of small entities.\1210\ The Commission 
requested but did not receive any comments on the certification as it 
related to the entities impacted by the proposed rule.
---------------------------------------------------------------------------

    \1208\ See 17 CFR 240.0-10(c).
    \1209\ 17 CFR 242.0-10(a).
    \1210\ Proposing Release, 86 FR 69851.
---------------------------------------------------------------------------

    Based on the Commission's analysis of the existing information 
relating to persons who are subject to the final rule, it is unlikely 
that any broker-dealer, clearing agency, investment company, or bank 
categorized as a ``small business'' or ``small organization'' under 
Rule 0-10 would serve as a covered person, reporting agent, or RNSA, as 
they would almost certainly have insufficient capital to participate in 
lending activities involving a covered securities loan or would 
register with the Commission as a national securities association. 
Accordingly, the Commission believes it is unlikely that, in the 
future, a substantial number of small entities may become impacted by 
the final rule. This is because broker-dealers who have a reporting 
obligation or elect to serve as a reporting agent are likely to have at 
least $500,000 in total capital; as described above, investment 
companies, together with other investment companies in the same group 
of related investment companies, who have a reporting obligation are 
likely to have net assets of over $50 million as of the end of its most 
recent fiscal year; banks who have a reporting obligation are likely to 
have total assets of over $5 million; \1211\ clearing agencies who 
elect to serve as reporting agents are likely to have compared, 
cleared, and settled at least $500 million in securities transactions 
during the preceding fiscal year and have had a least $200 million of 
funds and securities in its custody or control at all times during the 
preceding fiscal year (or at any time that it has been in business, if 
shorter); \1212\ or such persons are likely to be affiliated with a 
person who is not a small business or small organization as defined 
under Rule 0-10.
---------------------------------------------------------------------------

    \1211\ 17 CFR 242.0-10(a).
    \1212\ See 17 CFR 240.0-10(d).
---------------------------------------------------------------------------

    For the foregoing reason, the Commission certifies, pursuant to 
section 605(b) of Title 5 of the U.S. Code, that final Rule 10c-1a will 
not have a significant economic impact on a substantial number of small 
entities.

XII. Other Matters

    If any of the provisions of the final rule, or application thereof 
to any person or circumstances, is held to be invalid, such invalidity 
shall not affect other provisions or application of such provisions to 
other persons or circumstances that can be given effect without the 
invalid provision or application.
    Pursuant to the Congressional Review Act,\1213\ the Office of 
Information and Regulatory Affairs has designated these rules as a 
``major rule,'' as defined by 5 U.S.C. 804(2).
---------------------------------------------------------------------------

    \1213\ 5 U.S.C. 801 et seq.
---------------------------------------------------------------------------

Statutory Authority

    The Commission is adopting final Rule 10c-1a pursuant to Sections 
3, 10(b), 10(c), 15(c), 15(h), 15A, 17(a), 23(a) of the Securities 
Exchange Act of 1934, 15 U.S.C. 78c, 78j(b), 78j(c), 78k-1, 78o(c), 
78o(g), 78o-3, 78q(a), and 78w(a), and Public Law 111-203, 984(b), 124 
Stat. 1376 (2010).

List of Subjects in 17 CFR Part 240

    Administrative practice and procedure, Reporting and recordkeeping 
requirements, Securities.

Text of Rule Amendments

    For the reasons set out in the preamble, the Commission is amending 
title 17, chapter II of the Code of Federal Regulations as follows:

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

0
1. The general authority citation for part 240 continues to read as 
follows:

    Authority:  15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f, 
78g, 78i, 78j, 78j-1, 78j-4, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 
78o-4, 78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78dd, 78ll, 
78mm, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, and 7201 
et seq., and 8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 
U.S.C. 1350; Pub. L. 111-203, Sec. 939A, 124 Stat. 1376 (2010); and 
Pub. L. 112-106, Sec. 503 and 602, 126 Stat. 326 (2012), unless 
otherwise noted.
* * * * *
    Section 240.10c-1a also issued under 15 U.S.C. 78j(c), and Pub, 
L. 111-203, 984(b), 124 Stat. 1376 (2010).
* * * * *

0
2. Add Sec.  240.10c-1a immediately following Sec.  240.10b-21 to read 
as follows:


Sec.  240.10c-1a   Securities lending transparency.

    (a) Reporting requirements for covered persons. Any covered person 
who agrees to a covered securities loan on behalf of itself or another 
person shall:
    (1) Provide to a registered national securities association 
(``RNSA'') the information in paragraphs (c) through (e) of this 
section (``Rule 10c-1a information''), in the format and manner 
required by the applicable rule(s) of such RNSA, and within the time 
periods

[[Page 75741]]

specified in paragraphs (c) through (e) of this section.
    (2) Provided, however, a covered person may rely on a reporting 
agent to fulfill its reporting obligations under paragraph (a)(1) of 
this section if such covered person:
    (i) Enters into a written agreement with a reporting agent that 
agrees to provide the Rule 10c-1a information to an RNSA on behalf of 
such covered person in accordance with the requirements in paragraph 
(b) of this section; and,
    (ii) Provides such reporting agent with timely access to the Rule 
10c-1a information.
    (b) Reporting agent requirements. Any reporting agent that assumes 
the reporting obligation on behalf of a covered person pursuant to 
paragraph (a)(2) of this section shall:
    (1) Provide such Rule 10c-1a information to an RNSA, in the format 
and manner required by the applicable rule(s) of such RNSA, and within 
the time periods specified in paragraphs (c) through (e) of this 
section;
    (2) Establish, maintain, and enforce written policies and 
procedures that are reasonably designed to provide Rule 10c-1a 
information to an RNSA on behalf of a covered person in the format and 
manner required by the applicable rule(s) of an RNSA, and within the 
time periods specified in paragraphs (c) through (e) of this section;
    (3) Enter into a written agreement with an RNSA that permits the 
reporting agent to provide Rule 10c-1a information to an RNSA on behalf 
of a covered person;
    (4) Provide an RNSA with a list naming each covered person on whose 
behalf the reporting agent is providing Rule 10c-1a information to an 
RNSA and provide an RNSA with any updates to the list of such persons 
by the end of the day such list changes; and
    (5) Preserve for a period of not less than three years, the first 
two years in an easily accessible place:
    (i) The Rule 10c-1a information obtained by the reporting agent 
from the covered person pursuant to paragraph (a)(2) of this section, 
including the time of receipt, and the corresponding Rule 10c-1a 
information provided by the reporting agent to an RNSA, including the 
time of transmission to an RNSA; and
    (ii) The written agreements under paragraphs (a)(2) and (b)(3) of 
this section.
    (c) Data elements. A covered person shall provide the following 
information, if applicable, to an RNSA, by the end of the day on which 
a covered securities loan is effected:
    (1) The legal name of the security issuer, and the Legal Entity 
Identifier (``LEI'') of the issuer, if the issuer has a non-lapsed LEI;
    (2) The ticker symbol, International Securities Identification 
Number (``ISIN''), Committee on Uniform Securities Identification 
Procedures (``CUSIP''), or Financial Instrument Global Identifier 
(``FIGI'') of the security, or other security identifier;
    (3) The date the covered securities loan was effected;
    (4) The time the covered securities loan was effected;
    (5) The name of the platform or venue where the covered securities 
loan was effected;
    (6) The amount, such as size, volume, or both, of the reportable 
securities loaned;
    (7) The type of collateral used to secure the covered securities 
loan;
    (8) For a covered securities loan collateralized by cash, the 
rebate rate or any other fee or charges;
    (9) For a covered securities loan not collateralized by cash, the 
securities lending fee or rate, or any other fee or charges;
    (10) The percentage of collateral to value of reportable securities 
loaned required to secure such covered securities loan;
    (11) The termination date of the covered securities loan; and
    (12) 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.
    (d) Loan modification data elements. A covered person shall provide 
the following information to an RNSA by the end of the day on which a 
covered securities loan is modified:
    (1) If the modification occurs after the data elements under 
paragraph (c) of this section for such covered securities loan are 
provided to an RNSA, and results in a change to information previously 
required to be provided to an RNSA under paragraph (c) of this section:
    (i) The date and time of the modification;
    (ii) The specific modification and the specific data element in 
paragraph (c) of this section being modified; and
    (iii) The unique identifier assigned to the original covered 
securities loan under paragraph (g)(1) or (g)(3) of this section;
    (2) If the modification is to a covered securities loan for which 
reporting under paragraph (a) 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 in paragraphs (c)(1) through (12) of this section:
    (i) The data elements in paragraphs (c)(1) through (12) of this 
section as of the date of modification and the date and time of the 
modification.
    (ii) [Reserved]
    (e) Confidential data elements. A covered person shall provide the 
following information to an RNSA, if applicable, by the end of the day 
on which a covered securities loan is effected:
    (1) 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 Sec.  
240.15c3-3(b)(3) (``Rule 15c3-3(b)(3)'') of the Exchange Act, Central 
Registration Depository (``CRD'') or Investment Adviser Registration 
Depository (``IARD'') Number, market participant identification 
(``MPID''), and the LEI of each party to the covered securities loan, 
and whether such person is the lender, the borrower, or an intermediary 
between the lender and the borrower;
    (2) If the person lending securities is a broker or dealer and the 
borrower is its customer, whether the security is loaned from a 
broker's or dealer's securities inventory to a customer of such broker 
or dealer; and
    (3) If known, whether the covered securities loan is being used to 
close out a fail to deliver pursuant to Sec.  242.204 of this chapter 
(``Rule 204 of Regulation SHO'') or to close out a fail to deliver 
outside of Sec. Sec.  242.200 through 242.204 of this chapter 
(``Regulation SHO'').
    (f) RNSA rules. An RNSA shall implement rules regarding the format 
and manner of its collection of information described in paragraphs (c) 
through (e) of this section and make publicly available such 
information in accordance with rules promulgated pursuant to 15 U.S.C. 
78s(b) (``section 19(b)'') and Sec.  240.19b-4 (``Rule 19b-4'') of the 
Exchange Act.
    (g) RNSA publication of data. An RNSA shall:
    (1) Following receipt of information pursuant to paragraph (c) of 
this section, 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 publicly 
available the following information:
    (i) For each covered securities loan effected on the previous 
business day:
    (A) The unique identifier assigned by an RNSA;
    (B) The information it receives under paragraphs (c)(1) through (5) 
and (7) through (12) of this section; and
    (C) The security identifier(s) under paragraphs (c)(1) or (2) of 
this section

[[Page 75742]]

that an RNSA determines is appropriate to identify the relevant 
reportable security.
    (2) Following receipt of information pursuant to paragraph (c) of 
this section, on the twentieth business day after the covered 
securities loan is effected, make publicly available the information 
specified in paragraph (c)(6) of this section along with the loan and 
security identifying information specified in paragraphs (g)(1)(i)(A) 
and (C) of this section.
    (3) Following receipt of information pursuant to paragraph (d) of 
this section, assign a unique identifier to the covered securities loan 
if one was not assigned pursuant to paragraph (g)(1)(i)(A) of this 
section; and:
    (i) As soon as practicable, and not later than the morning of the 
business day after the covered securities loan is modified, make 
publicly available information pertaining to any modification to the 
data specified in paragraphs (c)(1) through (5) and (7) through (12) of 
this section; provided however, for a covered securities loan for which 
paragraph (c) information is reported to an RNSA pursuant to paragraph 
(d)(2) of this section, make publicly available the data specified in 
paragraphs (c)(1) through (5) and (7) through (12); and
    (ii) On the twentieth business day after the covered securities 
loan is modified, make publicly available the data specified in 
paragraph (c)(6) of this section along with the loan and security 
identifying information specified in paragraphs (g)(1)(i)(A) or (g)(3), 
as applicable, and (g)(1)(i)(C) of this section.
    (4) Following receipt of information pursuant to paragraph (e) of 
this section, keep such information confidential, in accordance with 
the provisions of paragraph (h) of this section and applicable law.
    (5) Following the receipt of information specified in paragraphs 
(c) and (d) of this section, as soon as practicable, and not later than 
the morning of the business day after covered securities loans are 
effected or modified, make publicly available, on a daily basis, 
information pertaining to the aggregate transaction activity and 
distribution of loan rates for each reportable security and the 
security identifier(s) under paragraphs (c)(1) or (2) of this section 
for which an RNSA determines is appropriate to identify.
    (h) Data retention and availability. An RNSA shall:
    (1) Retain the information collected pursuant to paragraphs (c) 
through (e) of this section in a convenient and usable standard 
electronic data format that is machine readable and text searchable 
without any manual intervention for a period of five years;
    (2) Make the information collected pursuant to paragraphs (b)(4) 
and (c) through (e) of this section available to the Commission; or 
other persons as the Commission may designate by order upon a 
demonstrated regulatory need;
    (3) Make the information collected under paragraphs (c) and (d) of 
this section available to the public in the same manner such 
information is maintained pursuant to paragraph (h)(1) of this section 
on an RNSA's website or similar means of electronic distribution, 
without use restrictions, for a period of at least five years; and
    (4) Establish, maintain, and enforce reasonably designed written 
policies and procedures to maintain the security and confidentiality of 
confidential information required by paragraph (e) of this section.
    (i) RNSA fees. An RNSA may establish and collect reasonable fees, 
pursuant to rules that are promulgated pursuant to section 19(b) and 
Rule 19b-4 of the Exchange Act.
    (j) Definitions. For purposes of this section:
    (1) The term covered person means:
    (i) Any person that agrees to a covered securities loan on behalf 
of a lender (``intermediary'') other than a clearing agency when 
providing only the functions of a central counterparty pursuant to 
Sec.  240.17Ad-22(a)(2) (``Rule 17Ad-22(a)(2)'') of the Exchange Act or 
a central securities depository pursuant to Sec.  240.17Ad-22(a)(3) 
(``Rule 17Ad-22(a)(3)'') of the Exchange Act; or
    (ii) Any person that agrees to a covered securities loan as a 
lender when an intermediary is not used unless paragraph (j)(1)(iii) of 
this section applies; or
    (iii) A broker or dealer when borrowing fully paid or excess margin 
securities pursuant to Rule 15c3-3(b)(3) of the Exchange Act.
    (2) The term covered securities loan means:
    (i) A transaction in which any person on behalf of itself or one or 
more other persons, lends a reportable security to another person.
    (ii) Notwithstanding paragraph (j)(2)(i) of this section, a 
position at a clearing agency that results from central counterparty 
services pursuant to Rule 17Ad-22(a)(2) of the Exchange Act or central 
securities depository services pursuant to Rule 17Ad-22(a)(3) of the 
Exchange Act will not be a covered securities loan for purposes of this 
rule.
    (iii) Notwithstanding paragraph (j)(2)(i) of this section, the use 
of margin securities, as defined in Sec.  240.15c3-3(a)(4) (``Rule 
15c3-3(a)(4)'') of the Exchange Act, by a broker or dealer will not be 
a covered securities loan for purposes of this rule.
    (A) Provided, however, if a broker or dealer lends such margin 
securities to another person, the loan to the other person is a covered 
securities loan for purposes of this rule.
    (B) [Reserved]
    (3) The term reportable security means any security or class of an 
issuer's securities for which information is reported or required to be 
reported to the consolidated audit trail as required by Sec.  242.613 
(``Rule 613'') of the Exchange Act and the CAT NMS Plan (``CAT''), the 
Financial Industry Regulatory Authority's Trade Reporting and 
Compliance Engine (``TRACE''), or the Municipal Securities Rulemaking 
Board's Real-Time Transaction Reporting System (``RTRS''), or any 
reporting system that replaces one of these systems.
    (4) The term reporting agent means a broker, dealer, or registered 
clearing agency that enters into a written agreement with a covered 
person under paragraph (a)(2) of this section.
    (5) The term RNSA means an association of brokers and dealers that 
is registered as a national securities association pursuant to 15 
U.S.C. 78o-3 (``section 15A'') of the Exchange Act.

    By the Commission.

    Dated: October 13, 2023.
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2023-23052 Filed 11-2-23; 8:45 am]
BILLING CODE 8011-01-P`