SEC Rule 10c-1a: Preparing for the New Era of Securities Lending Transparency

An interview with William Kolkey

What is the primary goal of SEC rule 10c-1a? How does it aim to improve market transparency and efficiency?
10c-1a is an SEC rule to report securities lending agreements. The rule provides that these reports be used to create a consolidated tape – a public record – of the material terms of nearly every securities lending transaction with a US nexus. Investors can use that public record to help price their own securities lending agreements according to the market.

When does 10c-1a come into effect?
It’s already in effect. Insofar as the rule is requiring FINRA, which is a securities association, to create the technical requirements for determining how securities lending agreements get reported to the consolidated tape.

But for market participants who would be responsible for reporting their transaction, the compliance date is the second of January 2026.

When will we know the technical requirements?
The technical requirements have been drafted by FINRA and are currently subject to review and approval by the SEC. Given that the compliance date is really just a year away and market participants need to prepare, there’s a lot of pressure to ensure the technical requirements are finalized as soon as possible.

What types of securities are covered by the reporting requirements?
There are three buckets of reportable securities.

• There are securities that are reportable to the consolidated audit trail (CAT). These are listed equities securities and listed options – and also OTC equity securities.
• There are securities that are reportable to the trade reporting and compliance engine (TRACE). These are debt securities.
• And finally, there are securities reportable to the real time transaction reporting system (RTRS). These are municipal debt securities.

How do you know if a given security is reportable to any of those reporting systems?
There are lists that can be helpful for assessing product eligibility. But the lists are not necessarily comprehensive. This is particularly an issue for TRACE products, where FINRA just about every year reminds market participants that they’re responsible for independently evaluating whether or not an instrument is a reportable TRACE debt security, because the TRACE master list is not a comprehensive list.

All of which is to say: firms will find that there are instances where lists will be useful, but there are other times where it will be more efficient or effective to assess securities based on their characteristics. Firms complying with 10c-1a will need a system in place to perform those evaluations.

Are there any exemptions or exceptions to these requirements?

Most lending transactions are covered but there are exceptions to the requirements. These would include the use of margin securities by a broker dealer as well as positions that result from clearing services.

How does a market participant know if they are in scope for the rule?
The question of scope is a question of territoriality. The rule itself doesn’t say anything about the territorial nexus that brings a transaction into scope, but the SEC has explained in their commentary on the rule, as published in the Federal Register, that 10c-1a is intended to apply to any transaction that is “effected, accepted, or facilitated” in the United States.

That’s going to cover parties that are US persons or guaranteed by US persons. It’s also going to cover non-US persons where they are engaged in activity in the United States. And by that standard, the territorial scope of the rule is not too dissimilar to that of Regulation SBSR, the SEC’s requirement for reporting security-based swaps.

What do firms need to do to prepare?
To prepare for 10c-1a, firms are going to need to do a few things.

First, they need to ensure that their product data is comprehensive and it’s capturing the three buckets of securities that fall into scope for securities lending requirements. Firms will need to build out an engine for evaluating securities lending agreements both against that product data and against the territorial and other contextual factors that might bring the agreement into scope.

Second, firms need to ensure that, once a transaction is identified as eligible for reporting, that the reporting party is correctly identified. And here it’s worth reminding that 10c-1a is a one-sided reporting obligation. A lot of the time it is going to be the agent that effects a transaction on behalf of a lender that reports. But there is a little more to the reporting waterfall than just that.

And third, as is the case for a lot of these reporting rules, a firm would need to make sure that they have a system in place for generating the report and also validating that the fields of the generated report abide by FINRA’s technical standards.