The Financial Industry Regulatory Authority (FINRA) has filed with the Securities and Exchange Commission (SEC) a proposed rule change to adopt the new FINRA Rule 6500 Series — Securities Lending and Transparency Engine (SLATE) — for reporting of securities loans and public dissemination of loan information.
After some delay and in response to comments, FINRA filed a partial amendment to the proposed rule change, one of which relates to reporting Intraday Loan Modifications and Changes to the Parties to a Loan. FINRA is proposing to amend the original proposal to delete the supplementary material regarding the reporting of intraday loans and changes to the parties to a loan, including in the context of reallocating omnibus loans.
In addition, FINRA has made textual changes to better align with the language of SEC rule 10c-1a. As originally proposed, the original rule provided that, if a covered securities loan is modified multiple times throughout the day, a covered person must report each loan modification. Some commenters stated that it was inconsistent with 10c-1a, that intraday reporting was not required and that only end-of-day reporting was mandated under the SEC’s rule.
Under FINRA’s proposed rule, covered persons must report modifications consistent with the SEC’s rule and as described in the 10c-1a. To the extent a loan event is not reportable under 10c-1a, there would likewise be no SLATE reporting obligations.
Also, FINRA is proposing to amend the original proposal to delete the proposed modifier and indicator requirements. As originally proposed, covered persons would have been required to append specific modifiers and indicators when reporting initial covered securities loans and loan modifications to SLATE, including (1) exclusive arrangements, (2) loans to affiliates, (3) unsettled loans, (4) terminated loans, (5) rate or fee adjustments, and (6) basket loans.
FINRA originally proposed these modifiers and indicators to provide regulators and the public with important information, including where the reported rates may not reflect current market rates, and to enhance the disseminated data and its value to market participants and better inform the reported rates validation process.
Industry commenters expressed a variety of concerns regarding the proposed modifiers and indicators, including that these items of information extended beyond the data elements specified in 10c-1a, increased the rule’s complexity and implementation burdens, and may raise information leakage concerns. FINRA is proposing to delete the modifier and indicator requirements as well as remove the definition of the term “affiliate,” as it is no longer needed given the deletion of the related indicator.
“FINRA believes it is appropriate, at this time, to delete these aspects of the Original Proposal to facilitate the achievement of the initial SLATE reporting requirements in a timely manner,” according to the SEC filing.
There are numerous other amendments, including some aimed at settlement and effective dates.