[Federal Register Volume 89, Number 89 (Tuesday, May 7, 2024)]
[Notices]
[Pages 38203-38217]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-09847]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100046; File No. SR-FINRA-2024-007]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Adopt 
the FINRA Rule 6500 Series (Securities Lending and Transparency Engine 
(SLATETM))

May 1, 2024.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on May 1, 2024, the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission'') the proposed rule change as described in Items I, 
II,

[[Page 38204]]

and III below, which Items have been prepared by FINRA. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing, as required by Securities Exchange Act Rule 
10c-1a, to adopt the new FINRA Rule 6500 Series (Securities Lending and 
Transparency Engine (SLATETM)) to (1) require reporting of 
securities loans; and (2) provide for the public dissemination of loan 
information.
    The text of the proposed rule change is available on FINRA's 
website at http://www.finra.org, at the principal office of FINRA and 
at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, FINRA included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. FINRA has prepared summaries, set forth in sections A, 
B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
(i) Background
    On October 13, 2023, the Commission adopted new SEA Rule 10c-1a \3\ 
to require any ``covered person'' \4\ who agrees to a ``covered 
securities loan'' \5\ to provide specified information to a Registered 
National Securities Association (``RNSA'').\6\ The RNSA is then 
required to make publicly available information regarding reported 
securities loans, as described in SEA Rule 10c-1a.\7\ In its Adopting 
Release, the Commission stated that SEA Rule 10c-1a would increase 
transparency in the securities lending market, resulting in a reduction 
of the information disadvantage faced by end borrowers and beneficial 
owners, improved price discovery, 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.\8\ The Commission stated its belief that the rule 
would likely reduce the borrowing costs of some securities, improving 
price discovery, liquidity, and capital formation in the underlying 
security markets, and would benefit investors by increasing the ability 
of regulators to surveil, study, and provide oversight of both the 
securities lending market and individual market participants.\9\
---------------------------------------------------------------------------

    \3\ See 17 CFR 240.10c-1a (``SEA Rule 10c-1a''); Securities 
Exchange Act Release No. 98737 (October 13, 2023), 88 FR 75644 
(November 3, 2023) (Reporting of Securities Loans) (``Adopting 
Release'').
    \4\ SEA Rule 10c-1a(j)(1) defines a ``covered person'' as (i) 
any person that agrees to a covered securities loan on behalf of a 
lender (``intermediary'') other than a clearing agency when 
providing only the functions of a central counterparty pursuant to 
Rule 17Ad-22(a)(2) of the Exchange Act or a central securities 
depository pursuant to Rule 17Ad-22(a)(3) of the Exchange Act; or 
(ii) any person that agrees to a covered securities loan as a lender 
when an intermediary is not used unless paragraph (j)(1)(iii) of 
this section applies; or (iii) a broker or dealer when borrowing 
fully paid or excess margin securities pursuant to Rule 15c3-3(b)(3) 
of the Exchange Act.
    \5\ SEA Rule 10c-1a(j)(2) defines a ``covered securities loan'' 
as a transaction in which any person on behalf of itself or one or 
more other persons, lends a reportable security to another person, 
with exclusions for a position at a clearing agency that results 
from central counterparty services pursuant to Rule 17Ad-22(a)(2) of 
the Exchange Act or central securities depository services pursuant 
to Rule 17Ad-22(a)(3) of the Exchange Act and the use of margin 
securities, as defined in Rule 15c3-3(a)(4) of the Exchange Act, by 
a broker or dealer. ``Reportable security'' is defined in SEA Rule 
10c-1a(j)(3) as any security or class of an issuer's securities for 
which information is reported or required to be reported to the 
consolidated audit trail as required by Sec.  242.613 of the 
Exchange Act and the CAT NMS Plan (``CAT''), the Financial Industry 
Regulatory Authority's Trade Reporting and Compliance Engine 
(``TRACE''), or the Municipal Securities Rulemaking Board's Real-
Time Transaction Reporting System (``RTRS''), or any reporting 
system that replaces one of these systems.
    \6\ SEA Rule 10c-1a(j)(5) defines an RNSA as an association of 
brokers and dealers that is registered as a national securities 
association pursuant to 15 U.S.C. 78o-3 of the Exchange Act. FINRA 
currently is the only RNSA.
    \7\ See SEA Rule 10c-1a(g).
    \8\ See Adopting Release, 88 FR 75644, 75692.
    \9\ See Adopting Release, 88 FR 75644, 75692-93.
---------------------------------------------------------------------------

Covered Person Reporting Requirements
    SEA Rule 10c-1a prescribes the items of information that covered 
persons must report to an RNSA regarding a covered securities loan. 
These reportable data elements include both non-confidential items of 
information that would be publicly disseminated (i.e., the items of 
information specified in SEA Rule 10c-1a(c)(1) through (12)) as well as 
confidential items of information that would not be publicly 
disseminated (i.e., the items of information specified in SEA Rule 10c-
1a(e)(1) through (3)).
    Specifically, SEA Rule 10c-1a(c) requires covered persons to report 
the following non-confidential items of information to an RNSA, if 
applicable, by the end of the day \10\ on which the covered securities 
loan is effected:
---------------------------------------------------------------------------

    \10\ SEA Rule 10c-1a permits the RNSA to define ``end of the 
day'' for the purposes of the rule. See Adopting Release, 88 FR 
75644, 75648 n.72.
---------------------------------------------------------------------------

    (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.
    With respect to the confidential items of information, SEA Rule 
10c-1a(e) requires covered persons to report the following items of 
information to an RNSA, if applicable, by the end of the day on which 
the 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 Rule 15c3-
3(b)(3) of the Exchange Act, Central Registration Depository (``CRD'') 
or Investment Adviser Registration Depository (``IARD'') Number, market

[[Page 38205]]

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 Rule 204 of Regulation SHO or 
to close out a fail to deliver outside of Regulation SHO.
    SEA Rule 10c-1a also requires covered persons to report specified 
modifications to covered securities loans. Specifically, if a loan 
modification occurs after the non-confidential data elements for the 
covered securities loan were reported to an RNSA pursuant to SEA Rule 
10c-1a(c), and results in a change to any of the non-confidential data 
elements previously provided to an RNSA, SEA Rule 10c-1a(d)(1) requires 
a covered person to provide to the RNSA: (1) the date and time of the 
modification; (2) the specific modification and the specific non-
confidential data element being modified; and (3) the unique identifier 
assigned by the RNSA to the original covered securities loan. With 
respect to a modification to a covered securities loan for which 
reporting under SEA Rule 10c-1a was not required on the date the loan 
was agreed to or last modified that results in a change to any of the 
non-confidential data elements required to be provided to an RNSA under 
SEA Rule 10c-1a(c), SEA Rule 10c-1a(d)(2) requires that the covered 
person report all of the non-confidential data elements to the RNSA as 
of the date of the modification, as well as the date and time of the 
modification.
RNSA Publication of Data
    SEA Rule 10c-1a(g) (RNSA publication of data) sets forth the 
requirements applicable to an RNSA regarding securities loan data 
publication. Specifically, SEA Rule 10c-1a(g)(1) provides that, 
following receipt of the non-confidential data elements discussed 
above, as soon as practicable, and not later than the morning of the 
business day after the covered securities loan is effected, the RNSA 
must assign a unique identifier to the covered securities loan, and 
make publicly available for each covered securities loan effected on 
the previous business day: (1) the unique identifier assigned by the 
RNSA; (2) the non-confidential data elements required to be reported 
pursuant to SEA Rule 10c-1a(c), other than the loan amount; and (3) the 
security identifier under SEA Rule 10c-1a(c)(1) or 10c-1a(c)(2) that 
the RNSA determines is appropriate to identify the security (e.g., the 
security's ticker symbol or CUSIP identifier).
    SEA Rule 10c-1a(g)(2) provides that, following receipt of the non-
confidential data elements reported pursuant to SEA Rule 10c-1a(c), on 
the twentieth business day after the covered securities loan is 
effected, the RNSA must make publicly available the loan amount 
reported to the RNSA pursuant to SEA Rule 10c-1a(c)(6) along with the 
applicable loan and security identifying information.
    With respect to modifications to covered securities loans 
previously reported to the RNSA, SEA Rule 10c-1a(g)(3)(i) provides 
that, following the receipt of information regarding a modification 
(pursuant to SEA Rule 10c-1a(d)), the RNSA must assign a unique 
identifier to the covered securities loan (if one has not already been 
assigned), and 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 
non-confidential data elements required to be reported pursuant to SEA 
Rule 10c-1a(c), other than the loan amount. With respect to covered 
securities loans for which reporting was not required on the date the 
loan was agreed to or last modified (i.e., a loan for which non-
confidential data elements are reported to an RNSA pursuant to 
paragraph (d)(2) of SEA Rule 10c-1a), the RNSA must make publicly 
available all of the non-confidential data elements required to be 
reported pursuant to SEA Rule 10c-1a(c), other than the loan 
amount.\11\
---------------------------------------------------------------------------

    \11\ See SEA Rule 10c-1a(g)(3) and (3)(i).
---------------------------------------------------------------------------

    With respect to loan amounts, SEA Rule 10c-1a(g)(3)(ii) provides 
that, on the twentieth business day after the covered securities loan 
is modified, the RNSA must make publicly available the loan amount 
reported to the RNSA pursuant to SEA Rule 10c-1a(c)(6) along with the 
applicable loan and security identifying information.
    The RNSA is required to keep confidential and not disseminate the 
confidential data elements reported pursuant to SEA Rule 10c-1a(e).\12\
---------------------------------------------------------------------------

    \12\ See SEA Rule 10c-1a(g)(4). In addition to keeping the 
information confidential, an RNSA is required to establish, 
maintain, and enforce reasonably designed written policies and 
procedures to maintain the security and confidentiality of the 
confidential information. See SEA Rule 10c-1a(h)(4).
---------------------------------------------------------------------------

    In addition, SEA Rule 10c-1a(g)(5) provides that, following the 
receipt of information reported pursuant to SEA Rule 10c-1a(c) when a 
covered securities loan is effected, or reported pursuant to SEA Rule 
10c-1a(d) when a covered securities loan is modified, the RNSA must, as 
soon as practicable and not later than the morning of the business day 
after a covered securities loan is effected or modified, make publicly 
available, on a daily basis, information pertaining to the aggregate 
loan transaction activity and distribution of loan rates for each 
reportable security and the security identifier(s) that an RNSA 
determines is appropriate to identify the security (e.g., the 
security's ticker symbol or CUSIP identifier).
Reporting Agents
    SEA Rule 10c-1a(a)(2) permits a covered person to rely on a 
reporting agent to fulfill its reporting obligations under Rule 10c-1a. 
In order to use a reporting agent to fulfill its SEA 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 required SEA Rule 10c-1a 
information.\13\ A reporting agent that assumes the reporting 
obligation on behalf of a covered person (pursuant to paragraph (a)(2)) 
is then required to provide the SEA 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 SEA Rule 10c-1a(c) 
through (e)).\14\ A reporting agent is also required to enter into a 
written agreement with an RNSA that permits the reporting agent to 
provide SEA Rule 10c-1a information to an RNSA on behalf of a covered 
person \15\ and to provide an RNSA with a list naming each covered 
person on whose behalf the reporting agent is providing SEA Rule 10c-1a 
information (and provide an RNSA with any updates to the list of such 
persons by the end of the day such list changes).\16\
---------------------------------------------------------------------------

    \13\ See SEA Rule 10c-1a(a)(2).
    \14\ See SEA Rule 10c-1a(b)(1).
    \15\ See SEA Rule 10c-1a(b)(3).
    \16\ See SEA Rule 10c-1a(b)(4).
---------------------------------------------------------------------------

RNSA Rules, Fees and Data Retention Requirements
    SEA Rule 10c-1a(f) requires an RNSA to implement rules regarding 
the format and manner of its collection of information described in 
paragraphs 10c-1a(c) through 10c-1a(e) and make publicly available such 
information in

[[Page 38206]]

accordance with rules promulgated by the RNSA pursuant to section 19(b) 
of the Exchange Act and Rule 19b-4 thereunder; SEA Rule 10c-1a(i) also 
permits an RNSA to establish and collect reasonable fees pursuant to 
rules established under section 19(b) of the Exchange Act and Rule 19b-
4 thereunder.\17\ SEA Rule 10c-1a(h) imposes data retention and 
availability requirements on an RNSA related to its collection of SEA 
Rule 10c-1a information. Specifically, an RNSA must retain the 
information collected pursuant to paragraphs (c) through (e) of SEA 
Rule 10c-1a 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 \18\ and make the non-
confidential information collected pursuant to paragraphs (c) and (d) 
of SEA Rule 10c-1a available to the public (in the same manner it is 
maintained) on an RNSA's website or similar means of electronic 
distribution, without use restrictions, for a period of at least five 
years.\19\ An RNSA must also make the information collected pursuant to 
paragraphs (b)(4) and (c) through (e) of SEA Rule 10c-1a available to 
the Commission; or other persons as the Commission may designate by 
order upon a demonstrated regulatory need.\20\ With respect to the 
confidential information collected by an RNSA pursuant to paragraph (e) 
of SEA Rule 10c-1a, paragraph (h)(4) requires an RNSA to establish, 
maintain, and enforce reasonably designed written policies and 
procedures to maintain the security and confidentiality of such 
confidential information.
---------------------------------------------------------------------------

    \17\ See SEA Rule 10c-1a(f) and (i). FINRA does not have 
regulatory authority over Covered Persons or Reporting Agents that 
are non-FINRA members. As FINRA does today, FINRA would refer to the 
SEC potential violations of the federal securities laws and rules by 
non-members, including failures to comply with SEA Rule 10c-1a and 
FINRA rules adopted pursuant to SEA Rule 10c-1a (e.g., potential 
SLATE reporting violations or failures to pay when due any SLATE 
reporting fees).
    \18\ See SEA Rule 10c-1a(h)(1).
    \19\ See SEA Rule 10c-1a(h)(3).
    \20\ See SEA Rule 10c-1a(h)(2).
---------------------------------------------------------------------------

(ii) Proposed Rule Change
    Consistent with SEA Rule 10c-1a, FINRA is proposing to adopt the 
new FINRA Rule 6500 Series (Securities Lending and Transparency Engine 
(SLATE)) \21\ to establish reporting requirements for covered 
securities loans and to provide for the dissemination of individual and 
aggregate covered securities loan information and loan rate 
statistics.\22\ Among other things, these proposed rules would define 
key terms for the reporting of covered securities loans and specify the 
reporting requirements with respect to both initial covered securities 
loans and loan modifications, including prescribing required modifiers 
and indicators. FINRA intends to file separately a proposed rule change 
to establish covered securities loan reporting fees and securities loan 
data products and associated fees.
---------------------------------------------------------------------------

    \21\ SLATE is the automated system developed by FINRA that, 
among other things, will accommodate reporting and dissemination of 
loan reports where applicable in covered securities loans. See 
proposed Rule 6510(g).
    \22\ FINRA may validate and reject submissions to SLATE that 
FINRA believes are noncompliant or otherwise inconsistent with SEA 
Rule 10c-1a or with the form and manner specified by FINRA for the 
data (as provided in FINRA rules, guidance, and technical documents 
and specifications), and may exclude any such information from 
disseminated SLATE data. FINRA may also block or reject any activity 
to the extent such activity puts the normal functioning of the SLATE 
system at risk.
---------------------------------------------------------------------------

Reporting Initial Covered Securities Loans
    Proposed Rule 6530(a) would govern the reporting requirements 
applicable to Covered Persons for reporting Initial Covered Securities 
Loans.\23\ Proposed Rule 6510(e) would define ``Initial Covered 
Securities Loan'' as a new Covered Securities Loan not previously 
reported to SLATE. The definitions of ``Covered Person'' and ``Covered 
Securities Loan'' for the purposes of this proposed rule change would 
be the same as set forth in SEA Rule 10c-1a.\24\ Initial Covered 
Securities Loans would be required to be reported within the time 
periods outlined in proposed Rule 6530(a)(1) (When and How Initial 
Covered Securities Loans Are Reported). Specifically, for Initial 
Covered Securities Loans effected on a business day at or after 
12:00:00 a.m. Eastern Time (``ET'') through 7:45:00 p.m. ET, the 
required information must be reported the same day before 8:00:00 p.m. 
ET.\25\ For Initial Covered Securities Loans effected on a business day 
after 7:45:00 p.m. ET, the required information must be reported no 
later than the next business day (T+1) before 8:00:00 p.m. ET; \26\ and 
Initial Covered Securities Loans effected on a Saturday, a Sunday, a 
federal or religious holiday or other day on which SLATE is not open at 
any time during that day (determined using Eastern Time) must be 
reported the next business day (T+1) before 8:00:00 p.m. ET.\27\
---------------------------------------------------------------------------

    \23\ As discussed above, a Covered Person may engage a Reporting 
Agent to comply with the reporting obligations on its behalf, 
consistent with the conditions of SEC Rule 10c-1a. See proposed Rule 
6510(k) (defining ``Reporting Agent''); see also infra n.60.
    \24\ See proposed Rule 6510(k) (among other things, defining 
``Covered Person'' and ``Covered Securities Loan'' by reference to 
SEA Rule 10c-1a, which defines ``covered person'' and ``covered 
securities loan'' in paragraphs (j)(1) and (2), respectively); see 
also supra notes 4-5.
    \25\ See proposed Rule 6530(a)(1)(A).
    \26\ See proposed Rule 6530(a)(1)(B).
    \27\ See proposed Rule 6530(a)(1)(C).
---------------------------------------------------------------------------

    Proposed Rule 6530(a)(2) (Loan Information To Be Reported) would 
specify the items of information that must be reported to FINRA. 
Specifically, proposed Rule 6530(a)(2)(A) through (N) would require 
that Initial Covered Securities Loan reports must contain the below 
non-confidential data elements:
    (1) The legal name of the security issuer and the LEI of the issuer 
(if the issuer has a non-lapsed LEI);
    (2) Security symbol, CUSIP, ISIN, or FIGI, if any;
    (3) The date the Covered Securities Loan was effected;
    (4) The time the Covered Securities Loan was effected;
    (5) The expected settlement date of the Covered Securities Loan;
    (6) The platform or venue where the Covered Securities Loan was 
effected; \28\
---------------------------------------------------------------------------

    \28\ FINRA will make available a list of platforms/venues and 
their associated identifiers for reporting purposes. If a loan 
occurs on a platform/venue not yet included on the FINRA list, the 
Covered Person must enter the name of the platform/venue in the 
SLATE report.
---------------------------------------------------------------------------

    (7) The amount of the Reportable Securities loaned; \29\
---------------------------------------------------------------------------

    \29\ Proposed Rule 6530(a)(3) specifies that when reporting the 
loan amount pursuant to 6530(a)(2)(G), for a Covered Securities Loan 
of a security reportable to CAT, a Covered Person must report the 
number of shares loaned. For a Covered Securities Loan of a security 
reportable to TRACE or the MSRB's RTRS, a Covered Person must report 
the total par value of the securities loaned.
---------------------------------------------------------------------------

    (8) The type of collateral used to secure the Covered Securities 
Loan;
    (9) For a Covered Securities Loan collateralized by cash, the 
rebate rate;
    (10) For a Covered Securities Loan not collateralized by cash, the 
securities lending fee;
    (11) Any other fees or charges; \30\
---------------------------------------------------------------------------

    \30\ When reporting a rebate rate or lending fee pursuant to 
proposed Rule 6530(a)(2)(I) or (J), respectively, a Covered Person 
must report the rebate rate or lending fee as a percentage, and 
separately report the dollar cost of any other fees or charges.
---------------------------------------------------------------------------

    (12) The percentage of collateral to value of Reportable Securities 
loaned required to secure such Covered Securities Loan;
    (13) For a Covered Securities Loan with a specified term, the 
termination date of the Covered Securities Loan; \31\ and
---------------------------------------------------------------------------

    \31\ This field would remain blank if reporting a Covered 
Securities Loan without a specified term (i.e., an open-ended loan). 
However, upon the termination of an open-ended loan, as is the case 
with a term loan, a Covered Person would be required to submit a 
Loan Modification appending the terminated loan indicator pursuant 
to proposed Rule 6530(c)(4). See infra n.48 and accompanying text.

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

[[Page 38207]]

    (14) Whether the borrower is a Broker \32\ or Dealer,\33\ a 
customer (if the person lending securities is a Broker or Dealer), a 
Clearing Agency,\34\ a Bank,\35\ a Custodian,\36\ or other person.
---------------------------------------------------------------------------

    \32\ Proposed Rule 6510(j) would define ``Broker'' by reference 
to Exchange Act section 3(a). Exchange Act section 3(a)(4)(A) 
defines a ``broker'' as any person engaged in the business of 
effecting transactions in securities for the account of others, with 
exceptions for certain bank activities specified in Exchange Act 
section 3(a)(4)(B).
    \33\ Proposed Rule 6510(j) would define ``Dealer'' by reference 
to Exchange Act section 3(a). Exchange Act section 3(a)(5)(A) 
defines a ``dealer'' as any person engaged in the business of buying 
and selling securities (not including security-based swaps, other 
than security-based swaps with or for persons that are not eligible 
contract participants) for such person's own account through a 
broker or otherwise, with exceptions for persons not engaged in the 
business of dealing (Exchange Act section 3(a)(5)(B)) and for 
certain bank activities specified in Exchange Act section 
3(a)(5)(C).
    \34\ Proposed Rule 6510(j) would define ``Clearing Agency'' by 
reference to Exchange Act section 3(a). Exchange Act section 
3(a)(23)(A) defines a ``clearing agency'' as any person who acts as 
an intermediary in making payments or deliveries or both in 
connection with transactions in securities or who provides 
facilities for comparison of data respecting the terms of settlement 
of securities transactions, to reduce the number of settlements of 
securities transactions, or for the allocation of securities 
settlement responsibilities. Such term also means any person, such 
as a securities depository, 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. Exchange Act section 3(a)(23)(B) 
provides exceptions to the definition of a ``clearing agency.''
    \35\ Proposed Rule 6510(j) would define ``Bank'' by reference to 
Exchange Act section 3(a). Exchange Act section 3(a)(6) defines a 
``bank'' as (A) a banking institution organized under the laws of 
the United States or a Federal savings association, as defined in 
section 1462(5)of title 12, (B) a member bank of the Federal Reserve 
System, (C) any other banking institution or savings association, as 
defined in section 1462(4)of title 12, whether incorporated or not, 
doing business under the laws of any State or of the United States, 
a substantial portion of the business of which consists of receiving 
deposits or exercising fiduciary powers similar to those permitted 
to national banks under the authority of the Comptroller of the 
Currency pursuant to section 92a of title 12, and which is 
supervised and examined by State or Federal authority having 
supervision over banks or savings associations, and which is not 
operated for the purpose of evading the provisions of this chapter, 
and (D) a receiver, conservator, or other liquidating agent of any 
institution or firm included in clauses (A), (B), or (C).
    \36\ Proposed Rule 6510(c) would define ``Custodian'' by 
reference to Exchange Act section 3(a)(4)(B)(viii) as a broker or 
bank that is providing safekeeping or custody services as described 
in Exchange Act section 3(a)(4)(B)(viii)(I)(aa) or (bb) in 
connection with the Covered Securities Loan.
---------------------------------------------------------------------------

    Consistent with SEA Rule 10c-1a(e), proposed Rule 6530(a)(2)(O) 
through (U) would also require that Initial Covered Securities Loan 
reports contain the below confidential data elements:
    (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 SEA Rule 
15c3-3(b)(3));
    (2) If known, the CRD Number or IARD Number of each party to the 
Covered Securities Loan, if applicable;
    (3) If known, the MPID of each party to the Covered Securities 
Loan;
    (4) If known, the LEI of each party to the Covered Securities Loan;
    (5) If known, whether each party to the Covered Securities Loan is 
the lender, the borrower, or an intermediary between the lender and the 
borrower;
    (6) If the person lending securities is a Broker or Dealer and the 
borrower is its customer, whether the security is loaned from the 
Broker's or Dealer's securities inventory to the customer of such 
Broker or Dealer; and
    (7) If known, whether the Covered Securities Loan is being used to 
close out a fail to deliver pursuant to Rule 204 of SEC Regulation SHO 
or to close out a fail to deliver outside of Regulation SHO.
    Additionally, proposed Rule 6530(a)(2)(V) through (Y) would require 
a Covered Person to report:
    (1) Whether the Covered Person is the lender, borrower or 
intermediary;
    (2) The unique internal identifier assigned to the Covered 
Securities Loan by the Covered Person responsible for reporting the 
loan to SLATE;
    (3) If the Covered Securities Loan is an allocation of an omnibus 
loan effected pursuant to an agency lending agreement, the unique 
internal identifier for the associated omnibus loan assigned by the 
Covered Person responsible for reporting the Covered Securities Loan to 
SLATE; \37\ and
---------------------------------------------------------------------------

    \37\ Individual participants in agency lending programs 
generally authorize an agent lender, pursuant to agency lending 
agreements, to lend their securities on their behalf. As discussed 
in the Adopting Release, reporting obligations under SEA Rule 10c-1a 
can depend on how a pool or lending program is structured (e.g., 
whether the pool or lending program itself or the individual 
underlying participants are the party or parties identified as the 
lender for the loan). See generally Adopting Release, 88 FR 75644, 
75664. If the Initial Covered Securities Loan is an allocation of an 
omnibus loan effected pursuant to an agency lending agreement, 
proposed Rule 6530(a)(2)(W) and (X) would require that the SLATE 
report include both the Covered Person's unique internal identifier 
for the Covered Securities Loan (i.e., the report of the allocation) 
and the Covered Person's unique internal identifier for the 
associated omnibus loan.
---------------------------------------------------------------------------

    (4) Such modifiers and indicators as required by either the Rule 
6500 Series or the SLATE Participant specification.
    FINRA intends to use the information required by proposed Rule 
6530(a)(2)(V) (requiring Covered Persons to identify whether the 
Covered Person is the lender, borrower or intermediary), proposed Rule 
6530(a)(2)(W) (requiring Covered Persons to report the unique internal 
identifier it has assigned for the loan), and proposed Rule 
6530(a)(2)(X) (requiring, for a loan that is an allocation of an 
omnibus loan, that Covered Persons report the unique internal 
identifier it has assigned for the associated omnibus loan) for data 
validation and regulatory purposes. For example, the Covered Person 
party type (i.e., lender, borrower or intermediary) would provide 
necessary information regarding the identity of the Covered Person 
under the Rule, including in instances where a party other than the 
Covered Person submits the report to SLATE. The Covered Person's 
internal identifier for the loan would allow for the identification of 
a Covered Securities Loan in the audit trail prior to the assignment of 
a loan identifier by FINRA. For example, the internal identifier 
assigned by a Covered Person would be used to associate an Initial 
Covered Securities Loan with a Loan Modification submitted on the same 
day, prior to the assignment of a loan identifier by FINRA. The Covered 
Person's unique internal omnibus loan identifier would be used to 
identify allocations and reallocations of Covered Securities Loans that 
are associated with an omnibus-level loan arranged by an agent lender. 
Obtaining this identifier would allow FINRA, for example, to provide 
the public with more granular insight into the day's loan activity in 
its disseminated data.\38\ FINRA believes that requiring Covered 
Persons to report unique internal identifiers--in whatever alphanumeric 
format preferred by the firm--strikes an appropriate balance by 
ensuring that FINRA receives important information for use in 
identifying and linking associated reports without requiring firms to 
assign an identifier using a prescribed format or convention.
---------------------------------------------------------------------------

    \38\ As required by SEA Rule 10c-1a(g)(5), FINRA would make 
publicly available, on a daily basis, information pertaining to the 
aggregate loan transaction activity for each Reportable Security 
based on the prior business day's activity. The omnibus loan 
identifier would allow FINRA to identify allocations of an omnibus 
loan arranged by an agent lender and determine when an Initial 
Covered Securities Loan reported to SLATE is actually a reallocation 
of some portion of a preexisting omnibus loan. This would allow 
FINRA to filter the amounts of any such loan reallocations from the 
aggregate loan volumes that FINRA proposes to disseminate for each 
Reportable Security on a given day, as specified in proposed FINRA 
Rule 6540(c)(1).
---------------------------------------------------------------------------

    The modifiers and indicators--set forth in proposed Rule 6530(c) 
(Modifiers and Indicators)--apply to specific scenarios where 
additional

[[Page 38208]]

detail is appropriate to clarify the information required to be 
reported pursuant to proposed Rule 6530(a)(2) and (b)(2).\39\ FINRA 
intends to use these modifiers and indicators to provide regulators and 
the public with important information regarding the reported securities 
loan. Specifically, proposed Rule 6530(c)(1) (Exclusive Arrangement) 
would require a Covered Person to append an indicator to identify a 
loan made pursuant to an exclusive arrangement with the borrower or 
intermediary. An exclusive arrangement is one in which a borrower or 
intermediary has exclusive access to a lender's portfolio. Because 
exclusive access to a lender's portfolio can impact the loan rate,\40\ 
the exclusive loan indicator would help to identify loans whose rates 
may not reflect current market rates.
---------------------------------------------------------------------------

    \39\ SEA Rule 10c-1a prescribes generally the loan information 
that parties must report to FINRA (i.e., the data elements listed in 
SEA Rule 10c-1a(c), loan modifications identified in SEA Rule 10c-
1a(d), and confidential data elements listed in SEA Rule 10c-1a(e)), 
and requires that FINRA establish rules regarding the format and 
manner of its collection of such information. See SEA Rule 10c-
1a(f); see also Adopting Release, 88 FR 75644, 75667 n.365 
(explaining that 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).
    \40\ See Adopting Release, 88 FR 75644, 75695 n.732.
---------------------------------------------------------------------------

    Proposed Rule 6530(c)(2) (Loan to Affiliate) would require a 
Covered Person to append an indicator to identify a loan made to an 
Affiliate of the lender or intermediary. For purposes of this 
provision, ``Affiliate'' would be defined as ``an entity that controls, 
is controlled by or is under common control with a Covered Person.'' 
\41\ Because an affiliate relationship between the borrower and lender 
or intermediary can impact borrowing costs,\42\ the affiliate loan 
indicator would likewise help to identify loans whose rates may not 
reflect current market rates.\43\
---------------------------------------------------------------------------

    \41\ See proposed Rule 6710(a). For the purposes of the 
definition of ``Affiliate,'' ``control,'' along with any derivative 
thereof, means legal, beneficial, or equitable ownership, directly 
or indirectly, of 25 percent or more of the capital stock (or other 
ownership interest, if not a corporation) of any entity ordinarily 
having voting rights. See proposed Rule 6510(a). The term ``common 
control'' means the same natural person or entity controls two or 
more entities. See proposed Rule 6510(a).
    \42\ See Adopting Release, 88 FR 75644, 75661 n.278 and 
accompanying text.
    \43\ See Adopting Release, 88 FR 75644, 75661 n.279 (stating 
that ``[t]o reduce any potential confusion and misinterpretation of 
the data, an RNSA could determine to, if it is able, develop 
methodologies to separate or identify [affiliate] loans'').
---------------------------------------------------------------------------

    Proposed Rule 6530(c)(3) (Unsettled Loan) would require a Covered 
Person to append an indicator to identify an Initial Covered Securities 
Loan or modification to the amount of Reportable Securities loaned that 
did not settle by the close of SLATE System Hours \44\ on the expected 
settlement date reported to SLATE.\45\ Loans may be agreed upon but 
ultimately not settle for a variety of reasons (e.g., the lender is 
unable to deliver the securities; the loan fails due to mismatched 
instructions).\46\ The unsettled loan indicator would provide clarity 
that the amount of Reportable Securities loaned reported to SLATE was 
not transferred to the borrower, which may provide useful insight into 
the day's loan activity.\47\
---------------------------------------------------------------------------

    \44\ Proposed Rule 6510(i) would define ``SLATE System Hours'' 
as ``the hours SLATE is open, which are 6:00:00 a.m. Eastern Time 
through 7:59:59 p.m. Eastern Time on a business day, unless 
otherwise announced by FINRA.''
    \45\ The unsettled loan indicator would generally not be 
applicable to Loan Modifications involving a decrease to the loan 
amount due to the return of securities to the lender. See infra 
n.54.
    \46\ To the extent an Initial Covered Securities Loan or Loan 
Modification that was originally reported with the unsettled loan 
indicator subsequently settled, a Covered Person would be required 
to report a Loan Modification to remove the unsettled loan indicator 
to reflect that the previously reported Initial Covered Securities 
Loan or Loan Modification had settled.
    \47\ FINRA expects to use the unsettled loan indicator to filter 
the aggregate data that it would disseminate pursuant to SEA Rule 
10c-1a(g)(5), and the indicator would be publicly disseminated with 
the loan-level data that FINRA would disseminate pursuant to SEA 
Rule 10c-1a(g)(1) through (3).
---------------------------------------------------------------------------

    Proposed Rule 6530(c)(4) (Terminated Loan) would require a Covered 
Person to indicate when a Covered Securities Loan has been terminated. 
The terminated loan indicator would therefore be required to be 
appended on reports of: (1) an Initial Covered Securities Loan that did 
not and will not settle; and (2) Loan Modifications reporting the 
termination of a Covered Securities Loan (whether an open-ended or a 
term loan).\48\
---------------------------------------------------------------------------

    \48\ See proposed Rule 6530(c)(4).
---------------------------------------------------------------------------

    Proposed Rule 6530(c)(5) (Rate or Fee Adjustment) would require a 
Covered Person to report the appropriate modifier if a loan rebate rate 
or lending fee accounts for: (1) a billing adjustment or correction to 
amounts previously rebated or charged; or (2) the value of a 
distribution or other economic benefit associated with the Reportable 
Security, e.g., a corporate action. Similarly, proposed Rule 6530(c)(6) 
(Basket Loan) would require a Covered Person to report the appropriate 
modifier if a loan rebate rate or lending fee reflects a rate or fee 
involving a basket of at least 10 unique Reportable Securities for a 
single agreed rate or fee for the entire basket. In each of these 
scenarios, the modifier would help to identify loans where the rate or 
fee may not reflect the current market. In addition to enhancing the 
disseminated data and its value to market participants, FINRA plans to 
use these modifiers for data validation (e.g., in instances where 
FINRA's data validation logic identifies the reported rate as 
potentially erroneous).
Reporting Securities Loan Modifications
    Proposed Rule 6530(b) would govern the reporting requirements 
applicable to Covered Persons for reporting Loan Modifications.\49\ 
Proposed Rule 6510(f) would define ``Loan Modification'' as a change to 
any ``Data Element'' with respect to a Covered Securities Loan 
(irrespective of whether such Covered Securities Loan was previously 
reported to SLATE), where ``Data Element'' refers to the required non-
confidential data elements and modifiers reported pursuant to proposed 
Rule 6530(a)(2).\50\ Proposed Rule 6530(b)(1) (When and How Loan 
Modifications Are Reported) would require that Loan Modifications be 
reported within the same timeframes applicable to the reporting of 
Initial Covered Securities Loans. Specifically, for Loan Modifications 
effected on a business day at or after 12:00:00 a.m. ET through 7:45:00 
p.m. ET, the required information must be reported the same day before 
8:00:00 p.m. ET.\51\ For Loan Modifications effected on a business day 
after 7:45:00 p.m. ET, the required information must be reported no 
later than the next business day (T+1) before 8:00:00 p.m. ET; \52\ and 
Loan Modifications effected on a Saturday, a Sunday, a federal or 
religious holiday or other day on which SLATE is not open at any time 
during that day (determined using Eastern Time) must be reported the 
next business day (T+1) before 8:00:00 p.m. ET.\53\
---------------------------------------------------------------------------

    \49\ As discussed above, a Covered Person may engage a Reporting 
Agent to comply with the reporting obligations on its behalf, 
consistent with the conditions of SEC Rule 10c-1a. See proposed Rule 
6510(k) (defining ``Reporting Agent''); see also infra n.60.
    \50\ See proposed Rule 6510(d).
    \51\ See proposed Rule 6530(b)(1)(A).
    \52\ See proposed Rule 6530(b)(1)(B).
    \53\ See proposed Rule 6530(b)(1)(C).
---------------------------------------------------------------------------

    Proposed Rule 6530(b)(2) (Loan Modifications--Information To Be 
Reported) would specify the items of information that must be reported 
to FINRA. Specifically, proposed Rule 6530(b)(2)(A) through (I) would 
require that each Loan Modification report contain the information 
below:

[[Page 38209]]

    (1) The unique identifier assigned by FINRA to the Initial Covered 
Securities Loan, or, if a unique identifier has not yet been assigned 
by FINRA, the unique internal identifier assigned to the Covered 
Securities Loan by the Covered Person responsible for reporting the 
loan to SLATE;
    (2) If the Covered Securities Loan is an allocation of an omnibus 
loan effected pursuant to an agency lending agreement, the unique 
internal identifier for the associated omnibus loan assigned by the 
Covered Person responsible for reporting the Covered Securities Loan to 
SLATE;
    (3) The MPID of the Covered Person;
    (4) The date of the Loan Modification;
    (5) The time of the Loan Modification;
    (6) The expected settlement date for modifications to the loan 
amount (if the expected settlement date is a date other than the date 
of the Loan Modification), or the effective date for all other Loan 
Modifications (if the effective date is a date other than the date of 
the Loan Modification); \54\
---------------------------------------------------------------------------

    \54\ Covered Persons must report a decrease to the loan amount 
resulting from a return of securities only once the securities have 
been delivered because returns are not considered ``effected'' until 
the securities are actually returned. However, Covered Persons must 
report all other Loan Modifications on the date that the Loan 
Modification was agreed upon and, in such instances, must report the 
effective date (pursuant to proposed Rule 6530(b)(2)(F)) unless the 
effective date is the same as the Loan Modification date (reported 
pursuant to 6530(b)(2)(D)).
---------------------------------------------------------------------------

    (7) Whether the Covered Person is the lender, borrower or 
intermediary;
    (8) The modified Data Elements for a Loan Modification to a Covered 
Securities Loan previously reported to SLATE or all Data Elements for a 
Loan Modification to a Covered Securities Loan that was not previously 
required to be reported to SLATE; \55\ and
---------------------------------------------------------------------------

    \55\ As defined by proposed Rule 6510(d), ``Data Element'' 
includes any item of information that a Covered Person must report 
under SEA Rule 10c-1a(c) and proposed Rule 6530(a)(2)(A) through (N) 
and such modifiers and indicators required by proposed Rule 
6530(a)(2)(Y). Accordingly, a modification to a Covered Securities 
Loan that would require the addition or removal of a modifier or 
indicator required to be reported pursuant to proposed Rule 
6530(a)(2)(Y) would require a Covered Person to report a Loan 
Modification as set forth in proposed Rule 6530(b).
---------------------------------------------------------------------------

    (9) Such modifiers and indicators as required by either the Rule 
6500 Series or the SLATE Participant specification.
    Proposed Rule 6530.01 (Intraday Loan Modifications) addresses a 
Covered Person's reporting obligations when multiple Loan Modifications 
occur on a given day. Specifically, if a Covered Securities Loan 
(whether or not previously reported to SLATE) is modified multiple 
times throughout the day, a Covered Person must report each Loan 
Modification that occurs on a given day as set forth in proposed Rule 
6530(b). For example, if Lender A and Borrower X agree at 10:00 a.m. ET 
to modify the rebate rate for a previously reported Covered Securities 
Loan from 0.15 percent to 0.20 percent, and then decide at 3:00 p.m. ET 
to modify the rate to 0.30 percent, the Covered Person must report two 
Loan Modifications pursuant to proposed Rule 6530(b)(2): one with a 
Loan Modification time of 10:00 a.m. ET reflecting the change in the 
rebate rate to 0.20 percent and a second with a Loan Modification time 
of 3:00 p.m. ET to reflect the change in the rebate rate to 0.30 
percent. Because, in this example, the Covered Securities Loan was 
previously reported to SLATE, the Loan Modification reports must also 
include the unique identifier assigned by FINRA to the loan.
    If, however, the Covered Securities Loan was not previously 
required to be reported (e.g., because the Initial Covered Securities 
Loan occurred prior to the effectiveness of the FINRA rule), the 
Covered Person must still report two Loan Modifications. However, the 
Loan Modification report reflecting the 10:00 a.m. ET change in the 
rebate rate to 0.20 percent must also include all of the other Data 
Elements required by proposed Rule 6530(a)(2) (i.e., the non-
confidential data elements) as well as the internal identifier assigned 
to the Covered Securities Loan by the Covered Person, and, if the 
Covered Securities Loan is an allocation of an omnibus loan effected 
pursuant to an agency lending agreement, the unique internal identifier 
for the associated omnibus loan assigned by the Covered Person 
responsible for reporting the Covered Securities Loan to SLATE. The 
second Loan Modification report reflecting the 3:00 p.m. ET change 
would not be required to include all of the other Data Elements 
required by proposed Rule 6530(a)(2); however, unless a unique 
identifier has been assigned to the loan by FINRA, the second Loan 
Modification report must include the internal identifier assigned to 
the Covered Securities Loan by the Covered Person, and, if the Covered 
Securities Loan is an allocation of an omnibus loan effected pursuant 
to an agency lending agreement, the unique internal identifier for the 
associated omnibus loan assigned by the Covered Person responsible for 
reporting the Covered Securities Loan to SLATE.\56\
---------------------------------------------------------------------------

    \56\ See proposed Rule 6530(b)(2)(A) and (B).
---------------------------------------------------------------------------

    A Loan Modification report is also required where a Covered 
Securities Loan is modified on the day upon which it was effected, even 
if the modification occurred prior to the submission of the Initial 
Covered Securities Loan report to SLATE. Thus, for example, Lender A 
and Borrower X agree to an Initial Covered Securities Loan at 10:00 
a.m. ET with terms that include a rebate rate of 0.15 percent. At 3:00 
p.m. ET that same day, before the Initial Covered Securities Loan was 
reported to SLATE, Lender A and Borrower X agree to change the 
previously agreed upon rebate rate from 0.15 to 0.20 percent. Under the 
proposed rule, the Initial Covered Securities Loan must be reported 
reflecting all of the Data Elements and Confidential Data Elements \57\ 
required pursuant to proposed Rule 6530(a)(2), including the date and 
time the loan was effected of 10:00 a.m. ET as well as the original 
rebate rate of 0.15 percent. In addition to reporting the Initial 
Covered Securities Loan, the Covered Person also must separately report 
the Loan Modification reflecting the modification date and time of 3:00 
p.m. ET, the new rate of 0.20 percent, and the internal identifier 
assigned to the Covered Securities Loan by the Covered Person, and, if 
the Covered Securities Loan is an allocation of an omnibus loan 
effected pursuant to an agency lending agreement, the unique internal 
identifier for the associated omnibus loan assigned by the Covered 
Person responsible for reporting the Covered Securities Loan to SLATE.
---------------------------------------------------------------------------

    \57\ As defined by proposed Rule 6510(b), ``Confidential Data 
Element'' includes any item of information that a Covered Person 
must report under SEA Rule 10c-1a(e) and FINRA Rule 6530(a)(2)(O) 
through (X).
---------------------------------------------------------------------------

    As discussed in the Adopting Release, a change to any party to a 
Covered Securities Loan would constitute the termination of the prior 
Covered Securities Loan and the initiation of a new loan under proposed 
Rule 6530.\58\ Therefore, Covered Persons must submit two reports to 
SLATE: (1) a termination report with respect to the prior loan; and (2) 
an Initial Covered Securities Loan report reflecting all of the Data 
Elements and Confidential Data Elements required by proposed Rule 
6530(a)(2) with respect to the new loan. Thus, proposed Rule 6530.02 
(Changes to the Parties of a Covered Securities Loan) provides that, 
with respect to a previously reported Covered Securities Loan, 
following the addition or removal of a party required to be identified 
pursuant to Rule 6530(a)(2)(O) a Covered Person must: (a) report the 
termination of the previously reported Covered Securities Loan as a 
Loan Modification pursuant to Rule 6530(b) that reflects the date and 
time the party

[[Page 38210]]

was added or removed and select the terminated loan indicator; and (b) 
report an Initial Covered Securities Loan pursuant to Rule 6530(a) that 
reflects the new parties to the loan, if known (other than the customer 
from whom a Broker or Dealer borrows fully paid or excess margin 
securities pursuant to SEA Rule 15c3-3(b)(3)).
---------------------------------------------------------------------------

    \58\ See 88 FR 75644, 75664.
---------------------------------------------------------------------------

Compliance With Reporting Obligations
    Similar to requirements that exist with respect to reporting 
obligations under other FINRA rules, FINRA is proposing to adopt 
proposed Rule 6530(d) (Compliance with Reporting Obligations) to 
implement provisions regarding Covered Persons' ongoing reporting 
obligations and the use of third parties in meeting SEA Rule 10c-1a and 
FINRA 6500 Rule Series obligations.\59\ Specifically, proposed Rule 
6530(d)(1) provides that Covered Persons (other than Covered Persons 
that engage a Reporting Agent) \60\ have an ongoing obligation to 
report Initial Covered Securities Loans and Loan Modifications to FINRA 
timely, accurately, and completely. In addition, a Covered Person may 
employ an agent for the purpose of submitting loan information to 
SLATE; however, unless the Covered Person has retained a Reporting 
Agent as permitted under SEA Rule 10c-1a, the primary responsibility 
for the timely, accurate, and complete reporting of loan information to 
SLATE remains the non-delegable duty of the Covered Person with the 
reporting obligation. Also, similar to requirements that exist with 
respect to reporting obligations under other FINRA rules, proposed Rule 
6530(d)(2) provides that a member's pattern or practice of late 
reporting without exceptional circumstances may be considered conduct 
inconsistent with high standards of commercial honor and just and 
equitable principles of trade, in violation of FINRA Rule 2010.\61\
---------------------------------------------------------------------------

    \59\ See e.g., Rule 6380A(h); Rule 6622(h); Rule 6730(a)(6).
    \60\ Proposed Rule 6510(k) would define ``Reporting Agent'' by 
reference to SEA Rule 10c-1a, which defines ``reporting agent'' in 
paragraph (j)(4) as a broker, dealer, or registered clearing agency 
that enters into a written agreement with a covered person under 
paragraph (a)(2) of SEA Rule 10c-1a.
    \61\ See e.g., Rule 6380A(a)(4); Rule 6622(a)(4); Rule 6623; 
Rule 6730(f).
---------------------------------------------------------------------------

    FINRA also is proposing to adopt a provision to specify that, even 
where a member employs a Reporting Agent consistent with SEA Rule 10c-
1a(a)(2), the member must nonetheless take reasonable steps to ensure 
that the Reporting Agent is in fact complying with the securities 
lending reporting requirements of SEA Rule 10c-1a and proposed FINRA 
Rule 6530 on its behalf.\62\ As discussed above, SEA Rule 10c-1a(a)(2) 
specifies the applicable requirements that permit a Covered Person to 
rely on a Reporting Agent to fulfill its reporting obligations under 
the rule. These requirements include that the Covered Person must enter 
into a written agreement with a Reporting Agent that agrees to report 
the requisite information to FINRA on behalf of such Covered Person in 
accordance with the requirements of SEA Rule 10c-1a(b); \63\ and 
provides the Reporting Agent with timely access to the SEA Rule 10c-1a 
information.\64\ In connection with these provisions, proposed Rule 
6530(d)(3) would provide that a member relying on a Reporting Agent has 
an obligation under FINRA Rule 3110 (Supervision) to take reasonable 
steps to ensure that the Reporting Agent is complying with SEA Rule 
10c-1a and FINRA Rule 6530 on its behalf. In executing this obligation, 
FINRA would expect, for example, that the member review the Covered 
Securities Loan reporting data made available to it by the Reporting 
Agent or through FINRA's system to evaluate the accuracy and timeliness 
of the Covered Securities Loan reports submitted on its behalf by the 
Reporting Agent.
---------------------------------------------------------------------------

    \62\ See proposed Rule 6530(d)(3).
    \63\ See SEA Rule 10c-1a(a)(2)(i).
    \64\ See SEA Rule 10c-1a(a)(2)(ii).
---------------------------------------------------------------------------

    Finally, proposed Rule 6530(d)(4) would provide that, if a Covered 
Person makes a good faith determination that it has a reporting 
obligation under SEA Rule 10c-1a and this Rule 6500 Series, the Covered 
Person or Reporting Agent, as applicable, must report the Covered 
Securities Loan as provided in proposed Rule 6530. If the Reportable 
Security is not entered into the SLATE system, proposed Rule 6530(d)(4) 
would also require the Covered Person or Reporting Agent, as 
applicable, to promptly notify and provide FINRA Operations, in the 
form and manner required by FINRA, the information specified in Rule 
6530(a)(2)(A) and (B), along with such other information as FINRA deems 
necessary to enter the Reportable Security for reporting through SLATE. 
This requirement would enable FINRA to set the security up in its 
systems and facilitate reporting of the Covered Securities Loan to 
SLATE, as required by SEA Rule 10c-1a and proposed Rule 6530.
Participation in SLATE
    Proposed Rule 6520 (Participation in SLATE) would establish the 
requirements applicable to Covered Persons and Reporting Agents with 
respect to participation in SLATE. Rule 6510(h) would define a ``SLATE 
Participant'' as ``any person that reports securities loan information 
to SLATE, directly or indirectly.'' ``SLATE Participant'' therefore 
would include both persons who connect to SLATE directly to report 
Covered Securities Loan information, including Reporting Agents, as 
well as any Covered Person who has engaged a Reporting Agent or other 
agent.
    Paragraph (1) of proposed Rule 6520(a) (Mandatory Participation) 
would provide that participation in SLATE is mandatory for purposes of 
reporting Covered Securities Loans. Such mandatory participation would 
obligate a Covered Person to submit Covered Securities Loan information 
to SLATE in conformity with the SEA Rule 10c-1a and the FINRA Rule 6500 
Series. Proposed Rule 6520(a)(2) would provide that participation in 
SLATE would be conditioned on the SLATE Participant's initial and 
continuing compliance with specified requirements. Specifically, SLATE 
Participants must: (i) obtain an MPID for reporting Covered Securities 
Loans to SLATE; \65\ (ii) execute and comply with the SLATE Participant 
application agreement and all applicable rules and operating procedures 
of FINRA \66\ and the SEC; \67\ and (iii) maintain the physical 
security of the equipment located on the premises of the SLATE 
Participant to prevent unauthorized entry of information into 
SLATE.\68\ Proposed Rule 6520(a)(3) would provide that SLATE 
Participants would be obligated to inform FINRA of non-compliance with, 
or changes to, any of these mandatory participation requirements.
---------------------------------------------------------------------------

    \65\ See proposed Rule 6520(a)(2)(A).
    \66\ For example, the proposed Rule 6500 Series and, if a 
member, member conduct rules.
    \67\ See proposed Rule 6520(a)(2)(B).
    \68\ See proposed Rule 6520(a)(2)(C).
---------------------------------------------------------------------------

    Proposed Rule 6520(b) (Reporting Agents) would set forth the 
participation requirements specific to Reporting Agents.\69\ Consistent 
with SEA Rule 10c-1a(b)(4), proposed Rule 6520(b) would require a SLATE 
Participant acting as a Reporting Agent to provide FINRA with a list 
naming each Covered Person on whose behalf the Reporting Agent is 
providing information to SLATE and any changes to the list of such 
persons by the end of the day on which any such change occurs, in the 
form and manner specified by FINRA.
---------------------------------------------------------------------------

    \69\ See supra n.60 (noting proposed Rule 6510(k) would define 
``Reporting Agent'' by reference to SEA Rule 10c-1a).
---------------------------------------------------------------------------

    Finally, proposed Rule 6520(c) (SLATE Participant Obligations) 
would

[[Page 38211]]

provide that, upon execution and receipt by FINRA of the SLATE 
Participant application agreement, a SLATE Participant may commence 
input of Covered Securities Loan reports into SLATE. Proposed Rule 
6520(c) would also require that a SLATE Participant must report Covered 
Securities Loan information using its MPID, and would provide that a 
SLATE Participant may access SLATE via a FINRA-approved facility during 
SLATE System Hours.
Dissemination of Loan Information
    As required by SEA Rule 10c-1a(g), proposed Rule 6540 
(Dissemination of Loan Information) would provide for the public 
dissemination of securities loan data reported to SLATE and information 
pertaining to the aggregate loan transaction activity and distribution 
of loan rates for each Reportable Security. The publicly available data 
would include: (1) next day (T+1) loan-level data dissemination for 
Initial Covered Securities Loans and Loan Modifications (except for the 
loan amount); (2) T+20 dissemination of the loan amount for Initial 
Covered Securities Loans and Loan Modifications; and (3) daily loan 
statistics (i.e., aggregate loan activity and distribution of loan 
rates).
T+1 Loan-Level Data Dissemination
    Under proposed Rule 6540(a) (Next Day Dissemination), for each 
Initial Covered Securities Loan and Loan Modification reported to SLATE 
on a given business day, no later than the morning of the next business 
day, FINRA would make publicly available: (1) the unique identifier 
assigned by FINRA to the Covered Securities Loan; (2) the security 
identifier(s) specified in Rule 6530(a)(2)(A) or (B) that FINRA 
determines is appropriate to disseminate; and (3) the requisite Data 
Elements.
    With respect to each Initial Covered Securities Loan reported to 
SLATE, proposed Rule 6540(a)(3)(A) would specify that FINRA make 
publicly available no later than the morning of the next business day 
all other reported Data Elements, except the amount of Reportable 
Securities loaned (reported pursuant to Rule 6530(a)(2)(G)) and any 
modifier or indicator required by either the Rule 6500 Series or the 
SLATE Participant specification that FINRA determines shall not be 
publicly disseminated. Thus, for example, if a Covered Person reports 
an Initial Covered Securities Loan to SLATE on a Tuesday before 8:00:00 
p.m. ET, on Wednesday morning, assuming Wednesday is a business day, 
FINRA would disseminate the unique identifier assigned by FINRA to the 
loan, the security identifier, and all other reported Data Elements, 
except the loan amount and any modifier or indicator required by either 
the Rule 6500 Series or the SLATE Participant specification that FINRA 
determines shall not be publicly disseminated.
    With respect to each Loan Modification to a Covered Securities Loan 
reported to SLATE on the same or a prior business day, proposed Rule 
6540(a)(3)(B) would specify that FINRA make publicly available no later 
than the morning of the next business day the modified Data Elements 
reported to SLATE, except the amount of Reportable Securities loaned 
and any modifier or indicator required by either the Rule 6500 Series 
or the SLATE Participant specification that FINRA determines shall not 
be publicly disseminated. For example, if a Covered Person reports a 
Loan Modification to SLATE on a Tuesday before 8:00:00 p.m. ET 
increasing the previously reported loan amount from 500 shares to 700 
shares and decreasing the previously reported rebate rate from 0.25 
percent to 0.15 percent, on Wednesday morning, assuming Wednesday is a 
business day, FINRA would disseminate the unique identifier assigned by 
FINRA to the loan, the security identifier, and the modified rebate 
rate, i.e., 0.15 percent, but would not disseminate the modified loan 
amount, which would be subject to delayed dissemination (until 20 
business days after the date of the modification to the loan amount) 
under proposed Rule 6540(b), as discussed below.
    Finally, in the case of a Loan Modification to a Covered Securities 
Loan that was not previously required to be reported to SLATE (e.g., 
because the Initial Covered Securities Loan occurred prior to the 
effectiveness of the Rule 6500 Series), proposed Rule 6540(a)(3)(C) 
would specify that FINRA make publicly available the unique loan 
identifier assigned by FINRA to the loan, the security identifier, and 
all other reported Data Elements, except the amount of Reportable 
Securities loaned and any modifier or indicator required by either the 
Rule 6500 Series or the SLATE Participant specification that FINRA 
determines shall not be publicly disseminated.
T+20 Loan Amount Dissemination
    Pursuant to Rule 6540(b) (Delayed Dissemination), for each Initial 
Covered Securities Loan and Loan Modification reported to SLATE, 20 
business days after the date on which the Initial Covered Securities 
Loan was effected or the loan amount was modified, FINRA would make 
publicly available: (1) the unique identifier assigned by FINRA to the 
Covered Securities Loan, (2) the security identifier(s) specified in 
Rule 6530(a)(2)(A) or (B) that FINRA determines is appropriate to 
disseminate, and (3) the amount of Reportable Securities loaned 
reported to SLATE. For Initial Covered Securities Loans, the 20-day 
delay period would begin the day after the Covered Securities Loan is 
effected (even in the case of late reports). For example, where a 
Covered Securities Loan is effected on a Monday, the 1st of the month 
\70\ and is reported to SLATE before 8:00:00 p.m. ET that day, the 20-
business day period would start to run on the 2nd, and FINRA would 
disseminate the amount of securities loaned reported to SLATE on the 
29th day of the month (20 business days later), along with the unique 
loan identifier assigned by FINRA and the security identifier. Where a 
Covered Securities Loan is effected at 10:00 p.m. ET on the 1st of the 
month and is reported to FINRA the next business day as required by 
Rule 6530(a)(1)(B), the 20-business day period would still start to run 
the 2nd of the month (i.e., the next business day after the loan was 
effected) and FINRA would disseminate the amount of securities loaned 
reported to SLATE on the 29th day of the month. In either scenario 
above, if a modification to the loan amount is effected and reported to 
SLATE prior to the end of the 20-business day delay period, i.e., prior 
to the 29th of the month, the modified loan amount would be 
disseminated 20 business days after such Loan Modification is effected.
---------------------------------------------------------------------------

    \70\ For purposes of this example, the month is a 30-day month 
where each weekday is a business day.
---------------------------------------------------------------------------

Daily Loan Statistics
    In addition to T+1 loan-level data disseminated pursuant to 
proposed Rule 6540(a), FINRA would disseminate statistics regarding 
Covered Securities Loans reported to FINRA, including aggregate loan 
activity and distribution of loan rebate rates and lending fees.\71\
---------------------------------------------------------------------------

    \71\ See proposed Rule 6540(c).
---------------------------------------------------------------------------

Aggregate Loan Transaction Activity
    Pursuant to paragraph (1) of proposed Rule 6540(c) (Aggregate Loan 
Transaction Activity), for each Reportable Security for which an 
Initial Covered Securities Loan or Loan Modification is reported to 
SLATE on a given business day, FINRA would disseminate, no later than 
the morning

[[Page 38212]]

of the next business day, aggregated loan activity in the Reportable 
Security \72\ (along with the security identifier specified in Rule 
6530(a)(2)(A) or (B) that FINRA determines is appropriate to identify 
the relevant Reportable Security).\73\ The aggregated data would 
include, for each Reportable Security, under proposed Rule 
6540(c)(1)(A), the aggregate volume of securities (both in total and 
broken down by collateral type) subject to an Initial Covered 
Securities Loan or modification to the amount of Reportable Securities 
loaned reported on the prior business day, and, under proposed Rule 
6540(c)(1)(B), the aggregate volume of securities (both in total and 
broken down by collateral type) subject to a rebate rate or fee 
modification reported on the prior business day. FINRA believes that 
these data would provide the public with useful information concerning 
the daily lending activity in Reportable Securities, including insight 
into how this activity is distributed across collateral types.\74\
---------------------------------------------------------------------------

    \72\ In addition to the items of information specified in 
proposed paragraphs (A) through (E) of proposed Rule 6540(c)(1), 
FINRA may, in its discretion, publish or distribute additional 
metrics regarding aggregate transaction activity free of charge. See 
infra n.73 defining ``aggregate loan activity.'' See also Adopting 
Release, 88 FR 75644, 75684.
    \73\ In its Adopting Release, the Commission stated that the 
term ``aggregate transaction activity'' 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. See Adopting Release, 88 FR 75644, 75684.
    \74\ See proposed Rule 6540 Supplementary Material .01 (De 
Minimis Loan Transaction Activity), which would provide that FINRA 
may omit from the aggregate loan activity volume information for 
Reportable Securities for which there were three or fewer types of 
Initial Covered Securities Loan and Loan Modification events 
reported to SLATE in total on the prior business day. For example, 
if a single Covered Securities Loan was subject to 10 Loan 
Modifications reported to SLATE on a given day, FINRA would omit 
from the daily loan statistics volume information for that 
Reportable Security because these events occurred in a single 
Covered Securities Loan.
---------------------------------------------------------------------------

    Pursuant to Rule 6540(c)(1)(C), FINRA would also disseminate the 
aggregate volume of securities subject to an Initial Covered Securities 
Loan or modification to the amount of Reportable Securities loaned 
subject to a term loan (i.e., a loan with a specified term) and subject 
to an open loan (i.e., a loan without a specified term) reported on the 
prior business day.\75\ FINRA believes that these data would provide 
the public with useful information concerning the nature of current 
lending activity.\76\ Pursuant to Rule 6540(c)(1)(D), FINRA would also 
disseminate the aggregate volume of securities subject to an Initial 
Covered Securities Loan or modification to the amount of Reportable 
Securities loaned broken down by borrower type (as specified in 
proposed Rule 6530(a)(2)(N)) on the prior business day.\77\ These data 
may provide market participants with information regarding the degree 
to which loan activity is retail or wholesale, which, in combination 
with the other aggregate data may provide insight into short selling 
sentiment.\78\
---------------------------------------------------------------------------

    \75\ See supra n.73.
    \76\ FINRA understands that most securities loans are open-
ended, allowing the security on loan to be recalled by the lender. 
See Adopting Release, 88 FR 75644, 75673.
    \77\ See supra n.73.
    \78\ See Adopting Release, 88 FR 75644, 75725 n.1050.
---------------------------------------------------------------------------

    Pursuant to proposed Rule 6540(c)(1)(E), FINRA would disseminate 
the aggregate number of Initial Covered Securities Loans and terminated 
Covered Securities Loans (both in total and broken down by collateral 
type) reported on the prior business day. FINRA believes that these 
data would provide the public with useful information concerning 
current lending activity.
Loan Rate Distributions
    Pursuant to paragraph (2) of proposed Rule 6540(c) (Loan Rate 
Distribution Data), for each Reportable Security for which an Initial 
Covered Securities Loan or Loan Modification is reported to SLATE on a 
business day, FINRA would also disseminate, not later than the morning 
of the next business day, the security identifier (specified in Rule 
6530(a)(2)(A) or (B)) that FINRA determines is appropriate to identify 
the relevant Reportable Security and information pertaining to the 
distribution of loan rebate rates or lending fees, as applicable,\79\ 
including: the highest rebate rate, lowest rebate rate, and volume 
weighted average of the rebate rates reported to SLATE for Initial 
Covered Securities Loans collateralized by cash and, separately, for 
Loan Modifications collateralized by cash (where the Loan Modification 
involved a change to the rebate rate). FINRA would also disseminate the 
highest lending fee, lowest lending fee, and volume weighted average of 
the lending fees reported for Initial Covered Securities Loans not 
collateralized by cash and, separately, for Loan Modifications not 
collateralized by cash (where the Loan Modification involved a change 
to the lending fee). These rate distribution metrics would provide 
market participants with both an overall view of the range of daily 
loan pricing for each Reportable Security, as well as insight into the 
relationship between loan rates/fees and loan amounts.
---------------------------------------------------------------------------

    \79\ In addition to the items of information specified in 
proposed paragraphs (A) and (B) of proposed Rule 6540(c)(2), FINRA 
may, in its discretion, publish or distribute additional metrics 
regarding loan rebate rates and lending fees free of charge.
---------------------------------------------------------------------------

    Proposed Rule 6540(d) (Loan Transaction Information Not 
Disseminated) would specify the information reported to FINRA that 
would not be disseminated. As prescribed by SEA Rule 10c-1a(g)(4), 
proposed Rule 6540(d)(1) provides that the Confidential Data Elements 
reported to FINRA would not be disseminated. In addition, proposed Rule 
6540(d)(2) would provide that FINRA may determine not to publicly 
disseminate any modifier or indicator required by either the Rule 6500 
Series or the SLATE Participant specification. FINRA may determine not 
to disseminate a modifier or indicator where the use of such 
information is intended for regulatory purposes only or its public 
disclosure may otherwise be inappropriate (e.g., where it may result in 
information leakage).
    Finally, as proposed in Rule 6540.02 (Means of Data Dissemination), 
FINRA would make the data pursuant to proposed Rule 6540(a) through (c) 
available on FINRA's website free of charge for personal, non-
commercial purposes only. For other uses, FINRA would publish or 
distribute SLATE data for fees that have been filed with the SEC 
pursuant to Rule 19b-4 under the Exchange Act.\80\
---------------------------------------------------------------------------

    \80\ FINRA intends separately to file a proposed rule change to 
establish SLATE reporting fees and fees for fee-liable data 
products. Interested parties may subscribe to these fee-liable data 
products. Professionals would not be permitted to access the SLATE 
data made available free of change on FINRA's website, which is 
provided for personal, non-commercial purposes only.
---------------------------------------------------------------------------

Other Provisions
    Consistent with FINRA's rules governing other reporting facilities 
that it operates, proposed Rule 6550 (Emergency Authority) would 
provide that, as market conditions may warrant, FINRA, in consultation 
with the SEC, may suspend the reporting or dissemination of certain 
Covered Securities Loans, or the reporting of certain Data Elements or 
Confidential Data Elements or the dissemination of certain Data 
Elements for such period of time as FINRA deems necessary.\81\
---------------------------------------------------------------------------

    \81\ See Rule 6770.
---------------------------------------------------------------------------

    The Commission's release adopting SEA Rule 10c-1a specified the

[[Page 38213]]

applicable compliance dates.\82\ If the Commission approves the 
proposed rule change, unless an extension is provided pursuant to 
Commission order, the implementation date of the proposed FINRA rules 
establishing the reporting requirements will be January 2, 2026; and 
the implementation date of the proposed FINRA rules establishing the 
dissemination requirements will be April 2, 2026. If the SEC extends 
the compliance dates for SEA Rule 10c-1a's reporting or dissemination 
requirements, FINRA's proposed rules addressing securities loan 
reporting and data dissemination would become effective consistent with 
the SEC's extended timeframe for reporting and data dissemination, 
respectively.
---------------------------------------------------------------------------

    \82\ See Adopting Release, 88 FR 75644, 75691.
---------------------------------------------------------------------------

2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of section 15A(b)(6) of the Act, which require that FINRA 
rules must be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanism of a free and open market, and, in general, to 
protect investors and the public interest and, among other things, must 
not be designed to permit unfair discrimination between customers, 
issuers, brokers or dealers.\83\ FINRA also believes that the proposed 
rule change is consistent with SEA Rule 10c-1a, which requires FINRA to 
implement rules regarding the format and manner of its collection of 
the securities loan information described in SEA Rule 10c-1a(c) through 
(e) and for making publicly available such information in accordance 
with rules promulgated pursuant to section 19(b) of the Exchange Act 
and Rule 19b-4 under the Exchange Act.\84\
---------------------------------------------------------------------------

    \83\ 15 U.S.C. 78o-3(b)(6).
    \84\ See SEA Rule 10c-1a(f); see also Adopting Release, 88 FR 
75644, 75648.
---------------------------------------------------------------------------

    The proposed Rule 6500 Series is designed to improve transparency 
and efficiency in the securities lending market, consistent with 
section 15(A)(b)(6) of the Act, SEA Rule 10c-1a, and section 984 of the 
Dodd-Frank Act.\85\ The proposed rule change would do so by 
facilitating the collection of specified securities loan information 
from Covered Persons and Reporting Agents, which include non-FINRA 
members,\86\ and providing access to such information to market 
participants, the public, and regulators. As such, these proposed 
changes are intended to facilitate the objectives of the Commission and 
Congress by providing ``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,'' and ``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,'' which FINRA believes is consistent 
with section 15A(b)(6) of the Act, SEA Rule 10c-1a, and section 984 of 
the Dodd-Frank Act.\87\
---------------------------------------------------------------------------

    \85\ As noted above, SEA Rule 10c-1a requires FINRA, as the sole 
RNSA, to propose rules consistent with the Commission's mandate. See 
SEA Rule 10c-1-a(f). section 984(a) of the Dodd-Frank Wall Street 
Reform and Consumer Protection Act (``Dodd-Frank Act'') added 
section 10(c)(1) to the Exchange Act to provide the Commission with 
authority over securities lending. See 15 U.S.C. 78j(c)(1). Section 
984(b) of the Dodd-Frank Act mandates that the Commission increase 
the transparency of information available to brokers, dealers, and 
investors with respect to the loan or borrowing of securities. See 
Public Law 111-203, 124 Stat. 1376 (2010). See also 15 U.S.C. 78o-
3(b)(6).
    \86\ As defined in SEA Rule 10c-1a(j), ``Covered Persons'' and 
``Reporting Agents'' may include non-FINRA members.
    \87\ See Adopting Release, 88 FR 75644, 75648. See also 15 
U.S.C. 78o-3(b)(6); SEA Rule 10c-1a; and 15 U.S.C. 78j(c)(1).
---------------------------------------------------------------------------

    FINRA's proposed Rule 6500 Series would also facilitate the 
availability to regulators of information that may be used to aid in 
assessing market events--``[f]or 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.'' \88\
---------------------------------------------------------------------------

    \88\ See Adopting Release, 88 FR 75644, 75717.
---------------------------------------------------------------------------

    SEA Rule 10c-1a also expressly permits FINRA to establish rules 
regarding the format and manner of its collection of securities loan 
information. To that end, FINRA's proposed rule change would require 
that Covered Persons report, in addition to the specific data elements 
prescribed in SEA Rule 10c-1a, specified loan identifiers \89\ and 
specified indicators and modifiers,\90\ as applicable. As noted above, 
these additional items would provide regulators and the public with 
important information regarding reported securities loans. For example, 
because an affiliate relationship between the borrower and lender (or 
intermediary) can impact borrowing costs, the affiliate loan indicator, 
proposed in Rule 6530(c)(2), would help to identify loans whose rates 
may not reflect current market rates, to the benefit of market 
participants, the public, and regulators. Similarly, because FINRA 
would disseminate aggregate loan activity each day, the unsettled loan 
indicator, proposed in Rule 6530(c)(3), would allow FINRA to filter 
unsettled loans, which is intended to provide the public with more 
granular insight into the day's loan activity.\91\ FINRA believes that 
the securities loan reporting and data dissemination requirements 
proposed in the Rule 6500 Series, including the proposed identifiers 
and indicators and modifiers, are designed to promote greater 
transparency in the securities lending market, consistent with the 
objectives of section 15A(b)(6) of the Act, SEA Rule 10c-1a, and 
section 984 of the Dodd-Frank Act.\92\
---------------------------------------------------------------------------

    \89\ Covered Persons would be required to report to SLATE: (1) 
the unique internal identifier assigned to the Covered Securities 
Loan by the Covered Person responsible for reporting the Covered 
Securities Loan to SLATE; and (2) if the Covered Securities Loan is 
an allocation of an omnibus loan effected pursuant to an agency 
lending agreement, the unique internal identifier for the associated 
omnibus loan. See proposed Rules 6530(a)(2)(W)-(X) and (b)(2)(A)-
(B).
    \90\ Covered Persons would be required to append the following 
modifiers and indicators, as applicable, to all SLATE reports to 
identify: (1) a loan pursuant to an exclusive arrangement; (2) a 
loan to an affiliate; (3) a loan that did not settle on the expected 
settlement date; (4) a loan that has been terminated; (5) a loan 
with a rebate rate or lending fee adjustment (e.g., to account for a 
billing correction or the value of a distribution); and (6) a loan 
that is part of a basket of securities loaned for single agreed rate 
or fee. See proposed Rules 6530(c)(1)-(6).
    \91\ See supra n.47.
    \92\ See 15 U.S.C. 78o-3(b)(6); SEA Rule 10c-1a; and 15 U.S.C. 
78j(c)(1).
---------------------------------------------------------------------------

    As noted above, SEA Rule 10c-1a(g) also mandates that FINRA 
publicly disseminate specified securities loan data reported to SLATE, 
along with information pertaining to the aggregate loan activity and 
distribution of loan rates for each Reportable Security. To that end, 
pursuant to proposed Rule 6540, FINRA would make SLATE data available 
on FINRA's website free of charge for personal, non-commercial purposes 
only. FINRA believes that making securities loan information available 
free of charge for personal,

[[Page 38214]]

non-commercial purposes would promote transparency and reduce 
information asymmetries in the securities lending market for retail 
investors. For other uses, FINRA would offer SLATE data products at a 
fee that would be filed with the SEC pursuant to Rule 19b-4 under the 
Exchange Act.\93\ FINRA believes that this approach is both reasonable 
and consistent with existing FINRA rules governing other transparency 
regimes, e.g., TRACE.\94\ Therefore, FINRA believes that proposed FINRA 
Rule 6540 is designed to protect investors and the public interest and 
would not unfairly discriminate between customers, issuers, brokers, or 
dealers.\95\
---------------------------------------------------------------------------

    \93\ Consistent with SEA Rule 10c-1a(i) and the Commission 
Adopting Release, FINRA intends separately to file a proposed rule 
change establishing fees for SLATE data products, and interested 
parties may subscribe to these fee-liable data products. See 
Adopting Release 88 FR 75644, 75687. See also proposed Rule 6540.02 
(``Nothing in this Rule shall prohibit FINRA from also publishing or 
distributing SLATE data at a charge for fees that have been filed 
with the SEC pursuant to Rule 19b-4 under the Exchange Act.'').
    \94\ See generally, FINRA Rule 7730.
    \95\ See 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

    Finally, the proposed rule change would include provisions designed 
to facilitate the timeliness, accuracy and completeness of the 
information reported to SLATE and provide additional clarity to members 
regarding their obligations under FINRA rules--consistent with section 
15A(b)(6) of the Act, SEA Rule 10c-1a, and section 984 of the Dodd-
Frank Act.\96\ Specifically, while the proposed Rule 6500 Series 
generally applies to Covered Persons and, where engaged, Reporting 
Agents,\97\ the language of proposed Rules 6530(d)(2) and (d)(3), is 
limited to the conduct of members. Specifically, proposed Rule 
6530(d)(2) would provide that ``[a] member's pattern or practice of 
late reporting without exceptional circumstances may be considered 
conduct inconsistent with high standards of commercial honor and just 
and equitable principles of trade, in violation of FINRA Rule 2010.'' 
In addition, proposed Rule 6530(d)(3) would provide that ``[a] member 
relying on a Reporting Agent to report Covered Securities Loan 
information to SLATE has an obligation under FINRA Rule 3110 to take 
reasonable steps to ensure that the Reporting Agent is complying with 
SEA Rule 10c-1a and FINRA Rule 6530 on its behalf.'' While these 
requirements are not explicitly provided for in SEA Rule 10c-1a, they 
embody standards that FINRA applies to its members generally in the 
conduct of their affairs--Rule 3110 (Supervision) and Rule 2010 
(Standards of Commercial Honor and Principles of Trade) are 
foundational provisions applicable to members.\98\ FINRA has previously 
provided similar clarification regarding how these rules apply in the 
context of other reporting regimes, such as in the fixed income and 
equity trade reporting rules.\99\ A member's obligation to report 
timely, accurately and completely and to take reasonable steps to 
ensure that it supervises agents retained in connection with its 
reporting obligations also applies in the securities lending context. 
As such, proposed FINRA Rules 6530(d)(2) and (d)(3) are consistent with 
the objectives of section 15A(b)(6) of the Act, SEA Rule 10c-1a, and 
section 984 of the Dodd-Frank Act and would not unfairly discriminate 
between customers, issuers, brokers, or dealers.\100\
---------------------------------------------------------------------------

    \96\ See Adopting Release, 88 FR 75644, 75648. See also 15 
U.S.C. 78o-3(b)(6); SEA Rule 10c-1a; and 15 U.S.C. 78j(c)(1).
    \97\ The defined terms ``Covered Person'' and ``Reporting 
Agent'' include FINRA members and non-members. The defined term 
``SLATE Participant'' would include both Covered Persons and 
Reporting Agents. See proposed Rule 6510.
    \98\ FINRA Rule 2010 provides that ``[a] member, in the conduct 
of its business, shall observe high standards of commercial honor 
and just and equitable principles of trade.'' FINRA Rule 3110 
requires, inter alia, that FINRA members establish and maintain an 
effective supervisory system, which includes overseeing, 
supervising, and monitoring the activities or functions performed by 
third-party vendors, that is reasonably designed to achieve 
compliance with applicable securities laws and regulations and with 
applicable FINRA rules. See also Regulatory Notice 21-29 (August 
2021).
    \99\ See e.g., FINRA Rule 6380A(a)(4); Rule 6622(a)(4); Rule 
6623; Rule 6730(f).
    \100\ See 15 U.S.C. 78o-3(b)(6); SEA Rule 10c-1a; and 15 U.S.C. 
78j(c)(1).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    As stated in the Commission's Adopting Release, SEA Rule 10c-1a, 
which the proposed rule change is designed to implement, is expected to 
reduce information asymmetries and to ``increase competition between 
broker-dealers and between lending programs.'' \101\ The Commission 
also stated in its Adopting Release that ``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.'' \102\ Thus, FINRA does not 
believe that the proposed rule change will result in any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. In addition, FINRA notes that the proposed rule 
change would treat all similarly situated members equally, and the 
provisions that also address non-member obligations pursuant to SEA 
Rule 10c-1a likewise apply equally to similarly situated Covered 
Persons, Reporting Agents, and SLATE Participants, as applicable.
---------------------------------------------------------------------------

    \101\ See Adopting Release, 88 FR 75644, 75723.
    \102\ See Adopting Release, 88 FR 75644, 75723.
---------------------------------------------------------------------------

Economic Impact Assessment
    Based on the regulatory need discussed above and summarized below, 
FINRA has undertaken an economic impact assessment, as set forth below, 
to analyze the potential economic impacts of the proposed rule change, 
including potential costs, benefits, and distributional and competitive 
effects, relative to the current baseline.
Regulatory Need
    On October 13, 2023, the SEC adopted SEA Rule 10c-1a, requiring 
Covered Persons to report Covered Securities Loan information to an 
RNSA, and the RNSA to make publicly available specified information 
regarding those reported securities loans. In its Adopting Release, the 
SEC stated, among other things, that SEA Rule 10c-1a was designed to 
increase the transparency and efficiency of the securities lending 
market.\103\
---------------------------------------------------------------------------

    \103\ See Adopting Release, 88 FR 75644.
---------------------------------------------------------------------------

    As required by SEA Rule 10c-1a(f), FINRA, currently the only RNSA, 
is proposing to establish rules specifying the format and manner of its 
collection of information on Covered Securities Loans. As required by 
SEA Rule 10c-1a(g), FINRA also is proposing rules to make Covered 
Securities Loan information publicly available. Below FINRA discusses 
the potential economic impacts of FINRA's proposed changes specifying 
the format and manner of reporting for Covered Securities Loans and the 
dissemination of aggregate transaction activity and distribution of 
loan rates for each Reportable Security.
Economic Baseline
    In the Commission's Adopting Release, the SEC outlined the baseline 
and considered the economic effects of Rule 10c-1a and how its costs 
and benefits impacted the economic baseline.\104\
---------------------------------------------------------------------------

    \104\ See Adopting Release, 88 FR 75644, 75692, 75694-75723.
---------------------------------------------------------------------------

    In its Adopting Release, the Commission noted that various types of 
entities participating in the securities lending market will be 
impacted by SEA Rule 10c-1a, including those that may need to enter 
into contracts and develop recording and reporting systems to comply 
with the rule.\105\ Table 1 shows

[[Page 38215]]

the estimated number of entities that will be affected by SEA Rule 10c-
1a and the breakdown by type according to the estimates provided by the 
SEC.\106\ In the Adopting Release, the SEC estimated that a total of 
609 Covered Persons and Reporting Agents would be affected by SEA Rule 
10c-1a, of which 503 were Covered Persons and 106 were Reporting 
Agents.\107\
---------------------------------------------------------------------------

    \105\ See Adopting Release, 88 FR 75644, 75717.
    \106\ See Adopting Release, 88 FR 75644, 75718.
    \107\ See Adopting Release, 88 FR 75644, 75717.

    Table 1--Estimated Number of Covered Persons and Reporting Agents
                       Affected by SEA Rule 10c-1a
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Providing Covered Persons...............................             255
    --Persons that effect a covered securities loan as               217
     the lender when an intermediary is not used........
    --Broker-dealers borrowing fully paid or excess                   34
     margin securities..................................
    --Broker-dealer intermediaries......................               4
Non-Providing Covered Persons...........................             248
    --Persons that effect a covered securities loan as               217
     the lender when an intermediary is not used........
    --Non-broker-dealer intermediaries..................              31
Reporting Agents........................................             106
    --Broker-dealers....................................              97
    --Clearing agencies.................................               9
                                                         ---------------
        Total...........................................             609
------------------------------------------------------------------------

Economic Impacts
    In the Adopting Release, the SEC discussed its consideration of the 
economic effects of SEA Rule 10c-1a.\108\ Below, FINRA considers the 
potential costs, benefits, and competitive impact of FINRA's proposal 
specifying the format and manner of reporting for Covered Securities 
Loans not explicitly prescribed in SEA Rule 10c-1a. On balance, FINRA 
believes the costs are appropriate in light of the anticipated benefits 
to the SLATE reporting, transparency, and regulatory framework.
---------------------------------------------------------------------------

    \108\ See Adopting Release, 88 FR 75644, 75706-24.
---------------------------------------------------------------------------

Reporting of Information to FINRA
    Expected Settlement Date. The proposed rule change requires 
information regarding the expected settlement date for an Initial 
Covered Securities Loan or a modification to the loan amount. This 
information would enhance the quality of the audit trail available to 
regulators for surveillance. Covered Persons may incur a cost to track 
and report this information.
    Covered Person Party Type. The proposed rule change requires SLATE 
Participants to report whether the Covered Person is the lender, 
borrower, or intermediary. This information would improve the utility 
of the data for regulatory purposes, as it will provide necessary 
information regarding the identity of the Covered Person, including in 
instances where a party other than the Covered Person submits a loan 
report to SLATE. Covered Persons may incur a cost to track and report 
this information.
    Loan Identifiers. For Initial Covered Securities Loans, the Covered 
Person responsible for reporting the loan would be required to report a 
unique internal identifier assigned by the Covered Person for the loan. 
For Loan Modifications, the Covered Person would be required to report 
a unique identifier assigned by FINRA to the Initial Covered Securities 
Loan, or if FINRA has not yet assigned an identifier, the Covered 
Person must provide a unique internal identifier assigned by the 
Covered Person for the loan. The internal identifier requirement would 
allow linkage of loan reports where a FINRA identifier has not yet been 
assigned and improve the completeness of audit trail data available to 
regulators. For Covered Securities Loans that are allocations of 
omnibus loans, the Covered Person would also be required to report a 
unique internal identifier assigned by the Covered Person for the 
associated omnibus loan. The ability to link allocations that are 
components of an omnibus loan would improve the completeness of the 
audit trail and allow FINRA to provide additional granularity in the 
loan activity statistics disseminated to the public. FINRA would 
include only the FINRA-assigned identifier when disseminating loan 
transaction data; FINRA will not publicly disseminate the unique 
internal identifier or unique omnibus loan identifier reported by 
Covered Persons. FINRA understands that some Covered Persons already 
create and maintain unique loan identifiers, which should mitigate the 
cost associated with the requirement to report this information to 
FINRA.\109\
---------------------------------------------------------------------------

    \109\ See Adopting Release, 88 FR 75644, 75685.
---------------------------------------------------------------------------

    Modifiers/Indicators. The proposed rule change would require the 
reporting of six modifiers and indicators; specifically: (1) Covered 
Securities Loans with affiliates; (2) loans associated with exclusive 
arrangements; (3) loans with rate or fee adjustments; (4) basket loans; 
(5) unsettled loans; and (6) terminated loans. As discussed above, the 
pricing of some Covered Securities Loans may not be indicative of the 
current market rates available in the securities lending market. 
Covered Persons would incur costs for establishing processes to 
identify when the required modifiers must be appended and reporting 
such modifiers to SLATE. FINRA believes that these proposed modifiers 
and indicators would provide context to market participants when 
assessing pricing and other loan terms, helping to facilitate the 
usefulness of the publicly disseminated data. These proposed modifiers 
and indicators also would increase the usefulness of the audit trail 
data available to regulators as well as provide mechanisms for 
validating the accuracy of the reported data.
    Timing of End-of-Day Reporting. As discussed above, the proposed 
rule change would require that Covered Securities Loans effected on a 
business day at or after 12:00:00 a.m. ET through 7:45:00 p.m. ET be 
reported to SLATE before 8:00:00 p.m. ET on the same day. FINRA 
believes that this reporting timeframe is reasonable because most 
Covered Securities Loans entered into on a given business day would 
have settled before 8:00:00 p.m. ET, which would provide time for 
Covered Persons to review the reportable information to facilitate 
accurate and complete reporting. In addition, FINRA understands that 
8:00:00 p.m. ET is generally consistent with the reporting deadline 
used by commercial vendors to which some Covered Persons currently 
voluntarily submit securities lending information. A similar reporting 
deadline may help mitigate costs for Covered Persons that may leverage

[[Page 38216]]

existing systems or that submit securities loan information to 
commercial vendors.
    Furthermore, permitting the reporting of Initial Covered Securities 
Loans and Loan Modifications effected on a business day after 7:45:00 
p.m. ET by no later than next business day (T+1) before 8:00:00 p.m. ET 
will provide Covered Persons with time to review the reportable 
information for end-of-day loans to facilitate accurate and complete 
reporting. FINRA believes that the proposed reporting timeframes strike 
an appropriate balance between providing Covered Persons with 
sufficient time to review and report the day's loan activity and 
providing FINRA with the time necessary to process the reported 
information for next-day dissemination.
    SLATE Participation Obligations. The proposed rule change would 
require each Covered Person or Reporting Agent to comply with SLATE 
participation obligations, including execution and compliance with the 
SLATE Participant application agreement. The SLATE participation 
requirements would help ensure that Covered Persons and Reporting 
Agents understand their obligations with regard to SLATE participation, 
including requiring SLATE Participants to obtain an MPID if they do not 
currently have one, and use it when reporting Covered Securities Loans 
to SLATE. The MPID requirement would provide information that would 
make it more efficient for FINRA to validate SLATE reports, contact 
firms as necessary, and troubleshoot SLATE Participant-specific 
technical issues. The Covered Person and Reporting Agent would incur 
upfront administrative costs in terms of time and effort required to 
enter into the SLATE Participant application agreement and costs to 
comply with the SLATE participation requirements on an ongoing basis. 
For example, Covered Persons and Reporting Agents that do not currently 
have an MPID for SLATE use must complete an MPID request form and incur 
a cost to incorporate the SLATE Participants' and counterparties' MPIDs 
into their systems.
Dissemination of Aggregated Loan Activity
    SEA Rule 10c-1a(g)(5) generally requires that FINRA make publicly 
available information pertaining to the aggregate loan transaction 
activity and the distribution of loan rates on a daily basis. FINRA has 
proposed specific aggregation buckets, as described in detail above. 
The dissemination of these data, which would be compiled from the Data 
Elements required to be reported to SLATE pursuant to SEA Rule 10c-1a 
and proposed Rule 6530, does not impact the reporting requirements 
applicable to Covered Persons and, therefore, does not contribute to 
the direct costs of reporting for Covered Persons. Further, as FINRA 
would make these data available on its website free of charge for 
personal, non-commercial use, the dissemination of this information 
will similarly not contribute to any direct costs for such use.
    Among other things, FINRA proposes to disseminate the aggregate 
volume of securities (both in total and by collateral type) subject to 
an Initial Covered Securities Loan or modification to the amount of 
Reportable Securities loaned reported on the prior business day, which 
would provide varied perspectives on the loan activity for the 
Reportable Security, including over time. FINRA also proposes to 
disseminate the aggregate volume of securities (both in total and by 
collateral type) subject to a rebate rate or fee modification reported 
on the prior business day, to provide insight into the frequency of 
rate changes for a Reportable Security. FINRA similarly proposes to 
disseminate the aggregate volume of securities subject to an Initial 
Covered Securities Loan or modification to the amount of Reportable 
Securities loaned with a specified term and, separately, without a 
specified term, reported on the prior business day, as well as the 
aggregate volume of securities subject to an Initial Covered Securities 
Loan or modification to the amount of Reportable Securities loaned to 
one or more borrower types specified in Rule 6530(a)(2)(N) reported on 
the prior business day. These categorizations would permit analysis of 
volume differences between loans that do not have a defined end date 
and those that have a defined term date, and volume differences between 
the wholesale versus end-customer market.
    De Minimis Loan Transaction Activity. To address concerns regarding 
potential information leakage, FINRA proposes to omit from the daily 
loan statistics volume information for Reportable Securities for which 
there are three or fewer types of Initial Covered Securities Loans and 
Loan Modifications reported to SLATE in total on a given day. However, 
the proposed de minimis threshold may be viewed by some as reducing the 
transparency value of the disseminated information. FINRA believes the 
threshold of three or fewer Initial Covered Securities Loans and Loan 
Modifications appropriately balances these considerations.
Alternatives Considered
    In specifying the format and manner of reporting for Covered 
Securities Loans and the dissemination of aggregate transaction 
activity and distribution of loan rates for Reportable Securities, 
FINRA considered various alternatives and the potential costs and 
benefits of those alternatives. On balance, FINRA believes the 
requirements in the proposed rule are appropriate in light of the 
anticipated benefits to the SLATE reporting, transparency, and 
regulatory framework.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) by order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-FINRA-2024-007 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-FINRA-2024-007. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use

[[Page 38217]]

only one method. The Commission will post all comments on the 
Commission's internet website (https://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10 a.m. and 3 
p.m. Copies of such filing also will be available for inspection and 
copying at the principal office of FINRA. Do not include personal 
identifiable information in submissions; you should submit only 
information that you wish to make available publicly. We may redact in 
part or withhold entirely from publication submitted material that is 
obscene or subject to copyright protection. All submissions should 
refer to File Number SR-FINRA-2024-007 and should be submitted on or 
before May 28, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\110\
---------------------------------------------------------------------------

    \110\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-09847 Filed 5-6-24; 8:45 am]
BILLING CODE 8011-01-P