[Federal Register Volume 89, Number 154 (Friday, August 9, 2024)]
[Notices]
[Pages 65441-65451]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-17684]



[[Page 65441]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100655; File No. SR-FINRA-2024-007]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Instituting Proceedings To Determine Whether To 
Approve or Disapprove a Proposed Rule To Adopt the FINRA Rule 6500 
Series (Securities Lending and Transparency Engine (SLATETM))

August 5, 2024.

I. Introduction

    On May 1, 2024, the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Exchange Act'' or ``SEA'') \1\ and 
Rule 19b-4 thereunder,\2\ a proposed rule change to adopt the new FINRA 
Rule 6500 Series (Securities Lending and Transparency Engine 
(SLATETM)) to (1) require reporting of securities loans; and 
(2) provide for the public dissemination of loan information. The 
proposed rule change was published for comment in the Federal Register 
on May 7, 2024.\3\ The Commission received comments in response to the 
proposal.\4\ On June 10, 2024, the Commission extended until August 5, 
2024, the time period within which to approve the proposed rule change, 
disapprove the proposed rule change, or institute proceedings to 
determine whether to disapprove the proposed rule change.\5\ This order 
institutes proceedings pursuant to Section 19(b)(2)(B) of the Exchange 
Act \6\ to determine whether to approve or disapprove the proposed rule 
change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 100046 (May 1, 
2024), 89 FR 38203 (May 7, 2024) (``Notice''). All defined terms 
herein have the same meaning as they do in the Notice.
    \4\ Comments received on the proposed rule change are available 
at: https://www.sec.gov/comments/sr-finra-2024-007/srfinra2024007.htm.
    \5\ See Securities Exchange Act Release No. 100305 (June 10, 
2024), 89 FR 50644 (June 14, 2024).
    \6\ 15 U.S.C. 78s(b)(2)(B).
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II. Summary of the Proposed Rule Change

    As described in more detail in the Notice, FINRA stated it is 
proposing, consistent with Exchange Act Rule 10c-1a, to adopt the new 
FINRA Rule 6500 Series (Securities Lending and Transparency Engine 
(SLATETM)) to establish reporting requirements for covered 
securities loans and to provide for the dissemination of individual and 
aggregate covered securities loan information and loan rate statistics. 
These proposed rules would define key terms for the reporting of 
covered securities loans and specify the reporting requirements with 
respect to both initial covered securities loans and loan 
modifications, including prescribing required modifiers and 
indicators.\7\ FINRA stated that it intends to file separately a 
proposed rule change to establish covered securities loan reporting 
fees and securities loan data products and associated fees.\8\
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    \7\ Notice, 89 FR 38206.
    \8\ Notice, 89 FR 38206.
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    According to FINRA, the proposed Rule 6500 Series is designed to 
improve transparency and efficiency in the securities lending market, 
consistent with Section 15(A)(b)(6) of the Exchange Act, Rule 10c-1a, 
and Section 984 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act.\9\ FINRA stated that the proposed rule change would do 
so by facilitating the collection of specified securities loan 
information from Covered Persons and Reporting Agents, which include 
non-FINRA members, and providing access to such information to market 
participants, the public, and regulators.\10\
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    \9\ Notice, 89 FR 38213.
    \10\ Notice, 89 FR 38213.
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A. Reporting Initial Covered Securities Loans

    Proposed Rule 6530(a) would govern the reporting requirements 
applicable to Covered Persons for reporting Initial Covered Securities 
Loans.\11\ 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 Rule 10c-1a. Initial Covered Securities 
Loans would be required to be reported within the time periods outlined 
in proposed Rule 6530(a)(1) (When and How Initial Covered Securities 
Loans Are Reported). Specifically, 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.\12\ 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; \13\ 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.\14\
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    \11\ As described in more detail in the Notice, a Covered Person 
may engage a Reporting Agent to comply with the reporting 
obligations on its behalf.
    \12\ See proposed Rule 6530(a)(1)(A).
    \13\ See proposed Rule 6530(a)(1)(B).
    \14\ See proposed Rule 6530(a)(1)(C).
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    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;
    (7) The amount of the Reportable 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;
    (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; \15\
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    \15\ FINRA stated that 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).
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    (14) 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.
    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

[[Page 65442]]

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;
    (4) Such modifiers and indicators as required by either the Rule 
6500 Series or the SLATE Participant specification.
    FINRA stated that the modifiers and indicators--set forth in 
proposed Rule 6530(c) (Modifiers and Indicators)--would apply to 
specific scenarios where additional detail is appropriate to clarify 
the information required to be reported pursuant to proposed Rule 
6530(a)(2) and (b)(2). FINRA stated that it 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. 
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.
    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 on the expected 
settlement date reported to SLATE. 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).
    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. FINRA stated that it 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) in addition to enhancing the disseminated data 
and its value to market participants.

B. Reporting Securities Loan Modifications

    Proposed Rule 6530(b) would govern the reporting requirements 
applicable to Covered Persons for reporting Loan Modifications. 
Proposed Rule 6510(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). 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. 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; 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.
    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:
    (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); \16\
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    \16\ FINRA stated that 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)).
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    (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

[[Page 65443]]

SLATE or all Data Elements for a Loan Modification to a Covered 
Securities Loan that was not previously required to be reported to 
SLATE; \17\
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    \17\ As defined by proposed Rule 6510(d), ``Data Element'' 
includes any item of information that a Covered Person must report 
under Exchange Act 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).
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    (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). 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: (1) report the termination of the previously reported 
Covered Securities Loan as a Loan Modification pursuant to Rule 6530(b) 
that reflects the date and time the party was added or removed and 
select the terminated loan indicator; and (2) report an Initial Covered 
Securities Loan pursuant to Rule 6530(a) that reflects the new parties 
to the loan, if known (other than the customer from whom a Broker or 
Dealer borrows fully paid or excess margin securities pursuant to SEA 
Rule 15c3-3(b)(3)).

C. Compliance With Reporting Obligations

    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 Exchange Act Rule 10c-1a and FINRA 6500 Rule Series 
obligations.\18\ Specifically, proposed Rule 6530(d)(1) provides that 
Covered Persons (other than Covered Persons that engage a Reporting 
Agent) have an ongoing obligation to report Initial Covered Securities 
Loans and Loan Modifications to FINRA timely, accurately, and 
completely. In addition, a Covered Person may employ an agent for the 
purpose of submitting loan information to SLATE; however, unless the 
Covered Person has retained a Reporting Agent as permitted under 
Exchange Act Rule 10c-1a, the primary responsibility for the timely, 
accurate, and complete reporting of loan information to SLATE remains 
the non-delegable duty of the Covered Person with the reporting 
obligation. 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.\19\
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    \18\ See, e.g., Rule 6380A(h); Rule 6622(h); Rule 6730(a)(6).
    \19\ See, e.g., Rule 6380A(a)(4); Rule 6622(a)(4); Rule 6623; 
Rule 6730(f).
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    FINRA also is proposing to adopt a provision to specify that, even 
where a member employs a Reporting Agent consistent with 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 Rule 10c-1a and proposed FINRA Rule 
6530 on its behalf.\20\ 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 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.
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    \20\ See proposed Rule 6530(d)(3).
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    Proposed Rule 6530(d)(4) would provide that, if a Covered Person 
makes a good faith determination that it has a reporting obligation 
under 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.

D. Participation in SLATE

    Proposed Rule 6520 (Participation in SLATE) would establish the 
requirements applicable to Covered Persons and Reporting Agents with 
respect to participation in SLATE. Rule 6510(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 Rule 10c-1a and the FINRA Rule 6500 Series. 
Proposed Rule 6520(a)(2) would provide that participation in SLATE 
would be conditioned on the SLATE Participant's initial and continuing 
compliance with specified requirements. Specifically, SLATE 
Participants must: (1) obtain an MPID for reporting Covered Securities 
Loans to SLATE; (2) execute and comply with the SLATE Participant 
application agreement and all applicable rules and operating procedures 
of FINRA; and the SEC; and (3) maintain the physical security of the 
equipment located on the premises of the SLATE Participant to prevent 
unauthorized entry of information into SLATE. Proposed Rule 6520(a)(3) 
would provide that SLATE Participants would be obligated to inform 
FINRA of non-compliance with, or changes to, any of these mandatory 
participation requirements.
    Proposed Rule 6520(b) (Reporting Agents) would set forth the 
participation requirements specific to Reporting Agents. Proposed Rule 
6520(b) would require a SLATE Participant acting as a Reporting Agent 
to provide FINRA with a list naming each Covered Person on whose behalf 
the Reporting Agent is providing information to SLATE and any 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.

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    Finally, proposed Rule 6520(c) (SLATE Participant Obligations) 
would provide that, upon execution and receipt by FINRA of the SLATE 
Participant application agreement, a SLATE Participant may commence 
input of Covered Securities Loan reports into SLATE. Proposed Rule 
6520(c) 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.

E. Dissemination of Loan Information

    Proposed Rule 6540 (Dissemination of Loan Information) would 
provide for the public dissemination of securities loan data reported 
to SLATE and information pertaining to the aggregate loan transaction 
activity and distribution of loan rates for each Reportable Security. 
The publicly available data would include: (1) next day (T+1) loan-
level data dissemination for Initial Covered Securities Loans and Loan 
Modifications (except for the loan amount); (2) T+20 dissemination of 
the loan amount for Initial Covered Securities Loans and Loan 
Modifications; and (3) daily loan statistics (i.e., aggregate loan 
activity and distribution of loan rates).
1. T+1 Loan-Level Data Dissemination
    Under proposed Rule 6540(a) (Next Day Dissemination), 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.
    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.
    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.
2. 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).
3. Daily Loan Statistics
    In addition to T+1 loan-level data disseminated pursuant to 
proposed Rule 6540(a), FINRA would disseminate statistics regarding 
Covered Securities Loans reported to FINRA, including aggregate loan 
activity and distribution of loan rebate rates and lending fees.
4. 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 of the next business day, aggregated loan activity in the 
Reportable Security (along with the security identifier specified in 
Rule 6530(a)(2)(A) or (B) that FINRA determines is appropriate to 
identify the relevant Reportable Security). 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.
    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. 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. 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.
5. 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, 
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,

[[Page 65445]]

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).
    Proposed Rule 6540(d) (Loan Transaction Information Not 
Disseminated) would specify the information reported to FINRA that 
would not be disseminated. As prescribed by Exchange Act 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 stated 
that it 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).
    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.

F. Other Provisions

    Proposed Rule 6550 (Emergency Authority) would provide that, as 
market conditions may warrant, FINRA, in consultation with the 
Commission, may suspend the reporting or dissemination of certain 
Covered Securities Loans, or the reporting of certain Data Elements or 
Confidential Data Elements or the dissemination of certain Data 
Elements for such period of time as FINRA deems necessary.

III. Summary of Comments

    The Commission received comments on the proposed rule change.\21\ 
Some commenters stated their ``strong general support'' for FINRA's 
proposed rules.\22\ One commenter stated that SLATE will ``aid in the 
protection of investors by ensuring they are appropriately informed 
about the terms of securities loans and the parties involved'' and that 
the proposed ``requirement to report comprehensive data elements will 
contribute to a fair and orderly market.'' \23\ Another commenter 
stated that FINRA's proposal ``is a great idea.'' \24\
---------------------------------------------------------------------------

    \21\ See supra note 4.
    \22\ See, e.g., Form Letter A. See also Letter from vetvec (May 
14, 2024).
    \23\ Letter from Jennifer (May 15, 2024).
    \24\ Letter from Suzanne Shatto (May 22, 2024).
---------------------------------------------------------------------------

A. Data Elements, Modifiers, and Indicators

    Some commenters stated that FINRA's proposed rules would impose on 
market participants reporting requirements that go beyond the 
Commission's requirements under Rule 10c-1a,\25\ which would result in 
the disclosure of highly sensitive and complex information and 
contribute to significant increased costs and burdens for 
implementation and compliance.\26\ Some commenters stated that the 
additional data and information requirements specified in the proposed 
Rule 6500 Series that are not specifically mentioned in Rule 10c-1a 
should be removed.\27\
---------------------------------------------------------------------------

    \25\ See, e.g., Letter from Robert Toomey, Managing Director and 
Associate General Counsel, and Joseph Corcoran, Managing Director 
and Associate General Counsel, Securities Industry and Financial 
Markets Association, to Vanessa Countryman, Secretary, SEC (May 28, 
2024) (``SIFMA Letter''), at 3; Letter from Sarah A. Bessin, Deputy 
General Counsel, Investment Company Institute, to Vanessa 
Countryman, Secretary, SEC (May 24, 2024) (``ICI Letter 1''), at 2; 
Letter from Paul Cellupica, General Counsel and Kimberly Thomasson 
Assistant General Counsel, Investment Company Institute, to Vanessa 
A. Countryman, Secretary, SEC (July 30, 2024) (``ICI Letter 2''), at 
2; Letter from Brian P. Lamb, CEO, EquiLend Holdings LLC, to Vanessa 
Countryman, Secretary, SEC (May 28, 2024) (``EquiLend Letter''), at 
6-7; Letter from Fran Garrett, Head of Business, and Mark Whipple, 
Chairman of the Board of Directors, International Securities Lending 
Association Americas, to Vanessa Countryman, Secretary, SEC (July 
16, 2024) (``ISLA Americas Letter''), at 4; Letter from Tony 
Holland, Director of Market Practice, International Securities 
Lending Assoc., to Vanessa Countryman, Sec'y, SEC (May 28, 2024) 
(``ISLA Letter 1''), at 9; Letter from Jennifer W. Han, Executive 
Vice President, Chief Counsel and Head of Global Regulatory Affairs, 
MFA, to Vanessa A. Countryman, Secretary, SEC (July 31, 2024) (``MFA 
Letter''), at 2; Letter from William C. Thum, Managing Director and 
Associate General Counsel, Securities Industry and Financial Markets 
Association Asset Management Group, to Vanessa A. Countryman, 
Secretary, SEC (July 31, 2024) (``SIFMA AMG Letter 2''), at 2.
    \26\ See, e.g., Letter from Lindsey Weber Keljo, Esq., Head, The 
Asset Management Group, and William C. Thum, Managing Director and 
Associate General Counsel, Securities Industry and Financial Markets 
Association Asset Management Group, to Vanessa Countryman, 
Secretary, SEC (May 28, 2024) (``SIFMA AMG Letter 1''), at 2; SIFMA 
AMG Letter 2, at 2, 4-6; SIFMA Letter, at 4; ISLA Letter 1, at 2; 
ISLA Americas Letter, at 4; ICI Letter 2, at 3-4; MFA Letter, at 2.
    \27\ See, e.g., EquiLend Letter, at 1, 7; SIFMA Letter, at 4; 
SIFMA AMG Letter 2, at 2; ICI Letter 2, at 2-3; MFA Letter, at 7.
---------------------------------------------------------------------------

    One commenter stated that some of these additional fields and 
indicators ``may not currently be captured by market participants at 
the trade level'' and ``could not have been contemplated in the cost 
benefit analysis undertaken by the SEC in their analysis of the impact 
of Rule 10c-1a.'' \28\ This commenter stated that the addition of these 
data elements ``would constitute an impermissible end-run around the 
Commission rulemaking process . . . without being subject to the public 
comments and economic analyses required to be performed under such 
rulemaking process.'' \29\ Another commenter also stated that ``the 
significant increase in reportable fields and complexity of the 
Proposed Rule Change warrant a proper cost-benefit analysis as required 
under Federal agency rulemaking.'' \30\ This commenter also stated that 
the increased number of reportable data fields, in turn, increases the 
likelihood that a covered person would need to rely on a reporting 
agent to fulfill its regulatory requirements.\31\ Another commenter 
stated that ``these additional requirements may serve to increase the 
cost and complexity of reporting without sufficient regard for their 
benefits.'' \32\
---------------------------------------------------------------------------

    \28\ EquiLend Letter, at 6.
    \29\ SIFMA Letter, at 4.
    \30\ ISLA Americas Letter, at 4-5.
    \31\ See ISLA Americas Letter, at 8-9.
    \32\ EquiLend Letter, at 1. See also ICI Letter 1, at 2; ICI 
Letter 2, at 3.
---------------------------------------------------------------------------

    One commenter stated that Rule 10c-1a requires the reporting of 18 
data fields, while FINRA's proposed rules would require the reporting 
of 30 data fields.\33\ Some commenters identified the data elements 
that would be required to be reported under FINRA's proposed rules that 
they stated were not included under Rule 10c-1a: (1) the expected 
settlement date of the covered securities loan; (2) the dollar cost of 
any fees or charges (in addition to the rebate rate or securities 
lending fee specifically mentioned in Rule 10c1-a); (3) whether the 
covered person is the lender, borrower, or intermediary; (4) the unique 
internal identifier assigned to the covered securities loan by the 
covered person responsible for reporting the loan to SLATE; (5) 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

[[Page 65446]]

person responsible for reporting the covered securities loan to SLATE; 
(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 effective date is a date other than the date of the 
loan modification); and (7) such modifiers and indicators as are 
required by FINRA under the Rule 6500 Series or the SLATE Participant 
specification.\34\
---------------------------------------------------------------------------

    \33\ See ISLA Letter 1, at 2-3.
    \34\ See SIFMA Letter, at 3-4. See also EquiLend Letter, at 6-7; 
ISLA Letter 1, at 2.
---------------------------------------------------------------------------

    Commenters also identified proposed modifiers and indicators as 
data elements that they stated were not addressed by Rule 10c-1a: (1) 
loans associated with exclusive arrangements; (2) loans with 
affiliates; (3) unsettled loans; (4) terminated loans; (5) loans with 
rate or fee adjustments; and (6) basket loans.\35\ One commenter stated 
that the affiliate indicator required by proposed Rule 6510(a) would 
``not add any additional value to the reporting and could potentially 
expose confidential information.'' \36\ The commenter also stated that 
``the intermediary negotiating the loan may not be aware of an 
affiliate relationship between the borrower and underlying lender,'' 
requiring additional resources to monitor whether an affiliate 
relationship was established.\37\ Another commenter stated that the 
affiliate loan flag should be removed from the proposed required 
reporting and that inclusion of this requirement ``will require 
beneficial owners to expend additional resources to monitor and report 
to their lending agents the existence of an affiliate relationship'' 
and ``at least warrants a cost-benefit analysis.'' The commenter also 
stated that ``use of the affiliate indicator can also expose 
confidential data elements.'' \38\
---------------------------------------------------------------------------

    \35\ See, e.g., SIFMA Letter, at 3-4; EquiLend Letter, at 6-7.
    \36\ ISLA Letter 1, at 8.
    \37\ ISLA Letter 1, at 8.
    \38\ ISLA Americas Letter, at 14.
---------------------------------------------------------------------------

    One commenter stated that the reporting requirements for security 
issuer LEIs should be removed or made optional, stating that ``security 
issuer LEIs are not easily accessible and are not always available.'' 
\39\ Another commenter stated that, because ``a large percentage of 
third-country issuers have not obtained LEIs . . . requirements should 
be amended to make the provision of the LEI's for third-country issuers 
optional.'' \40\
---------------------------------------------------------------------------

    \39\ ISLA Letter 1, at 7.
    \40\ ISLA Americas Letter, at 15.
---------------------------------------------------------------------------

    One commenter requested clarification of whether the reporting of 
the ``expected settlement date for modifications to the loan amount'' 
required by proposed Rule 6530(f) means ``contractual settlement'' or 
``actual settlement.'' \41\ This commenter also requested clarification 
of the requirement that Covered Persons ``separately report the dollar 
costs of any other fees or charges'' to ``make clear how to populate 
this field clearly and in what format.'' \42\
---------------------------------------------------------------------------

    \41\ ISLA Letter 1, at 8.
    \42\ ISLA Letter 1, at 5.
---------------------------------------------------------------------------

    One commenter requested confirmation whether, if FINRA does not 
generate a ``UTI'' for a covered securities loan, the covered person 
responsible for reporting it would be required to generate a UTI.\43\ 
The commenter also stated that ``[u]nder SFTR firms agree the UTI 
before you trade and agree who is going to generate and distribute the 
UTI beforehand.'' \44\ The commenter recommended that ``FINRA should 
follow the SFTR waterfall protocol, where possible for generation and 
distribution of UTI's, as many firms will already be familiar with this 
method for the purposes of reporting their EU securities loans.'' \45\
---------------------------------------------------------------------------

    \43\ ISLA Letter 1, at 9. The proposed FINRA rules do not use 
the acronym ``UTI,'' which the commenter did not define but may 
refer to the term ``unique transaction identifier'' and, under the 
proposed FINRA rules, ``the unique identifier assigned by FINRA to 
the loan.''
    \44\ ISLA Letter 1, at 9.
    \45\ ISLA Letter 1, at 9.
---------------------------------------------------------------------------

B. Timing for Reporting

    One commenter requested a ``clear and concise definition of the 
term `effected.' '' \46\ The commenter stated that it ``would like to 
understand if (A) `effected' is equivalent to an `event date' file 
i.e., the event date that the trade took place (B) is the `effected' 
date more similar to an execution timestamp that would carry both date 
and time or (C) is the `effected['] date when a trade is verbally 
agreed upon.'' \47\
---------------------------------------------------------------------------

    \46\ ISLA Letter 1, at 4.
    \47\ ISLA Letter 1, at 3-4.
---------------------------------------------------------------------------

    Another commenter recommended that the ``interpretation for time 
`effected' and `agrees to a covered securities loan' is prior to loan 
settlement but only once all contractual terms, including the identity 
of the lender, are agreed.'' \48\ The commenter further stated that 
``[u]ntil all contractual terms of a securities loan (including the 
final details related to the identity of the lender) are agreed between 
the lending agent as agent for the lender and the borrower, the trading 
desk will view the borrower's offer discussions as a `potential loan'--
not an actual loan'' and will book the securities loan into its system 
when all contractual terms are agreed.\49\ This commenter stated that 
``[o]nly when the securities loan is booked into the lending agent's 
trading system, will the lending agent view it to be `effected'--an 
actual securities loan pending settlement.'' \50\ Regarding 
allocations, this commenter stated that ``[t]his analysis applies 
equally to securities loans that have been settled and need to be 
reallocated'' and ``until the reallocation is finalized, there is no 
utility to requiring a covered person to report potential loan 
modifications.'' \51\
---------------------------------------------------------------------------

    \48\ ISLA Americas Letter, at 6.
    \49\ ISLA Americas Letter, at 6.
    \50\ ISLA Americas Letter, at 6.
    \51\ ISLA Americas Letter, at 6.
---------------------------------------------------------------------------

    Another commenter stated that the proposed rule would require that 
``all Partials and Full Returns to be checked for settlement first, 
prior to being reported'' and that ``[i]n contrast the EU [Securities 
Financing Transactions Regulation (``SFTR'')] only requests the final 
close out of a trade to be reported, i.e., under SFTR, partials only 
have to be reported on a contractual settlement basis as opposed to an 
actual settlement basis.'' \52\ The same commenter, ``encourage[d] 
alignment with the EU's SFTR where possible.'' \53\ This commenter 
stated that ``market participants would have to consider how to monitor 
settlement separately to what they are reporting for regulatory 
purposes under the proposed rule'' and that ``this will create a 
challenge for systems from a books & records perspective.'' \54\ The 
commenter also stated that ``[i]ncluding partials that follow the 
settlement driven reporting requirement i.e., the need to check for 
successful settlement prior to regulatory reporting, is going to create 
several challenges for market participants.'' \55\
---------------------------------------------------------------------------

    \52\ ISLA Letter 1, at 4.
    \53\ ISLA Letter 1, at 4.
    \54\ ISLA Letter 1, at 5.
    \55\ ISLA Letter 1, at 5.
---------------------------------------------------------------------------

    One commenter stated ``that including settlement status as a 
contextual indicator will greatly increase reporting complexity and 
increase the odds that reported data will be unclear or confusing.'' 
\56\ This commenter stated that it is ``generally accepted market 
practice to cancel loans that remain unsettled, and since the 
cancelation of a previously reported trade is already contemplated 
elsewhere within the reporting rules, [the commenter] believe[s] this 
additional settled/unsettled status indicator is unnecessary and can be 
removed.'' \57\
---------------------------------------------------------------------------

    \56\ ISLA Americas Letter, at 11.
    \57\ ISLA Americas Letter, at 11.

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

[[Page 65447]]

C. Reporting of Intraday Loan Modifications

    Several commenters stated that FINRA's proposed rules include a 
requirement that all intraday changes be reported as loan 
modifications, which commenters stated was not adopted as part of Rule 
10c-1a because the Commission removed the proposed 15-minute intraday 
reporting requirement and replaced it with an end-of-day reporting 
requirement.\58\ One commenter stated that it ``understood the 
Commission to be saying that a securities loan, and any subsequent 
modification to such loan, is not required to be reported until the end 
of the day when the terms have been finally agreed to by the parties.'' 
\59\ This commenter stated that FINRA's proposed rule ``is inconsistent 
with the Commission's intent to eliminate the submission of 
`incomplete' data that lacks `any utility' and directly contradicts 
Rule 10c-1a as adopted'' \60\ and that the ``inclusion of intraday 
activity as required reporting would be misleading to the public and 
inconsistent with the intent of the Commissioners who voted to adopt 
the final rule.'' \61\
---------------------------------------------------------------------------

    \58\ See ISLA Americas Letter, at 6-7; ISLA Letter 1, at 4; 
SIFMA AMG Letter 1, at 2; SIFMA AMG Letter 2, at 2; SIFMA Letter, at 
5; ICI Letter 1, at 2; ICI Letter 2, at 5-6.
    \59\ ISLA Americas Letter, at 7.
    \60\ ISLA Americas Letter, at 8.
    \61\ ISLA Americas Letter, at 8.
---------------------------------------------------------------------------

    Another commenter stated that FINRA's proposal ``seeks to require 
covered persons to report information on all intraday adjustments to a 
new or existing covered securities loan--which would effectively 
reinstate the reporting of interim intraday terms . . . that the 
Commission removed from the final SEC Rule 10c-1a as a direct result of 
notice and comment rulemaking.'' \62\ This commenter ``urge[ed] that 
the reporting of intraday adjustments to initial covered securities 
loans or loan modifications be removed'' from the proposal and that 
``FINRA instead implement the single, consolidated, end-of-day 
reporting requirement contemplated by SEC Rule 10c-1a.'' \63\
---------------------------------------------------------------------------

    \62\ SIFMA Letter, at 5-6. See also ICI Letter 1, at 2; SIFMA 
AMG Letter 1, at 2.
    \63\ SIFMA Letter, at 6.
---------------------------------------------------------------------------

    One commenter stated that ``[i]t is not clear that FINRA has 
adequately analyzed the costs and benefits of [this]'' deviation from 
Rule 10c-1a.\64\ Another commenter also stated that the intraday 
reporting requirements are ``costly and burdensome'' \65\ and that 
``the costs and complexity of reporting these intraday loan 
modifications greatly undermines any purported utility.'' \66\ The same 
commenter stated that to differentiate from ``other securities lending 
industry participants, such as prime brokers, engaged in intraday 
activities that could be reported as lifecycle events, . . . FINRA and 
the Commission . . . consider the inclusion of a flag that identifies a 
party as a lending agent, in which case, such intraday lifecycle events 
would not need to be reported.'' \67\
---------------------------------------------------------------------------

    \64\ ICI Letter 1, at 2.
    \65\ ISLA Americas Letter, at 8.
    \66\ ISLA Americas Letter, at 8.
    \67\ ISLA Americas Letter, at 8.
---------------------------------------------------------------------------

    One commenter requested clarification of whether an initial loan 
that is modified on the same day that it is effected could have both 
the initial loan and modification reported together at 6:00 p.m.\68\ 
The commenter also requested clarification of whether the termination 
of a loan due to a change to the parties to the loan and corresponding 
initiation of a new loan due to a change in the parties would require 
intraday reporting.\69\ The same commenter also asked for clarification 
of whether there is a specific sequence in which firms would need to 
report initial loans and modifications and suggested ``sending all 
lifecycle events in chronological order for ease.'' \70\
---------------------------------------------------------------------------

    \68\ ISLA Letter 1, at 9.
    \69\ ISLA Letter 1, at 9.
    \70\ ISLA Letter 1, at 9-10.
---------------------------------------------------------------------------

D. Disseminated Information

    Two commenters addressed the granularity of the aggregated 
information that FINRA would disseminate pursuant to the proposed rule. 
Both commenters stated that the Commission had afforded FINRA deference 
to determine the aggregate information that should be published 
publicly.\71\ However, one of the commenters stated that such 
``deference is limited to the manner in which aggregate data at the 
level of the entire dataset of reported coved securities loans is 
reported, and does not permit FINRA to break down the dataset into 
smaller published subsets, or `slices,' based on specific criteria'' 
and that ``the granularity of the smaller subsets of data that the 
Proposed Rule Change would intend to make publicly available (e.g., 
data broken down by borrower type) raises significant concerns that 
sensitive, proprietary trading strategy information may be disclosed.'' 
\72\ Both commenters addressed the publication of more granular 
aggregated data potentially allowing market participants to 
``extrapolate'' or ``back into'' individual loan amounts on a T+1 
basis.\73\ Further, one of the commenters stated that the proposed 
breakdown for aggregate transaction activity and distribution of loan 
rates ``should have been included in the SEC Proposing Release and 
subjected to a cost-benefit analysis and formal SEC notice and comment 
period.'' \74\ The commenter recommended ``that FINRA reevaluate its 
proposed structure and instead propose a revised, less granular 
structure.'' \75\
---------------------------------------------------------------------------

    \71\ SIFMA Letter, at 7; ISLA Americas Letter, at 16.
    \72\ SIFMA Letter, at 7.
    \73\ SIFMA Letter, at 7; ISLA Americas Letter, at 16.
    \74\ SIFMA Letter, at 7.
    \75\ SIFMA Letter, at 7.
---------------------------------------------------------------------------

    Two commenters stated that the proposed rule's de minimis threshold 
\76\ is set too low.\77\ One of the commenters stated that the 
application of the threshold ``should be mandatory and not an optional 
exclusion for confidentiality reasons.'' \78\ The other commenter 
requested clarification of whether ``FINRA `will omit' or `may omit' de 
minimis loan details.'' \79\
---------------------------------------------------------------------------

    \76\ Proposed Rule 6540 Supplementary Material .01 (De Minimis 
Loan Transaction Activity) 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. See Notice, 89 FR 38212 
n.74.
    \77\ ISLA Letter 1, at 10; ISLA Americas Letter, at 16.
    \78\ ISLA Letter 1, at 10.
    \79\ ISLA Americas Letter, at 16.
---------------------------------------------------------------------------

E. Data Confidentiality, Security, and Integrity

    One commenter stated that ``it is unclear what the fee-based 
service and data would look like'' and that a ``more customized or 
enhanced data set also raises confidentiality concerns.'' \80\ One 
commenter stated there is ``increased complexity that FINRA has 
introduced with its Proposed Rule Change by significantly increasing 
the number of reportable data fields, requiring the reporting of all 
intraday activity, and imposing a data validation process has created 
commercial opportunities for data service providers at the expense of 
market participants, and ultimately end investors.'' \81\
---------------------------------------------------------------------------

    \80\ ISLA Letter 1, at 11.
    \81\ ISLA Americas Letter, at 9.
---------------------------------------------------------------------------

    This commenter also stated that increased reliance on reporting 
agents raises data security issues and that ``the expansion of the 
number of reportable fields from fifteen to over forty'' could require 
covered persons ``to share with a third party very sensitive 
transaction level details, including the identity of each party to the 
transaction.'' \82\ The

[[Page 65448]]

commenter also stated that ``[s]hould this data become exposed by a 
data security incident, we have significant concerns that lenders would 
choose to restrict lending, which could negatively impact lendable 
supply and market liquidity.'' \83\
---------------------------------------------------------------------------

    \82\ ISLA Americas Letter, at 9.
    \83\ ISLA Americas Letter, at 9.
---------------------------------------------------------------------------

    Another commenter requested clarification of the use of fee and 
rebate adjustment modifiers for data validation, and whether ``FINRA 
will be performing validation testing to a defined tolerance level and 
a rejection/correction process.'' \84\ The commenter stated that if 
FINRA will perform such validations ``there is the potential for a 
large number of rejections that could result in a substantial amount of 
manual intervention.'' \85\
---------------------------------------------------------------------------

    \84\ ISLA Letter 1, at 7.
    \85\ ISLA Letter 1, at 7.
---------------------------------------------------------------------------

    One commenter stated that ``FINRA's proposed rules introduce the 
concept of a Service Bureau that [it] understand[s] can provide the 
same service as a Reporting Agent without the oversight or regulatory 
responsibility of a Reporting Agent.'' \86\ The commenter stated that 
``the permissible activities of so-called `Service Bureaus' demands 
further clarification and an express set of qualification criteria that 
distinguishes such permissible activities from those that are inherent 
in the formal `reporting agent'/Covered Person agency relationship'' to 
avoid providing ``a back door through which a `Service Bureau' can 
escape SEC and FINRA oversight and liability as a `reporting agent.' '' 
\87\
---------------------------------------------------------------------------

    \86\ EquiLend Letter, at 1.
    \87\ EquiLend Letter, at 6.
---------------------------------------------------------------------------

F. Burdens, Costs, and RNSA Fees

    Two commenters addressed Rule 6530(d)(4), which requires that if a 
``Reportable Security is not entered into the SLATE system, the Covered 
Person or Reporting Agent, as applicable, must promptly notify and 
provide FINRA Operations, in the form and manner required by FINRA.'' 
\88\ One commenter stated that ``this is a highly manual process and 
could lead to a time-lag when setting up new static data that does not 
already exist within the SLATE system.'' \89\ The commenter stated that 
``the current process as outlined would be highly inefficient and open 
to manual error.'' \90\ The commenter also stated that it would ``like 
to understand, what agreements are in place if a vendor does not report 
and what liability here is placed on the covered person.'' \91\
---------------------------------------------------------------------------

    \88\ ISLA Letter, at 3; ISLA Americas Letter, at 15.
    \89\ ISLA Letter 1, at 3.
    \90\ ISLA Letter 1, at 3.
    \91\ ISLA Letter 1, at 13.
---------------------------------------------------------------------------

    Another commenter stated that ``it is not an appropriate delegation 
of duties to require a covered person . . . to notify FINRA of 
reportable securities not included in FINRA's SLATE system'' and that 
it ``would be an inefficient and burdensome manner in which to update 
FINRA's record of covered securities.'' \92\ The commenter recommended 
that the notification requirement either be ``revised or removed.'' 
\93\ The commenter stated that ``FINRA's Proposed Rule deviates from 
the final rule in a manner that could impact the very point of engaging 
a reporting agent'' because it ``shift[s] reporting compliance (outside 
of a written agreement and timely access to data) back to the covered 
person creating a reconciliation loop that will be time consuming, 
costly and operationally intensive.'' \94\
---------------------------------------------------------------------------

    \92\ ISLA Americas Letter, at 15.
    \93\ ISLA Americas Letter, at 15.
    \94\ ISLA Americas Letter, at 10.
---------------------------------------------------------------------------

    Another commenter stated that it ``remain[s] concerned about the 
disproportionate allocation of compliance costs [to lenders],'' and 
urged FINRA to exempt lenders from any fees associated with accessing 
SLATE data for commercial purposes to ``ensure that those who bear the 
primary costs of the SLATE system have equitable access to industry-
wide data.'' \95\ The commenter also requested that any data trust 
organized by securities lenders also be exempt from fees for the 
commercial use of SLATE data.\96\
---------------------------------------------------------------------------

    \95\ See Letter from David Schwartz, Executive Director, Center 
for the Study of Financial Market Evolution, to Vanessa Countryman, 
Sec'y, SEC (May 28, 2024) (``CSFME Letter''), at 2-3.
    \96\ CSFME Letter, at 4.
---------------------------------------------------------------------------

    One commenter stated that ``FINRA has yet to provide any clarity on 
what the fees will be or how they will be allocated.'' \97\ The 
commenter also stated that the ``RNSA fees should be borne by market 
participants more broadly and not just Covered Persons submitting data 
(primarily lending agents and direct lenders).'' \98\ Another commenter 
requested clarification regarding ``contemplated fees for commercial 
use of data and the differences between the `fee' data and the `free' 
data.'' \99\ Another commenter stated that ``the fees and fee structure 
associated with registering and reporting securities lending 
information to FINRA have yet to be defined'' and ``the fees associated 
with the disseminated outbound data to commercial users been 
divulged,'' requesting that ``the associated comment period to allow 
for changes, should not be concluded until all the pieces required to 
understand the complexity of this regulation are revealed and 
understood.'' \100\ Another commenter stated that ``[c]onsidering 
proposed RNSA fees and costs have not yet been published, any cost-
benefit analysis is impossible.'' \101\ This commenter recommended 
``that any final rule promulgated by FINRA be conditional upon 
publication of proposed costs and public comment.'' \102\
---------------------------------------------------------------------------

    \97\ ISLA Letter 1, at 12.
    \98\ ISLA Letter 1, at 12, 14.
    \99\ SIFMA Letter, at 8.
    \100\ EquiLend Letter, at 7.
    \101\ ISLA Americas Letter, at 5.
    \102\ ISLA Americas Letter, at 11.
---------------------------------------------------------------------------

G. Foreign Securities and Jurisdictional Issues

    One commenter requested clarification of the reporting requirements 
for foreign securities traded within and outside the U.S. Regarding 
foreign securities traded within the U.S., the commenter asked whether 
foreign securities that have `` `F-share' tickers'' are 
reportable.\103\ The commenter stated its understanding that, ``[a]n 
`F' share is created in the US when a broker-dealer files a Form 211 
with FINRA, to create a US ticker symbol in order to report trades in 
the US in a foreign company's shares.'' \104\ The commenter also stated 
its understanding that ``dual listed securities are in scope for 
reporting in SLATE (as they are required to be reported under CAT) and 
that foreign securities that are traded OTC in the US may also be 
reportable in SLATE.'' \105\ Regarding foreign securities traded 
outside the U.S., the commenter asked, ``when a security has multiple 
Sedol's/tickers, where only one of which is CAT reportable, and the 
securities lending trade references one of the other Sedol/tickers 
(i.e., the foreign ticker traded on a foreign exchange, and thus not 
the `F' shares ticker[)], would the securities lending trade be 
reportable under 10c-1a in the US?'' \106\ The commenter requested 
confirmation that such a transaction would not be reportable under Rule 
10c-1a.\107\ This commenter asked, ``from a cybersecurity perspective 
what processes, policies or procedures . . . FINRA members have in 
place and [whether] this requirement [would] appl[y] to both domestic 
and non-US

[[Page 65449]]

trading parties.'' \108\ This commenter requested clarity on FINRA's 
proposed enforcement policy on non-FINRA members, specifically as it 
related to ``being compliant for reporting to the SLATE system'' and 
``violations or failures to pay when due and SLATE reporting fees.'' 
\109\
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    \103\ Letter from Tony Holland, Director of Market Practice, 
International Securities Lending Assoc., to Vanessa Countryman, 
Sec'y, SEC (July 16, 2024) (``ISLA Letter 2''), at 2-3.
    \104\ ISLA Letter 2, at 3.
    \105\ ISLA Letter 2, at 4.
    \106\ ISLA Letter 2, at 4. The acronym ``SEDOL'' stands for 
``Stock Exchange Daily Official List,'' which is a list of security 
identifiers used in the United Kingdom and Ireland for clearing 
purposes.
    \107\ ISLA Letter 2, at 5.
    \108\ ISLA Letter 1, at 13.
    \109\ ISLA Letter 1, at 14.
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    One commenter stated that there ``has been no clarity or guidance 
provided in the FINRA Rule regarding extraterritoriality or requirement 
for reporting for non-US market participants engaging in securities 
lending of US securities.'' \110\ The commenter requested that ``FINRA 
confirm the extraterritorial scope requirements'' of the proposed rules 
and ``that FINRA confirm enforcement rules for non-US firms for 
incorrect reporting.'' \111\ Another commenter requested additional 
guidance on the jurisdictional scope of the rules, including the 
applicability to foreign entities and foreign securities.\112\
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    \110\ ISLA Letter 1, at 2.
    \111\ ISLA Letter 1, at 2.
    \112\ SIFMA Letter, at 8.
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H. Emergency Authority

    Many of these commenters addressed the suspension of reporting or 
dissemination of Covered Securities Loans under proposed Rule 6550 
(Emergency Authority). Commenters stated that the proposed suspension 
of the reporting or dissemination of certain Covered Securities Loans 
or Data Elements for periods deemed necessary by FINRA would undermine 
the transparency that the proposed FINRA Rule 6500 Series aims to 
promote.\113\ These commenters stated that the proposed suspension 
``would inadvertently create an information asymmetry, thus 
disadvantaging end borrowers and beneficial owners who rely on this 
data for making prudent investment decisions'' and ``strongly 
advocate[d] for stringent guidelines governing the suspension of 
reporting requirements to avoid undermining these goals.'' \114\ 
Another commenter ``strongly advocate[d] for . . . the publication of 
the reasons and timeframe for suspension to avoid undermining [the 
proposed rule's] goals.'' \115\
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    \113\ See Form Letter A.
    \114\ See Form Letter A.
    \115\ Letter from Jennifer (May 15, 2024).
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I. SLATE Participant Reporting Specifications

    One commenter provided recommendations for specific proposed 
reporting requirements in FINRA's proposed rules and the associated 
SLATE Participant Reporting Specs, including:
     Lending Fees and Loan Rebate Rates: The commenter stated 
that Covered Persons should be permitted ``to report lending fees and 
loan rebate rates as actually negotiated, rather than requiring them to 
report a lending fee for all non-cash collateralized loans and a loan 
rebate rate for all loans collateralized by cash regardless of the 
facts of the negotiation.'' \116\
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    \116\ ISLA Americas Letter, at 12.
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     Benchmark Pricing: The commenter stated that ``[t]he 
Proposed Rule Change . . . requires the lending fee or the loan rebate 
rate to be reported as a percentage and does not afford covered persons 
the option to report pricing data as a spread to a reference rate.'' 
This commenter requests, ``flexibility in the reporting format of fees 
to allow covered persons to report loan fees as: (1) a lending fee, (2) 
a loan rebate rate, or (3) a spread to a benchmark rate along with the 
associated benchmark rate.'' \117\
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    \117\ ISLA Americas Letter, at 12.
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     Other Fees or Charges: The commenter requested the removal 
of ``the requirements related to reporting of `other fees or 
charges,''' because, ``it is not clear how these ``fees or charges'' 
relate to the fees negotiated in respect of the particular loan'' and 
``[Rule 10c-1a] does not contemplate the inclusion of additional fees 
or charges.'' \118\
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    \118\ ISLA Americas Letter, at 12.
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     Rate Fee Modifier: The commenter stated that the 
``addition of a Rate Fee Modifier expands the scope of reportable 
information under Rule 10c-1a and exceeds FINRA's authority to 
`implement rules regarding the format and manner of its collection of 
information described' in Rule 10c-1a(c) through (e),'' and ``such 
codes or modifiers should be removed.'' \119\
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    \119\ ISLA Americas Letter, at 13.
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     Rate Fee Override Flag: The commenter expressed concern 
``with a potential warning or rejection system regarding lending fees 
and/or loan rebate rates based on a tolerance level developed by FINRA 
from previously collected lending data that may or may not reflect the 
current market conditions.'' \120\ The commenter stated that ``this 
requirement is not included in the final rule'' and ``urge[d] the 
Commission to recommend deletion of the requirement to report data 
validation flags.'' \121\
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    \120\ ISLA Americas Letter, at 13.
    \121\ ISLA Americas Letter, at 13-14.
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     Event Types: The commenter recommended that the six event 
types listed in the SLATE Participant Reporting Specs should be 
consolidated. The commenter specifically recommended consolidating the 
Modify and Correction Loan Events and the Cancel and Delete Loan 
Events. The commenter stated that such consolidations could make the 
reporting requirements less costly and onerous for market 
participants.\122\
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    \122\ ISLA Americas Letter, at 17.
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    This commenter recommended that ``FINRA develop the SLATE system so 
that it can accept files transmitted outside of [the SLATE system] 
hours for processing the following business day.'' \123\ The commenter 
stated that its recommended timeframe for the SLATE system to accept 
files could be helpful to market participants with non-U.S. staff.\124\
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    \123\ ISLA Americas Letter, at 17.
    \124\ ISLA Americas Letter, at 17.
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J. Comment Period Extension

    Commenters stated that the length of the comment period for FINRA's 
proposed rule change was too short, requesting that the comment period 
be extended.\125\ One commenter stated that a longer comment period is 
needed because certain information ``ha[s] not been publicly shared 
yet, such as the technical specifications for reporting and fees for 
commercial use of published data.'' \126\ Another commenter stated that 
it needed more time to provide additional comments on ``potential 
issues,'' including FINRA's proposal of rules relating to FINRA's 
maintaining of the security and confidentiality of reported 
confidential information as required by Rule 10c-1a(h)(4); specific 
details of the technical specifications proposed by FINRA in order to 
understand the information that must be reported (e.g., how terminated 
loans are to be reported, including a partial termination; how ``as 
of'' modifications are to be reported; how changes to interest rate 
benchmarks should be reported; the categories for type of collateral to 
be reported); the proposed duty of covered persons to report to FINRA a 
reportable security not currently reflected in SLATE; that the 
``proposed de minimis exclusion is set too low and also should be 
mandatory rather than discretionary; adjusting the proposed cutoff 
times for reporting of initial covered securities loans and loan 
modifications; the effect of the new Rule 6500 Series on the existing 
FINRA short interest reporting regime; the treatment of impactful 
corporate actions under the new

[[Page 65450]]

reporting requirements; whether firms are expected to consume 
information from SLATE as part of their ordinary-course securities 
lending operations; and considerations regarding the reporting 
compliance date and firms' end-of-year code freeze.\127\
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    \125\ See, e.g., ISLA Letter 1, at 1-2; SIFMA AMG Letter 1, at 
2; ICI Letter 1, at 3; SIFMA AMG Letter 2, at 2.
    \126\ See SIFMA AMG Letter 1, at 2.
    \127\ SIFMA Letter, at 7-8.
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    One commenter stated, ``[g]iven that FINRA's proposed SLATE rules 
would implement and add to the requirements of Rule 10c-1a, it is 
especially important for the Commission to ensure it takes the time 
necessary to closely review FINRA's proposed rules and obtain fulsome 
public feedback.'' \128\ Another commenter stated that it ``hope[s] 
that the SEC will consider the extension request in order to 
appropriately address the challenges that the FINRA Rule 6500 Series 
presents.'' \129\
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    \128\ ICI Letter 1, at 3.
    \129\ ISLA Letter 1, at 1.
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    Following the Commission's publication of its Notice of Designation 
of a Longer Period for Commission Action on a Proposed Rule Change to 
Adopt the FINRA Rule 6500 Series,\130\ numerous commenters submitted 
comments stating their concerns about (what they called) a 45-day 
``delay'' in implementing the FINRA Rule 6500 Series. Some commenters 
opposed the Commission's designation of a longer period within which to 
take action on FINRA's proposed rule change.\131\ Some commenters 
called the extension ``unacceptable'' or stated that the delay in the 
implementation of the FINRA rules could undermine transparency, weaken 
investor confidence, or undermine the market.\132\
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    \130\ See Notice of Designation of a Longer Period for 
Commission Action on a Proposed Rule Change to Adopt the FINRA Rule 
6500 Series (Securities Lending and Transparency Engine 
(SLATETM)), Release No. 34-100305 (June 10, 2024), 89 FR 
50644 (June 14, 2024).
    \131\ See, e.g., Form Letter C.
    \132\ See, e.g., Form Letter C.
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IV. Proceedings To Determine Whether To Approve or Disapprove SR-FINRA-
2024-007 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2) of the Exchange Act \133\ to determine whether the proposed 
rule change should be approved or disapproved. Institution of 
proceedings is appropriate at this time in view of the legal and policy 
issues raised by the proposed rule change. Institution of proceedings 
does not indicate, however, that the Commission has reached any 
conclusions with respect to any of the issues involved. Rather, as 
described below, the Commission seeks and encourages interested persons 
to provide comments on the proposed rule change.
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    \133\ 15 U.S.C. 78s(b)(2).
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    Pursuant to Section 19(b)(2)(B) of the Exchange Act,\134\ the 
Commission is providing notice of the grounds for disapproval under 
consideration. The Commission is instituting proceedings to allow for 
additional analysis of the proposed rule change's consistency with 
Section 15A(b)(6) of the Exchange Act, which requires, among other 
things, that FINRA rules promote just and equitable principles of 
trade, foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitating transactions in securities, remove impediments to and 
perfect the mechanism of a free and open market, and, in general, 
protect investors and the public interest.\135\ The Commission asks 
that commenters address the sufficiency of FINRA's statements in 
support of the proposal, which are set forth in the Notice, in addition 
to any other comments they may wish to submit about the proposed rule 
change. In particular, the Commission is instituting proceedings to 
allow for additional analysis of, and input from commenters with 
respect to, the scope and implementation of the proposed rules.
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    \134\ 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the 
Exchange Act also provides that proceedings to determine whether to 
disapprove a proposed rule change must be concluded within 180 days 
of the date of publication of notice of the filing of the proposed 
rule change. See id. The time for conclusion of the proceedings may 
be extended for up to 60 days if the Commission finds good cause for 
such extension and publishes its reasons for so finding, or if the 
self-regulatory organization consents to the longer period. See id.
    \135\ 15 U.S.C. 78o-3(b)(6).
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V. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their data, views, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposed rule change. In particular, the Commission invites 
the written views of interested persons concerning whether the proposed 
rule change is consistent with the Exchange Act and the rules and 
regulations thereunder.
    Although there do not appear to be any issues relevant to approval 
or disapproval that would be facilitated by an oral presentation of 
data, views, and arguments, the Commission will consider, pursuant to 
Rule 19b-4 under the Exchange Act,\136\ any request for an opportunity 
to make an oral presentation.\137\
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    \136\ 17 CFR 240.19b-4.
    \137\ Section 19(b)(2) of the Exchange Act, as amended by the 
Securities Acts Amendments of 1975, Public Law 94-29, 89 Stat. 97 
(1975), grants the Commission flexibility to determine what type of 
proceeding--either oral or notice and opportunity for written 
comments--is appropriate for consideration of a particular proposal 
by a self-regulatory organization. See Securities Acts Amendments of 
1975, Report of the Senate Committee on Banking, Housing, and Urban 
Affairs to Accompany S. 249, S. Rep. No. 75, 94th Cong., 1st Sess. 
30 (1975).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposed rule change should be approved 
or disapproved by August 30, 2024. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
September 13, 2024.
    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 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 the filing also will be available for 
inspection and copying at the principal office of

[[Page 65451]]

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 August 30, 2024. Rebuttal comments 
should be submitted by September 13, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\138\
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    \138\ 17 CFR 200.30-3(a)(57).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-17684 Filed 8-8-24; 8:45 am]
BILLING CODE 8011-01-P