SEC to bring securities lending ‘out of the dark’ with new proposed regulation

US regulator proposes rules to bring transparency to securities lending by asking participants to report terms of transactions.

By Jonathan Watkins

The US securities watchdog is looking to follow its European counterparts by putting a spotlight on securities lending transactions in a bid to bring transparency to what it called an opaque area of the market.

The proposed Exchange Act Rule 10c-1 from the Securities and Exchange Commission would require securities lenders to provide the material terms of transactions to a registered national securities association, such as the Financial Industry Regulatory Authority. The national securities association would then make the material terms of the securities lending transaction available to the public.

“In today’s fast-moving financial markets, it’s important that market participants have access to fair, accurate, and timely information,” said SEC chair Gary Gensler.

“This proposal would bring securities lending out of the dark. We have put out this proposal for comment, and I look forward to hearing feedback from the public.”

The proposed rule falls within the ambitions of the Dodd-Frank Act to increase transparency regarding the lending or borrowing of securities for brokers, dealers, and investors by ensuring data is made readily available on the securities lending market.

The public consultation period will remain open for 30 days following publication of the proposal in the Federal Register. 

The proposal follows the introduction of the Securities Financing Transaction Regulation (SFTR) in Europe in 2020, a complex regulation consisting of an extremely large number of data fields for the reporting of transactions. However, research from IHS Markit and Pirum in July showed that 87% of market participants said they are experiencing little or no challenges from the SFTR implementation a year on from the introduction.