SEC postpones 10c-1a SLATE approval
20 August 2024
Industry participants reflect on the delay in implementing FINRA鈥檚 6500 Series SLATE and what it means for the market. Carmella Haswell reports
Image: stock.adobe.com/JHVEPhoto
The US 色花堂and Exchange Commission (SEC) has now postponed its approval of the Financial Industry Regulatory Authority鈥檚 (FINRA鈥檚) Rule 6500 Series proposal to allow for additional analysis of the suggested rule changes, which requires, among other things, that FINRA rules promote just and equitable principles of trade.
The rule change relates to the 色花堂Lending and Transparency Engine (SLATE), a new facility that allows for covered securities loan transaction reporting by 鈥榗overed persons鈥�, and transparency of covered securities transactions in accordance with SEC Rule 10c-1a and the FINRA Rule 6500 Series.
First filed on 1 May and published for comment in the Federal Register on 7 May, FINRA鈥檚 proposal requires the reporting of securities loans, and provides for the public dissemination of loan information.
It 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.
In addition, the 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.
The industry has been working hard over the past few months to digest the proposed rules, which ultimately resulted in a lot of feedback on how to best improve the reporting requirements. Some firms have commended FINRA and the SEC for taking a consultative approach and extending the period to finalise the rules.
However, the decision to postpone does not come without challenge.
鈥淭rying to capture every nuance of a completely new trade reporting regime within a single rule is always going to leave a multitude of unanswered questions, any number of which could lead to delays,鈥� explains Jonathan Lee, money markets director at Kaizen.
He adds: 鈥淭his method of rolling out a new regulation lacks the somewhat more phased approach as we have in Europe which consists of a regulation, regulatory and implementation technical standards, followed by schemas, validation rules and guidelines.鈥�
The order
An order published by the SEC on 5 August institutes proceedings to determine whether to approve or disapprove the proposed rule change. The SEC will now have until 5 October to make a decision on the proposed Rule 6500, and has reopened the comment period window for another 21 days after the order鈥檚 publication in the Federal Register.
Speaking to 色花堂Finance Times, Tom Veneziano, North American head of product at Pirum, says the decision to delay the proposal by another 60 days and reopen the comment period can be seen to pose a further challenge to the industry in its preparation for compliance with the rule.
He adds: 鈥淒espite the delay, firms will still be required to push ahead and assign resources and budget for the project without knowing SLATE鈥檚 final scope and specification.鈥�
Igor Kaplun, global head of business development, Cappitech at S&P Global Market Intelligence, interjects: 鈥淭he delay, however, does create some more practical challenges in that it reduces the time between when the final requirements are out, expected to be in October 2024, and the go live on 2 January 2026.鈥�
The industry will have just over 12 months to analyse, design, build, integrate and test a reporting solution to meet the go live date, Kaplun advises. S&P Cappitech and Pirum have extended their collaboration from their 色花堂Financing Transactions Regulation (SFTR) solution to address the reporting requirements for SEC 10c-1a.
This is not the first time the proposal has been pushed back from approval. On 10 June, the commission extended the time period to 5 August, in which to reach one of three verdicts: approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to disapprove the proposed rule change.
"Reporting firms, beneficial owners,
agent lenders, and the street generally, need more regulatory certainty than
they have today."
Following the announcement, an EquiLend representative said the firm 鈥渦nderstood鈥� the need for a thorough review by the SEC, but also echoed that a delay in this decision 鈥渁ffects the industry participants and their ability to prepare for the new rule鈥檚 implementation鈥�.
EquiLend has been actively participating in industry dialogues and closely monitoring developments related to the 10c-1a SLATE proposal. The firm anticipates the eventual rollout of Rule 10c-1a and will work to ensure it is in a good position to launch its product offering and begin client testing and integration.
Veneziano agrees that there remain several issues in need of clarification which the industry is concerned about. As a result, he believes extending the final decision 鈥渕akes sense鈥�. This statement coincides with the SEC鈥檚 order, which reflects on a previous industry review of the FINRA rule.
For example, one commenter stated that the rules would impose on market participants reporting requirements that go beyond the commission鈥檚 requirements under Rule 10c-1a, which would result in the disclosure of highly sensitive and complex information and contribute to significantly increased costs and burdens for implementation and compliance.
Within the published order, the SEC comments that the institution of proceedings is appropriate at this time in light of the legal and policy issues raised by the proposed rule change. The institution of proceedings does not indicate, however, that the commission has reached any conclusions with respect to any of the issues involved.
A brief pause
The resultant output for the FINRA 6500 Series needs to be fit for purpose, freely available in a digestible form for retail, and not only able to be interpreted through expensive vendor offerings, according to Kaizen鈥檚 Lee.
鈥淭he current requirements in terms of the amount of trade lifecycle data is perhaps overly complex as it stands in meeting this simple primary goal,鈥� he interjects.
In his analysis, Lee pinpoints that trying to install and enforce a very US domestic rule in an interconnected multinational market 鈥渨as always going to be fraught with difficulties from a market participant perspective鈥�.
鈥淨uite apart from all of the challenges in relation to technical and implementation standards, schemas and the choreography of reporting, come the fears about double counting in the aggregation of regional and global securities financing transaction data,鈥� he continues.
Lee explains that US securities financing reporting will need to focus on lenders (and if cross jurisdiction, borrowers too) established in the US to be entirely workable.
In conclusion, Lee says: 鈥淩eporting firms, beneficial owners, agent lenders, and the street generally, need more regulatory certainty than they have today to ensure the best possible outcomes from FINRA Rule 6500 SLATE implementation and go-live. Sometimes it is better to take a (brief) pause and deliberate over the details and the unanswered questions than to go-live with something that is not yet ready.鈥�
The rule change relates to the 色花堂Lending and Transparency Engine (SLATE), a new facility that allows for covered securities loan transaction reporting by 鈥榗overed persons鈥�, and transparency of covered securities transactions in accordance with SEC Rule 10c-1a and the FINRA Rule 6500 Series.
First filed on 1 May and published for comment in the Federal Register on 7 May, FINRA鈥檚 proposal requires the reporting of securities loans, and provides for the public dissemination of loan information.
It 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.
In addition, the 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.
The industry has been working hard over the past few months to digest the proposed rules, which ultimately resulted in a lot of feedback on how to best improve the reporting requirements. Some firms have commended FINRA and the SEC for taking a consultative approach and extending the period to finalise the rules.
However, the decision to postpone does not come without challenge.
鈥淭rying to capture every nuance of a completely new trade reporting regime within a single rule is always going to leave a multitude of unanswered questions, any number of which could lead to delays,鈥� explains Jonathan Lee, money markets director at Kaizen.
He adds: 鈥淭his method of rolling out a new regulation lacks the somewhat more phased approach as we have in Europe which consists of a regulation, regulatory and implementation technical standards, followed by schemas, validation rules and guidelines.鈥�
The order
An order published by the SEC on 5 August institutes proceedings to determine whether to approve or disapprove the proposed rule change. The SEC will now have until 5 October to make a decision on the proposed Rule 6500, and has reopened the comment period window for another 21 days after the order鈥檚 publication in the Federal Register.
Speaking to 色花堂Finance Times, Tom Veneziano, North American head of product at Pirum, says the decision to delay the proposal by another 60 days and reopen the comment period can be seen to pose a further challenge to the industry in its preparation for compliance with the rule.
He adds: 鈥淒espite the delay, firms will still be required to push ahead and assign resources and budget for the project without knowing SLATE鈥檚 final scope and specification.鈥�
Igor Kaplun, global head of business development, Cappitech at S&P Global Market Intelligence, interjects: 鈥淭he delay, however, does create some more practical challenges in that it reduces the time between when the final requirements are out, expected to be in October 2024, and the go live on 2 January 2026.鈥�
The industry will have just over 12 months to analyse, design, build, integrate and test a reporting solution to meet the go live date, Kaplun advises. S&P Cappitech and Pirum have extended their collaboration from their 色花堂Financing Transactions Regulation (SFTR) solution to address the reporting requirements for SEC 10c-1a.
This is not the first time the proposal has been pushed back from approval. On 10 June, the commission extended the time period to 5 August, in which to reach one of three verdicts: approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to disapprove the proposed rule change.
"Reporting firms, beneficial owners,
agent lenders, and the street generally, need more regulatory certainty than
they have today."
Following the announcement, an EquiLend representative said the firm 鈥渦nderstood鈥� the need for a thorough review by the SEC, but also echoed that a delay in this decision 鈥渁ffects the industry participants and their ability to prepare for the new rule鈥檚 implementation鈥�.
EquiLend has been actively participating in industry dialogues and closely monitoring developments related to the 10c-1a SLATE proposal. The firm anticipates the eventual rollout of Rule 10c-1a and will work to ensure it is in a good position to launch its product offering and begin client testing and integration.
Veneziano agrees that there remain several issues in need of clarification which the industry is concerned about. As a result, he believes extending the final decision 鈥渕akes sense鈥�. This statement coincides with the SEC鈥檚 order, which reflects on a previous industry review of the FINRA rule.
For example, one commenter stated that the rules would impose on market participants reporting requirements that go beyond the commission鈥檚 requirements under Rule 10c-1a, which would result in the disclosure of highly sensitive and complex information and contribute to significantly increased costs and burdens for implementation and compliance.
Within the published order, the SEC comments that the institution of proceedings is appropriate at this time in light of the legal and policy issues raised by the proposed rule change. The institution of proceedings does not indicate, however, that the commission has reached any conclusions with respect to any of the issues involved.
A brief pause
The resultant output for the FINRA 6500 Series needs to be fit for purpose, freely available in a digestible form for retail, and not only able to be interpreted through expensive vendor offerings, according to Kaizen鈥檚 Lee.
鈥淭he current requirements in terms of the amount of trade lifecycle data is perhaps overly complex as it stands in meeting this simple primary goal,鈥� he interjects.
In his analysis, Lee pinpoints that trying to install and enforce a very US domestic rule in an interconnected multinational market 鈥渨as always going to be fraught with difficulties from a market participant perspective鈥�.
鈥淨uite apart from all of the challenges in relation to technical and implementation standards, schemas and the choreography of reporting, come the fears about double counting in the aggregation of regional and global securities financing transaction data,鈥� he continues.
Lee explains that US securities financing reporting will need to focus on lenders (and if cross jurisdiction, borrowers too) established in the US to be entirely workable.
In conclusion, Lee says: 鈥淩eporting firms, beneficial owners, agent lenders, and the street generally, need more regulatory certainty than they have today to ensure the best possible outcomes from FINRA Rule 6500 SLATE implementation and go-live. Sometimes it is better to take a (brief) pause and deliberate over the details and the unanswered questions than to go-live with something that is not yet ready.鈥�
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