Dash for the deadline
21 January 2025
Following the SEC鈥檚 approval of FINRA Rule 6500 Series SLATE, Carmella Haswell speaks with industry participants on preparing for the upcoming regulation, and facing uncertainty in the wake of a Fifth Circuit Court case
Image: stock.adobe.com/Thares2020
The Financial Industry Regulatory Authority (FINRA) has been steadfast in its pursuit to gain approval of a proposed rule change to adopt the new FINRA Rule 6500 Series, Securities Lending and Transparency Engine (SLATE).
Designed to improve transparency and efficiency in the securities lending market, the rule faced months of back and forth with concerned market participants and the US Securities and Exchange Commission (SEC). Now, eight months on from when the rule was filed, the US regulator has approved FINRA鈥檚 proposal, following much modification.
The rule was filed to the SEC on 1 May 2024 to require reporting of securities loans and to provide for the public dissemination of loan information. Market participants will now need to prepare for an implementation date of 2 January 2026 for reporting requirements, while dissemination requirements will come into force on 2 April 2026.
Facing uncertainty
Partial Amendment No. 1 provided amendments to the initial proposal for Rule 6500 Series SLATE. At the time, FINRA believed it appropriate to alter the initial rules to facilitate the achievement of the reporting requirements in a timely manner. The acceptance of these changes allowed for the approval of the rule.
As described in Partial Amendment No. 1, FINRA proposed to adopt the new Rule 6500 Series SLATE to establish reporting requirements for covered securities loans, and to provide the dissemination of individual and aggregate covered securities loans information and loan rate statistics.
The amendments 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. FINRA stated its intent to file, and has filed, separately a proposed rule change to establish covered securities loan reporting fees and securities loan data products and associated fees.
To achieve its objective of improving transparency and efficiency in the securities lending market, the proposed rule change would facilitate the collection of specified securities loan information from covered persons and reporting agents, and provide such information to market participants, the public, and regulators.
The approval of the revised proposal establishes the framework for reporting under the SEC鈥檚 10c-1a regulation, which may bring complications following a pending court case.
While EquiLend welcomed the approved proposal as a 鈥渒ey step forward鈥�, the fintech warned of the pending Fifth Circuit Court of Appeals case, brought by challenger National Association of Private Fund Managers (NAPFM), which remains unresolved.
鈥淭he outcome of this case could potentially impact the timeline and scope of the regulation. If the court rules in favour of the challenger, it may lead to delays or modifications to the implementation of 10c-1a,鈥� the firm explains.
鈥淒espite the legal uncertainty, the industry continues preparing for the approved 2 January 2026 go-live date. EquiLend is actively monitoring developments and will provide timely updates to ensure our clients are informed and ready to adapt to any changes.鈥�
As highlighted by Thomas Veneziano, head of North America product at Pirum, the main challenge here will be ensuring the required level of reporting, including covering the correct scope, modifications, and jurisdictions.
Further exploring the requirements market participants are expected to adhere to, Jonathan Lee, director of Money Markets Reporting at Kaizen, notes: 鈥淭he taxonomy of a securities loan lifecycle will need to be documented and captured with a complete chronology of events in a way that has never happened or been required before.鈥�
With 12 months to go-live, Lee says there remains a lot of uncertainty about the requirements, whether to self-report as a covered person and how reporting parties including agent lenders will accurately capture and report all of the data.
He adds: 鈥淭here are also many uncertainties about extraterritoriality and what exactly SEC 10c-1a will mean for international participants in the US securities lending market.鈥�
Facing the unknown, Struan Lloyd, managing director, head of Cappitech, at S&P Global Market Intelligence Cappitech, suggests that until there is a full understanding of the requirements, it is difficult to know the full scope of the challenges.
鈥淲hile the amendments have lessened some of the data requirements originally captured in the first draft published by FINRA, the amended specifications have not been published yet and any further delay will impact the teams involved to interpret, analyse, and implement the regulation,鈥� he notes.
A tight time frame
Introducing regulatory change requires in-scope firms and regulators to put, in this case, FINRA Rules 6500 Series SLATE on the weighing scales to decipher if the benefits outweigh the challenges. For this regulation in particular, it is a mixed bag.
Veneziano believes the rule will achieve additional transparency for the securities finance industry, but warns that the overall impact on the industry will be additional costs, data complexities, and technology builds.
鈥淧irum and S&P Global Market Intelligence Cappitech can assist with the data and technology, by leveraging our regulatory reporting solution for the Securities Financing Transactions Regulation,鈥� he notes.
Despite the possible hurdles which could appear while firms prepare for its arrival, Lee states that the rule will still meet its objectives, 鈥渋n spite of the amendments, some will argue it remains gold plated requiring more detail than is perhaps necessary鈥�.
Ultimately, he believes the industry is likely to become more standardised, disciplined and regimented in how securities loans are executed, managed and reported. 鈥淟enders are likely to adopt more third-party solutions to mitigate the operational burden and ensure reporting is complete, accurate and timely.鈥�
Before the industry can reap the benefits of the regulation, it must prepare. With less than a year until the first set of reporting requirements comes into force, the close deadline could prove challenging for in-scope firms.
Lloyd believes that it will likely be challenging for the industry, particularly for firms that have not been in-scope for reporting under the Securities Financing Transactions Regulation (SFTR). He explains: 鈥淕iven there is a significant overlap in the data required under SFTR and SEC 10c-1a, this should mean that sourcing the additional data points would be less burdensome than for those firms starting from scratch.鈥�
Additionally, for firms that are reporting under SFTR already, Lloyd pinpoints that there is an existing reporting infrastructure that can be leveraged. Cappitech SFTR clients will be able to use their current integration and connectivity with Cappitech or Pirum which should reduce the build effort. 鈥淭he timelines are still tight, but we have been through this before and will work with the industry to work towards a successful go-live鈥�
Both Lee and Veneziano make note of the tight deadline. With firms working on multiple projects, this often leads to a last-minute 鈥渄ash for the deadline鈥�, Lee highlights, which is not helped by the late approval of the FINRA rule and the extent of the outstanding uncertainties.
Veneziano adds that the industry is still unaware of the technical specifications required to report to SLATE. 鈥淎s we all know from past experience with SFTR and T+1, time passes quickly and one year to secure budget, resources, and align a build plan for an in-house solution will prove to be a tight time frame,鈥� he warns.
Taking the correct measures
As the countdown to FINRA Rule 6500 Series SLATE begins, firms should be looking for a tried and tested, yet quick way to market, with the least amount of lifting, says Veneziano.
Providing a breakdown of the key items firms should start thinking about, Lloyd notes the following points.
Reporting infrastructure 鈥� leverage the work performed for SFTR if applicable where reusing existing connectivity, understanding the flow and overlap will provide a significant advantage for firms to meet the timelines.
Data 鈥� analyse where the additional data elements will come from and how that will be assimilated into your workflow.
Existing relationships 鈥� 12 months is not a lot of time to perform a full due diligence on a new provider and be ready to onboard, integrate and test in time. Leverage existing contractual relationships with providers.
Scope determination 鈥� analyse what trades would be in-scope for reporting, particularly in the case of non-US domiciled entities that would potentially be in-scope.
Adding to this, Lee insists firms will need to determine whether to register as a covered person or use a reporting agent. He adds: 鈥淟ending taxonomies should be mapped out to interpret reporting scenarios in conjunction with the SLATE Participant Specification.鈥�
Extensive testing should be conducted well in advance of the go-live, irrespective of whether a counterparty is self-reporting or not, Lee advises. Independent oversight of the build and testing phase could help to ensure the requirements have been interpreted correctly and fundamental flaws are not baked into reporting once it enters production.
He concludes: 鈥淥nce live, the adoption of third-party quality assurance will ensure sufficient oversight of reporting agents, challenge regulatory interpretation, and continue to test evolving business models and regulatory change to ensure ongoing compliance.鈥�
It appears there is much work to be done in preparation for FINRA鈥檚 rule. While firms keep their eyes peeled for answers regarding uncertainties, the countdown to go-live begins.
Designed to improve transparency and efficiency in the securities lending market, the rule faced months of back and forth with concerned market participants and the US Securities and Exchange Commission (SEC). Now, eight months on from when the rule was filed, the US regulator has approved FINRA鈥檚 proposal, following much modification.
The rule was filed to the SEC on 1 May 2024 to require reporting of securities loans and to provide for the public dissemination of loan information. Market participants will now need to prepare for an implementation date of 2 January 2026 for reporting requirements, while dissemination requirements will come into force on 2 April 2026.
Facing uncertainty
Partial Amendment No. 1 provided amendments to the initial proposal for Rule 6500 Series SLATE. At the time, FINRA believed it appropriate to alter the initial rules to facilitate the achievement of the reporting requirements in a timely manner. The acceptance of these changes allowed for the approval of the rule.
As described in Partial Amendment No. 1, FINRA proposed to adopt the new Rule 6500 Series SLATE to establish reporting requirements for covered securities loans, and to provide the dissemination of individual and aggregate covered securities loans information and loan rate statistics.
The amendments 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. FINRA stated its intent to file, and has filed, separately a proposed rule change to establish covered securities loan reporting fees and securities loan data products and associated fees.
To achieve its objective of improving transparency and efficiency in the securities lending market, the proposed rule change would facilitate the collection of specified securities loan information from covered persons and reporting agents, and provide such information to market participants, the public, and regulators.
The approval of the revised proposal establishes the framework for reporting under the SEC鈥檚 10c-1a regulation, which may bring complications following a pending court case.
While EquiLend welcomed the approved proposal as a 鈥渒ey step forward鈥�, the fintech warned of the pending Fifth Circuit Court of Appeals case, brought by challenger National Association of Private Fund Managers (NAPFM), which remains unresolved.
鈥淭he outcome of this case could potentially impact the timeline and scope of the regulation. If the court rules in favour of the challenger, it may lead to delays or modifications to the implementation of 10c-1a,鈥� the firm explains.
鈥淒espite the legal uncertainty, the industry continues preparing for the approved 2 January 2026 go-live date. EquiLend is actively monitoring developments and will provide timely updates to ensure our clients are informed and ready to adapt to any changes.鈥�
As highlighted by Thomas Veneziano, head of North America product at Pirum, the main challenge here will be ensuring the required level of reporting, including covering the correct scope, modifications, and jurisdictions.
Further exploring the requirements market participants are expected to adhere to, Jonathan Lee, director of Money Markets Reporting at Kaizen, notes: 鈥淭he taxonomy of a securities loan lifecycle will need to be documented and captured with a complete chronology of events in a way that has never happened or been required before.鈥�
With 12 months to go-live, Lee says there remains a lot of uncertainty about the requirements, whether to self-report as a covered person and how reporting parties including agent lenders will accurately capture and report all of the data.
He adds: 鈥淭here are also many uncertainties about extraterritoriality and what exactly SEC 10c-1a will mean for international participants in the US securities lending market.鈥�
Facing the unknown, Struan Lloyd, managing director, head of Cappitech, at S&P Global Market Intelligence Cappitech, suggests that until there is a full understanding of the requirements, it is difficult to know the full scope of the challenges.
鈥淲hile the amendments have lessened some of the data requirements originally captured in the first draft published by FINRA, the amended specifications have not been published yet and any further delay will impact the teams involved to interpret, analyse, and implement the regulation,鈥� he notes.
A tight time frame
Introducing regulatory change requires in-scope firms and regulators to put, in this case, FINRA Rules 6500 Series SLATE on the weighing scales to decipher if the benefits outweigh the challenges. For this regulation in particular, it is a mixed bag.
Veneziano believes the rule will achieve additional transparency for the securities finance industry, but warns that the overall impact on the industry will be additional costs, data complexities, and technology builds.
鈥淧irum and S&P Global Market Intelligence Cappitech can assist with the data and technology, by leveraging our regulatory reporting solution for the Securities Financing Transactions Regulation,鈥� he notes.
Despite the possible hurdles which could appear while firms prepare for its arrival, Lee states that the rule will still meet its objectives, 鈥渋n spite of the amendments, some will argue it remains gold plated requiring more detail than is perhaps necessary鈥�.
Ultimately, he believes the industry is likely to become more standardised, disciplined and regimented in how securities loans are executed, managed and reported. 鈥淟enders are likely to adopt more third-party solutions to mitigate the operational burden and ensure reporting is complete, accurate and timely.鈥�
Before the industry can reap the benefits of the regulation, it must prepare. With less than a year until the first set of reporting requirements comes into force, the close deadline could prove challenging for in-scope firms.
Lloyd believes that it will likely be challenging for the industry, particularly for firms that have not been in-scope for reporting under the Securities Financing Transactions Regulation (SFTR). He explains: 鈥淕iven there is a significant overlap in the data required under SFTR and SEC 10c-1a, this should mean that sourcing the additional data points would be less burdensome than for those firms starting from scratch.鈥�
Additionally, for firms that are reporting under SFTR already, Lloyd pinpoints that there is an existing reporting infrastructure that can be leveraged. Cappitech SFTR clients will be able to use their current integration and connectivity with Cappitech or Pirum which should reduce the build effort. 鈥淭he timelines are still tight, but we have been through this before and will work with the industry to work towards a successful go-live鈥�
Both Lee and Veneziano make note of the tight deadline. With firms working on multiple projects, this often leads to a last-minute 鈥渄ash for the deadline鈥�, Lee highlights, which is not helped by the late approval of the FINRA rule and the extent of the outstanding uncertainties.
Veneziano adds that the industry is still unaware of the technical specifications required to report to SLATE. 鈥淎s we all know from past experience with SFTR and T+1, time passes quickly and one year to secure budget, resources, and align a build plan for an in-house solution will prove to be a tight time frame,鈥� he warns.
Taking the correct measures
As the countdown to FINRA Rule 6500 Series SLATE begins, firms should be looking for a tried and tested, yet quick way to market, with the least amount of lifting, says Veneziano.
Providing a breakdown of the key items firms should start thinking about, Lloyd notes the following points.
Reporting infrastructure 鈥� leverage the work performed for SFTR if applicable where reusing existing connectivity, understanding the flow and overlap will provide a significant advantage for firms to meet the timelines.
Data 鈥� analyse where the additional data elements will come from and how that will be assimilated into your workflow.
Existing relationships 鈥� 12 months is not a lot of time to perform a full due diligence on a new provider and be ready to onboard, integrate and test in time. Leverage existing contractual relationships with providers.
Scope determination 鈥� analyse what trades would be in-scope for reporting, particularly in the case of non-US domiciled entities that would potentially be in-scope.
Adding to this, Lee insists firms will need to determine whether to register as a covered person or use a reporting agent. He adds: 鈥淟ending taxonomies should be mapped out to interpret reporting scenarios in conjunction with the SLATE Participant Specification.鈥�
Extensive testing should be conducted well in advance of the go-live, irrespective of whether a counterparty is self-reporting or not, Lee advises. Independent oversight of the build and testing phase could help to ensure the requirements have been interpreted correctly and fundamental flaws are not baked into reporting once it enters production.
He concludes: 鈥淥nce live, the adoption of third-party quality assurance will ensure sufficient oversight of reporting agents, challenge regulatory interpretation, and continue to test evolving business models and regulatory change to ensure ongoing compliance.鈥�
It appears there is much work to be done in preparation for FINRA鈥檚 rule. While firms keep their eyes peeled for answers regarding uncertainties, the countdown to go-live begins.
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