SEC Rule 10c-1a and SFTR (Securities Financing Transactions Regulation) are both regulatory initiatives designed to increase transparency within the securities financing market. Both regulations aim to improve market efficiency, risk management, and regulatory oversight by mandating the reporting of detailed transaction data to relevant authorities being RNSA’s (registered national securities associations). This data includes information on the parties involved, transaction terms, collateral, confidential and non-confidential elements plus modifier and indicator field populations.
While both regulations share these common goals, they differ in specific reporting requirements. SEC Rule 10c-1a primarily focuses on securities lending transactions within the United States (however, extraterritoriality remains in play) with any USA ISIN that is reportable under CAT, TRACE and MSRB surveillance systems in scope for reporting under 10c-1a. SFTR scope is very domicile specific, covering a wider range of securities financing transactions, including securities lending, repo, reverse repo, sell and buy backs and margin lending, across the European Union. The exact SFTR scope is: SFTR is a European regulation affecting european legal entities, non-EU branches of EU firms and EU branches of third country firms.
In terms of reporting requirements, SEC Rule 10c-1a requires the reporting of specific information to FINRA, including loan terms, collateral details, and counterparty information. SFTR, on the other hand, imposes more extensive reporting requirements, encompassing a wider range of data points across 10 lifecycle events covering New, Correction, Modification, Termination, Error, Collateral and Valuation updates. SFTR also requires collateral re-use calculations and margin reporting for when posting collateral to a CCP (central counterparty). Additionally, while SEC Rule 10c-1a requires FINRA to make certain information public, such as aggregate transaction activity and distribution of loan rates, SFTR requires the reporting of data to trade repositories, who make SFTR data publicly available on a weekly basis, the information that is published is driven by an RTS aggregated fields requirement and not very broad which leaves challenges for firms to dissect the data and use it in a material way.
The implementation of SEC Rule 10c-1a is expected to have several significant impacts on the securities lending market. Firms will need to invest in systems and processes to comply with the new reporting requirements, which can increase operational costs. Those firms that already report under SFTR may find leverages to aid the development of reporting under 10c-1a. However, it is hoped the standardised reporting requirements will improve the quality and consistency of data available to market participants and regulators, facilitating better risk assessment and management. Additionally, the enhanced regulatory oversight may lead to increased scrutiny of securities lending activities.
