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SIFMA Raises Concerns on Proposed Securities Loan Reporting Rule

Steven.Lofchie@friedfrank.com's picture
Commentary by Steven Lofchie

SIFMA and the Asset Management Group ("AMG") raised concerns regarding an SEC-proposed rule on securities loan reporting. The proposed rule would create extensive reporting requirements for any individuals loaning a security (see prior coverage).

In their comment letters, SIFMA and AMG raised concerns over (i) the ambiguity of the positions that are subject to the reporting requirement, (ii) the provision of incomplete, inaccurate and potentially misleading data that overestimates the loanable securities in the market, (iii) the feasibility of the 15-minute reporting requirement, (iv) the cross-border implications of the proposed rule and (v) the public dissemination of securities loan data, which may lead many to exit from the shorting market. In addressing these concerns, the letters recommended extensive changes to the proposed rule.

Both letters highlighted SIFMA's previous assertions that the 30-day comment period is insufficient to fully analyze and consider the rule proposal. SIFMA, along with several other trade associations, filed a request on November 23, 2021, to extend the consideration period.

Commentary

This rule would be expensive to implement and would likely drive many participants from the market. Aspects of it are impractical and inconsistent with the mechanics of the securities lending business, most notably the 15-minute reporting requirement. Yet the SEC would give only a 30-day comment period that includes the holidays, and runs contemporaneously with other major rulemakings.

This is not a case where there is a current emergency or financial crisis that may provide a justification for a rushed regulatory action. Nor is it a situation where the rule proposed is so straightforward that there is nothing to be learned from public comment. (If that were the case, the SEC would not have 100 questions to ask, and would not have proposed a rule that is impractical in so many aspects.)

It is not merely that the rule proposal is flawed; the rulemaking process on this proposal is flawed.

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SIFMA