specified in paragraphs (g)(1)(i)(A) and (C) of this section.\583\ The
final rule also delays an RNSA's publication of a modification to loan
amount, on a transaction-by-transaction basis, in paragraph (c)(6), to
the twentieth business day after the covered securities loan is
modified with the loan and security identifying information specified
in paragraphs (g)(1)(i)(A) and (C).\584\
---------------------------------------------------------------------------

    \583\ See final Rule 10c-1a(g)(2).
    \584\ See final Rule 10c-1a(g)(3).
---------------------------------------------------------------------------

    For purposes of compliance with the final rule, the countdown to
the ``twentieth business day'' starts the day after the covered
securities loan is effected. For example, if a covered securities loan
were effected at 4:00 p.m. on a Wednesday, and the applicable Rule 10c-
1a information is received by an RNSA by the end of that day, that
Thursday after the Wednesday on which the covered securities loan is
effected will start the 20-business day period, assuming that Thursday
is not a holiday.
    The final rule contains requirements for an RNSA to make data
elements other than loan amount publicly available as soon as
practicable, and not later than the morning of the business day after
the covered securities loan is effected.\585\ Similarly, the final rule
requires an RNSA to make loan modifications, excluding modifications to
loan amount, publicly available, as soon as practicable, and not later
than the morning of the business day after the covered securities loan
is modified.\586\ The final rule also requires that an RNSA make the
data elements in paragraph (c) of the final rule, other than loan
amount, publicly available as soon as practicable, and not later than
the morning of the business day after the covered securities loan is
effected, if a securities loan is modified when such covered securities
loan is a pre-existing covered securities loan (i.e., a covered
securities loan for which reporting under paragraph (a) was not
required on the date the loan was agreed to or last modified).\587\
This requirement is designed to provide transparency for covered
securities loans that have not been previously reported to an RNSA
prior to having a data element of paragraph (c) modified. As discussed
above, in Part VII.F.2, the final rule also requires that an RNSA make
publicly available the data elements in paragraph (c) of the final rule
for pre-existing covered securities loans. The final rule also contains
a requirement for an RNSA to keep confidential data elements
confidential, in accordance with subparagraph (h) and consistent with
applicable law.\588\ Final Rule 10c-1a also contains updated
terminology from the proposed Rule 10c-1, including that the ``unique
transaction identifier'' is updated to ``unique identifier;'' and
references to ``loan'' are updated to ``covered securities loan.''
\589\ Revisions to final Rule 10c-1a(g) are updated with the relevant
paragraphs renumbered to align with the format of the final rule.\590\
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    \585\ See final Rule 10c-1a(g)(1).
    \586\ See final Rule 10c-1a(g)(3).
    \587\ See final Rule 10c-1a(g)(3)(i).
    \588\ See final Rule 10c-1a(g)(4).
    \589\ See final Rule 10c-1a(g).
    \590\ See final Rules 10c-1a(g)(3)(i) and (ii).
---------------------------------------------------------------------------

    Final Rule 10c-1a requires an RNSA to assign each covered
securities loan a unique identifier in paragraphs (g)(1)(i)(A) and
(g)(3). The final rule makes a revision to terminology by replacing the
term ``unique transaction identifier'' assigned by an RNSA to the
original loan, as used in the proposed rule, with ``unique identifier''
assigned by an RNSA to the original covered securities loan. The
removal of ``transaction'' is to avoid confusion with the defined term
``covered securities loan,'' which is the accurate description

of what the ``unique identifier'' represents.
    While the final rule continues to require an RNSA to ``assign each
covered securities loan a unique identifier,'' a general theme received
from commenters was about the operational efficiency of allowing market
participants to create and submit their own unique identifiers.\591\ In
response to the Proposing Release, one commenter stated that
``beneficial owners or those reporting on their behalf should have
flexibility to generate their own Transaction Identifiers provided they
meet minimum standards for integrity and identification'' and that
``this Transaction Identifier [be used] in connection with any loan
modification reporting in connection with the relevant loan.'' \592\
Another commenter recommended that ``allowance is made for the UTI to
be provided to the RNSA by the reporting party, with an on-receipt
issuance model only available should firms have no existing UTI for a
reportable transaction.'' \593\ Another commenter agreed that firms
should be allowed to internally assign UTIs and report them to an RNSA,
but alternatively suggested that if the UTI is required to be assigned
by an RNSA then an RNSA should return this internal identifier to the
reporting firm along with an RNSA-assigned UTI in order to link a
modification to the original reported loan.\594\ This commenter also
recommended that, under either approach, UTIs should be different in
the U.S. and other jurisdictions, as applicable.\595\ Another commenter
stated that under the final rule, if there was a loan that was reported
to both an RNSA and the SFTR, the loan would have an identifier for
each system and prevent global aggregation.\596\
---------------------------------------------------------------------------

    \591\ See, e.g., State Street Letter, at 6; ABA Letter, at 4.
    \592\ See RMA Letter, at 1, 19.
    \593\ Pirum Letter, at 4.
    \594\ See FIF Letter, at 8-9.
    \595\ See FIF Letter, at 9.
    \596\ See Pirum Letter, at 4.
---------------------------------------------------------------------------

    The Commission understands that for many reporting entities,
obtaining a unique identifier from an RNSA on a post-trade basis and
then tagging it to the trade for accurate reporting may add
complication and expense and introduces operational risk for post-trade
errors in aligning trades with transaction identifiers (particularly if
a trade has been modified during the course of intraday trade
reporting). According to one commenter, ``the objective of a
Transaction Identifier is to uniquely identify a particular
transaction; so long as that objective is satisfied, the SEC should be
neutral as to the manner in which the Transaction Identifier is
produced.'' \597\ Doing so, the commenter suggests, ``would [provide]
the flexibility to an RNSA to allow reporting parties to provide their
own Transaction Identifiers [which] would likely materially reduce
costs for any such parties.'' \598\ According to the commenter, this
approach has been successfully deployed in Europe, under the SFTR, and
the U.S. in connection with security-based swap reporting rules.\599\
Accordingly, this commenter urged the Commission to permit the
reporting agent to generate the transaction identifiers prior to
reporting to an RNSA, with an RNSA available to provide Transaction
Identifiers as a back-up for those reporting parties who are unable,
for whatever reason, to generate their own transaction
identifiers.\600\ Another commenter stated that while the data elements
required to be reported are sufficient to allow for an RNSA to identify
loans and to create a unique transaction identifier, the Commission
should specify how such identifier will be shared with the
reporter.\601\
---------------------------------------------------------------------------

    \597\ RMA Letter, at 19.
    \598\ RMA Letter, at 19.
    \599\ See RMA Letter, at 19.
    \600\ See RMA Letter, at 19.
    \601\ See IHS Markit Letter, at 8.
---------------------------------------------------------------------------

    Having a unique identifier assigned to each covered securities loan
is necessary for an RNSA to easily track the loan and facilitate the
identification and reporting of any subsequent modifications to a
particular covered securities loan. The Commission agrees with the
comment that the objective is to have a unique identifier for tracking
and that the Commission should be neutral as to the manner in which the
unique identifier is produced,\602\ and that it is appropriate to allow
administrative details of the process to be left to the discretion of
an RNSA, rather than dictated by the Commission.\603\ It is appropriate
to require an RNSA to assign a unique identifier to the loan, even if
such loan already has an identifier that is reported to the SFTR, for
consistency with an RNSA's rules and systems. Further, the final rule
requires an RNSA to create a system capable of generating unique
identifiers, but does not preclude market participants from creating
their own unique identifiers when submitting information to an RNSA.
---------------------------------------------------------------------------

    \602\ See RMA Letter, at 19.
    \603\ See OCC Letter, at 12 (stating that ``FINRA is currently
best positioned to serve in this role given [its] experience and
expertise to date in administering other trade reporting
systems.'').
---------------------------------------------------------------------------

    The Commission agrees that FINRA, as the sole existing RNSA, has
the experience and controls to implement an appropriate system for
market participants, including, if appropriate, how an identifier will
be shared with a reporter. Structuring the final rule to provide an
RNSA with flexibility to accept unique identifiers and/or use an RNSA
assigned unique identifier to publish data is operationally practical.
Accordingly, final Rule 10c-1a(g) maintains that an RNSA shall assign a
unique identifier to the covered securities loan and make publicly
available as soon as practicable, and not later than the morning of the
business day after the covered securities loan is effected.\604\
---------------------------------------------------------------------------

    \604\ See final Rule 10c-1a(g).
---------------------------------------------------------------------------

K. RNSA Data Retention, Availability, Fees, and Security

1. Data Retention--Rule 10c-1a(h)(1)
Proposed Rule
    Under the proposed rule the Commission required that RNSAs retain
the information collected pursuant to paragraphs (b) through (e) of the
proposed rule in a convenient and usable standard electronic data
format that is machine readable and text searchable without any manual
intervention for a period of five years.\605\ In the Proposing Release,
the Commission stated that requiring an RNSA to retain records for five
years was consistent with other retention obligations of records that
Exchange Act rules impose on an RNSA.\606\ As examples, the Commission
identified Rule 17a-1 \607\ and 17 CFR 242.613(e)(8) (``Rule
613(e)(8)'') of Regulation NMS, both of which require RNSAs to keep
documents for a period of not less than five years.
---------------------------------------------------------------------------

    \605\ See proposed Rule 10c-1(g)(1).
    \606\ See Proposing Release, 86 FR 69819.
    \607\ See 17 CFR 240.17a-1.
---------------------------------------------------------------------------

Final Rule
    The Commission received limited comments concerning this element of
the proposed rule. One commenter stated that a retention period of six
years plus the current year would simplify GDPR and UK tax
compliance.\608\ The Commission recognizes the importance of compliance
with other regulatory regimes; however, requiring RNSAs to retain
records for not less than five years is consistent with other record
retention obligations that Exchange Act rules

impose on RNSAs.\609\ Including a retention period that is consistent
with other rules applicable to RNSAs could reduce the burden for an
RNSA to comply with the retention requirements in proposed Rule 10c-1
because RNSAs will have developed experience and controls around
administering similar record retention programs.\610\ Therefore, the
Commission is adopting RNSA data retention requirements as proposed
(i.e., in a convenient and usable standard electronic data format that
is machine readable and text searchable without any manual intervention
for a period of five years), with the relevant paragraphs renumbered to
align with the format of the final rule.\611\
---------------------------------------------------------------------------

    \608\ See Letter from Andrew Robinson (Jan. 7, 2022) (``Robinson
Letter''), at 12.
    \609\ See Proposing Release, 86 FR 69819. Rule 17a-1 requires
RNSAs to keep documents for a period of not less than five years.
Similarly, Rule 613(e)(8) of Regulation NMS, on which the retention
period for proposed Rule 10c-1 is modeled, requires the central
repository to retain information in a convenient and usable standard
electronic data format that is directly available and searchable
electronically without any manual intervention for a period of not
less than five years.
    \610\ See Proposing Release, 86 FR 69819.
    \611\ See 17 CFR 240.10c-1a(h)(1) (``final Rule 10c-1a(h)(1)'').
References to the relevant collected information in paragraphs (b)
through (e) of the proposed rule have been updated to accurately
reflect their place in paragraphs (c) through (f) of the final rule.
---------------------------------------------------------------------------

2. Data Availability to the Public--Rule 10c-1a(h)(3)
Proposed Rule
    The Commission proposed that RNSAs make certain data \612\
available to the public in a convenient and usable standard electronic
data format on its website or similar means of electronic distribution,
without charge and without use restrictions, for at least a five-year
period.\613\ The Commission stated its preliminary belief that
requiring an RNSA to provide certain information to the public would
further the direction by Congress in section 984(b) of the Dodd-Frank
Act for the Commission to promulgate rules that are designed to
increase the transparency of information to brokers-dealers and
investors, with respect to the loan or borrowing of securities.\614\
The Commission acknowledged that establishing and maintaining a system
to provide public access to Rule 10c-1 information is not without cost,
and expressed the preliminary belief that such costs should be borne by
an RNSA in the first instance and be permitted to be recouped by an
RNSA from market participants who report securities lending
transactions to an RNSA.\615\ The Commission also stated its belief
that any restrictions on how the publicly available Rule 10c-1
information is used could impede the utility of such information and
limit the ability of investors, commercial vendors, and other third
parties, such as academics, from developing uses and analyses of the
information.\616\
---------------------------------------------------------------------------

    \612\ See proposed Rule 10c-1(g)(3) (specifically including the
information collected under paragraphs (b) and (c) of the proposed
rule and the aggregate of the information provided pursuant to
paragraph (e) of the proposed rule).
    \613\ See proposed Rule 10c-1(g)(3).
    \614\ See Proposing Release, 86 FR 69819.
    \615\ See Proposing Release, 86 FR 69819-20.
    \616\ See Proposing Release, 86 FR 69820.
---------------------------------------------------------------------------

Final Rule
    It is appropriate to remove the phrase ``without charge'' from an
RNSA's availability of information requirements in final Rule 10c-
1a(h)(3). Some commenters supported the Commission making certain
securities lending information available without charge, as
proposed.\617\ One commenter stated generally that it would be
extremely helpful to have freely available data.\618\ The Commission
agrees that having access to securities lending data without charge
will benefit market participants. As discussed below, in Part VII.K.3,
the Commission received comment recommending that RNSAs be permitted to
charge fees to entities other than lending agents and beneficial
owners.\619\ After considering commenter input, the Commission is
removing the ``without charge'' requirement from the final rule to
provide RNSAs with greater flexibility to structure reasonable fees. As
discussed below, in Part VII.K.3, and as proposed,\620\ any such fees
will have to be filed with the Commission pursuant to section 19(b) of
the Exchange Act and Rule 19b-4, and would be published for notice and
public comment. Additionally, consistent with the Proposing
Release,\621\ and the provisions that govern RNSAs under the Exchange
Act,\622\ the final rule requires that RNSAs may only establish and
collect fees that are reasonable.\623\ Furthermore, as proposed, the
final rule prohibits use restrictions on the publicly available
information.\624\ Any restrictions on how the publicly available Rule
10c-1a information is used could impede its utility and limit the
ability of investors, commercial vendors, and other third parties, such
as academics, from developing uses and analyses of the
information.\625\
---------------------------------------------------------------------------

    \617\ See James J. Angel Letter, at 3; Morningstar Letter, at 4
(stating that an ``RNSA's free and unrestricted disclosures to the
public increase transparency'').
    \618\ See James J. Angel Letter, at 2.
    \619\ See ABA Letter, at 2-3.
    \620\ See Proposing Release, 86 FR 69820.
    \621\ See proposed Rule 10c-1(h).
    \622\ See 15 U.S.C. 78o(b) (section 15A(b) of the Exchange Act).
    \623\ See final Rule 10c-1a(i).
    \624\ See final Rule 10c-1a(h)(3).
    \625\ The requirement to provide the Rule 10c-1a information in
the same manner such information is maintained pursuant to final
Rule 10c-1a(h)(1) and without use restrictions is not intended to
preclude an RNSA from creating alternative means to provide
information to the public or subscribers. For example, an RNSA might
choose to file with the Commission proposed rules to establish data
feeds of the Rule 10c-1a information that vendors might subscribe to
(including fee-based subscriptions) and repackage for onward
distribution.
---------------------------------------------------------------------------

    The Proposing Release included a request for comment asking if a
period of five years is the appropriate length of time for an RNSA to
make information available to the public.\626\ One commenter responded,
stating that, ``transparency is a good thing, and lessons can be
learned from history, `in perpetuity' would be the ideal period of
time.'' \627\ The Commission acknowledges the value of historical
studies of securities markets, and the final rule does not preclude an
RNSA from making certain reported data public in perpetuity. However,
requiring that RNSAs make certain information publicly available
indefinitely could prove unduly burdensome on RNSAs when compared with
the utility of old and potentially less informative data. Furthermore,
making information available in a convenient and usable standard
electronic data format indefinitely would necessitate that RNSAs retain
the data indefinitely, which would be inconsistent with the final
rule's data retention requirements \628\ and other retention
obligations of records that Exchange Act rules impose on RNSAs.\629\
Five years is the appropriate length of time for an RNSA to be required
to make information available to the public, because such a time period
will provide broker-dealers and investors with an opportunity to
identify trends occurring in the market and in individual securities
based on changes to the material terms of securities lending
transactions.
---------------------------------------------------------------------------

    \626\ See Proposing Release, 86 FR 69820 (Question 58).
    \627\ See Robinson Letter, at 12.
    \628\ See final Rule 10c-1a(h)(1).
    \629\ See supra note 609.
---------------------------------------------------------------------------

    For the foregoing reasons the Commission is adopting the collected
information availability requirements for RNSAs, with respect to making
certain collected information available to the public, substantially as
proposed, with the phrase ``without charge'' removed and the relevant
paragraphs renumbered to align with the format of the final rule.\630\
---------------------------------------------------------------------------

    \630\ See final Rule 10c-1a(h)(3). References to the relevant
collected information in paragraphs (b) and (c) of the proposed rule
have been updated to reference paragraphs (c) and (d) of the final
rule. The proposed rule's reference to ``the aggregate of the
information provided pursuant to paragraph (e) of this section'' has
been removed from the final rule as discussed above, in Parts
VII.F.4 and VII.F.5. Additionally, the word ``provide'' at the
beginning of proposed Rule 10c-1(g)(3) has been replaced by ``make''
in final Rule 10c-1a(h)(3) for consistency.

---------------------------------------------------------------------------

3. RNSA Fees--Rule 10c-1a(i)
Proposed Rule
    The Commission proposed that RNSAs may establish and collect
reasonable fees, pursuant to rules that are effective pursuant to
section 19(b) of the Exchange Act and Rule 19b-4 thereunder, from each
person who provides any data set forth in paragraphs (b) through (e) of
this section directly to an RNSA.\631\ Under the Exchange Act, RNSAs
are allowed to adopt rules that impose the equitable allocation of
reasonable fees among members and issuers, and other persons that use
an RNSA facility or system.\632\ In the Proposing Release the
Commission stated its preliminary belief that it would be appropriate
to establish and collect reasonable fees from each person who directly
provides the information set forth in the rule to an RNSA.
---------------------------------------------------------------------------

    \631\ See proposed Rule 10c-1(h).
    \632\ See 15 U.S.C. 78o-3(b)(5) (``The rules of the association
provide for the equitable allocation of reasonable dues, fees, and
other charges among members and issuers and other persons using any
facility or system which the association operates or controls.'').
---------------------------------------------------------------------------

Final Rule
    One commenter supported an RNSA acting in accordance with section
19(b) of the Exchange Act and Rule 19b-4 thereunder when implementing
rules regarding fees.\633\ Another commenter recommended that reporting
costs should not only be borne by persons who provide data directly to
an RNSA and recommended that ``costs incurred by FINRA . . . be shared
among all those that benefit from securities lending activity, not
solely on lending agents and beneficial owner clients.'' \634\
Similarly, another commenter recommended ``that the costs incurred by
the RNSA to establish and operate the reporting system for securities
lending data should be equitably shared by both borrowers and lenders,
along with a tiered fee structure that eliminates costs for General
Collateral (``GC'') transactions.'' \635\
---------------------------------------------------------------------------

    \633\ See Bloomberg L.P. Letter, at 3 (stating that ``[t]he
rules of an RNSA, including those pertaining to any fees, should
thus comport with the requirements of the Exchange Act''). See also
HMA Letter, at 7 and 10 (stating that ``it will be essential for the
Commission to ensure that the RNSA's . . . fees related to the
development and operations of the reporting and dissemination
systems contemplated by the Proposal are subject to meaningful
scrutiny'' and recommending ``that any fees are imposed pursuant to
filings that are subject to Commission review, and approved only if
determined to be consistent with the Exchange Act and Commission
Rules'').
    \634\ See ABA Letter, at 3.
    \635\ See State Street Letter, at 2.
---------------------------------------------------------------------------

    The Commission recognizes that additional flexibility may be
warranted in how costs incurred by an RNSA are recouped. To provide
more flexibility in the establishment and collection of reasonable fees
by RNSAs, the final rule has been amended from the proposed rule to
remove the requirement that fees only be collected ``from each person
who provides any data set forth in paragraphs (b) through (e) of this
section directly to the RNSA.'' \636\ The final rule provides that an
RNSA may ``establish and collect reasonable fees, pursuant to rules
that are promulgated pursuant to section 19(b) and Rule 19b-4 of the
Exchange Act.'' \637\ These changes from the proposed rule will provide
RNSAs with greater flexibility to structure reasonable fees, including
permitting the charging of fees to entities that use certain value-
added services, as discussed above in Part VII.K.2, when accessing the
information made publicly available by an RNSA.\638\
---------------------------------------------------------------------------

    \636\ See proposed Rule 10c-1(h).
    \637\ Final Rule 10c-1a(i).
    \638\ See supra Part VII.K.2 (discussing the removal of the
phrase ``without charge'' from proposed Rule 10c-1(g)(3) concerning
the requirements for RNSAs to make certain information available to
the public).
---------------------------------------------------------------------------

4. Data Security--Rule 10c-1a(h)(4)
Proposed Rule
    The Commission proposed a requirement that RNSAs establish,
maintain, and enforce reasonably designed written policies and
procedures to maintain the security and confidentiality of certain
confidential information required by the proposed rule.\639\ In the
Proposing Release the Commission stated its preliminary belief that an
RNSA needs to protect Rule 10c-1 information from intentional or
inadvertent disclosure to protect investors that provide such
information by establishing reasonably designed written policies and
procedures because the distribution of such information would identify
market participants or could reveal information about the internal
operations of market participants, which could be adverse to those
providing information to an RNSA.\640\
---------------------------------------------------------------------------

    \639\ See proposed Rule 10c-1(h)(4) (specifically including the
information collected pursuant to paragraphs (d) and (e)(3) of the
proposed rule).
    \640\ See Proposing Release, 86 FR 69820.
---------------------------------------------------------------------------

Final Rule
    For the reasons discussed above, in Part VII.F.3, the Commission is
adopting the final rule as proposed and requiring an RNSA to establish,
maintain, and enforce written policies and procedures to maintain the
confidentiality of the confidential data elements collected under the
final rule.\641\
---------------------------------------------------------------------------

    \641\ See final Rule 10c-1a(h)(4).
---------------------------------------------------------------------------

L. Data Availability to the Commission and Other Persons--Rule 10c-
1a(h)(2)

Proposed Rule
    The Commission proposed that RNSAs be required to make certain
information, including confidential information, collected pursuant to
the proposed rule available to the Commission or other persons as the
Commission may designate by order upon a demonstrated regulatory
need.\642\
---------------------------------------------------------------------------

    \642\ See proposed Rule 10c-1(g)(2) (specifically including the
information collected pursuant to paragraph (a)(2)(iii) and
paragraphs (b) through (e) of the proposed rule).
---------------------------------------------------------------------------

Final Rule
    Two commenters recommended that the final rule require RNSAs to
make collected confidential information available to SROs without
obtaining an SEC order.\643\ However, another commenter recommended
that access to such information by securities exchanges should require
a clear regulatory purpose.\644\ The Commission recognizes that other
regulators and SROs may require access to the confidential information
reported to RNSAs pursuant to final Rule 10c-1a for regulatory
purposes. However, it is appropriate to only provide such information
by order of the Commission upon a demonstrated regulatory need.\645\
Imposing this condition on access to reported information should help
ensure the security of the reported data elements, while taking into
account that other regulators may require access. For the foregoing
reasons the Commission is adopting the requirement that RNSAs make
collected information available to the

Commission, and make it available to other persons as the Commission
may designate by order upon a demonstrated regulatory need, with a
technical edit,\646\ with the relevant paragraphs renumbered to align
with the format of the final rule.\647\
---------------------------------------------------------------------------

    \643\ See NYSER Letter 2, at 2 (stating that ``[t]here may be
NYSER inquiries or investigations where securities lending
information would be important, and where time could be of the
essence''); Nasdaq Letter, at 4.
    \644\ See HMA Letter, at 11 (stating that any access by
exchanges ``must be narrowly tailored to achieve a clear, specific
regulatory purpose, and subject to significant oversight by the
Commission'').
    \645\ See Proposing Release, 86 FR 69852. See also final Rule
10c-1a(h)(2). Restrictions on the availability of reported Rule 10c-
1a information to other persons is subject to applicable law, as an
RNSA could be compelled to provide information pursuant to a court
order or other legal authority (such as a subpoena).
    \646\ The Commission is also making a technical edit to specify
that its own access to the information collected pursuant to
paragraph (b)(1)(iv) and paragraphs (c) through (e) is not limited.
Final Rule 10c-1a(h)(2) has been formatted to distinguish the
Commission's access from ``other persons as the Commission may
designate.''
    \647\ See final Rule 10c-1a(h)(2). References to the relevant
collected information in paragraphs (a)(2)(iii) and (b) through (e)
of the proposed rule have been updated to reference paragraphs
(b)(4) and (c) through (e) of the final rule.
---------------------------------------------------------------------------

M. Cross-Border Application of Rule 10c-1a

    The Commission received a number of comments about the rule's
intended cross-border application.\648\ Many of these comments
requested that the Commission provide cross-border guidance to help
promote legal certainty and competitive equity, and that in doing so
the Commission rely on existing definitions for U.S. and non-US market
participants to avoid new documentation requirements.\649\ Among other
things, these commenters requested clarification or specific guidance
as to when non-U.S. persons would be subject to the final rule \650\
and clarity as to the circumstances under which a securities loan will
be deemed to be within the U.S. market for purposes of applying
reporting requirements.\651\ Some commenters stated that because the
rule would apply broadly to ``any person'' that loans a security on
behalf of itself or another person, that could mean the rule would
apply to ``all lenders'' \652\ regardless of whether the lender loans a
U.S. security or a non-U.S. security and whether or not the lender was
a U.S. person or not.\653\ Other commenters, in contrast, warned that,
because a significant amount (up to 18 percent) of lender transactions
in the U.S. market are provided by funds outside of the U.S., the
Commission risks not capturing this considerable volume of activity if
it does not clarify cross-border scope of the final rule.\654\ Many of
these commenters raised questions about the scope of the Commission's
cross-border regulatory authority under section 10(c).\655\
---------------------------------------------------------------------------

    \648\ See, e.g., Letter from Mark A. Steffensen, Senior
Executive Vice President and General Counsel for HSBC North American
Holdings Inc. and HSBC Bank USA, N.A. (Jan. 24, 2023) (``HSBC Letter
1''), at 1-2 (expressing concern that the cross-border application
of the proposed rule is unclear and overbroad, which makes it
difficult for firms to assess the scope of the new reporting
obligations and challenging to implement internal programs,
policies, procedures to ensure compliance with the new reporting
regime. Further, an expansive cross-border application could lead to
questions regarding the Commission's authority to promulgate the
rule, and its commitment to respecting the decisions of peer EU/UK
regulators.). See also Linklaters Letter, at 2 (stating that,
``because the proposed rule would apply to `any person,' ``the scope
of the proposed rule, particularly outside the U.S., is unclear and
potentially overbroad''). The commenter, however, offered
suggestions for clarifying the proposed rule's extraterritorial
scope, including recommending that the Commission clarify that the
proposed rule ``does not apply to non-U.S. persons that do not use
any U.S. jurisdictional means in connection with a securities
lending transaction or, alternatively, exclude Canadian institutions
from the scope of the proposed rule.'' See id. To provide legal
certainty as to its cross-border application, the commenter also
suggested that the Commission should clarify that, given that it
would be promulgated under section 10(c)(1) of the Exchange Act,
final Rule 10c-1a would not apply to non-U.S. persons that do not
use any U.S. jurisdictional means to effect, accept, or facilitate a
securities lending transaction. See id. at 2-3. See also ICI Letter
1, at 7-8 (encouraging the Commission to analyze and clarify the
cross-border implications of the final rule to ensure that the final
rule does not have inappropriate cross-border reach). See also IIB
Letter, at 4-5; RMA Letter, at 17-18; Federated Hermes Letter, at 2
(agreeing with ICI's comment regarding the Commission needing to
clarify the cross-border ramifications of the final rule); EBF
Letter, at 1-2 (stating that the SEC needs to clarify the cross-
border reach of the proposed rule by following the same approach as
used for foreign broker-dealer registration, with the goal of being
able to define the precise territorial scope of the proposed rule).
    \649\ See RMA Letter, at 18.
    \650\ One commenter stated that it believed the rule should not
apply to non-U.S. persons who do not facilitate, effect, or accept
loans in the U.S. That commenter also suggested the Commission
consider taking a risk-based approach that advances the goals of
section 984 of the Dodd-Frank Act by more precisely targeting the
segment of the securities lending market that presents the greatest
risks to the U.S. financial system, by excluding certain categories
of market participants, such as Canadian Institutions. The commenter
did not further explain the parameters of their suggested approach.
See Linklaters Letter, at 3. The cross-border scope of the rule
should be focused on facilitating, effecting, or accepting loans in
the U.S. rather than the alternative approach the commenter suggests
that would exclude Canadian Institutions and thereby limit
transparency regarding loans of securities that are facilitated,
effected, or accepted in the U.S. Another commenter stated that,
despite the legislative history of section 10(c) and the
Commission's statements in the proposal, ``the intent of proposed
Rule 10c-1 was to increase transparency of securities lending
information with respect to the U.S. markets for the benefit of U.S.
brokers, dealers, and investors'' but that the reach of the rule to
all lenders is broader. See ICI Letter 1, at 7-8. See also SIFMA
Letter 1, at 19-20. See MFA Letter 3, at 6 (stating that the
Commission should ``clarify the cross-border implications of any
final securities lending reporting rule it adopts,'' and also stated
that ``it would be inappropriate to apply the Proposed Securities
Lending Rules to non-U.S. entities such as UCITS, AIFs, or other
funds that are subject to reporting under SFTR and not otherwise
subject to U.S. regulatory requirements''). See also HSBC Letter 1,
at 2 (stating that, ``[g]iven that complying with any new reporting
regime is likely to be costly and operationally complex regardless
of its ultimate scope--especially for large firms with global
operations . . . it is essential that the Commission clarify the
cross-border application and certain other aspects of each of the
proposed rules in line with the Commission's authority to promulgate
rules only where necessary and appropriate in the U.S. public
interest or for the protection of U.S. investors''). Another
commenter urged the Commission to define the jurisdictional scope of
the transactions to be reported under the final rule, including
which securities must be reported and which parties are required to
report. See FIF Letter, at 8.
    \651\ See, e.g., RMA Letter, at 17 (stating that, ``[w]ithout
such definition, non-U.S. beneficial owners and agent lenders would
be left with substantial legal uncertainty''). According to this
commenter, the ``reach of the-reporting requirements should be
limited territorially, setting explicit rules on when transactions
involving non-U.S. entities are deemed to be within scope.'' Id. See
also IHS Markit Letter, at 3 (requesting clarity regarding whether
international broker-dealers lending U.S. securities are within the
scope of the proposed rule).
    \652\ See, e.g., SIFMA AMG Letter, at 3 (urging the Commission
to ``address extraterritorial issues such as the scope of securities
(US or non-US) and lenders (US or non-US) as the present drafting
potentially addresses all securities (US and non-US) lent by US
lenders and/or all US securities lent by all lenders (US and non-
US)''). See also Pirum Letter, at 3 (stating that, as proposed, any
person that loans a security on behalf of itself or another person
has a reporting requirement yet without the rule specifying whether
it is the domicile of the person lending the security, the security
itself or a combination of both, which brings a transaction into
scope for reporting).
    \653\ See, e.g., ICI Letter 1, at 7-8 (stating that the rule's
cross-border reach needs to be clarified because the proposed rule
currently applies to ``any person'' (very broad) and it is unclear
whether it could apply to non-U.S. entities). In requesting this
clarification, this commenter points out the legislative history of
section 10(c) and its focus on U.S. markets and increasing
transparency for the benefit of U.S. broker-dealers. See id.
    \654\ See ISLA Letter, at 2.
    \655\ See, e.g., MFA Letter 1, at 12 (suggesting the Commission
limit the scope of the proposed rule to U.S. securities and stating
that applying the rule to all securities irrespective of the
jurisdiction that principally regulates such offerings goes beyond
what is intended by section 10(c). According to this commenter,
Congress did not intend to capture cross-border lending activities
when it added section 10(c) to the Exchange Act, and capturing such
activities would not further the transparency goals of the proposed
rule but, instead, could inadvertently result in market participants
segregating their foreign lending activities so as to limit U.S.
assertion of jurisdiction activities).
---------------------------------------------------------------------------

    Although the Proposing Release did not propose rule text addressing
the cross-border aspects of proposed Rule 10c-1 or otherwise discuss
the rule's cross-border reach, the Commission is addressing commenters'
contentions about the Commission's cross-border authority under section
10(c) and offering general guidance as to the rule's cross-border
scope. As an initial matter, the Commission advises that final Rule
10c-1a is intended to reach the full scope of the cross-border
authority provided for by section 10(c).\656\
---------------------------------------------------------------------------

    \656\ Because final Rule 10c-1a is co-extensive with the full
cross-border authority of section 10(c), by definition, it cannot
exceed the cross-border authority that Congress afforded.
---------------------------------------------------------------------------

    Turning to the cross-border scope of section 10(c), the
Commission's understanding of that provision's cross-

border reach is based on the territorial approach that the Commission
has applied when crafting rules to implement other provisions of the
Exchange Act.\657\ Consistent with that territorial approach (which is
based on Supreme Court precedent, including Morrison v. National
Australia Bank, Ltd. and its progeny) the Commission examined the
relevant statutory provision to determine the domestic conduct that is
covered by the provision.\658\ By its terms, section 10(c) requires
reporting when, directly or indirectly, a person has ``effect[ed],
accept[ed], or facilitate[d]'' a transaction involving the loan or
borrowing of securities. Based on that language, the Commission
concludes that the relevant domestic conduct that triggers the
Commission's regulatory authority under section 10(c) is conduct within
the U.S. that comprises (in whole or in part) effecting, accepting, or
facilitating of a borrowing or lending transaction. Because the
Commission intends final Rule 10c-1a to be co-extensive with the
regulatory scope of section 10(c), the Commission is of the view that
the rule's reporting requirements will generally be triggered whenever
a covered person effects, accepts, or facilitates (in whole or in part)
in the U.S. a lending or borrowing transaction.
---------------------------------------------------------------------------

    \657\ See, e.g., Regulation SBSR--Reporting and Dissemination of
Security-Based Swap Information, Release No. 34-74244 (Feb. 11,
2015), 80 FR 14563, 14649 (Mar. 19, 2015) (discussing the
territorial approach to the cross-border application of Title VII
requirements for regulatory reporting and public dissemination of
security-based swap transactions).
    \658\ 561 U.S. 247. See, e.g., Abitron Austria GmbH v. Hetronix
Int'l, Inc, 600 U.S. 412, 418 (June 29, 2023) (stating that ``[the
Supreme Court has] repeatedly and explicitly held that courts must
`identif[y] ``the statute's `focus''' and as[k] whether the conduct
relevant to that focus occurred in United States territory'').
---------------------------------------------------------------------------

    One significant exclusion proposed by commenters concerned non-U.S.
residents. Having considered those comments, such an exclusion would
not be appropriate. Section 10(c) is focused on increasing transparency
regarding lending and borrowing transactions that are effected,
accepted, or facilitated (in whole or in part) within the U.S.
Excluding borrowing and lending transactions by non-U.S. persons when
those transactions are effected, accepted, or facilitated (in whole or
in part) within the U.S. could impact the completeness of the data,
providing less transparency and potentially resulting in U.S. market
participants receiving misleading information as a result of those
omissions. Moreover, the exclusion of non-U.S. persons suggested by the
commenters could cause competitive harm to U.S. market participants as
it would allow non-U.S. persons engaging in the same activities as U.S.
persons to benefit from the transparency about the U.S. securities
lending market provided by final Rule 10c-1a without contributing to
that transparency. For these reasons, the Commission declines to adopt
such an exclusion.
    Commenters suggested several other exclusions from final Rule 10c-
1a that the Commission has also decided not to adopt, including that
the final rule should apply only to loans of U.S.-exchange traded
securities offered by a U.S. lender.\659\ One commenter stated ``that
market participants--particularly those outside of the United States--
might determine to limit or cease trading or interacting with U.S.
intermediaries, or leave the U.S. markets altogether'' in order to
prevent public disclosure of their transactions.\660\ Another commenter
stated that capturing such activities would not further the
transparency goals of the rule but, instead, could inadvertently result
in market participants segregating their foreign lending activities so
as to avoid reporting under final Rule 10c-1a.\661\ Other commenters
suggested that final Rule 10c-1a should apply only to loans of
securities in which: (1) the country of issue and primary trading
market of the securities is the U.S., and (2) the beneficial owner/
lender or Lending Agent is a U.S. person.\662\ Having considered these
comments, as a policy matter, it is not appropriate to exclude any of
these categories of lending transactions. Each of these types of
transactions could have a potential direct impact upon U.S. markets and
U.S. market participants and, thus, consistent with the breadth of the
cross-border scope of section 10(c) it is appropriate to retain these
categories of transactions within the rule's reporting requirements so
as to enhance overall transparency in the U.S. securities market.\663\
---------------------------------------------------------------------------

    \659\ See, e.g., HSBC Letter 1, at 3; Mark A. Steffensen, Senior
Executive Vice President and General Counsel, HSBC Bank USA, N.A.
(Feb. 5, 2023) (``HSBC Letter 2''), at 1-2; SIFMA Letter 1, at 4;
SIFMA Letter 2, at 3; see also MFA Letter 1, at 12; MFA Letter 3, at
12.
    \660\ HSBC Letter 1, at 5. But see HSBC Letter 2, at 1 (stating,
in response to a question regarding whether the rule should be
limited to U.S. lenders that the commenter ``would expect the depth
and liquidity of the U.S. market to act as a disincentive for U.S.
asset managers to avoid U.S. lenders altogether, and [the commenter]
cannot envision any incentive for U.S. asset managers to prefer non-
U.S. lenders that are themselves subject to similar reporting
requirements in their home jurisdictions'').
    \661\ See MFA Letter 1, at 12. The commenter stated that
applying the rule to all securities irrespective of the jurisdiction
that principally regulates such offerings goes beyond what is
intended by section 10(c), but for the reasons already discussed the
Commission does not agree.
    \662\ See SIFMA Letter 1, at 19-20 (stating that proposed Rule
10c-1 should ``apply only to loans of securities where (i) the
country of issue and primary trading market of the securities are
the U.S. and (ii) the beneficial owner lender or lending agent is a
U.S. person''). See also FIF Letter, at 8.
    \663\ The Commission acknowledges some market participants may
seek to restructure their activities to avoid reporting, but on
balance it is appropriate that the rule operate within the full
scope of the cross-border authority that Congress established when
it adopted section 10(c).
---------------------------------------------------------------------------

    Finally, some commenters asked the Commission to consider the issue
of potential overlap with the SFTR that is already implemented in the
EU and UK.\664\ These commenters stated that the SFTR uses the domicile
of the transacting entities (i.e., both the lender and the borrower) to
determine which entity has the reporting obligation and expressed
concern about potential adverse impacts from regulatory overlap with
Rule 10c-1a to the extent it covers non-U.S. persons.\665\ One
commenter suggested that the Commission, at a minimum, include a carve-
out from proposed Rule 10c-1 (or allow for substituted compliance with
respect to the rule) for loans by EU or UK lenders that are subject to
reporting under the EU or UK SFTR.\666\ The Commission acknowledges
that there will be some overlap with the SFTR, however, the overlap
that may occur with respect to entities established in the EU or UK (or
to the EU or UK branch of a non-EU/UK entity) is not sufficient to
warrant an exclusion. To the extent transactions are subject to both
the EU or UK SFTR reporting rules and Rule 10c-1a, this overlap will be
due to the occurrence

within the U.S. of the relevant domestic activities as specified by
section 10(c). For the reasons discussed above, related to transparency
and competition within the U.S. market, Rule 10c-1a will apply to those
transactions notwithstanding any potential overlap and resulting
adverse impacts.
---------------------------------------------------------------------------

    \664\ See, e.g., BlackRock Letter, at 3 (stating that, when
determining scope, the SEC should look to avoid overlap or
duplication with SFTR reporting in Europe and encouraging the SEC to
minimize the number of individual loans required to be reported
under both regimes); IIB Letter, at 5 (expressing the concern that
the SEC should provide clear guidelines, as well as follow the
registered broker-dealer registration model).
    \665\ See Pirum Letter, at 3; Fidelity Letter, at 4 (expressing
the concern that the Commission does not address whether the
proposed rule is intended to require the reporting of loans of non-
U.S. securities and recommending that the final rule not require the
reporting of loans of non-U.S. securities as such loans are already
subject to reporting under the EU's SFTR); See Regulation (EU) 2015/
2365 of the European Parliament and of the Council of 25 Nov. 2015
on transparency of securities financing transactions and of reuse
and amending Regulation (EU) No 648/2012; see also ICI Letter 1, at
12-13 (expressing concern regarding the apparent broad reach of the
rule and how it potentially could apply to non-U.S. entities,
including those entities already subject to SFTR's reporting regime
and citing Article 4 of (EU) 2015/2365, available at https://www.esma.europa.eu/policy-activities/post-trading/sftr-reporting).
See also CASLA Letter, at 3 (stating that the SEC should clarify if
the domicile of the underlying client/agent lender would apply from
territorial approach scope perspective).
    \666\ See HSBC Letter 2, at 1.
---------------------------------------------------------------------------

N. Additional Comments

    One commenter stated that the Commission has already exhausted its
rulemaking authority under section 984(b) of the Dodd-Frank Act, that
the authority to promulgate rulemaking has expired, and that the
Commission is seeking to regulate transactions outside the scope of the
intended Congressional authority.\667\ Section 984(a) of the Dodd-Frank
Act, codified in section 10(c)(1) of the Exchange Act, has no deadline
for Commission action. Although, section 984(b) includes such a date,
the ``[p]assage of the statutory action deadline does not deprive the
agency of the power to act.'' \668\ Section 984(b) of the Dodd-Frank
Act provides that the Commission shall promulgate ``rules'' and does
not limit the number of any such rules. The Commission did not
``exhaust'' its authority under sections 984(a) and (b) by adopting the
Investment Company Reporting Modernization rules.\669\
---------------------------------------------------------------------------

    \667\ See Citadel Letter, at 12-14.
    \668\ Hickman and Pierce. Administrative Law Treatise Section
4.9 (6th Edition, 2023-1 Cum. Supp. 2018). When are Agencies
Required to Act by Rule? (citing Brock v. Pierce County, 476 U.S.
253 (1986); Southwestern Bell Telephone Co. v. Federal
Communications Commission, 138 F.3d 746 (8th Cir. 1998).
    \669\ Investment Company Reporting Modernization, Release No.
34-79095 (Oct. 13, 2016) 81 FR 81870, 81887-88 n.192 (Nov. 18,
2016).
---------------------------------------------------------------------------

    The commenter also stated that, by ``linking'' securities loan
transactions entered into in order to fulfill delivery obligations
arising from customer short sales,\670\ the Commission would be
exceeding the scope of its rulemaking authority.\671\ With regard to
authority, section 10(c)(1) of the Exchange Act confers the Commission
with plenary authority over both short sales and the loan or borrowing
of securities, with a limited exception to authority over securities
loans related to the safety and soundness or systemic risk of certain
financial institutions such as banks and credit unions.\672\ A loan of
a security may be used for short sales or other purposes, and the use
of a securities loan to facilitate a short sale is separate and
distinct from the short sale itself. While it is possible that some
persons may seek out short sale information through securities lending
information that will be provided under this rule, the modifications
made from the proposed rule, in particular delaying the publication of
the amount of the loan, should make it more difficult for such persons
to succeed at such efforts, thereby addressing the potential negative
consequences of such ``linking'' of securities loan information to
short sale information (e.g., short sellers seeking to use securities
lending information to alter their short selling strategies, thereby
potentially reducing liquidity and harming investors) raised by the
commenter.
---------------------------------------------------------------------------

    \670\ See Citadel Letter, at 13.
    \671\ See Citadel Letter, at 14.
    \672\ See 15 U.S.C. 240.78j(c) (section 10(c)(1) of the Exchange
Act).
---------------------------------------------------------------------------

    Some commenters urged the Commission to take additional or
different regulatory and non-regulatory actions than the approaches
that were proposed, including actions that the Commission did not
propose. These suggestions covered a variety of areas, including:
notifications to retail investors; \673\ securities lending transaction
terms; \674\ other SEC regulations; \675\ SEC enforcement actions and
penalty provisions; \676\ studies, audits, and roundtables; \677\
reporting technologies; \678\ broker-dealer revenue; \679\ and ``onward
lending.'' \680\ These issues are outside the scope of the proposal,
and the final amendments appropriately further the Commission's
objectives of promoting investor protection, enhancing market
efficiency, and facilitating capital formation by implementing the
requirements of section 984(b) of the Dodd-Frank Act and enhancing the
transparency of securities lending and borrowing.
---------------------------------------------------------------------------

    \673\ See, e.g., Form Letters A and B; Trimbath Letter; Letter
from Adam Rensel (Aug. 16, 2022); Letter from Kevin Hagemann (Aug.
16, 2022); Letter from Sam Wood (Sept. 1, 2022).
    \674\ See, e.g., Trimbath Letter; Form Letters A and B.
    \675\ See, e.g., Letter from Marc Pecnik (Dec. 6, 2022); Letter
from A K Tran, MD, Ph.D. (Nov. 26, 2021); Letter from Christian
Bashnick (Aug. 16, 2022); Letter from Doyoung Park (Aug. 16, 2022);
Letter from Dakota Glassburn (Aug. 16, 2022); Form Letter from
Brandon Gallagher, et al. (Aug. 16, 2022); Letter from Adrian
Convery (Aug. 16, 2022); Letter from Antonio Franco (Aug. 16, 2022);
Letter from Cam Johnson (Aug. 16, 2022); Letter from Patrick
Barragan (Aug. 16, 2022); Letter from M. A. Uit den Boogaard (Aug.
16, 2022); Letter from Fulton (Aug. 16, 2022).
    \676\ See, e.g., Letter from DWK (Oct. 8, 2022); Letter from
Curtis Higgins (Mar. 2, 2022); Letter from Enrique Deaguila (Oct.
29, 2022); Letter from Matt Hyland (Feb. 19, 2022); Letter from Ryan
Deolall (Oct. 30, 2022); Letter from Dave Cazza (Aug. 15, 2023).
    \677\ See, e.g., Letter from Edmon Blount, Founder and Director
Emeritus, Center for the Study of Financial Market Evolution (Dec.
15, 2021) (``CSFME Letter 1''), at 6; Letter from Edmon Blount,
Founder and Director Emeritus, Center for the Study of Financial
Market Evolution (Apr. 26, 2022) (``CSFME Letter 4''), at 1; Letter
from Edmon Blount, Founder and Director Emeritus, Center for the
Study of Financial Market Evolution (Nov. 1, 2022) (``CSFMA Letter
5''); see also Letters from Dr. Radek Stech, CEO, Global Principles
for Sustainable Securities Lending (Global PSSL) and Senior
Lecturer, University of Exeter Law School (Jan. 7, 2022, Apr. 7,
2022, and Nov. 1, 2022); ISLA Letter, at 2-3.
    \678\ See, e.g., Letter from David S. Schwartz, Managing
Director, Center for the Study of Financial Market Evolution (Mar.
17, 2022) (``CSFME Letter 3''), at 1-2; Advanced Securities
Consulting Letter, at 1-3; Letter from Matthew Cohen, Provable
Markets (Jan. 7, 2002); Data Boiler Technologies Letter LLC; Letter
from Alan Konevsky, interim Chief Executive Officer and Chief Legal
Officer, tZERO (Jan. 7, 2022); Letter from Dan Liefwalker (Dec. 17,
2021); Letter from Jordan Cox (Jan. 4, 2022); Letter from Samuel
Hudock (Mar. 10, 2022); Letter from Enzo Villani (Jan. 19, 2022).
    \679\ See, e.g., Trimbath Letter, at 1-2.
    \680\ See, e.g., Form Letters A and B; Trimbath Letter; Letter
from Julian Young (Aug. 16, 2022); Letter from Helmut Herglotz (Oct.
31, 2022); Letter from Juan Camarena (Oct. 30, 2022).
---------------------------------------------------------------------------

VIII. Compliance Date

    The Proposing Release did not include a specific proposed
compliance date for the final rule, but commenters expressed a range of
views on the length and structure of an implementation period.\681\
---------------------------------------------------------------------------

    \681\ With respect to the compliance period, several commenters
requested the Commission to consider interactions between the
proposed rule and other recent Commission rules. In determining
compliance periods, the Commission considers the benefits of the
rules as well as the costs of delayed compliance periods and
potential overlapping compliance periods. For the reasons discussed
throughout this release, to the extent that there are costs from
overlapping compliance periods, the benefits of the rule justify
such costs. See infra Part IX.B for a discussion of the interactions
of the final rule with certain other Commission rules.
---------------------------------------------------------------------------

    The Commission received several comments recommending an
implementation period that runs from the time that technical
specifications are published by an RNSA.\682\ One commenter proposed an
``initial compliance period of at least 18 months to develop necessary
systems and otherwise prepare for compliance.'' \683\ Another commenter
proposed a period of ``at least 18 months after publication of
technical specifications by the registered national securities
association to come into compliance with the new

requirements.'' \684\ Another commenter recommended that the Commission
``provide a minimum two-year implementation period'' for the final
rule.\685\ One commenter stated that ample time should be provided for
covered persons to develop ``procedures and protocols and properly
train their compliance and trading personnel before subjecting them to
additional regulation.'' \686\ However, other commenters encouraged the
Commission to expedite the adoption of the final rule.\687\
---------------------------------------------------------------------------

    \682\ See FIF Letter, at 2; BlackRock Letter, at 9 (recommending
a timeline that allows persons that make covered securities loans to
establish internal reporting regimes ``after the designated RNSA has
completed their technology database and requisite testing''); EBF
Letter, at 2 (recommending a period of ``at least 18 months after
publication of technical specifications by the [RNSA] to come into
compliance with the new requirements''); SIFMA Letter 1, at 20
(recommending ``that market participants . . . be given a minimum of
18 months following the RNSA's finalization of the technical
specifications for reporting''). See also ASA Letter, at 2 (stating
that ``[v]endors would need time to modify and upgrade their
technology systems to comply with any new standards'').
    \683\ See IIB Letter, at 3.
    \684\ See EBF Letter, at 2.
    \685\ See Fidelity Letter, at 2. The commenter also recommended
that ``[t]he Commission should also provide necessary guidance to
market participants on the final rule a full year in advance of the
implementation date.'' An RNSA may elect to provide updates as it
develops its rules for compliance with final Rule 10c-1a. As
discussed below in this part, the compliance date for covered
persons, referred to throughout this release as the ``reporting
date'', will be the first business day 24 months after the effective
date of final Rule 10c-1a. See also Nasdaq Letter, at 2 (stating
that ``a two-year implementation period would provide adequate time
for market participants to comply with the Proposal'').
    \686\ See S3 Partners Letter, at 5.
    \687\ See HMA Letter, at 1 (stating that the Commission should
``revise and adopt the Proposal without delay''); Better Markets
Letter, at 1 (recommending that the Commission ``finalize this long-
overdue, mandatory rulemaking without delay or dilution'').
---------------------------------------------------------------------------

    Certain commenters requested a phased approach to implementation,
including a recommendation that the implementation of the final rule
begin only with loans of U.S. equity securities.\688\ Other commenters
recommended initially reporting only securities listed or traded on a
U.S. exchange and reporting other U.S. equity securities or debt
securities after further study.\689\ Other commenters recommended
deferring public dissemination of data to allow the Commission to gain
experience with the data.\690\ Similarly, one commenter supported ``an
approach to implementation that requires confidential reporting for
regulatory purposes to give the SEC experience with the data to refine
it as necessary to ensure it serves its purpose. Any further stages
that would require public dissemination of the data should only be
considered following additional economic analysis and public
consultation.'' \691\
---------------------------------------------------------------------------

    \688\ See, e.g., BlackRock Letter, at 3; ICI Letter 1, at 7;
Federated Hermes Letter, at 2; AIMA Letter, at 5; MFA Letter 3, at
6; SIFMA AMG Letter, at 11 (recommending that ``[o]nce the SEC and
the RNSA become familiar with the data they are receiving and can
assess the data's potential utility to the market, the SEC could
then propose rules on making data available to the public''); ABA
Letter, at 4 (``The SEC should limit covered securities lending
transactions, at least during the initial stages of reporting, to
National Market System equity securities and not include fixed-
income securities, such as government securities.''); S3 Partners
Letter, at 15 (recommending ``that the Commission phase-in
implementation in a manner consistent with best practices in
technology and policy implementation'').
    \689\ See CASLA Letter, at 2; RMA Letter, at 15-17. See also
SBAI Letter, at 2; MFA Letter 3, at 6.
    \690\ See CASLA Letter, at 2; RMA Letter, at 17; MFA Letter 3,
at 7.
    \691\ See Letter from Members of the U.S. House of
Representatives Alma S. Adams, Ph.D., Frank D. Lucas, Madeleine
Dean, Bill Huizenga, Bill Foster, Blaine Luetkemeyer, Vicente
Gonzalez, Ann Wagner, Josh Gottheimer, Andy Barr, Al Lawson, French
Hill, David Scott, Tom Emmer, and Bryan Steil (Nov. 22, 2022), at 2.
See also Letter from Representative Lucas, et al., at 1; MFA Letter
3, at 8.
---------------------------------------------------------------------------

    Another commenter recommended that ``[a]ny proposed timeline should
carefully consider the universe of entities required to report
transactions for the first time.'' \692\ The Commission recognizes that
covered persons may have differing degrees of expertise and familiarity
with existing RNSA reporting systems, and that lacking such familiarity
could increase the time needed to prepare for compliance with final
Rule 10c-1a's requirements. However, the Commission also recognizes
that the final rule permits the use of reporting agents, as well as
other third party vendor service providers, either of which could help
facilitate preparation for fulfillment of the final rule's reporting
requirements by less experienced covered persons. For example, some
commenters stated that existing third party vendors have experience and
technological capacity to be able to provide reporting-related services
(e.g., data vendors and entities that report information for other
regulatory purposes).\693\
---------------------------------------------------------------------------

    \692\ See BlackRock Letter, at 7-8.
    \693\ See S3 Partners Letter, at 12; Sharegain Letter, at 2; IIB
Letter, at 10.
---------------------------------------------------------------------------

    Another commenter proposed means of expediting the implementation
of the final rule, including initially: (1) applying it to only larger
market participants; (2) requiring only certain data elements; and (3)
not enforcing it for several years.\694\ However, limiting the
reporting of Rule 10c-1a information (i.e. to larger market
participants or only requiring certain data elements) would provide the
public with a narrow and incomplete view of the securities lending
market activity.\695\ Similarly, not enforcing the rule for several
years could incentivize non-reporting and skew the reported data to
disproportionally represent market participants that voluntarily
report.
---------------------------------------------------------------------------

    \694\ See James J. Angel Letter, at 10.
    \695\ See Proposing Release, 86 FR 69807 (stating that
``available data are incomplete, as private vendors do not have
access to pricing information that reflects all transactions. This,
in part, reflects the voluntary submission of transaction
information by subscribers to vendors''); id. at 69807 (stating that
``participation in the give-to-get data product is purely voluntary,
meaning that the data could be missing observations in a systematic
fashion, thus biasing the impression it creates of the lending
market'').
---------------------------------------------------------------------------

    Taking into consideration commenters' wide-ranging recommendations,
the following compliance dates strike an appropriate balance between
making securities loan information publicly available and providing
adequate time for industry participants to come into compliance.
Specifically, the final rule's compliance dates require that: (1) an
RNSA propose rules pursuant to final Rule 10c-1a(f) within four months
of the effective date of final Rule 10c-1a; (2) the proposed RNSA rules
are effective no later than 12 months after the effective date of final
Rule 10c-1a; (3) covered persons report Rule 10c-1a information to an
RNSA starting on the first business day 24 months after the effective
date of final Rule 10c-1a (the ``reporting date''); and (4) RNSAs
publicly report Rule 10c-1a information pursuant to final Rules 10c-
1a(g) and (h)(3) within 90 calendar days of the reporting date for
covered persons to report Rule 10c-1a information to an RNSA.
Additionally, upon the reporting date requiring covered persons to
report Rule 10c-1a information to an RNSA, RNSAs are required to
fulfill the data retention and availability requirements--including
relevant information security policies and procedures--pursuant to
paragraphs (h)(1), (h)(2), and (h)(4), and may establish and collect
reasonable fees pursuant to paragraph (i) of final Rule 10c-1a.
    This approach to the final rule's compliance dates balances the
Commission's goal of increasing transparency in the securities lending
market with providing RNSAs and market participants with adequate time
to implement systems and processes to comply with the final rule's
reporting requirements. The Commission has also taken into
consideration that the technology to collect and disseminate Rule 10c-
1a information already exists. Specifically, FINRA, which is currently
the only RNSA, already operates facilities that collect and disseminate
transaction information, including TRACE.\696\ FINRA's extensive
experience in developing and operating such facilities will enable it
to design and propose rules regarding the format and manner of its
collection of

information within four months following the effective date of the
final rule. Additionally, requiring that RNSA rules are effective no
later than 12 months after the effective date of final Rule 10c-1a will
help to ensure that information improving the transparency of the
securities lending market is made available to the public without
unnecessary delay.
---------------------------------------------------------------------------

    \696\ See FINRA Letter, at 2 (stating that ``FINRA has extensive
experience establishing and maintaining systems that are designed to
capture and disseminate transaction information--similar to the
system contemplated by the Commission under the Proposal'').
---------------------------------------------------------------------------

    A reporting date for covered persons of 24 months after the
effective date of final Rule 10c-1a is sufficient for covered persons
(and eligible reporting agents) to prepare for compliance with the
final rule's reporting requirements. Two commenters recommended an
implementation period of two years,\697\ and another commenter
recommended a compliance period of at least 18 months.\698\ One
commenter's proposed implementation period of eighteen months after
publication of technical specifications by an RNSA could provide more
or less implementation time to covered persons than the final rule
does. Depending on when an RNSA adopts rules pursuant to final Rule
10c-1a(f), covered persons could potentially have more than 12 months
to begin reporting Rule 10c-1a information, including more than the 18
months the commenter recommends. Further, the final rule has been
modified to reduce certain burdens, such as requiring end-of-day
reporting rather than reporting in 15-minute increments, and removal of
the available to lend and securities on loan requirements, which should
reduce the amount of time required to prepare for compliance. As stated
above, in this part, the reporting date for covered persons strikes a
balance between making securities loan information publicly available
and providing industry participants with sufficient time to come into
compliance. Covered persons' permitted reliance on reporting agents and
ability to use third party vendors \699\ to help facilitate the
fulfillment of reporting obligations will allow for the outsourcing of
certain functions to prepare for and comply with the final rule's
requirements.
---------------------------------------------------------------------------

    \697\ See Fidelity Letter, at 2 (recommending that the
``Commission should provide a two-year implementation period for any
final rulemaking on the Proposal''); Nasdaq Letter, at 2 (``a two-
year implementation period would provide adequate time for market
participants to comply with the Proposal'').
    \698\ See IIB Letter, at 3 (recommending that the ``SEC should
provide reporting entities an initial compliance period of at least
18 months to develop necessary systems and otherwise prepare for
compliance with the requirements of the rule'').
    \699\ Numerous commenters have mentioned their experience in the
market for reporting services. See, e.g., IHS Markit Letter, at 1;
Pirum Letter, at 1; DTCC Letter, at 4; Sharegain Letter, at 2. See
also Equilend Letter, at 1 (stating that it ``welcomes the
opportunity to act as a reporting agent for the Proposed Rule'').
---------------------------------------------------------------------------

    A compliance date that requires RNSAs to publicly report Rule 10c-
1a information within 90 calendar days of the reporting date for
covered persons reporting Rule 10c-1a information to an RNSA will help
ensure the utility of such data once it is made publicly available.
Providing RNSAs with up to 90 calendar days between covered persons
being required to publicly report Rule 10c-1a information and RNSAs
being required to make such information available to the public
pursuant to final Rules 10c-1a(g) and (h)(3) will help RNSAs resolve
any initial issues with collecting, aggregating, and publishing Rule
10c-1a information following the reporting date for covered persons.
Additionally, upon the reporting date for covered persons an RNSA is
required to fulfill the data retention and availability requirements--
including relevant information security policies and procedures--
pursuant to paragraphs (h)(1), (h)(2), and (h)(4), and may establish
and collect reasonable fees pursuant to paragraph (i) of final Rule
10c-1a.

IX. Economic Analysis

A. Introduction and Market Failure

1. Introduction
    The Commission has considered the economic effects of final Rule
10c-1a and, wherever possible, the Commission has quantified the likely
economic effects of the final rule.\700\ The Commission is providing
both a qualitative assessment and quantified estimates of the potential
economic effects of the final rule where feasible. The Commission has
incorporated data and other information to assist it in the analysis of
the economic effects of the final rule. However, as explained in more
detail below, because the Commission does not have, and in certain
cases does not believe it can reasonably obtain, data that may inform
the Commission on certain economic effects, the Commission is unable to
quantify certain economic effects.\701\ Further, even in cases where
the Commission has some data, quantification is not practicable due to
the number and type of assumptions necessary to quantify certain
economic effects, which render any such quantification unreliable. Our
inability to quantify certain costs, benefits, and effects does not
imply that such costs, benefits, or effects are less significant.
---------------------------------------------------------------------------

    \700\ Section 3(f) of the Exchange Act requires the Commission,
whenever it engages in rulemaking and is required to consider or
determine whether an action is necessary or appropriate in the
public interest, to consider, in addition to the protection of
investors, whether the action would promote efficiency, competition,
and capital formation. Additionally, section 23(a)(2) of the
Exchange Act requires the Commission, when making rules under the
Exchange Act, to consider the impact such rules would have on
competition. Section 23(a)(2) of the Exchange Act prohibits the
Commission from adopting any rule that would impose a burden on
competition not necessary or appropriate in furtherance of the
purposes of the Exchange Act.
    \701\ For example, while the Commission believes that certain
currently available securities lending data products may be biased
due to missing observations, the extent of the biases cannot be
quantified as the data that would be needed to assess the extent of
the bias are missing. See infra note 759 and corresponding text for
further discussion.
---------------------------------------------------------------------------

    Commenters raised a number of concerns with the analyses and
conclusions in the Proposing Release. The Commission reviewed all of
the comments received and, in a few instances, have modified the
subsequent economic analysis in response to additional information
provided by commenters. We have also conducted analyses of changes to
the proposed rule text.
    The Commission believes that the final rule will increase
transparency in the securities lending market by making available the
public portion of Rule 10c-1a information, which is more comprehensive
than existing data, and by making such data available to a wider range
of market participants and other interested persons than currently are
able to access existing data.
    The subsequent benefits include a reduction of the information
disadvantage faced by end borrowers and beneficial owners in the
securities lending market, improved price discovery in the securities
lending market, increased competition among providers of securities
lending analytics services, reduced costs associated with tracking
market conditions for broker-dealers and lending programs, and improved
decision-making by investors, beneficial owners and other market
participants.\702\ The Commission believes that final Rule 10c-1a will
also likely reduce the borrowing costs of some securities,\703\ which
will improve price discovery, liquidity, and capital formation in the
underlying security markets. The Commission also believes the final
rule will benefit investors by increasing the ability of regulators to
surveil, study, and provide oversight of

both the securities lending market and individual market participants.
---------------------------------------------------------------------------

    \702\ See infra Part IX.C.1 for further discussion of the
expected benefits of final Rule 10c-1a.
    \703\ See infra Part IX.C.1 for further discussion of the
expected effects of final Rule 10c-1a on short selling. See infra
note 853 and corresponding text for further discussion of why the
effects discussed above are likely to be concentrated among stocks
that have higher borrowing costs.
---------------------------------------------------------------------------

    The Commission believes that the final Rule 10c-1a will result in
costs. The final rule will lead to direct compliance costs as entities
providing Rule 10c-1a information to an RNSA will have to build or
adjust systems to meet the requirements of the final rule. The entities
that provide Rule 10c-1a information to an RNSA may absorb these costs
in the form of lower profits or may pass them on to their customers in
the form of increased fees for broker-dealer services or lending
program services. The final rule will also impose direct costs on an
RNSA responsible for collecting, maintaining, and distributing the
data, who may pass on these costs by imposing fees on entities that
provide Rule 10c-1a information to an RNSA and/or consumers of Rule
10c-1a data (``Rule 10c-1a data''). Additionally, the Commission
believes that the final rule could render existing securities lending
data services less valuable, potentially leading to less revenue for
the firms currently compiling and distributing these data for a
fee.\704\ Also, broker-dealers and lending programs will have costs in
the form of lost information advantage when dealing with beneficial
owners and end borrowers in the securities lending market. For
securities lending data that are currently not reported, or to which
access is limited, making the data public may affect the profitability
of certain trading strategies as investors use the data to learn about
market sentiment and adjust their trading strategies accordingly.
---------------------------------------------------------------------------

    \704\ See supra Part IX.D.2 discussing why existing data
providers may retain certain advantages in the market for securities
lending data and analytics.
---------------------------------------------------------------------------

2. Market Failures
    In the securities lending market, the cost to borrow a given
security depends on a number of factors, including the current demand
for the security, the length of the loan, and the type and amount of
collateral used, among others.\705\ Information about loan prices along
with information about loan characteristics helps inform market
participants about whether the price of a given securities loan is
consistent with the current market rate. At the same time, the
securities lending market is characterized by information frictions
that stem from the fact that access to timely securities lending data
is limited for some market participants.\706\ This means that, at any
point in time, there is incomplete information on market conditions and
some market participants have better information than others on
borrowing costs and transactions. Such incomplete information and
asymmetric information may lead to inefficient prices for securities
loans (including loans of equity securities and fixed income
securities).\707\
---------------------------------------------------------------------------

    \705\ See infra note 723 and corresponding text for a discussion
of factors that could be important drivers of borrowing costs.
    \706\ See infra Part IX.B.2 for further discussion of the
current state of transparency in the securities lending market. In
response to commenters, the Baseline has been expanded to include a
more robust discussion of data products that are currently available
from commercial data vendors. See infra Part IX.B.5 for additional
discussion.
    \707\ The Commission believes that the issues discussed in this
part regarding a need for additional market transparency apply to
all reportable securities, though, as pointed out by commenters
(see, e.g., RMA Letter, at 16 and IIB Letter, at 6) and discussed
below in Part IX.B.2, the market for securities lending may
currently be more transparent for some reportable securities as
compared to others. The Commission recognizes that, to the extent
that crypto asset securities qualify as reportable securities under
final Rule 10c-1a(j)(3), the benefits and costs of the final Rule
10c-1a in the market for crypto asset security lending may vary
based on the characteristics of that market. The Commission is
unable to describe the lending market in reportable crypto asset
securities, however, in part because there is insufficient reporting
of crypto asset security transactions to the CAT, TRACE, or RTRS to
allow for meaningful analysis.
---------------------------------------------------------------------------

    There is a general lack of comprehensive information on current
market conditions in the securities lending market. Most providers of
commercial securities lending data currently focus on loans from
lending programs to broker-dealers (``Wholesale'' loans) \708\ and
largely use a ``give-to-get'' model, where entities who wish to obtain
securities lending data are typically required to: (1) be participants
in the Wholesale lending market themselves, with data that they could
provide, and (2) provide their data to the commercial vendor in order
to access the full dataset provided by the vendor. This means that only
those market participants with data to report for themselves are able
to access the data, and other market participants have a very limited
view into the Wholesale market. Furthermore, participation in give-to-
get data products is voluntary, meaning that relevant observations
could be missing from the data in a systematic fashion, thus biasing
the impression it creates of the lending market.\709\
---------------------------------------------------------------------------

    \708\ The Proposing Release defined ``Retail'' loans as those
from a broker-dealer to an end borrower, while loans from lending
programs to broker dealers constitute ``Wholesale'' loans (See
Proposing Release, 86 FR 69805, 69831). To avoid confusion with the
common use of the term ``retail'' to refer to a non-institutional
(i.e., individual) investor, this release will refer to loans from a
broker-dealer to an end borrower as ``Customer'' loans or loans in
the Customer market, and loans from a lending program to a broker-
dealer or others as ``Wholesale'' loans, or loans in the Wholesale
market. One commenter expressed concern that the Proposing Release
did not adequately address the implications of the Rule for Short
Sale Linked Activity (see Citadel Letter, at 5), by which the
commenter stated that they are referring to what the Proposing
Release calls the ``retail market'' (see Citadel Letter, at 1). The
Economic Analysis uses the terms Wholesale market and Customer
market to make clear the implications of the final rule for the
different segments of the market.
    \709\ See infra Part IX.B.2 for further discussion of the
potential for biases related to selection issues in commercial
securities lending databases.
---------------------------------------------------------------------------

    Some commenters disagreed with the Commission's assessment of the
current opacity of the securities lending market. One commenter pointed
out that there are some commercial securities lending datasets that are
available to all subscribers,\710\ and another commenter stated that
``the `give-to-get' model is not the only model for commercial data for
securities lending.'' \711\ Based on the Commission's experience, the
collection of data for these currently available commercial datasets
that are not give-to-get largely relies on surveying asset managers,
and potentially others, in the Customer segment of the market about
their borrowing experiences.\712\ To differentiate this data from the
give-to-get data, this type of dataset will be referred to going
forward as ``Customer market survey'' data.
---------------------------------------------------------------------------

    \710\ See S3 Partners Letter, at 5.
    \711\ See Citadel Letter, at 8.
    \712\ See Proposing Release, 86 FR 69832, referring to this data
by stating ``Other firms provide a different approach to securities
lending data by surveying fund managers about their borrowing
experience, such as the fees they paid to borrow, from which they
provide estimates of lending fees.'' See Antonio Garango, Short
Selling Activity and Future Returns: Evidence from FinTech Data
(Nov. 2020), at 1, 3, available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3775338 (retrieved from SSRN Elsevier
database) (``Garango 2020'').
---------------------------------------------------------------------------

    One commenter stated that ``the Commission does not explain why
[Customer market] survey data is inadequate or unavailable.'' \713\ The
Commission acknowledges that Customer market survey data may be more
widely available, as access to these datasets is generally not
restricted in terms of which entities can purchase the data. However,
the Commission believes that Customer market survey datasets are
inadequate for two reasons. First, since they rely on surveys of
borrowers in the Customer segment of the market, they lack
comprehensiveness and have limited insight into the Wholesale
market.\714\ Second, similar to the give-to-get datasets, Customer
market survey datasets may also contain biases as they rely on
voluntary submissions of data from a potentially limited subset of

market participants.\715\ As discussed above, these two types of
datasets differ in terms of the market segments that they cover, and in
terms of their accessibility.\716\
---------------------------------------------------------------------------

    \713\ See Citadel Letter, at 8.
    \714\ See supra note 708 for a definition of ``Customer'' loans.
    \715\ See infra Part IX.B.2 for further discussion of the
potential for biases related to selection issues in commercial
securities lending databases.
    \716\ See infra Part IX.B.2 for additional discussion of the
characteristics of, and differences between, customer market survey
data and give-to-get data.
---------------------------------------------------------------------------

    One commenter stated that the Commission ``has overstated the level
of opacity in the securities lending market,'' that both the number of
data vendors and the detail of their data products have increased over
time, and that market participants generally have access to one or more
securities lending datasets.\717\ However, based on the Commission's
experience, the commercial securities lending data products that are
currently available lack comprehensiveness and likely suffer from
biases.\718\ Furthermore, while some market participants could
potentially have access to multiple datasets, this would generally be
possible only for a limited set of market participants who have access
to give-to-get data, and who may find it cumbersome or costly to
combine different types of data.\719\ The Commission is not aware of
any commercially available securities lending dataset that currently
provides securities lending data as comprehensive, accessible, and
informative about all segments of the securities lending market (i.e.,
both the Wholesale market and Customer market), as the data provided by
the final rule.\720\
---------------------------------------------------------------------------

    \717\ Specifically, the commenter stated that ``the level of
detail in the data provided by data vendors has improved
drastically'' and ``the number of data vendors present in the market
has been growing,'' such that ``the vast majority of parties
involved in the lending of securities have access to at least one
securities lending data vendor, and in many cases multiple
vendors.'' See IHS Markit Letter, at 13.
    \718\ See infra Part IX.B.2 for further discussion of the biases
and lack of comprehensiveness in commercial securities lending
datasets.
    \719\ See infra notes 768 through 770 and corresponding text for
further discussion of limitations related to combining multiple
securities lending datasets.
    \720\ See infra Part IX.B.2 for an additional discussion of this
data.
---------------------------------------------------------------------------

    One commenter stated that lending agents frequently provide their
clients with benchmark reports based on market data, and that
beneficial owners currently benefit from substantial information
obtained from lending agents.\721\ However, the Commission believes
that, even if some lending agents or broker-dealers are incentivized to
provide their clients with information about the quality of their
securities lending services, it is unlikely that they have incentives
to provide information in a standardized fashion. Therefore, it is
unlikely that market participants would be able to use this information
to compare the quality of securities lending services across lending
agents or broker-dealers.
---------------------------------------------------------------------------

    \721\ See RMA Letter, at 5-6.
---------------------------------------------------------------------------

    The Commission believes that the problems of incomplete information
and information asymmetries in the securities lending market are
unlikely to be solved by market forces. Specifically, these information
problems are unlikely to be solved by the availability of commercial
securities lending data products. Firstly, there is a general a lack of
incentives to improve the accessibility of give-to-get datasets. This
is because market participants may be discouraged from contributing
their data to give-to-get datasets if these datasets are widely
available, e.g., to sophisticated investors such as hedge funds who
could use this information to learn about the other participants'
trading or hedging strategies.\722\ Therefore, for give-to-get data
vendors, restricting access is likely seen as necessary in order to
persuade market participants to contribute to the vendors' data
products, and information asymmetry would be expected to persist as a
result. Secondly, and more generally, as commercial data vendors lack
the authority to mandate the reporting of securities loans, both the
commercial data products that currently exist (both give-to-get and
Customer market survey models), as well as any new commercial data
product that could presumably emerge, can only be based on the
voluntary contribution of data. Market participants who choose not to
contribute data may so choose because they believe it is in their
interest to keep their data out of public view. This makes it unlikely
that any securities lending data vendor will be able to produce a
securities lending data product that is comprehensive and free from
biases.\723\ Thirdly, as discussed above, the information that lending
agents or broker-dealers are incentivized to provide to their clients
is unlikely to be standardized and thus useful for comparing the
quality of securities lending services across lending agents or broker-
dealers. Thus, the availability of this information would also be
unlikely to solve the problems of incomplete and asymmetric information
in the securities lending market.
---------------------------------------------------------------------------

    \722\ See infra Part IX.B.2 for further discussion of market
participants' incentives to provide data to give-to-get data
vendors.
    \723\ See infra Part IX.B.2 for further discussion of the
potential for biases related to selection issues in commercial
securities lending databases.
---------------------------------------------------------------------------

A. Economic Baseline

    The baseline against which the costs, benefits, and the effects on
efficiency, competition, and capital formation of the final rule are
measured consists of the current state of the securities lending
market, current practice as it relates to securities lending and
availability of data about securities lending, and the current
regulatory framework. The economic analysis appropriately considers
existing regulatory requirements, including recently adopted rules, as
part of its economic baseline against which the costs and benefits of
the final rule are measured.\724\
---------------------------------------------------------------------------

    \724\ See, e.g., Nasdaq v. SEC, 34 F.4th 1105, 1111-15 (D.C.
Cir. 2022). This approach also follows SEC staff guidance on
economic analysis for rulemaking. See Staff's ``Current Guidance on
Economic Analysis in SEC Rulemaking,'' (Mar. 16, 2012), available at
https://www.sec.gov/divisions/riskfin/rsfi_guidance_econ_analy_secrulemaking.pdf (``The economic
consequences of proposed rules (potential costs and benefits
including effects on efficiency, competition, and capital formation)
should be measured against a baseline, which is the best assessment
of how the world would look in the absence of the proposed
action.''); Id. at 7 (``The baseline includes both the economic
attributes of the relevant market and the existing regulatory
structure.''). The best assessment of how the world would look in
the absence of the proposed or final action typically does not
include recently proposed actions, because that would improperly
assume the adoption of those proposed actions.
---------------------------------------------------------------------------

    Several commenters requested the Commission to consider
interactions between the economic effects of the proposed rule and
other recent Commission rules.\725\ The Commission

recently adopted four of the rules mentioned by commenters as
potentially impacting the economic effects of the final Rule 10c-1a,
namely the recent Amendments to Form N-PX Adoption,\726\ the Settlement
Cycle Adoption,\727\ the May 2023 SEC Form PF Amending Release,\728\
and the Beneficial Ownership Amending Release.\729\ These recently
adopted rules were not included as part of the baseline in the
Proposing Release because they were not adopted at that time. In
response to commenters, this economic analysis considers potential
economic effects arising from the extent to which there is any overlap
between the compliance period for final Rule 10c-1a and the compliance
periods for each of these four adopted rules.\730\
---------------------------------------------------------------------------

    \725\ See, e.g., AIMA Letter 3, at 4 (``Because the . . .
Proposals have aggregate and overlapping effects, they should be
considered holistically and their potential adoption should be
appropriately sequenced . . . .''); Letter from Eric J. Pan,
President and CEO, Investment Company Institute, Aug. 17, 2023
(``ICI Letter 2''), at 1 (``The Commission has issued a wide range
of interconnected rule proposals . . . [that] in the aggregate
warrant further analysis by the Commission.''). Commenters indicated
there could be interactions between this rulemaking and the
following rules: Enhanced Reporting of Proxy Votes by Registered
Management Investment Companies; Reporting of Executive Compensation
Votes by Institutional Investment Managers, Release Nos. 34-93169,
IC-34389 (Sept. 29, 2021) 86 FR 57478 (Oct. 15, 2021) (``Amendments
to Form N-PX Proposal'') (see, e.g., HMA Letter, at 4); Short
Position and Short Activity Reporting by Institutional Investment
Managers, Release No. 34-94313 (Feb. 25, 2022) 87 FR 14950 (Mar. 16,
2022) (see, e.g., Overdahl Letter, at 14; AIMA Letter 3, at 2);
Prohibition Against Fraud, Manipulation, or Deception in Connection
With Security-Based Swaps; Prohibition Against Undue Influence Over
Chief Compliance Officers; Position Reporting of Large Security-
Based Swap Positions, Release No. 34-93784 (Dec. 15, 2021) 87 FR
6652 (Feb. 4, 2022) (see, e.g., Overdahl Letter, at 14; AIMA Letter
3, at 2; ICI Letter 2, at n. 13); Modernization of Beneficial
Ownership Reporting, Release Nos. 33-11030, 34-94211 (Feb. 10, 2022)
87 FR 13846 (Mar. 10, 2022) (see, e.g., Overdahl Letter, at 14; ICI
Letter 2, at n.13); Private Fund Advisers; Documentation of
Registered Investment Adviser Compliance Reviews, Release No. IA-
5955 (Feb. 9, 2022) 87 FR 16886 (Mar 24, 2022) (``SEC Private Fund
Advisers Proposal'') (see, e.g., Overdahl Letter, at 14); and
Amendments to Form PF to Require Event Reporting for Large Hedge
Fund Advisers and Private Equity Fund Advisers and to Amend
Reporting Requirements for Large Private Equity Fund Advisers,
Release No. IA-5950 (Jan. 26, 2022) 87 FR 9106 (Feb. 17, 2022)
(``February 2022 SEC Form PF Proposing Release'') (see Overdahl
Letter, at 14); Shortening the Securities Transaction Settlement
Cycle, Release Nos. 34-94196, IA-5957 (Feb. 9, 2022) 87 FR 10436
(Feb. 24, 2022) (see SIFMA Letter 1, at 20-21). See also Citadel
Letter, at 10 (stating that Rule 10c-1a ``must be assessed along
with the additional public disclosure contemplated in recent
Commission proposals regarding large security-based swap positions,
beneficial ownership reporting and short position and activity
reporting'').
    \726\ Enhanced Reporting of Proxy Votes by Registered Management
Investment Companies; Reporting of Executive Compensation Votes by
Institutional Investment Managers, Release Nos. 33-11131, 34-96206,
IC-34745 (Nov. 2, 2022) 87 FR 78770 (Dec. 22, 2022) (``Amendments to
Form N-PX Adoption''). The Form N-PX amendments require funds to
report publicly their proxy voting records on an annual basis, and
apply to most registered management investment companies. The
effective date is July 1, 2024.
    \727\ Settlement Cycle Adoption, supra note 738. The Settlement
Cycle amendments shorten the standard settlement cycle for most
broker-dealer transactions from two business days after the trade
date to one business day after the trade date (``T+1''). The
implementation date, May 28, 2024, will occur before the
implementation of these rules, and we therefore expect that all
reports made pursuant to this rule will occur after the
implementation of the T+1 settlement cycle. Further, because of the
need for an RNSA to develop and implement rules before reporting can
begin, we believe that the May 2024 implementation date for T+1 will
precede any significant compliance costs incurred by market
participants pursuant to this final rule.
    \728\ Form PF; Event Reporting for Large Hedge Fund Advisers and
Private Equity Fund Advisers; Requirements for Large Private Equity
Fund Adviser Reporting, Release No. IA-6297 (May 3, 2023) 88 FR
38146 (June 12, 2023) (``May 2023 SEC Form PF Amending Release'').
The Form PF amendments require large hedge fund advisers and all
private equity fund advisers to file reports upon the occurrence of
certain reporting events. The compliance dates are December 11,
2023, for the event reports in Form PF sections 5 and 6, and June
11, 2024, for the remainder of the Form PF amendments.
    \729\ Modernization of Beneficial Ownership Reporting, Release
Nos. 33-11253, 34-98704 (Oct. 10, 2023) (``Beneficial Ownership
Amending Release''). Among other things, the amendments shorten the
filing deadlines for beneficial ownership reports filed on Schedules
13D and 13G. The compliance dates are 90 days after the effective
date, for Schedule 13D amended filing deadlines; September 30, 2024,
for the Schedule 13G amended filing deadlines; and December 18,
2024, for the structured data requirement. We anticipate that the
implementation of amendments to Schedules 13D and 13G will precede
any significant compliance costs incurred by market participants
pursuant to final Rule 10c-1a.
    \730\ Since proposing this rule, the Commission adopted another
proposed rule identified by a commenter, the SEC Private Fund
Advisers Proposal. See Overdahl Letter at 14; Private Fund Advisers;
Documentation of Registered Investment Adviser Compliance Reviews,
Release No. IA-6383 (Aug. 23, 2023) 88 FR 63206 (Sep.14, 2023)
(``SEC Private Fund Advisers Adopting Release''). However, the
Commission believes there are no potential significant effects from
overlapping requirements to comply with final Rule 10c-1a.
Specifically, one of the rules from the SEC Private Fund Advisers
Adopting Release requires registered investment advisers to private
funds to, among other things, provide transparency to their
investors regarding the fees and expenses and other terms of their
relationship with private fund advisers and the performance of such
private funds. The Commission anticipates that most registered
investment advisers would either not face any reporting obligations
under final Rule 10c-1a(a) or, to the extent they are involved in
the lending of securities, would not report loans directly, but
would do so through a reporting agent. As a result, the Commission
does not anticipate the compliance costs associated with final Rule
10c-1a to be incurred directly by those who are impacted by the SEC
Private Fund Advisers Adopting Release.
---------------------------------------------------------------------------

    Other rules mentioned by commenters remain at the proposal stage.
To the extent those proposals are adopted, the baseline in those
subsequent rulemakings will reflect the regulatory landscape that is
current at that time.
1. Securities Lending
    A securities loan is typically a fully collateralized transaction
whereby the lender, also known as the beneficial owner, temporarily
transfers legal right to a security to the borrower, the counterparty,
in exchange for compensation. The form of compensation depends on the
type of collateral used to secure the transaction. There are two
general types of collateral: cash and non-cash.
    In the U.S., the most common form of collateral for equity security
loans is cash. The borrower of the security deposits collateral,
typically 102 percent or 105 percent of the current value of the asset
being loaned. The lender then reinvests this collateral, usually in
low-risk interest-bearing securities, then rebates a portion of the
interest earned back to the borrower. The difference between the
interest earned and what is rebated to the borrower is the lending fee
earned by the lender. The portion of the interest earned on the
reinvested collateral that is returned to the borrower is called the
rebate rate, and is a guaranteed amount set forth in the terms of the
loan. It is possible for the lender to lose money on the loan if the
interest earned on the reinvestment of the collateral does not exceed
the rebate rate. If the security is in high demand in the borrowing
market, the rebate rate may be negative, indicating that the borrower
does not receive any rebate and must also provide additional
compensation to the lender. In contrast, borrowers of loans that are
collateralized other than with cash typically must pay a lending fee.
The following will refer to ``cost to borrow'' or ``borrowing costs''
being higher when rebate rates are lower (or negative) in the case of
cash-collateralized loans, and lending fees are higher in the case of
non-cash-collateralized loans.\731\
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    \731\ In many datasets, rebate rates for loans collateralized by
cash are converted to fees using the conventional method of
subtracting the rebate rate from the Federal funds rate; see, e.g.,
the footnote in Table 1.
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    Borrowing costs are influenced by the current demand for the given
security, the potential difficulty a particular broker-dealer may face
finding an alternative source of loans, the length of the loan, the
collateral used, the creditworthiness of the counterparty, and the
relative bargaining power of the parties involved, among other
factors.\732\ Consequently, there is usually a significant range of
borrowing costs for loans of the same security on the same day to
different entities.\733\
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    \732\ Among other factors that can influence borrowing costs,
commenters also pointed out that the size and stability of the
lender's position (see HMA Letter, at 2), the lender's propensity to
recall the loan (see Overdahl Letter, at 6), interest rate stability
and supply concentration (see SIFMA AMG Letter, at 6), and factors
idiosyncratic to the parties, such as capital and opportunity costs
(see RMA Letter, at 6). One commenter pointed out that fees in the
Customer market can depend on additional factors, such as whether a
borrower/client has exclusive access to a lenders' portfolio, the
volume of a client's borrow business, and other prime brokerage
services being offered, among others (see MFA Letter 1, at 5).
    \733\ See infra Part IX.B.3 for statistics on the range of
borrowing costs.
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    In the Wholesale market, securities loans are most commonly
obtained through bilateral negotiations between lending programs and
broker-dealers, often with a phone call.\734\ Generally, when an end
investor wishes to borrow a share, and their broker-dealer does not
have the share available in their own inventory or through customer
margin

accounts to loan,\735\ their broker-dealer will borrow a share from a
lending agent with whom they have a relationship. Obtaining a
securities loan often involves extensive search for counterparties by
broker-dealers.\736\
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    \734\ Most broker dealers are regulated by FINRA and are subject
to securities lending rules such as FINRA Rules 4314, 4320, and
4330.
    \735\ See infra Part IX.B.4 for further discussion of the
sourcing of shares by broker-dealers for securities loans.
    \736\ See, e.g., Adam C. Kolasinski, et al., A Multiple Lender
Approach to Understanding Supply and Search in the Equity Lending
Market, 68 J. Fin. 559, 559-95 (2013) (``Kolasinski (2013)'')
(providing an examination of the effect of high search cost in the
securities lending market).
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    Investors borrow securities in the Customer market for a variety of
reasons. In the equity market, a primary reason for borrowing shares is
to facilitate a short sale. Investors use short sales to take a
directional position in a security, or to hedge an existing
position.\737\ When investors execute a short sale, they do not borrow
the shares on the day of the short sale. Rather, because the stock
market settles up to two business days after a transaction occurs
(``T+2'') and the lending market has same-day settlement, the loan
actually occurs on the settlement day.\738\
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    \737\ Market makers in the equity market also use short selling
to facilitate liquidity provision in the absence of sufficient
inventory. However, these short sales are not considered here
because they are almost always reversed intraday and thus do not
result in a securities loan.
    \738\ Equity settlement moves to T+1 on May 28, 2024; See
Shortening the Securities Transaction Settlement Cycle, Release Nos.
34-96930, IA-6239 (Feb. 15, 2023), 88 FR 13872 (Mar. 6, 2023)
(``Settlement Cycle Adoption'').
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    Options market activity can also be a source of demand for security
loans as short selling is a critical component of delta hedging. Delta
hedging occurs when options market participants, particularly options
market makers, holding directional positions hedge their inventory
exposure by taking offsetting positions in the underlying stock.\739\
Equity options markets are often significantly less liquid than the
markets for their underlying securities. Delta hedging a long call or
short put position requires short selling, which in turn requires
borrowing the underlying asset.
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    \739\ For a given option contract, a quantity known as the
``delta'' captures the sensitivity of the option's price to a $1
increase in the price of the underlying security. When hedging
inventory, the market maker determines the appropriate position size
in the underlying stock according to the delta.
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    Equity security loans can also occur to close out a fail to
deliver. Fail to delivers occur when one party of a transaction is
unable to deliver at settlement the security that they previously sold.
Fail to delivers can occur for multiple reasons.\740\ Rule 204 of
Regulation SHO generally requires a participant of a registered
clearing agency to close out any fail to deliver at the registered
clearing agency by purchasing or borrowing securities of like kind and
quantity. Thus, a broker or dealer that is required to close out a fail
to deliver can borrow shares in the lending market to comply with Rule
204 of Regulation SHO.\741\ Doing so allows more time for the
individual to source the shares or purchase them in the open market.
---------------------------------------------------------------------------

    \740\ See, e.g., Amendments to Regulation SHO, Release No. 34-
58775 (Oct. 14, 2008), 73 FR 61690 n.8 (Oct. 17, 2008).
    \741\ See 17 CFR 242.204.
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    The financial management activity of banks also drives securities
loans, particularly in the Wholesale fixed-income securities lending
market. It is the Commission's understanding that a significant
fraction of debt security loans occurs as banks manage liquidity on
their balance sheets. Securities loans help banks manage liquidity on
their balance sheets because when a security is on loan, legal claim to
the security transfers to the borrower.\742\ Thus, banks lacking
sufficient high-quality liquid assets on their balance sheet may borrow
such high-quality assets to bolster their liquidity ratios.\743\ U.S.
Treasury/Agency bonds are often lent for this purpose, and consequently
are the most commonly lent securities.\744\
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    \742\ See, e.g., Concept Release on the U.S. Proxy System,
Release No. 34-62495 (July 13, 2010), 75 FR 42982, 42994 (July 22,
2010) (``When an institution lends out its portfolio securities, all
incidents of ownership relating to the loaned securities, including
voting rights, generally transfer to the borrower for the duration
of the loan'').
    \743\ These loans are generally collateralized with securities
instead of cash. A market participant can increase the liquidity of
their portfolio by borrowing highly liquid securities and
collateralizing the loan with less liquid securities.
    \744\ See OFR Pilot Survey, at 7; supra note 136.
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    Also, the Commission understands that some financial entities may
use securities loans to obtain the type of collateral required for
other agreements they are trying to enter into. For example, if a
contract requires a certain kind of fixed income security as
collateral, a firm may borrow that security to collateralize the
contract.
    While a security is on loan, the borrower is the legal owner of the
security and receives any dividends, interest payments, and, in the
case of equity security loans, holds the voting rights associated with
the shares.\745\ Voting rights remain with the borrower until the
loaned securities are returned. Usually, the terms of the loan
stipulate that dividends and interest payments must be passed back to
the beneficial owner in the form of so-called ``substitute dividends.''
Because dividends and substitute dividends are sometimes taxed
differently, an investor for whom a substitute dividend is taxed at a
lower rate than a dividend may loan its shares to an investor for whom
dividends are taxed at a lower rate than substitute dividends.\746\
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    \745\ See, e.g., OFR Reference Guide, supra note 4.
    \746\ This is known as dividend arbitrage. While the IRS has
issued regulations to try to combat this type of dividend arbitrage,
there is evidence that it still occurs. See Peter N. Dixon, et al.,
To Own or Not to Own: Stock Loans around Dividend Payments, 140 J.
Fin. Econ 539,539-59 (2021) (``Dixon, et al., (2021)'').
---------------------------------------------------------------------------

    Several commenters pointed out additional reasons for borrowing
securities. One commenter stated that there are many reasons for
securities lending that are unrelated to short selling.\747\ Another
commenter purported that securities lending can be used to gain
influence in the voting of equity securities.\748\
---------------------------------------------------------------------------

    \747\ See IHS Markit Letter, at 3.
    \748\ See HMA Letter, at 3.
---------------------------------------------------------------------------

    However, the Commission expects that the majority of equity
securities lending, particularly in the Customer market, occurs to
facilitate short selling. Investors' ability to use securities loans
for purposes other than short selling is limited by the ``permitted
purpose requirement'' of the Board of Governors of the Federal Reserve
System's Regulation T. Regulation T broadly governs the lending
activities of broker-dealers, and specifies that a broker- dealer may
generally borrow or lend U.S. securities from or to a (non-broker-
dealer) customer solely ``for the purpose of making delivery of the
securities in the case of short sales, failure to receive securities
required to be delivered, or other similar situations,'' unless an
exemption applies.\749\ This limitation results in a close correlation
between information about aggregate Customer loan sizes and short
interest.\750\
---------------------------------------------------------------------------

    \749\ See 12 CFR 220.10(a).
    \750\ See infra Part IX.B.6 for further discussion of the
correlation between securities loan information and short interest.
---------------------------------------------------------------------------

2. Current State of Transparency in Securities Lending
    As described above, currently available securities lending data are
produced by commercial data vendors, and are based on voluntary data
contributions, either using a give-to-get model or from Customer market
surveys.\751\ Some commenters expressed their belief that the Proposing
Release did not adequately analyze the impact of Customer market survey
data.\752\ This

baseline, and the discussion following have been expanded to provide a
more detailed discussion of the Customer market survey data and its
impact on securities lending transparency. The available data have
limitations. Specifically, they lack comprehensiveness in that they are
based on voluntary data contributions. The reliance on voluntary data
contributions increases the likelihood that data are missing in a non-
random manner which can introduce biases into the data. Lastly, not all
market participants have access to all existing commercial datasets
resulting in information asymmetries between market participants.
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    \751\ See supra Part IX.A.2 for a description of these types of
datasets.
    \752\ For example, one commenter stated that, while they agree
``with the Commission's concerns regarding the inadequacy and
information asymmetry issues inherent in the give-to-get model,''
the give-to-get model is ``is not the industry standard.'' See S3
Partners Letter, at 5. Similarly, another commenter stated that
``the `give-to-get' model is not the only model for commercial data
for securities lending.'' See Citadel Letter, at 8.
---------------------------------------------------------------------------

    Some commercial data vendors obtain information on Wholesale loans
using a give-to-get model.\753\ Access to data collected using a give-
to-get model is largely restricted, as only certain entities can
purchase the data. The Commission understands entities with access to
the give-to-get Wholesale market data access that data using various
means such as an application programming interface (API), spreadsheet
add-in applications, file downloads, or directly from the distributor's
website. It is the Commission's understanding that some large
institutional investors who would like the give-to-get data, such as
hedge funds, cannot access it, even for a fee, because they do not
provide lending data to the commercial vendors and so are not qualified
to purchase the data. Additionally, distributing the data to these
investors may discourage other market participants from contributing
their data to the data vendors. Because securities loans are often
entered into to facilitate various trading and hedging strategies, if
the give-to-get data providers expanded access to their data, some
securities lending market participants may be discouraged from
contributing data. Consequently, if sophisticated traders such as hedge
funds can access the data, then some market participants may be leery
of contributing data to the give-to-get data vendors for fear of hedge
funds learning about their trading or hedging strategies. Additionally,
while some data vendors do allow non-lending market participants, such
as academics and regulators, to access the data for a fee, they
sometimes place usage restrictions on the data that make it unusable
for regulatory and some academic functions.\754\ The Commission
believes, based on conversations with industry participants and our
staff's use of some of the data, that the coverage and timeliness of
the three biggest give-to-get Wholesale data vendors are roughly
comparable.\755\
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    \753\ See supra Part IX.A.2 for a description of the give-to-get
model of data collection.
    \754\ For example, some data providers retain the right to
review and reject any use of the data at their own discretion.
    \755\ See infra note 812 for evidence of this from the academic
literature. The Commission expressed this belief in the Proposing
Release (See Proposing Release, 86 FR 69832) and specifically
requested comment regarding the baseline of the economic analysis as
well as specific comment about ``sources of insight'' into
securities lending activity (See Proposing Release, 86 FR 69849,
questions 77 and 78). The Commission did not receive comment on this
point and thus continues to believe that the data from the three
biggest give-to-get Wholesale data vendors are roughly comparable.
---------------------------------------------------------------------------

    Other commercial data vendors provide a different approach to
securities lending data by surveying asset managers and others in the
Customer segment of the market about their borrowing experience, such
as their costs to borrow, from which they provide estimates of lending
fees.\756\ One commenter stated that the Commission ``offers no reason
to believe that the [Customer market] survey and `give-to-get' data are
materially different.'' \757\ Customer market survey data have some
characteristics that make them distinct from the give-to-get data
provided by the vendors of Wholesale market data discussed above.
First, Customer market survey data vendors generally aggregate
information from respondents in the Customer market--that is, the end
borrowers that engage in securities borrowing to facilitate short
selling--and thus cover a different segment of the securities lending
market.\758\ Second, while Wholesale market data are mostly available
only on a restricted basis, Customer market survey data are generally
available to any purchaser. However, despite these differences,
Customer market survey data face a similar issue to the give-to-get
data, in that they only contain information about the subset of those
end borrowers that choose to provide data. Since it is unlikely that
the full universe of lending programs and borrowers contribute all data
to any given data vendor, the Commission believes that both give-to-get
and Customer market survey data lack comprehensiveness.
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    \756\ See Garango 2020, supra note 712.
    \757\ See Citadel Letter, at 8.
    \758\ For reasons below infra note 769, there is uncertainty
regarding the strength of the correlation between Wholesale and
Customer borrowing costs, particularly for stocks that are not hard-
to-borrow. Therefore, it is unclear whether customer survey data
could be used to glean information about the Wholesale market.
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    Furthermore, as stated in the Proposing Release and restated here,
the Commission believes that the give-to-get data are likely biased due
to non-random omissions that result from the voluntary nature of data
submissions.\759\ The Commission also believes that, since Customer
market survey data are also based on voluntary submissions, these data
also suffer from bias due to non-random omissions. As will be further
detailed below, data based on voluntary submissions can contain biases
because market participants that choose not to disclose their data
likely make that choice because it is in their strategic interest not
to disclose, resulting in non-random omissions.
---------------------------------------------------------------------------

    \759\ See Proposing Release, 86 FR 69832.
---------------------------------------------------------------------------

    One commenter stated that the Commission's statements in the
Proposing Release that give-to-get data could be systematically biased
has ``no basis beyond mere speculation.'' \760\ The Commission
disagrees. It is true that it is not possible to empirically analyze or
quantify the extent of this bias using existing data because there
currently does not exist a complete dataset with which to compare the
existing data, and comparing a biased sample to an unbiased sample is
generally the only data-based means of determining the extent of the
bias in a non-random sample. Instead, the determination that data are
likely to not contain a representative sample is routinely made in
economic studies (as well as data analysis generally) based on an
understanding of how the sample is created, which alone can be
sufficient to determine the likely validity of the sample. The fact
that non-random data omissions result in biased data is well
established in statistics and data science, and simply stems from the
logic that, if the reporting subsample is systematically different from
the population, then statistics based on the reporting sample will only
reflect the reporting sample, and will not be reflective of the whole
population.\761\
---------------------------------------------------------------------------

    \760\ See Citadel Letter, at 8. Similarly, another commenter
asked for an assessment of the current accuracy of existing data;
See S3 Partners Letter, at 4. However, neither commenter provided
any supplemental analysis challenging the assumption of non-random
omissions, nor did they provide additional insight into the nature
of any bias. Neither did either commenter provide a pathway to
overcoming obstacles related to such an empirical analysis.
    \761\ See, e.g., James J. Heckman, Selection Bias and Self-
Selection, in Econometrics, 201-224 (John Eatwell, et al., eds.,
Palgrave Macmillan, London 1990) (``Heckman (1990)'').
---------------------------------------------------------------------------

    In the context of commercial securities lending datasets, the

Commission believes that, because market participants can choose
whether or not they want to contribute data to commercial