Changes to the Parties to a Covered Securities Loan

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• Changes to the Parties to a covered Securities Loan & Omnibus Loans & Reallocations


• Changes to the Parties to a Covered Securities Loan

Changes to the Parties to a Covered Securities Loan

Status: SEC APPROVED RULES 2.1.25 Last Updated: 02 Jan 2025

As originally proposed in the Notice, Rule 6530.02 (Changes to the Parties to a Covered Securities Loan) would have provided that, with respect to a previously reported Covered Securities Loan, following the addition or removal of a party required to be identified pursuant to Rule 6530(a)(2)(O) a Covered Person must:

(1) report the termination of the previously reported Covered Securities Loan as a Loan Modification pursuant to Rule 6530(b) that reflects the date and time the party was added or removed and select the Terminated Loan indicator; and

(2) report an Initial Covered Securities Loan pursuant to Rule 6530(a) that reflects the new parties to the loan, if known (other than the customer from whom a Broker or Dealer borrows fully paid or excess margin securities pursuant to SEA Rule 15c3-3(b)(3)). Partial Amendment No. 1 removed originally proposed Rule 6530.02.

Notes and Examples:

Status: TO BE REVIEWED Last Updated: 12 Jun 2025

Reporting Agency Loans: Undisclosed and Disclosed:

• 6530.02 – Changes to the parties to a covered securities loan, including in the context of reallocating omnibus loans.

• New Loans:

1. If an agent lender / lending intermediary faces a borrower and there are 30k shares that have yet to be allocated, you would report one umbrella loan, if, at the end of that day the loan remains unallocated.

   1. Other considerations to take into account:

      1. It could depend somewhat on why the loan has not yet been allocated.

      2. This could be a theoretical scenario where you do not report this at all, EOD, since through conversation a view has been that allocation is a key part of the “facts and circumstances” of the trade.

      3. It could be assumed this example is a hypothetical situation, that perhaps you do not know your inventory, and hence you have not actually delivered the shares into DTC, if so, iyts possible that firms could argue that this is not yet reportable.

   2. Note: Typically loans are only allocated when booked in the U.S.

2. Once the allocation has taken place you then would report 10k x 3 loans if the allocation is over 3 beneficial owners.

3. You would then have to terminate the first 30k one shape of the loan as this is still at the “umbrella” unallocated level so not to duplicate reporting.

   1. Note: This is where you have only reported a pending omni loan

4. In most if not all cases all loans are typically allocated on the same day at the end of the day.  At the time the loan is booked in the lenders system. So you don’t need to really report anything during the day just wait until end of day when the allocation has been run and then report x3 10k shapes assuming there is an end of day allocation run.

5. The point of allocation is what has been referred to as – A meeting of the minds, which is only in play once the allocation has taken place, to mean, this is now a good loan and we have the allocations in place.

6. Timestamps:

   1. Need to confirm if timestamps are triggered by:

      1. When the loan is agreed with the borrower and the lender pre allocation.

      2. Around execution being time of settlement as that is truly when a loan is actual.

         1. You can make delivery and the loan not be approved on borrower RAD and therefore it would drop (get cancelled) hence the question on reporting pending loans.

         2. Other considerations to take into account:

            1. It has been indicated to FINRA that the timestamp is, in brief, the timestamp where delivery to DTC happens, because this is usually largely simultaneous with allocation.

            2. Example:

               1. If a borrower calls a lender at 9am, and the lender agrees the trade, but then waits to see their final inventory, then allocate it at 1PM, and the shares go out at 1PM, then your timestamp is 1PM not 9am. This was the general consensus the Americas group presented to FINRA.

7. The above could be an example of when the ALD undisclosed process is in play.

8. If the loans off the bat are not within the ALD (undisclosed) model, it would infer the loans are already disclosed and the underlying beneficial owners are known so could be directly booked to the asset owners / beneficial owners.

9. It is suggested for ALD (undisclosed) loans to wait until the end of the day when the allocation has run then once known report the individual allocations accordingly.

10. The above known allocation reporting approach could break down if the end of day allocation has not worked, it is then believed you have no choice but to report the one shape of 30k, report the x3 10k allocations the next day and also on the next day terminate the one shape of 30k.

    1. Other considerations to take into account:

       1. Also see point 1, as it probably depends on why it has “not worked” e.g. some type of operational error blocking an intended allocation is probably not an acceptable reason to not report.

    2. Note: It could be said that if the allocation isn’t in place, then the shares would not be delivered so no reporting of the loan.

       1. Within the U.S. there is not concept of a failing loan if the shares are not delivered the loan is cancelled and thus you start over next day.

• Reallocations post new Loans: To be confirmed by working group:

1. To be confirmed by working group: Where a borrower faces the pool / agent lending programme and where the underlying principles are undisclosed, any type of reallocation across the underlying principles are not reportable whether this be a modification and a new loan event plus a termination and new loan event. 

   1. Answer TBC:

      1. Only if the original allocated loans are modified or terminated, they become reportable? or

      2. If reporting at the allocation level then once reported any subsequent changes are also reportable?

         1. Timestamps: Would be the lending reallocated system time stamp?

2. To be confirmed by working group: Where a borrower facing the lenders directly and where the underlying principles are now disclosed, any type of reallocation across the underlying principles are reportable whether this be a modification and a new loan event plus a termination and new loan event.

   1. Timestamps: Would be the lending reallocated system time stamp?