Compliance with Reporting Obligations:

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Compliance with Reporting Obligations

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

FINRA proposed to adopt, as modified by Partial Amendment No. 1, proposed Rule 6530(c) (Compliance with Reporting Obligations) to implement provisions regarding Covered Persons’ ongoing reporting obligations and the use of third parties in meeting Exchange Act Rule 10c-1a and FINRA 6500 Rule Series obligations.

Specifically, proposed Rule 6530(c)(1) provides that Covered Persons (other than Covered Persons that engage a Reporting Agent) have an ongoing obligation to report Initial Covered Securities Loans and Loan Modifications to FINRA timely, accurately, and completely.

In addition, a Covered Person may employ an agent for the purpose of submitting loan information to SLATE; however, unless the Covered Person has retained a Reporting Agent as permitted under Exchange Act Rule 10c-1a, the primary responsibility for the timely, accurate, and complete reporting of loan information to SLATE remains the non-delegable duty of the Covered Person with the reporting obligation.

FINRA proposed to adopt, as modified by Partial Amendment No. 1, proposed Rule 6530(c) (Compliance with Reporting Obligations) to implement provisions regarding Covered Persons’ ongoing reporting obligations and the use of third parties in meeting Exchange Act Rule 10c-1a and FINRA 6500 Rule Series obligations.

Specifically, proposed Rule 6530(c)(1) provides that Covered Persons (other than Covered Persons that engage a Reporting Agent) have an ongoing obligation to report Initial Covered Securities Loans and Loan Modifications to FINRA timely, accurately, and completely.

In addition, a Covered Person may employ an agent for the purpose of submitting loan information to SLATE; however, unless the Covered Person has retained a Reporting Agent as permitted under Exchange Act Rule 10c-1a, the primary responsibility for the timely, accurate, and complete reporting of loan information to SLATE remains the non-delegable duty of the Covered Person with the reporting obligation lending reporting requirements of Rule 10c-1a and proposed FINRA Rule 6530 on its behalf.

Originally proposed Rule 6530(d)(3)51 would have provided that a member relying on a Reporting Agent has an obligation under FINRA Rule 3110 (Supervision) to take reasonable steps to ensure that the Reporting Agent is complying with Rule 10c-1a and FINRA Rule 6530 on its behalf. Partial Amendment No. 1 removed this proposed requirement.

FINRA also stated that nothing in the Proposal modifies the parameters the Commission set forth regarding the use of a “reporting agent,” which is a defined term under Rule 10c-1a(j), for purposes of reporting loan information pursuant to Rule 10c-1a. FINRA stated that, while the Commission established the role of a reporting agent (in the Rule 10c-1a Adopting Release), it did not preclude firms from using other types of third parties to facilitate reporting (albeit that covered persons may not rely on such other parties in the same manner reserved for reporting agents under Rule 10c-1a).

The Commission agrees with FINRA that the Proposal does not, and cannot, modify Rule 10c-1a’s definition of “reporting agent.” In adopting the definition of “reporting agent” under Rule 10c-1a, the Commission stated that the definition strikes a balance between increasing participation and competition in the marketplace for such services, while applying the definition only to entities over which the Commission has direct oversight.

The ability to use a Reporting Agent does not prevent Covered Persons from contracting privately with third-party vendors to assist in reporting. The use of other third-party vendors that are not Reporting Agents would not relieve a Covered Person of its obligation to report Rule 10c-1a information to FINRA, as reliance on a Reporting Agent would.

Allowing clearing agencies, as well as brokers or dealers, to act as reporting agents under Rule 10c-1a should help facilitate low-cost service providers, introduce more competition, and not unduly restrict the market for Reporting Agent services to only brokers or dealers.