Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the FINRA Rule 6800 Series (Consolidated Audit Trail Compliance Rule), 38468-38481 [2020-13769]

Download as PDF 38468 Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Notices investment companies and BDCs continue to face challenges traveling in order to meet the in-person voting requirements under the Investment Company Act and rules thereunder. For this reason, the Commission finds that extending the time period for the Inperson Board Relief, pursuant to its authority under Sections 6(c) and 38(a) of the Investment Company Act, is necessary and appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Investment Company Act, and necessary and appropriate to the exercise of the powers conferred on it by the Investment Company Act. The necessity for prompt action of the Commission does not permit prior notice of the Commission’s action. This Order supersedes the March 25 Order with respect to the In-person Board Relief only. Relief provided in other sections of the March 25 Order, including the accompanying Commission statement regarding prospectus delivery, will expire as provided in that order. jbell on DSKJLSW7X2PROD with NOTICES I. Time Period for the Exemptive Relief The relief provided in this Order is limited to the period from (and including) the date of the Original Order to (and including) the date to be specified in a public notice from Commission staff stating that the relief will terminate, which date will be at least two weeks from the date of the notice and no earlier than December 31, 2020. The Commission intends to continue to monitor the current situation. The time period for the relief may, if necessary, be extended with any additional conditions that are deemed appropriate, and the Commission may issue other relief as necessary or appropriate. II. In-Person Board Meeting Requirements for Registered Management Investment Companies and BDCs It is ordered, pursuant to Sections 6(c) and 38(a) of the Act: That for the period specified in Section I, a registered management investment company or BDC and any investment adviser of or principal underwriter for such registered management investment company or BDC is exempt from the requirements imposed under sections 15(c) and 32(a) of the Investment Company Act and Rules 12b–1(b)(2) and 15a–4(b)(2)(ii) under the Investment Company Act that votes of the board of directors of either the registered management investment VerDate Sep<11>2014 19:42 Jun 25, 2020 Jkt 250001 company or BDC be cast in person, provided that: (i) Reliance on this Order is necessary or appropriate due to circumstances related to current or potential effects of COVID–19; (ii) the votes required to be cast at an in-person meeting are instead cast at a meeting in which directors may participate by any means of communication that allows all directors participating to hear each other simultaneously during the meeting; and (iii) the board of directors, including a majority of the directors who are not interested persons of the registered management investment company or BDC, ratifies the action taken pursuant to this exemption by vote cast at the next in-person meeting. By the Commission. J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–13790 Filed 6–25–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–89119; File No. SR–FINRA– 2020–018] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the FINRA Rule 6800 Series (Consolidated Audit Trail Compliance Rule) June 22, 2020. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on June 19, 2020, Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by FINRA. FINRA has designated the proposed rule change as constituting a ‘‘non-controversial’’ rule change under paragraph (f)(6) of Rule 19b–4 under the Act,3 which renders the proposal effective upon receipt of this filing by the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 17 CFR 240.19b–4(f)(6). Frm 00113 Fmt 4703 II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, FINRA included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. FINRA has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of this proposed rule change is to amend the Rule 6800 Series, the Compliance Rule regarding the CAT NMS Plan, to be consistent with certain exemptions from the CAT NMS Plan as well as to facilitate the retirement of certain existing regulatory systems. As described more fully below, the proposed rule change would make the following changes to the Compliance Rule: • Add additional data elements to the consolidated audit trail (‘‘CAT’’) reporting requirements for Industry Members to facilitate the retirement of FINRA’s Order Audit Trail System (‘‘OATS’’); • Add additional data elements related to OTC Equity Securities that FINRA currently receives from alternative trading systems (‘‘ATSs’’) that trade OTC Equity Securities for regulatory oversight purposes to the CAT reporting requirements for Industry Members; 4 Unless otherwise specified, capitalized terms used in this rule filing are defined as set forth in the Compliance Rule. 2 17 PO 00000 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change FINRA is proposing to amend the FINRA Rule 6800 Series, FINRA’s compliance rule (‘‘Compliance Rule’’) regarding the National Market System Plan Governing the Consolidated Audit Trail (the ‘‘CAT NMS Plan’’ or ‘‘Plan’’) 4 to be consistent with certain exemptions from the CAT NMS Plan as well as to facilitate the retirement of certain existing regulatory systems. The text of the proposed rule change is available on FINRA’s website at https://www.finra.org, at the principal office of FINRA and at the Commission’s Public Reference Room. Sfmt 4703 E:\FR\FM\26JNN1.SGM 26JNN1 Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Notices • Implement a phased approach for Industry Member reporting to the CAT (‘‘Phased Reporting’’); • To the extent that any Industry Member’s order handling or execution systems utilize timestamps in increments finer than milliseconds, revise the timestamp granularity requirement to require such Industry Member to record and report Industry Member Data to the Central Repository with timestamps in such finer increment up to nanoseconds; • Require Introducing Industry Members (as defined below) to comply with the requirements of the CAT NMS Plan applicable to Small Industry Members; • Revise the CAT reporting requirements so Industry Members would not be required to report to the Central Repository dates of birth, individual tax payer identification number (‘‘ITIN’’)/social security number (‘‘SSN’’) (collectively referred to as ‘‘SSNs’’) or account numbers; and • Revise the CAT reporting requirements regarding cancelled trades and SRO-Assigned Market Participant Identifiers of clearing brokers, if applicable, in connection with order executions, as such information will be available from FINRA’s trade reports submitted to the CAT. i. CAT–OATS Data Gaps jbell on DSKJLSW7X2PROD with NOTICES The Participants have worked to identify gaps between data reported to existing systems and data to be reported to the CAT to ‘‘ensure that by the time Industry Members are required to report to the CAT, the CAT will include all data elements necessary to facilitate the rapid retirement of duplicative systems.’’ 5 As a result of this process, the Participants identified several data elements that must be included in the CAT reporting requirements before existing systems can be retired. In particular, the Participants identified certain data elements that are required by OATS, but not currently enumerated in the CAT NMS Plan. Accordingly, FINRA proposes to amend its Compliance Rules to include these OATS data elements in the CAT. Each such OATS data element is discussed below. With the addition of these OATS data elements to the CAT, the CAT will have the data elements necessary to retire OATS. 5 See Letter from Participants to Brent J. Fields, Secretary, SEC, dated September 23, 2016, re: File Number 4–698 (Notice of Filing of the National Market System Plan Governing the Consolidated Audit Trail) (‘‘Participants’ Response to Comments’’) at 21, available at https://www.sec.gov/ comments/4-698/4698-32.pdf. VerDate Sep<11>2014 19:42 Jun 25, 2020 Jkt 250001 A. Information Barrier Identification The FINRA OATS rules require OATS Reporting Members 6 to record the identification of information barriers for certain order events, including when an order is received or originated, transmitted to a department within the OATS Reporting Member, and when it is modified. FINRA proposes to amend its Compliance Rule to incorporate these requirements into the CAT. Specifically, FINRA Rule 7440(b)(20) requires a FINRA OATS Reporting Member to record the following when an order is received or originated: ‘‘if the member is relying on the exception provided in Rule 5320.02 with respect to the order, the unique identification of any appropriate information barriers in place at the department within the member where the order was received or originated.’’ 7 The Compliance Rule does not require Industry Members to report such information barrier information. To address this OATS– CAT data gap, FINRA proposes to add paragraph (a)(1)(A)(vii) to Rule 6830, which would require Industry Members to record and report to the Central Repository, for original receipt or origination of an order, ‘‘the unique identification of any appropriate information barriers in place at the department within the Industry Member where the order was received or originated.’’ In addition, FINRA Rule 7440(c)(1) states that ‘‘[w]hen a Reporting Member transmits an order to a department within the member, the Reporting Member shall record: . . . (H) if the member is relying on the exception provided in Rule 5320.02 with respect to the order, the unique identification of any appropriate information barriers in place at the department within the member to which the order was transmitted.’’ The Compliance Rule does not require Industry Members to report such information barrier information. To address this OATS– CAT data gap, FINRA proposes to revise paragraph (a)(1)(B)(vi) of Rule 6830 to require, for the routing of an order, if routed internally at the Industry Member, ‘‘the unique identification of any appropriate information barriers in place at the department within the Industry Member to which the order was transmitted.’’ FINRA Rules 7440(c)(2)(B) and 7440(c)(4)(B) require an OATS Reporting Member that receives an order transmitted from another member 6 An OATS ‘‘Reporting Member’’ is defined in FINRA Rule 7410(o). 7 FINRA Rule 5320 prohibits trading ahead of customer orders. PO 00000 Frm 00114 Fmt 4703 Sfmt 4703 38469 to report the unique identification of any appropriate information barriers in place at the department within the member to which the order was transmitted. The Compliance Rule does not require Industry Members to report such information barrier information. To address this OATS–CAT data gap, FINRA proposes to add paragraph (a)(1)(C)(vii) to Rule 6830, which would require Industry Members to record and report to the Central Repository, for the receipt of an order that has been routed, ‘‘the unique identification of any appropriate information barriers in place at the department within the Industry Member which received the order.’’ FINRA Rule 7440(d)(1) requires an OATS Reporting Member that modifies or receives a modification to the terms of an order to report the unique identification of any appropriate information barriers in place at the department within the member to which the modification was originated or received. The Compliance Rule does not require Industry Members to report such information barrier information. To address this OATS–CAT data gap, FINRA proposes to add paragraph (a)(1)(D)(vii) to Rule 6830, which would require Industry Members to record and report to the Central Repository, if the order is modified or cancelled, ‘‘the unique identification of any appropriate information barriers in place at the department within the Industry Member which received or originated the modification.’’ B. Reporting Requirements for ATSs Under FINRA Rule 4554, ATSs that receive orders in NMS stocks are required to report certain order information to OATS, which FINRA uses to reconstruct ATS order books and perform order-based surveillance, including layering, spoofing, and midpoint pricing manipulation surveillance.8 The Participants believe that Industry Members operating ATSs—whether such ATS trades NMS stocks or OTC Equity Securities— should likewise be required to report this information to the CAT. Because ATSs that trade NMS stocks are already recording this information and reporting it to OATS, the Participants believe that reporting the same information to the CAT should impose little burden on these ATSs. Moreover, including this information in the CAT is also necessary for FINRA to be able to retire the OATS system. The Participants similarly believe that obtaining the same information from ATSs that trade OTC 8 See E:\FR\FM\26JNN1.SGM Regulatory Notice 16–28 (August 2016). 26JNN1 38470 Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Notices Equity Securities will be important for purposes of reconstructing ATS order books and surveillance. Accordingly, FINRA proposes to add to the data reporting requirements in the Compliance Rule the reporting requirements for ATSs in FINRA Rule 4554,9 but to expand such requirements so that they are applicable to all ATSs rather than solely to ATSs that trade NMS stocks. (1) New Definition FINRA proposes to add a definition of ‘‘ATS’’ to new paragraph (d) of Rule 6810 to facilitate the addition to the CAT of the reporting requirements for ATSs set forth in FINRA Rule 4554. FINRA proposes to define an ‘‘ATS’’ to mean ‘‘an alternative trading system, as defined in Rule 300(a)(1) of Regulation ATS under the Exchange Act.’’ (2) ATS Order Type FINRA Rule 4554(b)(5) requires the following information to be recorded and reported to FINRA by ATSs when reporting receipt of an order to OATS: A unique identifier for each order type offered by the ATS. An ATS must provide FINRA with (i) a list of all of its order types 20 days before such order types become effective and (ii) any changes to its order types 20 days before such changes become effective. An identifier shall not be required for market and limit orders that have no other special handling instructions. jbell on DSKJLSW7X2PROD with NOTICES The Compliance Rule does not require Industry Members to report such order type information to the Central Repository. To address this OATS–CAT data gap, FINRA proposes to incorporate these requirements into four new provisions of the Compliance Rule: Paragraphs (a)(1)(A)(xi)a., (a)(1)(C)(x)a., (a)(1)(D)(ix)a. and (a)(2)(D) of Rule 6830. Proposed paragraph (a)(1)(A)(xi)a. of Rule 6830 would require an Industry Member that operates an ATS to record and report to the Central Repository for the original receipt or origination of an order ‘‘the ATS’s unique identifier for the order type of the order.’’ Proposed paragraph (a)(1)(C)(x)a. of Rule 6830 9 FINRA Rule 4554 was approved by the SEC on May 10, 2016, while the CAT NMS Plan was pending with the Commission. See Securities Exchange Act Release No. 77798 (May 10, 2016), 81 FR 30395 (May 16, 2016) (Order Approving File No. SR–FINRA–2016–010). As noted in the Participants’ Response to Comments, throughout the process of developing the Plan, the Participants worked to keep the gap analyses for OATS, electronic blue sheets, and the CAT up-to-date, which included adding data fields related to the tick size pilot and ATS order book amendments to the OATS rules. See Participants’ Response to Comments at 21. However, due to the timing of the expiration of the tick size pilot, the Participants decided not to include those data elements into the CAT NMS Plan. VerDate Sep<11>2014 19:42 Jun 25, 2020 Jkt 250001 would require an Industry Member that operates an ATS to record and report to the Central Repository for the receipt of an order that has been routed ‘‘the ATS’s unique identifier for the order type of the order.’’ Proposed paragraph (a)(1)(D)(ix)a. of Rule 6830 would require an Industry Member that operates an ATS to record and report to the Central Repository if the order is modified or cancelled ‘‘the ATS’s unique identifier for the order type of the order.’’ Furthermore, as with the requirements in FINRA Rule 4554(b)(5), proposed paragraph (a)(2)(D) of Rule 6830 would state that: An Industry Member that operates an ATS must provide to the Central Repository: (i) A list of all of its order types twenty (20) days before such order types become effective; and (ii) any changes to its order types twenty (20) days before such changes become effective. An identifier shall not be required for market and limit orders that have no other special handling instructions. (3) National Best Bid and Offer FINRA Rules 4554(b)(6) and (7) require the following information to be recorded and reported to FINRA by ATSs when reporting receipt of an order to OATS: (6) The NBBO (or relevant reference price) in effect at the time of order receipt and the timestamp of when the ATS recorded the effective NBBO (or relevant reference price); and (7) Identification of the market data feed used by the ATS to record the NBBO (or other reference price) for purposes of subparagraph (6). If for any reason, the ATS uses an alternative feed than what was reported on its ATS data submission, the ATS must notify FINRA of the fact that an alternative source was used, identify the alternative source, and specify the date(s), time(s) and securities for which the alternative source was used. Similarly, FINRA Rule 4554(c) requires the following information to be recorded and reported to FINRA by ATSs when reporting the execution of an order to OATS: (1) The NBBO (or relevant reference price) in effect at the time of order execution; (2) The timestamp of when the ATS recorded the effective NBBO (or relevant reference price); and (3) Identification of the market data feed used by the ATS to record the NBBO (or other reference price) for purposes of subparagraph (1). If for any reason, the ATS uses an alternative feed than what was reported on its ATS data submission, the ATS must notify FINRA of the fact that an alternative source was used, identify the alternative source, and specify the date(s), time(s) and securities for which the alternative source was used. The Compliance Rule does not require Industry Members to report such NBBO PO 00000 Frm 00115 Fmt 4703 Sfmt 4703 information to the Central Repository. To address this OATS–CAT data gap, FINRA proposes to incorporate these requirements into four new provisions of the Compliance Rule: (a)(1)(A)(xi)b. through c., (a)(1)(C)(x)b. through c., (a)(1)(D)(ix)b. through c., and (a)(1)(E)(viii)a. through b. of Rule 6830. Specifically, proposed paragraph (a)(1)(A)(xi)b. through c. of Rule 6830 would require an Industry Member that operates an ATS to record and report to the Central Repository the following information when reporting the original receipt or origination of order: b. The National Best Bid and National Best Offer (or relevant reference price) at the time of order receipt or origination, and the date and time at which the ATS recorded such National Best Bid and National Best Offer (or relevant reference price); c. the identification of the market data feed used by the ATS to record the National Best Bid and National Best Offer (or relevant reference price) for purposes of subparagraph (xi)b. If for any reason the ATS uses an alternative market data feed than what was reported on its ATS data submission, the ATS must provide notice to the Central Repository of the fact that an alternative source was used, identify the alternative source, and specify the date(s), time(s) and securities for which the alternative source was used. Similarly, proposed paragraphs (a)(1)(C)(x)b. through c., (a)(1)(D)(ix)b. through c., and (a)(1)(E)(viii)a. through b. of Rule 6830 would require an Industry Member that operates an ATS to record and report to the Central Repository the same information when reporting receipt of an order that has been routed, when reporting if the order is modified or cancelled, and when an order has been executed, respectively. (4) Sequence Numbers FINRA Rule 4554(d) states that ‘‘[f]or all OATS-reportable event types, all ATSs must record and report to FINRA the sequence number assigned to the order event by the ATS’s matching engine.’’ The Compliance Rule does not require Industry Members to report ATS sequence numbers to the Central Repository. To address this OATS–CAT data gap, FINRA proposes to incorporate this requirement regarding ATS sequence numbers into each of the Reportable Events for the CAT. Specifically, FINRA proposes to add paragraph (a)(1)(A)(xi)d. to Rule 6830, which would require an Industry Member that operates an ATS to record and report to the Central Repository ‘‘the sequence number assigned to the receipt or origination of the order by the ATS’s matching engine.’’ FINRA proposes to add paragraph (a)(1)(B)(viii) to Rule 6830, which would require an E:\FR\FM\26JNN1.SGM 26JNN1 Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Notices Industry Member that operates an ATS to record and report to the Central Repository ‘‘the sequence number assigned to the routing of the order by the ATS’s matching engine.’’ FINRA also proposes to add paragraph (a)(1)(C)(x)d. to Rule 6830, which would require an Industry Member that operates an ATS to record and report to the Central Repository ‘‘the sequence number assigned to the receipt of the order by the ATS’s matching engine.’’ In addition, FINRA proposes to add paragraph (a)(1)(D)(ix)d. to Rule 6830, which would require an Industry Member that operates an ATS to record and report to the Central Repository ‘‘the sequence number assigned to the modification or cancellation of the order by the ATS’s matching engine.’’ Finally, FINRA proposes to add paragraph (a)(1)(E)(viii)c. to Rule 6830, which would require an Industry Member that operates an ATS to record and report to the Central Repository ‘‘the sequence number assigned to the execution of the order by the ATS’s matching engine.’’ (5) Modification or Cancellation of Orders by ATSs FINRA Rule 4554(f) states that ‘‘[f]or an ATS that displays subscriber orders, each time the ATS’s matching engine reprices a displayed order or changes the display quantity of a displayed order, the ATS must report to OATS the time of such modification,’’ and ‘‘the applicable new display price or size.’’ FINRA proposes adding a comparable requirement in new paragraph (a)(1)(D)(ix)e. to Rule 6830. Specifically, proposed paragraph (a)(1)(D)(ix)e. of Rule 6830 would require an Industry Member that operates an ATS to report to the Central Repository, if the order is modified or cancelled, ‘‘each time the ATS’s matching engine re-prices an order or changes the quantity of an order,’’ the ATS must report to the Central Repository ‘‘the time of such modification, and the applicable new price or size.’’ Proposed paragraph (a)(1)(D)(ix)e. of Rule 6830 would apply to all ATSs, not just ATSs that display orders. (6) Display of Subscriber Orders jbell on DSKJLSW7X2PROD with NOTICES FINRA Rule 4554(b)(1) requires the following information to be recorded and reported to FINRA by ATSs when reporting receipt of an order to OATS: Whether the ATS displays subscriber orders outside the ATS (other than to alternative trading system employees). If an ATS does display subscriber orders outside the ATS (other than to alternative trading system employees), indicate whether the order is displayed to subscribers only or VerDate Sep<11>2014 19:42 Jun 25, 2020 Jkt 250001 through publicly disseminated quotation data; The Compliance Rule does not require Industry Members to report to the CAT such information about the displaying of subscriber orders. FINRA proposes to add comparable requirements in new paragraphs (a)(1)(A)(xi)e. and (a)(1)(C)(x)e. of Rule 6830. Specifically, proposed paragraph (a)(1)(A)(xi)e. would require an Industry Member that operates an ATS to report to the Central Repository, for the original receipt or origination of an order, whether the ATS displays subscriber orders outside the ATS (other than to alternative trading system employees). If an ATS does display subscriber orders outside the ATS (other than to alternative trading system employees), indicate whether the order is displayed to subscribers only or through publicly disseminated quotation data. Similarly, proposed paragraph (a)(1)(C)(x)e. of Rule 6830 would require an Industry Member that operates an ATS to record and report to the Central Repository the same information when reporting receipt of an order that has been routed. C. Customer Instruction Flag FINRA Rule 7440(b)(14) requires an OATS Reporting Member to record the following when an order is received or originated: ‘‘Any request by a customer that a limit order not be displayed, or that a block size limit order be displayed, pursuant to applicable rules.’’ The Compliance Rule does not require Industry Members to report to the CAT such a customer instruction flag. To address this OATS–CAT data gap, FINRA proposes to add paragraph (a)(1)(A)(viii) to Rule 6830, which would require Industry Members to record and report to the Central Repository, for original receipt or origination of an order, ‘‘any request by a Customer that a limit order not be displayed, or that a block size limit order be displayed, pursuant to applicable rules.’’ FINRA also proposes to add paragraph (a)(1)(C)(ix) to Rule 6830, which would require Industry Members to record and report to the Central Repository, for the receipt of an order that has been routed, ‘‘any request by a Customer that a limit order not be displayed, or that a block size limit order be displayed, pursuant to applicable rules.’’ FINRA Rule 7440(d)(1) requires an OATS Reporting Member that modifies or receives a modification of an order to report the customer instruction flag. The Compliance Rule does not require Industry Members to report such a customer instruction flag. To address this OATS–CAT data gap, FINRA PO 00000 Frm 00116 Fmt 4703 Sfmt 4703 38471 proposes to add paragraph (a)(1)(D)(viii) to Rule 6830, which would require Industry Members to record and report to the Central Repository, if the order is modified or cancelled, ‘‘any request by a Customer that a limit order not be displayed, or that a block size limit order be displayed, pursuant to applicable rules.’’ D. Department Type FINRA Rules 7440(b)(4) and (5) require an OATS Reporting Member that receives or originates an order to record the following information: ‘‘the identification of any department or the identification number of any terminal where an order is received directly from a customer’’ and ‘‘where the order is originated by a Reporting Member, the identification of the department of the member that originates the order.’’ The Compliance Rule does not require Industry Members to report to the CAT information regarding the department or terminal where the order is received or originated. To address this OATS–CAT data gap, FINRA proposes to add paragraph (a)(1)(A)(ix) to Rule 6830, which would require Industry Members to record and report to the Central Repository upon the original receipt or origination of an order ‘‘the nature of the department or desk that originated the order, or received the order from a Customer.’’ Similarly, per FINRA Rules 7440(c)(2)(B) and (4)(B), when an OATS Reporting Member receives an order that has been transmitted by another Member, the receiving OATS Reporting Member is required to record the information required in 7440(b)(4) and (5) described above as applicable. The Compliance Rule does not require Industry Members to report to the CAT information regarding the department that received an order. To address this OATS–CAT data gap, FINRA proposes to add paragraph (a)(1)(C)(viii) to Rule 6830, which would require Industry Members to record and report to the Central Repository upon the receipt of an order that has been routed ‘‘the nature of the department or desk that received the order.’’ E. Account Holder Type FINRA Rule 7440(b)(18) requires an OATS Reporting Member that receives or originates an order to record the following information: ‘‘the type of account, i.e., retail, wholesale, employee, proprietary, or any other type of account designated by FINRA, for which the order is submitted.’’ The Compliance Rule does not require Industry Members to report to the CAT information regarding the type of E:\FR\FM\26JNN1.SGM 26JNN1 38472 Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Notices account holder for which the order is submitted. To address this OATS–CAT data gap, FINRA proposes to add paragraph (a)(1)(A)(x) to Rule 6830, which would require Industry Members to record and report to the Central Repository upon the original receipt or origination of an order ‘‘the type of account holder for which the order is submitted.’’ ii. OTC Equity Securities The Participants have identified several data elements related to OTC Equity Securities that FINRA currently receives from ATSs that trade OTC Equity Securities for regulatory oversight purposes, but are not currently included in CAT Data. In particular, the Participants identified three data elements that need to be added to the CAT: (1) Bids and offers for OTC Equity Securities; (2) a flag indicating whether a quote in OTC Equity Securities is solicited or unsolicited; and (3) unpriced bids and offers in OTC Equity Securities. The Participants believe that such data will continue to be important for regulators to oversee the OTC Equity Securities market when using the CAT. Moreover, the Participants do not believe that the proposed requirement would burden ATSs because they currently report this information to FINRA and thus the reporting requirement would merely shift from FINRA to the CAT. Accordingly, as discussed below, FINRA proposes to amend its Compliance Rule to include these data elements. jbell on DSKJLSW7X2PROD with NOTICES A. Bids and Offers for OTC Equity Securities In performing its current regulatory oversight, FINRA receives a data feed of the best bids and offers in OTC Equity Securities from ATSs that trade OTC Equity Securities. These best bid and offer data feeds for OTC Equity Securities are similar to the best bid and offer SIP Data required to be collected by the Central Repository with regard to NMS Securities.10 Accordingly, FINRA proposes to add paragraph (f)(1) to Rule 6830 to require the reporting of the best bid and offer data feeds for OTC Equity Securities to the CAT. Specifically, proposed paragraph (f)(1) of Rule 6830 would require each Industry Member that operates an ATS that trades OTC Equity Securities to provide to the Central Repository ‘‘the best bid and best offer for each OTC Equity Security traded on such ATS.’’ 10 Section 6.5(a)(ii) of the CAT NMS Plan. VerDate Sep<11>2014 19:42 Jun 25, 2020 Jkt 250001 B. Unsolicited Bid or Offer Flag FINRA also receives from ATSs that trade OTC Equity Securities an indication whether each bid or offer in OTC Equity Securities on such ATS was solicited or unsolicited. Therefore, FINRA proposes to add paragraph (f)(2) to Rule 6830 to require the reporting to the CAT of an indication as to whether a bid or offer was solicited or unsolicited. Specifically, proposed paragraph (f)(2) of Rule 6830 would require each Industry Member that operates an ATS that trades OTC Equity Securities to provide to the Central Repository ‘‘an indication of whether each bid and offer for OTC Equity Securities was solicited or unsolicited.’’ C. Unpriced Bids and Offers FINRA receives from ATSs that trade OTC Equity Securities certain unpriced bids and offers for each OTC Equity Security traded on the ATS. Therefore, FINRA proposes to add paragraph (f)(3) to Rule 6830, which would require each Industry Member that operates an ATS that trades OTC Equity Securities to provide to the Central Repository ‘‘the unpriced bids and offers for each OTC Equity Security traded on such ATS.’’ iii. Revised Industry Member Reporting Timeline On February 19, 2020, the Participants filed with the Commission a request for exemptive relief from certain provisions of the CAT NMS Plan to allow for the implementation of phased reporting to the CAT by Industry Members (‘‘Phased Reporting’’).11 Specifically, in their exemptive request, the Participants requested that the SEC exempt each Participant from the requirement in Section 6.7(a)(v) of the CAT NMS Plan for each Participant, through its Compliance Rule, to require its Industry Members other than Small Industry Members (‘‘Large Industry Members’’) to report to the Central Repository Industry Member Data within two years of the Effective Date (that is, by November 15, 2018). In addition, the Participants requested that the SEC exempt each Participant from the requirement in Section 6.7(a)(vi) of the CAT NMS Plan for each Participant, through its Compliance Rule, to require its Small Industry Members 12 to report to the Central Repository Industry Member Data within three years of the 11 See Letter from Michael Simon, CAT NMS Plan Operating Committee Chair, to Vanessa Countryman, Secretary, SEC, dated February 19, 2020, re: Request for Exemption from Provisions of the National Market System Plan Governing the Consolidated Audit Trail related to Industry Member Reporting Dates. 12 See Section 1.1 of the CAT NMS Plan. PO 00000 Frm 00117 Fmt 4703 Sfmt 4703 Effective Date (that is, by November 15, 2019). Correspondingly, the Participants requested that the SEC provide an exemption from the requirement in Section 6.4 of the CAT NMS Plan that ‘‘[t]he requirements for Industry Members under this Section 6.4 shall become effective on the second anniversary of the Effective Date in the case of Industry Members other than Small Industry Members, or the third anniversary of the Effective Date in the case of Small Industry Members.’’ On April 20, 2020, the SEC granted the Participants exemptive relief to implement Phased Reporting, subject to certain timeline changes and conditions.13 As a condition to the exemption, each Participant would implement Phased Reporting through its Compliance Rule by requiring: (1) Its Large Industry Members and its Small Industry Members that are required to record or report information to OATS pursuant to applicable SRO rules (‘‘Small Industry OATS Reporters’’) to commence reporting to the Central Repository Phase 2a Industry Member Data by June 22, 2020, and its Small Industry Non-OATS Reporters to commence reporting to the Central Repository Phase 2a Industry Member Data by December 13, 2021; (2) its Large Industry Members to commence reporting to the Central Repository Phase 2b Industry Member Data by July 20, 2020, and its Small Industry Members to commence reporting to the Central Repository Phase 2b Industry Member Data by December 13, 2021; (3) its Large Industry Members to commence reporting to the Central Repository Phase 2c Industry Member Data by April 26, 2021, and its Small Industry Members to commence reporting to the Central Repository Phase 2c Industry Member Data by December 13, 2021; (4) its Large Industry Members and Small Industry Members to commence reporting to the Central Repository Phase 2d Industry Member Data by December 13, 2021; and 13 See Securities Exchange Act Release No. 88702 (April 20, 2020), 85 FR 23075 (April 24, 2020). As discussed in the SEC’s exemptive order, the Commission granted the Participants conditional exemptive relief from the CAT NMS Plan so that the Compliance Rules may require Phase 2a reporting to commence on June 22, 2020, rather than the April 20, 2020 date set forth in the exemptive request, and Phase 2b reporting to commence on July 20, 2020, rather than the May 18, 2020 date set forth in the exemptive request. As a condition to the exemptive relief, Industry Members that elect to report to the CAT prior to such dates will be permitted to report to the CAT as early as April 20, 2020 for Phase 2a reporting and as early as May 18, 2020 for Phase 2b reporting. E:\FR\FM\26JNN1.SGM 26JNN1 Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Notices jbell on DSKJLSW7X2PROD with NOTICES (5) its Large Industry Members and Small Industry Members to commence reporting to the Central Repository Phase 2e Industry Member Data by July 11, 2022. The full scope of CAT Data required under the CAT NMS Plan will be required to be reported when all five phases of the Phased Reporting have been implemented, subject to any applicable exemptive relief or amendments related to the CAT NMS Plan. As a further condition to the exemption, each Participant proposes to implement the testing timelines, described in Section F below, through its Compliance Rule by requiring the following: (1) Industry Member file submission and data integrity testing for Phases 2a and 2b begins in December 2019. (2) Industry Member testing of the Reporter Portal, including data integrity error correction tools and data submissions, begins in February 2020. (3) The Industry Member test environment will be open with intrafirm linkage validations to Industry Members for both Phases 2a and 2b in April 2020. (4) The Industry Member test environment will be open to Industry Members with inter-firm linkage validations for both Phases 2a and 2b in July 2020. (5) The Industry Member test environment will be open to Industry Members with Phase 2c functionality (full representative order linkages) in January 2021. (6) The Industry Member test environment will be open to Industry Members with Phase 2d functionality (manual options orders, complex options orders, and options allocations) in June 2021. (7) Participant exchanges that support options market making quoting will begin accepting Quote Sent Time on quotes from Industry Members no later than April 2020. (8) The Industry Member test environment (customer and account information) will be open to Industry Members in January 2022. As a result, FINRA proposes to amend its Compliance Rule to be consistent with the exemptive relief to implement Phased Reporting as described below. A. Phase 2a In the first phase of Phased Reporting, referred to as Phase 2a, Large Industry Members and Small Industry OATS Reporters would be required to report to the Central Repository ‘‘Phase 2a VerDate Sep<11>2014 19:42 Jun 25, 2020 Jkt 250001 Industry Member Data’’ by June 22, 2020.14 To implement the Phased Reporting for Phase 2a, FINRA proposes to add paragraph (t)(1) of Rule 6810 (previously paragraph (s)) and amend paragraphs (c)(1) and (2) of Rule 6895. (1) Scope of Reporting in Phase 2a To implement the Phased Reporting with respect to Phase 2a, FINRA proposes to add a definition of ‘‘Phase 2a Industry Member Data’’ as paragraph (t)(1) of Rule 6810. Specifically, FINRA proposes to define the term ‘‘Phase 2a Industry Member Data’’ as ‘‘Industry Member Data required to be reported to the Central Repository commencing in Phase 2a.’’ Phase 2a Industry Member Data would include Industry Member Data solely related to Eligible Securities that are equities. While the following summarizes categories of Industry Member Data required for Phase 2a, the Industry Member Technical Specifications provide detailed guidance regarding the reporting for Phase 2a.15 Phase 2a Industry Member Data would include all events and scenarios covered by OATS. FINRA Rule 7440 describes the OATS requirements for recording information, which includes information related to the receipt or origination of orders, order transmittal, and order modifications, cancellations and executions. Large Industry Members and Small Industry OATS Reporters would be required to submit data to the CAT for these same events and scenarios during Phase 2a. The inclusion of all OATS events and scenarios in the CAT is intended to facilitate the retirement of OATS. Phase 2a Industry Member Data also would include Reportable Events for: • Proprietary orders, including market maker orders, for Eligible Securities that are equities; • electronic quotes in listed equity Eligible Securities (i.e., NMS stocks) sent to a national securities exchange or FINRA’s Alternative Display Facility (‘‘ADF’’); • electronic quotes in unlisted Eligible Securities (i.e., OTC Equity 14 Small Industry Members that are not required to record and report information to FINRA’s OATS pursuant to applicable SRO rules (‘‘Small Industry Non-OATS Reporters’’) would be required to report to the Central Repository ‘‘Phase 2a Industry Member Data’’ by December 13, 2021, which is approximately 17 months after Large Industry Members and Small Industry OATS Reporters begin reporting. 15 The items required to be reported commencing in Phase 2a do not include the items required to be reported in Phase 2c or Phase 2d, as discussed below. PO 00000 Frm 00118 Fmt 4703 Sfmt 4703 38473 Securities) received by an Industry Member operating an interdealer quotation system (‘‘IDQS’’); and • electronic quotes in unlisted Eligible Securities sent to an IDQS or other quotation system not operated by a Participant or Industry Member. Phase 2a Industry Member Data would include Firm Designated IDs. During Phase 2a, Industry Members would be required to report Firm Designated IDs to the CAT, as required by paragraphs (a)(1)(A)(i) and (a)(2)(C) of Rule 6830. Paragraph (a)(1)(A)(i) of Rule 6830 requires Industry Members to submit the Firm Designated ID for the original receipt or origination of an order. Paragraph (a)(2)(C) of Rule 6830 requires Industry Members to record and report to the Central Repository, for original receipt and origination of an order, the Firm Designated ID if the order is executed, in whole or in part. In Phase 2a, Industry Members would be required to report all street side representative orders, including both agency and proprietary orders, and mark such orders as representative orders, except in certain limited exceptions as described in the Industry Member Technical Specifications. A representative order is an order originated in a firm owned or controlled account, including principal, agency average price and omnibus accounts, by an Industry Member for the purpose of working one or more customer or client orders. In Phase 2a, Industry Members would be required to report the link between the street side representative order and the order being represented when: (1) The representative order was originated specifically to represent a single order received either from a customer or another broker-dealer; and (2) there is (a) an existing direct electronic link in the Industry Member’s system between the order being represented and the representative order and (b) any resulting executions are immediately and automatically applied to the represented order in the Industry Member’s system. Phase 2a Industry Member Data also would include the manual and Electronic Capture Time for Manual Order Events. Specifically, for each Reportable Event in Rule 6830, Industry Members would be required to provide a timestamp pursuant to Rule 6860. Rule 6860(b)(1) states that E:\FR\FM\26JNN1.SGM 26JNN1 38474 Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Notices Each Industry Member may record and report Manual Order Events to the Central Repository in increments up to and including one second, provided that each Industry Member shall record and report the time when a Manual Order Event has been captured electronically in an order handling and execution system of such Industry Member (‘‘Electronic Capture Time’’) in milliseconds. Accordingly, for Phase 2a, Industry Members would be required to provide both the manual and Electronic Capture Time for Manual Order Events.16 Industry Members would be required to report special handling instructions for the original receipt or origination of an order during Phase 2a. In addition, during Phase 2a, Industry Members will be required to report, when routing an order, whether the order was routed as an intermarket sweep order (‘‘ISO’’). Industry Members would be required to report special handling instructions on routes other than ISOs in Phase 2c, rather than in Phase 2a. In Phase 2a, Industry Members would not be required to report modifications of a previously routed order in certain limited instances. Specifically, if a trader or trading software modifies a previously routed order, the routing firm is not required to report the modification of an order route if the destination to which the order was routed is a CAT Reporter that is required to report the corresponding order activity. If, however, the order was modified by a Customer or other nonCAT Reporter, and subsequently the routing Industry Members sends a modification to the destination to which the order was originally routed, then the routing Industry Member must report the modification of the order route.17 In addition, in Phase 2a, Industry Members would not be required to report a cancellation of an order received from a Customer after the order has been executed. jbell on DSKJLSW7X2PROD with NOTICES (2) Timing of Phase 2a Reporting Pursuant to paragraph (c)(1) of Rule 6895, Large Industry Members are required to begin reporting to the CAT by November 15, 2018. To implement the Phased Reporting for Phase 2a for Large Industry Members, FINRA proposes to delete the November 15, 2018 date and to supplement paragraph (c)(1) of Rule 6895 with new paragraph 16 Industry Members would be required to provide an Electronic Capture Time following the manual capture time only for new orders that are Manual Order Events and, in certain instances, routes that are Manual Order Events. The Electronic Capture Time would not be required for other Manual Order Events. 17 This approach is comparable to the approach set forth in OATS Compliance FAQ 35. VerDate Sep<11>2014 19:42 Jun 25, 2020 Jkt 250001 (c)(1)(A) of Rule 6895, which would state, in relevant part, that ‘‘Each Industry Member (other than a Small Industry Member) (‘‘Large Industry Member’’) shall record and report the Industry Member Data to the Central Repository, as follows: (A) Phase 2a Industry Member Data by June 22, *COM007*2020.’’ Pursuant to paragraph (c)(2) of Rule 6895, Small Industry Members are required to begin reporting to the CAT by November 15, 2019. To implement the Phased Reporting for Phase 2a for Small Industry Members, FINRA proposes to delete the November 15, 2019 date and to supplement paragraph (c)(2) of Rule 6895 with new paragraphs (c)(2)(A) and (B) of Rule 6895. Proposed paragraph (c)(2)(A) of Rule 6895 would state that Each Industry Member that is a Small Industry Member shall record and report the Industry Member Data to the Central Repository, as follows: (A) Small Industry Members that are required to record or report information to FINRA’s Order Audit Trail System pursuant to applicable SRO rules (‘‘Small Industry OATS Reporter’’) to report to the Central Repository Phase 2a Industry Member Data by June 22, 2020. Proposed paragraph (c)(2)(B) of Rule 6895 would state that ‘‘Small Industry Members that are not required to record or report information to FINRA’s Order Audit Trail System pursuant to applicable SRO rules (‘‘Small Industry Non-OATS Reporter’’) to report to the Central Repository Phase 2a Industry Member Data by December 13, 2021.’’ B. Phase 2b In the second phase of the Phased Reporting, referred to as Phase 2b, Large Industry Members would be required to report to the Central Repository ‘‘Phase 2b Industry Member Data’’ by July 20, 2020. Small Industry Members would be required to report to the Central Repository ‘‘Phase 2b Industry Member Data’’ by December 13, 2021, which is approximately 17 months after Large Industry Members begin reporting such data to the Central Repository. To implement the Phased Reporting for Phase 2b, FINRA proposes to add new paragraph (t)(2) to Rule 6810 and amend paragraphs (c)(1) and (2) of Rule 6895. (1) Scope of Phase 2b Reporting To implement the Phased Reporting with respect to Phase 2b, FINRA proposes to add a definition of ‘‘Phase 2b Industry Member Data’’ as paragraph (t)(2) of Rule 6810. Specifically, FINRA proposes to define the term ‘‘Phase 2b Industry Member Data’’ as ‘‘Industry Member Data required to be reported to the Central Repository commencing in PO 00000 Frm 00119 Fmt 4703 Sfmt 4703 Phase 2b.’’ Phase 2b Industry Member Data is described in detail in the Industry Member Technical Specifications for Phase 2b. While the following summarizes the categories of Industry Member Data required for Phase 2b, the Industry Member Technical Specifications provide detailed guidance regarding the reporting for Phase 2b. Phase 2b Industry Member Data would include Industry Member Data related to Eligible Securities that are options and related to simple electronic option orders, excluding electronic paired option orders.18 A simple electronic option order is an order to buy or sell a single option that is not related to or dependent on any other transaction for pricing and timing of execution that is either received or routed electronically by an Industry Member. Electronic receipt of an order is defined as the initial receipt of an order by an Industry Member in electronic form in standard format directly into an order handling or execution system. Electronic routing of an order is the routing of an order via electronic medium in standard format from one Industry Member’s order handling or execution system to an exchange or another Industry Member. An electronic paired option order is an electronic option order that contains both the buy and sell side that is routed to another Industry Member or exchange for crossing and/or price improvement as a single transaction on an exchange. Responses to auctions of simple orders and paired simple orders are reportable in Phase 2b. Furthermore, combined orders in options would be treated in Phase 2b in the same way as equity representative orders are treated in Phase 2a. A combined order would mean, as permitted by SRO rules, a single, simple order in Listed Options created by combining individual, simple orders in Listed Options from a customer with the same exchange origin code before routing to an exchange. During Phase 2b, the single combined order sent to an exchange must be reported and marked as a combined order, but the linkage to the underlying orders is not required to be reported until Phase 2d. (2) Timing of Phase 2b Reporting Pursuant to paragraph (c)(1) of Rule 6895, Large Industry Members are required to begin reporting to the CAT by November 15, 2018. To implement the Phased Reporting for Phase 2b for 18 The items required to be reported in Phase 2b do not include the items required to be reported in Phase 2d, as discussed below. E:\FR\FM\26JNN1.SGM 26JNN1 Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Notices Large Industry Members, FINRA proposes to delete the November 15, 2018 date and to supplement paragraph (c)(1) of Rule 6895 with new paragraph (c)(1)(B) of Rule 6895, which would state, in relevant part, that ‘‘Each Industry Member (other than a Small Industry Member) (‘‘Large Industry Member’’) shall record and report the Industry Member Data to the Central Repository, as follows: . . . (B) Phase 2b Industry Member Data by July 20, 2020.’’ Pursuant to paragraph (c)(2) of Rule 6895, Small Industry Members are required to begin reporting to the CAT by November 15, 2019. To implement the Phased Reporting for Phase 2b for Small Industry Members, FINRA proposes to delete the November 15, 2019 date and to supplement paragraph (c)(2) of Rule 6895 with new paragraph (c)(2)(C) of Rule 6895, which would state, in relevant part, that ‘‘Each Industry Member that is a Small Industry Member shall record and report the Industry Member Data to the Central Repository, as follows: . . . (C) Small Industry Members to report to the Central Repository Phase 2b Industry Member Data . . . by December 13, 2021.’’ jbell on DSKJLSW7X2PROD with NOTICES C. Phase 2c In the third phase of the Phased Reporting, referred to as Phase 2c, Large Industry Members would be required to report to the Central Repository ‘‘Phase 2c Industry Member Data’’ by April 26, 2021. Small Industry Members would be required to report to the Central Repository ‘‘Phase 2c Industry Member Data’’ by December 13, 2021, which is approximately seven months after Large Industry Members begin reporting such data to the Central Repository. To implement the Phased Reporting for Phase 2c, FINRA proposes to add new paragraph (t)(3) to Rule 6810 and amend paragraphs (c)(1) and (2) of Rule 6895. (1) Scope of Phase 2c Reporting To implement the Phased Reporting with respect to Phase 2c, FINRA proposes to add a definition of ‘‘Phase 2c Industry Member Data’’ as paragraph (t)(3) of Rule 6810. Specifically, FINRA proposes to define the term ‘‘Phase 2c Industry Member Data’’ as ‘‘Industry Member Data required to be reported to the Central Repository commencing in Phase 2c.’’ Phase 2c Industry Member Data would be Industry Member Data related to Eligible Securities that are equities other than Phase 2a Industry Member Data, Phase 2d Industry Member Data or Phase 2e Industry Member Data. Phase 2c Industry Member Data is described in detail in VerDate Sep<11>2014 19:42 Jun 25, 2020 Jkt 250001 the Industry Member Technical Specifications for Phase 2c. While the following summarizes the categories of Industry Member Data required for Phase 2c, the Industry Member Technical Specifications provide detailed guidance regarding the reporting for Phase 2c. Phase 2c Industry Member Data would include Industry Member Data that is related to Eligible Securities that are equities and that is related to: (1) Allocation Reports as required to be recorded and reported to the Central Repository pursuant to Section 6.4(d)(ii)(A)(1) of the CAT NMS Plan; (2) quotes in unlisted Eligible Securities sent to an IDQS operated by a CAT Reporter, which are reportable by the Industry Member sending the quotes (except for quotes reportable in Phase 2d, as discussed below); (3) electronic quotes in listed equity Eligible Securities (i.e., NMS stocks) that are not sent to a national securities exchange or FINRA’s Alternative Display Facility; (4) reporting changes to client instructions regarding modifications to algorithms; (5) marking as a representative order any order originated to work a customer order in price guarantee scenarios, such as a guaranteed VWAP; (6) flagging rejected external routes to indicate a route was not accepted by the receiving destination; (7) linkage of duplicate electronic messages related to a Manual Order Event between the electronic event and the original manual route; (8) special handling instructions on order route reports (other than the ISO which is required to be reported in Phase 2a); (9) quote identifier on trade events; (10) reporting of large trader identifiers 19 (‘‘LTID’’) (if applicable) for accounts with Reportable Events that are reportable to CAT as of and including Phase 2c; (11) reporting of date account opened or Account Effective Date 20 (as applicable) for accounts and flag indicating the Firm Designated ID type as account or relationship; (12) order effective time for orders that are received by an Industry Member and do not become effective until a later time; 19 See definition of ‘‘Customer Account Information’’ in Section 1.1 of the CAT NMS Plan. See also Rule 13h–1 under the Exchange Act. 20 See definition of ‘‘Customer Account Information’’ and ‘‘Account Effective Date’’ in Section 1.1 of the CAT NMS Plan. FINRA also proposes to amend the dates in the definitions of ‘‘Account Effective Date’’ and ‘‘Customer Account Information’’ to reflect the Phased Reporting. Specifically, FINRA proposes to amend paragraph (m)(2) of Rule 6810 to replace the references to November 15, 2018 and 2019 with references to the commencement of Phase 2c and Phase 2d. FINRA also proposes to amend paragraphs (a)(1)(A), (a)(1)(B) and (a)(2) through (5) of Rule 6810 regarding the definition of ‘‘Account Effective Date’’ with similar changes to the dates set forth therein. PO 00000 Frm 00120 Fmt 4703 Sfmt 4703 38475 (13) the modification or cancellation of an internal route of an order; and (14) linkages to the customer order(s) being represented for all representative order scenarios, including agency average price trades, net trades, aggregated orders, and disconnected Order Management System (‘‘OMS’’)— Execution Management System (‘‘EMS’’) scenarios, as required in the Industry Member Technical Specifications.21 Phase 2c Industry Member Data also includes electronic quotes that are provided by or received in a CAT Reporter’s order/quote handling or execution systems in Eligible Securities that are equities and are provided by an Industry Member to other market participants off a national securities exchange under the following conditions: (1) An equity bid or offer is displayed publicly or has been communicated (a) for listed securities to the Alternative Display Facility (ADF) operated by FINRA; or (b) for unlisted equity securities to an ‘‘inter-dealer quotation system’’ as defined in FINRA Rule 6420(c); or (2) an equity bid or offer which is accessible electronically by customers or other market participants and is immediately actionable for execution or routing; i.e., no further manual or electronic action is required by the responder providing the quote in order to execute or cause a trade to be executed). With respect to OTC Equity Securities, OTC Equity Securities quotes sent by an Industry Member to an IDQS operated by an Industry Member CAT Reporter (other than such an IDQS that does not match and execute orders) are reportable by the Industry Member sending them in Phase 2c. Accordingly, any response to a request for quote or other form of solicitation response provided in standard electronic format (e.g., FIX) that meets this quote definition (i.e., an equity bid or offer which is accessible electronically by customers or other market participants and is immediately actionable for execution or routing) would be reportable in Phase 2c. (2) Timing of Phase 2c Reporting Pursuant to paragraph (c)(1) of Rule 6895, Large Industry Members are required to begin reporting to the CAT by November 15, 2018. To implement the Phased Reporting for Phase 2c for Large Industry Members, FINRA proposes to delete the November 15, 21 In Phase 2c, for any scenarios that involve orders originated in different systems that are not directly linked, such as a customer order originated in an OMS and represented by a principal order originated in an EMS that is not linked to the OMS, marking and linkages must be reported as required in the Industry Member Technical Specifications. E:\FR\FM\26JNN1.SGM 26JNN1 38476 Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Notices 2018 date and to supplement paragraph (c)(1) of Rule 6895 with new paragraph (c)(1)(C) of Rule 6895, which would state, in relevant part, that ‘‘Each Industry Member (other than a Small Industry Member) (‘‘Large Industry Member’’) shall record and report the Industry Member Data to the Central Repository, as follows: . . . (C) Phase 2c Industry Member Data by April 26, 2021.’’ Pursuant to paragraph (c)(2) of Rule 6895, Small Industry Members are required to begin reporting to the CAT by November 15, 2019. To implement the Phased Reporting for Phase 2c for Small Industry Members, FINRA proposes to delete the November 15, 2019 date and to supplement paragraph (c)(2) of Rule 6895 with new paragraph (c)(2)(C) of Rule 6895, which would state, in relevant part, that ‘‘Each Industry Member that is a Small Industry Member shall record and report the Industry Member Data to the Central Repository, as follows: . . . (C) Small Industry Members to report to the Central Repository . . . Phase 2c Industry Member Data . . . by December 13, 2021.’’ D. Phase 2d In the fourth phase of the Phased Reporting, referred to as Phase 2d, Large Industry Members and Small Industry Members would be required to report to the Central Repository ‘‘Phase 2d Industry Member Data’’ by December 13, 2021. To implement the Phased Reporting for Phase 2d, FINRA proposes to add new paragraph (t)(4) to Rule 6810 and amend paragraphs (c)(1) and (2) of Rule 6895. jbell on DSKJLSW7X2PROD with NOTICES (1) Scope of Phase 2d Reporting To implement the Phased Reporting with respect to Phase 2d, FINRA proposes to add a definition of ‘‘Phase 2d Industry Member Data’’ as paragraph (t)(4) of Rule 6810. Specifically, FINRA proposes to define the term ‘‘Phase 2d Industry Member Data’’ as ‘‘Industry Member Data required to be reported to the Central Repository commencing in Phase 2d.’’ 22 Phase 2d Industry Member Data is Industry Member Data that is related to Eligible Securities that are options other than Phase 2b Industry Member Data, Industry Member Data that is related to Eligible Securities that are equities other 22 The Participants have determined that reporting information regarding the modification or cancellation of a route is necessary to create the full lifecycle of an order. Accordingly, the Participants require the reporting of information related to the modification or cancellation of a route similar to the data required for the routing of an order and modification and cancellation of an order pursuant to Sections 6.3(d)(ii) and (iv) of the CAT NMS Plan. VerDate Sep<11>2014 19:42 Jun 25, 2020 Jkt 250001 than Phase 2a Industry Member Data or Phase 2c Industry Member Data, and Industry Member Data other than Phase 2e Industry Member Data. Phase 2d Industry Member Data is described in detail in the Industry Member Technical Specifications for Phase 2d. While the following summarizes the categories of Industry Member Data required for Phase 2d, the Industry Member Technical Specifications provide detailed guidance regarding the reporting for Phase 2d. Phase 2d Industry Member Data includes with respect to the Eligible Securities that are options: (1) Simple manual orders; (2) electronic and manual paired orders; (3) all complex orders with linkages to all CATreportable legs; (4) LTIDs (if applicable) for accounts with Reportable Events for Phase 2d; (5) date account opened or Account Effective Date (as applicable) for accounts with an LTID and flag indicating the Firm Designated ID type as account or relationship for such accounts; 23 (6) Allocation Reports as required to be recorded and reported to the Central Repository pursuant to Section 6.4(d)(ii)(A)(1) of the CAT NMS Plan; (7) the modification or cancellation of an internal route of an order; and (8) linkage between a combined order and the original customer orders. Phase 2d Industry Member Data also would include electronic quotes that are provided by or received in a CAT Reporter’s order/quote handling or execution systems in Eligible Securities that are options and are provided by an Industry Member to other market participants off a national securities exchange under the following conditions: A listed option bid or offer which is accessible electronically by customers or other market participants and is immediately actionable (i.e., no further action is required by the responder providing the quote in order to execute or cause a trade to be executed). Accordingly, any response to a request for quote or other form of solicitation response provided in standard electronic format (e.g., FIX) that meets this definition would be reportable in Phase 2d for options. 23 As noted above, FINRA also proposes to amend the dates in the definitions of ‘‘Account Effective Date’’ and ‘‘Customer Account Information’’ to reflect the Phased Reporting. Specifically, FINRA proposes to amend paragraph (m)(2) of Rule 6810 to replace the references to November 15, 2018 and 2019 with references to the commencement of Phase 2c and Phase 2d. FINRA also proposes to amend paragraphs (a)(1)(A), (a)(1)(B) and (a)(2) through (5) of Rule 6810 regarding the definition of ‘‘Account Effective Date’’ with similar changes to the dates set forth therein. PO 00000 Frm 00121 Fmt 4703 Sfmt 4703 Phase 2d Industry Member Data also would include with respect to Eligible Securities that are options or equities (1) receipt time of cancellation and modification instructions through Order Cancel Request and Order Modification Request events; (2) modifications of previously routed orders in certain instances; and (3) OTC Equity Securities quotes sent by an Industry Member to an IDQS operated by an Industry Member CAT Reporter that does not match and execute orders. In addition, subject to any exemptive or other relief, Phase 2d Industry Member Data will include verbal or manual quotes on an exchange floor or in the over-thecounter market, where verbal quotes and manual quotes are defined as bids or offers in Eligible Securities provided verbally or that are provided or received other than via a CAT Reporter’s order handling and execution system (e.g., quotations provided via email or instant messaging). (2) Timing of Phase 2d Reporting Pursuant to paragraph (c)(1) of Rule 6895, Large Industry Members are required to begin reporting to the CAT by November 15, 2018. To implement the Phased Reporting for Phase 2d for Large Industry Members, FINRA proposes to delete the November 15, 2018 date and to supplement paragraph (c)(1) of Rule 6895 with new paragraph (c)(1)(D) of Rule 6895, which would state, in relevant part, that ‘‘[e]ach Industry Member (other than a Small Industry Member) (‘‘Large Industry Member’’) shall record and report the Industry Member Data to the Central Repository, as follows: . . . (D) Phase 2d Industry Member Data by December 13, 2021.’’ Pursuant to paragraph (c)(2) of Rule 6895, Small Industry Members are required to begin reporting to the CAT by November 15, 2019. To implement the Phased Reporting for Phase 2d for Small Industry Members, FINRA proposes to delete the November 15, 2019 date and to supplement paragraph (c)(2) of Rule 6895 with new paragraph (c)(2)(C) of Rule 6895, which would state, in relevant part, that ‘‘Each Industry Member that is a Small Industry Member shall record and report the Industry Member Data to the Central Repository, as follows: . . . (C) Small Industry Members to report to the Central Repository . . . Phase 2d Industry Member Data by December 13, 2021.’’ E. Phase 2e In the fifth phase of Phased Reporting, referred to as Phase 2e, both Large Industry Members and Small Industry E:\FR\FM\26JNN1.SGM 26JNN1 Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Notices Members would be required to report to the Central Repository ‘‘Phase 2e Industry Member Data’’ by July 11, 2022. To implement the Phased Reporting for Phase 2e, FINRA proposes to add new paragraph (t)(5) to Rule 6810 and amend paragraphs (c)(1) and (2) of Rule 6895. (1) Scope of Phase 2e Reporting To implement the Phased Reporting with respect to Phase 2e, FINRA proposes to add a definition of ‘‘Phase 2e Industry Member Data’’ as paragraph (t)(5) of Rule 6810. Specifically, FINRA proposes to define the term ‘‘Phase 2e Industry Member Data’’ as ‘‘Industry Member Data required to be reported to the Central Repository commencing in Phase 2e. The full scope of Industry Member Data required by the CAT NMS Plan will be required to be reported to the CAT when Phase 2e has been implemented, subject to any applicable exemptive relief or amendments to the CAT NMS Plan’’ LTIDs and Account Effective Date are both required to be reported in Phases 2c and 2d in certain circumstances, as discussed above. The terms ‘‘Customer Account Information’’ and ‘‘Customer Identifying Information’’ are defined in Rule 6810 of the Compliance Rule.24 The Industry Member Technical Specifications provide detailed guidance regarding the reporting for Phase 2e. jbell on DSKJLSW7X2PROD with NOTICES (2) Timing of Phase 2e Reporting Pursuant to paragraph (c)(1) of Rule 6895, Large Industry Members are required to begin reporting to the CAT by November 15, 2018. To implement the Phased Reporting for Phase 2e for Large Industry Members, FINRA proposes to delete the November 15, 2018 date and to supplement paragraph (c)(1) of Rule 6895 with new paragraph (c)(1)(E) of Rule 6895, which would state, in relevant part, that ‘‘[e]ach Industry Member (other than a Small Industry Member) (‘‘Large Industry Member’’) shall record and report the 24 The term ‘‘Customer Account Information’’ includes account numbers, and the term ‘‘Customer Identifying Information’’ includes, with respect to individuals, dates of birth and SSNs. See Rule 6810. The Participants have received exemptive relief from the requirements for the Participants to require their members to provide dates of birth, account numbers and social security numbers for individuals to the CAT. See Securities Exchange Act Release No. 88393 (March 17, 2020), 85 FR 16152 (March 20, 2020). See also Letter from Michael Simon, CAT NMS Plan Operating Committee Chair, to Vanessa Countryman, Secretary, SEC, dated January 29, 2020, re: Request for Exemptive Relief from Certain Provisions of the CAT NMS Plan related to Social Security Numbers, Dates of Birth and Account Numbers. Given that the relief has been granted, Phase 2e Industry Member Data will not include account numbers, dates of birth and SSNs for individuals. VerDate Sep<11>2014 19:42 Jun 25, 2020 Jkt 250001 Industry Member Data to the Central Repository, as follows: . . . (E) Phase 2e Industry Member Data by July 11, 2022.’’ Pursuant to paragraph (c)(2) of Rule 6895, Small Industry Members are required to begin reporting to the CAT by November 15, 2019. To implement the Phased Reporting for Phase 2e for Small Industry Members, FINRA proposes to delete the November 15, 2019 date and to supplement paragraph (c)(2) of Rule 6895 with new paragraph (c)(2)(D) of Rule 6895, which would state, in relevant part, that ‘‘[e]ach Industry Member that is a Small Industry Member shall record and report the Industry Member Data to the Central Repository, as follows: . . . (E) Small Industry Members to report to the Central Repository Phase 2e Industry Member Data by July 11, 2022.’’ F. Industry Member Testing Requirements Rule 6880(a) sets forth various compliance dates for the testing and development for connectivity, acceptance and the submission of order data. In light of the intent to shift to Phased Reporting in place of the two specified dates for the commencement of reporting for Large and Small Industry Members, FINRA correspondingly proposes to replace the Industry Member development testing milestones in Rule 6880(a) with the testing milestones set forth in the exemptive relief. Specifically, FINRA proposes to replace Rule 6880(a) with the following: (a)(1) Industry Member file submission and data integrity testing for Phases 2a and 2b shall begin in December 2019. (a)(2) Industry Member testing of the Reporter Portal, including data integrity error correction tools and data submissions, shall begin in February 2020. (a)(3) The Industry Member test environment shall open with intra-firm linkage validations to Industry Members for both Phases 2a and 2b in April 2020. (a)(4) The Industry Member test environment shall open to Industry Members with inter-firm linkage validations for both Phases 2a and 2b in July 2020. (a)(5) The Industry Member test environment shall open to Industry Members with Phase 2c functionality (full representative order linkages) in January 2021. (a)(6) The Industry Member test environment shall open to Industry Members with Phase 2d functionality (manual options orders, complex options orders, and options allocations) in June 2021. (a)(7) Participant exchanges that support options market making quoting shall begin accepting Quote Sent Time on quotes from Industry Members no later than April 2020. (a)(8) The Industry Member test environment (customer and account PO 00000 Frm 00122 Fmt 4703 Sfmt 4703 38477 information) will be open to Industry Members in January 2022. iv. Granularity of Time Stamps On February 3, 2020, the Participants filed with the Commission a request for exemptive relief from the requirement in Section 6.8(b) of the CAT NMS Plan for each Participant, through its Compliance Rule, to require that, to the extent that its Industry Members utilize time stamps in increments finer than nanoseconds in their order handling or execution systems, such Industry Members utilize such finer increment when reporting CAT Data to the Central Repository.25 On April 8, 2020, the Participants received the exemptive relief.26 As a condition to this exemption, the Participants, through their Compliance Rules, will require Industry Members that capture time stamps in increments more granular than nanoseconds to truncate the time stamps, after the nanosecond level for submission to CAT, not round up or down in such circumstances. The timestamp granularity exemption remains in effect for five years, until April 8, 2025. After five years, the exemption would no longer be in effect unless the period the exemption is in effect is extended by the SEC. Accordingly, FINRA proposes to amend its Compliance Rule to reflect the exemptive relief. Specifically, FINRA proposes to amend paragraph (a)(2) of Rule 6860. Rule 6860(a)(2) states that: Subject to paragraph (b), to the extent that any Industry Member’s order handling or execution systems utilize time stamps in increments finer than milliseconds, such Industry Member shall record and report Industry Member Data to the Central Repository with time stamps in such finer increment. FINRA proposes to amend this provision to read as follows to reflect the exemptive relief: Subject to paragraph (b), to the extent that any Industry Member’s order handling or execution systems utilize time stamps in increments finer than milliseconds, such Industry Member shall record and report Industry Member Data to the Central Repository with time stamps in such finer increment up to nanoseconds; provided, that Industry Members that capture timestamps in increments more granular than nanoseconds 25 See Letter from Michael Simon, CAT NMS Plan Operating Committee Chair, to Vanessa Countryman, Secretary, SEC, dated February 3, 2020, re: Request for Exemption from Certain Provisions of the National Market System Plan Governing the Consolidated Audit Trail related to Granularity of Timestamps and Relationship Identifiers. 26 See Securities Exchange Act Release No. 88608 (April 8, 2020), 85 FR 20743 (April 14, 2020). E:\FR\FM\26JNN1.SGM 26JNN1 38478 Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Notices must truncate the timestamps after the nanosecond level for submission to CAT, rather than rounding such timestamps up or down, until April 8, 2025. v. Introducing Industry Members jbell on DSKJLSW7X2PROD with NOTICES On February 3, 2020, the Participants requested that the Commission exempt broker-dealers that do not qualify as Small Industry Members solely because they satisfy Rule 0–10(i)(2) under the Exchange Act and, as a result, are deemed affiliated with an entity that is not a small business or small organization (‘‘Introducing Industry Member’’) from the requirements in the CAT NMS Plan applicable to Industry Members other than Small Industry Members (‘‘Large Industry Members’’).27 Instead, such Introducing Industry Members would comply with the requirements in the CAT NMS Plan applicable to Small Industry Members. On April 20, 2020, the SEC granted the Participants exemptive relief with regard to Introducing Industry Members.28 As a result, FINRA proposes to amend its Compliance Rule to adopt a definition of ‘‘Introducing Industry Member’’ and to revise Rule 6985 to require Introducing Industry Members to comply with the requirements of the CAT NMS Plan applicable to Small Industry Members. Specifically, FINRA proposes to define ‘‘Introducing Industry Member’’ in proposed paragraph (v) to Rule 6810, as ‘‘a brokerdealer that does not qualify as a Small Industry Member solely because such broker-dealer satisfies Rule 0–10(i)(2) under the Exchange Act in that it introduces transactions on a fully disclosed basis to clearing firms that are not small businesses or small organizations.’’ FINRA also proposes to add a new paragraph (c)(3) to Rule 6895 to state that ‘‘Introducing Industry Members must comply with the requirements of the CAT NMS Plan applicable to Small Industry Members.’’ With these changes, Introducing Industry Members would be required to comply with the requirements in the CAT NMS Plan applicable to Small Industry Members, rather than the requirements in the CAT NMS Plan applicable to Large Industry Members. 27 See Letter from Michael Simon, CAT NMS Plan Operating Committee Chair, to Vanessa Countryman, Secretary, SEC, dated February 3, 2020, re: Request for Exemption from Certain Provisions of the National Market System Plan Governing the Consolidated Audit Trail related to Small Industry Members. 28 See Securities Exchange Act Release No. 88703 (April 20, 2020), 85 FR 23115 (April 24, 2020). VerDate Sep<11>2014 19:42 Jun 25, 2020 Jkt 250001 vi. CCID/PII On January 29, 2020, the Participants filed with the Commission a request for exemptive relief from certain requirements related to reporting SSNs, dates of birth and account numbers to the CAT.29 The Commission, Participants and others indicated security concerns with maintaining such sensitive Customer information in the CAT. On March 17, 2020, the Participants received the exemptive relief, subject to certain conditions.30 Assuming the Participants comply with the conditions set forth in the PII Exemption Order, Industry Members would not be required to report SSNs, dates of birth and account numbers to the CAT NMS Plan. As described in the request for exemptive relief, the Participants requested exemptive relief to allow for an alternative approach to generating a CAT Customer ID (‘‘CCID’’) without requiring Industry Members to report SSNs to the CAT (the ‘‘CCID Alternative’’). In lieu of retaining such SSNs in the CAT, the Participants would use the CCID Alternative, a strategy developed by the Chief Information Security Officer for the CAT and the Chief Information Security Officers from each of the Participants, in consultation with security experts from member firms of Securities Industry and Financial Markets Association. The CCID Alternative facilitates the ability of the Plan Processor to generate a CCID without requiring the Plan Processor to receive SSNs or store SSNs within the CAT. Under the CCID Alternative, the Plan Processor would generate a unique CCID using a two-phase transformation process that avoids having SSNs reported to or stored in the CAT. In the first transformation phase, a CAT Reporter would transform the SSN to an interim value (the ‘‘transformed value’’). This transformed value, and not the SSN, would be submitted to a separate system within the CAT (‘‘CCID 29 See Letter from Michael Simon, CAT NMS Plan Operating Committee Chair, to Vanessa Countryman, Secretary, SEC, dated January 29, 2020, re: Request for Exemptive Relief from Certain Provisions of the CAT NMS Plan related to Social Security Numbers, Dates of Birth and Account Numbers. 30 See Securities Exchange Act Release No. 88393 (March 17, 2020), 85 FR 16152 (March 20, 2020) (Order Granting Conditional Exemptive Relief, Pursuant to Section 36 and Rule 608(e) of the Securities Exchange Act of 1934, from Section 6.4(d)(ii)(C) and Appendix D Sections 4.1.6, 6.2, 8.1.1, 8.2, 9.1, 9.2, 9.4, 10.1, and 10.3 of the National Market System Plan Governing the Consolidated Audit Trail) (‘‘PII Exemption Order’’). The PII Exemption Order lists several conditions that must be met by FINRA. If FINRA does not satisfy the conditions, the PII Exemption Order would not apply to FINRA. PO 00000 Frm 00123 Fmt 4703 Sfmt 4703 Subsystem’’). The CCID Subsystem would then perform a second transformation to create the globally unique CCID for each Customer that is unknown to, and not shared with, the original CAT Reporter. The CCID would then be sent to the customer and account information system of the CAT, where it would be linked with the other customer and account information. The CCID may then be used by the Participants’ regulatory staff and the SEC in queries and analysis of CAT Data. To implement the CCID Alternative, the Participants requested exemptive relief from the requirement in Section 6.4(d)(ii)(C) of the CAT NMS Plan to require, through their Compliance Rules, Industry Members to record and report SSNs to the Central Repository for the original receipt of an order. As set forth in one condition of the PII Exemption Order, Industry Members would be required to transform an SSN to an interim value, and report the transformed value to the CAT. The Participants also requested exemptive relief to allow for an alternative approach, which would exempt the reporting of dates of birth and account numbers 31 to the CAT (‘‘Modified PII Approach’’), and instead would require Industry Members to report the year of birth and the Firm Designated ID for each trading account associated with the Customers. To implement the Modified PII Approach, the Participants requested exemptive relief from the requirement in Section 6.4(d)(ii)(C) of the CAT NMS Plan to require, through their Compliance Rules, Industry Members to record and report to the Central Repository for the original receipt of an order dates of birth and account numbers for Customers. As conditions to the exemption, Industry Members would be required to report the year of birth of an individual to the Central Repository, and to report the Firm Designated ID to the Central Repository. To implement the request for exemptive relief and to eliminate the requirement to report SSNs, date of birth and account numbers to the CAT, FINRA proposes to amend its Compliance Rule to reflect the exemptive relief. Rule 6830(a)(2)(C) states that: [s]ubject to paragraph (a)(3) below, each Industry Member shall record and report to the Central Repository the following, as 31 With respect to this aspect of the requested relief, the PII Exemption Order provided relief with regard to the reporting of all account numbers, not just account numbers for individuals as requested by the Participants. E:\FR\FM\26JNN1.SGM 26JNN1 Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Notices applicable (‘‘Received Industry Member Data’’ and collectively with the information referred to in Rule 6830(a)(1) ‘‘Industry Member Data’’)) in the manner prescribed by the Operating Committee pursuant to the CAT NMS Plan: . . . (C) for original receipt or origination of an order, the Firm Designated ID for the relevant Customer, and in accordance with Rule 6840, Customer Account Information and Customer Identifying Information for the relevant Customer. jbell on DSKJLSW7X2PROD with NOTICES Similarly, Rule 6840 requires the reporting of Customer Account Information and Customer Identifying Information to the Central Repository. Currently, Rule 6810(m) defines ‘‘Customer Identifying Information’’ to include, with respect to individuals, ‘‘date of birth’’ and ‘‘individual tax payer identification number (‘‘ITIN’’)/ social security number (‘‘SSN’’).’’ Accordingly, FINRA proposes to replace ‘‘date of birth’’ in the definition of ‘‘Customer Identifying Information’’ in Rule 6810(m) (now renumbered Rule 6810(n)) with ‘‘year of birth’’ and to delete ‘‘individual tax payer identification number (‘‘ITIN’’)/social security number (‘‘SSN’’)’’ from Rule 6810(m) (now renumbered Rule 6810(n)). In addition, currently, Rule 6810(l) defines ‘‘Customer Account Information’’ to include account numbers. FINRA proposes to delete ‘‘account number’’ from the definition of ‘‘Customer Account Information’’ in Rule 6810(l) (now renumbered Rule 6810(m)). FINRA also proposes to add a definition of the term ‘‘Transformed Value for individual tax payer identification number (‘‘ITIN’’)/social security number (‘‘SSN’’)’’ to Rule 6810. Specifically, FINRA proposes to add paragraph (pp) to Rule 6810 to define ‘‘Transformed Value for individual tax payer identification number (‘‘ITIN’’)/ social security number (‘‘SSN’’)’’ to mean ‘‘the interim value created by an Industry Member based on a Customer ITIN/SSN.’’ FINRA proposes to revise Rule 6830(a)(2)(C) to include the Transformed Value for individual tax payer identification number (‘‘ITIN’’)/ social security number (‘‘SSN’’). Specifically, FINRA proposes to revise Rule 6830(a)(2)(C) to state: [s]ubject to paragraph (a)(3) below, each Industry Member shall record and report to the Central Repository the following, as applicable (‘‘Received Industry Member Data’’ and collectively with the information referred to in Rule 6830(a)(1) ‘‘Industry Member Data’’)) in the manner prescribed by the Operating Committee pursuant to the CAT NMS Plan: . . . (C) for original receipt or origination of an order, the Firm Designated ID for the relevant Customer, VerDate Sep<11>2014 19:42 Jun 25, 2020 Jkt 250001 Transformed Value for individual tax payer identification number (‘‘ITIN’’)/social security number (‘‘SSN’’), and in accordance with Rule 6840, Customer Account Information and Customer Identifying Information for the relevant Customer. FINRA also proposes to include the Transformed Value for individual tax payer identification number (‘‘ITIN’’)/ social security number (‘‘SSN’’) in the Customer information reporting required under Rule 6840. Specifically, FINRA proposes to revise Rule 6840(a) to require each Industry Member to submit to the Central Repository the Transformed Value for individual tax payer identification number (‘‘ITIN’’)/ social security number (‘‘SSN’’), for each of its Customers with an Active Account prior to such Industry Member’s commencement of reporting to the Central Repository and in accordance with the deadlines set forth in Rule 6880. FINRA also proposes to revise Rule 6840(b) to require each Industry Member to submit to the Central Repository any updates, additions or other changes to the Transformed Value for individual tax payer identification number (‘‘ITIN’’)/ social security number (‘‘SSN’’) for each of its Customers with an Active Account on a daily basis. In addition, FINRA proposes to revise Rule 6840(c) to require, on a periodic basis as designated by the Plan Processor and approved by the Operating Committee, each Industry Member to submit to the Central Repository a complete set of the Transformed Value for individual tax payer identification number (‘‘ITIN’’)/ social security number (‘‘SSN’’) for each of its Customers with an Active Account. FINRA also proposes to revise Rule 6840(d) to require, for each Industry Member for which errors in the Transformed Value for individual tax payer identification number (‘‘ITIN’’)/ social security number (‘‘SSN’’) for each of its Customers with an Active Account submitted to the Central Repository have been identified by the Plan Processor or otherwise, such Industry Member to submit corrected data to the Central Repository by 5:00 p.m. Eastern Time on T+3. Subparagraph (1)(B) of Rule 6810(m), the definition of ‘‘Customer Account Information’’ states that ‘‘in those circumstances in which an Industry Member has established a trading relationship with an institution but has not established an account with that institution, the Industry Member will . . . provide the relationship identifier in lieu of the ‘‘ ‘account number.’ ’’ As an account number will no longer be an element in ‘‘Customer Account Information,’’ the relationship identifier PO 00000 Frm 00124 Fmt 4703 Sfmt 4703 38479 used in lieu of the account number will no longer be required as an element of Customer Account Information. Therefore, FINRA proposes to delete the requirement set forth in Rule 6810(m)(1)(B) regarding relationship identifiers from Rule 6810(m). With these changes, Industry Members would not be required to report to the Central Repository dates of birth, SSNs or account numbers pursuant to Rule 6830(a)(2)(C). However, Industry Members would be required to report the Transformed Value for individual tax payer identification number (‘‘ITIN’’)/social security number (‘‘SSN’’) and the year of birth to the Central Repository.32 vii. FINRA Facility Data Linkage On June 5, 2020, the Participants filed with the Commission a request for exemptive relief from certain provisions of the CAT NMS Plan to allow for an alternative approach to the reporting of clearing numbers and cancelled trade indicators.33 The SEC provided this exemptive relief on June 11, 2020.34 FINRA is required to report to the Central Repository data collected by FINRA’s Trade Reporting Facilities, FINRA’s OTC Reporting Facility or FINRA’s Alternative Display Facility (collectively, ‘‘FINRA Facility’’) pursuant to applicable SRO rules (‘‘FINRA Facility Data’’). Included in this FINRA Facility Data is the clearing number of the clearing broker for a reported trade as well as the cancelled trade indicator. Under this alternative approach, the clearing number and the cancelled trade indicator of the FINRA Facility Data that is reported to the CAT would be linked to the related execution reports reported by Industry Members. To implement this approach in a phased manner, the Participants received exemptive relief from the requirement in Sections 6.4(d)(ii)(A)(2) and (B) of the CAT NMS Plan to require, through their Compliance Rules, that Industry Members record and report to the Central Repository: (1) If the order is executed, in whole or in part, the SROAssigned Market Participant Identifier of the clearing broker, if applicable; and (2) if the trade is cancelled, a cancelled 32 FINRA anticipates that the Compliance Rule may be further amended when further details regarding the CCID Alternative are finalized. 33 See Letter from Michael Simon, CAT NMS Plan Operating Committee Chair, to Vanessa Countryman, Secretary, SEC, dated June 5, 2020, re: Request for Exemption from Certain Provisions of the National Market System Plan Governing the Consolidated Audit Trail related to FINRA Facility Data Linkage. 34 See Securities Exchange Act Release No. 89051 (June 11, 2020), 85 FR 36631 (June 17, 2020). E:\FR\FM\26JNN1.SGM 26JNN1 38480 Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Notices jbell on DSKJLSW7X2PROD with NOTICES trade indicator, subject to certain conditions. As a condition to this exemption, the Participants would continue to require Industry Members to submit a trade report for a trade and, if the trade is cancelled, a cancellation, to a FINRA Facility pursuant to applicable SRO rules, and to report the corresponding execution to the Central Repository. In addition, Industry Members would be required to report to the Central Repository the unique trade identifier reported to a FINRA Facility with the corresponding trade report. Furthermore, if an Industry Member does not submit a cancellation to a FINRA Facility, or is unable to provide a link between the execution reported to the Central Repository and the related FINRA Facility trade report, then the Industry Member would be required to record and report to the Central Repository a cancelled trade indicator and cancelled trade timestamp if the trade is cancelled. Similarly, if an Industry Member does not submit the clearing number of the clearing broker to a FINRA Facility for a trade, or is unable to provide a link between the execution reported to the Central Repository and the related FINRA Facility trade report, then the Industry Member would be required to record and report to the Central Repository the clearing number as well as contra party information. As a result, FINRA proposes to amend its Compliance Rule to reflect the exemptive relief to implement this alternative approach. Specifically, FINRA proposes to require Industry Members to report to the CAT with an execution report the unique trade identifier reported to a FINRA Facility with the corresponding trade report. For example, the unique trade identifier for the OTC Reporting Facility and the Alternative Display Facility would be the Compliance ID, for the FINRA/ Nasdaq Trade Reporting Facility, it would be the Branch Sequence Number, and for the FINRA/NYSE Trade Reporting Facility, it would the FINRA Compliance Number. This unique trade identifier would be used to link the FINRA Facility Data with the execution report in the CAT. Specifically, FINRA proposes to add new paragraph (a)(2)(E) to Rule 6830, which states that: (E) If an Industry Member is required to submit and submits a trade report for a trade, and, if the trade is cancelled, a cancellation, to one of FINRA’s Trade Reporting Facilities, OTC Reporting Facility or Alternative Display Facility pursuant to applicable SRO rules, and the Industry Member is required to report the corresponding execution and/or cancellation to the Central Repository: VerDate Sep<11>2014 19:42 Jun 25, 2020 Jkt 250001 (i) The Industry Member is required to report to the Central Repository the trade identifier reported by the Industry Member to such FINRA facility for the trade when the Industry Member reports the execution of an order pursuant to Rule 6830(a)(1)(E) or cancellation of an order pursuant to Rule 6830(a)(1)(D) beginning June 22, 2020 for Large Industry Members and Small Industry OATS Reporters and beginning December 13, 2021 for Small Industry Non-OATS Reporters, and such trade identifier must be unique beginning October 26, 2020 for Large Industry Members and Small Industry OATS Reporters and beginning December 13, 2021 for Small Industry Non-OATS Reporters. FINRA also proposes to relieve Industry Members of the obligation to report to the CAT data related to clearing brokers and trade cancellations pursuant to Rules 6830(a)(2)(A)(ii) and (B), respectively, as this data will be reported by FINRA to the CAT, except in certain circumstances. Accordingly, FINRA proposes new paragraphs (a)(2)(E)(ii) and (iii) of Rule 6830, which would state: (ii) If the order is executed in whole or in part, and the Industry Member submits the trade report to one of FINRA’s Trade Reporting Facilities, OTC Reporting Facility or Alternative Display Facility pursuant to applicable SRO rules, the Industry Member is not required to submit the SRO-Assigned Market Participant Identifier of the clearing broker pursuant to Rule 6830(a)(2)(A)(ii); provided, however, if the Industry Member does not report the clearing number of the clearing broker to such FINRA facility for a trade, or does not report the unique trade identifier to the Central Repository as required by Rule 6830(a)(2)(E)(i), then the Industry Member would be required to record and report to the Central Repository the clearing number of the clearing broker as well as information about the contra party to the trade beginning April 26, 2021 for Large Industry Members and Small Industry OATS Reporters and beginning December 13, 2021 for Small Industry Non-OATS Reporters; and (iii) if the trade is cancelled and the Industry Member submits the cancellation to one of FINRA’s Trade Reporting Facilities, OTC Reporting Facility or Alternative Display Facility pursuant to applicable SRO rules, the Industry Member is not required to submit the cancelled trade indicator pursuant to Rule 6830(a)(2)(B); provided, however, if the Industry Member does not report a cancellation for a cancelled trade to such FINRA facility, or does not report the unique trade identifier as required by 6830(a)(2)(E)(i), then the Industry Member would be required to record and report to the Central Repository a cancelled trade indicator as well as a cancelled trade time stamp beginning June 22, 2020 for Large Industry Members and Small Industry OATS Reporters and beginning December 13, 2021 for Small Industry Non-OATS Reporters. FINRA has filed the proposed rule change for immediate effectiveness and has requested that the Commission PO 00000 Frm 00125 Fmt 4703 Sfmt 4703 waive the requirement that the proposed rule change not become operative for 30 days after the date of the filing, so the proposed rule change can become operative on June 22, 2020. 2. Statutory Basis FINRA believes that the proposed rule change is consistent with the provisions of Section 15A(b)(6) of the Act,35 which requires, among other things, that FINRA rules must be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest, and Section 15A(b)(9) of the Act,36 which requires that FINRA rules not impose any burden on competition that is not necessary or appropriate. FINRA believes that the proposed rule change is consistent with the Act because it is consistent with certain exemptions from the CAT NMS Plan, facilitates the retirement of certain existing regulatory systems, and is designed to assist FINRA and its Industry Members in meeting regulatory obligations pursuant to the Plan. In approving the Plan, the SEC noted that the Plan ‘‘is necessary and appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanism of a national market system, or is otherwise in furtherance of the purposes of the Act.’’ 37 To the extent that this proposed rule change implements the Plan, including the exemptive relief, and applies specific requirements to Industry Members, FINRA believes that the proposed rule change furthers the objectives of the Plan, as identified by the SEC, and is therefore consistent with the Act. B. Self-Regulatory Organization’s Statement on Burden on Competition FINRA does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. FINRA notes that the proposed rule change is consistent with certain exemptions from the CAT NMS Plan, will facilitate the retirement of certain existing regulatory systems, and is designed to assist FINRA in meeting its regulatory obligations pursuant to the Plan. FINRA also notes that the proposed amendments to the Compliance Rules 35 15 U.S.C. 78o–3(b)(6). U.S.C. 78o–3(b)(9). 37 See Securities Exchange Act Release No. 79318 (November 15, 2016), 81 FR 84696, 84697 (November 23, 2016). 36 15 E:\FR\FM\26JNN1.SGM 26JNN1 Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Notices will apply equally to all Industry Members that trade NMS Securities and OTC Equity Securities. In addition, FINRA and all national securities exchanges are proposing these amendments to their Compliance Rules. Therefore, this is not a competitive rule filing and does not impose a burden on competition. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act 38 and Rule 19b– 4(f)(6) thereunder.39 A proposed rule change filed under Rule 19b–4(f)(6) 40 normally does not become operative prior to 30 days after the date of the filing. However, pursuant to Rule 19b–4(f)(6)(iii),41 the Commission may designate a shorter time if such action is consistent with the protection of investors and the public interest. FINRA has asked the Commission to waive the 30-day operative delay so that the proposal may become operative by June 22, 2020. The Commission believes that waiver of the 30-day operative delay is consistent with the protection of investors and the public interest because it implements exemptive relief from the CAT NMS Plan granted by the Commission and facilitates the start of Industry Member reporting on June 22, 2020. In addition, as noted by the FINRA, the proposed rule change is based on a filing recently approved by the Commission.42 Accordingly, the Commission waives the 30-day operative delay and 38 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. FINRA has satisfied this requirement. 40 17 CFR 240.19b–4(f)(6). 41 17 CFR 240.19b–4(f)(6)(iii). 42 See Securities Exchange Act Release No. 89108 (June 19, 2020). jbell on DSKJLSW7X2PROD with NOTICES 39 17 VerDate Sep<11>2014 19:42 Jun 25, 2020 Jkt 250001 designates the proposed rule change operative as of June 22, 2020.43 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– FINRA–2020–018 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to File Number SR–FINRA–2020–018. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of such filing 43 For purposes only of waiving the 30-day operative delay, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). PO 00000 Frm 00126 Fmt 4703 Sfmt 4703 38481 also will be available for inspection and copying at the principal office of FINRA. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–FINRA– 2020–018 and should be submitted on or before July 17, 2020. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.44 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–13769 Filed 6–25–20; 8:45 am] BILLING CODE 8011–01–P DEPARTMENT OF STATE [Public Notice 11147] Notice of Department of State Sanctions Actions Pursuant to Executive Order 13894 of October 14, 2019, Blocking Property and Suspending Entry of Certain Persons Contributing to the Situation in Syria The Secretary of State imposed sanctions on fifteen individuals pursuant to E.O. 13894, Blocking Property and Suspending Entry of Certain Persons Contributing to the Situation in Syria. DATES: The Secretary of State’s determination and selection of certain sanctions to be imposed upon the one individual identified in the SUPPLEMENTARY INFORMATION section are effective on June 17, 2020. FOR FURTHER INFORMATION CONTACT: Taylor Ruggles, Director, Office of Economic Sanctions Policy and Implementation, Bureau of Economic and Business Affairs, Department of State, Washington, DC 20520, tel.: (202) 647 7677, email: RugglesTV@state.gov. SUPPLEMENTARY INFORMATION: Pursuant to Section 2(a) of E.O. 13894, the Secretary of State, in consultation with the Secretary of the Treasury, the Secretary of Commerce, the Secretary of Homeland Security, and the United States Trade Representative, and with the President of the Export-Import Bank, the Chairman of the Board of Governors of the Federal Reserve System, and other agencies and officials as appropriate, is authorized to impose on a person any of the sanctions described in sections 2(b) and 2(c) of E.O. 13894 SUMMARY: 44 17 E:\FR\FM\26JNN1.SGM CFR 200.30–3(a)(12). 26JNN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 85, Number 124 (Friday, June 26, 2020)]
[Notices]
[Pages 38468-38481]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-13769]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89119; File No. SR-FINRA-2020-018]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend the FINRA Rule 6800 Series (Consolidated 
Audit Trail Compliance Rule)

June 22, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on June 19, 2020, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by FINRA. FINRA has designated 
the proposed rule change as constituting a ``non-controversial'' rule 
change under paragraph (f)(6) of Rule 19b-4 under the Act,\3\ which 
renders the proposal effective upon receipt of this filing by the 
Commission. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to amend the FINRA Rule 6800 Series, FINRA's 
compliance rule (``Compliance Rule'') regarding the National Market 
System Plan Governing the Consolidated Audit Trail (the ``CAT NMS 
Plan'' or ``Plan'') \4\ to be consistent with certain exemptions from 
the CAT NMS Plan as well as to facilitate the retirement of certain 
existing regulatory systems.
---------------------------------------------------------------------------

    \4\ Unless otherwise specified, capitalized terms used in this 
rule filing are defined as set forth in the Compliance Rule.
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    The text of the proposed rule change is available on FINRA's 
website at https://www.finra.org, at the principal office of FINRA and 
at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, FINRA included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. FINRA has prepared summaries, set forth in sections A, 
B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this proposed rule change is to amend the Rule 6800 
Series, the Compliance Rule regarding the CAT NMS Plan, to be 
consistent with certain exemptions from the CAT NMS Plan as well as to 
facilitate the retirement of certain existing regulatory systems. As 
described more fully below, the proposed rule change would make the 
following changes to the Compliance Rule:
     Add additional data elements to the consolidated audit 
trail (``CAT'') reporting requirements for Industry Members to 
facilitate the retirement of FINRA's Order Audit Trail System 
(``OATS'');
     Add additional data elements related to OTC Equity 
Securities that FINRA currently receives from alternative trading 
systems (``ATSs'') that trade OTC Equity Securities for regulatory 
oversight purposes to the CAT reporting requirements for Industry 
Members;

[[Page 38469]]

     Implement a phased approach for Industry Member reporting 
to the CAT (``Phased Reporting'');
     To the extent that any Industry Member's order handling or 
execution systems utilize timestamps in increments finer than 
milliseconds, revise the timestamp granularity requirement to require 
such Industry Member to record and report Industry Member Data to the 
Central Repository with timestamps in such finer increment up to 
nanoseconds;
     Require Introducing Industry Members (as defined below) to 
comply with the requirements of the CAT NMS Plan applicable to Small 
Industry Members;
     Revise the CAT reporting requirements so Industry Members 
would not be required to report to the Central Repository dates of 
birth, individual tax payer identification number (``ITIN'')/social 
security number (``SSN'') (collectively referred to as ``SSNs'') or 
account numbers; and
     Revise the CAT reporting requirements regarding cancelled 
trades and SRO-Assigned Market Participant Identifiers of clearing 
brokers, if applicable, in connection with order executions, as such 
information will be available from FINRA's trade reports submitted to 
the CAT.
i. CAT-OATS Data Gaps
    The Participants have worked to identify gaps between data reported 
to existing systems and data to be reported to the CAT to ``ensure that 
by the time Industry Members are required to report to the CAT, the CAT 
will include all data elements necessary to facilitate the rapid 
retirement of duplicative systems.'' \5\ As a result of this process, 
the Participants identified several data elements that must be included 
in the CAT reporting requirements before existing systems can be 
retired. In particular, the Participants identified certain data 
elements that are required by OATS, but not currently enumerated in the 
CAT NMS Plan. Accordingly, FINRA proposes to amend its Compliance Rules 
to include these OATS data elements in the CAT. Each such OATS data 
element is discussed below. With the addition of these OATS data 
elements to the CAT, the CAT will have the data elements necessary to 
retire OATS.
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    \5\ See Letter from Participants to Brent J. Fields, Secretary, 
SEC, dated September 23, 2016, re: File Number 4-698 (Notice of 
Filing of the National Market System Plan Governing the Consolidated 
Audit Trail) (``Participants' Response to Comments'') at 21, 
available at https://www.sec.gov/comments/4-698/4698-32.pdf.
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A. Information Barrier Identification
    The FINRA OATS rules require OATS Reporting Members \6\ to record 
the identification of information barriers for certain order events, 
including when an order is received or originated, transmitted to a 
department within the OATS Reporting Member, and when it is modified. 
FINRA proposes to amend its Compliance Rule to incorporate these 
requirements into the CAT.
---------------------------------------------------------------------------

    \6\ An OATS ``Reporting Member'' is defined in FINRA Rule 
7410(o).
---------------------------------------------------------------------------

    Specifically, FINRA Rule 7440(b)(20) requires a FINRA OATS 
Reporting Member to record the following when an order is received or 
originated: ``if the member is relying on the exception provided in 
Rule 5320.02 with respect to the order, the unique identification of 
any appropriate information barriers in place at the department within 
the member where the order was received or originated.'' \7\ The 
Compliance Rule does not require Industry Members to report such 
information barrier information. To address this OATS-CAT data gap, 
FINRA proposes to add paragraph (a)(1)(A)(vii) to Rule 6830, which 
would require Industry Members to record and report to the Central 
Repository, for original receipt or origination of an order, ``the 
unique identification of any appropriate information barriers in place 
at the department within the Industry Member where the order was 
received or originated.''
---------------------------------------------------------------------------

    \7\ FINRA Rule 5320 prohibits trading ahead of customer orders.
---------------------------------------------------------------------------

    In addition, FINRA Rule 7440(c)(1) states that ``[w]hen a Reporting 
Member transmits an order to a department within the member, the 
Reporting Member shall record: . . . (H) if the member is relying on 
the exception provided in Rule 5320.02 with respect to the order, the 
unique identification of any appropriate information barriers in place 
at the department within the member to which the order was 
transmitted.'' The Compliance Rule does not require Industry Members to 
report such information barrier information. To address this OATS-CAT 
data gap, FINRA proposes to revise paragraph (a)(1)(B)(vi) of Rule 6830 
to require, for the routing of an order, if routed internally at the 
Industry Member, ``the unique identification of any appropriate 
information barriers in place at the department within the Industry 
Member to which the order was transmitted.''
    FINRA Rules 7440(c)(2)(B) and 7440(c)(4)(B) require an OATS 
Reporting Member that receives an order transmitted from another member 
to report the unique identification of any appropriate information 
barriers in place at the department within the member to which the 
order was transmitted. The Compliance Rule does not require Industry 
Members to report such information barrier information. To address this 
OATS-CAT data gap, FINRA proposes to add paragraph (a)(1)(C)(vii) to 
Rule 6830, which would require Industry Members to record and report to 
the Central Repository, for the receipt of an order that has been 
routed, ``the unique identification of any appropriate information 
barriers in place at the department within the Industry Member which 
received the order.''
    FINRA Rule 7440(d)(1) requires an OATS Reporting Member that 
modifies or receives a modification to the terms of an order to report 
the unique identification of any appropriate information barriers in 
place at the department within the member to which the modification was 
originated or received. The Compliance Rule does not require Industry 
Members to report such information barrier information. To address this 
OATS-CAT data gap, FINRA proposes to add paragraph (a)(1)(D)(vii) to 
Rule 6830, which would require Industry Members to record and report to 
the Central Repository, if the order is modified or cancelled, ``the 
unique identification of any appropriate information barriers in place 
at the department within the Industry Member which received or 
originated the modification.''
B. Reporting Requirements for ATSs
    Under FINRA Rule 4554, ATSs that receive orders in NMS stocks are 
required to report certain order information to OATS, which FINRA uses 
to reconstruct ATS order books and perform order-based surveillance, 
including layering, spoofing, and mid-point pricing manipulation 
surveillance.\8\ The Participants believe that Industry Members 
operating ATSs--whether such ATS trades NMS stocks or OTC Equity 
Securities--should likewise be required to report this information to 
the CAT. Because ATSs that trade NMS stocks are already recording this 
information and reporting it to OATS, the Participants believe that 
reporting the same information to the CAT should impose little burden 
on these ATSs. Moreover, including this information in the CAT is also 
necessary for FINRA to be able to retire the OATS system. The 
Participants similarly believe that obtaining the same information from 
ATSs that trade OTC

[[Page 38470]]

Equity Securities will be important for purposes of reconstructing ATS 
order books and surveillance. Accordingly, FINRA proposes to add to the 
data reporting requirements in the Compliance Rule the reporting 
requirements for ATSs in FINRA Rule 4554,\9\ but to expand such 
requirements so that they are applicable to all ATSs rather than solely 
to ATSs that trade NMS stocks.
---------------------------------------------------------------------------

    \8\ See Regulatory Notice 16-28 (August 2016).
    \9\ FINRA Rule 4554 was approved by the SEC on May 10, 2016, 
while the CAT NMS Plan was pending with the Commission. See 
Securities Exchange Act Release No. 77798 (May 10, 2016), 81 FR 
30395 (May 16, 2016) (Order Approving File No. SR-FINRA-2016-010). 
As noted in the Participants' Response to Comments, throughout the 
process of developing the Plan, the Participants worked to keep the 
gap analyses for OATS, electronic blue sheets, and the CAT up-to-
date, which included adding data fields related to the tick size 
pilot and ATS order book amendments to the OATS rules. See 
Participants' Response to Comments at 21. However, due to the timing 
of the expiration of the tick size pilot, the Participants decided 
not to include those data elements into the CAT NMS Plan.
---------------------------------------------------------------------------

(1) New Definition
    FINRA proposes to add a definition of ``ATS'' to new paragraph (d) 
of Rule 6810 to facilitate the addition to the CAT of the reporting 
requirements for ATSs set forth in FINRA Rule 4554. FINRA proposes to 
define an ``ATS'' to mean ``an alternative trading system, as defined 
in Rule 300(a)(1) of Regulation ATS under the Exchange Act.''
(2) ATS Order Type
    FINRA Rule 4554(b)(5) requires the following information to be 
recorded and reported to FINRA by ATSs when reporting receipt of an 
order to OATS:

    A unique identifier for each order type offered by the ATS. An 
ATS must provide FINRA with (i) a list of all of its order types 20 
days before such order types become effective and (ii) any changes 
to its order types 20 days before such changes become effective. An 
identifier shall not be required for market and limit orders that 
have no other special handling instructions.

    The Compliance Rule does not require Industry Members to report 
such order type information to the Central Repository. To address this 
OATS-CAT data gap, FINRA proposes to incorporate these requirements 
into four new provisions of the Compliance Rule: Paragraphs 
(a)(1)(A)(xi)a., (a)(1)(C)(x)a., (a)(1)(D)(ix)a. and (a)(2)(D) of Rule 
6830.
    Proposed paragraph (a)(1)(A)(xi)a. of Rule 6830 would require an 
Industry Member that operates an ATS to record and report to the 
Central Repository for the original receipt or origination of an order 
``the ATS's unique identifier for the order type of the order.'' 
Proposed paragraph (a)(1)(C)(x)a. of Rule 6830 would require an 
Industry Member that operates an ATS to record and report to the 
Central Repository for the receipt of an order that has been routed 
``the ATS's unique identifier for the order type of the order.'' 
Proposed paragraph (a)(1)(D)(ix)a. of Rule 6830 would require an 
Industry Member that operates an ATS to record and report to the 
Central Repository if the order is modified or cancelled ``the ATS's 
unique identifier for the order type of the order.'' Furthermore, as 
with the requirements in FINRA Rule 4554(b)(5), proposed paragraph 
(a)(2)(D) of Rule 6830 would state that:

    An Industry Member that operates an ATS must provide to the 
Central Repository: (i) A list of all of its order types twenty (20) 
days before such order types become effective; and (ii) any changes 
to its order types twenty (20) days before such changes become 
effective. An identifier shall not be required for market and limit 
orders that have no other special handling instructions.
(3) National Best Bid and Offer
    FINRA Rules 4554(b)(6) and (7) require the following information to 
be recorded and reported to FINRA by ATSs when reporting receipt of an 
order to OATS:

    (6) The NBBO (or relevant reference price) in effect at the time 
of order receipt and the timestamp of when the ATS recorded the 
effective NBBO (or relevant reference price); and
    (7) Identification of the market data feed used by the ATS to 
record the NBBO (or other reference price) for purposes of 
subparagraph (6). If for any reason, the ATS uses an alternative 
feed than what was reported on its ATS data submission, the ATS must 
notify FINRA of the fact that an alternative source was used, 
identify the alternative source, and specify the date(s), time(s) 
and securities for which the alternative source was used.

Similarly, FINRA Rule 4554(c) requires the following information to be 
recorded and reported to FINRA by ATSs when reporting the execution of 
an order to OATS:

    (1) The NBBO (or relevant reference price) in effect at the time 
of order execution;
    (2) The timestamp of when the ATS recorded the effective NBBO 
(or relevant reference price); and
    (3) Identification of the market data feed used by the ATS to 
record the NBBO (or other reference price) for purposes of 
subparagraph (1). If for any reason, the ATS uses an alternative 
feed than what was reported on its ATS data submission, the ATS must 
notify FINRA of the fact that an alternative source was used, 
identify the alternative source, and specify the date(s), time(s) 
and securities for which the alternative source was used.

The Compliance Rule does not require Industry Members to report such 
NBBO information to the Central Repository. To address this OATS-CAT 
data gap, FINRA proposes to incorporate these requirements into four 
new provisions of the Compliance Rule: (a)(1)(A)(xi)b. through c., 
(a)(1)(C)(x)b. through c., (a)(1)(D)(ix)b. through c., and 
(a)(1)(E)(viii)a. through b. of Rule 6830.
    Specifically, proposed paragraph (a)(1)(A)(xi)b. through c. of Rule 
6830 would require an Industry Member that operates an ATS to record 
and report to the Central Repository the following information when 
reporting the original receipt or origination of order:

    b. The National Best Bid and National Best Offer (or relevant 
reference price) at the time of order receipt or origination, and 
the date and time at which the ATS recorded such National Best Bid 
and National Best Offer (or relevant reference price);
    c. the identification of the market data feed used by the ATS to 
record the National Best Bid and National Best Offer (or relevant 
reference price) for purposes of subparagraph (xi)b. If for any 
reason the ATS uses an alternative market data feed than what was 
reported on its ATS data submission, the ATS must provide notice to 
the Central Repository of the fact that an alternative source was 
used, identify the alternative source, and specify the date(s), 
time(s) and securities for which the alternative source was used.

Similarly, proposed paragraphs (a)(1)(C)(x)b. through c., 
(a)(1)(D)(ix)b. through c., and (a)(1)(E)(viii)a. through b. of Rule 
6830 would require an Industry Member that operates an ATS to record 
and report to the Central Repository the same information when 
reporting receipt of an order that has been routed, when reporting if 
the order is modified or cancelled, and when an order has been 
executed, respectively.
(4) Sequence Numbers
    FINRA Rule 4554(d) states that ``[f]or all OATS-reportable event 
types, all ATSs must record and report to FINRA the sequence number 
assigned to the order event by the ATS's matching engine.'' The 
Compliance Rule does not require Industry Members to report ATS 
sequence numbers to the Central Repository. To address this OATS-CAT 
data gap, FINRA proposes to incorporate this requirement regarding ATS 
sequence numbers into each of the Reportable Events for the CAT. 
Specifically, FINRA proposes to add paragraph (a)(1)(A)(xi)d. to Rule 
6830, which would require an Industry Member that operates an ATS to 
record and report to the Central Repository ``the sequence number 
assigned to the receipt or origination of the order by the ATS's 
matching engine.'' FINRA proposes to add paragraph (a)(1)(B)(viii) to 
Rule 6830, which would require an

[[Page 38471]]

Industry Member that operates an ATS to record and report to the 
Central Repository ``the sequence number assigned to the routing of the 
order by the ATS's matching engine.'' FINRA also proposes to add 
paragraph (a)(1)(C)(x)d. to Rule 6830, which would require an Industry 
Member that operates an ATS to record and report to the Central 
Repository ``the sequence number assigned to the receipt of the order 
by the ATS's matching engine.'' In addition, FINRA proposes to add 
paragraph (a)(1)(D)(ix)d. to Rule 6830, which would require an Industry 
Member that operates an ATS to record and report to the Central 
Repository ``the sequence number assigned to the modification or 
cancellation of the order by the ATS's matching engine.'' Finally, 
FINRA proposes to add paragraph (a)(1)(E)(viii)c. to Rule 6830, which 
would require an Industry Member that operates an ATS to record and 
report to the Central Repository ``the sequence number assigned to the 
execution of the order by the ATS's matching engine.''
(5) Modification or Cancellation of Orders by ATSs
    FINRA Rule 4554(f) states that ``[f]or an ATS that displays 
subscriber orders, each time the ATS's matching engine re-prices a 
displayed order or changes the display quantity of a displayed order, 
the ATS must report to OATS the time of such modification,'' and ``the 
applicable new display price or size.'' FINRA proposes adding a 
comparable requirement in new paragraph (a)(1)(D)(ix)e. to Rule 6830. 
Specifically, proposed paragraph (a)(1)(D)(ix)e. of Rule 6830 would 
require an Industry Member that operates an ATS to report to the 
Central Repository, if the order is modified or cancelled, ``each time 
the ATS's matching engine re-prices an order or changes the quantity of 
an order,'' the ATS must report to the Central Repository ``the time of 
such modification, and the applicable new price or size.'' Proposed 
paragraph (a)(1)(D)(ix)e. of Rule 6830 would apply to all ATSs, not 
just ATSs that display orders.
(6) Display of Subscriber Orders
    FINRA Rule 4554(b)(1) requires the following information to be 
recorded and reported to FINRA by ATSs when reporting receipt of an 
order to OATS:

    Whether the ATS displays subscriber orders outside the ATS 
(other than to alternative trading system employees). If an ATS does 
display subscriber orders outside the ATS (other than to alternative 
trading system employees), indicate whether the order is displayed 
to subscribers only or through publicly disseminated quotation data;

The Compliance Rule does not require Industry Members to report to the 
CAT such information about the displaying of subscriber orders. FINRA 
proposes to add comparable requirements in new paragraphs 
(a)(1)(A)(xi)e. and (a)(1)(C)(x)e. of Rule 6830. Specifically, proposed 
paragraph (a)(1)(A)(xi)e. would require an Industry Member that 
operates an ATS to report to the Central Repository, for the original 
receipt or origination of an order,

whether the ATS displays subscriber orders outside the ATS (other 
than to alternative trading system employees). If an ATS does 
display subscriber orders outside the ATS (other than to alternative 
trading system employees), indicate whether the order is displayed 
to subscribers only or through publicly disseminated quotation data.

Similarly, proposed paragraph (a)(1)(C)(x)e. of Rule 6830 would require 
an Industry Member that operates an ATS to record and report to the 
Central Repository the same information when reporting receipt of an 
order that has been routed.
C. Customer Instruction Flag
    FINRA Rule 7440(b)(14) requires an OATS Reporting Member to record 
the following when an order is received or originated: ``Any request by 
a customer that a limit order not be displayed, or that a block size 
limit order be displayed, pursuant to applicable rules.'' The 
Compliance Rule does not require Industry Members to report to the CAT 
such a customer instruction flag. To address this OATS-CAT data gap, 
FINRA proposes to add paragraph (a)(1)(A)(viii) to Rule 6830, which 
would require Industry Members to record and report to the Central 
Repository, for original receipt or origination of an order, ``any 
request by a Customer that a limit order not be displayed, or that a 
block size limit order be displayed, pursuant to applicable rules.'' 
FINRA also proposes to add paragraph (a)(1)(C)(ix) to Rule 6830, which 
would require Industry Members to record and report to the Central 
Repository, for the receipt of an order that has been routed, ``any 
request by a Customer that a limit order not be displayed, or that a 
block size limit order be displayed, pursuant to applicable rules.''
    FINRA Rule 7440(d)(1) requires an OATS Reporting Member that 
modifies or receives a modification of an order to report the customer 
instruction flag. The Compliance Rule does not require Industry Members 
to report such a customer instruction flag. To address this OATS-CAT 
data gap, FINRA proposes to add paragraph (a)(1)(D)(viii) to Rule 6830, 
which would require Industry Members to record and report to the 
Central Repository, if the order is modified or cancelled, ``any 
request by a Customer that a limit order not be displayed, or that a 
block size limit order be displayed, pursuant to applicable rules.''
D. Department Type
    FINRA Rules 7440(b)(4) and (5) require an OATS Reporting Member 
that receives or originates an order to record the following 
information: ``the identification of any department or the 
identification number of any terminal where an order is received 
directly from a customer'' and ``where the order is originated by a 
Reporting Member, the identification of the department of the member 
that originates the order.'' The Compliance Rule does not require 
Industry Members to report to the CAT information regarding the 
department or terminal where the order is received or originated. To 
address this OATS-CAT data gap, FINRA proposes to add paragraph 
(a)(1)(A)(ix) to Rule 6830, which would require Industry Members to 
record and report to the Central Repository upon the original receipt 
or origination of an order ``the nature of the department or desk that 
originated the order, or received the order from a Customer.''
    Similarly, per FINRA Rules 7440(c)(2)(B) and (4)(B), when an OATS 
Reporting Member receives an order that has been transmitted by another 
Member, the receiving OATS Reporting Member is required to record the 
information required in 7440(b)(4) and (5) described above as 
applicable. The Compliance Rule does not require Industry Members to 
report to the CAT information regarding the department that received an 
order. To address this OATS-CAT data gap, FINRA proposes to add 
paragraph (a)(1)(C)(viii) to Rule 6830, which would require Industry 
Members to record and report to the Central Repository upon the receipt 
of an order that has been routed ``the nature of the department or desk 
that received the order.''
E. Account Holder Type
    FINRA Rule 7440(b)(18) requires an OATS Reporting Member that 
receives or originates an order to record the following information: 
``the type of account, i.e., retail, wholesale, employee, proprietary, 
or any other type of account designated by FINRA, for which the order 
is submitted.'' The Compliance Rule does not require Industry Members 
to report to the CAT information regarding the type of

[[Page 38472]]

account holder for which the order is submitted. To address this OATS-
CAT data gap, FINRA proposes to add paragraph (a)(1)(A)(x) to Rule 
6830, which would require Industry Members to record and report to the 
Central Repository upon the original receipt or origination of an order 
``the type of account holder for which the order is submitted.''
ii. OTC Equity Securities
    The Participants have identified several data elements related to 
OTC Equity Securities that FINRA currently receives from ATSs that 
trade OTC Equity Securities for regulatory oversight purposes, but are 
not currently included in CAT Data. In particular, the Participants 
identified three data elements that need to be added to the CAT: (1) 
Bids and offers for OTC Equity Securities; (2) a flag indicating 
whether a quote in OTC Equity Securities is solicited or unsolicited; 
and (3) unpriced bids and offers in OTC Equity Securities. The 
Participants believe that such data will continue to be important for 
regulators to oversee the OTC Equity Securities market when using the 
CAT. Moreover, the Participants do not believe that the proposed 
requirement would burden ATSs because they currently report this 
information to FINRA and thus the reporting requirement would merely 
shift from FINRA to the CAT. Accordingly, as discussed below, FINRA 
proposes to amend its Compliance Rule to include these data elements.
A. Bids and Offers for OTC Equity Securities
    In performing its current regulatory oversight, FINRA receives a 
data feed of the best bids and offers in OTC Equity Securities from 
ATSs that trade OTC Equity Securities. These best bid and offer data 
feeds for OTC Equity Securities are similar to the best bid and offer 
SIP Data required to be collected by the Central Repository with regard 
to NMS Securities.\10\ Accordingly, FINRA proposes to add paragraph 
(f)(1) to Rule 6830 to require the reporting of the best bid and offer 
data feeds for OTC Equity Securities to the CAT. Specifically, proposed 
paragraph (f)(1) of Rule 6830 would require each Industry Member that 
operates an ATS that trades OTC Equity Securities to provide to the 
Central Repository ``the best bid and best offer for each OTC Equity 
Security traded on such ATS.''
---------------------------------------------------------------------------

    \10\ Section 6.5(a)(ii) of the CAT NMS Plan.
---------------------------------------------------------------------------

B. Unsolicited Bid or Offer Flag
    FINRA also receives from ATSs that trade OTC Equity Securities an 
indication whether each bid or offer in OTC Equity Securities on such 
ATS was solicited or unsolicited. Therefore, FINRA proposes to add 
paragraph (f)(2) to Rule 6830 to require the reporting to the CAT of an 
indication as to whether a bid or offer was solicited or unsolicited. 
Specifically, proposed paragraph (f)(2) of Rule 6830 would require each 
Industry Member that operates an ATS that trades OTC Equity Securities 
to provide to the Central Repository ``an indication of whether each 
bid and offer for OTC Equity Securities was solicited or unsolicited.''
C. Unpriced Bids and Offers
    FINRA receives from ATSs that trade OTC Equity Securities certain 
unpriced bids and offers for each OTC Equity Security traded on the 
ATS. Therefore, FINRA proposes to add paragraph (f)(3) to Rule 6830, 
which would require each Industry Member that operates an ATS that 
trades OTC Equity Securities to provide to the Central Repository ``the 
unpriced bids and offers for each OTC Equity Security traded on such 
ATS.''
iii. Revised Industry Member Reporting Timeline
    On February 19, 2020, the Participants filed with the Commission a 
request for exemptive relief from certain provisions of the CAT NMS 
Plan to allow for the implementation of phased reporting to the CAT by 
Industry Members (``Phased Reporting'').\11\ Specifically, in their 
exemptive request, the Participants requested that the SEC exempt each 
Participant from the requirement in Section 6.7(a)(v) of the CAT NMS 
Plan for each Participant, through its Compliance Rule, to require its 
Industry Members other than Small Industry Members (``Large Industry 
Members'') to report to the Central Repository Industry Member Data 
within two years of the Effective Date (that is, by November 15, 2018). 
In addition, the Participants requested that the SEC exempt each 
Participant from the requirement in Section 6.7(a)(vi) of the CAT NMS 
Plan for each Participant, through its Compliance Rule, to require its 
Small Industry Members \12\ to report to the Central Repository 
Industry Member Data within three years of the Effective Date (that is, 
by November 15, 2019). Correspondingly, the Participants requested that 
the SEC provide an exemption from the requirement in Section 6.4 of the 
CAT NMS Plan that ``[t]he requirements for Industry Members under this 
Section 6.4 shall become effective on the second anniversary of the 
Effective Date in the case of Industry Members other than Small 
Industry Members, or the third anniversary of the Effective Date in the 
case of Small Industry Members.'' On April 20, 2020, the SEC granted 
the Participants exemptive relief to implement Phased Reporting, 
subject to certain timeline changes and conditions.\13\
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    \11\ See Letter from Michael Simon, CAT NMS Plan Operating 
Committee Chair, to Vanessa Countryman, Secretary, SEC, dated 
February 19, 2020, re: Request for Exemption from Provisions of the 
National Market System Plan Governing the Consolidated Audit Trail 
related to Industry Member Reporting Dates.
    \12\ See Section 1.1 of the CAT NMS Plan.
    \13\ See Securities Exchange Act Release No. 88702 (April 20, 
2020), 85 FR 23075 (April 24, 2020). As discussed in the SEC's 
exemptive order, the Commission granted the Participants conditional 
exemptive relief from the CAT NMS Plan so that the Compliance Rules 
may require Phase 2a reporting to commence on June 22, 2020, rather 
than the April 20, 2020 date set forth in the exemptive request, and 
Phase 2b reporting to commence on July 20, 2020, rather than the May 
18, 2020 date set forth in the exemptive request. As a condition to 
the exemptive relief, Industry Members that elect to report to the 
CAT prior to such dates will be permitted to report to the CAT as 
early as April 20, 2020 for Phase 2a reporting and as early as May 
18, 2020 for Phase 2b reporting.
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    As a condition to the exemption, each Participant would implement 
Phased Reporting through its Compliance Rule by requiring:
    (1) Its Large Industry Members and its Small Industry Members that 
are required to record or report information to OATS pursuant to 
applicable SRO rules (``Small Industry OATS Reporters'') to commence 
reporting to the Central Repository Phase 2a Industry Member Data by 
June 22, 2020, and its Small Industry Non-OATS Reporters to commence 
reporting to the Central Repository Phase 2a Industry Member Data by 
December 13, 2021;
    (2) its Large Industry Members to commence reporting to the Central 
Repository Phase 2b Industry Member Data by July 20, 2020, and its 
Small Industry Members to commence reporting to the Central Repository 
Phase 2b Industry Member Data by December 13, 2021;
    (3) its Large Industry Members to commence reporting to the Central 
Repository Phase 2c Industry Member Data by April 26, 2021, and its 
Small Industry Members to commence reporting to the Central Repository 
Phase 2c Industry Member Data by December 13, 2021;
    (4) its Large Industry Members and Small Industry Members to 
commence reporting to the Central Repository Phase 2d Industry Member 
Data by December 13, 2021; and

[[Page 38473]]

    (5) its Large Industry Members and Small Industry Members to 
commence reporting to the Central Repository Phase 2e Industry Member 
Data by July 11, 2022.
    The full scope of CAT Data required under the CAT NMS Plan will be 
required to be reported when all five phases of the Phased Reporting 
have been implemented, subject to any applicable exemptive relief or 
amendments related to the CAT NMS Plan.
    As a further condition to the exemption, each Participant proposes 
to implement the testing timelines, described in Section F below, 
through its Compliance Rule by requiring the following:
    (1) Industry Member file submission and data integrity testing for 
Phases 2a and 2b begins in December 2019.
    (2) Industry Member testing of the Reporter Portal, including data 
integrity error correction tools and data submissions, begins in 
February 2020.
    (3) The Industry Member test environment will be open with intra-
firm linkage validations to Industry Members for both Phases 2a and 2b 
in April 2020.
    (4) The Industry Member test environment will be open to Industry 
Members with inter-firm linkage validations for both Phases 2a and 2b 
in July 2020.
    (5) The Industry Member test environment will be open to Industry 
Members with Phase 2c functionality (full representative order 
linkages) in January 2021.
    (6) The Industry Member test environment will be open to Industry 
Members with Phase 2d functionality (manual options orders, complex 
options orders, and options allocations) in June 2021.
    (7) Participant exchanges that support options market making 
quoting will begin accepting Quote Sent Time on quotes from Industry 
Members no later than April 2020.
    (8) The Industry Member test environment (customer and account 
information) will be open to Industry Members in January 2022.
    As a result, FINRA proposes to amend its Compliance Rule to be 
consistent with the exemptive relief to implement Phased Reporting as 
described below.
A. Phase 2a
    In the first phase of Phased Reporting, referred to as Phase 2a, 
Large Industry Members and Small Industry OATS Reporters would be 
required to report to the Central Repository ``Phase 2a Industry Member 
Data'' by June 22, 2020.\14\ To implement the Phased Reporting for 
Phase 2a, FINRA proposes to add paragraph (t)(1) of Rule 6810 
(previously paragraph (s)) and amend paragraphs (c)(1) and (2) of Rule 
6895.
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    \14\ Small Industry Members that are not required to record and 
report information to FINRA's OATS pursuant to applicable SRO rules 
(``Small Industry Non-OATS Reporters'') would be required to report 
to the Central Repository ``Phase 2a Industry Member Data'' by 
December 13, 2021, which is approximately 17 months after Large 
Industry Members and Small Industry OATS Reporters begin reporting.
---------------------------------------------------------------------------

(1) Scope of Reporting in Phase 2a
    To implement the Phased Reporting with respect to Phase 2a, FINRA 
proposes to add a definition of ``Phase 2a Industry Member Data'' as 
paragraph (t)(1) of Rule 6810. Specifically, FINRA proposes to define 
the term ``Phase 2a Industry Member Data'' as ``Industry Member Data 
required to be reported to the Central Repository commencing in Phase 
2a.'' Phase 2a Industry Member Data would include Industry Member Data 
solely related to Eligible Securities that are equities. While the 
following summarizes categories of Industry Member Data required for 
Phase 2a, the Industry Member Technical Specifications provide detailed 
guidance regarding the reporting for Phase 2a.\15\
---------------------------------------------------------------------------

    \15\ The items required to be reported commencing in Phase 2a do 
not include the items required to be reported in Phase 2c or Phase 
2d, as discussed below.
---------------------------------------------------------------------------

    Phase 2a Industry Member Data would include all events and 
scenarios covered by OATS. FINRA Rule 7440 describes the OATS 
requirements for recording information, which includes information 
related to the receipt or origination of orders, order transmittal, and 
order modifications, cancellations and executions. Large Industry 
Members and Small Industry OATS Reporters would be required to submit 
data to the CAT for these same events and scenarios during Phase 2a. 
The inclusion of all OATS events and scenarios in the CAT is intended 
to facilitate the retirement of OATS.
    Phase 2a Industry Member Data also would include Reportable Events 
for:
     Proprietary orders, including market maker orders, for 
Eligible Securities that are equities;
     electronic quotes in listed equity Eligible Securities 
(i.e., NMS stocks) sent to a national securities exchange or FINRA's 
Alternative Display Facility (``ADF'');
     electronic quotes in unlisted Eligible Securities (i.e., 
OTC Equity Securities) received by an Industry Member operating an 
interdealer quotation system (``IDQS''); and
     electronic quotes in unlisted Eligible Securities sent to 
an IDQS or other quotation system not operated by a Participant or 
Industry Member.
    Phase 2a Industry Member Data would include Firm Designated IDs. 
During Phase 2a, Industry Members would be required to report Firm 
Designated IDs to the CAT, as required by paragraphs (a)(1)(A)(i) and 
(a)(2)(C) of Rule 6830. Paragraph (a)(1)(A)(i) of Rule 6830 requires 
Industry Members to submit the Firm Designated ID for the original 
receipt or origination of an order. Paragraph (a)(2)(C) of Rule 6830 
requires Industry Members to record and report to the Central 
Repository, for original receipt and origination of an order, the Firm 
Designated ID if the order is executed, in whole or in part.
    In Phase 2a, Industry Members would be required to report all 
street side representative orders, including both agency and 
proprietary orders, and mark such orders as representative orders, 
except in certain limited exceptions as described in the Industry 
Member Technical Specifications. A representative order is an order 
originated in a firm owned or controlled account, including principal, 
agency average price and omnibus accounts, by an Industry Member for 
the purpose of working one or more customer or client orders.
    In Phase 2a, Industry Members would be required to report the link 
between the street side representative order and the order being 
represented when: (1) The representative order was originated 
specifically to represent a single order received either from a 
customer or another broker-dealer; and (2) there is (a) an existing 
direct electronic link in the Industry Member's system between the 
order being represented and the representative order and (b) any 
resulting executions are immediately and automatically applied to the 
represented order in the Industry Member's system.
    Phase 2a Industry Member Data also would include the manual and 
Electronic Capture Time for Manual Order Events. Specifically, for each 
Reportable Event in Rule 6830, Industry Members would be required to 
provide a timestamp pursuant to Rule 6860. Rule 6860(b)(1) states that


[[Page 38474]]


    Each Industry Member may record and report Manual Order Events 
to the Central Repository in increments up to and including one 
second, provided that each Industry Member shall record and report 
the time when a Manual Order Event has been captured electronically 
in an order handling and execution system of such Industry Member 
(``Electronic Capture Time'') in milliseconds.

Accordingly, for Phase 2a, Industry Members would be required to 
provide both the manual and Electronic Capture Time for Manual Order 
Events.\16\
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    \16\ Industry Members would be required to provide an Electronic 
Capture Time following the manual capture time only for new orders 
that are Manual Order Events and, in certain instances, routes that 
are Manual Order Events. The Electronic Capture Time would not be 
required for other Manual Order Events.
---------------------------------------------------------------------------

    Industry Members would be required to report special handling 
instructions for the original receipt or origination of an order during 
Phase 2a. In addition, during Phase 2a, Industry Members will be 
required to report, when routing an order, whether the order was routed 
as an intermarket sweep order (``ISO''). Industry Members would be 
required to report special handling instructions on routes other than 
ISOs in Phase 2c, rather than in Phase 2a.
    In Phase 2a, Industry Members would not be required to report 
modifications of a previously routed order in certain limited 
instances. Specifically, if a trader or trading software modifies a 
previously routed order, the routing firm is not required to report the 
modification of an order route if the destination to which the order 
was routed is a CAT Reporter that is required to report the 
corresponding order activity. If, however, the order was modified by a 
Customer or other non-CAT Reporter, and subsequently the routing 
Industry Members sends a modification to the destination to which the 
order was originally routed, then the routing Industry Member must 
report the modification of the order route.\17\ In addition, in Phase 
2a, Industry Members would not be required to report a cancellation of 
an order received from a Customer after the order has been executed.
---------------------------------------------------------------------------

    \17\ This approach is comparable to the approach set forth in 
OATS Compliance FAQ 35.
---------------------------------------------------------------------------

(2) Timing of Phase 2a Reporting
    Pursuant to paragraph (c)(1) of Rule 6895, Large Industry Members 
are required to begin reporting to the CAT by November 15, 2018. To 
implement the Phased Reporting for Phase 2a for Large Industry Members, 
FINRA proposes to delete the November 15, 2018 date and to supplement 
paragraph (c)(1) of Rule 6895 with new paragraph (c)(1)(A) of Rule 
6895, which would state, in relevant part, that ``Each
Industry Member (other than a Small Industry Member) (``Large Industry 
Member'') shall record and report the Industry Member Data to the 
Central Repository, as follows: (A) Phase 2a Industry Member Data by 
June 22, *COM007*2020.''
    Pursuant to paragraph (c)(2) of Rule 6895, Small Industry Members 
are required to begin reporting to the CAT by November 15, 2019. To 
implement the Phased Reporting for Phase 2a for Small Industry Members, 
FINRA proposes to delete the November 15, 2019 date and to supplement 
paragraph (c)(2) of Rule 6895 with new paragraphs (c)(2)(A) and (B) of 
Rule 6895. Proposed paragraph (c)(2)(A) of Rule 6895 would state that

    Each Industry Member that is a Small Industry Member shall 
record and report the Industry Member Data to the Central 
Repository, as follows: (A) Small Industry Members that are required 
to record or report information to FINRA's Order Audit Trail System 
pursuant to applicable SRO rules (``Small Industry OATS Reporter'') 
to report to the Central Repository Phase 2a Industry Member Data by 
June 22, 2020.

Proposed paragraph (c)(2)(B) of Rule 6895 would state that ``Small 
Industry Members that are not required to record or report information 
to FINRA's Order Audit Trail System pursuant to applicable SRO rules 
(``Small Industry Non-OATS Reporter'') to report to the Central 
Repository Phase 2a Industry Member Data by December 13, 2021.''

B. Phase 2b

    In the second phase of the Phased Reporting, referred to as Phase 
2b, Large Industry Members would be required to report to the Central 
Repository ``Phase 2b Industry Member Data'' by July 20, 2020. Small 
Industry Members would be required to report to the Central Repository 
``Phase 2b Industry Member Data'' by December 13, 2021, which is 
approximately 17 months after Large Industry Members begin reporting 
such data to the Central Repository. To implement the Phased Reporting 
for Phase 2b, FINRA proposes to add new paragraph (t)(2) to Rule 6810 
and amend paragraphs (c)(1) and (2) of Rule 6895.
(1) Scope of Phase 2b Reporting
    To implement the Phased Reporting with respect to Phase 2b, FINRA 
proposes to add a definition of ``Phase 2b Industry Member Data'' as 
paragraph (t)(2) of Rule 6810. Specifically, FINRA proposes to define 
the term ``Phase 2b Industry Member Data'' as ``Industry Member Data 
required to be reported to the Central Repository commencing in Phase 
2b.'' Phase 2b Industry Member Data is described in detail in the 
Industry Member Technical Specifications for Phase 2b. While the 
following summarizes the categories of Industry Member Data required 
for Phase 2b, the Industry Member Technical Specifications provide 
detailed guidance regarding the reporting for Phase 2b.
    Phase 2b Industry Member Data would include Industry Member Data 
related to Eligible Securities that are options and related to simple 
electronic option orders, excluding electronic paired option 
orders.\18\ A simple electronic option order is an order to buy or sell 
a single option that is not related to or dependent on any other 
transaction for pricing and timing of execution that is either received 
or routed electronically by an Industry Member. Electronic receipt of 
an order is defined as the initial receipt of an order by an Industry 
Member in electronic form in standard format directly into an order 
handling or execution system. Electronic routing of an order is the 
routing of an order via electronic medium in standard format from one 
Industry Member's order handling or execution system to an exchange or 
another Industry Member. An electronic paired option order is an 
electronic option order that contains both the buy and sell side that 
is routed to another Industry Member or exchange for crossing and/or 
price improvement as a single transaction on an exchange. Responses to 
auctions of simple orders and paired simple orders are reportable in 
Phase 2b.
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    \18\ The items required to be reported in Phase 2b do not 
include the items required to be reported in Phase 2d, as discussed 
below.
---------------------------------------------------------------------------

    Furthermore, combined orders in options would be treated in Phase 
2b in the same way as equity representative orders are treated in Phase 
2a. A combined order would mean, as permitted by SRO rules, a single, 
simple order in Listed Options created by combining individual, simple 
orders in Listed Options from a customer with the same exchange origin 
code before routing to an exchange. During Phase 2b, the single 
combined order sent to an exchange must be reported and marked as a 
combined order, but the linkage to the underlying orders is not 
required to be reported until Phase 2d.
(2) Timing of Phase 2b Reporting
    Pursuant to paragraph (c)(1) of Rule 6895, Large Industry Members 
are required to begin reporting to the CAT by November 15, 2018. To 
implement the Phased Reporting for Phase 2b for

[[Page 38475]]

Large Industry Members, FINRA proposes to delete the November 15, 2018 
date and to supplement paragraph (c)(1) of Rule 6895 with new paragraph 
(c)(1)(B) of Rule 6895, which would state, in relevant part, that 
``Each Industry Member (other than a Small Industry Member) (``Large 
Industry Member'') shall record and report the Industry Member Data to 
the Central Repository, as follows: . . . (B) Phase 2b Industry Member 
Data by July 20, 2020.''
    Pursuant to paragraph (c)(2) of Rule 6895, Small Industry Members 
are required to begin reporting to the CAT by November 15, 2019. To 
implement the Phased Reporting for Phase 2b for Small Industry Members, 
FINRA proposes to delete the November 15, 2019 date and to supplement 
paragraph (c)(2) of Rule 6895 with new paragraph (c)(2)(C) of Rule 
6895, which would state, in relevant part, that ``Each Industry Member 
that is a Small Industry Member shall record and report the Industry 
Member Data to the Central Repository, as follows: . . . (C) Small 
Industry Members to report to the Central Repository Phase 2b Industry 
Member Data . . . by December 13, 2021.''
C. Phase 2c
    In the third phase of the Phased Reporting, referred to as Phase 
2c, Large Industry Members would be required to report to the Central 
Repository ``Phase 2c Industry Member Data'' by April 26, 2021. Small 
Industry Members would be required to report to the Central Repository 
``Phase 2c Industry Member Data'' by December 13, 2021, which is 
approximately seven months after Large Industry Members begin reporting 
such data to the Central Repository. To implement the Phased Reporting 
for Phase 2c, FINRA proposes to add new paragraph (t)(3) to Rule 6810 
and amend paragraphs (c)(1) and (2) of Rule 6895.
(1) Scope of Phase 2c Reporting
    To implement the Phased Reporting with respect to Phase 2c, FINRA 
proposes to add a definition of ``Phase 2c Industry Member Data'' as 
paragraph (t)(3) of Rule 6810. Specifically, FINRA proposes to define 
the term ``Phase 2c Industry Member Data'' as ``Industry Member Data 
required to be reported to the Central Repository commencing in Phase 
2c.'' Phase 2c Industry Member Data would be Industry Member Data 
related to Eligible Securities that are equities other than Phase 2a 
Industry Member Data, Phase 2d Industry Member Data or Phase 2e 
Industry Member Data. Phase 2c Industry Member Data is described in 
detail in the Industry Member Technical Specifications for Phase 2c. 
While the following summarizes the categories of Industry Member Data 
required for Phase 2c, the Industry Member Technical Specifications 
provide detailed guidance regarding the reporting for Phase 2c.
    Phase 2c Industry Member Data would include Industry Member Data 
that is related to Eligible Securities that are equities and that is 
related to: (1) Allocation Reports as required to be recorded and 
reported to the Central Repository pursuant to Section 6.4(d)(ii)(A)(1) 
of the CAT NMS Plan; (2) quotes in unlisted Eligible Securities sent to 
an IDQS operated by a CAT Reporter, which are reportable by the 
Industry Member sending the quotes (except for quotes reportable in 
Phase 2d, as discussed below); (3) electronic quotes in listed equity 
Eligible Securities (i.e., NMS stocks) that are not sent to a national 
securities exchange or FINRA's Alternative Display Facility; (4) 
reporting changes to client instructions regarding modifications to 
algorithms; (5) marking as a representative order any order originated 
to work a customer order in price guarantee scenarios, such as a 
guaranteed VWAP; (6) flagging rejected external routes to indicate a 
route was not accepted by the receiving destination; (7) linkage of 
duplicate electronic messages related to a Manual Order Event between 
the electronic event and the original manual route; (8) special 
handling instructions on order route reports (other than the ISO which 
is required to be reported in Phase 2a); (9) quote identifier on trade 
events; (10) reporting of large trader identifiers \19\ (``LTID'') (if 
applicable) for accounts with Reportable Events that are reportable to 
CAT as of and including Phase 2c; (11) reporting of date account opened 
or Account Effective Date \20\ (as applicable) for accounts and flag 
indicating the Firm Designated ID type as account or relationship; (12) 
order effective time for orders that are received by an Industry Member 
and do not become effective until a later time; (13) the modification 
or cancellation of an internal route of an order; and (14) linkages to 
the customer order(s) being represented for all representative order 
scenarios, including agency average price trades, net trades, 
aggregated orders, and disconnected Order Management System (``OMS'')--
Execution Management System (``EMS'') scenarios, as required in the 
Industry Member Technical Specifications.\21\
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    \19\ See definition of ``Customer Account Information'' in 
Section 1.1 of the CAT NMS Plan. See also Rule 13h-1 under the 
Exchange Act.
    \20\ See definition of ``Customer Account Information'' and 
``Account Effective Date'' in Section 1.1 of the CAT NMS Plan. FINRA 
also proposes to amend the dates in the definitions of ``Account 
Effective Date'' and ``Customer Account Information'' to reflect the 
Phased Reporting. Specifically, FINRA proposes to amend paragraph 
(m)(2) of Rule 6810 to replace the references to November 15, 2018 
and 2019 with references to the commencement of Phase 2c and Phase 
2d. FINRA also proposes to amend paragraphs (a)(1)(A), (a)(1)(B) and 
(a)(2) through (5) of Rule 6810 regarding the definition of 
``Account Effective Date'' with similar changes to the dates set 
forth therein.
    \21\ In Phase 2c, for any scenarios that involve orders 
originated in different systems that are not directly linked, such 
as a customer order originated in an OMS and represented by a 
principal order originated in an EMS that is not linked to the OMS, 
marking and linkages must be reported as required in the Industry 
Member Technical Specifications.
---------------------------------------------------------------------------

    Phase 2c Industry Member Data also includes electronic quotes that 
are provided by or received in a CAT Reporter's order/quote handling or 
execution systems in Eligible Securities that are equities and are 
provided by an Industry Member to other market participants off a 
national securities exchange under the following conditions: (1) An 
equity bid or offer is displayed publicly or has been communicated (a) 
for listed securities to the Alternative Display Facility (ADF) 
operated by FINRA; or (b) for unlisted equity securities to an ``inter-
dealer quotation system'' as defined in FINRA Rule 6420(c); or (2) an 
equity bid or offer which is accessible electronically by customers or 
other market participants and is immediately actionable for execution 
or routing; i.e., no further manual or electronic action is required by 
the responder providing the quote in order to execute or cause a trade 
to be executed). With respect to OTC Equity Securities, OTC Equity 
Securities quotes sent by an Industry Member to an IDQS operated by an 
Industry Member CAT Reporter (other than such an IDQS that does not 
match and execute orders) are reportable by the Industry Member sending 
them in Phase 2c. Accordingly, any response to a request for quote or 
other form of solicitation response provided in standard electronic 
format (e.g., FIX) that meets this quote definition (i.e., an equity 
bid or offer which is accessible electronically by customers or other 
market participants and is immediately actionable for execution or 
routing) would be reportable in Phase 2c.
(2) Timing of Phase 2c Reporting
    Pursuant to paragraph (c)(1) of Rule 6895, Large Industry Members 
are required to begin reporting to the CAT by November 15, 2018. To 
implement the Phased Reporting for Phase 2c for Large Industry Members, 
FINRA proposes to delete the November 15,

[[Page 38476]]

2018 date and to supplement paragraph (c)(1) of Rule 6895 with new 
paragraph (c)(1)(C) of Rule 6895, which would state, in relevant part, 
that ``Each Industry Member (other than a Small Industry Member) 
(``Large Industry Member'') shall record and report the Industry Member 
Data to the Central Repository, as follows: . . . (C) Phase 2c Industry 
Member Data by April 26, 2021.''
    Pursuant to paragraph (c)(2) of Rule 6895, Small Industry Members 
are required to begin reporting to the CAT by November 15, 2019. To 
implement the Phased Reporting for Phase 2c for Small Industry Members, 
FINRA proposes to delete the November 15, 2019 date and to supplement 
paragraph (c)(2) of Rule 6895 with new paragraph (c)(2)(C) of Rule 
6895, which would state, in relevant part, that ``Each Industry Member 
that is a Small Industry Member shall record and report the Industry 
Member Data to the Central Repository, as follows: . . . (C) Small 
Industry Members to report to the Central Repository . . . Phase 2c 
Industry Member Data . . . by December 13, 2021.''
D. Phase 2d
    In the fourth phase of the Phased Reporting, referred to as Phase 
2d, Large Industry Members and Small Industry Members would be required 
to report to the Central Repository ``Phase 2d Industry Member Data'' 
by December 13, 2021. To implement the Phased Reporting for Phase 2d, 
FINRA proposes to add new paragraph (t)(4) to Rule 6810 and amend 
paragraphs (c)(1) and (2) of Rule 6895.
(1) Scope of Phase 2d Reporting
    To implement the Phased Reporting with respect to Phase 2d, FINRA 
proposes to add a definition of ``Phase 2d Industry Member Data'' as 
paragraph (t)(4) of Rule 6810. Specifically, FINRA proposes to define 
the term ``Phase 2d Industry Member Data'' as ``Industry Member Data 
required to be reported to the Central Repository commencing in Phase 
2d.'' \22\
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    \22\ The Participants have determined that reporting information 
regarding the modification or cancellation of a route is necessary 
to create the full lifecycle of an order. Accordingly, the 
Participants require the reporting of information related to the 
modification or cancellation of a route similar to the data required 
for the routing of an order and modification and cancellation of an 
order pursuant to Sections 6.3(d)(ii) and (iv) of the CAT NMS Plan.
---------------------------------------------------------------------------

    Phase 2d Industry Member Data is Industry Member Data that is 
related to Eligible Securities that are options other than Phase 2b 
Industry Member Data, Industry Member Data that is related to Eligible 
Securities that are equities other than Phase 2a Industry Member Data 
or Phase 2c Industry Member Data, and Industry Member Data other than 
Phase 2e Industry Member Data. Phase 2d Industry Member Data is 
described in detail in the Industry Member Technical Specifications for 
Phase 2d. While the following summarizes the categories of Industry 
Member Data required for Phase 2d, the Industry Member Technical 
Specifications provide detailed guidance regarding the reporting for 
Phase 2d.
    Phase 2d Industry Member Data includes with respect to the Eligible 
Securities that are options: (1) Simple manual orders; (2) electronic 
and manual paired orders; (3) all complex orders with linkages to all 
CAT-reportable legs; (4) LTIDs (if applicable) for accounts with 
Reportable Events for Phase 2d; (5) date account opened or Account 
Effective Date (as applicable) for accounts with an LTID and flag 
indicating the Firm Designated ID type as account or relationship for 
such accounts; \23\ (6) Allocation Reports as required to be recorded 
and reported to the Central Repository pursuant to Section 
6.4(d)(ii)(A)(1) of the CAT NMS Plan; (7) the modification or 
cancellation of an internal route of an order; and (8) linkage between 
a combined order and the original customer orders.
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    \23\ As noted above, FINRA also proposes to amend the dates in 
the definitions of ``Account Effective Date'' and ``Customer Account 
Information'' to reflect the Phased Reporting. Specifically, FINRA 
proposes to amend paragraph (m)(2) of Rule 6810 to replace the 
references to November 15, 2018 and 2019 with references to the 
commencement of Phase 2c and Phase 2d. FINRA also proposes to amend 
paragraphs (a)(1)(A), (a)(1)(B) and (a)(2) through (5) of Rule 6810 
regarding the definition of ``Account Effective Date'' with similar 
changes to the dates set forth therein.
---------------------------------------------------------------------------

    Phase 2d Industry Member Data also would include electronic quotes 
that are provided by or received in a CAT Reporter's order/quote 
handling or execution systems in Eligible Securities that are options 
and are provided by an Industry Member to other market participants off 
a national securities exchange under the following conditions: A listed 
option bid or offer which is accessible electronically by customers or 
other market participants and is immediately actionable (i.e., no 
further action is required by the responder providing the quote in 
order to execute or cause a trade to be executed). Accordingly, any 
response to a request for quote or other form of solicitation response 
provided in standard electronic format (e.g., FIX) that meets this 
definition would be reportable in Phase 2d for options.
    Phase 2d Industry Member Data also would include with respect to 
Eligible Securities that are options or equities (1) receipt time of 
cancellation and modification instructions through Order Cancel Request 
and Order Modification Request events; (2) modifications of previously 
routed orders in certain instances; and (3) OTC Equity Securities 
quotes sent by an Industry Member to an IDQS operated by an Industry 
Member CAT Reporter that does not match and execute orders. In 
addition, subject to any exemptive or other relief, Phase 2d Industry 
Member Data will include verbal or manual quotes on an exchange floor 
or in the over-the-counter market, where verbal quotes and manual 
quotes are defined as bids or offers in Eligible Securities provided 
verbally or that are provided or received other than via a CAT 
Reporter's order handling and execution system (e.g., quotations 
provided via email or instant messaging).
(2) Timing of Phase 2d Reporting
    Pursuant to paragraph (c)(1) of Rule 6895, Large Industry Members 
are required to begin reporting to the CAT by November 15, 2018. To 
implement the Phased Reporting for Phase 2d for Large Industry Members, 
FINRA proposes to delete the November 15, 2018 date and to supplement 
paragraph (c)(1) of Rule 6895 with new paragraph (c)(1)(D) of Rule 
6895, which would state, in relevant part, that ``[e]ach Industry 
Member (other than a Small Industry Member) (``Large Industry Member'') 
shall record and report the Industry Member Data to the Central 
Repository, as follows: . . . (D) Phase 2d Industry Member Data by 
December 13, 2021.''
    Pursuant to paragraph (c)(2) of Rule 6895, Small Industry Members 
are required to begin reporting to the CAT by November 15, 2019. To 
implement the Phased Reporting for Phase 2d for Small Industry Members, 
FINRA proposes to delete the November 15, 2019 date and to supplement 
paragraph (c)(2) of Rule 6895 with new paragraph (c)(2)(C) of Rule 
6895, which would state, in relevant part, that ``Each Industry Member 
that is a Small Industry Member shall record and report the Industry 
Member Data to the Central Repository, as follows: . . . (C) Small 
Industry Members to report to the Central Repository . . . Phase 2d 
Industry Member Data by December 13, 2021.''
E. Phase 2e
    In the fifth phase of Phased Reporting, referred to as Phase 2e, 
both Large Industry Members and Small Industry

[[Page 38477]]

Members would be required to report to the Central Repository ``Phase 
2e Industry Member Data'' by July 11, 2022. To implement the Phased 
Reporting for Phase 2e, FINRA proposes to add new paragraph (t)(5) to 
Rule 6810 and amend paragraphs (c)(1) and (2) of Rule 6895.
(1) Scope of Phase 2e Reporting
    To implement the Phased Reporting with respect to Phase 2e, FINRA 
proposes to add a definition of ``Phase 2e Industry Member Data'' as 
paragraph (t)(5) of Rule 6810. Specifically, FINRA proposes to define 
the term ``Phase 2e Industry Member Data'' as ``Industry Member Data 
required to be reported to the Central Repository commencing in Phase 
2e. The full scope of Industry Member Data required by the CAT NMS Plan 
will be required to be reported to the CAT when Phase 2e has been 
implemented, subject to any applicable exemptive relief or amendments 
to the CAT NMS Plan'' LTIDs and Account Effective Date are both 
required to be reported in Phases 2c and 2d in certain circumstances, 
as discussed above. The terms ``Customer Account Information'' and 
``Customer Identifying Information'' are defined in Rule 6810 of the 
Compliance Rule.\24\ The Industry Member Technical Specifications 
provide detailed guidance regarding the reporting for Phase 2e.
---------------------------------------------------------------------------

    \24\ The term ``Customer Account Information'' includes account 
numbers, and the term ``Customer Identifying Information'' includes, 
with respect to individuals, dates of birth and SSNs. See Rule 6810. 
The Participants have received exemptive relief from the 
requirements for the Participants to require their members to 
provide dates of birth, account numbers and social security numbers 
for individuals to the CAT. See Securities Exchange Act Release No. 
88393 (March 17, 2020), 85 FR 16152 (March 20, 2020). See also 
Letter from Michael Simon, CAT NMS Plan Operating Committee Chair, 
to Vanessa Countryman, Secretary, SEC, dated January 29, 2020, re: 
Request for Exemptive Relief from Certain Provisions of the CAT NMS 
Plan related to Social Security Numbers, Dates of Birth and Account 
Numbers. Given that the relief has been granted, Phase 2e Industry 
Member Data will not include account numbers, dates of birth and 
SSNs for individuals.
---------------------------------------------------------------------------

(2) Timing of Phase 2e Reporting
    Pursuant to paragraph (c)(1) of Rule 6895, Large Industry Members 
are required to begin reporting to the CAT by November 15, 2018. To 
implement the Phased Reporting for Phase 2e for Large Industry Members, 
FINRA proposes to delete the November 15, 2018 date and to supplement 
paragraph (c)(1) of Rule 6895 with new paragraph (c)(1)(E) of Rule 
6895, which would state, in relevant part, that ``[e]ach Industry 
Member (other than a Small Industry Member) (``Large Industry Member'') 
shall record and report the Industry Member Data to the Central 
Repository, as follows: . . . (E) Phase 2e Industry Member Data by July 
11, 2022.''
    Pursuant to paragraph (c)(2) of Rule 6895, Small Industry Members 
are required to begin reporting to the CAT by November 15, 2019. To 
implement the Phased Reporting for Phase 2e for Small Industry Members, 
FINRA proposes to delete the November 15, 2019 date and to supplement 
paragraph (c)(2) of Rule 6895 with new paragraph (c)(2)(D) of Rule 
6895, which would state, in relevant part, that ``[e]ach Industry 
Member that is a Small Industry Member shall record and report the 
Industry Member Data to the Central Repository, as follows: . . . (E) 
Small Industry Members to report to the Central Repository Phase 2e 
Industry Member Data by July 11, 2022.''
F. Industry Member Testing Requirements
    Rule 6880(a) sets forth various compliance dates for the testing 
and development for connectivity, acceptance and the submission of 
order data. In light of the intent to shift to Phased Reporting in 
place of the two specified dates for the commencement of reporting for 
Large and Small Industry Members, FINRA correspondingly proposes to 
replace the Industry Member development testing milestones in Rule 
6880(a) with the testing milestones set forth in the exemptive relief. 
Specifically, FINRA proposes to replace Rule 6880(a) with the 
following:

    (a)(1) Industry Member file submission and data integrity 
testing for Phases 2a and 2b shall begin in December 2019.
    (a)(2) Industry Member testing of the Reporter Portal, including 
data integrity error correction tools and data submissions, shall 
begin in February 2020.
    (a)(3) The Industry Member test environment shall open with 
intra-firm linkage validations to Industry Members for both Phases 
2a and 2b in April 2020.
    (a)(4) The Industry Member test environment shall open to 
Industry Members with inter-firm linkage validations for both Phases 
2a and 2b in July 2020.
    (a)(5) The Industry Member test environment shall open to 
Industry Members with Phase 2c functionality (full representative 
order linkages) in January 2021.
    (a)(6) The Industry Member test environment shall open to 
Industry Members with Phase 2d functionality (manual options orders, 
complex options orders, and options allocations) in June 2021.
    (a)(7) Participant exchanges that support options market making 
quoting shall begin accepting Quote Sent Time on quotes from 
Industry Members no later than April 2020.
    (a)(8) The Industry Member test environment (customer and 
account information) will be open to Industry Members in January 
2022.

iv. Granularity of Time Stamps
    On February 3, 2020, the Participants filed with the Commission a 
request for exemptive relief from the requirement in Section 6.8(b) of 
the CAT NMS Plan for each Participant, through its Compliance Rule, to 
require that, to the extent that its Industry Members utilize time 
stamps in increments finer than nanoseconds in their order handling or 
execution systems, such Industry Members utilize such finer increment 
when reporting CAT Data to the Central Repository.\25\ On April 8, 
2020, the Participants received the exemptive relief.\26\ As a 
condition to this exemption, the Participants, through their Compliance 
Rules, will require Industry Members that capture time stamps in 
increments more granular than nanoseconds to truncate the time stamps, 
after the nanosecond level for submission to CAT, not round up or down 
in such circumstances. The timestamp granularity exemption remains in 
effect for five years, until April 8, 2025. After five years, the 
exemption would no longer be in effect unless the period the exemption 
is in effect is extended by the SEC.
---------------------------------------------------------------------------

    \25\ See Letter from Michael Simon, CAT NMS Plan Operating 
Committee Chair, to Vanessa Countryman, Secretary, SEC, dated 
February 3, 2020, re: Request for Exemption from Certain Provisions 
of the National Market System Plan Governing the Consolidated Audit 
Trail related to Granularity of Timestamps and Relationship 
Identifiers.
    \26\ See Securities Exchange Act Release No. 88608 (April 8, 
2020), 85 FR 20743 (April 14, 2020).
---------------------------------------------------------------------------

    Accordingly, FINRA proposes to amend its Compliance Rule to reflect 
the exemptive relief. Specifically, FINRA proposes to amend paragraph 
(a)(2) of Rule 6860. Rule 6860(a)(2) states that:

    Subject to paragraph (b), to the extent that any Industry 
Member's order handling or execution systems utilize time stamps in 
increments finer than milliseconds, such Industry Member shall 
record and report Industry Member Data to the Central Repository 
with time stamps in such finer increment.

FINRA proposes to amend this provision to read as follows to reflect 
the exemptive relief:

    Subject to paragraph (b), to the extent that any Industry 
Member's order handling or execution systems utilize time stamps in 
increments finer than milliseconds, such Industry Member shall 
record and report Industry Member Data to the Central Repository 
with time stamps in such finer increment up to nanoseconds; 
provided, that Industry Members that capture timestamps in 
increments more granular than nanoseconds

[[Page 38478]]

must truncate the timestamps after the nanosecond level for 
submission to CAT, rather than rounding such timestamps up or down, 
until April 8, 2025.
v. Introducing Industry Members
    On February 3, 2020, the Participants requested that the Commission 
exempt broker-dealers that do not qualify as Small Industry Members 
solely because they satisfy Rule 0-10(i)(2) under the Exchange Act and, 
as a result, are deemed affiliated with an entity that is not a small 
business or small organization (``Introducing Industry Member'') from 
the requirements in the CAT NMS Plan applicable to Industry Members 
other than Small Industry Members (``Large Industry Members'').\27\ 
Instead, such Introducing Industry Members would comply with the 
requirements in the CAT NMS Plan applicable to Small Industry Members. 
On April 20, 2020, the SEC granted the Participants exemptive relief 
with regard to Introducing Industry Members.\28\
---------------------------------------------------------------------------

    \27\ See Letter from Michael Simon, CAT NMS Plan Operating 
Committee Chair, to Vanessa Countryman, Secretary, SEC, dated 
February 3, 2020, re: Request for Exemption from Certain Provisions 
of the National Market System Plan Governing the Consolidated Audit 
Trail related to Small Industry Members.
    \28\ See Securities Exchange Act Release No. 88703 (April 20, 
2020), 85 FR 23115 (April 24, 2020).
---------------------------------------------------------------------------

    As a result, FINRA proposes to amend its Compliance Rule to adopt a 
definition of ``Introducing Industry Member'' and to revise Rule 6985 
to require Introducing Industry Members to comply with the requirements 
of the CAT NMS Plan applicable to Small Industry Members. Specifically, 
FINRA proposes to define ``Introducing Industry Member'' in proposed 
paragraph (v) to Rule 6810, as ``a broker-dealer that does not qualify 
as a Small Industry Member solely because such broker-dealer satisfies 
Rule 0-10(i)(2) under the Exchange Act in that it introduces 
transactions on a fully disclosed basis to clearing firms that are not 
small businesses or small organizations.'' FINRA also proposes to add a 
new paragraph (c)(3) to Rule 6895 to state that ``Introducing Industry 
Members must comply with the requirements of the CAT NMS Plan 
applicable to Small Industry Members.'' With these changes, Introducing 
Industry Members would be required to comply with the requirements in 
the CAT NMS Plan applicable to Small Industry Members, rather than the 
requirements in the CAT NMS Plan applicable to Large Industry Members.
vi. CCID/PII
    On January 29, 2020, the Participants filed with the Commission a 
request for exemptive relief from certain requirements related to 
reporting SSNs, dates of birth and account numbers to the CAT.\29\ The 
Commission, Participants and others indicated security concerns with 
maintaining such sensitive Customer information in the CAT. On March 
17, 2020, the Participants received the exemptive relief, subject to 
certain conditions.\30\ Assuming the Participants comply with the 
conditions set forth in the PII Exemption Order, Industry Members would 
not be required to report SSNs, dates of birth and account numbers to 
the CAT NMS Plan.
---------------------------------------------------------------------------

    \29\ See Letter from Michael Simon, CAT NMS Plan Operating 
Committee Chair, to Vanessa Countryman, Secretary, SEC, dated 
January 29, 2020, re: Request for Exemptive Relief from Certain 
Provisions of the CAT NMS Plan related to Social Security Numbers, 
Dates of Birth and Account Numbers.
    \30\ See Securities Exchange Act Release No. 88393 (March 17, 
2020), 85 FR 16152 (March 20, 2020) (Order Granting Conditional 
Exemptive Relief, Pursuant to Section 36 and Rule 608(e) of the 
Securities Exchange Act of 1934, from Section 6.4(d)(ii)(C) and 
Appendix D Sections 4.1.6, 6.2, 8.1.1, 8.2, 9.1, 9.2, 9.4, 10.1, and 
10.3 of the National Market System Plan Governing the Consolidated 
Audit Trail) (``PII Exemption Order''). The PII Exemption Order 
lists several conditions that must be met by FINRA. If FINRA does 
not satisfy the conditions, the PII Exemption Order would not apply 
to FINRA.
---------------------------------------------------------------------------

    As described in the request for exemptive relief, the Participants 
requested exemptive relief to allow for an alternative approach to 
generating a CAT Customer ID (``CCID'') without requiring Industry 
Members to report SSNs to the CAT (the ``CCID Alternative''). In lieu 
of retaining such SSNs in the CAT, the Participants would use the CCID 
Alternative, a strategy developed by the Chief Information Security 
Officer for the CAT and the Chief Information Security Officers from 
each of the Participants, in consultation with security experts from 
member firms of Securities Industry and Financial Markets Association. 
The CCID Alternative facilitates the ability of the Plan Processor to 
generate a CCID without requiring the Plan Processor to receive SSNs or 
store SSNs within the CAT. Under the CCID Alternative, the Plan 
Processor would generate a unique CCID using a two-phase transformation 
process that avoids having SSNs reported to or stored in the CAT. In 
the first transformation phase, a CAT Reporter would transform the SSN 
to an interim value (the ``transformed value''). This transformed 
value, and not the SSN, would be submitted to a separate system within 
the CAT (``CCID Subsystem''). The CCID Subsystem would then perform a 
second transformation to create the globally unique CCID for each 
Customer that is unknown to, and not shared with, the original CAT 
Reporter. The CCID would then be sent to the customer and account 
information system of the CAT, where it would be linked with the other 
customer and account information. The CCID may then be used by the 
Participants' regulatory staff and the SEC in queries and analysis of 
CAT Data. To implement the CCID Alternative, the Participants requested 
exemptive relief from the requirement in Section 6.4(d)(ii)(C) of the 
CAT NMS Plan to require, through their Compliance Rules, Industry 
Members to record and report SSNs to the Central Repository for the 
original receipt of an order. As set forth in one condition of the PII 
Exemption Order, Industry Members would be required to transform an SSN 
to an interim value, and report the transformed value to the CAT.
    The Participants also requested exemptive relief to allow for an 
alternative approach, which would exempt the reporting of dates of 
birth and account numbers \31\ to the CAT (``Modified PII Approach''), 
and instead would require Industry Members to report the year of birth 
and the Firm Designated ID for each trading account associated with the 
Customers. To implement the Modified PII Approach, the Participants 
requested exemptive relief from the requirement in Section 
6.4(d)(ii)(C) of the CAT NMS Plan to require, through their Compliance 
Rules, Industry Members to record and report to the Central Repository 
for the original receipt of an order dates of birth and account numbers 
for Customers. As conditions to the exemption, Industry Members would 
be required to report the year of birth of an individual to the Central 
Repository, and to report the Firm Designated ID to the Central 
Repository.
---------------------------------------------------------------------------

    \31\ With respect to this aspect of the requested relief, the 
PII Exemption Order provided relief with regard to the reporting of 
all account numbers, not just account numbers for individuals as 
requested by the Participants.
---------------------------------------------------------------------------

    To implement the request for exemptive relief and to eliminate the 
requirement to report SSNs, date of birth and account numbers to the 
CAT, FINRA proposes to amend its Compliance Rule to reflect the 
exemptive relief. Rule 6830(a)(2)(C) states that:

[s]ubject to paragraph (a)(3) below, each Industry Member shall 
record and report to the Central Repository the following, as

[[Page 38479]]

applicable (``Received Industry Member Data'' and collectively with 
the information referred to in Rule 6830(a)(1) ``Industry Member 
Data'')) in the manner prescribed by the Operating Committee 
pursuant to the CAT NMS Plan: . . . (C) for original receipt or 
origination of an order, the Firm Designated ID for the relevant 
Customer, and in accordance with Rule 6840, Customer Account 
Information and Customer Identifying Information for the relevant 
Customer.

Similarly, Rule 6840 requires the reporting of Customer Account 
Information and Customer Identifying Information to the Central 
Repository. Currently, Rule 6810(m) defines ``Customer Identifying 
Information'' to include, with respect to individuals, ``date of 
birth'' and ``individual tax payer identification number (``ITIN'')/
social security number (``SSN'').'' Accordingly, FINRA proposes to 
replace ``date of birth'' in the definition of ``Customer Identifying 
Information'' in Rule 6810(m) (now renumbered Rule 6810(n)) with ``year 
of birth'' and to delete ``individual tax payer identification number 
(``ITIN'')/social security number (``SSN'')'' from Rule 6810(m) (now 
renumbered Rule 6810(n)). In addition, currently, Rule 6810(l) defines 
``Customer Account Information'' to include account numbers. FINRA 
proposes to delete ``account number'' from the definition of ``Customer 
Account Information'' in Rule 6810(l) (now renumbered Rule 6810(m)).
    FINRA also proposes to add a definition of the term ``Transformed 
Value for individual tax payer identification number (``ITIN'')/social 
security number (``SSN'')'' to Rule 6810. Specifically, FINRA proposes 
to add paragraph (pp) to Rule 6810 to define ``Transformed Value for 
individual tax payer identification number (``ITIN'')/social security 
number (``SSN'')'' to mean ``the interim value created by an Industry 
Member based on a Customer ITIN/SSN.''
    FINRA proposes to revise Rule 6830(a)(2)(C) to include the 
Transformed Value for individual tax payer identification number 
(``ITIN'')/social security number (``SSN''). Specifically, FINRA 
proposes to revise Rule 6830(a)(2)(C) to state:

[s]ubject to paragraph (a)(3) below, each Industry Member shall 
record and report to the Central Repository the following, as 
applicable (``Received Industry Member Data'' and collectively with 
the information referred to in Rule 6830(a)(1) ``Industry Member 
Data'')) in the manner prescribed by the Operating Committee 
pursuant to the CAT NMS Plan: . . . (C) for original receipt or 
origination of an order, the Firm Designated ID for the relevant 
Customer, Transformed Value for individual tax payer identification 
number (``ITIN'')/social security number (``SSN''), and in 
accordance with Rule 6840, Customer Account Information and Customer 
Identifying Information for the relevant Customer.

    FINRA also proposes to include the Transformed Value for individual 
tax payer identification number (``ITIN'')/social security number 
(``SSN'') in the Customer information reporting required under Rule 
6840. Specifically, FINRA proposes to revise Rule 6840(a) to require 
each Industry Member to submit to the Central Repository the 
Transformed Value for individual tax payer identification number 
(``ITIN'')/social security number (``SSN''), for each of its Customers 
with an Active Account prior to such Industry Member's commencement of 
reporting to the Central Repository and in accordance with the 
deadlines set forth in Rule 6880. FINRA also proposes to revise Rule 
6840(b) to require each Industry Member to submit to the Central 
Repository any updates, additions or other changes to the Transformed 
Value for individual tax payer identification number (``ITIN'')/social 
security number (``SSN'') for each of its Customers with an Active 
Account on a daily basis. In addition, FINRA proposes to revise Rule 
6840(c) to require, on a periodic basis as designated by the Plan 
Processor and approved by the Operating Committee, each Industry Member 
to submit to the Central Repository a complete set of the Transformed 
Value for individual tax payer identification number (``ITIN'')/social 
security number (``SSN'') for each of its Customers with an Active 
Account. FINRA also proposes to revise Rule 6840(d) to require, for 
each Industry Member for which errors in the Transformed Value for 
individual tax payer identification number (``ITIN'')/social security 
number (``SSN'') for each of its Customers with an Active Account 
submitted to the Central Repository have been identified by the Plan 
Processor or otherwise, such Industry Member to submit corrected data 
to the Central Repository by 5:00 p.m. Eastern Time on T+3.
    Subparagraph (1)(B) of Rule 6810(m), the definition of ``Customer 
Account Information'' states that ``in those circumstances in which an 
Industry Member has established a trading relationship with an 
institution but has not established an account with that institution, 
the Industry Member will . . . provide the relationship identifier in 
lieu of the `` `account number.' '' As an account number will no longer 
be an element in ``Customer Account Information,'' the relationship 
identifier used in lieu of the account number will no longer be 
required as an element of Customer Account Information. Therefore, 
FINRA proposes to delete the requirement set forth in Rule 
6810(m)(1)(B) regarding relationship identifiers from Rule 6810(m).
    With these changes, Industry Members would not be required to 
report to the Central Repository dates of birth, SSNs or account 
numbers pursuant to Rule 6830(a)(2)(C). However, Industry Members would 
be required to report the Transformed Value for individual tax payer 
identification number (``ITIN'')/social security number (``SSN'') and 
the year of birth to the Central Repository.\32\
---------------------------------------------------------------------------

    \32\ FINRA anticipates that the Compliance Rule may be further 
amended when further details regarding the CCID Alternative are 
finalized.
---------------------------------------------------------------------------

vii. FINRA Facility Data Linkage
    On June 5, 2020, the Participants filed with the Commission a 
request for exemptive relief from certain provisions of the CAT NMS 
Plan to allow for an alternative approach to the reporting of clearing 
numbers and cancelled trade indicators.\33\ The SEC provided this 
exemptive relief on June 11, 2020.\34\ FINRA is required to report to 
the Central Repository data collected by FINRA's Trade Reporting 
Facilities, FINRA's OTC Reporting Facility or FINRA's Alternative 
Display Facility (collectively, ``FINRA Facility'') pursuant to 
applicable SRO rules (``FINRA Facility Data''). Included in this FINRA 
Facility Data is the clearing number of the clearing broker for a 
reported trade as well as the cancelled trade indicator. Under this 
alternative approach, the clearing number and the cancelled trade 
indicator of the FINRA Facility Data that is reported to the CAT would 
be linked to the related execution reports reported by Industry 
Members. To implement this approach in a phased manner, the 
Participants received exemptive relief from the requirement in Sections 
6.4(d)(ii)(A)(2) and (B) of the CAT NMS Plan to require, through their 
Compliance Rules, that Industry Members record and report to the 
Central Repository: (1) If the order is executed, in whole or in part, 
the SRO-Assigned Market Participant Identifier of the clearing broker, 
if applicable; and (2) if the trade is cancelled, a cancelled

[[Page 38480]]

trade indicator, subject to certain conditions.
---------------------------------------------------------------------------

    \33\ See Letter from Michael Simon, CAT NMS Plan Operating 
Committee Chair, to Vanessa Countryman, Secretary, SEC, dated June 
5, 2020, re: Request for Exemption from Certain Provisions of the 
National Market System Plan Governing the Consolidated Audit Trail 
related to FINRA Facility Data Linkage.
    \34\ See Securities Exchange Act Release No. 89051 (June 11, 
2020), 85 FR 36631 (June 17, 2020).
---------------------------------------------------------------------------

    As a condition to this exemption, the Participants would continue 
to require Industry Members to submit a trade report for a trade and, 
if the trade is cancelled, a cancellation, to a FINRA Facility pursuant 
to applicable SRO rules, and to report the corresponding execution to 
the Central Repository. In addition, Industry Members would be required 
to report to the Central Repository the unique trade identifier 
reported to a FINRA Facility with the corresponding trade report. 
Furthermore, if an Industry Member does not submit a cancellation to a 
FINRA Facility, or is unable to provide a link between the execution 
reported to the Central Repository and the related FINRA Facility trade 
report, then the Industry Member would be required to record and report 
to the Central Repository a cancelled trade indicator and cancelled 
trade timestamp if the trade is cancelled. Similarly, if an Industry 
Member does not submit the clearing number of the clearing broker to a 
FINRA Facility for a trade, or is unable to provide a link between the 
execution reported to the Central Repository and the related FINRA 
Facility trade report, then the Industry Member would be required to 
record and report to the Central Repository the clearing number as well 
as contra party information.
    As a result, FINRA proposes to amend its Compliance Rule to reflect 
the exemptive relief to implement this alternative approach. 
Specifically, FINRA proposes to require Industry Members to report to 
the CAT with an execution report the unique trade identifier reported 
to a FINRA Facility with the corresponding trade report. For example, 
the unique trade identifier for the OTC Reporting Facility and the 
Alternative Display Facility would be the Compliance ID, for the FINRA/
Nasdaq Trade Reporting Facility, it would be the Branch Sequence 
Number, and for the FINRA/NYSE Trade Reporting Facility, it would the 
FINRA Compliance Number. This unique trade identifier would be used to 
link the FINRA Facility Data with the execution report in the CAT. 
Specifically, FINRA proposes to add new paragraph (a)(2)(E) to Rule 
6830, which states that:

    (E) If an Industry Member is required to submit and submits a 
trade report for a trade, and, if the trade is cancelled, a 
cancellation, to one of FINRA's Trade Reporting Facilities, OTC 
Reporting Facility or Alternative Display Facility pursuant to 
applicable SRO rules, and the Industry Member is required to report 
the corresponding execution and/or cancellation to the Central 
Repository:
    (i) The Industry Member is required to report to the Central 
Repository the trade identifier reported by the Industry Member to 
such FINRA facility for the trade when the Industry Member reports 
the execution of an order pursuant to Rule 6830(a)(1)(E) or 
cancellation of an order pursuant to Rule 6830(a)(1)(D) beginning 
June 22, 2020 for Large Industry Members and Small Industry OATS 
Reporters and beginning December 13, 2021 for Small Industry Non-
OATS Reporters, and such trade identifier must be unique beginning 
October 26, 2020 for Large Industry Members and Small Industry OATS 
Reporters and beginning December 13, 2021 for Small Industry Non-
OATS Reporters.

    FINRA also proposes to relieve Industry Members of the obligation 
to report to the CAT data related to clearing brokers and trade 
cancellations pursuant to Rules 6830(a)(2)(A)(ii) and (B), 
respectively, as this data will be reported by FINRA to the CAT, except 
in certain circumstances. Accordingly, FINRA proposes new paragraphs 
(a)(2)(E)(ii) and (iii) of Rule 6830, which would state:

    (ii) If the order is executed in whole or in part, and the 
Industry Member submits the trade report to one of FINRA's Trade 
Reporting Facilities, OTC Reporting Facility or Alternative Display 
Facility pursuant to applicable SRO rules, the Industry Member is 
not required to submit the SRO-Assigned Market Participant 
Identifier of the clearing broker pursuant to Rule 
6830(a)(2)(A)(ii); provided, however, if the Industry Member does 
not report the clearing number of the clearing broker to such FINRA 
facility for a trade, or does not report the unique trade identifier 
to the Central Repository as required by Rule 6830(a)(2)(E)(i), then 
the Industry Member would be required to record and report to the 
Central Repository the clearing number of the clearing broker as 
well as information about the contra party to the trade beginning 
April 26, 2021 for Large Industry Members and Small Industry OATS 
Reporters and beginning December 13, 2021 for Small Industry Non-
OATS Reporters; and
    (iii) if the trade is cancelled and the Industry Member submits 
the cancellation to one of FINRA's Trade Reporting Facilities, OTC 
Reporting Facility or Alternative Display Facility pursuant to 
applicable SRO rules, the Industry Member is not required to submit 
the cancelled trade indicator pursuant to Rule 6830(a)(2)(B); 
provided, however, if the Industry Member does not report a 
cancellation for a cancelled trade to such FINRA facility, or does 
not report the unique trade identifier as required by 
6830(a)(2)(E)(i), then the Industry Member would be required to 
record and report to the Central Repository a cancelled trade 
indicator as well as a cancelled trade time stamp beginning June 22, 
2020 for Large Industry Members and Small Industry OATS Reporters 
and beginning December 13, 2021 for Small Industry Non-OATS 
Reporters.

    FINRA has filed the proposed rule change for immediate 
effectiveness and has requested that the Commission waive the 
requirement that the proposed rule change not become operative for 30 
days after the date of the filing, so the proposed rule change can 
become operative on June 22, 2020.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\35\ which requires, among 
other things, that FINRA rules must be designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest, and Section 15A(b)(9) of the Act,\36\ which requires 
that FINRA rules not impose any burden on competition that is not 
necessary or appropriate.
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    \35\ 15 U.S.C. 78o-3(b)(6).
    \36\ 15 U.S.C. 78o-3(b)(9).
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    FINRA believes that the proposed rule change is consistent with the 
Act because it is consistent with certain exemptions from the CAT NMS 
Plan, facilitates the retirement of certain existing regulatory 
systems, and is designed to assist FINRA and its Industry Members in 
meeting regulatory obligations pursuant to the Plan. In approving the 
Plan, the SEC noted that the Plan ``is necessary and appropriate in the 
public interest, for the protection of investors and the maintenance of 
fair and orderly markets, to remove impediments to, and perfect the 
mechanism of a national market system, or is otherwise in furtherance 
of the purposes of the Act.'' \37\ To the extent that this proposed 
rule change implements the Plan, including the exemptive relief, and 
applies specific requirements to Industry Members, FINRA believes that 
the proposed rule change furthers the objectives of the Plan, as 
identified by the SEC, and is therefore consistent with the Act.
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    \37\ See Securities Exchange Act Release No. 79318 (November 15, 
2016), 81 FR 84696, 84697 (November 23, 2016).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. FINRA notes that the proposed 
rule change is consistent with certain exemptions from the CAT NMS 
Plan, will facilitate the retirement of certain existing regulatory 
systems, and is designed to assist FINRA in meeting its regulatory 
obligations pursuant to the Plan. FINRA also notes that the proposed 
amendments to the Compliance Rules

[[Page 38481]]

will apply equally to all Industry Members that trade NMS Securities 
and OTC Equity Securities. In addition, FINRA and all national 
securities exchanges are proposing these amendments to their Compliance 
Rules. Therefore, this is not a competitive rule filing and does not 
impose a burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \38\ and Rule 19b-
4(f)(6) thereunder.\39\
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    \38\ 15 U.S.C. 78s(b)(3)(A).
    \39\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
FINRA has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \40\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\41\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. FINRA has asked the 
Commission to waive the 30-day operative delay so that the proposal may 
become operative by June 22, 2020. The Commission believes that waiver 
of the 30-day operative delay is consistent with the protection of 
investors and the public interest because it implements exemptive 
relief from the CAT NMS Plan granted by the Commission and facilitates 
the start of Industry Member reporting on June 22, 2020. In addition, 
as noted by the FINRA, the proposed rule change is based on a filing 
recently approved by the Commission.\42\ Accordingly, the Commission 
waives the 30-day operative delay and designates the proposed rule 
change operative as of June 22, 2020.\43\
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    \40\ 17 CFR 240.19b-4(f)(6).
    \41\ 17 CFR 240.19b-4(f)(6)(iii).
    \42\ See Securities Exchange Act Release No. 89108 (June 19, 
2020).
    \43\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-FINRA-2020-018 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2020-018. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10 a.m. and 3 
p.m. Copies of such filing also will be available for inspection and 
copying at the principal office of FINRA. All comments received will be 
posted without change. Persons submitting comments are cautioned that 
we do not redact or edit personal identifying information from comment 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
FINRA-2020-018 and should be submitted on or before July 17, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\44\
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    \44\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-13769 Filed 6-25-20; 8:45 am]
BILLING CODE 8011-01-P

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