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), 47824-47827 [2020-17134]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 85, Number 152 (Thursday, August 6, 2020)]
[Notices]
[Pages 47824-47827]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-17134]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89441; File No. SR-FINRA-2020-023]


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)

July 31, 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 July 30, 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. The Commission is 
publishing this notice to solicit

[[Page 47825]]

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.
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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'') \3\ to be consistent with an amendment to the CAT 
NMS Plan recently approved by the Commission.
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    \3\ 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 an amendment to the CAT NMS Plan recently approved by 
the Commission.\4\ The Commission approved an amendment to the CAT NMS 
Plan to amend the requirements for Firm Designated IDs in four ways: 
(1) To prohibit the use of account numbers as Firm Designated IDs for 
trading accounts that are not proprietary accounts; (2) to require that 
the Firm Designated ID for a trading account be persistent over time 
for each Industry Member so that a single account may be tracked across 
time within a single Industry Member; (3) to permit the use of 
relationship identifiers as Firm Designated IDs in certain 
circumstances; and (4) to permit the use of entity identifiers as Firm 
Designated IDs in certain circumstances (the ``FDID Amendment''). As a 
result, FINRA proposes to amend the definition of ``Firm Designated 
ID'' in Rule 6810 to reflect the changes to the CAT NMS Plan regarding 
the requirements for Firm Designated IDs.
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    \4\ See Securities Exchange Act Release No. 89397 (July 24, 
2020), 85 FR 45941 (July 30, 2020).
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    Rule 6810(r) defines the term ``Firm Designated ID'' to mean ``a 
unique identifier for each trading account designated by Industry 
Members for purposes of providing data to the Central Repository, where 
each such identifier is unique among all identifiers from any given 
Industry Member for each business date.''
(1) Prohibit Use of Account Numbers
    FINRA proposes to amend the definition of ``Firm Designated ID'' in 
Rule 6810(r) to provide that Industry Members may not use account 
numbers as the Firm Designated ID for trading accounts that are not 
proprietary accounts. Specifically, FINRA proposes to add the following 
to the definition of a Firm Designated ID: ``provided, however, such 
identifier may not be the account number for such trading account if 
the trading account is not a proprietary account.''
(2) Persistent Firm Designated ID
    FINRA also proposes to amend the definition of ``Firm Designated 
ID'' in Rule 6810(r) to require a Firm Designated ID assigned by an 
Industry Member to a trading account to be persistent over time, not 
for each business day.\5\ To effect this change, FINRA proposes to 
amend the definition of ``Firm Designated ID'' in Rule 6810(r) to add 
``and persistent'' after ``unique'' and delete ``for each business 
date'' so that the definition of ``Firm Designated ID'' would read, in 
relevant part, as follows:
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    \5\ If an Industry Member assigns a new account number or entity 
identifier to a client or customer due to a merger, acquisition or 
some other corporate action, then the Industry Member should create 
a new Firm Designated ID to identify the new account identifier/
relationship identifier/entity identifier in use at the Industry 
Member for the entity. In addition, if a previously assigned Firm 
Designated ID is no longer in use by an Industry Member (e.g., if 
the trading account associated with the Firm Designated ID has been 
closed), then an Industry Member may reuse the Firm Designated ID 
for another trading account. The Plan Processor will maintain a 
history of the use of each Firm Designated ID, including, for 
example, the effective dates of the Firm Designated ID with respect 
to each associated trading account.

A unique and persistent identifier for each trading account 
designated by Industry Members for purposes of providing data to the 
Central Repository . . . where each such identifier is unique among 
all identifiers from any given Industry Member.
(3) Relationship Identifiers
    The FDID Amendment also permits an Industry Member to provide a 
relationship identifier as the Firm Designated ID, rather than an 
identifier that represents a trading account, in certain scenarios in 
which an Industry Member does not have an account number available to 
its order handling and/or execution system at the time of order receipt 
(e.g., certain institutional accounts, managed accounts, accounts for 
individuals). In such scenarios, the trading account structure may not 
be available when a new order is first received from a client and, 
instead, only an identifier representing the client's trading 
relationship is available. In these limited instances, the Industry 
Member may provide an identifier used by the Industry Member to 
represent the client's trading relationship with the Industry Member 
instead of an account number.
    When a trading relationship is established at a broker-dealer for 
clients, the broker-dealer typically creates a parent account, under 
which additional subaccounts are created. However, in some cases, the 
broker-dealer establishes the parent relationship for a client using a 
relationship identifier as opposed to an actual parent account. The 
relationship identifier could be any of a variety of identifiers, such 
as a short name for a relevant individual or institution. This 
relationship identifier is established prior to any trading for the 
client. If a relationship identifier has been established rather than a 
parent account, and an order is placed on behalf of the client, any 
executed trades will be kept in a firm account (e.g., a facilitation or 
average price account) until they are allocated to the proper 
subaccount(s), i.e., the accounts associated with the parent 
relationship identifier connecting them to the client.
    Relationship identifiers are used in circumstances in which the 
account structure is not available to the trading system at the time of 
order placement. The clients have established accounts prior to the 
trade that satisfy relevant regulatory obligations for opening 
accounts, such as Know Your Customer and other customer obligations. 
However, the order receipt workflows operate using relationship 
identifiers, not accounts.
    For Firm Designated ID purposes, as with an identifier for a 
trading account, the relationship identifier must be persistent over 
time. The relationship identifier also must be unique among all 
identifiers from any given Industry Member. With these requirements, a 
single relationship could be tracked

[[Page 47826]]

across time within a single Industry Member using the Firm Designated 
ID. In addition, the relationship identifier must be masked as the 
relationship identifier could be a name or otherwise provide an 
indication as to the identity of the relationship. The masking 
requirement would avoid potentially revealing the identity of the 
relationship.
    An example of the use of a relationship identifier as a Firm 
Designated ID would be as follows: Suppose that Big Fund Manager is 
known in Industry Member A's systems as ``BFM1.'' When an order is 
placed by Big Fund Manager, the order is tagged to BFM1. Industry 
Member A could use a masked version of BFM1 in place of the Firm 
Designated ID representing a trading account when reporting a new order 
from Big Fund Manager instead of the account numbers to which executed 
shares/contracts will be allocated at a later time via a booking or 
other system. Similarly, another example of the use of a relationship 
identifier as a Firm Designated ID would involve an individual in place 
of the Big Fund Manager in the above example.
    In accordance with the FDID Amendment, FINRA proposes to amend the 
definition of a ``Firm Designated ID'' in Rule 6810(r) to permit 
Industry Members to provide a relationship identifier as the Firm 
Designated ID as described above. Specifically, FINRA proposes to amend 
the definition of ``Firm Designated ID'' in Rule 6810(r) to state that 
a Firm Designated ID means, in relevant part, ``a unique and persistent 
relationship identifier when an Industry Member does not have an 
account number available to its order handling and/or execution system 
at the time of order receipt, provided, however, such identifier must 
be masked.''
(4) Entity Identifiers
    The FDID Amendment also permits Industry Members to provide an 
entity identifier, rather than an identifier that represents a trading 
account, when an employee of the Industry Member is exercising 
discretion over multiple client accounts and creates an aggregated 
order for which a trading account number of the Industry Member is not 
available at the time of order origination. An entity identifier is an 
identifier of the Industry Member that represents the firm 
discretionary relationship with the client rather than a firm trading 
account.
    The scenarios in which a firm uses an entity identifier are 
comparable to when a firm uses a relationship identifier (as described 
above) except the entity identifier represents the Industry Member 
rather than a client. As with relationship identifiers, entity 
identifiers are used in circumstances in which the account structure is 
not available to the trading system at the time of order placement. In 
this workflow, the Industry Member's order handling and/or execution 
system does not have an account number at the time of order 
origination. The relevant clients that will receive an allocation of 
the execution have established accounts prior to the trade that satisfy 
relevant regulatory obligations for opening accounts, such as Know Your 
Customer and other customer obligations. However, the order origination 
workflows operate using entity identifiers, not accounts.
    For Firm Designated ID purposes, as with the identifier for a 
trading account or a relationship, the entity identifier must be 
persistent over time. The entity identifier also must be unique among 
all identifiers from any given Industry Member. Each Industry Member 
must make its own risk determination as to whether it believes it is 
necessary to mask the entity identifier when using an entity identifier 
to report the Firm Designated ID to CAT.
    An example of the use of an entity identifier as a Firm Designated 
ID would be when Industry Member 1 has an employee that is a registered 
representative that has discretion over several client accounts held at 
Industry Member 1. The registered representative places an order that 
he will later allocate to individual client accounts. At the time the 
order is placed, the trading system only knows it involves a 
representative of Industry Member 1 and it does not have a specific 
trading account that could be used for Firm Designated ID reporting. 
Therefore, Industry Member 1 could report IM1, its entity identifier, 
as the FDID with the new order.
    In accordance with the FDID Amendment, FINRA proposes to amend the 
definition of ``Firm Designated ID'' in Rule 6810(r) to permit the use 
of an entity identifier as a Firm Designated ID as described above. 
Specifically, FINRA proposes to amend the definition of ``Firm 
Designated ID'' in Rule 6810(r) to state that a Firm Designated ID 
means, in relevant part, ``a unique and persistent entity identifier 
when an employee of an Industry Member is exercising discretion over 
multiple client accounts and creates an aggregated order for which a 
trading account number of the Industry Member is not available at the 
time of order origination.''
    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 the date of filing.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\6\ 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,\7\ which requires 
that FINRA rules not impose any burden on competition that is not 
necessary or appropriate.
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    \6\ 15 U.S.C. 78o-3(b)(6).
    \7\ 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 and implements a recent amendment to 
the CAT NMS Plan 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.'' \8\ To the extent that 
this proposed rule change implements the Plan 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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    \8\ 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 a recent amendment to the CAT NMS Plan 
and is designed to assist FINRA in meeting its regulatory obligations 
pursuant to the Plan. FINRA also notes that the FDID Amendment will 
apply equally to all Industry Members that trade NMS Securities and

[[Page 47827]]

OTC Equity Securities. FINRA anticipates no new costs to member firms 
reporting to the CAT as a result of this proposal, because any related 
costs have already been built in the technical specifications 
previously determined and shared broadly in conformance with the CAT 
NMS Plan, as amended. In addition, FINRA and all national securities 
exchanges are proposing this amendment 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

    FINRA has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \9\ and Rule 19b-4(f)(6) thereunder.\10\ 
Because the 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 prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \11\ and Rule 19b-
4(f)(6)(iii) thereunder.\12\
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    \9\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \10\ 17 CFR 240.19b-4(f)(6).
    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires FINRA to give the Commission written notice of FINRA's 
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) \13\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\14\ 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 July 31, 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 an amendment to 
the CAT NMS Plan approved by the Commission.\15\ Accordingly, the 
Commission hereby waives the 30-day operative delay and designates the 
proposal operative as of July 31, 2020.\16\
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    \13\ 17 CFR 240.19b-4(f)(6).
    \14\ 17 CFR 240.19b-4(f)(6)(iii).
    \15\ See Securities Exchange Act Release No. 89397 (July 24, 
2020) (Federal Register publication pending).
    \16\ 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 this 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 will institute proceedings to 
determine whether the proposed rule change 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-2020-023 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-2020-023. 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 10:00 a.m. and 
3:00 p.m. Copies of the 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-2020-023, and should be submitted 
on or before August 27, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-17134 Filed 8-5-20; 8:45 am]
BILLING CODE 8011-01-P