Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving Proposed Rule Change Relating to Granularity of Timestamps in Trade Reports Submitted to FINRA's Equity Trade Reporting Facilities, 73541-73544 [2020-25381]
Download as PDF
<![CDATA[
Federal Register / Vol. 85, No. 223 / Wednesday, November 18, 2020 / Notices
khammond on DSKJM1Z7X2PROD with NOTICES
unfair discrimination between
customers, issuers, brokers, or dealers.
The Exchange believes that the
proposed change is reasonable,
equitable and not unfairly
discriminatory as it does not change the
fees or rebates assessed by the
Exchange, but rather corrects an
inadvertent drafting error that amended
a footnote in the Fee Schedule
appended to fee codes for which the
Exchange did not intend the rebate
change proposed in the September
Filing to apply. As an unintended result
of a drafting error in the September
Filing to change language in footnote 7
to reflect updated rebates applicable
only to orders that yield fee codes B, V
and Y, the Fee Schedule is missing
rebate-related language that applies to
orders that yield fee codes HB, HI, HV,
HY, RP and ZA, to which footnote 7 is
also appended. The Exchange believes
that adopting footnote 19 to instead
reflect the recently adopted rates for
orders in securities priced below $1.00
that yield fee codes B, V and Y and
revising footnote 7 to again reflect the
correct rates for the fee codes to which
it is appended (HB, HI, HV, HY, RP and
ZA) would reduce confusion around the
Exchange’s current rates and ensure that
these fees are appropriately referenced
in the Fee Schedule. The rates described
in the proposed language in footnote 7
are the same as the rates identified for
fee codes HB, HI, HV, HY, RP and ZA
prior to the inadvertent change to this
language in the September Filing, and
the Fee Schedule is also being amended
to explicitly provide for the new rates
applicable to fee codes B, V and Y,
pursuant to the September Filing, in
proposed footnote 19. The Exchange
believes that these steps will help
ensure that its Fee Schedule fully and
accurately represents the rates assessed
for orders in securities priced below
$1.00 that yield fee codes HB, HI, HV,
HY, RP and ZA, as well as B, V and Y,
as previously filed with the
Commission. The Exchange again notes
that the proposed rule change is merely
corrective in nature and does not change
any rates that are currently applied to
orders that yield fee codes B, V, Y, HB,
HI, HV, HY, RP and ZA.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on intramarket or
intermarket competition that is not
necessary or appropriate in furtherance
of the purposes of the Act because the
proposed rule change merely corrects an
inadvertent drafting error and is
designed to reduce potential confusion
VerDate Sep<11>2014
17:59 Nov 17, 2020
Jkt 253001
regarding the appropriate subdollar
rates referenced in the footnotes in the
Fee Schedule. The Exchange believes
that this change would add clarity and
increase transparency to the benefit of
Members and investors without having
any impact on competition.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 7 and paragraph (f) of Rule
19b–4 thereunder.8 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 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 rule-comments@
sec.gov. Please include File Number SR–
CboeBZX–2020–084 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–CboeBZX–2020–084. 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
7 15
8 17
PO 00000
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f).
Frm 00087
Fmt 4703
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 the Exchange. 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–CboeBZX–2020–084 and
should be submitted on or before
December 9, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.9
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–25384 Filed 11–17–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–90396; File No. SR–FINRA–
2020–029]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Order Approving
Proposed Rule Change Relating to
Granularity of Timestamps in Trade
Reports Submitted to FINRA’s Equity
Trade Reporting Facilities
November 12, 2020.
I. Introduction
On September 17, 2020, the Financial
Industry Regulatory Authority, Inc.
(‘‘FINRA’’) filed with the Securities and
Exchange Commission (‘‘SEC’’ or
‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
9 17
Sfmt 4703
73541
CFR 200.30–3(a)(12).
E:\FR\FM\18NON1.SGM
18NON1
73542
Federal Register / Vol. 85, No. 223 / Wednesday, November 18, 2020 / Notices
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
require member firms, in accordance
with a Commission order granting
exemptive relief from certain
requirements of the Consolidated Audit
Trail (‘‘CAT’’) NMS Plan,3 to report time
fields, in trade reports submitted to an
equity trade reporting facility (‘‘FINRA
Facility’’),4 using the same timestamp
granularity that they use to report to the
CAT. The proposed rule change was
published for comment in the Federal
Register on September 29, 2020.5 The
Commission received no comment
letters on the proposed rule change.
This order approves the proposed rule
change.
II. Description of the Proposal
A. Background
Currently, FINRA’s equity trade
reporting rules require a member to
report all time fields—including time of
trade execution and, if applicable, time
of trade cancellation—to a FINRA
Facility in milliseconds, if the member’s
system captures time in milliseconds;
otherwise a report in seconds is
permissible.6 However, FINRA’s CAT
Compliance Rule 7 requires an Industry
Member 8 to report a timestamp for a
Reportable Event,9 including a trade
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 89051
(June 11, 2020), 85 FR 36631 (June 17, 2020)
(‘‘Facility Data Exemption Order’’ or ‘‘Order’’). The
Commission approved the CAT NMS Plan, as
modified, on November 15, 2016. See Securities
Exchange Act Release No. 79318 (November 15,
2016), 81 FR 84696 (November 23, 2016) (‘‘CAT
NMS Plan Approval Order’’).
4 The FINRA Facilities are the Alternative Display
Facility (‘‘ADF’’), the FINRA/Nasdaq Trade
Reporting Facilities (‘‘TRFs’’), the FINRA/NYSE
TRF, and the OTC Reporting Facility (‘‘ORF’’).
Member firms use the ORF to report transactions in
OTC Equity Securities and use the other facilities
to report transactions in NMS stocks.
5 See Securities Exchange Act Release No. 88973
(September 23, 2020), 85 FR 61044 (September 29,
2020) (‘‘Notice’’).
6 See FINRA Rules 6282.04 and 7130.01 (relating
to the ADF); 6380A.04 and 7230A.01 (relating to the
FINRA/Nasdaq TRFs); 6380B.04 and 7230B.01
(relating to the FINRA/NYSE TRF); 6622.04 and
7330.01 (relating to the ORF).
7 See FINRA Rule 6860(a). ‘‘Compliance Rule’’ is
defined under Section 1.1 of the CAT NMS Plan to
mean ‘‘with respect to a Participant, the rule(s)
promulgated by such Participant as contemplated
by Section 3.11.’’ FINRA’s CAT Compliance Rule is
the FINRA Rule 6800 Series (Consolidated Audit
Trail Compliance Rule).
8 ‘‘Industry Member’’ is defined under FINRA
Rule 6810(s) to mean a ‘‘member of a national
securities exchange or a member of a national
securities association that is required to record and
report information pursuant to the CAT NMS Plan
and [the FINRA] Rule 6800 Series.’’
9 ‘‘Reportable Event’’ is defined under Section 1.1
of the CAT NMS Plan and FINRA Rule 6810(kk) to
include, ‘‘but is not limited to, the original receipt
or origination, modification, routing, execution (in
khammond on DSKJM1Z7X2PROD with NOTICES
2 17
VerDate Sep<11>2014
17:59 Nov 17, 2020
Jkt 253001
execution, to the CAT’s Central
Repository 10 in milliseconds and, if the
member’s system captures time in finer
increments, to report in such finer
increments up to nanoseconds (except
as otherwise provided under FINRA
Rule 6860 for Manual Order Events).11
Thus, currently there is a difference
between the timestamp granularity
requirements applicable to member
firms reporting to the FINRA Facilities
(up to milliseconds) and to the CAT (up
to nanoseconds).
On June 11, 2020, the Commission
granted the CAT NMS Plan Participants
(‘‘Participants’’) exemptive relief from,
in pertinent part, Section 6.4(d)(ii)(B) of
the CAT NMS Plan, which states that
each Participant, through its CAT
Compliance Rule, must require its
Industry Members to record and report
to the Central Repository a cancelled
trade indicator for any trade that is
cancelled. In their request for exemptive
relief, the Participants explained that
the FINRA Facility Data,12 which would
contain cancelled trade indicators, are
required to be reported to the Central
Repository in each instance currently
required under the CAT NMS Plan.
Industry Members would continue to be
required to submit either a trade report
or a trade cancellation with the requisite
information to a FINRA Facility, in
accordance with existing rules set by
each Participant for its members. For a
cancelled trade, an Industry Member
would continue to be required to submit
a trade cancellation to a FINRA Facility.
The Participants stated in their
request for exemptive relief that they
would require the Plan Processor 13 to
link the FINRA Facility Data to Industry
Member execution reports submitted to
the Central Repository beginning on
October 26, 2020. The Participants
whole or in part) and allocation of an order, and
receipt of a routed order.’’
10 ‘‘Central Repository’’ is defined under Section
1.1 of the CAT NMS Plan and FINRA Rule 6810(j)
to mean ‘‘the repository responsible for the receipt,
consolidation, and retention of all information
reported to the CAT’’ pursuant to Rule 613 of
Regulation NMS and the CAT NMS Plan.
11 ‘‘Manual Order Event’’ is defined under FINRA
Rule 6810(x) to mean ‘‘a non-electronic
communication of order related information for
which Industry Members must record and report
the time of the event.’’
12 ‘‘FINRA Facility Data’’ was defined by the
Participants in their request for exemptive relief to
include the clearing number of the clearing broker
and the canceled trade indicator. See Facility Data
Exemption Order, 85 FR at 36631.
13 ‘‘Plan Processor’’ is defined under Section 1.1
of the CAT NMS Plan as ‘‘the Initial Plan Processor
or any other Person selected by the Operating
Committee pursuant to SEC Rule 613 and Sections
4.3(b)(i) and 6.1, and with regard to the Initial Plan
Processor, the Selection Plan, to perform the CAT
processing functions required by SEC Rule 613’’
and set forth in the CAT NMS Plan.
PO 00000
Frm 00088
Fmt 4703
Sfmt 4703
explained that the Compliance Rules
would require an Industry Member to
submit to the Central Repository an
execution report submitted to a FINRA
Facility for the corresponding trade
report or trade cancellation, beginning
on June 22, 2020. Industry Members
would be required to report a unique
trade identifier, beginning on October
26, 2020, that would be used by the Plan
Processor to link the data, including the
number of the clearing broker and
cancelled trade information, with the
Industry Member’s execution report.14
Noting the current difference in the
timestamp granularity requirements for
Industry Members reporting to a FINRA
Facility and Industry Members reporting
to the Central Repository, the
Participants stated in the request for
exemptive relief that FINRA would seek
to amend its rules and technical
specifications to require the FINRA
Facilities to accept timestamps to same
level of granularity required by the CAT
NMS Plan (which, as noted above, is
nanoseconds) and to implement such
changes by December 15, 2021, for the
TRFs and ADF and by December 15,
2022, for the ORF.15 FINRA explained
in the Notice that, given the difference
in timestamp granularity requirements
between firms reporting to the FINRA
Facilities and to the CAT, it is possible
that the CAT could receive the time of
trade cancellation in milliseconds from
FINRA, while the time of trade
cancellation for the same event might
have been expressed in increments finer
than milliseconds, had the firm reported
such information directly to the CAT. In
such instances, the CAT would not
receive the same data that it would have
received absent the exemptive relief.16
B. Proposed Amendments to FINRA
Facility Rules
To comply with the conditions set
forth in the Facility Data Exemption
Order, FINRA has proposed identical
amendments to FINRA Facility rules 17
that will require an Industry Member
with an obligation to report an order
14 See Facility Data Exemption Order, 85 FR at
36632.
15 See id.
16 For example, assume that a firm cancels a trade
at 10:30:00.123456 and reports the cancellation to
a FINRA Facility with a trade cancellation time of
10:30:00.123 (the timestamp is truncated at the
millisecond level for reporting to the FINRA
Facility). As a consequence of the Facility Data
Exemption Order, the data in the CAT reflects the
time of cancellation as 10:30:00.123, which is the
time submitted in the FINRA Facility Data. Had the
firm reported the trade cancellation directly to the
CAT, the data in the CAT would reflect the time
of cancellation as 10:30:00.123456. See Notice, 85
FR at 61045.
17 See FINRA Rules 6282.04, 6380A.04, 6380B.04,
6622.04, 7130.01, 7230A.01, 7230B.01 and 7330.01.
E:\FR\FM\18NON1.SGM
18NON1
Federal Register / Vol. 85, No. 223 / Wednesday, November 18, 2020 / Notices
khammond on DSKJM1Z7X2PROD with NOTICES
execution event to the Central
Repository pursuant to FINRA’s CAT
Compliance Rule to report the time field
(including time of execution and time of
cancellation, if applicable) in the trade
report submitted to a FINRA Facility
using the same timestamp granularity,
as set forth in FINRA Rule 6860
(nanoseconds), that the member would
use to report to the CAT.
Because almost all trades that must be
reported to a FINRA Facility also must
be reported to the CAT,18 a member firm
with a trade reporting obligation under
the FINRA Facility rules also has a CAT
reporting obligation, and is therefore
already subject to the timestamp
granularity requirements of the CAT
Compliance Rule. Given that a CAT
Reporter 19 must have systems that
capture time in at least milliseconds to
comply with CAT requirements, FINRA
expects that firm to report to the
appropriate FINRA Facility in
milliseconds under FINRA’s current
trade reporting rules.20 Once the
proposed rule change is implemented,
any firm capturing and reporting time to
the CAT in increments finer than
milliseconds would be required to
report time to the FINRA Facilities in
such finer increments, up to
nanoseconds.21
In accordance with the conditions of
the Facility Data Exemption Order,22
FINRA has stated that the
implementation date of the proposed
rule change relating to the TRFs and
ADF will be no later than December 15,
2021, and the implementation date of
the proposed rule change relating to the
ORF will be no later than December 15,
18 In the Facility Data Exemption Order, the
Commission described four limited instances,
outlined by the Participants, in which an Industry
Member would be unable to provide a link between
the execution reported to the Central Repository
and the related FINRA Facility trade report. See
Facility Data Exemption Order, 85 FR at 36632.
19 ‘‘CAT Reporter’’ is defined under Section 1.1 of
the CAT NMS Plan to mean ‘‘each national
securities exchange, national securities association
and Industry Member that is required to record and
report information to the Central Repository
pursuant to SEC Rule 613(c).’’
20 See Notice, 85 FR at 61045. Small Industry
Members that do not currently report to OATS are
not required to begin reporting to the CAT until
December 13, 2021. See FINRA Rule 6830(a)(2)(E).
Accordingly, FINRA would not require these nonOATS reporters to report to a FINRA Facility in
milliseconds until December 13, 2021, unless their
systems currently capture milliseconds.
21 Because the FINRA Facilities do not currently
accept timestamps more granular than milliseconds,
FINRA is unable to estimate, based on trade report
information, how many firms capture or have the
ability to report trade events in increments more
granular than milliseconds. In the Notice, FINRA
provided statistics with respect to the number and
percentage of order execution events reported with
a timestamp granularity finer than milliseconds.
See Notice, 85 FR at 61045.
22 See 85 FR at 36632.
VerDate Sep<11>2014
17:59 Nov 17, 2020
Jkt 253001
2022. FINRA has represented that it will
provide advance notice of the
implementation dates, including
publication of a Regulatory Notice, as
well as updated technical specifications
and testing schedule, at least 120 days
prior to the implementation dates.
III. Discussion and Commission
Findings
After careful consideration, the
Commission finds that the proposed
rule change is consistent with the
requirements of the Act and the rules
and regulations thereunder applicable to
a national securities association.23 In
particular, the Commission finds that
the proposed rule change is consistent
with Section 15A(b)(6) of the Act,24
which requires, among other things, that
FINRA rules 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.
On June 11, 2020, the Commission
issued the Facility Data Exemption
Order, which among other things
granted an exemption from certain
provisions of the CAT NMS Plan
relating to the reporting of cancelled
trade indicators.25 As a result of that
Order, FINRA Facility Data submitted to
the Central Repository can be the source
of canceled trade indicators rather than
records submitted to the Central
Repository directly by Industry
Members. However, the granularity of
timestamps that the Industry Members
are required to report to the Central
Repository differs from the granularity
that FINRA members are currently
required to report to the FINRA
Facilities. Therefore, the Commission
conditioned the Order on FINRA
amending the FINRA Facility rules to
accept timestamps up to the granularity
required by the CAT NMS Plan.26
The Commission previously has
found that the CAT NMS Plan is
consistent with the Act because, among
other things, it will help ensure that
regulators can sequence order and
execution events with a reasonable
degree of accuracy.27 When approving
the CAT NMS Plan, the Commission
stated that, given the speed with which
the industry currently handles orders
23 In approving this proposal, the Commission has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
24 15 U.S.C. 78o–3(b)(6).
25 See Facility Data Exemption Order, 85 FR
36631.
26 The Commission imposed other conditions in
the Facility Data Exemption Order that are not
germane to this proposed rule change.
27 See CAT NMS Plan Approval Order, 81 FR at
84787–88.
PO 00000
Frm 00089
Fmt 4703
Sfmt 4703
73543
and executes trades, it is important that
the CAT utilize a timestamp that will
enable regulators to reasonably
sequence the order in which Reportable
Events occur.28 The Commission
believed that timestamps in increments
greater than a millisecond would
undermine the improved ability to
sequence events with any reasonable
degree of reliability.29 The Commission
concluded that this approach will
improve the accuracy of order event
records, particularly those occurring
rapidly across multiple markets,
without imposing undue burdens on
market participants.30
The Commission finds that the
proposed rule change is consistent with
the Act because it satisfies a condition
that the Commission imposed in the
Facility Data Exemption Order. As a
result of the proposed rule change, the
granularity of time stamps reported to
the FINRA Facilities will match the
granularity of time stamps reported by
Industry Members directly to the CAT.
Thus, the proposed rule change will
facilitate the sequencing event reports in
the CAT, thereby improving the ability
of SROs and the Commission to utilize
the CAT to oversee the securities
markets. By supporting the efficient
implementation of the CAT NMS Plan,
the proposed rule change furthers the
principles of the Act identified by the
Commission when approving the CAT
NMS Plan.31
The proposal also is consistent with
the Act because the implementation
schedule proposed by FINRA complies
with Facility Data Exemption Order.32
Pursuant to the terms of that Order,
FINRA has represented that the
implementation date of the proposed
rule change relating to the TRFs and
ADF will be no later than December 15,
2021, and the implementation date
relating to the ORF will be no later than
December 15, 2022. Moreover, FINRA
has represented that it will provide
advance notice of the implementation
date at least 120 days prior to the
28 For example, the ability to reconstruct market
activity, perform other detailed market analyses, or
determine whether a series of orders rapidly
entered by a particular market participant is
manipulative or otherwise violates SRO rules or
federal securities laws requires the audit trail to
sequence each order and event accurately. See id.,
81 FR at 84788, n. 1632.
29 See id., 81 FR at 84788.
30 See id. The Commission recognizes that, as
stated on Appendix C–25 of the CAT NMS Plan, an
accurately-sequenced record of orders cannot be
based solely on the timestamps provided by CAT
Reporters.
31 See, e.g., id., 81 FR at 84698 (describing the
background and impetus behind the Commission’s
adoption of Rule 613 of Regulation NMS).
32 See Facility Data Exemption Order, 85 FR at
36632.
E:\FR\FM\18NON1.SGM
18NON1
73544
Federal Register / Vol. 85, No. 223 / Wednesday, November 18, 2020 / Notices
implementation date. This schedule
appears reasonably designed to afford
members sufficient time to come into
compliance with the proposed rule
change while adhering to the conditions
set forth in the Facility Data Exemption
Order.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,33 that the
proposed rule change (SR–FINRA–
2020–029) is approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.34
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–25381 Filed 11–17–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[SEC File No. 270–385, OMB Control No.
3235–0441]
Proposed Collection; Comment
Request
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE, Washington, DC
20549–2736
khammond on DSKJM1Z7X2PROD with NOTICES
Extension:
Rule 18f–3
Notice is hereby given that, pursuant
to the Paperwork Reduction Act of 1995
(44 U.S.C. 3501 et seq.) (‘‘Paperwork
Reduction Act’’), the Securities and
Exchange Commission (the
‘‘Commission’’) is soliciting comments
on the collection of information
summarized below. The Commission
plans to submit this existing collection
of information to the Office of
Management and Budget (‘‘OMB’’) for
extension and approval.
Rule 18f–3 (17 CFR 270.18f–3) under
the Investment Company Act of 1940
(15 U.S.C. 80a–1 et seq.) exempts from
section 18(f)(1) a fund that issues
multiple classes of shares representing
interests in the same portfolio of
securities (a ‘‘multiple class fund’’) if
the fund satisfies the conditions of the
rule. In general, each class must differ
in its arrangement for shareholder
services or distribution or both, and
must pay the related expenses of that
different arrangement. The rule includes
one requirement for the collection of
information. A multiple class fund must
prepare, and fund directors must
33 15
34 17
1 3 hours per registrant per year × 1,045
registrants = 3,135 hours per year.
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
17:59 Nov 17, 2020
approve, a written plan setting forth the
separate arrangement and expense
allocation of each class, and any related
conversion features or exchange
privileges (‘‘rule 18f–3 plan’’). Approval
of the plan must occur before the fund
issues any shares of multiple classes
and whenever the fund materially
amends the plan. In approving the plan,
the fund board, including a majority of
the independent directors, must
determine that the plan is in the best
interests of each class and the fund as
a whole.
The requirement that the fund prepare
and directors approve a written rule
18f–3 plan is intended to ensure that the
fund compiles information relevant to
the fairness of the separate arrangement
and expense allocation for each class,
and that directors review and approve
the information. Without a blueprint
that highlights material differences
among classes, directors might not
perceive potential conflicts of interests
when they determine whether the plan
is in the best interests of each class and
the fund. In addition, the plan may be
useful to Commission staff in reviewing
the fund’s compliance with the rule.
Based on an analysis of fund filings,
the Commission estimates that there are
approximately 7,293 multiple class
funds offered by 990 registrants. The
Commission estimates that each of the
990 registrants will make an average of
0.5 responses annually to prepare and
approve a written 18f–3 plan. The
Commission estimates each response
will take 6 hours, requiring a total of 3
hours per registrant per year. Thus the
total annual hour burden associated
with these requirements of the rule is
approximately 2,970 hours.1
Estimates of average burden hours are
made solely for the purposes of the
Paperwork Reduction Act and are not
derived from a comprehensive or even
a representative survey or study of the
costs of Commission rules and forms.
The collection of information under rule
18f–3 is mandatory. The information
provided under rule 18f–3 will not be
kept confidential. An agency may not
conduct or sponsor, and a person is not
required to respond to, a collection of
information unless it displays a
currently valid OMB control number.
Written comments are invited on: (a)
Whether the collections of information
are necessary for the proper
performance of the functions of the
Commission, including whether the
information has practical utility; (b) the
accuracy of the Commission’s estimate
of the burdens of the collections of
Jkt 253001
PO 00000
Frm 00090
Fmt 4703
Sfmt 4703
information; (c) ways to enhance the
quality, utility, and clarity of the
information collected; and (d) ways to
minimize the burdens of the collections
of information on respondents,
including through the use of automated
collection techniques or other forms of
information technology. Consideration
will be given to comments and
suggestions submitted in writing within
60 days of this publication.
Please direct your written comments
to David Bottom, Director/Chief
Information Officer, Securities and
Exchange Commission, C/O Cynthia
Roscoe, 100 F Street NE, Washington,
DC 20549; or send an email to: PRA_
Mailbox@sec.gov.
Dated: November 12, 2020.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–25352 Filed 11–17–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–90405]
Order Granting a Temporary
Conditional Exemption Pursuant to
Section 36 of the Securities Exchange
Act of 1934 (‘‘Exchange Act’’) and Rule
608(e) of Regulation NMS Under the
Exchange Act, Relating to the
Reporting of Certain Activities on the
Floor of National Securities Exchanges
and Certain Activities by Industry
Members Off Exchange Floors, as
Required by Section 6.4(d) of the
National Market System Plan
Governing the Consolidated Audit Trail
November 12, 2020.
I. Introduction
By letter dated July 1, 2020, BOX
Exchange LLC (‘‘BOX’’), Cboe BYX
Exchange, Inc., Cboe BZX Exchange,
Inc., Cboe EDGA Exchange, Inc., Cboe
EDGX Exchange, Inc., Cboe C2
Exchange, Inc., Cboe Exchange, Inc.
(‘‘CBOE’’), Financial Industry
Regulatory Authority, Inc. (‘‘FINRA’’),
Investors Exchange LLC, Miami
International Securities Exchange LLC,
MIAX Emerald, LLC, MIAX PEARL,
LLC, NASDAQ BX, LLC, Nasdaq GEMX,
LLC, Nasdaq ISE, LLC, Nasdaq MRX,
LLC, NASDAQ PHLX LLC (‘‘PHLX’’),
The NASDAQ Stock Market LLC, New
York Stock Exchange LLC (‘‘NYSE’’),
NYSE American LLC (‘‘NYSE
American’’), NYSE Arca, Inc. (‘‘NYSE
Arca’’), NYSE Chicago, Inc., NYSE
National, Inc., and Long Term Stock
Exchange, Inc. (collectively, the
‘‘Participants’’ or ‘‘SROs’’) requested
E:\FR\FM\18NON1.SGM
18NON1
]]>Agencies
[Federal Register Volume 85, Number 223 (Wednesday, November 18, 2020)]
[Notices]
[Pages 73541-73544]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-25381]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-90396; File No. SR-FINRA-2020-029]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Order Approving Proposed Rule Change Relating to
Granularity of Timestamps in Trade Reports Submitted to FINRA's Equity
Trade Reporting Facilities
November 12, 2020.
I. Introduction
On September 17, 2020, the Financial Industry Regulatory Authority,
Inc. (``FINRA'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act
[[Page 73542]]
of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule
change to require member firms, in accordance with a Commission order
granting exemptive relief from certain requirements of the Consolidated
Audit Trail (``CAT'') NMS Plan,\3\ to report time fields, in trade
reports submitted to an equity trade reporting facility (``FINRA
Facility''),\4\ using the same timestamp granularity that they use to
report to the CAT. The proposed rule change was published for comment
in the Federal Register on September 29, 2020.\5\ The Commission
received no comment letters on the proposed rule change. This order
approves the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 89051 (June 11,
2020), 85 FR 36631 (June 17, 2020) (``Facility Data Exemption
Order'' or ``Order''). The Commission approved the CAT NMS Plan, as
modified, on November 15, 2016. See Securities Exchange Act Release
No. 79318 (November 15, 2016), 81 FR 84696 (November 23, 2016)
(``CAT NMS Plan Approval Order'').
\4\ The FINRA Facilities are the Alternative Display Facility
(``ADF''), the FINRA/Nasdaq Trade Reporting Facilities (``TRFs''),
the FINRA/NYSE TRF, and the OTC Reporting Facility (``ORF''). Member
firms use the ORF to report transactions in OTC Equity Securities
and use the other facilities to report transactions in NMS stocks.
\5\ See Securities Exchange Act Release No. 88973 (September 23,
2020), 85 FR 61044 (September 29, 2020) (``Notice'').
---------------------------------------------------------------------------
II. Description of the Proposal
A. Background
Currently, FINRA's equity trade reporting rules require a member to
report all time fields--including time of trade execution and, if
applicable, time of trade cancellation--to a FINRA Facility in
milliseconds, if the member's system captures time in milliseconds;
otherwise a report in seconds is permissible.\6\ However, FINRA's CAT
Compliance Rule \7\ requires an Industry Member \8\ to report a
timestamp for a Reportable Event,\9\ including a trade execution, to
the CAT's Central Repository \10\ in milliseconds and, if the member's
system captures time in finer increments, to report in such finer
increments up to nanoseconds (except as otherwise provided under FINRA
Rule 6860 for Manual Order Events).\11\ Thus, currently there is a
difference between the timestamp granularity requirements applicable to
member firms reporting to the FINRA Facilities (up to milliseconds) and
to the CAT (up to nanoseconds).
---------------------------------------------------------------------------
\6\ See FINRA Rules 6282.04 and 7130.01 (relating to the ADF);
6380A.04 and 7230A.01 (relating to the FINRA/Nasdaq TRFs); 6380B.04
and 7230B.01 (relating to the FINRA/NYSE TRF); 6622.04 and 7330.01
(relating to the ORF).
\7\ See FINRA Rule 6860(a). ``Compliance Rule'' is defined under
Section 1.1 of the CAT NMS Plan to mean ``with respect to a
Participant, the rule(s) promulgated by such Participant as
contemplated by Section 3.11.'' FINRA's CAT Compliance Rule is the
FINRA Rule 6800 Series (Consolidated Audit Trail Compliance Rule).
\8\ ``Industry Member'' is defined under FINRA Rule 6810(s) to
mean a ``member of a national securities exchange or a member of a
national securities association that is required to record and
report information pursuant to the CAT NMS Plan and [the FINRA] Rule
6800 Series.''
\9\ ``Reportable Event'' is defined under Section 1.1 of the CAT
NMS Plan and FINRA Rule 6810(kk) to include, ``but is not limited
to, the original receipt or origination, modification, routing,
execution (in whole or in part) and allocation of an order, and
receipt of a routed order.''
\10\ ``Central Repository'' is defined under Section 1.1 of the
CAT NMS Plan and FINRA Rule 6810(j) to mean ``the repository
responsible for the receipt, consolidation, and retention of all
information reported to the CAT'' pursuant to Rule 613 of Regulation
NMS and the CAT NMS Plan.
\11\ ``Manual Order Event'' is defined under FINRA Rule 6810(x)
to mean ``a non-electronic communication of order related
information for which Industry Members must record and report the
time of the event.''
---------------------------------------------------------------------------
On June 11, 2020, the Commission granted the CAT NMS Plan
Participants (``Participants'') exemptive relief from, in pertinent
part, Section 6.4(d)(ii)(B) of the CAT NMS Plan, which states that each
Participant, through its CAT Compliance Rule, must require its Industry
Members to record and report to the Central Repository a cancelled
trade indicator for any trade that is cancelled. In their request for
exemptive relief, the Participants explained that the FINRA Facility
Data,\12\ which would contain cancelled trade indicators, are required
to be reported to the Central Repository in each instance currently
required under the CAT NMS Plan. Industry Members would continue to be
required to submit either a trade report or a trade cancellation with
the requisite information to a FINRA Facility, in accordance with
existing rules set by each Participant for its members. For a cancelled
trade, an Industry Member would continue to be required to submit a
trade cancellation to a FINRA Facility.
---------------------------------------------------------------------------
\12\ ``FINRA Facility Data'' was defined by the Participants in
their request for exemptive relief to include the clearing number of
the clearing broker and the canceled trade indicator. See Facility
Data Exemption Order, 85 FR at 36631.
---------------------------------------------------------------------------
The Participants stated in their request for exemptive relief that
they would require the Plan Processor \13\ to link the FINRA Facility
Data to Industry Member execution reports submitted to the Central
Repository beginning on October 26, 2020. The Participants explained
that the Compliance Rules would require an Industry Member to submit to
the Central Repository an execution report submitted to a FINRA
Facility for the corresponding trade report or trade cancellation,
beginning on June 22, 2020. Industry Members would be required to
report a unique trade identifier, beginning on October 26, 2020, that
would be used by the Plan Processor to link the data, including the
number of the clearing broker and cancelled trade information, with the
Industry Member's execution report.\14\
---------------------------------------------------------------------------
\13\ ``Plan Processor'' is defined under Section 1.1 of the CAT
NMS Plan as ``the Initial Plan Processor or any other Person
selected by the Operating Committee pursuant to SEC Rule 613 and
Sections 4.3(b)(i) and 6.1, and with regard to the Initial Plan
Processor, the Selection Plan, to perform the CAT processing
functions required by SEC Rule 613'' and set forth in the CAT NMS
Plan.
\14\ See Facility Data Exemption Order, 85 FR at 36632.
---------------------------------------------------------------------------
Noting the current difference in the timestamp granularity
requirements for Industry Members reporting to a FINRA Facility and
Industry Members reporting to the Central Repository, the Participants
stated in the request for exemptive relief that FINRA would seek to
amend its rules and technical specifications to require the FINRA
Facilities to accept timestamps to same level of granularity required
by the CAT NMS Plan (which, as noted above, is nanoseconds) and to
implement such changes by December 15, 2021, for the TRFs and ADF and
by December 15, 2022, for the ORF.\15\ FINRA explained in the Notice
that, given the difference in timestamp granularity requirements
between firms reporting to the FINRA Facilities and to the CAT, it is
possible that the CAT could receive the time of trade cancellation in
milliseconds from FINRA, while the time of trade cancellation for the
same event might have been expressed in increments finer than
milliseconds, had the firm reported such information directly to the
CAT. In such instances, the CAT would not receive the same data that it
would have received absent the exemptive relief.\16\
---------------------------------------------------------------------------
\15\ See id.
\16\ For example, assume that a firm cancels a trade at
10:30:00.123456 and reports the cancellation to a FINRA Facility
with a trade cancellation time of 10:30:00.123 (the timestamp is
truncated at the millisecond level for reporting to the FINRA
Facility). As a consequence of the Facility Data Exemption Order,
the data in the CAT reflects the time of cancellation as
10:30:00.123, which is the time submitted in the FINRA Facility
Data. Had the firm reported the trade cancellation directly to the
CAT, the data in the CAT would reflect the time of cancellation as
10:30:00.123456. See Notice, 85 FR at 61045.
---------------------------------------------------------------------------
B. Proposed Amendments to FINRA Facility Rules
To comply with the conditions set forth in the Facility Data
Exemption Order, FINRA has proposed identical amendments to FINRA
Facility rules \17\ that will require an Industry Member with an
obligation to report an order
[[Page 73543]]
execution event to the Central Repository pursuant to FINRA's CAT
Compliance Rule to report the time field (including time of execution
and time of cancellation, if applicable) in the trade report submitted
to a FINRA Facility using the same timestamp granularity, as set forth
in FINRA Rule 6860 (nanoseconds), that the member would use to report
to the CAT.
---------------------------------------------------------------------------
\17\ See FINRA Rules 6282.04, 6380A.04, 6380B.04, 6622.04,
7130.01, 7230A.01, 7230B.01 and 7330.01.
---------------------------------------------------------------------------
Because almost all trades that must be reported to a FINRA Facility
also must be reported to the CAT,\18\ a member firm with a trade
reporting obligation under the FINRA Facility rules also has a CAT
reporting obligation, and is therefore already subject to the timestamp
granularity requirements of the CAT Compliance Rule. Given that a CAT
Reporter \19\ must have systems that capture time in at least
milliseconds to comply with CAT requirements, FINRA expects that firm
to report to the appropriate FINRA Facility in milliseconds under
FINRA's current trade reporting rules.\20\ Once the proposed rule
change is implemented, any firm capturing and reporting time to the CAT
in increments finer than milliseconds would be required to report time
to the FINRA Facilities in such finer increments, up to
nanoseconds.\21\
---------------------------------------------------------------------------
\18\ In the Facility Data Exemption Order, the Commission
described four limited instances, outlined by the Participants, in
which an Industry Member would be unable to provide a link between
the execution reported to the Central Repository and the related
FINRA Facility trade report. See Facility Data Exemption Order, 85
FR at 36632.
\19\ ``CAT Reporter'' is defined under Section 1.1 of the CAT
NMS Plan to mean ``each national securities exchange, national
securities association and Industry Member that is required to
record and report information to the Central Repository pursuant to
SEC Rule 613(c).''
\20\ See Notice, 85 FR at 61045. Small Industry Members that do
not currently report to OATS are not required to begin reporting to
the CAT until December 13, 2021. See FINRA Rule 6830(a)(2)(E).
Accordingly, FINRA would not require these non-OATS reporters to
report to a FINRA Facility in milliseconds until December 13, 2021,
unless their systems currently capture milliseconds.
\21\ Because the FINRA Facilities do not currently accept
timestamps more granular than milliseconds, FINRA is unable to
estimate, based on trade report information, how many firms capture
or have the ability to report trade events in increments more
granular than milliseconds. In the Notice, FINRA provided statistics
with respect to the number and percentage of order execution events
reported with a timestamp granularity finer than milliseconds. See
Notice, 85 FR at 61045.
---------------------------------------------------------------------------
In accordance with the conditions of the Facility Data Exemption
Order,\22\ FINRA has stated that the implementation date of the
proposed rule change relating to the TRFs and ADF will be no later than
December 15, 2021, and the implementation date of the proposed rule
change relating to the ORF will be no later than December 15, 2022.
FINRA has represented that it will provide advance notice of the
implementation dates, including publication of a Regulatory Notice, as
well as updated technical specifications and testing schedule, at least
120 days prior to the implementation dates.
---------------------------------------------------------------------------
\22\ See 85 FR at 36632.
---------------------------------------------------------------------------
III. Discussion and Commission Findings
After careful consideration, the Commission finds that the proposed
rule change is consistent with the requirements of the Act and the
rules and regulations thereunder applicable to a national securities
association.\23\ In particular, the Commission finds that the proposed
rule change is consistent with Section 15A(b)(6) of the Act,\24\ which
requires, among other things, that FINRA rules 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.
---------------------------------------------------------------------------
\23\ In approving this proposal, the Commission has considered
the proposed rule's impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
\24\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------
On June 11, 2020, the Commission issued the Facility Data Exemption
Order, which among other things granted an exemption from certain
provisions of the CAT NMS Plan relating to the reporting of cancelled
trade indicators.\25\ As a result of that Order, FINRA Facility Data
submitted to the Central Repository can be the source of canceled trade
indicators rather than records submitted to the Central Repository
directly by Industry Members. However, the granularity of timestamps
that the Industry Members are required to report to the Central
Repository differs from the granularity that FINRA members are
currently required to report to the FINRA Facilities. Therefore, the
Commission conditioned the Order on FINRA amending the FINRA Facility
rules to accept timestamps up to the granularity required by the CAT
NMS Plan.\26\
---------------------------------------------------------------------------
\25\ See Facility Data Exemption Order, 85 FR 36631.
\26\ The Commission imposed other conditions in the Facility
Data Exemption Order that are not germane to this proposed rule
change.
---------------------------------------------------------------------------
The Commission previously has found that the CAT NMS Plan is
consistent with the Act because, among other things, it will help
ensure that regulators can sequence order and execution events with a
reasonable degree of accuracy.\27\ When approving the CAT NMS Plan, the
Commission stated that, given the speed with which the industry
currently handles orders and executes trades, it is important that the
CAT utilize a timestamp that will enable regulators to reasonably
sequence the order in which Reportable Events occur.\28\ The Commission
believed that timestamps in increments greater than a millisecond would
undermine the improved ability to sequence events with any reasonable
degree of reliability.\29\ The Commission concluded that this approach
will improve the accuracy of order event records, particularly those
occurring rapidly across multiple markets, without imposing undue
burdens on market participants.\30\
---------------------------------------------------------------------------
\27\ See CAT NMS Plan Approval Order, 81 FR at 84787-88.
\28\ For example, the ability to reconstruct market activity,
perform other detailed market analyses, or determine whether a
series of orders rapidly entered by a particular market participant
is manipulative or otherwise violates SRO rules or federal
securities laws requires the audit trail to sequence each order and
event accurately. See id., 81 FR at 84788, n. 1632.
\29\ See id., 81 FR at 84788.
\30\ See id. The Commission recognizes that, as stated on
Appendix C-25 of the CAT NMS Plan, an accurately-sequenced record of
orders cannot be based solely on the timestamps provided by CAT
Reporters.
---------------------------------------------------------------------------
The Commission finds that the proposed rule change is consistent
with the Act because it satisfies a condition that the Commission
imposed in the Facility Data Exemption Order. As a result of the
proposed rule change, the granularity of time stamps reported to the
FINRA Facilities will match the granularity of time stamps reported by
Industry Members directly to the CAT. Thus, the proposed rule change
will facilitate the sequencing event reports in the CAT, thereby
improving the ability of SROs and the Commission to utilize the CAT to
oversee the securities markets. By supporting the efficient
implementation of the CAT NMS Plan, the proposed rule change furthers
the principles of the Act identified by the Commission when approving
the CAT NMS Plan.\31\
---------------------------------------------------------------------------
\31\ See, e.g., id., 81 FR at 84698 (describing the background
and impetus behind the Commission's adoption of Rule 613 of
Regulation NMS).
---------------------------------------------------------------------------
The proposal also is consistent with the Act because the
implementation schedule proposed by FINRA complies with Facility Data
Exemption Order.\32\ Pursuant to the terms of that Order, FINRA has
represented that the implementation date of the proposed rule change
relating to the TRFs and ADF will be no later than December 15, 2021,
and the implementation date relating to the ORF will be no later than
December 15, 2022. Moreover, FINRA has represented that it will provide
advance notice of the implementation date at least 120 days prior to
the
[[Page 73544]]
implementation date. This schedule appears reasonably designed to
afford members sufficient time to come into compliance with the
proposed rule change while adhering to the conditions set forth in the
Facility Data Exemption Order.
---------------------------------------------------------------------------
\32\ See Facility Data Exemption Order, 85 FR at 36632.
---------------------------------------------------------------------------
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\33\ that the proposed rule change (SR-FINRA-2020-029) is approved.
---------------------------------------------------------------------------
\33\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\34\
---------------------------------------------------------------------------
\34\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-25381 Filed 11-17-20; 8:45 am]
BILLING CODE 8011-01-P
