Self-Regulatory Organizations; NYSE National, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Rule 6.6800 Series, 84057-84062 [2020-28312]
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Federal Register / Vol. 85, No. 247 / Wednesday, December 23, 2020 / Notices
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for non-monetary or unspecified
damages. The proposed rule change
would also increase filing fees and
hearing session fees for customers,
associated persons and members
bringing claims of more than $500,000
or claims for non-monetary or
unspecified damages. FINRA believes
the proposed rule change appropriately
allocates the proposed fee increases
among users of the forum by allocating
the increases among high claim amounts
and continuing its policy that the costs
of the forum are borne 85 percent by
members and 15 percent by
customers.35
FINRA also believes the amount of the
fee increases are reasonable. FINRA
believes that the proposed fee increases
would generate sufficient revenue to
offset the proposed increases in the
arbitrator Chair honoraria without
placing an undue burden on users of the
forum, particularly customers and
claimants with small claims.36 For
example, the filing fee increases for nonmember claimants will range from $15
to $50 (1%–2% increase); 37 the hearing
session fee increases will range from
$25 to $75 (2%–5% increase); 38 the
increases to the member surcharge will
range from $100 to $300 (3%–4%
increase); 39 and the filing fee increases
for member claimants will range from
$100 to $200 (4%–6% increase).40
FINRA believes these represent
‘‘minimal’’ increases.41 Similarly, the
commenter believes that increasing the
filing fees and hearing session fees for
customers, associated persons, and
members bringing claims of more than
$500,000 or claims for non-monetary or
unspecified damages, is a fair, equitable
and reasonable allocation of the costs
among people using the forum that will
be associated with the implementation
of the proposed rule amendments.42
The Commission believes that
increasing the amount of honoraria paid
to arbitrators who chair hearings and
pre-hearing conferences in the FINRA
35 See Notice at 67799; see also Notice at note 9
(stating that the FINRA Dispute Resolution Task
Force suggested raising arbitration fees to fund
arbitrator honoraria increases consistent with the
current arbitration fee structure, which assigns a
majority of the costs of the forum to firms through
the member surcharge and process fees).
36 See Notice at 67796.
37 See Table 2 (Filing Fees for Customers,
Associated Persons or Other Non-Member
Claimants) supra; see also Notice at 67797.
38 See Table 5 (Hearing Session Fees for Session
with Three Arbitrators) supra; see also Notice at
67798.
39 See Table 4 (Member Process Fee Schedule)
supra; see also Notice at 67797.
40 See Table 3 (Filing Fees for Member Claimant)
supra; see also Notice at 67797.
41 See Notice at 67794.
42 See Caruso Letter.
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forum as proposed here would help
improve the arbitration process for its
users. To offset the costs of this
improvement, FINRA designed the
arbitration fee structure to distribute
much of the increased costs of the forum
to member firms that are parties to an
arbitration proceeding and to parties
associated with large claims or nonmonetary or unspecified claims. The
Commission believes that this proposed
distribution of fees will help keep the
FINRA arbitration forum accessible.
Otherwise, the Commission believes
that increasing fees on claimants with
small claims could discourage retail
investors from bringing their claims.43
Accordingly, the proposed allocation of
the fee increases will help ensure that
FINRA’s arbitration forum remains
accessible and affordable to parties.
As stated above, the filing fee
increases for non-member claimants
will range from $15 to $50; the hearing
session fee increases will range from
$25 to $75; the increases to the member
surcharge will range from $100 to $300;
and the filing fee increases for member
claimants range from $100 to $200.
Because these increases would only
apply to claims over $250,000 and, in
some instances, over $500,000, they
represent a small percentage of effected
claims (collectively, 1%–6%).
The Commission believes that the
proposed rule change is consistent with
the Exchange Act. In particular, the
Commission believes that the proposed
rule change is appropriate and designed
to protect investors and the public
interest, consistent with Section
15A(b)(6) of the Exchange Act.
Specifically, the Commission believes
that the proposed increase to the
hearing day Chair honorarium and the
addition of a Chair honorarium for
prehearing conferences are in the public
interest because they would help
improve the arbitration process for its
users, including retail investors.
Moreover, the Commission believes that
the proposed fee increases represent an
equitable allocation of reasonable dues,
fees and other charges among members
and issuers and other persons using any
facility, consistent with Section
15A(b)(5). For these reasons, the
Commission finds that the proposed
rule change is consistent with the
Exchange Act and the rules and
regulations thereunder.
It is therefore ordered pursuant to
Section 19(b)(2) of the Exchange Act 44
43 See
44 15
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Notice at 67801.
U.S.C. 78s(b)(2).
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that the proposal (SR–FINRA–2020–
035), be and hereby is approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.45
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–28310 Filed 12–22–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–90707; File No. SR–
NYSENAT–2020–37]
Self-Regulatory Organizations; NYSE
National, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend the Rule
6.6800 Series
December 17, 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 December
4, 2020, NYSE National, Inc. (‘‘NYSE
National’’ or the ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the selfregulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
Rule 6.6800 Series, the Exchange’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 a conditional
exemption granted by the Commission
from certain allocation reporting
requirements set forth in Sections
6.4(d)(ii)(A)(1) and (2) of the CAT NMS
Plan (‘‘Allocation Exemption’’).4 The
proposed rule change is available on the
Exchange’s website at www.nyse.com, at
the principal office of the Exchange, and
at the Commission’s Public Reference
Room.
45 17
CFR 200.30–3(a)(12).
U.S.C. 78a.
2 17 CFR 240.19b–4.
3 Unless otherwise specified, capitalized terms
used in this rule filing are defined as set forth in
the Compliance Rule.
4 See Securities Exchange Act Rel. No. 90223
(October 19, 2020), 85 FR 67576 (October 23, 2020)
(‘‘Allocation Exemptive Order’’).
1 15
IV. Conclusion
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization 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 those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of this proposed rule
change is to amend the Rule 6.6800
Series to be consistent with the
Allocation Exemption. The Commission
granted the relief conditioned upon the
Participants’ adoption of Compliance
Rules that implement the alternative
approach to reporting allocations to the
Central Repository described in the
Allocation Exemption (referred to as the
‘‘Allocation Alternative’’).
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(1) Request for Exemptive Relief
Pursuant to Section 6.4(d)(ii)(A) of the
CAT NMS Plan, each Participant must,
through its Compliance Rule, require its
Industry Members to record and report
to the Central Repository, if the order is
executed, in whole or in part: (1) An
Allocation Report; 5 (2) the SROAssigned Market Participant Identifier
of the clearing broker or prime broker,
if applicable; and the (3) CAT-Order-ID
of any contra-side order(s). Accordingly,
the Exchange and the other Participants
implemented Compliance Rules that
require their Industry Members that are
executing brokers to submit to the
Central Repository, among other things,
Allocation Reports and the SROAssigned Market Participant Identifier
of the clearing broker or prime broker,
if applicable.
On August 27, 2020, the Participants
submitted to the Commission a request
5 Section 1.1 of the CAT NMS Plan defines an
‘‘Allocation Report’’ as ‘‘a report made to the
Central Repository by an Industry Member that
identifies the Firm Designated ID for any account(s),
including subaccount(s), to which executed shares
are allocated and provides the security that has
been allocated, the identifier of the firm reporting
the allocation, the price per share of shares
allocated, the side of shares allocated, the number
of shares allocated to each account, and the time of
the allocation; provided for the avoidance of doubt,
any such Allocation Report shall not be required to
be linked to particular orders or executions.’’
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for an exemption from certain allocation
reporting requirements set forth in
Sections 6.4(d)(ii)(A)(1) and (2) of the
CAT NMS Plan (‘‘Exemption
Request’’).6 In the Exemption Request,
the Participants requested that they be
permitted to implement the Allocation
Alternative, which, as noted above, is an
alternative approach to reporting
allocations to the Central Repository.
Under the Allocation Alternative, any
Industry Member that performs an
allocation to a client account would be
required under the Compliance Rule to
submit an Allocation Report to the
Central Repository when shares/
contracts are allocated to a client
account regardless of whether the
Industry Member was involved in
executing the underlying order(s).
Under the Allocation Alternative, a
‘‘client account’’ would be any account
that is not owned or controlled by the
Industry Member.
In addition, under the Allocation
Alternative, an ‘‘Allocation’’ would be
defined as: (1) The placement of shares/
contracts into the same account for
which an order was originally placed; or
(2) the placement of shares/contracts
into an account based on allocation
instructions (e.g., subaccount
allocations, delivery versus payment
(‘‘DVP’’) allocations). Pursuant to this
definition and the proposed Allocation
Alternative, an Industry Member that
performs an Allocation to an account
that is not a client account, such as
proprietary accounts and events
including step outs,7 or correspondent
flips,8 would not be required to submit
an Allocation Report to the Central
Repository for that allocation, but could
do so on a voluntary basis. Industry
Members would be allowed to report
Allocations to accounts other than client
accounts; in that instance, such
Allocations must be marked as
6 See letter from the Participants to Vanessa
Countryman, Secretary, Commission, dated August
27, 2020 (the ‘‘Exemption Request’’).
7 ‘‘A step-out allows a broker-dealer to allocate all
or part of a client’s position from a previously
executed trade to the client’s account at another
broker-dealer. In other words, a step-out functions
as a client’s position transfer, rather than a trade;
there is no exchange of shares and funds and no
change in beneficial ownership.’’ See FINRA, Trade
Reporting Frequently Asked Questions, at Section
301, available at: https://www.finra.org/filingreporting/market-transparency-reporting/tradereporting-faq.
8 Correspondent clearing flips are the movement
of a position from an executing broker’s account to
a different account for clearance and settlement,
allowing a broker-dealer to execute a trade through
another broker-dealer and settle the trade in its own
account. See, e.g., The Depository Trust & Clearing
Corporation, Correspondent Clearing, available at:
https://www.dtcc.com/clearing-services/equitiestradecapture/correspondent-clearing.
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Allocations to accounts other than client
accounts.
(A) Executing Brokers and Allocation
Reports
To implement the Allocation
Alternative, the Participants requested
exemptive relief from Section
6.4(d)(ii)(A)(1) of the CAT NMS Plan, to
the extent that the provision requires
each Participant to, through its
Compliance Rule, require its Industry
Members that are executing brokers,
who do not perform Allocations, to
record and report to the Central
Repository, if the order is executed, in
whole or in part, an Allocation Report.
Under the Allocation Alternative, when
an Industry Member other than an
executing broker (e.g., a prime broker or
clearing broker) performs an Allocation,
that Industry Member would be
required to submit the Allocation Report
to the Central Repository. When an
executing broker performs an Allocation
for an order that is executed, in whole
or in part, the burden of submitting an
Allocation Report to the Central
Repository would remain with the
executing broker under the Allocation
Alternative. In certain circumstances
this would result in multiple Allocation
Reports—the executing broker (if selfclearing) or its clearing firm would
report individual Allocation Reports
identifying the specific prime broker to
which shares/contracts were allocated
and then each prime broker would itself
report an Allocation Report identifying
the specific customer accounts to which
the shares/contracts were finally
allocated.
The Participants stated that granting
exemptive relief from submitting
Allocation Reports for executing brokers
who do not perform an Allocation, and
requiring the Industry Member other
than the executing broker that is
performing the Allocation to submit
such Allocation Reports, is consistent
with the basic approach taken by the
Commission in adopting Rule 613 under
the Exchange Act. Specifically, the
Participants stated that they believe that
the Commission sought to require each
broker-dealer and exchange that touches
an order to record the required data
with respect to actions it takes on the
order.9 Without the requested
exemptive relief, executing brokers that
do not perform Allocations would be
required to submit Allocation Reports.
In addition, the Participants stated that,
because shares/contracts for every
execution must be allocated to an
9 See Securities Exchange Act Release No. 67457
(July 18, 2012), 77 FR 45722, 45748 (August 1,
2012).
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account by the clearing broker in such
circumstances, there would be no loss of
information by shifting the reporting
obligation from the executing broker to
the clearing broker.
(B) Identity of Prime Broker
To implement the Allocation
Alternative, the Participants also
requested exemptive relief from Section
6.4(d)(ii)(A)(2) of the CAT NMS Plan, to
the extent that the provision requires
each Participant to, through its
Compliance Rule, require its Industry
Members to record and report to the
Central Repository, if an order is
executed, in whole or in part, the SROAssigned Market Participant Identifier
of the prime broker, if applicable.
Currently, under the CAT NMS Plan, an
Industry Member is required to report
the SRO-Assigned Market Participant
Identifier of the clearing broker or prime
broker in connection with the execution
of an order, and such information would
be part of the order’s lifecycle, rather
than in an Allocation Report that is not
linked to the order’s lifecycle.10 Under
the Allocation Alternative, the identity
of the prime broker would be required
to be reported by the clearing broker on
the Allocation Report, and, in addition,
the prime broker itself would be
required to report the ultimate
allocation, which the Participants
believe would provide more complete
information.
The Participants stated that
associating a prime broker with a
specific execution, as is currently
required by the CAT NMS Plan, does
not reflect how the allocation process
works in practice as allocations to a
prime broker are done post-trade and
are performed by the clearing broker of
the executing broker. The Participants
also stated that with the implementation
of the Allocation Alternative, it would
be duplicative for the executing broker
to separately identify the prime broker
for allocation purposes.
The Participants stated that if a
particular customer only has one prime
broker, the identity of the prime broker
can be obtained from the customer and
account information through the DVP
accounts for that customer that contain
the identity of the prime broker. The
Participants further stated that
Allocation Reports related to those
executions would reflect that shares/
contracts were allocated to the single
prime broker. The Participants believe
that there is no loss of information
through the implementation of the
10 The Participants did not request exemptive
relief relating to the reporting of the SRO-Assigned
Market Participant Identifier of clearing brokers.
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Allocation Alternative compared to
what is required in the CAT NMS Plan
and that this approach does not
decrease the regulatory utility of the
CAT for single prime broker
circumstances.
In cases where a customer maintains
relationships with multiple prime
brokers, the Participants asserted that
the executing broker will not have
information at the time of the trade as
to which particular prime broker may be
allocated all or part of the execution.
Under the Allocation Alternative, the
executing broker (if self-clearing) or its
clearing firm would report individual
Allocation Reports identifying the
specific prime broker to which shares/
contracts were allocated and then each
prime broker would itself report an
Allocation Report identifying the
specific customer accounts where the
shares/contracts were ultimately
allocated. To determine the prime
broker for a customer, a regulatory user
would query the customer and account
database using the customer’s CCID to
obtain all DVP accounts for the CCID at
broker-dealers. The Participants state
that when a customer maintains
relationships with multiple prime
brokers, the customer typically has a
separate DVP account with each prime
broker, and the identities of those prime
brokers can be obtained from the
customer and account information.
(C) Additional Conditions to Exemptive
Relief
In the Exemption Request, the
Participants included certain additional
conditions for the requested relief.
Currently, the definition of Allocation
Report in the CAT NMS Plan only refers
to shares. To implement the Allocation
Alternative, the Participants proposed to
require that all required elements of
Allocation Reports apply to both shares
and contracts, as applicable, for all
Eligible Securities. Specifically,
Participants would require the reporting
of the following in each Allocation
Report: (1) The FDID for the account
receiving the allocation, including
subaccounts; (2) the security that has
been allocated; (3) the identifier of the
firm reporting the allocation; (3) the
price per share/contracts of shares/
contracts allocated; (4) the side of
shares/contracts allocated; (4) the
number of shares/contracts allocated;
and (5) the time of the allocation.
Furthermore, to implement the
Allocation Alternative, the Participants
proposed to require the following
information on all Allocation Reports:
(1) Allocation ID, which is the internal
allocation identifier assigned to the
allocation event by the Industry
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84059
Member; (2) trade date; (3) settlement
date; (4) IB/correspondent CRD Number
(if applicable); (5) FDID of new order(s)
(if available in the booking system); 11
(6) allocation instruction time
(optional); (7) if the account meets the
definition of institution under FINRA
Rule 4512(c); 12 (8) type of allocation
(allocation to a custody account,
allocation to a DVP account, step out,
correspondent flip, allocation to a firm
owned or controlled account, or other
non-reportable transactions (e.g., option
exercises, conversions); (9) for DVP
allocations, custody broker-dealer
clearing number (prime broker) if the
custodian is a U.S. broker-dealer, DTCC
number if the custodian is a U.S. bank,
or a foreign indicator, if the custodian
is a foreign entity; and (10) if an
allocation was cancelled, a cancel flag,
which indicates that the allocation was
cancelled, and a cancel timestamp,
which represents the time at which the
allocation was cancelled.
(2) Proposed Rule Changes To
Implement Exemptive Relief
On October 29, 2020, the Commission
granted the exemptive relief requested
in the Exemption Request. The
Commission granted the relief
conditioned upon the adoption of
Compliance Rules that implement the
reporting requirements of the Allocation
Alternative. Accordingly, the Exchange
proposes the following changes to its
Compliance Rule to implement the
reporting requirements of the Allocation
Alternative.
(A) Definition of Allocation
The Exchange proposes to add a
definition of ‘‘Allocation’’ as new
paragraph (c) to Rule 6.6810.13 Proposed
11 The Participants propose that for scenarios
where the Industry Member responsible for
reporting the Allocation has the FDID of the related
new order(s) available, such FDID must be reported.
This would include scenarios in which: (1) The
FDID structure of the top account and subaccounts
is known to the Industry Member responsible for
reporting the Allocation(s); and (2) the FDID
structure used by the IB/Correspondent when
reporting new orders is known to the clearing firm
reporting the related Allocations.
12 FINRA Rule 4512(c) states the for purposes of
the rule, the term ‘‘institutional account’’ means the
account of: (1) A bank, savings and loan association,
insurance company or registered investment
company; (2) an investment adviser registered
either with the SEC under Section 203 of the
Investment Advisers Act or with a state securities
commission (or any agency or office performing like
functions); or (3) any other person (whether a
natural person, corporation, partnership, trust or
otherwise) with total assets of at least $50 million.
13 The Exchange proposes to renumber the
definitions in Rule 6.6810 to accommodate the
addition of this new definition of ‘‘Allocation’’ and
the new definition of ‘‘Client Account’’ discussed
below.
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paragraph (c) of Rule 6.6810 would
define an ‘‘Allocation’’ to mean ‘‘(1) the
placement of shares/contracts into the
same account for which an order was
originally placed; or (2) the placement
of shares/contracts into an account
based on allocation instructions (e.g.,
subaccount allocations, delivery versus
payment (‘‘DVP’’) allocations).’’ The
SEC stated in the Allocation Exemption
that this definition of ‘‘Allocation’’ is
reasonable.
(B) Definition of Allocation Report
The Exchange proposes to amend the
definition of ‘‘Allocation Report’’ set
forth in Exchange Rule 6.6810(c) to
reflect the requirements of the
Allocation Exemption. Exchange Rule
6.6810(c) defines the term ‘‘Allocation
Report’’ to mean:
a report made to the Central Repository by an
Industry Member that identifies the Firm
Designated ID for any account(s), including
subaccount(s), to which executed shares are
allocated and provides the security that has
been allocated, the identifier of the firm
reporting the allocation, the price per share
of shares allocated, the side of shares
allocated, the number of shares allocated to
each account, and the time of the allocation;
provided, for the avoidance of doubt, any
such Allocation Report shall not be required
to be linked to particular orders or
executions.
The Exchange proposes to amend this
definition in two ways: (1) Applying the
requirements for Allocation Reports to
contracts in addition to shares; and (2)
requiring the reporting of additional
elements for the Allocation Report.
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(i) Shares and Contracts
The requirements for Allocation
Reports apply only to shares, as the
definition of ‘‘Allocation Report’’ in
Rule 6.6810(c) refers to shares, not
contracts. In the Allocation Exemption,
the Commission stated that applying the
requirements for Allocation Reports to
contracts in addition to shares is
appropriate because CAT reporting
requirements apply to both options and
equities. Accordingly, the SEC stated
that the Participants would be required
to modify their Compliance Rules such
that all required elements of Allocation
Reports apply to both shares and
contracts, as applicable, for all Eligible
Securities. Therefore, the Exchange
proposes to amend Rule 6.6810(c) (to be
renumbered as Rule 6.6810(d)) to apply
to contracts, as well as shares.
Specifically, the Exchange proposes to
add references to contracts to the
definition of ‘‘Allocation Report’’ to the
following phrases: ‘‘the Firm Designated
ID for any account(s), including
subaccount(s), to which executed
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shares/contracts are allocated,’’ ‘‘the
price per share/contract of shares/
contracts allocated,’’ ‘‘the side of shares/
contracts allocated,’’ and ‘‘the number
of shares/contracts allocated to each
account.’’
(ii) Additional Elements
The Commission also conditioned the
Allocation Exemption on the
Participants amending their Compliance
Rules to require the ten additional
elements in Allocation Reports
described above. Accordingly, the
Exchange proposes to require these
additional elements in Allocation
Reports. Specifically, the Exchange
proposes to amend the definition of
‘‘Allocation Report’’ in Rule 6.6810(c)
(to be renumbered as Rule 6.6810(d)) to
include the following elements, in
addition to those elements currently
required under the CAT NMS Plan:
(6) the time of the allocation; (7) Allocation
ID, which is the internal allocation identifier
assigned to the allocation event by the
Industry Member; (8) trade date; (9)
settlement date; (10) IB/correspondent CRD
Number (if applicable); (11) FDID of new
order(s) (if available in the booking system);
(12) allocation instruction time (optional);
(12) if account meets the definition of
institution under FINRA Rule 4512(c); (13)
type of allocation (allocation to a custody
account, allocation to a DVP account, stepout, correspondent flip, allocation to a firm
owned or controlled account, or other nonreportable transactions (e.g., option exercises,
conversions); (14) for DVP allocations,
custody broker-dealer clearing number
(prime broker) if the custodian is a U.S.
broker-dealer, DTCC number if the custodian
is a U.S. bank, or a foreign indicator, if the
custodian is a foreign entity; and (15) if an
allocation was cancelled, a cancel flag
indicating that the allocation was cancelled,
and a cancel timestamp, which represents the
time at which the allocation was cancelled.
(C) Allocation Reports
(i) Executing Brokers That Do Not
Perform Allocations
The Commission granted the
Participants an exemption from the
requirement that the Participants,
through their Compliance Rule, require
executing brokers that do not perform
Allocations to submit Allocation
Reports. The Commission stated that it
understands that executing brokers that
are not self-clearing do not perform
allocations themselves, and such
allocations are handled by prime and/or
clearing brokers, and these executing
brokers therefore do not possess the
requisite information to provide
Allocation Reports. Accordingly, the
Exchange proposes to eliminate Rule
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6.6830(a)(2)(A)(i),14 which requires an
Industry Member to record and report to
the Central Repository an Allocation
Report if the order is executed, in whole
or in part, and to replace this provision
with proposed Rule 6.6830(a)(2)(F) as
discussed below.
(ii) Industry Members That Perform
Allocations
The Allocation Exemption requires
the Participants to amend their
Compliance Rules to require Industry
Members to provide Allocation Reports
to the Central Repository any time they
perform Allocations to a client account,
whether or not the Industry Member
was the executing broker for the trades.
Accordingly, the Commission
conditioned the Allocation Exemption
on the Participants adopting
Compliance Rules that require prime
and/or clearing brokers to submit
Allocation Reports when such brokers
perform allocations, in addition to
requiring executing brokers that perform
allocations to submit Allocation
Reports. The Commission determined
that such exemptive relief would
improve efficiency and reduce the costs
and burdens of reporting allocations for
Industry Members because the reporting
obligation would belong to the Industry
Member with the requisite information,
and executing brokers that do not have
the information required on an
Allocation Report would not have to
develop the infrastructure and processes
required to obtain, store and report the
information. The Commission stated
that this exemptive relief should not
reduce the regulatory utility of the CAT
because an Allocation Report would
still be submitted for each executed
trade allocated to a client account,
which in certain circumstances could
still result in multiple Allocation
Reports,15 just not necessarily by the
executing broker.
In accordance with the Allocation
Exemption, the Exchange proposes to
add proposed Rule 6.6830(a)(2)(F) to the
Compliance Rule. Proposed Rule
6.6830(a)(2)(F) would require Industry
Members to record and report to the
Central Repository ‘‘an Allocation
Report any time the Industry Member
14 The Exchange proposes to renumber Rule
6.6830(a)(2)(A)(ii) and (iii) as Rules
6.6830(a)(2)(A)(i) and (ii) in light of the proposed
deletion of Rule 6.6830(a)(2)(A)(i).
15 As noted above, under the Allocation
Alternative, for certain executions, the executing
broker (if self-clearing) or its clearing firm would
report individual Allocation Reports identifying the
specific prime broker to which shares/contracts
were allocated and then each prime broker would
itself report an Allocation Report identifying the
specific customer accounts to which the shares/
contracts were finally allocated.
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Federal Register / Vol. 85, No. 247 / Wednesday, December 23, 2020 / Notices
performs an Allocation to a Client
Account, whether or not the Industry
Member was the executing broker for
the trade.’’
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(iii) Client Accounts
In the Allocation Exemption, the
Commission also exempted the
Participants from the requirement that
they amend their Compliance Rules to
require Industry Members to report
Allocations for accounts other than
client accounts. The Commission
believes that allocations to client
accounts, and not allocations to
proprietary accounts or events such as
step-outs and correspondent flips,
provide regulators the necessary
information to detect abuses in the
allocation process because it would
provide regulators with detailed
information regarding the fulfillment of
orders submitted by clients, while
reducing reporting burdens on brokerdealers. For example, Allocation
Reports would be required for
allocations to registered investment
advisor and money manager accounts.
The Commission further believes that
the proposed approach should facilitate
regulators’ ability to distinguish
Allocation Reports relating to
allocations to client accounts from other
Allocation Reports because Allocations
to accounts other than client accounts
would have to be identified as such.
This approach could reduce the time
CAT Reporters expend to comply with
CAT reporting requirements and lower
costs by allowing broker-dealers to use
existing business practices.
To clarify that an Industry Member
must report an Allocation Report solely
for Allocations to a client account,
proposed Rule 6.6830(a)(2)(F)
specifically references ‘‘Client
Accounts,’’ as discussed above. In
addition, the Exchange proposes to add
a definition of ‘‘Client Account’’ as
proposed Rule 6.6810(l). Proposed Rule
6.6810(l) would define a ‘‘Client
Account’’ to mean ‘‘for the purposes of
an Allocation and Allocation Report,
any account or subaccount that is not
owned or controlled by the Industry
Member.’’
(D) Identity of Prime Broker
The Exchange also proposes to amend
Rule 6.6830(a)(2)(A)(ii) to eliminate the
requirement for executing brokers to
record and report the SRO-Assigned
Market Participant Identifier of the
prime broker. Rule 6.6830(a)(2)(A)(ii)
states that each Industry Member is
required to record and report to the
Central Repository, if the order is
executed, in whole or in part, the ‘‘SROAssigned Market Participant Identifier
VerDate Sep<11>2014
21:21 Dec 22, 2020
Jkt 253001
84061
of the clearing broker or prime broker,
if applicable.’’ The Exchange proposes
to delete the phrase ‘‘or prime broker’’
from this provision. Accordingly, each
Industry Member that is an executing
broker would no longer be required to
report the SRO-Assigned Market
Participant Identifier of the prime
broker.
As the Commission noted in the
Allocation Exemption, exempting the
Participants from the requirement that
they, through their Compliance Rules,
require executing brokers to provide the
SRO-Assigned Market Participant
Identifier of the prime broker is
appropriate because, as stated by the
Participants, allocations are done on a
post-trade basis and the executing
broker will not have the requisite
information at the time of the trade.
Because an executing broker, in certain
circumstances, does not have this
information at the time of the trade, this
relief relieves executing brokers of the
burdens and costs of developing
infrastructure and processes to obtain
this information in order to meet the
contemporaneous reporting
requirements of the CAT NMS Plan.
As the Commission noted in the
Allocation Exemption, although
executing brokers would no longer be
required to provide the prime broker
information, regulators will still be able
to determine the prime broker(s)
associated with orders through querying
the customer and account information
database. If an executing broker has only
one prime broker, the identity of the
prime broker can be obtained from the
customer and account information
associated with the executing broker.
For customers with multiple prime
brokers, the identity of the prime
brokers can be obtained from the
customer and account information
which will list the prime broker, if there
is one, that is associated with each
account.
impose any burden on competition that
is not necessary or appropriate.
NYSE National believes that this
proposal is consistent with the Act
because it is consistent with, and
implements, the Allocation Exemption,
and is designed to assist the Exchange
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.’’ 18 To the
extent that this proposal implements the
Plan, and applies specific requirements
to Industry Members, the Exchange
believes that this proposal furthers the
objectives of the Plan, as identified by
the SEC, and is therefore consistent with
the Act.
2. Statutory Basis
No written comments were solicited
or received with respect to the proposed
rule change.
NYSE National believes that the
proposed rule change is consistent with
the provisions of Section 6(b)(5) of the
Act,16 which require, among other
things, that the Exchange’s 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 6(b)(8) of the Act,17 which
requires that the Exchange’s rules not
16 15
17 15
PO 00000
U.S.C. 78f(b)(6).
U.S.C. 78f(b)(8)
Frm 00179
Fmt 4703
Sfmt 4703
B. Self-Regulatory Organization’s
Statement on Burden on Competition
NYSE National 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. NYSE
National notes that the proposed rule
changes are consistent with the
Allocation Exemption, and are designed
to assist the Exchange in meeting its
regulatory obligations pursuant to the
Plan. NYSE National also notes that the
proposed rule changes will apply
equally to all Industry Members. In
addition, all national securities
exchanges and FINRA 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
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A)(iii) of the Act 19 and Rule
19b–4(f)(6) thereunder.20 Because the
18 See Securities Exchange Act Release No. 79318
(November 15, 2016), 81 FR 84696, 84697
(November 23, 2016).
19 15 U.S.C. 78s(b)(3)(A)(iii).
20 17 CFR 240.19b–4(f)(6).
E:\FR\FM\23DEN1.SGM
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Federal Register / Vol. 85, No. 247 / Wednesday, December 23, 2020 / Notices
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 and Rule 19b–4(f)(6)(iii)
thereunder.
At any time within 60 days of the
filing of such 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
under Section 19(b)(2)(B) 21 of the Act 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:
jbell on DSKJLSW7X2PROD with NOTICES
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–
NYSENAT–2020–37 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–NYSENAT–2020–37. 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
21 15
U.S.C. 78s(b)(2)(B).
VerDate Sep<11>2014
21:21 Dec 22, 2020
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–NYSENAT–2020–37, and
should be submitted on or before
January 13, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.22
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–28312 Filed 12–22–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Sunshine Act Meetings
FEDERAL REGISTER CITATION OF PREVIOUS
ANNOUNCEMENT: 85 FR 81961, December
17, 2020
PREVIOUSLY ANNOUNCED TIME AND DATE OF
THE MEETING: Monday, December 21,
2020 at 11:00 a.m.
The Closed
Meeting scheduled for Monday,
December 21, 2020 at 11:00 a.m. has
been changed to Monday, December 21,
2020 at 10:00 a.m.
CHANGES IN THE MEETING:
CONTACT PERSON FOR MORE INFORMATION:
For further information and to ascertain
what, if any, matters have been added,
deleted or postponed, please contact
Vanessa A. Countryman from the Office
of the Secretary at (202) 551–5400.
Dated: December 18, 2020.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2020–28540 Filed 12–21–20; 11:15 am]
BILLING CODE 8011–01–P
22 17
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CFR 200.30–3(a)(12).
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SECURITIES AND EXCHANGE
COMMISSION
[SEC File No. 270–118, OMB Control No.
3235–0095]
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
Extension:
Rule 236
Notice is hereby given that, pursuant
to the Paperwork Reduction Act of 1995
(44 U.S.C. 3501 et seq.), the Securities
and Exchange Commission
(‘‘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 for extension
and approval.
Securities Act Rule 236 (17 CFR
230.236) provides an exemption from
registration under the Securities Act for
the offering of shares of stock or similar
securities to provide funds to be
distributed to security holders in lieu of
fractional shares, scrip certificates or
order forms, in connection with a stock
dividend, stock split, reverse stock split,
conversion, merger or similar
transaction. Issuers wishing to rely upon
the exemption are required to furnish
specified information to the
Commission at least 10 days prior to the
offering. The information is needed to
provide notice that the issuer is relying
on the exemption. Approximately 10
respondents file the information
required by Rule 236 at an estimated 1.5
hours per response for a total annual
reporting burden of 15 hours (1.5 hours
per response × 10 responses).
Written comments are invited on: (a)
Whether this proposed collection of
information is necessary for the proper
performance of the functions of the
agency, including whether the
information will have practical utility;
(b) the accuracy of the agency’s estimate
of the burden imposed by the collection
of information; (c) ways to enhance the
quality, utility, and clarity of the
information collected; and (d) ways to
minimize the burden of the collection 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.
An agency may not conduct or
sponsor, and a person is not required to
E:\FR\FM\23DEN1.SGM
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]]>Agencies
[Federal Register Volume 85, Number 247 (Wednesday, December 23, 2020)]
[Notices]
[Pages 84057-84062]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-28312]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-90707; File No. SR-NYSENAT-2020-37]
Self-Regulatory Organizations; NYSE National, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend the
Rule 6.6800 Series
December 17, 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 December 4, 2020, NYSE National, Inc. (``NYSE National'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78a.
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend the Rule 6.6800 Series, the
Exchange'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 a conditional
exemption granted by the Commission from certain allocation reporting
requirements set forth in Sections 6.4(d)(ii)(A)(1) and (2) of the CAT
NMS Plan (``Allocation Exemption'').\4\ The proposed rule change is
available on the Exchange's website at www.nyse.com, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
---------------------------------------------------------------------------
\3\ Unless otherwise specified, capitalized terms used in this
rule filing are defined as set forth in the Compliance Rule.
\4\ See Securities Exchange Act Rel. No. 90223 (October 19,
2020), 85 FR 67576 (October 23, 2020) (``Allocation Exemptive
Order'').
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[[Page 84058]]
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
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 those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this proposed rule change is to amend the Rule
6.6800 Series to be consistent with the Allocation Exemption. The
Commission granted the relief conditioned upon the Participants'
adoption of Compliance Rules that implement the alternative approach to
reporting allocations to the Central Repository described in the
Allocation Exemption (referred to as the ``Allocation Alternative'').
(1) Request for Exemptive Relief
Pursuant to Section 6.4(d)(ii)(A) of the CAT NMS Plan, each
Participant must, through its Compliance Rule, require its Industry
Members to record and report to the Central Repository, if the order is
executed, in whole or in part: (1) An Allocation Report; \5\ (2) the
SRO-Assigned Market Participant Identifier of the clearing broker or
prime broker, if applicable; and the (3) CAT-Order-ID of any contra-
side order(s). Accordingly, the Exchange and the other Participants
implemented Compliance Rules that require their Industry Members that
are executing brokers to submit to the Central Repository, among other
things, Allocation Reports and the SRO-Assigned Market Participant
Identifier of the clearing broker or prime broker, if applicable.
---------------------------------------------------------------------------
\5\ Section 1.1 of the CAT NMS Plan defines an ``Allocation
Report'' as ``a report made to the Central Repository by an Industry
Member that identifies the Firm Designated ID for any account(s),
including subaccount(s), to which executed shares are allocated and
provides the security that has been allocated, the identifier of the
firm reporting the allocation, the price per share of shares
allocated, the side of shares allocated, the number of shares
allocated to each account, and the time of the allocation; provided
for the avoidance of doubt, any such Allocation Report shall not be
required to be linked to particular orders or executions.''
---------------------------------------------------------------------------
On August 27, 2020, the Participants submitted to the Commission a
request for an exemption from certain allocation reporting requirements
set forth in Sections 6.4(d)(ii)(A)(1) and (2) of the CAT NMS Plan
(``Exemption Request'').\6\ In the Exemption Request, the Participants
requested that they be permitted to implement the Allocation
Alternative, which, as noted above, is an alternative approach to
reporting allocations to the Central Repository. Under the Allocation
Alternative, any Industry Member that performs an allocation to a
client account would be required under the Compliance Rule to submit an
Allocation Report to the Central Repository when shares/contracts are
allocated to a client account regardless of whether the Industry Member
was involved in executing the underlying order(s). Under the Allocation
Alternative, a ``client account'' would be any account that is not
owned or controlled by the Industry Member.
---------------------------------------------------------------------------
\6\ See letter from the Participants to Vanessa Countryman,
Secretary, Commission, dated August 27, 2020 (the ``Exemption
Request'').
---------------------------------------------------------------------------
In addition, under the Allocation Alternative, an ``Allocation''
would be defined as: (1) The placement of shares/contracts into the
same account for which an order was originally placed; or (2) the
placement of shares/contracts into an account based on allocation
instructions (e.g., subaccount allocations, delivery versus payment
(``DVP'') allocations). Pursuant to this definition and the proposed
Allocation Alternative, an Industry Member that performs an Allocation
to an account that is not a client account, such as proprietary
accounts and events including step outs,\7\ or correspondent flips,\8\
would not be required to submit an Allocation Report to the Central
Repository for that allocation, but could do so on a voluntary basis.
Industry Members would be allowed to report Allocations to accounts
other than client accounts; in that instance, such Allocations must be
marked as Allocations to accounts other than client accounts.
---------------------------------------------------------------------------
\7\ ``A step-out allows a broker-dealer to allocate all or part
of a client's position from a previously executed trade to the
client's account at another broker-dealer. In other words, a step-
out functions as a client's position transfer, rather than a trade;
there is no exchange of shares and funds and no change in beneficial
ownership.'' See FINRA, Trade Reporting Frequently Asked Questions,
at Section 301, available at: https://www.finra.org/filing-reporting/market-transparency-reporting/trade-reporting-faq.
\8\ Correspondent clearing flips are the movement of a position
from an executing broker's account to a different account for
clearance and settlement, allowing a broker-dealer to execute a
trade through another broker-dealer and settle the trade in its own
account. See, e.g., The Depository Trust & Clearing Corporation,
Correspondent Clearing, available at: https://www.dtcc.com/clearing-services/equities-tradecapture/correspondent-clearing.
---------------------------------------------------------------------------
(A) Executing Brokers and Allocation Reports
To implement the Allocation Alternative, the Participants requested
exemptive relief from Section 6.4(d)(ii)(A)(1) of the CAT NMS Plan, to
the extent that the provision requires each Participant to, through its
Compliance Rule, require its Industry Members that are executing
brokers, who do not perform Allocations, to record and report to the
Central Repository, if the order is executed, in whole or in part, an
Allocation Report. Under the Allocation Alternative, when an Industry
Member other than an executing broker (e.g., a prime broker or clearing
broker) performs an Allocation, that Industry Member would be required
to submit the Allocation Report to the Central Repository. When an
executing broker performs an Allocation for an order that is executed,
in whole or in part, the burden of submitting an Allocation Report to
the Central Repository would remain with the executing broker under the
Allocation Alternative. In certain circumstances this would result in
multiple Allocation Reports--the executing broker (if self-clearing) or
its clearing firm would report individual Allocation Reports
identifying the specific prime broker to which shares/contracts were
allocated and then each prime broker would itself report an Allocation
Report identifying the specific customer accounts to which the shares/
contracts were finally allocated.
The Participants stated that granting exemptive relief from
submitting Allocation Reports for executing brokers who do not perform
an Allocation, and requiring the Industry Member other than the
executing broker that is performing the Allocation to submit such
Allocation Reports, is consistent with the basic approach taken by the
Commission in adopting Rule 613 under the Exchange Act. Specifically,
the Participants stated that they believe that the Commission sought to
require each broker-dealer and exchange that touches an order to record
the required data with respect to actions it takes on the order.\9\
Without the requested exemptive relief, executing brokers that do not
perform Allocations would be required to submit Allocation Reports. In
addition, the Participants stated that, because shares/contracts for
every execution must be allocated to an
[[Page 84059]]
account by the clearing broker in such circumstances, there would be no
loss of information by shifting the reporting obligation from the
executing broker to the clearing broker.
---------------------------------------------------------------------------
\9\ See Securities Exchange Act Release No. 67457 (July 18,
2012), 77 FR 45722, 45748 (August 1, 2012).
---------------------------------------------------------------------------
(B) Identity of Prime Broker
To implement the Allocation Alternative, the Participants also
requested exemptive relief from Section 6.4(d)(ii)(A)(2) of the CAT NMS
Plan, to the extent that the provision requires each Participant to,
through its Compliance Rule, require its Industry Members to record and
report to the Central Repository, if an order is executed, in whole or
in part, the SRO-Assigned Market Participant Identifier of the prime
broker, if applicable. Currently, under the CAT NMS Plan, an Industry
Member is required to report the SRO-Assigned Market Participant
Identifier of the clearing broker or prime broker in connection with
the execution of an order, and such information would be part of the
order's lifecycle, rather than in an Allocation Report that is not
linked to the order's lifecycle.\10\ Under the Allocation Alternative,
the identity of the prime broker would be required to be reported by
the clearing broker on the Allocation Report, and, in addition, the
prime broker itself would be required to report the ultimate
allocation, which the Participants believe would provide more complete
information.
---------------------------------------------------------------------------
\10\ The Participants did not request exemptive relief relating
to the reporting of the SRO-Assigned Market Participant Identifier
of clearing brokers.
---------------------------------------------------------------------------
The Participants stated that associating a prime broker with a
specific execution, as is currently required by the CAT NMS Plan, does
not reflect how the allocation process works in practice as allocations
to a prime broker are done post-trade and are performed by the clearing
broker of the executing broker. The Participants also stated that with
the implementation of the Allocation Alternative, it would be
duplicative for the executing broker to separately identify the prime
broker for allocation purposes.
The Participants stated that if a particular customer only has one
prime broker, the identity of the prime broker can be obtained from the
customer and account information through the DVP accounts for that
customer that contain the identity of the prime broker. The
Participants further stated that Allocation Reports related to those
executions would reflect that shares/contracts were allocated to the
single prime broker. The Participants believe that there is no loss of
information through the implementation of the Allocation Alternative
compared to what is required in the CAT NMS Plan and that this approach
does not decrease the regulatory utility of the CAT for single prime
broker circumstances.
In cases where a customer maintains relationships with multiple
prime brokers, the Participants asserted that the executing broker will
not have information at the time of the trade as to which particular
prime broker may be allocated all or part of the execution. Under the
Allocation Alternative, the executing broker (if self-clearing) or its
clearing firm would report individual Allocation Reports identifying
the specific prime broker to which shares/contracts were allocated and
then each prime broker would itself report an Allocation Report
identifying the specific customer accounts where the shares/contracts
were ultimately allocated. To determine the prime broker for a
customer, a regulatory user would query the customer and account
database using the customer's CCID to obtain all DVP accounts for the
CCID at broker-dealers. The Participants state that when a customer
maintains relationships with multiple prime brokers, the customer
typically has a separate DVP account with each prime broker, and the
identities of those prime brokers can be obtained from the customer and
account information.
(C) Additional Conditions to Exemptive Relief
In the Exemption Request, the Participants included certain
additional conditions for the requested relief. Currently, the
definition of Allocation Report in the CAT NMS Plan only refers to
shares. To implement the Allocation Alternative, the Participants
proposed to require that all required elements of Allocation Reports
apply to both shares and contracts, as applicable, for all Eligible
Securities. Specifically, Participants would require the reporting of
the following in each Allocation Report: (1) The FDID for the account
receiving the allocation, including subaccounts; (2) the security that
has been allocated; (3) the identifier of the firm reporting the
allocation; (3) the price per share/contracts of shares/contracts
allocated; (4) the side of shares/contracts allocated; (4) the number
of shares/contracts allocated; and (5) the time of the allocation.
Furthermore, to implement the Allocation Alternative, the
Participants proposed to require the following information on all
Allocation Reports: (1) Allocation ID, which is the internal allocation
identifier assigned to the allocation event by the Industry Member; (2)
trade date; (3) settlement date; (4) IB/correspondent CRD Number (if
applicable); (5) FDID of new order(s) (if available in the booking
system); \11\ (6) allocation instruction time (optional); (7) if the
account meets the definition of institution under FINRA Rule 4512(c);
\12\ (8) type of allocation (allocation to a custody account,
allocation to a DVP account, step out, correspondent flip, allocation
to a firm owned or controlled account, or other non-reportable
transactions (e.g., option exercises, conversions); (9) for DVP
allocations, custody broker-dealer clearing number (prime broker) if
the custodian is a U.S. broker-dealer, DTCC number if the custodian is
a U.S. bank, or a foreign indicator, if the custodian is a foreign
entity; and (10) if an allocation was cancelled, a cancel flag, which
indicates that the allocation was cancelled, and a cancel timestamp,
which represents the time at which the allocation was cancelled.
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\11\ The Participants propose that for scenarios where the
Industry Member responsible for reporting the Allocation has the
FDID of the related new order(s) available, such FDID must be
reported. This would include scenarios in which: (1) The FDID
structure of the top account and subaccounts is known to the
Industry Member responsible for reporting the Allocation(s); and (2)
the FDID structure used by the IB/Correspondent when reporting new
orders is known to the clearing firm reporting the related
Allocations.
\12\ FINRA Rule 4512(c) states the for purposes of the rule, the
term ``institutional account'' means the account of: (1) A bank,
savings and loan association, insurance company or registered
investment company; (2) an investment adviser registered either with
the SEC under Section 203 of the Investment Advisers Act or with a
state securities commission (or any agency or office performing like
functions); or (3) any other person (whether a natural person,
corporation, partnership, trust or otherwise) with total assets of
at least $50 million.
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(2) Proposed Rule Changes To Implement Exemptive Relief
On October 29, 2020, the Commission granted the exemptive relief
requested in the Exemption Request. The Commission granted the relief
conditioned upon the adoption of Compliance Rules that implement the
reporting requirements of the Allocation Alternative. Accordingly, the
Exchange proposes the following changes to its Compliance Rule to
implement the reporting requirements of the Allocation Alternative.
(A) Definition of Allocation
The Exchange proposes to add a definition of ``Allocation'' as new
paragraph (c) to Rule 6.6810.\13\ Proposed
[[Page 84060]]
paragraph (c) of Rule 6.6810 would define an ``Allocation'' to mean
``(1) the placement of shares/contracts into the same account for which
an order was originally placed; or (2) the placement of shares/
contracts into an account based on allocation instructions (e.g.,
subaccount allocations, delivery versus payment (``DVP'')
allocations).'' The SEC stated in the Allocation Exemption that this
definition of ``Allocation'' is reasonable.
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\13\ The Exchange proposes to renumber the definitions in Rule
6.6810 to accommodate the addition of this new definition of
``Allocation'' and the new definition of ``Client Account''
discussed below.
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(B) Definition of Allocation Report
The Exchange proposes to amend the definition of ``Allocation
Report'' set forth in Exchange Rule 6.6810(c) to reflect the
requirements of the Allocation Exemption. Exchange Rule 6.6810(c)
defines the term ``Allocation Report'' to mean:
a report made to the Central Repository by an Industry Member that
identifies the Firm Designated ID for any account(s), including
subaccount(s), to which executed shares are allocated and provides
the security that has been allocated, the identifier of the firm
reporting the allocation, the price per share of shares allocated,
the side of shares allocated, the number of shares allocated to each
account, and the time of the allocation; provided, for the avoidance
of doubt, any such Allocation Report shall not be required to be
linked to particular orders or executions.
The Exchange proposes to amend this definition in two ways: (1)
Applying the requirements for Allocation Reports to contracts in
addition to shares; and (2) requiring the reporting of additional
elements for the Allocation Report.
(i) Shares and Contracts
The requirements for Allocation Reports apply only to shares, as
the definition of ``Allocation Report'' in Rule 6.6810(c) refers to
shares, not contracts. In the Allocation Exemption, the Commission
stated that applying the requirements for Allocation Reports to
contracts in addition to shares is appropriate because CAT reporting
requirements apply to both options and equities. Accordingly, the SEC
stated that the Participants would be required to modify their
Compliance Rules such that all required elements of Allocation Reports
apply to both shares and contracts, as applicable, for all Eligible
Securities. Therefore, the Exchange proposes to amend Rule 6.6810(c)
(to be renumbered as Rule 6.6810(d)) to apply to contracts, as well as
shares. Specifically, the Exchange proposes to add references to
contracts to the definition of ``Allocation Report'' to the following
phrases: ``the Firm Designated ID for any account(s), including
subaccount(s), to which executed shares/contracts are allocated,''
``the price per share/contract of shares/contracts allocated,'' ``the
side of shares/contracts allocated,'' and ``the number of shares/
contracts allocated to each account.''
(ii) Additional Elements
The Commission also conditioned the Allocation Exemption on the
Participants amending their Compliance Rules to require the ten
additional elements in Allocation Reports described above. Accordingly,
the Exchange proposes to require these additional elements in
Allocation Reports. Specifically, the Exchange proposes to amend the
definition of ``Allocation Report'' in Rule 6.6810(c) (to be renumbered
as Rule 6.6810(d)) to include the following elements, in addition to
those elements currently required under the CAT NMS Plan:
(6) the time of the allocation; (7) Allocation ID, which is the
internal allocation identifier assigned to the allocation event by
the Industry Member; (8) trade date; (9) settlement date; (10) IB/
correspondent CRD Number (if applicable); (11) FDID of new order(s)
(if available in the booking system); (12) allocation instruction
time (optional); (12) if account meets the definition of institution
under FINRA Rule 4512(c); (13) type of allocation (allocation to a
custody account, allocation to a DVP account, step-out,
correspondent flip, allocation to a firm owned or controlled
account, or other non-reportable transactions (e.g., option
exercises, conversions); (14) for DVP allocations, custody broker-
dealer clearing number (prime broker) if the custodian is a U.S.
broker-dealer, DTCC number if the custodian is a U.S. bank, or a
foreign indicator, if the custodian is a foreign entity; and (15) if
an allocation was cancelled, a cancel flag indicating that the
allocation was cancelled, and a cancel timestamp, which represents
the time at which the allocation was cancelled.
(C) Allocation Reports
(i) Executing Brokers That Do Not Perform Allocations
The Commission granted the Participants an exemption from the
requirement that the Participants, through their Compliance Rule,
require executing brokers that do not perform Allocations to submit
Allocation Reports. The Commission stated that it understands that
executing brokers that are not self-clearing do not perform allocations
themselves, and such allocations are handled by prime and/or clearing
brokers, and these executing brokers therefore do not possess the
requisite information to provide Allocation Reports. Accordingly, the
Exchange proposes to eliminate Rule 6.6830(a)(2)(A)(i),\14\ which
requires an Industry Member to record and report to the Central
Repository an Allocation Report if the order is executed, in whole or
in part, and to replace this provision with proposed Rule
6.6830(a)(2)(F) as discussed below.
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\14\ The Exchange proposes to renumber Rule 6.6830(a)(2)(A)(ii)
and (iii) as Rules 6.6830(a)(2)(A)(i) and (ii) in light of the
proposed deletion of Rule 6.6830(a)(2)(A)(i).
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(ii) Industry Members That Perform Allocations
The Allocation Exemption requires the Participants to amend their
Compliance Rules to require Industry Members to provide Allocation
Reports to the Central Repository any time they perform Allocations to
a client account, whether or not the Industry Member was the executing
broker for the trades. Accordingly, the Commission conditioned the
Allocation Exemption on the Participants adopting Compliance Rules that
require prime and/or clearing brokers to submit Allocation Reports when
such brokers perform allocations, in addition to requiring executing
brokers that perform allocations to submit Allocation Reports. The
Commission determined that such exemptive relief would improve
efficiency and reduce the costs and burdens of reporting allocations
for Industry Members because the reporting obligation would belong to
the Industry Member with the requisite information, and executing
brokers that do not have the information required on an Allocation
Report would not have to develop the infrastructure and processes
required to obtain, store and report the information. The Commission
stated that this exemptive relief should not reduce the regulatory
utility of the CAT because an Allocation Report would still be
submitted for each executed trade allocated to a client account, which
in certain circumstances could still result in multiple Allocation
Reports,\15\ just not necessarily by the executing broker.
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\15\ As noted above, under the Allocation Alternative, for
certain executions, the executing broker (if self-clearing) or its
clearing firm would report individual Allocation Reports identifying
the specific prime broker to which shares/contracts were allocated
and then each prime broker would itself report an Allocation Report
identifying the specific customer accounts to which the shares/
contracts were finally allocated.
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In accordance with the Allocation Exemption, the Exchange proposes
to add proposed Rule 6.6830(a)(2)(F) to the Compliance Rule. Proposed
Rule 6.6830(a)(2)(F) would require Industry Members to record and
report to the Central Repository ``an Allocation Report any time the
Industry Member
[[Page 84061]]
performs an Allocation to a Client Account, whether or not the Industry
Member was the executing broker for the trade.''
(iii) Client Accounts
In the Allocation Exemption, the Commission also exempted the
Participants from the requirement that they amend their Compliance
Rules to require Industry Members to report Allocations for accounts
other than client accounts. The Commission believes that allocations to
client accounts, and not allocations to proprietary accounts or events
such as step-outs and correspondent flips, provide regulators the
necessary information to detect abuses in the allocation process
because it would provide regulators with detailed information regarding
the fulfillment of orders submitted by clients, while reducing
reporting burdens on broker-dealers. For example, Allocation Reports
would be required for allocations to registered investment advisor and
money manager accounts. The Commission further believes that the
proposed approach should facilitate regulators' ability to distinguish
Allocation Reports relating to allocations to client accounts from
other Allocation Reports because Allocations to accounts other than
client accounts would have to be identified as such. This approach
could reduce the time CAT Reporters expend to comply with CAT reporting
requirements and lower costs by allowing broker-dealers to use existing
business practices.
To clarify that an Industry Member must report an Allocation Report
solely for Allocations to a client account, proposed Rule
6.6830(a)(2)(F) specifically references ``Client Accounts,'' as
discussed above. In addition, the Exchange proposes to add a definition
of ``Client Account'' as proposed Rule 6.6810(l). Proposed Rule
6.6810(l) would define a ``Client Account'' to mean ``for the purposes
of an Allocation and Allocation Report, any account or subaccount that
is not owned or controlled by the Industry Member.''
(D) Identity of Prime Broker
The Exchange also proposes to amend Rule 6.6830(a)(2)(A)(ii) to
eliminate the requirement for executing brokers to record and report
the SRO-Assigned Market Participant Identifier of the prime broker.
Rule 6.6830(a)(2)(A)(ii) states that each Industry Member is required
to record and report to the Central Repository, if the order is
executed, in whole or in part, the ``SRO-Assigned Market Participant
Identifier of the clearing broker or prime broker, if applicable.'' The
Exchange proposes to delete the phrase ``or prime broker'' from this
provision. Accordingly, each Industry Member that is an executing
broker would no longer be required to report the SRO-Assigned Market
Participant Identifier of the prime broker.
As the Commission noted in the Allocation Exemption, exempting the
Participants from the requirement that they, through their Compliance
Rules, require executing brokers to provide the SRO-Assigned Market
Participant Identifier of the prime broker is appropriate because, as
stated by the Participants, allocations are done on a post-trade basis
and the executing broker will not have the requisite information at the
time of the trade. Because an executing broker, in certain
circumstances, does not have this information at the time of the trade,
this relief relieves executing brokers of the burdens and costs of
developing infrastructure and processes to obtain this information in
order to meet the contemporaneous reporting requirements of the CAT NMS
Plan.
As the Commission noted in the Allocation Exemption, although
executing brokers would no longer be required to provide the prime
broker information, regulators will still be able to determine the
prime broker(s) associated with orders through querying the customer
and account information database. If an executing broker has only one
prime broker, the identity of the prime broker can be obtained from the
customer and account information associated with the executing broker.
For customers with multiple prime brokers, the identity of the prime
brokers can be obtained from the customer and account information which
will list the prime broker, if there is one, that is associated with
each account.
2. Statutory Basis
NYSE National believes that the proposed rule change is consistent
with the provisions of Section 6(b)(5) of the Act,\16\ which require,
among other things, that the Exchange's 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 6(b)(8) of the Act,\17\
which requires that the Exchange's rules not impose any burden on
competition that is not necessary or appropriate.
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\16\ 15 U.S.C. 78f(b)(6).
\17\ 15 U.S.C. 78f(b)(8)
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NYSE National believes that this proposal is consistent with the
Act because it is consistent with, and implements, the Allocation
Exemption, and is designed to assist the Exchange 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.'' \18\ To the extent that
this proposal implements the Plan, and applies specific requirements to
Industry Members, the Exchange believes that this proposal furthers the
objectives of the Plan, as identified by the SEC, and is therefore
consistent with the Act.
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\18\ 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
NYSE National 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. NYSE National
notes that the proposed rule changes are consistent with the Allocation
Exemption, and are designed to assist the Exchange in meeting its
regulatory obligations pursuant to the Plan. NYSE National also notes
that the proposed rule changes will apply equally to all Industry
Members. In addition, all national securities exchanges and FINRA 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
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \19\ and Rule 19b-4(f)(6) thereunder.\20\
Because the
[[Page 84062]]
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 and Rule 19b-4(f)(6)(iii) thereunder.
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\19\ 15 U.S.C. 78s(b)(3)(A)(iii).
\20\ 17 CFR 240.19b-4(f)(6).
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At any time within 60 days of the filing of such 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 under
Section 19(b)(2)(B) \21\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\21\ 15 U.S.C. 78s(b)(2)(B).
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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-NYSENAT-2020-37 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-NYSENAT-2020-37. 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 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-NYSENAT-2020-37, and should be submitted
on or before January 13, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-28312 Filed 12-22-20; 8:45 am]
BILLING CODE 8011-01-P
