Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Rule 11.6800 Series, 84079-84084 [2020-28314]

Download as PDF Federal Register / Vol. 85, No. 247 / Wednesday, December 23, 2020 / Notices rules included in the then-current list of Common Rules that no longer qualify as common rules; and confirm that the remaining rules on the list of Common Rules continue to be GEMX rules that qualify as common rules.14 FINRA will then confirm in writing whether the rules listed in any updated list are Common Rules as defined in the Amended Plan. Under the Amended Plan, GEMX also will provide FINRA with a current list of Common Members and will update the list no less frequently than once each quarter.15 The Commission believes that these provisions are designed to provide for continuing communication between the Parties to ensure the continued accuracy of the scope of the proposed allocation of regulatory responsibility. The Commission is hereby declaring effective an Amended Plan that, among other things, allocates regulatory responsibility to FINRA for the oversight and enforcement of all GEMX rules that are substantially similar to the rules of FINRA for Common Members of GEMX and FINRA. Therefore, modifications to the Certification need not be filed with the Commission as an amendment to the Amended Plan, provided that the Parties are only adding to, deleting from, or confirming changes to GEMX rules in the Certification in conformance with the definition of Common Rules provided in the Amended Plan. However, should the Parties decide to add a GEMX rule to the Certification that is not substantially similar to a FINRA rule; delete a GEMX rule from the Certification that is substantially similar to a FINRA rule; or leave on the Certification a GEMX rule that is no longer substantially similar to a FINRA rule, then such a change would constitute an amendment to the Amended Plan, which must be filed with the Commission pursuant to Rule 17d–2 under the Act.16 Under paragraph (c) of Rule 17d–2, the Commission may, after appropriate notice and comment, declare a plan, or any part of a plan, effective. In this instance, the Commission believes that appropriate notice and comment can take place after the proposed amendment is effective. The primary purpose of the amendment is to allocate surveillance, investigation, and enforcement responsibilities for Rule jbell on DSKJLSW7X2PROD with NOTICES 14 See paragraph 2 of the Amended Plan. paragraph 3 of the Amended Plan. 16 The addition to or deletion from the Certification of any federal securities laws, rules, and regulations for which FINRA would bear responsibility under the Amended Plan for examining, and enforcing compliance by, Common Members, also would constitute an amendment to the Amended Plan. 15 See VerDate Sep<11>2014 21:21 Dec 22, 2020 Jkt 253001 14e–4 under the Act, to reflect the name change of Topaz Exchange, LLC to Nasdaq GEMX, LLC. By declaring it effective today, the Amended Plan can become effective and be implemented without undue delay. The Commission notes that the prior version of this plan immediately prior to this proposed amendment was published for comment and the Commission did not receive any comments thereon.17 Furthermore, the Commission does not believe that the amendment to the plan raises any new regulatory issues that the Commission has not previously considered. VI. Conclusion This order gives effect to the Amended Plan filed with the Commission in File No. 4–663. The Parties shall notify all members affected by the Amended Plan of their rights and obligations under the Amended Plan. It is therefore ordered, pursuant to Section 17(d) of the Act, that the Amended Plan in File No. 4–663, between the FINRA and GEMX, filed pursuant to Rule 17d–2 under the Act, hereby is approved and declared effective. It is further ordered that GEMX is relieved of those responsibilities allocated to FINRA under the Amended Plan in File No. 4–663. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.18 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–28309 Filed 12–22–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–90709; File No. SR– NYSEARCA–2020–108] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Rule 11.6800 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 Arca, Inc. (‘‘NYSE Arca’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule 17 See supra note 11 (citing to Securities Exchange Act Release No. 70228). 18 17 CFR 200.30–3(a)(34). 1 15 U.S.C. 78a. 2 17 CFR 240.19b–4. PO 00000 Frm 00197 Fmt 4703 Sfmt 4703 84079 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. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend the Rule 11.6800 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. 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 11.6800 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’’). 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’’). E:\FR\FM\23DEN1.SGM 23DEN1 84080 Federal Register / Vol. 85, No. 247 / Wednesday, December 23, 2020 / Notices jbell on DSKJLSW7X2PROD with NOTICES (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 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 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.’’ 6 See letter from the Participants to Vanessa Countryman, Secretary, Commission, dated August 27, 2020 (the ‘‘Exemption Request’’). VerDate Sep<11>2014 21:21 Dec 22, 2020 Jkt 253001 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. (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 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. PO 00000 Frm 00198 Fmt 4703 Sfmt 4703 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 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 9 See Securities Exchange Act Release No. 67457 (July 18, 2012), 77 FR 45722, 45748 (August 1, 2012). 10 The Participants did not request exemptive relief relating to the reporting of the SRO-Assigned Market Participant Identifier of clearing brokers. E:\FR\FM\23DEN1.SGM 23DEN1 jbell on DSKJLSW7X2PROD with NOTICES Federal Register / Vol. 85, No. 247 / Wednesday, December 23, 2020 / Notices 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 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. VerDate Sep<11>2014 21:21 Dec 22, 2020 Jkt 253001 (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 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. PO 00000 Frm 00199 Fmt 4703 Sfmt 4703 84081 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 11.6810.13 Proposed paragraph (c) of Rule 11.6810 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 11.6810(c) to reflect the requirements of the Allocation Exemption. Exchange Rule 11.6810(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 13 The Exchange proposes to renumber the definitions in Rule 11.6810 to accommodate the addition of this new definition of ‘‘Allocation’’ and the new definition of ‘‘Client Account’’ discussed below. E:\FR\FM\23DEN1.SGM 23DEN1 84082 Federal Register / Vol. 85, No. 247 / Wednesday, December 23, 2020 / Notices 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 11.6810(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 11.6810(c) (to be renumbered as Rule 11.6810(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.’’ jbell on DSKJLSW7X2PROD with NOTICES (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 11.6810(c) (to be renumbered as Rule 11.6810(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, VerDate Sep<11>2014 21:21 Dec 22, 2020 Jkt 253001 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 11.6830(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 11.6830(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 14 The Exchange proposes to renumber Rule 11.6830(a)(2)(A)(ii) and (iii) as Rules 11.6830(a)(2)(A)(i) and (ii) in light of the proposed deletion of Rule 11.6830(a)(2)(A)(i). PO 00000 Frm 00200 Fmt 4703 Sfmt 4703 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 11.6830(a)(2)(F) to the Compliance Rule. Proposed Rule 11.6830(a)(2)(F) would require Industry Members to record and report to the Central Repository ‘‘an Allocation Report any time the Industry Member 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 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 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. E:\FR\FM\23DEN1.SGM 23DEN1 Federal Register / Vol. 85, No. 247 / Wednesday, December 23, 2020 / Notices jbell on DSKJLSW7X2PROD with NOTICES 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 11.6830(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 11.6810(l). Proposed Rule 11.6810(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 11.6830(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 11.6830(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 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 VerDate Sep<11>2014 21:21 Dec 22, 2020 Jkt 253001 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 Arca 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. NYSE Arca 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. B. Self-Regulatory Organization’s Statement on Burden on Competition NYSE Arca 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 Arca 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 16 15 U.S.C. 78f(b)(6). U.S.C. 78f(b)(8). 18 See Securities Exchange Act Release No. 79318 (November 15, 2016), 81 FR 84696, 84697 (November 23, 2016). 17 15 PO 00000 Frm 00201 Fmt 4703 Sfmt 4703 84083 Arca 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 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: 19 15 U.S.C. 78s(b)(3)(A)(iii). CFR 240.19b–4(f)(6). 21 15 U.S.C. 78s(b)(2)(B). 20 17 E:\FR\FM\23DEN1.SGM 23DEN1 84084 Federal Register / Vol. 85, No. 247 / Wednesday, December 23, 2020 / 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– NYSEARCA–2020–108 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. jbell on DSKJLSW7X2PROD with NOTICES All submissions should refer to File Number SR–NYSEARCA–2020–108. 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–NYSEARCA–2020–108, 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. 2020–28314 Filed 12–22–20; 8:45 am] SECURITIES AND EXCHANGE COMMISSION [Release No. 34–90697; File No. SR– NASDAQ–2020–089] Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To No Longer Implement the OTTO Protocol 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 15, 2020, The Nasdaq Stock Market LLC (‘‘Nasdaq’’ or ‘‘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 Exchange. 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 remove the protocol ‘‘Ouch to Trade Options’’ or ‘‘OTTO’’ from The Nasdaq Options Market LLC (‘‘NOM’’) Rulebook. The Exchange previously delayed its implementation of the OTTO protocol; the Exchange will no longer implement the OTTO protocol. The text of the proposed rule change is available on the Exchange’s website at https://listingcenter.nasdaq.com/ rulebook/nasdaq/rules, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. BILLING CODE 8011–01–P 1 15 22 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 21:21 Dec 22, 2020 2 17 Jkt 253001 PO 00000 U.S.C. 78s(b)(1). CFR 240.19b–4. Frm 00202 Fmt 4703 Sfmt 4703 A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose NOM’s proposal seeks to remove the protocol ‘‘Ouch to Trade Options’’ or ‘‘OTTO’’ from The Nasdaq Options Market LLC (‘‘NOM’’) Rulebook. The Exchange previously delayed its implementation of the OTTO protocol; the Exchange will no longer implement the OTTO protocol. Background Nasdaq filed a rule change 3 which adopted a new protocol ‘‘Ouch to Trade Options’’ or ‘‘OTTO’’ 4 and proposed to rename and modify the current OTTO protocol as ‘‘Quote Using Orders’’ or ‘‘QUO.’’ 5 The Exchange subsequently filed a rule change to amend Options 3, Section 18, titled ‘‘Detection of Loss of Communication’’ which describes the impact to NOM protocols in the event of a loss of a communication. The Exchange accounted for both the new OTTO and renamed and modified QUO within this rule. Similarly, the Exchange amended Options 3, Section 8, ‘‘Nasdaq Opening and Halt Cross’’ to account for the new OTTO and renamed and modified QUO within this rule. Finally, the Exchange amended Options 3, Section 23, ‘‘Data Feeds and Trade Information’’ to amend ‘‘OTTO DROP’’ to ‘‘QUO DROP’’ and noted within Options 3, Section 15(a)(1) related to Order Price Protection rule or ‘‘OPP’’ 3 See Securities Exchange Act Release No. 83888 (August 20, 2018), 83 FR 42954 (August 24, 2018) (SR–NASDAQ–2018–069) (‘‘Prior Rule Change’’). In the Prior Rule Change the Exchange stated that it would issue an Options Trader Alert introducing the new OTTO protocol in Q4 of 2018. The rule numbers were amended in 2019 when the Rulebook was relocated. See Securities Exchange Act Release No. 87778 (December 17, 2019), 84 FR 70590 (December 23, 2019) (SR–NASDAQ–2019–098). 4 As modified by the Prior Rule Change, OTTO is an interface that allows Participants and their Sponsored Customers to connect, send, and receive messages related to orders to and from the Exchange. Features include the following: (1) Options symbol directory messages (e.g., underlying); (2) system event messages (e.g., start of trading hours messages and start of opening); (3) trading action messages (e.g., halts and resumes); (4) execution messages; (5) order messages; and (6) risk protection triggers and cancel notifications. See NOM Rules at Options 3, Section 7(d)(1)(C). 5 QUO is an interface that allows NOM Market Makers to connect, send, and receive messages related to single-sided orders to and from the Exchange. Order Features include the following: (1) Options symbol directory messages (e.g., underlying); (2) system event messages (e.g., start of trading hours messages and start of opening); (3) trading action messages (e.g., halts and resumes); (4) execution messages; (5) order messages; and (6) risk protection triggers and cancel notifications. Orders submitted by NOM Market Makers over this interface are treated as quotes. See Options 3, Section 7(d)(1)(D). E:\FR\FM\23DEN1.SGM 23DEN1

Agencies

[Federal Register Volume 85, Number 247 (Wednesday, December 23, 2020)]
[Notices]
[Pages 84079-84084]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-28314]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90709; File No. SR-NYSEARCA-2020-108]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the Rule 
11.6800 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 Arca, Inc. (``NYSE Arca'' 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.
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    \1\ 15 U.S.C. 78a.
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the Rule 11.6800 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.
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    \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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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 
11.6800 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'').

[[Page 84080]]

(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.
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    \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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    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.
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    \6\ See letter from the Participants to Vanessa Countryman, 
Secretary, Commission, dated August 27, 2020 (the ``Exemption 
Request'').
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    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.
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    \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.
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(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 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.
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    \9\ See Securities Exchange Act Release No. 67457 (July 18, 
2012), 77 FR 45722, 45748 (August 1, 2012).
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(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

[[Page 84081]]

required to report the ultimate allocation, which the Participants 
believe would provide more complete information.
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    \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 11.6810.\13\ Proposed paragraph (c) of Rule 
11.6810 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 
11.6810 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 11.6810(c) to reflect the 
requirements of the Allocation Exemption. Exchange Rule 11.6810(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

[[Page 84082]]

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 11.6810(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 11.6810(c) 
(to be renumbered as Rule 11.6810(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 11.6810(c) (to be 
renumbered as Rule 11.6810(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 11.6830(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 
11.6830(a)(2)(F) as discussed below.
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    \14\ The Exchange proposes to renumber Rule 11.6830(a)(2)(A)(ii) 
and (iii) as Rules 11.6830(a)(2)(A)(i) and (ii) in light of the 
proposed deletion of Rule 11.6830(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 11.6830(a)(2)(F) to the Compliance Rule. Proposed 
Rule 11.6830(a)(2)(F) would require Industry Members to record and 
report to the Central Repository ``an Allocation Report any time the 
Industry Member 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

[[Page 84083]]

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 
11.6830(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 11.6810(l). Proposed Rule 
11.6810(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 11.6830(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 11.6830(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 Arca 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 Arca 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 Arca 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 Arca 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 Arca 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 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:

[[Page 84084]]

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-NYSEARCA-2020-108 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-NYSEARCA-2020-108. 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-NYSEARCA-2020-108, 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. 2020-28314 Filed 12-22-20; 8:45 am]
BILLING CODE 8011-01-P
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