Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend General 7: Consolidated Audit Trail Compliance, the Exchange's Compliance Rule, 662-667 [2020-29284]

Download as PDF 662 Federal Register / Vol. 86, No. 3 / Wednesday, January 6, 2021 / Notices the risks it faces as a systemically important financial market utility.26 The Commission finds good cause, pursuant to Section 19(b)(2)(C)(iii) of the Exchange Act,27 for approving the Proposed Rule Change on an accelerated basis, prior to the 30th day after the date of publication of notice in the Federal Register, because accelerated approval of this proposed rule change will facilitate the prompt and accurate clearance and settlement of options contracts by ensuring that OCC has expanded the range of stress scenarios to measure, monitor, and manage its credit exposures to its participants in a timely fashion, thereby immediately putting OCC in a better position to manage the risks it faces as a systemically important financial market utility. IV. Conclusion On the basis of the foregoing, the Commission finds that the Proposed Rule Change is consistent with the requirements of the Exchange Act, and in particular, the requirements of Section 17A of the Exchange Act 28 and the rules and regulations thereunder. It is therefore ordered, pursuant to Section 19(b)(2) of the Exchange Act,29 that the Proposed Rule Change (SR– OCC–2020–015) be, and hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.30 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–29217 Filed 1–5–21; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–90837; File No. SR– NASDAQ–2020–099] Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend General 7: Consolidated Audit Trail Compliance, the Exchange’s Compliance Rule December 31, 2020. jbell on DSKJLSW7X2PROD with NOTICES Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 26 Id. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend General 7: Consolidated Audit Trail Compliance, 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 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. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of this proposed rule change is to amend the General 7: Consolidated Audit Trail Compliance to 1 15 27 15 U.S.C. 78s(b)(2)(C)(iii). 28 In approving this Proposed Rule Change, the Commission has considered the proposed rules’ impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 29 15 U.S.C. 78s(b)(2). 30 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on December 30, 2020, The Nasdaq Stock Market LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘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. 19:08 Jan 05, 2021 Jkt 253001 U.S.C. 78s(b)(1). 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’’). 2 17 PO 00000 Frm 00163 Fmt 4703 Sfmt 4703 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 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 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’’). E:\FR\FM\06JAN1.SGM 06JAN1 Federal Register / Vol. 86, No. 3 / Wednesday, January 6, 2021 / Notices 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 Allocations to accounts other than client accounts. jbell on DSKJLSW7X2PROD with NOTICES (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 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. VerDate Sep<11>2014 19:08 Jan 05, 2021 Jkt 253001 663 (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 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 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. 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 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. PO 00000 Frm 00164 Fmt 4703 Sfmt 4703 E:\FR\FM\06JAN1.SGM 06JAN1 664 Federal Register / Vol. 86, No. 3 / Wednesday, January 6, 2021 / Notices 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 jbell on DSKJLSW7X2PROD with NOTICES 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 for the 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 VerDate Sep<11>2014 19:08 Jan 05, 2021 Jkt 253001 (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. 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. (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. The requirements for Allocation Reports apply only to shares, as the definition of ‘‘Allocation Report’’ in General 7, Section 1(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 General 7, Section 1(c) (to be renumbered as General 7, Section 1(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.’’ (A) Definition of Allocation The Exchange proposes to add a definition of ‘‘Allocation’’ as new paragraph (c) to General 7, Section 3.13 Proposed paragraph (c) of General 7, Section 3 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 General 7, Section 1(c) to reflect the requirements of the Allocation Exemption. General 7, Section 1(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 natural person, corporation, partnership, trust or otherwise) with total assets of at least $50 million. 13 The Exchange proposes to renumber the definitions in General 7, Section 3 to accommodate the addition of this new definition of ‘‘Allocation’’ and the new definition of ‘‘Client Account’’ discussed below. PO 00000 Frm 00165 Fmt 4703 Sfmt 4703 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 (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 General 7, Section 1(c) (to be renumbered as General 7, Section 1(d)) to include the following elements, in addition to those elements currently required under the CAT NMS Plan: E:\FR\FM\06JAN1.SGM 06JAN1 Federal Register / Vol. 86, No. 3 / Wednesday, January 6, 2021 / Notices (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 jbell on DSKJLSW7X2PROD with NOTICES (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 General 7, Section 3(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 General 7, Section 3(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 14 The Exchange proposes to renumber General 7, Section 3(a)(2)(A)(ii) and (iii) as General 7, Section 3(a)(2)(A)(i) and (ii) in light of the proposed deletion of General 7, Section 3(a)(2)(A)(i). VerDate Sep<11>2014 19:08 Jan 05, 2021 Jkt 253001 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 General 7, Section 3(a)(2)(F) to the Compliance Rule. Proposed General 7, Section 3(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 broker15 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. PO 00000 Frm 00166 Fmt 4703 Sfmt 4703 665 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 General 7, Section 3(a)(2)(F) specifically references ‘‘Client Accounts,’’ as discussed above. In addition, the Exchange proposes to add a definition of ‘‘Client Account’’ as proposed General 7, Section 1(l). Proposed General 7, Section 1(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 General 7, Section 3(a)(2)(A)(ii) to eliminate the requirement for executing brokers to record and report the SROAssigned Market Participant Identifier of the prime broker. General 7, Section 3(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 E:\FR\FM\06JAN1.SGM 06JAN1 666 Federal Register / Vol. 86, No. 3 / Wednesday, January 6, 2021 / Notices 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. jbell on DSKJLSW7X2PROD with NOTICES 2. Statutory Basis Nasdaq believes that the proposal is consistent with Section 6(b) of the Act in general and Section 6(b)(5) of the Act,16 in particular, 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. The Exchange 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 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 VerDate Sep<11>2014 19:08 Jan 05, 2021 Jkt 253001 the SEC, and is therefore consistent with the Act. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange 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. The Exchange 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. The Exchange 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 either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A)(iii) of the Act 19 and subparagraph (f)(6) of Rule 19b–4 thereunder.20 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. 19 15 U.S.C. 78s(b)(3)(A)(iii). CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. 20 17 PO 00000 Frm 00167 Fmt 4703 Sfmt 4703 IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– NASDAQ–2020–099 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–NASDAQ–2020–099. 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–NASDAQ–2020–099, and should be submitted on or before January 27, 2021. E:\FR\FM\06JAN1.SGM 06JAN1 Federal Register / Vol. 86, No. 3 / Wednesday, January 6, 2021 / Notices For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.21 J. Matthew DeLesDernier, Assistant Secretary. 1. Retaining Employment and Talent After Injury/Illness Network (RETAIN)— 0960–NEW. [FR Doc. 2020–29284 Filed 1–5–21; 8:45 am] The Social Security Administration (SSA) and the U.S. Department of Labor (DOL) are undertaking the Retaining Employment and Talent After Injury/ Illness Network (RETAIN) demonstration. The RETAIN demonstration will test the impact of early intervention strategies to improve stay-at-work/return-to-work (SAW/ RTW) outcomes of individuals who experience work disability while employed. We define ‘‘work disability’’ as an injury, illness, or medical condition that has the potential to inhibit or prevent continued employment or labor force participation. SAW/RTW programs succeed by returning injured or ill workers to productive work as soon as medically possible during their recovery process, and by providing interim part-time or light duty work and accommodations, as necessary. The RETAIN demonstration is loosely modeled after promising programs operating in Washington State, including the Centers of Occupational Health and Education (COHE), the Early Return to Work (ERTW), and the Stay at Work programs. While these programs operate within the state’s workers’ compensation system, and are available only to people experiencing work-related injuries or illnesses, the RETAIN demonstration provides opportunities to improve SAW/RTW outcomes for both occupational and non-occupational injuries and illnesses of people who are employed, or at a minimum in the labor force, when their injury or illness occurs. The primary goals of the RETAIN demonstration are: 1. To increase employment retention and labor force participation of individuals who acquire, or are at risk of developing, work disabilities; and 2. To reduce long-term work disability among RETAIN service users, including the need for Social Security Disability Insurance and Supplemental Security Income. The ultimate purpose of the demonstration is to validate and expand implementation of evidence-based strategies to accomplish these goals. DOL is funding the intervention approaches and programmatic technical assistance for the demonstration. SSA is funding evaluation support, including technical assistance and the full evaluation for the demonstration. BILLING CODE 8011–01–P SOCIAL SECURITY ADMINISTRATION [Docket No: SSA–2020–0067] jbell on DSKJLSW7X2PROD with NOTICES Agency Information Collection Activities: Proposed Request The Social Security Administration (SSA) publishes a list of information collection packages requiring clearance by the Office of Management and Budget (OMB) in compliance with Public Law 104–13, the Paperwork Reduction Act of 1995, effective October 1, 1995. This notice includes new information collections, and revisions of OMB-approved information collections. SSA is soliciting comments on the accuracy of the agency’s burden estimate; the need for the information; its practical utility; ways to enhance its quality, utility, and clarity; and ways to minimize burden on respondents, including the use of automated collection techniques or other forms of information technology. Mail, email, or fax your comments and recommendations on the information collection(s) to the OMB Desk Officer and SSA Reports Clearance Officer at the following addresses or fax numbers. (OMB) Office of Management and Budget, Attn: Desk Officer for SSA Comments: https://www.reginfo.gov/ public/do/PRAMain. Submit your comments online, referencing Docket ID Number [SSA–2020–0067]. (SSA) Social Security Administration, OLCA, Attn: Reports Clearance Director, 3100 West High Rise, 6401 Security Blvd., Baltimore, MD 21235, Fax: 410–966–2830, Email address: OR.Reports.Clearance@ssa.gov Or you may submit your comments online through https://www.reginfo.gov/ public/do/PRAMain, referencing Docket ID Number [SSA–2020–0067]. The information collections below are pending at SSA. SSA will submit them to OMB within 60 days from the date of this notice. To be sure we consider your comments, we must receive them no later than March 8, 2021. Individuals can obtain copies of the collection instruments by writing to the above email address. 21 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 19:08 Jan 05, 2021 Jkt 253001 Background PO 00000 Frm 00168 Fmt 4703 Sfmt 4703 667 Project Description The demonstration consists of two phases. The first involves the implementation and assessment of cooperative awards to eight states to conduct planning and start-up activities, including the launch of a small pilot demonstration. During phase 1, SSA will provide evaluation-related technical assistance and planning, and conduct evaluability assessments to assess which states’ projects would allow for a rigorous evaluation if continued beyond the pilot phase. DOL will select a subset of the states to continue to phase 2, full implementation. Phase 2 will include a subset of states for full implementation and evaluation. During phase 2, DOL will fund the operations and program technical assistance activities for the recommended states, and SSA will fund the full set of evaluation activities. SSA is requesting clearance for the collection of data needed to implement and evaluate RETAIN. The four components of this evaluation, completed during site visits, interviews with RETAIN service users, surveys of RETAIN enrollees, and surveys of RETAIN service providers, include: • The participation analysis: Using RETAIN service user interviews and surveys, this analysis will provide insights into which eligible workers choose to participate in the program, in what ways they participate, and how services received vary with participant characteristics. Similarly, it will assess the characteristics of, and if possible, reasons for non-enrollment of nonparticipants. • The process analysis: Using staff interviews and logs, this analysis will produce information about operational features that affect service provision; perceptions of the intervention design by service users, providers, administrators, and other stakeholders; the relationships among the partner organizations; each program’s fidelity to the research design; and lessons for future programs with similar objectives. • The impact analysis: This analysis will produce estimates of the effects of the interventions on primary outcomes, including employment and Social Security disability applications, and secondary outcomes, such as health and service usage. SSA will identify evaluation designs for each state to generate impact estimates. The evaluation design could include experimental or non-experimental designs. • The cost-benefit analysis: This analysis will assess whether the benefits E:\FR\FM\06JAN1.SGM 06JAN1

Agencies

[Federal Register Volume 86, Number 3 (Wednesday, January 6, 2021)]
[Notices]
[Pages 662-667]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-29284]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90837; File No. SR-NASDAQ-2020-099]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend General 7: Consolidated Audit Trail Compliance, the Exchange's 
Compliance Rule

December 31, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on December 30, 2020, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \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 General 7: Consolidated Audit Trail 
Compliance, 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\
---------------------------------------------------------------------------

    \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'').
---------------------------------------------------------------------------

    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.

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

1. Purpose
    The purpose of this proposed rule change is to amend the General 7: 
Consolidated Audit Trail Compliance 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

[[Page 663]]

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 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

[[Page 664]]

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.
---------------------------------------------------------------------------

    \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 for the 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.
---------------------------------------------------------------------------

(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 General 7, Section 3.\13\ Proposed paragraph (c) of 
General 7, Section 3 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.
---------------------------------------------------------------------------

    \13\ The Exchange proposes to renumber the definitions in 
General 7, Section 3 to accommodate the addition of this new 
definition of ``Allocation'' and the new definition of ``Client 
Account'' discussed below.
---------------------------------------------------------------------------

(B) Definition of Allocation Report
    The Exchange proposes to amend the definition of ``Allocation 
Report'' set forth in General 7, Section 1(c) to reflect the 
requirements of the Allocation Exemption. General 7, Section 1(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 General 7, Section 1(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 General 7, 
Section 1(c) (to be renumbered as General 7, Section 1(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 General 7, Section 1(c) (to be 
renumbered as General 7, Section 1(d)) to include the following 
elements, in addition to those elements currently required under the 
CAT NMS Plan:


[[Page 665]]


(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 General 7, Section 3(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 General 7, Section 
3(a)(2)(F) as discussed below.
---------------------------------------------------------------------------

    \14\ The Exchange proposes to renumber General 7, Section 
3(a)(2)(A)(ii) and (iii) as General 7, Section 3(a)(2)(A)(i) and 
(ii) in light of the proposed deletion of General 7, Section 
3(a)(2)(A)(i).
---------------------------------------------------------------------------

(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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    In accordance with the Allocation Exemption, the Exchange proposes 
to add proposed General 7, Section 3(a)(2)(F) to the Compliance Rule. 
Proposed General 7, Section 3(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 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 General 7, Section 
3(a)(2)(F) specifically references ``Client Accounts,'' as discussed 
above. In addition, the Exchange proposes to add a definition of 
``Client Account'' as proposed General 7, Section 1(l). Proposed 
General 7, Section 1(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 General 7, Section 
3(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. General 7, Section 3(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

[[Page 666]]

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
    Nasdaq believes that the proposal is consistent with Section 6(b) 
of the Act in general and Section 6(b)(5) of the Act,\16\ in 
particular, 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.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78f(b)(6).
    \17\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    The Exchange 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.
---------------------------------------------------------------------------

    \18\ See Securities Exchange Act Release No. 79318 (November 15, 
2016), 81 FR 84696, 84697 (November 23, 2016).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange 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. The Exchange 
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. The Exchange 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 either solicited or received.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \19\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\20\
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \20\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NASDAQ-2020-099 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-NASDAQ-2020-099. 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-NASDAQ-2020-099, and should be submitted 
on or before January 27, 2021.


[[Page 667]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
---------------------------------------------------------------------------

    \21\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-29284 Filed 1-5-21; 8:45 am]
BILLING CODE 8011-01-P
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.