Order Extending the Annual Reports Filing Deadline for Certain Smaller Broker-Dealers, 10372-10375 [2021-03353]
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Federal Register / Vol. 86, No. 32 / Friday, February 19, 2021 / Notices
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 foregoing rule change is effective
upon filing pursuant to Section
19(b)(3)(A) 16 of the Act and
subparagraph (f)(2) of Rule 19b–4 17
thereunder, because it establishes a due,
fee, or other charge imposed by the
Exchange.
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) 18 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:
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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–
NYSE–2021–11 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–NYSE–2021–11. 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/
16 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(2).
18 15 U.S.C. 78s(b)(2)(B).
17 17
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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–NYSE–2021–11 and should
be submitted on or before March 12,
2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2021–03340 Filed 2–18–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–91128]
Order Extending the Annual Reports
Filing Deadline for Certain Smaller
Broker-Dealers
February 12, 2021.
I. Introduction
Broker-dealers registered with the
U.S. Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
are generally required to file with the
Commission, within 60 calendar days
after the end of the fiscal year of the
broker-dealer, a financial report and
either a compliance report or exemption
report, along with reports prepared by
an independent public accountant 1
19 17
CFR 200.30–3(a)(12).
independent public accountant must be
qualified and independent in accordance with Rule
2–01 of Regulation S–X and must be registered with
the Public Company Accounting Oversight Board
(‘‘PCAOB’’) if required by the Sarbanes-Oxley Act
1 The
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covering the financial report and, as
applicable, the compliance or
exemption report (collectively the
‘‘annual reports’’).2 Pursuant to
paragraph (m)(3) of Exchange Act Rule
17a–5 (‘‘Rule 17a–5’’), the Financial
Industry Regulatory Authority, Inc.
(‘‘FINRA’’) has requested that the
Commission extend by 30 calendar days
the deadline for certain smaller brokerdealers to file the annual reports.3 This
order grants such an extension to certain
smaller broker-dealers, subject to the
conditions described in section III
below.
II. Discussion
A. FINRA’s Request
In a letter dated February 11, 2021,
FINRA requested that the Commission
issue an order pursuant to paragraph
(m)(3) of Rule 17a–5 to extend by 30
calendar days the deadline for certain
smaller broker-dealers to file their
annual reports.4 In FINRA’s request, it
indicated that it had been informed by
smaller broker-dealers and auditors that
permitting an additional 30 days for
filing of the annual reports may help to
reduce the burdens in obtaining audit
services by providing an expanded time
frame for the completion of such audits
thereby easing the availability of
auditors.5 FINRA stated in the letter that
the fiscal year for most broker-dealers
ends on the last calendar day of the year
(December 31), which results in the
greatest demand for audit services in the
60 calendar days following that date.
Further, much of the work required to
complete these audits is performed after
the broker-dealer files the final FOCUS
Report (Form X–17A–5 Part II or IIA) for
the audit year, which is due to be filed
with the Commission 17 business days
after the end of the prior month (i.e.,
January 27 for broker-dealers with
December 31 fiscal year ends). As a
result, the required audit work is
conducted within a compressed period
when audit services are in greatest
demand and the availability of
independent public accountants and
of 2002 (‘‘Sarbanes-Oxley Act’’). See Public Law
107–204, 116 Stat. 745 (2002); 17 CFR 240.17a–
5(f)(1).
2 See 17 CFR 240.17a–5(d)(5).
3 See 17 CFR 240.17a–5(m)(3) (stating that on
written request of any national securities exchange,
registered national securities association, brokerdealer, or on its own motion, the Commission may
grant an extension of time or an exemption from
any of the requirements of Rule 17a–5 either
unconditionally or on specified terms and
conditions).
4 See Letter from Kris Dailey, Vice President,
Office of Financial and Operational Risk Policy,
FINRA to Michael A. Macchiaroli, Associate
Director, SEC (February 11, 2021).
5 See id. at 2.
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Federal Register / Vol. 86, No. 32 / Friday, February 19, 2021 / Notices
other third-party professionals may be
limited.
FINRA further identified a number of
factors that compound the burden of
smaller broker-dealers in preparing the
annual reports and undergoing an audit
of them. For example, the auditors of
smaller broker-dealers typically do not
perform interim audit work prior to the
fiscal year end. Interim audit work
typically includes the auditors testing
items such as revenue, expenses, and
internal controls. In addition, some
smaller broker-dealers utilize outside
professional and consulting services to
assist them in preparing supporting
materials for the audit and to respond to
auditor requests. These outside
professional and consulting service
providers often have multiple smaller
broker-dealer clients with the same
fiscal year end. As a result, the service
providers’ may have a limited capacity
during the audit period to provide their
services to smaller broker-dealers.
Furthermore, because many smaller
broker-dealers do not have fully
automated financial and operational
recordkeeping and reporting
infrastructures, they must rely on
manual processes to prepare documents
for the independent public accountant
to audit or review, which can take
additional time as compared to more
automated processes.
FINRA also stated that some audit
firms have chosen to forego registration
with the PCAOB, resulting in fewer
independent public accountants
qualified under Rule 17a–5 to perform
broker-dealer audits.6 FINRA indicates
that the additional 30 days to complete
a smaller broker-dealer audit may
alleviate capacity issues for PCAOBregistered auditors. FINRA stated that it
has been informed by broker-dealers
and auditors that the additional 30 days
would help the limited number of
PCAOB-registered auditors to perform
the work necessary to complete reports
covering them. FINRA stated the
additional time could promote better
quality of the annual reports.
B. FINRA’s Proposed Conditions for the
Requested Relief
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FINRA proposed that the extension of
30 calendar days be made available only
to broker-dealers that meet certain
conditions. The first condition is that
6 In its 2012 Annual Report on the Interim
Inspection Program Related to the Audits of Brokers
and Dealers (‘‘Annual Inspection Report’’), the
PCAOB reported that there were 783 registered
public accounting firms. In the 2019 Annual
Inspection Report, that figure had declined to 411.
See PCAOB, Information for Auditors of BrokerDealers, available at https://pcaobus.org/Pages/
BrokerDealers.aspx.
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the broker-dealer must be in compliance
with Exchange Act Rule 15c3–1 7 (‘‘Rule
15c3–1’’) as of the date of its most recent
fiscal year end. FINRA believes this
condition is appropriate because the
financial condition of a member that
avails itself of the additional 30 days
should not be such as to raise concerns
about whether the member may
continue to conduct its broker-dealer
activities. The second condition is that
as of the date of the broker-dealer’s most
recent fiscal year-end, the broker-dealer
must have had total capital and
allowable subordinated liabilities of less
than $50 million, as reported in box
3530 of Part II or IIA of its FOCUS
Report. FINRA believes this condition is
appropriate because it helps to target the
contemplated extension to the smaller
firms that are in need of such relief. The
third condition is that the extension be
made available only to those brokerdealers eligible to file an exemption
report as part of its most recent fiscal
year end annual reports.8 FINRA
believes this condition is appropriate so
as to ensure that the extension is only
available to firms that, by virtue of their
business activities, generally pose less
risk to customers because they do not
custody funds and securities. The fourth
condition is that the broker-dealer
submits written notification to FINRA of
its intent to avail itself of the additional
30 calendar days for filing its annual
reports on an ongoing basis for as long
as it meets these conditions. FINRA
believes that the notification is
7 See
17 CFR 240.15c3–1.
17 CFR 240.17a–5(d)(1)(i)(B) (prescribing
whether a broker-dealer must file the compliance
report or the exemption report). A broker-dealer
must file an exemption report if the firm claimed
it was exempt from Rule 15c3–3 (17 CFR 240.15c3–
3) throughout the most recent fiscal year and was
not subject to paragraph (p) of Rule 15c3–3 (which
addresses segregation requirements with respect to
security-based swaps). Otherwise, the broker-dealer
must file the compliance report. See also BrokerDealer Reports, Exchange Act Release No. 70073
(July 30, 2013), 78 FR 51910, 51915 (Aug. 21, 2013)
n. 74 (stating that a broker-dealer should file an
exemption report if it has not held customer
securities or funds during the fiscal year even if it
does not fit into one of the exemption provisions
of Rule 15c3–3 identified on the FOCUS Report).
See also Frequently Asked Questions Concerning
the July 30, 2013 Amendments to the Broker-Dealer
Financial Reporting Rule (updated July 1, 2020)
(describing the Division and Trading and Markets
staff’s views regarding the eligibility of certain
broker-dealers to file exemption reports in
accordance with the circumstances described in
footnote 74 of the 2013 Broker-Dealer Reports
release, among other things). Staff statements,
including Frequently Asked Questions, represent
the views of the staff. They are not rules,
regulations, or statements of the Commission. The
Commission has neither approved nor disapproved
their content. These staff statements, like all staff
guidance, have no legal force or effect: They do not
alter or amend applicable law, and they create no
new or additional obligations for any person.
8 See
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appropriate so as to enable FINRA to
monitor effectively firms that avail
themselves of the additional 30 days.
The final condition is that the brokerdealer submits the annual reports
electronically to the Commission using
an appropriate process. FINRA believes
this condition is appropriate because it
permits greater efficiency and is
consistent with SEC staff guidance.
C. Commission Analysis
According to FINRA, a smaller brokerdealer’s window of time to prepare the
annual reports and undergo an audit by
an independent public accountant is
often particularly compressed because
much of the audit work does not
commence until after the broker-dealer
files its fiscal year-end FOCUS Report.
According to FINRA, audit work for
small broker-dealers is performed
predominantly during the period of time
between the due date for the fiscal yearend FOCUS Report (17 business days
after the firm’s fiscal year end) and the
annual reports filing due date (60
calendar days after the fiscal year end).
Further, according to FINRA, the
auditors of smaller broker-dealers do not
typically perform interim audit work
prior to the broker-dealer’s fiscal year
end, unlike most larger broker-dealers.
The lack of this interim audit work,
which typically includes the testing of
items such as revenue, expenses, and
internal controls, compresses the time
auditors have to perform required
procedures in advance of the filing
deadline. This also restricts the time
frame for smaller broker-dealers and
their auditors to identify and resolve
issues.
Moreover, according to FINRA, many
smaller broker-dealers use manual
processes to prepare supporting
documentation for the audit or review
and respond to auditor inquiries, rather
than the more automated processes
typically used by larger broker-dealers.
This can make the work necessary to
prepare the annual reports and audit
them more labor intensive and time
consuming. In addition, according to
FINRA, some smaller broker-dealers
retain third-party professionals to assist
them with their financial reporting.
These professionals often provide
services to multiple smaller brokerdealers with the same fiscal year end,
resulting in these professionals having
limited capacity during the relatively
brief period between the FOCUS Report
filing due date and the annual reports
filing due date. These professionals’
limited capacity can further compress
the timeframe for performing the work
necessary to prepare the annual reports.
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Federal Register / Vol. 86, No. 32 / Friday, February 19, 2021 / Notices
Paragraph (m)(3) of Rule 17a–5
provides that the Commission may grant
an extension of time for broker-dealers
to file their annual reports. After
considering the points raised in
FINRA’s letter and the burdens faced by
smaller broker-dealers in preparing and
filing the annual reports, the
Commission believes that it would be
appropriate to extend the deadline for
certain smaller broker-dealers to file
their annual reports by 30 calendar
days.9 This additional time should
expand the timeframe (from slightly
more than one month) between the
deadline for submitting the fiscal yearend FOCUS Report and the deadline to
file the annual reports (i.e., the
timeframe in which much of the work
is performed to prepare the annual
reports). To the extent auditors are able
to better focus on the audit and review
of annual reports for the small brokerdealer clients who avail themselves of
the extension, this relief could help
promote quality financial reporting.
The Commission further believes it is
appropriate to limit this relief to brokerdealers meeting the conditions
described in FINRA’s request, which
should also maintain investor
protections. Conditioning the extension
on the broker-dealer being in
compliance with the net capital
requirements of Rule 15c3–1 as of the
date of its fiscal year end is appropriate
because a broker-dealer that is not in
compliance with the rule poses a
heightened risk to its customers and
other securities market participants
because of its financial condition.
Excluding a net capital-deficient brokerdealer from this relief will assist the
Commission and the broker-dealer’s
designated examining authority to
monitor the financial condition of the
firm on a timely basis, including
analyzing whether the firm will be able
to continue as a going concern.
Therefore, a broker-dealer with a net
capital deficiency will not be able to
avail itself of the additional 30 days
provided for in this Order.
The Commission also believes it is
appropriate to limit the availability of
the extension to smaller broker-dealers.
As discussed above, the extension could
alleviate unique burdens associated
with the compressed timeframe for
smaller broker-dealers to prepare their
annual reports and their independent
public accountants to perform the audit
work necessary to prepare reports
covering them. Moreover, broker-dealers
9 FINRA requested relief on behalf of its member
broker-dealers. This Order extends relief to all
broker-dealers satisfying its conditions in order to
treat similarly situated broker-dealers equally
regardless of whether they are FINRA members.
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that conduct a substantial securities
business and thus are in a position to
potentially pose significant risk to
investors and to the fair, orderly, and
efficient functioning of the markets, will
not be eligible for the extension.
Therefore, the Commission is limiting
the relief to broker-dealers that have
total capital and allowable subordinated
liabilities of less than $50 million, as
requested by FINRA. Broker-dealers
falling below the $50 million threshold
constitute approximately 3% of the total
capital of all broker-dealers. The
Commission believes that the $50
million threshold is appropriate in this
context because smaller broker-dealers
pose less significant risks to the fair,
orderly, and efficient functioning of the
markets.
Broker-dealers that maintain custody
of customer securities and cash are not
eligible to file exemption reports and are
generally larger in size than brokerdealers that do not carry customer
accounts. The Commission believes
firms that file an exemption report—
because of their relative size and the fact
that they do not hold customer funds or
securities, or owe money or securities to
customers and do not carry customer
accounts, or are exempt from Rule
15c3–3 pursuant to paragraph (k)(2) of
that rule—present less risk to customers.
Therefore, a broker-dealer must be
permitted to file an exemption report as
part of the annual reports to qualify for
the relief. Based upon information
included in broker-dealers’ FOCUS
Reports, the Commission believes that
approximately 3,000 of the 3,620 brokerdealers registered with the Commission
would meet the $50 million threshold
and exemption report filing conditions.
The Commission believes that it is
appropriate to make the 30-day
extension available only to brokerdealers that have provided written
notice to their designated examining
authority of their intent to avail
themselves of the extension. The
designated examining authority is
responsible for oversight of brokerdealers’ adherence to the financial
responsibility rules, including Rule
17a–5. This requirement will allow the
broker-dealer’s designated examining
authority to more effectively monitor
firms by enabling it to distinguish
between broker-dealers that are filing
their annual reports late as opposed to
firms availing themselves of the relief in
this Order.
Finally, the Commission believes it is
appropriate to limit the availability of
the relief in this order to broker-dealers
that file the annual reports
electronically with the Commission
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using an appropriate process.10 The
electronic filing condition promotes
efficiency by ensuring broker-dealers
that rely on the 30-day extension will
have their annual reports made
available to Commission staff and to the
public more quickly than if they had
been filed in paper within the deadline
provided in Rule 17a–5. Paper filings
must be manually processed, which is
time consuming and delays the
availability of annual reports to the staff
of the Commission and to the public. By
comparison, annual reports that are
filed electronically need minimal or no
manual processing. Therefore, to help
ensure the annual reports are made
promptly available, the Commission is
conditioning the relief on electronic
filing.
III. Conclusion
It is hereby ordered pursuant to
section 17(a)(1) of the Exchange Act and
paragraph (m)(3) of Rule 17a–5
thereunder that the deadline in
paragraph (d)(5) of Rule 17a–5 for filing
the annual reports is extended by 30
calendar days, provided that the brokerdealer:
(1) As of its most recent fiscal year
end:
a. Was in compliance with Rule 15c3–
1; and
b. Had total capital and allowable
subordinated liabilities of less than $50
million, as reported in box 3530 of Part
II or Part IIA of its FOCUS Report;
(2) Is permitted to file an exemption
report as part of its most recent fiscal
year end annual reports;
(3) Submits written notification to its
designated examining authority of its
intent to rely on this order on an
ongoing basis for as long as it meets the
conditions of the order; and
10 The Commission notes that the staff of the
Division of Trading and Markets has previously
issued no-action positions related to the electronic
filing of broker-dealer annual reports. See Letter to
Kris Daily, Vice President, FINRA from Michael A.
Macchiaroli, Associate Director, Commission, dated
January 27, 2017. Available at https://www.sec.gov/
divisions/marketreg/mr-noaction/2017/finra012717-electronic-filing-annual-reports.pdf. For
further instructions relating to filing broker-dealer
annual reports through EDGAR, see Electronic
Filing of Broker-Dealer Annual Reports. Available at
https://www.sec.gov/divisions/marketreg/electronicfiling-broker-dealer-annual-reports.htm.
See also Updated Division of Trading and
Markets Staff Statement Regarding Requirements
for Certain Paper Submissions in Light of COVID–
19 Concerns. Available at https://www.sec.gov/tm/
paper-submission-requirements-covid-19-updates061820.
Staff statements represent the views of the staff.
They are not rules, regulations, or statements of the
Commission. The Commission has neither
approved nor disapproved their content. These staff
statements, like all staff guidance, have no legal
force or effect: They do not alter or amend
applicable law, and they create no new or
additional obligations for any person.
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Federal Register / Vol. 86, No. 32 / Friday, February 19, 2021 / Notices
(4) Files the annual report
electronically with the Commission
using an appropriate process.
By the Commission.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2021–03353 Filed 2–18–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–91125; File No. SR–BX–
2020–032]
Self-Regulatory Organizations; Nasdaq
BX, Inc.; Notice of Filing of
Amendment No. 1 and Order Granting
Accelerated Approval of Proposed
Rule Change, as Modified by
Amendment No. 1, To Amend Options
4, Section 5, To Limit Short Term
Options Series Intervals Between
Strikes That Are Available for Quoting
and Trading on BX
February 12, 2021.
I. Introduction
On November 6, 2020, Nasdaq BX,
Inc. (‘‘BX’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
amend Options 4, Section 5, ‘‘Series of
Options Contracts Open for Trading’’ to
limit Short Term Options Series
intervals between strikes which are
available for quoting and trading on BX.
The proposed rule change was
published for comment in the Federal
Register on November 16, 2020.3 On
December 23, 2020, pursuant to Section
19(b)(2) of the Act,4 the Commission
extended the time period within which
to approve the proposed rule change,
disapprove the proposed rule change, or
institute proceedings to determine
whether to approve or disapprove the
proposed rule change, to February 14,
2021.5 On February 10, 2021, the
Exchange filed Amendment No. 1 to the
proposed rule change, which replaced
and superseded the proposed rule
change in its entirety.6 The Commission
is publishing this notice to solicit
comments on the proposed rule change,
as modified by Amendment No. 1, from
interested persons, and is approving the
proposed rule change, as modified by
Amendment No. 1, on an accelerated
basis.
II. Description of the Proposed Rule
Change
Currently, under the Short Term
Options Series (‘‘STOS’’) program (also
referred to as the ‘‘weekly series’’ or
‘‘weeklies’’), BX may open for trading
on a Thursday or Friday (‘‘Short Term
Option Opening Date’’) a series of
options that expires on each of the next
five Fridays that are business days and
are not Fridays in which monthly
options series or Quarterly Options
series expire (‘‘Short Term Option
Expiration Dates’’).7 Weeklies currently
may have strike price intervals of $0.50,
$1, or $2.50.8
In the proposed rule change, as
modified by Amendment No. 1, the
Exchange proposes to amend its STOS
Program to increase, and thereby limit,
the intervals between strikes in multiply
listed equity options (excluding options
on Exchange Traded Funds (‘‘ETFs’’)
and Exchange Traded Notes (‘‘ETNs’’))
under the STOS program for those
weeklies that have an expiration date
more than twenty-one days from the
listing date.9 Accordingly, the proposal
seeks to reduce the number of strikes in
the weeklies furthest from expiration.
Specifically, the new applicable strike
intervals will be as follows: 10
Underlying share price
Tier
Customer-range options average daily
volume
1 ........................
2 ........................
3 ........................
greater than 5,000 ................................
1,000 to 5,000 .......................................
0 to 1,000 ..............................................
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 90384
(November 9, 2020), 85 FR 73113 (November 16,
2020) (‘‘Notice’’). Comments on the proposed rule
change can be found at https://www.sec.gov/
comments/sr-bx-2020-032/srbx2020032.htm.
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 90796
(December 23, 2020), 85 FR 86590 (December 30,
2020).
6 In Amendment No. 1, the Exchange: (1) Stated
that the proposed changes in Supplementary
Material .07 of Options 4, Section 5 supersede
Supplementary Material .03(d) and that the
Exchange will not be able to utilize the rule text
within Supplementary Material .03(d) to permit
additional series to be opened for trading on the
Exchange that have an expiration date more than
twenty-one days from the listing date despite the
noted circumstances when such additional series
could otherwise be added; (2) clarified how a Short
Term Option Opening Date is calculated when the
Exchange is not open for business on the applicable
Thursday or Friday; (3) provided that that Short
Term Options Series that are newly eligible for
listing pursuant to Options 4, Section 3(a) will not
be subject to proposed Supplementary Material .07
until after the end of the first full calendar quarter
following the date the option class was first listed
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2 17
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Less than
$25
$25 to less
than $75
$0.50
1.00
2.50
$1.00
1.00
5.00
for trading on any options market; (4) discussed
additional data underlying its proposal; (5)
proposed to make publically available a report on
a quarterly basis that indicates, for each Short Term
Options Series eligible to be listed under proposed
Supplementary Material .07 of Options 4, Section
5, the applicable tiering, which includes the closing
price of the underlying, and the average daily
Customer volume of the option; and (6) changed its
implementation timeframe for the proposed rule
change from prior to March 31, 2021 to prior to June
30, 2021. When the Exchange filed Amendment No.
1, it also submitted it as a comment to the filing
so that the text of Amendment No. 1 promptly
became available at https://www.sec.gov/comments/
sr-bx-2020-032/srbx2020032-8359799-229182.pdf.
7 See Supplementary Material .03 of Options 4,
Section 5. There are limits on the number of series
that can participate in STOS (i.e., 30 initial series
and up to 50 currently listed classes). See
Supplementary Material .03 of Options 4, Section
5(c). In addition to the weeklies, the Exchange may
list series of options for trading with monthly
expirations (that expire on the third Friday of the
month) or quarterly expirations. See Options 4,
Section 5(g) and Supplementary Material .04 of
Options 4, Section 5, respectively. Exchange rules
set forth the intervals between strike prices of series
of options on individual stocks, which generally are
$2.50, $5, and $10. In addition to those intervals,
the Exchange may list certain series of options in
PO 00000
Frm 00143
Fmt 4703
Sfmt 4703
$75 to less
than $150
$1.00
1.00
5.00
$150 to less
than $500
$5.00
5.00
5.00
$500 or
greater
$5.00
10.00
10.00
finer increments, including, e.g., pursuant to the $1
Strike Price Interval Program (Supplementary
Material .01 of Options 4, Section 5) and the $0.50
Strike Program (Supplementary Material .05 of
Options 4, Section 5).
8 Specifically, (i) $0.50 or greater where the strike
price is less than $100, and $1 or greater where the
strike price is between $100 and $150 for all option
classes that participate in the Short Term Options
Series Program; (ii) $0.50 for option classes that
trade in one dollar increments and are in the Short
Term Options Series Program; or (iii) $2.50 or
greater where the strike price is above $150. See
Amendment No. 1, supra note 6, at 34.
9 The proposal does not apply to index options.
10 The table supersedes Supplementary Material
.03(d), which currently permits additional series to
be opened for trading on the Exchange when the
Exchange deems it necessary to maintain an orderly
market, to meet customer demand, or when the
market price of the underlying security moves
substantially from the exercise price or prices of the
series already opened. As a result, the Exchange
will not be able to utilize the rule text within
Supplementary Material .03(d) to permit additional
series to be opened for trading on BX that have an
expiration date more than twenty-one days from the
listing date despite the noted circumstances when
such additional series could otherwise be added.
E:\FR\FM\19FEN1.SGM
19FEN1
]]>Agencies
[Federal Register Volume 86, Number 32 (Friday, February 19, 2021)]
[Notices]
[Pages 10372-10375]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-03353]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-91128]
Order Extending the Annual Reports Filing Deadline for Certain
Smaller Broker-Dealers
February 12, 2021.
I. Introduction
Broker-dealers registered with the U.S. Securities and Exchange
Commission (``SEC'' or ``Commission'') are generally required to file
with the Commission, within 60 calendar days after the end of the
fiscal year of the broker-dealer, a financial report and either a
compliance report or exemption report, along with reports prepared by
an independent public accountant \1\ covering the financial report and,
as applicable, the compliance or exemption report (collectively the
``annual reports'').\2\ Pursuant to paragraph (m)(3) of Exchange Act
Rule 17a-5 (``Rule 17a-5''), the Financial Industry Regulatory
Authority, Inc. (``FINRA'') has requested that the Commission extend by
30 calendar days the deadline for certain smaller broker-dealers to
file the annual reports.\3\ This order grants such an extension to
certain smaller broker-dealers, subject to the conditions described in
section III below.
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\1\ The independent public accountant must be qualified and
independent in accordance with Rule 2-01 of Regulation S-X and must
be registered with the Public Company Accounting Oversight Board
(``PCAOB'') if required by the Sarbanes-Oxley Act of 2002
(``Sarbanes-Oxley Act''). See Public Law 107-204, 116 Stat. 745
(2002); 17 CFR 240.17a-5(f)(1).
\2\ See 17 CFR 240.17a-5(d)(5).
\3\ See 17 CFR 240.17a-5(m)(3) (stating that on written request
of any national securities exchange, registered national securities
association, broker-dealer, or on its own motion, the Commission may
grant an extension of time or an exemption from any of the
requirements of Rule 17a-5 either unconditionally or on specified
terms and conditions).
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II. Discussion
A. FINRA's Request
In a letter dated February 11, 2021, FINRA requested that the
Commission issue an order pursuant to paragraph (m)(3) of Rule 17a-5 to
extend by 30 calendar days the deadline for certain smaller broker-
dealers to file their annual reports.\4\ In FINRA's request, it
indicated that it had been informed by smaller broker-dealers and
auditors that permitting an additional 30 days for filing of the annual
reports may help to reduce the burdens in obtaining audit services by
providing an expanded time frame for the completion of such audits
thereby easing the availability of auditors.\5\ FINRA stated in the
letter that the fiscal year for most broker-dealers ends on the last
calendar day of the year (December 31), which results in the greatest
demand for audit services in the 60 calendar days following that date.
Further, much of the work required to complete these audits is
performed after the broker-dealer files the final FOCUS Report (Form X-
17A-5 Part II or IIA) for the audit year, which is due to be filed with
the Commission 17 business days after the end of the prior month (i.e.,
January 27 for broker-dealers with December 31 fiscal year ends). As a
result, the required audit work is conducted within a compressed period
when audit services are in greatest demand and the availability of
independent public accountants and
[[Page 10373]]
other third-party professionals may be limited.
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\4\ See Letter from Kris Dailey, Vice President, Office of
Financial and Operational Risk Policy, FINRA to Michael A.
Macchiaroli, Associate Director, SEC (February 11, 2021).
\5\ See id. at 2.
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FINRA further identified a number of factors that compound the
burden of smaller broker-dealers in preparing the annual reports and
undergoing an audit of them. For example, the auditors of smaller
broker-dealers typically do not perform interim audit work prior to the
fiscal year end. Interim audit work typically includes the auditors
testing items such as revenue, expenses, and internal controls. In
addition, some smaller broker-dealers utilize outside professional and
consulting services to assist them in preparing supporting materials
for the audit and to respond to auditor requests. These outside
professional and consulting service providers often have multiple
smaller broker-dealer clients with the same fiscal year end. As a
result, the service providers' may have a limited capacity during the
audit period to provide their services to smaller broker-dealers.
Furthermore, because many smaller broker-dealers do not have fully
automated financial and operational recordkeeping and reporting
infrastructures, they must rely on manual processes to prepare
documents for the independent public accountant to audit or review,
which can take additional time as compared to more automated processes.
FINRA also stated that some audit firms have chosen to forego
registration with the PCAOB, resulting in fewer independent public
accountants qualified under Rule 17a-5 to perform broker-dealer
audits.\6\ FINRA indicates that the additional 30 days to complete a
smaller broker-dealer audit may alleviate capacity issues for PCAOB-
registered auditors. FINRA stated that it has been informed by broker-
dealers and auditors that the additional 30 days would help the limited
number of PCAOB-registered auditors to perform the work necessary to
complete reports covering them. FINRA stated the additional time could
promote better quality of the annual reports.
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\6\ In its 2012 Annual Report on the Interim Inspection Program
Related to the Audits of Brokers and Dealers (``Annual Inspection
Report''), the PCAOB reported that there were 783 registered public
accounting firms. In the 2019 Annual Inspection Report, that figure
had declined to 411. See PCAOB, Information for Auditors of Broker-
Dealers, available at https://pcaobus.org/Pages/BrokerDealers.aspx.
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B. FINRA's Proposed Conditions for the Requested Relief
FINRA proposed that the extension of 30 calendar days be made
available only to broker-dealers that meet certain conditions. The
first condition is that the broker-dealer must be in compliance with
Exchange Act Rule 15c3-1 \7\ (``Rule 15c3-1'') as of the date of its
most recent fiscal year end. FINRA believes this condition is
appropriate because the financial condition of a member that avails
itself of the additional 30 days should not be such as to raise
concerns about whether the member may continue to conduct its broker-
dealer activities. The second condition is that as of the date of the
broker-dealer's most recent fiscal year-end, the broker-dealer must
have had total capital and allowable subordinated liabilities of less
than $50 million, as reported in box 3530 of Part II or IIA of its
FOCUS Report. FINRA believes this condition is appropriate because it
helps to target the contemplated extension to the smaller firms that
are in need of such relief. The third condition is that the extension
be made available only to those broker-dealers eligible to file an
exemption report as part of its most recent fiscal year end annual
reports.\8\ FINRA believes this condition is appropriate so as to
ensure that the extension is only available to firms that, by virtue of
their business activities, generally pose less risk to customers
because they do not custody funds and securities. The fourth condition
is that the broker-dealer submits written notification to FINRA of its
intent to avail itself of the additional 30 calendar days for filing
its annual reports on an ongoing basis for as long as it meets these
conditions. FINRA believes that the notification is appropriate so as
to enable FINRA to monitor effectively firms that avail themselves of
the additional 30 days. The final condition is that the broker-dealer
submits the annual reports electronically to the Commission using an
appropriate process. FINRA believes this condition is appropriate
because it permits greater efficiency and is consistent with SEC staff
guidance.
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\7\ See 17 CFR 240.15c3-1.
\8\ See 17 CFR 240.17a-5(d)(1)(i)(B) (prescribing whether a
broker-dealer must file the compliance report or the exemption
report). A broker-dealer must file an exemption report if the firm
claimed it was exempt from Rule 15c3-3 (17 CFR 240.15c3-3)
throughout the most recent fiscal year and was not subject to
paragraph (p) of Rule 15c3-3 (which addresses segregation
requirements with respect to security-based swaps). Otherwise, the
broker-dealer must file the compliance report. See also Broker-
Dealer Reports, Exchange Act Release No. 70073 (July 30, 2013), 78
FR 51910, 51915 (Aug. 21, 2013) n. 74 (stating that a broker-dealer
should file an exemption report if it has not held customer
securities or funds during the fiscal year even if it does not fit
into one of the exemption provisions of Rule 15c3-3 identified on
the FOCUS Report).
See also Frequently Asked Questions Concerning the July 30, 2013
Amendments to the Broker-Dealer Financial Reporting Rule (updated
July 1, 2020) (describing the Division and Trading and Markets
staff's views regarding the eligibility of certain broker-dealers to
file exemption reports in accordance with the circumstances
described in footnote 74 of the 2013 Broker-Dealer Reports release,
among other things). Staff statements, including Frequently Asked
Questions, represent the views of the staff. They are not rules,
regulations, or statements of the Commission. The Commission has
neither approved nor disapproved their content. These staff
statements, like all staff guidance, have no legal force or effect:
They do not alter or amend applicable law, and they create no new or
additional obligations for any person.
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C. Commission Analysis
According to FINRA, a smaller broker-dealer's window of time to
prepare the annual reports and undergo an audit by an independent
public accountant is often particularly compressed because much of the
audit work does not commence until after the broker-dealer files its
fiscal year-end FOCUS Report. According to FINRA, audit work for small
broker-dealers is performed predominantly during the period of time
between the due date for the fiscal year-end FOCUS Report (17 business
days after the firm's fiscal year end) and the annual reports filing
due date (60 calendar days after the fiscal year end). Further,
according to FINRA, the auditors of smaller broker-dealers do not
typically perform interim audit work prior to the broker-dealer's
fiscal year end, unlike most larger broker-dealers. The lack of this
interim audit work, which typically includes the testing of items such
as revenue, expenses, and internal controls, compresses the time
auditors have to perform required procedures in advance of the filing
deadline. This also restricts the time frame for smaller broker-dealers
and their auditors to identify and resolve issues.
Moreover, according to FINRA, many smaller broker-dealers use
manual processes to prepare supporting documentation for the audit or
review and respond to auditor inquiries, rather than the more automated
processes typically used by larger broker-dealers. This can make the
work necessary to prepare the annual reports and audit them more labor
intensive and time consuming. In addition, according to FINRA, some
smaller broker-dealers retain third-party professionals to assist them
with their financial reporting. These professionals often provide
services to multiple smaller broker-dealers with the same fiscal year
end, resulting in these professionals having limited capacity during
the relatively brief period between the FOCUS Report filing due date
and the annual reports filing due date. These professionals' limited
capacity can further compress the timeframe for performing the work
necessary to prepare the annual reports.
[[Page 10374]]
Paragraph (m)(3) of Rule 17a-5 provides that the Commission may
grant an extension of time for broker-dealers to file their annual
reports. After considering the points raised in FINRA's letter and the
burdens faced by smaller broker-dealers in preparing and filing the
annual reports, the Commission believes that it would be appropriate to
extend the deadline for certain smaller broker-dealers to file their
annual reports by 30 calendar days.\9\ This additional time should
expand the timeframe (from slightly more than one month) between the
deadline for submitting the fiscal year-end FOCUS Report and the
deadline to file the annual reports (i.e., the timeframe in which much
of the work is performed to prepare the annual reports). To the extent
auditors are able to better focus on the audit and review of annual
reports for the small broker-dealer clients who avail themselves of the
extension, this relief could help promote quality financial reporting.
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\9\ FINRA requested relief on behalf of its member broker-
dealers. This Order extends relief to all broker-dealers satisfying
its conditions in order to treat similarly situated broker-dealers
equally regardless of whether they are FINRA members.
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The Commission further believes it is appropriate to limit this
relief to broker-dealers meeting the conditions described in FINRA's
request, which should also maintain investor protections. Conditioning
the extension on the broker-dealer being in compliance with the net
capital requirements of Rule 15c3-1 as of the date of its fiscal year
end is appropriate because a broker-dealer that is not in compliance
with the rule poses a heightened risk to its customers and other
securities market participants because of its financial condition.
Excluding a net capital-deficient broker-dealer from this relief will
assist the Commission and the broker-dealer's designated examining
authority to monitor the financial condition of the firm on a timely
basis, including analyzing whether the firm will be able to continue as
a going concern. Therefore, a broker-dealer with a net capital
deficiency will not be able to avail itself of the additional 30 days
provided for in this Order.
The Commission also believes it is appropriate to limit the
availability of the extension to smaller broker-dealers. As discussed
above, the extension could alleviate unique burdens associated with the
compressed timeframe for smaller broker-dealers to prepare their annual
reports and their independent public accountants to perform the audit
work necessary to prepare reports covering them. Moreover, broker-
dealers that conduct a substantial securities business and thus are in
a position to potentially pose significant risk to investors and to the
fair, orderly, and efficient functioning of the markets, will not be
eligible for the extension. Therefore, the Commission is limiting the
relief to broker-dealers that have total capital and allowable
subordinated liabilities of less than $50 million, as requested by
FINRA. Broker-dealers falling below the $50 million threshold
constitute approximately 3% of the total capital of all broker-dealers.
The Commission believes that the $50 million threshold is appropriate
in this context because smaller broker-dealers pose less significant
risks to the fair, orderly, and efficient functioning of the markets.
Broker-dealers that maintain custody of customer securities and
cash are not eligible to file exemption reports and are generally
larger in size than broker-dealers that do not carry customer accounts.
The Commission believes firms that file an exemption report--because of
their relative size and the fact that they do not hold customer funds
or securities, or owe money or securities to customers and do not carry
customer accounts, or are exempt from Rule 15c3-3 pursuant to paragraph
(k)(2) of that rule--present less risk to customers. Therefore, a
broker-dealer must be permitted to file an exemption report as part of
the annual reports to qualify for the relief. Based upon information
included in broker-dealers' FOCUS Reports, the Commission believes that
approximately 3,000 of the 3,620 broker-dealers registered with the
Commission would meet the $50 million threshold and exemption report
filing conditions.
The Commission believes that it is appropriate to make the 30-day
extension available only to broker-dealers that have provided written
notice to their designated examining authority of their intent to avail
themselves of the extension. The designated examining authority is
responsible for oversight of broker-dealers' adherence to the financial
responsibility rules, including Rule 17a-5. This requirement will allow
the broker-dealer's designated examining authority to more effectively
monitor firms by enabling it to distinguish between broker-dealers that
are filing their annual reports late as opposed to firms availing
themselves of the relief in this Order.
Finally, the Commission believes it is appropriate to limit the
availability of the relief in this order to broker-dealers that file
the annual reports electronically with the Commission using an
appropriate process.\10\ The electronic filing condition promotes
efficiency by ensuring broker-dealers that rely on the 30-day extension
will have their annual reports made available to Commission staff and
to the public more quickly than if they had been filed in paper within
the deadline provided in Rule 17a-5. Paper filings must be manually
processed, which is time consuming and delays the availability of
annual reports to the staff of the Commission and to the public. By
comparison, annual reports that are filed electronically need minimal
or no manual processing. Therefore, to help ensure the annual reports
are made promptly available, the Commission is conditioning the relief
on electronic filing.
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\10\ The Commission notes that the staff of the Division of
Trading and Markets has previously issued no-action positions
related to the electronic filing of broker-dealer annual reports.
See Letter to Kris Daily, Vice President, FINRA from Michael A.
Macchiaroli, Associate Director, Commission, dated January 27, 2017.
Available at https://www.sec.gov/divisions/marketreg/mr-noaction/2017/finra-012717-electronic-filing-annual-reports.pdf. For further
instructions relating to filing broker-dealer annual reports through
EDGAR, see Electronic Filing of Broker-Dealer Annual Reports.
Available at https://www.sec.gov/divisions/marketreg/electronic-filing-broker-dealer-annual-reports.htm.
See also Updated Division of Trading and Markets Staff Statement
Regarding Requirements for Certain Paper Submissions in Light of
COVID-19 Concerns. Available at https://www.sec.gov/tm/paper-submission-requirements-covid-19-updates-061820.
Staff statements represent the views of the staff. They are not
rules, regulations, or statements of the Commission. The Commission
has neither approved nor disapproved their content. These staff
statements, like all staff guidance, have no legal force or effect:
They do not alter or amend applicable law, and they create no new or
additional obligations for any person.
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III. Conclusion
It is hereby ordered pursuant to section 17(a)(1) of the Exchange
Act and paragraph (m)(3) of Rule 17a-5 thereunder that the deadline in
paragraph (d)(5) of Rule 17a-5 for filing the annual reports is
extended by 30 calendar days, provided that the broker-dealer:
(1) As of its most recent fiscal year end:
a. Was in compliance with Rule 15c3-1; and
b. Had total capital and allowable subordinated liabilities of less
than $50 million, as reported in box 3530 of Part II or Part IIA of its
FOCUS Report;
(2) Is permitted to file an exemption report as part of its most
recent fiscal year end annual reports;
(3) Submits written notification to its designated examining
authority of its intent to rely on this order on an ongoing basis for
as long as it meets the conditions of the order; and
[[Page 10375]]
(4) Files the annual report electronically with the Commission
using an appropriate process.
By the Commission.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2021-03353 Filed 2-18-21; 8:45 am]
BILLING CODE 8011-01-P
