Notice2021-12031
Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Supplemental Inventory Schedule Pursuant to FINRA Rule 4524 (Supplemental FOCUS Information)
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
June 9, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 109 (Wednesday, June 9, 2021)</title>
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[Federal Register Volume 86, Number 109 (Wednesday, June 9, 2021)]
[Notices]
[Pages 30632-30635]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-12031]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92098; File No. SR-FINRA-2021-013]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Amend the Supplemental Inventory Schedule
Pursuant to FINRA Rule 4524 (Supplemental FOCUS Information)
June 3, 2021.
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 May 26, 2021, the Financial Industry Regulatory Authority, Inc.
(``FINRA'') 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 FINRA. FINRA has
designated the proposed rule change as constituting a ``non-
controversial'' rule change under paragraph (f)(6) of Rule 19b-4 under
the Act,\3\ which renders the proposal effective upon receipt of this
filing by the Commission. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 17 CFR 240.19b-4(f)(6).
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[[Page 30633]]
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to amend the Supplemental Inventory Schedule
(``SIS'') pursuant to FINRA Rule 4524 (Supplemental FOCUS Information)
so that members that are filers of FOCUS Report Part II will not be
required to file the SIS. The proposed rule change does not make any
other change to the SIS or the instructions thereto.
The text of the proposed rule change is available on FINRA's
website at <a href="http://www.finra.org">http://www.finra.org</a>, at the principal office of FINRA 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, FINRA 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. FINRA 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
FINRA Rule 4524 provides in part that, as a supplement to filing
FOCUS Reports required pursuant to SEA Rule 17a-5 \4\ and FINRA Rule
2010, each member, as FINRA shall designate, shall file such additional
financial or operational schedules or reports as FINRA may deem
necessary or appropriate for the protection of investors or in the
public interest. In general, members with a FOCUS filing requirement
must either file a FOCUS Report Part II if they clear transactions or
carry customer accounts \5\ or file a FOCUS Report Part IIA if they do
not.\6\ Members that are government securities broker-dealers
registered under SEA Section 15C \7\ do not file a FOCUS Report and
instead are required to file reports concerning their financial and
operational status using the Report on Finances and Operations of
Government Securities Brokers and Dealers (``FOGS Report'').\8\ FINRA
established the SIS requirement pursuant to Rule 4524 in 2014.\9\
Pursuant to this requirement, the SIS must be filed by a member that is
required to file FOCUS Report Part II, FOCUS Report Part IIA or the
FOGS Report Part I, with inventory positions as of the end of the FOCUS
or FOGS reporting period, unless the member has (1) a minimum dollar
net capital or liquid capital requirement of less than $100,000; or (2)
inventory positions consisting only of money market mutual funds. A
member with inventory positions consisting only of money market mutual
funds must affirmatively indicate through the eFOCUS system that no SIS
filing is required for the reporting period. As FINRA noted in
establishing the SIS, the purpose of the SIS requirement is to provide
more detailed information of inventory positions held by members.\10\
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\4\ 17 CFR 240.17a-5 (hereinafter cited as SEA ``Rule 17a-5'').
SEA Rule 17a-5 governs financial and operational reporting by
brokers and dealers. Members are required to file with FINRA,
through the eFOCUS System, reports concerning their financial and
operational status using SEC Form X-17A-5 (the ``FOCUS Report'').
See, e.g., Information Notice, November 23, 2020 (2021 and First
Quarter of 2022 Report Filing Due Dates); Regulatory Notice 18-38
(November 2018) (Amendments to the SEC's Financial Reporting
Requirements--eFOCUS System Updates and Annual Audit Requirements).
``FOCUS'' stands for Financial and Operational Combined Uniform
Single.
\5\ Currently, members that calculate net capital using Appendix
E to SEA Rule 15c3-1 file FOCUS Report Part II CSE, rather than
FOCUS Report Part II. Such members are referred to as ``alternative
net capital'' or ``ANC'' broker-dealers.
\6\ SEA Rule 17a-5.
\7\ 15 U.S.C. 78o-5.
\8\ Department of the Treasury Form G-405.
\9\ See Securities Exchange Act Release No. 73192 (September 23,
2014), 79 FR 58390 (September 29, 2014) (Order Approving Proposed
Rule Change; File No. SR-FINRA-2014-025); see also Regulatory Notice
14-43 (October 2014) (SEC Approves Supplemental Inventory Schedule).
\10\ See note 9 supra.
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The Commission, as part of its rulemakings pursuant to Title VII of
the Dodd-Frank Wall Street Reform and Consumer Protection Act (``Dodd-
Frank Act'') \11\ to establish a regulatory framework for security-
based swaps (``SBS''), has adopted among other things amendments to the
FOCUS reporting requirements, including amendments to FOCUS Report Part
II \12\ designed to elicit additional information about the SBS
activities of broker-dealers that file FOCUS Report Part II, including
broker-dealers that will also be registered as SBS dealers and major
SBS participants.\13\
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\11\ Public Law 111-203, 124 Stat. 1376 (2010).
\12\ See Securities Exchange Act Release No. 87005 (September
19, 2019), 84 FR 68550 (December 16, 2019) (Final Rule:
Recordkeeping and Reporting Requirements for Security-Based Swap
Dealers, Major Security-Based Swap Participants, and Broker-Dealers)
(``Reporting Requirements Release'').
\13\ See Reporting Requirements Release, 84 FR at 68573.
Pursuant to the SEC's rule change, ANC broker-dealers that currently
file FOCUS Report Part II CSE will file new FOCUS Report Part II.
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FINRA believes that Schedule 1--Aggregate Securities, Commodities,
and Swaps Positions (``Schedule 1'') to FOCUS Report Part II, as
amended, includes substantially all the information that is required by
the SIS, including, among other things, information on the following
types of positions:
<bullet> U.S. Treasury securities;
<bullet> U.S. government agency and U.S. government-sponsored
enterprise securities;
<bullet> securities issued by states and political subdivisions in
the U.S.;
<bullet> foreign securities;
<bullet> money market instruments;
<bullet> private label mortgage backed securities;
<bullet> other asset-backed securities;
<bullet> corporate obligations;
<bullet> stocks and warrants (other than arbitrage positions);
<bullet> arbitrage positions;
<bullet> spot commodities;
<bullet> other securities and commodities; and
<bullet> securities with no ready market.
Further, line 11 of the SIS requires specified information on
``derivatives including options,'' based on whether the positions are
centrally cleared or not. On Schedule 1 this information will be
reported based on whether the position is a cleared or non-cleared SBS,
mixed swap or swap, or will be reported under the category ``other
derivatives and options.'' \14\ Schedule 1 will also require
information on counterparty netting and cash collateral netting.
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\14\ Schedule 1 requires the information for cleared and non-
cleared SBS, mixed swaps and swaps in separate categories on Lines,
15, 16 and 17 of Schedule 1, while the SIS requires that SBS and
swaps be reported in aggregate under ``centrally cleared'' and ``all
other'' under Line 11 of the SIS. Further, Schedule 1 requires that
other derivatives or options be reported in aggregate on Line 18 of
Schedule 1, while the SIS specifies separate categories for
``centrally cleared'' and ``all other'' options, ``forward settling
and delayed delivery transactions,'' ``futures'' and ``other''
products under Line 11 of the SIS. Also, under Line 13 of the SIS
(``securities with no ready market''), the category for ``other
(include limited partnership interests)'' is reflected as ``other''
under Line 13 of Schedule 1.
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Given that substantially all the information required by the SIS is
covered by Schedule 1 of FOCUS Report Part II, as amended, FINRA
believes that it would be an unnecessary duplication of reporting to
require members that file FOCUS Report Part II to continue to submit
the SIS after the compliance date \15\ for certain of the SEC's SBS
[[Page 30634]]
rulemakings, including the new FOCUS reporting requirements pursuant to
the Reporting Requirements Release. As such, in the interest of
avoiding unnecessary duplication, FINRA believes it is appropriate to
remove FOCUS Report Part II filers from the scope of members required
to file the SIS.\16\ Accordingly, the proposed rule change would revise
the first paragraph under the General Instructions to the SIS so as to
provide, in relevant part, that: ``The Supplemental Inventory Schedule
(SIS) is to be filed within 20 business days after the end of each
firm's FOCUS reporting period by all FOCUS Part IIA and FOGS Part I
filers . . .'' \17\ FINRA believes it is appropriate to implement this
revision in alignment with the reporting cycle that coincides with the
SEC's SBS compliance date. FINRA is not proposing any other change to
the SIS.
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\15\ The Commission has broadly coordinated the compliance date
for certain SBS rulemakings by setting October 6, 2021, as the
compliance date (the ``compliance date'' or ``SBS compliance date'')
for the registration requirements that the Commission adopted for
SBS dealers and major SBS participants. See Reporting Requirements
Release, 84 FR at 68600; see also Key Dates for Registration of
Security-Based Swap Dealers and Major Security-Based Swap
Participants, available on the Commission website at: <<a href="https://www.sec.gov/page/key-dates-registration-security-based-swap-dealers-and-major-security-based-swap-participants">https://www.sec.gov/page/key-dates-registration-security-based-swap-dealers-and-major-security-based-swap-participants</a><ls-thn-eq>.
\16\ FINRA notes that members that have elected to be treated as
capital acquisition brokers (``CABs'') would be subject to the
proposed rule change to the extent that FINRA Rule 4524, pursuant to
CAB Rule 452(b), applies to CABs. To the extent any CABs are FOCUS
Report Part II filers, then, pursuant to the rule change, such firms
would no longer need to file the SIS.
The proposed rule change would not impact funding portal members
because such members are not subject to Rule 4524 and are not
subject to the FOCUS reporting requirements.
\17\ The SIS, as proposed to be revised pursuant to the rule
change, is included as Exhibit 3 to this rule filing.
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FINRA has filed the proposed rule change for immediate
effectiveness. FINRA is proposing that the implementation date of the
proposed rule change will be October 31, 2021, for SIS filings that
report on the month ending October 31, 2021, and are due by November
30, 2021. Thus, SISs filed on or after October 31, 2021, would reflect
the proposed rule change.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\18\ which requires, among
other things, that FINRA 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. Consistent with the provisions of the Act, FINRA
believes that eliminating the SIS filing requirement for members that
file FOCUS Report Part II, as amended by the Reporting Requirements
Release, will avoid unnecessary duplication of reporting for such
members while ensuring that regulators continue to receive the needed
information reflected on these forms, given that Schedule 1 of FOCUS
Report Part II, as amended, includes substantially all the information
required by the SIS. The proposed rule change will thereby reduce
unnecessary burdens while also helping to protect investors and serve
the public interest.
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\18\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition
FINRA 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. Schedule 1 of FOCUS Report Part
II, as amended, requires substantially all the information required by
the SIS. Eliminating the SIS filing requirement for members that file
FOCUS Report Part II, as amended, would avoid unnecessary duplication
of reporting, thereby reducing burdens for such members, while ensuring
that regulators continue to receive the needed information reflected on
these forms.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor 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) of the Act \19\ and Rule 19b-
4(f)(6) thereunder.\20\
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\19\ 15 U.S.C. 78s(b)(3)(A).
\20\ 17 CFR 240.19b-4(f)(6).
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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
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#dfadaab3baf2bcb0b2b2bab1abac9facbabcf1b8b0a9"><span class="__cf_email__" data-cfemail="f486819891d9979b9999919a8087b4879197da939b82">[email protected]</span></a>. Please include
File Number SR-FINRA-2021-013 on the subject line.
Paper Comments
<bullet> 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-FINRA-2021-013. 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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
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 a.m. and 3
p.m. Copies of such filing also will be available for inspection and
copying at the principal office of FINRA. 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-
FINRA-2021-013 and should be submitted on or before June 30, 2021.
[[Page 30635]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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\21\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-12031 Filed 6-8-21; 8:45 am]
BILLING CODE 8011-01-P
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