Notice2023-06196
Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend FINRA Rules To Address Duplicative Requirements
Primary source
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Published
March 27, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 58 (Monday, March 27, 2023)</title>
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[Federal Register Volume 88, Number 58 (Monday, March 27, 2023)]
[Notices]
[Pages 18199-18201]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-06196]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97181; File No. SR-FINRA-2023-003]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Amend FINRA Rules To Address Duplicative
Requirements
March 21, 2023.
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 March 10, 2023, 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 and
II below, which Items have been prepared by FINRA. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing, in light of member obligations relating to the
Consolidated Audit Trail (``CAT''), to amend FINRA Rule 4590
(Synchronization of Member Business Clocks), amend FINRA Rule 6250
(Quote and Order Access Requirements), eliminate FINRA Rule 6431
(Recording of Quotation Information), and amend FINRA Rule 6439
(Requirements for Member Inter-Dealer Quotation Systems).
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
The National Market System Plan governing the Consolidated Audit
Trail (the ``CAT NMS Plan'') \3\ is intended to create, implement, and
maintain a consolidated audit trail that will capture in a single
consolidated data source customer and order event information for
orders in NMS securities \4\ and OTC equity securities,\5\ across all
markets, from the time of order inception through routing,
cancellation, modification, or execution.\6\ FINRA is filing the
proposed rule change to amend FINRA rules in light of the CAT NMS Plan
to eliminate duplicative requirements or otherwise clarify regulatory
obligations. Specifically, FINRA is proposing amendments to: (1)
clarify overlapping clock synchronization requirements for members; (2)
delete duplicative requirements relating to order and quote recording
and reporting requirements in connection with the alternative display
facility (``ADF''); (3) delete duplicative requirements relating to the
reporting of quotation information for OTC equity securities; and (4)
delete duplicative requirements relating to the submission of order-
level quotation information for OTC equity securities.\7\
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\3\ FINRA and the national securities exchanges filed the CAT
NMS Plan with the Commission pursuant to Section 11A of the Exchange
Act and Rule 608 of Regulation NMS thereunder, and it was approved
by the SEC on November 15, 2016. See Securities Exchange Act Release
No. 79318 (November 15, 2016), 81 FR 84696 (November 23, 2016)
(``CAT Approval Order'').
\4\ See Rule 600(b)(54) of Regulation NMS.
\5\ See FINRA Rule 6420(f).
\6\ See e.g., Securities Exchange Act Release No. 67457 (July
18, 2012), 77 FR 45722 (August 1, 2012).
\7\ The proposed rule change would also update cross-references
in FINRA Rules 6220, 6275 and 6279, including updating citations to
Rule 600(b) of Regulation NMS.
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Synchronization of Member Business Clocks
FINRA Rule 4590 requires members to synchronize their business
clocks, including computer system clocks and mechanical time stamping
devices, that are used for purposes of recording the date and time of
any event that must be recorded pursuant to the FINRA By-Laws or other
FINRA rules. Rule 4590 further requires that business clocks, including
computer system clocks and manual time stamp machines, be synchronized
to within a one second tolerance of the National Institute of Standards
(NIST) atomic clock, except that computer system clocks that are used
to record events in NMS securities, including standardized options, and
OTC equity securities, must be synchronized to within a 50-millisecond
tolerance of the NIST clock. FINRA adopted Rule 4590 before the CAT NMS
Plan was approved and before FINRA adopted Rule 6820.
FINRA Rule 6820 (Clock Synchronization) \8\ addresses clock
synchronization obligations pursuant to the CAT NMS Plan and prescribes
the requirements for industry members in synchronizing their business
clocks. FINRA is therefore proposing amendments to clarify that Rule
4590 applies only where Rule 6820 does not. Therefore, Rule 6820,
rather than Rule 4590, would apply to business clocks used to record
events for NMS securities and OTC equity securities, but Rule 4590
would apply to business clocks that record events in debt securities.
This proposed rule change is intended solely to eliminate overlapping
rule requirements and promote clarity.
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\8\ Rule 6820 falls under the CAT Compliance Rule Series.
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Alternative Display Facility Quote and Order Access Requirements
FINRA Rule 6250 provides quoting and order access requirements for
members that utilize FINRA's ADF to display quotes in an ADF-eligible
security.\9\ Pursuant to Rule 6250, ADF Trading Centers \10\ must
record and report to FINRA on a daily basis specified order
information. Among other things, paragraph (b) of Rule 6250 requires an
ADF Trading Center to record and report orders originated,
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received, transmitted, modified, canceled, or executed by other broker-
dealers via direct or indirect access and paragraph (c) requires an ADF
Trading Center to record and report to FINRA certain information for
each order that is part of a displayed bid or offer on the ADF, or the
execution details, if any, of each order that is part of a displayed
bid or offer.
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\9\ FINRA Rule 6220(a)(2) defines an ``ADF-eligible security''
as an NMS stock as defined by SEC Regulation NMS.
\10\ FINRA Rule 6220(a)(4) defines an ``ADF trading center'' as
a registered reporting ADF market maker, or a registered reporting
ADF electronic communications network that is a ``trading center,''
as defined by SEC Regulation NMS, and that is certified, pursuant to
Rule 6250, to display its quotations or orders through the ADF.
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FINRA is proposing amendments to Rule 6250 to delete requirements
that are duplicative of requirements under the CAT NMS Plan or that are
otherwise unnecessary to oversee the ADF. Specifically, FINRA Rule 6830
(Industry Member Data Reporting) \11\ requires members, including
members meeting the definition of an ADF Trading Center, to comply with
the reporting requirements of the CAT NMS Plan. Pursuant to Rule
6830(a), Industry Members must report to the CAT Central Repository
information with respect to orders originated, received, transmitted,
modified, canceled, or executed by other broker-dealers, which is
duplicative of the requirements currently specified in Rule 6250(b) and
(c). Accordingly, FINRA is proposing to delete Rule 6250(b) and 6250(c)
in their entirety to avoid unnecessary or duplicative regulatory
requirements.\12\
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\11\ Rule 6830 falls under the CAT Compliance Rule Series.
\12\ FINRA proposes to renumber Rules 6250(d), 6250(e), 6250(f),
6250(g) and 6250(h) as Rules 6250(b), 6250(c), 6250(d), 6250(e), and
6250(f) in light of the proposed deletion of Rules 6250(b) and
6250(c).
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FINRA has confirmed that the information required to be submitted
by members pursuant to Rule 6830(a) is sufficient for FINRA oversight
of the ADF. Specifically, the following items proposed to be deleted
under Rule 6250(b)(1) are available in CAT data: unique order
identifier; order entry firm; order side; order quantity; symbol; order
price; time in force; order date; order time; minimal acceptable
quantity; and ADF trading center. In addition, the following items
proposed to be deleted under Rule 6250(b)(2) are available in CAT data:
unique order identifier; order response time; quantity; and price. The
following items proposed to be deleted under Rule 6250(c)(1) are
available in CAT data: symbol; side; price; quantity; order date and
time of receipt; order instructions; firm identifiers and capacity
information; quote identifier; quote price; and quote time. Order
response, which is proposed to be deleted under Rule 6250(b)(1), is
derivable from CAT data, as CAT tracks all related events in the
lifecycle of an order, such as cancellations, modifications, and order
or route acceptances. FINRA notes that every order submitted to the CAT
Central Repository is assigned a unique order identifier, which FINRA
believes obviates the need for a separate internal order identifier as
is currently required under Rule 6250(c)(1). FINRA also has access to
information in the CAT Central Repository regarding whether an order is
marked short sale exempt.\13\ With respect to the recordkeeping
requirements of Rule 6250(b), FINRA notes that Rule 6890
(Recordkeeping) requires industry members to maintain and preserve
records of the information required to be recorded under the CAT
Compliance Rule Series for the period of time and accessibility
specified in SEA Rule 17a-4(b) and SEA Rule 17a-4(f), obviating the
need for the separate recordkeeping provisions of Rule 6250(b).\14\
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\13\ Rule 6250(c)(1) also requires members to submit to FINRA
the reason for any short sale exemption as well as the identity of
the clearing member. Neither of these items of information are
currently available in the CAT Central Repository; however,
obtaining this information through daily submissions is not
necessary for FINRA to effectively oversee ADF activity. Should the
facts and circumstances of any particular matter warrant obtaining
additional insight into the reasons for a short sale exemption or
the identity of a clearing member, FINRA would contact the relevant
member to request the relevant information.
\14\ See Rule 6800 Series (Consolidated Audit Trail Compliance
Rule).
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Recording of Quotation Information in OTC Equity Securities
FINRA Rule 6431 was implemented in 2003 to provide FINRA with
access to quotation data for ``OTC equity securities,'' as defined
under FINRA Rule 6420 (Definitions),\15\ to facilitate FINRA's
oversight of members and, when necessary, reconstruct market
activity.\16\ Rule 6431 generally requires OTC Market Makers \17\ that
display quotations on a non-FINRA- or non-member-operated inter-dealer
quotation system (``IDQS'') to record information about their
quotations and to report the information to FINRA upon request,
including, e.g., trade date, time the quotation is displayed, security
name and symbol. Rule 6431 does not require such information to be
recorded or reported by the IDQSs themselves. Due to changes in the
marketplace, members have not reported quotation data to FINRA pursuant
to Rule 6431 for several years since the IDQS that previously was not a
FINRA member became a FINRA member. Because Rule 6431 only applies to
quotation activity occurring on a non-FINRA- or non-member-operated
IDQS, members were not required to report quotation data that occurred
on a member system pursuant to Rule 6431. Today, FINRA has access to
quotation information occurring on an IDQS necessary to conduct its
oversight functions because member IDQSs are subject to the CAT NMS
Plan, which requires members to, among other things, report specified
order and quote information to the CAT Central Repository. Accordingly,
FINRA is proposing to delete Rule 6431.
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\15\ See Rule 6420.
\16\ See Securities Exchange Act Release No. 47587 (March 27,
2003), 68 FR 16328 (April 3, 2003) (Order Approving File No. SR-
NASD-2000-042). See also Notice to Members 03-28 (June 2003).
\17\ FINRA Rule 6420(g) generally defines ``OTC Market Maker''
as a member of FINRA that holds itself out as a market maker by
entering proprietary quotations or indications of interest for a
particular OTC equity security in any IDQS, including any system
that the SEC has qualified pursuant to Section 17B of the Act.
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Requirements for Member Inter-Dealer Quotation Systems
FINRA adopted Rule 6439 to, among other things, expand and enhance
the obligations of member IDQSs that permit quotation updates on a
real-time basis in OTC equity securities.\18\ Pursuant to Rule 6439(d),
covered IDQSs must submit to FINRA on a monthly basis specified
aggregate and order-level information for orders in OTC equity
securities. FINRA is proposing to delete paragraph (d)(1)(B) of Rule
6439, which was adopted before comparable information for OTC equity
securities was being reported to CAT. Rule 6439(d)(2) specifically
provides that member IDQSs are not required to report to FINRA any of
the items of information specified in Rule 6439(d)(1)(B) if, at a
minimum, the items specified in Rule 6439 (d)(1)(B)(i) through (xi) are
subject to reporting to the CAT under Rule 6830. The information
specified in Rule 6439 (d)(1)(B)(i) through (xi) became subject to CAT
reporting on December 31, 2021 and therefore Rule 6439(d)(1)(B), by its
terms, does not apply to any FINRA members in light of CAT obligations.
Therefore, FINRA is proposing to delete Rule 6439(d)(1)(B) because
members currently are required to report comparable data pursuant to
the CAT NMS Plan. Specifically, the following items proposed to be
deleted under Rule 6439(d)(1)(B) are required to be reported to the CAT
Central Repository: buy/sell; security symbol; price; size, all or none
indicator; order entry firm identifier; order receipt time; time in
force; and executed quantity. Response time and order response are
derivable through CAT data, as CAT tracks all related events in the
lifecycle of an order, such
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as cancellations, modifications, and order or route acceptances.
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\18\ See Securities Exchange Act Release No. 92105 (June 3,
2021); 86 FR 30663 (June 9, 2021) (Order Approving File No. SR-
FINRA-2020-031).
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FINRA has filed the proposed rule change for immediate
effectiveness.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\19\ 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, and Section 15A(b)(9) of the Act,\20\ which requires
that FINRA rules not impose any burden on competition that is not
necessary or appropriate. FINRA believes that the proposed rule change
will eliminate overlapping, duplicative or otherwise unnecessary rule
requirements and promote clarity and consistency regarding member
obligations under FINRA rules.
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\19\ 15 U.S.C. 78o-3(b)(6).
\20\ 15 U.S.C. 78o-3(b)(9).
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FINRA believes that this proposed rule change is consistent with
the Act because it implements, interprets or clarifies the provisions
of the CAT NMS Plan, and is designed to assist FINRA and its Industry
Members in meeting regulatory obligations pursuant to the CAT NMS Plan.
In approving the CAT NMS Plan, the SEC noted that the CAT NMS 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.'' \21\ To
the extent that the proposed rule change implements, interprets or
clarifies the CAT NMS Plan and applies specific requirements to
Industry Members, FINRA believes that the proposed rule change furthers
the objectives of the CAT NMS Plan, as identified by the SEC, and is
therefore consistent with the Act.
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\21\ See CAT Approval Order, supra note 4.
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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. The proposed rule change brings
clarity and consistency to FINRA rules without adding any burden on
firms.
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 on this
proposed rule change.
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 \22\ and Rule 19b-
4(f)(6) thereunder.\23\
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\22\ 15 U.S.C. 78s(b)(3)(A).
\23\ 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. FINRA has satisfied this
requirement. 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#0f7d7a636a226c6062626a617b7c4f7c6a6c21686079"><span class="__cf_email__" data-cfemail="384a4d545d155b5755555d564c4b784b5d5b165f574e">[email protected]</span></a>. Please include
File Number SR-FINRA-2023-003 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-2023-003. 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 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of 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-2023-003 and should be submitted
on or before April 17, 2023.
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\24\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-06196 Filed 3-24-23; 8:45 am]
BILLING CODE 8011-01-P
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