Rule2024-30433
Electronic Submission of Certain Materials Under the Securities Exchange Act of 1934; Amendments Regarding the FOCUS Report
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Published
January 21, 2025
Effective
March 24, 2025
Issuing agencies
Securities and Exchange Commission
Abstract
The Securities and Exchange Commission ("Commission" or "SEC") is amending its rules to require electronic filing or submission of certain forms and other filings or submissions that are required to be filed with or submitted to the Commission under the Securities Exchange Act of 1934 ("Exchange Act") and the rules and regulations under the Exchange Act. The amendments require the electronic filing or submission on the Commission's Electronic Data Gathering, Analysis, and Retrieval ("EDGAR") system, using structured data where appropriate, for certain forms filed or submitted by self- regulatory organizations ("SROs"). The amendments require the information currently contained in Form 19b-4(e) to be publicly posted on the SRO's website and remove the manual signature requirements for SRO proposed rule change filings. The Commission is also requiring that a clearing agency post supplemental material to its website. In addition, the Commission is amending rules under the Exchange Act and the Securities Act of 1933 ("Securities Act") to require the electronic filing or submission on EDGAR, using structured data where appropriate, of certain forms, reports, and notices provided by broker- dealers, security-based swap dealers, and major security-based swap participants. The amendments also require withdrawal in certain circumstances of notices filed in connection with an exception to counting certain dealing transactions toward determining whether a person is a security-based swap dealer. Finally, the Commission is allowing electronic signatures in certain broker-dealer filings, and amending the Financial and Operational Combined Uniform Single Report ("FOCUS Report") to harmonize with other rules, make technical corrections, and provide clarifications.
Full Text
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[Federal Register Volume 90, Number 12 (Tuesday, January 21, 2025)]
[Rules and Regulations]
[Pages 7250-7426]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-30433]
[[Page 7249]]
Vol. 90
Tuesday,
No. 12
January 21, 2025
Part II
Securities and Exchange Commission
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17 CFR Parts 202, 232, 240, et al.
Electronic Submission of Certain Materials Under the Securities
Exchange Act of 1934; Amendments Regarding the FOCUS Report; Final Rule
Federal Register / Vol. 90 , No. 12 / Tuesday, January 21, 2025 /
Rules and Regulations
[[Page 7250]]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 202, 232, 240, 249, and 249b
[Release Nos. 33-11342; 34-101925; IC-35420; File No. S7-08-23]
RIN 3235-AL85
Electronic Submission of Certain Materials Under the Securities
Exchange Act of 1934; Amendments Regarding the FOCUS Report
AGENCY: Securities and Exchange Commission.
ACTION: Final rule.
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SUMMARY: The Securities and Exchange Commission (``Commission'' or
``SEC'') is amending its rules to require electronic filing or
submission of certain forms and other filings or submissions that are
required to be filed with or submitted to the Commission under the
Securities Exchange Act of 1934 (``Exchange Act'') and the rules and
regulations under the Exchange Act. The amendments require the
electronic filing or submission on the Commission's Electronic Data
Gathering, Analysis, and Retrieval (``EDGAR'') system, using structured
data where appropriate, for certain forms filed or submitted by self-
regulatory organizations (``SROs''). The amendments require the
information currently contained in Form 19b-4(e) to be publicly posted
on the SRO's website and remove the manual signature requirements for
SRO proposed rule change filings. The Commission is also requiring that
a clearing agency post supplemental material to its website. In
addition, the Commission is amending rules under the Exchange Act and
the Securities Act of 1933 (``Securities Act'') to require the
electronic filing or submission on EDGAR, using structured data where
appropriate, of certain forms, reports, and notices provided by broker-
dealers, security-based swap dealers, and major security-based swap
participants. The amendments also require withdrawal in certain
circumstances of notices filed in connection with an exception to
counting certain dealing transactions toward determining whether a
person is a security-based swap dealer. Finally, the Commission is
allowing electronic signatures in certain broker-dealer filings, and
amending the Financial and Operational Combined Uniform Single Report
(``FOCUS Report'') to harmonize with other rules, make technical
corrections, and provide clarifications.
DATES:
Effective date: March 24, 2025.
Compliance dates: The compliance dates for the rule amendments are
discussed in section VIII of this release.
FOR FURTHER INFORMATION CONTACT: For Form 1--Justin Pica, Assistant
Director, and David Remus, Special Counsel; for Form 1-N--David
Dimitrious, Senior Special Counsel, and Michou Nguyen, Special Counsel;
for Form 15A--Molly Kim, Assistant Director, and David Michehl, Special
Counsel; for Form CA-1--Matthew Lee, Assistant Director, and Claire
Noakes, Senior Special Counsel; for Form 19b-4(e) and technical
amendment to Form 19b-4--Cristie March, Senior Special Counsel, and
Edward Cho, Special Counsel; for Rule 17a-22--Matthew Lee, Assistant
Director, and Susan Petersen, Special Counsel; for Rule 17a-5, Rule
17a-12, Rule 18a-7, Form X-17A-5 Part III and related annual filings,
Form X-17A-5 Parts II, IIA, and IIC, Form 17-H, and Form X-17A-19--
Raymond A. Lombardo, Assistant Director, and Valentina Minak Deng,
Special Counsel; for notices provided pursuant to Rule 3a71-3(d)(1)(vi)
and Rule 15fi-3(c)--Carol McGee, Associate Director; John Guidroz,
Assistant Director, and Israel Goodman, Senior Counsel; and for reports
submitted pursuant to Rule 15fk-1(c)(2)(ii)(A), Kelly Shoop, Branch
Chief, and Patrick Bloomstine, Attorney-Adviser, Division of Trading
and Markets, at (202) 551-5500, Securities and Exchange Commission, 100
F Street NE, Washington, DC 20549.
SUPPLEMENTARY INFORMATION: The Commission is amending its rules to
require the electronic filing or submission, using structured data
where appropriate, of certain forms and other filings,\1\ which are
currently filed with or submitted to the Commission in paper or via
email or are new filing requirements. This release is divided into five
parts: (1) forms that are filed or submitted by or otherwise made
available electronically by SROs (``Covered SRO Forms''); (2)
supplementary materials (``Covered Supplementary Materials'') required
to be posted on the internet websites of clearing agencies; (3) forms
and related filings filed or submitted by broker-dealers and over-the-
counter derivatives dealers (``OTC derivatives dealers''), as well as
security-based swap dealers (``SBSDs'') and major security-based swap
participants (``MSBSPs'') (each SBSD and each MSBSP also referred to as
an ``SBS Entity'' and together referred to as ``SBS Entities''); (4)
other notices, filings, and reports consisting of (a) Form X-17A-19;
(b) 17 CFR 240.3a71-3(d)(1)(vi) (``Rule 3a71-3(d)(1)(vi)'') Notices;
(c) 17 CFR 240.15Fi-3(c) (``Rule 15fi-3(c)'') Notices; and (d) 17 CFR
240.15Fk-1(c)(2)(ii)(A) (``Rule 15fk-1(c)(2)(ii)(A)'') Compliance
Reports; and (5) amendments regarding the FOCUS Report, that, among
other things, would modernize signature requirements in Exchange Act
Rules 17a-5, 17a-12, and 18a-7.\2\ The Commission is adopting
amendments to or relating to the following rules:
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\1\ For purposes of this release, the term ``form'' means any
Commission-created document labeled as a ``Form'' that is required
to be submitted or filed electronically, and the term ``filing''
means any form, notice, report, or material required to be submitted
or filed electronically or required to be posted on an internet
website in lieu of being submitted or filed.
\2\ The Commission's release also includes amendments to CFR
designations in order to ensure regulatory text conforms more
consistently with section 2.13 of the Document Drafting Handbook.
See Office of the Federal Register, Document Drafting Handbook (Aug.
2018 Edition, Revision 2.1, dated Oct. 2023), available at <a href="https://www.archives.gov/files/federal-register/write/handbook/ddh.pdf">https://www.archives.gov/files/federal-register/write/handbook/ddh.pdf</a>. For
rules being amended in this release that contain an uppercase letter
in their CFR citations (other than temporary rules like 17 CFR
240.17h-2T), the Commission is amending their CFR section
designations to replace each such uppercase letter with the
corresponding lowercase letter, and, in one case, to also
redesignate the rule numbering. For example, 17 CFR 240.15Fi-3 is
being redesignated as 17 CFR 240.15fi-3, 17 CFR 240.15Fk-1 is being
redesignated as 17 CFR 240.15fk-1, 17 CFR 240.15Aa-1 is being
redesignated as 17 CFR 240.15aa-1, and 17 CFR 240.15Aj-1 is being
redesignated as 17 CFR 240.15aa-2.
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[[Page 7251]]
[GRAPHIC] [TIFF OMITTED] TR21JA25.000
Finally, the Commission is rescinding:
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\3\ See 15 U.S.C. 77a through 77mm.
\4\ See 15 U.S.C. 78a through 78qq.
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[GRAPHIC] [TIFF OMITTED] TR21JA25.001
In developing this release with regard to SBS Entities, the
Commission has consulted and coordinated with the CFTC and the
prudential regulators in accordance with the Dodd-Frank Wall Street
Reform and Consumer Protection Act (``Dodd-Frank Act'').\5\
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\5\ See Public Law 111-203, 124 Stat. 1376 (2010). Section
712(a)(2) of the Dodd-Frank Act provides in part that the Commission
shall ``consult and coordinate to the extent possible with the
Commodity Futures Trading Commission and the prudential regulators
for the purposes of assuring regulatory consistency and
comparability, to the extent possible.''
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Table of Contents
I. Introduction
A. Experience With Targeted Regulatory Assistance During the
COVID-19 Pandemic
B. Covered SRO Forms
C. Covered Supplementary Materials
D. Filings by Broker-Dealers, OTC Derivatives Dealers, SBSDs,
and MSBSPs
E. Other Forms, Reports, or Notices
F. Structured Data Requirements
G. Amendments Regarding the FOCUS Report and Signature
Requirements in Rule 17a-5, 17a-12, and 18a-7 Filings
II. Requirements to Electronically File Covered SRO Forms
A. Form 1
1. Relevant Statutory Framework
2. Previous Requirements for Filing Form 1
3. Requirement to Electronically File Form 1
B. Form 1-N
1. Relevant Statutory Framework
2. Previous Requirements for Filing Form 1-N
3. Requirement to Electronically File Form 1-N
C. Form 15A
1. Relevant Statutory Framework
2. Previous Requirements for Filing Forms X-15AA-1, X-15AJ-1,
and X-15AJ-2
3. Requirements to Electronically File on Form 15A Information
Previously Filed on Forms X-15AA-1, X-15AJ-1, and X-15AJ-2
D. Form CA-1
1. Relevant Statutory Framework
2. Pre-Existing Requirements for Filing Form CA-1
3. Comment Regarding Proposed Changes to Rule 17ab2-1 and Form
CA-1
4. Requirement to Electronically File Form CA-1
5. Amendments to Rule 17ab2-1
6. Amendments to Form CA-1 and the Form CA-1 Instructions
E. Form 19b-4(e)
1. Relevant Statutory Framework
2. Background of Rule 19b-4(e)
3. Previous Requirements for Filing Form 19b-4(e)
4. Rescission of Form 19b-4(e)
F. Rule 19b-4(j) and Form 19b-4
1. Relevant Statutory Framework
2. Rule Change
G. Conforming Technical Amendment to Rule 202.3(b) Under the
Exchange Act
III. Requirements for Clearing Agencies to Electronically File
Covered Supplemental Materials
A. Preexisting Rule 17a-22
B. Amended Rule 17a-22
1. Two-Day Timeframe for Compliance
2. Scope of Supplemental Materials
3. Meaning of ``Generally Available''
4. Requirement to ``Prominently Post''
IV. Requirements to Electronically File Broker-Dealer, OTC
Derivatives Dealer, and SBS Entity Reports
A. Rules 17a-5, 18a-7, and 17a-12
B. Rule 17h-2T and Form 17-H
V. Other Forms, Reports, or Notices
A. Notices Pursuant to Rule 17a-19 and Form X-17A-19
B. Notice (and Any Withdrawal of a Notice) Filed Pursuant to
Rule 3a71-3(d)(1)(vi)
1. Proposed Rule
2. Amended Rule
C. Notice (and Any Amendment, including Notice of Dispute
Termination) Provided Pursuant to Rule 15fi-3(c)
1. Proposed Rule
2. Amended Rule
D. Compliance Reports Submitted to the Commission pursuant to
Rule 15fk-1(c)(2)(ii)(A)
1. Proposed Rule
2. Final Rule
VI. Amendments Regarding the FOCUS Report and Signature Requirements
in Rule 17a-5, 17a-12, and 18a-7 Filings
A. Corrective and Clarifying Amendments to the FOCUS Report
B. Harmonizing FOCUS Report Part IIC With the Call Report
C. OTC Derivatives Dealer FOCUS Report Filing Requirement
D. Signature Requirements in Rule 17a-5, 17a-12, and 18a-7
Filings
1. Number of Signatures on FOCUS Report
2. Electronic Signatures in Rule 17a-5, 17a-12, and 18a-7
Filings
VII. Amendments to Regulation S-T (Including Structured Data
Requirements) and Rule 24b-2
A. Amendments to Regulation S-T (Including Structured Data
Requirements)
B. Amendments to Rule 24b-2
VIII. Compliance Dates
IX. Paperwork Reduction Act
A. Summary of Collection of Information
1. Form ID
2. Rules 6a-1, 6a-2, 6a-3, and Form 1
3. Rule 6a-4 and Form 1-N
4. Rules 15aa-1 and 15aa-2; Form 15A
5. Rule 17ab2-1 and Form CA-1
6. Rule 19b-4(e) and Form 19b-4(e)
7. Rule 19b-4(j) and Form 19b-4
8. Rule 17a-22
9. Rules 17a-5, 18a-7, and 17a-12
10. Rule 17h-2T
11. Rule 17a-19 and Form X-17A-19
12. Rule 3a71-3(d)(1)(vi)
13. Rule 15fi-3(c)
14. Rule 15fk-1(c)(2)(ii)(A)
B. Use of Information
1. Form ID
2. Rules 6a-1, 6a-2, 6a-3, and Form 1
3. Rule 6a-4 and Form 1-N
4. Rules 15aa-1 and 15aa-2; Form 15A
5. Rule 17ab2-1 and Form CA-1
6. Rule 19b-4(e) and Form 19b-4(e)
7. Rule 19b-4(j) and Form 19b-4
8. Rule 17a-22
9. Rules 17a-5, 18a-7, and 17a-12
10. Rule 17h-2T
11. Rule 17a-19 and Form X-17A-19
12. Rule 3a71-3(d)(1)(vi)
13. Rule 15fi-3(c)
14. Rule 15fk-1(c)(2)(ii)(A)
C. Respondents
1. Form ID
2. Rules 6a-1, 6a-2, 6a-3, and Form 1
3. Rule 6a-4, Form 1-N
4. Rules 15aa-1 and 15aa-2; Form 15A
5. Rule 17ab2-1, Form CA-1
6. Rule 19b-4(e), Form 19b-4(e)
7. Rule 19b-4(j), Form 19b-4
8. Rule 17a-22
9. Rules 17a-5, 18a-7, and 17a-12
10. Rule 17h-2T
11. Rule 17a-19 and Form X-17A-19
12. Rule 3a71-3(d)(1)(vi)
13. Rule 15fi-3(c)
14. Rule 15fk-1(c)(2)(ii)(A)
D. Total Initial and Annual Reporting and Recordkeeping Burdens
1. Form ID
2. Rules 6a-1, 6a-2, 6a-3 and Form 1
3. Rule 6a-4, Form 1-N
4. Rules 15aa-1 and 15aa-2; Form 15A
5. Rule 17ab2-1, Form CA-1
6. Rule 19b-4(e), Form 19b-4(e)
7. Rule 19b-4(j), Form 19b-4
8. Rule 17a-22
9. Rules 17a-5, 18a-7, and 17a-12
10. Rule 17h-2T
11. Rule 17a-19 and Form X-17A-19
12. Rule 3a71-3(d)(1)(vi)
13. Rule 15fi-3(c)
14. Rule 15fk-1(c)(2)(ii)(A)
E. Collection of Information is Mandatory
F. Confidentiality of Responses to Collection of Information
G. Retention Period for Recordkeeping Requirements
X. Economic Analysis
A. Broad Economic Considerations
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B. Baseline
1. Affected Entities
2. Paper and Limited Electronic Submission
3. Structured Data
C. Economic Effects
1. Benefits
2. Costs
D. Efficiency, Competition, and Capital Formation
E. Reasonable Alternatives
1. Exempt Certain Entities or Disclosures From Structured Data
Requirements
2. Require Structured Data on Form 1-N, Form 15A, and ANE
Exception Notices to Same Extent as Structured Documents
3. Replace Inline XBRL Requirements With Custom XML Requirements
or Vice Versa
4. Require Structured Data Languages Other Than Inline XBRL and
Custom XML
5. Permit, Not Require, Structured Data for Affected Documents
6. Exempt Smaller Entities from Electronic Submission or Posting
Requirements
7. Require SROs To Submit Form 19b-4(e) via EDGAR
8. Require the Use of Dedicated Mailbox
XI. Final Regulatory Flexibility Act Analysis
A. Regulatory Flexibility Act Certification
B. Regulatory Flexibility Act Analysis
1. Need for, and Objectives of, the Final Amendments
2. Significant Issues Raised by Public Comments
3. Small Entities Subject to Final Amendments
4. Projected Reporting, Recordkeeping, and Other Compliance
Requirements
5. Significant Alternatives
XII. Other Matters
Statutory Authority
I. Introduction
A. Experience With Targeted Regulatory Assistance During the COVID-19
Pandemic
As part of its response to the COVID-19 pandemic, the Commission
and its staff provided assistance and regulatory relief to market
participants, as appropriate, to facilitate the continued orderly and
fair functioning of the securities markets.\6\ As part of these
efforts, Division of Trading and Markets (``Division'') staff issued a
statement providing that the staff would not recommend enforcement
action if filers and registrants made alternative arrangements, as
detailed in the statement, for delivery, execution, and notarization of
certain paper filings.\7\ More specifically, the staff stated that it
would not recommend that the Commission take enforcement action with
respect to any failure to comply with the paper format submission
requirement or manual signature requirement of certain ``Impacted Paper
Submissions'' (as defined in the Updated Staff Statement), which
included, but were not limited to, broker-dealer audited annual
reports, Form 1 filings for national securities exchanges, and Form CA-
1 filings for clearing agencies.
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\6\ See generally, e.g., An Update on the Commission's Targeted
Regulatory Relief to Assist Market Participants Affected by COVID-19
and Ensure the Orderly Function of our Markets (public statement by
Chairman Jay Clayton, William Hinman, Director, Division of
Corporation Finance, Dalia Blass, Director, Division of Investment
Management, Brett Redfearn, Director, Division of Trading and
Markets (Jan. 26, 2020, updated Jan. 5, 2021)), available at <a href="https://www.sec.gov/news/public-statement/update-commissions-targeted-regulatory-relief-assist-market-participants">https://www.sec.gov/news/public-statement/update-commissions-targeted-regulatory-relief-assist-market-participants</a>.
\7\ See generally Division Updated Staff Statement Regarding
Certain Paper Submissions in Light of COVID-19 Concerns (``Updated
Staff Statement''), available at <a href="https://www.sec.gov/tm/paper-submission-requirements-covid-19">https://www.sec.gov/tm/paper-submission-requirements-covid-19</a>-updates-061820. Staff reports,
Investor Bulletins, and other staff documents cited in this release
represent the views of Commission staff and are not a rule,
regulation, or statement of the Commission. The Commission has
neither approved nor disapproved the content of these documents and,
like all staff statements, they have no legal force or effect, do
not alter applicable law, and create no new or additional
obligations for any person.
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In general, electronic filing of Impacted Paper Submissions has
been practical and efficient. It also has been the Commission's
experience that electronic filing has been positively received by the
various registrants that have used it. Based in part on these positive
experiences with electronic filing during the COVID-19 pandemic, and as
part of its efforts to modernize the methods by which it collects and
analyzes information from registrants, the Commission proposed to amend
certain rules and forms to require that a number of the filings be
submitted to the Commission electronically on EDGAR using structured
data where appropriate.\8\ The Commission received comment letters in
response to the Proposing Release \9\ and, as set forth in more detail
below, is adopting the proposed amendments with certain modifications
in response to comments.
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\8\ See Electronic Submission of Certain Materials Under the
Securities Exchange Act of 1934; Amendments Regarding the FOCUS
Report; Exchange Act Release No. 97182 (Mar. 22, 2023), 88 FR 23920
(Apr. 18, 2023) (``Proposing Release'').
\9\ The comments on the Proposing Release (File No. S7-08-23)
are available at <a href="https://www.sec.gov/comments/s7-08-23/s70823.htm">https://www.sec.gov/comments/s7-08-23/s70823.htm</a>.
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B. Covered SRO Forms
The Commission is requiring, as proposed, that the following forms
be filed electronically on EDGAR:
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[GRAPHIC] [TIFF OMITTED] TR21JA25.002
Prior to these amendments, the Commission's regulatory framework
required an entity seeking to be registered as a national securities
exchange (or seeking an exemption from such registration based on
limited volume), a national securities association, a clearing agency
(or seeking an exemption from such registration), and a national
securities exchange solely for the purpose of trading futures on
individual stocks or on narrow-based stock indexes \11\ (``Security
Futures Product Exchange'') to file, in a paper-based format, certain
forms that are mandated by rules under the Exchange Act. Registered
national securities exchanges, registered national securities
associations, registered clearing agencies, and registered Security
Futures Product Exchanges (collectively, SROs), as well as exempt
exchanges and exempt clearing agencies (together with prospective SROs,
``Filers''), were also required to submit paper-based amendments to
their respective forms. The Commission's amendments modernize the
filing process for these various forms by requiring that the forms and
information contained therein be submitted to the Commission
electronically, thereby removing the burden of preparing and submitting
paper forms by the Filers, and of receiving, acting upon, and
maintaining the paper forms by the Commission and its staff.
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\10\ See 17 CFR 249.802 and 803. The forms and instructions to
the form are incorporated by reference into the Code of Federal
Regulations.
\11\ Futures on individual stocks or on narrow-based stock
indexes are hereinafter referred to as ``security futures
products.''
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In particular, as required by Rule 6a-1, Rule 6a-2, and Rule 6a-3
under the Exchange Act, a prospective exchange must file on Form 1 an
application for registration as a national securities exchange (or for
an exemption from the requirement to register as a national securities
exchange based on limited volume), and, once registered, the exchange
must file as an amendment to its Form 1 certain updating information,
as well as certain supplemental material and reports. In addition, as
required by Rule 6a-4 under the Exchange Act, a
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prospective exchange may register as a Security Futures Product
Exchange by filing Form 1-N (``notice registration'') if it satisfies
certain prerequisites and must file amendments to its initial filing
and certain supplemental materials on Form 1-N as well. An applicant
for registration as a national securities association must file a
registration statement with the Commission on Form X-15AA-1, and every
association applying for registration or registered as a national
securities association must file amendments and supplements to its
registration statement with the Commission on Form X-15AJ-1 and annual
supplements to its registration statement with the Commission on Form
X-15AJ-2. Moreover, as required by Rule 17ab2-1 under the Exchange Act,
a prospective clearing agency must file on Form CA-1 an application for
registration as a clearing agency (or for an exemption from such
registration), and both registered and exempt clearing agencies must
file amendments to their Form CA-1 as necessary. In each of the
foregoing situations, these forms were required to be submitted to the
Commission in a paper-based format. As a result, the prospective and
existing SROs, exempt exchanges, and exempt clearing agencies have
incurred the costs of completing their respective paper-based forms,
making the requisite number of copies, and submitting the original
version and copies to the Commission.
The Commission also is rescinding the following form, as proposed,
and instead requiring that the information currently contained in the
form be publicly posted on the relevant SRO's internet website:
[GRAPHIC] [TIFF OMITTED] TR21JA25.003
Previously, Rule 19b-4(e) under the Exchange Act required an SRO to
submit to the Commission reports regarding the listing and trading of
new derivative securities products on Form 19b-4(e) in a paper-based
format. As with the forms discussed above in this section, SROs
incurred the costs of completing the paper-based form, making the
requisite number of copies, and submitting the original version and
copies to the Commission.
C. Covered Supplementary Materials
Rule 17a-22 requires a registered clearing agency to file with the
Commission three copies of any material within 10 days after issuing,
or making generally available, such materials to its participants or to
other entities with whom it has a significant relationship.\12\ A
registered clearing agency for which the Commission is not the
appropriate regulatory agency is required at the same time to file one
copy of such material with its ``appropriate regulatory agency''
(``ARA'').\13\ While the rule continues to support the Commission's
oversight of clearing agencies, the rule is being modernized to better
reflect the ways in which the registered clearing agencies now
generally distribute the supplemental materials required under the
rule, as discussed further below.
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\12\ See 17 CFR 240.17a-22. Such materials are hereinafter
referred to as ``supplementary materials.''
\13\ See id. When used with respect to a clearing agency, the
term ``appropriate regulatory authority'' is defined under section
3(a)(34)(B) of the Exchange Act to mean broadly the Comptroller of
the Currency, the Board of Governors of the Federal Reserve System
(``Federal Reserve''), or the Federal Deposit Insurance Corporation,
depending on the type of bank that is acting as a registered
clearing agency. See 15 U.S.C. 78c(a)(34).
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Since the Commission adopted Rule 17a-22 in 1980, technology has
evolved significantly and the internet has played an increasingly vital
role in information distribution.\14\ During this period, the
Commission has encouraged the dissemination of information
electronically via the internet, as well as through the use of
automated systems and other services provided by clearing agencies.\15\
In general, transitioning from a requirement to file paper with the
Commission to an electronic filing requirement can help improve
efficiency and transparency in the securities markets for registered
clearing agencies, their participants, and the general public. Most
recently, under the Updated Staff Statement described above,\16\
registered clearing agencies have established alternate arrangements to
satisfy the requirements of Rule 17a-22 that do not require the
submission of paper filings.
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\14\ See, e.g., The Impact of Recent Technological Advances on
the Securities Market (Sept. 1997), available at <a href="https://www.sec.gov/news/studies/techrp97.htm">https://www.sec.gov/news/studies/techrp97.htm</a>. In this report, the
Commission stated that it was mindful of the benefits of increasing
use of new technologies, such as the internet, to access information
more efficiently.
\15\ Id. See also, e.g., Commission Interpretation: Confirmation
and Affirmation of Securities Trades; Matching, Exchange Act Release
No. 39829 (Apr. 6, 1998), 63 FR 17943 (Apr. 18, 1998), available at
<a href="https://www.sec.gov/rule-release/34-39829">https://www.sec.gov/rule-release/34-39829</a>; Commission
Interpretation: Use of Electronic Media, Exchange Act Release No.
42728 (Apr. 28, 2000), 65 FR 25843 (May 4, 2000), available at
<a href="https://www.sec.gov/rules/interp/34-42728.htm">https://www.sec.gov/rules/interp/34-42728.htm</a>; Press Release: SEC
Provides Guidance to Open Up Use of Corporate websites for
Disclosures to Investors (July 30, 2008), available at <a href="https://www.sec.gov/news/press/2008/2008-158.htm">https://www.sec.gov/news/press/2008/2008-158.htm</a>.
\16\ See supra note 7.
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The Commission is now amending Rule 17a-22 to eliminate the paper
filing requirement altogether and require a registered clearing agency
to post any supplementary materials to its internet website, as
discussed further below.\17\ The amended rule increases efficiency in
the distribution of supplementary materials required under the rule and
promotes transparency regarding their contents, as these supplementary
materials are intended to be made generally available to participants
in the clearing agency or other categories of market participants with
whom the clearing agency has a significant relationship.
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\17\ See generally infra section III.
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D. Filings by Broker-Dealers, OTC Derivatives Dealers, SBSDs, and
MSBSPs
[[Page 7256]]
[GRAPHIC] [TIFF OMITTED] TR21JA25.004
Certain forms and other filings that the Commission is requiring to
be filed on EDGAR by broker-dealers, OTC derivatives dealers, SBSDs,
and MSBSPs are appropriate for electronic filing because many of them
are voluminous (in number, size, or both) and some of them contain
certain information that must be disclosed publicly.\18\ Electronic
conversion and/or publication of these filings by Commission staff, to
make them available to the public and/or Commission staff, can be labor
intensive and time consuming. Requiring submission of these filings on
the Commission's established EDGAR filing system will facilitate more
efficient transmission, analysis, dissemination, storage, and retrieval
of information, and will benefit the Commission, the submitting
entities, investors, and other market participants.
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\18\ See generally infra section IV.
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The Commission is requiring the existing EDGAR system to be used
for certain filings because Form X-17A-5 Part III and Form 17-H are
already permitted to be filed on EDGAR. In turn, this will minimize the
burden of transitioning to mandatory filing on EDGAR.
E. Other Forms, Reports, or Notices
[[Page 7257]]
[GRAPHIC] [TIFF OMITTED] TR21JA25.005
The Commission is adopting amendments requiring the EDGAR system to
be used for the following notices, reports, and filings: (1) notices
made pursuant to Rule 17a-19 under the Exchange Act and on accompanying
Form X-17A-19; (2) notices made pursuant to Rule 3a71-3(d)(1)(vi); (3)
notices made to the Commission pursuant to Rule 15fi-3(c); and (4)
reports made pursuant to Rule 15fk-1(c)(2)(ii)(A) under the Exchange
Act. Previously, the notices made pursuant to Rule 17a-19 under the
Exchange Act and on accompanying Form X-17A-19 were submitted via
paper.\19\ The notices made pursuant to Rule 3a71-3(d)(1)(vi) were
previously filed via email.\20\ The notices made to the Commission
pursuant to Rule 15fi-3(c) were previously submitted either via email
or EDGAR, at the SBS Entity's option, and the reports required under
Rule 15fk-1(c)(2)(ii)(A) were previously submitted via email, mail, or
EDGAR, at the SBS Entity's option.\21\
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\19\ See infra section V.A.
\20\ See infra section V.B.
\21\ See infra section V.C. and V.D. Rule 15fi-3(c) requires
that SBS Entities ``notify the Commission'' (emphasis added). See
infra section V.C.1. Requiring these notices and amendments to be
submitted to the Commission via EDGAR does not cause them to be
deemed filed for purposes of the Exchange Act. See, e.g., 15 U.S.
Code 78r. 17 CFR 240.15fk-1(c) (``Rule 15fk-1(c)'') requires that
the chief compliance officer of an SBS Entity prepare and sign an
annual compliance report that ``shall [b]e submitted to the
Commission.'' 17 CFR 240.15fk-1(c) (emphasis added). Requiring these
reports to be submitted via EDGAR does not cause the report to be
deemed filed for purposes of the Exchange Act.
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F. Structured Data Requirements
The Commission is requiring, as proposed, certain of the
disclosures required by the following filings to be provided in a
structured, machine-readable data language: (1) the Covered SRO Forms;
(2) the information required under Rule 19b-4(e); (3) Form X-17A-19;
(4) the annual reports (and related annual filings) filed by broker-
dealers (including OTC derivatives dealers) and
[[Page 7258]]
SBS Entities on Form X-17A-5 Part III; (5) the risk assessment reports
filed by certain broker-dealers on Form 17-H; and (6) the notices and
reports provided to the Commission by SBS Entities under Exchange Act
Rules 15fi-3(c) and 15fk-1(c)(2)(ii)(A), respectively (together, the
``Structured Documents'').\22\
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\22\ For certain affected documents, as proposed, only some
aspects are required to be provided in a structured data language.
For example, only the execution pages of Form 1-N and Form 15A are
required to be provided in a structured data language. See infra
section VII.A.
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Specifically, the Commission is requiring, as proposed, the report
required by Exchange Act Rule 15fk-1(c)(2)(ii)(A) and portions of Form
1, Form CA-1, Form 17-H, and Form X-17A-5 Part III and related annual
filings to be provided in the Inline XBRL structured data language. The
Commission is also requiring, as proposed, Form X-17A-19, the notice to
the Commission (and any amendments to the notices) required by Exchange
Act Rule 15fi-3(c), and portions of Form 1-N, Form 15A, Form 1, Form
CA-1, Form 17-H, and Form X-17A-5 Part III and related annual filings
to be provided in machine-readable, eXtensible Markup Language
(``XML'')-based data languages specific to those documents (``custom
XMLs''). As proposed, these structured documents will be filed or
submitted, as appropriate to each document, on EDGAR.\23\
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\23\ The details of the structured data requirements, including
the specific portions of affected documents that will be structured
in Inline XBRL versus custom XML, are discussed in section VII.A
below.
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In addition, the Commission is requiring, as proposed, SROs to
electronically post the information required under Rule 19b-4(e) using
a custom XML-based data language (also referred to as a ``schema'')
that the Commission will create and publish on its website for SROs to
use.\24\ The Commission is also requiring, as proposed, SROs to post a
rendered Portable Document Format (``PDF'') version of the custom XML
document using a PDF renderer that the Commission will also create and
publish on its website for SROs to use.\25\
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\24\ This requirement will mirror the existing requirement for
registered broker-dealers to electronically post reports containing
order routing information using the most recent versions of the XML
schema and the associated PDF renderer as published on the
Commission's website. See 17 CFR 242.606. The custom XML schema and
PDF renderer for Rule 606 reports are available at <a href="https://www.sec.gov/structureddata/dera_taxonomies">https://www.sec.gov/structureddata/dera_taxonomies</a>.
\25\ See id.
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As discussed in further detail below, the structured data
requirements will facilitate access to the disclosures by users (e.g.,
investors, market participants, analysts, and the Commission), enabling
more efficient retrieval, aggregation, and comparison across different
filers and time periods, as compared to an unstructured PDF, HyperText
Markup Language (``HTML''), or American Standard Code for Information
Interchange (``ASCII'') requirement.\26\
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\26\ See infra sections VII.A and X.C.
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The Commission is requiring, as proposed, some disclosures to be
structured in Inline XBRL and other disclosures to be structured in
custom XML. While Inline XBRL is well-suited for certain types of
content--such as financial statements and extended narrative
discussions--other types of content can be readily captured using
custom XML data languages that yield smaller file sizes than Inline
XBRL and thus facilitate more streamlined data processing. Such custom
XML languages also enable EDGAR to generate fillable web forms that
permit affected entities to input disclosures into form fields rather
than encode their disclosures in custom XML themselves, thus easing
compliance burdens on affected entities.\27\ Finally, certain of the
structured documents--Form X-17A-5 Part III and Form 17-H--were
previously partially subject to custom XML structured data requirements
when voluntarily filed on EDGAR. For these forms, the Commission is
requiring, as proposed, the same custom XML requirements to minimize
the associated burdens on registrants that were previously using these
languages for these forms.
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\27\ See infra section X.E.3 (discussing and responding to one
commenter's statement that XBRL should be used for all Structured
Documents).
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One commenter stated that the Commission ``should make clear that
the [Proposing Release] would not modify the content and format of
reports that substituted compliance firms are required to submit.''
\28\ The Commission's orders granting substituted compliance
(``substituted compliance orders'') \29\ condition substituted
compliance for the requirements of certain Exchange Act rules in part
on a non-U.S. SBS Entity providing information to the Commission,
including reports and other information required by foreign law. The
substituted compliance orders do not, however, address how an SBS
Entity relying on substituted compliance should provide such
information to the Commission (e.g., via EDGAR or in structured data
format).\30\ Rather, the Commission's website provides information
regarding submitting notices and amendments under Rule 15fi-3(c) \31\
and the annual report required by Rule 15fk-1(c) \32\ as well as filing
with the Commission annual audited reports required under local law
when applying substituted compliance with respect to paragraph (c) of
Rule 18a-7.\33\ Prior to the amendments adopted in this release, SBS
Entities have been using this information on the Commission's website
when providing filings and submissions required under the relevant
Exchange Act rules and substituted compliance orders. Therefore, the
amendments requiring submission or filing on EDGAR or in structured
data
[[Page 7259]]
format do not modify the terms of the substituted compliance orders and
eligible SBS Entities may continue to rely on existing substituted
compliance orders regarding the requirements of a relevant rule.
However, the instructions on the Commission's website regarding the
submission or filing of reports and other information that SBS Entities
provide to the Commission pursuant to a substituted compliance order
will be updated to specify how an SBS Entity must provide such
information to the Commission in a manner consistent with the
electronic filing and submission and structured data amendments being
made in this release. This release does not change the substituted
compliance orders.\34\
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\28\ See Letter from Kyle Brandon, Managing Director and Head of
Derivatives Policy, Securities Industry and Financial Markets
Association (May 22, 2023) (``SIFMA 5/22/2023 Letter'') at 3. See
also SIFMA 5/22/2023 Letter at 7. Exchange Act Rule 3a71-6 (17 CFR
240.3a71-6) provides a framework whereby non-U.S. SBS Entities may
satisfy certain requirements under Exchange Act section 15F by
complying with comparable regulatory requirements of a foreign
jurisdiction. Because substituted compliance does not constitute
exemptive relief, but instead provides an alternative method by
which non-U.S. SBS Entities may comply with applicable Exchange Act
requirements, the non-U.S. SBS Entities remain subject to section
15F and the rules thereunder. See, e.g., Amended and Restated Order
Granting Conditional Substituted Compliance in Connection With
Certain Requirements Applicable to Non-U.S. Security-Based Swap
Dealers and Major Security-based Swap Participants Subject to
Regulation in the Federal Republic of Germany; Amended Orders
Addressing Non-U.S. Security-Based Swap Entities Subject to
Regulation in the French Republic or the United Kingdom; and Order
Extending the Time To Meet Certain Conditions Relating to Capital
and Margin, Exchange Act Release No. 93411 (Oct. 22, 2021), 86 FR
59797, 59798 (Oct. 28, 2021).
\29\ The Commission's current substituted compliance orders are
available on the Commission's website at <a href="https://www.sec.gov/tm/Jurisdiction-Specific-Apps-Orders-and-MOU">https://www.sec.gov/tm/Jurisdiction-Specific-Apps-Orders-and-MOU</a>.
\30\ To the extent the substituted compliance orders include a
requirement regarding the manner or format of reports or information
to be provided to the Commission, the substituted compliance orders
only require that the report or information should be provided to
the Commission in (1) the manner specified on the Commission's
website; or (2) in the manner and format required by Commission rule
or order. Either way, the specific manner or format for such reports
and information to be delivered to the Commission is outside of the
substituted compliance orders.
\31\ See Staff Statement on Submitting Security-Based Swap
Valuation Dispute Notices (available at <a href="https://www.sec.gov/tm/Security-Based-Swap-Valuation-Dispute-Notices">https://www.sec.gov/tm/Security-Based-Swap-Valuation-Dispute-Notices</a>).
\32\ See Frequently Asked Questions Regarding Chief Compliance
Officer Annual Reports Submitted by Security-Based Swap Dealers and
Major Security-Based Swap Participants (available at <a href="https://www.sec.gov/tm/faqs-cco-annual-reports-sbsd">https://www.sec.gov/tm/faqs-cco-annual-reports-sbsd</a>).
\33\ See Staff Statement on Submitting Notices, Statements,
Applications, and Reports for Security-Based Swap Dealers and Major
Security-Based Swap Participants Pursuant to the Financial
Responsibility Rules (Exchange Act Rules 18a-1 through 18a-10)
(available at <a href="https://www.sec.gov/tm/staff-statement-on-submissions">https://www.sec.gov/tm/staff-statement-on-submissions</a>).
\34\ A commenter asked the Commission to confirm that the
amendments to the FOCUS Report in this rulemaking would not affect
the Manner and Format Order. See SIFMA 5/22/2023 Letter at 8. The
order that specifies the manner and format of filing the FOCUS
Report for firms relying on a Commission substituted compliance
order will also be amended. See Order Specifying the Manner and
Format of Filing Unaudited Financial and Operational Information by
Security-Based Swap Dealers and Major Security-Based Swap
Participants That Are Not U.S. Persons and Are Relying on
Substituted Compliance Determinations With Respect to Rule 18a-7,
Exchange Act release no. 93335 (Oct. 14, 2021), 86 FR 59208 (Oct.
26, 2021) (``Manner and Format Order''). In particular, the Manner
and Format Order will be amended to specify the following: (1) Firms
will complete new lines 1F-1H (commissions on commodity
transactions, all other commissions, total commissions) in the
Statement of Income section of FOCUS Report Part II. (2) Because box
1754b is being renumbered box JJ34b, firms will complete box JJ34b
instead of box 1754b. (3) Firms will complete box 2143b (intangible
assets) instead of boxes 3163b (goodwill) and 0426b (other
intangible assets) since this release replaces boxes 3163b and 0426b
(which are subtypes of intangible assets) with box 2143b. (4) Firms
will complete new boxes P793b (common equity tier 1 capital ratio--
column A) and P793bb (common equity tier 1 capital ratio--column B),
as applicable, due to the addition of this capital ratio to Basel
III regulations.
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Certain Structured Documents also include requirements to attach
copies of existing documents, such as copies of bylaws, written
agreements, user manuals, and listing applications. The Commission is
requiring, as proposed, affected entities to file these copies of
documents as unstructured PDF attachments to the otherwise structured
forms. Requiring affected entities to retroactively structure such
existing documents, which were prepared for purposes outside of
fulfilling the Commission's disclosure requirements, would have imposed
compliance burdens on affected entities that would not have been
justified in light of the informational benefits that would have arisen
from having such documents in structured form.\35\
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\35\ See infra sections II.A.3, II.D.5, IV.B, and VII.A.
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Similarly, Forms 1-N and 15A (other than the cover pages--i.e.,
execution pages--of those Forms) are, as proposed, not subject to
structured data requirements, given that the very limited number of
Form 1-N and Form 15A filers and filings limits the benefit that would
have accrued from machine-readability of the disclosures contained
therein.\36\ Notices filed pursuant to Rule 3a71-3(d)(1)(vi) (``ANE
Exception Notices'') also are not subject to structured data
requirements, as the very limited number of data points in such notices
would have lessened the utility of any functionality enabled by
structured data (such as efficient retrieval of individual data points
from structured documents).\37\
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\36\ See infra sections II.B.3, II.C.3, and VII.A.
\37\ See infra sections V.B.2 and VII.A.
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The Commission received several comments regarding the structured
data requirements for the Structured Documents.\38\ These included
comments related to structured data requirements for specific filings
or submissions, comments related to structured data requirements more
generally, comments related to the particular structured data languages
specified for the Structured Documents, and comments related to the
costs, benefits, and burdens arising from the structured data
requirements.\39\ Each of these comments is discussed subsequently in
the appropriate subsection or subsections of the release.\40\
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\38\ See SIFMA 5/22/2023 Letter; Letter from Campbell Pryde,
President and Chief Executive Officer, XBRL US (May 22, 2023)
(``XBRL Letter''); Letter from Howard Spindel, Senior Managing
Director, Integrated Solutions (May 22, 2023) (``Integrated
Solutions Letter'').
\39\ See SIFMA 5/22/2023 Letter at 1-7, 9, 11, and 14; XBRL
Letter; Integrated Solutions Letter at 1, 2, and 4.
\40\ For comments related specifically to structured data
requirements for Form 1, Form CA-1, Rule 19b-4(e) information, Form
X-17A-5 Part III, Form 17-H, Form X-17A-19, Rule 15fi-3(c) notices,
and Rule 15fk-1 reports, see infra sections II.A.3 and II.D.5,
II.E.4, IV.A, IV.B, V.A, V.C.2, and V.D.2, respectively. For
comments related more generally to structured data requirements, see
infra section VII.A. For comments related to the economic
implications of the structured data requirements, see infra sections
X.B.3, X.C.1.b, X.C.1.C., and X.E. A specific discussion of a
comment related to substituted compliance and data is contained
earlier in this section. See supra notes 28 to 34.
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G. Amendments Regarding the FOCUS Report and Signature Requirements in
Rule 17a-5, 17a-12, and 18a-7 Filings
Finally, the Commission is adopting amendments regarding the FOCUS
Report to harmonize with other rules, make technical changes, and
provide clarifications. In addition, the Commission is adopting
amendments to allow electronic signatures in Rule 17a-5, 17a-12, and
18a-7 filings, including the FOCUS Report.
II. Requirements to Electronically File Covered SRO Forms
The Commission is amending certain Exchange Act rules and the
Covered SRO Forms, including their instructions, to eliminate the
current paper copy filing method and instead require electronic
submission of the Covered SRO Forms. Changing from the current method
of paper filing to electronic submission of the Covered SRO Forms
ultimately will increase efficiencies and decrease costs for Filers
with respect to their filing obligations.\41\ In addition the
electronic filing of the Covered SRO Forms will facilitate the
Commission's oversight of SROs by streamlining the process of tracking
and reviewing the filings made on the Covered SRO Forms.
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\41\ See infra section X.
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The amendments require the Covered SRO Forms to be filed on EDGAR.
The Commission is requiring the use of the existing EDGAR system for
the Covered SRO Forms because these filings are similar to other
filings that are currently submitted on EDGAR. Furthermore, many of the
Covered SRO Forms contain information that must be disclosed publicly,
and electronic conversion and/or publication of these filings by
Commission staff is labor intensive and time consuming. Requiring the
submission of these filings on EDGAR will facilitate more efficient
transmission, analysis, dissemination, storage, and retrieval of
information, and will benefit the Commission, the submitting entities,
investors, and other market participants. As a result of the amendments
to relevant Commission rules and forms as described below, any Filer of
the Covered SRO Forms who has not previously made an electronic filing
on EDGAR will need to apply for EDGAR access pursuant to the EDGAR
Filer Manual \42\ in order to file documents on EDGAR.\43\
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\42\ See EDGAR Filer Manual, available at <a href="https://www.sec.gov/edgar/filermanual">https://www.sec.gov/edgar/filermanual</a> (``EDGAR Filer Manual'').
\43\ As discussed in more detail in the Paperwork Reduction Act
section of this release, filers of Covered SRO Forms have not
previously made electronic filings on EDGAR. See infra section
IX.C.1 (1. Form ID).
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For each of the Covered SRO Forms, the Commission is adding
technical requirements to the form's general instructions to specify
when a form is considered incomplete or deficient when filed.
Specifically, each Filer is required to provide all the information
required by the form, including the
[[Page 7260]]
exhibits, and a filing that is incomplete or otherwise deficient may be
returned to the Filer. The general instructions for each form also set
forth what composes a complete filing. For instance, the general
instructions for Form 1 now state that a completed form filed with the
Commission shall consist of Form 1, responses to all applicable items,
and any exhibits required in connection with the filing.
For each of the Covered SRO Forms, the general instructions require
some or all of the information reported on the forms (including, where
applicable, the exhibits to the forms) to be provided in a structured,
machine-readable data language.\44\ For Form 1 and Form CA-1, the
general instructions require the submissions to be provided in part
using Inline XBRL and in part using custom XML data languages specific
to those Forms, with certain submissions that constitute copies of
existing documents of a Filer (such as copies of governing documents or
copies of contracts) to be included as text-searchable PDF attachments
rather than structured data.\45\ For Form 1-N and Form 15A, only the
cover page (i.e., execution page) of each form is required to be
structured in a custom XML data language, while the remainder of each
form remains unstructured. Finally, the information under Rule 19b-
4(e)(2)(ii) is required to be provided on the listing SRO's website
using a custom XML data language, thus making the information machine-
readable.
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\44\ See also infra section V.A (discussing structured data
requirements for Form X-17A-19, which is also filed by SROs).
\45\ For example, the copies of governing documents that are
required to be attached as Exhibit A to Form 1 and as part of
Exhibit E to Form CA-1 are required to be included as a PDF
attachment, rather than being structured in Inline XBRL or custom
XML. See infra sections II.A.3 and II.D.5.
[GRAPHIC] [TIFF OMITTED] TR21JA25.006
For Form CA-1, Schedule A and Exhibits C, F, H, J, K, L, M, O, R,
and S must be filed in Inline XBRL.\46\ The execution page and Exhibits
A (in part), B, D, E (in part), I, N, and Q must be filed in custom
XML.\47\ Exhibits A (in part), E (in part), G, P, and T must be filed
as unstructured PDF documents.\48\
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\46\ Schedule A to the execution page requires certain
descriptive responses to complement the clearing agency's execution
page disclosures. Exhibit C requires a description of the clearing
agency's organizational structure. Exhibit F requires a description
of material pending legal proceedings involving the clearing agency.
Exhibit H requires the clearing agency's financial statements.
Exhibit J requires a description of the clearing agency's services
and functions. Exhibit K requires a description of the clearing
agency's security measures and procedures. Exhibit L requires a
description of the clearing agency's safeguarding measures and
procedures. Exhibit M requires a description of the clearing
agency's backup systems. Exhibit O requires a description of
criteria governing access to the clearing agency's services and a
description of the reasons for imposing such criteria. Exhibit R
requires a schedule of prohibitions and limitations on access to the
clearing agency's services. Exhibit S requires, if applicable, a
statement explaining why the clearing agency should be exempt.
\47\ The execution page requires identifying information about
the filer and the document being filed. Exhibit A requires, in
relevant part, a list of persons controlling or directing the
management or policies of the clearing agency, and descriptions of
any unwritten agreements or arrangements through which such persons
may exercise control or direction. Exhibit B requires a list of the
clearing agency's officers, managers, and individuals occupying
similar positions. Exhibit D requires a list of persons who are
controlled by, or are under common control with, the clearing
agency, as well as a description of each control relationship.
Exhibit E requires, in relevant part, a list of dues, fees, and
other charges imposed by the clearing agency for its clearing
activities. Exhibit I requires the addresses of all offices in which
the clearing agency conducts its activities, and an identification
of the activities that are performed in each listed office. Exhibit
N requires a list of participants, or applicants for participation,
in the clearing agency. Exhibit Q requires a schedule of fees fixed
by the clearing agency for services rendered by its participants.
\48\ Exhibit A requires, in relevant part, copies of written
agreements with persons who may control or direct the management or
policies of the clearing agency. Exhibit E requires, in relevant
part, a copy of the currently effective constitution, articles of
incorporation or association, bylaws, rules, procedures and
instruments corresponding thereto, of the clearing agency. Exhibit G
requires copies of all contracts with any national securities
exchange, national securities association or clearing agency or
securities market for which the clearing agency acts as a clearing
agency or performs clearing agency functions. Exhibit P requires
copies of any forms of contracts governing the terms on which
persons may subscribe to clearing agency services provided by the
registrant. Exhibit T requires any conditions, reports, notices or
other submissions to the Commission required as directed in any
order approving applications for exemption from registration as a
clearing agency.
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For Form 1, Exhibits D, E (in part), and I must be filed in Inline
XBRL.\49\
[[Page 7261]]
The execution page, Exhibits C (in part), H (in part), J, K, L, M, N,
and the 17 CFR 240.6a-3(b) (``Rule 6a-3(b)'') volume reports must be
filed in custom XML.\50\ Exhibits A, B, C (in part), E (in part), F, G,
H (in part), and the 17 CFR 240.6a-3(a)(1) (``Rule 6a-3(a)(1)'')
supplemental materials must be filed as unstructured PDF documents.\51\
For Forms 15A and 1-N, only the execution page must be filed using a
structured data language (custom XML).\52\
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\49\ Exhibit D requires the unconsolidated financial statements
for the latest fiscal year for each of the exchange's subsidiaries
and affiliates. Exhibit E requires, in relevant part, a description
of the manner of operation of the electronic trading system that the
exchange uses to effect transactions. Exhibit I requires audited
financial statements for the exchange's latest fiscal year.
\50\ The execution page requires identifying information about
the filer and the document being filed. Exhibit C requires, in
relevant part, information regarding each subsidiary or affiliate of
the exchange, and each entity with whom the exchange has an
agreement relating to the operation of an electronic trading system
to be used to effect transactions on the exchange (such as the name
and address of the organization, a brief description of the nature
and extent of the affiliation, and a brief description of the
business or functions of the organization). Exhibit H requires, in
relevant part, a schedule of listing fees and a brief description of
the criteria governing which securities may be traded on the
exchange. Exhibit J requires a list of the exchange's officers,
governors, standing committee members, or persons performing similar
functions. Exhibit K requires a list of the exchange's significant
owners, shareholders, or partners. Exhibit L requires descriptions
of the criteria, conditions, and procedures governing membership in
the exchange. Exhibit M requires a list of members, participants,
subscribers, or other users of the exchange, as well as a
description of each user's activities. Exhibit N requires schedules
of securities traded on the exchange. Rule 6a-3(b) of the Exchange
Act requires a report concerning the securities sold on the exchange
during the previous calendar month. See 17 CFR 240.6a-3(b).
\51\ Exhibit A requires copies of the constitution, articles of
incorporation or association with all subsequent amendments, and of
existing bylaws or corresponding rules or instruments, whatever the
name, of the exchange. Exhibit B requires copies of all written
rulings, settled practices having the effect of rules, and
interpretations of the Governing Board or other committee of the
exchange in respect of any provisions of the constitution, bylaws,
rules, or trading practices of the exchange which are not included
in Exhibit A. Exhibit C requires, in relevant part, copies of the
constitution, a copy of the articles of incorporation or association
including all amendments, and copies of the existing bylaws or
corresponding rules or instruments for each of the exchange's
subsidiaries or affiliates and for each entity with whom the
exchange has an agreement relating to the operation of an electronic
trading system to be used to effect transactions on the exchange.
Exhibit E requires, in relevant part, a copy of the exchange's
users' manual. Exhibit F requires a complete set of all forms
pertaining to membership, participation, or subscription to the
exchange, application for approval as a person associated with a
member, participant, or subscriber of the exchange, or any other
similar materials. Exhibit G requires a complete set of all forms of
financial statements, reports, or questionnaires required of
members, participants, subscribers, or any other users relating to
financial responsibility or minimum capital requirements for such
members, participants, or any other users. Exhibit H requires, in
relevant part, a complete set of documents composing the exchange's
listing applications, including any agreements required to be
executed in connection with listing. Rule 6a-3(a)(1) of the Exchange
Act requires any material (including notices, circulars, bulletins,
lists, and periodicals) issued or made generally available to
members of, or participants or subscribers to, the exchange. See 17
CFR 240.6a-3(a)(1).
\52\ The execution page requires identifying information about
the filer and the document being filed.
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Similarly, the information under Rule 19b-4(e)(2)(ii) is required
to be provided on the listing SRO's website using a custom XML data
language, thus making the information machine-readable.
[GRAPHIC] [TIFF OMITTED] TR21JA25.007
The requirement that the Covered SRO Forms be filed, and
information pursuant to Rule 19b-4(e) be posted, using structured data
languages allows the Commission and, if applicable, investors, market
participants, and other interested parties, to efficiently review and
analyze the information.\53\ In addition, the requirement to file
Covered SRO Forms on EDGAR in a structured data language enables EDGAR
to perform technical validations (i.e., programmatic checks to ensure
the documents are appropriately standardized, formatted, and complete)
upon intake of the documents, which will improve the quality of the
filed data by decreasing the incidence of non-substantive errors (such
as the omission of values from fields that should always be populated).
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\53\ For more detailed discussions of the anticipated benefits
associated with structured data requirements, see infra sections
VII.A. and X.C.1.b.
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Based on the Commission's experience in reviewing the Covered SRO
Forms and information posted pursuant to Rule 19b-4(e), the requirement
to electronically file the Covered SRO Forms and electronically post
the information required pursuant to Rule 19b-4(e) allows for more
efficient use of Commission resources related to reviewing, assessing,
and processing these filings and postings. In addition, information
provided on the Covered SRO Forms will be captured automatically by
EDGAR and is text-searchable or machine-readable. The information
posted pursuant to Rule 19b-4(e) will be machine-readable as well. As a
result, these features will facilitate the Commission's oversight of
SROs.
The amendments include no substantive changes to the information
required to be filed on the Covered SRO Forms or the information
required to be posted pursuant to Rule 19b-4(e). Rather, the amendment
is intended simply to require and facilitate the electronic filing of
the Covered SRO Forms and the disclosure of the information required
under Rule 19b-4(e), which the SROs currently are required to provide
to the Commission.
A. Form 1
1. Relevant Statutory Framework
Section 6(a) of the Exchange Act states, ``[a]n exchange may be
registered as a national securities exchange . . . by filing with the
Commission an application for registration in such form as the
Commission, by rule, may prescribe containing the rules of the exchange
and such other information and documents as the Commission, by rule,
may prescribe as necessary or appropriate in the public interest or for
the protection of investors.'' \54\ Rules 6a-1, 6a-2, and 6a-3 \55\
under the Exchange Act and Form 1 \56\ set forth the filing
requirements for registration as a national securities exchange and for
[[Page 7262]]
exempt exchanges, as well as requirements for the filing of
supplemental material and reports.
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\54\ See 15 U.S.C. 78f(a).
\55\ See 17 CFR 240.6a-1; 17 CFR 240.6a-2; 17 CFR 240.6a-3.
\56\ See 17 CFR 249.1.
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2. Previous Requirements for Filing Form 1
Rule 6a-1 under the Exchange Act generally requires that an entity
seeking to register as a national securities exchange, or seeking an
exemption from such registration based on limited volume, file an
application on Form 1 and correct any inaccuracy therein upon
discovery.\57\ Form 1 contains an execution page as well as 14 exhibits
that must be filed by the exchange.\58\ The Form 1 execution page
requires certain basic information from the exchange, such as the name
and street and mailing addresses of the exchange; the name, title, and
telephone number of the exchange's contact employee; and the legal
status of the exchange (e.g., corporation or limited liability
company). The Form 1 exhibits require the exchange to provide, among
other things: its audited financial statements and unconsolidated
financial statements for each subsidiary or affiliate; its governing
documents and rules; the names of its members, participants,
subscribers, and users; information regarding its non-member owners,
shareholders, or partners; and the securities it lists or trades. The
instructions to Form 1 require that one original and two copies of all
the Form 1 materials be filed with the Commission in paper form.\59\
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\57\ See 17 CFR 240.6a-1.
\58\ For purposes of this section relating to Form 1, these
entities are collectively referred to as ``exchanges.''
\59\ See 17 CFR 249.1.
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Rule 6a-2 requires a registered national securities exchange or an
exempt exchange \60\ to amend its Form 1 as specified therein.
Specifically, pursuant to 17 CFR 240.6a-2(a) (``Rule 6a-2(a)''), an
exchange must file an amendment to its Form 1 within 10 days after it
takes any action that renders any part of its Form 1 execution page or
the information provided in its Form 1 Exhibits C, F, G, H, J, K, or M
inaccurate or incomplete.\61\
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\60\ For purposes of this paragraph, these entities are
collectively referred to as ``exchanges.''
\61\ See 17 CFR 240.6a-2(a).
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Pursuant to 17 CFR 240.6a-2(b) (``Rule 6a-2(b)''), on or before
June 30 of each year, a national securities exchange or an exempt
exchange \62\ must file amendments to Exhibits D, I, K, M, and N with
the Commission.\63\ Pursuant to 17 CFR 240.6a-2(c) (``Rule 6a-2(c)''),
on a triennial basis, an exchange must file complete Exhibits A, B, C,
and J with the Commission.\64\ Further, 17 CFR 240.6a-2(d) (``Rule 6a-
2(d)'') provides alternative means for satisfying the requirements to
file amendments to certain exhibits.\65\ These alternative means
require that the exchange: (i) on an annual or more frequent basis
publish the information required by the pertinent exhibits, or
cooperate in its publication; \66\ (ii) keep the information up to date
and make it available to the Commission and the public upon request;
\67\ or (iii) make the required information available continuously on
an internet website controlled by the exchange.\68\ As with Form 1
filings pursuant to Rule 6a-1, all amendments to Form 1 pursuant to
Rule 6a-2 currently are submitted in paper form in accordance with the
instructions to Form 1.\69\
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\62\ For purposes of this paragraph, these entities are
collectively referred to as ``exchanges.''
\63\ See 17 CFR 240.6a-2(b).
\64\ See 17 CFR 240.6a-2(c).
\65\ See 17 CFR 240.6a-2(d). Rule 6a-2(d) applies to information
required to be filed pursuant to paragraphs (b)(2) and (c) of Rule
6a-2. Rule 6a-2(d) sets forth alternative means of providing access
to the information contained in Exhibits A, B, C, J, K, M, and N in
lieu of filing the information with the Commission.
\66\ The exchange would need to: (i) identify the publication in
which the information is available, the name, address, and telephone
number of the person from whom such publication may be obtained, and
the price of the publication; and (ii) certify the accuracy of such
information as of its publication date. 17 CFR 240.6a-2(d)(1).
\67\ The exchange would need to certify that the information is
kept up to date and is available to the Commission and the public
upon request. 17 CFR 240.6a-2(d)(2).
\68\ The exchange would need to: (i) indicate the location of
the internet website where such information may be found; and (ii)
certify that the information available at such location is accurate
as of its date. 17 CFR 240.6a-2(d)(3).
\69\ See 17 CFR 249.1.
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Pursuant to Rule 6a-3, a national securities exchange or an exempt
exchange also must file certain supplemental material and reports with
the Commission.\70\ Specifically, Rule 6a-3(a)(1) requires an exchange
to file with the Commission any material issued or made generally
available to members of, or participants or subscribers to, the
exchange within 10 days after issuing or making such material available
to such members, participants or subscribers.\71\ 17 CFR 240.6a-3(a)(2)
(``Rule 6a-3(a)(2)'') provides that, if information required by Rule
6a-3(a)(1) is available continuously on a website controlled by the
exchange, in lieu of filing such information, the exchange may indicate
the location of the website where the information can be found, and
certify that the information is accurate as of its date.\72\ Rule 6a-
3(b) requires an exchange to file, within 15 days after the end of each
calendar month, a volume report of securities transactions on the
exchange during the calendar month. As with filings pursuant to Rules
6a-1 and 6a-2, all filings pursuant to Rule 6a-3 were previously
submitted in paper form.\73\
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\70\ See 17 CFR 240.6a-3.
\71\ See 17 CFR 240.6a-3(a)(1).
\72\ See 17 CFR 240.6a-3(a)(2).
\73\ See 17 CFR 240.6a-3(b). This report must set forth: (i) the
number of shares of stock sold and the aggregate dollar amount of
such stock sold; (ii) the principal amount of bonds sold and the
aggregate dollar amount of such bonds sold; and (iii) the number of
rights and warrants sold and the aggregate dollar amount of such
rights and warrants sold. Id.
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Form 1 filings are made available to the public.\74\ Form 1 filings
made pursuant to pre-existing Rule 6a-1 are scanned and the resulting
PDF documents are posted on the Commission's website. Form 1 filings
made pursuant to pre-existing Rule 6a-2 are scanned and the resulting
PDF documents are uploaded to EDGAR. Form 1 filings made pursuant to
pre-existing Rule 6a-3 are available for inspection in paper form in
the Commission's public reading room.
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\74\ When the Commission previously amended Form 1 and Rules 6a-
1, 6a-2, and 6a-3, it stated that ``[t]he information collected,
retained, and/or filed pursuant to the rules for registration as a
national securities exchange will not be confidential and will be
available to the public.'' Exchange Act Release No. 40760 (Dec. 8,
1998), 63 FR 70844, 70912 (Dec. 22, 1998) (Regulation of Exchanges
and Alternative Trading Systems Adopting Release). Consistent with
this statement, the Instructions to Form 1 specify that ``[n]o
assurance of confidentiality is given by the Commission with respect
to the responses made in Form 1. The public has access to the
information contained in Form 1.''
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3. Requirement to Electronically File Form 1
The Commission is amending Rules 6a-1, 6a-2, and 6a-3 under the
Exchange Act, as well as Form 1 and the instructions to Form 1, to
require the electronic filing on EDGAR of all submissions required by
the rules.\75\ As explained in section II above, among other benefits,
these amendments should increase efficiencies related to the filing of
these forms and the review and analysis of the filed forms by the
Commission and its staff as well as by investors, market participants,
and other interested parties. In addition, the Commission is adopting
conforming changes to Rule 3(b)(2) of its Informal and Other
Procedures,\76\ discussed below,\77\ to clarify that defective
[[Page 7263]]
applications on Form 1 will be returned to the applicant and, although
permitted as an option under the current rule, defective applications
no longer will be held by the Commission. A description of the
Commission's amendments to Rules 6a-1, 6a-2, and 6a-3, Form 1, and the
instructions to Form 1 to implement the electronic filing requirement
is provided below.
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\75\ The Commission is also making a technical modification, not
included in the Proposing Release, to Rule 232.101 (17 CFR
232.101(a)(1)) to include Form 1 in the list of filings required to
be filed electronically.
\76\ See 17 CFR 202.3(b)(2).
\77\ See infra section II.G.
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a. Amendments to Rules 6a-1, 6a-2, and 6a-3
The Commission is adding a new paragraph (e) to Rule 6a-1 to
require the electronic filing on EDGAR of all Form 1 filings and
amendments to such filings. The Commission also is amending Rules 6a-
2(a), (b), and (c) to mandate the electronic filing on EDGAR of the
Form 1 amendments under those paragraphs by requiring the electronic
filing of those amendments, in accordance with 17 CFR 240.6a-1(e)
(``Rule 6a-1(e)'').\78\ Moreover, the Commission is updating in Rule
6a-2(c) the due date for the next filings due pursuant to Rule 6a-2(c),
from June 30, 2001, to June 30, 2025.
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\78\ The Commission also is making a technical amendment to
remove two extraneous commas from the text of Rule 6a-2(a). The
Commission further is amending paragraph (d) of Rule 6a-2 to clarify
that any certifications and other information permitted under that
paragraph in lieu of filing the required documents as exhibits to
Form 1 must be provided using Form 1. This change should facilitate
compliance with the Rule 6a-2 requirements by exchanges and exempt
exchanges by clarifying and standardizing the means to file any
certifications and other information submitted pursuant to paragraph
(d) of Rule 6a-2.
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As stated earlier in this section, Rule 6a-3 requires national
securities exchanges and exempt exchanges to file certain supplemental
material and reports with the Commission after registration or being
granted an exemption from registration. The Commission is amending Rule
6a-3 to require national securities exchanges and exempt exchanges to
file on EDGAR such supplemental material and reports electronically on
Form 1, in accordance with Rule 6a-1(e).
b. Amendments to Form 1 and the Form 1 Instructions
In addition to the revisions to Rules 6a-1, 6a-2, and 6a-3, the
Commission is revising and reformatting Form 1, and the instructions
thereto, to accommodate the electronic filing on EDGAR of initial
applications, subsequent amendments, supplemental material, and reports
that are made on Form 1. The changes to Form 1 to permit electronic
submission to the Commission require minimal modifications to the form,
as described below. The Commission also is revising the Form 1
instructions to facilitate the electronic filing and machine-
readability of Form 1.\79\ As discussed below, these revisions to Form
1 facilitate the filing and use of the information mandated by Form 1
and related Rules 6a-1, 6a-2, and 6a-3.\80\
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\79\ In addition, the Commission is removing the definition of
the word ``applicant'' from the Form 1 instructions and replacing
the word ``applicant'' with the word ``exchange'' on Form 1.
Currently, Form 1 uses both the words ``exchange'' and ``applicant''
to refer to the entity filing the Form 1. The Commission is making
this technical, change to make consistent the terminology used in
Form 1.
\80\ The Commission is also making some technical amendments to
what was proposed for Form 1 and Rules 6a-2 and 6a-3. In particular,
the Commission is: (1) in Rules 6a-2 and 6a-3, removing the
redundant qualifier ``of this chapter'' from the cross-references to
Rule 6a-1(e); (2) in Section I of Form 1, adding the parenthetical
``if any'' next to ``Facsimile''; (3) in Section V of Form 1,
capitalizing certain words in the headings of the table of exhibits;
(4) in Section V of Form 1, replacing ``by-laws'' with ``bylaws'';
(5) in Section V of Form 1 and in the Form 1 General Instructions,
replaced ``comprising'' with ``composing''; (6) in the Form 1
General Instructions, updating the estimated hourly burden of
completing an initial Form 1 application from the old estimate of
891 hours to the new estimate of 901 hours; (7) in the Form 1
General Instructions, clarifying that the estimated hourly burden of
26 hours to prepare a Form 1 amendment refers to Form 1 amendments
filed pursuant to Rules 6a-2(a) and 6a-2(c); and (8) in the Form
General Instructions, specifying that the estimated hourly burden to
prepare a Form 1 amendment pursuant to Rule 6a-2(b) is 40 hours.
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Electronic Form 1 solicits information through prompts on the form.
Electronic Form 1 also requires an exchange to attach exhibits via a
new exhibit table that is part of electronic Form 1. Where Rule 6a-2
allows for alternative means of filing the information required under
certain exhibits, the new exhibit table permits an exchange to
electronically provide the certifications and details necessary for an
exchange to avail itself of those alternative means. The information
required to be filed with the exhibits is not changing. Currently, Rule
6a-2 provides that in lieu of filing certain exhibits as part of a
paper Form 1 submission, an exchange may: (i) identify where such
information is published and certify its accuracy as of its publication
date; (ii) certify that the information is available to the Commission
and the public upon request; or (iii) indicate the location of the
internet website where such information may be found and certify that
the information available at such location is accurate as of its
date.\81\ The amendments do not change the availability of these
alternative means, only the method of providing the necessary
certifications and details. As described above, instead of attaching
paper exhibits, the amendments require the exhibits to be submitted
electronically on EDGAR. Similarly, instead of providing on paper the
certifications and details required for an exchange to avail itself of
these alternative means, the amendments require those certifications
and details to be provided via the electronic Form 1. In the event an
exchange indicates on Form 1 an internet website where such information
may be found, where applicable, the Commission is requiring the
exchange to provide on Form 1 the Uniform Resource Locator(s)
(``URL(s)'') of the location(s) on the internet website where such
information may be found, and to certify that information posted on
such a website is accurate as of its date and is free and accessible
(without any encumbrances or restrictions) by the general public.
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\81\ See 17 CFR 240.6a-2(d).
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For electronic Form 1, the Commission is adding prompts prior to
section I that require the exchange to identify the basis for
submitting the form. Specifically, electronic Form 1 requires the
exchange to check a box stating one of the following: (i) whether the
filing is an initial Form 1 application and if it is, whether the
exchange is applying to be a national securities exchange or an exempt
exchange; (ii) whether the filing is an amendment to an initial Form 1
application prior to Commission action to grant registration or an
exemption based on limited volume; (iii) whether the filing is to
provide the exchange's consent to an extension of the time period
within which the Commission must take action on an initial Form 1
application; \82\ (iv) whether the filing is to withdraw an initial
Form 1 application prior to the Commission taking action on the
application; (v) whether the filing is an amendment to Form 1 pursuant
to Rule 6a-2 following the Commission's granting of registration or an
exemption; or (vi) whether the filing is supplemental material or
reports pursuant to Rule 6a-3.\83\ Previously, there was no place on
Form 1 for an exchange to indicate the type of filing that it is
submitting. For example, previously Form 1 did not provide an exchange
the ability to indicate whether an initial Form 1 filing is an
application to be a national
[[Page 7264]]
securities exchange or an exempt exchange. Accordingly, capturing
information regarding the type of Form 1 filing facilitates the
exchange's communication with the Commission and helps the Commission
more efficiently review Form 1 submissions.
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\82\ Such consents to an extension of the time period within
which the Commission must act currently are submitted as letters in
paper form. Adding the ability to indicate that the exchange
consents to an extension of time on electronic Form 1 will
streamline the process for making such a submission. See 15 U.S.C.
78s(a)(1)(B).
\83\ The Commission also is amending the instructions to Form 1
to add a new section titled ``When to Use the Form,'' which explains
when Form 1 filings are required.
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Electronic Form 1 also captures contact information for the
exchange and certain individuals. Consistent with the previous version
of Form 1, electronic Form 1 requires the exchange to identify contact
information for the exchange, a contact employee, and counsel for the
exchange. Unlike previous Form 1, electronic Form 1 additionally
requires an email address for the contact employee, which could take
the form of an email to a specific contact employee or a general email
to a group of contact employees. The requirement to provide an email
address for the exchange contact employee expedites communications
between Commission staff and the relevant exchange.
Electronic Form 1 requires an exchange to electronically attach
exhibits by using an exhibit table. The exhibit table contains columns
for the name of the exhibit, information required by the exhibit,
whether alternative means of satisfying the filing of an exhibit are
available for that particular exhibit (e.g., URL(s)), if permitted by
applicable Commission rule, and checkboxes to indicate whether such
alternative means are being used.\84\ The information required by the
exhibits to electronic Form 1 remains the same as previous Form 1. In
addition, to facilitate the electronic filing of the supplemental
materials required under 17 CFR 240.6a-3(a) (``Rule 6a-3(a)'') and the
volume reports required under Rule 6a-3(b), the Commission is adding
new sections III and IV, respectively, to Form 1. Sections III and IV
do not add new requirements beyond those currently included in Rules
6a-3(a) and (b). Rule 6a-3(a) requires exchanges to file certain
information with the Commission or, in the alternative, to indicate
where such information can be found on an internet website controlled
by the exchange. The amendments require the filing of this information
through section III of electronic Form 1 or, in the alternative, to
provide through section III of electronic Form 1 the URL(s) of the
location(s) on the internet website where such information can be
found. If an exchange chooses this latter option and provides URL(s) of
an internet website where such information can be found, section III
also clarifies that such website must be free and accessible (without
any encumbrances or restrictions) by the general public. Likewise,
section IV does not change the substance of what must be filed; it
merely requires the filing of the volume reports required under Rule
6a-3(b) to be made on electronic Form 1 instead of in paper format.
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\84\ See supra notes 66-68.
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Furthermore, electronic Form 1 continues to require an exchange to
consent to service of any civil action brought by, or notice of any
proceeding before, the Commission in connection with its activities.
The existing language under which the exchange consents to service via
registered or certified mail at the main or mailing address provided on
Form 1 continues to be included in the electronic form.\85\
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\85\ The Commission also is deleting the outdated provision
allowing for service of any civil action pursuant to confirmed
telegram.
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In addition, electronic Form 1 requires the individual who is
submitting the form to check a box on behalf of the exchange to
represent that the information and statements contained in the Form 1,
including exhibits, schedules, or other documents, are current, true,
and complete. The previous requirement to sign and notarize the form is
being eliminated because it is unnecessary, not compatible with, and
not required for electronic filing on EDGAR.
Finally, electronic Form 1 requires exchanges to structure Exhibits
D (unconsolidated financial statements of each of the exchange's
subsidiaries or affiliates), E (description of the electronic trading
system's manner of operation, except for the attached copy of the
users' manual), and I (audited financial statements of the exchange) in
Inline XBRL. The execution page, Exhibits C (information regarding each
of the exchange's subsidiaries, affiliates, and entities with whom the
exchange has an agreement relating to the operation of the exchange's
electronic trading system, except for the copies of existing documents
listed below), H (listing fee schedule and brief description of the
criteria governing which securities may be traded on the exchange,
except for the copies of existing documents listed below), J (list of
officers, governors, standing committee members, or persons performing
similar functions), K (list of significant shareholders or partners), L
(description of criteria, conditions, and procedures governing
membership in the exchange), M (list of members, participants,
subscribers, or other users of the exchange and description of each
user's activities), N (schedules of securities traded on the exchange),
and the information required under Rule 6a-3(b) (reports regarding the
securities sold on the exchange over the previous calendar month) must
also be structured, albeit in a custom XML data language specific to
Form 1 rather than in Inline XBRL.
Attached copies of existing documents, including those filed with
Exhibits A (constitution, articles of incorporation or association, and
existing bylaws or corresponding rules or instruments of the exchange),
B (written rulings, settled practices having the effect of rules, and
interpretations of the Governing Board or other committee of the
exchange in respect of any provisions of the constitution, bylaws,
rules, or trading practices of the exchange), C (written rulings,
settled practices having the effect of rules, and interpretations of
the Governing Board or other committee of the exchange in respect of
any provisions of the constitution, bylaws, rules, or trading practices
of the exchange's affiliates, subsidiaries, or entities with whom the
exchange has an agreement related to the operation of the exchange's
electronic trading system), E (listing applications and required
agreements), F (forms pertaining to membership, participation, or
subscription, application for approval as a person associated with a
member, participant, or subscriber of the exchange, or any other
similar materials), G (forms of financial statements, reports, or
questionnaires required of members, participants, subscribers, or any
other users relating to financial responsibility or minimum capital
requirements for such members, participants, or any other users), H
(listing applications and agreements required to be executed in
connection with listing), and the information required under Rule 6a-
3(a)(1) (supplemental materials issued or made available to members of,
or participants or subscribers to, the exchange), must be filed as
unstructured PDF documents.
[[Page 7265]]
[GRAPHIC] [TIFF OMITTED] TR21JA25.008
The structuring requirements will facilitate access to the
exchange's disclosures (such as by enabling efficient retrieval of only
those disclosures filed by a subset of exchanges over particular
reporting periods) and their analysis (such as by enabling efficient
comparisons of individual disclosures or sets of disclosures across
different exchanges and reporting periods). This will benefit market
participants through enhanced oversight of the exchanges. For example,
Commission staff will be able to leverage the machine-readability of
Exhibit I to automatically flag any atypical fluctuations in particular
financial line items across every exchange's financial statements, and
assess whether closer examination of any such fluctuations is
warranted. Similarly, Commission staff will be able to leverage the
machine-readability of Exhibit E by retrieving automated redline
comparisons of the manner of operations description disclosed by
exchanges from prior reporting periods to the current reporting period,
thus pinpointing any widespread operational changes for further
assessment.
Market participants (such as issuers, analysts, and other
exchanges) will also benefit from direct use of the machine-readable
disclosures on Form 1. For example, the structuring requirement for
Exhibit I will allow analysts to more quickly and efficiently compare
the audited financial statements of exchanges as they determine the
exchange on which they list their securities. Without the structured
data requirements, these analyses, to the extent they are done, need to
be performed manually, such as by gathering the current and former
financial statements for each exchange and entering all financial line
items of interest into databases, resulting in a less efficient and
precise process. In addition, the structured data requirement enables
EDGAR to perform technical validations (i.e., programmatic checks to
ensure the documents are appropriately standardized, formatted, and
complete) upon intake of the Form 1 disclosures, thus improving the
quality of the filed data by decreasing the incidence of non-
substantive errors (such as the omission of values from fields that
should always be populated).
The nature and extent of such benefits may vary based on the
content of each Form 1 Exhibit. As discussed in the subsequent economic
analysis, studies of XBRL requirements for public operating company
financial statements indicate a number of benefits for investors and
market participants.\86\ The probability that, and extent to which,
these particular benefits arise from structured Form 1 disclosures
could be heightened for Exhibits D and I, which likewise include
structured financial statements under the rule amendments. In addition,
the particular benefits of structuring data will vary based on the type
of disclosures included in each particular Exhibit. Structured
numerical disclosures, such as those included on Exhibit I, lend
themselves to mathematical functionality, such as the calculation of
key ratios or the identification of extreme statistical outliers.
Structured textual disclosures, such as those included on Exhibit E,
lend themselves to targeted keyword searching and more sophisticated
sentiment analysis.
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\86\ See infra section X.C.1.b.
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After consideration, the Commission, as proposed, is requiring
Inline XBRL for certain exhibits to Form 1 and custom XML for others
because each data language is better suited for particular types of
disclosures. Exhibits D and I require disclosure of financial
statements, and Inline XBRL was designed to accommodate financial
statement information, including the particular metadata (e.g., the
relevant fiscal period, whether the line item is on the balance sheet,
and whether the line item is a credit or debit) that must be linked to
each data point within the financial statements to fully convey its
semantic meaning to a machine reader. Exhibit E requires narrative
disclosure regarding the trading system's manner of operations, and
whereas custom XML data languages only have the capacity to accommodate
brief narrative descriptions, Inline XBRL can accommodate longer
narrative descriptions with presentation capabilities that preserve
human-readability and maintain machine-readability.\87\
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\87\ Compare, for example, the Inline XBRL requirement for the
description of investment strategies that open-end funds disclose on
Form N-1A to the custom XML requirement for the brief description of
the applicant's business that SBS Entities disclose on Form SBSE.
See Item 4 of Form N-1A; Item 7 of Form SBSE.
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The execution page of Form 1, Exhibits C (in part), H (in part), J,
K, L, M, and N to Form 1, and the Rule 6a-3(b) reports filed on Form 1
do not require such content. For these disclosures, the use of custom
XML data languages is preferable to Inline XBRL, because it yields
smaller file sizes and therefore enables more streamlined processing of
the information.\88\
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\88\ See also infra section X.E.4 (discussing other structured
data languages that would result in smaller file sizes than Inline
XBRL).
---------------------------------------------------------------------------
Requiring custom XML rather than Inline XBRL for these disclosures
is also preferable because it enables EDGAR to generate fillable web
forms that permit exchanges to input their disclosures into form fields
rather than structure their disclosures in custom XML themselves. This
added flexibility could ease the burden of compliance on exchanges in
some instances, although exchanges may have the requisite
sophistication to encode the disclosures in custom XML themselves
without relying on fillable web forms.\89\
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\89\ See infra sections IX.D.2 and X.C.2.b.
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The Commission is requiring exchanges to file copies of existing
documents, such as copies of bylaws, written agreements, and listing
applications, as unstructured PDF attachments. An unstructured PDF
requirement is preferable to a structured data requirement for these
documents, because requiring exchanges to retroactively structure these
existing documents, which were prepared for purposes outside of
fulfilling the Commission's disclosure requirements, is likely to
impose costly compliance burdens on exchanges that may not be justified
in light of the commensurate
[[Page 7266]]
informational benefits associated with more efficient disclosure use.
Thus, the structured data requirements are not warranted for these
copies of existing documents.
One commenter suggested that all items in Form 1 should be
submitted in XBRL, except for copies of existing documents which could
be submitted in PDF and linked via tags in an XBRL document.\90\ The
commenter stated that there were different ``flavors'' of XBRL such as
XML, XHTML (i.e., Inline XBRL), JSON, and CSV, each appropriate for
slightly different reporting needs, and that requiring Inline XBRL for
Form 1 would be advisable due to the financial and narrative data that
Form 1 elicits.\91\ The Commission agrees with the commenter that
Inline XBRL is suitable for financial and narrative data, and is
therefore requiring Inline XBRL for those Form 1 exhibits with
financial disclosures (i.e., Exhibits D and I) and extended narrative
disclosures (i.e., Exhibit E except for the copy of the users' manual).
However, the Commission disagrees with the commenter that an Inline
XBRL requirement would be more suitable than a custom XML requirement
for the other structured Form 1 disclosures.
---------------------------------------------------------------------------
\90\ See XBRL Letter at 3-4. The commenter agreed that requiring
exchanges to retroactively structure existing documents is likely to
be overly burdensome. See id. at 4.
\91\ See id. at 4.
---------------------------------------------------------------------------
In that regard, the commenter stated that requiring a custom XML
schema designed to fit a single reporting situation--in contrast with
XBRL, which is designed for many reporting situations and for which
there is a large competitive marketplace of tools to support reporting
preparation--must be managed with custom applications, and using such
applications will likely be more expensive for filers than using
existing XBRL applications.\92\ However, the Commission disagrees that
the preparation of custom XML Form 1 exhibits must be managed with
custom applications, because exchanges will have means of complying
with Form 1 custom XML requirements that do not entail the use of such
applications. First, exchanges are sophisticated entities and likely
have experience encoding disclosures using custom XML schemas without
the use of custom applications. Exchanges are likely able to leverage
that experience to create custom XML Form 1 exhibits without the need
to incur additional expense. Second, exchanges will have the option to
forgo creating structuring custom XML Form 1 exhibits altogether, and
instead input their disclosures into a fillable web form that EDGAR
will make available to Form 1 filers. Exchanges that use the fillable
form option will similarly not need to create custom commercial
applications to prepare the custom XML exhibits. In either case above,
exchanges will be able to comply with the custom XML Form 1
requirements without needing to incur additional expense by creating
any application specifically designed to prepare data using the custom
XML schema for Form 1 exhibits.
---------------------------------------------------------------------------
\92\ See id.
---------------------------------------------------------------------------
The commenter also stated that it would be more efficient for data
users to extract data from Form 1 if all the data were structured in
Inline XBRL, because software applications would be more easily able to
extract data from documents if everything contained in the document
were identically structured. The Commission agrees with the commenter
that using different structured data languages for Form 1 will make it
more difficult to incorporate the Inline XBRL disclosures filed on Form
1 into the same datasets and applications as the custom XML disclosures
filed on Form 1 and run analyses across the differently formatted Form
1 disclosures, without undertaking data conversion processes that are
frequently burdensome and imprecise. Nonetheless, the streamlined data
processing associated with the smaller sizes of the custom XML exhibits
and execution page, as described earlier in this section, justifies the
use of custom XML structuring for some Form 1 exhibits rather than
Inline XBRL structuring for all Form 1 exhibits.
With respect to the copies of existing documents proposed to be
submitted as PDF documents, the commenter stated that retroactively
structuring such documents is likely to be overly burdensome, but that
the information could be made more accessible by requiring reporting
entities to prepare a single XBRL document with tagged and
appropriately labeled links to the various PDF documents.\93\ The
Commission agrees with the commenter that retroactive structuring of
such documents is not justified in light of the burdens on exchanges.
The Commission does not agree that requiring exchanges to prepare an
XBRL document with tagged and labeled links to the various PDF exhibits
is appropriate, because the exhibit table requirement in electronic
Form 1 will already provide sufficient accessibility and clarity as to
the exhibits contained in Form 1 (including allowing for PDF exhibits)
without requiring exchanges to prepare a separate XBRL document.
Specifically, the Commission is requiring an exchange filing Form 1 to
electronically attach PDF exhibits, identify the name of each PDF
exhibit, the information required by each PDF exhibit, whether
alternative means of satisfying the filing of an exhibit are available
for that particular PDF exhibit, and whether such alternative means are
being used to file that particular PDF exhibit. Because this set of
requirements will facilitate Form 1 data users finding and accessing
PDF exhibits, the Commission disagrees with the commenter that
exchanges should be required to prepare a single XBRL document with
tagged links to the various PDF documents with appropriate labels.
---------------------------------------------------------------------------
\93\ See id. at 2 and 4.
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B. Form 1-N
1. Relevant Statutory Framework
Section 6 of the Exchange Act \94\ sets out a framework for the
registration and regulation of national securities exchanges. The
Exchange Act was amended by the Commodity Futures Modernization Act of
2000 (``CFMA'') \95\ to allow the trading of security futures products.
Under the CFMA, markets that wish to trade security futures products
are regulated jointly by the Commission and the CFTC. The Exchange Act,
as amended by the CFMA, provides that futures exchanges that meet
certain criteria and that wish to trade security futures products may
file notice with the Commission to become a ``Security Futures Product
Exchange.'' \96\
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\94\ See 15 U.S.C. 78f.
\95\ See Public Law 106-554, Appendix E, 114 Stat. 2763.
\96\ See 15 U.S.C. 78f(g).
---------------------------------------------------------------------------
2. Previous Requirements for Filing Form 1-N
Rule 6a-4 under the Exchange Act \97\ sets forth the notice
registration procedures for Security Futures Product Exchanges and
permits futures exchanges to submit a notice registration on Form 1-
N.\98\ Form 1-N requires information regarding how the futures exchange
operates, its rules and procedures, corporate governance, its criteria
for membership, its subsidiaries and affiliates, and the security
futures products it intends to trade. Rule 6a-4 also requires entities
that have submitted an initial Form 1-N to file: (1) amendments to Form
1-N in the event any information provided in the initial Form 1-N is
rendered inaccurate or incomplete; (2) periodic updates of certain
information provided in the initial Form 1-N; (3) certain information
[[Page 7267]]
that is provided to the Security Futures Product Exchange's members;
and (4) a monthly report summarizing the Security Futures Product
Exchange's trading of security futures products. The information
required to be filed with the Commission pursuant to Rule 6a-4 is
designed to enable the Commission to carry out its statutorily mandated
oversight functions and to ensure that Security Futures Product
Exchanges continue to be in compliance with the Exchange Act.
---------------------------------------------------------------------------
\97\ See 17 CFR 240.6a-4.
\98\ See 17 CFR 249.10.
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3. Requirement to Electronically File Form 1-N
The Commission is amending Rule 6a-4 under the Exchange Act, as
well as Form 1-N and the instructions to Form 1-N, to require the
electronic filing on EDGAR of all submissions required by the rule and
form.\99\ As explained in the introduction to this section,\100\ among
other benefits, these amendments will increase efficiencies and
decrease overall costs \101\ related to the filing of these forms and
the review of the filed forms by the Commission and its staff. A
description of the Commission's amendments to Rule 6a-4, Form 1-N, and
the instructions to Form 1-N to implement this electronic filing
requirement is provided below.
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\99\ The Commission is also making a technical modification, not
included in the Proposing Release, to Rule 232.101 (17 CFR
232.101(a)(1)) to include Form 1-N in the list of filings required
to be filed electronically.
\100\ See supra introductory text to section II.
\101\ As discussed in more detail in the Economic Analysis, some
entities that currently do not use EDGAR may incur relatively small
initial costs to submit filings on EDGAR and there are some
potential costs associated with structuring certain information.
However, savings from filing these forms electronically rather than
in paper is expected to be greater than the costs. See infra
X.C.1.a.
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a. Amendments to Rule 6a-4
The Commission is adding a new paragraph (d) to Rule 6a-4 to
require the electronic filing of Form 1-N on EDGAR for exchange notice
registrations and amendments made under Rule 6a-4 in accordance with
the requirements of Regulation S-T.\102\
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\102\ Regulation S-T governs the electronic submission of
documents filed or otherwise submitted to the Commission and
encompasses the general rules and regulations for electronic filing
via the EDGAR system. See 17 CFR 232.10 through 232.501.
---------------------------------------------------------------------------
The Commission also is amending the text of Rule 6a-4 to
accommodate electronic filing, as well as to make minor corrections and
clarifications. Specifically, the Commission is modifying Rules 6a-
4(a)(1) and 6a-4(c)(2) to resolve existing typographical errors and
Rule 6a-4(b)(1)(i) to refer to the appropriate section of Form 1-N,
rather than the ``Execution Page,'' to reflect the shift to electronic
filing. The Commission is amending Rules 6a-4(b)(5)(i), (ii) and (iii)
to delete the phrase ``satisfy this filing requirement by'' because the
language is superfluous. The Commission is making conforming changes to
Rules 6a-4(b)(5)(i)(A) and (B), and 6a-4(b)(5)(ii) and (iii)(A) and (B)
to clarify that certain certifications by the exchange and listing of
websites containing information required by Rule 6a-4 are required to
be made on electronic Form 1-N. The Commission further is updating the
due dates in Rules 6a-4(b)(3) and (4) for the next annual and triennial
filings from June 30, 2002, and June 30, 2004, to June 30, 2025.
Finally, the Commission is making non-substantive changes to Rules 6a-
4(a)(1)(i), 6a-4(a)(1)(i)(B), and 6a-4(a)(1)(ii)(B) to update cross-
references in those rules to the Commodities Exchange Act to reflect
changes to the Commodities Exchange Act resulting from the Dodd-Frank
Act.
b. Amendments to Form 1-N and the Form 1-N Instructions
In addition to the revisions to Rule 6a-4, the Commission is
revising and reformatting Form 1-N, and the instructions thereto, to
accommodate the electronic filing of initial notices, subsequent
amendments, supplemental material, and reports that are made on Form 1-
N. The changes to Form 1-N to permit electronic filing to the
Commission require minimal modifications to the form, as described
below. The Commission also is revising the Form 1-N instructions to
facilitate the electronic filing of Form 1-N on EDGAR. As explained in
the introduction to this section,\103\ these revisions address when a
form is considered incomplete or deficient when filed and use of a
custom XML data language for the cover page. These revisions to Form 1-
N and the Form 1-N instructions will facilitate the filing of the
information mandated by Form 1-N and Rule 6a-4.
---------------------------------------------------------------------------
\103\ See supra introductory text to section II.
---------------------------------------------------------------------------
Electronic Form 1-N solicits information through prompts on the
form that are expected to better organize the information collected.
Electronic Form 1-N also requires an exchange to attach exhibits (or
provide website URL(s) where applicable) via a new exhibit table that
is part of electronic Form 1-N. The exhibit table contains columns for
the name of the exhibit, information required by the exhibit, whether
alternative means of satisfying the filing of an exhibit are available
for that particular exhibit (e.g., URL(s)), if permitted by applicable
Commission rule, and checkboxes to indicate whether such alternative
means are being used. Where Rule 6a-4 allows for alternative means of
filing the information required under certain exhibits, the new exhibit
table permits an exchange to electronically provide the certifications
and details necessary for an exchange to avail itself of these
alternative means. The information required to be filed with the
exhibits is not changing. Rule 6a-4 provides that in lieu of filing
certain exhibits as part of a paper Form 1-N submission, an exchange
may either: (i) identify where such information is published and
certify its accuracy as of its publication date; (ii) certify that the
information is available to the Commission and the public upon request;
or (iii) indicate the location of the internet website where such
information may be found and certify that the information available at
such location is accurate as of its date.\104\ The amended rule does
not change the availability of these alternative means, only the method
of providing the necessary certifications and details. As described
above, instead of attaching paper exhibits, those exhibits need to be
submitted electronically. Similarly, instead of providing on paper the
certifications and details required for an exchange to avail itself of
these alternative means, those certifications and details need to be
provided via the electronic Form 1-N. In the event an exchange
indicates on Form 1-N the location(s) of an internet website where such
information may be found, where applicable, the Commission is requiring
the exchange to provide the URL(s) of the location(s) on the internet
website where such information may be found, to certify that the
information posted on such website(s) is accurate as of its date and is
free and accessible (without any encumbrances or restrictions) to the
general public, as an alternative to filing certain exhibits required
by electronic Form 1-N.
---------------------------------------------------------------------------
\104\ See 17 CFR 240.6a-2(b)(5).
---------------------------------------------------------------------------
For electronic Form 1-N, the Commission is adding prompts prior to
section I that require the exchange to identify the basis for
submitting Form 1-N. Specifically, electronic Form 1-N requires the
exchange to check a box stating one of the following: (i) whether the
filing is an initial notice of registration; (ii) whether the filing is
an amendment to the notice of registration; (iii) whether the exchange
is providing its annual filing for the year; (iv) whether the exchange
is providing a triennial filing; (v) whether the
[[Page 7268]]
exchange is providing supplemental materials; or (vi) whether the
exchange is providing a report of security futures products traded
during the prior calendar month.
The Commission also is amending the instructions to Form 1-N to add
a new section titled ``When to Use the Form,'' which explains when Form
1-N filings are required, and which of the six types of Form 1-N filing
is required (e.g., initial registration, supplemental material).
Currently, there is no place on Form 1-N for an exchange to indicate
the type of filing that it is submitting, other than whether it is an
application or an amendment. Capturing information regarding the type
of Form 1-N filing: (1) enhances the exchange's communication with the
Commission; (2) helps the Commission more efficiently review Form 1-N
submissions; and (3) facilitates the searching and sorting through of
Form 1-N submissions by other potential users such as market
participants and investors.
Electronic Form 1-N also captures contact information for the
exchange and certain individuals. Consistent with previous Form 1-N,
electronic Form 1-N requires the exchange to identify contact
information for the exchange, a contact employee, and counsel for the
exchange. Unlike previous Form 1-N, electronic Form 1-N additionally
requires an email address for the contact employee and an email address
for the exchange's counsel. The requirement to provide an email address
for the exchange contact employee and the exchange's counsel expedites
any subsequent communications between Commission staff and the relevant
exchange.
In addition, to facilitate the electronic filing of the
supplemental materials and monthly reports required under Rule 6a-4(c),
the Commission is adding new sections III and IV, respectively, to Form
1-N.\105\ Sections III and IV require such materials and reports to be
attached to Form 1-N via the new exhibit table in the same manner as
exhibits to Form 1-N, and section III provides the exchange with the
ability to enter URL(s) to the website location of the supplemental
materials in lieu of its filing the supplemental materials via Form 1-
N. Sections III and IV do not add new requirements beyond those
previously included in Rule 6a-4(c). Rule 6a-4(c)(1) requires exchanges
to file certain information with the Commission or in the alternative
to indicate where such information can be found on an internet website
controlled by the exchange. The amended rule requires the filing of
this information through section III of electronic Form 1-N or, in the
alternative, to provide through section III of electronic Form 1-N the
URL(s) of the location(s) on the internet website where such
information can be found. Section III also clarifies that such website
must be free and accessible (without any encumbrances or restrictions)
by the general public. Likewise, section IV does not change the
substance of what must be reported; it merely requires the reporting of
information required under Rule 6a-4(c) to be made on electronic Form
1-N instead of in paper format.
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\105\ The Commission is not including a question mark
inadvertently introduced into Section III of Form 1-N when proposed.
The Commission is also making technical amendments to Rule 6a-
4(a)(1)(ii) to change the words ``market place'' to ``marketplace''
and Rule 6a-4(c)(1)(ii) to change the word ``Internet'' to
``internet.''
---------------------------------------------------------------------------
Furthermore, electronic Form 1-N continues to require an exchange
to consent to service of any civil action brought by, or notice of any
proceeding before, the Commission in connection with its activities.
The previous language under which the Security Futures Product Exchange
consents to service via registered or certified mail at the main or
mailing address provided on Form 1-N continues to be included in the
electronically filed form.\106\
---------------------------------------------------------------------------
\106\ The Commission also is deleting the outdated provision
allowing for service of any civil action pursuant to confirmed
telegram.
---------------------------------------------------------------------------
In addition, electronic Form 1-N requires the individual who is
submitting the form to check a box on behalf of the Security Futures
Product Exchange to represent that the information and statements
contained in the Form 1-N, including exhibits, schedules, or other
documents, are current, true, and complete. The previous requirement to
sign and notarize the form is being eliminated because it is
unnecessary, not compatible with, and not required for electronic
filing through EDGAR.\107\
---------------------------------------------------------------------------
\107\ The Commission is making a technical amendment to Section
I of electronic Form 1-N to add the words ``(if any)'' after Item 4
``Facsimile.'' The Commission is making a technical amendment to
Section V of electronic Form 1-N under the column for ``information
Required by the Exhibit'' relating to Exhibit H, changing the words
``primarily engage'' to ``primarily engaged.'' The Commission is
making a technical amendment to Section V of electronic Form 1-N to
replace the words ``by-laws'' with ``bylaws.'' The Commission is
making a technical amendment to Section V of electronic Form 1-N by
capitalizing certain words in the headings of the table of exhibits.
Lastly, the Commission is making a technical amendment to the Form
1-N General Instructions to replace ``comprising'' with
``composing.''
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Finally, electronic Form 1-N requires filers to submit the
execution page in a custom XML data language specific to Form 1-N. As
with the other Covered SRO Forms, filers are able to input their
execution page disclosures into a fillable web form that EDGAR
subsequently converts to custom XML. Structuring the execution page in
custom XML improves the ability to sort, filter, and otherwise organize
Form 1-N filings without creating significant additional burden on Form
1-N filers. The remainder of Form 1-N is not structured, however,
because the very limited number of Form 1-N filers and filings could
mitigate much of the benefit derived from machine-readability of the
disclosures contained therein.\108\
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\108\ See infra section IX.C.3.
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C. Form 15A
1. Relevant Statutory Framework
Section 15A of the Exchange Act sets forth the statutory standards
for registration as a national securities association or as an
affiliated securities association.\109\ Section 15A(b) states that the
Commission shall not approve registration as a national securities
association unless the Commission determines that the applicant meets
specified statutory criteria.\110\ Under Exchange Act Rule 15Aa-1, an
applicant for registration as a national securities association must
file a registration statement with the Commission on Form X-15AA-
1.\111\ The information required to be provided on Form X-15AA-1
includes, among other things, lists of officers, governors, and
committee members, as well as membership lists.\112\ The Commission
reviews the completed Form X-15AA-1 to evaluate whether the applicant
meets the standards set forth in section 15A(b) for registration as a
national securities association.
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\109\ See 15 U.S.C. 78o-3.
\110\ See 15 U.S.C. 78o-3(b).
\111\ See Exchange Act Rule 15Aa-1 (17 CFR 240.15Aa-1) and Form
X-15AA-1 (17 CFR 249.801). Currently, FINRA is the only national
securities association registered with the Commission. The National
Futures Association (``NFA''), as specified in section 15A(k) of the
Exchange Act, is also registered as a national securities
association, but only for the limited purpose of regulating the
activities of NFA members that are registered as brokers or dealers
in security futures products under section 15(b)(11) of the Exchange
Act.
\112\ See 17 CFR 249.801.
---------------------------------------------------------------------------
Furthermore, under Exchange Act Rule 15Aj-1(a), every association
applying for registration or registered as a national securities
association must file with the Commission an amendment to its
registration statement or any amendment or supplement thereto promptly
after discovering any inaccuracy therein. Similarly, under
[[Page 7269]]
Exchange Act Rule 15Aj-1(b), every association applying for
registration or registered as a national securities association,
promptly after any change which renders no longer accurate any
information contained or incorporated in its registration statement or
in any amendment or supplement thereto, must file with the Commission a
current supplement to its registration statement setting forth such
change.\113\
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\113\ See Exchange Act Rule 15Aj-1(a) and (b), 17 CFR 240.15Aj-
1(a) and (b). These filings were submitted on Form X-15AJ-1, 17 CFR
249.802. See 17 CFR 240.15Aj-1(d) (requiring that such filings be
made on Form X-15Aj-1).
---------------------------------------------------------------------------
Finally, under Exchange Act Rule 15Aj-1(c), every association
applying for registration or registered as a national securities
association must file annual amendments to its registration statement
with the Commission.\114\
---------------------------------------------------------------------------
\114\ See Exchange Act Rule 15Aj-1(c), 17 CFR 240.15Aj-1(c).
These filings were submitted on Form X-15AJ-2, 17 CFR 249.803. See
17 CFR 240.15Aj-1(d) (requiring that such filings be made on Form X-
15Aj-2). Rule 15Aj-1(c)(1)(ii) also requires the filing of complete
sets of the constitution, bylaws, rules, and related documents of
the association, once every three years.
---------------------------------------------------------------------------
2. Previous Requirements for Filing Forms X-15AA-1, X-15AJ-1, and X-
15AJ-2
Prior to these amendments, an applicant for registration as a
national securities association was required to file a registration
statement and exhibits with the Commission on Form X-15AA-1 in
triplicate.\115\ Every association applying for registration or
registered as a national securities association was required to file
with the Commission an amendment or supplement to its registration
statement on Form X-15AJ-1 and an annual consolidated supplement to its
registration statement on Form X-15AJ-2. These filings also had to be
made in triplicate, at least one copy of which had to be signed and
attested in the same manner as was required in the case of the original
registration statement.\116\ Every association applying for
registration or registered as a national securities association was
required to file Form X-15AJ-2 with the Commission promptly after March
1 of each year.\117\
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\115\ See 17 CFR 240.15Aa-1.
\116\ See 17 CFR 240.15Aj-1.
\117\ See 17 CFR 240.15Aj-1(c).
---------------------------------------------------------------------------
The information collected by these forms was substantially similar:
Form X-15AA-1, the registration statement for registration as a
national securities association, requests 29 items of information and
includes 3 exhibits; \118\ Form X-15AJ-1, for filing any amendments or
supplements to the registration statement, requests no information
beyond that requested by Form X-15AA-1; \119\ and Form X-15AJ-2, for
filing the annual consolidated supplement to the registration
statement, only requires one additional item of information, the
inclusion of the date of the filing, which was not required by Form X-
15AA-1.\120\
---------------------------------------------------------------------------
\118\ See 17 CFR 249.801.
\119\ See 17 CFR 249.802. Form X-15AJ-1 and Form X-15AA-1 both
require that if the association is registered, or applying for
registration, as an affiliated securities association, the
respondent list the registered national securities association with
which the applicant or reporting association is affiliated. In
addition, Form X-15AA-1 asked the applicant to state its reasons for
believing that such affiliation will be granted. Form X-15AA-1 also
required the applicant to estimate the annual dollar volume of
transactions effected by members of the applicant association.
\120\ See 17 CFR 249.803. Form 15A requires the inclusion of the
date of the filing. Capturing the date (in a structured manner) will
assist the Commission in determining compliance with the rule
requirement that annual supplements be filed promptly after Mar. 1
of each year (17 CFR 240.15Aj-1(c)).
---------------------------------------------------------------------------
3. Requirements to Electronically File on Form 15A Information
Previously Filed on Forms X-15AA-1, X-15AJ-1, and X-15AJ-2
a. Amendments to Rules 15Aa-1 and 15Aj-1
As discussed in detail below, the Commission is amending Rule 15Aa-
1 and redesignating it as Rule 15aa-1,\121\ redesignating Rule 15Aj-1
\122\ as Rule 15aa-2, redesignating Form X-15AA-1 as Form 15A, amending
the instructions to new Form 15A, and repealing Forms X-15AJ-1 and X-
15AJ-2 in connection with the Commission's requirement that applicants
and national securities associations electronically file on a duly
executed Form 15A the information currently filed on Forms X-15AA-1, X-
15AJ-1, and X-15AJ-2.\123\ As stated above in the introduction to this
section II, among other benefits, revising the forms relating to
registration as a national securities association will increase
efficiencies and decrease costs incurred by applicants for registration
as a national securities association and by national securities
associations.\124\ In addition, the amendments will facilitate
Commission review of the information to be provided on Form 15A.
---------------------------------------------------------------------------
\121\ See 17 CFR 240.15Aa-1.
\122\ See 17 CFR 240.15Aj-1.
\123\ The Commission is also making a technical modification to
17 CFR 232.101(a)(1) to include Form 15A in the list of filings
required to be filed electronically. The Commission is making
technical amendments to hyphenate ``up-to-date'' in three locations
within Rule 15aa-2(c)(1)(ii), capitalize ``Items'' in Rule 15aa-
2(b)(3) and on Form 15A, and to replace ``comprising'' with
``composing'' in the Form 15A General Instructions.
\124\ See supra section II.
---------------------------------------------------------------------------
To facilitate electronic filing of Form 15A, the Commission is
amending Rule 15Aa-1 to require electronic filing. The amendments to
Rule 15Aa-1 require that filings submitted pursuant to Rule 15Aa-1 be
filed electronically on EDGAR in accordance with the requirements of
Regulation S-T (17 CFR part 232). The amendments to Rule 15Aa-1 align
the electronic filing requirements with changes being adopted under
Rule 6a-1 (regarding Form 1 submissions) as well as the amendments to
Rule 17ab2-1, which set forth the electronic filing requirements for
Form CA-1 submissions.\125\ As stated above, the Commission further is
redesignating Rule 15Aj-1 \126\ as Rule 15aa-2.
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\125\ See also amendments to Rule 6a-4.
\126\ See 17 CFR 240.15Aj-1. The amendments to Rule 15Aj-1 will
include updated references to relevant forms as well as updates to
take into account electronic filing.
---------------------------------------------------------------------------
b. Form 15A
The Commission is redesignating Form X-15AA-1 as Form 15A and is
incorporating in Form 15A information related to amendments and
supplements to the registration statement currently filed on Form X-
15AJ-1 and information related to the annual consolidated supplement to
the registration statement currently filed on Form X-15AJ-2. New Form
15A solicits information through prompts on the form that better
organize the information that is currently collected through Forms X-
15AA-1, X-15AJ-1, and X-15AJ-2, which should make it easier for
respondents to comply with the filing requirements. Furthermore,
exhibits are required to be electronically uploaded to EDGAR. Among
other benefits as detailed in the Economic Analysis,\127\ the
amendments will increase efficiencies and decrease costs by
consolidating substantially similar information currently filed on
three paper forms into one electronic form. Because the information
currently filed on the three forms will be captured entirely on Form
15A, the Commission also is repealing Forms X-15AJ-1 and X-15AJ-2.\128\
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\127\ See infra section X.C.1 (discussing benefits such as
reducing the risk that non-electronic submissions are delayed and
increasing the ability to run comparisons across reporting periods).
\128\ The Commission proposed in 2004 to simplify and streamline
the disclosure process for national securities associations by,
among other things, redesignating Form X-15AA-1 and combining it
with Forms X-15AJ-1 and X-15AJ-2. See Exchange Act Release No. 50699
(Nov. 18, 2004), See 69 FR 71126, 71155 (Dec. 8, 2004). The
Commission did not adopt any final rule based on that proposal.
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New Form 15A contains eleven sections. Preceding section I of Form
15A, the new form contains prompts
[[Page 7270]]
that require the association to note the basis for submitting the form.
The prompts indicate whether the submission is an initial application
filed pursuant to Rule 15aa-1 or an amendment or supplement--which
currently are filed on Form X-15AJ-1 or X-15AJ-2, respectively--
pursuant to new Rule 15aa-2. Section I is titled ``Organization,'' and
it solicits the following information about the association: (i) its
name; (ii) its statutory address, principal executive office address,
and the addresses of its branch or district offices (or if there are no
such branch or district offices, the association would check the ``Not
Applicable'' box); (iii) the contact information of each person
authorized to receive service of process and notices on behalf of the
association from the Commission; (iv) the contact information for the
association's counsel; (v) the association's form of organization
(e.g., corporation, sole proprietorship), date of organization, and
name of State and reference to any statute thereof under which the
association is organized; and (vi) information about its directors,
officers, and certain other persons, and information about the members
of its standing committees, or, in lieu of providing such information
on new Form 15A, the association could provide a certification that the
information can be obtained in a publication.\129\ The information
solicited in section I is the same as that solicited in Items 1 through
6 on current Form X-15AA-1.
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\129\ See 17 CFR 240.15aa-2(c)(1)(ii)(A), as amended.
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Section I also requires the association to attach Exhibits A
through D. Exhibit A requires the association to attach copies of its
corporate governance documents (e.g., constitution, bylaws), or in lieu
of filing such documents, the association could provide a certification
that the information may be obtained in a publication \130\ or that the
information is kept up to date and available to the Commission and the
public upon request.\131\ Exhibit A of new Form 15A solicits the same
information as Exhibit A of current Form X-15AA-1 but reflects
additional ways that the association could satisfy its filing
obligation. Exhibit B requires the association to attach a balance
sheet of the association as of a date within 30 days of the filing of
an initial application, or promptly after the close of each fiscal year
if the filing is a supplement, together with an income and expense
statement for the year preceding such date or, if the association was
organized during such year, for the period from the date of such
organization to the date of such balance sheet. Exhibit B of new Form
15A solicits the same information as Exhibit B of current Form X-15AA-
1. Exhibit C requires the association to provide a list, as of the
latest practical date, of all of its members, and in lieu of
supplementing the disclosed information regarding the names of members
and their principal places of business when there is a change to that
information--as is required under current Rule 15Aj-1(b)--the
association is able to certify that changes in that information are
reported in a record which is published at least once a month and
promptly filed with the Commission, reflecting an additional way that
the association could satisfy its filing obligation.\132\ Exhibit C of
new Form 15A solicits the same information as Exhibit C of current Form
X-15AA-1, and adds the requirement that the association set forth the
date of election to membership for each member elected to membership
after December 31, 1994, which is currently required on Exhibit C of
Form X-15Aj-2. Exhibit D of new Form 15A solicits the same information
as Exhibit D of current Form X-15AA-1, requiring the association to
electronically file any notices, reports, circulars, loose-leaf
insertions, riders, new additions, lists or other records of changes
when, as, and if such records are made available to members of the
association, as required by new Rule 15aa-2(d)(2).
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\130\ See id.
\131\ See 17 CFR 240.15aa-2(c)(1)(ii)(B), as amended.
\132\ See 17 CFR 240.15aa-2(b)(3), as amended.
---------------------------------------------------------------------------
Sections II through IX of new Form 15A solicits information about
specific association rules and other information that is currently
solicited on Form X-15AA-1. Section II is titled ``Membership'' and
requires the association to cite the specific rule(s) of the
association addressing membership requirements, such as any rule
restricting membership. Section II poses the same questions about the
association's membership rules as Items 7 through 10 of current Form X-
15AA-1. Section III is titled ``Representation of Membership'' and
requires the association to cite the specific rule(s) of the
association that assures fair representation of its members, which
information is currently solicited in Item 11 of Form X-15AA-1. Section
IV is titled ``Dues and Expenses'' and requires the association to cite
the specific rule(s) of the association that provides for the equitable
allocation of dues among its members to defray reasonable expenses of
administration, which information is currently solicited in Item 12 of
Form X-15AA-1.
Section V is titled ``Business Conduct and Protection of Members.''
This section requires the association to cite specific rule(s) of the
association addressing the protection of members and member conduct
with regard to principles of fair trade and dealing, such as the
association rule(s) designed to prevent fraudulent and manipulative
acts and practices and the rule(s) designed to provide safeguards
against unreasonable profits or unreasonable rates of commissions or
other charges. Section V also solicits information about association
rule(s) addressing the disclosure of financial information or other
business conduct requirements, such as the types of financial
statements the association requires from its members, rules with
respect to member insolvency, and rules requiring the keeping and
preserving of books and records. Section V poses the same questions
about business conduct and the protection of members as Items 13
through 23 of current Form X-15AA-1.
Section VI is titled ``Disciplining of Members'' and requires the
association to cite the specific rule(s) of the association that
addresses member discipline. Section VI poses the same questions about
member discipline as Items 24 and 25 of current Form X-15AA-1. Section
VII is titled ``Affiliated Associations'' and requires the association
to cite the specific rule(s) of the association that provide for the
admission of registered affiliated securities associations. Section VII
poses the same question as Item 26 of current Form X-15AA-1. Section
VIII is titled ``Miscellaneous'' and requires the association to cite
the specific rule(s) of the association that (i) regulate the dealings
of a member with any nonmember broker or dealer and (ii) provide a
method for enforcing compliance on the part of its members with the
rules of the association. Section VIII of new Form 15A poses the same
questions as Items 27 and 28 of current Form X-15AA-1. Section IX is
titled ``Additional Information for Registration as an Affiliated
Securities Association'' and applies only to applications submitted for
registration as an affiliated securities association. Section IX
requires the applicant to provide the registered national securities
association with which it seeks to be affiliated, its reasons for
believing that such affiliation will be granted, and the estimated
dollar volume of transactions effected by members of the applicant.
Section IX of new Form 15A poses the
[[Page 7271]]
same questions as Items 29 and 30 of current Form X-15AA-1.
Section X requires the association to provide the contact
information for its contact employee, and section XI provides the
signature block and attestation. Consistent with the amendments to Form
1, Form 1-N, and Form CA-1, the entity filing new Form 15A consents to
service of process to the individuals listed in section I, Item 3,
which service of process could be via registered or certified mail.
Section XI also requires the filer to represent that the information
and statements contained in the form, including exhibits, schedules, or
other documents, are current, true, and complete.
In addition, the Commission is amending the instructions for new
Form 15A to include general directions for preparing and filing the
form, describe the seven types of submissions that may be made under
new Rules 15aa-1 and 15aa-2, and set forth the items, exhibits, and
schedules required to be filed for each type of submission.
Finally, Form 15A requires the execution page to be filed in a
custom XML data language specific to Form 15A. As with the other
Covered SRO Forms, filers are able to input their execution page
disclosures into a fillable web form that EDGAR will subsequently
convert to custom XML. Structuring the execution page in custom XML
should improve the ability to sort, filter, and otherwise organize Form
15A filings, enhancing the ability of the Commission to compare filings
from year to year without creating significant additional burden on
filers. The remainder of new Form 15A is not structured, however,
because the very limited number of Form 15A filers and filings could
mitigate the benefit derived from machine-readability of the
disclosures contained therein.\133\ The Commission did not receive
comment on these proposals and for the reasons discussed above is
adopting them as proposed.
---------------------------------------------------------------------------
\133\ See infra section IX.C.4.
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D. Form CA-1
1. Relevant Statutory Framework
Section 17A of the Exchange Act governs the establishment of a
national system for the prompt and accurate clearance and settlement of
securities transactions.\134\ Section 17A(b)(2) of the Exchange Act
\135\ states that a clearing agency may be registered under the terms
and conditions provided thereunder and in accordance with the
provisions of section 19(a) of the Exchange Act \136\ by filing with
the Commission an application for registration in such forms as the
Commission, by rule, may prescribe containing the rules of the clearing
agency and such other information and documents as the Commission, by
rule, may prescribe as necessary or appropriate in the public interest
or for the prompt and accurate clearance and settlement of securities
transactions.
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\134\ See 15 U.S.C. 78q-1.
\135\ See 15 U.S.C. 78q-1(b)(2).
\136\ See 15 U.S.C. 78s(a).
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2. Pre-existing Requirements for Filing Form CA-1
Previously, the Commission adopted Rule 17ab2-1 \137\ and Form CA-
1,\138\ pursuant to section 17A(b)(2) of the Exchange Act, in order to
set forth the requirements for registration as a clearing agency or for
an exemption from registration as a clearing agency under section 17A.
Rule 17ab2-1(a) states that an application for registration or for
exemption from registration as a clearing agency or an amendment to any
such application shall be filed with the Commission on Form CA-1, in
accordance with the instructions thereto.\139\
---------------------------------------------------------------------------
\137\ See 17 CFR 240.17ab2-1.
\138\ See 17 CFR 249b.200.
\139\ See 17 CFR 240.17ab2-1(a).
---------------------------------------------------------------------------
Form CA-1 contains general instructions for preparing and filing
Form CA-1 and instructions relating to the filing of amendments to a
Form CA-1. It also includes an execution page and 19 exhibits. The Form
CA-1 execution page requests general information from the applicant, as
well as information regarding whether the clearing agency is exposed to
loss if a participant fails to perform its obligations to the clearing
agency. The exhibits to Form CA-1 also require an applicant clearing
agency to provide information regarding business organization,
financial position, operational capacity, access to its services, and,
for those seeking an exemption from registration, a statement
demonstrating why granting an exemption from registration would be
consistent with the public interest, the protection of investors, and
the purposes of section 17A, including the prompt and accurate
clearance and settlement of securities transactions and the
safeguarding of securities and funds.
3. Comment Regarding Proposed Changes to Rule 17ab2-1 and Form CA-1
The Commission received one comment specifically addressing the
proposed changes to Rule 17ab2-1 and Form CA-1 \140\ which was
generally supportive of the proposal and described it as ``an effort[ ]
to reduce the burden on registrants by modernizing filing requirements
and forms to make submission more streamlined and cost-effective.''
\141\ The commenter focused on how the proposed Form CA-1 changes,
inclusive of Rule 17ab2-1, would impact its requirements to make
periodic amendments as a registered clearing agency. The commenter
stated that it does not anticipate that the proposed structured data
requirements will present obstacles or be burdensome for registered
clearing agencies filing routine amendments to Form CA-1, but it did
seek clarification on the requirement under Item 2 for submission of an
email address. Specifically, the commenter sought to clarify whether a
registrant may provide a dedicated (i.e., general) email account in
lieu of an individual person's email account in order to comply with
this requirement. The commenter stated several benefits to the use of a
dedicated email account, including allowing for routing to multiple
individuals, uninterrupted monitoring even during personnel
transitions, and protection from spamming.
---------------------------------------------------------------------------
\140\ See Letter from Megan Malone Cohen, General Counsel and
Corporate Secretary, Options Clearing Corporation (May 22, 2023)
(``OCC 5/22/2023 Letter'').
\141\ See id. at 1.
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The amendments permit either an individual or dedicated email
account to be used. The email address requirement for the person in
charge of the registrant's clearing agency activities is to facilitate
communication with the person who is able to furnish information about
the clearing agency activities. As long as the person in charge of the
registrant's clearing agency activities is able to receive and send
information at that email address, such an email address meets the
purposes of that requirement. The change does not impose any
requirements on how an applicant, registrant, or exempt clearing agency
chooses to structure its internal email account system to follow a
naming convention, manage access, or contain forwarding rules for
emails to one or more persons. If the person who is in charge of the
registrant's clearing agency activities can receive and send
information through all the contact information provided on the Form
CA-1, including the email account, this requirement will be met.
Consistent with the general support by the commenter for the
benefits of the proposed changes to Rule 17Ab2-1 and Form CA-1, and the
acknowledgement by the commenter that it does not create obstacles, for
the reasons discussed in this section, the Commission is adopting
[[Page 7272]]
these changes as proposed, as further described below, because of their
benefits.
4. Requirement to Electronically File Form CA-1
The Commission is revising certain aspects of Rule 17ab2-1, Form
CA-1, and the instructions to Form CA-1 to require electronic filing of
applications on Form CA-1 and subsequent amendments thereto by
applicants, registered clearing agencies, and exempt clearing agencies.
The revisions therefore require: (i) an applicant to file
electronically its initial application on Form CA-1 for registration or
for an exemption from registration and any subsequent amendments
thereto; (ii) a registered clearing agency to file electronically any
amendments to its Form CA-1 after being granted registration as a
clearing agency; and (iii) an exempt clearing agency to file
electronically any amendments to its Form CA-1 after being granted an
exemption from registration as a clearing agency. As explained above in
the introduction to section II, the revised rule and form revisions
increase efficiencies and decrease costs related to the filing of Form
CA-1 and amendments thereto by both registered and exempt clearing
agencies, and the Commission's review of filed Forms CA-1 and
amendments thereto.\142\ In addition, while exempt clearing agencies
are not subject to the SRO rule filing process under section 19(b) of
the Exchange Act,\143\ certain exempt clearing agencies are currently
subject to electronic filing requirements under Regulation SCI.\144\
Consequently, requiring these entities to file electronically Form CA-1
and amendments thereto is consistent with existing requirements for
these entities under Regulation SCI.
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\142\ See supra section I.B.
\143\ See 15 U.S.C. 78s(a) and (b).
\144\ See 17 CFR 242.1006. See also Exchange Act Release No.
73639 (Nov. 19, 2014), 79 FR 72251, 72258 (Dec. 5, 2014) (listing
categories of SCI entities under Regulation SCI).
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5. Amendments to Rule 17ab2-1
The Commission is revising Rule 17ab2-1 to require electronic
filing of Form CA-1. Specifically, the Commission is revising
paragraphs (a), (d), (e), and (f) to reference the method of filing as
being electronic, and is adding paragraph (g) to provide specific
instructions on the method of filing electronically, including a
requirement for an electronic signature (defined as an electronic entry
in the form of a magnetic impulse or other form of computer data
compilation of any letter or series of letters or characters composed
of a name, executed, adopted or authorized as a signature).
Additionally, paragraph (g) specifies a cutoff time of 5:30 p.m.
eastern standard time or eastern daylight saving time for purposes of
deeming which business day (defined to exclude certain days of the
week, holidays, and closures) that a filing occurred. It also specifies
that a filing would be deemed timely filed if it is required to be
filed on a day that is not a business day and is filed on the next
available business day. As stated above in the introduction to section
II, among other benefits, revising the forms relating to registration
as a clearing agency increases efficiencies and decreases costs
incurred by applicants for registration as a clearing agency.
6. Amendments to Form CA-1 and the Form CA-1 Instructions
Electronic Form CA-1 solicits information through prompts on the
form that should better structure the information collected. In
addition, electronic Form CA-1 requires exhibits to be attached through
a new exhibit table that is part of electronic Form CA-1. Further, all
information posted on a website pursuant to electronic Form CA-1 must
be free and accessible (without any encumbrances or restrictions) by
the general public. Prompts are being added prior to section I of the
form that require the registrant to note the basis for submitting Form
CA-1. Specifically, electronic Form CA-1 requires the registrant to
check a box stating one of the following: (i) whether the filing is an
application pursuant to Rule 17ab2-1(a) and if it is, whether the
registrant is applying for registration as a clearing agency \145\ or
requesting an exemption from registration as a clearing agency; (ii)
whether the filing is an amendment to an initial Form CA-1 application
pursuant to Rule 17ab2-1(d) prior to the Commission's grant of
registration or an exemption from registration, or an update to an
initial Form CA-1 application correcting information that is
inaccurate, misleading, or incomplete, pursuant to Rule 17ab2-1(e);
(iii) whether the filing is to provide the registrant's consent to an
extension of the time period within which the Commission must take
action on an initial Form CA-1 application and the date the extension
expires; \146\ (iv) whether the filing is to withdraw an initial Form
CA-1 application prior to the Commission taking action on the
application; (v) whether the filing is an amendment to Form CA-1
pursuant to Rule 17ab2-1(e) following Commission action to grant
registration or an exemption; or (vi) whether the filing is required by
a Commission order approving an application for exemption from
registration as a clearing agency pursuant to section 17A(b)(1) of the
Exchange Act. The Commission is requiring a registrant to indicate the
type of filing to help facilitate the electronic filing of, and the
Commission's review of, Form CA-1 submissions, including information
required of an exempt clearing agency by an exemptive order.
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\145\ If the registrant is applying for registration as a
clearing agency, the changes to Form CA-1 require the registrant to
indicate whether it requests the Commission to consider granting
exemption from specified clearing agency requirements during a
temporary registration period, in accordance with paragraph (c)(1)
of Rule 17ab2-1 under the Exchange Act.
\146\ See 15 U.S.C. 78s(a)(1)(B).
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The Commission also is modifying Form CA-1 to add a requirement for
information about a contact employee. Amended Form CA-1 requires the
name, title, email address, and telephone number of an employee
prepared to respond to questions about the Form CA-1 submission.\147\
The Commission is requiring information about a contact employee to
facilitate communication between the registrant and the Commission.
Similarly, the Commission is requiring the email address of the person
in charge of the registrant's clearing agency activities to facilitate
communication between the registrant and the Commission. As described
above, the amendments permit the use of dedicated, general email
accounts as long as the person in charge can send and receive
information from the email provided to the Commission on the Form CA-
1.\148\
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\147\ The Commission is making the following technical changes:
(1) capitalizing ``Item'' in the General Instructions to Form CA-1,
Form CA-1, and in Rule 17ab2-1(e); (2) replacing ``comprising'' with
``composing'' and ``comprised'' with ``composed'' in the General
Instructions to Form CA-1 and Form CA-1; (3) replacing
``comprising'' with ``composed of'' in Rule 17ab2-1(g)(2); and (4)
in Section B of the General Instructions to Form CA-1, replacing the
phrase ``The full middle name is required'' with ``The full middle
name, if one exists, is required'' to be clear that a full name can
be provided without a middle name when an individual does not have a
middle name.
\148\ See supra note 140 and accompanying text.
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In addition, revised Form CA-1 requires a registrant to
electronically attach exhibits by using an exhibit table for all of the
exhibits required by the current form, broken down into sections.\149\
There are also sections that may be applicable to only certain
[[Page 7273]]
filings, with section VIII covering requests for an exemption from
registration under Exhibit S, and section IX covering submission of any
conditions, reports, notices or other submissions to the Commission
required as directed in any order approving an application for
exemption from registration as a clearing agency, under Exhibit T.
Furthermore, adopted Form CA-1 preserves the current ability for a
registrant to indicate that it is requesting confidential treatment
with respect to certain of the disclosed information, and make a
request for confidential treatment, under section X. In addition, as
discussed further below in section VII, the Commission is adopting new
paragraph (j) to Rule 24b-2 to require that a filer not omit the
confidential portion from the material filed in electronic format on
Form CA-1, but rather request confidential treatment of information
provided in electronic format by completing section X of Form CA-1.
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\149\ Sections III through VII of Form CA-1, as amended, consist
of exhibits relating to General Information, Business Organization,
Financial Information, Operational Capacity, and Access to Services,
respectively.
---------------------------------------------------------------------------
The Commission also is omitting Item 7(b) from the current Form CA-
1. Item 7(b) solicits the following information: as of September 30,
1975, the dollar amount of the potential exposure of registrant, if
any, as a result of differences (without offsetting long differences
against short differences and without offsetting any suspense account
items) in its clearing agency activities not resolved after 20 business
days. On December 1, 1975, it became unlawful for any clearing agency--
not subject to temporary exemptive relief under paragraph (b) of Rule
17ab2-1 that has since expired--to perform the functions of a clearing
agency unless registered or exempt.\150\ Before December 1, 1975,
however, applicant clearing agencies may have performed the functions
of a clearing agency prior to registering with the Commission or
obtaining an exemption from registration. Therefore, to facilitate
review by the Commission of applications on Form CA-1 by such clearing
agencies, Item 7(b) of Form CA-1 requires disclosure, as of September
30, 1975, of the dollar amount of the potential exposure of the
clearing agency from differences in its clearing agency activities not
resolved after 20 business days. Information provided pursuant to this
provision is no longer useful to the Commission because information on
potential exposures to the clearing agency as of September 30, 1975, is
stale data. Accordingly, it is no longer necessary to include Item 7(b)
on Form CA-1.
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\150\ Paragraph (b) of Rule 17ab2-1 provides any clearing agency
that filed an application with the Commission on or before Nov. 24,
1975, with a temporary exemption from the registration provisions of
section 17A(b) of the Exchange Act and the rules and regulations
thereunder until the Commission either grants registration, denies
registration, or grants an exemption from registration. See 17 CFR
240.17ab2-1(b).
---------------------------------------------------------------------------
The Commission also is revising the instructions to Form CA-1 to
facilitate the electronic filing of Form CA-1. The revised form
instructions do not contain the language in paragraph 2 under Part I of
the current form stating that clearing agencies are required to file
four completed copies of Form CA-1 with the Commission, or the language
in paragraph 4 under Part I of the current form providing instructions
relating to the requirements for copies of Form CA-1. Further, the
revised instructions do not contain the language of paragraph 3 under
Part I of the current form, which states that ``[t]he date on which a
Form CA-1 is received by the Commission shall be the date of filing
thereof if all the requirements with respect to filing have been
complied with.'' This language would be inconsistent with the date-of-
filing provision being added to Rule 17ab2-1, which provides for a 5:30
p.m. eastern standard time or eastern daylight saving time, whichever
is currently in effect, on a business day, cutoff for a filing to be
deemed filed on the day on which it is submitted.
In addition, existing paragraph 13 under Part III of the current
form states that, if an item is amended, the registrant must repeat all
unamended items as they last appeared on the page on which the amended
item appears and must file four copies of the new page, each with
updated and properly completed cover and execution pages. The
requirement to repeat unamended items on certain pages relates solely
to the filing of amended paper copies and, therefore, it is not
relevant to the electronic filing process. The Commission is requiring
a registered or exempt clearing agency to electronically file a full
exhibit to help facilitate the performance of the Commission's
regulatory functions because the Commission is able to review an
amended exhibit to Form CA-1 in its entirety and more easily compare
the revised exhibit against the prior version, particularly if
numerous, non-consecutive pages are being amended. The Inline XBRL
requirement for certain Form CA-1 exhibits further facilitates this
comparison process, because Inline XBRL allows reviewers to create
automated redline comparisons of an exhibit (or specific portion
thereof) to a prior version of the same exhibit (or specific portion
thereof). Accordingly, the Commission is deleting the reference to
pagination that is currently in Item III, paragraph 13.
In addition, Form CA-1 and the instructions to Form CA-1 continue
to require a registered or exempt clearing agency to consent to the
service of notice of a proceeding under sections 17A or 19 of the
Exchange Act involving the registrant. The language under which the
registrant consents to service via registered or certified mail at the
address provided on Form CA-1 would continue to be included in the
electronically filed form.\151\
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\151\ The provision on page 3 of the Form CA-1 allowing for
service of any civil action pursuant to confirmed telegram is
deleted.
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Finally, Form CA-1 requires a registered or exempt clearing agency
to structure Schedule A (descriptive responses complementing the
clearing agency's execution page disclosures) and Exhibits C
(description of organizational structure), F (description of material
pending legal proceedings), H (financial statements), J (description of
services and functions), K (description of security measures and
procedures), L (description of safeguarding measures and procedures), M
(description of backup systems), O (description of, and reasons for,
criteria governing access to services), R (prohibitions and limitations
on access to services), and S (explanation of requested exemption) in
Inline XBRL. The execution page and Exhibits A (persons controlling
management or policies, but not the copies of written agreements with
such persons), B (officers, managers, and individuals occupying similar
positions), D (persons controlled by or under common control with the
clearing agency, and description of control relationship), E (dues,
fees, and other charges for clearing activities, but not the copies of
the constitution, articles of incorporation or association, bylaws,
rules procedures, and instruments corresponding thereto), I (office
addresses and activities performed in each office), N (participants or
applicants for participation), and Q (schedule of fees for services
rendered by participants) also must be structured, albeit in a custom
XML data language specific to Form CA-1 rather than in Inline XBRL.
The copies of existing documents filed with Exhibits A (copies of
written agreements with control persons), E (copies of the
constitution, articles of incorporation or association, bylaws, rules,
procedures, and instruments corresponding thereto), G (copies of
contracts with exchanges, national securities associations, and
securities
[[Page 7274]]
markets), P (copies of contracts governing subscription terms), and T
(submissions to the Commission required as directed in any approval
order) are filed as unstructured PDF documents.
[GRAPHIC] [TIFF OMITTED] TR21JA25.009
The structuring requirements should facilitate access to the
clearing agency's disclosures (enabling, for example, more efficient
retrieval of only those disclosures filed by a subset of clearing
agencies over particular reporting periods) and analysis (such as by
comparing individual disclosures or sets of disclosures across clearing
agencies and time periods). This will benefit market participants
through enhanced oversight of clearing agencies. Market participants
(such as broker-dealers, analysts, and other clearing agencies) will
also benefit from direct use of the machine-readable disclosures on
Form CA-1. For example, institutional investors could leverage the
machine-readability of Exhibit J to run automated redlines of a
clearing agency's safeguarding procedure descriptions from prior
periods, thereby detecting any significant procedural changes that
could raise concern.
Without the structured data requirements, these types of analyses
would need to be performed manually, such as by gathering the current
and former descriptions of safeguarding procedures for each exchange
and entering them all into databases, resulting in a significantly less
efficient and precise process. In addition, the structured data
requirement enables EDGAR to perform technical validations (i.e.,
programmatic checks to ensure the documents are appropriately
standardized, formatted, and complete) upon intake of the Form CA-1
disclosures, thus potentially improving the quality of the filed data
by decreasing the incidence of non-substantive errors (such as the
omission of values from fields that should always be populated).
The nature and extent of such benefits may vary based on the
content of each Form CA-1 Exhibit. As discussed in the Economic
Analysis, studies of XBRL requirements for public operating company
financial statements indicate a number of benefits for investors and
market participants.\152\ The probability that, and extent to which,
these particular benefits arise from structured Form CA-1 disclosures
could be heightened for Exhibit H, which likewise includes structured
financial statements. In addition, the particular benefits of
structuring data likely vary based on the type of disclosures included
in each particular Exhibit. Structured numerical disclosures, such as
those included on Exhibit H, lend themselves to mathematical
functionality, such as the calculation of key ratios or the
identification of extreme statistical outliers. Structured textual
disclosures, such as those that included on Exhibit K, lend themselves
to period-over-period redline comparisons, targeted keyword searching,
and more sophisticated sentiment analysis.
---------------------------------------------------------------------------
\152\ See infra section X.C.1.b.
---------------------------------------------------------------------------
After consideration, the Commission, as proposed, is requiring
Inline XBRL for certain exhibits to Form CA-1 and custom XML for
others, because each data language is better suited for particular
types of disclosures. Exhibit H requires disclosure of financial
statements, and Inline XBRL was designed to accommodate financial
statement information, including the particular metadata (e.g., the
relevant fiscal period, whether the line item is on the balance sheet,
whether the line item is a credit or debit) that must be linked to each
data point within the financial statements to fully convey its semantic
meaning to a machine reader. Exhibits C, F, J, K, L, M, O, R, and S
require narrative disclosures on topics such as the clearing agency's
services, security, backup systems, and criteria governing access to
services; whereas custom XML data languages only have the capacity to
accommodate brief narrative descriptions, Inline XBRL can accommodate
longer narrative descriptions with presentation capabilities that
preserve human-readability while maintaining machine-readability.
The execution page of Form CA-1, Exhibits A (in part), B, D, E (in
part), I, N, and Q do not require such content. For these disclosures,
the use of custom XML is preferable to Inline XBRL, because it yields
smaller file sizes and therefore enables more streamlined processing of
the information.\153\ Requiring custom XML rather than Inline XBRL for
these disclosures is also preferable because it will enable EDGAR to
generate fillable web forms that permit clearing agencies to manually
input their disclosures into the form fields, rather than structure
their disclosure in the custom XML data language themselves. This added
flexibility could ease the burden of compliance on clearing agencies in
some instances, although clearing agencies may have the requisite
sophistication to encode the disclosures in custom XML themselves
without relying on fillable web forms.
---------------------------------------------------------------------------
\153\ See also infra section X.E.4 (discussing other structured
data languages that would result in smaller file sizes than Inline
XBRL, and the reasons why the Commission has not required the use of
such data languages under the rule amendments).
---------------------------------------------------------------------------
The Commission is requiring clearing agencies to file copies of
existing documents, such as copies of bylaws, written agreements, and
contracts governing subscription terms, as unstructured PDF
attachments. The Commission is not requiring clearing agencies to
retroactively structure these existing documents, which were prepared
for purposes outside of fulfilling the Commission's disclosure
requirements, because such a requirement will likely impose costly
compliance burdens on clearing agencies that may not be justified in
light of the commensurate informational benefits associated with more
efficient disclosure use. Thus, structured data requirements are not
warranted for these copies of existing documents.
One commenter agreed that the proposed structured data requirements
for Form CA-1 would not present obstacles or be burdensome for clearing
agencies.\154\ Another commenter recommended that all items in Form CA-
1 be submitted in Inline XBRL, except for copies of existing documents
which could then be submitted in PDF format and linked via tags in an
XBRL
[[Page 7275]]
document.\155\ The commenter stated that requiring a single data
language would lead to efficiencies in both reporting and data
extraction and identified Inline XBRL as the most suitable option for
the information reported on Form CA-1, because much of it is financial
and narrative.\156\ The Commission agrees with the commenter that
Inline XBRL is suitable for financial and narrative data, and is
therefore requiring Inline XBRL for those Form CA-1 exhibits with
financial disclosures (i.e., Exhibit H) and extended narrative
disclosures (i.e., Schedule A and Exhibits C, F, J, K, L, M, O, R, and
S). However, the Commission disagrees with the commenter that an Inline
XBRL requirement would be more suitable than a custom XML requirement
for the other structured Form CA-1 disclosures.
---------------------------------------------------------------------------
\154\ See OCC 5/22/2023 Letter at 2.
\155\ See XBRL Letter at 4-5. The commenter agreed that there
would not be sufficient value in retroactively structuring existing
documents.
\156\ See id.
---------------------------------------------------------------------------
In that regard, the commenter stated that, whereas there is a large
competitive marketplace of tools to support XBRL preparation which can
be leveraged for any reporting application, use of a custom XML schema
for some Form CA-1 disclosures will require the creation of a new
application specifically designed for a 2-step data extraction process
that involves preparing and extracting data using a custom XML
schema.\157\ The Commission disagrees with the characterization by the
commenter that a new application would need to be specifically designed
to prepare data using that schema. Clearing agencies will have means of
complying with Form CA-1 custom XML requirements that do not involve
the creation of a new application. First, clearing agencies will be
able to create custom XML CA-1 documents internally without the use of
custom applications; because, similar to exchanges as discussed above,
clearing agencies are sophisticated entities that likely have
experience encoding disclosures using custom XML schemas without
needing to create new custom applications. Second, clearing agencies
(like exchanges) will have the option to forgo creating structured
custom XML Form CA-1 exhibits altogether, and instead input their
disclosures into a fillable web form that EDGAR will make available to
Form CA-1 filers. Clearing agencies that use the fillable form option
will similarly not need to procure or pay for custom commercial
applications to prepare the custom XML data required by those Form CA-1
exhibits. In either of the above cases, clearing agencies will be able
to comply with the custom XML Form CA-1 requirements without any need
for creation of a new application specifically designed to prepare data
using the custom XML schema for Form CA-1 exhibits.
---------------------------------------------------------------------------
\157\ See id.
---------------------------------------------------------------------------
The commenter also stated that it would be more efficient for data
users to extract data from Form CA-1 if all the data were structured in
Inline XBRL, because this would result in a one-step extraction process
rather than a two-step extraction process. The Commission agrees with
the commenter that using different structured data languages for Form
CA-1 will add an additional step to the extraction of the structured
data (making it a one-step extraction process rather than a two-step
extraction process), because data users will need to run conversion
processes to incorporate the Inline XBRL disclosures on Form CA-1 into
the same datasets and applications as the custom XML disclosures filed
on Form CA-1. Nonetheless, the streamlined data processing associated
with the smaller sizes of the custom XML exhibits and execution page,
as described earlier in this section, justify any such drawbacks.
With respect to the execution page, the commenter referenced the
Commission's existing requirements for public companies to tag cover
page information in periodic reports in Inline XBRL, and questioned why
the Commission has chosen not to follow that precedent for Form CA-
1.\158\ Several other existing Commission disclosure forms, such as
electronic Form X-17A-5 Part III, electronic Form 17-H, and the SBSE
Forms, use custom XML execution pages.\159\ The Commission is similarly
requiring custom XML rather than Inline XBRL for the Form CA-1
execution page because while Inline XBRL is particularly suitable for
financial statements or extended narrative disclosures, custom XML is
comparably suitable for the checkboxes, brief text strings, and limited
numeric disclosures included on the Form CA-1 execution page (much like
the execution pages for electronic Form X-17A-5 Part III, electronic
Form 17-H, and the SBSE Forms). Given the comparable technical
suitability of custom XML and Inline XBRL for the disclosures in the
Form CA-1 execution page, the smaller file sizes and more streamlined
processing of custom XML data compared to Inline XBRL data, the custom
XML requirement for the Form CA-1 execution page is appropriate.\160\
---------------------------------------------------------------------------
\158\ See XBRL Letter at 5; 17 CFR 232.406.
\159\ See EDGAR Filer Manual, Volume II at 8.2.20, 8.2.21, and
8.2.22.
\160\ See also supra section II.A.3 and infra section X.E.4
(discussing other structured data languages that would result in
smaller file sizes than Inline XBRL, and the reasons why the
Commission has not required the use of such data languages under the
rule amendments).
---------------------------------------------------------------------------
E. Form 19b-4(e)
1. Relevant Statutory Framework
Section 19(b) of the Exchange Act, as amended, requires each SRO to
file with the Commission, in accordance with such rules as the
Commission may prescribe, copies of any proposed rule, or any proposed
change in, addition to, or deletion from the rules of such SRO
(collectively, a ``proposed rule change'') accompanied by a concise
general statement of the basis and purpose of such proposed rule
change.\161\ Rule 19b-4(e)(1) provides that the listing and trading of
a new derivative securities product by an SRO shall not be deemed a
proposed rule change under the Exchange Act if the Commission has
approved, pursuant to section 19(b) of the Exchange Act,\162\ the SRO's
trading rules, procedures, and listing standards for the product class
that include the new derivative securities product, and the SRO has a
surveillance program in place for such product class.\163\
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\161\ See 15 U.S.C. 78s(b).
\162\ See 15 U.S.C. 78s(b).
\163\ See 17 CFR 240.19b-4(e)(1).
---------------------------------------------------------------------------
2. Background of Rule 19b-4(e)
As discussed above, Rule 19b-4(e)(1) under the Exchange Act
provides that the listing and trading of a new derivative securities
product \164\ by an SRO shall not be deemed a proposed rule change
subject to certain conditions. The Commission determined that, when it
has approved an SRO's trading rules, procedures, and listing standards
for the product class that include the new derivative securities
product, and the SRO has an adequate surveillance program in place for
such product class, the listing and trading of the new derivative
securities product would be ``reasonably and fairly implied'' by the
SRO's existing trading rules, procedures, and listing standards, and
therefore, would not be deemed a proposed rule change under Rule 19b-
4(c)(1).\165\
---------------------------------------------------------------------------
\164\ Rule 19b-4(e) defines a new derivative securities product
as ``any type of option, warrant, hybrid securities product or any
other security, other than a single equity option or a security
futures product, whose value is based, in whole or in part, upon the
performance of, or interest in, an underlying instrument.'' See 17
CFR 240.19b-4(e).
\165\ See Exchange Act Release No. 40761 (Dec. 8, 1998), 63 FR
70952 (Dec. 22, 1998) (``Rule 19b-4(e) Adopting Release''). See also
17 CFR 240.19b-4(c)(1).
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[[Page 7276]]
For purposes of Rule 19b-4(e)(1), SROs have submitted, and the
Commission has approved pursuant to section 19(b)(2) of the Exchange
Act, trading rules, procedures, and listing standards for several types
of new derivative securities products including, for example, exchange-
traded funds, index-linked securities and other exchange-traded
structured products, and narrow and broad-based index options.\166\
---------------------------------------------------------------------------
\166\ See, e.g., Exchange Act Release Nos. 42787 (May 15, 2000),
65 FR 33598 (May 24, 2000) (SR-Amex-2000-14) (approving generic
listing standards for exchange traded funds called Portfolio
Depositary Receipts and Index Fund Shares); 45718 (Apr. 9, 2002), 67
FR 18965 (Apr. 17, 2002) (SR-NYSE-2002-07) (approving generic
listing standards for Trust Issued Receipts); 55687 (May 1, 2007),
72 FR 25824 (May 7, 2007) (SR-NYSE-2007-27) (approving generic
listing standards for Index-Linked Securities); 48405 (Aug. 25,
2003), 68 FR 52257 (Sept. 2, 2003) (SR-ISE-2003-05) (approving
generic listing standards for narrow-based index options); 78397
(June 22, 2016), 81 FR 49320 (July 27, 2016) (SR-NYSEArca-2015-110)
(approving generic listing standards for Managed Fund Shares); and
88566 (Apr. 6, 2020), 85 FR 20312 (Apr. 10, 2020) (SR-CboeBZX-2019-
097) (approving generic listing standards for Exchange-Traded Fund
Shares).
---------------------------------------------------------------------------
As expressed in the Rule 19b-4(e) Adopting Release, the Commission
adopted Form 19b-4(e) in order for the Commission to maintain an
accurate record of all new derivative securities products traded on the
SROs in order to notify the Commission when an SRO begins to trade a
new derivative securities product not required to be submitted as a
proposed rule change to the Commission for approval.\167\ The
Commission also stated that it would make Forms 19b-4(e) public.\168\
At the time of the adoption of Rule 19b-4(e), the Commission estimated
the new rule would eliminate approximately 45 SRO rule filings each
year,\169\ and the information regarding new derivative securities
products required pursuant to Rule 19b-4(e) was required to be
submitted using a paper Form 19b-4(e).
---------------------------------------------------------------------------
\167\ See Rule 19b-4(e) Adopting Release, 63 FR at 70963.
\168\ See id. at 70964 n.139 (``Form 19b-4(e) will be publicly
available through the Commission's Public Reference Room. In
addition, the Commission will endeavor to make the Forms available
on the Commission's website.'').
\169\ See Rule 19b-4(e) Adopting Release, 63 FR at 70964.
---------------------------------------------------------------------------
3. Previous Requirements for Filing Form 19b-4(e)
Under Rule 19b-4(e)(2)(ii) prior to these amendments, SROs were
required to submit Form 19b-4(e) \170\ to the Commission within five
business days after commencement of trading a new derivative securities
product.\171\ In addition, pursuant to the instructions for completing
Form 19b-4(e), SROs were required to submit an original and nine paper
copies of a duly executed Form 19b-4(e) with the Commission.\172\
---------------------------------------------------------------------------
\170\ See 17 CFR 249.820.
\171\ See Rule 19b-4(e)(2)(ii). Although Rule 19b-4(e) relates
to the listing and trading of new derivative securities products by
SROs, the only SROs that list and trade new derivative securities
products and file Forms 19b-4(e) to the Commission are national
securities exchanges.
\172\ See Items II and III of the Instructions for Completing
Form 19b-4(e), 17 CFR 249.820.
---------------------------------------------------------------------------
4. Rescission of Form 19b-4(e)
The Commission is amending Rule 19b-4 to rescind Form 19b-4(e) and
instead require SROs to post on their internet websites the information
previously included on Form 19b-4(e) as proposed. More specifically, an
SRO will be required to post on its public internet website, within
five business days after commencing the trading of a new derivative
securities product, the information required in current Part I, Items 2
through 9 of Form 19b-4(e) for that product: \173\ (a) type of issuer
of new derivative securities product (e.g., clearinghouse, broker-
dealer, corporation, etc.); (b) class of new derivative securities
product; (c) name of underlying instrument; (d) if the underlying
instrument is an index, state whether it is broad-based or narrow-
based; (e) ticker symbol(s) of new derivative securities product; (f)
market(s) upon which securities composing the underlying instrument
trade; (g) settlement methodology of new derivative securities product;
and (h) position limits of new derivative securities product (if
applicable). This information must be provided using the most recent
versions of an XML schema and the associated PDF renderer that will be
published on the Commission's website.\174\ This information generally
should be available at a prominently posted hyperlink on the SRO's
website that is free and accessible (without any encumbrances or
restrictions) by the general public.
---------------------------------------------------------------------------
\173\ Part I, Item 1, ``Name of Self-Regulatory Organization
Listing New Derivative Securities Product,'' will not be necessary
to include because the table of new derivative securities products
will be on the website of the SRO that has listed and is trading the
new derivative securities product, so the identity of the listing
SRO will be self-evident. The Commission also is making technical
amendments to remove an extraneous ``s'' at the end of ``trade'' and
to replace ``comprising'' with ``composing'' in the text of Rule
19b-4(e)(2)(ii)(F).
\174\ See 17 CFR 240.19b-4(e)(2)(ii), as amended.
---------------------------------------------------------------------------
As was previously required in Part II of Form 19b-4(e), an SRO is
required to provide on its website a representation by a duly
authorized SRO official that the governing body of the SRO has duly
approved, or has duly delegated its approval to such official for, the
listing and trading of the new derivative securities product according
to its relevant trading rules, procedures, surveillance programs, and
listing standards to assure that such products are being listed and
traded in accordance with the SRO's obligations under Rule 19b-4(e), as
well as an email address to contact that official. The requirement to
provide an email address for the SRO contact employee should expedite
communications between Commission staff and the relevant SRO. Any SRO
that relies on Rule 19b-4(e) to list and trade a new derivative
securities product continues to be subject to Rule 19b-4(e)(2)(i),
which requires the SRO to maintain at its principal place of business a
file, available to Commission staff for inspection, of all relevant
records and information pertaining to each new derivative securities
product traded pursuant to Rule 19b-4(e) for a period of not less than
five years, the first two years in an easily accessible place, as
prescribed in Rule 17a-1 under the Exchange Act.\175\ Thus, the SRO
trading a new derivative securities product needs to maintain the
relevant records and information regarding the new derivative
securities product to comply with the recordkeeping and reporting
requirements of Rule 19b-4(e). As under the previous rule, and as
contemplated in the adoption of the current rule, the Commission will
review SRO compliance through its routine inspections of SROs.\176\
---------------------------------------------------------------------------
\175\ See 17 CFR 240.17a-1.
\176\ See Rule 19b-4(e) Adopting Release, 63 FR at 70963.
---------------------------------------------------------------------------
The electronic filing requirement should provide the same
information for the Commission and the public as was previously
provided by Form 19b-4(e) without necessitating the additional steps of
submitting a paper form containing that information with the
Commission. Among other benefits, electronic filing should increase
efficiencies and decrease costs related to both the submission of Form
19b-4(e) by an SRO and the Commission's processing of submitted Forms
19b-4(e). As discussed above, since the Commission adopted Rule 19b-
4(e), technology has evolved significantly and the internet has played
an increasingly vital role in information distribution.\177\ During
this period, the Commission has encouraged the dissemination of
information electronically via the internet and other automated systems
and services.\178\ In
[[Page 7277]]
addition, the Commission now receives thousands of Forms 19b-4(e) per
year from the SROs, rather than the 45 per year as stated in the Rule
19b-4(e) Adopting Release, each of which is submitted to the Commission
and then must be made public individually by the Commission,\179\ and
therefore the submissions require, in the aggregate, additional time to
process before the information contained in those Forms becomes
available for Commission review and also publicly available.\180\
Requiring SROs to post the information contained in the current Form
19b-4(e) on their websites accomplishes the goal outlined in the Rule
19b-4(e) Adopting Release, for the Commission to maintain accurate
information regarding these new derivative securities products, while
ensuring that information remains publicly available.\181\ In addition,
requiring SROs to post that information within 5 business days after
commencement of trading a new derivative securities product, as the
previous rule required, will continue to allow the Commission to
determine that an SRO has properly relied on the rule and continue to
do so in a timely fashion.\182\ This is appropriate given the large
number of Forms 19b-4(e) that are submitted currently as well as the
nature of the information contained in those Forms, which is highly
standardized. Providing that information on the relevant SRO's publicly
available website renders that information more readily accessible to
both the Commission and the public than submitting numerous Forms 19b-
4(e) had done previously and has the added benefit of eliminating the
two-step process of an SRO submitting a Form 19b-4(e) and then that
Form being made public through the Commission. In addition, because
that information is subject to the relevant SRO's books and records
obligations \183\ and subject to the Commission's examination and
inspection authority,\184\ the accuracy of the records for Commission
review is commensurate with the accuracy of the information on the
Forms 19b-4(e) submitted to the Commission under the previous rule.
---------------------------------------------------------------------------
\177\ See supra note 14.
\178\ Id. See also supra note 15.
\179\ See id. at 70964 n.139.
\180\ See FR Doc. 2022-17308, 87 FR 49894 (Aug. 12, 2022)
(Request to OMB for extension of Rule 19b-4(e) and Form 19b-4(e);
SEC File No. 270-447; OMB Control No. 3235-0504) (identifying 2,331
Forms 19b-4(e) submitted to the Commission based on the average
annual number of Forms 19b-4(e) submitted in 2019, 2020, and 2021).
\181\ See Rule 19b-4(e) Adopting Release, 63 FR at 70963, 70964
n.139.
\182\ See 17 CFR 240.19b-4(e)(2)(ii).
\183\ See 17 CFR 240.17a-1.
\184\ See Rule 19b-4(e) Adopting Release, 63 FR at 70963.
---------------------------------------------------------------------------
One commenter, who agreed with requiring Form 19b-4(e) to be
prepared in machine-readable form, stated that Forms 19b-4(e) should
instead be submitted to EDGAR (or, alternatively, that the Commission
or another party should create a registry where links to these
documents can be posted).\185\ The commenter stated that this would
facilitate use for market participants, who would be able to collect
all needed data in one location rather than set up mechanisms to track
new form postings on multiple websites.\186\ The commenter stated that
such an approach would be unlikely to increase the reporting burden for
SROs.\187\
---------------------------------------------------------------------------
\185\ See XBRL Letter at 6.
\186\ See id.
\187\ See id.
---------------------------------------------------------------------------
The Commission disagrees that the 19b-4(e) information should be
submitted to EDGAR rather than posted to SRO websites. The Commission
receives thousands of Forms 19b-4(e) per year from the SROs and expects
that the products subject to Rule 19b-4(e) will continue to number in
the thousands going forward. In addition, the information to be
provided under Rule 19b-4(e) is limited to no more than eight basic
information items, including ticker symbol, type of issuer, and whether
the underlying instrument is a broad or narrow-based index. Given the
quantity of these products and the limited set of information required
to be provided under Rule 19b-4(e) for each new product, requiring
EDGAR submission for each of these products would be an unduly
burdensome process compared to SRO website posting, which will provide
a readily accessible interface for market participants to access this
data without necessitating submission to EDGAR. Similarly, a registry
of links would add an unnecessary layer of complexity in making the
information publicly available when many market participants are
already familiar with accessing SROs' public websites, such as those
the SROs would have in place under the amended rule. For these reasons,
the amended rules do not include a requirement to centrally submit Rule
19b-4(e) information to EDGAR, nor do they require the creation of a
registry of links to Rule 19b-4(e) postings.
The same commenter also stated that XBRL should be used in place of
custom XML for the Rule 19b-4(e) information.\188\ According to the
commenter, an XBRL requirement for the Rule 19b-4(e) information would
improve accessibility to the data because it can be extracted by the
same tools used for other reported data prepared in XBRL, and where
derivatives are reported in other filings by SEC reporting entities,
the data (which includes facts that are already defined as concepts in
other taxonomies) may be easily linked and interoperable.\189\ The
Commission disagrees with the commenter that XBRL is more suitable than
custom XML for the Rule 19b-4(e) information. While XBRL is
particularly suitable for financial statements and extended narrative
disclosures, custom XML is comparably suitable for the discrete set of
brief text strings that Rule 19b-4(e) requires, and results in smaller
file sizes and therefore more efficient data processing than XBRL does.
The rule amendments require custom XML rather than XBRL for the Rule
19b-4(e) information because the more efficient data processing enabled
by custom XML justifies forgoing the XBRL interoperability benefit that
the commenter describes.
---------------------------------------------------------------------------
\188\ See id.
\189\ See id.
---------------------------------------------------------------------------
Finally, the same commenter encouraged the use of the Legal Entity
Identifier (``LEI'') for the entity responsible for the derivative
product and a Financial Instruments Global Identifier (``FIGI'') for
the derivative identifier.\190\ The commenter stated that these two
identifiers are both open, non-proprietary identifiers (for legal
entities and securities, respectively), and would be extremely helpful
for data users in evaluating business and investment risk.\191\ The
Commission does not disagree that the LEI and the FIGI would provide
benefits for the open and precise identification of legal entities and
securities disclosed pursuant to Rule 19b-4(e). However, the Commission
is not modifying the content of Form 19b-4(e) to include an LEI or FIGI
requirement under the amended rules because such changes are beyond the
scope of the amendments which are intended to provide for eliminating
paper submission of the information provided
[[Page 7278]]
on Form 19b-4(e), rather than making changes to information required to
be disclosed such as the replacement or supplementation of SRO names
and ticker symbols for new derivatives securities products with LEI or
FIGI requirements.
---------------------------------------------------------------------------
\190\ See id.
\191\ See id. Another commenter specifically stated that the
Commission should require LEI to be disclosed on the notices that
Exchange Act Rule 15fi-3(c) requires, because structured data is
more useful when it contains a consistent identifier, like the LEI,
instead of varying names or identifiers. According to the commenter,
the absence of an LEI requirement on the notices will lead to
inconsistent submissions that lack comparability. See Letter from
Stephan Wolf, CEO GLEIF (May 22, 2023) (``GLEIF Letter''). The
Commission responds to this comment in a subsequent section of this
release. See infra section V.C.2.
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[…truncated; see source link]Indexed from Federal Register on January 21, 2025.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.