[Federal Register Volume 84, Number 175 (Tuesday, September 10, 2019)]
[Notices]
[Pages 47625-47627]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-19469]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-86874]
Order Granting Application by The Financial Information Forum and
Security Traders Association for an Exemption Pursuant to Rule 606(c)
of Regulation NMS Under the Exchange Act From Certain Requirements of
Rule 606 of Regulation NMS Under the Exchange Act
September 4, 2019.
I. Introduction
The Financial Information Forum (``FIF'') and Security Traders
Association (``STA'') have filed with the Securities and Exchange
Commission (``Commission'') an application for an exemption from
certain requirements \1\ of Rule 606 of Regulation NMS under the
Exchange Act.\2\
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\1\ See letter from Christopher Bok, Director, FIF, and James
Toes, President & CEO, STA, to Brett Redfearn, Director, Division of
Trading and Markets (``Division''), Securities and Exchange
Commission (``Commission''), dated August 2, 2019 (``FIF/STA
Letter'').
\2\ 17 CFR 242.606.
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This order grants the following exemptive relief from certain
requirements of Rule 606, subject to certain conditions, which are
outlined in greater detail below: (1) All broker-dealers are exempt
from the requirement to comply with Rule 606(a) until January 1, 2020;
(2) all broker-dealers that engage in self-routing activity are exempt
from the requirement to comply with Rule 606(b)(3) until January 1,
2020; and (3) all broker-dealers that engage in outsourced routing
activity are exempt from the requirement to comply with Rule 606(b)(3)
until April 1, 2020.
II. Background
On November 2, 2018, the Commission adopted amendments to Rules
600, 605, and 606 of Regulation NMS under the Exchange Act.\3\ The
[[Page 47626]]
amendments to Rule 606(b) added a new disclosure requirement, set forth
in paragraph (b)(3), that requires a broker-dealer, upon request of its
customer, to provide specific disclosures related to the routing and
execution of the customer's NMS stock orders submitted on a not held
basis for the prior six months, subject to two de minimis exceptions.
The Commission also amended the customer-specific disclosure
requirement in paragraph (b)(1) of Rule 606 to apply to NMS stock
orders submitted on a held basis, NMS stock orders that are submitted
on a not held basis and the broker-dealer is not required to provide
the customer a report under paragraph (b)(3), and NMS securities that
are options contracts. In addition, the Commission amended the
quarterly public order routing disclosure requirement in Rule 606(a) to
apply to NMS stock orders submitted on a held basis, among other
things. The Commission also amended Rule 605 of Regulation NMS to
require that the public order execution report be kept publicly
available for a period of three years.
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\3\ See Exchange Act Release No. 84528 (November 2, 2018), 83 FR
58338 (November 19, 2018) (``Adopting Release'').
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On April 30, 2019, the Commission extended the compliance date for
the amendments to Rule 606 to begin following September 30, 2019, to
provide broker-dealers with time to implement fully the systems and
other changes necessary to comply with amended Rule 606.\4\
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\4\ See Exchange Act Release No. 85714 (April 24, 2019), 84 FR
18136 (April 30, 2019) (``Rule 606 Compliance Date Extension
Release''). The original compliance date set forth in the Adopting
Release was May 20, 2019. The Rule 606 Compliance Date Extension
Release did not extend the original compliance date for the
amendment to Rule 605.
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FIF/STA request that: (1) The data collection period for Rule
606(a) be extended to commence on January 1, 2020; (2) the data
collection period for Rule 606(b)(3) for broker-dealers that engage in
``self-routing activity'' (as defined below) be extended to 180 days
following the issuance of Commission staff responses to frequently
asked questions regarding amended Rule 606 (``Staff FAQs''); and (3)
the Commission delay the Rule 606(b)(3) reporting requirement for
broker-dealers that engage in ``outsourced routing activity'' (as
defined below).\5\
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\5\ See FIF/STA Letter, supra note 2, at 2. We note that
Commission staff issued the Staff FAQs on August 16, 2019. See
Responses to Frequently Asked Questions Concerning Rule 606 of
Regulation NMS, https://www.sec.gov/tm/faq-rule-606-regulation-nms.
The Staff FAQs are not a rule, regulation, or statement of the
Commission, and the Commission has neither approved nor disapproved
their content. The Staff FAQs have no legal force or effect: they do
not alter or amend applicable law, and they create no new or
additional obligations for any person.
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According to FIF/STA, broker-dealers and other industry
stakeholders are unable to meaningfully comply with amended Rule 606
within the current implementation timeframe.\6\ FIF/STA set forth
several implementation challenges that they state would affect a
broker-dealer's ability to comply, in particular, with the Rule
606(b)(3) requirement that it provide customer-specific reports of data
regarding its handling of customers' not held NMS stock orders.\7\ In
addition, according to FIF/STA, these challenges are greater when a
broker-dealer must report the information required under Rule 606(b)(3)
for orders handled using the order routing systems of another broker-
dealer (``outsourced routing activity'') than they are for orders
handled using a broker-dealer's own systems (``self-routing
activity'').\8\ Self-routing activity for the purposes of this
exemption is when a broker-dealer receives a customer's order and
routes it (or child orders thereof) to venues using its own systems.
Outsourced routing activity is when a broker-dealer receives a
customer's order and utilizes the systems of another broker-dealer to
route it (or child orders thereof) to venues.
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\6\ See FIF/STA Letter, supra note 2, at 1-4.
\7\ See id. at 4-8.
\8\ See id. (using the terms ``look through information'' or
``look through data'' and ``non-look through information'' or ``non-
look through data,'' respectively).
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With respect to the quarterly public reporting requirement in Rule
606(a), FIF/STA state that ``the majority of 606(a) provisions are
implementable within a relatively short timeframe'' after the issuance
of requested guidance.\9\
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\9\ See id. at 2.
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III. Order Granting Conditional Exemption
Rule 606(c) \10\ authorizes the Commission to conditionally or
unconditionally exempt any person, security, or transaction, or any
class or classes of persons, securities, or transactions, from any
provision or provisions of this section, if the Commission determines
that such exemption is necessary or appropriate in the public interest,
and is consistent with the protection of investors. The Commission, by
the Division pursuant to delegated authority,\11\ is granting a
temporary exemption from reporting obligations under Rules 606(a) and
606(b)(3) to provide additional time for broker-dealers to complete the
development of systems and processes necessary to begin collecting the
data required by the rule. As described below, however, the length of
time of the exemption from reporting obligations under Rule 606(b)(3)
differs based on whether a broker-dealer is engaged in self-routing
activity or outsourced routing activity.\12\
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\10\ 17 CFR 242.606(c).
\11\ 17 CFR 200.30-3(a)(69).
\12\ The Commission is not issuing an exemption from any other
provisions of Rule 606. Accordingly, compliance with Rule 606(b)(1)
and the obligation to provide, upon request, customer-specific
reports on routing of the following securities is still required to
begin following September 30, 2019: (1) NMS stock orders submitted
on a held basis; (2) NMS stock orders that are submitted on a not
held basis and the broker-dealer is not required to provide the
customer a report under paragraph (b)(3); and NMS securities that
are options contracts. See Rule 606 Compliance Date Extension
Release, supra note 4.
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A. Amended Rule 606(a)
The Commission has determined that providing broker-dealers with an
exemption from the quarterly public reporting requirements of amended
Rule 606(a) relating to held orders and options orders until January 1,
2020 is necessary or appropriate in the public interest, and is
consistent with the protection of investors. While the Commission
previously extended the compliance date for the amendments to Rule
606(a), FIF/STA note that a few open items remain before implementation
efforts are finalized.\13\ The Commission agrees with the importance of
what FIF/STA describe as consistent, complete and accurate reporting
across broker-dealers complying with all aspects of amended Rule
606(a). As FIF/STA state, complete and accurate data will ``provide
customers with the value the Rule intends.'' Pursuant to this
exemption, a broker-dealer has three additional months from the current
compliance date to comply with amended Rule 606(a) and therefore must
begin collecting the amended Rule 606(a) data for the first quarter of
2020, and the public report of first quarter 2020 data is required by
the end of April 2020.\14\
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\13\ See FIF/STA Letter, supra note 2, at 9 (noting that
compliance efforts continue with, e.g., options reporting and the
capture of aggregated fee information for orders).
\14\ The Commission is granting the exemption as requested by
FIF/STA. See FIF/STA Letter, supra note 2, at 2.
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B. Rule 606(b)(3) for Broker-Dealers Engaged in Self-Routing Activity
Further, the Commission has determined that providing a temporary
exemption from reporting obligations under Rule 606(b)(3) for not held
orders for a broker-dealer engaged in self-routing activity is
necessary or appropriate in the public interest, and is consistent with
the protection of
[[Page 47627]]
investors because it will provide additional time to finalize
development efforts. Specifically, the Commission believes that further
time will allow the industry to complete implementation, ultimately
allowing broker-dealers to provide customers with consistent, complete,
and accurate 606(b)(3) reports, as described above.\15\ Accordingly, a
broker-dealer engaged in self-routing activity is exempt until January
1, 2020 from the requirement to start collecting the data required by
Rule 606(b)(3) for such activity. For customer requests that are made
on or before February 15, 2020, a broker-dealer is exempt from the
requirement to provide a report for self-routing activity covering
January 2020 data until seven business days after February 15, 2020.
Pursuant to this exemption, a broker-dealer has three additional months
from the current compliance date to prepare to collect the data
required by Rule 606(b)(3) for self-routing activity, and has extra
time in February 2020 to prepare the first report relating to self-
routing activity for January 2020 data.\16\
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\15\ See FIF/STA Letter, supra note 2, at 9 (noting that
compliance efforts continue with, e.g., options reporting and the
capture of aggregated fee information for orders).
\16\ Under Rule 606(b)(3), if a customer requests a report on
the first of the month for example, the broker-dealer is required to
provide the report within seven business days of the customer's
request. Under the relief provided herein, however, if a customer
requests a report of January 2020 data on February 1, 2020, the
broker-dealer is not required to provide the report within seven
business days of February 1, 2020; instead, the broker-dealer is
required to provide the report within seven business days of
February 15.
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While the Commission is not granting the specific relief requested
by FIF/STA and is instead granting a shorter extension, the Commission
believes that this new date should provide self-routing broker-dealers
with sufficient time to finalize their internal development efforts.
C. Rule 606(b)(3) for Broker-Dealers Engaged in Outsourced Routing
Activity
Finally, the Commission has determined that providing a temporary
exemption from reporting obligations under Rule 606(b)(3) for not held
orders for a broker-dealer engaged in outsourced routing activity is
necessary or appropriate in the public interest, and is consistent with
the protection of investors. This exemption will provide additional
time to coordinate and finalize development efforts, including among
third parties.
As also is the case for broker-dealers engaged in self-routing
activity, discussed above, the Commission believes that further time
will allow the industry to complete implementation, ultimately allowing
broker-dealers to provide customers with consistent, complete, and
accurate 606(b)(3) reports.\17\ Specifically, to comply with Rule
606(b)(3), broker-dealers may need to develop systems to pass the data
required by Rule 606(b)(3) from an executing broker to an introducing
broker. To the extent that any broker-dealers that handle outsourced
routing activity require additional time to complete development of
specific portions of their systems, e.g., the required XML schema and
PDF renderer, the Commission believes that the six-month exemption it
is granting today provides sufficient time to finalize that
development. Further, the Commission believes that this additional time
should permit broker-dealers that outsource their routing activity to
third parties the additional time needed to finalize updating their
routing arrangements with such parties.
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\17\ See FIF/STA Letter, supra note 2, at 9 (noting that
compliance efforts continue with, e.g., options reporting and the
capture of aggregated fee information for orders).
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Accordingly, a broker-dealer engaged in outsourced routing activity
is exempt from the requirement to start collecting the Rule 606(b)(3)
data until April 1, 2020 for such activity. For customer requests that
are made on or before May 15, 2020, a broker-dealer is exempt from the
requirement to provide a Rule 606(b)(3) report for outsourced routing
activity covering April 2020 data until seven business days after May
15, 2020. Pursuant to this exemption, a broker-dealer has six
additional months from the current compliance date to prepare to
collect the data required by Rule 606(b)(3) for outsourced routing
activity, and has extra time in May 2020 to prepare the first report
relating to outsourced routing activity for April 2020 data.\18\
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\18\ The Commission notes that FIF/STA did not request a
specific alternative compliance date for the Rule 606(b)(3)
reporting requirement for broker-dealers that outsource routing
services. See FIF/STA Letter, supra note 2, at 2.
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Accordingly, it is ordered, pursuant to Rule 606(c) of Regulation
NMS under the Exchange Act,\19\ that:
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\19\ 17 CFR 242.606(c).
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(1) Broker-dealers are exempt from the requirement to comply with
amended Rule 606(a) by the current compliance date of October 1, 2019
and instead must begin collecting amended Rule 606(a) data for the
first quarter of 2020. The public report of first quarter 2020 data is
required by April 30, 2020.
(2) Broker-dealers engaged in self-routing activity are exempt from
the requirement to start collecting the data required by Rule 606(b)(3)
until January 1, 2020 for such activity. For customer requests that are
made on or before February 15, 2020, a broker-dealer is exempt from the
requirement to provide a report for self-routing activity covering
January 2020 data until seven business days after February 15, 2020.
(3) Broker-dealers engaged in outsourced routing activity are
exempt from the requirement to start collecting the Rule 606(b)(3) data
until April 1, 2020 for such activity. For customer requests that are
made on or before May 15, 2020, a broker-dealer is exempt from the
requirement to provide a Rule 606(b)(3) report for outsourced routing
activity covering April 2020 data until seven business days after May
15, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(69).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-19469 Filed 9-9-19; 8:45 am]
BILLING CODE 8011-01-P