Federal Register / Vol. 85, No. 247 / Wednesday, December 23, 2020 / Notices 84029 

amounts by which the actual price may not be 

lower, or higher, than the Expected Price. The rule 

states that available price bands, set by Nasdaq, 

shall include $0 but shall not be in excess of $0.50. 

Under the proposal, the financial advisor in a Direct 

Listing with a Capital Raise is not restricted from 

selecting price bands in accordance with Rule 

4120(c)(8)(B). 

57Rule 700(b)(3), Commission Rules of Practice, 

17 CFR 201.700(b)(3). 

58See id. 

59See id. 

60 15 U.S.C. 78s(b)(2)(B). 

61Section 19(b)(2) of the Exchange Act, as 

amended by the Securities Act Amendments of 

1975, Public Law 94–29 (June 4, 1975), grants the 

Commission flexibility to determine what type of 

proceeding—either oral or notice and opportunity 

for written comments—is appropriate for 

consideration of a particular proposal by a selfregulatory organization. See Securities Act 

Amendments of 1975, Senate Comm. on Banking, 

Housing & Urban Affairs, S. Rep. No. 75, 94th 

Cong., 1st Sess. 30 (1975). 

62 17 CFR 200.30–3(a)(57). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

explained this apparent inconsistency 

in its rules. 

Finally, although the Exchange has 

proposed that the CDL Order may not be 

cancelled or modified, the Exchange’s 

rules appear to permit the issuer’s 

financial advisor broad discretion to 

postpone the offering, which would 

effectively cancel the CDL Order. 

Specifically, Rule 4120(c)(8) provides 

that the validation needed to open the 

security only occurs after the Expected 

Price is displayed to the financial 

advisor and the financial advisor then 

approves proceeding. Rule 4120(c)(8) 

also permits the financial advisor, with 

the concurrence of Nasdaq, to determine 

at any point during the Nasdaq Halt 

Cross process up through the conclusion 

of the pre-launch period to postpone 

and reschedule the offering. The 

financial advisor therefore could 

effectively ‘‘cancel’’ the CDL Order, on 

behalf of the issuer, by deciding not to 

proceed with the offering for a variety 

of reasons, including being dissatisfied 

with the Expected Price. The Exchange 

has not explained why its rules appear 

to allow the financial advisor this 

discretion in the case of a Direct Listing 

with a Capital Raise, or why doing so 

would be consistent with Section 6(b)(5) 

and other relevant provisions of the 

Exchange Act. 

The Commission notes that, under the 

Commission’s Rules of Practice, the 

‘‘burden to demonstrate that a proposed 

rule change is consistent with the 

Exchange Act and the rules and 

regulations issued thereunder . . . is on 

the self-regulatory organization [‘SRO’] 

that proposed the rule change.’’ 57 The 

description of a proposed rule change, 

its purpose and operation, its effect, and 

a legal analysis of its consistency with 

applicable requirements must all be 

sufficiently detailed and specific to 

support an affirmative Commission 

finding,58 and any failure of an SRO to 

provide this information may result in 

the Commission not having a sufficient 

basis to make an affirmative finding that 

a proposed rule change is consistent 

with the Exchange Act and the 

applicable rules and regulations.59

For these reasons, the Commission 

believes it is appropriate to institute 

proceedings pursuant to Section 

19(b)(2)(B) of the Exchange Act 60 to 

determine whether the proposal should 

be approved or disapproved. 

V. Commission’s Solicitation of 

Comments 

The Commission requests that 

interested persons provide written 

submissions of their views, data, and 

arguments with respect to the issues 

identified above, as well as any other 

concerns they may have with the 

proposal. In particular, the Commission 

invites the written view of interested 

persons concerning whether the 

proposal is consistent with Section 

6(b)(5) or any other provision of the 

Exchange Act, or the rules and 

regulations thereunder. Although there 

do not appear to be any issues relevant 

to approval or disapproval that would 

be facilitated by an oral presentation of 

views, data, and arguments, the 

Commission will consider, pursuant to 

Rule 19b–4, any request for an 

opportunity to make an oral 

presentation.61

Interested persons are invited to 

submit written data, views, and 

arguments regarding whether the 

proposal should be approved or 

disapproved by January 13, 2021. Any 

person who wishes to file a rebuttal to 

any other person’s submission must file 

that rebuttal by January 27, 2021. 

Comments may be submitted by any 

of the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

NASDAQ–2020–057 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–NASDAQ–2020–057. This 

file number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of such 

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. All 

submissions should refer to File 

Number SR–NASDAQ–2020–057 and 

should be submitted on or before 

January 13, 2021. Rebuttal comments 

should be submitted by January 27, 

2021. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.62

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2020–28319 Filed 12–22–20; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–90711; File No. SR–MIAX– 

2020–38] 

Self-Regulatory Organizations; Miami 

International Securities Exchange, 

LLC; Notice of Filing and Immediate 

Effectiveness of a Proposed Rule 

Change To Amend Chapter XVII, Audit 

Trail Compliance Rule 

December 17, 2020. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on December 

11, 2020, Miami International Securities 

Exchange, LLC (‘‘MIAX Options’’ or the 

‘‘Exchange’’) filed with the Securities 


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84030 Federal Register / Vol. 85, No. 247 / Wednesday, December 23, 2020 / Notices 

3See Securities Exchange Act Release No. 67457 

(July 18, 2012), 77 FR 45722 (August 1, 2012) 

(‘‘Adopting Release’’). Unless otherwise specified, 

capitalized terms used in this rule filing are defined 

as set forth in the Compliance Rule. 

4See Securities Exchange Act Rel. No. 90223 

(October 19, 2020), 85 FR 67576 (October 23, 2020) 

(‘‘Allocation Exemptive Order’’). 

5The Exchange notes that MIAX Chapter XVII is 

incorporated by reference into the rulebooks of 

MIAX PEARL, LLC (‘‘PEARL’’) and MIAX Emerald, 

LLC (‘‘Emerald’’). As such, the amendments to 

MIAX Chapter XVII proposed herein will also 

impact PEARL and Emerald Chapters XVII. 

6Section 1.1 of the CAT NMS Plan defines an 

‘‘Allocation Report’’ as ‘‘a report made to the 

Central Repository by an Industry Member that 

identifies the Firm Designated ID for any account(s), 

including subaccount(s), to which executed shares 

are allocated and provides the security that has 

been allocated, the identifier of the firm reporting 

the allocation, the price per share of shares 

allocated, the side of shares allocated, the number 

of shares allocated to each account, and the time of 

the allocation; provided for the avoidance of doubt, 

any such Allocation Report shall not be required to 

be linked to particular orders or executions.’’ 

7See letter from the Participants to Vanessa 

Countryman, Secretary, Commission, dated August 

27, 2020 (the ‘‘Exemption Request’’). 

8 ‘‘A step-out allows a broker-dealer to allocate all 

or part of a client’s position from a previously 

executed trade to the client’s account at another 

broker-dealer. In other words, a step-out functions 

as a client’s position transfer, rather than a trade; 

there is no exchange of shares and funds and no 

change in beneficial ownership.’’ See FINRA, Trade 

Reporting Frequently Asked Questions, at Section 

301, available at: https://www.finra.org/filingreporting/market-transparency-reporting/tradereporting-faq. 9Correspondent clearing flips are the movement 

of a position from an executing broker’s account to 

a different account for clearance and settlement, 

allowing a broker-dealer to execute a trade through 

another broker-dealer and settle the trade in its own 

account. See, e.g., The Depository Trust & Clearing 

Corporation, Correspondent Clearing, available at: 

https://www.dtcc.com/clearing-services/equitiestradecapture/correspondent-clearing. 

and Exchange Commission 

(‘‘Commission’’) a proposed rule change 

as described in Items I, II, and III below, 

which Items have been prepared by the 

Exchange. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange is filing a proposal to 

amend Chapter XVII, MIAX’s 

compliance rule (‘‘Compliance Rule’’) 

regarding the National Market System 

Plan Governing the Consolidated Audit 

Trail (the ‘‘CAT NMS Plan’’ or ‘‘Plan’’) 3

to be consistent with a conditional 

exemption granted by the Commission 

from certain allocation reporting 

requirements set forth in Sections 

6.4(d)(ii)(A)(1) and (2) of the CAT NMS 

Plan (‘‘Allocation Exemption’’).4

The text of the proposed rule change 

is available on the Exchange’s website at 

http://www.miaxoptions.com/rulefilings/ at MIAX Options’ principal 

office, and at the Commission’s Public 

Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

forth in sections A, B, and C below, of 

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The purpose of this proposed rule 

change is to amend the Chapter XVII to 

be consistent with the Allocation 

Exemption.5 The Commission granted 

the relief conditioned upon the 

Participants’ adoption of Compliance 

Rules that implement the alternative 

approach to reporting allocations to the 

Central Repository described in the 

Allocation Exemption (referred to as the 

‘‘Allocation Alternative’’). 

(1) Request for Exemptive Relief 

Pursuant to Section 6.4(d)(ii)(A) of the 

CAT NMS Plan, each Participant must, 

through its Compliance Rule, require its 

Industry Members to record and report 

to the Central Repository, if the order is 

executed, in whole or in part: (1) An 

Allocation Report; 6 (2) the SROAssigned Market Participant Identifier 

of the clearing broker or prime broker, 

if applicable; and the (3) CAT-Order-ID 

of any contra-side order(s). Accordingly, 

the Exchange and the other Participants 

implemented Compliance Rules that 

require their Industry Members that are 

executing brokers to submit to the 

Central Repository, among other things, 

Allocation Reports and the SROAssigned Market Participant Identifier 

of the clearing broker or prime broker, 

if applicable. 

On August 27, 2020, the Participants 

submitted to the Commission a request 

for an exemption from certain allocation 

reporting requirements set forth in 

Sections 6.4(d)(ii)(A)(1) and (2) of the 

CAT NMS Plan (‘‘Exemption 

Request’’).7 In the Exemption Request, 

the Participants requested that they be 

permitted to implement the Allocation 

Alternative, which, as noted above, is an 

alternative approach to reporting 

allocations to the Central Repository. 

Under the Allocation Alternative, any 

Industry Member that performs an 

allocation to a client account would be 

required under the Compliance Rule to 

submit an Allocation Report to the 

Central Repository when shares/ 

contracts are allocated to a client 

account regardless of whether the 

Industry Member was involved in 

executing the underlying order(s). 

Under the Allocation Alternative, a 

‘‘client account’’ would be any account 

that is not owned or controlled by the 

Industry Member. 

In addition, under the Allocation 

Alternative, an ‘‘Allocation’’ would be 

defined as: (1) The placement of shares/ 

contracts into the same account for 

which an order was originally placed; or 

(2) the placement of shares/contracts 

into an account based on allocation 

instructions (e.g., subaccount 

allocations, delivery versus payment 

(‘‘DVP’’) allocations). Pursuant to this 

definition and the proposed Allocation 

Alternative, an Industry Member that 

performs an Allocation to an account 

that is not a client account, such as 

proprietary accounts and events 

including step outs,8 or correspondent 

flips,9 would not be required to submit 

an Allocation Report to the Central 

Repository for that allocation, but could 

do so on a voluntary basis. Industry 

Members would be allowed to report 

Allocations to accounts other than client 

accounts; in that instance, such 

Allocations must be marked as 

Allocations to accounts other than client 

accounts. 

(A) Executing Brokers and Allocation 

Reports 

To implement the Allocation 

Alternative, the Participants requested 

exemptive relief from Section 

6.4(d)(ii)(A)(1) of the CAT NMS Plan, to 

the extent that the provision requires 

each Participant to, through its 

Compliance Rule, require its Industry 

Members that are executing brokers, 

who do not perform Allocations, to 

record and report to the Central 

Repository, if the order is executed, in 

whole or in part, an Allocation Report. 

Under the Allocation Alternative, when 

an Industry Member other than an 

executing broker (e.g., a prime broker or 

clearing broker) performs an Allocation, 

that Industry Member would be 

required to submit the Allocation Report 

to the Central Repository. When an 

executing broker performs an Allocation 

for an order that is executed, in whole 


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10See Securities Exchange Act Release No. 67457 

(July 18, 2012), 77 FR 45722, 45748 (August 1, 

2012). 

11The Participants did not request exemptive 

relief relating to the reporting of the SRO-Assigned 

Market Participant Identifier of clearing brokers. 

12The Participants propose that for scenarios 

where the Industry Member responsible for 

reporting the Allocation has the FDID of the related 

new order(s) available, such FDID must be reported. 

This would include scenarios in which: (1) The 

FDID structure of the top account and subaccounts 

is known to the Industry Member responsible for 

reporting the Allocation(s); and (2) the FDID 

structure used by the IB/Correspondent when 

reporting new orders is known to the clearing firm 

reporting the related Allocations. 

13FINRA Rule 4512(c) states the for purposes of 

the rule, the term ‘‘institutional account’’ means the 

account of: (1) A bank, savings and loan association, 

insurance company or registered investment 

company; (2) an investment adviser registered 

either with the SEC under Section 203 of the 

Investment Advisers Act or with a state securities 

commission (or any agency or office performing like 

functions); or (3) any other person (whether a 

Continued 

or in part, the burden of submitting an 

Allocation Report to the Central 

Repository would remain with the 

executing broker under the Allocation 

Alternative. In certain circumstances 

this would result in multiple Allocation 

Reports—the executing broker (if selfclearing) or its clearing firm would 

report individual Allocation Reports 

identifying the specific prime broker to 

which shares/contracts were allocated 

and then each prime broker would itself 

report an Allocation Report identifying 

the specific customer accounts to which 

the shares/contracts were finally 

allocated. 

The Participants stated that granting 

exemptive relief from submitting 

Allocation Reports for executing brokers 

who do not perform an Allocation, and 

requiring the Industry Member other 

than the executing broker that is 

performing the Allocation to submit 

such Allocation Reports, is consistent 

with the basic approach taken by the 

Commission in adopting Rule 613 under 

the Exchange Act. Specifically, the 

Participants stated that they believe that 

the Commission sought to require each 

broker-dealer and exchange that touches 

an order to record the required data 

with respect to actions it takes on the 

order.10 Without the requested 

exemptive relief, executing brokers that 

do not perform Allocations would be 

required to submit Allocation Reports. 

In addition, the Participants stated that, 

because shares/contracts for every 

execution must be allocated to an 

account by the clearing broker in such 

circumstances, there would be no loss of 

information by shifting the reporting 

obligation from the executing broker to 

the clearing broker. 

(B) Identity of Prime Broker 

To implement the Allocation 

Alternative, the Participants also 

requested exemptive relief from Section 

6.4(d)(ii)(A)(2) of the CAT NMS Plan, to 

the extent that the provision requires 

each Participant to, through its 

Compliance Rule, require its Industry 

Members to record and report to the 

Central Repository, if an order is 

executed, in whole or in part, the SROAssigned Market Participant Identifier 

of the prime broker, if applicable. 

Currently, under the CAT NMS Plan, an 

Industry Member is required to report 

the SRO-Assigned Market Participant 

Identifier of the clearing broker or prime 

broker in connection with the execution 

of an order, and such information would 

be part of the order’s lifecycle, rather 

than in an Allocation Report that is not 

linked to the order’s lifecycle.11 Under 

the Allocation Alternative, the identity 

of the prime broker would be required 

to be reported by the clearing broker on 

the Allocation Report, and, in addition, 

the prime broker itself would be 

required to report the ultimate 

allocation, which the Participants 

believe would provide more complete 

information. 

The Participants stated that 

associating a prime broker with a 

specific execution, as is currently 

required by the CAT NMS Plan, does 

not reflect how the allocation process 

works in practice as allocations to a 

prime broker are done post-trade and 

are performed by the clearing broker of 

the executing broker. The Participants 

also stated that with the implementation 

of the Allocation Alternative, it would 

be duplicative for the executing broker 

to separately identify the prime broker 

for allocation purposes. 

The Participants stated that if a 

particular customer only has one prime 

broker, the identity of the prime broker 

can be obtained from the customer and 

account information through the DVP 

accounts for that customer that contain 

the identity of the prime broker. The 

Participants further stated that 

Allocation Reports related to those 

executions would reflect that shares/ 

contracts were allocated to the single 

prime broker. The Participants believe 

that there is no loss of information 

through the implementation of the 

Allocation Alternative compared to 

what is required in the CAT NMS Plan 

and that this approach does not 

decrease the regulatory utility of the 

CAT for single prime broker 

circumstances. 

In cases where a customer maintains 

relationships with multiple prime 

brokers, the Participants asserted that 

the executing broker will not have 

information at the time of the trade as 

to which particular prime broker may be 

allocated all or part of the execution. 

Under the Allocation Alternative, the 

executing broker (if self-clearing) or its 

clearing firm would report individual 

Allocation Reports identifying the 

specific prime broker to which shares/ 

contracts were allocated and then each 

prime broker would itself report an 

Allocation Report identifying the 

specific customer accounts where the 

shares/contracts were ultimately 

allocated. To determine the prime 

broker for a customer, a regulatory user 

would query the customer and account 

database using the customer’s CCID to 

obtain all DVP accounts for the CCID at 

broker-dealers. The Participants state 

that when a customer maintains 

relationships with multiple prime 

brokers, the customer typically has a 

separate DVP account with each prime 

broker, and the identities of those prime 

brokers can be obtained from the 

customer and account information. 

(C) Additional Conditions to Exemptive 

Relief 

In the Exemption Request, the 

Participants included certain additional 

conditions for the requested relief. 

Currently, the definition of Allocation 

Report in the CAT NMS Plan only refers 

to shares. To implement the Allocation 

Alternative, the Participants proposed to 

require that all required elements of 

Allocation Reports apply to both shares 

and contracts, as applicable, for all 

Eligible Securities. Specifically, 

Participants would require the reporting 

of the following in each Allocation 

Report: (1) The FDID for the account 

receiving the allocation, including 

subaccounts; (2) the security that has 

been allocated; (3) the identifier of the 

firm reporting the allocation; (3) the 

price per share/contracts of shares/ 

contracts allocated; (4) the side of 

shares/contracts allocated; (4) the 

number of shares/contracts allocated; 

and (5) the time of the allocation. 

Furthermore, to implement the 

Allocation Alternative, the Participants 

proposed to require the following 

information on all Allocation Reports: 

(1) Allocation ID, which is the internal 

allocation identifier assigned to the 

allocation event by the Industry 

Member; (2) trade date; (3) settlement 

date; (4) IB/correspondent CRD Number 

(if applicable); (5) FDID of new order(s) 

(if available in the booking system); 12

(6) allocation instruction time 

(optional); (7) if the account meets the 

definition of institution under FINRA 

Rule 4512(c); 13 (8) type of allocation 


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natural person, corporation, partnership, trust or 

otherwise) with total assets of at least $50 million. 

14The Exchange proposes to renumber the 

definitions in Rule 1701 to accommodate the 

addition of this new definition of ‘‘Allocation’’ and 

the new definition of ‘‘Client Account’’ discussed 

below. 

15The Exchange proposes to renumber Rule 

1703(a)(2)(A)(ii) and (iii) as Rule 1703(a)(2)(A)(i) 

and (ii) in light of the proposed deletion of Rule 

1703(a)(2)(A)(i). 

(allocation to a custody account, 

allocation to a DVP account, step out, 

correspondent flip, allocation to a firm 

owned or controlled account, or other 

non-reportable transactions (e.g., option 

exercises, conversions); (9) for DVP 

allocations, custody broker-dealer 

clearing number (prime broker) if the 

custodian is a U.S. broker-dealer, DTCC 

number if the custodian is a U.S. bank, 

or a foreign indicator, if the custodian 

is a foreign entity; and (10) if an 

allocation was cancelled, a cancel flag, 

which indicates that the allocation was 

cancelled, and a cancel timestamp, 

which represents the time at which the 

allocation was cancelled. 

(2) Proposed Rule Changes To 

Implement Exemptive Relief 

On October 29, 2020, the Commission 

granted the exemptive relief requested 

in the Exemption Request. The 

Commission granted the relief 

conditioned upon the adoption of 

Compliance Rules that implement the 

reporting requirements of the Allocation 

Alternative. Accordingly, the Exchange 

proposes the following changes to its 

Compliance Rule to implement the 

reporting requirements of the Allocation 

Alternative. 

(A) Definition of Allocation 

The Exchange proposes to add a 

definition of ‘‘Allocation’’ as new 

paragraph (c) to Rule 1701.14 Proposed 

paragraph (c) of Rule 1701 would define 

an ‘‘Allocation’’ to mean ‘‘(1) the 

placement of shares/contracts into the 

same account for which an order was 

originally placed; or (2) the placement 

of shares/contracts into an account 

based on allocation instructions (e.g., 

subaccount allocations, delivery versus 

payment (‘‘DVP’’) allocations).’’ The 

SEC stated in the Allocation Exemption 

that this definition of ‘‘Allocation’’ is 

reasonable. 

(B) Definition of Allocation Report 

The Exchange proposes to amend the 

definition of ‘‘Allocation Report’’ set 

forth in Exchange Rule 1701(c) to reflect 

the requirements of the Allocation 

Exemption. Exchange Rule 1701(c) 

defines the term ‘‘Allocation Report’’ to 

mean: 

a report made to the Central Repository by an 

Industry Member that identifies the Firm 

Designated ID for any account(s), including 

subaccount(s), to which executed shares are 

allocated and provides the security that has 

been allocated, the identifier of the firm 

reporting the allocation, the price per share 

of shares allocated, the side of shares 

allocated, the number of shares allocated to 

each account, and the time of the allocation; 

provided, for the avoidance of doubt, any 

such Allocation Report shall not be required 

to be linked to particular orders or 

executions. 

The Exchange proposes to amend this 

definition in two ways: (1) Applying the 

requirements for Allocation Reports to 

contracts in addition to shares; and (2) 

requiring the reporting of additional 

elements for the Allocation Report. 

(i) Shares and Contracts 

The requirements for Allocation 

Reports apply only to shares, as the 

definition of ‘‘Allocation Report’’ in 

Rule 1701(c) refers to shares, not 

contracts. In the Allocation Exemption, 

the Commission stated that applying the 

requirements for Allocation Reports to 

contracts in addition to shares is 

appropriate because CAT reporting 

requirements apply to both options and 

equities. Accordingly, the SEC stated 

that the Participants would be required 

to modify their Compliance Rules such 

that all required elements of Allocation 

Reports apply to both shares and 

contracts, as applicable, for all Eligible 

Securities. Therefore, the Exchange 

proposes to amend Rule 1701(c) (to be 

renumbered as Rule 1701(d)) to apply to 

contracts, as well as shares. Specifically, 

the Exchange proposes to add references 

to contracts to the definition of 

‘‘Allocation Report’’ to the following 

phrases: ‘‘the Firm Designated ID for 

any account(s), including subaccount(s), 

to which executed shares/contracts are 

allocated,’’ ‘‘the price per share/contract 

of shares/contracts allocated,’’ ‘‘the side 

of shares/contracts allocated,’’ and ‘‘the 

number of shares/contracts allocated to 

each account.’’ 

(ii) Additional Elements 

The Commission also conditioned the 

Allocation Exemption on the 

Participants amending their Compliance 

Rules to require the ten additional 

elements in Allocation Reports 

described above. Accordingly, the 

Exchange proposes to require these 

additional elements in Allocation 

Reports. Specifically, the Exchange 

proposes to amend the definition of 

‘‘Allocation Report’’ in Rule 1701(c) (to 

be renumbered as Rule 1701(d)) to 

include the following elements, in 

addition to those elements currently 

required under the CAT NMS Plan: 

(6) the time of the allocation; (7) Allocation 

ID, which is the internal allocation identifier 

assigned to the allocation event by the 

Industry Member; (8) trade date; (9) 

settlement date; (10) IB/correspondent CRD 

Number (if applicable); (11) FDID of new 

order(s) (if available in the booking system); 

(12) allocation instruction time (optional); 

(12) if account meets the definition of 

institution under FINRA Rule 4512(c); (13) 

type of allocation (allocation to a custody 

account, allocation to a DVP account, stepout, correspondent flip, allocation to a firm 

owned or controlled account, or other nonreportable transactions (e.g., option exercises, 

conversions); (14) for DVP allocations, 

custody broker-dealer clearing number 

(prime broker) if the custodian is a U.S. 

broker-dealer, DTCC number if the custodian 

is a U.S. bank, or a foreign indicator, if the 

custodian is a foreign entity; and (15) if an 

allocation was cancelled, a cancel flag 

indicating that the allocation was cancelled, 

and a cancel timestamp, which represents the 

time at which the allocation was cancelled. 

(C) Allocation Reports 

(i) Executing Brokers That Do Not 

Perform Allocations 

The Commission granted the 

Participants an exemption from the 

requirement that the Participants, 

through their Compliance Rule, require 

executing brokers that do not perform 

Allocations to submit Allocation 

Reports. The Commission stated that it 

understands that executing brokers that 

are not self-clearing do not perform 

allocations themselves, and such 

allocations are handled by prime and/or 

clearing brokers, and these executing 

brokers therefore do not possess the 

requisite information to provide 

Allocation Reports. Accordingly, the 

Exchange proposes to eliminate Rule 

1703(a)(2)(A)(i),15 which requires an 

Industry Member to record and report to 

the Central Repository an Allocation 

Report if the order is executed, in whole 

or in part, and to replace this provision 

with proposed Rule 1703(a)(2)(F) as 

discussed below. 

(ii) Industry Members That Perform 

Allocations 

The Allocation Exemption requires 

the Participants to amend their 

Compliance Rules to require Industry 

Members to provide Allocation Reports 

to the Central Repository any time they 

perform Allocations to a client account, 

whether or not the Industry Member 

was the executing broker for the trades. 

Accordingly, the Commission 

conditioned the Allocation Exemption 

on the Participants adopting 

Compliance Rules that require prime 

and/or clearing brokers to submit 

Allocation Reports when such brokers 


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Federal Register / Vol. 85, No. 247 / Wednesday, December 23, 2020 / Notices 84033 

16As noted above, under the Allocation 

Alternative, for certain executions, the executing 

broker (if self-clearing) or its clearing firm would 

report individual Allocation Reports identifying the 

specific prime broker to which shares/contracts 

were allocated and then each prime broker would 

itself report an Allocation Report identifying the 

specific customer accounts to which the shares/ 

contracts were finally allocated. 

17 15 U.S.C. 78f(b)(6). 

18 15 U.S.C. 78f(b)(8). 

19See Securities Exchange Act Release No. 79318 

(November 15, 2016), 81 FR 84696, 84697 

(November 23, 2016). 

perform allocations, in addition to 

requiring executing brokers that perform 

allocations to submit Allocation 

Reports. The Commission determined 

that such exemptive relief would 

improve efficiency and reduce the costs 

and burdens of reporting allocations for 

Industry Members because the reporting 

obligation would belong to the Industry 

Member with the requisite information, 

and executing brokers that do not have 

the information required on an 

Allocation Report would not have to 

develop the infrastructure and processes 

required to obtain, store and report the 

information. The Commission stated 

that this exemptive relief should not 

reduce the regulatory utility of the CAT 

because an Allocation Report would 

still be submitted for each executed 

trade allocated to a client account, 

which in certain circumstances could 

still result in multiple Allocation 

Reports,16 just not necessarily by the 

executing broker. 

In accordance with the Allocation 

Exemption, the Exchange proposes to 

add proposed Rule 1703(a)(2)(F) to the 

Compliance Rule. Proposed Rule 

1703(a)(2)(F) would require Industry 

Members to record and report to the 

Central Repository ‘‘an Allocation 

Report any time the Industry Member 

performs an Allocation to a Client 

Account, whether or not the Industry 

Member was the executing broker for 

the trade.’’ 

(iii) Client Accounts 

In the Allocation Exemption, the 

Commission also exempted the 

Participants from the requirement that 

they amend their Compliance Rules to 

require Industry Members to report 

Allocations for accounts other than 

client accounts. The Commission 

believes that allocations to client 

accounts, and not allocations to 

proprietary accounts or events such as 

step-outs and correspondent flips, 

provide regulators the necessary 

information to detect abuses in the 

allocation process because it would 

provide regulators with detailed 

information regarding the fulfillment of 

orders submitted by clients, while 

reducing reporting burdens on brokerdealers. For example, Allocation 

Reports would be required for 

allocations to registered investment 

advisor and money manager accounts. 

The Commission further believes that 

the proposed approach should facilitate 

regulators’ ability to distinguish 

Allocation Reports relating to 

allocations to client accounts from other 

Allocation Reports because Allocations 

to accounts other than client accounts 

would have to be identified as such. 

This approach could reduce the time 

CAT Reporters expend to comply with 

CAT reporting requirements and lower 

costs by allowing broker-dealers to use 

existing business practices. 

To clarify that an Industry Member 

must report an Allocation Report solely 

for Allocations to a client account, 

proposed Rule 1703(a)(2)(F) specifically 

references ‘‘Client Accounts,’’ as 

discussed above. In addition, the 

Exchange proposes to add a definition 

of ‘‘Client Account’’ as proposed Rule 

1701(l). Proposed Rule 1701(l) would 

define a ‘‘Client Account’’ to mean ‘‘for 

the purposes of an Allocation and 

Allocation Report, any account or 

subaccount that is not owned or 

controlled by the Industry Member.’’ 

(D) Identity of Prime Broker 

The Exchange also proposes to amend 

Rule 1703(a)(2)(A)(ii) to eliminate the 

requirement for executing brokers to 

record and report the SRO-Assigned 

Market Participant Identifier of the 

prime broker. Rule 1703(a)(2)(A)(ii) 

states that each Industry Member is 

required to record and report to the 

Central Repository, if the order is 

executed, in whole or in part, the ‘‘SROAssigned Market Participant Identifier 

of the clearing broker or prime broker, 

if applicable.’’ The Exchange proposes 

to delete the phrase ‘‘or prime broker’’ 

from this provision. Accordingly, each 

Industry Member that is an executing 

broker would no longer be required to 

report the SRO-Assigned Market 

Participant Identifier of the prime 

broker. 

As the Commission noted in the 

Allocation Exemption, exempting the 

Participants from the requirement that 

they, through their Compliance Rules, 

require executing brokers to provide the 

SRO-Assigned Market Participant 

Identifier of the prime broker is 

appropriate because, as stated by the 

Participants, allocations are done on a 

post-trade basis and the executing 

broker will not have the requisite 

information at the time of the trade. 

Because an executing broker, in certain 

circumstances, does not have this 

information at the time of the trade, this 

relief relieves executing brokers of the 

burdens and costs of developing 

infrastructure and processes to obtain 

this information in order to meet the 

contemporaneous reporting 

requirements of the CAT NMS Plan. 

As the Commission noted in the 

Allocation Exemption, although 

executing brokers would no longer be 

required to provide the prime broker 

information, regulators will still be able 

to determine the prime broker(s) 

associated with orders through querying 

the customer and account information 

database. If an executing broker has only 

one prime broker, the identity of the 

prime broker can be obtained from the 

customer and account information 

associated with the executing broker. 

For customers with multiple prime 

brokers, the identity of the prime 

brokers can be obtained from the 

customer and account information 

which will list the prime broker, if there 

is one, that is associated with each 

account. 

2. Statutory Basis 

The Exchange believes that the 

proposed rule change is consistent with 

the provisions of Section 6(b)(5) of the 

Act,17 which requires, among other 

things, that the Exchange’s rules must 

be designed to prevent fraudulent and 

manipulative acts and practices, to 

promote just and equitable principles of 

trade, and, in general, to protect 

investors and the public interest, and 

Section 6(b)(8) of the Act,18 which 

requires that MIAX rules not impose 

any burden on competition that is not 

necessary or appropriate. 

The Exchange believes that this 

proposal is consistent with the Act 

because it is consistent with, and 

implements, the Allocation Exemption, 

and is designed to assist the Exchange 

and its Industry Members in meeting 

regulatory obligations pursuant to the 

Plan. In approving the Plan, the SEC 

noted that the Plan ‘‘is necessary and 

appropriate in the public interest, for 

the protection of investors and the 

maintenance of fair and orderly markets, 

to remove impediments to, and perfect 

the mechanism of a national market 

system, or is otherwise in furtherance of 

the purposes of the Act.’’ 19 To the 

extent that this proposal implements the 

Plan, and applies specific requirements 

to Industry Members, the Exchange 

believes that this proposal furthers the 

objectives of the Plan, as identified by 

the SEC, and is therefore consistent with 

the Act. 


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84034 Federal Register / Vol. 85, No. 247 / Wednesday, December 23, 2020 / Notices 

20 15 U.S.C. 78s(b)(3)(A). 

21 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 

4(f)(6) requires a self-regulatory organization to give 

the Commission written notice of its intent to file 

the proposed rule change at least five business days 

prior to the date of filing of the proposed rule 

change, or such shorter time as designated by the 

Commission. The Exchange has satisfied this 

requirement. 

22 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78q(d). 

2 17 CFR 240.17d–2. 

3 15 U.S.C. 78s(g)(1). 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will result in 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. The 

Exchange notes that the proposed rule 

changes are consistent with the 

Allocation Exemption, and are designed 

to assist the Exchange in meeting its 

regulatory obligations pursuant to the 

Plan. The Exchange also notes that the 

proposed rule changes will apply 

equally to all Industry Members. In 

addition, all national securities 

exchanges and FINRA are proposing 

this amendment to their Compliance 

Rules. Therefore, this is not a 

competitive rule filing and does not 

impose a burden on competition. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

Written comments were neither 

solicited nor received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Because the foregoing proposed rule 

change does not: (i) Significantly affect 

the protection of investors or the public 

interest; (ii) impose any significant 

burden on competition; and (iii) become 

operative for 30 days after the date of 

the filing, or such shorter time as the 

Commission may designate, it has 

become effective pursuant to 19(b)(3)(A) 

of the Act 20 and Rule 19b–4(f)(6) 21

thereunder. 

At any time within 60 days of the 

filing of the proposed rule change, the 

Commission summarily may 

temporarily suspend such rule change if 

it appears to the Commission that such 

action is necessary or appropriate in the 

public interest, for the protection of 

investors, or otherwise in furtherance of 

the purposes of the Act. If the 

Commission takes such action, the 

Commission shall institute proceedings 

to determine whether the proposed rule 

should be approved or disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

MIAX–2020–38 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–MIAX–2020–38. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of the 

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. All 

submissions should refer to File 

Number SR–MIAX–2020–38, and 

should be submitted on or before 

January 13, 2021. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.22

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2020–28316 Filed 12–22–20; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–90702; File No. 4–529] 

Program for Allocation of Regulatory 

Responsibilities Pursuant to Rule 17d– 

2; Notice of Filing and Order 

Approving and Declaring Effective an 

Amended Plan for the Allocation of 

Regulatory Responsibilities Between 

the Financial Industry Regulatory 

Authority, Inc. and Nasdaq ISE, LLC 

December 17, 2020. 

Notice is hereby given that the 

Securities and Exchange Commission 

(‘‘Commission’’) has issued an Order, 

pursuant to Section 17(d) of the 

Securities Exchange Act of 1934 

(‘‘Act’’),1 approving and declaring 

effective an amendment to the plan for 

allocating regulatory responsibility 

(‘‘Plan’’) filed on November 19, 2020, 

pursuant to Rule 17d–2 of the Act,2 by 

the Financial Industry Regulatory 

Authority, Inc. (‘‘FINRA’’) and Nasdaq 

ISE, LLC (‘‘ISE’’) (collectively, 

‘‘Participating Organizations’’ or 

‘‘parties’’). This agreement amends and 

restates the agreement entered into 

between FINRA and International 

Securities Exchange, LLC on December 

16, 2006, entitled ‘‘Agreement Between 

Financial Industry Regulatory 

Authority, Inc. and International 

Securities Exchange, LLC Pursuant to 

Rule 17d–2 under the Securities 

Exchange Act of 1934,’’ and any 

subsequent amendments thereafter. 

I. Introduction 

Section 19(g)(1) of the Act,3 among 

other things, requires every selfregulatory organization (‘‘SRO’’) 

registered as either a national securities 

exchange or national securities 

association to examine for, and enforce 

compliance by, its members and persons 

associated with its members with the 

Act, the rules and regulations 

thereunder, and the SRO’s own rules, 

unless the SRO is relieved of this 

responsibility pursuant to Section 


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