Document ID: SEC-2020-0797-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2020-05-20T04:00Z

[Federal Register Volume 85, Number 98 (Wednesday, May 20, 2020)]
[Notices]
[Pages 30768-30770]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-10814]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88870; File No. SR-FINRA-2020-013]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Order Granting Accelerated 
Approval of a Proposed Rule Change To Add FINRA Rule 6800 Series 
(Consolidated Audit Trail Compliance Rule) to FINRA's Minor Rule 
Violation Plan (``MRVP'')

May 14, 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 April 29, 2020, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by FINRA. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons and approving the proposal on an accelerated 
basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to add industry member compliance rules relating 
to the Consolidated Audit Trail (``CAT'') to FINRA's Minor Rule 
Violation Plan (``MRVP'').
    The text of the proposed rule change is available on FINRA's 
website at http://www.finra.org, at the principal office of FINRA and 
at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, FINRA included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. FINRA has prepared summaries, set forth in sections A, 
B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    FINRA Rule 9216(b) provides procedures for disposition of certain 
rule violations designated as minor rule violations pursuant to a plan 
declared effective by the Commission in accordance with Section 
19(d)(1) of the Act and Rule 19d-1(c)(2) thereunder. FINRA's MRVP 
allows FINRA to impose a fine of up to $2,500 on any member or person 
associated with a member for a minor violation of an eligible rule. 
FINRA Rule 9217 sets forth the rules eligible for disposition pursuant 
to FINRA's MRVP. FINRA is proposing to amend Rule 9217 to make minor 
violations of the CAT industry member compliance rules in the Rule 6800 
Series eligible for disposition under FINRA's MRVP.
    The purpose of the MRVP is to provide reasonable but meaningful 
sanctions for minor or technical violations of rules when the conduct 
at issue does not warrant stronger, immediately reportable disciplinary 
sanctions. The inclusion of a rule in FINRA's MRVP does not minimize 
the importance of compliance with the rule, nor does it preclude FINRA 
from choosing to pursue violations of eligible rules through an 
Acceptance, Waiver and Consent (``AWC'') or Complaint if the nature of 
the violations or prior disciplinary history warrants more significant 
sanctions. Rather, the option to impose an MRVP sanction gives FINRA 
additional flexibility to administer its enforcement program in the 
most effective and efficient manner, while still fully meeting FINRA's 
remedial objectives in addressing violative conduct. For example, MRVP 
dispositions provide a useful tool for implementing the concept of 
progressive discipline to remediate misconduct.\3\
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    \3\ See Notice to Members 04-19 (March 2004) (providing guidance 
on FINRA's approach to progressive discipline under its MRVP).
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    With this proposed rule change, FINRA would add its CAT industry 
member compliance rules to its MRVP. FINRA adopted its CAT industry 
member compliance rules in the Rule 6800 Series to implement the 
National Market System Plan Governing the Consolidated Audit Trail (the 
``CAT NMS Plan'' or ``Plan''). The CAT NMS Plan was filed by the Plan 
Participants to comply with Rule 613 of Regulation NMS under the 
Exchange Act,\4\ and each Plan Participant accordingly has adopted the 
same compliance rules that FINRA has in its Rule 6800 Series. The 
common compliance rules adopted by each Participant are designed to 
require industry members to comply with the provisions of the CAT NMS 
Plan, which broadly calls for industry members to record and report 
timely and accurate customer, order, and trade information relating to 
activity in NMS Securities and OTC Equity Securities.
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    \4\ 17 CFR 242.613.
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    FINRA notes that the CAT industry member compliance rules are 
highly similar to rules already covered in FINRA's MRVP. Specifically, 
the CAT industry member compliance rules in the Rule 6800 Series 
include rules relating to clock synchronization (Rule 6820), the 
recording and reporting of order and trade data (Rules 6830, 6840, 
6850, 6860, 6870, 6880, and 6893), and recordkeeping (Rule 6890). 
FINRA's current MRVP includes the same kinds of audit trail-related 
rules relating to clock synchronization (Rule 4590), the recording and 
reporting of order audit trail data (Rules 7440, 7450), and 
recordkeeping (Rule 4510 Series and SEA Rule 17a-3(a) and 17a-4).
    If approved, FINRA plans to employ the MRVP for CAT compliance 
rules the

[[Page 30769]]

same way FINRA has for its similar existing audit trail-related 
rules.\5\ FINRA is also coordinating with other Participants to promote 
harmonized and consistent enforcement of all the Participants' CAT 
compliance rules. The Commission recently approved a Rule 17d-2 Plan 
under which the regulation of CAT compliance rules will be allocated 
among Participants to reduce regulatory duplication for industry 
members that are members of more than one Participant (``common 
members'').\6\ Under the Rule 17d-2 Plan, the regulation of CAT 
compliance rules with respect to common members that are members of 
FINRA is allocated to FINRA, and this proposed rule change would allow 
FINRA to consider MRVP dispositions in those cases. Similarly, under 
the Rule 17d-2 Plan, responsibility for common members of multiple 
other Participants and not a member of FINRA will be allocated among 
those other Participants, and FINRA understands the other Participants 
will submit proposed rule changes to adopt the same MRVP terms 
contemplated in this filing for their CAT compliance rules. As a 
result, there will be a coordinated, harmonized approach to CAT 
compliance rule enforcement across Participants, and it will be 
consistent with the approach FINRA has long taken for similar audit 
trail-related rules.
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    \5\ See Notice to Members 04-19 (March 2004) (providing specific 
factors used to inform dispositions for violations of OATS reporting 
rules).
    \6\ See Securities Exchange Act Release No. 88366 (March 12, 
2020), 85 FR 15238 (March 17, 2020).
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    If the Commission approves the proposed rule change, the effective 
date of the proposed rule change will be the date of approval. FINRA 
has requested the Commission to find good cause pursuant to Section 
19(b)(2) of the Act \7\ for approving the proposed rule change prior to 
the 30th day after its publication in the Federal Register, to allow 
the change to take effect in line with the commencement of the first 
phase of industry member reporting to CAT.
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    \7\ 15 U.S.C. 78s(b)(2).
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2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\8\ which requires, among 
other things, that FINRA rules must be designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade and, in general, to protect investors and the 
public interest. FINRA further believes that the proposed rule change 
is consistent with the provisions of Section 15A(b)(2) and (b)(7) of 
the Act,\9\ which requires that FINRA enforce and provide appropriate 
discipline for violation of FINRA rules and applicable federal 
securities laws, rules and regulations. FINRA believes that adopting 
the proposed rule change will strengthen FINRA's ability to carry out 
its oversight and enforcement responsibilities in cases where full 
disciplinary proceedings are not warranted in view of the minor nature 
of the particular violation.
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    \8\ 15 U.S.C. 78o-3(b)(6).
    \9\ 15 U.S.C. 78o-3(b)(2) and 78o-3(b)(7).
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    In addition, FINRA's MRVP, as amended by this proposal, provides a 
fair procedure for disciplining members and persons associated with 
members, consistent with Sections 15A(b)(8) and 15A(h)(1) of the 
Act.\10\ The MRVP does not preclude a member or associated person from 
contesting an alleged violation and receiving a hearing on the matter 
with the same procedural rights through a litigated disciplinary 
proceeding.
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    \10\ 15 U.S.C. 78o-3(b)(8) and 78o-3(h)(1).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.
Economic Impact Assessment
    FINRA has undertaken an economic impact assessment, as set forth 
below, to analyze the potential economic impacts, including anticipated 
costs, benefits, and distributional and competitive effects, and the 
alternatives FINRA considered in assessing how to best meet its 
regulatory objectives.
Regulatory Need
    FINRA is proposing to amend Rule 9217 to make minor violations of 
the CAT industry member compliance rules in the Rule 6800 Series 
eligible for disposition under FINRA's MRVP, which allows FINRA to 
impose a fine of up to $2,500 on any member or person associated with a 
member for a minor violation of an eligible rule. The purpose of the 
MRVP is to provide reasonable but meaningful sanctions for minor or 
technical violation of rules when the conduct at issue does not warrant 
stronger, immediately reportable disciplinary sanctions. This proposal 
is intended to allow MRVP dispositions when appropriate in the 
enforcement of CAT industry member reporting requirements.
Economic Baseline
    FINRA adopted its CAT industry member compliance rules in the Rule 
6800 Series to implement the National Market System Plan Governing the 
CAT NMS Plan. The CAT NMS Plan was filed by the Plan Participants to 
comply with Rule 613 of Regulation NMS under the Exchange Act,\11\ and 
each Plan Participant accordingly has adopted the same compliance rules 
that FINRA has in its Rule 6800 Series. As the CAT industry member 
compliance rules take effect, members must comply with them and FINRA 
must enforce compliance with them. As discussed above, the CAT industry 
member compliance rules are highly similar to existing audit trail-
related rules already eligible for disposition under FINRA's MRVP.
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    \11\ 17 CFR 242.613.
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Economic Impact
    The proposed rule will allow FINRA to treat violations of CAT 
compliance rules the same way FINRA treats violations of its current 
audit trail-related rules, including OATS. As such, most industry 
members would be subject to the same regime that exists today for 
enforcing FINRA's current audit trail-related rules and would not be 
expected to experience any additional costs or benefits under the 
proposed rule. The proposed rule may provide benefits, including to 
FINRA and reporting firms, if MRVP dispositions are eligible to be used 
when FINRA deems appropriate, as the MRVP gives FINRA additional 
flexibility to administer its enforcement program in the most effective 
and efficient manner.
    Furthermore, the efforts of all CAT NMS Plan participants to adopt 
a coordinated, harmonized approach to MRVP treatment for CAT compliance 
rules will promote consistent treatment for all industry members that 
trade NMS Securities and OTC Equity Securities.
Alternatives Considered
    No alternatives are under consideration.

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. 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.

[[Page 30770]]

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-FINRA-2020-013 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-FINRA-2020-013. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (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 FINRA. All comments received 
will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-FINRA-2020-013 and should be submitted 
on or before June 10, 2020.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities association.\12\ In 
particular, the Commission finds that the proposed rule change is 
consistent with Section 15A(b)(6) of the Exchange Act,\13\ which 
requires that FINRA rules be designed to promote just and equitable 
principles of trade, to remove impediments and to perfect the mechanism 
of a free and open market and a national market system, and, in 
general, to protect investors and the public interest. The Commission 
also believes that the proposal is consistent with Sections 15A(b)(2) 
and 15A(b)(7) of the Exchange Act,\14\ which require that FINRA rules 
enforce compliance with, and provide appropriate discipline for, 
violations of Commission and FINRA rules. Finally, the Commission finds 
that the proposal is consistent with the public interest, the 
protection of investors, or otherwise in furtherance of the purposes of 
the Act, as required by Rule 19d-1(c)(2) under the Act,\15\ which 
governs minor rule violation plans.
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    \12\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \13\ 15 U.S.C. 78o-3(b)(6).
    \14\ 15 U.S.C. 78o-3(b)(2) and 15 U.S.C. 78o-3(b)(7).
    \15\ 17 CFR 240.19d-1(c)(2).
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    As stated above, FINRA proposes to add industry member compliance 
rules relating to CAT to FINRA's MRVP. According to FINRA, FINRA's 
current MRVP includes similar audit trail-related rules, and FINRA 
plans to employ the MRVP for CAT compliance rules the same way it has 
for its existing audit trail-related rules.\16\ The Commission believes 
that the proposed rule provides a reasonable means of addressing 
violations that do not rise to the level of requiring formal 
disciplinary proceedings, while providing greater flexibility in 
handling certain violations. However, the Commission expects that FINRA 
will continue to conduct surveillance with due diligence and make 
determinations based on its findings, on a case-by-case basis, 
regarding whether a sanction under the rule is appropriate, or whether 
a violation requires formal disciplinary action.
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    \16\ See supra note 5 and accompanying text.
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    For the same reasons discussed above, the Commission finds good 
cause, pursuant to Section 19(b)(2) of the Act,\17\ for approving the 
proposed rule change prior to the thirtieth day after the date of 
publication of the notice of the filing thereof in the Federal 
Register. The proposal merely adds FINRA's newly adopted CAT industry 
member compliance rules to its MRVP, which already includes similar 
audit trail-related rules. Accordingly, the Commission believes the 
proposal raises no novel or significant issues. Further, the Commission 
believes that a full notice-and-comment period is not necessary before 
approving the proposal.
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    \17\ 15 U.S.C. 78s(b)(2).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\18\ and Rule 19d-1(c)(2) thereunder,\19\ that the proposed rule change 
(SR-FINRA-2020-013) be, and hereby is, approved on an accelerated 
basis.
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    \18\ 15 U.S.C. 78s(b)(2).
    \19\ 17 CFR 240.19d-1(c)(2).
    \20\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-10814 Filed 5-19-20; 8:45 am]
BILLING CODE 8011-01-P