Document ID: SEC-2023-0344-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2023-03-27T04:00Z

[Federal Register Volume 88, Number 58 (Monday, March 27, 2023)]
[Notices]
[Pages 18199-18201]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-06196]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97181; File No. SR-FINRA-2023-003]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend FINRA Rules To Address Duplicative 
Requirements

March 21, 2023.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 10, 2023, the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by FINRA. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing, in light of member obligations relating to the 
Consolidated Audit Trail (``CAT''), to amend FINRA Rule 4590 
(Synchronization of Member Business Clocks), amend FINRA Rule 6250 
(Quote and Order Access Requirements), eliminate FINRA Rule 6431 
(Recording of Quotation Information), and amend FINRA Rule 6439 
(Requirements for Member Inter-Dealer Quotation Systems).
    The text of the proposed rule change is available on FINRA's 
website at 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
    The National Market System Plan governing the Consolidated Audit 
Trail (the ``CAT NMS Plan'') \3\ is intended to create, implement, and 
maintain a consolidated audit trail that will capture in a single 
consolidated data source customer and order event information for 
orders in NMS securities \4\ and OTC equity securities,\5\ across all 
markets, from the time of order inception through routing, 
cancellation, modification, or execution.\6\ FINRA is filing the 
proposed rule change to amend FINRA rules in light of the CAT NMS Plan 
to eliminate duplicative requirements or otherwise clarify regulatory 
obligations. Specifically, FINRA is proposing amendments to: (1) 
clarify overlapping clock synchronization requirements for members; (2) 
delete duplicative requirements relating to order and quote recording 
and reporting requirements in connection with the alternative display 
facility (``ADF''); (3) delete duplicative requirements relating to the 
reporting of quotation information for OTC equity securities; and (4) 
delete duplicative requirements relating to the submission of order-
level quotation information for OTC equity securities.\7\
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    \3\ FINRA and the national securities exchanges filed the CAT 
NMS Plan with the Commission pursuant to Section 11A of the Exchange 
Act and Rule 608 of Regulation NMS thereunder, and it was approved 
by the SEC on November 15, 2016. See Securities Exchange Act Release 
No. 79318 (November 15, 2016), 81 FR 84696 (November 23, 2016) 
(``CAT Approval Order'').
    \4\ See Rule 600(b)(54) of Regulation NMS.
    \5\ See FINRA Rule 6420(f).
    \6\ See e.g., Securities Exchange Act Release No. 67457 (July 
18, 2012), 77 FR 45722 (August 1, 2012).
    \7\ The proposed rule change would also update cross-references 
in FINRA Rules 6220, 6275 and 6279, including updating citations to 
Rule 600(b) of Regulation NMS.
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Synchronization of Member Business Clocks
    FINRA Rule 4590 requires members to synchronize their business 
clocks, including computer system clocks and mechanical time stamping 
devices, that are used for purposes of recording the date and time of 
any event that must be recorded pursuant to the FINRA By-Laws or other 
FINRA rules. Rule 4590 further requires that business clocks, including 
computer system clocks and manual time stamp machines, be synchronized 
to within a one second tolerance of the National Institute of Standards 
(NIST) atomic clock, except that computer system clocks that are used 
to record events in NMS securities, including standardized options, and 
OTC equity securities, must be synchronized to within a 50-millisecond 
tolerance of the NIST clock. FINRA adopted Rule 4590 before the CAT NMS 
Plan was approved and before FINRA adopted Rule 6820.
    FINRA Rule 6820 (Clock Synchronization) \8\ addresses clock 
synchronization obligations pursuant to the CAT NMS Plan and prescribes 
the requirements for industry members in synchronizing their business 
clocks. FINRA is therefore proposing amendments to clarify that Rule 
4590 applies only where Rule 6820 does not. Therefore, Rule 6820, 
rather than Rule 4590, would apply to business clocks used to record 
events for NMS securities and OTC equity securities, but Rule 4590 
would apply to business clocks that record events in debt securities. 
This proposed rule change is intended solely to eliminate overlapping 
rule requirements and promote clarity.
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    \8\ Rule 6820 falls under the CAT Compliance Rule Series.
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Alternative Display Facility Quote and Order Access Requirements
    FINRA Rule 6250 provides quoting and order access requirements for 
members that utilize FINRA's ADF to display quotes in an ADF-eligible 
security.\9\ Pursuant to Rule 6250, ADF Trading Centers \10\ must 
record and report to FINRA on a daily basis specified order 
information. Among other things, paragraph (b) of Rule 6250 requires an 
ADF Trading Center to record and report orders originated,

[[Page 18200]]

received, transmitted, modified, canceled, or executed by other broker-
dealers via direct or indirect access and paragraph (c) requires an ADF 
Trading Center to record and report to FINRA certain information for 
each order that is part of a displayed bid or offer on the ADF, or the 
execution details, if any, of each order that is part of a displayed 
bid or offer.
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    \9\ FINRA Rule 6220(a)(2) defines an ``ADF-eligible security'' 
as an NMS stock as defined by SEC Regulation NMS.
    \10\ FINRA Rule 6220(a)(4) defines an ``ADF trading center'' as 
a registered reporting ADF market maker, or a registered reporting 
ADF electronic communications network that is a ``trading center,'' 
as defined by SEC Regulation NMS, and that is certified, pursuant to 
Rule 6250, to display its quotations or orders through the ADF.
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    FINRA is proposing amendments to Rule 6250 to delete requirements 
that are duplicative of requirements under the CAT NMS Plan or that are 
otherwise unnecessary to oversee the ADF. Specifically, FINRA Rule 6830 
(Industry Member Data Reporting) \11\ requires members, including 
members meeting the definition of an ADF Trading Center, to comply with 
the reporting requirements of the CAT NMS Plan. Pursuant to Rule 
6830(a), Industry Members must report to the CAT Central Repository 
information with respect to orders originated, received, transmitted, 
modified, canceled, or executed by other broker-dealers, which is 
duplicative of the requirements currently specified in Rule 6250(b) and 
(c). Accordingly, FINRA is proposing to delete Rule 6250(b) and 6250(c) 
in their entirety to avoid unnecessary or duplicative regulatory 
requirements.\12\
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    \11\ Rule 6830 falls under the CAT Compliance Rule Series.
    \12\ FINRA proposes to renumber Rules 6250(d), 6250(e), 6250(f), 
6250(g) and 6250(h) as Rules 6250(b), 6250(c), 6250(d), 6250(e), and 
6250(f) in light of the proposed deletion of Rules 6250(b) and 
6250(c).
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    FINRA has confirmed that the information required to be submitted 
by members pursuant to Rule 6830(a) is sufficient for FINRA oversight 
of the ADF. Specifically, the following items proposed to be deleted 
under Rule 6250(b)(1) are available in CAT data: unique order 
identifier; order entry firm; order side; order quantity; symbol; order 
price; time in force; order date; order time; minimal acceptable 
quantity; and ADF trading center. In addition, the following items 
proposed to be deleted under Rule 6250(b)(2) are available in CAT data: 
unique order identifier; order response time; quantity; and price. The 
following items proposed to be deleted under Rule 6250(c)(1) are 
available in CAT data: symbol; side; price; quantity; order date and 
time of receipt; order instructions; firm identifiers and capacity 
information; quote identifier; quote price; and quote time. Order 
response, which is proposed to be deleted under Rule 6250(b)(1), is 
derivable from CAT data, as CAT tracks all related events in the 
lifecycle of an order, such as cancellations, modifications, and order 
or route acceptances. FINRA notes that every order submitted to the CAT 
Central Repository is assigned a unique order identifier, which FINRA 
believes obviates the need for a separate internal order identifier as 
is currently required under Rule 6250(c)(1). FINRA also has access to 
information in the CAT Central Repository regarding whether an order is 
marked short sale exempt.\13\ With respect to the recordkeeping 
requirements of Rule 6250(b), FINRA notes that Rule 6890 
(Recordkeeping) requires industry members to maintain and preserve 
records of the information required to be recorded under the CAT 
Compliance Rule Series for the period of time and accessibility 
specified in SEA Rule 17a-4(b) and SEA Rule 17a-4(f), obviating the 
need for the separate recordkeeping provisions of Rule 6250(b).\14\
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    \13\ Rule 6250(c)(1) also requires members to submit to FINRA 
the reason for any short sale exemption as well as the identity of 
the clearing member. Neither of these items of information are 
currently available in the CAT Central Repository; however, 
obtaining this information through daily submissions is not 
necessary for FINRA to effectively oversee ADF activity. Should the 
facts and circumstances of any particular matter warrant obtaining 
additional insight into the reasons for a short sale exemption or 
the identity of a clearing member, FINRA would contact the relevant 
member to request the relevant information.
    \14\ See Rule 6800 Series (Consolidated Audit Trail Compliance 
Rule).
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Recording of Quotation Information in OTC Equity Securities
    FINRA Rule 6431 was implemented in 2003 to provide FINRA with 
access to quotation data for ``OTC equity securities,'' as defined 
under FINRA Rule 6420 (Definitions),\15\ to facilitate FINRA's 
oversight of members and, when necessary, reconstruct market 
activity.\16\ Rule 6431 generally requires OTC Market Makers \17\ that 
display quotations on a non-FINRA- or non-member-operated inter-dealer 
quotation system (``IDQS'') to record information about their 
quotations and to report the information to FINRA upon request, 
including, e.g., trade date, time the quotation is displayed, security 
name and symbol. Rule 6431 does not require such information to be 
recorded or reported by the IDQSs themselves. Due to changes in the 
marketplace, members have not reported quotation data to FINRA pursuant 
to Rule 6431 for several years since the IDQS that previously was not a 
FINRA member became a FINRA member. Because Rule 6431 only applies to 
quotation activity occurring on a non-FINRA- or non-member-operated 
IDQS, members were not required to report quotation data that occurred 
on a member system pursuant to Rule 6431. Today, FINRA has access to 
quotation information occurring on an IDQS necessary to conduct its 
oversight functions because member IDQSs are subject to the CAT NMS 
Plan, which requires members to, among other things, report specified 
order and quote information to the CAT Central Repository. Accordingly, 
FINRA is proposing to delete Rule 6431.
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    \15\ See Rule 6420.
    \16\ See Securities Exchange Act Release No. 47587 (March 27, 
2003), 68 FR 16328 (April 3, 2003) (Order Approving File No. SR-
NASD-2000-042). See also Notice to Members 03-28 (June 2003).
    \17\ FINRA Rule 6420(g) generally defines ``OTC Market Maker'' 
as a member of FINRA that holds itself out as a market maker by 
entering proprietary quotations or indications of interest for a 
particular OTC equity security in any IDQS, including any system 
that the SEC has qualified pursuant to Section 17B of the Act.
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Requirements for Member Inter-Dealer Quotation Systems
    FINRA adopted Rule 6439 to, among other things, expand and enhance 
the obligations of member IDQSs that permit quotation updates on a 
real-time basis in OTC equity securities.\18\ Pursuant to Rule 6439(d), 
covered IDQSs must submit to FINRA on a monthly basis specified 
aggregate and order-level information for orders in OTC equity 
securities. FINRA is proposing to delete paragraph (d)(1)(B) of Rule 
6439, which was adopted before comparable information for OTC equity 
securities was being reported to CAT. Rule 6439(d)(2) specifically 
provides that member IDQSs are not required to report to FINRA any of 
the items of information specified in Rule 6439(d)(1)(B) if, at a 
minimum, the items specified in Rule 6439 (d)(1)(B)(i) through (xi) are 
subject to reporting to the CAT under Rule 6830. The information 
specified in Rule 6439 (d)(1)(B)(i) through (xi) became subject to CAT 
reporting on December 31, 2021 and therefore Rule 6439(d)(1)(B), by its 
terms, does not apply to any FINRA members in light of CAT obligations. 
Therefore, FINRA is proposing to delete Rule 6439(d)(1)(B) because 
members currently are required to report comparable data pursuant to 
the CAT NMS Plan. Specifically, the following items proposed to be 
deleted under Rule 6439(d)(1)(B) are required to be reported to the CAT 
Central Repository: buy/sell; security symbol; price; size, all or none 
indicator; order entry firm identifier; order receipt time; time in 
force; and executed quantity. Response time and order response are 
derivable through CAT data, as CAT tracks all related events in the 
lifecycle of an order, such

[[Page 18201]]

as cancellations, modifications, and order or route acceptances.
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    \18\ See Securities Exchange Act Release No. 92105 (June 3, 
2021); 86 FR 30663 (June 9, 2021) (Order Approving File No. SR-
FINRA-2020-031).
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    FINRA has filed the proposed rule change for immediate 
effectiveness.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\19\ which requires, among 
other things, that FINRA rules must be designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest, and Section 15A(b)(9) of the Act,\20\ which requires 
that FINRA rules not impose any burden on competition that is not 
necessary or appropriate. FINRA believes that the proposed rule change 
will eliminate overlapping, duplicative or otherwise unnecessary rule 
requirements and promote clarity and consistency regarding member 
obligations under FINRA rules.
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    \19\ 15 U.S.C. 78o-3(b)(6).
    \20\ 15 U.S.C. 78o-3(b)(9).
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    FINRA believes that this proposed rule change is consistent with 
the Act because it implements, interprets or clarifies the provisions 
of the CAT NMS Plan, and is designed to assist FINRA and its Industry 
Members in meeting regulatory obligations pursuant to the CAT NMS Plan. 
In approving the CAT NMS Plan, the SEC noted that the CAT NMS Plan ``is 
necessary and appropriate in the public interest, for the protection of 
investors and the maintenance of fair and orderly markets, to remove 
impediments to, and perfect the mechanism of a national market system, 
or is otherwise in furtherance of the purposes of the Act.'' \21\ To 
the extent that the proposed rule change implements, interprets or 
clarifies the CAT NMS Plan and applies specific requirements to 
Industry Members, FINRA believes that the proposed rule change furthers 
the objectives of the CAT NMS Plan, as identified by the SEC, and is 
therefore consistent with the Act.
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    \21\ See CAT Approval Order, supra note 4.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. The proposed rule change brings 
clarity and consistency to FINRA rules without adding any burden on 
firms.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received on this 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \22\ and Rule 19b-
4(f)(6) thereunder.\23\
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    \22\ 15 U.S.C. 78s(b)(3)(A).
    \23\ In addition, Rule 19b-4(f)(6) requires a self-regulatory 
organization to give the Commission written notice of its intent to 
file the proposed rule change at least five business days prior to 
the date of filing of the proposed rule change, or such shorter time 
as designated by the Commission. FINRA has satisfied this 
requirement. 17 CFR 240.19b-4(f)(6).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-FINRA-2023-003 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-2023-003. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (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-2023-003 and should be submitted 
on or before April 17, 2023.
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    \24\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-06196 Filed 3-24-23; 8:45 am]
BILLING CODE 8011-01-P