Document ID: SEC-2019-1299-0001
Agency: sec
Document Type: Notice
Title: Order Granting Application: The Financial Information Forum and Security Traders Association
Posted Date: 2019-09-10T04:00Z

[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