Document ID: SEC-2016-0609-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2016-04-11T04:00Z

[Federal Register Volume 81, Number 69 (Monday, April 11, 2016)]
[Notices]
[Pages 21427-21428]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-08183]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77523; File No. SR-FINRA-2016-006]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Approving a Proposed Rule Change To Amend FINRA 
Rules 7410 (Definitions) and 7440 (Recording of Order Information)

April 5, 2016.

I. Introduction

    On February 11, 2016, the Financial Industry Regulatory Authority, 
Inc. (``FINRA''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ filed 
with the Securities and Exchange Commission (``Commission'') a proposal 
to amend FINRA Rules 7410 and 7440 to require FINRA members to include 
on their Order Audit Trail System (``OATS'') reports the identity of 
broker-dealers that are not FINRA members when the member receives an 
order from such a broker-dealer. The proposed rule change was published 
for comment in the Federal Register on February 25, 2016.\3\ The 
Commission received no comments on the proposal. This order approves 
the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 77180 (February 19, 
2016), 81 FR 9545 (``Notice'').
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II. Description of the Proposed Rule Change

    First, FINRA proposes to define an ``SRO-assigned identifier'' in 
Rule 7410 as ``a unique identifier assigned to a broker or dealer by a 
national securities exchange or national securities association for use 
by such broker or dealer when accessing the exchange or a facility of 
the association.'' The identifier would be considered ``unique'' if the 
identifier assigned by the exchange or association is used to identify 
a single broker-dealer.\4\
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    \4\ See Notice, supra note 3, at 9546, note 4.
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    Second, FINRA is proposing to amend Rule 7440 of the OATS rules to 
require members that are subject to the OATS rules (``Reporting 
Members'') to identify non-FINRA-member broker-dealers (``Non-Member 
Firms'') from which they receive orders, on the OATS report for the 
order.\5\ Under the proposed rule change, Reporting Members that 
receive an order from a ``Reportable Non-Member'' (a U.S.-registered 
broker-dealer that is not a FINRA member or a broker-dealer that is not 
registered in the U.S. but has received an SRO-assigned identifier in 
order to access certain FINRA trade reporting facilities) would be 
required to identify that broker-dealer when reporting receipt of the 
order to OATS.\6\ Reporting Members that receive an order from, or 
route an order to, a Non-Member Firm would report one of the following: 
the Non-Member Firm's Central Registration Depository (``CRD 
[supreg]'') number, the Non-Member Firm's SRO-assigned identifier, or, 
for a Non-Member Firm that does not have a CRD number or SRO-assigned 
identifier (e.g., a foreign broker-dealer), a value indicating that the 
Non-Member Firm has no CRD number or SRO-assigned identifier.\7\ The 
proposed rule

[[Page 21428]]

change does not mandate which identifier Reporting Members must use.\8\ 
FINRA will be able to obtain the identity of Reportable Non-Members 
from the OATS report which will make its audit trail more 
comprehensive.\9\ FINRA will use the information to identify Non-Member 
Firm activity in the over-the-counter market, as well as Non-Member 
Firm sponsored access activity.
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    \5\ FINRA Rule 7410(o) defines a Reporting Member as ``a member 
that receives or originates an order and has an obligation to report 
information under Rules 7440 and 7450.'' The rule also has 
exceptions. See FINRA Rule 7410(o)(1) and (2).
    \6\ See Notice, supra note 3, at 9545-6. Certain broker-dealers 
registered in Canada, but not in the U.S., have SRO-assigned 
identifiers so that they can access FINRA trade reporting facilities 
pursuant to FINRA Rule 7220A or 7320. Id. at 9546, n. 5.
    \7\ See Notice, supra note 3, at 9546. The OATS Reporting 
Technical Specifications currently require that OATS reports include 
an identifier for each national securities exchange to which an 
order is routed. However, the current OATS Reporting Technical 
Specifications do not require that the identity of the specific Non-
Member Firm to which an order is routed be provided. To address this 
gap and to conform the reporting of orders received from and orders 
routed to Non-Member Firms, FINRA intends to update the OATS 
Reporting Technical Specifications to reflect the revised 
requirements. See OATS Reporting Technical Specifications, at 4-4, 
and A-4 to A-5 (October 12, 2015 ed.). Id. at 9546-7.
    \8\ See Notice, supra note 3, at 9546.
    \9\ See Notice, supra note 3, at 9547. FINRA stated that if the 
Commission approved the proposed rule change, it would announce the 
effective date of the proposed rule no later than 60 days following 
Commission approval, and the effective date would be no later than 
120 days following Commission approval. Id.
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III. Discussion

    After careful review, the Commission finds that FINRA's proposal is 
consistent with the requirements of Section 15A of the Act \10\ and the 
rules and regulations thereunder applicable to a national securities 
association.\11\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 15A(b)(6) of the Act,\12\ which 
requires, among other things, that FINRA rules 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.
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    \10\ 15 U.S.C. 78(f).
    \11\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \12\ 15 U.S.C. 78o-3(b)(6).
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    The proposed rule change will provide FINRA, via OATS reports, the 
identity of Reportable Non-Members that route orders or to which an 
order has been routed, which will make the OATS reports more complete. 
Having the information regarding which Reportable Non-Member was 
involved in a transaction will enable FINRA to better surveil off-
exchange market activity as well as enhance the surveillance it 
performs of exchange activity pursuant to its Regulatory Services 
Agreements. FINRA will be able to consistently identify Non-Member Firm 
activity, providing FINRA with a more complete view of such activities 
across all exchanges and over-the-counter market centers.
    The Commission believes that requiring Reporting Members to include 
the identity of Reportable Non-Members in OATS reports on orders they 
receive from either a U.S.-registered broker-dealer that is not a FINRA 
member or a broker-dealer that is not registered in the U.S. but has 
received an SRO-assigned identifier, will provide FINRA with a more 
complete view of such market participants' activities across exchanges 
and over-the-counter market centers. This, in turn, should enhance 
FINRA's cross-market surveillance efforts. Improved surveillance should 
help FINRA detect and deter fraudulent and manipulative acts and 
practices, and thus promote just and equitable principles of trade and 
the protection of investors and the public interest.

IV. Conclusion

    It Is Therefore Ordered pursuant to Section 19(b)(2) of the Act 
\13\ that the proposed rule change (SR-FINRA-2016-006), be and hereby 
is approved.
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    \13\ 15 U.S.C. 78s(b)(2).
    \14\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-08183 Filed 4-8-16; 8:45 am]
 BILLING CODE 8011-01-P