Document ID: SEC-2021-0819-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2021-06-09T04:00Z

[Federal Register Volume 86, Number 109 (Wednesday, June 9, 2021)]
[Notices]
[Pages 30632-30635]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-12031]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92098; File No. SR-FINRA-2021-013]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend the Supplemental Inventory Schedule 
Pursuant to FINRA Rule 4524 (Supplemental FOCUS Information)

June 3, 2021.
    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 May 26, 2021, 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, 
II, and III below, which Items have been prepared by FINRA. FINRA has 
designated the proposed rule change as constituting a ``non-
controversial'' rule change under paragraph (f)(6) of Rule 19b-4 under 
the Act,\3\ which renders the proposal effective upon receipt of this 
filing by the Commission. 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.
    \3\ 17 CFR 240.19b-4(f)(6).

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[[Page 30633]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to amend the Supplemental Inventory Schedule 
(``SIS'') pursuant to FINRA Rule 4524 (Supplemental FOCUS Information) 
so that members that are filers of FOCUS Report Part II will not be 
required to file the SIS. The proposed rule change does not make any 
other change to the SIS or the instructions thereto.
    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 4524 provides in part that, as a supplement to filing 
FOCUS Reports required pursuant to SEA Rule 17a-5 \4\ and FINRA Rule 
2010, each member, as FINRA shall designate, shall file such additional 
financial or operational schedules or reports as FINRA may deem 
necessary or appropriate for the protection of investors or in the 
public interest. In general, members with a FOCUS filing requirement 
must either file a FOCUS Report Part II if they clear transactions or 
carry customer accounts \5\ or file a FOCUS Report Part IIA if they do 
not.\6\ Members that are government securities broker-dealers 
registered under SEA Section 15C \7\ do not file a FOCUS Report and 
instead are required to file reports concerning their financial and 
operational status using the Report on Finances and Operations of 
Government Securities Brokers and Dealers (``FOGS Report'').\8\ FINRA 
established the SIS requirement pursuant to Rule 4524 in 2014.\9\ 
Pursuant to this requirement, the SIS must be filed by a member that is 
required to file FOCUS Report Part II, FOCUS Report Part IIA or the 
FOGS Report Part I, with inventory positions as of the end of the FOCUS 
or FOGS reporting period, unless the member has (1) a minimum dollar 
net capital or liquid capital requirement of less than $100,000; or (2) 
inventory positions consisting only of money market mutual funds. A 
member with inventory positions consisting only of money market mutual 
funds must affirmatively indicate through the eFOCUS system that no SIS 
filing is required for the reporting period. As FINRA noted in 
establishing the SIS, the purpose of the SIS requirement is to provide 
more detailed information of inventory positions held by members.\10\
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    \4\ 17 CFR 240.17a-5 (hereinafter cited as SEA ``Rule 17a-5''). 
SEA Rule 17a-5 governs financial and operational reporting by 
brokers and dealers. Members are required to file with FINRA, 
through the eFOCUS System, reports concerning their financial and 
operational status using SEC Form X-17A-5 (the ``FOCUS Report''). 
See, e.g., Information Notice, November 23, 2020 (2021 and First 
Quarter of 2022 Report Filing Due Dates); Regulatory Notice 18-38 
(November 2018) (Amendments to the SEC's Financial Reporting 
Requirements--eFOCUS System Updates and Annual Audit Requirements). 
``FOCUS'' stands for Financial and Operational Combined Uniform 
Single.
    \5\ Currently, members that calculate net capital using Appendix 
E to SEA Rule 15c3-1 file FOCUS Report Part II CSE, rather than 
FOCUS Report Part II. Such members are referred to as ``alternative 
net capital'' or ``ANC'' broker-dealers.
    \6\ SEA Rule 17a-5.
    \7\ 15 U.S.C. 78o-5.
    \8\ Department of the Treasury Form G-405.
    \9\ See Securities Exchange Act Release No. 73192 (September 23, 
2014), 79 FR 58390 (September 29, 2014) (Order Approving Proposed 
Rule Change; File No. SR-FINRA-2014-025); see also Regulatory Notice 
14-43 (October 2014) (SEC Approves Supplemental Inventory Schedule).
    \10\ See note 9 supra.
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    The Commission, as part of its rulemakings pursuant to Title VII of 
the Dodd-Frank Wall Street Reform and Consumer Protection Act (``Dodd-
Frank Act'') \11\ to establish a regulatory framework for security-
based swaps (``SBS''), has adopted among other things amendments to the 
FOCUS reporting requirements, including amendments to FOCUS Report Part 
II \12\ designed to elicit additional information about the SBS 
activities of broker-dealers that file FOCUS Report Part II, including 
broker-dealers that will also be registered as SBS dealers and major 
SBS participants.\13\
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    \11\ Public Law 111-203, 124 Stat. 1376 (2010).
    \12\ See Securities Exchange Act Release No. 87005 (September 
19, 2019), 84 FR 68550 (December 16, 2019) (Final Rule: 
Recordkeeping and Reporting Requirements for Security-Based Swap 
Dealers, Major Security-Based Swap Participants, and Broker-Dealers) 
(``Reporting Requirements Release'').
    \13\ See Reporting Requirements Release, 84 FR at 68573. 
Pursuant to the SEC's rule change, ANC broker-dealers that currently 
file FOCUS Report Part II CSE will file new FOCUS Report Part II.
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    FINRA believes that Schedule 1--Aggregate Securities, Commodities, 
and Swaps Positions (``Schedule 1'') to FOCUS Report Part II, as 
amended, includes substantially all the information that is required by 
the SIS, including, among other things, information on the following 
types of positions:
     U.S. Treasury securities;
     U.S. government agency and U.S. government-sponsored 
enterprise securities;
     securities issued by states and political subdivisions in 
the U.S.;
     foreign securities;
     money market instruments;
     private label mortgage backed securities;
     other asset-backed securities;
     corporate obligations;
     stocks and warrants (other than arbitrage positions);
     arbitrage positions;
     spot commodities;
     other securities and commodities; and
     securities with no ready market.
    Further, line 11 of the SIS requires specified information on 
``derivatives including options,'' based on whether the positions are 
centrally cleared or not. On Schedule 1 this information will be 
reported based on whether the position is a cleared or non-cleared SBS, 
mixed swap or swap, or will be reported under the category ``other 
derivatives and options.'' \14\ Schedule 1 will also require 
information on counterparty netting and cash collateral netting.
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    \14\ Schedule 1 requires the information for cleared and non-
cleared SBS, mixed swaps and swaps in separate categories on Lines, 
15, 16 and 17 of Schedule 1, while the SIS requires that SBS and 
swaps be reported in aggregate under ``centrally cleared'' and ``all 
other'' under Line 11 of the SIS. Further, Schedule 1 requires that 
other derivatives or options be reported in aggregate on Line 18 of 
Schedule 1, while the SIS specifies separate categories for 
``centrally cleared'' and ``all other'' options, ``forward settling 
and delayed delivery transactions,'' ``futures'' and ``other'' 
products under Line 11 of the SIS. Also, under Line 13 of the SIS 
(``securities with no ready market''), the category for ``other 
(include limited partnership interests)'' is reflected as ``other'' 
under Line 13 of Schedule 1.
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    Given that substantially all the information required by the SIS is 
covered by Schedule 1 of FOCUS Report Part II, as amended, FINRA 
believes that it would be an unnecessary duplication of reporting to 
require members that file FOCUS Report Part II to continue to submit 
the SIS after the compliance date \15\ for certain of the SEC's SBS

[[Page 30634]]

rulemakings, including the new FOCUS reporting requirements pursuant to 
the Reporting Requirements Release. As such, in the interest of 
avoiding unnecessary duplication, FINRA believes it is appropriate to 
remove FOCUS Report Part II filers from the scope of members required 
to file the SIS.\16\ Accordingly, the proposed rule change would revise 
the first paragraph under the General Instructions to the SIS so as to 
provide, in relevant part, that: ``The Supplemental Inventory Schedule 
(SIS) is to be filed within 20 business days after the end of each 
firm's FOCUS reporting period by all FOCUS Part IIA and FOGS Part I 
filers . . .'' \17\ FINRA believes it is appropriate to implement this 
revision in alignment with the reporting cycle that coincides with the 
SEC's SBS compliance date. FINRA is not proposing any other change to 
the SIS.
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    \15\ The Commission has broadly coordinated the compliance date 
for certain SBS rulemakings by setting October 6, 2021, as the 
compliance date (the ``compliance date'' or ``SBS compliance date'') 
for the registration requirements that the Commission adopted for 
SBS dealers and major SBS participants. See Reporting Requirements 
Release, 84 FR at 68600; see also Key Dates for Registration of 
Security-Based Swap Dealers and Major Security-Based Swap 
Participants, available on the Commission website at: <https://www.sec.gov/page/key-dates-registration-security-based-swap-dealers-and-major-security-based-swap-participants.
    \16\ FINRA notes that members that have elected to be treated as 
capital acquisition brokers (``CABs'') would be subject to the 
proposed rule change to the extent that FINRA Rule 4524, pursuant to 
CAB Rule 452(b), applies to CABs. To the extent any CABs are FOCUS 
Report Part II filers, then, pursuant to the rule change, such firms 
would no longer need to file the SIS.
    The proposed rule change would not impact funding portal members 
because such members are not subject to Rule 4524 and are not 
subject to the FOCUS reporting requirements.
    \17\ The SIS, as proposed to be revised pursuant to the rule 
change, is included as Exhibit 3 to this rule filing.
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    FINRA has filed the proposed rule change for immediate 
effectiveness. FINRA is proposing that the implementation date of the 
proposed rule change will be October 31, 2021, for SIS filings that 
report on the month ending October 31, 2021, and are due by November 
30, 2021. Thus, SISs filed on or after October 31, 2021, would reflect 
the proposed rule change.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\18\ 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. Consistent with the provisions of the Act, FINRA 
believes that eliminating the SIS filing requirement for members that 
file FOCUS Report Part II, as amended by the Reporting Requirements 
Release, will avoid unnecessary duplication of reporting for such 
members while ensuring that regulators continue to receive the needed 
information reflected on these forms, given that Schedule 1 of FOCUS 
Report Part II, as amended, includes substantially all the information 
required by the SIS. The proposed rule change will thereby reduce 
unnecessary burdens while also helping to protect investors and serve 
the public interest.
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    \18\ 15 U.S.C. 78o-3(b)(6).
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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. Schedule 1 of FOCUS Report Part 
II, as amended, requires substantially all the information required by 
the SIS. Eliminating the SIS filing requirement for members that file 
FOCUS Report Part II, as amended, would avoid unnecessary duplication 
of reporting, thereby reducing burdens for such members, while ensuring 
that regulators continue to receive the needed information reflected on 
these forms.

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 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 \19\ and Rule 19b-
4(f)(6) thereunder.\20\
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    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 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 rule-comments@sec.gov. Please include 
File Number SR-FINRA-2021-013 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-2021-013. 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 a.m. and 3 
p.m. Copies of such 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-2021-013 and should be submitted on or before June 30, 2021.

[[Page 30635]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-12031 Filed 6-8-21; 8:45 am]
BILLING CODE 8011-01-P