[Federal Register Volume 85, Number 154 (Monday, August 10, 2020)]
[Notices]
[Pages 48309-48312]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-17348]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89467; File No. SR-NASDAQ-2020-046]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend the Exchange's Compliance Rule Under General 7 of the Exchange's
Rulebook
August 4, 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 July 31, 2020, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') 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 the Exchange.
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
The Exchange proposes to amend General 7 of the Exchange Rulebook,
the Exchange's compliance rule (``Compliance Rule'') regarding the
National Market System Plan Governing the Consolidated Audit Trail (the
``CAT NMS Plan'' or ``Plan'') \3\ to be consistent with an amendment to
the CAT NMS Plan recently approved by the Commission.
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\3\ Unless otherwise specified, capitalized terms used in this
rule filing are defined as set forth in the Compliance Rule.
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The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules, at
the principal office of the Exchange, 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, the Exchange 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. The Exchange 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 purpose of this proposed rule change is to amend General 7, the
Compliance Rule regarding the CAT NMS Plan, to be consistent with an
amendment to the CAT NMS Plan recently approved by the Commission.\4\
The Commission approved an amendment to the CAT NMS Plan to amend the
requirements for Firm Designated IDs in four ways: (1) To prohibit the
use of account numbers as Firm Designated IDs for trading accounts that
are not proprietary accounts; (2) to require that the Firm Designated
ID for a trading account be persistent over time for each Industry
Member so that a single account may be tracked across time within a
single Industry Member; (3) to permit the use of relationship
identifiers as Firm Designated IDs in certain circumstances; and (4) to
permit the use of entity identifiers as Firm Designated IDs in certain
circumstances (the ``FDID Amendment''). As a result, the Exchange
proposes to amend the definition of ``Firm Designated ID'' in General
7, Section 1 to reflect the changes to the CAT NMS Plan regarding
[[Page 48310]]
the requirements for Firm Designated IDs.
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\4\ Securities Exchange Act Release No. 89397 (July 24, 2020),
85 FR 45941 (July 30, 2020).
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General 7, Section 1(r) defines the term ``Firm Designated ID'' to
mean ``a unique identifier for each trading account designated by
Industry Members for purposes of providing data to the Central
Repository, where each such identifier is unique among all identifiers
from any given Industry Member for each business date.''
(1) Prohibit Use of Account Numbers
The Exchange proposes to amend the definition of ``Firm Designated
ID'' in General 7, Section 1(r) to provide that Industry Members may
not use account numbers as the Firm Designated ID for trading accounts
that are not proprietary accounts. Specifically, the Exchange proposes
to add the following to the definition of a Firm Designated ID:
``provided, however, such identifier may not be the account number for
such trading account if the trading account is not a proprietary
account.''
(2) Persistent Firm Designated ID
The Exchange also proposes to amend the definition of ``Firm
Designated ID'' in General 7, Section 1(r) to require a Firm Designated
ID assigned by an Industry Member to a trading account to be persistent
over time, not for each business day.\5\ To effect this change, the
Exchange proposes to amend the definition of ``Firm Designated ID'' in
General 7, Section 1(r) to add ``and persistent'' after ``unique'' and
delete ``for each business date'' so that the definition of ``Firm
Designated ID'' would read, in relevant part, as follows:
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\5\ If an Industry Member assigns a new account number or entity
identifier to a client or customer due to a merger, acquisition or
some other corporate action, then the Industry Member should create
a new Firm Designated ID to identify the new account identifier/
relationship identifier/entity identifier in use at the Industry
Member for the entity. In addition, if a previously assigned Firm
Designated ID is no longer in use by an Industry Member (e.g., if
the trading account associated with the Firm Designated ID has been
closed), then an Industry Member may reuse the Firm Designated ID
for another trading account. The Plan Processor will maintain a
history of the use of each Firm Designated ID, including, for
example, the effective dates of the Firm Designated ID with respect
to each associated trading account.
a unique and persistent identifier for each trading account
designated by Industry Members for purposes of providing data to the
Central Repository . . . where each such identifier is unique among
all identifiers from any given Industry Member.
(3) Relationship Identifiers
The FDID Amendment also permits an Industry Member to provide a
relationship identifier as the Firm Designated ID, rather than an
identifier that represents a trading account, in certain scenarios in
which an Industry Member does not have an account number available to
its order handling and/or execution system at the time of order receipt
(e.g., certain institutional accounts, managed accounts, accounts for
individuals). In such scenarios, the trading account structure may not
be available when a new order is first received from a client and,
instead, only an identifier representing the client's trading
relationship is available. In these limited instances, the Industry
Member may provide an identifier used by the Industry Member to
represent the client's trading relationship with the Industry Member
instead of an account number.
When a trading relationship is established at a broker-dealer for
clients, the broker-dealer typically creates a parent account, under
which additional subaccounts are created. However, in some cases, the
broker-dealer establishes the parent relationship for a client using a
relationship identifier as opposed to an actual parent account. The
relationship identifier could be any of a variety of identifiers, such
as a short name for a relevant individual or institution. This
relationship identifier is established prior to any trading for the
client. If a relationship identifier has been established rather than a
parent account, and an order is placed on behalf of the client, any
executed trades will be kept in a firm account (e.g., a facilitation or
average price account) until they are allocated to the proper
subaccount(s), i.e., the accounts associated with the parent
relationship identifier connecting them to the client.
Relationship identifiers are used in circumstances in which the
account structure is not available to the trading system at the time of
order placement. The clients have established accounts prior to the
trade that satisfy relevant regulatory obligations for opening
accounts, such as Know Your Customer and other customer obligations.
However, the order receipt workflows operate using relationship
identifiers, not accounts.
For Firm Designated ID purposes, as with an identifier for a
trading account, the relationship identifier must be persistent over
time. The relationship identifier also must be unique among all
identifiers from any given Industry Member. With these requirements, a
single relationship could be tracked across time within a single
Industry Member using the Firm Designated ID. In addition, the
relationship identifier must be masked as the relationship identifier
could be a name or otherwise provide an indication as to the identity
of the relationship. The masking requirement would avoid potentially
revealing the identity of the relationship.
An example of the use of a relationship identifier as a Firm
Designated ID would be as follows: Suppose that Big Fund Manager is
known in Industry Member A's systems as ``BFM1.'' When an order is
placed by Big Fund Manager, the order is tagged to BFM1. Industry
Member A could use a masked version of BFM1 in place of the Firm
Designated ID representing a trading account when reporting a new order
from Big Fund Manager instead of the account numbers to which executed
shares/contracts will be allocated at a later time via a booking or
other system. Similarly, another example of the use of a relationship
identifier as a Firm Designated ID would involve an individual in place
of the Big Fund Manager in the above example.
In accordance with the FDID Amendment, the Exchange proposes to
amend the definition of a ``Firm Designated ID'' in General 7, Section
1(r) to permit Industry Members to provide a relationship identifier as
the Firm Designated ID as described above. Specifically, the Exchange
proposes to amend the definition of ``Firm Designated ID'' in General
7, Section 1(r) to state that a Firm Designated ID means, in relevant
part, ``a unique and persistent relationship identifier when an
Industry Member does not have an account number available to its order
handling and/or execution system at the time of order receipt,
provided, however, such identifier must be masked.''
(4) Entity Identifiers
The FDID Amendment also permits Industry Members to provide an
entity identifier, rather than an identifier that represents a trading
account, when an employee of the Industry Member is exercising
discretion over multiple client accounts and creates an aggregated
order for which a trading account number of the Industry Member is not
available at the time of order origination. An entity identifier is an
identifier of the Industry Member that represents the firm
discretionary relationship with the client rather than a firm trading
account.
The scenarios in which a firm uses an entity identifier are
comparable to when a firm uses a relationship identifier (as described
above) except the entity identifier represents the Industry Member
rather than a client. As with relationship identifiers, entity
identifiers are used in circumstances in which the account structure is
not
[[Page 48311]]
available to the trading system at the time of order placement. In this
workflow, the Industry Member's order handling and/execution system
does not have an account number at the time of order origination. The
relevant clients that will receive an allocation of the execution have
established accounts prior to the trade that satisfy relevant
regulatory obligations for opening accounts, such as Know Your Customer
and other customer obligations. However, the order origination
workflows operate using entity identifiers, not accounts.
For Firm Designated ID purposes, as with the identifier for a
trading account or a relationship, the entity identifier must be
persistent over time. The entity identifier also must be unique among
all identifiers from any given Industry Member. Each Industry Member
must make its own risk determination as to whether it believes it is
necessary to mask the entity identifier when using an entity identifier
to report the Firm Designated ID to CAT.
An example of the use of an entity identifier as a Firm Designated
ID would be when Industry Member 1 has an employee that is a registered
representative that has discretion over several client accounts held at
Industry Member 1. The registered representative places an order that
he will later allocate to individual client accounts. At the time the
order is placed, the trading system only knows it involves a
representative of Industry Member 1 and it does not have a specific
trading account that could be used for Firm Designated ID reporting.
Therefore, Industry Member 1 could report IM1, its entity identifier,
as the FDID with the new order.
In accordance with the FDID Amendment, the Exchange proposes to
amend the definition of ``Firm Designated ID'' in General 7, Section
1(r) to permit the use of an entity identifier as a Firm Designated ID
as described above. Specifically, the Exchange proposes to amend the
definition of a ``Firm Designated ID'' in General 7, Section 1(r) to
state that a Firm Designated ID means, in relevant part, ``a unique and
persistent entity identifier when an employee of an Industry Member is
exercising discretion over multiple client accounts and creates an
aggregated order for which a trading account number of the Industry
Member is not available at the time of order origination.''
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6(b)(5) of the Act,\6\ which require,
among other things, that the Exchange's 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 6(b)(8) of the Act,\7\
which requires that the Exchange's rules not impose any burden on
competition that is not necessary or appropriate.
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\6\ 15 U.S.C. 78f(b)(6) [sic].
\7\ 15 U.S.C. 78f(b)(8).
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The Exchange believes that this proposal is consistent with the Act
because it is consistent with, and implements, a recent amendment to
the CAT NMS Plan, and is designed to assist the Exchange and its
Industry Members in meeting regulatory obligations pursuant to the
Plan. In approving the Plan, the SEC noted that the 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.'' \8\ To the
extent that this proposal implements the Plan, and applies specific
requirements to Industry Members, the Exchange believes that this
proposal furthers the objectives of the Plan, as identified by the SEC,
and is therefore consistent with the Act.
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\8\ See Securities Exchange Act Release No. 79318 (November 15,
2016), 81 FR 84696, 84697 (November 23, 2016).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange 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 Exchange
notes that the proposed rule changes are consistent with a recent
amendment to the CAT NMS Plan, and are designed to assist the Exchange
in meeting its regulatory obligations pursuant to the Plan. The
Exchange also notes that the FDID Amendment will apply equally to all
Industry Members that trade NMS Securities and OTC Equity Securities.
In addition, all national securities exchanges and FINRA are proposing
this amendment to their Compliance Rules. Therefore, this is not a
competitive rule filing, and, therefore, it does not impose a burden on
competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \9\ and Rule 19b-4(f)(6) thereunder.\10\
Because the 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 prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act \11\ and Rule 19b-
4(f)(6)(iii) thereunder.\12\
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\9\ 15 U.S.C. 78s(b)(3)(A)(iii).
\10\ 17 CFR 240.19b-4(f)(6).
\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires the Exchange to give the Commission written notice of the
Exchange's intent to file the proposed rule change, along with a
brief description and text of 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. The
Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \13\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\14\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposal
may become operative by July 31, 2020. The Commission believes that
waiver of the 30-day operative delay is consistent with the protection
of investors and the public interest because it implements an amendment
to the CAT NMS Plan approved by the Commission.\15\ Accordingly, the
Commission hereby waives the 30-day operative delay and designates the
proposal operative as of July 31, 2020.\16\
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\13\ 17 CFR 240.19b-4(f)(6).
\14\ 17 CFR 240.19b-4(f)(6)(iii).
\15\ See Securities Exchange Act Release No. 89397 (July 24,
2020) (Federal Register publication pending).
\16\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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[[Page 48312]]
At any time within 60 days of the filing of this 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 will institute proceedings to
determine whether the proposed rule change 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-NASDAQ-2020-046 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-NASDAQ-2020-046. 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 the Exchange. 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-NASDAQ-2020-046, and should be submitted
on or before August 31, 2020.
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\17\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-17348 Filed 8-7-20; 8:45 am]
BILLING CODE 8011-01-P