[Federal Register Volume 85, Number 98 (Wednesday, May 20, 2020)]
[Notices]
[Pages 30768-30770]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-10814]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88870; File No. SR-FINRA-2020-013]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Order Granting Accelerated
Approval of a Proposed Rule Change To Add FINRA Rule 6800 Series
(Consolidated Audit Trail Compliance Rule) to FINRA's Minor Rule
Violation Plan (``MRVP'')
May 14, 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 April 29, 2020, 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 and approving the proposal on an accelerated
basis.
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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 to add industry member compliance rules relating
to the Consolidated Audit Trail (``CAT'') to FINRA's Minor Rule
Violation Plan (``MRVP'').
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 9216(b) provides procedures for disposition of certain
rule violations designated as minor rule violations pursuant to a plan
declared effective by the Commission in accordance with Section
19(d)(1) of the Act and Rule 19d-1(c)(2) thereunder. FINRA's MRVP
allows FINRA to impose a fine of up to $2,500 on any member or person
associated with a member for a minor violation of an eligible rule.
FINRA Rule 9217 sets forth the rules eligible for disposition pursuant
to FINRA's MRVP. FINRA is proposing to amend Rule 9217 to make minor
violations of the CAT industry member compliance rules in the Rule 6800
Series eligible for disposition under FINRA's MRVP.
The purpose of the MRVP is to provide reasonable but meaningful
sanctions for minor or technical violations of rules when the conduct
at issue does not warrant stronger, immediately reportable disciplinary
sanctions. The inclusion of a rule in FINRA's MRVP does not minimize
the importance of compliance with the rule, nor does it preclude FINRA
from choosing to pursue violations of eligible rules through an
Acceptance, Waiver and Consent (``AWC'') or Complaint if the nature of
the violations or prior disciplinary history warrants more significant
sanctions. Rather, the option to impose an MRVP sanction gives FINRA
additional flexibility to administer its enforcement program in the
most effective and efficient manner, while still fully meeting FINRA's
remedial objectives in addressing violative conduct. For example, MRVP
dispositions provide a useful tool for implementing the concept of
progressive discipline to remediate misconduct.\3\
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\3\ See Notice to Members 04-19 (March 2004) (providing guidance
on FINRA's approach to progressive discipline under its MRVP).
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With this proposed rule change, FINRA would add its CAT industry
member compliance rules to its MRVP. FINRA adopted its CAT industry
member compliance rules in the Rule 6800 Series to implement the
National Market System Plan Governing the Consolidated Audit Trail (the
``CAT NMS Plan'' or ``Plan''). The CAT NMS Plan was filed by the Plan
Participants to comply with Rule 613 of Regulation NMS under the
Exchange Act,\4\ and each Plan Participant accordingly has adopted the
same compliance rules that FINRA has in its Rule 6800 Series. The
common compliance rules adopted by each Participant are designed to
require industry members to comply with the provisions of the CAT NMS
Plan, which broadly calls for industry members to record and report
timely and accurate customer, order, and trade information relating to
activity in NMS Securities and OTC Equity Securities.
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\4\ 17 CFR 242.613.
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FINRA notes that the CAT industry member compliance rules are
highly similar to rules already covered in FINRA's MRVP. Specifically,
the CAT industry member compliance rules in the Rule 6800 Series
include rules relating to clock synchronization (Rule 6820), the
recording and reporting of order and trade data (Rules 6830, 6840,
6850, 6860, 6870, 6880, and 6893), and recordkeeping (Rule 6890).
FINRA's current MRVP includes the same kinds of audit trail-related
rules relating to clock synchronization (Rule 4590), the recording and
reporting of order audit trail data (Rules 7440, 7450), and
recordkeeping (Rule 4510 Series and SEA Rule 17a-3(a) and 17a-4).
If approved, FINRA plans to employ the MRVP for CAT compliance
rules the
[[Page 30769]]
same way FINRA has for its similar existing audit trail-related
rules.\5\ FINRA is also coordinating with other Participants to promote
harmonized and consistent enforcement of all the Participants' CAT
compliance rules. The Commission recently approved a Rule 17d-2 Plan
under which the regulation of CAT compliance rules will be allocated
among Participants to reduce regulatory duplication for industry
members that are members of more than one Participant (``common
members'').\6\ Under the Rule 17d-2 Plan, the regulation of CAT
compliance rules with respect to common members that are members of
FINRA is allocated to FINRA, and this proposed rule change would allow
FINRA to consider MRVP dispositions in those cases. Similarly, under
the Rule 17d-2 Plan, responsibility for common members of multiple
other Participants and not a member of FINRA will be allocated among
those other Participants, and FINRA understands the other Participants
will submit proposed rule changes to adopt the same MRVP terms
contemplated in this filing for their CAT compliance rules. As a
result, there will be a coordinated, harmonized approach to CAT
compliance rule enforcement across Participants, and it will be
consistent with the approach FINRA has long taken for similar audit
trail-related rules.
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\5\ See Notice to Members 04-19 (March 2004) (providing specific
factors used to inform dispositions for violations of OATS reporting
rules).
\6\ See Securities Exchange Act Release No. 88366 (March 12,
2020), 85 FR 15238 (March 17, 2020).
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If the Commission approves the proposed rule change, the effective
date of the proposed rule change will be the date of approval. FINRA
has requested the Commission to find good cause pursuant to Section
19(b)(2) of the Act \7\ for approving the proposed rule change prior to
the 30th day after its publication in the Federal Register, to allow
the change to take effect in line with the commencement of the first
phase of industry member reporting to CAT.
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\7\ 15 U.S.C. 78s(b)(2).
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2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\8\ 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. FINRA further believes that the proposed rule change
is consistent with the provisions of Section 15A(b)(2) and (b)(7) of
the Act,\9\ which requires that FINRA enforce and provide appropriate
discipline for violation of FINRA rules and applicable federal
securities laws, rules and regulations. FINRA believes that adopting
the proposed rule change will strengthen FINRA's ability to carry out
its oversight and enforcement responsibilities in cases where full
disciplinary proceedings are not warranted in view of the minor nature
of the particular violation.
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\8\ 15 U.S.C. 78o-3(b)(6).
\9\ 15 U.S.C. 78o-3(b)(2) and 78o-3(b)(7).
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In addition, FINRA's MRVP, as amended by this proposal, provides a
fair procedure for disciplining members and persons associated with
members, consistent with Sections 15A(b)(8) and 15A(h)(1) of the
Act.\10\ The MRVP does not preclude a member or associated person from
contesting an alleged violation and receiving a hearing on the matter
with the same procedural rights through a litigated disciplinary
proceeding.
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\10\ 15 U.S.C. 78o-3(b)(8) and 78o-3(h)(1).
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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.
Economic Impact Assessment
FINRA has undertaken an economic impact assessment, as set forth
below, to analyze the potential economic impacts, including anticipated
costs, benefits, and distributional and competitive effects, and the
alternatives FINRA considered in assessing how to best meet its
regulatory objectives.
Regulatory Need
FINRA is proposing to amend Rule 9217 to make minor violations of
the CAT industry member compliance rules in the Rule 6800 Series
eligible for disposition under FINRA's MRVP, which allows FINRA to
impose a fine of up to $2,500 on any member or person associated with a
member for a minor violation of an eligible rule. The purpose of the
MRVP is to provide reasonable but meaningful sanctions for minor or
technical violation of rules when the conduct at issue does not warrant
stronger, immediately reportable disciplinary sanctions. This proposal
is intended to allow MRVP dispositions when appropriate in the
enforcement of CAT industry member reporting requirements.
Economic Baseline
FINRA adopted its CAT industry member compliance rules in the Rule
6800 Series to implement the National Market System Plan Governing the
CAT NMS Plan. The CAT NMS Plan was filed by the Plan Participants to
comply with Rule 613 of Regulation NMS under the Exchange Act,\11\ and
each Plan Participant accordingly has adopted the same compliance rules
that FINRA has in its Rule 6800 Series. As the CAT industry member
compliance rules take effect, members must comply with them and FINRA
must enforce compliance with them. As discussed above, the CAT industry
member compliance rules are highly similar to existing audit trail-
related rules already eligible for disposition under FINRA's MRVP.
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\11\ 17 CFR 242.613.
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Economic Impact
The proposed rule will allow FINRA to treat violations of CAT
compliance rules the same way FINRA treats violations of its current
audit trail-related rules, including OATS. As such, most industry
members would be subject to the same regime that exists today for
enforcing FINRA's current audit trail-related rules and would not be
expected to experience any additional costs or benefits under the
proposed rule. The proposed rule may provide benefits, including to
FINRA and reporting firms, if MRVP dispositions are eligible to be used
when FINRA deems appropriate, as the MRVP gives FINRA additional
flexibility to administer its enforcement program in the most effective
and efficient manner.
Furthermore, the efforts of all CAT NMS Plan participants to adopt
a coordinated, harmonized approach to MRVP treatment for CAT compliance
rules will promote consistent treatment for all industry members that
trade NMS Securities and OTC Equity Securities.
Alternatives Considered
No alternatives are under consideration.
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. 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.
[[Page 30770]]
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-2020-013 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-2020-013. 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 10:00 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-2020-013 and should be submitted
on or before June 10, 2020.
IV. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities association.\12\ In
particular, the Commission finds that the proposed rule change is
consistent with Section 15A(b)(6) of the Exchange Act,\13\ which
requires that FINRA rules be designed to promote just and equitable
principles of trade, to remove impediments and to perfect the mechanism
of a free and open market and a national market system, and, in
general, to protect investors and the public interest. The Commission
also believes that the proposal is consistent with Sections 15A(b)(2)
and 15A(b)(7) of the Exchange Act,\14\ which require that FINRA rules
enforce compliance with, and provide appropriate discipline for,
violations of Commission and FINRA rules. Finally, the Commission finds
that the proposal is consistent with the public interest, the
protection of investors, or otherwise in furtherance of the purposes of
the Act, as required by Rule 19d-1(c)(2) under the Act,\15\ which
governs minor rule violation plans.
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\12\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\13\ 15 U.S.C. 78o-3(b)(6).
\14\ 15 U.S.C. 78o-3(b)(2) and 15 U.S.C. 78o-3(b)(7).
\15\ 17 CFR 240.19d-1(c)(2).
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As stated above, FINRA proposes to add industry member compliance
rules relating to CAT to FINRA's MRVP. According to FINRA, FINRA's
current MRVP includes similar audit trail-related rules, and FINRA
plans to employ the MRVP for CAT compliance rules the same way it has
for its existing audit trail-related rules.\16\ The Commission believes
that the proposed rule provides a reasonable means of addressing
violations that do not rise to the level of requiring formal
disciplinary proceedings, while providing greater flexibility in
handling certain violations. However, the Commission expects that FINRA
will continue to conduct surveillance with due diligence and make
determinations based on its findings, on a case-by-case basis,
regarding whether a sanction under the rule is appropriate, or whether
a violation requires formal disciplinary action.
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\16\ See supra note 5 and accompanying text.
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For the same reasons discussed above, the Commission finds good
cause, pursuant to Section 19(b)(2) of the Act,\17\ for approving the
proposed rule change prior to the thirtieth day after the date of
publication of the notice of the filing thereof in the Federal
Register. The proposal merely adds FINRA's newly adopted CAT industry
member compliance rules to its MRVP, which already includes similar
audit trail-related rules. Accordingly, the Commission believes the
proposal raises no novel or significant issues. Further, the Commission
believes that a full notice-and-comment period is not necessary before
approving the proposal.
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\17\ 15 U.S.C. 78s(b)(2).
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V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\18\ and Rule 19d-1(c)(2) thereunder,\19\ that the proposed rule change
(SR-FINRA-2020-013) be, and hereby is, approved on an accelerated
basis.
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\18\ 15 U.S.C. 78s(b)(2).
\19\ 17 CFR 240.19d-1(c)(2).
\20\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-10814 Filed 5-19-20; 8:45 am]
BILLING CODE 8011-01-P