[Federal Register Volume 85, Number 62 (Tuesday, March 31, 2020)]
[Notices]
[Pages 17927-17929]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-06621]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88478]
Order Granting Application by The Financial Information Forum and
Security Traders Association for a Temporary Exemption Pursuant to Rule
606(c) of Regulation NMS Under the Exchange Act in Response to the
Effects of COVID-19
March 25, 2020.
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 in light of unforeseen and uncertain demands on
information technology and other resources required to respond to
COVID-19.\2\
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\1\ See letter from James Toes, President & CEO, STA, Chris
Halverson, Chairman of the Board, STA, and Christopher Bok,
Director, FIF, to Brett Redfearn, Director, Division of Trading and
Markets (``Division''), Commission, dated March 24, 2020 (``FIF/STA
Letter'').
\2\ 17 CFR 242.606.
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This order grants the following temporary exemptive relief from
certain requirements of Rule 606, which is set forth in greater detail
below: (1) Broker-dealers are exempt from the requirement to provide
the public report covering the first quarter of 2020 required by Rule
606(a) until May 29, 2020; (2) broker-dealers that engage in outsourced
routing activity are exempt from the requirement to collect the monthly
customer-specific data required by Rule 606(b)(3) for such activity
until June 1, 2020, and are exempt until July 29, 2020, from the
requirement to provide a customer-specific report of June 2020
outsourced routing data within seven business days for customer
requests for such customer-specific reports that are made on or before
July 17, 2020.\3\
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\3\ Customer-specific reports of June 2020 outsourced routing
data are due within seven business days of customer requests made
after July 17, 2020.
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II. Background
On November 2, 2018, the Commission adopted amendments to Rule 606
of Regulation NMS under the Exchange Act.\4\ Under Rule 606(a), broker-
dealers must provide quarterly, aggregated public disclosure of their
routing and handling of orders submitted on a held basis in NMS stock.
In addition, under Rule 606(b) a broker-dealer must, upon request of
its customer, provide customer-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.
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\4\ See Exchange Act Release No. 84528 (November 2, 2018), 83 FR
58338 (November 19, 2018) (``Adopting Release'').
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The Commission previously revised the compliance dates for Rule 606
to provide broker-dealers with additional time to implement the systems
and other changes necessary to comply with Rule 606. On April 30, 2019,
the Commission extended the compliance date for the amendments to Rule
606 to begin following September 30, 2019.\5\
[[Page 17928]]
On September 4, 2019, the Commission, by the Division pursuant to
delegated authority, granted temporary exemptions from amended Rule
606: (1) To all broker-dealers, from the requirement to collect the
quarterly public data on held orders until January 1, 2020 (with the
first quarterly report due by the end of April 2020); (2) to all
broker-dealers that engage in self-routing activity, from the
requirement to collect the customer-specific monthly data for not held
orders until January 1, 2020 (with the first customer-specific report
of such data due seven business days after February 15, 2020, for
customer requests made on or before February 15, 2020); and (3) to all
broker-dealers that engage in outsourced routing activity, from the
requirement to collect the customer-specific monthly data for not held
orders until April 1, 2020 (with the first customer-specific report of
such data due seven business days after May 15, 2020, for customer
requests made on or before May 15, 2020).\6\
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\5\ See Exchange Act Release No. 85714 (April 24, 2019), 84 FR
18136 (April 30, 2019) (``April 2019 Extension''). The original
compliance date set forth in the Adopting Release was May 20, 2019.
The April 2019 Extension did not extend the original compliance date
for the amendment to Rule 605.
\6\ See Exchange Act Release No. 86874 (September 4, 2019), 84
FR 47625 (September 10, 2019) (``September 2019 Extension''). As set
forth in the September 2019 Extension, ``self-routing activity''
refers to when a broker-dealer handles customers' orders using its
own systems and ``outsourced routing activity'' refers to when a
broker-dealer uses the order routing systems of another broker-
dealer.
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FIF and STA request that the Commission: (1) Delay to May 29, 2020,
the date by which broker-dealers must provide the public report of
first quarter 2020 data required by Rule 606(a); and (2) extend to June
1, 2020, the date that broker-dealers that outsource routing must begin
to collect the monthly customer-specific data for not held NMS stock
orders required by Rule 606(b)(3), and extend to July 29, 2020, the
date by which broker-dealers must provide the customer-specific report
of June 2020 data for customer requests that are made on or before July
17, 2020.\7\ According to FIF and STA, due to the challenges posed by
COVID-19, resources at firms are currently focused on the safety of
employees and supporting investors, and extensions of the near-time
compliance dates for implementation of amended Rule 606 would allow
broker-dealers to allocate resources towards addressing those
challenges as well as issues associated with current market volatility
and mitigate potential risks to firms' regulatory systems that
otherwise would need to be modified and tested to satisfy near-term
implementation milestones.\8\
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\7\ See FIF/STA Letter, supra note 2. FIF and STA did not
request an extension of monthly customer-specific reporting for not
held orders for self-routing broker-dealers. See id. The reporting
requirement for self-routing activity has already come due and is
ongoing.
\8\ Id.
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III. Order Granting Temporary Exemptions
Rule 606(c) \9\ 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,\10\ is granting a
temporary exemption from certain of the existing compliance dates that
were set forth in the September 2020 Extension. The Commission believes
that this temporary relief is necessary or appropriate in the public
interest, and consistent with the protection of investors, given the
unforeseen and uncertain challenges, including business continuity
implementation and market volatility, posed by COVID-19 to broker-
dealers that must comply with the Rule 606 requirements to provide
reports of order handling and routing data.
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\9\ 17 CFR 242.606(c).
\10\ 17 CFR 200.30-3(a)(69).
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A. Rule 606(a)
The Commission has determined that it is necessary or appropriate
in the public interest, and consistent with the protection of
investors, to provide broker-dealers with a temporary exemption until
May 29, 2020, from the requirement to provide the initial public report
of first quarter 2020 data for held orders under Rule 606(a). Broker-
dealers have been required to collect the held order data since January
1, 2020, but they are not required to generate the initial public
report of that data until the end of April 2020. Pursuant to this
exemption, a broker-dealer has an additional month to prepare the
public report of first quarter 2020 held order data.\11\
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\11\ The Commission is granting the exemption as requested by
FIF and STA. See FIF/STA Letter, supra note 2. Broker-dealers are
still required to collect the held order data required by Rule
606(a) for the full second quarter of 2020, and to provide the
public report of that data by the end of July 2020.
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B. Rule 606(b)(3) for Broker-Dealers Engaged in Outsourced Routing
Activity
For substantially the same COVID-19-related reasons, the Commission
has determined that it is necessary or appropriate in the public
interest, and consistent with the protection of investors, to provide
broker-dealers that outsource routing with a temporary exemption until
June 1, 2020, from the requirement to collect the monthly customer-
specific data for their outsourced routing activity, and until July 29,
2020, from the requirement to provide the first customer-specific
report of such data for customer requests that are made on or before
July 17.\12\ This first report would cover June 2020. Pursuant to this
exemption, a broker-dealer has two additional months to prepare to
collect the data required by Rule 606(b)(3) for outsourced routing
activity and to prepare the first report relating to outsourced routing
activity.\13\
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\12\ The Commission is granting the exemption as requested by
FIF/STA. See FIF/STA Letter, supra note 2.
\13\ Rule 606(b)(3) requires a broker-dealer to provide a report
to its customer within seven business days of receiving the customer
request. Similar to the relief provided to broker-dealers in the
September 2019 Extension, the Commission believes it is appropriate
to provide broker-dealers additional time to prepare the first
report of June data in response to customer requests received in
early July. Accordingly, the report for any request received on or
before July 17 would not be due until July 29. For example, if a
customer requests a report of June 2020 data on July 1, 2020, the
broker-dealer is not required to provide the report within seven
business days of July 1, 2020; instead, the broker-dealer is
required to provide the report no later than July 29, 2020. The
report for any request received after July 17 would be due seven
business days after such request.
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The chart below depicts the current timing for reporting
requirements under amended Rule 606 as set forth in the September 2019
Extension, as well as the temporary exemptions being granted herein:
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Who? What? Current requirement Exemption
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Quarterly Public Reporting:
All routing broker-dealers....... Aggregate public report Data collection began Report covering Q1 2020
on routing held orders Jan. 1, 2020; report due May 29, 2020.
in NMS stocks and covering Q1 2020 due
orders for options Apr. 30, 2020.
contracts of less than
$50,000 *.
[[Page 17929]]
Monthly Customer-Specific Reporting
(upon request):
Self-routing broker-dealers...... Detailed customer- Data collection began None.
specific order Jan. 1, 2020; first
handling disclosures report (covering
for NMS stock orders January) was due Feb.
submitted on a not 25, 2020.
held basis.
Broker-dealers that outsource ....................... Data collection begins Data collection begins
routing (white-labeling). Apr. 1, 2020; first June 1, 2020; first
report (covering report (covering June)
April) due May 27, due July 29, 2020 for
2020. customer requests made
on or before July 17.
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* This requires disclosure of material aspects of broker-dealer's relationship with routing venues, which
includes the details of any arrangement with a venue where the level of execution quality is negotiated for an
increase or decrease in payment for order flow. See Adopting Release at 58376, n. 397.
Accordingly, it is ordered, pursuant to Rule 606(c) of Regulation
NMS under the Exchange Act,\14\ that:
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\14\ 17 CFR 242.606(c).
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(1) Broker-dealers are exempt from the requirement to provide the
public report of held order data for the first quarter of 2020 required
by Rule 606(a) until May 29, 2020.
(2) Broker-dealers engaged in outsourced routing activity are
exempt from the requirement to start collecting the Rule 606(b)(3) data
until June 1, 2020 for such activity. For customer requests that are
made on or before July 17, 2020, a broker-dealer is exempt from the
requirement to provide a Rule 606(b)(3) report for outsourced routing
activity covering June 2020 data until July 29, 2020.
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\15\ 17 CFR 200.30-3(a)(69).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-06621 Filed 3-30-20; 8:45 am]
BILLING CODE 8011-01-P