[Federal Register Volume 86, Number 21 (Wednesday, February 3, 2021)]
[Notices]
[Pages 8067-8072]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-02188]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91010; File No. SR-CboeBZX-2021-013]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
the Exchange's CAT Compliance Rule To Be Consistent With a Conditional 
Exemption Granted by the SEC From Certain Allocation Reporting 
Requirements

January 28, 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 January 15, 2021, Cboe BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III 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

    Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX'') proposes to 
amend 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 a 
conditional exemption granted by the Securities and Exchange Commission 
(``Commission'') from certain allocation reporting requirements set 
forth in Section 6.4(d)(ii)(A)(1) and (2) of the CAT NMS Plan 
(``Allocation Exemption'').\4\ The text of the proposed rule change is 
provided below.
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    \3\ Unless otherwise specified, capitalized terms used in this 
rule filing are defined as set forth in the Compliance Rule.
    \4\ See Securities Exchange Act Rel. No. 90223 (October 19, 
2020), 85 FR 67576 (October 23, 2020) (``Allocation Exemptive 
Order'').

(additions are italicized; deletions are [bracketed])
* * * * *

Rules of Cboe BZX Exchange, Inc.

* * * * *

Rule 4.5. Consolidated Audit Trail--Definitions

    For purposes of Rules 4.5 through 4.16:
* * * * *
    (a)-(b) No change.
    (c) ``Allocation'' means (1) the placement of shares/contracts 
into the same account for which an order was originally placed; or 
(2) the placement of shares/contracts into an account based on 
allocation instructions (e.g., subaccount allocations, delivery 
versus payment (``DVP'') allocations).
    (d) [(c)] ``Allocation Report'' means a report made to the 
Central Repository by an Industry Member that identifies the Firm 
Designated ID for any account(s), including subaccount(s), to which 
executed shares/contracts are allocated and provides (1) the 
security that has been allocated;[,] (2) the identifier of the firm 
reporting the allocation;[,] (3) the price per share/contract of 
shares/contracts allocated;[,] (4) the side of shares/contracts 
allocated;[,] (5) the number of shares/contracts allocated to each 
account;[,] [and] (6) the time of the allocation; (7) Allocation ID, 
which is the internal allocation identifier assigned to the 
allocation event by the Industry Member; (8) trade date; (9) 
settlement date; (10) IB/correspondent CRD Number (if applicable); 
(11) FDID of new order(s) (if available in the booking system); (12) 
allocation instruction time (optional); (12) if account meets the 
definition of institution under FINRA Rule 4512(c); (13) type of 
allocation (allocation to a custody account, allocation to a DVP 
account, step-out, correspondent flip, allocation to a firm owned or 
controlled account, or other non-reportable transactions (e.g., 
option exercises, conversions); (14) for DVP allocations, custody 
broker-dealer clearing number (prime broker) if the custodian is a 
U.S. broker-dealer, DTCC number if the custodian is a U.S. bank, or 
a foreign indicator, if the custodian is a foreign entity; and (15) 
if an allocation was cancelled, a cancel flag indicating that the 
allocation was cancelled, and a cancel timestamp, which represents 
the time at which the allocation was cancelled; provided, for the 
avoidance of doubt, any such Allocation Report shall not be required 
to be linked to particular orders or executions.
    (e) [(d)] No change.
    (f) [(e)] No change.
    (g) [(f)] No change.
    (h) [(g)] No change.
    (i) [(h)] No change.
    (j) [(i)] No change.
    (k) [(j)] No change.
    (l) ``Client Account'' means, for the purposes of an Allocation 
and Allocation Report, any account or subaccount that is not owned 
or controlled by the Industry Member.
    (m) [(k)] No change.
    (n) [l] No change.
    (o) [m] No change.
    (p) [n] No change.
    (q) [o] No change.
    (r) [p] No change.
    (s) [q] No change.
    (t) [r] No change.
    (u) [s] No change.
    (v) [t] No change.
    (w) [u] No change.
    (x) [v] No change.
    (y) [w] No change.
    (z) [x] No change.
    (aa) [y] No change.
    (bb) [z] No change.
    (cc) [aa] No change.
    (dd) [bb] No change.
    (ee) [cc] No change.
    (ff) [dd] No change.
    (gg) [ee] No change.
    (hh) [ff] No change.
    (ii) [gg] No change.
    (jj) [hh] No change.
    (kk) [ii] No change.
    (ll) [jj] No change.
    (mm) [kk] No change.
    (nn) [ll] No change.
    (oo) [mm] No change.
    (pp) [nn] No change.
    (qq) [oo] No change.
    (rr) [pp] No change.
* * * * *

Rule 4.7. Consolidated Audit Trail--Industry Member Data Reporting

    (a) Recording and Reporting Industry Member Data
    (1) No change.
    (2) Subject to subparagraph (a)(3) below, each Industry Member 
shall record and report to the Central Repository the following, as 
applicable (``Received Industry Member Data'' and, collectively with 
the information referred to in [Rule 4.7] subparagraph (a)(1), 
``Industry Member Data'')) in the manner prescribed by the Operating 
Committee pursuant to the CAT NMS Plan:
    (A) if the order is executed, in whole or in part:
    [(i) An Allocation Report;]
    (i) [(ii)] SRO-Assigned Market Participant Identifier of the 
clearing broker [or prime broker], if applicable; and
    (ii) [(iii)] CAT-Order-ID of any contra-side order(s);
    (B)-(E) No change.
    (F) an Allocation Report any time the Industry Member performs 
an Allocation to a Client Account, whether or not the Industry 
Member was the executing broker for the trade.

* * * * *
    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary, 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

[[Page 8068]]

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 the Compliance 
Rule regarding the CAT NMS Plan to be consistent with the Allocation 
Exemption. The Commission granted the relief conditioned upon the 
Participants' adoption of Compliance Rules that implement the 
alternative approach to reporting allocations to the Central Repository 
described in the Allocation Exemption (referred to as the ``Allocation 
Alternative'').
(1) Request for Exemptive Relief
    Pursuant to Section 6.4(d)(ii)(A) of the CAT NMS Plan, each 
Participant must, through its Compliance Rule, require its Industry 
Members to record and report to the Central Repository, if the order is 
executed, in whole or in part: (1) An Allocation Report; \5\ (2) the 
SRO-Assigned Market Participant Identifier of the clearing broker or 
prime broker, if applicable; and the (3) CAT-Order-ID of any contra-
side order(s). Accordingly, the Exchange and the other Participants 
implemented Compliance Rules that require their Industry Members that 
are executing brokers to submit to the Central Repository, among other 
things, Allocation Reports and the SRO-Assigned Market Participant 
Identifier of the clearing broker or prime broker, if applicable.
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    \5\ Section 1.1 of the CAT NMS Plan defines an ``Allocation 
Report'' as ``a report made to the Central Repository by an Industry 
Member that identifies the Firm Designated ID for any account(s), 
including subaccount(s), to which execute shares are allocated and 
provides the security that has been allocated, the identifier of the 
firm reporting the allocation, the price per share of shares 
allocated, the side of shares allocated, the number of shares 
allocated to each account, and the time of the allocation; provided 
for the avoidance of doubt, any such Allocation Report shall not be 
required to be linked to particular orders or executions.''
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    On August 27, 2020, the Participants submitted to the Commission a 
request for an exemption from certain allocation reporting requirements 
set forth in Sections 6.4(d)(ii)(A)(1) and (2) of the CAT NMS Plan 
(``Exemption Request'').\6\ In the Exemption Request, the Participants 
requested that they be permitted to implement the Allocation 
Alternative, which, as noted above, is an alternative approach to 
reporting allocations to the Central Repository. Under the Allocation 
Alternative, any Industry Member that performs an allocation to a 
client account would be required under the Compliance Rule to submit an 
Allocation Report to the Central Repository when shares/contracts are 
allocated to a client account regardless of whether the Industry Member 
was involved in executing the underlying order(s). Under the Allocation 
Alternative, a ``client account'' would be any account that is not 
owned or controlled by the Industry Member.
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    \6\ See Letter from the Participants to Vanessa Countryman, 
Secretary, Commission, dated August 27, 2020 (the ``Exemption 
Request'').
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    In addition, under the Allocation Alternative, an ``Allocation'' 
would be defined as: (1) The placement of shares/contracts into the 
same account for which an order was originally placed; or (2) the 
placement of shares/contracts into an account based on allocation 
instructions (e.g., subaccount allocations, delivery versus payment 
(``DVP'') allocations). Pursuant to this definition and the proposed 
Allocation Alternative, an Industry Member that performs an Allocation 
to an account that is not a client account, such as proprietary 
accounts and events including step outs,\7\ or correspondent flips,\8\ 
would not be required to submit an Allocation Report to the Central 
Repository for that allocation, but could do so on a voluntary basis. 
Industry Members would be allowed to report Allocations to accounts 
other than client accounts; in that instance, such Allocations must be 
marked as Allocations to accounts other than client accounts.
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    \7\ ``A step-out allows a broker-dealer to allocate all or part 
of a client's position from a previously executed trade to the 
client's account at another broker-dealer. In other words, a step-
out functions as a client's position transfer, rather than a trade; 
there is no exchange of shares and funds and no change in beneficial 
ownership.'' See FINRA, Trade Reporting Frequently Asked Questions, 
at Section 301, available at: https://www.finra.org/filing-reporting/market-transparencyreporting/trade-reporting-faq.
    \8\ Correspondent clearing flips are the movement of a position 
from an executing broker's account to a different account for 
clearance and settlement, allowing a broker-dealer to execute a 
trade through another broker-dealer and settle the trade in its own 
account. See, e.g., The Depository Trust & Clearing Corporation, 
Correspondent Clearing, available at: https://www.dtcc.com/clearingservices/equities-tradecapture/correspondent-clearing.
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(A) Executing Brokers and Allocation Reports
    To implement the Allocation Alternative, the Participants requested 
exemptive relief from Section 6.4(d)(ii)(A)(1) of the CAT NMS Plan, to 
the extent that the provision requires each Participant to, through its 
Compliance Rule, require its Industry Members that are executing 
brokers, who do not perform Allocations, to record and report to the 
Central Repository, if the order is executed, in whole or in part, an 
Allocation Report. Under the Allocation Alternative, when an Industry 
Member other than an executing broker (e.g., a prime broker or clearing 
broker) performs an Allocation, that Industry Member would be required 
to submit the Allocation Report to the Central Repository. When an 
executing broker performs an Allocation for an order that is executed, 
in whole or in part, the burden of submitting an Allocation Report to 
the Central Repository would remain with the executing broker under the 
Allocation Alternative. In certain circumstances this would result in 
multiple Allocation Reports--the executing broker (if self-clearing) or 
its clearing firm would report individual Allocation Reports 
identifying the specific prime broker to which shares/contracts were 
allocated and then each prime broker would itself report an Allocation 
Report identifying the specific customer accounts to which the shares/
contracts were finally allocated.
    The Participants stated that granting exemptive relief from 
submitting Allocation Reports for executing brokers who do not perform 
an Allocation, and requiring the Industry Member other than the 
executing broker that is performing the Allocation to submit such 
Allocation Reports, is consistent with the basic approach taken by the 
Commission in adopting Rule 613 under the Exchange Act. Specifically, 
the Participants stated that they believe that the Commission sought to 
require each broker-dealer and exchange that touches an order to record 
the required data with respect to actions it takes on the order.\9\ 
Without the requested exemptive relief, executing brokers that do not 
perform Allocations would be required to submit Allocation Reports. In 
addition, the Participants stated that, because shares/contracts for 
every execution must be allocated to an account by the clearing broker 
in such circumstances, there would be no loss of information by 
shifting the reporting

[[Page 8069]]

obligation from the executing broker to the clearing broker.
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    \9\ See Securities Exchange Act Release No. 67457 (July 18, 
2012), 77 FR 45722, 45748 (August 1, 2012).
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(B) Identity of Prime Broker
    To implement the Allocation Alternative, the Participants also 
requested exemptive relief from Section 6.4(d)(ii)(A)(2) of the CAT NMS 
Plan, to the extent that the provision requires each Participant to, 
through its Compliance Rule, require its Industry Members to record and 
report to the Central Repository, if an order is executed, in whole or 
in part, the SRO-Assigned Market Participant Identifier of the prime 
broker, if applicable. Currently, under the CAT NMS Plan, an Industry 
Member is required to report the SRO-Assigned Market Participant 
Identifier of the clearing broker or prime broker in connection with 
the execution of an order, and such information would be part of the 
order's lifecycle, rather than in an Allocation Report that is not 
linked to the order's lifecycle.\10\ Under the Allocation Alternative, 
the identity of the prime broker would be required to be reported by 
the clearing broker on the Allocation Report, and, in addition, the 
prime broker itself would be required to report the ultimate 
allocation, which the Participants believe would provide more complete 
information.
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    \10\ The Participants did not request exemptive relief relating 
to the reporting of the SRO-Assigned Market Participant Identifier 
of clearing brokers.
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    The Participants stated that associating a prime broker with a 
specific execution, as is currently required by the CAT NMS Plan, does 
not reflect how the allocation process works in practice as allocations 
to a prime broker are done post-trade and are performed by the clearing 
broker of the executing broker. The Participants also stated that with 
the implementation of the Allocation Alternative, it would be 
duplicative for the executing broker to separately identify the prime 
broker for allocation purposes.
    The Participants stated that if a particular customer only has one 
prime broker, the identity of the prime broker can be obtained from the 
customer and account information through the DVP accounts for that 
customer that contain the identity of the prime broker. The 
Participants further stated that Allocation Reports related to those 
executions would reflect that shares/contracts were allocated to the 
single prime broker. The Participants believe that there is no loss of 
information through the implementation of the Allocation Alternative 
compared to what is required in the CAT NMS Plan and that this approach 
does not decrease the regulatory utility of the CAT for single prime 
broker circumstances.
    In cases where a customer maintains relationships with multiple 
prime brokers, the Participants asserted that the executing broker will 
not have information at the time of the trade as to which particular 
prime broker may be allocated all or part of the execution. Under the 
Allocation Alternative, the executing broker (if self-clearing) or its 
clearing firm would report individual Allocation Reports identifying 
the specific prime broker to which shares/contracts were allocated and 
then each prime broker would itself report an Allocation Report 
identifying the specific customer accounts where the shares/contracts 
were ultimately allocated. To determine the prime broker for a 
customer, a regulatory user would query the customer and account 
database using the customer's CCID to obtain all DVP accounts for the 
CCID at broker-dealers. The Participants state that when a customer 
maintains relationships with multiple prime brokers, the customer 
typically has a separate DVP account with each prime broker, and the 
identities of those prime brokers can be obtained from the customer and 
account information.
(C) Additional Conditions to Exemptive Relief
    In the Exemption Request, the Participants included certain 
additional conditions for the requested relief. Currently, the 
definition of Allocation Report in the CAT NMS Plan only refers to 
shares. To implement the Allocation Alternative, the Participants 
proposed to require that all required elements of Allocation Reports 
apply to both shares and contracts, as applicable, for all Eligible 
Securities. Specifically, Participants would require the reporting of 
the following in each Allocation Report: (1) The FDID for the account 
receiving the allocation, including subaccounts; (2) the security that 
has been allocated; (3) the identifier of the firm reporting the 
allocation; (3) the price per share/contracts of shares/contracts 
allocated; (4) the side of shares/contracts allocated; (4) the number 
of shares/contracts allocated; and (5) the time of the allocation.
    Furthermore, to implement the Allocation Alternative, the 
Participants proposed to require the following information on all 
Allocation Reports: (1) Allocation ID, which is the internal allocation 
identifier assigned to the allocation event by the Industry Member; (2) 
trade date; (3) settlement date; (4) IB/correspondent CRD Number (if 
applicable); (5) FDID of new order(s) (if available in the booking 
system); \11\ (6) allocation instruction time (optional); (7) if the 
account meets the definition of institution under FINRA Rule 4512(c); 
\12\ (8) type of allocation (allocation to a custody account, 
allocation to a DVP account, step out, correspondent flip, allocation 
to a firm owned or controlled account, or other nonreportable 
transactions (e.g., option exercises, conversions); (9) for DVP 
allocations, custody broker-dealer clearing number (prime broker) if 
the custodian is a U.S. broker-dealer, DTCC number if the custodian is 
a U.S. bank, or a foreign indicator, if the custodian is a foreign 
entity; and (10) if an allocation was cancelled, a cancel flag, which 
indicates that the allocation was cancelled, and a cancel timestamp, 
which represents the time at which the allocation was cancelled.
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    \11\ The Participants propose that for scenarios where the 
Industry Member responsible for reporting the Allocation has the 
FDID of the related new order(s) available, such FDID must be 
reported. This would include scenarios in which: (1) The FDID 
structure of the top account and subaccounts is known to the 
Industry Member responsible for reporting the Allocation(s); and (2) 
the FDID structure used by the IB/Correspondent when reporting new 
orders is known to the clearing firm reporting the related 
Allocations.
    \12\ FINRA Rule 4512(c) states the for purposes of the rule, the 
term ``institutional account'' means the account of: (1) A bank, 
savings and loan association, insurance company or registered 
investment company; (2) an investment adviser registered either with 
the Commission under Section 203 of the Investment Advisers Act or 
with a state securities commission (or any agency or office 
performing like functions); or (3) any other person (whether a 
natural person, corporation, partnership, trust or otherwise) with 
total assets of at least $50 million.
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(2) Proposed Rule Changes To Implement Exemptive Relief
    On October 29, 2020, the Commission granted the exemptive relief 
requested in the Exemption Request. The Commission granted the relief 
conditioned upon the adoption of Compliance Rules that implement the 
reporting requirements of the Allocation Alternative. Accordingly, the 
Exchange proposes the following changes to its Compliance Rule to 
implement the reporting requirements of the Allocation Alternative.
(A) Definition of Allocation
    The Exchange proposes to add a definition of ``Allocation'' as new 
paragraph (c) to Rule 4.5.\13\ Proposed paragraph (c) of Rule 4.5 would 
define a ``Allocation'' to mean ``(1) the placement of shares/contracts 
into the same account for which an order was

[[Page 8070]]

originally placed; or (2) the placement of shares/contracts into an 
account based on allocation instructions (e.g., subaccount allocations, 
delivery versus payment (``DVP'') allocations).'' The Commission stated 
in the Allocation Exemption that this definition of ``Allocation'' is 
reasonable.
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    \13\ The Exchange proposes to renumber the definitions in Rule 
4.5 to accommodate the addition of this new definition of 
``Allocation'' and the new definition of ``Client Account'' 
discussed below.
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(B) Definition of Allocation Report
    The Exchange proposes to amend the definition of ``Allocation 
Report'' set forth in Rule 4.5(c) to reflect the requirements of the 
Allocation Exemption. Rule 4.5(c) defines the term ``Allocation 
Report'' to mean:

a report made to the Central Repository by an Industry Member that 
identifies the Firm Designated ID for any account(s), including 
subaccount(s), to which executed shares are allocated and provides 
the security that has been allocated, the identifier of the firm 
reporting the allocation, the price per share of shares allocated, 
the side of shares allocated, the number of shares allocated to each 
account, and the time of the allocation; provided, for the avoidance 
of doubt, any such Allocation Report shall not be required to be 
linked to particular orders or executions.

    The Exchange proposes to amend this definition in two ways: (1) 
Applying the requirements for Allocation Reports to contracts in 
addition to shares; and (2) requiring the reporting of additional 
elements for the Allocation Report.
(i) Shares and Contracts
    The requirements for Allocation Reports apply only to shares, as 
the definition of ``Allocation Report'' in Rule 4.5(c) refers to 
shares, not contracts. In the Allocation Exemption, the Commission 
stated that applying the requirements for Allocation Reports to 
contracts in addition to shares is appropriate because CAT reporting 
requirements apply to both options and equities. Accordingly, the 
Commission stated that the Participants would be required to modify 
their Compliance Rules such that all required elements of Allocation 
Reports apply to both shares and contracts, as applicable, for all 
Eligible Securities. Therefore, the Exchange proposes to amend Rule 
4.5(c) (to be renumbered as Rule 4.5(d)) to apply to contracts, as well 
as shares. Specifically, the Exchange proposes to add references to 
contracts to the definition of ``Allocation Report'' to the following 
phrases: ``the Firm Designated ID for any account(s), including 
subaccount(s), to which executed shares/contracts are allocated,'' 
``the price per share/contract of shares/contracts allocated,'' ``the 
side of shares/contracts allocated,'' and ``the number of shares/
contracts allocated to each account.''
(ii) Additional Elements
    The Commission also conditioned the Allocation Exemption on the 
Participants amending their Compliance Rules to require the ten 
additional elements in Allocation Reports described above. Accordingly, 
the Exchange proposes to require these additional elements in 
Allocation Reports. Specifically, the Exchange proposes to amend the 
definition of ``Allocation Report'' in Rule 4.5(c) (to be renumbered as 
Rule 4.5(d)) to include the following elements, in addition to those 
elements currently required under the CAT NMS Plan:

(6) the time of the allocation; (7) Allocation ID, which is the 
internal allocation identifier assigned to the allocation event by 
the Industry Member; (8) trade date; (9) settlement date; (10) IB/
correspondent CRD Number (if applicable); (11) FDID of new order(s) 
(if available in the booking system); (12) allocation instruction 
time (optional); (12) if account meets the definition of institution 
under FINRA Rule 4512(c); (13) type of allocation (allocation to a 
custody account, allocation to a DVP account, step-out, 
correspondent flip, allocation to a firm owned or controlled 
account, or other non-reportable transactions (e.g., option 
exercises, conversions); (14) for DVP allocations, custody broker-
dealer clearing number (prime broker) if the custodian is a U.S. 
broker-dealer, DTCC number if the custodian is a U.S. bank, or a 
foreign indicator, if the custodian is a foreign entity; and (15) if 
an allocation was cancelled, a cancel flag indicating that the 
allocation was cancelled, and a cancel timestamp, which represents 
the time at which the allocation was cancelled.
(C) Allocation Reports
(i) Executing Brokers That Do Not Perform Allocations
    The Commission granted the Participants an exemption from the 
requirement that the Participants, through their Compliance Rule, 
require executing brokers that do not perform Allocations to submit 
Allocation Reports. The Commission stated that it understands that 
executing brokers that are not self-clearing do not perform allocations 
themselves, and such allocations are handled by prime and/or clearing 
brokers, and these executing brokers therefore do not possess the 
requisite information to provide Allocation Reports. Accordingly, the 
Exchange proposes to eliminate Rule 4.7(a)(2)(A)(i),\14\ which requires 
an Industry Member to record and report to the Central Repository an 
Allocation Report if the order is executed, in whole or in part, and to 
replace this provision with proposed Rule 4.7(a)(2)(F) as discussed 
below.
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    \14\ The Exchange proposes to renumber Rule 4.7(a)(2)(A)(ii) and 
(iii) as Rules 4.7(a)(2)(A)(i) and (ii) in light of the proposed 
deletion of Rule 4.7(a)(2)(A)(i). The Exchange also proposes to make 
nonsubstantive changes to the language in Rule 4.7(a)(2)(A).
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(ii) Industry Members That Perform Allocations
    The Allocation Exemption requires the Participants to amend their 
Compliance Rules to require Industry Members to provide Allocation 
Reports to the Central Repository any time they perform Allocations to 
a client account, whether or not the Industry Member was the executing 
broker for the trades. Accordingly, the Commission conditioned the 
Allocation Exemption on the Participants adopting Compliance Rules that 
require prime and/or clearing brokers to submit Allocation Reports when 
such brokers perform allocations, in addition to requiring executing 
brokers that perform allocations to submit Allocation Reports. The 
Commission determined that such exemptive relief would improve 
efficiency and reduce the costs and burdens of reporting allocations 
for Industry Members because the reporting obligation would belong to 
the Industry Member with the requisite information, and executing 
brokers that do not have the information required on an Allocation 
Report would not have to develop the infrastructure and processes 
required to obtain, store and report the information. The Commission 
stated that this exemptive relief should not reduce the regulatory 
utility of the CAT because an Allocation Report would still be 
submitted for each executed trade allocated to a client account, which 
in certain circumstances could still result in multiple Allocation 
Reports,\15\ just not necessarily by the executing broker.
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    \15\ As noted above, under the Allocation Alternative, for 
certain executions, the executing broker (if self-clearing) or its 
clearing firm would report individual Allocation Reports identifying 
the specific prime broker to which shares/contracts were allocated 
and then each prime broker would itself report an Allocation Report 
identifying the specific customer accounts to which the shares/
contracts were finally allocated.
---------------------------------------------------------------------------

    In accordance with the Allocation Exemption, the Exchange proposes 
to add proposed 4.7(a)(2)(F) to the Compliance Rule. Proposed Rule 
4.7(a)(2)(F) would require Industry Members to record and report to the 
Central Repository ``an Allocation Report any time the Industry Member 
performs an Allocation to a Client Account, whether or not the Industry 
Member was the executing broker for the trade.''

[[Page 8071]]

(iii) Client Accounts
    In the Allocation Exemption, the Commission also exempted the 
Participants from the requirement that they amend their Compliance 
Rules to require Industry Members to report Allocations for accounts 
other than client accounts. The Commission believes that allocations to 
client accounts, and not allocations to proprietary accounts or events 
such as step-outs and correspondent flips, provide regulators the 
necessary information to detect abuses in the allocation process 
because it would provide regulators with detailed information regarding 
the fulfillment of orders submitted by clients, while reducing 
reporting burdens on broker-dealers. For example, Allocation Reports 
would be required for allocations to registered investment advisor and 
money manager accounts. The Commission further believes that the 
proposed approach should facilitate regulators' ability to distinguish 
Allocation Reports relating to allocations to client accounts from 
other Allocation Reports because Allocations to accounts other than 
client accounts would have to be identified as such. This approach 
could reduce the time CAT Reporters expend to comply with CAT reporting 
requirements and lower costs by allowing broker-dealers to use existing 
business practices.
    To clarify that an Industry Member must report an Allocation Report 
solely for Allocations to a client account, proposed Rule 4.7(a)(2)(F) 
specifically references ``Client Accounts,'' as discussed above. In 
addition, the Exchange proposes to add a definition of ``Client 
Account'' as proposed Rule 4.5(l). Proposed Rule 4.5(l) would define a 
``Client Account'' to mean ``for the purposes of an Allocation and 
Allocation Report, any account or subaccount that is not owned or 
controlled by the Industry Member.''
(D) Identity of Prime Broker
    The Exchange also proposes to amend Rule 4.7(a)(2)(A)(ii) to 
eliminate the requirement for executing brokers to record and report 
the SRO-Assigned Market Participant Identifier of the prime broker. 
Rule 4.7(a)(2)(A)(ii) states that each Industry Member is required to 
record and report to the Central Repository, if the order is executed, 
in whole or in part, the ``SRO-Assigned Market Participant Identifier 
of the clearing broker or prime broker, if applicable.'' The Exchange 
proposes to delete the phrase ``or prime broker'' from this provision. 
Accordingly, each Industry Member that is an executing broker would no 
longer be required to report the SRO-Assigned Market Participant 
Identifier of the prime broker.
    As the Commission noted in the Allocation Exemption, exempting the 
Participants from the requirement that they, through their Compliance 
Rules, require executing brokers to provide the SRO-Assigned Market 
Participant Identifier of the prime broker is appropriate because, as 
stated by the Participants, allocations are done on a post-trade basis 
and the executing broker will not have the requisite information at the 
time of the trade. Because an executing broker, in certain 
circumstances, does not have this information at the time of the trade, 
this relief relieves executing brokers of the burdens and costs of 
developing infrastructure and processes to obtain this information in 
order to meet the contemporaneous reporting requirements of the CAT NMS 
Plan.
    As the Commission noted in the Allocation Exemption, although 
executing brokers would no longer be required to provide the prime 
broker information, regulators will still be able to determine the 
prime broker(s) associated with orders through querying the customer 
and account information database. If an executing broker has only one 
prime broker, the identity of the prime broker can be obtained from the 
customer and account information associated with the executing broker. 
For customers with multiple prime brokers, the identity of the prime 
brokers can be obtained from the customer and account information which 
will list the prime broker, if there is one, that is associated with 
each account.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\16\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \17\ requirements that the rules of an exchange be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest. Additionally, 
the Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \18\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(5).
    \18\ Id.
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    In particular, the Exchange believes that this proposal is 
consistent with the Act because it is consistent with, and implements, 
the Allocation Exemption, and is designed to assist the Exchange and 
its Industry Members in meeting regulatory obligations pursuant to the 
Plan. In approving the Plan, the Commission 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.'' \19\ 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 
Commission, and is therefore consistent with the Act.
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    \19\ 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 
impose 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 the Allocation Exemption, and 
are designed to assist the Exchange in meeting its regulatory 
obligations pursuant to the Plan. The Exchange also notes that the 
proposed rule changes will apply equally to all Industry Members. 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 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

    The Exchange neither solicited nor received comments on the 
proposed rule change.

[[Page 8072]]

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not:
    A. Significantly affect the protection of investors or the public 
interest;
    B. impose any significant burden on competition; and
    C. 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 \20\ and 
Rule 19b-4(f)(6) \21\ thereunder. 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 will institute proceedings to determine whether the proposed 
rule change should be approved or disapproved.
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    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 17 CFR 240.19b-4(f)(6).
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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-CboeBZX-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-CboeBZX-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 10:00 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-CboeBZX-2021-013, and should be 
submitted on or before February 24, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-02188 Filed 2-2-21; 8:45 am]
BILLING CODE 8011-01-P


