FR 2020-29026

General Summary

The notice from the Securities and Exchange Commission (SEC) informs the public about a proposed rule change filed by MEMX LLC, aiming to adjust the company's existing rules to a newly granted conditional exemption regarding reporting in the financial markets. Primarily, this proposal pertains to how different brokers report their trades and allocations to various accounts, helping to streamline the process and reduce burdens, ensuring that only entities with the necessary information are responsible for such reports. Public input is sought on these proposed changes, with comments invited until January 25, 2021.

Significant Issues and Concerns

A pervasive concern in the document is the complex language and heavy use of specialized terminology. Concepts such as "Client Account" and "Allocation Alternative" are discussed without preliminary definitions, potentially causing confusion among lay readers. The document presumes a familiarity with existing laws and financial systems, which might alienate those who are not well-versed in these subjects. Furthermore, frequent references to legal footnotes could be off-putting to a general audience unfamiliar with such citations. These aspects may limit the accessibility and comprehensibility of the document to the average individual.

Broader Public Impact

Broadly, the proposed rule changes aim to improve efficiency and lower costs in the financial industry by reducing redundant reporting obligations. This could potentially result in more streamlined operations within financial markets, which might indirectly benefit the public by contributing to more stable and transparent markets. However, improved efficiencies for brokers do not necessarily equate to direct benefits for individual investors or the public.

Impact on Specific Stakeholders

For stakeholders within the financial industry, particularly brokers and financial institutions participating in trade allocations, the proposed amendments could represent a positive relief from compliance redundancy. By assigning reporting duties to parties with the relevant information, the burden and associated costs of such tasks will be more effectively distributed, making the process less cumbersome.

On the flip side, smaller firms and newer industry members might still face challenges in adapting to these changes. While the document highlights efforts to reduce reporting burdens, it does not sufficiently address how compliance costs could disproportionately impact smaller entities less equipped to handle quick regulatory shifts. Without explicit measures to support these stakeholders, the changes could inadvertently maintain or even widen disparities within the industry.

In sum, while the proposal represents an evolution of existing regulatory processes designed to enhance industry efficiency, its technical nature and focus on larger players underscore the need for careful consideration of smaller firms' needs and capacities. Amidst these adjustments, public engagement through commentary is essential to ensure that all potential impacts are thoroughly accounted for and addressed.

The document under review contains specific financial references within the context of regulatory compliance under the Securities Exchange Act, mainly through FINRA Rule 4512(c). This rule broadly defines what is considered an "institutional account" for regulatory purposes.

An institutional account, as described, includes accounts held by large entities such as a bank, savings and loan association, insurance company, or registered investment company. Also included are accounts managed by investment advisers who are registered either at a federal level with the SEC or at a state level with appropriate state securities commissions or agencies. Importantly, it includes any natural person or entity, which might be a corporation, partnership, trust, or other entity, that possesses total assets of at least $50 million. This financial threshold is significant as it delineates which entities are subjected to specific regulatory considerations intended for substantial market players.

Summary of Financial References

The substantial $50 million asset threshold for institutional accounts serves as a benchmark to identify entities subjected to particular standards and regulations. This threshold is critical because entities managing or owning such large sums are considered influential in the market. Hence, the regulation prescribes additional reporting and compliance obligations to ensure market integrity and transparency.

Relevance to Identified Issues

One notable issue in the document is its complexity and use of technical jargon, which could make it challenging for those not deeply versed in financial or legal terminologies to understand. The mention of financial figures, such as $50 million, can accentuate this complexity by introducing layers of financial literacy that might not be familiar to all readers.

The document’s assumptions about the audience's understanding of existing financial structures—like institutional accounts—underline the importance of previous knowledge. For smaller firms or newcomers who might be unfamiliar with these thresholds and their implications, navigating the requirements under the discussed compliance changes might impose challenges. This might suggest that these firms need to consider whether they, or their clients, meet these thresholds, potentially impacting their operational decisions and compliance strategies.

Further complicating the accessibility for those not already engaged in this market are the references to how these financial thresholds interact with compliance obligations. For instance, larger entities, explicitly defined by these $50 million thresholds, may face different regulatory requirements, implying additional administrative burdens and costs compared to smaller entities.

Thus, the document not only outlines important regulatory measures that hinge on substantial asset holdings but also indirectly raises considerations about the ability of less established industry players to meet the complexities of compliance within this stringent regulatory framework.