FR 2020-29284

The document in question is a filing by The Nasdaq Stock Market LLC to the Securities and Exchange Commission (SEC) regarding a proposed rule change. This change concerns the regulation of how broker-dealers report certain transactions as part of their compliance obligations under the Consolidated Audit Trail (CAT). The main aim of this proposal is to amend the existing reporting processes, particularly focusing on the allocation of shares or contracts to client accounts, a process referred to as the "Allocation Alternative." This adjustment seeks to make the reporting responsibilities more efficient by allowing clearing brokers, who usually have direct access to the relevant data, to submit these reports instead of the executing brokers who might not have the data available.

General Summary

The proposed rule change is rooted in a need to streamline the data reporting burden imposed by the CAT system, which captures order and trade data across the U.S. securities markets. The "Allocation Alternative" is essentially a new approach that shifts some reporting responsibilities from those brokers who execute trades to those who are better positioned to provide the data, like clearing brokers. In this context, the change seeks to reduce redundant reporting requirements and potentially lower compliance costs for brokers who do not possess the necessary data to compile Allocation Reports.

Significant Issues or Concerns

One of the primary concerns about the document is its complexity; it employs technical financial and legal jargon, which may pose a challenge for those not well-versed in securities law. This can lead to difficulties in understanding the detailed nuances of the proposed changes and their implications. For instance, terms like "FDID," "DVP allocations," and "correspondent flips" are not defined, potentially hindering full comprehension by those outside of the financial industry.

Another concern is the lack of a transparent and straightforward analysis of the potential costs associated with implementing these changes. While the document discusses the intended benefits, a clear economic assessment of implementation resources or longer-term impacts is absent, which could be viewed as a lack of full transparency.

Impact on the Public

For the general public, these changes may seem distant from daily life, yet they have important implications for the integrity and efficiency of the financial markets. By potentially decreasing the operational costs for brokers, these changes could, in theory, lead to reduced costs for investors in the long run. However, without accessible language or illustrative examples, the average person might find it challenging to grasp how this impacts their own investments or the broader market environment.

Impact on Stakeholders

For specific stakeholders, particularly the brokers and financial firms affected by these regulatory obligations, the proposed rule change promises relief from some of the regulatory burdens. By channeling the reporting responsibilities to those with the appropriate information, firms might see a decrease in compliance costs and a simplification in their operational processes. This is a positive boon for smaller firms that might struggle with maintaining complex reporting infrastructure.

Conversely, some stakeholders might worry that the shift in compliance burden could inadvertently lead to gaps in reporting or regulatory oversight if not managed carefully. The reliance on clearing brokers for data submission may centralize responsibilities, potentially raising questions about data accuracy or completeness if not properly monitored.

Overall, while the proposed changes seek to address inefficiencies and reduce compliance burdens, they also demand careful consideration to ensure that financial transparency and regulatory goals continue to be met effectively.

In the context of this document from the Federal Register, financial considerations are largely centered around the definition of what constitutes an "institutional account". According to the document, an institutional account may belong to several types of entities, including a bank, savings and loan association, insurance company, or registered investment company. Furthermore, the definition extends to investment advisers registered under specific legislative requirements, or any other entities, including individuals or partnerships, that hold total assets of at least $50 million.

This definition has significance within the parameters of the rule changes outlined in the document. In the landscape of securities regulation, the threshold of $50 million is used as a benchmark for classifying certain financial accounts as institutional. This classification likely has ramifications on how these entities manage compliance obligations and the reporting requirements they face.

A central issue highlighted by this document is its complexity, which could obscure understanding, particularly regarding financial aspects. The legal and technical jargon used throughout, such as 'institutional account', connected with a precise monetary value, might be challenging for those outside the securities regulation sphere to grasp. Additionally, while the document specifies the monetary threshold for institutional accounts, it does not comprehensively address the potential financial costs or savings associated with enforcing or adhering to these new rules. These costs could include adjustments to reporting practices or compliance infrastructure to align with the modification in regulatory requirements.

Furthermore, by not providing a clear explanation of how these monetary benchmarks impact smaller entities or differentiate them from larger institutions, the document leaves a gap in understanding the broader financial implications. Without a focused summary on expenses or resource allocation needed to satisfy these new regulations, stakeholders might find it difficult to assess the true economic impact. The absence of this transparency could contribute to concerns or confusion about the potential financial burdens of these regulatory changes.