FR 2021-02184

Summary of the Document

The document in question concerns a rule change proposed by the Cboe BYX Exchange, Inc. to align with a specific exemption granted by the Securities and Exchange Commission (SEC). This rule adjustment pertains to how the exchange manages allocation reports as part of their compliance with the Consolidated Audit Trail (CAT) requirements. The principal change is to redefine what constitutes an "Allocation Report" and to limit the reporting requirement to instances where shares or contracts are allocated specifically to client accounts. The overall objective of these adjustments is to streamline reporting obligations for brokers, mitigating their administrative burden while ensuring that regulatory bodies have sufficient information to monitor the allocation of trades.

Significant Issues and Concerns

One of the main problems with the document is its complexity and heavy reliance on legal and securities regulation terminology, which may pose a challenge for those who are not professional insiders in the financial or legal sector. The document is rife with regulatory jargon such as "Compliance Rule," "CAT NMS Plan," and "Allocation Exemption" that might not be easily understood by the general public. Furthermore, the excessive cross-referencing to other documents, footnotes, and previous releases creates an additional barrier to understanding, as it requires readers to conduct significant additional research to grasp the full picture. This could lead to potential misinterpretations, particularly regarding the criteria for "Allocation Reports."

Broad Public Impact

For the general public, these regulatory changes might appear distant or irrelevant at first glance. However, the implications are broader, affecting how securities transactions are reported and monitored. This has a downstream effect on market transparency and regulatory oversight, which are ultimately crucial for protecting investors' interests and maintaining orderly and fair markets. By refining the rules around trade allocations, the SEC aims to ensure that transactions are more transparent, reducing the opportunity for fraudulent or manipulative practices in the marketplace.

Impact on Specific Stakeholders

Positive Impacts

• Brokers and Financial Institutions: The document's proposal reduces the reporting burden on brokers who do not directly handle allocation transactions. By streamlining these requirements, brokers can potentially lower their operational costs associated with compliance, allowing them to allocate resources more efficiently.

• Regulators: For regulatory bodies like the SEC, these changes ensure they have access to the necessary data to monitor trades effectively without inundating them with extraneous reports. This focused approach enhances their capacity to pinpoint and address any discrepancies or malpractices more efficiently.

Negative Impacts

• Complexity for Compliance Teams: While the proposal is intended to simplify compliance efforts, the complexities and nuanced nature of the revised reporting requirements could potentially lead to confusion and inconsistencies in application. Compliance teams within brokerages might face challenges in adapting to these new rules without clear guidance or the risk of misreporting.

• Smaller Brokers: Smaller brokerage firms might experience initial hurdles adapting to the new requirements, particularly if they do not have the same level of resources or sophisticated infrastructure as larger entities to facilitate the changeover.

In conclusion, the proposed rule changes set forth by the Cboe BYX Exchange represent a step toward more efficient market regulation. However, stakeholders need to navigate the intricate details carefully to ensure that intended benefits are realized without unintended missteps.

The document makes a notable financial reference regarding institutional accounts in the context of certain regulatory provisions. Specifically, it relates to the definition provided under FINRA Rule 4512(c). According to this rule, an institutional account is defined as including the account of a bank, savings and loan association, insurance company, or registered investment company. Additionally, it encompasses investment advisers registered with the Commission under Section 203 of the Investment Advisers Act or with a state securities commission. Importantly, the rule further describes institutional accounts as encompassing any other person (whether a natural person, corporation, partnership, trust, or otherwise) with total assets of at least $50 million.

Financial Implications and Context

This monetary threshold of $50 million plays a crucial role in determining the classification of an account as "institutional". This classification impacts compliance reporting requirements, especially concerning how allocations are reported in certain financial transactions like those regulated under the CAT NMS Plan. By setting such a significant asset threshold, the rule distinguishes between larger institutional investors and retail or smaller-scale investors, who may not meet this financial criterion.

Connection to Identified Issues

The document, filled with complex regulatory language and rules, uses financial thresholds like this to guide compliance and reporting standards. The issues identified in the document, such as its complexity and reliance on cross-references, can make it challenging for the general public to easily grasp why this $50 million threshold is significant. Understanding this threshold is crucial to comprehending which entities are subject to specific regulatory requirements, but the complexity of the text might obscure this relevance to a lay audience. Simplifying the explanation of such financial criteria could aid in clarifying the broader regulatory implications for different market participants.

Overall, while the document touches on significant financial classifications, the presentation might benefit from clearer explanations aimed at a general audience to fully contextualize the financial references within the regulatory landscape.