FR 2021-02187

The document from the Federal Register details a notice by the Securities and Exchange Commission (SEC) regarding a rule change proposed by Cboe EDGA Exchange, Inc. The proposal aims to align the exchange's compliance rules with a specific exemption related to the reporting of certain allocation transactions under the Consolidated Audit Trail (CAT). This exemption, granted by the SEC, pertains to the processes brokers use to report allocations of shares or contracts, particularly in cases involving client accounts.

General Summary

The Cboe EDGA Exchange, Inc. is proposing changes to its rules to reflect an exemption provided by the SEC concerning the reporting requirements for allocations of executed trades. This change prompts brokers who allocate shares to report more detailed information, but allows exemptions for certain brokers who do not perform these allocations directly. The purpose is to balance the regulatory needs for accurate data with the practicalities of those who should report it.

Significant Issues or Concerns

One major concern is the complexity of the language used throughout the document. The text includes many legal and financial terms that may not be readily understandable to individuals outside of the financial regulatory sector. In addition, the frequent use of acronyms and section references can be confusing without access to external documents or prior knowledge of the context. For the general public, the depth and density of the document may make it difficult to discern the key points or understand the full implications of the proposed changes.

Impact on the Public

For the broader public, this rule change may have indirect effects. While it directly impacts industry members, such as broker-dealers and securities exchanges, the general public could experience these changes through broader implications on the market's efficiency and compliance costs. However, the impacts may be somewhat opaque for everyday investors or consumers.

Impact on Stakeholders

For broker-dealers and other industry members, the immediate impact involves adjustments to their reporting processes, particularly for those performing allocation transactions. The proposed changes may reduce the compliance burden on brokers by clarifying whom amongst them must report detailed allocation information. This could lead to cost savings and more streamlined operations.

On the other hand, these changes might also impose additional obligations for certain industry members who do have the requisite information and are now required to report it. For regulators, the increased detail and accuracy in allocation reporting could enhance their ability to oversee market activities and maintain fair practices within the market system.

Overall, while the rule changes aim to enhance regulatory efficiency, they need careful consideration to ensure compliance burdens are not unjustifiably shifted or increased, potentially affecting market operations and costs.

The document from the Federal Register indicates various financial references associated with compliance rules in the securities industry, specifically related to the allocation of shares and contracts.

The only specific monetary value mentioned in the document is "$50 million," which pertains to institutional accounts. According to FINRA Rule 4512(c), an "institutional account" is defined as any account of a bank, savings and loan association, insurance company, registered investment company, or registered investment adviser, or any other entity with total assets of at least $50 million. This term "institutional account" is critical when discussing the allocation reports and prerequisites for compliance as described in the financial regulation context.

Financial Implications and Complexity

The document mentions a regulatory exemption request affecting how securities are allocated and reported. Although no direct spending or appropriation is outlined, the financial undertone is significant in relation to compliance costs for industry members such as brokers and exchanges. Regulatory compliance often entails substantial costs, approximately accounted by these organizations to modify their systems and processes for adherence to new reporting standards.

Furthermore, the organization of allocation reports touches on financial management concerning transactional details like the price per share/contract, the side of shares/contracts allocated, and settlement dates. All of these parameters affect the financial outcomes and reporting requirements for industry members handling these accounts.

Relation to Identified Issues

The complexity of financial terms such as allocation reports and the high threshold for institutional status might add to the confusion noted among stakeholders not specialized in legal or financial compliance. While institutions managing assets over $50 million are clearly defined, the implications of what constitutes these assets, and how they are reported or exempted, aren't straightforward for laypersons.

Given the numerous references to compliance terminology and the intricacies of share/contract allocations, understanding the practical financial impacts requires familiarity with the regulatory environment. The document does not plainly articulate how ordinary investors or smaller entities are affected by these high-value threshold determinations, thereby limiting comprehensive understanding to those within the financial regulatory space.

In conclusion, the financial aspects introduced, although specific with the $50 million account threshold, harmonize with larger issues of regulatory compliance costs and reporting complexity that might not be easily accessible or understandable to the general public without a deep dive into financial regulations.