Consolidated Audit Trail (CAT)
(New) CAT Full CAIS Certification and Compliance Deadlines Extended
The Participants have determined to delay the full Customer Account Information System (“CAIS”) compliance deadline from July 11, 2022, to December 12, 2022. This extension of the compliance deadline will assist in addressing reporting challenges and delays in error feedback and processing and will allow time for such issues to be remediated. While the compliance deadline for full CAIS reporting is moving to December 12, 2022, Industry Members are expected to continue testing and now will be required to certify for production system access by July 25, 2022. There are interim reporting requirements between August 15, 2022 and December 5, 2022 to ensure Industry Members can comply with CAIS reporting requirements by December 12, 2022.
The National Adjudicatory Council (NAC) has revised FINRA’s Sanction Guidelines to incorporate a new guideline for violations of the Consolidated Audit Trail System (CAT) industry member compliance rules. The revised Sanction Guidelines are effective immediately and available on FINRA’s website.
• FINRA Regulatory Notice 21-37 (October 20, 2021): The National Adjudicatory Council (NAC) Revises the Sanction Guidelines
CAT Compliance Rules
Rule 613 under the Securities Exchange Act of 1934 requires FINRA and the national securities exchanges to jointly submit a National Market System (NMS) plan detailing how they would develop, implement, and maintain a consolidated audit trail that collects and accurately identifies every order, cancellation, modification and trade execution for all exchange-listed equities and options across all U.S. markets. FINRA is working with the exchanges to develop an NMS plan that meets the requirements of Rule 613.
• FINRA Rule 6800 Series: Consolidated Audit Trail Compliance Rule
• Visit The Consolidated Audit Trail website (https://www.catnmsplan.com/) for more information
(New) Digital Signatures
FINRA has received an increasing number of reports regarding registered representatives and associated persons (representatives) forging or falsifying customer signatures, and in some cases signatures of colleagues or supervisors, through third-party digital signature platforms. Firms have, for example, identified signature issues involving a wide range of forms, including account opening documents and updates, account activity letters, discretionary trading authorizations, wire instructions and internal firm documents related to the review of customer transactions. These types of incidents underscore the need for member firms that allow digital signatures to have adequate controls to detect possible instances of signature forgery or falsification. To help firms address the risks these signature forgeries and falsifications present, FINRA is sharing information in this Notice about:
• relevant regulatory obligations;
• forgery and falsification scenarios firms have reported to FINRA; and
• methods firms have used to identify those scenarios.
• FINRA Regulatory Notice 22-18 (August 3, 2022): FINRA Reminds Firms of Their Obligation to Supervise for Digital Signature Forgery and Falsification
FINRA Rule 3110 (Supervision) includes a provision to help firms comply with their obligation under Section 15(g) of the Securities Exchange Act of 1934 to have policies and procedures in place reasonably designed to prevent potential insider trading. Rule 3110(d) requires that firms include in their supervisory procedures a process for reviewing securities transactions in certain types of accounts that is reasonably designed to identify trades that may violate insider trading prohibitions. When implementing these policies and procedures, firms may take a risk-based approach to monitoring transactions that takes into account their specific business models, and firms are encouraged to tailor their policies and procedures to their specific business models.
(New) FINRA Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Amend FINRA Rule 6120 (Trading Halts)
FINRA is proposing to amend FINRA Rule 6120 (Trading Halts) to conform to recent amendments to the NMS plans governing the collection, consolidation and dissemination of quotation and transaction information for NMS stocks and to make technical and clarifying changes to the rule.
• SEC Release No. 34-95191 (June 30, 2022): Notice of filing and immediate effectiveness of a proposed rule change to amend FINRA Rule 6120 (Trading Halts) to conform to recent amendments to the SIP Plans and to Make Technical and Clarifying Changes to the Rule
(New) Order Granting Approval of a Proposed Rule Change to Amend the Provisions of NYSE Rule 7.35B
The Exchange approves to modify NYSE Rule 7.35B(f)(2), which sets forth rules pertaining to the cancellation of MOC, LOC, and Closing IO Orders before the Closing Auction Imbalance Freeze, and to make conforming changes to NYSE Rule 7.35B(j)(2)(B).
• SEC Release No.34-95086 (June 10, 2022): Order Granting Approval to Amend the Provision of NYSE Rule 7.35B
(New) Exemption From Trade Reporting Obligation for Certain Transactions on Alternative Trading Systems
FINRA has adopted amendments to Rule 6732 (Exemption from Trade Reporting Obligation for Certain Transactions on an Alternative Trading System) to expand the scope of the exemption to include eligible ATS transactions that involve only one member (other than the ATS). As amended, a member ATS may apply for the exemption for transactions between a member subscriber and a non-member entity (e.g., a bank). The amendments to Rule 6732 become effective on October 3, 2022.
• FINRA Regulatory Notice 22-13 (June 14, 2022): Exemption From Trade Reporting Obligation for Certain Transaction on Alternative Trading Systems
(New) FINRA Adopts Amendments to TRACE Reporting Rule to Require Identification of Portfolio Trades
FINRA has adopted amendments to Rule 6730 (Transaction Reporting) to require members to append a modifier to a corporate bond trade that is part of a portfolio trade when reporting to FINRA’s Trade Reporting and Compliance Engine (TRACE). The amendments to Rule 6730 become effective on May 15, 2023.
• FINRA Regulatory Notice 22-12 (May 15, 2022): FINRA Adopts Amendments to TRACE Reporting Rule to Require Identification of Portfolio Trades
Best Execution and Payment for Order Flow
FINRA issued this Notice to remind member firms of longstanding SEC and FINRA rules and guidance concerning best execution and payment for order flow, which the SEC has defined very broadly to refer to a wide range of practices including monetary payments and discounts, rebates, or other fee reductions or credits. Under these rules and guidance, member firms may not let payment for order flow interfere with their duty of best execution
• FINRA Regulatory Notice 21-23 (June 23, 2021): FINRA Reminds Firms of Requirements Concerning Best Execution and Payment for Order Flow
Market Order Timeliness
Considering the increasingly automated markets for NMS stocks, FINRA is issuing this Notice to remind member firms of their obligation to execute marketable customer orders fully and promptly. FINRA also reminds firms of their obligation to ensure that their supervisory systems are reasonably designed to achieve compliance with this obligation.
• FINRA Regulatory Notice 22-04 (January 21, 2022): FINRA Reminds Member Firms of Obligation to Execute Marketable Customer Orders Fully and Promptly
Regulation of Inter-dealer Quotation Systems
On November 8, 2021, FINRA ceased operation of the OTC Bulletin Board (OTCBB)—a FINRA-operated inter-dealer quotation system—and deleted the OTCBB-related rules from the FINRA rulebook.
• FINRA Regulatory Notice 21-38 (October 25, 2021): FINRA Announces Closure of the OTC Bulletin Board
Compliance with SEC Rule 15c2-11
FINRA adopted amendments to Rule 6432 (Compliance with the Information Requirements of SEA Rule 15c2-11) in light of the SEC amendments to SEC Rule 15c2-11. As amended, Rule 6432 will require a qualified inter-dealer quotation system to submit a modified Form 211 filing to FINRA in connection with each initial information review, and a daily security file to FINRA containing summary information for all securities quoted on its system on each day that it makes a publicly available determination permitted under SEC Rule 15c2-11, among other amendments. The amendments to Rule 6432 became effective on September 28, 2021, in line with the compliance date for the amendments to SEC Rule 15c2-11.
• FINRA Regulatory Notice 21-33 (September 28, 2021): FINRA Adopts Amendments to Rule 6432 Regarding Compliance with the Information Requirements of SEC Rule 15c2-11
Regulation of Inter-dealer Quotation Systems
FINRA has adopted new Rule 6439 (Requirements for Member Inter-Dealer Quotation Systems), which implements additional requirements for firms that operate systems that regularly disseminate the quotations of identified broker-dealers in OTC Equity Securities (each an “inter-dealer quotation system” or “IDQS”). Rule 6439 became effective on October 1, 2021, except for paragraph (d)(1)(B), which relates to the collection of order-level information. The effective date for this paragraph will be announced at a later date to better coordinate, and avoid regulatory duplication, with reporting obligations to the Consolidated Audit Trail (CAT) under Rule 6830 (Industry Member Data Reporting).
FINRA also is deleting the Rule 6500 Series and other rules related to the OTC Bulletin Board (OTCBB) – a FINRA-operated inter-dealer quotation system – and ceasing its operation. The permanent closure of the OTCBB will not occur prior to October 1, 2021. FINRA will announce the effective date of the deletion of the OTCBB-related rules and its closure in a separate communication.
• FINRA Regulatory Notice 21-28 (August 6, 2021): FINRA Adopts Rule 6439 Governing the Operation of Inter-Dealer Quotation Systems and Announces Closure of the OTC Bulletin Board