FINRA Proposes Amendments to Remove Duplicative CAT Requirements

FINRA proposed several amendments to remove overlapping requirements concerning (i) clock synchronization for recording market events; (ii) quote and order access; (iii) reporting requirements on certain information for orders in OTC equity securities; and (iv) recording of quotation information on an inter-dealer quotation system. The proposed amendments reflect FINRA's efforts to "eliminate duplicative requirements or otherwise clarify regulatory obligations" following the implementation of the National Market System Plan governing the Consolidated Audit Trail ("CAT NMS Plan").

In the proposal filed with the SEC, FINRA seeks to amend:

• FINRA Rule 4590 ("Synchronization of Member Business Clocks") to remove requirements also covered under FINRA Rule 6820 ("Clock Synchronization") pursuant to the CAT NMS Plan. Currently, Rule 4590 and Rule 6820 both address clock synchronization regarding the recording of events in NMS and OTC equity securities. The amendment would make clear that Rule 4590 applies to the synchronization of business clocks that record events in areas where Rule 6820 does not apply. Specifically, Rule 6820 would continue to apply to business clocks used to record events for NMS securities and OTC equity securities while Rule 4590 would apply to the synchronization of business clocks to record events in debt securities, which is not covered under the CAT NMS Plan.
• FINRA Rule 6250 ("Quote and Order Access Requirements") to provide clarity on reporting requirements duplicative of FINRA Rule 6830 ("Industry Member Data Reporting") covered under the CAT NMS Plan. The amendment would remove sections under Rule 6250 which require Alternative Display Facility ("ADF") Trading Centers to record and report to FINRA: (i) order information with broker-dealers via direct and indirect access and (ii) order information that is part of a displayed bid or offer on an ADF or details on the execution of an order.
• FINRA Rule 6439 ("Requirements for Member Inter-Dealer Quotation Systems") to remove reporting requirements by covered inter-dealer quotation systems ("IDQS") on specified aggregate and order-level information for orders in OTC equity securities. According to FINRA, this section of Rule 6439 is no longer necessary as covered IDQS’s are required to submit similar reports under the CAT NMS Plan.

FINRA also proposed deleting Rule 6431 ("Recording of Quotation Information"). According to FINRA, Rule 6431 requires broker-dealers that display quotations on a non-FINRA or non-member operated IDQS to record and submit information on their quotations to FINRA. Citing changes in the marketplace, FINRA stated that IDQS that were previously non-members are now members and thus are subject to CAT NMS Plan reporting requirements.

If approved, FINRA requested that the SEC make the rule amendments effective immediately and waive the requirements that the rule change not become operative for 30 days.