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Federal Register / Vol. 86, No. 21 / Wednesday, February 3, 2021 / Notices
concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organizations Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of this proposed rule change is to amend the Compliance Rule regarding the CAT NMS Plan to be consistent with the Allocation Exemption. The Commission granted the relief conditioned upon the Participants adoption of Compliance Rules that implement the alternative approach to reporting allocations to the Central Repository described in the Allocation Exemption referred to as the Allocation Alternative.
1 Request for Exemptive Relief
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Pursuant to Section 6.4diiA of the CAT NMS Plan, each Participant must, through its Compliance Rule, require its Industry Members to record and report to the Central Repository, if the order is executed, in whole or in part: 1 An Allocation Report; 5 2 the SROAssigned Market Participant Identifier of the clearing broker or prime broker, if applicable; and the 3 CAT-Order-ID
of any contra-side orders. Accordingly, the Exchange and the other Participants implemented Compliance Rules that require their Industry Members that are executing brokers to submit to the Central Repository, among other things, Allocation Reports and the SROAssigned Market Participant Identifier of the clearing broker or prime broker, if applicable.
On August 27, 2020, the Participants submitted to the Commission a request for an exemption from certain allocation reporting requirements set forth in Sections 6.4diiA1 and 2 of the CAT NMS Plan Exemption 5 Section 1.1 of the CAT NMS Plan defines an Allocation Report as a report made to the Central Repository by an Industry Member that identifies the Firm Designated ID for any accounts, including subaccounts, to which execute shares are allocated and provides the security that has been allocated, the identifier of the firm reporting the allocation, the price per share of shares allocated, the side of shares allocated, the number of shares allocated to each account, and the time of the allocation; provided for the avoidance of doubt, any such Allocation Report shall not be required to be linked to particular orders or executions.

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Request.6 In the Exemption Request, the Participants requested that they be permitted to implement the Allocation Alternative, which, as noted above, is an alternative approach to reporting allocations to the Central Repository.
Under the Allocation Alternative, any Industry Member that performs an allocation to a client account would be required under the Compliance Rule to submit an Allocation Report to the Central Repository when shares/
contracts are allocated to a client account regardless of whether the Industry Member was involved in executing the underlying orders.
Under the Allocation Alternative, a client account would be any account that is not owned or controlled by the Industry Member.
In addition, under the Allocation Alternative, an Allocation would be defined as: 1 The placement of shares/
contracts into the same account for which an order was originally placed; or 2 the placement of shares/contracts into an account based on allocation instructions e.g., subaccount allocations, delivery versus payment DVP allocations. Pursuant to this definition and the proposed Allocation Alternative, an Industry Member that performs an Allocation to an account that is not a client account, such as proprietary accounts and events including step outs,7 or correspondent flips,8 would not be required to submit an Allocation Report to the Central Repository for that allocation, but could do so on a voluntary basis. Industry Members would be allowed to report Allocations to accounts other than client accounts; in that instance, such Allocations must be marked as Allocations to accounts other than client accounts.
6 See Letter from the Participants to Vanessa Countryman, Secretary, Commission, dated August 27, 2020 the Exemption Request.
7 A step-out allows a broker-dealer to allocate all or part of a clients position from a previously executed trade to the clients account at another broker-dealer. In other words, a step-out functions as a clients position transfer, rather than a trade;
there is no exchange of shares and funds and no change in beneficial ownership. See FINRA, Trade Reporting Frequently Asked Questions, at Section 301, available at: https www.finra.org/filingreporting/market-transparencyreporting/tradereporting-faq.
8 Correspondent clearing flips are the movement of a position from an executing brokers account to a different account for clearance and settlement, allowing a broker-dealer to execute a trade through another broker-dealer and settle the trade in its own account. See, e.g., The Depository Trust & Clearing Corporation, Correspondent Clearing, available at:
https www.dtcc.com/clearingservices/equitiestradecapture/correspondent-clearing.

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A Executing Brokers and Allocation Reports To implement the Allocation Alternative, the Participants requested exemptive relief from Section 6.4diiA1 of the CAT NMS Plan, to the extent that the provision requires each Participant to, through its Compliance Rule, require its Industry Members that are executing brokers, who do not perform Allocations, to record and report to the Central Repository, if the order is executed, in whole or in part, an Allocation Report.
Under the Allocation Alternative, when an Industry Member other than an executing broker e.g., a prime broker or clearing broker performs an Allocation, that Industry Member would be required to submit the Allocation Report to the Central Repository. When an executing broker performs an Allocation for an order that is executed, in whole or in part, the burden of submitting an Allocation Report to the Central Repository would remain with the executing broker under the Allocation Alternative. In certain circumstances this would result in multiple Allocation Reportsthe executing broker if selfclearing or its clearing firm would report individual Allocation Reports identifying the specific prime broker to which shares/contracts were allocated and then each prime broker would itself report an Allocation Report identifying the specific customer accounts to which the shares/contracts were finally allocated.
The Participants stated that granting exemptive relief from submitting Allocation Reports for executing brokers who do not perform an Allocation, and requiring the Industry Member other than the executing broker that is performing the Allocation to submit such Allocation Reports, is consistent with the basic approach taken by the Commission in adopting Rule 613 under the Exchange Act. Specifically, the Participants stated that they believe that the Commission sought to require each broker-dealer and exchange that touches an order to record the required data with respect to actions it takes on the order.9 Without the requested exemptive relief, executing brokers that do not perform Allocations would be required to submit Allocation Reports.
In addition, the Participants stated that, because shares/contracts for every execution must be allocated to an account by the clearing broker in such circumstances, there would be no loss of information by shifting the reporting 9 See Securities Exchange Act Release No. 67457
July 18, 2012, 77 FR 45722, 45748 August 1, 2012.

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