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Federal Register / Vol. 86, No. 109 / Wednesday, June 9, 2021 / Notices I. Self-Regulatory Organizations Statement of the Terms of Substance of the Proposed Rule Change FINRA is proposing to amend the Supplemental Inventory Schedule SIS pursuant to FINRA Rule 4524
Supplemental FOCUS Information so that members that are filers of FOCUS
Report Part II will not be required to file the SIS. The proposed rule change does not make any other change to the SIS or the instructions thereto.
The text of the proposed rule change is available on FINRAs website at http www.finra.org, at the principal office of FINRA and at the Commissions Public Reference Room.
II. Self-Regulatory Organizations Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, FINRA included statements 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. FINRA 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
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1. Purpose FINRA Rule 4524 provides in part that, as a supplement to filing FOCUS
Reports required pursuant to SEA Rule 17a5 4 and FINRA Rule 2010, each member, as FINRA shall designate, shall file such additional financial or operational schedules or reports as FINRA may deem necessary or appropriate for the protection of investors or in the public interest. In general, members with a FOCUS filing requirement must either file a FOCUS
Report Part II if they clear transactions or carry customer accounts 5 or file a 4 17 CFR 240.17a5 hereinafter cited as SEA
Rule 17a5. SEA Rule 17a5 governs financial and operational reporting by brokers and dealers.
Members are required to file with FINRA, through the eFOCUS System, reports concerning their financial and operational status using SEC Form X
17A5 the FOCUS Report. See, e.g., Information Notice, November 23, 2020 2021 and First Quarter of 2022 Report Filing Due Dates; Regulatory Notice 1838 November 2018 Amendments to the SECs Financial Reporting RequirementseFOCUS
System Updates and Annual Audit Requirements.
FOCUS stands for Financial and Operational Combined Uniform Single.
5 Currently, members that calculate net capital using Appendix E to SEA Rule 15c31 file FOCUS
Report Part II CSE, rather than FOCUS Report Part
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FOCUS Report Part IIA if they do not.6
Members that are government securities broker-dealers registered under SEA
Section 15C 7 do not file a FOCUS
Report and instead are required to file reports concerning their financial and operational status using the Report on Finances and Operations of Government Securities Brokers and Dealers FOGS
Report.8 FINRA established the SIS
requirement pursuant to Rule 4524 in 2014.9 Pursuant to this requirement, the SIS must be filed by a member that is required to file FOCUS Report Part II, FOCUS Report Part IIA or the FOGS
Report Part I, with inventory positions as of the end of the FOCUS or FOGS
reporting period, unless the member has 1 a minimum dollar net capital or liquid capital requirement of less than $100,000; or 2 inventory positions consisting only of money market mutual funds. A member with inventory positions consisting only of money market mutual funds must affirmatively indicate through the eFOCUS system that no SIS filing is required for the reporting period. As FINRA noted in establishing the SIS, the purpose of the SIS requirement is to provide more detailed information of inventory positions held by members.10
The Commission, as part of its rulemakings pursuant to Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act Dodd-Frank Act 11 to establish a regulatory framework for security-based swaps SBS, has adopted among other things amendments to the FOCUS
reporting requirements, including amendments to FOCUS Report Part II 12
designed to elicit additional information about the SBS activities of brokerdealers that file FOCUS Report Part II, including broker-dealers that will also be registered as SBS dealers and major SBS participants.13
II. Such members are referred to as alternative net capital or ANC broker-dealers.
6 SEA Rule 17a5.
7 15 U.S.C. 78o5.
8 Department of the Treasury Form G405.
9 See Securities Exchange Act Release No. 73192
September 23, 2014, 79 FR 58390 September 29, 2014 Order Approving Proposed Rule Change; File No. SRFINRA2014025; see also Regulatory Notice 1443 October 2014 SEC Approves Supplemental Inventory Schedule.
10 See note 9 supra.
11 Public Law 111203, 124 Stat. 1376 2010.
12 See Securities Exchange Act Release No. 87005
September 19, 2019, 84 FR 68550 December 16, 2019 Final Rule: Recordkeeping and Reporting Requirements for Security-Based Swap Dealers, Major Security-Based Swap Participants, and Broker-Dealers Reporting Requirements Release.
13 See Reporting Requirements Release, 84 FR at 68573. Pursuant to the SECs rule change, ANC
broker-dealers that currently file FOCUS Report Part II CSE will file new FOCUS Report Part II.

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FINRA believes that Schedule 1
Aggregate Securities, Commodities, and Swaps Positions Schedule 1 to FOCUS Report Part II, as amended, includes substantially all the information that is required by the SIS, including, among other things, information on the following types of positions:
U.S. Treasury securities;
U.S. government agency and U.S.
government-sponsored enterprise securities;
securities issued by states and political subdivisions in the U.S.;
foreign securities;
money market instruments;
private label mortgage backed securities;
other asset-backed securities;
corporate obligations;
stocks and warrants other than arbitrage positions;
arbitrage positions;
spot commodities;
other securities and commodities;
and securities with no ready market.
Further, line 11 of the SIS requires specified information on derivatives including options, based on whether the positions are centrally cleared or not. On Schedule 1 this information will be reported based on whether the position is a cleared or non-cleared SBS, mixed swap or swap, or will be reported under the category other derivatives and options. 14 Schedule 1 will also require information on counterparty netting and cash collateral netting.
Given that substantially all the information required by the SIS is covered by Schedule 1 of FOCUS Report Part II, as amended, FINRA believes that it would be an unnecessary duplication of reporting to require members that file FOCUS Report Part II to continue to submit the SIS after the compliance date 15 for certain of the SECs SBS
14 Schedule 1 requires the information for cleared and non-cleared SBS, mixed swaps and swaps in separate categories on Lines, 15, 16 and 17 of Schedule 1, while the SIS requires that SBS and swaps be reported in aggregate under centrally cleared and all other under Line 11 of the SIS.
Further, Schedule 1 requires that other derivatives or options be reported in aggregate on Line 18 of Schedule 1, while the SIS specifies separate categories for centrally cleared and all other options, forward settling and delayed delivery transactions, futures and other products under Line 11 of the SIS. Also, under Line 13 of the SIS securities with no ready market, the category for other include limited partnership interests is reflected as other under Line 13 of Schedule 1.
15 The Commission has broadly coordinated the compliance date for certain SBS rulemakings by setting October 6, 2021, as the compliance date the compliance date or SBS compliance date for the registration requirements that the Commission
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