Market Integrity

Consolidated Audit Trail (CAT)

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

 

Order Audit Trail System

Effective September 1, 2021, FINRA is amending its rulebook to eliminate the Order Audit Trail System (OATS) rules in the FINRA Rule 7400 Series and FINRA Rule 4554 (Alternative Trading Systems — Recording and Reporting Requirements of Order and Execution Information for NMS Stocks) (collectively referred to as the “OATS Rules”). FINRA has determined that the accuracy and reliability of the Consolidated Audit Trail (CAT) meet the standards approved by the SEC and has determined to retire OATS as of September 1, 2021.

• FINRA Regulatory Notice 21-21 (June 17, 2021): FINRA Eliminates the Order Audit Trail System (OATS) Rules

 

Equity Trade Reporting

FINRA has amended its rules to require firms to report time fields in trade reports submitted to a FINRA equity trade reporting facility with the same timestamp granularity used when reporting to the Consolidated Audit Trail (CAT).

Effective Dates: November 15, 2021 (Alternative Display Facility & Trade Reporting Facilities); November 14, 2022 (OTC Reporting Facility)

• FINRA Regulatory Notice 20-41 (December 2, 2020): FINRA Amends Its Equity Trade Reporting Rules Relating to Timestamp Granularity

 

Sanction Guidelines

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

Prohibited Practices

Insider Trading

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.

• SEC Fast Answers: Insider Trading
• Insider Trading “Red Flags” and Filing a Tip with FINRA

Best Execution

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

 

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

Quotations and Reporting

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

 

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

 

SEC Approves Registration of First Security-Based Swap Data Repository

November 8, 2021 was the first compliance date for Regulation SBSR, which governs regulatory reporting and public dissemination of security-based swap transactions. Regulation SBSR is a key component of the security-based swap regulatory regime established by Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Regulation SBSR provides for the reporting of security-based swap information to registered SDRs and for public dissemination of transaction, volume, and pricing information.

• SEC Release No. 34-91798 (May 7, 2021): Security-Based Swap Data Repositories; DTCC Data Repository (U.S.), LLC; Order Approving Application for Registration as a Security-Based Swap Data Repository