Letters

FINRA Proposed Rule to Eliminate Order Audit Trail

Summary

SIFMA sent comments to the SEC on the proposed rule changes filed by FINRA to eliminate the Order Audit Trail (“OATS”) rules in the FINRA Rule 7400 Series and FINRA Rule 4554 once members are effectively reporting to Consolidated Audit Trail (“CAT”) and the CAT’s accuracy and reliability standards have been achieved. The elimination of duplicative systems is one of the CAT’s most critical issues, and we support FINRA’s proposal to eliminate the reporting rules for the OATS.

However, as discussed further below, we believe the proposal should not be approved unless and until the standards for retirement are amended as we suggest in more detail below so that the duplicative systems are eliminated in an efficient and timely manner.

PDF

Submitted To

SEC

Submitted By

SIFMA

Date

24

September

2020

Excerpt

September 24, 2020

Via Electronic Mail ([email protected])
Ms. Vanessa Countryman
Secretary
U.S. Securities & Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549-1090

Re: File No. SR-FINRA-2020-024; Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.: Notice of Filing of Proposed Rule to Eliminate the Order Audit Trail (“OATS”) Rules

Dear Ms. Countryman:

The Securities Industry and Financial Markets Association (“SIFMA”)1 submits this letter to the Securities and Exchange Commission (“Commission”) to comment on the above referenced proposed rule changes filed by the Financial Industry Regulatory Authority
(“FINRA”) to eliminate the Order Audit Trail (“OATS”) rules in the FINRA Rule 7400 Series and FINRA Rule 4554 once members are effectively reporting to Consolidated Audit Trail (“CAT”) and the CAT’s accuracy and reliability standards have been achieved. The elimination of duplicative systems is one of the CAT’s most critical issues, and we support FINRA’s proposal to eliminate the reporting rules for the OATS2 . However, as discussed further below, we believe the proposal should not be approved unless and until the standards for retirement are amended as we suggest in more detail below so that the duplicative systems are eliminated in an efficient and timely manner.

Accuracy and Reliability Standards
FINRA should ensure the proposed accuracy and reliability standards allow the retirement of OATS in a reasonable time. Under the proposal, FINRA would require that, before OATS can be retired, the CAT would generally need to achieve a sustained error rate for
Industry Member reporting of at least 180 days of 5% or lower, measured on a pre-correction or as-submitted basis and 2% or lower on a post-correction basis (measured at T+5).3 The 5% precorrection and 2% post-correction thresholds would be measured by averaging the error rate across the period, rather than establishing a 5% pre-correction and 2% post-correction maximum each day for 180 consecutive days. FINRA will begin calculating the accuracy rates once Interfirm Linkages and TRF/Exchange Linkages are reported, which means April 2021 will be the earliest possible date for eliminating OATS. SIFMA and FINRA are aligned in that we want
the OATS to be eliminated in 2021.

SIFMA supports the proposed categories for measuring error rates that are limited to data currently reported to OATS. Accordingly, we believe requiring a pre-correction error rate of 95% and a post-correction error rate of 98% to be appropriate for the rejection rates and data validations, intra-firm linkages, inter-firm linkages and exchange and TRF/ORF match rate categories. Correspondingly, SIFMA supports measuring error rates only for equity securities and not using any error rates from phase 2c of industry member reporting for determining when to retire OATS. Relatedly, we expect FINRA and the other Plan Participants to achieve similar acceptable error rates since this will be considered part of the overall data efficacy for retirement of OATS.

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