SIFMA provided comments to the Internal Revenue Service (IRS) on the draft October 2023 revision of Form W-9 (Draft Form…
Request for No Action Relief from Rule 1004 of Regulation SCI
February 25, 2019
Division of Trading and Markets
Securities and Exchange Commission
100 F Street, N.E. Washington, DC 20549
Re: Request for No Action Relief from Rule 1004 of Regulation SCI
Dear Mr. Shillman:
The Securities Industry and Financial Markets Association (“SIFMA”)1, acting on behalf of its members and other similarly situated registered broker-dealers, as well as the “SCI entities”2 listed on Exhibit 1 to this letter, respectfully request that the staff of the Division of Trading and Markets (“Division”) of the Securities and Exchange Commission (“Commission”) provide assurances that it will not recommend enforcement actions for failing to comply with Rule 1004 of Regulation SCI under the Securities Exchange Act of 1934 (“Exchange Act”)3 if SCI entities conduct the annual testing of business continuity and disaster recovery (“BC/DR”) plans required by Rule 1001 in the same calendar month as the prior year, but the testing date in one year occurs more than 365 days after the testing date in the prior year.
Regulation SCI Requires Annual Operational Testing of BC/DR Plans
Rule 1001(a)(2)(v) of Regulation SCI requires SCI entities to establish BC/DR plans. Rule 1004 of Regulation SCI requires SCI entities to conduct testing of the operation of these BC/DR plans at least once every 12 months. In adopting Regulation SCI, the Commission stated that the key for operational testing off BC/DR plans “is for testing to occur regularly enough to offer practical utility in the event of a wide-scale disruption without imposing undue cost, and that a minimum frequency of one year achieves this balance.”4
Regulation SCI took effect on February 3, 2015 with the first required operational testing of BC/DR plans having to occur by a deadline of November 3, 2016.5 For the 2017 testing of BC/DR plans, the requirement under Rule 1004(c) for industry- or sector-wide coordination was in effect.6 Since October 2016, the SCI entities have conducted the required operational testing of BC/DR plans in coordination with the annual SIFMA Business Continuity Planning tests, which currently are held in October of every calendar year. The 2018 test was held on October 13th.
SIFMA and SCI entities coordinate to determine the most effective date to conduct the annual testing of BC/DR plans under Regulation SCI after considering several factors. SCI entities and SIFMA member firms seek to avoid weekends where industry testing would be difficult, including options expiry weekends, internal firm operations and technology processes associated with calendar cycles, and holidays. In addition, there are major exchange system conversions planned in October 2019 that require their own weekend testing programs and limit the number of available weekends in October 2019 to conduct the Regulation SCI tests. If the test were moved to September for 2019, then SCI entities would face the same timing issue for 2020 in order to move the test back to October.
SIFMA Request to Allow Testing to Occur During a Single Calendar Month
Beginning with the 2019 BC/DR test, SIFMA requests that the Division Staff provide assurances that it will not recommend to the Commission enforcement action based on the annual testing required under Rule 1004 occurring in the same calendar month as the prior year’s test but more than 365 days after the prior year’s test. SIFMA proposes the 2019 testing of BC/DR plans to be held on Saturday October 26th, which would be more than 365 days after the 2018 test date of October 13th. SIFMA tentatively proposes that the testing dates for the two following years would be Saturday October 24, 2020 and Saturday, October 23, 2021.
Permitting the annual BC/DR testing to be held in the same calendar month as the prior year’s test, as opposed to strictly within 365 days of the previous testing date, allows for alignment of the Regulation SCI test (and the SIFMA industry connectivity test) with other major industry testing programs such as the Futures Industry Association (“FIA”) annual test, as well as the Investment Industry Regulatory Organization of Canada (“IIROC”) test, which occurs every other year. SIFMA coordinates with the FIA and IIROC to identify potential test weekends and have collectively agreed to these proposed testing dates. Aligning the dates of these tests creates substantial efficiencies for the test entities and participating firms and thus reduces operational and technology risks.
1 SIFMA is the leading trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets. On behalf of our industry’s nearly 1 million employees, we advocate for legislation, regulation and business policy, affecting retail and institutional investors, equity and fixed income markets and related products and services. We serve as an industry coordinating body to promote fair and orderly markets, informed regulatory compliance, and efficient market operations and resiliency. We also provide a forum for industry policy and professional development. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA). For more information, visit http://www.sifma.org.
2 Under Rule 1000 of Regulation SCI, the term “SCI entity” includes, among others, national securities exchanges, registered securities associations, registered clearing agencies, certain exempt clearing agencies, as well as alternative trading systems that exceed certain trading volume thresholds. k
3 See Securities Exchange Act Release No. 34-73639 (November 19, 2014), 79 FR 72252 (December 5, 2014)(“SCI Adopting Release”).
4 Id. at 72354.
5 Id. at 72367.