April 5, 2016.
On February 11, 2016, the Financial Industry Regulatory Authority, Inc. (“FINRA”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) 
and Rule 19b-4 thereunder,
filed with the Securities and Exchange Commission (“Commission”) a proposal to amend FINRA Rules 7410 and 7440 to require FINRA members to include on their Order Audit Trail System (“OATS”) reports the identity of broker-dealers that are not FINRA members when the member receives an order from such a broker-dealer. The proposed rule change was published for comment in the Federal Register on February 25, 2016.
The Commission received no comments on the proposal. This order approves the proposed rule change.
II. Description of the Proposed Rule Change
First, FINRA proposes to define an “SRO-assigned identifier” in Rule 7410 as “a unique identifier assigned to a broker or dealer by a national securities exchange or national securities association for use by such broker or dealer when accessing the exchange or a facility of the association.” The identifier would be considered “unique” if the identifier assigned by the exchange or association is used to identify a single broker-dealer.
Second, FINRA is proposing to amend Rule 7440 of the OATS rules to require members that are subject to the OATS rules (“Reporting Members”) to identify non-FINRA-member broker-dealers (“Non-Member Firms”) from which they receive orders, on the OATS report for the order.
Under the proposed rule change, Reporting Members that receive an order from a “Reportable Non-Member” (a U.S.-registered broker-dealer that is not a FINRA member or a broker-dealer that is not registered in the U.S. but has received an SRO-assigned identifier in order to access certain FINRA trade reporting facilities) would be required to identify that broker-dealer when reporting receipt of the order to OATS.
Reporting Members that receive an order from, or route an order to, a Non-Member Firm would report one of the following: the Non-Member Firm's Central Registration Depository (“CRD ®”) number, the Non-Member Firm's SRO-assigned identifier, or, for a Non-Member Firm that does not have a CRD number or SRO-assigned identifier (e.g., a foreign broker-dealer), a value indicating that the Non-Member Firm has no CRD number or SRO-assigned identifier.
The proposed rule Start Printed Page 21428change does not mandate which identifier Reporting Members must use.
FINRA will be able to obtain the identity of Reportable Non-Members from the OATS report which will make its audit trail more comprehensive.
FINRA will use the information to identify Non-Member Firm activity in the over-the-counter market, as well as Non-Member Firm sponsored access activity.
After careful review, the Commission finds that FINRA's proposal is consistent with the requirements of Section 15A of the Act 
and the rules and regulations thereunder applicable to a national securities association.
In particular, the Commission finds that the proposed rule change is consistent with Section 15A(b)(6) of the Act,
which requires, among other things, that FINRA rules be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest.
The proposed rule change will provide FINRA, via OATS reports, the identity of Reportable Non-Members that route orders or to which an order has been routed, which will make the OATS reports more complete. Having the information regarding which Reportable Non-Member was involved in a transaction will enable FINRA to better surveil off-exchange market activity as well as enhance the surveillance it performs of exchange activity pursuant to its Regulatory Services Agreements. FINRA will be able to consistently identify Non-Member Firm activity, providing FINRA with a more complete view of such activities across all exchanges and over-the-counter market centers.
The Commission believes that requiring Reporting Members to include the identity of Reportable Non-Members in OATS reports on orders they receive from either a U.S.-registered broker-dealer that is not a FINRA member or a broker-dealer that is not registered in the U.S. but has received an SRO-assigned identifier, will provide FINRA with a more complete view of such market participants' activities across exchanges and over-the-counter market centers. This, in turn, should enhance FINRA's cross-market surveillance efforts. Improved surveillance should help FINRA detect and deter fraudulent and manipulative acts and practices, and thus promote just and equitable principles of trade and the protection of investors and the public interest.
It Is Therefore Ordered pursuant to Section 19(b)(2) of the Act 
that the proposed rule change (SR-FINRA-2016-006), be and hereby is approved.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.14
Robert W. Errett,
[FR Doc. 2016-08183 Filed 4-8-16; 8:45 am]
BILLING CODE 8011-01-P