SIFMA, SIFMA AMG Categorical Considerations With SEC Proposal To Redefine Exchanges
In a comment letter filed with the SEC, SIFMA broadly helps the coverage aim of making certain that guidelines governing buying and selling venues preserve tempo with technological and market developments however stays involved that the SEC’s proposal to redefine the scope of what constitutes an change and broaden Regulation ATS isn’t appropriately tailor-made to those ends. In a separate comment letter, SIFMA’s Asset Administration Group (AMG) likewise expresses its appreciation of the SEC’s intent to help well-functioning markets, however absent the clear identification of an issue not already well-addressed by current rules, SIFMA AMG has critical questions and issues in regards to the potential for an expansive interpretation as to the scope of those modifications.
The feedback had been made in response to an SEC launch which supplies supplemental data and reopens the remark interval for the SEC’s January 2022 proposal to amend Rule 3b-16, which defines exchanges, and Regulation ATS, which is the regulatory regime that governs different buying and selling techniques. The proposal would broaden the scope of the rule to incorporate techniques that provide using non-firm buying and selling curiosity and supply protocols to convey collectively patrons and sellers for buying and selling any sort of safety. These so-called communication protocol techniques could be required to both register as exchanges or register as broker-dealers and adjust to Regulation ATS.
As acknowledged in prior remark letters on the proposal, filed in April 2022 and June 2022 by SIFMA and in April 2022 by SIFMA AMG, each the scope of proposed Rule 3b-16 and the SEC’s rationale for increasing its interpretation of an change stay unclear.
“We’re involved that, by making an attempt to convey decentralized finance (DeFi) techniques inside the scope of Rule 3b-16 and Regulation ATS, the SEC might also topic many non-DeFi techniques to regulation as an change and not using a clear rationale,” mentioned Rob Toomey, SIFMA head of capital markets and managing director. “If DeFi techniques are the first focus of the SEC’s efforts, it will be extra acceptable to suggest separate guidelines tailor-made to the particular functioning, threat profile, and complexities of DeFi techniques particularly—slightly than ballooning current guidelines in a means that may additionally improperly scope in a mess of different broker-dealer techniques that the SEC says it doesn’t wish to seize.”
“The SEC proposal makes quite a lot of modifications to an current regulation that has functioned very properly,” mentioned Invoice Thum, managing director and affiliate normal counsel, SIFMA AMG.
“The broad drafting of the proposal, even with the newer clarifications, suggests a dramatic growth of regulatory scope and obligations – in methods unrelated to a data-driven identification of issues requiring consideration – and the danger of such an growth of scope and obligations presents troubling penalties.”
SIFMA’s feedback on the reopening of the proposal embrace the next factors:
- The Proposal continues to lack conceptual coherence and a transparent rationale for the numerous growth of Rule 3b-16. SIFMA stays involved that the proposed interpretation of an “change” lacks conceptual coherence and has develop into untethered to how precise exchanges function. The SEC has not supplied a transparent rationale for why many techniques, reminiscent of these used for negotiation, are appropriately thought of exchanges and why a significant growth of Rule 3b-16 is important. This results in an inconsistent and arbitrary software of Rule 3b-16.
- The SEC ought to pursue an incremental method towards the growth of Rule 3b-16 and Regulation ATS. SIFMA believes the SEC ought to take an incremental method to any growth of Rule 3b-16 and Regulation ATS, reminiscent of by first extending Regulation ATS to techniques supporting buying and selling in authorities securities pursuant to the initially proposed Kind ATS-G. Additional business remark and dialogue (e.g., by roundtables or an idea launch) are wanted to make sure that any amendments to Rule 3b-16 could be appropriately calibrated to seize techniques that needs to be topic to the change/ATS regulatory framework whereas excluding these broker-dealer techniques (e.g., order and execution administration techniques) that needs to be excluded from such framework.
- The SEC has not addressed quite a few questions from commenters unrelated to DeFi. The SEC has not addressed quite a few questions from commenters together with SIFMA unrelated to DeFi, leading to lingering confusion and ambiguity within the proposed software of Rule 3b-16.
- The proposed scope of Rule 3b-16 stays imprecise and overbroad. The DeFi Launch has exacerbated confusion and ambiguity within the proposal particularly with respect to the nonetheless undefined time period “communication protocol system.” To assist mitigate these points, SIFMA believes the SEC ought to individually suggest guidelines to deal with DeFi techniques slightly than increasing Rule 3b-16. It’s also tough to remark meaningfully on the proposal, as amended by the DeFi Launch, given the ocean of selections of various proposed Rule 3b-16 textual content the SEC has now proposed. At a minimal, considerably larger clarification and clearer strains must be drawn between in-scope and out-of-scope techniques in addition to clarification relating to how sure techniques would adjust to Regulation ATS.
- An prolonged compliance interval could be vital for market contributors to adjust to any adopted proposal. A considerably longer compliance deadline (i.e., a minimum of 24 months) could be vital for market contributors to come back into compliance with any adopted guidelines.
SIFMA AMG’s feedback embrace the next factors:
- “Non-discretionary” have to be clearly outlined as being key to the definition of an “Change”. “Change” therapy should not apply if the person has discretion: (1) to pick out potential counterparties and (2) to pick out the popular order/response.
- Proposed amendments are inadequate to slender the scope of the techniques meant for “Change” therapy. Whereas phrases like “establishes” and “negotiation protocols” seem extra prone to be interpreted as nearer to the mark, there stays too excessive a level of ambiguity, and this drafting train avoids probably the most important problem – the necessity to present certainty for using the time period “non-discretionary.”
- OEMS techniques and ETF portals lack key elements of an “Change”. OEMS and ETF portal techniques have been fastidiously developed by a various group of market contributors to introduce efficiencies and price financial savings into the market – however don’t permit for separate customers to work together and don’t immediately join with a number of brokers to substantiate the non-discretionary execution of orders.
- Explicitly carve out OEMS techniques and ETF portals from therapy as an“Change”. Not solely would this keep away from the danger that such techniques may in the end be discovered to qualify for “change” therapy, however virtually extra importantly such a carve-out would remove any threat of builders abandoning improvements designed to realize larger efficiencies and cost-savings for the good thing about traders.
Supply: SIFMA
MFA Remark Letter Helps SEC’s Proposed Guidelines for Authorities ATSs and Opposes Expanded Change Definition
Managed Funds Affiliation (MFA) reiterated help for regulating Authorities different buying and selling techniques (ATSs) as ATSs and disagreement with increasing the “change” definition in a brand new remark letter to the Securities and Change Fee (SEC). The SEC just lately re-opened the remark interval for a proposal on Regulation ATS (Reg ATS) and the definition of an change. The letter represents the second letter MFA despatched to the SEC on this proposed rulemaking.
The proposed change rule would broaden the definition to incorporate communications protocol techniques. MFA’s letter explains that for the reason that communications protocol techniques utilized by managers are considerably totally different from exchanges they shouldn’t be regulated as exchanges or ATSs. The letter additionally highlights how the expanded definition would hinder know-how improvement within the monetary providers business by rising the regulatory burden and the prices for managers in growing and utilizing these applied sciences, which might result in greater buying and selling prices for his or her traders, reminiscent of pensions, foundations, and endowments.
“The proprietary techniques and know-how different asset managers use shouldn’t be regulated like exchanges, since they don’t execute trades and bear no resemblance to an change,” mentioned Bryan Corbett, MFA President and CEO. “MFA is grateful the SEC re-opened the remark interval and sought extra touch upon the extra controversial parts of the proposal. Nonetheless, the revised proposal nonetheless has appreciable flaws in its unprecedented software of Reg ATS to the techniques managers use. This can hurt the power to generate returns for the pensions, foundations, and endowments they serve.”
MFA’s letter additionally answered a number of questions particular questions poised within the re-opened proposal.
Learn MFA’s remark letter here.
Supply: MFA
