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Industry Spotlight > Broker Dealers

SEC Forms COVID-19 Task Force, Issues More Regulatory Relief

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The Securities and Exchange Commission recently formed an internal, cross-divisional COVID-19 Market Monitoring Group and is providing more regulatory relief in light of the coronavirus pandemic.

The temporary, senior-level COVID-19 Market Monitoring Group will help the commission and its various divisions and offices in actions and analysis related to the effects of COVID-19 on markets, issuers, and investors, and will respond to requests for information, analysis and assistance from fellow regulators and other public-sector partners.

The group will help the agency coordinate with and support other federal financial agencies such as the President’s Working Group on Financial Markets (PWG), Financial Stability Oversight Council (FSOC) and the Financial Stability Board (FSB).

CAT Relief 

The agency also issued two exemptive orders to move Consolidated Audit Trail (CAT) to set up a phased CAT reporting timeline for broker-dealers, and permit introducing brokers that meet certain requirements to follow the small broker-dealer reporting timeline.

The first commission order allows for equity and options reporting in phases, taking into account the complexity of reporting events.

In order to address the impact of COVID-19 while preserving progress toward existing milestones, the first exemptive order also allows for a delayed start to CAT reporting conditioned upon compliance with certain other obligations.

These obligations include milestones related to testing and releases of CAT functionality, as well as all other compliance dates for broker-dealer reporting to the CAT.

The second commission order focuses on those introducing brokers that meet the net capital requirements for small broker-dealers under Rule 0-10(c)(1) under the Securities Exchange Act of 1934, but fail to qualify as small broker-dealers for the purposes of the CAT NMS Plan.

The order provides exemptive relief permitting these firms to follow the CAT reporting timeline applicable to small broker-dealers.

Select milestones for broker-dealer reporting to the CAT are:

  • June 22, 2020: Initial equities reporting for large broker-dealers and small broker-dealers that currently report to FINRA’s Order Audit Trail System (OATS);
  • July 20, 2020: Initial options reporting for large broker-dealers; and
  • Dec. 13, 2021:  Full equities and options reporting for large and small broker-dealers; and
  • July 11, 2022: Full customer and account reporting for large and small broker-dealers.

Fund Valuation Modernization

The SEC also voted to propose a new rule to set up a framework for fund valuation practices.

The proposed rule is intended to clarify how fund boards can satisfy their valuation obligations in light of market developments, including an increase in the variety of asset classes held by funds and an increase in both the volume and type of data used in valuation determinations.

“The way a fund values its investments is critical to our Main Street investors,” said SEC Chairman Jay Clayton, in a statement. “It affects the fees they pay, the returns they receive, and the value of the fund shares they hold. Today’s proposal would improve valuation practices, including oversight, thereby protecting investors and improving market efficiency, integrity and fairness.”

Many funds now engage third-party pricing services to provide pricing information, particularly for thinly traded or more complex assets, the agency explained. “In addition, significant regulatory developments have altered how boards, investment advisers, independent auditors, and other market participants address valuation under the federal securities laws,” the SEC said.

The proposal “recognizes and reflects these changes, including the important role that funds’ investment advisers may play and the expertise they may provide,” the agency said.


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