SEC Division of Trading and Markets no-action letter: Securities Industry and Financial Markets Association

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3 SECURITIES AND EXCHANGE COMMISSION
s~ ~o` WASHINGTON, D.C. 20549
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DIVISION OF
TRADING AND MARKETS
February 26, 2019
Ellen Greene
Managing Director
SIFMA
120 Broadway, 35th Floor
New York, NY 10271
Re: Request Re arding Rule 1004 of Regulation SCI
Dear Ms. Greene:
In your letter dated February 25, 2019, you request assurance, acting on behalf of SIFMA
members and other similarly situated broker-dealers, as well as the SCI entities' listed on Exhibit
1 to your letter, that the staff of the Division of Trading and Markets ("Staff') would not
recommend enforcement action to the Commission under Rule 1004 of Regulation Systems
Compliance and Integrity ("Regulation SCI)2 if SCI entities conduct the annual testing of
business continuity and disaster recovery plans ("BC/DR plans") required by Rule 1004 in the
same calendar month as the prior year, but more than 365 days after the testing date of the prior
year.
Rule 1004 requires, among other things, that an SCI entity perform functional and
performance testing of the operation of its BC/DR plans3 with members or participants "not less
than once every 12 months" and that the testing of such plans be coordinated on an industry- or
sector-wide basis with other SCI entities.
In your letter, you describe the factors that SIFMA and SCI entities consider "to
determine the most effective date to conduct the annual testing." In particular, you note that
coordinated selection of the test date each year takes into account a range of considerations, such
as option expiry weekends, internal firm or exchange-specific operations, technology processes
Under Rule 1000 of Regulation SCI, the term SCI entity includes self-regulatory organizations ("SROs")
(including stock and options exchanges, registered clearing agencies, FINRA and the MSRB), alternative
trading systems ("ATSs") that trade NMS and non-NMS stocks exceeding specified volume thresholds,
disseminators of consolidated market data ("plan processors"), and certain exempt clearing agencies.
17 CFR 242.1004.
Rule 1001(a)(2)(v) of Regulation SCI requires members to have BC/DR plans that include maintaining
backup and recovery capabilities sufficiently resilient and geographically diverse and that are reasonably
designed to achieve next business day resumption of trading and two-hour resumption of critical SCI
systems following awide-scale disruption. See 17 CFR 242.1001(a)(2)(v).

Ms. Ellen Greene
February 26, 2019
(e.g., major planned systems changes), holidays, and other major industry testing programs.4
Because of these factors, SIFMA seeks flexibility to conduct the testing required by Rule 1004 in
the same calendar month as a prior year's test, but more than 365 days after the most recent test,
if necessary to establish the most effective testing date. For example, the 2018 coordinated
BC/DR plan testing occurred on October 10th, and SIFMA, after consideration of the factors
noted above, tentatively proposes that the next coordinated testing be conducted on October 26`n,
2019, and that testing for the two following years be conducted on October 24th, 2020 and
October 23`d, 2021.
As discussed in the SCI Adopting Release and noted in your letter, the key with respect
to the frequency of coordinated BC/DR testing is that it should "occur regularly enou~h to offer
practical utility in the event of a wide-scale disruption without imposing undue cost." Further,
the Commission recognized that coordinating industry-wide testing among SCI entities and their
members or participants may "present logistical challenges."6 The Staff recognizes that the
selection of a single date for industry-wide coordinated testing is not a simple matter, and
necessarily requires coordination with many entities and consideration of many factors as you
noted in your letter. The Staff is also cognizant that certain periods may not be optimal for this
testing because ofmarket-related events (e.g., option expiry weekends), holidays, or other
operational reasons.
Therefore, based on the facts and representations set forth in your letter, the Staff would
not recommend enforcement action to the Commission if the testing required by Rule 1004
occurred in the same calendar month as a prior year, but more than 365 days after the most
recent test; however, given the importance of the BC/DR testing requirement in ensuring that
SCI entities' BC/DR plans operate as intended in the event of a wide scale disruption, the staff
believes that it is appropriate that SCI entities give due consideration to all of these factors and
choose a testing date that will allow for the most effective testing.
This Staff position is based strictly on the facts and representations set forth in your letter
and any different facts or representations may require a different response. This response,
furthermore, expresses the Staff s position with respect to enforcement action only and does not
purport to express any legal conclusions. The Staff expresses no view with respect to any other
In particular, your letter references the SIFMA Business Continuity Planning tests, the Futures Industry
Association ("FIA") annual test, as well as the Investment Industry Regulatory Organization of Canada
("IIROC") test. According to your letter, "[a]ligning the dates of these tests creates substantial efficiencies
for the test entities and participating firms and thus reduces operational and technology risks."
See SCI Adopting Release, 79 FR at 72354.
See id.

Ms. Ellen Greene
February 26, 2019
questions that the proposed activities may raise, including the applicability of any other federal
or state laws, or self-regulatory organization rules. This position is subject to modification or
revocation at any time.
Sincerely,
V~ ~~
David S. Shillman
Associate Director
Division of Trading and Markets

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Invested in America
February 25, 2019
David Shillman
Associate Director
Division of Trading and Markets
Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549
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SEC Ma~~ Processing
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V1lashington,DG
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"Z
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
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.sifina.org.
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
See Securities Exchange Act Release No. 34-73639 (November 19, 2014), 79 FR 72252 (December 5,
2014)("SCI Adopting Release").

Securities and Exchange Commission
SIFMA Request for No Action Relief from Rule 1001 of Regulation SCI
February 25, 2019
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
13~'.
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 13~`. 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
Id. at 72354.
Id. at 72367.
Id.

Securities and Exchange Commission
SIFMA Request for No Action Relief from Rule 1001 of Regulation SCI
February 25, 2019
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.
Conclusion
For the reasons stated above, SIFMA requests the Division provide assurances that it will not
recommend enforcement actions to the Commission for entities failing to comply with Rule 1004
of Regulation SCI if the required annual testing of BC/DR plans occur during October of every
calendar year, even if the testing date in one year is more than 365 days after the testing date in
the prior year.
SIFMA greatly appreciates the Commission's consideration of the issues raised above and would
be pleased to discuss these comments in greater detail with the Commission and the Staff. If you
have any questions or need any additional information, please contact me at 212-313-1287 or
e rg eene(a,SIFMA.org.
Sincerely,
~1Za~„~ ~ ~.~,.~
Ellen Greene
Managing Director
SIFMA

Securities and Exchange Commission
SIFMA Request for No Action Relief from Rule 1001 of Regulation SCI
February 25, 2019
Exhibit 1:
The following SCI entities have consented to SIFMA's submission of this letter on their behalf:
BOX Exchange LLC;
The national securities exchanges operated by Cboe Global Markets: Cboe BYX
Exchange, Inc., Cboe BZX Exchange, Inc., Cboe C2 Exchange, Inc., Cboe EDGA
Exchange, Inc., Cboe EDGX Exchange, Inc., and Cboe Exchange, Inc.;
The registered clearing agencies and exempt clearing agencies operated by the
Depository Trust &Clearing Corporation: The Depository Trust Company, The
Fixed Income Clearing Corporation, The National Securities Clearing
Corporation, and Omgeo;
The Financial Industry Regulatory Authority;
Investors Exchange LLC;
The national securities exchanges operated by Miami International Holdings, Inc.:
MIAX International Securities Exchange LLC and MIAX PEARL, LLC;
The Municipal Securities Rulemaking Board;
The national securities exchanges and alternative trading system operated by
Intercontinental Exchange, Inc.: the Chicago Stock Exchange, Inc., New York
Stock Exchange LLC, NYSE American LLC, NYSE Arca, Inc., NYSE National,
Inc., and Global OTC;
The national securities exchanges operated by Nasdaq, Inc.: The Nasdaq Stock
Market LLC, Nasdaq BX, Inc., Nasdaq GEMX, LLC, Nasdaq ISE, LLC, Nasdaq
MRX, LLC, and Nasdaq PHLX LLC;
The Options Clearing Corporation; and
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