[Federal Register Volume 78, Number 204 (Tuesday, October 22, 2013)]
[Notices]
[Pages 62862-62867]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-24668]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70676; File No. SR-FINRA-2013-042]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of Proposed Rule Change To Require
Alternative Trading Systems To Report Volume Information to FINRA and
Use Unique Market Participant Identifiers
October 11, 2013.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on September 30, 2013, the Financial Industry Regulatory
Authority, Inc. (``FINRA'') filed with the Securities and Exchange
Commission (``Commission'') the proposed rule change as described in
Items I, II, and III below, which Items have been prepared by FINRA.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to (i) adopt FINRA Rule 4552 to require each
alternative trading system (``ATS'') to report to FINRA weekly volume
information and number of trades regarding securities transactions
within the ATS; and (ii) amend FINRA Rules 6160, 6170, 6480, and 6720
to require each ATS to acquire and use a single, unique market
participant identifier (``MPID'') when reporting information to FINRA.
FINRA will make the reported volume and trade count information for
equity securities publicly available on its Web site.
The text of the proposed rule change is available on FINRA's Web
site at http://www.finra.org, at the principal office of FINRA and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, FINRA included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. FINRA has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
FINRA is proposing a rule change to adopt new FINRA Rule 4552,
which requires each ATS \3\ to report to FINRA volume information
regarding transactions within the ATS in securities (both equity and
debt) subject to FINRA trade reporting obligations. As described below,
each ATS will be required to report to FINRA the aggregate weekly
volume of transactions and number of trades within the ATS by security,
and FINRA will make the reported information for equity securities
publicly available on a delayed basis. The proposed rule change also
requires that each ATS use a single, unique MPID when reporting
information to FINRA. The proposed rule change will enhance FINRA's
regulatory and automated surveillance efforts by enabling it to obtain
more granular information regarding activity conducted on or through
individual ATSs as well as FINRA's ability to determine whether an ATS
is subject to any provisions of Regulation ATS that are triggered by
exceeding volume thresholds. The proposed rule change will also enhance
transparency into the over-the-counter market.
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\3\ Regulation ATS defines an alternative trading system as
``any organization, association, person, group of persons, or
system: (1) That constitutes, maintains, or provides a market place
or facilities for bringing together purchasers and sellers of
securities or for otherwise performing with respect to securities
the functions commonly performed by a stock exchange within the
meaning of [Exchange Act Rule 3b-16]; and (2) That does not: (i) Set
rules governing the conduct of subscribers other than the conduct of
such subscribers' trading on such organization, association, person,
group of persons, or system; or (ii) Discipline subscribers other
than by exclusion from trading.'' 17 CFR 242.300(a). The proposed
rule change applies to any alternative trading system, as that term
is defined in Regulation ATS, that has filed a Form ATS with the
Commission.
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(1) Background
Regulation ATS requires an ATS to provide to a national securities
exchange or association for display the prices and sizes of orders at
the ATS's highest buy price and lowest sell price for any NMS stock,
displayed to more than one person in the ATS, with respect to which the
ATS has had an average daily trading volume of 5% or more of the
aggregate average daily share volume for such NMS stock during at least
four of the preceding six
[[Page 62863]]
calendar months.\4\ Regulation ATS also requires any such ATS to
provide broker-dealers with fair access to the ATS's services to effect
a transaction in any such NMS stock.\5\
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\4\ 17 CFR 242.301(b)(3). For purposes of Regulation ATS, ``NMS
stock'' is defined in Rule 300(g) of Regulation ATS and excludes a
debt or convertible debt security. See 17 CFR 242.300(g). In 2009,
the SEC proposed lowering the threshold from 5% to 0.25%; however,
the SEC has not acted on this proposal. See Securities Exchange Act
Release No. 60997 (November 13, 2009), 74 FR 61208 (November 23,
2009).
\5\ See 17 CFR 242.301(b)(5). The fair access requirement also
applies to other types of securities, including certain unlisted
equity securities, municipal securities, and corporate debt
securities. See id. Certain ATSs are excluded from the fair access
requirement. See 17 CFR 242.301(b)(5)(iii).
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Regulation ATS requires each ATS to report to the SEC on a
quarterly basis, via Form ATS-R, its total unit volume of transactions
and total dollar volume of transactions, not for each particular
security issue, but only for each category of securities covered by the
rule.\6\ Although the volume reporting is not on a security-by-security
basis and is only based on quarterly volume, the Regulation ATS fair
access requirement and the order display and execution access
requirements are triggered on a security-by-security basis for equity
securities \7\ and are based on monthly volume numbers rather than
quarterly volume numbers.\8\ Consequently, the current ATS reporting
obligations do not provide sufficient information on which to determine
whether an ATS has exceeded the volume thresholds in Regulation ATS.
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\6\ See 17 CFR 242.301(b)(9); SEC Form ATS-R.
\7\ See Securities Exchange Act Release No. 40760 (December 8,
1998), 63 FR 70844, 70866, 70873 (December 22, 1998).
\8\ See 17 CFR 242.301(b)(3)(i), (b)(5)(i).
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Current trade reporting data also does not provide a definitive way
to assess whether an ATS has reached the volume thresholds in
Regulation ATS. Although each over-the-counter securities transaction
in which an ATS is involved must be reported under FINRA rules, a
broker-dealer that operates an ATS may report trades executed within a
particular ATS using the same MPID it uses for transactions it executes
in other areas of its business (including other ATSs it operates).
Current trade reporting data, therefore, is not dispositive in
determining which trades were executed within an ATS as opposed to
other areas of a broker-dealer's business, and FINRA is unable to rely
solely on existing trade reporting data to surveil for compliance with
the display obligations and the fair access requirements in Regulation
ATS.
(2) Reporting Requirement
The proposed rule change creates a reporting obligation requiring
each ATS that has filed a Form ATS with the SEC to report to FINRA its
aggregate weekly volume information and number of trades, by security,
in securities subject to FINRA trade reporting requirements. The
reporting requirement would thus apply to any NMS stock,\9\ OTC Equity
Security,\10\ or any debt security subject to FINRA's Trade Reporting
and Compliance Engine (``TRACE'') rules (``TRACE-Eligible
Securities'').\11\ These reports would provide FINRA with information
necessary to surveil for compliance with the display obligations and
the fair access requirements in Regulation ATS for these
securities.\12\ The proposed rule change would require this information
to be reported to FINRA on a security-by-security basis within seven
business days after the end of each calendar week. Although the
proposed rule change would impose new weekly reporting obligations,
ATSs are already required to maintain this information pursuant to
Regulation ATS.\13\ Consequently, FINRA believes that seven business
days provides sufficient time for ATSs to consolidate, review, and
report the information.
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\9\ See FINRA Rule 6110.
\10\ See FINRA Rule 6410.
\11\ See FINRA Rules 6710, 6730(a).
\12\ Although the order display and execution access
requirements apply only to NMS stocks, the fair access requirements
of Regulation ATS apply to multiple types of securities, including
certain debt securities. See 17 CFR 242.301(b)(5)(i).
\13\ Regulation ATS requires each ATS to maintain daily
summaries of its trading activities, including (1) the identity of
each security for which transactions have been executed; (2)
transaction volumes (with respect to equity securities, this
includes the total number of trades, the number of shares traded,
and the total settlement value in U.S. dollars); and (3) time-
sequenced records of order information. See 17 CFR 242.301(b)(8); 17
CFR 242.302.
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The proposed rule change also specifies how ATSs should calculate
their volumes to ensure consistency and to avoid potential over-
counting of volume. Proposed Rule 4552 provides that, ``[w]hen
calculating and reporting the volume of securities traded and the
number of trades, an alternative trading system shall include only
those trades executed within the alternative trading system. If two
orders are crossed by the alternative trading system, the volume shall
include only the number of shares or par value of bonds crossed as a
single trade (e.g., crossing a buy order of 1,000 shares with a sell
order of 1,000 shares would be calculated as a single trade of 1,000
shares of volume).'' Thus, for example, an ATS would only report trades
executed within the ATS (not orders routed out of the ATS) and would
only report the volume of each executed trade once (not separate or
double counting for the buy and sell side of the trade).
In addition to benefitting FINRA's regulatory and surveillance
efforts for compliance with Regulation ATS, the proposed rule change
would also enhance the transparency of trading activity in the over-
the-counter market.\14\ As noted above, each individual ATS would be
required to report to FINRA its aggregate weekly volumes and number of
trades on a security-by-security basis.\15\ Under the proposed rule
change, FINRA would publish on its Web site the reported information in
each equity security for each ATS, with appropriate disclosures that
the information is based on ATS-submitted reports and not on reports
produced or validated by FINRA. Based on feedback from firms and FINRA
committees, FINRA is proposing to initially publish the aggregate
reported information regarding NMS stocks in Tier 1 of the NMS Plan to
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\14\ In 2009, the Commission noted that ``[t]he lack of
information concerning the ATS on which trades are executed makes it
difficult, if not impossible, for the public to assess ATS trading
in real-time, and to reliably identify the volume of executions in
particular stocks on individual ATSs.'' See Securities Exchange Act
Release No. 60997 (November 13, 2009), 74 FR 61208 (November 23,
2009). This lack of transparency is still true. Although the
proposed rule change would not affect real-time trade transparency,
it will provide increased transparency into the volume of executions
in particular stocks on individual ATSs.
\15\ Under the proposed rule, every ATS, even one that has
received an exemption from FINRA to permit its subscribers to report
trades to FINRA, must submit a weekly volume report. An ATS is also
required to submit a weekly report for weeks where the ATS has no
volume. In these instances, the ATS would affirmatively indicate no
volume on the report.
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Address Extraordinary Market Volatility \16\ on a two-week delayed
basis.\17\ FINRA is proposing to publish the information on all other
NMS stocks and OTC Equity Securities subject to FINRA trade reporting
requirements on
[[Page 62864]]
a four-week delayed basis.\18\ FINRA believes these delays are
appropriate and are adequate to prevent any potential information
leakage regarding sensitive trading activity, particularly in more
illiquid securities.
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\16\ Tier 1 NMS stocks include those NMS stocks in the S&P 500
Index or the Russell 1000 Index and certain ETPs. See NMS Plan to
Address Extraordinary Market Volatility. FINRA will make changes to
the Tier 1 NMS stocks in accordance with the Indices. Changes to the
S&P 500 are made on an as needed basis and are not subject to an
annual or semi-annual reconstitution. S&P typically does not add new
issues until they have been seasoned for six to twelve months.
Russell 1000 rebalancing typically takes places in June.
\17\ Thus, for example, a typical reporting scenario (i.e., no
federal holidays) would require ATSs to report the information for a
given week by the second Tuesday following the week. FINRA would
publish the information regarding Tier 1 NMS stocks no earlier than
the following Monday. Information on all other equity securities
subject to FINRA trade reporting requirements would be published two
weeks following the publication of information for the Tier 1 NMS
stocks.
\18\ FINRA intends to establish a fee to recover costs that may
be incurred in providing the information to professional users of
the data; however, non-professional users could receive the data
free of charge. At this time, FINRA intends to use substantially the
same definitions for professionals and non-professionals as used
under the TRACE data dissemination rules. See FINRA Rule 7730
(defining a ``Non-Professional'' as a natural person who uses TRACE
transaction data solely for his or her personal, non-commercial
use). It is anticipated that Non-Professional subscribers would be
required to agree to certain terms of use of the data, including
that he or she receives and uses the data solely for his or her
personal, non-commercial use. FINRA anticipates establishing a flat,
monthly subscription fee (with a yearly commitment term) for
professional subscribers to access the published reports on an
enterprise license basis. The entity would not be permitted to
redistribute this information outside of the enterprise. In
addition, FINRA is considering offering a monthly vendor enterprise
license (with a yearly commitment term) to permit the redistribution
of the reports. As with TRACE data, data vendors would be
responsible for reporting entity usage as a result of their re-
dissemination of the data and remitting payment for such usage.
Vendors similarly would be subject to regular audits to ensure
accurate and timely compliance with re-dissemination reporting and
payment. The amount of the fees will be established pursuant to a
separate proposed rule change filed with the Commission.
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The reporting obligations in the proposed rule change apply to
transactions in NMS stocks, OTC Equity Securities, and TRACE-Eligible
Securities. Although ATSs that trade TRACE-Eligible Securities would be
subject to the self-reporting obligations, FINRA does not intend to
begin publishing self-reported data for TRACE-Eligible Securities until
it has had the opportunity to evaluate the data received from such ATSs
and the differences between the existing trade reporting regimes
applicable to equity and debt securities. Following implementation of
Rule 4552, FINRA intends periodically to assess the reporting and
publication of information to consider whether modifications to the
scope of securities covered, the delay between the activity and
publication, or the frequency of publication of the information are
appropriate.
FINRA discussed the proposed rule change with several of its
industry committees and a number of ATS operators. The consulted firms
generally supported the proposed reporting requirements and publication
of the transaction information. As noted above, following discussions
with firms, FINRA is proposing a two-week delay before publishing the
reported data on Tier 1 NMS stocks on FINRA's Web site and a four-week
delay for all other NMS stocks and OTC Equity Securities. The firms
also generally supported FINRA's decision to initially publish only
data on equity securities.
Some consulted firms also indicated support for expanding the scope
of the proposed rule change to include other, non-ATS over-the-counter
trading information of broker-dealers. The proposed rule change does
not currently contemplate applying the proposed rule change beyond
ATSs, but FINRA requests comment on the benefits and burdens of future
expansion of the proposal to require trading information for other
over-the-counter executions of FINRA broker-dealers separate from ATS
trade information, and making this information public in the same
manner as is proposed for ATS trade information. This other over-the-
counter execution information could include broker-dealer internalized
executions, trades executed in the over-the-counter market by wholesale
market makers trading with order entry brokers, and executions on
broker crossing systems that have not filed a Form ATS with the
Commission.
(3) MPID Requirement
In addition to the reporting requirements described above, the
proposed rule change also requires that a member operating an ATS
obtain for each such ATS a single, unique MPID that is designated for
exclusive use for reporting each ATS's transactions. Members that
operate multiple ATSs or engage in other lines of business requiring
the use of MPIDs would therefore be required to obtain and use multiple
MPIDs. FINRA currently has three rules permitting the use of multiple
MPIDs on FINRA facilities: Rule 6160 (Multiple MPIDs for Trade
Reporting Facility Participants), Rule 6170 (Primary and Additional
MPIDs for Alternative Display Facility Participants), and Rule 6480
(Multiple MPIDs for Quoting and Trading in OTC Equity Securities). All
three rules are permissive, and none of the rules currently requires
the use of multiple MPIDs.
Rule 6160 provides that any Trade Reporting Facility Participant
that wishes to use more than one MPID for purposes of reporting trades
to a FINRA Trade Reporting Facility (``TRF'') must submit a written
request, in the form required by FINRA, to, and obtain approval from,
FINRA Market Operations for such additional MPIDs. In addition,
Supplementary Material to the rule states that FINRA considers the
issuance of, and trade reporting with, multiple MPIDs to be a privilege
and not a right. A Trade Reporting Facility Participant must identify
the purpose(s) and system(s) for which the multiple MPIDs will be used.
If FINRA determines that the use of multiple MPIDs is detrimental to
the marketplace, or that a Trade Reporting Facility Participant is
using one or more additional MPIDs improperly or for other than the
purpose(s) identified by the Participant, FINRA staff retains full
discretion to limit or withdraw its grant of the additional MPID(s) to
such Trade Reporting Facility Participant for purposes of reporting
trades to a TRF.
Like Rule 6160, Rule 6480 provides that any member that wishes to
use more than one MPID for purposes of quoting an OTC Equity Security
or reporting trades to the OTC Reporting Facility (``ORF'') must submit
a written request, in the form required by FINRA, to, and obtain
approval from, FINRA Market Operations for such additional MPIDs. The
rule also states that a member that posts a quotation in an OTC Equity
Security and reports to a FINRA system a trade resulting from such
posted quotation must utilize the same MPID for reporting purposes. In
addition, Supplementary Material to the rule states that FINRA
considers the issuance of, and trade reporting with, multiple MPIDs to
be a privilege and not a right. When requesting an additional MPID(s),
a member must identify the purpose(s) and system(s) for which the
multiple MPIDs will be used. If FINRA determines that the use of
multiple MPIDs is detrimental to the marketplace, or that a member is
using one or more additional MPIDs improperly or for purposes other
than the purpose(s) identified by the member, FINRA staff retains full
discretion to limit or withdraw its grant of the additional MPID(s) to
such member.
Rule 6170 governs the use of MPIDs on FINRA's Alternative Display
Facility (``ADF'') and provides that a Registered Reporting ADF ECN may
request additional MPIDs for displaying quotes and orders and reporting
trades through the ADF for any ADF-Eligible Security. Among other
things, Registered Reporting ADF ECNs are prohibited from using an
additional MPID to accomplish indirectly what they are prohibited from
doing directly through their Primary MPID. In addition, FINRA staff
retains full discretion to determine whether a bona fide regulatory or
business need exists for being granted an additional MPID privilege and
to limit or withdraw the additional MPID display privilege at any time.
The procedures for requesting, and the restrictions surrounding the use
of,
[[Page 62865]]
multiple MPIDs are set forth in supplementary material to the rule.
In 2010, FINRA also adopted amendments to Rule 6160 establishing a
voluntary program to allow members operating an ATS dark pool to have
their daily aggregate trading data published by the TRFs.\19\ Under
Rule 6160(c), members voluntarily participating in the program are
required to obtain and use a separate MPID designated exclusively for
the reporting of transactions executed within the ATS dark pool.\20\
Because the proposed rule change would require the use of single,
unique MPIDs for all ATSs, FINRA is proposing amendments to Rule
6160(c) to expand the MPID requirement to all ATSs but is maintaining
the provisions specific to the ATS dark pool program in Supplementary
Material .02 to Rule 6160 with some minor changes to incorporate
defined terms and to adjust cross-references.
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\19\ See Securities Exchange Act Release No. 61658 (March 5,
2010), 75 FR 11972 (March 12, 2010). To date, no member has
voluntarily taken part in the program.
\20\ The rule defines an ``ATS dark pool'' as ``an ATS that does
not display quotations or subscribers' orders to any person or
entity either internally within the ATS dark pool or externally
beyond the ATS dark pool (other than employees of the ATS).'' See
FINRA Rule 6160(c).
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As noted above, the proposed rule change requires that a member
that operates an ATS obtain for each such ATS a single, unique MPID
that is designated for exclusive use for reporting each ATS's
transactions. A firm would not be permitted to use multiple MPIDs for a
single ATS, and if a firm operates multiple ATSs, each ATS would be
required to have its own MPID. Firms are also required to notify FINRA
before changing the usage of the MPID in any way (e.g., repurposing an
MPID from reflecting ATS activity to other trading activity at the
firm). After an ATS is provided its MPID, any reporting by the ATS
(either reporting trades to a FINRA TRF, the ADF, the ORF, TRACE, or
reporting orders to the Order Audit Trail System (``OATS'')) would need
to include the MPID assigned to the particular ATS, and the member must
use such separate MPID to report all transactions executed within the
ATS to the appropriate reporting facility.\21\
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\21\ OATS Reporting Members are required to include MPIDs on
OATS reports. See, e.g., FINRA Rule 7440(b)(3), (c)(1)(B),
(c)(2)(A)(ii), (c)(2)(A)(iii). The proposed rule change does not
include any changes to OATS rules; however, current OATS guidance
provides that ``[a]n order that is transferred between two valid
MPIDs within the same firm is also considered routed.'' See OATS
Reporting Technical Specifications, at 4-3 (ed. December 11, 2012).
Consequently, after the proposed rule change is implemented, an
order routed to an ATS would require the submission of a Route
Report, which must reflect the unique MPID of the ATS to which the
order was routed. See FINRA Rule 7440(c).
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The proposed rules prohibit a member from using a separate MPID
assigned to an ATS to report any transaction that is not executed
within the ATS and require members to have policies and procedures in
place to ensure that trades reported with a separate MPID obtained
under the rules are restricted to trades executed within the ATS. ATSs
are already required ``to have in place safeguards and procedures to .
. . separate alternative trading system functions from other broker-
dealer functions, including proprietary and customer trading.'' \22\
Consistent with this existing obligation, FINRA believes it is
appropriate to require firms to address the use of unique MPIDs
pursuant to the proposed rule in these procedures and that such a
requirement should impose minimal burdens or costs on firms.
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\22\ See Securities Exchange Act Release No. 40760 (December 8,
1998), 63 FR 70844, 70879 (December 22, 1998).
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The proposed rule change, once implemented, would enable FINRA to
rely on trade reports to determine whether an ATS has reached any of
the volume thresholds in Regulation ATS by requiring each ATS to
acquire and use a unique MPID for reporting to FINRA.\23\ Because the
proposed rule change would require the use of multiple MPIDs by some
members, FINRA also is proposing that the current rules described above
permitting multiple MPIDs, which currently operate on a pilot basis, be
made permanent.\24\ In addition to the surveillance benefits for
Regulation ATS, a unique MPID requirement will also enable FINRA to
surveil generally with far greater clarity and granularity the flow of
orders and executions on ATSs. Moreover, requiring each ATS to use a
single, unique MPID will allow FINRA to better surveil activity by ATSs
on a more uniform basis, beginning at order receipt through execution
or cancellation.
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\23\ After the MPID requirement is implemented, FINRA will be
able to compare the trade reporting data to the data self-reported
to FINRA by the ATSs to verify the consistency and accuracy of both.
Once FINRA confirms the unique MPID requirement is functioning as
intended, FINRA will determine whether to continue to require ATSs
to self-report volume information.
\24\ See FINRA Rules 6160, 6170, 6480.
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FINRA discussed the proposed requirement for ATSs to use single,
unique MPIDs with several of its industry committees and a number of
ATS operators. The consulted firms generally supported the proposed
MPID requirement; however, several firms noted that requiring unique
MPIDs could impose costs on some firms resulting from systems changes
needed to incorporate multiple MPIDs. Other firms indicated that they
already use a separate MPID for their ATS reporting and, therefore,
such a requirement would not be burdensome. Finally, some firms
suggested that FINRA consider alternative methods for identifying
trading activity occurring on ATSs through, for example, the use of a
trade report modifier or ATS ``flag.''
Although FINRA recognizes that some firms may incur costs
associated with acquiring and using multiple MPIDs, FINRA believes that
using a separate MPID for each ATS is feasible on an ongoing basis, and
that the primary costs result from initial changeover costs. In fact,
many members already voluntarily use separate MPIDs to report ATS
transactions. However, given the potential systems changes required by
the MPID requirement, FINRA will provide additional time for firms to
implement the MPID requirement.
FINRA has also considered whether alternative methods exist that
could achieve the benefits of unique MPIDs. After consideration, FINRA
believes that alternative methods of identifying ATS transactions on an
automated basis (e.g., using an ATS ``flag'' or other modifier on trade
reports) will not provide FINRA with the same degree of comprehensive,
reliable information as requiring unique MPIDs because MPIDs can be
used consistently across multiple trade reporting systems as well as
OATS and can immediately reflect the particular ATS associated with the
order event or trade. Consequently, the proposed rule change continues
to require that each ATS obtain and use a single, unique MPID for
reporting to FINRA.
FINRA will announce the effective date of the proposed rule change
in a Regulatory Notice to be published no later than 30 days following
Commission approval. The effective date for the ATS reporting
requirement will be no later than 90 days following publication of the
Regulatory Notice announcing Commission approval. The effective date
for the MPID requirement will be no later than 270 days following
publication of the Regulatory Notice announcing Commission approval.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\25\ which
[[Page 62866]]
requires, among other things, that FINRA rules must 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. FINRA believes that the weekly
volume statistics reported by each ATS will significantly enhance
FINRA's ability to surveil for compliance with the requirements of
Regulation ATS, and publicly disseminating the ATS trading data for
equity securities will provide enhanced transparency and understanding
into trading activity by ATSs in the over-the-counter market. FINRA
believes that requiring each ATS to use a single, unique MPID for
reporting information to FINRA will significantly enhance FINRA's
ability to surveil for compliance with the requirements of Regulation
ATS as well as other SEC rules, the federal securities laws, and FINRA
rules. In addition, the use of unique MPIDs by ATSs could eventually
obviate the need for self-reporting of trading information to FINRA.
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\25\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition
FINRA does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
As noted above, although the proposed rule change imposes a new
weekly reporting obligation on ATSs, they are already required to
maintain this information pursuant to Regulation ATS. Because of the
existing recordkeeping obligations in Regulation ATS, FINRA does not
believe that the weekly reporting requirements in the proposed rule
change will impose significant costs on firms or will require firms to
expend significant resources.
By standardizing the calculation of transaction volumes on ATSs,
and mandating public reporting, the proposal will help ensure that ATSs
are publishing standardized transaction statistics. This will support
competition among ATSs by replacing the incomplete, inconsistent, or
inaccurate ATS statistics currently made available with more reliable
and standard statistics of market share in a security.
Although some members may incur costs associated with systems
changes needed to incorporate a separate MPID for their ATS activity,
following discussions with multiple firms and FINRA committees, FINRA
believes that other members will incur relatively low costs in
implementing the proposed rule change. In fact, many members already
use unique MPIDs to report ATS transactions separately. FINRA also
believes that, as noted above, alternative methods of identifying ATS
transactions on an automated basis (e.g., using an ATS ``flag'' or
other modifier on trade reports) will not provide FINRA with the same
degree of comprehensive, reliable information as requiring unique MPIDs
since MPIDs are used across FINRA trade reporting facilities and are
used to report order information to OATS.
FINRA also believes that the proposal increases competition on a
fair basis by enabling FINRA itself, in time, to calculate and
disseminate trading statistics for ATSs on a standard, reliable basis.
It also enables FINRA to monitor more closely order entry and execution
on ATSs, which will promote consistent compliance with Regulation ATS
and trading requirements by ATSs and their participants.
Some firms consulted said that the information reporting
requirements could place ATSs at a competitive disadvantage to broker
crossing systems that are not registered as ATSs. While FINRA asks for
comment above regarding whether FINRA should require similar trading
information to be provided by FINRA broker-dealers' securities trades
in the over-the-counter market, FINRA does not view any potential
disadvantage to ATSs from the proposed disclosures as sufficient to
outweigh the value of presently making available for public information
and regulatory analysis the trading information of regulated ATSs.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-FINRA-2013-042 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2013-042. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing will also be available
for inspection and copying at principal office of FINRA. All comments
received will be posted without change; the Commission does not edit
personal identifying information from submissions. You should submit
only information that you wish to make publicly available. All
submissions should refer to File Number SR-FINRA-2013-042 and should be
submitted on or before November 12, 2013.
[[Page 62867]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-24668 Filed 10-21-13; 8:45 am]
BILLING CODE 8011-01-P