[Federal Register Volume 79, Number 72 (Tuesday, April 15, 2014)]
[Notices]
[Pages 21316-21319]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-08414]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71911; File No. SR-FINRA-2014-017]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change Relating to Reporting and Market Participant
Identifier Requirements for Alternative Trading Systems
April 9, 2014.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on April 3, 2014, Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by FINRA. FINRA has
designated the proposed rule change as constituting a ``non-
controversial'' rule change under paragraph (f)(6) of Rule 19b-4 under
the Act,\3\ which renders the proposal effective upon receipt of this
filing by the Commission. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to amend FINRA Rules 4552, 6160, 6170, 6480, and
6720 to revise the reporting and market participant identifier
(``MPID'') requirements applicable to alternative trading systems
(``ATSs'').
Below is the text of the proposed rule change. Proposed new
language is in italics; proposed deletions are in brackets.\4\
---------------------------------------------------------------------------
\4\ The rule text is shown to include the amendments approved by
the Commission in SR-FINRA-2013-042. See Securities Exchange Act
Release No. 71341 (January 17, 2014), 79 FR 4213 (January 24, 2014)
(Approval Order).
---------------------------------------------------------------------------
* * * * *
4000. FINANCIAL AND OPERATIONAL RULES
* * * * *
4500. BOOKS, RECORDS AND REPORTS
* * * * *
4550. ATS Reporting
* * * * *
4552. Alternative Trading Systems--Trading Information for Securities
Executed Within the Alternative Trading System
(a) Within seven business days after the end of each week, each
member that operates an ATS that has filed a Form ATS with the SEC
shall report to FINRA, in such format as FINRA may require, the
aggregate weekly Trading Information for each NMS stock[,] and OTC
Equity Security [and TRACE-Eligible Security] executed within each such
ATS operated by the member during the previous week.
(b) No Change.
(c) When calculating and reporting the volume of securities traded
and the number of trades, an ATS shall include only those trades
executed within the ATS. If two orders are crossed by the ATS, 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).
(d) Definitions
For purposes of this Rule, the term:
(1) through (2) No Change.
(3) ``OTC Equity Security'' has the same meaning as that term is
defined in Rule 6420; and
(4) [``TRACE-Eligible Security'' has the same meaning as that term
is defined in Rule 6710; and]
[(5)] ``Trading Information'' includes:
(A) the number of shares of each NMS stock or OTC Equity Security
executed within an ATS [alternative trading system]; and
[(B) the par value of each TRACE-Eligible Security executed within
an alternative trading system; and]
([C]B) the number of trades in a security executed within an
[alternative trading system] ATS.
Supplementary Material: --------
.01 No Change.
* * * * *
[[Page 21317]]
6000. QUOTATION AND TRANSACTION REPORTING FACILITIES
6100. QUOTING AND TRADING IN NMS STOCKS
* * * * *
6160. Multiple MPIDs for Trade Reporting Facility Participants
(a) through (b) No Change.
(c) Except as set forth in paragraph (d), a [A] Trade Reporting
Facility Participant that operates an alternative trading system
(``ATS''), as that term is defined in Rule 300 of SEC Regulation ATS,
must obtain a single, separate MPID for each such ATS designated for
exclusive use for reporting each ATS's transactions. The member must
use such separate MPID to report all transactions executed within the
ATS to a Trade Reporting Facility (or Facilities). The member shall not
use such separate MPID to report any transaction that is not executed
within the ATS. Any member that operates multiple ATSs must obtain a
separate MPID for each ATS. Members must have policies and procedures
in place to ensure that trades reported with a separate MPID obtained
under this paragraph are restricted to trades executed within the ATS.
(d) An ATS is permitted to use two separate MPIDs only if one MPID
is used exclusively for reporting transactions to TRACE and the other
MPID is used exclusively for reporting transactions to the equity trade
reporting facilities (the Alternative Display Facility, the OTC
Reporting Facility, the FINRA/Nasdaq TRF, or the FINRA/NYSE TRF).
Supplementary Material: --------
.01 through .02 No Change.
6170. Primary and Additional MPIDs for Alternative Display Facility
Participants
(a) through (c) No Change.
(d) Except as set forth in paragraph (e), a [A] member reporting
trades to the ADF that operates an alternative trading system
(``ATS''), as that term is defined in Rule 300 of SEC Regulation ATS,
must obtain a single, separate MPID for each such ATS designated for
exclusive use for reporting each ATS's transactions. The member must
use such separate MPID to report all transactions executed within the
ATS to the ADF. The member shall not use such separate MPID to report
any transaction that is not executed within the ATS. Any member that
operates multiple ATSs must obtain a separate MPID for each ATS.
Members must have policies and procedures in place to ensure that
trades reported with a separate MPID obtained under this paragraph are
restricted to trades executed within the ATS.
(e) An ATS is permitted to use two separate MPIDs only if one MPID
is used exclusively for reporting transactions to TRACE and the other
MPID is used exclusively for reporting transactions to the equity trade
reporting facilities (the Alternative Display Facility, the OTC
Reporting Facility, the FINRA/Nasdaq TRF, or the FINRA/NYSE TRF).
Supplementary Material: --------
.01 through .05 No Change.
* * * * *
6400. QUOTING AND TRADING IN OTC EQUITY SECURITIES
* * * * *
6480. Multiple MPIDs for Quoting and Trading in OTC Equity Securities
(a) through (b) No Change.
(c) Except as set forth in paragraph (d), a[A]n OTC Reporting
Facility Participant that operates an alternative trading system
(``ATS''), as that term is defined in Rule 300 of SEC Regulation ATS,
must obtain a single, separate MPID for each such ATS designated for
exclusive use for reporting each ATS's transactions. The member must
use such separate MPID to report all transactions executed within the
ATS to the OTC Reporting Facility. The member shall not use such
separate MPID to report any transaction that is not executed within the
ATS. Any member that operates multiple ATSs must obtain a separate MPID
for each ATS. Members must have policies and procedures in place to
ensure that trades reported with a separate MPID obtained under this
paragraph are restricted to trades executed within the ATS.
(d) An ATS is permitted to use two separate MPIDs only if one MPID
is used exclusively for reporting transactions to TRACE and the other
MPID is used exclusively for reporting transactions to the equity trade
reporting facilities (the Alternative Display Facility, the OTC
Reporting Facility, the FINRA/Nasdaq TRF, or the FINRA/NYSE TRF).
Supplementary Material: --------
.01 No Change.
* * * * *
6700. TRADE REPORTING AND COMPLIANCE ENGINE (TRACE)
* * * * *
6720. Participation in TRACE
(a) through (b) No Change.
(c) Alternative Trading Systems
(1) Except as set forth in paragraph (2), a [A] TRACE Participant
that operates an alternative trading system (``ATS''), as that term is
defined in Rule 300 of SEC Regulation ATS, must obtain a single,
separate Market Participant Identifier (``MPID'') for each such ATS
designated for exclusive use for reporting each ATS's transactions. The
member must use such separate MPID to report all transactions executed
within the ATS to TRACE. The member shall not use such separate MPID to
report any transaction that is not executed within the ATS. Any member
that operates multiple ATSs must obtain a separate MPID for each ATS.
Members must have policies and procedures in place to ensure that
trades reported with a separate MPID obtained under this paragraph are
restricted to trades executed within the ATS.
(2) An ATS is permitted to use two separate MPIDs only if one MPID
is used exclusively for reporting transactions to TRACE and the other
MPID is used exclusively for reporting transactions to the equity trade
reporting facilities (the Alternative Display Facility, the OTC
Reporting Facility, the FINRA/Nasdaq TRF, or the FINRA/NYSE TRF).
* * * * *
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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
On January 17, 2014, the SEC approved a proposed rule change to (i)
adopt FINRA Rule 4552 (Alternative Trading Systems--Trading Information
for Securities Executed Within the Alternative Trading System) to
require ATSs \5\ to report to FINRA weekly
[[Page 21318]]
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
MPID when reporting information to FINRA (``MPID Requirement'').\6\ The
implementation date for the reporting requirement under Rule 4552 is
May 12, 2014, and ATSs must use a single, unique MPID to report
information to FINRA beginning November 10, 2014.\7\
---------------------------------------------------------------------------
\5\ 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). Rule 4552 and
the other amendments in the proposed rule change apply to any
alternative trading system, as that term is defined in Regulation
ATS, that has filed a Form ATS with the Commission.
\6\ See Securities Exchange Act Release No. 71341 (January 17,
2014), 79 FR 4213 (January 24, 2014) (Approval Order).
\7\ See Regulatory Notice 14-07 (February 2014).
---------------------------------------------------------------------------
The proposed rule change amends these new requirements in two ways
to address implementation questions that have arisen since the SEC's
approval of the new provisions as they relate to ATSs that trade debt
securities reportable to the Trade Reporting and Compliance Engine
(``TRACE'').\8\ First, the proposed rule change removes from the ATS
weekly reporting requirement in Rule 4552 transactions in TRACE-
Eligible Securities so that, as amended, Rule 4552 would require ATSs
to report only volume information in equity securities subject to FINRA
trade reporting requirements (i.e., NMS stocks and OTC Equity
Securities).\9\
---------------------------------------------------------------------------
\8\ Debt securities reportable to TRACE (``TRACE-Eligible
Securities'') are set forth in Rule 6710. See Rule 6710(a).
\9\ The proposed rule change also replaces the phrase
``alternative trading system'' with the defined term ``ATS'' in Rule
4552(d).
---------------------------------------------------------------------------
Following discussions with multiple firms after the adoption of
Rule 4552 and a review of TRACE trade reporting guidance and practices,
FINRA believes that initially requiring ATSs to self-report volume
information for TRACE-Eligible Securities is not necessary and that
FINRA can confirm its ability to rely on TRACE data to calculate
reliable volume information once the MPID Requirement is in place
through targeted requests to firms rather than requiring weekly
reports. FINRA intends to continue to work with ATSs that trade TRACE-
Eligible Securities to confirm they are accurately and completely
reporting transaction information to TRACE, and FINRA expects to
request periodically that some ATSs provide the staff with their weekly
volume for TRACE-Eligible Securities. FINRA does not believe, however,
that it is necessary to require these ATSs to incur the costs necessary
to report weekly volume information to FINRA pursuant to Rule 4552 when
FINRA can obtain more targeted data by working directly with firms.
Moreover, because ATS volume information regarding TRACE-Eligible
Securities will not be publicly disseminated at this time, FINRA
believes the costs to ATSs to comply with the reporting requirements of
Rule 4552 with respect to TRACE-Eligible Securities outweighs the
benefits of receiving the information on a weekly basis.\10\ FINRA is
not proposing to amend the reporting requirement for ATSs with respect
to equity data because of the need to ensure that the ATS equity data
that is publicly disseminated is consistent across ATSs.
---------------------------------------------------------------------------
\10\ See Rule 4552(b).
---------------------------------------------------------------------------
Second, the proposed rule change amends Rules 6160, 6170, 6480, and
6720 to permit an ATS that trades both TRACE-Eligible Securities and
equity securities (OTC Equity Securities or NMS stocks) to use two
MPIDs, rather than a single unique MPID, if each MPID is used
exclusively for either TRACE-Eligible Securities or equity securities.
As noted in SR-FINRA-2013-042, FINRA adopted the requirement that ATSs
acquire and use a single, unique MPID for reporting to FINRA to enable
FINRA to rely on trade reports to determine whether an ATS has reached
any of the volume thresholds in Regulation ATS, to allow FINRA to
calculate consistent and accurate volumes of ATS activity, and to
provide more granular information regarding ATS activity to FINRA's
market surveillance program. Because TRACE and the equity trade
reporting facilities (the Alternative Display Facility, the exchange
Trade Reporting Facilities, and the OTC Reporting Facility) operate
independently, a single ATS's use of two separate MPIDs does not impede
FINRA's ability to perform these calculations provided the use of each
MPID is limited to either TRACE or the equity trade reporting
facilities. Consequently, the proposed rule change would allow a single
ATS to use two MPIDs provided the use of each MPID is exclusively
limited to reporting to either TRACE or one or more of the equity trade
reporting facilities.
FINRA has filed the proposed rule change for immediate
effectiveness. The implementation date of the proposed amendments to
Rule 4552 will be May 12, 2014. The implementation date of the proposed
amendments to Rules 6160, 6170, 6480, and 6720 will be November 10,
2014. FINRA will announce the implementation dates of the proposed rule
change no later than 60 days following Commission notice of the filing
of the proposed rule change for immediate effectiveness.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\11\ which 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 proposed rule change will
enhance members' ability to comply with Rule 4552 and the amendments to
Rules 6160, 6170, 6480, and 6720 by alleviating some of the burdens
imposed by those rules without any detriment to FINRA's ability to
surveil for compliance with Regulation ATS or to calculate accurate
volume information for ATS trading activity.
---------------------------------------------------------------------------
\11\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------
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. The proposed rule change
provides for additional flexibility for ATSs that trade both debt
securities and equity securities and removes the self-reporting
obligation on ATSs that trade only debt securities.
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
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section
[[Page 21319]]
19(b)(3)(A) of the Act \12\ and Rule 19b-4(f)(6) thereunder.\13\
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78s(b)(3)(A).
\13\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
In addition, Rule 19b-4(f)(6)(iii) requires a self-regulatory
organization to provide the Commission with written notice of its
intent to file the proposed rule change, along with a brief description
and text of the proposed rule change, at least five business days prior
to the date of filing of the proposed rule change, or such shorter time
as designated by the Commission. FINRA has requested that the
Commission waive the 5-day advance filing requirement. The Commission
hereby grants this request.\14\
---------------------------------------------------------------------------
\14\ The Commission notes that it was notified four days prior
to filing of this proposed rule change.
---------------------------------------------------------------------------
At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or 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-2014-017 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2014-017. 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 also will be available
for inspection and copying at the 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 available publicly. All
submissions should refer to File Number SR-FINRA-2014-017, and should
be submitted on or before May 6, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
---------------------------------------------------------------------------
\15\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-08414 Filed 4-14-14; 8:45 am]
BILLING CODE 8011-01-P