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, 62862-62867 [2013-24668]

Download as PDF 62862 Federal Register / Vol. 78, No. 204 / Tuesday, October 22, 2013 / Notices Comments may be submitted by any of the following methods: SECURITIES AND EXCHANGE COMMISSION and C below, of the most significant aspects of such statements. Electronic Comments [Release No. 34–70676; File No. SR–FINRA– 2013–042] A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml ); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– BOX–2013–47 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. sroberts on DSK5SPTVN1PROD with FRONT MATTER All submissions should refer to File Number SR–BOX–2013–47. 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 the Exchange. 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–BOX– 2013–47 and should be submitted on or before November 12, 2013. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.12 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–24665 Filed 10–21–13; 8:45 am] 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. 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, BILLING CODE 8011–01–P 1 15 12 17 CFR 200.30–3(a)(12). VerDate Mar<15>2010 21:08 Oct 21, 2013 2 17 Jkt 232001 PO 00000 U.S.C. 78s(b)(1). CFR 240.19b–4. Frm 00280 Fmt 4703 Sfmt 4703 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. (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 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. E:\FR\FM\22OCN1.SGM 22OCN1 Federal Register / Vol. 78, No. 204 / Tuesday, October 22, 2013 / Notices sroberts on DSK5SPTVN1PROD with FRONT MATTER 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 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. 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 brokerdealer’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. 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). 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). VerDate Mar<15>2010 21:08 Oct 21, 2013 Jkt 232001 (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. 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 9 See FINRA Rule 6110. 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. 10 See PO 00000 Frm 00281 Fmt 4703 Sfmt 4703 62863 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 ATSsubmitted 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 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 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. 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. E:\FR\FM\22OCN1.SGM 22OCN1 62864 Federal Register / Vol. 78, No. 204 / Tuesday, October 22, 2013 / Notices sroberts on DSK5SPTVN1PROD with FRONT MATTER 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. 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 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, noncommercial 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. VerDate Mar<15>2010 21:08 Oct 21, 2013 Jkt 232001 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 PO 00000 Frm 00282 Fmt 4703 Sfmt 4703 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, E:\FR\FM\22OCN1.SGM 22OCN1 Federal Register / Vol. 78, No. 204 / Tuesday, October 22, 2013 / Notices sroberts on DSK5SPTVN1PROD with FRONT MATTER 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. 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 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). 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 VerDate Mar<15>2010 21:08 Oct 21, 2013 Jkt 232001 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. 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. 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 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). 22 See Securities Exchange Act Release No. 40760 (December 8, 1998), 63 FR 70844, 70879 (December 22, 1998). 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. PO 00000 Frm 00283 Fmt 4703 Sfmt 4703 62865 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 25 15 E:\FR\FM\22OCN1.SGM U.S.C. 78o–3(b)(6). 22OCN1 62866 Federal Register / Vol. 78, No. 204 / Tuesday, October 22, 2013 / Notices sroberts on DSK5SPTVN1PROD with FRONT MATTER 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-thecounter 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 selfreporting of trading information to FINRA. 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 VerDate Mar<15>2010 21:08 Oct 21, 2013 Jkt 232001 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. PO 00000 Frm 00284 Fmt 4703 Sfmt 4703 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 rule-comments@ sec.gov. 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. E:\FR\FM\22OCN1.SGM 22OCN1 Federal Register / Vol. 78, No. 204 / Tuesday, October 22, 2013 / Notices For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.26 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–24668 Filed 10–21–13; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–70593; File No. SR–MSRB– 2013–07] Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Notice of Filing of a Proposed Rule Change Consisting of Proposed MSRB Rule G–47, on Time of Trade Disclosure Obligations, Proposed Revisions to MSRB Rule G–19, on Suitability of Recommendations and Transactions, Proposed MSRB Rules D–15 and G–48, on Sophisticated Municipal Market Professionals, and the Proposed Deletion of Interpretive Guidance October 1, 2013. sroberts on DSK5SPTVN1PROD with FRONT MATTER 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 17, 2013 the Municipal Securities Rulemaking Board (the ‘‘MSRB’’ or ‘‘Board’’) filed with the Securities and Exchange Commission (the ‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the MSRB. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The MSRB is filing with the Commission a proposed rule change consisting of proposed MSRB Rule G– 47, on time of trade disclosure obligations, proposed revisions to MSRB Rule G–19, on suitability of recommendations and transactions,3 proposed MSRB Rules D–15 and G–48, on sophisticated municipal market professionals, and the proposed deletion of interpretive guidance that is being superseded by these rule changes (the ‘‘proposed rule change’’). The MSRB requests an effective date for the 26 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 This also includes proposed technical revisions to MSRB Rule G–8, on books and records, to conform Rule G–8 with the proposed revisions to Rule G–19. 1 15 VerDate Mar<15>2010 21:08 Oct 21, 2013 Jkt 232001 proposed rule change of 60 days following the date of SEC approval. The text of the proposed rule change is available on the MSRB’s Web site at www.msrb.org/Rules-andInterpretations/SEC-Filings/2013Filings.aspx, at the MSRB’s principal office, 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, the MSRB 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. The MSRB 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 Summary of Proposed Rule Change The MSRB has examined its interpretive guidance related to time of trade disclosures, suitability, and SMMPs and is proposing to consolidate this guidance and codify it into several rules: a new time of trade disclosure rule (proposed Rule G–47), a revised suitability rule (Rule G–19), and two new SMMP rules (proposed Rules D–15 and G–48). Additionally, the proposed revisions to Rule G–19 would harmonize the MSRB’s suitability rule with Financial Industry Regulatory Authority’s (‘‘FINRA’s’’) suitability rule as recommended by the SEC in its 2012 Report on the Municipal Securities Market.4 Rule G–47 on Time of Trade Disclosures MSRB Rule G–17 provides that, in the conduct of its municipal securities or municipal advisory activities, each broker, dealer, municipal securities dealer (‘‘dealer’’), and municipal advisor must deal fairly with all persons and may not engage in any deceptive, dishonest or unfair practice. The MSRB has interpreted Rule G–17 to require a dealer, in connection with a municipal securities transaction, to disclose to its customer, at or prior to the time of trade, all material information about the transaction known by the dealer, as well 4 See http://www.sec.gov/news/studies/2012/ munireport073112.pdf. PO 00000 Frm 00285 Fmt 4703 Sfmt 4703 62867 as material information about the security that is reasonably accessible to the market.5 The MSRB has issued extensive interpretive guidance discussing this time of trade disclosure obligation in general, as well as in specific scenarios. Proposed Rule G–47 would consolidate most of this guidance 6 into rule language which the MSRB believes would ease the burden on dealers and other market participants who endeavor to understand, comply with and enforce these obligations. The proposed codification of the interpretive guidance on time of trade disclosure obligations is not intended to, and would not, substantively change the 5 See, e.g., MSRB Answers Frequently Asked Questions Regarding Dealer Disclosure Obligations Under MSRB Rule G–17 (November 30, 2011). 6 The time of trade disclosure guidance that has been consolidated and condensed into proposed Rule G–47 was derived from the following Rule G– 17 interpretive notices: Guidance on Disclosure and Other Sales Practice Obligations to Individual and Other Retail Investors in Municipal Securities (July 14, 2009), MSRB Answers Frequently Asked Questions Regarding Dealer Disclosure Obligations Under MSRB Rule G–17 (November 30, 2011), Interpretive Notice Regarding Rule G–17, on Disclosure of Material Facts (March 18, 2002), MSRB Reminds Firms of their Sales Practice and Due Diligence Obligations When Selling Municipal Securities in the Secondary Market (September 20, 2010), Application of MSRB Rules to Transactions in Auction Rate Securities (February 19, 2008), Bond Insurance Ratings—Application of MSRB Rules (January 22, 2008), Interpretive Reminder Notice Regarding Rule G–17, on Disclosure of Material Facts—Disclosure of Original Issue Discount Bonds (January 5, 2005), Notice of Interpretation of Rule G–17 Concerning Minimum Denominations (January 30, 2002), Transactions in Municipal Securities with Non-Standard Features Affecting Price/Yield Calculations (June 12, 1995), Educational Notice on Bonds Subject to ‘‘Detachable’’ Call Features (May 13, 1993), Notice Concerning Securities that Prepay Principal (March 19, 1991), Notice Concerning Disclosure of Call Information to Customers of Municipal Securities (March 4, 1986), Application of Board Rules to Transactions in Municipal Securities Subject to Secondary Market Insurance or Other Credit Enhancement Features (March 6, 1984), and Notice Concerning the Application of Board Rules to Put Option Bonds (September 30, 1985); the following Rule G–15 interpretive notice: Notice Concerning Stripped Coupon Municipal Securities (March 13, 1989); the following Rule G–17 interpretive letters: Description provided at or prior to the time of trade (April 30, 1986), and Put option bonds: safekeeping, pricing (February 18, 1983); and the following Rule G–15 interpretive letters: Disclosure of the investment of bond proceeds (August 16, 1991), Securities description: prerefunded securities (February 17, 1998), Callable securities: pricing to mandatory sinking fund calls (April 30, 1986), and Callable securities: pricing to call and extraordinary mandatory redemption features (February 10, 1984). As discussed in more detail below, the guidance discussing time of trade disclosure obligations in connection with 529 college savings plans (‘‘529 plans’’) has not been incorporated into proposed Rule G–47. The MSRB may create a separate rule regarding time of trade disclosure obligations for 529 plans or a rule consolidating dealer obligations related to 529 plans. Until the MSRB adopts a rule specific to 529 plans, proposed Rule G–47 and all such interpretive guidance will continue to apply to 529 plans. E:\FR\FM\22OCN1.SGM 22OCN1

Agencies

[Federal Register Volume 78, Number 204 (Tuesday, October 22, 2013)]
[Notices]
[Pages 62862-62867]
From the Federal Register Online via the Government Printing 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.
---------------------------------------------------------------------------

    \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 rule-comments@sec.gov. 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