Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, Relating to Over-the-Counter Equity Trade Reporting and OATS Reporting, 12558-12562 [2014-04792]
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Federal Register / Vol. 79, No. 43 / Wednesday, March 5, 2014 / Notices
discriminatory because it would apply
to all Members uniformly.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange believes its proposal
amendments its Fee Schedule would
not impose any burden on competition
that is not necessary or appropriate in
furtherance of the purposes of the Act.
The Exchange does not believe that any
of these changes represent a significant
departure from previous pricing offered
by the Exchange or pricing offered by
the Exchange’s competitors.
Additionally, Members may opt to
disfavor EDGA’s pricing if they believe
that alternatives offer them better value.
Accordingly, the Exchange does not
believe that the proposed changes will
impair the ability of Members or
competing venues to maintain their
competitive standing in the financial
markets.
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Flag RC
The Exchange believes that its
proposal to pass through a fee of
$0.0018 per share for Members’ orders
that yield Flag RC would increase
intermarket competition because it
offers customers an alternative means to
route to NSX for the same price as
entering orders on NSX directly. The
Exchange believes that its proposal
would not burden intramarket
competition because the proposed rate
would apply uniformly to all Members.
TCV Definition
The proposed rule change does not
impose any burden on competition that
is not necessary or appropriate in
furtherance of the purposes of the Act.
The proposal to exclude odd lot
transactions from the TCV calculation
was intended to allow Members
additional time to adjust to the potential
impact of including odd lot transactions
within consolidated volumes. The
Exchange believes that the proposed
non-substantive change to the definition
of TCV would not affect intermarket nor
intramarket competition because the
change does not alter the criteria
necessary to achieve the tiers nor the
rates offered by the tiers. In addition,
the Exchange believes that other
exchanges have ceased excluding odd
lot transactions from the consolidated
volume calculations as of February 1,
2014.13
13 See Securities Exchange Act Release No. 70997
(December 5, 2013), 78 FR 75432 (December 11,
2013) (SR–NYSE–2013–78) (amending its price list
to exclude odd lot transactions from its
consolidated average daily trading volume
calculations thru January 31, 2014); see also,
Securities Exchange Act Release No. 71140
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C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange has not solicited, and
does not intend to solicit, comments on
this proposed rule change. The
Exchange has not received any
unsolicited written comments from
Members or other interested parties.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 14 and Rule 19b–4(f)(2) 15
thereunder. At any time within 60 days
of the filing of such 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.
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 (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
EDGA–2014–02 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–EDGA–2014–02. 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 (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
(December 19, 2013), 78 FR 78460 (December 26,
2013) (SR–BATS–2013–063) (amending its price
schedule to exclude odd lot transactions from its
consolidated average daily trading volume
calculations thru January 31, 2014).
14 15 U.S.C. 78s(b)(3)(A).
15 17 CFR 240.19b–4 (f)(2).
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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–EDGA–
2014–02, and should be submitted on or
before March 26, 2014.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.16
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–04790 Filed 3–4–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–71623; File No. SR–FINRA–
2013–050]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing of
Amendment No. 1 and Order Granting
Accelerated Approval of a Proposed
Rule Change, as Modified by
Amendment No. 1, Relating to Overthe-Counter Equity Trade Reporting
and OATS Reporting
February 27, 2014.
On November 12, 2013, the Financial
Industry Regulatory Authority, Inc.
(‘‘FINRA’’) filed with the Securities and
Exchange Commission (‘‘Commission’’),
pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a
proposed rule change to amend the
FINRA rules governing the reporting of
(i) over-the-counter (‘‘OTC’’)
transactions in equity securities to the
16 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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FINRA Facilities; 3 and (ii) orders in
NMS stocks and OTC Equity Securities
to the Order Audit Trail System
(‘‘OATS’’). The Proposal was published
for comment in the Federal Register on
November 29, 2013.4 The Commission
received one comment on the proposed
rule change.5 On January 9, 2014, the
Commission extended the time period
for Commission action on the proposal
to February 27, 2014.6 FINRA
responded to the comment and
submitted an amendment to the
proposed rule change on February 14,
2014.7 The Commission is approving
the proposed rule change as amended
on an accelerated basis.
I. Description of the Proposed Rule
Change
FINRA proposes to amend the equity
trade reporting rules relating to
reporting: (i) An additional time field
for specified trades; (ii) execution time
in milliseconds; (iii) reversals; (iv)
trades executed on non-business days
and trades that are more than one year
old; and (v) ‘‘step-outs.’’ In addition,
FINRA proposes changes in the
processing of trades that are submitted
to a FINRA Facility for clearing as well
as technical changes to the rules relating
to the OTC Reporting Facility (‘‘ORF’’)
and codifying existing OATS guidance
regarding reporting order event times to
OATS in milliseconds. FINRA also
proposes several non-substantive
technical changes to rules that are
otherwise being amended by this
proposed rule change.
Reporting an Additional Time Field
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FINRA rules require that trade reports
submitted to the FINRA Facilities
include the time of trade execution,
except where another time is expressly
required by rule. With respect to Stop
3 Specifically, the FINRA Facilities are the
Alternative Display Facility (‘‘ADF’’) and the Trade
Reporting Facilities (‘‘TRF’’), to which members
report OTC transactions in NMS stocks, as defined
in SEC Rule 600(b) of Regulation NMS; and the
OTC Reporting Facility (‘‘ORF’’), to which members
report transactions in ‘‘OTC Equity Securities,’’ as
defined in FINRA Rule 6420 (i.e., non-NMS stocks
such as OTC Bulletin Board and OTC Market
securities), as well as transactions in Restricted
Equity Securities, as defined in FINRA Rule 6420,
effected pursuant to Securities Act Rule 144A.
4 See Securities Exchange Act Release No. 70924
(November 22, 2013), 78 FR 71695 (‘‘Notice’’).
5 See Letter to Elizabeth M. Murphy, Secretary,
Commission, from Manisha Kimmel, Executive
Director, Financial Information Forum, dated
December 20, 2013 (‘‘FIF Letter’’).
6 See Securities Exchange Act Release No. 71262
(January 9, 2014), 79 FR 2723 (January 15, 2014).
7 See Letter to Elizabeth M. Murphy, Secretary,
Commission, from Lisa C. Horrigan, Associate
General Counsel, FINRA, dated February 14, 2014
(‘‘FINRA Response’’).
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Stock transactions,8 and transactions
that reflect an execution price that is
based on a prior reference point in time
(‘‘PRP transactions’’), current FINRA
rules require that in lieu of the actual
time the trade was executed, members
report the time at which the member
and the other party agreed to the Stop
Stock price and the prior reference time,
respectively.9 FINRA is proposing to
require members to include two times
when reporting Stop Stock transactions
and PRP transactions: (1) The time at
which the parties agree to the Stop
Stock price or the prior reference time,
and (2) the actual time of execution.10
In addition, FINRA is proposing to
require members to include two times
when reporting block transactions using
the Intermarket Sweep Order (‘‘ISO’’)
exception (outbound) under SEC Rule
611 (‘‘Order Protection Rule’’) of
Regulation NMS. Current FINRA
guidance requires members to use the
time that all material terms of the
transaction are known as the execution
time in the trade report.11 FINRA is
proposing that trade reports reflect both
the time the firm routed ISOs and the
execution time, if different. With this
additional time in the trade report,
FINRA believes that it will be able to
determine better whether ISOs were
properly sent to other trading centers in
compliance with the ISO exception to
the Order Protection Rule.12
FINRA believes that requiring
members to report additional timerelated information will ensure a more
accurate and complete audit trail and
enhance FINRA’s ability to surveil on an
automated basis for compliance with
FINRA trade reporting and other rules.13
FINRA also believes that having both
8 ‘‘Stop Stock transaction’’ means a transaction
resulting from an order in which a member and
another party agree that the order will be executed
at a Stop Stock price or better, which price is based
upon the prices at which the security is trading at
the time the order is received by the member. See
Rules 6220, 6320A, 6320B and 6420.
9 See paragraphs (F) and (G) of Rules 6282(a)(4),
6380A(a)(5), 6380B(a)(5) and 6622(a)(5).
10 The rules provide that if the trade is executed
within 10 seconds of the time the parties agree to
the Stop Stock price or within 10 seconds of the
prior reference time, then the designated modifier
should not be used. FINRA also proposes to amend
the rules to clarify that in this instance, only the
actual time of execution should be reported.
11 See NASD Member Alert: Guidance Relating to
‘‘Execution Time’’ for Purposes of Compliance with
NASD Trade Reporting Rules (June 13, 2007).
12 See Notice, 78 FR 71696. FINRA also notes that
many firms have requested that they be permitted
to provide the additional time to avoid the
appearance of non-compliance with the Order
Protection Rule.
13 Upon implementation of the proposed rule
change, any Stop Stock and PRP transactions that
are reported more than 10 seconds following
execution will be marked late. See Notice, 78 FR
71696.
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12559
times reflected in the trade report will
streamline member reviews and
facilitate members’ ability to
demonstrate compliance with FINRA
and other rules.14
Reporting Time in Milliseconds
FINRA’s trade reporting rules
currently require members to report
execution time to the FINRA Facilities
in seconds,15 while the execution time
for exchange trades is expressed in
milliseconds. Similarly, the OATS rules
currently requires members to record
order event times in terms of hours,
minutes, and seconds.16 FINRA notes
that, because FINRA’s audit trails
consolidate exchange and OTC trades
for regulatory purposes, sequencing
consolidated transactions by execution
time can be difficult with the different
time formats, particularly in active
stocks.17 To enhance and help bring
consistency to FINRA’s audit trail,
FINRA is proposing amendments to
require members to express time in
milliseconds when reporting trades to
the FINRA Facilities or order
information to OATS, if the member’s
system captures time in milliseconds.18
Members with systems that do not
capture milliseconds will be permitted
to continue reporting time in seconds.19
FINRA believes that where trades are
executed by electronic systems that
already capture execution time in
milliseconds, it should be relatively
straightforward for members to report
such trades to the FINRA Facilities
using milliseconds. Thus, FINRA does
not believe that the proposed
requirement would be burdensome for
members, nor would it require them to
make significant systems changes.
FINRA recognizes, however, that where
trades are executed manually, it would
14 See
Notice, 78 FR 71699.
e.g., Rules 6282(c)(2)(H), 6380A(c)(5),
6380B(c)(5) and 6622(c)(5).
16 Although Rule 7440(a)(2) requires order event
times to be recorded to the second, FINRA
published guidance in 2011 in connection with the
expansion of OATS to all NMS stocks stating that
firms that capture time in milliseconds should
report time to OATS in milliseconds. See Notice,
78 FR at 71696. The proposed rule change codifies
this guidance into Rule 7440(a)(2).
17 See Notice, 78 FR at 71696. FINRA also notes
that the Intermarket Surveillance Group (‘‘ISG’’)
consolidated audit trail can accommodate execution
times expressed in milliseconds.
18 See Proposed Rules 6282.04, 6380A.04,
6380B.04, 6622.04, 7130.01, 7230A.01, 7230B.01,
7330.01, and 7440(a)(2).
19 FINRA notes that it expects members that have
systems currently capable of capturing time in
milliseconds to continue to do so and not to make
systems changes to revert to seconds unless they
have a legitimate business reason for doing so.
FINRA may review any such systems changes in the
course of an inquiry or a member examination. See
Notice, 78 FR at 71696.
15 See,
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be more difficult for members to capture
milliseconds for purposes of trade
reporting. Accordingly, FINRA believes
that it is appropriate not to require that
all members capture and report time in
milliseconds.20
Reporting Reversals
FINRA rules require that if a trade
that was previously reported to FINRA
is cancelled, members must report the
cancellation to the same FINRA Facility
to which the trade was originally
reported 21 and must do so within the
time frames set forth in the rules.22
Members report a ‘‘cancellation’’ when
trades are cancelled on the date of
execution and a ‘‘reversal’’ when trades
are cancelled on a day after the date of
execution.23 Today, when a member
reports a reversal of a trade that was
previously reported to a FINRA Facility,
there is no requirement that the member
provide information in the reversal
report to identify the original trade.
FINRA proposes requiring that members
identify the original trade in the reversal
report by including the control number
generated by the FINRA Facility and
report date for the original trade report.
FINRA believes that this information
will enable FINRA to better ‘‘link’’
reports of reversals with the associated
previously reported trades and thereby
allow FINRA to recreate more accurately
the firm’s market activity, as well as
surveil for compliance with FINRA
trade reporting rules.24 FINRA is also
proposing several additional conforming
amendments to the rules relating to
trade cancellations.25
Reporting Non-Business Day Trades and
T+365 Trades
Currently, trades executed on nonbusiness days (i.e., weekends and
holidays) and trades reported more than
365 days after trade date (T+365) cannot
be reported to a FINRA Facility and
instead must be reported on ‘‘Form T’’
through FINRA’s Firm Gateway.26
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20 FINRA
notes that a review of OATS data from
October 11, 2013 through October 22, 2013 suggests
that, for trade reporting purposes, a significant
number of executing firms have systems that
currently capture execution time in milliseconds
and, as a result, would be subject to the proposed
requirement. See Notice, 78 FR at 71696.
21 See Rules 7130(d), 7230A(i), 7230B(h) and
7330(h).
22 See, e.g., Rules 6282(j)(2), 6380A(g)(2),
6380B(f)(2), and 6622(f)(2) and (f)(3).
23 See, e.g., Trade Reporting FAQ # 305.6,
available at www.finra.org/Industry/Regulation/
Guidance/p038942# 305.
24 See Notice, 78 FR at 71699.
25 See Notice, 78 FR at 71697.
26 See Rules 6282(a)(5), 6380A(a)(8), 6380B(a)(8)
and 6622(a)(8). FINRA also notes that, because
these trades are not reported to a FINRA Facility,
they are not captured for purposes of FINRA’s
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FINRA is proposing systems
enhancements to enable members to
submit reports of non-business day
trades and T+365 trades electronically
to the FINRA Facilities rather than using
‘‘Form T’’ to report such trades. As is
the case today, non-business day trades
and T+365 trades will not be submitted
to clearing by the FINRA Facility 27 or
disseminated. FINRA also is proposing
to amend the rules to require that
members report non-business day trades
on an ‘‘as/of’’ basis by 8:15 a.m. the next
business day following execution with
the unique trade report modifier to
denote their execution outside normal
market hours; trades not reported by
8:15 a.m. will be marked late.28 All
T+365 trades will be reported on an ‘‘as/
of’’ basis and will be marked late.
FINRA believes that this requirement
will ensure that non-business day trades
are properly sequenced for audit trail
purposes.29
Reporting Step-Outs
Today, members can effectuate a
‘‘step-out’’ 30 by submitting a clearingonly report to a FINRA Facility. FINRA
rules prohibit members from submitting
to a FINRA Facility any non-tape report
(including but not limited to reports of
step-outs) associated with a previously
executed trade that was not reported to
that FINRA Facility.31 For every stepout, one member is stepping out of (or
transferring) the position and the other
member is stepping into (or receiving)
the position. Where both members are
submitting a clearing-only report to a
FINRA Facility, each member currently
must use the ‘‘step-out’’ indicator.
FINRA notes that, some clearing firms
have requested the ability to see
whether their correspondents are
automated surveillance systems, and regulatory fees
under Section 3 of Schedule A to the FINRA ByLaws must be assessed manually. See Notice, 78 FR
at 71697.
27 FINRA is proposing to expressly provide that
these trades will not be submitted to clearing in
Rules 7140(b), 7240A(b), 7240B(b) and 7340(b).
28 See Rules 6282(a)(2), 6380A(a)(2), 6380B(a)(2)
and 6622(a)(2). FINRA also is proposing to delete
the reference to ‘‘T+1’’ in subparagraph (D) of these
rules because, e.g., the next business day would be
greater than T+1 for a trade that is executed on a
Saturday. See Notice, 78 FR at 71697. FINRA also
is proposing a conforming change to Rule 6622(a)(3)
to provide that any Securities Act Rule 144A
transaction in a Restricted Equity Security that is
executed on a non-business day must be reported
by the time the ORF closes the next business day.
See id.
29 See Notice, 78 FR 71699.
30 A step-out allows a member firm to allocate all
or part of a client’s position from a previously
executed trade to the client’s account at another
firm. See Trade Reporting FAQ 301.1, available at
www.finra.org/Industry/Regulation/Guidance/
p038942# 301.
31 See Rules 7130(d), 7230A(i), 7230B(h) and
7330(h).
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stepping out or stepping in with respect
to such transfers. Accordingly, FINRA is
proposing that, where both sides are
submitting a clearing-only report to
effectuate a step-out, the member
transferring out of the position must
report a step-out and the member
receiving the position must report a
step-in. FINRA believes that the
proposed will more accurately reflect
the transfer and will provide greater
transparency for clearing firms whose
correspondents effect these transfers.32
Trade Processing
Currently, when firms use the trade
acceptance and comparison process for
locking in trades submitted for clearing
through the ADF, FINRA/Nasdaq TRF,
and ORF, the reporting party reports the
trade and the contra party subsequently
either accepts or declines the trade, and
any trade that has been declined by the
contra party is purged from the system
at the end of trade date processing.33
FINRA proposes that, rather than being
purged, declined trades will be carried
over and remain available for
cancellation or correction by the
reporting party or acceptance by the
contra party. Declined trades that are
carried over will not be available for the
automatic lock-in process described in
the rules and will not be sent to clearing
unless the parties take action. FINRA
also is proposing to codify the existing
requirement that the reporting member
must cancel a declined trade that was
previously reported for dissemination
purposes to have the trade removed
from the tape.34 In addition, FINRA is
proposing technical changes to
reorganize and clarify the provisions
relating to locking in trades for clearing
and the processing of T+N (also referred
to ‘‘as/of’’) trades.35 FINRA notes that
these proposed trade processing changes
will not impact the way members report
to FINRA and will not require members
to make changes to their systems.36
ORF Technical Amendments
FINRA is proposing several additional
technical amendments to the ORF rules.
FINRA is proposing to delete
unnecessary and obsolete language from
the ORF rules.37 FINRA initially
32 See
Notice, 78 FR at 71699.
Rules 7140(a), 7240A(b) and 7340(b).
34 See Notice, 78 FR at 71698.
35 See Notice, 78 FR at 71698.
FINRA also is proposing to include language in
new Rule 7240B(b) clarifying that T+N (or ‘‘as/of’’)
entries may be submitted until the FINRA/NYSE
TRF closes for the day, i.e., 8:00 p.m. This language
conforms to the language of Rules 7140(b), 7240A(c)
and 7340(c) (as renumbered herein) relating to the
other FINRA Facilities.
36 See Notice, 78 FR at 71698.
37 See Notice, 78 FR at 71698.
33 See
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Federal Register / Vol. 79, No. 43 / Wednesday, March 5, 2014 / Notices
proposed to close the ORF at 6:30 p.m.
Eastern Time rather than 8:00 p.m.
However, in Amendment No. 1, FINRA
proposes to keep the ORF closing time
at 8:00 p.m.
Proposed Technical Changes in
Amendment No. 1
FINRA is proposing a number of
technical amendments to update crossreferences and make other nonsubstantive changes to Rules 6282, 7130
and 7140 relating to the ADF as the
result of the approval of SR–FINRA–
2013–053.
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II. Summary of Comment and Response
Request for Clarification
The FIF Letter requests clarification
on a number of aspects of the proposed
rule change. First, with respect to block
transactions, FIF asks which route time
would be expected on the trade report,
given that, when multiple ISOs are
routed, the route times could differ by
one or more milliseconds.38 FINRA
responds that its current guidance
requires members to use the time that
all material terms of the transaction are
known as the execution time in the
trade report, and under the proposed
rule change, firms will be required to
also report the time that the firm routed
the ISOs (if different from the execution
time).39 FINRA explains that firms will
continue to report the time that all
material terms of the transaction are
known in the ‘‘execution time’’ field,
and in the new time field (i.e., the
reference or ‘‘ISO time’’ field), firms
should report the time they used to
determine the ISOs, if any, to route to
any better-priced protected quotations
(sometimes referred to as the time the
firm takes a ‘‘snapshot’’ of the market).40
FINRA notes that, to comply with SEC
Rule 611(b)(6), firms need to utilize an
automated system that is capable of
ascertaining current protected
quotations and simultaneously routing
the necessary ISOs.41 Thus, FINRA
expects the ‘‘snapshot’’ time and the
time that ISOs are routed to be the same.
To the extent that these times differ, or
where multiple ISOs are routed and the
route times differ, FINRA believes that
using the ‘‘snapshot’’ time in all
instances will eliminate any confusion
regarding which time to report.42
FIF also questions whether report
cards and matching will be maintained
at the one-second level rather than at
the millisecond level, noting that
38 See
FIF Letter at 1.
FINRA Response at 4.
40 See id.
41 See id.
42 Id. at 5.
39 See
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17:13 Mar 04, 2014
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currently clocks are required to be
synchronized to within one second of
the National Institute of Standards and
Technology (NIST) standard.43 FINRA
responds that, with respect to report
cards, the determination whether a trade
has been reported late will remain at the
second level for firms that report
execution time in seconds, and for firms
that report time in milliseconds, the
determination will be made at the
millisecond level.44 FINRA states that
synchronization to the NIST standard
would remain at the second (and not
millisecond) level.45 However, FINRA
notes that if a firm submits multiple
reports for the same event (e.g., a trade
report and an OATS execution report),
FINRA would expect the granularity of
the time stamps to be consistent.46
FIF asks whether the requirement to
include control numbers will be on a
‘‘go forward basis’’ only for T+365
reporting.47 FINRA responds that, in
accordance with system requirements,
the control number field will be a
required field for all reports of reversals
following implementation.48 However,
FINRA will validate the control number
only where the original trade was
executed after implementation of the
proposed rule change.49 Accordingly,
when reversing trades that were
executed prior to the implementation of
the proposed rule change, firms will not
be required to provide an actual control
number and instead may insert a
‘‘dummy’’ number to populate the
required field.50
FIF also asks whether Form T will be
retired as a result of the proposed rule
change.51 FINRA responds that the
proposed rule change requiring firms to
report trades executed on non-business
days and T+365 trades to the FINRA
Facilities will significantly reduce the
need for Form T.52 However, FINRA
plan to retain Form T for use in
instances in which firms need to report
with Form T (e.g., where the ticker
symbol for the security is no longer
available or a market participant
identifier is no longer active).53
FIF questions whether there will be
matching on ‘‘step-in’’ and ‘‘step-out’’
trades.54 FINRA responds that the
FINRA Facilities that offer matching
43 FIF
Letter at 1.
Response at 5.
45 See id.
46 See id.
47 See FIF Letter at 2.
48 See FINRA Response at 5.
49 See id.
50 See id.
51 See FIF Letter at 2.
52 See FINRA Response at 6.
53 See id.
54 See FIF Letter at 2.
44 FINRA
PO 00000
Frm 00100
Fmt 4703
Sfmt 4703
12561
will match corresponding ‘‘step-out’’
and ‘‘step-in’’ submissions, but will not
match two ‘‘step-in’’ or two ‘‘step-out’’
submissions.55
FIF also asks whether declined trades
that are corrected and subsequently
accepted are subject to the ‘‘20 minute
rule’’ for trade comparison.56 FINRA
responds that a firm is required to
accept or decline a trade within 20
minutes after execution, and FINRA
generally expects firms to complete the
process of accepting or declining a
trade, including any subsequent
updates, within that time frame.57
FINRA reminds firms that, where the
reporting party enters inaccurate trade
information, rather than declining the
trade, the contra party should submit its
own correct information within 20
minutes of execution to be in
compliance with the rule.58
FIF also notes its understanding that
the millisecond requirement was not
intended to introduce a significant
burden on firms and that only those
systems that capture millisecond time
stamps in a reportable format are
required to be reported.59 FINRA
confirms that it is not mandating that
firms start capturing milliseconds and
any such proposal would be subject to
a separate rule filing and notice and
comment.60 However, where a firm’s
system captures time in milliseconds,
FINRA expects that the system will be
capable of reporting in milliseconds.61
ORF Closing Time
FIF also recommends keeping the 8:00
p.m. closing time for the ORF to
maintain consistency with FINRA’s
TRFs in order to reduce the likelihood
of errors, allow firms to leverage current
workflows and assist firms in resolving
operational issues and completing
processing before the end of the day.62
In response to this concern, in
Amendment No. 1, FINRA proposes to
maintain the closing time at 8:00 p.m.63
Implementation Effort/Time Frame
FIF recommends a nine-month
implementation period following
Commission approval contingent upon
the release of TRF specifications within
seven months and the availability of a
robust test environment within three
55 See
FINRA Response at 6.
FIF Letter at 2.
57 See FINRA Response at 6.
58 See id.
59 See FIF Letter at 2.
60 See FINRA Response at 7.
61 See id.
62 See FIF Letter at 2.
63 See FINRA Response at 6–7.
56 See
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12562
Federal Register / Vol. 79, No. 43 / Wednesday, March 5, 2014 / Notices
months of the implementation date.64
FINRA responds that it believes that
firms will have sufficient time to make
the necessary systems changes for the
ORF implementation, currently
scheduled on June 2, 2014, and for the
implementation no later than September
30, 2014 for the ADF and TRFs.65
FINRA notes that it will announce the
implementation dates in a Regulatory
Notice.66
III. Discussion and Commission
Findings
After careful review, the Commission
finds that the proposed rule change is
consistent with the requirements of the
Act and the rules and regulations
thereunder applicable to a national
securities exchange and, in particular,
with Section 15A(b) of the Act.67 In
particular, the Commission finds that
the proposed rule change is consistent
with FINRA believes that the proposed
rule change is consistent with the
provisions of Section 15A(b)(6) of the
Act,68 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 proposes to amend the equity
trade reporting rules relating to
reporting: (i) an additional time field for
specified trades; (ii) execution time in
milliseconds; (iii) reversals; (iv) trades
executed on non-business days and
trades that are more than one year old;
and (v) ‘‘step-outs.’’ In addition, FINRA
proposes changes in the processing of
trades that are submitted to a FINRA
Facility for clearing as well as technical
changes to the rules relating to the OTC
Reporting Facility (‘‘ORF’’) and
codifying existing OATS guidance
regarding reporting order event times to
OATS in milliseconds. The Commission
believes that the proposed changes
should enhance FINRA’s audit trail and
automated surveillance program,
promote more consistent trade reporting
by members, and aid in the detection of
violations of FINRA trade reporting and
other rules.
The Commission notes that FIF
submitted a comment letter containing
mstockstill on DSK4VPTVN1PROD with NOTICES
64 See
FIF Letter at 2–3.
FINRA Response at 7.
66 See id. FINRA also notes that, pursuant to the
original filing, the proposed amendments to the
OATS rules will be implemented no later than 45
days after Commission approval.
67 15 U.S.C. 78o–3(b). In approving this proposed
rule change, the Commission has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
68 15 U.S.C. 78o–3(b)(6).
65 See
VerDate Mar<15>2010
17:13 Mar 04, 2014
Jkt 232001
primarily clarifying questions and that
FINRA submitted a response addressing
these clarifying questions. The FIF
Letter requested a substantive change to
the proposal—that the ORF closing time
remain 8 p.m. In its response in
Amendment No. 1, FINRA proposed
keeping the ORF closing time of 8 p.m.
For the foregoing reasons, the
Commission finds that the proposed
rule change is consistent with Section
15A(b)(6) of the Act and the rules and
regulations thereunder applicable to a
national securities association.69
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether Amendment No. 1 is
consistent with the Act. Comments may
be submitted by any of the following
methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
FINRA–2013–050 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–2013–050. 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 (https://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 such
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
publicly available. All submissions
should refer to File Number SR–FINRA–
2013–050 and should be submitted on
or before [insert date 21 days from
publication in the Federal Register].
V. Accelerated Approval of Proposed
Rule Change, as Modified by
Amendment No. 1
The Commission finds good cause for
approving the proposed rule change, as
amended by Amendment No. 1 prior to
the 30th day after the date of
publication of notice in the Federal
Register. Amendment No. 1 proposes
maintaining the current 8:00 p.m.
closing time of the ORF and includes
technical amendments to update crossreferences and make other nonsubstantive changes to Rules 6282, 7130
and 7140 relating to the ADF as the
result of the approval of SR–FINRA–
2013–053. Accordingly, the Commission
finds good cause for approving the
proposed rule change, as amended, on
an accelerated basis, pursuant to Section
19(b)(2) of the Act.70
VI. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,71 that the
proposed rule change (SR–FINRA–
2013–050), is hereby approved, as
modified by Amendment No. 1 on an
accelerated basis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.72
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–04792 Filed 3–4–14; 8:45 am]
BILLING CODE 8011–01–P
DEPARTMENT OF STATE
[Delegation of Authority No. 236–4]
Re-Delegation by the Assistant
Secretary of State for Educational and
Cultural Affairs to the Principal Deputy
Assistant Secretary for Educational
and Cultural Affairs of Authority Under
Section 102 of the Mutual Educational
and Cultural Exchange Act of 1961, as
Amended
By virtue of the authority vested in
me as the Assistant Secretary of State for
70 15
U.S.C. 78s(b)(2).
U.S.C. 78s(b)(2).
72 17 CFR 200.30–3(a)(12).
71 15
69 15
PO 00000
U.S.C. 78o–3(b)(6).
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]]>Agencies
[Federal Register Volume 79, Number 43 (Wednesday, March 5, 2014)]
[Notices]
[Pages 12558-12562]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-04792]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71623; File No. SR-FINRA-2013-050]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of Amendment No. 1 and Order Granting
Accelerated Approval of a Proposed Rule Change, as Modified by
Amendment No. 1, Relating to Over-the-Counter Equity Trade Reporting
and OATS Reporting
February 27, 2014.
On November 12, 2013, the Financial Industry Regulatory Authority,
Inc. (``FINRA'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to amend the FINRA rules governing the reporting
of (i) over-the-counter (``OTC'') transactions in equity securities to
the
[[Page 12559]]
FINRA Facilities; \3\ and (ii) orders in NMS stocks and OTC Equity
Securities to the Order Audit Trail System (``OATS''). The Proposal was
published for comment in the Federal Register on November 29, 2013.\4\
The Commission received one comment on the proposed rule change.\5\ On
January 9, 2014, the Commission extended the time period for Commission
action on the proposal to February 27, 2014.\6\ FINRA responded to the
comment and submitted an amendment to the proposed rule change on
February 14, 2014.\7\ The Commission is approving the proposed rule
change as amended on an accelerated basis.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Specifically, the FINRA Facilities are the Alternative
Display Facility (``ADF'') and the Trade Reporting Facilities
(``TRF''), to which members report OTC transactions in NMS stocks,
as defined in SEC Rule 600(b) of Regulation NMS; and the OTC
Reporting Facility (``ORF''), to which members report transactions
in ``OTC Equity Securities,'' as defined in FINRA Rule 6420 (i.e.,
non-NMS stocks such as OTC Bulletin Board and OTC Market
securities), as well as transactions in Restricted Equity
Securities, as defined in FINRA Rule 6420, effected pursuant to
Securities Act Rule 144A.
\4\ See Securities Exchange Act Release No. 70924 (November 22,
2013), 78 FR 71695 (``Notice'').
\5\ See Letter to Elizabeth M. Murphy, Secretary, Commission,
from Manisha Kimmel, Executive Director, Financial Information
Forum, dated December 20, 2013 (``FIF Letter'').
\6\ See Securities Exchange Act Release No. 71262 (January 9,
2014), 79 FR 2723 (January 15, 2014).
\7\ See Letter to Elizabeth M. Murphy, Secretary, Commission,
from Lisa C. Horrigan, Associate General Counsel, FINRA, dated
February 14, 2014 (``FINRA Response'').
---------------------------------------------------------------------------
I. Description of the Proposed Rule Change
FINRA proposes to amend the equity trade reporting rules relating
to reporting: (i) An additional time field for specified trades; (ii)
execution time in milliseconds; (iii) reversals; (iv) trades executed
on non-business days and trades that are more than one year old; and
(v) ``step-outs.'' In addition, FINRA proposes changes in the
processing of trades that are submitted to a FINRA Facility for
clearing as well as technical changes to the rules relating to the OTC
Reporting Facility (``ORF'') and codifying existing OATS guidance
regarding reporting order event times to OATS in milliseconds. FINRA
also proposes several non-substantive technical changes to rules that
are otherwise being amended by this proposed rule change.
Reporting an Additional Time Field
FINRA rules require that trade reports submitted to the FINRA
Facilities include the time of trade execution, except where another
time is expressly required by rule. With respect to Stop Stock
transactions,\8\ and transactions that reflect an execution price that
is based on a prior reference point in time (``PRP transactions''),
current FINRA rules require that in lieu of the actual time the trade
was executed, members report the time at which the member and the other
party agreed to the Stop Stock price and the prior reference time,
respectively.\9\ FINRA is proposing to require members to include two
times when reporting Stop Stock transactions and PRP transactions: (1)
The time at which the parties agree to the Stop Stock price or the
prior reference time, and (2) the actual time of execution.\10\
---------------------------------------------------------------------------
\8\ ``Stop Stock transaction'' means a transaction resulting
from an order in which a member and another party agree that the
order will be executed at a Stop Stock price or better, which price
is based upon the prices at which the security is trading at the
time the order is received by the member. See Rules 6220, 6320A,
6320B and 6420.
\9\ See paragraphs (F) and (G) of Rules 6282(a)(4), 6380A(a)(5),
6380B(a)(5) and 6622(a)(5).
\10\ The rules provide that if the trade is executed within 10
seconds of the time the parties agree to the Stop Stock price or
within 10 seconds of the prior reference time, then the designated
modifier should not be used. FINRA also proposes to amend the rules
to clarify that in this instance, only the actual time of execution
should be reported.
---------------------------------------------------------------------------
In addition, FINRA is proposing to require members to include two
times when reporting block transactions using the Intermarket Sweep
Order (``ISO'') exception (outbound) under SEC Rule 611 (``Order
Protection Rule'') of Regulation NMS. Current FINRA guidance requires
members to use the time that all material terms of the transaction are
known as the execution time in the trade report.\11\ FINRA is proposing
that trade reports reflect both the time the firm routed ISOs and the
execution time, if different. With this additional time in the trade
report, FINRA believes that it will be able to determine better whether
ISOs were properly sent to other trading centers in compliance with the
ISO exception to the Order Protection Rule.\12\
---------------------------------------------------------------------------
\11\ See NASD Member Alert: Guidance Relating to ``Execution
Time'' for Purposes of Compliance with NASD Trade Reporting Rules
(June 13, 2007).
\12\ See Notice, 78 FR 71696. FINRA also notes that many firms
have requested that they be permitted to provide the additional time
to avoid the appearance of non-compliance with the Order Protection
Rule.
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FINRA believes that requiring members to report additional time-
related information will ensure a more accurate and complete audit
trail and enhance FINRA's ability to surveil on an automated basis for
compliance with FINRA trade reporting and other rules.\13\ FINRA also
believes that having both times reflected in the trade report will
streamline member reviews and facilitate members' ability to
demonstrate compliance with FINRA and other rules.\14\
---------------------------------------------------------------------------
\13\ Upon implementation of the proposed rule change, any Stop
Stock and PRP transactions that are reported more than 10 seconds
following execution will be marked late. See Notice, 78 FR 71696.
\14\ See Notice, 78 FR 71699.
---------------------------------------------------------------------------
Reporting Time in Milliseconds
FINRA's trade reporting rules currently require members to report
execution time to the FINRA Facilities in seconds,\15\ while the
execution time for exchange trades is expressed in milliseconds.
Similarly, the OATS rules currently requires members to record order
event times in terms of hours, minutes, and seconds.\16\ FINRA notes
that, because FINRA's audit trails consolidate exchange and OTC trades
for regulatory purposes, sequencing consolidated transactions by
execution time can be difficult with the different time formats,
particularly in active stocks.\17\ To enhance and help bring
consistency to FINRA's audit trail, FINRA is proposing amendments to
require members to express time in milliseconds when reporting trades
to the FINRA Facilities or order information to OATS, if the member's
system captures time in milliseconds.\18\ Members with systems that do
not capture milliseconds will be permitted to continue reporting time
in seconds.\19\
---------------------------------------------------------------------------
\15\ See, e.g., Rules 6282(c)(2)(H), 6380A(c)(5), 6380B(c)(5)
and 6622(c)(5).
\16\ Although Rule 7440(a)(2) requires order event times to be
recorded to the second, FINRA published guidance in 2011 in
connection with the expansion of OATS to all NMS stocks stating that
firms that capture time in milliseconds should report time to OATS
in milliseconds. See Notice, 78 FR at 71696. The proposed rule
change codifies this guidance into Rule 7440(a)(2).
\17\ See Notice, 78 FR at 71696. FINRA also notes that the
Intermarket Surveillance Group (``ISG'') consolidated audit trail
can accommodate execution times expressed in milliseconds.
\18\ See Proposed Rules 6282.04, 6380A.04, 6380B.04, 6622.04,
7130.01, 7230A.01, 7230B.01, 7330.01, and 7440(a)(2).
\19\ FINRA notes that it expects members that have systems
currently capable of capturing time in milliseconds to continue to
do so and not to make systems changes to revert to seconds unless
they have a legitimate business reason for doing so. FINRA may
review any such systems changes in the course of an inquiry or a
member examination. See Notice, 78 FR at 71696.
---------------------------------------------------------------------------
FINRA believes that where trades are executed by electronic systems
that already capture execution time in milliseconds, it should be
relatively straightforward for members to report such trades to the
FINRA Facilities using milliseconds. Thus, FINRA does not believe that
the proposed requirement would be burdensome for members, nor would it
require them to make significant systems changes. FINRA recognizes,
however, that where trades are executed manually, it would
[[Page 12560]]
be more difficult for members to capture milliseconds for purposes of
trade reporting. Accordingly, FINRA believes that it is appropriate not
to require that all members capture and report time in
milliseconds.\20\
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\20\ FINRA notes that a review of OATS data from October 11,
2013 through October 22, 2013 suggests that, for trade reporting
purposes, a significant number of executing firms have systems that
currently capture execution time in milliseconds and, as a result,
would be subject to the proposed requirement. See Notice, 78 FR at
71696.
---------------------------------------------------------------------------
Reporting Reversals
FINRA rules require that if a trade that was previously reported to
FINRA is cancelled, members must report the cancellation to the same
FINRA Facility to which the trade was originally reported \21\ and must
do so within the time frames set forth in the rules.\22\ Members report
a ``cancellation'' when trades are cancelled on the date of execution
and a ``reversal'' when trades are cancelled on a day after the date of
execution.\23\ Today, when a member reports a reversal of a trade that
was previously reported to a FINRA Facility, there is no requirement
that the member provide information in the reversal report to identify
the original trade. FINRA proposes requiring that members identify the
original trade in the reversal report by including the control number
generated by the FINRA Facility and report date for the original trade
report. FINRA believes that this information will enable FINRA to
better ``link'' reports of reversals with the associated previously
reported trades and thereby allow FINRA to recreate more accurately the
firm's market activity, as well as surveil for compliance with FINRA
trade reporting rules.\24\ FINRA is also proposing several additional
conforming amendments to the rules relating to trade cancellations.\25\
---------------------------------------------------------------------------
\21\ See Rules 7130(d), 7230A(i), 7230B(h) and 7330(h).
\22\ See, e.g., Rules 6282(j)(2), 6380A(g)(2), 6380B(f)(2), and
6622(f)(2) and (f)(3).
\23\ See, e.g., Trade Reporting FAQ 305.6, available
at www.finra.org/Industry/Regulation/Guidance/p038942# 305.
\24\ See Notice, 78 FR at 71699.
\25\ See Notice, 78 FR at 71697.
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Reporting Non-Business Day Trades and T+365 Trades
Currently, trades executed on non-business days (i.e., weekends and
holidays) and trades reported more than 365 days after trade date
(T+365) cannot be reported to a FINRA Facility and instead must be
reported on ``Form T'' through FINRA's Firm Gateway.\26\ FINRA is
proposing systems enhancements to enable members to submit reports of
non-business day trades and T+365 trades electronically to the FINRA
Facilities rather than using ``Form T'' to report such trades. As is
the case today, non-business day trades and T+365 trades will not be
submitted to clearing by the FINRA Facility \27\ or disseminated. FINRA
also is proposing to amend the rules to require that members report
non-business day trades on an ``as/of'' basis by 8:15 a.m. the next
business day following execution with the unique trade report modifier
to denote their execution outside normal market hours; trades not
reported by 8:15 a.m. will be marked late.\28\ All T+365 trades will be
reported on an ``as/of'' basis and will be marked late. FINRA believes
that this requirement will ensure that non-business day trades are
properly sequenced for audit trail purposes.\29\
---------------------------------------------------------------------------
\26\ See Rules 6282(a)(5), 6380A(a)(8), 6380B(a)(8) and
6622(a)(8). FINRA also notes that, because these trades are not
reported to a FINRA Facility, they are not captured for purposes of
FINRA's automated surveillance systems, and regulatory fees under
Section 3 of Schedule A to the FINRA By-Laws must be assessed
manually. See Notice, 78 FR at 71697.
\27\ FINRA is proposing to expressly provide that these trades
will not be submitted to clearing in Rules 7140(b), 7240A(b),
7240B(b) and 7340(b).
\28\ See Rules 6282(a)(2), 6380A(a)(2), 6380B(a)(2) and
6622(a)(2). FINRA also is proposing to delete the reference to
``T+1'' in subparagraph (D) of these rules because, e.g., the next
business day would be greater than T+1 for a trade that is executed
on a Saturday. See Notice, 78 FR at 71697. FINRA also is proposing a
conforming change to Rule 6622(a)(3) to provide that any Securities
Act Rule 144A transaction in a Restricted Equity Security that is
executed on a non-business day must be reported by the time the ORF
closes the next business day. See id.
\29\ See Notice, 78 FR 71699.
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Reporting Step-Outs
Today, members can effectuate a ``step-out'' \30\ by submitting a
clearing-only report to a FINRA Facility. FINRA rules prohibit members
from submitting to a FINRA Facility any non-tape report (including but
not limited to reports of step-outs) associated with a previously
executed trade that was not reported to that FINRA Facility.\31\ For
every step-out, one member is stepping out of (or transferring) the
position and the other member is stepping into (or receiving) the
position. Where both members are submitting a clearing-only report to a
FINRA Facility, each member currently must use the ``step-out''
indicator. FINRA notes that, some clearing firms have requested the
ability to see whether their correspondents are stepping out or
stepping in with respect to such transfers. Accordingly, FINRA is
proposing that, where both sides are submitting a clearing-only report
to effectuate a step-out, the member transferring out of the position
must report a step-out and the member receiving the position must
report a step-in. FINRA believes that the proposed will more accurately
reflect the transfer and will provide greater transparency for clearing
firms whose correspondents effect these transfers.\32\
---------------------------------------------------------------------------
\30\ A step-out allows a member firm to allocate all or part of
a client's position from a previously executed trade to the client's
account at another firm. See Trade Reporting FAQ 301.1, available at
www.finra.org/Industry/Regulation/Guidance/p038942# 301.
\31\ See Rules 7130(d), 7230A(i), 7230B(h) and 7330(h).
\32\ See Notice, 78 FR at 71699.
---------------------------------------------------------------------------
Trade Processing
Currently, when firms use the trade acceptance and comparison
process for locking in trades submitted for clearing through the ADF,
FINRA/Nasdaq TRF, and ORF, the reporting party reports the trade and
the contra party subsequently either accepts or declines the trade, and
any trade that has been declined by the contra party is purged from the
system at the end of trade date processing.\33\ FINRA proposes that,
rather than being purged, declined trades will be carried over and
remain available for cancellation or correction by the reporting party
or acceptance by the contra party. Declined trades that are carried
over will not be available for the automatic lock-in process described
in the rules and will not be sent to clearing unless the parties take
action. FINRA also is proposing to codify the existing requirement that
the reporting member must cancel a declined trade that was previously
reported for dissemination purposes to have the trade removed from the
tape.\34\ In addition, FINRA is proposing technical changes to
reorganize and clarify the provisions relating to locking in trades for
clearing and the processing of T+N (also referred to ``as/of'')
trades.\35\ FINRA notes that these proposed trade processing changes
will not impact the way members report to FINRA and will not require
members to make changes to their systems.\36\
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\33\ See Rules 7140(a), 7240A(b) and 7340(b).
\34\ See Notice, 78 FR at 71698.
\35\ See Notice, 78 FR at 71698.
FINRA also is proposing to include language in new Rule 7240B(b)
clarifying that T+N (or ``as/of'') entries may be submitted until
the FINRA/NYSE TRF closes for the day, i.e., 8:00 p.m. This language
conforms to the language of Rules 7140(b), 7240A(c) and 7340(c) (as
renumbered herein) relating to the other FINRA Facilities.
\36\ See Notice, 78 FR at 71698.
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ORF Technical Amendments
FINRA is proposing several additional technical amendments to the
ORF rules. FINRA is proposing to delete unnecessary and obsolete
language from the ORF rules.\37\ FINRA initially
[[Page 12561]]
proposed to close the ORF at 6:30 p.m. Eastern Time rather than 8:00
p.m. However, in Amendment No. 1, FINRA proposes to keep the ORF
closing time at 8:00 p.m.
---------------------------------------------------------------------------
\37\ See Notice, 78 FR at 71698.
---------------------------------------------------------------------------
Proposed Technical Changes in Amendment No. 1
FINRA is proposing a number of technical amendments to update
cross-references and make other non-substantive changes to Rules 6282,
7130 and 7140 relating to the ADF as the result of the approval of SR-
FINRA-2013-053.
II. Summary of Comment and Response
Request for Clarification
The FIF Letter requests clarification on a number of aspects of the
proposed rule change. First, with respect to block transactions, FIF
asks which route time would be expected on the trade report, given
that, when multiple ISOs are routed, the route times could differ by
one or more milliseconds.\38\ FINRA responds that its current guidance
requires members to use the time that all material terms of the
transaction are known as the execution time in the trade report, and
under the proposed rule change, firms will be required to also report
the time that the firm routed the ISOs (if different from the execution
time).\39\ FINRA explains that firms will continue to report the time
that all material terms of the transaction are known in the ``execution
time'' field, and in the new time field (i.e., the reference or ``ISO
time'' field), firms should report the time they used to determine the
ISOs, if any, to route to any better-priced protected quotations
(sometimes referred to as the time the firm takes a ``snapshot'' of the
market).\40\ FINRA notes that, to comply with SEC Rule 611(b)(6), firms
need to utilize an automated system that is capable of ascertaining
current protected quotations and simultaneously routing the necessary
ISOs.\41\ Thus, FINRA expects the ``snapshot'' time and the time that
ISOs are routed to be the same. To the extent that these times differ,
or where multiple ISOs are routed and the route times differ, FINRA
believes that using the ``snapshot'' time in all instances will
eliminate any confusion regarding which time to report.\42\
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\38\ See FIF Letter at 1.
\39\ See FINRA Response at 4.
\40\ See id.
\41\ See id.
\42\ Id. at 5.
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FIF also questions whether report cards and matching will be
maintained at the one-second level rather than at the millisecond
level, noting that currently clocks are required to be synchronized to
within one second of the National Institute of Standards and Technology
(NIST) standard.\43\ FINRA responds that, with respect to report cards,
the determination whether a trade has been reported late will remain at
the second level for firms that report execution time in seconds, and
for firms that report time in milliseconds, the determination will be
made at the millisecond level.\44\ FINRA states that synchronization to
the NIST standard would remain at the second (and not millisecond)
level.\45\ However, FINRA notes that if a firm submits multiple reports
for the same event (e.g., a trade report and an OATS execution report),
FINRA would expect the granularity of the time stamps to be
consistent.\46\
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\43\ FIF Letter at 1.
\44\ FINRA Response at 5.
\45\ See id.
\46\ See id.
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FIF asks whether the requirement to include control numbers will be
on a ``go forward basis'' only for T+365 reporting.\47\ FINRA responds
that, in accordance with system requirements, the control number field
will be a required field for all reports of reversals following
implementation.\48\ However, FINRA will validate the control number
only where the original trade was executed after implementation of the
proposed rule change.\49\ Accordingly, when reversing trades that were
executed prior to the implementation of the proposed rule change, firms
will not be required to provide an actual control number and instead
may insert a ``dummy'' number to populate the required field.\50\
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\47\ See FIF Letter at 2.
\48\ See FINRA Response at 5.
\49\ See id.
\50\ See id.
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FIF also asks whether Form T will be retired as a result of the
proposed rule change.\51\ FINRA responds that the proposed rule change
requiring firms to report trades executed on non-business days and
T+365 trades to the FINRA Facilities will significantly reduce the need
for Form T.\52\ However, FINRA plan to retain Form T for use in
instances in which firms need to report with Form T (e.g., where the
ticker symbol for the security is no longer available or a market
participant identifier is no longer active).\53\
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\51\ See FIF Letter at 2.
\52\ See FINRA Response at 6.
\53\ See id.
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FIF questions whether there will be matching on ``step-in'' and
``step-out'' trades.\54\ FINRA responds that the FINRA Facilities that
offer matching will match corresponding ``step-out'' and ``step-in''
submissions, but will not match two ``step-in'' or two ``step-out''
submissions.\55\
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\54\ See FIF Letter at 2.
\55\ See FINRA Response at 6.
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FIF also asks whether declined trades that are corrected and
subsequently accepted are subject to the ``20 minute rule'' for trade
comparison.\56\ FINRA responds that a firm is required to accept or
decline a trade within 20 minutes after execution, and FINRA generally
expects firms to complete the process of accepting or declining a
trade, including any subsequent updates, within that time frame.\57\
FINRA reminds firms that, where the reporting party enters inaccurate
trade information, rather than declining the trade, the contra party
should submit its own correct information within 20 minutes of
execution to be in compliance with the rule.\58\
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\56\ See FIF Letter at 2.
\57\ See FINRA Response at 6.
\58\ See id.
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FIF also notes its understanding that the millisecond requirement
was not intended to introduce a significant burden on firms and that
only those systems that capture millisecond time stamps in a reportable
format are required to be reported.\59\ FINRA confirms that it is not
mandating that firms start capturing milliseconds and any such proposal
would be subject to a separate rule filing and notice and comment.\60\
However, where a firm's system captures time in milliseconds, FINRA
expects that the system will be capable of reporting in
milliseconds.\61\
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\59\ See FIF Letter at 2.
\60\ See FINRA Response at 7.
\61\ See id.
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ORF Closing Time
FIF also recommends keeping the 8:00 p.m. closing time for the ORF
to maintain consistency with FINRA's TRFs in order to reduce the
likelihood of errors, allow firms to leverage current workflows and
assist firms in resolving operational issues and completing processing
before the end of the day.\62\ In response to this concern, in
Amendment No. 1, FINRA proposes to maintain the closing time at 8:00
p.m.\63\
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\62\ See FIF Letter at 2.
\63\ See FINRA Response at 6-7.
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Implementation Effort/Time Frame
FIF recommends a nine-month implementation period following
Commission approval contingent upon the release of TRF specifications
within seven months and the availability of a robust test environment
within three
[[Page 12562]]
months of the implementation date.\64\ FINRA responds that it believes
that firms will have sufficient time to make the necessary systems
changes for the ORF implementation, currently scheduled on June 2,
2014, and for the implementation no later than September 30, 2014 for
the ADF and TRFs.\65\ FINRA notes that it will announce the
implementation dates in a Regulatory Notice.\66\
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\64\ See FIF Letter at 2-3.
\65\ See FINRA Response at 7.
\66\ See id. FINRA also notes that, pursuant to the original
filing, the proposed amendments to the OATS rules will be
implemented no later than 45 days after Commission approval.
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities exchange
and, in particular, with Section 15A(b) of the Act.\67\ In particular,
the Commission finds that the proposed rule change is consistent with
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\68\ 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.
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\67\ 15 U.S.C. 78o-3(b). In approving this proposed rule change,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
\68\ 15 U.S.C. 78o-3(b)(6).
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FINRA proposes to amend the equity trade reporting rules relating
to reporting: (i) an additional time field for specified trades; (ii)
execution time in milliseconds; (iii) reversals; (iv) trades executed
on non-business days and trades that are more than one year old; and
(v) ``step-outs.'' In addition, FINRA proposes changes in the
processing of trades that are submitted to a FINRA Facility for
clearing as well as technical changes to the rules relating to the OTC
Reporting Facility (``ORF'') and codifying existing OATS guidance
regarding reporting order event times to OATS in milliseconds. The
Commission believes that the proposed changes should enhance FINRA's
audit trail and automated surveillance program, promote more consistent
trade reporting by members, and aid in the detection of violations of
FINRA trade reporting and other rules.
The Commission notes that FIF submitted a comment letter containing
primarily clarifying questions and that FINRA submitted a response
addressing these clarifying questions. The FIF Letter requested a
substantive change to the proposal--that the ORF closing time remain 8
p.m. In its response in Amendment No. 1, FINRA proposed keeping the ORF
closing time of 8 p.m.
For the foregoing reasons, the Commission finds that the proposed
rule change is consistent with Section 15A(b)(6) of the Act and the
rules and regulations thereunder applicable to a national securities
association.\69\
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\69\ 15 U.S.C. 78o-3(b)(6).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether Amendment No. 1
is consistent with the Act. Comments may be submitted by any of the
following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-FINRA-2013-050 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-2013-050. 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 (https://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 such 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 publicly available. All
submissions should refer to File Number SR-FINRA-2013-050 and should be
submitted on or before [insert date 21 days from publication in the
Federal Register].
V. Accelerated Approval of Proposed Rule Change, as Modified by
Amendment No. 1
The Commission finds good cause for approving the proposed rule
change, as amended by Amendment No. 1 prior to the 30th day after the
date of publication of notice in the Federal Register. Amendment No. 1
proposes maintaining the current 8:00 p.m. closing time of the ORF and
includes technical amendments to update cross-references and make other
non-substantive changes to Rules 6282, 7130 and 7140 relating to the
ADF as the result of the approval of SR-FINRA-2013-053. Accordingly,
the Commission finds good cause for approving the proposed rule change,
as amended, on an accelerated basis, pursuant to Section 19(b)(2) of
the Act.\70\
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\70\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\71\ that the proposed rule change (SR-FINRA-2013-050), is hereby
approved, as modified by Amendment No. 1 on an accelerated basis.
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\71\ 15 U.S.C. 78s(b)(2).
\72\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\72\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-04792 Filed 3-4-14; 8:45 am]
BILLING CODE 8011-01-P
