Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to the Definition of “Reporting Member” in the Order Audit Trail System Rules, 30219-30221 [2014-12070]
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Federal Register / Vol. 79, No. 101 / Tuesday, May 27, 2014 / Notices
are invited to submit written data,
views, and arguments by June 26, 2014
concerning whether the proposed rule
change should be approved or
disapproved. Any person who wishes to
file a rebuttal to any other person’s
submission must file that rebuttal by
July 11, 2014. Comments may be
submitted by any of the following
methods:
rebuttal comments should be submitted
by July 11, 2014.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.24
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–12072 Filed 5–23–14; 8:45 am]
BILLING CODE 8011–01–P
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–FINRA–2014–006 on the
subject line.
sroberts on DSK5SPTVN1PROD with NOTICES
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–FINRA–2014–006. 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 principle
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–2014–006 and
should be submitted on or before July
11, 2014. If comments are received, any
Housing and Urban Affairs to Accompany S. 249,
S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975).
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19:12 May 23, 2014
Jkt 232001
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–72191; File No. SR–FINRA–
2014–024]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change Relating to the Definition
of ‘‘Reporting Member’’ in the Order
Audit Trail System Rules
May 20, 2014.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on May 12,
2014, Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I and
II 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 amend FINRA
Rule 7410 to permit members to route
orders to two Reporting Members for a
defined period of time provided certain
conditions are met without losing the
exception from the definition of
‘‘Reporting Member’’ in the Order Audit
Trail System (‘‘OATS’’) rules.
Below is the text of the proposed rule
change. Proposed new language is in
italics; proposed deletions are in
brackets.
*
*
*
*
*
7000. CLEARING, TRANSACTION
AND ORDER DATA REQUIREMENTS,
AND FACILITY CHARGES
*
*
*
*
*
24 17 CFR 200.30–3(a)(12); 17 CFR 200.30–
3(a)(57).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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30219
7400. ORDER AUDIT TRAIL SYSTEM
7410. Definitions
(a) through (n) No Change.
(o) ‘‘Reporting Member’’ shall mean a
member that receives or originates an
order and has an obligation to record
and report information under Rules
7440 and 7450.
(1) A member shall not be considered
a Reporting Member in connection with
an order, if the following conditions are
met:
(A) the member engages in a nondiscretionary order routing process,
pursuant to which it immediately
routes, by electronic or other means, all
of its orders to:
(i) a single receiving Reporting
Member; or
(ii) two receiving Reporting Members,
provided:
(a) orders are routed by the member
to each receiving Reporting Member on
a pre-determined schedule approved by
FINRA; and
(b) orders are routed to two receiving
Reporting Members pursuant to the
schedule for a time period not to exceed
one year; and
(B) the member does not direct and
does not maintain control over
subsequent routing or execution by the
receiving Reporting Member(s);
(C) the receiving Reporting Member(s)
record(s) and report(s) all information
required under Rules 7440 and 7450
with respect to the order; and
(D) the member has a written
agreement with the receiving Reporting
Member(s) specifying the respective
functions and responsibilities of each
party to effect full compliance with the
requirements of Rules 7440 and 7450.
(2) No Change.
*
*
*
*
*
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.
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Federal Register / Vol. 79, No. 101 / Tuesday, May 27, 2014 / Notices
sroberts on DSK5SPTVN1PROD with NOTICES
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
FINRA Rules 7410 through 7470 (the
‘‘OATS Rules’’) impose obligations on
FINRA members to record in electronic
form and report to FINRA on a daily
basis certain information with respect to
orders originated, received, transmitted,
modified, canceled, or executed by
members relating to OTC equity
securities and NMS stocks. OATS
captures this order information and
integrates it with quote and transaction
information to create a time-sequenced
record of orders, quotes, and
transactions. This information is then
used by FINRA staff to conduct
surveillance and investigations of
member firms for potential violations of
FINRA rules and federal securities laws.
In general, the OATS Rules apply to
any FINRA member that is a ‘‘Reporting
Member,’’ which is defined in Rule
7410 as ‘‘a member that receives or
originates an order and has an
obligation to record and report
information under Rules 7440 and
7450.’’ 3 Under Rule 7410, a member is
not considered a Reporting Member in
connection with an order if the
following four criteria are met:
• The member engages in a nondiscretionary order routing process,
pursuant to which it immediately
routes, by electronic or other means, all
of its orders to a single receiving
Reporting Member;
• The member does not direct and
does not maintain control over
subsequent routing or execution by the
receiving Reporting Member;
• The receiving Reporting Member
records and reports all information
required under Rules 7440 and 7450
with respect to the order; and
• The member has a written
agreement with the receiving Reporting
Member specifying the respective
functions and responsibilities of each
party to effect full compliance with the
requirements of Rules 7440 and 7450.4
One of the current criteria that must
be met for a member to take advantage
of the exception from the definition of
Reporting Member is that the member
immediately route orders on a nondiscretionary basis to a single receiving
Reporting Member. Thus, members will
not be excepted from the definition if
3 Rule
7410(o).
7410(o)(1). Rule 7410 also includes an
exception from Reporting Member for certain firms
who waived into FINRA membership pursuant to
NASD IM–1013–1 or NASD IM–1013–2. See Rule
7410(o)(2).
4 Rule
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they route orders to more than one
receiving firm. This exception is
generally, though not exclusively, relied
upon by introducing firms that route all
of their orders to a single clearing firm
that reports the introducing firms’
orders on their behalf. As FINRA noted
when it adopted the exception, it is
intended largely to avoid duplicative
reporting of the same order information
by two different firms and to avoid
imposing unnecessary compliance costs
and burdens on firms that route all of
their orders immediately to another
single firm that reports the information
to OATS.5
The proposed rule change would
permit a member to continue to rely on
the exception from the definition of
Reporting Member if, for a limited time,
the member routes orders to two
different Reporting Members, provided
certain criteria are met. Although not
limited to this purpose, the proposed
rule change is intended to accommodate
introducing firms that transition to a
different clearing firm over time and,
during the transition, route their orders
to two different clearing firms, both of
which report the introducing firm’s
order information to OATS during the
transition period. Without the proposed
rule change, introducing firms would be
subject to the OATS Rules during the
transition period, which is generally
less than one year. FINRA believes it is
unnecessarily burdensome to require
introducing firms to report order
information directly to OATS under
these circumstances when the transition
period is less than one year. FINRA
notes that the concern over duplicative
reporting is similarly present in the case
where all of a firm’s order information
is being reported by another Reporting
Member even if, for a limited period of
time, order information is reported by
two separate Reporting Members.
Further, FINRA believes it would be
burdensome for a member that meets
the exception to Reporting Member to
have to commence OATS reporting for
a limited period, to only later meet the
terms of the exception again.
Under the proposed rule change, a
member would remain excepted from
the definition of Reporting Member
during a transition period to a new
clearing firm when it routes to both its
former and new clearing firm provided
certain additional criteria are met in
addition to the existing criteria
necessary to meet the exception.
Specifically, under the terms of the
proposed rule change: (i) All orders
5 See Securities Exchange Act Release No. 52521
(September 28, 2005), 70 FR 57909 (October 4,
2005) (Order Approving SR–NASD–2000–23).
PO 00000
Frm 00148
Fmt 4703
Sfmt 4703
must be routed by the member to each
receiving Reporting Member on a predetermined schedule approved by
FINRA; and (ii) the orders may only be
routed to two receiving Reporting
Members pursuant to the schedule for a
time period not to exceed one year. In
addition to these additional criteria,
members must continue to meet the
existing criteria in the rule.
Under the proposed rule change,
FINRA must be notified in advance and
must approve the schedule for the
transition to a new clearing firm.6 The
time period for the transition set out in
the schedule may not exceed one year.
This requirement is necessary to ensure
that FINRA staff is aware of the
transition schedule and can ensure that
surveillance using OATS data is
conducted correctly and that order
information is properly identified. In
addition, FINRA believes that the ability
to rely on the exception should be
limited to transition periods of one year
or less. FINRA believes that members
otherwise excepted from the definition
of Reporting Member should not be
required to incur the costs associated
with OATS reporting for standard
transitions between clearing firms;
however, FINRA does not believe it is
appropriate to permit members to take
advantage of the exception and avoid
directly reporting to OATS for lengthy
periods of time (i.e., in excess of one
year) where they route orders to
multiple firms.
FINRA has filed the proposed rule
change for immediate effectiveness and
has requested that the SEC waive the
requirement that the proposed rule
change not become operative for 30 days
after the date of the filing so FINRA can
implement the proposed rule change
immediately.
2. Statutory Basis
FINRA believes that the proposed rule
change is consistent with the provisions
of Section 15A(b)(6) of the Act,7 which
requires, among other things, that
FINRA rules must be designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, and, in
general, to protect investors and the
public interest. FINRA believes that
permitting members that are excepted
from the definition of ‘‘Reporting
Member’’ to continue to rely on the
exception during a transition to another
clearing firm will avoid duplicative
order information being reported to
6 FINRA anticipates that firms would notify
FINRA by contacting OATS Operations staff by
telephone and then supplying FINRA with a copy
of the transition schedule prepared by the firm.
7 15 U.S.C. 78o-3(b)(6).
E:\FR\FM\27MYN1.SGM
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Federal Register / Vol. 79, No. 101 / Tuesday, May 27, 2014 / Notices
OATS and will avoid the imposition of
unnecessary compliance costs on
introducing firms.
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. FINRA
believes the proposed rule change will
reduce the potential burden of reporting
to OATS for a limited time for a member
that does not meet the current exception
to Reporting Member only to later meet
the terms of the exception again. FINRA
believes that, in the limited
circumstances in which the proposed
rule change will apply, members should
not be compelled to undertake the time
and costs associated with OATS
reporting when FINRA is able to ensure
the accuracy and completeness of OATS
information when the terms in the
proposed rule change are met.
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.
sroberts on DSK5SPTVN1PROD with NOTICES
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 8 and Rule 19b4(f)(6) thereunder.9
FINRA has asked the Commission to
waive the 30-day operative delay so that
the proposal may become operative
upon filing. The Commission believes
that waiving the 30-day operative delay
is consistent with the protection of
investors and the public interest as it
will allow members that currently rely
on the exception from being considered
a Reporting Member to continue to do
so for a limited period of time while
they change clearing firms, provided the
criteria in the proposed rule change are
8 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b-4(f)(6). As required under Rule
19b-4(f)(6)(iii), FINRA provided the Commission
with written notice of its intent to file the proposed
rule change, along with a brief description and the
text of the proposed rule change, at least five
business days prior to the date of filing of the
proposed rule change, or such shorter time as
designated by the Commission.
9 17
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19:12 May 23, 2014
Jkt 232001
met, thus eliminating the burden of
reporting directly to OATS for such
members and maintaining the integrity
of the OATS data. For this reason, the
Commission designates the proposed
rule change to be operative upon
filing.10
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
FINRA–2014–024 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–FINRA–2014–024. 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
10 For purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
PO 00000
Frm 00149
Fmt 4703
Sfmt 9990
30221
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
a.m. and 3 p.m. Copies of such filing
also will be available for inspection and
copying at the principal office of
FINRA. All comments received will be
posted without change; the Commission
does not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number SR–FINRA–2014–024 and
should be submitted on or before June
17, 2014.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.11
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–12070 Filed 5–23–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[File No. 500–1]
International Development and
Environmental Holdings; Order of
Suspension of Trading
May 22, 2014.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of
International Development and
Environmental Holdings (‘‘IDEH’’)
because it has not filed a periodic report
since it filed its Form 10–Q for the
period ending June 30, 2011, filed on
August 22, 2011.
The Commission is of the opinion that
the public interest and the protection of
investors require a suspension of trading
in the securities of IDEH. Therefore, it
is ordered, pursuant to Section 12(k) of
the Exchange Act, that trading in the
securities of IDEH is suspended for the
period from 9:30 a.m. E.D.T. on May 22,
2014, through 11:59 p.m. E.D.T. on June
5, 2014.
By the Commission.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2014–12255 Filed 5–22–14; 11:15 am]
BILLING CODE 8011–01–P
11 17
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CFR 200.30–3(a)(12).
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]]>Agencies
[Federal Register Volume 79, Number 101 (Tuesday, May 27, 2014)]
[Notices]
[Pages 30219-30221]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-12070]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72191; File No. SR-FINRA-2014-024]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change Relating to the Definition of ``Reporting Member''
in the Order Audit Trail System Rules
May 20, 2014.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on May 12, 2014, Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I and
II 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.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to amend FINRA Rule 7410 to permit members to
route orders to two Reporting Members for a defined period of time
provided certain conditions are met without losing the exception from
the definition of ``Reporting Member'' in the Order Audit Trail System
(``OATS'') rules.
Below is the text of the proposed rule change. Proposed new
language is in italics; proposed deletions are in brackets.
* * * * *
7000. CLEARING, TRANSACTION AND ORDER DATA REQUIREMENTS, AND FACILITY
CHARGES
* * * * *
7400. ORDER AUDIT TRAIL SYSTEM
7410. Definitions
(a) through (n) No Change.
(o) ``Reporting Member'' shall mean a member that receives or
originates an order and has an obligation to record and report
information under Rules 7440 and 7450.
(1) A member shall not be considered a Reporting Member in
connection with an order, if the following conditions are met:
(A) the member engages in a non-discretionary order routing
process, pursuant to which it immediately routes, by electronic or
other means, all of its orders to:
(i) a single receiving Reporting Member; or
(ii) two receiving Reporting Members, provided:
(a) orders are routed by the member to each receiving Reporting
Member on a pre-determined schedule approved by FINRA; and
(b) orders are routed to two receiving Reporting Members pursuant
to the schedule for a time period not to exceed one year; and
(B) the member does not direct and does not maintain control over
subsequent routing or execution by the receiving Reporting Member(s);
(C) the receiving Reporting Member(s) record(s) and report(s) all
information required under Rules 7440 and 7450 with respect to the
order; and
(D) the member has a written agreement with the receiving Reporting
Member(s) specifying the respective functions and responsibilities of
each party to effect full compliance with the requirements of Rules
7440 and 7450.
(2) No Change.
* * * * *
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.
[[Page 30220]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
FINRA Rules 7410 through 7470 (the ``OATS Rules'') impose
obligations on FINRA members to record in electronic form and report to
FINRA on a daily basis certain information with respect to orders
originated, received, transmitted, modified, canceled, or executed by
members relating to OTC equity securities and NMS stocks. OATS captures
this order information and integrates it with quote and transaction
information to create a time-sequenced record of orders, quotes, and
transactions. This information is then used by FINRA staff to conduct
surveillance and investigations of member firms for potential
violations of FINRA rules and federal securities laws.
In general, the OATS Rules apply to any FINRA member that is a
``Reporting Member,'' which is defined in Rule 7410 as ``a member that
receives or originates an order and has an obligation to record and
report information under Rules 7440 and 7450.'' \3\ Under Rule 7410, a
member is not considered a Reporting Member in connection with an order
if the following four criteria are met:
---------------------------------------------------------------------------
\3\ Rule 7410(o).
---------------------------------------------------------------------------
The member engages in a non-discretionary order routing
process, pursuant to which it immediately routes, by electronic or
other means, all of its orders to a single receiving Reporting Member;
The member does not direct and does not maintain control
over subsequent routing or execution by the receiving Reporting Member;
The receiving Reporting Member records and reports all
information required under Rules 7440 and 7450 with respect to the
order; and
The member has a written agreement with the receiving
Reporting Member specifying the respective functions and
responsibilities of each party to effect full compliance with the
requirements of Rules 7440 and 7450.\4\
---------------------------------------------------------------------------
\4\ Rule 7410(o)(1). Rule 7410 also includes an exception from
Reporting Member for certain firms who waived into FINRA membership
pursuant to NASD IM-1013-1 or NASD IM-1013-2. See Rule 7410(o)(2).
---------------------------------------------------------------------------
One of the current criteria that must be met for a member to take
advantage of the exception from the definition of Reporting Member is
that the member immediately route orders on a non-discretionary basis
to a single receiving Reporting Member. Thus, members will not be
excepted from the definition if they route orders to more than one
receiving firm. This exception is generally, though not exclusively,
relied upon by introducing firms that route all of their orders to a
single clearing firm that reports the introducing firms' orders on
their behalf. As FINRA noted when it adopted the exception, it is
intended largely to avoid duplicative reporting of the same order
information by two different firms and to avoid imposing unnecessary
compliance costs and burdens on firms that route all of their orders
immediately to another single firm that reports the information to
OATS.\5\
---------------------------------------------------------------------------
\5\ See Securities Exchange Act Release No. 52521 (September 28,
2005), 70 FR 57909 (October 4, 2005) (Order Approving SR-NASD-2000-
23).
---------------------------------------------------------------------------
The proposed rule change would permit a member to continue to rely
on the exception from the definition of Reporting Member if, for a
limited time, the member routes orders to two different Reporting
Members, provided certain criteria are met. Although not limited to
this purpose, the proposed rule change is intended to accommodate
introducing firms that transition to a different clearing firm over
time and, during the transition, route their orders to two different
clearing firms, both of which report the introducing firm's order
information to OATS during the transition period. Without the proposed
rule change, introducing firms would be subject to the OATS Rules
during the transition period, which is generally less than one year.
FINRA believes it is unnecessarily burdensome to require introducing
firms to report order information directly to OATS under these
circumstances when the transition period is less than one year. FINRA
notes that the concern over duplicative reporting is similarly present
in the case where all of a firm's order information is being reported
by another Reporting Member even if, for a limited period of time,
order information is reported by two separate Reporting Members.
Further, FINRA believes it would be burdensome for a member that meets
the exception to Reporting Member to have to commence OATS reporting
for a limited period, to only later meet the terms of the exception
again.
Under the proposed rule change, a member would remain excepted from
the definition of Reporting Member during a transition period to a new
clearing firm when it routes to both its former and new clearing firm
provided certain additional criteria are met in addition to the
existing criteria necessary to meet the exception. Specifically, under
the terms of the proposed rule change: (i) All orders must be routed by
the member to each receiving Reporting Member on a pre-determined
schedule approved by FINRA; and (ii) the orders may only be routed to
two receiving Reporting Members pursuant to the schedule for a time
period not to exceed one year. In addition to these additional
criteria, members must continue to meet the existing criteria in the
rule.
Under the proposed rule change, FINRA must be notified in advance
and must approve the schedule for the transition to a new clearing
firm.\6\ The time period for the transition set out in the schedule may
not exceed one year. This requirement is necessary to ensure that FINRA
staff is aware of the transition schedule and can ensure that
surveillance using OATS data is conducted correctly and that order
information is properly identified. In addition, FINRA believes that
the ability to rely on the exception should be limited to transition
periods of one year or less. FINRA believes that members otherwise
excepted from the definition of Reporting Member should not be required
to incur the costs associated with OATS reporting for standard
transitions between clearing firms; however, FINRA does not believe it
is appropriate to permit members to take advantage of the exception and
avoid directly reporting to OATS for lengthy periods of time (i.e., in
excess of one year) where they route orders to multiple firms.
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\6\ FINRA anticipates that firms would notify FINRA by
contacting OATS Operations staff by telephone and then supplying
FINRA with a copy of the transition schedule prepared by the firm.
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FINRA has filed the proposed rule change for immediate
effectiveness and has requested that the SEC waive the requirement that
the proposed rule change not become operative for 30 days after the
date of the filing so FINRA can implement the proposed rule change
immediately.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\7\ which requires, among
other things, that FINRA rules must be designed to prevent fraudulent
and manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest. FINRA believes that permitting members that are
excepted from the definition of ``Reporting Member'' to continue to
rely on the exception during a transition to another clearing firm will
avoid duplicative order information being reported to
[[Page 30221]]
OATS and will avoid the imposition of unnecessary compliance costs on
introducing firms.
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\7\ 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. FINRA believes the proposed
rule change will reduce the potential burden of reporting to OATS for a
limited time for a member that does not meet the current exception to
Reporting Member only to later meet the terms of the exception again.
FINRA believes that, in the limited circumstances in which the proposed
rule change will apply, members should not be compelled to undertake
the time and costs associated with OATS reporting when FINRA is able to
ensure the accuracy and completeness of OATS information when the terms
in the proposed rule change are met.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received from Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \8\ and Rule 19b-
4(f)(6) thereunder.\9\
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\8\ 15 U.S.C. 78s(b)(3)(A).
\9\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), FINRA provided the Commission with written notice of
its intent to file the proposed rule change, along with a brief
description and the text of the proposed rule change, at least five
business days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the Commission.
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FINRA has asked the Commission to waive the 30-day operative delay
so that the proposal may become operative upon filing. The Commission
believes that waiving the 30-day operative delay is consistent with the
protection of investors and the public interest as it will allow
members that currently rely on the exception from being considered a
Reporting Member to continue to do so for a limited period of time
while they change clearing firms, provided the criteria in the proposed
rule change are met, thus eliminating the burden of reporting directly
to OATS for such members and maintaining the integrity of the OATS
data. For this reason, the Commission designates the proposed rule
change to be operative upon filing.\10\
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\10\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-FINRA-2014-024 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2014-024. 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
a.m. and 3 p.m. Copies of such filing also will be available for
inspection and copying at the principal office of FINRA. All comments
received will be posted without change; the Commission does not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-FINRA-2014-024 and should be
submitted on or before June 17, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-12070 Filed 5-23-14; 8:45 am]
BILLING CODE 8011-01-P
