Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 7710 Relating to Fees for the OTC Reporting Facility and Delete Rule 7740 Relating to Historical Research and Administrative Reports, 41711-41717 [2014-16824]
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Federal Register / Vol. 79, No. 137 / Thursday, July 17, 2014 / Notices
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the ICC EOD Pricing Policy to replace
references to the ‘‘then-current market
price’’ with the requirement that
unwind transactions be executed in a
competitive manner. Further, ICC
proposes via this rule change to add the
requirement that, upon request, CPs be
able to demonstrate to ICC’s satisfaction
that such unwind transaction was
executed in a competitive manner.
Additionally, ICC proposes to add a
non-exclusive list of examples of how
CPs may be able to demonstrate
competitive execution of unwind
transactions, for example: (i) Execution
on an available trading venue (e.g., a
SEF or DCM); (ii) multiple dealer quotes
received and execution of the unwind
transaction at the best quoted price; or
(iii) placement of the unwind
transaction with an interdealer broker
with price terms and instructions
commensurate with a competitive
execution.
III. Discussion and Commission
Findings
Section 19(b)(2)(C) of the Act 4 directs
the Commission to approve a proposed
rule change of a self-regulatory
organization if the Commission finds
that such proposed rule change is
consistent with the requirements of the
Act and the rules and regulations
thereunder applicable to such selfregulatory organization. Section
17A(b)(3)(F) of the Act 5 requires, among
other things, that the rules of a clearing
agency are designed to promote the
prompt and accurate clearance and
settlement of securities transactions
and, to the extent applicable, derivative
agreements, contracts, and transactions,
to assure the safeguarding of securities
and funds which are in the custody or
control of the clearing agency or for
which it is responsible and, in general,
to protect investors and the public
interest.
The Commission finds that the
proposed revision to ICC’s EOD Pricing
Policy is consistent with the
requirements of the Act and the rules
and regulations thereunder applicable to
ICC, in particular, to Section
17(A)(b)(3)(F).6 The Commission finds
that the update to ICC’s EOD Pricing
Policy regarding Firm Trade unwind
transactions clarifies the policy while
maintaining the same or similar level of
incentive for CPs to provide quality
price submissions. Because of the
clarification of the Firm Trade unwind
requirements and the potential increase
in the enforceability thereof, CPs may
4 15
5 15
U.S.C. 78s(b)(2)(C).
U.S.C. 78q–1(b)(3)(F).
6 Id.
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Jkt 232001
have a greater incentive to submit
quality price submissions. Since quality
price submissions are an integral part of
the end-of-day pricing process, the
Commission finds that the proposed
rule change therefore promotes the
prompt and accurate clearance and
settlement of securities transactions
and, to the extent applicable, derivative
agreements, contracts and transactions
and contributes to the safeguarding of
securities and funds which are in the
custody or control of ICC or for which
it is responsible in a manner consistent
with the Act and the regulations
thereunder applicable to ICC.
IV. Conclusion
On the basis of the foregoing, the
Commission finds that the proposal is
consistent with the requirements of the
Act and in particular with the
requirements of Section 17A of the Act 7
and the rules and regulations
thereunder.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,8 that the
proposed rule change (File No. SR–ICC–
2014–07) be, and hereby is, approved.9
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.10
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–16785 Filed 7–16–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–72595; File No. SR–FINRA–
2014–032]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Rule 7710
Relating to Fees for the OTC Reporting
Facility and Delete Rule 7740 Relating
to Historical Research and
Administrative Reports
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 July 2,
2014, Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’) filed with the
7 15
U.S.C. 78q–1.
U.S.C. 78s(b)(2).
9 In approving the proposed rule change, the
Commission considered the proposal’s impact on
efficiency, competition and capital formation. 15
U.S.C. 78c(f).
10 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
8 15
Frm 00042
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I, II,
and III below, which Items have been
prepared by FINRA. FINRA has
designated the proposed rule change as
constituting a ‘‘non-controversial’’ rule
change under paragraph (f)(6) of Rule
19b–4 under the Act,3 which renders
the proposal effective upon receipt of
this filing by the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
FINRA is proposing to amend Rule
7710 (OTC Reporting Facility) relating
to fees for the OTC Reporting Facility
(‘‘ORF’’) and delete Rule 7740
(Historical Research and Administrative
Reports) upon migration of the ORF to
FINRA’s Multi-Product Platform
(‘‘MPP’’).
The text of the proposed rule change
is available on FINRA’s Web site at
https://www.finra.org, at the principal
office of FINRA and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
FINRA included statements concerning
the purpose of and basis for the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. FINRA has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
July 11, 2014.
PO 00000
41711
Fmt 4703
Sfmt 4703
The ORF is the FINRA facility used by
members to report transactions in OTC
Equity Securities, as defined in Rule
6420 (i.e., equity securities that are not
NMS stocks), and transactions in
Restricted Equity Securities, as defined
in Rule 6420, effected pursuant to
Securities Act Rule 144A.4 Currently,
the ORF utilizes technology provided by
The NASDAQ OMX Group, Inc.
(‘‘NASDAQ’’) that is based on
NASDAQ’s proprietary Automated
3 17
4 17
E:\FR\FM\17JYN1.SGM
CFR 240.19b–4(f)(6).
CFR 230.144A.
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Confirmation Transaction (‘‘ACT’’)
platform.
The MPP is a platform owned by
FINRA and developed by NASDAQ, as
FINRA’s technology service provider,
that consolidates FINRA’s technology
for gathering and disseminating trade
execution and, where applicable,
quotation data, conducting trade
comparisons and gathering associated
regulatory data for debt and equity
securities. FINRA’s Alternative Display
Facility (‘‘ADF’’), which is a quotation
display and trade reporting facility for
OTC transactions in NMS stocks, and
FINRA’s Trade Reporting and
Compliance Engine (‘‘TRACE’’), which
is the facility for reporting OTC
transactions in eligible fixed income
securities, currently operate on the
MPP. Prior to migration to the MPP,
TRACE, ADF and ORF operated on
separate technology platforms.5 As
described more fully below, member
firms currently can elect to access
TRACE and the ADF via a web browser
on the MPP and also have the option of
receiving ADF and TRACE data via
trade journals through FINRA’s
Automated Data Delivery Service
(‘‘FINRA ADDS’’). FINRA will expand
these optional services to the ORF upon
migration to the MPP.
The ORF will migrate to the MPP on
September 15, 2014 and as of that date
will no longer operate on the ACT
platform.6 Accordingly, FINRA is
proposing to (1) adopt fees for web
browser access to the ORF and for realtime ‘‘time and sales’’ ORF data through
the web browser; (2) enhance FINRA
ADDS to include ORF data for ORF
participants and clearing firms and to
adopt fees for such services; (3) amend
Rule 7710 relating to transaction
reporting fees to clarify the application
of the rule, without modifying the fee
amounts specified in the rule; and (4)
delete Rule 7740 relating to historical
reports.
5 While TRACE, ADF and ORF will operate
completely on the MPP, including their front-end
user-facing systems, two additional FINRA
facilities—the FINRA/Nasdaq Trade Reporting
Facility (‘‘FINRA/Nasdaq TRF’’) and FINRA/NYSE
Trade Reporting Facility (‘‘FINRA/NYSE TRF’’),
established in conjunction with NASDAQ and
NYSE, as the Business Members, respectively, for
reporting OTC transactions in NMS stocks—will
use the MPP only to submit audit trail data to
FINRA Market Regulation. The front-end userfacing systems of the TRFs will not be on the MPP,
but instead will continue to be separately provided
by the TRF Business Members.
6 FINRA has provided firms with extensive
information relating to ORF migration on its Web
site at www.finra.org/Industry/Compliance/
MarketTransparency/ORF/P470179.
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Proposed Web Browser Access Fees
Today, most firms report trades to the
ORF on an automated basis via a
computer-to-computer interface
(‘‘CTCI’’). However, firms also have the
option of reporting trades to the ORF
through a web browser. Any firm that
chooses to use the web browser today
must subscribe to NASDAQ’s ACT
Workstation product and pay the
associated fees charged by NASDAQ
under NASDAQ rules.7 Following
migration of the ORF from the ACT
platform to the MPP, ORF participants
will use FINRA’s web browser for
accessing the ORF on the MPP; firms
will no longer use the ACT
Workstation.8 As noted above, FINRA
currently offers web browser access to
TRACE and the ADF on the MPP.
FINRA provides two levels of web
browser access for TRACE (with Level I
offering trade reporting and trade
management functionality, and Level II
offering trade reporting and trade
management functionality plus access to
real-time ‘‘time and sales’’ TRACE data).
For the ADF, FINRA provides one level
of web browser access, i.e., trade
reporting and trade management
functionality.9
FINRA is proposing to offer two levels
of web browser access to the ORF: Level
I (Trade Report or Clearing Firm View
Only) access and Level II (Full Service)
access. Level I access permits a member
e.g., NASDAQ Rule 7015 (Access Services).
addition to web browser access, members can
report trades to the ORF via CTCI (as noted above),
a Financial Information eXchange (‘‘FIX’’) line or
indirectly via third party intermediaries (e.g.,
service bureaus). Today, firms utilize NASDAQ’s
services (e.g., for CTCI) and pay the associated fees
under NASDAQ rules. See, e.g., NASDAQ Rule
7015. FINRA notes that, following migration to the
MPP, members will continue to be able to connect
to the ORF using any of these three methods;
however, FINRA is not proposing to charge a
connectivity fee under FINRA rules at this time.
Firms that report to the ORF via CTCI or FIX—
either directly or indirectly through third party
intermediaries—will pay NASDAQ, as FINRA’s
technology service provider for the MPP, charges
associated with FIX and CTCI ports to connect to
the ORF data center, as they do today.
9 As discussed in FINRA’s proposed rule change
relating to ADF fees, FINRA does not offer Level II
web browser access for the ADF. See Securities
Exchange Act Release No. 71528 (February 12,
2014), 79 FR 9550 (February 19, 2014) (Notice of
Filing and Immediate Effectiveness; File No. SR–
FINRA–2014–007). As described in that filing,
TRACE is the sole platform for the reporting of
fixed income trades and therefore, the transaction
data that is provided through the Level II access is
already available to FINRA. In contrast, offering all
real-time NMS transaction data through the ADF
web browser would entail gathering such
information from the relevant Securities
Information Processors (‘‘SIPs’’).
As with TRACE, the ORF is the sole platform for
reporting transactions in OTC Equity Securities,
and as such, the transaction data is already
available to FINRA. Therefore, FINRA is able to
offer Level II web browser access for the ORF.
PO 00000
7 See,
8 In
Frm 00043
Fmt 4703
Sfmt 4703
to report transactions to the ORF via the
web browser. In addition to reporting
trades through the web browser,
members will be able to access Trade
Management functions, such as trade
reconciliation, cancel and correct, will
have access to reference data such as the
Security Daily List and will be able to
access their trade data for the current
trading day plus three prior days.
Clearing member firms also can
subscribe to Level I web browser access
to view data regarding their
correspondents’ trades reported to the
ORF associated with the subscribing
clearing firm’s Clearing Number.10
Clearing firms have this ability today via
the ACT Workstation and have
requested similar functionality upon
migration of the ORF to the MPP. With
Level I web browser access, clearing
firms will be able to access their
correspondents’ trade data for the
current trading day plus three prior
days.11 Clearing firms will only be able
to view their correspondents’ data,
including, e.g., trades for which their
correspondents are the reporting party
as well as the contra party, open trades,
declined trades, etc., and also reference
data. Level I web browser access for
clearing firms will not include the other
Trade Management functions described
above, e.g., a clearing firm will not be
able to cancel or correct trades on behalf
of its correspondents. FINRA notes that
clearing firms currently do not have web
browser access to view their
correspondents’ ADF and TRACE trade
data.
Pursuant to proposed Rule 7710(b)(1),
FINRA is proposing to charge $20 per
month per user ID for Level I (Trade
Report or Clearing Firm View Only) web
browser access to the ORF. The
proposed fee is identical to the fee
currently charged under Rule 7510(c)(1)
for web browser access and similar trade
management functionality for the ADF,
and under Rule 7730(a)(1) for Level I
Trade Report Only web browser access
and trade management functionality for
TRACE.12
Level II (Full Service) web browser
access permits the reporting of
10 Clearing member firms have unique Clearing
Numbers that their correspondents use to identify
the clearing firm associated with each trade.
11 FINRA notes that under the terms of the FINRA
Participant Agreement signed by members prior to
reporting to the ORF, FINRA has ownership of the
data submitted to the ORF and may use it for any
purpose FINRA deems necessary. Thus, FINRA
does not believe it would be necessary to obtain
additional specific permission from correspondents
before providing their ORF trade data to their
clearing firms.
12 FINRA notes that a member that utilizes the
TRACE web browser, the ADF web browser and the
ORF web browser would pay three separate fees
under Rules 7730(a)(1), 7510(c)(1) and 7710(b).
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transactions to the ORF and related
Trade Management functionality, as
discussed above, as well as access to
real-time ‘‘time and sales’’ ORF data for
a given security through the web
browser. Specifically, firms will be able
to query—by security symbol and trade
date—for the following real-time ORF
data: (1) Trade details for disseminated
trades in a given time period, which
data will include the 52-week high and
low prices and the dates such prices
were attained; (2) the daily high price,
low price, last sale price, most recent
trade price and volume in a given time
period; and (3) the weekly high price,
low price and volume in a given time
period, including the dates the high and
low prices were attained.13 As noted
above, FINRA currently offers Level II
web browser access for TRACE, which
enables firms to conduct similar queries
(by CUSIP and trade date) for TRACE
transaction data.
Pursuant to proposed Rule 7710(b)(2),
FINRA is proposing to charge $25 per
month per user ID for Level II web
browser access to the ORF, i.e., $20 for
Level I access plus an additional $5 for
access to the ‘‘time and sales’’ function
of the web browser. While the data
query functionality of the web browser
will be comparable for ORF and TRACE
data, FINRA is not proposing to mirror
the fee structure for TRACE Level II
access. Among other things, the fees for
TRACE Level II access reflect the fact
that there are multiple data sets
available for TRACE (e.g., Corporate
Bond Data Set, Agency Data Set, etc.).14
Since there is only one data set for ORF,
FINRA believes that a flat fee is
appropriate. In addition, given that
there are other sources for ORF data, i.e.,
the above-referenced UTP SIP Level I
13 FINRA notes that firms that subscribe to the
UTP SIP Level I entitlement receive the real-time
OTC Bulletin Board (‘‘OTCBB’’) quote feed (or
BBDS) and real-time ORF transaction feed (or
TDDS), in addition to other data. The proposed rule
change would not impact a firm’s subscription to
UTP SIP Level I data or fees for such data. Effective
January 1, 2014, the professional subscriber fee was
increased from $20 to $23 per subscriber per month.
See UTP Vendor Alert #2013—10 (September 26,
2013), available at www.nasdaqtrader.com/
TraderNews.aspx?id=uva2013-10.
While a Level II web browser subscriber will be
able to see all ORF trades at the time of the query
in a specific security, the subscriber will not see the
continuous TDDS data feed, and the web browser
will not include quote data from the BBDS. Thus,
FINRA believes that subscribers most likely will use
the ORF ‘‘time and sales’’ data for middle and back
office functions such as trade reconciliation and
compliance.
14 Under Rule 7730(a)(1)(B), the fee for Level II
Full Service web browser access for TRACE is $50
per month for one data set or $80 per month for two
data sets for the first or a single user ID; and for
additional user IDs, the fee is $80 per month per
user ID for one data set or $140 per month per user
ID for two data sets.
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15:01 Jul 16, 2014
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entitlement, and given the current fees
for such data, FINRA believes that the
proposed fee of $25 for Level II web
browser access for the ORF (i.e., $20 for
Level I access plus an additional $5 for
data access) is reasonable.
Proposed Fees for ORF Data Through
FINRA’s Automated Data Delivery
Service
FINRA ADDS is a secure Web site that
provides members, by market
participant identifier (‘‘MPID’’), access
to trade journal files containing key
information regarding the member’s
trades reported to FINRA. Members use
the trade journal files to reconcile the
trade information captured by their own
systems against the information
captured by the FINRA trade reporting
systems. Currently, FINRA ADDS makes
recent ADF and TRACE trade journals
available for free through the FINRA
ADDS Web site and offers subscribers
the option of receiving historical data
and retrieving data automatically via
Secure File Transfer Protocol (‘‘SFTP’’)
for a fee. FINRA is proposing to enhance
FINRA ADDS to include ORF data, to be
delivered in the same format and via the
same two methods currently used for
TRACE and ADF data, and charge fees
for such data pursuant to proposed
paragraph (c) of Rule 7710.
Under proposed Rule 7710(c)(1),
FINRA will provide member subscribers
with their own trade data (as FINRA
ADDS currently does for TRACE and the
ADF). The ORF trade journals provided
through FINRA ADDS will replace the
equity trade journals for ORF currently
provided by NASDAQ. Through the
FINRA ADDS Web site, a member will
have access to ORF trade data associated
with its MPID for the three prior
business days free of charge without
having to subscribe to the additional
optional data services discussed below.
As noted above, firms that have web
browser access will also be able to
download up to three days’ worth of
their prior day ORF trade data through
the Trade Management functionality on
the MPP at no additional charge (once
the firm has paid any applicable fees,
e.g., for ORF web browser access);
however, the data will not be in same
format as available through FINRA
ADDS.15
15 Specifically, the Trade Management data
through the web browser will be ‘‘living’’ for three
days after trade date (T+3), whereas FINRA ADDS
files will be produced at the end of the trading day
and will not change (e.g., to reflect trades that were
subsequently canceled or corrected). For example,
on Wednesday, a member firm cancels a trade that
it executed on Monday. Through FINRA ADDS, the
member will see the trade from Monday, with no
indication that the trade was subsequently
canceled. Through Trade Management, the status of
PO 00000
Frm 00044
Fmt 4703
Sfmt 4703
41713
Through FINRA ADDS, members can
access their own data for dates older
than the most recent three business days
for a monthly fee, if they elect to
subscribe to receive this additional data
through FINRA ADDS (referred to as
‘‘ORF Data Delivery Plus’’ service).16
The fee will be charged per month to an
MPID that is a subscriber for ORF Data
Delivery Plus reports (‘‘Plus Reports’’),
which will be provided in response to
requests by the MPID.17 The proposed
fees under Rule 7710(c)(1)(A) are based
on (1) the average number of
transactions reported to the ORF per
month to which the MPID was a party
in the prior calendar year, which
number is used to assign the MPID to
one of four tiers 18 and (2) the number
of Plus Reports the subscriber receives
in a month.19 The proposed fees range
from a low of $10 (for a member in the
lowest tier 20 requesting up to five Plus
Reports per month) to a high of $100 a
month (for a member in the highest
tier 21 requesting more than 25 Plus
Reports per month). The proposed fee
schedule for ORF data is identical to the
current fee schedule for TRACE data
through FINRA ADDS under Rule
7730(g)(1); however, given the
significantly higher volume of trades
reported to the ORF, the proposed tiers
under Rule 7710(c)(1)(A) are not
the trade will be updated from ‘‘New’’ to
‘‘Canceled.’’ FINRA notes that firms that report
trades via CTCI, a FIX line or a third party
intermediary may have additional options for
accessing their trade data, e.g., a firm that uses FIX
could elect to receive ‘‘drop copies’’ of individual
trade reports.
16 Subscribers ultimately will be able to access up
to two years of trade journal files.
17 To access trade information for multiple
MPIDs, a firm must obtain a subscription for each
MPID.
18 Once assigned to a tier, a subscriber remains in
the tier for the remainder of the calendar year. For
example, an MPID that subscribes in September
2014 will be assigned to a tier based upon the ORF
transactions reported in 2013 in which the MPID
was a party, and will remain in that tier until
December 31, 2014. In 2015, the MPID will be reevaluated and assigned to a tier for 2015 fee
purposes, based upon the MPID’s ORF trades in
2014. Where there is no historical data associated
with an MPID (e.g., the MPID is new), the lowest
tier would apply.
19 A subscriber’s fee will be assessed each month
and accordingly may vary during a calendar year,
depending on the number of reports FINRA makes
available to the subscriber in response to the
subscriber’s requests. The ORF Data Delivery Plus
fee is based upon the number of reports provided
to avoid charging for data requests that FINRA may
be unable to provide (e.g., a request for data that
pre-dates migration of the ORF to the MPP).
20 The lowest tier, Tier 4, applies to members
with an average of fewer than 1,000 transactions per
month to which the member was a party in the
prior calendar year.
21 The highest tier, Tier 1, applies to members
with an average of 50,000 or more transactions per
month to which the member was a party in the
prior calendar year.
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Federal Register / Vol. 79, No. 137 / Thursday, July 17, 2014 / Notices
identical to the tiers under Rule
7730(g).22
Members also will have the option of
subscribing to the SFTP service for ORF
trade data, which will enable them to
automate the process of retrieving their
daily trade journal files. Files will be
made available on a daily basis to firms
that subscribe to the ORF Data Delivery
SFTP service, and firms will be able to
connect to FINRA ADDS via SFTP to
download their data. Pursuant to
proposed Rule 7710(c)(1)(B), FINRA is
proposing to charge the following fees to
members that elect to receive ORF data
via SFTP: (1) A one-time set up fee of
$250 for each MPID that subscribes to
the service and (2) a monthly fee of $200
per MPID that subscribes to the service.
The proposed fees are identical to the
current fees charged under Rules
7510(d)(2) and 7730(g)(2) for SFTP
delivery of ADF and TRACE data,
respectively, through FINRA ADDS.
Thus, firms have the option of
subscribing to FINRA ADDS for their
ORF, ADF and TRACE trade data and
can select the data delivery method that
best suits their needs.23 For example, a
firm may subscribe to the ORF Data
Delivery SFTP service for automated
retrieval of its data to enable its back
office to reconcile transaction and
clearing data captured by its own
systems and the ORF, while another
firm may subscribe to the ORF Data
Delivery Plus service if it does not need
automated data retrieval, but wants the
ability to look up its historical trade
data and does not have all of that data
stored in its own systems.
Under proposed Rule 7710(c)(2),
member clearing firms that elect to
subscribe to FINRA ADDS will have
access to data regarding their
correspondents’ clearing eligible trades
reported to the ORF associated with the
subscribing clearing firm’s Clearing
Number. FINRA is providing this data at
the request of clearing firms, and it will
replace the clearing firm trade journal
files for ORF currently provided by
NASDAQ. Similar to the ORF data
provided to firms under proposed Rule
7710(c)(1), ORF data for clearing firms
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22 FINRA
notes that the fee schedule for ADF data
through FINRA ADDS under Rule 7510(d)(1) is
identical to the proposed fee schedule for Tier 1
ORF data and the existing fee schedule for Tier 1
TRACE data through FINRA ADDS; however,
FINRA did not further divide the ADF fees into
tiers, as there is not currently a baseline of
transaction activity from which FINRA can
establish such thresholds. See Securities Exchange
Act Release No. 71528 (February 12, 2014), 79 FR
9550 (February 19, 2014) (Notice of Filing; File No.
SR–FINRA–2014–007).
23 FINRA notes that a member that subscribes to
FINRA ADDS for TRACE, ADF and ORF data would
pay three separate fees under Rules 7730(g), 7510(d)
and 7710(c).
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15:01 Jul 16, 2014
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will be available through the FINRA
ADDS Web site and via SFTP. Through
the FINRA ADDS Web site, a clearing
firm will have access to its
correspondents’ ORF trade data
associated with its Clearing Number for
the three prior business days free of
charge without having to subscribe to
the additional optional data services
discussed below.24
Through FINRA ADDS, clearing firms
can access their correspondents’ data for
dates older than the most recent three
business days for a monthly fee.
Pursuant to proposed Rule
7710(c)(2)(A), clearing firms that
subscribe to access data via the Web site
(‘‘Clearing Data Delivery Plus’’ access)
will be charged a flat fee of $150 per
Clearing Number 25 per month,
irrespective of the number of reports
received. FINRA believes that it is
appropriate to charge a flat fee for
Clearing Data Delivery Plus; the small
number of clearing firms relative to the
number of ORF participants is not
conducive to establishing tiers based on
transaction activity or number of
correspondents. Pursuant to proposed
Rule 7710(c)(2)(B), clearing firms that
subscribe to the SFTP service (‘‘Clearing
Data Delivery SFTP’’) will be charged a
one-time start-up fee of $250 per
Clearing Number and a fee of $300 per
month per Clearing Number. The onetime start-up fees under proposed
paragraphs (c)(1)(B)(i) and (c)(2)(B)(i) for
firms receiving their own ORF trade
data and clearing firms receiving their
correspondents’ ORF trade data are
identical. However, the higher monthly
fee for receiving automated clearing firm
trade journals via SFTP under proposed
paragraph (c)(2)(B)(ii) (compared to the
fee for receiving firm trade journals via
SFTP under proposed paragraph
(c)(1)(B)(ii)) reflects the more complex
queries, and in some cases, larger data
sets associated with clearing firm trade
journals. FINRA notes that clearing firm
trade journals are not offered for TRACE
or the ADF because currently these
facilities do not send any of their
participants’ trades to clearing.26
24 As discussed above, clearing firms that
subscribe to Level I web browser access under
proposed Rule 7710(b) also will be able to
download up to three days’ worth of their
correspondents’ prior day ORF trade data at no
additional charge.
25 To access trade information for multiple
Clearing Numbers, a firm must obtain a
subscription for each Clearing Number.
26 FINRA further notes that the proposed fees are
less than the current fees for clearing firm trade
journals provided by NASDAQ, which fees range
from $750 per month to $1,750 per month under
NASDAQ Rule 7060, although these fees also
include data for a larger universe of transactions
(i.e., ORF, FINRA/Nasdaq TRF and NASDAQ
Market Center).
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The proposed fees for ORF web
browser access, including access to realtime ‘‘time and sales’’ data, and ORF
data via FINRA ADDS would allow
FINRA to recoup some of the costs of
developing and maintaining these
services for the ORF on the MPP.
Although FINRA already provides web
browser access and data for TRACE and
the ADF through FINRA ADDS, FINRA
will incur additional development and
maintenance costs to add ORF to these
services. Any time that a new type of
data—in this instance ORF data—is
added, there is additional development
cost to modify the Web site so that users
can access that data. Additionally, each
new type of data increases the volume
of data that FINRA’s systems must store
in order to make it available for
subscribers, i.e., there would be no need
for FINRA ADDS to consume and store
ORF data if it were not being made
available to firms. FINRA believes that
extending the availability of these
optional services to ORF participants
and their clearing firms will provide
firms with the enhanced tools to meet
their trade reporting and trade
management obligations without
placing significant financial or
operational burdens on them.
FINRA staff discussed the proposed
fees under Rules 7710(b)(1) and (c)(1)
with several of FINRA’s industry
advisory committees. The committees
were supportive and had a few
clarifying questions. One committee
member asked whether the proposed
fees effectively are a fee reduction for
firms, given that the proposed fees are
lower than the current NASDAQ fees.
FINRA notes that it will be a reduction
for members that only report trades to
the ORF; however, members that also
report trades to the FINRA/Nasdaq
TRF 27 would still be subject to
NASDAQ’s fees (e.g., for the ACT
Workstation for purposes of reporting to
the FINRA/Nasdaq TRF). Another
committee member asked whether
FINRA would reduce the proposed fees,
if they were considered to be too high.
FINRA notes that it evaluates its fees on
an ongoing basis, and if any fees are
determined to be unreasonable or not
equitably allocated among members,
FINRA would revisit them.
Proposed Amendments to Existing
Transaction Reporting Fees
FINRA is proposing to amend Rule
7710 to clarify the rule’s application
without modifying the transaction
27 As previously noted, the FINRA/Nasdaq TRF is
a FINRA facility for reporting OTC trades in NMS
stocks. The front-end user-facing system is provided
by NASDAQ, as the TRF Business Member, and
operates on NASDAQ’s ACT technology platform.
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reporting fee amounts specified in the
rule.28 First, FINRA is proposing to
clarify that in the case of trades where
the same market participant is on both
sides of a trade report (e.g., a cross
transaction, which can be reported with
the Executing Party’s MPID on both
sides of the trade), applicable fees
assessed on a ‘‘per side’’ basis will be
assessed once, rather than twice, and
the market participant will be assessed
applicable charges as the Executing
Party side only.29 The proposed rule
text is identical to the text of current
Rule 7620A relating to fees for reporting
to the FINRA/Nasdaq TRF and is
consistent with the manner in which
trades reported to the ORF are billed
today.
Second, FINRA is proposing to clarify
that trades reported for regulatory
purposes only (i.e., trades that are
submitted neither for public
dissemination nor clearing through the
ORF, also referred to as ‘‘non-tape, nonclearing reports’’) are not assessed a fee.
The proposed amendment would codify
FINRA’s current billing methodology as
set forth in NASD Notice to Members
(‘‘NTM’’) 00–79 (November 2000).30
Third, FINRA is proposing to amend
the provision of Rule 7710 that imposes
a ‘‘Late Report—T+N’’ fee of $0.288 on
each party to a late trade report that is
submitted one or more days after trade
date (T+N).31 Under the proposed rule
change, the Late Report—T+N fee
(which will remain set at $0.288) will be
imposed only on the ‘‘Executing Party,’’
as defined for purposes of Rule 7710 in
the proposed Supplementary Material.
The responsibility for reporting trades is
28 FINRA also is proposing to designate the
current text of Rule 7710 as new paragraph (a)
(Transaction Related Charges).
29 FINRA also is proposing to adopt
Supplementary Material that defines ‘‘Executing
Party (EP)’’ for purposes of Rule 7710 as the
member with the trade reporting obligation under
FINRA rules. Under Rule 6622(b), in a trade
between a member and non-member or customer,
the member has the obligation to report the trade,
and in a trade between two members, the member
that receives an order for handling or execution or
is presented an order against its quote, does not
subsequently re-route the order, and executes the
transaction, has the obligation to report the trade.
30 NTM 00–79 announced new requirements for
riskless principal trade reporting and noted that
‘‘[n]o ACT fee will be assessed for the non-tape,
non-clearing report. An ACT fee will be assessed for
the clearing-only report, however, because the firm
is receiving clearing services in connection with the
report.’’
31 Under FINRA rules, trades that are executed
between 8:00 p.m. and midnight and trades that are
executed on non-business days (pursuant to
amendments approved, but not yet effective, under
SR–FINRA–2013–050) must be reported by 8:15
a.m. the next business day following execution.
Such T+N trades are timely and will not be assessed
the late fee under Rule 7710. All other T+N trades
are late under FINRA rules and as such are subject
to this fee.
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imposed on only one party to the trade,
and as such, FINRA believes that the
Late Report—T+N trade report fee
should only be imposed on one party to
the trade as well. The proposed rule
change would ensure that the contra
party to a trade is not subject to a fee
due to late trade reporting by the
Executing Party. The proposed
amendment is identical to Rule 7620A
relating to fees for the FINRA/Nasdaq
TRF.
Fourth, FINRA is proposing to delete
the ‘‘Query’’ charge under Rule 7710,
which relates to functionality that is
specific to ACT and will not apply on
the MPP. Upon migration of the ORF to
the MPP, members will be able to search
for their trades, but there will be no
charge for such functionality. In
addition, FINRA is proposing to amend
Rule 7710 to clarify that the Corrective
Transaction Charge applies to ‘‘Cancel/
Correct’’ transactions only. The ORF
will no longer support ‘‘Error, Inhibit,
Kill, or No/Was’’ transactions, which are
ACT-specific.
Finally, FINRA notes that Rule 7710
currently provides that transactions that
are not subject to comparison 32 through
the ORF will be charged a fee of $0.029
per side. FINRA is not proposing to
amend the text of this provision.
However, in the course of a recent
review of ORF billing methodology,
FINRA determined that, with respect to
a limited subset of trades, this fee
currently is not charged in strict
conformance with the rule. Specifically,
for ‘‘tape only’’ transactions between
two FINRA members (i.e., transactions
that are reported for public
dissemination purposes and are not
cleared through the ORF or locked-in
via AGU or QSR), only the reporting
party currently is charged. The contra
party is not charged for such
transactions, notwithstanding that the
rule states that the fee applies to both
sides of the transaction. Upon migration
of the ORF to the MPP, FINRA intends
to charge this fee in accordance with the
express terms of the rule. Accordingly,
both sides of the trade will be charged
for all transactions reported to the ORF
that are not subject to comparison,
including all ‘‘tape only’’ trades that are
not cleared through the ORF, as well as
trades that are cleared through the ORF
and locked-in via AGU or QSR
32 Transactions that are not subject to comparison
include trades that are not cleared through the ORF
and trades that are locked-in for clearing at the time
of submission via an automatic give-up agreement
(‘‘AGU’’) or qualified special representative
(‘‘QSR’’) agreement.
PO 00000
Frm 00046
Fmt 4703
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41715
agreements.33 Although the rule
language will remain unchanged, some
firms that are identified as the contra
party on trade reports submitted to the
ORF may see an increase in their fees.34
FINRA will contact the firms that will
be most affected by the change in billing
methodology to make them aware of the
potential increase in their invoices.35
Proposed Deletion of Rule 7740
Rule 7740 sets forth the fees to be
paid by the purchaser of Historical
Research Reports regarding OTC
Bulletin Board (‘‘OTCBB’’) securities
through the OTCBB Web site. As the
OTCBB has lost quotation activity in
recent years (today, there is virtually no
quotation data available through the
OTCBB Web site), the value of these
reports has declined significantly, and
FINRA believes that users have found
alternative ways to obtain this data.36
FINRA has determined that in light of
this decline, FINRA will no longer
provide these reports once the ORF has
migrated to the MPP because the value
of the reports does not outweigh the cost
of development work to provide them
on the new platform. Accordingly,
33 As noted above, for trades that are submitted
for regulatory purposes only, i.e., non-tape, nonclearing reports, neither side will be charged a fee.
34 FINRA reviewed ORF monthly invoices for the
period from July 2013 through February 2014 and
determined that fewer than a dozen member firms
that receive invoices for ORF trade reporting are
regularly identified as the contra party on trades for
which they are not charged a fee. Most of these
firms would see a relatively modest increase in
their invoices for any given month. Firms with very
small invoices may see a larger percentage increase;
however, the actual dollar increase would be
relatively small, on average less than $100. Several
firms may see a larger dollar increase; however,
given the average amount of their total monthly
invoices, such increase would represent only a
small percentage (e.g., 2% to 3%) increase in their
overall fees. In addition, FINRA notes that during
this same eight-month period, there were
approximately 60 firms that received no invoices
for ORF trade reporting but were identified as the
contra party on trades. These firms will begin to
receive ORF invoices. Of these firms, all but two
were parties to a small number of trades in any
given month, and as such, the change in billing
methodology will not have a significant impact on
them.
35 Given that the amounts at issue are relatively
modest in terms of FINRA’s overall revenues and
ORF revenues, FINRA does not intend to
retroactively bill affected contra parties in
accordance with the rule.
36 For example, there were 274 requests for
reports pursuant to Rule 7740 in 2012, and that
number fell to 92 through November of 2013.
FINRA notes that the main consumers of these
reports have historically been issuers that used
them to get basic quote and trade data for their
securities. Member firms have generally not relied
on these reports as a source of market data. These
reports provide only aggregate data by security,
while, for example, the equity trade journals offer
detailed trade information for all trades to which a
firm’s MPID was a party.
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FINRA is proposing to delete Rule 7740
in its entirety.37
FINRA has filed the proposed rule
change for immediate effectiveness. The
operative date will be the date of ORF
migration to the MPP. The ORF is
scheduled to migrate to the MPP on
September 15, 2014.
2. Statutory Basis
FINRA believes that the proposed rule
change is consistent with the provisions
of Section 15A(b)(6) of the Act,38 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, and Section 15A(b)(5) of
the Act,39 which requires, among other
things, that FINRA rules provide for the
equitable allocation of reasonable dues,
fees and other charges among members
and issuers and other persons using any
facility or system that FINRA operates
or controls. FINRA believes that the
proposed fees are reasonable in light of
FINRA’s regulatory and operational
costs, including personnel,
infrastructure and technology costs, and
that they are equitably allocated and not
unfairly discriminatory because they
will apply uniformly to members that
are parties to trades submitted to the
ORF or that choose to purchase the
optional services discussed herein.
FINRA further believes that the
proposed fees for web browser access
for the ORF under proposed Rule
7710(b) are consistent with the Act
because the web browser is one of a
number of options available to members
for meeting their trade reporting and
trade management obligations (other
options include CTCI, FIX and third
party service providers). Members can
elect the option that they determine is
the most cost-effective and best suits
their business model, and the proposed
fees for the web browser would only be
charged to member participants and
clearing firms that elect to subscribe.
The proposed fee for ORF Level I web
browser access is identical to the
existing fee for web browser access for
the ADF under Rule 7510(c)(1) and
Level I web browser access for TRACE
under Rule 7730(a)(1), which fees were
adopted pursuant to proposed rule
changes filed with the SEC. Thus,
members will pay the same fee for the
same trade reporting and trade
37 FINRA notes that any future proposal to
provide historical quote and trade information for
OTC Equity Securities would be subject to a
separate proposed rule change.
38 15 U.S.C. 78o–3(b)(6).
39 15 U.S.C. 78o–3(b)(5).
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management functionality offered
through the web browser for the ORF,
TRACE and ADF on the MPP. The ORF
Level I web browser also will provide
clearing firms with access to their
correspondents’ trades for the same fee.
Level II web browser access also is
optional and members can obtain realtime ORF transaction data from other
sources (e.g., the UTP SIP Level 1
entitlement discussed above). FINRA
believes that it is appropriate to charge
a lower fee for ORF Level II access than
TRACE Level II access, given that there
is only one data set for the ORF and
there are multiple data sets for TRACE.
In addition, FINRA believes that the
proposed fee is reasonable in light of the
current costs of ORF data through the
UTP SIP Level 1 entitlement, which is
an alternative source for ORF data,
albeit in a different format than that
presented through the web browser. For
these reasons, FINRA believes that the
proposed Level I and Level II web
browser access fees are reasonable,
equitably allocated and not unfairly
discriminatory, and they should not be
an undue burden on firms while
allowing FINRA to recover some of the
cost of developing and maintaining the
web browser system for the ORF.
FINRA also believes that the proposed
fees for ORF data through FINRA ADDS
under proposed Rule 7710(c) are
consistent with the Act because FINRA
ADDS is an optional service, and the
fees would only be charged to member
participants and clearing firms that elect
to subscribe. The fees for members that
subscribe to their own ORF trade data
are identical to existing fees for TRACE
data through FINRA ADDS under Rule
7730(g), and the Tier 1 fees are also
identical to existing fees for ADF data
through FINRA ADDS under Rule
7510(d). Such fees were adopted
pursuant to proposed rule changes filed
with the SEC. FINRA believes it is
appropriate to charge identical fees for
identical data services for the ORF,
TRACE and ADF on the MPP; however,
given the larger trading volume reported
to the ORF, it is appropriate to have a
different tier structure for the ORF as
compared to TRACE and the ADF. For
these reasons, FINRA believes that the
proposed fees for ORF data through
FINRA ADDS are reasonable, equitably
allocated and not unfairly
discriminatory. In addition, FINRA
believes that the proposed fees for
clearing firms that elect to subscribe to
their correspondents’ clearing eligible
ORF trade data are reasonable, equitably
allocated and not unfairly
discriminatory. While the proposed fees
for clearing firms are higher than the
proposed fees for firms subscribing to
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Frm 00047
Fmt 4703
Sfmt 4703
receive their own trade data, they reflect
the more complex queries and, in some
cases, larger data sets associated with
clearing firm trade journals.
FINRA further believes that the
proposed clarifying amendments to Rule
7710 are consistent with the Act
because FINRA is not proposing to
modify the fee amounts specified in the
rule, but rather is proposing to clarify
the application of the fees and to
accurately reflect the functionality of
the ORF upon migration from
NASDAQ’s ACT platform to the MPP.
While the amount of the ‘‘Late Report—
T+N’’ fee will continue to be $0.288,
contra parties to trades reported late on
a T+N basis by the Executing Party will
no longer be charged for the late report,
and thus some members will see a
reduction in fees as a result of the
proposed rule change. The amount of
the non-comparison fee also will remain
unchanged (at $0.029); however, contra
parties on ‘‘tape only’’ trade reports will
start to be charged the non-comparison
fee, and thus some members will see an
increase in fees as a result of the
proposed rule change. FINRA believes
that the overall impact of the proposed
rule change on any given firm’s fees will
be relatively modest. For these reasons,
FINRA believes that the proposed
clarifying changes to Rule 7710 are
appropriate and consistent with the Act,
in that they are reasonable, equitably
allocated and not unfairly
discriminatory.
Finally, FINRA believes that the
proposed deletion of Rule 7740 is
consistent with the Act because FINRA
is proposing to eliminate fees for
historical reports that FINRA believes
are of little value today and not relied
on by market participants as a source of
market data.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
FINRA does not believe that the
proposed rule change will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed rule change will not affect all
FINRA members, but only those
members that use the ORF. Trade
reporting in OTC equity securities tends
to be highly concentrated with the top
20 firms reporting approximately 87%
of all trades to the ORF annually. There
are approximately 430 firms that have
reported trades to the ORF in a given
year, and approximately 275 firms that
have reported trades to the ORF each
month, over the past several years.
FINRA believes that most of the
approximately 275 firms that report
trades every month will utilize at least
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Federal Register / Vol. 79, No. 137 / Thursday, July 17, 2014 / Notices
one user ID for web browser access with
the most active firms possibly utilizing
several.40
Because the proposed fee for web
browser access for trade reporting is
reasonable in amount and identical to
existing fees for the same access to other
FINRA facilities, FINRA does not
believe that payment of such fee by any
member, or any group or class of
members, will result in a burden on
competition to such members.
Similarly, with respect to the proposed
fees for ORF data through the web
browser and FINRA ADDS, because the
proposed fees are both optional and
reasonable in amount and comparable to
existing fees for the same data relating
to different products through other
FINRA facilities, FINRA does not
believe that the payment of such fees by
any member, or any group or class of
members, will result in a burden on
competition to such industry members
relative to other industry members that
elect not to subscribe to the optional
services.41 With respect to the proposed
clarifying changes to the transaction
reporting fees set forth in Rule 7710 (to
be designated as 7710(a)), as discussed
above, some members may see an
increase in fees, while others may see a
decrease. However, the overall change is
likely to be relatively modest. Thus,
because the proposed rule change is not
expected to have a significant impact on
the fees paid by market participants,
FINRA does not believe that the change
will affect the competitive standing of
members that report trades to the ORF
(e.g., the cost of reporting transactions to
the ORF would not make trading in OTC
Equity Securities cost-prohibitive).
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
pmangrum on DSK3VPTVN1PROD with NOTICES
Because the foregoing proposed rule
change does not: (i) Significantly affect
40 FINRA notes that, given the compressed time
frame for reporting (i.e., 10 seconds or less), it is
anticipated that many firms will choose an
automated mechanism to report trades to the ORF.
41 FINRA notes that today, the number of
subscribers for TRACE data through FINRA ADDS
is small: 16 firms subscribe to the Plus Reports and
five firms subscribe to the SFTP service. FINRA
anticipates that there will be much more interest in
ORF data through FINRA ADDS, given the
differences in the equity versus fixed income
markets, but we are unable to provide an estimate
of the number of firms that are likely to subscribe
at this time.
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15:01 Jul 16, 2014
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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 42 and Rule 19b–
4(f)(6) thereunder.43
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–2014–032 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–2014–032. 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
PO 00000
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of FINRA. All comments received
will be posted without change; the
Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–FINRA–
2014–032, and should be submitted on
or before August 7, 2014.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.44
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–16824 Filed 7–16–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–72600; File No. SR–MIAX–
2014–38]
Self-Regulatory Organizations; Miami
International Securities Exchange LLC;
Notice of Filing and Immediate
Effectiveness of a Proposed Rule
Change To Change Its Procedure for
Processing Fingerprints Under
Existing Rule 807
July 11, 2014.
Pursuant to the provisions of 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 July 1, 2014, Miami International
Securities Exchange LLC (‘‘MIAX’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) a proposed rule change
as described in Items I, II, and III below,
which Items have been prepared by the
Exchange. 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 the Substance
of the Proposed Rule Change
The Exchange is filing a proposal to
change its procedure for processing
fingerprints under its existing Rule 807.
The text of the proposed rule change
is available on the Exchange’s Web site
44 17
42 15
U.S.C. 78s(b)(3)(A).
43 17 CFR 240.19b–4(f)(6).
Frm 00048
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41717
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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]]>Agencies
[Federal Register Volume 79, Number 137 (Thursday, July 17, 2014)]
[Notices]
[Pages 41711-41717]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-16824]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72595; File No. SR-FINRA-2014-032]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Amend Rule 7710 Relating to Fees for the OTC
Reporting Facility and Delete Rule 7740 Relating to Historical Research
and Administrative Reports
July 11, 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 July 2, 2014, Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by FINRA. FINRA has
designated the proposed rule change as constituting a ``non-
controversial'' rule change under paragraph (f)(6) of Rule 19b-4 under
the Act,\3\ which renders the proposal effective upon receipt of this
filing by the Commission. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to amend Rule 7710 (OTC Reporting Facility)
relating to fees for the OTC Reporting Facility (``ORF'') and delete
Rule 7740 (Historical Research and Administrative Reports) upon
migration of the ORF to FINRA's Multi-Product Platform (``MPP'').
The text of the proposed rule change is available on FINRA's Web
site at https://www.finra.org, at the principal office of FINRA and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, FINRA included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. FINRA has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The ORF is the FINRA facility used by members to report
transactions in OTC Equity Securities, as defined in Rule 6420 (i.e.,
equity securities that are not NMS stocks), and transactions in
Restricted Equity Securities, as defined in Rule 6420, effected
pursuant to Securities Act Rule 144A.\4\ Currently, the ORF utilizes
technology provided by The NASDAQ OMX Group, Inc. (``NASDAQ'') that is
based on NASDAQ's proprietary Automated
[[Page 41712]]
Confirmation Transaction (``ACT'') platform.
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\4\ 17 CFR 230.144A.
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The MPP is a platform owned by FINRA and developed by NASDAQ, as
FINRA's technology service provider, that consolidates FINRA's
technology for gathering and disseminating trade execution and, where
applicable, quotation data, conducting trade comparisons and gathering
associated regulatory data for debt and equity securities. FINRA's
Alternative Display Facility (``ADF''), which is a quotation display
and trade reporting facility for OTC transactions in NMS stocks, and
FINRA's Trade Reporting and Compliance Engine (``TRACE''), which is the
facility for reporting OTC transactions in eligible fixed income
securities, currently operate on the MPP. Prior to migration to the
MPP, TRACE, ADF and ORF operated on separate technology platforms.\5\
As described more fully below, member firms currently can elect to
access TRACE and the ADF via a web browser on the MPP and also have the
option of receiving ADF and TRACE data via trade journals through
FINRA's Automated Data Delivery Service (``FINRA ADDS''). FINRA will
expand these optional services to the ORF upon migration to the MPP.
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\5\ While TRACE, ADF and ORF will operate completely on the MPP,
including their front-end user-facing systems, two additional FINRA
facilities--the FINRA/Nasdaq Trade Reporting Facility (``FINRA/
Nasdaq TRF'') and FINRA/NYSE Trade Reporting Facility (``FINRA/NYSE
TRF''), established in conjunction with NASDAQ and NYSE, as the
Business Members, respectively, for reporting OTC transactions in
NMS stocks--will use the MPP only to submit audit trail data to
FINRA Market Regulation. The front-end user-facing systems of the
TRFs will not be on the MPP, but instead will continue to be
separately provided by the TRF Business Members.
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The ORF will migrate to the MPP on September 15, 2014 and as of
that date will no longer operate on the ACT platform.\6\ Accordingly,
FINRA is proposing to (1) adopt fees for web browser access to the ORF
and for real-time ``time and sales'' ORF data through the web browser;
(2) enhance FINRA ADDS to include ORF data for ORF participants and
clearing firms and to adopt fees for such services; (3) amend Rule 7710
relating to transaction reporting fees to clarify the application of
the rule, without modifying the fee amounts specified in the rule; and
(4) delete Rule 7740 relating to historical reports.
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\6\ FINRA has provided firms with extensive information relating
to ORF migration on its Web site at www.finra.org/Industry/Compliance/MarketTransparency/ORF/P470179.
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Proposed Web Browser Access Fees
Today, most firms report trades to the ORF on an automated basis
via a computer-to-computer interface (``CTCI''). However, firms also
have the option of reporting trades to the ORF through a web browser.
Any firm that chooses to use the web browser today must subscribe to
NASDAQ's ACT Workstation product and pay the associated fees charged by
NASDAQ under NASDAQ rules.\7\ Following migration of the ORF from the
ACT platform to the MPP, ORF participants will use FINRA's web browser
for accessing the ORF on the MPP; firms will no longer use the ACT
Workstation.\8\ As noted above, FINRA currently offers web browser
access to TRACE and the ADF on the MPP. FINRA provides two levels of
web browser access for TRACE (with Level I offering trade reporting and
trade management functionality, and Level II offering trade reporting
and trade management functionality plus access to real-time ``time and
sales'' TRACE data). For the ADF, FINRA provides one level of web
browser access, i.e., trade reporting and trade management
functionality.\9\
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\7\ See, e.g., NASDAQ Rule 7015 (Access Services).
\8\ In addition to web browser access, members can report trades
to the ORF via CTCI (as noted above), a Financial Information
eXchange (``FIX'') line or indirectly via third party intermediaries
(e.g., service bureaus). Today, firms utilize NASDAQ's services
(e.g., for CTCI) and pay the associated fees under NASDAQ rules.
See, e.g., NASDAQ Rule 7015. FINRA notes that, following migration
to the MPP, members will continue to be able to connect to the ORF
using any of these three methods; however, FINRA is not proposing to
charge a connectivity fee under FINRA rules at this time. Firms that
report to the ORF via CTCI or FIX--either directly or indirectly
through third party intermediaries--will pay NASDAQ, as FINRA's
technology service provider for the MPP, charges associated with FIX
and CTCI ports to connect to the ORF data center, as they do today.
\9\ As discussed in FINRA's proposed rule change relating to ADF
fees, FINRA does not offer Level II web browser access for the ADF.
See Securities Exchange Act Release No. 71528 (February 12, 2014),
79 FR 9550 (February 19, 2014) (Notice of Filing and Immediate
Effectiveness; File No. SR-FINRA-2014-007). As described in that
filing, TRACE is the sole platform for the reporting of fixed income
trades and therefore, the transaction data that is provided through
the Level II access is already available to FINRA. In contrast,
offering all real-time NMS transaction data through the ADF web
browser would entail gathering such information from the relevant
Securities Information Processors (``SIPs'').
As with TRACE, the ORF is the sole platform for reporting
transactions in OTC Equity Securities, and as such, the transaction
data is already available to FINRA. Therefore, FINRA is able to
offer Level II web browser access for the ORF.
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FINRA is proposing to offer two levels of web browser access to the
ORF: Level I (Trade Report or Clearing Firm View Only) access and Level
II (Full Service) access. Level I access permits a member to report
transactions to the ORF via the web browser. In addition to reporting
trades through the web browser, members will be able to access Trade
Management functions, such as trade reconciliation, cancel and correct,
will have access to reference data such as the Security Daily List and
will be able to access their trade data for the current trading day
plus three prior days.
Clearing member firms also can subscribe to Level I web browser
access to view data regarding their correspondents' trades reported to
the ORF associated with the subscribing clearing firm's Clearing
Number.\10\ Clearing firms have this ability today via the ACT
Workstation and have requested similar functionality upon migration of
the ORF to the MPP. With Level I web browser access, clearing firms
will be able to access their correspondents' trade data for the current
trading day plus three prior days.\11\ Clearing firms will only be able
to view their correspondents' data, including, e.g., trades for which
their correspondents are the reporting party as well as the contra
party, open trades, declined trades, etc., and also reference data.
Level I web browser access for clearing firms will not include the
other Trade Management functions described above, e.g., a clearing firm
will not be able to cancel or correct trades on behalf of its
correspondents. FINRA notes that clearing firms currently do not have
web browser access to view their correspondents' ADF and TRACE trade
data.
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\10\ Clearing member firms have unique Clearing Numbers that
their correspondents use to identify the clearing firm associated
with each trade.
\11\ FINRA notes that under the terms of the FINRA Participant
Agreement signed by members prior to reporting to the ORF, FINRA has
ownership of the data submitted to the ORF and may use it for any
purpose FINRA deems necessary. Thus, FINRA does not believe it would
be necessary to obtain additional specific permission from
correspondents before providing their ORF trade data to their
clearing firms.
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Pursuant to proposed Rule 7710(b)(1), FINRA is proposing to charge
$20 per month per user ID for Level I (Trade Report or Clearing Firm
View Only) web browser access to the ORF. The proposed fee is identical
to the fee currently charged under Rule 7510(c)(1) for web browser
access and similar trade management functionality for the ADF, and
under Rule 7730(a)(1) for Level I Trade Report Only web browser access
and trade management functionality for TRACE.\12\
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\12\ FINRA notes that a member that utilizes the TRACE web
browser, the ADF web browser and the ORF web browser would pay three
separate fees under Rules 7730(a)(1), 7510(c)(1) and 7710(b).
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Level II (Full Service) web browser access permits the reporting of
[[Page 41713]]
transactions to the ORF and related Trade Management functionality, as
discussed above, as well as access to real-time ``time and sales'' ORF
data for a given security through the web browser. Specifically, firms
will be able to query--by security symbol and trade date--for the
following real-time ORF data: (1) Trade details for disseminated trades
in a given time period, which data will include the 52-week high and
low prices and the dates such prices were attained; (2) the daily high
price, low price, last sale price, most recent trade price and volume
in a given time period; and (3) the weekly high price, low price and
volume in a given time period, including the dates the high and low
prices were attained.\13\ As noted above, FINRA currently offers Level
II web browser access for TRACE, which enables firms to conduct similar
queries (by CUSIP and trade date) for TRACE transaction data.
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\13\ FINRA notes that firms that subscribe to the UTP SIP Level
I entitlement receive the real-time OTC Bulletin Board (``OTCBB'')
quote feed (or BBDS) and real-time ORF transaction feed (or TDDS),
in addition to other data. The proposed rule change would not impact
a firm's subscription to UTP SIP Level I data or fees for such data.
Effective January 1, 2014, the professional subscriber fee was
increased from $20 to $23 per subscriber per month. See UTP Vendor
Alert 2013--10 (September 26, 2013), available at
www.nasdaqtrader.com/TraderNews.aspx?id=uva2013-10.
While a Level II web browser subscriber will be able to see all
ORF trades at the time of the query in a specific security, the
subscriber will not see the continuous TDDS data feed, and the web
browser will not include quote data from the BBDS. Thus, FINRA
believes that subscribers most likely will use the ORF ``time and
sales'' data for middle and back office functions such as trade
reconciliation and compliance.
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Pursuant to proposed Rule 7710(b)(2), FINRA is proposing to charge
$25 per month per user ID for Level II web browser access to the ORF,
i.e., $20 for Level I access plus an additional $5 for access to the
``time and sales'' function of the web browser. While the data query
functionality of the web browser will be comparable for ORF and TRACE
data, FINRA is not proposing to mirror the fee structure for TRACE
Level II access. Among other things, the fees for TRACE Level II access
reflect the fact that there are multiple data sets available for TRACE
(e.g., Corporate Bond Data Set, Agency Data Set, etc.).\14\ Since there
is only one data set for ORF, FINRA believes that a flat fee is
appropriate. In addition, given that there are other sources for ORF
data, i.e., the above-referenced UTP SIP Level I entitlement, and given
the current fees for such data, FINRA believes that the proposed fee of
$25 for Level II web browser access for the ORF (i.e., $20 for Level I
access plus an additional $5 for data access) is reasonable.
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\14\ Under Rule 7730(a)(1)(B), the fee for Level II Full Service
web browser access for TRACE is $50 per month for one data set or
$80 per month for two data sets for the first or a single user ID;
and for additional user IDs, the fee is $80 per month per user ID
for one data set or $140 per month per user ID for two data sets.
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Proposed Fees for ORF Data Through FINRA's Automated Data Delivery
Service
FINRA ADDS is a secure Web site that provides members, by market
participant identifier (``MPID''), access to trade journal files
containing key information regarding the member's trades reported to
FINRA. Members use the trade journal files to reconcile the trade
information captured by their own systems against the information
captured by the FINRA trade reporting systems. Currently, FINRA ADDS
makes recent ADF and TRACE trade journals available for free through
the FINRA ADDS Web site and offers subscribers the option of receiving
historical data and retrieving data automatically via Secure File
Transfer Protocol (``SFTP'') for a fee. FINRA is proposing to enhance
FINRA ADDS to include ORF data, to be delivered in the same format and
via the same two methods currently used for TRACE and ADF data, and
charge fees for such data pursuant to proposed paragraph (c) of Rule
7710.
Under proposed Rule 7710(c)(1), FINRA will provide member
subscribers with their own trade data (as FINRA ADDS currently does for
TRACE and the ADF). The ORF trade journals provided through FINRA ADDS
will replace the equity trade journals for ORF currently provided by
NASDAQ. Through the FINRA ADDS Web site, a member will have access to
ORF trade data associated with its MPID for the three prior business
days free of charge without having to subscribe to the additional
optional data services discussed below. As noted above, firms that have
web browser access will also be able to download up to three days'
worth of their prior day ORF trade data through the Trade Management
functionality on the MPP at no additional charge (once the firm has
paid any applicable fees, e.g., for ORF web browser access); however,
the data will not be in same format as available through FINRA
ADDS.\15\
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\15\ Specifically, the Trade Management data through the web
browser will be ``living'' for three days after trade date (T+3),
whereas FINRA ADDS files will be produced at the end of the trading
day and will not change (e.g., to reflect trades that were
subsequently canceled or corrected). For example, on Wednesday, a
member firm cancels a trade that it executed on Monday. Through
FINRA ADDS, the member will see the trade from Monday, with no
indication that the trade was subsequently canceled. Through Trade
Management, the status of the trade will be updated from ``New'' to
``Canceled.'' FINRA notes that firms that report trades via CTCI, a
FIX line or a third party intermediary may have additional options
for accessing their trade data, e.g., a firm that uses FIX could
elect to receive ``drop copies'' of individual trade reports.
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Through FINRA ADDS, members can access their own data for dates
older than the most recent three business days for a monthly fee, if
they elect to subscribe to receive this additional data through FINRA
ADDS (referred to as ``ORF Data Delivery Plus'' service).\16\ The fee
will be charged per month to an MPID that is a subscriber for ORF Data
Delivery Plus reports (``Plus Reports''), which will be provided in
response to requests by the MPID.\17\ The proposed fees under Rule
7710(c)(1)(A) are based on (1) the average number of transactions
reported to the ORF per month to which the MPID was a party in the
prior calendar year, which number is used to assign the MPID to one of
four tiers \18\ and (2) the number of Plus Reports the subscriber
receives in a month.\19\ The proposed fees range from a low of $10 (for
a member in the lowest tier \20\ requesting up to five Plus Reports per
month) to a high of $100 a month (for a member in the highest tier \21\
requesting more than 25 Plus Reports per month). The proposed fee
schedule for ORF data is identical to the current fee schedule for
TRACE data through FINRA ADDS under Rule 7730(g)(1); however, given the
significantly higher volume of trades reported to the ORF, the proposed
tiers under Rule 7710(c)(1)(A) are not
[[Page 41714]]
identical to the tiers under Rule 7730(g).\22\
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\16\ Subscribers ultimately will be able to access up to two
years of trade journal files.
\17\ To access trade information for multiple MPIDs, a firm must
obtain a subscription for each MPID.
\18\ Once assigned to a tier, a subscriber remains in the tier
for the remainder of the calendar year. For example, an MPID that
subscribes in September 2014 will be assigned to a tier based upon
the ORF transactions reported in 2013 in which the MPID was a party,
and will remain in that tier until December 31, 2014. In 2015, the
MPID will be re-evaluated and assigned to a tier for 2015 fee
purposes, based upon the MPID's ORF trades in 2014. Where there is
no historical data associated with an MPID (e.g., the MPID is new),
the lowest tier would apply.
\19\ A subscriber's fee will be assessed each month and
accordingly may vary during a calendar year, depending on the number
of reports FINRA makes available to the subscriber in response to
the subscriber's requests. The ORF Data Delivery Plus fee is based
upon the number of reports provided to avoid charging for data
requests that FINRA may be unable to provide (e.g., a request for
data that pre-dates migration of the ORF to the MPP).
\20\ The lowest tier, Tier 4, applies to members with an average
of fewer than 1,000 transactions per month to which the member was a
party in the prior calendar year.
\21\ The highest tier, Tier 1, applies to members with an
average of 50,000 or more transactions per month to which the member
was a party in the prior calendar year.
\22\ FINRA notes that the fee schedule for ADF data through
FINRA ADDS under Rule 7510(d)(1) is identical to the proposed fee
schedule for Tier 1 ORF data and the existing fee schedule for Tier
1 TRACE data through FINRA ADDS; however, FINRA did not further
divide the ADF fees into tiers, as there is not currently a baseline
of transaction activity from which FINRA can establish such
thresholds. See Securities Exchange Act Release No. 71528 (February
12, 2014), 79 FR 9550 (February 19, 2014) (Notice of Filing; File
No. SR-FINRA-2014-007).
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Members also will have the option of subscribing to the SFTP
service for ORF trade data, which will enable them to automate the
process of retrieving their daily trade journal files. Files will be
made available on a daily basis to firms that subscribe to the ORF Data
Delivery SFTP service, and firms will be able to connect to FINRA ADDS
via SFTP to download their data. Pursuant to proposed Rule
7710(c)(1)(B), FINRA is proposing to charge the following fees to
members that elect to receive ORF data via SFTP: (1) A one-time set up
fee of $250 for each MPID that subscribes to the service and (2) a
monthly fee of $200 per MPID that subscribes to the service. The
proposed fees are identical to the current fees charged under Rules
7510(d)(2) and 7730(g)(2) for SFTP delivery of ADF and TRACE data,
respectively, through FINRA ADDS.
Thus, firms have the option of subscribing to FINRA ADDS for their
ORF, ADF and TRACE trade data and can select the data delivery method
that best suits their needs.\23\ For example, a firm may subscribe to
the ORF Data Delivery SFTP service for automated retrieval of its data
to enable its back office to reconcile transaction and clearing data
captured by its own systems and the ORF, while another firm may
subscribe to the ORF Data Delivery Plus service if it does not need
automated data retrieval, but wants the ability to look up its
historical trade data and does not have all of that data stored in its
own systems.
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\23\ FINRA notes that a member that subscribes to FINRA ADDS for
TRACE, ADF and ORF data would pay three separate fees under Rules
7730(g), 7510(d) and 7710(c).
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Under proposed Rule 7710(c)(2), member clearing firms that elect to
subscribe to FINRA ADDS will have access to data regarding their
correspondents' clearing eligible trades reported to the ORF associated
with the subscribing clearing firm's Clearing Number. FINRA is
providing this data at the request of clearing firms, and it will
replace the clearing firm trade journal files for ORF currently
provided by NASDAQ. Similar to the ORF data provided to firms under
proposed Rule 7710(c)(1), ORF data for clearing firms will be available
through the FINRA ADDS Web site and via SFTP. Through the FINRA ADDS
Web site, a clearing firm will have access to its correspondents' ORF
trade data associated with its Clearing Number for the three prior
business days free of charge without having to subscribe to the
additional optional data services discussed below.\24\
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\24\ As discussed above, clearing firms that subscribe to Level
I web browser access under proposed Rule 7710(b) also will be able
to download up to three days' worth of their correspondents' prior
day ORF trade data at no additional charge.
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Through FINRA ADDS, clearing firms can access their correspondents'
data for dates older than the most recent three business days for a
monthly fee. Pursuant to proposed Rule 7710(c)(2)(A), clearing firms
that subscribe to access data via the Web site (``Clearing Data
Delivery Plus'' access) will be charged a flat fee of $150 per Clearing
Number \25\ per month, irrespective of the number of reports received.
FINRA believes that it is appropriate to charge a flat fee for Clearing
Data Delivery Plus; the small number of clearing firms relative to the
number of ORF participants is not conducive to establishing tiers based
on transaction activity or number of correspondents. Pursuant to
proposed Rule 7710(c)(2)(B), clearing firms that subscribe to the SFTP
service (``Clearing Data Delivery SFTP'') will be charged a one-time
start-up fee of $250 per Clearing Number and a fee of $300 per month
per Clearing Number. The one-time start-up fees under proposed
paragraphs (c)(1)(B)(i) and (c)(2)(B)(i) for firms receiving their own
ORF trade data and clearing firms receiving their correspondents' ORF
trade data are identical. However, the higher monthly fee for receiving
automated clearing firm trade journals via SFTP under proposed
paragraph (c)(2)(B)(ii) (compared to the fee for receiving firm trade
journals via SFTP under proposed paragraph (c)(1)(B)(ii)) reflects the
more complex queries, and in some cases, larger data sets associated
with clearing firm trade journals. FINRA notes that clearing firm trade
journals are not offered for TRACE or the ADF because currently these
facilities do not send any of their participants' trades to
clearing.\26\
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\25\ To access trade information for multiple Clearing Numbers,
a firm must obtain a subscription for each Clearing Number.
\26\ FINRA further notes that the proposed fees are less than
the current fees for clearing firm trade journals provided by
NASDAQ, which fees range from $750 per month to $1,750 per month
under NASDAQ Rule 7060, although these fees also include data for a
larger universe of transactions (i.e., ORF, FINRA/Nasdaq TRF and
NASDAQ Market Center).
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The proposed fees for ORF web browser access, including access to
real-time ``time and sales'' data, and ORF data via FINRA ADDS would
allow FINRA to recoup some of the costs of developing and maintaining
these services for the ORF on the MPP. Although FINRA already provides
web browser access and data for TRACE and the ADF through FINRA ADDS,
FINRA will incur additional development and maintenance costs to add
ORF to these services. Any time that a new type of data--in this
instance ORF data--is added, there is additional development cost to
modify the Web site so that users can access that data. Additionally,
each new type of data increases the volume of data that FINRA's systems
must store in order to make it available for subscribers, i.e., there
would be no need for FINRA ADDS to consume and store ORF data if it
were not being made available to firms. FINRA believes that extending
the availability of these optional services to ORF participants and
their clearing firms will provide firms with the enhanced tools to meet
their trade reporting and trade management obligations without placing
significant financial or operational burdens on them.
FINRA staff discussed the proposed fees under Rules 7710(b)(1) and
(c)(1) with several of FINRA's industry advisory committees. The
committees were supportive and had a few clarifying questions. One
committee member asked whether the proposed fees effectively are a fee
reduction for firms, given that the proposed fees are lower than the
current NASDAQ fees. FINRA notes that it will be a reduction for
members that only report trades to the ORF; however, members that also
report trades to the FINRA/Nasdaq TRF \27\ would still be subject to
NASDAQ's fees (e.g., for the ACT Workstation for purposes of reporting
to the FINRA/Nasdaq TRF). Another committee member asked whether FINRA
would reduce the proposed fees, if they were considered to be too high.
FINRA notes that it evaluates its fees on an ongoing basis, and if any
fees are determined to be unreasonable or not equitably allocated among
members, FINRA would revisit them.
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\27\ As previously noted, the FINRA/Nasdaq TRF is a FINRA
facility for reporting OTC trades in NMS stocks. The front-end user-
facing system is provided by NASDAQ, as the TRF Business Member, and
operates on NASDAQ's ACT technology platform.
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Proposed Amendments to Existing Transaction Reporting Fees
FINRA is proposing to amend Rule 7710 to clarify the rule's
application without modifying the transaction
[[Page 41715]]
reporting fee amounts specified in the rule.\28\ First, FINRA is
proposing to clarify that in the case of trades where the same market
participant is on both sides of a trade report (e.g., a cross
transaction, which can be reported with the Executing Party's MPID on
both sides of the trade), applicable fees assessed on a ``per side''
basis will be assessed once, rather than twice, and the market
participant will be assessed applicable charges as the Executing Party
side only.\29\ The proposed rule text is identical to the text of
current Rule 7620A relating to fees for reporting to the FINRA/Nasdaq
TRF and is consistent with the manner in which trades reported to the
ORF are billed today.
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\28\ FINRA also is proposing to designate the current text of
Rule 7710 as new paragraph (a) (Transaction Related Charges).
\29\ FINRA also is proposing to adopt Supplementary Material
that defines ``Executing Party (EP)'' for purposes of Rule 7710 as
the member with the trade reporting obligation under FINRA rules.
Under Rule 6622(b), in a trade between a member and non-member or
customer, the member has the obligation to report the trade, and in
a trade between two members, the member that receives an order for
handling or execution or is presented an order against its quote,
does not subsequently re-route the order, and executes the
transaction, has the obligation to report the trade.
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Second, FINRA is proposing to clarify that trades reported for
regulatory purposes only (i.e., trades that are submitted neither for
public dissemination nor clearing through the ORF, also referred to as
``non-tape, non-clearing reports'') are not assessed a fee. The
proposed amendment would codify FINRA's current billing methodology as
set forth in NASD Notice to Members (``NTM'') 00-79 (November
2000).\30\
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\30\ NTM 00-79 announced new requirements for riskless principal
trade reporting and noted that ``[n]o ACT fee will be assessed for
the non-tape, non-clearing report. An ACT fee will be assessed for
the clearing-only report, however, because the firm is receiving
clearing services in connection with the report.''
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Third, FINRA is proposing to amend the provision of Rule 7710 that
imposes a ``Late Report--T+N'' fee of $0.288 on each party to a late
trade report that is submitted one or more days after trade date
(T+N).\31\ Under the proposed rule change, the Late Report--T+N fee
(which will remain set at $0.288) will be imposed only on the
``Executing Party,'' as defined for purposes of Rule 7710 in the
proposed Supplementary Material. The responsibility for reporting
trades is imposed on only one party to the trade, and as such, FINRA
believes that the Late Report--T+N trade report fee should only be
imposed on one party to the trade as well. The proposed rule change
would ensure that the contra party to a trade is not subject to a fee
due to late trade reporting by the Executing Party. The proposed
amendment is identical to Rule 7620A relating to fees for the FINRA/
Nasdaq TRF.
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\31\ Under FINRA rules, trades that are executed between 8:00
p.m. and midnight and trades that are executed on non-business days
(pursuant to amendments approved, but not yet effective, under SR-
FINRA-2013-050) must be reported by 8:15 a.m. the next business day
following execution. Such T+N trades are timely and will not be
assessed the late fee under Rule 7710. All other T+N trades are late
under FINRA rules and as such are subject to this fee.
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Fourth, FINRA is proposing to delete the ``Query'' charge under
Rule 7710, which relates to functionality that is specific to ACT and
will not apply on the MPP. Upon migration of the ORF to the MPP,
members will be able to search for their trades, but there will be no
charge for such functionality. In addition, FINRA is proposing to amend
Rule 7710 to clarify that the Corrective Transaction Charge applies to
``Cancel/Correct'' transactions only. The ORF will no longer support
``Error, Inhibit, Kill, or No/Was'' transactions, which are ACT-
specific.
Finally, FINRA notes that Rule 7710 currently provides that
transactions that are not subject to comparison \32\ through the ORF
will be charged a fee of $0.029 per side. FINRA is not proposing to
amend the text of this provision. However, in the course of a recent
review of ORF billing methodology, FINRA determined that, with respect
to a limited subset of trades, this fee currently is not charged in
strict conformance with the rule. Specifically, for ``tape only''
transactions between two FINRA members (i.e., transactions that are
reported for public dissemination purposes and are not cleared through
the ORF or locked-in via AGU or QSR), only the reporting party
currently is charged. The contra party is not charged for such
transactions, notwithstanding that the rule states that the fee applies
to both sides of the transaction. Upon migration of the ORF to the MPP,
FINRA intends to charge this fee in accordance with the express terms
of the rule. Accordingly, both sides of the trade will be charged for
all transactions reported to the ORF that are not subject to
comparison, including all ``tape only'' trades that are not cleared
through the ORF, as well as trades that are cleared through the ORF and
locked-in via AGU or QSR agreements.\33\ Although the rule language
will remain unchanged, some firms that are identified as the contra
party on trade reports submitted to the ORF may see an increase in
their fees.\34\ FINRA will contact the firms that will be most affected
by the change in billing methodology to make them aware of the
potential increase in their invoices.\35\
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\32\ Transactions that are not subject to comparison include
trades that are not cleared through the ORF and trades that are
locked-in for clearing at the time of submission via an automatic
give-up agreement (``AGU'') or qualified special representative
(``QSR'') agreement.
\33\ As noted above, for trades that are submitted for
regulatory purposes only, i.e., non-tape, non-clearing reports,
neither side will be charged a fee.
\34\ FINRA reviewed ORF monthly invoices for the period from
July 2013 through February 2014 and determined that fewer than a
dozen member firms that receive invoices for ORF trade reporting are
regularly identified as the contra party on trades for which they
are not charged a fee. Most of these firms would see a relatively
modest increase in their invoices for any given month. Firms with
very small invoices may see a larger percentage increase; however,
the actual dollar increase would be relatively small, on average
less than $100. Several firms may see a larger dollar increase;
however, given the average amount of their total monthly invoices,
such increase would represent only a small percentage (e.g., 2% to
3%) increase in their overall fees. In addition, FINRA notes that
during this same eight-month period, there were approximately 60
firms that received no invoices for ORF trade reporting but were
identified as the contra party on trades. These firms will begin to
receive ORF invoices. Of these firms, all but two were parties to a
small number of trades in any given month, and as such, the change
in billing methodology will not have a significant impact on them.
\35\ Given that the amounts at issue are relatively modest in
terms of FINRA's overall revenues and ORF revenues, FINRA does not
intend to retroactively bill affected contra parties in accordance
with the rule.
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Proposed Deletion of Rule 7740
Rule 7740 sets forth the fees to be paid by the purchaser of
Historical Research Reports regarding OTC Bulletin Board (``OTCBB'')
securities through the OTCBB Web site. As the OTCBB has lost quotation
activity in recent years (today, there is virtually no quotation data
available through the OTCBB Web site), the value of these reports has
declined significantly, and FINRA believes that users have found
alternative ways to obtain this data.\36\ FINRA has determined that in
light of this decline, FINRA will no longer provide these reports once
the ORF has migrated to the MPP because the value of the reports does
not outweigh the cost of development work to provide them on the new
platform. Accordingly,
[[Page 41716]]
FINRA is proposing to delete Rule 7740 in its entirety.\37\
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\36\ For example, there were 274 requests for reports pursuant
to Rule 7740 in 2012, and that number fell to 92 through November of
2013. FINRA notes that the main consumers of these reports have
historically been issuers that used them to get basic quote and
trade data for their securities. Member firms have generally not
relied on these reports as a source of market data. These reports
provide only aggregate data by security, while, for example, the
equity trade journals offer detailed trade information for all
trades to which a firm's MPID was a party.
\37\ FINRA notes that any future proposal to provide historical
quote and trade information for OTC Equity Securities would be
subject to a separate proposed rule change.
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FINRA has filed the proposed rule change for immediate
effectiveness. The operative date will be the date of ORF migration to
the MPP. The ORF is scheduled to migrate to the MPP on September 15,
2014.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\38\ 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, and Section 15A(b)(5) of the Act,\39\ which requires,
among other things, that FINRA rules provide for the equitable
allocation of reasonable dues, fees and other charges among members and
issuers and other persons using any facility or system that FINRA
operates or controls. FINRA believes that the proposed fees are
reasonable in light of FINRA's regulatory and operational costs,
including personnel, infrastructure and technology costs, and that they
are equitably allocated and not unfairly discriminatory because they
will apply uniformly to members that are parties to trades submitted to
the ORF or that choose to purchase the optional services discussed
herein.
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\38\ 15 U.S.C. 78o-3(b)(6).
\39\ 15 U.S.C. 78o-3(b)(5).
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FINRA further believes that the proposed fees for web browser
access for the ORF under proposed Rule 7710(b) are consistent with the
Act because the web browser is one of a number of options available to
members for meeting their trade reporting and trade management
obligations (other options include CTCI, FIX and third party service
providers). Members can elect the option that they determine is the
most cost-effective and best suits their business model, and the
proposed fees for the web browser would only be charged to member
participants and clearing firms that elect to subscribe. The proposed
fee for ORF Level I web browser access is identical to the existing fee
for web browser access for the ADF under Rule 7510(c)(1) and Level I
web browser access for TRACE under Rule 7730(a)(1), which fees were
adopted pursuant to proposed rule changes filed with the SEC. Thus,
members will pay the same fee for the same trade reporting and trade
management functionality offered through the web browser for the ORF,
TRACE and ADF on the MPP. The ORF Level I web browser also will provide
clearing firms with access to their correspondents' trades for the same
fee.
Level II web browser access also is optional and members can obtain
real-time ORF transaction data from other sources (e.g., the UTP SIP
Level 1 entitlement discussed above). FINRA believes that it is
appropriate to charge a lower fee for ORF Level II access than TRACE
Level II access, given that there is only one data set for the ORF and
there are multiple data sets for TRACE. In addition, FINRA believes
that the proposed fee is reasonable in light of the current costs of
ORF data through the UTP SIP Level 1 entitlement, which is an
alternative source for ORF data, albeit in a different format than that
presented through the web browser. For these reasons, FINRA believes
that the proposed Level I and Level II web browser access fees are
reasonable, equitably allocated and not unfairly discriminatory, and
they should not be an undue burden on firms while allowing FINRA to
recover some of the cost of developing and maintaining the web browser
system for the ORF.
FINRA also believes that the proposed fees for ORF data through
FINRA ADDS under proposed Rule 7710(c) are consistent with the Act
because FINRA ADDS is an optional service, and the fees would only be
charged to member participants and clearing firms that elect to
subscribe. The fees for members that subscribe to their own ORF trade
data are identical to existing fees for TRACE data through FINRA ADDS
under Rule 7730(g), and the Tier 1 fees are also identical to existing
fees for ADF data through FINRA ADDS under Rule 7510(d). Such fees were
adopted pursuant to proposed rule changes filed with the SEC. FINRA
believes it is appropriate to charge identical fees for identical data
services for the ORF, TRACE and ADF on the MPP; however, given the
larger trading volume reported to the ORF, it is appropriate to have a
different tier structure for the ORF as compared to TRACE and the ADF.
For these reasons, FINRA believes that the proposed fees for ORF data
through FINRA ADDS are reasonable, equitably allocated and not unfairly
discriminatory. In addition, FINRA believes that the proposed fees for
clearing firms that elect to subscribe to their correspondents'
clearing eligible ORF trade data are reasonable, equitably allocated
and not unfairly discriminatory. While the proposed fees for clearing
firms are higher than the proposed fees for firms subscribing to
receive their own trade data, they reflect the more complex queries
and, in some cases, larger data sets associated with clearing firm
trade journals.
FINRA further believes that the proposed clarifying amendments to
Rule 7710 are consistent with the Act because FINRA is not proposing to
modify the fee amounts specified in the rule, but rather is proposing
to clarify the application of the fees and to accurately reflect the
functionality of the ORF upon migration from NASDAQ's ACT platform to
the MPP. While the amount of the ``Late Report--T+N'' fee will continue
to be $0.288, contra parties to trades reported late on a T+N basis by
the Executing Party will no longer be charged for the late report, and
thus some members will see a reduction in fees as a result of the
proposed rule change. The amount of the non-comparison fee also will
remain unchanged (at $0.029); however, contra parties on ``tape only''
trade reports will start to be charged the non-comparison fee, and thus
some members will see an increase in fees as a result of the proposed
rule change. FINRA believes that the overall impact of the proposed
rule change on any given firm's fees will be relatively modest. For
these reasons, FINRA believes that the proposed clarifying changes to
Rule 7710 are appropriate and consistent with the Act, in that they are
reasonable, equitably allocated and not unfairly discriminatory.
Finally, FINRA believes that the proposed deletion of Rule 7740 is
consistent with the Act because FINRA is proposing to eliminate fees
for historical reports that FINRA believes are of little value today
and not relied on by market participants as a source of market data.
B. Self-Regulatory Organization's Statement on Burden on Competition
FINRA does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. The proposed rule change will
not affect all FINRA members, but only those members that use the ORF.
Trade reporting in OTC equity securities tends to be highly
concentrated with the top 20 firms reporting approximately 87% of all
trades to the ORF annually. There are approximately 430 firms that have
reported trades to the ORF in a given year, and approximately 275 firms
that have reported trades to the ORF each month, over the past several
years. FINRA believes that most of the approximately 275 firms that
report trades every month will utilize at least
[[Page 41717]]
one user ID for web browser access with the most active firms possibly
utilizing several.\40\
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\40\ FINRA notes that, given the compressed time frame for
reporting (i.e., 10 seconds or less), it is anticipated that many
firms will choose an automated mechanism to report trades to the
ORF.
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Because the proposed fee for web browser access for trade reporting
is reasonable in amount and identical to existing fees for the same
access to other FINRA facilities, FINRA does not believe that payment
of such fee by any member, or any group or class of members, will
result in a burden on competition to such members. Similarly, with
respect to the proposed fees for ORF data through the web browser and
FINRA ADDS, because the proposed fees are both optional and reasonable
in amount and comparable to existing fees for the same data relating to
different products through other FINRA facilities, FINRA does not
believe that the payment of such fees by any member, or any group or
class of members, will result in a burden on competition to such
industry members relative to other industry members that elect not to
subscribe to the optional services.\41\ With respect to the proposed
clarifying changes to the transaction reporting fees set forth in Rule
7710 (to be designated as 7710(a)), as discussed above, some members
may see an increase in fees, while others may see a decrease. However,
the overall change is likely to be relatively modest. Thus, because the
proposed rule change is not expected to have a significant impact on
the fees paid by market participants, FINRA does not believe that the
change will affect the competitive standing of members that report
trades to the ORF (e.g., the cost of reporting transactions to the ORF
would not make trading in OTC Equity Securities cost-prohibitive).
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\41\ FINRA notes that today, the number of subscribers for TRACE
data through FINRA ADDS is small: 16 firms subscribe to the Plus
Reports and five firms subscribe to the SFTP service. FINRA
anticipates that there will be much more interest in ORF data
through FINRA ADDS, given the differences in the equity versus fixed
income markets, but we are unable to provide an estimate of the
number of firms that are likely to subscribe at this time.
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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 \42\ and Rule 19b-
4(f)(6) thereunder.\43\
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\42\ 15 U.S.C. 78s(b)(3)(A).
\43\ 17 CFR 240.19b-4(f)(6).
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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-2014-032 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-2014-032. 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 the filing also will be
available for inspection and copying at the principal office of FINRA.
All comments received will be posted without change; the Commission
does not edit personal identifying information from submissions. You
should submit only information that you wish to make available
publicly. All submissions should refer to File Number SR-FINRA-2014-
032, and should be submitted on or before August 7, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\44\
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\44\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-16824 Filed 7-16-14; 8:45 am]
BILLING CODE 8011-01-P
