Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change To Adopt FINRA Rule 6191(b) and Amend FINRA Rule 7440 To Implement the Data Collection Requirements of the Regulation NMS Plan To Implement a Tick Size Pilot Program, 73858-73865 [2015-29931]
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representing its own interest, in essence
possibly allowing a Trading Center to
avoid displaying proprietary interest
while still availing itself of the
exception. By facilitating the display of
liquidity representing the Trading
Center’s capital commitment, the
proposal may facilitate the goals of the
Pilot.
Definition of Retail Investor Order
The third proposal extends the
definition of Retail Investor Order to
include any order received directly from
a natural person that did not originate
from a trading algorithm or any other
computerized methodology, without
requiring that such order be an agency
or riskless principal order.
In the absence of this change, many
orders that are currently sent to Trading
Centers that otherwise satisfy the Retail
Order definition would not be eligible
for the exceptions of the Plan in the
OTC market solely due to the capacity
(or lack thereof) of that order. Retail
customers could avail themselves of the
exemption by placing additional
conditions on the order, but this might
preclude some Trading Centers from
being able to interact with these orders.
Therefore, this may provide greater
liquidity to Test Group Two and Three
Pilot Securities.
Anticipated Costs
The Display Exception
Under the clarification proposed,
independent aggregation units not
displaying quotations are not covered by
the exception. Members that operate
Trading Centers that utilize multiple
independent aggregation units may be
disadvantaged compared to members
that operate Trading Centers with a
single independent aggregation unit, or
members that do not utilize aggregation
units. But this impact may be small, as
there is no prohibition from multiple
independent aggregation units
providing quotations covered by the
exceptions. Thus all are eligible to take
advantage of the exceptions provide
under the Plan.
tkelley on DSK3SPTVN1PROD with NOTICES
Capacity of the Order Displayed
Trading Centers would be limited in
their capacity to transact under FINRA’s
proposed exception to this rule. Some
orders that would be able to trade under
the exception as set forth in the Plan
would no longer be eligible. These
orders may thus have a lower
probability of execution and potentially
worse execution quality, if executed. It
is difficult to assess the extent to which
this might occur prior to the Pilot, but
the data collected by the Plan will
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19:15 Nov 24, 2015
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permit an analysis of this potential
impact.
Definition of Retail Investor Order
To the extent that this clarification
creates added competition by Trading
Centers to provide executions under the
exceptions of the Plan, some Trading
Centers may lose order flow to trading
centers that would not have been
permitted to execute these trades but for
the clarification. FINRA notes that
others may gain from this increase in
competition, so that the overall effect
could be beneficial.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve or disapprove
such proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
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–2015–047 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Robert W. Errett, Deputy Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–FINRA–2015–047. This file
number should be included on the
subject line if email is used. To help the
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For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.35
Brent J. Fields,
Secretary.
[FR Doc. 2015–29930 Filed 11–24–15; 8:45 am]
BILLING CODE 8011–01–P
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:
PO 00000
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of 10
a.m. and 3 p.m. Copies of such filing
also will be available for inspection and
copying at the principal office of
FINRA. All comments received will be
posted without change; the Commission
does not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number SR–FINRA–2015–047 and
should be submitted on or before
December 16, 2015.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–76484; File No. SR–FINRA–
2015–048]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a
Proposed Rule Change To Adopt
FINRA Rule 6191(b) and Amend FINRA
Rule 7440 To Implement the Data
Collection Requirements of the
Regulation NMS Plan To Implement a
Tick Size Pilot Program
November 19, 2015.
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 November
13, 2015, Financial Industry Regulatory
35 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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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. 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 adopt FINRA
Rule 6191 and amend Rule 7440 to
implement the Regulation NMS Plan to
Implement a Tick Size Pilot Program
(Plan).
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.
tkelley on DSK3SPTVN1PROD with NOTICES
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
On August 25, 2014, NYSE Group,
Inc., on behalf of BATS Exchange, Inc.,
BATS Y-Exchange, Inc., Chicago Stock
Exchange, Inc., EDGA Exchange, Inc.,
EDGX Exchange, Inc., Financial
Industry Regulatory Authority, Inc.
(‘‘FINRA’’), NASDAQ OMX BX, Inc.,
NASDAQ OMX PHLX LLC, the Nasdaq
Stock Market LLC, New York Stock
Exchange LLC (‘‘NYSE’’), NYSE MKT
LLC, and NYSE Arca, Inc. (collectively
‘‘Participants’’), filed with the
Commission, pursuant to Section 11A of
the Act 3 and Rule 608 of Regulation
NMS thereunder,4 the Plan to
Implement a Tick Size Pilot Program
(‘‘Pilot’’).5 The Participants filed the
Plan to comply with an order issued by
3 15
U.S.C. 78k–1.
CFR 242.608.
5 See Letter from Brendon J. Weiss, Vice
President, Intercontinental Exchange, Inc., to
Secretary, Commission, dated August 25, 2014.
4 17
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19:15 Nov 24, 2015
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the Commission on June 24, 2014.6 The
Plan7 was published for comment in the
Federal Register on November 7, 2014,
and approved by the Commission, as
modified, on May 6, 2015.8
The Plan is designed to allow the
Commission, market participants, and
the public to study and assess the
impact of increment conventions on the
liquidity and trading of the common
stocks of small-capitalization
companies. Each Participant is required
to comply, and to enforce compliance
by its member organizations, as
applicable, with the provisions of the
Plan. As is described more fully below,
the proposed rules would require
member organizations to comply with
the applicable data collection
requirements of the Plan.
The Pilot will include stocks of
companies with $3 billion or less in
market capitalization, an average daily
trading volume of one million shares or
less, and a volume weighted average
price of at least $2.00 for every trading
day. The Pilot will consist of a control
group of approximately 1400 Pilot
Securities and three test groups with
400 Pilot Securities in each (selected by
a stratified random sampling process).9
During the pilot, Pilot Securities in the
control group will be quoted at the
current tick size increment of $0.01 per
share and will trade at the currently
permitted increments. Pilot Securities in
the first test group (‘‘Test Group One’’)
will be quoted in $0.05 minimum
increments but will continue to trade at
any price increment that is currently
permitted.10 Pilot Securities in the
second test group (‘‘Test Group Two’’)
will be quoted in $0.05 minimum
increments and will trade at $0.05
minimum increments subject to a
midpoint exception, a retail investor
order exception, and a negotiated trade
exception.11 Pilot Securities in the third
test group (‘‘Test Group Three’’) will be
subject to the same quoting and trading
increments as Test Group Two and also
will be subject to the ‘‘Trade-at’’
requirement to prevent price matching
by a market participant that is not
displaying at a Trading Center’s ‘‘Best
Protected Bid’’ or ‘‘Best Protected
Offer,’’ unless an enumerated exception
applies.12 In addition to the exceptions
provided under Test Group Two, an
exception for Block Size orders and
exceptions that mirror those under Rule
611 of Regulation NMS 13 will apply to
the Trade-at requirement.
In approving the Plan, the
Commission noted that the Trading
Center data reporting requirements
would facilitate an analysis of the
effects of the Pilot on liquidity (e.g.,
transaction costs by order size),
execution quality (e.g., speed of order
executions), market maker activity,
competition between trading venues
(e.g., routing frequency of market
orders), transparency (e.g., choice
between displayed and hidden orders),
and market dynamics (e.g., rates and
speed of order cancellations).14 The
Commission noted that Market Maker
profitability data would assist the
Commission in evaluating the effect, if
any, of a widened tick increment on
market marker profits and any
corresponding changes in the liquidity
of small-capitalization securities.15
Compliance With the Data Collection
Requirements of the Plan
The Plan contains requirements for
collecting and transmitting data to the
Commission and to the public.
Specifically, Appendix B.I to the Plan
(Market Quality Statistics) requires
Trading Centers 16 to submit variety of
market quality statistics, including
information about an order’s original
size, whether the order was displayable
or not, the cumulative number of orders,
the cumulative number of shares of
orders, and the cumulative number of
shares executed within specific time
increments, e.g., from 30 seconds to less
than 60 seconds after the time of order
receipt. This information shall be
categorized by security, order type,
original order size, hidden status, and
coverage under Rule 605.17 Appendix
B.I to the Plan also contains additional
requirements for market orders and
marketable limit orders, including the
share-weighted average effective spread
for executions of orders; the cumulative
number of shares of orders executed
12 See
Section VI(D) of the Plan.
CFR 242.611.
14 See Approval Order, 80 FR at 27543.
15 See Approval Order, 80 FR at 27543.
16 The Plan incorporates the definition of a
‘‘Trading Center’’ from Rule 600(b)(78) of
Regulation NMS. Regulation NMS defines a
‘‘Trading Center’’ as ‘‘a national securities exchange
or national securities association that operates an
SRO trading facility, an alternative trading system,
an exchange market maker, an OTC market maker,
or any other broker or dealer that executes orders
internally by trading as principal or crossing orders
as agent.’’ See 17 CFR 242.600(b)(78).
17 17 CFR 242.605.
13 17
6 See Securities Exchange Act Release No. 72460
(June 24, 2014), 79 FR 36840 (June 30, 2014).
7 Unless otherwise specified, capitalized terms
used in this rule filing are based on the defined
terms of the Plan.
8 See Securities Exchange Act Release No. 74892
(May 6, 2015), 80 FR 27513 (May 13, 2015)
(‘‘Approval Order’’).
9 See Section V of the Plan for identification of
Pilot Securities, including criteria for selection and
grouping.
10 See Section VI(B) of the Plan.
11 See Section VI(C) of the Plan.
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with price improvement; and, for shares
executed with price improvement, the
share-weighted average amount per
share that prices were improved.
Appendix B.II to the Plan (Market and
Marketable Limit Order Data) requires
Trading Centers to submit information
relating to market orders and marketable
limit orders, including the time of order
receipt, order type, the order size, the
National Best Bid and National Best
Offer (‘‘NBBO’’) quoted price, the NBBO
quoted depth, the average execution
price-share-weighted average, and the
average execution time-share-weighted
average.
The Plan requires Appendix B.I and
B.II data to be submitted by Participants
that operate a Trading Center, and by
members of the Participants that operate
Trading Centers. The Plan provides that
each Participant that is the Designated
Examining Authority (‘‘DEA’’) for a
member of Participant that operates a
Trading Center shall collect such data in
a pipe delimited format, beginning six
months prior to the Pilot Period and
ending six months after the end of the
Pilot Period. The Plan also requires the
Participant, operating as DEA, to
transmit this information to the SEC
within 30 calendar days following
month end.
FINRA is therefore proposing Rule
6191(b) to set forth the requirements for
the collection and transmission of data
pursuant to Appendix B.I and B.II of the
Plan. Proposed Rule 6191(b)(1) requires
that a member that operates a Trading
Center shall establish, maintain and
enforce written policies and procedures
that are reasonably designed to comply
with the data collection and
transmission requirements of Items I
and II to Appendix B of the Plan, and
a member that is a Market Maker shall
establish, maintain and enforce written
policies and procedures that are
reasonably designed to comply with the
data collection and transmission
requirements of Item IV of Appendix B
to the Plan and Item I of Appendix C of
the Plan.
Rule 6191(b)(2) requires that a
member that operates a Trading Center
subject to the Plan and for which FINRA
is the DEA shall collect and transmit to
FINRA the data described in Items I and
II of Appendix B of the Plan with
respect to each Pre-Pilot Data Collection
Security for the period beginning six
months prior to the Pilot Period through
the trading day immediately preceding
the Pilot Period; and each Pilot Security
for the period beginning on the first day
of the Pilot Period through six months
after the end of the Pilot Period.
Section IV of the Plan (Policies and
Procedures) provides that each
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19:15 Nov 24, 2015
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Participant that is the DEA of a member
of a Participant operating a Trading
Center is required to develop
appropriate policies and procedures for
collecting and reporting the data
described in Items I and II of Appendix
B, as applicable, to the DEA Participant.
FINRA has determined that much of the
data required by Appendix B.I and B.II
to the Plan currently is reported to
FINRA through the Order Audit Trail
System (‘‘OATS’’). In the interest of
increasing the efficiency of the data
collection process and the consistency
of that data to be collected under the
Plan, FINRA proposes to use OATS as
the vehicle through which Trading
Centers must comply with their
reporting obligations pursuant to
Appendix B.I and B.II.
Accordingly, proposed Rule
6191(b)(2) provides that members that
operate Trading Centers that are subject
to the Plan, and for which FINRA serves
as the DEA, shall meet the data
collection and reporting requirements in
Items I and II of Appendix B by
reporting the necessary order
information in Pilot Securities and PrePilot Data Collection Securities to
OATS; however, because the current
OATS reports do not contain all of the
information required by Appendix B to
the Plan, the proposed rule change adds
four new fields to OATS to capture the
necessary information for Pilot
Securities and Pre-Pilot Data Collection
Securities.18 Specifically, the proposed
rule change would require OATS
Reporting Members 19 that operate a
Trading Center to record and report the
following information for orders
involving Pilot Securities and Pre-Pilot
Data Collection Securities if FINRA
serves as the member’s DEA:
• Whether the member is a Trading
Center in either a Pilot Security or a PrePilot Data Collection Security and, if the
member is a participant on the
Alternative Display Facility (‘‘ADF’’),
the display size of the order;
• Whether the order is routable; and
18 In addition to adding the new fields in the
proposed rule change, FINRA will add additional
values to existing fields that are necessitated by the
Tick Size Pilot. These new values will be described
fully in the OATS Reporting Technical
Specifications. FINRA anticipates that, for order
receipt or origination as well as on Desk Reports,
there would be new Special Handling Codes,
including one for slides and for counterparty
restrictions. FINRA also will provide additional
guidance in the OATS Reporting Technical
Specifications regarding the use of existing values
that may be affected by members participating in
the Tick Size Pilot.
19 Rule 7410(o) generally defines ‘‘Reporting
Member’’ as a member that receives or originates an
order and has an obligation to record and report
information under Rules 7440 and 7450.
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• Whether the member is relying on
the retail investor order exception with
respect to the order.
As an initial matter, only those OATS
Reporting Members that operate a
Trading Center and for which FINRA is
the DEA are required to make any
changes to their OATS reporting. OATS
Reporting Members that do not operate
Trading Centers or that have another
self-regulatory organization as DEA will
be permitted to leave the new fields
blank (i.e., they are not required to
populate the new Trading Center field
to affirmatively indicate that they are
not a Trading Center). OATS Reporting
Members that operate Trading Centers
will be required to indicate their status
as a Trading Center on all OATS reports
for new orders involving Pre-Pilot Data
Collection Securities and Pilot
Securities, including new order reports,
combined order/route reports, combined
order execution reports, and cancel/
replace reports. In addition, OATS
Reporting Members that operate Trading
Centers and that also are ADF Market
Participants 20 will be required to
indicate their status as an ADF Market
Participant and must indicate the
display size of the order so that OATS
can capture the information required by
Appendix B regarding hidden and
displayed size.21
As described above, the proposed rule
change adds new OATS fields to
capture whether an order in a Pre-Pilot
Data Collection Security or a Pilot
Security received by an OATS Reporting
Member that operates a Trading Center
is routable and whether the member is
relying on the retail investor order
exception in the Plan with respect to the
order. These additional fields are
necessary so that OATS can capture the
information required by Item II(n) and
II(o) of Appendix B to the Plan. This
information will be required on all
OATS reports for new orders, including
New Order Reports, Combined Order/
Route Reports, Combined Order/
Execution Reports, and Cancel/Replace
Reports.
In addition to information on new
orders, the proposed rule change
requires OATS Reporting Members that
operate Trading Centers and for which
FINRA is the DEA to report executions
in Pre-Pilot Data Collection Securities
and Pilot Securities when the order, or
20 Rule 6220(a)(3) defines ‘‘ADF Market
Participant’’ or ‘‘Market Participant’’ as a Registered
Reporting ADF Market Maker, as defined in Rule
6220(a)(13), or a Registered Reporting ADF ECN, as
defined in Rule 6220(a)(12).
21 Sections I(a)(5), (29), and (30) of Appendix B
to the Plan all require that hidden (i.e., nondisplayed) order information be provided to the
SEC.
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Federal Register / Vol. 80, No. 227 / Wednesday, November 25, 2015 / Notices
any part of the order, is executed on a
venue that does not provide execution
information to FINRA. Currently, OATS
Reporting Members report to OATS the
routing of any order to a non-FINRA
member, which includes orders routed
to a national securities exchange.22 For
those exchanges that provide FINRA
with execution information, FINRA is
able to link the route to any executions
occurring on the exchange. OATS data,
however, does not currently link to
executions occurring on venues that do
not provide this information to FINRA
(e.g., foreign exchanges). To provide the
execution information required by Items
I and II of Appendix B to the Plan,
FINRA must collect the execution
information, either from the venue to
which the order was routed, or from the
firm routing the order to the venue, to
match the routed order to the execution.
Because some venues do not provide
execution data to FINRA, the proposed
rule change would require members that
route orders in a Pre-Pilot Data
Collection Security or a Pilot Security to
a venue that does not provide execution
information to FINRA to report any
execution on such venue through an
OATS Execution Report or Combined
Order/Execution Report.
To facilitate compliance with this
provision, FINRA will identify in the
OATS Reporting Technical
Specifications those exchanges for
which these reports are not necessary;
thus, for orders routed to those
identified exchanges, OATS Reporting
Members would continue to report only
routes to those exchanges rather than
any executions occurring on those
exchanges. For orders routed to a venue
that is not identified, OATS Reporting
Members would be required to report
any executions on that venue in an
OATS Execution Report or Combined
Order/Execution Report.
As set forth in Section VII of the Plan
(Collection of Pilot Data), proposed Rule
6191(b)(2)(B) provides that FINRA shall
transmit this data collected by Trading
Centers required by Items I and II of
Appendix B to the Plan, and collected
pursuant to paragraph (b)(2)(A), to the
SEC in a pipe delimited format on a
disaggregated basis by Trading Center
within 30 calendar days following
month end. FINRA also shall make such
data publicly available on the FINRA
Web site on a monthly basis at no
charge and will not identify the Trading
Center that generated the data.
Appendix B.IV (Daily Market Maker
Participation Statistics) requires a
Participant to collect data related to
Market Maker participation from each
22 See
Rule 7440(c)(6).
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19:15 Nov 24, 2015
Jkt 238001
Market Maker 23 engaging in trading
activity on a Trading Center operated by
the Participant. FINRA is therefore
proposing Rule 6191(b)(3) to gather data
about a Market Maker’s participation in
Pilot Securities and Pre-Pilot Data
Collection Securities. Proposed Rule
6191(b)(3)(A) provides that a member
that is a Market Maker for which FINRA
is the DEA shall collect and transmit to
FINRA data relating to Item IV of
Appendix B to the Plan with respect to
activity conducted on any Trading
Center in Pilot Securities and Pre-Pilot
Data Collection Securities in furtherance
of its status as a registered Market
Maker, including a Trading Center that
executes trades otherwise than on a
national securities exchange, for
transactions that have settled or reached
settlement date. The proposed rule
requires Market Makers to transmit such
data in a pipe delimited format, by 12
p.m. EST on T+4 for (1) transactions in
each Pre-Pilot Data Collection Security
for the period beginning six months
prior to the Pilot Period through the
trading day immediately preceding the
Pilot Period; and (2) for transactions in
each Pilot Security for the period
beginning on the first day of the Pilot
Period through six months after the end
of the Pilot Period.
Proposed Rule 6191(b)(3)(B) provides
that FINRA shall transmit the data
relating to Market Maker activity
required by Item IV of Appendix B to
the Plan, and collected pursuant to
paragraph (b)(3)(A) above, to the
Participant operating the Trading Center
on which such activity occurred in a
pipe delimited format on a
disaggregated basis by Market Maker
during the Pre-Pilot and within 15
calendar days following month end
during the Pilot Period.
As required by the Plan, proposed
Rule 6191(b)(3)(C) provides that FINRA
shall transmit the data relating to
Market Maker activity conducted
otherwise than on a national securities
exchange required by Item IV of
Appendix B to the Plan, and collected
pursuant to paragraph (b)(3)(A), to the
SEC in a pipe delimited format, on a
disaggregated basis by Trading Center,
within 30 calendar days following
month end. FINRA shall also make such
data publicly available on the FINRA
Web site on a monthly basis at no
charge and will not identify the Trading
Center that generated the data.24
23 The Plan defines a Market Maker as ‘‘a dealer
registered with any self-regulatory organization, in
accordance with the rules thereof, as (i) a market
maker or (ii) a liquidity provider with an obligation
to maintain continuous, two-sided trading interest.’’
24 FINRA notes that Appendix B.III, which
requires a Participant that is a national securities
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73861
Appendix C.I (Market Maker
Profitability) requires a Participant to
collect data related to Market Maker
profitability from each Market Maker for
which it is the DEA. Specifically, the
Participant is required to collect the
total number of shares of orders
executed by the Market Maker, the raw
Market Maker realized trading profits,
and the raw Market Maker unrealized
trading profits. Data shall be collected
for dates starting six months prior to the
Pilot Period through six months after
the end of the Pilot Period. This data
shall be collected on a monthly basis, to
be provided in a pipe delimited format
to the Participant, as DEA, within 30
calendar days following month end.
Appendix C.II (Aggregated Market
Maker Profitability) requires the
Participant, as DEA, to aggregate the
Appendix C.I data, and to categorize
this data by security as well as by the
control group and each Test Group. That
aggregated data shall contain
information relating to total raw Market
Maker realized trading profits, volumeweighted average of raw Market Maker
realized trading profits, the total raw
Market Maker unrealized trading profits,
and the volume-weighted average of
Market Maker unrealized trading profits.
FINRA is therefore proposing Rule
6191(b)(4) to set forth the requirements
for the collection and transmission of
data pursuant to Appendix C.I and of
the Plan. Proposed Rule 6191(b)(4)(A)
requires that a member that is a Market
Maker, and for which FINRA is the
DEA, shall collect and transmit to
FINRA the data described in Item I of
Appendix C to the Plan, as modified by
Paragraph (b)(5) with respect to
executions in Pilot Securities that have
settled or reached settlement date that
were executed on any Trading Center.
The proposed rule also requires
members to provide such data in a pipe
delimited format by 12 p.m. EST on T+4
for (1) for executions during and outside
of Regular Trading Hours in each PrePilot Data Collection Security for the
period beginning six months prior to the
Pilot Period through the trading day
immediately preceding the Pilot Period;
and (2) for executions during and
outside of Regular Trading Hours in
each Pilot Security for the period
beginning on the first day of the Pilot
Period through six months after the end
of the Pilot Period.
Proposed Rule 6191(b)(4)(B) provides
that FINRA shall collect this data and,
on a monthly basis, transmit such data,
exchange to collect daily Market Maker registration
statistics, does not apply to FINRA. Accordingly,
FINRA is not proposing a rule to implement this
aspect of the Plan.
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categorized by the control group and
each Test Group, to the SEC in a pipe
delimited format; provided, however,
that the data transmitted to the SEC
shall include the profitability statistics
categorized by Market Maker and by
security. In calculating unrealized
trading profits, FINRA shall also report
the number of excess (deficit) shares
held by the Market Maker, the volume
weighted average price of that excess
(deficit) and the closing price of the
security as reported by the primary
listing exchange used in reporting
unrealized profit. The proposed rule
also provides that FINRA shall make
this aggregated data, categorized by the
control group and each Test Group,
publicly available on the FINRA Web
site on a monthly basis at no charge and
will not identify the Market Makers that
generated the data or the individual
securities.
FINRA also is proposing a rule setting
forth the manner in which Market
Maker participation and profitability
will be calculated. Proposed Rule
6191(b)(5) provides that a member that
is a Market Maker subject to the
requirements of proposed Rule
6191(b)(3)(A) and (b)(4)(A) in a Pre-Pilot
Data Collection Security or a Pilot
Security, and for which FINRA is the
DEA, shall be deemed to have satisfied
the requirements of proposed Rule
6191(b)(3)(A) and (b)(4)(A), in addition
to the requirements of Appendix B.IV
and Item I of Appendix C, if such
Market Maker submits to FINRA the
specified data for any principal trade,
not including riskless principal, in a
Pre-Pilot Data Collection Security or a
Pilot Security executed in furtherance of
its status as a Market Maker on any
Trading Center. The proposed rule
requires Market Makers to submit (1)
Ticker Symbol; (2) Trading Center
where the trade was executed, or if not
known, the destination where the order
originally was routed for further
handling and execution; (3) Time of
execution; (4) Price; (5) Size; (6) Buy/
sell; (7) for trades executed away from
the Market Maker, a unique identifier,
as specified by the Market Maker’s DEA,
that will allow the trade to be associated
with the Trading Center where the trade
was executed; and (8) for trades
cancelled or corrected beyond T+3,
whether the trade represents a
cancellation or correction.
FINRA is also proposing, through
Supplementary Material, to clarify other
aspects of the data collection
requirements.25 Proposed
25 FINRA is also proposing Supplementary
Material .01 to Rule 6191 to clarify that certain
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Supplementary Material .02 relates to
the use of the retail investor order flag
for purposes of Appendix B.II(n)
reporting. The Plan currently states that
market and marketable limit orders shall
include a ‘‘yes/no’’ field relating to the
Retail Investor Order flag. FINRA is
proposing Supplementary Material .02
to clarify that, for purposes of the
reporting requirement in Appendix
B.II(n), a Trading Center shall report ‘‘y’’
where it is relying upon the Retail
Investor Order exception to Test Groups
Two and Three, and ‘‘n’’ for all other
instances. FINRA believes that requiring
the identification of a Retail Investor
Orders only where the exception may
apply (i.e., Pilot Securities in Test
Groups Two and Three) is consistent
with Appendix B.II(n).
Supplementary Material .03 requires
that members populate a field to
identify whether an order is affected by
the bands in place pursuant to the
National Market System Plan to Address
Extraordinary Market Volatility.26
Pursuant to the Limit-Up Limit-Down
Plan, between 9:30 a.m. and 4:00 p.m.,
the Securities Information Processor
(‘‘SIP’’) calculates a lower price band
and an upper price band for each NMS
stock. These price bands represent a
specified percentage above or below the
stock’s reference price, which generally
is calculated based on reported
transactions in that stock over the
preceding five minutes. When one side
of the market for an individual security
is outside the applicable price band, the
SIP identifies that quotation as nonexecutable. When the other side of the
market reaches the applicable price
band (e.g., the offer reaches the lower
price band), the security enters a Limit
State. The stock would exit a Limit State
if, within 15 seconds of entering the
Limit State, all Limit State Quotations
were executed or canceled in their
entirety. If the security does not exit a
Limit State within 15 seconds, then the
primary listing exchange declares a fiveminute trading pause, which would be
applicable to all markets trading the
security.
FINRA and the other Participants
have determined that it is appropriate to
create a new flag for reporting orders
that are affected by the Limit-Up LimitDown bands. Accordingly, a Trading
Center shall report a value of ‘‘Y’’ when
the ability of an order to execute has
been affected by the Limit-Up Limitenumerated terms used throughout Rule 6191 shall
have the same meaning as set forth in the Plan.
26 See National Market System Plan to Address
Extraordinary Market Volatility, Securities
Exchange Act Release No. 67091 (May 31, 2012), 77
FR 33498 (June 6, 2012) (File No. 4–631) (‘‘LimitUp Limit-Down Plan’’).
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Down bands in effect at the time of
order receipt. A Trading Center shall
report a value of ‘‘N’’ when the ability
of an order to execute has not been
affected by the Limit-Up Limit-Down
bands in effect at the time of order
receipt.
Supplementary Material .03 also
requires, for dually-listed securities, that
the Participant indicate whether the
order was handled domestically, or
routed to a foreign venue. Accordingly,
the Participant will indicate, for
purposes of Appendix B.I, whether the
order was: (1) Fully executed
domestically, or (2) fully or partially
executed on a foreign market. For
purposes of Appendix B.II, the
Participant will classify all orders in
dually-listed Pilot and Pre-Pilot
Securities as: (1) Directed to a domestic
venue for execution; (2) may only be
directed to a foreign venue for
execution; or (3) was fully or partially
directed to a foreign venue at the
discretion of the member. FINRA
believes that this proposed flag will
better identify orders in dually-listed
securities, as such orders that were
executed in foreign venues would not be
subject to the Plan’s quoting and trading
requirements, and could otherwise
compromise the integrity of the data.
Supplementary Material .04 relates to
the time ranges specified in Appendix
B.I.a(14), B.I.a(15), B.I.a(21) and
B.I.a(22).27 FINRA and the other
Participants have determined that it is
appropriate to change the reporting
times in these provisions to require
more granular reporting for these
categories. Accordingly, FINRA
proposes to add Appendix B.I.a(14A),
which will require Trading Centers to
report the cumulative number of shares
of orders executed from 100
microseconds to less than 1 millisecond
after the time of order receipt. Appendix
B.I.a(15) will be changed to require the
cumulative number of shares of orders
executed from 1 millisecond to less than
100 milliseconds after the time of order
receipt. FINRA also proposes to add
Appendix B.I.a(21A), which will require
Trading Centers to report the
27 Specifically, Appendix B.I.a(14) requires
reporting of the cumulative number of shares of
orders executed from 0 to less than 100
microseconds after the time of order receipt;
Appendix B.I.a(15) requires reporting of the
cumulative number of shares of orders executed
from 100 microseconds to less than 100
milliseconds after the time of order receipt;
Appendix B.I.a(21) requires reporting of the
cumulative number of shares of orders cancelled
from 0 to less than 100 microseconds after the time
of order receipt; and Appendix B.I.a(22) requires
reporting of the cumulative number of shares of
orders cancelled from 100 microseconds to less
than 100 milliseconds after the time of order
receipt.
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cumulative number of shares of orders
canceled from 100 microseconds to less
than 1 millisecond after the time of
order receipt. Appendix B.I.a(22) will be
changed to require the cumulative
number of shares of orders canceled
from 1 millisecond to less than 100
milliseconds after the time of order
receipt. FINRA believes that these new
reporting requirements will contribute
to a meaningful analysis of the Pilot by
producing more granular data on these
points.28
Supplementary Material .05 relates to
the requirement in Appendix B.I.a(33)
requiring the share-weighted average
BBO Spread of the reporting exchange
as part of the market quality statistics to
be reported. FINRA and the other
Participants have determined that this
requirement should apply to both the
reporting exchange and to a Trading
Center that displays such quote on the
ADF, and is proposing to make this
clarification through Supplementary
Material .05.
Supplementary Material .06 relates to
the relevant measurement for purposes
of Appendix B.I.a(31)–(33) reporting.
Currently, the Plan states that this data
shall be reported as of the time of order
execution. FINRA and the other
Participants believe that this
information should more properly be
captured at the time of order receipt, as
evaluating share-weighted average
prices at the time of order receipt is
more consistent with the goal of
observing the effect of the Pilot on the
liquidity of Pilot Securities. FINRA is
therefore proposing to make this change
through Supplementary Material .06.29
This change will make these provisions
consistent with the remainder of the
statistics in Appendix B.I.a, which are
all based on order receipt.
Supplementary Material .07 clarifies
that, for purposes of Appendix B.I.a(33),
only a Trading Center that is displaying
in its own name as a Trading Center
when executing an order shall enter a
value in this field. FINRA believes that
the Appendix B.I.a(33) reporting
requirement is only relevant for a
Trading Center that is a display venue
and not Trading Centers that may
display through other Trading Centers
(such as a market maker displaying a
quote on a national securities exchange).
28 FINRA notes that it intends to file an exemptive
request seeking relief from certain of the Plan’s data
collection requirements, including the requirements
that Trading Centers report information in either
microseconds or milliseconds, as not all Trading
Centers currently capture and report orders in
either microseconds or milliseconds.
29 This proposed change is also part of an
exemptive request that FINRA and the other
Participants will be submitting to the SEC pursuant
to Rule 608(e) of Regulation NMS.
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Supplementary Material .08 addresses
the status of not-held and auction orders
for purposes of Appendix B.I reporting.
Currently, Appendix B.I sets forth eight
categories of orders, including market
orders, marketable limit orders, and
inside-the-quote resting limit orders, for
which daily market quality statistics
must be reported. Currently, Appendix
B.I does not provide a category for not
held orders, clean cross orders, auction
orders, or orders received when the
NBBO is crossed. FINRA and the other
Participants have determined that it is
appropriate to include separate
categories both not held orders and
auction orders for purposes of Appendix
B reporting. FINRA is therefore
proposing Supplementary Material .07
to provide that not held orders shall be
included as an order type for purposes
of Appendix B reporting, and shall be
assigned the number (18). Clean cross
orders shall be included as an order
type for purposes of Appendix B
reporting, and shall be assigned the
number (19); auction orders shall be
included an as order type for purposes
of Appendix B reporting, and shall be
assigned the number (20); and orders
that cannot be otherwise be classified,
including, for example, orders received
when the NBBO is crossed shall be
included as an order type for purposes
of Appendix B reporting, and shall be
assigned the number (21). All of these
orders already are included in the scope
of Appendix B; however, without this
proposed change, these order types
would be categorized with other orders,
such as regular held orders, that should
be able to be fully executed upon
receipt, which would compromise the
value of this data.
FINRA is proposing Supplementary
Material .09 to clarify the scope of the
Plan as it relates to members that only
execute orders for limited purposes.
Specifically, FINRA and the other
Participants believe that a member that
only executes orders otherwise than on
a national securities exchange for the
purpose of (1) correcting a bona fide
error related to the execution of a
customer order; (2) purchasing a
security from a customer at a nominal
price solely for purposes of liquidating
the customer’s position; or (3)
completing the fractional share portion
of an order 30 shall not be deemed a
Trading Center for purposes of
Appendix B to the Plan. FINRA is
30 FINRA notes that where a member purchases
a fractional share from a customer, the Trading
Center that executes the remaining whole shares of
that customer order would be subject to Appendix
B of the Plan.
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73863
therefore proposing Supplementary
Material .09 to make this clarification.
FINRA is proposing Supplementary
Material .10 to clarify that, for purposes
of the Plan, Trading Centers must begin
the data collection required pursuant to
Appendix B.I.a(1) through B.II.(y) to the
Plan and Item I of Appendix C to the
Plan on April 4, 2016. While FINRA
will provide the information required by
Appendix B and C to the Plan to the
SEC during the Pre-Pilot period, the
requirement that FINRA, as DEA,
provide information to the SEC within
30 calendar days following month end
and make such data publicly available
on its Web site pursuant to Appendix B
and C to the Plan shall commence as of
the beginning of the Pilot Period.31
FINRA is proposing Supplementary
Material .11 to address the requirement
in Appendix C.I(b) to the Plan that the
calculation of raw Market Maker
realized trading profits utilize a last in,
first out (‘‘LIFO’’)-like method to
determine which share prices shall be
used in that calculation. FINRA and the
other Participants believe that is more
appropriate to utilize a methodology
that yields LIFO-like results, rather than
utilizing a LIFO-like method, and
FINRA is therefore proposing
Supplementary Material .11 to make
this change.32 FINRA is proposing that,
for purposes of Item I of Appendix C,
the Participants shall calculate daily
Market Maker realized profitability
statistics for each trading day on a daily
LIFO basis using reported trade price
and shall include only trades executed
on the subject trading day. The daily
LIFO calculation shall not include any
positions carried over from previous
trading days. For purposes of Item I.c of
Appendix C, the Participants shall
calculate daily Market Maker unrealized
profitability statistics for each trading
day on an average price basis.
31 In its order approving the Plan, the SEC noted
that the Pilot shall be implemented within one year
of the date of publication of its order, e.g., by May
6, 2016. See Approval Order, 80 FR at 27545.
However, on November 6, 2015, the SEC extended
the implementation date approximately five months
to October 3, 2016. See Securities Exchange Act
Release No. 76382 (November 6, 2015), 80 FR 70284
(November 13, 2015).
32 Appendix C.I currently requires Market Maker
profitability statistics to include (1) the total
number of shares of orders executed by the Market
Maker; (2) raw Market Maker realized trading
profits, which is the difference between the market
value of Market Maker shares and the market value
of Market Maker purchases, using a LIFO-like
method; and (3) raw Market Maker unrealized
trading profits, which is the difference between the
purchase or sale price of the end-of-day inventory
position of the Market Maker and the Closing Price.
In the case of a short position, the Closing Price
from the sale will be subtracted; in the case of a
long position, the purchase price will be subtracted
from the Closing Price.
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Specifically, the Participants must
calculate the volume weighted average
price of the excess (deficit) of buy
volume over sell volume for the current
trading day using reported trade price.
The gain (loss) of the excess (deficit) of
buy volume over sell volume shall be
determined by using the volume
weighted average price compared to the
closing price of the security as reported
by the primary listing exchange. In
reporting unrealized trading profits, the
Participant shall also report the number
of excess (deficit) shares held by the
Market Maker, the volume weighted
average price of that excess (deficit) and
the closing price of the security as
reported by the primary listing exchange
used in reporting unrealized profit.
FINRA is proposing Supplementary
Material .12 to address the securities
that will be used for data collection
purposes prior to the commencement of
the Pilot. FINRA and the other
Participants have determined that it is
appropriate to collect data for a group of
securities that is larger, and using
different quantitative thresholds, than
the group of securities that will Pilot
Securities. FINRA is therefore proposing
Supplementary Material .12 to define
‘‘Pre-Pilot Data Collection Securities’’ as
the securities designated by the
Participants for purposes of the data
collection requirements described in
Items I, II and IV of Appendix B and
Item I of Appendix C to the Plan for the
period beginning six months prior to the
Pilot Period and ending on the trading
day immediately preceding the Pilot
Period. The Participants shall compile
the list of Pre-Pilot Data Collection
Securities by selecting all NMS stocks
with a market capitalization of $5
billion or less, a Consolidated Average
Daily Volume (CADV) of 2 million
shares or less and a closing price of $1
per share or more. The market
capitalization and the closing price
thresholds shall be applied to the last
day of the Pre-Pilot measurement
period, and the CADV threshold shall be
applied to the duration of the Pre-Pilot
measurement period. The Pre-Pilot
measurement period shall be the three
calendar months ending on the day
when the Pre-Pilot Data Collection
Securities are selected. The Pre-Pilot
Data Collection Securities shall be
selected thirty days prior to the
commencement of the six-month PrePilot Period. On the trading day that is
the first trading day of the Pilot Period
through six months after the end of the
Pilot Period, the data collection
requirements will become applicable to
the Pilot Securities only. A Pilot
Security will only be eligible to be
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included in a Test Group if it was a PrePilot Security.
Finally, FINRA is proposing
Supplementary Material .13, which
states that the Rule shall be in effect
during a pilot period to coincide with
the pilot period for the Plan (including
any extensions to the pilot period for
the Plan).
If the Commission approves the
proposed rule change, the proposed rule
change will be effective upon
Commission approval. The
implementation date will be April 4,
2016.
2. Statutory Basis
FINRA believes that the proposed rule
change is consistent with the provisions
of Section 15A(b)(6) of the Act,33 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)(9) of
the Act,34 which requires that FINRA
rules not impose any burden on
competition that is not necessary or
appropriate.
FINRA believes that this proposal is
consistent with the Act because it
implements and clarifies the provisions
of the Plan, and is designed to assist
FINRA in meeting its regulatory
obligations pursuant to the Plan. In
approving the Plan, the SEC noted that
the Pilot was an appropriate, datadriven test that was designed to evaluate
the impact of a wider tick size on
trading, liquidity, and the market
quality of securities of smaller
capitalization companies, and was
therefore in furtherance of the purposes
of the Act. FINRA believes that this
proposal is in furtherance of the
objectives of the Plan, as identified by
the SEC, and is therefore consistent with
the Act because the proposal
implements and clarifies the
requirements of the Plan and applies
specific obligations to members in
furtherance of compliance with the
Plan.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
FINRA does not believe that the
proposed rule change will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. FINRA notes
that the proposed rule change
implements the provisions of the Plan,
and is designed to assist FINRA in
33 15
34 15
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U.S.C. 78o–3(b)(9).
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meeting its regulatory obligations
pursuant to the Plan. FINRA notes that
the data collection requirements for
members that operate Trading Centers
will apply equally to all such members,
as will the data collection requirements
for Market Makers.
FINRA estimates that there are
approximately 250 members that
operate Trading Centers, and for which
FINRA is the DEA, that would be
required to submit data pursuant to
Appendix B.I and B.II. While the Plan
imposes comprehensive data collection
requirements on members that operate
Trading Centers, FINRA notes that some
of the data requirements are modeled
upon Rule 605 data, and that it is
leveraging existing OATS data and
systems to assist firms in complying
with their Appendix B.I and B.II
reporting obligations. FINRA also
estimates that there are approximately
100 members that qualify as Market
Makers for which FINRA is the DEA.
While the Plan imposes new reporting
obligations on Market Makers, FINRA
notes that some of the requested Market
Maker profitability data may already be
captured by members for internal
purposes.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve or disapprove
such proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
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Electronic Comments
DEPARTMENT OF STATE
• 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–2015–048 on the subject line.
[Public Notice: 9358]
Paper Comments
• Send paper comments in triplicate
to Robert W. Errett, Deputy Secretary,
Securities and Exchange Commission,
100 F Street NE., Washington, DC
20549–1090.
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All submissions should refer to File
Number SR–FINRA–2015–048. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of 10
a.m. and 3 p.m. Copies of such filing
also will be available for inspection and
copying at the principal office of
FINRA. All comments received will be
posted without change; the Commission
does not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number SR–FINRA–2015–048 and
should be submitted on or before
December 16, 2015.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.35
Brent J. Fields,
Secretary.
[FR Doc. 2015–29931 Filed 11–24–15; 8:45 am]
BILLING CODE 8011–01–P
35 17
CFR 200.30–3(a)(12).
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Modification of Iran, North Korea, and
Syria Nonproliferation Act Measures
Against a Russian Entity
Department of State.
ACTION: Notice.
AGENCY:
A decision has been made,
pursuant to the Iran, North Korea, and
Syria Nonproliferation Act, to modify
nonproliferation measures pursuant to
this Act on a Russian foreign person.
DATES: Effective Date: November 25,
2015.
FOR FURTHER INFORMATION CONTACT:
Pamela K. Durham, Office of Missile,
Biological, and Chemical
Nonproliferation, Bureau of
International Security and
Nonproliferation, Department of State,
Telephone (202) 647–4930.
SUPPLEMENTARY INFORMATION: On
September 2, 2015, the United States
Government announced the imposition
of measures including the following
against Rosoboronexport (ROE) (Russia)
and any successor, sub-unit, or
subsidiary thereof: ‘‘No department or
agency of the United States Government
may procure or enter into any contract
for the procurement of any goods,
technology, or services from
[Rosoboronexport (ROE) (Russia) and
any successor, sub-unit, or subsidiary
thereof], except to the extent that the
Secretary of State otherwise may
determine . . . .’’ (See 80 FR 53222,
Public Notice 9251; and 80 FR 65844,
Public Notice 9329).
The United States Government has
decided to modify the measure
described above against ROE and any
successor, sub-unit, or subsidiary
thereof as follows. The measure
described above shall not apply to
subcontracts at any tier with ROE and
any successor, sub-unit, or subsidiary
thereof made on behalf of the United
States Government for goods,
technology, and services for the
maintenance, repair, overhaul, or
sustainment of Mi-17 helicopters for the
purpose of providing assistance to the
security forces of Afghanistan, as well as
for the purpose of combating terrorism
and violent extremism globally.
Such subcontracts include the
purchase of spare parts, supplies, and
related services for these purposes. This
modification applies retroactively as of
the effective date of the sanctions, and
will remain in place for two years from
that date, except to the extent that the
Secretary of State may otherwise
determine.
SUMMARY:
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This modification does not apply to
any other measures imposed pursuant to
the INKSNA and announced in Public
Notice 9251 published on September 2,
2015 (80 FR 53222).
Dated: November 19, 2015.
Thomas M. Countryman,
Assistant Secretary of State for International
Security and Nonproliferation.
[FR Doc. 2015–30058 Filed 11–24–15; 8:45 am]
BILLING CODE 4710–27–P
DEPARTMENT OF STATE
[Public Notice: 9356]
Notice of Meeting of Advisory
Committee on International Law
A meeting of the Department of
State’s Advisory Committee on
International Law will take place on
Thursday, December 10, from 9:30 a.m.
to 5:00 p.m. at the George Washington
University Law School, Michael K.
Young Faculty Conference Center, 716
20th Street NW., 5th Floor, Washington,
DC. Principal Deputy Legal Adviser
Mary McLeod will chair the meeting,
which will be open to the public up to
the capacity of the conference room. It
is anticipated that the agenda of the
meeting will cover a range of current
international legal topics, including the
development of non-legally binding
norms and instruments, the
International Criminal Court and the
‘‘crime of aggression,’’ the upcoming
ICRC Commentaries on the Geneva
Conventions, and issues related to crossborder electronic data access.
Members of the public who wish to
attend should contact the Office of the
Legal Adviser by December 7 at
thorntonnc@state.gov or 202–776–8356
and provide their name, professional
affiliation, address, and phone number.
A valid photo ID is required for
admission to the meeting. Attendees
who require reasonable accommodation
should make their requests by December
4. Late requests will be considered but
might not be possible to accommodate.
Dated: November 19, 2015.
Nicole C. Thornton,
Attorney-Adviser, Office of the Legal Adviser,
Executive Director, Advisory Committee on
International Law, United States Department
of State.
[FR Doc. 2015–30063 Filed 11–24–15; 8:45 am]
BILLING CODE 4710–08–P
E:\FR\FM\25NON1.SGM
25NON1
]]>Agencies
[Federal Register Volume 80, Number 227 (Wednesday, November 25, 2015)]
[Notices]
[Pages 73858-73865]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-29931]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-76484; File No. SR-FINRA-2015-048]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Adopt
FINRA Rule 6191(b) and Amend FINRA Rule 7440 To Implement the Data
Collection Requirements of the Regulation NMS Plan To Implement a Tick
Size Pilot Program
November 19, 2015.
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 November 13, 2015, Financial Industry Regulatory
[[Page 73859]]
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. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to adopt FINRA Rule 6191 and amend Rule 7440 to
implement the Regulation NMS Plan to Implement a Tick Size Pilot
Program (Plan).
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
On August 25, 2014, NYSE Group, Inc., on behalf of BATS Exchange,
Inc., BATS Y-Exchange, Inc., Chicago Stock Exchange, Inc., EDGA
Exchange, Inc., EDGX Exchange, Inc., Financial Industry Regulatory
Authority, Inc. (``FINRA''), NASDAQ OMX BX, Inc., NASDAQ OMX PHLX LLC,
the Nasdaq Stock Market LLC, New York Stock Exchange LLC (``NYSE''),
NYSE MKT LLC, and NYSE Arca, Inc. (collectively ``Participants''),
filed with the Commission, pursuant to Section 11A of the Act \3\ and
Rule 608 of Regulation NMS thereunder,\4\ the Plan to Implement a Tick
Size Pilot Program (``Pilot'').\5\ The Participants filed the Plan to
comply with an order issued by the Commission on June 24, 2014.\6\ The
Plan\7\ was published for comment in the Federal Register on November
7, 2014, and approved by the Commission, as modified, on May 6,
2015.\8\
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\3\ 15 U.S.C. 78k-1.
\4\ 17 CFR 242.608.
\5\ See Letter from Brendon J. Weiss, Vice President,
Intercontinental Exchange, Inc., to Secretary, Commission, dated
August 25, 2014.
\6\ See Securities Exchange Act Release No. 72460 (June 24,
2014), 79 FR 36840 (June 30, 2014).
\7\ Unless otherwise specified, capitalized terms used in this
rule filing are based on the defined terms of the Plan.
\8\ See Securities Exchange Act Release No. 74892 (May 6, 2015),
80 FR 27513 (May 13, 2015) (``Approval Order'').
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The Plan is designed to allow the Commission, market participants,
and the public to study and assess the impact of increment conventions
on the liquidity and trading of the common stocks of small-
capitalization companies. Each Participant is required to comply, and
to enforce compliance by its member organizations, as applicable, with
the provisions of the Plan. As is described more fully below, the
proposed rules would require member organizations to comply with the
applicable data collection requirements of the Plan.
The Pilot will include stocks of companies with $3 billion or less
in market capitalization, an average daily trading volume of one
million shares or less, and a volume weighted average price of at least
$2.00 for every trading day. The Pilot will consist of a control group
of approximately 1400 Pilot Securities and three test groups with 400
Pilot Securities in each (selected by a stratified random sampling
process).\9\ During the pilot, Pilot Securities in the control group
will be quoted at the current tick size increment of $0.01 per share
and will trade at the currently permitted increments. Pilot Securities
in the first test group (``Test Group One'') will be quoted in $0.05
minimum increments but will continue to trade at any price increment
that is currently permitted.\10\ Pilot Securities in the second test
group (``Test Group Two'') will be quoted in $0.05 minimum increments
and will trade at $0.05 minimum increments subject to a midpoint
exception, a retail investor order exception, and a negotiated trade
exception.\11\ Pilot Securities in the third test group (``Test Group
Three'') will be subject to the same quoting and trading increments as
Test Group Two and also will be subject to the ``Trade-at'' requirement
to prevent price matching by a market participant that is not
displaying at a Trading Center's ``Best Protected Bid'' or ``Best
Protected Offer,'' unless an enumerated exception applies.\12\ In
addition to the exceptions provided under Test Group Two, an exception
for Block Size orders and exceptions that mirror those under Rule 611
of Regulation NMS \13\ will apply to the Trade-at requirement.
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\9\ See Section V of the Plan for identification of Pilot
Securities, including criteria for selection and grouping.
\10\ See Section VI(B) of the Plan.
\11\ See Section VI(C) of the Plan.
\12\ See Section VI(D) of the Plan.
\13\ 17 CFR 242.611.
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In approving the Plan, the Commission noted that the Trading Center
data reporting requirements would facilitate an analysis of the effects
of the Pilot on liquidity (e.g., transaction costs by order size),
execution quality (e.g., speed of order executions), market maker
activity, competition between trading venues (e.g., routing frequency
of market orders), transparency (e.g., choice between displayed and
hidden orders), and market dynamics (e.g., rates and speed of order
cancellations).\14\ The Commission noted that Market Maker
profitability data would assist the Commission in evaluating the
effect, if any, of a widened tick increment on market marker profits
and any corresponding changes in the liquidity of small-capitalization
securities.\15\
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\14\ See Approval Order, 80 FR at 27543.
\15\ See Approval Order, 80 FR at 27543.
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Compliance With the Data Collection Requirements of the Plan
The Plan contains requirements for collecting and transmitting data
to the Commission and to the public. Specifically, Appendix B.I to the
Plan (Market Quality Statistics) requires Trading Centers \16\ to
submit variety of market quality statistics, including information
about an order's original size, whether the order was displayable or
not, the cumulative number of orders, the cumulative number of shares
of orders, and the cumulative number of shares executed within specific
time increments, e.g., from 30 seconds to less than 60 seconds after
the time of order receipt. This information shall be categorized by
security, order type, original order size, hidden status, and coverage
under Rule 605.\17\ Appendix B.I to the Plan also contains additional
requirements for market orders and marketable limit orders, including
the share-weighted average effective spread for executions of orders;
the cumulative number of shares of orders executed
[[Page 73860]]
with price improvement; and, for shares executed with price
improvement, the share-weighted average amount per share that prices
were improved.
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\16\ The Plan incorporates the definition of a ``Trading
Center'' from Rule 600(b)(78) of Regulation NMS. Regulation NMS
defines a ``Trading Center'' as ``a national securities exchange or
national securities association that operates an SRO trading
facility, an alternative trading system, an exchange market maker,
an OTC market maker, or any other broker or dealer that executes
orders internally by trading as principal or crossing orders as
agent.'' See 17 CFR 242.600(b)(78).
\17\ 17 CFR 242.605.
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Appendix B.II to the Plan (Market and Marketable Limit Order Data)
requires Trading Centers to submit information relating to market
orders and marketable limit orders, including the time of order
receipt, order type, the order size, the National Best Bid and National
Best Offer (``NBBO'') quoted price, the NBBO quoted depth, the average
execution price-share-weighted average, and the average execution time-
share-weighted average.
The Plan requires Appendix B.I and B.II data to be submitted by
Participants that operate a Trading Center, and by members of the
Participants that operate Trading Centers. The Plan provides that each
Participant that is the Designated Examining Authority (``DEA'') for a
member of Participant that operates a Trading Center shall collect such
data in a pipe delimited format, beginning six months prior to the
Pilot Period and ending six months after the end of the Pilot Period.
The Plan also requires the Participant, operating as DEA, to transmit
this information to the SEC within 30 calendar days following month
end.
FINRA is therefore proposing Rule 6191(b) to set forth the
requirements for the collection and transmission of data pursuant to
Appendix B.I and B.II of the Plan. Proposed Rule 6191(b)(1) requires
that a member that operates a Trading Center shall establish, maintain
and enforce written policies and procedures that are reasonably
designed to comply with the data collection and transmission
requirements of Items I and II to Appendix B of the Plan, and a member
that is a Market Maker shall establish, maintain and enforce written
policies and procedures that are reasonably designed to comply with the
data collection and transmission requirements of Item IV of Appendix B
to the Plan and Item I of Appendix C of the Plan.
Rule 6191(b)(2) requires that a member that operates a Trading
Center subject to the Plan and for which FINRA is the DEA shall collect
and transmit to FINRA the data described in Items I and II of Appendix
B of the Plan with respect to each Pre-Pilot Data Collection Security
for the period beginning six months prior to the Pilot Period through
the trading day immediately preceding the Pilot Period; and each Pilot
Security for the period beginning on the first day of the Pilot Period
through six months after the end of the Pilot Period.
Section IV of the Plan (Policies and Procedures) provides that each
Participant that is the DEA of a member of a Participant operating a
Trading Center is required to develop appropriate policies and
procedures for collecting and reporting the data described in Items I
and II of Appendix B, as applicable, to the DEA Participant. FINRA has
determined that much of the data required by Appendix B.I and B.II to
the Plan currently is reported to FINRA through the Order Audit Trail
System (``OATS''). In the interest of increasing the efficiency of the
data collection process and the consistency of that data to be
collected under the Plan, FINRA proposes to use OATS as the vehicle
through which Trading Centers must comply with their reporting
obligations pursuant to Appendix B.I and B.II.
Accordingly, proposed Rule 6191(b)(2) provides that members that
operate Trading Centers that are subject to the Plan, and for which
FINRA serves as the DEA, shall meet the data collection and reporting
requirements in Items I and II of Appendix B by reporting the necessary
order information in Pilot Securities and Pre-Pilot Data Collection
Securities to OATS; however, because the current OATS reports do not
contain all of the information required by Appendix B to the Plan, the
proposed rule change adds four new fields to OATS to capture the
necessary information for Pilot Securities and Pre-Pilot Data
Collection Securities.\18\ Specifically, the proposed rule change would
require OATS Reporting Members \19\ that operate a Trading Center to
record and report the following information for orders involving Pilot
Securities and Pre-Pilot Data Collection Securities if FINRA serves as
the member's DEA:
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\18\ In addition to adding the new fields in the proposed rule
change, FINRA will add additional values to existing fields that are
necessitated by the Tick Size Pilot. These new values will be
described fully in the OATS Reporting Technical Specifications.
FINRA anticipates that, for order receipt or origination as well as
on Desk Reports, there would be new Special Handling Codes,
including one for slides and for counterparty restrictions. FINRA
also will provide additional guidance in the OATS Reporting
Technical Specifications regarding the use of existing values that
may be affected by members participating in the Tick Size Pilot.
\19\ Rule 7410(o) generally defines ``Reporting Member'' as a
member that receives or originates an order and has an obligation to
record and report information under Rules 7440 and 7450.
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Whether the member is a Trading Center in either a Pilot
Security or a Pre-Pilot Data Collection Security and, if the member is
a participant on the Alternative Display Facility (``ADF''), the
display size of the order;
Whether the order is routable; and
Whether the member is relying on the retail investor order
exception with respect to the order.
As an initial matter, only those OATS Reporting Members that
operate a Trading Center and for which FINRA is the DEA are required to
make any changes to their OATS reporting. OATS Reporting Members that
do not operate Trading Centers or that have another self-regulatory
organization as DEA will be permitted to leave the new fields blank
(i.e., they are not required to populate the new Trading Center field
to affirmatively indicate that they are not a Trading Center). OATS
Reporting Members that operate Trading Centers will be required to
indicate their status as a Trading Center on all OATS reports for new
orders involving Pre-Pilot Data Collection Securities and Pilot
Securities, including new order reports, combined order/route reports,
combined order execution reports, and cancel/replace reports. In
addition, OATS Reporting Members that operate Trading Centers and that
also are ADF Market Participants \20\ will be required to indicate
their status as an ADF Market Participant and must indicate the display
size of the order so that OATS can capture the information required by
Appendix B regarding hidden and displayed size.\21\
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\20\ Rule 6220(a)(3) defines ``ADF Market Participant'' or
``Market Participant'' as a Registered Reporting ADF Market Maker,
as defined in Rule 6220(a)(13), or a Registered Reporting ADF ECN,
as defined in Rule 6220(a)(12).
\21\ Sections I(a)(5), (29), and (30) of Appendix B to the Plan
all require that hidden (i.e., non-displayed) order information be
provided to the SEC.
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As described above, the proposed rule change adds new OATS fields
to capture whether an order in a Pre-Pilot Data Collection Security or
a Pilot Security received by an OATS Reporting Member that operates a
Trading Center is routable and whether the member is relying on the
retail investor order exception in the Plan with respect to the order.
These additional fields are necessary so that OATS can capture the
information required by Item II(n) and II(o) of Appendix B to the Plan.
This information will be required on all OATS reports for new orders,
including New Order Reports, Combined Order/Route Reports, Combined
Order/Execution Reports, and Cancel/Replace Reports.
In addition to information on new orders, the proposed rule change
requires OATS Reporting Members that operate Trading Centers and for
which FINRA is the DEA to report executions in Pre-Pilot Data
Collection Securities and Pilot Securities when the order, or
[[Page 73861]]
any part of the order, is executed on a venue that does not provide
execution information to FINRA. Currently, OATS Reporting Members
report to OATS the routing of any order to a non-FINRA member, which
includes orders routed to a national securities exchange.\22\ For those
exchanges that provide FINRA with execution information, FINRA is able
to link the route to any executions occurring on the exchange. OATS
data, however, does not currently link to executions occurring on
venues that do not provide this information to FINRA (e.g., foreign
exchanges). To provide the execution information required by Items I
and II of Appendix B to the Plan, FINRA must collect the execution
information, either from the venue to which the order was routed, or
from the firm routing the order to the venue, to match the routed order
to the execution. Because some venues do not provide execution data to
FINRA, the proposed rule change would require members that route orders
in a Pre-Pilot Data Collection Security or a Pilot Security to a venue
that does not provide execution information to FINRA to report any
execution on such venue through an OATS Execution Report or Combined
Order/Execution Report.
---------------------------------------------------------------------------
\22\ See Rule 7440(c)(6).
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To facilitate compliance with this provision, FINRA will identify
in the OATS Reporting Technical Specifications those exchanges for
which these reports are not necessary; thus, for orders routed to those
identified exchanges, OATS Reporting Members would continue to report
only routes to those exchanges rather than any executions occurring on
those exchanges. For orders routed to a venue that is not identified,
OATS Reporting Members would be required to report any executions on
that venue in an OATS Execution Report or Combined Order/Execution
Report.
As set forth in Section VII of the Plan (Collection of Pilot Data),
proposed Rule 6191(b)(2)(B) provides that FINRA shall transmit this
data collected by Trading Centers required by Items I and II of
Appendix B to the Plan, and collected pursuant to paragraph (b)(2)(A),
to the SEC in a pipe delimited format on a disaggregated basis by
Trading Center within 30 calendar days following month end. FINRA also
shall make such data publicly available on the FINRA Web site on a
monthly basis at no charge and will not identify the Trading Center
that generated the data.
Appendix B.IV (Daily Market Maker Participation Statistics)
requires a Participant to collect data related to Market Maker
participation from each Market Maker \23\ engaging in trading activity
on a Trading Center operated by the Participant. FINRA is therefore
proposing Rule 6191(b)(3) to gather data about a Market Maker's
participation in Pilot Securities and Pre-Pilot Data Collection
Securities. Proposed Rule 6191(b)(3)(A) provides that a member that is
a Market Maker for which FINRA is the DEA shall collect and transmit to
FINRA data relating to Item IV of Appendix B to the Plan with respect
to activity conducted on any Trading Center in Pilot Securities and
Pre-Pilot Data Collection Securities in furtherance of its status as a
registered Market Maker, including a Trading Center that executes
trades otherwise than on a national securities exchange, for
transactions that have settled or reached settlement date. The proposed
rule requires Market Makers to transmit such data in a pipe delimited
format, by 12 p.m. EST on T+4 for (1) transactions in each Pre-Pilot
Data Collection Security for the period beginning six months prior to
the Pilot Period through the trading day immediately preceding the
Pilot Period; and (2) for transactions in each Pilot Security for the
period beginning on the first day of the Pilot Period through six
months after the end of the Pilot Period.
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\23\ The Plan defines a Market Maker as ``a dealer registered
with any self-regulatory organization, in accordance with the rules
thereof, as (i) a market maker or (ii) a liquidity provider with an
obligation to maintain continuous, two-sided trading interest.''
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Proposed Rule 6191(b)(3)(B) provides that FINRA shall transmit the
data relating to Market Maker activity required by Item IV of Appendix
B to the Plan, and collected pursuant to paragraph (b)(3)(A) above, to
the Participant operating the Trading Center on which such activity
occurred in a pipe delimited format on a disaggregated basis by Market
Maker during the Pre-Pilot and within 15 calendar days following month
end during the Pilot Period.
As required by the Plan, proposed Rule 6191(b)(3)(C) provides that
FINRA shall transmit the data relating to Market Maker activity
conducted otherwise than on a national securities exchange required by
Item IV of Appendix B to the Plan, and collected pursuant to paragraph
(b)(3)(A), to the SEC in a pipe delimited format, on a disaggregated
basis by Trading Center, within 30 calendar days following month end.
FINRA shall also make such data publicly available on the FINRA Web
site on a monthly basis at no charge and will not identify the Trading
Center that generated the data.\24\
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\24\ FINRA notes that Appendix B.III, which requires a
Participant that is a national securities exchange to collect daily
Market Maker registration statistics, does not apply to FINRA.
Accordingly, FINRA is not proposing a rule to implement this aspect
of the Plan.
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Appendix C.I (Market Maker Profitability) requires a Participant to
collect data related to Market Maker profitability from each Market
Maker for which it is the DEA. Specifically, the Participant is
required to collect the total number of shares of orders executed by
the Market Maker, the raw Market Maker realized trading profits, and
the raw Market Maker unrealized trading profits. Data shall be
collected for dates starting six months prior to the Pilot Period
through six months after the end of the Pilot Period. This data shall
be collected on a monthly basis, to be provided in a pipe delimited
format to the Participant, as DEA, within 30 calendar days following
month end. Appendix C.II (Aggregated Market Maker Profitability)
requires the Participant, as DEA, to aggregate the Appendix C.I data,
and to categorize this data by security as well as by the control group
and each Test Group. That aggregated data shall contain information
relating to total raw Market Maker realized trading profits, volume-
weighted average of raw Market Maker realized trading profits, the
total raw Market Maker unrealized trading profits, and the volume-
weighted average of Market Maker unrealized trading profits.
FINRA is therefore proposing Rule 6191(b)(4) to set forth the
requirements for the collection and transmission of data pursuant to
Appendix C.I and of the Plan. Proposed Rule 6191(b)(4)(A) requires that
a member that is a Market Maker, and for which FINRA is the DEA, shall
collect and transmit to FINRA the data described in Item I of Appendix
C to the Plan, as modified by Paragraph (b)(5) with respect to
executions in Pilot Securities that have settled or reached settlement
date that were executed on any Trading Center. The proposed rule also
requires members to provide such data in a pipe delimited format by 12
p.m. EST on T+4 for (1) for executions during and outside of Regular
Trading Hours in each Pre-Pilot Data Collection Security for the period
beginning six months prior to the Pilot Period through the trading day
immediately preceding the Pilot Period; and (2) for executions during
and outside of Regular Trading Hours in each Pilot Security for the
period beginning on the first day of the Pilot Period through six
months after the end of the Pilot Period.
Proposed Rule 6191(b)(4)(B) provides that FINRA shall collect this
data and, on a monthly basis, transmit such data,
[[Page 73862]]
categorized by the control group and each Test Group, to the SEC in a
pipe delimited format; provided, however, that the data transmitted to
the SEC shall include the profitability statistics categorized by
Market Maker and by security. In calculating unrealized trading
profits, FINRA shall also report the number of excess (deficit) shares
held by the Market Maker, the volume weighted average price of that
excess (deficit) and the closing price of the security as reported by
the primary listing exchange used in reporting unrealized profit. The
proposed rule also provides that FINRA shall make this aggregated data,
categorized by the control group and each Test Group, publicly
available on the FINRA Web site on a monthly basis at no charge and
will not identify the Market Makers that generated the data or the
individual securities.
FINRA also is proposing a rule setting forth the manner in which
Market Maker participation and profitability will be calculated.
Proposed Rule 6191(b)(5) provides that a member that is a Market Maker
subject to the requirements of proposed Rule 6191(b)(3)(A) and
(b)(4)(A) in a Pre-Pilot Data Collection Security or a Pilot Security,
and for which FINRA is the DEA, shall be deemed to have satisfied the
requirements of proposed Rule 6191(b)(3)(A) and (b)(4)(A), in addition
to the requirements of Appendix B.IV and Item I of Appendix C, if such
Market Maker submits to FINRA the specified data for any principal
trade, not including riskless principal, in a Pre-Pilot Data Collection
Security or a Pilot Security executed in furtherance of its status as a
Market Maker on any Trading Center. The proposed rule requires Market
Makers to submit (1) Ticker Symbol; (2) Trading Center where the trade
was executed, or if not known, the destination where the order
originally was routed for further handling and execution; (3) Time of
execution; (4) Price; (5) Size; (6) Buy/sell; (7) for trades executed
away from the Market Maker, a unique identifier, as specified by the
Market Maker's DEA, that will allow the trade to be associated with the
Trading Center where the trade was executed; and (8) for trades
cancelled or corrected beyond T+3, whether the trade represents a
cancellation or correction.
FINRA is also proposing, through Supplementary Material, to clarify
other aspects of the data collection requirements.\25\ Proposed
Supplementary Material .02 relates to the use of the retail investor
order flag for purposes of Appendix B.II(n) reporting. The Plan
currently states that market and marketable limit orders shall include
a ``yes/no'' field relating to the Retail Investor Order flag. FINRA is
proposing Supplementary Material .02 to clarify that, for purposes of
the reporting requirement in Appendix B.II(n), a Trading Center shall
report ``y'' where it is relying upon the Retail Investor Order
exception to Test Groups Two and Three, and ``n'' for all other
instances. FINRA believes that requiring the identification of a Retail
Investor Orders only where the exception may apply (i.e., Pilot
Securities in Test Groups Two and Three) is consistent with Appendix
B.II(n).
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\25\ FINRA is also proposing Supplementary Material .01 to Rule
6191 to clarify that certain enumerated terms used throughout Rule
6191 shall have the same meaning as set forth in the Plan.
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Supplementary Material .03 requires that members populate a field
to identify whether an order is affected by the bands in place pursuant
to the National Market System Plan to Address Extraordinary Market
Volatility.\26\ Pursuant to the Limit-Up Limit-Down Plan, between 9:30
a.m. and 4:00 p.m., the Securities Information Processor (``SIP'')
calculates a lower price band and an upper price band for each NMS
stock. These price bands represent a specified percentage above or
below the stock's reference price, which generally is calculated based
on reported transactions in that stock over the preceding five minutes.
When one side of the market for an individual security is outside the
applicable price band, the SIP identifies that quotation as non-
executable. When the other side of the market reaches the applicable
price band (e.g., the offer reaches the lower price band), the security
enters a Limit State. The stock would exit a Limit State if, within 15
seconds of entering the Limit State, all Limit State Quotations were
executed or canceled in their entirety. If the security does not exit a
Limit State within 15 seconds, then the primary listing exchange
declares a five-minute trading pause, which would be applicable to all
markets trading the security.
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\26\ See National Market System Plan to Address Extraordinary
Market Volatility, Securities Exchange Act Release No. 67091 (May
31, 2012), 77 FR 33498 (June 6, 2012) (File No. 4-631) (``Limit-Up
Limit-Down Plan'').
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FINRA and the other Participants have determined that it is
appropriate to create a new flag for reporting orders that are affected
by the Limit-Up Limit-Down bands. Accordingly, a Trading Center shall
report a value of ``Y'' when the ability of an order to execute has
been affected by the Limit-Up Limit-Down bands in effect at the time of
order receipt. A Trading Center shall report a value of ``N'' when the
ability of an order to execute has not been affected by the Limit-Up
Limit-Down bands in effect at the time of order receipt.
Supplementary Material .03 also requires, for dually-listed
securities, that the Participant indicate whether the order was handled
domestically, or routed to a foreign venue. Accordingly, the
Participant will indicate, for purposes of Appendix B.I, whether the
order was: (1) Fully executed domestically, or (2) fully or partially
executed on a foreign market. For purposes of Appendix B.II, the
Participant will classify all orders in dually-listed Pilot and Pre-
Pilot Securities as: (1) Directed to a domestic venue for execution;
(2) may only be directed to a foreign venue for execution; or (3) was
fully or partially directed to a foreign venue at the discretion of the
member. FINRA believes that this proposed flag will better identify
orders in dually-listed securities, as such orders that were executed
in foreign venues would not be subject to the Plan's quoting and
trading requirements, and could otherwise compromise the integrity of
the data.
Supplementary Material .04 relates to the time ranges specified in
Appendix B.I.a(14), B.I.a(15), B.I.a(21) and B.I.a(22).\27\ FINRA and
the other Participants have determined that it is appropriate to change
the reporting times in these provisions to require more granular
reporting for these categories. Accordingly, FINRA proposes to add
Appendix B.I.a(14A), which will require Trading Centers to report the
cumulative number of shares of orders executed from 100 microseconds to
less than 1 millisecond after the time of order receipt. Appendix
B.I.a(15) will be changed to require the cumulative number of shares of
orders executed from 1 millisecond to less than 100 milliseconds after
the time of order receipt. FINRA also proposes to add Appendix
B.I.a(21A), which will require Trading Centers to report the
[[Page 73863]]
cumulative number of shares of orders canceled from 100 microseconds to
less than 1 millisecond after the time of order receipt. Appendix
B.I.a(22) will be changed to require the cumulative number of shares of
orders canceled from 1 millisecond to less than 100 milliseconds after
the time of order receipt. FINRA believes that these new reporting
requirements will contribute to a meaningful analysis of the Pilot by
producing more granular data on these points.\28\
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\27\ Specifically, Appendix B.I.a(14) requires reporting of the
cumulative number of shares of orders executed from 0 to less than
100 microseconds after the time of order receipt; Appendix B.I.a(15)
requires reporting of the cumulative number of shares of orders
executed from 100 microseconds to less than 100 milliseconds after
the time of order receipt; Appendix B.I.a(21) requires reporting of
the cumulative number of shares of orders cancelled from 0 to less
than 100 microseconds after the time of order receipt; and Appendix
B.I.a(22) requires reporting of the cumulative number of shares of
orders cancelled from 100 microseconds to less than 100 milliseconds
after the time of order receipt.
\28\ FINRA notes that it intends to file an exemptive request
seeking relief from certain of the Plan's data collection
requirements, including the requirements that Trading Centers report
information in either microseconds or milliseconds, as not all
Trading Centers currently capture and report orders in either
microseconds or milliseconds.
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Supplementary Material .05 relates to the requirement in Appendix
B.I.a(33) requiring the share-weighted average BBO Spread of the
reporting exchange as part of the market quality statistics to be
reported. FINRA and the other Participants have determined that this
requirement should apply to both the reporting exchange and to a
Trading Center that displays such quote on the ADF, and is proposing to
make this clarification through Supplementary Material .05.
Supplementary Material .06 relates to the relevant measurement for
purposes of Appendix B.I.a(31)-(33) reporting. Currently, the Plan
states that this data shall be reported as of the time of order
execution. FINRA and the other Participants believe that this
information should more properly be captured at the time of order
receipt, as evaluating share-weighted average prices at the time of
order receipt is more consistent with the goal of observing the effect
of the Pilot on the liquidity of Pilot Securities. FINRA is therefore
proposing to make this change through Supplementary Material .06.\29\
This change will make these provisions consistent with the remainder of
the statistics in Appendix B.I.a, which are all based on order receipt.
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\29\ This proposed change is also part of an exemptive request
that FINRA and the other Participants will be submitting to the SEC
pursuant to Rule 608(e) of Regulation NMS.
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Supplementary Material .07 clarifies that, for purposes of Appendix
B.I.a(33), only a Trading Center that is displaying in its own name as
a Trading Center when executing an order shall enter a value in this
field. FINRA believes that the Appendix B.I.a(33) reporting requirement
is only relevant for a Trading Center that is a display venue and not
Trading Centers that may display through other Trading Centers (such as
a market maker displaying a quote on a national securities exchange).
Supplementary Material .08 addresses the status of not-held and
auction orders for purposes of Appendix B.I reporting. Currently,
Appendix B.I sets forth eight categories of orders, including market
orders, marketable limit orders, and inside-the-quote resting limit
orders, for which daily market quality statistics must be reported.
Currently, Appendix B.I does not provide a category for not held
orders, clean cross orders, auction orders, or orders received when the
NBBO is crossed. FINRA and the other Participants have determined that
it is appropriate to include separate categories both not held orders
and auction orders for purposes of Appendix B reporting. FINRA is
therefore proposing Supplementary Material .07 to provide that not held
orders shall be included as an order type for purposes of Appendix B
reporting, and shall be assigned the number (18). Clean cross orders
shall be included as an order type for purposes of Appendix B
reporting, and shall be assigned the number (19); auction orders shall
be included an as order type for purposes of Appendix B reporting, and
shall be assigned the number (20); and orders that cannot be otherwise
be classified, including, for example, orders received when the NBBO is
crossed shall be included as an order type for purposes of Appendix B
reporting, and shall be assigned the number (21). All of these orders
already are included in the scope of Appendix B; however, without this
proposed change, these order types would be categorized with other
orders, such as regular held orders, that should be able to be fully
executed upon receipt, which would compromise the value of this data.
FINRA is proposing Supplementary Material .09 to clarify the scope
of the Plan as it relates to members that only execute orders for
limited purposes. Specifically, FINRA and the other Participants
believe that a member that only executes orders otherwise than on a
national securities exchange for the purpose of (1) correcting a bona
fide error related to the execution of a customer order; (2) purchasing
a security from a customer at a nominal price solely for purposes of
liquidating the customer's position; or (3) completing the fractional
share portion of an order \30\ shall not be deemed a Trading Center for
purposes of Appendix B to the Plan. FINRA is therefore proposing
Supplementary Material .09 to make this clarification.
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\30\ FINRA notes that where a member purchases a fractional
share from a customer, the Trading Center that executes the
remaining whole shares of that customer order would be subject to
Appendix B of the Plan.
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FINRA is proposing Supplementary Material .10 to clarify that, for
purposes of the Plan, Trading Centers must begin the data collection
required pursuant to Appendix B.I.a(1) through B.II.(y) to the Plan and
Item I of Appendix C to the Plan on April 4, 2016. While FINRA will
provide the information required by Appendix B and C to the Plan to the
SEC during the Pre-Pilot period, the requirement that FINRA, as DEA,
provide information to the SEC within 30 calendar days following month
end and make such data publicly available on its Web site pursuant to
Appendix B and C to the Plan shall commence as of the beginning of the
Pilot Period.\31\
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\31\ In its order approving the Plan, the SEC noted that the
Pilot shall be implemented within one year of the date of
publication of its order, e.g., by May 6, 2016. See Approval Order,
80 FR at 27545. However, on November 6, 2015, the SEC extended the
implementation date approximately five months to October 3, 2016.
See Securities Exchange Act Release No. 76382 (November 6, 2015), 80
FR 70284 (November 13, 2015).
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FINRA is proposing Supplementary Material .11 to address the
requirement in Appendix C.I(b) to the Plan that the calculation of raw
Market Maker realized trading profits utilize a last in, first out
(``LIFO'')-like method to determine which share prices shall be used in
that calculation. FINRA and the other Participants believe that is more
appropriate to utilize a methodology that yields LIFO-like results,
rather than utilizing a LIFO-like method, and FINRA is therefore
proposing Supplementary Material .11 to make this change.\32\ FINRA is
proposing that, for purposes of Item I of Appendix C, the Participants
shall calculate daily Market Maker realized profitability statistics
for each trading day on a daily LIFO basis using reported trade price
and shall include only trades executed on the subject trading day. The
daily LIFO calculation shall not include any positions carried over
from previous trading days. For purposes of Item I.c of Appendix C, the
Participants shall calculate daily Market Maker unrealized
profitability statistics for each trading day on an average price
basis.
[[Page 73864]]
Specifically, the Participants must calculate the volume weighted
average price of the excess (deficit) of buy volume over sell volume
for the current trading day using reported trade price. The gain (loss)
of the excess (deficit) of buy volume over sell volume shall be
determined by using the volume weighted average price compared to the
closing price of the security as reported by the primary listing
exchange. In reporting unrealized trading profits, the Participant
shall also report the number of excess (deficit) shares held by the
Market Maker, the volume weighted average price of that excess
(deficit) and the closing price of the security as reported by the
primary listing exchange used in reporting unrealized profit.
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\32\ Appendix C.I currently requires Market Maker profitability
statistics to include (1) the total number of shares of orders
executed by the Market Maker; (2) raw Market Maker realized trading
profits, which is the difference between the market value of Market
Maker shares and the market value of Market Maker purchases, using a
LIFO-like method; and (3) raw Market Maker unrealized trading
profits, which is the difference between the purchase or sale price
of the end-of-day inventory position of the Market Maker and the
Closing Price. In the case of a short position, the Closing Price
from the sale will be subtracted; in the case of a long position,
the purchase price will be subtracted from the Closing Price.
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FINRA is proposing Supplementary Material .12 to address the
securities that will be used for data collection purposes prior to the
commencement of the Pilot. FINRA and the other Participants have
determined that it is appropriate to collect data for a group of
securities that is larger, and using different quantitative thresholds,
than the group of securities that will Pilot Securities. FINRA is
therefore proposing Supplementary Material .12 to define ``Pre-Pilot
Data Collection Securities'' as the securities designated by the
Participants for purposes of the data collection requirements described
in Items I, II and IV of Appendix B and Item I of Appendix C to the
Plan for the period beginning six months prior to the Pilot Period and
ending on the trading day immediately preceding the Pilot Period. The
Participants shall compile the list of Pre-Pilot Data Collection
Securities by selecting all NMS stocks with a market capitalization of
$5 billion or less, a Consolidated Average Daily Volume (CADV) of 2
million shares or less and a closing price of $1 per share or more. The
market capitalization and the closing price thresholds shall be applied
to the last day of the Pre-Pilot measurement period, and the CADV
threshold shall be applied to the duration of the Pre-Pilot measurement
period. The Pre-Pilot measurement period shall be the three calendar
months ending on the day when the Pre-Pilot Data Collection Securities
are selected. The Pre-Pilot Data Collection Securities shall be
selected thirty days prior to the commencement of the six-month Pre-
Pilot Period. On the trading day that is the first trading day of the
Pilot Period through six months after the end of the Pilot Period, the
data collection requirements will become applicable to the Pilot
Securities only. A Pilot Security will only be eligible to be included
in a Test Group if it was a Pre-Pilot Security.
Finally, FINRA is proposing Supplementary Material .13, which
states that the Rule shall be in effect during a pilot period to
coincide with the pilot period for the Plan (including any extensions
to the pilot period for the Plan).
If the Commission approves the proposed rule change, the proposed
rule change will be effective upon Commission approval. The
implementation date will be April 4, 2016.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\33\ 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)(9) of the Act,\34\ which requires
that FINRA rules not impose any burden on competition that is not
necessary or appropriate.
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\33\ 15 U.S.C. 78o-3(b)(6).
\34\ 15 U.S.C. 78o-3(b)(9).
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FINRA believes that this proposal is consistent with the Act
because it implements and clarifies the provisions of the Plan, and is
designed to assist FINRA in meeting its regulatory obligations pursuant
to the Plan. In approving the Plan, the SEC noted that the Pilot was an
appropriate, data-driven test that was designed to evaluate the impact
of a wider tick size on trading, liquidity, and the market quality of
securities of smaller capitalization companies, and was therefore in
furtherance of the purposes of the Act. FINRA believes that this
proposal is in furtherance of the objectives of the Plan, as identified
by the SEC, and is therefore consistent with the Act because the
proposal implements and clarifies the requirements of the Plan and
applies specific obligations to members in furtherance of compliance
with the Plan.
B. Self-Regulatory Organization's Statement on Burden on Competition
FINRA does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. FINRA notes that the proposed
rule change implements the provisions of the Plan, and is designed to
assist FINRA in meeting its regulatory obligations pursuant to the
Plan. FINRA notes that the data collection requirements for members
that operate Trading Centers will apply equally to all such members, as
will the data collection requirements for Market Makers.
FINRA estimates that there are approximately 250 members that
operate Trading Centers, and for which FINRA is the DEA, that would be
required to submit data pursuant to Appendix B.I and B.II. While the
Plan imposes comprehensive data collection requirements on members that
operate Trading Centers, FINRA notes that some of the data requirements
are modeled upon Rule 605 data, and that it is leveraging existing OATS
data and systems to assist firms in complying with their Appendix B.I
and B.II reporting obligations. FINRA also estimates that there are
approximately 100 members that qualify as Market Makers for which FINRA
is the DEA. While the Plan imposes new reporting obligations on Market
Makers, FINRA notes that some of the requested Market Maker
profitability data may already be captured by members for internal
purposes.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
[[Page 73865]]
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-2015-048 on the subject line.
Paper Comments
Send paper comments in triplicate to Robert W. Errett,
Deputy Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2015-048. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of such filing also will be available for
inspection and copying at the principal office of FINRA. All comments
received will be posted without change; the Commission does not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-FINRA-2015-048 and should be
submitted on or before December 16, 2015.
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\35\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\35\
Brent J. Fields,
Secretary.
[FR Doc. 2015-29931 Filed 11-24-15; 8:45 am]
BILLING CODE 8011-01-P
