Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to Alternative Trading System Volume and Trading Information, 4076-4080 [2016-01308]
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Federal Register / Vol. 81, No. 15 / Monday, January 25, 2016 / Notices
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to section
19(b)(3)(A)(iii) of the Act 8 and
subparagraph (f)(6) of Rule 19b–4
thereunder.9
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is: (i) Necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) otherwise in
furtherance of the purposes of the Act.
If the Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
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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–
Phlx–2016–03 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–Phlx–2016–03. 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/
8 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
9 17
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rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–Phlx–
2016–03, and should be submitted on or
before February 16, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.10
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–01307 Filed 1–22–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–76931; File No. SR–FINRA–
2016–002]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change Relating to Alternative
Trading System Volume and Trading
Information
January 19, 2016.
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 January 8,
2016, Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I, II,
and III below, which Items have been
prepared by FINRA. FINRA has
designated the proposed rule change as
10 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
constituting a ‘‘non-controversial’’ rule
change under paragraph (f)(6) of Rule
19b–4 under the Act,3 which renders
the proposal effective upon receipt of
this filing by the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
FINRA is proposing to (i) delete from
the FINRA rulebook Rule 4552, which
requires each alternative trading system
(‘‘ATS’’) that has filed a Form ATS with
the SEC to report to FINRA weekly
volume information and number of
trades regarding equity securities
transactions within the ATS; (ii) amend
Rules 6110 and 6610 to add provisions
regarding FINRA’s publication of ATS
volume and trade count information for
equity securities, including information
similar to what is currently reported by
ATSs pursuant to Rule 4552 as well as
information regarding ATS block
transactions; and (iii) amend Rules 6183
and 6625 to require ATSs seeking an
exemption from FINRA trade reporting
rules to provide FINRA with a link to
a publicly-available Web site that
displays their weekly equity volume
information in a format substantially
similar to that used by FINRA.
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
(i) Background
On January 17, 2014, the SEC
approved a proposed rule change to (i)
adopt Rule 4552 (Alternative Trading
1 15
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CFR 240.19b–4(f)(6).
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Systems—Trading Information for
Securities Executed Within the
Alternative Trading System) to require
ATSs 4 to report to FINRA weekly
volume information and number of
trades regarding securities transactions
within the ATS (‘‘ATS Data’’) and to
publish the ATS Data on a delayed basis
on FINRA’s Web site; 5 and (ii) amend
Rules 6160, 6170, 6480, and 6720
(‘‘MPID Rules’’) to require each ATS to
acquire and use a single, unique market
participant identifier (‘‘MPID’’) when
reporting information to FINRA (‘‘MPID
Requirement’’).6 The implementation
date for the reporting requirements
under Rule 4552 was May 12, 2014, and
FINRA began publishing the ATS Data
for equity securities on its Web site on
June 2, 2014.7 The MPID Requirement
was implemented on February 2, 2015.8
As the SEC noted in its order approving
Rule 4552 and the MPID Requirement,
FINRA’s response to comments received
on that proposal included a
commitment by FINRA to evaluate the
continued need for self-reporting under
Rule 4552 after the MPID Requirement
was in place and to ‘‘eliminate the selfreporting requirement for ATSs subject
to FINRA trade reporting requirements
if the MPID [R]equirement is
implemented and operating as
4 Regulation ATS defines an ‘‘alternative trading
system’’ as ‘‘any organization, association, person,
group of persons, or system: (1) That constitutes,
maintains, or provides a market place or facilities
for bringing together purchasers and sellers of
securities or for otherwise performing with respect
to securities the functions commonly performed by
a stock exchange within the meaning of [Exchange
Act Rule 3b–16]; and (2) That does not: (i) Set rules
governing the conduct of subscribers other than the
conduct of such subscribers’ trading on such
organization, association, person, group of persons,
or system; or (ii) Discipline subscribers other than
by exclusion from trading.’’ 17 CFR 242.300(a). Rule
4552 applies to any alternative trading system, as
that term is defined in Regulation ATS, that has
filed a Form ATS with the Commission. See Rule
4552(a).
5 FINRA subsequently filed a proposed rule
change to limit the reporting requirements in Rule
4552 to equity securities and exclude TRACEReportable Securities. See Securities Exchange Act
Release No. 71911 (April 9, 2014), 79 FR 21316
(April 15, 2014) (Notice of Filing and Immediate
Effectiveness of File No. SR–FINRA–2014–017).
6 See Securities Exchange Act Release No. 71341
(January 17, 2014), 79 FR 4213 (January 24, 2014)
(Order Approving File No. SR–FINRA–2013–042)
(‘‘ATS Approval Order’’). The MPID Requirement
was subsequently amended to permit the use of two
MPIDs by a single ATS provided each MPID is used
only to report to either the Trade Reporting and
Compliance Engine (‘‘TRACE’’) or one or more of
FINRA’s equity reporting facilities. See Securities
Exchange Act Release No. 71911 (April 9, 2014), 79
FR 21316 (April 15, 2014) (Notice of Filing and
Immediate Effectiveness of File No. SR–FINRA–
2014–017).
7 See Regulatory Notice 14–07 (February 2014).
8 See Securities Exchange Act Release No. 73340
(October 10, 2014), 79 FR 62500 (October 17, 2014)
(Notice of Filing and Immediate Effectiveness of
File No. SR–FINRA–2014–042).
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anticipated.’’ 9 FINRA has conducted
this evaluation, and the proposed rule
change eliminates the self-reporting
requirement in Rule 4552 for ATSs in
light of the successful implementation
of the MPID Requirement.10
Rule 4552 requires individual ATSs to
submit weekly reports to FINRA
regarding equity security volume
information within the ATS, including
share volume and number of trades for
both NMS stocks and OTC Equity
Securities.11 This information must be
reported to FINRA on a security-bysecurity basis within seven business
days after the end of each calendar
week.12 The first reports pursuant to
Rule 4552 were due to FINRA by May
28, 2014, covering the week of May 12
through 16, 2014.13 After FINRA began
receiving the self-reported data from
ATSs, FINRA began publishing on its
Web site, on a delayed basis, the
reported information for each equity
security for each ATS with appropriate
disclosures that the published volume
numbers are based on ATS-submitted
reports and not on reports produced or
validated by FINRA.14 FINRA currently
makes this data available on its Web site
through weekly reports listing aggregate
volume and number of trades by
security for each ATS within the
designated time period.15 Aggregate
reported information regarding NMS
stocks in Tier 1 of the NMS Plan to
Address Extraordinary Market
Volatility 16 is published on a two-week
9 ATS Approval Order, supra note 6, 79 FR at
4215–16.
10 FINRA and the SEC also noted that certain
ATSs exempt from FINRA’s trade reporting rules
(‘‘Exempt ATSs’’) may need to continue reporting
because Exempt ATSs would not be using a
separate MPID to report their volume due to the
exemption. See ATS Approval Order, supra note 6,
79 FR at 4216 n.34. As discussed in more detail
below, rather than require Exempt ATSs to continue
to self-report volume information pursuant to Rule
4552, FINRA has determined to require any ATS
that wishes to avail itself of the trade reporting
exemption to provide FINRA with a link to this
information on a publicly-available Web site.
FINRA will include a link to this information on its
ATS Web site so that it is readily accessible to
investors and the public.
11 See Rule 4552(a) and (d)(4).
12 See Rule 4552(a).
13 See Regulatory Notice 14–07 (February 2014).
14 See Rule 4552(b).
15 The volume information is available at
www.finra.org/ats.
16 Tier 1 NMS stocks include those NMS stocks
in the S&P 500 Index or the Russell 1000 Index and
certain exchange-traded products. See NMS Plan to
Address Extraordinary Market Volatility. FINRA
makes changes to the Tier 1 NMS stocks in
accordance with the Indices. Changes to the S&P
500 are made on an as needed basis and are not
subject to an annual or semi-annual reconstitution.
S&P typically does not add new issues until they
have been seasoned for six to twelve months.
Russell 1000 rebalancing typically takes places in
June.
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delayed basis.17 FINRA publishes the
information on all other NMS stocks
and OTC Equity Securities subject to
FINRA trade reporting requirements on
a four-week delayed basis.18
Rule 4552 also specifies how an ATS
should calculate its volume to ensure
consistency and to avoid potential overcounting and requires that, ‘‘[w]hen
calculating and reporting the volume of
securities traded and the number of
trades, an alternative trading system
shall include only those trades executed
within the alternative trading system. If
two orders are crossed by the alternative
trading system, the volume shall
include only the number of shares
crossed as a single trade (e.g., crossing
a buy order of 1,000 shares with a sell
order of 1,000 shares would be
calculated as a single trade of 1,000
shares of volume).’’ 19 Thus, for
example, an ATS only reports trades
executed within the ATS (not orders
routed out of the ATS) and only reports
the volume of each executed trade once
(not separate or double counting for the
buy and sell side of the trade).
Supplementary Material .01 to Rule
4552 provides further guidance on how
to calculate volume for reporting
purposes and notes that ‘‘[i]f an ATS
routes an order to another member firm
or other execution venue for handling or
execution where that initial order
matches against interest resident at the
other venue, then the ATS would not
not [sic] . . . include such volume for
reporting purposes.’’
In addition to the reporting
requirements under Rule 4552, the
MPID Rules generally require that a
member operating an ATS obtain for
each such ATS a single, unique MPID
that is designated for exclusive use for
reporting each ATS’s transactions.20
Members that operate multiple ATSs or
engage in other lines of business
requiring the use of MPIDs are required
17 See Rule 4552(b)(1). Thus, for example, a
typical reporting scenario (i.e., no federal holidays)
requires ATSs to report the information for a given
week by the second Tuesday following the week.
FINRA publishes the information regarding Tier 1
NMS stocks no earlier than the following Monday.
Information on all other equity securities subject to
FINRA trade reporting requirements is published
two weeks following the publication of information
for the Tier 1 NMS stocks.
18 See Rule 4552(b)(2).
19 See Rule 4552(c).
20 See Rule 6160 (Multiple MPIDs for Trade
Reporting Facility Participants); Rule 6170 (Primary
and Additional MPIDs for Alternative Display
Facility Participants); Rule 6480 (Multiple MPIDs
for Quoting and Trading in OTC Equity Securities).
As noted above, an ATS is permitted to use two
separate MPIDs if one MPID is used exclusively for
reporting transactions to TRACE and the other
MPID is used exclusively for reporting transactions
to the equity trade reporting facilities. See Rule
6160(d); Rule 6170(e); Rule 6480(d).
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to obtain and use multiple MPIDs, and
if a firm operates multiple ATSs, each
ATS must have its own MPID. Firms are
required to notify FINRA before
changing the usage of the MPID in any
way (e.g., repurposing an MPID from
reflecting ATS activity to other trading
activity at the firm). After an ATS is
provided its MPID, any reporting by the
ATS—either reporting trades to a FINRA
TRF, the Alternative Display Facility,
the OTC Reporting Facility, TRACE, or
reporting orders to the Order Audit Trail
System (‘‘OATS’’)—must include the
MPID assigned to the particular ATS,
and the member must use the separate
MPID to report all transactions executed
within the ATS to the appropriate
reporting facility. Finally, the MPID
Rules prohibit a member from using an
MPID assigned to an ATS to report any
transaction that is not executed within
the ATS and require members to have
policies and procedures in place to
ensure that trades reported with a
separate MPID obtained under the rules
are restricted to trades executed within
the ATS.
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(ii) MPID Requirement Implementation
and Evaluation
Under FINRA’s trade reporting rules,
orders that are crossed by an ATS are
reported to the appropriate FINRA trade
reporting facility by the ATS.21 The
MPID Requirement—which requires
ATSs to use a single, unique MPID
when reporting trades within the ATS to
an equity trade reporting facility—
became effective on February 2, 2015.
Since that time, FINRA has been able to
calculate the trading volume for ATSs,
other than Exempt ATSs, through the
trade reports submitted using the ATS’s
MPID. FINRA has been comparing the
information reported by ATSs pursuant
to Rule 4552 to information generated
by FINRA from trade reports since the
MPID Requirement was implemented.
For most weeks since the
implementation of the MPID
Requirement, over 75% of ATSs have
exact matches between self-reported
data and trade reporting data, and there
has been a 99.99% overall match rate
between self-reported ATS volume and
trade reporting volume for ATSs that
submit trade reports on the same basis
that they calculate volume information
pursuant to Rule 4552.22 Where
21 See Securities Exchange Act Release No. 58903
(November 5, 2008), 73 FR 67905, at 67906
(November 17, 2008) (Order Approving File No.
SR–FINRA–2008–011) (‘‘Under the proposed rule
change, an [ATS] . . . would be the executing party
and would have the reporting obligation where the
transaction is executed on the ATS.’’); see also
Regulatory Notice 09–08 (January 2009).
22 The 99.99% match rate excludes three ATSs
that trade equity securities and, under current
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differences between the self-reported
data and the trade reporting data have
been detected by FINRA staff, these
differences have almost always been
errors in the self-reporting of data by
ATSs rather than errors in calculating
volume based on trade reporting data.
For example, FINRA has found errors
such as ATSs including cancelled or
reversed trades in the calculations or
double-counting certain volume.
Based on this comparison over the
past several months, FINRA believes
that, going forward, disseminating ATS
volume information based on trade
reporting data, rather than self-reported
data, will provide a more accurate
calculation of ATS volume.
Consequently, the proposed rule change
replaces the ATS reporting obligations
in Rule 4552 with a dissemination
provision in Rule 6110 (for NMS stocks)
and Rule 6610 (for OTC Equity
Securities). The information
disseminated by FINRA under the Rules
will be substantially the same as that
currently disseminated under Rule
4552; however, with the exception of
Exempt ATSs, the obligation to
calculate the information will shift from
the ATSs to FINRA. As discussed below
and noted above, however, some of the
data calculations will change for ATSs
that match orders using an Exempt ATS
and ATSs that otherwise have unique
trade reporting situations that result in
trade reporting data not aligning with
the ATS’s current calculation
methodology under Rule 4552.
(iii) Exempt ATSs
By shifting ATS volume calculations
from self-reported ATS data to trade
reporting data, FINRA will not have
transaction information for Exempt
ATSs because they do not report trades
to FINRA under existing exemptive
rules.23 Because FINRA believes this
information will remain important to
investors and to the public, Exempt
ATSs that wish to continue to have an
exemption from the trade reporting
requirements must continue to calculate
their volume in the same manner they
currently do under Rule 4552; however,
rather than report the information to
FINRA, the proposed rule change moves
the requirement, including all of the
guidance or exemptions, will not match: One is an
Exempt ATS; one ATS reports trades to a FINRA
facility but excludes trades that are matched on an
Exempt ATS pursuant to the guidance on volume
calculation in Supplementary Material .01 to Rule
4552; and one ATS matches orders but routes some
of those matched orders for execution to a third
party broker-dealer that executes and reports the
trade to FINRA. In each of these three unique
circumstances, the trade reports will not match the
data reported pursuant to Rule 4552.
23 See Rules 6183 and 6625.
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calculation requirements and guidance,
into Rules 6183 and 6625 and requires
Exempt ATSs to provide FINRA with a
link to the information. The information
at that link must be publicly available
at no charge and must appear in a
substantially similar format as the ATS
volume information that FINRA makes
available. Supplementary Material .01 to
the rules makes clear that, in order for
data posted at the link to be in a
‘‘substantially similar format’’ under the
rule, the data must include the same
data elements for the same timeframes,
be accessible in the same manner as
FINRA makes data available (e.g.,
downloadable), and include data for the
same time periods (including current
and historical data). FINRA will use the
link provided by the Exempt ATS and
make the link available on its public
Web site so that investors and other
members of the public can freely and
readily access Exempt ATS volume
information.
Because the amendments to Rules
6183 and 6625 incorporate the
calculation provisions from Rule 4552,
the calculation of Exempt ATS volume
information will not change as a result
of the proposed rule change; however,
the information will be published by the
Exempt ATS with a link from FINRA’s
Web site rather than be reported to
FINRA and displayed directly on
FINRA’s Web site. By shifting the basis
of ATS Data from self-reported data to
trade reporting data, the calculations,
and thus the displayed data, will change
primarily for those ATSs that currently
exclude transactions involving Exempt
ATSs from their reports under Rule
4552. These ATSs report trades to
FINRA using their ATS MPID (including
those trades that are matched through
an Exempt ATS); consequently, those
trades involving Exempt ATSs that are
currently excluded pursuant to
Supplementary Material .01 to Rule
4552 will be included in the volume
calculations once the calculations are
based on trade reporting data.24
(iv) ATS Block Data
With the implementation of the MPID
Requirement, FINRA now has access to
trade-by-trade reporting data from ATSs.
The MPID Requirement also allows
FINRA to aggregate and categorize ATS
trading data in additional ways, and
FINRA has been considering additional
data that may be useful to investors and
the public, particularly with respect to
larger-sized, or ‘‘block,’’ trades.
24 This category of trades will also be included in
the Exempt ATS’s volume calculations. FINRA will
note this potential double-counting on its Web site
to ensure users of the ATS data are aware of this
double-counting.
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Following discussions with numerous
ATSs, broker-dealers, and FINRA
committees, the proposed rule change
also provides that FINRA will publish
on its public Web site monthly aggregate
ATS block trading statistics, with the
specific elements to be determined from
time to time by FINRA in its discretion
as stated in a Regulatory Notice or other
equivalent publication, for each ATS.25
FINRA believes that these statistics
would prove beneficial to firms and the
general public and provide interested
parties with more detailed information
on ATS trading activities, thus
enhancing transparency in the over-thecounter market, and the proposed rule
change would provide FINRA with a
limited ability to change or refine the
data fields for ATS block trades to
respond to user needs or improve the
usefulness of the data.
Although FINRA will announce in a
Regulatory Notice the specific elements
that will be published, the rule provides
that the statistics regarding ATS block
trades will be aggregated across all NMS
stocks (i.e., there will be no security-bysecurity block data),26 will be for a
minimum time period of one month of
trading,27 and will be published no
earlier than one month following the
end of the month for which trading was
aggregated. Rather than strictly define a
block transaction, FINRA concluded it
would be most beneficial to provide
firms and the public with information
on block transactions using share-based
thresholds, dollar-based thresholds, and
thresholds that include both shares and
dollar amount. Initially, FINRA
anticipates that the ATS block data
elements listed below will be published
under Rule 6110; however, FINRA will
formally announce the elements in a
Regulatory Notice.28 FINRA currently
25 FINRA notes that announcement of the specific
elements in a Regulatory Notice or other equivalent
publication is similar to the manner in which
FINRA announces the data elements and fields
included in Historic TRACE Data. See Rules
7730(d) and (f)(4); see also Regulatory Notice 10–
14 (March 2010).
26 The proposed rule change does not include
OTC Equity Securities in the initial dissemination
phase for block trades, due largely to the wide
variance of trading activity in these securities and
the difficulty associated with determining
thresholds that are appropriate across this class of
securities. However, FINRA intends to reassess
whether, in the future, the publication of block data
should be expanded to include trades in OTC
Equity Securities or some subset thereof.
27 All monthly information will be calculated
using calendar months. Because the reports will be
based on aggregated monthly data rather than
weekly data and includes all NMS stocks, Tier 1
and Tier 2 NMS stocks will not be treated
differently for purposes of block trading statistics.
28 FINRA anticipates that any changes to the
elements or the addition of any new elements will
be published well in advance of implementation to
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anticipates that the thresholds for block
trades will be the following:
Æ 10,000 or more shares
Æ $200,000 or more in dollar value
Æ 10,000 or more shares and $200,000
or more in dollar value
Æ 2,000 to 9,999 shares
Æ $100,000 to $199,999 in dollar value
Æ 2,000 to 9,999 shares and $100,000 to
$199,999 in dollar value
For each of these thresholds, FINRA
intends to publish trade count and
volume information for each ATS
aggregated across all NMS stocks. As a
convenience for users, FINRA also
anticipates calculating and displaying
the average trade size and each ATS’s
rank as well as block market share (i.e.,
the proportion of each ATS’s block
trading volume in relation to total block
trading by all ATSs) and block business
share (i.e., the proportion of a particular
ATS’s overall trading volume that was
done as block trades) and rankings of
those metrics.29
FINRA believes that ATS block
trading data will be helpful for firms to
inform their routing decisions and that
FINRA’s data, because it would be based
on the trade reports submitted by the
ATSs, would be more accurate and
complete than existing sources of this
information. In addition, FINRA
believes that monthly aggregated data
across all NMS stocks published on a
one-month delayed basis will avoid any
potential information leakage concerns.
FINRA has filed the proposed rule
change for immediate effectiveness. The
implementation date for the deletion of
Rule 4552, the amendments to Rules
6183 and 6625, and the publication of
ATS volume and trade count
information (except for ATS block data)
pursuant to the amendments to Rules
6110 and 6610 will be February 9, 2016.
Consequently, ATSs will be required to
calculate their volume information
pursuant to Rule 4552 through January
31, 2016, and will have until February
9, 2016, to report this data to FINRA.30
provide an opportunity for comment by any
interested parties. As noted above, for trades
executed on an ATS, the ATS is required to report
the trade using its MPID. Consequently, the
publication by FINRA of ATS block data will not
impose any additional obligations on ATSs.
29 Both the block business share and the rankings
would be determined using the data FINRA is
proposing to make publicly available; thus, these
metrics would be calculated and provided by
FINRA merely as a service to users to enable them
to determine this information more readily.
Monthly total ATS share volume and trades are
calculated in order to derive the block business
share, so those values and their market share and
ranking would also be published as a service to
users.
30 As discussed above, ATSs exempt from FINRA
trade reporting requirements will continue to
calculate their volume using the same calculation
PO 00000
Frm 00064
Fmt 4703
Sfmt 4703
4079
FINRA will begin calculating ATS
volume data based on trade reports
beginning February 1, 2016. FINRA will
announce the implementation date for
these amendments no later than seven
days following the filing of the proposed
rule change for immediate effectiveness.
FINRA will announce the
implementation date for the publication
of ATS block data in a Regulatory Notice
to be published no later than 90 days
following publication of the
Commission’s notice of the filing of the
proposed rule change for immediate
effectiveness in the Federal Register.
The implementation date for the
publication of ATS block data will be no
later than 180 days after publication of
the Regulatory Notice.
2. Statutory Basis
FINRA believes that the proposed rule
change is consistent with the provisions
of Section 15A(b)(6) of the Act,31 which
requires, among other things, that
FINRA rules must be designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, and, in
general, to protect investors and the
public interest. FINRA believes that the
weekly ATS volume statistics have
significantly enhanced transparency and
understanding into trading activity on
ATSs in the over-the-counter market.
FINRA believes that, with the successful
implementation of the MPID
Requirement, transitioning the source of
this information from self-reported data
to trade reporting data enhances the
reliability of the data while also
reducing the reporting and compliance
burden on firms and ATSs. FINRA
believes that the proposal to publish
ATS block trading data will provide
additional transparency into ATS
activity and enhance market
participants’ and investors’
understanding of the over-the-counter
market.
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 publication of
ATS block trading information as
methodology after Rule 4552 is removed from the
FINRA rulebook pursuant to amended Rules 6183
and 6625. As with all ATSs, however, the reporting
requirements of Rule 4552 will no longer apply
beginning with the trading week of February 1,
2016. Instead, ATSs continuing to rely on the
exemption will begin providing FINRA with a link
to their data on the same timeframe as FINRA posts
the data for other ATSs.
31 15 U.S.C. 78o–3(b)(6).
E:\FR\FM\25JAN1.SGM
25JAN1
4080
Federal Register / Vol. 81, No. 15 / Monday, January 25, 2016 / Notices
described above would not impose any
additional reporting requirements on
ATSs because the data will be derived
solely from trade reports submitted to
the FINRA equity trade reporting
facilities. FINRA believes that the
proposal will have minimal to no
impact on firms from a systems
development perspective while
significantly benefiting the marketplace
as a whole. Thus, the proposal will
provide additional transparency into
ATS trading activity by enabling market
participants and investors to have a
better understanding of ATS block
trading volume at no required cost to
firms or ATSs.
The proposed rule change would
expand the benefits of FINRA’s ATS
transparency program by providing
additional transparency on monthly
aggregate block trading on ATSs. The
additional information may help market
participants and investors to enhance
their understanding of trading activity
on ATSs and inform routing decisions
based on this information. As discussed
above, the proposal to publish ATS
block trading volume would not impose
any additional reporting requirements
on firms, and as a result would have no
direct impact on firms. Some firms may
choose to incur costs to verify the
information FINRA publishes, but these
cost are voluntary and are also likely to
be minimal.
asabaliauskas on DSK5VPTVN1PROD with NOTICES
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. As noted above,
however, FINRA received written
comments on the proposed rule change
to adopt Rule 4552 and the MPID
Requirement, many of which requested
that FINRA eliminate Rule 4552 once
the MPID Requirement was
implemented and functioning as
intended.32 The current proposed rule
change addresses this concern
expressed by earlier commenters by
eliminating the reporting requirements
in Rule 4552.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
32 See ATS Approval Order, supra note 6, 79 FR
at 4215.
VerDate Sep<11>2014
13:09 Jan 22, 2016
Jkt 238001
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 33 and Rule 19b–
4(f)(6) thereunder.34
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
FINRA–2016–002 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–FINRA–2016–002. 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
33 15
34 17
PO 00000
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
Frm 00065
Fmt 4703
Sfmt 4703
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
office of 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–
2016–002, and should be submitted on
or before February 16, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.35
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–01308 Filed 1–22–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[File No. 500–1]
In the Matter of Vadda Energy Corp.;
Order of Suspension of Trading
January 21, 2016.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of Vadda
Energy Corp. (CIK No. 1082492), a
Florida corporation with its principal
place of business listed as Flower
Mound, Texas with stock quoted on
OTC Link (previously ‘Pink Sheets’)
operated by OTC Markets Group Inc.
(‘OTC Link’) under the ticker symbol
VDDA, because it has not filed any
periodic reports since it filed its
registration statement on September 30,
2013. On October 9, 2015, a
delinquency letter was sent by the
Division of Corporation Finance to
Vadda Energy requesting compliance
with its periodic filing obligations, and
Vadda Energy received the delinquency
letter on October 15, 2015, but failed to
cure its delinquencies.
The Commission is of the opinion that
the public interest and the protection of
investors require a suspension of trading
in the securities of the above-listed
company.
Therefore, it is ordered, pursuant to
Section 12(k) of the Securities Exchange
Act of 1934, that trading in the
securities of the above-listed company is
suspended for the period from 9:30 a.m.
EST on January 21, 2016, through 11:59
p.m. EST on February 3, 2016.
35 17
E:\FR\FM\25JAN1.SGM
CFR 200.30–3(a)(12).
25JAN1
]]>Agencies
[Federal Register Volume 81, Number 15 (Monday, January 25, 2016)]
[Notices]
[Pages 4076-4080]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-01308]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-76931; File No. SR-FINRA-2016-002]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change Relating to Alternative Trading System Volume and
Trading Information
January 19, 2016.
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 January 8, 2016, Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by FINRA. FINRA has
designated the proposed rule change as constituting a ``non-
controversial'' rule change under paragraph (f)(6) of Rule 19b-4 under
the Act,\3\ which renders the proposal effective upon receipt of this
filing by the Commission. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
FINRA is proposing to (i) delete from the FINRA rulebook Rule 4552,
which requires each alternative trading system (``ATS'') that has filed
a Form ATS with the SEC to report to FINRA weekly volume information
and number of trades regarding equity securities transactions within
the ATS; (ii) amend Rules 6110 and 6610 to add provisions regarding
FINRA's publication of ATS volume and trade count information for
equity securities, including information similar to what is currently
reported by ATSs pursuant to Rule 4552 as well as information regarding
ATS block transactions; and (iii) amend Rules 6183 and 6625 to require
ATSs seeking an exemption from FINRA trade reporting rules to provide
FINRA with a link to a publicly-available Web site that displays their
weekly equity volume information in a format substantially similar to
that used by FINRA.
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
(i) Background
On January 17, 2014, the SEC approved a proposed rule change to (i)
adopt Rule 4552 (Alternative Trading
[[Page 4077]]
Systems--Trading Information for Securities Executed Within the
Alternative Trading System) to require ATSs \4\ to report to FINRA
weekly volume information and number of trades regarding securities
transactions within the ATS (``ATS Data'') and to publish the ATS Data
on a delayed basis on FINRA's Web site; \5\ and (ii) amend Rules 6160,
6170, 6480, and 6720 (``MPID Rules'') to require each ATS to acquire
and use a single, unique market participant identifier (``MPID'') when
reporting information to FINRA (``MPID Requirement'').\6\ The
implementation date for the reporting requirements under Rule 4552 was
May 12, 2014, and FINRA began publishing the ATS Data for equity
securities on its Web site on June 2, 2014.\7\ The MPID Requirement was
implemented on February 2, 2015.\8\ As the SEC noted in its order
approving Rule 4552 and the MPID Requirement, FINRA's response to
comments received on that proposal included a commitment by FINRA to
evaluate the continued need for self-reporting under Rule 4552 after
the MPID Requirement was in place and to ``eliminate the self-reporting
requirement for ATSs subject to FINRA trade reporting requirements if
the MPID [R]equirement is implemented and operating as anticipated.''
\9\ FINRA has conducted this evaluation, and the proposed rule change
eliminates the self-reporting requirement in Rule 4552 for ATSs in
light of the successful implementation of the MPID Requirement.\10\
---------------------------------------------------------------------------
\4\ Regulation ATS defines an ``alternative trading system'' as
``any organization, association, person, group of persons, or
system: (1) That constitutes, maintains, or provides a market place
or facilities for bringing together purchasers and sellers of
securities or for otherwise performing with respect to securities
the functions commonly performed by a stock exchange within the
meaning of [Exchange Act Rule 3b-16]; and (2) That does not: (i) Set
rules governing the conduct of subscribers other than the conduct of
such subscribers' trading on such organization, association, person,
group of persons, or system; or (ii) Discipline subscribers other
than by exclusion from trading.'' 17 CFR 242.300(a). Rule 4552
applies to any alternative trading system, as that term is defined
in Regulation ATS, that has filed a Form ATS with the Commission.
See Rule 4552(a).
\5\ FINRA subsequently filed a proposed rule change to limit the
reporting requirements in Rule 4552 to equity securities and exclude
TRACE-Reportable Securities. See Securities Exchange Act Release No.
71911 (April 9, 2014), 79 FR 21316 (April 15, 2014) (Notice of
Filing and Immediate Effectiveness of File No. SR-FINRA-2014-017).
\6\ See Securities Exchange Act Release No. 71341 (January 17,
2014), 79 FR 4213 (January 24, 2014) (Order Approving File No. SR-
FINRA-2013-042) (``ATS Approval Order''). The MPID Requirement was
subsequently amended to permit the use of two MPIDs by a single ATS
provided each MPID is used only to report to either the Trade
Reporting and Compliance Engine (``TRACE'') or one or more of
FINRA's equity reporting facilities. See Securities Exchange Act
Release No. 71911 (April 9, 2014), 79 FR 21316 (April 15, 2014)
(Notice of Filing and Immediate Effectiveness of File No. SR-FINRA-
2014-017).
\7\ See Regulatory Notice 14-07 (February 2014).
\8\ See Securities Exchange Act Release No. 73340 (October 10,
2014), 79 FR 62500 (October 17, 2014) (Notice of Filing and
Immediate Effectiveness of File No. SR-FINRA-2014-042).
\9\ ATS Approval Order, supra note 6, 79 FR at 4215-16.
\10\ FINRA and the SEC also noted that certain ATSs exempt from
FINRA's trade reporting rules (``Exempt ATSs'') may need to continue
reporting because Exempt ATSs would not be using a separate MPID to
report their volume due to the exemption. See ATS Approval Order,
supra note 6, 79 FR at 4216 n.34. As discussed in more detail below,
rather than require Exempt ATSs to continue to self-report volume
information pursuant to Rule 4552, FINRA has determined to require
any ATS that wishes to avail itself of the trade reporting exemption
to provide FINRA with a link to this information on a publicly-
available Web site. FINRA will include a link to this information on
its ATS Web site so that it is readily accessible to investors and
the public.
---------------------------------------------------------------------------
Rule 4552 requires individual ATSs to submit weekly reports to
FINRA regarding equity security volume information within the ATS,
including share volume and number of trades for both NMS stocks and OTC
Equity Securities.\11\ This information must be reported to FINRA on a
security-by-security basis within seven business days after the end of
each calendar week.\12\ The first reports pursuant to Rule 4552 were
due to FINRA by May 28, 2014, covering the week of May 12 through 16,
2014.\13\ After FINRA began receiving the self-reported data from ATSs,
FINRA began publishing on its Web site, on a delayed basis, the
reported information for each equity security for each ATS with
appropriate disclosures that the published volume numbers are based on
ATS-submitted reports and not on reports produced or validated by
FINRA.\14\ FINRA currently makes this data available on its Web site
through weekly reports listing aggregate volume and number of trades by
security for each ATS within the designated time period.\15\ Aggregate
reported information regarding NMS stocks in Tier 1 of the NMS Plan to
Address Extraordinary Market Volatility \16\ is published on a two-week
delayed basis.\17\ FINRA publishes the information on all other NMS
stocks and OTC Equity Securities subject to FINRA trade reporting
requirements on a four-week delayed basis.\18\
---------------------------------------------------------------------------
\11\ See Rule 4552(a) and (d)(4).
\12\ See Rule 4552(a).
\13\ See Regulatory Notice 14-07 (February 2014).
\14\ See Rule 4552(b).
\15\ The volume information is available at www.finra.org/ats.
\16\ Tier 1 NMS stocks include those NMS stocks in the S&P 500
Index or the Russell 1000 Index and certain exchange-traded
products. See NMS Plan to Address Extraordinary Market Volatility.
FINRA makes changes to the Tier 1 NMS stocks in accordance with the
Indices. Changes to the S&P 500 are made on an as needed basis and
are not subject to an annual or semi-annual reconstitution. S&P
typically does not add new issues until they have been seasoned for
six to twelve months. Russell 1000 rebalancing typically takes
places in June.
\17\ See Rule 4552(b)(1). Thus, for example, a typical reporting
scenario (i.e., no federal holidays) requires ATSs to report the
information for a given week by the second Tuesday following the
week. FINRA publishes the information regarding Tier 1 NMS stocks no
earlier than the following Monday. Information on all other equity
securities subject to FINRA trade reporting requirements is
published two weeks following the publication of information for the
Tier 1 NMS stocks.
\18\ See Rule 4552(b)(2).
---------------------------------------------------------------------------
Rule 4552 also specifies how an ATS should calculate its volume to
ensure consistency and to avoid potential over-counting and requires
that, ``[w]hen calculating and reporting the volume of securities
traded and the number of trades, an alternative trading system shall
include only those trades executed within the alternative trading
system. If two orders are crossed by the alternative trading system,
the volume shall include only the number of shares crossed as a single
trade (e.g., crossing a buy order of 1,000 shares with a sell order of
1,000 shares would be calculated as a single trade of 1,000 shares of
volume).'' \19\ Thus, for example, an ATS only reports trades executed
within the ATS (not orders routed out of the ATS) and only reports the
volume of each executed trade once (not separate or double counting for
the buy and sell side of the trade). Supplementary Material .01 to Rule
4552 provides further guidance on how to calculate volume for reporting
purposes and notes that ``[i]f an ATS routes an order to another member
firm or other execution venue for handling or execution where that
initial order matches against interest resident at the other venue,
then the ATS would not not [sic] . . . include such volume for
reporting purposes.''
---------------------------------------------------------------------------
\19\ See Rule 4552(c).
---------------------------------------------------------------------------
In addition to the reporting requirements under Rule 4552, the MPID
Rules generally require that a member operating an ATS obtain for each
such ATS a single, unique MPID that is designated for exclusive use for
reporting each ATS's transactions.\20\ Members that operate multiple
ATSs or engage in other lines of business requiring the use of MPIDs
are required
[[Page 4078]]
to obtain and use multiple MPIDs, and if a firm operates multiple ATSs,
each ATS must have its own MPID. Firms are required to notify FINRA
before changing the usage of the MPID in any way (e.g., repurposing an
MPID from reflecting ATS activity to other trading activity at the
firm). After an ATS is provided its MPID, any reporting by the ATS--
either reporting trades to a FINRA TRF, the Alternative Display
Facility, the OTC Reporting Facility, TRACE, or reporting orders to the
Order Audit Trail System (``OATS'')--must include the MPID assigned to
the particular ATS, and the member must use the separate MPID to report
all transactions executed within the ATS to the appropriate reporting
facility. Finally, the MPID Rules prohibit a member from using an MPID
assigned to an ATS to report any transaction that is not executed
within the ATS and require members to have policies and procedures in
place to ensure that trades reported with a separate MPID obtained
under the rules are restricted to trades executed within the ATS.
---------------------------------------------------------------------------
\20\ See Rule 6160 (Multiple MPIDs for Trade Reporting Facility
Participants); Rule 6170 (Primary and Additional MPIDs for
Alternative Display Facility Participants); Rule 6480 (Multiple
MPIDs for Quoting and Trading in OTC Equity Securities). As noted
above, an ATS is permitted to use two separate MPIDs if one MPID is
used exclusively for reporting transactions to TRACE and the other
MPID is used exclusively for reporting transactions to the equity
trade reporting facilities. See Rule 6160(d); Rule 6170(e); Rule
6480(d).
---------------------------------------------------------------------------
(ii) MPID Requirement Implementation and Evaluation
Under FINRA's trade reporting rules, orders that are crossed by an
ATS are reported to the appropriate FINRA trade reporting facility by
the ATS.\21\ The MPID Requirement--which requires ATSs to use a single,
unique MPID when reporting trades within the ATS to an equity trade
reporting facility--became effective on February 2, 2015. Since that
time, FINRA has been able to calculate the trading volume for ATSs,
other than Exempt ATSs, through the trade reports submitted using the
ATS's MPID. FINRA has been comparing the information reported by ATSs
pursuant to Rule 4552 to information generated by FINRA from trade
reports since the MPID Requirement was implemented.
---------------------------------------------------------------------------
\21\ See Securities Exchange Act Release No. 58903 (November 5,
2008), 73 FR 67905, at 67906 (November 17, 2008) (Order Approving
File No. SR-FINRA-2008-011) (``Under the proposed rule change, an
[ATS] . . . would be the executing party and would have the
reporting obligation where the transaction is executed on the
ATS.''); see also Regulatory Notice 09-08 (January 2009).
---------------------------------------------------------------------------
For most weeks since the implementation of the MPID Requirement,
over 75% of ATSs have exact matches between self-reported data and
trade reporting data, and there has been a 99.99% overall match rate
between self-reported ATS volume and trade reporting volume for ATSs
that submit trade reports on the same basis that they calculate volume
information pursuant to Rule 4552.\22\ Where differences between the
self-reported data and the trade reporting data have been detected by
FINRA staff, these differences have almost always been errors in the
self-reporting of data by ATSs rather than errors in calculating volume
based on trade reporting data. For example, FINRA has found errors such
as ATSs including cancelled or reversed trades in the calculations or
double-counting certain volume.
---------------------------------------------------------------------------
\22\ The 99.99% match rate excludes three ATSs that trade equity
securities and, under current guidance or exemptions, will not
match: One is an Exempt ATS; one ATS reports trades to a FINRA
facility but excludes trades that are matched on an Exempt ATS
pursuant to the guidance on volume calculation in Supplementary
Material .01 to Rule 4552; and one ATS matches orders but routes
some of those matched orders for execution to a third party broker-
dealer that executes and reports the trade to FINRA. In each of
these three unique circumstances, the trade reports will not match
the data reported pursuant to Rule 4552.
---------------------------------------------------------------------------
Based on this comparison over the past several months, FINRA
believes that, going forward, disseminating ATS volume information
based on trade reporting data, rather than self-reported data, will
provide a more accurate calculation of ATS volume. Consequently, the
proposed rule change replaces the ATS reporting obligations in Rule
4552 with a dissemination provision in Rule 6110 (for NMS stocks) and
Rule 6610 (for OTC Equity Securities). The information disseminated by
FINRA under the Rules will be substantially the same as that currently
disseminated under Rule 4552; however, with the exception of Exempt
ATSs, the obligation to calculate the information will shift from the
ATSs to FINRA. As discussed below and noted above, however, some of the
data calculations will change for ATSs that match orders using an
Exempt ATS and ATSs that otherwise have unique trade reporting
situations that result in trade reporting data not aligning with the
ATS's current calculation methodology under Rule 4552.
(iii) Exempt ATSs
By shifting ATS volume calculations from self-reported ATS data to
trade reporting data, FINRA will not have transaction information for
Exempt ATSs because they do not report trades to FINRA under existing
exemptive rules.\23\ Because FINRA believes this information will
remain important to investors and to the public, Exempt ATSs that wish
to continue to have an exemption from the trade reporting requirements
must continue to calculate their volume in the same manner they
currently do under Rule 4552; however, rather than report the
information to FINRA, the proposed rule change moves the requirement,
including all of the calculation requirements and guidance, into Rules
6183 and 6625 and requires Exempt ATSs to provide FINRA with a link to
the information. The information at that link must be publicly
available at no charge and must appear in a substantially similar
format as the ATS volume information that FINRA makes available.
Supplementary Material .01 to the rules makes clear that, in order for
data posted at the link to be in a ``substantially similar format''
under the rule, the data must include the same data elements for the
same timeframes, be accessible in the same manner as FINRA makes data
available (e.g., downloadable), and include data for the same time
periods (including current and historical data). FINRA will use the
link provided by the Exempt ATS and make the link available on its
public Web site so that investors and other members of the public can
freely and readily access Exempt ATS volume information.
---------------------------------------------------------------------------
\23\ See Rules 6183 and 6625.
---------------------------------------------------------------------------
Because the amendments to Rules 6183 and 6625 incorporate the
calculation provisions from Rule 4552, the calculation of Exempt ATS
volume information will not change as a result of the proposed rule
change; however, the information will be published by the Exempt ATS
with a link from FINRA's Web site rather than be reported to FINRA and
displayed directly on FINRA's Web site. By shifting the basis of ATS
Data from self-reported data to trade reporting data, the calculations,
and thus the displayed data, will change primarily for those ATSs that
currently exclude transactions involving Exempt ATSs from their reports
under Rule 4552. These ATSs report trades to FINRA using their ATS MPID
(including those trades that are matched through an Exempt ATS);
consequently, those trades involving Exempt ATSs that are currently
excluded pursuant to Supplementary Material .01 to Rule 4552 will be
included in the volume calculations once the calculations are based on
trade reporting data.\24\
---------------------------------------------------------------------------
\24\ This category of trades will also be included in the Exempt
ATS's volume calculations. FINRA will note this potential double-
counting on its Web site to ensure users of the ATS data are aware
of this double-counting.
---------------------------------------------------------------------------
(iv) ATS Block Data
With the implementation of the MPID Requirement, FINRA now has
access to trade-by-trade reporting data from ATSs. The MPID Requirement
also allows FINRA to aggregate and categorize ATS trading data in
additional ways, and FINRA has been considering additional data that
may be useful to investors and the public, particularly with respect to
larger-sized, or ``block,'' trades.
[[Page 4079]]
Following discussions with numerous ATSs, broker-dealers, and FINRA
committees, the proposed rule change also provides that FINRA will
publish on its public Web site monthly aggregate ATS block trading
statistics, with the specific elements to be determined from time to
time by FINRA in its discretion as stated in a Regulatory Notice or
other equivalent publication, for each ATS.\25\ FINRA believes that
these statistics would prove beneficial to firms and the general public
and provide interested parties with more detailed information on ATS
trading activities, thus enhancing transparency in the over-the-counter
market, and the proposed rule change would provide FINRA with a limited
ability to change or refine the data fields for ATS block trades to
respond to user needs or improve the usefulness of the data.
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\25\ FINRA notes that announcement of the specific elements in a
Regulatory Notice or other equivalent publication is similar to the
manner in which FINRA announces the data elements and fields
included in Historic TRACE Data. See Rules 7730(d) and (f)(4); see
also Regulatory Notice 10-14 (March 2010).
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Although FINRA will announce in a Regulatory Notice the specific
elements that will be published, the rule provides that the statistics
regarding ATS block trades will be aggregated across all NMS stocks
(i.e., there will be no security-by-security block data),\26\ will be
for a minimum time period of one month of trading,\27\ and will be
published no earlier than one month following the end of the month for
which trading was aggregated. Rather than strictly define a block
transaction, FINRA concluded it would be most beneficial to provide
firms and the public with information on block transactions using
share-based thresholds, dollar-based thresholds, and thresholds that
include both shares and dollar amount. Initially, FINRA anticipates
that the ATS block data elements listed below will be published under
Rule 6110; however, FINRA will formally announce the elements in a
Regulatory Notice.\28\ FINRA currently anticipates that the thresholds
for block trades will be the following:
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\26\ The proposed rule change does not include OTC Equity
Securities in the initial dissemination phase for block trades, due
largely to the wide variance of trading activity in these securities
and the difficulty associated with determining thresholds that are
appropriate across this class of securities. However, FINRA intends
to reassess whether, in the future, the publication of block data
should be expanded to include trades in OTC Equity Securities or
some subset thereof.
\27\ All monthly information will be calculated using calendar
months. Because the reports will be based on aggregated monthly data
rather than weekly data and includes all NMS stocks, Tier 1 and Tier
2 NMS stocks will not be treated differently for purposes of block
trading statistics.
\28\ FINRA anticipates that any changes to the elements or the
addition of any new elements will be published well in advance of
implementation to provide an opportunity for comment by any
interested parties. As noted above, for trades executed on an ATS,
the ATS is required to report the trade using its MPID.
Consequently, the publication by FINRA of ATS block data will not
impose any additional obligations on ATSs.
[cir] 10,000 or more shares
[cir] $200,000 or more in dollar value
[cir] 10,000 or more shares and $200,000 or more in dollar value
[cir] 2,000 to 9,999 shares
[cir] $100,000 to $199,999 in dollar value
[cir] 2,000 to 9,999 shares and $100,000 to $199,999 in dollar value
For each of these thresholds, FINRA intends to publish trade count
and volume information for each ATS aggregated across all NMS stocks.
As a convenience for users, FINRA also anticipates calculating and
displaying the average trade size and each ATS's rank as well as block
market share (i.e., the proportion of each ATS's block trading volume
in relation to total block trading by all ATSs) and block business
share (i.e., the proportion of a particular ATS's overall trading
volume that was done as block trades) and rankings of those
metrics.\29\
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\29\ Both the block business share and the rankings would be
determined using the data FINRA is proposing to make publicly
available; thus, these metrics would be calculated and provided by
FINRA merely as a service to users to enable them to determine this
information more readily. Monthly total ATS share volume and trades
are calculated in order to derive the block business share, so those
values and their market share and ranking would also be published as
a service to users.
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FINRA believes that ATS block trading data will be helpful for
firms to inform their routing decisions and that FINRA's data, because
it would be based on the trade reports submitted by the ATSs, would be
more accurate and complete than existing sources of this information.
In addition, FINRA believes that monthly aggregated data across all NMS
stocks published on a one-month delayed basis will avoid any potential
information leakage concerns.
FINRA has filed the proposed rule change for immediate
effectiveness. The implementation date for the deletion of Rule 4552,
the amendments to Rules 6183 and 6625, and the publication of ATS
volume and trade count information (except for ATS block data) pursuant
to the amendments to Rules 6110 and 6610 will be February 9, 2016.
Consequently, ATSs will be required to calculate their volume
information pursuant to Rule 4552 through January 31, 2016, and will
have until February 9, 2016, to report this data to FINRA.\30\ FINRA
will begin calculating ATS volume data based on trade reports beginning
February 1, 2016. FINRA will announce the implementation date for these
amendments no later than seven days following the filing of the
proposed rule change for immediate effectiveness. FINRA will announce
the implementation date for the publication of ATS block data in a
Regulatory Notice to be published no later than 90 days following
publication of the Commission's notice of the filing of the proposed
rule change for immediate effectiveness in the Federal Register. The
implementation date for the publication of ATS block data will be no
later than 180 days after publication of the Regulatory Notice.
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\30\ As discussed above, ATSs exempt from FINRA trade reporting
requirements will continue to calculate their volume using the same
calculation methodology after Rule 4552 is removed from the FINRA
rulebook pursuant to amended Rules 6183 and 6625. As with all ATSs,
however, the reporting requirements of Rule 4552 will no longer
apply beginning with the trading week of February 1, 2016. Instead,
ATSs continuing to rely on the exemption will begin providing FINRA
with a link to their data on the same timeframe as FINRA posts the
data for other ATSs.
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2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\31\ which requires, among
other things, that FINRA rules must be designed to prevent fraudulent
and manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest. FINRA believes that the weekly ATS volume statistics
have significantly enhanced transparency and understanding into trading
activity on ATSs in the over-the-counter market. FINRA believes that,
with the successful implementation of the MPID Requirement,
transitioning the source of this information from self-reported data to
trade reporting data enhances the reliability of the data while also
reducing the reporting and compliance burden on firms and ATSs. FINRA
believes that the proposal to publish ATS block trading data will
provide additional transparency into ATS activity and enhance market
participants' and investors' understanding of the over-the-counter
market.
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\31\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition
FINRA does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
FINRA notes that the publication of ATS block trading information
as
[[Page 4080]]
described above would not impose any additional reporting requirements
on ATSs because the data will be derived solely from trade reports
submitted to the FINRA equity trade reporting facilities. FINRA
believes that the proposal will have minimal to no impact on firms from
a systems development perspective while significantly benefiting the
marketplace as a whole. Thus, the proposal will provide additional
transparency into ATS trading activity by enabling market participants
and investors to have a better understanding of ATS block trading
volume at no required cost to firms or ATSs.
The proposed rule change would expand the benefits of FINRA's ATS
transparency program by providing additional transparency on monthly
aggregate block trading on ATSs. The additional information may help
market participants and investors to enhance their understanding of
trading activity on ATSs and inform routing decisions based on this
information. As discussed above, the proposal to publish ATS block
trading volume would not impose any additional reporting requirements
on firms, and as a result would have no direct impact on firms. Some
firms may choose to incur costs to verify the information FINRA
publishes, but these cost are voluntary and are also likely to be
minimal.
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. As noted
above, however, FINRA received written comments on the proposed rule
change to adopt Rule 4552 and the MPID Requirement, many of which
requested that FINRA eliminate Rule 4552 once the MPID Requirement was
implemented and functioning as intended.\32\ The current proposed rule
change addresses this concern expressed by earlier commenters by
eliminating the reporting requirements in Rule 4552.
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\32\ See ATS Approval Order, supra note 6, 79 FR at 4215.
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III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \33\ and Rule 19b-
4(f)(6) thereunder.\34\
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\33\ 15 U.S.C. 78s(b)(3)(A).
\34\ 17 CFR 240.19b-4(f)(6).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-FINRA-2016-002 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2016-002. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549 on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available
for inspection and copying at the principal office of 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-2016-002, and should
be submitted on or before February 16, 2016.
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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\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-01308 Filed 1-22-16; 8:45 am]
BILLING CODE 8011-01-P
