Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Modify Fees and Transaction Credits for the FINRA/NYSE Trade Reporting Facility, 70462-70467 [2016-24575]
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Federal Register / Vol. 81, No. 197 / Wednesday, October 12, 2016 / Notices
potential registrants and affect the
hiring decisions of firms, as the
commenters suggest?
The Commission also seeks comment
on whether all exchanges and
FINRAshould pursue an initiative to
harmonize their respective requirements
and, if so, what is the appropriate
timeframe? Would a 10-day standard
unduly burden firms and potentially
compromise the quality or integrity of
the information reported on Form U5? 27
The Commission is interested in any
additional burdens or benefits a
requirement to file Form U5 within 10
days might impose on the public or the
participants in the securities industry.
The Commission believes the
proposals raise questions as to whether
they are consistent with the
requirements of Section 6(b)(5) of the
Act,28 including whether the proposals
are designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system and, in general, to protect
investors and the public interest.
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V. Procedure: Request for Written
Comments
The Commission requests that
interested persons provide written
submissions of their views, data and
arguments with respect to the concerns
identified above, as well as any other
concerns they may have with the
proposed rule changes. In particular, the
Commission invites the written views of
interested persons concerning whether
the proposals are consistent with
Sections 6(b)(5) 29 or any other
provision of the Act, or the rules and
regulations thereunder. Although there
does not appear to be any issue relevant
to approval or disapproval which would
be facilitated by an oral presentation of
views, data, and arguments, the
Commission will consider, pursuant to
Rule 19b–4 under the Act,30 any request
27 See FINRA Regulatory Notice 10–39, which
states that when providing explanations for reasons
for terminations, firms must answer all disclosure
questions accurately and provide enough
information so the reader can understand the
conduct that led to the termination and that the
failure to do so may result in sanctions; see also In
the matter of Wedbush Securities Inc., Securities
Exchange Act Release No. 78568 (August 12, 2016)
(noting that Form U5 serves as a warning
mechanism to member firms of the potential risks
and accompanying supervisory responsibilities they
must assume if they decide to employ an individual
with a suspect history and provides FINRA with
information useful in deciding whether to initiate
an investigation, and that failure to file these forms
accurately and on time frustrates these objectives).
28 15 U.S.C. 78f(b)(5).
29 Id.
30 17 CFR 240.19b–4.
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for an opportunity to make an oral
presentation.31 Interested persons are
invited to submit written data, views,
and arguments regarding whether the
proposal should be approved or
disapproved by November 2, 2016. Any
person who wishes to file a rebuttal to
any other person’s submission must file
that rebuttal by November 16, 2016. In
light of the concerns raised by the
proposed rule changes, as discussed
above, the Commission invites
additional comment on the proposed
rule changes as the Commission
continues its analysis of the proposed
rule changes’ consistency with Sections
6(b)(5) and 6(b)(8),32 or any other
provision of the Act, or the rules and
regulations thereunder. The
Commission asks that commenters
address the sufficiency and merit of
NYSE MKT’s and/or NYSE Arca’s
statements in support of the proposed
rule changes, in addition to any other
comments they may wish to submit
about the proposed rule changes.
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 No. SR–
NYSEMKT–2016–52 and File No. SR–
NYSEArca–2016–103 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 No.
SR–NYSEMKT–2016–52 and SR–
NYSEArca-2016–103. The file numbers
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
submissions, all subsequent
amendments, all written statements
with respect to the proposed rule
31 Section 19(b)(2) of the Act, as amended by the
Securities Act Amendments of 1975, Public Law
94–29 (June 4, 1975), grants to the Commission
flexibility to determine what type of proceeding—
either oral or notice and opportunity for written
comments—is appropriate for consideration of a
particular proposal by a self-regulatory
organization. See Securities Act Amendments of
1975, Senate Comm. on Banking, Housing & Urban
Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30
(1975).
32 15 U.S.C. 78f(b)(5), (b)(8).
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changes that are filed with the
Commission, and all written
communications relating to the
proposed rule changes between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filings also will be available for
inspection and copying at the principal
office of each respective 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 No.
SR–NYSEMKT–2016–52 and File No.
SR–NYSEArca–2016–103, and should
be submitted by November 2, 2016.
Rebuttal comments should be submitted
by November 16, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.33
Brent J. Fields,
Secretary.
[FR Doc. 2016–24580 Filed 10–11–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–79050; File No. SR–FINRA–
2016–037]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Modify Fees and
Transaction Credits for the FINRA/
NYSE Trade Reporting Facility
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
September 28, 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 ‘‘establishing or changing a due, fee
or other charge’’ under Section
33 17
CFR 200.30–3(a)(57).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Federal Register / Vol. 81, No. 197 / Wednesday, October 12, 2016 / Notices
19(b)(3)(A)(ii) of the Act 3 and Rule 19b–
4(f)(2) thereunder,4 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 amend the
FINRA Rule 7600B Series to modify fees
and transaction credits applicable to
members that use the FINRA/NYSE
Trade Reporting Facility (the ‘‘FINRA/
NYSE TRF’’).
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
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1. Purpose
Background
The FINRA/NYSE TRF, which is
operated by NYSE Market (DE), Inc., is
one of three FINRA facilities that FINRA
members can use to report over-thecounter (‘‘OTC’’) trades in NMS stocks.5
In connection with the establishment of
the FINRA/NYSE TRF, FINRA and
NYSE Market (DE), Inc. entered into a
limited liability company agreement
(the ‘‘LLC Agreement’’). Under the LLC
Agreement, FINRA, the ‘‘SRO Member,’’
has sole regulatory responsibility for the
FINRA/NYSE TRF. NYSE Market (DE),
Inc., the ‘‘Business Member,’’ is
primarily responsible for the
management of the FINRA/NYSE TRF’s
3 15
U.S.C. 78s(b)(3)(A)(ii).
CFR 240.19b–-4(f)(2).
5 In addition to the FINRA/NYSE TRF, members
have the option of reporting OTC trades in NMS
stocks to the FINRA Alternative Display Facility
(the ‘‘ADF’’) or the FINRA/Nasdaq Trade Reporting
Facility (the ‘‘FINRA/Nasdaq TRF’’).
4 17
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business affairs to the extent those
affairs are not inconsistent with the
regulatory and oversight functions of
FINRA. As such, the Business Member
establishes pricing for use of the FINRA/
NYSE TRF, and such pricing is
implemented pursuant to FINRA rules
that must be filed with the SEC and be
consistent with the Act.6 In addition,
the Business Member is obligated to pay
the cost of regulation and is entitled to
the profits and losses, if any, derived
from the operation of the FINRA/NYSE
TRF.7
The FINRA/NYSE TRF commenced
operation in April 2007 and since that
time, the NYSE Market (DE), Inc., as the
Business Member, has funded all costs
associated with operating the FINRA/
NYSE TRF, including all regulatory
costs, from NYSE Market (DE), Inc.
general revenues. According to NYSE
Market (DE), Inc., the cost of operating
the FINRA/NYSE TRF has increased
since 2007, in part because regulatory
costs have increased with FINRA/NYSE
TRF’s higher market share, as well as
additional functionality and
development costs. Accordingly, NYSE
Market (DE), Inc., as the Business
Member, has determined to adjust the
FINRA/NYSE TRF fees and transaction
credits to provide revenue to help offset
these increased operating costs, while
allowing the FINRA/NYSE TRF to
remain competitive. NYSE Market (DE),
Inc. will continue to fund any costs,
including applicable regulatory costs
and requisite infrastructure costs,
associated with the operations of the
FINRA/NYSE TRF that are not covered
by fees and market data revenue from
NYSE Market (DE), Inc.’s general
revenues.
Pursuant to the FINRA Rule 7600B
Series, FINRA members that are FINRA/
NYSE TRF participants are charged fees
(Rule 7620B) and may qualify for
transaction credits (Rule 7610B) for use
of the FINRA/NYSE TRF. In addition,
affiliated members can aggregate their
activity for purposes of fees and credits
that are dependent upon the volume of
their activity (Rule 7630B). These rules
are administered by NYSE Market (DE),
6 Because there are two FINRA Trade Reporting
Facilities operated by different exchange Business
Members competing for market share (the FINRA/
NYSE TRF and the FINRA/Nasdaq TRF), FINRA
does not take a position on whether the pricing for
one TRF is more favorable or competitive than the
pricing for the other TRF.
7 FINRA notes that the same contractual
arrangement is in place for the FINRA/Nasdaq TRF,
with FINRA as the SRO Member and Nasdaq, Inc.
as the Business Member. The LLC agreements for
the FINRA/NYSE TRF and the FINRA/Nasdaq TRF
were submitted as part of the rule filings to
establish the respective TRFs and can be found in
the FINRA Manual.
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70463
Inc., in its capacity as the Business
Member and operator of the FINRA/
NYSE TRF on behalf of FINRA,8 and
NYSE Market (DE), Inc. collects all fees
on behalf of the FINRA/NYSE TRF.
Proposed Amendments to Rule 7610B
Pursuant to Rule 7610B (Securities
Transaction Credit), FINRA members
that execute OTC trades in securities
listed on the New York Stock Exchange
(‘‘Tape A’’), NYSE MKT and regional
exchanges (‘‘Tape B’’), or Nasdaq (‘‘Tape
C’’) and report to the FINRA/NYSE TRF
may receive from the FINRA/NYSE TRF
transaction credits based on the
transactions attributed to them. A
transaction is attributed to a member if
the member is identified as the
executing party in a trade report
submitted to the FINRA/NYSE TRF that
the FINRA/NYSE TRF submits to the
Consolidated Tape Association (‘‘CTA’’)
or the Nasdaq Securities Information
Processor (‘‘UTP SIP’’). A FINRA
member may earn credits from any of
the three pools maintained by the
FINRA/NYSE TRF, each of which
represents the market data revenue paid
by the CTA or the UTP SIP with respect
to the FINRA/NYSE TRF for each of
Tape A, Tape B, and Tape C
transactions (‘‘Market Data Revenue’’).
A FINRA member may earn credits from
the pools according to the pro rata share
of revenue attributable to OTC
transactions reported to the FINRA/
NYSE TRF by the member in Tape A,
Tape B, and Tape C for each calendar
quarter.9
NYSE Market (DE), Inc., as the
Business Member, has determined to
modify the current tiered schedule for
Market Data Revenue sharing for the
FINRA/NYSE TRF, and FINRA is
proposing to amend Rule 7610B
accordingly. Specifically, the proposed
rule change would increase the
percentage of Market Data Revenue
shared with a FINRA member reporting
trades to the FINRA/NYSE TRF based
on the member’s ‘‘Market Share.’’ 10
8 FINRA’s oversight of this function performed by
the Business Member is conducted through a
recurring assessment and review of TRF operations
by an outside independent audit firm.
9 To the extent that the Market Data Revenue is
subject to any adjustment, credits provided may be
adjusted accordingly.
10 ‘‘Market Share’’ is defined in Rule 7610B as the
percentage calculated by dividing the total number
of trades reported by a member to the FINRA/NYSE
TRF during a given calendar quarter by the total
number of all trades reported to the CTA or the UTP
SIP, as applicable, during that quarter. Market Share
is calculated separately for each tape. The
calculation of Market Share is based only on a
member’s trades that are reported to the CTA or the
UTP SIP (‘‘tape reports’’) and does not include
trades that are only reported for regulatory and/or
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Federal Register / Vol. 81, No. 197 / Wednesday, October 12, 2016 / Notices
Under the current tiered schedule, a
member with a Market Share of 0.9% or
more in Tape A or Tape C, or 0.7% or
more in Tape B, receives 90% of the
attributable Market Data Revenue; a
member with less than 0.9% but at least
0.5% in Tape A or Tape C, or less than
0.7% but at least 0.5% in Tape B,
receives 75%; a member with less than
0.5% but at least 0.4% in Tape A, Tape
B or Tape C receives 70%; a member
with less than 0.4% but at least 0.075%
in Tape A, Tape B or Tape C receives
25%; and a member with less than
0.075% in Tape A, Tape B or Tape C is
not eligible for the Market Data Revenue
sharing program.
Under the proposed rule change, a
member with a Market Share of 2.0% or
more in Tape A, Tape B or Tape C,
would receive 100% of the attributable
Market Data Revenue; a member with
less than 2.0% but at least 0.5% in Tape
A, Tape B or Tape C, would receive
95%; a member with less than 0.5% but
at least 0.1% in Tape A, Tape B or Tape
C would receive 85%; and a member
with less than 0.1% in Tape A, Tape B
or Tape C would not be eligible for the
Market Data Revenue sharing program.
For example, a member that has a
Market Share of 2.5% in Tape A, 1.5%
in Tape B, and 0.05% in Tape C would
be eligible to receive 100% of the
attributable Market Data Revenue in
Tape A, 95% in Tape B, and no Market
Data Revenue in Tape C. The below
chart sets forth the proposed tiers.
Market share
Percentage
of market data
revenue
shared
mstockstill on DSK3G9T082PROD with NOTICES
Greater than or equal to
2.0% ..................................
Greater than or equal to
0.5% but less than 2.0% ...
Greater than or equal to
0.1% but less than 0.5% ...
Less than 0.1% .....................
100
95
85
0
Thus, as a general matter, market
participants that make the most use of
the FINRA/NYSE TRF will be eligible
for the highest level of revenue sharing
with others receiving progressively
lower percentages. FINRA notes that
although the Market Share and Market
Data Revenue percentages for each tape
are identical under the proposed rule
change, they are independent of each
other and, as such, may subsequently be
adjusted individually.11
NYSE Market (DE) Inc. has indicated
that for competitive reasons and in light
of the cost of operating the FINRA/
NYSE TRF, it has determined to make
the above adjustments to the Market
Data Revenue sharing program for the
FINRA/NYSE TRF. NYSE Market (DE)
Inc. believes that, particularly at the
adjusted market share levels, the
percentage of revenue shared is more
favorable to reporting firms as compared
to other revenue share programs.12
Proposed Amendments to Rule 7620B
Pursuant to Rule 7620B (Trade
Reporting Facility Reporting Fees),
FINRA members that are FINRA/NYSE
TRF subscribers are currently charged a
monthly fee for use of the FINRA/NYSE
TRF. Members are charged either $500
or $1,000 per month beginning in the
month of the member’s first trade report.
Specifically, members reporting an
average of 100 trades or less per day
during the calendar month are charged
$500, and members reporting an average
of more than 100 trades per day during
the calendar month are charged $1,000.
For purposes of meeting the 100 trade
threshold, both tape and non-tape
reports are included; however, reversals
and other modifications to previously
reported trades are not included. A
member’s fee could vary from month to
month, depending on the number of
trade reports the member submits. In
addition, once a member’s fee begins,
the member is charged a fee each month
unless and until the member cancels its
access to the FINRA/NYSE TRF, even if
the member reports no trades to the
FINRA/NYSE TRF in a given month.13
The fee is charged at the end of the
calendar month; a member’s trades are
counted and the appropriate fee is
assessed on the member’s invoice after
the month closes.
NYSE Market (DE), Inc., as the
Business Member, has determined to
replace the current fee structure with a
tiered monthly fee structure based on a
member’s OTC trading activity, and
FINRA is proposing to amend Rule
7620B accordingly. Specifically, the
proposed rule change would base the
tiered fee calculation on a member’s
‘‘ATS & Non-ATS OTC Market Share,’’
which would be defined as the
percentage calculated by dividing the
total number of ATS and non-ATS
shares 14 reported by the member to
12 See,
e.g., Rule 7610A.
that instance, the member is charged the
lower fee of $500.
14 ‘‘ATS shares’’ are shares of NMS stocks
executed within a member’s alternative trading
system (‘‘ATS’’) and ‘‘non-ATS shares’’ are shares
of NMS stocks executed OTC by a member outside
of an ATS.
13 In
clearing—and not dissemination—purposes (‘‘nontape reports’’). The proposed rule change would not
amend this definition.
11 Any change to one or more of these percentages
would be subject to a proposed rule change by
FINRA.
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FINRA and published by FINRA
pursuant to Rule 6110 15 during a given
calendar quarter 16 by the total number
of all shares reported to the CTA and the
UTP SIP, as applicable, during that
period. ‘‘ATS & Non-ATS OTC Market
Share’’ will be calculated in aggregate
across all tapes.
Non-ATS OTC data was first made
available on FINRA’s Web site using
data as of April 4, 2016. As such, the
‘‘ATS & Non-ATS OTC Market Share’’
calculation for the second quarter of
2016 would begin as of April 4, 2016 for
non-ATS data. Once available over a
longer period, the ‘‘ATS & Non-ATS
OTC Market Share’’ calculation will be
based on the data available for the prior
full calendar quarter and will determine
the monthly fees in subsequent periods.
For example, if the third quarter ATS
and non-ATS data is available by the
first business day of the month (e.g.,
November 1), then the calculation will
be applied to the prior billing month
(e.g., October). If the data is available
after the first business day (e.g.,
November 2 or later), then the
calculation will be applied to the next
billing month (e.g., November). To the
extent the ‘‘ATS & Non-ATS OTC
Market Share’’ calculation is subject to
any adjustment, fees charged may be
adjusted accordingly.
Under the proposed rule change, a
member with an ‘‘ATS & Non-ATS OTC
Market Share’’ of 2.0% or more in
aggregate shares across all tapes would
be charged a monthly fee of $30,000; a
member with less than 2.0% but at least
0.5% in aggregate across all tapes would
be charged a monthly fee of $15,000; a
member with less than 0.5% but at least
0.1% in aggregate would be charged a
monthly fee of $5,000; and a member
with less than 0.1% in aggregate across
all tapes would be charged a monthly
15 Pursuant to Rule 6110, FINRA publishes on its
public Web site the number of shares and trades by
security executed OTC (‘‘Trading Information’’) by
each ATS and member firm with a trade reporting
obligation under FINRA rules. Trading Information
published on FINRA’s Web site is derived directly
from OTC trades reported by the member firm to
FINRA’s equity trade reporting facilities.
16 FINRA notes that a firm’s ATS and non-ATS
volume information, which is published on a
delayed basis, is derived directly from tape reports
of OTC trades submitted to FINRA’s equity trade
reporting facilities. A firm’s published trading
volume information does not include trades for
which the firm is the reported contra party or trades
that are reported solely for clearing or regulatory
purposes (i.e., non-tape reports).
For firms executing fewer than on average 200
non-ATS transactions per day during the reporting
period, FINRA combines and publishes such ‘‘de
minimis’’ volume on an aggregated non-attributed
basis. Such volume would be unavailable to include
in the numerator of the ‘‘ATS & Non-ATS OTC
Market Share’’ calculation.
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Federal Register / Vol. 81, No. 197 / Wednesday, October 12, 2016 / Notices
etc.).19 Rather than charging the same
fee to all FINRA/NYSE TRF participants
irrespective of trading activity, the fees
Monthly
are designed such that more active firms
subscriber fee in the overall market pay more for
access to the FINRA/NYSE TRF, while
$30,000 less active firms in the overall market
pay less.
fee of $2,000. The below chart sets forth
the proposed fee tiers.
ATS & non-ATS OTC market
share
mstockstill on DSK3G9T082PROD with NOTICES
Greater than or equal to
2.0% ..................................
Greater than or equal to
0.5% but less than 2.00%
Greater than or equal to
0.1% but less than 0.5% ...
Less than 0.1% .....................
15,000
Proposed Amendments to Rule 7630B
Rule 7630B (Aggregation of Activity
5,000
2,000 of Affiliated Members) provides for the
aggregation of affiliated member activity
The monthly fee will be charged at
for purposes of the fee and credit
the end of the calendar month and
schedule applicable to the FINRA/NYSE
applies to any member that has
TRF. NYSE Market (DE), Inc., as the
submitted a participant application
Business Member, has determined to
agreement to the FINRA/NYSE TRF
replace the current approval process
pursuant to Rule 7220B. Where a new
and automatically aggregate affiliated
member submits the participant
member activity for purposes of
application agreement and reports no
determining Market Share and Market
shares traded in a given month, the
Data Revenue shared under Rule 7610B,
member will not be charged the
as well as for determining a member’s
monthly fee for the first two calendar
‘‘ATS & Non-ATS OTC Market Share’’
months in order to provide time to
under Rule 7620B. FINRA is proposing
connect to the FINRA/NYSE TRF.17
to amend Rule 7630B accordingly.
The monthly subscriber fee will
Under the proposed rule change, firms
continue to include full access to the
will be required to submit a form to the
FINRA/NYSE TRF and supporting
FINRA/NYSE TRF disclosing their
functionality, e.g., trade submission,
affiliates and update the form if there
reversal and cancellation, and unlimited are changes in affiliate status.20
use of the Client Management Tool. In
NYSE Market (DE) Inc. believes that
addition to submitting, correcting,
automatically aggregating affiliated
breaking, and reversing trades, the
member activity will guarantee that
Client Management Tool currently
firms qualify for the highest securities
allows users to View/Query/Export
transaction credit based on their overall
trade reports, potential trade throughs
use of the FINRA/NYSE TRF.
and rejected trade submissions.
Additionally, automatically aggregating
Additionally, members can use the
affiliated member activity will guarantee
FINRA/NYSE TRF as a backup system
that firms are charged the appropriate
and reserve bandwidth if there is a
monthly subscription fee based on their
failure at another FINRA facility that
overall OTC activity reported on the
supports the reporting of OTC trades in
FINRA Web site, which will ensure
NMS stocks.18
more active firms pay more and less
As noted above, members have the
active firms pay less.
option of reporting OTC trades in NMS
FINRA has filed the proposed rule
stocks to one of three FINRA facilities.
change for immediate effectiveness and
NYSE Market (DE) Inc., as the Business
the operative date will be October 1,
Member, has determined that the
2016.
FINRA/NYSE TRF would be more
competitive with these other facilities if 2. Statutory Basis
users are charged a flat fee for access to
FINRA believes that the proposed rule
the complete range of functionality
change is consistent with the provisions
offered by the FINRA/NYSE TRF rather
of Section 15A(b)(5) of the Act,21 which
than a separate fee for each activity (e.g., requires, among other things, that
a per trade or per side fee for reporting
FINRA rules provide for the equitable
a trade, a separate per trade fee for
allocation of reasonable dues, fees and
canceling a trade, a per terminal fee,
other charges among members and
issuers and other persons using any
17 After the first two calendar months, a member
facility or system that FINRA operates
will be charged regardless of connectivity.
or controls. All similarly situated
18
As set forth in Trade Reporting Notice 1/20/16
(OTC Equity Trading and Reporting in the Event of
Systems Issues), a firm that routinely reports its
OTC trades in NMS stocks to only one FINRA trade
reporting facility must establish and maintain
connectivity and report to a second FINRA trade
reporting facility, if the firm intends to continue to
support OTC trading as an executing broker while
its primary facility is experiencing a widespread
systems issue.
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20:13 Oct 11, 2016
Jkt 241001
19 See, e.g., Rules 7510(a) and 7520 (trade
reporting fees and connectivity charges for the ADF)
and Rule 7620A (trade reporting fees for the FINRA/
Nasdaq TRF).
20 The affiliate disclosure form that firms will be
required to submit under the proposed rule change
is attached to this filing as Exhibit 3.
21 15 U.S.C. 78o-3(b)(5).
PO 00000
Frm 00080
Fmt 4703
Sfmt 4703
70465
members are subject to the same fee
structure and access to the FINRA/
NYSE TRF is offered on fair and nondiscriminatory terms.
FINRA believes that the proposed
transaction credit schedule under Rule
7610B provides for the equitable
allocation of reasonable fees in that it
bases the percentage of revenue shared
on members’ respective contributions to
the revenues of the FINRA/NYSE TRF,
i.e., market participants that make the
most use of the FINRA/NYSE TRF will
be eligible for the highest level of
revenue sharing with others receiving
progressively lower percentages. In
addition, FINRA believes that the
proposed fee schedule under Rule
7620B provides for the equitable
allocation of reasonable fees in that
FINRA members that are potentially
higher volume users will pay more for
access to the FINRA/NYSE TRF, while
potentially lower volume users will pay
less. While firms with larger volume
will pay higher fixed costs, they also
will potentially benefit from higher
revenue sharing percentages. NYSE
Market (DE) Inc., as the Business
Member, has indicated that the
proposed fee and credit structure will
help offset the increased cost of
operating the FINRA/NYSE TRF, and as
such, FINRA believes that the proposed
rule change provides for the equitable
allocation of reasonable fees.22
FINRA further believes that the
proposed fee and credit structure
provides for the equitable allocation of
reasonable fees in that it will apply only
to members that choose to subscribe to
the FINRA/NYSE TRF. Access to the
FINRA/NYSE TRF is offered on fair and
non-discriminatory terms, and FINRA
members will continue to have the
option of using another FINRA facility
for purposes of reporting OTC trades in
NMS stocks if they determine that the
fees and credits of another facility are
more favorable.
Finally, FINRA believes that the
proposed rule change to automatically
aggregate affiliated firm activity would
provide a more streamlined and
efficient process for aggregating affiliate
activity than the current process, which
requires the FINRA/NYSE TRF to
affirmatively approve a member’s
request for aggregation.
22 NYSE Market (DE) Inc. has indicated that any
costs, including regulatory and infrastructure costs,
associated with the operation of the FINRA/NYSE
TRF that are not covered by market data revenue
and trade reporting fees will continue to be funded
by NYSE Market (DE) Inc. general revenues.
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70466
Federal Register / Vol. 81, No. 197 / Wednesday, October 12, 2016 / Notices
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.
mstockstill on DSK3G9T082PROD with NOTICES
Economic Impact Assessment
NYSE Market (DE), Inc. has indicated
that the cost of operating the FINRA/
NYSE TRF has increased substantially
since 2007, due to rising regulatory
costs, the need for additional
functionality and the attendant
development costs. Therefore, NYSE
Market (DE), Inc., as the Business
Member, has determined to adjust the
FINRA/NYSE TRF fees and market data
revenue paid to reporting firms as
transaction credits.
The proposed rule change to modify
fees and transaction credits applicable
to members that use the FINRA/NYSE
TRF increases access fees to most
reporters and provides for greater
revenue sharing, depending on the
factors described above. As a whole, the
proposed rule change may provide net
benefits or impose net costs for member
firms to the extent that member firms
maintain connectivity and report trades
to the FINRA/NYSE TRF.
In the first quarter of 2016, there were
20 firms that subscribed to and/or
reported trades to the FINRA/NYSE
TRF, of which 12 were in the $500 per
month schedule and 8 were in the
$1,000 per month schedule. The average
fee incurred during the period was
estimated to be approximately $1,950
per firm across the 20 firms. Under the
current percentages of market data
revenue shared, six firms received
transaction credits, on average $235,061
per firm in the first quarter of 2016.
Under the proposed fee structure, the
average subscriber fee that would have
been incurred during the quarter would
increase to approximately $24,900 per
firm (and approximately $6,000 for
smaller firms), assuming that the same
20 firms maintain their subscription and
report the same number of trades to the
FINRA/NYSE TRF. In the case of the six
firms that were eligible for transaction
credits, market data revenue shared
would also have been higher, due to the
proposed increase in the percentage of
revenue shared, with an average
increase of approximately $40,000 per
firm in the first quarter of 2016. Had the
proposed fee and revenue share
structure been in place, two firms would
see a net decrease in the cost of
reporting to the TRF, with an average
decrease of $35,157. The remaining 18
firms would have experienced an
VerDate Sep<11>2014
20:13 Oct 11, 2016
Jkt 241001
increase averaging $12,353 per
quarter.23 However, NYSE Market (DE)
Inc., as the Business Member, believes
that at the adjusted market share levels,
the percentage of revenue shared
represents a more favorable program to
reporting firms as compared to other
revenue share programs, and thus
anticipate an increase in reporting
through the FINRA/NYSE TRF. By way
of example, one firm, with 0.60%
reported share in the first quarter,
received 75% revenue share or
$281,434.45. Under the proposed
structure, the revenue share would
increase to 95% or $356,483.64.
Additionally, the firm could benefit
from more cost savings by reporting
additional volume that, in turn, would
receive higher revenue sharing than
other programs and/or push the firm
into a higher revenue sharing tier.
Firms may potentially alter their
trading activity in response to the
proposed rule change. Specifically,
those firms that would incur higher fees
may refrain from reporting to the
FINRA/NYSE TRF and may choose to
report to the ADF and/or FINRA/Nasdaq
TRF. Alternatively, such firms may
continue reporting or new firms may
start reporting to the FINRA/NYSE TRF
if they find that the proposed net cost
of reporting and other functionalities
provided represent the best value to
their business. The net effect on any
individual member firm of the proposed
increase in reporting fees and amount of
revenue shared will depend on the
firm’s OTC market share and reporting
to the FINRA/NYSE TRF.
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
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 24 and paragraph (f)(2) of Rule
19b–4 thereunder.25 At any time within
60 days of the filing of the proposed rule
change, the Commission summarily may
temporarily suspend such rule change if
23 The reporting fee and transaction credit
estimates are highly sensitive to the assumptions
that the same firms would be reporting the same
level of activity to the FINRA/NYSE TRF. In case
there is a change in the composition of the reporting
firms and/or the level of reporting activity in
response to the proposed changes or other
exogenous events, the estimates can vary
significantly.
24 15 U.S.C. 78s(b)(3)(A).
25 17 CFR 240.19b–4(f)(2).
PO 00000
Frm 00081
Fmt 4703
Sfmt 4703
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 rulecomments@sec.gov. Please include File
Number SR–FINRA–2016–037 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–2016–037. 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
E:\FR\FM\12OCN1.SGM
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Federal Register / Vol. 81, No. 197 / Wednesday, October 12, 2016 / Notices
should refer to File Number SR–FINRA–
2016–037, and should be submitted on
or before November 2, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.26
Dated: October 5, 2016.
Brent J. Fields,
Secretary.
[FR Doc. 2016–24575 Filed 10–11–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
32306; File No. 812–14609]
Harris Associates Investment Trust, et
al.; Notice of Application
October 5, 2016.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of an application for an
order pursuant to: (a) Section 6(c) of the
Investment Company Act of 1940
(‘‘Act’’) granting an exemption from
sections 18(f) and 21(b) of the Act; (b)
section 12(d)(1)(J) of the Act granting an
exemption from section 12(d)(1) of the
Act; (c) sections 6(c) and 17(b) of the
Act granting an exemption from sections
17(a)(1), 17(a)(2) and 17(a)(3) of the Act;
and (d) section 17(d) of the Act and rule
17d–1 under the Act to permit certain
joint arrangements and transactions.
Applicants request an order that would
permit certain registered open-end
management investment companies to
participate in a joint lending and
borrowing facility.
AGENCY:
Harris Associates
Investment Trust (the ‘‘Trust’’), a
Massachusetts business trust registered
under the Act as an open-end
management investment company with
multiple series and Harris Associates
L.P. (the ‘‘Adviser’’), a Delaware limited
partnership registered as an investment
adviser under the Investment Advisers
Act of 1940.
FILING DATES: The application was filed
on February 8, 2016 and amended on
June 21, 2016.
HEARING OR NOTIFICATION OF HEARING:
An order granting the requested relief
will be issued unless the Commission
orders a hearing. Interested persons may
request a hearing by writing to the
Commission’s Secretary and serving
applicants with a copy of the request,
personally or by mail. Hearing requests
should be received by the Commission
by 5:30 p.m. on October 31, 2016 and
mstockstill on DSK3G9T082PROD with NOTICES
APPLICANTS:
26 17
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
20:13 Oct 11, 2016
Jkt 241001
should be accompanied by proof of
service on the applicants, in the form of
an affidavit, or, for lawyers, a certificate
of service. Pursuant to Rule 0–5 under
the Act, hearing requests should state
the nature of the writer’s interest, any
facts bearing upon the desirability of a
hearing on the matter, the reason for the
request, and the issues contested.
Persons who wish to be notified of a
hearing may request notification by
writing to the Commission’s Secretary.
ADDRESSES: Secretary, U.S. Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090;
Applicants: 111 S. Wacker Drive, Suite
4600, Chicago, Illinois 60606–4319.
FOR FURTHER INFORMATION CONTACT:
Emerson S. Davis, Senior Counsel, at
(202) 551–6868 or Daniele Marchesani,
Branch Chief, at (202) 551–6821
(Division of Investment Management,
Chief Counsel’s Office).
SUPPLEMENTARY INFORMATION: The
following is a summary of the
application. The complete application
may be obtained via the Commission’s
Web site by searching for the file
number, or an applicant using the
Company name box, at https://
www.sec.gov/search/search.htm or by
calling (202) 551–8090.
Summary of the Application
1. Applicants request an order that
would permit the applicants to
participate in an interfund lending
facility where each Fund could lend
money directly to and borrow money
directly from other Funds to cover
unanticipated cash shortfalls, such as
unanticipated redemptions or trade
fails.1 The Funds will not borrow under
the facility for leverage purposes and
the loans’ duration will be no more than
7 days.2
2. Applicants anticipate that the
proposed facility would provide a
borrowing Fund with a source of
liquidity at a rate lower than the bank
borrowing rate at times when the cash
position of the Fund is insufficient to
1 Applicants request that the order apply to the
applicants and to any existing or future registered
open-end management investment company or
series thereof for which the Adviser or any
successor thereto or an investment adviser
controlling, controlled by, or under common
control with the Adviser or any successor thereto
serves as investment adviser (each a ‘‘Fund’’ and
collectively the ‘‘Funds’’ and each such investment
adviser an ‘‘Adviser’’). For purposes of the
requested order, ‘‘successor’’ is limited to any entity
that results from a reorganization into another
jurisdiction or a change in the type of a business
organization. Applicants are not requesting that the
order also apply, and the order will not apply, to
any fund or series that is a money market fund that
complies with Rule 2a–7 under the Act.
2 Any Fund, however, will be able to call a loan
on one business day’s notice.
PO 00000
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70467
meet temporary cash requirements. In
addition, Funds making short-term cash
loans directly to other Funds would
earn interest at a rate higher than they
otherwise could obtain from investing
their cash in repurchase agreements or
certain other short term money market
instruments. Thus, applicants assert that
the facility would benefit both
borrowing and lending Funds.
3. Applicants agree that any order
granting the requested relief will be
subject to the terms and conditions
stated in the Application. Among
others, the Adviser, through a
designated committee, would
administer the facility as a disinterested
fiduciary as part of its duties under the
investment management agreements
with the Funds and would receive no
additional fee as compensation for its
services in connection with the
administration of the facility. The
facility would be subject to oversight
and certain approvals by the Funds’
Board, including, among others,
approval of the interest rate formula and
of the method for allocating loans across
Funds, as well as review of the process
in place to evaluate the liquidity
implications for the Funds. A Fund’s
aggregate outstanding interfund loans
will not exceed 15% of its net assets,
and the Fund’s loans to any one Fund
will not exceed 5% of the lending
Fund’s net assets.3
4. Applicants assert that the facility
does not raise the concerns underlying
section 12(d)(1) of the Act given that the
Funds are part of the same group of
investment companies and there will be
no duplicative costs or fees to the
Funds.4 Applicants also assert that the
proposed transactions do not raise the
concerns underlying sections 17(a)(1),
17(a)(3), 17(d) and 21(b) of the Act as
the Funds would not engage in lending
transactions that unfairly benefit
insiders or are detrimental to the Funds.
Applicants state that the facility will
offer both reduced borrowing costs and
enhanced returns on loaned funds to all
participating Funds and each Fund
would have an equal opportunity to
borrow and lend on equal terms based
on an interest rate formula that is
objective and verifiable. With respect to
the relief from section 17(a)(2) of the
Act, applicants note that any collateral
pledged to secure an interfund loan
would be subject to the same conditions
imposed by any other lender to a Fund
3 Under certain circumstances, a borrowing Fund
will be required to pledge collateral to secure the
loan.
4 Applicants state that the obligation to repay an
interfund loan could be deemed to constitute a
security for the purposes of sections 17(a)(1) and
12(d)(1) of the Act.
E:\FR\FM\12OCN1.SGM
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]]>Agencies
[Federal Register Volume 81, Number 197 (Wednesday, October 12, 2016)]
[Notices]
[Pages 70462-70467]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-24575]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-79050; File No. SR-FINRA-2016-037]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Modify Fees and Transaction Credits for the
FINRA/NYSE Trade Reporting Facility
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 September 28, 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 ``establishing or changing a
due, fee or other charge'' under Section
[[Page 70463]]
19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2) thereunder,\4\
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\ 15 U.S.C. 78s(b)(3)(A)(ii).
\4\ 17 CFR 240.19b--4(f)(2).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
FINRA is proposing to amend the FINRA Rule 7600B Series to modify
fees and transaction credits applicable to members that use the FINRA/
NYSE Trade Reporting Facility (the ``FINRA/NYSE TRF'').
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
Background
The FINRA/NYSE TRF, which is operated by NYSE Market (DE), Inc., is
one of three FINRA facilities that FINRA members can use to report
over-the-counter (``OTC'') trades in NMS stocks.\5\ In connection with
the establishment of the FINRA/NYSE TRF, FINRA and NYSE Market (DE),
Inc. entered into a limited liability company agreement (the ``LLC
Agreement''). Under the LLC Agreement, FINRA, the ``SRO Member,'' has
sole regulatory responsibility for the FINRA/NYSE TRF. NYSE Market
(DE), Inc., the ``Business Member,'' is primarily responsible for the
management of the FINRA/NYSE TRF's business affairs to the extent those
affairs are not inconsistent with the regulatory and oversight
functions of FINRA. As such, the Business Member establishes pricing
for use of the FINRA/NYSE TRF, and such pricing is implemented pursuant
to FINRA rules that must be filed with the SEC and be consistent with
the Act.\6\ In addition, the Business Member is obligated to pay the
cost of regulation and is entitled to the profits and losses, if any,
derived from the operation of the FINRA/NYSE TRF.\7\
---------------------------------------------------------------------------
\5\ In addition to the FINRA/NYSE TRF, members have the option
of reporting OTC trades in NMS stocks to the FINRA Alternative
Display Facility (the ``ADF'') or the FINRA/Nasdaq Trade Reporting
Facility (the ``FINRA/Nasdaq TRF'').
\6\ Because there are two FINRA Trade Reporting Facilities
operated by different exchange Business Members competing for market
share (the FINRA/NYSE TRF and the FINRA/Nasdaq TRF), FINRA does not
take a position on whether the pricing for one TRF is more favorable
or competitive than the pricing for the other TRF.
\7\ FINRA notes that the same contractual arrangement is in
place for the FINRA/Nasdaq TRF, with FINRA as the SRO Member and
Nasdaq, Inc. as the Business Member. The LLC agreements for the
FINRA/NYSE TRF and the FINRA/Nasdaq TRF were submitted as part of
the rule filings to establish the respective TRFs and can be found
in the FINRA Manual.
---------------------------------------------------------------------------
The FINRA/NYSE TRF commenced operation in April 2007 and since that
time, the NYSE Market (DE), Inc., as the Business Member, has funded
all costs associated with operating the FINRA/NYSE TRF, including all
regulatory costs, from NYSE Market (DE), Inc. general revenues.
According to NYSE Market (DE), Inc., the cost of operating the FINRA/
NYSE TRF has increased since 2007, in part because regulatory costs
have increased with FINRA/NYSE TRF's higher market share, as well as
additional functionality and development costs. Accordingly, NYSE
Market (DE), Inc., as the Business Member, has determined to adjust the
FINRA/NYSE TRF fees and transaction credits to provide revenue to help
offset these increased operating costs, while allowing the FINRA/NYSE
TRF to remain competitive. NYSE Market (DE), Inc. will continue to fund
any costs, including applicable regulatory costs and requisite
infrastructure costs, associated with the operations of the FINRA/NYSE
TRF that are not covered by fees and market data revenue from NYSE
Market (DE), Inc.'s general revenues.
Pursuant to the FINRA Rule 7600B Series, FINRA members that are
FINRA/NYSE TRF participants are charged fees (Rule 7620B) and may
qualify for transaction credits (Rule 7610B) for use of the FINRA/NYSE
TRF. In addition, affiliated members can aggregate their activity for
purposes of fees and credits that are dependent upon the volume of
their activity (Rule 7630B). These rules are administered by NYSE
Market (DE), Inc., in its capacity as the Business Member and operator
of the FINRA/NYSE TRF on behalf of FINRA,\8\ and NYSE Market (DE), Inc.
collects all fees on behalf of the FINRA/NYSE TRF.
---------------------------------------------------------------------------
\8\ FINRA's oversight of this function performed by the Business
Member is conducted through a recurring assessment and review of TRF
operations by an outside independent audit firm.
---------------------------------------------------------------------------
Proposed Amendments to Rule 7610B
Pursuant to Rule 7610B (Securities Transaction Credit), FINRA
members that execute OTC trades in securities listed on the New York
Stock Exchange (``Tape A''), NYSE MKT and regional exchanges (``Tape
B''), or Nasdaq (``Tape C'') and report to the FINRA/NYSE TRF may
receive from the FINRA/NYSE TRF transaction credits based on the
transactions attributed to them. A transaction is attributed to a
member if the member is identified as the executing party in a trade
report submitted to the FINRA/NYSE TRF that the FINRA/NYSE TRF submits
to the Consolidated Tape Association (``CTA'') or the Nasdaq Securities
Information Processor (``UTP SIP''). A FINRA member may earn credits
from any of the three pools maintained by the FINRA/NYSE TRF, each of
which represents the market data revenue paid by the CTA or the UTP SIP
with respect to the FINRA/NYSE TRF for each of Tape A, Tape B, and Tape
C transactions (``Market Data Revenue''). A FINRA member may earn
credits from the pools according to the pro rata share of revenue
attributable to OTC transactions reported to the FINRA/NYSE TRF by the
member in Tape A, Tape B, and Tape C for each calendar quarter.\9\
---------------------------------------------------------------------------
\9\ To the extent that the Market Data Revenue is subject to any
adjustment, credits provided may be adjusted accordingly.
---------------------------------------------------------------------------
NYSE Market (DE), Inc., as the Business Member, has determined to
modify the current tiered schedule for Market Data Revenue sharing for
the FINRA/NYSE TRF, and FINRA is proposing to amend Rule 7610B
accordingly. Specifically, the proposed rule change would increase the
percentage of Market Data Revenue shared with a FINRA member reporting
trades to the FINRA/NYSE TRF based on the member's ``Market Share.''
\10\
---------------------------------------------------------------------------
\10\ ``Market Share'' is defined in Rule 7610B as the percentage
calculated by dividing the total number of trades reported by a
member to the FINRA/NYSE TRF during a given calendar quarter by the
total number of all trades reported to the CTA or the UTP SIP, as
applicable, during that quarter. Market Share is calculated
separately for each tape. The calculation of Market Share is based
only on a member's trades that are reported to the CTA or the UTP
SIP (``tape reports'') and does not include trades that are only
reported for regulatory and/or clearing--and not dissemination--
purposes (``non-tape reports''). The proposed rule change would not
amend this definition.
---------------------------------------------------------------------------
[[Page 70464]]
Under the current tiered schedule, a member with a Market Share of
0.9% or more in Tape A or Tape C, or 0.7% or more in Tape B, receives
90% of the attributable Market Data Revenue; a member with less than
0.9% but at least 0.5% in Tape A or Tape C, or less than 0.7% but at
least 0.5% in Tape B, receives 75%; a member with less than 0.5% but at
least 0.4% in Tape A, Tape B or Tape C receives 70%; a member with less
than 0.4% but at least 0.075% in Tape A, Tape B or Tape C receives 25%;
and a member with less than 0.075% in Tape A, Tape B or Tape C is not
eligible for the Market Data Revenue sharing program.
Under the proposed rule change, a member with a Market Share of
2.0% or more in Tape A, Tape B or Tape C, would receive 100% of the
attributable Market Data Revenue; a member with less than 2.0% but at
least 0.5% in Tape A, Tape B or Tape C, would receive 95%; a member
with less than 0.5% but at least 0.1% in Tape A, Tape B or Tape C would
receive 85%; and a member with less than 0.1% in Tape A, Tape B or Tape
C would not be eligible for the Market Data Revenue sharing program.
For example, a member that has a Market Share of 2.5% in Tape A, 1.5%
in Tape B, and 0.05% in Tape C would be eligible to receive 100% of the
attributable Market Data Revenue in Tape A, 95% in Tape B, and no
Market Data Revenue in Tape C. The below chart sets forth the proposed
tiers.
------------------------------------------------------------------------
Percentage of
Market share market data
revenue shared
------------------------------------------------------------------------
Greater than or equal to 2.0%........................... 100
Greater than or equal to 0.5% but less than 2.0%........ 95
Greater than or equal to 0.1% but less than 0.5%........ 85
Less than 0.1%.......................................... 0
------------------------------------------------------------------------
Thus, as a general matter, market participants that make the most
use of the FINRA/NYSE TRF will be eligible for the highest level of
revenue sharing with others receiving progressively lower percentages.
FINRA notes that although the Market Share and Market Data Revenue
percentages for each tape are identical under the proposed rule change,
they are independent of each other and, as such, may subsequently be
adjusted individually.\11\
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\11\ Any change to one or more of these percentages would be
subject to a proposed rule change by FINRA.
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NYSE Market (DE) Inc. has indicated that for competitive reasons
and in light of the cost of operating the FINRA/NYSE TRF, it has
determined to make the above adjustments to the Market Data Revenue
sharing program for the FINRA/NYSE TRF. NYSE Market (DE) Inc. believes
that, particularly at the adjusted market share levels, the percentage
of revenue shared is more favorable to reporting firms as compared to
other revenue share programs.\12\
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\12\ See, e.g., Rule 7610A.
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Proposed Amendments to Rule 7620B
Pursuant to Rule 7620B (Trade Reporting Facility Reporting Fees),
FINRA members that are FINRA/NYSE TRF subscribers are currently charged
a monthly fee for use of the FINRA/NYSE TRF. Members are charged either
$500 or $1,000 per month beginning in the month of the member's first
trade report. Specifically, members reporting an average of 100 trades
or less per day during the calendar month are charged $500, and members
reporting an average of more than 100 trades per day during the
calendar month are charged $1,000. For purposes of meeting the 100
trade threshold, both tape and non-tape reports are included; however,
reversals and other modifications to previously reported trades are not
included. A member's fee could vary from month to month, depending on
the number of trade reports the member submits. In addition, once a
member's fee begins, the member is charged a fee each month unless and
until the member cancels its access to the FINRA/NYSE TRF, even if the
member reports no trades to the FINRA/NYSE TRF in a given month.\13\
The fee is charged at the end of the calendar month; a member's trades
are counted and the appropriate fee is assessed on the member's invoice
after the month closes.
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\13\ In that instance, the member is charged the lower fee of
$500.
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NYSE Market (DE), Inc., as the Business Member, has determined to
replace the current fee structure with a tiered monthly fee structure
based on a member's OTC trading activity, and FINRA is proposing to
amend Rule 7620B accordingly. Specifically, the proposed rule change
would base the tiered fee calculation on a member's ``ATS & Non-ATS OTC
Market Share,'' which would be defined as the percentage calculated by
dividing the total number of ATS and non-ATS shares \14\ reported by
the member to FINRA and published by FINRA pursuant to Rule 6110 \15\
during a given calendar quarter \16\ by the total number of all shares
reported to the CTA and the UTP SIP, as applicable, during that period.
``ATS & Non-ATS OTC Market Share'' will be calculated in aggregate
across all tapes.
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\14\ ``ATS shares'' are shares of NMS stocks executed within a
member's alternative trading system (``ATS'') and ``non-ATS shares''
are shares of NMS stocks executed OTC by a member outside of an ATS.
\15\ Pursuant to Rule 6110, FINRA publishes on its public Web
site the number of shares and trades by security executed OTC
(``Trading Information'') by each ATS and member firm with a trade
reporting obligation under FINRA rules. Trading Information
published on FINRA's Web site is derived directly from OTC trades
reported by the member firm to FINRA's equity trade reporting
facilities.
\16\ FINRA notes that a firm's ATS and non-ATS volume
information, which is published on a delayed basis, is derived
directly from tape reports of OTC trades submitted to FINRA's equity
trade reporting facilities. A firm's published trading volume
information does not include trades for which the firm is the
reported contra party or trades that are reported solely for
clearing or regulatory purposes (i.e., non-tape reports).
For firms executing fewer than on average 200 non-ATS
transactions per day during the reporting period, FINRA combines and
publishes such ``de minimis'' volume on an aggregated non-attributed
basis. Such volume would be unavailable to include in the numerator
of the ``ATS & Non-ATS OTC Market Share'' calculation.
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Non-ATS OTC data was first made available on FINRA's Web site using
data as of April 4, 2016. As such, the ``ATS & Non-ATS OTC Market
Share'' calculation for the second quarter of 2016 would begin as of
April 4, 2016 for non-ATS data. Once available over a longer period,
the ``ATS & Non-ATS OTC Market Share'' calculation will be based on the
data available for the prior full calendar quarter and will determine
the monthly fees in subsequent periods. For example, if the third
quarter ATS and non-ATS data is available by the first business day of
the month (e.g., November 1), then the calculation will be applied to
the prior billing month (e.g., October). If the data is available after
the first business day (e.g., November 2 or later), then the
calculation will be applied to the next billing month (e.g., November).
To the extent the ``ATS & Non-ATS OTC Market Share'' calculation is
subject to any adjustment, fees charged may be adjusted accordingly.
Under the proposed rule change, a member with an ``ATS & Non-ATS
OTC Market Share'' of 2.0% or more in aggregate shares across all tapes
would be charged a monthly fee of $30,000; a member with less than 2.0%
but at least 0.5% in aggregate across all tapes would be charged a
monthly fee of $15,000; a member with less than 0.5% but at least 0.1%
in aggregate would be charged a monthly fee of $5,000; and a member
with less than 0.1% in aggregate across all tapes would be charged a
monthly
[[Page 70465]]
fee of $2,000. The below chart sets forth the proposed fee tiers.
------------------------------------------------------------------------
Monthly
ATS & non-ATS OTC market share subscriber fee
------------------------------------------------------------------------
Greater than or equal to 2.0%........................... $30,000
Greater than or equal to 0.5% but less than 2.00%....... 15,000
Greater than or equal to 0.1% but less than 0.5%........ 5,000
Less than 0.1%.......................................... 2,000
------------------------------------------------------------------------
The monthly fee will be charged at the end of the calendar month
and applies to any member that has submitted a participant application
agreement to the FINRA/NYSE TRF pursuant to Rule 7220B. Where a new
member submits the participant application agreement and reports no
shares traded in a given month, the member will not be charged the
monthly fee for the first two calendar months in order to provide time
to connect to the FINRA/NYSE TRF.\17\
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\17\ After the first two calendar months, a member will be
charged regardless of connectivity.
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The monthly subscriber fee will continue to include full access to
the FINRA/NYSE TRF and supporting functionality, e.g., trade
submission, reversal and cancellation, and unlimited use of the Client
Management Tool. In addition to submitting, correcting, breaking, and
reversing trades, the Client Management Tool currently allows users to
View/Query/Export trade reports, potential trade throughs and rejected
trade submissions. Additionally, members can use the FINRA/NYSE TRF as
a backup system and reserve bandwidth if there is a failure at another
FINRA facility that supports the reporting of OTC trades in NMS
stocks.\18\
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\18\ As set forth in Trade Reporting Notice 1/20/16 (OTC Equity
Trading and Reporting in the Event of Systems Issues), a firm that
routinely reports its OTC trades in NMS stocks to only one FINRA
trade reporting facility must establish and maintain connectivity
and report to a second FINRA trade reporting facility, if the firm
intends to continue to support OTC trading as an executing broker
while its primary facility is experiencing a widespread systems
issue.
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As noted above, members have the option of reporting OTC trades in
NMS stocks to one of three FINRA facilities. NYSE Market (DE) Inc., as
the Business Member, has determined that the FINRA/NYSE TRF would be
more competitive with these other facilities if users are charged a
flat fee for access to the complete range of functionality offered by
the FINRA/NYSE TRF rather than a separate fee for each activity (e.g.,
a per trade or per side fee for reporting a trade, a separate per trade
fee for canceling a trade, a per terminal fee, etc.).\19\ Rather than
charging the same fee to all FINRA/NYSE TRF participants irrespective
of trading activity, the fees are designed such that more active firms
in the overall market pay more for access to the FINRA/NYSE TRF, while
less active firms in the overall market pay less.
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\19\ See, e.g., Rules 7510(a) and 7520 (trade reporting fees and
connectivity charges for the ADF) and Rule 7620A (trade reporting
fees for the FINRA/Nasdaq TRF).
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Proposed Amendments to Rule 7630B
Rule 7630B (Aggregation of Activity of Affiliated Members) provides
for the aggregation of affiliated member activity for purposes of the
fee and credit schedule applicable to the FINRA/NYSE TRF. NYSE Market
(DE), Inc., as the Business Member, has determined to replace the
current approval process and automatically aggregate affiliated member
activity for purposes of determining Market Share and Market Data
Revenue shared under Rule 7610B, as well as for determining a member's
``ATS & Non-ATS OTC Market Share'' under Rule 7620B. FINRA is proposing
to amend Rule 7630B accordingly. Under the proposed rule change, firms
will be required to submit a form to the FINRA/NYSE TRF disclosing
their affiliates and update the form if there are changes in affiliate
status.\20\
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\20\ The affiliate disclosure form that firms will be required
to submit under the proposed rule change is attached to this filing
as Exhibit 3.
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NYSE Market (DE) Inc. believes that automatically aggregating
affiliated member activity will guarantee that firms qualify for the
highest securities transaction credit based on their overall use of the
FINRA/NYSE TRF. Additionally, automatically aggregating affiliated
member activity will guarantee that firms are charged the appropriate
monthly subscription fee based on their overall OTC activity reported
on the FINRA Web site, which will ensure more active firms pay more and
less active firms pay less.
FINRA has filed the proposed rule change for immediate
effectiveness and the operative date will be October 1, 2016.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(5) of the Act,\21\ which requires, among
other things, that FINRA rules provide for the equitable allocation of
reasonable dues, fees and other charges among members and issuers and
other persons using any facility or system that FINRA operates or
controls. All similarly situated members are subject to the same fee
structure and access to the FINRA/NYSE TRF is offered on fair and non-
discriminatory terms.
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\21\ 15 U.S.C. 78o-3(b)(5).
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FINRA believes that the proposed transaction credit schedule under
Rule 7610B provides for the equitable allocation of reasonable fees in
that it bases the percentage of revenue shared on members' respective
contributions to the revenues of the FINRA/NYSE TRF, i.e., market
participants that make the most use of the FINRA/NYSE TRF will be
eligible for the highest level of revenue sharing with others receiving
progressively lower percentages. In addition, FINRA believes that the
proposed fee schedule under Rule 7620B provides for the equitable
allocation of reasonable fees in that FINRA members that are
potentially higher volume users will pay more for access to the FINRA/
NYSE TRF, while potentially lower volume users will pay less. While
firms with larger volume will pay higher fixed costs, they also will
potentially benefit from higher revenue sharing percentages. NYSE
Market (DE) Inc., as the Business Member, has indicated that the
proposed fee and credit structure will help offset the increased cost
of operating the FINRA/NYSE TRF, and as such, FINRA believes that the
proposed rule change provides for the equitable allocation of
reasonable fees.\22\
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\22\ NYSE Market (DE) Inc. has indicated that any costs,
including regulatory and infrastructure costs, associated with the
operation of the FINRA/NYSE TRF that are not covered by market data
revenue and trade reporting fees will continue to be funded by NYSE
Market (DE) Inc. general revenues.
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FINRA further believes that the proposed fee and credit structure
provides for the equitable allocation of reasonable fees in that it
will apply only to members that choose to subscribe to the FINRA/NYSE
TRF. Access to the FINRA/NYSE TRF is offered on fair and non-
discriminatory terms, and FINRA members will continue to have the
option of using another FINRA facility for purposes of reporting OTC
trades in NMS stocks if they determine that the fees and credits of
another facility are more favorable.
Finally, FINRA believes that the proposed rule change to
automatically aggregate affiliated firm activity would provide a more
streamlined and efficient process for aggregating affiliate activity
than the current process, which requires the FINRA/NYSE TRF to
affirmatively approve a member's request for aggregation.
[[Page 70466]]
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.
Economic Impact Assessment
NYSE Market (DE), Inc. has indicated that the cost of operating the
FINRA/NYSE TRF has increased substantially since 2007, due to rising
regulatory costs, the need for additional functionality and the
attendant development costs. Therefore, NYSE Market (DE), Inc., as the
Business Member, has determined to adjust the FINRA/NYSE TRF fees and
market data revenue paid to reporting firms as transaction credits.
The proposed rule change to modify fees and transaction credits
applicable to members that use the FINRA/NYSE TRF increases access fees
to most reporters and provides for greater revenue sharing, depending
on the factors described above. As a whole, the proposed rule change
may provide net benefits or impose net costs for member firms to the
extent that member firms maintain connectivity and report trades to the
FINRA/NYSE TRF.
In the first quarter of 2016, there were 20 firms that subscribed
to and/or reported trades to the FINRA/NYSE TRF, of which 12 were in
the $500 per month schedule and 8 were in the $1,000 per month
schedule. The average fee incurred during the period was estimated to
be approximately $1,950 per firm across the 20 firms. Under the current
percentages of market data revenue shared, six firms received
transaction credits, on average $235,061 per firm in the first quarter
of 2016.
Under the proposed fee structure, the average subscriber fee that
would have been incurred during the quarter would increase to
approximately $24,900 per firm (and approximately $6,000 for smaller
firms), assuming that the same 20 firms maintain their subscription and
report the same number of trades to the FINRA/NYSE TRF. In the case of
the six firms that were eligible for transaction credits, market data
revenue shared would also have been higher, due to the proposed
increase in the percentage of revenue shared, with an average increase
of approximately $40,000 per firm in the first quarter of 2016. Had the
proposed fee and revenue share structure been in place, two firms would
see a net decrease in the cost of reporting to the TRF, with an average
decrease of $35,157. The remaining 18 firms would have experienced an
increase averaging $12,353 per quarter.\23\ However, NYSE Market (DE)
Inc., as the Business Member, believes that at the adjusted market
share levels, the percentage of revenue shared represents a more
favorable program to reporting firms as compared to other revenue share
programs, and thus anticipate an increase in reporting through the
FINRA/NYSE TRF. By way of example, one firm, with 0.60% reported share
in the first quarter, received 75% revenue share or $281,434.45. Under
the proposed structure, the revenue share would increase to 95% or
$356,483.64. Additionally, the firm could benefit from more cost
savings by reporting additional volume that, in turn, would receive
higher revenue sharing than other programs and/or push the firm into a
higher revenue sharing tier.
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\23\ The reporting fee and transaction credit estimates are
highly sensitive to the assumptions that the same firms would be
reporting the same level of activity to the FINRA/NYSE TRF. In case
there is a change in the composition of the reporting firms and/or
the level of reporting activity in response to the proposed changes
or other exogenous events, the estimates can vary significantly.
---------------------------------------------------------------------------
Firms may potentially alter their trading activity in response to
the proposed rule change. Specifically, those firms that would incur
higher fees may refrain from reporting to the FINRA/NYSE TRF and may
choose to report to the ADF and/or FINRA/Nasdaq TRF. Alternatively,
such firms may continue reporting or new firms may start reporting to
the FINRA/NYSE TRF if they find that the proposed net cost of reporting
and other functionalities provided represent the best value to their
business. The net effect on any individual member firm of the proposed
increase in reporting fees and amount of revenue shared will depend on
the firm's OTC market share and reporting to the FINRA/NYSE TRF.
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
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \24\ and paragraph (f)(2) of Rule 19b-4
thereunder.\25\ 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.
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\24\ 15 U.S.C. 78s(b)(3)(A).
\25\ 17 CFR 240.19b-4(f)(2).
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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-2016-037 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-2016-037. 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
[[Page 70467]]
should refer to File Number SR-FINRA-2016-037, and should be submitted
on or before November 2, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(12).
Dated: October 5, 2016.
Brent J. Fields,
Secretary.
[FR Doc. 2016-24575 Filed 10-11-16; 8:45 am]
BILLING CODE 8011-01-P
