Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change To Establish a Second Trade Reporting Facility in Conjunction With Nasdaq, Inc., 18379-18384 [2018-08731]
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Federal Register / Vol. 83, No. 81 / Thursday, April 26, 2018 / Notices
adjusting, its fees and credits to remain
competitive with other exchanges. For
the reasons described above, the
Exchange believes that the proposed
rule change reflects this competitive
environment.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective
upon filing pursuant to Section
19(b)(3)(A) 12 of the Act and
subparagraph (f)(2) of Rule 19b–4 13
thereunder, because it establishes a due,
fee, or other charge imposed by the
Exchange.
At any time within 60 days of the
filing of such 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
under Section 19(b)(2)(B) 14 of the Act to
determine whether the proposed rule
change 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–
NYSEAMER–2018–15 on the subject
line.
Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE, Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSEAMER–2018–15. 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 website (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 website 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.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–NYSEAMER–2018–15, and
should be submitted on or before May
17, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.15
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–08724 Filed 4–25–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–83082; File No. SR–FINRA–
2018–013]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a
Proposed Rule Change To Establish a
Second Trade Reporting Facility in
Conjunction With Nasdaq, Inc.
April 20, 2018.
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 April 19,
12 15
15 17
13 17
1 15
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(2).
14 15 U.S.C. 78s(b)(2)(B).
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18379
2018, 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. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
FINRA is proposing to adopt rules
relating to the establishment of a second
Trade Reporting Facility or ‘‘TRF’’ to be
operated in conjunction with Nasdaq,
Inc. (‘‘Nasdaq’’). The second FINRA/
Nasdaq Trade Reporting Facility
(‘‘FINRA/Nasdaq TRF Chicago’’) would
provide FINRA members with another
mechanism for reporting over-thecounter (‘‘OTC’’) trades in NMS stocks
and complying with FINRA’s
requirements with respect to back-up
trade reporting arrangements. The
FINRA/Nasdaq TRF Chicago would be
governed by the rules applicable to the
existing FINRA/Nasdaq Trade Reporting
Facility (‘‘FINRA/Nasdaq TRF
Carteret’’), which were subject to notice
and comment and approved by the
Commission.3
The text of the proposed rule change
is available on FINRA’s website 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
FINRA currently has three facilities
that allow its members to report OTC
3 See Securities Exchange Act Release No. 54084
(June 30, 2006), 71 FR 38935 (July 10, 2006) (order
approving SR–NASD–2005–087); and Securities
Exchange Act Release No. 54798 (November 21,
2006), 71 FR 69156 (November 29, 2006) (order
approving SR–NASD–2006–104).
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trades in NMS stocks, as defined in SEC
Rule 600(b) of Regulation NMS. These
are the FINRA/Nasdaq TRF, the FINRA/
NYSE TRF, and the Alternative Display
Facility (‘‘ADF’’) (collectively, the
‘‘FINRA Facilities’’).
On January 20, 2016, FINRA
published a Trade Reporting Notice (the
‘‘Trade Reporting Notice’’ or the
‘‘Notice’’) with guidance on firms’ OTC
equity trade reporting obligations in the
event of a systems issue during the
trading day that prevents them from
reporting OTC trades in NMS stocks in
accordance with FINRA rules.4 As set
forth in the Notice, a firm that routinely
reports its OTC trades in NMS stocks to
only one FINRA Facility (a firm’s
‘‘primary facility’’) must establish and
maintain connectivity and report to a
second FINRA Facility (a firm’s
‘‘secondary 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.5
The proposed FINRA/Nasdaq TRF
Chicago would provide FINRA members
with an additional mechanism to
facilitate compliance with FINRA rules
and the Notice. Specifically, a primary
user of the FINRA/Nasdaq TRF Carteret
could report on a back-up basis to the
FINRA/Nasdaq TRF Chicago pursuant to
the same rules, pricing, features and
performance to which the firm is
accustomed as a user of the FINRA/
Nasdaq TRF Carteret—and vice versa.
Like the FINRA/Nasdaq TRF Carteret,
the FINRA/Nasdaq TRF Chicago will be
a facility of FINRA, subject to regulation
by FINRA and to FINRA’s registration as
a national securities association. FINRA
members that match and/or execute
orders internally or through proprietary
systems may submit reports of these
trades, with appropriate information
and modifiers, to the FINRA/Nasdaq
TRF Chicago, which will then submit
them to the appropriate exclusive
securities information processor (‘‘SIP’’).
FINRA/Nasdaq TRF Chicago trade
reports will be disseminated with a
modifier indicating the source of the
transactions that will distinguish them
from transactions executed on an
exchange or reported to other FINRA
Facilities, including the FINRA/Nasdaq
4 See Trade Reporting Notice, January 20, 2016
(OTC Equity Trading and Reporting in the Event of
Systems Issues).
5 As discussed in the Notice, if a firm chooses not
to have connectivity to a secondary facility, it
should cease executing OTC trades altogether when
its primary trade reporting facility is experiencing
a widespread systems issue. In that instance, the
firm could route orders for execution to an
exchange or another FINRA member (i.e., a member
with connectivity and the ability to report to a
FINRA Facility that is operational).
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TRF Carteret. The FINRA/Nasdaq TRF
Chicago will provide FINRA with a realtime copy of each trade report for
regulatory review purposes. At the
option of the participant, the FINRA/
Nasdaq TRF Chicago, like the FINRA/
Nasdaq TRF Carteret, may provide the
necessary clearing information
regarding transactions to the National
Securities Clearing Corporation.
The proposed rule change would
establish the FINRA/Nasdaq TRF
Chicago on the same terms as the
FINRA/Nasdaq TRF Carteret. That is,
the new FINRA/Nasdaq TRF would be
built with the same technology, provide
the same features and performance,6
offer the same pricing and be governed
by the same substantive rules, policies
and procedures. A single set of
application materials and clearing
arrangements will provide for access to
both FINRA/Nasdaq TRF Carteret and
FINRA/Nasdaq TRF Chicago. Moreover,
Nasdaq, as the ‘‘Business Member’’
(defined below), has advised FINRA that
these two TRFs will evolve in tandem
and remain the same going forward (for
example, because the same fee and
credit schedule under the Rule 7600A
Series will apply to both TRFs, any
pricing changes would apply to both
TRFs).7
Nasdaq, as the Business Member,
proposes to structure the FINRA/Nasdaq
TRF Chicago to be identical to the
FINRA/Nasdaq TRF Carteret (in all
respects other than its location) to
provide FINRA members with a
convenient and efficient option to fulfill
their obligations under the Trade
Reporting Notice through a set of
primary and secondary reporting
facilities that share the same rules,
pricing, features and performance.
Under the proposal, the FINRA/Nasdaq
TRF Chicago will not be limited to use
6 Users of the two FINRA/Nasdaq TRFs may
experience latency differences due to their different
geographic locations.
7 According to Nasdaq, the FINRA/Nasdaq TRF
Chicago will include several new components to
provide performance improvements and operational
efficiencies that Nasdaq intends to incorporate into
the FINRA/Nasdaq TRF Carteret shortly after the
launch of FINRA/Nasdaq TRF Chicago. Nasdaq will
provide participants with notice prior to replatforming the FINRA/Nasdaq TRF Carteret. After
Nasdaq completes this re-platforming, Nasdaq
generally intends to perform updates, upgrades,
fixes or other modifications to the two FINRA/
Nasdaq TRFs in tandem. However, Nasdaq notes
that there may be instances in which it will be
necessary for Nasdaq to act in sequence. During
such instances, there may be disparities between
the two TRFs with respect to function or
performance. Nasdaq expects that any disparity in
function or performance between the two TRFs that
arises during sequential changes will be transitory.
Nasdaq will provide participants with notice if it
anticipates requiring more than a de minimis
transition period.
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as a back-up reporting facility. FINRA
members will also have the option of
using the FINRA/Nasdaq TRF Chicago
as their primary trade reporting facility.
Moreover, members may choose to
report some of their trades, on a primary
basis, to the FINRA/Nasdaq TRF
Carteret and other trades, also on a
primary basis, to the FINRA/Nasdaq
TRF Chicago (or to one of the other
FINRA Facilities). Members may choose
to allocate their trade reports to more
than one TRF as a means of further
increasing resiliency and mitigating
their risks, including the risks
associated with outages.
The proposed rule change would
allow firms to aggregate the volume of
trades that they report on the FINRA/
Nasdaq TRF Carteret and the FINRA/
Nasdaq TRF Chicago. This would enable
firms to continue to qualify for any
volume-based pricing that they would
otherwise qualify for if they limited
their trade reporting to one of those
facilities only.
It is important to note that although
the FINRA/Nasdaq TRF Carteret and the
FINRA/Nasdaq TRF Chicago would be
structured identically and would allow
for aggregated pricing, the two TRFs
would physically operate as distinct and
independent facilities.8 For example, to
help ensure that the FINRA/Nasdaq TRF
Chicago could effectively serve as a
back-up facility for the FINRA/Nasdaq
TRF Carteret or vice versa, the front-end
technology used to operate the FINRA/
Nasdaq TRF Chicago would reside in
Chicago, Illinois while the front-end
technology used to operate the FINRA/
Nasdaq TRF Carteret would continue to
reside in Carteret, New Jersey.
Geographic dispersion of these two
TRFs would lessen the risk of a regional
outage affecting them both
simultaneously. FINRA also notes that
rules that prohibit cross-facility
reporting would apply to the FINRA/
Nasdaq TRF Carteret and FINRA/
Nasdaq TRF Chicago. For example,
FINRA rules generally prohibit the
submission to a FINRA Facility of any
non-tape report (including clearing
reports) associated with a previously
executed trade that was not reported to
the same Facility, except with respect to
the second leg of a riskless principal or
agency transaction.9
FINRA’s oversight of the proposed
FINRA/Nasdaq TRF Chicago would be
the same as FINRA’s current oversight
with respect to the two existing TRFs.
8 Trades reported to the FINRA/Nasdaq TRF
Carteret or FINRA/Nasdaq TRF Chicago will be
subject to correction or modification only on the
TRF to which the trades were originally reported.
9 See, e.g., Rule 7230A(i).
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In addition to real-time interaction with
Business Member staff when operational
issues arise, FINRA currently executes
its SRO oversight functions by
performing a three-part regularly
recurring review of TRF operations.
First, before initial operation of the TRF
can commence, the Business Member is
required to certify in writing that TRF
operations will comply with all relevant
FINRA rules and federal securities laws,
and on a quarterly basis thereafter, the
Business Member must submit its
current TRF procedures and a
certification of compliance with those
procedures. Second, FINRA staff
conducts monthly conference calls with
each Business Member to review TRF
operations. These monthly calls follow
an established agenda, which includes,
among other things, whether there were
any system outages or issues since the
prior monthly conference call (and if so,
to confirm that they were reported to
FINRA and the SEC, as applicable), data
latency, the status of pending systems
changes, TRF market data products and
whether the Business Member has or is
developing any new products that
would use TRF data. Third, FINRA
oversees a regular assessment cycle and
extensive review of TRF operations, as
measured against the TRF business
requirements document and coding
guidelines established by FINRA, by an
outside independent audit firm. FINRA
also requires the Business Member to
submit on a quarterly basis an
attestation that (1) identifies all
products that use TRF data, and (2)
certifies that the Business Member has
no other products that use TRF data and
that any future products that use TRF
data will be developed in consultation
with FINRA.
FINRA/Nasdaq TRF Limited Liability
Company Agreement
The Third Amended and Restated
Limited Liability Company Agreement
of FINRA/Nasdaq Trade Reporting
Facility LLC (the ‘‘FINRA/Nasdaq TRF
LLC Agreement’’ or the ‘‘Agreement’’)
will govern the establishment of the
FINRA/Nasdaq TRF Chicago.
Under the FINRA/Nasdaq TRF LLC
Agreement, FINRA is the ‘‘SRO
Member’’ and has sole regulatory
responsibility for both the FINRA/
Nasdaq TRF Carteret and FINRA/
Nasdaq TRF Chicago, including realtime monitoring and T+1 surveillance,
development and enforcement of trade
reporting rules and submission of
proposed rule changes to the
Commission. Nasdaq, the Business
Member under the FINRA/Nasdaq TRF
LLC Agreement, is primarily responsible
for the management of the business
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affairs of both the FINRA/Nasdaq TRF
Carteret and FINRA/Nasdaq TRF
Chicago, which may not be conducted
in a manner inconsistent with the
regulatory and oversight functions of
FINRA. Among other things, the
Business Member will establish pricing
for both the FINRA/Nasdaq TRF Carteret
and FINRA/Nasdaq TRF Chicago, be
obligated to pay the cost of regulation
and be entitled to the profits and losses,
if any, derived from operation of the
FINRA/Nasdaq TRF Carteret and
FINRA/Nasdaq TRF Chicago. The
Business Member will also provide the
‘‘user facing’’ front-end technology used
to operate both the FINRA/Nasdaq TRF
Carteret and FINRA/Nasdaq TRF
Chicago and transmit real-time trade
report data directly to the SIPs and to
FINRA for audit trail purposes.
The FINRA/Nasdaq TRF LLC
Agreement is substantially similar to the
existing agreement that governs the
FINRA/Nasdaq TRF Carteret (the
Second Amended and Restated FINRA/
Nasdaq TRF LLC Agreement), which is
included in the FINRA Manual.
However, it contains several
amendments that reflect the fact that the
FINRA/Nasdaq Trade Reporting Facility
LLC will now operate through two
TRFs: FINRA/Nasdaq TRF Carteret and
FINRA/Nasdaq TRF Chicago.
For example, the FINRA/Nasdaq TRF
LLC Agreement provides for separate
termination provisions, in Section 20,
for each FINRA/Nasdaq TRF. The
termination provision applicable to the
FINRA/Nasdaq TRF Carteret is
substantially the same as under the
current agreement, except as noted
below. The termination provision
applicable to the FINRA/Nasdaq TRF
Chicago permits a Member of the LLC to
terminate the FINRA/Nasdaq TRF
Chicago upon at least one year’s written
notice; it also permits the SRO Member
to terminate the FINRA/Nasdaq TRF
Chicago for any reason that the SRO
Member, in its sole discretion,
determines could have a negative
impact on the maintenance of its status
as a preeminent SRO. In addition, the
FINRA/Nasdaq TRF LLC Agreement
includes a provision in Section 20 that
permits either Member of the LLC to
terminate either of the TRFs or the
entire Agreement due to a material
breach by the other Member, if such
breach is not cured within 60 days of
notification thereof, or if the other
Member becomes bankrupt or insolvent,
upon 30 days’ written notice.
Finally, the FINRA/Nasdaq TRF LLC
Agreement includes a provision, in
Section 21, that clarifies that if either
FINRA/Nasdaq TRF terminates, the LLC
will continue to operate and the terms
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18381
of the Agreement relating to the
remaining FINRA/Nasdaq TRF will
remain in full force and effect. It also
clarifies that the LLC will dissolve upon
an action by either LLC Member to
terminate both FINRA/Nasdaq TRFs or
to terminate the last remaining FINRA/
Nasdaq TRF.
Rules Applicable to the FINRA/Nasdaq
TRF Carteret and FINRA/Nasdaq TRF
Chicago
FINRA proposes to amend the Rule
6300A, 7200A and 7600A Series, which
govern the FINRA/Nasdaq TRF Carteret,
to accommodate the establishment of
the FINRA/Nasdaq TRF Chicago. That
is, FINRA proposes to preface each of
these Rule Series by noting that within
them, any use of the term ‘‘FINRA/
Nasdaq Trade Reporting Facility’’ shall
mean the FINRA/Nasdaq TRF Carteret
or the FINRA/Nasdaq TRF Chicago, as
applicable, depending on the facility to
which the participant elects to report.
FINRA proposes to amend Rule
6300A to provide that the forms of
agreements required under the Rule
6300A Series, including the agreement
to allow a Participant to report and lockin trades on a member’s behalf required
under Rule 6380A(h), will be identical
for both FINRA/Nasdaq TRFs and a
single agreement can be used for
purposes of both FINRA/Nasdaq TRFs.
Members that elect to participate in both
FINRA/Nasdaq TRFs must amend any
existing agreements under the Rule
6300A Series to reflect their application
to both facilities.
In addition, FINRA proposes to
amend Rule 7200A to clarify that
application procedures and access
requirements for the FINRA/Nasdaq
TRF Carteret would also be applicable
to the FINRA/Nasdaq TRF Chicago,
meaning that an application for access
to one of the FINRA/Nasdaq TRFs
would provide for access to both of
them, and that the requirements for
continuing access apply to both TRFs.
Members that elect to participate in both
FINRA/Nasdaq TRFs must provide
written notice to the FINRA/Nasdaq
TRFs and FINRA of such election, in the
form prescribed by FINRA, and amend
any existing agreements under the Rule
7200A Series to reflect their application
to both Facilities. Moreover, FINRA
proposes to state, in Rules 6300A,
6360A, 6370A, 7200A and 7280A, that
any determination to suspend,
terminate, restore, reinstate, limit or
prohibit access to or participation in one
FINRA/Nasdaq TRF with respect to a
TRF participant will apply equally to
the other FINRA/Nasdaq TRF with
respect to that participant.
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The proposed rule change would also
amend the Rule 7600A Series to state
that its schedules of credits and fees
will apply to reporting activity that
occurs on either or both of the FINRA/
Nasdaq TRFs and that a participant’s
eligibility for any volume-based credits
or fee caps will be determined based
upon its aggregate reporting volume
between the two FINRA/Nasdaq TRFs.10
That is, Rule 7610A would be amended
to state that if a FINRA member reports
trades in a given quarter to both the
FINRA/Nasdaq TRF Carteret and the
FINRA/Nasdaq TRF Chicago, then the
amount of the member’s Securities
Transaction Credits for that quarter will
be calculated with respect to the
member’s combined transactions on
both TRFs. Similarly, Rule 7620A
would be amended to provide that if a
participant reports trades to both the
FINRA/Nasdaq TRF Carteret and the
FINRA/Nasdaq TRF Chicago during a
given month, then the participant’s
aggregate reporting volume on the
FINRA/Nasdaq TRF Carteret and the
FINRA/Nasdaq TRF Chicago will be
considered for the purpose of
determining whether and to what extent
charges or caps apply to the participant
during that month.11
Rule 7630A would be amended to
reflect a technical change that
certification of affiliate status for
aggregation of activity for purposes of
fees and credits will be made to, and
subsequent determinations regarding
aggregation will be made by, the FINRA/
Nasdaq TRFs, not FINRA. FINRA
members currently submit their requests
for aggregation to the FINRA/Nasdaq
TRF Carteret rather than to FINRA, and,
as such, the proposed change will better
align the rule with current practice.12
10 FINRA notes that Nasdaq, in its capacity as the
Business Member and operator of the FINRA/
Nasdaq TRFs on behalf of FINRA, will continue to
administer the Rule 7600A Series and will collect
all fees and issue all credits on behalf of the FINRA/
Nasdaq TRF Chicago, as well as the FINRA/Nasdaq
TRF Carteret. FINRA’s oversight of this function
performed by the Business Member will be
conducted through the aforementioned assessment
and review of TRF operations by an outside
independent audit firm.
11 FINRA notes that members will be able to
report trades to the FINRA/Nasdaq TRF Chicago via
Nasdaq’s ACT Workstation, a Financial Information
eXchange (‘‘FIX’’) line or indirectly via third party
intermediaries (e.g., service bureaus) and will be
required to pay the associated fees under Nasdaq
rules. For example, firms that report to the FINRA/
Nasdaq TRF Chicago via FIX—either directly or
indirectly through third party intermediaries—
would pay Nasdaq charges associated with FIX
ports to connect to the FINRA/Nasdaq TRF Chicago
data center. See, e.g., Nasdaq Rule 7015. Firms will
not have the option of connecting to the FINRA/
Nasdaq TRF Chicago via a computer-to-computer
interface (‘‘CTCI’’).
12 As noted above, Nasdaq, as the TRF Business
Member, administers this Rule and receives the
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The proposed rule change would
amend Rule 7640A to state that
Nasdaq’s license to use, distribute and
sell FINRA/Nasdaq TRF Carteret market
data to third parties, and to sell such
data for fees that Nasdaq charges under
its rules, would also extend to FINRA/
Nasdaq TRF Chicago market data. In
addition, the proposed rule change
would amend the rule to state that the
list of Nasdaq data products that
incorporate FINRA/Nasdaq TRF Carteret
market data would also incorporate
FINRA/Nasdaq TRF Chicago market
data.13
Finally, Rule 6184 (Transactions in
Exchange-Traded Managed Fund Shares
(‘‘NextShares’’)) would be amended to
provide for the reporting of transactions
in NextShares to the FINRA/Nasdaq
TRF Chicago in the same manner that
such transactions currently are reported
to the FINRA/Nasdaq TRF Carteret.
If the Commission approves the
proposed rule change, the effective date
of the proposed rule change will be the
date upon which the FINRA/Nasdaq
TRF Chicago commences operation,
which is currently anticipated to be no
earlier than August 1, 2018. FINRA will
provide notice of that date upon
successful completion of system testing
and certification.
2. Statutory Basis
FINRA believes that the proposed rule
change is consistent with the provisions
of Section 15A(b)(6) of the Act,14 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 proposed rule
change is consistent with the Act
because it provides members with an
alternative for meeting their trade
reporting obligations under FINRA rules
and will allow members that wish to
connect to a secondary FINRA Facility
in accordance with the Trade Reporting
Notice to continue executing OTC trades
in NMS stocks in the event their
primary facility is experiencing a
widespread systems issue. FINRA
believes that an additional facility for
the reporting of OTC transactions in
NMS stocks in the event a member’s
certifications of affiliate status and makes the
aggregation determinations thereunder.
13 Prior to the date when the FINRA/Nasdaq TRF
Chicago becomes operational, Nasdaq intends to file
with the Commission a proposal to amend Nasdaq’s
rules governing its proprietary data products to
provide for the inclusion therein of FINRA/Nasdaq
TRF Chicago data.
14 15 U.S.C. 78o–3(b)(6).
PO 00000
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Fmt 4703
Sfmt 4703
primary facility is experiencing systems
issues will enhance the resiliency and
promote the integrity of the OTC
market.
In addition, FINRA believes that the
proposed rule change provides for the
equitable allocation of reasonable dues,
fees and other charges because the
charges and credits that would apply to
the FINRA/Nasdaq TRF Chicago are the
same as those that apply to the FINRA/
Nasdaq TRF Carteret under current
FINRA rules. The proposed rule change
would also provide for the equitable
allocation of reasonable dues, fees and
other charges in that it would allow
firms that choose to concurrently report
trades to the FINRA/Nasdaq TRF
Carteret and the FINRA/Nasdaq TRF
Chicago to aggregate their reporting
volumes on the two TRFs so that they
could continue to qualify for volumebased pricing to the extent that they
would have otherwise qualified had
they reported their trades only to one of
those TRFs. As discussed above,
Nasdaq, as the Business Member, has
advised FINRA that the FINRA/Nasdaq
TRF Carteret and the FINRA/Nasdaq
TRF Chicago will be subject to identical
fees under the amended Rule 7600A
Series, thereby allowing members to use
either TRF freely in terms of the volume
reported to each TRF without providing
a disincentive to use one over the other
for the sole purpose of maintaining
eligibility for any fee caps.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
FINRA does not believe that the
proposed rule change will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
The proposed rule change would
apply only to members that have a trade
reporting obligation under the FINRA
rules 15 and elect to report to the FINRA/
Nasdaq TRF Chicago. As noted above,
there currently are three FINRA
Facilities that allow members to report
OTC trades in NMS stocks. There are
only several hundred firms that execute
and report OTC trades in NMS stocks to
the FINRA Facilities on a regular basis.
Many firms, including smaller firms,
route their order flow to another firm,
e.g., their clearing firm, for execution,
15 FINRA rules for reporting OTC transactions in
equity securities require that for transactions
between members, the ‘‘executing party’’ report the
trade to a FINRA facility. For transactions between
a member and a non-member or customer, the
member must report the trade. ‘‘Executing party’’ is
defined under FINRA Rule 6380A(b) as the member
that receives an order for handling or execution or
is presented an order against its quote, does not
subsequently re-route the order, and executes the
transaction.
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and as the routing firm, they do not
have the trade reporting obligation.
Thus, the proposed rule change will
have no impact on many members.
As explained above, the proposed rule
change provides members with an
alternative for meeting their trade
reporting obligations under FINRA rules
and will allow members that wish to
connect to a secondary facility for trade
reporting in accordance with the Trade
Reporting Notice to continue executing
OTC trades in NMS stocks in the event
their primary facility is experiencing a
widespread systems issue.
The proposed FINRA/Nasdaq TRF
Chicago should provide benefits, in
particular, for those members that
currently report trades to the FINRA/
Nasdaq TRF Carteret, as such members
would have the opportunity to aggregate
their reporting volumes if they choose to
concurrently report trades to both
FINRA/Nasdaq TRFs. Thus, under the
proposed fee structure, if a member
chooses to connect to the FINRA/
Nasdaq TRF Carteret and FINRA/
Nasdaq TRF Chicago as primary and
backup trade reporting facilities, then
the member will receive credit for the
shares reported to the backup facility.
This may create an incentive for
members to jointly utilize the two
FINRA/Nasdaq TRFs as primary and
back-up reporting facilities.
FINRA staff analyzed participation
agreements and reporting activity to
FINRA/Nasdaq TRF Carteret, FINRA/
NYSE TRF and ADF, and found that 430
member firms reported to at least one
FINRA Facility in 2017. While 84 firms
had participation agreements with at
least two FINRA Facilities, only 20 of
those firms reported to both the FINRA/
Nasdaq TRF Carteret and another
FINRA Facility. Based on this one-year
sample, FINRA expects the proposal to
potentially benefit at least those firms
that report to two or more FINRA
Facilities; however, more firms can
potentially benefit from volume-based
pricing in the long-run, provided that
reporting trades to more than one
FINRA Facility becomes necessary or
preferred.
To the extent that members choose to
satisfy their reporting obligations via the
FINRA/Nasdaq TRF Carteret and
FINRA/Nasdaq TRF Chicago, and cease
to maintain connectivity to the FINRA/
NYSE TRF or ADF as a back-up FINRA
Facility to report trades, the latter two
may experience a reduction in reporting
activity and hence revenue. Thus, the
impact on FINRA Facilities may
effectively be an economic transfer
between them.
The proposed FINRA/Nasdaq TRF
Chicago provides an alternative that
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may provide costs savings to those
members that choose to report to both
the FINRA/Nasdaq TRF Carteret and
FINRA/Nasdaq TRF Chicago instead of
spreading trade reporting between the
FINRA/Nasdaq TRF Carteret and
another FINRA Facility. Members can
effectively satisfy the requirement under
the Trade Reporting Notice to establish
connectivity to a second FINRA Facility
to maintain reporting in the event that
their primary facility experiences a
widespread systems issue during the
trading day. As such, members can use
one FINRA/Nasdaq TRF as the primary
reporting facility and the other FINRA/
Nasdaq TRF as the back-up facility. This
could mitigate the risks associated with
a regional outage that could
simultaneously affect them both, as the
front-end technology used to operate the
FINRA/Nasdaq TRF Chicago would
reside in Chicago, Illinois while the
front-end technology used to operate the
FINRA/Nasdaq TRF Carteret would
continue to reside in Carteret, New
Jersey.
However, the two FINRA/Nasdaq
TRFs would have common technology,
computer code and features. As such, a
member firm’s decision to rely upon the
FINRA/Nasdaq TRFs to satisfy both its
primary and back-up requirements may
not fully mitigate risks if these common
technologies, code or features
contemporaneously experience
problems or otherwise fail. Thus, when
member firms consider how they will
meet their reporting obligations going
forward, they will need to weigh the
potential costs if both the FINRA/
Nasdaq TRF Carteret and FINRA/
Nasdaq TRF Chicago experience
common problems or become
unavailable simultaneously against the
costs of maintaining connectivity to
unrelated FINRA Facilities with fewer
efficiencies and less attractive aggregate
pricing.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
PO 00000
Frm 00122
Fmt 4703
Sfmt 4703
18383
organization consents, the Commission
will:
(A) By order approve or disapprove
such proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
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–2018–013 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–2018–013. 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 website (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 website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of FINRA. All comments received
will be posted without change. Persons
submitting comments are cautioned that
we do not redact or edit personal
identifying information from comment
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–FINRA–
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Federal Register / Vol. 83, No. 81 / Thursday, April 26, 2018 / Notices
2018–013, and should be submitted on
or before May 17, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.16
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–08731 Filed 4–25–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–83083; File No. SR–GEMX–
2018–13]
Self-Regulatory Organizations; Nasdaq
GEMX, LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Incorporate by
Reference The Nasdaq Stock Market
LLC’s Consolidated Audit Trail Rules
Into the Rules of Nasdaq GEMX
April 20, 2018.
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 April 10,
2018, Nasdaq GEMX, LLC (‘‘GEMX’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
amozie on DSK30RV082PROD with NOTICES
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to incorporate
by reference The Nasdaq Stock Market
LLC’s (‘‘Nasdaq’’) rule at General 7,
entitled ‘‘Consolidated Audit Trail
Compliance’’ into GEMX’s General 7.
The text of the proposed rule change
is available on the Exchange’s website at
https://nasdaqgemx.cchwallstreet.com/,
at the principal office of the Exchange,
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, the
Exchange 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
16 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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16:58 Apr 25, 2018
Jkt 244001
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to incorporate
by reference Nasdaq’s rule at General 7,
entitled ‘‘Consolidated Audit Trail
Compliance’’ into GEMX’s General 7.
The rule sets are identical.3 GEMX
proposes to remove the current rule text
from General 7 and replace that rule text
with the following text: 4
The rules contained in The Nasdaq
Stock Market LLC General 7, as such
rules may be in effect from time to time
(the ‘‘General 7 Rules’’), are hereby
incorporated by reference into this
Nasdaq GEMX General 7, and are thus
Nasdaq GEMX Rules and thereby
applicable to Nasdaq GEMX Members.
Nasdaq GEMX Members shall comply
with the General 7 Rules as though such
rules were fully set forth herein. All
defined terms, including any variations
thereof, contained in the General 7
Rules shall be read to refer to the
Nasdaq GEMX related meaning of such
term. Solely by way of example, and not
in limitation or in exhaustion: the
defined term ‘‘Exchange’’ in the General
7 Rules shall be read to refer to the
Nasdaq GEMX Exchange; the defined
term ‘‘Rule’’ in the General 7 Rules shall
be read to refer to the Nasdaq GEMX
Rule.
Should any rules which impact
trading behavior be added to the
Consolidated Audit Trail Compliance
Rules in Nasdaq General 7 in the future,
those rules shall not become subject to
the incorporation by reference and shall
be placed elsewhere within GEMX’s
Rulebook. The incorporations by
reference of Nasdaq General 7 into
GEMX’s General 7 Rule are regulatory in
nature.5 The Exchange notes that as a
3 See Securities Exchange Act Release Nos. 82601
(January 30, 2018), 83 FR 4949 (February 2, 2018)
(SR–Phlx–2018–11); 82604 (January 30, 2018), 83
FR 5154 (February 5, 2018) (SR–NASDAQ–2018–
007); 82597 (January 30, 2018), 83 FR 4942
(February 2, 2018) (SR–BX–2018–007); 82599
(January 30, 2017), 83 FR 4947 (February 2, 2018)
(SR–ISE–2018–09); 82598 (January 30, 2018), 83 FR
4936 (February 2, 2018) (SR–GEMX–2018–02); and
82600 (January 30, 2018), 83 FR 4934 (February 2,
2018) (SR–MRX–2018–03).
4 GEMX shall include a hyperlink to Nasdaq’s
General 7 for ease of reference.
5 The General 7 Rules are categories of rules that
are not trading rules. See 17 CFR 200.30–3(a)(76)
(contemplating such requests). In addition, several
PO 00000
Frm 00123
Fmt 4703
Sfmt 4703
condition of an exemption, which the
Exchange will request and will need to
be approved by the Commission,6
GEMX agrees to provide written notice
to its members whenever Nasdaq
proposes a change to its General 7
Rule.7 Such notice will alert GEMX
members to the proposed Nasdaq rule
change and give them an opportunity to
comment on the proposal. GEMX will
similarly inform its members in writing
when the SEC approves any such
proposed change.
Implementation
The Exchange proposes that this rule
change become operative at such time as
it receives approval for an exemption
from the Securities and Exchange
Commission, pursuant to its authority
under Section 36 of the Exchange Act of
1934 (‘‘Act’’) and Rule 0–12 8
thereunder, from the Section 19(b) rule
filing requirements to separately file a
proposed rule change to amend GEMX
General 7.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,9 in general, and furthers the
objectives of Section 6(b)(5) of the Act,10
in particular, in that it is designed 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, by
consolidating its rules into a single rule
set. The Exchange intends to also file
similar proposed rule changes for the
Nasdaq PHLX LLC; Nasdaq GEMX, LLC;
Nasdaq ISE, LLC; and Nasdaq MRX, LLC
markets so that the General 7 Rules
other SROs incorporate by reference certain
regulatory rules of another SRO and have received
from the Commission similar exemptions from
Section 19(b) of the Exchange Act. See e.g.,
Securities Exchange Act Release Nos. 57478 (March
12, 2008), 73 FR 14521 (March 18, 2008), 53128
(January 13, 2006), 71 FR 3550 (January 23, 2006);
49260 (February 17, 2004), 69 FR 8500 (February
24, 2004).
6 The Exchange will request an exemption
pursuant to its authority under Section 36 of the
Exchange Act of 1934 (‘‘Act’’) and Rule 0–121
thereunder, from the Section 19(b) rule filing
requirements to separately file a proposed rule
change to amend GEMX General 7.
7 GEMX will provide such notice via a posting on
the same website location where GEMX posts its
own rule filings pursuant to Rule 19b-4 within the
timeframe require by such Rule. The website
posting will include a link to the location on the
Nasdaq website where the applicable proposed rule
change is posted.
8 See 17 CFR 240.0–12; Exchange Act Release No.
39624 (February 5, 1998), 63 FR 8101 (February 18,
1998).
9 15 U.S.C. 78f(b).
10 15 U.S.C. 78f(b)(5).
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]]>Agencies
[Federal Register Volume 83, Number 81 (Thursday, April 26, 2018)]
[Notices]
[Pages 18379-18384]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-08731]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-83082; File No. SR-FINRA-2018-013]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a Proposed Rule Change To
Establish a Second Trade Reporting Facility in Conjunction With Nasdaq,
Inc.
April 20, 2018.
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 April 19, 2018, 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. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to adopt rules relating to the establishment of
a second Trade Reporting Facility or ``TRF'' to be operated in
conjunction with Nasdaq, Inc. (``Nasdaq''). The second FINRA/Nasdaq
Trade Reporting Facility (``FINRA/Nasdaq TRF Chicago'') would provide
FINRA members with another mechanism for reporting over-the-counter
(``OTC'') trades in NMS stocks and complying with FINRA's requirements
with respect to back-up trade reporting arrangements. The FINRA/Nasdaq
TRF Chicago would be governed by the rules applicable to the existing
FINRA/Nasdaq Trade Reporting Facility (``FINRA/Nasdaq TRF Carteret''),
which were subject to notice and comment and approved by the
Commission.\3\
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 54084 (June 30,
2006), 71 FR 38935 (July 10, 2006) (order approving SR-NASD-2005-
087); and Securities Exchange Act Release No. 54798 (November 21,
2006), 71 FR 69156 (November 29, 2006) (order approving SR-NASD-
2006-104).
---------------------------------------------------------------------------
The text of the proposed rule change is available on FINRA's
website 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
FINRA currently has three facilities that allow its members to
report OTC
[[Page 18380]]
trades in NMS stocks, as defined in SEC Rule 600(b) of Regulation NMS.
These are the FINRA/Nasdaq TRF, the FINRA/NYSE TRF, and the Alternative
Display Facility (``ADF'') (collectively, the ``FINRA Facilities'').
On January 20, 2016, FINRA published a Trade Reporting Notice (the
``Trade Reporting Notice'' or the ``Notice'') with guidance on firms'
OTC equity trade reporting obligations in the event of a systems issue
during the trading day that prevents them from reporting OTC trades in
NMS stocks in accordance with FINRA rules.\4\ As set forth in the
Notice, a firm that routinely reports its OTC trades in NMS stocks to
only one FINRA Facility (a firm's ``primary facility'') must establish
and maintain connectivity and report to a second FINRA Facility (a
firm's ``secondary 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.\5\
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\4\ See Trade Reporting Notice, January 20, 2016 (OTC Equity
Trading and Reporting in the Event of Systems Issues).
\5\ As discussed in the Notice, if a firm chooses not to have
connectivity to a secondary facility, it should cease executing OTC
trades altogether when its primary trade reporting facility is
experiencing a widespread systems issue. In that instance, the firm
could route orders for execution to an exchange or another FINRA
member (i.e., a member with connectivity and the ability to report
to a FINRA Facility that is operational).
---------------------------------------------------------------------------
The proposed FINRA/Nasdaq TRF Chicago would provide FINRA members
with an additional mechanism to facilitate compliance with FINRA rules
and the Notice. Specifically, a primary user of the FINRA/Nasdaq TRF
Carteret could report on a back-up basis to the FINRA/Nasdaq TRF
Chicago pursuant to the same rules, pricing, features and performance
to which the firm is accustomed as a user of the FINRA/Nasdaq TRF
Carteret--and vice versa.
Like the FINRA/Nasdaq TRF Carteret, the FINRA/Nasdaq TRF Chicago
will be a facility of FINRA, subject to regulation by FINRA and to
FINRA's registration as a national securities association. FINRA
members that match and/or execute orders internally or through
proprietary systems may submit reports of these trades, with
appropriate information and modifiers, to the FINRA/Nasdaq TRF Chicago,
which will then submit them to the appropriate exclusive securities
information processor (``SIP''). FINRA/Nasdaq TRF Chicago trade reports
will be disseminated with a modifier indicating the source of the
transactions that will distinguish them from transactions executed on
an exchange or reported to other FINRA Facilities, including the FINRA/
Nasdaq TRF Carteret. The FINRA/Nasdaq TRF Chicago will provide FINRA
with a real-time copy of each trade report for regulatory review
purposes. At the option of the participant, the FINRA/Nasdaq TRF
Chicago, like the FINRA/Nasdaq TRF Carteret, may provide the necessary
clearing information regarding transactions to the National Securities
Clearing Corporation.
The proposed rule change would establish the FINRA/Nasdaq TRF
Chicago on the same terms as the FINRA/Nasdaq TRF Carteret. That is,
the new FINRA/Nasdaq TRF would be built with the same technology,
provide the same features and performance,\6\ offer the same pricing
and be governed by the same substantive rules, policies and procedures.
A single set of application materials and clearing arrangements will
provide for access to both FINRA/Nasdaq TRF Carteret and FINRA/Nasdaq
TRF Chicago. Moreover, Nasdaq, as the ``Business Member'' (defined
below), has advised FINRA that these two TRFs will evolve in tandem and
remain the same going forward (for example, because the same fee and
credit schedule under the Rule 7600A Series will apply to both TRFs,
any pricing changes would apply to both TRFs).\7\
---------------------------------------------------------------------------
\6\ Users of the two FINRA/Nasdaq TRFs may experience latency
differences due to their different geographic locations.
\7\ According to Nasdaq, the FINRA/Nasdaq TRF Chicago will
include several new components to provide performance improvements
and operational efficiencies that Nasdaq intends to incorporate into
the FINRA/Nasdaq TRF Carteret shortly after the launch of FINRA/
Nasdaq TRF Chicago. Nasdaq will provide participants with notice
prior to re-platforming the FINRA/Nasdaq TRF Carteret. After Nasdaq
completes this re-platforming, Nasdaq generally intends to perform
updates, upgrades, fixes or other modifications to the two FINRA/
Nasdaq TRFs in tandem. However, Nasdaq notes that there may be
instances in which it will be necessary for Nasdaq to act in
sequence. During such instances, there may be disparities between
the two TRFs with respect to function or performance. Nasdaq expects
that any disparity in function or performance between the two TRFs
that arises during sequential changes will be transitory. Nasdaq
will provide participants with notice if it anticipates requiring
more than a de minimis transition period.
---------------------------------------------------------------------------
Nasdaq, as the Business Member, proposes to structure the FINRA/
Nasdaq TRF Chicago to be identical to the FINRA/Nasdaq TRF Carteret (in
all respects other than its location) to provide FINRA members with a
convenient and efficient option to fulfill their obligations under the
Trade Reporting Notice through a set of primary and secondary reporting
facilities that share the same rules, pricing, features and
performance. Under the proposal, the FINRA/Nasdaq TRF Chicago will not
be limited to use as a back-up reporting facility. FINRA members will
also have the option of using the FINRA/Nasdaq TRF Chicago as their
primary trade reporting facility. Moreover, members may choose to
report some of their trades, on a primary basis, to the FINRA/Nasdaq
TRF Carteret and other trades, also on a primary basis, to the FINRA/
Nasdaq TRF Chicago (or to one of the other FINRA Facilities). Members
may choose to allocate their trade reports to more than one TRF as a
means of further increasing resiliency and mitigating their risks,
including the risks associated with outages.
The proposed rule change would allow firms to aggregate the volume
of trades that they report on the FINRA/Nasdaq TRF Carteret and the
FINRA/Nasdaq TRF Chicago. This would enable firms to continue to
qualify for any volume-based pricing that they would otherwise qualify
for if they limited their trade reporting to one of those facilities
only.
It is important to note that although the FINRA/Nasdaq TRF Carteret
and the FINRA/Nasdaq TRF Chicago would be structured identically and
would allow for aggregated pricing, the two TRFs would physically
operate as distinct and independent facilities.\8\ For example, to help
ensure that the FINRA/Nasdaq TRF Chicago could effectively serve as a
back-up facility for the FINRA/Nasdaq TRF Carteret or vice versa, the
front-end technology used to operate the FINRA/Nasdaq TRF Chicago would
reside in Chicago, Illinois while the front-end technology used to
operate the FINRA/Nasdaq TRF Carteret would continue to reside in
Carteret, New Jersey. Geographic dispersion of these two TRFs would
lessen the risk of a regional outage affecting them both
simultaneously. FINRA also notes that rules that prohibit cross-
facility reporting would apply to the FINRA/Nasdaq TRF Carteret and
FINRA/Nasdaq TRF Chicago. For example, FINRA rules generally prohibit
the submission to a FINRA Facility of any non-tape report (including
clearing reports) associated with a previously executed trade that was
not reported to the same Facility, except with respect to the second
leg of a riskless principal or agency transaction.\9\
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\8\ Trades reported to the FINRA/Nasdaq TRF Carteret or FINRA/
Nasdaq TRF Chicago will be subject to correction or modification
only on the TRF to which the trades were originally reported.
\9\ See, e.g., Rule 7230A(i).
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FINRA's oversight of the proposed FINRA/Nasdaq TRF Chicago would be
the same as FINRA's current oversight with respect to the two existing
TRFs.
[[Page 18381]]
In addition to real-time interaction with Business Member staff when
operational issues arise, FINRA currently executes its SRO oversight
functions by performing a three-part regularly recurring review of TRF
operations. First, before initial operation of the TRF can commence,
the Business Member is required to certify in writing that TRF
operations will comply with all relevant FINRA rules and federal
securities laws, and on a quarterly basis thereafter, the Business
Member must submit its current TRF procedures and a certification of
compliance with those procedures. Second, FINRA staff conducts monthly
conference calls with each Business Member to review TRF operations.
These monthly calls follow an established agenda, which includes, among
other things, whether there were any system outages or issues since the
prior monthly conference call (and if so, to confirm that they were
reported to FINRA and the SEC, as applicable), data latency, the status
of pending systems changes, TRF market data products and whether the
Business Member has or is developing any new products that would use
TRF data. Third, FINRA oversees a regular assessment cycle and
extensive review of TRF operations, as measured against the TRF
business requirements document and coding guidelines established by
FINRA, by an outside independent audit firm. FINRA also requires the
Business Member to submit on a quarterly basis an attestation that (1)
identifies all products that use TRF data, and (2) certifies that the
Business Member has no other products that use TRF data and that any
future products that use TRF data will be developed in consultation
with FINRA.
FINRA/Nasdaq TRF Limited Liability Company Agreement
The Third Amended and Restated Limited Liability Company Agreement
of FINRA/Nasdaq Trade Reporting Facility LLC (the ``FINRA/Nasdaq TRF
LLC Agreement'' or the ``Agreement'') will govern the establishment of
the FINRA/Nasdaq TRF Chicago.
Under the FINRA/Nasdaq TRF LLC Agreement, FINRA is the ``SRO
Member'' and has sole regulatory responsibility for both the FINRA/
Nasdaq TRF Carteret and FINRA/Nasdaq TRF Chicago, including real-time
monitoring and T+1 surveillance, development and enforcement of trade
reporting rules and submission of proposed rule changes to the
Commission. Nasdaq, the Business Member under the FINRA/Nasdaq TRF LLC
Agreement, is primarily responsible for the management of the business
affairs of both the FINRA/Nasdaq TRF Carteret and FINRA/Nasdaq TRF
Chicago, which may not be conducted in a manner inconsistent with the
regulatory and oversight functions of FINRA. Among other things, the
Business Member will establish pricing for both the FINRA/Nasdaq TRF
Carteret and FINRA/Nasdaq TRF Chicago, be obligated to pay the cost of
regulation and be entitled to the profits and losses, if any, derived
from operation of the FINRA/Nasdaq TRF Carteret and FINRA/Nasdaq TRF
Chicago. The Business Member will also provide the ``user facing''
front-end technology used to operate both the FINRA/Nasdaq TRF Carteret
and FINRA/Nasdaq TRF Chicago and transmit real-time trade report data
directly to the SIPs and to FINRA for audit trail purposes.
The FINRA/Nasdaq TRF LLC Agreement is substantially similar to the
existing agreement that governs the FINRA/Nasdaq TRF Carteret (the
Second Amended and Restated FINRA/Nasdaq TRF LLC Agreement), which is
included in the FINRA Manual. However, it contains several amendments
that reflect the fact that the FINRA/Nasdaq Trade Reporting Facility
LLC will now operate through two TRFs: FINRA/Nasdaq TRF Carteret and
FINRA/Nasdaq TRF Chicago.
For example, the FINRA/Nasdaq TRF LLC Agreement provides for
separate termination provisions, in Section 20, for each FINRA/Nasdaq
TRF. The termination provision applicable to the FINRA/Nasdaq TRF
Carteret is substantially the same as under the current agreement,
except as noted below. The termination provision applicable to the
FINRA/Nasdaq TRF Chicago permits a Member of the LLC to terminate the
FINRA/Nasdaq TRF Chicago upon at least one year's written notice; it
also permits the SRO Member to terminate the FINRA/Nasdaq TRF Chicago
for any reason that the SRO Member, in its sole discretion, determines
could have a negative impact on the maintenance of its status as a
preeminent SRO. In addition, the FINRA/Nasdaq TRF LLC Agreement
includes a provision in Section 20 that permits either Member of the
LLC to terminate either of the TRFs or the entire Agreement due to a
material breach by the other Member, if such breach is not cured within
60 days of notification thereof, or if the other Member becomes
bankrupt or insolvent, upon 30 days' written notice.
Finally, the FINRA/Nasdaq TRF LLC Agreement includes a provision,
in Section 21, that clarifies that if either FINRA/Nasdaq TRF
terminates, the LLC will continue to operate and the terms of the
Agreement relating to the remaining FINRA/Nasdaq TRF will remain in
full force and effect. It also clarifies that the LLC will dissolve
upon an action by either LLC Member to terminate both FINRA/Nasdaq TRFs
or to terminate the last remaining FINRA/Nasdaq TRF.
Rules Applicable to the FINRA/Nasdaq TRF Carteret and FINRA/Nasdaq TRF
Chicago
FINRA proposes to amend the Rule 6300A, 7200A and 7600A Series,
which govern the FINRA/Nasdaq TRF Carteret, to accommodate the
establishment of the FINRA/Nasdaq TRF Chicago. That is, FINRA proposes
to preface each of these Rule Series by noting that within them, any
use of the term ``FINRA/Nasdaq Trade Reporting Facility'' shall mean
the FINRA/Nasdaq TRF Carteret or the FINRA/Nasdaq TRF Chicago, as
applicable, depending on the facility to which the participant elects
to report.
FINRA proposes to amend Rule 6300A to provide that the forms of
agreements required under the Rule 6300A Series, including the
agreement to allow a Participant to report and lock-in trades on a
member's behalf required under Rule 6380A(h), will be identical for
both FINRA/Nasdaq TRFs and a single agreement can be used for purposes
of both FINRA/Nasdaq TRFs. Members that elect to participate in both
FINRA/Nasdaq TRFs must amend any existing agreements under the Rule
6300A Series to reflect their application to both facilities.
In addition, FINRA proposes to amend Rule 7200A to clarify that
application procedures and access requirements for the FINRA/Nasdaq TRF
Carteret would also be applicable to the FINRA/Nasdaq TRF Chicago,
meaning that an application for access to one of the FINRA/Nasdaq TRFs
would provide for access to both of them, and that the requirements for
continuing access apply to both TRFs. Members that elect to participate
in both FINRA/Nasdaq TRFs must provide written notice to the FINRA/
Nasdaq TRFs and FINRA of such election, in the form prescribed by
FINRA, and amend any existing agreements under the Rule 7200A Series to
reflect their application to both Facilities. Moreover, FINRA proposes
to state, in Rules 6300A, 6360A, 6370A, 7200A and 7280A, that any
determination to suspend, terminate, restore, reinstate, limit or
prohibit access to or participation in one FINRA/Nasdaq TRF with
respect to a TRF participant will apply equally to the other FINRA/
Nasdaq TRF with respect to that participant.
[[Page 18382]]
The proposed rule change would also amend the Rule 7600A Series to
state that its schedules of credits and fees will apply to reporting
activity that occurs on either or both of the FINRA/Nasdaq TRFs and
that a participant's eligibility for any volume-based credits or fee
caps will be determined based upon its aggregate reporting volume
between the two FINRA/Nasdaq TRFs.\10\ That is, Rule 7610A would be
amended to state that if a FINRA member reports trades in a given
quarter to both the FINRA/Nasdaq TRF Carteret and the FINRA/Nasdaq TRF
Chicago, then the amount of the member's Securities Transaction Credits
for that quarter will be calculated with respect to the member's
combined transactions on both TRFs. Similarly, Rule 7620A would be
amended to provide that if a participant reports trades to both the
FINRA/Nasdaq TRF Carteret and the FINRA/Nasdaq TRF Chicago during a
given month, then the participant's aggregate reporting volume on the
FINRA/Nasdaq TRF Carteret and the FINRA/Nasdaq TRF Chicago will be
considered for the purpose of determining whether and to what extent
charges or caps apply to the participant during that month.\11\
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\10\ FINRA notes that Nasdaq, in its capacity as the Business
Member and operator of the FINRA/Nasdaq TRFs on behalf of FINRA,
will continue to administer the Rule 7600A Series and will collect
all fees and issue all credits on behalf of the FINRA/Nasdaq TRF
Chicago, as well as the FINRA/Nasdaq TRF Carteret. FINRA's oversight
of this function performed by the Business Member will be conducted
through the aforementioned assessment and review of TRF operations
by an outside independent audit firm.
\11\ FINRA notes that members will be able to report trades to
the FINRA/Nasdaq TRF Chicago via Nasdaq's ACT Workstation, a
Financial Information eXchange (``FIX'') line or indirectly via
third party intermediaries (e.g., service bureaus) and will be
required to pay the associated fees under Nasdaq rules. For example,
firms that report to the FINRA/Nasdaq TRF Chicago via FIX--either
directly or indirectly through third party intermediaries--would pay
Nasdaq charges associated with FIX ports to connect to the FINRA/
Nasdaq TRF Chicago data center. See, e.g., Nasdaq Rule 7015. Firms
will not have the option of connecting to the FINRA/Nasdaq TRF
Chicago via a computer-to-computer interface (``CTCI'').
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Rule 7630A would be amended to reflect a technical change that
certification of affiliate status for aggregation of activity for
purposes of fees and credits will be made to, and subsequent
determinations regarding aggregation will be made by, the FINRA/Nasdaq
TRFs, not FINRA. FINRA members currently submit their requests for
aggregation to the FINRA/Nasdaq TRF Carteret rather than to FINRA, and,
as such, the proposed change will better align the rule with current
practice.\12\
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\12\ As noted above, Nasdaq, as the TRF Business Member,
administers this Rule and receives the certifications of affiliate
status and makes the aggregation determinations thereunder.
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The proposed rule change would amend Rule 7640A to state that
Nasdaq's license to use, distribute and sell FINRA/Nasdaq TRF Carteret
market data to third parties, and to sell such data for fees that
Nasdaq charges under its rules, would also extend to FINRA/Nasdaq TRF
Chicago market data. In addition, the proposed rule change would amend
the rule to state that the list of Nasdaq data products that
incorporate FINRA/Nasdaq TRF Carteret market data would also
incorporate FINRA/Nasdaq TRF Chicago market data.\13\
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\13\ Prior to the date when the FINRA/Nasdaq TRF Chicago becomes
operational, Nasdaq intends to file with the Commission a proposal
to amend Nasdaq's rules governing its proprietary data products to
provide for the inclusion therein of FINRA/Nasdaq TRF Chicago data.
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Finally, Rule 6184 (Transactions in Exchange-Traded Managed Fund
Shares (``NextShares'')) would be amended to provide for the reporting
of transactions in NextShares to the FINRA/Nasdaq TRF Chicago in the
same manner that such transactions currently are reported to the FINRA/
Nasdaq TRF Carteret.
If the Commission approves the proposed rule change, the effective
date of the proposed rule change will be the date upon which the FINRA/
Nasdaq TRF Chicago commences operation, which is currently anticipated
to be no earlier than August 1, 2018. FINRA will provide notice of that
date upon successful completion of system testing and certification.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\14\ 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.
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\14\ 15 U.S.C. 78o-3(b)(6).
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FINRA believes that the proposed rule change is consistent with the
Act because it provides members with an alternative for meeting their
trade reporting obligations under FINRA rules and will allow members
that wish to connect to a secondary FINRA Facility in accordance with
the Trade Reporting Notice to continue executing OTC trades in NMS
stocks in the event their primary facility is experiencing a widespread
systems issue. FINRA believes that an additional facility for the
reporting of OTC transactions in NMS stocks in the event a member's
primary facility is experiencing systems issues will enhance the
resiliency and promote the integrity of the OTC market.
In addition, FINRA believes that the proposed rule change provides
for the equitable allocation of reasonable dues, fees and other charges
because the charges and credits that would apply to the FINRA/Nasdaq
TRF Chicago are the same as those that apply to the FINRA/Nasdaq TRF
Carteret under current FINRA rules. The proposed rule change would also
provide for the equitable allocation of reasonable dues, fees and other
charges in that it would allow firms that choose to concurrently report
trades to the FINRA/Nasdaq TRF Carteret and the FINRA/Nasdaq TRF
Chicago to aggregate their reporting volumes on the two TRFs so that
they could continue to qualify for volume-based pricing to the extent
that they would have otherwise qualified had they reported their trades
only to one of those TRFs. As discussed above, Nasdaq, as the Business
Member, has advised FINRA that the FINRA/Nasdaq TRF Carteret and the
FINRA/Nasdaq TRF Chicago will be subject to identical fees under the
amended Rule 7600A Series, thereby allowing members to use either TRF
freely in terms of the volume reported to each TRF without providing a
disincentive to use one over the other for the sole purpose of
maintaining eligibility for any fee caps.
B. Self-Regulatory Organization's Statement on Burden on Competition
FINRA does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
The proposed rule change would apply only to members that have a
trade reporting obligation under the FINRA rules \15\ and elect to
report to the FINRA/Nasdaq TRF Chicago. As noted above, there currently
are three FINRA Facilities that allow members to report OTC trades in
NMS stocks. There are only several hundred firms that execute and
report OTC trades in NMS stocks to the FINRA Facilities on a regular
basis. Many firms, including smaller firms, route their order flow to
another firm, e.g., their clearing firm, for execution,
[[Page 18383]]
and as the routing firm, they do not have the trade reporting
obligation. Thus, the proposed rule change will have no impact on many
members.
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\15\ FINRA rules for reporting OTC transactions in equity
securities require that for transactions between members, the
``executing party'' report the trade to a FINRA facility. For
transactions between a member and a non-member or customer, the
member must report the trade. ``Executing party'' is defined under
FINRA Rule 6380A(b) as the member that receives an order for
handling or execution or is presented an order against its quote,
does not subsequently re-route the order, and executes the
transaction.
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As explained above, the proposed rule change provides members with
an alternative for meeting their trade reporting obligations under
FINRA rules and will allow members that wish to connect to a secondary
facility for trade reporting in accordance with the Trade Reporting
Notice to continue executing OTC trades in NMS stocks in the event
their primary facility is experiencing a widespread systems issue.
The proposed FINRA/Nasdaq TRF Chicago should provide benefits, in
particular, for those members that currently report trades to the
FINRA/Nasdaq TRF Carteret, as such members would have the opportunity
to aggregate their reporting volumes if they choose to concurrently
report trades to both FINRA/Nasdaq TRFs. Thus, under the proposed fee
structure, if a member chooses to connect to the FINRA/Nasdaq TRF
Carteret and FINRA/Nasdaq TRF Chicago as primary and backup trade
reporting facilities, then the member will receive credit for the
shares reported to the backup facility. This may create an incentive
for members to jointly utilize the two FINRA/Nasdaq TRFs as primary and
back-up reporting facilities.
FINRA staff analyzed participation agreements and reporting
activity to FINRA/Nasdaq TRF Carteret, FINRA/NYSE TRF and ADF, and
found that 430 member firms reported to at least one FINRA Facility in
2017. While 84 firms had participation agreements with at least two
FINRA Facilities, only 20 of those firms reported to both the FINRA/
Nasdaq TRF Carteret and another FINRA Facility. Based on this one-year
sample, FINRA expects the proposal to potentially benefit at least
those firms that report to two or more FINRA Facilities; however, more
firms can potentially benefit from volume-based pricing in the long-
run, provided that reporting trades to more than one FINRA Facility
becomes necessary or preferred.
To the extent that members choose to satisfy their reporting
obligations via the FINRA/Nasdaq TRF Carteret and FINRA/Nasdaq TRF
Chicago, and cease to maintain connectivity to the FINRA/NYSE TRF or
ADF as a back-up FINRA Facility to report trades, the latter two may
experience a reduction in reporting activity and hence revenue. Thus,
the impact on FINRA Facilities may effectively be an economic transfer
between them.
The proposed FINRA/Nasdaq TRF Chicago provides an alternative that
may provide costs savings to those members that choose to report to
both the FINRA/Nasdaq TRF Carteret and FINRA/Nasdaq TRF Chicago instead
of spreading trade reporting between the FINRA/Nasdaq TRF Carteret and
another FINRA Facility. Members can effectively satisfy the requirement
under the Trade Reporting Notice to establish connectivity to a second
FINRA Facility to maintain reporting in the event that their primary
facility experiences a widespread systems issue during the trading day.
As such, members can use one FINRA/Nasdaq TRF as the primary reporting
facility and the other FINRA/Nasdaq TRF as the back-up facility. This
could mitigate the risks associated with a regional outage that could
simultaneously affect them both, as the front-end technology used to
operate the FINRA/Nasdaq TRF Chicago would reside in Chicago, Illinois
while the front-end technology used to operate the FINRA/Nasdaq TRF
Carteret would continue to reside in Carteret, New Jersey.
However, the two FINRA/Nasdaq TRFs would have common technology,
computer code and features. As such, a member firm's decision to rely
upon the FINRA/Nasdaq TRFs to satisfy both its primary and back-up
requirements may not fully mitigate risks if these common technologies,
code or features contemporaneously experience problems or otherwise
fail. Thus, when member firms consider how they will meet their
reporting obligations going forward, they will need to weigh the
potential costs if both the FINRA/Nasdaq TRF Carteret and FINRA/Nasdaq
TRF Chicago experience common problems or become unavailable
simultaneously against the costs of maintaining connectivity to
unrelated FINRA Facilities with fewer efficiencies and less attractive
aggregate pricing.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-FINRA-2018-013 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-2018-013. 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 website (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 website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of FINRA. All comments received
will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-FINRA-
[[Page 18384]]
2018-013, and should be submitted on or before May 17, 2018.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-08731 Filed 4-25-18; 8:45 am]
BILLING CODE 8011-01-P
