Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend FINRA Rule 7620A Relating to Fees Applicable to the FINRA/Nasdaq Trade Reporting Facilities, 42545-42552 [2018-18062]
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Federal Register / Vol. 83, No. 163 / Wednesday, August 22, 2018 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–83865; File No. SR–
NASDAQ–2018–008]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Designation of a Longer Period for
Commission Action on Proceedings To
Determine Whether To Approve or
Disapprove a Proposed Rule Change
To Modify the Listing Requirements
Contained in Listing Rule 5635(d) To
Change the Definition of Market Value
for Purposes of the Shareholder
Approval Rule and Eliminate the
Requirement for Shareholder Approval
of Issuances at a Price Less Than
Book Value but Greater Than Market
Value
August 16, 2018.
On January 30, 2018, The Nasdaq
Stock Market LLC (‘‘Nasdaq’’ or the
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
modify the listing requirements
contained in Nasdaq Rule 5635(d) to (1)
change the definition of market value
for purposes of shareholder approval
under Nasdaq Rule 5635(d); (2)
eliminate the requirement for
shareholder approval of issuances at a
price less than book value but greater
than market value; and (3) make other
conforming changes. The proposed rule
change was published for comment in
the Federal Register on February 20,
2018.3 In response, the Commission
received three comments on the
proposal.4 On April 4, 2018, the
Commission extended the time period
within which to approve the proposed
rule change, disapprove the proposed
rule change, or institute proceedings to
determine whether to disapprove the
proposed rule change to May 21, 2018.5
The Commission issued an order
instituting proceedings under Section
19(b)(2)(B) of the Act 6 to determine
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 82702
(February 13, 2018), 83 FR 7269 (February 20,
2018).
4 See Letters to Brent J. Fields, Secretary,
Commission, from Michael A. Adelstein, Partner,
Kelley Drye & Warren LLP, dated February 28,
2018; Penny Somer-Greif, Chair, and Gregory T.
Lawrence, Vice-Chair, Committee on Securities Law
of the Business Law Section of the Maryland State
Bar Association, dated March 13, 2018; and Greg
Rodgers, Latham Watkins, dated March 14, 2018.
5 See Securities Exchange Act Release No. 82994
(April 4, 2018), 83 FR 15441 (April 10, 2018).
6 15 U.S.C. 78s(b)(2)(B).
whether to approve or disapprove the
proposed rule change on May 21, 2018
(‘‘OIP’’).7 The Commission received a
letter from the Exchange in response to
the OIP.8
Section 19(b)(2) of the Act 9 provides
that, after initiating disapproval
proceedings, the Commission shall issue
an order approving or disapproving the
proposed rule change not later than 180
days after the date of publication of
notice of filing of the proposed rule
change. The Commission may, however,
extend the period for issuing an order
approving or disapproving the proposed
rule change by not more than 60 days
if the Commission determines that a
longer period is appropriate and
publishes the reasons for such
determination. The proposed rule
change was published for notice and
comment in the Federal Register on
February 20, 2018.10 August 19, 2018 is
180 days from that date, and October 18,
2018 is 240 days from that date.
The Commission finds it appropriate
to designate a longer period within
which to issue an order approving or
disapproving the proposed rule change
so that it has sufficient time to consider
the proposed rule change and the
comment letters. Accordingly, the
Commission, pursuant to Section
19(b)(2) of the Act,11 designates October
18, 2018, as the date by which the
Commission shall either approve or
disapprove the proposed rule change
(File No. SR–Nasdaq–2018–008).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.12
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–18059 Filed 8–21–18; 8:45 am]
BILLING CODE 8011–01–P
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[Release No. 34–83866; File No. SR–FINRA–
2018–029]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend FINRA Rule
7620A Relating to Fees Applicable to
the FINRA/Nasdaq Trade Reporting
Facilities
August 16, 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 August
10, 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. FINRA has
designated the proposed rule change as
‘‘establishing or changing a due, fee or
other charge’’ under Section
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 Substance of
the Proposed Rule Change
FINRA is proposing to amend FINRA
Rule 7620A to modify certain fees
applicable to members that use the
FINRA/Nasdaq Trade Reporting Facility
Carteret (the ‘‘FINRA/Nasdaq TRF
Carteret’’) and the FINRA/Nasdaq Trade
Reporting Facility Chicago (the ‘‘FINRA/
Nasdaq TRF Chicago’’) (collectively, the
‘‘FINRA/Nasdaq TRFs’’).5
The text of the proposed rule change
is available on FINRA’s website at
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(ii).
4 17 CFR 240.19b–4(f)(2).
5 The Commission recently approved a proposed
rule change to adopt rules relating to the
establishment of the FINRA/Nasdaq TRF Chicago.
See Securities Exchange Act Release No. 83559
(June 29, 2018), 83 FR 31589 (July 6, 2018) (Order
Approving File No. SR–FINRA–2018–013). Among
other things, the proposed rule change amended the
Rule 7600A Series to provide that the schedules of
credits and fees apply to reporting activity that
occurs on either or both of the FINRA/Nasdaq TRFs
and that a participant’s eligibility for any volumebased credits or fee caps will be determined based
upon its aggregate reporting volume between the
two FINRA/Nasdaq TRFs. SR–FINRA–2018–013
will be effective on the date that the FINRA/Nasdaq
TRF Chicago commences operation, which FINRA
anticipates will be in September 2018.
2 17
2 17
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1 15
1 15
7 See Securities Exchange Act Release No. 83294
(May 21, 2018), 83 FR 24379 (May 25, 2018).
8 See Letter to Brent J. Fields, Secretary,
Commission, from Arnold Golub, Vice President,
Listing Qualifications, Deputy General Counsel,
Nasdaq, dated July 18, 2018.
9 15 U.S.C. 78s(b)(2).
10 See supra note 3.
11 15 U.S.C. 78s(b)(2).
12 17 CFR 200.30–3(a)(57).
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Federal Register / Vol. 83, No. 163 / Wednesday, August 22, 2018 / Notices
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.
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The FINRA/Nasdaq TRFs are facilities
of FINRA that are operated by Nasdaq,
Inc. (‘‘Nasdaq’’) and utilize Automated
Confirmation Transaction Service
technology. In connection with the
establishment of the FINRA/Nasdaq
TRFs, FINRA and Nasdaq 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/Nasdaq TRFs. Nasdaq, the
‘‘Business Member,’’ is primarily
responsible for the management of the
FINRA/Nasdaq TRFs’ business affairs,
including establishing pricing for use of
the FINRA/Nasdaq TRFs, to the extent
those affairs are not inconsistent with
the regulatory and oversight functions of
FINRA. Additionally, 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/Nasdaq TRFs.
Pursuant to the FINRA Rule 7600A
Series, participants in the FINRA/
Nasdaq TRFs are charged fees and may
qualify for fee caps (Rule 7620A) and
also may qualify for revenue sharing
payments for trade reporting to the
FINRA/Nasdaq TRFs (Rule 7610A).
These rules are administered by Nasdaq,
in its capacity as the Business Member
and operator of the FINRA/Nasdaq TRFs
on behalf of FINRA,6 and Nasdaq
collects all fees on behalf of the FINRA/
Nasdaq TRFs.
Pursuant to FINRA Rule 7620A,
participants in the FINRA/Nasdaq TRFs
6 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.
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are subject to four categories of fees,
each of which is applicable to
transactions on the three Tapes: 7 (1)
Media/Executing Party; (2) Non-Media/
Executing Party; (3) Media/Contra Party;
and (4) Non-Media/Contra Party.8 Rule
7620A provides that for any category of
fees, a participant will qualify for a cap
on the fees they [sic] would otherwise
pay to report trades to a particular Tape
during a given month, provided that
during the month, the participant
separately has a daily average number of
Media/Executing Party trades of at least
2,500 in that same Tape. Additionally,
the Rule provides for a special fee cap
program—known as the ‘‘Media/Contra
Cap’’—for participants that make
markets in an alternative trading system
(‘‘ATS’’).
Nasdaq, as the Business Member, has
determined to make several adjustments
to the schedule of fees and caps that
applies to participants in the FINRA/
Nasdaq TRFs. As discussed below, the
overall aims of the proposed
adjustments are to: (1) Align the
activity-based fees and cap levels with
the rising costs of operating,
maintaining, and improving the FINRA/
Nasdaq TRF Carteret and, going
forward, the FINRA/Nasdaq TRF
Chicago; (2) re-calibrate the fee structure
so that it provides for a more equitable
allocation of fees among Executing
Parties and Contra Parties; (3) ensure
that all FINRA/Nasdaq TRF
participants, regardless of the level of
their reporting or contra activity, bear at
least some baseline responsibility for
the costs of their participation; and (4)
clarify the fee structure. Nasdaq also
intends for the proposed adjustments to
generate profits for itself as the Business
Member. FINRA is proposing to amend
Rule 7620A accordingly.
Specifically, the proposed rule change
would: (1) Raise the threshold daily
average number of Media/Executing
Party trades that are necessary for a
participant to qualify for a fee cap
program during a month; (2) lower
uncapped monthly charges for reporting
Media/Executing Party and Non-Media/
7 Market data is transmitted to three tapes based
on the listing venue of the security: New York Stock
Exchange securities (‘‘Tape A’’), NYSE American
and regional exchange securities (‘‘Tape B’’), and
Nasdaq Stock Market securities (‘‘Tape C’’).
8 Media eligible trade reports are those that are
submitted to the FINRA/Nasdaq TRFs for public
dissemination by the Securities Information
Processors. By contrast, non-media trade reports are
not submitted to the FINRA/Nasdaq TRFs for public
dissemination, but are submitted for regulatory and/
or clearance and settlement purposes.
Pursuant to the Rule’s Supplementary Material,
the ‘‘Executing Party (EP)’’ is defined as the member
with the trade reporting obligation under FINRA
rules, and the ‘‘Contra (CP)’’ is defined as the
member on the contra side of a trade report.
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Executing Party trades and raise the
caps on such fees, if applicable; (3) raise
the caps on Media/Contra Party and
Non-Media/Contra Party fees, if
applicable; (4) raise the level of the cap
that applies to ATS market makers; (5)
establish a new fee cap program known
as the ‘‘ATS Market Maker Combined
Activity Cap’’; (6) establish a new fixed
monthly fee known as the ‘‘Participation
Fee’’; and (7) establish a special pricing
tier for participants whose trade
reporting activity to the FINRA/Nasdaq
TRF consists of substantially all retail
orders (‘‘Retail Participants’’). The
proposed rule change also would reorganize the fee schedule and make
other clarifying changes to Rule 7620A.
Each of these proposals is described in
detail below.
Cap Qualifying Activity
The proposed rule change would raise
the level of ‘‘Cap Qualifying Activity’’—
i.e., the daily average number of Media/
Executing Party trades that a participant
must report to the FINRA/Nasdaq TRFs
in a given month to qualify for caps on
its trade reporting fees as set forth
elsewhere in the fee schedule. Presently,
the level of Cap Qualifying Activity is
2,500 for reports in each of Tapes A, B,
and C. Nasdaq, as the Business Member,
has determined to raise these threshold
numbers to 5,000 in each Tape.
The levels of Cap Qualifying Activity
have not increased since they were
introduced in 2010,9 at a time when
reporting volume on the FINRA/Nasdaq
TRF Carteret was significantly lower
than it is now. Indeed, average daily
executions on the FINRA/Nasdaq TRF
Carteret have increased by
approximately 47 percent since 2012
even as cap thresholds have remained
static. Meanwhile, the cost of operating
the FINRA/Nasdaq TRF Carteret has
increased by approximately 16 percent.
These costs have increased for various
reasons, including but not limited to
inflation, investments that Nasdaq has
made in upgrading and improving the
facility, and also increased operational
and maintenance costs that have flowed
from rising levels of trade reporting
activity. Nasdaq has advised that raising
the levels of Cap Qualifying Activity
will help to re-align the thresholds with
rising volumes and costs.
Media/Executing Party and Non-Media/
Executing Party Fees and Caps
The proposed rule change would
amend the schedule of fees and
associated caps for both Media/
9 See Securities Exchange Act Release No. 61817
(March 31, 2010), 75 FR 17810 (April 7, 2010)
(Notice of Filing and Immediate Effectiveness of
File No. SR–FINRA–2010–011).
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Executing Party and Non-Media/
Executing Party trade reports. For both
types of trade reports, Nasdaq, as the
Business Member, has determined to
lower the uncapped fee from $0.018 to
$0.015 per side. Nasdaq also has
determined to modify the formulas for
calculating the maximum amount of
fees that a participant will pay to report
these trades if the participant achieves
Cap Qualifying Activity. Presently, the
formulas for the Media/Executing Party
cap and the Non-Media/Executing Party
cap are, respectively: $0.018 × (the
required average daily number of
Media/Executing Party Trades for Tape
A, B, or C) × (the number of trading days
during the month); and $0.018 × 2,500
× (the number of trading days during the
month). Nasdaq has determined to
lower the fee in the cap formulas from
$0.018 to $0.013 and raise the average
daily number of trade reports needed to
qualify for the cap from 2,500 to 5,000.
Finally, the proposed rule change would
simplify the formula for the Media/
Executing Party Cap by stating expressly
the average daily number of Media/
Executing Party trades necessary to
qualify for the cap—5,000—rather than
merely describe that number, as it does
now.
Nasdaq has advised that the proposed
changes are aimed at rationalizing
Media (Non-Media)/Executing Party fee
caps with the 47 percent increase in
reporting activity to the FINRA/Nasdaq
TRFs [sic] and the 16 percent increase
in costs associated with the operation of
the TRF that have occurred over the past
six years. However, Nasdaq also
proposes downward adjustments to the
uncapped rates for reporting Media/
Executing Party trades to dampen the
financial impact of the increase in the
cap upon participants that will no
longer qualify for it under the proposed
rule change.
Media/Contra Party and Non-Media/
Contra Party Fees and Caps
The proposed rule change would raise
the caps for both Media/Contra Party
and Non-Media/Contra Party trades
while keeping the uncapped monthly
charge of $0.013 per side the same. For
both types of trades, Nasdaq, as the
Business Member, has determined to
modify the cap formulas so that, instead
of being $0.013 × 2,500 × (the number
of trading days during the month), the
formulas will be $0.013 × 5,000 × (the
number of trading days during the
month). The rationale for this increase
is the same as is described above.
Media/Contra Cap
FINRA Rule 7620A provides for a
monthly ‘‘Media/Contra’’ fee cap of
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$5,000 per Tape (A, B or C) that applies
to all trades (i.e., Media/Executing
Party, Non-Media/Executing Party,
Media/Contra and Non-Media/Contra)
under the Rule. Eligibility for this fee
cap is based on a FINRA member’s trade
reporting of Media/Contra trades to the
FINRA/Nasdaq TRFs and its
participation as a market maker on an
ATS. To qualify as a market maker on
an ATS, a FINRA member must
maintain a two-sided quote for each
security that the FINRA member
maintains interest in within each ATS
and display a quotation size of at least
one normal unit of trading (specific for
each security), and it must attest to
these qualifications in writing. The
FINRA member must also attest that it
will continue to meet the ATS-based
requirements to be eligible for the fee
cap.10 To qualify for the cap, a FINRA
member must have its Media/Contra
Party trades equal, or exceed, 35% of its
total volume on the FINRA/Nasdaq
TRFs. The FINRA member also must be
contra to a minimum of 1 million trades
in Tape A, 500,000 trades in Tape C,
and 250,000 trades in Tape B to qualify
for the fee cap in the securities of the
Tapes, respectively.
Nasdaq, as the Business Member, has
determined to modify the Media/Contra
Party fee cap program by increasing the
maximum monthly per Tape charge
applicable to qualifying participants.
Specifically, the maximum monthly
charge will increase from $5,000 per
Tape per month to $10,000 per Tape per
month. Nasdaq, as the Business
Member, has determined that the
existing cap level, which has not
changed since it was introduced in
2015, no longer bears a reasonable
relationship to the volume of qualifying
participant reporting activity that occurs
on the FINRA/Nasdaq TRFs [sic]. The
volume of market maker Media/Contra
Party reports to the FINRA/Nasdaq TRFs
[sic] is growing rapidly. From January
2016 through June 2017, the firms that
presently qualify for the cap increased
their activity on the FINRA/Nasdaq TRF
Carteret by 60%. Their activity
presently exceeds the minimum
qualifying threshold for the cap by more
than fourfold.
In addition, the proposed rule change
would change the name of this cap to
the ‘‘ATS Market Maker Media/Contra
Party Cap’’ to more accurately describe
the program, add clarity to the fee
schedule and avoid potential confusion
with the other Media/Contra cap.
10 As set forth in the Rule, Nasdaq will
periodically audit FINRA members that choose to
participate to ensure compliance with the
attestation.
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42547
ATS Market Maker Combined Media
Activity Cap
Nasdaq, as the Business Member, has
determined to establish a new fee cap
program, entitled the ‘‘ATS Market
Maker Combined Media Activity Cap.’’
The purpose of the proposed cap is to
foster new reportable business activities
among FINRA members that do not
qualify for the existing FINRA/Nasdaq
TRFs [sic] fee cap program.
For example, a participant may be a
new FINRA member or it may engage in
new off-exchange business activities,
such as the establishment of a singledealer platform or an ATS. In the initial
stages of these business activities, the
participant may not qualify for the
existing fee cap programs because the
participant may not achieve the
requisite daily average number of
Media/Executing Party trades during a
month or because it may not reliably
maintain the requisite volume of Media/
Contra Party activity to qualify for the
Media/Contra Party cap (which, as
noted above, would cap both its
Executing Party and Contra Party fees).
The proposed ATS Market Maker
Combined Media Activity Cap will
provide assistance to such a participant
by capping the combined FINRA/
Nasdaq TRFs fees (i.e., Media/Executing
Party, Media/Contra, Non-Media/
Executing Party and Non-Media/Contra)
that the participant would otherwise
pay while the participant ramps up its
new reportable activity to levels that
would enable it to qualify for existing
fee cap programs with higher
qualification thresholds, such as the
Media/Executing Party cap and the
Media/Contra Party cap.
To qualify for the proposed ATS
Market Maker Combined Media Activity
Cap, a participant must: (1) Qualify as
a market maker on an ATS (as defined
below); (2) engage in both Executing
Party and Contra Party activities; and (3)
average at least 2,500 Media/Executing
Party trades in a given Tape per day
during a month. If the participant meets
this threshold, then the participant will
pay for that month, on a per Tape basis,
the lesser of $7,500 or the sum of all the
participant’s combined monthly
Executing Party and Contra Party fees
for that Tape during the month (as
calculated using the regular uncapped
Media/Executing Party, Non-Media/
Executing Party, Media/Contra Party,
and Non-Media/Contra Party rates). If
the participant’s average daily Media/
Executing Party trade reports reach at
least 5,000 in a given Tape in a given
month, then the participant will no
longer qualify for the proposed ATS
Market Maker Combined Media Activity
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Cap in that Tape in that month and,
instead, will qualify for the regular cap
programs for that month. If the
participant does not reach 2,500 Media/
Executing Party trades in a given Tape
per day during a month, the firm will
be subject to the regular uncapped fee
schedule or to other fee caps that may
be applicable to it for that month.11
As with the ATS Market Maker
Media/Contra Party Cap, a participant
qualifies as a market maker on an ATS
by maintaining a two-sided quote for
each security that the FINRA member
maintains interest in within each ATS
and by displaying a quotation size of at
least one normal unit of trading (specific
for each security). Additionally, as with
the existing ATS Market Maker Media/
Contra Party cap, the participant must
attest to its market maker qualifications
in writing and must re-certify its
qualifications every six months.12
Nasdaq will periodically audit
participants to ensure that their
attestations are accurate and that they
qualify for the ATS Market Maker
Combined Activity Cap.
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Participation Fee
Nasdaq, as the Business Member, has
determined to assess a new fixed
monthly Participation Fee of $350 that
will apply to each participant in the
FINRA/Nasdaq TRFs.13 The
Participation Fee will help defray
certain shared and common costs
associated with the operation of the
FINRA/Nasdaq TRFs, including
overhead costs and the costs of
developing, maintaining, and upgrading
shared technology.14 Nasdaq believes
that all users of the FINRA/Nasdaq
11 If a participant qualifies for the ATS Market
Maker Combined Media Activity Cap in month 1
and then graduates out of the Combined Cap
program in month 2 due to the fact that the
participant’s average daily Media/Executing Party
trade reports in a given Tape in month 2 exceed
5,000, the participant will once again qualify for the
ATS Market Maker Combined Media Activity Cap
in month 3 if its average daily Media/Executing
Party trade reports during month 3 fall back below
5,000.
12 The form of attestation that firms will be
required to submit to Nasdaq under the proposed
rule change is attached to this filing at Exhibit 3.
13 The Participation Fee will be assessed on each
registered participant, irrespective of whether the
participant is identified (as Executing Party or
Contra Party) in any trade report submitted to the
FINRA/Nasdaq TRF in a given month. Participants
that use multiple Market Participant Identifiers or
‘‘MPIDs’’ for purposes of reporting to the FINRA/
Nasdaq TRF in accordance with Rule 6160 will not
be assessed a Participation Fee for each separate
MPID.
14 Because the Participation Fee covers costs that
are common to and allocated specifically to either
FINRA/Nasdaq TRF, a participant will pay only a
single Participation Fee even if it participates in
both the FINRA/Nasdaq TRF Carteret and FINRA/
Nasdaq TRF Chicago.
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TRFs—both large and small—should
bear at least some responsibility for the
upkeep of the FINRA/Nasdaq TRFs.15
The Participation Fee represents a
baseline share of this responsibility.
Responsibility for costs in excess of the
proposed Participation Fee will
continue to be recovered from
participants through trade reporting fees
in proportion to the volume of their
activities on the FINRA/Nasdaq TRFs.
The Participation Fee is distinct from
the fee that Nasdaq separately charges
under its rules to port into the FINRA/
Nasdaq TRFs.
Retail Participant Pricing Program
Nasdaq, as the Business Member, has
determined to establish a new pricing
program for participants that qualify as
‘‘Retail Participants’’ due to the fact that
substantially all of their trade reporting
activity to the FINRA/Nasdaq TRFs
constitutes ‘‘Retail Orders.’’ 16 For
purposes of this pricing program, a
‘‘Retail Order’’ is an order that
originates from a natural person,
provided that, prior to submission, no
change is made to the terms of the order
with respect to price or side of market
and the order does not originate from a
trading algorithm or any other
computerized methodology.17
The purpose of this retail pricing
program is to help Retail Participants to
control their costs associated with
reporting trades to the FINRA/Nasdaq
TRFs and, in doing so, to limit or reduce
any such costs that Retail Participants
pass on to their retail customers. Such
retail customers generally include
individuals who trade less frequently
and have fewer trades reported to the
FINRA/Nasdaq TRFs than do other
categories of customers; therefore, it is
fair and reasonable to charge Retail
Participants and their customers less
15 As discussed below, Retail Participants will be
exempt from paying the Participation Fee.
16 In defining a ‘‘Retail Participant,’’ the proposal
derives from a similar concept set forth in Nasdaq’s
Designated Retail Order pricing program and its
corresponding Designated Retail Order Attestation
Form. See Securities Exchange Act Release No.
75375 (July 7, 2015), 80 FR 40098 (July 13, 2015)
(Notice of Filing and Immediate Effectiveness of
File No. SR–NASDAQ–2015–066). The Nasdaq
Designated Retail Order Attestation Form provides
that to qualify for the Designated Retail Order
pricing program, an applicant must attest that
‘‘substantially all orders submitted to the Exchange
by the Applicant would meet the qualifications for
such orders under the Retail Order rule.’’ See
https://nasdaqtrader.com/content/
ProductsServices/Trading/AttestationForm.pdf.
FINRA will refine the definition of a Retail
Participant if it proves to be unworkable in practice.
17 The definition of a ‘‘Retail Order’’ derives from
the definition of a ‘‘Designated Retail Order’’ in
Nasdaq Rule 7018.
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Fmt 4703
Sfmt 4703
than these other categories of
participants and customers.18
A Retail Participant will be subject to
the following fee schedule when it
reports trades to the FINRA/Nasdaq
TRF. For Media/Executing Party (NonMedia/Executing Party) fees, the
monthly charge for a Retail Participant
will be $0.018 multiplied by the number
of Media/Executing Party (Non-Media/
Executing Party) trades that the Retail
Participant reports to the FINRA/Nasdaq
TRFs during that month. Such fees will
be capped for a given month once the
Retail Participant reports to the FINRA/
Nasdaq TRFs, on average, at least 2,500
Media/Executing Party trades per day in
Tapes A, B, or C during that month. If
capped for trades in a particular Tape,
Media/Executing Party (Non-Media/
Executing Party) fees for a Retail
participant will equal $0.018 multiplied
by 2,500 multiplied by the number of
trading days during that month.
Additionally, Retail Participants will be
exempt from paying the $350 per month
Participant Fee.
The foregoing preserves for Retail
Participants the existing Media/
Executing Party (Non-Media/Executing
Party) fee schedules, cap thresholds,
and cap formulas. It excludes Retail
Participants from the adjustments that
Nasdaq, as the Business Member, is
otherwise proposing to make to the fee
schedules and caps and the addition of
the Participant Fee. In other words, the
average daily trade threshold for Retail
Participants to qualify for the Media/
Executing Party (Non-Media/Executing
Party) cap will remain at 2,500 Media/
Executing Party trade reports and will
not rise to 5,000, as it will for other
participants. However, Retail
Participants also will not be subject to
proposed decreases in the $0.018 per
trade report fee that other participants
will experience.
As to Media/Contra Party (NonMedia/Contra Party) fees, the monthly
charge for a Retail Participant will be
the same as that which applies to all
other participants: $0.013 multiplied by
the number of Media/Contra Party (NonMedia/Contra Party) trades that the
participant reports to the FINRA/Nasdaq
TRFs during the month. However, the
threshold for Retail Participants to
18 In other contexts, the Commission has
approved pricing programs aimed at benefitting
retail investors. See, e.g., Securities Exchange Act
Release No. 68937 (February 15, 2013), 78 FR 12397
(February 22, 2013) (Order Approving File No. SR–
NASDAQ–2012–129 (Nasdaq retail price
improvement pilot program); and Securities
Exchange Act Release No. 67347 (July 3, 2012), 77
FR 40673 (July 10, 2012) (Order Approving File
Nos. SR–NYSE–2011–55 and SR–NYSEAmex–
2011–84) (NYSE and NYSE Amex retail liquidity
pilot programs).
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qualify for a cap on Media/Contra Party
(Non-Media Contra Party) fees will
differ from that which will apply to
other participants. Retail Participants
will continue to qualify for a cap (on a
per Tape basis) on Media/Contra Party
(Non-Media/Contra Party) fees during a
given month if they report to the
FINRA/Nasdaq TRFs, on average, at
least 2,500 Media/Executing Party
trades per day in Tapes A, B, or C,
whereas the cap threshold for other
participants will rise to an average of
5,000 Media/Executing Party trades per
day. If capped, Media/Contra Party
(Non-Media/Contra Party) fees for a
Retail Participant will equal $0.013
multiplied by 2,500 multiplied by the
number of trading days during that
month. Other participants will pay a
maximum charge of $0.13 multiplied by
5,000 multiplied by the number of
trading days during the month.
To qualify as a Retail Participant and
receive pricing under the Retail
Participant fee schedule, a participant
must complete and submit to Nasdaq, as
the Business Member, an application.
The application form will require the
participant to attest to its qualifications
as a Retail Participant on the FINRA/
Nasdaq TRFs in which it is a participant
and for which it seeks Retail Participant
pricing.19 The participant must also
attest to its reasonable expectation that
it will maintain its qualifications for a
one year period following the date of
attestation. Once a participant has been
designated as a Retail Participant, it
must complete and submit a written
attestation to Nasdaq on an annual basis
to retain its status as such. A Retail
Participant must inform Nasdaq
promptly if at any time it ceases to
qualify or it reasonably expects that it
will cease to qualify as a Retail
Participant.20
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General Reorganization and
Clarification
Finally, the proposed rule change
would clarify and simplify Rule 7620A.
Presently, the Rule is complex and
potentially confusing as to the
requirements for and interaction among
the various cap programs. The proposed
rule change would add prefatory
language to the Rule to explain more
clearly how the fees and cap programs
work. As discussed above, the proposed
rule change would add a title to the
19 Thus, a participant in both FINRA/Nasdaq
TRFs that seeks Retail Participant pricing on both
TRFs must attest to their qualifications as such on
both TRFs.
20 The form of application and attestation that
firms will be required to submit to Nasdaq under
the proposed rule change is attached to this filing
at Exhibit 3.
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Jkt 244001
schedule of the daily average Media/
Executing Party trade reporting activity
needed to qualify for a cap—‘‘Cap
Qualifying Activity.’’ In addition, the
amended Rule would be reorganized so
that its provisions are listed in a more
logical order and would segregate
Comparison/Accept fees from the other
‘‘Standard Fees’’ (renamed as ‘‘Other
Fees’’). Lastly, as discussed above, the
proposed rule change would rename the
special Media/Contra cap program that
applies only to ATS market makers so
that it is more clearly differentiated
from the regular Media/Contra Party
cap.
FINRA has filed the proposed rule
changes for immediate effectiveness.
The operative date will be September 1,
2018.
2. Statutory Basis
FINRA believes that the proposed rule
changes [sic] are 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.
The proposed rule change is
reasonable to: (1) Raise from 2,500 to
5,000 the Cap Qualifying Activity that a
participant needs to achieve to qualify
for a Media (Non-Media)/Executing
Party cap or a Media (Non-Media)/
Contra Party cap under Rule 7620A; (2)
raise the overall 22 maximum charges
under each of these cap programs; and
(3) raise the maximum monthly charge
under the ATS Market Maker Media/
Contra Cap from $5,000 to $10,000 per
Tape. These caps and cap formulas have
not keep [sic] pace with the rapid
growth of trade reporting volume on the
FINRA/Nasdaq TRF Carteret since they
were introduced or with the
corresponding increase in costs
associated with operating, maintaining,
and upgrading the FINRA/Nasdaq TRF
Carteret. Nasdaq, as the Business
Member, advises FINRA that a recalibration of Rule 7620A will help
Nasdaq to continue to accommodate the
costs associated with rising trade
reporting volumes while also making
substantial enhancements to the
technology, functionality, and
performance of the Facilities [sic].
These proposed increases are also
reasonable because they will also help
21 15
U.S.C. 78o–3(b)(5).
22 Overall, the proposed rule change will increase
the maximum charges under the Media (NonMedia)/Executing Party fee caps even though the
per trade portions of the fee cap formulas will
decrease from $0.018 to $0.013.
PO 00000
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Fmt 4703
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42549
to allocate responsibility for the upkeep
of the FINRA/Nasdaq TRFs more
equitably among Executing Parties and
Contra Parties. Over time, the fee
burden associated with the FINRA/
Nasdaq TRF Carteret has shifted
disproportionately to Contra Parties; the
proposed re-allocation will help ensure
that Executing Parties pay their fair
share of fees.
Nasdaq advises that it expects to earn
a profit from the proposed changes, but
it believes that such profit represents a
reasonable return on its work in support
of and investments in the FINRA/
Nasdaq TRFs, and that the extent of
such profit will be subject to and
constrained by competitive pressures.
As the Commission has recognized, ‘‘[i]f
competitive forces are operative, the
self-interest of the exchanges themselves
will work powerfully to constrain
unreasonable or unfair behavior,’’ 23 and
‘‘the existence of significant competition
provides a substantial basis for finding
that the terms of an exchange’s fee
proposal are equitable, fair, reasonable,
and not unreasonably or unfairly
discriminatory.’’ 24 In this instance, the
proposed fee increases will be subject to
significant competition from the FINRA/
NYSE TRF, which has proven itself able
to increase its market share relative to
the FINRA/Nasdaq TRF Carteret as a
result of pricing and other competitive
adjustments. As the Commission has
held in the past, the presence of
competition provides a substantial basis
for a finding that the proposal will be
an equitable allocation of reasonable
dues, fees and other charges.25
Finally, and except as described
below, these proposals to adjust fee
levels and fee caps are equitable and not
unfairly discriminatory because they
will apply to all similarly situated
participants.
The establishment of a special
schedule of fees and fee caps for ‘‘Retail
Participants,’’ for whom the existing
system of trade reporting fees, cap
thresholds, and cap formulas will
continue to apply, is reasonable,
equitable, and not unfairly
discriminatory. Although the proposed
rule change would make a distinction in
pricing in favor of Retail Participants
and retail investors, the Act only
prohibits unfair discrimination. In this
instance, FINRA believes that the
establishment of a distinct category of
Retail Participant pricing is fair because
23 See Securities Exchange Act Release No. 59039
(December 2, 2008), 73 FR 74770 at 74781
(December 9, 2008) (Order Setting Aside Action by
Delegated Authority and Approving File No. SR–
NYSEArca–2006–21).
24 Id. at 74781–82.
25 Id.
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customers of Retail Participants
generally include individuals who trade
less frequently and report fewer trades
to the FINRA/Nasdaq TRFs than do
other categories of customers. FINRA
believes that such customers, and the
participants that serve them, should not
bear primary financial responsibility for
helping the FINRA/Nasdaq TRFs to
recover rising costs and to account for
increasing reporting activity. Moreover,
maintaining the existing fee schedule
for Retail Participants will help the
FINRA/Nasdaq TRFs to maintain its
[sic] competitive standing for Retail
Participants and their retail trade
reporting activity. FINRA believes that
the proposed qualifications for Retail
Participants are reasonably tailored to
ensure that they include only those that
exclusively or almost exclusively
handle retail trading activity. Finally,
FINRA notes that the Commission has,
in other contexts, approved programs
like this one that are intended to
specifically benefit retail firms.26
The proposal to establish a new ATS
Market Maker Combined Media Activity
Cap is reasonable as a means of fostering
the establishment and growth among
FINRA members of new businesses that
involve reportable activity, such as
single-dealer platforms and ATSs. In the
early stages of these businesses,
participants many not yet qualify for the
existing fee cap programs because they
may not yet conduct enough business as
Executing Parties to qualify for the
Media/Executing Party cap or otherwise
meet the qualifications for the Media/
Contra Party cap. The proposed cap will
help these participants to establish and
grow their businesses by limiting the
fees that they will otherwise incur as
they grow.
Furthermore, the proposed ATS
Market Maker Combined Media Activity
Cap is available to all FINRA members
that use the FINRA/Nasdaq TRFs and
meet the threshold requirements to
qualify for the terms of the fee cap.
While only some participants will
qualify for the proposed cap and thus
see a reduction in their FINRA/Nasdaq
TRF trade reporting fees, Nasdaq, as the
Business Member, has advised FINRA
that the proposed cap is not unfairly
discriminatory because the proposed fee
cap is targeted to benefit those
participants that have a small but
growing volume of Executing Party
activity on the FINRA/Nasdaq TRFs.
Nasdaq advises FINRA that it is not
unfairly discriminatory to limit
participation to market makers with a
daily average number of Media/
Executing Party trades of less than 5,000
26 See
n.18, supra.
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16:34 Aug 21, 2018
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because participants with at least 5,000
Media/Executing Party trades will be
eligible to graduate to the Media/
Executing Party Cap.
The proposed establishment of a fixed
monthly Participation Fee is a
reasonable means of ensuring that all
participants in the FINRA/Nasdaq TRFs
(other than Retail Participants, as
discussed above) bear a share of
financial responsibility for funding their
use of the Facility, even if the extent of
their use is minimal. Indeed, the
FINRA/Nasdaq TRFs incur (or, in the
case of the FINRA/Nasdaq TRF Chicago,
will incur) costs associated with the
mere addition and maintenance of
participants’ accounts that are
independent of the participants’ usage
of those accounts to report trades.
FINRA believes that it is equitable and
non-discriminatory to assess a
Participation Fee to help the FINRA/
Nasdaq TRFs to recover these costs from
all participants.
Finally, FINRA believes that it is
reasonable to reorganize and clarify
Rule 7620A so that it is easier to
comprehend and presented in a more
logical order. The proposal to reorganize
and restate the Rule is also equitable
and not unfairly discriminatory in that
the proposal will apply to all similarly
situated participants in the FINRA/
Nasdaq TRFs.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
FINRA does not believe that the
proposed rule changes will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
Regulatory Need
Nasdaq, as the Business Member and
operator of the FINRA/Nasdaq TRFs,
collects all fees on behalf of the FINRA/
Nasdaq TRFs. As discussed above,
Nasdaq has observed an increase in off
exchange volumes and the associated
cost of operating and improving the
FINRA/Nasdaq TRFs, and thus
determined to make several adjustments
to the schedule of fees and caps to align
those with the costs.
Economic Baseline
As discussed above, pursuant to
FINRA Rule 7620A, participants in the
FINRA/Nasdaq TRFs [sic] are currently
subject to four categories of fees, each of
which is applicable to transactions on
the three Tapes: (1) Media/Executing
Party; (2) Non-Media/Executing Party;
(3) Media/Contra Party; (4) and NonMedia/Contra Party. The Rule also
provides fee caps for participants for a
particular Tape during a given month,
PO 00000
Frm 00092
Fmt 4703
Sfmt 4703
separately for Media/Executing Party
trades and Media/Contra Party trades.
Economic Impact
The proposed rule change entails
several changes to the fee and cap
structure. The potential marginal impact
of each proposed change is discussed
below.
Nasdaq has determined to raise the
threshold for the ‘‘Cap Qualifying
Activity’’—i.e., the daily average
number of Media/Executing Party trades
that a participant must report to the
FINRA/Nasdaq TRFs in a given month
to qualify for caps on its trade reporting
fees, from 2,500 reports in each of Tapes
A, B, and C to 5,000 reports. Such
increase in the cap qualifying activity
will increase reporting fees for
participants who currently meet the
threshold for the cap. Assuming that the
participants do not alter the number of
reports, some participants may have
activity below the threshold and may no
longer be eligible for the fee caps. Such
participants would potentially
experience a larger impact from the
proposed increase.
Under the proposed calculation for
the Media/Executing Party and NonMedia/Executing fee, the cap would
effectively increase by approximately
44%, from $990 ($0.018 × 2,500 × 22) to
$1,430 ($0.013 × 5,000 × 22), assuming
22 trading days in a month. Based on
the reporting activity from the fourth
quarter of 2017 and assuming that
reporting activity would remain similar,
under the proposed increase in fees and
the cap, 27 participants would
potentially be impacted from such
increase in the cap and thus would pay
more in reporting fees under the
proposed change. Similarly, under the
proposed calculation for the Media/
Contra Party and Non-Media/Contra
Party fee, the cap would increase 100%,
from $715 ($0.013 × 2,500 × 22) to
$1,430 ($0.013 × 5,000 × 22), again
assuming 22 trading days in a month.
An analysis of the participants show
[sic] that the firms impacted by the cap
qualifier for Media/Executing Party and
Non-Media/Executing activity are the
same firms who would potentially incur
the 100% increase on the Contra Party
fees. Under the combined capped
activity, the cost increase would be
68%, on average, for the participants
who report both Executing Party and
Contra Party trades. The proposed
increase in the maximum monthly
‘‘Media/Contra’’ fee from $5,000 per
Tape per month to $10,000 per Tape per
month would potentially impact a few
number [sic] of qualifying participants,
but could provide savings in the future
if they qualify for the ATS Market
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Federal Register / Vol. 83, No. 163 / Wednesday, August 22, 2018 / Notices
Maker Combined Media Activity Cap
discussed above.
The ATS Market Maker Combined
Media Activity Cap would initially
benefit only a small number of ATSs
due to their reporting activity. The
reporting fees would potentially
decrease by 25%, from $30,000 to
$22,500 under the ATS Market Maker
Combined Media Activity Cap.
However, the fees could potentially
decrease by approximately 43% if
reporting activity increases.
The proposed participant fee would
be assessed on all participants equally
and would raise the overall reporting
fees by $350 per month regardless of the
reporting activity. Retail Participants
would be exempt from paying this fee.
The proposed rule change establishes
a ‘‘Retail Participant Pricing Program’’
for participants whose trade reporting
activity to the FINRA/Nasdaq TRFs
constitutes ‘‘Retail Orders.’’ Under the
proposed program, reporting activity to
be eligible for the cap would be lower
compared to that for non-retail
participants. Retail Participants would
potentially benefit from the proposed
program, and incur relatively lower
costs, consistent with relatively fewer
trades that are considered retail.
FINRA analyzed data provided by
Nasdaq that contain fees incurred by
545 participants in the final quarter of
2017, and projected fees that were
estimated under the proposed fee and
cap schedule assuming that the
reporting behavior would be the same
under the current and the proposed
schedule. On a net basis, i.e., after
incorporating the proposed changes in
the fees and caps and the Participation
Fee, 17 participants would experience a
reduction in the total fees incurred, with
an average estimate of $722. Another 13
participants would be expected to see
no change in the fees incurred, and
these participants appear to be those
that would be eligible for the Retail
Participant Program. The remaining 515
participants would incur an estimated
fee increase of $598 per month.
However, for 489 participants out of the
515, the increase is solely due to the
proposed Participation Fee of $350.
The potential net impact of the
proposed rule change depends on
whether participants alter their
reporting activity across TRFs to be
eligible for the fee caps. To the extent
that the proposed increases impose a
burden on participants, they may
choose to shift their reporting to other
TRFs. The net impact would also
depend on whether the proposed fee
caps create an optimal reporting strategy
to be eligible for a specific cap to
maximize the overall savings for all
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trade types reported to the FINRA/
Nasdaq TRFs.
Investors may also potentially incur
costs to the extent that participants
choose to pass some or all of the fee
increase to their customers.
Finally, FINRA notes that the
proposed fee and fee cap changes occur
within the context of a competitive
environment in which the various trade
reporting facilities vie for market share.
If any existing or prospective participant
in either FINRA/Nasdaq TRF
determines that the new fees or fee cap
thresholds are too high or are
unfavorable relative to fees and fee cap
programs applicable to the FINRA/
NYSE TRF, such participants may
choose to report to the FINRA/NYSE
TRF in lieu of the FINRA/Nasdaq TRFs,
in which case the FINRA/Nasdaq TRFs
will lose market share. Likewise, the
FINRA/NYSE TRF is free to adjust its
fees and fee cap programs, or to modify
its functionality, in response to the
changes proposed herein to render them
more attractive relative to the FINRA/
Nasdaq TRFs. FINRA notes, however,
that in certain instances, differences in
the relative functionalities among the
FINRA/Nasdaq and FINRA/NYSE TRFs
may impact participants’ decisions to
report to the FINRA/NYSE TRF, even if
the participants find the FINRA/NYSE
TRF fees and fee cap programs to be
preferable.
Alternatives Considered
No other alternatives were considered
for the proposed rule change.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or 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 27 and paragraph (f)(2) of Rule
19b–4 thereunder.28 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
27 15
28 17
PO 00000
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(2).
Frm 00093
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42551
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
FINRA–2018–029 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–2018–029. 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–
2018–029, and should be submitted on
or before September 12, 2018.
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Federal Register / Vol. 83, No. 163 / Wednesday, August 22, 2018 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.29
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–18062 Filed 8–21–18; 8:45 am]
BILLING CODE P
SECURITIES AND EXCHANGE
COMMISSION
[Release Nos. 33–10531; 34–83874; File No.
265–28]
Investor Advisory Committee Meeting
Securities and Exchange
Commission.
ACTION: Notice of meeting of Securities
and Exchange Commission Dodd-Frank
Investor Advisory Committee.
AGENCY:
The Securities and Exchange
Commission Investor Advisory
Committee, established pursuant to
Section 911 of the Dodd-Frank Wall
Street Reform and Consumer Protection
Act of 2010, is providing notice that it
will hold a public meeting. The public
is invited to submit written statements
to the Committee.
DATES: The meeting will be held on
Thursday, September 13, 2018 from 9:00
a.m. until 3:30 p.m. (ET). Written
statements should be received on or
before September 13, 2018.
ADDRESSES: The meeting will be held in
Multi-Purpose Room LL–006 at the
Commission’s headquarters, 100 F
Street NE, Washington, DC 20549. The
meeting will be webcast on the
Commission’s website at www.sec.gov.
Written statements may be submitted by
any of the following methods:
SUMMARY:
amozie on DSK3GDR082PROD with NOTICES1
Electronic Statements
D Use the Commission’s internet
submission form (https://www.sec.gov/
rules/other.shtml); or
D Send an email message to rulescomments@sec.gov. Please include File
No. 265–28 on the subject line; or
Paper Statements
D Send paper statements to Brent J.
Fields, Secretary, Securities and
Exchange Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File No.
265–28. This file number should be
included on the subject line if email is
used. To help us process and review
your statement more efficiently, please
use only one method.
Statements also will be available for
website viewing and printing in the
Commission’s Public Reference Room,
29 17
CFR 200.30–3(a)(12).
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Jkt 244001
100 F Street NE, Room 1503,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. All statements
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.
FOR FURTHER INFORMATION CONTACT:
Marc Oorloff Sharma, Chief Counsel,
Office of the Investor Advocate, at (202)
551–3302, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549.
SUPPLEMENTARY INFORMATION: The
meeting will be open to the public,
except during that portion of the
meeting reserved for an administrative
work session during lunch. Persons
needing special accommodations to take
part because of a disability should
notify the contact person listed in the
section above entitled FOR FURTHER
INFORMATION CONTACT.
The agenda for the meeting includes:
remarks from Commissioners; a
discussion regarding the U.S. proxy
voting infrastructure; a discussion
regarding the Commission’s Proposed
Transaction Fee Pilot in NMS stocks
(which may include a recommendation
of the Market Structure Subcommittee);
a discussion regarding the implications
of passive investing; subcommittee
reports; and a nonpublic administrative
work session during lunch.
declarations’’ from perpetrators of gross
violations of human rights and to
sentence such perpetrators to
meaningful sanctions, including
guarantee of non-repetition and
deprivation of liberty;
(2) the Government of Colombia is
continuing to dismantle illegal armed
groups, taking effective steps to protect
the rights of human rights defenders,
journalists, trade unionists, and other
civil society activists, and protecting the
rights and territory of indigenous and
Afro-Colombian communities; and
(3) military personnel responsible for
ordering, committing, or covering up
cases of false positives are being
prosecuted and appropriately punished,
including removal from positions of
command.
This Certification shall be published
in the Federal Register and, along with
the accompanying Report and
Memorandum of Justification, shall be
transmitted to the appropriate
committees of Congress.
Dated: August 11, 2018.
Michael R. Pompeo,
Secretary of State.
[FR Doc. 2018–18086 Filed 8–21–18; 8:45 am]
BILLING CODE 4710–29–P
DEPARTMENT OF TRANSPORTATION
Federal Motor Carrier Safety
Administration
[Docket No. FMCSA–2018–0098]
[FR Doc. 2018–18131 Filed 8–21–18; 8:45 am]
Parts and Accessories Necessary for
Safe Operation; Application for an
Exemption From Traditional Trucking
Corporation
BILLING CODE 8011–01–P
AGENCY:
Dated: August 17, 2018.
Eduardo A. Aleman,
Assistant Secretary.
Federal Motor Carrier Safety
Administration (FMCSA), DOT.
ACTION: Notice of final disposition.
DEPARTMENT OF STATE
Certification Related to Foreign Military
Financing for Colombia Under Section
7045(B)(6) of the Department of State,
Foreign Operations, and Related
Programs Appropriations Act, 2018
Pursuant to the authority vested in the
Secretary of State, including under
section 7045(b)(6) of the Department of
State, Foreign Operations, and Related
Programs Appropriations Act, 2018
(Div. K, Pub. L. 115–141) and Senate
Report 115–152, I hereby certify and
report that:
(1) the Peace Tribunal and other
judicial bodies within the special
jurisdiction for peace are independent
and have authority to document ‘‘truth
PO 00000
Frm 00094
Fmt 4703
The Federal Motor Carrier
Safety Administration (FMCSA)
announces its decision to grant
Traditional Trucking Corporation’s
(TTC) application for a limited 5-year
exemption on behalf of motor carriers
operating commercial motor vehicles
(CMVs) to allow a Global Positioning
System (GPS) device to be mounted on
the interior of the windshield of a CMV
within the areas allowed for ‘‘vehicle
safety technology’’ devices. The Agency
has determined that the placement of
the GPS device in the windshield area
would not have an adverse impact on
safety, and that adherence to the terms
and conditions of the exemption would
achieve a level of safety equivalent to or
greater than the level of safety provided
by the regulation.
SUMMARY:
[Public Notice: 10514]
Sfmt 4703
E:\FR\FM\22AUN1.SGM
22AUN1
]]>Agencies
[Federal Register Volume 83, Number 163 (Wednesday, August 22, 2018)]
[Notices]
[Pages 42545-42552]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-18062]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-83866; File No. SR-FINRA-2018-029]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Amend FINRA Rule 7620A Relating to Fees
Applicable to the FINRA/Nasdaq Trade Reporting Facilities
August 16, 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 August 10, 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. FINRA has
designated the proposed rule change as ``establishing or changing a
due, fee or other charge'' under Section 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.
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\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).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to amend FINRA Rule 7620A to modify certain fees
applicable to members that use the FINRA/Nasdaq Trade Reporting
Facility Carteret (the ``FINRA/Nasdaq TRF Carteret'') and the FINRA/
Nasdaq Trade Reporting Facility Chicago (the ``FINRA/Nasdaq TRF
Chicago'') (collectively, the ``FINRA/Nasdaq TRFs'').\5\
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\5\ The Commission recently approved a proposed rule change to
adopt rules relating to the establishment of the FINRA/Nasdaq TRF
Chicago. See Securities Exchange Act Release No. 83559 (June 29,
2018), 83 FR 31589 (July 6, 2018) (Order Approving File No. SR-
FINRA-2018-013). Among other things, the proposed rule change
amended the Rule 7600A Series to provide that the schedules of
credits and fees 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. SR-FINRA-2018-013 will be effective on the date
that the FINRA/Nasdaq TRF Chicago commences operation, which FINRA
anticipates will be in September 2018.
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The text of the proposed rule change is available on FINRA's
website at
[[Page 42546]]
https://www.finra.org, at the principal office of FINRA and at the
Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, FINRA included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. FINRA has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The FINRA/Nasdaq TRFs are facilities of FINRA that are operated by
Nasdaq, Inc. (``Nasdaq'') and utilize Automated Confirmation
Transaction Service technology. In connection with the establishment of
the FINRA/Nasdaq TRFs, FINRA and Nasdaq 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/Nasdaq TRFs. Nasdaq, the ``Business
Member,'' is primarily responsible for the management of the FINRA/
Nasdaq TRFs' business affairs, including establishing pricing for use
of the FINRA/Nasdaq TRFs, to the extent those affairs are not
inconsistent with the regulatory and oversight functions of FINRA.
Additionally, 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/Nasdaq TRFs.
Pursuant to the FINRA Rule 7600A Series, participants in the FINRA/
Nasdaq TRFs are charged fees and may qualify for fee caps (Rule 7620A)
and also may qualify for revenue sharing payments for trade reporting
to the FINRA/Nasdaq TRFs (Rule 7610A). These rules are administered by
Nasdaq, in its capacity as the Business Member and operator of the
FINRA/Nasdaq TRFs on behalf of FINRA,\6\ and Nasdaq collects all fees
on behalf of the FINRA/Nasdaq TRFs.
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\6\ 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.
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Pursuant to FINRA Rule 7620A, participants in the FINRA/Nasdaq TRFs
are subject to four categories of fees, each of which is applicable to
transactions on the three Tapes: \7\ (1) Media/Executing Party; (2)
Non-Media/Executing Party; (3) Media/Contra Party; and (4) Non-Media/
Contra Party.\8\ Rule 7620A provides that for any category of fees, a
participant will qualify for a cap on the fees they [sic] would
otherwise pay to report trades to a particular Tape during a given
month, provided that during the month, the participant separately has a
daily average number of Media/Executing Party trades of at least 2,500
in that same Tape. Additionally, the Rule provides for a special fee
cap program--known as the ``Media/Contra Cap''--for participants that
make markets in an alternative trading system (``ATS'').
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\7\ Market data is transmitted to three tapes based on the
listing venue of the security: New York Stock Exchange securities
(``Tape A''), NYSE American and regional exchange securities (``Tape
B''), and Nasdaq Stock Market securities (``Tape C'').
\8\ Media eligible trade reports are those that are submitted to
the FINRA/Nasdaq TRFs for public dissemination by the Securities
Information Processors. By contrast, non-media trade reports are not
submitted to the FINRA/Nasdaq TRFs for public dissemination, but are
submitted for regulatory and/or clearance and settlement purposes.
Pursuant to the Rule's Supplementary Material, the ``Executing
Party (EP)'' is defined as the member with the trade reporting
obligation under FINRA rules, and the ``Contra (CP)'' is defined as
the member on the contra side of a trade report.
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Nasdaq, as the Business Member, has determined to make several
adjustments to the schedule of fees and caps that applies to
participants in the FINRA/Nasdaq TRFs. As discussed below, the overall
aims of the proposed adjustments are to: (1) Align the activity-based
fees and cap levels with the rising costs of operating, maintaining,
and improving the FINRA/Nasdaq TRF Carteret and, going forward, the
FINRA/Nasdaq TRF Chicago; (2) re-calibrate the fee structure so that it
provides for a more equitable allocation of fees among Executing
Parties and Contra Parties; (3) ensure that all FINRA/Nasdaq TRF
participants, regardless of the level of their reporting or contra
activity, bear at least some baseline responsibility for the costs of
their participation; and (4) clarify the fee structure. Nasdaq also
intends for the proposed adjustments to generate profits for itself as
the Business Member. FINRA is proposing to amend Rule 7620A
accordingly.
Specifically, the proposed rule change would: (1) Raise the
threshold daily average number of Media/Executing Party trades that are
necessary for a participant to qualify for a fee cap program during a
month; (2) lower uncapped monthly charges for reporting Media/Executing
Party and Non-Media/Executing Party trades and raise the caps on such
fees, if applicable; (3) raise the caps on Media/Contra Party and Non-
Media/Contra Party fees, if applicable; (4) raise the level of the cap
that applies to ATS market makers; (5) establish a new fee cap program
known as the ``ATS Market Maker Combined Activity Cap''; (6) establish
a new fixed monthly fee known as the ``Participation Fee''; and (7)
establish a special pricing tier for participants whose trade reporting
activity to the FINRA/Nasdaq TRF consists of substantially all retail
orders (``Retail Participants''). The proposed rule change also would
re-organize the fee schedule and make other clarifying changes to Rule
7620A. Each of these proposals is described in detail below.
Cap Qualifying Activity
The proposed rule change would raise the level of ``Cap Qualifying
Activity''--i.e., the daily average number of Media/Executing Party
trades that a participant must report to the FINRA/Nasdaq TRFs in a
given month to qualify for caps on its trade reporting fees as set
forth elsewhere in the fee schedule. Presently, the level of Cap
Qualifying Activity is 2,500 for reports in each of Tapes A, B, and C.
Nasdaq, as the Business Member, has determined to raise these threshold
numbers to 5,000 in each Tape.
The levels of Cap Qualifying Activity have not increased since they
were introduced in 2010,\9\ at a time when reporting volume on the
FINRA/Nasdaq TRF Carteret was significantly lower than it is now.
Indeed, average daily executions on the FINRA/Nasdaq TRF Carteret have
increased by approximately 47 percent since 2012 even as cap thresholds
have remained static. Meanwhile, the cost of operating the FINRA/Nasdaq
TRF Carteret has increased by approximately 16 percent. These costs
have increased for various reasons, including but not limited to
inflation, investments that Nasdaq has made in upgrading and improving
the facility, and also increased operational and maintenance costs that
have flowed from rising levels of trade reporting activity. Nasdaq has
advised that raising the levels of Cap Qualifying Activity will help to
re-align the thresholds with rising volumes and costs.
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\9\ See Securities Exchange Act Release No. 61817 (March 31,
2010), 75 FR 17810 (April 7, 2010) (Notice of Filing and Immediate
Effectiveness of File No. SR-FINRA-2010-011).
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Media/Executing Party and Non-Media/Executing Party Fees and Caps
The proposed rule change would amend the schedule of fees and
associated caps for both Media/
[[Page 42547]]
Executing Party and Non-Media/Executing Party trade reports. For both
types of trade reports, Nasdaq, as the Business Member, has determined
to lower the uncapped fee from $0.018 to $0.015 per side. Nasdaq also
has determined to modify the formulas for calculating the maximum
amount of fees that a participant will pay to report these trades if
the participant achieves Cap Qualifying Activity. Presently, the
formulas for the Media/Executing Party cap and the Non-Media/Executing
Party cap are, respectively: $0.018 x (the required average daily
number of Media/Executing Party Trades for Tape A, B, or C) x (the
number of trading days during the month); and $0.018 x 2,500 x (the
number of trading days during the month). Nasdaq has determined to
lower the fee in the cap formulas from $0.018 to $0.013 and raise the
average daily number of trade reports needed to qualify for the cap
from 2,500 to 5,000. Finally, the proposed rule change would simplify
the formula for the Media/Executing Party Cap by stating expressly the
average daily number of Media/Executing Party trades necessary to
qualify for the cap--5,000--rather than merely describe that number, as
it does now.
Nasdaq has advised that the proposed changes are aimed at
rationalizing Media (Non-Media)/Executing Party fee caps with the 47
percent increase in reporting activity to the FINRA/Nasdaq TRFs [sic]
and the 16 percent increase in costs associated with the operation of
the TRF that have occurred over the past six years. However, Nasdaq
also proposes downward adjustments to the uncapped rates for reporting
Media/Executing Party trades to dampen the financial impact of the
increase in the cap upon participants that will no longer qualify for
it under the proposed rule change.
Media/Contra Party and Non-Media/Contra Party Fees and Caps
The proposed rule change would raise the caps for both Media/Contra
Party and Non-Media/Contra Party trades while keeping the uncapped
monthly charge of $0.013 per side the same. For both types of trades,
Nasdaq, as the Business Member, has determined to modify the cap
formulas so that, instead of being $0.013 x 2,500 x (the number of
trading days during the month), the formulas will be $0.013 x 5,000 x
(the number of trading days during the month). The rationale for this
increase is the same as is described above.
Media/Contra Cap
FINRA Rule 7620A provides for a monthly ``Media/Contra'' fee cap of
$5,000 per Tape (A, B or C) that applies to all trades (i.e., Media/
Executing Party, Non-Media/Executing Party, Media/Contra and Non-Media/
Contra) under the Rule. Eligibility for this fee cap is based on a
FINRA member's trade reporting of Media/Contra trades to the FINRA/
Nasdaq TRFs and its participation as a market maker on an ATS. To
qualify as a market maker on an ATS, a FINRA member must maintain a
two-sided quote for each security that the FINRA member maintains
interest in within each ATS and display a quotation size of at least
one normal unit of trading (specific for each security), and it must
attest to these qualifications in writing. The FINRA member must also
attest that it will continue to meet the ATS-based requirements to be
eligible for the fee cap.\10\ To qualify for the cap, a FINRA member
must have its Media/Contra Party trades equal, or exceed, 35% of its
total volume on the FINRA/Nasdaq TRFs. The FINRA member also must be
contra to a minimum of 1 million trades in Tape A, 500,000 trades in
Tape C, and 250,000 trades in Tape B to qualify for the fee cap in the
securities of the Tapes, respectively.
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\10\ As set forth in the Rule, Nasdaq will periodically audit
FINRA members that choose to participate to ensure compliance with
the attestation.
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Nasdaq, as the Business Member, has determined to modify the Media/
Contra Party fee cap program by increasing the maximum monthly per Tape
charge applicable to qualifying participants. Specifically, the maximum
monthly charge will increase from $5,000 per Tape per month to $10,000
per Tape per month. Nasdaq, as the Business Member, has determined that
the existing cap level, which has not changed since it was introduced
in 2015, no longer bears a reasonable relationship to the volume of
qualifying participant reporting activity that occurs on the FINRA/
Nasdaq TRFs [sic]. The volume of market maker Media/Contra Party
reports to the FINRA/Nasdaq TRFs [sic] is growing rapidly. From January
2016 through June 2017, the firms that presently qualify for the cap
increased their activity on the FINRA/Nasdaq TRF Carteret by 60%. Their
activity presently exceeds the minimum qualifying threshold for the cap
by more than fourfold.
In addition, the proposed rule change would change the name of this
cap to the ``ATS Market Maker Media/Contra Party Cap'' to more
accurately describe the program, add clarity to the fee schedule and
avoid potential confusion with the other Media/Contra cap.
ATS Market Maker Combined Media Activity Cap
Nasdaq, as the Business Member, has determined to establish a new
fee cap program, entitled the ``ATS Market Maker Combined Media
Activity Cap.'' The purpose of the proposed cap is to foster new
reportable business activities among FINRA members that do not qualify
for the existing FINRA/Nasdaq TRFs [sic] fee cap program.
For example, a participant may be a new FINRA member or it may
engage in new off-exchange business activities, such as the
establishment of a single-dealer platform or an ATS. In the initial
stages of these business activities, the participant may not qualify
for the existing fee cap programs because the participant may not
achieve the requisite daily average number of Media/Executing Party
trades during a month or because it may not reliably maintain the
requisite volume of Media/Contra Party activity to qualify for the
Media/Contra Party cap (which, as noted above, would cap both its
Executing Party and Contra Party fees).
The proposed ATS Market Maker Combined Media Activity Cap will
provide assistance to such a participant by capping the combined FINRA/
Nasdaq TRFs fees (i.e., Media/Executing Party, Media/Contra, Non-Media/
Executing Party and Non-Media/Contra) that the participant would
otherwise pay while the participant ramps up its new reportable
activity to levels that would enable it to qualify for existing fee cap
programs with higher qualification thresholds, such as the Media/
Executing Party cap and the Media/Contra Party cap.
To qualify for the proposed ATS Market Maker Combined Media
Activity Cap, a participant must: (1) Qualify as a market maker on an
ATS (as defined below); (2) engage in both Executing Party and Contra
Party activities; and (3) average at least 2,500 Media/Executing Party
trades in a given Tape per day during a month. If the participant meets
this threshold, then the participant will pay for that month, on a per
Tape basis, the lesser of $7,500 or the sum of all the participant's
combined monthly Executing Party and Contra Party fees for that Tape
during the month (as calculated using the regular uncapped Media/
Executing Party, Non-Media/Executing Party, Media/Contra Party, and
Non-Media/Contra Party rates). If the participant's average daily
Media/Executing Party trade reports reach at least 5,000 in a given
Tape in a given month, then the participant will no longer qualify for
the proposed ATS Market Maker Combined Media Activity
[[Page 42548]]
Cap in that Tape in that month and, instead, will qualify for the
regular cap programs for that month. If the participant does not reach
2,500 Media/Executing Party trades in a given Tape per day during a
month, the firm will be subject to the regular uncapped fee schedule or
to other fee caps that may be applicable to it for that month.\11\
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\11\ If a participant qualifies for the ATS Market Maker
Combined Media Activity Cap in month 1 and then graduates out of the
Combined Cap program in month 2 due to the fact that the
participant's average daily Media/Executing Party trade reports in a
given Tape in month 2 exceed 5,000, the participant will once again
qualify for the ATS Market Maker Combined Media Activity Cap in
month 3 if its average daily Media/Executing Party trade reports
during month 3 fall back below 5,000.
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As with the ATS Market Maker Media/Contra Party Cap, a participant
qualifies as a market maker on an ATS by maintaining a two-sided quote
for each security that the FINRA member maintains interest in within
each ATS and by displaying a quotation size of at least one normal unit
of trading (specific for each security). Additionally, as with the
existing ATS Market Maker Media/Contra Party cap, the participant must
attest to its market maker qualifications in writing and must re-
certify its qualifications every six months.\12\ Nasdaq will
periodically audit participants to ensure that their attestations are
accurate and that they qualify for the ATS Market Maker Combined
Activity Cap.
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\12\ The form of attestation that firms will be required to
submit to Nasdaq under the proposed rule change is attached to this
filing at Exhibit 3.
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Participation Fee
Nasdaq, as the Business Member, has determined to assess a new
fixed monthly Participation Fee of $350 that will apply to each
participant in the FINRA/Nasdaq TRFs.\13\ The Participation Fee will
help defray certain shared and common costs associated with the
operation of the FINRA/Nasdaq TRFs, including overhead costs and the
costs of developing, maintaining, and upgrading shared technology.\14\
Nasdaq believes that all users of the FINRA/Nasdaq TRFs--both large and
small--should bear at least some responsibility for the upkeep of the
FINRA/Nasdaq TRFs.\15\ The Participation Fee represents a baseline
share of this responsibility. Responsibility for costs in excess of the
proposed Participation Fee will continue to be recovered from
participants through trade reporting fees in proportion to the volume
of their activities on the FINRA/Nasdaq TRFs. The Participation Fee is
distinct from the fee that Nasdaq separately charges under its rules to
port into the FINRA/Nasdaq TRFs.
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\13\ The Participation Fee will be assessed on each registered
participant, irrespective of whether the participant is identified
(as Executing Party or Contra Party) in any trade report submitted
to the FINRA/Nasdaq TRF in a given month. Participants that use
multiple Market Participant Identifiers or ``MPIDs'' for purposes of
reporting to the FINRA/Nasdaq TRF in accordance with Rule 6160 will
not be assessed a Participation Fee for each separate MPID.
\14\ Because the Participation Fee covers costs that are common
to and allocated specifically to either FINRA/Nasdaq TRF, a
participant will pay only a single Participation Fee even if it
participates in both the FINRA/Nasdaq TRF Carteret and FINRA/Nasdaq
TRF Chicago.
\15\ As discussed below, Retail Participants will be exempt from
paying the Participation Fee.
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Retail Participant Pricing Program
Nasdaq, as the Business Member, has determined to establish a new
pricing program for participants that qualify as ``Retail
Participants'' due to the fact that substantially all of their trade
reporting activity to the FINRA/Nasdaq TRFs constitutes ``Retail
Orders.'' \16\ For purposes of this pricing program, a ``Retail Order''
is an order that originates from a natural person, provided that, prior
to submission, no change is made to the terms of the order with respect
to price or side of market and the order does not originate from a
trading algorithm or any other computerized methodology.\17\
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\16\ In defining a ``Retail Participant,'' the proposal derives
from a similar concept set forth in Nasdaq's Designated Retail Order
pricing program and its corresponding Designated Retail Order
Attestation Form. See Securities Exchange Act Release No. 75375
(July 7, 2015), 80 FR 40098 (July 13, 2015) (Notice of Filing and
Immediate Effectiveness of File No. SR-NASDAQ-2015-066). The Nasdaq
Designated Retail Order Attestation Form provides that to qualify
for the Designated Retail Order pricing program, an applicant must
attest that ``substantially all orders submitted to the Exchange by
the Applicant would meet the qualifications for such orders under
the Retail Order rule.'' See https://nasdaqtrader.com/content/ProductsServices/Trading/AttestationForm.pdf. FINRA will refine the
definition of a Retail Participant if it proves to be unworkable in
practice.
\17\ The definition of a ``Retail Order'' derives from the
definition of a ``Designated Retail Order'' in Nasdaq Rule 7018.
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The purpose of this retail pricing program is to help Retail
Participants to control their costs associated with reporting trades to
the FINRA/Nasdaq TRFs and, in doing so, to limit or reduce any such
costs that Retail Participants pass on to their retail customers. Such
retail customers generally include individuals who trade less
frequently and have fewer trades reported to the FINRA/Nasdaq TRFs than
do other categories of customers; therefore, it is fair and reasonable
to charge Retail Participants and their customers less than these other
categories of participants and customers.\18\
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\18\ In other contexts, the Commission has approved pricing
programs aimed at benefitting retail investors. See, e.g.,
Securities Exchange Act Release No. 68937 (February 15, 2013), 78 FR
12397 (February 22, 2013) (Order Approving File No. SR-NASDAQ-2012-
129 (Nasdaq retail price improvement pilot program); and Securities
Exchange Act Release No. 67347 (July 3, 2012), 77 FR 40673 (July 10,
2012) (Order Approving File Nos. SR-NYSE-2011-55 and SR-NYSEAmex-
2011-84) (NYSE and NYSE Amex retail liquidity pilot programs).
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A Retail Participant will be subject to the following fee schedule
when it reports trades to the FINRA/Nasdaq TRF. For Media/Executing
Party (Non-Media/Executing Party) fees, the monthly charge for a Retail
Participant will be $0.018 multiplied by the number of Media/Executing
Party (Non-Media/Executing Party) trades that the Retail Participant
reports to the FINRA/Nasdaq TRFs during that month. Such fees will be
capped for a given month once the Retail Participant reports to the
FINRA/Nasdaq TRFs, on average, at least 2,500 Media/Executing Party
trades per day in Tapes A, B, or C during that month. If capped for
trades in a particular Tape, Media/Executing Party (Non-Media/Executing
Party) fees for a Retail participant will equal $0.018 multiplied by
2,500 multiplied by the number of trading days during that month.
Additionally, Retail Participants will be exempt from paying the $350
per month Participant Fee.
The foregoing preserves for Retail Participants the existing Media/
Executing Party (Non-Media/Executing Party) fee schedules, cap
thresholds, and cap formulas. It excludes Retail Participants from the
adjustments that Nasdaq, as the Business Member, is otherwise proposing
to make to the fee schedules and caps and the addition of the
Participant Fee. In other words, the average daily trade threshold for
Retail Participants to qualify for the Media/Executing Party (Non-
Media/Executing Party) cap will remain at 2,500 Media/Executing Party
trade reports and will not rise to 5,000, as it will for other
participants. However, Retail Participants also will not be subject to
proposed decreases in the $0.018 per trade report fee that other
participants will experience.
As to Media/Contra Party (Non-Media/Contra Party) fees, the monthly
charge for a Retail Participant will be the same as that which applies
to all other participants: $0.013 multiplied by the number of Media/
Contra Party (Non-Media/Contra Party) trades that the participant
reports to the FINRA/Nasdaq TRFs during the month. However, the
threshold for Retail Participants to
[[Page 42549]]
qualify for a cap on Media/Contra Party (Non-Media Contra Party) fees
will differ from that which will apply to other participants. Retail
Participants will continue to qualify for a cap (on a per Tape basis)
on Media/Contra Party (Non-Media/Contra Party) fees during a given
month if they report to the FINRA/Nasdaq TRFs, on average, at least
2,500 Media/Executing Party trades per day in Tapes A, B, or C, whereas
the cap threshold for other participants will rise to an average of
5,000 Media/Executing Party trades per day. If capped, Media/Contra
Party (Non-Media/Contra Party) fees for a Retail Participant will equal
$0.013 multiplied by 2,500 multiplied by the number of trading days
during that month. Other participants will pay a maximum charge of
$0.13 multiplied by 5,000 multiplied by the number of trading days
during the month.
To qualify as a Retail Participant and receive pricing under the
Retail Participant fee schedule, a participant must complete and submit
to Nasdaq, as the Business Member, an application. The application form
will require the participant to attest to its qualifications as a
Retail Participant on the FINRA/Nasdaq TRFs in which it is a
participant and for which it seeks Retail Participant pricing.\19\ The
participant must also attest to its reasonable expectation that it will
maintain its qualifications for a one year period following the date of
attestation. Once a participant has been designated as a Retail
Participant, it must complete and submit a written attestation to
Nasdaq on an annual basis to retain its status as such. A Retail
Participant must inform Nasdaq promptly if at any time it ceases to
qualify or it reasonably expects that it will cease to qualify as a
Retail Participant.\20\
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\19\ Thus, a participant in both FINRA/Nasdaq TRFs that seeks
Retail Participant pricing on both TRFs must attest to their
qualifications as such on both TRFs.
\20\ The form of application and attestation that firms will be
required to submit to Nasdaq under the proposed rule change is
attached to this filing at Exhibit 3.
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General Reorganization and Clarification
Finally, the proposed rule change would clarify and simplify Rule
7620A. Presently, the Rule is complex and potentially confusing as to
the requirements for and interaction among the various cap programs.
The proposed rule change would add prefatory language to the Rule to
explain more clearly how the fees and cap programs work. As discussed
above, the proposed rule change would add a title to the schedule of
the daily average Media/Executing Party trade reporting activity needed
to qualify for a cap--``Cap Qualifying Activity.'' In addition, the
amended Rule would be reorganized so that its provisions are listed in
a more logical order and would segregate Comparison/Accept fees from
the other ``Standard Fees'' (renamed as ``Other Fees''). Lastly, as
discussed above, the proposed rule change would rename the special
Media/Contra cap program that applies only to ATS market makers so that
it is more clearly differentiated from the regular Media/Contra Party
cap.
FINRA has filed the proposed rule changes for immediate
effectiveness. The operative date will be September 1, 2018.
2. Statutory Basis
FINRA believes that the proposed rule changes [sic] are 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.
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\21\ 15 U.S.C. 78o-3(b)(5).
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The proposed rule change is reasonable to: (1) Raise from 2,500 to
5,000 the Cap Qualifying Activity that a participant needs to achieve
to qualify for a Media (Non-Media)/Executing Party cap or a Media (Non-
Media)/Contra Party cap under Rule 7620A; (2) raise the overall \22\
maximum charges under each of these cap programs; and (3) raise the
maximum monthly charge under the ATS Market Maker Media/Contra Cap from
$5,000 to $10,000 per Tape. These caps and cap formulas have not keep
[sic] pace with the rapid growth of trade reporting volume on the
FINRA/Nasdaq TRF Carteret since they were introduced or with the
corresponding increase in costs associated with operating, maintaining,
and upgrading the FINRA/Nasdaq TRF Carteret. Nasdaq, as the Business
Member, advises FINRA that a re-calibration of Rule 7620A will help
Nasdaq to continue to accommodate the costs associated with rising
trade reporting volumes while also making substantial enhancements to
the technology, functionality, and performance of the Facilities [sic].
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\22\ Overall, the proposed rule change will increase the maximum
charges under the Media (Non-Media)/Executing Party fee caps even
though the per trade portions of the fee cap formulas will decrease
from $0.018 to $0.013.
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These proposed increases are also reasonable because they will also
help to allocate responsibility for the upkeep of the FINRA/Nasdaq TRFs
more equitably among Executing Parties and Contra Parties. Over time,
the fee burden associated with the FINRA/Nasdaq TRF Carteret has
shifted disproportionately to Contra Parties; the proposed re-
allocation will help ensure that Executing Parties pay their fair share
of fees.
Nasdaq advises that it expects to earn a profit from the proposed
changes, but it believes that such profit represents a reasonable
return on its work in support of and investments in the FINRA/Nasdaq
TRFs, and that the extent of such profit will be subject to and
constrained by competitive pressures. As the Commission has recognized,
``[i]f competitive forces are operative, the self-interest of the
exchanges themselves will work powerfully to constrain unreasonable or
unfair behavior,'' \23\ and ``the existence of significant competition
provides a substantial basis for finding that the terms of an
exchange's fee proposal are equitable, fair, reasonable, and not
unreasonably or unfairly discriminatory.'' \24\ In this instance, the
proposed fee increases will be subject to significant competition from
the FINRA/NYSE TRF, which has proven itself able to increase its market
share relative to the FINRA/Nasdaq TRF Carteret as a result of pricing
and other competitive adjustments. As the Commission has held in the
past, the presence of competition provides a substantial basis for a
finding that the proposal will be an equitable allocation of reasonable
dues, fees and other charges.\25\
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\23\ See Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770 at 74781 (December 9, 2008) (Order Setting Aside
Action by Delegated Authority and Approving File No. SR-NYSEArca-
2006-21).
\24\ Id. at 74781-82.
\25\ Id.
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Finally, and except as described below, these proposals to adjust
fee levels and fee caps are equitable and not unfairly discriminatory
because they will apply to all similarly situated participants.
The establishment of a special schedule of fees and fee caps for
``Retail Participants,'' for whom the existing system of trade
reporting fees, cap thresholds, and cap formulas will continue to
apply, is reasonable, equitable, and not unfairly discriminatory.
Although the proposed rule change would make a distinction in pricing
in favor of Retail Participants and retail investors, the Act only
prohibits unfair discrimination. In this instance, FINRA believes that
the establishment of a distinct category of Retail Participant pricing
is fair because
[[Page 42550]]
customers of Retail Participants generally include individuals who
trade less frequently and report fewer trades to the FINRA/Nasdaq TRFs
than do other categories of customers. FINRA believes that such
customers, and the participants that serve them, should not bear
primary financial responsibility for helping the FINRA/Nasdaq TRFs to
recover rising costs and to account for increasing reporting activity.
Moreover, maintaining the existing fee schedule for Retail Participants
will help the FINRA/Nasdaq TRFs to maintain its [sic] competitive
standing for Retail Participants and their retail trade reporting
activity. FINRA believes that the proposed qualifications for Retail
Participants are reasonably tailored to ensure that they include only
those that exclusively or almost exclusively handle retail trading
activity. Finally, FINRA notes that the Commission has, in other
contexts, approved programs like this one that are intended to
specifically benefit retail firms.\26\
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\26\ See n.18, supra.
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The proposal to establish a new ATS Market Maker Combined Media
Activity Cap is reasonable as a means of fostering the establishment
and growth among FINRA members of new businesses that involve
reportable activity, such as single-dealer platforms and ATSs. In the
early stages of these businesses, participants many not yet qualify for
the existing fee cap programs because they may not yet conduct enough
business as Executing Parties to qualify for the Media/Executing Party
cap or otherwise meet the qualifications for the Media/Contra Party
cap. The proposed cap will help these participants to establish and
grow their businesses by limiting the fees that they will otherwise
incur as they grow.
Furthermore, the proposed ATS Market Maker Combined Media Activity
Cap is available to all FINRA members that use the FINRA/Nasdaq TRFs
and meet the threshold requirements to qualify for the terms of the fee
cap. While only some participants will qualify for the proposed cap and
thus see a reduction in their FINRA/Nasdaq TRF trade reporting fees,
Nasdaq, as the Business Member, has advised FINRA that the proposed cap
is not unfairly discriminatory because the proposed fee cap is targeted
to benefit those participants that have a small but growing volume of
Executing Party activity on the FINRA/Nasdaq TRFs. Nasdaq advises FINRA
that it is not unfairly discriminatory to limit participation to market
makers with a daily average number of Media/Executing Party trades of
less than 5,000 because participants with at least 5,000 Media/
Executing Party trades will be eligible to graduate to the Media/
Executing Party Cap.
The proposed establishment of a fixed monthly Participation Fee is
a reasonable means of ensuring that all participants in the FINRA/
Nasdaq TRFs (other than Retail Participants, as discussed above) bear a
share of financial responsibility for funding their use of the
Facility, even if the extent of their use is minimal. Indeed, the
FINRA/Nasdaq TRFs incur (or, in the case of the FINRA/Nasdaq TRF
Chicago, will incur) costs associated with the mere addition and
maintenance of participants' accounts that are independent of the
participants' usage of those accounts to report trades. FINRA believes
that it is equitable and non-discriminatory to assess a Participation
Fee to help the FINRA/Nasdaq TRFs to recover these costs from all
participants.
Finally, FINRA believes that it is reasonable to reorganize and
clarify Rule 7620A so that it is easier to comprehend and presented in
a more logical order. The proposal to reorganize and restate the Rule
is also equitable and not unfairly discriminatory in that the proposal
will apply to all similarly situated participants in the FINRA/Nasdaq
TRFs.
B. Self-Regulatory Organization's Statement on Burden on Competition
FINRA does not believe that the proposed rule changes will result
in any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
Regulatory Need
Nasdaq, as the Business Member and operator of the FINRA/Nasdaq
TRFs, collects all fees on behalf of the FINRA/Nasdaq TRFs. As
discussed above, Nasdaq has observed an increase in off exchange
volumes and the associated cost of operating and improving the FINRA/
Nasdaq TRFs, and thus determined to make several adjustments to the
schedule of fees and caps to align those with the costs.
Economic Baseline
As discussed above, pursuant to FINRA Rule 7620A, participants in
the FINRA/Nasdaq TRFs [sic] are currently subject to four categories of
fees, each of which is applicable to transactions on the three Tapes:
(1) Media/Executing Party; (2) Non-Media/Executing Party; (3) Media/
Contra Party; (4) and Non-Media/Contra Party. The Rule also provides
fee caps for participants for a particular Tape during a given month,
separately for Media/Executing Party trades and Media/Contra Party
trades.
Economic Impact
The proposed rule change entails several changes to the fee and cap
structure. The potential marginal impact of each proposed change is
discussed below.
Nasdaq has determined to raise the threshold for the ``Cap
Qualifying Activity''--i.e., the daily average number of Media/
Executing Party trades that a participant must report to the FINRA/
Nasdaq TRFs in a given month to qualify for caps on its trade reporting
fees, from 2,500 reports in each of Tapes A, B, and C to 5,000 reports.
Such increase in the cap qualifying activity will increase reporting
fees for participants who currently meet the threshold for the cap.
Assuming that the participants do not alter the number of reports, some
participants may have activity below the threshold and may no longer be
eligible for the fee caps. Such participants would potentially
experience a larger impact from the proposed increase.
Under the proposed calculation for the Media/Executing Party and
Non-Media/Executing fee, the cap would effectively increase by
approximately 44%, from $990 ($0.018 x 2,500 x 22) to $1,430 ($0.013 x
5,000 x 22), assuming 22 trading days in a month. Based on the
reporting activity from the fourth quarter of 2017 and assuming that
reporting activity would remain similar, under the proposed increase in
fees and the cap, 27 participants would potentially be impacted from
such increase in the cap and thus would pay more in reporting fees
under the proposed change. Similarly, under the proposed calculation
for the Media/Contra Party and Non-Media/Contra Party fee, the cap
would increase 100%, from $715 ($0.013 x 2,500 x 22) to $1,430 ($0.013
x 5,000 x 22), again assuming 22 trading days in a month.
An analysis of the participants show [sic] that the firms impacted
by the cap qualifier for Media/Executing Party and Non-Media/Executing
activity are the same firms who would potentially incur the 100%
increase on the Contra Party fees. Under the combined capped activity,
the cost increase would be 68%, on average, for the participants who
report both Executing Party and Contra Party trades. The proposed
increase in the maximum monthly ``Media/Contra'' fee from $5,000 per
Tape per month to $10,000 per Tape per month would potentially impact a
few number [sic] of qualifying participants, but could provide savings
in the future if they qualify for the ATS Market
[[Page 42551]]
Maker Combined Media Activity Cap discussed above.
The ATS Market Maker Combined Media Activity Cap would initially
benefit only a small number of ATSs due to their reporting activity.
The reporting fees would potentially decrease by 25%, from $30,000 to
$22,500 under the ATS Market Maker Combined Media Activity Cap.
However, the fees could potentially decrease by approximately 43% if
reporting activity increases.
The proposed participant fee would be assessed on all participants
equally and would raise the overall reporting fees by $350 per month
regardless of the reporting activity. Retail Participants would be
exempt from paying this fee.
The proposed rule change establishes a ``Retail Participant Pricing
Program'' for participants whose trade reporting activity to the FINRA/
Nasdaq TRFs constitutes ``Retail Orders.'' Under the proposed program,
reporting activity to be eligible for the cap would be lower compared
to that for non-retail participants. Retail Participants would
potentially benefit from the proposed program, and incur relatively
lower costs, consistent with relatively fewer trades that are
considered retail.
FINRA analyzed data provided by Nasdaq that contain fees incurred
by 545 participants in the final quarter of 2017, and projected fees
that were estimated under the proposed fee and cap schedule assuming
that the reporting behavior would be the same under the current and the
proposed schedule. On a net basis, i.e., after incorporating the
proposed changes in the fees and caps and the Participation Fee, 17
participants would experience a reduction in the total fees incurred,
with an average estimate of $722. Another 13 participants would be
expected to see no change in the fees incurred, and these participants
appear to be those that would be eligible for the Retail Participant
Program. The remaining 515 participants would incur an estimated fee
increase of $598 per month. However, for 489 participants out of the
515, the increase is solely due to the proposed Participation Fee of
$350.
The potential net impact of the proposed rule change depends on
whether participants alter their reporting activity across TRFs to be
eligible for the fee caps. To the extent that the proposed increases
impose a burden on participants, they may choose to shift their
reporting to other TRFs. The net impact would also depend on whether
the proposed fee caps create an optimal reporting strategy to be
eligible for a specific cap to maximize the overall savings for all
trade types reported to the FINRA/Nasdaq TRFs.
Investors may also potentially incur costs to the extent that
participants choose to pass some or all of the fee increase to their
customers.
Finally, FINRA notes that the proposed fee and fee cap changes
occur within the context of a competitive environment in which the
various trade reporting facilities vie for market share. If any
existing or prospective participant in either FINRA/Nasdaq TRF
determines that the new fees or fee cap thresholds are too high or are
unfavorable relative to fees and fee cap programs applicable to the
FINRA/NYSE TRF, such participants may choose to report to the FINRA/
NYSE TRF in lieu of the FINRA/Nasdaq TRFs, in which case the FINRA/
Nasdaq TRFs will lose market share. Likewise, the FINRA/NYSE TRF is
free to adjust its fees and fee cap programs, or to modify its
functionality, in response to the changes proposed herein to render
them more attractive relative to the FINRA/Nasdaq TRFs. FINRA notes,
however, that in certain instances, differences in the relative
functionalities among the FINRA/Nasdaq and FINRA/NYSE TRFs may impact
participants' decisions to report to the FINRA/NYSE TRF, even if the
participants find the FINRA/NYSE TRF fees and fee cap programs to be
preferable.
Alternatives Considered
No other alternatives were considered for the proposed rule change.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or 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 \27\ and paragraph (f)(2) of Rule 19b-4
thereunder.\28\ 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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\27\ 15 U.S.C. 78s(b)(3)(A).
\28\ 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 [email protected]. Please include
File Number SR-FINRA-2018-029 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-2018-029. 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-2018-029, and should be submitted
on or before September 12, 2018.
[[Page 42552]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
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\29\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-18062 Filed 8-21-18; 8:45 am]
BILLING CODE P
