Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change To Expand OTC Equity Trading Volume Data Published on FINRA's Website, 33098-33102 [2019-14724]
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Federal Register / Vol. 84, No. 133 / Thursday, July 11, 2019 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–86315; File No. SR–FINRA–
2019–019]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a
Proposed Rule Change To Expand
OTC Equity Trading Volume Data
Published on FINRA’s Website
July 5, 2019.
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 July 1,
2019, Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I, II,
and III below, which Items have been
prepared by FINRA. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
FINRA is proposing to amend Rules
6110 and 6610 to expand the summary
firm data relating to over-the-counter
(‘‘OTC’’) equity trading that FINRA
publishes on its website.
The text of the proposed rule change
is available on FINRA’s website at
https://www.finra.org, at the principal
office of FINRA and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
FINRA included statements concerning
the purpose of and basis for the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. FINRA has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Pursuant to Rules 6110(b) and
6610(b), FINRA currently publishes
certain volume information for OTC
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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transactions 3 in NMS stocks 4 and OTC
Equity Securities,5 respectively, that are
executed outside of an alternative
trading system (‘‘ATS’’).6 All published
data is derived directly from OTC trades
reported to a FINRA equity trade
reporting facility (i.e., the Alternative
Display Facility, a Trade Reporting
Facility or the OTC Reporting Facility).
FINRA does not charge a fee for this
data.7
Specifically, FINRA publishes weekly
non-ATS OTC volume information
(number of trades and shares) by firm
and by security on a two-week or fourweek delayed basis. Weekly securityspecific information for transactions in
NMS stocks in Tier 1 of the NMS Plan
to Address Extraordinary Market
Volatility (‘‘Tier 1 NMS stocks’’) is
published on a two-week delayed basis,
while information on the remaining
NMS stocks (‘‘Tier 2 NMS stocks’’) and
OTC Equity Securities is published on
a four-week delayed basis. FINRA also
publishes aggregate weekly non-ATS
volume totals by firm and category of
security (Tier 1 NMS stocks, Tier 2 NMS
stocks and OTC Equity Securities) on
the same timeframes, as well as
aggregate non-ATS volume totals by
firm for all NMS stocks and OTC Equity
Securities, respectively, for each
calendar month on a one-month delayed
basis.8 All data is published by firm on
an attributed basis,9 except that for
3 Rules 6110 and 6610 apply only to OTC
transactions in NMS stocks and OTC Equity
Securities, respectively, i.e., transactions effected
otherwise than on or through a national securities
exchange.
4 ‘‘NMS stock’’ is defined in Rule 600(b)(47) of the
SEC’s Regulation NMS. See Rule 6110(a). Generally,
NMS stocks include any security, other than an
option, for which transaction reports are collected,
processed, and made available pursuant to an
effective transaction reporting plan. See 17 CFR
242.600(b)(47).
5 ‘‘OTC Equity Security’’ means any equity
security that is not an NMS stock, other than a
Restricted Equity Security. See Rule 6420(f). A
‘‘Restricted Equity Security’’ means any equity
security that meets the definition of ‘‘restricted
security’’ as contained in Securities Act Rule
144(a)(3). See Rule 6420(k); 17 CFR 230.144(a)(3).
6 Rules 6110(b) and 6610(b) govern the
publication of information for OTC transactions
executed outside of an ATS (‘‘non-ATS’’ volume
data or information). Rules 6110(c) and 6610(c)
separately govern the publication of trading
information for OTC transactions executed on
ATSs.
7 OTC transaction volume data published
pursuant to Rules 6110 and 6610 is available on
FINRA’s OTC Transparency Data web page,
available at https://otctransparency.finra.org/
otctransparency/.
8 Monthly aggregated data is categorized by NMS
stocks and OTC Equity Securities, i.e., there is no
differentiation between Tier 1 NMS stocks and Tier
2 NMS stocks.
9 Non-ATS data is published at the firm level,
aggregating each market participant identifier
(‘‘MPID’’) used by a particular firm (but excluding
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firms executing fewer than, on average,
200 non-ATS transactions per day
during the reporting period,10 FINRA
combines and publishes the volume for
these firms on an aggregate nonattributed basis identified in the
published data as ‘‘De Minimis
Firms.’’ 11
As part of FINRA’s ongoing efforts to
improve market transparency, FINRA is
proposing to expand the summary firm
data relating to non-ATS OTC equity
trading that FINRA publishes on its
website. The proposed rule change has
two primary components. First, FINRA
is proposing to publish new monthly
aggregate block-size trading data for
non-ATS OTC trades in NMS stocks, on
the same terms as FINRA currently
publishes aggregate block-size trading
data for trades in NMS stocks occurring
on ATSs. Second, FINRA is proposing
to eliminate the current de minimis
exception for publication of aggregate
non-ATS trading volume across all NMS
stocks and OTC Equity Securities and
publish each firm’s aggregate non-ATS
volume on an attributed basis. These
two components of the proposed rule
change are each addressed below.
Non-ATS Block-Size Trading Data
FINRA currently publishes monthly
information on block-size trades in all
NMS stocks occurring on ATSs
pursuant to Rule 6110(c)(2). Data
regarding ATS block-size trades is
aggregated across all NMS stocks (i.e.,
there is no security-by-security block
data), is for a time period of one month
of trading, and is published no earlier
than one month following the end of the
month for which trading was
aggregated.
As announced in Regulatory Notice
16–14,12 FINRA currently publishes
information on block-size ATS trades in
NMS stocks using share-based
thresholds, dollar-based thresholds and
thresholds that include both shares and
dollar amount as follows:
• 10,000 or more shares;
• $200,000 or more in dollar value;
• 10,000 or more shares and $200,000
or more in dollar value;
• 2,000 to 9,999 shares;
• $100,000 to $199,999 in dollar
value; and
any MPIDs used by a firm to report trades executed
on its ATS).
10 For a firm with multiple non-ATS MPIDs, the
total volume across all its MPIDs is combined for
purposes of determining whether the de minimis
threshold has been met.
11 There is no parallel de minimis exception for
ATS transactions under Rules 6110(c) and 6610(c).
Therefore, all ATS volume data is currently
published on an attributed basis.
12 See Regulatory Notice 16–14 (April 2016).
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• 2,000 to 9,999 shares and $100,000
to $199,999 in dollar value.
For each of these categories, FINRA
publishes monthly trade count and
volume information for each ATS, on an
attributed basis, aggregated across all
NMS stocks with no differentiation
between Tier 1 NMS stocks and Tier 2
NMS stocks. FINRA also calculates and
displays the average trade size and each
ATS’s rank as well as ‘‘ATS Block
Market Share’’ (i.e., the proportion of
each ATS’s block-size trading volume in
relation to total block-size trading by all
ATSs) and ‘‘ATS Block Business Share’’
(i.e., the proportion of a particular
ATS’s overall trading volume that was
done as block-size trades) and rankings
of those metrics for each of the above
categories.13
FINRA is proposing to expand the
block-size trading data that it publishes
on its website to also include monthly
aggregate non-ATS block-size trading
data for all NMS stocks. The new nonATS block-size data would be published
on the same terms as current ATS blocksize data and FINRA would not charge
a fee for the new data. Specifically,
proposed paragraph (b)(3) of Rule 6110
provides that non-ATS block-size data
would be aggregated across all NMS
stocks (i.e., there would be no securityby-security block data), would be for a
time period of one month of trading,
and would be published no earlier than
one month following the end of the
month for which trading was
aggregated. All published data would be
derived directly from OTC trades
reported to the Alternative Display
Facility or a Trade Reporting Facility.
Pursuant to proposed Rule 6110(b)(3),
FINRA will publish the new non-ATS
block-size data with elements to be
determined from time to time by FINRA
in its discretion as stated in a Regulatory
Notice or other equivalent publication.
As with current ATS block-size data,
rather than defining what constitutes a
‘‘block-size’’ trade, non-ATS block-size
data would be published using the same
share-based, dollar-based and
combination share- and dollar-based
thresholds used for ATS block-size data,
as described above. For each category,
FINRA would publish monthly trade
count and volume information for each
firm, on an attributed basis,14 aggregated
13 ATS block-size data can be viewed on FINRA’s
OTC Transparency Data web page, available at
https://otctransparency.finra.org/otctransparency/
AtsBlocks. The data may also be directly
downloaded through the OTC Transparency Data
web page, available at https://
otctransparency.finra.org/otctransparency/
AtsBlocksDownload.
14 Each firm that engages in block-size non-ATS
trading of NMS stocks would be separately
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across all NMS stocks with no
differentiation between Tier 1 NMS
stocks and Tier 2 NMS stocks.15 FINRA
would also calculate and display the
average trade size and each firm’s rank
as well as ‘‘Firm Block Market Share’’
(i.e., the proportion of each firm’s blocksize trading volume in relation to total
block-size trading by all firms) and
‘‘Firm Block Business Share’’ (i.e., the
proportion of a particular firm’s overall
trading volume that was done as blocksize trades) and rankings of those
metrics for each of the above
categories.16
In developing its proposal to publish
non-ATS block-size data, FINRA
discussed the initiative with a number
of FINRA’s industry advisory
committees, informally consulted a
number of firms and solicited written
comment in Regulatory Notice 18–28
(discussed in greater detail below).
Firms were generally supportive of
publishing non-ATS block-size data,
which would provide enhanced
transparency into the OTC market as a
complement to the currently published
ATS block-size data. Several firms noted
potential information leakage concerns
involved with publishing new blocksize data, but indicated that such
concerns would be mitigated by
publishing data on an aggregated basis,
rather than security-by-security, and by
delaying publication.
FINRA believes that publication of
non-ATS block-size data as described
above would be beneficial to firms and
the general public and provide
interested parties with more detailed
information on non-ATS trading
activities, thus enhancing transparency
in the OTC market for NMS stocks.
Elimination of the De Minimis
Exception
As noted above, pursuant to Rules
6110(b)(2)(B) and 6610(b)(2)(B), for
firms executing fewer than, on average,
200 non-ATS transactions per day
during the reporting period, FINRA
publishes the volume for these firms on
an aggregate non-attributed basis
identified, i.e., FINRA is not proposing any de
minimis exception for non-ATS block-size data.
15 FINRA is not proposing at this time to publish
non-ATS block-size data for trading in OTC Equity
Securities, due largely to the wide variance of
trading activity in these securities and the difficulty
associated with determining appropriate block
thresholds. FINRA notes that the currently
published ATS block-size data is also limited to
NMS stocks and does not cover trading in OTC
Equity Securities. FINRA will continue to assess
whether block-size trading data should be expanded
to include trades in OTC Equity Securities or a
subset thereof.
16 FINRA will announce any changes to these
elements in advance in a Regulatory Notice or
similar publication.
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identified in the published data as ‘‘De
Minimis Firms.’’ FINRA is proposing to
eliminate this de minimis exception and
publish on an attributed basis each
firm’s aggregate non-ATS volume
(number of trades and shares) on a
weekly or monthly basis, as applicable.
As a result, each individual firm would
be identified in the published aggregate
data and there would no longer be a de
minimis exception for published
aggregate volume information. However,
FINRA is not proposing to eliminate the
de minimis exception for purposes of
the security-specific non-ATS volume
data under Rules 6110(b)(2)(C) and
6610(b)(2)(C). Therefore, if a firm
averages fewer than 200 non-ATS
transactions per day in a given security
during the reporting period, FINRA
would continue to aggregate the firm’s
volume in that security with that of
similarly situated firms and there would
continue to be a De Minimis Firms
category for published security-bysecurity volume data.
When FINRA amended its rules to
expand its transparency initiative by
publishing non-ATS trading volume, it
noted its belief at the time that
publishing volume information for each
firm that executed only a small number
of trades or shares in any given period
would not provide meaningful
information to the marketplace.17
FINRA also noted that it would consider
whether modifications to the de
minimis threshold would be appropriate
based on feedback it may receive from
interested parties.18 Since that time,
FINRA has continued to review and
assess the published data to determine
whether changes are warranted that
would improve market transparency,
including whether publishing more
granular data on trading currently
aggregated in the ‘‘De Minimis Firms’’
category would provide meaningful
information to firms and the public.
Based on a review of trading data for
the period from January 1, 2018 through
December 30, 2018, FINRA determined
that, on average, there are only 37 and
33 firms with attributed volume for Tier
1 NMS stocks and Tier 2 NMS stocks,
respectively, on a weekly basis. For OTC
Equity Securities during the same time
period, there are, on average, only 23
firms with attributed volume on a
weekly basis. By removing the de
minimis exception, on average, 148 and
177 firms would have their aggregate
non-ATS volume in Tier 1 NMS stocks
17 See Securities Exchange Act Release No. 75356
(July 2, 2015), 80 FR 39463, 39464 (July 9, 2015)
(Notice of Filing of File No. SR–FINRA–2015–020).
18 See Securities Exchange Act Release No. 75356
(July 2, 2015), 80 FR 39463, 39467 (July 9, 2015)
(Notice of Filing of File No. SR–FINRA–2015–020).
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and Tier 2 NMS stocks, respectively,
published. For OTC Equity Securities,
the number of firms that would have
their aggregate non-ATS volume
published, on average, is 124. Since a
large number of small trades can add up
to significant volume, FINRA believes
that the data at the firm level may be
more meaningful if each firm’s volume
is published, irrespective of size.
FINRA discussed the proposed
elimination of the de minimis exception
with a number of FINRA’s industry
advisory committees, informally
consulted a number of firms and
solicited written comment. Based on the
feedback received, FINRA believes that
removing the de minimis exception for
publication of aggregated non-ATS
volume data would provide valuable
additional transparency into the OTC
markets that is not currently available.19
Technical Changes
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The text of the proposed rule change
also includes several other minor, nonsubstantive and conforming changes to
the current rule text in addition to the
two substantive proposed changes
discussed above. These edits are being
proposed to improve the readability and
consistency of the rules and are not
intended to create or modify any
substantive provisions. First, Rules
6110(b)(1)(A) and (B) and 6610(b)(1)(A)
would be amended to clarify that those
provisions apply to the publication of
aggregate weekly Trading Information.
This conforms to language in current
Rules 6110(c) and 6610(c). Second,
conforming changes would be made to
Rules 6110(b)(2)(B) and 6610(b)(2)(B) (as
re-designated by the proposed rule
change) to clarify that the remaining de
minimis exceptions under those
provisions apply to Trading Information
by security. Third, the final sentence of
Rule 6610(b)(3) would be amended to
correct the cross-reference to the
definition of ‘‘ATS Trading
Information.’’ Finally, Rule 6610(c)(1)
would be amended to correct the
punctuation at the end of the sentence.
If the Commission approves the
proposed rule change, FINRA proposes
that the effective date of the proposed
rule change will be no earlier than
October 1, 2019 and no later than March
31, 2020. Currently, FINRA anticipates
that it will begin publication of data in
19 FINRA notes that some firms and commenters
suggested that FINRA should also eliminate the de
minimis exception for security-by-security non-ATS
volume data. FINRA continues to assess whether
further enhancements to its published volume data
may be warranted but is not at this time proposing
to eliminate the de minimis exception for the
security-by-security non-ATS volume data that it
publishes on its website.
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accordance with the proposed rule
change in the fourth quarter of 2019 and
will announce the specific date in a
Regulatory Notice.
2. Statutory Basis
FINRA believes that the proposed rule
change is consistent with the provisions
of Section 15A(b)(6) of the Act,20 which
requires, among other things, that
FINRA rules must be designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, and, in
general, to protect investors and the
public interest. FINRA believes that the
proposed rule change will provide
enhanced transparency into the OTC
market by providing more detailed
information on block-size OTC
transactions in NMS stocks and by
enabling market participants and
investors to better understand each
individual firm’s OTC trading volume
and market share in the equity market.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
FINRA does not believe that the
proposed rule change will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. FINRA has
undertaken an economic impact
assessment, as set forth below, to
analyze the regulatory need for the
proposed rule change, its potential
economic impacts, including
anticipated costs and benefits, and any
alternatives FINRA considered in
assessing how to best meet its regulatory
objectives.
Regulatory Need
FINRA is proposing to publish new
monthly aggregate block-size trading
data for non-ATS OTC trades in NMS
stocks, with the intent to improve
market transparency relating to trading
in the OTC market. As mentioned
above, FINRA makes similar block-size
trading data for trades in NMS stocks
occurring on ATSs available to the
public, and has received support from
the industry on its transparency
initiatives in the non-ATS OTC equity
markets.
FINRA also proposes to eliminate the
de minimis exception for firms that have
fewer than, on average, 200 non-ATS
transactions per day and publish, on an
attributed basis, each firm’s aggregate
non-ATS volume on a weekly or
monthly basis, as applicable. FINRA
believes that non-ATS data at the firm
level provides better insight into market
activity when each firm’s volume is
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20 15
U.S.C. 78o–3(b)(6).
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published individually, irrespective of
size.
Economic Baseline
FINRA currently publishes monthly
information on block-size trades in NMS
stocks on ATSs, by share- and dollarbased thresholds as announced in
Regulatory Notice 16–14, but does not
make such data publicly available for
trading in NMS stocks outside ATSs in
the OTC equity market. Therefore,
market participants and investors have
access to trading data on block trades in
only one segment of the market. In the
sample period from January 2018
through December 2018, non-ATS OTC
block trading volume for the 10,000
share threshold constituted, on average,
39.4% of the monthly share volume in
the aggregate non-ATS OTC volume. For
the same sample period, non-ATS OTC
block trading volume for the $200,000
threshold constituted, on average,
37.7% of the monthly share volume in
the aggregate non-ATS OTC volume.
This represents a higher percentage
compared to the share of ATS block
trading in the aggregate ATS volume
during the same period. From January
2018 through December 2018, ATS
block trading volume for the 10,000share threshold constituted, on average,
11.9% of the monthly share volume in
the aggregate ATS OTC volume. For the
same sample period, ATS OTC block
trading volume for the $200,000
threshold constituted, on average,
13.5% of the monthly share volume in
the aggregate ATS OTC volume.
FINRA also currently publishes
weekly non-ATS OTC volume
information by firm and by security on
a two-week (Tier 1 NMS stocks) and
four-week (Tier 2 NMS stocks and OTC
Equity Securities) delayed basis, as well
as aggregate non-ATS volume by firm
for all NMS stocks and OTC Equity
Securities for each calendar month on a
one-month delayed basis. FINRA
combines and publishes volume data for
firms executing fewer than, on average,
200 non-ATS transactions per day
during the reporting period, on an
aggregate non-attributed basis under
‘‘De Minimis Firms.’’
Economic Impacts
The proposal described above would
not impose any additional requirements
on firms because the non-ATS OTC
block trade data will be derived solely
from trade reports already submitted to
the FINRA equity trade reporting
facilities and disseminated trade-bytrade on an anonymous basis through
the securities information processors. In
addition, because the data is available
free of charge, FINRA does not believe
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that there would be any direct costs
associated with the proposal—to firms,
investors or data consumers.
At the same time, the proposal is
anticipated to help market participants
better understand the overall OTC
trading of equities, by providing
information that could be utilized in
assessing where liquidity is
concentrated and how order routing
strategies could be improved. Based on
a review of trading data in the sample
period, there would be 236 firms, on
average, represented in the monthly
non-ATS block-size data, compared to
32 ATSs during the same sample period.
Hence, the proposal would provide
additional transparency into OTC
trading activity by expanding the
availability of information about OTC
block-size trading to non-ATS volume at
no required cost to firms.
FINRA evaluated the impact of
removing the de minimis exception for
publication of aggregated non-ATS OTC
volume. During the sample period,21
there were, on average, 37, 33 and 23
firms in the weekly volume reports for
Tier 1 NMS, Tier 2 NMS and OTC
Equity Securities, respectively. By
removing the de minimis exception, the
number of additional firms that would
have their aggregate non-ATS volume
published would be 111, 144, and 101,
respectively, for the categories of
securities described above. Their
average weekly share volume
represented 8.43%, 7.99% and 0.90% of
the aggregate non-ATS OTC volume in
the sample period. Hence, FINRA
believes that expanding transparency to
all segments of the OTC equity market
would bridge gaps in information
published across ATS versus non-ATS
segments of the OTC equity market and
removing the de minimis exception
would provide a more complete picture
of OTC trading activity, thereby
reducing any competitive distortions
that may be associated with such
information gaps.
FINRA also considered information
leakage concerns, i.e., whether a firm’s
proprietary trading strategy could be
discerned from the published data.
FINRA believes that the proposed data
dissemination structure mitigates such
information leakage concerns, by
limiting the granularity of the data at the
firm level only, with no accompanying
security level data. In addition, FINRA
believes that the delay in publication is
a well-calibrated effort to reduce
information leakage. FINRA’s previous
experience with the publication of ATS
OTC trading volume provides support
21 The sample period included weekly data from
January 1, 2018 through December 30, 2018.
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that the proposed dissemination is
expected to benefit market participants
by providing access to meaningful
information on non-ATS trading
activity.
FINRA also notes that there may be
differences in non-ATS block-size
trading and ATS block-size trading, e.g.,
the total number of shares traded in
non-ATS block-size trades of 10,000 or
more shares tends to be a significantly
higher percentage of the overall nonATS OTC activity as compared to ATS
block activity. Nonetheless, such
differences are not expected to produce
any information that could be used as a
part of a trading strategy due to the
reasons explained in the above
paragraph.
Other Proposals Considered
FINRA notes that Regulatory Notice
18–28 also solicited comment on a
proposal to separately identify firms’
volume of trading on a single dealer
platform (‘‘SDP’’). FINRA continues to
consider comments provided in
response to Regulatory Notice 18–28 but
is not proposing at this time to require
identification of SDP trading volume.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The proposed rule change was
published for comment in Regulatory
Notice 18–28 (September 2018). Four
comments were received in response to
the Regulatory Notice.22 The comments
are summarized below.23
Citadel generally supported efforts to
increase market transparency that
benefit end investors, but did not
specifically comment on the two aspects
of the proposed rule change that FINRA
is proposing at this time.24
Virtu and Global OTC specifically
supported the proposal to publish new
22 See Letter from Christopher Bok, Esq.,
Financial Information Forum to Marcia E. Asquith,
Corporate Secretary, FINRA, dated November 9,
2018 (‘‘FIF Letter’’); letter from Stephen John
Berger, Managing Director, Government &
Regulatory Policy, Citadel Securities to Marcia E.
Asquith, Corporate Secretary, FINRA, dated
November 12, 2018 (‘‘Citadel Letter’’); letter from
Thomas M. Merritt, Deputy General Counsel, Virtu
Financial, Inc. to Marcia E. Asquith, Corporate
Secretary, FINRA, dated November 14, 2018 (‘‘Virtu
Letter’’); and letter from Bob Hill, Global OTC to
Marcia E. Asquith, Corporate Secretary, FINRA,
dated November 16, 2018 (‘‘Global OTC Letter’’).
23 As noted above, Regulatory Notice 18–28 also
solicited comment on other possible enhancements
to the OTC equity trading volume data published
on FINRA’s website, including a proposal to
separately identify firms’ volume of trading on an
SDP. FINRA is not proposing at this time to require
identification of SDP trading volume. The
discussion above is therefore limited to comments
relevant to the proposed rule change.
24 See Citadel Letter.
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33101
non-ATS block-size data for NMS
stocks.25 Virtu noted its belief that any
concerns about information leakage
with respect to non-ATS block-size data
are alleviated by the one-month
publication delay and the fact that
disclosure would not be made on a
security-by-security basis or
differentiate between Tier 1 NMS stocks
and Tier 2 NMS stocks.26
Global OTC suggested that the
proposal go further by including all
OTC Equity Securities in published
monthly aggregate non-ATS block-size
trading data, noting its belief that the
public interest of including all OTC
Equity Securities outweighs the
difficulty that may arise in determining
block thresholds that would be
appropriate across all OTC Equity
Securities.27 As noted above, FINRA is
not proposing at this time to publish
non-ATS block-size data for trading in
OTC Equity Securities, but will
continue to assess whether block-size
trading data should be expanded in the
future.
FIF stated that the rationale for
publication of non-ATS block-size data
does not bear a valid relationship to the
costs and risks associated with the
proposal.28 However, FIF did not
identify any specific costs or risks
associated with the proposed
publication of non-ATS block-size data.
FINRA notes that the newly published
information would be derived directly
from data already reported to FINRA’s
equity reporting facilities and that firms
would have no new reporting
obligations as a result of the proposed
rule change. Based on consultations
with firms and industry advisory
committees, FINRA believes that the
proposal to publish non-ATS block-size
data will provide additional
transparency into non-ATS activity and
enhance market participants’ and
investors’ understanding of the OTC
market.
Global OTC generally supported
additional transparency into OTC
trading activity and expanding the
availability of information about OTC
trading, but did not specifically address
the proposed elimination of the de
minimis exception for publication of
aggregate non-ATS volume data.29 Virtu
disagreed with the proposed elimination
of the de minimis exception because it
is concerned that the ‘‘next ‘logical’
step’’ would be to require the
publication of transaction data on a
25 See
Virtu Letter; Global OTC Letter.
Virtu Letter.
27 See Global OTC Letter.
28 See FIF Letter.
29 See Global OTC Letter.
26 See
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Federal Register / Vol. 84, No. 133 / Thursday, July 11, 2019 / Notices
security-by-security basis.30 While Virtu
believes that eliminating the de minimis
exception for security-by-security
volume data could expose firms to
principal risk,31 Virtu did not express
any specific concerns regarding the
proposal to eliminate the de minimis
exception for aggregate, rather than
security-by-security, data. As noted
above, FINRA is not proposing to
eliminate the de minimis exception for
purposes of security-specific non-ATS
volume data.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve or disapprove
such proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
jspears on DSK30JT082PROD with NOTICES
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–2019–019 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–2019–019. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
office of 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–
2019–019, and should be submitted on
or before August 1, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.32
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 2019–14724 Filed 7–10–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–86314; File No. SR–
NASDAQ–2019–009]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing of Amendment No. 3 and Order
Granting Accelerated Approval of a
Proposed Rule Change, as Modified by
Amendment No. 3, To Revise the
Exchange’s Initial Listing Standards
Related to Liquidity
July 5, 2019.
I. Introduction
On March 21, 2019, 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
revise the Exchange’s initial listing
32 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
30 See
Virtu Letter.
31 See Virtu Letter.
VerDate Sep<11>2014
17:26 Jul 10, 2019
1 15
Jkt 247001
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standards related to liquidity. The
proposed rule change was published for
comment in the Federal Register on
April 9, 2019.3 On May 24, 2019,
pursuant to Section 19(b)(2) of the Act,4
the Commission designated a longer
period within which to approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether to
approve or disapprove the proposed
rule change.5 On June 12, 2019, the
Exchange filed Amendment No. 1 to the
proposed rule change. On June 13, 2019,
the Exchange withdrew Amendment
No. 1 and filed Amendment No. 2 to the
proposed rule change. On July 1, the
Exchange withdrew Amendment No. 2
and filed Amendment No. 3 to the
proposed rule change, which replaced
and superseded the proposed rule
change as originally filed.6 The
Commission received one comment on
the proposed rule change.7 The
Commission is publishing this notice to
solicit comments on the proposed rule
change, as modified by Amendment No.
3, from interested persons and is
approving the proposed rule change, as
modified by Amendment No. 3, on an
accelerated basis.
II. Exchange’s Description of the
Proposal, as Modified by Amendment
No. 3
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Nasdaq is filing this amendment to
SR–NASDAQ–2019–009,8 which was
3 See Securities Exchange Act Release No. 85503
(April 3, 2019), 84 FR 14172 (April 9, 2019)
(‘‘Notice’’).
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 85933,
84 FR 25329 (May 31, 2019). The Commission
designated July 8, 2019, as the date by which the
Commission shall approve the proposed rule
change, disapprove the proposed rule change, or
institute proceedings to determine whether to
approve or disapprove the proposed rule change.
6 Amendment No. 3 is available at: https://
www.sec.gov/comments/sr-nasdaq-2019-009/
srnasdaq2019009-5751370-186792.pdf.
7 See Letter from Carol Anne Huff, Kirkland &
Ellis LLP, to Eduardo A. Aleman, Deputy Secretary,
Commission, dated June 5, 2019 (‘‘Kirkland
Letter’’). The commenter stated that it believes the
Exchange’s proposed exclusion of ‘‘restricted
securities’’ from the calculation of round lot holders
and public float will provide for a more accurate
measure of liquidity, but advocated for a reasonable
grace period for former special purpose acquisition
vehicles (‘‘SPACs’’), after their business
combination, to demonstrate compliance with
round lot holder and public float requirements,
irrespective of the structure of the business
combination.
8 Securities Exchange Act Release No. 85503
(April 3, 2019), 84 FR 14172 (April 9, 2019) (the
‘‘Initial Proposal’’).
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]]>Agencies
[Federal Register Volume 84, Number 133 (Thursday, July 11, 2019)]
[Notices]
[Pages 33098-33102]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-14724]
[[Page 33098]]
=======================================================================
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-86315; File No. SR-FINRA-2019-019]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Expand
OTC Equity Trading Volume Data Published on FINRA's Website
July 5, 2019.
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 July 1, 2019, Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by FINRA. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to amend Rules 6110 and 6610 to expand the
summary firm data relating to over-the-counter (``OTC'') equity trading
that FINRA publishes on its website.
The text of the proposed rule change is available on FINRA's
website at https://www.finra.org, at the principal office of FINRA and
at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, FINRA included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. FINRA has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
Pursuant to Rules 6110(b) and 6610(b), FINRA currently publishes
certain volume information for OTC transactions \3\ in NMS stocks \4\
and OTC Equity Securities,\5\ respectively, that are executed outside
of an alternative trading system (``ATS'').\6\ All published data is
derived directly from OTC trades reported to a FINRA equity trade
reporting facility (i.e., the Alternative Display Facility, a Trade
Reporting Facility or the OTC Reporting Facility). FINRA does not
charge a fee for this data.\7\
---------------------------------------------------------------------------
\3\ Rules 6110 and 6610 apply only to OTC transactions in NMS
stocks and OTC Equity Securities, respectively, i.e., transactions
effected otherwise than on or through a national securities
exchange.
\4\ ``NMS stock'' is defined in Rule 600(b)(47) of the SEC's
Regulation NMS. See Rule 6110(a). Generally, NMS stocks include any
security, other than an option, for which transaction reports are
collected, processed, and made available pursuant to an effective
transaction reporting plan. See 17 CFR 242.600(b)(47).
\5\ ``OTC Equity Security'' means any equity security that is
not an NMS stock, other than a Restricted Equity Security. See Rule
6420(f). A ``Restricted Equity Security'' means any equity security
that meets the definition of ``restricted security'' as contained in
Securities Act Rule 144(a)(3). See Rule 6420(k); 17 CFR
230.144(a)(3).
\6\ Rules 6110(b) and 6610(b) govern the publication of
information for OTC transactions executed outside of an ATS (``non-
ATS'' volume data or information). Rules 6110(c) and 6610(c)
separately govern the publication of trading information for OTC
transactions executed on ATSs.
\7\ OTC transaction volume data published pursuant to Rules 6110
and 6610 is available on FINRA's OTC Transparency Data web page,
available at https://otctransparency.finra.org/otctransparency/.
---------------------------------------------------------------------------
Specifically, FINRA publishes weekly non-ATS OTC volume information
(number of trades and shares) by firm and by security on a two-week or
four-week delayed basis. Weekly security-specific information for
transactions in NMS stocks in Tier 1 of the NMS Plan to Address
Extraordinary Market Volatility (``Tier 1 NMS stocks'') is published on
a two-week delayed basis, while information on the remaining NMS stocks
(``Tier 2 NMS stocks'') and OTC Equity Securities is published on a
four-week delayed basis. FINRA also publishes aggregate weekly non-ATS
volume totals by firm and category of security (Tier 1 NMS stocks, Tier
2 NMS stocks and OTC Equity Securities) on the same timeframes, as well
as aggregate non-ATS volume totals by firm for all NMS stocks and OTC
Equity Securities, respectively, for each calendar month on a one-month
delayed basis.\8\ All data is published by firm on an attributed
basis,\9\ except that for firms executing fewer than, on average, 200
non-ATS transactions per day during the reporting period,\10\ FINRA
combines and publishes the volume for these firms on an aggregate non-
attributed basis identified in the published data as ``De Minimis
Firms.'' \11\
---------------------------------------------------------------------------
\8\ Monthly aggregated data is categorized by NMS stocks and OTC
Equity Securities, i.e., there is no differentiation between Tier 1
NMS stocks and Tier 2 NMS stocks.
\9\ Non-ATS data is published at the firm level, aggregating
each market participant identifier (``MPID'') used by a particular
firm (but excluding any MPIDs used by a firm to report trades
executed on its ATS).
\10\ For a firm with multiple non-ATS MPIDs, the total volume
across all its MPIDs is combined for purposes of determining whether
the de minimis threshold has been met.
\11\ There is no parallel de minimis exception for ATS
transactions under Rules 6110(c) and 6610(c). Therefore, all ATS
volume data is currently published on an attributed basis.
---------------------------------------------------------------------------
As part of FINRA's ongoing efforts to improve market transparency,
FINRA is proposing to expand the summary firm data relating to non-ATS
OTC equity trading that FINRA publishes on its website. The proposed
rule change has two primary components. First, FINRA is proposing to
publish new monthly aggregate block-size trading data for non-ATS OTC
trades in NMS stocks, on the same terms as FINRA currently publishes
aggregate block-size trading data for trades in NMS stocks occurring on
ATSs. Second, FINRA is proposing to eliminate the current de minimis
exception for publication of aggregate non-ATS trading volume across
all NMS stocks and OTC Equity Securities and publish each firm's
aggregate non-ATS volume on an attributed basis. These two components
of the proposed rule change are each addressed below.
Non-ATS Block-Size Trading Data
FINRA currently publishes monthly information on block-size trades
in all NMS stocks occurring on ATSs pursuant to Rule 6110(c)(2). Data
regarding ATS block-size trades is aggregated across all NMS stocks
(i.e., there is no security-by-security block data), is for a time
period of one month of trading, and is published no earlier than one
month following the end of the month for which trading was aggregated.
As announced in Regulatory Notice 16-14,\12\ FINRA currently
publishes information on block-size ATS trades in NMS stocks using
share-based thresholds, dollar-based thresholds and thresholds that
include both shares and dollar amount as follows:
---------------------------------------------------------------------------
\12\ See Regulatory Notice 16-14 (April 2016).
---------------------------------------------------------------------------
10,000 or more shares;
$200,000 or more in dollar value;
10,000 or more shares and $200,000 or more in dollar
value;
2,000 to 9,999 shares;
$100,000 to $199,999 in dollar value; and
[[Page 33099]]
2,000 to 9,999 shares and $100,000 to $199,999 in dollar
value.
For each of these categories, FINRA publishes monthly trade count
and volume information for each ATS, on an attributed basis, aggregated
across all NMS stocks with no differentiation between Tier 1 NMS stocks
and Tier 2 NMS stocks. FINRA also calculates and displays the average
trade size and each ATS's rank as well as ``ATS Block Market Share''
(i.e., the proportion of each ATS's block-size trading volume in
relation to total block-size trading by all ATSs) and ``ATS Block
Business Share'' (i.e., the proportion of a particular ATS's overall
trading volume that was done as block-size trades) and rankings of
those metrics for each of the above categories.\13\
---------------------------------------------------------------------------
\13\ ATS block-size data can be viewed on FINRA's OTC
Transparency Data web page, available at https://otctransparency.finra.org/otctransparency/AtsBlocks. The data may
also be directly downloaded through the OTC Transparency Data web
page, available at https://otctransparency.finra.org/otctransparency/AtsBlocksDownload.
---------------------------------------------------------------------------
FINRA is proposing to expand the block-size trading data that it
publishes on its website to also include monthly aggregate non-ATS
block-size trading data for all NMS stocks. The new non-ATS block-size
data would be published on the same terms as current ATS block-size
data and FINRA would not charge a fee for the new data. Specifically,
proposed paragraph (b)(3) of Rule 6110 provides that non-ATS block-size
data would be aggregated across all NMS stocks (i.e., there would be no
security-by-security block data), would be for a time period of one
month of trading, and would be published no earlier than one month
following the end of the month for which trading was aggregated. All
published data would be derived directly from OTC trades reported to
the Alternative Display Facility or a Trade Reporting Facility.
Pursuant to proposed Rule 6110(b)(3), FINRA will publish the new
non-ATS block-size data with elements to be determined from time to
time by FINRA in its discretion as stated in a Regulatory Notice or
other equivalent publication. As with current ATS block-size data,
rather than defining what constitutes a ``block-size'' trade, non-ATS
block-size data would be published using the same share-based, dollar-
based and combination share- and dollar-based thresholds used for ATS
block-size data, as described above. For each category, FINRA would
publish monthly trade count and volume information for each firm, on an
attributed basis,\14\ aggregated across all NMS stocks with no
differentiation between Tier 1 NMS stocks and Tier 2 NMS stocks.\15\
FINRA would also calculate and display the average trade size and each
firm's rank as well as ``Firm Block Market Share'' (i.e., the
proportion of each firm's block-size trading volume in relation to
total block-size trading by all firms) and ``Firm Block Business
Share'' (i.e., the proportion of a particular firm's overall trading
volume that was done as block-size trades) and rankings of those
metrics for each of the above categories.\16\
---------------------------------------------------------------------------
\14\ Each firm that engages in block-size non-ATS trading of NMS
stocks would be separately identified, i.e., FINRA is not proposing
any de minimis exception for non-ATS block-size data.
\15\ FINRA is not proposing at this time to publish non-ATS
block-size data for trading in OTC Equity Securities, due largely to
the wide variance of trading activity in these securities and the
difficulty associated with determining appropriate block thresholds.
FINRA notes that the currently published ATS block-size data is also
limited to NMS stocks and does not cover trading in OTC Equity
Securities. FINRA will continue to assess whether block-size trading
data should be expanded to include trades in OTC Equity Securities
or a subset thereof.
\16\ FINRA will announce any changes to these elements in
advance in a Regulatory Notice or similar publication.
---------------------------------------------------------------------------
In developing its proposal to publish non-ATS block-size data,
FINRA discussed the initiative with a number of FINRA's industry
advisory committees, informally consulted a number of firms and
solicited written comment in Regulatory Notice 18-28 (discussed in
greater detail below). Firms were generally supportive of publishing
non-ATS block-size data, which would provide enhanced transparency into
the OTC market as a complement to the currently published ATS block-
size data. Several firms noted potential information leakage concerns
involved with publishing new block-size data, but indicated that such
concerns would be mitigated by publishing data on an aggregated basis,
rather than security-by-security, and by delaying publication.
FINRA believes that publication of non-ATS block-size data as
described above would be beneficial to firms and the general public and
provide interested parties with more detailed information on non-ATS
trading activities, thus enhancing transparency in the OTC market for
NMS stocks.
Elimination of the De Minimis Exception
As noted above, pursuant to Rules 6110(b)(2)(B) and 6610(b)(2)(B),
for firms executing fewer than, on average, 200 non-ATS transactions
per day during the reporting period, FINRA publishes the volume for
these firms on an aggregate non-attributed basis identified in the
published data as ``De Minimis Firms.'' FINRA is proposing to eliminate
this de minimis exception and publish on an attributed basis each
firm's aggregate non-ATS volume (number of trades and shares) on a
weekly or monthly basis, as applicable. As a result, each individual
firm would be identified in the published aggregate data and there
would no longer be a de minimis exception for published aggregate
volume information. However, FINRA is not proposing to eliminate the de
minimis exception for purposes of the security-specific non-ATS volume
data under Rules 6110(b)(2)(C) and 6610(b)(2)(C). Therefore, if a firm
averages fewer than 200 non-ATS transactions per day in a given
security during the reporting period, FINRA would continue to aggregate
the firm's volume in that security with that of similarly situated
firms and there would continue to be a De Minimis Firms category for
published security-by-security volume data.
When FINRA amended its rules to expand its transparency initiative
by publishing non-ATS trading volume, it noted its belief at the time
that publishing volume information for each firm that executed only a
small number of trades or shares in any given period would not provide
meaningful information to the marketplace.\17\ FINRA also noted that it
would consider whether modifications to the de minimis threshold would
be appropriate based on feedback it may receive from interested
parties.\18\ Since that time, FINRA has continued to review and assess
the published data to determine whether changes are warranted that
would improve market transparency, including whether publishing more
granular data on trading currently aggregated in the ``De Minimis
Firms'' category would provide meaningful information to firms and the
public.
---------------------------------------------------------------------------
\17\ See Securities Exchange Act Release No. 75356 (July 2,
2015), 80 FR 39463, 39464 (July 9, 2015) (Notice of Filing of File
No. SR-FINRA-2015-020).
\18\ See Securities Exchange Act Release No. 75356 (July 2,
2015), 80 FR 39463, 39467 (July 9, 2015) (Notice of Filing of File
No. SR-FINRA-2015-020).
---------------------------------------------------------------------------
Based on a review of trading data for the period from January 1,
2018 through December 30, 2018, FINRA determined that, on average,
there are only 37 and 33 firms with attributed volume for Tier 1 NMS
stocks and Tier 2 NMS stocks, respectively, on a weekly basis. For OTC
Equity Securities during the same time period, there are, on average,
only 23 firms with attributed volume on a weekly basis. By removing the
de minimis exception, on average, 148 and 177 firms would have their
aggregate non-ATS volume in Tier 1 NMS stocks
[[Page 33100]]
and Tier 2 NMS stocks, respectively, published. For OTC Equity
Securities, the number of firms that would have their aggregate non-ATS
volume published, on average, is 124. Since a large number of small
trades can add up to significant volume, FINRA believes that the data
at the firm level may be more meaningful if each firm's volume is
published, irrespective of size.
FINRA discussed the proposed elimination of the de minimis
exception with a number of FINRA's industry advisory committees,
informally consulted a number of firms and solicited written comment.
Based on the feedback received, FINRA believes that removing the de
minimis exception for publication of aggregated non-ATS volume data
would provide valuable additional transparency into the OTC markets
that is not currently available.\19\
---------------------------------------------------------------------------
\19\ FINRA notes that some firms and commenters suggested that
FINRA should also eliminate the de minimis exception for security-
by-security non-ATS volume data. FINRA continues to assess whether
further enhancements to its published volume data may be warranted
but is not at this time proposing to eliminate the de minimis
exception for the security-by-security non-ATS volume data that it
publishes on its website.
---------------------------------------------------------------------------
Technical Changes
The text of the proposed rule change also includes several other
minor, non-substantive and conforming changes to the current rule text
in addition to the two substantive proposed changes discussed above.
These edits are being proposed to improve the readability and
consistency of the rules and are not intended to create or modify any
substantive provisions. First, Rules 6110(b)(1)(A) and (B) and
6610(b)(1)(A) would be amended to clarify that those provisions apply
to the publication of aggregate weekly Trading Information. This
conforms to language in current Rules 6110(c) and 6610(c). Second,
conforming changes would be made to Rules 6110(b)(2)(B) and
6610(b)(2)(B) (as re-designated by the proposed rule change) to clarify
that the remaining de minimis exceptions under those provisions apply
to Trading Information by security. Third, the final sentence of Rule
6610(b)(3) would be amended to correct the cross-reference to the
definition of ``ATS Trading Information.'' Finally, Rule 6610(c)(1)
would be amended to correct the punctuation at the end of the sentence.
If the Commission approves the proposed rule change, FINRA proposes
that the effective date of the proposed rule change will be no earlier
than October 1, 2019 and no later than March 31, 2020. Currently, FINRA
anticipates that it will begin publication of data in accordance with
the proposed rule change in the fourth quarter of 2019 and will
announce the specific date in a Regulatory Notice.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\20\ which requires, among
other things, that FINRA rules must be designed to prevent fraudulent
and manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest. FINRA believes that the proposed rule change will
provide enhanced transparency into the OTC market by providing more
detailed information on block-size OTC transactions in NMS stocks and
by enabling market participants and investors to better understand each
individual firm's OTC trading volume and market share in the equity
market.
---------------------------------------------------------------------------
\20\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
FINRA does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. FINRA has undertaken an
economic impact assessment, as set forth below, to analyze the
regulatory need for the proposed rule change, its potential economic
impacts, including anticipated costs and benefits, and any alternatives
FINRA considered in assessing how to best meet its regulatory
objectives.
Regulatory Need
FINRA is proposing to publish new monthly aggregate block-size
trading data for non-ATS OTC trades in NMS stocks, with the intent to
improve market transparency relating to trading in the OTC market. As
mentioned above, FINRA makes similar block-size trading data for trades
in NMS stocks occurring on ATSs available to the public, and has
received support from the industry on its transparency initiatives in
the non-ATS OTC equity markets.
FINRA also proposes to eliminate the de minimis exception for firms
that have fewer than, on average, 200 non-ATS transactions per day and
publish, on an attributed basis, each firm's aggregate non-ATS volume
on a weekly or monthly basis, as applicable. FINRA believes that non-
ATS data at the firm level provides better insight into market activity
when each firm's volume is published individually, irrespective of
size.
Economic Baseline
FINRA currently publishes monthly information on block-size trades
in NMS stocks on ATSs, by share- and dollar-based thresholds as
announced in Regulatory Notice 16-14, but does not make such data
publicly available for trading in NMS stocks outside ATSs in the OTC
equity market. Therefore, market participants and investors have access
to trading data on block trades in only one segment of the market. In
the sample period from January 2018 through December 2018, non-ATS OTC
block trading volume for the 10,000 share threshold constituted, on
average, 39.4% of the monthly share volume in the aggregate non-ATS OTC
volume. For the same sample period, non-ATS OTC block trading volume
for the $200,000 threshold constituted, on average, 37.7% of the
monthly share volume in the aggregate non-ATS OTC volume. This
represents a higher percentage compared to the share of ATS block
trading in the aggregate ATS volume during the same period. From
January 2018 through December 2018, ATS block trading volume for the
10,000-share threshold constituted, on average, 11.9% of the monthly
share volume in the aggregate ATS OTC volume. For the same sample
period, ATS OTC block trading volume for the $200,000 threshold
constituted, on average, 13.5% of the monthly share volume in the
aggregate ATS OTC volume.
FINRA also currently publishes weekly non-ATS OTC volume
information by firm and by security on a two-week (Tier 1 NMS stocks)
and four-week (Tier 2 NMS stocks and OTC Equity Securities) delayed
basis, as well as aggregate non-ATS volume by firm for all NMS stocks
and OTC Equity Securities for each calendar month on a one-month
delayed basis. FINRA combines and publishes volume data for firms
executing fewer than, on average, 200 non-ATS transactions per day
during the reporting period, on an aggregate non-attributed basis under
``De Minimis Firms.''
Economic Impacts
The proposal described above would not impose any additional
requirements on firms because the non-ATS OTC block trade data will be
derived solely from trade reports already submitted to the FINRA equity
trade reporting facilities and disseminated trade-by-trade on an
anonymous basis through the securities information processors. In
addition, because the data is available free of charge, FINRA does not
believe
[[Page 33101]]
that there would be any direct costs associated with the proposal--to
firms, investors or data consumers.
At the same time, the proposal is anticipated to help market
participants better understand the overall OTC trading of equities, by
providing information that could be utilized in assessing where
liquidity is concentrated and how order routing strategies could be
improved. Based on a review of trading data in the sample period, there
would be 236 firms, on average, represented in the monthly non-ATS
block-size data, compared to 32 ATSs during the same sample period.
Hence, the proposal would provide additional transparency into OTC
trading activity by expanding the availability of information about OTC
block-size trading to non-ATS volume at no required cost to firms.
FINRA evaluated the impact of removing the de minimis exception for
publication of aggregated non-ATS OTC volume. During the sample
period,\21\ there were, on average, 37, 33 and 23 firms in the weekly
volume reports for Tier 1 NMS, Tier 2 NMS and OTC Equity Securities,
respectively. By removing the de minimis exception, the number of
additional firms that would have their aggregate non-ATS volume
published would be 111, 144, and 101, respectively, for the categories
of securities described above. Their average weekly share volume
represented 8.43%, 7.99% and 0.90% of the aggregate non-ATS OTC volume
in the sample period. Hence, FINRA believes that expanding transparency
to all segments of the OTC equity market would bridge gaps in
information published across ATS versus non-ATS segments of the OTC
equity market and removing the de minimis exception would provide a
more complete picture of OTC trading activity, thereby reducing any
competitive distortions that may be associated with such information
gaps.
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\21\ The sample period included weekly data from January 1, 2018
through December 30, 2018.
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FINRA also considered information leakage concerns, i.e., whether a
firm's proprietary trading strategy could be discerned from the
published data. FINRA believes that the proposed data dissemination
structure mitigates such information leakage concerns, by limiting the
granularity of the data at the firm level only, with no accompanying
security level data. In addition, FINRA believes that the delay in
publication is a well-calibrated effort to reduce information leakage.
FINRA's previous experience with the publication of ATS OTC trading
volume provides support that the proposed dissemination is expected to
benefit market participants by providing access to meaningful
information on non-ATS trading activity.
FINRA also notes that there may be differences in non-ATS block-
size trading and ATS block-size trading, e.g., the total number of
shares traded in non-ATS block-size trades of 10,000 or more shares
tends to be a significantly higher percentage of the overall non-ATS
OTC activity as compared to ATS block activity. Nonetheless, such
differences are not expected to produce any information that could be
used as a part of a trading strategy due to the reasons explained in
the above paragraph.
Other Proposals Considered
FINRA notes that Regulatory Notice 18-28 also solicited comment on
a proposal to separately identify firms' volume of trading on a single
dealer platform (``SDP''). FINRA continues to consider comments
provided in response to Regulatory Notice 18-28 but is not proposing at
this time to require identification of SDP trading volume.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The proposed rule change was published for comment in Regulatory
Notice 18-28 (September 2018). Four comments were received in response
to the Regulatory Notice.\22\ The comments are summarized below.\23\
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\22\ See Letter from Christopher Bok, Esq., Financial
Information Forum to Marcia E. Asquith, Corporate Secretary, FINRA,
dated November 9, 2018 (``FIF Letter''); letter from Stephen John
Berger, Managing Director, Government & Regulatory Policy, Citadel
Securities to Marcia E. Asquith, Corporate Secretary, FINRA, dated
November 12, 2018 (``Citadel Letter''); letter from Thomas M.
Merritt, Deputy General Counsel, Virtu Financial, Inc. to Marcia E.
Asquith, Corporate Secretary, FINRA, dated November 14, 2018
(``Virtu Letter''); and letter from Bob Hill, Global OTC to Marcia
E. Asquith, Corporate Secretary, FINRA, dated November 16, 2018
(``Global OTC Letter'').
\23\ As noted above, Regulatory Notice 18-28 also solicited
comment on other possible enhancements to the OTC equity trading
volume data published on FINRA's website, including a proposal to
separately identify firms' volume of trading on an SDP. FINRA is not
proposing at this time to require identification of SDP trading
volume. The discussion above is therefore limited to comments
relevant to the proposed rule change.
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Citadel generally supported efforts to increase market transparency
that benefit end investors, but did not specifically comment on the two
aspects of the proposed rule change that FINRA is proposing at this
time.\24\
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\24\ See Citadel Letter.
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Virtu and Global OTC specifically supported the proposal to publish
new non-ATS block-size data for NMS stocks.\25\ Virtu noted its belief
that any concerns about information leakage with respect to non-ATS
block-size data are alleviated by the one-month publication delay and
the fact that disclosure would not be made on a security-by-security
basis or differentiate between Tier 1 NMS stocks and Tier 2 NMS
stocks.\26\
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\25\ See Virtu Letter; Global OTC Letter.
\26\ See Virtu Letter.
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Global OTC suggested that the proposal go further by including all
OTC Equity Securities in published monthly aggregate non-ATS block-size
trading data, noting its belief that the public interest of including
all OTC Equity Securities outweighs the difficulty that may arise in
determining block thresholds that would be appropriate across all OTC
Equity Securities.\27\ As noted above, FINRA is not proposing at this
time to publish non-ATS block-size data for trading in OTC Equity
Securities, but will continue to assess whether block-size trading data
should be expanded in the future.
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\27\ See Global OTC Letter.
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FIF stated that the rationale for publication of non-ATS block-size
data does not bear a valid relationship to the costs and risks
associated with the proposal.\28\ However, FIF did not identify any
specific costs or risks associated with the proposed publication of
non-ATS block-size data. FINRA notes that the newly published
information would be derived directly from data already reported to
FINRA's equity reporting facilities and that firms would have no new
reporting obligations as a result of the proposed rule change. Based on
consultations with firms and industry advisory committees, FINRA
believes that the proposal to publish non-ATS block-size data will
provide additional transparency into non-ATS activity and enhance
market participants' and investors' understanding of the OTC market.
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\28\ See FIF Letter.
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Global OTC generally supported additional transparency into OTC
trading activity and expanding the availability of information about
OTC trading, but did not specifically address the proposed elimination
of the de minimis exception for publication of aggregate non-ATS volume
data.\29\ Virtu disagreed with the proposed elimination of the de
minimis exception because it is concerned that the ``next `logical'
step'' would be to require the publication of transaction data on a
[[Page 33102]]
security-by-security basis.\30\ While Virtu believes that eliminating
the de minimis exception for security-by-security volume data could
expose firms to principal risk,\31\ Virtu did not express any specific
concerns regarding the proposal to eliminate the de minimis exception
for aggregate, rather than security-by-security, data. As noted above,
FINRA is not proposing to eliminate the de minimis exception for
purposes of security-specific non-ATS volume data.
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\29\ See Global OTC Letter.
\30\ See Virtu Letter.
\31\ See Virtu Letter.
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III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-FINRA-2019-019 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-2019-019. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of such filing also will be available for inspection
and copying at the principal office of 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-2019-019, and should be submitted
on or before August 1, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
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\32\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 2019-14724 Filed 7-10-19; 8:45 am]
BILLING CODE 8011-01-P
