Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend FINRA Rule 7620B To Modify the Trade Reporting Fees Applicable to Participants That Use the FINRA/NYSE Trade Reporting Facility, 54219-54227 [2019-22023]
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Federal Register / Vol. 84, No. 196 / Wednesday, October 9, 2019 / Notices
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 the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–BX–2019–032 and should
be submitted on or before October 30,
2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.27
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–22014 Filed 10–8–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–87205; File No. SR–FINRA–
2019–024]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend FINRA Rule
7620B To Modify the Trade Reporting
Fees Applicable to Participants That
Use the FINRA/NYSE Trade Reporting
Facility
khammond on DSKJM1Z7X2PROD with NOTICES
October 3, 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
September 26, 2019, Financial Industry
Regulatory Authority, Inc. (‘‘FINRA’’)
filed with the Securities and Exchange
Commission (‘‘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
27 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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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 7620B (Trade Reporting Facility
Reporting Fees) to modify the trade
reporting fees applicable to participants
that use the FINRA/NYSE Trade
Reporting Facility (‘‘FINRA/NYSE
TRF’’).
The text of the proposed rule change
is available on FINRA’s website at
https://www.finra.org, at the principal
office of FINRA and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
FINRA included statements concerning
the purpose of and basis for the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. FINRA has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The FINRA/NYSE TRF, which is
operated by NYSE Market (DE), Inc.
(‘‘NYSE Market (DE)’’), is one of four
FINRA facilities 5 that FINRA members
can use to report over-the-counter
(‘‘OTC’’) trades in NMS stocks. While
members are required to report all OTC
trades in NMS stocks to FINRA, they
may choose which FINRA Facility (or
Facilities) to use to satisfy their trade
reporting obligations.6
U.S.C. 78s(b)(3)(A)(ii).
CFR 240.19b–4(f)(2).
5 The four FINRA facilities are the FINRA/NYSE
TRF, two FINRA/Nasdaq Trade Reporting Facilities
(together, the ‘‘FINRA/Nasdaq TRF’’), and the
Alternative Display Facility (‘‘ADF’’ and together,
the ‘‘FINRA Facilities’’).
6 Members can use the FINRA/NYSE TRF as a
backup system and reserve bandwidth if there is a
failure at another FINRA Facility that supports the
reporting of OTC trades in NMS stocks. As set forth
in Trade Reporting Notice 1/20/16 (OTC Equity
Trading and Reporting in the Event of Systems
Issues), a firm that routinely reports its OTC trades
54219
As discussed below, NYSE Market
(DE) proposes to modify the trade
reporting fees applicable to FINRA
members that use the FINRA/NYSE TRF
(‘‘FINRA/NYSE TRF Participants’’ or
‘‘Participants’’). Currently, the monthly
fee for use of the FINRA/NYSE TRF is
calculated using a tiered fee structure
based on the reporting member’s OTC
trading activity. NYSE Market (DE)
proposes to:
• Change the tier basis to use just the
trading activity reported to the FINRA/
NYSE TRF, rather than using all trading
activity published on FINRA’s public
website, as it does now; and
• increase the number of fee tiers to
address differences in participant usage.
If there were no change in reporting
to the FINRA/NYSE TRF, such that
Participants’ reporting volume stayed
the same as it was in the first quarter of
2019, under the proposed fee schedule
the total monthly subscriber fees paid to
the FINRA/NYSE TRF would decrease.
FINRA is proposing to amend FINRA
Rule 7620B (FINRA/NYSE Trade
Reporting Facility Reporting Fees)
accordingly. There is no new product or
service accompanying the proposed fee
change.
Background
The FINRA/NYSE TRF
Under the governing limited liability
company agreement,7 the FINRA/NYSE
TRF has two members: FINRA and
NYSE Market (DE). FINRA, the ‘‘SRO
Member,’’ has sole regulatory
responsibility for the FINRA/NYSE TRF.
NYSE Market (DE), the ‘‘Business
Member,’’ is primarily responsible for
the management of the FINRA/NYSE
TRF’s business affairs to the extent
those affairs are not inconsistent with
the regulatory and oversight functions of
FINRA.
The Business Member establishes
pricing for use of the FINRA/NYSE TRF,
which pricing is implemented pursuant
to FINRA rules that FINRA must file
with the Commission and that must be
consistent with the Act. The relevant
FINRA rules are administered by NYSE
Market (DE), in its capacity as the
Business Member and operator of the
3 15
4 17
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in NMS stocks to only one FINRA Facility must
establish and maintain connectivity and report to a
second FINRA Facility, if the firm intends to
continue to support OTC trading as an executing
broker while its primary facility is experiencing a
widespread systems issue.
7 See the Second Amended and Restated Limited
Liability Company Agreement of FINRA/NYSE
Trade Reporting Facility LLC. The limited liability
company agreement, which was submitted as part
of the rule filing to establish the FINRA/NYSE TRF
and was subsequently amended and restated, can be
found in the FINRA Manual.
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Federal Register / Vol. 84, No. 196 / Wednesday, October 9, 2019 / Notices
FINRA/NYSE TRF on behalf of FINRA,8
and the Business Member collects all
fees on behalf of the FINRA/NYSE TRF.
In addition, the Business Member is
obligated to pay the cost of regulation
and is entitled to the profits and losses,
if any, derived from the operation of the
FINRA/NYSE TRF.
FINRA/NYSE TRF Participants are
charged fees pursuant to Rule 7620B
and may qualify for transaction credits
under Rule 7610B (Securities
Transaction Credit). In addition,
pursuant to Rule 7630B (Aggregation of
Activity of Affiliated Members),
affiliated members can aggregate their
activity for purposes of fees and credits
that are dependent upon the volume of
their activity.9
The FINRA/NYSE TRF is smaller than
the FINRA/Nasdaq TRF in terms of
reported volume: FINRA members
currently use the FINRA/NYSE TRF to
report approximately 20% of shares in
NMS stocks traded OTC. For example,
from July 2018 through June 2019, the
breakout of trade report activity among
the FINRA Facilities was as follows:
Facility
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FINRA/NYSE TRF ...........................................................................................................................................
FINRA/NASDAQ TRF ......................................................................................................................................
Number of reported
shares
Percentage of
TRF total
130,536,250,022
540,520,980,728
19.5
80.5
access to the complete range of
functionality offered by the FINRA/
NYSE TRF rather than a separate fee for
each activity (e.g., a per trade or per side
fee for reporting a trade, a separate per
trade fee for canceling a trade, etc.) or
a separate fee for connectivity.12 Rather
than charging the same fee to all FINRA/
NYSE TRF Participants irrespective of
trading activity, the fees set forth in
Rule 7620B are tiered, to tie the amount
of the monthly fees to a Participant’s
trading activity.
Competitive Environment
According to the Business Member,
the FINRA/NYSE TRF operates in a
competitive environment. The FINRA
Facilities have different pricing 10 and
compete for FINRA members’ trade
report activity. In turn, FINRA members
can choose which FINRA Facility they
use to report OTC trades in NMS stocks.
The Commission has repeatedly
expressed its preference for competition
over regulatory intervention in
determining prices, products, and
services in the securities markets.
Specifically, in Regulation NMS, the
Commission highlighted the importance
of market forces in determining prices
and SRO revenues and recognized that
current regulation of the market system
‘‘has been remarkably successful in
promoting market competition in its
broader forms that are most important to
investors and listed companies.’’ 11
FINRA members currently use the
FINRA/NYSE TRF to report
approximately 20% of shares in NMS
stocks traded OTC, compared to
approximately 80% for the FINRA/
Nasdaq TRF. The Business Member
believes that pricing is the key factor for
FINRA members when choosing which
FINRA Facility to use. FINRA members
can report their OTC trades in NMS
stocks to a given FINRA Facility’s
competitors if they deem pricing levels
at the other FINRA Facilities to be more
favorable, so long as they are
participants of such other facilities. At
the same time, the Business Member
believes that the current fee structure
under Rule 7620B discourages some
FINRA members from becoming FINRA/
NYSE TRF Participants, because the
current fee is not tied to how much
trading is reported specifically to the
FINRA/NYSE TRF.
To address this issue, the Business
Member has designed a fee structure
under which FINRA/NYSE TRF
Participants’ monthly reporting fees
would not be calculated using a
Participant’s total OTC trading activity.
As discussed below, the proposed
change would base the monthly fee on
the Participant’s share of total market
volume reported to the FINRA/NYSE
TRF. Accordingly, the Business Member
believes that the proposed fee change
will more closely correspond to actual
usage and encourage more FINRA
members to become FINRA/NYSE TRF
Participants and use the FINRA/NYSE
TRF. Such a change would make the
FINRA/NYSE TRF more competitive
with the FINRA/Nasdaq TRF and give
members more attractive options for
trade reporting, potentially encouraging
FINRA members to use the FINRA/
NYSE TRF to report more than the
approximately 20% of their shares in
NMS stocks traded OTC that they
currently use it for.
Under Rule 7620B, FINRA/NYSE TRF
Participants are charged a flat fee for
As noted above, the monthly fee for
use of the FINRA/NYSE TRF is
calculated using a tiered fee structure
based on a Participant’s total OTC
trading activity, whether or not it is
reported to the FINRA/NYSE TRF.
Specifically, pursuant to current Rule
7620B,13 each Participant is charged a
fee based on its ‘‘ATS & Non-ATS OTC
Market Share,’’ which is defined as the
percentage calculated by dividing:
a. The total number of ATS and nonATS shares 14 reported by the
Participant to FINRA and published on
FINRA’s public website (‘‘OTC
Transparency Data website’’) 15
pursuant to Rule 6110 (Trading
Otherwise than on an Exchange) 16
during a given calendar quarter, by
b. the total number of all shares
reported to the Consolidated Tape
Association (‘‘CTA’’) or the Nasdaq
8 FINRA’s oversight of this function performed by
the Business Member is conducted through a
recurring assessment and review of the FINRA/
NYSE TRF operations by an outside independent
audit firm.
9 No change is proposed to be made to Rules
7610B or 7630B, and so there will be no change to
the requirements for, or process of, securities
transaction credits and the aggregation of affiliated
member activity.
10 Because the FINRA/NYSE TRF and FINRA/
Nasdaq TRF are operated by different business
members competing for market share, FINRA does
not take a position on whether the pricing for one
TRF is more favorable or competitive than the
pricing for the other TRF.
11 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005)
(S7–10–04).
12 See, e.g., Rules 7510(a) and 7520 (trade
reporting fees and connectivity charges for the ADF)
and Rule 7620A (trade reporting fees for the FINRA/
Nasdaq TRF).
13 See Securities Exchange Release No. 79050
(October 5, 2016), 81 FR 70462 (October 12, 2016)
(SR–FINRA–2016–037).
14 ‘‘ATS shares’’ are shares of NMS stocks
executed within a member’s alternative trading
system (‘‘ATS’’) and ‘‘non-ATS shares’’ are shares
of NMS stocks executed OTC by a member outside
of an ATS.
15 See otctransparency.finra.org/otctransparency/
AtsIssueData.
16 Pursuant to Rule 6110, FINRA publishes on its
OTC Transparency Data website the number of
shares and trades by security executed OTC
(‘‘Trading Information’’) by each ATS and member
firm with a trade reporting obligation under FINRA
rules. Trading Information published on FINRA’s
website is derived directly from OTC trades
reported by the member firm to the FINRA
Facilities.
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Proposed Amendments to Rule 7620B
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The Current Monthly Fee
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Federal Register / Vol. 84, No. 196 / Wednesday, October 9, 2019 / Notices
Securities Information Processor (‘‘UTP
SIP’’), as applicable, during that period.
The ATS & Non-ATS OTC Market
Share is calculated in aggregate across
all tapes.17 Such calculation is based on
the data available for the prior full
calendar quarter and determines the
monthly fees in subsequent periods. By
using the total number of ATS and nonATS shares reported, the ATS & NonATS OTC Market Share does not limit
its calculation to reports submitted to
the FINRA/NYSE TRF.
The following chart sets forth the
current fee tiers:
ATS & non-ATS OTC
market share
Greater than or equal to
2.0% ..................................
Greater than or equal to
0.5% but less than 2.0% ...
Greater than or equal to
0.1% but less than 0.5% ...
Less than 0.1% .....................
Monthly
subscriber
fee
$30,000
15,000
5,000
2,000
The Proposed Monthly Fee
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The Business Member has determined
to adjust the fees for use of the FINRA/
NYSE TRF to base the monthly fee on
the Participant’s share of total market
volume reported to the FINRA/NYSE
TRF. More specifically, rather than
using the ATS & Non-ATS OTC Market
Share, the proposed fees will be based
on the Participant’s ‘‘FINRA/NYSE TRF
Market Share,’’ defined as the
percentage calculated by dividing:
a. The total number of shares reported
to the FINRA/NYSE TRF for public
dissemination (or ‘‘tape’’) purposes
during a given calendar month that are
attributable to a FINRA/NYSE TRF
Participant, by
b. the total number of all shares
reported to the CTA or UTP SIP, as
applicable, during that period.
The FINRA/NYSE TRF Market Share
would be calculated in aggregate across
all tapes and would be based on the
number of shares attributable to a
FINRA/NYSE TRF Participant,
irrespective of whether the trade is
reported by the Participant or on behalf
of the Participant by another FINRA/
NYSE TRF Participant. Such calculation
would be based on the data available for
the prior full calendar month.18
The text of Rule 7620B would be
revised to be consistent with the
changes. As noted, the fee would be
calculated based on the shares reported
to the FINRA/NYSE TRF and would no
longer be based on the shares published
on FINRA’s OTC Transparency Data
website. Accordingly, amended Rule
7620B would remove the reference to
‘‘ATS and non-ATS’’ shares because
that classification is used on FINRA’s
OTC Transparency Data website, but not
by the FINRA/NYSE TRF.
Amended Rule 7620B would state
that a transaction is attributed to a
FINRA/NYSE TRF Participant if the
Participant is identified as the executing
party, i.e., has the trade reporting
obligation under Rule 6380B(b), in a
trade report submitted to the FINRA/
NYSE TRF for tape purposes. Finally,
amended Rule 7620B would state that
FINRA/NYSE TRF Market Share would
be calculated in aggregate across all
Tapes and only include shares reported
to the Tapes.
In addition to basing the fee on the
Participant’s FINRA/NYSE TRF Market
Share, the proposed changes to Rule
7620B would expand the tier structure
from four monthly participant fees to
nine. Under the proposed rule change,
for those Participants with a FINRA/
NYSE TRF Market Share of less than
0.10%, the determination of the
applicable tier would be tied to the
number of tape reports submitted to the
FINRA/NYSE TRF.
The following chart sets forth the nine
proposed fee tiers: 19
FINRA/NYSE TRF market share
Count of tape reports to
FINRA/NYSE TRF
Greater than or equal to 1.25% ..................................................
Greater than or equal to 0.75% but less than 1.25% ................
Greater than or equal to 0.50% but less than 0.75% ................
Greater than or equal to 0.25% but less than 0.50% ................
Greater than or equal to 0.10% but less than 0.25% ................
Less than 0.10% .........................................................................
Less than 0.10% .........................................................................
Less than 0.10% .........................................................................
Less than 0.10% .........................................................................
n/a ..............................................................................................
n/a ..............................................................................................
n/a ..............................................................................................
n/a ..............................................................................................
n/a ..............................................................................................
25,000 or more trade reports .....................................................
100 or more trade reports but fewer than 25,000 trade reports
1 or more trade reports but fewer than 100 trade reports ........
No trade reports .........................................................................
As now, the monthly fee will be
charged at the end of the calendar
month and will apply to any Participant
that has submitted a participant
application agreement to the FINRA/
NYSE TRF pursuant to Rule 7220B
(Trade Reporting Participation
Requirements). If a new FINRA/NYSE
TRF Participant submits the participant
application agreement and reports no
shares traded in a given month, the
Participant will not be charged the
monthly fee for the first two calendar
months in order to provide time to
connect to the FINRA/NYSE TRF.20
The monthly fees paid by FINRA/
NYSE TRF Participants will continue to
include unlimited use of the Client
Management Tool, as well as full access
to the FINRA/NYSE TRF and supporting
functionality, e.g., trade submission,
reversal and cancellation.21
17 There are three tapes: ‘‘Tape A’’ includes
securities listed on the New York Stock Exchange,
‘‘Tape B’’ includes securities listed on NYSE
American and regional exchanges, and ‘‘Tape C’’
includes securities listed on Nasdaq.
18 For example, the bill issued in June would be
for the month of May, and would be based on
shares reported during May. The Business Member
believes that having the calculation based on
monthly data would allow the fees to reflect any
changes in a Participant’s use of the FINRA/NYSE
TRF more quickly than if fees were calculated using
quarterly data.
19 Because the first sentence states that ‘‘each
participant’’ will be charged the fee, to make the
rule consistent in its terminology ‘‘Subscriber’’
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Application of Proposed Fee Schedule
54221
Monthly
participant
fee
$30,000
20,000
17,500
15,000
10,000
2,000
750
250
2,000
FINRA members that are, or elect to
become, FINRA/NYSE TRF Participants.
It will not apply differently to different
types or sizes of Participants. Rather,
because it will utilize the FINRA/NYSE
TRF Market Share, the proposed fees
will be based on a Participant’s activity
on the FINRA/NYSE TRF, not, as now,
on its total OTC trading activity,
whether or not it is reported to the
The proposed fee schedule will be
applied in the same manner to all
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would be replaced with ‘‘Participant’’ in the
heading of the third column in the table.
20 As is the case today, after the first two calendar
months, the Participant will be charged regardless
of connectivity.
21 See 81 FR 70462, supra note 13, at 70465.
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FINRA/NYSE TRF.22 At the same time,
by expanding the tier structure from
four monthly participant tiers to nine,
the proposed rule change would create
a more nuanced fee structure, under
which Participants’ monthly fees would
more closely correspond to the extent to
which they use the FINRA/NYSE TRF
in a given month.
FINRA/NYSE TRF Market Share
Measured at any given point, a
Participant’s FINRA/NYSE TRF Market
Share would always be lower than or
equal to its ATS & Non-ATS OTC
Market Share. Although one is
calculated monthly and the other
quarterly, given that the denominator
for both is the total number of shares
reported to the CTA or UTP SIP during
the relevant period, a ratio that has the
shares reported only to the FINRA/
NYSE TRF as the numerator will be
smaller than, or at most equal to, a ratio
that has all shares reported to all FINRA
Facilities as the numerator. Based on the
Business Member’s comparison of the
information on the OTC Transparency
Data website with its own activity
records, the Business Member
understands that few, if any,
Proposed Tiers
To facilitate comparison of the current
and proposed tiers, the following table
sets forth the proposed and current tiers,
applicable monthly fee, and the number
of Participants that were subject to each
of the current tiers as of March 31, 2019.
Monthly fee
(current and
proposed)
Number of
participants in
each current
tier 1
ATS & non-ATS OTC market share
(current tiers)
FINRA/NYSE TRF market share
(proposed tiers)
Greater than or equal to 2.00% ...................................
Greater than or equal to 1.25% ...................................
Greater than or equal to 0.75% but less than 1.25% ..
Greater than or equal to 0.50% but less than 0.75% ..
Greater than or equal to 0.25% but less than 0.50% ..
Greater than or equal to 0.10% but less than 0.25% ..
.......................................................................................
Less than 0.10% and 25,000 or more trade reports to
the FINRA/NYSE TRF.
Less than 0.10% and 100 or more trade reports but
fewer than 25,000 trade reports to the FINRA/
NYSE TRF.
Less than 0.10% and 1 or more trade reports but
fewer than 100 trade reports to the FINRA/NYSE
TRF.
Less than 0.10% and no trade reports to the FINRA/
NYSE TRF.
$30,000
20,000
17,500
15,000
10,000
5,000
2,000
4
........................
........................
4
........................
3
18
750
........................
250
........................
2,000
........................
.......................................................................................
........................
29
Greater than or equal to 0.50% but less than 2.00% ..
Greater than or equal to 0.10% but less than 0.50% ..
Less than 0.10% ...........................................................
Total .......................................................................
1 As
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Participants do all of their reporting on
the FINRA/NYSE TRF. Accordingly, the
Business Member expects that most
Participants’ FINRA/NYSE TRF Market
Share would be lower than, not equal to,
their ATS & Non-ATS OTC Market
Share.
of March 31, 2019.
The Business Member selected the
proposed tiers and fees based on its
evaluation of what thresholds and fees
would create a more nuanced structure,
under which Participants’ monthly fees
would more closely correspond to the
extent to which they use the FINRA/
NYSE TRF in a given month, without
excessive charges. In making its
evaluation, the Business Member
utilized its comparison of the
information on the OTC Transparency
Data website with its own activity
records.
The proposed fee schedule uses
different threshold percentages for its
tiers than the current fee schedule, as
shown in the table above. Specifically,
the highest fee would still be $30,000,
but the threshold percentage of the
FINRA/NYSE TRF Market Share would
be 1.25%, as opposed to the current tier,
which sets the threshold ATS & NonATS OTC Market Share at 2.0%.
The current fee schedule has two tiers
between the lowest and highest tiers,
i.e., for Participants with an ATS & NonATS OTC Market Share that is at least
0.10% and less than 2.0%. By contrast,
under the proposed rule change, there
would be four tiers for Participants with
a FINRA/NYSE TRF Market Share that
is at least 0.10% and less than 1.25%.
Currently, all Participants with an
ATS & Non-ATS OTC Market Share of
less than 0.10% incur a flat monthly fee
of $2,000. No fee is below $2,000. Under
the proposed rule change, a Participant
with a FINRA/NYSE TRF Market Share
of less than 0.10% would pay a fee
based on its number of trade reports to
the FINRA/NYSE TRF. As indicated in
the table above, a Participant with a
FINRA/NYSE TRF Market Share of less
than 0.1% would be subject to a $250
or $750 monthly fee if it had one or
more but fewer than 25,000 trade
reports. It would incur the $2,000
monthly fee if it (a) had less than 0.10%
market share and 25,000 or more trade
reports, or (b) had no trade reports.
Currently, approximately 60% of
FINRA/NYSE TRF Participants are
subject to the flat monthly fee of $2,000
22 For example, using the total number of all
shares reported to the CTA and UTP SIP in March
2019, if Firm A, a very large firm with a significant
amount of trade reporting volume, had 364 million
shares per day to report to any TRF and chose to
report it all to the FINRA/NYSE TRF for the entire
month, its FINRA/NYSE TRF Market Share would
be 4.9% and its fee would be $30,000. If instead
Firm A chose to report 64 million shares to the
FINRA/NYSE TRF and 300 million shares to
another FINRA Facility, the FINRA/NYSE TRF
Market Share would be 0.88%, and Firm A’s fee
would be $20,000. The other FINRA Facility would
charge the firm based on its fee schedule.
By contrast, if Firm B, a more moderate sized
firm, had 21 million shares to report per day and
reported all of it to the FINRA/NYSE TRF, its
FINRA/NYSE TRF Market Share would be 0.29%,
and Firm B would have a fee of $15,000. If it chose
to report 5 million shares to the FINRA/NYSE TRF,
its FINRA/NYSE TRF Market Share would be
0.07%, and it would incur a fee based on its count
of tape reports. Specifically, if it reported 30,000
trades, the FINRA/NYSE TRF fee would be $2,000;
if it were 500 trades, the FINRA/NYSE TRF fee
would be $750; if it were one trade, the FINRA/
NYSE TRF fee would be $250; and if it reported no
trades, the FINRA/NYSE TRF fee would be $2,000.
In each case, the FINRA Facility it reported the
other shares to would charge Firm B based on its
fee schedule.
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for having an ATS & Non-ATS OTC
Market Share of less than 0.10%.23 All
else being equal, the Business Member
believes that the number of Participants
with a FINRA/NYSE TRF Market Share
of less than 0.10% is unlikely to be the
same, as the fee will now more closely
correspond to their usage of the FINRA/
NYSE TRF. However, if we assume that
Participants do not change their
reporting behavior, the Business
Member believes that most Participants
would likely fall into the four bottom
tiers.
The Business Member believes that
using the number of trade reports
submitted to the FINRA/NYSE TRF to
help set the dividing line between the
four bottom tiers provides a basis for
distinguishing among such Participants,
allowing the proposed fee to be more
commensurate with the Participants’
actual usage. At the same time, the
Business Member believes that it is
reasonable and equitable to charge a
Participant the same $2,000 fee if it
reports 25,000 or more reports or none
at all, because it would create a
reasonable incentive for reporting to the
FINRA/NYSE TRF. Indeed, a Participant
that submits just one report, rather than
none, will reduce its fee from $2,000 to
ATS & non-ATS OTC market
share
Greater than or equal to 0.50%
but less than 2.00%.
khammond on DSKJM1Z7X2PROD with NOTICES
Greater than or equal to 0.10%
but less than 0.50%.
Less than 0.10% ...........................
It is not possible to fully predict the
number of FINRA members that are
likely to become FINRA/NYSE TRF
Participants, how many Participants
would be subject to each of the
proposed tiers, or whether there will be
an appreciable increase—or decrease—
in reporting to the FINRA/NYSE TRF.24
As noted above, the Business Member
anticipates that the proposed pricing
will incentivize Participants to increase
their reporting to the FINRA/NYSE TRF.
If there were no change in reporting
to the FINRA/NYSE TRF, such that
Participants’ reporting volume stayed
the same as it was in the first quarter of
2019, under the proposed fee schedule,
the total monthly subscriber fees paid to
the FINRA/NYSE TRF would decrease.
More specifically, of the four
Participants with a monthly subscriber
fee of $30,000 as of March 31, three
would remain at that rate and one
would see its fee fall to $10,000. Of the
four Participants with a monthly
Number of
firms per tier
under current
fee
subscriber fee of $15,000, one would
remain at that rate, and the others
would pay fees ranging from $2,000 to
$17,500. None of the three Participants
with monthly subscriber fees of $5,000
would stay at that rate: one would see
a fee increase, to $10,000, and the other
two would be subject to fees of $750 and
$2,000. Finally, of the 18 Participants
with a monthly subscriber fee of $2,000,
four would remain at $2,000 and 14
would see a fee reduction to $750.
The following table suggests how the
new tiers would apply if more FINRA
members were Participants. Using
FINRA data for activity reported to the
FINRA Facilities in the first quarter of
2019 from FINRA’s OTC Transparency
Data website, the table indicates the
number of firms that would be subject
to each tier if all FINRA members
(excluding de minimis firms) were
reporting to the FINRA/NYSE TRF
subject to the current or proposed fee.25
For the current fee, no assumptions are
required, as it is calculated based on the
ATS & Non-ATS OTC Market Share. For
the proposed fee, the table shows the
number of firms that would be in each
tier were they to report 25%, 50% or
100% of their activity to the FINRA/
NYSE TRF.
Number of firms per tier based on percentage of
reported volume 1
25%
50%
100%
Greater than or equal to 1.25% ..
Greater than or equal to 0.75%
but less than 1.25%.
Greater than or equal to 0.50%
but less than 0.75%.
Greater than or equal to 0.25%
but less than 0.50%.
Greater than or equal to 0.10%
but less than 0.25%.
......................................................
7
........................
1 .......................
2 .......................
6 .......................
...........................
7.
4.
........................
3 .......................
2 .......................
3.
8
2 .......................
6 .......................
7.
........................
6 .......................
8 .......................
7.
Less than 0.10% and 25,000 or
more trade reports to the
FINRA/NYSE TRF.
Less than 0.10% and 100 or
more trade reports but fewer
than 25,000 trade reports to
the FINRA/NYSE TRF.
Less than 0.10% and 1 or more
trade reports but fewer than
100 trade reports to the
FINRA/NYSE TRF.
33
35 .....................
22 .....................
17.
........................
7 .......................
14 .....................
15.
........................
6 .......................
4 .......................
2.
23 For the 15 months ended March 2019, the
number of FINRA/NYSE TRF Participants subject to
the flat $2,000 fee was between 17 and 19, and the
total number of Participants reporting to the
FINRA/NYSE TRF was 29 or 30.
24 The Business Member does not propose to
change the revenue sharing structure. The Business
Member notes, however, that the proposed pricing
may increase revenue sharing by encouraging
17:13 Oct 08, 2019
Anticipated Application of the New
Structure
FINRA/NYSE TRF market share
Greater than or equal to 2.00% ....
VerDate Sep<11>2014
$250, an 87.5% reduction. A Participant
that does not submit any reports would
be charged $2,000 under the current fee
structure.
Jkt 250001
14
Participants that have a FINRA/NYSE TRF Market
Share of less than 0.10% to make trade reports to
the FINRA/NYSE TRF in order to reduce their fees
from $2,000 to $250 or $750. The Business Member
believes that the increase in reporting would
increase such Participants’ revenue share as well as
decrease the fee.
25 The table excludes FINRA members whose
activity is ‘‘de minimis,’’ which account for 1.5%
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of all shares reported. Such firms’ activity cannot
be allocated, as information for firms with ‘‘de
minimis’’ volume outside of an ATS is aggregated
and published on a non-attributed basis. See ‘‘OTC
(ATS & Non-ATS) Transparency’’ at www.finra.org/
industry/otc-%28ats-%26-non-ats%29transparency.
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ATS & non-ATS OTC market
share
FINRA/NYSE TRF market share
Total Firms .............................
Number of
firms per tier
under current
fee
Number of firms per tier based on percentage of
reported volume 1
25%
50%
100%
Less than 0.10% and no trade
reports to the FINRA/NYSE
TRF.
........................
Not available .....
Not available .....
Not available.
......................................................
62
62 .....................
62 .....................
62.
1 Number
of firms that would be in each tier had the firm reported 25%, 50% or 100% of its activity to the FINRA/NYSE TRF. Total activity
based on data posted on the OTC Transparency Data website for the first quarter of 2019.
FINRA has filed the proposed rule
change for immediate effectiveness. The
operative date will be October 1, 2019.
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2. Statutory Basis
FINRA believes that the proposed rule
change is consistent with the provisions
of Section 15A(b)(5) of the Act,26 which
requires, among other things, that
FINRA rules provide for the equitable
allocation of reasonable dues, fees and
other charges among members and
issuers and other persons using any
facility or system that FINRA operates
or controls. All similarly situated
members are subject to the same fee
structure and access to the FINRA/
NYSE TRF is offered on fair and
nondiscriminatory terms.
The Proposed Rule Change Is an
Equitable Allocation of Reasonable Fees
FINRA believes that the proposed rule
change is an equitable allocation of
reasonable fees for the following
reasons.
The proposed fee would be based on
the Participant’s FINRA/NYSE TRF
Market Share, rather than its ATS &
Non-ATS OTC Market Share. As a
result, the proposed fee will be based on
a Participant’s activity on the FINRA/
NYSE TRF, not, as now, on its total OTC
trading activity, whether or not it is
reported to the FINRA/NYSE TRF. At
the same time, the proposed changes to
Rule 7620B would expand the tier
structure from four monthly participant
fees to nine. As a result, Participants’
monthly fees would more closely
correspond to the extent to which they
use the FINRA/NYSE TRF in a given
month. In addition, the Business
Member believes that having the
calculation based on monthly data will
allow the fees to reflect any changes in
a Participant’s use of the FINRA/NYSE
TRF more quickly than if fees were
calculated on a quarterly basis.
The proposed fee schedule uses
different threshold percentages for its
tiers than the current schedule, because
the percentages are of a different ratio.
Measured at any given point, a
26 15
U.S.C. 78o–3(b)(5).
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17:13 Oct 08, 2019
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Participant’s FINRA/NYSE TRF Market
Share would always be lower than or
equal to its ATS & Non-ATS OTC
Market Share. Although one is
calculated monthly and the other
quarterly, given that the denominator
for both is the total number of shares
reported to the CTA or UTP SIP during
the relevant period, a ratio that has the
shares reported only to the FINRA/
NYSE TRF as the numerator will be
smaller than, or at most, equal to, a ratio
that has all shares reported to all FINRA
Facilities as the numerator. Based on the
Business Member’s comparison of the
information on the OTC Transparency
Data website with its own activity
records, it believes that few, if any,
Participants do all of their reporting on
the FINRA/NYSE TRF. Accordingly, the
Business Member expects that most
Participants’ FINRA/NYSE TRF Market
Share would be lower than, not equal to,
their ATS & Non-ATS OTC Market
Share.
The Business Member selected the
proposed tiers and fees based on its
evaluation of what thresholds and fees
would create a more nuanced structure,
under which Participants’ monthly fees
would more closely correspond to the
extent to which they use the FINRA/
NYSE TRF in a given month, without
excessive charges. In making its
evaluation, the Business Member
utilized its comparison of the
information on the OTC Transparency
Data website with its own activity
records.
Currently, approximately 60% of
FINRA/NYSE TRF Participants are
subject to the flat monthly fee of $2,000
for having an ATS & Non-ATS OTC
Market Share of less than 0.10%.27 All
else being equal, the Business Member
believes that the number of Participants
with a FINRA/NYSE TRF Market Share
of less than 0.10% is unlikely to be the
same, as the fee will now more closely
correspond to their usage of the FINRA/
27 For the 15 months ended March 2019, the
number of FINRA/NYSE TRF Participants subject to
the flat $2,000 fee was between 17 and 19, and the
total number of Participants reporting to the
FINRA/NYSE TRF was 29 or 30.
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NYSE TRF. However, if we assume that
Participants do not change their
reporting behavior, the Business
Member believes that most Participants
would likely fall into the four bottom
tiers.
The Business Member believes that
using the number of trade reports
submitted to the FINRA/NYSE TRF to
help set the dividing line between the
four bottom tiers would be equitable
because it would provide a basis for
distinguishing among such Participants,
allowing the proposed fee to be more
commensurate with the Participants’
actual usage. At the same time, the
Business Member believes that it is
reasonable and equitable to charge a
Participant with a FINRA/NYSE TRF
Market Share of less than 0.10% the
same $2,000 fee if it reports 25,000 or
more reports or none at all, because it
would create a reasonable incentive for
reporting to the FINRA/NYSE TRF.
Indeed, a Participant that submits just
one report, rather than none, will reduce
its fee from $2,000 to $250, an 87.5%
reduction. It would be charged $2,000
under the current fee structure.
As is true currently, the proposed fees
are designed such that more active
Participants have a higher fee, while
less active Participants pay less. At the
same time, by adding additional tiers to
the current structure, the proposed rule
change should lead to fees that are more
reflective of Participants’ activity on the
FINRA/NYSE TRF.
The Proposed Rule Change Is Not
Unfairly Discriminatory
FINRA believes that the proposed rule
change is not unfairly discriminatory for
the following reasons.
The proposed fee schedule will be
assessed in the same manner on all
FINRA members that are, or elect to
become, FINRA/NYSE TRF Participants.
It will not be assessed differently to
different types or sizes of Participants.
Access to the FINRA/NYSE TRF is
offered on fair and non-discriminatory
terms.
FINRA members can choose among
four FINRA Facilities when reporting
OTC trades in NMS stocks: the FINRA/
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NYSE TRF, the two FINRA/Nasdaq
TRFs, or ADF. The FINRA Facilities
have different pricing and compete for
FINRA members’ trade report activity.
FINRA members will continue to have
the option of using another FINRA
Facility for purposes of reporting OTC
trades in NMS stocks if they determine
that the fees and credits of another
facility are more favorable. The pricing
structures of the other FINRA Facilities
are publicly available, allowing FINRA
members to make rational decisions
based on the information. The
Commission has repeatedly expressed
its preference for competition over
regulatory intervention in determining
prices, products, and services in the
securities markets. Specifically, in
Regulation NMS, the Commission
highlighted the importance of market
forces in determining prices and SRO
revenues and recognized that current
regulation of the market system ‘‘has
been remarkably successful in
promoting market competition in its
broader forms that are most important to
investors and listed companies.’’ 28
FINRA members currently use the
FINRA/NYSE TRF to report
approximately 20% of shares in NMS
stocks traded OTC, compared to
approximately 80% for the FINRA/
Nasdaq TRF. The Business Member
believes that pricing is the key factor for
FINRA members when choosing which
FINRA Facility to use. FINRA members
can report their OTC trades in NMS
stocks to a given FINRA Facility’s
competitors if they deem pricing levels
at the other FINRA Facilities to be more
favorable, so long as they are
participants of such other facilities.
At the same time, the Business
Member believes that the current
structure of Rule 7620B discourages
FINRA members from becoming FINRA/
NYSE TRF Participants. Because it is
calculated using a Participant’s total
OTC trading activity, the current fee is
not tied to how much trading is reported
to the FINRA/NYSE TRF. In other
words, a member may not choose to
become a FINRA/NYSE TRF Participant
because it would then be subject to a fee
based on all its reporting, not just its
usage of the FINRA/NYSE TRF. The
Business Member believes that the
proposed fee change will encourage
more FINRA members to become
FINRA/NYSE TRF Participants and use
the FINRA/NYSE TRF. Such a change
would make the FINRA/NYSE TRF
more competitive with the FINRA/
Nasdaq TRF and give members more
28 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005)
(S7–10–04).
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17:13 Oct 08, 2019
Jkt 250001
attractive options for trade reporting,
potentially encouraging FINRA
members to use the FINRA/NYSE TRF
to report more than the approximately
20% of their shares in NMS stocks
traded OTC that they currently use it
for.
Because it will utilize the FINRA/
NYSE TRF Market Share, the proposed
fees will be based on a Participant’s
activity on the FINRA/NYSE TRF, not,
as now, on its total OTC trading activity,
whether or not it is reported to the
FINRA/NYSE TRF. At the same time, by
expanding the tier structure from four
monthly participant tiers to nine, the
proposed rule change would create a
structure under which Participants’
monthly fees would more closely
correspond to the extent to which they
use the FINRA/NYSE TRF in a given
month.
The Business Member selected the
proposed tiers and fees based on its
evaluation of what thresholds and fees
would create a more nuanced structure,
under which Participants’ monthly fees
would more closely correspond to the
extent to which they use the FINRA/
NYSE TRF in a given month, without
excessive charges. In making its
evaluation, the Business Member
utilized its comparison of the
information on the OTC Transparency
Data website with its own activity
records.
The Business Member believes that,
for those Participants with a FINRA/
NYSE TRF Market Share of less than
0.10%, using the number of trade
reports submitted to the FINRA/NYSE
TRF to help set the dividing line
between tiers provides a basis for
distinguishing among such Participants,
allowing the proposed fee to be more
commensurate with the Participants’
actual usage. At the same time, the
Business Member believes that it is
reasonable and equitable to charge a
Participant the same $2,000 fee if it
reports 25,000 or more reports or none
at all, because it would create a
reasonable incentive for reporting to the
FINRA/NYSE TRF. Indeed, a Participant
that submits just one report, rather than
none, will reduce its fee from $2,000 to
$250, an 87.5% reduction. It would be
charged $2,000 under the current fee
structure.
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. In fact, the
Business Member believes that, rather
than impose a burden on competition,
PO 00000
Frm 00124
Fmt 4703
Sfmt 4703
54225
the proposed change will benefit
competition because it will give all
FINRA members more attractive options
for trade reporting. The Commission has
repeatedly expressed its preference for
competition over regulatory
intervention in determining prices,
products, and services in the securities
markets. In Regulation NMS, the
Commission highlighted the importance
of market forces in determining prices
and SRO revenues and recognized that
current regulation of the market system
‘‘has been remarkably successful in
promoting market competition in its
broader forms that are most important to
investors and listed companies.’’ 29
Intramarket Competition. FINRA
members currently use the FINRA/
NYSE TRF to report approximately 20%
of shares in NMS stocks traded OTC,
compared to approximately 80% for the
FINRA/Nasdaq TRF. Based on the
Business Member’s comparison of the
information on the OTC Transparency
Data website with its own activity
records, the Business Member
understands that few, if any,
Participants do all of their reporting on
the FINRA/NYSE TRF.
The Business Member believes that
pricing is the key factor for FINRA
members when choosing which FINRA
Facility to use. FINRA members can
report their OTC trades in NMS stocks
to a given FINRA Facility’s competitors
if they deem pricing levels at the other
FINRA Facilities to be more favorable,
so long as they are participants of such
other facilities. At the same time, the
Business Member believes that the
current fee structure under Rule 7620B
discourages some FINRA members from
becoming FINRA/NYSE TRF
Participants, because the current fee is
not tied to how much trading is reported
specifically to the FINRA/NYSE TRF.
To address this issue, the Business
Member has designed a fee structure
under which FINRA/NYSE TRF
Participants’ monthly reporting fees
would no longer be calculated using a
Participant’s total OTC trading activity.
Instead, as discussed above, the
proposed change would base the
monthly fee on the Participant’s share of
total market volume reported to the
FINRA/NYSE TRF. Accordingly, the
Business Member believes that the
proposed fee change will more closely
correspond to actual usage and
encourage more FINRA members to
become FINRA/NYSE TRF Participants
and use the FINRA/NYSE TRF, thereby
29 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005)
(S7–10–04).
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khammond on DSKJM1Z7X2PROD with NOTICES
making it more competitive with the
FINRA/Nasdaq TRF.
The Business Member does not
believe that the proposed fee would
place certain market participants at a
relative disadvantage compared to other
market participants, because the
proposed fee schedule will be applied
in the same manner to all FINRA
members that are, or elect to become,
FINRA/NYSE TRF Participants. It will
not apply differently to different types
or sizes of Participants. Rather, the
proposed fees will be based on a
Participant’s activity on the FINRA/
NYSE TRF, because it will utilize the
FINRA/NYSE TRF Market Share.30 At
the same time, by expanding the tier
structure from four monthly participant
tiers to nine, the proposed rule change
would create a structure under which
Participants’ monthly fees would more
closely correspond to the extent to
which they use the FINRA/NYSE TRF
in a given month.
As of March 31, 2019, there were 29
Participants, of which a majority of 18
were in the $2,000 per month tier. Four
of the remaining Participants were in
the $30,000 per month tier, four were in
the $15,000 per month tier, and three
were in the $5,000 per month tier.
Assuming the number of Participants
remained flat, the average fee incurred
during March 2019 was estimated to be
approximately $7,966 per Participant
across the 29 Participants.
If there were no change in reporting
to the FINRA/NYSE TRF, such that
Participants’ reporting volume stayed
the same as it was in the first quarter of
2019, under the proposed fee schedule,
the total monthly subscriber fees paid to
the FINRA/NYSE TRF would decrease.
More specifically, assuming there was
no change in reporting to the FINRA/
NYSE TRF, under the proposed fee
schedule the average subscriber fee that
would have been incurred would have
been approximately $6,060 across the 29
30 See note 22, supra. As noted in note 6, supra,
a firm that routinely reports its OTC trades in NMS
stocks to only one FINRA Facility would have
connectivity to a second FINRA Facility for backup
purposes. The proposed fee change is expected to
reduce costs for many Participants that utilize the
FINRA/NYSE TRF as a backup facility only,
because it will be calculated using the Participant’s
share of total market volume reported to the FINRA/
NYSE TRF, rather than its total OTC trading
activity. For example, if Firm A, a very large firm
with a significant amount of trade reporting
volume, had 364 million shares per day to report
and chose to report it all to another FINRA Facility,
but kept its position as a Participant in the FINRA/
NYSE TRF for backup purposes, its current FINRA/
NYSE TRF fee would be $30,000 for the month,
because it would be based on Firm A’s total OTC
trading activity. Under the proposed fee Firm A
would pay only $2,000 per month, because the fee
would be based on its reporting to the FINRA/NYSE
TRF.
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17:13 Oct 08, 2019
Jkt 250001
Participants, compared to
approximately $7,966 per Participant
under the current fee. Of the four
Participants with a monthly subscriber
fee of $30,000, three would remain at
that rate and one would see its fee fall
to $10,000. Of the four Participants with
a monthly subscriber fee of $15,000, one
would remain at that rate, and the
others would pay fees ranging from
$2,000 to $17,500. None of the three
Participants with monthly subscriber
fees of $5,000 would stay at that rate:
One would see a fee increase, to
$10,000, and the other two would be
subject to fees of $750 and $2,000.
Finally, of the 18 Participants with a
monthly subscriber fee of $2,000, four
would remain at $2,000 and 14 would
see a fee reduction to $750.
Participants may potentially alter
their trading activity in response to the
proposed rule change. Specifically,
those Participants that would incur
higher fees may refrain from reporting to
the FINRA/NYSE TRF and may choose
to report to another FINRA Facility.
Alternatively, such firms may continue
reporting or new firms may start
reporting to the FINRA/NYSE TRF if
they find that the proposed net cost of
reporting and other functionalities
provided represent the best value to
their business.31 The net effect on any
individual Participant of the proposed
change in reporting fees will depend on
the number of shares the Participant
reports to the FINRA/NYSE TRF and the
total number of all shares reported to
the CTA or UTP SIP, as applicable,
during a period.
Intermarket Competition. The FINRA/
NYSE TRF operates in a competitive
environment. The proposed fee would
not impose a burden on competition on
other FINRA Facilities that is not
necessary or appropriate. The FINRA
Facilities have different pricing and
compete for FINRA members’ trade
report activity. The pricing structures of
the FINRA/NYSE TRF and other FINRA
Facilities are publicly available,
allowing FINRA members to make
rational decisions regarding which
FINRA Facility they use to report OTC
trades in NMS stocks.
FINRA members can choose among
four FINRA Facilities when reporting
OTC trades in NMS stocks: The FINRA/
NYSE TRF, the two FINRA/Nasdaq
31 The FINRA/NYSE TRF does not impose a fee
on new Participants, and so a FINRA member that
opts to become a Participant would not incur an
additional cost from the FINRA/NYSE TRF. In some
cases, a new Participant may incur incidental costs
to connect to the FINRA/NYSE TRF, but those are
not charged by the FINRA/NYSE TRF. An existing
Participant that ceases to be a Participant is not
subject to any change fee by the FINRA/NYSE TRF.
PO 00000
Frm 00125
Fmt 4703
Sfmt 4703
TRFs, or ADF. FINRA members can
report their OTC trades in NMS stocks
to a given FINRA Facility’s competitors
if they determine that the fees and
credits of another FINRA Facility are
more favorable, so long as they are
participants of such other facility.
The Business Member believes that in
such an environment the FINRA/NYSE
TRF must adjust its fees to be
competitive with other FINRA Facilities
and to attract Participant reporting. By
making the FINRA/NYSE TRF more
competitive with the FINRA/Nasdaq
TRF, the Business Member believes that
the proposed fee change will encourage
more FINRA members to become
FINRA/NYSE TRF Participants and use
the FINRA/NYSE TRF, thereby
increasing competition among the
FINRA Facilities and giving FINRA
members more attractive options for
trade reporting.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 32 and paragraph (f)(2) of Rule
19b–4 thereunder.33 At any time within
60 days of the filing of the proposed rule
change, the Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
32 15
33 17
E:\FR\FM\09OCN1.SGM
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(2).
09OCN1
Federal Register / Vol. 84, No. 196 / Wednesday, October 9, 2019 / Notices
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
FINRA–2019–024 on the subject line.
SECURITIES AND EXCHANGE
COMMISSION
Paper Comments
[Release No. 34–87214; File No. SR–ISE–
2019–24]
• 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–2019–024. 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
a.m. and 3 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–
2019–024 and should be submitted on
or before October 30, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.34
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–22023 Filed 10–8–19; 8:45 am]
khammond on DSKJM1Z7X2PROD with NOTICES
BILLING CODE 8011–01–P
Self-Regulatory Organizations; Nasdaq
ISE, LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend ISE’s
Rulebook and By-Laws
October 3, 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
September 23, 2019, Nasdaq ISE, LLC
(‘‘ISE’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I and
II below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend its
Rulebook and By-Laws to (i) remove
obsolete provisions relating to the
organization and administration of
committees, (ii) modify Director
categorizations, (iii) amend the
compositional requirements of the
Exchange’s board (‘‘Board’’) and
Regulatory Oversight Committee
(‘‘ROC’’), and (iv) make additional, nonsubstantive edits.
The text of the proposed rule change
is available on the Exchange’s website at
https://ise.cchwallstreet.com/, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
1 15
34 17
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
17:13 Oct 08, 2019
2 17
Jkt 250001
PO 00000
U.S.C. 78s(b)(1).
CFR 240.19b–4.
Frm 00126
Fmt 4703
54227
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend its
Rulebook and By-Laws to (i) remove
obsolete provisions relating to the
organization and administration of
committees, (ii) modify Director
categorizations, (iii) amend the Board
and ROC compositional requirements,
and (iv) make additional, nonsubstantive edits. Each change is
discussed below.3
Rules 200–203
Chapter 2 of the Exchange’s Rulebook
presently contains a number of rules
relating to the organization and
administration of committees of the
Exchange. In particular, Rules 200–203
set forth provisions for the
establishment of committees, removal of
committee members, committee
procedures and the general duties and
powers of committees, all of which have
been in place since the Exchange’s
inception. The Exchange has since
amended its committee structure and
related rules to align with those of its
affiliates.4 Accordingly, the Exchange
proposes to delete Rules 200–203 as
obsolete or duplicative because the
provisions related to the organization
and administration of committees are
now set forth in the Exchange’s Limited
Liability Company Agreement (‘‘LLC
Agreement’’) and its By-Laws.
Historically, Rules 200 and 201
authorized the Chief Executive Officer
of the Exchange to establish committees
not comprised of directors pursuant to
delegated authority by the Board, and to
appoint or remove any such committee
members with Board approval.5 With
3 All references herein and in the Exhibit 5 to ‘‘the
Company’’ mean the Exchange. Company is defined
in the By-Laws to mean Nasdaq ISE, LLC.
4 See Securities Exchange Act Release No. 81263
(July 31, 2017), 82 FR 36497 (August 4, 2017) (SR–
ISE–2017–32) (establishing, among other changes, a
Board and committee structure substantially similar
to The Nasdaq Stock Market LLC’s structure); and
Securities Exchange Act Release No. 83703 (July 25,
2018), 83 FR 36992 (July 31, 2018) (SR–ISE–2018–
59) (establishing, among other changes, an
Exchange Review Council substantially similar to
Exchange Review Council of Nasdaq BX, Inc. to
replace the Business Conduct Committee). As a
result of these changes, Exchange’s board and
committee structure is generally harmonized with
its affiliates, Nasdaq BX, Inc. (‘‘BX’’), The Nasdaq
Stock Market LLC (‘‘Nasdaq’’), and Nasdaq PHLX
LLC (‘‘Phlx’’).
5 For example, the Exchange’s former Business
Conduct Committee (‘‘BCC’’) was established by the
Chief Executive Officer pursuant to delegated
authority. As noted above, the BCC was recently
replaced by the Exchange Review Council in SR–
ISE–2018–59. See Securities Exchange Act Release
Continued
Sfmt 4703
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09OCN1
]]>Agencies
[Federal Register Volume 84, Number 196 (Wednesday, October 9, 2019)]
[Notices]
[Pages 54219-54227]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-22023]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87205; File No. SR-FINRA-2019-024]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Amend FINRA Rule 7620B To Modify the Trade
Reporting Fees Applicable to Participants That Use the FINRA/NYSE Trade
Reporting Facility
October 3, 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 September 26, 2019, Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission
(``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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(ii).
\4\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to amend FINRA Rule 7620B (Trade Reporting
Facility Reporting Fees) to modify the trade reporting fees applicable
to participants that use the FINRA/NYSE Trade Reporting Facility
(``FINRA/NYSE TRF'').
The text of the proposed rule change is available on FINRA's
website at https://www.finra.org, at the principal office of FINRA and
at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, FINRA included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. FINRA has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The FINRA/NYSE TRF, which is operated by NYSE Market (DE), Inc.
(``NYSE Market (DE)''), is one of four FINRA facilities \5\ that FINRA
members can use to report over-the-counter (``OTC'') trades in NMS
stocks. While members are required to report all OTC trades in NMS
stocks to FINRA, they may choose which FINRA Facility (or Facilities)
to use to satisfy their trade reporting obligations.\6\
---------------------------------------------------------------------------
\5\ The four FINRA facilities are the FINRA/NYSE TRF, two FINRA/
Nasdaq Trade Reporting Facilities (together, the ``FINRA/Nasdaq
TRF''), and the Alternative Display Facility (``ADF'' and together,
the ``FINRA Facilities'').
\6\ Members can use the FINRA/NYSE TRF as a backup system and
reserve bandwidth if there is a failure at another FINRA Facility
that supports the reporting of OTC trades in NMS stocks. As set
forth in Trade Reporting Notice 1/20/16 (OTC Equity Trading and
Reporting in the Event of Systems Issues), a firm that routinely
reports its OTC trades in NMS stocks to only one FINRA Facility must
establish and maintain connectivity and report to a second FINRA
Facility, if the firm intends to continue to support OTC trading as
an executing broker while its primary facility is experiencing a
widespread systems issue.
---------------------------------------------------------------------------
As discussed below, NYSE Market (DE) proposes to modify the trade
reporting fees applicable to FINRA members that use the FINRA/NYSE TRF
(``FINRA/NYSE TRF Participants'' or ``Participants''). Currently, the
monthly fee for use of the FINRA/NYSE TRF is calculated using a tiered
fee structure based on the reporting member's OTC trading activity.
NYSE Market (DE) proposes to:
Change the tier basis to use just the trading activity
reported to the FINRA/NYSE TRF, rather than using all trading activity
published on FINRA's public website, as it does now; and
increase the number of fee tiers to address differences in
participant usage.
If there were no change in reporting to the FINRA/NYSE TRF, such
that Participants' reporting volume stayed the same as it was in the
first quarter of 2019, under the proposed fee schedule the total
monthly subscriber fees paid to the FINRA/NYSE TRF would decrease.
FINRA is proposing to amend FINRA Rule 7620B (FINRA/NYSE Trade
Reporting Facility Reporting Fees) accordingly. There is no new product
or service accompanying the proposed fee change.
Background
The FINRA/NYSE TRF
Under the governing limited liability company agreement,\7\ the
FINRA/NYSE TRF has two members: FINRA and NYSE Market (DE). FINRA, the
``SRO Member,'' has sole regulatory responsibility for the FINRA/NYSE
TRF. NYSE Market (DE), the ``Business Member,'' is primarily
responsible for the management of the FINRA/NYSE TRF's business affairs
to the extent those affairs are not inconsistent with the regulatory
and oversight functions of FINRA.
---------------------------------------------------------------------------
\7\ See the Second Amended and Restated Limited Liability
Company Agreement of FINRA/NYSE Trade Reporting Facility LLC. The
limited liability company agreement, which was submitted as part of
the rule filing to establish the FINRA/NYSE TRF and was subsequently
amended and restated, can be found in the FINRA Manual.
---------------------------------------------------------------------------
The Business Member establishes pricing for use of the FINRA/NYSE
TRF, which pricing is implemented pursuant to FINRA rules that FINRA
must file with the Commission and that must be consistent with the Act.
The relevant FINRA rules are administered by NYSE Market (DE), in its
capacity as the Business Member and operator of the
[[Page 54220]]
FINRA/NYSE TRF on behalf of FINRA,\8\ and the Business Member collects
all fees on behalf of the FINRA/NYSE TRF. In addition, the Business
Member is obligated to pay the cost of regulation and is entitled to
the profits and losses, if any, derived from the operation of the
FINRA/NYSE TRF.
---------------------------------------------------------------------------
\8\ FINRA's oversight of this function performed by the Business
Member is conducted through a recurring assessment and review of the
FINRA/NYSE TRF operations by an outside independent audit firm.
---------------------------------------------------------------------------
FINRA/NYSE TRF Participants are charged fees pursuant to Rule 7620B
and may qualify for transaction credits under Rule 7610B (Securities
Transaction Credit). In addition, pursuant to Rule 7630B (Aggregation
of Activity of Affiliated Members), affiliated members can aggregate
their activity for purposes of fees and credits that are dependent upon
the volume of their activity.\9\
---------------------------------------------------------------------------
\9\ No change is proposed to be made to Rules 7610B or 7630B,
and so there will be no change to the requirements for, or process
of, securities transaction credits and the aggregation of affiliated
member activity.
---------------------------------------------------------------------------
The FINRA/NYSE TRF is smaller than the FINRA/Nasdaq TRF in terms of
reported volume: FINRA members currently use the FINRA/NYSE TRF to
report approximately 20% of shares in NMS stocks traded OTC. For
example, from July 2018 through June 2019, the breakout of trade report
activity among the FINRA Facilities was as follows:
------------------------------------------------------------------------
Number of reported Percentage of
Facility shares TRF total
------------------------------------------------------------------------
FINRA/NYSE TRF...................... 130,536,250,022 19.5
FINRA/NASDAQ TRF.................... 540,520,980,728 80.5
------------------------------------------------------------------------
Competitive Environment
According to the Business Member, the FINRA/NYSE TRF operates in a
competitive environment. The FINRA Facilities have different pricing
\10\ and compete for FINRA members' trade report activity. In turn,
FINRA members can choose which FINRA Facility they use to report OTC
trades in NMS stocks. The Commission has repeatedly expressed its
preference for competition over regulatory intervention in determining
prices, products, and services in the securities markets. Specifically,
in Regulation NMS, the Commission highlighted the importance of market
forces in determining prices and SRO revenues and recognized that
current regulation of the market system ``has been remarkably
successful in promoting market competition in its broader forms that
are most important to investors and listed companies.'' \11\
---------------------------------------------------------------------------
\10\ Because the FINRA/NYSE TRF and FINRA/Nasdaq TRF are
operated by different business members competing for market share,
FINRA does not take a position on whether the pricing for one TRF is
more favorable or competitive than the pricing for the other TRF.
\11\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005) (S7-10-04).
---------------------------------------------------------------------------
FINRA members currently use the FINRA/NYSE TRF to report
approximately 20% of shares in NMS stocks traded OTC, compared to
approximately 80% for the FINRA/Nasdaq TRF. The Business Member
believes that pricing is the key factor for FINRA members when choosing
which FINRA Facility to use. FINRA members can report their OTC trades
in NMS stocks to a given FINRA Facility's competitors if they deem
pricing levels at the other FINRA Facilities to be more favorable, so
long as they are participants of such other facilities. At the same
time, the Business Member believes that the current fee structure under
Rule 7620B discourages some FINRA members from becoming FINRA/NYSE TRF
Participants, because the current fee is not tied to how much trading
is reported specifically to the FINRA/NYSE TRF.
To address this issue, the Business Member has designed a fee
structure under which FINRA/NYSE TRF Participants' monthly reporting
fees would not be calculated using a Participant's total OTC trading
activity. As discussed below, the proposed change would base the
monthly fee on the Participant's share of total market volume reported
to the FINRA/NYSE TRF. Accordingly, the Business Member believes that
the proposed fee change will more closely correspond to actual usage
and encourage more FINRA members to become FINRA/NYSE TRF Participants
and use the FINRA/NYSE TRF. Such a change would make the FINRA/NYSE TRF
more competitive with the FINRA/Nasdaq TRF and give members more
attractive options for trade reporting, potentially encouraging FINRA
members to use the FINRA/NYSE TRF to report more than the approximately
20% of their shares in NMS stocks traded OTC that they currently use it
for.
Proposed Amendments to Rule 7620B
Under Rule 7620B, FINRA/NYSE TRF Participants are charged a flat
fee for access to the complete range of functionality offered by the
FINRA/NYSE TRF rather than a separate fee for each activity (e.g., a
per trade or per side fee for reporting a trade, a separate per trade
fee for canceling a trade, etc.) or a separate fee for
connectivity.\12\ Rather than charging the same fee to all FINRA/NYSE
TRF Participants irrespective of trading activity, the fees set forth
in Rule 7620B are tiered, to tie the amount of the monthly fees to a
Participant's trading activity.
---------------------------------------------------------------------------
\12\ See, e.g., Rules 7510(a) and 7520 (trade reporting fees and
connectivity charges for the ADF) and Rule 7620A (trade reporting
fees for the FINRA/Nasdaq TRF).
---------------------------------------------------------------------------
The Current Monthly Fee
As noted above, the monthly fee for use of the FINRA/NYSE TRF is
calculated using a tiered fee structure based on a Participant's total
OTC trading activity, whether or not it is reported to the FINRA/NYSE
TRF. Specifically, pursuant to current Rule 7620B,\13\ each Participant
is charged a fee based on its ``ATS & Non-ATS OTC Market Share,'' which
is defined as the percentage calculated by dividing:
---------------------------------------------------------------------------
\13\ See Securities Exchange Release No. 79050 (October 5,
2016), 81 FR 70462 (October 12, 2016) (SR-FINRA-2016-037).
---------------------------------------------------------------------------
a. The total number of ATS and non-ATS shares \14\ reported by the
Participant to FINRA and published on FINRA's public website (``OTC
Transparency Data website'') \15\ pursuant to Rule 6110 (Trading
Otherwise than on an Exchange) \16\ during a given calendar quarter, by
---------------------------------------------------------------------------
\14\ ``ATS shares'' are shares of NMS stocks executed within a
member's alternative trading system (``ATS'') and ``non-ATS shares''
are shares of NMS stocks executed OTC by a member outside of an ATS.
\15\ See otctransparency.finra.org/otctransparency/AtsIssueData.
\16\ Pursuant to Rule 6110, FINRA publishes on its OTC
Transparency Data website the number of shares and trades by
security executed OTC (``Trading Information'') by each ATS and
member firm with a trade reporting obligation under FINRA rules.
Trading Information published on FINRA's website is derived directly
from OTC trades reported by the member firm to the FINRA Facilities.
---------------------------------------------------------------------------
b. the total number of all shares reported to the Consolidated Tape
Association (``CTA'') or the Nasdaq
[[Page 54221]]
Securities Information Processor (``UTP SIP''), as applicable, during
that period.
The ATS & Non-ATS OTC Market Share is calculated in aggregate
across all tapes.\17\ Such calculation is based on the data available
for the prior full calendar quarter and determines the monthly fees in
subsequent periods. By using the total number of ATS and non-ATS shares
reported, the ATS & Non-ATS OTC Market Share does not limit its
calculation to reports submitted to the FINRA/NYSE TRF.
---------------------------------------------------------------------------
\17\ There are three tapes: ``Tape A'' includes securities
listed on the New York Stock Exchange, ``Tape B'' includes
securities listed on NYSE American and regional exchanges, and
``Tape C'' includes securities listed on Nasdaq.
---------------------------------------------------------------------------
The following chart sets forth the current fee tiers:
------------------------------------------------------------------------
Monthly
ATS & non-ATS OTC market share subscriber fee
------------------------------------------------------------------------
Greater than or equal to 2.0%........................... $30,000
Greater than or equal to 0.5% but less than 2.0%........ 15,000
Greater than or equal to 0.1% but less than 0.5%........ 5,000
Less than 0.1%.......................................... 2,000
------------------------------------------------------------------------
The Proposed Monthly Fee
The Business Member has determined to adjust the fees for use of
the FINRA/NYSE TRF to base the monthly fee on the Participant's share
of total market volume reported to the FINRA/NYSE TRF. More
specifically, rather than using the ATS & Non-ATS OTC Market Share, the
proposed fees will be based on the Participant's ``FINRA/NYSE TRF
Market Share,'' defined as the percentage calculated by dividing:
a. The total number of shares reported to the FINRA/NYSE TRF for
public dissemination (or ``tape'') purposes during a given calendar
month that are attributable to a FINRA/NYSE TRF Participant, by
b. the total number of all shares reported to the CTA or UTP SIP,
as applicable, during that period.
The FINRA/NYSE TRF Market Share would be calculated in aggregate
across all tapes and would be based on the number of shares
attributable to a FINRA/NYSE TRF Participant, irrespective of whether
the trade is reported by the Participant or on behalf of the
Participant by another FINRA/NYSE TRF Participant. Such calculation
would be based on the data available for the prior full calendar
month.\18\
---------------------------------------------------------------------------
\18\ For example, the bill issued in June would be for the month
of May, and would be based on shares reported during May. The
Business Member believes that having the calculation based on
monthly data would allow the fees to reflect any changes in a
Participant's use of the FINRA/NYSE TRF more quickly than if fees
were calculated using quarterly data.
---------------------------------------------------------------------------
The text of Rule 7620B would be revised to be consistent with the
changes. As noted, the fee would be calculated based on the shares
reported to the FINRA/NYSE TRF and would no longer be based on the
shares published on FINRA's OTC Transparency Data website. Accordingly,
amended Rule 7620B would remove the reference to ``ATS and non-ATS''
shares because that classification is used on FINRA's OTC Transparency
Data website, but not by the FINRA/NYSE TRF.
Amended Rule 7620B would state that a transaction is attributed to
a FINRA/NYSE TRF Participant if the Participant is identified as the
executing party, i.e., has the trade reporting obligation under Rule
6380B(b), in a trade report submitted to the FINRA/NYSE TRF for tape
purposes. Finally, amended Rule 7620B would state that FINRA/NYSE TRF
Market Share would be calculated in aggregate across all Tapes and only
include shares reported to the Tapes.
In addition to basing the fee on the Participant's FINRA/NYSE TRF
Market Share, the proposed changes to Rule 7620B would expand the tier
structure from four monthly participant fees to nine. Under the
proposed rule change, for those Participants with a FINRA/NYSE TRF
Market Share of less than 0.10%, the determination of the applicable
tier would be tied to the number of tape reports submitted to the
FINRA/NYSE TRF.
The following chart sets forth the nine proposed fee tiers: \19\
---------------------------------------------------------------------------
\19\ Because the first sentence states that ``each participant''
will be charged the fee, to make the rule consistent in its
terminology ``Subscriber'' would be replaced with ``Participant'' in
the heading of the third column in the table.
------------------------------------------------------------------------
Monthly
FINRA/NYSE TRF market share Count of tape reports participant
to FINRA/NYSE TRF fee
------------------------------------------------------------------------
Greater than or equal to 1.25%. n/a.................... $30,000
Greater than or equal to 0.75% n/a.................... 20,000
but less than 1.25%.
Greater than or equal to 0.50% n/a.................... 17,500
but less than 0.75%.
Greater than or equal to 0.25% n/a.................... 15,000
but less than 0.50%.
Greater than or equal to 0.10% n/a.................... 10,000
but less than 0.25%.
Less than 0.10%................ 25,000 or more trade 2,000
reports.
Less than 0.10%................ 100 or more trade 750
reports but fewer than
25,000 trade reports.
Less than 0.10%................ 1 or more trade reports 250
but fewer than 100
trade reports.
Less than 0.10%................ No trade reports....... 2,000
------------------------------------------------------------------------
As now, the monthly fee will be charged at the end of the calendar
month and will apply to any Participant that has submitted a
participant application agreement to the FINRA/NYSE TRF pursuant to
Rule 7220B (Trade Reporting Participation Requirements). If a new
FINRA/NYSE TRF Participant submits the participant application
agreement and reports no shares traded in a given month, the
Participant will not be charged the monthly fee for the first two
calendar months in order to provide time to connect to the FINRA/NYSE
TRF.\20\
---------------------------------------------------------------------------
\20\ As is the case today, after the first two calendar months,
the Participant will be charged regardless of connectivity.
---------------------------------------------------------------------------
The monthly fees paid by FINRA/NYSE TRF Participants will continue
to include unlimited use of the Client Management Tool, as well as full
access to the FINRA/NYSE TRF and supporting functionality, e.g., trade
submission, reversal and cancellation.\21\
---------------------------------------------------------------------------
\21\ See 81 FR 70462, supra note 13, at 70465.
---------------------------------------------------------------------------
Application of Proposed Fee Schedule
The proposed fee schedule will be applied in the same manner to all
FINRA members that are, or elect to become, FINRA/NYSE TRF
Participants. It will not apply differently to different types or sizes
of Participants. Rather, because it will utilize the FINRA/NYSE TRF
Market Share, the proposed fees will be based on a Participant's
activity on the FINRA/NYSE TRF, not, as now, on its total OTC trading
activity, whether or not it is reported to the
[[Page 54222]]
FINRA/NYSE TRF.\22\ At the same time, by expanding the tier structure
from four monthly participant tiers to nine, the proposed rule change
would create a more nuanced fee structure, under which Participants'
monthly fees would more closely correspond to the extent to which they
use the FINRA/NYSE TRF in a given month.
---------------------------------------------------------------------------
\22\ For example, using the total number of all shares reported
to the CTA and UTP SIP in March 2019, if Firm A, a very large firm
with a significant amount of trade reporting volume, had 364 million
shares per day to report to any TRF and chose to report it all to
the FINRA/NYSE TRF for the entire month, its FINRA/NYSE TRF Market
Share would be 4.9% and its fee would be $30,000. If instead Firm A
chose to report 64 million shares to the FINRA/NYSE TRF and 300
million shares to another FINRA Facility, the FINRA/NYSE TRF Market
Share would be 0.88%, and Firm A's fee would be $20,000. The other
FINRA Facility would charge the firm based on its fee schedule.
By contrast, if Firm B, a more moderate sized firm, had 21
million shares to report per day and reported all of it to the
FINRA/NYSE TRF, its FINRA/NYSE TRF Market Share would be 0.29%, and
Firm B would have a fee of $15,000. If it chose to report 5 million
shares to the FINRA/NYSE TRF, its FINRA/NYSE TRF Market Share would
be 0.07%, and it would incur a fee based on its count of tape
reports. Specifically, if it reported 30,000 trades, the FINRA/NYSE
TRF fee would be $2,000; if it were 500 trades, the FINRA/NYSE TRF
fee would be $750; if it were one trade, the FINRA/NYSE TRF fee
would be $250; and if it reported no trades, the FINRA/NYSE TRF fee
would be $2,000. In each case, the FINRA Facility it reported the
other shares to would charge Firm B based on its fee schedule.
---------------------------------------------------------------------------
FINRA/NYSE TRF Market Share
Measured at any given point, a Participant's FINRA/NYSE TRF Market
Share would always be lower than or equal to its ATS & Non-ATS OTC
Market Share. Although one is calculated monthly and the other
quarterly, given that the denominator for both is the total number of
shares reported to the CTA or UTP SIP during the relevant period, a
ratio that has the shares reported only to the FINRA/NYSE TRF as the
numerator will be smaller than, or at most equal to, a ratio that has
all shares reported to all FINRA Facilities as the numerator. Based on
the Business Member's comparison of the information on the OTC
Transparency Data website with its own activity records, the Business
Member understands that few, if any, Participants do all of their
reporting on the FINRA/NYSE TRF. Accordingly, the Business Member
expects that most Participants' FINRA/NYSE TRF Market Share would be
lower than, not equal to, their ATS & Non-ATS OTC Market Share.
Proposed Tiers
To facilitate comparison of the current and proposed tiers, the
following table sets forth the proposed and current tiers, applicable
monthly fee, and the number of Participants that were subject to each
of the current tiers as of March 31, 2019.
----------------------------------------------------------------------------------------------------------------
Number of
Monthly fee participants
ATS & non-ATS OTC market share (current FINRA/NYSE TRF market share (current and in each
tiers) (proposed tiers) proposed) current tier
\1\
----------------------------------------------------------------------------------------------------------------
Greater than or equal to 2.00%............. Greater than or equal to 1.25%..... $30,000 4
Greater than or equal to 0.75% but 20,000 ..............
less than 1.25%.
Greater than or equal to 0.50% but 17,500 ..............
less than 0.75%.
Greater than or equal to 0.50% but less Greater than or equal to 0.25% but 15,000 4
than 2.00%. less than 0.50%.
Greater than or equal to 0.10% but 10,000 ..............
less than 0.25%.
Greater than or equal to 0.10% but less ................................... 5,000 3
than 0.50%.
Less than 0.10%............................ Less than 0.10% and 25,000 or more 2,000 18
trade reports to the FINRA/NYSE
TRF.
Less than 0.10% and 100 or more 750 ..............
trade reports but fewer than
25,000 trade reports to the FINRA/
NYSE TRF.
Less than 0.10% and 1 or more trade 250 ..............
reports but fewer than 100 trade
reports to the FINRA/NYSE TRF.
Less than 0.10% and no trade 2,000 ..............
reports to the FINRA/NYSE TRF.
-------------------------------
Total.................................. ................................... .............. 29
----------------------------------------------------------------------------------------------------------------
\1\ As of March 31, 2019.
The Business Member selected the proposed tiers and fees based on
its evaluation of what thresholds and fees would create a more nuanced
structure, under which Participants' monthly fees would more closely
correspond to the extent to which they use the FINRA/NYSE TRF in a
given month, without excessive charges. In making its evaluation, the
Business Member utilized its comparison of the information on the OTC
Transparency Data website with its own activity records.
The proposed fee schedule uses different threshold percentages for
its tiers than the current fee schedule, as shown in the table above.
Specifically, the highest fee would still be $30,000, but the threshold
percentage of the FINRA/NYSE TRF Market Share would be 1.25%, as
opposed to the current tier, which sets the threshold ATS & Non-ATS OTC
Market Share at 2.0%.
The current fee schedule has two tiers between the lowest and
highest tiers, i.e., for Participants with an ATS & Non-ATS OTC Market
Share that is at least 0.10% and less than 2.0%. By contrast, under the
proposed rule change, there would be four tiers for Participants with a
FINRA/NYSE TRF Market Share that is at least 0.10% and less than 1.25%.
Currently, all Participants with an ATS & Non-ATS OTC Market Share
of less than 0.10% incur a flat monthly fee of $2,000. No fee is below
$2,000. Under the proposed rule change, a Participant with a FINRA/NYSE
TRF Market Share of less than 0.10% would pay a fee based on its number
of trade reports to the FINRA/NYSE TRF. As indicated in the table
above, a Participant with a FINRA/NYSE TRF Market Share of less than
0.1% would be subject to a $250 or $750 monthly fee if it had one or
more but fewer than 25,000 trade reports. It would incur the $2,000
monthly fee if it (a) had less than 0.10% market share and 25,000 or
more trade reports, or (b) had no trade reports.
Currently, approximately 60% of FINRA/NYSE TRF Participants are
subject to the flat monthly fee of $2,000
[[Page 54223]]
for having an ATS & Non-ATS OTC Market Share of less than 0.10%.\23\
All else being equal, the Business Member believes that the number of
Participants with a FINRA/NYSE TRF Market Share of less than 0.10% is
unlikely to be the same, as the fee will now more closely correspond to
their usage of the FINRA/NYSE TRF. However, if we assume that
Participants do not change their reporting behavior, the Business
Member believes that most Participants would likely fall into the four
bottom tiers.
---------------------------------------------------------------------------
\23\ For the 15 months ended March 2019, the number of FINRA/
NYSE TRF Participants subject to the flat $2,000 fee was between 17
and 19, and the total number of Participants reporting to the FINRA/
NYSE TRF was 29 or 30.
---------------------------------------------------------------------------
The Business Member believes that using the number of trade reports
submitted to the FINRA/NYSE TRF to help set the dividing line between
the four bottom tiers provides a basis for distinguishing among such
Participants, allowing the proposed fee to be more commensurate with
the Participants' actual usage. At the same time, the Business Member
believes that it is reasonable and equitable to charge a Participant
the same $2,000 fee if it reports 25,000 or more reports or none at
all, because it would create a reasonable incentive for reporting to
the FINRA/NYSE TRF. Indeed, a Participant that submits just one report,
rather than none, will reduce its fee from $2,000 to $250, an 87.5%
reduction. A Participant that does not submit any reports would be
charged $2,000 under the current fee structure.
Anticipated Application of the New Structure
It is not possible to fully predict the number of FINRA members
that are likely to become FINRA/NYSE TRF Participants, how many
Participants would be subject to each of the proposed tiers, or whether
there will be an appreciable increase--or decrease--in reporting to the
FINRA/NYSE TRF.\24\ As noted above, the Business Member anticipates
that the proposed pricing will incentivize Participants to increase
their reporting to the FINRA/NYSE TRF.
---------------------------------------------------------------------------
\24\ The Business Member does not propose to change the revenue
sharing structure. The Business Member notes, however, that the
proposed pricing may increase revenue sharing by encouraging
Participants that have a FINRA/NYSE TRF Market Share of less than
0.10% to make trade reports to the FINRA/NYSE TRF in order to reduce
their fees from $2,000 to $250 or $750. The Business Member believes
that the increase in reporting would increase such Participants'
revenue share as well as decrease the fee.
---------------------------------------------------------------------------
If there were no change in reporting to the FINRA/NYSE TRF, such
that Participants' reporting volume stayed the same as it was in the
first quarter of 2019, under the proposed fee schedule, the total
monthly subscriber fees paid to the FINRA/NYSE TRF would decrease. More
specifically, of the four Participants with a monthly subscriber fee of
$30,000 as of March 31, three would remain at that rate and one would
see its fee fall to $10,000. Of the four Participants with a monthly
subscriber fee of $15,000, one would remain at that rate, and the
others would pay fees ranging from $2,000 to $17,500. None of the three
Participants with monthly subscriber fees of $5,000 would stay at that
rate: one would see a fee increase, to $10,000, and the other two would
be subject to fees of $750 and $2,000. Finally, of the 18 Participants
with a monthly subscriber fee of $2,000, four would remain at $2,000
and 14 would see a fee reduction to $750.
The following table suggests how the new tiers would apply if more
FINRA members were Participants. Using FINRA data for activity reported
to the FINRA Facilities in the first quarter of 2019 from FINRA's OTC
Transparency Data website, the table indicates the number of firms that
would be subject to each tier if all FINRA members (excluding de
minimis firms) were reporting to the FINRA/NYSE TRF subject to the
current or proposed fee.\25\ For the current fee, no assumptions are
required, as it is calculated based on the ATS & Non-ATS OTC Market
Share. For the proposed fee, the table shows the number of firms that
would be in each tier were they to report 25%, 50% or 100% of their
activity to the FINRA/NYSE TRF.
---------------------------------------------------------------------------
\25\ The table excludes FINRA members whose activity is ``de
minimis,'' which account for 1.5% of all shares reported. Such
firms' activity cannot be allocated, as information for firms with
``de minimis'' volume outside of an ATS is aggregated and published
on a non-attributed basis. See ``OTC (ATS & Non-ATS) Transparency''
at www.finra.org/industry/otc-%28ats-%26-non-ats%29-transparency.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number of Number of firms per tier based on percentage of reported volume \1\
FINRA/NYSE TRF market firms per tier -----------------------------------------------------------------------------
ATS & non-ATS OTC market share share under current
fee 25% 50% 100%
--------------------------------------------------------------------------------------------------------------------------------------------------------
Greater than or equal to 2.00%.. Greater than or equal to 7 1....................... 6....................... 7.
1.25%.
Greater than or equal to .............. 2....................... ........................ 4.
0.75% but less than
1.25%.
Greater than or equal to .............. 3....................... 2....................... 3.
0.50% but less than
0.75%.
Greater than or equal to 0.50% Greater than or equal to 8 2....................... 6....................... 7.
but less than 2.00%. 0.25% but less than
0.50%.
Greater than or equal to .............. 6....................... 8....................... 7.
0.10% but less than
0.25%.
Greater than or equal to 0.10% ........................ 14
but less than 0.50%.
Less than 0.10%................. Less than 0.10% and 33 35...................... 22...................... 17.
25,000 or more trade
reports to the FINRA/
NYSE TRF.
Less than 0.10% and 100 .............. 7....................... 14...................... 15.
or more trade reports
but fewer than 25,000
trade reports to the
FINRA/NYSE TRF.
Less than 0.10% and 1 or .............. 6....................... 4....................... 2.
more trade reports but
fewer than 100 trade
reports to the FINRA/
NYSE TRF.
[[Page 54224]]
Less than 0.10% and no .............. Not available........... Not available........... Not available.
trade reports to the
FINRA/NYSE TRF.
---------------------------------------------------------------------------------------------
Total Firms................. ........................ 62 62...................... 62...................... 62.
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Number of firms that would be in each tier had the firm reported 25%, 50% or 100% of its activity to the FINRA/NYSE TRF. Total activity based on
data posted on the OTC Transparency Data website for the first quarter of 2019.
FINRA has filed the proposed rule change for immediate
effectiveness. The operative date will be October 1, 2019.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(5) of the Act,\26\ which requires, among
other things, that FINRA rules provide for the equitable allocation of
reasonable dues, fees and other charges among members and issuers and
other persons using any facility or system that FINRA operates or
controls. All similarly situated members are subject to the same fee
structure and access to the FINRA/NYSE TRF is offered on fair and
nondiscriminatory terms.
---------------------------------------------------------------------------
\26\ 15 U.S.C. 78o-3(b)(5).
---------------------------------------------------------------------------
The Proposed Rule Change Is an Equitable Allocation of Reasonable Fees
FINRA believes that the proposed rule change is an equitable
allocation of reasonable fees for the following reasons.
The proposed fee would be based on the Participant's FINRA/NYSE TRF
Market Share, rather than its ATS & Non-ATS OTC Market Share. As a
result, the proposed fee will be based on a Participant's activity on
the FINRA/NYSE TRF, not, as now, on its total OTC trading activity,
whether or not it is reported to the FINRA/NYSE TRF. At the same time,
the proposed changes to Rule 7620B would expand the tier structure from
four monthly participant fees to nine. As a result, Participants'
monthly fees would more closely correspond to the extent to which they
use the FINRA/NYSE TRF in a given month. In addition, the Business
Member believes that having the calculation based on monthly data will
allow the fees to reflect any changes in a Participant's use of the
FINRA/NYSE TRF more quickly than if fees were calculated on a quarterly
basis.
The proposed fee schedule uses different threshold percentages for
its tiers than the current schedule, because the percentages are of a
different ratio. Measured at any given point, a Participant's FINRA/
NYSE TRF Market Share would always be lower than or equal to its ATS &
Non-ATS OTC Market Share. Although one is calculated monthly and the
other quarterly, given that the denominator for both is the total
number of shares reported to the CTA or UTP SIP during the relevant
period, a ratio that has the shares reported only to the FINRA/NYSE TRF
as the numerator will be smaller than, or at most, equal to, a ratio
that has all shares reported to all FINRA Facilities as the numerator.
Based on the Business Member's comparison of the information on the OTC
Transparency Data website with its own activity records, it believes
that few, if any, Participants do all of their reporting on the FINRA/
NYSE TRF. Accordingly, the Business Member expects that most
Participants' FINRA/NYSE TRF Market Share would be lower than, not
equal to, their ATS & Non-ATS OTC Market Share.
The Business Member selected the proposed tiers and fees based on
its evaluation of what thresholds and fees would create a more nuanced
structure, under which Participants' monthly fees would more closely
correspond to the extent to which they use the FINRA/NYSE TRF in a
given month, without excessive charges. In making its evaluation, the
Business Member utilized its comparison of the information on the OTC
Transparency Data website with its own activity records.
Currently, approximately 60% of FINRA/NYSE TRF Participants are
subject to the flat monthly fee of $2,000 for having an ATS & Non-ATS
OTC Market Share of less than 0.10%.\27\ All else being equal, the
Business Member believes that the number of Participants with a FINRA/
NYSE TRF Market Share of less than 0.10% is unlikely to be the same, as
the fee will now more closely correspond to their usage of the FINRA/
NYSE TRF. However, if we assume that Participants do not change their
reporting behavior, the Business Member believes that most Participants
would likely fall into the four bottom tiers.
---------------------------------------------------------------------------
\27\ For the 15 months ended March 2019, the number of FINRA/
NYSE TRF Participants subject to the flat $2,000 fee was between 17
and 19, and the total number of Participants reporting to the FINRA/
NYSE TRF was 29 or 30.
---------------------------------------------------------------------------
The Business Member believes that using the number of trade reports
submitted to the FINRA/NYSE TRF to help set the dividing line between
the four bottom tiers would be equitable because it would provide a
basis for distinguishing among such Participants, allowing the proposed
fee to be more commensurate with the Participants' actual usage. At the
same time, the Business Member believes that it is reasonable and
equitable to charge a Participant with a FINRA/NYSE TRF Market Share of
less than 0.10% the same $2,000 fee if it reports 25,000 or more
reports or none at all, because it would create a reasonable incentive
for reporting to the FINRA/NYSE TRF. Indeed, a Participant that submits
just one report, rather than none, will reduce its fee from $2,000 to
$250, an 87.5% reduction. It would be charged $2,000 under the current
fee structure.
As is true currently, the proposed fees are designed such that more
active Participants have a higher fee, while less active Participants
pay less. At the same time, by adding additional tiers to the current
structure, the proposed rule change should lead to fees that are more
reflective of Participants' activity on the FINRA/NYSE TRF.
The Proposed Rule Change Is Not Unfairly Discriminatory
FINRA believes that the proposed rule change is not unfairly
discriminatory for the following reasons.
The proposed fee schedule will be assessed in the same manner on
all FINRA members that are, or elect to become, FINRA/NYSE TRF
Participants. It will not be assessed differently to different types or
sizes of Participants. Access to the FINRA/NYSE TRF is offered on fair
and non-discriminatory terms.
FINRA members can choose among four FINRA Facilities when reporting
OTC trades in NMS stocks: the FINRA/
[[Page 54225]]
NYSE TRF, the two FINRA/Nasdaq TRFs, or ADF. The FINRA Facilities have
different pricing and compete for FINRA members' trade report activity.
FINRA members will continue to have the option of using another FINRA
Facility for purposes of reporting OTC trades in NMS stocks if they
determine that the fees and credits of another facility are more
favorable. The pricing structures of the other FINRA Facilities are
publicly available, allowing FINRA members to make rational decisions
based on the information. The Commission has repeatedly expressed its
preference for competition over regulatory intervention in determining
prices, products, and services in the securities markets. Specifically,
in Regulation NMS, the Commission highlighted the importance of market
forces in determining prices and SRO revenues and recognized that
current regulation of the market system ``has been remarkably
successful in promoting market competition in its broader forms that
are most important to investors and listed companies.'' \28\
---------------------------------------------------------------------------
\28\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005) (S7-10-04).
---------------------------------------------------------------------------
FINRA members currently use the FINRA/NYSE TRF to report
approximately 20% of shares in NMS stocks traded OTC, compared to
approximately 80% for the FINRA/Nasdaq TRF. The Business Member
believes that pricing is the key factor for FINRA members when choosing
which FINRA Facility to use. FINRA members can report their OTC trades
in NMS stocks to a given FINRA Facility's competitors if they deem
pricing levels at the other FINRA Facilities to be more favorable, so
long as they are participants of such other facilities.
At the same time, the Business Member believes that the current
structure of Rule 7620B discourages FINRA members from becoming FINRA/
NYSE TRF Participants. Because it is calculated using a Participant's
total OTC trading activity, the current fee is not tied to how much
trading is reported to the FINRA/NYSE TRF. In other words, a member may
not choose to become a FINRA/NYSE TRF Participant because it would then
be subject to a fee based on all its reporting, not just its usage of
the FINRA/NYSE TRF. The Business Member believes that the proposed fee
change will encourage more FINRA members to become FINRA/NYSE TRF
Participants and use the FINRA/NYSE TRF. Such a change would make the
FINRA/NYSE TRF more competitive with the FINRA/Nasdaq TRF and give
members more attractive options for trade reporting, potentially
encouraging FINRA members to use the FINRA/NYSE TRF to report more than
the approximately 20% of their shares in NMS stocks traded OTC that
they currently use it for.
Because it will utilize the FINRA/NYSE TRF Market Share, the
proposed fees will be based on a Participant's activity on the FINRA/
NYSE TRF, not, as now, on its total OTC trading activity, whether or
not it is reported to the FINRA/NYSE TRF. At the same time, by
expanding the tier structure from four monthly participant tiers to
nine, the proposed rule change would create a structure under which
Participants' monthly fees would more closely correspond to the extent
to which they use the FINRA/NYSE TRF in a given month.
The Business Member selected the proposed tiers and fees based on
its evaluation of what thresholds and fees would create a more nuanced
structure, under which Participants' monthly fees would more closely
correspond to the extent to which they use the FINRA/NYSE TRF in a
given month, without excessive charges. In making its evaluation, the
Business Member utilized its comparison of the information on the OTC
Transparency Data website with its own activity records.
The Business Member believes that, for those Participants with a
FINRA/NYSE TRF Market Share of less than 0.10%, using the number of
trade reports submitted to the FINRA/NYSE TRF to help set the dividing
line between tiers provides a basis for distinguishing among such
Participants, allowing the proposed fee to be more commensurate with
the Participants' actual usage. At the same time, the Business Member
believes that it is reasonable and equitable to charge a Participant
the same $2,000 fee if it reports 25,000 or more reports or none at
all, because it would create a reasonable incentive for reporting to
the FINRA/NYSE TRF. Indeed, a Participant that submits just one report,
rather than none, will reduce its fee from $2,000 to $250, an 87.5%
reduction. It would be charged $2,000 under the current fee structure.
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. In fact, the Business Member
believes that, rather than impose a burden on competition, the proposed
change will benefit competition because it will give all FINRA members
more attractive options for trade reporting. The Commission has
repeatedly expressed its preference for competition over regulatory
intervention in determining prices, products, and services in the
securities markets. In Regulation NMS, the Commission highlighted the
importance of market forces in determining prices and SRO revenues and
recognized that current regulation of the market system ``has been
remarkably successful in promoting market competition in its broader
forms that are most important to investors and listed companies.'' \29\
---------------------------------------------------------------------------
\29\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005) (S7-10-04).
---------------------------------------------------------------------------
Intramarket Competition. FINRA members currently use the FINRA/NYSE
TRF to report approximately 20% of shares in NMS stocks traded OTC,
compared to approximately 80% for the FINRA/Nasdaq TRF. Based on the
Business Member's comparison of the information on the OTC Transparency
Data website with its own activity records, the Business Member
understands that few, if any, Participants do all of their reporting on
the FINRA/NYSE TRF.
The Business Member believes that pricing is the key factor for
FINRA members when choosing which FINRA Facility to use. FINRA members
can report their OTC trades in NMS stocks to a given FINRA Facility's
competitors if they deem pricing levels at the other FINRA Facilities
to be more favorable, so long as they are participants of such other
facilities. At the same time, the Business Member believes that the
current fee structure under Rule 7620B discourages some FINRA members
from becoming FINRA/NYSE TRF Participants, because the current fee is
not tied to how much trading is reported specifically to the FINRA/NYSE
TRF.
To address this issue, the Business Member has designed a fee
structure under which FINRA/NYSE TRF Participants' monthly reporting
fees would no longer be calculated using a Participant's total OTC
trading activity. Instead, as discussed above, the proposed change
would base the monthly fee on the Participant's share of total market
volume reported to the FINRA/NYSE TRF. Accordingly, the Business Member
believes that the proposed fee change will more closely correspond to
actual usage and encourage more FINRA members to become FINRA/NYSE TRF
Participants and use the FINRA/NYSE TRF, thereby
[[Page 54226]]
making it more competitive with the FINRA/Nasdaq TRF.
The Business Member does not believe that the proposed fee would
place certain market participants at a relative disadvantage compared
to other market participants, because the proposed fee schedule will be
applied in the same manner to all FINRA members that are, or elect to
become, FINRA/NYSE TRF Participants. It will not apply differently to
different types or sizes of Participants. Rather, the proposed fees
will be based on a Participant's activity on the FINRA/NYSE TRF,
because it will utilize the FINRA/NYSE TRF Market Share.\30\ At the
same time, by expanding the tier structure from four monthly
participant tiers to nine, the proposed rule change would create a
structure under which Participants' monthly fees would more closely
correspond to the extent to which they use the FINRA/NYSE TRF in a
given month.
---------------------------------------------------------------------------
\30\ See note 22, supra. As noted in note 6, supra, a firm that
routinely reports its OTC trades in NMS stocks to only one FINRA
Facility would have connectivity to a second FINRA Facility for
backup purposes. The proposed fee change is expected to reduce costs
for many Participants that utilize the FINRA/NYSE TRF as a backup
facility only, because it will be calculated using the Participant's
share of total market volume reported to the FINRA/NYSE TRF, rather
than its total OTC trading activity. For example, if Firm A, a very
large firm with a significant amount of trade reporting volume, had
364 million shares per day to report and chose to report it all to
another FINRA Facility, but kept its position as a Participant in
the FINRA/NYSE TRF for backup purposes, its current FINRA/NYSE TRF
fee would be $30,000 for the month, because it would be based on
Firm A's total OTC trading activity. Under the proposed fee Firm A
would pay only $2,000 per month, because the fee would be based on
its reporting to the FINRA/NYSE TRF.
---------------------------------------------------------------------------
As of March 31, 2019, there were 29 Participants, of which a
majority of 18 were in the $2,000 per month tier. Four of the remaining
Participants were in the $30,000 per month tier, four were in the
$15,000 per month tier, and three were in the $5,000 per month tier.
Assuming the number of Participants remained flat, the average fee
incurred during March 2019 was estimated to be approximately $7,966 per
Participant across the 29 Participants.
If there were no change in reporting to the FINRA/NYSE TRF, such
that Participants' reporting volume stayed the same as it was in the
first quarter of 2019, under the proposed fee schedule, the total
monthly subscriber fees paid to the FINRA/NYSE TRF would decrease. More
specifically, assuming there was no change in reporting to the FINRA/
NYSE TRF, under the proposed fee schedule the average subscriber fee
that would have been incurred would have been approximately $6,060
across the 29 Participants, compared to approximately $7,966 per
Participant under the current fee. Of the four Participants with a
monthly subscriber fee of $30,000, three would remain at that rate and
one would see its fee fall to $10,000. Of the four Participants with a
monthly subscriber fee of $15,000, one would remain at that rate, and
the others would pay fees ranging from $2,000 to $17,500. None of the
three Participants with monthly subscriber fees of $5,000 would stay at
that rate: One would see a fee increase, to $10,000, and the other two
would be subject to fees of $750 and $2,000. Finally, of the 18
Participants with a monthly subscriber fee of $2,000, four would remain
at $2,000 and 14 would see a fee reduction to $750.
Participants may potentially alter their trading activity in
response to the proposed rule change. Specifically, those Participants
that would incur higher fees may refrain from reporting to the FINRA/
NYSE TRF and may choose to report to another FINRA Facility.
Alternatively, such firms may continue reporting or new firms may start
reporting to the FINRA/NYSE TRF if they find that the proposed net cost
of reporting and other functionalities provided represent the best
value to their business.\31\ The net effect on any individual
Participant of the proposed change in reporting fees will depend on the
number of shares the Participant reports to the FINRA/NYSE TRF and the
total number of all shares reported to the CTA or UTP SIP, as
applicable, during a period.
---------------------------------------------------------------------------
\31\ The FINRA/NYSE TRF does not impose a fee on new
Participants, and so a FINRA member that opts to become a
Participant would not incur an additional cost from the FINRA/NYSE
TRF. In some cases, a new Participant may incur incidental costs to
connect to the FINRA/NYSE TRF, but those are not charged by the
FINRA/NYSE TRF. An existing Participant that ceases to be a
Participant is not subject to any change fee by the FINRA/NYSE TRF.
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Intermarket Competition. The FINRA/NYSE TRF operates in a
competitive environment. The proposed fee would not impose a burden on
competition on other FINRA Facilities that is not necessary or
appropriate. The FINRA Facilities have different pricing and compete
for FINRA members' trade report activity. The pricing structures of the
FINRA/NYSE TRF and other FINRA Facilities are publicly available,
allowing FINRA members to make rational decisions regarding which FINRA
Facility they use to report OTC trades in NMS stocks.
FINRA members can choose among four FINRA Facilities when reporting
OTC trades in NMS stocks: The FINRA/NYSE TRF, the two FINRA/Nasdaq
TRFs, or ADF. FINRA members can report their OTC trades in NMS stocks
to a given FINRA Facility's competitors if they determine that the fees
and credits of another FINRA Facility are more favorable, so long as
they are participants of such other facility.
The Business Member believes that in such an environment the FINRA/
NYSE TRF must adjust its fees to be competitive with other FINRA
Facilities and to attract Participant reporting. By making the FINRA/
NYSE TRF more competitive with the FINRA/Nasdaq TRF, the Business
Member believes that the proposed fee change will encourage more FINRA
members to become FINRA/NYSE TRF Participants and use the FINRA/NYSE
TRF, thereby increasing competition among the FINRA Facilities and
giving FINRA members more attractive options for trade reporting.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \32\ and paragraph (f)(2) of Rule 19b-4
thereunder.\33\ 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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\32\ 15 U.S.C. 78s(b)(3)(A).
\33\ 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
[[Page 54227]]
Send an email to [email protected]. Please include
File Number SR-FINRA-2019-024 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-2019-024. 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 a.m. and 3
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-2019-024 and should be submitted on or before October 30, 2019.
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\34\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\34\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-22023 Filed 10-8-19; 8:45 am]
BILLING CODE 8011-01-P
