Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Modify the Trade Reporting Fees Applicable to the FINRA/NYSE Trade Reporting Facility, 14275-14284 [2020-04902]

Download as PDF Federal Register / Vol. 85, No. 48 / Wednesday, March 11, 2020 / Notices (b) the accuracy of the Commission’s estimates of the burden of the proposed collection of information; (c) ways to enhance the quality, utility, and clarity of the information to be collected; and (d) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology. Consideration will be given to comments and suggestions submitted in writing within 60 days of this publication. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information under the PRA unless it displays a currently valid OMB control number. Please direct your written comments to: David Bottom, Director/Chief Information Officer, Securities and Exchange Commission, c/o Cynthia Roscoe, 100 F Street NE, Washington, DC 20549 or send an email to: PRA_ Mailbox@sec.gov. Dated: March 6, 2020. J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–04946 Filed 3–10–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Submission for OMB Review; Comment Request Upon Written Request Copies Available From: Securities and Exchange Commission, Office of FOIA Services, 100 F Street NE, Washington, DC 20549–2736. lotter on DSKBCFDHB2PROD with NOTICES Extension: Rule 147A(f)(1)(iii) Written Representation as to Purchaser Residency, SEC File No. 270–806, OMB Control No. 3235–0757. Notice is hereby given that, pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.), the Securities and Exchange Commission (‘‘Commission’’) has submitted to the Office of Management and Budget this request for extension of the previously approved collection of information discussed below. Rule 147A(f)(1)(iii) (17 CFR 230.147A(f)(1)(iii)) requires the issuer to obtain from the purchaser a written representation as to the pruchase’s residency in order to qualify for safe harbor under Securities Act Rule 147A (17 CFR 230.147A). Rule 147A is an exemption from registration under Securities Act Section 28 (15 U.S.C. 77z–3). Under Rule 147A, the purchaser in the offering must be a resident of the VerDate Sep<11>2014 16:37 Mar 10, 2020 Jkt 250001 same state or territory in which the issuer is a resident. While the formal representation of residency by itself is not sufficient to establish a reasonable belief that such purchasers are in-state residents, the representation requirement, together with the reasonable belief standard, may result in better compliance with the rule and maintaining appropriate investor protections. The representation of residency is not provided to the Commission. Approximately 700 respondents provide the information required by Rule 147A(f)(1)(iii) at an estimated 2.75 hours per response for a total annual reporting burden of 1,925 hours (2.75 hours x 700 responses). An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid control number. The public may view the background documentation for this information collection at the following website, www.reginfo.gov. Comments should be directed to: (i) Desk Officer for the Securities and Exchange Commission, Office of Information and Regulatory Affairs, Office of Management and Budget, Room 10102, New Executive Office Building, Washington, DC 20503, or by sending an email to: Lindsay.M.Abate@omb.eop.gov; and (ii) David Bottom, Director/Chief Information Officer, Securities and Exchange Commission, c/o Cynthia Roscoe, 100 F Street NE, Washington, DC 20549 or send an email to: PRA_ Mailbox@sec.gov. Comments must be submitted to OMB within 30 days of this notice. Dated: March 6, 2020. J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–04949 Filed 3–10–20; 8:45 am] BILLING CODE 8011–01–P 14275 ‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on February 28, 2020, Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by FINRA. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change FINRA is proposing to amend FINRA Rule 7620B (FINRA/NYSE 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 SECURITIES AND EXCHANGE COMMISSION Release No. 34–88324; File No. SR– FINRA–2020–006] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Modify the Trade Reporting Fees Applicable to the FINRA/NYSE Trade Reporting Facility March 5, 2020. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the PO 00000 Frm 00092 Fmt 4703 Sfmt 4703 The FINRA/NYSE TRF, which is operated by NYSE Market (DE), Inc. (‘‘NYSE Market (DE)’’), is one of four FINRA facilities 3 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 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 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’’). 2 17 E:\FR\FM\11MRN1.SGM 11MRN1 14276 Federal Register / Vol. 85, No. 48 / Wednesday, March 11, 2020 / Notices Facilities) to use to satisfy their trade reporting obligations.4 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 trading activity reported to the FINRA/NYSE TRF and, for some tiers, the reporting member’s count of tape reports to the FINRA/NYSE TRF (‘‘Trade Report Count’’). NYSE Market (DE) proposes to (a) change the tier structure, such that all the tiers take into account the reporting member’s Trade Report Count, while only some of the tiers take into account the reporting member’s trading activity reported to the FINRA/NYSE TRF, and the number of fee tiers increases from nine to 13; and (b) exclude certain Participants from 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 final 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,5 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 Number of reported shares Facility FINRA/NYSE TRF ................................................................................................................... FINRA/NASDAQ TRF .............................................................................................................. 132,423,476,814 527,748,470,214 Percentage of TRF total 20.06 79.94 According to the Business Member, the FINRA/NYSE TRF operates in a competitive environment. The FINRA Facilities have different pricing 8 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.’’ 9 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. By amending the tier structure and expanding the number of tiers, the Business Member believes that the proposed fee change will more closely correspond to actual usage. 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 4 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 (January 1, 2016) (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. 5 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. 6 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. 7 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. 8 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. 9 See Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37499 (June 29, 2005) (File No. S7–10–04). Competitive Environment lotter on DSKBCFDHB2PROD with NOTICES Market (DE), in its capacity as the Business Member and operator of the FINRA/NYSE TRF on behalf of FINRA,6 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.7 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 January through December 2019, the breakout of trade report activity among the FINRA Facilities was as follows: VerDate Sep<11>2014 16:37 Mar 10, 2020 Jkt 250001 PO 00000 Frm 00093 Fmt 4703 Sfmt 4703 E:\FR\FM\11MRN1.SGM 11MRN1 Federal Register / Vol. 85, No. 48 / Wednesday, March 11, 2020 / Notices 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.10 Rather than charging the same fee to all FINRA/ The Current Monthly Fee Pursuant to a recent change in the fee structure,11 the monthly fee for use of the FINRA/NYSE TRF is calculated based on the Participant’s share of total market volume reported to the FINRA/ NYSE TRF. More specifically, the fees are based on the Participant’s ‘‘FINRA/ NYSE TRF Market Share’’ (‘‘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 Consolidated Tape Association (‘‘CTA’’) or the Nasdaq Securities Information Processor (‘‘UTP SIP’’), as applicable, during that period. Where the Market Share is below 0.10%, the Participant’s Trade Report Count is a second factor in determining the applicable monthly fee. The following chart sets forth the current tiers: 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 ......................................................................... Monthly participant fee $30,000 20,000 17,500 15,000 10,000 2,000 750 250 2,000 Under the proposed fee, each Participant would still be charged a monthly fee for use of the FINRA/NYSE Trade Reporting Facility, with the exception that ‘‘Retail Participants’’ would not be subject to a monthly fee. Retail Participants. A Participant would be a ‘‘Retail Participant’’ if substantially all of its trade reporting activity on the FINRA/NYSE TRF comprises Retail Orders. In turn, a ‘‘Retail Order’’ would mean an order that originates from a natural person, provided that, prior to submission, no change is made to the terms of the order with respect to price or side of market and the order does not originate from a trading algorithm or any other computerized methodology. The proposed amended Rule 7620B would set forth the definitions of ‘‘Retail Participant’’ and ‘‘Retail Order,’’ together with a description of the relevant requirements in a new paragraph (a) in Rule 7620B. The new paragraph would state that a Participant that wished to qualify as a Retail Participant and be exempt from the monthly fee in accordance with the Rule would be required to complete and submit to the FINRA/NYSE TRF an application form and a written attestation of its then-existing qualifications as a Retail Participant and its reasonable expectation that it will maintain such qualifications for a oneyear period following the date of attestation. In addition, the new text would state that a Retail Participant: • Would be required to complete and submit a written attestation to the FINRA/NYSE TRF on an annual basis to retain its status as such; • would be required to inform the FINRA/NYSE TRF promptly if at any time it ceases to qualify or it reasonably expects that it will cease to qualify as a Retail Participant; and • may be audited by the FINRA/ NYSE TRF periodically. The new text would also state that Participants would be required to contact the FINRA/NYSE TRF for the application and attestation forms,12 and that if the FINRA/NYSE TRF approved a Participant as a Retail Participant on or prior to the twenty-seventh day of a month, then the approval would be deemed to be effective as of the first day of that month, whereas an approval that occurred after the twenty-seventh day of the month would be deemed effective as of the first day of the following month. If a Participant notified the FINRA/ NYSE TRF that it ceased to qualify as a Retail Participant during a month, then such notification would be deemed effective as of the first day of the following month. The proposed exemption, definitions and requirements would be consistent with the exemption, definitions and requirements for retail participants of the FINRA/Nasdaq TRF set forth in FINRA Rule 7620A.13 Retail Participants would continue to receive 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. Proposed Tiers. The proposed amended Rule 7620B would set forth the fees for Participants that are not Retail Participants in a new paragraph (b) and would expand the current tier structure from nine to 13 tiers. Unlike now, the determination of the applicable tier would take into account the Trade Report Counts in every case. Only when the Trade Report Count is 10 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). 11 See Securities Exchange Act Release No. 87205 (October 3, 2019), 84 FR 54219, 54224 (October 9, 2019) (Notice of Filing and Immediate Effectiveness of File No. SR–FINRA–2019–024). The operative date was October 1, 2019. 12 The Business Member expects to make the required application and attestation forms available on the FINRA/NYSE TRF website. 13 See FINRA Rule 7620A, including the commentary thereto, and Securities Exchange Act Release No. 88135 (February 6, 2020), 85 FR 8079 (February 12, 2020) (Notice of Filing and Immediate Effectiveness of File No. SR–FINRA–2020–004). The Proposed Monthly Fee lotter on DSKBCFDHB2PROD with NOTICES NYSE TRF Participants irrespective of trading activity, the fees set forth in Rule 7620B are tiered. 14277 VerDate Sep<11>2014 16:37 Mar 10, 2020 Jkt 250001 PO 00000 Frm 00094 Fmt 4703 Sfmt 4703 E:\FR\FM\11MRN1.SGM 11MRN1 14278 Federal Register / Vol. 85, No. 48 / Wednesday, March 11, 2020 / Notices above 25,000 would the Market Share be a factor in determining the relevant tier. The following chart sets forth the 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 1.00% but less than 1.25% ................ Greater than or equal to 0.75% but less than 1.00% ................ 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 0.20% but less than 0.25% ................ Greater than or equal to 0.10% but less than 0.20% ................ Less than 0.10% ......................................................................... n/a ............................................................................................... n/a ............................................................................................... n/a ............................................................................................... n/a ............................................................................................... n/a ............................................................................................... More than 25,000 trade reports ................................................. More than 25,000 trade reports ................................................. More than 25,000 trade reports ................................................. More than 25,000 trade reports ................................................. More than 25,000 trade reports ................................................. More than 25,000 trade reports ................................................. More than 25,000 trade reports ................................................. More than 25,000 trade reports ................................................. Between 15,001 and 25,000 trade reports ................................ Between 5,001 and 15,000 trade reports .................................. Between 101 and 5,000 trade reports ....................................... Between 1 and 100 trade reports .............................................. No trade reports ......................................................................... The Market Share would continue to be calculated in aggregate across all tapes 14 and be based on the number of shares attributable to a FINRA/NYSE TRF Participant. A transaction is attributed to a Participant if the Participant is identified as the executing party in a tape report submitted to the FINRA/NYSE TRF. Such calculation would continue to be based on the data available for the prior full calendar month.15 The monthly fee would continue to be charged at the end of the calendar month and to apply to any Participant that is not a Retail Participant and has submitted a participant application agreement to the FINRA/NYSE TRF pursuant to Rule 7220B (Trade Reporting Participation Requirements). As is true now, if a new FINRA/NYSE TRF Participant submits the participant application agreement and reports no shares traded in a given month, the Participant would not be charged the monthly fee for the first two calendar months in order to provide time to connect to the FINRA/NYSE TRF.16 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.17 lotter on DSKBCFDHB2PROD with NOTICES proposed fee tiers for Participants that are not Retail Participants: 14 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. 15 For example, the bill issued in June would be for the month of May, and would be based on shares reported during May. 16 As is the case today, after the first two calendar months, the Participant will be charged regardless of connectivity. 17 See 84 FR 54219, supra note 13 [sic], at 54221. VerDate Sep<11>2014 16:37 Mar 10, 2020 Jkt 250001 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 sizes of Participants. Different types of Participants will be treated the same except that, as noted above, Retail Participants will not be charged a fee. For all other Participants, the determination of the applicable tier would be based on the Participant’s Trade Report Count and, in some cases, FINRA/NYSE TRF Market Share. By expanding the structure from nine monthly Participant tiers to 13, the proposed rule change would create a more nuanced fee structure. Proposed Exclusion of Retail Participants The proposed exclusion of Retail Participants from the monthly fee is intended to improve the competitiveness of the FINRA/NYSE TRF for Retail Participants in light of recent initiatives by retail brokers to eliminate fees for executing retail customer transactions and the recent determination by the FINRA/Nasdaq TRF not to charge its retail participants any fees for trade reporting.18 Recently, some large retail brokers, such as Charles Schwab Corp., TD Ameritrade Holding Corp., and E*Trade Financial Corp., have removed commission trading fees for stock trades, leading to pressure on retail brokers to reduce operational costs.19 The Business Member believes that its proposal 18 See note 15 [sic], supra. 85 FR 8079, 8081; see also Lisa Beilfuss and Alexander Osipovich, ‘‘The Race to Zero Commissions,’’ Wall Street Journal, October 5, 2019, at https://www.wsj.com/articles/the-race-tozero-commissions-11570267802. 19 See PO 00000 Frm 00095 Fmt 4703 Sfmt 4703 Monthly participant fee $30,000 25,000 20,000 15,000 10,000 7,500 5,000 2,000 2,000 1,000 750 250 2,000 would support these efforts and attract Retail Participants to the FINRA/NYSE TRF. Proposed Tiers The current fee structure came into effect in October 2019. Based largely on its experience with the current fee structure over the last few months, the Business Member has identified two issues that the proposed change is meant to address. First, the current structure works on the general assumption that as a Participant’s Market Share goes up its Trade Report Count will increase as well. Analyzing the fees paid under the current structure, the Business Member has found instances where that assumption is wrong: In such cases, a Participant may have a Market Share that is above 0.10% but may make only a few trade reports to the FINRA/NYSE TRF, resulting in a more substantial fee per trade than if the Participant had a lower Market Share. To address the issue, the Business Member proposes to take the Trade Report Count into account for every tier. At the same time, it proposes to reduce the current focus on Market Share. Two examples show the effect of the proposed change: • Assume that, during a given month, a Participant has a Market Share of 0.15% and makes two trade reports to the FINRA/NYSE TRF. Under the current structure, it has a monthly fee of $10,000—the same fee that would apply if it had a Trade Report Count of 30,000. Under the proposed structure, because the Trade Report Count is taken into account, the hypothetical Participant would have a monthly fee of $250 if it made two trade reports and $5,000 if it made 30,000. E:\FR\FM\11MRN1.SGM 11MRN1 14279 Federal Register / Vol. 85, No. 48 / Wednesday, March 11, 2020 / Notices • Assume that, during a given month, Participant A has a Market Share of 0.02% and a Trade Report Count of 500, and Participant B has a Market Share of 0.12% and a Trade Report Count of 500. Under the current structure, Participant A has a monthly fee of $750 and Participant B has a monthly fee of $10,000, even though their Trade Report Count is the same. Under the proposed structure, both would be charged a monthly fee of $750. Currently, a Participant with a Market Share of less than 0.10% would pay a fee based on its Trade Report Count. Under the proposed structure, a Participant with a Market Share of less than 0.10% would pay a fee based on its Trade Report Count only if that count was more than 25,000. In all cases, if a Participant had a Trade Report Count of 25,000 or less, the fee would depend on the Trade Report Count, and the Market Share would not be a factor in determining the tier. As a result, a Participant that has a Market Share above 0.10% but has a low Trade Report Count would not be subject to the more substantial fee per trade than it would be under the current structure, addressing the first issue that the Business Member identified with the current structure. Second, under the current structure, in some cases the applicable monthly fee increases by up to $10,000 when a customer moves from one tier to the next. As a result, for a Participant on the upper edge of a tier range, a relatively small increase in Market Share can result in a substantial fee increase. To address the issue, the proposal would increase the number of tiers to 13, adding granularity to the structure and decreasing the impact of changing tiers. Three scenarios show the effect of the proposed change: • Currently the monthly fee increases fivefold, from $2,000 to $10,000, if a Participant crosses the threshold between two of the middle tiers.20 The proposed creation of two new tiers between them, with fees of $5,000 and $7,500 per month, would mean that the Participant would have to move three tiers to increase its fee from $2,000 to $10,000 per month. • Currently the monthly fee increases from $750 to $2,000 if a Participant crosses the threshold between two of the lower tiers.21 The proposal would introduce a tier with a $1,000 monthly fee between them. • Currently the monthly fee increases from $20,000 to $30,000 if a Participant crosses the threshold between the two highest tiers.22 The proposal would introduce a tier with a $25,000 fee, so that a Participant would not have its monthly fee increase by $10,000 simply by crossing the threshold between two tiers. In addition, the proposed fee schedule uses different threshold percentages for its tiers than the current fee schedule. The Business Member selected the proposed tiers and fees based on its evaluation of what thresholds and fees would create a more nuanced structure and would help address the described issues. In making its evaluation, the Business Member utilized its activity records and its analysis of the more detailed information on the FINRA website (the ‘‘OTC Transparency Data website’’).23 To facilitate comparison, the following table shows the proposed and current tiers and monthly fees. Market share & trade report counts: tiers Current Greater than or equal to 1.25% ................................... Greater than or equal to 1.25% and more than 25,000 trade reports. Greater than or equal to 1.00% but less than 1.25% and more than 25,000 trade reports. Greater than or equal to 0.75% but less than 1.00% and more than 25,000 trade reports. Greater than or equal to 0.50% but less than 0.75% and more than 25,000 trade reports. Greater than or equal to 0.25% but less than 0.50% and more than 25,000 trade reports. Greater than or equal to 0.20% but less than 0.25% and more than 25,000 trade reports. Greater than or equal to 0.10% but less than 0.20% and more than 25,000 trade reports. Less than 0.10% and more than 25,000 trade reports Between 15,001 and 25,000 trade reports .................. Between 5,001 and 15,000 trade reports .................... Between 101 and 5,000 trade reports ......................... 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 .... Less than 0.10% and 100 or more trade reports but fewer than 25,000 trade reports. Less than 0.10% and 1 or more trade reports but fewer than 100 trade reports. Less than 0.10% and no trade reports ........................ 1 Under lotter on DSKBCFDHB2PROD with NOTICES Monthly fee Proposed 1 Proposed 1 Current $30,000 $30,000 ........................ 25,000 20,000 20,000 17,500 15,000 15,000 10,000 ........................ 7,500 10,000 5,000 2,000 ........................ ........................ 750 2,000 2,000 1,000 750 Between 1 and 100 trade reports ................................ 250 250 No trade reports ........................................................... 2,000 2,000 the proposed change, Retail Participants would not be subject to monthly fees. 20 From a Market Share of less than 0.10%, to a Market Share greater than or equal to 0.10% but less than 0.25%. 21 From a Market Share of less than 0.10% and Trade Report Count of 100 or more trade reports but fewer than 25,000 trade reports, to a Market Share of less than 0.10% and Trade Report Count of 25,000 or more trade reports. VerDate Sep<11>2014 16:37 Mar 10, 2020 Jkt 250001 22 From a Market Share greater than or equal to 0.75% but less than 1.25%, to a Market Share greater than or equal to 1.25%. 23 https://otctransparency.finra.org/ otctransparency/AtsIssueData. FINRA began reporting information regarding each firm’s aggregate non-ATS OTC volume (number of trades and number of shares) in December 2019, PO 00000 Frm 00096 Fmt 4703 Sfmt 4703 increasing the information available on the OTC Transparency Data website. See Securities Exchange Act Release No. 86706 (August 19, 2019), 84 FR 44341 (August 23, 2019) (Order Approving File No. SR–FINRA–2019–019). E:\FR\FM\11MRN1.SGM 11MRN1 14280 Federal Register / Vol. 85, No. 48 / Wednesday, March 11, 2020 / Notices 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 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 final quarter of 2019, under the proposed fee schedule, the total monthly subscriber fees paid to the FINRA/NYSE TRF would decrease. Based on those assumptions, 28 Participants would have no change in their fees and seven Participants would have a decreased or no fee. Of those seven, one would go from $17,500 to $15,000, one would go from $10,000 to $7,500, and two would go from $10,000 to $5,000. The three Retail Participants would go from $2,000 to $0. Market share & trade report counts: tiers Number of firms per tier under current fee Current Proposed Greater than or equal to 1.25% ........ Greater than or equal to 1.25% and more than 25,000 trade reports. Greater than or equal to 1.00% but less than 1.25% and more than 25,000 trade reports. Greater than or equal to 0.75% but less than 1.00% and more than 25,000 trade reports. Greater than or equal to 0.50% but less than 0.75% and more than 25,000 trade reports. Greater than or equal to 0.25% but less than 0.50% and more than 25,000 trade reports. Greater than or equal to 0.20% but less than 0.25% and more than 25,000 trade reports. Greater than or equal to 0.10% but less than 0.20% and more than 25,000 trade reports. Less than 0.10% and 25,000 or more trade reports. Between 15,001 and 25,000 trade reports. Between 5,001 and 15,000 trade reports. Between 101 and 5,000 trade reports. 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. Less than 0.10% and 100 or more trade reports but fewer than 25,000 trade reports. Less than 0.10% and 1 or more trade reports but fewer than 100 trade reports. Less than 0.10% and no trade reports. 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 December 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 were reporting to the FINRA/NYSE TRF subject to the current or proposed fee. 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% 6 2 3 6 ........................ 0 0 2 6 0 3 4 6 1 2 6 9 5 10 6 ........................ 1 1 3 20 8 7 7 20 22 25 20 ........................ 9 2 5 ........................ 6 9 4 81 66 71 83 Between 1 and 100 trade reports .... 96 124 111 98 No trade reports ............................... 0 0 0 0 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 December 2019. lotter on DSKBCFDHB2PROD with NOTICES FINRA has filed the proposed rule change for immediate effectiveness. The operative date will be March 1, 2020. 2. Statutory Basis FINRA believes that the proposed rule change is consistent with the provisions 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 Trade Report Count of zero VerDate Sep<11>2014 16:37 Mar 10, 2020 Jkt 250001 of Section 15A(b) of the Act,25 in general, and Section 15A(b)(5) of the Act,26 in particular, 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. FINRA also believes that the proposed rule change is consistent with Section 15A(b)(6) of the Act,27 which requires, among other to make trade reports to the FINRA/NYSE TRF in order to reduce their fees from $2,000 to $250, $750 or $1,000. The Business Member believes that the increase in reporting would increase such Participants’ revenue share as well as decrease their fee. 25 15 U.S.C. 78o–3(b). 26 15 U.S.C. 78o–3(b)(5). 27 15 U.S.C. 78o–3(b)(6). PO 00000 Frm 00097 Fmt 4703 Sfmt 4703 E:\FR\FM\11MRN1.SGM 11MRN1 Federal Register / Vol. 85, No. 48 / Wednesday, March 11, 2020 / Notices things, that FINRA rules must be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest. FINRA also believes that the proposed rule change is consistent with Section 15A(b)(9) of the Act,28 which requires that FINRA rules not impose any burden on competition that is not necessary or appropriate. As a general matter, 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 applied differently to different sizes of Participants. Different types of Participants will be treated the same except that, as noted above, Retail Participants will not be charged a fee. Access to the FINRA/NYSE TRF is offered on fair and non-discriminatory terms. lotter on DSKBCFDHB2PROD with NOTICES 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 Business Member believes that the proposal to exempt Retail Participants from the monthly fee is reasonable for several reasons. Given the recent initiatives by retail brokers to eliminate fees for executing retail customer transactions, the Business Member believes that the proposed rule change would demonstrate that the FINRA/NYSE TRF is sensitive to current and potential Retail Participants’ changing business models and operational costs. In addition, given the recent determination by the FINRA/Nasdaq TRF not to charge its retail participants any fees for trade reporting, the Business Member believes that the proposal is a reasonable means of strengthening the ability of the FINRA/NYSE TRF to compete for trade reporting activity, given that the proposal will treat Retail Participants in the same manner as the competing FINRA TRF, while offering current and potential Participants more attractive options for trade reporting. The Business Member notes that even as it proposes to eliminate trade reporting fees for Retail Participants, such Retail Participant activity should continue to contribute to operating the FINRA/ NYSE TRF insofar as the FINRA/NYSE TRF will continue to receive a share of the CTA and UTP SIP transaction credits generated through retail trade 28 15 U.S.C. 78o–3(b)(9). VerDate Sep<11>2014 16:37 Mar 10, 2020 reporting activity that occurs on the FINRA/NYSE TRF. The Business Member believes that the proposed exemption, definitions of ‘‘Retail Participant’’ and ‘‘Retail Orders’’ and requirements for Retail Participants would be reasonable, as they would be consistent with the exemption, definitions and requirements for retail participants of the FINRA/Nasdaq TRF set forth in FINRA Rule 7620A.29 Using substantially similar definitions and requirements would enhance consistency and predictability for potential Retail Participants. With respect to Participants that are not Retail Participants, the proposed structure would take the Trade Report Count into account for every tier. At the same time, it would reduce the current focus on Market Share. Specifically, if a Participant had a Trade Report Count of 25,000 or less, its Market Share would not be a factor in determining its fee. As a general matter, the proposed fees are designed such that more active Participants have a higher fee, while less active Participants pay less. By removing Market Share as a factor in determining the relevant tier for Participants with Trade Report Counts of 25,000 or less, the Trade Report Count would become the determinative factor. The Business Member believes that this proposed change would be equitable because for Participants with a lower Trade Report Count, their monthly fee would be tied to the number of trades, and not their size. In addition to exempting Retail Participants from the fee, the proposed changes to Rule 7620B would expand the tier structure from nine monthly Participant fees to 13. As a result, for a Participant on the upper edge of a tier range, a relatively small increase in Market Share would not result in as substantial a fee increase as under the present structure, thereby adding granularity to the structure and decreasing the impact of changing tiers. The proposed fee schedule uses different threshold percentages for its tiers than the current fee schedule. The Business Member selected the proposed tiers and fees based on its evaluation of what thresholds and fees would create a more nuanced structure and would help address the described issues. In making its evaluation, the Business Member utilized its activity records and its analysis of the information on the OTC Transparency Data website. 29 See Jkt 250001 PO 00000 note 15 [sic], supra. Frm 00098 Fmt 4703 Sfmt 4703 14281 The Proposed Rule Change Is Not Unfairly Discriminatory FINRA believes that the proposed rule change is not unfairly discriminatory for the following reasons. As proposed, Retail Participants would be exempted from the monthly fee for using the FINRA/NYSE TRF. The Business Member does not believe that it would be unfair to do so, as the proposed rule change would demonstrate that the FINRA/NYSE TRF is sensitive to current and potential Retail Participants’ changing business models and operational costs. Importantly, the proposed exemption would align the fees of the FINRA/ NYSE TRF with those of the FINRA/ Nasdaq TRF, which does not charge its retail participants any fees for trade reporting.30 In addition, as noted above, the total fees paid by Retail Participants are relatively small: of the 35 FINRA/ NYSE TRF Participants in December 2019, three were Retail Participants. Under the proposed rule, their monthly fees would go from $2,000 to $0. The Business Member notes that the proposed changes in the fees for other Participants were not designed to offset the loss of Retail Participant trade reporting fees. Indeed, 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 final quarter of 2019, under the proposed fee schedule, the total monthly subscriber fees paid to the FINRA/NYSE TRF would decrease even if Retail Participants were not exempted from the monthly fee. 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. The Business Member believes that the proposed fee change may encourage more FINRA members to become FINRA/NYSE TRF Participants, including both Retail and non-Retail Participants, and use the FINRA/NYSE TRF to report trades. Such a change would make the FINRA/NYSE TRF more competitive with the FINRA/ Nasdaq TRF and give members more 30 See E:\FR\FM\11MRN1.SGM note 15 [sic], supra. 11MRN1 14282 Federal Register / Vol. 85, No. 48 / Wednesday, March 11, 2020 / Notices 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 than they currently use it for. With respect to Participants that are not Retail Participants, the proposed structure would take the Trade Report Count into account for every tier. At the same time, it would reduce the current focus on Market Share. Specifically, if a Participant had a Trade Report Count of 25,000 or less, its Market Share would not be a factor in determining its fee. As a general matter, the proposed fees are designed such that more active Participants have a higher fee, while less active Participants pay less. By removing Market Share as a factor in determining the relevant tier for Participants with Trade Report Counts of 25,000 or less, the Trade Report Count would become the determinative factor. The Business Member believes that this proposed change would not be unfairly discriminatory because for Participants with a lower Trade Report Count, their monthly fee would be tied to the number of trades, and not their size. Finally, the Business Member believes that dividing the proposed rule into paragraphs (a) and (b) would make Rule 7620B easier for market participants to understand and to locate relevant information, thereby increasing the clarity and transparency of the Rule. lotter on DSKBCFDHB2PROD with NOTICES B. Self-Regulatory Organization’s Statement on Burden on Competition FINRA does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. 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.’’ 31 31 See note 11 [sic], supra. VerDate Sep<11>2014 16:37 Mar 10, 2020 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. The proposed structure would exempt Retail Participants from the monthly fee for using the FINRA/NYSE TRF. The Business Member believes that doing so would not be a burden on intramarket competition, as the proposed rule change would align the fees of the FINRA/NYSE TRF with those of the FINRA/Nasdaq TRF, which does not charge its retail participants any fees for trade reporting.32 In addition, as noted above, the total fees paid by Retail Participants are relatively small: Of the 35 Participants in December 2019, three were Retail Participants. Under the proposed rule, their monthly fees would go from $2,000 to $0. With respect to Participants that are not Retail Participants, the proposed structure would take the Trade Report Count into account for every tier. At the same time, it would reduce the current focus on Market Share. Specifically, if a Participant had a Trade Report Count of 25,000 or less, its Market Share would not be a factor in determining its fee. By removing Market Share as a factor in determining the relevant tier for Participants with Trade Report Counts of 25,000 or less, the Trade Report Count would become the determinative factor. The Business Member believes that this proposed change would make the FINRA/NYSE TRF more competitive for Participants with a lower Trade Report Count, as their monthly fee would be tied to the number of trades, and not their size. The proposed changes to Rule 7620B would expand the tier structure from nine monthly Participant fees to 13. As a result, for a Participant on the upper edge of a tier range, a relatively small increase in Market Share would not 32 See Jkt 250001 PO 00000 note 15 [sic], supra. Frm 00099 Fmt 4703 Sfmt 4703 result in as substantial a fee increase as under the present structure. As a result, the proposed structure would have more granularity than the current structure and the impact of changing tiers would decrease, making the FINRA/NYSE TRF more competitive with the FINRA/ Nasdaq TRF. The proposed fee schedule uses different threshold percentages for its tiers than the current fee schedule. The Business Member selected the proposed tiers and fees based on its evaluation of what thresholds and fees would create a more nuanced structure and would help address the described issues. In making its evaluation, the Business Member utilized its activity records and its analysis of the information on the OTC Transparency Data website. 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 sizes of Participants. Different types of Participants will be treated the same except that, as noted above, Retail Participants will not be charged a fee. The proposed fees will be based on a Participant’s activity on the FINRA/ NYSE TRF. At the same time, by expanding the tier structure from nine monthly Participant tiers to 13, 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 December 31, 2019, there were 35 Participants, of which 18 were in the $2,000 per month tier. Three of the remaining Participants were in the $30,000 per month tier, one was in the $17,500 per month tier, three were in the $10,000 per month tier, five were in the $750 per month tier, and three were in the $250 per month tier. Two were new Participants not yet subject to fees.33 Assuming the number of Participants remained flat, the average fee incurred during December 2019 was approximately $5,085 per Participant across the 35 Participants. If there were no change in reporting to the FINRA/NYSE TRF, such that Participants’ reporting volume stayed 33 As noted above, if a new Participant submits the participant application agreement and reports no shares traded in a given month, the Participant is not charged the monthly fee for the first two calendar months in order to provide time to connect to the FINRA/NYSE TRF. E:\FR\FM\11MRN1.SGM 11MRN1 Federal Register / Vol. 85, No. 48 / Wednesday, March 11, 2020 / Notices lotter on DSKBCFDHB2PROD with NOTICES the same as it was in the final 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 $4,478 across the 35 Participants, compared to approximately $5,085 per Participant under the current fee. Of the 35 Participants, 28 would have no change in their fees and seven Participants would have a decreased fee or no fee. Of those seven, one would go from $17,500 to $15,000, one would go from $10,000 to $7,500, and two would go from $10,000 to $5,000. The three Retail Participants would go from $2,000 to $0. The Business Member notes that the proposed changes in the fees for other Participants were not designed to offset the loss of Retail Participant trade reporting fees. Indeed, 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 final quarter of 2019, under the proposed fee schedule, the total monthly subscriber fees paid to the FINRA/NYSE TRF would decrease even if Retail Participants were not exempted from the monthly fee. 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.34 The net effect on any individual Participant of the proposed change in reporting fees will depend on whether it is a Retail Participant and, if not, its Trade Report Count and, for five tiers, its Market Share. Lastly, the Business Member notes that Retail Participants and other Participants do not typically compete for the same business. As a result, the Business Member does not expect the 34 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. VerDate Sep<11>2014 16:37 Mar 10, 2020 Jkt 250001 proposed change to create a competitive advantage for Retail Participants relative to other Participants. 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 35 and paragraph (f)(2) of Rule 19b–4 thereunder.36 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 35 15 36 17 PO 00000 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(2). Frm 00100 Fmt 4703 Sfmt 4703 14283 investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File No. SR– FINRA–2020–006 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to File No. SR–FINRA–2020–006. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of FINRA. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File No. SR–FINRA– 2020–006, and should be submitted on or before April 1, 2020. E:\FR\FM\11MRN1.SGM 11MRN1 14284 Federal Register / Vol. 85, No. 48 / Wednesday, March 11, 2020 / Notices For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.37 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–04902 Filed 3–10–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–88330; File No. SR– NYSEArca–2020–01] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Designation of Longer Period for Commission Action on Proposed Rule Change To Amend the Rule 11.6800 Series, the Exchange’s Compliance Rule Regarding the National Market System Plan Governing the Consolidated Audit Trail which to take action on the proposed rule change so that it has sufficient time to consider the proposed rule change. Accordingly, pursuant to Section 19(b)(2)(A)(ii)(I) of the Act 5 and for the reasons stated above, the Commission designates April 22, 2020, as the date by which the Commission shall either approve, disapprove, or institute proceedings to determine whether to disapprove, the proposed rule change (File No. SR–NYSEArca–2020–01). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.6 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–04908 Filed 3–10–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION lotter on DSKBCFDHB2PROD with NOTICES March 5, 2020. On January 3, 2020, NYSE Arca, Inc. (‘‘NYSE Arca’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 a proposed rule change to amend the Exchange’s compliance rule regarding the National Market System Plan Governing the Consolidated Audit Trail. The proposed rule change was published for comment in the Federal Register on January 23, 2020.3 The Commission has received no comment letters on the proposed rule change. Section 19(b)(2) of the Act 4 provides that within 45 days of the publication of notice of the filing of a proposed rule change, or within such longer period up to 90 days as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or as to which the self-regulatory organization consents, the Commission shall either approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether the proposed rule change should be disapproved. The 45th day for this filing is March 8, 2020. The Commission is extending the 45day time period for Commission action on the proposed rule change. The Commission finds that it is appropriate to designate a longer period within 37 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 87987 (January 16, 2020), 85 FR 4011. 4 15 U.S.C. 78s(b)(2). 1 15 VerDate Sep<11>2014 16:37 Mar 10, 2020 Jkt 250001 [Release No. 34–88337; File No. SR–ICC– 2020–001] Self-Regulatory Organizations; ICE Clear Credit LLC; Order Approving Proposed Rule Change Relating To Revising the ICC Clearing Rules To Consider the Possibility of ICC Receiving Proceeds From Default Insurance March 5, 2020. I. Introduction On January 9, 2020, ICE Clear Credit LLC (‘‘ICC’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 a proposed rule change to revise its Clearing Rules (the ‘‘Rules’’) 3 to consider the possibility of ICC receiving proceeds from default insurance. The proposed rule change was published for comment in the Federal Register on January 21, 2020.4 The Commission did not receive comments regarding the proposed rule change. For the reasons discussed below, the Commission is approving the proposed rule change. 5 15 U.S.C. 78s(b)(2)(A)(ii)(I). CFR 200.30–3(a)(31). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 Capitalized terms used but not defined herein have the meanings specified in the Rules. 4 Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of Filing of Proposed Rule Change, Security-Based Swap Submission, or Advance Notice Relating to the ICC Clearing Rules; Exchange Act Release No. 87958 (Jan. 14, 2020); 85 FR 3446 (Jan. 21, 2020) (‘‘Notice’’). 6 17 PO 00000 Frm 00101 Fmt 4703 Sfmt 4703 II. Description of the Proposed Rule Change The proposed rule change would amend Chapters 1 and 8 of the ICC Rules to allow ICC to receive proceeds from an insurance policy in the event of the default of a Clearing Participant (‘‘CP’’). The proposed rule change would incorporate these proceeds from insurance into ICC’s default waterfall and therefore treat them similar to other resources that ICC uses to cover losses from CP defaults, like the guaranty fund. In terms of incorporating insurance proceeds into ICC’s default waterfall, under the proposed rule change, generally ICC would use proceeds from insurance before using guaranty fund resources from non-defaulting CPs. Although the proposed rule change would establish the legal framework for ICC to maintain insurance and use insurance proceeds in the event of a CP’s default, the proposed rule change would not require that ICC maintain such insurance. With respect to Chapter 1 of the ICC Rules, which sets out the defined terms used in the Rules, the proposed rule change would add to ICC Rule 102 (‘‘Definitions’’) the term ‘‘Insurance Proceeds’’ and would refer to proposed Rule 802(b)(i)(A)(4), where the term would be defined. Proposed Rule 802(b)(i)(A)(4) would define the term ‘‘Insurance Proceeds’’ to mean insurance proceeds, if any, received by ICC in connection with a CP’s default. Additionally, proposed Rule 802(b)(i)(A)(4) would state that ICC shall not be obligated to obtain or maintain any insurance policy with respect to the default of a CP, thus making explicit the point described above that the proposed rule change would not require that ICC maintain insurance against defaults. With respect to Chapter 8 of the ICC Rules, the proposed rule change would first amend ICC Rule 802(a). ICC Rule 802(a) provides that ICC may charge against a defaulting CP’s contributions to the guaranty fund losses suffered from the CP’s default. Rule 802(a) lists the types of losses and expenses that ICC may charge against the defaulting CP’s contributions to the guaranty fund, ordered by priority. Rule 802(a) also explains how ICC would pay out any surplus remaining after paying all of the other listed items. As explained in Rule 802(a), ICC may pay the surplus to ICC or to whomever may be lawfully entitled to receive the surplus, including any insurer, surety, or guarantor of the obligations of ICC. The proposed rule change would add to this any insurer, surety, or guarantor with respect to the obligations of the E:\FR\FM\11MRN1.SGM 11MRN1

Agencies

[Federal Register Volume 85, Number 48 (Wednesday, March 11, 2020)]
[Notices]
[Pages 14275-14284]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-04902]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

Release No. 34-88324; File No. SR-FINRA-2020-006]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of 
Proposed Rule Change To Modify the Trade Reporting Fees Applicable to 
the FINRA/NYSE Trade Reporting Facility

March 5, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on February 28, 2020, Financial Industry Regulatory Authority, 
Inc. (``FINRA'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by FINRA. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to amend FINRA Rule 7620B (FINRA/NYSE 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 \3\ 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

[[Page 14276]]

Facilities) to use to satisfy their trade reporting obligations.\4\
---------------------------------------------------------------------------

    \3\ 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'').
    \4\ 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 (January 1, 2016) (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 trading activity reported 
to the FINRA/NYSE TRF and, for some tiers, the reporting member's count 
of tape reports to the FINRA/NYSE TRF (``Trade Report Count''). NYSE 
Market (DE) proposes to (a) change the tier structure, such that all 
the tiers take into account the reporting member's Trade Report Count, 
while only some of the tiers take into account the reporting member's 
trading activity reported to the FINRA/NYSE TRF, and the number of fee 
tiers increases from nine to 13; and (b) exclude certain Participants 
from 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 
final 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,\5\ 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.
---------------------------------------------------------------------------

    \5\ 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 FINRA/NYSE TRF on 
behalf of FINRA,\6\ 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.
---------------------------------------------------------------------------

    \6\ 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.\7\
---------------------------------------------------------------------------

    \7\ 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 January through December 2019, the breakout of trade 
report activity among the FINRA Facilities was as follows:

----------------------------------------------------------------------------------------------------------------
                                                                   Number of reported
                           Facility                                      shares          Percentage of TRF total
----------------------------------------------------------------------------------------------------------------
FINRA/NYSE TRF................................................          132,423,476,814                    20.06
FINRA/NASDAQ TRF..............................................          527,748,470,214                    79.94
----------------------------------------------------------------------------------------------------------------

Competitive Environment
    According to the Business Member, the FINRA/NYSE TRF operates in a 
competitive environment. The FINRA Facilities have different pricing 
\8\ 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.'' \9\
---------------------------------------------------------------------------

    \8\ 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.
    \9\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005) (File No. 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.
    By amending the tier structure and expanding the number of tiers, 
the Business Member believes that the proposed fee change will more 
closely correspond to actual usage. 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

[[Page 14277]]

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.\10\ 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.
---------------------------------------------------------------------------

    \10\ 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
    Pursuant to a recent change in the fee structure,\11\ the monthly 
fee for use of the FINRA/NYSE TRF is calculated based on the 
Participant's share of total market volume reported to the FINRA/NYSE 
TRF. More specifically, the fees are based on the Participant's 
``FINRA/NYSE TRF Market Share'' (``Market Share''), defined as the 
percentage calculated by dividing:
---------------------------------------------------------------------------

    \11\ See Securities Exchange Act Release No. 87205 (October 3, 
2019), 84 FR 54219, 54224 (October 9, 2019) (Notice of Filing and 
Immediate Effectiveness of File No. SR-FINRA-2019-024). The 
operative date was October 1, 2019.
---------------------------------------------------------------------------

    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 Consolidated Tape 
Association (``CTA'') or the Nasdaq Securities Information Processor 
(``UTP SIP''), as applicable, during that period.
    Where the Market Share is below 0.10%, the Participant's Trade 
Report Count is a second factor in determining the applicable monthly 
fee.
    The following chart sets forth the current tiers:

------------------------------------------------------------------------
                                        Count of tape         Monthly
    FINRA/NYSE TRF market share       reports to FINRA/     participant
                                          NYSE TRF              fee
------------------------------------------------------------------------
Greater than or equal to 1.25%....  n/a.................         $30,000
Greater than or equal to 0.75% but  n/a.................          20,000
 less than 1.25%.
Greater than or equal to 0.50% but  n/a.................          17,500
 less than 0.75%.
Greater than or equal to 0.25% but  n/a.................          15,000
 less than 0.50%.
Greater than or equal to 0.10% but  n/a.................          10,000
 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                  250
                                     reports but fewer
                                     than 100 trade
                                     reports.
Less than 0.10%...................  No trade reports....           2,000
------------------------------------------------------------------------

The Proposed Monthly Fee
    Under the proposed fee, each Participant would still be charged a 
monthly fee for use of the FINRA/NYSE Trade Reporting Facility, with 
the exception that ``Retail Participants'' would not be subject to a 
monthly fee.
    Retail Participants. A Participant would be a ``Retail 
Participant'' if substantially all of its trade reporting activity on 
the FINRA/NYSE TRF comprises Retail Orders. In turn, a ``Retail Order'' 
would mean an order that originates from a natural person, provided 
that, prior to submission, no change is made to the terms of the order 
with respect to price or side of market and the order does not 
originate from a trading algorithm or any other computerized 
methodology.
    The proposed amended Rule 7620B would set forth the definitions of 
``Retail Participant'' and ``Retail Order,'' together with a 
description of the relevant requirements in a new paragraph (a) in Rule 
7620B. The new paragraph would state that a Participant that wished to 
qualify as a Retail Participant and be exempt from the monthly fee in 
accordance with the Rule would be required to complete and submit to 
the FINRA/NYSE TRF an application form and a written attestation of its 
then-existing qualifications as a Retail Participant and its reasonable 
expectation that it will maintain such qualifications for a one-year 
period following the date of attestation. In addition, the new text 
would state that a Retail Participant:
     Would be required to complete and submit a written 
attestation to the FINRA/NYSE TRF on an annual basis to retain its 
status as such;
     would be required to inform the FINRA/NYSE TRF promptly if 
at any time it ceases to qualify or it reasonably expects that it will 
cease to qualify as a Retail Participant; and
     may be audited by the FINRA/NYSE TRF periodically.
    The new text would also state that Participants would be required 
to contact the FINRA/NYSE TRF for the application and attestation 
forms,\12\ and that if the FINRA/NYSE TRF approved a Participant as a 
Retail Participant on or prior to the twenty-seventh day of a month, 
then the approval would be deemed to be effective as of the first day 
of that month, whereas an approval that occurred after the twenty-
seventh day of the month would be deemed effective as of the first day 
of the following month. If a Participant notified the FINRA/NYSE TRF 
that it ceased to qualify as a Retail Participant during a month, then 
such notification would be deemed effective as of the first day of the 
following month.
---------------------------------------------------------------------------

    \12\ The Business Member expects to make the required 
application and attestation forms available on the FINRA/NYSE TRF 
website.
---------------------------------------------------------------------------

    The proposed exemption, definitions and requirements would be 
consistent with the exemption, definitions and requirements for retail 
participants of the FINRA/Nasdaq TRF set forth in FINRA Rule 7620A.\13\
---------------------------------------------------------------------------

    \13\ See FINRA Rule 7620A, including the commentary thereto, and 
Securities Exchange Act Release No. 88135 (February 6, 2020), 85 FR 
8079 (February 12, 2020) (Notice of Filing and Immediate 
Effectiveness of File No. SR-FINRA-2020-004).
---------------------------------------------------------------------------

    Retail Participants would continue to receive 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.
    Proposed Tiers. The proposed amended Rule 7620B would set forth the 
fees for Participants that are not Retail Participants in a new 
paragraph (b) and would expand the current tier structure from nine to 
13 tiers. Unlike now, the determination of the applicable tier would 
take into account the Trade Report Counts in every case. Only when the 
Trade Report Count is

[[Page 14278]]

above 25,000 would the Market Share be a factor in determining the 
relevant tier. The following chart sets forth the proposed fee tiers 
for Participants that are not Retail Participants:

------------------------------------------------------------------------
                                        Count of Tape         Monthly
    FINRA/NYSE TRF market share       Reports to FINRA/     participant
                                          NYSE TRF              fee
------------------------------------------------------------------------
Greater than or equal to 1.25%....  More than 25,000             $30,000
                                     trade reports.
Greater than or equal to 1.00% but  More than 25,000              25,000
 less than 1.25%.                    trade reports.
Greater than or equal to 0.75% but  More than 25,000              20,000
 less than 1.00%.                    trade reports.
Greater than or equal to 0.50% but  More than 25,000              15,000
 less than 0.75%.                    trade reports.
Greater than or equal to 0.25% but  More than 25,000              10,000
 less than 0.50%.                    trade reports.
Greater than or equal to 0.20% but  More than 25,000               7,500
 less than 0.25%.                    trade reports.
Greater than or equal to 0.10% but  More than 25,000               5,000
 less than 0.20%.                    trade reports.
Less than 0.10%...................  More than 25,000               2,000
                                     trade reports.
n/a...............................  Between 15,001 and             2,000
                                     25,000 trade
                                     reports.
n/a...............................  Between 5,001 and              1,000
                                     15,000 trade
                                     reports.
n/a...............................  Between 101 and                  750
                                     5,000 trade reports.
n/a...............................  Between 1 and 100                250
                                     trade reports.
n/a...............................  No trade reports....           2,000
------------------------------------------------------------------------

    The Market Share would continue to be calculated in aggregate 
across all tapes \14\ and be based on the number of shares attributable 
to a FINRA/NYSE TRF Participant. A transaction is attributed to a 
Participant if the Participant is identified as the executing party in 
a tape report submitted to the FINRA/NYSE TRF. Such calculation would 
continue to be based on the data available for the prior full calendar 
month.\15\
---------------------------------------------------------------------------

    \14\ 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.
    \15\ For example, the bill issued in June would be for the month 
of May, and would be based on shares reported during May.
---------------------------------------------------------------------------

    The monthly fee would continue to be charged at the end of the 
calendar month and to apply to any Participant that is not a Retail 
Participant and has submitted a participant application agreement to 
the FINRA/NYSE TRF pursuant to Rule 7220B (Trade Reporting 
Participation Requirements). As is true now, if a new FINRA/NYSE TRF 
Participant submits the participant application agreement and reports 
no shares traded in a given month, the Participant would not be charged 
the monthly fee for the first two calendar months in order to provide 
time to connect to the FINRA/NYSE TRF.\16\ 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.\17\
---------------------------------------------------------------------------

    \16\ As is the case today, after the first two calendar months, 
the Participant will be charged regardless of connectivity.
    \17\ See 84 FR 54219, supra note 13 [sic], at 54221.
---------------------------------------------------------------------------

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 sizes of 
Participants. Different types of Participants will be treated the same 
except that, as noted above, Retail Participants will not be charged a 
fee. For all other Participants, the determination of the applicable 
tier would be based on the Participant's Trade Report Count and, in 
some cases, FINRA/NYSE TRF Market Share. By expanding the structure 
from nine monthly Participant tiers to 13, the proposed rule change 
would create a more nuanced fee structure.
Proposed Exclusion of Retail Participants
    The proposed exclusion of Retail Participants from the monthly fee 
is intended to improve the competitiveness of the FINRA/NYSE TRF for 
Retail Participants in light of recent initiatives by retail brokers to 
eliminate fees for executing retail customer transactions and the 
recent determination by the FINRA/Nasdaq TRF not to charge its retail 
participants any fees for trade reporting.\18\ Recently, some large 
retail brokers, such as Charles Schwab Corp., TD Ameritrade Holding 
Corp., and E*Trade Financial Corp., have removed commission trading 
fees for stock trades, leading to pressure on retail brokers to reduce 
operational costs.\19\ The Business Member believes that its proposal 
would support these efforts and attract Retail Participants to the 
FINRA/NYSE TRF.
---------------------------------------------------------------------------

    \18\ See note 15 [sic], supra.
    \19\ See 85 FR 8079, 8081; see also Lisa Beilfuss and Alexander 
Osipovich, ``The Race to Zero Commissions,'' Wall Street Journal, 
October 5, 2019, at https://www.wsj.com/articles/the-race-to-zero-commissions-11570267802.
---------------------------------------------------------------------------

Proposed Tiers
    The current fee structure came into effect in October 2019. Based 
largely on its experience with the current fee structure over the last 
few months, the Business Member has identified two issues that the 
proposed change is meant to address.
    First, the current structure works on the general assumption that 
as a Participant's Market Share goes up its Trade Report Count will 
increase as well. Analyzing the fees paid under the current structure, 
the Business Member has found instances where that assumption is wrong: 
In such cases, a Participant may have a Market Share that is above 
0.10% but may make only a few trade reports to the FINRA/NYSE TRF, 
resulting in a more substantial fee per trade than if the Participant 
had a lower Market Share. To address the issue, the Business Member 
proposes to take the Trade Report Count into account for every tier. At 
the same time, it proposes to reduce the current focus on Market Share.
    Two examples show the effect of the proposed change:
     Assume that, during a given month, a Participant has a 
Market Share of 0.15% and makes two trade reports to the FINRA/NYSE 
TRF. Under the current structure, it has a monthly fee of $10,000--the 
same fee that would apply if it had a Trade Report Count of 30,000. 
Under the proposed structure, because the Trade Report Count is taken 
into account, the hypothetical Participant would have a monthly fee of 
$250 if it made two trade reports and $5,000 if it made 30,000.

[[Page 14279]]

     Assume that, during a given month, Participant A has a 
Market Share of 0.02% and a Trade Report Count of 500, and Participant 
B has a Market Share of 0.12% and a Trade Report Count of 500. Under 
the current structure, Participant A has a monthly fee of $750 and 
Participant B has a monthly fee of $10,000, even though their Trade 
Report Count is the same. Under the proposed structure, both would be 
charged a monthly fee of $750.
    Currently, a Participant with a Market Share of less than 0.10% 
would pay a fee based on its Trade Report Count. Under the proposed 
structure, a Participant with a Market Share of less than 0.10% would 
pay a fee based on its Trade Report Count only if that count was more 
than 25,000. In all cases, if a Participant had a Trade Report Count of 
25,000 or less, the fee would depend on the Trade Report Count, and the 
Market Share would not be a factor in determining the tier. As a 
result, a Participant that has a Market Share above 0.10% but has a low 
Trade Report Count would not be subject to the more substantial fee per 
trade than it would be under the current structure, addressing the 
first issue that the Business Member identified with the current 
structure.
    Second, under the current structure, in some cases the applicable 
monthly fee increases by up to $10,000 when a customer moves from one 
tier to the next. As a result, for a Participant on the upper edge of a 
tier range, a relatively small increase in Market Share can result in a 
substantial fee increase. To address the issue, the proposal would 
increase the number of tiers to 13, adding granularity to the structure 
and decreasing the impact of changing tiers.
    Three scenarios show the effect of the proposed change:
     Currently the monthly fee increases fivefold, from $2,000 
to $10,000, if a Participant crosses the threshold between two of the 
middle tiers.\20\ The proposed creation of two new tiers between them, 
with fees of $5,000 and $7,500 per month, would mean that the 
Participant would have to move three tiers to increase its fee from 
$2,000 to $10,000 per month.
---------------------------------------------------------------------------

    \20\ From a Market Share of less than 0.10%, to a Market Share 
greater than or equal to 0.10% but less than 0.25%.
---------------------------------------------------------------------------

     Currently the monthly fee increases from $750 to $2,000 if 
a Participant crosses the threshold between two of the lower tiers.\21\ 
The proposal would introduce a tier with a $1,000 monthly fee between 
them.
---------------------------------------------------------------------------

    \21\ From a Market Share of less than 0.10% and Trade Report 
Count of 100 or more trade reports but fewer than 25,000 trade 
reports, to a Market Share of less than 0.10% and Trade Report Count 
of 25,000 or more trade reports.
---------------------------------------------------------------------------

     Currently the monthly fee increases from $20,000 to 
$30,000 if a Participant crosses the threshold between the two highest 
tiers.\22\ The proposal would introduce a tier with a $25,000 fee, so 
that a Participant would not have its monthly fee increase by $10,000 
simply by crossing the threshold between two tiers.
---------------------------------------------------------------------------

    \22\ From a Market Share greater than or equal to 0.75% but less 
than 1.25%, to a Market Share greater than or equal to 1.25%.
---------------------------------------------------------------------------

    In addition, the proposed fee schedule uses different threshold 
percentages for its tiers than the current fee schedule. The Business 
Member selected the proposed tiers and fees based on its evaluation of 
what thresholds and fees would create a more nuanced structure and 
would help address the described issues. In making its evaluation, the 
Business Member utilized its activity records and its analysis of the 
more detailed information on the FINRA website (the ``OTC Transparency 
Data website'').\23\
---------------------------------------------------------------------------

    \23\ https://otctransparency.finra.org/otctransparency/AtsIssueData. FINRA began reporting information regarding each 
firm's aggregate non-ATS OTC volume (number of trades and number of 
shares) in December 2019, increasing the information available on 
the OTC Transparency Data website. See Securities Exchange Act 
Release No. 86706 (August 19, 2019), 84 FR 44341 (August 23, 2019) 
(Order Approving File No. SR-FINRA-2019-019).
---------------------------------------------------------------------------

    To facilitate comparison, the following table shows the proposed 
and current tiers and monthly fees.

----------------------------------------------------------------------------------------------------------------
                    Market share & trade report counts: tiers                               Monthly fee
----------------------------------------------------------------------------------------------------------------
                    Current                               Proposed \1\                Current      Proposed \1\
----------------------------------------------------------------------------------------------------------------
Greater than or equal to 1.25%................  Greater than or equal to 1.25%           $30,000         $30,000
                                                 and more than 25,000 trade
                                                 reports.
                                                Greater than or equal to 1.00%    ..............          25,000
                                                 but less than 1.25% and more
                                                 than 25,000 trade reports.
Greater than or equal to 0.75% but less than    Greater than or equal to 0.75%            20,000          20,000
 1.25%.                                          but less than 1.00% and more
                                                 than 25,000 trade reports.
Greater than or equal to 0.50% but less than    Greater than or equal to 0.50%            17,500          15,000
 0.75%.                                          but less than 0.75% and more
                                                 than 25,000 trade reports.
Greater than or equal to 0.25% but less than    Greater than or equal to 0.25%            15,000          10,000
 0.50%.                                          but less than 0.50% and more
                                                 than 25,000 trade reports.
                                                Greater than or equal to 0.20%    ..............           7,500
                                                 but less than 0.25% and more
                                                 than 25,000 trade reports.
Greater than or equal to 0.10% but less than    Greater than or equal to 0.10%            10,000           5,000
 0.25%.                                          but less than 0.20% and more
                                                 than 25,000 trade reports.
Less than 0.10% and 25,000 or more trade        Less than 0.10% and more than              2,000           2,000
 reports.                                        25,000 trade reports.
                                                Between 15,001 and 25,000 trade   ..............           2,000
                                                 reports.
                                                Between 5,001 and 15,000 trade    ..............           1,000
                                                 reports.
Less than 0.10% and 100 or more trade reports   Between 101 and 5,000 trade                  750             750
 but fewer than 25,000 trade reports.            reports.
Less than 0.10% and 1 or more trade reports     Between 1 and 100 trade reports.             250             250
 but fewer than 100 trade reports.
Less than 0.10% and no trade reports..........  No trade reports................           2,000           2,000
----------------------------------------------------------------------------------------------------------------
\1\ Under the proposed change, Retail Participants would not be subject to monthly fees.


[[Page 14280]]

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\ 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 Trade Report Count of zero to make trade 
reports to the FINRA/NYSE TRF in order to reduce their fees from 
$2,000 to $250, $750 or $1,000. The Business Member believes that 
the increase in reporting would increase such Participants' revenue 
share as well as decrease their 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 
final quarter of 2019, under the proposed fee schedule, the total 
monthly subscriber fees paid to the FINRA/NYSE TRF would decrease. 
Based on those assumptions, 28 Participants would have no change in 
their fees and seven Participants would have a decreased or no fee. Of 
those seven, one would go from $17,500 to $15,000, one would go from 
$10,000 to $7,500, and two would go from $10,000 to $5,000. The three 
Retail Participants would go from $2,000 to $0.
    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 December 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 were reporting to the FINRA/
NYSE TRF subject to the current or proposed fee. 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.

----------------------------------------------------------------------------------------------------------------
    Market share & trade report counts: tiers        Number of     Number of firms per tier based on  percentage
-------------------------------------------------    firms per                of reported volume \1\
                                                    tier under   -----------------------------------------------
            Current                 Proposed        current fee         25%             50%            100%
----------------------------------------------------------------------------------------------------------------
Greater than or equal to 1.25%  Greater than or                6               2               3               6
                                 equal to 1.25%
                                 and more than
                                 25,000 trade
                                 reports.
                                Greater than or   ..............               0               0               2
                                 equal to 1.00%
                                 but less than
                                 1.25% and more
                                 than 25,000
                                 trade reports.
Greater than or equal to 0.75%  Greater than or                6               0               3               4
 but less than 1.25%.            equal to 0.75%
                                 but less than
                                 1.00% and more
                                 than 25,000
                                 trade reports.
Greater than or equal to 0.50%  Greater than or                6               1               2               6
 but less than 0.75%.            equal to 0.50%
                                 but less than
                                 0.75% and more
                                 than 25,000
                                 trade reports.
Greater than or equal to 0.25%  Greater than or                9               5              10               6
 but less than 0.50%.            equal to 0.25%
                                 but less than
                                 0.50% and more
                                 than 25,000
                                 trade reports.
                                Greater than or   ..............               1               1               3
                                 equal to 0.20%
                                 but less than
                                 0.25% and more
                                 than 25,000
                                 trade reports.
Greater than or equal to 0.10%  Greater than or               20               8               7               7
 but less than 0.25%.            equal to 0.10%
                                 but less than
                                 0.20% and more
                                 than 25,000
                                 trade reports.
Less than 0.10% and 25,000 or   Less than 0.10%               20              22              25              20
 more trade reports.             and 25,000 or
                                 more trade
                                 reports.
                                Between 15,001    ..............               9               2               5
                                 and 25,000
                                 trade reports.
                                Between 5,001     ..............               6               9               4
                                 and 15,000
                                 trade reports.
Less than 0.10% and 100 or      Between 101 and               81              66              71              83
 more trade reports but fewer    5,000 trade
 than 25,000 trade reports.      reports.
Less than 0.10% and 1 or more   Between 1 and                 96             124             111              98
 trade reports but fewer than    100 trade
 100 trade reports.              reports.
Less than 0.10% and no trade    No trade reports               0               0               0               0
 reports.
----------------------------------------------------------------------------------------------------------------
\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 December 2019.

    FINRA has filed the proposed rule change for immediate 
effectiveness. The operative date will be March 1, 2020.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b) of the Act,\25\ in general, and Section 
15A(b)(5) of the Act,\26\ in particular, 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. FINRA also believes that the proposed rule change is 
consistent with Section 15A(b)(6) of the Act,\27\ which requires, among 
other

[[Page 14281]]

things, that FINRA rules must be designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest. FINRA also believes that the proposed rule change is 
consistent with Section 15A(b)(9) of the Act,\28\ which requires that 
FINRA rules not impose any burden on competition that is not necessary 
or appropriate.
---------------------------------------------------------------------------

    \25\ 15 U.S.C. 78o-3(b).
    \26\ 15 U.S.C. 78o-3(b)(5).
    \27\ 15 U.S.C. 78o-3(b)(6).
    \28\ 15 U.S.C. 78o-3(b)(9).
---------------------------------------------------------------------------

    As a general matter, 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 applied differently to 
different sizes of Participants. Different types of Participants will 
be treated the same except that, as noted above, Retail Participants 
will not be charged a fee. Access to the FINRA/NYSE TRF is offered on 
fair and non-discriminatory 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 Business 
Member believes that the proposal to exempt Retail Participants from 
the monthly fee is reasonable for several reasons.
    Given the recent initiatives by retail brokers to eliminate fees 
for executing retail customer transactions, the Business Member 
believes that the proposed rule change would demonstrate that the 
FINRA/NYSE TRF is sensitive to current and potential Retail 
Participants' changing business models and operational costs. In 
addition, given the recent determination by the FINRA/Nasdaq TRF not to 
charge its retail participants any fees for trade reporting, the 
Business Member believes that the proposal is a reasonable means of 
strengthening the ability of the FINRA/NYSE TRF to compete for trade 
reporting activity, given that the proposal will treat Retail 
Participants in the same manner as the competing FINRA TRF, while 
offering current and potential Participants more attractive options for 
trade reporting. The Business Member notes that even as it proposes to 
eliminate trade reporting fees for Retail Participants, such Retail 
Participant activity should continue to contribute to operating the 
FINRA/NYSE TRF insofar as the FINRA/NYSE TRF will continue to receive a 
share of the CTA and UTP SIP transaction credits generated through 
retail trade reporting activity that occurs on the FINRA/NYSE TRF.
    The Business Member believes that the proposed exemption, 
definitions of ``Retail Participant'' and ``Retail Orders'' and 
requirements for Retail Participants would be reasonable, as they would 
be consistent with the exemption, definitions and requirements for 
retail participants of the FINRA/Nasdaq TRF set forth in FINRA Rule 
7620A.\29\ Using substantially similar definitions and requirements 
would enhance consistency and predictability for potential Retail 
Participants.
---------------------------------------------------------------------------

    \29\ See note 15 [sic], supra.
---------------------------------------------------------------------------

    With respect to Participants that are not Retail Participants, the 
proposed structure would take the Trade Report Count into account for 
every tier. At the same time, it would reduce the current focus on 
Market Share. Specifically, if a Participant had a Trade Report Count 
of 25,000 or less, its Market Share would not be a factor in 
determining its fee. As a general matter, the proposed fees are 
designed such that more active Participants have a higher fee, while 
less active Participants pay less. By removing Market Share as a factor 
in determining the relevant tier for Participants with Trade Report 
Counts of 25,000 or less, the Trade Report Count would become the 
determinative factor. The Business Member believes that this proposed 
change would be equitable because for Participants with a lower Trade 
Report Count, their monthly fee would be tied to the number of trades, 
and not their size.
    In addition to exempting Retail Participants from the fee, the 
proposed changes to Rule 7620B would expand the tier structure from 
nine monthly Participant fees to 13. As a result, for a Participant on 
the upper edge of a tier range, a relatively small increase in Market 
Share would not result in as substantial a fee increase as under the 
present structure, thereby adding granularity to the structure and 
decreasing the impact of changing tiers.
    The proposed fee schedule uses different threshold percentages for 
its tiers than the current fee schedule. The Business Member selected 
the proposed tiers and fees based on its evaluation of what thresholds 
and fees would create a more nuanced structure and would help address 
the described issues. In making its evaluation, the Business Member 
utilized its activity records and its analysis of the information on 
the OTC Transparency Data website.
The Proposed Rule Change Is Not Unfairly Discriminatory
    FINRA believes that the proposed rule change is not unfairly 
discriminatory for the following reasons.
    As proposed, Retail Participants would be exempted from the monthly 
fee for using the FINRA/NYSE TRF. The Business Member does not believe 
that it would be unfair to do so, as the proposed rule change would 
demonstrate that the FINRA/NYSE TRF is sensitive to current and 
potential Retail Participants' changing business models and operational 
costs. Importantly, the proposed exemption would align the fees of the 
FINRA/NYSE TRF with those of the FINRA/Nasdaq TRF, which does not 
charge its retail participants any fees for trade reporting.\30\ In 
addition, as noted above, the total fees paid by Retail Participants 
are relatively small: of the 35 FINRA/NYSE TRF Participants in December 
2019, three were Retail Participants. Under the proposed rule, their 
monthly fees would go from $2,000 to $0.
---------------------------------------------------------------------------

    \30\ See note 15 [sic], supra.
---------------------------------------------------------------------------

    The Business Member notes that the proposed changes in the fees for 
other Participants were not designed to offset the loss of Retail 
Participant trade reporting fees. Indeed, 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 final quarter of 2019, under 
the proposed fee schedule, the total monthly subscriber fees paid to 
the FINRA/NYSE TRF would decrease even if Retail Participants were not 
exempted from the monthly fee.
    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.
    The Business Member believes that the proposed fee change may 
encourage more FINRA members to become FINRA/NYSE TRF Participants, 
including both Retail and non-Retail Participants, and use the FINRA/
NYSE TRF to report trades. Such a change would make the FINRA/NYSE TRF 
more competitive with the FINRA/Nasdaq TRF and give members more

[[Page 14282]]

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 than they currently use it 
for.
    With respect to Participants that are not Retail Participants, the 
proposed structure would take the Trade Report Count into account for 
every tier. At the same time, it would reduce the current focus on 
Market Share. Specifically, if a Participant had a Trade Report Count 
of 25,000 or less, its Market Share would not be a factor in 
determining its fee. As a general matter, the proposed fees are 
designed such that more active Participants have a higher fee, while 
less active Participants pay less. By removing Market Share as a factor 
in determining the relevant tier for Participants with Trade Report 
Counts of 25,000 or less, the Trade Report Count would become the 
determinative factor. The Business Member believes that this proposed 
change would not be unfairly discriminatory because for Participants 
with a lower Trade Report Count, their monthly fee would be tied to the 
number of trades, and not their size.
    Finally, the Business Member believes that dividing the proposed 
rule into paragraphs (a) and (b) would make Rule 7620B easier for 
market participants to understand and to locate relevant information, 
thereby increasing the clarity and transparency of the Rule.

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.'' \31\
---------------------------------------------------------------------------

    \31\ See note 11 [sic], supra.
---------------------------------------------------------------------------

    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.
    The proposed structure would exempt Retail Participants from the 
monthly fee for using the FINRA/NYSE TRF. The Business Member believes 
that doing so would not be a burden on intramarket competition, as the 
proposed rule change would align the fees of the FINRA/NYSE TRF with 
those of the FINRA/Nasdaq TRF, which does not charge its retail 
participants any fees for trade reporting.\32\ In addition, as noted 
above, the total fees paid by Retail Participants are relatively small: 
Of the 35 Participants in December 2019, three were Retail 
Participants. Under the proposed rule, their monthly fees would go from 
$2,000 to $0.
---------------------------------------------------------------------------

    \32\ See note 15 [sic], supra.
---------------------------------------------------------------------------

    With respect to Participants that are not Retail Participants, the 
proposed structure would take the Trade Report Count into account for 
every tier. At the same time, it would reduce the current focus on 
Market Share. Specifically, if a Participant had a Trade Report Count 
of 25,000 or less, its Market Share would not be a factor in 
determining its fee. By removing Market Share as a factor in 
determining the relevant tier for Participants with Trade Report Counts 
of 25,000 or less, the Trade Report Count would become the 
determinative factor. The Business Member believes that this proposed 
change would make the FINRA/NYSE TRF more competitive for Participants 
with a lower Trade Report Count, as their monthly fee would be tied to 
the number of trades, and not their size.
    The proposed changes to Rule 7620B would expand the tier structure 
from nine monthly Participant fees to 13. As a result, for a 
Participant on the upper edge of a tier range, a relatively small 
increase in Market Share would not result in as substantial a fee 
increase as under the present structure. As a result, the proposed 
structure would have more granularity than the current structure and 
the impact of changing tiers would decrease, making the FINRA/NYSE TRF 
more competitive with the FINRA/Nasdaq TRF.
    The proposed fee schedule uses different threshold percentages for 
its tiers than the current fee schedule. The Business Member selected 
the proposed tiers and fees based on its evaluation of what thresholds 
and fees would create a more nuanced structure and would help address 
the described issues. In making its evaluation, the Business Member 
utilized its activity records and its analysis of the information on 
the OTC Transparency Data website.
    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 sizes of Participants. Different types of Participants will 
be treated the same except that, as noted above, Retail Participants 
will not be charged a fee. The proposed fees will be based on a 
Participant's activity on the FINRA/NYSE TRF. At the same time, by 
expanding the tier structure from nine monthly Participant tiers to 13, 
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 December 31, 2019, there were 35 Participants, of which 18 
were in the $2,000 per month tier. Three of the remaining Participants 
were in the $30,000 per month tier, one was in the $17,500 per month 
tier, three were in the $10,000 per month tier, five were in the $750 
per month tier, and three were in the $250 per month tier. Two were new 
Participants not yet subject to fees.\33\ Assuming the number of 
Participants remained flat, the average fee incurred during December 
2019 was approximately $5,085 per Participant across the 35 
Participants.
---------------------------------------------------------------------------

    \33\ As noted above, if a new Participant submits the 
participant application agreement and reports no shares traded in a 
given month, the Participant is not charged the monthly fee for the 
first two calendar months in order to provide time to connect to the 
FINRA/NYSE TRF.
---------------------------------------------------------------------------

    If there were no change in reporting to the FINRA/NYSE TRF, such 
that Participants' reporting volume stayed

[[Page 14283]]

the same as it was in the final 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 $4,478 across the 35 Participants, compared to 
approximately $5,085 per Participant under the current fee. Of the 35 
Participants, 28 would have no change in their fees and seven 
Participants would have a decreased fee or no fee. Of those seven, one 
would go from $17,500 to $15,000, one would go from $10,000 to $7,500, 
and two would go from $10,000 to $5,000. The three Retail Participants 
would go from $2,000 to $0.
    The Business Member notes that the proposed changes in the fees for 
other Participants were not designed to offset the loss of Retail 
Participant trade reporting fees. Indeed, 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 final quarter of 2019, under 
the proposed fee schedule, the total monthly subscriber fees paid to 
the FINRA/NYSE TRF would decrease even if Retail Participants were not 
exempted from the monthly fee.
    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.\34\ The net effect on any individual 
Participant of the proposed change in reporting fees will depend on 
whether it is a Retail Participant and, if not, its Trade Report Count 
and, for five tiers, its Market Share.
---------------------------------------------------------------------------

    \34\ 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.
---------------------------------------------------------------------------

    Lastly, the Business Member notes that Retail Participants and 
other Participants do not typically compete for the same business. As a 
result, the Business Member does not expect the proposed change to 
create a competitive advantage for Retail Participants relative to 
other Participants.
    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 \35\ and paragraph (f)(2) of Rule 19b-4 
thereunder.\36\ 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.
---------------------------------------------------------------------------

    \35\ 15 U.S.C. 78s(b)(3)(A).
    \36\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File No. SR-FINRA-2020-006 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File No. SR-FINRA-2020-006. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of FINRA. All comments received 
will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File No. SR-FINRA-2020-006, and should be submitted on 
or before April 1, 2020.


[[Page 14284]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\37\
---------------------------------------------------------------------------

    \37\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-04902 Filed 3-10-20; 8:45 am]
BILLING CODE 8011-01-P
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