Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Modify the Trade Reporting Fees Applicable to Participants That Use the FINRA/NYSE Trade Reporting Facility, 18430-18436 [2022-06516]
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Federal Register / Vol. 87, No. 61 / Wednesday, March 30, 2022 / Notices
agents, have a wide range of choices of
where to route orders for execution’;
[and] ‘no exchange can afford to take its
market share percentages for granted’
because ‘no exchange possesses a
monopoly, regulatory or otherwise, in
the execution of order flow from broker
dealers’. . . .’’.18 Accordingly, the
Exchange does not believe its proposed
fee change imposes any burden on
competition that is not necessary or
appropriate in furtherance of the
purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
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 19 and paragraph (f) of Rule
19b–4 20 thereunder. 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 will institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
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Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CboeBZX–2022–020 on the subject line.
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–CboeBZX–2022–020. 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 the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–CboeBZX–2022–020 and
should be submitted on or before April
20, 2022.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.21
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022–06629 Filed 3–29–22; 8:45 am]
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[Release No. 34–94498; File No. SR–FINRA–
2022–006]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Modify the Trade
Reporting Fees Applicable to
Participants That Use the FINRA/NYSE
Trade Reporting Facility
March 23, 2022.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on March 16,
2022, the Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by FINRA. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
FINRA is proposing to amend FINRA
Rule 7620B (Trade Reporting Facility
Reporting Fees) to modify the trade
reporting fees applicable to participants
that use the FINRA/NYSE Trade
Reporting Facility (‘‘FINRA/NYSE
TRF’’).
The text of the proposed rule change
is available on FINRA’s website at
https://www.finra.org, at the principal
office of FINRA and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
FINRA included statements concerning
the purpose of and basis for the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. FINRA has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
18 NetCoalition v. SEC, 615 F.3d 525, 539 (D.C.
Cir. 2010) (quoting Securities Exchange Act Release
No. 59039 (December 2, 2008), 73 FR 74770, 74782–
83 (December 9, 2008) (SR–NYSEArca–2006–21)).
19 15 U.S.C. 78s(b)(3)(A).
20 17 CFR 240.19b–4(f).
SECURITIES AND EXCHANGE
COMMISSION
1 15
21 17
PO 00000
CFR 200.30–3(a)(12).
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2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The FINRA/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
Facilities) to use to satisfy their trade
reporting obligations.4
NYSE Market (DE) proposes to modify
the trade reporting fees applicable to
FINRA members that use the FINRA/
NYSE TRF (‘‘Participants’’). NYSE
Market (DE) proposes to subject each
Participant to a monthly fee that will be
based on whether that Participant
submitted trade reports to the FINRA/
NYSE TRF during the relevant month,
and if so, how many trade reports it
submitted. 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
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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
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 1/20/16 (OTC Equity
Trading and Reporting in the Event of Systems
Issues), a firm that routinely reports its OTC trades
in NMS stocks to only one FINRA Facility must
establish and maintain connectivity and report to a
second FINRA Facility, if the firm intends to
continue to support OTC trading as an executing
broker while its primary facility is experiencing a
widespread systems issue.
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.
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the regulatory and oversight functions of
FINRA.
The Business Member establishes
pricing applicable to FINRA/NYSE TRF
Participants for use of the FINRA/NYSE
TRF. That pricing is then implemented
pursuant to FINRA rules that FINRA
must file with the Commission and that
must be consistent with the Act.
Specifically, FINRA/NYSE TRF
Participants are charged fees pursuant to
Rule 7620B and may qualify for
transaction credits under Rule 7610B
(Securities Transaction Credit) (such
credits, ‘‘Securities Transaction
Credits’’).6 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,7 and the Business
Member collects all fees on behalf of the
FINRA/NYSE TRF.
According to the Business Member,
the FINRA/NYSE TRF operates in a
competitive environment. The FINRA
Facilities have different pricing 8 for
their respective participants and
compete for FINRA members’ trade
report activity. The FINRA/NYSE TRF is
smaller than the FINRA/Nasdaq TRF in
terms of reported volume. For the
month of December 2021, FINRA
members used the FINRA/NYSE TRF to
report approximately 17% of shares in
NMS stocks traded OTC, compared to
approximately 83% for the FINRA/
Nasdaq TRF.
Operating Costs
The overall costs of operating and
maintaining the FINRA/NYSE TRF
involve both fixed and variable
components. The variable component
constitutes the majority of the cost and
largely relates to the number of reports
that the FINRA/NYSE TRF, on behalf of
its subscribers, reports for public
dissemination (or ‘‘tape’’) purposes. It
also reflects the number of reports
submitted to the FINRA/NYSE TRF that
are not published to the tape.
6 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. 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.
7 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.
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.
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Specifically, if the number of tape
reports increases, the Business
Member’s variable costs increase, and
conversely, if the number of tape reports
decreases, the Business Member’s
variable costs decrease. The variable
costs associated with tape reports are
not related to the size (number of
shares) of the reported transaction.
Accordingly, the variable costs relating
to a tape report for a trade for one share
(or even less than one share) are the
same as the variable costs relating to a
tape report for 100,000 shares reported
to the FINRA/NYSE TRF.
The Business Member is entitled to
any profits and must cover any losses
that arise from operating the FINRA/
NYSE TRF. According to the Business
Member, the profits or losses generally
are the difference between:
1. The revenue (‘‘Revenue’’) from: (a)
Subscriber fees charged in accordance with
FINRA Rule 7620B (‘‘Subscriber Fee
Revenue’’), and (b) market data revenue for
the transaction information provided to the
securities information processors (‘‘SIPs’’) via
the FINRA/NYSE TRF less the Securities
Transaction Credits (together, ‘‘Net Market
Data Revenue’’); and
2. the costs of operating and maintaining
the FINRA/NYSE TRF.
According to the Business Member, in
2020 and 2021, costs of operating and
maintaining the FINRA/NYSE TRF were
greater than Revenues, causing the
FINRA/NYSE TRF to run at a loss.
According to the Business Member,
during that time, the number of tape
reports increased (particularly for
smaller-sized transactions) and total
Subscriber Fee Revenue decreased,
without a relative change to the
difference in total share volume
reported to the FINRA/NYSE TRF as
compared to other FINRA Facilities.
More specifically, compared to the 2018
monthly average, as of December 31,
2021, monthly average tape report
activity for the FINRA/NYSE TRF had
increased by 329% and monthly average
costs had increased by 146%. At the
same time, monthly average Subscriber
Fee Revenue had decreased by 19%. Net
Market Data Revenue varied during the
period, but overall it decreased as
compared to the first quarter of 2018.
Ultimately, the Business Member
believes that the FINRA/NYSE TRF
would continue to incur a significant
loss if the current fee and credit
structure remained in place, and that
such losses would make the FINRA/
NYSE TRF unsustainable in the long
term.
Accordingly, the Business Member
proposes to amend the fees set forth in
FINRA Rule 7620B. By so doing, it has
proposed a change that it believes
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should allow the monthly Subscriber
Fee Revenue to cover the total costs of
operating and maintaining the FINRA/
NYSE TRF. The proposed changes are
expected to allow the FINRA/NYSE TRF
to continue operating without amassing
losses similar to those it currently has.
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Proposed Amendments to Rule 7620B
Under the current fee structure,9
Participants are either ‘‘Retail
Participants’’ 10 or Participants that are
not Retail Participants (‘‘Non-Retail
Participants’’). The former are exempt
from the monthly fee, while the latter
are subject to a monthly fee based,
where applicable, on the Participant’s
‘‘FINRA/NYSE TRF Market Share.’’ 11
The fees set forth in Rule 7620B are
tiered.
Under the proposed, simplified fee
structure, the monthly fee would no
longer depend on whether a Participant
were a Retail Participant or its FINRA/
NYSE TRF Market Share, and the
current tiered structure would be
removed. Rather, if a Participant
submitted one or more trade reports to
the FINRA/NYSE TRF during a given
calendar month, the Participant would
pay a monthly fee equal to the sum of
(a) $1,000 plus (b) $0.0055 per
published tape report. If a Participant
submitted no trade reports to the
FINRA/NYSE TRF during that calendar
month, the Participant would pay a
monthly fee of $2,000.
9 See Securities Exchange Act Release No. 88324
(March 5, 2020), 85 FR 14275 (March 11, 2020) (SR–
FINRA–2020–006) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change to Modify
the Trade Reporting Fees Applicable to the FINRA/
NYSE Trade Reporting Facility). Under Rule 7620B,
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. 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).
10 A Participant ‘‘is a ‘Retail Participant’ if
substantially all of its trade reporting activity on the
FINRA/NYSE Trade Reporting Facility comprises
Retail Orders.’’ In turn, a ‘‘Retail Order’’ is ‘‘an
order that originates from a natural person,
provided that, prior to submission, no change is
made to the terms of the order with respect to price
or side of market and the order does not originate
from a trading algorithm or any other computerized
methodology.’’ FINRA Rule 7620B(a).
11 See FINRA Rule 7620B(b). ‘‘The rate of the
monthly fee for participants that are not Retail
Participants will be based, where applicable, on the
participant’s ‘FINRA/NYSE TRF Market Share,’
which is defined as the percentage calculated by
dividing the total number of shares reported to the
FINRA/NYSE Trade Reporting Facility for public
dissemination (or ‘tape’) purposes during a given
calendar month that are attributable to the
participant by the total number of all shares
reported to the CTA or UTP SIP, as applicable,
during that period.’’
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To effect the change, Rule 7620B
would be amended as follows. First, the
text ‘‘with the exception that Retail
Participants shall not be subject to a
monthly fee’’ would be deleted from the
first paragraph. Second, the following
text would be added to the end of the
first paragraph:
The monthly fee will be calculated as
follows:
(a) If the participant submits one or more
trade reports to the FINRA/NYSE Trade
Reporting Facility during a given calendar
month, the participant will pay a monthly fee
equal to the sum of (i) $1,000 plus (ii)
$0.0055 per published tape report.
(b) If the participant submits no trade
reports to the FINRA/NYSE Trade Reporting
Facility during a given calendar month, the
participant will pay a monthly fee of $2,000.
Finally, the current subsections (a) and
(b), including the table in subsection (b),
would be deleted.
The monthly fee would continue to be
charged at the end of the calendar
month. As is true now, if a new FINRA/
NYSE TRF Participant submitted the
participant application agreement and
reported 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.12 The monthly fees paid by
FINRA/NYSE TRF Participants would
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.13
Application of Proposed Fee Schedule
The Business Member believes that
pricing is the key factor for FINRA
members when choosing which FINRA
Facility to use. The Business Member
expects that the proposed change would
result in a fee increase for most FINRA/
NYSE TRF Participants. In this
competitive environment, FINRA
members can report their OTC trades in
NMS stocks to the FINRA/NYSE TRF’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. As
a result, the Business Member believes
that the proposed fee change will likely
reduce its reported volumes. It is not
possible to fully predict the number of
12 As is the case today, after the first two calendar
months, the Participant will be charged regardless
of connectivity.
13 See Securities Exchange Act Release No. 87205
(October 3, 2019), 84 FR 54219 (October 9, 2019)
(SR–FINRA–2019–024) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change
to Amend FINRA Rule 7620B to Modify the Trade
Reporting Fees Applicable to Participants That Use
the FINRA/NYSE Trade Reporting Facility).
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FINRA members that would reduce
their use of the FINRA/NYSE TRF or
cease being a FINRA/NYSE TRF
Participant as a result of the fee
increase. Similarly, it is not possible to
predict what the change in reporting to
the FINRA/NYSE TRF would be.
As stated above, under the proposed
fee structure, the monthly fee would no
longer depend on whether a Participant
were a Retail Participant or its FINRA/
NYSE TRF Market Share, and the
current tiered structure would be
removed. The proposed fee schedule
would be applied in the same manner
to all FINRA members that are, or elect
to become, FINRA/NYSE TRF
Participants and would not apply
differently to different sizes or types of
Participants. Participants that are
currently Retail Participants would be
subject to the same monthly fee for not
submitting any trade reports in a given
month as current Non-Retail
Participants.
By setting a base flat fee and tying the
remainder of the fee to the number of
tape reports a Participant submits to the
FINRA/NYSE TRF during a given
month, if any, the Business Member
believes that the resulting fee would
relate to the cost of operating and
maintaining the facility more closely.
Specifically, the Business Member’s
total cost of operating the FINRA/NYSE
TRF does not differ based on whether
the Participant is a Retail Participant or
not. As a general matter, the flat
portions of the proposed fees are
designed to address the fixed costs,
while the portion that is charged per
published tape report is meant to
address variable costs. The proposed
rule is designed to have the monthly
Subscriber Fee Revenue generally cover
total costs, which would allow the
FINRA/NYSE TRF to continue operating
without amassing losses similar to those
it recently has amassed.
Tying the fee directly to the number
of trade reports the Participant submits
to the FINRA/NYSE TRF during the
month means that the Participant’s fee
will increase or decrease in line with
any changes in the volume of such trade
reports. This makes the proposed fee
more directly tied to the Participant’s
usage of the FINRA/NYSE TRF,
matching a Participant’s fee with its
activity and the related costs. For
example, under the proposal, if a
Participant submitted 6,000,000 trade
reports to the FINRA/NYSE TRF during
one month, it would have a monthly fee
of $34,000. If it then submitted a lower
volume of 6,000 trade reports to the
FINRA/NYSE TRF during the following
month, its fee would be reduced to
$1,033. In recent years, there has been
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an increase in the volume of trade
reports submitted. If that trend should
abate, the fees would decrease as well.
Current Retail Participants
Under the proposed change, there
would no longer be a distinction
between Retail Participants and other
Participants. Based on experience, the
Business Member believes that most, if
not all, of the current Retail Participants
do not report any trades to the FINRA/
NYSE TRF during a given month. For
example, using December 2021 data,
two of the three current Retail
Participants were inactive. Currently, all
Retail Participants are exempt from the
monthly fee.
That would change under the
proposed rule change, as the current
Retail Participants would become
subject to a monthly fee. If, like most
current Retail Participants, a Participant
submitted no trade reports to the
FINRA/NYSE TRF during a calendar
month, it would pay a monthly fee of
$2,000. Using December 2021 data, the
two Retail Participants that were
inactive, under the proposed fee change,
would be assessed a fee of $2,000 for the
month (compared to $0 under the
current fee structure). If a Participant
submitted one or more trade reports to
the FINRA/NYSE TRF during a given
calendar month, the Participant would
pay a monthly fee equal to the sum of
(a) $1,000 plus (b) $0.0055 per
published tape report. The Retail
Participant that was active in December
2021 would be assessed a fee of $1,799
for the month based on its reporting
activity (compared to $0 under the
current fee structure).
Current Non-Retail Participants
Participants that currently are NonRetail Participants would no longer be
subject to a fee that varied based on
their FINRA/NYSE TRF Market Share.
Rather, they would be subject to the
same fees as all other Participants, as
described above.
To facilitate comparison, the
following table shows the estimated
effect of the proposed change on the
current Non-Retail Participants.
Current monthly
participant fee
Estimated
new monthly
participant fee
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 .............................
$30,000
25,000
* $83,598
* 69,828
More than 25,000 trade reports .............................
20,000
* 43,156
More than 25,000 trade reports .............................
15,000
* 47,815
More than 25,000 trade reports .............................
10,000
* 36,793
More than 25,000 trade reports .............................
7,500
** 28,821
More than 25,000 trade reports .............................
5,000
* 20,849
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 .....................................................
2,000
2,000
1,000
750
250
2,000
* 4,559
*** 1,237
* 1,038
* 1,010
* 1,001
2,000
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* Based on the monthly average of published tape reports submitted to the FINRA/NYSE TRF by Participants in the relevant tier for 2021.
** There was no activity within the tier in 2021. The value represented is the average of the prior tier (greater than or equal to 0.25% but less
than 0.50%) and the subsequent tier (greater than or equal to 0.10% but less than 0.20%).
*** There was no activity in this tier in 2021. Estimate assumes the highest number of trade reports in the range.
Based on the assumptions made in the
table, current Non-Retail Participants
that have no trade reports would not see
a change in their fee, Non-Retail
Participants with between 15,001 and
25,000 trade reports would see a
decrease in their fee, and all other
current Non-Retail Participants would
see fee increases. As reflected in the
table, based on the stated assumptions,
Non-Retail Participants with fee
increases would be subject to a monthly
fee approximately equal to just over one
to four times their current fee. If there
were no change in reporting to the
FINRA/NYSE TRF, such that Non-Retail
Participants’ reported volume stayed the
same as it was in the first six months of
2021, under the proposed fee schedule,
current Non-Retail Participants that
have no trade reports would not see a
change in their fee, but most other
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17:14 Mar 29, 2022
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current Non-Retail Participants would
see fee increases.
FINRA has filed the proposed rule
change for immediate effectiveness. The
operative date will be June 1, 2022.
2. Statutory Basis
FINRA believes that the proposed rule
change is consistent with the provisions
of Section 15A(b) of the Act,14 in
general, and Section 15A(b)(5) of the
Act,15 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
14 15
15 15
PO 00000
U.S.C. 78o–3(b).
U.S.C. 78o–3(b)(5).
Frm 00084
Fmt 4703
is consistent with the provisions of
Section 15A(b)(6) of the Act,16 which
requires, among other things, that
FINRA rules must be designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, and, in
general, to protect investors and the
public interest. FINRA also believes that
the proposed rule change is consistent
with the provisions of Section 15A(b)(9)
of the Act,17 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 for all FINRA members that are,
or elect to become, FINRA/NYSE TRF
16 15
17 15
Sfmt 4703
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U.S.C. 78o–3(b)(6).
U.S.C. 78o–3(b)(9).
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Participants. It will not be applied
differently to different sizes or types of
Participants. Access to the FINRA/NYSE
TRF is offered on fair and nondiscriminatory terms.
The Proposed Rule Change Is an
Equitable Allocation of Reasonable Fees
FINRA believes that the proposed rule
change provides for an equitable
allocation of reasonable fees for the
following reasons.
The Business Member believes that
the FINRA/NYSE TRF would incur a
significant loss if the current fee and
credit structure remained in place.
Accordingly, it proposes amendments to
FINRA Rule 7620B, as discussed herein.
The Business Member believes that
the proposed rule change is a reasonable
amendment to the fee structure to
address the current rate of losses, which
if they continued, the Business Member
believes would make the FINRA/NYSE
TRF unsustainable in the long term. By
setting a base flat fee and tying the
remainder of the fee to the number of
tape reports a Participant submits to the
FINRA/NYSE TRF during a given
month, if any, the Business Member
believes that the proposed fee structure
would correlate more closely to the
manner by which the Business Member
incurs the total costs associated with
operating and maintaining the Facility.
As stated above, as a general matter, the
flat portions of the proposed fees are
designed to address the fixed costs,
while the portion that is charged per
published tape report is meant to
address variable costs. The proposed
rule is reasonably designed to achieve a
fee structure whereby the monthly fee
revenue generally covers total costs,
which would allow the FINRA/NYSE
TRF to continue operating without
amassing losses similar to those it
recently has amassed.
The Business Member believes that
partially tying the fee directly to the
number of trade reports the Participant
submits to the FINRA/NYSE TRF during
the month is equitable, because the
Participant’s fee will increase or
decrease in line with any changes in the
number of submitted trade reports. This
aspect of the fee structure ties the
proposed fee more directly to the
Participant’s usage of the FINRA/NYSE
TRF. In recent years, there has been an
increase in the number of trade reports
submitted. If that trend should abate,
the fees would decrease as well.
The Business Member also believes
that it is reasonable and equitable to
charge a Participant a flat fee even if it
does not submit any tape reports to the
FINRA/NYSE TRF during the relevant
month. First, the FINRA/NYSE TRF
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17:14 Mar 29, 2022
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bears costs for operating the FINRA/
NYSE TRF, even when a Participant
does not submit tape reports during a
given month. Second, the Business
Member believes that the fee for
inactivity during a particular month,
which has not changed for Non-Retail
Participants and would now apply to
Retail Participants, is a reasonable
method of encouraging all Participants
to utilize the FINRA/NYSE TRF.
Currently, all Retail Participants are
exempt from fees under FINRA Rule
7620B for reporting to the FINRA/NYSE
TRF, but would become subject to trade
reporting fees under the proposed rule
change. The Business Member believes
that the proposed rule change would be
equitable because it would treat all
Participants the same and the applicable
fee would no longer depend on whether
a Participant were a Retail Participant.18
Similarly, the Business Member
believes that applying the proposed fee
structure, which is not based on the
Participant’s market share, also is
equitable for Participants, including
Retail Participants. As would be the
case for a Non-Retail Participant, the
proposed fee would be tied directly to
the number of trade reports a Participant
submits to the FINRA/NYSE TRF during
the month and would not be tiered
based on the Participant’s FINRA/NYSE
TRF Market Share. In this way, the
proposed fee would be more directly
tied to a Participant’s access to and
usage of the FINRA/NYSE TRF.
Thus, all Participants would be
subject to monthly fees. The proposed
fee schedule would be applied in the
same manner to all firms that are, or
elect to become, FINRA/NYSE TRF
Participants. It would not apply
differently to different sizes of
Participants. By tying a portion of the
fee directly to the number of trade
reports that the Participant submits to
the FINRA/NYSE TRF during the
month, a Participant’s trade reporting
fess would in part correspond with a
Participant’s activity over the period.
The Business Member believes that
the proposed change would
significantly simplify Rule 7620B,
removing the distinction between Retail
Participants and Non-Retail Participants
and removing the multiple fee tiers in
current subsection (b). As a result, the
proposed change would make it easier
for market participants to determine
their monthly fee and would add clarity
to the rules.
18 The Business Member also notes that Rule
7610B does not differentiate between Retail and
Non-Retail Participants. As Rule 7610B would not
change, all Retail Participants would continue to
qualify for transaction credits in accordance with
Rule 7610B as they do now.
PO 00000
Frm 00085
Fmt 4703
Sfmt 4703
The Proposed Rule Change is Not
Unfairly Discriminatory
FINRA believes that the proposed rule
change is not unfairly discriminatory for
the following reasons.
The Business Member believes that
the FINRA/NYSE TRF would incur a
significant loss if the current fee
structure remained in place.
Accordingly, it proposes to amend the
fees set forth in FINRA Rule 7620B. By
so doing, the Business Member has
proposed a change that it believes is not
unfairly discriminatory, as it believes
that the resulting fee would correspond
more closely with the total costs of
operating and maintaining the Facility.
The proposed rule is reasonably
designed to tie the monthly fee revenue
to the cost of operating and maintaining
the FINRA/NYSE TRF, which would
allow the FINRA/NYSE TRF to continue
operating without amassing losses
similar to those it recently has amassed.
The Business Member believes that it
is not unfairly discriminatory to charge
a Participant a flat fee even if it does not
submit any tape reports to the FINRA/
NYSE TRF during a given month. First,
the FINRA/NYSE TRF bears ongoing
costs for operating the FINRA/NYSE
TRF, even when a Participant does not
submit tape reports in a given month.
Second, the Business Member believes
that the inactivity fee, which has not
changed, is a reasonable method of
encouraging Participants to utilize the
FINRA/NYSE TRF.
The Business Member believes that
the proposed fee structure is not
unfairly discriminatory because it
would not differ for different types of
Participants, and Retail Participants
would be subject to the same fee
structure as Non-Retail Participants. The
Business Member believes that the
proposed rule change would not be
unfairly discriminatory because all
FINRA member Participants would be
treated the same.
Similarly, the Business Member
believes that applying the proposed fee
structure, which is not based on the
Participant’s market share, is not
unfairly discriminatory. As would be
the case for a Non-Retail Participant, the
proposed fee would be tied directly to
the number of trade reports a Participant
submits to the FINRA/NYSE TRF during
the month and would not be tiered
based on the Participant’s FINRA/NYSE
TRF Market Share. Rather, the proposed
fee would be more directly tied to a
Participant’s access to and usage of the
FINRA/NYSE TRF Facility.
By tying a portion of the fee directly
to the number of trade reports the
Participant submits to the FINRA/NYSE
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TRF during the month, a Participant
could reduce its monthly fee simply by
reducing the volume of such trade
reports. This makes the proposed fee
more directly tied to the Participant’s
usage of the FINRA/NYSE TRF,
allowing variable fees to better
correspond with a Participant’s activity
over the period.
The Business Member believes that
the proposed change is not unfairly
discriminatory because a Participant
that saw an increase in its monthly fee
would be able to utilize another FINRA
Facility. FINRA members can report
their OTC trades in NMS stocks to the
FINRA/NYSE TRF’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.
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.
Intramarket Competition. For the
month of December 2021, FINRA
members used the FINRA/NYSE TRF to
report approximately 17% of shares in
NMS stocks traded OTC, compared to
approximately 83% 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. The Business
Member expects that the proposed
change would result in a fee increase for
most Participants, which in turn could
result in decreased use of the FINRA/
NYSE TRF, if Participants were to shift
to using other facilities.
Nonetheless, the Business Member
does not believe that the proposed rule
change would result in a burden on
competition that is not necessary or
appropriate in furtherance of the
purposes of the Act. Simply put, the
Business Member believes that the
proposed change is a rational response
to increased losses. According to the
Business Member, in 2020 and 2021,
costs of operating and maintaining the
FINRA/NYSE TRF were greater than
Revenues, causing the FINRA/NYSE
TRF to run at a loss. According to the
Business Member, during that time, the
volume of tape reports increased and
the total Subscriber Fee Revenue
decreased. More specifically, compared
to the 2018 monthly average, as of
December 31, 2021, monthly average
tape report activity for the FINRA/NYSE
TRF had increased by 329% and
monthly average costs had increased by
146%. At the same time, monthly
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17:14 Mar 29, 2022
Jkt 256001
average Subscriber Fee Revenue had
decreased by 19%. Net Market Data
Revenue varied during the period, but
overall it decreased as compared to the
first quarter of 2018. Ultimately, the
Business Member believes that the
FINRA/NYSE TRF would continue to
incur a significant loss if the current fee
and credit structure remained in place.
The Business Member does not
believe that such losses are sustainable
in the long run. Accordingly, it proposes
to amend the fees set forth in FINRA
Rule 7620B. By so doing, the Business
Member has proposed a change that it
believes should ensure that the monthly
fees cover the costs of operating and
maintaining the FINRA/NYSE TRF,
which would allow it to continue
operating without amassing losses
similar to those it currently has. The
Business Member believes that the
continued existence of the FINRA/NYSE
TRF would be an asset to the
competitive environment.
The Business Member does not
believe that the proposed fee would
place some market participants at a
relative disadvantage compared to other
market participants, because the
proposed fee schedule would be applied
in the same manner to all FINRA
members that are, or elect to become,
FINRA/NYSE TRF Participants. It
would not apply differently to different
sizes of Participants. Different types of
Participants will be treated the same,
and the amount of the monthly fee
would no longer depend on whether a
Participant were a Retail Participant or
its FINRA/NYSE TRF Market Share.
As set forth above, if there were no
change in reporting to the FINRA/NYSE
TRF such that Participants’ reporting
volume stayed the same as it was in the
first six months of 2021, under the
proposed fee schedule, current NonRetail Participants that have no trade
reports would not see a change in their
fee, but most Retail Participants would
see fee increases. More specifically,
currently there are three Retail
Participants that will be impacted and
would incur fee increases under the
proposed rule change. Using December
2021 data, the two Retail Participants
that were inactive, under the proposed
fee change, would be assessed a fee of
$2,000 for the month (compared to $0
under the current fee structure). The
Retail Participant that was active in
December 2021 would be assessed a fee
of $1,779 for the month based on its
reporting activity (compared to $0 under
the current fee structure). The Business
Member nonetheless believes that the
proposed fee amendment is reasonable
in light of the ongoing costs of operating
and maintaining the FINRA/NYSE TRF
PO 00000
Frm 00086
Fmt 4703
Sfmt 4703
18435
and as a means of addressing the current
losses.
Participants may potentially alter
their trade reporting 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.19
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
informed decisions regarding which
FINRA Facility they use to report OTC
trades in NMS stocks.
The Business Member represents that
the FINRA/NYSE TRF would continue
to incur significant losses if the current
fee and credit structure remained in
place, and it does not believe that such
losses are sustainable in the long run.
Accordingly, it proposes to amend the
fees set forth in FINRA Rule 7620B. By
so doing, the Business Member has
proposed a change that it believes will
allow it to continue operating without
amassing losses similar to those it
currently has. The Business Member
believes that its continued existence
would be an asset to the competitive
environment.
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.
19 The FINRA/NYSE TRF does not impose a fee
on new Participants, and so a FINRA member that
opts to become a Participant would not incur an
additional cost from the FINRA/NYSE TRF. In some
cases, a new Participant may incur incidental costs
to connect to the FINRA/NYSE TRF, but those are
not charged by the FINRA/NYSE TRF. An existing
Participant that ceases to be a Participant is not
subject to any change fee by the FINRA/NYSE TRF.
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Federal Register / Vol. 87, No. 61 / Wednesday, March 30, 2022 / Notices
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 20 and paragraph (f)(2) of Rule
19b–4 thereunder.21 At any time within
60 days of the filing of the proposed rule
change, the Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
khammond on DSKJM1Z7X2PROD with NOTICES
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
FINRA–2022–006 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
Number SR–FINRA–2022–006. 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 such
filing also will be available for
inspection and copying at the principal
office of FINRA. All comments received
will be posted without change. Persons
submitting comments are cautioned that
we do not redact or edit personal
identifying information from comment
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–FINRA–
2022–006 and should be submitted on
or before April 20, 2022.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.22
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022–06516 Filed 3–29–22; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–94509; File No. SR–
CboeEDGX–2022–015]
Self-Regulatory Organizations; Cboe
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Amend Its
Fee Schedule
March 24, 2022.
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 March 14,
2022, Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) 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 the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) is filing with
the Securities and Exchange
22 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
20 15
U.S.C. 78s(b)(3)(A).
21 17 CFR 240.19b–4(f)(2).
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17:14 Mar 29, 2022
1 15
Jkt 256001
PO 00000
Frm 00087
Fmt 4703
Sfmt 4703
Commission (‘‘Commission’’) a
proposed rule change to amend its Fee
Schedule. The text of the proposed rule
change is provided in Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (https://markets.cboe.com/us/
options/regulation/rule_filings/edgx/),
at the Exchange’s Office of the
Secretary, and at the Commission’s
Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend its
fee schedule for its equity options
platform (‘‘EDGX Options’’) to adopt
fees for Certification Logical Port fees,
effective March 1, 2022.3
By way of background, the Exchange
offers a variety of logical ports, which
provide users with the ability within the
Exchange’s System to accomplish a
specific function through a connection,
such as order entry, data receipt or
access to information. Specifically, the
Exchange offers Logical Ports,4 Logical
Ports with Bulk Quoting Capabilities,5
Purge Ports,6 GRP Ports and Multicast
PITCH Server Ports.7 For each type of
the aforementioned logical ports that is
3 The Exchange initially filed the proposed fee
changes on March 1, 2022 (SR–CboeEDGX–2022–
011). On March 14, 2022, the Exchange withdrew
that filing and submitted this proposal.
4 Logical Ports include FIX and BOE ports (used
for order entry), drop logical port (which grants
users the ability to receive and/or send drop copies)
and ports that are used for receipt of certain market
data feeds.
5 Bulk Quoting Capabilities Ports provide users
with the ability to submit and update multiple bids
and offers in one message through logical ports
enabled for bulk-quoting.
6 Purge Ports allow users to submit a cancelation
for all open orders, or a subset thereof, across
multiple sessions under the same Executing Firm ID
(‘‘EFID’’).
7 Spin Ports and GRP Ports are used to request
and receive a retransmission of data from the
Exchange’s Multicast PITCH data feeds.
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]]>Agencies
[Federal Register Volume 87, Number 61 (Wednesday, March 30, 2022)]
[Notices]
[Pages 18430-18436]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-06516]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94498; File No. SR-FINRA-2022-006]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Modify the Trade Reporting Fees Applicable to
Participants That Use the FINRA/NYSE Trade Reporting Facility
March 23, 2022.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on March 16, 2022, the Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by FINRA. 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 (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.
[[Page 18431]]
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 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 1/20/16 (OTC Equity Trading and
Reporting in the Event of Systems Issues), a firm that routinely
reports its OTC trades in NMS stocks to only one FINRA Facility must
establish and maintain connectivity and report to a second FINRA
Facility, if the firm intends to continue to support OTC trading as
an executing broker while its primary facility is experiencing a
widespread systems issue.
---------------------------------------------------------------------------
NYSE Market (DE) proposes to modify the trade reporting fees
applicable to FINRA members that use the FINRA/NYSE TRF
(``Participants''). NYSE Market (DE) proposes to subject each
Participant to a monthly fee that will be based on whether that
Participant submitted trade reports to the FINRA/NYSE TRF during the
relevant month, and if so, how many trade reports it submitted. 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.
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\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.
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The Business Member establishes pricing applicable to FINRA/NYSE
TRF Participants for use of the FINRA/NYSE TRF. That pricing is then
implemented pursuant to FINRA rules that FINRA must file with the
Commission and that must be consistent with the Act. Specifically,
FINRA/NYSE TRF Participants are charged fees pursuant to Rule 7620B and
may qualify for transaction credits under Rule 7610B (Securities
Transaction Credit) (such credits, ``Securities Transaction
Credits'').\6\ 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,\7\ and the Business Member collects all
fees on behalf of the FINRA/NYSE TRF.
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\6\ 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. 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.
\7\ 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.
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According to the Business Member, the FINRA/NYSE TRF operates in a
competitive environment. The FINRA Facilities have different pricing
\8\ for their respective participants and compete for FINRA members'
trade report activity. The FINRA/NYSE TRF is smaller than the FINRA/
Nasdaq TRF in terms of reported volume. For the month of December 2021,
FINRA members used the FINRA/NYSE TRF to report approximately 17% of
shares in NMS stocks traded OTC, compared to approximately 83% for the
FINRA/Nasdaq TRF.
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\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.
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Operating Costs
The overall costs of operating and maintaining the FINRA/NYSE TRF
involve both fixed and variable components. The variable component
constitutes the majority of the cost and largely relates to the number
of reports that the FINRA/NYSE TRF, on behalf of its subscribers,
reports for public dissemination (or ``tape'') purposes. It also
reflects the number of reports submitted to the FINRA/NYSE TRF that are
not published to the tape. Specifically, if the number of tape reports
increases, the Business Member's variable costs increase, and
conversely, if the number of tape reports decreases, the Business
Member's variable costs decrease. The variable costs associated with
tape reports are not related to the size (number of shares) of the
reported transaction. Accordingly, the variable costs relating to a
tape report for a trade for one share (or even less than one share) are
the same as the variable costs relating to a tape report for 100,000
shares reported to the FINRA/NYSE TRF.
The Business Member is entitled to any profits and must cover any
losses that arise from operating the FINRA/NYSE TRF. According to the
Business Member, the profits or losses generally are the difference
between:
1. The revenue (``Revenue'') from: (a) Subscriber fees charged
in accordance with FINRA Rule 7620B (``Subscriber Fee Revenue''),
and (b) market data revenue for the transaction information provided
to the securities information processors (``SIPs'') via the FINRA/
NYSE TRF less the Securities Transaction Credits (together, ``Net
Market Data Revenue''); and
2. the costs of operating and maintaining the FINRA/NYSE TRF.
According to the Business Member, in 2020 and 2021, costs of
operating and maintaining the FINRA/NYSE TRF were greater than
Revenues, causing the FINRA/NYSE TRF to run at a loss. According to the
Business Member, during that time, the number of tape reports increased
(particularly for smaller-sized transactions) and total Subscriber Fee
Revenue decreased, without a relative change to the difference in total
share volume reported to the FINRA/NYSE TRF as compared to other FINRA
Facilities. More specifically, compared to the 2018 monthly average, as
of December 31, 2021, monthly average tape report activity for the
FINRA/NYSE TRF had increased by 329% and monthly average costs had
increased by 146%. At the same time, monthly average Subscriber Fee
Revenue had decreased by 19%. Net Market Data Revenue varied during the
period, but overall it decreased as compared to the first quarter of
2018. Ultimately, the Business Member believes that the FINRA/NYSE TRF
would continue to incur a significant loss if the current fee and
credit structure remained in place, and that such losses would make the
FINRA/NYSE TRF unsustainable in the long term.
Accordingly, the Business Member proposes to amend the fees set
forth in FINRA Rule 7620B. By so doing, it has proposed a change that
it believes
[[Page 18432]]
should allow the monthly Subscriber Fee Revenue to cover the total
costs of operating and maintaining the FINRA/NYSE TRF. The proposed
changes are expected to allow the FINRA/NYSE TRF to continue operating
without amassing losses similar to those it currently has.
Proposed Amendments to Rule 7620B
Under the current fee structure,\9\ Participants are either
``Retail Participants'' \10\ or Participants that are not Retail
Participants (``Non-Retail Participants''). The former are exempt from
the monthly fee, while the latter are subject to a monthly fee based,
where applicable, on the Participant's ``FINRA/NYSE TRF Market Share.''
\11\ The fees set forth in Rule 7620B are tiered.
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\9\ See Securities Exchange Act Release No. 88324 (March 5,
2020), 85 FR 14275 (March 11, 2020) (SR-FINRA-2020-006) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change to Modify
the Trade Reporting Fees Applicable to the FINRA/NYSE Trade
Reporting Facility). Under Rule 7620B, 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. 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).
\10\ A Participant ``is a `Retail Participant' if substantially
all of its trade reporting activity on the FINRA/NYSE Trade
Reporting Facility comprises Retail Orders.'' In turn, a ``Retail
Order'' is ``an order that originates from a natural person,
provided that, prior to submission, no change is made to the terms
of the order with respect to price or side of market and the order
does not originate from a trading algorithm or any other
computerized methodology.'' FINRA Rule 7620B(a).
\11\ See FINRA Rule 7620B(b). ``The rate of the monthly fee for
participants that are not Retail Participants will be based, where
applicable, on the participant's `FINRA/NYSE TRF Market Share,'
which is defined as the percentage calculated by dividing the total
number of shares reported to the FINRA/NYSE Trade Reporting Facility
for public dissemination (or `tape') purposes during a given
calendar month that are attributable to the participant by the total
number of all shares reported to the CTA or UTP SIP, as applicable,
during that period.''
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Under the proposed, simplified fee structure, the monthly fee would
no longer depend on whether a Participant were a Retail Participant or
its FINRA/NYSE TRF Market Share, and the current tiered structure would
be removed. Rather, if a Participant submitted one or more trade
reports to the FINRA/NYSE TRF during a given calendar month, the
Participant would pay a monthly fee equal to the sum of (a) $1,000 plus
(b) $0.0055 per published tape report. If a Participant submitted no
trade reports to the FINRA/NYSE TRF during that calendar month, the
Participant would pay a monthly fee of $2,000.
To effect the change, Rule 7620B would be amended as follows.
First, the text ``with the exception that Retail Participants shall not
be subject to a monthly fee'' would be deleted from the first
paragraph. Second, the following text would be added to the end of the
first paragraph:
The monthly fee will be calculated as follows:
(a) If the participant submits one or more trade reports to the
FINRA/NYSE Trade Reporting Facility during a given calendar month,
the participant will pay a monthly fee equal to the sum of (i)
$1,000 plus (ii) $0.0055 per published tape report.
(b) If the participant submits no trade reports to the FINRA/
NYSE Trade Reporting Facility during a given calendar month, the
participant will pay a monthly fee of $2,000.
Finally, the current subsections (a) and (b), including the table in
subsection (b), would be deleted.
The monthly fee would continue to be charged at the end of the
calendar month. As is true now, if a new FINRA/NYSE TRF Participant
submitted the participant application agreement and reported 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.\12\ The monthly fees paid by FINRA/
NYSE TRF Participants would 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.\13\
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\12\ As is the case today, after the first two calendar months,
the Participant will be charged regardless of connectivity.
\13\ See Securities Exchange Act Release No. 87205 (October 3,
2019), 84 FR 54219 (October 9, 2019) (SR-FINRA-2019-024) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change to Amend
FINRA Rule 7620B to Modify the Trade Reporting Fees Applicable to
Participants That Use the FINRA/NYSE Trade Reporting Facility).
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Application of Proposed Fee Schedule
The Business Member believes that pricing is the key factor for
FINRA members when choosing which FINRA Facility to use. The Business
Member expects that the proposed change would result in a fee increase
for most FINRA/NYSE TRF Participants. In this competitive environment,
FINRA members can report their OTC trades in NMS stocks to the FINRA/
NYSE TRF'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. As a result, the Business Member believes that
the proposed fee change will likely reduce its reported volumes. It is
not possible to fully predict the number of FINRA members that would
reduce their use of the FINRA/NYSE TRF or cease being a FINRA/NYSE TRF
Participant as a result of the fee increase. Similarly, it is not
possible to predict what the change in reporting to the FINRA/NYSE TRF
would be.
As stated above, under the proposed fee structure, the monthly fee
would no longer depend on whether a Participant were a Retail
Participant or its FINRA/NYSE TRF Market Share, and the current tiered
structure would be removed. The proposed fee schedule would be applied
in the same manner to all FINRA members that are, or elect to become,
FINRA/NYSE TRF Participants and would not apply differently to
different sizes or types of Participants. Participants that are
currently Retail Participants would be subject to the same monthly fee
for not submitting any trade reports in a given month as current Non-
Retail Participants.
By setting a base flat fee and tying the remainder of the fee to
the number of tape reports a Participant submits to the FINRA/NYSE TRF
during a given month, if any, the Business Member believes that the
resulting fee would relate to the cost of operating and maintaining the
facility more closely. Specifically, the Business Member's total cost
of operating the FINRA/NYSE TRF does not differ based on whether the
Participant is a Retail Participant or not. As a general matter, the
flat portions of the proposed fees are designed to address the fixed
costs, while the portion that is charged per published tape report is
meant to address variable costs. The proposed rule is designed to have
the monthly Subscriber Fee Revenue generally cover total costs, which
would allow the FINRA/NYSE TRF to continue operating without amassing
losses similar to those it recently has amassed.
Tying the fee directly to the number of trade reports the
Participant submits to the FINRA/NYSE TRF during the month means that
the Participant's fee will increase or decrease in line with any
changes in the volume of such trade reports. This makes the proposed
fee more directly tied to the Participant's usage of the FINRA/NYSE
TRF, matching a Participant's fee with its activity and the related
costs. For example, under the proposal, if a Participant submitted
6,000,000 trade reports to the FINRA/NYSE TRF during one month, it
would have a monthly fee of $34,000. If it then submitted a lower
volume of 6,000 trade reports to the FINRA/NYSE TRF during the
following month, its fee would be reduced to $1,033. In recent years,
there has been
[[Page 18433]]
an increase in the volume of trade reports submitted. If that trend
should abate, the fees would decrease as well.
Current Retail Participants
Under the proposed change, there would no longer be a distinction
between Retail Participants and other Participants. Based on
experience, the Business Member believes that most, if not all, of the
current Retail Participants do not report any trades to the FINRA/NYSE
TRF during a given month. For example, using December 2021 data, two of
the three current Retail Participants were inactive. Currently, all
Retail Participants are exempt from the monthly fee.
That would change under the proposed rule change, as the current
Retail Participants would become subject to a monthly fee. If, like
most current Retail Participants, a Participant submitted no trade
reports to the FINRA/NYSE TRF during a calendar month, it would pay a
monthly fee of $2,000. Using December 2021 data, the two Retail
Participants that were inactive, under the proposed fee change, would
be assessed a fee of $2,000 for the month (compared to $0 under the
current fee structure). If a Participant submitted one or more trade
reports to the FINRA/NYSE TRF during a given calendar month, the
Participant would pay a monthly fee equal to the sum of (a) $1,000 plus
(b) $0.0055 per published tape report. The Retail Participant that was
active in December 2021 would be assessed a fee of $1,799 for the month
based on its reporting activity (compared to $0 under the current fee
structure).
Current Non-Retail Participants
Participants that currently are Non-Retail Participants would no
longer be subject to a fee that varied based on their FINRA/NYSE TRF
Market Share. Rather, they would be subject to the same fees as all
other Participants, as described above.
To facilitate comparison, the following table shows the estimated
effect of the proposed change on the current Non-Retail Participants.
----------------------------------------------------------------------------------------------------------------
Estimated new
FINRA/NYSE TRF market share Count of tape reports to FINRA/ Current monthly monthly
NYSE TRF participant fee participant fee
----------------------------------------------------------------------------------------------------------------
Greater than or equal to 1.25%.......... More than 25,000 trade reports.. $30,000 * $83,598
Greater than or equal to 1.00% but less More than 25,000 trade reports.. 25,000 * 69,828
than 1.25%.
Greater than or equal to 0.75% but less More than 25,000 trade reports.. 20,000 * 43,156
than 1.00%.
Greater than or equal to 0.50% but less More than 25,000 trade reports.. 15,000 * 47,815
than 0.75%.
Greater than or equal to 0.25% but less More than 25,000 trade reports.. 10,000 * 36,793
than 0.50%.
Greater than or equal to 0.20% but less More than 25,000 trade reports.. 7,500 ** 28,821
than 0.25%.
Greater than or equal to 0.10% but less More than 25,000 trade reports.. 5,000 * 20,849
than 0.20%.
Less than 0.10%......................... More than 25,000 trade reports.. 2,000 * 4,559
n/a..................................... Between 15,001 and 25,000 trade 2,000 *** 1,237
reports.
n/a..................................... Between 5,001 and 15,000 trade 1,000 * 1,038
reports.
n/a..................................... Between 101 and 5,000 trade 750 * 1,010
reports.
n/a..................................... Between 1 and 100 trade reports. 250 * 1,001
n/a..................................... No trade reports................ 2,000 2,000
----------------------------------------------------------------------------------------------------------------
* Based on the monthly average of published tape reports submitted to the FINRA/NYSE TRF by Participants in the
relevant tier for 2021.
** There was no activity within the tier in 2021. The value represented is the average of the prior tier
(greater than or equal to 0.25% but less than 0.50%) and the subsequent tier (greater than or equal to 0.10%
but less than 0.20%).
*** There was no activity in this tier in 2021. Estimate assumes the highest number of trade reports in the
range.
Based on the assumptions made in the table, current Non-Retail
Participants that have no trade reports would not see a change in their
fee, Non-Retail Participants with between 15,001 and 25,000 trade
reports would see a decrease in their fee, and all other current Non-
Retail Participants would see fee increases. As reflected in the table,
based on the stated assumptions, Non-Retail Participants with fee
increases would be subject to a monthly fee approximately equal to just
over one to four times their current fee. If there were no change in
reporting to the FINRA/NYSE TRF, such that Non-Retail Participants'
reported volume stayed the same as it was in the first six months of
2021, under the proposed fee schedule, current Non-Retail Participants
that have no trade reports would not see a change in their fee, but
most other current Non-Retail Participants would see fee increases.
FINRA has filed the proposed rule change for immediate
effectiveness. The operative date will be June 1, 2022.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b) of the Act,\14\ in general, and Section
15A(b)(5) of the Act,\15\ 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 the provisions of Section 15A(b)(6) of the Act,\16\
which requires, among other things, that FINRA rules must be designed
to prevent fraudulent and manipulative acts and practices, to promote
just and equitable principles of trade, and, in general, to protect
investors and the public interest. FINRA also believes that the
proposed rule change is consistent with the provisions of Section
15A(b)(9) of the Act,\17\ which requires that FINRA rules not impose
any burden on competition that is not necessary or appropriate.
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\14\ 15 U.S.C. 78o-3(b).
\15\ 15 U.S.C. 78o-3(b)(5).
\16\ 15 U.S.C. 78o-3(b)(6).
\17\ 15 U.S.C. 78o-3(b)(9).
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As a general matter, the proposed fee schedule will be assessed in
the same manner for all FINRA members that are, or elect to become,
FINRA/NYSE TRF
[[Page 18434]]
Participants. It will not be applied differently to different sizes or
types of Participants. 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 provides for an
equitable allocation of reasonable fees for the following reasons.
The Business Member believes that the FINRA/NYSE TRF would incur a
significant loss if the current fee and credit structure remained in
place. Accordingly, it proposes amendments to FINRA Rule 7620B, as
discussed herein.
The Business Member believes that the proposed rule change is a
reasonable amendment to the fee structure to address the current rate
of losses, which if they continued, the Business Member believes would
make the FINRA/NYSE TRF unsustainable in the long term. By setting a
base flat fee and tying the remainder of the fee to the number of tape
reports a Participant submits to the FINRA/NYSE TRF during a given
month, if any, the Business Member believes that the proposed fee
structure would correlate more closely to the manner by which the
Business Member incurs the total costs associated with operating and
maintaining the Facility. As stated above, as a general matter, the
flat portions of the proposed fees are designed to address the fixed
costs, while the portion that is charged per published tape report is
meant to address variable costs. The proposed rule is reasonably
designed to achieve a fee structure whereby the monthly fee revenue
generally covers total costs, which would allow the FINRA/NYSE TRF to
continue operating without amassing losses similar to those it recently
has amassed.
The Business Member believes that partially tying the fee directly
to the number of trade reports the Participant submits to the FINRA/
NYSE TRF during the month is equitable, because the Participant's fee
will increase or decrease in line with any changes in the number of
submitted trade reports. This aspect of the fee structure ties the
proposed fee more directly to the Participant's usage of the FINRA/NYSE
TRF. In recent years, there has been an increase in the number of trade
reports submitted. If that trend should abate, the fees would decrease
as well.
The Business Member also believes that it is reasonable and
equitable to charge a Participant a flat fee even if it does not submit
any tape reports to the FINRA/NYSE TRF during the relevant month.
First, the FINRA/NYSE TRF bears costs for operating the FINRA/NYSE TRF,
even when a Participant does not submit tape reports during a given
month. Second, the Business Member believes that the fee for inactivity
during a particular month, which has not changed for Non-Retail
Participants and would now apply to Retail Participants, is a
reasonable method of encouraging all Participants to utilize the FINRA/
NYSE TRF.
Currently, all Retail Participants are exempt from fees under FINRA
Rule 7620B for reporting to the FINRA/NYSE TRF, but would become
subject to trade reporting fees under the proposed rule change. The
Business Member believes that the proposed rule change would be
equitable because it would treat all Participants the same and the
applicable fee would no longer depend on whether a Participant were a
Retail Participant.\18\
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\18\ The Business Member also notes that Rule 7610B does not
differentiate between Retail and Non-Retail Participants. As Rule
7610B would not change, all Retail Participants would continue to
qualify for transaction credits in accordance with Rule 7610B as
they do now.
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Similarly, the Business Member believes that applying the proposed
fee structure, which is not based on the Participant's market share,
also is equitable for Participants, including Retail Participants. As
would be the case for a Non-Retail Participant, the proposed fee would
be tied directly to the number of trade reports a Participant submits
to the FINRA/NYSE TRF during the month and would not be tiered based on
the Participant's FINRA/NYSE TRF Market Share. In this way, the
proposed fee would be more directly tied to a Participant's access to
and usage of the FINRA/NYSE TRF.
Thus, all Participants would be subject to monthly fees. The
proposed fee schedule would be applied in the same manner to all firms
that are, or elect to become, FINRA/NYSE TRF Participants. It would not
apply differently to different sizes of Participants. By tying a
portion of the fee directly to the number of trade reports that the
Participant submits to the FINRA/NYSE TRF during the month, a
Participant's trade reporting fess would in part correspond with a
Participant's activity over the period.
The Business Member believes that the proposed change would
significantly simplify Rule 7620B, removing the distinction between
Retail Participants and Non-Retail Participants and removing the
multiple fee tiers in current subsection (b). As a result, the proposed
change would make it easier for market participants to determine their
monthly fee and would add clarity to the rules.
The Proposed Rule Change is Not Unfairly Discriminatory
FINRA believes that the proposed rule change is not unfairly
discriminatory for the following reasons.
The Business Member believes that the FINRA/NYSE TRF would incur a
significant loss if the current fee structure remained in place.
Accordingly, it proposes to amend the fees set forth in FINRA Rule
7620B. By so doing, the Business Member has proposed a change that it
believes is not unfairly discriminatory, as it believes that the
resulting fee would correspond more closely with the total costs of
operating and maintaining the Facility. The proposed rule is reasonably
designed to tie the monthly fee revenue to the cost of operating and
maintaining the FINRA/NYSE TRF, which would allow the FINRA/NYSE TRF to
continue operating without amassing losses similar to those it recently
has amassed.
The Business Member believes that it is not unfairly discriminatory
to charge a Participant a flat fee even if it does not submit any tape
reports to the FINRA/NYSE TRF during a given month. First, the FINRA/
NYSE TRF bears ongoing costs for operating the FINRA/NYSE TRF, even
when a Participant does not submit tape reports in a given month.
Second, the Business Member believes that the inactivity fee, which has
not changed, is a reasonable method of encouraging Participants to
utilize the FINRA/NYSE TRF.
The Business Member believes that the proposed fee structure is not
unfairly discriminatory because it would not differ for different types
of Participants, and Retail Participants would be subject to the same
fee structure as Non-Retail Participants. The Business Member believes
that the proposed rule change would not be unfairly discriminatory
because all FINRA member Participants would be treated the same.
Similarly, the Business Member believes that applying the proposed
fee structure, which is not based on the Participant's market share, is
not unfairly discriminatory. As would be the case for a Non-Retail
Participant, the proposed fee would be tied directly to the number of
trade reports a Participant submits to the FINRA/NYSE TRF during the
month and would not be tiered based on the Participant's FINRA/NYSE TRF
Market Share. Rather, the proposed fee would be more directly tied to a
Participant's access to and usage of the FINRA/NYSE TRF Facility.
By tying a portion of the fee directly to the number of trade
reports the Participant submits to the FINRA/NYSE
[[Page 18435]]
TRF during the month, a Participant could reduce its monthly fee simply
by reducing the volume of such trade reports. This makes the proposed
fee more directly tied to the Participant's usage of the FINRA/NYSE
TRF, allowing variable fees to better correspond with a Participant's
activity over the period.
The Business Member believes that the proposed change is not
unfairly discriminatory because a Participant that saw an increase in
its monthly fee would be able to utilize another FINRA Facility. FINRA
members can report their OTC trades in NMS stocks to the FINRA/NYSE
TRF'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.
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.
Intramarket Competition. For the month of December 2021, FINRA
members used the FINRA/NYSE TRF to report approximately 17% of shares
in NMS stocks traded OTC, compared to approximately 83% 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. The
Business Member expects that the proposed change would result in a fee
increase for most Participants, which in turn could result in decreased
use of the FINRA/NYSE TRF, if Participants were to shift to using other
facilities.
Nonetheless, the Business Member does not believe that the proposed
rule change would result in a burden on competition that is not
necessary or appropriate in furtherance of the purposes of the Act.
Simply put, the Business Member believes that the proposed change is a
rational response to increased losses. According to the Business
Member, in 2020 and 2021, costs of operating and maintaining the FINRA/
NYSE TRF were greater than Revenues, causing the FINRA/NYSE TRF to run
at a loss. According to the Business Member, during that time, the
volume of tape reports increased and the total Subscriber Fee Revenue
decreased. More specifically, compared to the 2018 monthly average, as
of December 31, 2021, monthly average tape report activity for the
FINRA/NYSE TRF had increased by 329% and monthly average costs had
increased by 146%. At the same time, monthly average Subscriber Fee
Revenue had decreased by 19%. Net Market Data Revenue varied during the
period, but overall it decreased as compared to the first quarter of
2018. Ultimately, the Business Member believes that the FINRA/NYSE TRF
would continue to incur a significant loss if the current fee and
credit structure remained in place.
The Business Member does not believe that such losses are
sustainable in the long run. Accordingly, it proposes to amend the fees
set forth in FINRA Rule 7620B. By so doing, the Business Member has
proposed a change that it believes should ensure that the monthly fees
cover the costs of operating and maintaining the FINRA/NYSE TRF, which
would allow it to continue operating without amassing losses similar to
those it currently has. The Business Member believes that the continued
existence of the FINRA/NYSE TRF would be an asset to the competitive
environment.
The Business Member does not believe that the proposed fee would
place some market participants at a relative disadvantage compared to
other market participants, because the proposed fee schedule would be
applied in the same manner to all FINRA members that are, or elect to
become, FINRA/NYSE TRF Participants. It would not apply differently to
different sizes of Participants. Different types of Participants will
be treated the same, and the amount of the monthly fee would no longer
depend on whether a Participant were a Retail Participant or its FINRA/
NYSE TRF Market Share.
As set forth above, if there were no change in reporting to the
FINRA/NYSE TRF such that Participants' reporting volume stayed the same
as it was in the first six months of 2021, under the proposed fee
schedule, current Non-Retail Participants that have no trade reports
would not see a change in their fee, but most Retail Participants would
see fee increases. More specifically, currently there are three Retail
Participants that will be impacted and would incur fee increases under
the proposed rule change. Using December 2021 data, the two Retail
Participants that were inactive, under the proposed fee change, would
be assessed a fee of $2,000 for the month (compared to $0 under the
current fee structure). The Retail Participant that was active in
December 2021 would be assessed a fee of $1,779 for the month based on
its reporting activity (compared to $0 under the current fee
structure). The Business Member nonetheless believes that the proposed
fee amendment is reasonable in light of the ongoing costs of operating
and maintaining the FINRA/NYSE TRF and as a means of addressing the
current losses.
Participants may potentially alter their trade reporting 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.\19\
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\19\ The FINRA/NYSE TRF does not impose a fee on new
Participants, and so a FINRA member that opts to become a
Participant would not incur an additional cost from the FINRA/NYSE
TRF. In some cases, a new Participant may incur incidental costs to
connect to the FINRA/NYSE TRF, but those are not charged by the
FINRA/NYSE TRF. An existing Participant that ceases to be a
Participant is not subject to any change fee by the FINRA/NYSE TRF.
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Intermarket Competition. The FINRA/NYSE TRF operates in a
competitive environment. The proposed fee would not impose a burden on
competition on other FINRA Facilities that is not necessary or
appropriate. The FINRA Facilities have different pricing and compete
for FINRA members' trade report activity. The pricing structures of the
FINRA/NYSE TRF and other FINRA Facilities are publicly available,
allowing FINRA members to make informed decisions regarding which FINRA
Facility they use to report OTC trades in NMS stocks.
The Business Member represents that the FINRA/NYSE TRF would
continue to incur significant losses if the current fee and credit
structure remained in place, and it does not believe that such losses
are sustainable in the long run. Accordingly, it proposes to amend the
fees set forth in FINRA Rule 7620B. By so doing, the Business Member
has proposed a change that it believes will allow it to continue
operating without amassing losses similar to those it currently has.
The Business Member believes that its continued existence would be an
asset to the competitive environment.
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.
[[Page 18436]]
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 \20\ and paragraph (f)(2) of Rule 19b-4
thereunder.\21\ At any time within 60 days of the filing of the
proposed rule change, the Commission summarily may temporarily suspend
such rule change if it appears to the Commission that such action is
necessary or appropriate in the public interest, for the protection of
investors, or otherwise in furtherance of the purposes of the Act. If
the Commission takes such action, the Commission shall institute
proceedings to determine whether the proposed rule should be approved
or disapproved.
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\20\ 15 U.S.C. 78s(b)(3)(A).
\21\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-FINRA-2022-006 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 Number SR-FINRA-2022-006. 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 such filing also will be available for inspection
and copying at the principal office of FINRA. All comments received
will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-FINRA-2022-006 and should be submitted
on or before April 20, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-06516 Filed 3-29-22; 8:45 am]
BILLING CODE 8011-01-P
