Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend FINRA Rule 7620A (FINRA/Nasdaq Trade Reporting Facility Reporting Fees), 50391-50395 [2024-12890]
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Federal Register / Vol. 89, No. 115 / Thursday, June 13, 2024 / Notices
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[FR Doc. 2024–13031 Filed 6–12–24; 8:45 am]
BILLING CODE 3270–F1–P
SECURITIES AND EXCHANGE
COMMISSION
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend FINRA Rule
7620A (FINRA/Nasdaq Trade Reporting
Facility Reporting Fees)
June 7, 2024.
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 May 31,
2024, the Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I, II,
and III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
lotter on DSK11XQN23PROD with NOTICES1
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
FINRA is proposing to amend FINRA
Rule 7620A (FINRA/Nasdaq Trade
Reporting Facility Reporting Fees) to
modify the trade reporting fees and caps
applicable to non-retail participants that
use the FINRA/Nasdaq Trade Reporting
Facility Carteret and the FINRA/Nasdaq
Trade Reporting Facility Chicago.
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.
5 See https://www.federalregister.gov/documents/
2023/05/23/2023-10958/request-for-informationnational-nanotechnology-initiative-environmentalhealth-and-safety-research.
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
19:28 Jun 12, 2024
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In its filing with the Commission,
FINRA included statements concerning
the purpose of and basis for the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. FINRA has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
[Release No. 34–100296; File No. SR–
FINRA–2024–009]
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The FINRA/Nasdaq Trade Reporting
Facility Carteret (the ‘‘FINRA/Nasdaq
TRF Carteret’’) and the FINRA/Nasdaq
Trade Reporting Facility Chicago (the
‘‘FINRA/Nasdaq TRF Chicago’’)
(collectively, the ‘‘FINRA/Nasdaq TRF’’)
are facilities of FINRA that are operated
by Nasdaq, Inc. (‘‘Nasdaq’’). In
connection with the establishment of
the FINRA/Nasdaq TRF, FINRA and
Nasdaq entered into a limited liability
company agreement (the ‘‘LLC
Agreement’’). Under the LLC
Agreement, FINRA, the ‘‘SRO Member,’’
has sole regulatory responsibility for the
FINRA/Nasdaq TRF. Nasdaq, the
‘‘Business Member,’’ is primarily
responsible for the management of the
FINRA/Nasdaq TRF’s business affairs,
including establishing pricing for use of
the FINRA/Nasdaq TRF, to the extent
those affairs are not inconsistent with
the regulatory and oversight functions of
FINRA. Additionally, the Business
Member is obligated to pay the cost of
regulation and is entitled to the profits
and losses, if any, derived from the
operation of the FINRA/Nasdaq TRF.
The proposed rule change makes several
adjustments to the schedule of fees and
caps that applies to participants in the
FINRA/Nasdaq TRF.
Background
The FINRA/Nasdaq TRF comprises
two of four FINRA facilities 3 that
FINRA members can use to report overthe-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
3 The four FINRA facilities are the FINRA/Nasdaq
TRF Carteret, the FINRA/Nasdaq TRF Chicago, the
FINRA/NYSE Trade Reporting Facility (the
‘‘FINRA/NYSE TRF’’), and the Alternative Display
Facility (‘‘ADF’’).
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50391
facility (or facilities) to use to satisfy
their trade reporting obligations.
Pursuant to the FINRA Rule 7600A
Series, participants in the FINRA/
Nasdaq TRF are charged fees and may
qualify for fee caps (Rule 7620A) and
also may qualify for revenue sharing
payments for trade reporting to the
FINRA/Nasdaq TRF (Rule 7610A).
These rules are administered by Nasdaq,
in its capacity as the Business Member
and operator of the FINRA/Nasdaq TRF,
on behalf of FINRA,4 and Nasdaq
collects all fees on behalf of the FINRA/
Nasdaq TRF.
Pursuant to FINRA Rule 7620A,
participants that are not Retail
Participants 5 in the FINRA/Nasdaq TRF
are subject to four categories of fees,
each of which is applicable to
transactions on the three tapes: 6 (1)
Media/Executing Party; (2) Non-Media/
Executing Party; (3) Media/Contra Party;
and (4) Non-Media/Contra Party.7 For
each Media and Non-Media trade report
submitted to the FINRA/Nasdaq TRF,
both the member firm identified in the
report as the Executing Party and the
member firm identified as the Contra
Party are assessed a fee.8 Rule 7620A
provides that for any category of fees, a
non-Retail Participant will qualify for a
cap on the fees they would otherwise
pay to report non-comparison/accept
(non-match/compare) trades to a
particular tape during a given month,
provided that during the month, the
participant separately has an average
daily number of Media/Executing Party
trade reports of at least 5,000 in that
same tape.
Proposed Amendments to Fee Schedule
Nasdaq, as the Business Member, has
determined to make several adjustments
to the schedule of fees and caps that
4 FINRA’s oversight of this function performed by
the Business Member is conducted through a
recurring assessment and review of TRF operations
by an outside independent audit firm.
5 The term ‘‘Retail Participant’’ is defined in Rule
7620A.01. Retail Participants are exempt from fees
for trade reporting to the FINRA/Nasdaq TRF.
Unless otherwise stated, references to a
‘‘participant’’ herein mean a non-Retail Participant.
6 Market data is transmitted to three tapes based
on the listing venue of the security: New York Stock
Exchange (‘‘Tape A’’); BYX, BZX, EDGA, EDGX,
IEX, LTSE, MEMX, MIAX, Nasdaq BX, Nasdaq PSX,
NYSE American, NYSE Chicago, NYSE National,
and NYSE Arca (‘‘Tape B’’); and Nasdaq (‘‘Tape C’’).
7 Media eligible trade reports are those that are
submitted to the FINRA/Nasdaq TRF for public
dissemination by the Securities Information
Processors. By contrast, non-media trade reports are
not submitted to the FINRA/Nasdaq TRF for public
dissemination but are submitted for regulatory and/
or clearance and settlement purposes.
8 Pursuant to Rule7620A.01, the ‘‘Executing
Party’’ is defined as the member with the trade
reporting obligation under FINRA rules and the
‘‘Contra’’ is defined as the member on the contra
side of a trade report.
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Federal Register / Vol. 89, No. 115 / Thursday, June 13, 2024 / Notices
applies to participants in the FINRA/
Nasdaq TRF. As discussed below, the
overall aims of the proposed
adjustments are to: (1) align the activitybased fees and cap levels with the rising
costs of operating, maintaining, and
improving the FINRA/Nasdaq TRF; and
(2) re-calibrate the fee structure so that
it provides for a more equitable
allocation of fees among Executing
Parties and Contra Parties, while
providing for a reasonable return to
Nasdaq on its expenditures in support
of and investments in the FINRA/
Nasdaq TRF as the Business Member.
FINRA is proposing to amend Rule
7620A accordingly.
Specifically, the proposed rule change
would: (1) raise the threshold daily
average number of Media/Executing
Party trades that are necessary for a
participant to qualify for a fee cap
program during a month; (2) provide for
new tiered discounted Media/Contra
Party and Non-Media/Contra Party fees;
and (3) make non-substantive clarifying
changes to Rule 7620A. Each of these
proposals is described in detail below.
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Cap Qualifying Activity
The proposed rule change would raise
the level of the daily average number of
Media/Executing trades that a
participant must report to the FINRA/
Nasdaq TRF in a given month to qualify
for caps on its trade reporting fees (‘‘Cap
Qualifying Activity’’). Presently, the
level of Cap Qualifying Activity is 5,000
Media/Executing trade reports in each
of Tapes A, B, and C. Nasdaq, as the
Business Member, has determined to
raise these threshold numbers to 10,000
in each Tape.
The levels of Cap Qualifying Activity
have not increased since 2018,9 at a
time when reporting volume on the
FINRA/Nasdaq TRF was significantly
lower than it is now. Over the past five
years, the FINRA/Nasdaq TRF trade
reporting volume has grown twofold,
while the FINRA/Nasdaq TRF monthly
charge and caps for reporting trades
have remained the same for the four
categories over the same time period.10
Participants eligible for fee caps have
paid the same capped charges over the
past five years while trade reporting
volumes have increased 201 percent
9 See Securities Exchange Act Release No. 83866
(August 16, 2018), 83 FR 42545 (August 22, 2018)
(Notice of Filing and Immediate Effectiveness of
File No. SR–FINRA–2018–029).
10 Over the past five years, annual trade reporting
volume on the FINRA/Nasdaq TRF has grown from
283.9 billion trades to 855.7 billion trades, an
increase of 201 percent. Annual fees have increased
by 44 percent over the same period. Annual fees for
this purpose mean the aggregate of all reporting fees
collected by the FINRA/Nasdaq TRF in a given
calendar year.
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19:28 Jun 12, 2024
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As discussed above, the number of
trades reported to the FINRA/Nasdaq
TRF has grown significantly in recent
years. Currently, participants that are
primarily identified as the Contra Party
on trade reports and do not have
sufficient Executing Party trades that
would qualify for the fee cap are not
eligible for any pricing discount. The
proposed rule change would therefore
provide tiered discounted fees to
participants identified in trade reports
as the Media/Contra Party and NonMedia/Contra Party to allow more
participants to qualify for discounted
rates and to provide for more reasonable
allocation of fees among the parties to
Media and Non-Media/Contra Party
a trade.
Fees
In addition to setting forth the
The proposed rule change would also proposed discounted pricing, the
proposed rule change would add
amend the schedule of fees for Media/
language to Section II.A of Rule 7620A
Contra Party and Non-Media/Contra
to provide an explanation and example
Party trade reports. Nasdaq, as the
of qualifying trade reporting activity for
Business Member, has determined to
establish tiered pricing on Media/Contra the Contra Party tiered discount.
It is important to note that a
Party and Non-Media/Contra Party trade
participant will not receive both the fee
reports for participants that do not
cap based on qualifying Media/
qualify for the cap described above.
Similar to the existing fee caps based on Executing Party trade reporting activity
Executing Party trade report volume, the and the proposed Contra Party fee
discount in the same month. Nasdaq, as
tiered pricing will apply based on a
the Business Member, will conduct
member firm’s total monthly Media/
monthly reviews of a non-Retail
Contra Party trade report volume. To be
Participant’s trade reporting volume to
eligible for the tiered pricing, the
determine what pricing applies to the
participant’s Media/Contra Party
participant’s activity for a given
volume must equal or exceed 35 percent
month.11 If a firm does not qualify for
of the participant’s total volume of
the fee cap based on Media/Executing
trades reported to the FINRA/Nasdaq
Party trade reporting activity, the firm
TRF in a given month. A participant
will then be evaluated for Contra Party
that meets this threshold will qualify for
tiered pricing based on its Media/Contra
discounted pricing at the following
Party trade reporting activity.12 Nontiers:
Retail Participants will automatically
receive the applicable capped or
Minimum number of media/contra
Fee per
discounted pricing if they qualify based
trade reports during the month
trade
on their trade reporting activity; they do
(million)
report
not need to submit supporting
2 ....................................................
$0.012 documentation or take any additional
7 ....................................................
0.0095 steps to qualify.13
over a five-year span. Meanwhile, the
cost of operating the FINRA/Nasdaq
TRF has increased by approximately 23
percent from 2019 to 2023. These costs
have increased for various reasons,
including but not limited to inflation,
investments that Nasdaq has made in
upgrading and improving the facility,
and increased operational and
maintenance costs that have flowed
from rising levels of trade reporting
activity. Nasdaq, as the Business
Member, believes that raising the levels
of Cap Qualifying Activity will help to
recalibrate the thresholds in light of
increased volumes and costs.
12 ..................................................
0.0075
If a participant has sufficient Media/
Contra Party trade reports to meet the
above thresholds, then the discounted
pricing will also apply to the
participant’s Non-Media/Contra Party
trade reports. Unlike the existing fee
caps, the volume and trade report
thresholds are not calculated on a per
tape basis for purposes of the Contra
Party tiered discounts.
The proposed tiered pricing is
intended to provide for a more
reasonable allocation of fees among
Executing Parties and Contra Parties.
The three tier levels were developed so
that participants can qualify for lower
fees as their Media/Contra Party trade
reporting volumes increase.
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General Clarifications
FINRA is also proposing nonsubstantive changes to the FINRA/
Nasdaq TRF fee schedule to provide
more clarity. First, Retail Participants
are not subject to any trade reporting
fees under Rule 7620A. Therefore,
FINRA is proposing to eliminate
language that suggests that, in some
11 Retail Participants are not subject to any trade
reporting fees and therefore would not be
considered for any cap or fee discounts.
12 If a firm qualifies for an ATS Market Maker fee
cap, then the firm will not qualify for Contra Party
pricing.
13 By contrast, Retail Participants are required to
complete and submit an application and written
attestation to Nasdaq to be designated as such and
to receive pricing under the Retail Participant fee
schedule.
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Federal Register / Vol. 89, No. 115 / Thursday, June 13, 2024 / Notices
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instances, Retail Participants are
required to pay trade report charges.
Second, FINRA is proposing minor
changes to the language in Section II.A
of Rule 7620A to provide more clarity
on the qualifying activity required to
achieve the cap. These proposed
changes are not intended to make any
substantive changes to the operation of
the rule.
FINRA notes that the proposed rule
changes do not modify the other fees
assessed under Rule 7620A, including
the ATS Market Maker fee caps, the fee
assessed a member for submitting a
clearing report to the FINRA/Nasdaq
TRF to transfer a transaction fee
pursuant to Rule 7230A(h), and the
‘‘Comparison’’ fee.
FINRA has filed the proposed rule
change for immediate effectiveness. The
operative date will be June 1, 2024.
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.
FINRA believes that the proposed fee
schedule is reasonable and provides an
equitable allocation of fees in that it will
apply uniformly to all similarly situated
FINRA members that use the FINRA/
Nasdaq TRF. Moreover, participation in
the FINRA/Nasdaq TRF is voluntary,
and access to the FINRA/Nasdaq TRF is
offered on fair and non-discriminatory
terms.
The proposed rule change would: (1)
raise from 5,000 to 10,000 the Cap
Qualifying Activity that a participant
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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19:28 Jun 12, 2024
Jkt 262001
needs to achieve to qualify for capped
reporting fees under Rule 7620A; and
(2) provide a three-tiered fee discount
for Media/Contra Party and Non-Media/
Contra Party monthly charges for
participants that may not otherwise
achieve Cap Qualifying Activity.
As discussed above, the FINRA/
Nasdaq TRF has experienced a
significant increase in trade reporting
activity over the past five years, while
the monthly charges and caps have
remained unchanged over the same time
period. Nasdaq, as the Business
Member, does not believe that the
current Cap Qualifying Activity of 5,000
daily average trades per month
continues to be an appropriate threshold
in light of such increase. The caps and
cap formulas have not kept pace with
the rapid growth of trade reporting
volume on the FINRA/Nasdaq TRF
since they were amended in 2018 or
with the corresponding increase in costs
associated with operating, maintaining,
and upgrading the FINRA/Nasdaq TRF.
Nasdaq, as the Business Member,
believes that doubling the minimum
average daily volume of Media/
Executing Party trade reports from 5,000
to 10,000 will better reflect the current
levels of trade reporting activity on the
FINRA/Nasdaq TRF. The proposed rule
change will also help Nasdaq continue
to accommodate the costs associated
with rising trade reporting volumes
while making substantial enhancements
to the technology, functionality, and
performance of the FINRA/Nasdaq TRF.
Participants are required to submit
Media trade reports to FINRA, while not
all Non-Media trades are required to be
reported under FINRA rules. In
determining pricing for the FINRA/
Nasdaq TRF, the Business Member has
focused on attracting Media trade
reports to the FINRA/Nasdaq TRF
relative to other trade reporting
facilities.18 As such, the existing
approach of using Media/Executing
Party trade reports as the criteria for a
participant to qualify for the fee cap
provides for an equitable allocation of
fees and is not unfairly discriminatory.
Additionally, as discussed above, the
proposed tiered discounts will help
ensure a more equitable distribution of
fees and allocate costs associated with
the operation and maintenance of the
FINRA/Nasdaq TRF more equitably
among Executing Parties and Contra
Parties. Over time, as the number of
trades reported to the FINRA/Nasdaq
18 The Cap Qualifying Activity requirement has
historically focused on participants that are
identified in the trade report as the Executing Party
because historically the Executing Party has
primarily made the decision on which TRF to
which it report its trades.
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50393
TRF has grown significantly, the fee
burden associated with the FINRA/
Nasdaq TRF has shifted
disproportionately to Contra Parties
because participants that are primarily
identified as the Contra Party and that
do not have sufficient Executing Party
trades to qualify for the fee cap are not
currently eligible for any pricing
discount. According to Nasdaq, as the
Business Member, without a cap on
Contra Party monthly trade report
charges, the increase in Contra Party
activity fees as a result of the growth in
trade reporting activity over the past
five years has been disproportionately
higher than that of Executing Party fees.
Therefore, the Business Member has
advised that the proposed three-tiered
fee discount for Contra Parties will help
ensure that Contra Parties’ fees are
better calibrated relative to Executing
Parties. Similar to the existing approach
taken with respect to using Media/
Executing Party trade reports to qualify
for a fee cap, Nasdaq, as the Business
Member, has determined to base the
proposed fee discount for Contra Parties
on Media/Contra trade reports in an
effort to attract more Media reporting to
the FINRA/Nasdaq TRF relative to other
trade reporting facilities.19 Therefore, as
with the existing approach with respect
to Cap Qualifying Activity, using
Media/Contra Party trade reports as the
basis for qualifying for the Contra Party
fee discount provides for an equitable
allocation of fees and is not unfairly
discriminatory.
Nasdaq also advises that it expects to
earn a profit from the proposed rule
change, but it believes that such profit
represents a reasonable return on its
expenditures in support of and
investments in the FINRA/Nasdaq TRF,
and that the extent of such profit will be
subject to and constrained by
competitive pressures. As the
Commission has recognized, ‘‘[i]f
competitive forces are operative, the
self-interest of the exchanges themselves
will work powerfully to constrain
unreasonable or unfair behavior,’’ 20 and
‘‘the existence of significant competition
provides a substantial basis for finding
that the terms of an exchange’s fee
proposal are equitable, fair, reasonable,
and not unreasonably or unfairly
19 Nasdaq has advised that today, some Contra
Parties may play a greater role in determining
where their Executing Parties report trades than in
the past.
20 See Securities Exchange Act Release No. 59039
(December 2, 2008), 73 FR 74770, 74781 (December
9, 2008) (Order Setting Aside Action by Delegated
Authority and Approving File No. SR–NYSEArca–
2006–21).
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Federal Register / Vol. 89, No. 115 / Thursday, June 13, 2024 / Notices
discriminatory.’’ 21 In this instance, the
increase in fees resulting from the
proposal to increase the Media/
Executing Party trade reporting activity
required to qualify for a fee cap will be
subject to significant competition from
the FINRA/NYSE TRF, which in the
past has increased its market share
relative to the FINRA/Nasdaq TRF as a
result of pricing and other competitive
adjustments. As the Commission has
held in the past, the presence of
competition provides a substantial basis
for a finding that the proposed rule
change will be an equitable allocation of
reasonable dues, fees and other
charges.22
Finally, FINRA believes that it is
reasonable to make non-technical,
clarifying changes to Rule 7620A. The
proposed non-substantive changes to
remove the reference to fees charged to
Retail Participants and to clarify the Cap
Qualifying Activity requirements for the
fee caps are appropriate to make the rule
more easily understandable. FINRA,
Nasdaq, and all FINRA/Nasdaq TRF
participants have an interest in FINRA
maintaining rules for its trade reporting
facilities that are clear.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
FINRA does not believe that the
proposed rule changes will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
lotter on DSK11XQN23PROD with NOTICES1
Regulatory Need
Nasdaq, as the Business Member and
operator of the FINRA/Nasdaq TRF,
collects all fees on behalf of the FINRA/
Nasdaq TRF. As discussed above,
Nasdaq has observed an increase in offexchange volumes and the associated
cost of operating and improving the
FINRA/Nasdaq TRF. Nasdaq also
observed that today, participants
predominantly identified as the Contra
Party pay a disproportionate amount of
the fees. Therefore, Nasdaq determined
to make several adjustments to the
schedule of fees and caps to better
allocate the fees among the participants
and align them with the costs of
operating the FINRA/Nasdaq TRF.
Economic Baseline
As discussed above, pursuant to
FINRA Rule 7620A, participants in the
FINRA/Nasdaq TRF are currently
subject to four categories of fees, each of
which is applicable to transactions on
the three tapes: (1) Media/Executing
Party; (2) Non-Media/Executing Party;
73 FR 74770, 74781–82.
22 See supra note 21.
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Nasdaq has determined to raise the
threshold for the Cap Qualifying
Activity—i.e., the daily average number
of Media/Executing Party trades that a
participant must report to the FINRA/
Nasdaq TRF in a given month to qualify
for caps on its trade reporting fees, from
5,000 reports in each of Tapes A, B, and
C, to 10,000 reports. Under the proposed
new fee structure, some participants
currently qualifying for fee caps would
no longer qualify for the fee cap and
would therefore see an increase in fees.
Participants that continue to qualify for
the proposed fee cap would also expect
higher charges because the required
volumes for fee caps in all categories
would increase from 5,000 to 10,000
trade reports under the proposed rule.
Under the proposed fee structure, the
cap effectively increases by 100%,
approximately from $1,430 ($0.013 ×
5,000 × 22) to $2,860 ($0.013 × 10,000
× 22), assuming 22 trading days in a
month, for each category of trade reports
(i.e., Media/Executing Party, NonMedia/Executing Party, Media/Contra
Party and Non-Media/Contra Party) in
each tape.24 Participants not qualifying
for the fee caps would be considered for
the proposed tiered discounts on Contra
Party trade reports and therefore could
expect lower charges on the Contra
Party trade reports if they qualify.25
For the purpose of estimating the
impacts of the proposed rule change,
FINRA used monthly trade reporting
volumes and fees data provided by
Nasdaq from January through December
of 2023 to calculate the projected fees
assuming the reporting behavior would
be the same as the 2023 data. Under the
proposed rule change, 31 participants
could expect an increase in costs on
both Executing Party and Contra Party
trade reporting activity (increase of
$11,531, or 68 percent, on average
monthly); seven participants could
expect an increase in costs on Executing
Party trade reporting activity (increase
of $5,279, or 73 percent, on average
monthly) and no change in costs on
Contra Party activity; 11 participants
could expect a decrease in costs on
Contra Party trade reporting activity
(decrease of $18,562, or 18 percent, on
average monthly) because they would
qualify for the proposed tiered
Economic Impact
The proposed rule change entails
several changes to the fee and cap
structure. The potential impact of each
proposed change is discussed below.
23 The counts of participants are averaged across
all twelve months of 2023 and rounded to the
nearest whole numbers.
21 See
VerDate Sep<11>2014
(3) Media/Contra Party; (4) and NonMedia/Contra Party. The rule also
provides fee caps for participants for a
particular tape during a given month,
separately for Media/Executing Party,
Non-Media/Executing Party, Media/
Contra Party and Non-Media/Contra
Party trades. The level of the daily
average number of Media/Executing
Party trades determines a participant’s
eligibility to qualify for fee caps on the
Media/Executing Party, Non-Media/
Executing Party, Media/Contra Party,
and Non-Media/Contra Party trade
reports. Consider, for example, a nonRetail Participant averaging 10,924
Media/Executing Party trades, 21,279
Non-Media/Executing Party trades,
1,949 Media/Contra Party trades, and
16,741 Non-Media/Contra Party trades
per day in a given month and tape. This
participant meets the 5,000 daily trade
volume of Media/Executing Party trades
that qualifies it for the fee caps. The
monthly charge on its Media/Executing
Party trades would be capped at $1,430
(5,000 reports × $0.013 × 22), assuming
22 trading days in the month. In this
example, the charges for Non-Media/
Executing Party and Non-Media/Contra
Party trade reports both would be
capped at $1,430 because the volumes
in both categories are higher than 5,000,
while the charge for Media/Contra Party
trade reports would be $557.41 (1,949
reports × $0.013 × 22) because the
volume has not reached the cap size of
5,000. If the number of Media/Executing
Party trades were below 5,000 in this
example, then the charges on all
categories would be calculated at a
regular rate without a cap.
FINRA analyzed data provided by
Nasdaq that shows fees incurred by 584
participants in at least one month of
2023. On average, 505 participants paid
a fee each month to the FINRA/Nasdaq
TRF either as an Executing Party or
Contra Party in at least one of Tape A,
B, and C securities.23 Among these 505
participants, on average, 33 (seven
percent) were eligible and received
capped fees each month. Of the 472
participants (93 percent) that were
ineligible for a cap, on average, 347 (74
percent) had a larger volume of Contra
Party/Media activity than Executing
Party/Media activity across all tapes.
PO 00000
Frm 00142
Fmt 4703
Sfmt 4703
24 As in the current Rule, under the proposed
rule, a firm would qualify for fee caps in categories
other than the Media/Executing Party only after it
has qualified for the fee caps in the Media/
Executing Party category in each Tape.
25 As described above, tiered pricing on Media/
Contra Party and Non-Media/Contra Party trade
reports would only be available for participants that
do not qualify for the Media/Executing Party fee
cap.
E:\FR\FM\13JNN1.SGM
13JNN1
lotter on DSK11XQN23PROD with NOTICES1
Federal Register / Vol. 89, No. 115 / Thursday, June 13, 2024 / Notices
discounts; and 535 participants would
expect no change in costs.
The proposed fee structure is likely to
reduce the gap in trade reporting fees
between participants predominantly
reporting as an Executing Party and
those predominantly reporting as a
Contra Party. Across all participants, the
effective cost per Executing Party trade
report would increase by 52 percent,
from 0.053 cents to 0.080 cents per
report. The effective cost per Contra
Party trade report would decline by one
percent, from 0.415 cents to 0.412 cents
per report. In 2023, a Contra Party, on
average, paid approximately eight times
as much ($0.00415/$0.00053) as an
Executing Party for each trade report. If
the proposed fee structure were in effect
in 2023, the ratio would have been
approximately five times ($0.00412/
$0.00080).
Besides the fees that are measurable,
the proposed fee structure could
potentially deliver long term economic
benefits for its participants that cannot
easily be estimated. Specifically, the
proposed fee structure would allow
Nasdaq to more effectively cover the
rising operating costs associated with
increased volumes, as well as improve
the functionality and service of the
reporting facility, such as potentially
better processing speed to enable
quicker transmission and dissemination
of trade reports.
FINRA cannot estimate whether the
proposed fee structure would deliver a
net benefit or cost to participants and
investors in the long term, as some of
the economic benefits discussed above
are not quantifiable. Additionally,
FINRA notes that the proposed fee and
fee cap changes occur within the
context of a competitive environment in
which multiple trade reporting facilities
vie for market share. If any existing or
prospective participant in either FINRA/
Nasdaq TRF determines that the new
fees or fee cap thresholds are too high
or are unfavorable relative to fees and
fee cap programs applicable to the
FINRA/NYSE TRF, such participants
may choose to report to the FINRA/
NYSE TRF or the ADF in lieu of the
FINRA/Nasdaq TRF. Firms would
continue reporting to FINRA/Nasdaq
TRFs to the extent that they find the net
cost of reporting to FINRA/Nasdaq TRF
relative to reporting to other facilities
preferable.
FINRA does not know how the
proposed rule change would affect
competing facilities, which in part
determines market competition and
prices for trade reporting in the long
run. Should the long-run equilibrium
cost of reporting off-exchange trades to
any available facility, including the
VerDate Sep<11>2014
19:28 Jun 12, 2024
Jkt 262001
FINRA/Nasdaq TRF, the FINRA/NYSE
TRF or the ADF, rise in a competitive
market, firms could potentially choose
to pass the costs to investors.
Alternatives Considered
No other alternatives were considered
for the proposed rule change.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to section 19(b)(3)(A)
of the Act 26 and paragraph (f)(2) of Rule
19b–4 thereunder.27 At any time within
60 days of the filing of the proposed rule
change, the Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include file number SR–
FINRA–2024–009 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–2024–009. 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. Do not include
personal identifiable information in
submissions; you should submit only
information that you wish to make
available publicly. We may redact in
part or withhold entirely from
publication submitted material that is
obscene or subject to copyright
protection. All submissions should refer
to file number SR–FINRA–2024–009,
and should be submitted on or before
July 5, 2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.28
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–12890 Filed 6–12–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–100297; File No. SR–
NYSECHX–2024–22]
Self-Regulatory Organizations; NYSE
Chicago, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Article 7, Rule
11
June 7, 2024.
Pursuant to section 19(b)(1) 1 of the
Securities Exchange Act of 1934
(‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on June 4,
2024, the NYSE Chicago, Inc. (‘‘NYSE
Chicago’’ or the ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
28 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
26 15
27 17
PO 00000
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(2).
Frm 00143
Fmt 4703
Sfmt 4703
50395
E:\FR\FM\13JNN1.SGM
13JNN1
]]>Agencies
[Federal Register Volume 89, Number 115 (Thursday, June 13, 2024)]
[Notices]
[Pages 50391-50395]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-12890]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100296; File No. SR-FINRA-2024-009]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Amend FINRA Rule 7620A (FINRA/Nasdaq Trade
Reporting Facility Reporting Fees)
June 7, 2024.
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 May 31, 2024, the Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by the Exchange. 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 7620A (FINRA/Nasdaq Trade
Reporting Facility Reporting Fees) to modify the trade reporting fees
and caps applicable to non-retail participants that use the FINRA/
Nasdaq Trade Reporting Facility Carteret and the FINRA/Nasdaq Trade
Reporting Facility Chicago.
The text of the proposed rule change is available on FINRA's
website at https://www.finra.org, at the principal office of FINRA and
at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, FINRA included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. FINRA has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The FINRA/Nasdaq Trade Reporting Facility Carteret (the ``FINRA/
Nasdaq TRF Carteret'') and the FINRA/Nasdaq Trade Reporting Facility
Chicago (the ``FINRA/Nasdaq TRF Chicago'') (collectively, the ``FINRA/
Nasdaq TRF'') are facilities of FINRA that are operated by Nasdaq, Inc.
(``Nasdaq''). In connection with the establishment of the FINRA/Nasdaq
TRF, FINRA and Nasdaq entered into a limited liability company
agreement (the ``LLC Agreement''). Under the LLC Agreement, FINRA, the
``SRO Member,'' has sole regulatory responsibility for the FINRA/Nasdaq
TRF. Nasdaq, the ``Business Member,'' is primarily responsible for the
management of the FINRA/Nasdaq TRF's business affairs, including
establishing pricing for use of the FINRA/Nasdaq TRF, to the extent
those affairs are not inconsistent with the regulatory and oversight
functions of FINRA. Additionally, the Business Member is obligated to
pay the cost of regulation and is entitled to the profits and losses,
if any, derived from the operation of the FINRA/Nasdaq TRF. The
proposed rule change makes several adjustments to the schedule of fees
and caps that applies to participants in the FINRA/Nasdaq TRF.
Background
The FINRA/Nasdaq TRF comprises two 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.
---------------------------------------------------------------------------
\3\ The four FINRA facilities are the FINRA/Nasdaq TRF Carteret,
the FINRA/Nasdaq TRF Chicago, the FINRA/NYSE Trade Reporting
Facility (the ``FINRA/NYSE TRF''), and the Alternative Display
Facility (``ADF'').
---------------------------------------------------------------------------
Pursuant to the FINRA Rule 7600A Series, participants in the FINRA/
Nasdaq TRF are charged fees and may qualify for fee caps (Rule 7620A)
and also may qualify for revenue sharing payments for trade reporting
to the FINRA/Nasdaq TRF (Rule 7610A). These rules are administered by
Nasdaq, in its capacity as the Business Member and operator of the
FINRA/Nasdaq TRF, on behalf of FINRA,\4\ and Nasdaq collects all fees
on behalf of the FINRA/Nasdaq TRF.
---------------------------------------------------------------------------
\4\ FINRA's oversight of this function performed by the Business
Member is conducted through a recurring assessment and review of TRF
operations by an outside independent audit firm.
---------------------------------------------------------------------------
Pursuant to FINRA Rule 7620A, participants that are not Retail
Participants \5\ in the FINRA/Nasdaq TRF are subject to four categories
of fees, each of which is applicable to transactions on the three
tapes: \6\ (1) Media/Executing Party; (2) Non-Media/Executing Party;
(3) Media/Contra Party; and (4) Non-Media/Contra Party.\7\ For each
Media and Non-Media trade report submitted to the FINRA/Nasdaq TRF,
both the member firm identified in the report as the Executing Party
and the member firm identified as the Contra Party are assessed a
fee.\8\ Rule 7620A provides that for any category of fees, a non-Retail
Participant will qualify for a cap on the fees they would otherwise pay
to report non-comparison/accept (non-match/compare) trades to a
particular tape during a given month, provided that during the month,
the participant separately has an average daily number of Media/
Executing Party trade reports of at least 5,000 in that same tape.
---------------------------------------------------------------------------
\5\ The term ``Retail Participant'' is defined in Rule 7620A.01.
Retail Participants are exempt from fees for trade reporting to the
FINRA/Nasdaq TRF. Unless otherwise stated, references to a
``participant'' herein mean a non-Retail Participant.
\6\ Market data is transmitted to three tapes based on the
listing venue of the security: New York Stock Exchange (``Tape A'');
BYX, BZX, EDGA, EDGX, IEX, LTSE, MEMX, MIAX, Nasdaq BX, Nasdaq PSX,
NYSE American, NYSE Chicago, NYSE National, and NYSE Arca (``Tape
B''); and Nasdaq (``Tape C'').
\7\ Media eligible trade reports are those that are submitted to
the FINRA/Nasdaq TRF for public dissemination by the Securities
Information Processors. By contrast, non-media trade reports are not
submitted to the FINRA/Nasdaq TRF for public dissemination but are
submitted for regulatory and/or clearance and settlement purposes.
\8\ Pursuant to Rule7620A.01, the ``Executing Party'' is defined
as the member with the trade reporting obligation under FINRA rules
and the ``Contra'' is defined as the member on the contra side of a
trade report.
---------------------------------------------------------------------------
Proposed Amendments to Fee Schedule
Nasdaq, as the Business Member, has determined to make several
adjustments to the schedule of fees and caps that
[[Page 50392]]
applies to participants in the FINRA/Nasdaq TRF. As discussed below,
the overall aims of the proposed adjustments are to: (1) align the
activity-based fees and cap levels with the rising costs of operating,
maintaining, and improving the FINRA/Nasdaq TRF; and (2) re-calibrate
the fee structure so that it provides for a more equitable allocation
of fees among Executing Parties and Contra Parties, while providing for
a reasonable return to Nasdaq on its expenditures in support of and
investments in the FINRA/Nasdaq TRF as the Business Member. FINRA is
proposing to amend Rule 7620A accordingly.
Specifically, the proposed rule change would: (1) raise the
threshold daily average number of Media/Executing Party trades that are
necessary for a participant to qualify for a fee cap program during a
month; (2) provide for new tiered discounted Media/Contra Party and
Non-Media/Contra Party fees; and (3) make non-substantive clarifying
changes to Rule 7620A. Each of these proposals is described in detail
below.
Cap Qualifying Activity
The proposed rule change would raise the level of the daily average
number of Media/Executing trades that a participant must report to the
FINRA/Nasdaq TRF in a given month to qualify for caps on its trade
reporting fees (``Cap Qualifying Activity''). Presently, the level of
Cap Qualifying Activity is 5,000 Media/Executing trade reports in each
of Tapes A, B, and C. Nasdaq, as the Business Member, has determined to
raise these threshold numbers to 10,000 in each Tape.
The levels of Cap Qualifying Activity have not increased since
2018,\9\ at a time when reporting volume on the FINRA/Nasdaq TRF was
significantly lower than it is now. Over the past five years, the
FINRA/Nasdaq TRF trade reporting volume has grown twofold, while the
FINRA/Nasdaq TRF monthly charge and caps for reporting trades have
remained the same for the four categories over the same time
period.\10\ Participants eligible for fee caps have paid the same
capped charges over the past five years while trade reporting volumes
have increased 201 percent over a five-year span. Meanwhile, the cost
of operating the FINRA/Nasdaq TRF has increased by approximately 23
percent from 2019 to 2023. These costs have increased for various
reasons, including but not limited to inflation, investments that
Nasdaq has made in upgrading and improving the facility, and increased
operational and maintenance costs that have flowed from rising levels
of trade reporting activity. Nasdaq, as the Business Member, believes
that raising the levels of Cap Qualifying Activity will help to
recalibrate the thresholds in light of increased volumes and costs.
---------------------------------------------------------------------------
\9\ See Securities Exchange Act Release No. 83866 (August 16,
2018), 83 FR 42545 (August 22, 2018) (Notice of Filing and Immediate
Effectiveness of File No. SR-FINRA-2018-029).
\10\ Over the past five years, annual trade reporting volume on
the FINRA/Nasdaq TRF has grown from 283.9 billion trades to 855.7
billion trades, an increase of 201 percent. Annual fees have
increased by 44 percent over the same period. Annual fees for this
purpose mean the aggregate of all reporting fees collected by the
FINRA/Nasdaq TRF in a given calendar year.
---------------------------------------------------------------------------
Media and Non-Media/Contra Party Fees
The proposed rule change would also amend the schedule of fees for
Media/Contra Party and Non-Media/Contra Party trade reports. Nasdaq, as
the Business Member, has determined to establish tiered pricing on
Media/Contra Party and Non-Media/Contra Party trade reports for
participants that do not qualify for the cap described above. Similar
to the existing fee caps based on Executing Party trade report volume,
the tiered pricing will apply based on a member firm's total monthly
Media/Contra Party trade report volume. To be eligible for the tiered
pricing, the participant's Media/Contra Party volume must equal or
exceed 35 percent of the participant's total volume of trades reported
to the FINRA/Nasdaq TRF in a given month. A participant that meets this
threshold will qualify for discounted pricing at the following tiers:
------------------------------------------------------------------------
Fee per
Minimum number of media/contra trade reports during the month trade
(million) report
------------------------------------------------------------------------
2............................................................ $0.012
7............................................................ 0.0095
12........................................................... 0.0075
------------------------------------------------------------------------
If a participant has sufficient Media/Contra Party trade reports to
meet the above thresholds, then the discounted pricing will also apply
to the participant's Non-Media/Contra Party trade reports. Unlike the
existing fee caps, the volume and trade report thresholds are not
calculated on a per tape basis for purposes of the Contra Party tiered
discounts.
The proposed tiered pricing is intended to provide for a more
reasonable allocation of fees among Executing Parties and Contra
Parties. The three tier levels were developed so that participants can
qualify for lower fees as their Media/Contra Party trade reporting
volumes increase.
As discussed above, the number of trades reported to the FINRA/
Nasdaq TRF has grown significantly in recent years. Currently,
participants that are primarily identified as the Contra Party on trade
reports and do not have sufficient Executing Party trades that would
qualify for the fee cap are not eligible for any pricing discount. The
proposed rule change would therefore provide tiered discounted fees to
participants identified in trade reports as the Media/Contra Party and
Non-Media/Contra Party to allow more participants to qualify for
discounted rates and to provide for more reasonable allocation of fees
among the parties to a trade.
In addition to setting forth the proposed discounted pricing, the
proposed rule change would add language to Section II.A of Rule 7620A
to provide an explanation and example of qualifying trade reporting
activity for the Contra Party tiered discount.
It is important to note that a participant will not receive both
the fee cap based on qualifying Media/Executing Party trade reporting
activity and the proposed Contra Party fee discount in the same month.
Nasdaq, as the Business Member, will conduct monthly reviews of a non-
Retail Participant's trade reporting volume to determine what pricing
applies to the participant's activity for a given month.\11\ If a firm
does not qualify for the fee cap based on Media/Executing Party trade
reporting activity, the firm will then be evaluated for Contra Party
tiered pricing based on its Media/Contra Party trade reporting
activity.\12\ Non-Retail Participants will automatically receive the
applicable capped or discounted pricing if they qualify based on their
trade reporting activity; they do not need to submit supporting
documentation or take any additional steps to qualify.\13\
---------------------------------------------------------------------------
\11\ Retail Participants are not subject to any trade reporting
fees and therefore would not be considered for any cap or fee
discounts.
\12\ If a firm qualifies for an ATS Market Maker fee cap, then
the firm will not qualify for Contra Party pricing.
\13\ By contrast, Retail Participants are required to complete
and submit an application and written attestation to Nasdaq to be
designated as such and to receive pricing under the Retail
Participant fee schedule.
---------------------------------------------------------------------------
General Clarifications
FINRA is also proposing non-substantive changes to the FINRA/Nasdaq
TRF fee schedule to provide more clarity. First, Retail Participants
are not subject to any trade reporting fees under Rule 7620A.
Therefore, FINRA is proposing to eliminate language that suggests that,
in some
[[Page 50393]]
instances, Retail Participants are required to pay trade report
charges. Second, FINRA is proposing minor changes to the language in
Section II.A of Rule 7620A to provide more clarity on the qualifying
activity required to achieve the cap. These proposed changes are not
intended to make any substantive changes to the operation of the rule.
FINRA notes that the proposed rule changes do not modify the other
fees assessed under Rule 7620A, including the ATS Market Maker fee
caps, the fee assessed a member for submitting a clearing report to the
FINRA/Nasdaq TRF to transfer a transaction fee pursuant to Rule
7230A(h), and the ``Comparison'' fee.
FINRA has filed the proposed rule change for immediate
effectiveness. The operative date will be June 1, 2024.
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.
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
FINRA believes that the proposed fee schedule is reasonable and
provides an equitable allocation of fees in that it will apply
uniformly to all similarly situated FINRA members that use the FINRA/
Nasdaq TRF. Moreover, participation in the FINRA/Nasdaq TRF is
voluntary, and access to the FINRA/Nasdaq TRF is offered on fair and
non-discriminatory terms.
The proposed rule change would: (1) raise from 5,000 to 10,000 the
Cap Qualifying Activity that a participant needs to achieve to qualify
for capped reporting fees under Rule 7620A; and (2) provide a three-
tiered fee discount for Media/Contra Party and Non-Media/Contra Party
monthly charges for participants that may not otherwise achieve Cap
Qualifying Activity.
As discussed above, the FINRA/Nasdaq TRF has experienced a
significant increase in trade reporting activity over the past five
years, while the monthly charges and caps have remained unchanged over
the same time period. Nasdaq, as the Business Member, does not believe
that the current Cap Qualifying Activity of 5,000 daily average trades
per month continues to be an appropriate threshold in light of such
increase. The caps and cap formulas have not kept pace with the rapid
growth of trade reporting volume on the FINRA/Nasdaq TRF since they
were amended in 2018 or with the corresponding increase in costs
associated with operating, maintaining, and upgrading the FINRA/Nasdaq
TRF. Nasdaq, as the Business Member, believes that doubling the minimum
average daily volume of Media/Executing Party trade reports from 5,000
to 10,000 will better reflect the current levels of trade reporting
activity on the FINRA/Nasdaq TRF. The proposed rule change will also
help Nasdaq continue to accommodate the costs associated with rising
trade reporting volumes while making substantial enhancements to the
technology, functionality, and performance of the FINRA/Nasdaq TRF.
Participants are required to submit Media trade reports to FINRA, while
not all Non-Media trades are required to be reported under FINRA rules.
In determining pricing for the FINRA/Nasdaq TRF, the Business Member
has focused on attracting Media trade reports to the FINRA/Nasdaq TRF
relative to other trade reporting facilities.\18\ As such, the existing
approach of using Media/Executing Party trade reports as the criteria
for a participant to qualify for the fee cap provides for an equitable
allocation of fees and is not unfairly discriminatory.
---------------------------------------------------------------------------
\18\ The Cap Qualifying Activity requirement has historically
focused on participants that are identified in the trade report as
the Executing Party because historically the Executing Party has
primarily made the decision on which TRF to which it report its
trades.
---------------------------------------------------------------------------
Additionally, as discussed above, the proposed tiered discounts
will help ensure a more equitable distribution of fees and allocate
costs associated with the operation and maintenance of the FINRA/Nasdaq
TRF more equitably among Executing Parties and Contra Parties. Over
time, as the number of trades reported to the FINRA/Nasdaq TRF has
grown significantly, the fee burden associated with the FINRA/Nasdaq
TRF has shifted disproportionately to Contra Parties because
participants that are primarily identified as the Contra Party and that
do not have sufficient Executing Party trades to qualify for the fee
cap are not currently eligible for any pricing discount. According to
Nasdaq, as the Business Member, without a cap on Contra Party monthly
trade report charges, the increase in Contra Party activity fees as a
result of the growth in trade reporting activity over the past five
years has been disproportionately higher than that of Executing Party
fees. Therefore, the Business Member has advised that the proposed
three-tiered fee discount for Contra Parties will help ensure that
Contra Parties' fees are better calibrated relative to Executing
Parties. Similar to the existing approach taken with respect to using
Media/Executing Party trade reports to qualify for a fee cap, Nasdaq,
as the Business Member, has determined to base the proposed fee
discount for Contra Parties on Media/Contra trade reports in an effort
to attract more Media reporting to the FINRA/Nasdaq TRF relative to
other trade reporting facilities.\19\ Therefore, as with the existing
approach with respect to Cap Qualifying Activity, using Media/Contra
Party trade reports as the basis for qualifying for the Contra Party
fee discount provides for an equitable allocation of fees and is not
unfairly discriminatory.
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\19\ Nasdaq has advised that today, some Contra Parties may play
a greater role in determining where their Executing Parties report
trades than in the past.
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Nasdaq also advises that it expects to earn a profit from the
proposed rule change, but it believes that such profit represents a
reasonable return on its expenditures in support of and investments in
the FINRA/Nasdaq TRF, and that the extent of such profit will be
subject to and constrained by competitive pressures. As the Commission
has recognized, ``[i]f competitive forces are operative, the self-
interest of the exchanges themselves will work powerfully to constrain
unreasonable or unfair behavior,'' \20\ and ``the existence of
significant competition provides a substantial basis for finding that
the terms of an exchange's fee proposal are equitable, fair,
reasonable, and not unreasonably or unfairly
[[Page 50394]]
discriminatory.'' \21\ In this instance, the increase in fees resulting
from the proposal to increase the Media/Executing Party trade reporting
activity required to qualify for a fee cap will be subject to
significant competition from the FINRA/NYSE TRF, which in the past has
increased its market share relative to the FINRA/Nasdaq TRF as a result
of pricing and other competitive adjustments. As the Commission has
held in the past, the presence of competition provides a substantial
basis for a finding that the proposed rule change will be an equitable
allocation of reasonable dues, fees and other charges.\22\
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\20\ See Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770, 74781 (December 9, 2008) (Order Setting Aside
Action by Delegated Authority and Approving File No. SR-NYSEArca-
2006-21).
\21\ See 73 FR 74770, 74781-82.
\22\ See supra note 21.
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Finally, FINRA believes that it is reasonable to make non-
technical, clarifying changes to Rule 7620A. The proposed non-
substantive changes to remove the reference to fees charged to Retail
Participants and to clarify the Cap Qualifying Activity requirements
for the fee caps are appropriate to make the rule more easily
understandable. FINRA, Nasdaq, and all FINRA/Nasdaq TRF participants
have an interest in FINRA maintaining rules for its trade reporting
facilities that are clear.
B. Self-Regulatory Organization's Statement on Burden on Competition
FINRA does not believe that the proposed rule changes will result
in any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
Regulatory Need
Nasdaq, as the Business Member and operator of the FINRA/Nasdaq
TRF, collects all fees on behalf of the FINRA/Nasdaq TRF. As discussed
above, Nasdaq has observed an increase in off-exchange volumes and the
associated cost of operating and improving the FINRA/Nasdaq TRF. Nasdaq
also observed that today, participants predominantly identified as the
Contra Party pay a disproportionate amount of the fees. Therefore,
Nasdaq determined to make several adjustments to the schedule of fees
and caps to better allocate the fees among the participants and align
them with the costs of operating the FINRA/Nasdaq TRF.
Economic Baseline
As discussed above, pursuant to FINRA Rule 7620A, participants in
the FINRA/Nasdaq TRF are currently subject to four categories of fees,
each of which is applicable to transactions on the three tapes: (1)
Media/Executing Party; (2) Non-Media/Executing Party; (3) Media/Contra
Party; (4) and Non-Media/Contra Party. The rule also provides fee caps
for participants for a particular tape during a given month, separately
for Media/Executing Party, Non-Media/Executing Party, Media/Contra
Party and Non-Media/Contra Party trades. The level of the daily average
number of Media/Executing Party trades determines a participant's
eligibility to qualify for fee caps on the Media/Executing Party, Non-
Media/Executing Party, Media/Contra Party, and Non-Media/Contra Party
trade reports. Consider, for example, a non-Retail Participant
averaging 10,924 Media/Executing Party trades, 21,279 Non-Media/
Executing Party trades, 1,949 Media/Contra Party trades, and 16,741
Non-Media/Contra Party trades per day in a given month and tape. This
participant meets the 5,000 daily trade volume of Media/Executing Party
trades that qualifies it for the fee caps. The monthly charge on its
Media/Executing Party trades would be capped at $1,430 (5,000 reports x
$0.013 x 22), assuming 22 trading days in the month. In this example,
the charges for Non-Media/Executing Party and Non-Media/Contra Party
trade reports both would be capped at $1,430 because the volumes in
both categories are higher than 5,000, while the charge for Media/
Contra Party trade reports would be $557.41 (1,949 reports x $0.013 x
22) because the volume has not reached the cap size of 5,000. If the
number of Media/Executing Party trades were below 5,000 in this
example, then the charges on all categories would be calculated at a
regular rate without a cap.
FINRA analyzed data provided by Nasdaq that shows fees incurred by
584 participants in at least one month of 2023. On average, 505
participants paid a fee each month to the FINRA/Nasdaq TRF either as an
Executing Party or Contra Party in at least one of Tape A, B, and C
securities.\23\ Among these 505 participants, on average, 33 (seven
percent) were eligible and received capped fees each month. Of the 472
participants (93 percent) that were ineligible for a cap, on average,
347 (74 percent) had a larger volume of Contra Party/Media activity
than Executing Party/Media activity across all tapes.
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\23\ The counts of participants are averaged across all twelve
months of 2023 and rounded to the nearest whole numbers.
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Economic Impact
The proposed rule change entails several changes to the fee and cap
structure. The potential impact of each proposed change is discussed
below.
Nasdaq has determined to raise the threshold for the Cap Qualifying
Activity--i.e., the daily average number of Media/Executing Party
trades that a participant must report to the FINRA/Nasdaq TRF in a
given month to qualify for caps on its trade reporting fees, from 5,000
reports in each of Tapes A, B, and C, to 10,000 reports. Under the
proposed new fee structure, some participants currently qualifying for
fee caps would no longer qualify for the fee cap and would therefore
see an increase in fees. Participants that continue to qualify for the
proposed fee cap would also expect higher charges because the required
volumes for fee caps in all categories would increase from 5,000 to
10,000 trade reports under the proposed rule. Under the proposed fee
structure, the cap effectively increases by 100%, approximately from
$1,430 ($0.013 x 5,000 x 22) to $2,860 ($0.013 x 10,000 x 22), assuming
22 trading days in a month, for each category of trade reports (i.e.,
Media/Executing Party, Non-Media/Executing Party, Media/Contra Party
and Non-Media/Contra Party) in each tape.\24\ Participants not
qualifying for the fee caps would be considered for the proposed tiered
discounts on Contra Party trade reports and therefore could expect
lower charges on the Contra Party trade reports if they qualify.\25\
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\24\ As in the current Rule, under the proposed rule, a firm
would qualify for fee caps in categories other than the Media/
Executing Party only after it has qualified for the fee caps in the
Media/Executing Party category in each Tape.
\25\ As described above, tiered pricing on Media/Contra Party
and Non-Media/Contra Party trade reports would only be available for
participants that do not qualify for the Media/Executing Party fee
cap.
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For the purpose of estimating the impacts of the proposed rule
change, FINRA used monthly trade reporting volumes and fees data
provided by Nasdaq from January through December of 2023 to calculate
the projected fees assuming the reporting behavior would be the same as
the 2023 data. Under the proposed rule change, 31 participants could
expect an increase in costs on both Executing Party and Contra Party
trade reporting activity (increase of $11,531, or 68 percent, on
average monthly); seven participants could expect an increase in costs
on Executing Party trade reporting activity (increase of $5,279, or 73
percent, on average monthly) and no change in costs on Contra Party
activity; 11 participants could expect a decrease in costs on Contra
Party trade reporting activity (decrease of $18,562, or 18 percent, on
average monthly) because they would qualify for the proposed tiered
[[Page 50395]]
discounts; and 535 participants would expect no change in costs.
The proposed fee structure is likely to reduce the gap in trade
reporting fees between participants predominantly reporting as an
Executing Party and those predominantly reporting as a Contra Party.
Across all participants, the effective cost per Executing Party trade
report would increase by 52 percent, from 0.053 cents to 0.080 cents
per report. The effective cost per Contra Party trade report would
decline by one percent, from 0.415 cents to 0.412 cents per report. In
2023, a Contra Party, on average, paid approximately eight times as
much ($0.00415/$0.00053) as an Executing Party for each trade report.
If the proposed fee structure were in effect in 2023, the ratio would
have been approximately five times ($0.00412/$0.00080).
Besides the fees that are measurable, the proposed fee structure
could potentially deliver long term economic benefits for its
participants that cannot easily be estimated. Specifically, the
proposed fee structure would allow Nasdaq to more effectively cover the
rising operating costs associated with increased volumes, as well as
improve the functionality and service of the reporting facility, such
as potentially better processing speed to enable quicker transmission
and dissemination of trade reports.
FINRA cannot estimate whether the proposed fee structure would
deliver a net benefit or cost to participants and investors in the long
term, as some of the economic benefits discussed above are not
quantifiable. Additionally, FINRA notes that the proposed fee and fee
cap changes occur within the context of a competitive environment in
which multiple trade reporting facilities vie for market share. If any
existing or prospective participant in either FINRA/Nasdaq TRF
determines that the new fees or fee cap thresholds are too high or are
unfavorable relative to fees and fee cap programs applicable to the
FINRA/NYSE TRF, such participants may choose to report to the FINRA/
NYSE TRF or the ADF in lieu of the FINRA/Nasdaq TRF. Firms would
continue reporting to FINRA/Nasdaq TRFs to the extent that they find
the net cost of reporting to FINRA/Nasdaq TRF relative to reporting to
other facilities preferable.
FINRA does not know how the proposed rule change would affect
competing facilities, which in part determines market competition and
prices for trade reporting in the long run. Should the long-run
equilibrium cost of reporting off-exchange trades to any available
facility, including the FINRA/Nasdaq TRF, the FINRA/NYSE TRF or the
ADF, rise in a competitive market, firms could potentially choose to
pass the costs to investors.
Alternatives Considered
No other alternatives were considered for the proposed rule change.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to section
19(b)(3)(A) of the Act \26\ and paragraph (f)(2) of Rule 19b-4
thereunder.\27\ 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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\26\ 15 U.S.C. 78s(b)(3)(A).
\27\ 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-2024-009 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-2024-009. 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. Do
not include personal identifiable information in submissions; you
should submit only information that you wish to make available
publicly. We may redact in part or withhold entirely from publication
submitted material that is obscene or subject to copyright protection.
All submissions should refer to file number SR-FINRA-2024-009, and
should be submitted on or before July 5, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
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\28\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-12890 Filed 6-12-24; 8:45 am]
BILLING CODE 8011-01-P
