[Federal Register Volume 79, Number 198 (Tuesday, October 14, 2014)]
[Notices]
[Pages 61677-61681]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-24302]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73313; File No. SR-FINRA-2014-030)


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Instituting Proceedings To Determine Whether To 
Approve or Disapprove a Proposed Rule Change Relating to Quotation 
Requirements for Unlisted Equity Securities and Deletion of the Rules 
Related to the OTC Bulletin Board Service

October 7, 2014.

I. Introduction

    On June 27, 2014, the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Exchange Act '' or ``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to adopt rules relating to 
quotation requirements for over-the-counter (``OTC'') equity securities 
and to delete the rules relating to the OTC Bulletin Board Service 
(``OTCBB'' or ``Service'') and thus cease its operation. The proposed 
rule change was published for comment in the Federal Register on July 
15, 2014.\3\ The Commission received one comment letter on the proposed 
rule change.\4\ This order institutes proceedings under Section 
19(b)(2)(B) of the Act \5\ to determine whether to approve or 
disapprove the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 72575 (July 9, 
2014), 79 FR 41339 (``Notice''). On August 8, 2014, FINRA consented 
to extending the time period for the Commission to either approve or 
disapprove the proposed rule change, or to institute proceedings to 
determine whether to approve or disapprove the proposed rule change, 
to October 10, 2014.
    \4\ See Letter from Daniel Zinn, General Counsel, OTC Markets 
Group Inc., dated August 5, 2014 (``OTC Markets Letter'').
    \5\ 15 U.S.C. 78s(b)(2)(B).
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    Institution of proceedings does not indicate that the Commission 
has reached any conclusions with respect to the proposed rule change, 
nor does it mean that the Commission will ultimately disapprove the 
proposed rule change. Rather, as discussed below, the Commission seeks 
additional input from interested parties on the proposed rule change.

II. Description of the Proposed Rule Change

    As described more fully in the Notice, FINRA proposed to adopt 
rules: (1) Governing the treatment of quotations in OTC equity 
securities \6\ by member inter-dealer quotation systems,\7\ and 
addressing fair and non-discriminatory access to such systems; (2) 
requiring member inter-dealer quotation systems to provide FINRA with a 
written description of quotation-related data products offered and 
related pricing information, including fees, rebates, discounts and 
cross-product pricing incentives; (3) expanding the reporting 
requirements related to quotation information in OTC equity securities; 
and (4) deleting the Rule 6500 Series and related rules and thereby 
ceasing operation of the OTCBB.
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    \6\ FINRA Rule 6420(f) defines ``OTC equity security'' as any 
equity security that is not an ``NMS stock'' as that term is defined 
in Rule 600(b)(47) of SEC Regulation NMS; provided, however, that 
the term ``OTC equity security'' shall not include any Restricted 
Equity Security.
    \7\ FINRA Rule 6420(c) defines ``inter-dealer quotation system'' 
as any system of general circulation to brokers or dealers which 
regularly disseminates quotations of identified brokers or dealers.
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A. Current Regulatory Framework for Governing Quotations

    FINRA, under the statutory mandate of Section 15A of the Act,\8\ 
has previously adopted rules governing the form and content of 
quotations relating to securities sold OTC, including rules designed 
to: (1) Produce fair and informative quotations; (2) prevent fictitious 
or misleading quotations; and (3) promote orderly procedures for 
collecting, distributing, and publishing quotations.\9\ FINRA's Rule 
6400 Series (Quoting and Trading in OTC Equity Securities), among other 
things, provides a regulatory framework governing the form and content 
of quotations in OTC equity securities and, together with other FINRA 
rules, including rules in the Rule 5200 Series (Quotation and Trading 
Obligations and Practices), specifies provisions directed toward the 
mandate set forth in Section 15A(b)(11) of the Act (collectively 
referred to as the ``Quotation Governance Rules''). FINRA also operates 
the OTCBB and has established the Rule 6500 Series, which governs the 
operation and use of the OTCBB.
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    \8\ See 15 U.S.C. 78o-3.
    \9\ Section 15A(b)(11) of the Act provides: ``The rules of the 
association include provisions governing the form and content of 
quotations relating to securities sold otherwise than on a national 
securities exchange which may be distributed or published by any 
member or person associated with a member, and the persons to whom 
such quotations may be supplied. Such rules relating to quotations 
shall be designed to produce fair and informative quotations, to 
prevent fictitious or misleading quotations, and to promote orderly 
procedures for collecting, distributing, and publishing 
quotations.'' See 15 U.S.C. 78o-3(b)(11).
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    FINRA's Quotation Governance Rules generally prescribe limitations 
around the conduct of members that publish quotations in OTC equity 
securities, including quotations displayed on inter-dealer quotation 
systems. While these rules apply to member quotation activities, they 
generally do not include rules specifically directed to the member 
inter-dealer quotation systems on or through which such quotation 
activity may take place. For example, FINRA Rule 6432 (Compliance with 
the Information Requirements of Exchange Act Rule 15c2-11) generally 
provides that members may not initiate or resume quotations in any 
quotation medium unless the member files Form 211 with FINRA and 
complies with Exchange Act Rule 15c2-11 (Initiation or resumption of 
quotations without specific information).\10\
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    \10\ See 17 CFR 240.15c2-11.
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    In 2010, the Commission approved four FINRA rules governing 
quotation activity generally by prescribing additional requirements for 
members entering quotations on inter-dealer quotation systems in OTC 
equity securities: (1) Rule 6434 (Minimum Pricing Increment for OTC 
Equity Securities); (2) Rule 6437 (Prohibition

[[Page 61678]]

from Locking or Crossing Quotations in OTC Equity Securities); (3) Rule 
6450 (Restrictions on Access Fees); and (4) Rule 6460 (Display of 
Customer Limit Orders) (``2010 OTC Regulatory Enhancement Rules'') \11\ 
These rules extended to the OTC equity market certain protections 
previously applicable only to exchange-listed securities, and were 
adopted to enhance quality and investor protection in the OTC equity 
market.\12\
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    \11\ See Securities Exchange Act Release No. 62359 (June 22, 
2010), 75 FR 37488 (June 29, 2010) (Order Approving File No. SR-
FINRA-2009-054).
    \12\ The 2010 OTC Regulatory Enhancement Rules generally: (1) 
Provide that members may not display, rank, or accept a bid or 
offer, an order, or an indication of interest in an OTC equity 
security priced greater than or equal to $1.00 in an increment less 
than a penny and, for OTC equity securities priced under $1.00, an 
increment less than $0.0001; (2) require members to implement 
policies and procedures to reasonably avoid displaying, or engaging 
in a pattern or practice of displaying, locking or crossing 
quotations in any OTC equity security within an inter-dealer 
quotation system; (3) prohibit members from imposing non-subscriber 
access or post-transaction fees against published quotations in any 
OTC equity security that exceed or accumulate to more than the 
limits set forth in the rule; and (4) require member OTC market 
makers displaying priced quotations in an OTC equity security on an 
inter-dealer quotation system to publish immediately a customer 
limit order that improves the OTC market maker's priced quotation 
(or that is equal to the OTC market maker's priced quotation at the 
best bid or offer (``BBO'') but increases the OTC market maker's 
posted size by more than a de minimis amount), subject to enumerated 
exceptions.
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    In addition, FINRA's current Quotation Governance Rules also 
prescribe the minimum share size applicable to members' quotations in 
OTC equity securities displayed on an inter-dealer quotation 
system.\13\ The FINRA Rule 5200 Series also includes rules that govern 
members' quotation activity in OTC equity securities.\14\
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    \13\ FINRA Rule 6433 (Minimum Pricing Increment for OTC Equity 
Securities) generally provides that every member entering quotations 
in any inter-dealer quotation system must enter and honor those 
quotations for at least the minimum sizes defined in the rule. The 
current rule, which began as a pilot in November 2012, amended the 
tier sizes, among other things, to simplify the tier structure and 
facilitate the display of customer limit orders pursuant to FINRA 
Rule 6460. See, e.g., Securities Exchange Act Release No. 70839 
(November 8, 2013), 78 FR 68893 (November 15, 2013). This pilot was 
recently extended until February 13, 2015. See Securities Exchange 
Act Release No. 73299 (October 3, 2014).
    \14\ FINRA Rule 5210 (Publication of Transactions and 
Quotations) provides, among other things, that members are 
prohibited from publishing or circulating (or causing to be 
published or circulated) any notice or communication of any kind 
which purports to quote the bid price or asked price for any 
security, unless such member believes that such quotation represents 
a bona fide bid for, or offer of, such security (i.e., the 
``fictitious quotation'' prohibition). FINRA Rule 5220 (Offers at 
Stated Prices) generally prohibits members from making an offer to 
buy from or sell to any person any security at a stated price unless 
such member is prepared to purchase or sell, as the case may be, at 
such price and under such conditions as are stated at the time of 
such offer to buy or sell (i.e., the ``firm quote'' requirement).
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B. Proposed Requirements for Member Inter-Dealer Quotation Systems

    Although FINRA's existing Quotation Governance Rules explicitly 
regulate the activities of OTC market makers \15\ and other members 
that display quotations on inter-dealer quotation systems, FINRA's 
rules generally do not directly provide quotation governance standards 
for the member inter-dealer quotation systems itself on or through 
which such quotations are displayed. FINRA is proposing to complement 
the existing framework governing the form and content of quotations by 
amending FINRA Rule 6431 to require that a member inter-dealer 
quotation system: (1) Adopt and provide to FINRA written policies and 
procedures relating to the collection and dissemination of quotation 
information in OTC equity securities, (2) establish and provide to 
FINRA fair and non-discriminatory written standards for granting access 
to quoting and trading on its system, and (3) provide to FINRA for 
regulatory purposes a written description of each quotation-related 
data product offered by such member inter-dealer quotation system and 
related pricing information, including fees, rebates, discounts and 
cross-product pricing incentives.\16\ FINRA believes that the foregoing 
proposal is consistent with the goals and objectives of Section 17B of 
the Act \17\ regarding the facilitation of widespread dissemination of 
reliable and accurate quotation information in penny stocks.\18\
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    \15\ FINRA Rule 6420(g) defines ``OTC Market Maker'' as a member 
of FINRA that holds itself out as a market maker by entering 
proprietary quotations or indications of interest for a particular 
OTC equity security in any inter-dealer quotation system, including 
any system that the Commission has qualified pursuant to Section 17B 
of the Act. A member is an OTC market maker only in those OTC equity 
securities in which it displays market making interest via an inter-
dealer quotation system.
    \16\ As further discussed below, a member also would be required 
to provide FINRA with any changes to these required submissions 
within five business days.
    \17\ See 15 U.S.C. 78q-2. Section 17B was enacted by Congress as 
part of the Securities Enforcement Remedies and Penny Stock Reform 
Act of 1990 (``Penny Stock Act''). See Pub. L. No. 101-429, 104 
Stat. 931 (1990).
    \18\ See Notice, supra note 3, 79 FR at 41341.
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a. Proposed Quotation Collection and Dissemination Policies and 
Procedures Requirement
    Under the proposed revisions to FINRA Rule 6431, FINRA would 
require that a member inter-dealer quotation system (whether or not 
also an alternative trading system or ``ATS'' as defined by Exchange 
Act Rule 300(a) \19\ of Regulation ATS) that permits quotation updates 
on a real-time basis establish, maintain and enforce fair and 
reasonable written policies and procedures relating to the collection 
and dissemination of quotation information in OTC equity securities on 
or through its system. Such policies and procedures are intended to 
ensure that quotations received are treated fairly and consistently, 
including by establishing fair and non-discretionary methods under 
which quotations are prioritized and displayed and such standards must 
be fully disclosed to subscribers. For example, a member inter-dealer 
quotation system would be required to address its methodology for 
ranking quotations, including at a minimum, addressing factors such as 
price (including any applicable quote access fee), size, time, capacity 
and type of quotation (such as unpriced quotes and bid/offer wanted 
quotations).\20\ FINRA also is proposing that a member inter-dealer 
quotation system provide FINRA with a copy of its written policies and 
procedures relating to the collection and dissemination of quotation 
information, and any material updates, modifications and revisions 
thereto, within five business days following the member's establishment 
of the written policy or procedure or implementation of the material 
change.\21\
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    \19\ See 17 CFR 242.300(a).
    \20\ The member inter-dealer quotation system also would be 
required to include any other factors relevant to the ranking and 
display of quotations (e.g., reserve sizes, quotation updates, 
treatment of closed quotations, and quotation information imported 
from other systems). FINRA believes that requiring member inter-
dealer quotation systems to establish fair and reasonable written 
policies and procedures and provide such procedures to FINRA will, 
among other things, further promote orderly procedures for 
collecting, distributing, and publishing quotations submitted to 
inter-dealer quotation systems in securities traded OTC. See Notice, 
supra note 3, 79 FR at 41341.
    \21\ A member that is an inter-dealer quotation system at the 
time of the effective date of the proposed rule change would provide 
the required information upon the effective date and, thereafter, 
any material update, modification or revision thereto must be 
provided to FINRA within five business days of its implementation. 
See id. at 41341-42.
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b. Proposed Written Standards Governing System Access Requirement
    FINRA is proposing that a member inter-dealer quotation system 
establish fair and non-discriminatory written standards for granting 
access to quoting and trading on the system that do not unreasonably 
prohibit or limit any person in respect to access to services offered 
by such inter-dealer quotation

[[Page 61679]]

system.\22\ FINRA believes that this proposed requirement is consistent 
with the ``fair access'' requirements of Regulation ATS under the 
Exchange Act \23\ but would apply to quoting and trading in all OTC 
equity securities on the member inter-dealer quotation system, 
irrespective of the percentage of average daily volume that such inter-
dealer quotation system had in the security.\24\ Further, the proposed 
rule would require that a member inter-dealer quotation system provide 
FINRA with a copy of its written standards for granting access to 
quoting and trading on its system and any material updates, 
modifications and revisions thereto within five business days 
following: (a) The date of the member's establishment of the written 
standard; and (b) the date of the material update, modification or 
revision to the written standard. FINRA believes that these proposed 
amendments are necessary and appropriate to further the mandates of 
Section 15A of the Act.
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    \22\ FINRA proposes that a member inter-dealer quotation system 
also must make and keep records of all grants of access including 
(for all subscribers) the reasons for granting such access and all 
denials or limitations of access and reasons (for each applicant) 
for denying or limiting access. A policy prohibiting or limiting 
access to services offered by the member inter-dealer quotation 
system due to non-payment by a subscriber would not be prohibited 
under the proposed rule.
    \23\ See 17 CFR 242.300 et seq.
    \24\ Regulation ATS's ``fair access'' requirements apply with 
respect to securities where the ATS's trading accounted for 5% or 
more of the reported average daily trading volume (ADTV) in the 
security. The proposal would apply the fair access standards with 
respect to all securities quoted on the inter-dealer quotation 
system (not just those meeting the minimum 5% (or other) threshold).
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c. Proposed Quotation-Related Data Product and Pricing Provision 
Requirement
    FINRA is proposing to require a member inter-dealer quotation 
system to provide FINRA with a written description of each quotation-
related data product offered by such member inter-dealer quotation 
system and related pricing information, including fees, rebates, 
discounts and cross-product pricing incentives, and any changes 
thereto, within five business days following: (a) The date of the 
establishment of the quotation-related data product or date of any 
change thereto (including discontinuance of the offering of the 
quotation-related data product); and (b) the date of the establishment 
of the quotation-related data product price, including a fee, rebate, 
discount and cross-product pricing incentive, or change thereto. FINRA 
believes that the proposed changes described above will facilitate the 
objectives of the Act, including Section 17B, by helping ensure that 
disseminated quotations are reliable and accurate and will provide 
FINRA with useful information to ensure compliance with FINRA rules and 
to monitor the widespread availability of quotation information to 
investors and market participants through sources that are not self-
regulatory organizations (``SROs'').
d. Proposed Amendments to the Quotation Recording and Reporting 
Requirements
    FINRA Rule 6431 (Recording of Quotation Information) was 
implemented in 2003 to provide FINRA with access to quotation data 
displayed on non-SRO sponsored and non-member systems so that FINRA 
could assess member compliance with applicable rules and regulations 
and, when necessary, to reconstruct market activity.\25\ FINRA is 
proposing to update and expand the rule to reflect the current quoting 
structure of the OTC equity market.\26\ In addition, FINRA is proposing 
minor amendments to the items of information required to be recorded 
and reported under the rule.\27\
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    \25\ See Securities Exchange Act Release No. 47587 (March 27, 
2003), 68 FR 16328 (April 3, 2003). See also NASD Notice to Members 
03-28 (June 2003).
    \26\ First, FINRA is proposing to expand the scope of the rule 
beyond quotations displayed by OTC market makers on an inter-dealer 
quotation system to include quotations displayed by any FINRA 
member, including ATSs. FINRA believes that quoting in OTC equity 
securities by ATSs and other members that are not OTC market makers 
has increased since the adoption of FINRA Rule 6431 and also 
believes that the rule's recording and reporting requirements should 
apply equally to all such quotes displayed on inter-dealer quotation 
systems. See Notice, supra note 3, 79 FR at 41342.
    \27\ Specifically, the new rule would require the following 
items of quotation information: (1) MPID of quoting member; (2) 
inter-dealer quotation system; (3) date of quotation; (4) time 
quotation displayed (expressed in hours, minutes, seconds and 
milliseconds if the reporting member's system captures time in 
milliseconds); (5) security name and symbol; (6) bid and bid 
quotation size (if applicable); (7) offer and offer quotation size 
(if applicable); (8) prevailing inside bid; and (9) prevailing 
inside offer.
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    When it adopted FINRA Rule 6431, FINRA determined not to apply the 
requirements to inter-dealer quotation systems that were FINRA members 
and, rather, to obtain quotation information directly from the FINRA 
member as needed pursuant to FINRA Rule 8210. However, since that time, 
the primary inter-dealer quotation system from which FINRA receives 
quotation information (as reporting agent on behalf of member firms) 
has become a FINRA member firm and, therefore, FINRA believes that the 
exception for quotations displayed on systems operated by a FINRA 
member no longer should apply.\28\ The proposed rule would require 
member inter-dealer quotation systems to report each attributed 
quotation displayed on the system by a broker-dealer. In the event that 
a FINRA member displays a quotation on a non-member inter-dealer 
quotation system, the member must record and report to FINRA the 
required information regarding the quotations displayed by such member.
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    \28\ FINRA has continued to receive quotation information on a 
weekly basis following the inter-dealer quotation system becoming a 
FINRA member.
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    FINRA believes that these amendments to the quotation recording and 
reporting requirements would simplify and streamline the process of 
obtaining quotation information for regulatory purposes by directly 
requiring that member inter-dealer quotation systems report subscribing 
members' quotation information to FINRA.\29\ Individual quoting members 
no will longer be required to report or arrange to have reported to 
FINRA the items of quotation information specified in the rule, unless 
such member is displaying a quotation on a non-member inter-dealer 
quotation system. The rule would continue to permit the use of a 
reporting agent by either a member inter-dealer quotation system or a 
member displaying a quotation on a non-member inter-dealer quotation 
system.\30\
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    \29\ Currently, the reporting obligation is imposed on the 
quoting member itself, although in practice quoting members have 
used the inter-dealer quotation system to which their quotation is 
submitted and displayed as reporting agent for purposes of meeting 
the FINRA Rule 6431 reporting obligation.
    \30\ A ``reporting agent'' is a third party that enters into any 
agreement with a member pursuant to which such third party agrees to 
fulfill such member's obligations under FINRA Rule 6431.
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C. Proposed Deletion of OTCBB-Related Rules

    FINRA is proposing to delete the FINRA Rule 6500 Series, which 
governs the operation of the OTC Bulletin Board Service and cease 
operation of the OTCBB. FINRA previously proposed to delete the OTCBB 
rules and discontinue operation of the Service as part of a separate 
rule filing to establish a quotation consolidation facility, the ``QCF 
Proposal.'' \31\ In the QCF Proposal, FINRA stated that the level of 
transparency in OTC equity securities facilitated by the operation of 
the OTCBB has been declining significantly

[[Page 61680]]

for years as other quotation venues have emerged. FINRA believes that, 
since the filing of the QCF Proposal on November 6, 2009, the amount of 
quotation information widely available to investors relying on OTCBB 
Best Bid or Offer (``BBO'') data has further declined and has become 
negligible. FINRA believes that the remaining OTCBB information being 
disseminated to investors is so incomplete as to be potentially 
misleading with respect to the current pricing in these securities.\32\
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    \31\ See Securities Exchange Act Release No. 60999 (November 13, 
2009), 74 FR 61183 (November 23, 2009) (Notice of Filing of File No. 
SR-FINRA-2009-077). FINRA stated that it intends to withdraw the 
currently pending QCF Proposal if the instant proposed rule change 
is approved by the Commission.
    \32\ For example, FINRA states that of the approximately 10,000 
OTC equity securities quoted over the counter on the largest inter-
dealer quotation system, less than 10% of those issues also are 
eligible to be quoted on OTCBB. In addition, less than twelve 
securities out of the 10,000 OTC equity securities are quoted solely 
on OTCBB. Furthermore, based upon a sample of 20 days in 2013, the 
OTCBB only disseminated an average of 27 computed BBOs, which means 
that OTCBB BBO quotation information was available through NASDAQ 
Level 1 on less than 0.3% of the 10,000 OTC equity security symbols. 
See Notice, supra note 3, 79 FR at 41343.
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    FINRA stated that it does not believe that the discontinuance of 
the OTCBB as an inter-dealer quotation system will have an appreciable 
impact on issuers, investors or member firms.\33\ FINRA does not 
believe that the OTCBB, in its current form and with current levels of 
participation, furthers the goals and objectives of Section 17B of the 
Act \34\ and, therefore, does not meet the characteristics of a system 
described in Section 17B of the Act regarding the widespread 
dissemination of reliable and accurate quotation information with 
respect to ``penny stocks.'' \35\ However, FINRA notes that, since the 
inception of the OTCBB, non-SRO entities have increased their 
participation in the collection and dissemination of quotation 
information in OTC equity securities, including for those OTC equity 
securities meeting the definition of ``penny stock,'' and have made 
such quotation information available to investors and market 
participants. Thus, FINRA believes that discontinuance of the OTCBB as 
an inter-dealer quotation system will not have an appreciable impact on 
the current level of quotation transparency for OTC equity 
securities.\36\ In addition, FINRA noted that the proposed rule change 
is intended to facilitate the widespread availability of reliable and 
accurate quotation information through non-SRO sources.
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    \33\ FINRA noted that, as part of the QCF proposal, no concerns 
were raised by commenters with respect to the portion of the QCF 
Proposal that would have deleted the OTCBB rules and discontinued 
operation of the Service.
    \34\ Section 17B of the Act provides, among other things, that 
the Commission shall facilitate the widespread dissemination of 
reliable and accurate last sale and quotation information with 
respect to penny stocks.
    \35\ Under Exchange Act Rule 3a51-1, ``penny stock'' is defined 
to, among other things, exclude securities that have a price of five 
dollars or more as determined either on a per transaction basis or, 
in the absence of a transaction, on the basis of the inside bid 
quotation for the security displayed on an automated quotation 
system that has the characteristics set forth in Section 17B(b)(2) 
of the Act or any other system that is designated by the Commission. 
See 17 CFR 240.3a51-1.
    \36\ In advance of the discontinuance of the OTCBB, FINRA has 
stated it will take steps to ensure a smooth transition for issuers 
and members. Specifically, FINRA will publicize announcements 
through the FINRA.org and OTCBB.com Web sites; directly contact 
active OTCBB market makers; notify and educate the few remaining 
OTCBB-only issuers; and email dually quoted issuers about the 
cessation of quoting on the OTCBB. See Notice, supra note 3, 79 FR 
at 41343. FINRA stated that it had discussed the concepts described 
in this proposed rule change with several of FINRA's industry 
advisory committees in developing its approach. FINRA represented 
that the committees supported the proposed amendments and did not 
believe that compliance with the proposal would be burdensome for 
firms. Id.
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    FINRA stated that it will continue to centralize last sale 
transaction reporting through the FINRA OTC Reporting Facility 
(``ORF'') and, therefore, will continue to operate a system that 
collects and disseminates transaction information on, and provides 
widespread dissemination of reliable and accurate last sale information 
with respect to, OTC equity securities, including penny stocks.\37\ 
Thus, FINRA believes that the objectives of Section 17B of the Act 
relating to the provision of price and volume information to investors 
and market participants will continue to be satisfied through FINRA's 
operation of the ORF.
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    \37\ FINRA members are required to report substantially all 
trades in OTC equity securities to ORF within 10 seconds of 
execution and FINRA widely disseminates this transaction information 
in real-time.
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    FINRA stated that it will continue to assess the widespread 
availability of quotation transparency to investors and market 
participants through non-SRO sources on a regular basis. If the 
availability of quotation information to investors significantly 
declines, FINRA has committed to revisit and, if necessary, file a 
proposed rule change to establish an SRO-operated inter-dealer 
quotation system (or other measure) to facilitate the type of 
widespread quotation transparency described in Section 17B of the 
Act.\38\
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    \38\ Should FINRA determine that it is necessary to recommence 
the operation of a system to facilitate quotation transparency, 
FINRA also would revisit at that time the necessity of the proposals 
described herein requiring inter-dealer quotation systems to provide 
FINRA specified policies and procedures, written standards, 
quotation-related data product descriptions and related pricing 
information.
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    FINRA noted that it will announce the effective date of the 
proposed rule change in a Regulatory Notice to be published no later 
than 60 days following Commission approval. The effective date will be 
no later than 180 days following Commission approval.

III. Comment Letter Received

    The Commission received one comment letter.\39\ The commenter 
stated that it strongly supports the proposal.\40\ The commenter 
believed that the proposal would enable the efficient operation of 
inter-dealer quotation systems for OTC equity securities while ensuring 
fair and non-discriminatory access to those systems and would thereby 
strengthen the trading market for OTC equity securities.\41\
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    \39\ See supra note 4.
    \40\ See OTC Markets Letter at 1.
    \41\ See OTC Markets Letter at 1.
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    The commenter stated that the proposed rules governing conduct, 
fair access and data would provide the necessary equal access for FINRA 
member broker-dealers without creating unnecessary burden on the 
commenter's inter-dealer quotation system or other qualifying inter-
dealer quotation systems.\42\ The commenter believed that the proposal 
would enhance FINRA's oversight of quotes in OTC equity securities by 
applying targeted regulations to qualifying inter-dealer quotation 
systems.\43\ The commenter supported FINRA's goal to ensure fair access 
to quoting, trading and market data for OTC equity securities.\44\ The 
commenter agreed with the approach of extending fair access 
requirements to include policies and procedures relating to fair and 
consistent treatment of quotes received and welcomed the additional 
oversight to be provided by FINRA in this area, which the commenter 
believes would build investor confidence and market integrity.\45\ The 
commenter also believed that the requirement to provide FINRA a written 
description of all data products would ensure a baseline of reliable, 
accurate information available to all investors and the proposal's 
minimal amendments to existing information recording and reporting 
requirements likewise would improve the data available to FINRA, while 
shifting the reporting responsibility to the qualifying inter-dealer 
quotation system handling the applicable quotes.\46\
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    \42\ See OTC Markets Letter at 2.
    \43\ See OTC Markets Letter at 2.
    \44\ See OTC Markets Letter at 2.
    \45\ See OTC Markets Letter at 3.
    \46\ See OTC Markets Letter at 3.
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    The commenter stated that FINRA's discontinuing operation of the 
OTCBB, in conjunction with FINRA's expanded oversight of qualifying 
inter-dealer

[[Page 61681]]

quotation systems, would help eliminate investor and issuer confusion, 
while promoting the goals underlying Section 17B of the Act.\47\ The 
commenter noted that much has changed over the past quarter century 
since the enactment of Section 17B of the Act.\48\ The commenter agreed 
with FINRA that the OTCBB no longer fulfills the Section 17B 
mandate,\49\ while the private sector has produced systems, such as the 
commenter's own inter-dealer quotation system, that meet the 
information needs of investors, regulators and other market 
participants, and are regulated by FINRA and the Commission.\50\
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    \47\ See OTC Markets Letter at 2.
    \48\ See OTC Markets Letter at 4.
    \49\ See supra notes 17-18, and accompanying text.
    \50\ See OTC Markets Letter at 5.
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IV. Proceedings To Determine Whether To Approve or Disapprove SR-FINRA-
2014-030

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \51\ to determine whether the proposed rule 
change should be approved or disapproved. Institution of such 
proceedings appears appropriate at this time in view of the legal and 
policy issues raised by the proposal. As noted above, institution of 
proceedings does not indicate that the Commission has reached any 
conclusions with respect to any of the issues involved. Rather, the 
Commission seeks and encourages interested persons to comment on the 
proposed rule change and provide the Commission with arguments to 
support the Commission's analysis whether to approve or disapprove the 
proposed rule change.
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    \51\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\52\ the Commission is 
providing notice of the grounds for disapproval under consideration. In 
particular, Section 15A(b)(6) of the Act,\53\ 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. In addition, Section 15A(b)(11) of the Act,\54\ 
requires, among other that's, that FINRA rules include provisions 
governing the form and content of quotations relating to securities 
sold otherwise than on a national securities exchange which may be 
distributed or published by any member or person associated with a 
member, and the persons to whom such quotations may be supplied. 
Further, Section 17B of the Act \55\ provides, among other things, that 
the Commission shall facilitate the widespread dissemination of 
reliable and accurate last sale and quotation information with respect 
to penny stocks.
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    \52\ Id.
    \53\ 15 U.S.C. 78o-3(b)(6).
    \54\ 15 U.S.C. 78o-3(b)(11).
    \55\ 15 U.S.C. 78q-2.
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    The Commission believes FINRA's proposed rule change raises 
questions as to whether it is consistent with the requirements of 
Sections 15A(b)(6), 15A(b)(11), and 17B of the Act.

V. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
concerns identified above, as well as any others they may have with the 
proposal. In particular, the Commission invites the written views of 
interested persons concerning whether the proposed rule change is 
inconsistent with Sections 15A(b)(6), 15A(b)(11), and 17B or any other 
provision of the Act, or the rules and regulation thereunder.
    Although there do not appear to be any issues relevant to approval 
or disapproval which would be facilitated by an oral presentation of 
views, data, and arguments, the Commission will consider, pursuant to 
Rule 19b-4, any request for an opportunity to make an oral 
presentation.\56\
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    \56\ Section 19(b)(2) of the Act, as amended by the Securities 
Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by a self-regulatory 
organization. See Securities Act Amendments of 1975, Senate Comm. on 
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposed rule change should be 
disapproved by November 4, 2014. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
November 18, 2014.
    Comments may be submitted by any of the following methods:

Electronic Comments

    <bullet> Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#e597908980c8868a8888808b9196a5968086cb828a93"><span class="__cf_email__" data-cfemail="c5b7b0a9a0e8a6aaa8a8a0abb1b685b6a0a6eba2aab3">[email protected]</span></a>. Please include 
File Number SR-FINRA-2014-030 on the subject line.

Paper Comments

    <bullet> Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-FINRA-2014-030. 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 Web site (http://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 Web site 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 the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-FINRA-2014-030 and should be 
submitted on or before November 4, 2014. Rebuttal comments should be 
submitted by November 18, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\57\
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    \57\ 17 CFR 200.30-3(a)(57).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-24302 Filed 10-10-14; 8:45 am]
BILLING CODE 8011-01-P


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