Federal Register / Vol. 79, No. 198 / Tuesday, October 14, 2014 / Notices 61677 

15 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See 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. 

4See 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). 

6FINRA 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. 

7FINRA 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. 

8See 15 U.S.C. 78o–3. 

9Section 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). 

10See 17 CFR 240.15c2–11. 

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 the 

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change; 

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–Phlx–2014–65 and should 

be submitted on or before November 4, 

2014. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.15

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2014–24301 Filed 10–10–14; 8:45 am] 

BILLING CODE 8011–01–P 

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-thecounter (‘‘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. 

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. 

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. 

FINRA’s Quotation Governance Rules 

generally prescribe limitations around 

the conduct of members that publish 

quotations in OTC equity securities, 

including quotations displayed on interdealer 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

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 

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11See Securities Exchange Act Release No. 62359 

(June 22, 2010), 75 FR 37488 (June 29, 2010) (Order 

Approving File No. SR–FINRA–2009–054). 

12The 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. 

13FINRA Rule 6433 (Minimum Pricing Increment 

for OTC Equity Securities) generally provides that 

every member entering quotations in any interdealer 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). 

14FINRA 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). 

15FINRA 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. 

16As further discussed below, a member also 

would be required to provide FINRA with any 

changes to these required submissions within five 

business days. 

17See 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). 

18See Notice, supra note 3, 79 FR at 41341. 

19See 17 CFR 242.300(a). 

20The 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. 

21A 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. 

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

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

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

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

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 

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Federal Register / Vol. 79, No. 198 / Tuesday, October 14, 2014 / Notices 61679 

22FINRA 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. 

23See 17 CFR 242.300 et seq. 

24Regulation 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). 

25See 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). 

26First, 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. 

27Specifically, 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. 

28FINRA has continued to receive quotation 

information on a weekly basis following the interdealer quotation system becoming a FINRA 

member. 

29Currently, 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. 

30A ‘‘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. 

31See 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. 

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 interdealer quotation system had in the 

security.24 Further, the proposed rule 

would require that a member interdealer 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. 

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 crossproduct 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 nonmember 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

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. 

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

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 

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32For 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. 

33FINRA 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. 

34Section 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. 

35Under 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. 

37FINRA 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. 

38Should 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. 

39See supra note 4. 40See OTC Markets Letter at 1. 41See OTC Markets Letter at 1. 42See OTC Markets Letter at 2. 43See OTC Markets Letter at 2. 44See OTC Markets Letter at 2. 45See OTC Markets Letter at 3. 46See OTC Markets Letter at 3. 

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

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. 

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. 

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

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

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

The commenter stated that FINRA’s 

discontinuing operation of the OTCBB, 

in conjunction with FINRA’s expanded 

oversight of qualifying inter-dealer 

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Federal Register / Vol. 79, No. 198 / Tuesday, October 14, 2014 / Notices 61681 

47See OTC Markets Letter at 2. 48See OTC Markets Letter at 4. 49See supra notes 17–18, and accompanying text. 50See OTC Markets Letter at 5. 51 15 U.S.C. 78s(b)(2)(B). 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. 56Section 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). 57 17 CFR 200.30–3(a)(57). 

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 interdealer quotation system, that meet the 

information needs of investors, 

regulators and other market 

participants, and are regulated by 

FINRA and the Commission.50

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. 

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. 

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

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 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

FINRA–2014–030 on the subject line. 

Paper Comments 

• 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

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2014–24302 Filed 10–10–14; 8:45 am] 

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