[Federal Register Volume 79, Number 196 (Thursday, October 9, 2014)]
[Notices]
[Pages 61120-61121]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-24102]



[[Page 61120]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73299; File No. SR-FINRA-2014-041]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Extend the Tier Size Pilot of FINRA Rule 6433 
(Minimum Quotation Size Requirements for OTC Equity Securities)

October 3, 2014.
    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 September 30, 2014, 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 FINRA. 
FINRA has designated the proposed rule change as constituting a ``non-
controversial'' rule change under paragraph (f)(6) of Rule 19b-4 under 
the Act,\3\ which renders the proposal effective upon receipt of this 
filing by the Commission. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    FINRA is proposing to amend FINRA Rule 6433 (Minimum Quotation Size 
Requirements for OTC Equity Securities) to extend the Tier Size Pilot, 
which currently is scheduled to expire on November 14, 2014, for an 
additional three months, until February 13, 2015.
    The text of the proposed rule change is available on FINRA's Web 
site at http://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
    FINRA proposes to amend FINRA Rule 6433 (Minimum Quotation Size 
Requirements for OTC Equity Securities) (the ``Rule'') to extend, until 
February 13, 2015, the amendments set forth in File No. SR-FINRA-2011-
058 (``Tier Size Pilot'' or ``Pilot''), which currently are scheduled 
to expire on November 14, 2014.\4\
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    \4\ See Securities Exchange Act Release No. 67208 (June 15, 
2012), 77 FR 37458 (June 21, 2012) (Order Approving File No. SR-
FINRA-2011-058, as amended); see also Securities Exchange Act 
Release No. 70839 (November 8, 2013), 78 FR 68893 (November 15, 
2013) (Notice of Filing and Immediate Effectiveness of a Proposed 
Rule Change to Extend the Tier Size Pilot of FINRA Rule 6433; File 
No. SR-FINRA-2013-049).
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    The Tier Size Pilot was filed with the SEC on October 6, 2011,\5\ 
to amend the minimum quotation sizes (or ``tier sizes'') for OTC Equity 
Securities.\6\ FINRA believed, and continues to believe, that the 
Pilot, among other things, would simplify the tier structure, 
facilitate the display of customer limit orders, and expand the scope 
of the Rule to apply to additional quoting participants. During the 
proposal process, the SEC received a number of comments, including some 
expressing concern regarding the potential impact of the proposed rule 
change, and, in response, FINRA submitted an amendment to revise the 
tiers and to implement the proposed revised tier sizes as a one-year 
pilot to allow FINRA and the SEC to better analyze the impact of the 
new tiers during the pilot period.\7\ FINRA also committed to 
collecting and providing to the Commission certain pre- and post-pilot 
data to assist in analyzing the impact of the Pilot.\8\ The data 
provision includes the collection and submission to the SEC of monthly 
information regarding:
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    \5\ See Securities Exchange Act Release No. 65568 (October 14, 
2011), 76 FR 65307 (October 20, 2011) (Notice of Filing of File No. 
SR-FINRA-2011-058).
    \6\ ``OTC Equity Security'' means 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. See FINRA 
Rule 6420.
    \7\ See Securities Exchange Act Release No. 66819 (April 17, 
2012); 77 FR 23770 (April 20, 2012) (Notice of Filing of Amendment 
No. 1 to File No. SR-FINRA-2011-058).
    \8\ See Securities Exchange Act Release No. 67208 (June 15, 
2012), 77 FR 37458 (June 21, 2012) (Order Approving File No. SR-
FINRA-2011-058, as amended.
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    <bullet> The price of the first trade of each trading day executed 
at or after 9:30:00 a.m., based on execution time.
    <bullet> The price of the last trade of each trading day executed 
at or before 4:00:00 p.m., based on execution time.
    <bullet> Daily share volume.
    <bullet> Daily dollar volume.
    <bullet> Number of limit orders from customers and in total.
    <bullet> Percentage of the day that the size of the BBO equals the 
minimum quote size.
    <bullet> Number of market makers actively quoting.
    <bullet> Number of executions from a limit order and number of 
limit orders at the BBO or better by tier size from a customer and in 
total.
    <bullet> Liquidity/BBO metrics
    <bullet> Time-weighted quoted spread.
    <bullet> Effective spread.
    <bullet> Time-weighted quoted depth (number of shares) at the 
inside.
    <bullet> Time-weighted quoted depth (dollar value of shares) at the 
inside.
    In addition to submitting the above data to the Commission, which 
FINRA has provided on a monthly basis for the duration of the Pilot,\9\ 
FINRA also committed to providing to the Commission an assessment on 
the operation of the Tier Size Pilot that, among other things, would 
address the impact of the Pilot, the concerns raised by commenters 
during the rule filing process, and whether the Pilot has resulted in 
the desired effects. FINRA submitted this assessment on September 13, 
2013. The assessment utilized Pilot data covering the period from 
November 12, 2012 through June 30, 2013.\10\ As noted in the 
assessment, FINRA believes that the analysis of the data generally 
showed that the Tier Size Pilot had a neutral to positive impact on OTC 
market quality for the majority of OTC Equity Securities and tiers. 
FINRA also found that there was an increase of 13% in the number of 
customer limit orders that met the minimum quotation sizes to be 
eligible for display under the Pilot tiers (for all tiers combined).
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    \9\ FINRA will continue to submit monthly data until the new 
Tier Size Pilot period expiration date of February 13, 2015.
    \10\ The assessment is part of the SEC's comment file for SR-
FINRA-2011-058 and also is available on FINRA's Web site at: http://www.finra.org/Industry/Regulation/RuleFilings/2011/P124615 (``Pilot 
Assessment'').
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    FINRA also observed certain impacts that appeared to be temporary. 
Specifically, FINRA noted that, while some large market makers 
initially reduced the number of securities actively quoted on a priced 
basis, the

[[Page 61121]]

number of market makers providing quotes gradually reversed over time 
as the Pilot progressed. Thus, to allow additional time to observe the 
operation of the Pilot and to provide the SEC with data over a longer 
time period so that the effects of the Pilot could be more thoroughly 
reviewed, FINRA filed an extension for another year, extending the 
period from November 12, 2013 until November 14, 2014.
    The purpose of this filing is to extend the operation of the Tier 
Size Pilot for an additional three month period, until February 13, 
2015, to provide FINRA with additional time to consider the 
implications of the data collected since June 30, 2013 and to determine 
whether FINRA will propose that the Pilot tiers be adopted as 
permanent.
    FINRA has filed the proposed rule change for immediate 
effectiveness. The effective date of the proposed rule change will be 
the date of filing.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\11\ 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)(11) of the Act.\12\ 
Section 15A(b)(11) requires 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.
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    \11\ 15 U.S.C. 78o-3(b)(6).
    \12\ 15 U.S.C. 78o-3(b)(11).
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    FINRA believes that the extension of the Tier Size Pilot for an 
additional three months is consistent with the Act in that it would 
provide the Commission and FINRA with additional data and more time to 
undertake a thorough review of the submitted data. FINRA believes this 
additional time will facilitate FINRA's consideration of the impact of 
the Pilot using data after June 30, 2013, and determination of the 
appropriateness of making the Pilot tiers permanent.

B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \13\ and Rule 19b-
4(f)(6) thereunder.\14\
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6). Rule 19b-4(f)(6) requires a self-
regulatory organization to give the Commission written notice of its 
intent to file the proposed rule change at least five business days 
prior to the date of filing of the proposed rule change, or such 
shorter time as designated by the Commission. The Exchange has 
satisfied this requirement.
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    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

    <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#6f1d1a030a420c0002020a011b1c2f1c0a0c41080019"><span class="__cf_email__" data-cfemail="4b393e272e66282426262e253f380b382e28652c243d">[email protected]</span></a>. Please include 
File Number SR-FINRA-2014-041 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-2014-041. 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 St. NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal office of FINRA. All 
comments received will be posted without change; 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-2014-041, and should 
be submitted on or before October 30, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-24102 Filed 10-8-14; 8:45 am]
BILLING CODE 8011-01-P


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