Document ID: SEC-2017-0404-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2017-03-15T04:00Z

[Federal Register Volume 82, Number 49 (Wednesday, March 15, 2017)]
[Notices]
[Pages 13901-13905]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-05082]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80193; File No. SR-FINRA-2017-006]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend 
Rule 6191 To Implement an Anonymous, Grouped Masking Methodology for 
Over-the-Counter Activity in Connection With Web Site Data Publication 
of Appendix B Data Pursuant to the Regulation NMS Plan To Implement a 
Tick Size Pilot Program

March 9, 2017.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 3, 2017, 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. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to amend Rule 6191 to implement an anonymous, 
grouped masking methodology for over-the-counter (``OTC'') activity in 
connection with Web site data publication of Appendix B data pursuant 
to the Regulation NMS Plan to Implement a Tick Size Pilot Program 
(``Plan'').
    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.

[[Page 13902]]

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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Rule 6191(b) (Compliance with Data Collection Requirements) \3\ 
implements the data collection and Web site publication requirements of 
the Plan.\4\ Rule 6191(b)(2)(B) provides, among other things, that 
FINRA will publish data pursuant to Appendix B.I. and B.II. of the Plan 
on its Web site within 120 calendar days following month end at no 
charge,\5\ and that such publication will not identify the Trading 
Center that generated the data. Rule 6191(b)(3)(C) provides, among 
other things, that FINRA will publish data pursuant to Appendix B.IV. 
to the Plan on its Web site within 120 calendar days following month 
end at no charge, and that such publication will not identify the OTC 
Trading Center that generated the data.
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    \3\ See, e.g., Securities Exchange Act Release No. 76484 
(November 19, 2015), 80 FR 73858 (November 25, 2015) (Notice of 
Filing of File No. SR-FINRA-2015-048); see also Securities Exchange 
Act Release No. 77164 (February 17, 2016), 81 FR 9043 (February 23, 
2016) (Notice of Filing of Partial Amendment No. 1 and Order 
Granting Accelerated Approval of File No. SR-FINRA-2015-048) 
(``Accelerated Approval Order'').
    \4\ The Participants filed the Plan to comply with an order 
issued by the Commission on June 24, 2014. See Letter from Brendon 
J. Weiss, Vice President, Intercontinental Exchange, Inc., to 
Secretary, Commission, dated August 25, 2014 (``SRO Tick Size Plan 
Proposal''). See Securities Exchange Act Release No. 72460 (June 24, 
2014), 79 FR 36840 (June 30, 2014). See also Securities Exchange Act 
Release No. 74892 (May 6, 2015), 80 FR 27513 (May 13, 2015) 
(``Approval Order'').
    \5\ On November 30, 2016, the SEC granted exemptive relief to 
the Participants, and FINRA filed proposed rule changes, to, among 
other things, delay the publication of Web site data pursuant to 
Appendices B and C to the Plan until February 28, 2017, and to delay 
the ongoing Web site publication by ninety days such that it would 
be published within 120 calendar days following the end of the 
month. See, e.g., Letter from David S. Shillman, Associate Director, 
Division of Trading and Markets, Commission, to Marcia E. Asquith, 
Senior Vice President and Corporate Secretary, FINRA dated November 
30, 2016; see also Securities Exchange Act Release No. 79424 
(November 29, 2016), 81 FR 87603 (December 5, 2016) (Notice of 
Filing and Immediate Effectiveness of File No. SR-FINRA-2016-042). 
FINRA recently filed a proposed rule change to revert to the 30-day 
delay with regard to Appendix C data Web site publication. See File 
No. SR-FINRA-2017-005 (Proposed Rule Change to Amend FINRA Rule 6191 
to Modify the Date of Appendix B Web site Data Publication Pursuant 
to the Regulation NMS Plan to Implement a Tick Size Pilot Program).
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    In consultation with SEC staff, FINRA is proposing new 
supplementary material to Rule 6191 to implement the aggregation 
methodology described further below. Specifically, FINRA is proposing 
to provide for an anonymous, grouped masking methodology for Appendix 
B.I., B.II. and B.IV. data in furtherance of the Plan's requirement 
that the data made publicly available will not identify the Trading 
Center that generated the data.\6\ The proposed methodology also is 
intended to mitigate confidentiality concerns previously raised by 
commenters \7\ regarding the publication of data related to OTC 
activity. Chicago Stock Exchange, Inc. (``CHX'') is the designated 
examining authority (``DEA'') for a relatively small number of OTC 
Trading Centers; thus, FINRA also will incorporate the firms for which 
CHX is the DEA into the anonymous, grouped masking methodology and 
publish OTC-wide statistics for Appendix B.I., B.II. and B.IV. data on 
the FINRA Web site.\8\
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    \6\ See Section VII.(A) of the Plan (Collection of Trading 
Center Pilot Data).
    \7\ See infra note 20.
    \8\ In connection with the instant filing, FINRA and CHX 
requested exemptive relief from the Plan to permit the publication 
on the FINRA Web site of data relating to OTC activity pursuant to 
Appendix B.I., B.II. and B.IV. on an aggregated basis using an 
anonymous, grouped masking methodology. See Letter from Marcia E. 
Asquith, Executive Vice President, Board and External Relations, 
FINRA, to Robert W. Errett, Deputy Secretary, Commission, dated 
March 2, 2017.
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Grouping Methodology
    For purposes of the data to be made available on the FINRA Web site 
pursuant to the Plan, FINRA proposes to aggregate individual OTC 
Trading Center Appendix B data within groupings of Trading Centers by 
ATS and non-ATS categories, using an undisclosed methodology for 
assigning each Trading Center to a group. FINRA believes that an 
anonymous, grouped masking methodology for purposes of publishing the 
required data related to OTC activity will support the Plan's 
requirement that the data to be made publicly available will not 
identify the Trading Center that generated the data.\9\ In furtherance 
of this objective, the details of the methodology used to formulate the 
anonymous groupings will not be disclosed. FINRA believes that the 
proposed approach strikes an appropriate balance between mitigating 
confidentiality concerns while supporting the public availability of 
useful Plan data.
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    \9\ See Section VII.(A) of the Plan.
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    Trading Center group assignments will not be published and 
generally will remain unchanged for the duration of the data 
publication period, with the exception of the entrance of a new Trading 
Center (new FINRA member). The anonymized identifier used for each 
group will remain unchanged for the duration of the data publication 
period and the same groups and group identifiers will be used for all 
Appendix B data sets. The number of Trading Centers assigned to each 
group will not specifically be disclosed; however, each group will 
contain between five and 25 market participant identifiers (MPIDs). In 
addition, for each day's statistics, the number of MPIDs in each group 
with activity in any Pilot Security for that day will be disclosed. 
Disclosing the number of active MPIDs each day is intended to inform 
evaluators of the data of whether the number of Trading Centers 
reflected in the statistics each day has changed--for example, because 
a Trading Center in the group didn't register activity on a given 
day.\10\
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    \10\ FINRA will disclose the number of MPIDs in each group with 
activity in any Pilot Security for that day either within each 
Appendix B data set or in an associated file.
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Appendix B.I. Data Aggregation Methodology
    FINRA proposes to aggregate the Appendix B.I. data to be made 
publicly available on the FINRA Web site by aggregating statistics 
within each group by Pilot Security for each trading day. The 
methodology used for computing the statistics at the group level will 
be the same methodology used to compute these statistics at the Trading 
Center level in the non-public version of the data (and in the public 
version of the exchange data).\11\ Specifically, FINRA would calculate 
group-level sums for statistics that are quantity counts \12\ and use 
all underlying data within a group to calculate statistics requiring 
averages or weighted averages.\13\ Data will be aggregated separately 
for each order

[[Page 13903]]

type and subcategory, and will not be aggregated across order types or 
subcategories.
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    \11\ See Tick Size Appendix B and C Statistics FAQs (available 
at http://www.finra.org/sites/default/files/Tick-Size-Pilot-Appendix-B-and-C-FAQ.pdf).
    \12\ See, e.g., Appendix B.I.a(7) (cumulative number of orders).
    \13\ See, e.g., Appendix B.I.a(28) (the share weighted average 
realized spread for executions of orders); and Appendix B.I.a(29) 
(the received share-weighted average percentage for shares not 
displayable as of order receipt). FINRA will calculate averages for 
all price variables and percentages.

                                                  Table 1--Illustrative Sample B.I. Data Aggregation 14
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                                                                                                                                               Share
                                                                                                                            Cumulative       weighted
                                                             Number of                                                       number of        average
                                                           active MPIDs                     Cumulative      Cumulative       shares of       realized
             Date                 Trading       Ticker       in masked      Order type       number of       number of        orders        spread for
                                   center       symbol     group across                       orders         shares of      executed at    execution of
                                                             all pilot                                        orders          an away        orders on
                                                              stocks                                                          trading         trading
                                                                                                                              center        center only
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                                                                      Unmasked Data
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20160926......................  ABCD         ZZZZ                    n/a              18               2         100,000          75,000           -0.01
20160926......................  EFGH         ZZZZ                    n/a              18               2         100,000         100,000            0.01
20160926......................  IJKL         ZZZZ                    n/a              18               4         750,000          35,000           0.011
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                                                                       Masked Data
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20160926......................  G1           ZZZZ                      5              18               8         950,000         210,000          0.0090
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Appendix B.II. Data Aggregation Methodology
    Appendix B.II. data includes order-level statistics; thus, FINRA 
proposes that all individual orders be displayed for all Trading 
Centers within a group, with each order attributed to the group rather 
than the underlying Trading Center. In addition, Appendix B.II. order 
information would be displayed in pure chronological order based on 
time of order receipt to help minimize confidentiality concerns that 
may occur if other ordering methods were used, such as showing the 
original chronological order per Trading Center.
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    \14\ For purposes of illustration, this table reflects only a 
sample of the data--specifically, the fields described in Appendix 
B.I.a.(1), (2), (3), (7), (8), (13) and (28). The published data 
would reflect all fields described in Appendix B.I. to the Plan and 
as further specified in FINRA Rule 6191 and related rule filings, 
the Tick Size Appendix B and C Statistics FAQs (available at http://www.finra.org/sites/default/files/Tick-Size-Pilot-Appendix-B-and-C-FAQ.pdf), and in FINRA's Appendix B and C Requirements and Finra.org 
File Specifications document (available at http://www.finra.org/sites/default/files/Appendix-B-and-C-Reporting-Specifications.pdf).

                                                 Table 2--Illustrative Sample B.II. Data Aggregation 15
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                                                             Number of
                                                           active MPIDs
                                  Trading                    in masked    Order received                   Order shares
             Date                  center       Issue      group across        time         Order type       quantity        B/S code       Limit price
                                                             all pilot
                                                              stocks
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                                                                      Unmasked Data
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20160906......................  ABCD         ZZZZ                    n/a       93,605.41              10             500               B          (null)
20160906......................  ABCD         ZZZZ                    n/a       94,114.99              11             100               S           52.45
20160906......................  ABCD         ZZZZ                    n/a      101,140.05              11             900               S           52.31
20160906......................  EFGH         ZZZZ                    n/a       93,605.42              10             600               B          (null)
20160906......................  EFGH         ZZZZ                    n/a       94,114.99              11             100               S           52.45
20160906......................  EFGH         ZZZZ                    n/a      101,140.07              11             700               S           52.37
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                                                                       Masked Data
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20160906......................  G1           ZZZZ                      5       93,605.41              10             500               B          (null)
20160906......................  G1           ZZZZ                      5       93,605.42              10             600               B          (null)
20160906......................  G1           ZZZZ                      5       94,114.99              11             100               S           52.45
20160906......................  G1           ZZZZ                      5       94,114.99              11             100               S           52.45
20160906......................  G1           ZZZZ                      5      101,140.05              11             900               S           52.31
20160906......................  G1           ZZZZ                      5      101,140.07              11             700               S           52.37
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Appendix B.IV. Data Aggregation Methodology
    FINRA proposes to aggregate Appendix B.IV. data by aggregating 
statistics within each group by trading day by summing the statistics 
of all market maker activity represented within the group. The number 
of market makers would be displayed as the unique number of market 
makers \16\ across all Trading Centers within the group.
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    \15\ For purposes of illustration, this table reflects only a 
sample of the data--specifically, the fields required by items a. 
through h. of Appendix B.II. The published data would reflect all 
fields described in Appendix B.II. to the Plan and as further 
specified in FINRA Rule 6191 and related rule filings, the Tick Size 
Appendix B and C Statistics FAQs (available at http://www.finra.org/sites/default/files/Tick-Size-Pilot-Appendix-B-and-C-FAQ.pdf), and 
in FINRA's Appendix B and C Requirements and Finra.org File 
Specifications document (available at http://www.finra.org/sites/default/files/Appendix-B-and-C-Reporting-Specifications.pdf).
    \16\ As provided in FINRA Rule 6191.11, FINRA will provide a 
count of the number of Market Makers used in the participation 
calculations. Thus, if a single unique Market Maker traded on 
multiple Trading Centers within the same masking group, for the 
Appendix B.IV. count of unique Market Makers on a given trading day, 
FINRA will count this activity as attributed to one unique Market 
Maker.

[[Page 13904]]

                                                 Table 3--Illustrative Sample B.IV. data aggregation 17
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                                                                             Number of
                                                                           active MPIDs
                                                                             in masked     Number unique   Number unique      Shares          Shares
                    Date                            Trading center         group across    MMs buy side    MMs sell side   participation   participation
                                                                             all pilot                                         (buy)          (sell)
                                                                              stocks
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                                                                      Unmasked Data
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20160906....................................  ABCD                                   n/a               2               1         700,000         225,000
20160906....................................  EFGH                                   n/a               1               1             200           5,000
20160906....................................  IJKL                                   n/a               4               1          35,000         500,000
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                                                                       Masked Data
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20160906....................................  G1                                       5               5               2         735,200         730,000
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    If the Commission approves the proposed rule change, the effective 
date of the proposed rule change will be 120 days following Commission 
approval.
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    \17\ For purposes of illustration, this table reflects only a 
sample of the data--specifically, the fields required by items a. 
and b. of Appendix B.IV and FINRA Rule 6191.11. The published data 
would reflect all fields described in Appendix B.IV. to the Plan and 
as further specified in FINRA Rule 6191 and related rule filings, 
the Tick Size Appendix B and C Statistics FAQs (available at http://www.finra.org/sites/default/files/Tick-Size-Pilot-Appendix-B-and-C-FAQ.pdf), and in FINRA's Appendix B and C Requirements and Finra.org 
File Specifications document (available at http://www.finra.org/sites/default/files/Appendix-B-and-C-Reporting-Specifications.pdf).
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2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\18\ 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, and Section 15A(b)(9) of the Act,\19\ which requires 
that FINRA rules not impose any burden on competition that is not 
necessary or appropriate.
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    \18\ 15 U.S.C. 78o-3(b)(6).
    \19\ 15 U.S.C. 78o-3(b)(9).
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    The Plan is designed to allow the Commission, market participants, 
and the public to study and assess the impact of increment conventions 
on the liquidity and trading of the common stock of small-
capitalization companies. FINRA consulted extensively with SEC staff in 
connection with the instant proposal to design a grouped masking 
methodology that is consistent with the objectives of Section VII(A) of 
the Plan to make Appendix B data publicly available while not 
identifying the Trading Center that generated the data.

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. FINRA notes that the proposed 
rule change implements the provisions of the Plan.

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

    The Commission previously received comment letters from FIF and 
Citadel Securities expressing concern over FINRA's intent to publish 
Appendix B data on a Trading Center-by-Trading Center basis.\20\ FIF 
stated that publishing Appendix B.I. and B.II. statistics on FINRA's 
Web site in a disaggregated format does not satisfy the requirements of 
the Plan or Rule 6191 that the publicly available data will not 
identify the trading center that generated the data.\21\ Similarly, 
Citadel Securities stated that market participants would be able to 
determine the identity of Trading Centers in violation of the Plan if 
the Appendix B data were to be published in a disaggregated format.\22\
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    \20\ See Letters from William Hebert, Managing Director, 
Financial Information Forum (``FIF''), to Robert W. Errett, Deputy 
Secretary, Commission, dated December 21, 2016 (``FIF letter''); and 
Adam C. Cooper, Senior Managing Director and Chief Legal Officer, 
Citadel Securities, to Brent J. Fields, Secretary, Commission, dated 
December 21, 2016 (``Citadel letter''). See also Securities Exchange 
Act Release No. 79424 (November 29, 2016), 81 FR 87603 (December 5, 
2016) (Notice of Filing and Immediate Effectiveness of File No. SR-
FINRA-2016-042).
    \21\ See FIF letter.
    \22\ See Citadel letter.
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    In consultation with SEC staff, FINRA is filing the instant 
proposed rule change to mitigate the confidentiality concerns raised by 
commenters by providing for an anonymized, grouped masking methodology 
for Appendix B data for all OTC activity in furtherance of the 
objectives of the Plan.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-FINRA-2017-006 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-FINRA-2017-006. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's

[[Page 13905]]

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 the 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-2017-006, and should be submitted 
on or before April 5, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-05082 Filed 3-14-17; 8:45 am]
 BILLING CODE 8011-01-P