Document ID: SEC-2013-1826-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2013-10-23T04:00Z

[Federal Register Volume 78, Number 205 (Wednesday, October 23, 2013)]
[Notices]
[Pages 63268-63270]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-24766]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70702; File No. SR-FINRA-2013-044]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Allow FINRA Members To Use the FINRA/NYSE Trade 
Reporting Facility To Transfer Transaction Fees Charged by One Member 
to Another Member

October 17, 2013.
    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 October 9, 2013, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II 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 Substance 
of the Proposed Rule Change

    FINRA is proposing to amend FINRA Rule 7230B (Trade Report Input) 
to permit FINRA members to use the FINRA/NYSE Trade Reporting Facility 
(the ``FINRA/NYSE TRF'') to transfer transaction fees charged by one 
member to another member on trades reported to the FINRA/NYSE TRF.
    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

[[Page 63269]]

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 Rules 7230A(h) and 7330(i) permit FINRA members to agree in 
advance to transfer a transaction fee charged by one member to another 
member on over-the-counter transactions reported to the FINRA/Nasdaq 
Trade Reporting Facility (``FINRA/Nasdaq TRF'') and OTC Reporting 
Facility (``ORF''), respectively, through the submission of a clearing 
report.\4\ The proposed rule change would adopt a provision that is 
substantively identical to Rules 7230A(h) and 7330(i) for purposes of 
transferring transaction fees between members as part of a clearing 
report submitted to the FINRA/NYSE TRF. Specifically, pursuant to 
proposed Rule 7230B(i), members would be required to provide in reports 
submitted to the FINRA/NYSE TRF, in addition to all other information 
required to be submitted by any other rule, pricing information to 
indicate a total per share or contract price amount, inclusive of the 
transaction fee. As a result, members would submit as part of their 
report to the FINRA/NYSE TRF: (1) Pricing information to indicate a 
total price inclusive of the transaction fee, which would be submitted 
by the FINRA/NYSE TRF to NSCC for clearance and settlement; and (2) the 
price exclusive of the transaction fee, which would be publicly 
disseminated. For example, if B/D 1 purchases from B/D 2 at $10.00 and 
B/D 1 and B/D 2 agree to a transaction fee of $.001 per share, the 
trade price that would be publicly disseminated would be $10.00, while 
the trade would be cleared and settled by NSCC at $10.001.\5\ The 
parties to the trade would know both prices--the price reported for 
public dissemination and the clearance/settlement price.
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    \4\ Prior to the adoption of Rules 7230A(h) and 7330(i), there 
was no mechanism for members to transfer to each other commissions 
or other explicit transaction fees through the FINRA trade reporting 
and clearance submission process. Generally, members wanting to 
transfer to other members an explicit transaction fee were required 
to either bill and collect those fees directly from the other member 
outside the transaction reporting and clearing process or trade on a 
``net'' basis (meaning that the broker-dealer's compensation is 
implicitly included in the execution price disseminated to the tape 
and reported for clearance and settlement to the National Securities 
Clearing Corporation (``NSCC'')). Rules 7230A(h) and 7330(i), and 
the proposed rule, provide members with another alternative by 
permitting the transfer of a transaction fee as part of a clearing 
report.
    \5\ If the parties were trading on a net basis with the fee 
incorporated in the trade price, the transaction at a price of 
$10.001 would be reported to the tape and also submitted to NSCC.
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    Proposed Rule 7230B(i) provides that both members and their 
respective clearing firms, as applicable, must execute an agreement, as 
specified by FINRA, permitting the facilitation of the transfer of the 
transaction fee through the FINRA/NYSE TRF, as well as any other 
applicable agreement, such as a give up agreement pursuant to Rule 
6380B(g). Such agreement must be executed and submitted to the FINRA/
NYSE TRF before the members can transfer any transaction fee under the 
proposed rule. Among other things, the form of agreement specified by 
FINRA would expressly provide that the acceptance and processing by the 
FINRA/NYSE TRF of the transaction fee as part of a trade report shall 
not constitute an estoppel as to FINRA or bind FINRA in any subsequent 
administrative, civil or disciplinary proceeding with respect to the 
transaction fee transferred. In other words, processing of a 
transaction fee by the FINRA/NYSE TRF should not be taken to mean that 
FINRA approved that transaction fee or its amount or its 
appropriateness under FINRA rules or federal securities laws. The mere 
fact that the transaction fee flowed through a FINRA facility will not 
be a defense to any action taken by FINRA relating to the fee. The 
proposed rule also provides that the relevant agreements are considered 
member records for purposes of Rule 4511 (General Requirements) and 
must be made and preserved by both members in conformity with 
applicable FINRA rules.
    Furthermore, the proposed rule expressly provides that it shall not 
relieve a member from its obligations under FINRA rules and federal 
securities laws, including but not limited to, Rule 2232 (Customer 
Confirmations) and SEA Rule 10b-10 (Confirmation of Transactions).\6\ 
To the extent that any transaction fee is passed onto the customer, 
members should review their customer confirmation obligations to ensure 
that they are disclosing such fees in compliance with all applicable 
rules and regulations, as well as other FINRA rules, including but not 
limited to, Rule 5310 (Best Execution and Interpositioning) and NASD 
Rule 2440 (Fair Prices and Commissions).
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    \6\ 17 CFR 240.10b-10.
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    FINRA notes that the proposed rule relates solely to transaction 
fees charged by one FINRA member to another FINRA member. Members would 
not be able to use the FINRA/NYSE TRF to facilitate the transfer of 
fees for transactions with a customer (i.e., clients that are not 
brokers or dealers) or a non-member. In addition, the FINRA/NYSE TRF 
can only be used to facilitate the transfer of transaction fees. 
Members would not be able to use the FINRA/NYSE TRF to transfer access 
fees or rebates on transactions.
    FINRA also is proposing to amend Rule 7230B(d) to require that for 
any transaction for which the FINRA/NYSE TRF is used to transfer a 
transaction fee between two members, the trade report must comply with 
the requirements of proposed Rule 7230B(i). Thus, while use of the 
FINRA/NYSE TRF to transfer transaction fees between members is 
voluntary, members that opt to use this service must comply with the 
requirements of proposed Rule 7230B(i), as well as all other applicable 
FINRA rules.
    FINRA is not proposing to charge FINRA/NYSE TRF participants a fee 
to use this service at this time.
    FINRA has filed the proposed rule change for immediate 
effectiveness. The operative date of the proposed rule change will be 
announced in a notice and will be at least 30 days following 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,\7\ 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 believes that by automating and improving 
transaction fee transfers between members as a value-added service, the 
proposed rule change will enhance market transparency.
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    \7\ 15 U.S.C. 78o-3(b)(6).
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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 believes that the filing 
will not have an adverse impact on competition because the proposed 
rule change would adopt

[[Page 63270]]

rules relating to a value-added service, the use of which would be 
voluntary, for members reporting to the FINRA/NYSE TRF. This service 
currently is being provided to members reporting to the FINRA/Nasdaq 
TRF and ORF.

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 \8\ and Rule 19b-
4(f)(6) thereunder.\9\
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires FINRA to give the Commission written notice of FINRA's 
intent to file the proposed rule change, along with a brief 
description and text of 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. FINRA 
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

     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-2013-044 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.
    All submissions should refer to File Number SR-FINRA-2013-044. 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 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-2013-044 and should be 
submitted on or before November 13, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-24766 Filed 10-22-13; 8:45 am]
BILLING CODE 8011-01-P