Document ID: SEC-2010-0516-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2010-04-07T04:00Z

[Federal Register: April 7, 2010 (Volume 75, Number 66)]
[Notices]               
[Page 17810-17813]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07ap10-113]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61817; File No. SR-FINRA-2010-011]

 
Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of 
Proposed Rule Change To Modify Certain FINRA/Nasdaq Trade Reporting 
Facility Fees

March 31, 2010.
    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 12, 2010, 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 ``establishing or changing a 
due, fee or other charge'' under Section 19(b)(3)(A)(ii) of the Act \3\ 
and Rule 19b-4(f)(2) thereunder,\4\ 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\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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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 7620A to modify certain fees 
applicable to members that use the FINRA/Nasdaq Trade Reporting 
Facility (the ``FINRA/Nasdaq 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 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

Background

    The FINRA/Nasdaq TRF is a facility of FINRA that is operated by The 
NASDAQ OMX Group, Inc. (``NASDAQ OMX'') and utilizes Automated 
Confirmation Transaction (``ACT'') Service technology. In connection 
with the establishment of the FINRA/Nasdaq

[[Page 17811]]

TRF, FINRA and NASDAQ OMX entered into a limited liability company 
agreement (the ``LLC Agreement''). Under the LLC Agreement, FINRA, the 
``SRO Member,'' has sole regulatory responsibility for the FINRA/Nasdaq 
TRF. NASDAQ OMX, the ``Business Member,'' is primarily responsible for 
the management of the FINRA/Nasdaq TRF's business affairs, including 
establishing pricing for use of the FINRA/Nasdaq TRF, to the extent 
those affairs are not inconsistent with the regulatory and oversight 
functions of FINRA. Additionally, the Business Member is obligated to 
pay the cost of regulation and is entitled to the profits and losses, 
if any, derived from the operation of the FINRA/Nasdaq TRF.
    Pursuant to Rule 7620A, FINRA members are charged fees for trade 
reporting to the FINRA/Nasdaq TRF. The current fee structure for 
reports of ``locked-in trades'' (i.e., trades that are not submitted 
for ACT comparison and do not require specific acceptance by the contra 
party) is based on (1) the number of reports submitted to the FINRA/
Nasdaq TRF in which the member is identified as a party to the trade; 
(2) whether the transaction is ``media'' eligible (i.e., the trade 
report is submitted to FINRA for public dissemination by the Securities 
Information Processors); \5\ (3) whether the trade report is submitted 
for clearance and settlement related functions; and (4) whether the 
transaction is in a non-Nasdaq exchange-listed security that is 
reported to one of the Consolidated Tape Association (``CTA'') 
tapes.\6\ Members must pay a fee for reports submitted to the FINRA/
Nasdaq TRF with respect to media-eligible locked-in transactions in 
non-Nasdaq exchange-listed (or CTA) securities. A member that exceeds, 
in any given month, a daily average of 5,000 media reports in which the 
member is identified as the reporting party is afforded a cap on its 
fees equal to $145 ($0.029 multiplied by 5,000) multiplied by the 
number of trading days in the month. By contrast, there currently is no 
fee for the submission of locked-in reports for media-eligible 
transactions in Nasdaq-listed securities.
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    \5\ ``Non-media'' reports are not submitted to FINRA for public 
dissemination purposes, but are submitted for regulatory and/or 
clearance and settlement purposes.
    \6\ Market data is transmitted to three tapes based on the 
listing venue of the security: New York Stock Exchange securities 
(``Tape A''), American Stock Exchange and regional exchange 
securities (``Tape B''), and Nasdaq Stock Market securities (``Tape 
C''). Tape A and Tape B are generally referred to as the 
Consolidated Tape.
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Proposed Fee Schedule

    NASDAQ OMX, as the Business Member, has determined to replace the 
current fee schedule for reporting ``locked-in'' trades to the FINRA/
Nasdaq TRF with a new fee schedule applicable to ``Non-Comparison/
Accept (Non-Match/Compare)'' trades. Such trades are defined as 
transactions that are not subject to the ACT comparison process, and 
they may be submitted as media or non-media, clearing or non-clearing, 
AGU (automated give-up), QSR (Qualified Service Representative), one-
sided and internalized crosses.\7\
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    \7\ FINRA is proposing to adopt Supplementary Material in Rule 
7260A to define a number of terms used in the proposed fee schedule, 
including ``Non-Comparison/Accept (Non-Match/Compare)'' trades.
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    Accordingly, FINRA is proposing to amend Rule 7620A to reflect the 
new fee schedule. Under the proposed schedule, for each media and non-
media report submitted to the FINRA/Nasdaq TRF, both the member 
identified in the report as the ``Executing Party (EP)'' and the member 
identified as the ``Contra (CP)'' will be assessed a fee.\8\ Thus, the 
proposed rule change establishes four categories of fees (Media/
Executing Party, Non-Media/Executing Party, Media/Contra and Non-Media/
Contra), and each category is applicable to transactions in each of the 
three Tapes (Tapes A, B and C).\9\ A member will be assessed a 
transaction fee of $0.018 if it is the Executing Party, and $0.013 if 
it is the Contra, multiplied by the number of same-type reports (i.e., 
media or non-media) submitted in a given month.
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    \8\ Pursuant to the proposed Supplementary Material, the 
``Executing Party (EP)'' is defined as the member with the trade 
reporting obligation under FINRA rules, and the ``Contra (CP)'' is 
defined as the member on the contra side of a trade report. These 
positions formerly were identified in FINRA rules as the ``Market 
Maker'' or ``MM'' side and the ``Order Entry'' or ``OE'' side, 
respectively.
    FINRA notes that non-members (non-member broker-dealers and 
customers) are not assessed fees under FINRA rules.
    \9\ The four categories of fees are independent of each other 
and, as such, may be subsequently adjusted individually. Any change 
to one or more of these categories would be subject to a future 
proposed rule change by FINRA.
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    Additionally, the proposed fee schedule includes a cap applicable 
to each of the four new fee categories based on the average daily 
volume of reports submitted to a particular Tape. To be eligible for a 
cap in a particular Tape, a member must achieve a minimum average daily 
volume of media reports submitted to that Tape as Executing Party in a 
given month. (The proposed volume threshold for all three Tapes is 
2,500.) \10\ Thus, the proposed rule change would reduce the per unit 
fee traditionally assessed (from $0.029 to $0.018 and $0.013, as 
applicable), as well as the volume threshold required to achieve a fee 
cap (from 5,000 to 2,500).
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    \10\ Although the proposed fee schedule includes identical 
average daily volume thresholds for all three Tapes, the thresholds 
are independent of each other and, as such, may be subsequently 
adjusted individually. Any change to one or more of these thresholds 
would be subject to a future proposed rule change by FINRA.
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    Trade reports in which the member appears as the Contra Party do 
not contribute to achievement of the cap. However, if a member is 
eligible for a cap based on media trade reports in which it appears as 
the Executing Party, then caps also would apply to media reports in 
which that member appears as the Contra Party, as well as to non-media 
reports where the member appears as Executing Party or Contra Party. 
Thus, once a member achieves a cap (based on the number of Media/
Executing Party reports), under the current proposal, the maximum 
number of billable trade reports applicable to each fee category is 
2,500 for Tape A, B or C. The maximum number of billable Media/
Executing Party reports will always be equal to the daily average 
number of Media/Executing Party trades needed to qualify for a cap for 
Tape A, B or C, as specified in the Rule. For each of the other three 
fee categories (Non-Media/Executing Party, Media/Contra and Non-Media/
Contra), the maximum number of billable trades also is specified in the 
Rule and can be adjusted independently of the Media/Executing Party 
cap.\11\ Under the current proposal, if a member is eligible for the 
fee cap, it will be assessed a maximum fee within each category equal 
to the category fee (either $0.018 or $0.013) multiplied by 2,500 
multiplied by the number of trading days in the month.
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    \11\ Any change to one or more of these caps would be subject to 
a future proposed rule change by FINRA.
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    The following table provides an example of the fee schedule 
applicable to a member that is ineligible for a fee cap (based on 22 
trading days in the month):

[[Page 17812]]

                           No Fee Cap--Tape A
------------------------------------------------------------------------
                               Average
      Report type/side          daily     Billable     Rate       Cost
                                trades     trades
------------------------------------------------------------------------
Media/EP....................      2,100      2,100     $0.018       $832
Non-Media/EP................      4,000      4,000      0.018       1584
Media/Contra................      3,000      3,000      0.013        858
Non-Media/Contra............      2,100      2,100      0.013        601
                             -------------------------------------------
    Total...................     11,200     11,200  .........      3,875
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    The following table provides an example of the fee schedule 
applicable to a member that is eligible for a fee cap (based on 22 
trading days in the month):

                             Fee Cap--Tape A
------------------------------------------------------------------------
                               Average
      Report type/side          daily     Billable     Rate       Cost
                                trades     trades
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Media/EP....................      4,000      2,500     $0.018       $990
Non-Media/EP................      4,000      2,500      0.018        990
Media/Contra................      4,000      2,500      0.013        715
Non-Media/Contra............      4,000      2,500      0.013        715
                             -------------------------------------------
    Total...................     16,000     10,000  .........      3,410
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    FINRA notes that the proposed rule change does not propose to 
modify the other fees assessed under Rule 7620A, specifically: the fee 
assessed a member for submitting a clearing report to the FINRA/Nasdaq 
TRF to transfer a transaction fee pursuant to Rule 7230A(h); the 
``Comparison'' fee; the ``Late Report--T+N'' fee; the ``Query'' fee; 
and the ``Corrective Transaction Charge.''
    NASDAQ OMX, as the Business Member, has advised FINRA that it 
believes that the proposed fee schedule more equitably allocates the 
fees assessed to members for their use of the FINRA/Nasdaq TRF. Under 
current Rule 7620A, the fee burden can fall disproportionately on 
certain parties (e.g., reporting parties submitting media-only reports 
(with no clearing) of transactions in CTA securities and contra parties 
to locked-in trades in CTA securities). Under the proposed fee 
schedule, both members identified as parties to the trade in the trade 
report will be assessed a fee. In addition, the proposed fee schedule 
introduces fees for reports of transactions in Nasdaq-listed 
securities, as well as non-media, non-clearing trade reports, which 
have historically not been assessed a fee. NASDAQ OMX believes that 
extending fees for the submission of these reports is consistent with 
its goal of fairly and equitably distributing the costs associated with 
the operation and maintenance of the FINRA/Nasdaq TRF. Thus, the 
proposed fees for the submission of non-comparison trade reports to the 
FINRA/Nasdaq TRF are spread more equitably across parties (Executing 
Party and Contra), as well as report type (media and non-media) and 
security type (Nasdaq-listed and non-Nasdaq exchange-listed). NASDAQ 
OMX believes that the proposed reduction in fees is appropriate given 
that the burden of paying for the use of the FINRA/Nasdaq TRF will be 
shared by all participants across the full range of transactions.
    FINRA has filed the proposed rule change for immediate 
effectiveness. FINRA is proposing that the operative date of the 
proposed rule change will be April 1, 2010.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(5) of the Act,\12\ which requires, among 
other things, that FINRA rules provide for the equitable allocation of 
reasonable dues, fees and other charges among members and issuers and 
other persons using any facility or system that FINRA operates or 
controls. FINRA believes that the proposed fee schedule is fair and 
provides an equitable allocation of fees in that it will apply 
uniformly to all FINRA members that use the FINRA/Nasdaq TRF.
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    \12\ 15 U.S.C. 78o-3(b)(5).
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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.

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

    No written comments were either solicited or received.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act \13\ and paragraph (f)(2) of Rule 19b-4 
thereunder.\14\ At any time within 60 days of the filing of the 
proposed rule change, the Commission may summarily abrogate 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.
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    \13\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \14\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule

[[Page 17813]]

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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-FINRA-2010-011 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-2010-011. This 
file number should be included on the subject line if e-mail 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 on 
official business days between the hours of 10 a.m. and 3 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 publicly available. All submissions should refer to File Number 
SR-FINRA-2010-011 and should be submitted on or before April 28, 2010.

    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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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-7842 Filed 4-6-10; 8:45 am]
BILLING CODE 8011-01-P