Document ID: SEC-2014-0627-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2014-04-15T04:00Z

[Federal Register Volume 79, Number 72 (Tuesday, April 15, 2014)]
[Notices]
[Pages 21316-21319]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-08414]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71911; File No. SR-FINRA-2014-017]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Relating to Reporting and Market Participant 
Identifier Requirements for Alternative Trading Systems

April 9, 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 April 3, 2014, 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 Substance 
of the Proposed Rule Change

    FINRA is proposing to amend FINRA Rules 4552, 6160, 6170, 6480, and 
6720 to revise the reporting and market participant identifier 
(``MPID'') requirements applicable to alternative trading systems 
(``ATSs'').
    Below is the text of the proposed rule change. Proposed new 
language is in italics; proposed deletions are in brackets.\4\
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    \4\ The rule text is shown to include the amendments approved by 
the Commission in SR-FINRA-2013-042. See Securities Exchange Act 
Release No. 71341 (January 17, 2014), 79 FR 4213 (January 24, 2014) 
(Approval Order).
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* * * * *

4000. FINANCIAL AND OPERATIONAL RULES

* * * * *

4500. BOOKS, RECORDS AND REPORTS

* * * * *

4550. ATS Reporting

* * * * *

4552. Alternative Trading Systems--Trading Information for Securities 
Executed Within the Alternative Trading System

    (a) Within seven business days after the end of each week, each 
member that operates an ATS that has filed a Form ATS with the SEC 
shall report to FINRA, in such format as FINRA may require, the 
aggregate weekly Trading Information for each NMS stock[,] and OTC 
Equity Security [and TRACE-Eligible Security] executed within each such 
ATS operated by the member during the previous week.
    (b) No Change.
    (c) When calculating and reporting the volume of securities traded 
and the number of trades, an ATS shall include only those trades 
executed within the ATS. If two orders are crossed by the ATS, the 
volume shall include only the number of shares [or par value of bonds] 
crossed as a single trade (e.g., crossing a buy order of 1,000 shares 
with a sell order of 1,000 shares would be calculated as a single trade 
of 1,000 shares of volume).
    (d) Definitions
    For purposes of this Rule, the term:
    (1) through (2) No Change.
    (3) ``OTC Equity Security'' has the same meaning as that term is 
defined in Rule 6420; and
    (4) [``TRACE-Eligible Security'' has the same meaning as that term 
is defined in Rule 6710; and]
    [(5)] ``Trading Information'' includes:
    (A) the number of shares of each NMS stock or OTC Equity Security 
executed within an ATS [alternative trading system]; and
    [(B) the par value of each TRACE-Eligible Security executed within 
an alternative trading system; and]
    ([C]B) the number of trades in a security executed within an 
[alternative trading system] ATS.

   Supplementary Material: --------

.01 No Change.
* * * * *

[[Page 21317]]

6000. QUOTATION AND TRANSACTION REPORTING FACILITIES

6100. QUOTING AND TRADING IN NMS STOCKS

* * * * *

6160. Multiple MPIDs for Trade Reporting Facility Participants

    (a) through (b) No Change.
    (c) Except as set forth in paragraph (d), a [A] Trade Reporting 
Facility Participant that operates an alternative trading system 
(``ATS''), as that term is defined in Rule 300 of SEC Regulation ATS, 
must obtain a single, separate MPID for each such ATS designated for 
exclusive use for reporting each ATS's transactions. The member must 
use such separate MPID to report all transactions executed within the 
ATS to a Trade Reporting Facility (or Facilities). The member shall not 
use such separate MPID to report any transaction that is not executed 
within the ATS. Any member that operates multiple ATSs must obtain a 
separate MPID for each ATS. Members must have policies and procedures 
in place to ensure that trades reported with a separate MPID obtained 
under this paragraph are restricted to trades executed within the ATS.
    (d) An ATS is permitted to use two separate MPIDs only if one MPID 
is used exclusively for reporting transactions to TRACE and the other 
MPID is used exclusively for reporting transactions to the equity trade 
reporting facilities (the Alternative Display Facility, the OTC 
Reporting Facility, the FINRA/Nasdaq TRF, or the FINRA/NYSE TRF).

   Supplementary Material: --------

.01 through .02 No Change.

6170. Primary and Additional MPIDs for Alternative Display Facility 
Participants

    (a) through (c) No Change.
    (d) Except as set forth in paragraph (e), a [A] member reporting 
trades to the ADF that operates an alternative trading system 
(``ATS''), as that term is defined in Rule 300 of SEC Regulation ATS, 
must obtain a single, separate MPID for each such ATS designated for 
exclusive use for reporting each ATS's transactions. The member must 
use such separate MPID to report all transactions executed within the 
ATS to the ADF. The member shall not use such separate MPID to report 
any transaction that is not executed within the ATS. Any member that 
operates multiple ATSs must obtain a separate MPID for each ATS. 
Members must have policies and procedures in place to ensure that 
trades reported with a separate MPID obtained under this paragraph are 
restricted to trades executed within the ATS.
    (e) An ATS is permitted to use two separate MPIDs only if one MPID 
is used exclusively for reporting transactions to TRACE and the other 
MPID is used exclusively for reporting transactions to the equity trade 
reporting facilities (the Alternative Display Facility, the OTC 
Reporting Facility, the FINRA/Nasdaq TRF, or the FINRA/NYSE TRF).

   Supplementary Material: --------

.01 through .05 No Change.
* * * * *

6400. QUOTING AND TRADING IN OTC EQUITY SECURITIES

* * * * *

6480. Multiple MPIDs for Quoting and Trading in OTC Equity Securities

    (a) through (b) No Change.
    (c) Except as set forth in paragraph (d), a[A]n OTC Reporting 
Facility Participant that operates an alternative trading system 
(``ATS''), as that term is defined in Rule 300 of SEC Regulation ATS, 
must obtain a single, separate MPID for each such ATS designated for 
exclusive use for reporting each ATS's transactions. The member must 
use such separate MPID to report all transactions executed within the 
ATS to the OTC Reporting Facility. The member shall not use such 
separate MPID to report any transaction that is not executed within the 
ATS. Any member that operates multiple ATSs must obtain a separate MPID 
for each ATS. Members must have policies and procedures in place to 
ensure that trades reported with a separate MPID obtained under this 
paragraph are restricted to trades executed within the ATS.
    (d) An ATS is permitted to use two separate MPIDs only if one MPID 
is used exclusively for reporting transactions to TRACE and the other 
MPID is used exclusively for reporting transactions to the equity trade 
reporting facilities (the Alternative Display Facility, the OTC 
Reporting Facility, the FINRA/Nasdaq TRF, or the FINRA/NYSE TRF).

   Supplementary Material: --------

.01 No Change.
* * * * *

6700. TRADE REPORTING AND COMPLIANCE ENGINE (TRACE)

* * * * *

6720. Participation in TRACE

    (a) through (b) No Change.
    (c) Alternative Trading Systems
    (1) Except as set forth in paragraph (2), a [A] TRACE Participant 
that operates an alternative trading system (``ATS''), as that term is 
defined in Rule 300 of SEC Regulation ATS, must obtain a single, 
separate Market Participant Identifier (``MPID'') for each such ATS 
designated for exclusive use for reporting each ATS's transactions. The 
member must use such separate MPID to report all transactions executed 
within the ATS to TRACE. The member shall not use such separate MPID to 
report any transaction that is not executed within the ATS. Any member 
that operates multiple ATSs must obtain a separate MPID for each ATS. 
Members must have policies and procedures in place to ensure that 
trades reported with a separate MPID obtained under this paragraph are 
restricted to trades executed within the ATS.
    (2) An ATS is permitted to use two separate MPIDs only if one MPID 
is used exclusively for reporting transactions to TRACE and the other 
MPID is used exclusively for reporting transactions to the equity trade 
reporting facilities (the Alternative Display Facility, the OTC 
Reporting Facility, the FINRA/Nasdaq TRF, or the FINRA/NYSE TRF).
* * * * *

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
    On January 17, 2014, the SEC approved a proposed rule change to (i) 
adopt FINRA Rule 4552 (Alternative Trading Systems--Trading Information 
for Securities Executed Within the Alternative Trading System) to 
require ATSs \5\ to report to FINRA weekly

[[Page 21318]]

volume information and number of trades regarding securities 
transactions within the ATS; and (ii) amend FINRA Rules 6160, 6170, 
6480, and 6720 to require each ATS to acquire and use a single, unique 
MPID when reporting information to FINRA (``MPID Requirement'').\6\ The 
implementation date for the reporting requirement under Rule 4552 is 
May 12, 2014, and ATSs must use a single, unique MPID to report 
information to FINRA beginning November 10, 2014.\7\
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    \5\ Regulation ATS defines an ``alternative trading system'' as 
``any organization, association, person, group of persons, or 
system: (1) That constitutes, maintains, or provides a market place 
or facilities for bringing together purchasers and sellers of 
securities or for otherwise performing with respect to securities 
the functions commonly performed by a stock exchange within the 
meaning of [Exchange Act Rule 3b-16]; and (2) That does not: (i) Set 
rules governing the conduct of subscribers other than the conduct of 
such subscribers' trading on such organization, association, person, 
group of persons, or system; or (ii) Discipline subscribers other 
than by exclusion from trading.'' 17 CFR 242.300(a). Rule 4552 and 
the other amendments in the proposed rule change apply to any 
alternative trading system, as that term is defined in Regulation 
ATS, that has filed a Form ATS with the Commission.
    \6\ See Securities Exchange Act Release No. 71341 (January 17, 
2014), 79 FR 4213 (January 24, 2014) (Approval Order).
    \7\ See Regulatory Notice 14-07 (February 2014).
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    The proposed rule change amends these new requirements in two ways 
to address implementation questions that have arisen since the SEC's 
approval of the new provisions as they relate to ATSs that trade debt 
securities reportable to the Trade Reporting and Compliance Engine 
(``TRACE'').\8\ First, the proposed rule change removes from the ATS 
weekly reporting requirement in Rule 4552 transactions in TRACE-
Eligible Securities so that, as amended, Rule 4552 would require ATSs 
to report only volume information in equity securities subject to FINRA 
trade reporting requirements (i.e., NMS stocks and OTC Equity 
Securities).\9\
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    \8\ Debt securities reportable to TRACE (``TRACE-Eligible 
Securities'') are set forth in Rule 6710. See Rule 6710(a).
    \9\ The proposed rule change also replaces the phrase 
``alternative trading system'' with the defined term ``ATS'' in Rule 
4552(d).
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    Following discussions with multiple firms after the adoption of 
Rule 4552 and a review of TRACE trade reporting guidance and practices, 
FINRA believes that initially requiring ATSs to self-report volume 
information for TRACE-Eligible Securities is not necessary and that 
FINRA can confirm its ability to rely on TRACE data to calculate 
reliable volume information once the MPID Requirement is in place 
through targeted requests to firms rather than requiring weekly 
reports. FINRA intends to continue to work with ATSs that trade TRACE-
Eligible Securities to confirm they are accurately and completely 
reporting transaction information to TRACE, and FINRA expects to 
request periodically that some ATSs provide the staff with their weekly 
volume for TRACE-Eligible Securities. FINRA does not believe, however, 
that it is necessary to require these ATSs to incur the costs necessary 
to report weekly volume information to FINRA pursuant to Rule 4552 when 
FINRA can obtain more targeted data by working directly with firms.
    Moreover, because ATS volume information regarding TRACE-Eligible 
Securities will not be publicly disseminated at this time, FINRA 
believes the costs to ATSs to comply with the reporting requirements of 
Rule 4552 with respect to TRACE-Eligible Securities outweighs the 
benefits of receiving the information on a weekly basis.\10\ FINRA is 
not proposing to amend the reporting requirement for ATSs with respect 
to equity data because of the need to ensure that the ATS equity data 
that is publicly disseminated is consistent across ATSs.
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    \10\ See Rule 4552(b).
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    Second, the proposed rule change amends Rules 6160, 6170, 6480, and 
6720 to permit an ATS that trades both TRACE-Eligible Securities and 
equity securities (OTC Equity Securities or NMS stocks) to use two 
MPIDs, rather than a single unique MPID, if each MPID is used 
exclusively for either TRACE-Eligible Securities or equity securities. 
As noted in SR-FINRA-2013-042, FINRA adopted the requirement that ATSs 
acquire and use a single, unique MPID for reporting to FINRA to enable 
FINRA to rely on trade reports to determine whether an ATS has reached 
any of the volume thresholds in Regulation ATS, to allow FINRA to 
calculate consistent and accurate volumes of ATS activity, and to 
provide more granular information regarding ATS activity to FINRA's 
market surveillance program. Because TRACE and the equity trade 
reporting facilities (the Alternative Display Facility, the exchange 
Trade Reporting Facilities, and the OTC Reporting Facility) operate 
independently, a single ATS's use of two separate MPIDs does not impede 
FINRA's ability to perform these calculations provided the use of each 
MPID is limited to either TRACE or the equity trade reporting 
facilities. Consequently, the proposed rule change would allow a single 
ATS to use two MPIDs provided the use of each MPID is exclusively 
limited to reporting to either TRACE or one or more of the equity trade 
reporting facilities.
    FINRA has filed the proposed rule change for immediate 
effectiveness. The implementation date of the proposed amendments to 
Rule 4552 will be May 12, 2014. The implementation date of the proposed 
amendments to Rules 6160, 6170, 6480, and 6720 will be November 10, 
2014. FINRA will announce the implementation dates of the proposed rule 
change no later than 60 days following Commission notice of the filing 
of the proposed rule change for immediate effectiveness.
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 believes that the proposed rule change will 
enhance members' ability to comply with Rule 4552 and the amendments to 
Rules 6160, 6170, 6480, and 6720 by alleviating some of the burdens 
imposed by those rules without any detriment to FINRA's ability to 
surveil for compliance with Regulation ATS or to calculate accurate 
volume information for ATS trading activity.
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    \11\ 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. The proposed rule change 
provides for additional flexibility for ATSs that trade both debt 
securities and equity securities and removes the self-reporting 
obligation on ATSs that trade only debt securities.

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

[[Page 21319]]

19(b)(3)(A) of the Act \12\ and Rule 19b-4(f)(6) thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6).
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    In addition, Rule 19b-4(f)(6)(iii) requires a self-regulatory 
organization to provide the Commission with written notice of its 
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 requested that the 
Commission waive the 5-day advance filing requirement. The Commission 
hereby grants this request.\14\
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    \14\ The Commission notes that it was notified four days prior 
to filing of this proposed rule change.
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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-2014-017 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-2014-017. 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 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-2014-017, and should 
be submitted on or before May 6, 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. 2014-08414 Filed 4-14-14; 8:45 am]
BILLING CODE 8011-01-P