Document ID: SEC-2011-0090-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2011-01-19T05:00Z

[Federal Register Volume 76, Number 12 (Wednesday, January 19, 2011)]
[Notices]
[Pages 3182-3184]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-949]

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SECURITIES AND EXCHANGE COMMISSION

Release No. 34-63695; File No. SR-FINRA-2010-068

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

January 11, 2011.
    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 December 30, 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 and 
II 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 7610A (Securities 
Transaction Credit) to modify credits provided to members that use the 
FINRA/Nasdaq Trade Reporting Facility (``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''). In connection with the 
establishment of the FINRA/Nasdaq 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.
    The FINRA/Nasdaq TRF receives revenue for transactions reported to 
the three tapes \5\ from the Consolidated Tape Association and Nasdaq 
Securities Information Processor (the ``Tapes''). Pursuant to Rule 
7610A, FINRA members are provided with a fractional share of this 
revenue based on their ``Market Share.''\6\ Market Share is

[[Page 3183]]

calculated quarterly for each member based on the transactions 
attributed to them in each of the three Tapes. Rule 7610A provides four 
tiers of revenue share: 0%, 50%, 80% and 100%. Eligibility for a tier 
is based on the percentage of Market Share, and the percentage of 
Market Share required increases as the tiers of revenue share increase.
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    \5\ 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.
    \6\ Rule 7610A defines Market Share as a percentage calculated 
by dividing the total number of shares represented by trades 
reported by a FINRA member to the FINRA/Nasdaq TRF during a given 
calendar quarter by the total number of shares represented by all 
trades reported to the Consolidated Tape Association or the Nasdaq 
Securities Information Processor, as applicable, during that 
quarter. Market Share is calculated separately for each tape.
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Proposed Credit Schedule
    NASDAQ OMX, as the FINRA/Nasdaq TRF Business Member, has determined 
to amend the current Market Share percentages for revenue sharing 
eligibility applicable to Tapes A, B and C by increasing the current 
qualifying Market Share percentages for each tier and adding a new 
Revenue Share tier. In addition, NASDAQ OMX has determined to adjust 
the Revenue Share percentages under the credit schedule within each of 
the tiers.
    Accordingly, FINRA is proposing to amend Rule 7610A to reflect the 
new credit schedule. The following table provides a comparison of the 
old Market Share tier structure with the proposed new structure:

----------------------------------------------------------------------------------------------------------------
                                                                 Revenue
                                     Previous tier break point    share       New tier break point      Revenue
                                                                (percent)                                share
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Tape A Tier 1.....................  =>0.75%                           100  =>2%                              98%
Tape A Tier 2.....................  <0.75%, =>0.25%                    80  <2%, =>1%                          95
Tape A Tier 3.....................  <0.25%, =>0.10%                    50  <1%, =>0.50%                       75
Tape A Tier 4.....................  <0.10%                              0  <0.50%, =>0.10%                    20
Tape A Tier 5.....................  N/A                         .........  <0.10%                              0
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Tape B Tier 1.....................  =>0.75%                           100  =>2%                               98
Tape B Tier 2.....................  <0.75%, =>0.25%                    80  <2%, =>1%                          90
Tape B Tier 3.....................  <0.25%, =>0.10%                    50  <1%, =>0.35%                       70
Tape B Tier 4.....................  <0.10%                              0  <0.35%, =>0.10%                    10
Tape B Tier 5.....................  N/A                         .........  <0.10%                              0
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Tape C Tier 1.....................  =>0.75%                           100  =>2%                               98
Tape C Tier 2.....................  <0.75%, =>0.25%                    80  <2%, =>1%                          95
Tape C Tier 3.....................  <0.25%, =>0.10%                    50  <1%, =>0.50%                       75
Tape C Tier 4.....................  <0.10%                              0  <0.50%, =>0.10%                    20
Tape C Tier 5.....................  N/A                         .........  <0.10%                              0
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    NASDAQ OMX, as the Business Member, has advised FINRA that it 
believes that the increase in tier break point percentages coupled with 
the adjusted and new Revenue Share tiers will make the tiers more 
meaningful. In this regard, the Business Member has observed that the 
distribution of participants among the tiers is significantly weighted 
toward the top tiers under each of the Tapes. The Business Member 
believes that the proposed tier break points will result in a more even 
distribution of participants among the various tiers. The Business 
Member notes that all participants eligible for Revenue Share under the 
current credit schedule will continue to be eligible for Revenue Share 
under the proposed credit schedule, although at the adjusted Revenue 
Share percentages.
    FINRA has filed the proposed rule change for immediate 
effectiveness. FINRA is proposing that the operative date of the 
proposed rule change will be January 3, 2011.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(5) of the Act,\7\ 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 amended credit schedule is fair and 
provides an equitable allocation of the credits provided to the FINRA/
Nasdaq TRF in that it will apply uniformly to all FINRA members that 
use the FINRA/Nasdaq TRF.
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    \7\ 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

    Written comments were neither solicited nor 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) of the Act \8\ and paragraph (f)(2) of Rule 19b-4 
thereunder.\9\ 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.
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 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 
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-2010-068 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission,

[[Page 3184]]

100 F Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2010-068. 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, 100 F 
Street, NE., Washington, DC 20549, 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-
068 and should be submitted on or before February 9, 2011.

    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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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-949 Filed 1-18-11; 8:45 am]
BILLING CODE 8011-01-P