Document ID: SEC-2021-0816-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2021-06-09T04:00Z

[Federal Register Volume 86, Number 109 (Wednesday, June 9, 2021)]
[Notices]
[Pages 30663-30671]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-12026]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92105; File No. SR-FINRA-2020-031]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Granting Approval of a Proposed Rule Change, as 
Modified by Amendment No. 2, To Adopt Proposed Rule 6439 (Requirements 
for Member Inter-Dealer Quotation Systems) and Rescind the Rules 
Related to the OTC Bulletin Board Service

June 3, 2021.

I. Introduction

    On September 24, 2020, the Financial Industry Regulatory Authority, 
Inc. (``FINRA'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to rescind the rules related to 
the OTC Bulletin Board Service and cease its operation and to adopt new 
requirements for member inter-dealer quotation systems that disseminate 
quotations in equity securities traded over-the-counter (``OTC''). The 
proposed rule change was published for comment in the Federal Register 
on October 7, 2020.\3\ On November 4, 2020, pursuant

[[Page 30664]]

to Section 19(b)(2) of the Act,\4\ the Commission designated a longer 
period within which to approve the proposed rule change, disapprove the 
proposed rule change, or institute proceedings to determine whether to 
disapprove the proposed rule change.\5\ On December 21, 2020, FINRA 
filed Amendment No. 1 to the proposed rule change.\6\ On December 30, 
2020, the Commission published notice of Amendment No. 1 and instituted 
proceedings pursuant to Section 19(b)(2)(B) of the Act \7\ to determine 
whether to approve or disapprove the proposed rule change.\8\ On April 
5, 2021, the Commission extended the period for consideration of the 
proposed rule change to June 4, 2021.\9\ On June 1, 2021, FINRA filed 
Amendment No. 2 to the proposed rule change, which replaces and 
supersedes Amendment No. 1 in its entirety.\10\ The Commission received 
four comment letters regarding the proposed rule change,\11\ and two 
responses to comments from FINRA.\12\ This order approves the proposed 
rule change, as modified by Amendment No. 2.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Exchange Act Release No. 90067 (October 1, 2020), 85 FR 
63314 (``Notice''). Comments on the proposed rule change can be 
found at: https://www.sec.gov/comments/sr-finra-2020-031/srfinra2020031.htm.
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Exchange Act Release No. 90335 (November 4, 2020). The 
Commission designated January 5, 2021, as the date by which the 
Commission shall approve or disapprove, or institute proceedings to 
determine whether to approve or disapprove, the proposed rule 
change.
    \6\ Amendment No. 1 may be found at: https://www.sec.gov/comments/sr-finra-2020-031/srfinra2020031-8841399-238269.pdf.
    \7\ 15 U.S.C. 78s(b)(2)(B).
    \8\ See Exchange Act Release No. 90824, 86 FR 653 (January 6, 
2021).
    \9\ See Securities Exchange Act Release No. 91474, 86 FR 18583 
(April 9, 2021).
    \10\ Amendment No. 2 is a partial amendment in which FINRA added 
a representation that the effective date for deleting the rules 
related to the OTCBB (as defined herein) will not occur until: (1) 
Proposed Rule 6439 (except for Rule 6439(d)(1)(B)) is effective; and 
(2) the Commission grants FINRA's request set forth in the QEQS 
Designation Request Letter (as defined herein) (or FINRA files a 
rule filing otherwise setting the implementation date for deleting 
the rules related to the OTCBB and the Commission approves such rule 
filing, if required). Because Amendment No. 2 to the proposed rule 
clarifies the timing of effectiveness of the proposed rule change 
and does not materially alter the substance of the proposed rule 
change, Amendment No. 2 is not subject to notice and comment. 
Amendment No. 2 may be found at: https://www.sec.gov/comments/sr-finra-2020-031/srfinra2020031.htm.
    \11\ See Letters from Christopher Bok, Chief Compliance Officer, 
OTC Link, LLC, dated October 28, 2020 (``OTC Link Letter 1''); 
Kimberly Unger, CEO and Executive Director, The Security Traders 
Association of New York, Inc., dated October 28, 2020 (``STANY 
Letter''); Sherry J. Sandler, Global OTC, dated November 9, 2020 
(``Global OTC Letter''), and Cass Sanford, Associate General 
Counsel, OTC Markets Group, Inc., dated January 27, 2021 (``OTC Link 
Letter 2'').
    \12\ See Letters from Racquel Russell, Associate General 
Counsel, FINRA, dated November 20, 2020 (``FINRA Letter 1'') and 
February 12, 2021 (``FINRA Letter 2'').
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II. Summary of the Proposal, as Modified by Amendment No. 2

    As further described below, FINRA proposes to (i) rescind FINRA's 
rules governing the OTC Bulletin Board Service (``OTCBB'') and cease 
its operation; and (ii) adopt new Rule 6439 (Requirements for Member 
Inter-Dealer Quotation Systems) to expand the obligations of member 
interdealer quotation systems (``IDQSs'') \13\ that disseminate 
quotation updates on a real-time basis in OTC Equity Securities.\14\
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    \13\ FINRA Rule 6420(c) defines ``inter-dealer quotation 
system'' as ``any system of general circulation to brokers or 
dealers which regularly disseminates quotations of identified 
brokers or dealers.'' This definition tracks the Commission's 
definition of the same term in Exchange Act Rule 15c2-11, 17 CFR 
240.15c2-11.
    \14\ The term ``OTC Equity Security'' is defined in FINRA Rule 
6420(f) as any equity security that is not an ``NMS stock'' as that 
term is defined in Rule 600(b)(47) of Regulation NMS; provided, 
however, that the term ``OTC Equity Security'' shall not include any 
Restricted Equity Security. The term ``Restricted Equity Security'' 
is further defined in FINRA Rule 6420(k) to mean any equity security 
that meets the definition of ``restricted security'' as contained in 
Rule 144(a)(3) under the Securities Act of 1933.
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A. Rescission of Rules Governing the OTCBB

    The OTCBB is a FINRA-operated IDQS available for use by broker-
dealers to publish quotations in eligible OTC Equity Securities.\15\ 
FINRA has operated the OTCBB since 1990.\16\ FINRA states that, due to 
technological advancements since 1990 and the increase in alternative 
electronic venues with more extensive functionality than the OTCBB, the 
level of quotation activity occurring on the OTCBB has continued to 
decline over the past several years and is now nonexistent.\17\ FINRA 
represents that, as of the date that it filed the proposed rule change, 
the OTCBB does not display or widely disseminate quotation information 
on any OTC Equity Security.\18\
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    \15\ See Notice, supra note 3, at 63315.
    \16\ See id.
    \17\ See id.
    \18\ See id.
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    FINRA states that it does not believe that continued operation of 
the OTCBB serves any benefit to investors or the marketplace and that 
ceasing operation of the OTCBB would eliminate potential investor 
confusion regarding the availability of quotation information for OTC 
Equity Securities.\19\ In addition, FINRA states that it does not 
believe that the OTCBB, in its current state, furthers the goals and 
objectives of Section 17B of the Act and, therefore, does not meet the 
characteristics of a system described in Section 17B of the Act 
regarding the widespread dissemination of reliable and accurate 
quotation information with respect to ``penny stocks.'' \20\
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    \19\ See id. at 63318. For example, FINRA states that where 
investors look to feeds that solely disseminate OTCBB data for 
quotation information on a particular OTC Equity Security, investors 
mistakenly may conclude that there are no current quotations in the 
security (when, in fact, there may be numerous quotations available 
elsewhere--i.e., on member-operated IDQSs). See id.
    \20\ Section 17B(b)(1) of the Act, which was added by the 
Securities Enforcement Remedies and Penny Stock Reform Act of 1990 
(``Penny Stock Act''), directs the Commission to ``facilitate the 
widespread dissemination of reliable and accurate last sale and 
quotation information with respect to penny stocks . . . with a view 
toward establishing, at the earliest feasible time, one or more 
automated quotation systems that will collect and disseminate 
information regarding all penny stocks.'' 15 U.S.C. 78q-2(b)(1). 
Under Exchange Act Rule 3a51-1, ``penny stock'' is a non-NMS stock 
that among other things, does not include securities that have a 
price of five dollars or more as determined either on a per 
transaction basis or, in the absence of a transaction, on the basis 
of the inside bid quotation for the security displayed on an 
automated interdealer quotation system that has the characteristics 
set forth in Section 17B(b)(2) of the Act or such other automated 
interdealer system that is designated by the Commission for purposes 
of the rule (such a system, a ``Qualifying Electronic Quotation 
System'' or ``QEQS''). See 17 CFR 240.3a51-1; Exchange Act Release 
No. 30608 (April 20, 1992), 57 FR 18004 (April 28, 1992) (``Penny 
Stock Rules Adopting Release''); 17 CFR 240.3a51-1, 15g-1 through 
15g-9 and 15g-100 (``Penny Stock Rules''). The Commission, in 
adopting the Penny Stock Rules, set forth standards it would 
consider when designating a QEQS. See Penny Stock Rules Adopting 
Release, 57 FR at 18012 n.64. The QEQS designation criteria set 
forth in the Penny Stock Rules are based on the Exchange Act Section 
17B characteristics of an automated quotation system that would 
facilitate the widespread dissemination of reliable and accurate 
last sale and quotation information with respect to penny stocks. 
See 15 U.S.C. 78q-2(b)(1) and (2). In 1992, the Commission 
designated the OTCBB, then operated by FINRA's predecessor the 
National Association of Securities Dealers, Inc. (``NASD''), as an 
automated interdealer quotation system and a QEQS for purposes of 
the Penny Stock Rules. See Letter from Margaret H. McFarland, Deputy 
Secretary, Commission, to Richard Ketchum, Executive Vice President, 
NASD, Inc., dated December 30, 1992 (``OTCBB Designation Letter''). 
The Commission thereafter granted the NASD's request for an 
extension of QEQS status. See Securities Exchange Act Release No. 
38101 (Dec. 31, 1996), 62 FR 1010 (Jan. 7, 1997).
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    As a result, FINRA proposes to rescind the FINRA Rule 6500 Series, 
which governs the operation of the OTCBB. Among other things, the FINRA 
Rule Series 6500 contains provisions regarding the securities eligible 
to be quoted on the OTCBB (FINRA Rule 6530), market maker obligations 
on the OTCBB (FINRA Rule 6540), and transaction reporting (FINRA Rule 
6550). FINRA also proposes to rescind FINRA Rule 7720, which sets forth 
the fees applicable to a broker-dealer that displays quotations or 
trading interest in the OTCBB, and to amend FINRA Rule

[[Page 30665]]

9217 (Violations Appropriate for Disposition Under Plan Pursuant to SEA 
Rule 19d-1(c)(2)) to remove reference to FINRA Rule 6550 (Transaction 
Reporting). While these proposed changes to the FINRA rulebook would 
cause the operation of the OTCBB to terminate, FINRA states that it 
would not cease operation of the OTCBB until: (1) Proposed Rule 6439 
(except for proposed Rule 6439(d)(1)(B)) is effective, and (2) the 
Commission grants FINRA's request set forth in the QEQS Designation 
Request Letter (or FINRA files a rule filing otherwise setting the 
implementation date for deleting the rules related to the OTCBB and the 
Commission approves such rule filing, if required).\21\
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    \21\ See Amendment No. 2, supra note 10. See also infra notes 
46-47 and accompanying text.
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B. Proposed Rule 6439 (Requirements for Member Inter-Dealer Quotation 
Systems)

    FINRA states that all quotation activity in OTC Equity Securities 
now occurs on member-operated IDQSs, rather than the OTCBB.\22\ FINRA 
proposes, in conjunction with the cessation of the OTCBB, to adopt new 
requirements for member IDQSs that provide quotations in OTC Equity 
Securities in order to ensure that they have minimum standards in 
place.\23\ FINRA states that it believes that the proposed requirements 
would complement the existing framework governing the form and content 
of quotations \24\ and are consistent with the goals and objectives of 
Section 17B of the Act regarding the facilitation of widespread 
dissemination of reliable and accurate quotation information in penny 
stocks.\25\
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    \22\ See Notice, supra note 3, at 63320.
    \23\ Id. at 63316.
    \24\ FINRA currently has in place rules that govern the activity 
of member firms when they engage in quoting OTC Equity Securities. 
Specifically, the FINRA Rule 6400 Series (Quoting and Trading in OTC 
Equity Securities), among other things, provides a regulatory 
framework that governs the form and content of OTC Equity 
Securities' quotations, and the FINRA Rule 5200 Series sets forth 
rules of general applicability that govern quoting and trading 
practices in this market sector (hereinafter, the FINRA Rule Series 
6400 and 5200 are collectively referred to as the ``FINRA Quotation 
Governance Rules''). See Notice, supra note 3, at 63314-15. Rather 
than governing the activity of member firms, like the FINRA 
Quotation Governance Rules, proposed Rule 6439 would provide 
quotation governance standards for member IDQSs on or through which 
quotations are displayed.
    \25\ See supra note 20.
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    Proposed Rule 6439 would apply to member IDQSs (whether or not such 
member is also an alternative trading system (``ATS'')) that permit 
quotation updates on a real-time basis in OTC Equity Securities. Under 
proposed Rule 6439(a), member IDQSs must establish, maintain and 
enforce written policies and procedures relating to the collection and 
dissemination of quotation information in OTC Equity Securities on or 
through their systems. Such written policies and procedures must be 
reasonably designed to ensure that quotations received and disseminated 
are informative, reliable, accurate, firm, and treated in a not 
unfairly discriminatory manner, including by establishing non-
discretionary standards under which quotations are prioritized and 
displayed.\26\ Member IDQSs must also prominently disclose these 
written policies and procedures, along with any material updates, 
modifications and revisions thereto, to subscribers within five 
business days following the date of establishment of a policy or 
procedure or implementation of a material change, as well as provide 
them to prospective subscribers upon request.\27\
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    \26\ For example, FINRA states that a member IDQS would be 
required to address in its procedures its methodology for ranking 
quotations, including at a minimum, addressing factors such as price 
(including any applicable quote access fee), size, time, capacity 
and type of quotation (such as unpriced quotes and bid/offer wanted 
quotations). The member IDQS also would be required to include any 
other factors relevant to the ranking and display of quotations 
(e.g., reserve sizes, quotation updates, treatment of closed 
quotations, and quotation information imported from other systems). 
See Notice, supra note 3, at 63316.
    \27\ FINRA states that a member that is an IDQS at the time of 
the effective date of this proposed rule change would be required to 
prominently disclose the required information to its subscribers 
upon the effective date of the proposed rule change and, thereafter, 
within five business days of the implementation of any material 
update, modification or revision thereto. See id., at n.16.
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    Under proposed Rule 6439(b), member IDQSs must establish non-
discriminatory written standards for granting access to quoting and 
trading in OTC Equity Securities on their systems that do not 
unreasonably prohibit or limit any person with respect to access to 
services offered by such member IDQS.\28\ As with the requirements 
under proposed Rule 6439(a), member IDQSs would be required to 
prominently disclose these written standards relating to fair access, 
and any material updates, modifications and revisions thereto, to their 
subscribers within five business days following the date of 
establishment of written standards or implementation of a material 
change, as well as provide them to prospective subscribers upon 
request.\29\ In addition, member IDQSs would be required to make and 
keep records of all grants of access and all denials or limitations of 
access. Such records must include, for all subscribers, the reasons for 
granting access, and, for all denials or limitations of access, the 
reasons for denying or limiting such access.\30\
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    \28\ FINRA states that this proposed requirement is consistent 
with the ``fair access'' requirements of Regulation ATS but would 
apply to quoting and trading in all OTC Equity Securities on the 
member IDQS, regardless of the percentage of average daily volume 
that such member IDQS had in the security. See 17 CFR 242.301(b)(5). 
FINRA states that while certain member IDQSs may already be subject 
to the similar volume-based fair access requirements under 
Regulation ATS, proposed Rule 6439 would ensure the application of 
fair access requirements to all member IDQSs. See Notice, supra note 
3, at 63316.
    \29\ See id. at 63316-17. See also supra note 27.
    \30\ See proposed Rule 6439(b).
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    Proposed Rules 6439(c) and (d) would apply only to member IDQSs 
that do not automatically execute all orders presented for execution 
against displayed quotations for which a member subscriber has an 
obligation under FINRA Rule 5220 (Offers at Stated Prices) \31\ (such a 
system is hereafter referred to as a ``non-auto-executing member 
IDQS''). Under proposed Rule 6439(c), non-auto-executing member IDQSs 
must establish, maintain and enforce written policies and procedures 
that are reasonably designed to address instances of unresponsiveness 
to orders in an OTC Equity Security. At a minimum, these policies and 
procedures must specify an efficient process for: (i) Monitoring 
subscriber unresponsiveness; (ii) subscribers to submit complaints to 
the non-auto-executing member IDQS regarding potential instances of 
order unresponsiveness; (iii) documenting the subscriber's rationale 
for unresponsiveness; and (iv) determining specified steps when an 
instance of, or repeated, order unresponsiveness may have occurred.\32\
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    \31\ FINRA Rule 5220 and its associated Supplementary Material 
set forth members' firm quote obligations. Specifically, FINRA Rule 
5220 provides that no member shall make an offer to buy from or sell 
to any person any security at a stated price unless such member is 
prepared to purchase or sell, as the case may be, at such price and 
under such conditions as are stated at the time of such offer to buy 
or sell.
    \32\ See Notice, supra note 3, at 63317.
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    Under proposed Rule 6439(d), non-auto-executing member IDQSs must 
report to FINRA, in a form and manner prescribed by FINRA,\33\ certain 
aggregate and order-level information in OTC Equity Securities. 
Specifically, proposed Rule 6439(d)(1)(A) would require a non-auto-
executing member IDQS to report to FINRA on a monthly basis the 
following aggregated information, categorized by FINRA

[[Page 30666]]

member subscriber market participant identifier (MPID) across all 
symbols quoted by the MPID during the previous calendar month: (i) 
Total number of marketable orders presented for execution against the 
MPID's quotation; \34\ (ii) average execution (full or partial) time 
for marketable orders presented against the MPID's quotation based on 
the time an order is presented; (iii) total number of full or partial 
executions based on the time a marketable order is presented that are 
within the following execution timeframes: <5 seconds; >=5 and <10 
seconds; >=10 and <20 seconds; and >=20 seconds; (iv) total number of 
marketable orders presented against the MPID's quotation that did not 
receive a full or partial execution; and (v) average response time of 
the highest 10% and highest 50% of the MPID's response times for 
marketable orders (for full or partial executions).\35\
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    \33\ FINRA states that following Commission approval, FINRA 
would announce in a Regulatory Notice details about the required 
manner and timing of the submission of this information to FINRA. 
See Notice, supra note 3, at 63317, n.27.
    \34\ FINRA states that in this context, a ``marketable order'' 
refers to a message presented against a market maker's quote that is 
priced to be immediately executable. See id., n.29.
    \35\ See proposed Rule 6439(d)(1)(A).
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    Proposed Rule 6439(d)(1)(B) would require non-auto-executing member 
IDQSs to provide to FINRA the following order-level information for 
each order presented against an MPID's quotation during the previous 
calendar month: (i) Buy/sell; (ii) security symbol; (iii) price; (iv) 
size; (v) All or None indicator (yes or no); (vi) order entry firm 
MPID; (vii) order receipt time; (viii) time in force; (ix) response 
time; (x) order response (e.g., execute, reject cancel, etc.); (xi) 
executed quantity; (xii) system-generated order number (if any); and 
(xiii) position in queue for quote (e.g., IL1, IL2).\36\ However, to 
the extent that the above order-level information is or becomes 
reportable under the Consolidated Audit Trail (``CAT'') pursuant to 
FINRA Rule 6830 (Industry Member Data Reporting), non-auto-executing 
member IDQSs would not be required to report this order-level 
information under proposed Rule 6439(d)(1)(B).\37\
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    \36\ See proposed Rule 6439(d)(1)(B).
    \37\ See proposed Rule 6439(d)(2). If such information is 
reportable to the CAT pursuant to FINRA Rule 6830, this information 
will be available to FINRA. Thus, separate reporting pursuant to 
proposed FINRA Rule 6439(d) would be duplicative.
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    Proposed Rule 6439(e) would require each member IDQS to make 
available to customers on its website (or its affiliate distributor's 
website) a written description of each OTC Equity Security order- or 
quotation-related data product offered by such member IDQS and related 
pricing information, including fees, rebates, discounts and cross-
product pricing incentives. Member IDQSs would be required to keep the 
relevant website page(s) accurate and up-to-date with respect to the 
required data product descriptions and pricing information and to make 
such information available at least two business days in advance of 
offering a data product.\38\ Proposed Rule 6439(e) would specify that a 
member IDQS is not precluded from negotiating lower fees with 
customers, provided that the member IDQS discloses on such website 
page(s) the circumstances under which it may do so.
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    \38\ See proposed Rule 6439(e).
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    Finally, under proposed Rule 6439(f), a member IDQS must provide 
FINRA with prompt notification when it reasonably becomes aware of any 
systems disruption that is not de minimis that degrades, limits, or 
otherwise impacts the member IDQS's functionality with respect to 
trading or the dissemination of market data.\39\ Such notification must 
include, on a reasonable best efforts basis, a brief description of the 
event, its impact, and the member IDQS's resolution efforts.\40\ FINRA 
states that, to comply with this requirement, a member IDQS that is an 
SCI ATS, as defined in Rule 1000 of Regulation SCI, could provide FINRA 
with the same information (or a duplicate copy of any notification) 
submitted to the Commission as required under Regulation SCI Rule 
1002(b) \41\ promptly after filing the notification with the 
Commission.\42\ FINRA states that, if a member IDQS is not an SCI ATS, 
it could comply with this requirement by providing FINRA prompt 
notification when it reasonably becomes aware of any such systems 
disruption, and by providing periodic updates on the event and its 
resolution.\43\ Such notifications would include, on a reasonable best 
efforts basis, a brief description of the event, its impact, and 
resolution efforts.\44\
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    \39\ FINRA would announce in a Regulatory Notice the methods and 
process by which members may provide systems disruption 
notifications to FINRA. See Notice, supra note 3, at 63318.
    \40\ See proposed Rule 6439(f).
    \41\ 17 CFR 242.1002(b).
    \42\ See Notice, supra note 3, at 63318.
    \43\ See id.
    \44\ See id.
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    FINRA states that, if the proposed rule change is approved by the 
Commission, FINRA will announce in a Regulatory Notice the effective 
date(s) of the proposed rule change, which may be phased in but will be 
no later than 365 days following Commission approval.\45\ 
Notwithstanding the foregoing, the effective date for rescinding the 
rules related to the OTCBB will not occur until: (1) Proposed Rule 6439 
(except for Rule 6439(d)(1)(B)) is effective,\46\ and (2) the 
Commission grants FINRA's request set forth in the QEQS Designation 
Request Letter \47\ (or FINRA files a rule filing otherwise setting the 
implementation date for deleting the rules related to the OTCBB and the 
SEC approves such rule filing, if required).\48\ FINRA also states that 
it will examine for compliance by member IDQSs with proposed Rule 6439, 
including by reviewing the adequacy of member IDQSs' written policies 
and procedures and written fair access standards required under the 
proposal, conducting a targeted exam of impacted member IDQSs after the 
initial effectiveness of the rule, and will incorporate a Rule 6439 
review as part of the regular exam program for impacted member 
firms.\49\
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    \45\ See Notice, supra note 3, at 63319.
    \46\ FINRA states that proposed Rule 6439, with one exception 
related to the reporting to FINRA of order-level information, will 
become effective at the same time or prior to the rescission of the 
OTCBB rules. FINRA states that paragraph (d)(1)(B) of proposed Rule 
6439 (requiring reporting of specified order-level information) may 
be phased at a later date within the 365-day timeframe to allow 
FINRA to better coordinate with the timeline for reporting 
information in OTC Equity Securities to the CAT under FINRA Rule 
6830 (Industry Member Data Reporting). See Amendment No. 2, supra 
note 10.
    \47\ See infra note 66.
    \48\ See id.
    \49\ See Notice, supra note 3, at 63316, n.17.
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III. Discussion and Commission Findings

    After carefully reviewing the proposed rule change, as modified by 
Amendment No.2, the comment letters, and the FINRA letters, the 
Commission finds that the proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities association.\50\ In particular, the 
Commission finds that the proposed rule change is consistent with 
Section 15A(b)(6) of the Act,\51\ in that it is designed, among other 
things, 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. In addition, the Commission 
finds that the proposed rule change is consistent with Section 
15A(b)(11) of the Act, in that it includes provisions governing the 
form and content of quotations relating to securities sold otherwise 
than on a national securities exchange which may

[[Page 30667]]

be distributed or published by any member or person associated with a 
member, and the persons to whom such quotations may be supplied, and 
that such rules are designed to produce fair and informative 
quotations, to prevent fictitious or misleading quotations, and to 
promote orderly procedures for collecting, distributing, and publishing 
quotations.\52\ The Commission also finds that the proposal is 
consistent with Section 17B(b)(1) of the Act in that it is designed to 
facilitate the widespread dissemination of reliable and accurate last 
sale and quotation information with respect to penny stocks.\53\
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    \50\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \51\ 15 U.S.C. 78o-3(b)(6).
    \52\ 15 U.S.C. 78o-3(b)(11).
    \53\ 15 U.S.C 78q-2(b)(1).
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A. Rescission of Rules Governing the OTCBB

    As noted by FINRA, the OTCBB currently does not display or widely 
disseminate quotation information on any OTC Equity Securities, and all 
quotation activity in OTC Equity Securities occurs on member IDQSs.\54\ 
As a result, FINRA represents that discontinuance of the OTCBB as an 
IDQS will not impact the current level of quotation information 
available for OTC Equity Securities.\55\ The Commission received two 
comment letters supporting FINRA's proposal to cease operation of the 
OTCBB.\56\ These commenters agreed that the OTCBB no longer benefits 
investors or the marketplace due to how the market for OTC Equity 
Securities has evolved.\57\
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    \54\ See supra notes 18 and 22 and accompanying text.
    \55\ See Notice, supra note 3, at 63318.
    \56\ See OTC Link Letter 1 and STANY Letter, supra note 11.
    \57\ See STANY Letter, supra note 11, at 1; OTC Link Letter 1, 
supra note 11, at 1.
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    The Commission believes that the continued operation of the OTCBB, 
which FINRA represents is essentially defunct, provides no current 
benefit to the market and could cause investor confusion with respect 
to the availability of quotations in OTC Equity Securities. The 
Commission recently estimated \58\ that, on average, there were 9,998 
quoted OTC securities \59\ that had published quotations per day during 
the calendar year 2019.\60\ OTC Markets Group, which operates OTC Link 
ATS (a member IDQS that would be subject to proposed Rule 6439), 
currently identifies 81 broker-dealers that are active on the OTC Link 
ATS in OTC securities.\61\ In addition, from aggregated OTC Markets 
Group data for the calendar year 2019, the Commission identified 19,141 
unique OTC securities for 16,059 unique companies.\62\ Of these 
securities, 11,542 unique OTC securities had at least one published 
quotation on OTC Link ATS and 9,895 unique companies had a security 
that was quoted at least once on OTC Link ATS during the calendar year 
2019.\63\ By contrast, the Commission understands that there currently 
is no quoting activity occurring on the OTCBB.\64\ Given the non-
existent quoting activity on the OTCBB and the emergence of member 
IDQSs, such as OTC Link ATS, as the dominant sources for quotation 
activity in OTC Equity Securities, the Commission agrees with FINRA 
that the continued operation of the OTCBB could result in confusion 
with respect to the availability of quotations in OTC Equity 
Securities. For example, an investor looking solely to the OTCBB for 
quotation data for a particular OTC Equity Security could mistakenly 
conclude that there are no current quotations in the security when, in 
fact, there may be quotations available elsewhere--i.e., on member 
IDQSs. Further, FINRA has represented that it will not cease operation 
of the OTCBB until proposed Rule 6439 (except for Rule 6439(d)(1)(B)) 
is effective and the Commission either grants FINRA's request set forth 
in the QEQS Designation Request Letter or approves (if necessary) a 
subsequent rule filing from FINRA that otherwise sets the 
implementation date for deleting the rules related to the OTCBB.\65\ 
Accordingly, the Commission finds that the proposed rule change to 
rescind FINRA's rules governing the OTCBB and cease its operation, 
while simultaneously implementing enhanced regulatory requirements for 
member IDQSs pursuant to Rule 6439, will protect investors and the 
public interest, consistent with Section 15A(b)(6) of the Act, by 
eliminating investor confusion that could arise because members no 
longer submit quotations to the OTCBB and, as a result, the OTCBB no 
longer displays any quotations in OTC Equity Securities.\66\
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    \58\ See Securities Exchange Act Release Nos. 89891 (September 
16, 2020), 85 FR 68124, 68185-86 (October 27, 2020) (``Exchange Act 
Rule 15c2-11 Release''). The Commission uses three sources of data 
on OTC securities. OTC Markets Group's ``End-of-Day Pricing 
Service'' and ``OTC Security Data File'' provide closing trade and 
quote data for the U.S. OTC equity market and include identifying 
information for securities and issuers. The Commission also uses 
information from the weekly OTC Markets Group's ``OTC Company Data 
File.'' Company Data Files include information about issuer 
reporting, shell, and bankruptcy status, as well as the SEC Central 
Index Key (CIK) identifier and whether an issuer's financial 
statements are audited. See id., at 68185, n.640.
    \59\ While this data may include OTC securities that are 
restricted securities and thus outside of the scope of FINRA's 
definition of OTC Equity Securities, the Commission believes that 
the data is reasonably representative of quoting and trading 
activity in OTC Equity Securities.
    \60\ See id. at 68185. The number of securities quoted includes 
those securities with published priced and unpriced quotations. The 
Commission estimated that approximately seven percent of quoted OTC 
securities did not have priced quotations. See id. at 68185, n.641.
    \61\ See Broker-Dealer Directory, OTC Markets Group. Inc., 
https://www.otcmarkets.com/otc-link/broker-dealer-directory (last 
visited Apr. 19, 2021, 2:16 p.m.). The Commission expects that not 
all of the broker-dealers included in the directory are actively 
engaged in quoting OTC securities. See also Exchange Act Rule 15c2-
11 Release, supra note 58, at 68184.
    \62\ See Exchange Act Rule 15c2-11 Release, supra note 58, at 
68185.
    \63\ See id. at 68185, n.640. The Commission believes that OTC 
Markets Group data are reasonably representative of all OTC quoting 
and trading activity in the U.S. OTC equities market. See id.
    \64\ See supra note 18 and accompanying text.
    \65\ See Amendment No. 2, supra note 10.
    \66\ As noted above, the Commission previously designated the 
OTCBB as an automated interdealer quotation system and QEQS for 
purposes of the Penny Stock Rules. Historically, the universe of 
securities quoted on the OTCBB included penny stocks as well as 
higher priced OTC Equity Securities. See OTCBB Designation Letter, 
supra note 20. FINRA has stated that it intends to request that the 
Commission designate the FINRA OTC Reporting Facility (see infra 
note 109 and accompanying text), together with any FINRA-member 
IDQS, as a QEQS for purposes of the Penny Stock Rules (``QEQS 
Designation Request Letter''). See Notice, supra note 3, at 63116, 
n.15; Amendment No. 2, supra note 10.
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B. Proposed Rule 6439 (Requirements for Member Inter-Dealer Quotation 
Systems)

    The Commission finds that the proposed requirements set forth in 
Rule 6439 relating to member IDQSs that permit quotation updates on a 
real-time basis in OTC Equity Securities are consistent with the 
Exchange Act.
    First, the Commission finds that proposed Rule 6439(a), which would 
require member IDQSs to establish, maintain and enforce written 
policies and procedures relating to the collection and dissemination of 
quotation information in OTC Equity Securities on or through their 
systems, is consistent with Section 15A(b)(11) of the Act, which 
requires FINRA rules relating to quotations for securities sold other 
than on a national securities exchange to be designed to produce fair 
and informative quotations, to prevent fictitious or misleading 
quotations, and to promote orderly procedures for collecting, 
distributing, and publishing quotations. The Commission believes that 
proposed Rule 6439(a) is designed to promote orderly procedures for 
collecting, distributing, and publishing quotations in OTC Equity 
Securities because the proposed requirements would apply to all member 
IDQSs that permit quotation updates on a real-time

[[Page 30668]]

basis in OTC Equity Securities. In addition, proposed Rule 6439(a) 
would require that a member IDQS's policies and procedures relating to 
collection and dissemination of quotation information must be 
reasonably designed to ensure that quotations received and disseminated 
are informative, reliable, accurate, firm and treated in a not unfairly 
discriminatory manner, including by establishing non-discretionary 
standards under which quotations are prioritized and displayed. 
Moreover, member IDQSs would be accountable to FINRA should their 
policies and procedures not meet the minimum standards set forth in 
proposed Rule 6439(a) and FINRA has represented that it will examine 
member IDQSs for compliance with the requirements of proposed Rule 
6439, including by reviewing the adequacy of member IDQSs' written 
policies and procedures.\67\ In addition, by requiring that all member-
IDQSs that provide quotations in OTC Equity Securities maintain 
policies and procedures for collecting and disseminating quotation 
information, and that such policies and procedures be reasonably 
designed to ensure that quotations received and disseminated are 
informative, reliable, accurate, firm and treated in a not unfairly 
discriminatory manner, the Commission finds that proposed Rule 6439(a) 
is designed to promote just and equitable principles of trade and 
protect investors and the public interest, consistent with Section 
15A(b)(6) of the Act.
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    \67\ See supra note 49 and accompanying text.
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    Second, the Commission finds that proposed Rule 6439(b), which 
would require a member IDQS to establish non-discriminatory written 
standards for granting access to quoting and trading in OTC Equity 
Securities on its system that do not unreasonably prohibit or limit any 
person in respect to access to services offered by such member IDQS, is 
consistent with Section 15A(b)(6) of the Act, which requires that 
FINRA's rules be designed to promote just and equitable principles of 
trade and protect investors and the public interest. The Commission 
believes that the proposed requirements relating to fair access are 
designed to afford fair and non-discriminatory access for all market 
participants to the quotation systems of all member IDQSs that provide 
real-time quotations in OTC Equity Securities. Given the significant 
role that member IDQSs serve in the marketplace for quotations in OTC 
Equity Securities, the Commission believes that these requirements 
should improve access to quotations for these securities, which should 
help to ensure that investors have the pricing information necessary to 
make informed investment decisions with respect to OTC Equity 
Securities. As a result, the Commission finds that the requirements of 
proposed Rule 6439(b) are designed to promote just and equitable 
principles of trade and protect investors and the public interest, 
consistent with Section 15A(b)(6) of the Act.
    One commenter suggested that member IDQSs that are subject to the 
fair access requirements under Regulation ATS should be exempt from the 
fair access requirements of proposed Rule 6439(b) because such 
requirements are duplicative.\68\ In response, FINRA stated that, to 
the extent that a member IDQS already is subject to Regulation ATS's 
fair access standards with respect to all OTC Equity Securities traded 
on its platform, then the proposal would only additionally require that 
the member IDQS prominently disclose such fair access policies and 
procedures to subscribers.\69\ However, to the extent that a member 
IDQS is not already subject to the fair access standards of Regulation 
ATS for all OTC Equity Securities traded on its platform, FINRA stated 
that the proposal would fill that gap by requiring the member IDQS to 
expand the fair access standards to activity in all OTC Equity 
Securities and to prominently disclose such fair access policies and 
procedures.\70\
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    \68\ See OTC Link Letter 1, supra note 11, at 4. The Commission 
notes that while the commenter, in making this suggestion, referred 
to paragraph (c) of the proposed rule, it is paragraph (b) under 
proposed Rule 6439-- not paragraph (c) that sets forth the proposed 
fair access requirements in Rule 6439. See supra notes 28-30 and 
accompanying text.
    \69\ See FINRA Letter 1, supra note 12, at 5.
    \70\ See id., at 5-6.
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    As discussed, the Commission believes that the requirements 
relating to fair access for member IDQSs, as set forth in proposed Rule 
6439(b), are consistent with the Exchange Act. The fair access 
requirements set forth in Rule 301(b)(5) of Regulation ATS,\71\ which 
are consistent with the requirements set forth in proposed Rule 
6439(b), only apply if an ATS meets certain volume thresholds set forth 
Rule 301(b)(5).\72\ On the other hand, the requirements set forth in 
proposed Rule 6439(b) would apply to quoting and trading in all OTC 
Equity Securities on a member IDQS, regardless of the percentage of 
average daily volume that such member IDQS has in the security. Thus, 
FINRA's proposal would ensure the application of fair access 
requirements to all member IDQSs that permit quotation updates on a 
real-time basis in OTC Equity Securities and to all OTC Equity 
Securities quoted and traded on such member IDQSs. Furthermore, as 
noted by FINRA in its response to comments,\73\ proposed Rule 6439(b) 
sets forth an additional requirement that is not included in Rule 
301(b)(5) of Regulation ATS: That a member IDQS's written standards 
relating to access and any material updates, modifications and 
revisions thereto ``be prominently disclosed to subscribers within five 
business days following the date of establishment of the written 
standards or implementation of the material change and provided to 
prospective subscribers upon request.'' Accordingly, contrary to the 
commenter's assertion, the Commission notes that the proposed fair 
access requirements under Rule 6439(b) are not duplicative of the fair 
access requirements set forth in Rule 301(b)(5) of Regulation ATS. 
Further, the Commission believes that exempting member IDQSs subject to 
the fair access requirements under Regulation ATS from proposed Rule 
6439(b), as the commenter requested, would result in such member IDQSs 
not being subject to a key requirement of the proposed rule and would 
result in disparate treatment among member IDQSs.
---------------------------------------------------------------------------

    \71\ 17 CFR 242.301(b)(5).
    \72\ See supra note 28.
    \73\ See FINRA Letter 1, supra note 12, at 5-6.
---------------------------------------------------------------------------

    Third, proposed Rules 6439(c) and (d) would require non-auto-
executing member IDQSs to establish, maintain and enforce written 
policies and procedures that are reasonably designed to address 
instances of unresponsiveness when orders are presented to trade with 
firm quotations displayed in OTC Equity Securities, and to report on a 
monthly basis certain aggregate and order-level information to FINRA. 
FINRA states that such requirements are designed to enhance compliance 
with the firm quote requirements for non-auto-executing member IDQSs as 
set forth in FINRA Rule 5220.\74\ FINRA also states that the proposed 
information to be reported to FINRA would support its oversight of the 
OTC securities market by providing FINRA with additional information 
regarding the quotation activities occurring on non-auto-executing 
member IDQSs and would assist FINRA in surveilling for member 
compliance

[[Page 30669]]

with firm quote obligations and unresponsiveness.\75\
---------------------------------------------------------------------------

    \74\ See Notice, supra note 3, at 63317. FINRA states that order 
unresponsiveness is an area where it regularly receives complaints. 
FINRA notes that in 2018, it received 119 complaints from members 
regarding instances of unresponsiveness to requests to execute 
against a displayed quotation. See id., at 63318, n.26.
    \75\ See id.
---------------------------------------------------------------------------

    The Commission agrees that unresponsiveness by those who display 
quotations in the OTC Equity Securities market can be harmful to the 
market and investors in OTC Equity Securities. The principle that a 
displayed quotation should be ``firm'' is well established in the 
securities markets.\76\ In its proposal, FINRA would require member 
IDQSs that provide quotations in OTC Equity Securities but do not auto-
execute orders presented for execution against such quotations to adopt 
standards to address instances of unresponsiveness by their 
subscribers. Because a system that permits manual responses to orders 
received against displayed quotations can result in order 
unresponsiveness, the Commission believes that requiring such systems 
to establish, maintain and enforce written policies and procedures that 
are reasonably designed to address instances of unresponsiveness should 
help to ensure that market participants can reasonably rely on the 
displayed quotations on member IDQSs that do not auto-execute orders. 
In addition, the requirement for non-auto-executing member IDQSs to 
report aggregate and order-level information to FINRA should help FINRA 
surveil for unresponsiveness and ``backing away'' by members and to 
take remedial actions against such members, if necessary. As such, the 
Commission finds that paragraphs (c) and (d) of proposed Rule 6439 are 
consistent with Section 15A(b)(6) of the Act in that they are designed, 
among other things, 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.
---------------------------------------------------------------------------

    \76\ See, e.g., Securities Exchange Act Release No. 60835 
(October 16, 2009), 74 FR 54616 (October 22, 2009) (FINRA-2009-055) 
(approving proposal to adopt FINRA Rule 5220 (Offers at Stated 
Prices) into FINRA's consolidated rulebook) (``The Commission 
believes that the proposed rule change is designed to protect 
investors and promote the maintenance of fair, orderly and efficient 
markets by prohibiting a member from publishing a report of any 
transaction unless the member believes that it was a bona fide 
purchase or sale of the security and from ``backing away'' from its 
quotations.''); Securities Exchange Act Release No. 12670 (July 29, 
1976), 41 FR 32856 (August 5, 1976) (proposing Exchange Act Rule 
11Ac1-1 (predecessor to Rule 602 of Regulation NMS) (``The 
reliability and availability of quotation information are basic 
components of a national market system and are needed so that 
broker-dealers are able to make best execution decisions for their 
customers' orders, and customers are able to make order entry 
decisions.'').
---------------------------------------------------------------------------

    Two commenters suggested that FINRA revise proposed Rule 6439(d) to 
exempt member-IDQSs that would have reporting obligations under 
proposed paragraph (d) \77\ from applicable CAT reporting 
obligations.\78\ These commenters stated that proposed Rule 6439 would 
provide a reporting mechanism that is more consistent with the way in 
which IDQSs operate and therefore would make collection and reporting 
more efficient and effective than under the order-based reporting 
prescribed by the CAT.\79\ In response, FINRA stated that the proposal 
was never intended to impact the outcome of whether the commenters' 
order-level information should become CAT reportable and that FINRA 
continues to believe that it is appropriate to exempt a non-auto-
executing member IDQS from reporting under proposed Rule 6439(d)(1)(B) 
if the IDQS's order-level information is CAT reportable.\80\
---------------------------------------------------------------------------

    \77\ See supra notes 33-37 and accompanying text for a 
discussion of the requirements proposed under Rule 6439(d).
    \78\ See STANY Letter, supra note, 11 at 2; OTC Link Letter 1, 
supra note 11, at 3-4. As proposed, non-auto-executing member IDQSs 
would be exempt from the reporting requirements under proposed Rule 
6439(d)(1)(B) to the extent that such items are subject to reporting 
to the CAT under FINRA Rule 6830. See supra note 37 and accompanying 
text.
    \79\ See STANY Letter, supra note 11, at 2; OTC Link Letter 1, 
supra note 11, at 3-4. In connection with this suggested 
modification, one commenter stated its view that trade messages on 
its ATS--OTC Link ATS--are negotiations and do not constitute 
``orders'' for purposes of Rule 6439 or with respect to any CAT 
reporting obligations. See OTC Link Letter 1, supra note 11, at 4. 
FINRA stated in its proposal, and again in its response to comments, 
that such negotiation activities are indeed ``orders'' for purposes 
of FINRA's firm quote rule obligations and proposed Rule 6439. See 
Notice, supra note 3, at 63317, n.28 (stating that such negotiation 
activities are considered ``orders'' for purposes of firm quote rule 
obligations and proposed Rule 6439). See FINRA Letter 1, supra note 
12, at 4, n.12. See also Exchange Act Rule 3b-16(c) and Rule 300(e) 
of Regulation ATS (defining an ``order'' as ``any firm indication of 
a willingness to buy or sell a security, as either principal or 
agent, including any bid or offer quotation, market order, limit 
order, or other priced order'').
    \80\ See FINRA Letter 1, supra note 12, at 4.
---------------------------------------------------------------------------

    The Commission finds that FINRA's proposal to exempt non-auto-
executing member IDQSs from reporting order-level information pursuant 
to proposed Rule 6439(d)(1)(B) to the extent such information becomes 
reportable to CAT is reasonable and is designed to effectively reduce 
reporting redundancies. If the information required to be reported 
pursuant to Rule 6439(d)(1)(B) is already reportable, or becomes 
reportable, to the CAT pursuant to FINRA Rule 6830, it will be 
available to FINRA through the CAT, so separate reporting pursuant to 
proposed FINRA Rule 6439(d)(1)(B) would be duplicative. As a result, 
the Commission finds the proposed exemption is consistent with Section 
15A(b)(6) of the Act in that it is designed to promote just and 
equitable principles of trade.
    These two commenters also requested that FINRA provide additional 
guidance with respect to proposed Rule 6439(c)(3) and (4), which would 
require non-auto-executing member IDQSs to maintain policies and 
procedures that specify an efficient process for documenting a 
subscriber's rationale for unresponsiveness and for determining 
specified steps when an instance of repeated order unresponsiveness may 
have occurred.\81\ In response to these comments, FINRA provided some 
additional guidance specifically requested by commenters relating to 
the requirements of proposed Rule 6439(c)(3) and (4).\82\
---------------------------------------------------------------------------

    \81\ See STANY Letter, supra note 11, at 3; OTC Link Letter 1, 
supra note 11, at 2-3. One commenter noted that, as the only non-
auto-executing member IDQS, it would be the only IDQS that would be 
subject to the requirements set forth in paragraph (c) of the Rule, 
and requested that FINRA issue guidance confirming that its existing 
``saturation'' feature and provision of data regarding subscriber 
unresponsiveness to certain order messages under its trading 
functionalities meet the standards set forth in paragraphs (c)(3) 
and (c)(4) of proposed Rule 6439. See OTC Link Letter 1, supra note 
11. at 2-3.
    \82\ See FINRA Letter 1, supra note 12, at 3-4. FINRA stated 
that it agrees that OTC Link ATS's ``saturation'' feature, as FINRA 
understands it, is consistent with the objectives of some of the 
proposed requirements in Rule 6439(c), such as proposed Rule 
6439(c)(1) and (c)(4), which would require that a member IDQS's 
policies and procedures specify an efficient process for monitoring 
subscriber unresponsiveness and determining specified steps when an 
instance of repeated order unresponsiveness may have occurred. 
However, FINRA indicated that it does not believe that OTC Link 
ATS's current saturation feature would meet the objectives of 
proposed paragraphs (c)(2) or (3) of Rule 6439, which, when 
combined, would require that the member IDQS provide a mechanism or 
process whereby one subscriber may submit or report to the non-auto-
executing member IDQS a potential instance of order unresponsiveness 
by another subscriber and document the subscriber's rationale in 
response to that event. FINRA further stated that it does not expect 
the member IDQS to investigate or confirm a subscriber's rationale 
for the unresponsiveness, but expects that the member IDQS provide a 
mechanism or process that would permit a subscriber to submit or 
report a potential instance of order unresponsiveness and the member 
IDQS would be required to request that the other subscriber provide 
its rationale in connection with the instance. For example, the 
member IDQS could provide a messaging protocol or other mechanism 
that would permit a subscriber to submit or report to the member 
IDQS a potential instance of order unresponsiveness and that also 
would contact the other party to obtain their rationale. FINRA 
stated that it believes that the member IDQS is in the best position 
to obtain this information from the subscriber at the time of, or 
close in time to, the event, and to document this information and 
make it available to FINRA upon request. See id., at 3-4.
---------------------------------------------------------------------------

    In response, one commenter raised concerns regarding the 
requirements of proposed Rule 6439(c)(2) and (c)(3), which would 
require non-auto-

[[Page 30670]]

executing member IDQSs to maintain policies and procedures that specify 
an efficient process for subscribers submitting to the member IDQS 
complaints regarding potential instances of order unresponsiveness and 
documenting the subscriber's rationale for unresponsiveness.\83\ This 
commenter stated that, in attempting to perform this function, its 
member IDQS would not have access to the necessary underlying 
information regarding the issue and would lack the regulatory authority 
to resolve the dispute.\84\ This commenter further stated that these 
proposed requirements effectively require member IDQSs to act as a 
clearinghouse for subscriber complaints of non-responsiveness and blurs 
the distinction between SROs and commercial market operators.\85\ The 
commenter accordingly requested that FINRA amend the proposal to only 
require that a member IDQS escalate instances of unresponsiveness to 
FINRA for review when the IDQS is informed of such cases via 
appropriate channels (i.e., phone, email, message).\86\
---------------------------------------------------------------------------

    \83\ See OTC Link Letter 2, supra note 9.
    \84\ See id., at 2.
    \85\ See id., at 3.
    \86\ See id.
---------------------------------------------------------------------------

    In response, FINRA stated that it is cognizant that IDQSs, 
including the commenter, lack access to certain information and lack 
regulatory authority and that it would not expect a member IDQS to 
gather extraneous information or resolve disputes (beyond steps that 
may be taken pursuant to proposed Rule 6439(c)(4)).\87\ FINRA stated 
that the proposal would require that reasonable policies and procedures 
be developed, which could include specifying reasonable and appropriate 
form and methods through which a member would accept complaints from 
subscribers pursuant to proposed paragraph (c)(2).\88\ In addition, the 
proposed rule would not require that member IDQSs, including the 
commenter, investigate or confirm a subscriber's rationale for 
unresponsiveness or determine whether a violation of FINRA Rule 5220 
(Offers at Stated Prices) has occurred.\89\ FINRA stated that the role 
of a member IDQS under proposed paragraph (c)(3) would be limited to 
information collection, and the lack of access to certain information 
regarding instances of potential unresponsive would therefore not 
impair a member IDQS's ability to establish policies and procedures 
required under the proposal.\90\ FINRA provided that it continues to 
believe that the requirements of proposed Rule 6439(c) are reasonable 
and appropriate for non-auto-executing member IDQSs given that order 
unresponsiveness only occurs on systems that permit manual response to 
orders received against displayed quotations and that it believed the 
member IDQS is in the best position to obtain this information from the 
subscriber at the time of, or close in time to, the event, and to 
document this information and make it available to FINRA upon 
request.\91\
---------------------------------------------------------------------------

    \87\ See FINRA Letter 2, supra note 12, at 3.
    \88\ See id. As an example, FINRA stated that OTC Markets may 
determine to accept complaints only through a specified email 
address or through a complaint protocol that it may establish and, 
in doing so, its obligations under proposed paragraph (c)(3) would 
be limited to complaints received through reasonable, specified, 
established channels. See id.
    \89\ See id.
    \90\ See id.
    \91\ See id., at 4.
---------------------------------------------------------------------------

    The Commission has considered commenters' request for guidance and 
modifications to the proposed requirements and FINRA's responses and 
believes FINRA's responses support the finding that the proposed Rule 
6439(c) is 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, consistent with 
Section 15A(b)(6) of the Act. As previously noted, a system that 
permits manual responses to orders received against displayed 
quotations can result in order unresponsiveness. The Commission agrees 
with FINRA that requiring such systems to establish, maintain and 
enforce written policies and procedures that are reasonably designed to 
address instances of unresponsiveness, which includes requiring such 
systems to maintain policies and procedures that specify an efficient 
process for subscribers submitting to the member IDQS complaints 
regarding potential instances of order unresponsiveness and documenting 
the subscriber's rationale for unresponsiveness, should help ensure 
that market participants can reasonably rely on the displayed 
quotations on member IDQSs that do not auto-execute orders and help 
FINRA surveil for unresponsiveness on such systems.
    Further, the Commission finds that proposed Rule 6439(e), which 
will require member IDQSs to publish and keep updated information about 
order- or quotation-related data products, is consistent with both 
Exchange Act Section 15A(b)(6)'s requirement that FINRA's rules be 
designed to protect investors and the public interest and Exchange Act 
Section 15A(b)(11)'s requirement that FINRA's rules contain provisions 
governing the form and content of quotations relating to securities 
sold otherwise than on a national securities exchange which may be 
distributed or published by any member or person associated with a 
member, and the persons to whom such quotations may be supplied. The 
publication of such information will provide FINRA with useful 
information to ensure compliance with FINRA rules and to monitor the 
widespread availability of OTC Equity Securities' quotation information 
to investors and to market participants through non-SRO sources. In 
addition, market participants will benefit from a better understanding 
of such data products when assessing a particular member IDQS as a 
potential trading venue.
    Finally, the Commission finds that proposed Rule 6439(f), which 
would require a member IDQS to provide FINRA with prompt notification 
when it reasonably becomes aware of any systems disruption that is not 
de minimis that degrades, limits, or otherwise impacts the member 
IDQS's functionality with respect to trading or the dissemination of 
market data, is consistent with Exchange Act Section 15A(b)(6)'s 
requirement that FINRA's rules be designed to protect investors and the 
public interest and Section 15A(b)(11)'s requirement that FINRA's rules 
relating to quotations be designed to promote orderly procedures for 
collecting, distributing, and publishing quotations. The Commission 
believes that the uninterrupted operation of member IDQSs is vital to 
investor confidence in the OTC securities market structure and furthers 
the goals of Section 17B of the Act.\92\ As such, the Commission 
believes that proposed Rule 6439(f) should help FINRA monitor and 
resolve any issues that could disrupt investors' ability to quote and 
execute trades in OTC Equity Securities, thereby promoting orderly 
procedures with respect to quotations in OTC Equity Securities and 
protecting investors and the public interest.
---------------------------------------------------------------------------

    \92\ See infra notes 99-101 and accompanying text.
---------------------------------------------------------------------------

    FINRA has committed to examining member IDQSs for compliance with 
proposed Rule 6439 and has represented that it will conduct a targeted 
exam of impacted member IDQSs after the initial effectiveness of the 
rule and will incorporate a proposed Rule 6439 review as part of the 
regular exam program for impacted member firms.\93\ The Commission 
believes that these exams should assist FINRA in reviewing

[[Page 30671]]

for compliance by member IDQSs with the requirements of proposed Rule 
6439.
---------------------------------------------------------------------------

    \93\ See supra note 49 and accompanying text.
---------------------------------------------------------------------------

    The Commission notes that, despite certain suggested modifications 
to the proposed rule, all three commenters supported FINRA's proposal 
to enhance regulatory requirements for IDQSs.\94\ In addition to 
commenters' suggested modifications discussed above,\95\ two commenters 
also suggested that FINRA revise Rule 6437 (Prohibition from Locking 
and Crossing), which currently prohibits locking and crossing 
quotations displayed in the same IDQS, to also prohibit locking and 
crossing displayed quotations between connected IDQSs.\96\ In its 
response to comments, FINRA stated that it has been actively 
considering whether any changes to the scope of Rule 6437 are 
appropriate and that it will continue to separately assess this issue 
outside of the context of this proposed rule change.\97\ The Commission 
agrees with FINRA that the commenters' suggestion related to FINRA Rule 
6437 is beyond the scope of the proposed rule change.
---------------------------------------------------------------------------

    \94\ See, generally, OTC Link Letter 1, STANY Letter and Global 
OTC Letter, supra note 11.
    \95\ See supra notes 68, 78-79, and 81 and accompanying text.
    \96\ See STANY Letter, supra note 11, at 3; OTC Link Letter 1, 
supra note 11, at 4-5.
    \97\ See FINRA Letter 1, supra note 12, at 6.
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C. Section 17B of the Act

    Finally, the Commission believes that the proposed rule change to 
rescind the rules related to the OTCBB and cease its operation and 
adopt proposed Rule 6439 to expand the obligations of member IDQSs that 
display quotations in OTC Equity Securities is consistent with Section 
17B of the Act.\98\ FINRA has operated the OTCBB pursuant to the 
Commission's obligations under Section 17B of the Act to facilitate the 
widespread dissemination of quotation information for penny stocks 
through an automated quotation system operated by a registered 
securities association.\99\ When Congress enacted Section 17B, it found 
that there was a lack of reliable and accurate quotation and last sale 
information in the markets for penny stocks.\100\ As such, Section 17B 
was designed to remedy inefficiencies and address regulatory concerns 
caused by this lack of reliable market information about penny stocks 
traded OTC, and Congress found that a fully implemented automated 
quotation system for penny stocks would meet the information needs of 
investors and market participants and add visibility and regulatory and 
surveillance data to that market.\101\
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    \98\ 15 U.S.C. 78q-2. See also supra note 20. Section 17B was 
enacted by Congress as part of the Penny Stock Act, which was 
designed to remedy inefficiencies and address regulatory concerns 
caused by the lack of reliable market information on penny stocks 
traded OTC.
    \99\ See 15 U.S.C. 78q-2(b). See also OTCBB Designation Letter, 
supra note 20.
    \100\ See 15 U.S.C. 78q-2(a)(1).
    \101\ See 15 U.S.C. 78q-2(a)(3).
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    Based on how the OTC market has evolved since the adoption of 
Section 17B,\102\ the Commission believes that the OTCBB no longer 
furthers the goals and objectives of Section 17B of the Exchange Act 
because it no longer is utilized as a source of quotation information 
for those OTC Equity Securities that meet the definition of ``penny 
stock.'' \103\ Rather, member IDQSs currently collect and disseminate 
all quotation information in OTC Equity Securities, including penny 
stocks, and make such quotation information available to investors and 
market participants.\104\ Therefore, the Commission finds that 
discontinuing dissemination of potentially incomplete and misleading 
quotation information from the marketplace by ceasing operation of the 
OTCBB, while at the same time implementing enhanced requirements for 
member IDQSs on or through which quotations in OTC Equity Securities, 
including penny stocks, are currently displayed, as set forth in 
proposed Rule 6439, best serves and promotes the goals of Section 17B 
of the Act with respect to the widespread availability of quotation 
information in penny stocks.\105\
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    \102\ See Public Law 101-429, 104 Stat. 931 (1990).
    \103\ See supra notes 60-64 and accompanying text. As noted 
above, the universe of securities historically quoted in the OTCBB 
included penny stocks as well as higher priced OTC Equity 
Securities. See supra note 66.
    \104\ See Notice, supra note 3, at 63318.
    \105\ See supra note 20 and 66. As discussed above, the 
Commission previously designated the OTCBB as a QEQS for purposes of 
the Penny Stock Rules. In connection with FINRA's cessation of the 
OTCBB, FINRA has stated that it intends to request that the 
Commission designate the FINRA OTC Reporting Facility (see infra 
note 109 and accompanying text), together with any FINRA-member 
IDQS, as a QEQS for purposes of the Penny Stock Rules. See supra 
note 66.
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    FINRA has represented that, in advance of the discontinuance of the 
OTCBB, FINRA will take steps to ensure a smooth transition for issuers 
and members.\106\ Specifically, although there are no members currently 
using the OTCBB, FINRA will publicize announcements through its 
website.\107\ In addition, FINRA has represented that, following the 
cessation of the OTCBB, FINRA will continue to assess the widespread 
availability of quotation transparency to investors and market 
participants through non-SRO sources on a regular basis, and if the 
availability of quotation information to investors declines, FINRA will 
revisit and, if necessary, file a proposed rule change to establish an 
SRO-operated IDQS (or other measure) to facilitate the type of 
widespread quotation transparency described in Section 17B of the 
Act.\108\ Finally, FINRA will continue to centralize last sale 
transaction reporting in OTC Equity Securities, including for penny 
stock transactions, through the FINRA OTC Reporting Facility (``ORF''), 
a FINRA-operated system that provides last sale information on OTC 
Equity Securities.\109\ Thus, following cessation of the OTCBB, member 
IDQSs subject to proposed Rule 6439 will continue to collect and 
disseminate quotation information for OTC Equity Securities, including 
penny stocks, while the ORF will continue to collect and disseminate 
real-time last sale price and volume information for OTC Equity 
Securities, including penny stocks.
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    \106\ See Notice, supra note 3, at 63319.
    \107\ See id. FINRA represents that there currently are no OTCBB 
symbols. See id., at 63319, n.37.
    \108\ See id.
    \109\ See FINRA Rule 6600 and 7300 Series (OTC Reporting 
Facility). FINRA members generally are required to report trades in 
OTC Equity Securities to the ORF within 10 seconds of execution and 
FINRA widely disseminates this transaction information in real-time. 
See FINRA Rule 6622 (Transaction Reporting). See also Notice, supra 
note 3, at 63318, n.36.
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IV. Conclusion

    It is therefore ordered that, pursuant to Section 19(b)(2) of the 
Act,\110\ the proposed rule change (SR-FINRA-2020-031), as modified by 
Amendment No. 2, be, and hereby is, approved.
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    \110\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\111\
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    \111\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-12026 Filed 6-8-21; 8:45 am]
BILLING CODE 8011-01-P