Document ID: SEC-2019-1223-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2019-08-23T04:00Z

[Federal Register Volume 84, Number 164 (Friday, August 23, 2019)]
[Notices]
[Pages 44341-44343]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-18167]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86706; File No. SR-FINRA-2019-019]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Approving Proposed Rule Change To Expand OTC 
Equity Trading Volume Data Published on FINRA's Website

August 19, 2019.

I. Introduction

    On July 1, 2019, 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'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend FINRA Rules 6110 and 6610 to expand the 
summary firm data relating to over-the-counter (``OTC'') equity trading 
that FINRA publishes on its website. The proposed rule change was 
published for comment in the Federal Register on July 11, 2019.\3\ The 
Commission received two comment letters in support of the proposed rule 
change.\4\ This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 86315 (July 5, 
2019), 84 FR 33098 (July 11, 2019) (``Notice'').
    \4\ See letters to Vanessa Countryman, Secretary, Commission 
from: Ray Ross, Chief Technology Officer, Clearpool Group 
(``Clearpool''), dated August 1, 2019 (``Clearpool Letter''); 
Stephen John Berger, Managing Director, Global Head of Government & 
Regulatory Policy, Citadel Securities (``Citadel''), dated August 1, 
2019 (``Citadel Letter'').
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II. Description of the Proposal

    Currently, FINRA publishes certain volume information for OTC 
transactions in NMS stocks \5\ and OTC Equity Securities,\6\ that are 
executed outside of an alternative trading system (``ATS'').\7\ All 
published data is derived directly from OTC transactions reported to a 
FINRA equity trade reporting facility. FINRA does not charge a fee for 
this data.\8\
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    \5\ ``NMS stock'' is defined in Rule 600(b)(47) of the 
Commission's Regulation NMS. See 17 CFR 242.600(b)(47).
    \6\ ``OTC Equity Security'' means any equity security that is 
not an NMS stock, other than a Restricted Equity Security. See FINRA 
Rule 6420(f). A ``Restricted Equity Security'' means any equity 
security that meets the definition of ``restricted security'' as 
contained in Securities Act Rule 144(a)(3). See FINRA Rule 6420(k); 
17 CFR 230.144(a)(3).
    \7\ FINRA Rules 6110(b) and 6610(b) govern the publication of 
information for OTC transactions executed outside of an ATS (``non-
ATS'' volume data or information). FINRA Rules 6110(c) and 6610(c) 
separately govern the publication of trading information for OTC 
transactions executed on ATSs.
    \8\ OTC transaction volume data published pursuant to FINRA 
Rules 6110 and 6610 is available at https://otctransparency.finra.org/otctransparency/.
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    Currently, FINRA publishes weekly non-ATS OTC volume information 
(number of trades and shares) by firm and by security on a two-week or 
four-week delayed basis. Weekly security-specific information for 
transactions in NMS stocks in Tier 1 of the NMS Plan to Address 
Extraordinary Market Volatility (``Tier 1 NMS stocks'') is published on 
a two-week delayed basis, while information on the remaining NMS stocks 
(``Tier 2 NMS stocks'') and OTC Equity Securities is published on a 
four-week delayed basis. FINRA also publishes aggregate weekly non-ATS 
volume totals by firm and category of security (Tier 1 NMS stocks, Tier 
2 NMS stocks, and OTC Equity Securities) on the same timeframes, as 
well as aggregate non-ATS volume totals by firm for all NMS stocks and 
OTC Equity Securities, for each calendar month on a one-month delayed 
basis.\9\ All data is published by firm on an attributed basis \10\ 
except that, for firms executing fewer than 200 non-ATS transactions 
per day on average during the reporting period,\11\ FINRA combines and 
publishes the volume for these firms on an aggregate non-attributed 
basis identified in the published data as ``De Minimis Firms.'' \12\
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    \9\ Monthly aggregated data are categorized by NMS stocks and 
OTC Equity Securities, i.e., there is no differentiation between 
Tier 1 NMS stocks and Tier 2 NMS stocks.
    \10\ Non-ATS data is published at the firm level, aggregating 
each market participant identifier (``MPID'') used by a particular 
firm (but excluding any MPIDs used by a firm to report trades 
executed on its ATS).
    \11\ For a firm with multiple non-ATS MPIDs, the total volume 
across all its MPIDs is combined for purposes of determining whether 
the de minimis threshold has been met.
    \12\ There is no parallel de minimis exception for ATS 
transactions under FINRA Rules 6110(c) and 6610(c). Therefore, all 
ATS volume data is currently published on an attributed basis.
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    FINRA has proposed to expand, in two ways, the summary firm data 
relating to non-ATS OTC equity trading that FINRA publishes on its 
website. First, FINRA would publish new

[[Page 44342]]

monthly aggregate block-size trading data for non-ATS OTC trades in NMS 
stocks, on the same terms as FINRA currently publishes aggregate block-
size trading data for trades in NMS stocks occurring on ATSs. Second, 
FINRA would eliminate the current de minimis exception for publication 
of aggregate non-ATS trading volume across all NMS stocks and OTC 
Equity Securities, and publish each firm's aggregate non-ATS volume on 
an attributed basis. Each component of the proposed rule change is 
addressed below.

Non-ATS Block-Size Trading Data

    Pursuant to its Rule 6110(c)(2), FINRA currently publishes monthly 
information on block-size trades in all NMS stocks occurring on ATSs. 
Data regarding block-size trades on ATSs is aggregated across all NMS 
stocks (i.e., there is no security-by-security block data), are for a 
time period of one month of trading, and are published no earlier than 
one month following the end of the month for which trading was 
aggregated.
    FINRA currently publishes information on block-size ATS trades in 
NMS stocks using share-based thresholds, dollar-based thresholds, and 
thresholds that include both shares and dollar amount as follows:
     10,000 or more shares;
     $200,000 or more in dollar value;
     10,000 or more shares and $200,000 or more in dollar 
value;
     2,000 to 9,999 shares;
     $100,000 to $199,999 in dollar value; and
     2,000 to 9,999 shares and $100,000 to $199,999 in dollar 
value.\13\
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    \13\ See FINRA Regulatory Notice 16-14 (April 2016) (Alternative 
Trading Systems).
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    For each of these categories, FINRA publishes monthly trade count 
and volume information for each ATS, on an attributed basis, aggregated 
across all NMS stocks with no differentiation between Tier 1 NMS stocks 
and Tier 2 NMS stocks. FINRA also calculates and displays the average 
trade size and each ATS's rank as well as ``ATS Block Market Share'' 
(i.e., the proportion of each ATS's block-size trading volume in 
relation to total block-size trading by all ATSs) and ``ATS Block 
Business Share'' (i.e., the proportion of a particular ATS's overall 
trading volume that was done as block-size trades) and rankings of 
those metrics for each of the above categories.\14\
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    \14\ ATS block-size data can be viewed at https://otctransparency.finra.org/otctransparency/AtsBlocks. The data may 
also be directly downloaded through the OTC Transparency Data web 
page, https://otctransparency.finra.org/otctransparency/AtsBlocksDownload.
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    FINRA has proposed to expand the block-size trading data that it 
publishes on its website to include monthly aggregate block-size 
trading data for all OTC trades in NMS stocks, regardless of whether 
they are ATS or non-ATS trades.\15\ The new block-size data for non-ATS 
OTC trades would be published on the same terms as block-size data is 
currently published for ATS trades, and FINRA would not charge a fee 
for the new data. Specifically, proposed paragraph (b)(3) of FINRA Rule 
6110 provides that non-ATS block-size data would be published in 
aggregate across all NMS stocks (i.e., there would be no security-by-
security block data), would be for a time period of one month of 
trading, and would be published no earlier than one month following the 
end of the month for which trading was aggregated. All published data 
would be derived directly from OTC trades reported to a FINRA trade 
reporting facility and would not create any new requirements for FINRA 
members.
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    \15\ In developing its proposal to publish non-ATS block-size 
data, FINRA discussed the initiative with a number of its industry 
advisory committees, informally consulted a number of firms, and 
solicited written comment. FINRA stated that firms were generally 
supportive of publishing non-ATS block-size data, which would 
provide enhanced transparency into the OTC market as a complement to 
the currently published ATS block-size data. See Notice, 84 FR at 
33099. FINRA also stated that several firms raised potential 
information leakage concerns involved with publishing new block-size 
data, but indicated that such concerns would be mitigated by 
publishing data on an aggregated basis, rather than security-by-
security, and by delaying publication. See id.
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    Pursuant to proposed FINRA Rule 6110(b)(3), FINRA would publish the 
new non-ATS block-size data with elements to be determined from time to 
time by FINRA in its discretion, as stated in a Regulatory Notice or 
other equivalent publication. As with current block-size data regarding 
ATS OTC trades, non-ATS block-size data will be published using the 
same share-based, dollar-based, and combination share- and dollar-based 
thresholds used for ATS block-size data, as described above. For each 
category, FINRA would publish monthly trade count and volume 
information for each firm, on an attributed basis, aggregated across 
all NMS stocks with no differentiation between Tier 1 NMS stocks and 
Tier 2 NMS stocks.\16\ Each firm that engages in block-size non-ATS 
trading of NMS stocks would be separately identified, i.e., FINRA is 
not proposing any de minimis exception for non-ATS block-size data. 
FINRA also would calculate and display the average trade size and each 
firm's rank as well as ``Firm Block Market Share'' (i.e., the 
proportion of each firm's block-size trading volume in relation to 
total block-size trading by all firms) and ``Firm Block Business 
Share'' (i.e., the proportion of a particular firm's overall trading 
volume that was done as block-size trades) and rankings of those 
metrics for each of the above categories.\17\
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    \16\ FINRA has not proposed at this time to publish non-ATS 
block-size data for trading in OTC Equity Securities. In the Notice, 
FINRA stated that it will continue to assess whether block-size 
trading data should be expanded to include trades in OTC Equity 
Securities or a subset thereof. See Notice, 84 FR at 33099, n. 15.
    \17\ In the Notice, FINRA stated that it will announce any 
changes to these elements in advance in a Regulatory Notice or 
similar publication.
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Elimination of the De Minimis Exception

    FINRA has proposed to eliminate the current de minimis exception 
for publication of aggregate non-ATS OTC trading volume, and instead 
publish on an attributed basis each firm's aggregate non-ATS OTC volume 
(number of trades and shares) on a weekly or monthly basis, as 
applicable.\18\
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    \18\ However, FINRA has not proposed to eliminate the de minimis 
exception for purposes of the security-specific non-ATS OTC volume 
data under FINRA Rules 6110(b)(2)(C) and 6610(b)(2)(C). Therefore, 
if a firm averages fewer than 200 non-ATS OTC transactions per day 
in a given security during the reporting period, FINRA would 
continue to aggregate the firm's volume in that security with that 
of similarly situated firms, and there would continue to be a De 
Minimis Firms category for published security-by-security volume 
data.
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    FINRA also proposed several other technical, non-substantive, and 
conforming changes to the current rule text.\19\
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    \19\ FINRA proposed to amend Rules 6110(b)(1)(A) and (B) and 
6610(b)(1)(A) to clarify that those provisions apply to the 
publication of aggregate weekly trading information, which will 
conform to language in current Rules 6110(c) and 6610(c). FINRA 
further proposed to amend Rules 6110(b)(2)(B) and 6610(b)(2)(B) (as 
re-designated by the proposed rule change) to clarify that the 
remaining de minimis exceptions under those provisions apply to 
trading information by security. Finally, FINRA proposed to amend 
the final sentence of Rule 6610(b)(3) to correct the cross-reference 
to the definition of ``ATS Trading Information.''
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    FINRA has stated that it will announce the effective date of the 
proposed rule change in a Regulatory Notice following a Commission 
approval, and the effective date of the proposed rule change will be no 
earlier than October 1, 2019, and no later than March 31, 2020.\20\ 
FINRA anticipates that it will begin publication of data in accordance 
with the proposed rule change in the fourth quarter of 2019.\21\
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    \20\ See Notice, 84 FR at 33100.
    \21\ See id.

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[[Page 44343]]

III. Discussion and Commission Findings

    After careful consideration, 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.\22\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 15A(b)(6) of the Act,\23\ which 
requires, among other things, that FINRA rules 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.
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    \22\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \23\ 15 U.S.C. 78o-3(b)(6).
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    The Commission previously found that the earliest iteration of 
FINRA's publication protocols for ATS OTC trade data were consistent 
with the Act.\24\ Several commenters on that initial proposal urged 
FINRA to broaden its publication protocols to include non-ATS OTC 
trading centers, not only ATSs. FINRA responded that ``it considered 
various alternatives and concluded that ATS trade information was an 
appropriate first step toward increased transparency in the off-
exchange OTC market. FINRA stated further that it would consider 
additional steps, including those suggested by the commenters, in the 
future.'' \25\
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    \24\ See Securities Exchange Act Release No. 71341 (January 17, 
2014), 79 FR 4213, 4217 (January 24, 2014) (Order Approving SR-
FINRA-2013-042). FINRA subsequently expanded the scope of the ATS 
OTC trade data that it publishes on its website. See Securities 
Exchange Act Release No. 76931 (January 19, 2016), 81 FR 4076 
(January 25, 2016) (SR-FINRA-2016-002) (immediate effectiveness of 
proposed rule change relating to ATS volume and trading 
information).
    \25\ Order Approving SR-FINRA-2013-042, 79 FR at 4215 (citation 
omitted).
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    Subsequently, in 2015, FINRA proposed to expand transparency of OTC 
equity trading data by publishing certain information regarding non-ATS 
OTC trading.\26\ At that time, however, FINRA did not believe that 
publishing volume information for each firm that executed only a small 
number of trades or shares in any given period would provide meaningful 
information to the marketplace.\27\ Therefore, FINRA proposed to 
combine volume from all members that did not meet a specified minimum 
threshold and publish such information for those members on an 
aggregated basis.\28\ The Commission approved the proposed rule change 
because publishing this data, even though not to the same degree of 
granularity as ATS OTC trade data, would facilitate better 
understanding of the OTC equity market.\29\
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    \26\ See Securities Exchange Act Release No. 75356 (July 2, 
2015), 80 FR 39463 (July 9, 2015) (Notice of SR-FINRA-2015-020).
    \27\ See id., 80 FR at 39464.
    \28\ See id.
    \29\ See Securities Exchange Act Release No. 76078 (October 5, 
2015), 80 FR 61246, 61247-49 (October 9, 2015) (Order Approving SR-
FINRA-2015-020).
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    FINRA is now proposing to apply to non-ATS OTC trade data more of 
the publication protocols that it currently applies to ATS OTC trade 
data. Specifically, FINRA will publish new monthly aggregate block-size 
trading data for non-ATS OTC trades in NMS stocks, on the same terms as 
FINRA currently publishes aggregate block-size trading data for ATS 
trades in NMS stocks. Second, FINRA will eliminate the de minimis 
exception for publication of aggregate non-ATS trading volume across 
all NMS stocks and OTC Equity Securities, and publish each firm's 
aggregate non-ATS volume on an attributed basis. The Commission 
believes that the proposal will enhance transparency in the OTC equity 
market by making additional trading volume data available on FINRA's 
website in a manner reasonably designed to avoid adverse market impact, 
and without imposing any new requirements, on FINRA members. Therefore, 
the Commission finds that the proposal is consistent with the Act and 
the rules and regulations thereunder applicable to a national 
securities association. The Commission notes that it received no 
comments objecting to the proposal.\30\
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    \30\ Two commenters generally supported the proposal while 
suggesting ways to further expand publication of non-ATS OTC trade 
data. Clearpool suggested that FINRA eliminate the de minimis 
exception for purposes of the security-specific non-ATS volume data 
as well as separately identifying a firm's volume of trading on a 
single-dealer platform. See Clearpool Letter at 2. Citadel suggested 
that FINRA separate the monthly aggregate block-size trading data 
into ETF and non-ETF categories to maximize the granularity and 
utility of the data. See Citadel Letter at 1. In response to these 
comments, FINRA stated that it ``continue[s] to consider further 
enhancements to the OTC volume information published on our website 
and we would consider these suggestions as part of potential future 
changes, but we would not plan to include them in this filing.'' 
Email to David Michehl, Special Counsel, Commission, from Robert 
McNamee, Assistant General Counsel, FINRA (dated August 8, 2019).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\31\ that the proposed rule change (SR-FINRA-2019-019) is approved.
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    \31\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
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    \32\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-18167 Filed 8-22-19; 8:45 am]
BILLING CODE 8011-01-P