Document ID: SEC-2015-2043-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.,
Posted Date: 2015-12-10T05:00Z

[Federal Register Volume 80, Number 237 (Thursday, December 10, 2015)]
[Notices]
[Pages 76724-76726]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-31064]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76556; File No. SR-FINRA-2015-053]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend Rule 7620A Relating to FINRA/Nasdaq Trade 
Reporting Facility Fees

December 4, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on November 25, 2015, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission'') the proposed rule change as described in Items I, 
II, and III below, which Items have been prepared by FINRA. FINRA has 
designated the proposed rule change as ``establishing or changing a 
due, fee or other charge'' under Section 19(b)(3)(A)(ii) of the Act \3\ 
and Rule 19b-4(f)(2) thereunder,\4\ which renders the proposal 
effective upon receipt of this filing by the Commission. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    FINRA is proposing to amend FINRA Rule 7620A to modify certain fees 
applicable to members that use the FINRA/Nasdaq Trade Reporting 
Facility (the ``FINRA/Nasdaq TRF'').
    The text of the proposed rule change is available on FINRA's Web 
site at http://www.finra.org, at the principal office of FINRA and at 
the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, FINRA included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. FINRA has prepared summaries, set forth in sections A, 
B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
Background
    The FINRA/Nasdaq TRF is a facility of FINRA that is operated by 
Nasdaq, Inc. (``NASDAQ'') \5\ and utilizes Automated Confirmation 
Transaction (``ACT'') Service technology. In connection with the 
establishment of the FINRA/Nasdaq TRF, FINRA and NASDAQ entered into a 
limited liability company agreement (the ``LLC Agreement''). Under the 
LLC Agreement, FINRA, the ``SRO Member,'' has sole regulatory 
responsibility for the FINRA/Nasdaq TRF. NASDAQ, the ``Business 
Member,'' is primarily responsible for the management of the FINRA/
Nasdaq TRF's business affairs, including establishing pricing for use 
of the FINRA/Nasdaq TRF, to the extent those affairs are not 
inconsistent with the regulatory and oversight functions of FINRA. 
Additionally, the Business Member is obligated to pay the cost of 
regulation and is entitled to the profits and losses, if any, derived 
from the operation of the FINRA/Nasdaq TRF.
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    \5\ As approved by its board of directors and the Commission, 
effective September 8, 2015, NASDAQ changed its legal name from The 
NASDAQ OMX Group, Inc. to Nasdaq, Inc. See Nasdaq, Inc. Form 8-K 
Current Report (filed September 8, 2015) (available at www.sec.gov/Archives/edgar/data/1120193/000119312515314459/d48431d8k.htm).
    FINRA and NASDAQ are in the process of amending the LLC 
Agreement to reflect the name change, and FINRA will file a separate 
proposed rule change to update the FINRA manual accordingly.
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    Pursuant to the FINRA Rule 7600A Series, FINRA members that are 
FINRA/Nasdaq TRF participants are charged fees and may qualify for fee 
caps (Rule 7620A) and also may qualify for revenue sharing payments for 
trade reporting to the FINRA/Nasdaq TRF (Rule 7610A). These rules are 
administered by NASDAQ, in its capacity as the Business Member and 
operator of the FINRA/Nasdaq TRF on behalf of FINRA,\6\ and NASDAQ 
collects all fees on behalf of the FINRA/Nasdaq TRF.
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    \6\ FINRA's oversight of this function performed by the Business 
Member is conducted through a recurring assessment and review of TRF 
operations by an outside independent audit firm.
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    Pursuant to Rule 7620A, FINRA members are charged fees for ``Non-
Comparison/Accept (Non-Match/Compare)'' trades. Such trades are defined 
as transactions that are not subject to the ACT Comparison process, and 
they may be submitted as media or non-media,\7\ clearing or non-
clearing, AGU (automated give-up), QSR (Qualified Service 
Representative), one-sided or internalized crosses.\8\ Under the fee 
schedule there are four categories of fees, each of which is applicable 
to transactions of the three Tapes: \9\ (1) Media/Executing Party; (2)

[[Page 76725]]

Non-Media/Executing Party; (3) Media/Contra; (4) Non-Media/Contra.\10\ 
Each fee category is subject to a monthly fee cap, which is based on 
the average daily volume of reports submitted to a particular Tape. To 
be eligible for a cap in a particular Tape, a member must achieve a 
minimum average daily volume of 2,500 media reports submitted to that 
Tape as Executing Party in a given month. Trade reports in which the 
member appears as the Contra Party do not contribute to the achievement 
of the cap. However, if a member is eligible for a cap based on media 
trade reports in which it appears as the Executing Party, then caps 
also would apply to media reports in which that member appears as the 
Contra Party, as well as to non-media reports where the member appears 
as Executing Party or Contra Party. Thus, once a member achieves a cap, 
the maximum number of billable trade reports applicable to each fee 
category is 2,500 for Tape A, B or C.
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    \7\ Media eligible trade reports are those that are submitted to 
the FINRA/Nasdaq TRF for public dissemination by the Securities 
Information Processors. By contrast, non-media trade reports are not 
submitted to the FINRA/Nasdaq TRF for public dissemination, but are 
submitted for regulatory and/or clearance and settlement purposes.
    \8\ See FINRA Rule 7620A.01.
    \9\ Market data is transmitted to three tapes based on the 
listing venue of the security: New York Stock Exchange securities 
(``Tape A''), American Stock Exchange and regional exchange 
securities (``Tape B''), and Nasdaq Stock Market securities (``Tape 
C''). Tape A and Tape B are generally referred to as the 
Consolidated Tape.
    \10\ Pursuant to the rule's Supplementary Material, the 
``Executing Party (EP)'' is defined as the member with the trade 
reporting obligation under FINRA rules, and the ``Contra (CP)'' is 
defined as the member on the contra side of a trade report. These 
positions formerly were identified in FINRA rules as the ``Market 
Maker'' or ``MM'' side and the ``Order Entry'' or ``OE'' side, 
respectively. See FINRA Rule 7620A.01.
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    Under the current fee cap, a FINRA member that does not conduct a 
business whereby it is the Executing Party does not have the 
opportunity to receive a fee cap. Currently, FINRA members are charged 
Media/Contra fees of $0.013 multiplied by the number of Media/Contra 
Reports during the month. Similarly, FINRA members are charged Non-
Media/Contra fees of $0.013 multiplied by the number of Non-Media/
Contra Reports during the month. If a FINRA member is eligible under 
the existing cap, the maximum monthly charge is $0.013 multiplied by 
2,500 (for Tape A, B or C) multiplied by number of trading days in a 
month. Without the proposed fee cap, a FINRA member that does not 
conduct a business whereby it is the Executing Party may significantly 
exceed the cap limit.
    Consequently, NASDAQ, as the Business Member, has determined to 
provide an alternative monthly fee cap of $5,000 per Tape (A, B or C) 
applied to trades in each fee category. Eligibility for the new fee cap 
is based on a FINRA member's trade reporting of Media/Contra trades to 
the TRF and its participation on an alternative trading system 
registered pursuant to Regulation ATS \11\ (an ``ATS'') as a market 
maker. Specifically, the FINRA member must make markets on an ATS by 
maintaining a two-sided quote. FINRA members must complete and provide 
a form to NASDAQ, in which the FINRA member attests that it maintains 
two-sided quotes for each security that the FINRA member maintains 
interest in within each ATS and that it displays a quotation size of at 
least one normal unit of trading (specific for each security).\12\ The 
FINRA member must also attest that it will continue to meet the ATS-
based requirements to be eligible for the fee cap.\13\ In addition, to 
qualify a FINRA member must have its Contra/Media trades equal, or 
exceed, 55% of its total FINRA/Nasdaq TRF volume. Lastly, the FINRA 
member must be contra to a minimum of 1 million trades in Tape A, 
500,000 trades in Tape C, and 250,000 trades in Tape B to qualify for 
the fee cap in the securities of the Tapes, respectively. NASDAQ, as 
the Business Member, has set the required level of trades reported for 
each of the Tapes based on the differing levels of overall trades 
reported to the FINRA/Nasdaq TRF as Contra Party.
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    \11\ 17 CFR 242.300-303.
    \12\ The form of attestation that firms will be required to 
submit to NASDAQ under the proposed rule change is attached to this 
filing as Exhibit 3.
    \13\ NASDAQ will audit FINRA members that choose to participate 
to ensure compliance with the attestation.
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    Although the proposed fee cap is a ``flat'' cap set at $5,000 and 
the existing fee cap is based on a calculation, they are comparable in 
terms of the limitation of total fees paid. For example, a member that 
qualifies under the existing fee cap would pay no more than $3,565 per 
month in the securities of a single Tape for trade reports (depending 
on the total number of days in the month).\14\ A member qualifying 
under the proposed Media/Contra-based fee cap would pay no more than 
$5,000 per month in the securities of a single Tape.\15\
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    \14\ This upper limit is calculated based on $0.018 x 23 trading 
days x 2,500 = $1,035 plus $0.018 x 23 trading days x 2,500 = $1,035 
plus $0.013 x 23 trading days x 2,500 = $747.50 plus $0.013 x 23 
trading days x 2500 = $747.50. Adding these totals for each category 
(i.e., Media/Executing Party, Non-Media Executing Party, Media/
Contra, and Non-Media/Contra) results in fee a cap of $3,565.
    \15\ A FINRA member that qualifies for the lower cap would, by 
default, never reach the proposed cap.
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    NASDAQ, as the Business Member, has designed the proposed fee cap 
to make pricing more competitive to attract and retain participants on 
the FINRA/Nasdaq TRF. NASDAQ also has determined to introduce the 
proposed fee cap in recognition of a new kind of trading behavior that 
has emerged in the marketplace. Specifically, some firms that act as 
market makers route orders to an ATS for execution within the ATS. Such 
market makers may have trade volume reported to the FINRA/Nasdaq TRF; 
however, these executions would not qualify the market maker for a fee 
cap under the existing rules because the ATS is the Executing Party on 
the trades. Accordingly, FINRA, as the SRO Member, is proposing to 
amend Rule 7620A to reflect the proposed new Media/Contra fee cap.
    FINRA has filed the proposed rule change for immediate 
effectiveness. The effective date will be the date of filing.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(5) of the Act,\16\ which requires, among 
other things, that FINRA rules provide for the equitable allocation of 
reasonable dues, fees and other charges among members and issuers and 
other persons using any facility or system that FINRA operates or 
controls. FINRA members that do not conduct a significant business as 
an Executing Party (and thus never reach the 2,500 daily average number 
of Media/Executing Party trades in any of the Tapes) cannot qualify for 
a fee cap under current rules, and as such, some of these members may 
pay higher trade reporting fees than members that conduct a significant 
business as an Executing Party and thus currently qualify for a cap on 
their trade reporting fees. Furthermore, FINRA members that would pay 
higher trade reporting fees under the current fee schedule may elect to 
report their trades to a competing TRF (or, in this instance, a market 
maker may elect to route its orders to an ATS that reports to a 
competing TRF). Consequently, NASDAQ, as the Business Member, has 
advised FINRA that providing an opportunity for certain Contra Parties 
to qualify for the new fee cap, based on certain levels of market 
participation and types of activities (i.e., market making), is a more 
equitable allocation of fees. NASDAQ, as the Business Member, has 
advised FINRA that because the fee cap levels were chosen relative to 
the current fee caps for Executing Parties, the proposed rule change 
may bring the fees paid by Contra Parties that would qualify for the 
proposed cap more in line with the fees paid by Executing Parties that 
currently qualify for the existing cap.\17\

[[Page 76726]]

Accordingly, the proposed fee cap more equitably allocates the fees 
assessed to members for their use of the FINRA/Nasdaq TRF.
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    \16\ 15 U.S.C. 78o-3(b)(5).
    \17\ As noted above, a member that qualifies under the existing 
fee cap would pay no more than $3,565 per month in the securities of 
a single Tape, while a member that qualifies under the proposed 
Contra fee cap would pay no more than $5,000 per month in the 
securities of a single Tape.
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    The proposed fee cap is available to all FINRA members that use the 
FINRA/Nasdaq TRF and meet the threshold requirements to qualify for the 
terms of the fee cap. While only some Contra Parties will qualify for 
the proposed cap and thus see a reduction in their FINRA/Nasdaq TRF 
trade reporting fees, NASDAQ, as the Business Member, has advised FINRA 
that the proposed cap is not unfairly discriminatory because the 
proposed fee cap will most benefit those Contra Parties that have 
significant volume on the FINRA/Nasdaq TRF. These Contra Parties 
currently may pay larger trade reporting fees than firms with 
comparable Executing Party volume that qualify for the current fee 
cap.\18\ As noted above, FINRA members that are not subject to capped 
fees can choose to report trades to a competing TRF (or, in this 
instance, a market maker may elect to route its orders to an ATS that 
reports to a competing TRF). NASDAQ has advised FINRA that following 
implementation, NASDAQ will monitor the fees paid by Contra Parties and 
will consider whether any adjustments to the proposed fee cap or 
qualifying thresholds would be appropriate.
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    \18\ As noted above, NASDAQ has advised FINRA that the proposed 
fee cap is in recognition of a new type of trading behavior whereby 
a market maker's executions occur within an ATS, and as such, the 
market maker is not the Executing Party on the trades based on 
current trade reporting rules. Such behavior has emerged since the 
current fee cap, based on a firm's volume as Executing Party, was 
originally adopted.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. The fee proposal would not 
impose new fees or fee rate increases on any member firm, and will 
reduce the fees paid by some members. NASDAQ has advised FINRA that the 
estimated fee savings to member firms based on this proposal would be 
in the range of $0-$20,000 per month per firm based on overall market 
and participant activity and number of trading days in the month. 
NASDAQ, as the Business Member, has further advised FINRA that, based 
on current trading practices, NASDAQ estimates that approximately two 
to five member firms would have been able to take advantage of the fee 
reductions associated with this proposal, had they been in place.
    FINRA notes that its members have trade reporting alternatives 
other than the FINRA/Nasdaq TRF, so to the extent the proposed changes 
are viewed as burdensome among market participants, those participants 
may choose not to avail themselves of the fee cap and maintain the 
status quo with respect to fees or adjust their trading practices. This 
would permit members to mitigate any direct or indirect costs imposed 
by this proposal. Moreover, the proposal may promote competition among 
FINRA members by reducing the fee burden on certain FINRA members who 
are unable to qualify for the existing fee cap, and FINRA members can 
choose their trading partners, which determination may in part be based 
on the fees of the particular TRF applicable to Contra Parties. Lastly, 
FINRA does not believe that the proposed fee cap burdens competition 
among reporting facilities because each is free to adjust their 
respective fees to remain competitive with the FINRA/Nasdaq TRF, to the 
extent the proposed fee cap makes the FINRA/Nasdaq TRF a more 
attractive facility on which to report trades.

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

    Written comments were neither solicited nor received.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \19\ and paragraph (f)(2) of Rule 19b-4 
thereunder.\20\ At any time within 60 days of the filing of the 
proposed rule change, the Commission summarily may temporarily suspend 
such rule change if it appears to the Commission that such action is 
necessary or appropriate in the public interest, for the protection of 
investors, or otherwise in furtherance of the purposes of the Act. If 
the Commission takes such action, the Commission shall institute 
proceedings to determine whether the proposed rule should be approved 
or disapproved.
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    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-FINRA-2015-053 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
    All submissions should refer to File Number SR-FINRA-2015-053. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal office of FINRA. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-FINRA-2015-053, and should 
be submitted on or before December 31, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-31064 Filed 12-9-15; 8:45 am]
 BILLING CODE 8011-01-P