Document ID: SEC-2014-0307-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2014-02-19T05:00Z

[Federal Register Volume 79, Number 33 (Wednesday, February 19, 2014)]
[Notices]
[Pages 9550-9553]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-03559]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71528; File No. SR-FINRA-2014-007]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend 
Rule 7510 and Rule 7540 Relating to Fees for the Alternative Display 
Facility

February 12, 2014.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on January 31, 2014, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission'') the proposed rule change as described in Items I, 
II, and III below, which Items have been prepared by FINRA. 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.
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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 Rule 7510 and Rule 7540 relating to 
fees for the Alternative Display Facility (``ADF'').\3\
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    \3\ FINRA notes that it has submitted proposed rule change SR-
FINRA-2013-053, which would, among other things, amend Rule 7510. 
See Securities Exchange Act Release No. 71147 (December 19, 2013), 
78 FR 78451 (December 26, 2013). FINRA will amend this filing and/or 
SR-FINRA-2013-053, as necessary, to reflect Commission approval, or 
the effectiveness, of any of the proposed rule changes.
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    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
    The ADF is a quotation collection and trade reporting facility that 
provides ADF Market Participants (i.e., ADF-registered market makers or 
electronic communications networks (``ECNs'')) \4\ the ability to post 
quotations, display orders and report transactions in NMS stocks \5\ 
for submission to the Securities Information Processors (``SIPs'') for 
consolidation and dissemination to vendors and other market 
participants. In addition, the ADF delivers real-time data to FINRA for 
regulatory purposes, including enforcement of requirements imposed by 
Regulation NMS.\6\ Since the second quarter of 2010, there have been no 
ADF Market Participants.\7\ FINRA is currently in the process of 
migrating the ADF to its multi-product platform (``MPP''). In 
connection with the migration to the MPP, and the addition of new ADF 
Market Participants, FINRA is proposing certain changes to the fees 
relating to ADF operations. Specifically, FINRA is proposing to (1) 
expand the web browser access that is currently available on the Trade 
Reporting and Compliance Engine (``TRACE'') to provide ADF Market 
Participants with trade reporting and trade management functionality 
for ADF trades and to adopt fees for such service; (2) expand the FINRA 
Automated Data Delivery Service (``ADDS'') that is currently available 
on TRACE to include ADF data and to adopt fees for such service; (3) 
revise Rule 7510(a) so that certain of the transaction charges would be 
assessed on a per-trade basis, with the fee being charged to the 
executing party; (4) revise Rule 7510(a) to provide a carve-out to the 
Corrective Transaction Charge pursuant to which the fee would be 
assessed to the executing party only; (5) delete the carve-out for fees 
for the late reporting of trades; and (6) delete a provision of Rule 
7540(c) relating to a fee for certain testing services and make 
corresponding changes to the remaining testing service fee in that 
section.
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    \4\ See Rule 6220(a)(3).
    \5\ See 17 CFR 242.600.
    \6\ See 17 CFR 242.600.
    \7\ FINRA notes that it recently submitted a proposed rule 
change to add a new entrant, LavaFlow, to the ADF. See Securities 
Exchange Act Release No. 71042 (December 11, 2013), 78 FR 76341 
(December 17, 2013) (Notice of Filing of File No. SR-FINRA-2013-52).
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Proposed Web Browser Access
    Although there are currently no active ADF participants, an ADF 
participant today that wished to report a trade in an ADF-eligible 
security to the ADF would utilize FINRA's Trade Reporting and 
Comparison Service (``TRACS'') pursuant to Rule 6280.\8\ Following the 
migration of the ADF to the MPP, FINRA will expand its current web 
browser access, which members may currently use to access the Trade 
Reporting and Compliance Engine (``TRACE''), so that ADF Market 
Participants may use this functionality to access the ADF and to report 
ADF trades.\9\ Pursuant to proposed paragraph (c)(1) of Rule 7510, 
FINRA is proposing to charge ADF Market Participants $20 per user ID 
per month for web browser access.\10\ In addition to reporting trades 
through the web browser, ADF Market Participants that elect to utilize 
the web browser feature will be able to access trade management 
functions, such as trade reconciliation, cancel and correct, and will 
be able to access up to three prior days' worth of their trade data as 
well as the current trading day's trades. The proposed web browser 
access will offer the same level of functionality as the Level I (Trade 
Report Only) web browser access and trade management functionality that 
is offered under Rule 7730(a) for TRACE. In addition, the proposed fee 
is identical to the fee currently charged under Rule 7730(a) for Level 
I (Trade Report Only) web browser access and trade management 
functionality for TRACE.\11\
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    \8\ FINRA notes that it has recently proposed to replace the 
reference to TRACS in the rules relating to the ADF, including 
replacing the reference to TRACS in Rule 6281 with a more 
generalized reference to the ADF. See Securities Exchange Act 
Release No. 71147 (December 19, 2013), 78 FR 78451 (December 26, 
2013) (Notice of Filing of File No. SR-FINRA-2013-053).
    \9\ Due to system capacity limitations, FINRA proposes to offer 
the web browser access to ADF Market Participants (i.e., Registered 
Reporting ADF Market Makers and Registered Reporting ADF ECNs) only. 
FINRA proposes to offer ADDS, which is discussed in greater detail 
below, to all ADF participants (i.e., a market participant that is a 
party to an ADF trade).
    \10\ An ADF Market Participant that elects to not utilize the 
web browser access would report trades directly to the ADF through 
FIX (Financial Information eXchange) protocol. Although a 
participant would incur connectivity costs when submitting trade 
reports to the ADF through FIX, FINRA will not assess a charge for a 
FIX connection to the ADF.
    \11\ In contrast to TRACE, FINRA does not propose to offer a 
Level II web browser access for the ADF. The Level II service for 
TRACE web browser access provides all real-time TRACE transaction 
data, in addition to the functionality of Level I. TRACE is the sole 
platform for the reporting of fixed-income trades, so the 
transaction data that is provided through the Level II access is 
already available to FINRA. In contrast, offering all real-time NMS 
transaction data through the ADF web browser would entail gathering 
such information from the relevant Securities Information 
Processors.
     A member that utilizes the TRACE web browser and the ADF web 
browser would pay both the applicable TRACE web browser fee pursuant 
to Rule 7730 and the $20 fee ADF web browser fee pursuant to Rule 
7510.

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[[Page 9551]]

Proposed Fees for Equity Data Through FINRA's Automated Data Delivery 
Service
    FINRA ADDS is a secure Web site that provides members, by market 
participant identifier (``MPID''), access to historical trade journal 
files containing key information regarding the member's trades reported 
to FINRA. Members use the trade journal files to reconcile the trade 
information captured by their own systems against the information 
captured by the FINRA trade reporting systems. Currently, FINRA ADDS 
makes recent TRACE trade journals available for free through the ADDS 
Web site and also offers subscribers the option of receiving additional 
data and retrieving data automatically via Secure File Transfer 
Protocol (``SFTP'') for a fee.
    FINRA is proposing to enhance ADDS to include ADF data and to 
charge fees for additional historical data pursuant to proposed Rule 
7510(d). Through the ADDS Web site, an ADF participant will have access 
to ADF trade data associated with its MPID for the three prior business 
days free of charge without having to subscribe to the additional 
optional data services discussed below. ADF participants can access 
data for dates older than the most recent three business days for a 
monthly fee, if they elect to subscribe to receive this additional data 
through ADDS (referred to as ``ADF Data Delivery Plus'' service).\12\ 
The fee will be charged per month to an MPID that is a subscriber to 
ADF Data Delivery Plus reports (``Plus Reports''), which will be 
provided in response to requests by the MPID.\13\ The proposed fees 
under Rule 7510(d)(1) are based on the number of Plus Reports the 
subscriber receives in a month.\14\ The proposed fees range from a low 
of $60 (for a member requesting up to five Plus Reports per month) to a 
high of $100 a month (for a member requesting more than 25 Plus Reports 
per month). FINRA notes that the proposed fees for such ADF data, and 
corresponding number of Plus Reports received, is identical to the 
current fee schedule for Tier 1 TRACE data through ADDS under Rule 
7730(g). However, unlike the fees governing the provision of TRACE data 
through ADDS, FINRA is not proposing to further divide the ADF 
Reporting Facility Data Delivery Plus fees into tiers that are based 
upon the average number of transactions reported per month to which the 
MPID was a party in the prior calendar year, as there is not currently 
a baseline of transaction activity from which FINRA can establish such 
thresholds. As FINRA acquires historical data for the ADF and is able 
to further assess this fee, however, it may revise this fee to 
establish different tiers, and corresponding different fees, for MPIDs 
that meet different volume thresholds.
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    \12\ Subscribers ultimately will be able to access up to two 
years of trade journal files.
    \13\ To access trade information for multiple MPIDs, an ADF 
participant must obtain a subscription for each MPID.
    \14\ A subscriber's fee will be assessed each month and 
accordingly may vary during a calendar year, depending on the number 
of reports FINRA sends to the subscriber in response to the 
subscriber's requests. The ADF Data Delivery Plus fee is based upon 
the number of reports provided to avoid charging for data requests 
that FINRA may be unable to provide.
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    ADF participants also will have the option of subscribing to the 
SFTP service for ADF trade data, which would enable them to automate 
the process of retrieving their daily trade journal files. Files will 
be made available on a daily basis to ADF participants that subscribe 
to the ADF Data Delivery SFTP service, and ADF participants will be 
able to connect to FINRA via SFTP to download their data. FINRA is 
proposing to charge the following fees to ADF Participants that elect 
to receive ADF data via SFTP: (1) A one-time set up fee of $250 for 
each MPID that subscribes to the service and (2) a monthly fee of $200 
per MPID that subscribes to the service. The proposed fees are 
identical to the current fees charged under FINRA Rule 7730 for TRACE 
data through ADDS.
    The proposed fees for access and ADF data would allow FINRA to 
recoup some of the costs of developing and maintaining services for the 
ADF on the MPP that are already provided for TRACE. FINRA believes that 
extending the availability of these services to ADF participants will 
provide ADF participants with the enhanced tools to meet their trade 
reporting and management obligations without placing significant 
financial or operational burdens on them.
Changes to Rule 7510
    Pursuant to Rule 7510(a), FINRA currently assesses certain 
transaction-related fees for utilizing TRACS,\15\ including charges for 
Automated Give Up (``AGU'') and Qualified Special Representative 
(``QSR'') trades of $0.029 per side.\16\ FINRA proposes to change these 
transaction charges so that they will be assessed on a per-trade basis, 
which will be charged only to the executing party. FINRA proposes to 
change the assessment of the fee from a per-side basis to a per-trade 
basis to clarify that the fee is assessed only once per trade. FINRA 
believes that it will better be able to collect this charge from the 
executing party to an AGU or QSR trade, as the executing party will 
generally be a Registered Reporting ADF ECN, while FINRA may not have a 
direct relationship with the contra-party to these trades.\17\
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    \15\ As noted above, FINRA has submitted a proposed rule change 
that would replace references to TRACS throughout the rules relating 
to the ADF, including replacing a reference to TRACS in Rule 7510(a) 
to ``System.'' See supra note 3.
    \16\ An Automated Give Up is the process by which a market 
participant agrees to allow an ADF Participant to report and lock in 
trades for clearing on its behalf.
     A Qualified Special Representative is responsible for sending a 
trade directly to the National Securities Clearing Corporation for 
clearing on behalf of another broker-dealer.
    \17\ FINRA is not proposing to make a similar change to the 
comparison charge, as FINRA believes that the manner in which the 
compare functionality is used is sufficiently different (namely, 
FINRA will have to register users for the compare functionality, and 
therefore can establish a billing relationship with those users).
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    Pursuant to Rule 7510, FINRA assesses a fee for the submission of 
T+N late reports.\18\ Currently, that fee is $0.30 per side, unless the 
trade is executed outside normal ADF operating hours of 8:00 a.m. to 
6:30 p.m. and the member's average publicly disseminated trades 
reported to the media through the ADF per day during the billing period 
is 150,000 or greater, in which case the fee is waived. FINRA proposes 
to delete this exception, and the corresponding fee waiver, as it will 
result in a simpler and more uniform application of the late report 
fee. FINRA also proposes to assess this fee on a per-trade basis, which 
will be charged to the executing party. With this change, the fees for 
late reports will be consistent with the manner in which fees for late 
reports are assessed by the FINRA/Nasdaq Trade Reporting Facility.\19\
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    \18\ For purposes of this fee, ``T'' refers to the trade date, 
and ``N'' refers to the applicable date following the trade date 
which renders the reporting late.
    \19\ See Rule 7620A.
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    FINRA also proposes to modify the Corrective Transaction Charge, 
which is currently $0.25 for a Break, Decline, or Reversal transaction, 
which is paid by each party. FINRA proposes to assess this charge on 
the executing party only, if the trade at issue is a locked-in

[[Page 9552]]

transaction, such as an AGU or QSR.\20\ Given that, with this proposed 
rule change, transaction charges for AGU and QSR trades will be 
assessed on the executing party only, FINRA believes that assessing a 
Corrective Transaction Charge on the executing party only for AGU and 
QSR trades is consistent with the manner in which transaction fees on 
the underlying trades will be assessed.
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    \20\ If the transaction at issue is not a locked-in trade, then 
the corrective transaction charge to be assessed does not change, 
i.e., it will be assessed to both parties to the trade.
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Proposed Deletion of Rule 7540
    Rule 7540(c) provides for the assessment of fees for certain 
testing services, including the assessment of a fee of $285 per hour 
for computer-to-computer (``CTCI'') or digital interface (``DIS'' or 
``CHIPS'') testing between 9:00 a.m. and 5:00 p.m. Eastern Time on 
business days. FINRA proposes to delete this fee because the MPP will 
not support such testing for the ADF, and this fee is thus not 
applicable. Given this deletion, FINRA will make a corresponding change 
to the description of the fee of $333 per hour for other testing, so 
that this fee will be assessed at all times on business days, holidays 
and weekends. FINRA also proposes to delete the introductory language 
in Rule 7540(c) that refers to such interfaces to reflect the deletion 
of the corresponding fee. FINRA also proposes a grammatical change; 
namely, inserting ``the'' before the reference to the ADF.
    FINRA has filed the proposed rule change for immediate 
effectiveness.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(5) of the Act,\21\ which requires, among 
other things, that FINRA rules provide for the equitable allocation of 
reasonable dues, fees and other charges among members and issuers and 
other persons using any facility or system that FINRA operates or 
controls. FINRA believes that the proposed fees are reasonable in light 
of FINRA's regulatory and operational costs, including personnel and 
technology costs. The proposed fees are equitably allocated and not 
unfairly discriminatory because they will apply uniformly to all 
similarly situated members using the ADF.
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    \21\ 15 U.S.C. 78o-3(b)(5).
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    FINRA believes that the proposed fee for web browser access under 
proposed Rule 7510(c) is reasonable because it will allow FINRA to 
recover some of the cost of developing and maintaining the web browser 
system for the ADF. FINRA also notes that the fee is identical to the 
existing fee for Level I web browser access to TRACE under Rule 7730. 
FINRA believes that the fee is equitably allocated and not unfairly 
discriminatory because it will apply uniformly to all ADF Market 
Participants that elect to utilize this service.
    FINRA also believes that the proposed fees for ADF data through the 
FINRA ADDS are reasonable because these fees will allow FINRA to 
recover some of the cost of expanding and maintaining ADDS to include 
ADF data. FINRA also notes that these fees are comparable to the 
existing fees for TRACE data through ADDS under Rule 7730. FINRA 
believes that the fees are equitably allocated and not unfairly 
discriminatory. Because ADDS is an optional service, the fees would 
only be charged to ADF participants that elect to subscribe, and the 
fees would apply uniformly to all ADF participants that subscribe.
    FINRA believes that the proposed deletion to the carve-out for the 
fee for late reports in Rule 7510(a) is consistent with the Act because 
this deletion will result in a simpler and more uniform application of 
the late report fee, as all ADF participants will be charged $0.30 per 
side. FINRA believes that changing the assessment of the transaction 
fee for AGU and QSR trades from a per-side to a per-trade basis is 
consistent with the Act because it will clarify that the fee shall be 
assessed only once per trade. FINRA believes that assessing the fee for 
AGU and QSR trades on the executing party is consistent with the Act 
because, given the way in which AGU and QSR trades are typically 
structured, FINRA will be better able to collect this charge from the 
executing party to an AGU or QSR trade than the contra-side. FINRA 
believes that assessing a Corrective Transaction Charge on the 
executing party only for locked-in trades such as AGUs and QSRs is 
consistent with the Act because assessing the Corrective Transaction 
Charge in this manner for such trades is consistent with the way in 
which transaction charges on the underlying trades will be assessed. 
FINRA believes that charging fees for late reports on a per-trade basis 
to be assessed to the executing party is consistent with the Act 
because it aligns this provision with the corresponding provision 
governing fees for late reports that are assessed by the FINRA/Nasdaq 
Trade Reporting Facility.
    FINRA believes that the proposed deletion of the provision in Rule 
7540(c) providing for an hourly fee of $285 for testing of certain 
computer-to-computer and digital interfaces, and corresponding 
revisions to that rule to reflect this deletion, is consistent with the 
Act because the MPP will not support such testing for the ADF, and this 
fee is thus not applicable.

B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. The proposed rule change will 
not affect all FINRA members, but only ADF participants and, in the 
case of the proposed web browser access fee, only ADF Market 
Participants. With respect to the proposed fee for web browser access, 
FINRA believes that, because this proposed fee is reasonable in amount, 
payment of such fee by any member, or any group or class of members, 
will not result in a burden on competition to such members. Similarly, 
with respect to the proposed fees for ADF data through ADDS, because 
the proposed fees are both optional and reasonable in amount, FINRA 
does not believe that the payment of such fees by any member, or any 
group or class of members, will result in a burden on competition to 
such industry members relative to other industry members that elect not 
to subscribe to the optional services.\22\
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    \22\ FINRA notes that today, the number of subscribers for TRACE 
data through ADDS is small: 16 firms subscribe to the Plus Reports 
and five firms subscribe to the SFTP service. FINRA anticipates that 
there may be more interest in ADF data through ADDS, given the 
differences in the equity versus fixed income markets, but is unable 
to provide an estimate of the number of firms that are likely to 
subscribe at this time.
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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)(ii) of the Act \23\ and paragraph (f)(2) of Rule 19b-4 
thereunder.\24\ 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

[[Page 9553]]

Commission takes such action, the Commission shall institute 
proceedings to determine whether the proposed rule should be approved 
or disapproved.
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    \23\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \24\ 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-2014-007 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-FINRA-2014-007. 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-2014-007, and should 
be submitted on or before March 12, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-03559 Filed 2-18-14; 8:45 am]
BILLING CODE 8011-01-P