Document ID: SEC-2013-2219-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2013-12-26T05:00Z

[Federal Register Volume 78, Number 248 (Thursday, December 26, 2013)]
[Notices]
[Pages 78451-78457]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-30768]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71147; File No. SR-FINRA-2013-053]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Update 
the Rules Governing the Alternative Display Facility

December 19, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on December 9, 2013, 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 update the rules governing the Alternative 
Display Facility (``ADF'') to, among other things, reflect regulatory 
requirements that have been put into place since the last comprehensive 
revision of the ADF rules, and to conform the ADF trade reporting 
rules, to the extent practicable, to current FINRA rules relating to 
trade reporting to the FINRA Trade Reporting Facilities (``TRFs'').
    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.

[[Page 78452]]

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'')) \3\ the ability to post 
quotations, display orders and report transactions in NMS stocks for 
submission to the Securities Information Processors 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.\4\ A broker-dealer that wishes to become an ADF Trading Center and 
display its quotations on the ADF must satisfy certain requirements.\5\
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    \3\ See Rule 6220(a)(3).
    \4\ See 17 CFR 242.600.
    \5\ For example, Rules 6220 and 6250(a)(7) require that a 
broker-dealer must execute and comply with the ADF Certification 
Record.
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    In connection with the migration of the ADF to the Multi-Product 
Platform (``MPP''), FINRA has undertaken a complete review of the ADF 
rules and has identified a number of rules to be updated. Some of those 
updates reflect the changes to the ADF's functionality resulting from 
the migration to MPP; other changes reflect regulatory requirements 
that have been put into place since the last comprehensive revision of 
the ADF rules, or are designed to enhance ADF operational efficiency. 
Other changes conform the ADF trade reporting rules, to the extent 
practicable, to current FINRA rules relating to trade reporting to the 
FINRA TRFs.\6\ FINRA is also proposing a variety of non-substantive 
changes to conform or otherwise streamline the ADF rules. These 
proposed changes are set forth below.
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    \6\ FINRA notes that it has submitted proposed rule change SR-
FINRA-2013-050, which would, among other things, amend Rules 6282, 
7130 and 7140. See Securities Exchange Act Release No. 70924 
(November 15, 2013) (sic), 78 FR 71695 (November 29, 2013). FINRA 
will amend this filing and/or SR-FINRA-2013-050, as necessary, to 
reflect Commission approval of any of the proposed rule changes.
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Changes to Reflect Regulatory Changes
    Rule 6272 of the ADF rules addresses requirements regarding 
quotations posted on the ADF. FINRA proposes to revise Rule 6272(a)(2) 
to modify the quotation pricing obligations for Registered Reporting 
ADF Market Makers in response to the National Market System Plan to 
Address Extraordinary Market Volatility (``Limit Up-Limit Down 
Plan'').\7\ As amended, the rule will specify that the suspension of 
pricing obligations for ADF Market Makers shall apply during a trading 
halt except as permitted under the Limit Up-Limit Down Plan.\8\
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    \7\ See Securities Exchange Act Release No. 67091 (May 31, 
2012), 77 FR 33498 (June 6, 2012) (SEC File No. 4-631).
    \8\ For example, the Limit Up-Limit Down Plan provides that 
``[n]o trades in an NMS Stock shall occur during a Trading Pause, 
but all bids and offers may be displayed.'' Id. at 77 FR 33514.
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    In Rule 6272(b), FINRA proposes to update the minimum quotation 
increment for ADF-eligible securities to account for quotations under 
$1.\9\ As revised, the rule will provide that the minimum quotation 
increment for quotations below $1.00 in all ADF-eligible securities 
shall be $0.0001. This provision will enable ADF Participants to submit 
quotations for issues under $1 in an increment that is consistent with 
Rule 612 of Regulation NMS.\10\
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    \9\ Rule 6220 defines an ``ADF-eligible security'' as an NMS 
stock as defined in Rule 600(b)(47) of SEC Regulation NMS.
    \10\ Rule 612 permits, among other things, quotations in NMS 
stocks that are less than $1.00 per share to be priced in increments 
of $0.0001. See 17 CFR 242.612(b).
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Voluntary Terminations
    FINRA proposes to amend the definition of ``Registered Reporting 
ADF ECN'' in Rule 6220(a) to provide additional detail as to how a 
Registered Reporting ADF ECN may voluntarily terminate its 
registration.\11\ As proposed, the rule will state that a Registered 
Reporting ADF ECN may voluntarily withdraw from participation on the 
ADF upon providing, through electronic delivery, written notice to 
FINRA Market Operations of its intention to withdraw as a Registered 
Reporting ADF ECN, with such withdrawal to be effective upon the first 
trading day following the issuance of the written notice announcing the 
Registered Reporting ADF ECN's intent to withdraw, or such other date 
as specified in the written notice. This change will provide greater 
clarity as to how a Registered Reporting ADF ECN may voluntarily 
terminate its registration, and an efficient means by which this may be 
accomplished.
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    \11\ Rule 6220 defines a Registered Reporting ADF ECN as ``a 
member of FINRA that is an electronic communications network 
(``ECN'') that elects to display orders in the ADF. A member shall 
cease being a Registered Reporting ADF ECN when it has withdrawn or 
voluntarily terminated its quotations on the ADF or when its 
quotations have been suspended or terminated by action of FINRA. 
This term also shall include a FINRA member that is an alternative 
trading system (``ATS'') that displays orders in the ADF.'' As such, 
this provision would apply to both ECNs and ATSs that display orders 
in the ADF.
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Changes to ADF Order Reporting
    FINRA also proposes to modify the order reporting requirements set 
forth in Rule 6250 so that FINRA can more efficiently monitor quoting 
activity on the ADF on an automated basis. FINRA requires ADF Trading 
Centers to report order information so that FINRA can have detailed 
information regarding the origination of orders underlying an ADF 
Trading Center's quotation and use that information to enhance its 
ability to monitor quotation activity on the ADF. Currently, Rule 
6250(b) provides that all ADF Trading Centers that display quotations 
on the ADF must record the information described in paragraphs (b)(1) 
and (2) for all orders they receive from another broker-dealer via 
direct or indirect electronic access. Rule 6250(d)(1) defines direct 
electronic access as the ability to deliver an order for execution 
directly against an individual ADF Trading Center's best bid or offer 
and Rule 6250(d)(2) defines indirect electronic access as the ability 
to route an order through a FINRA member, subscriber broker-dealer, or 
customer broker-dealer of an ADF Trading Center for execution against 
the ADF Trading Center's best bid or offer. Accordingly, current Rule 
6250 is intended to only apply where the order is being sent to access 
a displayed quotation. FINRA proposes to amend this provision to 
clarify the scope of these requirements to require an ADF Trading 
Center to record the information pursuant to Rule 6250(b)(1) and (2) 
only if such order results in an execution, a cancellation, a 
correction or a rejection by the ADF Trading Center. As such, an 
incoming order that fully posts to the book of that ADF Trading Center 
will not trigger the reporting requirements under this provision.\12\ 
FINRA is proposing to revise this provision to better reflect the order 
information necessary for its surveillance programs related to the Firm 
Quote Rule,\13\ and reduce the

[[Page 78453]]

reporting of excess information that may over-burden its systems and 
lead to false alerts.
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    \12\ Similarly, if an incoming order is posted to the book of 
that ADF Trading Center, and is subsequently cancelled, corrected, 
etc., the order reporting requirements of Rule 6250(b) would not be 
triggered.
    \13\ The Firm Quote Rule provides that ``each responsible broker 
or dealer shall be obligated to execute any order to buy or sell a 
subject security, other than an odd-lot order, presented to it by 
another broker or dealer, or any other person belonging to a 
category of persons with whom such responsible broker or dealer 
customarily deals, at a price at least as favorable to such buyer or 
seller as the responsible broker's or dealer's published bid or 
published offer (exclusive of any commission, commission equivalent 
or differential customarily charged by such responsible broker or 
dealer in connection with execution of any such order) in any amount 
up to its published quotation size.'' 17 CFR 242.602(b)(2). See also 
FINRA Rule 5220.
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    FINRA also proposes to make a grammatical change to Rule 6250(a) to 
better reflect the fact that Registered Reporting ADF ECNs are not 
obligated to submit two-sided quotes (e.g., the bid and the offer). 
FINRA also proposes to amend the order information required to be 
provided to FINRA pursuant to Rule 6250(b) to update the terminology 
used in the Order Reporting Specifications.\14\ As part of these 
changes, FINRA proposes to update the reporting requirements for Order 
Time and Order Response Time, which are currently required to be 
reported in hours, minutes and seconds, so that ADF Trading Centers 
will report this information in hours, minutes, seconds and 
milliseconds, if the ADF Trading Center's system captures such 
information in milliseconds. This change will make these order 
reporting provisions consistent with the reporting standards being 
proposed for both the Order Audit Trail System and the Trade Reporting 
Facilities.\15\
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    \14\ Specifically, FINRA proposes to delete the parentheticals 
corresponding to the Order Entry Firm and Order Side data elements. 
FINRA also proposes to replace the reference to Issue Identifier 
with Symbol, delete the requirement to provide the Order Negotiable 
Flag and the Trade-or-Move Flag, and delete the reference to ANY. 
FINRA also proposes to replace the reference to the identifier for 
the Market Making Firm to the ADF Trading Center; change the 
reference to ``any other modifier'' language in Rule 6250(b)(1)(N) 
(renumbered herein as Rule 6250(b)(1)(L)) to ``any other 
information,'' and to use Customer Order Handling Instructions as 
one example of such information; and amend the Order Response 
requirement of Rule 6250(b)(2)(B) to consist of execute, cancel, 
correct, or reject.
    \15\ See FINRA-2013-050, supra note 6.
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    FINRA also proposes to add new order reporting requirements in Rule 
6250 for orders that are part of an ADF Trading Center's quotation (bid 
or offer) that is displayed on the ADF. Specifically, FINRA proposes 
that, for each order that is part of a bid or offer displayed by an ADF 
Trading Center on the ADF, that ADF Trading Center must record and 
report to FINRA (1) symbol; (2) side; (3) price; (4) quantity 
(including displayed quantity); (5) order date and time of receipt; (6) 
order instructions (including order type); (7) internal order 
identifiers; (8) firm identifiers (including broker order identifier) 
and capacity information; (9) quote identifier; (10) quote price; (11) 
quote time; (12) short sale exemption reason, as applicable; and (13) 
clearing member. In addition, all ADF Trading Centers must also record 
and report the execution details, if any, of each order that is part of 
a displayed bid or offer, including (1) date and time of receipt; (2) 
side; (3) price; (4) quantity (including executed quantity); (5) 
execution price; (6) order instructions (including order type); (7) 
internal order identifiers; (8) firm identifiers (including broker 
order identifier); (9) execution identifier; (10) quote price; (11) 
quote identifier; and (12) quote time. For purposes of information 
related to time, an ADF Trading Center must report such information in 
the finest increment (e.g., milliseconds) that is captured in the ADF 
Trading Center's system.
    This information shall be reported to FINRA in ``next day'' file 
submission, with such information reported to FINRA no later than 8:00 
a.m. Eastern Time on the day following receipt of the order; provided, 
however, that an ADF Trading Center must report any of this information 
to FINRA immediately upon request. These requirements will enable FINRA 
to ascertain the market participant that is responsible for the order 
generating a quotation that is displayed on the ADF, which will enhance 
FINRA's ability to conduct quotation-based surveillance.
    Finally, FINRA proposes a technical change to amend the provision 
in Rule 6250 governing the procedures for reviewing system outages. 
Currently, the rule requires that a member initiate a review of a 
system outage by submitting a written request via facsimile or 
otherwise; as revised, the rule will specify that an ADF Trading Center 
that seeks review of a system outage shall submit a written request via 
facsimile, email, personal delivery, courier or overnight mail to FINRA 
Product Management. This change will make the ADF rules more internally 
consistent by conforming the procedures for requesting a review under 
Rule 6250 to the procedures set forth in Rule 6260(a), which governs 
the filing of direct or indirect access complaints.
Proposed Conforming Amendments to ADF Trade Reporting Rules
    FINRA is proposing to amend Rules 6281 and 6282 and the Rule 7100 
Series relating to trade reporting to the ADF to conform those rules, 
to the extent practicable, to current FINRA rules relating to trade 
reporting to the TRFs.
    First, FINRA is proposing to amend Rule 6281 to (1) expressly 
provide that members must also comply with the Rule 7100 Series when 
reporting to the ADF and (2) delete the requirements relating to 
execution of a Participant Application Agreement and maintenance of the 
physical security of the equipment as conditions for participation in 
the ADF, as they are redundant with requirements contained in Rule 
7120.
    Second, FINRA is proposing to amend Rule 6282(a)(4) to expressly 
provide that in the event that the rules require multiple modifiers on 
any given trade report, members are to report in accordance with 
guidance published by FINRA regarding priorities among modifiers. 
Members that report in accordance with such guidance will not be in 
violation of the trade reporting rules for failing to use a particular 
modifier. This provision conforms to paragraphs (a)(5) of Rules 6380A 
and 6380B relating to the TRFs. FINRA also is proposing new paragraphs 
(a)(5) and (6) of Rule 6282 to clarify that the ADF will append or 
convert, as applicable, the modifiers identified in the rules (i.e., to 
indicate that a trade was executed outside normal market hours or that 
a trade was reported late). The proposed paragraphs are identical to 
paragraphs (a)(6) and (7) of Rules 6380A and 6380B relating to the 
TRFs.
    Third, the ADF will no longer support three party trade reports 
\16\ and therefore, FINRA is proposing to delete paragraphs (c) and (d) 
of Rule 6282 relating to that function. FINRA is proposing to adopt new 
paragraph (c), which is identical to paragraph (c) of Rules 6380A and 
6380B relating to the TRFs and sets forth the information that must be 
included in trade reports submitted to the ADF. Proposed paragraph (d) 
of Rule 7130 sets forth additional information that must be included in 
trade and clearing reports submitted to the ADF and is identical to 
paragraph (d) of Rules 7230A and 7230B relating to the TRFs. Proposed 
Rules 6282(c) and 7130(d) require the same trade information that is 
currently required under Rule 6282(c) and (d), and do not impose any 
additional reporting requirements on members. FINRA notes that as part 
of this proposed change, subparagraph (3) of Rules 6282(c) and (d), 
which requires that members submit a trade report addendum within 15 
minutes of submission of the original trade report to correct or 
provide some or all of the identified information (e.g., the capacity 
or short sale indicator), would be deleted. This provision is not 
included in Rules 6380A and 6380B relating to the TRFs. Consistent with 
the TRF rules, members will be required to provide all

[[Page 78454]]

information at the time of submission of the original trade report to 
the ADF and they will not have additional time to provide information 
such as the capacity or short sale indicator. Additionally, members 
already have a continuing obligation to provide full and accurate trade 
information to FINRA and to correct trade reports, as necessary.\17\
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    \16\ A three party trade report is a single trade report that 
denotes one Reporting Member (i.e., the member with the obligation 
to report the trade under FINRA's rules) and two contra parties. 
This functionality had never been used by previous ADF Market 
Participants.
    \17\ See, e.g., Rule 7160.
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    Fourth, FINRA is proposing to delete the following from Rule 6282: 
(1) Paragraph (e)(1)(E) (the requirements relating to prior reference 
price transactions are already included in Rule 6282(a)(4)(G)); and (2) 
paragraph (g) (there is no designated symbol in the ADF for reversals 
and ``as/of'' trades, and FINRA is proposing to relocate the 
requirement relating to use of the special trade and step-out 
indicators to Rule 7130(d)(13)). FINRA is also proposing to relocate 
paragraph (h) to Rule 7130(d)(16), which is a more appropriate location 
for the requirements relating to the clearing functionality of the ADF, 
and to amend that provision to clarify that members must indicate 
whether a trade is submitted for comparison or is locked-in via an 
Automatic Give Up Agreement (``AGU'') or Qualified Special 
Representative agreement (``QSR''). FINRA notes that these provisions 
do not appear in Rules 6380A and 6380B relating to the TRFs.
    Fifth, FINRA is proposing to adopt new paragraph (h) of Rule 6282 
to expressly provide that participants may enter into ``give up'' 
arrangements whereby one member reports to the ADF on behalf of another 
member, provided that participants submit to the ADF the appropriate 
documentation reflecting the arrangement. Proposed paragraph (h) is 
identical to Rules 6380A(h) and 6380B(g) relating to the TRFs, and 
provides that the member with the reporting obligation remains 
responsible for the transaction submitted on its behalf. Further, both 
the member with the reporting obligation and the member submitting the 
trade to the ADF are responsible for ensuring that the information 
submitted is in compliance with all applicable rules and regulations.
    The provisions of Rule 6282 will be renumbered and cross-references 
will be updated, as necessary.
    FINRA is also proposing amendments to the Rule 7100 Series, which 
addresses trade reporting and clearing through the ADF. First, FINRA is 
proposing to delete the definition of ``Browse'' in Rule 7110 and the 
references to this term in the Rule 7100 Series, as there is not a 
specific ``Browse'' functionality offered for the ADF.
    In addition, FINRA believes that it is no longer necessary to 
distinguish among types of ADF participants for purposes of the trade 
reporting rules and therefore is proposing to delete the definitions of 
``TRACS ECN,'' ``TRACS Market Maker'' and ``TRACS Order Entry Firm'' in 
Rule 7110. FINRA is proposing to use the more general term 
``Participant'' and apply the trade reporting and clearing requirements 
uniformly to all ADF participants. FINRA notes that this approach 
conforms to the Rule 7200A and 7200B Series relating to the TRFs. 
Proposed amendments throughout the Rule 7100 Series (for example, Rule 
7120(a) and (b)) would delete the references to these terms and 
incorporate the more general term ``Participant.'' FINRA notes that the 
requirements for a ``TRACS ECN,'' ``TRACS Market Maker'' and ``TRACS 
Order Entry Firm'' in Rule 7120 are largely duplicative, with the 
exception of the provision in Rule 7120(b)(2)(D) that states that if 
FINRA finds that a TRACS Market Maker's failure to maintain a clearing 
arrangement is voluntary, the withdrawal of quotations will be 
considered voluntary and unexcused pursuant to Rule 6275. FINRA is 
proposing to relocate this provision to new Rule 6275.01.\18\
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    \18\ FINRA also is proposing non-substantive amendments to the 
definitions in Rule 7110 to conform to the definitions in Rules 
7210A and 7210B relating to the TRFs. The provisions of Rule 7110 
will be renumbered as necessary.
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    Second, FINRA is proposing to amend Rule 7120 to conform, to the 
extent practicable, the participation requirements for members that 
report and clear transactions through the ADF to the participation 
requirements for the TRFs under Rules 7220A and 7220B, including 
amending paragraph (a)(1) and adding proposed new paragraph (b)(3)(B). 
The proposed amendments are not substantive and impose neither more nor 
less stringent requirements on FINRA members that participate in the 
ADF than the current provisions of Rule 7120. FINRA is also proposing 
to amend Rule 7120(b)(2)(D) to clarify that the rule (which provides 
that if a Participant fails to maintain a clearing relationship, it 
will be removed from the ADF) applies to Participants that are the 
reporting party or the contra party.\19\
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    \19\ This incorporates Rule 7120(b)(3)(D) (which refers to TRACS 
Order Entry Firms), which will be deleted pursuant to the proposed 
rule change.
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    Third, FINRA is proposing to amend paragraph (b) and adopt new 
paragraph (c) of Rule 7130 regarding when and how trade reports are 
submitted and which party reports, to conform to paragraphs (b) and (c) 
of Rules 7230A and 7230B relating to the TRFs. The proposed amendments 
are non-substantive and will not change the reporting requirements for 
members reporting and clearing trades through the ADF.
    Fourth, FINRA is proposing new paragraph (e) of Rule 7130 to cross-
reference the requirements for reporting cancelled trades in Rule 6282. 
This provision is identical to Rules 7230A(f) and 7230B(e) relating to 
the TRFs. The provisions of Rule 7130 will be renumbered and cross-
references will be updated, as necessary.
    Fifth, new paragraph (h) of Rule 7130 would provide members the 
option of including a transaction fee as part of a clearing report 
submitted to the ADF and is substantively identical to Rule 7230A(h) 
relating to the FINRA/Nasdaq TRF and Rule 7230B(i) relating to the 
FINRA/NYSE TRF.\20\ Pursuant to the proposed rule, members would be 
required to provide in reports submitted to the ADF, in addition to all 
other information required to be submitted by any other rule, pricing 
information to indicate a total per share or contract price amount, 
inclusive of the transaction fee. As a result, members would submit as 
part of their report to the ADF: pricing information to indicate a 
total price inclusive of the transaction fee, which would be submitted 
by the ADF to NSCC for clearance and settlement; and the price 
exclusive of the transaction fee, which would be publicly disseminated. 
The parties to the trade would know both prices--the price reported for 
public dissemination and the clearance/settlement price.
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    \20\ FINRA notes that Rule 7230B(i) was adopted pursuant to a 
proposed rule change that was filed for immediate effectiveness on 
October 9, 2013. The operative date of the proposed rule change will 
be announced in a notice and will be at least 30 days following the 
date of filing. See Securities Exchange Act Release No. 70702 
(October 17, 2013), 78 FR 63268 (October 23, 2013) (Notice of Filing 
and Immediate Effectiveness; File No. SR-FINRA-2013-044).
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    Sixth, the ADF will offer match functionality, whereby both parties 
to the trade submit transaction data and the System performs an on-line 
match. Proposed Rule 7140(a) addresses such functionality and is 
identical to Rule 7240A(a) relating to the FINRA/Nasdaq TRF. FINRA 
proposes to renumber the remaining provisions of Rule 7140 accordingly.
    Finally, proposed Rule 7170 provides that failure to comply with 
any of the trade reporting rules may be considered conduct inconsistent 
with high standards of commercial honor and just and equitable 
principles of trade, in

[[Page 78455]]

violation of Rule 2010. The proposed rule is identical to Rules 7270A 
and 7270B relating to the TRFs. FINRA proposes to re-number current 
Rule 7170 as Rule 7180.
    In addition to the amendments outlined above, FINRA is proposing to 
make other non-substantive technical amendments to a number of ADF 
rules to conform, to the extent practicable, to the text of the TRF 
rules. The chart below identifies the ADF rules for which conforming 
changes to the rule text are being proposed and the corresponding TRF 
rules:

------------------------------------------------------------------------
                 ADF Rule                             TRF Rule
------------------------------------------------------------------------
Rule 6282(a)(5) (renumbered herein as       Rules 6380A(a)(8) and
 6282(a)(7)).                                6380b(a)(8).
Rule 6282(e) (renumbered herein as          Rules 6380A(d) and 6380B(d).
 6282(d)).
Rule 7130(a)..............................  Rules 7230A(a) and 7230B(a).
Rule 7160.................................  Rules 7260A and 7260B.
Rule 7170 (renumbered herein as Rule 7180)  Rules 7280A and 7280B.
------------------------------------------------------------------------

    By conforming the trade reporting requirements for the ADF and 
TRFs, to the extent practicable, the proposed rule change will promote 
more consistent trade reporting by members and a more complete and 
accurate audit trail. FINRA notes that most of the proposed conforming 
changes to Rules 6281 and 6282 and the Rule 7100 Series are technical 
and non-substantive in nature, and FINRA does not believe that any of 
the proposed changes would require members to make systems changes in 
order to comply. Furthermore, FINRA members that currently report to 
one of the TRFs would already be familiar with the rule amendments that 
are proposed herein.
Changes to ADF and TRAQS Fees
    FINRA proposes to amend Rule 7510(a) to assess a new fee for 
certain corrective transaction charges. Currently, each party to a 
trade will be assessed a $0.25 charge for transactions to break, 
decline, or reverse a trade. To this category of corrective transaction 
fees, FINRA proposes to add a $0.25 charge that will be assessed upon 
each party that cancels or corrects a trade. The purpose of adding this 
new change is to defray the administrative costs incurred by FINRA in 
processing corrective transaction charges, including cancel and correct 
requests.\21\
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    \21\ FINRA notes that, because the submission of a corrective 
request imposes an administrative cost on FINRA, a party will still 
be assessed a cancel or correct charge, even if the trade ultimately 
stands. For example, assume that ABCD submits a trade with counter-
party WXYZ, and that the trade is accepted by WXYZ. ABCD then 
cancels the trade, incurring a $0.25 cancellation fee. WXYZ takes no 
further action, such as submitting its own cancellation, so the 
trade is matched, and the trade goes to the tape and to clearing. 
Since WXYZ did not submit its own cancellation request, the trade 
was ultimately not broken; however, FINRA incurred a cost in 
processing the cancellation request from ABCD regardless of the 
ultimate outcome of the trade. FINRA thus believes it is appropriate 
to assess the cancel fee on ADF Market Participants in this 
scenario.
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    FINRA also proposes to delete Rule 7530, which assesses a minimum 
charge of $5,000 for installation costs associated with connecting to 
the ADF. This rule also provides that, upon installation, removal, 
relocation or maintenance of terminal and related equipment, the 
subscriber shall pay charges incurred by FINRA or its subsidiaries 
above the $5,000 minimum. FINRA proposes to delete this provision 
because it is no longer applicable, since the ADF is software-based and 
there is no hardware to install, remove or relocate. FINRA also 
proposes to re-number the remaining provisions in the Rule 7500 Series 
accordingly.
Technical Changes To Conform or Otherwise Streamline ADF Rules
    FINRA is proposing a number of technical changes throughout the ADF 
rules. For example, FINRA is replacing references to ``TRACS,'' the 
``TRACS Trade Comparison Service,'' and the ``TRACS trade comparison 
feature'' with ``ADF'' or ``the System'' \22\ and in several 
provisions, deleting such references altogether.\23\ Similarly, FINRA 
is replacing references to the ``TRACS trade comparison Participant 
Application Agreement'' with ``Participant Application Agreement.'' 
\24\ FINRA also proposes to update the definition of a ``CQS security'' 
in Rule 6220(a)(6) to include the current national securities exchanges 
on which the relevant securities are listed or trade pursuant to 
unlisted trading privileges, and to make a grammatical change. FINRA 
proposes to change the definition of the ADF in Rule 6210 to remove 
unnecessary language from that provision, and to make a grammatical 
change. FINRA proposes to change certain references throughout the 
rules from ``ADF Operations,'' ``FINRA ADF Operations,'' or ``TRACS 
Operations Center'' to ``FINRA Market Operations'' or ``FINRA Product 
Management.'' \25\
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    \22\ FINRA is proposing to use the term ``the System'' to apply 
to the ADF, including the trade comparison feature specifically 
referred to in the current Rule 7100 Series. The proposed change and 
the proposed definition of ``System'' in Rule 7110 conforms to the 
Rule 7200A and 7200B Series relating to the TRFs.
    \23\ TRACS (now re-named TRAQS) was a component of the ADF, and 
this change simplifies the rule text without substantively changing 
the process by which trades are reported or the ADF otherwise 
operates.
    \24\ This change simply reflects the global deletion of 
references to TRACS; the actual agreement remains the same.
    \25\ These changes will reflect the official title of the FINRA 
group that is responsible for the issues that are addressed in these 
provisions.
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    In Rule 6220(a)(10), FINRA proposes to revise the definition of 
``Normal unit of trading'' to delete the reference to a ``special 
identifier'' appended to the issuer's symbol if a normal unit of 
trading is other than 100 shares. This identifier will not be used 
following migration of the ADF to MPP. FINRA also proposes to delete, 
in Rule 6272(a)(3), the provision that the National Best Bid and Offer 
(``NBBO'') is established ``by FINRA in accordance with its procedures 
for determining protected quotations under Rule 600'' of Regulation 
NMS. The ADF will not generate an NBBO upon migration to the MPP; 
rather, FINRA will use the NBBO as defined in Regulation NMS and as 
calculated by the Securities Information Processors. Finally, FINRA 
proposes to modify the time cut-off set forth in Rule 6250(b)(1) and 
(b)(2) so that the order information that is required to be provided 
pursuant to this rule shall be provided ``no later'' than 6:30 p.m. 
Eastern Time.\26\
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    \26\ FINRA is making this change to clarify that, to the extent 
that such information is available prior to 6:30 p.m. Eastern Time, 
the ADF Trading Center need not wait until 6:30 p.m. to report that 
information to FINRA.
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    The proposed rule change shall be effective upon Commission 
approval.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\27\ which requires, among 
other things, that FINRA rules must 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, and Section 15A(b)(5) of the Act,\28\ 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, and Section 15A(b)(9) of the Act,\29\ which 
requires that FINRA rules not impose any burden on competition that is 
not necessary or appropriate.
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    \27\ 15 U.S.C. 78o-3(b)(6).
    \28\ 15 U.S.C. 78o-3(b)(5).
    \29\ 15 U.S.C. 78o-3(b)(9).
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    FINRA believes that the proposed rule change is consistent with the 
Act where

[[Page 78456]]

it makes non-substantive changes that simply update the rules to 
reflect changes in FINRA departments or systems, or to correct other 
outdated references. Examples of such changes include (1) changing the 
reference from TRACS (Trade Comparison Service) to ``ADF'' or ``the 
System''; (2) replacing the reference from the TRACS trade reporting 
Participant Application Agreement to the Participant Application 
Agreement; (3) updating the reference of a ``CQS Security''; and (4) 
changing the references from ``FINRA ADF Operations'' to ``FINRA Market 
Operations'' or ``FINRA Product Management,'' as applicable. These 
changes update the relevant rule without affecting the substance of 
that rule.
    FINRA believes that the changes to the rules governing the ADF to 
reflect recent regulatory changes are also consistent with the Act. 
These changes, which consist of updating the rules to reference the 
Limit Up-Limit Down Plan and allowing a minimum quoting increment of 
less than $0.01 for quotations below $1, modify the ADF rules to 
reflect regulatory initiatives that were previously approved or 
promulgated by the Commission.\30\
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    \30\ See Securities Exchange Act Release No. 67091 (May 31, 
2012), 77 FR 33498 (June 6, 2012) (SEC File No. 4-631) (Limit up-
Limit Down adopting release); 17 CFR 242.612(b) (permitting 
quotations in NMS stocks that are less than $1.00 per share to be 
priced in increments of $0.0001).
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    FINRA believes that the changes to the rules to delete 
functionalities that will no longer be available following the 
migration of the ADF to MPP are also consistent with the Act; 
specifically, the deletion of the use of a special identifier if the 
normal unit of trading is other than 100 shares, and the deletion of 
the provision for calculating the NBBO. Since the functionalities to be 
deleted are not being currently utilized, and will not be offered on 
the ADF upon its migration to MPP, FINRA believes that these changes 
will help ensure that the rules accurately reflect the operation of the 
ADF upon its migration to the new platform.
    FINRA believes that the provision allowing a Registered Reporting 
ADF ECN to voluntarily terminate its status as an ADF Market 
Participant is consistent with the Act because it provides a Registered 
Reporting ADF ECN with the ability to terminate its status, and for 
FINRA to make any corresponding changes to the operation of the ADF, on 
an expedited basis, thus providing for the more efficient operation of 
the ADF. FINRA also notes that this provision is comparable to what is 
already provided to Registered Reporting ADF Market Makers under the 
rules.
    FINRA believes that the change in Rule 6250 to require order 
information for only those incoming orders that result in an execution, 
cancellation, correction or rejection is consistent with the Act 
because it will result in greater operational and regulatory 
efficiency. Specifically, this change will allow FINRA to continue to 
obtain the information necessary to perform the relevant surveillance, 
while reducing the receipt of excess order information, which over-
burdens FINRA systems, imposes unnecessary reporting obligations on ADF 
participants, and contributes to false surveillance alerts. FINRA 
believes that conforming the order reporting requirements in Rule 6250 
to the Order Reporting Specifications, and requiring that certain of 
this information be reported in milliseconds if the ADF Trading 
Center's system captures such information in milliseconds, updates the 
Rule to reflect the actual information that is required to be reported, 
and further aligns the reporting requirements for the ADF with the 
reporting requirements for OATS and the TRFs. FINRA also believes that 
the change in Rule 6250 to require order information for orders that 
form part of displayed bids or offers is also consistent with the Act. 
Specifically, this provision will enable FINRA to ascertain the market 
participant that is responsible for the order generating a quotation 
displayed on the ADF, which will enhance FINRA's ability to conduct 
certain quotation-based surveillance.
    FINRA believes that the changes to the ADF trade reporting 
requirements to better align to the TRF trade reporting requirements 
are also consistent with the Act. The proposed rule will promote more 
consistent trade reporting by members and a more complete and accurate 
audit trail. Given that most of these changes are technical and non-
substantive in nature, FINRA does not believe that any of the proposed 
changes would require members to make systems changes in order to 
comply. FINRA also notes that members that currently report to one of 
the TRFs would already be familiar with the rule amendments that are 
proposed herein.
    FINRA believes that the proposed changes to the ADF fees are 
consistent with the Act, as they provide for the equitable allocation 
of reasonable fees. FINRA notes that these fees will only apply to ADF 
Market Participants, and that the methodology for assessing these fees 
will apply equally to all ADF Market Participants. FINRA believes that 
the proposed $0.25 charge to be assessed upon a party that cancels or 
corrects a trade is reasonable because this charge will defray the 
administrative costs incurred by FINRA in processing corrective 
transaction charges, including cancel and correct requests, which are 
incurred by FINRA regardless of whether the trade is ultimately broken. 
FINRA believes this charge is equitable because the methodology for 
assessing this fee will apply equally to all ADF Market Participants.
    FINRA also believes that the deletion of the fees associated with 
connecting to the ADF is reasonable and equitably allocated because 
these fees are no longer applicable to any market participant.
    FINRA does not believe that any of these changes will impose a 
significant or unnecessary burden on its members. FINRA notes that the 
proposed changes are either (1) non-substantive; (2) delete 
functionalities that will not be available following the migration to 
the MPP; (3) reflect regulatory changes; (4) conform the ADF rules to 
other FINRA rules; or (5) otherwise increase the operational and 
regulatory efficiency of the ADF. To the extent that a number of the 
changes are non-substantive or, in the case of conforming the ADF trade 
reporting requirements to the TRF trade reporting requirements, mirror 
requirements currently applicable to FINRA members, FINRA does not 
believe that members will be significantly or adversely affected by 
these changes. To the extent that FINRA is proposing certain changes to 
reflect regulatory developments, FINRA believes that these changes are 
narrowly tailored to comply with the applicable regulation or rule. 
FINRA also believes that certain of the proposed changes, such as the 
provision to allow for the voluntary termination of registration by a 
Registered Reporting ADF ECN, may increase operational and regulatory 
efficiency for FINRA and ADF Market Participants alike.

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. Participation in the ADF is 
voluntary, and the proposed changes will apply equally to all ADF 
Market Participants. As discussed above, FINRA does not believe that 
such changes will significantly impact either ADF Market Participants 
or other market participants. FINRA also notes that the proposed rule 
change is designed to assist FINRA in meeting its regulatory

[[Page 78457]]

obligations by enhancing its ability to efficiently operate the 
quotation collection and trade reporting aspects of the ADF and to 
conduct the relevant surveillance.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

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-2013-053 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-2013-053. 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-2013-053, and should 
be submitted on or before January 16, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
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    \31\ 17 CFR 200.30-3(a)(12).
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Kevin O. Neill,
Deputy Secretary.
[FR Doc. 2013-30768 Filed 12-24-13; 8:45 am]
BILLING CODE 8011-01-P