Document ID: SEC-2014-1198-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2014-07-17T04:00Z

[Federal Register Volume 79, Number 137 (Thursday, July 17, 2014)]
[Notices]
[Pages 41711-41717]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-16824]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72595; File No. SR-FINRA-2014-032]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend Rule 7710 Relating to Fees for the OTC 
Reporting Facility and Delete Rule 7740 Relating to Historical Research 
and Administrative Reports

July 11, 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 July 2, 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. FINRA has 
designated the proposed rule change as constituting a ``non-
controversial'' rule change under paragraph (f)(6) of Rule 19b-4 under 
the Act,\3\ 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\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to amend Rule 7710 (OTC Reporting Facility) 
relating to fees for the OTC Reporting Facility (``ORF'') and delete 
Rule 7740 (Historical Research and Administrative Reports) upon 
migration of the ORF to FINRA's Multi-Product Platform (``MPP'').
    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 ORF is the FINRA facility used by members to report 
transactions in OTC Equity Securities, as defined in Rule 6420 (i.e., 
equity securities that are not NMS stocks), and transactions in 
Restricted Equity Securities, as defined in Rule 6420, effected 
pursuant to Securities Act Rule 144A.\4\ Currently, the ORF utilizes 
technology provided by The NASDAQ OMX Group, Inc. (``NASDAQ'') that is 
based on NASDAQ's proprietary Automated

[[Page 41712]]

Confirmation Transaction (``ACT'') platform.
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    \4\ 17 CFR 230.144A.
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    The MPP is a platform owned by FINRA and developed by NASDAQ, as 
FINRA's technology service provider, that consolidates FINRA's 
technology for gathering and disseminating trade execution and, where 
applicable, quotation data, conducting trade comparisons and gathering 
associated regulatory data for debt and equity securities. FINRA's 
Alternative Display Facility (``ADF''), which is a quotation display 
and trade reporting facility for OTC transactions in NMS stocks, and 
FINRA's Trade Reporting and Compliance Engine (``TRACE''), which is the 
facility for reporting OTC transactions in eligible fixed income 
securities, currently operate on the MPP. Prior to migration to the 
MPP, TRACE, ADF and ORF operated on separate technology platforms.\5\ 
As described more fully below, member firms currently can elect to 
access TRACE and the ADF via a web browser on the MPP and also have the 
option of receiving ADF and TRACE data via trade journals through 
FINRA's Automated Data Delivery Service (``FINRA ADDS''). FINRA will 
expand these optional services to the ORF upon migration to the MPP.
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    \5\ While TRACE, ADF and ORF will operate completely on the MPP, 
including their front-end user-facing systems, two additional FINRA 
facilities--the FINRA/Nasdaq Trade Reporting Facility (``FINRA/
Nasdaq TRF'') and FINRA/NYSE Trade Reporting Facility (``FINRA/NYSE 
TRF''), established in conjunction with NASDAQ and NYSE, as the 
Business Members, respectively, for reporting OTC transactions in 
NMS stocks--will use the MPP only to submit audit trail data to 
FINRA Market Regulation. The front-end user-facing systems of the 
TRFs will not be on the MPP, but instead will continue to be 
separately provided by the TRF Business Members.
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    The ORF will migrate to the MPP on September 15, 2014 and as of 
that date will no longer operate on the ACT platform.\6\ Accordingly, 
FINRA is proposing to (1) adopt fees for web browser access to the ORF 
and for real-time ``time and sales'' ORF data through the web browser; 
(2) enhance FINRA ADDS to include ORF data for ORF participants and 
clearing firms and to adopt fees for such services; (3) amend Rule 7710 
relating to transaction reporting fees to clarify the application of 
the rule, without modifying the fee amounts specified in the rule; and 
(4) delete Rule 7740 relating to historical reports.
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    \6\ FINRA has provided firms with extensive information relating 
to ORF migration on its Web site at www.finra.org/Industry/Compliance/MarketTransparency/ORF/P470179.
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Proposed Web Browser Access Fees
    Today, most firms report trades to the ORF on an automated basis 
via a computer-to-computer interface (``CTCI''). However, firms also 
have the option of reporting trades to the ORF through a web browser. 
Any firm that chooses to use the web browser today must subscribe to 
NASDAQ's ACT Workstation product and pay the associated fees charged by 
NASDAQ under NASDAQ rules.\7\ Following migration of the ORF from the 
ACT platform to the MPP, ORF participants will use FINRA's web browser 
for accessing the ORF on the MPP; firms will no longer use the ACT 
Workstation.\8\ As noted above, FINRA currently offers web browser 
access to TRACE and the ADF on the MPP. FINRA provides two levels of 
web browser access for TRACE (with Level I offering trade reporting and 
trade management functionality, and Level II offering trade reporting 
and trade management functionality plus access to real-time ``time and 
sales'' TRACE data). For the ADF, FINRA provides one level of web 
browser access, i.e., trade reporting and trade management 
functionality.\9\
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    \7\ See, e.g., NASDAQ Rule 7015 (Access Services).
    \8\ In addition to web browser access, members can report trades 
to the ORF via CTCI (as noted above), a Financial Information 
eXchange (``FIX'') line or indirectly via third party intermediaries 
(e.g., service bureaus). Today, firms utilize NASDAQ's services 
(e.g., for CTCI) and pay the associated fees under NASDAQ rules. 
See, e.g., NASDAQ Rule 7015. FINRA notes that, following migration 
to the MPP, members will continue to be able to connect to the ORF 
using any of these three methods; however, FINRA is not proposing to 
charge a connectivity fee under FINRA rules at this time. Firms that 
report to the ORF via CTCI or FIX--either directly or indirectly 
through third party intermediaries--will pay NASDAQ, as FINRA's 
technology service provider for the MPP, charges associated with FIX 
and CTCI ports to connect to the ORF data center, as they do today.
    \9\ As discussed in FINRA's proposed rule change relating to ADF 
fees, FINRA does not offer Level II web browser access for the ADF. 
See Securities Exchange Act Release No. 71528 (February 12, 2014), 
79 FR 9550 (February 19, 2014) (Notice of Filing and Immediate 
Effectiveness; File No. SR-FINRA-2014-007). As described in that 
filing, TRACE is the sole platform for the reporting of fixed income 
trades and therefore, 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 (``SIPs'').
    As with TRACE, the ORF is the sole platform for reporting 
transactions in OTC Equity Securities, and as such, the transaction 
data is already available to FINRA. Therefore, FINRA is able to 
offer Level II web browser access for the ORF.
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    FINRA is proposing to offer two levels of web browser access to the 
ORF: Level I (Trade Report or Clearing Firm View Only) access and Level 
II (Full Service) access. Level I access permits a member to report 
transactions to the ORF via the web browser. In addition to reporting 
trades through the web browser, members will be able to access Trade 
Management functions, such as trade reconciliation, cancel and correct, 
will have access to reference data such as the Security Daily List and 
will be able to access their trade data for the current trading day 
plus three prior days.
    Clearing member firms also can subscribe to Level I web browser 
access to view data regarding their correspondents' trades reported to 
the ORF associated with the subscribing clearing firm's Clearing 
Number.\10\ Clearing firms have this ability today via the ACT 
Workstation and have requested similar functionality upon migration of 
the ORF to the MPP. With Level I web browser access, clearing firms 
will be able to access their correspondents' trade data for the current 
trading day plus three prior days.\11\ Clearing firms will only be able 
to view their correspondents' data, including, e.g., trades for which 
their correspondents are the reporting party as well as the contra 
party, open trades, declined trades, etc., and also reference data. 
Level I web browser access for clearing firms will not include the 
other Trade Management functions described above, e.g., a clearing firm 
will not be able to cancel or correct trades on behalf of its 
correspondents. FINRA notes that clearing firms currently do not have 
web browser access to view their correspondents' ADF and TRACE trade 
data.
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    \10\ Clearing member firms have unique Clearing Numbers that 
their correspondents use to identify the clearing firm associated 
with each trade.
    \11\ FINRA notes that under the terms of the FINRA Participant 
Agreement signed by members prior to reporting to the ORF, FINRA has 
ownership of the data submitted to the ORF and may use it for any 
purpose FINRA deems necessary. Thus, FINRA does not believe it would 
be necessary to obtain additional specific permission from 
correspondents before providing their ORF trade data to their 
clearing firms.
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    Pursuant to proposed Rule 7710(b)(1), FINRA is proposing to charge 
$20 per month per user ID for Level I (Trade Report or Clearing Firm 
View Only) web browser access to the ORF. The proposed fee is identical 
to the fee currently charged under Rule 7510(c)(1) for web browser 
access and similar trade management functionality for the ADF, and 
under Rule 7730(a)(1) for Level I Trade Report Only web browser access 
and trade management functionality for TRACE.\12\
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    \12\ FINRA notes that a member that utilizes the TRACE web 
browser, the ADF web browser and the ORF web browser would pay three 
separate fees under Rules 7730(a)(1), 7510(c)(1) and 7710(b).
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    Level II (Full Service) web browser access permits the reporting of

[[Page 41713]]

transactions to the ORF and related Trade Management functionality, as 
discussed above, as well as access to real-time ``time and sales'' ORF 
data for a given security through the web browser. Specifically, firms 
will be able to query--by security symbol and trade date--for the 
following real-time ORF data: (1) Trade details for disseminated trades 
in a given time period, which data will include the 52-week high and 
low prices and the dates such prices were attained; (2) the daily high 
price, low price, last sale price, most recent trade price and volume 
in a given time period; and (3) the weekly high price, low price and 
volume in a given time period, including the dates the high and low 
prices were attained.\13\ As noted above, FINRA currently offers Level 
II web browser access for TRACE, which enables firms to conduct similar 
queries (by CUSIP and trade date) for TRACE transaction data.
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    \13\ FINRA notes that firms that subscribe to the UTP SIP Level 
I entitlement receive the real-time OTC Bulletin Board (``OTCBB'') 
quote feed (or BBDS) and real-time ORF transaction feed (or TDDS), 
in addition to other data. The proposed rule change would not impact 
a firm's subscription to UTP SIP Level I data or fees for such data. 
Effective January 1, 2014, the professional subscriber fee was 
increased from $20 to $23 per subscriber per month. See UTP Vendor 
Alert 2013--10 (September 26, 2013), available at 
www.nasdaqtrader.com/TraderNews.aspx?id=uva2013-10.
     While a Level II web browser subscriber will be able to see all 
ORF trades at the time of the query in a specific security, the 
subscriber will not see the continuous TDDS data feed, and the web 
browser will not include quote data from the BBDS. Thus, FINRA 
believes that subscribers most likely will use the ORF ``time and 
sales'' data for middle and back office functions such as trade 
reconciliation and compliance.
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    Pursuant to proposed Rule 7710(b)(2), FINRA is proposing to charge 
$25 per month per user ID for Level II web browser access to the ORF, 
i.e., $20 for Level I access plus an additional $5 for access to the 
``time and sales'' function of the web browser. While the data query 
functionality of the web browser will be comparable for ORF and TRACE 
data, FINRA is not proposing to mirror the fee structure for TRACE 
Level II access. Among other things, the fees for TRACE Level II access 
reflect the fact that there are multiple data sets available for TRACE 
(e.g., Corporate Bond Data Set, Agency Data Set, etc.).\14\ Since there 
is only one data set for ORF, FINRA believes that a flat fee is 
appropriate. In addition, given that there are other sources for ORF 
data, i.e., the above-referenced UTP SIP Level I entitlement, and given 
the current fees for such data, FINRA believes that the proposed fee of 
$25 for Level II web browser access for the ORF (i.e., $20 for Level I 
access plus an additional $5 for data access) is reasonable.
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    \14\ Under Rule 7730(a)(1)(B), the fee for Level II Full Service 
web browser access for TRACE is $50 per month for one data set or 
$80 per month for two data sets for the first or a single user ID; 
and for additional user IDs, the fee is $80 per month per user ID 
for one data set or $140 per month per user ID for two data sets.
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Proposed Fees for ORF 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 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 ADF and TRACE trade journals available for free through 
the FINRA ADDS Web site and offers subscribers the option of receiving 
historical data and retrieving data automatically via Secure File 
Transfer Protocol (``SFTP'') for a fee. FINRA is proposing to enhance 
FINRA ADDS to include ORF data, to be delivered in the same format and 
via the same two methods currently used for TRACE and ADF data, and 
charge fees for such data pursuant to proposed paragraph (c) of Rule 
7710.
    Under proposed Rule 7710(c)(1), FINRA will provide member 
subscribers with their own trade data (as FINRA ADDS currently does for 
TRACE and the ADF). The ORF trade journals provided through FINRA ADDS 
will replace the equity trade journals for ORF currently provided by 
NASDAQ. Through the FINRA ADDS Web site, a member will have access to 
ORF 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. As noted above, firms that have 
web browser access will also be able to download up to three days' 
worth of their prior day ORF trade data through the Trade Management 
functionality on the MPP at no additional charge (once the firm has 
paid any applicable fees, e.g., for ORF web browser access); however, 
the data will not be in same format as available through FINRA 
ADDS.\15\
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    \15\ Specifically, the Trade Management data through the web 
browser will be ``living'' for three days after trade date (T+3), 
whereas FINRA ADDS files will be produced at the end of the trading 
day and will not change (e.g., to reflect trades that were 
subsequently canceled or corrected). For example, on Wednesday, a 
member firm cancels a trade that it executed on Monday. Through 
FINRA ADDS, the member will see the trade from Monday, with no 
indication that the trade was subsequently canceled. Through Trade 
Management, the status of the trade will be updated from ``New'' to 
``Canceled.'' FINRA notes that firms that report trades via CTCI, a 
FIX line or a third party intermediary may have additional options 
for accessing their trade data, e.g., a firm that uses FIX could 
elect to receive ``drop copies'' of individual trade reports.
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    Through FINRA ADDS, members can access their own 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 FINRA 
ADDS (referred to as ``ORF Data Delivery Plus'' service).\16\ The fee 
will be charged per month to an MPID that is a subscriber for ORF Data 
Delivery Plus reports (``Plus Reports''), which will be provided in 
response to requests by the MPID.\17\ The proposed fees under Rule 
7710(c)(1)(A) are based on (1) the average number of transactions 
reported to the ORF per month to which the MPID was a party in the 
prior calendar year, which number is used to assign the MPID to one of 
four tiers \18\ and (2) the number of Plus Reports the subscriber 
receives in a month.\19\ The proposed fees range from a low of $10 (for 
a member in the lowest tier \20\ requesting up to five Plus Reports per 
month) to a high of $100 a month (for a member in the highest tier \21\ 
requesting more than 25 Plus Reports per month). The proposed fee 
schedule for ORF data is identical to the current fee schedule for 
TRACE data through FINRA ADDS under Rule 7730(g)(1); however, given the 
significantly higher volume of trades reported to the ORF, the proposed 
tiers under Rule 7710(c)(1)(A) are not

[[Page 41714]]

identical to the tiers under Rule 7730(g).\22\
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    \16\ Subscribers ultimately will be able to access up to two 
years of trade journal files.
    \17\ To access trade information for multiple MPIDs, a firm must 
obtain a subscription for each MPID.
    \18\ Once assigned to a tier, a subscriber remains in the tier 
for the remainder of the calendar year. For example, an MPID that 
subscribes in September 2014 will be assigned to a tier based upon 
the ORF transactions reported in 2013 in which the MPID was a party, 
and will remain in that tier until December 31, 2014. In 2015, the 
MPID will be re-evaluated and assigned to a tier for 2015 fee 
purposes, based upon the MPID's ORF trades in 2014. Where there is 
no historical data associated with an MPID (e.g., the MPID is new), 
the lowest tier would apply.
    \19\ A subscriber's fee will be assessed each month and 
accordingly may vary during a calendar year, depending on the number 
of reports FINRA makes available to the subscriber in response to 
the subscriber's requests. The ORF 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 (e.g., a request for 
data that pre-dates migration of the ORF to the MPP).
    \20\ The lowest tier, Tier 4, applies to members with an average 
of fewer than 1,000 transactions per month to which the member was a 
party in the prior calendar year.
    \21\ The highest tier, Tier 1, applies to members with an 
average of 50,000 or more transactions per month to which the member 
was a party in the prior calendar year.
    \22\ FINRA notes that the fee schedule for ADF data through 
FINRA ADDS under Rule 7510(d)(1) is identical to the proposed fee 
schedule for Tier 1 ORF data and the existing fee schedule for Tier 
1 TRACE data through FINRA ADDS; however, FINRA did not further 
divide the ADF fees into tiers, as there is not currently a baseline 
of transaction activity from which FINRA can establish such 
thresholds. See Securities Exchange Act Release No. 71528 (February 
12, 2014), 79 FR 9550 (February 19, 2014) (Notice of Filing; File 
No. SR-FINRA-2014-007).
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    Members also will have the option of subscribing to the SFTP 
service for ORF trade data, which will enable them to automate the 
process of retrieving their daily trade journal files. Files will be 
made available on a daily basis to firms that subscribe to the ORF Data 
Delivery SFTP service, and firms will be able to connect to FINRA ADDS 
via SFTP to download their data. Pursuant to proposed Rule 
7710(c)(1)(B), FINRA is proposing to charge the following fees to 
members that elect to receive ORF 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 Rules 
7510(d)(2) and 7730(g)(2) for SFTP delivery of ADF and TRACE data, 
respectively, through FINRA ADDS.
    Thus, firms have the option of subscribing to FINRA ADDS for their 
ORF, ADF and TRACE trade data and can select the data delivery method 
that best suits their needs.\23\ For example, a firm may subscribe to 
the ORF Data Delivery SFTP service for automated retrieval of its data 
to enable its back office to reconcile transaction and clearing data 
captured by its own systems and the ORF, while another firm may 
subscribe to the ORF Data Delivery Plus service if it does not need 
automated data retrieval, but wants the ability to look up its 
historical trade data and does not have all of that data stored in its 
own systems.
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    \23\ FINRA notes that a member that subscribes to FINRA ADDS for 
TRACE, ADF and ORF data would pay three separate fees under Rules 
7730(g), 7510(d) and 7710(c).
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    Under proposed Rule 7710(c)(2), member clearing firms that elect to 
subscribe to FINRA ADDS will have access to data regarding their 
correspondents' clearing eligible trades reported to the ORF associated 
with the subscribing clearing firm's Clearing Number. FINRA is 
providing this data at the request of clearing firms, and it will 
replace the clearing firm trade journal files for ORF currently 
provided by NASDAQ. Similar to the ORF data provided to firms under 
proposed Rule 7710(c)(1), ORF data for clearing firms will be available 
through the FINRA ADDS Web site and via SFTP. Through the FINRA ADDS 
Web site, a clearing firm will have access to its correspondents' ORF 
trade data associated with its Clearing Number for the three prior 
business days free of charge without having to subscribe to the 
additional optional data services discussed below.\24\
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    \24\ As discussed above, clearing firms that subscribe to Level 
I web browser access under proposed Rule 7710(b) also will be able 
to download up to three days' worth of their correspondents' prior 
day ORF trade data at no additional charge.
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    Through FINRA ADDS, clearing firms can access their correspondents' 
data for dates older than the most recent three business days for a 
monthly fee. Pursuant to proposed Rule 7710(c)(2)(A), clearing firms 
that subscribe to access data via the Web site (``Clearing Data 
Delivery Plus'' access) will be charged a flat fee of $150 per Clearing 
Number \25\ per month, irrespective of the number of reports received. 
FINRA believes that it is appropriate to charge a flat fee for Clearing 
Data Delivery Plus; the small number of clearing firms relative to the 
number of ORF participants is not conducive to establishing tiers based 
on transaction activity or number of correspondents. Pursuant to 
proposed Rule 7710(c)(2)(B), clearing firms that subscribe to the SFTP 
service (``Clearing Data Delivery SFTP'') will be charged a one-time 
start-up fee of $250 per Clearing Number and a fee of $300 per month 
per Clearing Number. The one-time start-up fees under proposed 
paragraphs (c)(1)(B)(i) and (c)(2)(B)(i) for firms receiving their own 
ORF trade data and clearing firms receiving their correspondents' ORF 
trade data are identical. However, the higher monthly fee for receiving 
automated clearing firm trade journals via SFTP under proposed 
paragraph (c)(2)(B)(ii) (compared to the fee for receiving firm trade 
journals via SFTP under proposed paragraph (c)(1)(B)(ii)) reflects the 
more complex queries, and in some cases, larger data sets associated 
with clearing firm trade journals. FINRA notes that clearing firm trade 
journals are not offered for TRACE or the ADF because currently these 
facilities do not send any of their participants' trades to 
clearing.\26\
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    \25\ To access trade information for multiple Clearing Numbers, 
a firm must obtain a subscription for each Clearing Number.
    \26\ FINRA further notes that the proposed fees are less than 
the current fees for clearing firm trade journals provided by 
NASDAQ, which fees range from $750 per month to $1,750 per month 
under NASDAQ Rule 7060, although these fees also include data for a 
larger universe of transactions (i.e., ORF, FINRA/Nasdaq TRF and 
NASDAQ Market Center).
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    The proposed fees for ORF web browser access, including access to 
real-time ``time and sales'' data, and ORF data via FINRA ADDS would 
allow FINRA to recoup some of the costs of developing and maintaining 
these services for the ORF on the MPP. Although FINRA already provides 
web browser access and data for TRACE and the ADF through FINRA ADDS, 
FINRA will incur additional development and maintenance costs to add 
ORF to these services. Any time that a new type of data--in this 
instance ORF data--is added, there is additional development cost to 
modify the Web site so that users can access that data. Additionally, 
each new type of data increases the volume of data that FINRA's systems 
must store in order to make it available for subscribers, i.e., there 
would be no need for FINRA ADDS to consume and store ORF data if it 
were not being made available to firms. FINRA believes that extending 
the availability of these optional services to ORF participants and 
their clearing firms will provide firms with the enhanced tools to meet 
their trade reporting and trade management obligations without placing 
significant financial or operational burdens on them.
    FINRA staff discussed the proposed fees under Rules 7710(b)(1) and 
(c)(1) with several of FINRA's industry advisory committees. The 
committees were supportive and had a few clarifying questions. One 
committee member asked whether the proposed fees effectively are a fee 
reduction for firms, given that the proposed fees are lower than the 
current NASDAQ fees. FINRA notes that it will be a reduction for 
members that only report trades to the ORF; however, members that also 
report trades to the FINRA/Nasdaq TRF \27\ would still be subject to 
NASDAQ's fees (e.g., for the ACT Workstation for purposes of reporting 
to the FINRA/Nasdaq TRF). Another committee member asked whether FINRA 
would reduce the proposed fees, if they were considered to be too high. 
FINRA notes that it evaluates its fees on an ongoing basis, and if any 
fees are determined to be unreasonable or not equitably allocated among 
members, FINRA would revisit them.
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    \27\ As previously noted, the FINRA/Nasdaq TRF is a FINRA 
facility for reporting OTC trades in NMS stocks. The front-end user-
facing system is provided by NASDAQ, as the TRF Business Member, and 
operates on NASDAQ's ACT technology platform.
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Proposed Amendments to Existing Transaction Reporting Fees
    FINRA is proposing to amend Rule 7710 to clarify the rule's 
application without modifying the transaction

[[Page 41715]]

reporting fee amounts specified in the rule.\28\ First, FINRA is 
proposing to clarify that in the case of trades where the same market 
participant is on both sides of a trade report (e.g., a cross 
transaction, which can be reported with the Executing Party's MPID on 
both sides of the trade), applicable fees assessed on a ``per side'' 
basis will be assessed once, rather than twice, and the market 
participant will be assessed applicable charges as the Executing Party 
side only.\29\ The proposed rule text is identical to the text of 
current Rule 7620A relating to fees for reporting to the FINRA/Nasdaq 
TRF and is consistent with the manner in which trades reported to the 
ORF are billed today.
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    \28\ FINRA also is proposing to designate the current text of 
Rule 7710 as new paragraph (a) (Transaction Related Charges).
    \29\ FINRA also is proposing to adopt Supplementary Material 
that defines ``Executing Party (EP)'' for purposes of Rule 7710 as 
the member with the trade reporting obligation under FINRA rules. 
Under Rule 6622(b), in a trade between a member and non-member or 
customer, the member has the obligation to report the trade, and in 
a trade between two members, the member that receives an order for 
handling or execution or is presented an order against its quote, 
does not subsequently re-route the order, and executes the 
transaction, has the obligation to report the trade.
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    Second, FINRA is proposing to clarify that trades reported for 
regulatory purposes only (i.e., trades that are submitted neither for 
public dissemination nor clearing through the ORF, also referred to as 
``non-tape, non-clearing reports'') are not assessed a fee. The 
proposed amendment would codify FINRA's current billing methodology as 
set forth in NASD Notice to Members (``NTM'') 00-79 (November 
2000).\30\
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    \30\ NTM 00-79 announced new requirements for riskless principal 
trade reporting and noted that ``[n]o ACT fee will be assessed for 
the non-tape, non-clearing report. An ACT fee will be assessed for 
the clearing-only report, however, because the firm is receiving 
clearing services in connection with the report.''
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    Third, FINRA is proposing to amend the provision of Rule 7710 that 
imposes a ``Late Report--T+N'' fee of $0.288 on each party to a late 
trade report that is submitted one or more days after trade date 
(T+N).\31\ Under the proposed rule change, the Late Report--T+N fee 
(which will remain set at $0.288) will be imposed only on the 
``Executing Party,'' as defined for purposes of Rule 7710 in the 
proposed Supplementary Material. The responsibility for reporting 
trades is imposed on only one party to the trade, and as such, FINRA 
believes that the Late Report--T+N trade report fee should only be 
imposed on one party to the trade as well. The proposed rule change 
would ensure that the contra party to a trade is not subject to a fee 
due to late trade reporting by the Executing Party. The proposed 
amendment is identical to Rule 7620A relating to fees for the FINRA/
Nasdaq TRF.
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    \31\ Under FINRA rules, trades that are executed between 8:00 
p.m. and midnight and trades that are executed on non-business days 
(pursuant to amendments approved, but not yet effective, under SR-
FINRA-2013-050) must be reported by 8:15 a.m. the next business day 
following execution. Such T+N trades are timely and will not be 
assessed the late fee under Rule 7710. All other T+N trades are late 
under FINRA rules and as such are subject to this fee.
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    Fourth, FINRA is proposing to delete the ``Query'' charge under 
Rule 7710, which relates to functionality that is specific to ACT and 
will not apply on the MPP. Upon migration of the ORF to the MPP, 
members will be able to search for their trades, but there will be no 
charge for such functionality. In addition, FINRA is proposing to amend 
Rule 7710 to clarify that the Corrective Transaction Charge applies to 
``Cancel/Correct'' transactions only. The ORF will no longer support 
``Error, Inhibit, Kill, or No/Was'' transactions, which are ACT-
specific.
    Finally, FINRA notes that Rule 7710 currently provides that 
transactions that are not subject to comparison \32\ through the ORF 
will be charged a fee of $0.029 per side. FINRA is not proposing to 
amend the text of this provision. However, in the course of a recent 
review of ORF billing methodology, FINRA determined that, with respect 
to a limited subset of trades, this fee currently is not charged in 
strict conformance with the rule. Specifically, for ``tape only'' 
transactions between two FINRA members (i.e., transactions that are 
reported for public dissemination purposes and are not cleared through 
the ORF or locked-in via AGU or QSR), only the reporting party 
currently is charged. The contra party is not charged for such 
transactions, notwithstanding that the rule states that the fee applies 
to both sides of the transaction. Upon migration of the ORF to the MPP, 
FINRA intends to charge this fee in accordance with the express terms 
of the rule. Accordingly, both sides of the trade will be charged for 
all transactions reported to the ORF that are not subject to 
comparison, including all ``tape only'' trades that are not cleared 
through the ORF, as well as trades that are cleared through the ORF and 
locked-in via AGU or QSR agreements.\33\ Although the rule language 
will remain unchanged, some firms that are identified as the contra 
party on trade reports submitted to the ORF may see an increase in 
their fees.\34\ FINRA will contact the firms that will be most affected 
by the change in billing methodology to make them aware of the 
potential increase in their invoices.\35\
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    \32\ Transactions that are not subject to comparison include 
trades that are not cleared through the ORF and trades that are 
locked-in for clearing at the time of submission via an automatic 
give-up agreement (``AGU'') or qualified special representative 
(``QSR'') agreement.
    \33\ As noted above, for trades that are submitted for 
regulatory purposes only, i.e., non-tape, non-clearing reports, 
neither side will be charged a fee.
    \34\ FINRA reviewed ORF monthly invoices for the period from 
July 2013 through February 2014 and determined that fewer than a 
dozen member firms that receive invoices for ORF trade reporting are 
regularly identified as the contra party on trades for which they 
are not charged a fee. Most of these firms would see a relatively 
modest increase in their invoices for any given month. Firms with 
very small invoices may see a larger percentage increase; however, 
the actual dollar increase would be relatively small, on average 
less than $100. Several firms may see a larger dollar increase; 
however, given the average amount of their total monthly invoices, 
such increase would represent only a small percentage (e.g., 2% to 
3%) increase in their overall fees. In addition, FINRA notes that 
during this same eight-month period, there were approximately 60 
firms that received no invoices for ORF trade reporting but were 
identified as the contra party on trades. These firms will begin to 
receive ORF invoices. Of these firms, all but two were parties to a 
small number of trades in any given month, and as such, the change 
in billing methodology will not have a significant impact on them.
    \35\ Given that the amounts at issue are relatively modest in 
terms of FINRA's overall revenues and ORF revenues, FINRA does not 
intend to retroactively bill affected contra parties in accordance 
with the rule.
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Proposed Deletion of Rule 7740
    Rule 7740 sets forth the fees to be paid by the purchaser of 
Historical Research Reports regarding OTC Bulletin Board (``OTCBB'') 
securities through the OTCBB Web site. As the OTCBB has lost quotation 
activity in recent years (today, there is virtually no quotation data 
available through the OTCBB Web site), the value of these reports has 
declined significantly, and FINRA believes that users have found 
alternative ways to obtain this data.\36\ FINRA has determined that in 
light of this decline, FINRA will no longer provide these reports once 
the ORF has migrated to the MPP because the value of the reports does 
not outweigh the cost of development work to provide them on the new 
platform. Accordingly,

[[Page 41716]]

FINRA is proposing to delete Rule 7740 in its entirety.\37\
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    \36\ For example, there were 274 requests for reports pursuant 
to Rule 7740 in 2012, and that number fell to 92 through November of 
2013. FINRA notes that the main consumers of these reports have 
historically been issuers that used them to get basic quote and 
trade data for their securities. Member firms have generally not 
relied on these reports as a source of market data. These reports 
provide only aggregate data by security, while, for example, the 
equity trade journals offer detailed trade information for all 
trades to which a firm's MPID was a party.
    \37\ FINRA notes that any future proposal to provide historical 
quote and trade information for OTC Equity Securities would be 
subject to a separate proposed rule change.
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    FINRA has filed the proposed rule change for immediate 
effectiveness. The operative date will be the date of ORF migration to 
the MPP. The ORF is scheduled to migrate to the MPP on September 15, 
2014.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\38\ 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,\39\ 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, infrastructure and technology costs, and that they 
are equitably allocated and not unfairly discriminatory because they 
will apply uniformly to members that are parties to trades submitted to 
the ORF or that choose to purchase the optional services discussed 
herein.
---------------------------------------------------------------------------

    \38\ 15 U.S.C. 78o-3(b)(6).
    \39\ 15 U.S.C. 78o-3(b)(5).
---------------------------------------------------------------------------

    FINRA further believes that the proposed fees for web browser 
access for the ORF under proposed Rule 7710(b) are consistent with the 
Act because the web browser is one of a number of options available to 
members for meeting their trade reporting and trade management 
obligations (other options include CTCI, FIX and third party service 
providers). Members can elect the option that they determine is the 
most cost-effective and best suits their business model, and the 
proposed fees for the web browser would only be charged to member 
participants and clearing firms that elect to subscribe. The proposed 
fee for ORF Level I web browser access is identical to the existing fee 
for web browser access for the ADF under Rule 7510(c)(1) and Level I 
web browser access for TRACE under Rule 7730(a)(1), which fees were 
adopted pursuant to proposed rule changes filed with the SEC. Thus, 
members will pay the same fee for the same trade reporting and trade 
management functionality offered through the web browser for the ORF, 
TRACE and ADF on the MPP. The ORF Level I web browser also will provide 
clearing firms with access to their correspondents' trades for the same 
fee.
    Level II web browser access also is optional and members can obtain 
real-time ORF transaction data from other sources (e.g., the UTP SIP 
Level 1 entitlement discussed above). FINRA believes that it is 
appropriate to charge a lower fee for ORF Level II access than TRACE 
Level II access, given that there is only one data set for the ORF and 
there are multiple data sets for TRACE. In addition, FINRA believes 
that the proposed fee is reasonable in light of the current costs of 
ORF data through the UTP SIP Level 1 entitlement, which is an 
alternative source for ORF data, albeit in a different format than that 
presented through the web browser. For these reasons, FINRA believes 
that the proposed Level I and Level II web browser access fees are 
reasonable, equitably allocated and not unfairly discriminatory, and 
they should not be an undue burden on firms while allowing FINRA to 
recover some of the cost of developing and maintaining the web browser 
system for the ORF.
    FINRA also believes that the proposed fees for ORF data through 
FINRA ADDS under proposed Rule 7710(c) are consistent with the Act 
because FINRA ADDS is an optional service, and the fees would only be 
charged to member participants and clearing firms that elect to 
subscribe. The fees for members that subscribe to their own ORF trade 
data are identical to existing fees for TRACE data through FINRA ADDS 
under Rule 7730(g), and the Tier 1 fees are also identical to existing 
fees for ADF data through FINRA ADDS under Rule 7510(d). Such fees were 
adopted pursuant to proposed rule changes filed with the SEC. FINRA 
believes it is appropriate to charge identical fees for identical data 
services for the ORF, TRACE and ADF on the MPP; however, given the 
larger trading volume reported to the ORF, it is appropriate to have a 
different tier structure for the ORF as compared to TRACE and the ADF. 
For these reasons, FINRA believes that the proposed fees for ORF data 
through FINRA ADDS are reasonable, equitably allocated and not unfairly 
discriminatory. In addition, FINRA believes that the proposed fees for 
clearing firms that elect to subscribe to their correspondents' 
clearing eligible ORF trade data are reasonable, equitably allocated 
and not unfairly discriminatory. While the proposed fees for clearing 
firms are higher than the proposed fees for firms subscribing to 
receive their own trade data, they reflect the more complex queries 
and, in some cases, larger data sets associated with clearing firm 
trade journals.
    FINRA further believes that the proposed clarifying amendments to 
Rule 7710 are consistent with the Act because FINRA is not proposing to 
modify the fee amounts specified in the rule, but rather is proposing 
to clarify the application of the fees and to accurately reflect the 
functionality of the ORF upon migration from NASDAQ's ACT platform to 
the MPP. While the amount of the ``Late Report--T+N'' fee will continue 
to be $0.288, contra parties to trades reported late on a T+N basis by 
the Executing Party will no longer be charged for the late report, and 
thus some members will see a reduction in fees as a result of the 
proposed rule change. The amount of the non-comparison fee also will 
remain unchanged (at $0.029); however, contra parties on ``tape only'' 
trade reports will start to be charged the non-comparison fee, and thus 
some members will see an increase in fees as a result of the proposed 
rule change. FINRA believes that the overall impact of the proposed 
rule change on any given firm's fees will be relatively modest. For 
these reasons, FINRA believes that the proposed clarifying changes to 
Rule 7710 are appropriate and consistent with the Act, in that they are 
reasonable, equitably allocated and not unfairly discriminatory.
    Finally, FINRA believes that the proposed deletion of Rule 7740 is 
consistent with the Act because FINRA is proposing to eliminate fees 
for historical reports that FINRA believes are of little value today 
and not relied on by market participants as a source of market data.

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 those members that use the ORF. 
Trade reporting in OTC equity securities tends to be highly 
concentrated with the top 20 firms reporting approximately 87% of all 
trades to the ORF annually. There are approximately 430 firms that have 
reported trades to the ORF in a given year, and approximately 275 firms 
that have reported trades to the ORF each month, over the past several 
years. FINRA believes that most of the approximately 275 firms that 
report trades every month will utilize at least

[[Page 41717]]

one user ID for web browser access with the most active firms possibly 
utilizing several.\40\
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    \40\ FINRA notes that, given the compressed time frame for 
reporting (i.e., 10 seconds or less), it is anticipated that many 
firms will choose an automated mechanism to report trades to the 
ORF.
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    Because the proposed fee for web browser access for trade reporting 
is reasonable in amount and identical to existing fees for the same 
access to other FINRA facilities, FINRA does not believe that payment 
of such fee by any member, or any group or class of members, will 
result in a burden on competition to such members. Similarly, with 
respect to the proposed fees for ORF data through the web browser and 
FINRA ADDS, because the proposed fees are both optional and reasonable 
in amount and comparable to existing fees for the same data relating to 
different products through other FINRA facilities, 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.\41\ With respect to the proposed 
clarifying changes to the transaction reporting fees set forth in Rule 
7710 (to be designated as 7710(a)), as discussed above, some members 
may see an increase in fees, while others may see a decrease. However, 
the overall change is likely to be relatively modest. Thus, because the 
proposed rule change is not expected to have a significant impact on 
the fees paid by market participants, FINRA does not believe that the 
change will affect the competitive standing of members that report 
trades to the ORF (e.g., the cost of reporting transactions to the ORF 
would not make trading in OTC Equity Securities cost-prohibitive).
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    \41\ FINRA notes that today, the number of subscribers for TRACE 
data through FINRA ADDS is small: 16 firms subscribe to the Plus 
Reports and five firms subscribe to the SFTP service. FINRA 
anticipates that there will be much more interest in ORF data 
through FINRA ADDS, given the differences in the equity versus fixed 
income markets, but we are 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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \42\ and Rule 19b-
4(f)(6) thereunder.\43\
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    \42\ 15 U.S.C. 78s(b)(3)(A).
    \43\ 17 CFR 240.19b-4(f)(6).
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    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.

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-2014-032 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-2014-032. 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 the 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-
032, and should be submitted on or before August 7, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\44\
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    \44\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-16824 Filed 7-16-14; 8:45 am]
BILLING CODE 8011-01-P