Document ID: SEC-2016-0379-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2016-03-03T05:00Z

[Federal Register Volume 81, Number 42 (Thursday, March 3, 2016)]
[Notices]
[Pages 11337-11340]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-04635]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77243; File No. SR-FINRA-2016-009]

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

February 26, 2016.
    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 February 23, 2016, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission'') the proposed rule change as described in Items I, 
II, and III below, which Items have been prepared by FINRA. FINRA has 
designated the proposed rule change as ``establishing or changing a 
due, fee or other charge'' under Section 19(b)(3)(A)(ii) of the Act \3\ 
and Rule 19b-4(f)(2) thereunder,\4\ which renders the proposal 
effective upon receipt of this filing by the Commission. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    FINRA is proposing to adjust one of the thresholds required to 
qualify for the Media/Contra fee cap under FINRA Rule 7620A (FINRA/
Nasdaq Trade Reporting Facility Reporting Fees).
    Below is the text of the proposed rule change. Proposed new 
language is in italics; proposed deletions are in brackets.
* * * * *
7000. CLEARING, TRANSACTION AND ORDER DATA REQUIREMENTS, AND FACILITY 
CHARGES
* * * * *
7600. DATA PRODUCTS AND CHARGES FOR TRADE REPORTING FACILITY SERVICES
7600A. DATA PRODUCTS AND CHARGES FOR FINRA/NASDAQ TRADE REPORTING 
FACILITY SERVICES
* * * * *
7620A. FINRA/Nasdaq Trade Reporting Facility Reporting Fees
    The following charges shall be paid by participants for use of the 
FINRA/Nasdaq Trade Reporting Facility. In the case of trades where the 
same market participant is on both sides of a trade report, applicable 
fees assessed on a ``per side'' basis will be assessed once, rather 
than twice, and the market participant will be assessed applicable Non-
Comparison/Accept (Non-Match/Compare) Charges as the Executing Party 
side only.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
            Non-Comparison/Accept (Non-Match/Compare) Charges
------------------------------------------------------------------------
Tape:                                    Daily Average Number of Media/
                                          Executing Party Trades During
                                          the Month Needed to Qualify
                                          for Cap:
    A..................................     2500.
    B..................................     2500.
    C..................................     2500.
------------------------------------------------------------------------
                          Media/Executing Party
------------------------------------------------------------------------
Monthly Charge:                          Maximum Monthly Charge if
                                          Capped:
    ($0.018) x (Number of Media/            ($0.018) x (Required Daily
     Executing Party Reports During the      Average Number of Media/EP
     Month).                                 Trades for Tape A, B or C)
                                             x (Number of Trading Days
                                             During the Month).
------------------------------------------------------------------------
                        Non-Media/Executing Party
------------------------------------------------------------------------
Monthly Charge:                          Maximum Monthly Charge if
                                          Capped:
    ($0.018) x (Number of Non-Media/        ($0.018) x 2500 for Tape A,
     Executing Party Reports During the      B or C x (Number of Trading
     Month).                                 Days During the Month).
------------------------------------------------------------------------
                              Media/Contra
------------------------------------------------------------------------
Monthly Charge:                          Maximum Monthly Charge if
                                          Capped:
    ($0.013) x (Number of Media/Contra      ($0.013) x 2500 for Tape A,
     Reports During the Month).              B or C x (Number of Trading
                                             Days During the Month).
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[[Page 11338]]

 
                            Media/Contra Cap
------------------------------------------------------------------------
Participants making markets in alternative trading systems registered
 pursuant to Regulation ATS will qualify for a fee cap applied to all
 trades under Rule 7620A if they meet the following criteria on a
 monthly basis:
     Participant's percentage of contra media trades must
     represent at least [5]35% of their total [TRF] FINRA/Nasdaq Trade
     Reporting Facility volume..
     Participant must be contra to a minimum of 1,000,000 trades
     in Tape A, 500,000 trades in Tape C and 250,000 trades in Tape B..
     Participant must complete an attestation form stating that
     they maintain a two-sided quote in each symbol traded on an
     alternative trading system registered pursuant to Regulation ATS
     and display a quotation size of at least one normal unit of trading
     (specific for each security) thereon. Participants will be audited
     by Nasdaq, Inc. periodically..
------------------------------------------------------------------------
Maximum Monthly Charge if Capped.......  $5,000 per Tape (A, B or C).
------------------------------------------------------------------------
                            Non-Media/Contra
------------------------------------------------------------------------
Monthly Charge:                          Maximum Monthly Charge if
                                          Capped:
    ($0.013) x (Number of Non-Media/     ($0.013) x 2500 for Tape A, B
     Contra Reports During the Month).    or C x (Number of Trading Days
                                          During the Month).
Standard Fees:
    Clearing report to transfer a        $0.03/side.
     transaction fee charged by one
     member to another member pursuant
     to Rule 7230A(h).
    Comparison/Accept..................  $0.0144/side per 100 shares
                                          (minimum 400 shares; maximum
                                          7,500 shares).
    Late Report--T+N...................  $0.288/trade (charged to the
                                          Executing Party).
    Query..............................  $0.50/query.
    Corrective Transaction Charge......  $0.25/Cancel, Error, Inhibit,
                                          Kill, or `No' portion of No/
                                          Was transaction, paid by
                                          reporting side; $0.25/Break,
                                          Decline transaction, paid by
                                          each party.
------------------------------------------------------------------------

   Supplementary Material:---------------------

    .01 through .02 No Change.
* * * * *

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

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

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

1. Purpose
Background
    The FINRA/Nasdaq Trade Reporting Facility (``TRF'') is a facility 
of FINRA that is operated by Nasdaq, Inc. (``NASDAQ'') \5\ and utilizes 
Automated Confirmation Transaction (``ACT'') Service technology. In 
connection with the establishment of the FINRA/Nasdaq TRF, FINRA and 
NASDAQ entered into a limited liability company agreement (the ``LLC 
Agreement''). Under the LLC Agreement, FINRA, the ``SRO Member,'' has 
sole regulatory responsibility for the FINRA/Nasdaq TRF. NASDAQ, the 
``Business Member,'' is primarily responsible for the management of the 
FINRA/Nasdaq TRF's business affairs, including establishing pricing for 
use of the FINRA/Nasdaq TRF, to the extent those affairs are not 
inconsistent with the regulatory and oversight functions of FINRA. 
Additionally, the Business Member is obligated to pay the cost of 
regulation and is entitled to the profits and losses, if any, derived 
from the operation of the FINRA/Nasdaq TRF.
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    \5\ As approved by its board of directors and the Commission, 
effective September 8, 2015, NASDAQ changed its legal name from The 
NASDAQ OMX Group, Inc. to Nasdaq, Inc. See Nasdaq, Inc. Form 8-K 
Current Report (filed September 8, 2015) (available at www.sec.gov/Archives/edgar/data/1120193/000119312515314459/d48431d8k.htm).
    FINRA and NASDAQ are in the process of amending the LLC 
Agreement to reflect the name change, and FINRA will file a separate 
proposed rule change to update the FINRA manual accordingly.
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    Pursuant to the FINRA Rule 7600A Series, FINRA members that are 
FINRA/Nasdaq TRF participants are charged fees and may qualify for fee 
caps (Rule 7620A) and also may qualify for revenue sharing payments for 
trade reporting to the FINRA/Nasdaq TRF (Rule 7610A). These rules are 
administered by NASDAQ, in its capacity as the Business Member and 
operator of the FINRA/Nasdaq TRF on behalf of FINRA,\6\ and NASDAQ 
collects all fees on behalf of the FINRA/Nasdaq TRF.
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    \6\ FINRA's oversight of this function performed by the Business 
Member is conducted through a recurring assessment and review of TRF 
operations by an outside independent audit firm.
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    Pursuant to Rule 7620A, FINRA members are charged fees for ``Non-
Comparison/Accept (Non-Match/Compare)'' trades. Such trades are defined 
as transactions that are not subject to the ACT Comparison process, and 
they may be submitted as media or non-media,\7\ clearing or non-
clearing, AGU (automated give-up), QSR (Qualified Service 
Representative), one-sided or internalized crosses.\8\ Under the fee 
schedule there are four categories of fees, each of which is applicable 
to transactions of the three Tapes: \9\ (1) Media/Executing Party; (2) 
Non-Media/Executing Party; (3) Media/Contra; (4) Non-Media/Contra.\10\
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    \7\ Media eligible trade reports are those that are submitted to 
the FINRA/Nasdaq TRF for public dissemination by the Securities 
Information Processors. By contrast, non-media trade reports are not 
submitted to the FINRA/Nasdaq TRF for public dissemination, but are 
submitted for regulatory and/or clearance and settlement purposes.
    \8\ See FINRA Rule 7620A.01.
    \9\ Market data is transmitted to three tapes based on the 
listing venue of the security: New York Stock Exchange securities 
(``Tape A''), American Stock Exchange and regional exchange 
securities (``Tape B''), and Nasdaq Stock Market securities (``Tape 
C''). Tape A and Tape B are generally referred to as the 
Consolidated Tape.
    \10\ Pursuant to the rule's Supplementary Material, the 
``Executing Party (EP)'' is defined as the member with the trade 
reporting obligation under FINRA rules, and the ``Contra (CP)'' is 
defined as the member on the contra side of a trade report. These 
positions formerly were identified in FINRA rules as the ``Market 
Maker'' or ``MM'' side and the ``Order Entry'' or ``OE'' side, 
respectively. See FINRA Rule 7620A.01.
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    FINRA recently filed a proposed rule change \11\ that would allow 
FINRA

[[Page 11339]]

members that are a Contra Party to qualify for a monthly fee cap of 
$5,000 per Tape applied to trades in each fee category. Eligibility for 
the Media/Contra fee cap is based on a FINRA member's trade reporting 
of Media/Contra trades to the TRF and its participation on an 
alternative trading system registered pursuant to Regulation ATS \12\ 
(an ``ATS'') as a market maker. Specifically, the FINRA member must 
make markets on an ATS by maintaining a two-sided quote. The member 
also must complete and provide a form to NASDAQ, in which the member 
attests that (1) it maintains two-sided quotes for each security that 
the member maintains interest in within each ATS and displays a 
quotation size of at least one normal unit of trading (specific for 
each security), and (2) it will continue to meet the ATS-based 
requirements to be eligible for the fee cap. In addition, to qualify a 
FINRA member must have its Media/Contra trades equal, or exceed, 55% of 
its total FINRA/Nasdaq TRF volume. Lastly, the FINRA member must be 
contra to a minimum of 1 million trades in Tape A, 500,000 trades in 
Tape C, and 250,000 trades in Tape B to qualify for the fee cap in the 
securities of the Tapes, respectively. NASDAQ, as the Business Member, 
set the required level of trades reported for each of the Tapes based 
on the differing levels of overall trades reported to the FINRA/Nasdaq 
TRF as Contra Party.
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    \11\ See Securities Exchange Act Release No. 76556 (December 4, 
2015), 80 FR 76724 (December 10, 2015) (Notice of Filing and 
Immediate Effectiveness of File No. SR-FINRA-2015-053).
    \12\ 17 CFR 242.300-303.
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Proposed Adjustment
    In proposing the Media/Contra fee cap, NASDAQ, as the Business 
Member, advised FINRA that following implementation, it would monitor 
the fees paid by Contra Parties and would consider whether any 
adjustments to the fee cap or qualifying thresholds would be 
appropriate. Since adopting the Media/Contra fee cap, no FINRA member 
has achieved the level of Media/Contra trades to equal, or exceed, 55% 
of its total FINRA/Nasdaq TRF volume. NASDAQ, as the Business Member, 
designed the Media/Contra fee cap to make pricing more competitive to 
attract and retain participants on the FINRA/Nasdaq TRF, and because no 
FINRA member currently qualifies for the Media/Contra fee cap, NASDAQ 
has determined to reduce the level of Media/Contra trades required to 
qualify for the fee cap. Specifically, NASDAQ has determined to reduce 
the level from 55% of the member's total FINRA/Nasdaq TRF volume to 
35%. NASDAQ believes that reducing the level of Media/Contra trades 
required to qualify will make the fee cap more attainable for FINRA 
members.
    Accordingly, FINRA, as the SRO Member, is proposing to amend Rule 
7620A to reflect the proposed reduction in the level of Media/Contra 
trades required to qualify for the Media/Contra fee cap. FINRA also is 
proposing a technical amendment to clarify that the reference to a 
member's ``total TRF volume'' means its total FINRA/Nasdaq TRF volume.
    FINRA has filed the proposed rule change for immediate 
effectiveness. The effective date will be the date of filing, February 
23, 2016.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(5) of the Act,\13\ 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. NASDAQ, as the Business Member, proposed the $5,000 per tape 
Media/Contra fee cap for FINRA members that could not qualify for a fee 
cap under the then-current rules. However, as noted, NASDAQ has 
determined that the level of Media/Contra trades required to qualify 
for [sic] fee cap is set too high, resulting in no FINRA member 
qualifying for the fee cap since its adoption. By reducing this level 
from 55% to 35% of total FINRA/Nasdaq TRF trades, NASDAQ has advised 
FINRA that it believes that more FINRA members will be able to qualify 
for the Media/Contra fee cap and thus the proposed reduction is 
reasonable. The proposed reduction in the level of Media/Contra trades 
required to qualify for the Media/Contra fee cap is equitably allocated 
because it will apply to all FINRA members that use the FINRA/Nasdaq 
TRF. Any FINRA member that meets the reduced level of Media/Contra 
trades together with the other requirements under the Rule will qualify 
for the capped fee.
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    \13\ 15 U.S.C. 78o-3(b)(5).
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    As discussed in SR-FINRA-2015-053, NASDAQ, as the Business Member, 
advised FINRA that the Media/Contra fee cap is not unfairly 
discriminatory because the fee cap would most benefit those Contra 
Parties that have significant volume on the FINRA/Nasdaq TRF and thus 
may pay larger trade reporting fees than firms with comparable 
``Executing Party'' volume that qualify for a fee cap. NASDAQ 
anticipates that the proposed rule change will make the fee cap more 
attainable for these Contra Parties. In addition, FINRA members that 
are not subject to capped fees can choose to report trades to a 
competing TRF (or, in this instance, a market maker may elect to route 
its orders to an ATS that reports to a competing TRF).

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 would 
not impose new fees or fee rate increases on any member firm, and will 
reduce the fees paid by some members to the extent they qualify under 
the new, lower criteria. NASDAQ, as the Business Member, has advised 
FINRA that the estimated fee savings to member firms that qualify for 
the Media/Contra fee would be in the range of $0-$20,000 per month per 
firm based on overall market and participant activity and number of 
trading days in the month. NASDAQ has further advised FINRA that, based 
on current trading practices, NASDAQ estimates that approximately three 
to eight member firms may be able to take advantage of the fee 
reductions associated with the Media/Contra fee cap with the proposed 
reduction in the level of trades required to qualify.
    As discussed in SR-FINRA-2015-053, FINRA members have trade 
reporting alternatives other than the FINRA/Nasdaq TRF, so to the 
extent the proposed rule change is viewed as burdensome among market 
participants, those participants may choose not to avail themselves of 
the fee cap and maintain the status quo with respect to fees or adjust 
their trading practices. This would permit members to mitigate any 
direct or indirect costs imposed by this proposal. Moreover, by making 
the fee cap more attainable, the proposed rule change may promote 
competition among FINRA members by reducing the fee burden on certain 
FINRA members who are unable to qualify for the existing fee cap, and 
FINRA members can choose their trading partners, which determination 
may in part be based on the fees of the particular TRF applicable to 
Contra Parties. Lastly, FINRA does not believe that the proposed rule 
change burdens competition among reporting facilities because each is 
free to adjust their [sic] respective fees to remain competitive with 
the FINRA/Nasdaq TRF, to the extent the proposed rule change makes the 
FINRA/Nasdaq

[[Page 11340]]

TRF a more attractive facility on which to report trades.

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

    Written comments were neither solicited nor received.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \14\ and paragraph (f)(2) of Rule 19b-4 
thereunder.\15\ At any time within 60 days of the filing of the 
proposed rule change, the Commission summarily may temporarily suspend 
such rule change if it appears to the Commission that such action is 
necessary or appropriate in the public interest, for the protection of 
investors, or otherwise in furtherance of the purposes of the Act. If 
the Commission takes such action, the Commission shall institute 
proceedings to determine whether the proposed rule should be approved 
or disapproved.
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-FINRA-2016-009 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-2016-009. 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-2016-009, and should 
be submitted on or before March 24, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-04635 Filed 3-2-16; 8:45 am]
 BILLING CODE 8011-01-P