Document ID: SEC-2016-2011-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2016-11-17T05:00Z

[Federal Register Volume 81, Number 222 (Thursday, November 17, 2016)]
[Notices]
[Pages 81202-81203]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-27599]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79289; File No. SR-FINRA-2016-041]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Relating to the Implementation Date for 
Alternative Trading Systems To Report Sequence Numbers Under Rule 4554

November 10, 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 November 8. 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 and 
II 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.
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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 the 
Substance of the Proposed Rule Change

    FINRA is proposing to delay implementation of Rule 4554(b)(8). The 
proposed rule change would not make any other changes to FINRA rules.
    The proposed rule change does not make any changes to the text of 
FINRA rules.

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
    In May 2016, the SEC approved Rule 4554 to further enhance FINRA's 
ability to reconstruct an ATS's order book and better perform its 
order-based surveillance, which includes surveillance for layering, 
quote spoofing, and mid-point pricing manipulation. To accomplish this, 
Rule 4554 requires ATSs to report order information for each order they 
receive in an NMS stock beyond that set forth in the OATS rules, such 
as order re-pricing events (e.g., changes to an order that is pegged to 
the National Best Bid or Offer (``NBBO'')) and order display and 
reserve size information.\4\ Rule 4554 sets forth four categories of 
reporting requirements: (1) Data to be reported by all ATSs at the time 
of order receipt; (2) data to be reported by all ATSs at the time of 
order execution; (3) data to be reported by ATSs that display 
subscriber orders; and (4) data specific to ATSs that are registered as 
ADF Trading Centers.
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    \4\ See Securities Exchange Act Release No. 77798 (May 10, 
2016), 81 FR 30395 (May 16, 2016) (SR-FINRA-2016-010). Some of these 
requirements do not apply to all ATSs.
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    Rule 4554(b) requires that all ATSs report eight categories of 
information at the time of order receipt, including the sequence number 
assigned to the order event by the ATS's matching engine.\5\ When FINRA 
announced the SEC's approval of Rule 4554, it established an 
implementation date of November 7, 2016; however, FINRA noted that it 
anticipated submitting a proposed rule change to the SEC that would 
require ATSs to provide a sequence number for all OATS event types.\6\ 
FINRA noted that it ``is deferring the implementation of this 
requirement to report a sequence number for new orders.'' \7\ In this 
proposed rule change, FINRA is proposing that the requirement that ATSs 
report a sequence number when reporting new orders not be implemented 
on November 7, 2016.
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    \5\ Rule 4554(b)(8). Rule 4554(b) also requires all ATSs, at the 
time of order receipt, to report: (1) Whether the ATS displays 
subscriber orders outside of the ATS and, if the ATS displays 
subscriber orders outside of the ATS, whether subscriber orders are 
displayed to subscribers only, or are distributed for publication in 
the consolidated quotation data; (2) whether the ATS is an ADF 
Trading Center as defined in FINRA Rule 6220; (3) whether the order 
can be routed away from the ATS for execution; (4) whether there are 
any counter-party restrictions on the order; (5) a unique identifier 
representing the specific order type other than market and limit 
orders that have no other special handling instructions; (6) the 
NBBO (or relevant reference price) in effect at the time of order 
receipt and the timestamp of when the ATS captured the effective 
NBBO (or relevant reference price); and (7) the market data feed the 
ATS used to obtain the NBBO (or relevant reference price).
    \6\ See Regulatory Notice 16-28, at n.3 (August 2016).
    \7\ Id.
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    FINRA anticipates filing a proposed rule change with the SEC in the 
near future to extend the requirement to report a sequence number 
beyond order receipt because, without a sequence number on all order 
events, FINRA is unable to properly sequence events when a single ATS 
MPID reports order events in the same symbol with identical timestamps. 
However, because a proposed rule change has not yet been filed, FINRA 
is filing this proposed rule change to delay the implementation of the 
requirement in Rule 4554(b)(8) that ATSs report the sequence number 
assigned to the order event by the ATS's matching engine at the time of 
order receipt. FINRA will announce the implementation date for this 
requirement at the time it announces the implementation date for the 
extension of the requirement to all OATS order events.
    FINRA has filed the proposed rule change for immediate 
effectiveness and has requested that the SEC waive the requirement that 
the proposed rule change not become operative for 30 days after the 
date of the filing, so FINRA can implement the proposed rule change 
immediately.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\8\ 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. FINRA believes the proposed rule change is consistent 
with the Act in that it will provide ATSs with additional time to 
implement the requirement in Rule 4554(b)(8) and will not require ATSs 
to begin reporting the sequence number assigned to the order event by 
the ATS's matching engine at the time of order receipt until such time 
as sequence numbers are required for all OATS event types.
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    \8\ 15 U.S.C. 78o-3(b)(6).

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[[Page 81203]]

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 delay in 
implementation of Rule 4554(b)(8) will reduce the burden on members by 
allowing additional time to implement the requirement to report the 
sequence number assigned to the order event by the ATS's matching 
engine at the time of order receipt.

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)(iii) of the Act \9\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\10\
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    \9\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \10\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of its filing. However, 
Rule 19b-4(f)(6)(iii)\11\ permits the Commission to designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest. FINRA has requested that the Commission waive the 
30-day operative delay so that the proposed rule change will become 
operative on filing. FINRA stated that it anticipates extending the 
requirement to report a sequence number beyond order receipt because, 
without a sequence number on all order events, FINRA is unable to 
properly sequence events when a single ATS MPID reports order events in 
the same symbol with identical timestamps. However, because a proposed 
rule change has not been filed, FINRA is delaying the implementation of 
the requirement in Rule 4554(b)(8). For these reasons, the Commission 
believes that waiver of the 30-day operative delay is consistent with 
the protection of investors and the public interest. Therefore, the 
Commission designates the proposed rule change to be operative upon 
filing.\12\
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    \11\ 17 CFR 240.19b-4(f)(6)(iii).
    \12\ For purposes only of waiving the 30-day operative delay, 
the Commission also has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of such 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 change 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-2016-041 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-2016-041. 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-2016-041, and should 
be submitted on or before December 8, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-27599 Filed 11-16-16; 8:45 am]
 BILLING CODE 8011-01-P