Document ID: SEC-2014-0920-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2014-06-04T04:00Z

[Federal Register Volume 79, Number 107 (Wednesday, June 4, 2014)]
[Notices]
[Pages 32351-32353]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-12889]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72280; File No. SR-FINRA-2014-018]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Approving a Proposed Rule Change To Establish a 
Fee Schedule for Alternative Trading System Volume Information

May 29, 2014.
    On April 4, 2014, the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to adopt FINRA Rule 4553 (Fees for ATS Data) 
establishing a fee schedule for alternative trading system (``ATS'') 
volume information published by FINRA on its Web site. The proposed 
rule change was published for comment in the Federal Register on April 
15, 2014.\3\ The Commission received one comment letter on the proposal 
during the comment period.\4\ On May 21, 2014, FINRA responded to the 
comment letter.\5\ This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 71919 (April 9, 
2014), 79 FR 21324 (SR-FINRA-2014-018) (``Notice'').
    \4\ See Letter from Christopher Nagy, CEO and Dave Lauer, 
President, KOR Group LLC, to Elizabeth M. Murphy, Secretary, 
Commission, dated April 16, 2014 (``KOR Letter'').
    \5\ See Letter from Brant K. Brown, Associate General Counsel, 
FINRA, to Kevin O'Neill, Deputy Secretary, Commission, dated May 21, 
2014 (``FINRA Letter'').
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I. Background

    On January 17, 2014, the Commission approved a proposed rule change 
to (i) adopt FINRA Rule 4552 (Alternative Trading Systems--Trading 
Information for Securities Executed Within the Alternative Trading 
System) to require ATSs to report to FINRA weekly volume information 
and number of trades regarding securities transactions within the ATS; 
and (ii) amend FINRA Rules 6160, 6170, 6480, and 6720 to require each 
ATS to acquire and use a single, unique market participant identifier 
(``MPID'') when reporting information to FINRA (``MPID 
Requirement'').\6\ The implementation date of the reporting 
requirements under Rule 4552 was May 12, 2014, and compliance with the 
MPID Requirement begins on November 10, 2014.\7\ Every week, FINRA will 
publish on its Web site, on a delayed basis, the self-reported ATS data 
for each equity security for each ATS (``ATS Data'').\8\ According to 
FINRA, after the MPID Requirement is implemented in November 2014, 
FINRA will be able to compare the trade reporting data to the data 
already being reported to FINRA by ATSs pursuant to Rule 4552 to verify 
the consistency and accuracy of both.
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    \6\ See Securities Exchange Act Release No. 71341 (January 17, 
2014), 79 FR 4213 (January 24, 2014). On April 3, 2014, FINRA 
amended Rules 4552, 6160, 6170, 6480, and 6720 to revise the 
reporting and MPID requirements applicable to ATSs. See Securities 
Exchange Act Release No. 71911 (April 9, 2014), 79 FR 21316 (April 
15, 2014). The amendments to Rules 6160, 6170, 6480, and 6720 permit 
an ATS that trades both debt securities reported to FINRA's Trade 
Reporting and Compliance Engine (``TRACE'') and equity securities 
(OTC Equity Securities or NMS stocks) reported to a FINRA equity 
reporting facility (the Alternative Display Facility, the OTC 
Reporting Facility, the FINRA/Nasdaq TRF, or the FINRA/NYSE TRF) to 
use two MPIDs, rather than a single unique MPID, if each MPID is 
used exclusively for either debt or equity securities.
    \7\ See FINRA Regulatory Notice 14-07 (February 2014).
    \8\ See Rule 4552(b).
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II. Description of the Proposed Rule Change

    The proposed rule change establishes three categories of users of 
the ATS Data, each of which is entitled to different levels and use of 
ATS Data and is subject to a different fee structure: (i) Non-
Professionals; \9\ (ii) Professionals;

[[Page 32352]]

and (iii) Vendors. Any individual seeking access to the ATS Data must 
confirm that he or she is either (i) a Non-Professional or (ii) a 
Professional (or an affiliate or employee thereof) that has a current 
Professional or Vendor subscription. A non-Professional will be able to 
access, at no cost, the most recent four weeks of ATS Data in a 
viewable, but not downloadable, format. A Non-Professional will be 
required to agree to certain terms of use of the ATS Data, including 
that he or she receives and uses the ATS Data solely for his or her 
personal, non-commercial use, and a prohibition on redistribution of 
the data.
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    \9\ As defined by FINRA in its proposed Rule 4553, a ``Non-
Professional'' means a natural person who uses the ATS Data solely 
for his or her personal, non-commercial use and is not: (i) 
Registered or qualified in any capacity with the Commission, the 
Commodity Futures Trading Commission, any state securities agency, 
any securities exchange or association, or any commodities or 
futures contract market or association, nor an employee of the 
above; (ii) engaged as an ``investment adviser'' as that term is 
defined in Section 202(a)(11) of the Investment Advisers Act 
(whether or not registered or qualified under that Act), nor an 
employee of the above; (iii) employed by a bank, insurance company 
or other organization exempt from registration under federal or 
state securities laws to perform functions that would require 
registration or qualification if such functions were performed for 
an organization not so exempt, nor any other employee of a bank, 
insurance company or such other organization referenced above; or 
(iv) engaged in, or has the intention to engage in, any commercial 
redistribution of all or any portion of the ATS Data or Derived 
Data. Rule 4553 defines ``Derived Data'' as data that are derived 
from ATS Data and that are not able to be (A) reverse engineered by 
a reasonably skilled user into ATS Data or (B) used as a surrogate 
for ATS Data.
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    FINRA proposed to provide Professional access to the ATS Data by 
requiring an annual, enterprise-wide subscription fee of $12,000 that 
is non-transferable and renewable annually. A Professional who has paid 
the subscription fee will have access to the ATS Data available to Non-
Professionals, in addition to access to up to five years of historical 
ATS Data, in a downloadable format. The Professional subscription will 
allow an unlimited number of users within the firm to access the ATS 
Data. Professionals will be permitted to distribute ATS Data and 
Derived Data within the enterprise (including the firm, any affiliates 
of the firm, and employees thereof). However, Professionals are 
prohibited from redistributing the ATS Data or Derived Data outside of 
the enterprise.
    The proposal also includes a Vendor subscription fee of $18,000 per 
year. ``Vendor'' is defined as a Professional that redistributes ATS 
Data or Derived Data to third parties. A Vendor license would permit a 
Vendor to redistribute the ATS Data or Derived Data in any form (or in 
exactly the form FINRA provides to the Vendor). A Vendor would be 
allowed to provide ATS Data to a third party only if a yearly, non-
transferable, enterprise-wide Professional Subscriber license has been 
purchased for each such third party.\10\
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    \10\ FINRA noted that, as with TRACE data, Vendors would be 
responsible for reporting entity usage as a result of their 
redistribution of the data.
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III. Comments Received and FINRA's Response

    The Commission received one comment letter on the proposal during 
the comment period.\11\ The commenter strongly disagreed with FINRA's 
proposal to charge fees for the ATS Data and argued that ATS Data 
should be treated as open source data that are freely available to the 
public.\12\ The commenter also argued that FINRA already receives fees 
and dues from its members and should therefore cover the cost of 
providing ATS Data to the public in a free, open, machine-readable 
format.\13\ Furthermore, the commenter believed that FINRA had proposed 
to charge a very high fee amount and should not compare its fees with 
for-profit firms.\14\ The commenter also believed that, under the 
proposal, academics would be unable to download data in a machine 
readable format and unable to publish any of their findings with 
derived data.\15\ Finally, the commenter argued that an organization 
such as itself would be prohibited from access to this dataset, which 
would deprive the public of expertise and analysis not necessarily 
performed by academics that should be made freely available.
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    \11\ See supra note 4. On the 44th day after publication of the 
Notice, the Commission received a second comment letter on the 
proposal that raised similar points as the KOR Letter. See Letter 
from Theodore R. Lazo, Managing Director and Associate General 
Counsel, SIFMA, to Commission, dated May 29, 2014.
    \12\ See KOR Letter at 1-2.
    \13\ See id. at 3.
    \14\ See id.
    \15\ See id. at 2-3.
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    In its response, FINRA disagreed with the commenter's assertion 
that it is inappropriate for FINRA to impose fees to recover costs. 
FINRA cited its existing Rule 7330 establishing fees for the receipt of 
market data concerning real-time TRACE transaction information, 
historic TRACE data, and the FINRA Automated Data Delivery Service 
(``ADDS'').\16\ FINRA believed that the proposed fee amount is 
significantly lower than fees for comparable data that are currently 
available in the marketplace.\17\ In addition, FINRA represented that 
it ``intends to reassess the amount of the fee once it has more 
experience with the actual usage and ultimate fees paid. For example, 
if FINRA appears to be generating on a consistent basis significantly 
more revenue than the cost to build and support the program, it would 
lower the fee on a per subscription basis so as to better align the 
total revenue received from the fees with the costs of providing the 
data.'' \18\ FINRA reaffirmed that any such fee change would be filed 
with the Commission.
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    \16\ See FINRA Letter at 3. FINRA also noted that the ADDS fees 
were intended to offset costs associated with providing the 
information. See Securities Exchange Act Release No. 68387 (December 
7, 2012), 77 FR 74249, 74251 (December 13, 2012) (notice of filing 
of SR-FINRA-2012-053). See also Securities Exchange Act Release No. 
68675 (January 16, 2013), 78 FR 4917 (January 23, 2013) (order 
approving SR-FINRA-2012-053).
    \17\ For example, FINRA noted Nasdaq OMX's Daily Share Volume 
(``DSV'') product, which provides some market transparency by MPID, 
rather than by ATS, with respect to aggregate volume executed 
through the NASDAQ OMX equity exchange facilities. See Securities 
Exchange Act Release No. 59580 (March 13, 2009), 74 FR 12169 (March 
23, 2009).
    \18\ FINRA Letter at 4.
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    With respect to the access to ATS Data, FINRA replied that the 
commenter's assertion that the proposal would prohibit the use of ATS 
Data and obstruct the distribution of derived data was incorrect.\19\ 
FINRA stated that the proposal ``does not prohibit anyone from 
accessing ATS Data and merely requires professional users to pay a 
reasonable fee to receive the data.'' \20\ FINRA added that individual 
investors (Non-Professionals) accessing ATS Data are provided ATS Data 
for free and that professional consumers (Professionals and Vendors) 
should be expected to pay a reasonable fee so that the costs associated 
with providing the data are borne by those using it. Furthermore, FINRA 
stated that non-commercial requests from regulators, academics, and 
media reporters would generally be considered non-professional usage 
and accommodated on an individual basis, and that FINRA would address 
these types of ad hoc requests as it does requests for TRACE data.\21\ 
FINRA also stated that it would consider making the data available in 
other formats as it gains experience with the information reported.
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    \19\ See id. at 3.
    \20\ Id.
    \21\ See id. at 4. FINRA further stated that it will work with 
the requesting party to determine the scope of data requested, the 
form in which the data can be provided, and the extent to which the 
requesting party is permitted certain redistribution rights under a 
separate agreement. Furthermore, according to FINRA, as a general 
matter, academic-related research agreements provide that 
redistribution of data pursuant to the agreement is not considered 
commercial use or prohibited redistribution.
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IV. Discussion and Commission Findings

    The Commission has carefully reviewed the proposed rule change, the

[[Page 32353]]

comment letters, and FINRA's response, and finds that the proposed rule 
change is consistent with the Act and the rules and regulations 
thereunder applicable to a national securities association.\22\ In 
particular, the Commission finds that the proposed rule change is 
consistent with Section 15A(b)(5) of the Act,\23\ which requires, among 
other things, that the rules of an association provide for the 
equitable allocation of reasonable dues, fees, and other charges among 
its members and issuers and other persons using any facility or system 
that FINRA operates or controls.
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    \22\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \23\ 15 U.S.C. 78o-3(b)(5).
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    The fees for ATS Data that FINRA is proposing to charge are 
structured similarly to fees for TRACE data, which the Commission 
previously has approved.\24\ The ATS Data fees approved today, similar 
to TRACE fees, vary according to use, and the Commission believes that 
this use-based approach is consistent with equitable distribution of 
fees. Furthermore, the Commission previously has approved TRACE fees on 
the basis, in part, that they were reasonably related to the costs of 
developing the TRACE facility and to the estimated operating expenses 
of the TRACE system.\25\ The proposed fees in this filing appear 
reasonably designed by FINRA to recover the costs of collecting and 
disseminating the ATS Data.
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    \24\ See, e.g., Securities Exchange Act Release No. 46145 (June 
28, 2002), 67 FR 44911 (July 5, 2002) (order approving fees for 
TRACE).
    \25\ See id., 67 FR at 44913.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\26\ that the proposed rule change (SR-FINRA-2014-018) be, and it 
hereby is, approved.
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    \26\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary .
[FR Doc. 2014-12889 Filed 6-3-14; 8:45 am]
BILLING CODE 8011-01-P