Document ID: SEC-2010-0382-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2010-03-12T05:00Z

[Federal Register: March 12, 2010 (Volume 75, Number 48)]
[Notices]               
[Page 11972-11974]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12mr10-176]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61658; File No. SR-FINRA-2010-001]

 
Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Approving Proposed Rule Change Relating to 
Publication of Certain Aggregate Daily Trading Volume Data

March 5, 2010.

I. Introduction

    On January 6, 2010, 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 relating to the publication of aggregate daily 
trading volume data for over-the-counter trades in NMS stocks that are 
executed within a FINRA member's alternative trading system (``ATS'') 
dark pool and reported to a FINRA Trade Reporting Facility 
(``TRF'').\3\ The proposed rule change was published for comment in the 
Federal Register on January 22, 2010.\4\ The Commission received one 
comment on the proposal.\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\ The FINRA TRFs are facilities used by members to report 
over-the-counter transactions in NMS stocks to FINRA. There are two 
TRFs in operation today: the FINRA/Nasdaq TRF and the FINRA/NYSE 
TRF. Each TRF is operated in conjunction with the respective 
exchange ``TRF Business Member.''
    \4\ See Securities Exchange Act Release No. 61361 (January 14, 
2010), 75 FR 3768.
    \5\ See letter from Tom Jordan, Advisory Committee Chair, 
Financial Information Forum, to Elizabeth M. Murphy, Secretary, 
Commission, dated February 24, 2010 (``FIF Letter'').
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II. Description of the Proposal

    FINRA has members that operate so-called ``dark pools'' of 
liquidity. FINRA proposes to define such dark pools to include an ATS 
that does not display quotations or subscribers' orders to any person 
or entity, either internally within an ATS dark pool or externally 
beyond an ATS dark pool (other than to employees of the ATS).\6\ Over-
the-counter transactions executed within an ATS dark pool are reported 
by the ATS to a FINRA facility, e.g., a FINRA TRF. The FINRA facility 
reports information regarding transactions executed within an ATS dark 
pool to a central processor for consolidated market data in NMS stocks. 
The central processor then distributes the information it receives from 
the FINRA facility to the public in a consolidated stream pursuant to 
joint-SRO plans. The information relating to the trading volume 
reported to FINRA facilities by members operating ATS dark pools is not 
currently separately identified to the public.
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    \6\ See id. and proposed FINRA Rule 6160(c).
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    The proposed rule change will allow for the publication of ATS dark 
pool trading volume to the public. FINRA, through its TRF Limited 
Liability Companies, will distribute transaction reporting data to the 
TRF Business Members so that the TRF Business Members may publish, 
after the close of trading, aggregate daily trading volume data for 
trades executed within participating ATS dark pools. The TRF Business 
Members will make the data widely available to the public at no cost. 
Specifically, members will not be charged a fee for having their ATS 
dark pool data included in the published aggregate daily trading volume 
data. Additionally, no TRF Business Member will charge a fee to view 
the aggregate daily trading volume data.
    The TRF Business Members will post the daily trading volume data 
for trades executed within participating ATS dark pools on their 
respective Web sites. The New York Stock Exchange LLC (``NYSE'') will 
post daily trading volume data on its Web site based on transactions 
reported to the FINRA/NYSE TRF, and the NASDAQ Stock Market LLC 
(``Nasdaq'') will post daily trading volume data on its Web site based 
on transactions reported to the FINRA/Nasdaq TRF. The TRF Business 
Members will segregate the daily trading volume data for each 
participating ATS dark pool.\7\
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    \7\ Initially, the data may be presented as an overall volume 
percentage; however, at a later date, it may be further broken down 
by security. FINRA members that participate in the program must 
acknowledge that their data may be published in one of these two 
ways.

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[[Page 11973]]

    FINRA members may choose to participate in the proposed program to 
publish dark pool transaction data. No member's ATS dark pool data will 
be included in the aggregate daily trading volume unless the member 
expressly requests that it be published. If a member decides to have 
its ATS dark pool volume published, it must comply with FINRA Rule 
6160. Under Rule 6160, FINRA currently permits members to obtain and 
use multiple Market Participant Identifiers (``MPIDs'') for purposes of 
reporting trades to a TRF on a pilot basis.\8\ The proposed rule change 
will add paragraph (c) to Rule 6160 and will expand the scope of the 
rule to allow FINRA members to request multiple MPIDs for the purpose 
of reporting ATS dark pool transaction data, subject to certain 
conditions.\9\
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    \8\ Under Rule 6160, members must submit a written request to, 
and obtain approval from, FINRA Operations for additional MPID(s). 
As part of the approval process, members must provide bona fide 
business and/or regulatory reasons for requesting an additional 
MPID, such as to facilitate a member's back office operations.
    \9\ FINRA considers the issuance of, and trade reporting with, 
multiple MPIDs to be a privilege and not a right. If FINRA 
determines that the use of multiple MPIDs is detrimental to the 
marketplace, or that a TRF participant is using one or more 
additional MPIDs improperly or for other than the purpose(s) 
identified by the participant, FINRA staff has full discretion to 
limit or withdraw its grant of the additional MPID(s) to the 
Participant for purposes of reporting trades to a TRF. See Rule 
6160.
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    If a member chooses to participate in the program to publish ATS 
dark pool data (``participating member''), the member must obtain and 
use a separate MPID designated exclusively for the reporting of 
transactions executed within a single ATS dark pool.\10\ The member 
will be required to use this separate MPID to report all transactions 
executed within that ATS dark pool to a TRF (or TRFs).\11\ In addition, 
the member will be prohibited from using such separate MPID to report 
any transaction that is not executed within the ATS dark pool, 
including, e.g., trades that are routed away by the ATS dark pool. Any 
member that operates multiple ATS dark pools and decides to have each 
ATS dark pool participate in the proposed program must obtain a 
separate MPID for each ATS dark pool.\12\ FINRA members that choose to 
have their ATS dark pool volume included in the published data also 
will be required to have policies and procedures in place to ensure 
that trades reported with a separate MPID obtained under proposed Rule 
6160(c) are restricted to trades executed within that ATS dark pool.
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    \10\ Today, under FINRA rules, a broker-dealer that operates an 
ATS dark pool may report trades executed within the ATS using the 
same MPID that it uses for transactions it executes in other areas 
of its business (including, e.g., other ATSs it operates). As a 
result, it would not be possible to determine from the trade 
reporting data which trades were executed within the ATS dark pool 
as opposed to other areas of the broker-dealer's business. An ATS 
dark pool using such a ``multi-purpose'' MPID will be ineligible to 
participate in the proposed program for publication of ATS dark pool 
volume.
    \11\ For example, if ``Member A'' chooses to participate in the 
program to publish data for its ATS dark pool, ``Dark Pool X,'' 
Member A will be assigned a single MPID to use exclusively to report 
the trading information for Dark Pool X. Member A cannot be assigned 
a second MPID to report the trading information for Dark Pool X.
    \12\ A member cannot use a single MPID to report transactions 
executed within multiple ATS dark pools. For example, if ``Member 
B'' participates in the program to publish data for its ATS dark 
pools, ``Dark Pool Y'' and ``Dark Pool Z,'' Member B must obtain a 
separate MPID for each dark pool. Member B cannot use the MPID that 
is assigned to Dark Pool Y to report any transactions executed 
within Dark Pool Z.
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    If a FINRA member obtains a separate MPID for ATS dark pool 
transaction reporting for purposes of the proposed program, then all 
transactions reported under such MPID will be included in the published 
ATS dark pool volume, irrespective of whether the member reports to a 
single TRF or multiple TRFs.\13\ Because a member that opts in to the 
proposed program may report transactions executed within its ATS dark 
pool to more than one TRF, the data published on one TRF Business 
Member's Web site may not reflect 100 percent of that member's volume 
for that ATS dark pool. Persons who wish to view the ATS dark pool data 
therefore may need to consult all TRF Business Members' Web sites to 
see the total volume for any given ATS dark pool, and the TRF Business 
Members will make prominent disclosure to this effect on their Web 
sites.\14\
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    \13\ In other words, once a member has chosen to participate in 
the program, 100 percent of its ATS dark pool transactions must be 
reported under a single MPID to one or more TRFs (the member can 
choose to report to a single TRF or multiple TRFs) and 100 percent 
of this volume will be published. Because FINRA's Alternative 
Display Facility (``ADF'') does not offer a program to publish dark 
pool transaction data, the member will be prohibited from reporting 
to the ADF in this instance.
    \14\ The proposed Supplementary Material to Rule 6160 also will 
clarify that the TRF Business Members will make such disclosure.
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    Pursuant to the proposed Supplementary Material, a member operating 
an ATS dark pool must certify in writing to FINRA that: (1) The member 
is affirmatively opting in for purposes of having its ATS dark pool 
transaction data included in the published data and acknowledges that 
its data may be presented as an overall percentage volume only or may 
be broken down by security; (2) the member meets the definition of ATS 
dark pool in proposed Rule 6160(c); and (3) the member has obtained a 
separate MPID that will be used exclusively for reporting its ATS dark 
pool transactions as required by proposed Rule 6160(c). The member will 
be required to identify to FINRA the MPID (or MPIDs, if the member 
operates more than one ATS dark pool and opts to have each ATS dark 
pool participate in the proposed program) that should be aggregated in 
the published volume.
    The proposed requirements relating to the establishment and use of 
separate MPIDs for purposes of ATS dark pool transaction reporting are 
designed to ensure that the published volume is limited to the member's 
ATS dark pool activity. In addition to these requirements, FINRA has 
established certain other parameters to minimize the risk of double 
counting and ensure the accuracy and reliability of the published data. 
The data posted on each TRF Business Member's Web site will show the 
trading volume reported to the respective TRF only and will not include 
transactions reported to or counted by another venue, e.g., another 
TRF. Only transactions that are reported for purposes of publication 
will be included in the published data (i.e., ``non-tape'' regulatory 
or clearing-only reports will not be included in the aggregate volume). 
In addition, there will be no double counting of trade volume (i.e., a 
1,000 share trade reported for publication purposes will not be counted 
as 2,000 shares to reflect 1,000 shares on the buy side and 1,000 
shares on the sell side).

III. Discussion and Commission's Findings

    After careful review of the proposed rule change, the Commission 
finds that the proposed rule change is consistent with the requirements 
of the Act and the rules and regulations thereunder applicable to a 
national securities association.\15\ In particular, the Commission 
finds that the proposed rule change is consistent with the provisions 
of Section 15A(b)(6) of the Act,\16\ 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 are not designed to permit unfair

[[Page 11974]]

discrimination between customers, issuers, brokers, or dealers.
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    \15\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition and capital 
formation. See 15 U.S.C. 78c(f).
    \16\ 15 U.S.C. 78o-3(b)(6).
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    The Commission believes that the proposed rule change will help 
increase the information available about transactions executed in dark 
pools, and therefore further the ability of investors to identify the 
sources of liquidity in NMS stocks. The Commission notes that the 
provisions of Rule 6160(c) are designed to ensure that once a member 
determines to participate in the program with respect to one (or more) 
of its ATS dark pools, all of that dark pool's transactions, and only 
that dark pool's transactions, will be aggregated for publication.\17\ 
The published ATS dark pool information will separately identify each 
dark pool and the TRF Business Members will make prominent disclosure 
on their Web sites that a person may need to look at both Web sites to 
obtain the total volume for a particular ATS dark pool.\18\ Further, 
FINRA members will be required to have policies and procedures in place 
to ensure that trades reported with a separate MPID obtained under 
proposed Rule 6160(c) are restricted to trades executed within that ATS 
dark pool. The Commission believes that these conditions are important 
to assure that the public has accurate, reliable and complete 
information regarding the activity of ATS dark pools that choose to 
participate in this program.
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    \17\ Rule 6160(c) requires FINRA members that choose to 
participate in the program with respect to an ATS dark pool to 
provide all of the transaction data for that ATS dark pool to one or 
more of the FINRA TRFs for purposes of publication by the TRF 
Business Members. Thus, members may not selectively report some 
transactions executed within a participating ATS dark pool and keep 
other transactions executed in the ATS ``dark.'' Further, Rule 
6160(c) requires FINRA members that choose to participate in the 
program to use a single MPID to report transaction information for 
each participating ATS dark pool. A member cannot be assigned a 
second MPID to report the trading information for the same dark pool 
and cannot use a single MPID to report transactions executed within 
multiple dark pools.
    \18\ The TRF Business Members will segregate the information 
they receive for each ATS dark pool on their Web site and must 
prominently disclose that the Web site may not reflect 100 percent 
of that dark pool's volume, and that interested parties will need to 
consult all TRF Business Members' Web sites to see the total volume 
for any given ATS dark pool.
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    The Commission received one comment letter in connection with the 
proposed rule change.\19\ This commenter expressed concern that, while 
the publishing of ATS dark pool transactions is voluntary under the 
proposed rule change, the requirement of a separate MPID designed 
exclusively for reporting a member's ATS dark pool transactions could 
limit ATS participation and delay implementation because of both 
administrative processes and technology modifications required to 
implement this reporting in the manner defined in the rule filing.\20\ 
While the commenter believes that publishing ATS dark pool volume would 
be beneficial to the market and the public, it believes that FINRA 
should consider other methods to achieve this goal.\21\ The commenter 
suggested some alternatives to identifying ATS dark pool volume other 
than obtaining a separate MPID.\22\ The Commission appreciates this 
commenter's view on the proposed rule change. However, the Commission 
believes that FINRA's proposal to allow members to request multiple 
MPIDs for the purpose of reporting ATS dark pool transaction data is a 
reasonable method by FINRA to assure the accuracy of the information 
being made public. In addition, the Commission notes that a FINRA 
member's participation in the program to publish ATS dark pool 
information is voluntary and that if a member does not wish to obtain a 
separate MPID to display its ATS dark pool data, it does not have to 
participate.
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    \19\ See FIF Letter, supra note 5.
    \20\ See FIF Letter, supra note 5, at 1.
    \21\ Id.
    \22\ See FIF Letter, supra note 5, at 2.
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    In addition, the Commission finds that the proposed rule change is 
consistent with Section 15A(b)(6) of the Act,\23\ which requires, among 
other things, that FINRA rules are not designed to permit unfair 
discrimination between customers, issuers, brokers or dealers, and Rule 
603(a) of Regulation NMS under the Act,\24\ which requires, among other 
things, that any national securities exchange, national securities 
association, broker or dealer that distributes information with respect 
to quotations for or transactions in an NMS stock to a securities 
information processor, broker, dealer, or other persons shall do so on 
terms that are not unreasonably discriminatory. In approving the 
proposed rule change, the Commission notes that FINRA, through its TRF 
Limited Liability Companies, will distribute the transaction reporting 
data for ATS dark pools that choose to participate in this program to 
the TRF Business Members so that the TRF Business Members may publish, 
after the close of trading, aggregate daily trading volume data for 
trades executed within the participating ATS dark pools, separated by 
dark pool, on their respective Web sites. The Commission also notes 
that FINRA members will not be charged a fee for having their ATS dark 
pool data included in the published aggregate daily trading volume data 
and that no TRF Business Member will charge a fee to anyone to view the 
aggregate daily trading volume data posted on its Web site. The 
Commission believes that these conditions are necessary and appropriate 
to ensure that investors, market participants and other persons will 
have access to the ATS dark pool data on terms that are not 
unreasonably or unfairly discriminatory.
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    \23\ 15 U.S.C. 78o-3(b)(6).
    \24\ 17 CFR 242.603(a).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\25\ that the proposed rule change (SR-FINRA-2010-001) be, and it 
hereby is, approved.
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    \25\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-5300 Filed 3-11-10; 8:45 am]
BILLING CODE 8011-01-P