Document ID: SEC-2010-0120-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2010-01-22T05:00Z

[Federal Register: January 22, 2010 (Volume 75, Number 14)]
[Notices]               
[Page 3768-3770]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22ja10-92]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61361; File No. SR-FINRA-2010-001]

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

January 14, 2010.
    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 January 6, 2010, 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. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA has filed 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 would amend 
FINRA Rule 6160 (Multiple MPIDs for Trade Reporting Facility 
Participants) to (1) require members that opt to have their trading 
data published to obtain and use a separate Market Participant 
Identifier (``MPID'') designated exclusively for reporting the member's 
ATS dark pool transactions, and (2) adopt related Supplementary 
Material.
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    \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 ``Business Member.''
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    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
    Some FINRA members operate ``dark pools,'' a type of ATS that does 
not display quotations or subscribers' orders to any person or entity 
either internally within the ATS dark pool or externally beyond the ATS 
dark pool (other than employees of the ATS).\4\ Over-the-counter 
transactions executed within an ATS dark pool are reported by the ATS 
to a FINRA facility, e.g., a FINRA TRF.

[[Page 3769]]

Currently, information relating to the trading volume reported to FINRA 
facilities by participants operating ATS dark pools is not separately 
identified to the public.
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    \4\ See, e.g., Rule 301(b)(3)(i)(A) of Regulation ATS.
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    The TRF Business Members have determined to publish aggregate daily 
trading volume data for transactions executed within ATS dark pools and 
reported to the TRFs.\5\ FINRA, through its TRF Limited Liability 
Companies, will distribute transaction reporting data to the Business 
Members so that the Business Members may publish, after the close of 
trading, aggregate daily trading volume data for trades executed within 
participating ATS dark pools. FINRA is making such data available to 
the Business Members and the Business Members will make the data widely 
available to the public at no cost.\6\
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    \5\ Under the TRF Limited Liability Company Agreements between 
FINRA and the exchanges, FINRA, the ``SRO Member,'' has sole 
regulatory responsibility for the TRFs. The Business Member (see 
note 3) is primarily responsible for the management of the TRF's 
business affairs, including establishing pricing for use of the 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 TRF.
    \6\ The TRFs receive the data and the Business Members, because 
they operate the TRFs, have access to the data through their 
contractual arrangements with FINRA. Thus, FINRA will not be 
required to take any specific action to ``distribute'' or make the 
data available to the Business Members.
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    The data for transactions reported to each TRF will be posted on 
the respective Business Member's Web site (i.e., the NYSE will post 
daily trading volume data on its Web site based on transactions 
reported to the FINRA/NYSE TRF, and Nasdaq will post daily trading 
volume data on its Web site based on transactions reported to the 
FINRA/Nasdaq TRF).\7\ The daily trading volume data will be segregated 
by participating ATS dark pool. Initially, the data may be presented as 
an overall volume percentage; however, at a later date, it may be 
further broken down by security. As discussed below, members that opt 
into the proposed program must acknowledge that their data may be 
published in one of these two ways.
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    \7\ FINRA notes that the TRF Business Members have previously 
posted data on their web site that did not require a rule filing; 
however, because this data product is not derived directly (or 
indirectly) from publicly disseminated information, SEC staff have 
indicated that a rule filing is necessary.
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    FINRA member participation in the proposed program to publish dark 
pool transaction data is voluntary. No member's data will be included 
in the aggregate daily trading volume unless the member expressly 
requests that it be published.
    Any member that opts to have its volume included in the published 
data must comply with proposed new paragraph (c) of Rule 6160. Under 
current Rule 6160, FINRA permits members to obtain and use multiple 
MPIDs for purposes of reporting trades to a TRF on a pilot basis.\8\ 
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 (e.g., the member might use multiple 
MPIDs for trade reporting purposes if it clears trades through multiple 
clearing firms).\9\
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    \8\ Similarly, FINRA permits members to obtain and use multiple 
MPIDs for purposes of displaying quotes/orders and reporting trades 
to the Alternative Display Facility (``ADF'') under Rule 6170.
    \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 retains 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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    Proposed paragraph (c) of Rule 6160 would apply only to members 
that voluntarily participate in the proposed program to publish ATS 
dark pool data. The proposed rule requires that the member obtain and 
use a separate MPID designated exclusively for the reporting of 
transactions executed within the ATS dark pool.\10\ The member must use 
such separate MPID to report all transactions executed within the ATS 
dark pool to a TRF(s). The member shall not use such separate MPID to 
report any transaction that is not executed within the ATS dark pool, 
including, e.g., trades that are routed out by the ATS dark pool. The 
member cannot obtain more than one MPID under proposed paragraph (c) 
for purposes of reporting transactions executed within a single ATS 
dark pool. In addition, any member that operates multiple ATS dark 
pools and opts to have each ATS dark pool participate in the proposed 
program must obtain a separate MPID for each ATS dark pool; the member 
cannot use a single MPID to report transactions executed within 
multiple ATS dark pools. Members that opt to have their volume included 
in the published data must 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 the ATS 
dark pool.
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    \10\ Today, 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 would be ineligible to opt in to the proposed program 
for publication of ATS dark pool volume.
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    If a member designates a separate MPID for 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.\11\ 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 Business Member's Web site 
may not reflect 100% of that member's volume. Interested parties would 
need to consult all Business Members' Web sites to see the total volume 
for any given ATS dark pool, and the Business Members will make 
prominent disclosure to this effect on their Web sites. The proposed 
Supplementary Material also would clarify that the Business Members 
will make such disclosure.
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    \11\ In other words, once a member has opted in to the program, 
100% 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% of the member's volume will 
be published. Because the ADF does not offer a program to publish 
dark pool transaction data, the member would be prohibited from 
reporting to the ADF in this instance.
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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 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 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 dark pool

[[Page 3770]]

transaction reporting will ensure that the published volume is limited 
to the member's 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).
    FINRA notes that 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 posted on its Web site.
    The proposed rule change will be effective upon Commission 
approval.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\12\ 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 that by providing additional market 
data relating to ATS dark pools, the proposed rule change will increase 
market transparency of trading volumes within those ATS dark pools that 
choose to participate.
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    \12\ 15 U.S.C. 78o-3(b)(6).
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    FINRA also believes that distribution of this data is consistent 
with Rule 603(a) of Regulation NMS, which requires, among other things, 
that distributions of certain data by FINRA not be unreasonably 
discriminatory.\13\ FINRA, through its TRF Limited Liability Companies, 
will distribute certain data to the Business Members so that the 
Business Members may publish, after the close of trading, aggregate 
daily trading volume data for trades executed within participating ATS 
dark pools. FINRA is making such data available to the Business Members 
and the Business Members will make the data widely available to the 
public at no cost. Because the data that FINRA is proposing to 
distribute to the Business Members will be published by each Business 
Member on its Web site in a widely disseminated and easily accessible 
manner, the proposal is not unreasonably discriminatory. In addition, 
the benefit to the marketplace of increased transparency regarding dark 
pool transaction volume, together with the readily accessible manner in 
which this reference data will be made available by the Business 
Members, offers compelling justification for the proposed program to 
publish ATS dark pool data.
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    \13\ See Rule 603(a)(2) of Regulation NMS.
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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.

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be 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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-FINRA-2010-001 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-FINRA-2010-001. This 
file number should be included on the subject line if e-mail 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 inspection 
and copying in the Commission's Public Reference Room, 100 F Street, 
NE., Washington, DC 20549, on official business days between the hours 
of 10 a.m. and 3 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-2010-001 and should be 
submitted on or before February 12, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-1145 Filed 1-21-10; 8:45 am]
BILLING CODE 8011-01-P