Document ID: SEC-2010-0510-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2010-04-06T04:00Z

[Federal Register: April 6, 2010 (Volume 75, Number 65)]
[Notices]               
[Page 17460-17462]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06ap10-95]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61806; File No. SR-FINRA-2010-013]

 
Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of 
Proposed Rule Change To Modify FINRA/Nasdaq Trade Reporting Securities 
Transaction Credit

March 31, 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 March 26, 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. 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 Substance 
of the Proposed Rule Change

    FINRA is proposing to amend FINRA Rule 7610A (Securities 
Transaction Credit) to modify credits provided to members that use the 
FINRA/Nasdaq Trade Reporting Facility (``FINRA/Nasdaq TRF'').
    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.

[[Page 17461]]

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 TRF is a facility of FINRA that is operated by The 
NASDAQ OMX Group, Inc. (``NASDAQ OMX''). In connection with the 
establishment of the FINRA/Nasdaq TRF, FINRA and NASDAQ OMX 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 OMX, 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.
    The FINRA/Nasdaq TRF receives revenue for transactions reported to 
the three tapes \5\ from the Consolidated Tape Association and Nasdaq 
Securities Information Processor (the ``Tapes''). Pursuant to Rule 
7610A, FINRA members are provided with a fractional share of this 
revenue based on their ``Market Share.'' \6\ Market Share is calculated 
quarterly for each member based on the transactions attributed to them 
in each of the three Tapes. Rule 7610A provides four tiers of revenue 
share: 0%, 50%, 80% and 100%. Eligibility for a tier is based on the 
percentage of Market Share, and the percentage of Market Share required 
increases as the tiers of revenue share increase. Currently, the amount 
of Market Share required to receive an allocation under each tier is 
different for each Tape. For example, to receive an 80% share of 
revenue, a member must have 0.15% but less than 0.25% of Market Share 
if reporting an NYSE security, 0.25% but less than 0.50% if reporting 
an Amex security, or 0.25% but less than 0.75% if reporting a Nasdaq 
security.
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    \5\ 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.
    \6\ Rule 7610A defines Market Share as a percentage calculated 
by dividing the total number of shares represented by trades 
reported by a FINRA member to the FINRA/Nasdaq TRF during a given 
calendar quarter by the total number of shares represented by all 
trades reported to the Consolidated Tape Association or the Nasdaq 
Securities Information Processor, as applicable, during that 
quarter. Market Share is calculated separately for each tape.
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Proposed Amendments to Credit Schedule
    NASDAQ OMX, as the FINRA/Nasdaq TRF Business Member, has determined 
to amend the Market Share percentages for revenue sharing eligibility 
applicable to Tapes A and B so that they are consistent with the 
current levels of Tape C. Accordingly, FINRA is proposing to amend Rule 
7610A to reflect the new credit schedule. The following table provides 
a comparison of the old Market Share tier structure with the proposed 
new structure:

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                                                                                                                                           Revenue share
                                                      Previous tier break point                         New tier break point                 (percent)
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Tape A Tier 1............................  =>0.25%.......................................  =>0.75%......................................             100
Tape A Tier 2............................  <0.25%, =>0.15%...............................  <0.75%, =>0.25%..............................              80
Tape A Tier 3............................  <0.15%, =>0.10%...............................  <0.25%, =>10%................................              50
Tape A Tier 4............................  <0.10%........................................  <0.10%.......................................               0
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Tape B Tier 1............................  =>0.50%.......................................  =>0.75%......................................             100
Tape B Tier 2............................  <0.50%, =>0.25%...............................  <0.75%, =>0.25%..............................              80
Tape B Tier 3............................  <0.25%, =>0.10%...............................  <0.25%, =>0.10%..............................              50
Tape B Tier 4............................  <0.10%........................................  <0.10%.......................................               0
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Tape C Tier 1............................  =>0.75%.......................................  =>0.75%......................................             100
Tape C Tier 2............................  <0.75%, =>0.25%...............................  <0.75%, =>0.25%..............................              80
Tape C Tier 3............................  <0.25%, =>0.10%...............................  <0.25%, =>0.10%..............................              50
Tape C Tier 4............................  <0.10%........................................  <0.10%.......................................               0
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    The Business Member notes that the volume and distribution of 
Market Share among both Tapes A and B have matured so that they more 
closely resemble the Market Share distribution of Tape C. As such, the 
Business Member believes that it is appropriate to align the tier 
structure of Tapes A and B to that of Tape C.
    The Business Member has advised FINRA that it believes that the 
proposed amended credit schedule more equitably allocates the revenue 
share provided to members for their use of the FINRA/Nasdaq TRF. The 
proposed rule change will eliminate the differences in allocation, thus 
rewarding each member consistently for its use of the FINRA/Nasdaq TRF, 
irrespective of the Tape to which the transaction is reported.
    Under the proposed credit schedule, the thresholds for receiving 
revenue share under the tiers of Tapes A and B have increased. As a 
consequence, members that have historically qualified to receive 
revenue share from Tapes A and B may no longer qualify for the same 
tier, notwithstanding that they have achieved the same level of Market 
Share. The Business Member believes that this is an appropriate result 
of aligning Market Share with the revenues received from the Tapes for 
reporting those transactions.
    FINRA has filed the proposed rule change for immediate 
effectiveness.

[[Page 17462]]

FINRA is proposing that the operative date of the proposed rule change 
will be April 1, 2010.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(5) of the Act,\7\ 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. FINRA believes that the amended credit schedule is fair and 
provides an equitable allocation of the credits provided to the FINRA/
Nasdaq TRF in that it will apply uniformly to all FINRA members that 
use the FINRA/Nasdaq TRF.
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    \7\ 15 U.S.C. 78o-3(b)(5).
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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

    No written comments were either solicited or 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)(ii) of the Act \8\ and paragraph (f)(2) of Rule 19b-4 
thereunder.\9\ At any time within 60 days of the filing of the proposed 
rule change, the Commission may summarily abrogate 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.
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    \8\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \9\ 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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-FINRA-2010-013 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-2010-013. 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 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 a.m. and 3 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 publicly 
available. All submissions should refer to File Number SR-FINRA-2010-
013 and should be submitted on or before April 27, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-7694 Filed 4-5-10; 8:45 am]
BILLING CODE 8011-01-P