Document ID: SEC-2014-0334-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2014-02-25T05:00Z

[Federal Register Volume 79, Number 37 (Tuesday, February 25, 2014)]
[Notices]
[Pages 10582-10584]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-03974]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71575; File No. SR-FINRA-2013-054]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Granting Approval of Proposed Rule Change 
Relating to a Capacity Management Plan

February 19, 2014.

I. Introduction

    On December 24, 2013, 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'' or ``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to adopt a Capacity Management 
Plan (``Plan'') for the Alternative Display Facility (``ADF'') and to 
amend the ADF Certification Record (``Certification''). The proposed 
rule change was published for comment in the Federal Register on 
January 8, 2014.\3\ The Commission received no comments on the proposed 
rule change. This order grants approval of 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. 71224 (Jan. 2, 
2014), 79 FR 1414 (``Notice'').
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II. Description of the Proposed Rule Change

    The ADF is a quotation collection and trade reporting facility that 
provides ADF Market Participants the ability to post quotations, 
display orders and report transactions in NMS stocks \4\ for submission 
to the Securities Information Processors (``SIPs'') for consolidation 
and dissemination to vendors and other market participants. In 
addition, the ADF delivers real-time data to FINRA for regulatory 
purposes, including enforcement of requirements imposed by Regulation 
NMS.\5\
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    \4\ See 17 CFR 242.600(b)(47).
    \5\ See 17 CFR 242.600 et seq.
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    To ensure that the ADF has sufficient capacity to handle the volume 
of quote, order and trade data submitted to the ADF without maintaining 
unused data capacity, FINRA proposes to adopt the Plan for those FINRA 
members that opt to utilize the ADF for quoting and trade reporting. 
According to FINRA, the proposed Plan is similar to the approach of 
other data plans, notably the Consolidated Tape Association Plan (``CTA 
Plan'') and the Consolidated Quotation Plan (``CQ Plan''; together, 
``CTA/CQ Plans''),\6\ which serve as the consolidated data plans for 
securities listed on the New York Stock Exchange, BATS, NYSE Arca, NYSE 
MKT and other regional exchange-listed securities.\7\
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    \6\ The CTA/CQ Plans and the Unlisted Trading Privileges Plan 
are collectively referred to as the ``NMS data plans.''
    \7\ See Notice, supra note 3 at 1414.
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    Pursuant to the Plan, each ADF Trading Center would complete an 
initial ADF Trading Center Capacity Certification process,\8\ including 
testing its connectivity to the ADF. In addition, each ADF Trading 
Center would submit volume projections for current and future peak data 
reporting levels on a quarterly basis, and on demand from FINRA.\9\ 
Specifically, the Plan would provide a timeframe by which ADF Trading 
Centers submit initial and final volume projections for the next two 
calendar quarters, with final volume projections tested and certified 
by FINRA in the event of a capacity upgrade. The Plan also would 
provide ADF Trading Centers with the ability to increase and decrease 
their capacity projections for the second quarter, subject to certain 
limitations, in the event that their actual capacity usage deviates 
from their projected capacity usage. In addition, under the Plan, FINRA 
would honor an ADF Trading Center's capacity requests and build out to 
support the ADF Trading Center's

[[Page 10583]]

peak projected capacity requirements. Each ADF Trading Center, however, 
would still partake in quarterly volume tests before it is certified to 
a specific volume level.
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    \8\ Each ADF Trading Center would also be required to complete 
an annual recertification.
    \9\ ADF Trading Centers would submit separate volume projections 
for CTA securities and UTP securities, and project their volume for 
quotations, media trade reports, total trade reports, and order 
reports.
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    The Plan would also set forth fees for excess and shortfall 
capacity usage, and provides that FINRA would pass through any 
penalties incurred under the NMS data plans among the ADF Trading 
Centers that exceed their projected message traffic.\10\ However, FINRA 
would not assess the excess or shortfall capacity usage fees for the 
first quarter during which an ADF Trading Center begins operating on 
the ADF. If an ADF Trading Center begins operations mid-quarter, FINRA 
would waive these fees only for the remainder of that quarter. 
Similarly, FINRA would not assess any SIP penalties for the first 
quarter during which an ADF Trading Center begins operating on the ADF 
if it exceeds its projected message traffic during this time. If an ADF 
Trading Center begins operations mid-quarter, FINRA would waive any SIP 
capacity penalties only for the remainder of that quarter.
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    \10\ FINRA is proposing to codify the excess fees set forth in 
the Plan as new FINRA Rule 7581, and the shortfall fees as new FINRA 
Rule 7582. FINRA also proposes to codify the provision in the Plan 
providing for the pass-through of any SIP penalties as new FINRA 
Rule 7583.
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    In addition, under the Plan, FINRA would be able to make mid-
quarter extraordinary system upgrades to accommodate higher message 
volume or higher message per second throughput, and assess ADF Trading 
Centers that exceed their certified capacity for those costs 
accordingly. Moreover, to the extent that an ADF Trading Center's data 
usage, in the sole discretion of FINRA staff, materially exceeds the 
ADF Trading Center's certified capacity, the Plan would allow FINRA to 
incrementally reduce the ADF Trading Center's data port sessions to 
ensure that data levels stay at or below reasonable levels. Such 
termination may occur on an intra-day basis and would be proportionate 
to the extent to which the data overage threatens the ADF system's 
stability and/or the ability of FINRA to meet its regulatory 
obligations with respect to the operation of the ADF. Further, the Plan 
specifies that infrastructure costs associated with building and 
implementing the capacity and environments (including, but not limited 
to, labor, hardware, software, installation, testing, etc., as well as 
associated on-going operational costs) would be borne by FINRA except 
for extraordinary upgrades.
    Finally, in addition to adopting the Plan, FINRA also proposes to 
amend the Certification to (i) require ADF Trading Centers to comply 
with the Plan, and (ii) make other minor or non-substantive changes, 
such as revising the means by which an ADF Trading Center may provide 
information and replacing references to NASD with FINRA.

III. Discussion and Commission's Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of Section 15A of the Act 
\11\ and the rules and regulations thereunder applicable to a national 
securities association.\12\ In particular, the Commission finds that 
the proposed rule change is consistent with Section 15A(b)(6) of the 
Act,\13\ which requires, among other things, that the rules of a 
national securities association be designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, to protect investors and the 
public interest. The Commission also finds that the proposal is 
consistent with Section 15A(b)(5) of the Act,\14\ which requires 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.
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    \11\ 15 U.S.C. 78f.
    \12\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \13\ 15 U.S.C. 78o-3(b)(6)
    \14\ 15 U.S.C. 78o-3(b)(5)
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    The Commission believes that FINRA's proposed Plan should help to 
ensure that FINRA is able to maintain a high level of operability for 
the ADF, as well as enhance FINRA's ability to submit accurate volume 
projections to the NMS data plans. The Commission notes that under the 
proposed Plan, each ADF Trading Center would be required to submit its 
projected capacity needs and that FINRA would honor those requests 
subject to quarterly volume tests. ADF Trading Centers, however, would 
still have the ability to increase and decrease their capacity 
projections for their second quarter, subject to certain limitations, 
in the event that their actual capacity usage deviates from their 
projected capacity usage.\15\ In addition, FINRA would have the ability 
to make mid-quarter extraordinary upgrades and to incrementally reduce 
an ADF Trading Center's data port sessions in the event that the ADF 
Trading Center's data usage threatens the ADF system's stability or the 
ability of FINRA to meet its regulatory obligations with respect to the 
operation of the ADF.\16\ Accordingly, the Commission believes that 
FINRA's proposed Plan should help to ensure that the ADF has sufficient 
capacity to handle the volume of quote, order, and trade data submitted 
to the ADF, while also avoiding the need for FINRA to expend 
unnecessary resources to maintain unused data capacity and providing 
flexibility to ADF Trading Centers in projecting their capacity needs.
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    \15\ See Notice, supra note 3 at 1418.
    \16\ See Notice, supra note 3 at 1419.
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    The Commission also believes that FINRA's proposed fees and the 
pass-through of any SIP penalties are consistent with the Act. The 
Commission believes that the fees should help to ensure that ADF 
Trading Centers provide meaningful volume projections to ensure 
adequate, without unnecessary, capacity. The Commission notes that the 
fees and SIP penalties would not be assessed during an ADF Trading 
Center's first quarter of operations on the ADF or a portion thereof. 
In this regard, the Commission believes that the proposal should allow 
a new ADF Trading Center the opportunity to acquire data on its quote, 
order, and trade reporting activity on the ADF prior to making capacity 
projections to which the fees and SIP penalties would apply.
    The Commission believes that FINRA's proposed changes to the 
Certification are also consistent with Act. The Commission believes 
that requiring an ADF Trading Center to certify that it will comply 
with the terms of the Plan should help facilitate FINRA's ability to 
administer the ADF. Moreover, the change to the Certification relating 
to the manner in which an ADF Trading Center would provide public 
notice of certain information should increase the means through which 
such notice may be provided. The other remaining changes to the 
Certification, such as changes references from NASD to FINRA and TRACS 
to ADF, should make the Certification more accurate and up-to-date.
    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with Section 15A(b)(5) and (b)(6) of the Act 
\17\ and the rules and regulations thereunder

[[Page 10584]]

applicable to a national securities association.
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    \17\ 15 U.S.C. 78o-3(b)(5) and (6).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\18\ that the proposed rule change (SR-FINRA-2013-054) be, and it 
hereby is, approved.
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    \18\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-03974 Filed 2-24-14; 8:45 am]
BILLING CODE 8011-01-P