Document ID: SEC-2016-2121-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2016-12-05T05:00Z

[Federal Register Volume 81, Number 233 (Monday, December 5, 2016)]
[Notices]
[Pages 87603-87606]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-29045]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79424; File No. SR-FINRA-2016-042]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend FINRA Rule 6191 To Modify the Web Site 
Data Publication Requirements Relating to the Regulation NMS Plan To 
Implement a Tick Size Pilot Program

November 29, 2016.
    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 November 15, 2016, 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 and 
II below, which Items have been prepared by FINRA. FINRA has designated 
the proposed rule change as constituting a ``non-controversial'' rule 
change under paragraph (f)(6) of Rule 19b-4 under the Act,\3\ 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\ 17 CFR 240.19b-4(f)(6).
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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 6191 to modify the Web site 
data publication requirements relating to the Regulation NMS Plan to 
Implement a Tick Size Pilot Program (``Plan'').
    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
    On August 25, 2014, FINRA, and several other self-regulatory 
organizations (the ``Participants'') filed with the Commission, 
pursuant to Section 11A of the Act \4\ and Rule 608 of Regulation NMS 
thereunder,\5\ the Plan to Implement a Tick Size Pilot Program.\6\ The 
Participants filed the Plan to comply with an order issued by the 
Commission on June 24, 2014.\7\ The Plan was published for comment in 
the Federal Register on November 7, 2014,

[[Page 87604]]

and approved by the Commission, as modified, on May 6, 2015.\8\ The 
Commission approved the Pilot on a two-year basis, with implementation 
to begin no later than May 6, 2016.\9\ On November 6, 2015, the SEC 
exempted the Participants from implementing the Pilot until October 3, 
2016.\10\ Under the revised Pilot implementation date, the Pre-Pilot 
data collection period commenced on April 4, 2016. On September 13, 
2016, the SEC exempted the Participants from the requirement to fully 
implement the Pilot on October 3, 2016, to permit the Participants to 
implement the pilot on a phased-in basis, as described in the 
Participants' exemptive request.\11\
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    \4\ 15 U.S.C. 78k-1.
    \5\ 17 CFR 242.608.
    \6\ See Letter from Brendon J. Weiss, Vice President, 
Intercontinental Exchange, Inc., to Secretary, Commission, dated 
August 25, 2014.
    \7\ See Securities Exchange Act Release No 72460 (June 24, 
2014), 79 FR 36840 (June 30, 2014).
    \8\ See Securities Exchange Act Release No. 74892 (May 6, 2015), 
80 FR 27513 (May 13, 2015) (``Approval Order'').
    \9\ See Approval Order at 27533 and 27545.
    \10\ See Securities Exchange Act Release No. 76382 (November 6, 
2015), 80 FR 70284 (November 13, 2015).
    \11\ See Letter from David S. Shillman, Associate Director, 
Division of Trading and Markets, Commission, to Eric Swanson, EVP, 
General Counsel and Secretary, Bats Global Markets, Inc., dated 
September 13, 2016; see also Letter from Eric Swanson, EVP, General 
Counsel and Secretary, Bats Global Markets, Inc., to Brent J. 
Fields, Secretary, Commission, dated September 9, 2016.
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    The Plan is designed to allow the Commission, market participants, 
and the public to study and assess the impact of increment conventions 
on the liquidity and trading of the common stock of small-
capitalization companies. Each Participant is required to comply, and 
to enforce compliance by its member organizations, as applicable, with 
the provisions of the Plan.
    FINRA adopted rule amendments to implement the requirements of the 
Plan, including relating to the Plan's data collection requirements and 
requirements relating to Web site data publication.\12\ Specifically, 
with respect to the Web site data publication requirements pursuant to 
Section VII and Appendices B and C to the Plan, FINRA Rule 
6191(b)(2)(B) provides, among other things, that FINRA shall make the 
data required by Items I and II of Appendix B to the Plan, and 
collected pursuant to paragraph (b)(2)(A) of Rule 6191, publicly 
available on the FINRA Web site on a monthly basis at no charge and 
shall not identify the Trading Center that generated the data. FINRA 
Rule 6191(b)(3)(C), provides, among other things, that FINRA shall make 
the data required by Item IV of Appendix B to the Plan, and collected 
pursuant to paragraph (b)(3)(A) of Rule 6191, publicly available on the 
FINRA Web site on a monthly basis at no charge and shall not identify 
the Trading Center that generated the data. FINRA Rule 6191(b)(4)(B) 
provides, among other things, that FINRA shall make aggregated data 
required by Appendix C to the Plan, and collected pursuant to paragraph 
(b)(4)(A) of Rule 6191, publicly available on the FINRA Web site on a 
monthly basis at no charge and shall not identify the Market Makers 
that generated the data or the individual securities. FINRA Rule 
6191.12 provides, among other things, that the requirement that FINRA 
make certain data publicly available on the FINRA Web site pursuant to 
Appendix B and C to the Plan shall commence at the beginning of the 
Pilot Period.
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    \12\ See, e.g., Securities Exchange Act Release No. 76484 
(November 19, 2015), 80 FR 73858 (November 25, 2015) (Notice of 
Filing of File No. SR-FINRA-2015-048); see also Securities Exchange 
Act Release No. 77164 (February 17, 2016), 81 FR 9043 (February 23, 
2016) (Notice of Filing of Partial Amendment No. 1 and Order 
Granting Accelerated Approval of File No. SR-FINRA-2015-048) 
(``Accelerated Approval Order''); see also Letter from David S. 
Shillman, Associate Director, Division of Trading and Markets, 
Commission, to Marcia E. Asquith, Senior Vice President and 
Corporate Secretary, FINRA, dated February 17, 2016.
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    FINRA is proposing amendments to Rule 6191(b)(2)(B) (regarding 
Appendix B.I and B.II data), Rule 6191(b)(3)(C) (regarding Appendix 
B.IV data), and Rule 6191(b)(4)(B) (regarding Appendix C data), to 
provide that data required to be made available on FINRA's Web site be 
published within 120 calendar days following month end. In addition, 
the proposed amendments to Rule 6191.12 would provide that, 
notwithstanding the provisions of paragraphs (b)(2)(B), (b)(3)(C) and 
(b)(4)(B), FINRA shall make data for the Pre-Pilot period publicly 
available on the FINRA Web site pursuant to Appendix B and C to the 
Plan by February 28, 2017.\13\
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    \13\ With respect to data for the Pilot Period, the requirement 
that FINRA make data publicly available on the FINRA Web site 
pursuant to Appendix B and C to the Plan shall continue to commence 
at the beginning of the Pilot Period. Thus, the first Web site 
publication date for Pilot Period data (covering October 2016) would 
be published on the FINRA Web site by February 28, 2017, which is 
120 days following the end of October 2016.
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    The proposed rule change also will provide that, with respect to 
Appendix C data, FINRA will aggregate and publish, categorized by 
Control Group and each Test Group: (1) Market Maker profitability 
statistics for Market Makers for which FINRA is the designated 
examining authority (``DEA''), (2) Market Maker profitability 
statistics collected from other Participants that are DEAs, and (3) 
Market Maker profitability statistics for Market Makers whose DEA is 
not a Participant.\14\ FINRA will make this data publicly available on 
the FINRA Web site at no charge and will not identify the Market Makers 
that generated the data or the individual securities.
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    \14\ FINRA understands that some Market Makers may utilize a DEA 
that is not a Participant to the Plan and that their DEA would not 
be subject to the Plan's data collection requirements. Prior to this 
proposal, the Participants implemented rules that required members 
that were Market Makers whose DEA is not a Participant to the Plan 
to transmit transaction data for Market Maker profitability 
calculations to FINRA. See, e.g., Securities Exchange Act Release 
No. 77456 (March 28, 2016), 81 FR 18925 (April 1, 2016) (Notice of 
Filing of File No. SR-NASDAQ-2016-043).
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    The purpose of delaying the publication of the Web site data is to 
address confidentiality concerns by providing for the passage of 
additional time between the market information reflected in the data 
and the public availability of such information.\15\ Likewise, the 
publication by FINRA of Market Maker profitability data on the FINRA 
Web site, including Market Makers for which FINRA is not the DEA, is 
intended to address confidentiality concerns with respect to the 
Appendix C data required to be made publicly available by the 
Participants. Although the Participants that are DEAs also would not 
have identified the Market Makers when publishing required Appendix C 
data, some of the Participants are DEAs for a very small number of 
Market Makers, and the published data from these DEAs raised concerns 
regarding the potential for identifying the Market Makers that 
correspond to those statistics.\16\
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    \15\ See, e.g., Accelerated Approval Order at 9049.
    \16\ FINRA notes that FINRA is the DEA for the vast majority of 
Market Makers, and, therefore, FINRA already would have been 
responsible for publishing aggregated data covering the 
profitability of the vast majority of Market Makers. In fact, FINRA 
is the DEA for all but fifteen of 115 Market Makers; thus, the 
majority of the publicly available Appendix C data would already 
have been aggregated and provided on the FINRA Web site.
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    FINRA has filed the proposed rule change for immediate 
effectiveness and has requested that the Commission waive the 30-day 
operative delay. If the Commission waives the 30-day operative delay, 
the operative date of the proposed rule change will be the date of 
filing.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\17\ 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 Section 15A(b)(9) of

[[Page 87605]]

the Act,\18\ which requires that FINRA rules not impose any burden on 
competition that is not necessary or appropriate.
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    \17\ 15 U.S.C. 78o-3(b)(6).
    \18\ 15 U.S.C. 78o-3(b)(9).
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    FINRA believes that this proposal is consistent with the Act 
because it is designed to assist the Participants in meeting their 
regulatory obligations pursuant to the Plan and is in furtherance of 
the objectives of the Plan, as identified by the SEC. FINRA believes 
that the instant proposal is consistent with the Act in that it is 
designed to address confidentiality concerns by permitting FINRA to 
delay Web site publication to provide for passage of additional time 
between the market information reflected in the data and the public 
availability of such information.
    In addition, in approving the Plan, the Commission recognized that 
requiring the publication of Market Maker data may raise 
confidentiality concerns, especially for Pilot Securities that may have 
a relatively small number of designated Market Makers.\19\ For this 
reason, the Commission modified the Plan so that the data that would be 
made publicly available would not contain profitability measures for 
each security, but would be aggregated by the Control Group and each 
Test Group. Thus, FINRA believes that the instant proposal is 
consistent with the Act in that it is designed to further address 
confidentiality concerns by permitting FINRA to aggregate and publish 
Market Maker profitability data for all Participant DEAs, including 
Market Makers for which FINRA is not the DEA.
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    \19\ See Approval Order at 27543-27544.
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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. FINRA notes that the proposed 
rule change implements the provisions of the Plan, and is designed to 
assist the Participants in meeting their regulatory obligations 
pursuant to the Plan.
    The proposal is intended to address confidentiality concerns that 
may adversely impact competition, especially for Pilot Securities that 
may have a relatively small number of designated Market Makers, by 
permitting FINRA to (1) delay Web site publication to provide for 
passage of additional time between the market information reflected in 
the data and the public availability of such information; and (2) 
aggregate and publish Market Maker profitability data for all 
Participant DEAs, including Market Makers for which FINRA is not the 
DEA. FINRA notes that the proposed change will not affect the data 
reporting requirements for members for which FINRA is the DEA.\20\ The 
proposal also does not alter the information required to be submitted 
to the SEC.
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    \20\ See supra note 16.
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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.\21\
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    \21\ Financial Information Forum (FIF) submitted a letter to the 
staff of the Commission, copying FINRA, raising concerns regarding 
the publication of certain Appendix B statistics on a disaggregated 
basis using a unique masked market participant identifier. See 
Letter from Mary Lou Von Kaenel, Managing Director, FIF, to David S. 
Shillman, Associate Director, Division of Trading and Markets, 
Commission, dated August 16, 2016, available at https://www.fif.com/comment-letters.
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III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) \22\ of the Act and Rule 19b-
4(f)(6) thereunder.\23\
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    \22\ 15 U.S.C. 78s(b)(3)(A).
    \23\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \24\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\25\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. FINRA has filed the 
proposed rule change for immediate effectiveness and has requested that 
the Commission waive the requirement that the proposed rule change not 
become operative for 30 days after the date of the filing so that it 
may become operative immediately.
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    \24\ 17 CFR 240.19b-4(f)(6).
    \25\ 17 CFR 240.19b-4(f)(6)(iii).
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    FINRA notes that the proposed rule change implements the provisions 
of the Plan, and is designed to assist the Participants in meeting 
their regulatory obligations pursuant to the Plan. The proposal is 
intended to address confidentiality concerns by permitting FINRA to (1) 
delay Web site publication to provide for passage of additional time 
between the market information reflected in the data and the public 
availability of such information; and (2) aggregate and publish Market 
Maker profitability data for all Participant DEAs, including Market 
Makers for which FINRA is not the DEA. FINRA notes that the proposed 
change will not affect the data reporting requirements for members for 
which FINRA is the DEA.\26\ The proposal also does not alter the 
information required to be submitted to the SEC.
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    \26\ See supra note 14.
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest 
because it will allow FINRA to implement these proposed changes that 
are intended to address confidentiality concerns. The Commission notes 
that the Pre-Pilot data is currently required to be published on 
November 30, 2016. Therefore, the Commission hereby waives the 30-day 
operative delay and designates the proposed rule change to be operative 
as of the date of this notice.\27\
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    \27\ For purposes only of waiving the operative delay for this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend 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.\28\ If the 
Commission takes such action, the Commission shall institute 
proceedings to determine whether the proposed rule should be approved 
or disapproved.
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    \28\ 15 U.S.C. 78s(b)(3)(C).
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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 email to rule-comments@sec.gov. Please include 
File Number SR- FINRA-2016-042 on the subject line.

[[Page 87606]]

Paper Comments

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

All submissions should refer to File Number SR-FINRA-2016-042. This 
file number should be included on the subject line if email 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 
10:00 a.m. and 3:00 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-2016-042, and should 
be submitted on or before December 27, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-29045 Filed 12-2-16; 8:45 am]
 BILLING CODE 8011-01-P