Document ID: SEC-2018-1316-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2018-08-22T04:00Z

[Federal Register Volume 83, Number 163 (Wednesday, August 22, 2018)]
[Notices]
[Pages 42545-42552]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-18062]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83866; File No. SR-FINRA-2018-029]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend FINRA Rule 7620A Relating to Fees 
Applicable to the FINRA/Nasdaq Trade Reporting Facilities

August 16, 2018.
    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 August 10, 2018, 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 7620A to modify certain fees 
applicable to members that use the FINRA/Nasdaq Trade Reporting 
Facility Carteret (the ``FINRA/Nasdaq TRF Carteret'') and the FINRA/
Nasdaq Trade Reporting Facility Chicago (the ``FINRA/Nasdaq TRF 
Chicago'') (collectively, the ``FINRA/Nasdaq TRFs'').\5\
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    \5\ The Commission recently approved a proposed rule change to 
adopt rules relating to the establishment of the FINRA/Nasdaq TRF 
Chicago. See Securities Exchange Act Release No. 83559 (June 29, 
2018), 83 FR 31589 (July 6, 2018) (Order Approving File No. SR-
FINRA-2018-013). Among other things, the proposed rule change 
amended the Rule 7600A Series to provide that the schedules of 
credits and fees apply to reporting activity that occurs on either 
or both of the FINRA/Nasdaq TRFs and that a participant's 
eligibility for any volume-based credits or fee caps will be 
determined based upon its aggregate reporting volume between the two 
FINRA/Nasdaq TRFs. SR-FINRA-2018-013 will be effective on the date 
that the FINRA/Nasdaq TRF Chicago commences operation, which FINRA 
anticipates will be in September 2018.
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    The text of the proposed rule change is available on FINRA's 
website at

[[Page 42546]]

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
    The FINRA/Nasdaq TRFs are facilities of FINRA that are operated by 
Nasdaq, Inc. (``Nasdaq'') and utilize Automated Confirmation 
Transaction Service technology. In connection with the establishment of 
the FINRA/Nasdaq TRFs, FINRA and Nasdaq 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 TRFs. Nasdaq, the ``Business 
Member,'' is primarily responsible for the management of the FINRA/
Nasdaq TRFs' business affairs, including establishing pricing for use 
of the FINRA/Nasdaq TRFs, 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 TRFs.
    Pursuant to the FINRA Rule 7600A Series, participants in the FINRA/
Nasdaq TRFs are charged fees and may qualify for fee caps (Rule 7620A) 
and also may qualify for revenue sharing payments for trade reporting 
to the FINRA/Nasdaq TRFs (Rule 7610A). These rules are administered by 
Nasdaq, in its capacity as the Business Member and operator of the 
FINRA/Nasdaq TRFs on behalf of FINRA,\6\ and Nasdaq collects all fees 
on behalf of the FINRA/Nasdaq TRFs.
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    \6\ FINRA's oversight of this function performed by the Business 
Member is conducted through a recurring assessment and review of TRF 
operations by an outside independent audit firm.
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    Pursuant to FINRA Rule 7620A, participants in the FINRA/Nasdaq TRFs 
are subject to four categories of fees, each of which is applicable to 
transactions on the three Tapes: \7\ (1) Media/Executing Party; (2) 
Non-Media/Executing Party; (3) Media/Contra Party; and (4) Non-Media/
Contra Party.\8\ Rule 7620A provides that for any category of fees, a 
participant will qualify for a cap on the fees they [sic] would 
otherwise pay to report trades to a particular Tape during a given 
month, provided that during the month, the participant separately has a 
daily average number of Media/Executing Party trades of at least 2,500 
in that same Tape. Additionally, the Rule provides for a special fee 
cap program--known as the ``Media/Contra Cap''--for participants that 
make markets in an alternative trading system (``ATS'').
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    \7\ Market data is transmitted to three tapes based on the 
listing venue of the security: New York Stock Exchange securities 
(``Tape A''), NYSE American and regional exchange securities (``Tape 
B''), and Nasdaq Stock Market securities (``Tape C'').
    \8\ Media eligible trade reports are those that are submitted to 
the FINRA/Nasdaq TRFs for public dissemination by the Securities 
Information Processors. By contrast, non-media trade reports are not 
submitted to the FINRA/Nasdaq TRFs for public dissemination, but are 
submitted for regulatory and/or clearance and settlement purposes.
    Pursuant to the Rule's Supplementary Material, the ``Executing 
Party (EP)'' is defined as the member with the trade reporting 
obligation under FINRA rules, and the ``Contra (CP)'' is defined as 
the member on the contra side of a trade report.
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    Nasdaq, as the Business Member, has determined to make several 
adjustments to the schedule of fees and caps that applies to 
participants in the FINRA/Nasdaq TRFs. As discussed below, the overall 
aims of the proposed adjustments are to: (1) Align the activity-based 
fees and cap levels with the rising costs of operating, maintaining, 
and improving the FINRA/Nasdaq TRF Carteret and, going forward, the 
FINRA/Nasdaq TRF Chicago; (2) re-calibrate the fee structure so that it 
provides for a more equitable allocation of fees among Executing 
Parties and Contra Parties; (3) ensure that all FINRA/Nasdaq TRF 
participants, regardless of the level of their reporting or contra 
activity, bear at least some baseline responsibility for the costs of 
their participation; and (4) clarify the fee structure. Nasdaq also 
intends for the proposed adjustments to generate profits for itself as 
the Business Member. FINRA is proposing to amend Rule 7620A 
accordingly.
    Specifically, the proposed rule change would: (1) Raise the 
threshold daily average number of Media/Executing Party trades that are 
necessary for a participant to qualify for a fee cap program during a 
month; (2) lower uncapped monthly charges for reporting Media/Executing 
Party and Non-Media/Executing Party trades and raise the caps on such 
fees, if applicable; (3) raise the caps on Media/Contra Party and Non-
Media/Contra Party fees, if applicable; (4) raise the level of the cap 
that applies to ATS market makers; (5) establish a new fee cap program 
known as the ``ATS Market Maker Combined Activity Cap''; (6) establish 
a new fixed monthly fee known as the ``Participation Fee''; and (7) 
establish a special pricing tier for participants whose trade reporting 
activity to the FINRA/Nasdaq TRF consists of substantially all retail 
orders (``Retail Participants''). The proposed rule change also would 
re-organize the fee schedule and make other clarifying changes to Rule 
7620A. Each of these proposals is described in detail below.
Cap Qualifying Activity
    The proposed rule change would raise the level of ``Cap Qualifying 
Activity''--i.e., the daily average number of Media/Executing Party 
trades that a participant must report to the FINRA/Nasdaq TRFs in a 
given month to qualify for caps on its trade reporting fees as set 
forth elsewhere in the fee schedule. Presently, the level of Cap 
Qualifying Activity is 2,500 for reports in each of Tapes A, B, and C. 
Nasdaq, as the Business Member, has determined to raise these threshold 
numbers to 5,000 in each Tape.
    The levels of Cap Qualifying Activity have not increased since they 
were introduced in 2010,\9\ at a time when reporting volume on the 
FINRA/Nasdaq TRF Carteret was significantly lower than it is now. 
Indeed, average daily executions on the FINRA/Nasdaq TRF Carteret have 
increased by approximately 47 percent since 2012 even as cap thresholds 
have remained static. Meanwhile, the cost of operating the FINRA/Nasdaq 
TRF Carteret has increased by approximately 16 percent. These costs 
have increased for various reasons, including but not limited to 
inflation, investments that Nasdaq has made in upgrading and improving 
the facility, and also increased operational and maintenance costs that 
have flowed from rising levels of trade reporting activity. Nasdaq has 
advised that raising the levels of Cap Qualifying Activity will help to 
re-align the thresholds with rising volumes and costs.
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    \9\ See Securities Exchange Act Release No. 61817 (March 31, 
2010), 75 FR 17810 (April 7, 2010) (Notice of Filing and Immediate 
Effectiveness of File No. SR-FINRA-2010-011).
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Media/Executing Party and Non-Media/Executing Party Fees and Caps
    The proposed rule change would amend the schedule of fees and 
associated caps for both Media/

[[Page 42547]]

Executing Party and Non-Media/Executing Party trade reports. For both 
types of trade reports, Nasdaq, as the Business Member, has determined 
to lower the uncapped fee from $0.018 to $0.015 per side. Nasdaq also 
has determined to modify the formulas for calculating the maximum 
amount of fees that a participant will pay to report these trades if 
the participant achieves Cap Qualifying Activity. Presently, the 
formulas for the Media/Executing Party cap and the Non-Media/Executing 
Party cap are, respectively: $0.018 x (the required average daily 
number of Media/Executing Party Trades for Tape A, B, or C) x (the 
number of trading days during the month); and $0.018 x 2,500 x (the 
number of trading days during the month). Nasdaq has determined to 
lower the fee in the cap formulas from $0.018 to $0.013 and raise the 
average daily number of trade reports needed to qualify for the cap 
from 2,500 to 5,000. Finally, the proposed rule change would simplify 
the formula for the Media/Executing Party Cap by stating expressly the 
average daily number of Media/Executing Party trades necessary to 
qualify for the cap--5,000--rather than merely describe that number, as 
it does now.
    Nasdaq has advised that the proposed changes are aimed at 
rationalizing Media (Non-Media)/Executing Party fee caps with the 47 
percent increase in reporting activity to the FINRA/Nasdaq TRFs [sic] 
and the 16 percent increase in costs associated with the operation of 
the TRF that have occurred over the past six years. However, Nasdaq 
also proposes downward adjustments to the uncapped rates for reporting 
Media/Executing Party trades to dampen the financial impact of the 
increase in the cap upon participants that will no longer qualify for 
it under the proposed rule change.
Media/Contra Party and Non-Media/Contra Party Fees and Caps
    The proposed rule change would raise the caps for both Media/Contra 
Party and Non-Media/Contra Party trades while keeping the uncapped 
monthly charge of $0.013 per side the same. For both types of trades, 
Nasdaq, as the Business Member, has determined to modify the cap 
formulas so that, instead of being $0.013 x 2,500 x (the number of 
trading days during the month), the formulas will be $0.013 x 5,000 x 
(the number of trading days during the month). The rationale for this 
increase is the same as is described above.
Media/Contra Cap
    FINRA Rule 7620A provides for a monthly ``Media/Contra'' fee cap of 
$5,000 per Tape (A, B or C) that applies to all trades (i.e., Media/
Executing Party, Non-Media/Executing Party, Media/Contra and Non-Media/
Contra) under the Rule. Eligibility for this fee cap is based on a 
FINRA member's trade reporting of Media/Contra trades to the FINRA/
Nasdaq TRFs and its participation as a market maker on an ATS. To 
qualify as a market maker on an ATS, a FINRA member must maintain a 
two-sided quote for each security that the FINRA member maintains 
interest in within each ATS and display a quotation size of at least 
one normal unit of trading (specific for each security), and it must 
attest to these qualifications in writing. The FINRA member must also 
attest that it will continue to meet the ATS-based requirements to be 
eligible for the fee cap.\10\ To qualify for the cap, a FINRA member 
must have its Media/Contra Party trades equal, or exceed, 35% of its 
total volume on the FINRA/Nasdaq TRFs. The FINRA member also must be 
contra to a minimum of 1 million trades in Tape A, 500,000 trades in 
Tape C, and 250,000 trades in Tape B to qualify for the fee cap in the 
securities of the Tapes, respectively.
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    \10\ As set forth in the Rule, Nasdaq will periodically audit 
FINRA members that choose to participate to ensure compliance with 
the attestation.
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    Nasdaq, as the Business Member, has determined to modify the Media/
Contra Party fee cap program by increasing the maximum monthly per Tape 
charge applicable to qualifying participants. Specifically, the maximum 
monthly charge will increase from $5,000 per Tape per month to $10,000 
per Tape per month. Nasdaq, as the Business Member, has determined that 
the existing cap level, which has not changed since it was introduced 
in 2015, no longer bears a reasonable relationship to the volume of 
qualifying participant reporting activity that occurs on the FINRA/
Nasdaq TRFs [sic]. The volume of market maker Media/Contra Party 
reports to the FINRA/Nasdaq TRFs [sic] is growing rapidly. From January 
2016 through June 2017, the firms that presently qualify for the cap 
increased their activity on the FINRA/Nasdaq TRF Carteret by 60%. Their 
activity presently exceeds the minimum qualifying threshold for the cap 
by more than fourfold.
    In addition, the proposed rule change would change the name of this 
cap to the ``ATS Market Maker Media/Contra Party Cap'' to more 
accurately describe the program, add clarity to the fee schedule and 
avoid potential confusion with the other Media/Contra cap.
ATS Market Maker Combined Media Activity Cap
    Nasdaq, as the Business Member, has determined to establish a new 
fee cap program, entitled the ``ATS Market Maker Combined Media 
Activity Cap.'' The purpose of the proposed cap is to foster new 
reportable business activities among FINRA members that do not qualify 
for the existing FINRA/Nasdaq TRFs [sic] fee cap program.
    For example, a participant may be a new FINRA member or it may 
engage in new off-exchange business activities, such as the 
establishment of a single-dealer platform or an ATS. In the initial 
stages of these business activities, the participant may not qualify 
for the existing fee cap programs because the participant may not 
achieve the requisite daily average number of Media/Executing Party 
trades during a month or because it may not reliably maintain the 
requisite volume of Media/Contra Party activity to qualify for the 
Media/Contra Party cap (which, as noted above, would cap both its 
Executing Party and Contra Party fees).
    The proposed ATS Market Maker Combined Media Activity Cap will 
provide assistance to such a participant by capping the combined FINRA/
Nasdaq TRFs fees (i.e., Media/Executing Party, Media/Contra, Non-Media/
Executing Party and Non-Media/Contra) that the participant would 
otherwise pay while the participant ramps up its new reportable 
activity to levels that would enable it to qualify for existing fee cap 
programs with higher qualification thresholds, such as the Media/
Executing Party cap and the Media/Contra Party cap.
    To qualify for the proposed ATS Market Maker Combined Media 
Activity Cap, a participant must: (1) Qualify as a market maker on an 
ATS (as defined below); (2) engage in both Executing Party and Contra 
Party activities; and (3) average at least 2,500 Media/Executing Party 
trades in a given Tape per day during a month. If the participant meets 
this threshold, then the participant will pay for that month, on a per 
Tape basis, the lesser of $7,500 or the sum of all the participant's 
combined monthly Executing Party and Contra Party fees for that Tape 
during the month (as calculated using the regular uncapped Media/
Executing Party, Non-Media/Executing Party, Media/Contra Party, and 
Non-Media/Contra Party rates). If the participant's average daily 
Media/Executing Party trade reports reach at least 5,000 in a given 
Tape in a given month, then the participant will no longer qualify for 
the proposed ATS Market Maker Combined Media Activity

[[Page 42548]]

Cap in that Tape in that month and, instead, will qualify for the 
regular cap programs for that month. If the participant does not reach 
2,500 Media/Executing Party trades in a given Tape per day during a 
month, the firm will be subject to the regular uncapped fee schedule or 
to other fee caps that may be applicable to it for that month.\11\
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    \11\ If a participant qualifies for the ATS Market Maker 
Combined Media Activity Cap in month 1 and then graduates out of the 
Combined Cap program in month 2 due to the fact that the 
participant's average daily Media/Executing Party trade reports in a 
given Tape in month 2 exceed 5,000, the participant will once again 
qualify for the ATS Market Maker Combined Media Activity Cap in 
month 3 if its average daily Media/Executing Party trade reports 
during month 3 fall back below 5,000.
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    As with the ATS Market Maker Media/Contra Party Cap, a participant 
qualifies as a market maker on an ATS by maintaining a two-sided quote 
for each security that the FINRA member maintains interest in within 
each ATS and by displaying a quotation size of at least one normal unit 
of trading (specific for each security). Additionally, as with the 
existing ATS Market Maker Media/Contra Party cap, the participant must 
attest to its market maker qualifications in writing and must re-
certify its qualifications every six months.\12\ Nasdaq will 
periodically audit participants to ensure that their attestations are 
accurate and that they qualify for the ATS Market Maker Combined 
Activity Cap.
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    \12\ The form of attestation that firms will be required to 
submit to Nasdaq under the proposed rule change is attached to this 
filing at Exhibit 3.
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Participation Fee
    Nasdaq, as the Business Member, has determined to assess a new 
fixed monthly Participation Fee of $350 that will apply to each 
participant in the FINRA/Nasdaq TRFs.\13\ The Participation Fee will 
help defray certain shared and common costs associated with the 
operation of the FINRA/Nasdaq TRFs, including overhead costs and the 
costs of developing, maintaining, and upgrading shared technology.\14\ 
Nasdaq believes that all users of the FINRA/Nasdaq TRFs--both large and 
small--should bear at least some responsibility for the upkeep of the 
FINRA/Nasdaq TRFs.\15\ The Participation Fee represents a baseline 
share of this responsibility. Responsibility for costs in excess of the 
proposed Participation Fee will continue to be recovered from 
participants through trade reporting fees in proportion to the volume 
of their activities on the FINRA/Nasdaq TRFs. The Participation Fee is 
distinct from the fee that Nasdaq separately charges under its rules to 
port into the FINRA/Nasdaq TRFs.
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    \13\ The Participation Fee will be assessed on each registered 
participant, irrespective of whether the participant is identified 
(as Executing Party or Contra Party) in any trade report submitted 
to the FINRA/Nasdaq TRF in a given month. Participants that use 
multiple Market Participant Identifiers or ``MPIDs'' for purposes of 
reporting to the FINRA/Nasdaq TRF in accordance with Rule 6160 will 
not be assessed a Participation Fee for each separate MPID.
    \14\ Because the Participation Fee covers costs that are common 
to and allocated specifically to either FINRA/Nasdaq TRF, a 
participant will pay only a single Participation Fee even if it 
participates in both the FINRA/Nasdaq TRF Carteret and FINRA/Nasdaq 
TRF Chicago.
    \15\ As discussed below, Retail Participants will be exempt from 
paying the Participation Fee.
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Retail Participant Pricing Program
    Nasdaq, as the Business Member, has determined to establish a new 
pricing program for participants that qualify as ``Retail 
Participants'' due to the fact that substantially all of their trade 
reporting activity to the FINRA/Nasdaq TRFs constitutes ``Retail 
Orders.'' \16\ For purposes of this pricing program, a ``Retail Order'' 
is an order that originates from a natural person, provided that, prior 
to submission, no change is made to the terms of the order with respect 
to price or side of market and the order does not originate from a 
trading algorithm or any other computerized methodology.\17\
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    \16\ In defining a ``Retail Participant,'' the proposal derives 
from a similar concept set forth in Nasdaq's Designated Retail Order 
pricing program and its corresponding Designated Retail Order 
Attestation Form. See Securities Exchange Act Release No. 75375 
(July 7, 2015), 80 FR 40098 (July 13, 2015) (Notice of Filing and 
Immediate Effectiveness of File No. SR-NASDAQ-2015-066). The Nasdaq 
Designated Retail Order Attestation Form provides that to qualify 
for the Designated Retail Order pricing program, an applicant must 
attest that ``substantially all orders submitted to the Exchange by 
the Applicant would meet the qualifications for such orders under 
the Retail Order rule.'' See https://nasdaqtrader.com/content/ProductsServices/Trading/AttestationForm.pdf. FINRA will refine the 
definition of a Retail Participant if it proves to be unworkable in 
practice.
    \17\ The definition of a ``Retail Order'' derives from the 
definition of a ``Designated Retail Order'' in Nasdaq Rule 7018.
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    The purpose of this retail pricing program is to help Retail 
Participants to control their costs associated with reporting trades to 
the FINRA/Nasdaq TRFs and, in doing so, to limit or reduce any such 
costs that Retail Participants pass on to their retail customers. Such 
retail customers generally include individuals who trade less 
frequently and have fewer trades reported to the FINRA/Nasdaq TRFs than 
do other categories of customers; therefore, it is fair and reasonable 
to charge Retail Participants and their customers less than these other 
categories of participants and customers.\18\
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    \18\ In other contexts, the Commission has approved pricing 
programs aimed at benefitting retail investors. See, e.g., 
Securities Exchange Act Release No. 68937 (February 15, 2013), 78 FR 
12397 (February 22, 2013) (Order Approving File No. SR-NASDAQ-2012-
129 (Nasdaq retail price improvement pilot program); and Securities 
Exchange Act Release No. 67347 (July 3, 2012), 77 FR 40673 (July 10, 
2012) (Order Approving File Nos. SR-NYSE-2011-55 and SR-NYSEAmex-
2011-84) (NYSE and NYSE Amex retail liquidity pilot programs).
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    A Retail Participant will be subject to the following fee schedule 
when it reports trades to the FINRA/Nasdaq TRF. For Media/Executing 
Party (Non-Media/Executing Party) fees, the monthly charge for a Retail 
Participant will be $0.018 multiplied by the number of Media/Executing 
Party (Non-Media/Executing Party) trades that the Retail Participant 
reports to the FINRA/Nasdaq TRFs during that month. Such fees will be 
capped for a given month once the Retail Participant reports to the 
FINRA/Nasdaq TRFs, on average, at least 2,500 Media/Executing Party 
trades per day in Tapes A, B, or C during that month. If capped for 
trades in a particular Tape, Media/Executing Party (Non-Media/Executing 
Party) fees for a Retail participant will equal $0.018 multiplied by 
2,500 multiplied by the number of trading days during that month. 
Additionally, Retail Participants will be exempt from paying the $350 
per month Participant Fee.
    The foregoing preserves for Retail Participants the existing Media/
Executing Party (Non-Media/Executing Party) fee schedules, cap 
thresholds, and cap formulas. It excludes Retail Participants from the 
adjustments that Nasdaq, as the Business Member, is otherwise proposing 
to make to the fee schedules and caps and the addition of the 
Participant Fee. In other words, the average daily trade threshold for 
Retail Participants to qualify for the Media/Executing Party (Non-
Media/Executing Party) cap will remain at 2,500 Media/Executing Party 
trade reports and will not rise to 5,000, as it will for other 
participants. However, Retail Participants also will not be subject to 
proposed decreases in the $0.018 per trade report fee that other 
participants will experience.
    As to Media/Contra Party (Non-Media/Contra Party) fees, the monthly 
charge for a Retail Participant will be the same as that which applies 
to all other participants: $0.013 multiplied by the number of Media/
Contra Party (Non-Media/Contra Party) trades that the participant 
reports to the FINRA/Nasdaq TRFs during the month. However, the 
threshold for Retail Participants to

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qualify for a cap on Media/Contra Party (Non-Media Contra Party) fees 
will differ from that which will apply to other participants. Retail 
Participants will continue to qualify for a cap (on a per Tape basis) 
on Media/Contra Party (Non-Media/Contra Party) fees during a given 
month if they report to the FINRA/Nasdaq TRFs, on average, at least 
2,500 Media/Executing Party trades per day in Tapes A, B, or C, whereas 
the cap threshold for other participants will rise to an average of 
5,000 Media/Executing Party trades per day. If capped, Media/Contra 
Party (Non-Media/Contra Party) fees for a Retail Participant will equal 
$0.013 multiplied by 2,500 multiplied by the number of trading days 
during that month. Other participants will pay a maximum charge of 
$0.13 multiplied by 5,000 multiplied by the number of trading days 
during the month.
    To qualify as a Retail Participant and receive pricing under the 
Retail Participant fee schedule, a participant must complete and submit 
to Nasdaq, as the Business Member, an application. The application form 
will require the participant to attest to its qualifications as a 
Retail Participant on the FINRA/Nasdaq TRFs in which it is a 
participant and for which it seeks Retail Participant pricing.\19\ The 
participant must also attest to its reasonable expectation that it will 
maintain its qualifications for a one year period following the date of 
attestation. Once a participant has been designated as a Retail 
Participant, it must complete and submit a written attestation to 
Nasdaq on an annual basis to retain its status as such. A Retail 
Participant must inform Nasdaq promptly if at any time it ceases to 
qualify or it reasonably expects that it will cease to qualify as a 
Retail Participant.\20\
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    \19\ Thus, a participant in both FINRA/Nasdaq TRFs that seeks 
Retail Participant pricing on both TRFs must attest to their 
qualifications as such on both TRFs.
    \20\ The form of application and attestation that firms will be 
required to submit to Nasdaq under the proposed rule change is 
attached to this filing at Exhibit 3.
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General Reorganization and Clarification
    Finally, the proposed rule change would clarify and simplify Rule 
7620A. Presently, the Rule is complex and potentially confusing as to 
the requirements for and interaction among the various cap programs. 
The proposed rule change would add prefatory language to the Rule to 
explain more clearly how the fees and cap programs work. As discussed 
above, the proposed rule change would add a title to the schedule of 
the daily average Media/Executing Party trade reporting activity needed 
to qualify for a cap--``Cap Qualifying Activity.'' In addition, the 
amended Rule would be reorganized so that its provisions are listed in 
a more logical order and would segregate Comparison/Accept fees from 
the other ``Standard Fees'' (renamed as ``Other Fees''). Lastly, as 
discussed above, the proposed rule change would rename the special 
Media/Contra cap program that applies only to ATS market makers so that 
it is more clearly differentiated from the regular Media/Contra Party 
cap.
    FINRA has filed the proposed rule changes for immediate 
effectiveness. The operative date will be September 1, 2018.
2. Statutory Basis
    FINRA believes that the proposed rule changes [sic] are consistent 
with the provisions of Section 15A(b)(5) of the Act,\21\ 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.
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    \21\ 15 U.S.C. 78o-3(b)(5).
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    The proposed rule change is reasonable to: (1) Raise from 2,500 to 
5,000 the Cap Qualifying Activity that a participant needs to achieve 
to qualify for a Media (Non-Media)/Executing Party cap or a Media (Non-
Media)/Contra Party cap under Rule 7620A; (2) raise the overall \22\ 
maximum charges under each of these cap programs; and (3) raise the 
maximum monthly charge under the ATS Market Maker Media/Contra Cap from 
$5,000 to $10,000 per Tape. These caps and cap formulas have not keep 
[sic] pace with the rapid growth of trade reporting volume on the 
FINRA/Nasdaq TRF Carteret since they were introduced or with the 
corresponding increase in costs associated with operating, maintaining, 
and upgrading the FINRA/Nasdaq TRF Carteret. Nasdaq, as the Business 
Member, advises FINRA that a re-calibration of Rule 7620A will help 
Nasdaq to continue to accommodate the costs associated with rising 
trade reporting volumes while also making substantial enhancements to 
the technology, functionality, and performance of the Facilities [sic].
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    \22\ Overall, the proposed rule change will increase the maximum 
charges under the Media (Non-Media)/Executing Party fee caps even 
though the per trade portions of the fee cap formulas will decrease 
from $0.018 to $0.013.
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    These proposed increases are also reasonable because they will also 
help to allocate responsibility for the upkeep of the FINRA/Nasdaq TRFs 
more equitably among Executing Parties and Contra Parties. Over time, 
the fee burden associated with the FINRA/Nasdaq TRF Carteret has 
shifted disproportionately to Contra Parties; the proposed re-
allocation will help ensure that Executing Parties pay their fair share 
of fees.
    Nasdaq advises that it expects to earn a profit from the proposed 
changes, but it believes that such profit represents a reasonable 
return on its work in support of and investments in the FINRA/Nasdaq 
TRFs, and that the extent of such profit will be subject to and 
constrained by competitive pressures. As the Commission has recognized, 
``[i]f competitive forces are operative, the self-interest of the 
exchanges themselves will work powerfully to constrain unreasonable or 
unfair behavior,'' \23\ and ``the existence of significant competition 
provides a substantial basis for finding that the terms of an 
exchange's fee proposal are equitable, fair, reasonable, and not 
unreasonably or unfairly discriminatory.'' \24\ In this instance, the 
proposed fee increases will be subject to significant competition from 
the FINRA/NYSE TRF, which has proven itself able to increase its market 
share relative to the FINRA/Nasdaq TRF Carteret as a result of pricing 
and other competitive adjustments. As the Commission has held in the 
past, the presence of competition provides a substantial basis for a 
finding that the proposal will be an equitable allocation of reasonable 
dues, fees and other charges.\25\
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    \23\ See Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770 at 74781 (December 9, 2008) (Order Setting Aside 
Action by Delegated Authority and Approving File No. SR-NYSEArca-
2006-21).
    \24\ Id. at 74781-82.
    \25\ Id.
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    Finally, and except as described below, these proposals to adjust 
fee levels and fee caps are equitable and not unfairly discriminatory 
because they will apply to all similarly situated participants.
    The establishment of a special schedule of fees and fee caps for 
``Retail Participants,'' for whom the existing system of trade 
reporting fees, cap thresholds, and cap formulas will continue to 
apply, is reasonable, equitable, and not unfairly discriminatory. 
Although the proposed rule change would make a distinction in pricing 
in favor of Retail Participants and retail investors, the Act only 
prohibits unfair discrimination. In this instance, FINRA believes that 
the establishment of a distinct category of Retail Participant pricing 
is fair because

[[Page 42550]]

customers of Retail Participants generally include individuals who 
trade less frequently and report fewer trades to the FINRA/Nasdaq TRFs 
than do other categories of customers. FINRA believes that such 
customers, and the participants that serve them, should not bear 
primary financial responsibility for helping the FINRA/Nasdaq TRFs to 
recover rising costs and to account for increasing reporting activity. 
Moreover, maintaining the existing fee schedule for Retail Participants 
will help the FINRA/Nasdaq TRFs to maintain its [sic] competitive 
standing for Retail Participants and their retail trade reporting 
activity. FINRA believes that the proposed qualifications for Retail 
Participants are reasonably tailored to ensure that they include only 
those that exclusively or almost exclusively handle retail trading 
activity. Finally, FINRA notes that the Commission has, in other 
contexts, approved programs like this one that are intended to 
specifically benefit retail firms.\26\
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    \26\ See n.18, supra.
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    The proposal to establish a new ATS Market Maker Combined Media 
Activity Cap is reasonable as a means of fostering the establishment 
and growth among FINRA members of new businesses that involve 
reportable activity, such as single-dealer platforms and ATSs. In the 
early stages of these businesses, participants many not yet qualify for 
the existing fee cap programs because they may not yet conduct enough 
business as Executing Parties to qualify for the Media/Executing Party 
cap or otherwise meet the qualifications for the Media/Contra Party 
cap. The proposed cap will help these participants to establish and 
grow their businesses by limiting the fees that they will otherwise 
incur as they grow.
    Furthermore, the proposed ATS Market Maker Combined Media Activity 
Cap is available to all FINRA members that use the FINRA/Nasdaq TRFs 
and meet the threshold requirements to qualify for the terms of the fee 
cap. While only some participants will qualify for the proposed cap and 
thus see a reduction in their FINRA/Nasdaq TRF trade reporting fees, 
Nasdaq, as the Business Member, has advised FINRA that the proposed cap 
is not unfairly discriminatory because the proposed fee cap is targeted 
to benefit those participants that have a small but growing volume of 
Executing Party activity on the FINRA/Nasdaq TRFs. Nasdaq advises FINRA 
that it is not unfairly discriminatory to limit participation to market 
makers with a daily average number of Media/Executing Party trades of 
less than 5,000 because participants with at least 5,000 Media/
Executing Party trades will be eligible to graduate to the Media/
Executing Party Cap.
    The proposed establishment of a fixed monthly Participation Fee is 
a reasonable means of ensuring that all participants in the FINRA/
Nasdaq TRFs (other than Retail Participants, as discussed above) bear a 
share of financial responsibility for funding their use of the 
Facility, even if the extent of their use is minimal. Indeed, the 
FINRA/Nasdaq TRFs incur (or, in the case of the FINRA/Nasdaq TRF 
Chicago, will incur) costs associated with the mere addition and 
maintenance of participants' accounts that are independent of the 
participants' usage of those accounts to report trades. FINRA believes 
that it is equitable and non-discriminatory to assess a Participation 
Fee to help the FINRA/Nasdaq TRFs to recover these costs from all 
participants.
    Finally, FINRA believes that it is reasonable to reorganize and 
clarify Rule 7620A so that it is easier to comprehend and presented in 
a more logical order. The proposal to reorganize and restate the Rule 
is also equitable and not unfairly discriminatory in that the proposal 
will apply to all similarly situated participants in the FINRA/Nasdaq 
TRFs.

B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the proposed rule changes will result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.
Regulatory Need
    Nasdaq, as the Business Member and operator of the FINRA/Nasdaq 
TRFs, collects all fees on behalf of the FINRA/Nasdaq TRFs. As 
discussed above, Nasdaq has observed an increase in off exchange 
volumes and the associated cost of operating and improving the FINRA/
Nasdaq TRFs, and thus determined to make several adjustments to the 
schedule of fees and caps to align those with the costs.
Economic Baseline
    As discussed above, pursuant to FINRA Rule 7620A, participants in 
the FINRA/Nasdaq TRFs [sic] are currently subject to four categories of 
fees, each of which is applicable to transactions on the three Tapes: 
(1) Media/Executing Party; (2) Non-Media/Executing Party; (3) Media/
Contra Party; (4) and Non-Media/Contra Party. The Rule also provides 
fee caps for participants for a particular Tape during a given month, 
separately for Media/Executing Party trades and Media/Contra Party 
trades.
Economic Impact
    The proposed rule change entails several changes to the fee and cap 
structure. The potential marginal impact of each proposed change is 
discussed below.
    Nasdaq has determined to raise the threshold for the ``Cap 
Qualifying Activity''--i.e., the daily average number of Media/
Executing Party trades that a participant must report to the FINRA/
Nasdaq TRFs in a given month to qualify for caps on its trade reporting 
fees, from 2,500 reports in each of Tapes A, B, and C to 5,000 reports. 
Such increase in the cap qualifying activity will increase reporting 
fees for participants who currently meet the threshold for the cap. 
Assuming that the participants do not alter the number of reports, some 
participants may have activity below the threshold and may no longer be 
eligible for the fee caps. Such participants would potentially 
experience a larger impact from the proposed increase.
    Under the proposed calculation for the Media/Executing Party and 
Non-Media/Executing fee, the cap would effectively increase by 
approximately 44%, from $990 ($0.018 x 2,500 x 22) to $1,430 ($0.013 x 
5,000 x 22), assuming 22 trading days in a month. Based on the 
reporting activity from the fourth quarter of 2017 and assuming that 
reporting activity would remain similar, under the proposed increase in 
fees and the cap, 27 participants would potentially be impacted from 
such increase in the cap and thus would pay more in reporting fees 
under the proposed change. Similarly, under the proposed calculation 
for the Media/Contra Party and Non-Media/Contra Party fee, the cap 
would increase 100%, from $715 ($0.013 x 2,500 x 22) to $1,430 ($0.013 
x 5,000 x 22), again assuming 22 trading days in a month.
    An analysis of the participants show [sic] that the firms impacted 
by the cap qualifier for Media/Executing Party and Non-Media/Executing 
activity are the same firms who would potentially incur the 100% 
increase on the Contra Party fees. Under the combined capped activity, 
the cost increase would be 68%, on average, for the participants who 
report both Executing Party and Contra Party trades. The proposed 
increase in the maximum monthly ``Media/Contra'' fee from $5,000 per 
Tape per month to $10,000 per Tape per month would potentially impact a 
few number [sic] of qualifying participants, but could provide savings 
in the future if they qualify for the ATS Market

[[Page 42551]]

Maker Combined Media Activity Cap discussed above.
    The ATS Market Maker Combined Media Activity Cap would initially 
benefit only a small number of ATSs due to their reporting activity. 
The reporting fees would potentially decrease by 25%, from $30,000 to 
$22,500 under the ATS Market Maker Combined Media Activity Cap. 
However, the fees could potentially decrease by approximately 43% if 
reporting activity increases.
    The proposed participant fee would be assessed on all participants 
equally and would raise the overall reporting fees by $350 per month 
regardless of the reporting activity. Retail Participants would be 
exempt from paying this fee.
    The proposed rule change establishes a ``Retail Participant Pricing 
Program'' for participants whose trade reporting activity to the FINRA/
Nasdaq TRFs constitutes ``Retail Orders.'' Under the proposed program, 
reporting activity to be eligible for the cap would be lower compared 
to that for non-retail participants. Retail Participants would 
potentially benefit from the proposed program, and incur relatively 
lower costs, consistent with relatively fewer trades that are 
considered retail.
    FINRA analyzed data provided by Nasdaq that contain fees incurred 
by 545 participants in the final quarter of 2017, and projected fees 
that were estimated under the proposed fee and cap schedule assuming 
that the reporting behavior would be the same under the current and the 
proposed schedule. On a net basis, i.e., after incorporating the 
proposed changes in the fees and caps and the Participation Fee, 17 
participants would experience a reduction in the total fees incurred, 
with an average estimate of $722. Another 13 participants would be 
expected to see no change in the fees incurred, and these participants 
appear to be those that would be eligible for the Retail Participant 
Program. The remaining 515 participants would incur an estimated fee 
increase of $598 per month. However, for 489 participants out of the 
515, the increase is solely due to the proposed Participation Fee of 
$350.
    The potential net impact of the proposed rule change depends on 
whether participants alter their reporting activity across TRFs to be 
eligible for the fee caps. To the extent that the proposed increases 
impose a burden on participants, they may choose to shift their 
reporting to other TRFs. The net impact would also depend on whether 
the proposed fee caps create an optimal reporting strategy to be 
eligible for a specific cap to maximize the overall savings for all 
trade types reported to the FINRA/Nasdaq TRFs.
    Investors may also potentially incur costs to the extent that 
participants choose to pass some or all of the fee increase to their 
customers.
    Finally, FINRA notes that the proposed fee and fee cap changes 
occur within the context of a competitive environment in which the 
various trade reporting facilities vie for market share. If any 
existing or prospective participant in either FINRA/Nasdaq TRF 
determines that the new fees or fee cap thresholds are too high or are 
unfavorable relative to fees and fee cap programs applicable to the 
FINRA/NYSE TRF, such participants may choose to report to the FINRA/
NYSE TRF in lieu of the FINRA/Nasdaq TRFs, in which case the FINRA/
Nasdaq TRFs will lose market share. Likewise, the FINRA/NYSE TRF is 
free to adjust its fees and fee cap programs, or to modify its 
functionality, in response to the changes proposed herein to render 
them more attractive relative to the FINRA/Nasdaq TRFs. FINRA notes, 
however, that in certain instances, differences in the relative 
functionalities among the FINRA/Nasdaq and FINRA/NYSE TRFs may impact 
participants' decisions to report to the FINRA/NYSE TRF, even if the 
participants find the FINRA/NYSE TRF fees and fee cap programs to be 
preferable.
Alternatives Considered
    No other alternatives were considered for the proposed rule change.

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) of the Act \27\ and paragraph (f)(2) of Rule 19b-4 
thereunder.\28\ 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. 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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    \27\ 15 U.S.C. 78s(b)(3)(A).
    \28\ 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 email to [email protected]. Please include 
File Number SR-FINRA-2018-029 on the subject line.

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-2018-029. 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 website (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 website 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. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-FINRA-2018-029, and should be submitted 
on or before September 12, 2018.

[[Page 42552]]

    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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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-18062 Filed 8-21-18; 8:45 am]
 BILLING CODE P