Document ID: SEC-2014-1746-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2014-10-17T04:00Z

[Federal Register Volume 79, Number 201 (Friday, October 17, 2014)]
[Notices]
[Pages 62500-62502]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-24682]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73340; File No. SR-FINRA-2014-042]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Relating to the Implementation Date of Market 
Participant Identifier Requirements for Alternative Trading Systems

October 10, 2014.
    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 October 2, 2014, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to postpone until February 2, 2015, the 
implementation date of the requirement that alternative trading systems 
(``ATSs'') use unique market participant identifiers (``MPIDs'') when 
reporting order and trade information to FINRA.
    The proposed rule change does not make any changes to the text of 
FINRA rules.

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, Proposed Rule Change

1. Purpose
    On January 17, 2014, the Commission approved SR-FINRA-2013-042, a 
proposed rule change to (i) adopt Rule 4552 to require ATSs to report 
to FINRA weekly volume information and number of trades regarding 
securities transactions within the ATS; and (ii) amend Rules 6160, 
6170, 6480, and 6720 to require each ATS to acquire and use a single, 
unique MPID when reporting information to FINRA.\4\ Rule 4552 was 
implemented on May 12, 2014, and the MPID requirement for ATSs is 
currently scheduled to be implemented on November 10, 2014.\5\ The 
proposed rule change postpones the implementation date for ATSs to

[[Page 62501]]

comply with the new MPID requirement until February 2, 2015.
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release No. 71341 (January 17, 
2014), 79 FR 4213 (January 24, 2014) (Order Approving SR-FINRA-2013-
042). On April 3, 2014, FINRA filed with the Commission for 
immediate effectiveness a proposed rule change to amend Rules 6160, 
6170, 6480, and 6720 to permit an ATS that trades both TRACE-
Eligible Securities and equity securities (OTC Equity Securities or 
NMS stocks) to use two MPIDs, rather than a single unique MPID, if 
each MPID is used exclusively for either TRACE-Eligible Securities 
or equity securities. See Securities Exchange Act Release No. 71911 
(April 9, 2014), 79 FR 21316 (April 15, 2014).
    \5\ See Regulatory Notice 14-07 (February 2014).
---------------------------------------------------------------------------

    At the time FINRA filed SR-FINRA-2013-042, FINRA recognized that 
``given the potential systems changes required by the MPID requirement, 
FINRA will provide additional time for firms to implement the MPID 
requirement.'' \6\ Because of the time necessary to make many of these 
systems changes, FINRA also noted in its response to comments on SR-
FINRA-2013-042 that ``FINRA believes increased transparency in the 
over-the-counter market is necessary and beneficial and can be more 
readily achieved through reporting requirements before the MPID 
requirement is implemented. Consequently, FINRA declines to eliminate 
the reporting requirement from the first phase of the Proposal but 
reaffirms its commitment to reassessing its need following 
implementation of the MPID requirement.'' \7\ The self-reporting 
requirements in Rule 4552 were implemented on May 12, 2014, and FINRA 
began publishing ATS data on June 2, 2014; consequently, the 
transparency benefits of the new self-reporting rule are already in 
place, and ATS volume information is currently available on FINRA's Web 
site.\8\
---------------------------------------------------------------------------

    \6\ Securities Exchange Act Release No. 70676 (October 11, 
2013), 78 FR 62862, 62856 (October 22, 2013) (Notice of Filing of 
SR-FINRA-2013-042).
    \7\ Letter from Brant K. Brown, Associate General Counsel, 
FINRA, to Elizabeth Murphy, Secretary, SEC, dated January 15, 2014, 
at 7.
    \8\ FINRA has created a page on its Web site dedicated to the 
new ATS requirements, including a link to the ATS data reported 
pursuant to Rule 4552. See www.finra.org/ats.
---------------------------------------------------------------------------

    For the past several months, FINRA staff has been discussing 
implementation issues arising with the MPID requirement with various 
ATSs and industry trade groups. In large part, these issues involved 
specific, detailed scenarios ATSs must program for to report trades to 
a FINRA trade reporting facility or to report order information to 
FINRA's Order Audit Trail System (``OATS''). In response to these 
inquiries, FINRA published written guidance for ATSs on trade reporting 
and OATS reporting on September 15, 2014.\9\ As part of this guidance, 
FINRA clarified ATSs' trade reporting obligations regarding the 
appropriate indication of MPIDs in various trade reporting scenarios, 
the use of tape and non-tape reports for ATS transactions, the capacity 
of ATSs on trade reports, and the inclusion of short sale indicators on 
trade reports.
---------------------------------------------------------------------------

    \9\ See www.finra.org/Industry/Compliance/MarketTransparency/ATS/FAQ/.
---------------------------------------------------------------------------

    Members have requested that FINRA postpone the implementation date 
for the ATS MPID requirement so that members can ensure that their 
trade reports and OATS reports comply with this guidance. FINRA 
believes that it would be beneficial to postpone the implementation 
date by approximately three months to provide firms with sufficient 
time to incorporate this guidance into their coding for the MPID 
requirement. A postponement should help ensure that firms are 
consistently reporting similar information to FINRA and that FINRA's 
audit trail information is correct and reliable. FINRA believes that, 
if additional time is not provided, firms may not be ready to comply 
with the new guidance by November 10, 2014, and FINRA's audit trail 
could be less accurate as a result.
    FINRA has filed the proposed rule change for immediate 
effectiveness. The effective date and the implementation date will be 
the date of filing, October 2, 2014.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\10\ which requires, among 
other things, that FINRA rules must be designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest. FINRA believes postponing the implementation date of 
the ATS MPID requirement by three months will provide firms with 
sufficient time to incorporate FINRA's new trade reporting and OATS 
guidance into their coding for the MPID requirement. This additional 
time should help ensure that firms are reporting information to FINRA 
so that FINRA's audit trail information is consistent, correct, and 
reliable. FINRA believes that, if additional time is not provided, 
firms may not be ready to comply with the new guidance and FINRA's 
audit trail could be less accurate. Inconsistent reporting of ATS order 
and trade information could also adversely affect FINRA's ability to 
rely on automated surveillance patterns to detect potential misconduct.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

B. 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 believes that extending 
the implementation date of the new ATS MPID requirement will provide 
firms with needed additional time so that they can better comply with 
recently-issued FINRA guidance on an ATS's trade reporting and OATS 
obligations.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    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) of the Act \11\ and Rule 19b-
4(f)(6) thereunder.\12\
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change along 
with a brief description and text of the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    FINRA has requested that the Commission waive the 30-day operative 
delay, so that the proposed rule change would be operative on filing. 
The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. By 
making the proposed rule change operative immediately FINRA's ATS 
members can immediately be afforded notice of the additional time 
available for compliance with the MPID requirement. Therefore, the 
Commission hereby waives the 30-day operative delay and designates the 
proposed rule change operative upon filing.\13\
---------------------------------------------------------------------------

    \13\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    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.

[[Page 62502]]

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-2014-042 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-FINRA-2014-042. 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 
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 available publicly. All 
submissions should refer to File Number SR-FINRA-2014-042 and should be 
submitted on or before November 7, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
---------------------------------------------------------------------------

    \14\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-24682 Filed 10-16-14; 8:45 am]
BILLING CODE 8011-01-P