80 FR 67454 - Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing of Proposed Rule Change Deleting Rule 410B Equities Governing Reporting Requirements for Off-Exchange Transactions

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 211 (November 2, 2015)

[Federal Register Volume 80, Number 211 (Monday, November 2, 2015)]
[Notices]
[Pages 67454-67456]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-27795]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76276; File No. SR-NYSEMKT-2015-80]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing of 
Proposed Rule Change Deleting Rule 410B Equities Governing Reporting 
Requirements for Off-Exchange Transactions

October 27, 2015.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on October 16, 2015, NYSE MKT LLC (the ``Exchange'' or 
``NYSE MKT'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. 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\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to delete Rule 410B--Equities governing 
reporting requirements for off-Exchange transactions. The text of the 
proposed rule change is available on the Exchange's Web site at 
www.nyse.com, at the principal office of the Exchange, 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, the self-regulatory organization 
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 those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to delete Rule 410B--Equities (``Rule 
410B''), which sets forth certain regulatory reporting requirements for 
member or member organizations effecting off-Exchange transactions in 
Exchange listed securities that are not reported to the Consolidated 
Tape, and to make conforming amendments to Rule 476A to delete a 
reference to Rule 410B.
Background
Rule 410B
    Currently, Rule 410B requires members or member organizations to 
report to the Exchange transactions in NYSE-listed securities effected 
for the account of a member or member organization, or for the account 
of a customer of a member or member organization, that are not reported 
to the Consolidated Tape. Reports prepared pursuant to the Rule must 
contain the following information:
     Time and date of the transaction;
     stock symbol of the listed security;
     number of shares;
     price;
     marketplace where the transaction was executed;
     an indication whether the transaction was a buy (B), sell 
(S) or cross (C);
     an indication whether the transaction was executed as 
principal or agent; and
     the name of the contra-side broker-dealer to the trade.\4\
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    \4\ See Rule 410B.
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    Rule 410B was adopted by the Exchange's affiliate the New York 
Stock Exchange LLC (``NYSE'') in 1992. At the time, transactions in 
NYSE-listed stocks effected outside of business hours or in foreign 
markets were not reported to the Consolidated Tape and, with the 
exception of program trading information, were not reported to the 
Exchange. The Exchange (then the New York Stock Exchange, Inc.) 
believed that ``all transactions in NYSE-listed stocks that are not 
reported to the Consolidated Tape should be reported to the Exchange in 
order to provide an accurate record of overall trading activity in 
NYSE-listed stocks.'' \5\ The Rule 410B reporting requirement would 
thus ``augment and enhance'' the NYSE's ability to ``surveil for and 
investigate, among other matters, insider trading, frontrunning and 
manipulative activities'' and ``provide a more complete audit trail and 
depiction of member trading in each NYSE-listed stock, which should 
facilitate surveillance by the Exchange in NYSE-listed stocks.'' \6\
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    \5\ See Securities Exchange Act Release No. 31358 (October 26, 
1992), 57 FR 1294 (January 6, 1992) (SR-NYSE-91-45) (``Rule 410B 
Approval Order'').
    \6\ See id., 57 FR at 1294.
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    Despite the significant changes to the marketplace and the 
regulatory landscape in the ensuing decades, the Exchange adopted Rule 
410B without amendment in 2008.\7\
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    \7\ See Securities Exchange Act Release No. 58265 (July 30, 
2008), 73 FR 46075, 46078 (August 7, 2008) (SR-Amex-2008-63).
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Changes to Regulatory Landscape
    On July 30, 2007, the NASD, NYSE, and NYSE Regulation, Inc. (``NYSE 
Regulation'') consolidated their member firm regulation operations to 
create the Financial Industry Regulatory Authority, Inc. (``FINRA''), 
and entered into a plan to allocate to FINRA regulatory responsibility 
for common rules and common members (``17d-2 Agreement'').\8\ The 
Exchange was added as a party to the 17d-2 Agreement in 2009.\9\ In 
2008, the Exchange, NASD, NYSE, and NYSE Regulation also entered into a 
plan to allocate to FINRA regulatory responsibility over common FINRA 
members for surveillance, investigation, and enforcement of insider 
trading with respect to NYSE-MKT listed stocks, among others, 
irrespective of where the relevant trading occurred (the ``Insider 
Trading Plan'').\10\ On June 14, 2010, FINRA was retained to perform 
the residual market surveillance and enforcement functions that had, up 
to that point, been performed by NYSE Regulation.\11\ In

[[Page 67455]]

January 2011, the SEC approved an amendment to the Insider Trading Plan 
whereby FINRA also assumed responsibility for performing the insider 
trading-related market surveillance and enforcement functions 
previously conducted by NYSE Regulation for its U.S. equities and 
options markets.\12\
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    \8\ See Securities Exchange Act Release No. 56148 (July 26, 
2007), 72 FR 42146 (August 1, 2007) (File No. 4-544) (Notice of 
Filing and Order Approving and Declaring Effective a Plan for the 
Allocation of Regulatory Responsibilities). In 2007, the NASD, NYSE, 
the Exchange and NYSE Regulation also entered into a Regulatory 
Services Agreement (``RSA''), whereby FINRA was retained to perform 
certain regulatory services for non-common rules.
    \9\ See Securities Exchange Act Release No. 60409 (July 30, 
2009), 74 FR 39353 (August 6, 2009) (File No. 4-587).
    \10\ See Securities Exchange Act Release No. 54646 (September 
12, 2008), 73 FR 54646 (September 22, 2008) (File No. 4-566). See 
also Securities Exchange Act Release No. 58806 (October 17, 2008), 
73 FR 63216 (October 23, 2008) (File No. 4-566).
    \11\ See note 8, supra; Securities Exchange Act Release No. 
62355 (June 22, 2010), 75 FR 36729 (June 28, 2010) (SR-NYSE-2010-
46); Securities Exchange Act Release No. 62354 (June 22, 2010), 75 
FR 36730 (June 28, 2010) (SR-NYSEAmex-2010-57). NYSE Regulation 
performed the regulatory functions of NYSE MKT pursuant to an 
intercompany RSA. See id., 75 FR at 36731, n.6.
    \12\ See Securities Exchange Act Release No. 63750 (January 21, 
2011), 76 FR 4948 (January 27, 2011) (File No. 4-566).
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Changes in Trade Reporting and Regulatory Reporting
    In 1998, FINRA (then the NASD) established the Order Audit Trail 
System (OATS), as an integrated audit trail of order, quote, and trade 
information for OTC equity securities and equity securities listed and 
traded on The Nasdaq Stock Market, Inc. (``Nasdaq'').\13\ In 2010, in 
order to enhance the scope of the order audit trail in the U.S. equity 
markets following the creation of FINRA, FINRA Rules 7410 through 7470 
(the ``OATS Rules'') were amended to extend the recording and reporting 
requirements to all NMS stocks, as that term is defined in Rule 
600(b)(47) of Regulation NMS,\14\ including NYSE MKT-listed securities. 
The Exchange adopted the OATS Rules in 2011.\15\ FINRA may use the 
information it collects pursuant to the OATS Rules to perform its 
regulatory functions.
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    \13\ See Securities Exchange Act Release No. 39729 (March 6, 
1998), 63 FR 12559 (March 13, 1998) (SR-NASD-97-56).
    \14\ See Securities Exchange Act Release No. 63311 (November 12, 
2010), 75 FR 70757 (November 18, 2010) (SR-FINRA-2010-044) (``OATS 
Extension Approval Order''). By capturing OATS information for all 
NMS stocks, FINRA noted that it would be able to expand its existing 
surveillance patterns to conduct more comprehensive cross-market 
surveillance in furtherance of the Exchange's outsourcing of its 
surveillance and other regulatory functions to FINRA. See id. at 
70758. The Commission observed extending OATS to all NMS stocks was 
calculated to ``enhance FINRA's market surveillance and 
investigative capabilities'' and in turn ``enhance FINRA's oversight 
of the U.S. equities markets.'' Id.
    \15\ See Securities Exchange Act Release No. 65524 (October 7, 
2011), 76 FR 64151 (October 17, 2011) (SR-NYSEAmex-2011-74). The 
Commission noted that member and member organizations that are also 
FINRA members (``Dual Members'') need only report OATS information 
to FINRA once to meet both the FINRA and NYSE OATS requirements. See 
id. at 64152. Further, the Commission noted that NYSE member 
organizations that were not members of FINRA were also members of 
NASDAQ (this is still the case today, see note 22, infra), and, as 
such, were subject to certain OATS obligations for proprietary 
trading firms under the NASDAQ Rule 6950 Series that were 
``substantially similar'' to the NASDAQ OATS requirements for the 
same firms. See id. OATS information for NYSE-only member firms is 
available for FINRA to utilize for regulatory purposes.
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    Rule 410B also predates the establishment of a FINRA Trade 
Reporting Facility (``TRF''). FINRA Rule 6110 requires FINRA members to 
report transactions in NMS stocks \16\ effected ``otherwise than on or 
through a national securities exchange.'' \17\ Pursuant to FINRA Rules 
6310A and 6310B, FINRA members may use either the FINRA/NYSE TRF or 
FINRA/Nasdaq TRF to report such off-Exchange transactions.\18\ FINRA 
members using these TRFs to report off-Exchange transactions are in 
turn subject to FINRA Rule 7230B, which imposes transaction information 
reporting requirements similar to Rule 410B.\19\ As a result, Dual 
Members must report off-Exchange transactions to a TRF and submit 
substantially similar reports to the NYSE and FINRA.
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    \16\ As defined in Rule 600(b)(47) of SEC Regulation NMS.
    \17\ See FINRA Rule 6110. See generally FINRA Rule 6300A and 
7200A Series (FINRA/Nasdaq TRF) and 6300B and 7200B Series (FINRA/
NYSE TRF). Transactions in non-NMS stocks such as OTC Markets 
securities, ADRs, Canadian issues, foreign securities and non-
exchange-listed DPP securities and transactions in Restricted Equity 
Securities pursuant to Securities Act Rule 144A are governed by the 
FINRA Rule 6620 and 7300 Series and must be reported to FINRA's OTC 
Reporting Facility or ORF. FINRA's rules expressly provide that 
certain types of transactions need not to be reported for 
publication or regulatory purposes, including transactions in 
foreign equity securities executed on and reported to a foreign 
securities exchange or executed OTC in a foreign country and 
reported to that country's securities regulator. See Trade Reporting 
Frequently Asked Questions, Section 500, Q/A500:1 & Section 701, Q/
A701.1, available at http://www.finra.org/industry/trade-reporting-faq.
    \18\ See FINRA Rules 6300A & 6300B.
    \19\ See Rule 7230B. Specifically, the following information 
must be submitted for each transaction: (1) Security Identification 
Symbol of the eligible security (SECID); (2) number of shares or 
bonds; (3) unit price, excluding commissions, mark-ups or mark-
downs; (4) time of execution expressed in hours, minutes and seconds 
based on Eastern Time in military format, unless another provision 
of FINRA rules requires that a different time be included on the 
report; (5) a symbol indicating whether the party submitting the 
trade report represents the Reporting Member (denoted as the 
Executing Party or ``EPID'') side or the Non-Reporting Party 
(denoted as the Contra Party or ``CPID'') side; (6) a symbol 
indicating whether the transaction is a buy, sell or cross, and if 
applicable, a symbol indicating that the transaction is a sell short 
or sell short exempt trade from the Reporting Member perspective or 
contra side perspective, irrespective of whether the contra side is 
a member; (7) a symbol indicating whether the trade is as principal, 
riskless principal, or agent; (8) reporting side Clearing Broker (if 
other than normal Clearing Broker); (9) reporting side executing 
broker in the case of a give up agreement, as defined in Rule 
6380B(g); (10) contra side executing broker; (11) contra side 
Introducing Broker in the case of a give up agreement, as defined in 
Rule 6380B(g); and (12) contra side Clearing Broker (if other than 
normal Clearing Broker). For any transaction for which a member has 
recording and reporting obligations under Rules 7440 and 7450, the 
trade report must include an order identifier, meeting such 
parameters as may be prescribed by FINRA, assigned to the order that 
uniquely identifies the order for the date it was received. See Rule 
7440(b)(1).
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Proposed Rule Change
    The Exchange proposes to delete Rule 410B in its entirety. Rule 
410B is a regulatory rule intended to enhance audit trail quality and 
improve surveillance and investigation of violative activities such as 
market manipulation and insider trading. As noted above, since 2010, 
surveillance and enforcement responsibilities across markets have been 
consolidated at FINRA, which conducts cross-market surveillances on the 
Exchange's behalf utilizing various data sources, including extensive 
trade and other information that FINRA collects pursuant to its rules. 
This trade information includes reports of off-exchange transactions. 
All of the Exchange's member organizations, with only nine exceptions, 
are members of FINRA and, as such, must report all off-exchange 
transactions to FINRA, including transactions away from the Exchange 
that are not reported to the Consolidated Tape. This information is 
essentially duplicative of the Rule 410B reports the Exchange currently 
supplies to FINRA. The one exception would be transactions in dually 
listed securities executed on and reported to a foreign securities 
exchange, which is not required to be reported because such trades are 
executed ``on or through an exchange.'' \20\ The Exchange believes such 
trades pose little regulatory risk and, given that no other exchange 
has a rule comparable to Rule 410B, notes that such trades are also not 
being reported to other equities exchanges. The Exchange therefore 
believes that the rationale underlying the exclusion of these foreign 
on-exchange trades in dually listed securities from its reporting 
requirements should apply equally to NYSE-listed securities in the 
absence of Rule 410B. Finally, only a handful of firms currently 
account for all of the Rule 410B activity, all of whom are also FINRA 
members.\21\ Rule 410B is thus no longer necessary, and deleting it 
would eliminate essentially duplicative reporting of off-Exchange 
transactions by Dual Members.
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    \20\ See Trade Reporting Frequently Asked Questions, Section 
701, Q/A701.1, available at http://www.finra.org/industry/trade-reporting-faq. See generally note 17, supra.
    \21\ Rule 410B Weekly Reports submitted to the SEC in July and 
August 2015 reveal that only five firms, all also FINRA members, 
accounted for all of the Rule 410B trading activity. Further, the 
list of firms that have in the past submitted Rule 410B reports does 
not include any non-FINRA members.

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[[Page 67456]]

    The Exchange does not believe that eliminating the Rule 410B 
reporting requirement for the small number of NYSE MKT-only members 
\22\ would pose any significant regulatory risk. None of these firms 
has ever submitted a Rule 410B report. As noted above, a smaller number 
of Dual Member firms (five) account for all of the recent Rule 410B 
trading activity.\23\ The Exchange believes that retaining a reporting 
requirement for firms that have never triggered the requirement serves 
no useful regulatory or other purpose. NYSE MKT-only members would 
remain subject to federal and Exchange books and records 
requirements.\24\ Information about any trades away from the Exchange 
by these firms should thus available for regulatory review if needed.
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    \22\ These nine non-FINRA member firms do not have any public 
customers and are also members of Nasdaq as well as NYSE.
    \23\ See note 21, supra.
    \24\ See 17 CFR 240.17a-3, 17 CFR 240.17a-4 & Rule 440--
Equities.
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    For the foregoing reasons, the Exchange believes that Rule 410B 
should be deleted in its entirety.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\25\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\26\ in particular, because it 
is designed to prevent fraudulent and manipulative acts and practices, 
promote just and equitable principles of trade, remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system, and protect investors and the public interest.
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    \25\ 15 U.S.C. 78f(b).
    \26\ 15 U.S.C. 78f(b)(5).
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    In particular, the Exchange believes that eliminating Rule 410B 
would remove impediments to and perfect the mechanism of a free and 
open market and a national market system by eliminating duplicative 
reporting by Dual Members of information those firms already provide to 
FINRA. The Exchange believes that eliminating Rule 410B reporting would 
not be inconsistent with the public interest and the protection of 
investors because FINRA would continue to receive information from Dual 
Members about off-Exchange transactions for incorporation in its cross-
market surveillances. Further, the Exchange believes that eliminating 
Rule 410B reporting would not be inconsistent with the public interest 
and the protection of investors because the small number of NYSE [sic]-
only firms that would no longer be subject to the reporting requirement 
have never submitted a report under the Rule.
    The Exchange further believes that deleting corresponding 
references to Rule 410B in another rule would remove impediments to and 
perfects the mechanism of a free and open market by reducing potential 
confusion and adding transparency and clarity to the Exchange's rules, 
thereby ensuring that members, regulators and the public can more 
easily navigate and understand the Exchange's rulebook.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed rule change is 
not intended to address competitive issues, but rather it is designed 
to eliminate obsolete and duplicative regulatory reporting.

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

    No written comments were solicited or received with respect to the 
proposed rule change.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or up to 90 days (i) as the Commission may designate 
if it finds such longer period to be appropriate and publishes its 
reasons for so finding or (ii) as to which the self-regulatory 
organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

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-NYSEMKT-2015-80 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 20549-1090.

All submissions should refer to File Number SR-NYSEMKT-2015-80. 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 will also be available 
for inspection and copying at the NYSE's principal office and on its 
Internet Web site at www.nyse.com. 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-NYSEMKT-2015-80 and should be submitted on or before 
November 23, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-27795 Filed 10-30-15; 8:45 am]
 BILLING CODE 8011-01-P