82 FR 20948 - Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Granting Approval of a Proposed Rule Change To Amend Rule 6191 To Implement an Anonymous, Grouped Masking Methodology for Over-the-Counter Activity in Connection With Web Site Data Publication of Appendix B Data Pursuant to the Regulation NMS Plan To Implement a Tick Size Pilot Program
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 82, Issue 85 (May 4, 2017)
Federal Register Volume 82, Issue 85 (May 4, 2017)
| Page Range | 20948-20951 | |
| FR Document | 2017-08978 |
[Federal Register Volume 82, Number 85 (Thursday, May 4, 2017)] [Notices] [Pages 20948-20951] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-08978] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-80551; File No. SR-FINRA-2017-006] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Granting Approval of a Proposed Rule Change To Amend Rule 6191 To Implement an Anonymous, Grouped Masking Methodology for Over-the-Counter Activity in Connection With Web Site Data Publication of Appendix B Data Pursuant to the Regulation NMS Plan To Implement a Tick Size Pilot Program April 28, 2017. I. Introduction On March 3, 2017, Financial Industry Regulatory Authority, Inc. (``FINRA'') filed with the Securities and Exchange Commission (``Commission''), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to amend FINRA Rule 6191 to implement an anonymous, grouped masking methodology for over-the-counter (``OTC'') activity in connection with Web site publication of Appendix B data pursuant to the Regulation NMS [[Page 20949]] Plan to Implement a Tick Size Pilot Program (``Plan'' or ``Pilot'').\3\ The proposed rule change was published for comment in the Federal Register on March 15, 2017.\4\ The Commission received three comment letters on the proposed rule change.\5\ This order approves the proposed rule change. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ See Securities Exchange Act Release No. 74892 (May 6, 2015), 80 FR 27513 (May 13, 2015) (``Approval Order''). Unless otherwise specified, capitalized terms used in this order are defined as set forth in the Plan. \4\ See Securities Exchange Act Release No. 80193 (Mar. 9, 2017), 82 FR 13901 (``Notice''). \5\ See Letters to Brent J. Fields, Secretary, Commission from Alisa McCoy, dated March 13, 2017 (``McCoy Letter''); Christopher W. Bok, Financial Information Forum, dated April 5, 2017 (``FIF Letter''); and Stephen John Berger, Managing Director, Government & Regulatory Policy, Citadel, dated April 7, 2017 (``Citadel Letter''). --------------------------------------------------------------------------- II. Description of the Proposal FINRA Rule 6191(b) (Compliance with Data Collection Requirements) implements the data collection and Web site publication requirements of the Plan. FINRA Rule 6191(b)(2)(A) describes the data collection and submission requirements for data that is required under Appendix B.I. and B.II. of the Plan. FINRA Rule 6191(b)(2)(B) provides, among other things, that FINRA will publish data collected pursuant to FINRA Rule 6191(b)(2)(A) on its Web site within 120 calendar days following month end at no charge,\6\ and that such publication will not identify the Trading Center that generated the data. --------------------------------------------------------------------------- \6\ FINRA Rule 6191.12 provides that the Web site publication of Appendix B data shall commence on April 28, 2017. --------------------------------------------------------------------------- FINRA Rule 6191(b)(3)(A) describes the data collection and submission requirements for data specified under Appendix B.IV. of the Plan. FINRA Rule 6191(b)(3)(C) provides, among other things, that FINRA will publish data collected pursuant to FINRA Rule 6191(b)(3)(A) on its Web site within 120 calendar days following month end at no charge,\7\ and that such publication will not identify the Trading Center that generated the data. --------------------------------------------------------------------------- \7\ Id. --------------------------------------------------------------------------- FINRA proposes new Supplementary Material .15 to FINRA Rule 6191 to implement an anonymous, grouped masking methodology for Appendix B.I., B.II. and B.IV. data (``Appendix B data''). FINRA also proposes to incorporate the OTC Trading Centers for which Chicago Stock Exchange, Inc. (``CHX'') is the designated examining authority (``DEA'') into the anonymous, grouped masking methodology and publish OTC-wide statistics for Appendix B data on the FINRA Web site.\8\ --------------------------------------------------------------------------- \8\ In connection with the instant filing, FINRA and CHX requested exemptive relief from the Plan to permit the publication on the FINRA Web site of data relating to OTC activity pursuant to Appendix B.I., B.II. and B.IV. using an anonymous, grouped masking methodology. See Letter from Marcia E. Asquith, Executive Vice President, Board and External Relations, FINRA, to Robert W. Errett, Deputy Secretary, Commission, dated March 2, 2017. The Commission, pursuant to its authority under Rule 608(e) of Regulation NMS, has granted FINRA and CHX a limited exemption from the requirement to comply with certain provisions of the Plan as specified in the letters and noted herein. See letter from David Shillman, Associate Director, Division of Trading and Markets, Commission to Marcia E. Asquith, Executive Vice President, Board and External Relations, FINRA, dated April 28, 2017 (``SEC Exemption Letter''). --------------------------------------------------------------------------- A. Grouping Methodology FINRA proposes to establish ATS and non-ATS categories. Thereafter, FINRA would assign OTC Trading Centers into groups of five to twenty- five, using an undisclosed methodology to assign each Trading Center to a group. The Trading Center group assignments will not be published and generally will remain unchanged for the duration of the data publication period, with the exception of the entrance of a new Trading Center (i.e., new FINRA member). FINRA will assign an anonymized identifier for each group that will remain unchanged for the duration of the data publication period. The anonymized identifier will be used for all Appendix B data sets. The number of Trading Centers assigned to each group will not specifically be disclosed; however, as noted above, each group will contain between five and twenty-five market participant identifiers (``MPIDs''). In addition, for each day's statistics, the number of MPIDs in each group with activity in any Pilot Security for that day will be published. B. Appendix B.I. Data Aggregation Methodology FINRA proposes to aggregate the Appendix B.I. data by aggregating statistics within each group by Pilot Security for each trading day. The methodology used for computing the statistics at the group level will be the same methodology used to compute these statistics at the Trading Center level in the non-public version of the data (and in the public version of the exchange data).\9\ Specifically, FINRA would calculate group-level sums for statistics that are quantity counts \10\ and use all underlying data within a group to calculate statistics requiring averages or weighted averages.\11\ Data will be aggregated separately for each order type and subcategory, and will not be aggregated across order types or subcategories. --------------------------------------------------------------------------- \9\ See Tick Size Appendix B and C Statistics FAQs (available at http://www.finra.org/sites/default/files/Tick-Size-Pilot-Appendix-B-and-C-FAQ.pdf). \10\ See e.g., Appendix B.I.a(7) (cumulative number of orders). \11\ See e.g., Appendix B.I.a(28) (the share weighted average realized spread for executions of orders); and Appendix B.I.a(29) (the received share-weighted average percentage for shares not displayable as of order receipt). FINRA will calculate averages for all price variables and percentages. --------------------------------------------------------------------------- C. Appendix B.II. Data Aggregation Methodology Appendix B.II. data includes order-level statistics; thus, FINRA proposes that all individual orders be displayed for all Trading Centers within a group, with each order attributed to the group rather than the underlying Trading Center. In addition, Appendix B.II. order information would be displayed in chronological order based on time of order receipt. D. Appendix B.IV. Data Aggregation Methodology FINRA proposes to aggregate Appendix B.IV. data by aggregating statistics within each group by trading day by summing the statistics of all Market Maker activity represented within the group. The number of Market Makers would be displayed as the unique number of Market Makers \12\ across all Trading Centers within the group. --------------------------------------------------------------------------- \12\ As provided in FINRA Rule 6191.11, FINRA will provide a count of the number of Market Makers used in the participation calculations. Thus, if a single unique Market Maker traded on multiple Trading Centers within the same masking group, for the Appendix B.IV. count of unique Market Makers on a given trading day, FINRA will count this activity as attributed to one unique Market Maker. --------------------------------------------------------------------------- III. Summary of Comment Letters The Commission received three comment letters expressing general support for the proposed rule change.\13\ One commenter praised ``the significant steps taken to improve the masking methodology'' for the Pilot data.\14\ Another commenter commended FINRA for ``taking into account the feedback received from market participants and working to devise an approach that seeks to address identified confidentiality concerns while still maintaining the usefulness of the publicly available data.'' \15\ --------------------------------------------------------------------------- \13\ One letter reads in its entirety ``That is great idea since all of the compromise.'' See McCoy Letter. \14\ See FIF Letter. \15\ See Citadel Letter. --------------------------------------------------------------------------- One commenter, however, expressed a continued concern related to FINRA's [[Page 20950]] proposed grouping methodology.\16\ Specifically, this commenter believed that the proposal to break ATS and non-ATS OTC Trading Centers into groupings of five to twenty-five MPIDs may allow interested parties the opportunity to discern the identity of the Trading Center, perhaps by comparing the published data to Rule 605 reports of OTC volume data published by FINRA. This commenter also expressed concern that the disclosure of the number of active MPIDs in each group could potentially lead to the identification of broker-dealer Trading Centers. As an alternative, the commenter suggested that all OTC Trading Centers be aggregated into either a single ATS or non-ATS category. --------------------------------------------------------------------------- \16\ See FIF Letter. --------------------------------------------------------------------------- Another commenter recommended eliminating the proposed daily publication of the number of MPIDs with activity in each group of Trading Centers.\17\ This commenter suggested that FINRA reconsider whether this additional information is necessary to provide a useful data set to the public because, ``in practice, FINRA will thus be disclosing information regarding the number of trading centers assigned to each group.'' In this commenter's view, FINRA must ensure that the additional data cannot be used to ``undermine the confidentiality of FINRA's methodology for assigning trading centers to particular groups or the actual group assignments.'' --------------------------------------------------------------------------- \17\ See Citadel Letter. --------------------------------------------------------------------------- IV. Discussion and Commission's Findings After careful review of the proposed rule change and the comment letters, the Commission finds that the proposal is consistent with the requirements of the Act and the rules and regulations thereunder that are applicable to a national securities association.\18\ Specifically, the Commission finds that the proposed rule change is consistent with Section 15A(b)(6) of the Act,\19\ 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 the Act,\20\ which requires that FINRA rules not impose any burden on competition that is not necessary or appropriate. --------------------------------------------------------------------------- \18\ In approving this rule change, the Commission has considered the rule's impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). \19\ 15 U.S.C. 78o-3(b)(6). \20\ 15 U.S.C. 78o-3(b)(9). --------------------------------------------------------------------------- In the Approval Order, the Commission noted that the Pilot is, by design, an objective, data-driven test that should ``provide measurable data that should facilitate the ability of the Commission, the public and market participants to review and analyze the effect of tick size on the trading, liquidity and market quality of securities of smaller capitalization companies.'' \21\ The Commission further stated that the Plan should provide ``a data-driven approach to evaluate whether certain changes to the market structure for Pilot Securities would be consistent with the Commission's mission to protect investors, maintain fair, orderly and efficient markets and facilitate capital formation.'' \22\ To that end, the Plan provides for the collection, submission and publication of data specified in Appendix B of the Plan. The Plan further provides that the data to be made publicly available not identify the Trading Center that generated the data. As discussed below, the Commission believes that FINRA's proposal is consistent with the requirements of the Act and would further the purpose of the Plan to provide measurable data. --------------------------------------------------------------------------- \21\ See Approval Order, supra note 3. \22\ Id. --------------------------------------------------------------------------- FINRA, as a Participant in the Plan, has an obligation to comply, and enforce compliance by its members, with the terms of the Plan. Rule 608(c) of Regulation NMS provides that ``[e]ach self-regulatory organization shall comply with the terms of any effective national market system plan of which it is a sponsor or participant.'' \23\ Proposed FINRA Rule 6191, Supplementary Material .15 would establish a means to anonymize the identities of OTC Trading Centers when publishing the data set forth in Appendix B to the Plan. The Commission also believes that the proposal is consistent with the Act because it is designed to assist FINRA in meeting its regulatory obligations pursuant to Rule 608 of Regulation NMS and the Plan. --------------------------------------------------------------------------- \23\ 17 CFR 242.608(c). --------------------------------------------------------------------------- FINRA's proposal seeks to address the provision in the Plan that individual OTC Trading Centers not be identified in the published data. FINRA proposes to create ATS and non-ATS categories and then assign OTC Trading Centers into groups of five to twenty-five. In addition, FINRA proposes to aggregate and publish data from those OTC Trading Centers for which CHX is DEA. Thereafter, FINRA would publish Appendix B data for OTC Trading Centers by group on its Web site using an anonymized identifier. The Commission notes that commenters had previously raised concerns about the publication of OTC Trading Centers' Appendix B data on a disaggregated basis.\24\ FINRA noted that it filed the proposed rule change to mitigate the confidentiality concerns of the commenters. --------------------------------------------------------------------------- \24\ See Letters from William Hebert, Managing Director, Financial Information Forum, to Robert W. Errett, Deputy Secretary, Commission, dated December 21, 2016; and Adam C. Cooper, Senior Managing Director and Chief Legal Officer, Citadel Securities, to Brent J. Fields, Secretary, Commission, dated December 21, 2016. See also Securities Exchange Act Release No. 79424 (November 29, 2016), 81 FR 87603 (December 5, 2016) (Notice of Filing and Immediate Effectiveness of File No. SR-FINRA-2016-042). --------------------------------------------------------------------------- As noted above, while commenters were generally supportive of FINRA's proposal, some believe FINRA should do more to mitigate confidentiality concerns related to OTC Trading Centers' Appendix B data. These commenters suggested that FINRA eliminate the sub-groupings of ATS and non-ATS OTC Trading Centers, or the daily identification of the number of active MPIDs in each group. While these commenters broadly suggested this information might be used to identify the group to which a particular OTC Trading Center was assigned, they did not articulate why the identification of that group, if possible, could reveal proprietary information or otherwise harm the interests of the OTC Trading Center. In this regard, the Commission notes that the activity of each OTC Trading Center would be combined with that of at least four other OTC Trading Centers, and would be at least four months old. The Commission believes that FINRA's proposal to develop an anonymous, grouped masking methodology is reasonably designed to address concerns that the activity of individual Trading Centers might be identified. The Commission notes that the identities of individual Trading Centers within each group would not be disclosed and the activity of each Trading Center would be aggregated with the activity of four to twenty-four other Trading Centers. At the same time, the Commission believes that the maintenance of these groups, and the daily identification of the number of active MPIDs in each group, should substantially enhance the usefulness of the Pilot data for academics and others seeking to analyze it. For example, establishing smaller groups of OTC Trading Centers should increase the ability of researchers to control for group fixed effects, and thereby help [[Page 20951]] isolate the impact of the Pilot so that more precise and robust analysis can be performed. Similarly, identifying daily the number of active MPIDs should increase the ability of researchers to assess the impact of the Pilot by allowing them to control for changes in the number of OTC Trading Centers in each group that are active in Pilot Securities.\25\ --------------------------------------------------------------------------- \25\ The Commission also notes that FINRA will publish Appendix B data from OTC Trading Centers 120 days after the month end. This delay in publication should help support FINRA's efforts to mitigate confidentiality concerns. --------------------------------------------------------------------------- The Commission also believes that FINRA's proposal to aggregate and publish data from those OTC Trading Centers for which CHX is the DEA should help to mitigate confidentiality concerns. The Commission notes that CHX is DEA to a small number of OTC Trading Centers. Therefore, including these OTC Trading Centers in the broader anonymous data set should mitigate concerns about the disclosure of their identities. For the reasons noted above, the Commission finds that the proposal is consistent with the requirements of the Act. The proposal clarifies and implements certain data collection requirements set forth in the Plan. V. Conclusion It is therefore ordered that, pursuant to Section 19(b)(2) of the Act,\26\ that the proposed rule change (SR-FINRA-2017-006), be and hereby is, approved. --------------------------------------------------------------------------- \26\ 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\27\ --------------------------------------------------------------------------- \27\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017-08978 Filed 5-3-17; 8:45 am] BILLING CODE 8011-01-P
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transactions in a timeframe that is establish, implement, maintain, and authority, and termination and re-
consistent with OCC’s liquidation enforce policies and procedures matching-in-suspension. The
assumptions. The proposed alignment reasonably designed to, among other Commission therefore believes that
of the close-out period with OCC’s things, ensure it has the authority and OCC’s proposal is consistent with Rules
liquidation assumptions mitigates operational capacity to take timely 17Ad–22(e)(23) under the Act.
OCC’s credit risks by reducing the risk action to contain losses and continue to
III. Conclusion
that close-out prices vary too meet its obligations in the event of a
significantly from the prices used to clearing member default.27 More On the basis of the foregoing, the
mark the suspended clearing member’s generally, Rule 17Ad–22(e)(23) under Commission finds that the proposed
stock loans to market. OCC’s proposed the Act requires covered clearing change is consistent with the
price-substitution authority also agencies to establish, implement, requirements of the Act, and in
promotes the prompt and accurate maintain, and enforce policies and particular, with the requirements of
clearance and settlement of stock loan procedures reasonably designed to, Section 17A of the Act 29 and the rules
transactions and assures the among other things, provide for the and regulations thereunder.
safeguarding of securities and funds public disclosure of all relevant rules It is therefore ordered, pursuant to
under the programs by further and material procedures, including key Section 19(b)(2) of the Act,30 that the
encouraging non-suspended clearing aspects of default rules and proposed rule change (SR–OCC–2017–
members to execute close-out procedures.28 004) be, and it hereby is, approved.
transactions in a commercially The Commission believes that the For the Commission, by the Division of
reasonable manner, thereby reducing proposed changes relating to clearing Trading and Markets, pursuant to delegated
financial risk to OCC. member suspension are consistent with authority.31
Finally, the proposed rule changes in Rule 17Ad–22(e)(13) under the Act. By Eduardo A. Aleman,
the Hedge Program to permit OCC to proposing a fixed trading window in Assistant Secretary.
terminate and re-establish a suspended which clearing members must either [FR Doc. 2017–08982 Filed 5–3–17; 8:45 am]
clearing member’s positions through execute close-out transactions relating BILLING CODE 8011–01–P
offset and ‘‘re-match’’ promote the to a clearing member suspension or opt
prompt and accurate clearance and for OCC-mandated settlements, OCC is
settlement of securities transactions and seeking new authority that the SECURITIES AND EXCHANGE
assure the safeguarding of securities and Commission believes will better ensure COMMISSION
funds by facilitating orderly and that OCC can take timely actions to
[Release No. 34–80551; File No. SR–FINRA–
efficient termination and re- contain suspension-related losses and
2017–006]
establishment of stock loans involving a continue to meet stock loan-related
suspended clearing member, which obligations in the Stock Loan Programs. Self-Regulatory Organizations;
mitigates operational and pricing risks The Commission further believes that Financial Industry Regulatory
that may arise for OCC and clearing the proposed authority permitting OCC Authority, Inc.; Order Granting
members during the recall-and-return to withdraw the value of any difference Approval of a Proposed Rule Change
process. The Commission therefore between the clearing member-reported To Amend Rule 6191 To Implement an
finds that these aspects of the proposal prices and OCC-determined close-out Anonymous, Grouped Masking
are consistent with promoting prompt prices likewise better ensures that OCC Methodology for Over-the-Counter
and accurate clearance and settlement of can contain suspension-related losses, Activity in Connection With Web Site
securities transactions and assuring the as clearing members would be further Data Publication of Appendix B Data
safeguarding of securities and funds incentivized to execute timely close-out Pursuant to the Regulation NMS Plan
which are in OCC’s custody or control, transactions at market prices. Finally, To Implement a Tick Size Pilot
or for which it is responsible. the Commission believes that the Program
Based on the conclusions discussed proposal relating to re-matching-in-
above, the Commission finds that OCC’s suspension better ensures that OCC has April 28, 2017.
proposed rule changes are consistent authority and operational capacity to
I. Introduction
with promoting the prompt and accurate contain losses and meet obligations to
clearing members in the Hedge Program, On March 3, 2017, Financial Industry
clearance and settlement of securities
in particular through new rules and Regulatory Authority, Inc. (‘‘FINRA’’)
transactions and assuring the
mechanisms that reduce the operational, filed with the Securities and Exchange
safeguarding of securities and funds
credit, and re-execution risks attendant Commission (‘‘Commission’’), pursuant
which are in OCC’s custody or control,
to the recall-and-return process. The to Section 19(b)(1) of the Securities
or for which it is responsible as a
Commission therefore believes OCC’s Exchange Act of 1934 (‘‘Act’’) 1 and Rule
guarantor in the Stock Loan Programs.
proposal is consistent with Rule 17Ad– 19b–4 thereunder,2 a proposed rule
Accordingly, the Commission finds that
22(e)(13) under the Act. change to amend FINRA Rule 6191 to
the proposals are consistent with
The Commission also believes that implement an anonymous, grouped
Section 17A(b)(3)(F) of the Act.25
OCC’s proposals are consistent with masking methodology for over-the-
B. Consistency With Rules 17Ad– Rule 17Ad–22(e)(23) under the Act. counter (‘‘OTC’’) activity in connection
22(e)(13) and (e)(23) of the Act Each aspect of OCC’s proposed rule with Web site publication of Appendix
The Commission finds that OCC’s change is proposed to be disclosed B data pursuant to the Regulation NMS
pmangrum on DSK3GDR082PROD with NOTICES
proposals are consistent with Rules publicly in OCC’s rules governing the
29 In approving this proposed rule change, the
(e)(13) and (e)(23) under the Act.26 Rule Stock Loan Programs, including the key
Commission has considered the proposed rule’s
17Ad–22(e)(13) under the Act requires suspension-related aspects of its rules impact on efficiency, competition, and capital
each covered clearing agency to providing for close-out transaction formation. See 15 U.S.C. 78c(f).
timeframes, new price-substitution 30 15 U.S.C. 78s(b)(2).
25 15 31 17 CFR 200.30–3(a)(12).
U.S.C. 78q–1(b)(3)(F).
26 17 27 17 CFR 240.17Ad–22(e)(13). 1 15 U.S.C. 78s(b)(1).
CFR 240.17Ad–22(e)(13), and 17 CFR
240.17Ad–22(e)(23). 28 17 CFR 240.17Ad–22(e)(23). 2 17 CFR 240.19b–4.
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proposed grouping methodology.16 competition that is not necessary or Centers by group on its Web site using
Specifically, this commenter believed appropriate. an anonymized identifier.
that the proposal to break ATS and non- In the Approval Order, the The Commission notes that
ATS OTC Trading Centers into Commission noted that the Pilot is, by commenters had previously raised
groupings of five to twenty-five MPIDs design, an objective, data-driven test concerns about the publication of OTC
may allow interested parties the that should ‘‘provide measurable data Trading Centers’ Appendix B data on a
opportunity to discern the identity of that should facilitate the ability of the disaggregated basis.24 FINRA noted that
the Trading Center, perhaps by Commission, the public and market it filed the proposed rule change to
comparing the published data to Rule participants to review and analyze the mitigate the confidentiality concerns of
605 reports of OTC volume data effect of tick size on the trading, the commenters.
published by FINRA. This commenter liquidity and market quality of As noted above, while commenters
also expressed concern that the securities of smaller capitalization were generally supportive of FINRA’s
disclosure of the number of active companies.’’ 21 The Commission further proposal, some believe FINRA should
MPIDs in each group could potentially stated that the Plan should provide ‘‘a do more to mitigate confidentiality
lead to the identification of broker- data-driven approach to evaluate concerns related to OTC Trading
dealer Trading Centers. As an whether certain changes to the market Centers’ Appendix B data. These
alternative, the commenter suggested structure for Pilot Securities would be commenters suggested that FINRA
that all OTC Trading Centers be consistent with the Commission’s eliminate the sub-groupings of ATS and
aggregated into either a single ATS or mission to protect investors, maintain non-ATS OTC Trading Centers, or the
non-ATS category. fair, orderly and efficient markets and daily identification of the number of
Another commenter recommended facilitate capital formation.’’ 22 To that active MPIDs in each group. While these
eliminating the proposed daily end, the Plan provides for the commenters broadly suggested this
collection, submission and publication information might be used to identify
publication of the number of MPIDs
of data specified in Appendix B of the the group to which a particular OTC
with activity in each group of Trading
Plan. The Plan further provides that the Trading Center was assigned, they did
Centers.17 This commenter suggested
data to be made publicly available not not articulate why the identification of
that FINRA reconsider whether this
identify the Trading Center that that group, if possible, could reveal
additional information is necessary to
generated the data. As discussed below, proprietary information or otherwise
provide a useful data set to the public
the Commission believes that FINRA’s harm the interests of the OTC Trading
because, ‘‘in practice, FINRA will thus
proposal is consistent with the Center. In this regard, the Commission
be disclosing information regarding the
requirements of the Act and would notes that the activity of each OTC
number of trading centers assigned to
further the purpose of the Plan to Trading Center would be combined with
each group.’’ In this commenter’s view, that of at least four other OTC Trading
provide measurable data.
FINRA must ensure that the additional FINRA, as a Participant in the Plan, Centers, and would be at least four
data cannot be used to ‘‘undermine the has an obligation to comply, and enforce months old.
confidentiality of FINRA’s methodology compliance by its members, with the The Commission believes that
for assigning trading centers to terms of the Plan. Rule 608(c) of FINRA’s proposal to develop an
particular groups or the actual group Regulation NMS provides that ‘‘[e]ach anonymous, grouped masking
assignments.’’ self-regulatory organization shall methodology is reasonably designed to
IV. Discussion and Commission’s comply with the terms of any effective address concerns that the activity of
Findings national market system plan of which it individual Trading Centers might be
is a sponsor or participant.’’ 23 Proposed identified. The Commission notes that
After careful review of the proposed FINRA Rule 6191, Supplementary the identities of individual Trading
rule change and the comment letters, Material .15 would establish a means to Centers within each group would not be
the Commission finds that the proposal anonymize the identities of OTC disclosed and the activity of each
is consistent with the requirements of Trading Centers when publishing the Trading Center would be aggregated
the Act and the rules and regulations data set forth in Appendix B to the Plan. with the activity of four to twenty-four
thereunder that are applicable to a The Commission also believes that the other Trading Centers. At the same time,
national securities association.18 proposal is consistent with the Act the Commission believes that the
Specifically, the Commission finds that because it is designed to assist FINRA maintenance of these groups, and the
the proposed rule change is consistent in meeting its regulatory obligations daily identification of the number of
with Section 15A(b)(6) of the Act,19 pursuant to Rule 608 of Regulation NMS active MPIDs in each group, should
which requires, among other things, that and the Plan. substantially enhance the usefulness of
FINRA rules must be designed to FINRA’s proposal seeks to address the the Pilot data for academics and others
prevent fraudulent and manipulative provision in the Plan that individual seeking to analyze it. For example,
acts and practices, to promote just and OTC Trading Centers not be identified establishing smaller groups of OTC
equitable principles of trade, and, in in the published data. FINRA proposes Trading Centers should increase the
general, to protect investors and the to create ATS and non-ATS categories ability of researchers to control for
public interest, and Section 15A(b)(9) of and then assign OTC Trading Centers group fixed effects, and thereby help
the Act,20 which requires that FINRA into groups of five to twenty-five. In
rules not impose any burden on addition, FINRA proposes to aggregate 24 See Letters from William Hebert, Managing
pmangrum on DSK3GDR082PROD with NOTICES
Director, Financial Information Forum, to Robert W.
and publish data from those OTC Errett, Deputy Secretary, Commission, dated
16 See FIF Letter. Trading Centers for which CHX is DEA. December 21, 2016; and Adam C. Cooper, Senior
17 See Citadel Letter.
18 In approving this rule change, the Commission
Thereafter, FINRA would publish Managing Director and Chief Legal Officer, Citadel
Appendix B data for OTC Trading Securities, to Brent J. Fields, Secretary,
has considered the rule’s impact on efficiency, Commission, dated December 21, 2016. See also
competition, and capital formation. See 15 U.S.C. Securities Exchange Act Release No. 79424
78c(f). 21 See Approval Order, supra note 3. (November 29, 2016), 81 FR 87603 (December 5,
19 15 U.S.C. 78o–3(b)(6). 22 Id.
2016) (Notice of Filing and Immediate Effectiveness
20 15 U.S.C. 78o–3(b)(9). 23 17 CFR 242.608(c). of File No. SR–FINRA–2016–042).
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isolate the impact of the Pilot so that Incorporated (the ‘‘Exchange’’ or ‘‘C2’’) market. Complex orders as described in
more precise and robust analysis can be filed with the Securities and Exchange subparagraph (c)(2)(A)(ii) will initiate a
performed. Similarly, identifying daily Commission (the ‘‘Commission’’) the COA regardless of the order’s routing
the number of active MPIDs should proposed rule change as described in parameters or handling instructions.
increase the ability of researchers to Items I and II below, which Items have Immediate or cancel orders that are not
assess the impact of the Pilot by been prepared by the Exchange. The marketable against the derived net
allowing them to control for changes in Exchange filed the proposal pursuant to market in accordance with
the number of OTC Trading Centers in Section 19(b)(3)(A) of the Act 3 and Rule subparagraph (c)(2)(B) will be cancelled.
each group that are active in Pilot 19b–4(f)(6) thereunder.4 The The RFR message will identify the
Securities.25 Commission is publishing this notice to component series, the size and side of
The Commission also believes that solicit comments on the proposed rule the market of the COA-eligible order
FINRA’s proposal to aggregate and change from interested persons. and any contingencies, if applicable.
publish data from those OTC Trading (B) [Notwithstanding the foregoing,
Centers for which CHX is the DEA I. Self-Regulatory Organization’s Participants may request on an order-by-
should help to mitigate confidentiality Statement of the Terms of Substance of order basis that incoming COA-eligible
concerns. The Commission notes that the Proposed Rule Change orders not COA (a ‘‘do-not-COA’’
CHX is DEA to a small number of OTC The Exchange seeks to amend Rule request).] Notwithstanding
Trading Centers. Therefore, including 6.13. The text of the proposed rule subparagraph (c)(2)(A)(i), Trading
these OTC Trading Centers in the change is provided below. Permit Holders may request on an
broader anonymous data set should (additions are italicized; deletions are order-by-order basis that an incoming
mitigate concerns about the disclosure [bracketed]) COA-eligible order with two legs not
of their identities. * * * * * COA (a ‘‘do-not-COA’’ request).
For the reasons noted above, the Notwithstanding subparagraph
Commission finds that the proposal is C2 Options Exchange, Incorporated
(c)(2)(A)(ii), the System will reject back
consistent with the requirements of the Rules
to a Trading Permit Holder any complex
Act. The proposal clarifies and * * * * * order described in that subparagraph
implements certain data collection that includes a do-not-COA request. An
requirements set forth in the Plan. Rule 6.13. Complex Order Execution
order initially submitted to the
(a)–(b) No change. Exchange with a do-not-COA request
V. Conclusion (c) Process for Complex Order RFR may still COA after it has rested on the
It is therefore ordered that, pursuant Auction. Prior to routing to the COB, COB pursuant to Interpretation and
to Section 19(b)(2) of the Act,26 that the eligible complex orders may be subject Policy .02.
proposed rule change (SR–FINRA– to an automated request for responses (3)–(9) No change.
2017–006), be and hereby is, approved. (‘‘RFR’’) auction process. . . . Interpretations and Policies:
For the Commission, by the Division of (1) For purposes of paragraph (c): .01–.07 No change.
Trading and Markets, pursuant to delegated (A) ‘‘COA’’ is the automated complex
* * * * *
authority.27 order RFR auction process. The text of the proposed rule change
Eduardo A. Aleman, (B) A ‘‘COA-eligible order’’ means a
is also available on the Exchange’s Web
Assistant Secretary. complex order that, as determined by
site (http://www.cboe.com/AboutCBOE/
the Exchange on a class-by-class basis,
[FR Doc. 2017–08978 Filed 5–3–17; 8:45 am] CBOELegalRegulatoryHome.aspx), at
is eligible for a COA considering the
BILLING CODE 8011–01–P the Exchange’s Office of the Secretary,
order’s [marketability (defined as a
and at the Commission’s Public
number of ticks away from the current
Reference Room.
SECURITIES AND EXCHANGE market),] size, complex order type and
COMMISSION complex order origin types (i.e. non- II. Self-Regulatory Organization’s
broker-dealer public customer, broker- Statement of the Purpose of, and
[Release No. 34–80554; File No. SR–C2– dealers that are not Market-Makers or Statutory Basis for, the Proposed Rule
2017–016] specialists on an options exchange, and/ Change
Self-Regulatory Organizations; C2 or Market-makers or specialists on an In its filing with the Commission, the
Options Exchange, Incorporated; options exchange). Complex orders Exchange included statements
Notice of Filing and Immediate processed through a COA may be concerning the purpose of and basis for
Effectiveness of a Proposed Rule executed without consideration to the proposed rule change and discussed
Change Related to Rule 6.13 prices of the same complex orders that any comments it received on the
might be available on other exchanges. proposed rule change. The text of these
April 28, 2017. (2) Initiation of a COA: statements may be examined at the
Pursuant to Section 19(b)(1) of the (A) The System will send an RFR
places specified in Item IV below. The
Securities Exchange Act of 1934 (the message to all Participants who have
Exchange has prepared summaries, set
‘‘Act’’),1 and Rule 19b–4 thereunder,2 elected to receive RFR messages on
forth in sections A, B, and C below, of
notice is hereby given that on April 25, receipt of (i) a COA-eligible order with
the most significant aspects of such
2017, C2 Options Exchange, two or more legs that is better than the
statements.
same side of the Exchange spread
pmangrum on DSK3GDR082PROD with NOTICES
25 The Commission also notes that FINRA will market or (ii) a complex order with three A. Self-Regulatory Organization’s
publish Appendix B data from OTC Trading Centers or more legs that meets the class, size, Statement of the Purpose of, and
120 days after the month end. This delay in Statutory Basis for, the Proposed Rule
publication should help support FINRA’s efforts to
and complex order type parameters of
mitigate confidentiality concerns. subparagraph (c)(1)(B) and is Change
26 15 U.S.C. 78s(b)(2). marketable against the Exchange spread
27 17 CFR 200.30–3(a)(12).
1. Purpose
1 15 U.S.C. 78s(b)(1). 3 15 U.S.C. 78s(b)(3)(A). Exchange seeks to amend Rule 6.13(c)
2 17 CFR 240.19b–4. 4 17 CFR 240.19b–4(f)(6). in order to hardcode the marketability
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Document Created: 2017-05-04 01:49:07
Document Modified: 2017-05-04 01:49:07
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 82 FR 20948 |
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