83 FR 18379 - Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change To Establish a Second Trade Reporting Facility in Conjunction With Nasdaq, Inc.

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 81 (April 26, 2018)

Page Range		18379-18384
FR Document		2018-08731
Federal Register, Volume 83 Issue 81 (Thursday, April 26, 2018)
[Federal Register Volume 83, Number 81 (Thursday, April 26, 2018)]
[Notices]
[Pages 18379-18384]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-08731]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83082; File No. SR-FINRA-2018-013]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of a Proposed Rule Change To 
Establish a Second Trade Reporting Facility in Conjunction With Nasdaq, 
Inc.

April 20, 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 April 19, 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. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to adopt rules relating to the establishment of 
a second Trade Reporting Facility or ``TRF'' to be operated in 
conjunction with Nasdaq, Inc. (``Nasdaq''). The second FINRA/Nasdaq 
Trade Reporting Facility (``FINRA/Nasdaq TRF Chicago'') would provide 
FINRA members with another mechanism for reporting over-the-counter 
(``OTC'') trades in NMS stocks and complying with FINRA's requirements 
with respect to back-up trade reporting arrangements. The FINRA/Nasdaq 
TRF Chicago would be governed by the rules applicable to the existing 
FINRA/Nasdaq Trade Reporting Facility (``FINRA/Nasdaq TRF Carteret''), 
which were subject to notice and comment and approved by the 
Commission.\3\
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    \3\ See Securities Exchange Act Release No. 54084 (June 30, 
2006), 71 FR 38935 (July 10, 2006) (order approving SR-NASD-2005-
087); and Securities Exchange Act Release No. 54798 (November 21, 
2006), 71 FR 69156 (November 29, 2006) (order approving SR-NASD-
2006-104).
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    The text of the proposed rule change is available on FINRA's 
website at http://www.finra.org, at the principal office of FINRA and 
at the Commission's Public Reference Room.

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

    In its filing with the Commission, FINRA included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. FINRA has prepared summaries, set forth in sections A, 
B, and C below, of the most significant aspects of such statements.

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

1. Purpose
    FINRA currently has three facilities that allow its members to 
report OTC

[[Page 18380]]

trades in NMS stocks, as defined in SEC Rule 600(b) of Regulation NMS. 
These are the FINRA/Nasdaq TRF, the FINRA/NYSE TRF, and the Alternative 
Display Facility (``ADF'') (collectively, the ``FINRA Facilities'').
    On January 20, 2016, FINRA published a Trade Reporting Notice (the 
``Trade Reporting Notice'' or the ``Notice'') with guidance on firms' 
OTC equity trade reporting obligations in the event of a systems issue 
during the trading day that prevents them from reporting OTC trades in 
NMS stocks in accordance with FINRA rules.\4\ As set forth in the 
Notice, a firm that routinely reports its OTC trades in NMS stocks to 
only one FINRA Facility (a firm's ``primary facility'') must establish 
and maintain connectivity and report to a second FINRA Facility (a 
firm's ``secondary facility'') if the firm intends to continue to 
support OTC trading as an executing broker while its primary facility 
is experiencing a widespread systems issue.\5\
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    \4\ See Trade Reporting Notice, January 20, 2016 (OTC Equity 
Trading and Reporting in the Event of Systems Issues).
    \5\ As discussed in the Notice, if a firm chooses not to have 
connectivity to a secondary facility, it should cease executing OTC 
trades altogether when its primary trade reporting facility is 
experiencing a widespread systems issue. In that instance, the firm 
could route orders for execution to an exchange or another FINRA 
member (i.e., a member with connectivity and the ability to report 
to a FINRA Facility that is operational).
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    The proposed FINRA/Nasdaq TRF Chicago would provide FINRA members 
with an additional mechanism to facilitate compliance with FINRA rules 
and the Notice. Specifically, a primary user of the FINRA/Nasdaq TRF 
Carteret could report on a back-up basis to the FINRA/Nasdaq TRF 
Chicago pursuant to the same rules, pricing, features and performance 
to which the firm is accustomed as a user of the FINRA/Nasdaq TRF 
Carteret--and vice versa.
    Like the FINRA/Nasdaq TRF Carteret, the FINRA/Nasdaq TRF Chicago 
will be a facility of FINRA, subject to regulation by FINRA and to 
FINRA's registration as a national securities association. FINRA 
members that match and/or execute orders internally or through 
proprietary systems may submit reports of these trades, with 
appropriate information and modifiers, to the FINRA/Nasdaq TRF Chicago, 
which will then submit them to the appropriate exclusive securities 
information processor (``SIP''). FINRA/Nasdaq TRF Chicago trade reports 
will be disseminated with a modifier indicating the source of the 
transactions that will distinguish them from transactions executed on 
an exchange or reported to other FINRA Facilities, including the FINRA/
Nasdaq TRF Carteret. The FINRA/Nasdaq TRF Chicago will provide FINRA 
with a real-time copy of each trade report for regulatory review 
purposes. At the option of the participant, the FINRA/Nasdaq TRF 
Chicago, like the FINRA/Nasdaq TRF Carteret, may provide the necessary 
clearing information regarding transactions to the National Securities 
Clearing Corporation.
    The proposed rule change would establish the FINRA/Nasdaq TRF 
Chicago on the same terms as the FINRA/Nasdaq TRF Carteret. That is, 
the new FINRA/Nasdaq TRF would be built with the same technology, 
provide the same features and performance,\6\ offer the same pricing 
and be governed by the same substantive rules, policies and procedures. 
A single set of application materials and clearing arrangements will 
provide for access to both FINRA/Nasdaq TRF Carteret and FINRA/Nasdaq 
TRF Chicago. Moreover, Nasdaq, as the ``Business Member'' (defined 
below), has advised FINRA that these two TRFs will evolve in tandem and 
remain the same going forward (for example, because the same fee and 
credit schedule under the Rule 7600A Series will apply to both TRFs, 
any pricing changes would apply to both TRFs).\7\
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    \6\ Users of the two FINRA/Nasdaq TRFs may experience latency 
differences due to their different geographic locations.
    \7\ According to Nasdaq, the FINRA/Nasdaq TRF Chicago will 
include several new components to provide performance improvements 
and operational efficiencies that Nasdaq intends to incorporate into 
the FINRA/Nasdaq TRF Carteret shortly after the launch of FINRA/
Nasdaq TRF Chicago. Nasdaq will provide participants with notice 
prior to re-platforming the FINRA/Nasdaq TRF Carteret. After Nasdaq 
completes this re-platforming, Nasdaq generally intends to perform 
updates, upgrades, fixes or other modifications to the two FINRA/
Nasdaq TRFs in tandem. However, Nasdaq notes that there may be 
instances in which it will be necessary for Nasdaq to act in 
sequence. During such instances, there may be disparities between 
the two TRFs with respect to function or performance. Nasdaq expects 
that any disparity in function or performance between the two TRFs 
that arises during sequential changes will be transitory. Nasdaq 
will provide participants with notice if it anticipates requiring 
more than a de minimis transition period.
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    Nasdaq, as the Business Member, proposes to structure the FINRA/
Nasdaq TRF Chicago to be identical to the FINRA/Nasdaq TRF Carteret (in 
all respects other than its location) to provide FINRA members with a 
convenient and efficient option to fulfill their obligations under the 
Trade Reporting Notice through a set of primary and secondary reporting 
facilities that share the same rules, pricing, features and 
performance. Under the proposal, the FINRA/Nasdaq TRF Chicago will not 
be limited to use as a back-up reporting facility. FINRA members will 
also have the option of using the FINRA/Nasdaq TRF Chicago as their 
primary trade reporting facility. Moreover, members may choose to 
report some of their trades, on a primary basis, to the FINRA/Nasdaq 
TRF Carteret and other trades, also on a primary basis, to the FINRA/
Nasdaq TRF Chicago (or to one of the other FINRA Facilities). Members 
may choose to allocate their trade reports to more than one TRF as a 
means of further increasing resiliency and mitigating their risks, 
including the risks associated with outages.
    The proposed rule change would allow firms to aggregate the volume 
of trades that they report on the FINRA/Nasdaq TRF Carteret and the 
FINRA/Nasdaq TRF Chicago. This would enable firms to continue to 
qualify for any volume-based pricing that they would otherwise qualify 
for if they limited their trade reporting to one of those facilities 
only.
    It is important to note that although the FINRA/Nasdaq TRF Carteret 
and the FINRA/Nasdaq TRF Chicago would be structured identically and 
would allow for aggregated pricing, the two TRFs would physically 
operate as distinct and independent facilities.\8\ For example, to help 
ensure that the FINRA/Nasdaq TRF Chicago could effectively serve as a 
back-up facility for the FINRA/Nasdaq TRF Carteret or vice versa, the 
front-end technology used to operate the FINRA/Nasdaq TRF Chicago would 
reside in Chicago, Illinois while the front-end technology used to 
operate the FINRA/Nasdaq TRF Carteret would continue to reside in 
Carteret, New Jersey. Geographic dispersion of these two TRFs would 
lessen the risk of a regional outage affecting them both 
simultaneously. FINRA also notes that rules that prohibit cross-
facility reporting would apply to the FINRA/Nasdaq TRF Carteret and 
FINRA/Nasdaq TRF Chicago. For example, FINRA rules generally prohibit 
the submission to a FINRA Facility of any non-tape report (including 
clearing reports) associated with a previously executed trade that was 
not reported to the same Facility, except with respect to the second 
leg of a riskless principal or agency transaction.\9\
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    \8\ Trades reported to the FINRA/Nasdaq TRF Carteret or FINRA/
Nasdaq TRF Chicago will be subject to correction or modification 
only on the TRF to which the trades were originally reported.
    \9\ See, e.g., Rule 7230A(i).
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    FINRA's oversight of the proposed FINRA/Nasdaq TRF Chicago would be 
the same as FINRA's current oversight with respect to the two existing 
TRFs.

[[Page 18381]]

In addition to real-time interaction with Business Member staff when 
operational issues arise, FINRA currently executes its SRO oversight 
functions by performing a three-part regularly recurring review of TRF 
operations. First, before initial operation of the TRF can commence, 
the Business Member is required to certify in writing that TRF 
operations will comply with all relevant FINRA rules and federal 
securities laws, and on a quarterly basis thereafter, the Business 
Member must submit its current TRF procedures and a certification of 
compliance with those procedures. Second, FINRA staff conducts monthly 
conference calls with each Business Member to review TRF operations. 
These monthly calls follow an established agenda, which includes, among 
other things, whether there were any system outages or issues since the 
prior monthly conference call (and if so, to confirm that they were 
reported to FINRA and the SEC, as applicable), data latency, the status 
of pending systems changes, TRF market data products and whether the 
Business Member has or is developing any new products that would use 
TRF data. Third, FINRA oversees a regular assessment cycle and 
extensive review of TRF operations, as measured against the TRF 
business requirements document and coding guidelines established by 
FINRA, by an outside independent audit firm. FINRA also requires the 
Business Member to submit on a quarterly basis an attestation that (1) 
identifies all products that use TRF data, and (2) certifies that the 
Business Member has no other products that use TRF data and that any 
future products that use TRF data will be developed in consultation 
with FINRA.
FINRA/Nasdaq TRF Limited Liability Company Agreement
    The Third Amended and Restated Limited Liability Company Agreement 
of FINRA/Nasdaq Trade Reporting Facility LLC (the ``FINRA/Nasdaq TRF 
LLC Agreement'' or the ``Agreement'') will govern the establishment of 
the FINRA/Nasdaq TRF Chicago.
    Under the FINRA/Nasdaq TRF LLC Agreement, FINRA is the ``SRO 
Member'' and has sole regulatory responsibility for both the FINRA/
Nasdaq TRF Carteret and FINRA/Nasdaq TRF Chicago, including real-time 
monitoring and T+1 surveillance, development and enforcement of trade 
reporting rules and submission of proposed rule changes to the 
Commission. Nasdaq, the Business Member under the FINRA/Nasdaq TRF LLC 
Agreement, is primarily responsible for the management of the business 
affairs of both the FINRA/Nasdaq TRF Carteret and FINRA/Nasdaq TRF 
Chicago, which may not be conducted in a manner inconsistent with the 
regulatory and oversight functions of FINRA. Among other things, the 
Business Member will establish pricing for both the FINRA/Nasdaq TRF 
Carteret and FINRA/Nasdaq TRF Chicago, be obligated to pay the cost of 
regulation and be entitled to the profits and losses, if any, derived 
from operation of the FINRA/Nasdaq TRF Carteret and FINRA/Nasdaq TRF 
Chicago. The Business Member will also provide the ``user facing'' 
front-end technology used to operate both the FINRA/Nasdaq TRF Carteret 
and FINRA/Nasdaq TRF Chicago and transmit real-time trade report data 
directly to the SIPs and to FINRA for audit trail purposes.
    The FINRA/Nasdaq TRF LLC Agreement is substantially similar to the 
existing agreement that governs the FINRA/Nasdaq TRF Carteret (the 
Second Amended and Restated FINRA/Nasdaq TRF LLC Agreement), which is 
included in the FINRA Manual. However, it contains several amendments 
that reflect the fact that the FINRA/Nasdaq Trade Reporting Facility 
LLC will now operate through two TRFs: FINRA/Nasdaq TRF Carteret and 
FINRA/Nasdaq TRF Chicago.
    For example, the FINRA/Nasdaq TRF LLC Agreement provides for 
separate termination provisions, in Section 20, for each FINRA/Nasdaq 
TRF. The termination provision applicable to the FINRA/Nasdaq TRF 
Carteret is substantially the same as under the current agreement, 
except as noted below. The termination provision applicable to the 
FINRA/Nasdaq TRF Chicago permits a Member of the LLC to terminate the 
FINRA/Nasdaq TRF Chicago upon at least one year's written notice; it 
also permits the SRO Member to terminate the FINRA/Nasdaq TRF Chicago 
for any reason that the SRO Member, in its sole discretion, determines 
could have a negative impact on the maintenance of its status as a 
preeminent SRO. In addition, the FINRA/Nasdaq TRF LLC Agreement 
includes a provision in Section 20 that permits either Member of the 
LLC to terminate either of the TRFs or the entire Agreement due to a 
material breach by the other Member, if such breach is not cured within 
60 days of notification thereof, or if the other Member becomes 
bankrupt or insolvent, upon 30 days' written notice.
    Finally, the FINRA/Nasdaq TRF LLC Agreement includes a provision, 
in Section 21, that clarifies that if either FINRA/Nasdaq TRF 
terminates, the LLC will continue to operate and the terms of the 
Agreement relating to the remaining FINRA/Nasdaq TRF will remain in 
full force and effect. It also clarifies that the LLC will dissolve 
upon an action by either LLC Member to terminate both FINRA/Nasdaq TRFs 
or to terminate the last remaining FINRA/Nasdaq TRF.
Rules Applicable to the FINRA/Nasdaq TRF Carteret and FINRA/Nasdaq TRF 
Chicago
    FINRA proposes to amend the Rule 6300A, 7200A and 7600A Series, 
which govern the FINRA/Nasdaq TRF Carteret, to accommodate the 
establishment of the FINRA/Nasdaq TRF Chicago. That is, FINRA proposes 
to preface each of these Rule Series by noting that within them, any 
use of the term ``FINRA/Nasdaq Trade Reporting Facility'' shall mean 
the FINRA/Nasdaq TRF Carteret or the FINRA/Nasdaq TRF Chicago, as 
applicable, depending on the facility to which the participant elects 
to report.
    FINRA proposes to amend Rule 6300A to provide that the forms of 
agreements required under the Rule 6300A Series, including the 
agreement to allow a Participant to report and lock-in trades on a 
member's behalf required under Rule 6380A(h), will be identical for 
both FINRA/Nasdaq TRFs and a single agreement can be used for purposes 
of both FINRA/Nasdaq TRFs. Members that elect to participate in both 
FINRA/Nasdaq TRFs must amend any existing agreements under the Rule 
6300A Series to reflect their application to both facilities.
    In addition, FINRA proposes to amend Rule 7200A to clarify that 
application procedures and access requirements for the FINRA/Nasdaq TRF 
Carteret would also be applicable to the FINRA/Nasdaq TRF Chicago, 
meaning that an application for access to one of the FINRA/Nasdaq TRFs 
would provide for access to both of them, and that the requirements for 
continuing access apply to both TRFs. Members that elect to participate 
in both FINRA/Nasdaq TRFs must provide written notice to the FINRA/
Nasdaq TRFs and FINRA of such election, in the form prescribed by 
FINRA, and amend any existing agreements under the Rule 7200A Series to 
reflect their application to both Facilities. Moreover, FINRA proposes 
to state, in Rules 6300A, 6360A, 6370A, 7200A and 7280A, that any 
determination to suspend, terminate, restore, reinstate, limit or 
prohibit access to or participation in one FINRA/Nasdaq TRF with 
respect to a TRF participant will apply equally to the other FINRA/
Nasdaq TRF with respect to that participant.

[[Page 18382]]

    The proposed rule change would also amend the Rule 7600A Series to 
state that its schedules of credits and fees will 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.\10\ That is, Rule 7610A would be 
amended to state that if a FINRA member reports trades in a given 
quarter to both the FINRA/Nasdaq TRF Carteret and the FINRA/Nasdaq TRF 
Chicago, then the amount of the member's Securities Transaction Credits 
for that quarter will be calculated with respect to the member's 
combined transactions on both TRFs. Similarly, Rule 7620A would be 
amended to provide that if a participant reports trades to both the 
FINRA/Nasdaq TRF Carteret and the FINRA/Nasdaq TRF Chicago during a 
given month, then the participant's aggregate reporting volume on the 
FINRA/Nasdaq TRF Carteret and the FINRA/Nasdaq TRF Chicago will be 
considered for the purpose of determining whether and to what extent 
charges or caps apply to the participant during that month.\11\
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    \10\ FINRA notes that Nasdaq, in its capacity as the Business 
Member and operator of the FINRA/Nasdaq TRFs on behalf of FINRA, 
will continue to administer the Rule 7600A Series and will collect 
all fees and issue all credits on behalf of the FINRA/Nasdaq TRF 
Chicago, as well as the FINRA/Nasdaq TRF Carteret. FINRA's oversight 
of this function performed by the Business Member will be conducted 
through the aforementioned assessment and review of TRF operations 
by an outside independent audit firm.
    \11\ FINRA notes that members will be able to report trades to 
the FINRA/Nasdaq TRF Chicago via Nasdaq's ACT Workstation, a 
Financial Information eXchange (``FIX'') line or indirectly via 
third party intermediaries (e.g., service bureaus) and will be 
required to pay the associated fees under Nasdaq rules. For example, 
firms that report to the FINRA/Nasdaq TRF Chicago via FIX--either 
directly or indirectly through third party intermediaries--would pay 
Nasdaq charges associated with FIX ports to connect to the FINRA/
Nasdaq TRF Chicago data center. See, e.g., Nasdaq Rule 7015. Firms 
will not have the option of connecting to the FINRA/Nasdaq TRF 
Chicago via a computer-to-computer interface (``CTCI'').
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    Rule 7630A would be amended to reflect a technical change that 
certification of affiliate status for aggregation of activity for 
purposes of fees and credits will be made to, and subsequent 
determinations regarding aggregation will be made by, the FINRA/Nasdaq 
TRFs, not FINRA. FINRA members currently submit their requests for 
aggregation to the FINRA/Nasdaq TRF Carteret rather than to FINRA, and, 
as such, the proposed change will better align the rule with current 
practice.\12\
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    \12\ As noted above, Nasdaq, as the TRF Business Member, 
administers this Rule and receives the certifications of affiliate 
status and makes the aggregation determinations thereunder.
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    The proposed rule change would amend Rule 7640A to state that 
Nasdaq's license to use, distribute and sell FINRA/Nasdaq TRF Carteret 
market data to third parties, and to sell such data for fees that 
Nasdaq charges under its rules, would also extend to FINRA/Nasdaq TRF 
Chicago market data. In addition, the proposed rule change would amend 
the rule to state that the list of Nasdaq data products that 
incorporate FINRA/Nasdaq TRF Carteret market data would also 
incorporate FINRA/Nasdaq TRF Chicago market data.\13\
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    \13\ Prior to the date when the FINRA/Nasdaq TRF Chicago becomes 
operational, Nasdaq intends to file with the Commission a proposal 
to amend Nasdaq's rules governing its proprietary data products to 
provide for the inclusion therein of FINRA/Nasdaq TRF Chicago data.
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    Finally, Rule 6184 (Transactions in Exchange-Traded Managed Fund 
Shares (``NextShares'')) would be amended to provide for the reporting 
of transactions in NextShares to the FINRA/Nasdaq TRF Chicago in the 
same manner that such transactions currently are reported to the FINRA/
Nasdaq TRF Carteret.
    If the Commission approves the proposed rule change, the effective 
date of the proposed rule change will be the date upon which the FINRA/
Nasdaq TRF Chicago commences operation, which is currently anticipated 
to be no earlier than August 1, 2018. FINRA will provide notice of that 
date upon successful completion of system testing and certification.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\14\ 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.
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    \14\ 15 U.S.C. 78o-3(b)(6).
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    FINRA believes that the proposed rule change is consistent with the 
Act because it provides members with an alternative for meeting their 
trade reporting obligations under FINRA rules and will allow members 
that wish to connect to a secondary FINRA Facility in accordance with 
the Trade Reporting Notice to continue executing OTC trades in NMS 
stocks in the event their primary facility is experiencing a widespread 
systems issue. FINRA believes that an additional facility for the 
reporting of OTC transactions in NMS stocks in the event a member's 
primary facility is experiencing systems issues will enhance the 
resiliency and promote the integrity of the OTC market.
    In addition, FINRA believes that the proposed rule change provides 
for the equitable allocation of reasonable dues, fees and other charges 
because the charges and credits that would apply to the FINRA/Nasdaq 
TRF Chicago are the same as those that apply to the FINRA/Nasdaq TRF 
Carteret under current FINRA rules. The proposed rule change would also 
provide for the equitable allocation of reasonable dues, fees and other 
charges in that it would allow firms that choose to concurrently report 
trades to the FINRA/Nasdaq TRF Carteret and the FINRA/Nasdaq TRF 
Chicago to aggregate their reporting volumes on the two TRFs so that 
they could continue to qualify for volume-based pricing to the extent 
that they would have otherwise qualified had they reported their trades 
only to one of those TRFs. As discussed above, Nasdaq, as the Business 
Member, has advised FINRA that the FINRA/Nasdaq TRF Carteret and the 
FINRA/Nasdaq TRF Chicago will be subject to identical fees under the 
amended Rule 7600A Series, thereby allowing members to use either TRF 
freely in terms of the volume reported to each TRF without providing a 
disincentive to use one over the other for the sole purpose of 
maintaining eligibility for any fee caps.

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

    FINRA does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.
    The proposed rule change would apply only to members that have a 
trade reporting obligation under the FINRA rules \15\ and elect to 
report to the FINRA/Nasdaq TRF Chicago. As noted above, there currently 
are three FINRA Facilities that allow members to report OTC trades in 
NMS stocks. There are only several hundred firms that execute and 
report OTC trades in NMS stocks to the FINRA Facilities on a regular 
basis. Many firms, including smaller firms, route their order flow to 
another firm, e.g., their clearing firm, for execution,

[[Page 18383]]

and as the routing firm, they do not have the trade reporting 
obligation. Thus, the proposed rule change will have no impact on many 
members.
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    \15\ FINRA rules for reporting OTC transactions in equity 
securities require that for transactions between members, the 
``executing party'' report the trade to a FINRA facility. For 
transactions between a member and a non-member or customer, the 
member must report the trade. ``Executing party'' is defined under 
FINRA Rule 6380A(b) as the member that receives an order for 
handling or execution or is presented an order against its quote, 
does not subsequently re-route the order, and executes the 
transaction.
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    As explained above, the proposed rule change provides members with 
an alternative for meeting their trade reporting obligations under 
FINRA rules and will allow members that wish to connect to a secondary 
facility for trade reporting in accordance with the Trade Reporting 
Notice to continue executing OTC trades in NMS stocks in the event 
their primary facility is experiencing a widespread systems issue.
    The proposed FINRA/Nasdaq TRF Chicago should provide benefits, in 
particular, for those members that currently report trades to the 
FINRA/Nasdaq TRF Carteret, as such members would have the opportunity 
to aggregate their reporting volumes if they choose to concurrently 
report trades to both FINRA/Nasdaq TRFs. Thus, under the proposed fee 
structure, if a member chooses to connect to the FINRA/Nasdaq TRF 
Carteret and FINRA/Nasdaq TRF Chicago as primary and backup trade 
reporting facilities, then the member will receive credit for the 
shares reported to the backup facility. This may create an incentive 
for members to jointly utilize the two FINRA/Nasdaq TRFs as primary and 
back-up reporting facilities.
    FINRA staff analyzed participation agreements and reporting 
activity to FINRA/Nasdaq TRF Carteret, FINRA/NYSE TRF and ADF, and 
found that 430 member firms reported to at least one FINRA Facility in 
2017. While 84 firms had participation agreements with at least two 
FINRA Facilities, only 20 of those firms reported to both the FINRA/
Nasdaq TRF Carteret and another FINRA Facility. Based on this one-year 
sample, FINRA expects the proposal to potentially benefit at least 
those firms that report to two or more FINRA Facilities; however, more 
firms can potentially benefit from volume-based pricing in the long-
run, provided that reporting trades to more than one FINRA Facility 
becomes necessary or preferred.
    To the extent that members choose to satisfy their reporting 
obligations via the FINRA/Nasdaq TRF Carteret and FINRA/Nasdaq TRF 
Chicago, and cease to maintain connectivity to the FINRA/NYSE TRF or 
ADF as a back-up FINRA Facility to report trades, the latter two may 
experience a reduction in reporting activity and hence revenue. Thus, 
the impact on FINRA Facilities may effectively be an economic transfer 
between them.
    The proposed FINRA/Nasdaq TRF Chicago provides an alternative that 
may provide costs savings to those members that choose to report to 
both the FINRA/Nasdaq TRF Carteret and FINRA/Nasdaq TRF Chicago instead 
of spreading trade reporting between the FINRA/Nasdaq TRF Carteret and 
another FINRA Facility. Members can effectively satisfy the requirement 
under the Trade Reporting Notice to establish connectivity to a second 
FINRA Facility to maintain reporting in the event that their primary 
facility experiences a widespread systems issue during the trading day. 
As such, members can use one FINRA/Nasdaq TRF as the primary reporting 
facility and the other FINRA/Nasdaq TRF as the back-up facility. This 
could mitigate the risks associated with a regional outage that could 
simultaneously affect them both, as the front-end technology used to 
operate the FINRA/Nasdaq TRF Chicago would reside in Chicago, Illinois 
while the front-end technology used to operate the FINRA/Nasdaq TRF 
Carteret would continue to reside in Carteret, New Jersey.
    However, the two FINRA/Nasdaq TRFs would have common technology, 
computer code and features. As such, a member firm's decision to rely 
upon the FINRA/Nasdaq TRFs to satisfy both its primary and back-up 
requirements may not fully mitigate risks if these common technologies, 
code or features contemporaneously experience problems or otherwise 
fail. Thus, when member firms consider how they will meet their 
reporting obligations going forward, they will need to weigh the 
potential costs if both the FINRA/Nasdaq TRF Carteret and FINRA/Nasdaq 
TRF Chicago experience common problems or become unavailable 
simultaneously against the costs of maintaining connectivity to 
unrelated FINRA Facilities with fewer efficiencies and less attractive 
aggregate pricing.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date 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 such 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 rule-comments@sec.gov. Please include 
File Number SR-FINRA-2018-013 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-2018-013. 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-

[[Page 18384]]

2018-013, and should be submitted on or before May 17, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
---------------------------------------------------------------------------

    \16\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-08731 Filed 4-25-18; 8:45 am]
 BILLING CODE 8011-01-P
Federal Register / Vol. 83, No. 81 / Thursday, April 26, 2018 / Notices 18379

adjusting, its fees and credits to remain file number should be included on the 2018, Financial Industry Regulatory
competitive with other exchanges. For subject line if email is used. To help the Authority, Inc. (‘‘FINRA’’) filed with the
the reasons described above, the Commission process and review your Securities and Exchange Commission
Exchange believes that the proposed comments more efficiently, please use (‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change reflects this competitive only one method. The Commission will rule change as described in Items I, II,
environment. post all comments on the Commission’s and III below, which Items have been
internet website (http://www.sec.gov/ prepared by FINRA. The Commission is
C. Self-Regulatory Organization’s
rules/sro.shtml). Copies of the publishing this notice to solicit
Statement on Comments on the
submission, all subsequent comments on the proposed rule change
Proposed Rule Change Received From
amendments, all written statements from interested persons.
Members, Participants, or Others
with respect to the proposed rule
No written comments were solicited I. Self-Regulatory Organization’s
change that are filed with the
or received with respect to the proposed Statement of the Terms of Substance of
Commission, and all written
rule change. the Proposed Rule Change
communications relating to the
proposed rule change between the FINRA is proposing to adopt rules
III. Date of Effectiveness of the
Commission and any person, other than relating to the establishment of a second
Proposed Rule Change and Timing for
those that may be withheld from the Trade Reporting Facility or ‘‘TRF’’ to be
Commission Action
public in accordance with the operated in conjunction with Nasdaq,
The foregoing rule change is effective provisions of 5 U.S.C. 552, will be Inc. (‘‘Nasdaq’’). The second FINRA/
upon filing pursuant to Section available for website viewing and Nasdaq Trade Reporting Facility
19(b)(3)(A) 12 of the Act and printing in the Commission’s Public (‘‘FINRA/Nasdaq TRF Chicago’’) would
subparagraph (f)(2) of Rule 19b–4 13 Reference Room, 100 F Street NE, provide FINRA members with another
thereunder, because it establishes a due, Washington, DC 20549 on official mechanism for reporting over-the-
fee, or other charge imposed by the business days between the hours of counter (‘‘OTC’’) trades in NMS stocks
Exchange. 10:00 a.m. and 3:00 p.m. Copies of such and complying with FINRA’s
At any time within 60 days of the filing also will be available for requirements with respect to back-up
filing of such proposed rule change, the inspection and copying at the principal trade reporting arrangements. The
Commission summarily may office of the Exchange. All comments FINRA/Nasdaq TRF Chicago would be
temporarily suspend such rule change if received will be posted without change. governed by the rules applicable to the
it appears to the Commission that such Persons submitting comments are existing FINRA/Nasdaq Trade Reporting
action is necessary or appropriate in the cautioned that we do not redact or edit Facility (‘‘FINRA/Nasdaq TRF
public interest, for the protection of personal identifying information from Carteret’’), which were subject to notice
investors, or otherwise in furtherance of comment submissions. You should and comment and approved by the
the purposes of the Act. If the submit only information that you wish Commission.3
Commission takes such action, the to make available publicly. All The text of the proposed rule change
Commission shall institute proceedings submissions should refer to File is available on FINRA’s website at
under Section 19(b)(2)(B) 14 of the Act to Number SR–NYSEAMER–2018–15, and http://www.finra.org, at the principal
determine whether the proposed rule should be submitted on or before May office of FINRA and at the
change should be approved or 17, 2018. Commission’s Public Reference Room.
disapproved.
For the Commission, by the Division of II. Self-Regulatory Organization’s
IV. Solicitation of Comments Trading and Markets, pursuant to delegated Statement of the Purpose of, and
Interested persons are invited to authority.15 Statutory Basis for, the Proposed Rule
submit written data, views, and Eduardo A. Aleman, Change
arguments concerning the foregoing, Assistant Secretary. In its filing with the Commission,
including whether the proposed rule [FR Doc. 2018–08724 Filed 4–25–18; 8:45 am] FINRA included statements concerning
change is consistent with the Act. BILLING CODE 8011–01–P the purpose of and basis for the
Comments may be submitted by any of proposed rule change and discussed any
the following methods: comments it received on the proposed
SECURITIES AND EXCHANGE rule change. The text of these statements
Electronic Comments COMMISSION may be examined at the places specified
• Use the Commission’s internet in Item IV below. FINRA has prepared
[Release No. 34–83082; File No. SR–FINRA–
comment form (http://www.sec.gov/ 2018–013] summaries, set forth in sections A, B,
rules/sro.shtml); or and C below, of the most significant
• Send an email to rule-comments@ Self-Regulatory Organizations; aspects of such statements.
sec.gov. Please include File Number SR– Financial Industry Regulatory
NYSEAMER–2018–15 on the subject Authority, Inc.; Notice of Filing of a A. Self-Regulatory Organization’s
line. Proposed Rule Change To Establish a Statement of the Purpose of, and
Second Trade Reporting Facility in Statutory Basis for, the Proposed Rule
Paper Comments Change
Conjunction With Nasdaq, Inc.
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities 1. Purpose
April 20, 2018.
and Exchange Commission, 100 F Street Pursuant to Section 19(b)(1) of the FINRA currently has three facilities
amozie on DSK30RV082PROD with NOTICES

NE, Washington, DC 20549–1090. Securities Exchange Act of 1934 that allow its members to report OTC
All submissions should refer to File (‘‘Act’’) 1 and Rule 19b–4 thereunder,2
3 See Securities Exchange Act Release No. 54084
Number SR–NYSEAMER–2018–15. This notice is hereby given that on April 19,
(June 30, 2006), 71 FR 38935 (July 10, 2006) (order
approving SR–NASD–2005–087); and Securities
12 15 U.S.C. 78s(b)(3)(A). 15 17 CFR 200.30–3(a)(12). Exchange Act Release No. 54798 (November 21,
13 17 CFR 240.19b–4(f)(2). 1 15 U.S.C. 78s(b)(1). 2006), 71 FR 69156 (November 29, 2006) (order
14 15 U.S.C. 78s(b)(2)(B). 2 17 CFR 240.19b–4. approving SR–NASD–2006–104).

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Federal Register / Vol. 83, No. 81 / Thursday, April 26, 2018 / Notices 18381

In addition to real-time interaction with affairs of both the FINRA/Nasdaq TRF of the Agreement relating to the
Business Member staff when operational Carteret and FINRA/Nasdaq TRF remaining FINRA/Nasdaq TRF will
issues arise, FINRA currently executes Chicago, which may not be conducted remain in full force and effect. It also
its SRO oversight functions by in a manner inconsistent with the clarifies that the LLC will dissolve upon
performing a three-part regularly regulatory and oversight functions of an action by either LLC Member to
recurring review of TRF operations. FINRA. Among other things, the terminate both FINRA/Nasdaq TRFs or
First, before initial operation of the TRF Business Member will establish pricing to terminate the last remaining FINRA/
can commence, the Business Member is for both the FINRA/Nasdaq TRF Carteret Nasdaq TRF.
required to certify in writing that TRF and FINRA/Nasdaq TRF Chicago, be
operations will comply with all relevant obligated to pay the cost of regulation Rules Applicable to the FINRA/Nasdaq
FINRA rules and federal securities laws, and be entitled to the profits and losses, TRF Carteret and FINRA/Nasdaq TRF
and on a quarterly basis thereafter, the if any, derived from operation of the Chicago
Business Member must submit its FINRA/Nasdaq TRF Carteret and FINRA proposes to amend the Rule
current TRF procedures and a FINRA/Nasdaq TRF Chicago. The 6300A, 7200A and 7600A Series, which
certification of compliance with those Business Member will also provide the govern the FINRA/Nasdaq TRF Carteret,
procedures. Second, FINRA staff ‘‘user facing’’ front-end technology used to accommodate the establishment of
conducts monthly conference calls with to operate both the FINRA/Nasdaq TRF the FINRA/Nasdaq TRF Chicago. That
each Business Member to review TRF Carteret and FINRA/Nasdaq TRF is, FINRA proposes to preface each of
operations. These monthly calls follow Chicago and transmit real-time trade these Rule Series by noting that within
an established agenda, which includes, report data directly to the SIPs and to them, any use of the term ‘‘FINRA/
among other things, whether there were FINRA for audit trail purposes. Nasdaq Trade Reporting Facility’’ shall
any system outages or issues since the The FINRA/Nasdaq TRF LLC mean the FINRA/Nasdaq TRF Carteret
prior monthly conference call (and if so, Agreement is substantially similar to the or the FINRA/Nasdaq TRF Chicago, as
to confirm that they were reported to existing agreement that governs the applicable, depending on the facility to
FINRA and the SEC, as applicable), data FINRA/Nasdaq TRF Carteret (the which the participant elects to report.
latency, the status of pending systems Second Amended and Restated FINRA/ FINRA proposes to amend Rule
changes, TRF market data products and Nasdaq TRF LLC Agreement), which is 6300A to provide that the forms of
whether the Business Member has or is included in the FINRA Manual. agreements required under the Rule
developing any new products that However, it contains several 6300A Series, including the agreement
would use TRF data. Third, FINRA amendments that reflect the fact that the
to allow a Participant to report and lock-
oversees a regular assessment cycle and FINRA/Nasdaq Trade Reporting Facility
in trades on a member’s behalf required
extensive review of TRF operations, as LLC will now operate through two
under Rule 6380A(h), will be identical
measured against the TRF business TRFs: FINRA/Nasdaq TRF Carteret and
for both FINRA/Nasdaq TRFs and a
requirements document and coding FINRA/Nasdaq TRF Chicago.
For example, the FINRA/Nasdaq TRF single agreement can be used for
guidelines established by FINRA, by an purposes of both FINRA/Nasdaq TRFs.
outside independent audit firm. FINRA LLC Agreement provides for separate
termination provisions, in Section 20, Members that elect to participate in both
also requires the Business Member to
for each FINRA/Nasdaq TRF. The FINRA/Nasdaq TRFs must amend any
submit on a quarterly basis an
termination provision applicable to the existing agreements under the Rule
attestation that (1) identifies all
FINRA/Nasdaq TRF Carteret is 6300A Series to reflect their application
products that use TRF data, and (2)
substantially the same as under the to both facilities.
certifies that the Business Member has
no other products that use TRF data and current agreement, except as noted In addition, FINRA proposes to
that any future products that use TRF below. The termination provision amend Rule 7200A to clarify that
data will be developed in consultation applicable to the FINRA/Nasdaq TRF application procedures and access
with FINRA. Chicago permits a Member of the LLC to requirements for the FINRA/Nasdaq
terminate the FINRA/Nasdaq TRF TRF Carteret would also be applicable
FINRA/Nasdaq TRF Limited Liability Chicago upon at least one year’s written to the FINRA/Nasdaq TRF Chicago,
Company Agreement notice; it also permits the SRO Member meaning that an application for access
The Third Amended and Restated to terminate the FINRA/Nasdaq TRF to one of the FINRA/Nasdaq TRFs
Limited Liability Company Agreement Chicago for any reason that the SRO would provide for access to both of
of FINRA/Nasdaq Trade Reporting Member, in its sole discretion, them, and that the requirements for
Facility LLC (the ‘‘FINRA/Nasdaq TRF determines could have a negative continuing access apply to both TRFs.
LLC Agreement’’ or the ‘‘Agreement’’) impact on the maintenance of its status Members that elect to participate in both
will govern the establishment of the as a preeminent SRO. In addition, the FINRA/Nasdaq TRFs must provide
FINRA/Nasdaq TRF Chicago. FINRA/Nasdaq TRF LLC Agreement written notice to the FINRA/Nasdaq
Under the FINRA/Nasdaq TRF LLC includes a provision in Section 20 that TRFs and FINRA of such election, in the
Agreement, FINRA is the ‘‘SRO permits either Member of the LLC to form prescribed by FINRA, and amend
Member’’ and has sole regulatory terminate either of the TRFs or the any existing agreements under the Rule
responsibility for both the FINRA/ entire Agreement due to a material 7200A Series to reflect their application
Nasdaq TRF Carteret and FINRA/ breach by the other Member, if such to both Facilities. Moreover, FINRA
Nasdaq TRF Chicago, including real- breach is not cured within 60 days of proposes to state, in Rules 6300A,
time monitoring and T+1 surveillance, notification thereof, or if the other 6360A, 6370A, 7200A and 7280A, that
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development and enforcement of trade Member becomes bankrupt or insolvent, any determination to suspend,
reporting rules and submission of upon 30 days’ written notice. terminate, restore, reinstate, limit or
proposed rule changes to the Finally, the FINRA/Nasdaq TRF LLC prohibit access to or participation in one
Commission. Nasdaq, the Business Agreement includes a provision, in FINRA/Nasdaq TRF with respect to a
Member under the FINRA/Nasdaq TRF Section 21, that clarifies that if either TRF participant will apply equally to
LLC Agreement, is primarily responsible FINRA/Nasdaq TRF terminates, the LLC the other FINRA/Nasdaq TRF with
for the management of the business will continue to operate and the terms respect to that participant.

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18382 Federal Register / Vol. 83, No. 81 / Thursday, April 26, 2018 / Notices

The proposed rule change would also The proposed rule change would primary facility is experiencing systems
amend the Rule 7600A Series to state amend Rule 7640A to state that issues will enhance the resiliency and
that its schedules of credits and fees Nasdaq’s license to use, distribute and promote the integrity of the OTC
will apply to reporting activity that sell FINRA/Nasdaq TRF Carteret market market.
occurs on either or both of the FINRA/ data to third parties, and to sell such In addition, FINRA believes that the
Nasdaq TRFs and that a participant’s data for fees that Nasdaq charges under proposed rule change provides for the
eligibility for any volume-based credits its rules, would also extend to FINRA/ equitable allocation of reasonable dues,
or fee caps will be determined based Nasdaq TRF Chicago market data. In fees and other charges because the
upon its aggregate reporting volume addition, the proposed rule change charges and credits that would apply to
between the two FINRA/Nasdaq TRFs.10 would amend the rule to state that the the FINRA/Nasdaq TRF Chicago are the
That is, Rule 7610A would be amended list of Nasdaq data products that same as those that apply to the FINRA/
to state that if a FINRA member reports incorporate FINRA/Nasdaq TRF Carteret Nasdaq TRF Carteret under current
trades in a given quarter to both the market data would also incorporate FINRA rules. The proposed rule change
FINRA/Nasdaq TRF Carteret and the FINRA/Nasdaq TRF Chicago market would also provide for the equitable
FINRA/Nasdaq TRF Chicago, then the data.13 allocation of reasonable dues, fees and
amount of the member’s Securities Finally, Rule 6184 (Transactions in other charges in that it would allow
Transaction Credits for that quarter will Exchange-Traded Managed Fund Shares firms that choose to concurrently report
be calculated with respect to the (‘‘NextShares’’)) would be amended to trades to the FINRA/Nasdaq TRF
member’s combined transactions on provide for the reporting of transactions Carteret and the FINRA/Nasdaq TRF
both TRFs. Similarly, Rule 7620A in NextShares to the FINRA/Nasdaq Chicago to aggregate their reporting
would be amended to provide that if a TRF Chicago in the same manner that volumes on the two TRFs so that they
participant reports trades to both the such transactions currently are reported could continue to qualify for volume-
FINRA/Nasdaq TRF Carteret and the to the FINRA/Nasdaq TRF Carteret. based pricing to the extent that they
FINRA/Nasdaq TRF Chicago during a If the Commission approves the would have otherwise qualified had
given month, then the participant’s proposed rule change, the effective date they reported their trades only to one of
aggregate reporting volume on the of the proposed rule change will be the those TRFs. As discussed above,
FINRA/Nasdaq TRF Carteret and the date upon which the FINRA/Nasdaq Nasdaq, as the Business Member, has
FINRA/Nasdaq TRF Chicago will be TRF Chicago commences operation, advised FINRA that the FINRA/Nasdaq
considered for the purpose of which is currently anticipated to be no TRF Carteret and the FINRA/Nasdaq
determining whether and to what extent earlier than August 1, 2018. FINRA will TRF Chicago will be subject to identical
charges or caps apply to the participant provide notice of that date upon fees under the amended Rule 7600A
during that month.11 successful completion of system testing Series, thereby allowing members to use
Rule 7630A would be amended to and certification. either TRF freely in terms of the volume
reflect a technical change that reported to each TRF without providing
certification of affiliate status for 2. Statutory Basis a disincentive to use one over the other
aggregation of activity for purposes of FINRA believes that the proposed rule for the sole purpose of maintaining
fees and credits will be made to, and change is consistent with the provisions eligibility for any fee caps.
subsequent determinations regarding of Section 15A(b)(6) of the Act,14 which B. Self-Regulatory Organization’s
aggregation will be made by, the FINRA/ requires, among other things, that Statement on Burden on Competition
Nasdaq TRFs, not FINRA. FINRA FINRA rules must be designed to
members currently submit their requests prevent fraudulent and manipulative FINRA does not believe that the
for aggregation to the FINRA/Nasdaq acts and practices, to promote just and proposed rule change will result in any
TRF Carteret rather than to FINRA, and, equitable principles of trade, and, in burden on competition that is not
as such, the proposed change will better general, to protect investors and the necessary or appropriate in furtherance
align the rule with current practice.12 public interest. of the purposes of the Act.
FINRA believes that the proposed rule The proposed rule change would
10 FINRA notes that Nasdaq, in its capacity as the
change is consistent with the Act apply only to members that have a trade
Business Member and operator of the FINRA/
because it provides members with an reporting obligation under the FINRA
Nasdaq TRFs on behalf of FINRA, will continue to rules 15 and elect to report to the FINRA/
administer the Rule 7600A Series and will collect alternative for meeting their trade
all fees and issue all credits on behalf of the FINRA/ reporting obligations under FINRA rules Nasdaq TRF Chicago. As noted above,
Nasdaq TRF Chicago, as well as the FINRA/Nasdaq and will allow members that wish to there currently are three FINRA
TRF Carteret. FINRA’s oversight of this function
connect to a secondary FINRA Facility Facilities that allow members to report
performed by the Business Member will be OTC trades in NMS stocks. There are
conducted through the aforementioned assessment in accordance with the Trade Reporting
and review of TRF operations by an outside Notice to continue executing OTC trades only several hundred firms that execute
independent audit firm. in NMS stocks in the event their and report OTC trades in NMS stocks to
11 FINRA notes that members will be able to
primary facility is experiencing a the FINRA Facilities on a regular basis.
report trades to the FINRA/Nasdaq TRF Chicago via Many firms, including smaller firms,
Nasdaq’s ACT Workstation, a Financial Information widespread systems issue. FINRA
eXchange (‘‘FIX’’) line or indirectly via third party believes that an additional facility for route their order flow to another firm,
intermediaries (e.g., service bureaus) and will be the reporting of OTC transactions in e.g., their clearing firm, for execution,
required to pay the associated fees under Nasdaq
rules. For example, firms that report to the FINRA/
NMS stocks in the event a member’s 15 FINRA rules for reporting OTC transactions in
Nasdaq TRF Chicago via FIX—either directly or equity securities require that for transactions
indirectly through third party intermediaries— certifications of affiliate status and makes the between members, the ‘‘executing party’’ report the
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would pay Nasdaq charges associated with FIX aggregation determinations thereunder. trade to a FINRA facility. For transactions between
ports to connect to the FINRA/Nasdaq TRF Chicago 13 Prior to the date when the FINRA/Nasdaq TRF
a member and a non-member or customer, the
data center. See, e.g., Nasdaq Rule 7015. Firms will Chicago becomes operational, Nasdaq intends to file member must report the trade. ‘‘Executing party’’ is
not have the option of connecting to the FINRA/ with the Commission a proposal to amend Nasdaq’s defined under FINRA Rule 6380A(b) as the member
Nasdaq TRF Chicago via a computer-to-computer rules governing its proprietary data products to that receives an order for handling or execution or
interface (‘‘CTCI’’). provide for the inclusion therein of FINRA/Nasdaq is presented an order against its quote, does not
12 As noted above, Nasdaq, as the TRF Business TRF Chicago data. subsequently re-route the order, and executes the
Member, administers this Rule and receives the 14 15 U.S.C. 78o–3(b)(6). transaction.

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Federal Register / Vol. 83, No. 81 / Thursday, April 26, 2018 / Notices 18383

and as the routing firm, they do not may provide costs savings to those organization consents, the Commission
have the trade reporting obligation. members that choose to report to both will:
Thus, the proposed rule change will the FINRA/Nasdaq TRF Carteret and (A) By order approve or disapprove
have no impact on many members. FINRA/Nasdaq TRF Chicago instead of such proposed rule change, or
As explained above, the proposed rule spreading trade reporting between the (B) institute proceedings to determine
change provides members with an FINRA/Nasdaq TRF Carteret and whether the proposed rule change
alternative for meeting their trade another FINRA Facility. Members can should be disapproved.
reporting obligations under FINRA rules effectively satisfy the requirement under
and will allow members that wish to the Trade Reporting Notice to establish IV. Solicitation of Comments
connect to a secondary facility for trade connectivity to a second FINRA Facility Interested persons are invited to
reporting in accordance with the Trade to maintain reporting in the event that submit written data, views, and
Reporting Notice to continue executing their primary facility experiences a arguments concerning the foregoing,
OTC trades in NMS stocks in the event widespread systems issue during the including whether the proposed rule
their primary facility is experiencing a trading day. As such, members can use change is consistent with the Act.
widespread systems issue. one FINRA/Nasdaq TRF as the primary Comments may be submitted by any of
The proposed FINRA/Nasdaq TRF reporting facility and the other FINRA/ the following methods:
Chicago should provide benefits, in Nasdaq TRF as the back-up facility. This
particular, for those members that Electronic Comments
could mitigate the risks associated with
currently report trades to the FINRA/ a regional outage that could • Use the Commission’s internet
Nasdaq TRF Carteret, as such members simultaneously affect them both, as the comment form (http://www.sec.gov/
would have the opportunity to aggregate front-end technology used to operate the rules/sro.shtml); or
their reporting volumes if they choose to FINRA/Nasdaq TRF Chicago would • Send an email to rule-comments@
concurrently report trades to both reside in Chicago, Illinois while the sec.gov. Please include File Number SR–
FINRA/Nasdaq TRFs. Thus, under the front-end technology used to operate the FINRA–2018–013 on the subject line.
proposed fee structure, if a member FINRA/Nasdaq TRF Carteret would
chooses to connect to the FINRA/ Paper Comments
continue to reside in Carteret, New
Nasdaq TRF Carteret and FINRA/ Jersey. • Send paper comments in triplicate
Nasdaq TRF Chicago as primary and to Secretary, Securities and Exchange
backup trade reporting facilities, then However, the two FINRA/Nasdaq
TRFs would have common technology, Commission, 100 F Street NE,
the member will receive credit for the Washington, DC 20549–1090.
shares reported to the backup facility. computer code and features. As such, a
This may create an incentive for member firm’s decision to rely upon the All submissions should refer to File
members to jointly utilize the two FINRA/Nasdaq TRFs to satisfy both its Number SR–FINRA–2018–013. This file
FINRA/Nasdaq TRFs as primary and primary and back-up requirements may number should be included on the
back-up reporting facilities. not fully mitigate risks if these common subject line if email is used. To help the
FINRA staff analyzed participation technologies, code or features Commission process and review your
agreements and reporting activity to contemporaneously experience comments more efficiently, please use
FINRA/Nasdaq TRF Carteret, FINRA/ problems or otherwise fail. Thus, when only one method. The Commission will
NYSE TRF and ADF, and found that 430 member firms consider how they will post all comments on the Commission’s
member firms reported to at least one meet their reporting obligations going internet website (http://www.sec.gov/
FINRA Facility in 2017. While 84 firms forward, they will need to weigh the rules/sro.shtml). Copies of the
had participation agreements with at potential costs if both the FINRA/ submission, all subsequent
least two FINRA Facilities, only 20 of Nasdaq TRF Carteret and FINRA/ amendments, all written statements
those firms reported to both the FINRA/ Nasdaq TRF Chicago experience with respect to the proposed rule
Nasdaq TRF Carteret and another common problems or become change that are filed with the
FINRA Facility. Based on this one-year unavailable simultaneously against the Commission, and all written
sample, FINRA expects the proposal to costs of maintaining connectivity to communications relating to the
potentially benefit at least those firms unrelated FINRA Facilities with fewer proposed rule change between the
that report to two or more FINRA efficiencies and less attractive aggregate Commission and any person, other than
Facilities; however, more firms can pricing. those that may be withheld from the
potentially benefit from volume-based C. Self-Regulatory Organization’s public in accordance with the
pricing in the long-run, provided that Statement on Comments on the provisions of 5 U.S.C. 552, will be
reporting trades to more than one Proposed Rule Change Received From available for website viewing and
FINRA Facility becomes necessary or Members, Participants, or Others printing in the Commission’s Public
preferred. Reference Room, 100 F Street NE,
To the extent that members choose to Written comments were neither Washington, DC 20549 on official
satisfy their reporting obligations via the solicited nor received. business days between the hours of
FINRA/Nasdaq TRF Carteret and 10:00 a.m. and 3:00 p.m. Copies of the
III. Date of Effectiveness of the
FINRA/Nasdaq TRF Chicago, and cease filing also will be available for
Proposed Rule Change and Timing for
to maintain connectivity to the FINRA/ inspection and copying at the principal
Commission Action
NYSE TRF or ADF as a back-up FINRA office of FINRA. All comments received
Facility to report trades, the latter two Within 45 days of the date of will be posted without change. Persons
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may experience a reduction in reporting publication of this notice in the Federal submitting comments are cautioned that
activity and hence revenue. Thus, the Register or within such longer period (i) we do not redact or edit personal
impact on FINRA Facilities may as the Commission may designate up to identifying information from comment
effectively be an economic transfer 90 days of such date if it finds such submissions. You should submit only
between them. longer period to be appropriate and information that you wish to make
The proposed FINRA/Nasdaq TRF publishes its reasons for so finding or available publicly. All submissions
Chicago provides an alternative that (ii) as to which the self-regulatory should refer to File Number SR–FINRA–

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18384 Federal Register / Vol. 83, No. 81 / Thursday, April 26, 2018 / Notices

2018–013, and should be submitted on statements may be examined at the condition of an exemption, which the
or before May 17, 2018. places specified in Item IV below. The Exchange will request and will need to
For the Commission, by the Division of Exchange has prepared summaries, set be approved by the Commission,6
Trading and Markets, pursuant to delegated forth in sections A, B, and C below, of GEMX agrees to provide written notice
authority.16 the most significant aspects of such to its members whenever Nasdaq
Eduardo A. Aleman, statements. proposes a change to its General 7
Assistant Secretary. Rule.7 Such notice will alert GEMX
A. Self-Regulatory Organization’s
[FR Doc. 2018–08731 Filed 4–25–18; 8:45 am] members to the proposed Nasdaq rule
Statement of the Purpose of, and
change and give them an opportunity to
BILLING CODE 8011–01–P Statutory Basis for, the Proposed Rule
comment on the proposal. GEMX will
Change
similarly inform its members in writing
SECURITIES AND EXCHANGE 1. Purpose when the SEC approves any such
COMMISSION The Exchange proposes to incorporate proposed change.
[Release No. 34–83083; File No. SR–GEMX– by reference Nasdaq’s rule at General 7, Implementation
2018–13] entitled ‘‘Consolidated Audit Trail
Compliance’’ into GEMX’s General 7. The Exchange proposes that this rule
Self-Regulatory Organizations; Nasdaq The rule sets are identical.3 GEMX change become operative at such time as
GEMX, LLC; Notice of Filing and proposes to remove the current rule text it receives approval for an exemption
Immediate Effectiveness of Proposed from General 7 and replace that rule text from the Securities and Exchange
Rule Change To Incorporate by with the following text: 4 Commission, pursuant to its authority
Reference The Nasdaq Stock Market The rules contained in The Nasdaq under Section 36 of the Exchange Act of
LLC’s Consolidated Audit Trail Rules Stock Market LLC General 7, as such 1934 (‘‘Act’’) and Rule 0–12 8
Into the Rules of Nasdaq GEMX rules may be in effect from time to time thereunder, from the Section 19(b) rule
(the ‘‘General 7 Rules’’), are hereby filing requirements to separately file a
April 20, 2018. incorporated by reference into this proposed rule change to amend GEMX
Pursuant to Section 19(b)(1) of the Nasdaq GEMX General 7, and are thus General 7.
Securities Exchange Act of 1934 Nasdaq GEMX Rules and thereby 2. Statutory Basis
(‘‘Act’’),1 and Rule 19b–4 thereunder,2 applicable to Nasdaq GEMX Members.
notice is hereby given that on April 10, Nasdaq GEMX Members shall comply The Exchange believes that its
2018, Nasdaq GEMX, LLC (‘‘GEMX’’ or with the General 7 Rules as though such proposal is consistent with Section 6(b)
‘‘Exchange’’) filed with the Securities rules were fully set forth herein. All of the Act,9 in general, and furthers the
and Exchange Commission defined terms, including any variations objectives of Section 6(b)(5) of the Act,10
(‘‘Commission’’) the proposed rule thereof, contained in the General 7 in particular, in that it is designed to
change as described in Items I and II Rules shall be read to refer to the promote just and equitable principles of
below, which Items have been prepared Nasdaq GEMX related meaning of such trade, to remove impediments to and
by the Exchange. The Commission is term. Solely by way of example, and not perfect the mechanism of a free and
publishing this notice to solicit in limitation or in exhaustion: the open market and a national market
comments on the proposed rule change defined term ‘‘Exchange’’ in the General system, and, in general to protect
from interested persons. 7 Rules shall be read to refer to the investors and the public interest, by
Nasdaq GEMX Exchange; the defined consolidating its rules into a single rule
I. Self-Regulatory Organization’s set. The Exchange intends to also file
Statement of the Terms of Substance of term ‘‘Rule’’ in the General 7 Rules shall
be read to refer to the Nasdaq GEMX similar proposed rule changes for the
the Proposed Rule Change Nasdaq PHLX LLC; Nasdaq GEMX, LLC;
Rule.
The Exchange proposes to incorporate Should any rules which impact Nasdaq ISE, LLC; and Nasdaq MRX, LLC
by reference The Nasdaq Stock Market trading behavior be added to the markets so that the General 7 Rules
LLC’s (‘‘Nasdaq’’) rule at General 7, Consolidated Audit Trail Compliance
entitled ‘‘Consolidated Audit Trail Rules in Nasdaq General 7 in the future, other SROs incorporate by reference certain
Compliance’’ into GEMX’s General 7. those rules shall not become subject to regulatory rules of another SRO and have received
The text of the proposed rule change from the Commission similar exemptions from
the incorporation by reference and shall Section 19(b) of the Exchange Act. See e.g.,
is available on the Exchange’s website at
be placed elsewhere within GEMX’s Securities Exchange Act Release Nos. 57478 (March
http://nasdaqgemx.cchwallstreet.com/, 12, 2008), 73 FR 14521 (March 18, 2008), 53128
Rulebook. The incorporations by
at the principal office of the Exchange, (January 13, 2006), 71 FR 3550 (January 23, 2006);
reference of Nasdaq General 7 into
and at the Commission’s Public 49260 (February 17, 2004), 69 FR 8500 (February
GEMX’s General 7 Rule are regulatory in 24, 2004).
Reference Room.
nature.5 The Exchange notes that as a 6 The Exchange will request an exemption

II. Self-Regulatory Organization’s pursuant to its authority under Section 36 of the
Statement of the Purpose of, and 3 See Securities Exchange Act Release Nos. 82601 Exchange Act of 1934 (‘‘Act’’) and Rule 0–121
(January 30, 2018), 83 FR 4949 (February 2, 2018) thereunder, from the Section 19(b) rule filing
Statutory Basis for, the Proposed Rule requirements to separately file a proposed rule
(SR–Phlx–2018–11); 82604 (January 30, 2018), 83
Change FR 5154 (February 5, 2018) (SR–NASDAQ–2018– change to amend GEMX General 7.
7 GEMX will provide such notice via a posting on
In its filing with the Commission, the 007); 82597 (January 30, 2018), 83 FR 4942
(February 2, 2018) (SR–BX–2018–007); 82599 the same website location where GEMX posts its
Exchange included statements (January 30, 2017), 83 FR 4947 (February 2, 2018) own rule filings pursuant to Rule 19b-4 within the
concerning the purpose of and basis for (SR–ISE–2018–09); 82598 (January 30, 2018), 83 FR timeframe require by such Rule. The website
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the proposed rule change and discussed 4936 (February 2, 2018) (SR–GEMX–2018–02); and posting will include a link to the location on the
82600 (January 30, 2018), 83 FR 4934 (February 2, Nasdaq website where the applicable proposed rule
any comments it received on the change is posted.
2018) (SR–MRX–2018–03).
proposed rule change. The text of these 4 GEMX shall include a hyperlink to Nasdaq’s 8 See 17 CFR 240.0–12; Exchange Act Release No.

General 7 for ease of reference. 39624 (February 5, 1998), 63 FR 8101 (February 18,
16 17 CFR 200.30–3(a)(12). 5 The General 7 Rules are categories of rules that 1998).
1 15 U.S.C. 78s(b)(1). 9 15 U.S.C. 78f(b).
are not trading rules. See 17 CFR 200.30–3(a)(76)
2 17 CFR 240.19b–4. (contemplating such requests). In addition, several 10 15 U.S.C. 78f(b)(5).

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Document Created: 2018-11-02 08:20:31
Document Modified: 2018-11-02 08:20:31
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		83 FR 18379