83 FR 31589 - Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving a Proposed Rule Change, as Modified by Amendment No. 1, To Establish a Second Trade Reporting Facility

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 130 (July 6, 2018)

Page Range		31589-31590
FR Document		2018-14462

Federal Register, Volume 83 Issue 130 (Friday, July 6, 2018)

[Federal Register Volume 83, Number 130 (Friday, July 6, 2018)]
[Notices]
[Pages 31589-31590]
From the Federal Register Online [www.thefederalregister.org]
[FR Doc No: 2018-14462]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83559; File No. SR-FINRA-2018-013]

Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Order Approving a Proposed Rule Change, as Modified by
Amendment No. 1, To Establish a Second Trade Reporting Facility

June 29, 2018.

I. Introduction

On April 19, 2018, the 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 establish a second Trade Reporting Facility
(``TRF'') to be operated in conjunction with Nasdaq, Inc. (``Nasdaq'').
The proposed rule change was published for comment in the Federal
Register on April 26, 2018.\3\ The Commission received no comment
letters on the proposal. On June 21, 2018, FINRA filed Amendment No.
1.\4\ This order approves the proposed rule change, as modified by
Amendment No. 1.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 83082 (April 20,
2018), 83 FR 18379 (``Notice''). See also, Securities Exchange Act
Release No. 83398 (June 8, 2018), 83 FR 27807 (June 14, 2018)
extending the time for the Commission to act on the filing.
\4\ In Amendment No. 1, FINRA states that, if the Commission
approves the proposed rule change, FINRA anticipates that the FINRA/
Nasdaq TRF Chicago will commence operation in September 2018, but in
no event later than December 31, 2018. Amendment No. 1 is available
at: https://www.sec.gov/comments/sr-finra-2018-013/finra2018013-3918682-166985.pdf. Because Amendment No. 1 does not materially
alter the substance of the proposed rule change or raise unique or
novel regulatory issues, Amendment No. 1 is not subject to notice
and comment.
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II. Description of the Proposal

Background

FINRA currently has three facilities that allow its members to
report over-the-counter (``OTC'') trades in NMS stocks: \5\ The FINRA/
Nasdaq TRF, the FINRA/NYSE TRF, and the Alternative Display Facility
(``ADF'') (collectively, the ``FINRA Facilities''). For each TRF, FINRA
is the SRO Member and, as such, it has sole regulatory responsibility
for the TRFs, 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 is the ``Business
Member'' of the FINRA/Nasdaq TRF.\6\ A Business Member is primarily
responsible for the management of the business affairs of its TRF.\7\
Among other things, the Business Member establishes pricing, is
obligated to pay the cost of regulation and is entitled to the profits
and responsible for the losses derived from the operation of its
TRF.\8\
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\5\ See Rule 600(b) of Regulation NMS under the Act.
\6\ NYSE is the Business Member of the FINRA/NYSE TRF.
\7\ See Notice at 18381.
\8\ See id.
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In January 2016, FINRA published a Trade Reporting Notice (``Trade
Reporting Notice'') that provided guidance on the reporting obligations
of member firms regarding OTC equity trades in the event of a systems
issue during the trading day that prevents firms from reporting OTC
trades in NMS stocks in accordance with FINRA rules.\9\ As set forth in
the Trade Reporting Notice, a firm that routinely reports its OTC
trades in NMS stocks to one FINRA Facility (``primary facility'') must
establish and maintain connectivity and report to a second FINRA
Facility (``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.\10\
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\9\ See Trade Reporting Notice, January 20, 2016 (OTC Equity
Trading and Reporting in the Event of Systems Issues).
\10\ As discussed in the Trade Reporting 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 trades to a FINRA Facility that is
operational).
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Proposal

FINRA proposed to establish a second FINRA/Nasdaq TRF (``FINRA/
Nasdaq TRF Chicago''), to provide FINRA members an additional facility
to which to report trades in compliance with FINRA rules and the Trade
Reporting Notice. The FINRA/Nasdaq TRF Chicago would be governed by the
rules applicable to the existing FINRA/Nasdaq Trade Reporting Facility
(``FINRA/Nasdaq TRF Carteret'').\11\ 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.\12\ FINRA/Nasdaq TRF Chicago trade reports
would be disseminated with a modifier indicating the source of the
transactions that would distinguish them from transactions executed on
an exchange or reported to another FINRA Facility, including the FINRA/
Nasdaq TRF Carteret.
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\11\ 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).
\12\ A FINRA member also has the option to report some trades,
on a primary basis, to the FINRA/Nasdaq TRF Chicago, and some
trades, on a primary basis, to the FINRA/Nasdaq TRF Carteret.
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The proposed rule change would establish the FINRA/Nasdaq TRF
Chicago on the same terms as the FINRA/Nasdaq TRF Carteret. The FINRA/
Nasdaq TRF Chicago would be built with the same technology, provide

[[Page 31590]]

the same features and performance,\13\ 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 TRFs. Moreover, Nasdaq, as the Business
Member, 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).\14\ The proposed rule
change would allow firms to aggregate the volume of trades that they
report to the two TRFs, which will 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. Finally,
FINRA would amend Rules 6300A, 7200A, and 7600A Series, which govern
the FINRA/Nasdaq TRF Carteret, to accommodate the establishment of the
FINRA/Nasdaq TRF Chicago.\15\
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\13\ Users of the two FINRA/Nasdaq TRFs may experience latency
differences due to the different locations of the TRFs.
\14\ 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 more than a
de minimis transition period.
\15\ See Notice at 18381-82.
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III. Discussion and Commission Findings

After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities
association.\16\ In particular, the Commission finds that the proposed
rule change is consistent with Section 15A(b)(6) of the Act,\17\ which
requires, among other things, that FINRA rules 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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\16\ In approving this proposed rule change, the Commission has
considered the proposed rule change's impact on efficiency,
competition, and capital formation. See 15 U.S.C. 78c(f).
\17\ 15 U.S.C. 78o-3(b)(6).
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The Commission believes that the proposal to establish the FINRA/
Nasdaq TRF Chicago is consistent with the purposes of the Act and with
FINRA's responsibility to enforce compliance by its members with its
rules and with the Act. FINRA states that geographic dispersion of
these TRFs would reduce the risk of a regional outage affecting them
both simultaneously. By providing members with an alternative FINRA
facility in a different location than the existing FINRA/Nasdaq TRF
with which to satisfy their trade reporting obligations, the Commission
believes that the proposed rule change should enhance the resiliency
and promote the integrity of the OTC market. Accordingly, for the
reasons discussed above, the Commission finds that the proposed rule
change is consistent with Section 15A(b)(6) of the Act.

IV. Conclusion

It is therefore ordered pursuant to Section 19(b)(2) of the Act
\18\ that the proposed rule change (SR-FINRA-2018-013), as modified by
Amendment No. 1, be and hereby is approved.
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\18\ 15 U.S.C. 78s(b)(2).

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-14462 Filed 7-5-18; 8:45 am]
BILLING CODE 8011-01-P

Federal Register / Vol. 83, No. 130 / Friday, July 6, 2018 / Notices 31589

only one method. The Commission will proposed rule change to establish a stocks in accordance with FINRA rules.9
post all comments on the Commission’s second Trade Reporting Facility As set forth in the Trade Reporting
internet website (http://www.sec.gov/ (‘‘TRF’’) to be operated in conjunction Notice, a firm that routinely reports its
rules/sro.shtml). Copies of the with Nasdaq, Inc. (‘‘Nasdaq’’). The OTC trades in NMS stocks to one FINRA
submission, all subsequent proposed rule change was published for Facility (‘‘primary facility’’) must
amendments, all written statements comment in the Federal Register on establish and maintain connectivity and
with respect to the proposed rule April 26, 2018.3 The Commission report to a second FINRA Facility
change that are filed with the received no comment letters on the (‘‘secondary facility’’) if the firm intends
Commission, and all written proposal. On June 21, 2018, FINRA filed to continue to support OTC trading as
communications relating to the Amendment No. 1.4 This order approves an executing broker while its primary
proposed rule change between the the proposed rule change, as modified facility is experiencing a widespread
Commission and any person, other than by Amendment No. 1.
those that may be withheld from the systems issue.10
public in accordance with the II. Description of the Proposal
Proposal
provisions of 5 U.S.C. 552, will be Background
available for website viewing and FINRA proposed to establish a second
printing in the Commission’s Public FINRA currently has three facilities FINRA/Nasdaq TRF (‘‘FINRA/Nasdaq
Reference Room, 100 F Street NE, that allow its members to report over- TRF Chicago’’), to provide FINRA
Washington, DC 20549 on official the-counter (‘‘OTC’’) trades in NMS members an additional facility to which
business days between the hours of stocks: 5 The FINRA/Nasdaq TRF, the to report trades in compliance with
10:00 a.m. and 3:00 p.m. Copies of the FINRA/NYSE TRF, and the Alternative FINRA rules and the Trade Reporting
filing also will be available for Display Facility (‘‘ADF’’) (collectively, Notice. The FINRA/Nasdaq TRF
inspection and copying at the principal the ‘‘FINRA Facilities’’). For each TRF, Chicago would be governed by the rules
office of the Exchange. All comments FINRA is the SRO Member and, as such, applicable to the existing FINRA/
received will be posted without change. it has sole regulatory responsibility for Nasdaq Trade Reporting Facility
Persons submitting comments are the TRFs, including: Real-time (‘‘FINRA/Nasdaq TRF Carteret’’).11 A
cautioned that we do not redact or edit monitoring and T+1 surveillance,
primary user of the FINRA/Nasdaq TRF
personal identifying information from development and enforcement of trade
Carteret could report on a back-up basis
comment submissions. You should reporting rules, and submission of
proposed rule changes to the to the FINRA/Nasdaq TRF Chicago
submit only information that you wish
Commission. Nasdaq is the ‘‘Business pursuant to the same rules, pricing,
to make available publicly. All
submissions should refer to File Member’’ of the FINRA/Nasdaq TRF.6 A features and performance to which the
Number SR–NYSE–2018–30 and should Business Member is primarily firm is accustomed as a user of the
be submitted on or before July 27, 2018. responsible for the management of the FINRA/Nasdaq TRF Carteret—and vice
business affairs of its TRF.7 Among versa.12 FINRA/Nasdaq TRF Chicago
For the Commission, by the Division of
Trading and Markets, pursuant to delegated other things, the Business Member trade reports would be disseminated
authority.25 establishes pricing, is obligated to pay with a modifier indicating the source of
Eduardo A. Aleman, the cost of regulation and is entitled to the transactions that would distinguish
Assistant Secretary. the profits and responsible for the losses them from transactions executed on an
[FR Doc. 2018–14465 Filed 7–5–18; 8:45 am]
derived from the operation of its TRF.8 exchange or reported to another FINRA
In January 2016, FINRA published a Facility, including the FINRA/Nasdaq
BILLING CODE 8011–01–P
Trade Reporting Notice (‘‘Trade TRF Carteret.
Reporting Notice’’) that provided The proposed rule change would
SECURITIES AND EXCHANGE guidance on the reporting obligations of establish the FINRA/Nasdaq TRF
COMMISSION member firms regarding OTC equity Chicago on the same terms as the
[Release No. 34–83559; File No. SR–FINRA–
trades in the event of a systems issue FINRA/Nasdaq TRF Carteret. The
2018–013] during the trading day that prevents FINRA/Nasdaq TRF Chicago would be
firms from reporting OTC trades in NMS built with the same technology, provide
Self-Regulatory Organizations;
Financial Industry Regulatory 3 See Securities Exchange Act Release No. 83082 9 See Trade Reporting Notice, January 20, 2016

Authority, Inc.; Order Approving a (April 20, 2018), 83 FR 18379 (‘‘Notice’’). See also, (OTC Equity Trading and Reporting in the Event of
Securities Exchange Act Release No. 83398 (June 8, Systems Issues).
Proposed Rule Change, as Modified by 2018), 83 FR 27807 (June 14, 2018) extending the 10 As discussed in the Trade Reporting Notice, if
Amendment No. 1, To Establish a time for the Commission to act on the filing. a firm chooses not to have connectivity to a
Second Trade Reporting Facility 4 In Amendment No. 1, FINRA states that, if the
secondary facility, it should cease executing OTC
Commission approves the proposed rule change, trades altogether when its primary trade reporting
June 29, 2018. FINRA anticipates that the FINRA/Nasdaq TRF facility is experiencing a widespread systems issue.
Chicago will commence operation in September In that instance, the firm could route orders for
I. Introduction 2018, but in no event later than December 31, 2018. execution to an exchange or another FINRA
On April 19, 2018, the Financial Amendment No. 1 is available at: https:// member (i.e., a member with connectivity and the
www.sec.gov/comments/sr-finra-2018-013/ ability to report trades to a FINRA Facility that is
Industry Regulatory Authority, Inc. finra2018013-3918682-166985.pdf. Because operational).
(‘‘FINRA’’) filed with the Securities and Amendment No. 1 does not materially alter the 11 See Securities Exchange Act Release No. 54084
Exchange Commission (‘‘Commission’’), substance of the proposed rule change or raise
daltland on DSKBBV9HB2PROD with NOTICES

(June 30, 2006), 71 FR 38935 (July 10, 2006) (order
pursuant to Section 19(b)(1) of the unique or novel regulatory issues, Amendment No. approving SR–NASD–2005–087); and Securities
1 is not subject to notice and comment. Exchange Act Release No. 54798 (November 21,
Securities Exchange Act of 1934 5 See Rule 600(b) of Regulation NMS under the
2006), 71 FR 69156 (November 29, 2006) (order
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a Act. approving SR–NASD–2006–104).
6 NYSE is the Business Member of the FINRA/ 12 A FINRA member also has the option to report
25 17 CFR 200.30–3(a)(12). NYSE TRF. some trades, on a primary basis, to the FINRA/
1 15 U.S.C. 78s(b)(1). 7 See Notice at 18381.
Nasdaq TRF Chicago, and some trades, on a primary
2 17 CFR 240.19b–4. 8 See id. basis, to the FINRA/Nasdaq TRF Carteret.

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Document Created: 2018-07-06 00:46:12
Document Modified: 2018-07-06 00:46:12

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 31589