[Federal Register Volume 75, Number 48 (Friday, March 12, 2010)]
[Notices]
[Pages 11972-11974]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-5300]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61658; File No. SR-FINRA-2010-001]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Order Approving Proposed Rule Change Relating to
Publication of Certain Aggregate Daily Trading Volume Data
March 5, 2010.
I. Introduction
On January 6, 2010, 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 relating to the publication of aggregate daily
trading volume data for over-the-counter trades in NMS stocks that are
executed within a FINRA member's alternative trading system (``ATS'')
dark pool and reported to a FINRA Trade Reporting Facility
(``TRF'').\3\ The proposed rule change was published for comment in the
Federal Register on January 22, 2010.\4\ The Commission received one
comment on the proposal.\5\ This order approves the proposed rule
change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ The FINRA TRFs are facilities used by members to report
over-the-counter transactions in NMS stocks to FINRA. There are two
TRFs in operation today: the FINRA/Nasdaq TRF and the FINRA/NYSE
TRF. Each TRF is operated in conjunction with the respective
exchange ``TRF Business Member.''
\4\ See Securities Exchange Act Release No. 61361 (January 14,
2010), 75 FR 3768.
\5\ See letter from Tom Jordan, Advisory Committee Chair,
Financial Information Forum, to Elizabeth M. Murphy, Secretary,
Commission, dated February 24, 2010 (``FIF Letter'').
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II. Description of the Proposal
FINRA has members that operate so-called ``dark pools'' of
liquidity. FINRA proposes to define such dark pools to include an ATS
that does not display quotations or subscribers' orders to any person
or entity, either internally within an ATS dark pool or externally
beyond an ATS dark pool (other than to employees of the ATS).\6\ Over-
the-counter transactions executed within an ATS dark pool are reported
by the ATS to a FINRA facility, e.g., a FINRA TRF. The FINRA facility
reports information regarding transactions executed within an ATS dark
pool to a central processor for consolidated market data in NMS stocks.
The central processor then distributes the information it receives from
the FINRA facility to the public in a consolidated stream pursuant to
joint-SRO plans. The information relating to the trading volume
reported to FINRA facilities by members operating ATS dark pools is not
currently separately identified to the public.
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\6\ See id. and proposed FINRA Rule 6160(c).
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The proposed rule change will allow for the publication of ATS dark
pool trading volume to the public. FINRA, through its TRF Limited
Liability Companies, will distribute transaction reporting data to the
TRF Business Members so that the TRF Business Members may publish,
after the close of trading, aggregate daily trading volume data for
trades executed within participating ATS dark pools. The TRF Business
Members will make the data widely available to the public at no cost.
Specifically, members will not be charged a fee for having their ATS
dark pool data included in the published aggregate daily trading volume
data. Additionally, no TRF Business Member will charge a fee to view
the aggregate daily trading volume data.
The TRF Business Members will post the daily trading volume data
for trades executed within participating ATS dark pools on their
respective Web sites. The New York Stock Exchange LLC (``NYSE'') will
post daily trading volume data on its Web site based on transactions
reported to the FINRA/NYSE TRF, and the NASDAQ Stock Market LLC
(``Nasdaq'') will post daily trading volume data on its Web site based
on transactions reported to the FINRA/Nasdaq TRF. The TRF Business
Members will segregate the daily trading volume data for each
participating ATS dark pool.\7\
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\7\ Initially, the data may be presented as an overall volume
percentage; however, at a later date, it may be further broken down
by security. FINRA members that participate in the program must
acknowledge that their data may be published in one of these two
ways.
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[[Page 11973]]
FINRA members may choose to participate in the proposed program to
publish dark pool transaction data. No member's ATS dark pool data will
be included in the aggregate daily trading volume unless the member
expressly requests that it be published. If a member decides to have
its ATS dark pool volume published, it must comply with FINRA Rule
6160. Under Rule 6160, FINRA currently permits members to obtain and
use multiple Market Participant Identifiers (``MPIDs'') for purposes of
reporting trades to a TRF on a pilot basis.\8\ The proposed rule change
will add paragraph (c) to Rule 6160 and will expand the scope of the
rule to allow FINRA members to request multiple MPIDs for the purpose
of reporting ATS dark pool transaction data, subject to certain
conditions.\9\
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\8\ Under Rule 6160, members must submit a written request to,
and obtain approval from, FINRA Operations for additional MPID(s).
As part of the approval process, members must provide bona fide
business and/or regulatory reasons for requesting an additional
MPID, such as to facilitate a member's back office operations.
\9\ FINRA considers the issuance of, and trade reporting with,
multiple MPIDs to be a privilege and not a right. If FINRA
determines that the use of multiple MPIDs is detrimental to the
marketplace, or that a TRF participant is using one or more
additional MPIDs improperly or for other than the purpose(s)
identified by the participant, FINRA staff has full discretion to
limit or withdraw its grant of the additional MPID(s) to the
Participant for purposes of reporting trades to a TRF. See Rule
6160.
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If a member chooses to participate in the program to publish ATS
dark pool data (``participating member''), the member must obtain and
use a separate MPID designated exclusively for the reporting of
transactions executed within a single ATS dark pool.\10\ The member
will be required to use this separate MPID to report all transactions
executed within that ATS dark pool to a TRF (or TRFs).\11\ In addition,
the member will be prohibited from using such separate MPID to report
any transaction that is not executed within the ATS dark pool,
including, e.g., trades that are routed away by the ATS dark pool. Any
member that operates multiple ATS dark pools and decides to have each
ATS dark pool participate in the proposed program must obtain a
separate MPID for each ATS dark pool.\12\ FINRA members that choose to
have their ATS dark pool volume included in the published data also
will be required to have policies and procedures in place to ensure
that trades reported with a separate MPID obtained under proposed Rule
6160(c) are restricted to trades executed within that ATS dark pool.
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\10\ Today, under FINRA rules, a broker-dealer that operates an
ATS dark pool may report trades executed within the ATS using the
same MPID that it uses for transactions it executes in other areas
of its business (including, e.g., other ATSs it operates). As a
result, it would not be possible to determine from the trade
reporting data which trades were executed within the ATS dark pool
as opposed to other areas of the broker-dealer's business. An ATS
dark pool using such a ``multi-purpose'' MPID will be ineligible to
participate in the proposed program for publication of ATS dark pool
volume.
\11\ For example, if ``Member A'' chooses to participate in the
program to publish data for its ATS dark pool, ``Dark Pool X,''
Member A will be assigned a single MPID to use exclusively to report
the trading information for Dark Pool X. Member A cannot be assigned
a second MPID to report the trading information for Dark Pool X.
\12\ A member cannot use a single MPID to report transactions
executed within multiple ATS dark pools. For example, if ``Member
B'' participates in the program to publish data for its ATS dark
pools, ``Dark Pool Y'' and ``Dark Pool Z,'' Member B must obtain a
separate MPID for each dark pool. Member B cannot use the MPID that
is assigned to Dark Pool Y to report any transactions executed
within Dark Pool Z.
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If a FINRA member obtains a separate MPID for ATS dark pool
transaction reporting for purposes of the proposed program, then all
transactions reported under such MPID will be included in the published
ATS dark pool volume, irrespective of whether the member reports to a
single TRF or multiple TRFs.\13\ Because a member that opts in to the
proposed program may report transactions executed within its ATS dark
pool to more than one TRF, the data published on one TRF Business
Member's Web site may not reflect 100 percent of that member's volume
for that ATS dark pool. Persons who wish to view the ATS dark pool data
therefore may need to consult all TRF Business Members' Web sites to
see the total volume for any given ATS dark pool, and the TRF Business
Members will make prominent disclosure to this effect on their Web
sites.\14\
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\13\ In other words, once a member has chosen to participate in
the program, 100 percent of its ATS dark pool transactions must be
reported under a single MPID to one or more TRFs (the member can
choose to report to a single TRF or multiple TRFs) and 100 percent
of this volume will be published. Because FINRA's Alternative
Display Facility (``ADF'') does not offer a program to publish dark
pool transaction data, the member will be prohibited from reporting
to the ADF in this instance.
\14\ The proposed Supplementary Material to Rule 6160 also will
clarify that the TRF Business Members will make such disclosure.
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Pursuant to the proposed Supplementary Material, a member operating
an ATS dark pool must certify in writing to FINRA that: (1) The member
is affirmatively opting in for purposes of having its ATS dark pool
transaction data included in the published data and acknowledges that
its data may be presented as an overall percentage volume only or may
be broken down by security; (2) the member meets the definition of ATS
dark pool in proposed Rule 6160(c); and (3) the member has obtained a
separate MPID that will be used exclusively for reporting its ATS dark
pool transactions as required by proposed Rule 6160(c). The member will
be required to identify to FINRA the MPID (or MPIDs, if the member
operates more than one ATS dark pool and opts to have each ATS dark
pool participate in the proposed program) that should be aggregated in
the published volume.
The proposed requirements relating to the establishment and use of
separate MPIDs for purposes of ATS dark pool transaction reporting are
designed to ensure that the published volume is limited to the member's
ATS dark pool activity. In addition to these requirements, FINRA has
established certain other parameters to minimize the risk of double
counting and ensure the accuracy and reliability of the published data.
The data posted on each TRF Business Member's Web site will show the
trading volume reported to the respective TRF only and will not include
transactions reported to or counted by another venue, e.g., another
TRF. Only transactions that are reported for purposes of publication
will be included in the published data (i.e., ``non-tape'' regulatory
or clearing-only reports will not be included in the aggregate volume).
In addition, there will be no double counting of trade volume (i.e., a
1,000 share trade reported for publication purposes will not be counted
as 2,000 shares to reflect 1,000 shares on the buy side and 1,000
shares on the sell side).
III. Discussion and Commission's Findings
After careful review of the proposed rule change, 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.\15\ In particular, the Commission
finds that the proposed rule change is consistent with the provisions
of Section 15A(b)(6) of the Act,\16\ which requires, among other
things, that FINRA rules must be designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest; and are not designed to permit unfair
[[Page 11974]]
discrimination between customers, issuers, brokers, or dealers.
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\15\ In approving this proposal, the Commission has considered
the proposed rule's impact on efficiency, competition and capital
formation. See 15 U.S.C. 78c(f).
\16\ 15 U.S.C. 78o-3(b)(6).
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The Commission believes that the proposed rule change will help
increase the information available about transactions executed in dark
pools, and therefore further the ability of investors to identify the
sources of liquidity in NMS stocks. The Commission notes that the
provisions of Rule 6160(c) are designed to ensure that once a member
determines to participate in the program with respect to one (or more)
of its ATS dark pools, all of that dark pool's transactions, and only
that dark pool's transactions, will be aggregated for publication.\17\
The published ATS dark pool information will separately identify each
dark pool and the TRF Business Members will make prominent disclosure
on their Web sites that a person may need to look at both Web sites to
obtain the total volume for a particular ATS dark pool.\18\ Further,
FINRA members will be required to have policies and procedures in place
to ensure that trades reported with a separate MPID obtained under
proposed Rule 6160(c) are restricted to trades executed within that ATS
dark pool. The Commission believes that these conditions are important
to assure that the public has accurate, reliable and complete
information regarding the activity of ATS dark pools that choose to
participate in this program.
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\17\ Rule 6160(c) requires FINRA members that choose to
participate in the program with respect to an ATS dark pool to
provide all of the transaction data for that ATS dark pool to one or
more of the FINRA TRFs for purposes of publication by the TRF
Business Members. Thus, members may not selectively report some
transactions executed within a participating ATS dark pool and keep
other transactions executed in the ATS ``dark.'' Further, Rule
6160(c) requires FINRA members that choose to participate in the
program to use a single MPID to report transaction information for
each participating ATS dark pool. A member cannot be assigned a
second MPID to report the trading information for the same dark pool
and cannot use a single MPID to report transactions executed within
multiple dark pools.
\18\ The TRF Business Members will segregate the information
they receive for each ATS dark pool on their Web site and must
prominently disclose that the Web site may not reflect 100 percent
of that dark pool's volume, and that interested parties will need to
consult all TRF Business Members' Web sites to see the total volume
for any given ATS dark pool.
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The Commission received one comment letter in connection with the
proposed rule change.\19\ This commenter expressed concern that, while
the publishing of ATS dark pool transactions is voluntary under the
proposed rule change, the requirement of a separate MPID designed
exclusively for reporting a member's ATS dark pool transactions could
limit ATS participation and delay implementation because of both
administrative processes and technology modifications required to
implement this reporting in the manner defined in the rule filing.\20\
While the commenter believes that publishing ATS dark pool volume would
be beneficial to the market and the public, it believes that FINRA
should consider other methods to achieve this goal.\21\ The commenter
suggested some alternatives to identifying ATS dark pool volume other
than obtaining a separate MPID.\22\ The Commission appreciates this
commenter's view on the proposed rule change. However, the Commission
believes that FINRA's proposal to allow members to request multiple
MPIDs for the purpose of reporting ATS dark pool transaction data is a
reasonable method by FINRA to assure the accuracy of the information
being made public. In addition, the Commission notes that a FINRA
member's participation in the program to publish ATS dark pool
information is voluntary and that if a member does not wish to obtain a
separate MPID to display its ATS dark pool data, it does not have to
participate.
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\19\ See FIF Letter, supra note 5.
\20\ See FIF Letter, supra note 5, at 1.
\21\ Id.
\22\ See FIF Letter, supra note 5, at 2.
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In addition, the Commission finds that the proposed rule change is
consistent with Section 15A(b)(6) of the Act,\23\ which requires, among
other things, that FINRA rules are not designed to permit unfair
discrimination between customers, issuers, brokers or dealers, and Rule
603(a) of Regulation NMS under the Act,\24\ which requires, among other
things, that any national securities exchange, national securities
association, broker or dealer that distributes information with respect
to quotations for or transactions in an NMS stock to a securities
information processor, broker, dealer, or other persons shall do so on
terms that are not unreasonably discriminatory. In approving the
proposed rule change, the Commission notes that FINRA, through its TRF
Limited Liability Companies, will distribute the transaction reporting
data for ATS dark pools that choose to participate in this program to
the TRF Business Members so that the TRF Business Members may publish,
after the close of trading, aggregate daily trading volume data for
trades executed within the participating ATS dark pools, separated by
dark pool, on their respective Web sites. The Commission also notes
that FINRA members will not be charged a fee for having their ATS dark
pool data included in the published aggregate daily trading volume data
and that no TRF Business Member will charge a fee to anyone to view the
aggregate daily trading volume data posted on its Web site. The
Commission believes that these conditions are necessary and appropriate
to ensure that investors, market participants and other persons will
have access to the ATS dark pool data on terms that are not
unreasonably or unfairly discriminatory.
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\23\ 15 U.S.C. 78o-3(b)(6).
\24\ 17 CFR 242.603(a).
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\25\ that the proposed rule change (SR-FINRA-2010-001) be, and it
hereby is, approved.
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\25\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-5300 Filed 3-11-10; 8:45 am]
BILLING CODE 8011-01-P