[Federal Register Volume 75, Number 66 (Wednesday, April 7, 2010)]
[Notices]
[Pages 17810-17813]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-7842]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61817; File No. SR-FINRA-2010-011]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of
Proposed Rule Change To Modify Certain FINRA/Nasdaq Trade Reporting
Facility Fees
March 31, 2010.
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 March 12, 2010, 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. FINRA has
designated the proposed rule change as ``establishing or changing a
due, fee or other charge'' under Section 19(b)(3)(A)(ii) of the Act \3\
and Rule 19b-4(f)(2) thereunder,\4\ which renders the proposal
effective upon receipt of this filing by the Commission. 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.
\3\ 15 U.S.C. 78s(b)(3)(A)(ii).
\4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to amend FINRA Rule 7620A to modify certain fees
applicable to members that use the FINRA/Nasdaq Trade Reporting
Facility (the ``FINRA/Nasdaq TRF'').
The text of the proposed rule change is available on FINRA's Web
site 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
Background
The FINRA/Nasdaq TRF is a facility of FINRA that is operated by The
NASDAQ OMX Group, Inc. (``NASDAQ OMX'') and utilizes Automated
Confirmation Transaction (``ACT'') Service technology. In connection
with the establishment of the FINRA/Nasdaq
[[Page 17811]]
TRF, FINRA and NASDAQ OMX entered into a limited liability company
agreement (the ``LLC Agreement''). Under the LLC Agreement, FINRA, the
``SRO Member,'' has sole regulatory responsibility for the FINRA/Nasdaq
TRF. NASDAQ OMX, the ``Business Member,'' is primarily responsible for
the management of the FINRA/Nasdaq TRF's business affairs, including
establishing pricing for use of the FINRA/Nasdaq TRF, to the extent
those affairs are not inconsistent with the regulatory and oversight
functions of FINRA. Additionally, the Business Member is obligated to
pay the cost of regulation and is entitled to the profits and losses,
if any, derived from the operation of the FINRA/Nasdaq TRF.
Pursuant to Rule 7620A, FINRA members are charged fees for trade
reporting to the FINRA/Nasdaq TRF. The current fee structure for
reports of ``locked-in trades'' (i.e., trades that are not submitted
for ACT comparison and do not require specific acceptance by the contra
party) is based on (1) the number of reports submitted to the FINRA/
Nasdaq TRF in which the member is identified as a party to the trade;
(2) whether the transaction is ``media'' eligible (i.e., the trade
report is submitted to FINRA for public dissemination by the Securities
Information Processors); \5\ (3) whether the trade report is submitted
for clearance and settlement related functions; and (4) whether the
transaction is in a non-Nasdaq exchange-listed security that is
reported to one of the Consolidated Tape Association (``CTA'')
tapes.\6\ Members must pay a fee for reports submitted to the FINRA/
Nasdaq TRF with respect to media-eligible locked-in transactions in
non-Nasdaq exchange-listed (or CTA) securities. A member that exceeds,
in any given month, a daily average of 5,000 media reports in which the
member is identified as the reporting party is afforded a cap on its
fees equal to $145 ($0.029 multiplied by 5,000) multiplied by the
number of trading days in the month. By contrast, there currently is no
fee for the submission of locked-in reports for media-eligible
transactions in Nasdaq-listed securities.
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\5\ ``Non-media'' reports are not submitted to FINRA for public
dissemination purposes, but are submitted for regulatory and/or
clearance and settlement purposes.
\6\ Market data is transmitted to three tapes based on the
listing venue of the security: New York Stock Exchange securities
(``Tape A''), American Stock Exchange and regional exchange
securities (``Tape B''), and Nasdaq Stock Market securities (``Tape
C''). Tape A and Tape B are generally referred to as the
Consolidated Tape.
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Proposed Fee Schedule
NASDAQ OMX, as the Business Member, has determined to replace the
current fee schedule for reporting ``locked-in'' trades to the FINRA/
Nasdaq TRF with a new fee schedule applicable to ``Non-Comparison/
Accept (Non-Match/Compare)'' trades. Such trades are defined as
transactions that are not subject to the ACT comparison process, and
they may be submitted as media or non-media, clearing or non-clearing,
AGU (automated give-up), QSR (Qualified Service Representative), one-
sided and internalized crosses.\7\
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\7\ FINRA is proposing to adopt Supplementary Material in Rule
7260A to define a number of terms used in the proposed fee schedule,
including ``Non-Comparison/Accept (Non-Match/Compare)'' trades.
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Accordingly, FINRA is proposing to amend Rule 7620A to reflect the
new fee schedule. Under the proposed schedule, for each media and non-
media report submitted to the FINRA/Nasdaq TRF, both the member
identified in the report as the ``Executing Party (EP)'' and the member
identified as the ``Contra (CP)'' will be assessed a fee.\8\ Thus, the
proposed rule change establishes four categories of fees (Media/
Executing Party, Non-Media/Executing Party, Media/Contra and Non-Media/
Contra), and each category is applicable to transactions in each of the
three Tapes (Tapes A, B and C).\9\ A member will be assessed a
transaction fee of $0.018 if it is the Executing Party, and $0.013 if
it is the Contra, multiplied by the number of same-type reports (i.e.,
media or non-media) submitted in a given month.
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\8\ Pursuant to the proposed Supplementary Material, the
``Executing Party (EP)'' is defined as the member with the trade
reporting obligation under FINRA rules, and the ``Contra (CP)'' is
defined as the member on the contra side of a trade report. These
positions formerly were identified in FINRA rules as the ``Market
Maker'' or ``MM'' side and the ``Order Entry'' or ``OE'' side,
respectively.
FINRA notes that non-members (non-member broker-dealers and
customers) are not assessed fees under FINRA rules.
\9\ The four categories of fees are independent of each other
and, as such, may be subsequently adjusted individually. Any change
to one or more of these categories would be subject to a future
proposed rule change by FINRA.
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Additionally, the proposed fee schedule includes a cap applicable
to each of the four new fee categories based on the average daily
volume of reports submitted to a particular Tape. To be eligible for a
cap in a particular Tape, a member must achieve a minimum average daily
volume of media reports submitted to that Tape as Executing Party in a
given month. (The proposed volume threshold for all three Tapes is
2,500.) \10\ Thus, the proposed rule change would reduce the per unit
fee traditionally assessed (from $0.029 to $0.018 and $0.013, as
applicable), as well as the volume threshold required to achieve a fee
cap (from 5,000 to 2,500).
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\10\ Although the proposed fee schedule includes identical
average daily volume thresholds for all three Tapes, the thresholds
are independent of each other and, as such, may be subsequently
adjusted individually. Any change to one or more of these thresholds
would be subject to a future proposed rule change by FINRA.
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Trade reports in which the member appears as the Contra Party do
not contribute to achievement of the cap. However, if a member is
eligible for a cap based on media trade reports in which it appears as
the Executing Party, then caps also would apply to media reports in
which that member appears as the Contra Party, as well as to non-media
reports where the member appears as Executing Party or Contra Party.
Thus, once a member achieves a cap (based on the number of Media/
Executing Party reports), under the current proposal, the maximum
number of billable trade reports applicable to each fee category is
2,500 for Tape A, B or C. The maximum number of billable Media/
Executing Party reports will always be equal to the daily average
number of Media/Executing Party trades needed to qualify for a cap for
Tape A, B or C, as specified in the Rule. For each of the other three
fee categories (Non-Media/Executing Party, Media/Contra and Non-Media/
Contra), the maximum number of billable trades also is specified in the
Rule and can be adjusted independently of the Media/Executing Party
cap.\11\ Under the current proposal, if a member is eligible for the
fee cap, it will be assessed a maximum fee within each category equal
to the category fee (either $0.018 or $0.013) multiplied by 2,500
multiplied by the number of trading days in the month.
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\11\ Any change to one or more of these caps would be subject to
a future proposed rule change by FINRA.
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The following table provides an example of the fee schedule
applicable to a member that is ineligible for a fee cap (based on 22
trading days in the month):
[[Page 17812]]
No Fee Cap--Tape A
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Average
Report type/side daily Billable Rate Cost
trades trades
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Media/EP.................... 2,100 2,100 $0.018 $832
Non-Media/EP................ 4,000 4,000 0.018 1584
Media/Contra................ 3,000 3,000 0.013 858
Non-Media/Contra............ 2,100 2,100 0.013 601
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Total................... 11,200 11,200 ......... 3,875
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The following table provides an example of the fee schedule
applicable to a member that is eligible for a fee cap (based on 22
trading days in the month):
Fee Cap--Tape A
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Average
Report type/side daily Billable Rate Cost
trades trades
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Media/EP.................... 4,000 2,500 $0.018 $990
Non-Media/EP................ 4,000 2,500 0.018 990
Media/Contra................ 4,000 2,500 0.013 715
Non-Media/Contra............ 4,000 2,500 0.013 715
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Total................... 16,000 10,000 ......... 3,410
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FINRA notes that the proposed rule change does not propose to
modify the other fees assessed under Rule 7620A, specifically: the fee
assessed a member for submitting a clearing report to the FINRA/Nasdaq
TRF to transfer a transaction fee pursuant to Rule 7230A(h); the
``Comparison'' fee; the ``Late Report--T+N'' fee; the ``Query'' fee;
and the ``Corrective Transaction Charge.''
NASDAQ OMX, as the Business Member, has advised FINRA that it
believes that the proposed fee schedule more equitably allocates the
fees assessed to members for their use of the FINRA/Nasdaq TRF. Under
current Rule 7620A, the fee burden can fall disproportionately on
certain parties (e.g., reporting parties submitting media-only reports
(with no clearing) of transactions in CTA securities and contra parties
to locked-in trades in CTA securities). Under the proposed fee
schedule, both members identified as parties to the trade in the trade
report will be assessed a fee. In addition, the proposed fee schedule
introduces fees for reports of transactions in Nasdaq-listed
securities, as well as non-media, non-clearing trade reports, which
have historically not been assessed a fee. NASDAQ OMX believes that
extending fees for the submission of these reports is consistent with
its goal of fairly and equitably distributing the costs associated with
the operation and maintenance of the FINRA/Nasdaq TRF. Thus, the
proposed fees for the submission of non-comparison trade reports to the
FINRA/Nasdaq TRF are spread more equitably across parties (Executing
Party and Contra), as well as report type (media and non-media) and
security type (Nasdaq-listed and non-Nasdaq exchange-listed). NASDAQ
OMX believes that the proposed reduction in fees is appropriate given
that the burden of paying for the use of the FINRA/Nasdaq TRF will be
shared by all participants across the full range of transactions.
FINRA has filed the proposed rule change for immediate
effectiveness. FINRA is proposing that the operative date of the
proposed rule change will be April 1, 2010.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(5) of the Act,\12\ which requires, among
other things, that FINRA rules provide for the equitable allocation of
reasonable dues, fees and other charges among members and issuers and
other persons using any facility or system that FINRA operates or
controls. FINRA believes that the proposed fee schedule is fair and
provides an equitable allocation of fees in that it will apply
uniformly to all FINRA members that use the FINRA/Nasdaq TRF.
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\12\ 15 U.S.C. 78o-3(b)(5).
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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.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act \13\ and paragraph (f)(2) of Rule 19b-4
thereunder.\14\ At any time within 60 days of the filing of the
proposed rule change, the Commission may summarily abrogate such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
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\13\ 15 U.S.C. 78s(b)(3)(A)(ii).
\14\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
[[Page 17813]]
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 e-mail to [email protected]. Please include
File Number SR-FINRA-2010-011 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2010-011. This
file number should be included on the subject line if e-mail is used.
To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments,
all written statements with respect to the proposed rule change that
are filed with the Commission, and all written communications relating
to the proposed rule change between the Commission and any person,
other than those that may be withheld from the public in accordance
with the provisions of 5 U.S.C. 552, will be available for Web site
viewing and printing in the Commission's Public Reference Room on
official business days between the hours of 10 a.m. and 3 p.m. Copies
of such filing also will be available for inspection and copying at the
principal office of FINRA. All comments received will be posted without
change; the Commission does not edit personal identifying information
from submissions. You should submit only information that you wish to
make publicly available. All submissions should refer to File Number
SR-FINRA-2010-011 and should be submitted on or before April 28, 2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-7842 Filed 4-6-10; 8:45 am]
BILLING CODE 8011-01-P