[Federal Register Volume 81, Number 68 (Friday, April 8, 2016)]
[Notices]
[Pages 20714-20716]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-08041]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77505; File No. SR-FINRA-2016-012]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend FINRA Rule 6184 (Transactions in 
Exchange-Traded Managed Fund Shares (``NextShares''))

April 4, 2016.
    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 29, 2016, 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 and 
II below, which Items have been prepared by FINRA. FINRA has designated 
the proposed rule change as constituting a ``non-controversial'' rule 
change under paragraph (f)(6) of Rule 19b-4 under the Act,\3\ 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\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    FINRA is proposing to amend FINRA Rule 6184 (Transactions in 
Exchange-Traded Managed Fund Shares (``NextShares'')) to provide that 
the FINRA/Nasdaq Trade Reporting Facility (``FINRA/Nasdaq TRF'') will 
make available to market participants a daily file with the final trade 
price for each over-the-counter transaction in exchange-traded managed 
fund shares (``NextShares'') reported to the FINRA/Nasdaq TRF for 
public dissemination purposes.
    Below is the text of the proposed rule change. Proposed new 
language is in italics; proposed deletions are in brackets.
* * * * *


6000.  QUOTATION AND TRANSACTION REPORTING FACILITIES


6100.  QUOTING AND TRADING IN NMS STOCKS

* * * * *


6180.  Transaction Reporting

* * * * *


6184.  Transactions in Exchange-Traded Managed Fund Shares 
(``NextShares'')

    (a) through (d) No Change.


. . . Supplementary Material:


.01  No Change.


.02  End of Day Processing

    Members that clear transactions in NextShares directly at NSCC, 
e.g., via direct QSR submission, must ensure that they submit to NSCC 
all pricing information, including the IIV-based price on intraday 
submissions and the final NAV-based trade price after market close, in 
accordance with NSCC requirements; such information will not be 
provided to NSCC by FINRA.
    Following publication of the NAV, the FINRA/Nasdaq Trade Reporting 
Facility will make available to market participants a daily file with 
the final NAV-based trade price for each transaction in NextShares 
reported during the trading day to the FINRA/Nasdaq Trade Reporting 
Facility for public dissemination purposes.
* * * * *

[[Page 20715]]

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 recently adopted Rule 6184 \4\ relating to the reporting of 
over-the-counter (``OTC'') transactions in NextShares, which have been 
approved by the SEC for listing and trading on the Nasdaq Stock Market 
LLC (``Nasdaq'').\5\ As described more fully in SR-FINRA-2015-043 and 
SR-NASDAQ-2014-020, NextShares will trade in the secondary market using 
a new trading protocol called ``NAV-Based Trading.'' In NAV-Based 
Trading, all bids, offers and execution prices will be expressed as a 
premium or discount (which may be zero) to the fund's next-determined 
net asset value per share (``NAV''), e.g., NAV-$0.01 or NAV+$0.01. A 
NextShares Fund's NAV will be determined each business day after the 
close of trading, and consequently, the final value of a transaction 
will not be known until the end of the trading day. Because existing 
order transmission and processing systems commonly used by exchanges 
and firms are generally not designed to accommodate pricing 
arrangements such as NAV-Based Trading, the prices of NextShares trades 
and quotes will be represented intraday using a ``proxy price'' format 
(discussed more fully in SR-FINRA-2015-043 and SR-NASDAQ-2014-020). The 
securities information processor (``SIP'') will publicly disseminate 
trades in the proxy price format.
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    \4\ See Securities Exchange Act Release No. 76213 (October 21, 
2015), 80 FR 65838 (October 27, 2015) (Notice of Filing and 
Immediate Effectiveness; File No. SR-FINRA-2015-043). Rule 6184 
became operative on February 26, 2016.
    \5\ See Securities Exchange Act Release No. 73562 (November 7, 
2014), 79 FR 68309 (November 14, 2014) (Notice of Filing of 
Amendment No. 1 and Order Granting Accelerated Approval of File No. 
SR-NASDAQ-2014-020).
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    In SR-NASDAQ-2015-036, Nasdaq stated that after a NextShares Fund's 
NAV is calculated, Nasdaq will price each NextShares trade executed on 
the exchange during the day at the Fund's NAV plus or minus the trade's 
executed premium or discount.\6\ Using the final trade price, each 
NextShares trade executed on the exchange will be disseminated to 
Nasdaq member firms and market data services via a File Transfer 
Protocol (``FTP'') file to be created for NextShares to supplement the 
previously provided information to include final pricing.\7\
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    \6\ See Securities Exchange Act Release No. 75499 (July 21, 
2015), 80 FR 44406 (July 27, 2015) (Order Granting Approval of 
Proposed Rule Change, as Modified by Amendments Nos. 1 and 2; File 
No. SR-NASDAQ-2015-036).
    \7\ As described in SR-NASDAQ-2015-036, FTP is a standard 
network protocol used to transfer computer files on the Internet, 
and Nasdaq will arrange for the daily dissemination of an FTP file 
with executed NextShares trades to Nasdaq member firms and market 
data services. See also Frequently Asked Questions: NextShares 
Exchange-Traded Managed Funds, #35, available at 
www.nasdaqtrader.com/content/ETFs/ETMF_FAQs.pdf.
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    Similarly, Nasdaq, Inc., as the ``Business Member'' under the 
limited liability company agreement with FINRA establishing the FINRA/
Nasdaq TRF, has determined to make available to market participants a 
daily file in FTP format with the final NAV-adjusted trade price for 
each OTC transaction in NextShares reported during the trading day to 
the FINRA/Nasdaq TRF for public dissemination purposes. Nasdaq has 
represented to FINRA that the daily FTP files will be accessible at no 
cost to market participants on Nasdaq's public Web site. FINRA is 
proposing to amend Rule 6184.02 to reflect the proposed FTP file.
    FINRA has filed the proposed rule change for immediate 
effectiveness and proposes that the operative date will be on or about 
April 4, 2016, the date that the systems development work to support 
the proposed FTP file is expected to be completed by the FINRA/Nasdaq 
TRF.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\8\ 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. FINRA believes that the proposed rule change is 
consistent with the Act because it will further enhance market 
transparency and price discovery by ensuring that additional pricing 
information relating to OTC transactions in NextShares, i.e., the final 
NAV-adjusted trade price on a transaction-by-transaction basis, is 
available to market participants.
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    \8\ 15 U.S.C. 78o-3(b)(6).
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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. The proposed rule change will 
enhance the pricing information relating to OTC transactions in 
NextShares available to market participants. The proposed rule change 
will not impose any reporting or other requirements on member firms, 
and as a result, will have no impact on member firms from a systems 
development and reporting perspective. Member firms that choose to 
trade NextShares may incur some costs to integrate the pricing 
information that will be provided pursuant to the proposed rule change. 
However, FINRA anticipates these costs to be minor because the pricing 
information will be accessible at no cost to market participants on 
Nasdaq's public Web site and also provided through data vendors, and 
firms will factor in any attendant costs when making the decision to 
enter into the market for NextShares.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \9\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\10\
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    \9\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \10\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative before 30 days from the date of the filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\11\ the Commission may 
designate a shorter time if such action is consistent with the

[[Page 20716]]

protection of investors and the public interest.
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    \11\ 17 CFR 240.19b-4(f)(6)(iii).
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    FINRA has asked the Commission to waive the 30-day operative delay. 
The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
Such waiver will allow the proposed rule change to become operative on 
or about April 4, 2016, the date that Nasdaq has designated (and 
represented to FINRA) as the date by which it will complete the systems 
development work to support the proposed FTP file. This will ensure 
that additional pricing information relating to OTC transactions in 
NextShares will be available to market participants without delay and 
will supplement the FTP file that is already available for trades in 
NextShares executed on the Nasdaq exchange. Therefore, the Commission 
hereby waives the 30-day operative delay and designates the proposed 
rule change to be operative on or about April 4, 2016.\12\
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    \12\ For purposes only of waiving the operative delay for this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or 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 [email protected]. Please include 
File Number SR-FINRA-2016-012 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-2016-012. 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 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, 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 such filing also will be available 
for inspection and copying at the principal offices 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 available publicly. All 
submissions should refer to File Number SR-FINRA-2016-012, and should 
be submitted on or before April 29, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-08041 Filed 4-7-16; 8:45 am]
BILLING CODE 8011-01-P