[Federal Register Volume 85, Number 248 (Monday, December 28, 2020)]
[Notices]
[Pages 84446-84449]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-28514]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90728; File No. SR-FINRA-2020-044]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of 
Proposed Rule Change To Modify Securities Transaction Credits 
Applicable to FINRA/Nasdaq TRF Participants

December 18, 2020.
    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 December 14, 2020, the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission 
(``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 7610A to modify the 
securities transaction credits applicable to non-Retail Participants 
that use the FINRA/Nasdaq Trade Reporting Facility Carteret (the 
``FINRA/Nasdaq TRF Carteret'') and the FINRA/Nasdaq Trade Reporting 
Facility Chicago (the ``FINRA/Nasdaq TRF Chicago'') (collectively, the 
``FINRA/Nasdaq TRF'').
    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
    The FINRA/Nasdaq TRF is a facility of FINRA that is operated by 
Nasdaq, Inc. (``Nasdaq''). In connection with the establishment of the 
FINRA/Nasdaq TRF, FINRA and Nasdaq entered into a limited liability 
company agreement (the ``LLC Agreement''). Under the LLC Agreement, 
FINRA, the ``SRO Member,'' has sole regulatory responsibility for the

[[Page 84447]]

FINRA/Nasdaq TRF. Nasdaq, 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 FINRA Rule 7610A, FINRA/Nasdaq TRF Participants that do 
not constitute Retail Participants \5\ (such non-Retail Participants 
are referred to herein as ``Participants'') may qualify for revenue 
sharing payments, in the form of transaction credits, for trade 
reporting to the FINRA/Nasdaq TRF. Nasdaq administers this Rule in its 
capacity as the Business Member and operator of the FINRA/Nasdaq TRF on 
behalf of FINRA,\6\ and Nasdaq collects all fees and issues all 
transaction credits on behalf of the FINRA/Nasdaq TRF.
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    \5\ ``Retail Participants,'' as that term is defined in 
Supplementary Material .01 to Rule 7620A, are not eligible to 
receive transaction credits from the FINRA/Nasdaq TRF.
    \6\ FINRA's oversight of this function performed by the Business 
Member is conducted through a recurring assessment and review of TRF 
operations by an outside independent audit firm.
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    Under Rule 7610A, FINRA members that report over-the-counter 
(``OTC'') transactions in NMS stocks to a FINRA/Nasdaq TRF for public 
dissemination or ``media'' purposes may receive quarterly transaction 
credits that equal a percentage of FINRA/Nasdaq TRF revenues that are 
attributable to the members' transactions.\7\ The percentage of 
attributable revenue that a FINRA member may receive in the form of a 
transaction credit varies depending upon the member's market share on 
the FINRA/Nasdaq TRF.\8\ The current schedule of transaction credits is 
as follows.
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    \7\ Under the Rule, a transaction is attributable to a FINRA 
member if a trade report submitted to the FINRA/Nasdaq TRF that the 
FINRA/Nasdaq TRF then submits to either of the securities 
information processors (``SIPs'') identifies the FINRA member as the 
Executing Party on the transaction.
    \8\ For purposes of this Rule, the term ``market share'' means a 
percentage calculated by dividing the total number of shares 
represented by trades reported by a FINRA member to the FINRA/Nasdaq 
TRF for media purposes during a given calendar quarter by the total 
number of shares represented by all trades reported to the 
Consolidated Tape Association or the Nasdaq Securities Information 
Processor, as applicable, during that quarter. Market Share is 
calculated separately for each tape. See Rule 7620A. If a FINRA 
member reports trades to both FINRA/Nasdaq TRFs during a given 
calendar quarter, then ``market share'' shall be calculated by 
dividing the total number of shares represented by trades reported 
by the member to both of the FINRA/Nasdaq TRFs during that calendar 
quarter by the total number of shares represented by all trades 
reported to the Consolidated Tape Association or the Nasdaq SIP, as 
applicable, during that quarter.

------------------------------------------------------------------------
                                                            Percent of
                 Percentage market share                   attributable
                                                          revenue shared
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Tape A
    Greater than or equal to 2%.........................              98
    Less than 2% but greater than or equal to 1%........              95
    Less than 1% but greater than or equal to 0.50%.....              85
    Less than 0.50% but greater than or equal to 0.10%..              20
    Less than 0.10%.....................................               0
Tape B
    Greater than or equal to 2%.........................              98
    Less than 2% but greater than or equal to 1%........              90
    Less than 1% but greater than or equal to 0.35%.....              85
    Less than 0.35% but greater than or equal to 0.10%..              10
    Less than 0.10%.....................................               0
Tape C
    Greater than or equal to 2%.........................              98
    Less than 2% but greater than or equal to 1%........              95
    Less than 1% but greater than or equal to 0.50%.....              85
    Less than 0.50% but greater than or equal to 0.10%..              20
    Less than 0.10%.....................................               0
------------------------------------------------------------------------

    The Rule 7600A Series expressly provides that the schedules of 
credits and fees apply to reporting activity that occurs on either or 
both of the FINRA/Nasdaq TRFs and 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.
    Nasdaq, as the Business Member, has determined to modify the 
current schedule of transaction credits, and FINRA is proposing to 
amend Rule 7610A accordingly. Nasdaq believes that there is substantial 
competition in the market for OTC trade reporting between the FINRA/
Nasdaq TRF and the FINRA/NYSE TRF, as evidenced by recent shifts in 
market share between these facilities. The proposed rule change 
responds to these competitive forces by providing a more generous 
percentage share of attributable revenue than under the current 
schedule to certain Participants that report trades in securities in 
Tape B to the FINRA/Nasdaq TRF.
    Specifically, under the proposed rule change, Participants that 
achieve one percent or more, but less than two percent of market share 
on the FINRA/Nasdaq TRF in securities in Tape B would be entitled to 
receive credits equal to 95 percent of attributable revenue in Tape B, 
rather than the 90 percent of attributable revenue to which they are 
entitled under the existing Rule. This proposed change would result in 
Participants with one or more percent, but less than two percent of 
market share on the FINRA/Nasdaq TRF in securities in all Tapes 
receiving an identical percentage of attributable revenue. It would 
also result in the FINRA/Nasdaq TRF providing the same percentage of 
revenue sharing as does the FINRA/NYSE TRF for participants in this 
market segment.\9\
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    \9\ Specifically, pursuant to FINRA Rule 7610B, FINRA/NYSE TRF 
participants with greater than or equal to 0.5% but less than 2.0% 
market share in securities in Tape B on the FINRA/NYSE TRF are 
entitled to 95% of attributable revenue in Tape B.
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    FINRA has filed the proposed rule change for immediate 
effectiveness. The operative date will be January 1, 2021.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(5) of the Act,\10\ 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.
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    \10\ 15 U.S.C. 78o-3(b)(5).
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The Proposal Is Reasonable
    Nasdaq, as the Business Member, believes that the proposed rule 
change is reasonable as a means of rewarding Participants that engage 
in a significant volume of trade reporting activity on the FINRA/Nasdaq 
TRF. The availability of a higher credit may be an incentive for 
Participants to further increase the extent of their trade reporting 
activity on the FINRA/Nasdaq TRF. Moreover, the proposal will improve 
the competitiveness of the FINRA/Nasdaq TRF vis-[agrave]-vis the FINRA/
NYSE TRF, which already shares 95% of attributable revenue for this 
same market segment.\11\
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    \11\ Because the FINRA Nasdaq TRF and the FINRA/NYSE TRF are 
operated by different business members competing for market share, 
FINRA does not take a position on whether the pricing for one TRF is 
more favorable or competitive than the pricing for the other TRF.

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[[Page 84448]]

The Proposal Is an Equitable Allocation of Fees
    Nasdaq, as the Business Member, believes that the proposed rule 
change will allocate fees fairly among FINRA/Nasdaq TRF Participants. 
The proposal is an equitable allocation of reasonable fees because the 
FINRA/Nasdaq TRF has available to it only a limited amount of resources 
to expend for participation incentives, and it is fair and equitable to 
allocate those scarce resources to segments of the market where they 
are likely to have meaningful effects, both in terms of maintaining 
existing participation on the FINRA/Nasdaq TRF and in incentivizing new 
and increased participation. In this regard, Nasdaq notes that from 
July 2019 through June 2020 (the last four quarters for TRF transaction 
credit payments), eight Participants had market shares that qualified 
them for this revenue sharing tier, and collectively, their qualifying 
market share comprised approximately 24 percent of overall volume on 
the FINRA/Nasdaq TRF. Because the shared revenue percentage for this 
market segment is presently less than what the FINRA/NYSE TRF provides 
to a similar segment of its participants, Nasdaq believes that the 
proposed rule change will help the FINRA/Nasdaq TRF to maintain, if not 
increase, the extent of its trade reporting activity (both new and 
existing reporting) as well as the number of Participants that qualify 
for this revenue sharing tier.
The Proposal Is Not Unfairly Discriminatory
    Nasdaq, as the Business Member, believes that the proposed rule 
change is not unfairly discriminatory. Although it targets only those 
Participants with at least one percent and less than two percent market 
share, and those Participants that report trades to the FINRA/Nasdaq 
TRF in securities in Tape B only, the proposed rule change is fair 
because this particular market segment is one where the FINRA/Nasdaq 
TRF shares a lower percentage of attributable revenues than does the 
FINRA/NYSE TRF. Thus, an increase is warranted for the FINRA/Nasdaq TRF 
to remain competitive in this market segment. Moreover, the proposed 
rule change is fair because it will result in the FINRA/Nasdaq TRF 
sharing the same percentage of attributable revenue across all three 
Tapes to Participants with market shares of one percent or more, but 
less than two percent.
    Finally, participation in the FINRA/Nasdaq TRF is voluntary. 
Participants that determine that the transaction credits that the 
FINRA/Nasdaq TRF offers are unattractive or unfavorable can report 
their trades to another trade reporting facility offering more generous 
incentives.

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

    FINRA does not believe that the proposed rule changes will result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.
Regulatory Need
    Nasdaq, as the Business Member and operator of the FINRA/Nasdaq 
TRF, collects all fees and issues all transaction credits on behalf of 
the FINRA/Nasdaq TRF. As discussed above, Nasdaq has observed an 
increase in competition in the market for OTC trade reporting, and in 
response to competitive forces, determined to increase the percentage 
of the revenue that the FINRA/Nasdaq TRF shares with Participants for 
their trade reporting activity in securities in Tape B. Through the 
proposal, Nasdaq intends to render the FINRA/Nasdaq TRF more 
competitive for Participants in this market segment and to otherwise 
provide an incentive for Participants to increase the extent of trade 
reporting activity on the FINRA/Nasdaq TRF.
Economic Baseline
    As discussed above, pursuant to FINRA Rule 7610A, Participants in 
the FINRA/Nasdaq TRF are entitled to receive quarterly transaction 
credits that equal a percentage of FINRA/Nasdaq TRF revenues 
attributable to their trade reporting activities on the FINRA/Nasdaq 
TRF to the extent that their market share on the FINRA/Nasdaq TRF is 
equal to or greater than 0.10 percent. Presently, Participants with a 
market share of one percent or more, but less than two percent, are 
entitled to receive 90 percent of attributable revenues for reports in 
securities in Tape B and 95 percent of attributable revenues for 
reports in securities in Tapes A and C.
Economic Impacts
    The proposed rule change would increase to 95 percent the 
percentage of attributable revenue shared with Participants with trade 
reports in securities in Tape B, to the extent that such Participants 
have market shares of one percent or more, but less than two percent.
    From July 2019 through June 2020 (the last four quarters for TRF 
transaction credit payments), eight Participants had market shares that 
qualified them for this revenue sharing tier, and collectively, their 
qualifying market share comprised approximately 24 percent of overall 
volume on the FINRA/Nasdaq TRF. The quarterly credits for these 
qualifying Participants ranged from $25,000 to $320,000. Assuming that, 
going forward, these same Participants maintain their existing levels 
of activity in reports in securities in Tape B, they stand to gain 
between $1,000 and $18,000 more in credits each quarter.
    The potential net impact of the proposed rule change depends on 
whether Participants alter their reporting activity to become eligible 
for the revised revenue sharing tier. To the extent that the proposed 
rule change increases incentives to report trades in Tape B to the 
FINRA/Nasdaq TRF, Participants may choose to shift their reporting from 
the FINRA/NYSE TRF to the FINRA/Nasdaq TRF.
    Finally, the proposed rule change occurs within the context of a 
competitive environment in which the various trade reporting facilities 
vie for market share. The FINRA/NYSE TRF is free to adjust its credit 
and fee programs in response to the changes proposed herein to render 
them more attractive relative to the FINRA/Nasdaq TRF. If any existing 
or prospective participant on the FINRA/Nasdaq TRF determines that the 
proposed amended credit is less attractive or is unfavorable relative 
to credits applicable to the FINRA/NYSE TRF, such Participants may 
choose to report to the FINRA/NYSE TRF in lieu of the FINRA/Nasdaq TRF, 
in which case the FINRA/Nasdaq TRFs would lose market share.
Alternatives Considered
    No other alternatives were considered for the proposed rule change.

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) of the Act \12\ and paragraph (f)(2) of Rule 19b-4 
thereunder.\13\ 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 
necessary or appropriate in the public interest, for the protection of

[[Page 84449]]

investors, or 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.
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 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 
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-2020-044 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-2020-044. 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 such 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-2020-044 and should be submitted 
on or before January 19, 2021.
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    \14\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-28514 Filed 12-23-20; 8:45 am]
BILLING CODE 8011-01-P