[Federal Register Volume 87, Number 61 (Wednesday, March 30, 2022)]
[Notices]
[Pages 18430-18436]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-06516]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94498; File No. SR-FINRA-2022-006]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Modify the Trade Reporting Fees Applicable to
Participants That Use the FINRA/NYSE Trade Reporting Facility
March 23, 2022.
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 16, 2022, 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. 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.
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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 7620B (Trade Reporting
Facility Reporting Fees) to modify the trade reporting fees applicable
to participants that use the FINRA/NYSE Trade Reporting Facility
(``FINRA/NYSE 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.
[[Page 18431]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The FINRA/NYSE TRF, which is operated by NYSE Market (DE), Inc.
(``NYSE Market (DE)''), is one of four FINRA facilities \3\ that FINRA
members can use to report over-the-counter (``OTC'') trades in NMS
stocks. While members are required to report all OTC trades in NMS
stocks to FINRA, they may choose which FINRA Facility (or Facilities)
to use to satisfy their trade reporting obligations.\4\
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\3\ The four FINRA facilities are the FINRA/NYSE TRF, two FINRA/
Nasdaq Trade Reporting Facilities (together, the ``FINRA/Nasdaq
TRF''), and the Alternative Display Facility (``ADF'' and together,
the ``FINRA Facilities'').
\4\ Members can use the FINRA/NYSE TRF as a backup system and
reserve bandwidth if there is a failure at another FINRA Facility
that supports the reporting of OTC trades in NMS stocks. As set
forth in Trade Reporting Notice 1/20/16 (OTC Equity Trading and
Reporting in the Event of Systems Issues), a firm that routinely
reports its OTC trades in NMS stocks to only one FINRA Facility must
establish and maintain connectivity and report to a second FINRA
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.
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NYSE Market (DE) proposes to modify the trade reporting fees
applicable to FINRA members that use the FINRA/NYSE TRF
(``Participants''). NYSE Market (DE) proposes to subject each
Participant to a monthly fee that will be based on whether that
Participant submitted trade reports to the FINRA/NYSE TRF during the
relevant month, and if so, how many trade reports it submitted. FINRA
is proposing to amend FINRA Rule 7620B (FINRA/NYSE Trade Reporting
Facility Reporting Fees) accordingly. There is no new product or
service accompanying the proposed fee change.
Background
The FINRA/NYSE TRF
Under the governing limited liability company agreement,\5\ the
FINRA/NYSE TRF has two members: FINRA and NYSE Market (DE). FINRA, the
``SRO Member,'' has sole regulatory responsibility for the FINRA/NYSE
TRF. NYSE Market (DE), the ``Business Member,'' is primarily
responsible for the management of the FINRA/NYSE TRF's business affairs
to the extent those affairs are not inconsistent with the regulatory
and oversight functions of FINRA.
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\5\ See the Second Amended and Restated Limited Liability
Company Agreement of FINRA/NYSE Trade Reporting Facility LLC. The
limited liability company agreement, which was submitted as part of
the rule filing to establish the FINRA/NYSE TRF and was subsequently
amended and restated, can be found in the FINRA Manual.
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The Business Member establishes pricing applicable to FINRA/NYSE
TRF Participants for use of the FINRA/NYSE TRF. That pricing is then
implemented pursuant to FINRA rules that FINRA must file with the
Commission and that must be consistent with the Act. Specifically,
FINRA/NYSE TRF Participants are charged fees pursuant to Rule 7620B and
may qualify for transaction credits under Rule 7610B (Securities
Transaction Credit) (such credits, ``Securities Transaction
Credits'').\6\ The relevant FINRA rules are administered by NYSE Market
(DE), in its capacity as the Business Member and operator of the FINRA/
NYSE TRF on behalf of FINRA,\7\ and the Business Member collects all
fees on behalf of the FINRA/NYSE TRF.
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\6\ Pursuant to Rule 7630B (Aggregation of Activity of
Affiliated Members), affiliated members can aggregate their activity
for purposes of fees and credits that are dependent upon the volume
of their activity. No change is proposed to be made to Rules 7610B
or 7630B, and so there will be no change to the requirements for, or
process of, securities transaction credits and the aggregation of
affiliated member activity.
\7\ FINRA's oversight of this function performed by the Business
Member is conducted through a recurring assessment and review of the
FINRA/NYSE TRF operations by an outside independent audit firm.
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According to the Business Member, the FINRA/NYSE TRF operates in a
competitive environment. The FINRA Facilities have different pricing
\8\ for their respective participants and compete for FINRA members'
trade report activity. The FINRA/NYSE TRF is smaller than the FINRA/
Nasdaq TRF in terms of reported volume. For the month of December 2021,
FINRA members used the FINRA/NYSE TRF to report approximately 17% of
shares in NMS stocks traded OTC, compared to approximately 83% for the
FINRA/Nasdaq TRF.
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\8\ Because the FINRA/NYSE TRF and FINRA/Nasdaq 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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Operating Costs
The overall costs of operating and maintaining the FINRA/NYSE TRF
involve both fixed and variable components. The variable component
constitutes the majority of the cost and largely relates to the number
of reports that the FINRA/NYSE TRF, on behalf of its subscribers,
reports for public dissemination (or ``tape'') purposes. It also
reflects the number of reports submitted to the FINRA/NYSE TRF that are
not published to the tape. Specifically, if the number of tape reports
increases, the Business Member's variable costs increase, and
conversely, if the number of tape reports decreases, the Business
Member's variable costs decrease. The variable costs associated with
tape reports are not related to the size (number of shares) of the
reported transaction. Accordingly, the variable costs relating to a
tape report for a trade for one share (or even less than one share) are
the same as the variable costs relating to a tape report for 100,000
shares reported to the FINRA/NYSE TRF.
The Business Member is entitled to any profits and must cover any
losses that arise from operating the FINRA/NYSE TRF. According to the
Business Member, the profits or losses generally are the difference
between:
1. The revenue (``Revenue'') from: (a) Subscriber fees charged
in accordance with FINRA Rule 7620B (``Subscriber Fee Revenue''),
and (b) market data revenue for the transaction information provided
to the securities information processors (``SIPs'') via the FINRA/
NYSE TRF less the Securities Transaction Credits (together, ``Net
Market Data Revenue''); and
2. the costs of operating and maintaining the FINRA/NYSE TRF.
According to the Business Member, in 2020 and 2021, costs of
operating and maintaining the FINRA/NYSE TRF were greater than
Revenues, causing the FINRA/NYSE TRF to run at a loss. According to the
Business Member, during that time, the number of tape reports increased
(particularly for smaller-sized transactions) and total Subscriber Fee
Revenue decreased, without a relative change to the difference in total
share volume reported to the FINRA/NYSE TRF as compared to other FINRA
Facilities. More specifically, compared to the 2018 monthly average, as
of December 31, 2021, monthly average tape report activity for the
FINRA/NYSE TRF had increased by 329% and monthly average costs had
increased by 146%. At the same time, monthly average Subscriber Fee
Revenue had decreased by 19%. Net Market Data Revenue varied during the
period, but overall it decreased as compared to the first quarter of
2018. Ultimately, the Business Member believes that the FINRA/NYSE TRF
would continue to incur a significant loss if the current fee and
credit structure remained in place, and that such losses would make the
FINRA/NYSE TRF unsustainable in the long term.
Accordingly, the Business Member proposes to amend the fees set
forth in FINRA Rule 7620B. By so doing, it has proposed a change that
it believes
[[Page 18432]]
should allow the monthly Subscriber Fee Revenue to cover the total
costs of operating and maintaining the FINRA/NYSE TRF. The proposed
changes are expected to allow the FINRA/NYSE TRF to continue operating
without amassing losses similar to those it currently has.
Proposed Amendments to Rule 7620B
Under the current fee structure,\9\ Participants are either
``Retail Participants'' \10\ or Participants that are not Retail
Participants (``Non-Retail Participants''). The former are exempt from
the monthly fee, while the latter are subject to a monthly fee based,
where applicable, on the Participant's ``FINRA/NYSE TRF Market Share.''
\11\ The fees set forth in Rule 7620B are tiered.
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\9\ See Securities Exchange Act Release No. 88324 (March 5,
2020), 85 FR 14275 (March 11, 2020) (SR-FINRA-2020-006) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change to Modify
the Trade Reporting Fees Applicable to the FINRA/NYSE Trade
Reporting Facility). Under Rule 7620B, Participants are charged a
flat fee for access to the complete range of functionality offered
by the FINRA/NYSE TRF rather than a separate fee for each activity
(e.g., a per trade or per side fee for reporting a trade, a separate
per trade fee for canceling a trade, etc.) or a separate fee for
connectivity. See, e.g., Rules 7510(a) and 7520 (trade reporting
fees and connectivity charges for the ADF) and Rule 7620A (trade
reporting fees for the FINRA/Nasdaq TRF).
\10\ A Participant ``is a `Retail Participant' if substantially
all of its trade reporting activity on the FINRA/NYSE Trade
Reporting Facility comprises Retail Orders.'' In turn, a ``Retail
Order'' is ``an order that originates from a natural person,
provided that, prior to submission, no change is made to the terms
of the order with respect to price or side of market and the order
does not originate from a trading algorithm or any other
computerized methodology.'' FINRA Rule 7620B(a).
\11\ See FINRA Rule 7620B(b). ``The rate of the monthly fee for
participants that are not Retail Participants will be based, where
applicable, on the participant's `FINRA/NYSE TRF Market Share,'
which is defined as the percentage calculated by dividing the total
number of shares reported to the FINRA/NYSE Trade Reporting Facility
for public dissemination (or `tape') purposes during a given
calendar month that are attributable to the participant by the total
number of all shares reported to the CTA or UTP SIP, as applicable,
during that period.''
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Under the proposed, simplified fee structure, the monthly fee would
no longer depend on whether a Participant were a Retail Participant or
its FINRA/NYSE TRF Market Share, and the current tiered structure would
be removed. Rather, if a Participant submitted one or more trade
reports to the FINRA/NYSE TRF during a given calendar month, the
Participant would pay a monthly fee equal to the sum of (a) $1,000 plus
(b) $0.0055 per published tape report. If a Participant submitted no
trade reports to the FINRA/NYSE TRF during that calendar month, the
Participant would pay a monthly fee of $2,000.
To effect the change, Rule 7620B would be amended as follows.
First, the text ``with the exception that Retail Participants shall not
be subject to a monthly fee'' would be deleted from the first
paragraph. Second, the following text would be added to the end of the
first paragraph:
The monthly fee will be calculated as follows:
(a) If the participant submits one or more trade reports to the
FINRA/NYSE Trade Reporting Facility during a given calendar month,
the participant will pay a monthly fee equal to the sum of (i)
$1,000 plus (ii) $0.0055 per published tape report.
(b) If the participant submits no trade reports to the FINRA/
NYSE Trade Reporting Facility during a given calendar month, the
participant will pay a monthly fee of $2,000.
Finally, the current subsections (a) and (b), including the table in
subsection (b), would be deleted.
The monthly fee would continue to be charged at the end of the
calendar month. As is true now, if a new FINRA/NYSE TRF Participant
submitted the participant application agreement and reported no shares
traded in a given month, the Participant would not be charged the
monthly fee for the first two calendar months in order to provide time
to connect to the FINRA/NYSE TRF.\12\ The monthly fees paid by FINRA/
NYSE TRF Participants would continue to include unlimited use of the
Client Management Tool, as well as full access to the FINRA/NYSE TRF
and supporting functionality, e.g., trade submission, reversal and
cancellation.\13\
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\12\ As is the case today, after the first two calendar months,
the Participant will be charged regardless of connectivity.
\13\ See Securities Exchange Act Release No. 87205 (October 3,
2019), 84 FR 54219 (October 9, 2019) (SR-FINRA-2019-024) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change to Amend
FINRA Rule 7620B to Modify the Trade Reporting Fees Applicable to
Participants That Use the FINRA/NYSE Trade Reporting Facility).
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Application of Proposed Fee Schedule
The Business Member believes that pricing is the key factor for
FINRA members when choosing which FINRA Facility to use. The Business
Member expects that the proposed change would result in a fee increase
for most FINRA/NYSE TRF Participants. In this competitive environment,
FINRA members can report their OTC trades in NMS stocks to the FINRA/
NYSE TRF's competitors if they deem pricing levels at the other FINRA
Facilities to be more favorable, so long as they are participants of
such other facilities. As a result, the Business Member believes that
the proposed fee change will likely reduce its reported volumes. It is
not possible to fully predict the number of FINRA members that would
reduce their use of the FINRA/NYSE TRF or cease being a FINRA/NYSE TRF
Participant as a result of the fee increase. Similarly, it is not
possible to predict what the change in reporting to the FINRA/NYSE TRF
would be.
As stated above, under the proposed fee structure, the monthly fee
would no longer depend on whether a Participant were a Retail
Participant or its FINRA/NYSE TRF Market Share, and the current tiered
structure would be removed. The proposed fee schedule would be applied
in the same manner to all FINRA members that are, or elect to become,
FINRA/NYSE TRF Participants and would not apply differently to
different sizes or types of Participants. Participants that are
currently Retail Participants would be subject to the same monthly fee
for not submitting any trade reports in a given month as current Non-
Retail Participants.
By setting a base flat fee and tying the remainder of the fee to
the number of tape reports a Participant submits to the FINRA/NYSE TRF
during a given month, if any, the Business Member believes that the
resulting fee would relate to the cost of operating and maintaining the
facility more closely. Specifically, the Business Member's total cost
of operating the FINRA/NYSE TRF does not differ based on whether the
Participant is a Retail Participant or not. As a general matter, the
flat portions of the proposed fees are designed to address the fixed
costs, while the portion that is charged per published tape report is
meant to address variable costs. The proposed rule is designed to have
the monthly Subscriber Fee Revenue generally cover total costs, which
would allow the FINRA/NYSE TRF to continue operating without amassing
losses similar to those it recently has amassed.
Tying the fee directly to the number of trade reports the
Participant submits to the FINRA/NYSE TRF during the month means that
the Participant's fee will increase or decrease in line with any
changes in the volume of such trade reports. This makes the proposed
fee more directly tied to the Participant's usage of the FINRA/NYSE
TRF, matching a Participant's fee with its activity and the related
costs. For example, under the proposal, if a Participant submitted
6,000,000 trade reports to the FINRA/NYSE TRF during one month, it
would have a monthly fee of $34,000. If it then submitted a lower
volume of 6,000 trade reports to the FINRA/NYSE TRF during the
following month, its fee would be reduced to $1,033. In recent years,
there has been
[[Page 18433]]
an increase in the volume of trade reports submitted. If that trend
should abate, the fees would decrease as well.
Current Retail Participants
Under the proposed change, there would no longer be a distinction
between Retail Participants and other Participants. Based on
experience, the Business Member believes that most, if not all, of the
current Retail Participants do not report any trades to the FINRA/NYSE
TRF during a given month. For example, using December 2021 data, two of
the three current Retail Participants were inactive. Currently, all
Retail Participants are exempt from the monthly fee.
That would change under the proposed rule change, as the current
Retail Participants would become subject to a monthly fee. If, like
most current Retail Participants, a Participant submitted no trade
reports to the FINRA/NYSE TRF during a calendar month, it would pay a
monthly fee of $2,000. Using December 2021 data, the two Retail
Participants that were inactive, under the proposed fee change, would
be assessed a fee of $2,000 for the month (compared to $0 under the
current fee structure). If a Participant submitted one or more trade
reports to the FINRA/NYSE TRF during a given calendar month, the
Participant would pay a monthly fee equal to the sum of (a) $1,000 plus
(b) $0.0055 per published tape report. The Retail Participant that was
active in December 2021 would be assessed a fee of $1,799 for the month
based on its reporting activity (compared to $0 under the current fee
structure).
Current Non-Retail Participants
Participants that currently are Non-Retail Participants would no
longer be subject to a fee that varied based on their FINRA/NYSE TRF
Market Share. Rather, they would be subject to the same fees as all
other Participants, as described above.
To facilitate comparison, the following table shows the estimated
effect of the proposed change on the current Non-Retail Participants.
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Estimated new
FINRA/NYSE TRF market share Count of tape reports to FINRA/ Current monthly monthly
NYSE TRF participant fee participant fee
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Greater than or equal to 1.25%.......... More than 25,000 trade reports.. $30,000 * $83,598
Greater than or equal to 1.00% but less More than 25,000 trade reports.. 25,000 * 69,828
than 1.25%.
Greater than or equal to 0.75% but less More than 25,000 trade reports.. 20,000 * 43,156
than 1.00%.
Greater than or equal to 0.50% but less More than 25,000 trade reports.. 15,000 * 47,815
than 0.75%.
Greater than or equal to 0.25% but less More than 25,000 trade reports.. 10,000 * 36,793
than 0.50%.
Greater than or equal to 0.20% but less More than 25,000 trade reports.. 7,500 ** 28,821
than 0.25%.
Greater than or equal to 0.10% but less More than 25,000 trade reports.. 5,000 * 20,849
than 0.20%.
Less than 0.10%......................... More than 25,000 trade reports.. 2,000 * 4,559
n/a..................................... Between 15,001 and 25,000 trade 2,000 *** 1,237
reports.
n/a..................................... Between 5,001 and 15,000 trade 1,000 * 1,038
reports.
n/a..................................... Between 101 and 5,000 trade 750 * 1,010
reports.
n/a..................................... Between 1 and 100 trade reports. 250 * 1,001
n/a..................................... No trade reports................ 2,000 2,000
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* Based on the monthly average of published tape reports submitted to the FINRA/NYSE TRF by Participants in the
relevant tier for 2021.
** There was no activity within the tier in 2021. The value represented is the average of the prior tier
(greater than or equal to 0.25% but less than 0.50%) and the subsequent tier (greater than or equal to 0.10%
but less than 0.20%).
*** There was no activity in this tier in 2021. Estimate assumes the highest number of trade reports in the
range.
Based on the assumptions made in the table, current Non-Retail
Participants that have no trade reports would not see a change in their
fee, Non-Retail Participants with between 15,001 and 25,000 trade
reports would see a decrease in their fee, and all other current Non-
Retail Participants would see fee increases. As reflected in the table,
based on the stated assumptions, Non-Retail Participants with fee
increases would be subject to a monthly fee approximately equal to just
over one to four times their current fee. If there were no change in
reporting to the FINRA/NYSE TRF, such that Non-Retail Participants'
reported volume stayed the same as it was in the first six months of
2021, under the proposed fee schedule, current Non-Retail Participants
that have no trade reports would not see a change in their fee, but
most other current Non-Retail Participants would see fee increases.
FINRA has filed the proposed rule change for immediate
effectiveness. The operative date will be June 1, 2022.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b) of the Act,\14\ in general, and Section
15A(b)(5) of the Act,\15\ in particular, 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 also believes 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. FINRA also believes that the
proposed rule change is consistent with the provisions of Section
15A(b)(9) of the Act,\17\ which requires that FINRA rules not impose
any burden on competition that is not necessary or appropriate.
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\14\ 15 U.S.C. 78o-3(b).
\15\ 15 U.S.C. 78o-3(b)(5).
\16\ 15 U.S.C. 78o-3(b)(6).
\17\ 15 U.S.C. 78o-3(b)(9).
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As a general matter, the proposed fee schedule will be assessed in
the same manner for all FINRA members that are, or elect to become,
FINRA/NYSE TRF
[[Page 18434]]
Participants. It will not be applied differently to different sizes or
types of Participants. Access to the FINRA/NYSE TRF is offered on fair
and non-discriminatory terms.
The Proposed Rule Change Is an Equitable Allocation of Reasonable Fees
FINRA believes that the proposed rule change provides for an
equitable allocation of reasonable fees for the following reasons.
The Business Member believes that the FINRA/NYSE TRF would incur a
significant loss if the current fee and credit structure remained in
place. Accordingly, it proposes amendments to FINRA Rule 7620B, as
discussed herein.
The Business Member believes that the proposed rule change is a
reasonable amendment to the fee structure to address the current rate
of losses, which if they continued, the Business Member believes would
make the FINRA/NYSE TRF unsustainable in the long term. By setting a
base flat fee and tying the remainder of the fee to the number of tape
reports a Participant submits to the FINRA/NYSE TRF during a given
month, if any, the Business Member believes that the proposed fee
structure would correlate more closely to the manner by which the
Business Member incurs the total costs associated with operating and
maintaining the Facility. As stated above, as a general matter, the
flat portions of the proposed fees are designed to address the fixed
costs, while the portion that is charged per published tape report is
meant to address variable costs. The proposed rule is reasonably
designed to achieve a fee structure whereby the monthly fee revenue
generally covers total costs, which would allow the FINRA/NYSE TRF to
continue operating without amassing losses similar to those it recently
has amassed.
The Business Member believes that partially tying the fee directly
to the number of trade reports the Participant submits to the FINRA/
NYSE TRF during the month is equitable, because the Participant's fee
will increase or decrease in line with any changes in the number of
submitted trade reports. This aspect of the fee structure ties the
proposed fee more directly to the Participant's usage of the FINRA/NYSE
TRF. In recent years, there has been an increase in the number of trade
reports submitted. If that trend should abate, the fees would decrease
as well.
The Business Member also believes that it is reasonable and
equitable to charge a Participant a flat fee even if it does not submit
any tape reports to the FINRA/NYSE TRF during the relevant month.
First, the FINRA/NYSE TRF bears costs for operating the FINRA/NYSE TRF,
even when a Participant does not submit tape reports during a given
month. Second, the Business Member believes that the fee for inactivity
during a particular month, which has not changed for Non-Retail
Participants and would now apply to Retail Participants, is a
reasonable method of encouraging all Participants to utilize the FINRA/
NYSE TRF.
Currently, all Retail Participants are exempt from fees under FINRA
Rule 7620B for reporting to the FINRA/NYSE TRF, but would become
subject to trade reporting fees under the proposed rule change. The
Business Member believes that the proposed rule change would be
equitable because it would treat all Participants the same and the
applicable fee would no longer depend on whether a Participant were a
Retail Participant.\18\
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\18\ The Business Member also notes that Rule 7610B does not
differentiate between Retail and Non-Retail Participants. As Rule
7610B would not change, all Retail Participants would continue to
qualify for transaction credits in accordance with Rule 7610B as
they do now.
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Similarly, the Business Member believes that applying the proposed
fee structure, which is not based on the Participant's market share,
also is equitable for Participants, including Retail Participants. As
would be the case for a Non-Retail Participant, the proposed fee would
be tied directly to the number of trade reports a Participant submits
to the FINRA/NYSE TRF during the month and would not be tiered based on
the Participant's FINRA/NYSE TRF Market Share. In this way, the
proposed fee would be more directly tied to a Participant's access to
and usage of the FINRA/NYSE TRF.
Thus, all Participants would be subject to monthly fees. The
proposed fee schedule would be applied in the same manner to all firms
that are, or elect to become, FINRA/NYSE TRF Participants. It would not
apply differently to different sizes of Participants. By tying a
portion of the fee directly to the number of trade reports that the
Participant submits to the FINRA/NYSE TRF during the month, a
Participant's trade reporting fess would in part correspond with a
Participant's activity over the period.
The Business Member believes that the proposed change would
significantly simplify Rule 7620B, removing the distinction between
Retail Participants and Non-Retail Participants and removing the
multiple fee tiers in current subsection (b). As a result, the proposed
change would make it easier for market participants to determine their
monthly fee and would add clarity to the rules.
The Proposed Rule Change is Not Unfairly Discriminatory
FINRA believes that the proposed rule change is not unfairly
discriminatory for the following reasons.
The Business Member believes that the FINRA/NYSE TRF would incur a
significant loss if the current fee structure remained in place.
Accordingly, it proposes to amend the fees set forth in FINRA Rule
7620B. By so doing, the Business Member has proposed a change that it
believes is not unfairly discriminatory, as it believes that the
resulting fee would correspond more closely with the total costs of
operating and maintaining the Facility. The proposed rule is reasonably
designed to tie the monthly fee revenue to the cost of operating and
maintaining the FINRA/NYSE TRF, which would allow the FINRA/NYSE TRF to
continue operating without amassing losses similar to those it recently
has amassed.
The Business Member believes that it is not unfairly discriminatory
to charge a Participant a flat fee even if it does not submit any tape
reports to the FINRA/NYSE TRF during a given month. First, the FINRA/
NYSE TRF bears ongoing costs for operating the FINRA/NYSE TRF, even
when a Participant does not submit tape reports in a given month.
Second, the Business Member believes that the inactivity fee, which has
not changed, is a reasonable method of encouraging Participants to
utilize the FINRA/NYSE TRF.
The Business Member believes that the proposed fee structure is not
unfairly discriminatory because it would not differ for different types
of Participants, and Retail Participants would be subject to the same
fee structure as Non-Retail Participants. The Business Member believes
that the proposed rule change would not be unfairly discriminatory
because all FINRA member Participants would be treated the same.
Similarly, the Business Member believes that applying the proposed
fee structure, which is not based on the Participant's market share, is
not unfairly discriminatory. As would be the case for a Non-Retail
Participant, the proposed fee would be tied directly to the number of
trade reports a Participant submits to the FINRA/NYSE TRF during the
month and would not be tiered based on the Participant's FINRA/NYSE TRF
Market Share. Rather, the proposed fee would be more directly tied to a
Participant's access to and usage of the FINRA/NYSE TRF Facility.
By tying a portion of the fee directly to the number of trade
reports the Participant submits to the FINRA/NYSE
[[Page 18435]]
TRF during the month, a Participant could reduce its monthly fee simply
by reducing the volume of such trade reports. This makes the proposed
fee more directly tied to the Participant's usage of the FINRA/NYSE
TRF, allowing variable fees to better correspond with a Participant's
activity over the period.
The Business Member believes that the proposed change is not
unfairly discriminatory because a Participant that saw an increase in
its monthly fee would be able to utilize another FINRA Facility. FINRA
members can report their OTC trades in NMS stocks to the FINRA/NYSE
TRF's competitors if they deem pricing levels at the other FINRA
Facilities to be more favorable, so long as they are participants of
such other facilities.
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.
Intramarket Competition. For the month of December 2021, FINRA
members used the FINRA/NYSE TRF to report approximately 17% of shares
in NMS stocks traded OTC, compared to approximately 83% for the FINRA/
Nasdaq TRF. The Business Member believes that pricing is the key factor
for FINRA members when choosing which FINRA Facility to use. The
Business Member expects that the proposed change would result in a fee
increase for most Participants, which in turn could result in decreased
use of the FINRA/NYSE TRF, if Participants were to shift to using other
facilities.
Nonetheless, the Business Member does not believe that the proposed
rule change would result in a burden on competition that is not
necessary or appropriate in furtherance of the purposes of the Act.
Simply put, the Business Member believes that the proposed change is a
rational response to increased losses. According to the Business
Member, in 2020 and 2021, costs of operating and maintaining the FINRA/
NYSE TRF were greater than Revenues, causing the FINRA/NYSE TRF to run
at a loss. According to the Business Member, during that time, the
volume of tape reports increased and the total Subscriber Fee Revenue
decreased. More specifically, compared to the 2018 monthly average, as
of December 31, 2021, monthly average tape report activity for the
FINRA/NYSE TRF had increased by 329% and monthly average costs had
increased by 146%. At the same time, monthly average Subscriber Fee
Revenue had decreased by 19%. Net Market Data Revenue varied during the
period, but overall it decreased as compared to the first quarter of
2018. Ultimately, the Business Member believes that the FINRA/NYSE TRF
would continue to incur a significant loss if the current fee and
credit structure remained in place.
The Business Member does not believe that such losses are
sustainable in the long run. Accordingly, it proposes to amend the fees
set forth in FINRA Rule 7620B. By so doing, the Business Member has
proposed a change that it believes should ensure that the monthly fees
cover the costs of operating and maintaining the FINRA/NYSE TRF, which
would allow it to continue operating without amassing losses similar to
those it currently has. The Business Member believes that the continued
existence of the FINRA/NYSE TRF would be an asset to the competitive
environment.
The Business Member does not believe that the proposed fee would
place some market participants at a relative disadvantage compared to
other market participants, because the proposed fee schedule would be
applied in the same manner to all FINRA members that are, or elect to
become, FINRA/NYSE TRF Participants. It would not apply differently to
different sizes of Participants. Different types of Participants will
be treated the same, and the amount of the monthly fee would no longer
depend on whether a Participant were a Retail Participant or its FINRA/
NYSE TRF Market Share.
As set forth above, if there were no change in reporting to the
FINRA/NYSE TRF such that Participants' reporting volume stayed the same
as it was in the first six months of 2021, under the proposed fee
schedule, current Non-Retail Participants that have no trade reports
would not see a change in their fee, but most Retail Participants would
see fee increases. More specifically, currently there are three Retail
Participants that will be impacted and would incur fee increases under
the proposed rule change. Using December 2021 data, the two Retail
Participants that were inactive, under the proposed fee change, would
be assessed a fee of $2,000 for the month (compared to $0 under the
current fee structure). The Retail Participant that was active in
December 2021 would be assessed a fee of $1,779 for the month based on
its reporting activity (compared to $0 under the current fee
structure). The Business Member nonetheless believes that the proposed
fee amendment is reasonable in light of the ongoing costs of operating
and maintaining the FINRA/NYSE TRF and as a means of addressing the
current losses.
Participants may potentially alter their trade reporting activity
in response to the proposed rule change. Specifically, those
Participants that would incur higher fees may refrain from reporting to
the FINRA/NYSE TRF and may choose to report to another FINRA Facility.
Alternatively, such firms may continue reporting or new firms may start
reporting to the FINRA/NYSE TRF if they find that the proposed net cost
of reporting and other functionalities provided represent the best
value to their business.\19\
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\19\ The FINRA/NYSE TRF does not impose a fee on new
Participants, and so a FINRA member that opts to become a
Participant would not incur an additional cost from the FINRA/NYSE
TRF. In some cases, a new Participant may incur incidental costs to
connect to the FINRA/NYSE TRF, but those are not charged by the
FINRA/NYSE TRF. An existing Participant that ceases to be a
Participant is not subject to any change fee by the FINRA/NYSE TRF.
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Intermarket Competition. The FINRA/NYSE TRF operates in a
competitive environment. The proposed fee would not impose a burden on
competition on other FINRA Facilities that is not necessary or
appropriate. The FINRA Facilities have different pricing and compete
for FINRA members' trade report activity. The pricing structures of the
FINRA/NYSE TRF and other FINRA Facilities are publicly available,
allowing FINRA members to make informed decisions regarding which FINRA
Facility they use to report OTC trades in NMS stocks.
The Business Member represents that the FINRA/NYSE TRF would
continue to incur significant losses if the current fee and credit
structure remained in place, and it does not believe that such losses
are sustainable in the long run. Accordingly, it proposes to amend the
fees set forth in FINRA Rule 7620B. By so doing, the Business Member
has proposed a change that it believes will allow it to continue
operating without amassing losses similar to those it currently has.
The Business Member believes that its continued existence would be an
asset to the competitive environment.
FINRA members can choose among four FINRA Facilities when reporting
OTC trades in NMS stocks: The FINRA/NYSE TRF, the two FINRA/Nasdaq
TRFs, or ADF. FINRA members can report their OTC trades in NMS stocks
to a given FINRA Facility's competitors if they determine that the fees
and credits of another FINRA Facility are more favorable, so long as
they are participants of such other facility.
[[Page 18436]]
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
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \20\ and paragraph (f)(2) of Rule 19b-4
thereunder.\21\ 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
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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\20\ 15 U.S.C. 78s(b)(3)(A).
\21\ 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-2022-006 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-2022-006. 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-2022-006 and should be submitted
on or before April 20, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-06516 Filed 3-29-22; 8:45 am]
BILLING CODE 8011-01-P