October 5, 2015.
On June 23, 2015, the Financial Industry Regulatory Authority, Inc. (“FINRA”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) 
and Rule 19b-4 thereunder,
a proposed rule change to amend Rule 6110, Trading Otherwise than on an Exchange and 6610 regarding the OTC Reporting Facility to expand FINRA's alternative trading system (“ATS”) transparency initiative. The changes would provide for publication of the remaining equity volume executed over-the-counter (“OTC”) by FINRA members, including activity in non-ATS electronic trading systems and internalized trades. The proposed rule change was published for comment in the Federal Register on July 9, 2015.
The Commission received two comments on the proposal.
FINRA Start Printed Page 61247responded to the comments and amended the proposed rule change on September 22, 2015.
This order approves the proposed rule change, as amended.
II. Description of the Proposed Rule Change
Under FINRA rules, each member operating an ATS must report its weekly volume, by security, to FINRA.
FINRA makes the reported volume and trade count information for equity securities publicly available on its Web site. FINRA is proposing to amend Rules 6110 and 6610 to make public the remaining OTC equity (“non-ATS”) volume by member firm and security, which FINRA will publish.
FINRA believes the proposed rule change will make the OTC market more transparent and will enable the public to better understand firms' off-exchange equity trading activity as investors will be able to review the proposed non-ATS volume together with the current ATS volume reports, which effectively encompass all equity volume effected OTC.
FINRA will derive a firm's non-ATS volume information from OTC trades reported to its equity trade reporting facilities.
FINRA will base a firm's non-ATS volume on trades reported for dissemination purposes (“tape reports”) on which the firm is identified as the member with the trade reporting obligation.
FINRA will publish on its Web site weekly volume information (number of trades and shares) by firm and security, with the exceptions noted below, on a two-week or four-week delayed basis—the same time frames specified for ATS volume publication.
Specifically, volume information would be published on a two-week delayed basis for NMS stocks in Tier 1 under the NMS Plan to Address Extraordinary Market Volatility 
and on a four-week delayed basis for all other NMS stocks and OTC Equity Securities.
FINRA also will publish aggregate volume totals across all NMS stocks and aggregate volume totals across all OTC Equity Securities for each calendar month, on a one-month delayed basis.
FINRA will publish non-ATS volume information at the firm level rather than on an MPID-by-MPID basis 
because outside the ATS context, not all firms have a separate MPID for each unique trading center at the firm. Thus, publishing volume information at the MPID level might not provide meaningful or consistent information to the marketplace. For members that use more than one MPID for their non-ATS trading, FINRA will aggregate and publish the non-ATS trading volume for all non-ATS MPIDs belonging to the firm under a single “parent” identifier or firm name.
FINRA does not believe that publishing volume information for each firm that executed only a small number of trades or shares in any given period would provide meaningful information to the marketplace. Accordingly, FINRA will combine volume from all members that do not meet a specified minimum threshold and publish the volume information for those members on an aggregated basis. For example, if five firms each execute 10 trades in the reporting period in a security, their 50 trades would be aggregated and published as a single line item; the firms and their volume information would not be identified separately. For a firm with more than one non-ATS MPID, the total volume across all of its non-ATS MPIDs would be combined to determine whether the de minimis threshold has been met.
FINRA is proposing to establish a de minimis threshold of fewer than on average 200 non-ATS transactions per day executed by the firm across all securities (for displaying aggregate volume across all securities by firm) or in a specific security (for displaying volume in a particular security by firm) during the one-week reporting period.
Based on its review of a one-week period in June 2014, FINRA states that absent this threshold, approximately 300 individual firms would have had volume attributed by name, versus only 62 firms if the threshold had been applied.
Moreover, those 62 firms would account for 98.99 percent of all trading volume.
Thus, if a firm averages fewer than 200 non-ATS transactions per day across all securities during the reporting period, FINRA would aggregate the firm's volume with that of similarly situated firms when displaying aggregate volume across all securities by firm. Additionally, because the published volume data would also be organized by security, if a firm averaged fewer than 200 non-ATS transactions per day in a given security during the reporting period, FINRA would aggregate the firm's volume in that security with that of similarly situated firms, even if the firm averages more than 200 non-ATS transactions per day across all securities during the reporting period. Thus, FINRA would publish all of the OTC volume, but volume for members meeting the de minimis threshold would not be attributed by name.
FINRA will not charge a fee for the data published pursuant to the proposed rule change; it will be publicly available on FINRA's Web site in a downloadable format.
III. Discussion and Findings
After carefully considering the proposed rule change, the comments submitted, and FINRA's response to the comments, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder Start Printed Page 61248applicable to a national securities association.
In particular, the Commission finds that the proposed rule change is consistent with Section 15A(b)(6) of the Act,
which requires, among other things, that FINRA rules 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, because the proposed rule change will make the OTC market more transparent by providing trade and quotation information on non-ATS trading.
The Commission received two comment letters expressing general support for the proposal.
The Thomson Reuters Letter supports the proposal, noting that there is interest both on the buy-side and the sell-side in ATS data and additional OTC data.
The SIFMA Letter supports the proposal but makes certain suggestions.
The Commission believes that the stated objectives of the proposal—to expand transparency by publishing the remaining equity volume executed OTC by FINRA members, including non-ATS electronic trading systems and internalized trades—further the purposes of the Act. By enhancing transparency concerning non-ATS OTC equity volume information, the proposal is designed to help prevent fraudulent and manipulative acts and practices and to protect investors and the public interest. Publishing this weekly volume data, organized by firm and by security, would increase the amount of information that is publicly available concerning OTC equity trading occurring off of ATSs. As commenters noted, such added transparency would facilitate better understanding of OTC trading. Further, the proposal would not impose any additional reporting requirements on firms because FINRA would derive the non-ATS volume data from OTC trades reported to FINRA's equity trade reporting facilities. Thus, costs to member firms as a result of the proposal—if any—would be minimal.
SIFMA suggested that a four-week (rather than two-week) publication timeframe for Tier 1 NMS stocks based on a concern that a two-week timeframe may result in unintended information leakage.
In this regard, SIFMA suggested that, in cases where the firm is an active market maker or is trading a large position on behalf of a customer—especially in less liquid stocks—the two-week publication time frame and weekly aggregation disclosure could allow reverse engineering of trading.
In response, FINRA states that it considered the potential for information leakage in developing its proposal and believes it has taken adequate steps to mitigate that potential by, among other things, proposing to publish non-ATS volume information on the same delayed basis that is used for ATS volume data, as well as at the firm—rather than MPID—level and not further segregating volume information by trading capacity or trading desk.
FINRA also states that there would be nothing in the published non-ATS volume data to indicate whether the executing firm was acting for its own proprietary account or as agent or riskless principal on behalf of a customer or another broker-dealer.
FINRA further notes that the published non-ATS volume data would identify only the executing party and not the contra party to the trade.
Thus, FINRA does not believe that users of the published non-ATS volume data would reasonably be able to determine with any certainty the identity of the actual parties to the transaction or the capacity in which the executing firm is acting.
FINRA also notes that generally the more liquid NMS stocks are in Tier 1 and that only volume information relating to non-ATS transactions in Tier 1 NMS stocks would be published on a two-week delay, while the non-ATS volume in remaining NMS stocks, as well as OTC equity securities, would be published on a four-week delay. FINRA believes it has taken appropriate steps to address firms' concerns regarding information leakage by delaying publication of the information and limiting the granularity of the published information to firm and security.
FINRA also notes that this approach is similar to the approach it uses for ATS volume information, and that firms have not complained to FINRA about information leakage.
Thus, FINRA believes that under the proposed rule change, the potential for information leakage with respect to less liquid stocks already is mitigated.
However, FINRA states that it will consider whether modifications are appropriate following implementation of the proposed rule change.
FINRA also believes that aggregation of trading volumes on a monthly, rather than weekly, basis would lessen the value and utility of the published information.
FINRA believes that, weekly publication of non-ATS volume, together with the weekly ATS data, would enable the public to understand a firm's trading volume off exchanges. FINRA also states that it anticipates that the public would use the published ATS and non-ATS volume information to better understand issues such as the impact of ATS and non-ATS trading volumes on price efficiency or order routing behavior. FINRA believes that the publication of weekly data would enable the public to study those trends at a relatively higher frequency and thus make more reliable conclusions about historical trends. FINRA also believes that, given the speed and frequency of information arrival in financial markets, monthly data might mask the deviations in short-term routing trends and render the published data less useful.
The timeframe for making the non-ATS trade data publicly available—on a two-week delayed basis for Tier 1 NMS stocks and a four-week delayed basis for all other NMS stocks and OTC Equity Securities—is designed to balance the desire to inform the public about non-ATS trading activity with the desire to protect the trading strategies of member firms. Although SIFMA advocated for a four-week delay in publishing data on Tier 1 NMS stocks,
the Commission believes that that FINRA has adequately considered the risk of information leakage in developing the proposal and Start Printed Page 61249has taken adequate steps to mitigate that risk.
The Commission also believes that the proposal to publish non-ATS trade data by firm, rather than by MPID, is appropriate. The Commission notes FINRA's representation that not all firms have separate MPIDs for unique trading centers at firms (outside the ATS context) and that publishing non-ATS volume data at the MPID level may not provide meaningful or consistent information to the marketplace. Therefore, the Commission further believes that for members using more than one MPID for their non-ATS trading, FINRA's proposal to aggregate and publish non-ATS volume data for non-ATS MPIDs belonging to a firm under a single parent identifier or firm name is appropriate.
Lastly, the Commission believes that the proposal to aggregate volume for all members that do not meet a de minimis threshold of fewer than on average 200 non-ATS transactions per day executed by the firm across all securities (for displaying aggregate volume across all securities by firm) or in a specific security (for displaying volume in a particular security by firm) during the one-week reporting period is appropriate. The Commission notes that FINRA's review of a one-week period found that, absent this threshold, approximately 300 individual firms would have had volume attributed by name, versus only 62 firms if the threshold had been applied, and that those 62 firms would account for 98.99 percent of all trading volume, representing a significant improvement in the transparency of this segment of the market.
It is therefore ordered pursuant to Section 19(b)(2) of the Act 
that the proposed rule change (SR-FINRA-2015-020), as amended, be and hereby is approved.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Robert W. Errett,
[FR Doc. 2015-25703 Filed 10-8-15; 8:45 am]
BILLING CODE 8011-01-P