
[Federal Register Volume 81, Number 22 (Wednesday, February 3, 2016)]
[Notices]
[Pages 5793-5795]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-01923]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76982; File No. SR-NYSEMKT-2015-80]


Self-Regulatory Organizations; NYSE MKT LLC; Order Approving a 
Proposed Rule Change Deleting Rule 410B--Equities Governing Reporting 
Requirements for Off-Exchange Transactions

January 28, 2016.

I. Introduction

    On October 16, 2015, NYSE MKT LLC (the ``Exchange'' or ``NYSE 
MKT'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to delete Rule 410B--Equities governing reporting 
requirements for off-Exchange transactions. The proposed rule change 
was published for comment in the Federal Register on November 2, 
2015.\3\ The Commission received no comment letters on the proposed 
rule change. On December 16, 2015, the Commission designated a longer 
period within which to approve the proposed rule change, disapprove the 
proposed rule change, or institute proceedings to determine whether to 
approve or disapprove the proposed rule change.\4\ The Commission is 
approving the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 76276 (October 27, 
2015), 80 FR 67454.
    \4\ See Securities Exchange Act Release No. 76669, 80 FR 79640 
(December 22, 2015).
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II. Description of the Proposed Rule Change

    The Exchange proposes to delete Rule 410B--Equities (``Rule 
410B''), which sets forth certain regulatory reporting requirements for 
member or member organizations effecting off-Exchange transactions in 
Exchange listed securities that are not reported to the Consolidated 
Tape, and to make conforming amendments to Rule 476A to delete a 
reference to Rule 410B. The Exchange represents that Rule 410B is no 
longer necessary in light of changes in trade reporting and regulatory 
requirements that have been put in place since the Exchange adopted 
Rule 410B.

Changes to Regulatory Landscape

    On July 30, 2007, the National Association of Securities Dealers, 
Inc. (``NASD''), New York Stock Exchange LLC (``NYSE''), and NYSE 
Regulation, Inc. (``NYSE Regulation'') consolidated their member-firm 
regulation operations to create the Financial Industry Regulatory 
Authority, Inc. (``FINRA'') and entered into a plan to allocate to 
FINRA regulatory responsibility for common rules and common members 
(``17d-2 Agreement'').\5\ The Exchange was added as a party to the 17d-
2 Agreement in 2009.\6\
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    \5\ See Securities Exchange Act Release No. 56148 (July 26, 
2007), 72 FR 42146 (August 1, 2007) (File No. 4-544) (Notice of 
Filing and Order Approving and Declaring Effective a Plan for the 
Allocation of Regulatory Responsibilities). In 2007, the NASD, NYSE, 
the Exchange and NYSE Regulation also entered into a Regulatory 
Services Agreement (``RSA''), whereby FINRA was retained to perform 
certain regulatory services for non-common rules.
    \6\ See Securities Exchange Act Release No. 60409 (July 30, 
2009), 74 FR 39353 (August 6, 2009) (File No. 4-587).
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    In 2008, the Exchange, NASD, NYSE, and NYSE Regulation also entered 
into a plan to allocate to FINRA regulatory responsibility, over 
exchange members that are also FINRA members, for surveillance, 
investigation, and enforcement of insider trading with respect to NYSE- 
and MKT-listed stocks, among others, irrespective of where the relevant 
trading occurred (the ``Insider Trading Plan'').\7\ On June 14, 2010, 
FINRA was retained to perform the residual market surveillance and 
enforcement functions that had, up to that point, been performed by 
NYSE

[[Page 5794]]

Regulation.\8\ In January 2011, the SEC approved an amendment to the 
Insider Trading Plan whereby FINRA also assumed responsibility for 
performing the insider-trading-related market surveillance and 
enforcement functions previously conducted by NYSE Regulation for its 
U.S. equities and options markets.\9\
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    \7\ See Securities Exchange Act Release No. 54646 (September 12, 
2008), 73 FR 54646 (September 22, 2008) (File No. 4-566). See also 
Securities Exchange Act Release No. 58806 (October 17, 2008), 73 FR 
63216 (October 23, 2008) (File No. 4-566).
    \8\ See Securities Exchange Act Release No. 62355 (June 22, 
2010), 75 FR 36729 (June 28, 2010) (SR-NYSE-2010-46); Securities 
Exchange Act Release No. 62354 (June 22, 2010), 75 FR 36730 (June 
28, 2010) (SR-NYSEAmex-2010-57). NYSE Regulation performed the 
regulatory functions of NYSE MKT pursuant to an intercompany RSA.
    \9\ See Securities Exchange Act Release No. 63750 (January 21, 
2011), 76 FR 4948 (January 27, 2011) (File No. 4-566).
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Changes in Trade Reporting and Regulatory Reporting

    In 1998, FINRA (then the NASD) established the Order Audit Trail 
System (OATS), as an integrated audit trail of order, quote, and trade 
information for OTC equity securities and equity securities listed and 
traded on The Nasdaq Stock Market, Inc. (``Nasdaq'').\10\ In 2010, 
FINRA Rules 7410 through 7470 (the ``OATS Rules'') were amended to 
extend the recording and reporting requirements to all NMS stocks, as 
that term is defined in Rule 600(b)(47) of Regulation NMS,\11\ 
including NYSE- and MKT-listed securities. The Exchange adopted the 
OATS Rules in 2011.\12\ The Exchange states that FINRA may use the 
information it collects pursuant to the OATS Rules to perform its 
regulatory functions.
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    \10\ See Securities Exchange Act Release No. 39729 (March 6, 
1998), 63 FR 12559 (March 13, 1998) (SR-NASD-97-56).
    \11\ See Securities Exchange Act Release No. 63311 (November 12, 
2010), 75 FR 70757 (November 18, 2010) (SR-FINRA-2010-044). See also 
17 CFR 242.600(b)(47).
    \12\ See Securities Exchange Act Release No. 65524 (October 7, 
2011), 76 FR 64151 (October 17, 2011) (SR-NYSEAmex-2011-74).
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    According to the Exchange, Rule 410B also predates the 
establishment of a FINRA Trade Reporting Facility (``TRF''). FINRA Rule 
6110 requires FINRA members to report transactions in NMS stocks \13\ 
effected ``otherwise than on or through a national securities 
exchange.'' \14\ Pursuant to FINRA Rules 6310A and 6310B, FINRA members 
may use either the FINRA/NYSE TRF or FINRA/Nasdaq TRF to report such 
off-Exchange transactions.\15\ FINRA members using these TRFs to report 
off-Exchange transactions are in turn subject to FINRA Rule 7230B, 
which, the Exchange states, imposes transaction-information reporting 
requirements similar to Rule 410B.\16\ As a result, the Exchange 
represents that dual members of both the Exchange and FINRA must report 
off-Exchange transactions to a TRF and submit substantially similar 
reports to the Exchange and FINRA.
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    \13\ As defined in Rule 600(b)(47) of Regulation NMS, 17 CFR 
242.600(b)(47).
    \14\ See FINRA Rule 6110. See generally FINRA Rule 6300A and 
7200A Series (FINRA/Nasdaq TRF) and 6300B and 7200B Series (FINRA/
NYSE TRF).
    \15\ See FINRA Rules 6300A & 6300B.
    \16\ See Rule 7230B.
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Proposed Rule Change

    The Exchange proposes to delete Rule 410B in its entirety. The 
Exchange represents that, since 2010, surveillance and enforcement 
responsibilities across markets have been consolidated at FINRA, which 
conducts cross-market surveillances on the Exchange's behalf utilizing 
various data sources, including extensive trade and other information 
that FINRA collects pursuant to its rules. This trade information 
includes reports of off-exchange transactions.
    The Exchange represents that all of its member organizations, with 
only nine exceptions, are members of FINRA and, as such, must report 
all off-exchange transactions to FINRA, including transactions away 
from the Exchange that are not reported to the Consolidated Tape. The 
Exchange further represents that this information is essentially 
duplicative of the Rule 410B reports the Exchange currently supplies to 
FINRA. The Exchange notes that one exception would be transactions in 
dually listed securities executed on and reported to a foreign 
securities exchange, which are not required to be reported because such 
trades are executed ``on or through an exchange.'' \17\ The Exchange 
represents that it believes such trades pose little regulatory risk 
and, given that no other exchange has a rule comparable to Rule 410B, 
notes that such trades are also not being reported to other equities 
exchanges. Finally, the Exchange represents that only a handful of 
firms currently account for all of the Rule 410B activity, all of whom 
are also FINRA members.\18\ The Exchange believes that Rule 410B is 
thus no longer necessary, and deleting it would eliminate essentially 
duplicative reporting of off-Exchange transactions by dual members.
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    \17\ See Trade Reporting Frequently Asked Questions, Section 
701, Q/A701.1, available at http://www.finra.org/industry/trade-reporting-faq.
    \18\ According to the Exchange, Rule 410B Weekly Reports 
submitted to the SEC in July and August 2015 reveal that only five 
firms, all also FINRA members, accounted for all of the Rule 410B 
trading activity. The Exchange further represents that the list of 
firms that have in the past submitted Rule 410B reports does not 
include any non-FINRA members.
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    The Exchange does not believe that eliminating the Rule 410B 
reporting requirement for the small number of NYSE MKT-only members\19\ 
would pose any significant regulatory risk. The Exchange represents 
that none of these firms has ever submitted a Rule 410B report. The 
Exchange also notes that NYSE MKT-only members would remain subject to 
federal and Exchange books and records requirements.\20\
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    \19\ The Exchange represents that these nine non-FINRA member 
firms do not have any public customers and are also members of 
Nasdaq as well as NYSE.
    \20\ See 17 CFR 240.17a-3, 17 CFR 240.17a-4 & Rule 440--
Equities.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act \21\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.\22\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\23\ which 
requires, among other things, that the rules of a national securities 
exchange be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest and that the 
rules are not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \21\ 15 U.S.C. 78f.
    \22\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \23\ 15 U.S.C. 78f(b)(5).
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    Based on the Exchange's representations, the Commission believes 
that eliminating the Rule 410B reporting requirement will not reduce 
the amount of publicly available information about securities 
transactions and that it is not likely to hamper the ability of the 
Exchange to conduct regulatory oversight of its members. The Commission 
notes that Rule 410B does not currently provide for real-time, publicly 
disseminated reporting of transactions, but instead requires non-
public, electronic reporting of trade data to the Exchange on a next-
day basis for regulatory purposes only. The Commission further notes 
that the Exchange represents that its members would remain subject to 
federal and

[[Page 5795]]

Exchange books-and-records requirements \24\ and that Exchange members 
would still be required to provide such trade data to the Exchange upon 
the Exchange's request. For these reasons, the Commission believes that 
the proposal should help to prevent fraudulent and manipulative acts 
and practices, promote just and equitable principles of trade, remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, protect investors and the 
public interest.
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    \24\ See 17 CFR 240.17a-3, 17 CFR 240.17a-4 & Rule 440--
Equities.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\25\ that the proposed rule change (SR-NYSEMKT-2015-80) be, and 
hereby is, approved.
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    \25\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
Robert W. Errett,
Deputy Secretary.
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    \26\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2016-01923 Filed 2-2-16; 8:45 am]
 BILLING CODE 8011-01-P


