
[Federal Register Volume 81, Number 35 (Tuesday, February 23, 2016)]
[Notices]
[Pages 9043-9052]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-03668]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77164; File No. SR-FINRA-2015-048]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Partial Amendment No. 1 and Order 
Granting Accelerated Approval to a Proposed Rule Change, as Modified by 
Partial Amendment No. 1, To Adopt FINRA Rule 6191(b) and Amend FINRA 
Rule 7440 To Implement the Data Collection Requirements of the 
Regulation NMS Plan To Implement a Tick Size Pilot Program

February 17, 2016.

I. Introduction

    On November 13, 2015, the Financial Industry Regulatory Authority, 
Inc. (``FINRA'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934

[[Page 9044]]

(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
adopt FINRA Rule 6191(b) and amend FINRA Rule 7440 to implement the 
Regulation NMS Plan to Implement a Tick Size Pilot Program (``Tick Size 
Pilot'').\3\ The proposed rule change was published in the Federal 
Register on November 25, 2015.\4\ On February 12, 2016, FINRA filed 
Partial Amendment No. 1 to the proposal.\5\ The Commission received 
three comments on the proposal.\6\ On January 7, 2016, the Commission 
designated a longer period for Commission action on the proposal.\7\ 
This order approves the proposed rule change, as modified by Partial 
Amendment No. 1.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 74892 (May 6, 2015), 
80 FR 27513 (May 13, 2015) (``Approval Order'').
    \4\ See Securities Exchange Act Release No. 76484 (November 19, 
2015), 80 FR 73858.
    \5\ In Partial Amendment No. 1, FINRA proposes to: (1) Require 
members to provide the Retail Investor Order flag in OATS execution-
related reports; (2) delete the requirement that FINRA members 
report data for execution on venues that do not report to FINRA; and 
(3) change the reference in Supplementary Material .03 for 
securities that trade in both the U.S. and in a foreign market from 
``dually-listed'' to ``securities that may trade in a foreign 
market.''
    \6\ See letters from Mary Lou Von Kaenel, Managing Director, 
Financial Information Forum, dated December 16, 2015 (``FIF Letter 
I) and January 25, 2016 (``FIF Letter II''); and Manisha Kimmel, 
Chief Regulatory Officer, Wealth Management, Thomson Reuters, dated 
December 16, 2015 (``Thomson Reuters Letter'') to Robert W. Errett, 
Deputy Secretary, Commission. On February 12, 2016, FINRA submitted 
a response to the comments. See letter from Andrew Madar, Associate 
General Counsel, Regulatory Policy and Oversight, FINRA to Brent J. 
Fields, Secretary, Commission dated February 12, 2016 (``FINRA 
Response'').
    \7\ See Securities Exchange Act Release No. 76854, 81 FR 1670 
(January 13, 2016).
---------------------------------------------------------------------------

II. Background

    On August 25, 2014, NYSE Group, Inc., on behalf of BATS Exchange, 
Inc., BATS Y-Exchange, Inc., Chicago Stock Exchange, Inc., EDGA 
Exchange, Inc., EDGX Exchange, Inc., FINRA, NASDAQ OMX BX, Inc., NASDAQ 
OMX PHLX LLC, the Nasdaq Stock Market LLC, New York Stock Exchange LLC, 
NYSE MKT LLC, and NYSE Arca, Inc. (collectively ``Participants''), 
filed with the Commission, pursuant to Section 11A of the Act \8\ and 
Rule 608 of Regulation NMS thereunder,\9\ the Plan to Implement the 
Tick Size Pilot Program (``Plan'').\10\ The Participants filed the Plan 
to comply with an order issued by the Commission on June 24, 2014.\11\ 
The Plan was published for comment in the Federal Register on November 
7, 2014,\12\ and approved by the Commission, as modified, on May 6, 
2015.\13\ On November 6, 2015, the Commission issued an exemption to 
the Participants from implementing the Plan until October 3, 2016.\14\
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78k-1.
    \9\ 17 CFR 242.608.
    \10\ See Letter from Brendon J. Weiss, Vice President, 
Intercontinental Exchange, Inc., to Secretary, Commission, dated 
August 25, 2014.
    \11\ See Securities Exchange Act Release No. 72460, 79 FR 36840 
(June 30, 2014).
    \12\ See Securities Exchange Act Release No. 73511 (November 3, 
2014), 79 FR 66423.
    \13\ See Approval Order, supra note 3.
    \14\ See Securities Exchange Act Release No. 76382, 80 FR 70284 
(November 13, 2015).
---------------------------------------------------------------------------

    The Tick Size Pilot is designed to allow the Commission, market 
participants, and the public to study and assess the impact of 
increment conventions on the liquidity and trading of the common stocks 
of certain small-capitalization companies. Each Participant is required 
to comply, and to enforce compliance by its members, as applicable, 
with the provisions of the Plan.\15\ In addition to developing quoting 
and trading requirements for the Tick Size Pilot, the Plan requires 
Participants to collect and submit to the Commission a variety of data, 
including market quality statistics and market maker participation 
statistics and profitability data.\16\ FINRA has filed the proposed 
rule change, as modified by Partial Amendment No. 1, to require its 
members to comply with the applicable data collection requirements of 
the Plan. In addition, FINRA proposes to clarify certain of the data 
collection provisions.\17\
---------------------------------------------------------------------------

    \15\ Rule 608(c) of Regulation NMS. 17 CFR 242.608(c). See also 
Plan Sections II.B. and IV.
    \16\ See Appendices B and C to the Plan.
    \17\ FINRA, on behalf of the Plan Participants, submitted a 
letter to Commission requesting exemption from certain provisions of 
the Plan related to data collection. See letter from Marcia E. 
Asquith, Senior Vice President and Corporate Secretary, FINRA dated 
December 9, 2015 to Robert W. Errett, Deputy Secretary, Commission 
(``Exemption Request''). The Commission, pursuant to its authority 
under Rule 608(e) of Regulation NMS, has granted FINRA a limited 
exemption from the requirement to comply with certain provisions of 
the Plan as specified in the letter and noted herein. See letter 
from David Shillman, Associate Director, Division of Trading and 
Markets, Commission, to Marcia E. Asquith, Senior Vice President and 
Corporate Secretary, FINRA, dated February 17, 2016 (``SEC Exemption 
Letter'').
---------------------------------------------------------------------------

III. Description of the Proposed Rule Change, as Modified by Partial 
Amendment No. 1

    FINRA proposes to adopt Rule 6191(b), which sets forth the data 
collection requirements under the Plan. Proposed Rule 6191(b)(1) would 
require that a member that operates a Trading Center \18\ shall 
establish, maintain and enforce written policies and procedures that 
are reasonably designed to comply with the data collection and 
transmission requirements of Items I and II to Appendix B of the Plan, 
and a member that is a Market Maker shall establish, maintain and 
enforce written policies and procedures that are reasonably designed to 
comply with the data collection and transmission requirements of Item 
IV of Appendix B to the Plan and Item I of Appendix C of the Plan.
---------------------------------------------------------------------------

    \18\ Capitalized terms used in this Order are defined in the 
Plan, unless otherwise specified herein.
---------------------------------------------------------------------------

    Proposed Rule 6191(b)(2) sets forth the Trading Center data 
requirements. Under proposed Rule 6191(b)(2)(A)(i), a member that 
operates a Trading Center subject to the Plan and for which FINRA is 
the Designated Examining Authority (``DEA'') shall collect and transmit 
to FINRA the data described in Items I and II of Appendix B of the Plan 
with respect to each Pre-Pilot Data Collection Security \19\ for the 
period beginning six months prior to the Pilot Period through the 
trading day immediately preceding the Pilot Period (``Pre-Pilot 
Period''); and each Pilot Security for the period beginning on the 
first day of the Pilot Period through six months after the end of the 
Pilot Period.
---------------------------------------------------------------------------

    \19\ As discussed herein, FINRA proposes to establish data 
collection requirements for securities designated as Pre-Pilot Data 
Collection Securities for the period that begins six months prior to 
the Pilot Period.
---------------------------------------------------------------------------

    Proposed Rule 6191(b)(2)(A)(ii) provides that members that operate 
Trading Centers that are subject to the Plan, and for which FINRA is 
the DEA, shall meet the data collection and reporting requirements in 
Items I and II of Appendix B by reporting the required order 
information in Pilot Securities and Pre-Pilot Data Collection 
Securities to OATS. The proposed rule change adds four new fields to 
OATS to enable OATS to capture the necessary Tick Size Pilot data.\20\ 
Specifically, FINRA proposes that OATS Reporting Members \21\ that 
operate a Trading Center will collect and transmit to FINRA the 
following information for orders received or originated involving

[[Page 9045]]

Pilot Securities and Pre-Pilot Data Collection Securities:
---------------------------------------------------------------------------

    \20\ In its filing, FINRA noted that it would add additional 
values to existing OATS fields necessary to implement requirements 
of the Tick Size Pilot. The new values are described in the OATS 
Reporting Technical Specifications. FINRA will also provide 
additional guidance in the OATS Reporting Technical Specifications 
regarding the use of existing values that may be affected by members 
participating in the Tick Size Pilot.
    \21\ FINRA Rule 7410(o) generally defines ``Reporting Member'' 
as a member that receives or originates an order and has an 
obligation to record and report information under FINRA Rules 7440 
and 7450.
---------------------------------------------------------------------------

    (a) Whether the member is a Trading Center in either a Pilot 
Security or a Pre-Pilot Data Collection Security;
    (b) If the member is an Alternative Display Facility (``ADF'') 
Market Participant under FINRA Rule 6220, the display size of the 
order; and
    (c) Whether the order is routable.
    In Partial Amendment No. 1, FINRA proposes that members shall 
identify whether the member is relying on the Retail Investor Order 
exception with respect to the execution of order.\22\
---------------------------------------------------------------------------

    \22\ FINRA has requested an exemption from the Plan related to 
this provision. See Exemption Request, supra note 17.
---------------------------------------------------------------------------

    For purposes of subparagraph (a), FINRA notes that only those OATS 
Reporting Members that operate a Trading Center and for which FINRA is 
the DEA are required to make changes to their OATS reporting. OATS 
Reporting Members that do not operate Trading Centers or that have 
another self-regulatory organization as DEA will be permitted to leave 
the new fields blank (i.e., they are not required to populate the new 
Trading Center field to affirmatively indicate that they are not a 
Trading Center). OATS Reporting Members that operate Trading Centers 
will be required to indicate their status as a Trading Center on all 
OATS reports for new orders involving Pre-Pilot Data Collection 
Securities and Pilot Securities, including New Order Reports, Combined 
Order/Route Reports, Combined Order Execution Reports, and Cancel/
Replace Reports.
    For purposes of subparagraph (b), FINRA notes that OATS Reporting 
Members that operate Trading Centers and also are ADF Market 
Participants \23\ will be required to indicate their status as an ADF 
Market Participant and must indicate the display size of the order so 
that OATS can capture the information required by Appendix B regarding 
hidden and displayed size.\24\
---------------------------------------------------------------------------

    \23\ FINRA Rule 6220(a)(3) defines ``ADF Market Participant'' or 
``Market Participant'' as a Registered Reporting ADF Market Maker, 
as defined in FINRA Rule 6220(a)(13), or a Registered Reporting ADF 
ECN, as defined in FINRA Rule 6220(a)(12).
    \24\ Items I(a)(5), (29), and (30) of Appendix B to the Plan 
each require that hidden (i.e., non-displayed) order information be 
collected.
---------------------------------------------------------------------------

    FINRA proposes to add a new OATS field under subparagraphs (c) to 
capture the information required by Item II(o) of Appendix B to the 
Plan. This information will be required on all OATS reports for new 
orders, including New Order Reports, Combined Order/Route Reports, 
Combined Order/Execution Reports, and Cancel/Replace Reports.
    Finally, FINRA proposes to add a new OATS field under proposed Rule 
6191(b)(A)(iii) to capture information required under Item II(n) of 
Appendix B to the Plan. As described in Partial Amendment No. 1, FINRA 
will require members to add a flag to OATS execution reports for those 
orders that rely on the Retail Investor Order exceptions provided under 
Test Groups Two and Three.\25\
---------------------------------------------------------------------------

    \25\ In Partial Amendment No. 1, FINRA deleted the proposed 
requirement in proposed Rule 6191(b)(2)(A)(iv) to require 
information on foreign executions and executions on domestic venues 
which do not provide execution information to FINRA. In Partial 
Amendment No. 1, FINRA stated that it has agreements with all equity 
exchanges to receive data for executions in Pre-Pilot Data 
Collection Securities and Pilot Securities that occur on those 
venues. For foreign markets, FINRA stated that it could obtain the 
necessary information through existing OATS data that would be 
sufficient to analyze the impact of the Tick Size Pilot on the 
number of orders routed to foreign markets.
---------------------------------------------------------------------------

    Proposed Rule 6191(b)(2)(B) provides that FINRA shall transmit the 
data required by Items I and II of Appendix B to the Plan, and 
collected pursuant to FINRA Rule 6191(b)(2)(A), to the SEC in a pipe-
delimited format on a disaggregated basis by Trading Center within 30 
calendar days following month end. FINRA also shall make such data 
publicly available on the FINRA Web site on a monthly basis at no 
charge and will not identify the Trading Center that generated the 
data.\26\
---------------------------------------------------------------------------

    \26\ FINRA has requested an exemption from the Plan related to 
this provision. See Exemption Request, supra note 17.
---------------------------------------------------------------------------

    Proposed Rule 6191(b)(3)(A) provides that a member that is a Market 
Maker \27\ for which FINRA is the DEA shall collect and transmit to 
FINRA data relating to Item IV of Appendix B to the Plan with respect 
to activity conducted on any Trading Center in furtherance of its 
status as a Market Maker, including a Trading Center that executes 
trades otherwise than on a national securities exchange, for 
transactions that have settled or reached settlement date. The proposed 
rule requires Market Makers to transmit such data in a pipe-delimited 
format, by 12 p.m. EST on T+4 for (1) transactions in each Pre-Pilot 
Data Collection Security for the Pre-Pilot Period; and (2) for 
transactions in each Pilot Security for the period beginning on the 
first day of the Pilot Period through six months after the end of the 
Pilot Period.
---------------------------------------------------------------------------

    \27\ The Plan defines a ``Market Maker'' as ``a dealer 
registered with any self-regulatory organization, in accordance with 
the rules thereof, as (i) a market maker or (ii) a liquidity 
provider with an obligation to maintain continuous, two-sided 
trading interest.''
---------------------------------------------------------------------------

    Proposed Rule 6191(b)(3)(B) provides that FINRA shall transmit the 
data relating to Market Maker activity required by Item IV of Appendix 
B to the Plan, and collected pursuant to paragraph (b)(3)(A), to the 
Participant operating the Trading Center on which such activity 
occurred in a pipe-delimited format on a disaggregated basis by Market 
Maker during the Pre-Pilot Period and within 15 calendar days following 
month end during the Pilot Period.
    Proposed Rule 6191(b)(3)(C) provides that FINRA shall transmit the 
data relating to Market Maker activity conducted otherwise than on a 
national securities exchange required by Item IV of Appendix B to the 
Plan, and collected pursuant to paragraph (b)(3)(A), to the SEC in a 
pipe-delimited format, on a disaggregated basis by Trading Center, 
within 30 calendar days following month end. FINRA shall also make such 
data publicly available on the FINRA Web site on a monthly basis at no 
charge and will not identify the Trading Center that generated the 
data.\28\
---------------------------------------------------------------------------

    \28\ FINRA has requested an exemption from the Plan related to 
this provision. See Exemption Request, supra note 17.
---------------------------------------------------------------------------

    Proposed Rule 6191(b)(4) sets forth the requirements for the 
collection and transmission of data pursuant to Appendix C.I of the 
Plan. Proposed Rule 6191(b)(4)(A) requires that a member that is a 
Market Maker, and for which FINRA is the DEA, shall collect and 
transmit to FINRA the data described in Item I of Appendix C to the 
Plan, as modified by Rule 6191(b)(5) with respect to executions that 
have settled or reached settlement date that were executed on any 
Trading Center. Market Makers will provide such data in a pipe-
delimited format by 12 p.m. EST on T+4: (1) For executions during and 
outside of Regular Trading Hours in each Pre-Pilot Data Collection 
Security for the Pre-Pilot Period; and (2) for executions during and 
outside of Regular Trading Hours in each Pilot Security for the period 
beginning on the first day of the Pilot Period through six months after 
the end of the Pilot Period.
    Proposed Rule 6191(b)(4)(B) provides that FINRA shall collect the 
data required by Item I of Appendix C to the Plan on a monthly basis, 
transmit such data, categorized by the Control Group and each Test 
Group, to the SEC in a pipe-delimited format; the data transmitted to 
the SEC shall include the profitability statistics categorized by 
Market Maker and by security. FINRA shall also make aggregated data 
required by Item I of Appendix C to the Plan, and collected pursuant to 
(b)(4)(A) categorized by the Control Group and each Test Group, 
publically available on the FINRA Web site on a monthly basis

[[Page 9046]]

at no charge and shall not identify the Market Makers that generated 
the data or the individual securities.
    Proposed Rule 6191(b)(5) sets forth the manner in which Market 
Maker participation statistics and profitability will be calculated. 
Proposed Rule 6191(b)(5) provides that a member that is a Market Maker 
subject to the requirements of proposed Rule 6191(b)(3)(A) and 
(b)(4)(A) in a Pre-Pilot Data Collection Security or a Pilot Security, 
and for which FINRA is the DEA, shall be deemed to have satisfied the 
requirements of proposed Rule 6191(b)(3)(A) and (b)(4)(A), in addition 
to the requirements of Item IV of Appendix B and Item I of Appendix C, 
if such Market Maker submits to FINRA the following specified data for 
any principal trade, not including a riskless principal trade, in a 
Pre-Pilot Data Collection Security or a Pilot Security executed in 
furtherance of its status as a Market Maker on any Trading Center: (1) 
Ticker Symbol; (2) Trading Center where the trade was executed, or if 
not known, the destination where the order originally was routed for 
further handling and execution; (3) Time of execution; (4) Price; (5) 
Size; (6) Buy/sell; (7) for trades executed away from the Market Maker, 
a unique identifier, as specified by the Market Maker's DEA, that will 
allow the trade to be associated with the Trading Center where the 
trade was executed; and (8) for trades cancelled or corrected beyond 
T+3, whether the trade represents a cancellation or correction.
    FINRA proposes to adopt certain Supplementary Material to Rule 
6191(b) to clarify other aspects of the data collection requirements. 
First, FINRA proposes to clarify in Supplementary Material .01 that the 
terms used in Rule 6191(b) shall have the same meaning as provided in 
the Plan, unless otherwise specified. In proposed Supplementary 
Material .02, FINRA proposes to clarify a reporting requirement for 
Retail Investor Orders for purposes of Appendix B.II(n). Specifically, 
FINRA proposes that a Trading Center shall report ``Y'' when it is 
relying upon the Retail Investor Order exception to Test Groups Two and 
Three with respect to the execution of the order, and ``N'' in all 
other instances.\29\
---------------------------------------------------------------------------

    \29\ See Partial Amendment No. 1. FINRA has requested an 
exemption from the Plan related to this provision. See Exemption 
Request, supra note 17.
---------------------------------------------------------------------------

    In proposed Supplementary Material .03, FINRA proposes to require 
that for purposes of Appendix B.I, a field identified as ``Affected by 
Limit-Up Limit-Down bands'' \30\ be included. Under this proposal, a 
Trading Center shall report a value of ``Y'' when the ability of an 
order to execute has been affected by the Limit-Up Limit-Down bands in 
effect at the time of order receipt. A Trading Center shall report a 
value of ``N'' when the ability of an order to execute has not been 
affected by the Limit-Up Limit-Down bands in effect at the time of 
order receipt.
---------------------------------------------------------------------------

    \30\ See National Market System Plan to Address Extraordinary 
Market Volatility, Securities Exchange Act Release No. 67091 (May 
31, 2012), 77 FR 33498 (June 6, 2012) (File No. 4-631) (``Limit Up 
Limit Down Plan'').
---------------------------------------------------------------------------

    In addition, proposed Supplementary Material .03 requires that, for 
Appendix B.I purposes, Participants shall classify all orders in Pilot 
and Pre-Pilot Data Collection Securities that may trade in a foreign 
market as fully executed domestically or fully or partially executed on 
a foreign market. For purposes of Appendix B.II, Participants shall 
classify all orders in Pilot and Pre-Pilot Data Collection Securities 
that may trade in a foreign market as: Directed to a domestic venue for 
execution; may only be directed to a foreign venue for execution; or 
fully or partially directed to a foreign venue at the discretion of a 
member.\31\
---------------------------------------------------------------------------

    \31\ See Partial Amendment No. 1.
---------------------------------------------------------------------------

    In proposed Supplementary Material .04, FINRA proposes to modify 
the reporting requirements under Appendix B.I.a(14), B.I.a(15), 
B.I.a(21) and B.I.a(22).\32\ Specifically, FINRA proposes the 
following: Appendix B.I.a(14A): The cumulative number of shares of 
orders executed from 100 microseconds to less than 1 millisecond after 
the time of order receipt; Appendix B.I.a(15): The cumulative number of 
shares of orders executed from 1 millisecond to less than 100 
milliseconds after the time of order receipt; Appendix B.I.a(21A): The 
cumulative number of shares of orders canceled from 100 microseconds to 
less than 1 millisecond after the time of order receipt; and Appendix 
B.I.a(22): The cumulative number of shares of orders canceled from 1 
millisecond to less than 100 milliseconds after the time of order 
receipt.
---------------------------------------------------------------------------

    \32\ FINRA has requested an exemption from the Plan related to 
this provision. See Exemption Request, supra note 17. Appendix 
B.I.a(14) requires reporting of the cumulative number of shares of 
orders executed from 0 to less than 100 microseconds after the time 
of order receipt; Appendix B.I.a(15) requires reporting of the 
cumulative number of shares or orders executed from 100 microseconds 
to less than 100 milliseconds after the time of order receipt; 
Appendix B.I.a(21) requires reporting of the cumulative number of 
shares of orders cancelled from 0 to less than 100 microseconds 
after the time of order receipt; and Appendix B.I.a(22) requires 
reporting of the cumulative number of shares or orders cancelled 
from 100 microseconds to less than 100 milliseconds after the time 
of order receipt.
---------------------------------------------------------------------------

    In proposed Supplementary Material .05, FINRA proposes to add the 
requirement in Appendix B.I.a(33) relating to the share-weighted 
average BBO Spread to a Trading Center that displays on the ADF. In 
proposed Supplementary Material .06, FINRA proposes to calculate data 
based upon the time of order receipt for purposes of Appendix 
B.I.a(31)-(33) \33\ In proposed Supplementary Material .07, FINRA 
proposes to clarify that, for purposes of Appendix B.I.a(33), only a 
Trading Center that is displaying in its own name as a Trading Center 
when executing an order shall enter a value in this field.\34\
---------------------------------------------------------------------------

    \33\ FINRA has requested an exemption from the Plan related to 
this provision. See Exemption Request, supra note 17.
    \34\ FINRA believes that the Appendix B.I.a(33) reporting 
requirement is only relevant for a Trading Center that is a display 
venue and not Trading Centers that may display through other Trading 
Centers (such as a market maker displaying a quote on a national 
securities exchange).
---------------------------------------------------------------------------

    In proposed Supplementary Material .08, FINRA proposes to 
specifically identify certain orders types for purposes of Appendix B 
reporting. In particular, not held orders, assigned the number (18); 
clean cross orders, assigned the number (19); auction orders, assigned 
the number (20); and orders that cannot be otherwise be classified, 
including, for example, orders received when the NBBO is crossed, 
assigned the number (21), shall be specifically identified in the data 
reports.
    In proposed Supplementary Material .09, FINRA proposes to clarify 
the scope of the Plan as it relates to members that only execute orders 
for limited purposes. Specifically, proposed Supplementary Material .09 
clarifies that a member shall not be deemed a Trading Center for 
purposes of Appendix B of the Plan where that member only executes 
orders otherwise than on a national securities exchange for the purpose 
of: (1) Correcting a bona fide error related to the execution of a 
customer order; (2) purchasing a security from a customer at a nominal 
price solely for purposes of liquidating the customer's position; or 
(3) completing the fractional share portion of an order.\35\
---------------------------------------------------------------------------

    \35\ FINRA notes that when a member purchases a fractional share 
from a customer, the Trading Center that executes the remaining 
whole shares of that customer order would be subject to Appendix B 
of the Plan.
---------------------------------------------------------------------------

    In proposed Supplementary Material .10, FINRA clarifies that 
Trading Centers must begin the data collection

[[Page 9047]]

required pursuant to Appendix B.I.a(1) through B.II.(y) to the Plan and 
Item I of Appendix C to the Plan on April 4, 2016. In addition, FINRA 
proposes that it will provide information to the SEC within 30 calendar 
days following month end and make such data publicly available on its 
Web site pursuant to Appendix B and C to the Plan at the beginning of 
the Pilot Period.\36\
---------------------------------------------------------------------------

    \36\ FINRA has requested an exemption from the Plan related to 
this provision. See Exemption Request, supra note 17.
---------------------------------------------------------------------------

    In proposed Supplementary Material .11, FINRA proposes for purposes 
of Item I of Appendix C that the Participants shall calculate daily 
Market Maker realized profitability statistics for each trading day on 
a last-in, first out (LIFO) basis using reported trade price and shall 
include only trades executed on the subject trading day.\37\ The daily 
LIFO calculation shall not include any positions carried over from 
previous trading days. The proposal also provides that for purposes of 
Item I.c of Appendix C, the Participants shall calculate daily Market 
Maker unrealized profitability statistics for each trading day on an 
average price basis. Specifically, the Participants must calculate the 
volume weighted average price of the excess (deficit) of buy volume 
over sell volume for the current trading day using reported trade 
price. The gain (loss) of the excess (deficit) of buy volume over sell 
volume shall be determined by using the volume weighted average price 
compared to the closing price of the security as reported by the 
primary listing exchange. In calculating unrealized trading profits, 
the Participant shall also report the number of excess (deficit) shares 
held by the Market Maker, the volume weighted average price of that 
excess (deficit) and the closing price of the security as reported by 
the primary listing exchange used in reporting unrealized profit.
---------------------------------------------------------------------------

    \37\ FINRA has requested an exemption from the Plan related to 
this provision. See Exemption Request, supra note 17.
---------------------------------------------------------------------------

    In proposed Supplementary Material .12, FINRA proposes to identify 
the securities that will be subject to the data collection requirements 
prior to the commencement of the Pilot Period. Proposed Supplementary 
Material .12 defines ``Pre-Pilot Data Collection Securities'' as the 
securities designated by the Participants for purposes of the data 
collection requirements described in Items I, II and IV of Appendix B 
and Item I of Appendix C to the Plan for the Pre-Pilot Period. The 
Participants shall compile the list of Pre-Pilot Data Collection 
Securities by selecting all NMS stocks with a market capitalization of 
$5 billion or less, a Consolidated Average Daily Volume (``CADV'') of 2 
million shares or less and a closing price of $1 per share or more. The 
market capitalization and the closing price thresholds shall be applied 
to the last day of the Pre-Pilot measurement period, and the CADV 
threshold shall be applied to the duration of the Pre-Pilot measurement 
period. The Pre-Pilot measurement period shall be the three calendar 
months ending on the day when the Pre-Pilot Data Collection Securities 
are selected. The Pre-Pilot Data Collection Securities shall be 
selected thirty days prior to the commencement of the six-month Pre-
Pilot Period. FINRA notes that beginning with the first trading day of 
the Pilot Period through six months after the end of the Pilot Period, 
the data collection requirements will become applicable to the Pilot 
Securities only.
    Finally, proposed Supplementary Material .13 provides that the Rule 
shall be in effect during a pilot period to coincide with the Pilot 
Period for the Plan (including any extensions to the Pilot Period for 
the Plan).

IV. Discussion and Findings

    After careful review of the proposal and the comment letters, the 
Commission finds that the proposed rule change, as modified by Partial 
Amendment No. 1, is consistent the requirements of the Act and the 
rules and regulations thereunder that are applicable to a national 
securities association.\38\ Specifically, the Commission finds that the 
proposed rule change is consistent with Section 15A(b)(6) of the 
Act,\39\ which requires, among other things, that FINRA's rules be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, 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 are not designed to permit unfair discrimination between 
customers, issuers, brokers or dealers. In addition, the Commission 
finds that the proposed rule change is consistent with Section 
15A(b)(9) of the Act,\40\ which requires that FINRA rules not impose 
any burden on competition that is not necessary or appropriate.
---------------------------------------------------------------------------

    \38\ 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).
    \39\ 15 U.S.C. 78o-3(b)(6).
    \40\ 15 U.S.C. 78o-3(b)(9).
---------------------------------------------------------------------------

    The Commission has previously stated that the Tick Size Pilot set 
forth in the Plan should provide a data-driven approach to evaluate 
whether certain changes to the market structure for Pilot Securities 
would be consistent with the Commission's mission to protect investors, 
maintain fair, orderly, and efficient markets, and facilitate capital 
formation.\41\ As discussed below, the Commission believes that FINRA's 
proposal is consistent with the requirements of the Act, and would 
further the purpose of the Plan to provide measurable data.
---------------------------------------------------------------------------

    \41\ See Approval Order, supra note 3.
---------------------------------------------------------------------------

    FINRA, as a Participant in the Plan, has an obligation to comply, 
and enforce compliance by its members, with the terms of the Plan. Rule 
608(c) of Regulation NMS provides that ``[e]ach self-regulatory 
organization shall comply with the terms of any effective national 
market system plan of which it is a sponsor or participant. Each self-
regulatory organization also shall, absent reasonable justification or 
excuse, enforce compliance with any such plan by its members and 
persons associated with its members.'' \42\ FINRA's proposed Rule 
6191(b) would impose compliance obligations on its members with the 
data collection requirements set forth in Appendices B and C to the 
Plan. The Commission also believes the proposal is consistent with the 
Act because it is designed to assist FINRA in meeting its regulatory 
obligations pursuant to Rule 608 of Regulation NMS and the Plan.\43\
---------------------------------------------------------------------------

    \42\ 17 CFR 242.608(c).
    \43\ Sections II.B and IV of the Plan each require Participants 
to comply with, and enforce compliance by its members, with the 
Plan. See Approval Order, 80 FR at 27548, supra note 3.
---------------------------------------------------------------------------

    FINRA proposes to use OATS to collect the Trading Center data 
specified in Appendix B.I and II under the Plan from its members. FINRA 
proposes changes to OATS to require new data elements that are 
necessary to accommodate the data requirements under the Plan. The new 
OATS requirements will only apply to those members that operate a 
Trading Center subject to the Tick Size Pilot and for which FINRA is 
the DEA. In its letter, FIF recognized that by using OATS, ``FINRA has 
taken much of the burden from industry members in terms of 
categorization of orders and calculation of execution quality and 
market makers' profitability statistics.'' \44\ The Commission believes 
that the use of OATS to collect Tick Size Pilot data from FINRA members 
should facilitate

[[Page 9048]]

the efficient implementation of the data collection requirements under 
the Plan because FINRA members will be able to utilize an existing 
system. Further, the use of OATS should enhance the usefulness of the 
data because the data will be collected and submitted to the Commission 
and the public in a consistent format.
---------------------------------------------------------------------------

    \44\ See FIF Letter I. In its letter, Thomson Reuters stated 
their understanding of several OATS reports, including the Tick Size 
Participation Flag, the Display Flag and the Routable Flag. See 
Thomson Reuters Letter.
---------------------------------------------------------------------------

    FINRA proposes several new data elements for OATS to accommodate 
the Tick Size Pilot data requirements, including whether the member is 
a Trading Center in either a Pilot Security or Pre-Pilot Data 
Collection Security, if the member is an ADF Market Participant and 
whether the order is routable. The Commission finds that these new data 
elements support the data collection requirements under the Tick Size 
Pilot.
    In addition, FINRA originally proposed that members identify in 
OATS those orders that rely on the Retail Investor Order exception in 
Test Groups Two and Three. As discussed below, this provision was 
further clarified in proposed Supplemental Material .02 by noting that 
for purposes of reporting, a Trading Center shall report a ``Y'' when 
it is relying upon the Retail Investor Order exceptions in Test Groups 
Two and Three and ``N'' in all other instances.\45\ The two commenters 
to the proposal noted that identifying orders that rely on the Retail 
Investor Order exceptions prior to execution would be difficult.\46\ 
One commenter stated that it would be operationally complex to 
determine the eligibility of a Retail Investor Order flag on a new 
order and that Trading Centers may choose not to avail themselves of 
the exceptions even if the new order met the definition of a Retail 
Investor Order.\47\ The commenters suggested that FINRA require the 
identification of orders that rely on the Retail Investor Order 
exceptions on execution reports rather than New Order Reports, Combined 
Order/Route or Cancel/Replace reports.
---------------------------------------------------------------------------

    \45\ The Commission notes that it has granted FINRA an exemption 
from Rule 608(c) related to this provision. See SEC Exemption 
Letter, supra note 17.
    \46\ See FIF Letter I and Thomson Reuters Letter.
    \47\ See Thomson Reuters Letter.
---------------------------------------------------------------------------

    In Partial Amendment No. 1, FINRA proposes to amend its proposed 
rule to require the identification of Retail Investor Orders that rely 
on the exceptions in Test Groups Two and Three on OATS execution 
reports. FINRA noted that it understood that firms may not make the 
ultimate decision of whether an exception will be relied upon until the 
time of execution and therefore, it may be operationally more efficient 
to reflect the Retail Investor Order flag on execution reports.
    The Commission finds that the amended FINRA rule requiring the 
identification of Retail Investor Orders on OATS execution reports to 
be consistent with the Act. The FINRA rule should implement the 
requirement under Appendix B.II.(n) in a manner that should be more 
efficient for Trading Centers.
    In addition, FINRA originally proposed to require its members to 
record information in OATS related to an order or part of an order that 
is executed on a venue that does not provide execution information to 
FINRA. One commenter stated that it would be difficult and costly to 
link orders to the OATS execution report process.\48\ The commenter 
noted that it believed that the largest majority of ``away trades'' on 
a U.S. venue that is not a FINRA member may be those executed on the 
Chicago Stock Exchange (``CHX'') and recommended that FINRA work with 
CHX so that an OATS-like execution report could be tied to OATS route 
reports to collect the necessary data. In its response, FINRA noted 
that it had reached an agreement with CHX to obtain data for executions 
that occur on CHX and therefore, FINRA amended its proposed rule so 
that members would not need to submit data related to executions that 
occur on CHX.\49\ The Commission finds that FINRA's proposal is 
consistent with the Act because it will provide FINRA with the data it 
is required to collect under the Plan in a cost effective and efficient 
manner.
---------------------------------------------------------------------------

    \48\ See FIF Letter I.
    \49\ See Partial Amendment No. 1. In Partial Amendment No. 1, 
FINRA also proposes to remove the requirement that members provide 
information about foreign executions. FINRA will obtain information 
from OATS about orders routed to a foreign market. The Commission 
believes that this proposal is consistent with the Act because it 
would allow for analysis to be conducted on the impact of the Tick 
Size Pilot on routing to foreign markets.
---------------------------------------------------------------------------

    FINRA's proposed rule contains several provisions related to the 
Market Maker data required under the Plan.\50\ Specifically, FINRA 
proposes under FINRA Rule 6191(b)(3) to collect from its members that 
are Market Makers and for which FINRA is the DEA, the Daily Market 
Marker Participation Statistics, required under Appendix B.IV to the 
Plan.\51\ FINRA proposes to collect data related to activity conducted 
on any Trading Center in furtherance of its status as a Market Maker. 
FINRA proposes to transmit the data it collects under this paragraph to 
the Participants that operate Trading Centers on which the Market Maker 
activity occurred. In addition, FINRA will transmit the data related to 
activity conducted otherwise than on a national securities exchange to 
the Commission.
---------------------------------------------------------------------------

    \50\ One commenter requested confirmation that a firm that is 
neither a Trading Center nor a Market Maker but becomes a Market 
Maker in a Pilot Security during either the Pre-Pilot or Pilot 
Period would not have to retroactively provide data. See FIF Letter 
I. FINRA, in response, clarified that there is no retroactive 
reporting requirement for Trading Centers that become Market Makers 
during the Pre-Pilot or Pilot Period, and that Market Makers only 
need to report data on those days in with they are trading as a 
Registered Market Maker. See FINRA Response.
    \51\ In its second comment letter, one commenter noted that 
FINRA published new technical specifications for Market Maker 
Transaction Reporting on January 11, 2016 and raised comments on the 
technical specifications. See FIF Letter II. Specifically, the 
commenter stated its belief that the new technical specifications 
impact market makers' ability to meet the April 4, 2016 date for 
transaction reporting. The commenter noted that identifying the 
execution venue would add complexity that impacts market makers to 
meet the April 4, 2016 date, and suggests that the identification 
should not be required in certain situations. The commenter also 
noted that correcting mismatched records would be resource intensive 
and requested a grace period for compliance. Finally, the commenter 
raised concerns with respect to how riskless principal trades are 
reported, and offered suggestions on alternate reporting methods. 
With respect to the execution venue and mismatched trades, FINRA 
responded that the updated Market Maker Transaction Reporting 
specifications would allow FINRA to determine the ultimate execution 
venue for each trade, even if the Market Makers do not know such 
venue. FINRA would use identifiers to link Market Markers trades to 
the final destination where the trade was executed, using exchange 
data and OATS data reported to FINRA. Correcting mismatched records 
would allow the linkage process to result in complete and accurate 
Market Maker participation statistics. FINRA further stated that it 
would work with the Commission and the other Participants to 
evaluate the mismatched records issue and make any determination as 
to whether such correction continues to be necessary. With respect 
to riskless principal trades reporting, FINRA responded that such 
trades must be eliminated from the Market Maker participation 
statistics, in order to evaluate the Plan. FINRA noted that it has 
attempted to provide industry participants with as much advance 
notice as possible to comply with the proposed requirements and that 
it will continue to work with members to ensure that they have the 
information and clarity needed to implement the new reporting 
requirements.
---------------------------------------------------------------------------

    The Commission notes that the FINRA proposal expands upon the data 
required under Appendix B.IV to the Plan. Appendix B.IV to the Plan 
only requires FINRA to collect data from Market Makers who register 
with its ADF. As provided, Appendix B.IV to the Plan would not allow a 
complete evaluation of Market Maker participation in Pilot Securities. 
The Commission believes that the FINRA proposal should enhance the 
ability of the Commission and the public to assess the impact of the 
Tick Size Pilot on Market Maker participation. The increased coverage 
of Market Maker

[[Page 9049]]

data should provide greater insight on Market Maker participation under 
the Tick Size Pilot by including Market Maker participation in the 
over-the-counter market.
    One commenter raised concerns about the data collected by FINRA 
under Rule 6191(b)(3)(B) and provided to each Participant where the 
Market Maker activity occurred.\52\ The commenter requested that each 
Participant provide clear assurances that the data provided to them 
under the Tick Size Pilot would not be used for commercial or 
competitive purposes. In its response, FINRA stated that it does not 
intend to use the data collected under the Tick Size Pilot for 
commercial or competitive purposes.\53\
---------------------------------------------------------------------------

    \52\ See FIF Letter I.
    \53\ See FINRA Response.
---------------------------------------------------------------------------

    In its letter, FIF also raised concerns about Tick Size Pilot data 
being published and that because some Pilot Securities could trade 
infrequently that the data, even if unattributed may be reverse-
engineered to identify counter-parties.\54\ In its response, FINRA 
noted that the Plan sets forth the publication requirements of 
Participants. However, FINRA noted that it appreciates members 
confidentiality concerns and intends to work to ensure that the Tick 
Size Pilot data is made available consistent with the requirements of 
the Plan.\55\
---------------------------------------------------------------------------

    \54\ See FIF Letter I.
    \55\ See FINRA Response.
---------------------------------------------------------------------------

    The Commission notes that the Plan provides for the public 
dissemination of Tick Size Pilot data but states that ``[t]he data made 
publicly available shall not identify the trading center that generated 
the data.'' \56\ The Commission also notes that Participants are 
scheduled to start collecting data on April 4, 2016, but the 
Participants have requested not to make the data publicly available 
until August 30, 2016.\57\ The Commission notes that this could give 
Participants the opportunity to evaluate the data to determine whether 
the FIF's concerns related to the disclosure of the identity of Trading 
Centers exist, and if so, whether additional measures are necessary to 
prevent the disclosure of attributed Trading Center data. The 
Commission finds that proposed Rule 6191(b) is consistent with the Act 
because it implements provisions of the Plan.
---------------------------------------------------------------------------

    \56\ This requirement is contained in Section VII.A of the Plan. 
See Approval Order, 80 FR at 27551, supra note 3.
    \57\ See Exemption Request, supra note 17. The Commission notes 
that it has granted FINRA an exemption from Rule 608(c) of 
Regulation NMS related to this provision. See SEC Exemption Letter, 
supra note 17.
---------------------------------------------------------------------------

    FINRA's proposed Rule 6191(b)(4) contains the provisions by which 
FINRA will collect, submit to the Commission, and make publically 
available Market Maker Profitability data required under Appendix C of 
the Plan. The Commission finds that these provisions are consistent 
with the Act because they implement provisions of the Plan.
    FINRA also proposes Rule 6191(b)(5), which contains provisions 
whereby FINRA will collect data and calculate the Market Maker 
Participation Statistics and Market Maker Profitability Data. Under 
proposed Rule 6191(b)(5), FINRA members that are Market Makers and for 
which FINRA is the DEA shall submit certain data elements, which FINRA 
will use to calculate Market Maker Participation Statistics and Market 
Maker Profitability. The Commission finds that this proposal is 
consistent with the Act because it implements provisions of the Plan. 
Further, this provision should lessen costs for FINRA members as FINRA 
will conduct the necessary calculations. Finally, the proposal should 
also enhance the usefulness of the data by making the calculations 
consistent across FINRA members.
    Further, in proposed Supplementary Material .11, FINRA proposes to 
specify how it will calculate raw Marker Maker realized trading profits 
as required under Appendix C.I.(b) under the Plan. Under the Appendix 
C.I.(b), the share prices used to calculate raw Market Maker realized 
trading profits is determined using a LIFO-like method. FINRA proposes 
to use a methodology that yields LIFO-like results, rather than 
utilizing a LIFO-like method for purposes of the calculation.
    In addition, FINRA proposes to calculate the unrealized trading 
profits of Market Makers as required under Appendix C.I.(c). Appendix 
C.I.(c) provides that ``[r]aw Market Maker unrealized trading profits--
the difference between the purchase or sale price of the end-of-day 
inventory position of the Market Maker and the Closing Price. In the 
case of a short position, the Closing Price for the sale will be 
subtracted. In the case of a long position, the purchase price will be 
subtracted from the Closing Price'' which is to be provided as a 
separate data element. FINRA proposes to calculate daily Market Maker 
unrealized profitability statistics for each trading day on an average 
basis. Specifically, FINRA proposes to calculate the volume-weighted 
average price of the excess (deficit) of buy volume over sell volume 
for the current trading day using reported trade prices. Further, the 
gain (loss) of the excess (deficit) of buy volume over sell volume 
shall be determined by using the volume weighted average price compared 
to the closing price of the security as reported by the primary listing 
exchange. FINRA shall report the number of excess (deficit) shares held 
by the Market Maker, the volume weighted average price of that excess 
(deficit) and the closing price of the security as reported by the 
primary listing exchange.
    The Commission believes that proposed Supplementary Material .11 is 
consistent with the Act because the proposed calculations will provide 
measurable data that is consistent with what was originally sought to 
be captured under the Plan. Therefore, the proposal will continue to 
allow analysis of the impact of the Tick Size Pilot on Market Maker 
Profitability. The Commission also believes that the proposed 
calculation will also reduce implementation costs for market 
participants because FINRA will conduct the calculations for its 
members.\58\
---------------------------------------------------------------------------

    \58\ The Commission notes that it has granted FINRA an exemption 
from Rule 608(c) related to this provision. See SEC Exemption 
Letter, supra note 17.
---------------------------------------------------------------------------

    FINRA proposes several provisions that would, among other things, 
specify to FINRA members how to report Plan data. Specifically, FINRA 
proposes in Supplementary Material .02 to clarify how a Trading Center 
will report Retail Investor Orders under Appendix B.II.(n). 
Specifically, FINRA proposes that only those orders that rely on the 
Retail Investor Order exceptions in Test Group Two or Three would be 
identified with ``Y,'' all other orders would be identified with a 
``N.'' The Commission notes that commenters supported the FINRA 
clarification but, as discussed above, requested further clarification 
as to which OATS report the Retail Investor Order flag should be added. 
The Commission believes that this proposal, as modified by Partial 
Amendment No. 1, is consistent with the Act as it clarifies existing 
Plan language in a way that maintains the usefulness of the data while 
also reducing implementation costs.\59\
---------------------------------------------------------------------------

    \59\ The Commission notes that it has granted FINRA an exemption 
from Rule 608(c) related to this provision. See SEC Exemption 
Letter, supra note 17.
---------------------------------------------------------------------------

    FINRA proposes to report certain data elements based upon modified 
time fields. Specifically, under Appendix B.Ia.(14) and B.I.a.(15), the 
number of cumulative shares of orders executed is required to be 
reported based upon a set time frame after the time of order receipt. 
Under Appendix B.I.a(21) and

[[Page 9050]]

B.I.a(22), the number of cumulative shares of orders canceled is 
required to be reported based upon a set time frame after the time of 
order receipt. The proposed rules would add finer increments to the 
Plan reporting requirements and isolate microsecond and millisecond 
reporting requirements into separate data elements. According to the 
Participants, not all Participants or non-Participant Trading Centers 
currently capture or report all orders and trades in either 
microseconds or milliseconds.\60\ One commenter noted that OATS formats 
do not allow for reporting in microseconds.\61\ FINRA responded that a 
member is not required to report in an increment of time that is not 
accepted or permitted by FINRA systems--if a member maintains its 
internal timestamps in microseconds, the member would not be required 
to report to OATS in microseconds because OATS currently does not 
support microseconds. The Commission notes that the proposal merely 
shifts the time reporting elements into separate reporting lines to 
accommodate different reporting capabilities. The data reported under 
FINRA's rules and the clarification from FINRA are consistent with the 
intent of the Plan. Accordingly, the Commission finds that the proposal 
is consistent with the Act.\62\
---------------------------------------------------------------------------

    \60\ See Exemption Request, supra note 17.
    \61\ See FIF Letter I.
    \62\ The Commission notes that it has granted FINRA an exemption 
from Rule 608(c) related to this provision. See SEC Exemption 
Letter, supra note 17.
---------------------------------------------------------------------------

    Under Appendix B.I.a(31)-(33), certain data elements are calculated 
based upon prices measured at the time of order execution. FINRA 
proposes to measure prices based upon the time of order receipt. 
According to the Participants, the time of order receipt is more 
consistent with the goal of observing the effect to the Tick Size Pilot 
on liquidity.\63\ The Commission finds that the proposal is consistent 
with the Act because it should make the data more useful for measuring 
the impact of the Tick Size Pilot. Further, the Commission notes that 
the time of order receipt is used in other current rules, which should 
lessen implementation burdens for gathering these data elements.\64\
---------------------------------------------------------------------------

    \63\ See Exemption Request, supra note 17.
    \64\ See e.g. Rule 605 of Regulation NMS. The Commission notes 
that it has granted FINRA an exemption from Rule 608(c) related to 
this provision. See SEC Exemption Letter, supra note 17.
---------------------------------------------------------------------------

    FINRA also proposes to require that Trading Centers that display on 
the ADF to report under Appendix B.I.a.(33) and that only those Trading 
Centers that display in their own name shall be subject to this 
section. The Commission believes that these additional requirements are 
consistent with the Act. The provisions should make the Tick Size Pilot 
data more complete by including additional Trading Centers' data under 
this reporting requirement.
    FINRA proposes several provisions that clarify current reporting 
obligations. For example, FINRA proposes that certain order types be 
separately reported in discrete data lines, such as not held orders, 
auction orders, and clean cross orders.\65\ The Commission notes that 
these orders are currently included under Appendix B to the Plan. The 
FINRA proposal clarifies how these orders would be identified for 
reporting purposes, which should facilitate reporting and provide for 
better analysis.
---------------------------------------------------------------------------

    \65\ One commenter requested confirmation that no additional 
input would be required for Trading Centers beyond what was 
specified in the OATS specifications published on October 12, 2015 
and that FINRA would be responsible for determining the order types 
based on the trade details provided by Trading Centers in their OATS 
reports. See FIF Letter I. FINRA responded by clarifying that 
members that operate Trading Centers would not be required to 
provide additional data to complete these fields beyond what has 
already be required in the OATS Reporting Technical Specifications. 
See FINRA Response.
---------------------------------------------------------------------------

    Further, FINRA proposes that a field be attached to signify whether 
an order to be executed has been affected by LULD bands.\66\ In 
addition, FINRA proposes, for purposes of Appendix B.I, to classify all 
orders in Pilot and Pre-Pilot Securities that may trade in a foreign 
market as fully executed domestically or fully or partially executed on 
a foreign market. Finally, FINRA proposes, for purposes of Appendix 
B.II, to classify all orders in Pilot and Pre-Pilot Securities that may 
trade in a foreign market as directed to a domestic venue for 
execution; may only be directed to a foreign venue for execution; or 
fully or partially directed to a foreign venue at the discretion of the 
member. The Commission finds that these additional discrete data 
reporting elements are consistent with the Act. They should further 
clarify the Tick Size Pilot data elements and provide guidance to 
reporting Trading Centers.
---------------------------------------------------------------------------

    \66\ In its letter, FIF requested clarification that FINRA would 
provide this data element. See FIF Letter I. FINRA responded that no 
additional reporting will be required by members that operate 
Trading Centers to populate this field beyond what has already been 
set forth in OATS Reporting and Technical Specifications. See FINRA 
Response.
---------------------------------------------------------------------------

    Under proposed Supplementary Material .09, FINRA proposes to 
clarify that for purposes of Appendix B to the Plan, certain members 
shall not be considered Trading Centers. Specifically, members that 
execute orders over-the-counter for the purpose of correcting bona fide 
errors of customer orders, purchase securities from customers at a 
nominal price solely for the purposes of liquidating customers' 
positions or completing a fractional share portion of an order, would 
not be considered a Trading Center for purposes of Appendix B of the 
Plan. One commenter noted that this proposal provides a better 
understanding of the type of activity that would deem a firm to be a 
Trading Center and agreed with the criteria proposed.\67\ The 
Commission finds that this proposal is consistent with the Act as it 
further clarifies what is required under the Plan. As noted in the 
Approval Order, the data requirements are reasonably designed to 
provide measurable data that should facilitate the ability of the 
Commission, the public, and market participants to review and analyze 
the effect of tick size on the trading, liquidity, and market quality 
of Pilot Securities.\68\ The Commission believes that it is appropriate 
to exclude such discrete trading activities identified in proposed 
Supplementary Material .09 without harming the usefulness of the data.
---------------------------------------------------------------------------

    \67\ See FIF Letter I.
    \68\ See Approval Order, supra note 3.
---------------------------------------------------------------------------

    FINRA proposes to identify Pre-Pilot Data Collection Securities for 
purposes of the data collection requirements under the Plan that are 
required to begin six months before the Pilot Period.\69\ The data 
collection requirements are scheduled to begin on April 4, 2016.\70\ 
However, according to Section V of the Plan, the identification of 
Pilot Securities will occur during the six-

[[Page 9051]]

month Pre-Pilot Period. FINRA has proposed to identify a wider universe 
of securities for which data will be collected during the Pre-Pilot 
Period so that once the Pilot Period begins, there should be a complete 
data set for Pilot Securities.
---------------------------------------------------------------------------

    \69\ One commenter requested information about how market 
participants will obtain the list of impacted securities and other 
details about Pre-Pilot Data Collection Securities and Pilot 
Securities. See FIF Letter I. FINRA responded that it had published 
detailed guidance on the format and content of the lists, including 
the daily change lists. According the FINRA, this guidance includes 
information on how firms may retrieve the lists in an automated 
format. Further, FINRA noted that on February 10, 2016, FINRA and 
the primary listing markets published a Tick Size Sample List that 
may be used for testing until the actual Pre-Pilot Data Collection 
Securities list is determined on March 4, 2016.
    \70\ One commenter suggested that there is insufficient time to 
complete implementation of the data collection requirements. See FIF 
Letters I and II. The Commission notes that FINRA issued data 
collection specifications in October 2015 and January 2016 and 
published FAQs for Trading Centers and Market Makers in October 
2015. FINRA also noted that it is engaged in continuing discussions 
with industry participants, including the commenter, on implementing 
the data collection requirements and that it would continue to work 
with members to ensure that they have the information and clarity 
needed to implement the new reporting requirements. See FINRA 
Response. Accordingly, the Commission believes that the current 
implementation schedule is appropriate.
---------------------------------------------------------------------------

    The Commission finds that the proposal to identify Pre-Pilot Data 
Collection Securities for which Tick Size Pilot data will be collected 
during the Pre-Pilot Period is consistent with the Act. The Commission 
understands that it could be costly for Trading Centers to backfill the 
data requirements to collect the Pre-Pilot Period data if Trading 
Centers were forced to wait until the list of Pilot Securities is 
developed as specified under the Plan. Therefore, FINRA's proposal to 
establish a slightly broader universe of securities that likely would 
be subject to the Tick Size Pilot is reasonable for purposes of 
collecting data during the Pre-Pilot Period. The Commission believes 
that the proposal should help to ensure that there is a complete data 
set for Pilot Securities when the Pilot Period commences and should 
help to reduce the cost and complexity of implementing the data 
collection requirements.
    In proposed Supplementary Material .10, FINRA proposes to submit 
data generated and collected under Appendices B and C of the Plan 
within 30 days following the month end and to make certain data 
publicly available on its Web site at the beginning of the Pilot 
Period.\71\ In the Exemption Request, the Participants sought to 
provide Pre-Pilot Period data under a revised schedule.\72\ 
Specifically, the Participants requested to provide the initial 
submission of pre-Pilot Period data on August 30, 2016, which would 
include data for the months of April, May, June and July. The 
Participants requested this modified schedule in order to conduct 
testing to ensure the accuracy of the data prior to the first 
transmission to the Commission and publication of the data on their 
respective Web sites.
---------------------------------------------------------------------------

    \71\ The Commission notes that is has granted FINRA an exemption 
from Rule 608(c) related to this provision. See SEC Exemption Letter 
supra note 17.
    \72\ See Exemption Request, supra note 17.
---------------------------------------------------------------------------

    The Commission finds that proposed Supplementary Material .10 is 
consistent with the Act because it will permit FINRA to conduct testing 
to ensure the accuracy of the data it collects before it is submitted 
to the Commission and published on its Web site. The data gathered 
during the Pre-Pilot Period is intended to provide a baseline for 
analysis against the data collected during the Pilot Period. The 
analysis on the impact of the Tick Size Pilot can only begin once the 
Pilot Period begins. Therefore, the Commission believes that FINRA's 
proposal is reasonable as the delay in submitting and publishing Pre-
Pilot Period data should not impact the assessment of the Tick Size 
Pilot.
    Finally, in proposed Supplementary Material .13, FINRA specifies 
that the rule should be in effect during a pilot period to coincide 
with the Pilot Period.\73\ Accordingly, the rule would become effective 
once the Pre-Pilot Period begins.\74\ The Commission believes that this 
proposal is consistent with the Act because it reinforces and clarifies 
important dates and obligations under the Plan.
---------------------------------------------------------------------------

    \73\ One commenter submitted specific questions related to the 
implementation of the data collection rules. See FIF Letter I, 
Appendix. FINRA stated in its response that it is engaged in a 
continuing discussion with FIF and other industry participants with 
respect to the issues raised in the appendix of FIF's comment 
letter.
    \74\ See also proposed Supplementary Material .10.
---------------------------------------------------------------------------

    The Commission finds that FINRA's proposed rules to implement the 
Tick Size Pilot data collection requirements are consistent with the 
requirements of the Act. The proposal clarifies and implements the data 
collection requirements set forth in the Plan.

V. Solicitation of Comments of Partial Amendment No. 1

    Interested persons are invited to submit written data, views, and 
arguments concerning Partial Amendment No. 1, including whether the 
proposed rule change, as modified by Partial Amendment No. 1, 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 rule-comments@sec.gov. Please include 
File Number SR-FINRA-2015-048 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-2015-048. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-FINRA-2015-048 and should be 
submitted on or before March 15, 2016.

VI. Accelerated Approval of Proposed Rule Change, as Modified by 
Partial Amendment No. 1

    The Commission finds good cause, pursuant to Section 19(b)(2) of 
the Act, to approve the proposed rule change, as modified by Partial 
Amendment No. 1, prior to the 30th day after the date of publication of 
Partial Amendment No. 1 in the Federal Register. Partial Amendment No. 
1 requires FINRA members to provide the Retail Investor Order flag in 
OATS execution-related reports; deletes the requirement that FINRA 
members report data for execution on venues that do not report to 
FINRA; and changes the reference in proposed Supplementary Material .03 
for securities that trade in both the U.S. and in a foreign market from 
``dually-listed'' to ``securities that may trade in a foreign market.'' 
The Commission believes that these changes provide greater clarity on 
the application of the proposal. Accordingly, the Commission finds good 
cause for approving the proposed rule change, as modified by Partial 
Amendment No. 1, on an accelerated basis, pursuant to Section 19(b)(2) 
of the Act.

VII. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\75\ that the

[[Page 9052]]

proposed rule change, as modified by Partial Amendment No.1 (SR-FINRA-
2015-048) be, and it hereby is, approved on an accelerated basis.
---------------------------------------------------------------------------

    \75\ 15 U.S.C. 78s(b)(2).
    \76\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\76\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-03668 Filed 2-22-16; 8:45 am]
 BILLING CODE 8011-01-P


