
[Federal Register Volume 82, Number 128 (Thursday, July 6, 2017)]
[Notices]
[Pages 31366-31369]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-14144]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81053; File No. SR-FINRA-2017-020]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Adopt 
FINRA Rule 6898 (Consolidated Audit Trail--Fee Dispute Resolution)

June 29, 2017.
    Pursuant to the provisions of Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'' or the ``Exchange Act'') \1\ and Rule 
19b-4 thereunder,\2\ notice is hereby given that, on June 19, 2017, 
Financial Industry Regulatory Authority, Inc. (``FINRA'') filed with 
the Securities and Exchange Commission (``SEC'' or the ``Commission'') 
the proposed rule change as described in Items I and II below, which 
Items have been prepared by FINRA. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to adopt FINRA Rule 6898 (Consolidated Audit 
Trail--Fee Dispute Resolution) to establish the procedures for 
resolving potential disputes related to CAT Fees charged to Industry 
Members.\3\
---------------------------------------------------------------------------

    \3\ Unless otherwise specified, capitalized terms used in this 
rule filing are defined as set forth herein or in the Consolidated 
Audit Trail Funding Fees Rule, the CAT Compliance Rule Series or in 
the CAT NMS Plan.
---------------------------------------------------------------------------

    The text of the proposed rule change is available on FINRA's Web 
site at http://www.finra.org, at the principal office of FINRA, and at 
the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, FINRA included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. FINRA has prepared summaries, set forth in sections A, 
B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Bats BYX Exchange, Inc., Bats BZX Exchange, Inc., Bats EDGA 
Exchange, Inc., Bats EDGX Exchange, Inc., BOX Options Exchange LLC, C2 
Options Exchange, Incorporated, Chicago Board Options Exchange, 
Incorporated, Chicago Stock Exchange, Inc., FINRA, Investors' Exchange 
LLC, Miami International Securities Exchange, LLC, MIAX PEARL, LLC, 
NASDAQ BX, Inc., Nasdaq GEMX, LLC, Nasdaq ISE, LLC, Nasdaq MRX, LLC,\4\ 
NASDAQ PHLX LLC, The NASDAQ Stock Market LLC, New York Stock Exchange 
LLC, NYSE MKT LLC, NYSE Arca, Inc. and NYSE National, Inc.\5\ 
(collectively, the ``Participants'') filed with the Commission, 
pursuant to Section 11A of the Exchange Act \6\ and Rule 608 of 
Regulation NMS thereunder,\7\ the National Market System Plan Governing 
the Consolidated Audit Trail (the ``CAT NMS Plan'' or ``Plan'').\8\ The 
Participants filed the Plan to comply with Rule 613 of Regulation NMS 
under the Exchange Act.\9\ The Plan was published for comment in the 
Federal Register on May 17, 2016,\10\ and approved by the Commission, 
as modified, on November 15, 2016.\11\ The Plan is designed to create, 
implement and maintain a consolidated audit trail (``CAT'') that would 
capture customer and order event information for orders in NMS 
Securities and OTC Equity Securities, across all markets, from the time 
of order inception through routing, cancellation, modification, or 
execution in a single consolidated data source. The Plan accomplishes 
this by creating CAT NMS, LLC (the ``Company''), of which each 
Participant is a member, to operate the CAT.\12\ Under the CAT NMS 
Plan, the Operating Committee of the Company (``Operating Committee'') 
has discretion to establish funding for the Company to operate the CAT, 
including establishing fees that the Participants will pay, and 
establishing fees for Industry Members that will be implemented by the 
Participants (``CAT Fees'').\13\ The Participants are required to file 
with the SEC under Section 19(b) of the Exchange Act any such CAT Fees 
applicable to Industry Members that the Operating Committee 
approves.\14\ Accordingly, FINRA has filed a proposed rule change with 
the SEC to adopt the Consolidated Audit Trail Funding Fees, which will 
require Industry Members that are FINRA members to pay the CAT Fees 
determined by the Operating Committee.\15\ FINRA submits this

[[Page 31367]]

proposed rule change to adopt FINRA Rule 6898 (Consolidated Audit 
Trail--Fee Dispute Resolution) to establish the procedures for 
resolving potential disputes related to CAT Fees charged to Industry 
Members. Proposed Rule 6898 is described below.
---------------------------------------------------------------------------

    \4\ ISE Gemini, LLC, ISE Mercury, LLC and International 
Securities Exchange, LLC have been renamed Nasdaq GEMX, LLC, Nasdaq 
MRX, LLC, and Nasdaq ISE, LLC, respectively. See Securities Exchange 
Act Release No. 80248 (March 15, 2017), 82 FR 14547 (March 21, 
2017); Securities Exchange Act Release No. 80326 (March 29, 2017), 
82 FR 16460 (April 4, 2017); and Securities Exchange Act Release No. 
80325 (March 29, 2017), 82 FR 16445 (April 4, 2017).
    \5\ National Stock Exchange, Inc. has been renamed NYSE 
National, Inc. See Securities Exchange Act Release No. 79902 
(January 30, 2017), 82 FR 9258 (February 3, 2017).
    \6\ 15 U.S.C. 78k-1.
    \7\ 17 CFR 242.608.
    \8\ See Letter from the Participants to Brent J. Fields, 
Secretary, Commission, dated September 30, 2014; and Letter from 
Participants to Brent J. Fields, Secretary, Commission, dated 
February 27, 2015. On December 23, 2015, the Participants submitted 
an amendment to the CAT NMS Plan. See Letter from Participants to 
Brent J. Fields, Secretary, Commission, dated December 23, 2015.
    \9\ 17 CFR 242.613.
    \10\ Securities Exchange Act Release No. 77724 (April 27, 2016), 
81 FR 30614 (May 17, 2016).
    \11\ Securities Exchange Act Release No. 79318 (November 15, 
2016), 81 FR 84696 (November 23, 2016) (``Approval Order'').
    \12\ The Plan also serves as the limited liability company 
agreement for the Company.
    \13\ Section 11.1(b) of the CAT NMS Plan.
    \14\ See supra note 12 [sic].
    \15\ See Securities Exchange Act Release No. 80710 (May 17, 
2017), 82 FR 23629 [sic] (May 23, 2017) (SR-FINRA-2017-011).
---------------------------------------------------------------------------

(1) Definitions
    Paragraph (a) of proposed Rule 6898 sets forth the definitions for 
proposed Rule 6898. Paragraph (a)(1) of proposed Rule 6898 states that, 
for purposes of Rule 6898, the terms ``CAT NMS Plan'', ``Industry 
Member'', ``Operating Committee'', and ``Participant'' are defined as 
set forth in the Rule 6810 (Consolidated Audit Trail Compliance Rule--
Definitions), and the term ``CAT Fee'' is defined as set forth in the 
Rule 6897 (Consolidated Audit Trail Funding Fees). In addition, FINRA 
proposes to add paragraph (a)(2) to proposed Rule 6898. New paragraph 
(a)(2) would define the term ``Subcommittee'' to mean a subcommittee 
designated by the Operating Committee pursuant to the CAT NMS Plan. 
This definition is the same substantive definition as set forth in 
Section 1.1 of the CAT NMS Plan.
(2) Fee Dispute Resolution
    Section 11.5 of the CAT NMS Plan requires Participants to adopt 
rules requiring that disputes with respect to fees charged to Industry 
Members pursuant to the CAT NMS Plan be determined by the Operating 
Committee or Subcommittee. Section 11.5 of the CAT NMS Plan also states 
that decisions by the Operating Committee or Subcommittee on such 
matters shall be binding on Industry Members, without prejudice to the 
right of any Industry Member to seek redress from the SEC pursuant to 
SEC Rule 608 of Regulation NMS,\16\ or in any other appropriate forum. 
FINRA proposes to adopt paragraph (b) of proposed Rule 6898. Paragraph 
(b) of proposed Rule 6898 states that disputes initiated by an Industry 
Member with respect to CAT Fees charged to such Industry Member 
pursuant to the Consolidated Audit Trail Funding Fees, including 
disputes related to the designated tier and the fee calculated pursuant 
to such tier, shall be resolved by the Operating Committee, or a 
Subcommittee designated by the Operating Committee of the CAT NMS Plan, 
pursuant to the Fee Dispute Resolution Procedures adopted pursuant to 
the CAT NMS Plan and set forth in paragraph (c) of proposed Rule 6898. 
Decisions on such matters shall be binding on Industry Members, without 
prejudice to the rights of any such Industry Member to seek redress 
from the SEC or in any other appropriate forum.
---------------------------------------------------------------------------

    \16\ 17 CFR 242.608.
---------------------------------------------------------------------------

    The Operating Committee has adopted ``Fee Dispute Resolution 
Procedures'' governing the manner in which disputes regarding CAT Fees 
charged pursuant to the Consolidated Audit Trail Funding Fees will be 
addressed. These Fee Dispute Resolution Procedures, as they relate to 
Industry Members, are set forth in paragraph (c) of proposed Rule 6898. 
Specifically, the Fee Dispute Resolution Procedures provide the 
procedure for Industry Members that dispute CAT Fees charged to such 
Industry Member pursuant to one or more of the Participants' 
Consolidated Audit Trail Funding Fees Rules, including disputes related 
to the designated tier and the fee calculated pursuant to such tier, to 
apply for an opportunity to be heard and to have the CAT Fees charged 
to such Industry Member reviewed. The Procedures are modeled after the 
adverse action procedures adopted by various exchanges,\17\ and will be 
posted on the Web site for the CAT NMS Plan.\18\
---------------------------------------------------------------------------

    \17\ See, e.g., Chapter X of BATS BZX Exchange, Inc. (Adverse 
Action); and Chapter X of NYSE National, Inc. (Adverse Action).
    \18\ The CAT NMS Plan Web site is available at http://www.catnmsplan.com/.
---------------------------------------------------------------------------

    Under these Procedures, an Industry Member that disputes CAT Fees 
charged to such Industry Member and that desires to have an opportunity 
to be heard with respect to such disputed CAT Fees must file a written 
application with the Company within 15 business days after being 
notified of such disputed CAT Fees. The application must identify the 
disputed CAT Fees, state the specific reasons why the applicant takes 
exception to such CAT Fees, and set forth the relief sought. In 
addition, if the applicant intends to submit any additional documents, 
statements, arguments or other material in support of the application, 
the same should be so stated and identified.
    The Company will refer applications for hearing and review promptly 
to the Subcommittee designated by the Operating Committee pursuant to 
Section 4.12 of the CAT NMS Plan with responsibility for conducting the 
reviews of CAT Fee disputes pursuant to these Procedures. This 
Subcommittee will be referred to as the Fee Review Subcommittee. The 
members of the Fee Review Subcommittee will be subject to the 
provisions of Section 4.3(d) of the CAT NMS Plan regarding recusal and 
Conflicts of Interest. The Fee Review Subcommittee will keep a record 
of the proceedings.
    The Fee Review Subcommittee will hold hearings promptly. The Fee 
Review Subcommittee will set a hearing date. The parties to the hearing 
shall furnish the Fee Review Subcommittee with all materials relevant 
to the proceedings at least 72 hours prior to the date of the hearing. 
Each party will have the right to inspect and copy the other party's 
materials prior to the hearing.
    The parties to the hearing will consist of the applicant and a 
representative of the Company who shall present the reasons for the 
action taken by the Company that allegedly aggrieved the applicant. The 
applicant is entitled to be accompanied, represented and advised by 
counsel at all stages of the proceedings.
    The Fee Review Subcommittee will determine all questions concerning 
the admissibility of evidence and will otherwise regulate the conduct 
of the hearing. Each of the parties will be permitted to make an 
opening statement, present witnesses and documentary evidence, cross 
examine opposing witnesses and present closing arguments orally or in 
writing as determined by the Fee Review Subcommittee. The Fee Review 
Subcommittee also will have the right to question all parties and 
witnesses to the proceeding. The Fee Review Subcommittee must keep a 
record of the hearing. The formal rules of evidence will not apply.
    The Fee Review Subcommittee must set forth its decision in writing 
and send the written decision to the parties to the proceeding. Such 
decisions will contain the reasons supporting the conclusions of the 
Fee Review Subcommittee.
    The decision of the Fee Review Subcommittee will be subject to 
review by the Operating Committee either on its own motion within 20 
business days after issuance of the decision or upon written request 
submitted by the applicant within 15 business days after issuance of 
the decision. The applicant's petition must be in writing and must 
specify the findings and conclusions to which the applicant objects, 
together with the reasons for such objections. Any objection to a 
decision not specified in writing will be considered to have been 
abandoned and may be disregarded. Parties may petition to submit a 
written argument to the Operating Committee and may request an 
opportunity to make an oral argument before the Operating Committee. 
The Operating Committee will have sole discretion to grant or deny 
either request.

[[Page 31368]]

    The Operating Committee will conduct the review. The review will be 
made upon the record and will be made after such further proceedings, 
if any, as the Operating Committee may order. Based upon such record, 
the Operating Committee may affirm, reverse or modify, in whole or in 
part, the decision of the Fee Review Subcommittee. The decision of the 
Operating Committee will be in writing, will be sent to the parties to 
the proceeding and will be final.
    The Procedures state that a final decision regarding the disputed 
CAT Fees by the Operating Committee, or the Fee Review Subcommittee (if 
there is no review by the Operating Committee), must be provided within 
90 days of the date on which the Industry Member filed a written 
application regarding disputed CAT Fees with the Company. The Operating 
Committee may extend the 90-day time limit at its discretion.
    In addition, the Procedures state that any notices or other 
documents may be served upon the applicant either personally or by 
leaving the same at its, his or her place of business or by deposit in 
the United States post office, postage prepaid, by registered or 
certified mail, addressed to the applicant at its, his or her last 
known business or residence address. The Procedures also state that any 
time limits imposed under the Procedures for the submission of answers, 
petitions or other materials may be extended by permission of the 
Operating Committee. All papers and documents relating to review by the 
Fee Review Subcommittee or the Operating Committee must be submitted to 
the Fee Review Subcommittee or Operating Committee, as applicable.
    The Procedures also note that decisions on such CAT Fee disputes 
made pursuant to these Procedures will be binding on Industry Members, 
without prejudice to the rights of any such Industry Member to seek 
redress from the SEC, or in any other appropriate forum.
    Finally, an Industry Member that files a written application with 
the Company regarding disputed CAT Fees in accordance with these 
Procedures is not required to pay such disputed CAT Fees until the 
dispute is resolved in accordance with these Procedures, including any 
review by the SEC, or in any other appropriate forum. For these 
purposes, the disputed CAT Fees means the amount of the invoiced CAT 
Fees that the Industry Member has asserted pursuant to these Procedures 
that such Industry Member does not owe to the Company. The Industry 
Member must pay any invoiced CAT Fees that are not disputed CAT Fees 
when due as set forth in the original invoice.
    Once the dispute regarding CAT Fees is resolved pursuant to these 
Procedures, if it is determined that the Industry Member owes any of 
the disputed CAT Fees, then the Industry Member must pay such disputed 
CAT Fees that are owed, as well as interest on such disputed CAT Fees 
from the original due date (that is, 30 days after receipt of the 
original invoice of such CAT Fees) until such disputed CAT Fees are 
paid at a per annum rate equal to the lesser of (i) the Prime Rate plus 
300 basis points, or (ii) the maximum rate permitted by applicable law.
    If the Commission approves the proposed rule change, FINRA will 
announce the implementation date of the proposed rule change in a 
Regulatory Notice to be published no later than 60 days following 
Commission approval. The effective date will be no later than 120 days 
following publication of the Regulatory Notice announcing Commission 
Approval.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\19\ which requires, among 
other things, that FINRA rules must be designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest, and Section 15A(b)(5) of the Act,\20\ which requires, 
among other things, that FINRA rules provide for the equitable 
allocation of reasonable dues, fees and other charges among members and 
issuers and other persons using any facility or system that FINRA 
operates or controls.
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78o-3(b)(6).
    \20\ 15 U.S.C. 78o-3(b)(5).
---------------------------------------------------------------------------

    FINRA believes that this proposal is consistent with the Act 
because it implements, interprets or clarifies Section 11.5 of the 
Plan, and is designed to assist FINRA and its Industry Members in 
meeting regulatory obligations pursuant to the Plan. In approving the 
Plan, the SEC noted that the Plan ``is necessary and appropriate in the 
public interest, for the protection of investors and the maintenance of 
fair and orderly markets, to remove impediments to, and perfect the 
mechanism of a national market system, or is otherwise in furtherance 
of the purposes of the Act.'' \21\ To the extent that this proposal 
implements, interprets or clarifies the Plan and applies specific 
requirements to Industry Members, FINRA believes that this proposal 
furthers the objectives of the Plan, as identified by the SEC, and is 
therefore consistent with the Act.
---------------------------------------------------------------------------

    \21\ Approval Order at 84697.
---------------------------------------------------------------------------

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

    FINRA does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. FINRA notes that the proposed 
rule change implements Section 11.5 of the CAT NMS Plan approved by the 
Commission, and is designed to assist FINRA in meeting its regulatory 
obligations pursuant to the Plan. Similarly, all national securities 
exchanges and FINRA are proposing this proposed rule to implement the 
requirements of the CAT NMS Plan. Therefore, this is not a competitive 
rule filing, and, therefore, it does not raise competition issues 
between and among the exchanges and FINRA.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-FINRA-2017-020 on the subject line.

[[Page 31369]]

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-2017-020. 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 the 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-2017-020, and should 
be submitted on or before July 27, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
---------------------------------------------------------------------------

    \22\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2017-14144 Filed 7-5-17; 8:45 am]
 BILLING CODE 8011-01-P


