[Federal Register Volume 87, Number 61 (Wednesday, March 30, 2022)]
[Notices]
[Pages 18430-18436]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-06516]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94498; File No. SR-FINRA-2022-006]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Modify the Trade Reporting Fees Applicable to 
Participants That Use the FINRA/NYSE Trade Reporting Facility

March 23, 2022.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 16, 2022, the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by FINRA. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
---------------------------------------------------------------------------

    \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 amend FINRA Rule 7620B (Trade Reporting 
Facility Reporting Fees) to modify the trade reporting fees applicable 
to participants that use the FINRA/NYSE Trade Reporting Facility 
(``FINRA/NYSE TRF'').
    The text of the proposed rule change is available on FINRA's 
website at http://www.finra.org, at the principal office of FINRA and 
at the Commission's Public Reference Room.

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

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

[[Page 18431]]

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

1. Purpose
    The FINRA/NYSE TRF, which is operated by NYSE Market (DE), Inc. 
(``NYSE Market (DE)''), is one of four FINRA facilities \3\ that FINRA 
members can use to report over-the-counter (``OTC'') trades in NMS 
stocks. While members are required to report all OTC trades in NMS 
stocks to FINRA, they may choose which FINRA Facility (or Facilities) 
to use to satisfy their trade reporting obligations.\4\
---------------------------------------------------------------------------

    \3\ The four FINRA facilities are the FINRA/NYSE TRF, two FINRA/
Nasdaq Trade Reporting Facilities (together, the ``FINRA/Nasdaq 
TRF''), and the Alternative Display Facility (``ADF'' and together, 
the ``FINRA Facilities'').
    \4\ Members can use the FINRA/NYSE TRF as a backup system and 
reserve bandwidth if there is a failure at another FINRA Facility 
that supports the reporting of OTC trades in NMS stocks. As set 
forth in Trade Reporting Notice 1/20/16 (OTC Equity Trading and 
Reporting in the Event of Systems Issues), a firm that routinely 
reports its OTC trades in NMS stocks to only one FINRA Facility must 
establish and maintain connectivity and report to a second FINRA 
Facility, if the firm intends to continue to support OTC trading as 
an executing broker while its primary facility is experiencing a 
widespread systems issue.
---------------------------------------------------------------------------

    NYSE Market (DE) proposes to modify the trade reporting fees 
applicable to FINRA members that use the FINRA/NYSE TRF 
(``Participants''). NYSE Market (DE) proposes to subject each 
Participant to a monthly fee that will be based on whether that 
Participant submitted trade reports to the FINRA/NYSE TRF during the 
relevant month, and if so, how many trade reports it submitted. FINRA 
is proposing to amend FINRA Rule 7620B (FINRA/NYSE Trade Reporting 
Facility Reporting Fees) accordingly. There is no new product or 
service accompanying the proposed fee change.
Background
The FINRA/NYSE TRF
    Under the governing limited liability company agreement,\5\ the 
FINRA/NYSE TRF has two members: FINRA and NYSE Market (DE). FINRA, the 
``SRO Member,'' has sole regulatory responsibility for the FINRA/NYSE 
TRF. NYSE Market (DE), the ``Business Member,'' is primarily 
responsible for the management of the FINRA/NYSE TRF's business affairs 
to the extent those affairs are not inconsistent with the regulatory 
and oversight functions of FINRA.
---------------------------------------------------------------------------

    \5\ See the Second Amended and Restated Limited Liability 
Company Agreement of FINRA/NYSE Trade Reporting Facility LLC. The 
limited liability company agreement, which was submitted as part of 
the rule filing to establish the FINRA/NYSE TRF and was subsequently 
amended and restated, can be found in the FINRA Manual.
---------------------------------------------------------------------------

    The Business Member establishes pricing applicable to FINRA/NYSE 
TRF Participants for use of the FINRA/NYSE TRF. That pricing is then 
implemented pursuant to FINRA rules that FINRA must file with the 
Commission and that must be consistent with the Act. Specifically, 
FINRA/NYSE TRF Participants are charged fees pursuant to Rule 7620B and 
may qualify for transaction credits under Rule 7610B (Securities 
Transaction Credit) (such credits, ``Securities Transaction 
Credits'').\6\ The relevant FINRA rules are administered by NYSE Market 
(DE), in its capacity as the Business Member and operator of the FINRA/
NYSE TRF on behalf of FINRA,\7\ and the Business Member collects all 
fees on behalf of the FINRA/NYSE TRF.
---------------------------------------------------------------------------

    \6\ Pursuant to Rule 7630B (Aggregation of Activity of 
Affiliated Members), affiliated members can aggregate their activity 
for purposes of fees and credits that are dependent upon the volume 
of their activity. No change is proposed to be made to Rules 7610B 
or 7630B, and so there will be no change to the requirements for, or 
process of, securities transaction credits and the aggregation of 
affiliated member activity.
    \7\ FINRA's oversight of this function performed by the Business 
Member is conducted through a recurring assessment and review of the 
FINRA/NYSE TRF operations by an outside independent audit firm.
---------------------------------------------------------------------------

    According to the Business Member, the FINRA/NYSE TRF operates in a 
competitive environment. The FINRA Facilities have different pricing 
\8\ for their respective participants and compete for FINRA members' 
trade report activity. The FINRA/NYSE TRF is smaller than the FINRA/
Nasdaq TRF in terms of reported volume. For the month of December 2021, 
FINRA members used the FINRA/NYSE TRF to report approximately 17% of 
shares in NMS stocks traded OTC, compared to approximately 83% for the 
FINRA/Nasdaq TRF.
---------------------------------------------------------------------------

    \8\ Because the FINRA/NYSE TRF and FINRA/Nasdaq TRF are operated 
by different business members competing for market share, FINRA does 
not take a position on whether the pricing for one TRF is more 
favorable or competitive than the pricing for the other TRF.
---------------------------------------------------------------------------

Operating Costs
    The overall costs of operating and maintaining the FINRA/NYSE TRF 
involve both fixed and variable components. The variable component 
constitutes the majority of the cost and largely relates to the number 
of reports that the FINRA/NYSE TRF, on behalf of its subscribers, 
reports for public dissemination (or ``tape'') purposes. It also 
reflects the number of reports submitted to the FINRA/NYSE TRF that are 
not published to the tape. Specifically, if the number of tape reports 
increases, the Business Member's variable costs increase, and 
conversely, if the number of tape reports decreases, the Business 
Member's variable costs decrease. The variable costs associated with 
tape reports are not related to the size (number of shares) of the 
reported transaction. Accordingly, the variable costs relating to a 
tape report for a trade for one share (or even less than one share) are 
the same as the variable costs relating to a tape report for 100,000 
shares reported to the FINRA/NYSE TRF.
    The Business Member is entitled to any profits and must cover any 
losses that arise from operating the FINRA/NYSE TRF. According to the 
Business Member, the profits or losses generally are the difference 
between:

    1. The revenue (``Revenue'') from: (a) Subscriber fees charged 
in accordance with FINRA Rule 7620B (``Subscriber Fee Revenue''), 
and (b) market data revenue for the transaction information provided 
to the securities information processors (``SIPs'') via the FINRA/
NYSE TRF less the Securities Transaction Credits (together, ``Net 
Market Data Revenue''); and
    2. the costs of operating and maintaining the FINRA/NYSE TRF.

    According to the Business Member, in 2020 and 2021, costs of 
operating and maintaining the FINRA/NYSE TRF were greater than 
Revenues, causing the FINRA/NYSE TRF to run at a loss. According to the 
Business Member, during that time, the number of tape reports increased 
(particularly for smaller-sized transactions) and total Subscriber Fee 
Revenue decreased, without a relative change to the difference in total 
share volume reported to the FINRA/NYSE TRF as compared to other FINRA 
Facilities. More specifically, compared to the 2018 monthly average, as 
of December 31, 2021, monthly average tape report activity for the 
FINRA/NYSE TRF had increased by 329% and monthly average costs had 
increased by 146%. At the same time, monthly average Subscriber Fee 
Revenue had decreased by 19%. Net Market Data Revenue varied during the 
period, but overall it decreased as compared to the first quarter of 
2018. Ultimately, the Business Member believes that the FINRA/NYSE TRF 
would continue to incur a significant loss if the current fee and 
credit structure remained in place, and that such losses would make the 
FINRA/NYSE TRF unsustainable in the long term.
    Accordingly, the Business Member proposes to amend the fees set 
forth in FINRA Rule 7620B. By so doing, it has proposed a change that 
it believes

[[Page 18432]]

should allow the monthly Subscriber Fee Revenue to cover the total 
costs of operating and maintaining the FINRA/NYSE TRF. The proposed 
changes are expected to allow the FINRA/NYSE TRF to continue operating 
without amassing losses similar to those it currently has.
Proposed Amendments to Rule 7620B
    Under the current fee structure,\9\ Participants are either 
``Retail Participants'' \10\ or Participants that are not Retail 
Participants (``Non-Retail Participants''). The former are exempt from 
the monthly fee, while the latter are subject to a monthly fee based, 
where applicable, on the Participant's ``FINRA/NYSE TRF Market Share.'' 
\11\ The fees set forth in Rule 7620B are tiered.
---------------------------------------------------------------------------

    \9\ See Securities Exchange Act Release No. 88324 (March 5, 
2020), 85 FR 14275 (March 11, 2020) (SR-FINRA-2020-006) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change to Modify 
the Trade Reporting Fees Applicable to the FINRA/NYSE Trade 
Reporting Facility). Under Rule 7620B, Participants are charged a 
flat fee for access to the complete range of functionality offered 
by the FINRA/NYSE TRF rather than a separate fee for each activity 
(e.g., a per trade or per side fee for reporting a trade, a separate 
per trade fee for canceling a trade, etc.) or a separate fee for 
connectivity. See, e.g., Rules 7510(a) and 7520 (trade reporting 
fees and connectivity charges for the ADF) and Rule 7620A (trade 
reporting fees for the FINRA/Nasdaq TRF).
    \10\ A Participant ``is a `Retail Participant' if substantially 
all of its trade reporting activity on the FINRA/NYSE Trade 
Reporting Facility comprises Retail Orders.'' In turn, a ``Retail 
Order'' is ``an order that originates from a natural person, 
provided that, prior to submission, no change is made to the terms 
of the order with respect to price or side of market and the order 
does not originate from a trading algorithm or any other 
computerized methodology.'' FINRA Rule 7620B(a).
    \11\ See FINRA Rule 7620B(b). ``The rate of the monthly fee for 
participants that are not Retail Participants will be based, where 
applicable, on the participant's `FINRA/NYSE TRF Market Share,' 
which is defined as the percentage calculated by dividing the total 
number of shares reported to the FINRA/NYSE Trade Reporting Facility 
for public dissemination (or `tape') purposes during a given 
calendar month that are attributable to the participant by the total 
number of all shares reported to the CTA or UTP SIP, as applicable, 
during that period.''
---------------------------------------------------------------------------

    Under the proposed, simplified fee structure, the monthly fee would 
no longer depend on whether a Participant were a Retail Participant or 
its FINRA/NYSE TRF Market Share, and the current tiered structure would 
be removed. Rather, if a Participant submitted one or more trade 
reports to the FINRA/NYSE TRF during a given calendar month, the 
Participant would pay a monthly fee equal to the sum of (a) $1,000 plus 
(b) $0.0055 per published tape report. If a Participant submitted no 
trade reports to the FINRA/NYSE TRF during that calendar month, the 
Participant would pay a monthly fee of $2,000.
    To effect the change, Rule 7620B would be amended as follows. 
First, the text ``with the exception that Retail Participants shall not 
be subject to a monthly fee'' would be deleted from the first 
paragraph. Second, the following text would be added to the end of the 
first paragraph:
    The monthly fee will be calculated as follows:

    (a) If the participant submits one or more trade reports to the 
FINRA/NYSE Trade Reporting Facility during a given calendar month, 
the participant will pay a monthly fee equal to the sum of (i) 
$1,000 plus (ii) $0.0055 per published tape report.
    (b) If the participant submits no trade reports to the FINRA/
NYSE Trade Reporting Facility during a given calendar month, the 
participant will pay a monthly fee of $2,000.

Finally, the current subsections (a) and (b), including the table in 
subsection (b), would be deleted.

    The monthly fee would continue to be charged at the end of the 
calendar month. As is true now, if a new FINRA/NYSE TRF Participant 
submitted the participant application agreement and reported no shares 
traded in a given month, the Participant would not be charged the 
monthly fee for the first two calendar months in order to provide time 
to connect to the FINRA/NYSE TRF.\12\ The monthly fees paid by FINRA/
NYSE TRF Participants would continue to include unlimited use of the 
Client Management Tool, as well as full access to the FINRA/NYSE TRF 
and supporting functionality, e.g., trade submission, reversal and 
cancellation.\13\
---------------------------------------------------------------------------

    \12\ As is the case today, after the first two calendar months, 
the Participant will be charged regardless of connectivity.
    \13\ See Securities Exchange Act Release No. 87205 (October 3, 
2019), 84 FR 54219 (October 9, 2019) (SR-FINRA-2019-024) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change to Amend 
FINRA Rule 7620B to Modify the Trade Reporting Fees Applicable to 
Participants That Use the FINRA/NYSE Trade Reporting Facility).
---------------------------------------------------------------------------

Application of Proposed Fee Schedule
    The Business Member believes that pricing is the key factor for 
FINRA members when choosing which FINRA Facility to use. The Business 
Member expects that the proposed change would result in a fee increase 
for most FINRA/NYSE TRF Participants. In this competitive environment, 
FINRA members can report their OTC trades in NMS stocks to the FINRA/
NYSE TRF's competitors if they deem pricing levels at the other FINRA 
Facilities to be more favorable, so long as they are participants of 
such other facilities. As a result, the Business Member believes that 
the proposed fee change will likely reduce its reported volumes. It is 
not possible to fully predict the number of FINRA members that would 
reduce their use of the FINRA/NYSE TRF or cease being a FINRA/NYSE TRF 
Participant as a result of the fee increase. Similarly, it is not 
possible to predict what the change in reporting to the FINRA/NYSE TRF 
would be.
    As stated above, under the proposed fee structure, the monthly fee 
would no longer depend on whether a Participant were a Retail 
Participant or its FINRA/NYSE TRF Market Share, and the current tiered 
structure would be removed. The proposed fee schedule would be applied 
in the same manner to all FINRA members that are, or elect to become, 
FINRA/NYSE TRF Participants and would not apply differently to 
different sizes or types of Participants. Participants that are 
currently Retail Participants would be subject to the same monthly fee 
for not submitting any trade reports in a given month as current Non-
Retail Participants.
    By setting a base flat fee and tying the remainder of the fee to 
the number of tape reports a Participant submits to the FINRA/NYSE TRF 
during a given month, if any, the Business Member believes that the 
resulting fee would relate to the cost of operating and maintaining the 
facility more closely. Specifically, the Business Member's total cost 
of operating the FINRA/NYSE TRF does not differ based on whether the 
Participant is a Retail Participant or not. As a general matter, the 
flat portions of the proposed fees are designed to address the fixed 
costs, while the portion that is charged per published tape report is 
meant to address variable costs. The proposed rule is designed to have 
the monthly Subscriber Fee Revenue generally cover total costs, which 
would allow the FINRA/NYSE TRF to continue operating without amassing 
losses similar to those it recently has amassed.
    Tying the fee directly to the number of trade reports the 
Participant submits to the FINRA/NYSE TRF during the month means that 
the Participant's fee will increase or decrease in line with any 
changes in the volume of such trade reports. This makes the proposed 
fee more directly tied to the Participant's usage of the FINRA/NYSE 
TRF, matching a Participant's fee with its activity and the related 
costs. For example, under the proposal, if a Participant submitted 
6,000,000 trade reports to the FINRA/NYSE TRF during one month, it 
would have a monthly fee of $34,000. If it then submitted a lower 
volume of 6,000 trade reports to the FINRA/NYSE TRF during the 
following month, its fee would be reduced to $1,033. In recent years, 
there has been

[[Page 18433]]

an increase in the volume of trade reports submitted. If that trend 
should abate, the fees would decrease as well.
Current Retail Participants
    Under the proposed change, there would no longer be a distinction 
between Retail Participants and other Participants. Based on 
experience, the Business Member believes that most, if not all, of the 
current Retail Participants do not report any trades to the FINRA/NYSE 
TRF during a given month. For example, using December 2021 data, two of 
the three current Retail Participants were inactive. Currently, all 
Retail Participants are exempt from the monthly fee.
    That would change under the proposed rule change, as the current 
Retail Participants would become subject to a monthly fee. If, like 
most current Retail Participants, a Participant submitted no trade 
reports to the FINRA/NYSE TRF during a calendar month, it would pay a 
monthly fee of $2,000. Using December 2021 data, the two Retail 
Participants that were inactive, under the proposed fee change, would 
be assessed a fee of $2,000 for the month (compared to $0 under the 
current fee structure). If a Participant submitted one or more trade 
reports to the FINRA/NYSE TRF during a given calendar month, the 
Participant would pay a monthly fee equal to the sum of (a) $1,000 plus 
(b) $0.0055 per published tape report. The Retail Participant that was 
active in December 2021 would be assessed a fee of $1,799 for the month 
based on its reporting activity (compared to $0 under the current fee 
structure).
Current Non-Retail Participants
    Participants that currently are Non-Retail Participants would no 
longer be subject to a fee that varied based on their FINRA/NYSE TRF 
Market Share. Rather, they would be subject to the same fees as all 
other Participants, as described above.
    To facilitate comparison, the following table shows the estimated 
effect of the proposed change on the current Non-Retail Participants.

----------------------------------------------------------------------------------------------------------------
                                                                                                 Estimated  new
       FINRA/NYSE TRF market share         Count of tape reports to FINRA/   Current monthly        monthly
                                                      NYSE TRF               participant fee    participant fee
----------------------------------------------------------------------------------------------------------------
Greater than or equal to 1.25%..........  More than 25,000 trade reports..            $30,000          * $83,598
Greater than or equal to 1.00% but less   More than 25,000 trade reports..             25,000           * 69,828
 than 1.25%.
Greater than or equal to 0.75% but less   More than 25,000 trade reports..             20,000           * 43,156
 than 1.00%.
Greater than or equal to 0.50% but less   More than 25,000 trade reports..             15,000           * 47,815
 than 0.75%.
Greater than or equal to 0.25% but less   More than 25,000 trade reports..             10,000           * 36,793
 than 0.50%.
Greater than or equal to 0.20% but less   More than 25,000 trade reports..              7,500          ** 28,821
 than 0.25%.
Greater than or equal to 0.10% but less   More than 25,000 trade reports..              5,000           * 20,849
 than 0.20%.
Less than 0.10%.........................  More than 25,000 trade reports..              2,000            * 4,559
n/a.....................................  Between 15,001 and 25,000 trade               2,000          *** 1,237
                                           reports.
n/a.....................................  Between 5,001 and 15,000 trade                1,000            * 1,038
                                           reports.
n/a.....................................  Between 101 and 5,000 trade                     750            * 1,010
                                           reports.
n/a.....................................  Between 1 and 100 trade reports.                250            * 1,001
n/a.....................................  No trade reports................              2,000              2,000
----------------------------------------------------------------------------------------------------------------
* Based on the monthly average of published tape reports submitted to the FINRA/NYSE TRF by Participants in the
  relevant tier for 2021.
** There was no activity within the tier in 2021. The value represented is the average of the prior tier
  (greater than or equal to 0.25% but less than 0.50%) and the subsequent tier (greater than or equal to 0.10%
  but less than 0.20%).
*** There was no activity in this tier in 2021. Estimate assumes the highest number of trade reports in the
  range.

    Based on the assumptions made in the table, current Non-Retail 
Participants that have no trade reports would not see a change in their 
fee, Non-Retail Participants with between 15,001 and 25,000 trade 
reports would see a decrease in their fee, and all other current Non-
Retail Participants would see fee increases. As reflected in the table, 
based on the stated assumptions, Non-Retail Participants with fee 
increases would be subject to a monthly fee approximately equal to just 
over one to four times their current fee. If there were no change in 
reporting to the FINRA/NYSE TRF, such that Non-Retail Participants' 
reported volume stayed the same as it was in the first six months of 
2021, under the proposed fee schedule, current Non-Retail Participants 
that have no trade reports would not see a change in their fee, but 
most other current Non-Retail Participants would see fee increases.
    FINRA has filed the proposed rule change for immediate 
effectiveness. The operative date will be June 1, 2022.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b) of the Act,\14\ in general, and Section 
15A(b)(5) of the Act,\15\ in particular, which requires, among other 
things, that FINRA rules provide for the equitable allocation of 
reasonable dues, fees and other charges among members and issuers and 
other persons using any facility or system that FINRA operates or 
controls. FINRA also believes that the proposed rule change is 
consistent with the provisions of Section 15A(b)(6) of the Act,\16\ 
which requires, among other things, that FINRA rules must be designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, and, in general, to protect 
investors and the public interest. FINRA also believes that the 
proposed rule change is consistent with the provisions of Section 
15A(b)(9) of the Act,\17\ which requires that FINRA rules not impose 
any burden on competition that is not necessary or appropriate.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78o-3(b).
    \15\ 15 U.S.C. 78o-3(b)(5).
    \16\ 15 U.S.C. 78o-3(b)(6).
    \17\ 15 U.S.C. 78o-3(b)(9).
---------------------------------------------------------------------------

    As a general matter, the proposed fee schedule will be assessed in 
the same manner for all FINRA members that are, or elect to become, 
FINRA/NYSE TRF

[[Page 18434]]

Participants. It will not be applied differently to different sizes or 
types of Participants. Access to the FINRA/NYSE TRF is offered on fair 
and non-discriminatory terms.
The Proposed Rule Change Is an Equitable Allocation of Reasonable Fees
    FINRA believes that the proposed rule change provides for an 
equitable allocation of reasonable fees for the following reasons.
    The Business Member believes that the FINRA/NYSE TRF would incur a 
significant loss if the current fee and credit structure remained in 
place. Accordingly, it proposes amendments to FINRA Rule 7620B, as 
discussed herein.
    The Business Member believes that the proposed rule change is a 
reasonable amendment to the fee structure to address the current rate 
of losses, which if they continued, the Business Member believes would 
make the FINRA/NYSE TRF unsustainable in the long term. By setting a 
base flat fee and tying the remainder of the fee to the number of tape 
reports a Participant submits to the FINRA/NYSE TRF during a given 
month, if any, the Business Member believes that the proposed fee 
structure would correlate more closely to the manner by which the 
Business Member incurs the total costs associated with operating and 
maintaining the Facility. As stated above, as a general matter, the 
flat portions of the proposed fees are designed to address the fixed 
costs, while the portion that is charged per published tape report is 
meant to address variable costs. The proposed rule is reasonably 
designed to achieve a fee structure whereby the monthly fee revenue 
generally covers total costs, which would allow the FINRA/NYSE TRF to 
continue operating without amassing losses similar to those it recently 
has amassed.
    The Business Member believes that partially tying the fee directly 
to the number of trade reports the Participant submits to the FINRA/
NYSE TRF during the month is equitable, because the Participant's fee 
will increase or decrease in line with any changes in the number of 
submitted trade reports. This aspect of the fee structure ties the 
proposed fee more directly to the Participant's usage of the FINRA/NYSE 
TRF. In recent years, there has been an increase in the number of trade 
reports submitted. If that trend should abate, the fees would decrease 
as well.
    The Business Member also believes that it is reasonable and 
equitable to charge a Participant a flat fee even if it does not submit 
any tape reports to the FINRA/NYSE TRF during the relevant month. 
First, the FINRA/NYSE TRF bears costs for operating the FINRA/NYSE TRF, 
even when a Participant does not submit tape reports during a given 
month. Second, the Business Member believes that the fee for inactivity 
during a particular month, which has not changed for Non-Retail 
Participants and would now apply to Retail Participants, is a 
reasonable method of encouraging all Participants to utilize the FINRA/
NYSE TRF.
    Currently, all Retail Participants are exempt from fees under FINRA 
Rule 7620B for reporting to the FINRA/NYSE TRF, but would become 
subject to trade reporting fees under the proposed rule change. The 
Business Member believes that the proposed rule change would be 
equitable because it would treat all Participants the same and the 
applicable fee would no longer depend on whether a Participant were a 
Retail Participant.\18\
---------------------------------------------------------------------------

    \18\ The Business Member also notes that Rule 7610B does not 
differentiate between Retail and Non-Retail Participants. As Rule 
7610B would not change, all Retail Participants would continue to 
qualify for transaction credits in accordance with Rule 7610B as 
they do now.
---------------------------------------------------------------------------

    Similarly, the Business Member believes that applying the proposed 
fee structure, which is not based on the Participant's market share, 
also is equitable for Participants, including Retail Participants. As 
would be the case for a Non-Retail Participant, the proposed fee would 
be tied directly to the number of trade reports a Participant submits 
to the FINRA/NYSE TRF during the month and would not be tiered based on 
the Participant's FINRA/NYSE TRF Market Share. In this way, the 
proposed fee would be more directly tied to a Participant's access to 
and usage of the FINRA/NYSE TRF.
    Thus, all Participants would be subject to monthly fees. The 
proposed fee schedule would be applied in the same manner to all firms 
that are, or elect to become, FINRA/NYSE TRF Participants. It would not 
apply differently to different sizes of Participants. By tying a 
portion of the fee directly to the number of trade reports that the 
Participant submits to the FINRA/NYSE TRF during the month, a 
Participant's trade reporting fess would in part correspond with a 
Participant's activity over the period.
    The Business Member believes that the proposed change would 
significantly simplify Rule 7620B, removing the distinction between 
Retail Participants and Non-Retail Participants and removing the 
multiple fee tiers in current subsection (b). As a result, the proposed 
change would make it easier for market participants to determine their 
monthly fee and would add clarity to the rules.
The Proposed Rule Change is Not Unfairly Discriminatory
    FINRA believes that the proposed rule change is not unfairly 
discriminatory for the following reasons.
    The Business Member believes that the FINRA/NYSE TRF would incur a 
significant loss if the current fee structure remained in place. 
Accordingly, it proposes to amend the fees set forth in FINRA Rule 
7620B. By so doing, the Business Member has proposed a change that it 
believes is not unfairly discriminatory, as it believes that the 
resulting fee would correspond more closely with the total costs of 
operating and maintaining the Facility. The proposed rule is reasonably 
designed to tie the monthly fee revenue to the cost of operating and 
maintaining the FINRA/NYSE TRF, which would allow the FINRA/NYSE TRF to 
continue operating without amassing losses similar to those it recently 
has amassed.
    The Business Member believes that it is not unfairly discriminatory 
to charge a Participant a flat fee even if it does not submit any tape 
reports to the FINRA/NYSE TRF during a given month. First, the FINRA/
NYSE TRF bears ongoing costs for operating the FINRA/NYSE TRF, even 
when a Participant does not submit tape reports in a given month. 
Second, the Business Member believes that the inactivity fee, which has 
not changed, is a reasonable method of encouraging Participants to 
utilize the FINRA/NYSE TRF.
    The Business Member believes that the proposed fee structure is not 
unfairly discriminatory because it would not differ for different types 
of Participants, and Retail Participants would be subject to the same 
fee structure as Non-Retail Participants. The Business Member believes 
that the proposed rule change would not be unfairly discriminatory 
because all FINRA member Participants would be treated the same.
    Similarly, the Business Member believes that applying the proposed 
fee structure, which is not based on the Participant's market share, is 
not unfairly discriminatory. As would be the case for a Non-Retail 
Participant, the proposed fee would be tied directly to the number of 
trade reports a Participant submits to the FINRA/NYSE TRF during the 
month and would not be tiered based on the Participant's FINRA/NYSE TRF 
Market Share. Rather, the proposed fee would be more directly tied to a 
Participant's access to and usage of the FINRA/NYSE TRF Facility.
    By tying a portion of the fee directly to the number of trade 
reports the Participant submits to the FINRA/NYSE

[[Page 18435]]

TRF during the month, a Participant could reduce its monthly fee simply 
by reducing the volume of such trade reports. This makes the proposed 
fee more directly tied to the Participant's usage of the FINRA/NYSE 
TRF, allowing variable fees to better correspond with a Participant's 
activity over the period.
    The Business Member believes that the proposed change is not 
unfairly discriminatory because a Participant that saw an increase in 
its monthly fee would be able to utilize another FINRA Facility. FINRA 
members can report their OTC trades in NMS stocks to the FINRA/NYSE 
TRF's competitors if they deem pricing levels at the other FINRA 
Facilities to be more favorable, so long as they are participants of 
such other facilities.

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

    FINRA does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.
    Intramarket Competition. For the month of December 2021, FINRA 
members used the FINRA/NYSE TRF to report approximately 17% of shares 
in NMS stocks traded OTC, compared to approximately 83% for the FINRA/
Nasdaq TRF. The Business Member believes that pricing is the key factor 
for FINRA members when choosing which FINRA Facility to use. The 
Business Member expects that the proposed change would result in a fee 
increase for most Participants, which in turn could result in decreased 
use of the FINRA/NYSE TRF, if Participants were to shift to using other 
facilities.
    Nonetheless, the Business Member does not believe that the proposed 
rule change would result in a burden on competition that is not 
necessary or appropriate in furtherance of the purposes of the Act. 
Simply put, the Business Member believes that the proposed change is a 
rational response to increased losses. According to the Business 
Member, in 2020 and 2021, costs of operating and maintaining the FINRA/
NYSE TRF were greater than Revenues, causing the FINRA/NYSE TRF to run 
at a loss. According to the Business Member, during that time, the 
volume of tape reports increased and the total Subscriber Fee Revenue 
decreased. More specifically, compared to the 2018 monthly average, as 
of December 31, 2021, monthly average tape report activity for the 
FINRA/NYSE TRF had increased by 329% and monthly average costs had 
increased by 146%. At the same time, monthly average Subscriber Fee 
Revenue had decreased by 19%. Net Market Data Revenue varied during the 
period, but overall it decreased as compared to the first quarter of 
2018. Ultimately, the Business Member believes that the FINRA/NYSE TRF 
would continue to incur a significant loss if the current fee and 
credit structure remained in place.
    The Business Member does not believe that such losses are 
sustainable in the long run. Accordingly, it proposes to amend the fees 
set forth in FINRA Rule 7620B. By so doing, the Business Member has 
proposed a change that it believes should ensure that the monthly fees 
cover the costs of operating and maintaining the FINRA/NYSE TRF, which 
would allow it to continue operating without amassing losses similar to 
those it currently has. The Business Member believes that the continued 
existence of the FINRA/NYSE TRF would be an asset to the competitive 
environment.
    The Business Member does not believe that the proposed fee would 
place some market participants at a relative disadvantage compared to 
other market participants, because the proposed fee schedule would be 
applied in the same manner to all FINRA members that are, or elect to 
become, FINRA/NYSE TRF Participants. It would not apply differently to 
different sizes of Participants. Different types of Participants will 
be treated the same, and the amount of the monthly fee would no longer 
depend on whether a Participant were a Retail Participant or its FINRA/
NYSE TRF Market Share.
    As set forth above, if there were no change in reporting to the 
FINRA/NYSE TRF such that Participants' reporting volume stayed the same 
as it was in the first six months of 2021, under the proposed fee 
schedule, current Non-Retail Participants that have no trade reports 
would not see a change in their fee, but most Retail Participants would 
see fee increases. More specifically, currently there are three Retail 
Participants that will be impacted and would incur fee increases under 
the proposed rule change. Using December 2021 data, the two Retail 
Participants that were inactive, under the proposed fee change, would 
be assessed a fee of $2,000 for the month (compared to $0 under the 
current fee structure). The Retail Participant that was active in 
December 2021 would be assessed a fee of $1,779 for the month based on 
its reporting activity (compared to $0 under the current fee 
structure). The Business Member nonetheless believes that the proposed 
fee amendment is reasonable in light of the ongoing costs of operating 
and maintaining the FINRA/NYSE TRF and as a means of addressing the 
current losses.
    Participants may potentially alter their trade reporting activity 
in response to the proposed rule change. Specifically, those 
Participants that would incur higher fees may refrain from reporting to 
the FINRA/NYSE TRF and may choose to report to another FINRA Facility. 
Alternatively, such firms may continue reporting or new firms may start 
reporting to the FINRA/NYSE TRF if they find that the proposed net cost 
of reporting and other functionalities provided represent the best 
value to their business.\19\
---------------------------------------------------------------------------

    \19\ The FINRA/NYSE TRF does not impose a fee on new 
Participants, and so a FINRA member that opts to become a 
Participant would not incur an additional cost from the FINRA/NYSE 
TRF. In some cases, a new Participant may incur incidental costs to 
connect to the FINRA/NYSE TRF, but those are not charged by the 
FINRA/NYSE TRF. An existing Participant that ceases to be a 
Participant is not subject to any change fee by the FINRA/NYSE TRF.
---------------------------------------------------------------------------

    Intermarket Competition. The FINRA/NYSE TRF operates in a 
competitive environment. The proposed fee would not impose a burden on 
competition on other FINRA Facilities that is not necessary or 
appropriate. The FINRA Facilities have different pricing and compete 
for FINRA members' trade report activity. The pricing structures of the 
FINRA/NYSE TRF and other FINRA Facilities are publicly available, 
allowing FINRA members to make informed decisions regarding which FINRA 
Facility they use to report OTC trades in NMS stocks.
    The Business Member represents that the FINRA/NYSE TRF would 
continue to incur significant losses if the current fee and credit 
structure remained in place, and it does not believe that such losses 
are sustainable in the long run. Accordingly, it proposes to amend the 
fees set forth in FINRA Rule 7620B. By so doing, the Business Member 
has proposed a change that it believes will allow it to continue 
operating without amassing losses similar to those it currently has. 
The Business Member believes that its continued existence would be an 
asset to the competitive environment.
    FINRA members can choose among four FINRA Facilities when reporting 
OTC trades in NMS stocks: The FINRA/NYSE TRF, the two FINRA/Nasdaq 
TRFs, or ADF. FINRA members can report their OTC trades in NMS stocks 
to a given FINRA Facility's competitors if they determine that the fees 
and credits of another FINRA Facility are more favorable, so long as 
they are participants of such other facility.

[[Page 18436]]

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

    Written comments were neither solicited nor received.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \20\ and paragraph (f)(2) of Rule 19b-4 
thereunder.\21\ At any time within 60 days of the filing of the 
proposed rule change, the Commission summarily may temporarily suspend 
such rule change if it appears to the Commission that such action is 
necessary or appropriate in the public interest, for the protection of 
investors, or otherwise in furtherance of the purposes of the Act. If 
the Commission takes such action, the Commission shall institute 
proceedings to determine whether the proposed rule should be approved 
or disapproved.
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-FINRA-2022-006 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-FINRA-2022-006. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of such filing also will be available for inspection 
and copying at the principal office of FINRA. All comments received 
will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-FINRA-2022-006 and should be submitted 
on or before April 20, 2022.

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

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

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-06516 Filed 3-29-22; 8:45 am]
BILLING CODE 8011-01-P


