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Notice of Filing of a Proposed Rule Change Relating to a Capacity Management Plan Notice Posted in Federal Register(Targeted News Service Via Acquire Media NewsEdge) WASHINGTON, Jan. 8 -- The Securities & Exchange Commission published the following notice in the Federal Register: Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change Relating to a Capacity Management Plan A Notice by the Securities and Exchange Commission on 01/08/2014 January 2, 2014. 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 December 24, 2013, Financial Industry Regulatory Authority, Inc. ("FINRA") filed with the Securities and Exchange Commission ("SEC" or "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. I. Self-Regulatory Organization's Statement of the Terms of the Substance of the Proposed Rule Change FINRA is proposing to adopt a new FINRA Capacity Management Plan ("Plan") for the Alternative Display Facility ("ADF") and amend the ADF Trading Center Certification Record ("Certification") to, among other things, require ADF Trading Centers to comply with the Plan. A copy of the Plan was filed as Exhibit 3a. A copy of the revised Certification was filed as Exhibit 3b. 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 Statutory Basis for, the Proposed Rule Change 1. Purpose The ADF is a quotation collection and trade reporting facility that provides ADF Market Participants (i.e., ADF-registered market makers or electronic communications networks ("ECNs")) [3] the ability to post quotations, display orders and report transactions in NMS stocks [4] for submission to the Securities Information Processors ("SIPs") for consolidation and dissemination to vendors and other market participants. In addition, the ADF delivers real-time data to FINRA for regulatory purposes, including enforcement of requirements imposed by Regulation NMS. [5] To become an ADF Market Participant, a member must apply to FINRA, which includes certifying the member's good standing with FINRA and demonstrating compliance with the net capital and other financial responsibility provisions of the Act. [6] Before displaying quotations or orders on the ADF, an ADF Market Participant that is an "ADF Trading Center" [7] must also execute and comply with a Certification Record to certify the ADF Trading Center's compliance efforts with its obligations under Regulation NMS. [8] Regulatory developments, such as the SEC's adoption of Regulation NMS in 2005, have resulted in a dramatic increase in quote and trade volume in the National Market System. The securities markets have experienced significant changes, evolving to a larger number and variety of trading centers that are almost completely automated, with sophisticated, rapid and interconnected systems. As a result of this increase in volume, self-regulatory organizations ("SROs") and trading centers generally have sought to adopt increasingly robust capacity management plans to ensure that they are capable of processing quote and trade data during volume peaks. In addition, SROs have found it necessary to develop capacity management plans to mitigate the potential of being penalized for overrunning their volume projections submitted to the consolidated data plans. For example, the Consolidated Tape Association Plan ("CTA Plan") and the Consolidated Quotation Plan ("CQ Plan"; together, "CTA/CQ Plans"), which serve as the consolidated data plans for securities listed on the New York Stock Exchange, BATS, NYSE Arca, NYSE MKT and other regional exchange-listed securities, [9] currently enforce a strict "pay-for-capacity" methodology that includes monetary penalties for capacity overruns. [10] Under this approach, SROs submit volume projections for the coming planning period and are held to those projections. SROs that overrun their projections are subject to penalties that increase incrementally based on the number of trading days within a calendar month that the SRO overran its submitted projections and the amount by which the SRO exceeded its submitted projections. In some cases, based on the number of trading days that projections have been exceeded, SROs may be subject to mandatory commitments to buy additional capacity going forward. [11] Similar to the approach of the CTA/CQ Plans to capacity planning, FINRA is proposing to adopt the Plan for those FINRA members that opt to utilize the ADF for quoting and trade reporting. ADF Trading Centers would be required to agree to abide by the Plan as part of the Certification that ADF Trading Centers are required to execute and comply with to quote on and report trades to the ADF. [12] The details of the Plan are set forth below. Definitions The Plan defines "CTA Securities" as securities subject to the Consolidated Tape Association Plan (i.e., securities listed on the New York Stock Exchange, BATS Exchange Inc., NYSE MKT LLC or NYSE Arca LLC). The Plan defines "UTP Securities" as securities subject to the Unlisted Trading Privileges Plan (i.e., securities listed on the Nasdaq Stock Market, LLC). [13] Finally, the Plan defines "Certified Capacity" as the maximum level of data (by message rate and message type) an ADF Trading Center is certified to submit to the ADF Platform following the quarterly certification volume test conducted by FINRA. ADF Trading Center Capacity Certification Prior to commencing quoting or trade reporting through the ADF, the Plan requires that each ADF Trading Center complete an initial ADF Trading Center Capacity Certification process. [14] As part of this process, an ADF Trading Center must test its connectivity to the ADF with FINRA Product Management. FINRA will provide estimates for the costs of such testing, and, upon receipt of these estimates, the ADF Trading Center may request in writing that FINRA proceed with connectivity testing. Regardless of whether an ADF Trading Center ultimately is certified and becomes an active ADF Trading Center, the ADF Trading Center will be responsible for the testing costs and will be invoiced accordingly. The Plan also requires each ADF Trading Center to submit volume projections for current and future peak data reporting levels on a quarterly basis, and on demand from FINRA. ADF Trading Centers must submit volume projections separately for CTA Securities and UTP Securities, and they must project their volume for quotations, media trade reports, total trade reports, and order reports. An ADF Trading Center is not certified to submit quote, trade or order reporting data at its requested level simply because it has submitted its initial or final volume projections. Rather, prior to submitting quote, trade and order reporting data at its projected volume levels, FINRA staff may require an ADF Trading Center to successfully complete a test at the projected volume levels. Capacity Projection Submission As part of both the initial certification process, and as part of its ongoing utilization of the ADF, an ADF Trading Center is required to provide quarterly volume projections that accurately reflect its anticipated capacity requirements for the next two quarters in order for FINRA to assess ADF system infrastructure requirements. Such anticipated capacity requirements must be submitted on the ADF Trading Center Volume Projections Form ("Form") [15] as required by FINRA Product Management and must be received by FINRA at least 45 calendar days prior to the end of each calendar quarter for the next two calendar quarters. Submissions are due by certain specified due dates. If a submission is not received by the specified due date, FINRA will make assumptions for ADF Trading Center projections based on prior certified activity levels. Certified capacities are established separately for UTP Securities and for CTA Securities in the following categories: (1) Quotations; (2) Media Trade Reports; (3) Total Trade Reports (i.e., media and non-media); and (4) Order Reports. This traffic must be provided on both a messages-per-second [16] and transactions-per-day basis, on both a projected average day and on a projected peak day. The ADF Trading Center must also specify on the Form, for both CTA and UTP securities, the number of securities it will trade, the average number of securities it will trade, and the number of securities in which it will make a market (if applicable). As set forth in the Plan, an ADF Trading Center submits its projections for the next two calendar quarters. Once an ADF Trading Center has submitted its projections for the following quarter, it may not adjust those projections; however, an ADF Trading Center will not be locked into its second quarter projections until the commencement of the planning process for that quarter, e.g., 60 calendar days before the end of the first quarter. FINRA will allow each ADF Trading Center to increase its projections for the second quarter, if necessary. An ADF Trading Center may also lower its projections by up to 10% for the second calendar quarter. Each ADF Trading Center will be subject to an Excess Capacity Usage Fee schedule ("Excess Fee") and a Shortfall Capacity Usage Fee schedule ("Shortfall Fee"), which are discussed in greater detail below. The reason for limiting the extent to which an ADF Trading Center may lower its capacity projection for the second calendar quarter for quote and trade data is attributable to the manner in which FINRA incurs costs related to the NMS data plans, including the direct purchase of capacity pursuant to the CTA/CQ Plans. [17] FINRA configures servers to support the capacity projections from ADF Trading Centers and purchases corresponding capacity from the SIPs. With respect to the CTA/CQ Plans, once FINRA has purchased capacity from the SIP, it cannot divest itself of such capacity unless there is another participant willing to acquire that capacity. By allowing ADF Trading Centers to lower their capacity projections by up to 10% for the second quarter, FINRA is providing ADF Trading Centers with some flexibility to formulate their capacity projections while helping to ensure that ADF Trading Centers provide realistic capacity projections, thus defraying potential costs to FINRA. Similarly, although FINRA does not purchase SIP capacity for order reporting information, it does incur costs in purchasing the necessary hardware and software to support the intake and storage of such information. Capacity Planning Schedule The Plan sets forth a schedule to ensure that ADF Trading Centers provide timely and accurate volume projections which will enable FINRA to make an accurate assessment of system and capacity requirements. For example, on the first trading day of the second month of the planning cycle, FINRA will notify ADF Trading Centers via email that initial volume projections on the ADF Trading Center Volume Projections Form are due. ADF Trading Centers have ten business days following the initial FINRA notification to provide initial volume projections via email on the ADF Trading Center Volume Projections Form. Between the tenth and twentieth business day following the initial FINRA notification, FINRA advises ADF Trading Centers of the respective ADF Trading Center's Available Capacity based on the ADF Trading Center's projections and requests final volume projections. FINRA will also advise ADF Trading Centers of any necessary ADF system upgrades required to accommodate their volume requests. Between the twentieth and twenty-fifth business day following the initial FINRA notification, ADF Trading Centers are required to give their final volume projections to FINRA via email on the ADF Trading Center Volume Projections Form. To the extent that a capacity increase is required, the system test will be completed between the twentieth and fortieth business days following the initial FINRA request for projections. [18] Capacity Allocations As set forth in the Plan, if an ADF Trading Center requests a certain amount of capacity, FINRA will honor such request and will build out capacity to support the ADF Trading Center's peak projected capacity requirements. Once an ADF Trading Center has formally requested capacity, the Plan provides that such request may not be rescinded. A request does not mean, however, that the ADF Trading Center is entitled to submit to the projected level; rather, each ADF Trading Center must still partake in quarterly volume tests before it is certified to its requested volume level. The Plan also provides that an ADF Trading Center is only authorized to submit increased volume after conducting a capacity test and receiving written notice from FINRA that the ADF Trading Center is certified for operation at the specified level. Finally, if an ADF Trading Center ceases posting quotes on the ADF or stops reporting trades to the ADF and becomes inactive (either under Rule 6250(g) or by voluntary withdrawal), the Plan provides that such Trading Center will be deemed to have surrendered any capacity to which it was previously certified. The ADF Trading Center is still liable for any Capacity Usage Fees it may have incurred while active. Extraordinary Upgrades To the extent that an ADF Trading Center's volume overrun (either in message volume by category or in message per second throughput) threatens, in FINRA's sole discretion, its ability to meet its regulatory obligations, the Plan provides that FINRA has the right to make mid-quarter extraordinary system upgrades to accommodate higher message volume or higher message per second throughput. The costs for such new infrastructure investment will be borne by the ADF Trading Center that has exceeded its Certified Capacity, or, if multiple ADF Trading Centers have exceeded their Certified Capacity, will be allocated among such ADF Trading Centers. In all such instances, FINRA will provide notice to the affected ADF Trading Center(s) that FINRA is taking such actions. Notwithstanding FINRA's ability to implement a mid-quarter extraordinary system upgrade, to the extent that ADF message volume materially exceeds certified levels of operation, as determined by FINRA staff, the Plan provides that FINRA technical staff may reconfigure the ADF connection to ensure that data levels stay at or below reasonable levels of operation. Such reconfiguration may occur on an intra-day basis in proportion to the extent to which the higher ADF message volume threatens FINRA's system stability and/or the ability of FINRA to meet its regulatory obligations with respect to the operation of the ADF. Infrastructure Costs The Plan provides that the costs associated with building and implementing the capacity and environments (including, but not limited to, labor, hardware, software, installation, testing, etc., as well as associated on-going operational costs) will be borne by FINRA (except in the event of an Extraordinary Upgrade). Should FINRA need to add capacity in order to accommodate additional capacity requests, the Plan provides that FINRA will notify the requesting ADF Trading Centers as to the maximum volumes they are permitted to submit until such time as the upgrades have been installed and tested and the ADF Trading Centers have been recertified at the requested level. Until such time that the upgrades are made, FINRA will suspend the application of all Capacity Usage Fees, as described in greater detail below. Excess Fees If an ADF Trading Center exceeds its Certified Peak Transaction Volume (which is equivalent to the request on the ADF Trading Center Volume Projections Form for "Transactions per Day" for Projected Peak Days) in one or more categories on one or more days in a given calendar month, the Plan sets forth the following Excess Fees that will apply: Table omitted. To view, click here (https://www.federalregister.gov/articles/2014/01/08/2014-00068/self-regulatory-organizations-financial-industry-regulatory-authority-inc-notice-of-filing-of-a) All incidents for a calendar month will be assessed at the highest level rate that any incident in that month achieved and at the highest dollar amount based on the number of days. [19] As described above, ADF Trading Centers submit separate volume projections for quote, media trade, total trade (i.e., media and non-media), and order reporting activity. These projections are broken out by NMS data plan, so the ADF Trading Center will submit separate projections in these categories for UTP Securities volume and for CTA Securities volume. [20] For purposes of calculating the Excess Fee, accruals of incidents apply separately for quote, trade and order reporting activity and for each NMS data plan to determine whether multiple incidents result in Category 1, 2, or 3 level fees. [21] The Plan provides that, in assessing the Excess Fee, FINRA will (1) use its own metrics to determine if an ADF Trading Center has exceeded its Certified Capacity; (2) notify each ADF Trading Center as soon as possible after it has exceeded its Certified Capacity; and (3) notify each ADF Trading Center when it has incurred an Excess Fee. Any Excess Fee incurred during a month will appear on that month's invoice. As set forth in the Plan, FINRA will not assess the Excess Fee for the first quarter during which an ADF Trading Center begins operating on the ADF. If an ADF Trading Center begins operations mid-quarter, FINRA will waive the Excess Fee only for the remainder of that quarter. Shortfall Fees If an ADF Trading Center does not achieve certain thresholds of both their Projected Average Transaction Volumes and their Certified Peak Transaction Volume in one or more categories on one or more days in a given calendar month, the Plan sets forth the following Shortfall Fees that will apply: For Projected Average Transaction Volume: Table omitted. To view, click here (https://www.federalregister.gov/articles/2014/01/08/2014-00068/self-regulatory-organizations-financial-industry-regulatory-authority-inc-notice-of-filing-of-a) All incidents for a calendar month will be assessed at the highest level rate that any incident in that month achieved and at the highest dollar amount based on the number of days. [22] As described above, ADF Trading Centers submit separate volume projections for quote, media trade, total (media and non-media) trade, and order reporting. These projections are broken out by NMS data plan, so the ADF Trading Center will submit separate projections for UTP Securities volume and for CTA Securities volume. For purposes of calculating Shortfall Fees, accruals of incidents apply separately for quote, total trade, and order reporting activity and for each NMS data plan to determine whether multiple incidents result in Category 1, 2, or 3 level fees. [23] In assessing Shortfall Fees, FINRA will (1) use its own metrics to determine if an ADF Trading Center has fallen below the minimum threshold of activity; (2) provide weekly updates to each ADF Trading Center on their capacity usage; and (3) notify each ADF Trading Center when it has incurred a Shortfall Fee. Any Shortfall Fees incurred during a month will appear on that month's invoice. As set forth in the Plan, FINRA will not assess the Shortfall Fee for the first quarter during which an ADF Trading Center begins operating on the ADF. If an ADF Trading Center begins operations mid-quarter, FINRA will waive the Shortfall Fee only for the remainder of that quarter. SIP NMS Capacity Penalties In addition to making sure that the ADF platform has sufficient infrastructure capacity to handle an ADF Trading Center's message traffic, the Plan provides that FINRA is also responsible for purchasing appropriate levels of capacity in accordance with the NMS data plans. FINRA makes the capacity purchases based on the needs and projections of the ADF Trading Center. FINRA will pass through any penalties incurred (under the SIP plans) and allocate them according to the ADF Trading Center that exceeds its projected message traffic. Each ADF Trading Center will be invoiced for its capacity penalties once FINRA has received its invoice from the SIP(s). In assessing SIP capacity penalties, FINRA will (1) use the SIP's metrics to determine if a penalty has been incurred and will use its own metrics to allocate the penalty to the appropriate ADF Trading Centers (in the event that more than one ADF Trading Center has exceeded its projections); and (2) notify each ADF Trading Center as soon as possible after it has exceeded its projections. As set forth in the Plan, FINRA will not assess any SIP penalties for the first quarter during which an ADF Trading Center begins operating on the ADF if it exceeds its projected message traffic during this time. If an ADF Trading Center begins operations mid-quarter, FINRA will waive any SIP capacity penalties only for the remainder of that quarter. FINRA is proposing to codify the Excess Fees set forth in the Plan as new FINRA Rule 7581, and the Shortfall Fees as new FINRA Rule 7582. FINRA also proposes to codify the provision in the Plan providing for the pass-through of any SIP penalties as new FINRA Rule 7583. [24] Session Terminations To the extent that an ADF Trading Center's data usage, in the sole discretion of FINRA staff, materially exceeds the ADF Trading Center's Certified Capacity, the Plan provides that FINRA Product Management may incrementally reduce the ADF Trading Center's data port sessions to ensure that data levels stay at or below reasonable levels. Such termination may occur on an intra-day basis and will be proportionate to the extent to which the data overage threatens the ADF system's stability and/or the ability of FINRA to meet its regulatory obligations with respect to the operation of the ADF. ADF Certification As noted above, an ADF Trading Center also must execute and comply with a Certification, which certifies the ADF Trading Center's compliance efforts with its obligations under Regulation NMS. [25] FINRA is proposing to amend the Certification to add an additional certification item; specifically, an acknowledgement that ADF Trading Centers must comply with the terms of the Plan with respect to the total volume of messages (quotations; trade reports; order reports) and peak transmission rates (in messages per second) that it will send to the ADF. FINRA is also making other minor changes to the Certification. Specifically, for purposes in Item 10 of requiring that an ADF Trading Center provide sufficient public notice prior to displaying quotations through the ADF, FINRA is revising the means through which an ADF Trading Center may provide the requisite information to allow for reasonable means such as ADF Trading Center press releases, the FINRA Web site, and through other FINRA-sponsored information publication channels. FINRA also proposes to clarify that the information to be provided pursuant to this Item consists of relevant connectivity and access specifications. FINRA also proposes to delete the parenthetical language in Item 11 to better clarify the scope of that provision, which addresses instances where an ADF Trading Center ceases quoting and order reporting on the same day. FINRA also proposes to delete a reference in Item 4 to "other ADF Trading Centers", as that reference is duplicative of the reference in that Item to "other FINRA members," as ADF Trading Centers are, by definition, FINRA members. FINRA is also changing obsolete references and provisions, including replacing references to "NASD" with "FINRA"; changing references from "ADF Operations" to "FINRA Market Operations," changing a reference from TRACS to the ADF, and deleting a provision relating to ADF Trading Centers that display quotations prior to the implementation of Regulation NMS that also seek to display quotations following the implementation of Regulation NMS. FINRA also proposes to make minor grammatical and stylistic changes, including changing "Web site" to "Web site", changing "with the respect" to "with respect" in Item 13, and denoting that certain rule references are to SEC rules. Finally, FINRA also proposes to add a signature block to the bottom of the Certification. The proposed rule change will be effective upon 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, [26] 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, [27] 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, and Section 15A(b)(9) of the Act, [28] which requires that FINRA rules not impose any burden on competition that is not necessary or appropriate. FINRA believes that the Plan, and the proposed amendment to the Certification, are consistent with the Act because they provide an objective and transparent process for administering the capacity usage of the ADF in a manner that helps ensure that FINRA is able to maintain a high level of operability for the ADF, thereby meeting its regulatory obligations, while enhancing FINRA's ability to submit accurate volume projections to the consolidated data plans. Specifically, the Plan provides a timeframe by which ADF Trading Centers submit initial and final volume projections for the next two calendar quarters, with final volume projections tested and certified by FINRA in the event of a capacity upgrade. The Plan also provides ADF Trading Centers with the ability to increase and decrease their capacity projections for the second quarter in the event that their actual capacity usage deviates from their projected capacity usage. The Plan also sets forth fees for excess capacity usage and shortfall capacity usage, and provides that FINRA will pass through any penalties incurred under the NMS data plans, and will allocate those penalties among the ADF Trading Centers that exceed their projected message traffic. Finally, ADF Trading Centers must sign the Certification, which requires the ADF Trading Center to certify that it will comply with the requirements of the Plan. By requiring that ADF Trading Centers submit reasonable volume projections for quoting and trading on the ADF, and assessing fees for certain excess or shortfall capacity usage, FINRA believes the Plan will enhance its ability to ensure that the ADF has sufficient capacity to handle the volume of quote, order, and trade data submitted to the ADF while also avoiding the need for FINRA to expend unnecessary resources to maintain data capacity that will not be used. The Plan also contains provisions that enable FINRA to meet its regulatory obligations to maintain a high level of operability for the ADF. For example, the Plan allows FINRA to make mid-quarter extraordinary system upgrades, and assess ADF Trading Centers for those costs accordingly, in the event that the ADF Trading Center's volume overrun threatens FINRA's ability to meet its regulatory obligations. The Plan also allows FINRA to incrementally terminate an ADF Trading Center's data port sessions in the event that the ADF Trading Center's data usage materially exceeds the ADF Trading Center's Certified Capacity, to the extent such overage threatens the ADF system's stability or the ability of FINRA to meet its regulatory obligations with respect to the operation of the ADF. Similarly, FINRA believes that the new requirement in the Certification that an ADF Trading Center certify that it will comply with the terms of the Plan will facilitate FINRA's ability to administer the ADF in a manner consistent with its regulatory obligations. The change to the Certification relating to the manner in which an ADF Trading Center will provide public notice of certain information will increase the means through which such notice may be provided, potentially reaching more market participants. FINRA believes that the remaining changes to the Certification will result in a more current, and therefore more accurate, document. With respect to the proposed Excess and Shortfall Fees, FINRA believes such fees provide for the equitable allocation of fees and other charges among ADF Trading Centers, and do not impose a burden on competition that it is not necessary or appropriate. FINRA notes that the methodology for calculating both the Excess and Shortfall Fees will apply equally to all ADF Trading Centers. Moreover, FINRA believes that the concept of an Excess Fee is reasonable and appropriate given the potential consequences of overrunning volume projections (e.g., the ADF is unable to process the message traffic and FINRA could incur increased costs by purchasing additional capacity to support the increased message traffic to the NMS data plans). FINRA also believes that the concept of the Shortfall Fee is reasonable and appropriate, as it provides incentives for ADF Trading Centers to furnish FINRA with meaningful capacity projections and minimizes the likelihood of FINRA "overbuilding" capacity in response to unreasonably high and unrealistic capacity projections. FINRA also believes that it is reasonable and appropriate to assess the Excess and Shortfall Fees on quote, trade and order reporting activity. FINRA proposes to assess the Excess and Shortfall Fees both for quote and trade reporting activity because FINRA pays money under both the CTA/CQ and the UTP Plans for quote and trade reporting [29] and, in the case of the Excess Fee, may be assessed a penalty under the CTA/CQ Plans if it exceeds its projections for either quote or trading activity. Although FINRA does not purchase capacity from the SIPs for purposes of order reporting, FINRA does incur costs in purchasing the necessary hardware and software to supporting the intake and storage of such information. FINRA also believes that the methodology for assessing the Excess and Shortfall Fees is consistent with the Act. Similar to the CTA Plan, FINRA will calculate the Excess Fee by evaluating whether peak message volume in the three message categories (quotes, trade reporting, and order reporting) has exceeded its Certified Peak Transaction Volume, with the amount of the Excess Fee determined by the extent and duration of the ADF Trading Center's excess usage. [30] As such, an ADF Trading Center that exceeds its Certified Peak Transaction Volume to a lesser extent or for a shorter duration than another ADF Trading Center will pay a proportionately lower Excess Fee. With respect to the Shortfall Fee, FINRA will calculate such fees by evaluating whether the ADF Trading Center's Projected Average Transaction Volumes and Certified Peak Transaction Volumes in the three message categories (quotes, trade reporting, and order reporting) have met certain thresholds. [31] As such, an ADF Trading Center that does not meet its Projected Average Transaction Volumes and Certified Peak Transaction Volumes to a lesser extent or for a shorter duration than another ADF Trading Center will pay a proportionately lower Shortfall Fee. FINRA believes this methodology for imposing such fees provides for the equitable allocation of fees and other charges among ADF Trading Centers. FINRA also believes that the Excess Fees and Shortfall Fees are consistent with the Act because the methodology for assessing those fees will provide an element of certainty to ADF Trading Centers in calculating their potential Excess and Shortfall Fees. Excess and Capacity Fees will be charged for each message category (quotes, trade reporting, and order reporting) for both the CTA/CQ and UTP Plans. All incidents in the same category (e.g., trade reporting) will be assessed at the highest level rate that any incident in that category achieved in that month, and at the highest dollar amount based on the number of days. Accruals of incidents will apply separately for the three message categories, and for the CTA/CQ and UTP plans. As such, the maximum Excess Fee that an ADF Trading Center could be charged in any given calendar month would be $12,000 (3 categories of messages x 2 plans x $2,000 maximum day/level fee). Using the same calculation, the maximum Shortfall Fee that an ADF Trading Center could be charged in any given calendar month would be $12,000 (3 categories of messages x 2 plans x 2 Shortfall Fees x $1,000 maximum day/level fee). FINRA also notes that it will not assess the Excess or Shortfall Fees on an ADF Trading Center during its first quarter of operations on the ADF or portion thereof, and will also not assess any SIP penalties on an ADF Trading Center that exceeds its projected message traffic during this time. FINRA believes these provisions are consistent with the Act because they will provide a new ADF Trading Center with the opportunity to acquire data on its quote, order and trade reporting activity on the ADF prior to making capacity projections to which the fees and SIP penalties will apply. 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 Plan is designed to assist FINRA in meeting its regulatory obligations and maintaining the stability of the ADF while enhancing FINRA's ability to submit accurate volume projections to the consolidated data plans and minimizing the need for FINRA to expend unnecessary resources to maintain data capacity that will not be used. Given that the terms of the Plan, including the Excess and Shortfall Fees, are reasonably designed, in part, to assist FINRA in minimizing unnecessary expenditures in connection with ADF data capacity, FINRA does not believe that the Plan imposes an undue burden on competition on potential ADF Trading Centers or other FINRA members. In this regard, FINRA also notes that the proposed change would apply only to those members that choose to become ADF Trading Centers and use the ADF, and that the terms of the Plan, including the Excess and Shortfall Fees, would not apply to members that are not ADF Trading Centers. Additionally, following discussions with potential ADF Trading Centers, FINRA does not believe that the proposed rule change will impose a significant operational burden on such participants. Indeed, FINRA believes that certain aspects of the proposal, such as the methodology for assessing the Excess and Shortfall Fees, will provide ADF Trading Centers with an element of certainty in calculating the potential costs they might incur in connection with the ADF. In addition, while the Plan requires that ADF Trading Centers provide reasonable capacity estimates, it generally does not restrict ADF Trading Centers' ongoing activities if they exceed such estimates, except where the ADF system's stability or the ability of FINRA to meet its regulatory obligations with respect to the ADF are threatened. 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 (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization 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 [email protected]. Please include File Number SR-FINRA-2013-054 on the subject line. Paper Comments - Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-FINRA-2013-054. 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 offices of FINRA. 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-2013-054, and should be submitted on or before January 29, 2014. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority. [32] Kevin M. O'Neill, Deputy Secretary. [FR Doc. 2014-00068 Filed 1-7-14; 8:45 am] BILLING CODE 8011-01-P TNS 24KuanRap-140108 30FurigayJof-4594021 30FurigayJof (c) 2014 Targeted News Service |