[Federal Register Volume 87, Number 233 (Tuesday, December 6, 2022)]
[Notices]
[Pages 74672-74681]
[FR Doc No: 2022-26445]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96415; File No. SR-FINRA-2022-031]

Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Adopt
FINRA Rules 6151 (Disclosure of Order Routing Information for NMS
Securities) and 6470 (Disclosure of Order Routing Information for OTC
Equity Securities)

November 30, 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 November 16, 2022, the 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    FINRA is proposing to adopt FINRA Rules 6151 (Disclosure of Order
Routing Information for NMS Securities) and 6470 (Disclosure of Order
Routing Information for OTC Equity Securities) to require members to
(i) publish order routing reports for orders in OTC Equity Securities,
and (ii) submit their order routing reports for both OTC Equity
Securities and NMS Securities to FINRA for publication on the FINRA
website.
    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.

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

1. Purpose
    Rule 606(a) of Regulation NMS \3\ (``SEC Rule 606(a)'') requires
broker-dealers to publicly disclose specified information about their
order routing practices for NMS Securities,\4\ including for non-
directed orders in NMS stocks that are submitted on a ``held''
basis.\5\ The SEC has stated that, as a result of these disclosures,
``customers--and retail investors in particular--that submit orders to
their broker-dealers should be better able to assess the quality of
order handling services

provided by their broker-dealers and whether their broker-dealers are
effectively managing potential conflicts of interest.'' \6\
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    \3\ 17 CFR 242.606(a).
    \4\ Generally, ``NMS Securities'' include listed stocks and
options, and NMS stocks means any NMS Security other than an option.
See 17 CFR 242.600(b).
    \5\ See Securities Exchange Act Release No. 84528 (November 2,
2018), 83 FR 58338 (November 19, 2018) (Disclosure of Order Handling
Information; Final Rule) (``2018 Amendments Release''). The SEC did
not specifically define ``held'' or ``not held'' orders, but stated
that typically a ``not held'' order provides the broker-dealer with
price and time discretion in handling the order, whereas a broker-
dealer must attempt to execute a ``held'' order immediately. See id.
at 58340 n.19. As noted by the SEC in the 2018 Amendments Release,
broker-dealers utilize the ``held'' and ``not held'' order
classifications as a matter of industry practice and to comply with
regulatory requirements, including audit trail reporting
requirements and the definition of ``covered order'' in Rule 600(b)
of Regulation NMS. See id. at 58344.
    \6\ See 2018 Amendments Release, 83 FR 58338, 58423.
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    FINRA believes these same goals would be furthered by providing
investors with similar order handling information for unlisted stocks,
which are not covered by the existing SEC Rule 606(a) disclosure
requirements.\7\ Accordingly, FINRA is proposing to adopt new Rule 6470
to require members to publish quarterly order routing disclosures
primarily for non-directed held orders in OTC Equity Securities,\8\
generally aligned with the SEC Rule 606(a) disclosures for NMS stocks
but with modifications to account for differences between the market
for NMS Securities and over-the-counter (``OTC'') markets, as described
below. In addition, to make both the existing SEC Rule 606(a)
disclosures and the new OTC Equity Security disclosures more accessible
to investors, FINRA is proposing new Rule 6151 and paragraph (d) of new
Rule 6470 to require members to send both disclosures to FINRA for
centralized publication on the FINRA website, as described further
below.
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    \7\ FINRA notes that the SEC's Equity Market Structure Advisory
Committee (``EMSAC'') previously recommended enhancing the current
order routing disclosures required under SEC Rule 606 with
information about OTC Equity Securities, and also expressed support
for centralization of the reports. See EMSAC, Recommendations
Regarding Modifying Rule 605 and Rule 606 (November 29, 2016),
https://www.sec.gov/spotlight/emsac/emsac-recommendations-rules-605-606.pdf.
    \8\ An ``OTC Equity Security'' means any equity security that is
not an NMS stock, other than a Restricted Equity Security. See FINRA
Rule 6420(f). A ``Restricted Equity Security'' means any equity
security that meets the definition of ``restricted security'' as
contained in Securities Act Rule 144(a)(3). See FINRA Rule 6420(k).
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Disclosure of Order Routing Information for OTC Equity Securities
    Proposed new Rule 6470, entitled ``Disclosure of Order Routing
Information for OTC Equity Securities,'' would require the publication
of order routing disclosures for OTC Equity Securities. Specifically,
as is already required for broker-dealers with respect to held orders
in NMS stocks under SEC Rule 606(a)(1), proposed Rule 6470(a) would
require, among other things, every member to make publicly available
for each calendar quarter a report on its routing of non-directed
orders in OTC Equity Securities that are submitted on a held basis
during that quarter, broken down by calendar month, and keep such
report posted on an internet website that is free and readily
accessible to the public for a period of three years from the initial
date of posting on the internet website.\9\ Also in line with the
required publication timeframe for NMS stock disclosures under SEC Rule
606(a)(2), proposed Rule 6470(c) would require that a member make the
new OTC Equity Security report publicly available within one month
after the end of the quarter addressed in the report.\10\
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    \9\ Proposed Rule 6470 would apply to ``every member,'' but
FINRA notes that the focus of the proposed disclosures is held
orders from customers in OTC Equity Securities, and some members may
not engage in any activities involving held orders from customers in
OTC Equity Securities. If a member does not accept any orders in OTC
Equity Securities from customers during a given calendar quarter
(whether held or not held), such member would not be required to
publish a report under Rule 6470 for that quarter. Similarly, a
member that accepted only not held orders in OTC Equity Securities
from customers--but no held orders in OTC Equity Securities from
customers--during a given calendar quarter would not be required to
publish a report for that quarter. See infra note 21. Further, if a
member accepted orders in OTC Equity Securities (whether held, not
held, or both) only from other broker-dealers, but not from
customers, during a given calendar quarter, such member would not be
required to publish a report for that quarter.
    \10\ FINRA understands that some introducing firms route all of
their orders in OTC Equity Securities to one or more clearing firms
for further routing to other venues for execution. The SEC has
provided guidance that, where an introducing firm routes all of its
covered orders to one or more clearing firms for further routing and
execution and the clearing firm in fact makes the routing decision,
the introducing firm generally may comply with the order routing
disclosure requirements by: (i) disclosing its relationship with the
clearing firm(s) on its website that includes any payment for order
flow received by the introducing firm, and (ii) adopting the
clearing firm's disclosures by reference, provided that the
introducing firm has examined the report and does not have reason to
believe it materially misrepresents the order routing practices.
FINRA intends to provide parallel guidance with respect to proposed
Rule 6470. See SEC Division of Trading and Markets, Responses to
Frequently Asked Questions Concerning Rule 606 of Regulation NMS,
Question 12.01; see also SEC Division of Market Regulation, Staff
Legal Bulletin No. 13A, Frequently Asked Questions About Rule 11Ac1-
6, Question 4.
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    Under Rule 606(a)(1), the SEC Rule 606(a) reports for NMS
Securities are required to be broken out into separate sections for NMS
stocks in the S&P 500 Index as of the first day of the quarter, other
NMS stocks, and NMS Securities that are options. Since these categories
are not relevant to the OTC market, FINRA is proposing to instead
require that the new quarterly reports for OTC Equity Securities under
Rule 6470(a) be separated into three sections to better reflect the OTC
market. Specifically, the new reports would be required to be separated
into three sections for: (i) domestic OTC Equity Securities; (ii)
American Depository Receipts (``ADRs'') and foreign ordinaries that are
OTC Equity Securities; and (iii) Canadian-listed securities trading in
the United States as OTC Equity Securities. To provide for consistency
across member reports, FINRA will publish a list of the OTC Equity
Security symbols that fall under each category, and members would be
required to publish reports in a manner consistent with such list.\11\
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    \11\ If the Commission approves the proposed rule change, FINRA
will provide information in the Regulatory Notice announcing the
effective date regarding where members may access the list of OTC
Equity Security symbols that FINRA will maintain on its website.
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    Under Rule 606(a)(1), the SEC Rule 606(a) reports for NMS
Securities must be made available using the most recent versions of the
XML schema and associated PDF renderer as published on the SEC's
website. Similarly, Rule 6470(a) would specify that the new OTC Equity
Security reports must be made available using the most recent versions
of the XML schema and associated PDF renderer as published on the FINRA
website. FINRA believes this requirement would ensure that reports are
generated and published in standardized machine-readable and human-
readable forms, which would benefit investors by permitting the public
to more easily analyze and compare the OTC Equity Security reports
across members, as well as to more easily perform combined analysis of
both SEC Rule 606(a) and OTC Equity Security reports.\12\
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    \12\ FINRA would publish the technical specifications for the
XML schema and associated PDF renderer on its website for member use
in generating the new reports. FINRA expects that, subject to the
differences between the SEC Rule 606(a) reports and the OTC Equity
Security reports discussed above, the XML schema and associated PDF
renderer published by FINRA would be substantially similar to those
published by the SEC for the SEC Rule 606(a) reports.
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    With respect to the content of the new reports, Rule 6470(a) would
require that each section of the new OTC Equity Security reports
include the information specified in paragraphs (a)(1) through (4) of
proposed Rule 6470, specifically: \13\
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    \13\ A template of the proposed new OTC Equity Security report
that would be required under proposed Rule 6470 is attached as
Exhibit 3 [sic].
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     the percentage of total orders \14\ for the section that
were not held orders and held orders, and the percentage of held orders
for the section that were non-directed orders; \15\
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    \14\ For purposes of proposed Rule 6470(a), ``total orders''
would include all orders from customers for the section, including
both directed and non-directed orders from customers.
    \15\ For purposes of the proposed disclosures, a ``non-directed
order'' would mean any order from a customer other than a directed
order. Consistent with the definition of ``directed order'' under
Regulation NMS, a ``directed order'' would mean an order from a
customer that the customer specifically instructed the member to
route to a particular venue for execution. See 17 CFR 242.600(b);
see also 2018 Amendments Release, 83 FR 58338, 58339 n.4. FINRA
notes that, similar to the definition of ``customer'' under Rule
600(b)(23) of Regulation NMS, a ``customer'' is defined under FINRA
rules to exclude a broker or dealer. See FINRA Rule 0160(b)(4).
Orders from other broker-dealers would therefore be excluded from
the proposed disclosures.

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     the identity of the ten venues to which the largest number
of total non-directed held orders for the section were routed for
execution \16\ and of any venue to which five percent or more of non-
directed held orders for the section were routed for execution, and the
percentage of total non-directed held orders for the section routed to
the venue; \17\
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    \16\ Consistent with the SEC's approach to SEC Rule 606(a),
FINRA intends that, for purposes of the proposed disclosures for OTC
Equity Securities, a ``venue'' would be defined broadly to cover any
market center or any other person or entity to which a member routes
orders for execution. See, e.g., Securities Exchange Act Release No.
43590 (November 17, 2000), 65 FR 75414, 75427 n.63 (December 1,
2000) (Disclosure of Order Execution and Routing Practices) (``The
term `venue' is intended to be interpreted broadly to cover `market
centers' within the meaning of Rule 11Ac1-5(a)(14) [now Rule
600(b)(46) of Regulation NMS], as well as any other person or entity
to which a broker routes non-directed orders for execution.
Consequently, the term excludes an entity that is used merely as a
vehicle to route an order to a venue selected by the broker-
dealer.''); see also 17 CFR 242.600(b)(46) (``Market center means
any exchange market maker, OTC market maker, alternative trading
system, national securities exchange, or national securities
association.''). Accordingly, for purposes of proposed Rule 6470,
where an alternative trading system (``ATS'') offers both automatic
order execution and order delivery functionality, the ATS should be
identified as the venue only when the ATS provides order execution.
FINRA believes identification of the ATS in these circumstances is
appropriate because the ATS is the venue where the order was routed
``for execution,'' consistent with SEC guidance for the predecessor
to SEC Rule 606. See SEC Division of Market Regulation, Staff Legal
Bulletin No. 13A, Frequently Asked Questions About Rule 11Ac1-6,
Question 12. Conversely, for purposes of proposed Rule 6470, in
cases where the ATS instead provides order delivery, the separate
market center to which the orders are delivered--e.g., a market
maker or other ATS--should be identified as the venue where the
order was routed for execution.
    \17\ However, the proposed rule change would include a de
minimis venue exception parallel to exemptive relief that the SEC
has provided with respect to the SEC Rule 606(a) reports. See Letter
from Annette L. Nazareth, Director, SEC Division of Market
Regulation, to Neal E. Sullivan & Gail Marshall-Smith, Bingham Dana
LLP (on behalf of First Union Securities, Inc.), dated June 22,
2001, 2001 SEC No-Act. LEXIS 903; see also SEC Division of Market
Regulation, Staff Legal Bulletin No. 13A, Frequently Asked Questions
About Rule 11Ac1-6, Question 2. Specifically, proposed Rule 6470(b)
would provide an exception from the requirement for a member to
identify venues that received less than 5% of non-directed held
orders for a section, provided that the member has identified the
top execution venues that in the aggregate received at least 90% of
the member's total non-directed held orders for the section.
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     for each identified venue, the net aggregate amount of any
payment for order flow received, payment from any profit-sharing
relationship received, transaction fees paid, and transaction rebates
received, both as a total dollar amount and per order, for all non-
directed held orders for the section; and
     a discussion of the material aspects of the member's
relationship with each identified venue, including, without limitation,
a description of any arrangement for payment for order flow and any
profit-sharing relationship and a description of any terms of such
arrangements, written or oral, that may influence a member's order
routing decision including, among other things: incentives for equaling
or exceeding an agreed upon order flow volume threshold, such as
additional payments or a higher rate of payment; disincentives for
failing to meet an agreed upon minimum order flow threshold, such as
lower payments or the requirement to pay a fee; volume-based tiered
payment schedules; and agreements regarding the minimum amount of order
flow that the member would send to a venue.\18\
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    \18\ Similar to SEC Rule 606(a), the types of arrangements
referenced above are not an exhaustive list of terms of payment for
order flow arrangements or profit-sharing relationships that may
influence a broker-dealer's order routing decision that would be
required to be disclosed. For example, if a broker-dealer receives a
discount on executions in other securities or some other advantage
in directing order flow in a specific security to a venue, or if a
broker-dealer receives equity rights in a venue in exchange for
directing order flow there, then all terms of those arrangements
would also be required to be disclosed. Similarly, if a broker-
dealer receives variable payments or discounts based on order types
and the number of orders sent to a venue, such arrangements would be
required to be disclosed. See 2018 Amendments Release, 83 FR 58338,
58376 n.397. However, FINRA notes that these are only examples, and
a member would be required to disclose any other material aspects of
its relationship with each identified venue regardless of whether a
particular example is listed in the proposed rule text or otherwise
discussed in this proposed rule change.
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    The proposed content of the new OTC Equity Security reports under
proposed FINRA Rule 6470(a) generally parallels the content required to
be included in SEC Rule 606(a) reports for NMS stocks pursuant to SEC
Rule 606(a)(1)(i) through (iv), with the following differences to take
into account the different market structure and characteristics of OTC
Equity Securities. First, Rule 6470(a)(1) would require members to
disclose the percentage of total orders for the section that were not
held orders and held orders, in addition to disclosing the percentage
of held orders for the section that were non-directed orders.\19\ While
SEC Rule 606(a) similarly requires broker-dealers to disclose the
percentage of orders for each section that were non-directed orders, it
does not require broker-dealers to disclose the percentage of total
orders for each section that were not held orders and held orders.\20\
FINRA believes that requiring members to provide information about the
relative amount of a member's held and not held orders in the new
reports proposed to be published under Rule 6470(a)(1) would provide
investors, regulators, academics, and others seeking to review the
reports with additional information regarding the business of brokers
active in the OTC market.\21\
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    \19\ See notes 14 and 15 supra.
    \20\ SEC Rule 606(b)(1) provides that customers may request
customer-specific information about the handling of both their held
and not held orders, and SEC Rule 606(b)(3) provides that customers
may request additional customer-specific information about the
handling of their not held orders. FINRA is not proposing parallel
customer-specific disclosure requirements for OTC Equity Securities
at this time.
    \21\ The proposed requirement to disclose the percentage of
total orders for each section that were not held orders and held
orders is the only disclosure requiring any information regarding
not held orders, as the remainder of the proposed disclosures apply
exclusively to held orders. If a member did not accept any held
orders in OTC Equity Securities from customers in a given calendar
quarter, it would not be required to publish a report under proposed
Rule 6470 for that quarter (even if it accepted orders on a not held
basis during that quarter). See note 9, supra.
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    Second, the information required to be disclosed under SEC Rule
606(a)(i) through (iii) is required to be broken out into sections for
market orders, marketable limit orders, non-marketable limit orders,
and other orders. However, FINRA is not adopting these categories for
OTC Equity Securities due to the absence of a centralized, self-
regulatory organization (SRO)-disseminated national best bid and offer
in the OTC market on which to standardize and base marketability.
Finally, SEC Rule 606(a)(1)(iii) requires the disclosure of
quantitative payment information both as a total dollar amount and per
share. In light of different pricing practices in the OTC market, Rule
6470(a)(3) would instead require the quantitative disclosures for OTC
Equity Securities to be expressed as both a total dollar amount and per
order (rather than per share).\22\
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    \22\ For example, FINRA understands that, unlike in the market
for NMS Securities where payment for order flow is typically paid as
a specified dollar amount per share, payments in the OTC market are
predominantly made on a per order basis (with rates typically
bucketed by share price category).
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Centralized Hosting of Order Routing Disclosures
    As discussed above, SEC Rule 606(a) requires broker-dealers to
publish their SEC Rule 606(a) reports for NMS

Securities on an internet website that is free and readily accessible
for at least three years, and proposed FINRA Rule 6470 would similarly
require the new OTC Equity Security reports to be published on a
website that is free and readily accessible for at least three years.
Currently there is not one location where all SEC Rule 606(a) reports
are consolidated, although FINRA understands some broker-dealers use
vendors that make their client broker-dealers' reports available
through common vendor pages. Thus, regulators, investors and others
seeking to review the reports often must locate and obtain the reports
from various individual broker-dealer or vendor websites.
    To make both the existing Rule 606(a) reports and the new OTC
Equity Security reports more accessible for regulators, investors and
others seeking to analyze and compare the data, FINRA is proposing to
require that members provide the reports to FINRA for central
publication on the FINRA website (in addition to posting on a public
website for at least three years, as required under Rule 606(a) and
proposed Rule 6470(a)).\23\ Specifically, paragraph (d) of proposed new
Rule 6470 would require each member to provide the OTC Equity Security
report to FINRA within one month after the end of the quarter addressed
in the report in such a manner as may be prescribed by FINRA.\24\
Proposed new Rule 6151, entitled ``Disclosure of Order Routing
Information for NMS Securities,'' would similarly require each member
that is required to publish a report pursuant to SEC Rule 606(a) to
provide the report to FINRA, in the manner prescribed by FINRA, within
the same time and in the same formats that such report is required to
be made publicly available pursuant to SEC Rule 606(a) (i.e., one month
after the end of the calendar month addressed in the report). Under
both provisions, FINRA would publish such reports on its public
website. FINRA will publish both the SEC Rule 606(a) and OTC Equity
Security reports in a centralized location on the FINRA website, free
of charge and with no restrictions on use of the data.\25\
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    \23\ FINRA also intends to engage in investor education efforts
to help investors and others understand the purpose, content, and
potential limitations of the disclosures.
    \24\ FINRA would specify details regarding the manner of
submission of the reports to FINRA in a Regulatory Notice or similar
publication. Members would be permitted to use a third-party vendor
to assist with both the generation of the reports and transmission
to FINRA. However, the member would remain responsible for the
reports in all respects, including the accuracy of the disclosures
and the timeliness and completeness of the submissions to FINRA.
Accordingly, a member would be required to submit a corrected report
to FINRA (and publish a corrected report on its publicly accessible
website) promptly following the discovery of inaccurate data or
other error in a previously submitted or posted report.
    \25\ As noted above, the SEC has provided guidance that
introducing firms may comply with Rule 606(a) by incorporating their
clearing firm(s) reports in specified circumstances, and FINRA
intends to provide similar guidance with respect to the OTC Equity
Security reports required under proposed Rule 6470. See supra note
10. To facilitate centralized access to the reports, such
introducing firms must provide FINRA with a list of their clearing
firm(s) and the hyperlink to the web page where they disclose their
clearing firm relationship(s) and adopt the clearing firm(s)'s
reports by reference. Each introducing firm relying on this guidance
would be required to provide this information to FINRA upon
implementation of the proposed rule change and to update FINRA if
the information previously provided changes. This information will
enable FINRA to provide investors with relevant information for all
firms, including introducing firms incorporating clearing firm
reports by reference, on FINRA's website.
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    If the Commission approves the proposed rule change, FINRA will
announce the effective date of the proposed rule change in a Regulatory
Notice. The effective date will be no later than 365 days following
publication of the Regulatory Notice announcing Commission approval of
the proposed rule change.
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.
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    \26\ 15 U.S.C. 78o-3(b)(6).
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    FINRA believes that the proposed requirement for members to publish
order routing disclosures for OTC Equity Securities, similar to what is
available under SEC rules for NMS Securities, would provide valuable
information for investors and other market participants, academics,
regulators and others regarding order routing practices in the OTC
market, thereby enhancing the protection of investors and the public
interest. In particular, these new disclosures will enable investors to
better assess the quality of their broker-dealers' order handling
services for these securities, provide more information on the
financial incentives that may affect their broker-dealers' routing
decisions, and allow investors to better evaluate whether their broker-
dealers are effectively managing potential conflicts of interest. The
proposed requirements for members to send their disclosure reports for
both NMS Securities and OTC Equity Securities to FINRA for centralized
publication on the FINRA website will make this important information
more accessible for regulators, investors, academics and others seeking
to analyze and compare the data, particularly across firms, and would
facilitate the ability of FINRA and the SEC to review the data for
regulatory purposes.

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.
Economic Impact Assessment
    Based on the regulatory need discussed above and summarized below,
FINRA has undertaken an economic impact assessment, as set forth below,
to analyze the potential economic impacts of the proposed rule change,
including potential costs, benefits, and distributional and competitive
effects, relative to the current baseline.
Regulatory Need
    FINRA believes that in today's markets, where various incentives
may impact broker-dealers' order handling decisions, customers have
limited access to relevant information to help them assess how their
orders are handled, and that different customers may have access to
different amounts or categories of relevant information. The proposed
requirement for members to publish quarterly order routing disclosures
for non-directed held orders in OTC Equity Securities is designed to
provide investors with information to better assess the quality of
order handling services provided by their broker-dealers and whether
their broker-dealers are effectively managing potential conflicts of
interest. In addition, requiring members to send both the existing SEC
Rule 606(a) disclosures and the proposed OTC Equity Security
disclosures to FINRA for centralized publication on the FINRA website
would make these disclosures more accessible to investors and others
relevant stakeholders.
Economic Baseline
    Between October 1 and December 31, 2020, there were 85, 76, and 55
firms \27\ quoting domestic OTC Equity Securities, ADRs and foreign
ordinaries that are OTC Equity Securities, and

Canadian-listed securities trading in the U.S. as OTC Equity
Securities, respectively. The average number of symbols quoted per firm
in each of these respective security categories was: 496, 681, and 260.
Furthermore, the average number of quote events per symbol and firm,
37,831, was the largest for Canadian-listed securities that trade OTC
in the U.S. as compared to 1,203 for domestic and 25,105 for ADRs and
foreign ordinaries.
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    \27\ A ``firm'' is any FINRA member that has a Central
Registration Depository number.
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    There are more firms executing trades than providing quotes in OTC
Equity Securities. In the fourth quarter of 2020, there were 261, 250,
and 196 firms executing trades in domestic, ADRs and foreign
ordinaries, and Canadian-listed securities trading in the U.S. as OTC
Equity Securities, respectively. The average number of symbols traded
per firm was 287, 491, and 195, and the average number of executions
per symbol and per firm was 1,215, 1,082, and 1,381 for these
respective security categories. Although the average number of
executions per symbol per firm was largest for Canadian-listed
securities, the average dollar volume per symbol and per firm was
largest for the ADRs and foreign ordinaries at $7,687,626, as compared
to $3,621,871 for domestic and $2,660,868 for the Canadian-listed
securities that trade OTC in the U.S. This reflects the generally lower
prices for domestic OTC Equity Securities and Canadian-listed
securities that trade OTC in the U.S. as compared to ADRs and foreign
ordinary shares.
    In the fourth quarter of 2020, there were 560, 573, and 444 firms
that routed orders in domestic OTC Equity Securities, ADRs or foreign
ordinaries, and Canadian-listed securities that trade as OTC Securities
in the U.S, respectively, with approximately 600 unique firms total
across the three categories. These numbers represent the potential
upper bound on the number of firms by security category that could be
required to provide the proposed disclosure reports, as some firms may
not handle orders from customers (based on fourth quarter of 2020
data). The average number of symbols routed per firm is 104, 180, and
67, and the average number of orders per symbol and per firm is 170,
124, and 134 for each of the three security categories. Consequently,
the largest average number of symbols routed per firm was for ADRs and
foreign ordinaries, but the average number of orders per symbol per
firm was largest for domestic OTC Equity Securities.
    FINRA believes that, at present, customers receive limited
information on how members route their orders in OTC Equity Securities,
any payments that members receive from execution venues related to the
routing of these orders, and the relative order execution quality by
member or execution venue. In the absence of regulatory disclosure
requirements, any information that customers do receive may be
selectively provided to individual customers and is likely not
comparable across firms. Moreover, larger customers may receive more
information relative to smaller customers, thereby giving the former an
informational advantage. OTC Equity Security routing data is currently
not required to be publicly available, and no studies have been
conducted on the quality of order handling services provided by firms
for such securities.
    There are, however, studies that examine the benefits of
transparency around the implementation of Rules 605 \28\ and 606 of
Regulation NMS with respect to member routing and venue execution
quality for NMS stocks. These studies may inform the potential economic
impacts from transparency in the market for OTC Equity Securities,
although, as noted above, there are significant differences between the
market for NMS Securities and OTC Equity Securities. In addition, as
Rules 605 and 606 went into effect at approximately the same time,
these studies are unable to distinguish the separate effects of order
execution quality disclosure under Rule 605 and that of order routing
disclosure under Rule 606 on activity in NMS stocks. After
implementation of Rule 605, effective and quoted spreads for NYSE-,
AMEX-, and NASDAQ-listed stocks declined significantly.\29\ In
addition, the implementation of Rules 605 and 606 resulted in broker-
dealers increasingly routing orders in NMS stocks to venues that
offered better execution quality on the dimensions of effective spreads
and fill rates, which suggests these reports contain information that
appears useful in routing decisions.\30\
---------------------------------------------------------------------------

    \28\ Under Rule 605 (formerly 11Ac1-5), the SEC requires market
centers that trade NMS Securities to make monthly electronic
reports. These reports include information about each market
center's quality of executions on a stock-by-stock basis, including
how market orders of different sizes are executed relative to the
public quotes. These reports also disclose information about
effective spreads and the extent to which executions occur at prices
better than the public quotes for marketable orders.
    \29\ See Xin Zhao & Kee H. Chung, Information Disclosure and
Market Quality: The Effect of SEC Rule 605 on Trading Costs, 42 The
Journal of Financial and Quantitative Analysis, 657-682 (2007).
    \30\ See Ekkehart Boehmer, Robert Jennings, & Li Wei, Public
Disclosure and Private Decisions: Equity Market Execution Quality
and Order Routing, 20 Review of Financial Studies, 315-358 (2007).
---------------------------------------------------------------------------

    Studies analyzing the market for NMS stocks indicate that broker-
dealers may route orders to maximize order flow payments by sending
market orders to venues making payments and sending limit orders to
venues paying large liquidity rebates. Such routing may not always be
in customers' best interests. Make-take fees may lead to agency
conflicts and rebate volume pricing tiers may worsen such conflicts
further.\31\ Theoretical models of the conflict between investors and
their broker-dealers, who may be incentivized to route orders based on
the take fees charged or rebates paid by exchanges, find that the
conflict of interest reduces investor utility.\32\ Using Rule 606 data,
one study examined broker-dealer routing of non-marketable limit orders
in NMS stocks to exchanges offering the largest rebate. This analysis
combined with proprietary limit order data found that low-fee (i.e.,
low-rebate) exchanges fill or fill more rapidly when high-fee (i.e.,
high-rebate) exchanges do not fill, and non-marketable limit orders
earn higher average realized spreads on low-fee than high-fee
exchanges.\33\
---------------------------------------------------------------------------

    \31\ See James J. Angel, Lawrence E. Harris & Chester S. Spatt,
Equity Trading in the 21st Century,'' 1 Quarterly Journal of
Finance, 1-53 (2011); Chester S. Spatt, Is Equity Market Exchange
Structure Anti-Competitive? (Dec. 28, 2020) Working Paper.
    \32\ See David A. Cimon, Broker Routing Decisions in Limit Order
Markets, 54 Journal of Financial Markets, 1386-4181 (2021).
    \33\ See Robert Battalio, Shawn A. Corwin & Robert Jennings, Can
Brokers Have It All? On the Relation Between Make-Take Fees and
Limit Order Execution Quality, 71 The Journal of Finance, 2193-2238
(2016).
---------------------------------------------------------------------------

    In the absence of the proposed disclosures, investors may not know
where a broker-dealer routes orders for execution or whether the
broker-dealer receives payments or rebates from such venues. In
addition, in the absence of order routing and payment for order flow
information, customers may not possess information necessary to assist
them in forming a preference concerning their brokers' routing
choices--particularly where customer commission charges have been
reduced or eliminated. Furthermore, if customers have information on
how brokers route orders and are able to negotiate commissions to more
closely represent the broker-dealer's average execution cost for a
particular customer's order flow, then customers may be better able to
submit the mix of liquidity-supplying and demanding orders to minimize
commissions and improve order execution.\34\ Even where customers are

unable to negotiate fees, agency issues related to order flow payments
may be reduced or eliminated if investors know where their orders are
routed. As noted above, while these studies examine the benefits of
transparency with respect to NMS stocks and there are significant
differences between the market for NMS Securities and the market for
OTC Equity Securities, these studies may inform analysis of the
potential impacts of the proposed disclosure on the OTC market.
---------------------------------------------------------------------------

    \34\ See Shawn M. O'Donoghue, Transaction Fees: Impact on
Institutional Order Types, Commissions, and Execution Quality, 60
Journal of Financial Markets (2022).
---------------------------------------------------------------------------

Economic Impacts
Anticipated Benefits
    Under the proposed rule change, customers would have more
information on the financial incentives that may affect their firms'
routing decisions, because the reports would identify the net aggregate
amount of any payment for order flow received, payment from any profit-
sharing relationship received, transaction fees paid, and transaction
rebates received by their firms.
    At present, in the absence of order routing reports, customers may
be less able to consider indirect costs that may impact execution
quality than direct trading costs, such as commissions charged. This is
particularly true for retail investors that use the services of zero-
commission broker-dealers. Under the proposed rule change, customers
may more easily consider indirect and less observable costs, such as
transaction fees paid less rebates or payment for order flow, and
better assess potential conflicts of interest. Brokerage commissions,
if charged, may depend on the amount of payment for order flow received
and net make-take fees paid by the firm. For example, members that earn
more payment for order flow may pass a portion of this revenue on to
customers by offering lower commissions. However, routing solely to
maximize rebates or minimize transaction fees may result in lower
execution quality than alternative routing strategies and may raise
best execution concerns. Without the proposed disclosures, customers
may primarily assess the amount of commissions, if charged, when
evaluating brokerage service costs. Customers may pay higher net
trading costs should zero or lower commission firms offer inferior
execution quality. Standardized reports, which would be available on
the member's website and centralized on FINRA's website, would allow
customers to compare order routing practices across different firms and
observe changes in a firm's routing behavior over time. Customers would
be able to better compare indirect trading costs and whether payment
for order flow received and net transaction fees paid, considering
rebates, may be affecting the routing decisions of some firms more than
others or causing changes in routing behavior over time. The
information in these reports would permit customers to evaluate firms'
routing decisions more effectively and be better informed in making
choices among firms. Dividing OTC Equity Securities into separate
sections depending on whether they are domestic, ADRs or foreign
ordinaries, or Canadian-listed OTC Equity Securities would provide
customers with meaningful categories and potentially make the
information more useful than if all securities were presented in one
group.
    FINRA believes that direct benefits to customers stemming from the
proposed standardized reports may be limited by a customer's ability to
interpret the information in the reports or compare the reports across
different members or over time. However, customers may also benefit
indirectly through changes in a firm's behavior. A firm may use the
standardized reports to compare its order routing to that of competing
firms, and subsequently, to improve its order execution quality. Thus,
firms that do not route solely based on payment for order flow
received, net transaction fees paid (inclusive of rebates), or provide
relatively better order execution quality may better compete for
customers based on not receiving rebates or providing better order
execution quality.\35\ In addition, academic or industry researchers
may analyze the data in the proposed public reports, which will be
centralized on FINRA's website, and make their findings describing
differences in broker-dealer routing practices public.
---------------------------------------------------------------------------

    \35\ In light of differences between the market for NMS
Securities and the market for OTC Equity Securities, including for
example the absence of a centralized, SRO-disseminated national best
bid and offer in the OTC market, FINRA is not proposing execution
quality disclosure requirements for OTC Equity Securities at this
time.
---------------------------------------------------------------------------

    Because FINRA members would be required to submit their existing
Rule 606(a) reports to FINRA for central publication on the FINRA
website, investors and academic and other industry researchers may more
easily access the SEC Rule 606(a) reports, which should make it easier
for users to examine data in SEC Rule 606(a) reports across broker-
dealers. The reporting and centralization of both the new OTC Equity
Security reports and the existing Rule 606(a) reports should also ease
FINRA's access to the reported data for regulatory purposes, thereby
reducing FINRA's costs.
Anticipated Costs
    Members may incur fixed costs, such as programming, to create the
initial proposed reports. These initial costs may vary depending on
whether firms collect the data and produce the reports in-house or
outsource the process to a third party. Members may pay costs to
identify which orders are non-directed and submitted on a held basis
and determine the net aggregate amount of any payment for order flow
received and net rebates received in total and per order. To the extent
that a member already has systems in place to create reports required
for NMS Securities under Rule 606(a), which is probable in most cases,
then these initial fixed costs may be relatively lower for such
members, although the extent to which these costs would be lower for
such firms would depend on the degree to which their existing systems
for NMS Securities' disclosures may be used for OTC Equity Securities.
Once the system to create the proposed reports is built, there would be
fixed costs for maintaining the system and on-going compliance costs,
and variable costs for creating and posting the publicly available
quarterly reports and for transmitting the reports to FINRA.
    In addition, firms that route orders in OTC Equity Securities may
re-evaluate their best execution evaluation methodologies and, if
deemed beneficial, may choose to incorporate information from the
proposed publicly available reports posted by competing firms, which
may or may not involve costs to the firm depending on how a firm
chooses to use this information.\36\ Furthermore, as noted by the
Commission with respect to new disclosure requirements under Rule
606(b)(3), ``[g]iven that broker-dealers will be aware of the metrics
to be used a priori, they might route not held orders in a manner that
promotes a positive reflection on their respective services but that
may be suboptimal for their customers.'' \37\ FINRA notes the same
possibility in connection with the proposed rule change requiring the
disclosure of OTC order handling disclosures. However, FINRA also notes

any such effects would be constrained by a firm's obligations under
FINRA Rule 5310. In addition, to the extent that the proposal increases
costs to members, particularly smaller firms, they may attempt to
recoup costs by increasing fees for customers or modifying the scope of
services offered for OTC Equity Securities.
---------------------------------------------------------------------------

    \36\ While firms that route orders in OTC Equity Securities may
re-evaluate their best execution evaluation methodologies and
incorporate information from the proposed reports, the proposed new
OTC Equity Security order routing disclosure reports themselves
would not alter a firm's best execution obligations.
    \37\ See 2018 Amendments Release, 83 FR 58338, 58425.
---------------------------------------------------------------------------

    Further, if firms stop or limit routing orders to venues paying
rebates or making payments for order flow given the existence of the
proposed reports, then these venues may reduce or eliminate these
financial incentives as volumes decline, which could in turn impact the
extent to which a market participant is willing to provide liquidity at
such venues, potentially resulting in fewer quotes, wider bid-ask
spreads, or fewer shares posted at such venues. In addition, the cost
of capital for firms that issue OTC Equity Securities may increase if
their securities become less liquid. Because members will be
responsible for submitting SEC Rule 606(a) reports currently required
for NMS Securities under Regulation NMS to FINRA, they will bear either
a direct cost to send the reports to FINRA or an indirect cost if an
agent sends the report on their behalf. FINRA believes that introducing
firm members that choose to rely on the proposed guidance \38\ would
incur lower costs compared to preparing and providing the actual
reports on a quarterly basis on their own or through a third-party
vendor.
---------------------------------------------------------------------------

    \38\ See supra notes 10 and 25.
---------------------------------------------------------------------------

Alternatives Considered
    No other alternatives were considered for the proposed amendments.

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

    The proposed rule change was published for comment in Regulatory
Notice 21-35 (October 2021). Five comments were received in response to
the Regulatory Notice.\39\ A copy of the Regulatory Notice is available
on FINRA's website at http://www.finra.org. Copies of the comment
letters received in response to the Regulatory Notice are also
available on FINRA's website. The comments are summarized below.
---------------------------------------------------------------------------

    \39\ See Comment submission from Keith L Hickman, dated October
7, 2021; letter from Howard Meyerson, Managing Director, Financial
Information Forum, to Jennifer Piorko Mitchell, Office of the
Corporate Secretary, FINRA, dated December 2, 2021 (``FIF Letter'');
letter from Derrick Chan, Head of Equity Trading and Sales, Fidelity
Investments, to Jennifer Piorko Mitchell, Office of the Corporate
Secretary, FINRA, dated December 6, 2021 (``Fidelity Letter'');
letter from Michelle Bryan Oroschakoff, Chief Legal Officer, LPL
Financial, to Jennifer Piorko Mitchell, Office of the Corporate
Secretary, FINRA, dated December 6, 2021 (``LPL Letter''); and
letter from Melanie Senter Lubin, President, North American
Securities Administrators Association, Inc., to Jennifer Piorko
Mitchell, Office of the Corporate Secretary, FINRA, dated December
6, 2021 (``NASAA Letter'').
---------------------------------------------------------------------------

    NASAA supported the proposed rule change, stating that it is
appropriately tailored to reveal potential conflicts of interest and
would bring additional transparency to trading practices in the OTC
market.\40\ NASAA also expressed support for FINRA's publication of
order routing reports on its website, noting that centralization of the
reports would allow investors to make comparisons easily, help inform
and facilitate regulatory decisions, and help FINRA analyze compliance
with the proposed rule, discover best reporting practices to share with
its members, perform comparisons to facilitate risk-based examination
selections, and determine whether disclosures give rise to the need for
investigation.\41\ FINRA agrees and, as discussed above, is proposing
to publish both the new OTC Equity Security reports and existing SEC
Rule 606(a) reports in a centralized location on its website, free of
charge and without usage restrictions. Finally, NASAA expressed its
belief that investor education is necessary to make the reports useful,
and accordingly suggested that FINRA develop and post information for
investors on how to read and interpret the data. Alternatively, NASAA
suggested that FINRA could develop standard educational materials that
firms can either link to or be required to make available with the
reports.\42\ FINRA agrees that investor education would be useful and,
as noted above, intends to engage in investor education efforts
regarding the purpose, content, and potential limitations of the
disclosures.\43\
---------------------------------------------------------------------------

    \40\ See NASAA Letter at 1-3.
    \41\ See supra note 40 at 3-4.
    \42\ See supra note 40 at 5.
    \43\ See supra note 23.
---------------------------------------------------------------------------

    Fidelity also supported the proposed rule change, stating that it
largely accomplishes the goals of providing transparency into broker
routing and economic practices in OTC Equity Securities, an asset class
that has experienced significant growth but remains opaque.\44\
Fidelity also made several recommendations to enhance the effectiveness
of the proposed rule change. First, Fidelity recommended that FINRA and
the SEC should consider how various order routing disclosure reports,
including SEC Rules 605 and 606 reports, are used in the marketplace
and could be used together, suggesting that FINRA and the SEC should
coordinate their oversight of order routing reports to ensure
consistency in process and interpretation.\45\ FINRA agrees with and,
as described above, has sought to align the form and content of the new
OTC Equity Security reports as closely as possible with the existing
Rule 606(a) reports, unless there was a reason for the content to
differ due to the unique characteristics of the OTC market. FINRA
believes that this approach will assist in ensuring consistency in the
process for generating the reports and regulatory interpretation
concerning the reporting framework. FINRA also expects to continue its
engagement with the SEC regarding order routing and execution quality
information more broadly.
---------------------------------------------------------------------------

    \44\ See Fidelity Letter at 1-2.
    \45\ See supra note 44 at 2-3.
---------------------------------------------------------------------------

    Second, Fidelity recommended that FINRA make publicly available a
list of OTC Equity Securities appearing in each section of the proposed
OTC Equity Security reports, and provide further clarity concerning the
definition of market center and fees to be disclosed.\46\ As noted
above, FINRA will publish a list of the OTC Equity Security symbols
that fall under each category to assist members in generating the
reports and provide consistency across reports. FINRA has also provided
clarifications regarding the scope of venues that should be disclosed
on the reports and the types of fees that should be included.\47\ FINRA
will continue to engage with members to provide additional guidance on
these and other issues as appropriate.
---------------------------------------------------------------------------

    \46\ See supra note 44 at 3-4.
    \47\ See supra notes 16 and 18.
---------------------------------------------------------------------------

    Third, Fidelity stated that FINRA should explore obtaining data for
all, or part, of the proposed OTC Equity Security reports from broker-
dealer CAT submissions.\48\ FINRA continues to believe that the most
efficient and comprehensive means of providing the data included in the
OTC Equity Security order routing disclosures is for members to
generate the reports directly.
---------------------------------------------------------------------------

    \48\ See supra note 44 at 4-5.
---------------------------------------------------------------------------

    Finally, Fidelity expressed support for FINRA to consolidate all
order routing reports on a centralized website and make this content
available without cost.\49\ As discussed above, FINRA is proposing to
publish both the new OTC Equity Security reports and existing SEC Rule
606(a) reports in a centralized

location on its website, free of charge and without usage restrictions.
---------------------------------------------------------------------------

    \49\ See supra note 44 at 5.
---------------------------------------------------------------------------

    FIF neither supported nor opposed the proposed rule change but
provided comments focused on achieving the most effective
implementation in the event that FINRA moves forward with the proposed
rule change. FIF first provided its views regarding the entity that
should be reported as the ``venue'' on the reports when there are
multiple levels of routing for an order, including the requirement to
``look-through'' to the execution venue.\50\ FIF stated that, when a
customer-facing broker-dealer routes an order to a second broker-
dealer, the customer-facing broker-dealer should report on its
financial arrangement with the second broker-dealer instead of the fee
arrangement between the second broker-dealer and that downstream venue.
FIF stated that there are many scenarios where a customer-facing
broker-dealer will route an OTC Equity Security order to another
broker-dealer that is neither a market maker nor an alternative trading
system and therefore the order is further routed by the receiving
broker-dealer. In these situations, FIF argued that the customer-facing
broker-dealer should report the second broker-dealer on any reports
instead of the final downstream venue. Reporting the final downstream
execution venue, i.e., the ``look-through'' requirement, would ignore
any payment for order flow made by the second broker-dealer to the
customer-facing broker. FIF also suggested modifying the proposed rule
change such that any reference to ``venue'' be changed to ``venue or
broker'' and any reference to ``routed for execution'' be changed to
``routed'' or ``routed for execution or further routing'' or ``routed
for execution (by the recipient or another party).'' FIF further stated
that the look-through requirement would greatly increase the cost of
the report due to the costs associated with coordination between the
customer-facing broker-dealer and the second broker-dealer that routes
to a venue for execution.\51\
---------------------------------------------------------------------------

    \50\ See FIF Letter at 1-3.
    \51\ See supra note 50 at 3.
---------------------------------------------------------------------------

    Consistent with the requirements of SEC Rule 606(a), FINRA's
proposal would cover the venues to which non-directed held orders in
OTC Equity Securities were ``routed for execution.'' As discussed
above, the SEC has provided guidance in the SEC Rule 606(a) context
that, if a broker-dealer routes orders to another broker-dealer, that
receiving broker-dealer would be considered to be the relevant venue if
that receiving broker-dealer executes orders. However, if the receiving
broker-dealer does not execute orders, it would not be a venue to which
orders were ``routed for execution.'' Rather, the venue to which the
receiving broker-dealer subsequently routed the orders for execution
(including child orders) would be the relevant venues for SEC Rule
606(a) reporting purposes. Further, while the reporting responsibility
remains with the customer-facing broker-dealer, the customer-facing
broker-dealer may contract with the receiving broker-dealer for
assistance in meeting its reporting responsibilities.\52\ FINRA
continues to believe that this aspect of the proposed order routing
disclosures for OTC Equity Securities should be consistent with the SEC
Rule 606(a) disclosures for NMS Securities, including with respect to
the ``look-through'' requirement when a receiving broker-dealer does
not execute orders. FINRA believes that aligning the scope of the
disclosures with the requirements of SEC Rule 606(a) would reduce the
burden of the new disclosure requirements because members already have
experience with SEC Rule 606(a) and may be able to utilize existing
systems and arrangements with receiving broker-dealers to provide the
disclosures for OTC Equity Securities. Further, because the purpose of
the proposed disclosures--providing information about members' orders
routing practices and potential conflicts of interest related to
execution venues--is the same as the purpose of SEC Rule 606(a) for NMS
Securities, FINRA believes that the same types of venues should be
covered by the new reports for OTC Equity Securities.
---------------------------------------------------------------------------

    \52\ See SEC Division of Trading and Markets, Responses to
Frequently Asked Questions Concerning Rule 606 of Regulation NMS,
Question 12.01.
---------------------------------------------------------------------------

    FIF also responded to a number of specific questions posed in
Regulatory Notice 21-35.\53\ As an initial matter, FIF agreed with a
number of aspects of the proposed rule change, including (i) the
quarterly reporting timeframe of the reports; (ii) not providing a
separate reporting category for grey market securities; (iii) limiting
the proposed reports to held orders in OTC Equity Securities; (iv) not
breaking out the reports by market orders, marketable limit orders,
non-marketable limit orders, and other orders; (v) requiring reporting
of payments per order, rather than per share; (vi) not adopting
customer-specific held order disclosures, like those required under SEC
Rule 606(b)(3), at this time; and (vii) not adopting execution quality
disclosures, like those required under SEC Rule 605, at this time.
---------------------------------------------------------------------------

    \53\ See FIF Letter at 3-9.
---------------------------------------------------------------------------

    FIF requested that FINRA incorporate a de minimis venue exception
parallel to the exemptive relief that the SEC has provided with respect
to the SEC Rule 606(a) reports. As noted above, FINRA agrees and has
included a parallel exception in the proposed rule change.\54\
---------------------------------------------------------------------------

    \54\ See supra note 17.
---------------------------------------------------------------------------

    FIF also expressed support for centralized publication of SEC Rule
606(a) reports and, if adopted, the proposed OTC Equity Security
reports on the FINRA website (or another third-party website in a
manner that can be accessed by all market participants at no cost), and
further recommended that the SEC, FINRA, the other self-regulatory
organizations and FINRA CAT consider how current reporting systems,
such as the CAT, can be leveraged to reduce the general reporting
burden for firms. As discussed above, FINRA is proposing to publish
both the new OTC Equity Security reports and existing SEC Rule 606(a)
reports in a centralized location on its website, free of charge and
without usage restrictions. However, FINRA is not proposing to use CAT
data for the proposed disclosure requirements in light of restrictions
on the use of CAT data and FINRA's continued belief that, as for SEC
Rule 606(a) reports, the most efficient method to create and publish
the required disclosures is for members to provide the routing
information directly.
    FIF stated that the proposed categories of OTC Equity Securities
are appropriate and recommended that FINRA publish and maintain a file
of which symbols are included in each category. As noted above, FINRA
will publish a list of the OTC Equity Security symbols that fall under
each category to assist members in generating the reports and provide
consistency across reports.
    FIF stated that the proposed disclosures may have unintended
consequences, as increased transparency may lead broker-dealers to
change how they route held orders in OTC Equity Securities in ways that
may be suboptimal for customers on execution quality dimensions that
are less easily observable. To address this concern, FIF suggested that
FINRA could publish guidance to investors on the purpose, content, and
potential limitations of the reports. While FINRA does not believe that
the transparency will likely result in suboptimal executions, FINRA
intends to, as appropriate, provide members, investors, and others with
information

about the purpose, content, and potential limitations of the reports.
    FIF further stated that the industry requires a significant time
period for implementation, including sufficient time for industry
members to identify and obtain guidance from FINRA on applicable
interpretive questions. FINRA intends to provide an appropriate amount
of time for implementation of the proposed rule change and will work
with the industry to provide guidance as appropriate on interpretive
questions. In particular, FIF requested that FINRA meet with industry
members to discuss how the proposed routing disclosures should be
applied to orders executed through OTC Link, and also requested that
FINRA provide additional guidance on the level of detail required for
the material aspects disclosure. FINRA intends to continue to engage
with members and other interested parties prior to implementation of
the proposed rule change, including to discuss order routing
disclosures in scenarios involving OTC Link. FINRA also intends to
provide guidance as appropriate on other interpretive questions,
including the content of the material aspects disclosure. However,
FINRA notes that it would generally expect the level of detail included
in the material aspects disclosures to be consistent with that provided
in SEC Rule 606(a) reports for NMS Securities.
    FIF generally agreed with the proposed content of the OTC Equity
Security disclosure reports, but recommended removing the requirement
that members report the number of directed orders because the routing
decision in such cases is outside the control of the broker-dealer.
FINRA notes that, as described above and consistent with SEC Rule
606(a), the proposed disclosures would apply only to non-directed held
orders. The proposed reports would include aggregate statistics
regarding the percentage of total orders that were held and not held
orders, and the percentage of held orders that were non-directed
orders, but no other information about directed orders would be
required.
    Finally, FIF stated that its members are divided on whether the
reporting requirements should include routes to brokers and venues
outside the U.S. FIF recommended that multiple approaches should be
permitted and that the reporting firm should indicate which approach
was adopted on the web page accompanying the routing reports. In any
case, FIF stated that, if a foreign issuer does not have F shares in
the U.S., the order should not be reportable. FINRA believes that,
consistent with SEC Rule 606(a), the OTC Equity Security disclosures
should include information about venues where a member's orders are
routed for execution, regardless of the location of such venue.
Particularly where orders are non-directed, the member has discretion
to choose where it routes orders for execution; therefore, permitting a
member to omit foreign venues could raise arbitrage concerns and
provide incomplete information to investors. Moreover, information
about incentives and potential conflicts of interest is just as
relevant where an execution venue is located abroad. With respect to F
shares, FINRA notes that orders in any security that meets the
definition of OTC Equity Security would be included in the reports
regardless of the location of the issuer.
    LPL did not support the proposed rule change, stating that, while
LPL supports efforts to provide greater transparency as to the handling
of orders, the proposed rule change would impose a significant burden
on firms without providing useful information to investors.\55\ LPL
stated that the proposed rule change would have limited benefits as
compared to SEC Rule 606(a) for NMS Securities, which LPL believes can
provide investors with useful information because it can be combined
with order execution information available pursuant to SEC Rule 605; by
contrast, the proposed OTC Equity Security disclosures would not have
parallel execution quality disclosures.\56\
---------------------------------------------------------------------------

    \55\ See LPL Letter at 1.
    \56\ See supra note 55 at 1-2.
---------------------------------------------------------------------------

    FINRA believes that the proposed order routing disclosures will
provide investors and other market participants with useful
information, even in the absence of Rule 605-like disclosures at this
time.\57\ FINRA believes the proposed order routing disclosures will
facilitate investor understanding of where their brokers are routing
orders and the relationships their brokers have with those execution
venues. In addition, FINRA notes that SEC Rule 606(a) includes
information about order routing practices for NMS Securities that are
options, and options are not included in the execution quality
disclosures under SEC Rule 605.
---------------------------------------------------------------------------

    \57\ In light of differences between the market for NMS
Securities and OTC Equity Securities, including for example the
absence of a centralized, SRO-disseminated national best bid and
offer in the OTC market, FINRA is not proposing Rule 605-like
execution quality disclosure requirements for OTC Equity Securities
at this time. FINRA will continue to consider whether additional
disclosures would provide useful information for investors in OTC
Equity Securities.
---------------------------------------------------------------------------

    LPL also stated its belief that the proposed rule change would
subject firms to costly burdens, including internal technology costs to
identify and gather the needed data, vendor costs to prepare quarterly
reports, and employee time to implement and supervise disclosures.\58\
Given that OTC Equity Securities are a very small part of LPL's core
business, LPL stated that these additional burdens may have a chilling
effect and cause firms to stop accepting orders for OTC Equity
Securities. As discussed above, FINRA acknowledges that members would
incur costs to capture the required data, generate the reports, publish
the reports, and transmit the reports to FINRA for centralization
publication. FINRA believes that such costs would be reduced for
introducing firms that choose to rely on the guidance discussed
above.\59\ In any case, FINRA continues to believe that the costs
associated with the proposal are outweighed by the benefits to
investors and the market of the transparency provided by the proposed
OTC Equity Security disclosures.
---------------------------------------------------------------------------

    \58\ See LPL Letter at 2. LPL stated that it expects the initial
costs to implement the proposed rule change would be similar to the
cost of complying with recent amendments to SEC Rule 606.
    \59\ See supra notes 10 and 25.
---------------------------------------------------------------------------

    Finally, LPL stated that imposing the additional costs of the
proposed OTC Equity Security disclosures on firms that do not receive
payment for order flow would be both unfair and unproductive, and
therefore requested that, if FINRA adopts the proposed rule change, the
proposed rule change include an exemption for firms that do not receive
payment for order flow.\60\ FINRA notes that, while payment for order
flow arrangements are an important component of the information that
would be required to be disclosed under the proposed rule change, the
proposed disclosures also include information about other payments and
arrangements that members may have with execution venues that may
influence a member's order routing decision. FINRA continues to believe
that the proposed disclosures would be valuable for investors and other
market participants more broadly, regardless of whether a particular
member receives payment for order flow, because the proposed
disclosures would provide investors with a better understanding of
where their brokers are routing orders and the overall relationships
their brokers have with those execution venues.
---------------------------------------------------------------------------

    \60\ See LPL Letter at 2-3.

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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-2022-031 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-2022-031. 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 a.m. and 3
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-2022-031 and should be submitted on or before December 27, 2022.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\61\
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    \61\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-26445 Filed 12-5-22; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 79, Number 129 (Monday, July 7, 2014)]
[Notices]
[Pages 38358-38360]
[FR Doc No: 2014-15782]

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DEPARTMENT OF TRANSPORTATION

National Highway Traffic Safety Administration

[Docket No. NHTSA-2014-0081]

Reports, Forms, and Recordkeeping Requirements: Agency
Information Collection Activity

AGENCY: National Highway Traffic Safety Administration (NHTSA),
Department of Transportation (DOT).

ACTION: Request for public comment on proposed collection of
information.

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SUMMARY: Before a Federal agency can collect certain information from
the

public, it must receive approval from the Office of Management and
Budget (OMB). Under procedures established by the Paperwork Reduction
Act of 1995, before seeking OMB approval, Federal agencies must solicit
public comment on proposed collections of information, including
extensions and reinstatements of previously approved collections. This
document describes one collection of information for which NHTSA
intends to seek OMB approval.

DATES: Comments must be received on or before September 5, 2014.

ADDRESSES: Refer to the docket notice number cited at the beginning of
this notice and send your comments by any of the following methods:
     Federal eRulemaking Portal: Go to http://www.regulations.gov. Follow the instructions for submitting comments.
     Fax:<PHONE_NUMBER>.
     Mail: U.S. Department of Transportation, Docket
Operations, M- 30, West Building Ground Floor, Room W12-140, 1200 New
Jersey Ave. SE., Washington, DC 20590.
     Hand Delivery: U.S. Department of Transportation, Docket
Operations, M-30, West Building Ground Floor, Room W12-140, 1200 New
Jersey Ave. SE., Washington, DC 20590, between 9 a.m. and 5 p.m.,
Monday through Friday, except Federal holidays.
    Instructions: All submissions must include the agency name and
docket number. Note that all comments received will be posted without
change to http://www.regulations.gov, including any personal
information provided. Please see the Privacy Act discussion below. We
will consider all comments received before the close of business on the
comment closing date indicated above. To the extent possible, we will
also consider comments filed after the closing date.
    Docket: For access to the docket to read background documents or
comments received, go to http://www.regulations.gov at any time or to
1200 New Jersey Avenue SE., West Building Ground Floor, Room W12-140,
Washington, DC 20590, between 9 a.m. and 5 p.m., Monday through Friday,
except Federal Holidays. Telephone:<PHONE_NUMBER>.
    Privacy Act: Anyone is able to search the electronic form of all
comments received into any of our dockets by the name of the individual
submitting the comment (or signing the comment, if submitted on behalf
of an association, business, labor union, etc.). You may review DOT's
complete Privacy Act Statement in the Federal Register published on
April 11, 2000, (Volume 65, Number 70; Pages 19477-78) or you may visit
http://www.dot.gov/privacy.html.
    Confidential Business Information: If you wish to submit any
information under a claim of confidentiality, you should submit three
copies of your complete submission, including the information you claim
to be confidential business information, to the Chief Counsel, NHTSA,
at 1200 New Jersey Ave. SE., Washington, DC 20590. In addition, you
should submit two copies, from which you have deleted the claimed
confidential business information, to Docket Management at the address
given above. When you send a comment containing information claimed to
be confidential business information, you should include a cover letter
setting forth the information specified in our confidential business
information regulation (49 CFR part 512).

FOR FURTHER INFORMATION CONTACT: Charlene Doyle., Contracting Officer's
Technical Representative, Office of Regulatory Analysis and Evaluation,
National Highway Traffic Safety Administration, 1200 New Jersey Ave.
SE., NVS-431, Washington, DC 20590. Ms. Doyle's phone number is 202-
366-1276 and her email address is<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION: Under the Paperwork Reduction Act of 1995,
before an agency submits a proposed collection of information to OMB
for approval, it must publish a document in the Federal Register
providing a 60-day comment period and otherwise consult with members of
the public and affected agencies concerning each proposed collection of
information. The OMB has promulgated regulations describing what must
be included in such a document. Under OMB's regulations (at 5 CFR
1320.8(d)), an agency must ask for public comment on the following: (i)
Whether the proposed collection of information is necessary for the
proper performance of the functions of the agency, including whether
the information will have practical utility; (ii) The accuracy of the
agency's estimate of the burden of the proposed collection of
information, including the validity of the methodology and assumptions
used; (iii) How to enhance the quality, utility, and clarity of the
information to be collected; and (iv) How to minimize the burden of the
collection of information on those who are to respond, including the
use of appropriate automated, electronic, mechanical, or other
technological collection techniques or other forms of information
technology, e.g., permitting electronic submissions of responses. In
compliance with these requirements, NHTSA asks public comment on the
following proposed collection of information:
    Title: Tire Pressure Monitoring System--Outage Rates and Repair
Costs Study (TPMS-ORRC)
    Type of Request: Reinstatement, with change, of a previously
approved collection for which approval has expired.
    OMB Clearance Number: 2127-0626
    Form Number: This collection of information uses no standard forms.
    Required Expiration Date of Approval: Three years from the date of
approval by OMB (i.e., estimated date of January 2018).
    Abstract. Improperly inflated tires pose a safety risk, increasing
the chance of skidding, hydroplaning, longer stopping distances, and
crashes due to flat tires and blowouts. Section 13 of the
Transportation Recall Enhancement, Accountability, and Documentation
(TREAD) Act, which Congress passed on November 1, 2000, directed NHTSA
to conduct rulemaking actions to revise and update the Federal motor
vehicle safety standards for tires, to improve labeling on tires, and
to require a system in new motor vehicles that warns the operator when
a tire is significantly underinflated.
    Tire Pressure Monitoring Systems (TPMS) were mandated in Federal
Motor Vehicle Safety Standard (FMVSS) No. 138, so that drivers are
warned when the pressure in one or more of the vehicle's tires has
fallen to 25 percent or more below the placard pressure, or a minimum
level of pressure specified in the standard, whichever pressure is
higher, and may be informed about which of the four tires is
underinflated. As of September 1, 2007, after a phase-in period
beginning on October 5, 2005, TPMS was required on all new light
vehicles (i.e., passenger cars, trucks, multipurpose passenger
vehicles, and buses with a gross vehicle weight rating of 10,000 pounds
or less, except those vehicles with dual wheels on an axle).
    Executive Order 12866 requires Federal agencies to evaluate their
existing regulations and programs and measure their effectiveness in
achieving their objectives. Since the phase-in of TPMS, there has been
only one evaluation of TPMS. The TPMS-SS (OMB 2127-0626) was
conducted in 2011, as a special study through the infrastructure of the
National Automotive Sampling System (NASS), to collect nationally
representative data on how effective TPMS was in reducing
underinflation in the on-road fleet of passenger vehicles. Analysis of
the survey results indicated that direct

TPMS is 55.6-percent effective at preventing severe underinflation as
defined in FMVSS No. 138. However, effectiveness was substantially
lower in vehicles that were 6-7 years old at the time of the survey.
One explanation as to why this is true was the possibility that the
drivers of these older vehicles were not taking all the maintenance
actions (e.g., adding TPMS sensors to new vehicle tires, replacing non-
functioning sensors on current tires, having the system properly re-set
when needed) that were needed in order to insure that they had
functioning TPMS. Relevant data is needed to examine why the
effectiveness of TPMSs in older vehicles is reduced and what can be
done to increase it.
    Description of the Likely Respondents (Including Estimated Number,
and Proposed Frequency of Response to the Collection of Information):
This information collection will be completed via three separate
surveys:
    Field Survey of Drivers and Vehicles. A survey of convenience,
conducted in eight sites (two sites in each of 4 states--Colorado,
Texas, Washington, Virginia), will collect 7,000 inspections of
passenger vehicles of all model years from 2004 through the latest
model year, as well as interviews of drivers of these vehicles. Focus
will be on assessing the operating status of the TPMS in these vehicles
and interviewing driver with and without operating TPMSs, regarding
their knowledge about and habits related to the TPMS in their vehicle.
Data collection is expected to take place over a six month period in
the spring and summer of 2015, mainly at gas stations.
    Suppliers Survey. Major suppliers of TPMS sensors and systems will
be interviewed. Focus will be on TPMS repair and maintenance issues, as
well as cost factors. Data collection is expected to take place early
2015 via a combination of telephone interviews, email, mail, and fax.
    Repair Facilities Survey. A sample of 500 repair/maintenance
facilities (e.g., automobile dealerships, tire chain stores, small
service stations with attached repair shops) will be selected for a
Computer-Assisted Telephone Interview (CATI), with the option of
responding by mail, based upon the respondent's preference. Focus will
be on assessing the lifespan of TPMS, common sources of TPMS
malfunction, typical costs to repair/replace malfunctioning systems,
and the factors considered by customers when deciding whether to repair
or replace TPMSs that are not working. Data collection is expected to
take place early 2015 mostly via telephone interviews.
    Estimate of the Total Annual Reporting and Recordkeeping Burden
Resulting From the Collection of Information: The total annual
reporting and recordkeeping burden resulting from this collection of
information is estimated to be 1,565 hours, as outlined below.
    Field Survey of Drivers and Vehicles. NHTSA estimates that the
average time to collect vehicle and driver data will be slightly over
10 minutes for each interview for the 7,000 survey respondents. Some
additional time will be needed to conduct a pilot study and to describe
the study to drivers who do not end up participating in the study.
Consequently, the total respondent burden hours is estimated to be
1,365 hours. The respondents would not incur any reporting or record
keeping costs from the information collection. For the drivers survey,
respondents will be asked questions regarding their TPMSs, and all
responses will be provided spontaneously. For the vehicle inspection,
data will be obtained via observation.
    Suppliers Survey. NHTSA estimates that the average time to collect
data on the cost of TPMS parts and systems will be slightly over 20
minutes for each interview for the 45 respondents. Consequently, the
total respondent burden hours is estimated to be 17 hours. The
respondents would not incur any reporting or record keeping costs from
the information collection. Information is only requested about records
that the respondents already are keeping for their own purposes.
    Repair Facilities Survey. NHTSA estimates that the average time to
collect data on the types and costs of repairing TPMS will be slightly
over 20 minutes for each interview for the 500 respondents.
Consequently, the total respondent burden hours is estimated to be 183
hours. The respondents would not incur any reporting or record keeping
costs from the information collection. Information is only requested
about records that the respondents already are keeping for their own
purposes.

    Authority:  The Paperwork Reduction Act, 44 U.S.C. chap. 35, as
amended; and 49 CFR 1.95.

Terry T. Shelton,
Associate Administrator, National Center for Statistics and Analysis.
[FR Doc. 2014-15782 Filed 7-3-14; 8:45 am]
BILLING CODE 4910-59-P


[Federal Register Volume 80, Number 178 (Tuesday, September 15, 2015)]
[Notices]
[Page 55349]
[FR Doc No: 2015-23151]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Project No. 14682-000]

Adam R. Rousselle II; Notice of Preliminary Permit Application
Accepted for Filing and Soliciting Comments, Motions To Intervene, and
Competing Applications

    On June 17, 2015, Adam R. Rousselle II filed an application for a
preliminary permit under section 4(f) of the Federal Power Act
proposing to study the feasibility of the proposed Paint Creek Dam
Water Power Project No. 14682-000, to be located at the existing U.S.
Army Corps of Engineers' Paint Creek Lake, near the town of Bainbridge,
Highland County, Ohio. The sole purpose of a preliminary permit, if
issued, is to grant the permit holder priority to file a license
application during the permit term. A preliminary permit does not
authorize the permit holder to perform any land-disturbing activities
or otherwise enter upon lands or waters owned by others without the
owners' express permission.
    The proposed project would be located completely within lands owned
by the United States and use an existing concrete intake tower located
in Paint Creek Lake and an existing 1,100-foot-long, 48-foot-diameter
tunnel conveying the lake water from the intake tower to the outlet
works downstream of the dam. The proposed project would consist of the
following new facilities: (1) Two 80-foot-long, 8-foot-diameter steel
penstocks attached to the outlet works and ending at the turbine
assembly; (2) a 50-foot-long, 30-foot-wide, 30-foot-high concrete
powerhouse located approximately 100 feet downstream of the outlet
works and containing two Kaplan turbine-generators with a combined
installed capacity of 2.14 megawatts; (3) a 500-foot-long, 14.7
kilovolt transmission line; and (4) appurtenant facilities. The project
is estimated to generate 13,100 megawatt hours annually.
    Applicant Contact: Adam R. Rousselle II, 104 Autumn Trace Drive,
New Hope, PA 18938; phone:<PHONE_NUMBER>.
    FERC Contact: Sergiu Serban,<PHONE_NUMBER>.
    Deadline for filing comments, motions to intervene, competing
applications (without notices of intent), or notices of intent to file
competing applications: 60 days from the issuance of this notice.
Competing applications and notices of intent must meet the requirements
of 18 CFR 4.36.
    The Commission strongly encourages electronic filing. Please file
comments, motions to intervene, notices of intent, and competing
applications using the Commission's eFiling system at http://www.ferc.gov/docs-filing/efiling.asp. Commenters can submit brief
comments up to 6,000 characters, without prior registration, using the
eComment system at http://www.ferc.gov/docs-filing/ecomment.asp. You
must include your name and contact information at the end of your
comments. For assistance, please contact FERC Online Support at
<EMAIL_ADDRESS>(866) 208-3676 (toll free), or (202) 502-
8659 (TTY). In lieu of electronic filing, please send a paper copy to:
Secretary, Federal Energy Regulatory Commission, 888 First Street NE.,
Washington, DC 20426. The first page of any filing should include
docket number P-14682-000.
    More information about this project, including a copy of the
application, can be viewed or printed on the ``eLibrary'' link of
Commission's Web site at http://www.ferc.gov/docs-filing/elibrary.asp.
Enter the docket number (P-14682) in the docket number field to access
the document. For assistance, contact FERC Online Support.

    Dated: September 9, 2015.
Kimberly D. Bose,
Secretary.
[FR Doc. 2015-23151 Filed 9-14-15; 8:45 am]
BILLING CODE 6717-0-1P