applicable FINRA rules. See, e.g., FINRA Rules 3110 (Supervision),
3120 (Supervisory Control System), and 3170 (Tape Recording of
Registered Persons by Certain Firms). See also FINRA By-Laws Article
III--Qualifications of Members and Associated Persons. Any person
associated with a member firm who is engaged in the securities
business of the firm--including partners, officers, directors,
branch managers, department supervisors, and salespersons--must
register with FINRA.
    \151\ See, e.g., the FINRA rules set forth in notes 17-18, 56-
57, 122-124, 137 and 147-150, and accompanying text, supra. In
addition, FINRA has regulatory programs and staff dedicated to fixed
income regulation. See FINRA.org, Key Topics--Fixed Income,
available at https://www.finra.org/rules-guidance/key-topics/fixed-income#overview.
    \152\ See FINRA Rule 6000 Series (Quotation, Order, and
Transaction Reporting Facilities).
---------------------------------------------------------------------------

    The Commission also continues to believe that it is important to
the protection of investors and the public interest that FINRA has
direct, membership-based jurisdiction over proprietary trading broker-
dealer firms that effect off-member-exchange securities transactions
regardless of whether they carry customer accounts. An Association's
regulatory responsibility, like exchange SROs', includes an obligation
to enforce compliance with the Federal securities laws and rules
thereunder and the SRO's rules. As an Association, the Exchange Act's
statutory framework places SRO oversight responsibility with FINRA for
off-member-exchange securities trading, and FINRA is well-positioned to
carry out this responsibility with respect to its members.
    For example, FINRA gains familiarity with a member's operational
risk by assigning dedicated staff members to each firm (e.g., a Risk
Monitoring Analyst to act as the primary point of contact and a Risk
Monitoring Director) and having staff with subject matter expertise
relevant to a member's business model conduct examinations and carry
out monitoring duties.\153\ Firms are classified into five primary
business models and then further sorted into various subgroups overseen
by exam and risk monitoring staff.\154\ Risk monitoring teams seek to
understand the unique aspects of each firm monitored, and use that
expertise to inform exam staff in the preparation of exams. Employing a
risk-based approach, FINRA examines firms on a one, two or four-year
frequency and makes use of specialist teams (e.g., anti-money
laundering, cybersecurity or fixed income). Further, FINRA gains
familiarity with a member's operational risk through customer
complaints and regulatory tips or calls, which may trigger a ``cause''
exam (in contrast to the routine exams described above) focusing on the
issues raised in the complaints.\155\ Finally, FINRA staff is informed
of changes in operational risk associated with a material change in
business operations or change of control through FINRA Rule 1017.\156\
The Continuing Member Application triggered under FINRA Rule 1017,
among other things, reviews if the member's contractual and business
relationships support the proposed change, if communications and
operational systems are appropriate, financial and internal controls,
and the adequacy of the member's supervisory system to prevent and
detect violations.\157\
---------------------------------------------------------------------------

    \153\ See FINRA Risk Monitoring Program, FINRA, available at
https://www.finra.org/contact-finra/risk-monitoring-program; FINRA
Examination and Risk Monitoring Programs, FINRA, available at
https://www.finra.org/rules-guidance/key-topics/finra-examination-risk-monitoring-programs#overview.
    \154\ See FINRA Examination and Risk Monitoring Programs, FINRA,
available at https://www.finra.org/rules-guidance/key-topics/finra-examination-risk-monitoring-programs#overview.
    \155\ Id.
    \156\ See FINRA Rule 1017; Form CMA, FINRA, available at https://www.finra.org/registration-exams-ce/broker-dealers/registration-forms/form-cma.
    \157\ See Filing a Change in Membership Application, The ``What
to Expect'' Webcast Series (2010), FINRA, available at https://www.finra.org/sites/default/files/Education/p018711.pdf.
---------------------------------------------------------------------------

    The inability of FINRA to directly enforce regulatory compliance by
proprietary trading broker-dealer firms that are not FINRA members--
whether or not they handle customer orders or carry customer accounts--
may create a risk to the fair and orderly operation of the market
because FINRA may not be as familiar with the firm's operational risks
or other risks posed by the firm's off-member-exchange securities
trading activity as FINRA would be with a FINRA member firm, and FINRA
may not be as well positioned potentially to mitigate those risks. In
addition, if FINRA were to detect that a non-FINRA member is effecting
off-member-exchange securities transactions that are not in compliance
with the Exchange Act or applicable rules, FINRA would not have direct,
membership-based jurisdiction to directly address the behavior.\158\
---------------------------------------------------------------------------

    \158\ FINRA could refer such a matter to the Commission or to an
exchange where the firm is a member or, as discussed above in this
section, potentially address the matter through an RSA if covered by
the terms of the RSA. See also supra note 14. But FINRA may lack
certain investigative tools, discussed above in this section, with
respect to non-FINRA member broker-dealers that it possesses with
respect to FINRA members, which could help FINRA further investigate
potentially violative behavior before making a referral to the
Commission or an exchange, or help prevent FINRA from failing to
make referrals when they are warranted. See also section V, infra.
Further, the Commission believes that regulatory efforts based on
discretionary RSA arrangements among exchange SROs and FINRA, while
beneficial in many contexts, are a less stable and consistent
mechanism for SRO oversight than the FINRA membership required by
the Exchange Act in the context presented here, and are less
comprehensive than membership-based FINRA oversight because they do
not cover U.S. Treasury securities trading activity.

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

    As is discussed in the 2022 Re-Proposal and in more detail in the
Economic Analysis, infra section V, firms that become FINRA members as
a result of the adopted rule amendments will be required to apply for
membership with FINRA and become subject to the fees charged by FINRA
to all of its member firms. FINRA charges each member firm certain
regulatory fees designed to recover the costs to FINRA of the
supervision and regulation of members, including performing
examinations, financial monitoring, and policy, rulemaking,
interpretive, and enforcement activities.\159\ These regulatory fees
include a Trading Activity Fee (``TAF'').\160\ FINRA issued a
Regulatory Notice in 2015 in which it proposed to amend the TAF such
that it would not apply to transactions by a proprietary trading firm
effected on exchanges of which the firm is a member.\161\ In June 2023,
after the 2022 Re-Proposal, FINRA filed a proposed rule change with the
Commission, pursuant to section 19 of the Act, to amend the TAF such
that it does not apply to transactions by a proprietary trading firm
effected on exchanges of which the firm is a member.\162\ FINRA
designated this proposed rule change as ``establishing or changing a
due, fee or other charge'' under section 19(b)(3)(A)(ii) of the Act and
17 CFR 240.19b-4(f)(2) (``Rule 19b-4(f)(2)'') thereunder, which renders
the rule effective upon filing with the Commission.
---------------------------------------------------------------------------

    \159\ See FINRA Schedule A to the By-Laws of the Corporation
(``FINRA Schedule A''), at section 1, available at https://www.finra.org/rules-guidance/rulebooks/corporate-organization/section-1-member-regulatory-fees.
    \160\ FINRA uses the TAF to recover the costs to FINRA of the
supervision and regulation of members, including performing
examinations, financial monitoring, and policy, rulemaking,
interpretive, and enforcement activities. See FINRA Schedule A, at
section 1(a). The TAF is generally assessed on FINRA member firms
for all equity sales transactions that are not performed in the
capacity of a registered exchange specialist or market maker. See
id. at section 1(b). FINRA charges its members other fees as well,
such as an annual Gross Income Assessment (``GIA''). See id. at
section 1.
    \161\ See FINRA Regulatory Notice 15-13, Trading Activity Fee
(May 2015), available at http://www.finra.org/sites/default/files/notice_doc_file_ref/Notice_Regulatory_15-13.pdf. FINRA re-opened the
comment period on its 2015 Regulatory Notice after the 2022 Re-
Proposal. See FINRA Regulatory Notice 22-30, Trading Activity Fee
(Dec. 15, 2022) available at https://www.finra.org/sites/default/files/2022-12/Regulatory-Notice-22-30.pdf.
    \162\ See TAF Amendment. The TAF Amendment's implementation
date, which FINRA will announce in a Regulatory Notice, will be no
earlier than the date of the Commission's adoption of amended Rule
15b9-1 and no later than the effective date of amended Rule 15b9-1.
Id.
---------------------------------------------------------------------------

    Comments on the 2022 Re-Proposal, submitted prior to the TAF
Amendment, stated that the costs of applying for FINRA membership, as
well as ongoing costs of FINRA membership such as the TAF, are high and
burdensome and could affect liquidity provision.\163\ In particular,
commenters stated that proprietary options trading firms should remain
exempt from section 15(b)(8)'s Association membership requirement
because they do not trade U.S. Treasury securities and the equities
transaction volume that they effect is hedging activity.\164\
Commenters urged the Commission to adopt an exemption for proprietary
options trading broker-dealer firms, such that their off-member-
exchange securities trading activity would not trigger section
15(b)(8)'s Association membership requirement if such activity is to
hedge or in furtherance of their options trading activity on their
member exchange(s).\165\ If proprietary options trading firms do not
remain exempt, commenters stated, there could be a negative impact on
options market liquidity and smaller options trading firms could cease
trading, which could lead to consolidation and decreased
competition.\166\ FINRA stated that most proprietary trading dealer
firms that newly join FINRA would not incur membership application fees
exceeding $12,500.\167\ FINRA also stated (prior to filing the TAF
Amendment with the Commission) that it is committed to amending the TAF
to lessen its impact on such firms.\168\
---------------------------------------------------------------------------

    \163\ See, e.g., MMI Letter at 3; PEAK6 Letter at 4-5; FIA PTG
Letter at 4; Group One Letter at 2-3; ABCV Letter at 2-3; CTC Letter
at 4; Cboe Letter at 7. One commenter estimated that some
proprietary broker-dealers would incur TAF fees greater than
$1,000,000 per year under the current TAF structure. See FIA PTG
Letter at 4. Another commenter opined on the substance of FINRA's
contemplated TAF amendment. See PEAK6 Letter at 4. Some commenters
also stated that FINRA must amend the TAF before the Rule 15b9-1
amendments are adopted so firms can assess the fee-related costs of
FINRA membership on proprietary trading firms. See PEAK6 Letter at
4; FIA PTG Letter at 4.
    \164\ See, e.g., Cboe Letter at 3; see also ABCV Letter at 2
(stating that any trading by options market makers in the underlying
cash equities markets is related to legitimate hedging of their
options positions).
    \165\ See Cboe Letter at 2-3; ABCV Letter at 3-4; CTC Letter at
5; PEAK6 Letter at 4; Nasdaq Letter at 2. Commenters also stated
that options trading firms' equities volume often is processed
through a FINRA member, and stated that a hedging exemption would be
particularly appropriate if the routing away from a member exchange
is through a broker-dealer that is a FINRA member. See Cboe Letter
at 2-3; ABCV Letter at 2-4; CTC Letter at 5; PEAK6 Letter at 4. As
discussed supra in this section, the Commission does not agree. See
supra notes 98-101 and accompanying text.
    \166\ See STA Letter at 3-4; Cboe Letter at 2-3, 7; ABCV Letter
at 2-4; CTC Letter at 5; PEAK6 Letter at 4-6.
    \167\ See FINRA Letter at 12 n. 40 (also stating that FINRA does
not anticipate that new member proprietary trading dealer firms
would incur the one-time clearing surcharge that applies to new
applicants engaged in clearing and carrying activity).
    \168\ See id. at 14. See also note 170 and accompanying text,
infra.
---------------------------------------------------------------------------

    The Commission believes that a hedging exemption for broker-dealers
that are proprietary options trading firms, like that sought by
commenters, could continue to result in a significant volume of off-
member-exchange trading activity not being subject to direct,
membership-based FINRA oversight. Proprietary options trading firms
make up the majority of the 12 firms that the Commission identified
above as accounting for 5.1% of all off-exchange listed equities volume
in April 2023 and the majority of the 21 firms that the Commission
identified as accounting for approximately 99% of the $262 billion in
listed equities transaction volume executed on exchanges where they are
not a member.\169\ As a result, significant off-member-exchange trading
activity could continue not to be subject to direct FINRA oversight
under commenters' suggested exemption. The Commission continues to
believe that this would not be consistent with the protection of
investors or the public interest, or with the historical rationale for
Rule 15b9-1 of accommodating limited off-member-exchange trading
activities.\170\
---------------------------------------------------------------------------

    \169\ See section II.B, supra.
    \170\ See 2022 Re-Proposal, supra note 1, sections III.B.2 and
III.C, 87 FR 49947-50. Section 15(b)(9) of the Act provides the
Commission with the authority, by rule or order, and as it deems
consistent with the public interest and the protection of investors,
to conditionally or unconditionally exempt from the requirements of
section 15(b)(8) any broker or dealer or class of brokers or
dealers. Accordingly, if a broker or dealer or class of brokers or
dealers believes that it should be exempted from the requirements of
section 15(b)(8) in a manner that is not provided by amended Rule
15b9-1, it may seek an exemption from the Commission, by order,
pursuant to section 15(b)(9). For example, the Commission may
consider granting such an exemption, where appropriate, if a dealer
or class of dealers chooses to limit its exchange trading activity
to the physical floor of an exchange of which it is a member, but
must effect limited securities transactions elsewhere for its own
account in order to facilitate its exchange-floor business.

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

    The effect of not including a hedging exemption in Rule 15b9-1 will
be that proprietary options trading broker-dealer firms (among other
types of proprietary trading broker-dealer firms) will no longer be
exempt from section 15(b)(8)'s Association membership requirement if
they effect off-member-exchange securities transactions (unless they
are covered by one of the exemptions in the amended rule). Therefore,
these firms will be required by section 15(b)(8) of the Act to join
FINRA in order to continue any off-member-exchange securities trading
activity. The Commission is mindful of the FINRA membership costs,
including application and TAF fees, that would be incurred by
proprietary trading broker-dealer firms, including options trading
firms, that join FINRA as a result of the rescission of the de minimis
allowance and proprietary trading exclusion, and the Commission is
mindful of the potential impact of those costs on options market
liquidity.
    The Commission believes it is unlikely, however, that such firms
would be unable to continue operating their trading businesses or
providing liquidity in their normal course due to the costs of FINRA
membership. Insofar as the costs of joining FINRA are concerned, the
Commission believes that a $12,500 FINRA membership application fee
would be manageable for proprietary trading options firms that newly
join FINRA, and is small enough such that it should not materially
impact their ability to provide liquidity.\171\ As for concerns
regarding the TAF, an ongoing FINRA cost, FINRA, after considering the
potential impact of the TAF on proprietary trading firms that join
FINRA, has amended its rules to provide an exemption from the TAF for
all proprietary trading firms for transactions executed on an exchange
of which the proprietary trading firm is a member.
---------------------------------------------------------------------------

    \171\ See infra section V.C.2 (stating that the Commission
believes that the median application fee for the 12 largest (by
volume traded) non-FINRA member broker-dealer firms would be
$12,500).
---------------------------------------------------------------------------

    In addition, commenters stated that small options trading firms
could be adversely affected by the rule amendments to the point of
providing less liquidity or ceasing to trade.\172\ While commenters did
not indicate how they are defining ``small'' options firms, the
Commission believes that smaller firms should be able to absorb the
ongoing costs of FINRA membership, such as the GIA and TAF.\173\ As
discussed in the Economic Analysis below,\174\ the estimated aggregate
costs for the 12 largest non-FINRA member broker-dealer firms as of
April 2023 represent the majority of the aggregate costs stemming from
the amendments to Rule 15b9-1. Therefore, the Commission believes that
smaller non-FINRA member broker-dealer firms as well as new entrants
will experience much lower initial and ongoing costs and that these
FINRA membership costs would not materially impede their ability to
continue their trading businesses, which may include providing
liquidity in the options market, if they join FINRA.\175\
---------------------------------------------------------------------------

    \172\ See STA Letter at 3-4; ABCV Letter at 2-3; Cboe Letter at
7; Nasdaq Letter at 3-4.
    \173\ See infra section V.C.2 (stating that the 12 largest non-
FINRA member broker-dealer firms (as measured by off-exchange
equities volume traded in April 2023) had average and median annual
total revenues of approximately $1.2 billion and $491 million,
respectively, in 2022; would incur an estimated median GIA of
$327,870; and would incur an estimated median and average TAF of
approximately $119,256 and $304,994, respectively).
    \174\ See infra section V.C.2.
    \175\ The Commission believes that the potential FINRA
membership costs that could be incurred by firms not among the 12
largest non-FINRA member broker-dealers is the best data point
available to the Commission to assess commenters' assertion. As
discussed in section V.B.2, infra, the Commission cannot, however,
rule out the possibility that the addition of FINRA costs will serve
as a catalyst for one or more small non-FINRA member options market
makers to exit the market, although FINRA's exemption of TAF fees
should reduce the likelihood that firms will choose to exit in
response to the adopted rule amendments. In addition, as discussed
in section VII, infra, the Commission estimates that not more than
three of the 64 non-FINRA member broker-dealer firms that the
Commission identified as of April 2023 have total capital of less
than $500,000 and are not affiliates of any person (other than a
natural person) that is not a small business or small organization
and would, as a result, be considered small entities under
Regulatory Flexibility Act (``RFA'') standards. These three small
firms--by RFA standards--could be significantly impacted by the
adopted rule amendments because they could be required to become a
member of FINRA under section 15(b)(8) of the Act, if they effect
off-member-exchange securities transactions and do not qualify for
one of the adopted exemptions. These three firms are not among the
12 largest non-FINRA member broker-dealer firms identified by the
Commission, and so, as discussed in the paragraph above and in
section V.C.2 infra, their initial and ongoing FINRA membership
costs, should they join FINRA, likely would be low. This suggests
that, while they could be significantly impacted by the adopted rule
amendments in that they may no longer be exempt from FINRA
membership, their trading businesses nevertheless might not be
materially impeded by the costs of FINRA membership.
---------------------------------------------------------------------------

    Further, since the 2015 Proposal, as commenters observed, there has
been a decrease in the number of Commission-registered broker-dealers
that are exchange members but not FINRA members.\176\ There also has
been significant consolidation among broker-dealers generally over the
past decade.\177\ Meanwhile, despite this decline in the number of
firms, options market liquidity has remained robust, as reflected by
data suggesting that options quoted spreads have remained flat or
slightly declined in recent years as overall option trading volumes
have continued to hit record highs.\178\ Therefore, as discussed in the
Economic Analysis below,\179\ the Commission does not believe that the
adopted rule amendments will undermine options market liquidity
provision. In addition, as discussed in the Economic Analysis
below,\180\ the Commission believes that amended Rule 15b9-1 is not
likely to have an economically meaningful effect on direct capital
formation, and that changes in the allocation of regulatory fees and
direct FINRA supervision within the off-member-exchange market may
result in improved efficiency of capital allocation by the financial
industry, as current FINRA members might commit additional capital to
liquidity provision when the trading environment has more uniform
regulatory requirements.
---------------------------------------------------------------------------

    \176\ See STA Letter at 3-4; ABCV Letter at 2-3. See also infra
section V.B.2. The decrease is largely the result of such firms
ceasing their broker-dealer operations and withdrawing their
registration as broker-dealers with the Commission.
    \177\ See FINRA.org, 2022 Industry Snapshot, at 13, available at
https://www.finra.org/sites/default/files/2022-03/2022-industry-snapshot.pdf (last visited Aug. 8, 2023) (reflecting the following
number of FINRA-registered firms in 2017-2021: 3,726 in 2017; 3,607
in 2018; 3,517 in 2019; 3,435 in 2020; and 3,394 in 2021); compare
2015 Proposal, supra note 1, 80 FR 18042, with section II.B supra
(reflecting a decrease in the Commission's estimate of the number of
broker-dealers registered with the Commission that are exchange
members but not FINRA members from 125 in the 2015 Proposal to 64 as
of Apr. 2023). This trend began well before the amendments being
adopted in this release, and may or may not continue regardless of
the adopted rule amendments. In other words, if options trading
firms ceased operating in the future, the Commission does not
believe the cause necessarily would be the amendments to Rule 15b9-1
as other factors have caused this trend before these amendments and
likely would continue to be relevant.
    \178\ See section V.B, infra (among other things, citing an
academic study showing that options bid-ask spreads have remained
flat since 2015, and citing NYSE Data Insights 2021 Options Year in
Review, available at https://www.nyse.com/data-insights/2021-options-year-in-review, which reflects that options quoted spreads
have remained flat or slightly declined in recent years as overall
option trading volumes have continued to hit record highs).
    \179\ See id.
    \180\ See 2022 Re-Proposal, supra note 1, 87 FR 49960; section
V.B.1, infra.
---------------------------------------------------------------------------

    Finally, commenters stated that the Commission already possesses
and can exercise authority over Commission-registered broker-dealers
that are not FINRA members.\181\ While this is

true,\182\ as discussed above and in the 2022 Re-Proposal,\183\ the
Exchange Act requires dual SRO and Commission oversight of registered
broker-dealers, with SROs acting as robust, front-line regulators of
their broker-dealer members. While the Commission retains examination
authority over the SROs and can bring enforcement actions, including
pursuant to SRO referrals, that Commission layer of regulatory
oversight is meant to work in tandem with, not in place of, a robust
front-line layer of SRO oversight. The Commission continues to believe
that the front-line layer of SRO oversight must be strengthened with
respect to proprietary trading broker-dealer firms that effect off-
member-exchange securities transactions notwithstanding the
Commission's plenary jurisdiction over Commission-registered broker-
dealers. Section 15(b)(8)'s complementary SRO oversight structure
generally has enabled exchange SROs to specialize in oversight of
securities trading activity that occurs on the exchange, and FINRA to
specialize in oversight of off-member-exchange securities trading
activity. The Commission continues to believe that rescinding Rule
15b9-1's de minimis allowance and proprietary trading exclusion would
better enable robust and consistent FINRA oversight in the area of its
expertise through direct, membership-based jurisdiction of broker-
dealers that effect off-member-exchange securities transactions
proprietarily. This, in turn, could strengthen the front-line layer of
SRO regulatory oversight that is applied to off-member-exchange
proprietary securities trading in today's market.\184\
---------------------------------------------------------------------------

    \181\ See, e.g., Virtu Letter at 2.
    \182\ See section I, supra; 2022 Re-Proposal, supra note 1, 87
FR 49931-32 (stating that the Commission may bring enforcement
actions, including pursuant to referrals made by SROs, to enforce
compliance with the Exchange Act and applicable rules).
    \183\ See section I, supra; 2022 Re-Proposal, supra note 1, 87
FR 49932.
    \184\ One commenter stated that, ``by adopting a Commission rule
requiring certain broker-dealers to register with FINRA, FINRA will
become, at least as to those broker-dealers, a `part of the
Government' under the standard set forth by the U.S. Supreme Court
in Free Enterprise Fund v. Public Company Accounting Board, 561 U.S.
477 (2010).'' Letter from W. Hardy Callcott (Sept. 3, 2022). FINRA
disputed this. See FINRA Letter at 15-20. The Commission disagrees
that the amendments to Rule 15b9-1 would make FINRA ``part of the
Government'' under Free Enterprise. In that case, the Supreme Court
reasoned that, ``[u]nlike the self-regulatory organizations,'' the
Public Company Accounting Oversight Board was ``a Government-
created, Government appointed entity.'' 561 U.S. at 485. These
distinctions between FINRA and the PCAOB remain unchanged by the
amendments to Rule 15b9-1. See also, e.g., Desiderio v. Nat'l Ass'n
of Sec. Dealers, Inc., 191 F.3d 198, 206 (2d Cir. 1999) (NASD ``is a
private actor, not a state actor,'' because it is a ``private
corporation that receives no federal or state funding,'' ``[i]ts
creation was not mandated by statute, nor does the government
appoint its members or serve on any NASD board or committee.'').
---------------------------------------------------------------------------

    On March 28, 2022, the Commission proposed new rules to further
define certain language as used in the definition of ``dealer'' and
``government securities dealer'' under sections 3(a)(5) and 3(a)(44) of
the Exchange Act, respectively.\185\ Some commenters stated that the
amendments to Rule 15b9-1 may affect proprietary trading firms that are
not Commission-registered dealers, but could be required to register as
such if the definition of ``dealer'' is amended.\186\ To the extent the
Commission amends the definition of ``dealer'' in the future, the
adopted amendments to Rule 15b9-1 would become part of the baseline
from which the effects of any such new rule on the definition of
``dealer'' are measured.
---------------------------------------------------------------------------

    \185\ See Securities Exchange Act Release No. 94524 (Mar. 28,
2022), 87 FR 23054 (Apr. 18, 2022).
    \186\ See, e.g., MMI Letter at 3; STA Letter at 2; Virtu Letter
at 4.
---------------------------------------------------------------------------

B. Narrowed Criteria for Exemption From Association Membership

    The Commission proposed to add to Rule 15b9-1 a new paragraph (c)
that would set forth two narrow circumstances in which a broker or
dealer would continue to be exempt from section 15(b)(8)'s Association
membership requirement if it effects transactions in securities
otherwise than on an exchange of which it is a member.\187\
Specifically, following the existing paragraphs of Rule 15b9-1 that
require that a broker or dealer be a member of a national securities
exchange and carry no customer accounts (both of which paragraphs would
be retained), the Commission proposed to add language that states:
``and, (c) Effects transactions in securities solely on a national
securities exchange of which it is a member, except that with respect
to this paragraph (c) . . .'' \188\ The two proposed exemptions
followed in new paragraphs (c)(1) and (2).
---------------------------------------------------------------------------

    \187\ See 2022 Re-Proposal, supra note 1, 87 FR 49944-49.
Relatedly, the Commission proposed that existing paragraph (a) of
Rule 15b9-1 would remain the same except it would no longer be
numbered as paragraph (a); existing paragraph (a)(1) would be
renumbered as paragraph (a); and existing paragraph (a)(2) would be
renumbered as paragraph (b). See 2022 Re-Proposal, supra note 1, 87
FR 49945 n. 156.
    \188\ See 2022 Re-Proposal, supra note 1, 87 FR 49945.
---------------------------------------------------------------------------

    As discussed in turn below, the Commission is adopting as proposed
new paragraphs (c)(1) and (2) (as well as the above-quoted
language).\189\ Paragraphs (c)(1) and (2) of the amended rule are
intended to provide more focused exemptions from Association membership
for types of off-member-exchange activity that are similar to the off-
member-exchange activities that Rule 15b9-1 was originally intended to
cover, and that are consistent with the protection of investors and the
public interest in accordance with section 15(b)(9) of the Act.
---------------------------------------------------------------------------

    \189\ See amended Rule 15b9-1(c), under ``Text of Amendments,''
infra. The Commission also is adopting the proposed renumbering of
paragraphs (a) and (b) in the amended rule. See supra note 187.
---------------------------------------------------------------------------

1. Routing Exemption
    The Commission proposed to add a new paragraph (c)(1) to Rule 15b9-
1 that sets forth an exemption from Association membership if a broker
or dealer that meets the criteria of paragraphs (a) and (b) of the rule
effects transactions in securities otherwise than on a national
securities exchange of which it is a member that result solely from
orders that are routed by a national securities exchange of which it is
a member to comply with Rule 611 of Regulation NMS \190\ or the Options
Order Protection and Locked/Crossed Market Plan.\191\ Relatedly, the
Commission also proposed to eliminate from Rule 15b9-1 outdated
references to the ``Intermarket Trading System,'' \192\ which is a now-
obsolete NMS plan that was discontinued in 2007 because it was
superseded by Regulation NMS.\193\ The Commission is adopting these
aspects of the 2022 Re-Proposal by adding new paragraph (c)(1), as re-
proposed, to Rule 15b9-1, and by removing from Rule 15b9-1 the ITS
provisions in pre-existing paragraphs (b)(2) and (c).
---------------------------------------------------------------------------

    \190\ 17 CFR 242.611.
    \191\ See 2022 Re-Proposal, supra note 1, 87 FR 49945. See also
Options Linkage Plan, supra note 22.
    \192\ The ITS was an NMS plan, the full title of which was
``Plan for the Purpose of Creating and Operating an Intermarket
Communications Linkage Pursuant to Section 11A(c)(3)(B) of the
Exchange Act of 1934'' (``ITS Plan''). The ITS Plan was
provisionally approved by the Commission in 1978 and finally
approved by the Commission in 1983. See Securities Exchange Act
Release Nos. 14661 (Apr. 14, 1978), 43 FR 17419 (Apr. 24, 1978)
(``Initial ITS Plan Approval Order''); 19456 (Jan. 27, 1983), 48 FR
4938 (Feb. 3, 1983) (``Final ITS Plan Approval Order''). All
national securities exchanges that traded exchange-listed stocks and
the National Association of Securities Dealers (``NASD'') were
participants in the ITS Plan.
    \193\ See 2022 Re-Proposal, supra note 1, 87 FR 49945; see also
Notice of Filing and Immediate Effectiveness of the Twenty Fourth
Amendment to the ITS Plan Relating to the Elimination of the ITS
Plan, Securities Exchange Act Release No. 55397 (Mar. 5, 2007), 72
FR 11066 (Mar. 12, 2007).
---------------------------------------------------------------------------

    As discussed in the 2022 Re-Proposal, Rule 611 of Regulation NMS
requires trading centers, such as national securities exchanges, to
establish, maintain, and enforce written policies

and procedures reasonably designed to prevent trade-throughs in
exchange-listed stocks, subject to certain exceptions.\194\ In general,
Rule 611 protects automated quotations that are the best bid or offer
of a national securities exchange or an Association.\195\ To facilitate
compliance with Rule 611, national securities exchanges have developed
the capability to route orders through brokers or dealers (many of
which are affiliated with the exchanges) to other trading centers with
protected quotations.\196\ Similarly, in the options market, the
Options Linkage Plan is an NMS plan that requires linkages between the
options exchanges to protect the best-priced displayed quotes in the
market and to avoid locked and crossed markets.\197\ The Options
Linkage Plan includes written policies and procedures that provide for
order protection and address locked and crossed markets in eligible
options classes.\198\
---------------------------------------------------------------------------

    \194\ 17 CFR 242.611. See also 17 CFR 242.600(b)(94) (defining a
``trade-through'' under Regulation NMS); 17 CFR 240.600(b)(95)
(defining ``trading center''); Options Linkage Plan, supra note 4
(defining ``trade-through'' in the options context).
    \195\ 17 CFR 242.611.
    \196\ See 17 CFR 242.600(b)(71) (defining ``protected
quotation'' under Regulation NMS); 17 CFR 242.600(b)(70) (defining
``protected bid'' and ``protected offer'' under Regulation NMS); see
also Options Linkage Plan, supra note 4 (defining ``protected bid''
and protected offer'' in the options context).
    \197\ See Options Linkage Plan, supra note 4. A locked or
crossed market occurs when a trading center displays an order to buy
at a price equal to or higher than an order to sell, or an order to
sell at a price equal to or lower than an order to buy, that is
displayed on another trading center.
    \198\ Id.
---------------------------------------------------------------------------

    The Commission proposed the routing exemption in paragraph (c)(1)
to accommodate securities transactions away from a broker's or dealer's
member exchange(s) that are to comply with these regulatory
requirements.\199\ In essence, a broker or dealer may, as a necessary
part of its business trading on exchanges of which it is a member and
in light of today's market structure, effect securities transactions
elsewhere than an exchange where it is a member solely as a consequence
of routing by its member exchange(s) to comply with the requirements of
Rule 611 of Regulation NMS or the Options Linkage Plan.\200\ The
Commission continues to believe that it would be consistent with
section 15(b)(9)'s goal of protecting investors and the public interest
if transactions effected solely to comply with these regulatory
requirements, via routing by the broker's or dealer's member
exchange(s), do not trigger section 15(b)(8)'s Association membership
requirement for a broker or dealer that otherwise limits its securities
transactions to an exchange of which it is a member (or to stock
transactions that are covered by the stock-option order exemption
discussed below). The routing exemption is intended to serve the
limited, narrowly defined purpose of facilitating compliance with
intermarket order protection requirements.
---------------------------------------------------------------------------

    \199\ See 2022 Re-Proposal, supra note 1, 87 FR 49945.
    \200\ Amended Rule 15b9-1 provides an exemption from section
15(b)(8) of the Act's Association membership requirement for routing
broker-dealers that meet the conditions for the exemption, but it
does not provide routing broker-dealers with an exemption from the
rules of an exchange that are applicable to routing broker-dealers
that operate as facilities of that exchange (and that the exchange
uses to conduct routing to other trading centers). As discussed in
the 2022 Re-Proposal, a routing broker-dealer continues to be
required to comply with the applicable rules of any exchange for
which it performs outbound routing services, including those
requiring the routing broker-dealer to be overseen by an
unaffiliated SRO such as FINRA. See, e.g., Cboe BZX Exchange, Inc.
Rule 2.11 (Cboe Trading, Inc. as Outbound Router); NYSE Rule 17(c)
(Operation of Routing Broker); Nasdaq Options 5, section 4 (Order
Routing).
---------------------------------------------------------------------------

    The Commission also stated in the 2022 Re-Proposal that it would be
consistent with the protection of investors and the public interest to
permit reliance on the routing exemption only where the routing is
performed by a national securities exchange of which the broker or
dealer is a member.\201\ The Commission stated that this limitation
would help ensure that the broker's or dealer's member exchange has
visibility into the routing transactions and thus is better able to
provide effective SRO oversight of its member's trading activity that
is related to its trading on the exchange and may not be overseen by
another SRO if the member is exempt from Association membership under
amended Rule 15b9-1.\202\
---------------------------------------------------------------------------

    \201\ As stated in the 2022 Re-Proposal, the routing exemption
is applicable where the broker's or dealer's member exchange
utilizes the services of a designated broker-dealer (which could be
affiliated or unaffiliated with the exchange) to perform the
exchange's outbound routing. See 2022 Re-Proposal, supra note 1, 87
FR 49946. An exchange's routing fees must be consistent with the
Act, including sections 6(b)(4) and 6(b)(5), which require an
equitable allocation of reasonable dues, fees and other charges
among members and issuers and other persons using any facility of
the exchange, and require that the exchange's fees not be designed
to permit unfair discrimination between customers, issuers, brokers,
or dealers.
    \202\ See 2022 Re-Proposal, supra note 1, 87 FR 49946.
---------------------------------------------------------------------------

    Some commenters stated that the routing exemption should be
broadened for proprietary options trading broker-dealer firms so that
it covers routing that is not performed by member-exchange
routers.\203\ The Commission stated in the 2022 Re-Proposal that this
would not be consistent with the protection of investors and the public
interest because it could permit scenarios in which there is
insufficient SRO oversight of the broker-dealer's off-member-exchange
securities trading activity.\204\ Commenters suggested that the
Commission's concerns in this regard are mitigated in the context of
options trading firms because they typically route to non-member
exchanges via another broker-dealer,\205\ and are especially mitigated
where that routing broker-dealer is a FINRA member.\206\
---------------------------------------------------------------------------

    \203\ See Cboe Letter at 3; ABCV Letter at 4. It appeared to the
Commission that commenters intertwined this point with a different
point, and for the sake of completeness, the Commission has
addressed both. Specifically, in this section, the Commission
interprets and addresses these comments as a request that the
routing exemption cover off-member-exchange securities transactions
to comply with intermarket order protection requirements that are
effected via routers other than a member exchange router. These and
other commenters also requested an exemption for proprietary options
trading broker-dealer firms under which their off-member-exchange
securities trading activity would not trigger section 15(b)(8)'s
Association membership requirement if such activity is to hedge or
in furtherance of their options trading activity on their member
exchange(s). See supra note 165 and accompanying text. This request
is addressed in section III.A, supra.
    \204\ See 2022 Re-Proposal, supra note 1, 87 FR 49946.
    \205\ See Cboe Letter at 3.
    \206\ See ABCV Letter at 4. Likewise, commenters suggested that
it would be particularly appropriate to continue to exempt options
trading firms from section 15(b)(8)'s Association membership
requirement where their routing away from a member exchange is
through a broker-dealer that is a FINRA member. See Cboe Letter at
2-3; ABCV Letter at 3-4; CTC Letter at 5; PEAK6 Letter at 4. As
discussed supra in section III.A, the Commission does not agree. See
supra notes 98-101 and accompanying text.
---------------------------------------------------------------------------

    The Commission does not agree. As stated previously, consistent
with the original design of Rule 15b9-1, the narrowed exemptions from
section 15(b)(8)'s Association membership requirement set forth in
amended Rule 15b9-1 are designed to apply to limited off-member-
exchange securities trading activity that is ancillary to the
registered broker's or dealer's trading activity on a national
securities exchange of which it is a member. As stated above, Rule
15b9-1 previously exempted securities transactions effected through the
ITS. The ITS Plan required each participant--exchanges and the NASD--to
provide electronic access to its displayed best bid and offer, and
provided an electronic mechanism for routing orders, called
``commitments to trade,'' to access those displayed

prices.\207\ The ITS Plan provided each participant market limited
access to the other participant markets for the purpose of avoiding a
trade-through or a locked or crossed market.\208\ Specifically, the ITS
enabled a broker or dealer that was physically present in (and a member
of) one market center to transmit its own or its customer's commitment
to trade in an ITS-traded stock to another market center, which could
then be accepted by a broker or dealer at the receiving market
center.\209\ When a broker or dealer initiated a commitment to trade
from an exchange where it was a member, it did so to prevent orders on
its member exchange from trading through or locking or crossing
quotations displayed on away market centers, and the member exchange
was inextricably involved in the routing activity covered by the
exemption.
---------------------------------------------------------------------------

    \207\ See Initial ITS Plan Approval Order, supra note 192.
    \208\ Id.
    \209\ Id.
---------------------------------------------------------------------------

    In contrast, if the routing exemption were expanded, as suggested
by commenters, to cover routing for intermarket order protection
purposes performed by a non-exchange-designated router on behalf of a
broker-dealer trading firm, the exemption could cover trading activity
that is not ancillary to the firm's trading activity on any exchange
where it is a member. Under the commenters' approach, the trading firm
could remain exempt from Association membership while utilizing a non-
exchange-designated routing broker-dealer to effect securities
transactions solely on off-member-exchange venues without any nexus to
an exchange where the trading firm is a member. The Commission remains
concerned that, in this type of scenario, there would not be an
exchange where the trading firm is a member that has visibility into
the routing transactions and that is able to provide effective SRO
oversight of the trading firm's order routing activity. Among other
things, no exchange where the trading firm is a member would be
positioned to assess whether the routing transactions complied with the
terms of the exemption. This would be the case even if the routing is
performed by a routing broker-dealer that also is a FINRA member.\210\
This would be inconsistent with the Commission's intention to continue
to permit exemptions from section 15(b)(8)'s Association membership
requirement that are narrowly tailored to limited off-member-exchange
securities trading activity that is ancillary to the registered
broker's or dealer's trading activity on a national securities exchange
of which it is a member and, in the Commission's view, would be
inconsistent with the protection of investors and the public interest.
---------------------------------------------------------------------------

    \210\ While there could be direct exchange SRO or FINRA
oversight over the routing broker-dealer in this scenario, the
Commission does not believe this is adequate, as discussed above,
due to the lack of direct FINRA oversight over the broker-dealer
initiating the order. See supra notes 98-101 and accompanying text
(discussing that separate exchange SRO recourse against different
broker-dealers for the same conduct can present the potential for
inconsistent outcomes).
---------------------------------------------------------------------------

    To be clear, nothing in amended Rule 15b9-1 prohibits broker-dealer
firms from effecting securities transactions away from their member
exchange(s) by utilizing routing services provided by non-exchange-
designated broker-dealers, so long as they comply with section 15(b)(8)
of the Act. Any broker-dealer firm may continue to route orders away
from its member exchange(s) for order protection or any other
appropriate purposes using non-exchange-designated routing broker-
dealers. But a broker-dealer firm cannot do so without joining FINRA,
as such trading activity is not exempt from, and therefore would
trigger, section 15(b)(8) (assuming the trading activity is not
otherwise covered by the stock option order exemption discussed below),
which would require Association membership for the firm.\211\
---------------------------------------------------------------------------

    \211\ Alternatively, a firm wishing to route orders to exchanges
using a non-exchange-designated routing broker-dealer could comply
with section 15(b)(8) by becoming a member of all exchanges to which
it routes orders. But any such firm would still be required to join
FINRA to the extent it effects off-exchange securities transactions
(unless exempted by the stock-option order exemption). See section
V.D, infra.
---------------------------------------------------------------------------

2. Stock-Option Order Exemption
    The Commission proposed to add a new paragraph (c)(2) to Rule 15b9-
1 that sets forth an exemption from Association membership if a broker
or dealer that meets the criteria of paragraphs (a) and (b) of the rule
effects off-member-exchange securities transactions, with or through
another registered broker or dealer, that are solely for the purpose of
executing the stock leg of a stock-option order.\212\ The Commission
also proposed to require in new paragraph (c)(2) that a broker or
dealer seeking to rely on the exemption establish, maintain, and
enforce written policies and procedures reasonably designed to ensure
and demonstrate that such transactions are solely for the purpose of
executing the stock leg of a stock-option order, and that the broker or
dealer preserve a copy of its policies and procedures in a manner
consistent with 17 CFR 240.17a-4 (``Rule 17a-4'') until three years
after the date the policies and procedures are replaced with updated
policies and procedures.\213\ One commenter referenced the stock-option
order exemption.\214\ The Commission is adopting paragraph (c)(2) as
proposed.
---------------------------------------------------------------------------

    \212\ See 2022 Re-Proposal, supra note 1, 87 FR 49947.
    \213\ See id.
    \214\ See Cboe Letter at 3 (stating that the existence of a
stock-option exemption in the 2022 Re-Proposal is an acknowledgment
that activity critical to the functioning of the options market
should not be adversely impacted).
---------------------------------------------------------------------------

    As the Commission stated in the 2022 Re-Proposal, the Commission
understands that there are firms that trade stock-option orders whose
business is focused on one or more options exchanges of which they are
a member, and whose trading elsewhere is primarily to effect the
execution of stock orders to facilitate their stock-option order
business. These firms' stock trading activity is for a limited purpose
and ancillary to their primary business handling stock-option orders on
an options exchange of which they are member. Moreover, there is a
close link between the stock component transaction of a stock-option
order and the relevant options exchange. As such, the stock-option
order exemption permits these types of firms to continue their stock-
option order trading business without being required to join stock
exchanges or an Association solely in order to effect the execution of
the stock legs of stock-option orders that they handle.
    As stated above, the Commission estimates that, in 2022, 48 of the
73 firms identified as registered broker-dealers and exchange members
but not FINRA members initiated options order executions.\215\ The
Commission estimates that 17 of the firms that initiated options order
executions also effected the execution of stock leg transactions, and
therefore could potentially rely on the proposed stock-option order
exemption to the extent that they effect the stock leg executions off-
exchange or on an exchange where they are not a member.\216\ Because
the

broker or dealer relying on Rule 15b9-1(c)(2) would not itself be a
member of an exchange on which such stock transactions are executed, or
a member of an Association, such stock leg transactions must be
effected with or through another registered broker or dealer that is a
member of the exchange where the transactions are executed or a member
of an Association (or both).
---------------------------------------------------------------------------

    \215\ See supra note 44.
    \216\ Source: CAT. The Commission previously estimated that, in
2021, seven such firms effected stock leg transactions and could
potentially rely on the stock-option order exemption to the extent
that they effect the stock leg transactions off-exchange or on an
exchange where they are not a member. See 2022 Re-Proposal, supra
note 1, 87 FR 49947. The Commission attributes the increase from
2021 to 2022 of its estimated number of broker-dealers that are not
FINRA members and that executed stock leg transactions mainly to an
increase in the percentage of stock leg transactions that are
captured in the CAT in a manner that enables the Commission to
identify the firms that initiated the transactions.
---------------------------------------------------------------------------

    Options exchanges define the term ``stock-option order'' in their
rules.\217\ Further, the Commission stated in the 2022 Re-Proposal that
its understanding is that all options exchanges accept a stock-option
order only if it complies with the Qualified Contingent Trade (``QCT'')
Exemption (``QCT Exemption'') from Rule 611(a) of Regulation NMS.\218\
For purposes of relying on the exemption provided by Rule 15b9-1(c)(2),
a broker or dealer should adhere to the stock-option order definition
of the options exchange where the stock-option order is handled and of
which the broker or dealer is a member.\219\ Specifically, the broker
or dealer could rely on that definition to determine whether, for
purposes of amended Rule 15b9-1(c)(2), an order is in fact a stock-
option order and a stock order is in fact the stock leg of a stock-
option order. Moreover, the exemption applies regardless of whether the
component legs of a stock-option order are executed electronically, on
a physical exchange floor, or through a combination of both.
---------------------------------------------------------------------------

    \217\ See, e.g., Cboe Rules 1.1 and 5.33(b)(5); MIAX Rule
518(a)(5); MIAX Emerald Rule 518(a)(5); Nasdaq Options 5, section
1(4) (defining ``Complex Trade''); Nasdaq PHLX Options 5, section
1(d) (defining ``Complex Trade''); Nasdaq ISE Options 5, section
1(d) (defining ``Complex Trade''); Nasdaq BX Chapter 5, section
27(a)(v)(1) of the ``Grandfathered Rules'' of the Boston Stock
Exchange, Inc.; NYSE Arca Rule 6.62-O(h)(1); NYSE American Rule
900.3NY(h)(1).
    \218\ See, e.g., Cboe Rule 5.33, Interpretations and Policies
.04 Stock Option Orders; Supplementary Material .07 to Nasdaq ISE
Options 3, section 14; Commentary .01 to MIAX Rule 518. A qualified
contingent trade is ``a transaction consisting of two or more
component orders, executed as agent or principal where: (1) at least
one component order is in an NMS stock; (2) all components are
effected with a product or price contingency that either has been
agreed to by the respective counterparties or arranged for by a
broker-dealer as principal or agent; (3) the execution of one
component is contingent upon the execution of all other components
at or near the same time; (4) the specific relationship between the
component orders (e.g., the spread between the prices of the
component orders) is determined at the time the contingent order is
placed; (5) the component orders bear a derivative relationship to
one another, represent different classes of shares of the same
issuer, or involve the securities of participants in mergers or with
intentions to merge that have been announced or since cancelled; and
(6) the transaction is fully hedged (without regard to any prior
existing position) as a result of the other components of the
contingent trade.'' Securities Exchange Act Release No. 54389 (Aug.
31, 2006), 71 FR 52829 (Sept. 7, 2006); see also Securities Exchange
Act Release No. 57620 (Apr. 4, 2008), 73 FR 19271 (Apr. 9, 2008).
    \219\ Presumably, an options exchange would accept only those
stock-option orders that meet the exchange's definition thereof. In
addition, the Commission's understanding is that, currently,
consistent with options exchange definitions, a stock-option order
contains only one stock leg. See supra note 217. Therefore, the
stock-option order exemption currently covers stock-option orders
with only one stock leg.
---------------------------------------------------------------------------

    The Commission continues to believe, as discussed in the 2022 Re-
Proposal, that the stock-option order exemption's reliance on the
options exchange's ``stock-option order'' definition should enhance an
exchange's ability to monitor whether its members are appropriately
relying on the exemption and thereby enhance its ability to provide
effective SRO oversight of its members' stock-option order trading
activity. Under options exchange rules, an exchange member submitting a
stock-option order to the exchange must designate to the exchange one
or more specific broker-dealers: (i) that are not affiliated with the
exchange; (ii) with which the exchange member has entered into a
brokerage agreement; (iii) that the exchange has identified as having
connectivity to electronically communicate the stock components of
stock-option orders to stock trading venues; and (iv) to which the
exchange will electronically communicate the stock component of the
stock-option order on behalf of the member.\220\ The option exchange's
execution of the stock-option order is contingent on the exchange's
receipt from the designated broker-dealer of an execution report for
the stock component transaction confirming that the transaction has
occurred.\221\ In light of these rules, the Commission continues to
believe that there is a close link between the stock component
transaction of a stock-option order and the relevant options exchange.
Accordingly, the Commission continues to believe that this exemption
would serve the limited, narrowly defined purpose of facilitating the
execution of stock-option orders consistent with options exchange rules
and that the options exchange would be able to monitor and oversee the
totality of the securities trading activity of any of its members that
rely on the exemption.
---------------------------------------------------------------------------

    \220\ See, e.g., Cboe Rule 5.33(l) and Interpretations and
Policies .04; Nasdaq ISE Options 3, section 7 and Supplementary
Material .01, Options 3, section 14 and Supplementary Material .07;
MIAX Rule 518 and Commentary .01.
    \221\ See, e.g., Cboe Rule 5.33(l); Nasdaq ISE Options 3,
section 7 and Supplementary Material .01, Options 3, section 14 and
Supplementary Material .07; MIAX Rule 518 and Commentary .01.
---------------------------------------------------------------------------

    The Commission also continues to believe that the exchange's
oversight capabilities will be further enhanced, consistent with the
public interest and protection of investors, by requiring brokers and
dealers to develop written policies and procedures in connection with
the stock-option exemption in paragraph (c)(2) of the amended rule.
This requirement should help facilitate exchange SRO supervision of
brokers and dealers relying on the stock-option order exemption because
it would provide an efficient and effective way for the relevant
options exchange to assess compliance with the exemption. Moreover, the
Commission continues to believe that requiring brokers and dealers to
develop written policies and procedures would provide sufficient
flexibility to accommodate potentially varying business models of
brokers and dealers that effect stock-option orders and may seek to
rely on this exemption.
    Such written policies and procedures must be reasonably designed to
ensure and demonstrate that the broker's or dealer's securities
transactions elsewhere than on an exchange of which it is a member are
solely for the purpose of executing the stock leg of a stock-option
order. Accordingly, a broker or dealer seeking to rely upon the stock-
option order exemption must establish, maintain, and enforce written
policies and procedures reasonably designed to ensure and demonstrate
that such transactions are solely for the purpose of executing the
stock leg of a stock-option order. For example, the broker or dealer
could maintain documentation that demonstrates its compliance with the
stock-option order requirements of any options exchange of which it is
a member and where it effects the execution of stock-option orders.
Indeed, in addition to the Commission, the options exchange of which
the broker or dealer is a member and where the stock-option order is
handled would be able to enforce compliance with the stock-option order
exemption. In the context of routine examinations of its members, the
options exchange generally would review the adequacy of its members'
written policies and procedures and assess whether its members' off-
member-exchange transactions comply with those written policies and
procedures as well as the terms of the exemption itself, as set forth
in amended Rule 15b9-1.\222\
---------------------------------------------------------------------------

    \222\ Section 19(g)(1) of the Act, 15 U.S.C. 78s(g), among other
things, requires every SRO to examine for and enforce compliance by
its members and associated persons with the Act, the rules and
regulations thereunder, and the SRO's own rules, unless the SRO is
relieved of this responsibility pursuant to section 17(d), 15 U.S.C.
78q(d), or section 19(g)(2), 15 U.S.C. 78s(g)(2), of the Act.

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

    Finally, a broker or dealer seeking to rely on the stock-option
order exemption is required to preserve a copy of its policies and
procedures in a manner consistent with Rule 17a-4 under the Exchange
Act until three years after the date the policies and procedures are
replaced with updated policies and procedures.\223\ Accordingly, a
broker or dealer is required to keep the policies and procedures
relating to its use of this exemption as part of its books and records
while they are in effect, and for three years after they are updated.
---------------------------------------------------------------------------

    \223\ See, e.g., 17 CFR 240.17a-4(e)(7).
---------------------------------------------------------------------------

IV. Effective Date and Implementation

    The Commission proposed that the compliance date for amended Rule
15b9-1 be one year after publication of any final rule in the Federal
Register.\224\ In proposing this compliance date, the Commission
considered various factors that impact the time that it takes to become
a FINRA member, as well as that firms that choose to adjust their
business models such that they are not required to join FINRA would
need time to do so.\225\ The Commission understood that, on average,
the FINRA membership application process takes approximately six
months.\226\
---------------------------------------------------------------------------

    \224\ See 2022 Re-Proposal, supra note 1, 87 FR 49951.
    \225\ Id.
    \226\ Id.
---------------------------------------------------------------------------

    Some commenters on the 2022 Re-Proposal characterized the FINRA
membership application process as lengthy.\227\ One commenter stated
that it understood FINRA's membership application process to take more
than a year, and suggested a revised compliance period in which firms
must only submit their FINRA registration application within 360 days
of adoption of amended Rule 15b9-1, and allow for 540 days from
adoption for FINRA approval of the application.\228\ FINRA stated that
it typically has 180 days to issue a decision after the filing of a new
membership application, but that, depending on the characteristics of
an application, FINRA may issue a ``fast-track'' decision within 100
days.\229\ FINRA also stated that, based on the types of proprietary
trading dealer firms that would be likely to join FINRA as a result of
the Rule 15b9-1 amendments, it intends to implement an expedited
membership application process for these applicants pursuant to which
it anticipates processing their applications within 60 days after
submission.\230\
---------------------------------------------------------------------------

    \227\ See, e.g., FIA PTG Letter at 4-5; PEAK6 Letter at 2.
    \228\ See FIA PTG Letter at 4-5.
    \229\ See FINRA Letter at 12.
    \230\ See id. at 12-13.
---------------------------------------------------------------------------

    The Commission believes that a compliance date for amended Rule
15b9-1 that is 365 days after publication of amended Rule 15b9-1 in the
Federal Register would provide a sufficient period of time for
proprietary trading broker-dealer firms to comply with the amended
rule. Based on FINRA's statements regarding its ability to issue a
``fast-track'' decision within 100 days and expectation that it would
process proprietary trading dealer firm applications within 60 days
after submission,\231\ for any FINRA membership application submitted
by such a firm in a timely manner, the Commission expects FINRA to be
able to process the application and render a decision within the
compliance period. Additionally, some commenters stated that the FINRA
membership application process requires information that is duplicative
of information already provided to the Commission and other SROs as
part of their prior Commission registration and exchange SRO
application process.\232\ Accordingly, the Commission believes that
when applying to be FINRA members, firms in this situation may be able
to leverage their prior submissions to the Commission and exchange SROs
to be able to have a more expedient application process with FINRA than
they would otherwise if they had not already prepared such information
for submission to the Commission and exchange SROs. More broadly, any
existing broker-dealer firm that applies for FINRA membership as a
result of the amendments to Rule 15b9-1 would have already completed
the application processes for becoming a Commission-registered broker-
dealer and a member of at least one exchange and, the Commission
believes, should be able to leverage those experiences to expedite
their application process with FINRA.
---------------------------------------------------------------------------

    \231\ See supra notes 229-230 and accompanying text.
    \232\ See PEAK6 Letter at 2; FIA PTG Letter at 4.
---------------------------------------------------------------------------

V. Economic Analysis

    The Commission is amending Rule 15b9-1 to help ensure that an
Association generally has direct, membership-based oversight over
broker-dealers that effect off-member-exchange securities transactions
and the jurisdiction to directly enforce their compliance with Federal
securities laws, Commission rules, and Association rules. In addition,
these amendments will provide a more consistent regulatory framework
for broker-dealers,\233\ which in turn should enhance competition and
result in potential efficiency gains for market participants.
---------------------------------------------------------------------------

    \233\ See section III.A, supra.
---------------------------------------------------------------------------

    The Exchange Act's statutory framework places SRO oversight
responsibility with an Association for trading that occurs elsewhere
than on an exchange to which a broker or dealer belongs as a
member.\234\ However, currently pursuant to Rule 15b9-1, a broker or
dealer may engage in unlimited off-member-exchange \235\ proprietary
trading without becoming a member of an Association, so long as its
proprietary trading activity is conducted with or through another
registered broker or dealer. Currently, off-exchange equity activity
and exchange listed options trading of non-FINRA member broker-dealers
is surveilled by FINRA through CAT data and supervised in part via the
use of RSAs.\236\ However, RSAs are voluntary, privately negotiated
agreements that can expire or be terminated, and accordingly, these
agreements do not provide the consistent and stable oversight that
direct Association oversight of such trading activity does.\237\ For
example, of the current FINRA RSA contracts: one RSA contract expires
at the end of 2023, seven RSA contracts expire at the end of 2024, and
three RSA contracts expire at the end of 2025 unless extended or
terminated early.\238\ The amendments will provide consistency and
stability of oversight.\239\
---------------------------------------------------------------------------

    \234\ See section I, supra.
    \235\ ``Off-member-exchange'' trading of securities refers to
trading by a broker-dealer on any national securities exchange of
which it is not a member or in the off-exchange market. See supra
note 2 and accompanying text.
    \236\ See section V.A.2, infra.
    \237\ See sections I and III.A, supra.
    \238\ Based on information provided by FINRA.
    \239\ Current non-FINRA members that choose to join FINRA in
response to the amendments will face direct Association oversight of
their off-member exchange trading instead of oversight that occurs
and is based on an RSA. The Exchange Act's statutory framework
places SRO oversight responsibility with an Association for off-
member-exchange securities trading, and FINRA's role with respect to
non-FINRA member broker-dealers is limited to what is covered in
RSAs it enters into with the exchanges. See supra section III for a
discussion of issues related to RSA-administered oversight of off-
member exchange trading.
---------------------------------------------------------------------------

    In the case of U.S. Treasury securities and other fixed income
securities (other than municipal bonds) \240\ that trade off-exchange,
surveillance relies on TRACE data which is collected by FINRA from

its members.\241\ Some dealer firms that are not FINRA members are
significantly involved in trading U.S. Treasury securities \242\
proprietarily but are not required to report these transactions because
they are not FINRA members. Consequently, trades that do not occur on
an ATS or with a covered depository institution,\243\ and that are
between two non-FINRA member broker-dealers, are not reported to TRACE
at all, and trades that occur otherwise than on a covered ATS do not
specifically identify the non-FINRA member in the information reported
by the ATS to TRACE.\244\ The amendments will provide for all fixed
income trading by broker-dealers to be subject to FINRA's rules,
including its rules requiring reporting to TRACE.
---------------------------------------------------------------------------

    \240\ Municipal bond trades are reported to the MSRB but not
TRACE, so the Commission does not expect the proposed amendments to
affect the data collected on municipal bonds. Off-exchange trading
of both listed and unlisted equities by non-FINRA member broker-
dealers is already reported to CAT.
    \241\ Non-FINRA member depository institutions also report U.S.
Treasury securities trades to TRACE. See supra note 123.
    \242\ The Commission can observe and quantify some of this
activity through the reporting of U.S. Treasury securities on
covered ATSs as discussed in supra section III.A. See supra note 59.
It is likely that non-member broker-dealers also trade fixed-income
securities other than U.S. Treasury securities and these
transactions are also not reported to TRACE. This Economic Analysis
focuses on the effects on equities, options, and U.S. Treasury
securities markets. To the extent that non-FINRA member broker-
dealers do trade in additional asset classes, the Commission
believes that the economic impacts discussed herein would also
apply. In particular, if a non-FINRA member broker-dealer does trade
in an asset class which requires reporting to FINRA, the proposal
would improve transparency for these securities, which would enhance
the regulatory oversight of such activity. See infra section V.C.2.c
for information on the costs of TRACE reporting for non-FINRA member
firms.
    \243\ These trades do not include those with depository
institutions that are mandated for TRACE reporting.
    \244\ See section III.A, supra. The Commission believes this is
a small fraction of U.S. Treasury securities trading. In Apr. 2023,
the Commission estimates that non-FINRA member broker-dealers' U.S.
Treasury securities transactions executed on covered ATSs accounted
for 2.65% of total U.S. Treasury securities transaction volume
reported to TRACE that month. See supra note 57. The unreported
trades involving only non-FINRA member firms that are not executed
on covered ATSs might be similar but could be a lower fraction of
the total U.S. Treasury securities volume.
---------------------------------------------------------------------------

    Section 15(b)(8)'s complementary SRO oversight structure generally
has enabled exchange SROs to specialize in oversight of securities
trading activity that occurs on the exchange, and FINRA to specialize
in oversight of off-member-exchange securities trading activity. The
amendments will rescind the de minimis allowance and proprietary
trading exclusion so that the regulatory scheme more appropriately
effectuates Exchange Act principles regarding complementary exchange
SRO and Association oversight.\245\ For broker-dealers relying on the
exemption that will be required to register with FINRA under the
amendments, joining FINRA will expose these firms to additional costs
that they previously did not incur.\246\ While reliance on the
exemption may be cost-efficient for these firms, it introduces
inefficiencies for exchange SROs, FINRA, and regulatory oversight more
generally. FINRA, the sole Association, has a rulebook, surveillance
infrastructure, and supervisory expertise that is targeted to cross-
exchange and off-exchange trading of both listed and unlisted
securities. When FINRA detects potentially violative behavior by a non-
FINRA member firm,\247\ it can and does refer such cases to other SROs
or the SEC. However, it may lack certain investigative tools which
could help it further investigate potentially violative behavior before
making such referrals. The Commission believes that, particularly in
the case of fixed income trading, FINRA is well positioned to
efficiently investigate such instances of violative behavior because of
its TRACE data collection and expertise in such trading, and such a
role is consistent with the SRO structure mandated by the Exchange Act.
---------------------------------------------------------------------------

    \245\ See section III.A, supra.
    \246\ FINRA member firms that compete with these firms may
currently be at a cost disadvantage due to this fee disparity.
    \247\ The term ``non-FINRA member firm'' refers to a broker-
dealer that is not a FINRA member.
---------------------------------------------------------------------------

    The Commission discusses below a number of economic effects that
are likely to result from the adoption of these amendments.\248\ As
discussed in detail below, the effects are quantified to the extent
practicable. Although the Commission is providing estimates of direct
compliance costs where practicable, the Commission also anticipates
that brokers and dealers affected by the amendments, as well as
competitors of those broker and dealers, might modify their business
practices regarding the provision of liquidity in both off-exchange
markets and on exchanges. Consequently, much of the discussion below is
qualitative in nature, but where possible, the Commission has provided
quantified estimates.\249\ To the extent that non-FINRA member firms
change their business practices, such as reducing or eliminating their
off-member-exchange trading activity or joining FINRA and increasing
their off-member-exchange activity, the amendments may impact
competition and liquidity, particularly in the off-member-exchange
markets. The adoption would increase costs for non-FINRA member firms
that will have to register with FINRA, which might result in decreased
liquidity provision by these non-FINRA member firms to certain markets.
Additionally, the amendments to Rule 15b9-1 might create incentives for
non-FINRA member firms that are impacted by the amendments to form a
new Association. The creation of such a new Association would entail
large startup costs but could spur competition with the existing
Association and might lower general self-regulatory financial burdens.
The amendments may also result in potential benefits to competition,
since current FINRA members will be operating on a more level
regulatory playing field relative to non-FINRA members.
---------------------------------------------------------------------------

    \248\ The Commission is sensitive to the economic effects of its
rule, including the costs and benefits and effects on efficiency,
competition, and capital formation. Section 3(f) of the Exchange Act
requires the Commission, whenever it engages in rulemaking pursuant
to the Exchange Act, to consider or determine whether an action is
necessary or appropriate in the public interest, and to consider, in
addition to the protection of investors, whether the action would
promote efficiency, competition, and capital formation. See 15
U.S.C. 78c(f). In addition, section 23(a)(2) of the Exchange Act
requires the Commission, when making rules under the Exchange Act,
to consider the effect such rules would have on competition. See 15
U.S.C. 78w(a)(2). Exchange Act section 23(a)(2) prohibits the
Commission from adopting any rule that would impose a burden on
competition not necessary or appropriate in furtherance of the
purposes of the Exchange Act.
    \249\ See infra section V.B.1 for further discussion of the
difficulties in estimating market quality effects likely to result
from the amendments.
---------------------------------------------------------------------------

A. Baseline

1. Regulatory Structure and Activity Levels of Non-FINRA Member Firms
    The Exchange Act governs the way in which the U.S. securities
markets and their brokers and dealers operate. Section 3(a)(4)(A) of
the Act generally defines a ``broker'' broadly as ``any person engaged
in the business of effecting transactions in securities for the account
of others.'' \250\ In addition, section 3(a)(5)(A) of the Act generally
defines a ``dealer'' as ``any person engaged in the business of buying
and selling securities . . . for such person's own account through a
broker or otherwise.'' \251\ Generally, any broker-dealer that wants to
interact directly on a securities exchange must register with the
Commission as a broker-dealer before applying to gain direct access to
the exchange,\252\ and broker-dealers generally must become members of
an Association to trade securities elsewhere than on an exchange to
which

a broker or dealer belongs as a member.\253\
---------------------------------------------------------------------------

    \250\ 15 U.S.C. 78c(a)(4)(A).
    \251\ 15 U.S.C. 78c(5)(A).
    \252\ A firm that wishes to transact business upon an exchange
without becoming a broker or dealer generally can do so by engaging
a broker-dealer that is a member of that exchange to provide market
access and settlement services.
    \253\ See supra note 19.
---------------------------------------------------------------------------

    There is diversity in the size and business activities of brokers
and dealers. Carrying brokers and dealers hold customer funds and
securities; some of these are also clearing brokers, which handle the
clearance and settlement aspects of customer trades. In contrast,
introducing brokers provide services to customers, but do not hold
customers funds or execute or clear trades themselves. However, of
3,515 registered brokers and dealers, only 210 were classified as
carrying or clearing brokers and dealers and around 1,200 firms were
classified as introducing brokers at the end of 2022.\254\ Thus, the
majority of brokers and dealers engage in a wide range of other
activities, which may or may not include handling customer accounts.
These other activities include intermediating between customers and
carrying/clearing brokers; dealing in government bonds; private
placement of securities; effecting transactions in mutual funds that
involve transferring funds directly to the issuer; writing options;
acting as a broker solely on an exchange; and providing liquidity to
securities markets, which includes, but is not limited to, the
activities of registered market makers.
---------------------------------------------------------------------------

    \254\ Based on the number of firms that answered yes to items
I8084 or I8085 on Schedule I in December 2022. The number of
introducing broker dealers was estimated from the question ``Does
applicant refer or introduce customers to any other broker or
dealer?'', as reported on Form BD.
---------------------------------------------------------------------------

    Sixty-six percent of brokers and dealers employ 15 or fewer
associated persons and only 10% of brokers and dealers employ over 100
associated persons.\255\ Further, while there are many registered
brokers and dealers, a small minority of brokers and dealers controls
the majority of broker and dealer capital.\256\
---------------------------------------------------------------------------

    \255\ Based on Dec. 2022 Annual FOCUS data filings. See also
supra note 150.
    \256\ See infra section VII.
---------------------------------------------------------------------------

    The Commission has identified 64 firms that, as of April 2023, were
Commission registered broker-dealers and exchange members, but not
members of FINRA, that may be required to either join an Association or
change their trading practices under the amendments.\257\ In September
2022, there were 73 registered broker-dealers that were exchange
members but not FINRA members.\258\ Because of Rule 15b9-1's exclusion
of proprietary trading, a dealer that had not carried customer accounts
might not be required to join an Association as long as it had been a
member of an exchange SRO, even when that dealer had substantial off-
member-exchange trading activity.
---------------------------------------------------------------------------

    \257\ Historically, floor brokers had only incidental trading on
exchanges of which they were not members and limited off-exchange
trading activity. The background and history of Rule 15b9-1 are
discussed in section I.
    \258\ See supra note 37. Some commenters, citing the
Commission's proposal to amend the definition of ``dealer,'' stated
that number of firms affected by the amendments to Rule 15b9-1 could
increase if the definition of ``dealer'' is amended. See, e.g., STA
Letter at 2. The economic analysis appropriately considers existing
regulatory requirements, including recently adopted rules but not
proposed rules, as part of its economic baseline against which the
costs and benefits of the final rule are measured. To the extent the
Commission amends the definition of ``dealer'' in the future, the
adopted amendments to Rule 15b9-1 would become part of the baseline
from which the effects of any such new rule on the definition of
``dealer'' are measured. See supra note 186 and accompanying text.
---------------------------------------------------------------------------

    The Commission is aware that some non-FINRA member firms trade U.S.
Treasury securities. Covered ATSs report the U.S. Treasury securities
trading activity of non-FINRA member firms to TRACE. The Commission
estimates that, in 2022, seven of the 64 non-FINRA member firms had $6
trillion in U.S. Treasury securities volume reported to TRACE by
covered ATSs. This accounts for approximately 3.67% of U.S. Treasury
volume as reported to TRACE throughout the year. In April 2023, there
were five non-FINRA member firms with approximately $302 billion in
U.S. Treasury securities volume executed on covered ATSs or
approximately 2.65% of total U.S. Treasury securities transaction
volume reported to TRACE that month.
    FINRA members are required to report transactions in TRACE-eligible
securities. Market participants can gain real-time access to TRACE
through market vendors, for most TRACE-eligible securities, with a few
exceptions including U.S. Treasury securities.\259\ However, FINRA does
make public aggregate U.S. Treasury securities data on a daily
basis.\260\ Non-FINRA member firms are not required to report their
trading activity to TRACE, but if their transactions involve FINRA
members or covered depository institutions, the FINRA members or
covered depository institutions would report. With respect to trading
activity in U.S. Treasury securities markets on a covered ATS, non-
FINRA member counterparties are identified in TRACE.\261\ With respect
to trading activity in other TRACE-eligible securities, non-FINRA
member counterparties are not identified in TRACE.\262\ Therefore, the
Commission is unable to estimate the level of trading activity of non-
FINRA member firms for other fixed income securities.
---------------------------------------------------------------------------

    \259\ See Stephanie Dumont & Ola Persson, TRACE at 20--
Reflecting on Advances in Transparency in Fixed Income (FINRA.org),
Jun. 28, 2022, available at https://www.finra.org/media-center/blog/trace-at-20-reflecting-advances-transparency-fixed-income (last
visited July 20, 2023). See also FINRA Rule 6750(c).
    \260\ See supra note 122 and accompanying text.
    \261\ See supra note 124 and accompanying text.
    \262\ FINRA stated that it does not have visibility into the
activity of PTFs in non-U.S. Treasury security fixed-income
products. See FINRA Letter at 9.
---------------------------------------------------------------------------

    In September 2022, of the 73 non-FINRA member firms, 53 initiated
equity orders that were not executed on an exchange, accounting for
$440 billion (approximately 5.1%) in off-exchange traded dollar volume
in listed equities.\263\ In April 2023, of the 64 non-FINRA member
firms, 45 initiated equity orders that were not executed on an
exchange, accounting for $405 billion (approximately 5.6%) in off-
exchange traded dollar volume in listed equities.
---------------------------------------------------------------------------

    \263\ See supra section II.B for further discussion of trading
activities of non-FINRA member firms.
---------------------------------------------------------------------------

    There is significant diversity in the business models of non-FINRA
member firms. Some non-FINRA member firms may limit their equity
trading to a single exchange, while others trade on multiple venues
including off-exchange venues such as ATSs. Some firms are significant
contributors to both off-exchange and exchange volume. Because CAT
requires reporting of all NMS stock trades, including off-exchange
trades, FINRA and the Commission are able to quantify the aggregate
off-exchange activity of non-FINRA member firms in NMS stocks.
    Off-exchange equity trading occurs across many trading venues. In
the fourth quarter of 2022, 32 ATSs actively traded NMS stocks,
comprising 10.5% of NMS stock share volume. Furthermore, 214 named
\264\ broker-dealers transacted a further 32.4% of NMS stock share
volume off-exchange without the involvement of an ATS. Although many
market participants provide liquidity within this market, non-FINRA
member firms are particularly active within ATSs.\265\
---------------------------------------------------------------------------

    \264\ ATSs report counterparties that are not FINRA members,
allowing such activity to be identified in CAT data.
    \265\ See Table 1 for information on trading activities on ATSs.
---------------------------------------------------------------------------

    While some non-FINRA member firms trade actively cross-exchange
and/or off-exchange, some of these firms also supply and demand
liquidity actively on multiple equity and options exchanges. Table 1
below shows the executed dollar volume in listed equities by trading
venue type during September 2022 and April 2023 for the non-FINRA
member firms. Table 2

below shows the executed dollar volume, number of trades, and number of
contracts in options during September 2022 and April 2023 for the non-
FINRA member firms.

                       Table 1--Non-FINRA Members NMS Equity Trading Volume by Venue Type
----------------------------------------------------------------------------------------------------------------
                                                                       Traded dollar volume
                                                 ---------------------------------------------------------------
                                                             Sept 2022                      April 2023
                                                 ---------------------------------------------------------------
                                                   Billions ($)     % of total     Billions ($)     % of total
----------------------------------------------------------------------------------------------------------------
I. All Non-FINRA Member Firms \1\
Trading Venue:
    Off-Exchange: ATS...........................          369.59            12.6          352.38            14.6
    Off-Exchange: Non-ATS.......................           70.63             2.4           52.41             2.2
    On-Exchange: Exchange Member \2\............        2,183.14            74.4        1,746.53            72.4
    On-Exchange: Not Exchange Member............          311.62            10.6          261.91            10.9
                                                 ---------------------------------------------------------------
        Total...................................        2,934.98           100.0        2,413.23           100.0
II. Largest Non-FINRA Member Firms \3\
Trading Venue:
    Off-Exchange: ATS...........................          333.48            14.6          322.16            16.1
    Off-Exchange: Non-ATS.......................           57.60             2.5           41.62             2.1
    On-Exchange: Exchange Member \2\............        1,639.34            71.9        1,415.99            70.8
    On-Exchange: Not Exchange Member............          248.40            10.9          219.46            11.0
                                                 ---------------------------------------------------------------
        Total...................................        2,278.82           100.0        1,999.22           100.0
----------------------------------------------------------------------------------------------------------------
Data Source: CAT.
\1\ Non-FINRA Member firms that initiated NMS equity orders that were executed either on or off-exchange. There
  were 53 firms in September 2022 and 45 firms in April 2023.
\2\ Exchange Member refers to trades executed on an exchange where the non-FINRA member is a registered member.
\3\ The largest 12 non-FINRA member firms ranked by equity off-exchange traded dollar volume.

                         Table 2--Non-FINRA Members Options Trading Volume by Venue Type
----------------------------------------------------------------------------------------------------------------
                                                                       Traded dollar volume
                                                 ---------------------------------------------------------------
                                                             Sept 2022                      April 2023
                                                 ---------------------------------------------------------------
                                                   Billions ($)     % of total     Billions ($)     % of total
----------------------------------------------------------------------------------------------------------------
                                          Panel A: Option Dollar Volume
----------------------------------------------------------------------------------------------------------------
I. All Non-FINRA Member Firms \1\
Trading Venue:
    On-Exchange: Exchange Member \2\............           50.01            93.8           44.62            94.4
    On-Exchange: Cross-Exchange \3\.............            3.31             6.2            2.65             5.6
                                                 ---------------------------------------------------------------
        Total...................................           53.33           100.0           47.27             100
II. Largest Non-FINRA Member Firms \4\
Trading Venue:
    On-Exchange: Exchange Member \2\............           45.56            94.2           40.43            94.3
    On-Exchange: Cross-Exchange \3\.............            2.80             5.8            2.44             5.7
                                                 ---------------------------------------------------------------
        Total...................................           48.37          100.00           42.87             100
----------------------------------------------------------------------------------------------------------------
                                                                              Trades
                                                 ---------------------------------------------------------------
                                                             Sept 2022
                                                            April 2023
                                                 ---------------------------------------------------------------
                                                     Millions       % of total       Millions       % of total
----------------------------------------------------------------------------------------------------------------
                                        Panel B: Number of Option Trades
----------------------------------------------------------------------------------------------------------------
I. All Non-FINRA Member Firms \1\
Trading Venue:
    On-Exchange: Exchange Member \2\............           18.41            94.8           19.60            95.4
    On-Exchange: Cross-Exchange \3\.............            1.00             5.2            0.95             4.6
                                                 ---------------------------------------------------------------
        Total...................................           19.41             100           20.55             100
II. Largest Non-FINRA Member Firms \4\
Trading Venue:
    On-Exchange: Exchange Member \2\............           16.41            95.4           17.09            95.8

    On-Exchange: Cross-Exchange \3\.............            0.79             4.6            0.75             4.2
                                                 ---------------------------------------------------------------
        Total...................................           17.20             100           17.84             100
----------------------------------------------------------------------------------------------------------------
                                                                             Contracts
                                                 ---------------------------------------------------------------
                                                             Sept 2022
                                                            April 2023
                                                 ---------------------------------------------------------------
                                                     Millions       % of total       Millions       % of total
----------------------------------------------------------------------------------------------------------------
                                       Panel C: Number of Option Contracts
----------------------------------------------------------------------------------------------------------------
I. All Non-FINRA Member Firms \1\
Trading Venue:
    On-Exchange: Exchange Member \2\............          147.31            94.5          179.13            95.6
    On-Exchange: Cross-Exchange \3\.............            8.58             5.5            8.20             4.4
                                                 ---------------------------------------------------------------
        Total...................................          155.88           100.0          187.34           100.0
II. Largest Non-FINRA Member Firms \4\
Trading Venue:
    On-Exchange: Exchange Member \2\............          129.67            95.1          158.01            96.0
    On-Exchange: Cross-Exchange \3\.............            6.66             4.9            6.62             4.0
                                                 ---------------------------------------------------------------
        Total...................................          136.33           100.0          164.64           100.0
----------------------------------------------------------------------------------------------------------------
Data Source: CAT.
\1\ Non-FINRA Member firms that initiated options orders that were executed. There were 53 firms in September
  2022 and 45 firms in April 2023. While these are the same numbers of non-FINRA member firms that initiated NMS
  equity orders as reflected in Table 1, they are not all the same firms as there is not 100% overlap. Some
  firms that initiated NMS equity orders did not initiate options orders. Some firms that initiated options
  orders did not initiate NMS equity orders. The number of firms in these two groups is the same.
\2\ Exchange Member refers to trades executed on an exchange where the non-FINRA member is a registered member.
\3\ Cross-Exchange refers to trades executed on an exchange where the non-FINRA member is not registered member.
\4\ The largest 12 non-FINRA member firms ranked by equity off-exchange traded dollar volume. Nine of the
  largest 12 firms in September 2022 and eleven of the largest 12 firms in April 2023 initiated options orders
  that were executed.

    Table 1 shows that in April 2023 non-FINRA member firms executed
approximately 72.4% of their NMS equity trading volume on exchanges
where the firm was a registered member. However, they also transacted
on exchanges where the firm was not a member in addition to trading
off-exchange. Table 2 shows data for non-FINRA member firms that also
executed trades in the options market and their total dollar, trades,
and contract volume. In September 2022, 53 non-FINRA member firms and
nine of the 12 largest firms \266\ executed trades on options
exchanges. Seven of the nine largest firms executed trades on five or
more options exchanges. In April 2023, 45 non-FINRA member firms and
eleven of the 12 largest firms executed trades on options exchanges.
---------------------------------------------------------------------------

    \266\ The largest non-FINRA member firms are ranked by equity
off-exchange traded dollar volume. Nine of the largest 12 firms in
September 2022 and eleven of the largest 12 firms in April 2023
initiated options orders that were executed.
---------------------------------------------------------------------------

    Table 2 indicates that a larger share of options trading by non-
FINRA members (relative to equities trading) takes place on exchanges
wherein the firm is a registered member, ranging from 94%-96%.
Therefore, about 5% of non-FINRA member options trading occurs on
exchanges where the firm is not a member, the volume of which accounts
for around 1% of overall options trading volume.\267\
---------------------------------------------------------------------------

    \267\ See note 269, infra.
---------------------------------------------------------------------------

    One commenter indicated that because non-FINRA members' off-member-
exchange transactions represent a relatively small proportion of total
options market volume, mandating FINRA membership will not promote
regulatory efficiency, since (in the commenter's assessment) the costs
of Association membership will exceed any benefits provided by FINRA
oversight of ``a relatively small amount of trading activity,
especially if this activity is already being conducted through a FINRA
broker-dealer.'' \268\ The Commission, however, believes that the
benefits stemming from Association oversight of these flows are not
trivial and justify their accompanying costs. More specifically, while
the Commission agrees that off-member-exchange options volume is not
large relative to the size of the overall options market, it is
nonetheless economically large, representing between $133 to $165
million of daily options dollar volume.\269\
---------------------------------------------------------------------------

    \268\ The commenter stated that the proposed rule would not
promote regulatory efficiency, since the costs of FINRA membership
would be disproportionate to gains from membership. See CTC Letter
at 4. Consideration of costs and benefits of the amendments are
presented in section V.C.
    \269\ More specifically, in September 2022, 53 of the 73 non-
FINRA member firms initiated options orders that were executed off-
member-exchange, valued at $3.31 billion and equal to about 0.3% of
total options market volume. In April 2023, 45 of the 64 non-FINRA
member firms initiated options orders that were executed off-member-
exchange, valued at $2.65 billion, approximately 0.4% of total
options market volume. See supra Table 2 for additional detail. One
commenter raised a similar concern regarding the equities market.
See STA Letter at 3. As equities trading represents a much larger
portion (more than 25%) of non-FINRA member volume relative to
options trading, the Commission views an even greater need for FINRA
supervision in equities markets.
---------------------------------------------------------------------------

2. Current Market Oversight
    The surveillance and regulation of each broker or dealer is
partially dependent upon its individual SRO

membership status. Each SRO is required to examine for and enforce
compliance by its members and associated persons with the Exchange Act,
the rules and regulations thereunder, and the SRO's own rules,
including, for exchange SROs, the rules on the trading that occurs on
the exchange. Exchange SROs generally possess expertise in supervising
members who specialize in trading on their exchange and in using the
order types that may be unique or specialized on the exchange. This
expertise complements the expertise of an Association in supervising
off-member-exchange trading activity.\270\
---------------------------------------------------------------------------

    \270\ See supra section II, discussing the requirement for SROs
to examine for and enforce compliance with the Exchange Act, and the
rules and regulations thereunder.
---------------------------------------------------------------------------

    In the markets for NMS equities and listed options, while all
exchanges are SROs and have access to CAT data covering trading
activity by their members both on and off exchanges, nearly all cross-
market and off-exchange equity activity and much options activity of
non-FINRA member broker-dealers is surveilled by FINRA through RSAs
with exchange SROs. However, RSAs are voluntary, privately negotiated
agreements that can expire or be terminated, and accordingly, these
agreements may not in the future provide the consistency and stability
of direct FINRA oversight. U.S. Treasury security trading and other
fixed income trading,\271\ however, is not covered by CAT; instead
transactions in these securities are only reported to FINRA's TRACE
database when there is a FINRA member or covered depository institution
that is party to the trade or the trade occurs on an ATS because such
reporting results from a FINRA rule.\272\ Where no FINRA member or
covered depository institution is party to the transaction, and the
transaction does not take place on an ATS, it goes unreported to
TRACE.\273\
---------------------------------------------------------------------------

    \271\ Municipal bond trades are not reported to TRACE. See supra
note 240.
    \272\ All ATSs are operated by FINRA member firms.
    \273\ These reporting gaps were noted by FINRA, which indicated
that it could not identify non-FINRA member firm transactions in
U.S. Treasury securities that do not occur on a covered ATS.
Similarly, FINRA stated that it has no visibility into the activity
of non-member firms in transactions of non-U.S. Treasury fixed
income securities. See FINRA Letter at 9. Beginning in Sept. 2022,
FINRA began collecting transactions by certain banks in government
securities. See supra note 123.
---------------------------------------------------------------------------

    Some exchanges serve as DEA for certain of their members.\274\
Financial and operational requirements share many commonalities across
SROs, such as net capital requirements and books and records
requirements. Because many brokers and dealers are members of multiple
SROs with similar requirements, one SRO is appointed as the broker's or
dealer's DEA to examine common members for compliance with the
financial responsibility requirements imposed by the Act, or by
Commission or SRO rules.\275\ The exchange serving as DEA has
regulatory responsibility for their common members' compliance with the
applicable financial responsibility rules.\276\ However, the non-DEA
exchange maintains responsibility for compliance with its own rules and
provisions of the Federal securities laws governing matters other than
financial responsibility, including sales practices and trading
activities and practices, although the SROs may also allocate other
regulatory responsibilities.
---------------------------------------------------------------------------

    \274\ See supra note 13.
    \275\ See supra note 13. See 17 CFR 240.17d-1. FINRA serves as
the DEA for the majority of member firms; there are exceptions,
mostly involving firms that have specialized business models that
focus on a particular exchange that is judged to be best situated to
supervise the member firm's activity. These firms are, however,
subject to the same supervision of their trading activity as other
member firms for which FINRA does act as DEA, and the DEA stipulates
which SRO has responsibility to supervise the firm but does not
allow for less supervision.
    \276\ Under the amendments, non-FINRA member firms that join
FINRA may or may not be assigned to FINRA for DEA supervision. See
supra section III.A.
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    All registered brokers and dealers are required to join an
Association unless they effect transactions in securities solely on a
national securities exchange of which they are a member or are exempt
from the membership requirement pursuant to Rule 15b9-1. The vast
majority of broker-dealers join an Association and, because FINRA is
the only Association, broker-dealers are subject to relatively uniform
regulatory requirements and levels of surveillance and supervision for
their activities overseen by FINRA. Supervision by FINRA covers a
market that is fragmented across many trading venues, including the
more opaque off-exchange market.\277\ Additionally, FINRA oversees its
members' activity in equity, fixed income, and derivative markets and
thus has the ability to surveil asset classes that may be outside the
expertise of certain exchange SROs (e.g., options exchanges may lack
expertise in fixed income securities).\278\
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    \277\ Comprehensive reporting requirements for all member firms
that trade equities off-exchange give FINRA information on market
activity levels and market conditions off-exchange. Because most
off-exchange equity trading venues do not publicly disseminate
information on the liquidity available in their systems,
comprehensive information from all participants through CAT allows
FINRA to analyze and surveil the off-exchange market. See supra note
17.
    \278\ For example, FINRA has extensive specific rules and
dedicated staff applicable to fixed income markets. See FINRA.org,
Key Topics: Fixed Income, available at https://www.finra.org/rules-guidance/key-topics/fixed-income.
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    The existing Association, FINRA, serves crucial functions in the
current regulatory structure.\279\ The Exchange Act's statutory
framework generally places responsibility for off-member-exchange
trading with an Association.\280\ Accordingly, FINRA has established a
regulatory regime for FINRA members, including FINRA members conducting
business in the off-member-exchange market for various asset classes,
and developed surveillance technology and specialized regulatory
personnel to provide surveillance, supervision, and enforcement of
activity occurring off-member-exchange. Consequently, the current
regulatory structure achieves off-member-exchange supervision through
the surveillance actions of FINRA of the market generally and its
examination of its members.
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    \279\ See supra section II for further discussion of the role of
Associations in market oversight.
    \280\ See supra note 26.
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    Additionally, despite the fact that FINRA does not have
jurisdiction over non-FINRA member firms or provide regulatory
oversight services to non-FINRA member firms that are not covered by
RSAs, FINRA surveils 100% of the equities and options markets with CAT
data as well as other data sources.\281\ Moreover, where it identifies
potential concerns relating non-FINRA member firms' activities, FINRA
refers cases for enforcement to the SRO with jurisdiction or to the
Commission. If FINRA is performing regulatory services for an exchange
SRO pursuant to an RSA, FINRA may, on behalf of the exchange SRO,
investigate and bring an enforcement action against an exchange SRO
member that is not a FINRA member, assuming that those services are
covered by the RSA.\282\ However, each RSA is independently negotiated
and thus not standardized. Therefore, FINRA's ability to provide
oversight can vary based on the nature of its RSA with the exchange
SRO. Additionally, the ultimate responsibility for that regulatory
oversight under an RSA still rests with the exchange SRO, not with
FINRA.\283\ SROs may also use 17d-2 plans which allow SROs with common
members to designate a single SRO to

examine common members. However, 17d-2 plans do not confer jurisdiction
to FINRA as they apply only to common firms of which each SRO would
already have jurisdiction.\284\ Exchange SROs may not be efficient,
relative to FINRA, at monitoring off-member-exchange activity.
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    \281\ CAT data is available to all SROs. FINRA utilizes other
data sources for their surveillance as well as CAT data.
    \282\ In most but not all cases, FINRA is empowered to take such
actions.
    \283\ See supra note 84.
    \284\ See supra note 13.
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    Some non-FINRA member firms trade significantly in the course of
their normal business activities on exchanges of which they are not
members. This activity is not limited to equities and options; non-
FINRA member firms play a large role in U.S. Treasury securities
markets as well.\285\ In 2022, there were seven non-FINRA member firms
that together traded more than $6 trillion in U.S. Treasury securities
volume on covered ATSs, which accounted for 3.67% of total U.S.
Treasury securities trading volume \286\ reported to TRACE. The
Commission estimates that in April 2023, five non-FINRA member firms
totaled $302 billion in U.S. Treasury securities volume executed on
covered ATSs, accounting for 2.65% of total U.S. Treasury securities
transaction volume reported to TRACE that month.
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    \285\ See supra section V.A.1 and accompanying text for more
information on trading in U.S. Treasury securities markets.
    \286\ The Commission estimates from 2023 TRACE data that in Apr.
2023 there were 916 total firms that traded U.S. Treasury
securities.
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    This is very different from when Rule 15b9-1 was first adopted,
when firms' exchange activity typically was a floor business conducted
on a single national securities exchange.\287\ While the Act provides
for regulation of exchange trading by the exchanges themselves, it
additionally grants regulatory oversight of off-exchange trading by an
Association.\288\ FINRA, currently the sole Association, has specific
tools and expertise to provide oversight to off-exchange activity.
However, FINRA's regulatory jurisdiction is limited to its membership.
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    \287\ See 2022 Re-Proposal, supra note 1, 87 FR 49932; see also
Qualifications and Fees Release, supra note 33.
    \288\ See supra note 66.
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    Some commenters have suggested that the current regulatory
structure already subjects non-FINRA member firms to robust SRO
oversight because exchange SROs have access to both on- and off-member-
exchange equity and options trading data of their members via CAT.\289\
Indeed, SRO rules require their members to report CAT data daily.\290\
One commenter noted that this has helped dramatically improve the
ability of regulators to identify violative activity which is initiated
off-member-exchange, across both the equity and options markets.\291\
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    \289\ See, e.g., Cboe Letter at 2; ABCV Letter at 3; CTC Letter
at 3; Group One Letter at 1; MMI Letter at 2; PEAK6 Letter at 2.
    \290\ These data record the origination, receipt, execution,
routing, modification, or cancellation of every order a member firm
handles for NMS stocks and options, with the exception of primary
market transactions. See generally FINRA Rule 6800 Series and 17 CFR
242.613.
    \291\ See STA Letter at 2.
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    Some commenters also stated that option exchange SROs have
specialized expertise that makes them well suited for effectively
overseeing options trading.\292\ In addition, one commenter stated that
there are existing mechanisms for SROs to coordinate surveillance of
cross-exchange options trading, such as the ISG and its subgroups.\293\
The commenter further stated that the ISG ``provides a nonexclusive
forum for discussions and referrals to occur and/or to coordinate on
matters of joint interest to its members, while preserving each SRO's
independent decision-making and enforcement authority.'' However, with
regard to off-member-exchange activity, which in the case of options
firms, also includes equity trading activity, SRO oversight is based on
RSAs, which are subject to certain limitations. For example, RSAs can
expire or be terminated.\294\
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    \292\ See ABCV Letter at 3; Cboe Letter at 6; FIA PTG Letter at
2. Commenters also stated that options exchanges surveil the
equities trading of their members. However, non-FINRA members
conduct 15 to 17 percent of equity trades off-exchange, instances
where FINRA surveillance is more efficient than exchange SROs. See
supra Table 1.
    \293\ See Nasdaq Letter at 3.
    \294\ See supra notes 237-238.
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    Some commenters stated that non-FINRA member off-member-exchange
activity is frequently conducted through FINRA member broker-
dealers,\295\ and is therefore already accessible to FINRA
surveillance. However, trading through FINRA members does not confer
direct authority to FINRA over these non-members. This is relevant
given that FINRA stated that it identified non-member firms as
potential respondents in five percent of its 2020 and 2021 market
regulation investigations.\296\ In addition, FINRA stated that ``for
certain products and exchanges, some non-member firm conduct may not
fully be subject to exchange rules that provide for important
protections in connection with the execution of customer orders (e.g.,
not all exchanges have comparable best execution rules).'' \297\
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    \295\ See Cboe Letter at 3; CTC Letter at 5; Group One Letter at
2; PEAK6 Letter at 4.
    \296\ See FINRA Letter at 5.
    \297\ See id. at 7-8.
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    Non-FINRA member firms that are exempt from the Exchange Act's
Association membership requirement are not required to pay the costs of
Association membership, which might be significant, especially for
firms with substantial trading activity (e.g., they would incur TAF and
other expenses if they chose to join FINRA in response to the
amendments). Fees associated with FINRA membership include the annual
Gross Income Assessment (GIA), the annual personnel assessment, and the
TAF and section 3 fees.\298\ FINRA members pay the TAF for all sales
transactions of covered securities that are not performed in the firm's
capacity as a registered specialist or market maker upon an
exchange.\299\ In particular, transactions in U.S. Treasury securities
are not part of the ``covered securities'' for the purpose of TAF fee.
FINRA members also must pay Transaction Reporting Fees for TRACE
reportable securities, with the exception of U.S. Treasury securities.
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    \298\ See infra section V.C.2.b. for more information on these
fees.
    \299\ Covered securities include all equity, options, and U.S.
Treasury securities. For an explanation of what is included and
exempt from the TAF, see FINRA Rules and Guidance, available at
https://www.finra.org/rules-guidance/rulebooks/corporate-organization/section-1-member-regulatory-fees. After the 2022 Re-
proposal, FINRA proposed an amendment that would exempt from the TAF
transactions executed by proprietary trading firms on an exchange of
which the firm is a member. See TAF Amendment, supra note 146.
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    The FINRA section 3 fee is the second of two primary FINRA fees
(the other being TAF) that are assessed upon each transaction by or
through a FINRA member. Under section 31 of the Act,\300\ SROs must pay
transaction fees based on the volume of their covered sales. These fees
are designed to offset the costs of regulation incurred by the
government--including the Commission--for supervising and regulating
the securities markets and securities professionals. FINRA obtains
money to pay its section 31 fees from its membership, in accordance
with section 3 of Schedule A to the FINRA By-Laws. FINRA assesses these
section 3 fees on the sell side of each off-exchange trade, when
possible. When the sell side of a transaction is a non-FINRA member
firm and the seller engages the services of a clearing broker that is a
member firm, FINRA can assess the section 3 fee against the member firm
clearing broker.\301\ When the seller is a non-FINRA member firm that
self-clears, FINRA has no authority to assess the section 3 fee against
the seller. In such case, FINRA would seek to assess the fee against
the buyer, if the buyer

includes a member firm counterparty or a member firm acting as clearing
broker for a non-FINRA member firm buy side counterparty. Any broker-
dealer that carries customer accounts is required to be a member of an
Association and thus bear the aforementioned fees. These costs may be
passed on in part or in whole to the investing public or the non-FINRA
member counterparty.
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    \300\ 15 U.S.C. 78ee.
    \301\ The seller's clearing broker may pass that fee on to the
non-FINRA member firm.
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3. Current Competition To Provide Liquidity
    The market for liquidity provision on equity and options exchanges
is competitive. In September 2022 across all exchanges, each equity
security had a registered market maker providing liquidity, and some
had as many as 48 registered market makers. The median equity security
had 4 registered market makers and twenty-five percent of equity
securities had 5 or more registered market makers. Sixty percent of
equity securities have at least two registered market makers and forty
percent had one registered market maker. In addition to these
registered market makers, the Commission believes that other market
participants effectively provide liquidity in equity securities through
their trading activities. In the options market, each exchange had as
many as 24 market makers providing liquidity. The average number of
market makers per options security across exchanges is approximately
5.9. While counting the number of market makers does not necessarily
indicate whether each market maker is an active competitor, it does
provide a good indication as to the number of firms in the business of
providing liquidity, and the Commission believes that many market
makers do actively compete, both with other registered market makers
and market participants generally, to provide liquidity.
    As stated above, non-FINRA member firms do not have the same
regulatory costs as FINRA member firms, which may give non-FINRA member
firms a competitive advantage in providing liquidity in equities,
options, and fixed income markets.\302\ As such, non-FINRA member firms
may be able to provide liquidity at a lower cost than FINRA member
firms given that non-FINRA member firms have a lower variable cost, all
else equal, for trading compared to FINRA member firms.
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    \302\ One commenter agreed that the amendments ``will safeguard
against certain market participants, in this case high-frequency
trading firms, from retaining a competitive advantage in the market
due to outdated regulations.'' See Better Markets Letter at 8.
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    The Commission believes that non-FINRA member firms are active
participants in the market to provide liquidity in off-exchange
markets. The Commission estimates that non-FINRA member firms account
for between 5.1% and 5.6% of off-exchange dollar volume in equities
from September 2022 through April 2023. Additionally, nearly 16.8% of
all non-FINRA member equity trading activity occurs in off-exchange
markets. Approximately 5.0% of non-FINRA member options trading
activity involves a non-member exchange. In U.S. Treasury securities
markets, non-FINRA broker-dealer trading activity that is reported by
covered ATSs accounts for 3.67% of all transaction volume.

B. Effects on Efficiency, Competition, and Capital Formation

    In addition to the specific, individual benefits and costs
discussed below, the Commission expects the amendments might have
varying effects on efficiency, competition, and capital formation.
These potential effects are described in this section. The amendments
will likely result in improved efficiency of capital allocation. To the
extent that liquidity provision changes as a result of the amendments,
market efficiency might be impacted. Additionally, the amendments will
have mixed effects on competition to provide liquidity, as current non-
FINRA member firms might be less likely to provide liquidity but
current FINRA members may be more likely to provide liquidity. The
Commission believes that the amendments would not likely have a
meaningful effect on capital formation.
1. Firm Response and Effect on Market Activity and Efficiency
    Although non-FINRA member firms could achieve compliance with the
amendments in multiple ways, each route might involve changes to firms'
business models. Some non-FINRA member firms might limit their trading
to exchanges of which they are members, and the Commission believes
that some may not trade off-member-exchange other than to comply with
Rule 611 of Regulation NMS or the Options Linkage Plan,\303\ or to
execute the stock leg of a stock-option order.\304\ These firms would
remain exempt from the requirement to become a member of an
Association, if they comply with section 15(b)(8) of the Act or the
rule as amended.\305\ Other firms would no longer be exempt, and would
need to take action to comply with the amended rule. Under the amended
rule, a non-FINRA member firm that trades equities, options, or fixed
income securities off-exchange, or upon exchanges of which it is not a
member, can comply in at least four ways. The first option would be to
join an Association. The second option would be to join all exchanges
upon which the non-FINRA member firm wishes to trade, and to cease any
off-exchange trading, other than off-member-exchange trading consistent
with the routing exemption and stock-option order exemption. Third, a
non-FINRA member firm could comply by trading solely upon those
exchanges of which it is already a member, consistent with the
statutory exemption in section 15(b)(8).\306\ Finally, a non-FINRA
member firm could cease trading securities entirely.
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