FINRA outlined the required criteria for Alternative Trading Systems ("ATSs") to obtain an exemption from trade reporting obligations with regard to certain transactions pursuant to new FINRA Rule 6732.  The new rule is effective on July 18, 2016.

FINRA indicated that it will consider applications where the following criteria are satisfied:

  • the trade is between FINRA members;
  • the trade does not pass through any ATS account;
  • the ATS does not (i) exchange TRACE-eligible securities or funds on behalf of the subscribers, (ii) take either side of the trade for clearing or settlement purposes, or (iii) in any other way insert itself into the trade;
  • the ATS agrees to provide to FINRA, on a monthly basis, data relating to each exempted trade occurring on the ATS's system pursuant to Rule 6732;
  • the ATS remits to FINRA a transaction reporting fee based on the fee schedule set forth in Rule 7730(b)(1) for each exempted sell transaction occurring on the ATS; and
  • the ATS enters into a written agreement with each member that is a "Party to a Transaction" with respect to any trade for which the ATS is exempted under the rule which (i) specifies that such trade must be reported by such party pursuant to Rule 6730(c)(13), and (ii) identifies that the trade occurred on the ATS using the ATS's separate Market Participant Identifier obtained in compliance with Rule 6720(c).

Exempted ATSs must enter into written agreements with any firm that "is or may be" a party to an exempt transaction to ensure they understand and agree to the added reporting requirements; in particular, FINRA emphasized that negative consent letters would not satisfy this condition of the exemption.  In addition, such ATSs are still required to report certain transaction information on exempted trades on a monthly basis.

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