FINRA proposed new requirements for members who want to use the Alternative Display Facility ("ADF") for trade reporting purposes only.

In a Trade Reporting Notice published in January 2016, FINRA provided guidance "on firms' over-the counter ("OTC") equity trade reporting obligation in the event of a systems issue during the trading day that prevents them from reporting OTC trades." The Notice requires "a firm that routinely reports its OTC trades in NMS stocks to only one FINRA trade reporting facility (a firm's 'primary facility') to establish and maintain connectivity and report to a second FINRA trade reporting facility (a firm's 'secondary facility') if the firm intends to continue to support OTC trading as an executing broker while its primary facility is experiencing a widespread systems issue." The FINRA proposed rule change makes the ADF available to, and presents new requirements for, members who want to use the ADF for trade reporting purposes only.

The proposed rule change would:

  • require members that intend to use the ADF for trade reporting purposes only and connect to the ADF via a Financial Information eXchange line ("FIX"), to participate in annual connectivity and capacity/stress testing;
  • waive the testing requirements under Rule 7120(b)(2)(E) for members that meet certain thresholds;
  • not require members to participate in annual capacity/stress testing unless their actual ADF activity levels or their capacity projections based on their Trade Reporting Facility usage increase by more than 20% from one year to the next;
  • charge members a monthly fee of $500 to use ADF for trade reporting purposes only connecting via a FIX line;
  • replace the fees for ADF terminal software and servers under current Rule 7520; and
  • include technical conforming changes to the ADF rules.

FINRA filed the proposed rule change for immediate effectiveness and the operative date will be 30 days from the date of filing.

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