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Federal Register / Vol. 86, No. 7 / Tuesday, January 12, 2021 / Proposed Rules
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behalf of certain broker-dealers for an exemption from the Amended Rules information review requirement and recordkeeping requirement to permit such broker-dealers to publish or submit, on a continuous basis, proprietary quotations for certain securities of issuers for which there is no current and publicly available information, and in other specified circumstances, on one of its electronic platforms where the distribution of such quotations is limited to sophisticated or professional investors.
OTC Link LLC operates trading platforms on which broker-dealers provide liquidity and execution services for over 11,000 U.S. and global securities. One such platform is OTC
Link ATS, an alternative trading system ATS that meets the definition of a qualified interdealer quotation system under paragraph e6 of the Amended Rule. The securities that are quoted on OTC Link ATS are organized into market tiers based on several factors, including the public availability of current issuer information and whether an issuer meets minimum financial thresholds. These market tiers include the OTCQX Best Market, the OTCQB
Venture Market, the Pink Open Market, and the Expert Market. The Expert Market is a distinct market tier on which OTC Link LLCs broker-dealer subscribers each, a Subscriber and collectively, the Subscribers 12 can, among other things, find price transparency in certain securities that may not be eligible or suitable for retail investors. Currently, the distribution of quotations for securities that are published or submitted on the Expert Market is limited to broker-dealers, and OTC Link ATS does not make such quotations available to the general public. In requesting exemptive relief on behalf of the Subscribers, OTC Link LLC
plans to modify the Expert Market to include the safeguards described below.13
12 All Subscribers to OTC Link ATS are required to be broker-dealer members of the Financial Industry Regulatory Authority FINRA and must enter into a subscription agreement with OTC Link LLC that outlines the terms and conditions of their use of OTC Link ATS. All OTC Link ATS
Subscribers can access all market tiers, including the Expert Market. Under the proposed conditional exemptive order, all quotations published or submitted on the Expert Market would be attributable to Subscribers at prices at which such Subscribers are prepared to trade. See, e.g., FINRA
Rule 5220.
13 Although OTC Link LLC is requesting relief on behalf of its Subscribers using the Expert Market on OTC Link ATS, OTC Link LLC is not requesting the same relief for OTC Link ATS, as a quotation medium, because OTC Link ATS does not publish or submit quotations on the Expert Market and, thus, does not engage in activity that is subject to the provisions of Amended Rule 15c211.

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The Commission is proposing to grant OTC Link LLCs request for exemptive relief and issue a conditional exemptive order as outlined below.
1. Distribution of Expert Market Quotes and Data Quotations published or submitted on the Expert Market are clearly identified in a data feed to which OTC Markets Group controls which Subscribers, market data distributors, and users have access. OTC Markets Group currently limits the distribution of quotations published or submitted on the Expert Market solely to broker-dealers. Under the proposed conditional exemptive order, OTC Markets Group would authorize market data distributors, including Subscribers, to be eligible to receive quotations published or submitted on the Expert Market and to distribute such data to Subscribers who comply with certain obligations and restrictions on data access. As Expert Market quotations are clearly identified in the data feed, recipients would be able to control their distribution and display.
Under the proposed exemptive relief, all entities that distribute OTC Markets Groups market data, including Subscribers, would be required to enter into a Market Data Distribution Agreement MDDA directly with OTC Markets Group. OTC Markets Group would control which market data distributors are permitted to receive market data, and the MDDA would require each such market data distributor to report all end-users to OTC Markets Group. OTC Markets Group would distribute quotations published or submitted on the Expert Market to market data distributors that agree to the MDDAs contractual and data access restrictions that limit the distribution and display of quotations to certain eligible investors, as described below. Accordingly, real-time and delayed quotations 14 published or 14 Delayed quotations, for the purpose of this proposal, do not include end-of-day quotation information, which is defined in the MDDA, and is generally understood to mean information consisting of a snapshot of the best bid price and size and the best ask price and size for a security, taken at the close of regular trading hours. End-ofday quotation information does not include the identity of the broker-dealers that published or submitted the quotations that make up the endof-day quotation. End-of-day information is used by broker-dealers, custodian banks, clearing firms, prime brokers and service bureaus for valuation, settlement, accounting, clearing and custody purposes because it can be more accurate, than last transaction information. Thus, end-of-day quotation information that is used by broker-dealers in providing valuation, settlement, accounting, clearing, and custody information to its customers may be viewed by retail investors and the general
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submitted on the Expert Market would not be permitted to be distributed or displayed to the general public. Further, pursuant to the MDDA, market data distributors must require any person to whom they distribute quotations published or submitted on the Expert Market that is not party to the MDDA to agree, by contract, not to distribute such quotations to any person that is not a permitted recipient as described herein.
In operating the Expert Market under the proposed exemptive relief, OTC
Link LLC would establish, maintain, and enforce written policies and procedures that are reasonably designed to allow only permitted recipients to view, and to prevent the general public from viewing, quotations published or submitted on the Expert Market. OTC
Link LLC also would establish, maintain, and enforce policies and procedures to regularly surveil the use of the Expert Market data feed. Further, under its written policies and procedures, OTC Link LLC would determine whether market data distributors, including Subscribers, are complying with the terms of the MDDA.
OTC Link LLC would regularly review activity on the Expert Market and would establish, maintain, and enforce policies and procedures that provide for further review and escalation of issues, including irregular quotation activities that may indicate fraudulent behavior e.g., unusually high volumes and noncompliance with the MDDA. Escalation of issues may include a determination of whether any market data distributor or Subscriber should be denied further access to the Expert Market or whether a detailed referral should be made to FINRA or Commission staff, or both.
2. Permitted Recipients of Quotations Published or Submitted on the Expert Market As described above, the distribution of real-time and delayed quotations published or submitted on the Expert Market would be limited exclusively to market data distributors, including Subscribers, and certain types of sophisticated or professional investors, specifically, the following categories of market participants each, a Qualified Expert and collectively, the Qualified Experts: 1 Any qualified institutional buyer, as defined in Rule 144Aa1
under the Securities Act; and 2 any accredited investor, as defined in Rule 501a of Regulation D; 15 and 3 any public; however, it is not actionable for the purposes of effecting transactions.
15 The term accredited investor includes, among other things, any bank as defined in Section 3a2 of the Securities Act, broker or dealer
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