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  • 6270. Quoting and Trading in ADF-Eligible Securities

    • 6271. Registration as an ADF Market Maker or ADF ECN

      (a) A member seeking registration as an ADF Market Participant shall:
      (1) file an application with FINRA in which the member:
      (A) specifies whether the member is seeking registration in Nasdaq and/or CQS securities;
      (B) certifies the member's good standing with FINRA;
      (C) demonstrates compliance with the net capital and other financial responsibility provisions of the Exchange Act;
      (D) agrees that failing to submit quotes and report trades in NMS stocks to the ADF during the two-year term will result in the forfeiture of some or all of the ADF Deposit Amount pursuant to the ADF Deposit Terms;
      (E) agrees that failing to submit 75% of the ADF Market Participant's quoting and trading volume to the ADF will result in the forfeiture of some or all of the ADF Deposit Amount pursuant to the ADF Deposit Terms;
      (F) provides FINRA with reasonable monthly projections of the volume of data that the member anticipates submitting to the ADF;
      (G) agrees to submit the ADF Deposit Amount in five equal installments into an escrow account at a bank mutually acceptable to the member and FINRA on a timetable as agreed to by the member and FINRA; and
      (H) agrees to the ADF Deposit Terms; and
      (2) execute the Certification Record, as defined in Rule 6220; and
      (3) execute a Participant Agreement with FINRA at least six months (or such other shorter time period as may be designated by FINRA) prior to quoting or reporting trades on the ADF.
      (b) A member's registration as an ADF Market Participant shall not become effective until:
      (1) the member has received a notice of approval from FINRA in the designated security types specified in the member's application pursuant to paragraph (a)(1)(A);
      (2) the member has executed the Certification Record pursuant to paragraph (a)(2); and
      (3) FINRA and the member have executed:
      (A) the application pursuant to paragraph (a)(1); and
      (B) the Participant Agreement pursuant to paragraph (a)(3).
      (c) ADF Deposit Amount and ADF Deposit Terms
      For purposes of this Rule:
      (1) the "ADF Deposit Amount" shall be $250,000; provided, however, that the ADF Deposit Amount shall be $500,000 if the member:
      (A) requests that FINRA accelerate the ADF migration onto FINRA's Multi Product Platform; or
      (B) begins quoting on or reporting trades to the ADF within 90 calendar days after an ADF Market Participant that requested acceleration of the ADF migration begins quoting on or reporting trades to the ADF.
      (2) the "ADF Deposit Terms" shall include the following, subject to any de minimis additions or qualifications in such terms to which FINRA and the member agree:
      (A) One-fifth of the ADF Deposit Amount shall be released to FINRA if, in any calendar month beginning with the fourth calendar month following certification of the ADF Market Participant to quote on or report trades to the ADF, the ADF Market Participant fails to submit 75% of the member's quoting and trading activity to the ADF as agreed to by the member and FINRA pursuant to paragraph (a)(1)(E) above.
      (B) For every $1.00 received by FINRA from the National Market System Securities Information Processor data plans associated with ADF trade report activity that is attributable, in FINRA's sole discretion, to the member's trading activity on the ADF, the member shall receive $0.50 out of the escrow account established pursuant to paragraph (a)(1)(G) above. Any such amount due to the member shall be paid to the member on a quarterly basis after FINRA has received its quarterly disbursement from the data plans; provided that the member shall only be entitled to receive up to four-fifths of the ADF Deposit Amount pursuant to this provision until the end of the two-year term agreed to pursuant to paragraph (a)(1)(D) above. At the end of the two-year term agreed to pursuant to paragraph (a)(1)(D) above, the member will be entitled to that portion of the remaining one-fifth of the ADF Deposit Amount on the same basis as the original four-fifths.
      (C) If a member is sold, goes out of business, otherwise does not meet its obligations, or fails to complete the process for becoming an ADF Market Participant, the member will forfeit the ADF Deposit Amount, or any lesser amount remaining in the escrow account established pursuant to paragraph (a)(1)(G) above, and all funds will be released from such escrow account to FINRA; provided, that the member will not forfeit the ADF Deposit Amount if the member is sold to an entity that would meet the qualifications as an ADF Market Participant and agrees to be bound by the ADF Deposit Terms. If an amount less than the ADF Deposit Amount has been placed into the escrow account established pursuant to paragraph (a)(1)(G) above, the member shall pay FINRA any difference between that amount and the ADF Deposit Amount, if necessary.
      (D) If FINRA fails to make the ADF available for a member within nine months of the date of the member's first deposit into the escrow account established pursuant to paragraph (a)(1)(G) above, one-fifth of the ADF Deposit Amount will be released from such escrow account to the member. An additional one-fifth of the ADF Deposit Amount, or any lesser amount remaining in such escrow account, will be released to the member every month thereafter if FINRA fails to make the ADF available for the member until all funds have been released from such escrow account.
      Amended by SR-FINRA-2013-031. eff. Feb. 3, 2014.
      Amended by SR-FINRA-2008-021 eff. Dec. 15, 2008.
      Amended by SR-NASD-2006-091 eff. March 5, 2007.
      Amended by SR-NASD-2005-087 eff. Aug. 1, 2006.
      Adopted by SR-NASD-2002-97 eff. July 29, 2002.

      Selected Notices: 08-57, 14-04.

    • 6272. Character of Quotations

      (a) Quotation Requirements and Obligations
      A member registered as a Registered Reporting ADF Market Maker shall engage in a course of dealings for its own account to assist in the maintenance, insofar as reasonably practicable, of fair and orderly markets in accordance with this Rule.
      (1) Two-Sided Quote Obligation.
      For each ADF-eligible security for which a member is a Registered Reporting ADF Market Maker, the member shall be willing to buy and sell such security for its own account on a continuous basis during regular market hours and shall enter and maintain a two-sided trading interest ("Two-Sided Obligation"), subject to the procedures for excused withdrawal set forth in Rule 6275.
      Interest eligible to be considered as part of the Registered Reporting ADF Market Maker's Two-Sided Obligation shall have a displayed quotation size of at least one normal unit of trading (or a larger multiple thereof); provided, however, that a Registered Reporting ADF Market Maker may augment its Two-Sided Obligation size to display limit orders priced at the same price as the Two-Sided Obligation. Unless otherwise designated, a "normal unit of trading" shall be 100 shares. After an execution against its Two-Sided Obligation, a Registered Reporting ADF Market Maker must ensure that additional trading interest exists to satisfy its Two-Sided Obligation either by immediately entering new interest to comply with this obligation to maintain continuous two-sided quotations or by identifying existing interest on the ADF that will satisfy this obligation.
      (2) Pricing Obligations for Registered Reporting ADF Market Makers.
      For ADF-eligible securities, a Registered Reporting ADF Market Maker shall adhere to the pricing obligations established by this Rule during the trading day; provided, however, that such pricing obligations (i) shall not commence during any trading day until after the first regular way transaction on the primary listing market in the security, as reported by the responsible single plan processor, and (ii) shall be suspended during a trading halt, suspension, or pause, and shall not recommence until after the first regular way transaction in the primary listing market in the security following such halt, suspension, or pause, as reported by the responsible single plan processor, except as permitted under the Regulation NMS Plan to Address Extraordinary Market Volatility.
      (A) Bid Quotations.
      At the time of entry of bid interest satisfying the Two-Sided Obligation, the price of the bid interest shall be not more than the Designated Percentage away from the then current National Best Bid, or if no National Best Bid, not more than the Designated Percentage away from the last reported sale from the responsible single plan processor. In the event that the National Best Bid (or if no National Best Bid, the last reported sale) increases to a level that would cause the bid interest of the Two-Sided Obligation to be more than the Defined Limit away from the National Best Bid (or if no National Best Bid, the last reported sale), or if the bid is executed or cancelled, the Registered Reporting ADF Market Maker shall enter new bid interest at a price not more than the Designated Percentage away from the then current National Best Bid (or if no National Best Bid, the last reported sale), or identify to FINRA current resting interest that satisfies the Two-Sided Obligation.
      (B) Offer Quotations.
      At the time of entry of offer interest satisfying the Two-Sided Obligation, the price of the offer interest shall be not more than the Designated Percentage away from the then current National Best Offer, or if no National Best Offer, not more than the Designated Percentage away from the last reported sale from the responsible single plan processor. In the event that the National Best Offer (or if no National Best Offer, the last reported sale) increases to a level that would cause the offer interest of the Two-Sided Obligation to be more than the Defined Limit away from the National Best Offer (or if no National Best Offer, the last reported sale), or if the bid is executed or cancelled, the Registered Reporting ADF Market Maker shall enter new offer interest at a price not more than the Designated Percentage away from the then current National Best Offer (or if no National Best Offer, the last reported sale), or identify to FINRA current resting interest that satisfies the Two-Sided Obligation.
      (3) Quotations Closer to the National Best Bid or Offer.
      Nothing in this Rule shall preclude a Registered Reporting ADF Market Maker from quoting at price levels that are closer to the National Best Bid and Offer than the levels required by this Rule.
      (4) Definitions.
      For purposes of this Rule:
      (A) the "Defined Limit" shall be:
      (i) 9.5% for Designated Stocks (except that between 9:30 a.m. and 9:45 a.m. and between 3:35 p.m. and the close of trading, the Defined Limit for Designated Stocks shall be 21.5%);
      (ii) 29.5% for Other NMS Stocks with a price equal to or greater than $1; and
      (iii) 31.5% for Other NMS Stocks with a price less than $1.
      (B) the "Designated Percentage" shall be:
      (i) 8% for Designated Stocks (except that between 9:30 a.m. and 9:45 a.m. and between 3:35 p.m. and the close of trading, the Designated Percentage for Designated Stocks shall be 20%);
      (ii) 28% for Other NMS Stocks with a price equal to or greater than $1; and
      (iii) 30% for Other NMS Stocks with a price less than $1.
      (C) the term “Designated Stock” shall mean an ADF-eligible security that is included in the S&P 500® Index, Russell 1000® Index, or a pilot list of Exchange Traded Products;
      (D) the term “Other NMS Stock” shall mean any ADF-eligible security that is not a Designated Stock; and
      (E) the determination of the price of a stock shall be based on the closing price on the previous trading day, or, if no closing price exists, the last sale reported to the Consolidated Tape on the previous trading day.
      (b) Minimum Price Variation for Quotations
      The minimum quotation increment for quotations of $1.00 or above in all ADF-eligible securities shall be $0.01. The minimum quotation increment for quotations below $1.00 in all ADF-eligible securities shall be $0.0001. Quotations failing to meet this standard shall be rejected.
      (c) Firm Quotations
      (1) Consistent with Rule 602(b)(2) of SEC Regulation NMS, an ADF Trading Center that receives an offer to buy or sell from another broker-dealer shall execute a transaction for at least a normal unit of trading at its displayed quotations as disseminated through the ADF at the time of receipt of any such offer. If an ADF Trading Center displays a quotation for a size greater than a normal unit of trading, it shall, upon receipt of an offer to buy or sell from another broker-dealer, execute a transaction at least at the size displayed.
      (2) If an ADF Trading Center, upon receipt of an offer to buy or sell from another broker-dealer in any amount that is at least one normal unit of trading greater than its published quotation size as disseminated through the ADF at the time of receipt of any such offer, executes a transaction in an amount of shares less than the size of the offer, then such ADF Trading Center shall, immediately after such execution, display a revised quotation at a price that is inferior to its previous published quotation. The failure of an ADF Trading Center to execute the offer in an amount greater than its published quotation size shall not constitute a violation of paragraph (c)(1) of this Rule.
      (d) Quotations and quotation sizes in ADF-eligible securities may be entered into the ADF only by a Registered Reporting ADF Market Maker or Registered Reporting ADF ECN or other entity approved by FINRA to function in such a capacity. The ADF's protected quotation will be identified by FINRA based upon price, size and time priority.
      Amended by SR-FINRA-2014-016 eff. May 1, 2014.
      Amended by SR-FINRA-2013-053 eff. Feb. 3, 2014.
      Amended by SR-FINRA-2013-031 eff. Feb. 3, 2014.
      Amended by SR-FINRA-2011-023 eff. Aug. 8, 2011.
      Amended by SR-FINRA-2010-049 eff. Dec. 6, 2010.
      Amended by SR-FINRA-2008-021 eff. Dec. 15, 2008.
      Amended by SR-NASD-2008-003 eff. Jan. 25, 2008.
      Amended by SR-NASD-2007-001 eff. March 5, 2007.
      Amended by SR-NASD-2006-091 eff. March 5, 2007.
      Amended by SR-NASD-2007-008 eff. Jan 26, 2007.
      Amended by SR-NASD-2006-096 eff. Aug. 8, 2006.
      Amended by SR-NASD-2005-087 eff. Aug. 1, 2006.
      Amended by SR-NASD-2003-175 eff. Mar. 12, 2004.
      Amended by SR-NASD-2003-181 eff. Dec. 4, 2003.
      Amended by SR-NASD-2003-67 eff. April 7, 2003.
      Adopted by SR-NASD-2002-97 eff. July 29, 2002.

      Selected Notices: 08-57, 14-04.

    • 6273. Normal Business Hours

      An ADF Trading Center shall be open for business as of 9:30 a.m. Eastern Time and shall close no earlier than 4:00 p.m. Eastern Time. An ADF Trading Center may be open for business on a voluntary basis for any period of time between 8:00 a.m. Eastern Time and 9:30 a.m. Eastern Time or between 4:00 p.m. Eastern Time and 6:30 p.m. Eastern Time. An ADF Trading Center whose quotes are open before 9:30 a.m. Eastern Time or after 4:00 p.m. Eastern Time shall be obligated to comply, while its quotes are open, with all FINRA rules that are not by their express terms, or by an official interpretation of FINRA, inapplicable to any part of the 8:00 a.m. to 9:30 a.m. Eastern Time or the 4:00 p.m. to 6:30 p.m. Eastern Time periods.
      Amended by SR-FINRA-2008-021 eff. Dec. 15, 2008.
      Amended by SR-NASD-2007-001 eff. March 5, 2007.
      Amended by SR-NASD-2006-091 eff. March 5, 2007.
      Amended by SR-NASD-2005-087 eff. Aug 1, 2006.
      Adopted by SR-NASD-2002-97 eff. July 29, 2002.

      Selected Notice: 08-57.

    • 6274. Clearance and Settlement

      (a) A member shall clear and settle transactions effected on the ADF in ADF-eligible securities that are eligible for net settlement through the facilities of a registered clearing agency that uses a continuous net settlement system. This requirement may be satisfied by direct participation, use of direct clearing services, or by entry into a correspondent clearing arrangement with another member that clears trades through such an agency.
      (b) Notwithstanding paragraph (a), transactions in ADF-eligible securities may be settled "ex-clearing" provided that both parties to the transaction agree.
      Amended by SR-FINRA-2008-021 eff. Dec. 15, 2008.
      Amended by SR-NASD-2006-091 eff. March 5, 2007.
      Amended by SR-NASD-2005-087 eff. Aug. 1, 2006.
      Adopted by SR-NASD-2002-97 eff. July 29, 2002.

      Selected Notice: 08-57.

    • 6275. Withdrawal of Quotations

      (a) An ADF Trading Center that wishes to withdraw quotations in a security, other than instances when an ADF Trading Center is unable to submit automated quotations to the ADF, shall contact ADF Operations to obtain excused withdrawal status prior to withdrawing its quotations. If an ADF Trading Center cannot submit automated quotations or is unable to immediately and automatically respond to orders, as required by Rule 6250(e), the ADF Trading Center must immediately withdraw its quotations and promptly contact ADF Operations. An excused withdrawal of quotations may be granted by ADF Operations upon satisfying one of the conditions specified in this Rule.
      (b) Excused withdrawal status based on circumstances beyond the ADF Trading Center's control may be granted for up to five (5) business days, unless extended by ADF Operations. Excused withdrawal status based on demonstrated legal or regulatory requirements, supported by appropriate documentation and accompanied by a representation that the condition necessitating the withdrawal of quotations is not permanent in nature, may, upon notification, be granted for not more than sixty (60) days (unless such request is required to be made pursuant to paragraph (d) below). Excused withdrawal status based on religious holidays may be granted only if notice is received by FINRA one business day in advance and is approved by FINRA. Excused withdrawal status based on vacation may be granted only if:
      (1) the request for withdrawal is received by FINRA one business day in advance, and is approved by FINRA; and
      (2) the request includes a list of the securities for which withdrawal is requested.
      (c) Excused withdrawal status may be granted to a Registered Reporting ADF Market Maker that has withdrawn from an issue prior to the public announcement of a merger or acquisition and wishes to re-register in the issue pursuant to the same-day registration procedures contained in Rule 6271, above, provided the Registered Reporting ADF Market Maker has remained registered in one of the affected issues. The withdrawal of quotations because of pending news, a sudden influx of orders or price changes, or to effect transactions with competitors shall not constitute acceptable reasons for granting excused withdrawal status.
      (d) Excused withdrawal status may be granted by ADF Operations to an ADF Trading Center that experiences a documented problem or failure impacting the operation or utilization of any automated system operated by or on behalf of the ADF Trading Center (chronic system failures within the control of the member will not constitute a problem or failure impacting a firm's automated system).
      (e) Excused withdrawal status may be granted by ADF Operations to an ADF Trading Center that fails to maintain a clearing arrangement with a registered clearing agency or with a member of such an agency, thereby terminating its registration as an ADF Trading Center; provided however, that if FINRA finds that the ADF Trading Center's failure to maintain a clearing arrangement is voluntary, the withdrawal of quotations will be considered voluntary and unexcused pursuant to Rule 6276.
      (f) Excused withdrawal status may be granted by ADF Operations to a Registered Reporting ADF Market Maker that is a distribution participant, affiliated purchaser, selling security holder or issuer of a distribution of a security that is a covered security subject to a restricted period under Rule 101 or 102 of SEC Regulation M on the following conditions:
      (1) Such Registered Reporting ADF Market Maker shall, unless another member has assumed responsibility in writing for compliance with this Rule, provide a written request to FINRA, in such form as specified by FINRA, to withdraw the Registered Reporting ADF Market Maker's quotations, no later than the business day prior to the first complete trading session of the one-day or five-day restricted period under Rule 101 or 102 of SEC Regulation M, unless later notification is necessary under the specific circumstances.
      (2) Such Registered Reporting ADF Market Maker shall submit a written request to FINRA, in such form as specified by FINRA, to rescind the Registered Reporting ADF Market Maker's excused withdrawal status, which request shall include the date and time of the pricing of the offering and the offering price, no later than the close of business the next business day following the pricing of the distribution.
      (g) A three-member subcommittee comprised of current or former industry members of FINRA's Market Regulation Committee shall have jurisdiction over proceedings brought by market makers seeking review of a denial of an excused withdrawal pursuant to this Rule, or the conditions imposed on their reentry.

      • • • Supplementary Material: --------------

      .01 If FINRA finds that an ADF Market Maker's failure to maintain a clearing arrangement pursuant to Rule 7120 is voluntary, the withdrawal of quotations will be considered voluntary and unexcused under this Rule.

      Amended by SR-FINRA-2013-053 eff. Feb. 3, 2014.
      Amended by SR-FINRA-2008-057 eff. Dec. 15, 2008.
      Amended by SR-FINRA-2008-021 eff. Dec. 15, 2008.
      Amended by SR-NASD-2006-091 eff. March 5, 2007.
      Amended by SR-NASD-2005-087 eff. Aug. 1, 2006.
      Amended by SR-NASD-2003-145 eff. Jan. 6, 2004.
      Adopted by SR-NASD-2002-97 eff. July 29, 2002.

      Selected Notices: 08-57, 08-74.

    • 6276. Voluntary Termination of Registration

      A Registered Reporting ADF Market Maker may voluntarily terminate its registration in a security by (1) withdrawing its quotations from the Alternative Display Facility and not re-entering its quotations for five (5) minutes, or (2) failing to re-enter quotations within thirty (30) minutes of the end of a trading halt. A Registered Reporting ADF Market Maker that voluntarily terminates its registration in a security may not re-register as a market maker in that security for twenty (20) business days, absent an excused withdrawal specified in Rule 6275. Withdrawal from participation as a Registered Reporting ADF Market Maker in the Alternative Display Facility shall constitute termination of registration as a market maker in that security for purposes of this Rule; provided, however, that a Registered Reporting ADF Market Maker that fails to maintain a clearing arrangement with a registered clearing agency or with a member of such an agency and thereby terminates its registration as a market maker in Nasdaq securities may register as a market maker at any time after a clearing arrangement has been reestablished.
      Amended by SR-FINRA-2008-021 eff. Dec. 15, 2008.
      Adopted by SR-NASD-2002-97 eff. July 29, 2002.

      Selected Notice: 08-57.

    • 6277. Suspension and Termination of Quotations by FINRA Action

      FINRA may suspend, condition, limit, prohibit or terminate an ADF Trading Center's authority to enter quotations in one or more ADF-eligible securities for violations of applicable requirements or prohibitions.
      Amended by SR-FINRA-2008-021 eff. Dec. 15, 2008.
      Amended by SR-NASD-2006-091 eff. March 5, 2007.
      Amended by SR-NASD-2005-087 eff. Aug. 1, 2006.
      Adopted by SR-NASD-2002-97 eff. July 29, 2002.

      Selected Notice: 08-57.

    • 6278. Termination of Alternative Display Facility Data System Service

      FINRA may, upon notice, terminate ADF Data System service in the event that an ADF Trading Center fails to qualify under specified standards of eligibility or fails to pay promptly for services rendered by FINRA.
      Amended by SR-FINRA-2008-021 eff. Dec. 15, 2008.
      Amended by SR-NASD-2006-091 eff. March 5, 2007.
      Amended by SR-NASD-2005-087 eff. Aug. 1, 2006.
      Adopted by SR-NASD-2002-97 eff. July 29, 2002.

      Selected Notice: 08-57.

    • 6279. Alternative Trading Systems

      (a) FINRA may provide a means to permit alternative trading systems ("ATSs"), as such term is defined in Regulation ATS, and electronic communications networks ("ECNs"), as such term is defined in Rule 600(b)(23) of SEC Regulation NMS, to comply with the display requirements of Rule 301(b)(3) of SEC Regulation ATS and the terms of the ECN display alternative provided for in Rule 602(b)(5)(ii)(A) and (B) of SEC Regulation NMS ("ECN display alternatives"). FINRA will not facilitate compliance with access requirements, which are the responsibility of ADF Trading Centers under Rule 6250.
      (b) An ATS or ECN that seeks to use FINRA-provided means to comply with Rule 301(b)(3) of SEC Regulation ATS and/or the ECN display alternatives, or to provide orders to the ADF voluntarily shall:
      (1) demonstrate to FINRA that it is in compliance with Regulation ATS or that it qualifies as an ECN meeting the definition in the SEC Regulation NMS;
      (2) be registered as a FINRA member;
      (3) agree to provide for FINRA's dissemination in the quotation data made available to quotation vendors the prices and sizes of FINRA Registered Market Maker orders (and orders from other subscribers of the ATS or ECN, if the ATS or ECN so chooses or is required by Rule 301(b)(3) of SEC Regulation ATS to display a subscriber's order in the ADF), at the highest buy price and the lowest sell price for each ADF-eligible security entered in and disseminated by the ATS or ECN; and prior to entering such prices and sizes, register with FINRA Market Operations as a Registered Reporting ADF ECN; and
      (4) comply with Rule 6250.
      (c) When a FINRA member attempts to access electronically an ATS or ECN-displayed order by sending an order that is larger than the ATS' or ECN's ADF-displayed size and the ATS or ECN is displaying the order on a reserved size basis, the FINRA member that operates the ATS or ECN shall execute such delivered order:
      (1) up to the size of the delivered order, if the ATS or ECN order (including the reserved size and displayed portions) is the same size or larger than the delivered order; or
      (2) up to the size of the ATS or ECN order (including the reserved size and displayed portions), if the delivered order is the same size or larger than the ATS or ECN order (including the reserved size and displayed portions).
      No Registered Reporting ADF ECN operating through the ADF pursuant to this Rule is permitted to provide a reserved-size function unless the size of the order displayed through the ADF is 100 shares or greater. For purposes of this Rule, the term "reserved size" shall mean that a customer entering an order into an ATS or ECN has authorized the ATS or ECN to display publicly part of the full size of the customer's order with the remainder held in reserve on an undisplayed basis to be displayed in whole or in part as the displayed part is executed.
      Amended by SR-FINRA-2013-053 eff. Feb. 3, 2014.
      Amended by SR-FINRA-2008-021 eff. Dec. 15, 2008.
      Amended by SR-NASD-2006-091 eff. March 5, 2007.
      Amended by SR-NASD-2005-087 eff. Aug. 1, 2006.
      Adopted by SR-NASD-2002-97 eff. July 29, 2002.

      Selected Notice: 08-57.