80 FR 79966 - Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Provide FINRA with Authority To Grant Exemptions from TRACE Reporting Requirements for Certain ATS Transactions
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 80, Issue 246 (December 23, 2015)
Federal Register Volume 80, Issue 246 (December 23, 2015)
| Page Range | 79966-79969 | |
| FR Document | 2015-32191 |
[Federal Register Volume 80, Number 246 (Wednesday, December 23, 2015)] [Notices] [Pages 79966-79969] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2015-32191] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-76677; File No. SR-FINRA-2015-055] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Provide FINRA with Authority To Grant Exemptions from TRACE Reporting Requirements for Certain ATS Transactions December 17, 2015. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on December 8, 2015, Financial Industry Regulatory Authority, Inc. (``FINRA'') filed with the Securities and Exchange Commission (``SEC'' or ``Commission'') the proposed rule change as described in Items I and II below, which Items have been prepared by FINRA. FINRA has designated the proposed rule change as constituting a ``non-controversial'' rule change under paragraph (f)(6) of Rule 19b-4 under the Act,\3\ which renders the proposal effective upon receipt of this filing by the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ 17 CFR 240.19b-4(f)(6). --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of the Substance of the Proposed Rule Change FINRA is proposing to adopt new FINRA Rule 6732 to provide FINRA with authority to exempt certain transactions by a member alternative trading system (``ATS'') that meet specified criteria from the transaction reporting obligations under FINRA Rule 6730. In addition, FINRA is proposing a conforming change to FINRA Rule 9610 to specify that FINRA has exemptive authority under proposed Rule 6732. The text of the proposed rule change is available on FINRA's Web site at http://www.finra.org, at the principal office of FINRA and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, FINRA included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. FINRA has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose Rule 6730 (Transaction Reporting) generally requires that each FINRA member that is a party to a transaction in a TRACE-Eligible Security \4\ report the transaction to TRACE within the period of time prescribed in the rule. ``Party to a transaction'' means an introducing broker-dealer, if any, an executing broker-dealer or a customer.\5\ Thus, in transactions in a TRACE-Eligible Security between members, each member is a party to the transaction and is required to report the transaction. An ATS is a party to a transaction in a TRACE-Eligible Security occurring through its system and has a TRACE transaction reporting obligation, unless an exception or exemption applies.\6\ --------------------------------------------------------------------------- \4\ Rule 6710(a) provides that a ``TRACE-Eligible Security'' is a debt security that is United States dollar-denominated and issued by a U.S. or foreign private issuer, and, if a ``restricted security'' as defined in Securities Act Rule 144(a)(3), sold pursuant to Securities Act Rule 144A; or is a debt security that is U.S. dollar-denominated and issued or guaranteed by an Agency as defined in paragraph (k) or a Government-Sponsored Enterprise as defined in paragraph (n). ``TRACE-Eligible Security'' does not include a debt security that is: issued by a foreign sovereign, a U.S. Treasury Security as defined in paragraph (p), or a Money Market Instrument as defined in paragraph (o). \5\ ``Customer'' includes a broker-dealer that is not a FINRA member. \6\ See Regulatory Notice 14-53 (November 2014) (FINRA Reminds ATSs and ATS Subscribers of Their Trade Reporting Obligations in TRACE-Eligible Securities). --------------------------------------------------------------------------- On February 28, 2012, FINRA adopted Rule 6731 (Exemption from Trade Reporting Obligation for Certain Alternative Trading Systems) to provide FINRA with authority to exempt ATSs from TRACE trade reporting obligations under certain circumstances; specifically, where the ATS demonstrates that: member subscribers are fully disclosed to one another at all times on the ATS; the system does not permit automatic execution (and a member subscriber must take affirmative steps beyond the submission of an order to agree to a trade with another member subscriber); the trade does not pass through any ATS account (and the ATS does not in any way hold itself out to be a party to the trade); and the ATS does not exchange TRACE-Eligible Securities or funds on behalf of the member subscribers or take either side of the trade for clearing or settlement purposes (including, but not limited to, at DTC or otherwise), or in any other way insert itself into the trade.\7\ In addition, trades on the ATS must be between subscribers that are both FINRA members. Where a Rule 6731 exemption is granted, the ATS is not deemed a party to the transactions occurring through its system for purposes of trade reporting requirements.\8\ --------------------------------------------------------------------------- \7\ See Securities Exchange Act Release No. 66513 (March 5, 2012), 77 FR 14454 (March 9, 2012) (Notice of Filing and Immediate Effectiveness of File No. SR-FINRA-2012-016) (``Rule 6731 Proposal''). \8\ FINRA stated in the Rule 6731 Proposal that an ATS that satisfies all the conditions of the proposal has a more limited involvement in the trade execution than the member subscribers and, therefore, the exemption from trade reporting is appropriate. As a condition to the proposed [sic] Rule 6731 exemption, the ATS and its member subscribers must acknowledge and agree in writing that the ATS is not deemed a party to the trade for purposes of trade reporting, and that trades shall be reported to FINRA in accordance with Rule 6730 by each member subscriber that satisfies the definition of ``party to a transaction,'' as defined in Rule 6710. --------------------------------------------------------------------------- [[Page 79967]] FINRA believes it is appropriate to propose a rule change to provide FINRA with authority to exempt trades on ATSs not otherwise falling within the exemption in Rule 6731 from the Rule 6730 trade reporting obligations. Pursuant to the proposed exemption, an ATS would not be required to report exempted transactions occurring on the ATS to TRACE, but rather, would be permitted to provide to FINRA on a monthly basis, or such other basis as prescribed by FINRA, data relating to each exempted trade occurring on the ATS. Each side of a trade for which an ATS is exempted from TRACE reporting pursuant to the proposal must be reported by a member (other than the ATS) that meets the definition of a ``Party to a Transaction'' identifying a contra-party (other than the ATS). The proposal would permit FINRA to exempt a member ATS from reporting trades where: (a) The trade is between FINRA members, (b) the trade does not pass through any ATS account; (c) the ATS does not exchange TRACE-Eligible Securities or funds on behalf of the subscribers or take either side of the trade for clearing or settlement purposes (including, but not limited to, at DTC or otherwise), or in any other way insert itself into the trade; and (d) the ATS has entered 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 this Rule, specifying that trades must be reported by such party pursuant to Rule 6730(c)(13) identifying the trade as having occurred on the ATS (using the ATS's separate MPID obtained in compliance with Rule 6720(c)).\9\ --------------------------------------------------------------------------- \9\ An ATS granted an exemption pursuant to the proposal would continue to be deemed a ``party'' to the transactions covered by the exemption, and would be required to remit to FINRA a transaction reporting fee. Specifically, member ATSs will be assessed a transaction reporting fee for each exempted transaction occurring through its system. Such fee will be assessed to the ATS once per exempt transaction, and will be calculated based upon the fee schedule set forth in Rule 7730(b)(1) for each exempt sell transaction. --------------------------------------------------------------------------- Unlike the exemption provided for under Rule 6731 (where, if granted, all transactions occurring on the ATS are exempted from TRACE reporting), proposed Rule 6732 would provide FINRA authority to grant exemptions only for transactions that meet the enumerated criteria, which provides a greater degree of flexibility to member ATSs seeking an exemption. In addition, the proposed exemption omits two of the conditions required for relief under Rule 6731--specifically, that member subscribers must be fully disclosed to one another at all times on the ATS, and that the system does not permit automatic execution and a member subscriber must take affirmative steps beyond the submission of an order to agree to a trade with another member subscriber. Thus, proposed Rule 6732 contemplates that an ATS may have a greater degree of involvement in exempted trades than contemplated by existing Rule 6731.\10\ --------------------------------------------------------------------------- \10\ Where an ATS has been granted an exemption under the proposed rule, the member subscribers will be assessed the Trading Activity Fee under FINRA By-Laws, Schedule A, Section 1. The ATS will not be assessed such fees with respect to any exempted trade. --------------------------------------------------------------------------- In lieu of reporting through TRACE, proposed Rule 6732 would include a similar requirement to that contained in Rule 6731 in that it would require the periodic reporting of transaction information by any member ATS granted relief. Specifically, under the proposed exemption, an ATS would be required to provide FINRA with data relating to each exempted trade that occurred on its system (on a monthly basis or such other basis as prescribed by FINRA). FINRA will publish the required items of trade data information, the frequency of the reporting requirement, if different than monthly, and mode of transmission in a separate Regulatory Notice.\11\ --------------------------------------------------------------------------- \11\ As is the case with Rule 6731, proposed Rule 6732 also provides that an ATS's failure to report required data to FINRA pursuant to Rule 6732, in addition to constituting a violation of FINRA rules, will result in revocation of any exemption granted pursuant to proposed Rule 6732. Similar to Rule 6731, volume in exempted trades occurring through the ATS would be considered volume of the ATS for purposes of, among other things, the recordkeeping requirements of Rule 302 of SEC Regulation ATS and determining whether the ATS triggers the Fair Access requirements under Rule 301(b)(5) of Regulation ATS or the Capacity, Integrity and Security of Automated Systems requirements of Rule 301(b)(6) of Regulation ATS, as applicable. See Rule 6731; see also 17 CFR 242.300-303. --------------------------------------------------------------------------- FINRA believes that the proposed rule change will simplify compliance for member ATSs and other members. Specifically, where an ATS does not exchange TRACE-Eligible Securities or funds on behalf of the subscribers, take either side of the trade for clearing or settlement purposes (including, but not limited to, at DTC or otherwise), or in any other way insert itself into the trade, and where the trade does not pass through any ATS account, the proposal provides FINRA with authority to allow ATSs (and member subscribers) to streamline their trade reporting practices. In some cases, member subscribers trading on an ATS may prefer to program their back-end systems automatically to clear against the contra-party identified on TRACE trade reports. Thus, reporting against the contra-party member subscriber, rather than the ATS, would simplify clearance and settlement for such members. However, because, under FINRA rules, an ATS generally is deemed a party to each trade occurring through its system, Rule 6730 currently precludes member subscribers from reflecting a party other than the ATS on TRACE trade reports, even where the ATS has not inserted itself into the trade. For example, today, where a member (BD 1) sells a TRACE-Eligible Security to another member (BD 2) through an ATS, Rule 6730 generally requires BD 1 to report a sale to the ATS and the ATS to report a buy from BD 1. The ATS also must report the corresponding sale to BD 2, and BD 2 must report its buy from the ATS.\12\ Pursuant to the proposed exemption, where granted, an ATS would not be required to report the transactions with BD 1 and BD 2 to TRACE. In addition, BD 1 would be required to report to TRACE a sale to BD 2, identifying the trade as having occurred on the ATS, and BD 2 would be required to report to TRACE a buy from BD 1, identifying the trade as having occurred on the ATS on its TRACE report. --------------------------------------------------------------------------- \12\ In transactions between members, FINRA disseminates only the sale transaction. --------------------------------------------------------------------------- Therefore, FINRA believes that the proposed rule change will simplify compliance for these member ATSs and their member subscribers without compromising public transparency in exempted trades, because the exempted transaction will continue to be trade reported by members and disseminated in accordance with existing rules.\13\ In addition, the requirement that any ATS granted an exemption pursuant to proposed Rule 6732 enter into a written agreement with each member that is a ``Party to a Transaction'' with respect to exempted trades, ensures that reporting members are aware that the ATS has been granted a Rule 6732 exemption and that exempted trades on the ATS are subject to different reporting requirements, specifically, that the reporting member identify a party other than the ATS as its contra-party and identify the ATS on which the trade had occurred in its TRACE reports. --------------------------------------------------------------------------- \13\ FINRA also is proposing a conforming change to Rule 9610 to add proposed Rule 6732 to the list of rules pursuant to which FINRA has exemptive authority. --------------------------------------------------------------------------- FINRA has filed the proposed rule change for immediate effectiveness. The implementation date of the proposed rule change will be July 18, 2016. 2. Statutory Basis FINRA believes that the proposed rule change is consistent with the provisions [[Page 79968]] of Section 15A(b)(6) of the Act,\14\ which requires, among other things, that FINRA rules must be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest. --------------------------------------------------------------------------- \14\ 15 U.S.C. 78o-3(b)(6). --------------------------------------------------------------------------- FINRA believes that the proposed rule change will simplify compliance for certain ATSs and their member subscribers by permitting subscribers to trade report with the party against which it will clear the trade. The proposal also accommodates a broader range of ATS models. FINRA also notes that public transparency with respect to exempted trades will not be compromised because such transactions will continue to be trade reported by members and disseminated in accordance with existing rules. B. Self-Regulatory Organization's Statement on Burden on Competition FINRA does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. Any ATS that meets the criteria set forth in the proposed rule may apply for the exemption with respect to eligible transactions occurring on its platform. In addition, irrespective of an ATS's model or whether the ATS is granted an exemption pursuant to this proposal, all ATSs that are a ``party to a transaction'' must continue to pay transaction reporting fees with respect to Rule 6732 exempted transactions. As stated above, any ATS granted a Rule 6732 exemption would continue to be deemed a ``party'' to the transactions covered by the exemption, and would be required to remit to FINRA a transaction reporting fee based on the fee schedule set forth in Rule 7730(b)(1) for each exempted sell transaction occurring through the ATS. Economic Impact Assessment Need for the Rule As discussed above, an ATS is a party to a transaction in TRACE- eligible securities occurring on that ATS. As such, an ATS is responsible to report the transaction to FINRA as provided in Rule 6730, unless an exception or exemption applies. FINRA recognizes that there are different business models for the way an ATS may facilitate trading on its platform, and the functional role of the ATS may differ in each of these models. For instance FINRA is aware that some ATS's do not pass TRACE-eligible securities or funds through their own accounts as part of an execution. In instances where the functional activities of the ATS are more limited with respect to a transaction, FINRA believes that the ATS, while still party to the transaction, may benefit from a streamlined reporting regime without reducing public transparency. Economic Baseline By FINRA rule today, all ATSs are parties to transactions in TRACE- eligible securities occurring on the ATS and are subject to TRACE reporting. Rule 6731 provides FINRA authority to exempt an ATS from Rule 6730 TRACE transaction reporting requirements where an ATS meets the conditions in Rule 6731 described above. Thus, an ATS that does not meet the conditions of Rule 6731 is required to report transactions occurring on the ATS to TRACE in accordance with FINRA rules. Economic Impacts FINRA estimates that only a small number of ATSs would be eligible to seek the exemption based on staff understanding of their current business models, although the proposed exemption would be available to any current or future ATS that would meet the requirements. Member subscribers who execute trades on an ATS that seeks and is granted the proposed exemption also may be impacted. FINRA does not have a reliable estimate for the number of transactions that might be eligible for the exemption. Benefits of the Rule Any ATS that meets the qualifications proposed in this rule may request exemption from FINRA. Where granted, the ATS would presumably reduce its compliance costs by shifting from contemporaneous reporting of transactions to TRACE in TRACE-eligible securities to periodic reporting. Costs of the Rule An ATS that seeks and is granted an exemption under this proposed rule may incur costs to modify its systems, and must update its policies and procedures to reflect reporting consistent with the periodic regime. Each ATS may determine independently whether or not it seeks to obtain the exemption, and thus, it is likely that an ATS would only seek this exemption where it was less costly than meeting its current reporting requirements. FINRA understands that a commenter to a related filing indicated that transactions in TRACE-eligible securities occurring on some ATSs are ``given up'' to the broker-dealer counterparties for TRACE reporting.\15\ Notwithstanding this comment, the reporting obligations to the ATS remain, so any costs to an ATS associated with this proposal should be measured from the baseline of that obligation. --------------------------------------------------------------------------- \15\ See Securities Exchange Act Release No. 71341 (January 17, 2014), 79 FR 4213 at 4217 (January 24, 2014) (Order Approving File No. SR-FINRA-2013-042). --------------------------------------------------------------------------- Where an ATS seeks and is granted the exemption, member subscribers who transact through the ATS also may incur costs associated with reporting the additional information to FINRA that identifies the ATS where the trade occurred. These costs may include additional programming and testing along with updating policies and procedures. FINRA notes, however, that member subscribers may determine where to seek executions and would not have to incur the related costs if they choose to send orders elsewhere for execution. Both member subscribers and ATSs may incur additional costs associated with creating and maintaining a written agreement with respect to the reporting of any trades for which the ATS is exempted under the proposed rule. Related Economic Impacts FINRA also considered the potential impacts of the proposed rule on investors and other parties that might rely on TRACE reporting. As proposed, the rule would not negatively impact FINRA's ability to monitor securities markets. The proposed rule would not substantively reduce the information collected by FINRA on TRACE-eligible securities transactions occurring on an ATS. Member subscribers maintain their obligation to report transactions on the ATS to TRACE within the time prescribed by FINRA rules. The additional information collected pursuant to the exemption under the rule would enhance FINRA's ability to identify all exempted trades occurring on an individual ATS. Further, the exemption would not impact the quality and completeness of the information made generally available through TRACE, since TRACE reporting obligations continue to apply to the member subscribers transacting on the ATS. Alternatives Considered The primary alternative considered was to continue to have ATS [sic] with business models meeting the proposed exemptive criteria continue to report as they do today. However, FINRA concluded that the proposed exemption [[Page 79969]] is a reasonable approach that may simplify compliance for some members without degrading the quality and completeness of information available to FINRA and the public. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act \16\ and Rule 19b- 4(f)(6) thereunder.\17\ --------------------------------------------------------------------------- \16\ 15 U.S.C. 78s(b)(3)(A). \17\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. FINRA has satisfied this requirement. --------------------------------------------------------------------------- At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic CommentsUse the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. Please include File No. SR-FINRA-2015-055 on the subject line. Paper Comments Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090. All submissions should refer to File No. SR-FINRA-2015-055. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission's Public Reference Room, 100 F Street NE., Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the principal office of FINRA. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File No. SR-FINRA-2015-055, and should be submitted on or before January 13, 2016. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\18\ --------------------------------------------------------------------------- \18\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Robert W. Errett, Deputy Secretary. [FR Doc. 2015-32191 Filed 12-22-15; 8:45 am] BILLING CODE 8011-01-P
![79966 Federal Register / Vol. 80, No. 246 / Wednesday, December 23, 2015 / Notices
rules. As noted above, the Exchange change under paragraph (f)(6) of Rule ‘‘Party to a transaction’’ means an
states that, except as modified by the 19b–4 under the Act,3 which renders introducing broker-dealer, if any, an
proposal, Exchange Rules in Chapters I the proposal effective upon receipt of executing broker-dealer or a customer.5
through XIX, XXIV, XXIVA, and XXIVB this filing by the Commission. The Thus, in transactions in a TRACE-
would equally apply to FTSE China 50 Commission is publishing this notice to Eligible Security between members,
Index options. The Exchange also states solicit comments on the proposed rule each member is a party to the
that FTSE China 50 Index options change from interested persons. transaction and is required to report the
would be subject to the same rules that transaction. An ATS is a party to a
currently govern other CBOE index I. Self-Regulatory Organization’s
Statement of the Terms of the Substance transaction in a TRACE-Eligible
options, including sales practice rules, Security occurring through its system
margin requirements, and trading rules. of the Proposed Rule Change
and has a TRACE transaction reporting
The Commission further believes that FINRA is proposing to adopt new obligation, unless an exception or
the Exchange’s proposed position and FINRA Rule 6732 to provide FINRA exemption applies.6
exercise limits, trading hours, margin, with authority to exempt certain
transactions by a member alternative On February 28, 2012, FINRA adopted
strike price intervals, minimum tick
trading system (‘‘ATS’’) that meet Rule 6731 (Exemption from Trade
size, series openings, and other aspects
specified criteria from the transaction Reporting Obligation for Certain
of the proposed rule change, as
reporting obligations under FINRA Rule Alternative Trading Systems) to provide
modified by Amendment Nos. 1 and 2,
6730. In addition, FINRA is proposing a FINRA with authority to exempt ATSs
are appropriate and consistent with the
conforming change to FINRA Rule 9610 from TRACE trade reporting obligations
Act.
to specify that FINRA has exemptive under certain circumstances;
IV. Conclusion specifically, where the ATS
authority under proposed Rule 6732.
It is therefore ordered, pursuant to The text of the proposed rule change demonstrates that: member subscribers
Section 19(b)(2) of the Act,19 that the is available on FINRA’s Web site at are fully disclosed to one another at all
proposed rule change (SR–CBOE–2015– http://www.finra.org, at the principal times on the ATS; the system does not
099), as modified by Amendment Nos. office of FINRA and at the permit automatic execution (and a
1 and 2, be, and hereby is, approved. Commission’s Public Reference Room. member subscriber must take
affirmative steps beyond the submission
For the Commission, by the Division of II. Self-Regulatory Organization’s
Trading and Markets, pursuant to delegated
of an order to agree to a trade with
authority.20
Statement of the Purpose of, and another member subscriber); the trade
Statutory Basis for, the Proposed Rule does not pass through any ATS account
Robert W. Errett,
Change (and the ATS does not in any way hold
Deputy Secretary.
In its filing with the Commission, itself out to be a party to the trade); and
[FR Doc. 2015–32190 Filed 12–22–15; 8:45 am]
FINRA included statements concerning the ATS does not exchange TRACE-
BILLING CODE 8011–01–P
the purpose of and basis for the Eligible Securities or funds on behalf of
proposed rule change and discussed any the member subscribers or take either
comments it received on the proposed side of the trade for clearing or
SECURITIES AND EXCHANGE
rule change. The text of these statements settlement purposes (including, but not
COMMISSION
may be examined at the places specified limited to, at DTC or otherwise), or in
[Release No. 34–76677; File No. SR–FINRA– in Item IV below. FINRA has prepared any other way insert itself into the
2015–055] trade.7 In addition, trades on the ATS
summaries, set forth in sections A, B,
and C below, of the most significant must be between subscribers that are
Self-Regulatory Organizations; both FINRA members. Where a Rule
Financial Industry Regulatory aspects of such statements.
6731 exemption is granted, the ATS is
Authority, Inc.; Notice of Filing and A. Self-Regulatory Organization’s not deemed a party to the transactions
Immediate Effectiveness of a Proposed Statement of the Purpose of, and occurring through its system for
Rule Change To Provide FINRA with Statutory Basis for, the Proposed Rule purposes of trade reporting
Authority To Grant Exemptions from Change requirements.8
TRACE Reporting Requirements for
Certain ATS Transactions 1. Purpose
5 ‘‘Customer’’ includes a broker-dealer that is not
Rule 6730 (Transaction Reporting) a FINRA member.
December 17, 2015.
generally requires that each FINRA 6 See Regulatory Notice 14–53 (November 2014)
Pursuant to Section 19(b)(1) of the member that is a party to a transaction (FINRA Reminds ATSs and ATS Subscribers of
Securities Exchange Act of 1934 in a TRACE-Eligible Security 4 report Their Trade Reporting Obligations in TRACE-
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 the transaction to TRACE within the Eligible Securities).
notice is hereby given that on December period of time prescribed in the rule.
7 See Securities Exchange Act Release No. 66513
8, 2015, Financial Industry Regulatory (March 5, 2012), 77 FR 14454 (March 9, 2012)
(Notice of Filing and Immediate Effectiveness of
Authority, Inc. (‘‘FINRA’’) filed with the 3 17 CFR 240.19b–4(f)(6). File No. SR–FINRA–2012–016) (‘‘Rule 6731
Securities and Exchange Commission 4 Rule 6710(a) provides that a ‘‘TRACE-Eligible Proposal’’).
(‘‘SEC’’ or ‘‘Commission’’) the proposed Security’’ is a debt security that is United States 8 FINRA stated in the Rule 6731 Proposal that an
rule change as described in Items I and dollar-denominated and issued by a U.S. or foreign ATS that satisfies all the conditions of the proposal
private issuer, and, if a ‘‘restricted security’’ as has a more limited involvement in the trade
II below, which Items have been defined in Securities Act Rule 144(a)(3), sold execution than the member subscribers and,
prepared by FINRA. FINRA has pursuant to Securities Act Rule 144A; or is a debt therefore, the exemption from trade reporting is
tkelley on DSK3SPTVN1PROD with NOTICES
designated the proposed rule change as security that is U.S. dollar-denominated and issued appropriate. As a condition to the proposed [sic]
constituting a ‘‘non-controversial’’ rule or guaranteed by an Agency as defined in paragraph Rule 6731 exemption, the ATS and its member
(k) or a Government-Sponsored Enterprise as subscribers must acknowledge and agree in writing
19 15
defined in paragraph (n). ‘‘TRACE-Eligible that the ATS is not deemed a party to the trade for
U.S.C. 78s(b)(2). Security’’ does not include a debt security that is: purposes of trade reporting, and that trades shall be
20 17 CFR 200.30–3(a)(12). issued by a foreign sovereign, a U.S. Treasury reported to FINRA in accordance with Rule 6730 by
1 15 U.S.C. 78s(b)(1).
Security as defined in paragraph (p), or a Money each member subscriber that satisfies the definition
2 17 CFR 240.19b–4. Market Instrument as defined in paragraph (o). of ‘‘party to a transaction,’’ as defined in Rule 6710.
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of Section 15A(b)(6) of the Act,14 which securities or funds through their own securities occurring on some ATSs are
requires, among other things, that accounts as part of an execution. In ‘‘given up’’ to the broker-dealer
FINRA rules must be designed to instances where the functional activities counterparties for TRACE reporting.15
prevent fraudulent and manipulative of the ATS are more limited with Notwithstanding this comment, the
acts and practices, to promote just and respect to a transaction, FINRA believes reporting obligations to the ATS remain,
equitable principles of trade, and, in that the ATS, while still party to the so any costs to an ATS associated with
general, to protect investors and the transaction, may benefit from a this proposal should be measured from
public interest. streamlined reporting regime without the baseline of that obligation.
FINRA believes that the proposed rule reducing public transparency. Where an ATS seeks and is granted
change will simplify compliance for the exemption, member subscribers who
certain ATSs and their member Economic Baseline transact through the ATS also may incur
subscribers by permitting subscribers to By FINRA rule today, all ATSs are costs associated with reporting the
trade report with the party against parties to transactions in TRACE- additional information to FINRA that
which it will clear the trade. The eligible securities occurring on the ATS identifies the ATS where the trade
proposal also accommodates a broader and are subject to TRACE reporting. occurred. These costs may include
range of ATS models. FINRA also notes Rule 6731 provides FINRA authority to additional programming and testing
that public transparency with respect to exempt an ATS from Rule 6730 TRACE along with updating policies and
exempted trades will not be transaction reporting requirements procedures. FINRA notes, however, that
compromised because such transactions where an ATS meets the conditions in member subscribers may determine
will continue to be trade reported by Rule 6731 described above. Thus, an where to seek executions and would not
members and disseminated in ATS that does not meet the conditions have to incur the related costs if they
accordance with existing rules. of Rule 6731 is required to report choose to send orders elsewhere for
transactions occurring on the ATS to execution.
B. Self-Regulatory Organization’s Both member subscribers and ATSs
Statement on Burden on Competition TRACE in accordance with FINRA
rules. may incur additional costs associated
FINRA does not believe that the with creating and maintaining a written
proposed rule change will result in any Economic Impacts agreement with respect to the reporting
burden on competition that is not FINRA estimates that only a small of any trades for which the ATS is
necessary or appropriate in furtherance number of ATSs would be eligible to exempted under the proposed rule.
of the purposes of the Act. Any ATS seek the exemption based on staff
that meets the criteria set forth in the Related Economic Impacts
understanding of their current business
proposed rule may apply for the models, although the proposed FINRA also considered the potential
exemption with respect to eligible exemption would be available to any impacts of the proposed rule on
transactions occurring on its platform. current or future ATS that would meet investors and other parties that might
In addition, irrespective of an ATS’s the requirements. Member subscribers rely on TRACE reporting. As proposed,
model or whether the ATS is granted an who execute trades on an ATS that the rule would not negatively impact
exemption pursuant to this proposal, all seeks and is granted the proposed FINRA’s ability to monitor securities
ATSs that are a ‘‘party to a transaction’’ exemption also may be impacted. markets. The proposed rule would not
must continue to pay transaction FINRA does not have a reliable estimate substantively reduce the information
reporting fees with respect to Rule 6732 for the number of transactions that collected by FINRA on TRACE-eligible
exempted transactions. As stated above, might be eligible for the exemption. securities transactions occurring on an
any ATS granted a Rule 6732 exemption ATS. Member subscribers maintain their
would continue to be deemed a ‘‘party’’ Benefits of the Rule obligation to report transactions on the
to the transactions covered by the Any ATS that meets the qualifications ATS to TRACE within the time
exemption, and would be required to proposed in this rule may request prescribed by FINRA rules. The
remit to FINRA a transaction reporting exemption from FINRA. Where granted, additional information collected
fee based on the fee schedule set forth the ATS would presumably reduce its pursuant to the exemption under the
in Rule 7730(b)(1) for each exempted compliance costs by shifting from rule would enhance FINRA’s ability to
sell transaction occurring through the contemporaneous reporting of identify all exempted trades occurring
ATS. transactions to TRACE in TRACE- on an individual ATS. Further, the
eligible securities to periodic reporting. exemption would not impact the quality
Economic Impact Assessment and completeness of the information
Need for the Rule Costs of the Rule made generally available through
As discussed above, an ATS is a party An ATS that seeks and is granted an TRACE, since TRACE reporting
to a transaction in TRACE-eligible exemption under this proposed rule obligations continue to apply to the
securities occurring on that ATS. As may incur costs to modify its systems, member subscribers transacting on the
such, an ATS is responsible to report and must update its policies and ATS.
the transaction to FINRA as provided in procedures to reflect reporting Alternatives Considered
Rule 6730, unless an exception or consistent with the periodic regime.
Each ATS may determine The primary alternative considered
exemption applies.
FINRA recognizes that there are independently whether or not it seeks to was to continue to have ATS [sic] with
different business models for the way an obtain the exemption, and thus, it is business models meeting the proposed
exemptive criteria continue to report as
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ATS may facilitate trading on its likely that an ATS would only seek this
platform, and the functional role of the exemption where it was less costly than they do today. However, FINRA
ATS may differ in each of these models. meeting its current reporting concluded that the proposed exemption
For instance FINRA is aware that some requirements. 15 See Securities Exchange Act Release No. 71341
ATS’s do not pass TRACE-eligible FINRA understands that a commenter (January 17, 2014), 79 FR 4213 at 4217 (January 24,
to a related filing indicated that 2014) (Order Approving File No. SR–FINRA–2013–
14 15 U.S.C. 78o–3(b)(6). transactions in TRACE-eligible 042).
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![Federal Register / Vol. 80, No. 246 / Wednesday, December 23, 2015 / Notices 79969
is a reasonable approach that may Paper Comments SECURITIES AND EXCHANGE
simplify compliance for some members COMMISSION
without degrading the quality and • Send paper comments in triplicate
to Secretary, Securities and Exchange [Release No. 34–76675; File No. SR–FINRA–
completeness of information available to 2015–054]
FINRA and the public. Commission, 100 F Street NE.,
Washington, DC 20549–1090. Self-Regulatory Organizations;
C. Self-Regulatory Organization’s
Statement on Comments on the All submissions should refer to File No. Financial Industry Regulatory
Proposed Rule Change Received From SR–FINRA–2015–055. This file number Authority, Inc.; Notice of Filing of a
Members, Participants, or Others should be included on the subject line Proposed Rule Change To Adopt the
if email is used. To help the Capital Acquisition Broker Rules
Written comments were neither Commission process and review your December 17, 2015.
solicited nor received. comments more efficiently, please use Pursuant to Section 19(b)(1) of the
III. Date of Effectiveness of the only one method. The Commission will Securities Exchange Act of 1934 (‘‘Act,’’
Proposed Rule Change and Timing for post all comments on the Commission’s ‘‘Exchange Act’’ or ‘‘SEA’’) 1 and Rule
Commission Action Internet Web site (http://www.sec.gov/ 19b–4 thereunder,2 notice is hereby
rules/sro.shtml). Copies of the given that on December 4, 2015,
Because the foregoing proposed rule submission, all subsequent Financial Industry Regulatory
change does not: (i) Significantly affect amendments, all written statements Authority, Inc. (‘‘FINRA’’) filed with the
the protection of investors or the public with respect to the proposed rule Securities and Exchange Commission
interest; (ii) impose any significant change that are filed with the (‘‘SEC’’ or ‘‘Commission’’) the proposed
burden on competition; and (iii) become Commission, and all written rule change as described in Items I, II,
operative for 30 days from the date on communications relating to the and III below, which Items have been
which it was filed, or such shorter time proposed rule change between the substantially prepared by FINRA. The
as the Commission may designate, it has Commission is publishing this notice to
Commission and any person, other than
become effective pursuant to Section solicit comments on the proposed rule
those that may be withheld from the
19(b)(3)(A) of the Act 16 and Rule 19b– change from interested persons.
public in accordance with the
4(f)(6) thereunder.17
provisions of 5 U.S.C. 552, will be I. Self-Regulatory Organization’s
At any time within 60 days of the available for Web site viewing and Statement of the Terms of Substance of
filing of the proposed rule change, the printing in the Commission’s Public the Proposed Rule Change
Commission summarily may Reference Room, 100 F Street NE., FINRA is proposing to create a
temporarily suspend such rule change if Washington, DC 20549 on official separate rule set that would apply to
it appears to the Commission that such
business days between the hours of firms that meet the definition of ‘‘capital
action is necessary or appropriate in the
10:00 a.m. and 3:00 p.m. Copies of such acquisition broker’’ and elect to be
public interest, for the protection of
filing also will be available for governed under this rule set.
investors, or otherwise in furtherance of The text of the proposed rule change
the purposes of the Act. If the inspection and copying at the principal
office of FINRA. All comments received is available on FINRA’s Web site at
Commission takes such action, the http://www.finra.org, at the principal
Commission shall institute proceedings will be posted without change; the
Commission does not edit personal office of FINRA and at the
to determine whether the proposed rule Commission’s Public Reference Room.
should be approved or disapproved. identifying information from
submissions. You should submit only II. Self-Regulatory Organization’s
IV. Solicitation of Comments information that you wish to make Statement of the Purpose of, and
Interested persons are invited to available publicly. All submissions Statutory Basis for, the Proposed Rule
submit written data, views, and should refer to File No. SR–FINRA– Change
arguments concerning the foregoing, 2015–055, and should be submitted on In its filing with the Commission,
including whether the proposed rule or before January 13, 2016. FINRA included statements concerning
change is consistent with the Act. For the Commission, by the Division of the purpose of and basis for the
Comments may be submitted by any of Trading and Markets, pursuant to delegated proposed rule change and discussed any
the following methods: authority.18 comments it received on the proposed
Robert W. Errett, rule change. The text of these statements
Electronic Comments may be examined at the places specified
Deputy Secretary.
• Use the Commission’s Internet in Item IV below. FINRA has prepared
[FR Doc. 2015–32191 Filed 12–22–15; 8:45 am]
comment form (http://www.sec.gov/ summaries, set forth in sections A, B,
rules/sro.shtml); or
BILLING CODE 8011–01–P and C below, of the most significant
aspects of such statements.
• Send an email to rule-comments@
sec.gov. Please include File No. SR– A. Self-Regulatory Organization’s
FINRA–2015–055 on the subject line. Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
16 15 U.S.C. 78s(b)(3)(A). Change
17 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 1. Purpose
tkelley on DSK3SPTVN1PROD with NOTICES
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file There are FINRA firms that are solely
the proposed rule change, along with a brief corporate financing firms that advise
description and text of the proposed rule change,
at least five business days prior to the date of filing
companies on mergers and acquisitions,
of the proposed rule change, or such shorter time
1 15 U.S.C. 78s(b)(1).
as designated by the Commission. FINRA has
satisfied this requirement. 18 17 CFR 200.30–3(a)(12). 2 17 CFR 240.19b–4.
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Document Created: 2018-03-02 09:20:24
Document Modified: 2018-03-02 09:20:24
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
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| Section | Notices | |
| FR Citation | 80 FR 79966 |
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