81 FR 15770 - Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Modify the Dissemination Protocols for TRACE-Eligible Securities

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 57 (March 24, 2016)

Page Range		15770-15772
FR Document		2016-06605
Federal Register, Volume 81 Issue 57 (Thursday, March 24, 2016)
[Federal Register Volume 81, Number 57 (Thursday, March 24, 2016)]
[Notices]
[Pages 15770-15772]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-06605]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77404; File No. SR-FINRA-2016-011]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Modify the Dissemination Protocols for TRACE-
Eligible Securities

March 18, 2016.
    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 March 9, 2016, 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. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to modify the dissemination protocols for TRACE-
Eligible Securities to disseminate a new alternative trading system 
(``ATS'') contra-party type and ATS indicator. There are no changes to 
the text of a FINRA rule.
    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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On February 2, 2015, FINRA Rule 6720(c) (Alternative Trading 
Systems) went into effect to require TRACE participants that operate an 
alternative trading system (``ATS'') to use a separate Market 
Participant Identifier (``MPID'') to report all transactions that are 
executed within the ATS to TRACE. Where a member operates multiple 
ATSs, a unique, separate MPID must be used for reporting transactions 
within each respective ATS. Where a member operates a single ATS, but 
also engages in transactions otherwise than on the ATS (e.g., conducts 
both an ATS business and a ``voice'' business), the member must use the 
ATS MPID only for reporting transactions within the ATS.\3\
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    \3\ In all cases, members must have policies and procedures in 
place to ensure that trades reported using the separate ATS MPID 
obtained in compliance with Rule 6720(c) are restricted to trades 
executed within the ATS. FINRA Rule 6720(c).
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    In light of the implementation of the separate MPID requirement for 
ATS reporting, FINRA now can conclusively identify transactions that 
occur within an ATS (as opposed to other areas of a member's business). 
As discussed in the filing proposing the separate MPID requirement, 
FINRA believes that separate MPIDs will enhance FINRA's ability to 
surveil for compliance with the requirements of Regulation ATS as well 
as other SEC rules, the federal securities laws, and FINRA rules.\4\ 
FINRA also believes that dissemination of an ATS contra-party type 
would provide useful, additional information regarding the market for 
TRACE-Eligible Securities and, therefore, improve transparency for such 
securities.\5\
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    \4\ See Securities Exchange Act Release No. 70676 (October 11, 
2013), 78 FR 62862 (October 22, 2013) (Notice of Filing of File No. 
SR-FINRA-2013-042).
    \5\ Rule 6710 generally defines a ``TRACE-Eligible Security'' 
as: (1) A debt security that is U.S. 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 (2) a debt security that 
is U.S. dollar-denominated and issued or guaranteed by an ``Agency'' 
as defined in Rule 6710(k) or a ``Government-Sponsored Enterprise'' 
as defined in Rule 6710(n).
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    At present, disseminated TRACE transactions indicate whether the 
reporting party or contra-party is a dealer (``D''), non-member 
affiliate of a member (``A'') or customer (``C''). FINRA is now 
proposing another new identifier for purposes of dissemination to 
indicate when the reporting party or contra-party is an ATS. 
Specifically, where a reporting party or contra-party is identified 
with a unique ATS MPID, or where an ATS is exempt from TRACE reporting 
pursuant to FINRA Rule 6732 and a member that is a party to the exempt 
transaction on the ATS enters the ATS's unique MPID pursuant to FINRA 
Rule 6730(c)(13),\6\ FINRA will disseminate the ATS indicator.
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    \6\ See Securities Exchange Act Release No. 76677 (December 17, 
2015), 80 FR 79966 (December 23, 2015) (Notice of Filing and 
Immediate Effectiveness of File No. SR-FINRA-2015-055).
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    The proposal will not necessitate that members change their TRACE 
trade reporting practices. As noted above, FINRA will use information 
already required to be reported to TRACE to identify transactions 
involving an ATS and append the ATS indicator for dissemination, as 
appropriate. Importantly, FINRA will not disclose any identifying 
information regarding the particular ATS involved in the transaction. 
All ATSs will be generically identified by FINRA using the same new 
contra-party type and the ATS indicator also will be generic. However, 
FINRA will not identify ATSs for transactions in ``to be announced'' or 
``TBA'' \7\ transactions in Agency Pass-Through Mortgage-Backed 
Securities \8\ and SBA-

[[Page 15771]]

Backed ABSs,\9\ which, today, trade primarily on a single ATS. Thus, to 
preserve any anonymity that exists regarding the identity of the 
particular ATS on which a transaction in these types of TRACE-Eligible 
Securities occurred, FINRA will continue to identify all dealers, 
whether or not an ATS, as a ``dealer,'' for TBA transactions (for 
dissemination purposes).\10\
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    \7\ ``To Be Announced'' means a transaction in an Agency Pass-
Through Mortgage-Backed Security as defined in Rule 6710(v) or an 
SBA-Backed ABS as defined in Rule 6710(bb) where the parties agree 
that the seller will deliver to the buyer a pool or pools of a 
specified face amount and meeting certain other criteria but the 
specific pool or pools to be delivered at settlement is not 
specified at the Time of Execution, and includes TBA transactions 
``for good delivery'' (``GD'') and TBA transactions ``not for good 
delivery'' (``NGD''). See Rule 6710(u).
    \8\ ``Agency Pass-Through Mortgage-Backed Security'' means a 
type of Securitized Product issued in conformity with a program of 
an Agency as defined in paragraph (k) or a Government-Sponsored 
Enterprise (``GSE'') as defined in paragraph (n), for which the 
timely payment of principal and interest is guaranteed by the Agency 
or GSE, representing ownership interest in a pool (or pools) of 
mortgage loans structured to ``pass through'' the principal and 
interest payments to the holders of the security on a pro rata 
basis. See Rule 6710(v).
    \9\ ``SBA-Backed ABS'' means a Securitized Product issued in 
conformity with a program of the Small Business Administration 
(``SBA''), for which the timely payment of principal and interest is 
guaranteed by the SBA, representing ownership interest in a pool (or 
pools) of loans or debentures and structured to ``pass through'' the 
principal and interest payments made by the borrowers in such loans 
or debentures to the holders of the security on a pro rata basis. 
See Rule 6710(bb).
    \10\ FINRA also analyzed a sample of corporate and agency bond 
trades that occurred between February 2, 2015 and February 5, 2016, 
to investigate whether the dissemination of the ATS indicator may 
potentially cause anonymity concerns for those securities. Of the 
50,579 CUSIPs in the sample, only 17,896 had trades reported by an 
ATS. None of the 17,896 CUSIPs are traded solely on ATSs. A single 
ATS may represent between 0.04% and 66.67% of total trades in a 
given CUSIP. The average of the top market share on ATSs across 
CUSIPs is 4.7%. Therefore, the dissemination of the ATS indicator is 
not likely to pose anonymity concerns for corporates and agencies.
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    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 of Section 15A(b)(6) of the Act,\11\ 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. As discussed above, in light of the implementation of 
the separate MPID requirement, FINRA now is able to conclusively 
identify transactions that occur within an ATS, and believe that this 
additional piece of information would be useful to the market. ATSs 
will be identified generically using a single new reporting and contra-
party type and ATS indicator, except that transactions in TBAs, which, 
today, are concentrated on a particular ATS, will continue to be 
identified as ``dealer'' transactions and will not carry the ATS 
indicator to help preserve anonymity with respect to that ATS.
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    \11\ 15 U.S.C. 78o-3(b)(6).
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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. FINRA will use information 
currently reported to TRACE for the new reporting and contra-party 
types as well as the ATS indicator; therefore, the proposed rule change 
does not require changes in trade reporting practices by members. The 
proposed rule also does not identify particular ATSs--all ATSs will be 
identified generically using the same ATS reporting party and contra-
party type and ATS indicator. Thus, there will be no impact relating to 
disclosure that may result directly or indirectly in an impact on 
competition.
    In the case of TRACE-Eligible Securities that are traded TBA, due 
to the high concentration of TBA transactions on a single ATS, 
transactions in these types of TRACE-Eligible Securities will not be 
subject to the new reporting and contra-party type and ATS indicator, 
and will continue to be identified as a transaction by a ``dealer,'' 
even reported by or against an ATS. FINRA believes that excepting 
transactions in TBAs from the ATS contra-party type will ensure that 
the proposed rule change will not have a disparate impact on 
competition for members that engage in transactions in such securities.

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 \12\ and Rule 19b-
4(f)(6) thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
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. 
The Exchange has satisfied this requirement.
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    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 Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-FINRA-2016-011 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-FINRA-2016-011. 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

[[Page 15772]]

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 Number SR-FINRA-2016-011, and should be submitted 
on or before April 14, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-06605 Filed 3-23-16; 8:45 am]
 BILLING CODE 8011-01-P
15770 Federal Register / Vol. 81, No. 57 / Thursday, March 24, 2016 / Notices

may be withheld from the public in http://www.finra.org, at the principal regarding the market for TRACE-Eligible
accordance with the provisions of 5 office of FINRA and at the Securities and, therefore, improve
U.S.C. 552, will be available for Web Commission’s Public Reference Room. transparency for such securities.5
site viewing and printing in the At present, disseminated TRACE
II. Self-Regulatory Organization’s transactions indicate whether the
Commission’s Public Reference Room, Statement of the Purpose of, and
100 F Street NE., Washington, DC reporting party or contra-party is a
Statutory Basis for, the Proposed Rule dealer (‘‘D’’), non-member affiliate of a
20549, on official business days Change
between the hours of 10:00 a.m. and member (‘‘A’’) or customer (‘‘C’’).
3:00 p.m. All comments received will be In its filing with the Commission, FINRA is now proposing another new
posted without change; the Commission FINRA included statements concerning identifier for purposes of dissemination
does not edit personal identifying the purpose of and basis for the to indicate when the reporting party or
information from submissions. You proposed rule change and discussed any contra-party is an ATS. Specifically,
should submit only information that comments it received on the proposed where a reporting party or contra-party
you wish to make publicly available. All rule change. The text of these statements is identified with a unique ATS MPID,
submissions should refer to File may be examined at the places specified or where an ATS is exempt from TRACE
Number 10–222 and should be in Item IV below. FINRA has prepared reporting pursuant to FINRA Rule 6732
submitted on or before April 14, 2016. summaries, set forth in sections A, B, and a member that is a party to the
and C below, of the most significant exempt transaction on the ATS enters
By the Commission. aspects of such statements. the ATS’s unique MPID pursuant to
Brent J. Fields, FINRA Rule 6730(c)(13),6 FINRA will
Secretary. A. Self-Regulatory Organization’s
Statement of the Purpose of, and the disseminate the ATS indicator.
[FR Doc. 2016–06632 Filed 3–23–16; 8:45 am] The proposal will not necessitate that
Statutory Basis for, the Proposed Rule
BILLING CODE 8011–01–P members change their TRACE trade
Change
reporting practices. As noted above,
1. Purpose FINRA will use information already
SECURITIES AND EXCHANGE On February 2, 2015, FINRA Rule required to be reported to TRACE to
COMMISSION 6720(c) (Alternative Trading Systems) identify transactions involving an ATS
went into effect to require TRACE and append the ATS indicator for
[Release No. 34–77404; File No. SR–FINRA–
2016–011] participants that operate an alternative dissemination, as appropriate.
trading system (‘‘ATS’’) to use a separate Importantly, FINRA will not disclose
Self-Regulatory Organizations; Market Participant Identifier (‘‘MPID’’) any identifying information regarding
Financial Industry Regulatory to report all transactions that are the particular ATS involved in the
Authority, Inc.; Notice of Filing and executed within the ATS to TRACE. transaction. All ATSs will be generically
Immediate Effectiveness of a Proposed Where a member operates multiple identified by FINRA using the same new
Rule Change To Modify the ATSs, a unique, separate MPID must be contra-party type and the ATS indicator
Dissemination Protocols for TRACE- used for reporting transactions within also will be generic. However, FINRA
Eligible Securities each respective ATS. Where a member will not identify ATSs for transactions
operates a single ATS, but also engages in ‘‘to be announced’’ or ‘‘TBA’’ 7
March 18, 2016. transactions in Agency Pass-Through
in transactions otherwise than on the
Pursuant to Section 19(b)(1) of the ATS (e.g., conducts both an ATS Mortgage-Backed Securities 8 and SBA-
Securities Exchange Act of 1934 business and a ‘‘voice’’ business), the
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 member must use the ATS MPID only
5 Rule 6710 generally defines a ‘‘TRACE-Eligible

notice is hereby given that on March 9, Security’’ as: (1) A debt security that is U.S. dollar-
for reporting transactions within the denominated and issued by a U.S. or foreign private
2016, Financial Industry Regulatory ATS.3 issuer (and, if a ‘‘restricted security’’ as defined in
Authority, Inc. (‘‘FINRA’’) filed with the In light of the implementation of the Securities Act Rule 144(a)(3), sold pursuant to
Securities and Exchange Commission separate MPID requirement for ATS Securities Act Rule 144A); or (2) a debt security that
(‘‘SEC’’ or ‘‘Commission’’) the proposed is U.S. dollar-denominated and issued or
reporting, FINRA now can conclusively guaranteed by an ‘‘Agency’’ as defined in Rule
rule change as described in Items I and identify transactions that occur within 6710(k) or a ‘‘Government-Sponsored Enterprise’’ as
II below, which Items have been an ATS (as opposed to other areas of a defined in Rule 6710(n).
prepared by FINRA. The Commission is member’s business). As discussed in the 6 See Securities Exchange Act Release No. 76677

publishing this notice to solicit filing proposing the separate MPID (December 17, 2015), 80 FR 79966 (December 23,
comments on the proposed rule change 2015) (Notice of Filing and Immediate Effectiveness
requirement, FINRA believes that of File No. SR–FINRA–2015–055).
from interested persons. separate MPIDs will enhance FINRA’s 7 ‘‘To Be Announced’’ means a transaction in an

I. Self-Regulatory Organization’s ability to surveil for compliance with Agency Pass-Through Mortgage-Backed Security as
the requirements of Regulation ATS as defined in Rule 6710(v) or an SBA-Backed ABS as
Statement of the Terms of Substance of defined in Rule 6710(bb) where the parties agree
the Proposed Rule Change well as other SEC rules, the federal that the seller will deliver to the buyer a pool or
securities laws, and FINRA rules.4 pools of a specified face amount and meeting
FINRA is proposing to modify the FINRA also believes that dissemination certain other criteria but the specific pool or pools
dissemination protocols for TRACE- of an ATS contra-party type would to be delivered at settlement is not specified at the
Eligible Securities to disseminate a new provide useful, additional information
Time of Execution, and includes TBA transactions
‘‘for good delivery’’ (‘‘GD’’) and TBA transactions
asabaliauskas on DSK3SPTVN1PROD with NOTICES

alternative trading system (‘‘ATS’’)
‘‘not for good delivery’’ (‘‘NGD’’). See Rule 6710(u).
contra-party type and ATS indicator. 3 In all cases, members must have policies and 8 ‘‘Agency Pass-Through Mortgage-Backed
There are no changes to the text of a procedures in place to ensure that trades reported Security’’ means a type of Securitized Product
FINRA rule. using the separate ATS MPID obtained in issued in conformity with a program of an Agency
The text of the proposed rule change compliance with Rule 6720(c) are restricted to as defined in paragraph (k) or a Government-
trades executed within the ATS. FINRA Rule Sponsored Enterprise (‘‘GSE’’) as defined in
is available on FINRA’s Web site at 6720(c). paragraph (n), for which the timely payment of
4 See Securities Exchange Act Release No. 70676 principal and interest is guaranteed by the Agency
1 15 U.S.C. 78s(b)(1). (October 11, 2013), 78 FR 62862 (October 22, 2013) or GSE, representing ownership interest in a pool
2 17 CFR 240.19b–4. (Notice of Filing of File No. SR–FINRA–2013–042). (or pools) of mortgage loans structured to ‘‘pass

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Document Created: 2016-03-24 00:57:20
Document Modified: 2016-03-24 00:57:20
Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
FR Citation		81 FR 15770