81 FR 67023 - Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Granting Approval of Proposed Rule Change Relating to TRACE Reporting and Dissemination of CMO Transactions
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 189 (September 29, 2016)
Federal Register Volume 81, Issue 189 (September 29, 2016)
| Page Range | 67023-67027 | |
| FR Document | 2016-23499 |
[Federal Register Volume 81, Number 189 (Thursday, September 29, 2016)] [Notices] [Pages 67023-67027] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-23499] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-78925; File No. SR-FINRA-2016-023] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Granting Approval of Proposed Rule Change Relating to TRACE Reporting and Dissemination of CMO Transactions September 23, 2016. I. Introduction On June 27, 2016, the Financial Industry Regulatory Authority, Inc. (``FINRA'') filed with the Securities and Exchange Commission (``Commission''), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change related to Trade Reporting and Compliance Engine (``TRACE'') reporting and dissemination of transactions in Collateralized Mortgage Obligations (``CMOs'').\3\ The proposed rule change was published for comment in the Federal Register on July 6, 2016.\4\ The Commission received three comments in response to the proposal.\5\ FINRA responded to the comments on September 14, 2016.\6\ FINRA extended the time period within which the Commission shall approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether the proposed rule change should be disapproved to September 23, 2016.\7\ This order grants approval of the proposed rule change. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ The term ``Collateralized Mortgage Obligation'' is defined in FINRA Rule 6710(dd). \4\ See Securities Exchange Act Release No. 78196 (June 29, 2016), 81 FR 44065 (``Notice''). \5\ See letters to Brent J. Fields, Secretary, Commission, from Mike Nicholas, Chief Executive Officer, BDA, dated July 27, 2016 (``BDA Letter''); Lynn Martin, President and Chief Operating Officer, ICE Data Services, dated July 27, 2016 (``ICE Letter''); and Chris Killian, Managing Director, Securitization, SIFMA, dated July 27, 2016 (``SIFMA Letter''). \6\ See letter to Brent J. Fields, Secretary, Commission, from Alexander Ellenberg, Associate General Counsel, Regulatory Policy and Oversight, FINRA, dated September 14, 2016 (``FINRA Response Letter''). \7\ See letter to Katherine England, Assistant Director, Division of Trading and Markets, Commission, from Alexander L. Ellenberg, Assistant General Counsel, Regulatory Policy and Oversight, FINRA, dated August 9, 2016 (extending to September 9, 2016); letter to Katherine England, Assistant Director, Division of Trading and Markets, Commission, from Alexander L. Ellenberg, Associate General Counsel, Regulatory Policy and Oversight, FINRA, dated September 2, 2016 (extending to September 23, 2016). --------------------------------------------------------------------------- II. Description of the Proposed Rule Change Historically, FINRA has utilized TRACE to collect from its members and publicly disseminate information on secondary, over-the-counter transactions in corporate debt securities, Agency Debt Securities,\8\ and certain primary market transactions. For certain other asset types, FINRA utilized TRACE to collect transaction information, but until recently, did not disseminate such information publicly. FINRA has been working to phase-in the dissemination of transaction information for these previously non-disseminated asset types. To date, FINRA has implemented dissemination of Agency Pass-Through Mortgage-Backed Securities and SBA-Backed ABS; \9\ TRACE-Eligible [[Page 67024]] Securities effected as Rule 144A transactions; \10\ and Asset-Backed Securities.\11\ The remaining types of Securitized Products \12\ not yet subject to dissemination are CMOs, commercial mortgage-backed securities (``CMBSs''), and collateralized debt obligations (``CDOs'').\13\ FINRA now has proposed to provide for public dissemination of certain information about CMO transactions,\14\ to reduce the time period within which a CMO transaction must be reported to TRACE, and to make conforming and technical revisions to its rules, as described below. --------------------------------------------------------------------------- \8\ The term ``Agency Debt Security'' is defined in FINRA Rule 6710(l). \9\ On November 12, 2012, FINRA began disseminating transactions in Agency Pass-Through Mortgage-Backed Securities traded TBA. See Securities Exchange Act Release No. 66829 (April 18, 2012), 77 FR 24748 (April 25, 2012) (approving SR-FINRA-2012-020); FINRA's Regulatory Notice 12-26 (May 2012) and Regulatory Notice 12-48 (November 2012). On July 22, 2013, FINRA began disseminating transactions in Agency Pass-Through Mortgage-Backed Securities traded in Specified Pool Transactions and SBA-Backed ABS traded TBA or in Specified Pool Transactions. See Securities Exchange Act Release No. 68084 (October 23, 2012), 77 FR 65436 (October 26, 2012) (approving SR-FINRA-2012-042); FINRA's Regulatory Notice 12-56 (December 2012). The terms ``TBA,'' ``Agency Pass-Through Mortgage- Backed Security,'' ``Specified Pool Transaction,'' and ``SBA-Backed ABS'' are defined in FINRA Rule 6710(u), (v), (x), and (bb), respectively. \10\ On June 30, 2014, FINRA began disseminating transactions in TRACE-Eligible Securities effected as Rule 144A transactions, provided that such transactions were in securities that would be subject to dissemination if effected in non-Rule 144A transactions. See Securities Exchange Act Release No. 70345 (September 6, 2013), 78 FR 56251 (September 12, 2013) (approving SR-FINRA-2013-029); Securities Exchange Act Release No. 70691 (October 16, 2013), 78 FR 62788 (October 22, 2013) (SR-FINRA-2013-043); FINRA's Regulatory Notice 13-35 (October 2013). ``TRACE-Eligible Security'' is defined in FINRA Rule 6710(a). \11\ On June 1, 2015, FINRA began disseminating transactions in a group of newly-defined Asset-Backed Securities. See Securities Exchange Act Release No. 71607 (February 24, 2014), 79 FR 11481 (February 28, 2014) (approving SR-FINRA-2013-046); FINRA's Regulatory Notice 14-34 (August 2014). ``Asset-Backed Security'' is defined in FINRA Rule 6710(cc). \12\ ``Securitized Product'' is defined in FINRA Rule 6710(m). \13\ See Notice, 81 FR at 44066. \14\ FINRA stated that CMOs are the largest and most actively traded of the remaining Securitized Product types and typically have relatively smaller transaction sizes than CMBSs and CDOs. See id. --------------------------------------------------------------------------- Dissemination of CMO Transaction Information Currently, FINRA Rule 6750 states that FINRA will not disseminate information on a transaction in a TRACE-Eligible Security that is a Securitized Product, with the following exceptions: An Agency Pass- Through Mortgage-Backed Security, an SBA-Backed ABS, and an Asset- Backed Security.\15\ FINRA has proposed to revise this rule to provide for public dissemination of certain information on transactions in CMOs, including those effected pursuant to Rule 144A. Accordingly, FINRA has proposed to reframe the description of Securitized Products not subject to dissemination to delineate those Securitized Products that would remain outside of the scope of contemporaneous dissemination: CMBSs, CDOs,\16\ and certain CMOs.\17\ --------------------------------------------------------------------------- \15\ See FINRA Rule 6750(b)(4). \16\ FINRA has proposed to define ``Collateralized Debt Obligation'' (``CDO'') to mean ``a type of Securitized Product backed by fixed-income assets (such as bonds, receivables on loans, or other debt) or derivatives of these fixed-income assets, structured in multiple classes or tranches with each class or tranche entitled to receive distributions of principal and/or interest in accordance with the requirements adopted for the specific class or tranche. A CDO includes, but is not limited to, a collateralized loan obligation (`CLO') and a collateralized bond obligation (`CBO').'' See proposed FINRA Rule 6710(ff). FINRA also has proposed to amend the definition of ``Asset-Backed Security'' to harmonize with the newly defined term ``CDO.'' See proposed FINRA Rule 6710(cc). \17\ See proposed FINRA Rule 6750(c)(4). --------------------------------------------------------------------------- Under the proposal, depending on the size of the transaction and the number of transactions in the CMO security in a given period, a CMO transaction could be subject to immediate trade-by-trade dissemination or periodic aggregate dissemination, or remain exempt from dissemination entirely. FINRA would immediately disseminate information about a CMO transaction having a value under $1 million (calculated based upon original principal balance of the particular CMO security).\18\ For a CMO transaction having a value of $1 million or more (calculated based upon original principal balance of the particular CMO security) and where there have been five or more transactions in that security of $1 million or more in the period reported by at least two different market participant identifiers (``MPIDs''), FINRA would disseminate aggregated information about transactions in that security on a weekly and/or monthly basis.\19\ If a CMO transaction does not meet the criteria for either immediate trade-by-trade dissemination or, based on recent activity in that particular CMO security, periodic aggregate dissemination, such transaction would not be subject to public dissemination in any form (but would, as described below, be available in the historic data sets).\20\ --------------------------------------------------------------------------- \18\ See proposed FINRA Rule 6750(a). \19\ See proposed FINRA Rule 6750(b). For a particular CMO security, a weekly report would be issued for each week during which at least five transactions in that security of $1 million or more occurred and such transactions were reported by at least two unique MPIDs. A monthly report for a CMO security would be issued for each month during which at least five transactions in that security of $1 million or more occurred and such transactions were reported by at least two unique MPIDs, regardless of whether such transactions had qualified for weekly reporting. FINRA stated that, for purposes of determining if a CMO security has been reported by at least two unique MPIDs, FINRA would consider an interdealer trade to be reported by one MPID (the sell side dealer), even though the trade would be reported by both sides of the transaction. See Notice, 81 FR at 44066, n. 11. \20\ See proposed FINRA Rule 6750(c)(4). --------------------------------------------------------------------------- Reduction of Reporting Period FINRA also proposed to amend FINRA Rule 6730 to reduce the period within which a member must report a CMO transaction executed on or after issuance and to implement a clearer deadline for reporting a CMO transaction executed prior to issuance. Currently, a CMO transaction executed on or after issuance must be reported to TRACE no later than the close of the TRACE system on the date of execution.\21\ FINRA has proposed to require that each CMO transaction be reported to TRACE within 60 minutes of execution.\22\ Currently, a CMO transaction executed before the date of issuance of the security must be reported to TRACE by the earlier of (i) the business day that the security is assigned a CUSIP, a similar numeric identifier, or a FINRA symbol; or (ii) the date of issuance of the security.\23\ Under the proposal, such a CMO transaction would need to be reported to TRACE no later than the first settlement date of the security.\24\ --------------------------------------------------------------------------- \21\ See FINRA Rule 6730(a)(3)(A). This rule contains exceptions for transactions executed within 90 minutes of the close of the TRACE system and transactions executed when the system is closed. \22\ See proposed FINRA Rule 6730(a)(3)(H)(ii). Exceptions for transactions executed within 60 minutes of the close of the TRACE system and transactions executed when the system is closed are set forth in subparts (i), (iii), and (iv) of proposed FINRA Rule 6730(a)(3)(H). \23\ See FINRA Rule 6730(a)(3)(C). \24\ See proposed FINRA Rule 6730(a)(3)(C). FINRA stated its belief that the proposal would provide a uniform reporting deadline that could be easily ascertained by all firms because new issuances in CMOs generally settle on the last business day of the month. FINRA explained that, under the current rule, some firms have had difficulty in determining with accuracy and in a timely manner when the reporting obligation has been triggered, due to inconsistencies in how underwriters and trading parties communicate relevant information. See Notice, 81 FR at 44067. --------------------------------------------------------------------------- Data Availability The proposal would amend FINRA Rule 7730, which establishes various TRACE data products, to reflect the addition of CMO transactions to the applicable data sets. Currently, the ``SP Data Set'' for real-time data includes each transaction in a Securitized Product that is publicly disseminated, except for a Rule 144A transaction. Under the proposal, the SP Data Set would be expanded to include any transaction in a CMO security that is disseminated on an immediate trade-by-trade basis or included in a weekly or monthly aggregated report.\25\ Currently, the ``Historic SP Data Set'' includes each historic transaction in a Securitized Product reported to TRACE, if a [[Page 67025]] transaction in that type of Securitized Product is subject to immediate trade-by-trade dissemination, but excludes a historic transaction in a Rule 144A security. Under the proposal, the Historic SP Data Set would be expanded to include all non-Rule 144A CMO transactions, even if not previously disseminated immediately or as part of a periodic report.\26\ Currently, the ``Rule 144A Data Set'' and the ``Historic Rule 144A Data Set'' include real-time data and historic data, respectively, for Rule 144A transactions reported to TRACE. Under the proposal, with respect to transactions in CMO securities issued pursuant to Rule 144A, the Rule 144A Data Set would be expanded to include transactions in CMO securities that had been disseminated on an immediate trade-by-trade basis or on a periodic aggregate basis, and the Historic Rule 144A Data Set would be expanded to include historic data on all CMO transactions, whether or not they had been subject to any form of dissemination previously.\27\ FINRA has not proposed to amend the fees currently in effect for the SP Data Set, Historic SP Data Set, Rule 144A Data Set, or Historic Rule 144A Data Set based on inclusion of this additional data.\28\ --------------------------------------------------------------------------- \25\ See proposed FINRA Rule 7730(c). \26\ See proposed FINRA Rule 7730(f)(4)(C). See also Notice, 81 FR at 44066, n. 12. \27\ See proposed FINRA Rule 7730(c), (f)(4)(D). See also Notice, 81 FR 44066, n. 12. \28\ See Notice, 81 FR at 44066, n. 12 (stating that ``[t]he inclusion of this additional data in such data sets will not affect the fees currently in effect''). --------------------------------------------------------------------------- Other Technical Changes FINRA has proposed to amend a provision in FINRA Rule 6730(a) that provides general requirements for reporting Securitized Products to make clear that this provision will apply specifically to CDOs and CMBSs.\29\ FINRA also has proposed to eliminate certain provisions that have expired in FINRA Rule 6730(a).\30\ Finally, FINRA has proposed to make technical and conforming changes to the FINRA Rule 7730 and the Rule 6700 series to reflect the changes to the TRACE reporting and dissemination requirements for CMO transactions discussed above.\31\ --------------------------------------------------------------------------- \29\ See proposed FINRA Rule 6730(a)(3)(A). FINRA noted that after the proposed rule change becomes effective, this provision would apply only to these two types of Securitized Products. See Notice, 81 FR at 44067, n. 15. \30\ See proposed FINRA Rule 6730(a)(3)(B). \31\ See Notice, 81 FR at 44065. --------------------------------------------------------------------------- Effective Date of Proposed Rule Change FINRA has stated that it would announce the operative date of the proposed rule change in a Regulatory Notice to be published no later than 90 days following Commission approval, and that the operative date would be no later than 365 days following publication of that Regulatory Notice.\32\ --------------------------------------------------------------------------- \32\ See id. at 44067. --------------------------------------------------------------------------- III. Summary of Comments and FINRA's Response The Commission received three comments on the proposed rule change \33\ and a response letter from FINRA.\34\ All three commenters were generally supportive but suggested certain revisions to the proposal. For example, all three commenters questioned the proposed $1 million threshold for immediate trade-by-trade dissemination, but they suggested conflicting alternatives. One commenter argued that the $1 million threshold is too high and suggested lowering the threshold to no more than $500,000 ``to ensure only truly retail-sized transactions are subject to real-time dissemination.'' \35\ This commenter stated that its members ``recognize the benefits to the market of greater price transparency, but at the same time recent experience with TBAs, specified pools, and other types of securities illustrate the detrimental impact overly broad TRACE dissemination can have, particularly with respect to the ability for market participants to easily transact in size.'' \36\ Further, this commenter noted that, because in the CMO market ``the securities are even less liquid and more unique, liquidity concerns are heightened.'' \37\ --------------------------------------------------------------------------- \33\ See supra note 5. \34\ See supra note 6. \35\ SIFMA Letter at 1-2. \36\ Id. at 1. \37\ Id. --------------------------------------------------------------------------- Another commenter argued that the $1 million threshold is too low to meaningfully improve transparency and suggested that FINRA consider incrementally increasing the threshold in stages until all CMO transactions are disseminated on an immediate trade-by-trade basis.\38\ This commenter stated that limiting immediate dissemination to smaller CMO transactions could be confusing to retail and smaller institutional investors because the prices of smaller CMO trades are ``typically less representative of where near-term next trading levels are typically conducted.'' \39\ This commenter also recommended that FINRA set the initial threshold for immediate dissemination at $1 million based on the current principal balance, rather than on the original principal balance.\40\ --------------------------------------------------------------------------- \38\ See ICE Letter at 2, 5. \39\ Id. at 3-4. \40\ See id. at 5. --------------------------------------------------------------------------- A third commenter requested that FINRA remove the $1 million threshold entirely, based on a view that the proposed thresholds for dissemination on a trade-by-trade or on a periodic aggregate basis ``will create a bifurcated market that will disadvantage the smaller trades that will be disseminated in real-time and small-to-medium sized dealers that more frequently transact in smaller quantities compared to the largest dealers.'' \41\ This commenter predicted that institutional investors would ``avoid trading in sub-$1 million quantities . . . to avoid information leakage'' and ``seek to transact with financial institutions that are not required to report trades to TRACE.'' \42\ This commenter argued that greater trade-by-trade dissemination would have a negative impact on liquidity and the proposal would ``almost exclusively impair market liquidity for transactions of $1 million and less.'' \43\ --------------------------------------------------------------------------- \41\ BDA Letter at 1. \42\ Id. at 1-2. \43\ Id. at 2. --------------------------------------------------------------------------- In response to these comments, FINRA stated that it ``continues to believe that the $1 million threshold is an appropriate balance between transparency and the risk of decreased liquidity provision.'' \44\ FINRA explained that it received similar comments on an earlier iteration of the proposal and took these comments into account when finalizing the proposed rule change, based on the reasons explained in the Notice and the economic analysis contained therein.\45\ FINRA also stated that it will assess whether there is a need for additional transparency in the future.\46\ --------------------------------------------------------------------------- \44\ FINRA Response Letter at 2. \45\ See id. \46\ See id. --------------------------------------------------------------------------- One commenter recommended a higher minimum activity level threshold for new-issue CMO transactions to be included in periodic aggregate reports so that dissemination would focus on secondary market activity.\47\ FINRA responded that the proposed threshold of five transactions, combined with the use of periodic aggregate reports rather than trade-by-trade dissemination for certain transactions, should satisfy the commenter's concern and that FINRA's proposed approach was appropriate.\48\ --------------------------------------------------------------------------- \47\ See SIFMA Letter at 2. This commenter also recommended that multiple dealer-to-dealer trades done in the same CMO security at the time of the initial distribution be counted as one trade for purposes of calculating the periodic aggregate dissemination threshold. See id. \48\ See FINRA Response Letter at 3. --------------------------------------------------------------------------- Another commenter suggested that the periodic aggregate reports should include the most recent trade price, as [[Page 67026]] this would allow retail investors to reference the last trade price when engaging in price discovery for future trades and thereby better align retail and institutional execution quality.\49\ FINRA responded that it previously considered including the last sale price in the reports, but modified an earlier version of the proposal to remove this and other data fields in response to concerns about the potential for reverse-engineering the data.\50\ --------------------------------------------------------------------------- \49\ See ICE Letter at 5. \50\ See FINRA Response Letter at 4. --------------------------------------------------------------------------- Two commenters commented on the proposed shortening of the reporting period for CMO transactions executed on or after issuance from end-of-day to within 60 minutes of execution. One commenter supported this aspect of the proposal and stated that, as compared to an even shorter time period considered initially, this reporting period ``is a vast improvement for smaller dealers that have fewer operational and trading personnel focused on trade reporting.'' \51\ Another commenter suggested a six-month pilot period to phase in the reduction in reporting time, as has been done for other product types.\52\ This commenter acknowledged that many of its members currently report CMO transactions in less than 60 minutes, but noted that this is not always the case and that a pilot period ``would help ensure that dealers are able to implement necessary system changes and avoid errors.'' \53\ FINRA responded that it initially considered a shorter reporting timeframe with a phased-in implementation period, but modified its proposal to a reporting period longer than either phase proposed initially ``to lessen the potential costs of the Proposal while still providing sufficiently timely transparency to the market.'' \54\ FINRA noted that 84% of CMO transactions are already reported to TRACE within 60 minutes and that it continues to believe that the proposed reporting timeframe is appropriate and not unduly burdensome.\55\ --------------------------------------------------------------------------- \51\ BDA Letter at 1. Under a previous version of the proposal, FINRA had considered reducing the reporting timeframe to 15 minutes. See Notice, 81 FR at 44071. \52\ See SIFMA Letter at 3. \53\ Id. \54\ FINRA Response Letter at 3-4. \55\ See id. at 4. --------------------------------------------------------------------------- Two commenters expressed their support for the revised reporting timeframe for CMO transactions executed before issuance. One commenter noted that its members strongly support the revised reporting time and that it had requested this change because of resource constraints faced by some small and mid-sized firms that prevent them from actively monitoring all CMO data feeds and thereby knowing if a particular CUSIP has been issued.\56\ Another commenter stated the new standard ``should provide dealers with sufficient flexibility to report a transaction as early as one or two days prior to the first settlement date, if settlement details are available.'' \57\ --------------------------------------------------------------------------- \56\ See SIFMA Letter at 3. \57\ BDA Letter at 1. --------------------------------------------------------------------------- Finally, one commenter requested clarification of the definition of ``CMO'' because the current definition encompasses Ginnie Mae Project Loans, which (according to the commenter) market participants consider agency CMBS, in apparent conflict with FINRA's stated intention that the proposed rule change would apply to CMOs, but not CMBSs or CDOs. This commenter suggested that project loan securities should be outside the scope of the proposed rule change and the definition of ``CMO'' should be adjusted accordingly.\58\ FINRA responded that agency CMBSs fall within the definition of ``CMO'' and are within the intended scope of the proposal, while other CMBSs that are not specifically included within the definition of ``CMO'' are not within scope.\59\ --------------------------------------------------------------------------- \58\ See SIFMA Letter at 2-3. \59\ See FINRA Response Letter at 4. --------------------------------------------------------------------------- IV. Discussion and Commission Findings After careful review, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities association.\60\ In particular, the Commission finds that the proposed rule change is consistent with Section 15A(b)(6) of the Act,\61\ which requires, among other things, that FINRA's rules 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. --------------------------------------------------------------------------- \60\ In approving this proposed rule change, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). \61\ 15 U.S.C. 78o-3(b)(6). --------------------------------------------------------------------------- On numerous occasions, the Commission has stated that price transparency plays a fundamental role in promoting the fairness and efficiency of U.S. capital markets.\62\ The Commission believes that, to further the goal of increasing price transparency in the debt markets in general and the CMO market in particular, it is reasonable and consistent with the Act for FINRA to extend post-trade price transparency to CMO transactions in the manner set forth in the proposal. FINRA will effect immediate trade-by-trade dissemination of CMO transactions with a transaction value under $1 million and issue periodic aggregate reports of transactions in a particular CMO security having a transaction value of $1 million or more and meeting thresholds for trading frequency and the number of members reporting transactions in that particular security. FINRA has not proposed either immediate trade-by-trade dissemination or periodic aggregate dissemination of CMO transactions with a transaction value of $1 million or more that do not meet those thresholds. The Commission acknowledges that this proposal thereby tailors public dissemination only to a segment of the CMO market in which there are smaller transactions or activity among a wider number of market participants. The Commission notes one commenter's concern that price levels for smaller transactions in a particular CMO security may be less representative of subsequent trading levels for that security \63\ and another commenter's concern that restricting immediate trade-by-trade public dissemination to only the smallest trades could impair market liquidity in that segment of the market.\64\ Nevertheless, the Commission believes that the proposal represents a reasonable first step to introduce post-trade transparency to this asset class, and in approving this proposal notes FINRA's representation that it ``will continue to monitor the market and assess the need for additional transparency.'' \65\ --------------------------------------------------------------------------- \62\ See, e.g., Securities Exchange Act Release No. 43873 (January 23, 2001), 66 FR 8131, 8136 (January 29, 2001) (SR-NASD-99- 65) (approving initial TRACE proposal). \63\ See ICE Letter at 3-4. \64\ See BDA Letter at 2. \65\ FINRA Response Letter at 2. --------------------------------------------------------------------------- The Commission believes that the proposed reduction in reporting times for CMO transactions executed on or after issuance appears reasonably designed to contribute to enhanced price transparency for CMOs. Additionally, the Commission believes that the proposed revision to the reporting period for CMO transactions executed prior to issuance will provide greater clarity to market participants and help promote compliance with applicable reporting rules. Furthermore, the Commission believes that including CMO transaction data in the various TRACE data sets is reasonable and consistent with the Act. The rules that establish these data sets have been approved by the [[Page 67027]] Commission,\66\ and expanding the data sets to include CMO transactions does not appear to raise any issues. Finally, the Commission believes that the proposal's minor, conforming, and technical revisions to FINRA Rule 7730 and the Rule 6700 series are consistent with the Act. --------------------------------------------------------------------------- \66\ See Securities Exchange Act Release No. 66829 (April 18, 2012), 77 FR 24748 (April 25, 2012) (approving SR-FINRA-2012-020); Securities Exchange Act Release No. 68084 (October 23, 2012), 77 FR 65436 (October 26, 2012) (approving SR-FINRA-2012-042); Securities Exchange Act Release No. 70345 (September 6, 2013), 78 FR 56251 (September 12, 2013) (approving SR-FINRA-2013-029); Securities Exchange Act Release No. 71607 (February 24, 2014), 78 FR 11481 (February 28, 2014) (approving SR-FINRA-2013-046). --------------------------------------------------------------------------- IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,\67\ that the proposed rule change (SR-FINRA-2016-023) be, and hereby is, approved. --------------------------------------------------------------------------- \67\ 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\68\ --------------------------------------------------------------------------- \68\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Brent J. Fields, Secretary. [FR Doc. 2016-23499 Filed 9-28-16; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 81, No. 189 / Thursday, September 29, 2016 / Notices 67023
C. Self-Regulatory Organization’s those that may be withheld from the three comments in response to the
Statement on Comments on the public in accordance with the proposal.5 FINRA responded to the
Proposed Rule Change Received From provisions of 5 U.S.C. 552, will be comments on September 14, 2016.6
Members, Participants, or Others available for Web site viewing and FINRA extended the time period within
No written comments were either printing in the Commission’s Public which the Commission shall approve
solicited or received. Reference Room, 100 F Street NE., the proposed rule change, disapprove
Washington, DC 20549, on official the proposed rule change, or institute
III. Date of Effectiveness of the business days between the hours of proceedings to determine whether the
Proposed Rule Change and Timing for 10:00 a.m. and 3:00 p.m. Copies of the proposed rule change should be
Commission Action filing also will be available for disapproved to September 23, 2016.7
The foregoing rule change has become inspection and copying at the principal This order grants approval of the
effective pursuant to Section office of the Exchange. All comments proposed rule change.
19(b)(3)(A)(ii) of the Act.16 received will be posted without change; II. Description of the Proposed Rule
At any time within 60 days of the the Commission does not edit personal Change
filing of the proposed rule change, the identifying information from
Commission summarily may submissions. You should submit only Historically, FINRA has utilized
temporarily suspend such rule change if information that you wish to make TRACE to collect from its members and
it appears to the Commission that such available publicly. All submissions publicly disseminate information on
action is: (i) Necessary or appropriate in should refer to File Number SR– secondary, over-the-counter transactions
the public interest; (ii) for the protection NASDAQ–2016–130 and should be in corporate debt securities, Agency
of investors; or (iii) otherwise in submitted on or before October 20, Debt Securities,8 and certain primary
furtherance of the purposes of the Act. 2016. market transactions. For certain other
If the Commission takes such action, the asset types, FINRA utilized TRACE to
For the Commission, by the Division of collect transaction information, but
Commission shall institute proceedings Trading and Markets, pursuant to delegated
to determine whether the proposed rule until recently, did not disseminate such
authority.17
should be approved or disapproved. information publicly. FINRA has been
Brent J. Fields, working to phase-in the dissemination
IV. Solicitation of Comments Secretary. of transaction information for these
Interested persons are invited to [FR Doc. 2016–23490 Filed 9–28–16; 8:45 am] previously non-disseminated asset
submit written data, views, and BILLING CODE P types. To date, FINRA has implemented
arguments concerning the foregoing, dissemination of Agency Pass-Through
including whether the proposed rule Mortgage-Backed Securities and SBA-
change is consistent with the Act. SECURITIES AND EXCHANGE Backed ABS; 9 TRACE-Eligible
Comments may be submitted by any of COMMISSION
5 See letters to Brent J. Fields, Secretary,
the following methods: [Release No. 34–78925; File No. SR–FINRA– Commission, from Mike Nicholas, Chief Executive
Electronic Comments 2016–023] Officer, BDA, dated July 27, 2016 (‘‘BDA Letter’’);
Lynn Martin, President and Chief Operating Officer,
• Use the Commission’s Internet Self-Regulatory Organizations; ICE Data Services, dated July 27, 2016 (‘‘ICE
comment form (http://www.sec.gov/ Financial Industry Regulatory Letter’’); and Chris Killian, Managing Director,
rules/sro.shtml); or Securitization, SIFMA, dated July 27, 2016
Authority, Inc.; Order Granting
• Send an email to rule-comments@ Approval of Proposed Rule Change
(‘‘SIFMA Letter’’).
6 See letter to Brent J. Fields, Secretary,
sec.gov. Please include File Number SR– Relating to TRACE Reporting and Commission, from Alexander Ellenberg, Associate
NASDAQ–2016–130 on the subject line. Dissemination of CMO Transactions General Counsel, Regulatory Policy and Oversight,
FINRA, dated September 14, 2016 (‘‘FINRA
Paper Comments September 23, 2016. Response Letter’’).
• Send paper comments in triplicate 7 See letter to Katherine England, Assistant
I. Introduction Director, Division of Trading and Markets,
to Secretary, Securities and Exchange Commission, from Alexander L. Ellenberg,
Commission, 100 F Street NE., On June 27, 2016, the Financial Assistant General Counsel, Regulatory Policy and
Washington, DC 20549–1090. Industry Regulatory Authority, Inc. Oversight, FINRA, dated August 9, 2016 (extending
(‘‘FINRA’’) filed with the Securities and to September 9, 2016); letter to Katherine England,
All submissions should refer to File Assistant Director, Division of Trading and Markets,
Number SR–NASDAQ–2016–130. This Exchange Commission (‘‘Commission’’), Commission, from Alexander L. Ellenberg,
file number should be included on the pursuant to Section 19(b)(1) of the Associate General Counsel, Regulatory Policy and
subject line if email is used. To help the Securities Exchange Act of 1934 Oversight, FINRA, dated September 2, 2016
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a (extending to September 23, 2016).
Commission process and review your 8 The term ‘‘Agency Debt Security’’ is defined in
comments more efficiently, please use proposed rule change related to Trade
FINRA Rule 6710(l).
only one method. The Commission will Reporting and Compliance Engine 9 On November 12, 2012, FINRA began
post all comments on the Commission’s (‘‘TRACE’’) reporting and dissemination disseminating transactions in Agency Pass-Through
Internet Web site (http://www.sec.gov/ of transactions in Collateralized Mortgage-Backed Securities traded TBA. See
Mortgage Obligations (‘‘CMOs’’).3 The Securities Exchange Act Release No. 66829 (April
rules/sro.shtml). Copies of the 18, 2012), 77 FR 24748 (April 25, 2012) (approving
submission, all subsequent proposed rule change was published for SR–FINRA–2012–020); FINRA’s Regulatory Notice
amendments, all written statements comment in the Federal Register on July 12–26 (May 2012) and Regulatory Notice 12–48
with respect to the proposed rule 6, 2016.4 The Commission received (November 2012). On July 22, 2013, FINRA began
mstockstill on DSK3G9T082PROD with NOTICES
disseminating transactions in Agency Pass-Through
change that are filed with the Mortgage-Backed Securities traded in Specified
17 17 CFR 200.30–3(a)(12).
Commission, and all written Pool Transactions and SBA-Backed ABS traded
1 15 U.S.C. 78s(b)(1).
communications relating to the 2 17 CFR 240.19b–4.
TBA or in Specified Pool Transactions. See
proposed rule change between the Securities Exchange Act Release No. 68084 (October
3 The term ‘‘Collateralized Mortgage Obligation’’
23, 2012), 77 FR 65436 (October 26, 2012)
Commission and any person, other than is defined in FINRA Rule 6710(dd). (approving SR–FINRA–2012–042); FINRA’s
4 See Securities Exchange Act Release No. 78196 Regulatory Notice 12–56 (December 2012). The
16 15 U.S.C. 78s(b)(3)(A)(ii). (June 29, 2016), 81 FR 44065 (‘‘Notice’’). Continued
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![Federal Register / Vol. 81, No. 189 / Thursday, September 29, 2016 / Notices 67025
transaction in that type of Securitized days following Commission approval, A third commenter requested that
Product is subject to immediate trade- and that the operative date would be no FINRA remove the $1 million threshold
by-trade dissemination, but excludes a later than 365 days following entirely, based on a view that the
historic transaction in a Rule 144A publication of that Regulatory Notice.32 proposed thresholds for dissemination
security. Under the proposal, the on a trade-by-trade or on a periodic
III. Summary of Comments and
Historic SP Data Set would be expanded aggregate basis ‘‘will create a bifurcated
FINRA’s Response
to include all non-Rule 144A CMO market that will disadvantage the
transactions, even if not previously The Commission received three smaller trades that will be disseminated
disseminated immediately or as part of comments on the proposed rule in real-time and small-to-medium sized
a periodic report.26 Currently, the ‘‘Rule change 33 and a response letter from dealers that more frequently transact in
144A Data Set’’ and the ‘‘Historic Rule FINRA.34 All three commenters were smaller quantities compared to the
144A Data Set’’ include real-time data generally supportive but suggested largest dealers.’’ 41 This commenter
and historic data, respectively, for Rule certain revisions to the proposal. For predicted that institutional investors
144A transactions reported to TRACE. example, all three commenters would ‘‘avoid trading in sub-$1 million
Under the proposal, with respect to questioned the proposed $1 million quantities . . . to avoid information
transactions in CMO securities issued threshold for immediate trade-by-trade leakage’’ and ‘‘seek to transact with
pursuant to Rule 144A, the Rule 144A dissemination, but they suggested financial institutions that are not
Data Set would be expanded to include conflicting alternatives. One commenter required to report trades to TRACE.’’ 42
transactions in CMO securities that had argued that the $1 million threshold is This commenter argued that greater
been disseminated on an immediate too high and suggested lowering the trade-by-trade dissemination would
trade-by-trade basis or on a periodic threshold to no more than $500,000 ‘‘to have a negative impact on liquidity and
aggregate basis, and the Historic Rule ensure only truly retail-sized the proposal would ‘‘almost exclusively
144A Data Set would be expanded to transactions are subject to real-time impair market liquidity for transactions
include historic data on all CMO dissemination.’’ 35 This commenter of $1 million and less.’’ 43
transactions, whether or not they had stated that its members ‘‘recognize the In response to these comments,
been subject to any form of benefits to the market of greater price FINRA stated that it ‘‘continues to
dissemination previously.27 FINRA has transparency, but at the same time believe that the $1 million threshold is
not proposed to amend the fees recent experience with TBAs, specified an appropriate balance between
currently in effect for the SP Data Set, pools, and other types of securities transparency and the risk of decreased
Historic SP Data Set, Rule 144A Data illustrate the detrimental impact overly
liquidity provision.’’ 44 FINRA
Set, or Historic Rule 144A Data Set broad TRACE dissemination can have,
explained that it received similar
based on inclusion of this additional particularly with respect to the ability
comments on an earlier iteration of the
data.28 for market participants to easily transact
proposal and took these comments into
in size.’’ 36 Further, this commenter
Other Technical Changes account when finalizing the proposed
noted that, because in the CMO market
rule change, based on the reasons
FINRA has proposed to amend a ‘‘the securities are even less liquid and
explained in the Notice and the
provision in FINRA Rule 6730(a) that more unique, liquidity concerns are
economic analysis contained therein.45
provides general requirements for heightened.’’ 37
Another commenter argued that the FINRA also stated that it will assess
reporting Securitized Products to make
$1 million threshold is too low to whether there is a need for additional
clear that this provision will apply
meaningfully improve transparency and transparency in the future.46
specifically to CDOs and CMBSs.29
suggested that FINRA consider One commenter recommended a
FINRA also has proposed to eliminate higher minimum activity level threshold
certain provisions that have expired in incrementally increasing the threshold
in stages until all CMO transactions are for new-issue CMO transactions to be
FINRA Rule 6730(a).30 Finally, FINRA included in periodic aggregate reports
has proposed to make technical and disseminated on an immediate trade-by-
trade basis.38 This commenter stated so that dissemination would focus on
conforming changes to the FINRA Rule secondary market activity.47 FINRA
7730 and the Rule 6700 series to reflect that limiting immediate dissemination
to smaller CMO transactions could be responded that the proposed threshold
the changes to the TRACE reporting and
confusing to retail and smaller of five transactions, combined with the
dissemination requirements for CMO
institutional investors because the use of periodic aggregate reports rather
transactions discussed above.31
prices of smaller CMO trades are than trade-by-trade dissemination for
Effective Date of Proposed Rule Change ‘‘typically less representative of where certain transactions, should satisfy the
FINRA has stated that it would near-term next trading levels are commenter’s concern and that FINRA’s
announce the operative date of the typically conducted.’’ 39 This proposed approach was appropriate.48
proposed rule change in a Regulatory commenter also recommended that Another commenter suggested that
Notice to be published no later than 90 FINRA set the initial threshold for the periodic aggregate reports should
immediate dissemination at $1 million include the most recent trade price, as
26 See proposed FINRA Rule 7730(f)(4)(C). See based on the current principal balance,
41 BDA Letter at 1.
also Notice, 81 FR at 44066, n. 12. rather than on the original principal 42 Id.
27 See proposed FINRA Rule 7730(c), (f)(4)(D). See at 1–2.
balance.40 43 Id. at 2.
also Notice, 81 FR 44066, n. 12.
28 See Notice, 81 FR at 44066, n. 12 (stating that 44 FINRA Response Letter at 2.
32 See id. at 44067.
mstockstill on DSK3G9T082PROD with NOTICES
‘‘[t]he inclusion of this additional data in such data 33 See
45 See id.
sets will not affect the fees currently in effect’’). supra note 5. 46 See id.
34 See supra note 6.
29 See proposed FINRA Rule 6730(a)(3)(A). 47 See SIFMA Letter at 2. This commenter also
35 SIFMA Letter at 1–2.
FINRA noted that after the proposed rule change recommended that multiple dealer-to-dealer trades
36 Id. at 1.
becomes effective, this provision would apply only done in the same CMO security at the time of the
37 Id.
to these two types of Securitized Products. See initial distribution be counted as one trade for
Notice, 81 FR at 44067, n. 15. 38 See ICE Letter at 2, 5.
purposes of calculating the periodic aggregate
30 See proposed FINRA Rule 6730(a)(3)(B). 39 Id. at 3–4. dissemination threshold. See id.
31 See Notice, 81 FR at 44065. 40 See id. at 5. 48 See FINRA Response Letter at 3.
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![Federal Register / Vol. 81, No. 189 / Thursday, September 29, 2016 / Notices 67027
Commission,66 and expanding the data Therefore, it is ordered, pursuant to SECURITIES AND EXCHANGE
sets to include CMO transactions does Section 12(k) of the Securities Exchange COMMISSION
not appear to raise any issues. Finally, Act of 1934, that trading in the
the Commission believes that the securities of Accel Brands is suspended [Release No. 34–78914; File No. SR–
proposal’s minor, conforming, and for the period from 9:30 a.m. EDT on NYSEMKT–2016–89]
technical revisions to FINRA Rule 7730 September 27, 2016, through 11:59 p.m.
and the Rule 6700 series are consistent EDT on October 10, 2016. Self-Regulatory Organizations; NYSE
with the Act. MKT LLC; Notice of Filing and
By the Commission. Immediate Effectiveness of Proposed
IV. Conclusion Brent J. Fields, Rule Change To Add to the Rules of
Secretary. the Exchange the Tenth Amended and
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,67 that the [FR Doc. 2016–23696 Filed 9–27–16; 4:15 pm] Restated Operating Agreement of the
proposed rule change (SR–FINRA– BILLING CODE 8011–01–P New York Stock Exchange LLC
2016–023) be, and hereby is, approved. September 23, 2016.
For the Commission, by the Division of SECURITIES AND EXCHANGE Pursuant to Section 19(b)(1) 1 of the
Trading and Markets, pursuant to delegated Securities Exchange Act of 1934 (the
COMMISSION
authority.68 ‘‘Act’’) 2 and Rule 19b–4 thereunder,3
Brent J. Fields, Sunshine Act Meeting notice is hereby given that on
Secretary. September 19, 2016, NYSE MKT LLC
[FR Doc. 2016–23499 Filed 9–28–16; 8:45 am] Notice is hereby given, pursuant to (the ‘‘Exchange’’ or ‘‘NYSE MKT’’) filed
BILLING CODE 8011–01–P
the provisions of the Government in the with the Securities and Exchange
Sunshine Act, Public Law 94–409, that Commission (the ‘‘Commission’’) the
the Securities and Exchange proposed rule change as described in
SECURITIES AND EXCHANGE Commission will hold a closed meeting Items I and II below, which Items have
COMMISSION on Wednesday, September 28, 2016 at been prepared by the self-regulatory
11:30 a.m. organization.4 The Commission is
[File No. 500–1]
Commissioners, Counsel to the publishing this notice to solicit
Order of Suspension of Trading; in the Commissioners, the Secretary to the comments on the proposed rule change
Matter of Accel Brands, Inc. Commission, and recording secretaries from interested persons.
will attend the closed meeting. Certain
September 27, 2016. staff members who have an interest in I. Self-Regulatory Organization’s
It appears to the Securities and the matters also may be present. Statement of the Terms of the Substance
Exchange Commission that there is a of the Proposed Rule Change
The General Counsel of the
lack of current and accurate information Commission, or her designee, has The Exchange proposes to add to the
concerning the securities of Accel certified that, in her opinion, one or rules of the Exchange the Tenth
Brands, Inc. (‘‘Accel Brands’’) (CIK No. more of the exemptions set forth in 5 Amended and Restated Operating
0001077800) because it has not filed any U.S.C. 552b(c)(3), (5), (7), 9(B) and (10) Agreement of the New York Stock
periodic reports since the period ended and 17 CFR 200.402(a)(3), (a)(5), (a)(7), Exchange LLC (‘‘NYSE LLC’’). The
March 31, 2015, and the staff of the (a)(9)(ii) and (a)(10), permit proposed rule change is available on the
Securities and Exchange Commission consideration of the scheduled matter at Exchange’s Web site at www.nyse.com,
has independently endeavored to the closed meeting. at the principal office of the Exchange,
determine whether the company is Commissioner Stein, as duty officer, and at the Commission’s Public
operating and the company has failed to voted to consider the items listed for the Reference Room.
respond to the Commission’s inquiry closed meeting in closed session, and II. Self-Regulatory Organization’s
about its operating status. Accel Brands, determined that Commission business Statement of the Purpose of, and
formerly known as Accelpath, Inc., is a required consideration earlier than one Statutory Basis for, the Proposed Rule
Delaware corporation with its principal week from today. No earlier notice of Change
place of business listed as National this Meeting was practicable.
Harbor, Maryland with stock quoted on In its filing with the Commission, the
The subject matter of the closed
OTC Link (previously ‘‘Pink Sheets’’) self-regulatory organization included
meeting will be:
operated by OTC Markets Group, Inc. statements concerning the purpose of,
Institution of injunctive actions; and and basis for, the proposed rule change
under the ticker symbol ACLP.
The Commission is of the opinion that Institution and settlement of and discussed any comments it received
the public interest and the protection of administrative proceedings. on the proposed rule change. The text
investors require a suspension of trading At times, changes in Commission of those statements may be examined at
in the securities of Accel Brands. priorities require alterations in the the places specified in Item IV below.
scheduling of meeting items. The Exchange has prepared summaries,
66 See Securities Exchange Act Release No. 66829 For further information and to set forth in sections A, B, and C below,
(April 18, 2012), 77 FR 24748 (April 25, 2012) ascertain what, if any, matters have been of the most significant parts of such
(approving SR–FINRA–2012–020); Securities added, deleted or postponed, please statements.
Exchange Act Release No. 68084 (October 23, 2012),
mstockstill on DSK3G9T082PROD with NOTICES
77 FR 65436 (October 26, 2012) (approving SR– contact Brent J. Fields from the Office of
FINRA–2012–042); Securities Exchange Act Release the Secretary at (202) 551–5400. 1 15 U.S.C.78s(b)(1).
No. 70345 (September 6, 2013), 78 FR 56251 2 15 U.S.C. 78a.
(September 12, 2013) (approving SR–FINRA–2013–
Dated: September 26, 2016. 3 17 CFR 240.19b–4.
029); Securities Exchange Act Release No. 71607 Brent J. Fields, 4 The Commission notes that the substance of this
(February 24, 2014), 78 FR 11481 (February 28, Secretary. proposed rule change is identical to the substance
2014) (approving SR–FINRA–2013–046). of SR–NYSEMKT–2016–088, which was filed on
67 15 U.S.C. 78s(b)(2). [FR Doc. 2016–23697 Filed 9–27–16; 4:15 pm]
September 12, 2016, and was withdrawn on
68 17 CFR 200.30–3(a)(12). BILLING CODE 8011–01–P September 19, 2016.
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Document Created: 2016-09-29 04:14:06
Document Modified: 2016-09-29 04:14:06
| 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 67023 |
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