82 FR 23385 - Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend FINRA Rule 7730 To Reduce the Delay Period for the Historic TRACE Data Sets Relating to Corporate and Agency Debt Securities
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 82, Issue 97 (May 22, 2017)
Federal Register Volume 82, Issue 97 (May 22, 2017)
| Page Range | 23385-23390 | |
| FR Document | 2017-10307 |
[Federal Register Volume 82, Number 97 (Monday, May 22, 2017)] [Notices] [Pages 23385-23390] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-10307] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-80685; File No. SR-FINRA-2017-012] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend FINRA Rule 7730 To Reduce the Delay Period for the Historic TRACE Data Sets Relating to Corporate and Agency Debt Securities May 16, 2017. 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 May 12, 2017, 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, II, and III below, which Items have been prepared by FINRA. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change FINRA is proposing to amend Rule 7730 to reduce the delay period for the Historic TRACE Data Sets relating to corporate and agency debt securities from 18 months to six months. 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. [[Page 23386]] 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 7730 (Trade Reporting and Compliance Engine (TRACE)), among other things, sets forth the data products offered by FINRA relating to TRACE transaction information and the fees applicable to such products. FINRA's data offerings include both real-time as well as delayed data for most TRACE-Eligible Securities.\3\ FINRA's delayed data (``Historic TRACE Data'') contains historical transaction-level data for the following TRACE data sets: The Historic Corporate Bond Data Set, the Historic Agency Data Set, the Historic Securitized Product Data Set and the Historic Rule 144A Data Set.\4\ Rule 7730 provides that Historic TRACE Data will be delayed a minimum of 18 months and will not include Market Participant Identifier (``MPID'') information.\5\ The proposed rule change would reduce the delay period applicable to the Historic Corporate Bond Data Set and the Historic Agency Data Set and Rule 144A transactions in corresponding securities (together, ``Corporate and Agency Historic TRACE Data''), from 18 months to six months and would retain the criteria that MPIDs not be included.\6\ --------------------------------------------------------------------------- \3\ Rule 6710 (Definitions) 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); or a U.S. Treasury Security as defined in paragraph (p). ``TRACE-Eligible Security'' does not include a debt security that is: Issued by a foreign sovereign or a Money Market Instrument as defined in paragraph (o). \4\ Historic TRACE Data originally included only the Corporate Bond and Agency Data Sets; the Securitized Product (``SP'') Data Set and the Rule 144A Data Set were added to Historic TRACE Data later as information about transactions in those securities became subject to dissemination. Additional securities may be included in Historic TRACE Data as they become subject to dissemination. \5\ The specific data elements provided in the Historic TRACE Data Sets are to be determined from time-to-time by FINRA in its discretion and as stated in a Regulatory Notice or other equivalent publication. See infra note 8. \6\ FINRA proposes to retain the current 18-month delay for the Historic SP Data Set. The Historic SP Data Set generally includes information on transactions in asset-backed securities (``ABS''), mortgage-backed securities (``MBS''), and Small Business Administration (``SBA'')-backed securities traded To Be Announced (``TBA'') and in specified pool transactions, collateralized mortgage-backed securities (``CMBS''), collateralized mortgage obligations (``CMO'') and collateralized debt obligations (``CDO''). While transaction information on ABSs, MBSs and TBAs are currently subject to dissemination and CMOs became subject to dissemination on March 20, 2017, FINRA does not yet disseminate transaction information on CMBSs or CDOs. FINRA issued a Regulatory Notice seeking comment on a proposal to disseminate such products. See Regulatory Notice 15-04 (February 2015) (FINRA Requests Comment on a Proposal to Disseminate Additional Securitized Products and to Reduce the Reporting Time Frame for These Products). Once all SPs become subject to dissemination, FINRA will consider whether a delay period of less than 18 months should apply to the Historic SP Data Set. --------------------------------------------------------------------------- The Historic TRACE Data provisions and related fees became effective in 2010.\7\ Historic TRACE Data provides transaction-level data for all trades reported to TRACE in those classes of TRACE- Eligible Securities that currently are disseminated and includes, among other things, the price, date, time of execution, yield and uncapped volume for each transaction, provided the transaction is at least 18 months old.\8\ The 18-month delay period was adopted to address concerns regarding the possibility that the data, though delayed, might be used to identify current trading, positions or the strategies of market participants.\9\ --------------------------------------------------------------------------- \7\ See Securities Exchange Act Release No. 61012 (November 16, 2009), 74 FR 61189 (November 23, 2009) (Order Approving File No. SR- FINRA-2007-006). See also Regulatory Notice 10-14 (March 2010). \8\ Historic TRACE Data also may include transactions or items of information that were not disseminated previously. For example, Historic TRACE Data includes exact trade volumes, rather than the capped amounts that are disseminated in real-time. The applicable real-time dissemination cap differs depending upon the type of TRACE-Eligible Security being reported. The caps are $5 million for agency debentures and corporate bonds that are rated investment grade; $1 million for corporate bonds that are rated non-investment grade; $25 million for agency pass-through mortgage-backed securities traded TBA for good delivery; and $10 million for agency pass-through mortgage-backed securities traded TBA not for good delivery, agency pass-through mortgage-backed securities traded in specified pool transactions, and SBA-backed asset-backed securities traded TBA and in specified pool transactions. Historic TRACE Data also is available for trade reports dating back to 2002, even for transactions that were not subject to public dissemination at the time. Similarly, while real-time information for specified pool transactions is disseminated based on security characteristics, Historic TRACE Data identifies securities by CUSIP. Historic TRACE Data also includes reports on both the buy- and sell- side of inter-dealer transactions, whereas only sell-side trade reports are subject to real-time dissemination. \9\ See Securities Exchange Act Release No. 56327 (August 28, 2007), 72 FR 51689 (September 10, 2007) (Notice of Filing of File No. SR-FINRA-2007-006). See also Notice to Members 06-32 (June 2006). --------------------------------------------------------------------------- Since implementation, researchers and other non-dealers have been the primary subscribers to Historic TRACE Data. FINRA understands that the lack of usage by dealers is due to the 18-month delay period for transactions included in Historic TRACE Data and market participants have indicated that a reduction in the delay period to six months would make the data more useful. In response, FINRA is proposing to reduce the delay period applicable to Corporate and Agency Historic TRACE Data from 18 months to six months. FINRA is not aware of any instances of complaints regarding information leakage under the 18-month delay timeframe, and believes that the delay period can be reduced, thereby increasing the utility of the Corporate and Agency Historic TRACE Data to market participants and promoting the goal of increased transparency for TRACE-Eligible Securities.\10\ FINRA also believes that a six-month delay will be sufficient to continue to address information leakage concerns.\11\ --------------------------------------------------------------------------- \10\ FINRA is not proposing any changes to the fields made available in the Historic TRACE Data at this time, and notes that the data will continue to omit any identifying dealer information. Additional information regarding included fields is available in ``Historic TRACE Data: Enhanced Historical Time and Sales--Trade Record File Layout'' in the technical specifications. \11\ FINRA notes that the Municipal Securities Rulemaking Board (MSRB) disseminates in real-time the exact par value on all transactions with a par value of $5 million or less, and includes an indicator (``MM+'') in place of the exact par value on transactions where the par value is greater than $5 million until the fifth business day. MSRB disseminates the exact par value on all transactions on the fifth day after the trade. --------------------------------------------------------------------------- If the Commission approves the proposed rule change, FINRA will announce the effective date of the proposed rule change in a Regulatory Notice to be published no later than 60 days following Commission approval. The effective date will be no later than 120 days following publication of the Regulatory Notice. 2. Statutory Basis FINRA believes that the proposed rule change is consistent with the provisions of Section 15A(b)(6) of the Act,\12\ which requires, among other things, that FINRA rules must be designed to prevent fraudulent and manipulative acts and practices, to promote just and [[Page 23387]] equitable principles of trade, and, in general, to protect investors and the public interest. --------------------------------------------------------------------------- \12\ 15 U.S.C. 78o-3(b)(6). --------------------------------------------------------------------------- FINRA believes that reducing the delay period for the Corporate and Agency Historic TRACE Data will increase the utility of the data to market participants and others, thereby promoting the goal of increased transparency for TRACE-Eligible Securities, while continuing to incorporate a sufficient period of aging to address information leakage concerns. 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. Economic Impact Analysis (a) Need for the Rule As discussed above, FINRA has received feedback from market participants that the current 18-month delay period may be too long to make Historic TRACE Data useful. Most subscribers to Historic TRACE Data have been vendors and research firms; there have been very few member subscribers due to the length of the delay. (b) Regulatory Objective The proposed shorter delay period for Historic TRACE Data aims to increase the utility of Historic TRACE Data for market participants and others, thereby promoting the goal of increased transparency for TRACE- Eligible Securities. (c) Economic Impacts FINRA's existing Historic TRACE Data product provides transaction- level data on an 18-month delayed basis for all transactions that have been reported to TRACE in the classes of TRACE-Eligible Securities that currently are disseminated. As detailed above, FINRA is proposing to reduce the delay period for the Historic TRACE Data Sets relating to Corporate and Agency Debt securities from 18 months to six months. The proposed rule change would expand the benefits of FINRA's TRACE initiatives by increasing the utility of the Corporate and Agency Historic TRACE Data Sets to market participants, as the proposed reduction in the delay period to six months would make the data more useful. The proposed rule change will not have any operational impact on firms, as the proposal does not require firms to provide FINRA with any additional data. The purchase of TRACE data products will continue to be optional for members and others. However, FINRA considered the potential for indirect costs regarding possible information leakage due to the reduction in the delay period applicable to the Corporate and Agency Historic TRACE Data Sets from 18 months to six months. To address those concerns and investigate whether the reduction in the delay period poses a risk for reverse engineering of positions, FINRA analyzed daily positions in 12,087 corporate and 10,109 agency bonds, that were issued between March 6, 2012 and February 5, 2014, by using trades between February 6, 2012 and February 5, 2016 that were reported to TRACE by 1,509 market participants.\13\ --------------------------------------------------------------------------- \13\ Historic TRACE Data does not include a ``List or Fixed Offering Price Transaction'' or ``Takedown Transaction,'' as defined in Rule 6710. --------------------------------------------------------------------------- Figure 1 depicts the average number of days it takes to reverse \14\ corporate bond positions and the average position size in the sample.\15\ --------------------------------------------------------------------------- \14\ To ``reverse'' a position means entering into a trade on the opposite side of a position that flattens or reverses the position. For example, if long in a specific bond, a reversal would entail a sell trade in an amount that is equal to or greater than the amount of the original position. \15\ Positions that are created in the last six months of the sample period are not included in the sample to prevent a bias in the results. [GRAPHIC] [TIFF OMITTED] TN22MY17.020 2,230,676, or approximately 74.5%, of the 2,992,946 daily corporate bond positions in the sample were reversed on the same day (number of days = 0). The average size of the positions in this category was approximately $0.8 million per CUSIP. 21.9% of the trades were reversed between one and 180 days. These trades had an average size of between $1.4 and $2.0 million. The remaining positions, approximately 3.6% of the sample, were reversed after 180 days (i.e., remained open for longer than 180 days). FINRA notes that the vast majority, approximately 79.2%, of [[Page 23388]] the positions in this category were still open at the end of our sample period (February 5, 2016). The positions that remained open for more than 180 days had an average size of $2.1 million.\16\ --------------------------------------------------------------------------- \16\ The difference in the average size of positions that reversed after 180 days ($2.1 million) and positions that were reversed within 180 days ($0.9 million) is statistically significant at conventional levels. --------------------------------------------------------------------------- 642 CUSIPs only had positions that were reversed after 180 days from acquisition. Another 1,402 CUSIPs only had positions that were reversed within 180 days. The remaining 10,043 CUSIPs had both positions that were reversed within 180 days and positions that were reversed after 180 days from acquisition. FINRA believes that the risk of reverse engineering would be higher for the 642 CUSIPs that only had positions that were still open after 180 days. These CUSIPs were for significantly smaller issues (average issuance amount of approximately $38 million) than the rest of the CUSIPs (an average issuance amount of approximately $315 million). These 642 CUSIPs had an average of seven trades per CUSIP over the sample period, compared to 1,306 trades per CUSIP for the rest of the sample. These CUSIPs also were traded by fewer market participants, an average of 1.3, compared to an average of 42 market participants for the remaining 11,445 CUSIPs. There were only 862 positions in those 642 CUSIPs, with relatively large balances as a proportion to the issuance size, with an average balance-to-issuance size of 32.5%, compared to 0.3% for the remaining CUSIPs. Approximately 15% of the 862 positions were reversed between six and 18 months of acquisition, implying that the reduction in dissemination delay would impact a small portion of the holdings in the sample. This would suggest that the proposed rule, if it had been in place, would have provided little additional information to the public relative to these positions. These figures suggest that only a small portion of the corporate positions in the sample are reversed after 180 days of acquisitions. Moreover, only a few CUSIPs had positions with holding periods of more than 180 days, while such positions consisted of less than 0.02% of all daily corporate bond positions in the sample. Figure 2 depicts the average number of days it takes to reverse agency bond positions and the average position size in the sample. [GRAPHIC] [TIFF OMITTED] TN22MY17.021 Of the 425,823 daily agency bond positions, 317,447, or approximately 74.5%, of the sample were reversed on the same day (number of days = 0). The average size of the positions in this category was approximately $2.5 million per CUSIP. Another 18.0% of the trades were reversed between one and 180 days. These trades had an average size of between $4.4 and $5.2 million. The remaining positions, approximately 7.4% of the sample, were still open for more than 180 days. Approximately 92.4%, of the positions in this category were still open at the end of our sample period.\17\ The positions that remained open for more than 180 days had an average size of $13.2 million.\18\ --------------------------------------------------------------------------- \17\ FINRA staff also notes that approximately 93.3% of the open agency bond positions in the sample were open for more than 180 days as of February 5, 2016. \18\ The difference in the average size of positions that reversed after 180 days ($13.2 million) and positions that are reversed within 180 days ($2.8 million) is statistically significant at conventional levels. --------------------------------------------------------------------------- 764 CUSIPs only had positions that were reversed after 180 days from acquisition. Another 497 CUSIPs only had positions that were reversed within 180 days. The remaining 8,848 CUSIPs had both positions that were reversed within 180 days and positions that were reversed after 180 days from acquisition. The 764 CUSIPs with positions that were reversed after 180 days were slightly smaller issues (an average issuance amount of approximately $110 million) than the rest of the CUSIPs (an average issuance amount of approximately $125 million). These 764 CUSIPs had an average of 1.7 trades per CUSIP over the sample period, compared to 175 trades per CUSIP for the rest of the sample. These CUSIPs also were traded by fewer market participants, an average of 1.1, compared to an average of 22 market participants for the remaining 9,345 CUSIPs (497 + 8,848) for positions that were reversed both within and after 180 days of acquisition. There were 816 positions in those 764 CUSIPS, with relatively larger balances (but not as large as those for corporate bonds) as a proportion to the issuance size, with an average balance- to-issuance size of 2.1%, compared to 0.2% for the rest of [[Page 23389]] the position balances (425,007) in the rest of the CUSIPs. Approximately 1% of the 816 positions were reversed between six and 18 months of acquisition, implying that the reduction in dissemination delay would impact a very small portion of the holdings in the agency bond sample. These figures suggest that only a small portion of the agency bond positions in the sample were reversed after 180 days of acquisition. Moreover, only a few CUSIPs related to positions with holding periods longer than 180 days, while such positions consisted of less than 0.02% of all daily agency bond positions in the sample. Based on the empirical evidence in the sample period, FINRA notes that information leakage, due to the reduction in the delay period applicable to the Corporate and Agency Historic TRACE Data Sets from 18 months to six months is a limited risk for smaller issues that are held by a limited number of market participants. As noted above, such issues are, on average, traded very infrequently. As such, the information leakage associated with these issues may be of limited use to market participants. To the extent that such market participants choose not to trade these issues as a result of the proposed dissemination delay, some CUSIPs may experience a decrease in liquidity. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The proposed rule change was published for comment in Regulatory Notice 15-24 (June 2015). Four comment letters were received in response to the Notice.\19\ A copy of the Notice is attached as Exhibit 2a. The list of the commenters is attached as Exhibit 2b. Copies of the comment letters received in response to the Notice are attached as Exhibit 2c. --------------------------------------------------------------------------- \19\ See Letter from Sean Davy, Managing Director, Securities Industry and Financial Markets Association, to Maria E. Asquith, Corporate Secretary, FINRA, dated August 24, 2015 (``SIFMA''); letter from Michael Nicholas, CEO, Bond Dealers of America, to Maria E. Asquith, Corporate Secretary, FINRA, dated August 24, 2015 (``BDA''); letter from Luis Palacios, Director of Research Services, The Wharton School, to Maria E. Asquith, Corporate Secretary, FINRA, dated September 10, 2015 (``Wharton''); and letter from Carrie Devorah, Founder, The Center for Copyrights Integrity, to Maria E. Asquith, Corporate Secretary, FINRA, dated September 14, 2015 (``CCI''). --------------------------------------------------------------------------- SIFMA, BDA and Wharton supported the proposed reduction in the delay period for Historic TRACE Data from 18 months to six months. SIFMA noted that, if certain TRACE-Eligible Securities (not currently subject to dissemination) became subject to dissemination--i.e., CMOs, CMBSs and CDOs, FINRA should consider potential information leakage and liquidity issues for such securities prior to including them in Historic TRACE Data with a six-month, reduced delay. SIFMA suggested a phased-in approach to incorporating this subset of TRACE-Eligible Securities that would begin with an 18-month delay and that, ultimately, is reduced to six months once these products are subject to public dissemination. In response to this comment, and as discussed in Section II.A.1. of this filing, FINRA has revised the proposal to reduce the 18-month delay period to six months only for the Historic Corporate and Agency Data; the Historic SP Data Set will continue to be subject to an 18-month delay. FINRA will consider whether reducing the 18-month delay period for the Historic SP Data Set is appropriate once all SPs have become subject to dissemination.\20\ --------------------------------------------------------------------------- \20\ See supra note 6. --------------------------------------------------------------------------- CCI did not support the proposal and, among other things, raised privacy concerns, and stated that any data transmitted online has no privacy.\21\ FINRA notes that the Historic TRACE Data product consists of security-focused transaction information, not customer information, and generally is available to any professional or non-professional party that subscribes, executes appropriate agreements and pays the applicable fee. In addition, while Historic TRACE Data includes delayed information for transactions that were not disseminated previously, the vast majority of the data included already has been disseminated publicly. Thus, in the unprecedented event of a breach involving Historic TRACE Data, FINRA does not believe this would present a harm to FINRA members or the market. --------------------------------------------------------------------------- \21\ CCI also raised other issues that are not germane to the proposed reduction of the delay period for Historic TRACE Data and that, therefore, are not addressed herein. --------------------------------------------------------------------------- III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve or disapprove such proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be 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 (https://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. Please include File Number SR-FINRA-2017-012 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 Number SR-FINRA-2017-012. 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 a.m. and 3 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 Number SR-FINRA-2017-012 and should be submitted on or before June 12, 2017. [[Page 23390]] For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\22\ --------------------------------------------------------------------------- \22\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017-10307 Filed 5-19-17; 8:45 am] BILLING CODE 8011-01-P
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determination of the theoretical Exchange’s proposal would differ from V. Conclusion
minimum transmission time of the access delay on another exchange in
information to the Exchange from other that it would be software-based, as It is therefore ordered, pursuant to
exchanges, and has affirmed that the opposed to being implemented through Section 19(b)(2) of the Act,83 that the
delay is not ‘‘too short’’ so as to not a physical hardware mechanism. proposed rule change (SR–NYSEMKT–
allow the Exchange to achieve the However, the Commission does not 2017–05) be, and hereby is, approved.
purpose of the Delay Mechanism, nor is believe that a software-based delay is For the Commission, by the Division of
it ‘‘overly long’’ so as to be an inherently inferior to a hardware-based Trading and Markets, pursuant to delegated
unnecessary burden on market delay or that this specific distinction is authority.84
participants. Accordingly, the material to its analysis of the proposal, Eduardo A. Aleman,
Commission finds that the Exchange’s and the Commission notes that the
proposed Delay Mechanism is designed Assistant Secretary.
Exchange would be required, as with
to protect investors and the public [FR Doc. 2017–10304 Filed 5–19–17; 8:45 am]
any hardware-based delay, to comply
interest in a manner that is not unfairly with its rules requiring the Exchange to BILLING CODE 8011–01–P
discriminatory and that does not impose periodically monitor the actual latency
an unnecessary or inappropriate burden and make adjustments as reasonably
on competition and is therefore necessary to achieve consistency with SECURITIES AND EXCHANGE
consistent with Sections 6(b)(5) and the 350 microsecond target set forth in COMMISSION
6(b)(8) of the Act.78 the proposed rule.80
Further, as described above, all [Release No. 34–80685; File No. SR–FINRA–
Finally, the Commission does not
members of the Exchange would be 2017–012]
believe that implementation of the
equally subject to the Delay Mechanism,
Exchange’s Delay Mechanism would
and no member would be permitted to Self-Regulatory Organizations;
preclude the Exchange from
avoid the delay by payment of a fee or Financial Industry Regulatory
maintaining an automated quotation.
through any other means. In addition, Authority, Inc.; Notice of Filing of a
Similar to an existing access delay on
the Commission believes the Exchange’s Proposed Rule Change To Amend
another market,81 the duration of the
proposal to subject all outbound FINRA Rule 7730 To Reduce the Delay
proposed Delay Mechanism is well
routable orders to the Delay Mechanism Period for the Historic TRACE Data
within the geographic and technological
is designed to ensure that the Sets Relating to Corporate and Agency
latencies experienced today, and the
Exchange’s ability to provide outbound Debt Securities
Commission believes that it would not
routing services under the proposal will
impair a market participant’s ability to
be on substantively comparable terms to May 16, 2017.
access a displayed quotation consistent
a third-party routing broker that is a Pursuant to Section 19(b)(1) of the
with the goals of Rule 611.82
member of the Exchange. In particular,
Accordingly, the proposed intentional Securities Exchange Act of 1934
both the Exchange routing logic and a
one-way 350 microsecond delay is de (‘‘Act’’) 1 and Rule 19b–4 thereunder,2
third-party routing broker-dealer would
minimis, and thus, following approval notice is hereby given that on May 12,
experience 350 microseconds of one-
of the instant proposal, the Exchange 2017, Financial Industry Regulatory
way latency in receiving order
can maintain a protected quotation Authority, Inc. (‘‘FINRA’’) filed with the
information about routable orders from
when it operates the Delay Mechanism Securities and Exchange Commission
the Exchange’s matching engine.
in the manner described above. (‘‘SEC’’ or ‘‘Commission’’) the proposed
Although the Exchange’s proposal is not
identical in all respects to the routing rule change as described in Items I, II,
80 See Proposed Rule 1.1E(y).
structure at another exchange with an and III below, which Items have been
81 See IEX Exchange Approval, supra note 73.
access delay,79 the Commission believes 82 See Interpretation, supra note 30, 81 FR at
prepared by FINRA.
that the Exchange’s proposal would not 40792 (noting that, in response to technological and The Commission is publishing this
provide it with any structural or market developments since the adoption of notice to solicit comments on the
informational advantages in its Regulation NMS, the Commission has provided an
updated interpretation of the meaning of the term proposed rule change from interested
provision of routing services as ‘‘immediate’’ in Rule 600(b)(3) of Regulation NMS, persons.
compared to a third-party broker-dealer when determining whether a trading center
member performing a similar function maintains an ‘‘automated quotation’’ for purposes of I. Self-Regulatory Organization’s
for itself or others. Therefore, the Rule 611 of Regulation NMS, to preclude any Statement of the Terms of Substance of
coding of automated systems or other type of
Commission believes that the intentional device that would delay the action taken
the Proposed Rule Change
Exchange’s proposal as applicable to with respect to a quotation unless such delay is de
routable orders would not be unfairly minimis, or as the Commission noted, so short as FINRA is proposing to amend Rule
discriminatory and would not impose to not frustrate the purposes of Rule 611 by 7730 to reduce the delay period for the
impairing fair and efficient access to an exchange’s Historic TRACE Data Sets relating to
an inappropriate burden on competition quotations). The Commission further stated that
and is therefore consistent with Sections such a de minimis access delay would satisfy Rules
corporate and agency debt securities
6(b)(5) and 6(b)(8) of the Act. 600 and 611 under the updated interpretation even from 18 months to six months.
The Commission acknowledges that, if it involved the use of an ‘‘intentional device’’ to
delay access to an exchange’s quotation. See id. For
The text of the proposed rule change
as commenters have noted, the purposes of determining whether an exchange is available on FINRA’s Web site at
access delay is de minimis, the Commission did not http://www.finra.org, at the principal
mstockstill on DSK30JT082PROD with NOTICES
78 While some commenters expressed concern
set out a specific threshold; however, Commission office of FINRA and at the
that intentional delays in protected quotations may staff has determined that, today, any delay of less
increase market complexity and requested that the than one millisecond is a de minimis amount of Commission’s Public Reference Room.
Commission impose a moratorium on new delay in accessing an exchange’s facilities for
proposals to implement such delays, the purposes of the interpretation. See Commission 83 15 U.S.C. 78s(b)(2).
Commission notes that it carefully considers each Staff Guidance on Automated Quotations under 84 17 CFR 200.30–3(a)(12).
exchange proposal for consistency with the Act. Regulation NMS (June 17, 2016), https://
79 See IEX Rule 11.510. See also IEX Exchange 1 15 U.S.C. 78s(b)(1).
www.sec.gov/divisions/marketreg/automated-
Approval, supra note 73, 81 FR at 41157–60. quotations-under-regulation-nms.htm. 2 17 CFR 240.19b–4.
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For the Commission, by the Division of request, and the issues contested. Commission under the Investment
Trading and Markets, pursuant to delegated Persons who wish to be notified of a Advisers Act of 1940 (the ‘‘Advisers
authority.22 hearing may request notification by Act’’), was organized as a limited
Eduardo A. Aleman, writing to the Commission’s Secretary. liability company under the laws of the
Assistant Secretary. ADDRESSES: Secretary, U.S. Securities state of Delaware. Solar Adviser serves
[FR Doc. 2017–10307 Filed 5–19–17; 8:45 am] and Exchange Commission, 100 F St. as the investment adviser to each of the
BILLING CODE 8011–01–P NE., Washington, DC 20549–1090. Solar Funds.
Applicants: Michael S. Gross, Solar 4. Applicants seek an Order to permit
Capital Ltd., 500 Park Avenue, New a Regulated Fund 5 and one or more
SECURITIES AND EXCHANGE York, NY 10022. other Regulated Funds and/or one or
COMMISSION more Affiliated Funds 6 to participate in
FOR FURTHER INFORMATION CONTACT:
[Release No. IC–32638; 812–14735] Barbara T. Heussler, Senior Counsel, at the same investment opportunities
(202) 551–6990 or Robert H. Shapiro, through a proposed co-investment
Solar Capital Ltd., et al. Branch Chief, at (202) 551–6821 program (the ‘‘Co-Investment Program’’)
(Division of Investment Management, where such participation would
May 17, 2017. otherwise be prohibited under section
Chief Counsel’s Office).
AGENCY: Securities and Exchange 57(a)(4) and rule 17d–1 by (a) co-
Commission (‘‘Commission’’). SUPPLEMENTARY INFORMATION: The
investing with each other in securities
following is a summary of the issued by issuers in private placement
ACTION: Notice.
application. The complete application transactions in which an Adviser
Notice of application for an order may be obtained via the Commission’s negotiates terms in addition to price; 7
(‘‘Order’’) to amend a prior order under Web site by searching for the file and (b) making additional investments
sections 17(d) and 57(i) of the number, or for an applicant using the in securities of such issuers, including
Investment Company Act of 1940 (the Company name box, at http:// through the exercise of warrants,
‘‘Act’’) and rule 17d–1 under the Act www.sec.gov/search/search.htm or by conversion privileges, and other rights
permitting certain joint transactions calling (202) 551–8090. to purchase securities of the issuers
otherwise prohibited by sections 17(d) Summary of the Application (‘‘Follow-On Investments’’). ‘‘Co-
and 57(a)(4) of the Act and under rule Investment Transaction’’ means any
17d–1 under the Act. Applicants request 1. The Solar Funds are Maryland
transaction in which a Regulated Fund
an order that would permit certain corporations organized as closed-end
(or its Wholly-Owned Investment Sub)
business development companies (each, management investment companies that
participated together with one or more
a ‘‘BDC’’) and certain closed-end have elected to be regulated as BDC’s
other Regulated Funds and/or one or
investment companies to co-invest in under section 54(a) of the Act.2 Solar
more Affiliated Funds in reliance on the
portfolio companies with each other and Capital’s investment objective is to
requested Order. ‘‘Potential Co-
with affiliated investment funds. The generate both current income and
Investment Transaction’’ means any
Order would supersede the prior order.1 capital appreciation through debt and
investment opportunity in which a
Applicants: Solar Capital Ltd. (‘‘Solar equity investment. Solar Senior’s
Regulated Fund (or its Wholly-Owned
Capital’’); Solar Senior Capital Ltd. investment objective is to seek to
Investment Sub) could not participate
(‘‘Solar Senior’’ and together with Solar maximize current income consistent
together with one or more Affiliated
Capital, the ‘‘Solar Funds’’); SUNS SPV with the preservation of capital. The
Funds and/or one or more other
LLC (‘‘Solar Senior Subsidiary’’) and Solar Funds each have a five-member
Regulated Funds without obtaining and
Solar Capital Partners, LLC (‘‘Solar Board,3 of which the same three
relying on the Order.8
Adviser’’). members serve as Non-Interested
Filing Dates: The application was Directors.4 5 ‘‘Regulated Fund’’ means Solar Capital, Solar
filed on January 13, 2017, and amended 2. Solar Senior Subsidiary is a Senior and any Future Regulated Fund. ‘‘Future
on April 4, 2017 and May 4, 2017. Wholly-Owned Investment Sub, as Regulated Fund’’ means any closed-end
defined below, whose sole business management investment company (a) that is
Hearing or Notification of Hearing: An registered under the Act or has elected to be
order granting the requested relief will purpose is to hold one or more regulated as a BDC, (b) whose investment adviser
be issued unless the Commission orders investments on behalf of Solar Senior. is an Adviser, and (c) that intends to participate in
a hearing. Interested persons may Because it is a wholly-owned, the Co-Investment Program. The term ‘‘Adviser’’
consolidated subsidiary of Solar Senior, means (a) Solar Adviser or its successors, and (b)
request a hearing by writing to the any future investment adviser that controls, is
Commission’s Secretary and serving and Solar Senior’s investment adviser is controlled by, or is under common control with
applicants with a copy of the request, Solar Adviser, Solar Adviser also Solar Adviser and is registered as an investment
personally or by mail. Hearing requests manages the assets the Solar Senior adviser under the Advisers Act. The term
Subsidiary. ‘‘successor’’ means an entity that results from a
should be received by the Commission reorganization into another jurisdiction or change
by 5:30 p.m. on June 12, 2017, and 3. Solar Adviser, a privately held in the type of business organization.
should be accompanied by proof of investment adviser registered with the 6 ‘‘Affiliated Fund’’ means any entity (a) whose
service on applicants, in the form of an investment adviser is an Adviser, (b) that would be
2 Section 2(a)(48) of the Act defines a BDC to be an investment company but for section 3(c)(1) or
affidavit or, for lawyers, a certificate of any closed-end investment company that operates 3(c)(7) of the Act, and (c) that intends to participate
service. Pursuant to rule 0–5 under the for the purpose of making investments in securities in the Co-Investment Program.
Act, hearing requests should state the described in sections 55(a)(1) through 55(a)(3) of the 7 The term ‘‘private placement transactions’’
mstockstill on DSK30JT082PROD with NOTICES
nature of the writer’s interest, any facts Act and makes available significant managerial means transactions in which the offer and sale of
assistance with respect to the issuers of such securities by the issuer are exempt from registration
bearing upon the desirability of a securities. under the Securities Act of 1933 (the ‘‘Securities
hearing on the matter, the reason for the 3 The term ‘‘Board’’ refers to the Board of Act’’).
Directors of the relevant Regulated Fund. 8 All existing entities that currently intend to rely
22 17 CFR 200.30–3(a)(12). 4 The term ‘‘Non-Interested Directors’’ means, upon the requested Order have been named as
1 Solar Capital Ltd., et al., Investment Company with respect to any Board, the directors who are not applicants. Any other existing or future entity that
Act Rel. Nos. 31143 (Jul. 1, 2014) (notice) and 31187 ‘‘interested persons’’ within the meaning of section subsequently relies on the Order will comply with
(Jul. 28, 2014) (order). 2(a)(19). the terms and conditions of the application.
VerDate Sep<11>2014 23:17 May 19, 2017 Jkt 241001 PO 00000 Frm 00221 Fmt 4703 Sfmt 4703 E:\FR\FM\22MYN1.SGM 22MYN1](https://thefederalregister.org/doc/82_FR_23482/page/6.svg)
Document Created: 2018-11-08 08:50:22
Document Modified: 2018-11-08 08:50:22
| 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 | 82 FR 23385 |
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