83 FR 42732 - Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend FINRA Rule 6710 To Modify the Dissemination Protocols for Agency Debt Securities
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 83, Issue 164 (August 23, 2018)
Federal Register Volume 83, Issue 164 (August 23, 2018)
| Page Range | 42732-42735 | |
| FR Document | 2018-18167 |
[Federal Register Volume 83, Number 164 (Thursday, August 23, 2018)] [Notices] [Pages 42732-42735] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2018-18167] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-83882; File No. SR-FINRA-2018-032] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend FINRA Rule 6710 To Modify the Dissemination Protocols for Agency Debt Securities August 17, 2018. 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 August 16, 2018, the Financial Industry Regulatory Authority, Inc. (``FINRA'') filed with the Securities and Exchange Commission (``Commission'') the proposed rule change as described in Items I, II, and III below, which Items have been prepared by FINRA. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change FINRA is proposing to amend FINRA Rule 6710 to modify the dissemination protocols with respect to Agency Debt Securities. The text of the proposed rule change is available on FINRA's website at http://www.finra.org, at the principal office of FINRA and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, FINRA included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. FINRA has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose FINRA requires members to report to the Trade Reporting and Compliance Engine (``TRACE'') transactions in TRACE-Eligible Securities,\3\ including securities that meet the definition of ``Agency Debt Security.'' \4\ FINRA disseminates transaction information on Agency Debt Securities and displays either the actual size (volume) of the transaction or a capped amount, depending on whether the security is rated as Investment Grade,\5\ Non-Investment Grade,\6\ or is unrated. For transactions in Agency Debt Securities that are either Investment Grade or unrated, FINRA disseminates the actual size of the trade for transactions less than or equal to $5 million in par value traded, thus providing actual transaction size up to $5 million, and disseminates ``$5MM+'' for trades exceeding $5 million in par value traded.\7\ For transactions in Agency Debt Securities that are Non-Investment Grade, FINRA disseminates the actual size of the trade for transactions less than or equal to $1 million in par value, and disseminates ``1MM+'' for trades exceeding $1 million in par value traded.\8\ --------------------------------------------------------------------------- \3\ Rule 6710 generally defines a ``TRACE-Eligible Security'' as: A debt security that is United States (``U.S.'') dollar- denominated and is: (1) 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; (2) issued or guaranteed by an Agency as defined in Rule 6710(k) or a Government- Sponsored Enterprise as defined in Rule 6710(n); or (3) a U.S. Treasury Security as defined in Rule 6710(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 Rule 6710(o). \4\ ``Agency Debt Security'' generally includes a debt security (i) issued or guaranteed by an Agency as defined in Rule 6710(k); (ii) issued or guaranteed by a Government-Sponsored Enterprise (``GSE'') as defined in Rule 6710(n); or (iii) issued by a trust or other entity that was established or sponsored by a GSE for the purpose of issuing debt securities, where such enterprise provides collateral to the trust or other entity or retains a material net economic interest in the reference tranches associated with the securities issued by the trust or other entity. Rule 6710(n) provides that ``Government-Sponsored Enterprise'' has the same meaning as defined in 2 U.S.C. 622(8). \5\ Rule 6710 provides that ``Investment Grade'' means ``a TRACE-Eligible Security that, if rated by only one nationally recognized statistical rating organization (``NRSRO''), is rated in one of the four highest generic rating categories; or if rated by more than one NRSRO, is rated in one of the four highest generic rating categories by all or a majority of such NRSROs; provided that if the NRSROs assign ratings that are evenly divided between (i) the four highest generic ratings and (ii) ratings lower than the four highest generic ratings, FINRA will classify the TRACE-Eligible Security as Non-Investment Grade for purposes of TRACE. If a TRACE- Eligible Security is unrated, for purposes of TRACE, FINRA may classify the TRACE-Eligible Security as an Investment Grade security. FINRA will classify an unrated Agency Debt Security as defined in [Rule 6710(l)] as an Investment Grade security for purposes of the dissemination of transaction volume.'' See FINRA Rule 6710(h). \6\ Rule 6710 provides that ``Non-Investment Grade'' means ``a TRACE-Eligible Security that, if rated by only one NRSRO, is rated lower than one of the four highest generic rating categories; or if rated by more than one NRSRO, is rated lower than one of the four highest generic rating categories by all or a majority of such NRSROs. Except as provided in paragraph (h), if a TRACE-Eligible Security is unrated, FINRA may classify the TRACE-Eligible Security as a Non-Investment Grade security.'' See FINRA Rule 6710(i). \7\ See Securities Exchange Act Release No. 59733 (April 8, 2009), 74 FR 17709 (April 16, 2009) (Notice of Filing of File No. SR-FINRA-2009-010). \8\ See supra note 7. --------------------------------------------------------------------------- FINRA is proposing to apply a $5 million dissemination cap to all Agency Debt Securities, regardless of the rating assigned to the security. When adopting the original dissemination caps for Agency Debt Securities, FINRA believed that unrated Agency Debt Securities should default to the $5 million dissemination cap due to factors such as that they trade more consistently with Investment Grade securities that are subject to the $5 million dissemination cap. While Non-Investment Grade Agency Debt Securities have been disseminated with the $1 million dissemination cap, FINRA is not aware of the existence of any Non- Investment Grade Agency Debt Securities other than credit risk transfer securities (``CRTs''), a type of Agency Debt Security issued by Fannie Mae (``Fannie'') and Freddie Mac (``Freddie''). Based on experience gained with CRTs and in consultation with Fannie and Freddie, FINRA [[Page 42733]] believes that it is appropriate to disseminate Non-Investment Grade CRTs with the $5 million dissemination cap. Because CRTs are the only type of Agency Debt Security rated less than Investment Grade, FINRA is proposing to simplify the dissemination structure by applying the $5 million dissemination cap to all Agency Debt Securities irrespective of rating. FINRA notes that transactions in the vast majority of securities issued by Fannie and Freddie are disseminated with the actual size of the trade (uncapped), and, of those that are capped, the vast majority are disseminated with the $5 million cap: 94.4% of all transactions in direct obligations issued by Fannie and Freddie, including CRTs, currently are disseminated with the actual size of the trade. Of the remaining 5.6% that are capped (both at $1 million and $5 million), 95% currently are disseminated with the $5 million cap. Thus, FINRA believes that the proposed modification to apply the $5 million dissemination cap to all Agency Debt Securities uniformly will have a minimal impact, while simplifying the dissemination structure and providing additional transparency in Agency Debt Securities. 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 announcing Commission approval. 2. Statutory Basis FINRA believes that the proposed rule change is consistent with the provisions of Section 15A(b)(6) of the Act,\9\ which requires, among other things, that FINRA rules must be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest. The proposed rule change would benefit investors in that it would simplify the dissemination structure by creating a uniform dissemination protocol for all Agency Debt Securities, and would increase transparency for transactions in Non-Investment Grade Agency Debt Securities over $1 million. Additionally, the proposed rule change would have a minimal impact as the vast majority of capped transactions in Agency Debt Securities are already disseminated with the $5 million cap. --------------------------------------------------------------------------- \9\ 15 U.S.C. 78o-3(b)(6). --------------------------------------------------------------------------- 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 Assessment FINRA has undertaken an economic impact assessment, as set forth below, to analyze the potential economic impacts, including anticipated costs, benefits, and distributional and competitive effects, relative to the current baseline, and the alternatives FINRA considered in assessing how to best meet its regulatory objectives. Economic Baseline As of December 31, 2017, there were 35 Investment Grade, 9 Non- Investment Grade, and 172 unrated CRT classes (based on TRACE data). FINRA notes that certain CRTs are currently the only type of Agency Debt Security with a Non-Investment Grade rating. The outstanding amount of these issues are $770 million, $350 million and $2,877 million for Investment Grade, Non-Investment Grade and unrated issues respectively. Table 1 presents the number of trades reported to TRACE and nominal trade value of CRT CUSIPs by rating for the calendar year beginning January 1, 2017.\10\ --------------------------------------------------------------------------- \10\ Each CRT deal utilizes a senior/subordinate structure in which credit protection is provided to the senior class by the subordinate classes in priority order. The senior class and subordinate tranches, while part of the same CRT issuance, are separate securities and each are assigned a unique CUSIP. In addition, each CRT class can be further tranched to provide additional optionality for investors' needs. As such, each CRT class is associated with multiple unique CUSIPs. We note that only the CUSIP associated with the senior tranche contributes to the amount of debt outstanding for a given CRT class. Table 1 ---------------------------------------------------------------------------------------------------------------- Trades Trade value --------------------------------------------------------------- Grade Dollars Number Percent (millions) Percent ---------------------------------------------------------------------------------------------------------------- Non-Investment.................................. 1,950 13.6 8,800.9 13.6 Investment...................................... 1,988 13.8 8,880.1 13.7 Unrated......................................... 10,423 72.6 47,077.7 72.7 ---------------------------------------------------------------------------------------------------------------- Under the existing dissemination protocols, Agency Debt Securities that are unrated or rated Investment Grade are disseminated with a $5 million dissemination cap, where trades over $5 million are displayed as ``5MM+.'' Non-Investment Grade Agency Debt Securities are disseminated with a $1 million dissemination cap, where trades over $1 million are displayed as ``1MM+.'' Table 2 presents the number and percent of trades and nominal trade value disseminated with actual trade sizes or displayed with ``5MM+'' for Investment Grade or unrated CRT CUSIPs for calendar year 2017. These statistics include all trades reported to TRACE during the period, and thus would include two trade reports for interdealer trades and one trade report for dealer to customer trades (two-sided trade data).\11\ --------------------------------------------------------------------------- \11\ For calendar year 2017, there were 11,341 trades reported to TRACE, that include only one trade report for interdealer trades and one trade report for dealer to customer trades (one-sided trade data), in Investment Grade and unrated CRT CUSIPs, of which 20.8% were displayed as ``5MM+.'' [[Page 42734]] Table 2 ---------------------------------------------------------------------------------------------------------------- Trades --------------------------------------------------------------- Grade <=$5M >$5M --------------------------------------------------------------- Number Percent Number Percent ---------------------------------------------------------------------------------------------------------------- Investment...................................... 1,524 76.7 464 23.3 Unrated......................................... 8,435 80.9 1,988 19.1 ---------------------------------------------------------------------------------------------------------------- Trade value --------------------------------------------------------------- <=$5M >$5M --------------------------------------------------------------- Dollars Dollars (millions) Percent (millions) Percent ---------------------------------------------------------------------------------------------------------------- Investment...................................... 2,591.5 29.2 6,288.6 28.2 Unrated......................................... 22,390.9 47.6 24,686.7 46.6 ---------------------------------------------------------------------------------------------------------------- Table 3 presents the number and percent of trades and nominal trade value disseminated with actual trade sizes or displayed with ``1MM+'' for Non-Investment Grade CRT CUSIPs for calendar year 2017.\12\ --------------------------------------------------------------------------- \12\ For calendar year 2017, there were 1,712 trades reported to TRACE, that include only one trade report for interdealer trades and one trade report for dealer to customer trades (one-sided trade data), in Non-Investment Grade CUSIPs, of which 88.3% were displayed as ``1MM+.'' Table 3 ---------------------------------------------------------------------------------------------------------------- Trades --------------------------------------------------------------- Grade <=$1M >$1M --------------------------------------------------------------- Number Percent Number Percent ---------------------------------------------------------------------------------------------------------------- Non-Investment.................................. 222 11.4 1,728 88.6 ---------------------------------------------------------------------------------------------------------------- Trade value --------------------------------------------------------------- <=$1M >$1M --------------------------------------------------------------- Dollars Dollars (millions) Percent (millions) Percent ---------------------------------------------------------------------------------------------------------------- Non-Investment.................................. 139.7 1.6 8,661.2 98.4 ---------------------------------------------------------------------------------------------------------------- Economic Impact Based on transactions during calendar year 2017, this proposal would have led to dissemination of additional trade size information for 1,112 trades in 82 CRT CUSIPs than disseminated under the current protocols. This increased transparency could have impacts on investors, market makers and issuers. Markets participants, especially uninformed investors, generally anticipate that they benefit from greater price transparency because, in the presence of this information, they are more likely to gain more timely information about the current price of an asset. Knowing this, they may be more willing to commit capital.\13\ --------------------------------------------------------------------------- \13\ For instance, one study that examined corporate bond transactions in TRACE from January 2003 through January 2005 found that ``[c]osts are lower for bonds with transparent trade prices, and they drop when the TRACE system starts to publicly disseminate their prices. The results suggest that public traders benefit significantly from price transparency.'' For additional details, see Amy K. Edwards, Lawrence E. Harris, and Michael S. Piwowar, Corporate Bond Market Transaction Costs and Transparency, Journal of Finance 62, No. 3, 1421-1451 (2007). --------------------------------------------------------------------------- At the same time, FINRA understands that some firms believe that transparency about the size of larger trades impedes their ability to commit capital and hence may have a negative impact on liquidity. Increasing transparency may increase the amount of information available to uninformed investors on transaction size and price. This may reduce the informed investors' relative advantage by decreasing the bid-ask spread earned by an informed investor or increasing the bid-ask spread paid by an informed investor. Furthermore, firms may be less willing to trade as principal and hold these securities in inventory, leading to wider spreads or less depth, if they fear that investors may identify the firms' inventory position.\14\ In addition, existing institutional investors that prefer trading in large sizes or at the current level of transparency in Non-Investment Grade CRTs may substitute trading in other asset classes, if the investors fear others may identify their holdings. The consensus of the academic literature studying the impact of transparency in a variety of settings in U.S. fixed income markets is that greater transparency is associated with lower costs to end customers and positive to neutral impacts on market liquidity.\15\ In addition, FINRA has discussed the proposed rule change with Fannie and Freddie, both of which support the application of the $5 million dissemination cap to all CRTs. --------------------------------------------------------------------------- \14\ See supra note 13. \15\ See supra note 13. --------------------------------------------------------------------------- Alternatives No alternatives are under consideration. [[Page 42735]] C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action 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 (http://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. Please include File Number SR-FINRA-2018-032 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-2018-032. 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 website (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 website viewing and printing in the Commission's Public Reference Room, 100 F Street NE, Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the principal office of FINRA. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-FINRA-2018-032, and should be submitted on or before September 13, 2018. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\16\ --------------------------------------------------------------------------- \16\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018-18167 Filed 8-22-18; 8:45 am] BILLING CODE 8011-01-P
![42732 Federal Register / Vol. 83, No. 164 / Thursday, August 23, 2018 / Notices
provisions of 5 U.S.C. 552, will be protocols with respect to Agency Debt Investment Grade,6 or is unrated. For
available for website viewing and Securities. transactions in Agency Debt Securities
printing in the Commission’s Public The text of the proposed rule change that are either Investment Grade or
Reference Room, 100 F Street NE, is available on FINRA’s website at unrated, FINRA disseminates the actual
Washington, DC 20549, on official http://www.finra.org, at the principal size of the trade for transactions less
business days between the hours of office of FINRA and at the than or equal to $5 million in par value
10:00 a.m. and 3:00 p.m. Copies of the Commission’s Public Reference Room. traded, thus providing actual
filing also will be available for transaction size up to $5 million, and
II. Self-Regulatory Organization’s
inspection and copying at the principal disseminates ‘‘$5MM+’’ for trades
Statement of the Purpose of, and
office of the Exchange. All comments exceeding $5 million in par value
Statutory Basis for, the Proposed Rule
received will be posted without change. traded.7 For transactions in Agency Debt
Change
Persons submitting comments are Securities that are Non-Investment
cautioned that we do not redact or edit In its filing with the Commission, Grade, FINRA disseminates the actual
personal identifying information from FINRA included statements concerning size of the trade for transactions less
comment submissions. You should the purpose of and basis for the than or equal to $1 million in par value,
submit only information that you wish proposed rule change and discussed any and disseminates ‘‘1MM+’’ for trades
to make available publicly. All comments it received on the proposed exceeding $1 million in par value
submissions should refer to File rule change. The text of these statements traded.8
Number SR–CBOE–2018–056 and may be examined at the places specified FINRA is proposing to apply a $5
should be submitted on or before in Item IV below. FINRA has prepared million dissemination cap to all Agency
September 7, 2018. summaries, set forth in sections A, B, Debt Securities, regardless of the rating
For the Commission, by the Division of
and C below, of the most significant assigned to the security. When adopting
Trading and Markets, pursuant to delegated aspects of such statements. the original dissemination caps for
authority.18 A. Self-Regulatory Organization’s Agency Debt Securities, FINRA believed
Eduardo A. Aleman, Statement of the Purpose of, and the that unrated Agency Debt Securities
Assistant Secretary. Statutory Basis for, the Proposed Rule should default to the $5 million
[FR Doc. 2018–18158 Filed 8–22–18; 8:45 am] Change dissemination cap due to factors such as
that they trade more consistently with
BILLING CODE 8011–01–P
1. Purpose Investment Grade securities that are
FINRA requires members to report to subject to the $5 million dissemination
SECURITIES AND EXCHANGE the Trade Reporting and Compliance cap. While Non-Investment Grade
COMMISSION Engine (‘‘TRACE’’) transactions in Agency Debt Securities have been
TRACE-Eligible Securities,3 including disseminated with the $1 million
[Release No. 34–83882; File No. SR–FINRA– securities that meet the definition of dissemination cap, FINRA is not aware
2018–032] ‘‘Agency Debt Security.’’ 4 FINRA of the existence of any Non-Investment
disseminates transaction information on Grade Agency Debt Securities other than
Self-Regulatory Organizations; credit risk transfer securities (‘‘CRTs’’),
Financial Industry Regulatory Agency Debt Securities and displays
either the actual size (volume) of the a type of Agency Debt Security issued
Authority, Inc.; Notice of Filing of a by Fannie Mae (‘‘Fannie’’) and Freddie
Proposed Rule Change To Amend transaction or a capped amount,
depending on whether the security is Mac (‘‘Freddie’’). Based on experience
FINRA Rule 6710 To Modify the gained with CRTs and in consultation
Dissemination Protocols for Agency rated as Investment Grade,5 Non-
with Fannie and Freddie, FINRA
Debt Securities 3 Rule 6710 generally defines a ‘‘TRACE-Eligible
Security’’ as: A debt security that is United States highest generic rating categories; or if rated by more
August 17, 2018. than one NRSRO, is rated in one of the four highest
(‘‘U.S.’’) dollar-denominated and is: (1) Issued by a
Pursuant to Section 19(b)(1) of the U.S. or foreign private issuer, and, if a ‘‘restricted generic rating categories by all or a majority of such
Securities Exchange Act of 1934 security’’ as defined in Securities Act Rule NRSROs; provided that if the NRSROs assign
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 144(a)(3), sold pursuant to Securities Act Rule ratings that are evenly divided between (i) the four
144A; (2) issued or guaranteed by an Agency as highest generic ratings and (ii) ratings lower than
notice is hereby given that on August defined in Rule 6710(k) or a Government-Sponsored the four highest generic ratings, FINRA will classify
16, 2018, the Financial Industry Enterprise as defined in Rule 6710(n); or (3) a U.S. the TRACE-Eligible Security as Non-Investment
Regulatory Authority, Inc. (‘‘FINRA’’) Treasury Security as defined in Rule 6710(p). Grade for purposes of TRACE. If a TRACE-Eligible
filed with the Securities and Exchange ‘‘TRACE-Eligible Security’’ does not include a debt Security is unrated, for purposes of TRACE, FINRA
security that is issued by a foreign sovereign or a may classify the TRACE-Eligible Security as an
Commission (‘‘Commission’’) the Money Market Instrument as defined in Rule Investment Grade security. FINRA will classify an
proposed rule change as described in 6710(o). unrated Agency Debt Security as defined in [Rule
Items I, II, and III below, which Items 4 ‘‘Agency Debt Security’’ generally includes a 6710(l)] as an Investment Grade security for
have been prepared by FINRA. The debt security (i) issued or guaranteed by an Agency purposes of the dissemination of transaction
as defined in Rule 6710(k); (ii) issued or guaranteed volume.’’ See FINRA Rule 6710(h).
Commission is publishing this notice to 6 Rule 6710 provides that ‘‘Non-Investment
by a Government-Sponsored Enterprise (‘‘GSE’’) as
solicit comments on the proposed rule defined in Rule 6710(n); or (iii) issued by a trust Grade’’ means ‘‘a TRACE-Eligible Security that, if
change from interested persons. or other entity that was established or sponsored by rated by only one NRSRO, is rated lower than one
a GSE for the purpose of issuing debt securities, of the four highest generic rating categories; or if
I. Self-Regulatory Organization’s where such enterprise provides collateral to the rated by more than one NRSRO, is rated lower than
Statement of the Terms of Substance of trust or other entity or retains a material net one of the four highest generic rating categories by
daltland on DSKBBV9HB2PROD with NOTICES
the Proposed Rule Change economic interest in the reference tranches all or a majority of such NRSROs. Except as
associated with the securities issued by the trust or provided in paragraph (h), if a TRACE-Eligible
FINRA is proposing to amend FINRA other entity. Rule 6710(n) provides that Security is unrated, FINRA may classify the
Rule 6710 to modify the dissemination ‘‘Government-Sponsored Enterprise’’ has the same TRACE-Eligible Security as a Non-Investment Grade
meaning as defined in 2 U.S.C. 622(8). security.’’ See FINRA Rule 6710(i).
5 Rule 6710 provides that ‘‘Investment Grade’’ 7 See Securities Exchange Act Release No. 59733
18 17 CFR 200.30–3(a)(12). means ‘‘a TRACE-Eligible Security that, if rated by (April 8, 2009), 74 FR 17709 (April 16, 2009)
1 15 U.S.C. 78s(b)(1). (Notice of Filing of File No. SR–FINRA–2009–010).
only one nationally recognized statistical rating
2 17 CFR 240.19b–4. organization (‘‘NRSRO’’), is rated in one of the four 8 See supra note 7.
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TABLE 2
Trades
Grade ≤$5M >$5M
Number Percent Number Percent
Investment ....................................................................................................... 1,524 76.7 464 23.3
Unrated ............................................................................................................ 8,435 80.9 1,988 19.1
Trade value
≤$5M >$5M
Dollars Dollars
Percent Percent
(millions) (millions)
Investment ....................................................................................................... 2,591.5 29.2 6,288.6 28.2
Unrated ............................................................................................................ 22,390.9 47.6 24,686.7 46.6
Table 3 presents the number and value disseminated with actual trade Non-Investment Grade CRT CUSIPs for
percent of trades and nominal trade sizes or displayed with ‘‘1MM+’’ for calendar year 2017.12
TABLE 3
Trades
Grade ≤$1M >$1M
Number Percent Number Percent
Non-Investment ................................................................................................ 222 11.4 1,728 88.6
Trade value
≤$1M >$1M
Dollars Dollars
Percent Percent
(millions) (millions)
Non-Investment ................................................................................................ 139.7 1.6 8,661.2 98.4
Economic Impact trades impedes their ability to commit trading in other asset classes, if the
Based on transactions during calendar capital and hence may have a negative investors fear others may identify their
year 2017, this proposal would have led impact on liquidity. Increasing holdings. The consensus of the
to dissemination of additional trade size transparency may increase the amount academic literature studying the impact
information for 1,112 trades in 82 CRT of information available to uninformed of transparency in a variety of settings
CUSIPs than disseminated under the investors on transaction size and price. in U.S. fixed income markets is that
current protocols. This increased This may reduce the informed investors’ greater transparency is associated with
transparency could have impacts on relative advantage by decreasing the lower costs to end customers and
investors, market makers and issuers. bid-ask spread earned by an informed positive to neutral impacts on market
Markets participants, especially investor or increasing the bid-ask spread liquidity.15 In addition, FINRA has
uninformed investors, generally paid by an informed investor. discussed the proposed rule change
anticipate that they benefit from greater Furthermore, firms may be less willing with Fannie and Freddie, both of which
price transparency because, in the to trade as principal and hold these support the application of the $5
presence of this information, they are securities in inventory, leading to wider million dissemination cap to all CRTs.
more likely to gain more timely spreads or less depth, if they fear that
information about the current price of investors may identify the firms’ Alternatives
an asset. Knowing this, they may be inventory position.14 In addition, No alternatives are under
more willing to commit capital.13 existing institutional investors that consideration.
At the same time, FINRA understands prefer trading in large sizes or at the
that some firms believe that current level of transparency in Non-
transparency about the size of larger Investment Grade CRTs may substitute
daltland on DSKBBV9HB2PROD with NOTICES
12 For calendar year 2017, there were 1,712 trades 13 For instance, one study that examined price transparency.’’ For additional details, see
reported to TRACE, that include only one trade corporate bond transactions in TRACE from January Amy K. Edwards, Lawrence E. Harris, and Michael
report for interdealer trades and one trade report for 2003 through January 2005 found that ‘‘[c]osts are S. Piwowar, Corporate Bond Market Transaction
dealer to customer trades (one-sided trade data), in lower for bonds with transparent trade prices, and Costs and Transparency, Journal of Finance 62, No.
Non-Investment Grade CUSIPs, of which 88.3% they drop when the TRACE system starts to 3, 1421–1451 (2007).
14 See supra note 13.
were displayed as ‘‘1MM+.’’ publicly disseminate their prices. The results
suggest that public traders benefit significantly from 15 See supra note 13.
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![Federal Register / Vol. 83, No. 164 / Thursday, August 23, 2018 / Notices 42735
C. Self-Regulatory Organization’s provisions of 5 U.S.C. 552, will be Participants can use to enter quotes and
Statement on Comments on the available for website viewing and orders on the Exchange.
Proposed Rule Change Received From printing in the Commission’s Public The text of the proposed rule change
Members, Participants, or Others Reference Room, 100 F Street NE, is available on the Exchange’s website at
Washington, DC 20549 on official http://nasdaqbx.cchwallstreet.com/, at
Written comments were neither
business days between the hours of the principal office of the Exchange, and
solicited nor received.
10:00 a.m. and 3:00 p.m. Copies of such at the Commission’s Public Reference
III. Date of Effectiveness of the filing also will be available for Room.
Proposed Rule Change and Timing for inspection and copying at the principal II. Self-Regulatory Organization’s
Commission Action office of FINRA. All comments received Statement of the Purpose of, and
Within 45 days of the date of will be posted without change. Persons Statutory Basis for, the Proposed Rule
publication of this notice in the Federal submitting comments are cautioned that Change
Register or within such longer period (i) we do not redact or edit personal
identifying information from comment In its filing with the Commission, the
as the Commission may designate up to Exchange included statements
90 days of such date if it finds such submissions. You should submit only
information that you wish to make concerning the purpose of and basis for
longer period to be appropriate and the proposed rule change and discussed
publishes its reasons for so finding or available publicly. All submissions
should refer to File Number SR–FINRA– any comments it received on the
(ii) as to which the self-regulatory proposed rule change. The text of these
organization consents, the Commission 2018–032, and should be submitted on
or before September 13, 2018. statements may be examined at the
will: places specified in Item IV below. The
(A) By order approve or disapprove For the Commission, by the Division of Exchange has prepared summaries, set
such proposed rule change, or Trading and Markets, pursuant to delegated
forth in sections A, B, and C below, of
(B) institute proceedings to determine authority.16
the most significant aspects of such
whether the proposed rule change statements.
should be disapproved. Eduardo A. Aleman,
Assistant Secretary. A. Self-Regulatory Organization’s
IV. Solicitation of Comments Statement of the Purpose of, and
[FR Doc. 2018–18167 Filed 8–22–18; 8:45 am]
Interested persons are invited to BILLING CODE 8011–01–P Statutory Basis for, the Proposed Rule
submit written data, views, and Change
arguments concerning the foregoing, 1. Purpose
including whether the proposed rule SECURITIES AND EXCHANGE
change is consistent with the Act. COMMISSION The Exchange proposes to adopt new
Comments may be submitted by any of rule text at Chapter VI, Section 21 to
the following methods: [Release No. 34–83869; File No. SR–BX– codify the Financial Information
2018–038] eXchange (‘‘FIX’’) and Specialized
Electronic Comments Quote Feed (‘‘SQF’’) protocols. The
• Use the Commission’s internet Self-Regulatory Organizations; Nasdaq Exchange believes that codifying
comment form (http://www.sec.gov/ BX, Inc.; Notice of Filing and definitions of these protocols in its rules
rules/sro.shtml); or Immediate Effectiveness of Proposed will increase transparency around its
• Send an email to rule-comments@ Rule Change To Codify the Definitions operations. The protocols used by
sec.gov. Please include File Number SR– of the Protocols To Enter Quotes and Participants to submit quotes and orders
FINRA–2018–032 on the subject line. Orders play an important role in the operation
August 17, 2018. of the System. The Exchange therefore
Paper Comments believes that codifying definitions of
Pursuant to Section 19(b)(1) of the
• Send paper comments in triplicate Securities Exchange Act of 1934
these protocols in its rules will increase
to Secretary, Securities and Exchange transparency around its operations.
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
Commission, 100 F Street NE, Furthermore, the proposed definitions
notice is hereby given that on August
Washington, DC 20549–1090. will be harmonized where appropriate
14, 2018, Nasdaq BX, Inc. (‘‘BX’’ or
All submissions should refer to File with definitions to be included in the
‘‘Exchange’’) filed with the Securities
Number SR–FINRA–2018–032. This file rules of the Exchange’s affiliated options
and Exchange Commission
number should be included on the markets,3 including by using consistent
(‘‘Commission’’) the proposed rule
subject line if email is used. To help the terms to define the buckets of
change as described in Items I, II, and
Commission process and review your information transmitted, or the features
III, below, which Items have been
comments more efficiently, please use available, on each protocol.
prepared by the Exchange. The
only one method. The Commission will The Exchange proposes to title
Commission is publishing this notice to
post all comments on the Commission’s Section 21 as ‘‘Order and Quote
solicit comments on the proposed rule
internet website (http://www.sec.gov/ Protocols’’ and codify descriptions of
change from interested persons.
rules/sro.shtml). Copies of the the various protocols that Participants
submission, all subsequent I. Self-Regulatory Organization’s may use to enter quotes and orders on
amendments, all written statements Statement of the Terms of Substance of BX. The Exchange proposes to add a
with respect to the proposed rule the Proposed Rule Change
daltland on DSKBBV9HB2PROD with NOTICES
3 See Securities Exchange Act Release Nos. 83729
change that are filed with the The Exchange proposes to adopt new (July 27, 2018) 83 FR 37870 (August 2, 2018) (SR–
Commission, and all written text at Chapter VI, Section 21 to codify ISE–2018–65); 83731 (July 27, 2018), 83 FR 37867
communications relating to the the definitions of the protocols that (August 2, 2018) (SR–GEMX–2018–26); and 83730
proposed rule change between the (July 27, 2018), 83 FR 37873 (August 2, 2018) (SR–
MRX–2018–25). Nasdaq Phlx LLC was filed as SR–
Commission and any person, other than 16 17 CFR 200.30–3(a)(12). Phlx–2018–54. The Nasdaq Stock Market LLC will
those that may be withheld from the 1 15 U.S.C. 78s(b)(1). submit a similar filing to amend The Nasdaq
public in accordance with the 2 17 CFR 240.19b–4. Options Market LLC ports.
VerDate Sep<11>2014 19:43 Aug 22, 2018 Jkt 244001 PO 00000 Frm 00100 Fmt 4703 Sfmt 4703 E:\FR\FM\23AUN1.SGM 23AUN1](https://thefederalregister.org/doc/83_FR_42896/page/4.svg)
Document Created: 2018-08-23 00:34:25
Document Modified: 2018-08-23 00:34:25
| 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 | 83 FR 42732 |
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