83 FR 51514 - Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving Proposed Rule Change To Amend FINRA Rule 7730 To Remove Computer-to-Computer Interface as a Technological Option for TRACE Reporting

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 197 (October 11, 2018)

Page Range		51514-51515
FR Document		2018-22046
Federal Register, Volume 83 Issue 197 (Thursday, October 11, 2018)
[Federal Register Volume 83, Number 197 (Thursday, October 11, 2018)]
[Notices]
[Pages 51514-51515]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-22046]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84366; File No. SR-FINRA-2018-030]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Approving Proposed Rule Change To Amend FINRA 
Rule 7730 To Remove Computer-to-Computer Interface as a Technological 
Option for TRACE Reporting

October 4, 2018.

I. Introduction

    On August 15, 2018, 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 to modify the technological connectivity options 
available to member firms for reporting transactions to the Transaction 
Reporting and Compliance Engine (``TRACE''). The proposed rule change 
was published for comment in the Federal Register on August 23, 
2018.\3\ The Commission received no comments on the proposed rule 
change. This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 83868 (August 17, 
2018), 83 FR 42741 (``Notice'').
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II. Description of the Proposal

    FINRA has proposed to amend Rule 7730 (Trade Reporting and 
Compliance Engine (TRACE)) to remove Computer-to-Computer Interface 
(``CTCI'') as a technological means of connectivity for use in 
reporting transactions to TRACE. CTCI was made available for TRACE 
reporting purposes at TRACE's inception. FINRA added Financial 
Information eXchange (``FIX'') as a protocol for transaction reporting 
to TRACE for securitized products in 2011 and for corporate and agency 
debt securities in 2012. FINRA has represented that approximately two 
thirds of member firms with direct connections, and half of the service 
bureaus, have migrated from CTCI to FIX.\4\ FINRA believes that the 
migration to FIX will continue for member firms and service bureaus as 
it is an immediately available and viable alternative to CTCI, and that 
removing CTCI as a connectivity option will reduce operational overhead 
and risk for FINRA.\5\
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    \4\ See id.
    \5\ See id.
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    Accordingly, FINRA has proposed to amend Rule 7730 to remove CTCI 
as a means of connectivity for members to report transactions to TRACE, 
leaving three currently available options: (i) Web browser access; (ii) 
FIX line access; or (iii) indirectly via third-party vendors (e.g., 
service bureaus).\6\ Member firms that currently use CTCI will be able 
to migrate at any point throughout the implementation period, during 
which FINRA will engage in outreach with the industry to provide 
information and assistance in connection with the migration.\7\ The 
operative date for the rule change will be February 3, 2020.\8\
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    \6\ See FINRA Rule 7730.
    \7\ See Notice, 83 FR at 42741. FINRA stated that, in addition 
to general industry outreach, FINRA will contact each member firm 
that directly reports to TRACE via CTCI by email and telephone to 
provide information and assistance in connection with the migration. 
See id. at n. 8.
    \8\ See id. at 42741.
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III. Discussion and Commission Findings

    After careful consideration, 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.\9\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 15A(b)(6) of the Act,\10\ which 
requires, among other things, that FINRA 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.
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    \9\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \10\ 15 U.S.C. 78o-3(b)(6).
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    While Section 15A(b)(6) sets out principles to which the rules of a 
national securities association must adhere, it does not prescribe 
specific technological requirements for carrying out those principles. 
Thus, in a situation where an association requires information from its 
members to carry out its self-regulatory and market oversight 
functions, the association generally has discretion over establishing 
the means by which its members may be required to provide

[[Page 51515]]

that information. Currently, FINRA supports four technological 
protocols for its members to report transactions to TRACE. FINRA has 
proposed to discontinue supporting one of those four protocols, CTCI. 
The Commission believes that such action is a reasonable exercise of 
FINRA's discretion, for the following reasons.
    First, FINRA will continue to support three other technological 
protocols for reporting transactions to TRACE: FIX, web browser, and 
via third-party vendor. Second, FIX already is utilized by 
approximately half of the third-party vendors and two-thirds of member 
firms with direct reporting capability, and with the increase in the 
percentage of TRACE transactions reported via FIX there has been a 
concomitant decrease in CTCI usage.\11\ Third, supporting three instead 
of four reporting protocols would conserve FINRA resources and has some 
potential for reducing operational risks.\12\ Fourth, FINRA is taking 
reasonable steps to assist member firms that currently use CTCI and 
must transition to other reporting protocols. FINRA has stated that it 
will contact each such firm to offer assistance in connection with the 
migration, and is allowing over a year--until February 3, 2020--for 
affected firms to complete the migration.\13\ The Commission has no 
reason to believe that this proposal will impose undue burdens on FINRA 
member firms; the Commission notes that no comments on the proposal 
were submitted.
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    \11\ See Notice, 83 FR at 42741.
    \12\ See id. at 42741.
    \13\ See id. at n. 8.
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    For these reasons, the Commission believes the proposed rule change 
is consistent with the Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\14\ that the proposed rule change (SR-FINRA-2018-030) is approved.
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    \14\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-22046 Filed 10-10-18; 8:45 am]
 BILLING CODE 8011-01-P
51514 Federal Register / Vol. 83, No. 197 / Thursday, October 11, 2018 / Notices

change should be approved or For the Commission, by the Division of FIX.4 FINRA believes that the migration
disapproved. Trading and Markets, pursuant to delegated to FIX will continue for member firms
authority.20 and service bureaus as it is an
IV. Solicitation of Comments Eduardo A. Aleman, immediately available and viable
Assistant Secretary. alternative to CTCI, and that removing
Interested persons are invited to
submit written data, views and [FR Doc. 2018–22048 Filed 10–10–18; 8:45 am] CTCI as a connectivity option will
arguments concerning the foregoing, BILLING CODE 8011–01–P reduce operational overhead and risk for
including whether the proposed rule FINRA.5
Accordingly, FINRA has proposed to
change is consistent with the Act.
SECURITIES AND EXCHANGE amend Rule 7730 to remove CTCI as a
Comments may be submitted by any of COMMISSION means of connectivity for members to
the following methods:
[Release No. 34–84366; File No. SR–FINRA–
report transactions to TRACE, leaving
Electronic Comments 2018–030] three currently available options: (i)
Web browser access; (ii) FIX line access;
• Use the Commission’s internet Self-Regulatory Organizations; or (iii) indirectly via third-party vendors
comment form (http://www.sec.gov/ Financial Industry Regulatory (e.g., service bureaus).6 Member firms
rules/sro.shtml); or Authority, Inc.; Order Approving that currently use CTCI will be able to
• Send an email to rule-comments@ Proposed Rule Change To Amend migrate at any point throughout the
sec.gov. Please include File Number SR– FINRA Rule 7730 To Remove implementation period, during which
IEX–2018–21 on the subject line. Computer-to-Computer Interface as a FINRA will engage in outreach with the
Technological Option for TRACE industry to provide information and
Paper Comments Reporting assistance in connection with the
migration.7 The operative date for the
• Send paper comments in triplicate October 4, 2018. rule change will be February 3, 2020.8
to Secretary, Securities and Exchange
I. Introduction III. Discussion and Commission
Commission, 100 F Street NE,
Washington, DC 20549–1090. On August 15, 2018, the Financial Findings
Industry Regulatory Authority, Inc. After careful consideration, the
All submissions should refer to File (‘‘FINRA’’) filed with the Securities and
Number SR–IEX–2018–21. This file Commission finds that the proposed
Exchange Commission (‘‘Commission’’), rule change is consistent with the
number should be included on the pursuant to Section 19(b)(1) of the
subject line if email is used. To help the requirements of the Act and the rules
Securities Exchange Act of 1934 and regulations thereunder applicable to
Commission process and review your (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a
comments more efficiently, please use a national securities association.9 In
proposed rule change to modify the particular, the Commission finds that
only one method. The Commission will technological connectivity options
post all comments on the Commission’s the proposed rule change is consistent
available to member firms for reporting with Section 15A(b)(6) of the Act,10
internet website (http://www.sec.gov/ transactions to the Transaction
rules/sro.shtml). Copies of the which requires, among other things, that
Reporting and Compliance Engine FINRA rules be designed to prevent
submission, all subsequent (‘‘TRACE’’). The proposed rule change fraudulent and manipulative acts and
amendments, all written statements was published for comment in the practices, to promote just and equitable
with respect to the proposed rule Federal Register on August 23, 2018.3
principles of trade, and, in general, to
change that are filed with the The Commission received no comments
protect investors and the public interest.
Commission, and all written on the proposed rule change. This order While Section 15A(b)(6) sets out
communications relating to the approves the proposed rule change. principles to which the rules of a
proposed rule change between the
II. Description of the Proposal national securities association must
Commission and any person, other than
FINRA has proposed to amend Rule adhere, it does not prescribe specific
those that may be withheld from the
7730 (Trade Reporting and Compliance technological requirements for carrying
public in accordance with the
Engine (TRACE)) to remove Computer- out those principles. Thus, in a situation
provisions of 5 U.S.C. 552, will be
to-Computer Interface (‘‘CTCI’’) as a where an association requires
available for website viewing and
technological means of connectivity for information from its members to carry
printing in the Commission’s Public
use in reporting transactions to TRACE. out its self-regulatory and market
Reference Room, 100 F Street NE,
CTCI was made available for TRACE oversight functions, the association
Washington, DC 20549, on official
reporting purposes at TRACE’s generally has discretion over
business days between the hours of
inception. FINRA added Financial establishing the means by which its
10:00 a.m. and 3:00 p.m. Copies of the
Information eXchange (‘‘FIX’’) as a members may be required to provide
filing also will be available for
inspection and copying at the principal protocol for transaction reporting to
4 See id.
office of the Exchange. All comments TRACE for securitized products in 2011 5 See id.
received will be posted without change. and for corporate and agency debt 6 See FINRA Rule 7730.

Persons submitting comments are securities in 2012. FINRA has 7 See Notice, 83 FR at 42741. FINRA stated that,

cautioned that we do not redact or edit represented that approximately two in addition to general industry outreach, FINRA
personal identifying information from thirds of member firms with direct will contact each member firm that directly reports
khammond on DSK30JT082PROD with NOTICES

connections, and half of the service to TRACE via CTCI by email and telephone to
comment submissions. You should provide information and assistance in connection
submit only information that you wish bureaus, have migrated from CTCI to with the migration. See id. at n. 8.
to make available publicly. All 8 See id. at 42741.
20 17 CFR 200.30–3(a)(12).
submissions should refer to File 1 15
9 In approving this proposal, the Commission has
U.S.C. 78s(b)(1). considered the proposed rule’s impact on
Number SR–IEX–2018–21 and should 2 17 CFR 240.19b–4. efficiency, competition, and capital formation. See
be submitted on or before November 1, 3 See Securities Exchange Act Release No. 83868 15 U.S.C. 78c(f).
2018. (August 17, 2018), 83 FR 42741 (‘‘Notice’’). 10 15 U.S.C. 78o–3(b)(6).

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Federal Register / Vol. 83, No. 197 / Thursday, October 11, 2018 / Notices 51515

that information. Currently, FINRA SECURITIES AND EXCHANGE II. Self-Regulatory Organization’s
supports four technological protocols COMMISSION Statement of the Purpose of, and the
for its members to report transactions to Statutory Basis for, the Proposed Rule
TRACE. FINRA has proposed to [Release No. 34–84360; File No. SR–IEX– Change
discontinue supporting one of those 2018–20] In its filing with the Commission, the
four protocols, CTCI. The Commission self-regulatory organization included
believes that such action is a reasonable Self-Regulatory Organizations: statements concerning the purpose of
exercise of FINRA’s discretion, for the Investors Exchange LLC; Notice of and basis for the proposed rule change
following reasons. Filing and Immediate Effectiveness of and discussed any comments it received
Proposed Rule Change To Modify Its on the proposed rule change. The text
First, FINRA will continue to support
Fee Schedule To Specify the of these statement may be examined at
three other technological protocols for Circumstances Under Which the
reporting transactions to TRACE: FIX, the places specified in Item IV below.
Exchange Will Aggregate the Activity The self-regulatory organization has
web browser, and via third-party of Affiliated Members for Purposes of
vendor. Second, FIX already is utilized prepared summaries, set forth in
Applying the Provisions of Rule Sections A, B, and C below, of the most
by approximately half of the third-party 11.170(a) Related to the IEMM Program
vendors and two-thirds of member firms significant aspects of such statements.
with direct reporting capability, and October 4, 2018. A. Self-Regulatory Organization’s
with the increase in the percentage of Pursuant to Section 19(b)(1) 1 of the Statement of the Purpose of, and the
TRACE transactions reported via FIX Securities Exchange Act of 1934 (the Statutory Basis for, the Proposed Rule
there has been a concomitant decrease ‘‘Act’’) 2 and Rule 19b–4 thereunder,3 Change
in CTCI usage.11 Third, supporting three notice is hereby given that, on 1. Purpose
instead of four reporting protocols September 26, 2018, the Investors
would conserve FINRA resources and Exchange LLC (‘‘IEX’’ or the Background
has some potential for reducing ‘‘Exchange’’) filed with the Securities The Exchange proposes to modify its
operational risks.12 Fourth, FINRA is and Exchange Commission (the Fee Schedule, pursuant to IEX Rule
taking reasonable steps to assist member ‘‘Commission’’) the proposed rule 15.110(a) and (c), to specify the
firms that currently use CTCI and must change as described in Items I and II circumstances under which the
transition to other reporting protocols. below, which Items have been prepared Exchange will aggregate the activity of
FINRA has stated that it will contact by the self-regulatory organization. The affiliated Members for purposes of
each such firm to offer assistance in Commission is publishing this notice to applying the provisions of the IEMM
connection with the migration, and is solicit comments on the proposed rule Program. The Exchange also proposes a
allowing over a year—until February 3, change from interested persons. minor change to correct an errant cross
2020—for affected firms to complete the I. Self-Regulatory Organization’s reference in the Fee Schedule.
migration.13 The Commission has no Statement of the Terms of Substance of The IEMM program is a Market
reason to believe that this proposal will the Proposed Rule Change Quality Incentive Program that offers
impose undue burdens on FINRA certain fee-based incentives for
member firms; the Commission notes Pursuant to the provisions of Section Members that provide meaningful and
that no comments on the proposal were 19(b)(1) under the Securities Exchange consistent support to market quality and
submitted. Act of 1934 (‘‘Act’’),4 and Rule 19b–4 price discovery by extensive quoting at
thereunder,5 IEX is filing with the and/or near the NBBO in IEX-listed
For these reasons, the Commission Commission a proposed rule change to securities for a significant portion of the
believes the proposed rule change is modify its Fee Schedule, pursuant to day.8 Specifically, a Member that
consistent with the Act. IEX Rule 15.110(a) and (c), to specify satisfies the quoting criteria for one or
IV. Conclusion the circumstances under which the more of the following tiers in each
Exchange will aggregate the activity of security listed on IEX over the course of
It is therefore ordered, pursuant to affiliated Members for purposes of the month that the security is listed on
Section 19(b)(2) of the Act,14 that the applying the provisions of Rule IEX may be designated as an IEMM:
proposed rule change (SR–FINRA– 11.170(a) (IEX Enhanced Market Maker • Inside Tier IEMM: One or more of
2018–030) is approved. (‘‘IEMM’’)) Program. The Exchange has its MPIDs has a displayed order entered
designated this rule change as ‘‘non- in a principal capacity of at least one
For the Commission, by the Division of controversial’’ under Section 19(b)(3)(A) round lot resting on the Exchange at the
Trading and Markets, pursuant to delegated of the Act 6 and provided the NBB and/or the NBO for an average of
authority.15
Commission with the notice required by at least 20% of Regular Market Hours
Eduardo A. Aleman, Rule 19b–4(f)(6) thereunder.7 (the ‘‘NBBO Quoting Percentage’’); and/
Assistant Secretary. The text of the proposed rule change or
[FR Doc. 2018–22046 Filed 10–10–18; 8:45 am] is available at the Exchange’s website at • Depth Tier IEMM: One or more of
BILLING CODE 8011–01–P www.iextrading.com, at the principal its MPIDs has a displayed order entered
office of the Exchange, and at the in a principal capacity of at least one
Commission’s Public Reference Room. round lot resting on the Exchange at the
khammond on DSK30JT082PROD with NOTICES

greater of 1 minimum price variation
1 15 U.S.C. 78s(b)(1). (‘‘MPV’’) or 0.03% (i.e., 3 basis points)
2 15 U.S.C. 78a. away from the NBBO (or more
11 See Notice, 83 FR at 42741. 3 17 CFR 240.19b–4. aggressive) for an average of at least
12 See id. at 42741.
4 15 U.S.C. 78s(b)(1).
13 See id. at n. 8. 5 17 CFR 240.19b–4. 8 See Rule 11.170(a). See also Securities Exchange
14 15 U.S.C. 78s(b)(2). 6 15 U.S.C. 78s(b)(3)(A).
Act Release No. 82636 (February 6, 2018), 83 FR
15 17 CFR 200.30–3(a)(12). 7 17 CFR 240.19b–4. 6059 (February 12, 2018) (SR–IEX–2018–02).

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Document Created: 2018-10-11 15:35:58
Document Modified: 2018-10-11 15:35:58
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 51514