
[Federal Register Volume 76, Number 54 (Monday, March 21, 2011)]
[Notices]
[Pages 15352-15357]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-6567]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64084; File No. SR-FINRA-2011-012]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Proposed Rule Change Relating to 
TRACE Reporting of Asset-Backed Securities

March 16, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act'')\1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on March 3, 2011, the 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. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to amend the FINRA Rule 6700 Series and FINRA 
Rule 7730:
    (1) In FINRA Rule 6710, to incorporate minor amendments to clarify, 
simplify or conform the defined terms, ``TRACE-Eligible Security,'' 
``Reportable TRACE Transaction,'' ``Agency Debt Security,'' ``Asset-
Backed Security'' and ``TRACE System Hours''; to add a defined term, 
``Securitizer''; and, to delete the defined terms ``Sponsor'' and 
``Issuing Entity'';
    (2) In FINRA Rule 6730, (A) to revise, renumber and conform the 
text of parallel reporting provisions in FINRA Rule 6730(a); (B) to 
incorporate minor amendments regarding the duration and expiration of 
the pilot program (``Pilot Program'') for reporting Asset-Backed 
Securities transactions; (C) to consolidate reporting requirements for 
Asset-Backed Securities transactions that are executed other than 
during TRACE System Hours; (D) to simplify how settlement is reported 
for Asset-Backed Securities transactions; (E) to add alternative 
reporting requirements for Asset-Backed Securities transactions that 
are collateralized mortgage obligation (``CMO'') or real estate 
mortgage investment conduit (``REMIC'') transactions that occur prior 
to the issuance of the CMO or REMIC (``pre-issuance CMOs/REMICs''); and 
(F) to incorporate other minor technical, conforming or clarifying 
amendments to the Rule;
    (3) In FINRA Rule 6760, to incorporate requirements that apply to 
Securitizers of Asset-Backed Securities, alternative notification 
requirements for pre-issuance CMOs/REMICs and minor technical, 
conforming or clarifying changes; and
    (4) In FINRA Rule 7730, to add the Financial Information eXchange 
(``FIX'') as a method to report transactions to TRACE, establish a 
system-related FIX fee, and incorporate a minor technical amendment.
    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, on the 
Commission's Web site at http://www.sec.gov, and at the Commission's 
Public Reference Room.
    The proposed amendments set forth in Exhibit 5 are shown as changes 
to the FINRA Rule 6700 Series and FINRA Rule 7730 as amended by SR-
FINRA-2009-065 (``TRACE ABS filing''), which was approved by the SEC on 
February 22, 2010.\3\ The TRACE ABS filing is anticipated to become 
effective on May 16, 2011.\4\ The proposed rule change

[[Page 15353]]

amends or supplements the TRACE reporting and other requirements that 
will apply to Asset-Backed Securities transactions, with certain 
exceptions regarding minor conforming and other technical proposed 
amendments.
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    \3\ See Securities Exchange Act Release No. 61566 (February 22, 
2010), 75 FR 9262 (March 1, 2010) (Order Approving File No. SR-
FINRA-2009-065) (``TRACE ABS filing'') and Regulatory Notice 10-23 
(April 2010).
    \4\ See Securities Exchange Act Release No. 63223 (November 1, 
2010), 75 FR 68654 (November 8, 2010) (Notice of Filing and 
Immediate Effectiveness of SR-FINRA-2010-054 to Extend the 
Implementation Period for SR-FINRA-2009-065); Regulatory Notice 10-
55 (October 2010) (establishing May 16, 2011 as the effective date).
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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
    On February 22, 2010, the SEC approved the TRACE ABS filing, which 
amends the FINRA Rule 6700 Series to define Asset-Backed Securities as 
TRACE-Eligible Securities and to require members to report transactions 
in such securities to TRACE, and, concomitantly, FINRA Rule 7730, to 
establish reporting fees for transactions in such securities. The rule 
amendments in the TRACE ABS filing currently are anticipated to become 
effective on May 16, 2011.\5\ In the proposed rule change, FINRA 
proposes additional amendments to the FINRA Rule 6700 Series and FINRA 
Rule 7730 to prepare for the reporting of Asset-Backed Securities 
transactions to TRACE.
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    \5\ See supra note 4.
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    As discussed in greater detail below, in FINRA Rule 6710, FINRA 
proposes minor amendments to five defined terms, an additional defined 
term, ``Securitizer,'' and the deletion of two defined terms that are 
no longer necessary. In FINRA Rule 6730, FINRA proposes to: (A) Revise, 
renumber and conform the text of parallel reporting provisions in FINRA 
Rule 6730(a); (B) incorporate minor amendments regarding the duration 
and expiration of the Pilot Program for reporting Asset-Backed 
Securities transactions; (C) consolidate reporting requirements for 
transactions in Asset-Backed Securities that are executed other than 
during TRACE System Hours; (D) simplify how settlement is reported for 
Asset-Backed Securities transactions; and (E) add alternative reporting 
requirements for Asset-Backed Securities transactions that are pre-
issuance CMO/REMIC transactions. FINRA also proposes to add new FINRA 
Rule 6730(a)(6) to clarify a member's obligation to provide information 
to FINRA Operations regarding a TRACE-Eligible Security when such 
security is not in the TRACE system, and to incorporate other minor 
technical or clarifying amendments to FINRA Rule 6730. In FINRA Rule 
6760, FINRA proposes to incorporate requirements that apply to 
Securitizers of Asset-Backed Securities, alternative notification 
requirements for pre-issuance CMOs/REMICs, and minor technical, 
conforming or clarifying changes, and in FINRA Rule 7730, to add FIX as 
a method to report transactions to TRACE, establish a system-related 
fee for transactions reported to TRACE via FIX and make a technical 
amendment.
FINRA Rule 6710
    FINRA proposes minor amendments to five defined terms in FINRA Rule 
6710, a new defined term, and the deletion of two defined terms that 
are no longer necessary, as set forth below.
    TRACE-Eligible Security. FINRA proposes minor technical amendments 
to the defined term ``TRACE-Eligible Security'' in FINRA Rule 6710(a), 
such as deleting unnecessary numbering.
    Asset-Backed Security. FINRA proposes to amend the defined term 
``Asset-Backed Security'' in FINRA Rule 6710(m) to incorporate, in 
pertinent part, Section 3(a)(77) of the Act,\6\ a definition of asset-
backed security added to the Act as part of the Dodd-Frank Wall Street 
Reform and Consumer Protection Act of 2010 (``Dodd-Frank Act'').\7\ As 
amended, FINRA Rule 6710(m) would provide:

    \6\ 15 U.S.C. 78c(a)(77).
    \7\ Public Law 111-203, 124 Stat. 1376 (2010). ``Asset-Backed 
Security'' was added to the Act under Section 941(a) of Title IX of 
the Dodd-Frank Act. Under Section 3(a)(77)(A) of the Act, the term 
asset-backed security:
     Means a fixed-income or other security collateralized by any 
type of self-liquidating financial asset (including a loan, a lease, 
a mortgage, or a secured or unsecured receivable) that allows the 
holder of the security to receive payments that depend primarily on 
cash flow from the asset, including--
     (i) A collateralized mortgage obligation;
     (ii) A collateralized debt obligation;
     (iii) A collateralized bond obligation;
     (iv) A collateralized debt obligation of asset-backed 
securities;
     (v) A collateralized debt obligation of collateralized debt 
obligations; and
     (vi) A security that the Commission, by rule, determines to be 
an asset-backed security for purposes of this section; and * * *
    The definition of ``asset-backed security'' in Section 3(a)(77) 
of the Act (15 U.S.C. 78c(a)(77)) ``is broader than the definition 
of `asset-backed security' in Regulation AB and includes securities 
typically offered and sold in private transactions.'' See Securities 
Act Release No. 9150 (October 13, 2010), 75 FR 64182, 64183 (October 
19, 2010) (File No. S7-26-10: Issuer Review of Assets in Offerings 
of Asset-Backed Securities); and SEC Regulation AB, Item 1101(c) (17 
CFR 229.1101(c)).

    ``Asset-Backed Security'' means a security collateralized by any 
type of financial asset, such as a loan, a lease, a mortgage, or a 
secured or unsecured receivable, and includes but is not limited to 
an asset-backed security as defined in Section 3(a)(77)(A) of the 
Exchange Act, a synthetic asset-backed security and any residual 
tranche or interest of any security specified above, which tranche 
or interest is a debt security for purposes of Rule 6710(a) and the 
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Rule 6700 Series.

The proposed amendment to the term ``Asset-Backed Security'' clarifies, 
but does not broaden, the term.
    Securitizer. The Dodd-Frank Act also added a definition of 
``securitizer'' in Section 15G(a)(3) of the Act,\8\ which FINRA 
proposes to incorporate in FINRA Rule 6710 as paragraph (s). In FINRA 
Rule 6710(s), ``Securitizer'' would have the same meaning it has in 
Section 15G(a)(3) of the Act.\9\
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    \8\ Section 941(b) of Title IX of the Dodd-Frank Act added the 
definition of ``securitizer'' to the Act as Section 15G(a)(3) (15 
U.S.C. 78o-11(a)(3)).
    \9\ 15 U.S.C. 78o-11(a)(3). Section 15G(a)(3) of the Act 
provides that a securitizer is ``(A) an issuer of an asset-backed 
security; or (B) a person who organizes and initiates an asset-
backed securities transaction by selling or transferring assets, 
either directly or indirectly, including through an affiliate, to 
the issuer; and * * * ''
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    Reportable TRACE Transaction; Agency Debt Security. FINRA proposes 
to use the term ``Securitizer,'' which is broad and includes sponsors 
and issuers, among others,\10\ in lieu of the defined terms ``Sponsor'' 
and ``Issuing Entity,'' in ``Reportable TRACE Transaction'' in FINRA 
Rule 6710(c) and ``Agency Debt Security'' in FINRA Rule

[[Page 15354]]

6710(l), and any other provisions in the FINRA Rule 6700 Series where 
Sponsor and/or Issuing Entity were used.\11\
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    \10\ The Commission has stated that ``[W]ith respect to 
registered transactions and the definitions of transaction parties 
in Regulation AB, sponsors and depositors both fall within the 
statutory definition of securitizer.'' Securities Exchange Act 
Release No. 63029 (October 4, 2010), 75 FR 62718, 62720 (October 13, 
2010) (File No. S7-24-10: Disclosure for Asset-Backed Securities 
Required by Section 943 of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act: Proposed Rule). In addition, the term 
``securitizer'' ``is not specifically limited to entities that 
undertake transactions that are registered under the Securities Act 
or conducted in reliance upon any particular exemption. 
Consequently, * * * [securitizer] is intended to apply to any entity 
or person that issues or organizes an * * * [asset-backed security] 
as specified in Section 15G(a)(3) of the Exchange Act.'' Id. The SEC 
noted that entities included in the definition of securitizer 
included Government-Sponsored Enterprises (GSEs) such as Fannie Mae, 
Freddie Mac, and municipal entities. Id.
    \11\ In FINRA Rule 6710(c) and FINRA Rule 6710(l), FINRA 
substitutes the single term, ``Securitizer'' for ``Sponsor'' and 
``Issuing Entity.'' See also minor proposed amendments to Rule 6760, 
discussed infra.
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    TRACE System Hours. FINRA proposes to conform the time referenced 
in the defined term ``TRACE System Hours'' to times stated in the FINRA 
Rule 6700 Series generally (to include seconds) and also to relocate 
the defined term from FINRA Rule 6710(bb) to FINRA Rule 6710(t). FINRA 
Rule 6710(bb) would be deleted.
    Sponsor; Issuing Entity. FINRA proposes to delete the defined terms 
``Sponsor'' in FINRA Rule 6710(s) and ``Issuing Entity'' in FINRA Rule 
6710(t), which are no longer necessary with the inclusion of the 
defined term Securitizer.
FINRA Rule 6730
    As noted above, FINRA proposes certain amendments to FINRA Rule 
6730 regarding the reporting of Asset-Backed Securities transactions to 
TRACE, and certain technical amendments, including restructuring and 
renumbering FINRA Rule 6730(a) and FINRA Rule 6730(a)(1) through 
(a)(8), to align parallel or similar reporting provisions. The proposed 
restructuring also includes minor technical amendments to conform the 
text of parallel or similar reporting provisions.\12\
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    \12\ As TRACE has expanded, FINRA Rule 6730 has been amended 
several times to incorporate additional reporting requirements. 
Before March 1, 2010, all TRACE-Eligible Securities transactions 
were subject to a single reporting standard (and three exceptions 
relating to transactions executed when the TRACE System was not 
open) (see FINRA Rule 6730(a)(1) and FINRA Rule 6730(a)(2) through 
(a)(4)). On March 1, 2010, a second set of requirements for 
reporting List or Fixed Offering Price Transactions and Takedown 
Transactions became effective (T+1 reporting requirement for most 
transactions) (see FINRA Rule 6730(a)(5)). See Securities Exchange 
Act Release No. 60726 (September 28, 2009), 74 FR 50991(October 2, 
2009) (Order Approving File No. SR-FINRA-2009-010). See also 
Regulatory Notice 09-57 (September 2009).
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    FINRA Rule 6730(a); Proposed Renumbered FINRA Rule 6730(a)(1): 
Generally Applicable Reporting Requirements. FINRA Rule 6730(a) 
provides that TRACE-Eligible Securities transactions must be reported 
within 15 minutes. FINRA Rule 6730(a)(1) through (3) set forth 
reporting requirements for transactions executed, respectively, on a 
business day during, after, and before TRACE System Hours, and FINRA 
Rule 6730(a)(4) states such requirements for transactions executed on a 
weekend or a holiday.
    To restructure FINRA Rule 6730(a) to align parallel or similar 
reporting provisions, FINRA first proposes minor technical amendments 
to FINRA Rule 6730(a),\13\ and to reorganize the reporting requirements 
of general applicability (i.e., applicable to corporate debt and Agency 
Debt Securities)\14\ that are set forth in FINRA Rule 6730(a)(1) 
through (a)(4). Amended FINRA Rule 6730(a)(1) would be titled, 
``Reporting Requirements'' and provide: ``Except as otherwise 
specifically provided in paragraph (a)(2) and paragraph (a)(3), 
transactions in TRACE-Eligible Securities must be reported as provided 
in this paragraph (a)(1).'' FINRA Rule 6730(a)(1) through FINRA Rule 
6730(a)(4) would be renumbered as subparagraphs of FINRA Rule 
6730(a)(1) and include minor technical and conforming amendments to 
conform the rule text to similar or parallel provisions in FINRA Rule 
6730(a).\15\
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    \13\ The current general requirements set forth in FINRA Rule 
6730(a)--requiring all Parties to a Transaction to report the 
transaction and for reports to be made within 15 minutes of the Time 
of Execution (except as otherwise provided)--would be retained. 
FINRA proposes to delete the statement that, ``Specific trade 
reporting obligations during a 24-hour cycle are set forth below.''
    \14\ The reporting requirements in proposed renumbered FINRA 
Rule 6730(a)(1) and subparagraphs (A) through (D) also would apply 
to primary market transactions that do not qualify for T + 1 
reporting, consistent with current FINRA Rule 6730(a)(1) through 
(4).
    \15\ FINRA Rule 6730(a)(1)-(4) would be renumbered as Rule 
6730(a)(1)(A)-(D), respectively.
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    Proposed Renumbered FINRA Rule 6730(a)(2)--List or Fixed Offering 
Price Transactions and Takedown Transactions. FINRA Rule 6730(a)(5), 
containing reporting requirements for List or Fixed Offering Price 
Transactions and Takedown Transactions, would be renumbered as FINRA 
Rule 6730(a)(2), and titled ``Reporting Requirements--List or Fixed 
Offering Price Transactions and Takedown Transactions.'' FINRA also 
proposes minor technical and conforming amendments to conform the rule 
text to similar or parallel provisions in FINRA Rule 6730(a).\16\
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    \16\ The rule text would be set forth in two subparagraphs, 
proposed FINRA Rule 6730(a)(2)(A) and proposed FINRA Rule 
6730(a)(2)(B).
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    Proposed Renumbered FINRA Rule 6730(a)(3)--Asset-Backed Securities. 
FINRA Rule 6730(a)(6), containing reporting requirements for Asset-
Backed Securities, would be renumbered as proposed FINRA Rule 
6730(a)(3), and titled ``Reporting Requirements--Asset-Backed 
Securities Transactions.'' \17\ FINRA also proposes minor technical and 
conforming amendments to conform the rule text of renumbered FINRA Rule 
6730(a)(3) to similar or parallel provisions in FINRA Rule 6730(a). 
Finally, current FINRA Rule 6730(a)(7) and current FINRA Rule 
6730(a)(8) would be renumbered, respectively, as FINRA Rule 6740(a)(4) 
and FINRA Rule 6730(a)(5).
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    \17\ FINRA Rule 6730(a)(6) would be renumbered as follows: FINRA 
Rule 6730(a)(6)(A)(i) would be renumbered as FINRA Rule 
6730(a)(3)(A)(ii); FINRA Rule 6730(a)(6)(A)(ii) (the Pilot Program) 
would be renumbered as FINRA Rule 6730(a)(3)(A)(i); and FINRA Rule 
6730(a)(6)(B) and FINRA Rule 6730(a)(6)(B)(i)-(ii) would be 
renumbered as FINRA Rule 6730(a)(3)(B) and FINRA Rule 
6730(a)(3)(B)(i)-(ii), respectively. As discussed infra, FINRA 
proposes to consolidate FINRA Rule 6730(a)(6)(B)(ii) and FINRA Rule 
6730(a)(6)(B)(iii) in renumbered FINRA Rule 6730(a)(3)(B)(ii), and 
delete FINRA Rule 6730(a)(6)(B)(iii).
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    Pilot Program. FINRA Rule 6730(a)(6)(A)(ii) (proposed renumbered 
FINRA Rule 6730(a)(3)(A)(i)) provides for a six-month Pilot Program for 
reporting transactions in Asset-Backed Securities, which extends the 
period for a member to timely report such transactions to no later than 
the next business day (T + 1) at any time during TRACE System 
Hours.\18\ The Pilot Program provides additional time for members to 
prepare and submit accurate transaction reports for Asset-Backed 
Securities on a temporary basis.
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    \18\ After the Pilot Program expires, transactions in Asset-
Backed Securities must be reported on the date of trade during TRACE 
System Hours, with certain exceptions. See FINRA Rule 
6730(a)(6)(A)(i) (proposed renumbered FINRA Rule 6730(a)(3)(A)(ii)).
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    FINRA proposes a technical amendment to the Pilot Program (proposed 
renumbered FINRA Rule 6730(a)(3)(A)(i)) providing that the Pilot 
Program shall expire 180 days (instead of six months) following the 
commencement of the reporting of Asset-Backed Securities transactions, 
provided that if the 180th day is not a Friday, the Pilot Program will 
expire on the Friday next occurring (that the TRACE system is open) 
after the 180th day. FINRA proposes that the Pilot Program expire on a 
Friday in response to comments requesting that members and vendors be 
given additional time to incorporate the system changes that must be 
implemented at the termination of the Pilot Program.\19\
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    \19\ As discussed infra, the Pilot Program is also incorporated 
in the proposed reporting requirements applicable to transactions in 
pre-issuance CMOs/REMICs (see proposed FINRA Rule 6730(a)(3)(C)). 
The expiration of the Pilot Program will also necessitate 
modifications of systems and procedures in place to report such 
transactions.
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    Asset-Backed Securities Transactions Executed on Non-Business Day. 
Currently, trades that are executed on a weekend, holiday or other day 
when the TRACE system is closed must be reported the next business day 
(T + 1), designated ``as/of,'' and are subject to two unique 
requirements. First, the date

[[Page 15355]]

of execution reported to TRACE is not the actual date of execution; 
instead, a member reports the date of execution as the same day (T + 1) 
that the report must be timely submitted. In addition, the execution 
time reported must be ``12:01:00 a.m. Eastern Time'' (``00:01:00''), 
instead of the actual Time of Execution.\20\ These adaptations were 
incorporated when TRACE began because the TRACE system does not 
recognize any day on which the TRACE system is closed as a valid date 
of execution, and the two unique requirements permit FINRA to 
distinguish such non-business day transactions from all other reported 
transactions.\21\
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    \20\ Also, when the reporting method used includes a ``special 
price memo'' field, the member must enter the actual date of 
execution and Time of Execution in the field.
    \21\ See, e.g., FINRA Rule 6730(a)(4) (proposed renumbered FINRA 
Rule 6730(a)(1)(D)), FINRA Rule 6730(a)(5) (proposed renumbered 
FINRA Rule 6730(a)(2)(B)), and FINRA Rule 6730(a)(6)(B)(iii).
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    FINRA has improved the TRACE system, which, for transactions in 
Asset-Backed Securities, will recognize any calendar day, including 
days on which the TRACE system is not open, as a valid date of 
execution. Accordingly, FINRA proposes to streamline FINRA Rule 
6730(a)(6) (proposed renumbered FINRA Rule 6730(a)(3)) regarding Asset-
Backed Securities Transactions, combining the requirements of FINRA 
Rule 6730(a)(6)(B)(ii) and FINRA Rule 6730(a)(6)(B)(iii) in proposed 
renumbered FINRA Rule 6730(a)(3)(B)(ii) because, with this system 
enhancement, the standards for reporting under both provisions are the 
same, and separate provisions are no longer necessary.\22\ FINRA Rule 
6730(a)(6)(B)(iii) would be deleted.
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    \22\ Proposed renumbered FINRA Rule 6730(a)(3)(B)(ii) would 
provide that any transaction in an Asset-Backed Security that is 
executed on a Saturday, Sunday, a Federal or religious holiday or 
other day on which the TRACE system is not open, or executed on a 
business day at or after 6:30:00 p.m. Eastern Time through 11:59:59 
p.m. Eastern Time must be reported not later than the next business 
day during TRACE System Hours, designated ``as/of'' and include the 
date of execution.
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    Settlement. FINRA Rule 6730(d)(4)(B)(ii) currently requires a 
member to report two items regarding the terms of settlement of an 
Asset-Backed Securities transaction: (1) The actual date of settlement; 
and (2) an indicator that the transaction will settle ``regular way'' 
(i.e., T + 3 or in conformity with the uniform practices established as 
``good delivery'' for the specific Asset-Backed Security), or one 
indicating that the transaction will not be settled ``regular way.''
    FINRA proposes to retain the requirement to report the actual date 
of settlement and delete the requirement to report the indicator, which 
will simplify the reporting of settlement in connection with Asset-
Backed Securities transactions.
    Pre-Issuance CMO/REMIC Transactions. FINRA proposes to supplement 
the rules requiring members to report Asset-Backed Securities in FINRA 
Rule 6730(a)(6) (proposed renumbered FINRA Rule 6730(a)(3)) to include 
alternative reporting requirements for pre-issuance CMO/REMIC 
transactions. Proposed FINRA Rule 6730(a)(3)(C)(i) provides that a pre-
issuance CMO/REMIC transaction must be reported, during the Pilot 
Program, the earlier of: (i) the business day following the business 
day that the security is assigned a CUSIP, a similar numeric identifier 
or a FINRA symbol during TRACE System Hours, or (ii) the business day 
following the date of issuance of the security during TRACE System 
Hours. As provided in proposed FINRA Rule 6730(a)(3)(C)(ii), after the 
Pilot Program expires, such pre-issuance CMO/REMIC transactions must be 
reported the earlier of (i) the business day that the security is 
assigned a CUSIP, a similar numeric identifier or a FINRA symbol during 
TRACE System Hours (unless such identifier is assigned after 1:00:00 
p.m. Eastern Time, and in such case, such transactions must be reported 
no later than the next business day during TRACE System Hours), or (ii) 
the date of issuance of the security during TRACE System Hours.\23\
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    \23\ Under proposed FINRA Rule 6730(a)(3)(C)(i) and proposed 
FINRA Rule 6730(a)(3)(C)(ii), any transaction that is reported other 
than on the date of execution must be designated ``as/of'' and 
include the date of execution.
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    The alternative reporting requirements in proposed FINRA Rule 
6730(a)(3)(C) differ from current TRACE reporting requirements and 
those that will apply generally to Asset-Backed Securities transactions 
in that, for pre-issuance CMO/REMIC transactions, the reporting period 
begins (or is triggered) on the date of issuance of the security (or, 
if earlier, the date the security is assigned an appropriate 
identifier), instead of the date and time of the member's execution of 
the transaction. FINRA proposes this alternative approach because 
although pre-issuance CMO/REMIC transactions occur frequently, in many 
cases, a CUSIP or other identifier is not yet assigned or is difficult 
to assign (or cannot be assigned), because certain aspects of the 
collateral and structure of the CMO or REMIC are not finalized at the 
time of such transactions, and will not be finalized until shortly 
before the CMO or REMIC is actually issued. CMO and REMIC transactions 
that are not pre-issuance CMO/REMIC transactions--i.e., those executed 
on or after the date of issuance of the security--must be reported in 
compliance with FINRA Rule 6730(a)(6)(A) and (B) (proposed renumbered 
FINRA Rules 6730(a)(3)(A) and (B)) and may not be reported under the 
alternative reporting provisions (proposed FINRA Rule 6730(a)(3)(C)(i) 
and proposed FINRA Rule 6730(a)(3)(C)(ii)).
    Other FINRA Rule 6730 Amendments. FINRA proposes to amend FINRA 
Rule 6730 to state explicitly in new paragraph (a)(6) that when a 
member is a Party to a Transaction and makes a good faith determination 
that a transaction involves a TRACE-Eligible Security, if the TRACE-
Eligible Security is not entered in the TRACE system, the member must 
promptly provide FINRA Operations the information required under FINRA 
Rule 6760(b) and thereafter report. The proposed amendment will 
incorporate in FINRA Rule 6730(a)(6) previous guidance regarding 
members' obligations to take all the steps necessary to report a 
transaction to TRACE, including providing notification to FINRA 
Operations when circumstances so require.
    FINRA also proposes minor technical amendments to FINRA Rule 
6730(a) regarding reporting transactions executed on weekends, Federal 
or religious holidays, or other days on which the TRACE system does not 
operate. FINRA Rule 6730(a) provisions would be amended to refer to 
transactions executed on ``a Saturday, a Sunday, a Federal or religious 
holiday or other day on which the TRACE system is not open at any time 
during that day'' (instead of transactions executed on ``a Saturday, a 
Sunday or a Federal or religious holiday on which the TRACE system is 
closed'').\24\
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    \24\ See proposed amendments to FINRA Rule 6730(a)(4) (proposed 
renumbered Rule 6730(a)(1)(D)), FINRA Rule 6730(a)(5) (proposed 
renumbered Rule 6730(a)(2)(B)), FINRA Rule 6730(a)(6)(B)(ii) 
(proposed renumbered Rule 6730(a)(3)(B)(ii)) and FINRA Rule 
6730(a)(8) (proposed renumbered Rule 6730(a)(5)).
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FINRA Rule 6760
    FINRA Rule 6760 requires a member that is a managing underwriter in 
an initial offering of a TRACE-Eligible Security (or, if a managing 
underwriter is not appointed, members that are underwriters or initial 
purchasers) to notify FINRA Operations of a new TRACE-Eligible 
Security. For Asset-Backed Securities, a member Sponsor or

[[Page 15356]]

a member Issuing Entity must provide notice. The notice must include 
certain information that clearly identifies the security, which FINRA 
uses to confirm information in the TRACE System or add the security to 
the TRACE system. Generally, the notice must be provided to FINRA 
Operations prior to the execution of the first transaction in the 
offering. FINRA proposes to amend FINRA Rule 6760 to incorporate 
requirements that apply to Securitizers of Asset-Backed Securities (and 
delete those applicable to Sponsors and Issuing Entities), to add 
alternative notification requirements for pre-issuance CMOs/REMICs and 
make other minor technical, conforming or clarifying changes.
    In FINRA Rule 6760(a), FINRA Rule 6760(a)(1) would be amended such 
that, for Asset-Backed Securities, a member that is a Securitizer 
(instead of a member Sponsor or a member Issuing Entity) would be a 
managing underwriter for purposes of the Rule and required to provide 
notice under the Rule. References to Sponsors and Issuing Entities 
would be deleted. FINRA also proposes to amend FINRA Rule 6760(a)(2) to 
provide that FINRA will specify the method of communication or media 
that a member must use to provide the information to FINRA Operations 
under FINRA Rule 6760, and to delete the requirement to provide such 
information by facsimile or e-mail. The proposed amendment to FINRA 
Rule 6760(a)(2) will provide FINRA the flexibility, as technology 
advances and systems change, to change quickly the method or media a 
member may use to comply with FINRA Rule 6760.
    In FINRA Rule 6760(b), FINRA proposes that when a Securitizer 
provides notice regarding an Asset-Backed Security, all Securitizers 
(instead of the Issuing Entity and the Sponsor) must be named in the 
notice.\25\ Also, FINRA proposes to transfer the requirement that a 
member make a good faith determination of TRACE eligibility before 
providing notice about a security to FINRA Operations from FINRA Rule 
6760(b) to FINRA Rule 6760(a)(1), and the deadline for providing timely 
notice, and the exceptions thereto, from FINRA Rule 6760(b) to proposed 
FINRA Rule 6760(c).
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    \25\ FINRA notes that only a Securitizer that is also a FINRA 
member is required to provide notice under FINRA Rule 6760(a)(1), 
but all Securitizers, including non-member Securitizers, must be 
identified in the notice under FINRA Rule 6760(b).
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    Proposed FINRA Rule 6760(c) would set forth the deadline for 
providing notice, and the exceptions thereto. The current provisions 
regarding the deadline for providing notice and the exceptions would be 
set forth in proposed FINRA Rule 6760(c)(1). In proposed FINRA Rule 
6760(c)(2), FINRA would provide alternative notice requirements for 
Asset-Backed Securities that are CMOs or REMICs in which pre-issuance 
transactions will occur. As discussed above, proposed alternative 
reporting requirements for pre-issuance CMO/REMIC transactions provide 
that reporting deadlines will be calculated by reference to the earlier 
of the date of issuance (or, during the Pilot Program, the following 
day) or date of assignment of a CUSIP or another appropriate identifier 
(or, during the Pilot Program, the following day) due to the delays in 
the final structuring and issuance of such CMOs and REMICs.\26\ For the 
same reasons, FINRA proposes alternative notification requirements 
regarding CMOs and REMICs in which pre-issuance transactions will 
occur. Under proposed FINRA Rule 6760(c)(2), a member that is required 
to provide notice to FINRA Operations of such CMOs or REMICs must do so 
promptly on the date of issuance or other event that establishes the 
reference date that determines when a reporting period begins under 
proposed FINRA Rule 6730(a)(3)(C)(i), which applies during the Pilot 
Program, or, after the expiration of the Pilot Program, under proposed 
FINRA Rule 6730(a)(3)(C)(ii).
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    \26\ See proposed FINRA Rule 6730(a)(3)(C)(i) and proposed FINRA 
Rule 6730(a)(3)(C)(ii).
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    FINRA also proposes to incorporate technical and clarifying 
amendments to FINRA Rule 6760, including changes related to the 
restructuring of FINRA Rule 6760(a) and (b) and the addition of 
proposed FINRA Rule 6760(c).
FINRA Rule 7730
    FINRA Rule 7730 sets forth fees applicable to reporting 
transactions to TRACE and purchasing TRACE data. FINRA proposes minor 
amendments to two provisions. Under FINRA Rule 7730(a), members may 
report transactions in TRACE-Eligible Securities to TRACE using: (1) a 
TRACE Web browser; (2) a Computer-to-Computer Interface (``CTCI'') 
(whether or not dedicated exclusively to TRACE); or (3) a third-party 
reporting intermediary, and incur system-related fees based upon the 
method selected. A member pays a system fee of $25 per month, per firm 
to report transactions in TRACE-Eligible Securities via CTCI as 
provided in FINRA Rule 7730(a)(2). FINRA proposes to amend FINRA Rule 
7730(a), FINRA Rule 7730(a)(2) and the fee chart in Rule 7730 to add 
FIX as another method for reporting transactions in TRACE-Eligible 
Securities. FINRA proposes that the FIX line, like CTCI, would not be 
required to be dedicated exclusively to TRACE, and the system-related 
fee for reporting via FIX, like CTCI, would be $25 per month, per firm. 
FINRA also proposes minor, conforming, non-substantive amendments to 
FINRA Rule 7730(a).
    In addition, FINRA proposes to correct a technical error regarding 
reporting fees in FINRA Rule 7730(b)(1) and the fee chart. FINRA Rule 
7730(b)(1) and the fee chart set forth three tiers of reporting fees. 
Currently, both provide that the middle tier reporting fee applies to 
trades ``between $200,001 and $999,999 par value'' (which are charged a 
reporting fee of $0.000002375 times the par value of the transaction 
(i.e., $0.002375/$1000)). FINRA proposes to correct the middle tier 
reporting fee to correctly state that such middle tier reporting fee is 
applicable to ``trades over $200,000 and up to and including 
$999,999.99 par value.''
    Finally, FINRA has received questions regarding the Factor that 
will be used to calculate a reporting fee for a transaction in an 
Asset-Backed Security that will be assessed based on the Remaining 
Principal Balance of the security. The Remaining Principal Balance will 
be calculated using the Factor submitted by the member, if the member 
is required to report a Factor under FINRA Rule 6730(d)(2), and, in 
fact, does report such Factor, or if no Factor is reported, using the 
Factor that FINRA has adopted and incorporated in the TRACE system, 
which will be the Factor that FINRA has identified as the most current 
Factor publicly available for such Asset-Backed Security at the Time of 
Execution. Also, FINRA will not recalculate reporting fee amounts due 
to FINRA for Asset-Backed Securities transactions after FINRA has 
identified the appropriate Factor for the specified Asset-Backed 
Security and calculated the fee based on such Factor.
    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 of the proposed rule change 
will be the date that the proposed rule changes in the TRACE ABS filing 
become effective, which is currently anticipated to be May 16, 
2011.\27\
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    \27\ See supra note 4.
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2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions

[[Page 15357]]

of Section 15A(b)(6) of the Act,\28\ 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. FINRA believes that the proposed rule change will 
facilitate more timely and accurate reporting of transactions in Asset-
Backed Securities to TRACE, and enhance FINRA's surveillance of the 
debt market in connection with Asset-Backed Securities transactions for 
the protection of investors and in furtherance of the public interest.
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    \28\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

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 shall: 
(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 Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-FINRA-2011-012 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-FINRA-2011-012. This 
file number should be included on the subject line if e-mail 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 the filing will also 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 No. SR-FINRA-2011-012 
and should be submitted on or before April 11, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-6567 Filed 3-18-11; 8:45 am]
BILLING CODE 8011-01-P


