
[Federal Register Volume 78, Number 143 (Thursday, July 25, 2013)]
[Notices]
[Pages 44997-45001]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-17857]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70009; File No. SR-FINRA-2013-029]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of a Proposed Rule Change Relating to 
the Dissemination of Transactions in TRACE-Eligible Securities That Are 
Effected Pursuant to Securities Act Rule 144A

July 19, 2013.
    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 July 17, 2013, 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: (1) FINRA Rule 6750 and the Trade 
Reporting and Compliance Engine (``TRACE'') dissemination protocols 
regarding the dissemination of transactions in TRACE-Eligible 
Securities that are effected pursuant to Rule 144A \3\ under the 
Securities Act of 1933 \4\ (``Rule 144A transactions''); (2) FINRA Rule 
7730 to establish real-time and historic data sets for Rule 144A 
transaction data; and (3) FINRA Rule 7730 to clarify the definition of 
Historic TRACE Data, to clarify other provisions therein and 
incorporate other technical amendments.\5\
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    \3\ 17 CFR 230.144A.
    \4\ 15 U.S.C. 77a et seq. (hereinafter ``Securities Act'').
    \5\ The terms TRACE-Eligible Security and Historic TRACE Data 
are defined in FINRA Rule 6710(a) and FINRA Rule 7730(f)(4), 
respectively.
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    The text of the proposed rule change is available on FINRA's Web 
site at http://www.finra.org, at the principal office of FINRA and at 
the Commission's Public Reference Room.

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

[[Page 44998]]

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
    FINRA proposes amendments to the FINRA rules and TRACE 
dissemination protocols to provide greater transparency in Rule 144A 
transactions.\6\ FINRA proposes to amend FINRA Rule 6750 to provide for 
the dissemination of Rule 144A transactions, provided the asset type 
(e.g., corporate bonds) currently is subject to dissemination under 
FINRA Rule 6750. FINRA also proposes to amend the dissemination 
protocols to extend the dissemination caps currently applicable to the 
non-Rule 144A transactions in such asset type (e.g., non-Rule 144A 
corporate bond transactions) to Rule 144A transactions in such 
securities. In addition, FINRA proposes to amend FINRA Rule 7730 to 
establish a data set for real-time Rule 144A transaction data and a 
second data set for historic Rule 144A transaction data, to amend the 
definition of Historic TRACE Data to reference the three data sets 
currently included therein and the proposed fourth data set, and to 
make other clarifying and technical amendments.
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    \6\ The discussion in the proposed rule change to modify the 
FINRA Rule 6700 Series and Rule 7730 and in Regulatory Notice 12-39 
(September 2012) (FINRA's request for comments regarding the 
dissemination of Rule 144A transactions) is limited to ``Rule 144A 
transactions'' as defined herein (i.e., in securities that are 
TRACE-Eligible Securities that are effected pursuant to Securities 
Act Rule 144A (17 CFR 230.144A)). (See also, infra, note 20 and Item 
C below regarding Regulatory Notice 12-39 (September 2012).) Equity 
securities transactions effected pursuant to Securities Act Rule 
144A (17 CFR 230.144A) are not reported to TRACE and are not the 
subject of this proposed rule change.
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Rule 144A Transactions
    Securities Act Rule 144A \7\ provides a safe harbor from the 
registration requirements of the Securities Act for the resale of 
unregistered securities to qualified institutional buyers 
(``QIBs'').\8\ Rule 144A transactions, as defined herein, have been 
reported to FINRA since TRACE inception on July 1, 2002.\9\ However, 
such Rule 144A transactions have not been subject to dissemination 
under FINRA Rule 6750(b)(1), in part to avoid concerns about public 
solicitation of 144A transactions. Such Rule 144A transactions were 
effected subject to a regulatory framework that included a long-
standing prohibition against general solicitation in the offer and sale 
of securities sold in accordance with Securities Act Rule 144A.\10\ 
However, because the TRACE rules currently do not provide for 
dissemination of transactions, price information is limited in Rule 
144A transactions in TRACE-Eligible Securities. In the absence of such 
data, it is difficult for market participants to assess the quality of 
Rule 144A transaction executions or compare them to executions of 
similar publicly traded securities of the same issuer or similarly 
rated issuers.
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    \7\ 17 CFR 230.144A.
    \8\ Qualified institutional buyer is defined in Securities Act 
Rule 144A(a)(1). See 17 CFR 230.144A(a)(1).
    \9\ In 2012, 628 unique dealers reported 2,100 average daily 
Rule 144A corporate bond transactions, representing approximately $5 
billion average daily par value traded. In comparison, 1,500 dealers 
reported 42,000 average daily corporate bond transactions (excluding 
Rule 144A corporate bond transactions), representing approximately 
$19 billion average daily par value traded.
    The statistical information herein refers to Rule 144A 
transactions in TRACE-Eligible Securities that are referred to as 
``corporate bonds''; this term generally refers to corporate bonds 
and also other types of securities (e.g., equity-linked notes, bonds 
issued by religious organizations or for religious purposes (e.g., 
``church bonds'')), but excludes Agency Debt Securities as defined 
in FINRA Rule 6710(l) and Asset-Backed Securities (``ABS'') as 
defined in FINRA Rule 6710(m). The statistical information is 
limited to corporate bond transactions because, at this time, 
corporate bonds are the only category of TRACE-Eligible Securities 
that would be affected by the proposed rule change. See note 24, 
infra.
    \10\ 17 CFR 230.144A.
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    Section 201 of the Jumpstart Our Business Startups Act (the ``JOBS 
Act'') \11\ directed the SEC to eliminate the prohibition against 
general solicitation and general advertising in offerings of securities 
pursuant to Securities Act Rule 144A \12\ and in certain other private 
placements. To implement Section 201(a)(2) of the JOBS Act, the SEC 
amended Securities Act Rule 144A(d)(1) \13\ to provide that securities 
may be offered pursuant to Securities Act Rule 144A \14\ to persons 
other than QIBs,\15\ provided that the securities are sold only to 
persons that the seller and any person acting on behalf of the seller 
reasonably believe are QIBs.\16\ FINRA believes that the proposed rule 
change regarding post-trade transparency in Rule 144A transactions is 
in harmony with the changes to Securities Act Rule 144A \17\ recently 
approved by the SEC.\18\
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    \11\ The JOBS Act was enacted on April 5, 2012; Public Law 112-
106, 126 Stat. 306.
    \12\ 17 CFR 230.144A. Although the proposed rule change is 
limited to Rule 144A transactions in TRACE-Eligible Securities, 
which are debt securities, Securities Act Rule 144A (17 CFR 
230.144A), and the SEC's amendments thereto, are not so limited.
    \13\ 17 CFR 230.144A(d)(1).
    \14\ 17 CFR 230.144A. See Securities Act Release No. 69959 (July 
10, 2013) (Eliminating the Prohibition Against General Solicitation 
and General Advertising in Rule 506 and Rule 144A Offerings) (File 
No. S7-07-12).
    \15\ See supra note 8.
    \16\ See supra note 8.
    \17\ 17 CFR 230.144A.
    \18\ See supra note 14.
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    In anticipation of the changes to Securities Act Rule 144A,\19\ 
FINRA published Regulatory Notice 12-39 in September 2012 requesting 
comment on, among other things, whether Rule 144A transactions should 
be disseminated, and, if disseminated, whether such transactions should 
be subject to dissemination caps, whereby the actual size of a 
transaction over a certain par value is not displayed in disseminated 
TRACE transaction data.\20\ As discussed below, FINRA received 12 
comments addressing the dissemination of Rule 144A transactions. Nine 
commenters supported such dissemination and three commenters were 
opposed.\21\
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    \19\ 17 CFR 230.144A.
    \20\ In Regulatory Notice 12-39, FINRA also requested comment on 
whether access to Rule 144A transaction information, if 
disseminated, should be disseminated publicly without limitation or 
on a more limited basis, and, the impact, if any, that dissemination 
might have on pricing and investment decisions. FINRA also requested 
comment on existing dissemination caps for transactions in corporate 
bonds, Agency Debt Securities (as defined in FINRA Rule 6710(l)) and 
Asset-Backed Securities (``ABS'') (as defined in FINRA Rule 
6710(m)). FINRA is not proposing to change any of the current 
dissemination caps at this time.
    \21\ See Item C below for the discussion of the comments 
concerning dissemination of Rule 144A transactions in response to 
Regulatory Notice 12-39.
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    Based on a review of the comments and the benefits of increased 
transparency in the U.S. debt markets observed in the past decade, 
FINRA proposes to disseminate information on Rule 144A transactions, 
except for transactions occurring in securities which, by asset type, 
currently are not required to be disseminated. Specifically, FINRA 
proposes to amend FINRA Rule 6750(a) to provide that FINRA will 
disseminate information on all transactions in TRACE-Eligible 
Securities, including transactions effected pursuant to Securities Act 
Rule 144A,\22\ immediately upon receipt of the transaction report, 
except as provided in paragraph (b). The proposed amendment would 
eliminate the exception to dissemination for Rule

[[Page 44999]]

144A transactions in FINRA Rule 6750(b), but retain the other 
exceptions (i.e., under FINRA Rule 6750(b)(2) and FINRA Rule 
6750(b)(3), respectively, certain transfers of proprietary securities 
positions and List or Fixed Offering Price Transactions and Takedown 
Transactions are not disseminated; and under FINRA Rule 6750(b)(4), 
including amendments that will become effective on July 22, 2013, 
Asset-Backed Securities transactions, other than transactions in Agency 
Pass-Through Mortgage-Backed Securities and SBA-Backed ABS, are not 
disseminated.) \23\ Accordingly, under the proposed rule change, 
corporate bond transactions effected as Rule 144A transactions and 
reported to TRACE would be disseminated.\24\
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    \22\ 17 CFR 230.144A.
    \23\ The terms ``List or Fixed Offering Price Transaction,'' 
``Takedown Transaction'' ``Agency Pass-Through Mortgage-Backed 
Security,'' and ``SBA-Backed ABS'' are defined in FINRA Rule 
6710(q), FINRA Rule 6710(r), FINRA Rule 6710(v), and FINRA Rule 
6710(bb), respectively.
    \24\ The proposed rule change would affect disseminated 
information as follows: (1) Corporate bonds--all corporate bonds are 
subject to dissemination currently, and, as a result of the proposed 
rule change, all Rule 144A transactions in such securities would 
become subject to dissemination; (2) Agency Debt Securities and ABS 
currently disseminated or to be disseminated as of July 22, 2013 
(i.e., Agency Pass-Through Mortgage-Backed Securities traded To Be 
Announced (``TBA'') and in Specified Pool Transactions and SBA-
Backed ABS traded TBA and in Specified Pool Transactions)--there 
would be no additional transactions disseminated as a result of the 
proposed rule change because Securities Act Rule 144A (17 CFR 
230.144A) is not used to effect transactions in such securities; and 
(3) ABS not currently subject to dissemination--when, in the future, 
FINRA considers whether private-issuer ABS should be subject to 
dissemination, FINRA also would determine if Rule 144A transactions 
in such types of ABS would be disseminated.
     The terms To Be Announced and Specified Pool Transaction are 
defined in FINRA Rule 6710(u) and FINRA Rule 6710(x), respectively.
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    FINRA believes that the proposed rule change to provide price 
transparency in Rule 144A transactions will, in the Securities Act Rule 
144A \25\ debt markets, enhance pre-trade price discovery, foster more 
competitive pricing, reduce costs to investors and assist market 
participants in determining the quality of their executions. In 
addition, transparency in this sector may improve the quality of the 
valuation of securities and derivative positions for publicly issued 
securities of the Securities Act Rule 144A \26\ issuer and for similar 
securities.
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    \25\ 17 CFR 230.144A.
    \26\ 17 CFR 230.144A.
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Dissemination Caps
    FINRA has established TRACE dissemination caps for TRACE data, such 
that the actual size of a transaction over a certain par value is not 
displayed in disseminated TRACE transaction data. For corporate bonds 
that are rated Investment Grade, the dissemination cap is $5 million 
(``$5MM'') and the size of transactions in excess of $5MM is displayed 
as ``$5MM+.'' For corporate bonds that are rated Non-Investment Grade, 
the dissemination cap is $1 million (``$1MM'') and the size of a 
transaction in excess of $1MM is displayed as ``$1MM+.'' \27\ FINRA 
proposes that Rule 144A transactions be disseminated subject to the 
same dissemination caps that are currently in effect for a non-Rule 
144A transaction in the applicable security (e.g., a non-Rule 144A 
transaction in an Investment Grade corporate bond).\28\
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    \27\ The dissemination cap for Investment Grade corporate bonds 
(excluding those sold in Rule 144A transactions) limits the display 
of actual size for approximately 2.1 percent of trades representing 
approximately 51.7 percent of total par value traded. The 
dissemination cap for Non-Investment Grade corporate bonds 
(excluding those sold in Rule 144A transactions) limits the display 
of actual size for approximately 15.6 percent of trades representing 
approximately 84.3 percent of total par value traded. The 
information is based on a review of all transactions (excluding Rule 
144A transactions) in Investment Grade corporate bonds and Non-
Investment Grade corporate bonds reported to TRACE from January 1, 
2003 to December 31, 2012.
    The terms Investment Grade and Non-Investment Grade are defined 
in, respectively, FINRA Rule 6710(h) and FINRA Rule 6710(i).
    \28\ At this level, approximately 15.5 percent of all Investment 
Grade Rule 144A transactions and approximately 61.4 percent of par 
value traded in such transactions would be disseminated subject to 
the $5MM dissemination cap, and approximately 52.4 percent of all 
Non-Investment Grade Rule 144A transactions and approximately 89.9 
percent of par valued traded in such transactions would be 
disseminated subject to the $1MM dissemination cap. The information 
is based on a review of all Rule 144A transactions in Investment 
Grade corporate bonds and Non-Investment Grade corporate bonds 
reported to TRACE from January 1, 2003 through December 31, 2012.
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Data
    FINRA proposes to amend FINRA Rule 7730 to make available the real-
time disseminated Rule 144A transaction data and the Historic TRACE 
Data for Rule 144A transactions. First, FINRA proposes to amend FINRA 
Rule 7730(c) to establish the Rule 144A transaction data set (``Rule 
144A Data Set'') similar to the data sets for corporate bonds 
(``Corporate Bond Data Set''), Agency Debt Securities (``Agency Data 
Set'') and Asset-Backed Securities (``ABS Data Set''). The Rule 144A 
Data Set will consist of information disseminated immediately upon 
receipt of a transaction report for a Rule 144A transaction.
    Second, FINRA proposes to amend FINRA Rule 7730(d) to establish a 
historic data set for Rule 144A transactions (``Historic Rule 144A Data 
Set'') similar to the data sets for corporate bonds (``Historic 
Corporate Bond Data Set''), Agency Debt Securities (``Historic Agency 
Data Set'') and Asset-Backed Securities (``Historic ABS Data Set'') 
referenced in the rule. The Historic Rule 144A Data Set would include 
Rule 144A transactions in securities subject to dissemination, effected 
as of or after July 1, 2002, and, among other things, would include 
uncapped volume information. However, like all other Historic TRACE 
Data, Rule 144A transaction data included in the Historic Rule 144A 
Data Set would be released subject to a delay of approximately 18 
months from the date of the transaction.
    FINRA also proposes to amend the definition of ``Historic TRACE 
Data'' in FINRA Rule 7730(f)(4) to reference the three existing data 
sets and the proposed Historic Rule 144A Data Set and make other 
clarifying and technical amendments. Specifically, the definition would 
be revised to clarify that the Historic Corporate Bond Data Set 
includes all historic transactions in corporate bonds reported to 
TRACE, except Rule 144A transactions in corporate bonds; the Historic 
Agency Data Set includes all historic transactions in Agency Debt 
Securities reported to TRACE; the Historic ABS Data Set includes all 
historic transactions in ABS reported to TRACE, if transactions in the 
type of ABS are subject to real-time dissemination under FINRA Rule 
6750, but excludes historic Rule 144A transactions in ABS; and the 
Historic Rule 144A Data Set includes all historic Rule 144A 
transactions reported to TRACE, except transactions involving a type of 
TRACE-Eligible Security (e.g., certain ABS) that is not subject to 
real-time dissemination under FINRA Rule 6750.
    Finally, FINRA proposes the following additional, minor revisions 
to FINRA Rule 7730. In FINRA Rule 7730(d)(1)(A)(ii) and FINRA Rule 
7730(d)(1)(B)(ii), FINRA proposes to clarify that the 2012 Historic ABS 
Data Set includes the 2011 Historic ABS Data Set. ABS began to be 
reported to TRACE in May 2011 and, accordingly, transactions from that 
time would be included in the Historic ABS Data Set. Proposed technical 
amendments to FINRA Rule 7730(c)(1), FINRA Rule 7730(c)(2) and the 
table preceding such provisions would clarify that the fees therein 
apply only to the Corporate Bond Data Set, Agency Data Set and ABS Data 
Set. Similarly, proposed technical amendments to FINRA Rule 7730(d)(1), 
FINRA Rule 7730(d)(2) and the preceding table would clarify that the 
fees therein apply only to the

[[Page 45000]]

existing Historic Corporate Bond Data Set, Historic Agency Data Set and 
Historic ABS Data Set.\29\
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    \29\ FINRA will file a separate rule filing to address the 
market data fees for the Rule 144A Data Set and the Historic Rule 
144A Data Set.
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    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 270 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,\30\ 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 to increase fixed income 
market transparency and establish real-time and historic data sets for 
Rule 144A transactions is 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. Transparency in Rule 144A transactions will enhance the ability 
of investors and other market participants to identify and negotiate 
fair and competitive prices for corporate bonds. The dissemination of 
price and other Rule 144A transaction information publicly also will 
aid in the prevention of fraudulent and manipulative acts and practices 
in the corporate bond market.
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    \30\ 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. The proposed rule change, which 
is of limited scope and addresses the proposed dissemination of Rule 
144A transactions and establishment of real-time and historic data sets 
of Rule 144A transactions, does not impose any additional costs or 
obligations under the Rule 6700 Series, such as any new reporting 
obligations on members or other market participants as Rule 144A 
transactions are currently required to be reported to TRACE. In 
addition, as noted above, FINRA's proposal to amend FINRA Rule 6750, 
FINRA Rule 7730 and the dissemination protocols and disseminate Rule 
144A transactions and establish real-time and historic Data Sets of 
Rule 144A transactions will provide transparency in a market sector for 
the first time, which may foster more competitive, negotiated, and 
fairer pricing of Rule 144A transactions and similar corporate bond 
transactions between market participants, and, in some cases, may 
result in lower prices for investors.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The proposed rule change was published for comment in Regulatory 
Notice 12-39 (September 2012).\31\ FINRA received 316 comments in 
response to Regulatory Notice 12-39, of which 12 comments directly 
addressed the dissemination of Rule 144A transactions, specifically 
whether Rule 144A transactions should be disseminated, and if so, 
whether such transactions should be disseminated publicly or only to 
QIBs, and should be subject to dissemination caps.\32\ A copy of the 
Regulatory Notice is attached as Exhibit 2a. Copies of the comment 
letters received in response to the Regulatory Notice are attached as 
Exhibit 2c. Of the 12 comment letters received that addressed the 
dissemination of Rule 144A transactions, nine were in favor of the 
proposed rule change and three were opposed.\33\
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    \31\ In Regulatory Notice 12-39 FINRA also requested comment on 
existing dissemination caps for transactions in corporate bonds, 
Agency Debt Securities and ABS. FINRA is not proposing to change any 
of the current dissemination caps at this time.
    \32\ Most of the 316 comment letters were filed in support of, 
or in opposition to, increasing or eliminating the dissemination 
caps currently in effect.
    \33\ See nine comment letters that favored dissemination of Rule 
144A transactions: Letter from Bill O'Neill, Sr. Portfolio Manager, 
Income Research & Management, to Marcia E. Asquith, Corporate 
Secretary, FINRA, dated September 17, 2012 (``IRM''); Letter from 
Jim Toffey, CEO, Benchmark Solutions, Inc., to Marcia E. Asquith, 
Corporate Secretary, FINRA, dated October 4, 2012 (``Benchmark''); 
Letter from Beth N. Lowson, The Nelson Law Firm, LLC, to Marcia E. 
Asquith, Corporate Secretary, FINRA, dated October 9, 2012 (``Nelson 
Law''); Letter from E.A. Repetto, CEO, Dimensional Fund Advisors LP, 
to Marcia E. Asquith, Corporate Secretary, FINRA, dated November 6, 
2012 (``Dimensional''); Letter from Lyn Perlmuth, Director, Fixed 
Income Forum, The Credit Roundtable, to Marcia E. Asquith, Corporate 
Secretary, FINRA, dated November 7, 2012 (``Credit Roundtable''); 
Letter from Scott Oswald, Sr. Associate, Research, Bristlecone 
Advisors, LLC, to Marcia E. Asquith, Corporate Secretary, FINRA, 
dated November 9, 2012 (``Bristlecone''); Letter from Dorothy 
Donohue, Deputy General Counsel, Securities Regulation, The 
Investment Company Institute, to Marcia E. Asquith, Corporate 
Secretary, FINRA, dated November 12, 2012 (``ICI''); Letter from 
David A. Hodges, Principal, Integra Wealth, LLC, to Marcia E. 
Asquith, Corporate Secretary, FINRA, dated November 15, 2012 
(``Integra''); and Letter from Mark Hepsworth, President, Pricing 
and Reference Data, Interactive Data Corporation, to Marcia E. 
Asquith, Corporate Secretary, FINRA, dated November 19, 2012 
(``Interactive Data''). See also three comment letters that did not 
support disseminating Rule 144A transactions: Letter from Chris 
Killian, Managing Director, Securities Industry and Financial 
Markets Association, to Marcia E. Asquith, Corporate Secretary, 
FINRA, dated November 16, 2012 (``SIFMA''); Letter from Michael 
Nicholas, CEO, Bond Dealers of America, to Marcia E. Asquith, 
Corporate Secretary, FINRA, dated November 19, 2012 (``BDA''); and 
Letter from Chris Melton, Executive Vice President, Coastal 
Securities, to Marcia E. Asquith, Corporate Secretary, FINRA, dated 
November 19, 2012 (``Coastal Securities'').
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    The comments in favor of disseminating Rule 144A transactions noted 
that the Rule 144A market has significant volume, has matured and 
increased in liquidity over the several years that TRACE has been in 
effect, and investors would benefit from increased transparency.\34\ 
They further noted that increased transparency is a valuable tool in 
pre-trade price discovery \35\ and is associated with a decline in 
trading costs for investors.\36\ Most of these comments supported the 
same dissemination caps for Rule 144A transactions as are in effect for 
the applicable public securities transactions.\37\ One commenter, while 
supportive of dissemination of Rule 144A transactions, suggested that 
no dissemination caps be applied.\38\
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    \34\ Credit Roundtable, ICI and Benchmark.
    \35\ Benchmark and Nelson Law.
    \36\ Dimensional.
    \37\ Benchmark, IRM, Bristlecone, Credit Roundtable, ICI, 
Dimensional, Integra and Interactive Data.
    \38\ Nelson Law.
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    The comments opposing dissemination of Rule 144A transactions 
indicated that transparency is not necessary or appropriate since such 
transactions are private in nature \39\ and, without the offering 
documents, investors could be confused.\40\ One comment opposing 
dissemination of Rule 144A transactions further noted that such private 
transactions are done almost exclusively by institutions that are 
capable of assessing and negotiating the information needed to make 
investment decisions.\41\
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    \39\ Coastal Securities.
    \40\ SIFMA.
    \41\ BDA.
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    FINRA believes that on balance the benefits of increased 
transparency as noted above outweigh the concerns expressed by 
commenters opposing the dissemination of Rule 144A transactions.

[[Page 45001]]

    After studying market data and soliciting comment, FINRA believes 
that investors would benefit from increased transparency in Rule 144A 
transactions. FINRA's review of the reported transactions indicates and 
commenters note that the market in Rule 144A transactions has 
significant volume, has matured and has increased in liquidity over the 
several years that TRACE has been in effect. Although one comment 
opposing dissemination of Rule 144A transactions noted that the contra 
parties to Rule 144A transactions are almost exclusively institutions 
that are capable of assessing and negotiating the information needed to 
make investment decisions, FINRA believes, based on academic studies 
and the experience in publicly traded corporate bonds, that even in 
institutional markets more transparent markets tend to reduce spreads 
and trade execution costs, which may be indicative of more competitive 
prices for investors. In addition, FINRA notes that dissemination may 
assist market participants in price discovery as well as determining 
execution quality. Finally, FINRA believes that transparency in this 
sector may improve the quality of pricing for valuation purposes, which 
is critical for both dealers and institutions.
    In addition, FINRA does not believe that providing price 
transparency in Rule 144A transactions generally will have an adverse 
impact on the liquidity of the market. FINRA notes that academic 
studies have not established a relationship between transparency and a 
reduction in liquidity of a specific market sector. FINRA acknowledges, 
however, that each market sector is different, and intends to monitor 
the market in Rule 144A transactions in TRACE-Eligible Securities to 
determine if there is an adverse impact to liquidity or other factors, 
as FINRA has previously done when introducing transparency in other 
debt market sectors.
    A commenter raised concerns that investors will be confused by 
transparency in Rule 144A transactions. FINRA does not believe that 
investor confusion will result from such transparency. FINRA does not 
believe that non-QIB institutional customers will be confused by access 
to Rule 144A transaction data. First, FINRA believes that establishing 
separate data sets for Rule 144A transaction information avoids 
potential investor confusion since such transactions are not comingled 
with non-Rule 144A transactions and can be presented separately and 
clearly marked as such. In addition, such customers can use this 
information as an additional data point in pricing bonds that they are 
eligible to trade, and if they fail to recognize the Rule 144A status 
of the trades and think they can trade these precise bonds, their 
broker will advise otherwise.
    For the reasons discussed above, FINRA believes that transparency 
should be provided in Rule 144A transactions and, accordingly, proposes 
to amend FINRA Rule 6750 and the TRACE dissemination protocols to 
provide for dissemination of Rule 144A transactions.

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 Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-FINRA-2013-029 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-2013-029. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of FINRA. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-FINRA-2013-029 and should be 
submitted on or before August 15, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\42\
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    \42\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-17857 Filed 7-24-13; 8:45 am]
BILLING CODE 8011-01-P


