
[Federal Register Volume 81, Number 205 (Monday, October 24, 2016)]
[Notices]
[Pages 73167-73177]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-25604]



[[Page 73167]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79116; File No. SR-FINRA-2016-027]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Amendment No. 1 and Order Granting 
Accelerated Approval of a Proposed Rule Change, as Modified by 
Amendment No. 1, Relating to the Reporting of Transactions in U.S. 
Treasury Securities to TRACE

October 18, 2016.

I. Introduction

    On July 18, 2016, 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 require FINRA members to report secondary 
market transactions in U.S. Treasury securities to the Trade Reporting 
and Compliance Engine (``TRACE''). The proposed rule change was 
published for comment in the Federal Register on July 25, 2016.\3\ The 
Commission received 12 comments in response to the proposed rule 
change.\4\ On September 6, 2016, FINRA consented to an extension of 
time for the Commission to act on the proposal until October 21, 
2016.\5\ FINRA responded to the comments and filed Amendment No. 1 to 
the proposal on September 23, 2016.\6\ The Commission is publishing 
this notice to solicit comment on Amendment No. 1 to the proposal from 
interested persons and is approving the proposed rule change, as 
modified by Amendment No. 1, on an accelerated basis.
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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. 78359 (July 19, 
2016), 81 FR 48465 (``Notice'').
    \4\ See letters to Brent J. Fields, Secretary, Commission, from 
Mike Nicholas, Chief Executive Office, Bond Dealers of America 
(``BDA''), dated August 15, 2016 (``BDA Letter''); Adam C. Cooper, 
Senior Managing Director and Chief Legal Officer, Citadel LLC 
(``Citadel''), dated August 15, 2016 (``Citadel Letter''); Shane 
O'Cuinn, Managing Director, Credit Suisse, dated August 15, 2016 
(``Credit Suisse Letter''); Marc R. Bryant, Senior Vice President 
and Deputy General Counsel, Fidelity Investments (``Fidelity''), 
dated August 15, 2016 (``Fidelity Letter''); David W. Blass, General 
Counsel, Investment Company Institute (``ICI''), dated August 15, 
2016 (``ICI Letter''); John A. McCarthy, General Counsel, KCG 
Holdings, Inc. (``KCG''), dated August 15, 2016 (``KCG Letter''); 
Robert Toomey, Managing Director and Associate General Counsel, 
Securities Industry and Financial Markets Association (``SIFMA'') 
and Timothy W. Cameron, Head, Asset Management Group, Head, Asset 
Management Group, SIFMA, dated August 15, 2016 (``SIFMA Letter''); 
and Douglas Friedman, General Counsel, Tradeweb Markets LLC 
(``Tradeweb''), dated August 15, 2016 (``Tradeweb Letter''); and 
letters to Robert W. Errett, Deputy Secretary, Commission, from Mary 
Lou Von Kaenel, Managing Director, Financial Information Forum 
(``FIF''), dated August 15, 2016 (``FIF Letter''); Manisha Kimmel, 
Chief Regulatory Officer, Wealth Management, Thomson Reuters, dated 
August 15, 2016 (``Thomson Reuters Letter''); and John Shay, Senior 
Vice President, Virtu Financial, Inc. (``Virtu''), dated August 15, 
2016 (``Virtu Letter''); and letter from Jane Carson, received on 
August 5, 2016 (``Carson Letter'').
    \5\ See letter from Brant K. Brown, Associate General Counsel, 
FINRA, to Katherine England, Assistant Director, Division of Trading 
and Markets, Commission, dated September 6, 2016.
    \6\ See letter from Brant Brown, Associate General Counsel, 
FINRA, to Brent J. Fields, Secretary, Commission, dated September 
23, 2016 (``FINRA Response''). Amendment No. 1 revised the proposal 
to indicate that the ``.S'' modifier must be used if a transaction 
is part of a series of transactions and may not be priced based on 
the current market. FINRA posted a copy of its Amendment No. 1 on 
its Web site when if filed the amendment with the Commission. 
Amendment No. 1 is also available at https://www.sec.gov/comments/sr-finra-2016-027/finra2016027-14.pdf.
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II. Background

    As described in further detail below, FINRA has proposed to require 
its members to report transactions in U.S. Treasury securities to 
TRACE. At this time, FINRA is not proposing to publicly disseminate any 
reports of transactions in U.S. Treasury securities, nor is FINRA 
proposing at this time to impose any fees on its members for the 
reporting of such transactions.

A. Origin of the Proposal

    On the morning of October 15, 2014, the market for U.S. Treasury 
securities, futures, and other closely related instruments experienced 
an unusually high level of volatility. Subsequently, an interagency 
working group consisting of representatives from the Commission, the 
Department of the Treasury (the ``Treasury Department''), the Board of 
Governors of the Federal Reserve System, the Federal Reserve Bank of 
New York, and the Commodity Futures Trading Commission (``CFTC'') 
issued a report (``Joint Staff Report'') analyzing the structure of the 
U.S. Treasury market and the conditions that contributed to the market 
volatility on October 15.\7\ The Joint Staff Report proposed several 
next steps in understanding the U.S. Treasury market, including an 
assessment of the data about the U.S. Treasury market available to the 
public and to the official sector.\8\
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    \7\ See Treasury Department et al., Joint Staff Report: The U.S. 
Treasury Market on October 15, 2014 (July 13, 2015), https://www.sec.gov/reportspubs/special-studies/treasury-market-volatility-10-14-2014-joint-report.pdf.
    \8\ See Joint Staff Report at 6-7.
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    Following the publication of the Joint Staff Report, the Treasury 
Department published a Request for Information (``RFI'') seeking public 
comment on structural changes in the U.S. Treasury market and their 
implications for the overall functioning of this market, including 
considerations with respect to more comprehensive official sector 
access to Treasury securities market data.\9\ The RFI Notice observed 
that ``[t]he official sector does not currently receive any regular 
reporting of Treasury cash market transactions'' and that ``[t]he need 
for more comprehensive official sector access to data, particularly 
with respect to U.S. Treasury cash market activity, is clear.'' \10\
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    \9\ See Notice Seeking Public Comment on the Evolution of the 
Treasury Market Structure, 81 FR 3928, 3931 (January 22, 2016) 
(``RFI Notice'').
    \10\ Id. at 3931.
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    The Treasury Department received 52 comment letters in response to 
the RFI Notice.\11\ Following a review of these comments, the Treasury 
Department and the Commission announced that, as part of their efforts 
to obtain better information about the U.S. Treasury market for 
oversight purposes, the agencies had requested FINRA to consider a 
proposal to require its members to report transactions in U.S. Treasury 
securities to a centralized repository.\12\
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    \11\ See https://www.regulations.gov/document?D=TREAS-DO-2015-0013-0001.
    \12\ See Press Release, Treasury Department, Statement on Trade 
Reporting in the U.S. Treasury Market (May 16, 2016), https://www.treasury.gov/press-center/press-releases/Pages/jl0457.aspx 
(``Treasury Press Release''). See also Joint Press Release, Treasury 
Department and Commission, Statement on Trade Reporting in the U.S. 
Treasury Market (May 16, 2016), https://www.sec.gov/news/pressrelease/2016-90.html (``May 16 Joint Press Release'').
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B. Definitions and Scope of Proposal

    The TRACE reporting rules apply to ``Reportable TRACE 
Transactions,'' as defined in FINRA Rule 6710(c), involving ``TRACE-
Eligible Securities,'' as defined in FINRA Rule 6710(a). Because the 
current definition of ``TRACE-Eligible Security'' specifically excludes 
a ``U.S. Treasury Security,'' FINRA members currently are not required 
to report any transactions in U.S. Treasury Securities to TRACE. The 
proposal would amend the definition of ``TRACE-Eligible Security'' to 
include a U.S. Treasury Security, which would have the effect of 
rendering a transaction in a U.S. Treasury Security a Reportable TRACE 
Transaction.
    The proposal would revise the existing definition of ``U.S. 
Treasury Security'' in FINRA Rule 6710(p) to include separate principal 
and interest components of a U.S. Treasury Security that have been 
separated pursuant to the

[[Page 73168]]

Separate Trading of Registered Interest and Principal of Securities 
(STRIPS) program operated by the Treasury Department.\13\ The proposal 
also would revise several defined terms to ensure that the definition 
of ``TRACE-Eligible Security'' encompasses Treasury bills, which have 
maturities of one year or less. The existing definition of ``TRACE-
Eligible Security'' in FINRA Rule 6710(a) excludes a Money Market 
Instrument. FINRA Rule 6710(o) currently defines ``Money Market 
Instrument'' to include, among other things, a debt security that at 
issuance has a maturity of one calendar year or less. A Treasury bill 
with a maturity of one year or less would fall within the current 
definition of ``Money Market Instrument'' and, accordingly, would not 
be a TRACE-Eligible Security. To provide for the reporting of 
transactions in U.S. Treasury bills, the proposal would revise the 
current definition of ``Money Market Instrument'' to exclude U.S. 
Treasury Securities. Thus, the definition of ``TRACE-Eligible 
Security'' would include Treasury bills, as well as Treasury bonds, 
notes, and the separate principal and interest components of a U.S. 
Treasury Security that have been separated pursuant to the STRIPS 
program.
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    \13\ Although trading a principal or interest component of a 
U.S. Treasury Security that has been separated under the STRIPS 
program would constitute a Reportable TRACE Transaction, the act of 
separating or reconstituting the components of a U.S. Treasury 
Security under the STRIPS program would not constitute a Reportable 
TRACE Transaction. This is because, for purposes of the trade 
reporting rules, FINRA considers a ``trade'' or a ``transaction'' to 
entail a change of beneficial ownership between parties. See, e.g., 
Securities Exchange Act Release No. 74482 (March 11, 2015), 80 FR 
13940, 13941 (March 17, 2015) (order approving File No. SR-FINRA-
2014-050) (noting that, in the context of TRACE reporting, 
``[b]ecause the transaction between the member and its non-member 
affiliate represents a change in beneficial ownership between 
different legal entities, it is a reportable transaction and is 
publicly disseminated under the current rule''); Trade Reporting 
Frequently Asked Questions, Q100.4, http://www.finra.org/industry/trade-reporting-faq#100 (defining ``trade'' and ``transaction'' for 
purposes of the equity trade reporting rules as a change in 
beneficial ownership). See Notice, 81 FR at 48467. FINRA has 
proposed new Supplementary Material .05 to FINRA Rule 6730 to 
address the reporting obligation associated with this process.
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    In addition, the proposal would revise the definition of ``U.S. 
Treasury Security'' to exclude savings bonds. FINRA notes that savings 
bonds issued by the Treasury Department are generally non-transferable 
and are therefore not marketable securities purchased and sold in the 
secondary market. Therefore, FINRA did not believe that it was 
appropriate to include savings bonds within the scope of this 
proposal.\14\
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    \14\ See Notice, 81 FR at 48466.
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    Under the proposal, any transaction in a U.S. Treasury Security is 
a ``Reportable TRACE Transaction'' and would therefore be subject to 
TRACE reporting requirements, unless it fell within an enumerated 
exception.\15\ FINRA notes that all U.S. Treasury Securities that, 
under the proposal, would be reportable to TRACE are offered to the 
public by the Treasury Department through an auction process.\16\ When-
issued trading in U.S. Treasury Securities can begin before the auction 
takes place after the Treasury Department announces an auction.\17\ 
When-issued transactions in U.S. Treasury Securities currently are not 
reported to the Treasury Department.\18\ Under the proposal, when-
issued transactions would be reportable to TRACE. In connection with 
this reporting requirement, FINRA has proposed new definitions of 
``Auction'' and ``When-Issued Transaction.'' \19\
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    \15\ See id. at 48467.
    \16\ See id.
    \17\ See id. When-issued trading of Treasury securities, i.e., 
the trading of forward contracts with a delivery date after the 
securities are issued, begins on the date of the announcement of a 
Treasury auction and continues after the auction takes place, up 
until the issue date. Prior to an auction, when-issued securities 
are quoted for trading on a yield basis because a coupon is not 
determined until after the auction is completed. After the auction, 
the securities are quoted on a price basis.
    \18\ See id.
    \19\ See proposed FINRA Rules 6710(ff) (defining ``Auction'') 
and 6710(hh) (defining ``When-Issued Transaction'').
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    Existing FINRA Rule 6730(e) enumerates several transactions and 
transfers of TRACE-Eligible Securities that are not reportable to 
TRACE. The proposal would add two types of transactions to the list in 
FINRA Rule 6730(e). First, FINRA Rule 6730(e) would be expanded to 
include bona fide repurchase and reverse repurchase transactions 
involving TRACE-Eligible Securities. FINRA notes that, although 
repurchase and reverse repurchase transactions are structured as 
purchases and sales, the transfer of securities effectuated as part of 
these transactions is not made as the result of an investment decision, 
but is more akin to serving as collateral pledged as part of a secured 
financing.\20\ Consequently, repurchase and reverse repurchase 
transactions are, according to FINRA, economically equivalent to 
financings, and the pricing components of these transactions are 
typically not the market value of the securities.\21\ For these 
reasons, FINRA historically has taken the position that repurchase and 
reverse repurchase transactions should not be reported to TRACE.\22\
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    \20\ See Notice, 81 FR at 48467.
    \21\ See id.
    \22\ See id. See also Reporting of Corporate and Agencies Debt 
Frequently Asked Questions, Question 4.6, http://www.finra.org/industry/faq-reporting-corporate-and-agencies-debt-frequently-asked-questions-faq.
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    Second, FINRA Rule 6730(e) would be expanded to include Auction 
Transactions, which proposed FINRA Rule 6710(gg) would define as ``the 
purchase of a U.S. Treasury Security in an Auction.'' FINRA asserts 
that the Treasury Department maintains transaction data for Auction 
Transactions and that this data is readily accessible to 
regulators.\23\ Accordingly, FINRA believes that TRACE reporting of 
these transactions would be duplicative and of little additional 
benefit to regulators.\24\
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    \23\ See Notice, 81 FR at 48467.
    \24\ See id.
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C. Reporting Obligations

    As is currently the case with all TRACE reporting obligations, any 
FINRA member that is a ``Party to a Transaction'' in a TRACE-Eligible 
Security is required to report the transaction.\25\ Thus, by amending 
the definition of ``TRACE-Eligible Security'' in the manner described 
above, FINRA would require members to report transactions in U.S. 
Treasury Securities to TRACE. If both counterparties are FINRA members, 
both would have the duty to report.\26\
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    \25\ See id. See also FINRA Rules 6730(a) and 6730(b)(1).
    \26\ See Notice, 81 FR at 48467.
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    Under the proposal, a transaction in a U.S. Treasury Security would 
have to be reported on a same-day or next-day basis, depending on the 
time of execution.\27\ FINRA states that it is proposing this reporting 
requirement, rather than a more immediate reporting requirement, 
because FINRA is not

[[Page 73169]]

currently proposing to publicly disseminate any trade-level information 
regarding transactions in U.S. Treasury Securities.\28\
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    \27\ See proposed FINRA Rule 6730(a)(4). See also Notice, 81 FR 
at 48467. Under proposed FINRA Rule 6730(a)(4), a Reportable TRACE 
Transaction in a U.S. Treasury Security executed on a business day 
at or after 12:00:00 a.m. Eastern Time through 5:00:00 p.m. Eastern 
Time would have to be reported the same day during TRACE System 
Hours. A transaction executed on a business day after 5:00:00 p.m. 
Eastern Time but before the TRACE system closes would have to be 
reported no later than the next business day (T+1) during TRACE 
System Hours, and, if reported on T+1, would have to be designated 
``as/of'' and include the date of execution. A transaction executed 
on a business day at or after 6:30:00 p.m. Eastern Time through 
11:59:59 p.m. Eastern Time--or 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 (determined using Eastern Time)--
would have to be reported the next business day (T+1) during TRACE 
System Hours, designated ``as/of,'' and include the date of 
execution. See also FINRA Rule 6710(t) (defining ``TRACE System 
Hours'').
    \28\ See Notice, 81 FR at 48467.
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    FINRA Rule 6730(c) lists the specific transaction information that 
a member must report to TRACE for each Reportable TRACE 
Transaction.\29\ These existing requirements generally would apply to 
Reportable TRACE Transactions in U.S. Treasury Securities but with 
certain modifications to clarify the reporting of certain information 
for transactions involving U.S. Treasury Securities.\30\ First, the 
proposal would amend FINRA Rule 6730(c)(3) to indicate that a member 
must report yield in lieu of price for a When-Issued Transaction 
because when-issued trading is based on yield rather than on price as a 
percentage of face or par value.\31\
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    \29\ FINRA Rule 6730(c) requires the appropriate member to 
report the following information for each Reportable TRACE 
Transaction: (1) The CUSIP number or, if a CUSIP number is not 
available at the Time of Execution, a similar numeric identifier or 
a FINRA symbol; (2) the size (volume) of the transaction, as 
required by Rule 6730(d)(2); (3) the price of the transaction (or 
the elements necessary to calculate price, which are contract amount 
and accrued interest) as required by Rule 6730(d)(1); (4) a symbol 
indicating whether the transaction is a buy or a sell; (5) the date 
of Trade Execution (for ``as/of'' trades only); (6) the contra-
party's identifier (MPID, customer, or a non-member affiliate, as 
applicable); (7) capacity--Principal or Agent (with riskless 
principal reported as principal); (8) the time of execution; (9) 
reporting side executing broker as ``give-up'' (if any); (10) contra 
side Introducing Broker in case of ``give-up'' trade; (11) the 
commission (total dollar amount); (12) the date of settlement; (13) 
if the member is reporting a transaction that occurred on an ATS 
pursuant to FINRA Rule 6732, the ATS's separate MPID obtained in 
compliance with FINRA Rule 6720(c); and (14) such trade modifiers as 
required by either the TRACE rules or the TRACE users' guide.
    \30\ See Notice, 81 FR at 48468.
    \31\ See id.
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    Second, the proposal would amend FINRA Rule 6730(d)(1) to specify 
that (1) for a When-Issued Transaction conducted on a principal basis, 
the reported yield must include the mark-up or mark-down; and (2) for a 
When Issued Transaction conducted on an agency basis, the reported 
yield must exclude the commission and the member must report the total 
dollar amount of any commission separately.\32\
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    \32\ See id.
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    Third, the proposal would add new Supplementary Material .04 to 
FINRA Rule 6730 to specify that, when reporting a transaction in a U.S. 
Treasury Security executed electronically, a member would have to 
report the time of execution to the finest increment of time captured 
in the member's system (e.g., millisecond or microsecond), but at a 
minimum, in increments of seconds.\33\ FINRA noted that the proposal 
would not require members to update their systems to comply with a 
finer time increment, but to report the time of execution only in the 
same time increment captured by the member's system.\34\ FINRA also 
noted that a significant portion of the trading in the U.S. Treasury 
cash market occurs on electronic platforms, many of which capture 
timestamps in sub-second increments.\35\
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    \33\ See id.
    \34\ See id. FINRA noted that the rules governing the trade 
reporting of equity securities require a member to report time to 
the millisecond if the member captures time to that level of 
granularity. See id.; FINRA Rule 6380A, Supplementary Material .04; 
FINRA Rule 6380B, Supplementary Material .04; FINRA Rule 6622, 
Supplementary Material .04. See also FINRA Regulatory Notice 14-21 
at 3 (May 2014).
    \35\ See Notice, 81 FR at 48468.
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    Fourth, the proposal would add new FINRA Rule 6730(d)(4)(G) to 
implement a new trade indicator and two new trade modifiers that are 
specific to transactions in U.S. Treasury Securities. FINRA states that 
a new trade indicator for When-Issued Transactions would allow FINRA to 
readily determine whether a price is being reported based on a 
percentage of face or par value or whether the member is reporting the 
yield, as required for When-Issued Transactions.\36\ This indicator 
also would be used to validate a transaction in a U.S. Treasury 
Security reported with an execution date before the auction for the 
security has taken place.\37\ Because transactions in U.S. Treasury 
Securities often are executed as part of larger trading strategies, the 
proposal also would add two new modifiers for these transactions.\38\ 
Proposed FINRA Rule 6730(d)(4)(G)(ii)(a) would require a member to add 
a ``.B'' modifier to the trade report for a transaction that is part of 
a series of transactions in which at least one involves a futures 
contract.\39\ Proposed FINRA Rule 6730(d)(4)(G)(ii)(b) would require a 
member to add a ``.S'' modifier if a transaction is part of a series of 
transactions and might not be priced based on the current market.\40\ 
According to FINRA, the ``.B'' and ``.S'' modifiers would allow FINRA 
to better understand and evaluate execution prices of transactions in 
U.S. Treasury Securities that otherwise might appear aberrant, thus 
potentially reducing the number of false positives generated through 
automated surveillance mechanisms that include the price as part of the 
surveillance pattern.\41\
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    \36\ See id.
    \37\ See id.
    \38\ See id.
    \39\ See id.
    \40\ FINRA Rule 6730(d)(4)(G)(ii)(b), as originally proposed, 
would have required use of the ``.S'' modifier ``if the transaction 
is part of a series of transactions where at least one of the 
transactions is executed at a pre-determined fixed price or would 
otherwise result in the transaction being executed away from the 
current market'' (emphasis added). One commenter stated that this 
formulation suggests that only transactions executed away from the 
market should be assigned the ``.S'' modifier. See SIFMA Letter at 
7. The commenter recommended, instead, that the ``.S'' modifier 
apply to any transaction that is part of a series, regardless of 
whether one or more of the legs of the trade is, in fact, away from 
the current market. See id. FINRA agreed that the ``.S'' modifier 
should be utilized whenever a transaction is part of a series and 
therefore could be, but need not be, priced away from the market. 
Therefore, in Amendment No. 1, FINRA revised proposed Rule 
6730(d)(4)(G)(ii)(b) to require use of the ``.S'' modifier if a 
transaction ``is part of a series of transactions and may not be 
priced based on the current market'' (emphasis added). FINRA 
expressed the view that Amendment No. 1 should reduce compliance 
burdens because a member would not be required to assess whether a 
particular transaction was, in fact, priced away from the market at 
the time of execution when attaching the ``.S'' modifier. See FINRA 
Response at 9.
    \41\ See Notice, 81 FR at 48468.
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D. Additional Changes

    The proposal would amend FINRA Rule 6750(b) to add U.S. Treasury 
Securities to the list of transaction types for which transaction 
information will not be disseminated. The proposal also would amend 
FINRA Rule 0150 to add the FINRA Rule 6700 series to the list of FINRA 
rules that apply to exempted securities, excluding municipal 
securities. Finally, FINRA has proposed to amend two provisions in its 
fee rules to reflect that, initially, FINRA will not charge fees for 
transactions in U.S. Treasury Securities reported to TRACE. First, 
Section 1(b)(2) of Schedule A to the FINRA By-Laws would be revised to 
exclude transactions in U.S. Treasury Securities from the Trading 
Activity Fee. Second, FINRA Rule 7730(b) would be revised to exclude 
transactions in U.S. Treasury Securities from the TRACE transaction 
reporting fees.\42\
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    \42\ FINRA states that, because it will incur costs to expand 
the TRACE system and to enhance its examination and surveillance 
efforts to monitor members' trading activity in U.S. Treasury 
Securities, FINRA is considering the appropriate long-term funding 
approach for the program and will analyze potential fee structures 
once it has more data relating to the size and volume of U.S. 
Treasury Security reporting. See id. at 48469.
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E. Effective Date of Proposed Rule Change

    FINRA has represented that it will announce the effective date of 
the proposed rule change and the specific implementation dates in a 
Regulatory Notice to be published no later than 90 days following 
Commission approval of the proposal, and that the effective date

[[Page 73170]]

will be no later than 365 days following Commission approval.\43\ FINRA 
anticipates staggering the implementation dates so that the general 
reporting requirement is implemented before members are required to 
include the ``.B'' and ``.S'' trade modifiers.\44\
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    \43\ See id.
    \44\ See id.
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III. Summary of Comments and FINRA's Response

    The Commission received 12 comments regarding the proposed rule 
change.\45\ Seven commenters expressed support for the proposal.\46\ 
Several commenters supported the goals of the proposal but argued that 
regulatory reporting requirements should be expanded to other Treasury 
market participants that are not FINRA members.\47\ Certain of these 
commenters argued that transaction information provided only by FINRA-
member reporting would provide regulators with an incomplete view of 
the U.S. Treasury market.\48\ Other commenters noted the 
disproportionate impact of the proposal on FINRA members and the 
potential to place FINRA members at a competitive disadvantage vis-
[agrave]-vis other market participants.\49\
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    \45\ See supra note 4.
    \46\ See BDA Letter at 1 (stating that regulators should have 
access to comprehensive Treasury market transaction data); Citadel 
Letter at 1 (stating that enhanced reporting to the official sector 
will improve general monitoring and surveillance capabilities, 
including those designed to detect prohibited trading practices and 
potential risks to market stability) ; ICI Letter at 1-2 (stating 
that regulatory reporting of transactions in U.S. Treasury 
securities could help regulators ensure an efficient and competitive 
market for all participants, including funds and other investors); 
KCG Letter at 2-3 (expressing support for the goal of making U.S. 
Treasury transactional data more available to regulators); SIFMA 
Letter at 1-2 (expressing support for the policy goals underlying 
the proposal and noting that regulatory reporting of U.S. Treasury 
trades in the secondary market will provide regulators with greater 
clarity regarding the nature of activity in this market); Tradeweb 
Letter at 2 (expressing broad support for the policy goals of the 
proposal and the overall structure of the requirements); Virtu 
Letter at 2 (stating that access to transaction-level data will help 
regulators to effectively design surveillance to prevent fraudulent 
and manipulative acts, and that transaction reporting could inform 
future decisions regarding standards such as circuit breakers and 
volatility guards).
    \47\ See Credit Suisse Letter at 3 (requesting that the proposal 
not be put into effect unless and until the requirements are 
expanded to non-FINRA-member market participants); Fidelity Letter 
at 3 (stating that ``The official sector and market participants 
will be best served by coordinated and harmonized reporting 
requirements across Treasury cash market intermediaries''); SIFMA 
Letter at 3 (urging the Commission and the Treasury Department to 
coordinate the implementation of similar requirements for non-FINRA-
members); BDA Letter at 1 (urging regulators to work to create a 
comprehensive reporting regime that would also include banking 
institutions that do not currently report any fixed-income 
transactions to TRACE); KCG Letter at 5 (stating that regulators 
should provide specifics about their plan to collect data from non-
FINRA members and should prioritize implementation of this plan); 
Virtu Letter at 2 (asking the Treasury Department and the Commission 
to move quickly to capture transactions by non-FINRA members who 
trade U.S. Treasury securities to help to assure the efficacy of the 
monitoring system).
    \48\ See Credit Suisse Letter at 3; Fidelity Letter at 4-5 
(noting that its concern would be more pronounced if incomplete data 
were used as a basis for rulemaking); KCG Letter at 5; SIFMA Letter 
at 3; ICI Letter at 2 (cautioning regulators not to develop rules 
that would change the structure of the U.S. Treasury market using 
data obtained through TRACE reporting until regulators attain a more 
complete view of market activity, including the activity of 
principal trading firms (``PTFs'')).
    \49\ See Credit Suisse Letter at 3; Fidelity Letter at 4; 
Tradeweb Letter at 2.
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    FINRA agreed that the proposal would not capture the entire 
universe of transactions in the U.S. Treasury market, but stated that 
the proposal represents a significant and important first step.\50\ 
FINRA also noted that the Treasury Department, the Commission, the 
Federal Reserve Bank of New York, and the CFTC have stated that they 
are assessing means to ensure that the collection of data regarding the 
Treasury market is comprehensive and includes information from 
institutions that are not FINRA members.\51\
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    \50\ See FINRA Response at 3.
    \51\ See id. (citing Joint Press Release, Treasury Department et 
al., Statement Regarding Progress on the Review of the U.S. Treasury 
Market Structure since the July 2015 Joint Staff Report (August 2, 
2016), available at https://www.sec.gov/news/pressrelease/2016-155.html). See also May 16 Joint Press Release, supra note 12.
---------------------------------------------------------------------------

    Several commenters discussed the costs associated with the proposal 
or FINRA's analysis of the costs and benefits associated with the 
proposal. One commenter disagreed with FINRA's view that the direct 
costs to FINRA members already reporting to TRACE would be limited, 
stating that the reporting of transactions in U.S. Treasury securities 
would require significant IT investment.\52\ A second commenter noted 
that the proposal would be a significant build for firms that do not 
currently incur TRACE reporting obligations.\53\ A third commenter 
stated that a more thorough implementation discussion prior to approval 
of the proposal would permit a more robust cost/benefit analysis.\54\
---------------------------------------------------------------------------

    \52\ See Credit Suisse Letter at 6. See also Fidelity Letter at 
4 (noting the costs associated with the proposal, including 
technology builds, testing, maintenance of feeds, and the 
development and maintenance of regulatory compliance programs); 
Tradeweb Letter at 2 (stating that the implementation and phasing of 
the reporting requirements should be carefully evaluated with 
respect to the cost and the technical build required).
    \53\ See FIF Letter at 4.
    \54\ See Thomson Reuters Letter at 2.
---------------------------------------------------------------------------

    FINRA acknowledged that the proposal would impose certain costs and 
burdens on FINRA members that would not apply to non-members, but also 
noted that there are several cost-effective means for members to comply 
with the new rules.\55\ FINRA noted that firms with limited trading 
volumes generally could use a web browser to report, thereby limiting 
the cost of reporting.\56\ For firms with higher levels of trading 
activity, FINRA offers direct connectivity via either CTCI or FIX 
protocols.\57\ In addition, FINRA noted that some firms may rely on 
clearing firms that offer transaction reporting as a service to their 
correspondents, and that several service bureaus offer TRACE reporting 
as a service to subscribers to their order management systems.\58\ 
FINRA stated that a majority of its members that are also government 
securities brokers or dealers currently are registered for, and report 
to, TRACE.\59\ According to FINRA, the FINRA members that are 
government securities dealers or brokers but currently are not 
registered for TRACE, or that are registered for TRACE but have not 
reported a trade between June 2015 and May 2016, are predominantly 
small firms, with 80% having fewer than 25 registered 
representatives.\60\
---------------------------------------------------------------------------

    \55\ See FINRA Response at 3.
    \56\ See id. at 14-15. FINRA noted that the cost of the secure 
web browser for reporting purposes is $20 per month. See id. at 14; 
FINRA Rule 7730(a)(1).
    \57\ See FINRA Response at 14.
    \58\ See id.
    \59\ See id.
    \60\ See id.
---------------------------------------------------------------------------

    Commenters expressed mixed views regarding the proposed timeframes 
for reporting transactions in U.S. Treasury Securities. Three 
commenters supported real-time or near-real-time reporting.\61\ One 
commenter supported end-of-day reporting.\62\ Two commenters stated 
that FINRA should provide flexibility to allow firms to report earlier 
than end-of-day.\63\ By contrast, one commenter recommended that 
transactions in U.S. Treasury securities be reported on a T+1 basis to 
alleviate reporting challenges presented by the limited hours of the 
TRACE system.\64\
---------------------------------------------------------------------------

    \61\ See Citadel Letter at 4 (suggesting that FINRA modify the 
proposal to require reporting within a certain number of minutes or 
hours following execution); KCG Letter at 4 (recommending real-time 
reporting); Virtu Letter at 2 (stating that, for surveillance to be 
effective, the underlying data collection should be comprehensive 
and immediate, with limited exceptions).
    \62\ See Tradeweb Letter at 2.
    \63\ See FIF Letter at 2; SIFMA Letter at 9.
    \64\ See Credit Suisse Letter at 6.
---------------------------------------------------------------------------

    FINRA responded that, because the reported transaction information 
would not be publicly disseminated, it is

[[Page 73171]]

preferable to provide firms with the flexibility to report as 
appropriate for their current operations (e.g., on a trade-by-trade 
basis or at the end of the day), rather than to mandate prompt 
reporting at this time.\65\ FINRA noted that this flexibility could 
ease the compliance burden on some firms, and confirmed that firms that 
wish to report on an immediate basis could do so.\66\ FINRA 
acknowledged that this reporting timeframe could change in the future, 
and noted that firms may wish to consider this possibility in designing 
their systems.\67\ FINRA disagreed with one commenter's assertion that 
end-of-day reporting would negatively affect the surveillance of 
trading in U.S. Treasury Securities.\68\
---------------------------------------------------------------------------

    \65\ See FINRA Response at 7.
    \66\ See id.
    \67\ See id.
    \68\ See id.
---------------------------------------------------------------------------

    Several commenters requested clarifications regarding the scope of 
securities covered by the proposal. One commenter asked FINRA to 
clarify whether Treasury Inflation-Protected Securities (``TIPS'') 
would be in scope and, if so, to publish for comment an amendment to 
the proposal providing details regarding the reporting of these 
transactions.\69\ Two commenters requested guidance with respect to the 
reporting of reopenings of Treasury securities.\70\ One commenter 
requested clarification with respect to the reporting of When-Issued 
Transactions, noting that execution venues differ in the way that they 
define and process these transactions.\71\
---------------------------------------------------------------------------

    \69\ See Thomson Reuter Letter at 2 (stating that TIPS have 
characteristics different from other Treasury securities). See also 
FIF Letter at 2 (stating its assumption that TIPS would be handled 
in a manner similar to the reporting of securitized products and 
expressing a preference ``that factor information be required only 
in cases where anything other than the default settlement date or 
the current factor has been applied'').
    \70\ See Credit Suisse Letter at 4 (asking whether reopened 
trades should be reported using the same CUSIP number as the 
regular-way security with a different issue date, and noting that 
reopenings may not be handled consistently across all systems and 
venues); FIF Letter at 1 (questioning whether reopenings should be 
considered an extended settlement date trade or should be reported 
with a ``when-issued'' flag).
    \71\ See Credit Suisse Letter at 4. The commenter stated that 
some execution venues treat transactions as when-issued until the 
night of the auction, while others treat transactions as when-issued 
only until the day before the issue date. The commenter further 
stated that some platforms treat when-issued transactions as two 
separate products during their life cycle, ``so additional 
consideration will be required for subsequent updates to the trade 
bookings from the [when-issued] to the new On-the-Run Treasury.'' 
See id.
---------------------------------------------------------------------------

    FINRA responded that TIPS would be reportable under the proposal 
and that FINRA is not providing, or requiring the reporting of, factor 
information in TIPS transactions at this time.\72\ FINRA also stated 
that any transaction in a U.S. Treasury Security to be sold in an 
Auction but that occurs prior to the Auction, including a reopening 
transaction effected prior to the Auction or a transaction on the day 
of the Auction, would be considered a When-Issued Transaction for 
purposes of the proposed rules.\73\
---------------------------------------------------------------------------

    \72\ See FINRA Response at 4-5.
    \73\ See id. at 5-6.
---------------------------------------------------------------------------

    One commenter expressed support for the proposal to exempt bona 
fide repurchase and reverse repurchase transactions in all TRACE-
Eligible Securities from TRACE reporting.\74\ This commenter also noted 
its assumption that all applicable TRACE rules would apply to in-scope 
transactions in U.S. Treasury Securities, unless explicitly 
exempted.\75\ FINRA confirmed that, because U.S. Treasury Securities 
would be included within the definition of ``TRACE-Eligible 
Securities,'' any rule applicable to TRACE-Eligible Securities would 
apply to U.S. Treasury Securities, unless specifically exempted.\76\
---------------------------------------------------------------------------

    \74\ See SIFMA Letter at 5-6.
    \75\ See id. at 6.
    \76\ See FINRA Response at 5.
---------------------------------------------------------------------------

    Commenters also expressed views or raised questions with respect to 
the reporting of particular data elements. One commenter requested 
clarification regarding the treatment of inter-dealer broker fees for 
principal trading and platform fees that may be applied to client 
transactions.\77\ A second commenter stated that an additional field 
for ATS MPID would be required, and expressed a preference to keep the 
fields aligned with existing requirements.\78\ This commenter also 
assumed that the ``no remuneration'' flag would be considered a 
modifier to be consistent with the reporting of other modifiers under 
FINRA Rule 6730.\79\
---------------------------------------------------------------------------

    \77\ See Credit Suisse Letter at 5.
    \78\ See FIF Letter at 2. Another commenter expressed support 
for the requirement to report information concerning the ATS on 
which a transaction is executed. See SIFMA Letter at 6.
    \79\ See FIF Letter at 2.
---------------------------------------------------------------------------

    FINRA stated that it would be appropriate to remain consistent with 
well-established TRACE protocols for reporting commissions, mark-ups, 
and mark-downs.\80\ In addition, FINRA confirmed that both the ``no 
remuneration'' flag and the ATS MPID field (to be used when an ATS has 
received a trade reporting exemption pursuant to FINRA Rule 6732) would 
be required, as applicable, for reportable transactions in U.S. 
Treasury Securities.\81\ FINRA noted that it has issued rules and 
provided guidance with respect to remuneration reporting since the 
implementation of TRACE in 2002, and that its current remuneration 
guidance will be helpful for reporting of transactions in U.S. Treasury 
Securities.\82\ FINRA added that it will continue to provide timely 
guidance as needed.\83\
---------------------------------------------------------------------------

    \80\ See FINRA Response at 12.
    \81\ See id. at 11.
    \82\ See id. at 11. FINRA noted, for example, that inter-dealer 
brokers that charge remuneration on a per-transaction basis 
generally are required to calculate and include such remuneration 
when reporting the transaction to TRACE. See id. However, 
commissions, mark-ups, or mark-downs charged on a monthly or other 
basis that cannot be assessed on a per-transaction basis are not 
required to be reported. See id. (citing Regulatory Notice 15-47 
(November 2015)). In addition, FINRA stated that firms generally 
should not include platform fees in TRACE reports and should report 
only bona fide commissions in the commission field. See id. (citing 
letter from Sharon K. Zackula, FINRA, to Mustafa Fazel, National 
Financial Services, LLC, dated July 11, 2003, available at http://www.finra.org/industry/interpretive-letters/july-11-2003-1200am).
    \83\ See FINRA Response at 11.
---------------------------------------------------------------------------

    Commenters expressed mixed views regarding the proposed ``.B'' and 
``.S'' trade modifiers. One commenter supported the use of both 
modifiers, stating that ``it is important that the various types of 
package transactions involving a U.S. Treasury are able to be 
accurately identified so that linkages between different types of 
instruments are better understood.'' \84\ Other commenters expressed 
concerns regarding these modifiers. One commenter stated that adding 
the ``.B'' and ``.S'' modifiers would be ``exceedingly difficult'' 
because firms would have to establish linkages across trading platforms 
and systems that do not exist today and questioned whether there was a 
more straightforward way to achieve FINRA's objectives in requiring the 
use of the modifiers.\85\ Commenters suggested that it might be 
difficult for FINRA members to identify separate trades as components 
of a series of transactions.\86\ One commenter asked

[[Page 73172]]

FINRA to clarify that the ``.B'' modifier is intended to capture 
transactions where both the cash leg and the futures contract relate to 
U.S. Treasury transactions.\87\ The commenter also asked FINRA to 
provide specific examples of any additional trading strategy that the 
``.B'' modifier is designed to capture, and to provide ``a clear and 
comprehensive list'' of each specific type of transaction and strategy 
to which the ``.S'' modifier must be applied.\88\ Noting that the 
language of the proposed rule suggested that only transactions executed 
away from the market should be assigned the ``.S'' modifier, the 
commenter recommended instead that the ``.S'' modifier apply to the 
specified strategy regardless of whether one or both legs of the trade 
were off market.\89\
---------------------------------------------------------------------------

    \84\ Citadel Letter at 2. The commenter also stated that (1) 
reported data should more generally identify whether a U.S. Treasury 
security transaction is part of a package and, if so, the number of 
legs associated with the package and the types of instruments 
involved (e.g., a future or an interest rate swap); (2) the 
requirement to report trading venue (if any) should be expanded to 
include dealer-to-dealer and dealer-to-customer trading venues that 
currently are exempt from registration as ATSs because they trade 
only U.S. Treasury securities; and (3) market participants should be 
required to report whether a transaction was cleared. See id.
    \85\ See FIF Letter at 2. See also SIFMA Letter at 8 (asking 
regulators to engage in further discussion with the industry prior 
to adopting the proposed modifiers); Thomson Reuters Letter at 2 
(urging FINRA to work with the industry to determine whether the new 
modifiers are justified).
    \86\ See Credit Suisse Letter at 5; FIF Letter at 2 (stating 
that adding the ``.B'' and ``.S'' modifiers assumes that firms are 
able to associate multiple trades that may have been executed at 
different times on different desks and processed independently).
    \87\ See SIFMA Letter at 6.
    \88\ Id. at 6, 8.
    \89\ See id. at 7.
---------------------------------------------------------------------------

    In response to these comments, FINRA reiterated that the ``.B'' and 
``.S'' modifiers would allow FINRA to more easily identify transactions 
that, standing alone, might appear to raise regulatory concerns because 
they were executed at a price that was significantly outside of the 
price range for the security at the time of execution.\90\ FINRA 
asserted that the modifiers are necessary for effective and efficient 
implementation of the proposal even if they could result in additional 
implementation burdens or costs to firms.\91\ FINRA stated that ``.B'' 
trades are well-defined, in that they relate specifically to a series 
of trades involving both a U.S. Treasury Security and a futures 
contract.\92\ FINRA agreed that the ``.S'' modifier should apply to a 
transaction in a particular strategy that meets the ``.S'' criteria 
regardless of whether one or more of the transactions in the series is 
off market.\93\ Accordingly, FINRA filed Amendment No. 1 to the 
proposal to clarify that the ``.S'' modifier must be used in these 
circumstances.\94\ FINRA expressed the view that Amendment No. 1 should 
reduce the compliance burden for firms because they would not need to 
assess, before appending the ``.S'' indicator, whether a particular 
transaction was, in fact, priced outside of the market at the time of 
execution.\95\ In addition, FINRA stated that permitting end-of-day 
reporting would ease the compliance burden on firms in implementing the 
modifiers.\96\
---------------------------------------------------------------------------

    \90\ See FINRA Response at 8-9.
    \91\ See FINRA Response at 9. FINRA also stated that it would 
monitor the information that it receives after reporting begins to 
determine whether additional transaction information might be needed 
to enhance the audit trail and FINRA's surveillance program. See id. 
at 8; Notice, 81 FR at 48474.
    \92\ See FINRA Response at 9.
    \93\ See id.
    \94\ See supra note 40.
    \95\ See FINRA Response at 9.
    \96\ See id.
---------------------------------------------------------------------------

    FINRA declined to publish a list of specific transactions and 
strategies that would require the ``.S'' modifier, stating that such a 
list could not be comprehensive or account for variations that might be 
appropriate.\97\ FINRA also stated that, following any Commission 
approval of the proposal, it would work with members to better 
understand their questions and would post any necessary trade reporting 
guidance on FINRA's Web site, as it has done in connection with other 
new trade reporting implementations.\98\
---------------------------------------------------------------------------

    \97\ See id.
    \98\ See id.
---------------------------------------------------------------------------

    As discussed above, new Supplementary Material .04 to FINRA Rule 
6730 would require members to report the time of an electronically 
executed transaction in a U.S. Treasury Security in the finest time 
increment captured in the member's system, but at a minimum in 
increments of seconds. Three commenters opposed this aspect of the 
proposal.\99\ One commenter stated that one standard for timestamps and 
clock synchronization should uniformly to ensure a level playing 
field.\100\ A second commenter noted that the requirement could result 
in mismatched timestamps for transactions involving two FINRA members 
if each member captures time differently.\101\ Two commenters 
recommended that FINRA eliminate this aspect of the proposal or, 
alternatively, that FINRA confirm that it would not require members to 
update their systems to provide for time increments of less than one 
second.\102\
---------------------------------------------------------------------------

    \99\ See Credit Suisse Letter at 5; FIF Letter at 3; SIFMA 
Letter at 9.
    \100\ See FIF Letter at 3.
    \101\ See Credit Suisse Letter at 5.
    \102\ See SIFMA Letter at 9; Credit Suisse Letter at 5.
---------------------------------------------------------------------------

    FINRA reiterated that a significant portion of trading activity in 
the U.S. Treasury cash market occurs on electronic platforms that 
currently capture timestamps in sub-second time increments.\103\ FINRA 
stated that more granular timestamps on execution data could enhance 
its ability to surveil trading activity and recreate the proper time 
sequencing of trades.\104\ In addition, FINRA noted that it recently 
required firms that capture time in milliseconds to report time to the 
millisecond level when reporting trades in equity securities to 
FINRA.\105\ FINRA noted that in adopting this requirement for equity 
securities, it did not require firms to update their existing systems, 
but simply required firms to report time at the same level that they 
captured it.\106\ FINRA believed that a similar approach is appropriate 
for transactions in U.S. Treasury Securities that are executed 
electronically.\107\
---------------------------------------------------------------------------

    \103\ See FINRA Response at 10.
    \104\ See id. at 10-11.
    \105\ See id.; Regulatory Notice 14-21 (May 2014).
    \106\ See FINRA Response at 10.
    \107\ See id.
---------------------------------------------------------------------------

    Two commenters recommended that FINRA update its daily list of 
reportable securities to include CUSIP numbers of U.S. Treasury 
Securities that are TRACE-eligible, so that members would not have to 
take steps to have such securities placed on the list.\108\ FINRA 
stated that it intends to update the daily list to include the CUSIP 
numbers of outstanding U.S. Treasury Securities and thereafter add 
CUSIP numbers of new securities coincident with the announcement of an 
auction.\109\
---------------------------------------------------------------------------

    \108\ See FIF Letter at 1; SIFMA Letter at 8.
    \109\ See FINRA Response at 12.
---------------------------------------------------------------------------

    Commenters also discussed general aspects of the reporting process. 
One commenter expressed hope that FINRA would utilize existing message 
formats to the extent possible.\110\ A second commenter urged FINRA to 
allow reporting of transactions in U.S. Treasury Securities through an 
existing line, rather than requiring new network connectivity.\111\ 
This commenter also asked FINRA to work directly with the FIX protocol 
organization to create industry standard tags for use in reporting new 
indicators and modifiers.\112\
---------------------------------------------------------------------------

    \110\ See FIF Letter at 2.
    \111\ See Thomson Reuters Letter at 2.
    \112\ See id. at 1.
---------------------------------------------------------------------------

    FINRA stated that TRACE generally allows a firm reporting through 
FIX or CTCI to use the same connection line to submit transactions to 
the system.\113\ FINRA noted that some firms currently use the same 
connection line to report transactions in the TRACE products that are 
currently available.\114\ FINRA stated that firms using the FIX 
protocol to report transactions may use the same connection line but 
are required to obtain separate ports for each product, and that a 
firm's need to obtain and operate separate lines is dependent on the 
firm's activity in each product and its desired balance between costs 
and latency/performance.\115\
---------------------------------------------------------------------------

    \113\ See FINRA Response at 13.
    \114\ See id.
    \115\ See id.

---------------------------------------------------------------------------

[[Page 73173]]

    Commenters also asked FINRA to confirm that error corrections 
submitted intra-day would not count toward a firm's error 
statistics,\116\ and that there would be no fees or charges for intra-
day corrections.\117\ FINRA stated that, as in other FINRA trade 
reporting contexts, re-reporting or amending transaction reports would 
be captured in a firm's error statistics published on the TRACE Report 
Cards even if the transactions are not considered late.\118\ Because 
FINRA is not at this time proposing to charge fees for reporting 
transactions in U.S. Treasury Securities, there also would be no fees 
charged for re-reports or amendments.\119\
---------------------------------------------------------------------------

    \116\ See FIF Letter at 2; SIFMA Letter at 9.
    \117\ See FIF Letter at 2.
    \118\ See FINRA Response at 12.
    \119\ See id.
---------------------------------------------------------------------------

    Commenters expressed mixed views regarding the proposal's 
assignment of reporting obligations. One commenter urged FINRA to re-
assess the dual-sided reporting obligation, stating that the 
transaction volume in the U.S. Treasury market may warrant a different 
approach to reduce complexity and data discrepancies, and arguing that 
a single-sided reporting hierarchy could reduce implementation costs by 
leveraging trading venues and registered broker-dealers.\120\ Other 
commenters expressed support for use of the existing framework for 
TRACE reporting.\121\
---------------------------------------------------------------------------

    \120\ See Citadel Letter at 3. The commenter also stated that a 
single-sided methodology could be more easily applied to other 
market participants as reporting requirements are extended to 
include trading activity involving non-FINRA members. See id.
    \121\ See ICI Letter at 2 (stating that the proposal would 
leverage the existing reporting and communications systems for TRACE 
reporting rather than imposing obligations on customers--such as 
funds and other investors--that do not currently have systems to 
accommodate such obligations); SIFMA Letter at 2 (stating that the 
proposal leverages the existing framework of the TRACE system and 
that FINRA members generally have systems and procedures in place 
that can incorporate the additional reporting obligations for U.S. 
Treasury securities). One commenter also noted that, because 
virtually all trades in U.S. Treasury securities involve an 
intermediary--such as a broker-dealer, trading platform, or PTF--
regulators would be able to obtain comprehensive information about 
the U.S. Treasury market by receiving trade reports from 
intermediaries. See ICI Letter at 2.
---------------------------------------------------------------------------

    FINRA stated that it continues to believe that a two-sided 
reporting requirement, like that which currently applies to all TRACE 
transactions, is also appropriate for transactions in U.S. Treasury 
Securities.\122\ FINRA expressed the view that two-sided reporting 
helps to ensure accuracy because it allows FINRA to compare information 
reported by each party to identify discrepancies or potential non-
reporting by one party, thereby enhancing the quality of the audit 
trail.\123\ FINRA stated, moreover, that altering TRACE requirements to 
accommodate single-sided reporting would necessitate changes to TRACE's 
existing infrastructure that could affect all TRACE-reporting firms and 
reduce the benefits of using TRACE for U.S. Treasury Security 
reporting.\124\
---------------------------------------------------------------------------

    \122\ See FINRA Response at 6.
    \123\ See id.
    \124\ See id.
---------------------------------------------------------------------------

    Three commenters expressed support for the proposed one-year 
implementation period, noting, among other things, the complexity of 
the system modifications that would be required to comply with the 
proposed rules.\125\ Two commenters supported the proposed staggered 
implementation period for the ``.B'' and ``.S'' modifiers,\126\ with 
one commenter noting that implementing the modifiers would require 
extended development time.\127\ Three commenters emphasized the 
importance of FINRA's publishing technical specifications as far in 
advance as possible.\128\ One of these commenters asked FINRA to 
release a technical specification with expected changes for all phases 
of implementation to avoid multiple code releases.\129\
---------------------------------------------------------------------------

    \125\ See Credit Suisse Letter at 6 (noting that U.S. Treasury 
securities are traded within the firm across multiple divisions and 
on various trading platforms, none of which capture trade 
information in a uniform or consistent manner); FIF Letter at 3-4 
(noting that broker-dealers must devote resources to comply with 
multiple regulatory initiatives); SIFMA Letter at 10 (noting that 
reportable U.S. Treasury market activity may occur throughout a firm 
and on different desks, and that a one-year implementation period 
would allow for the integration of these activities within a firm's 
reporting apparatus). See also Tradeweb Letter at 3 (expressing the 
need for ``an appropriately sized implementation period'' to allow 
firms to develop, test, and implement the necessary technical 
changes and internal policies and procedures); Thomson Reuters 
Letter at 3 (stating that the implementation effort will be complex 
and require significant coordination across the industry). One 
commenter noted that firms that are solely government securities 
dealers, which previously have not reported to TRACE, would be 
required to develop reporting systems and policies from scratch. See 
SIFMA Letter at 10. Another commenter stated that certain required 
data elements, including counterparty identifiers and the total 
dollar amount of commissions, would require additional 
implementation efforts. See Credit Suisse Letter at 5.
    \126\ See FIF Letter at 2; SIFMA Letter at 10-11.
    \127\ See SIFMA Letter at 11.
    \128\ See id. at 10; Thomson Reuters Letter at 1; Tradeweb 
Letter at 3.
    \129\ See Thomson Reuters Letter at 2.
---------------------------------------------------------------------------

    FINRA acknowledged the importance of timely and detailed technical 
specifications to ensure that firms are able to effectively implement 
the new reporting requirements, and stated that it is preparing to 
publish technical specifications concurrent with any Commission 
approval of the proposal.\130\ FINRA also acknowledged the 
implementation challenges that firms might face if the proposal is 
approved, and stated that it would consider these challenges in 
establishing an implementation date.\131\
---------------------------------------------------------------------------

    \130\ See FINRA Response at 14.
    \131\ See id.
---------------------------------------------------------------------------

    Commenters expressed different views of FINRA's determination not 
to impose fees at this time for reporting transactions in U.S. Treasury 
Securities. One commenter expressed support for this aspect of the 
proposal.\132\ A second commenter expressed concern that trade 
reporting fees eventually will be charged and could be 
significant.\133\ A third commenter stated that the proposal's 
ambiguity regarding the charging of fees makes it difficult to 
understand the true cost of the proposal and expressed the view that 
FINRA should not assess fees with respect to the reporting of 
transactions in U.S. Treasury Securities for a minimum of five 
years.\134\
---------------------------------------------------------------------------

    \132\ See BDA Letter at 2.
    \133\ See Fidelity Letter at 4.
    \134\ See Thomson Reuters Letter at 2.
---------------------------------------------------------------------------

    FINRA stated that, because it would incur costs to expand the TRACE 
system and to enhance its existing examination and surveillance efforts 
to monitor transactions in U.S. Treasury Securities following any 
Commission approval of the proposal, it was unable to commit to 
continuing to exclude these transactions from the applicable fees for a 
specified period.\135\ FINRA noted, however, that any new fees would be 
subject to a proposed rule change filed with the Commission.\136\
---------------------------------------------------------------------------

    \135\ See FINRA Response at 13.
    \136\ See id.
---------------------------------------------------------------------------

    Several commenters expressed support for, or raised concerns 
regarding, the public dissemination of information with respect to 
transactions in U.S. Treasury Securities.\137\ FINRA

[[Page 73174]]

reiterated that it is not proposing to disseminate information with 
respect to transactions in U.S. Treasury Securities at this time, and 
stated that careful consideration of the potential benefits of public 
dissemination, as well as the concerns raised by the commenters, should 
be undertaken after a reporting requirement is in place.\138\
---------------------------------------------------------------------------

    \137\ See Carson Letter (expressing support for transparency in 
the U.S. Treasury market); Citadel Letter at 3-4, 6 (recommending 
that FINRA ensure that the reporting infrastructure is scalable and 
able to accommodate possible public dissemination of transactions in 
U.S. Treasury securities in the future); KCG Letter at 4 (supporting 
real-time reporting and immediate public dissemination); BDA Letter 
at 1 (urging financial regulators to refrain from moving forward 
with any proposal to require public dissemination); Credit Suisse 
Letter at 7 (recommending that regulators study the potential risks 
of public dissemination and consult with the industry before moving 
forward); Fidelity Letter at 5 (urging careful consideration of any 
decision regarding public dissemination); ICI Letter at 3 (stating 
that the appropriateness of public dissemination should be 
considered after the official sector has obtained a more complete 
view of Treasury market activity); SIFMA Letter at 5 (urging careful 
consideration of costs and benefits of public dissemination) and 11 
(asking regulators to defer any analysis of pricing data in 
connection with potential public dissemination until the ``.B'' and 
``.S'' trade modifiers are included in reported data); Tradeweb 
Letter at 3 (urging regulators to weigh carefully the potential 
benefits and risks of public dissemination).
    \138\ See FINRA Response at 4.
---------------------------------------------------------------------------

IV. Discussion and Commission Findings

    After carefully considering the proposal, the comments submitted, 
FINRA's response to the comments, and Amendment No. 1, the Commission 
finds that the proposed rule change, as modified by Amendment No. 1, is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
association.\139\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 15A(b)(6) of the Act,\140\ which 
requires, among other things, that FINRA's 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.
---------------------------------------------------------------------------

    \139\ 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).
    \140\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

    Prior to TRACE's implementation, the National Association of 
Securities Dealers (``NASD'') (FINRA's predecessor) did not have 
routine access to comprehensive transaction information for the over-
the-counter corporate bond market, even though the NASD bore 
responsibility for regulating that market. In originally approving the 
TRACE rules, the Commission stated that obtaining such information to 
better conduct market surveillance was a fundamental means of promoting 
fairness and confidence in U.S. capital markets.\141\ Similarly, with 
respect to the over-the-counter market for U.S. Treasury Securities, 
FINRA, the Commission, and other public authorities currently do not 
possess information to properly oversee the market. The Commission 
believes, therefore, that it is consistent with the Act for FINRA to 
expand TRACE to designate U.S. Treasury Securities as TRACE-Eligible 
Securities and to establish reporting requirements relating to such 
securities in the manner set forth in the proposal.\142\ Expanding 
TRACE to include member transactions in U.S. Treasury Securities is 
reasonably designed to help FINRA fulfill its mandate in Section 
15A(b)(6) of the Act 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.
---------------------------------------------------------------------------

    \141\ See Securities Exchange Act Release No. 43873 (January 23, 
2001), 66 FR 8131, 8136 (January 29, 2001) (order approving File No. 
SR-NASD-99-65).
    \142\ The Commission notes that FINRA previously has expanded 
TRACE to require the reporting to TRACE of transactions in agency 
debt securities and asset-backed securities. See Securities Exchange 
Act Release Nos. 61566 (February 22, 2010), 75 FR 9262 (March 1, 
2010) (order approving File No. SR-FINRA-2009-065) (``Asset-Backed 
Securities Order''); and 60726 (September 28, 2009), 74 FR 50991 
(October 2, 2009) (order approving File No. SR-FINRA-2009-010).
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    The Commission believes that FINRA's proposal is an important first 
step in providing the official sector with more comprehensive data 
about the Treasury cash market. The RFI Notice stated that ``[t]he need 
for more comprehensive official sector access to data, particularly 
with respect to U.S. Treasury cash market activity, is clear'' \143\ 
and that ``[d]ata from across the U.S. Treasury cash and futures 
markets is necessary to conduct comprehensive analysis or surveillance 
of these markets.'' \144\ The Commission believes that FINRA's proposal 
is reasonably designed to further these objectives outlined in the RFI 
Notice with respect to the Treasury cash market. The transaction data 
that will become available to the official sector through TRACE will 
help to inform policymaking and help regulators detect and deter 
improper trading activity.
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    \143\ 81 FR at 3931.
    \144\ Id. at 3932.
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    The Commission acknowledges the concerns raised by various 
commenters that the proposal could create a competitive advantage for 
non-FINRA members over FINRA members, because only FINRA members will 
incur costs for reporting transactions in U.S. Treasury Securities and 
because counterparties might seek to avoid trading with FINRA members 
to shield their trading activity from regulatory oversight. Commenters 
also noted that imposing a reporting requirement solely on FINRA 
members would provide regulators with a less-than-comprehensive view of 
activity in the Treasury market. The Commission believes, nevertheless, 
that these comments do not preclude approval of the proposal at this 
time. The Commission recognizes that certain transactions in the 
Treasury market will not be within scope of the new TRACE reporting 
requirements, but the transactions that are reported should greatly 
enhance regulators' understanding of the market. The Commission notes 
that other public sector authorities have expressed their intention to 
continue to assess effective means to ensure that the collection of 
data regarding Treasury cash securities market transactions is 
comprehensive and includes information from institutions that are not 
FINRA members.\145\
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    \145\ See http://www.sec.gov/news/pressrelease/2016-155.html; 
May 16 Joint Press Release, supra note 12.
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    Furthermore, the Commission believes that the proposal is 
reasonably designed to minimize any potential disparate impact on FINRA 
members. FINRA is not proposing at this time to publicly disseminate 
any transactions in U.S. Treasury Securities.\146\ In addition, FINRA 
is not at this time imposing any fees on its members for reporting 
transactions in U.S. Treasury Securities, so FINRA members will not 
face any additional direct costs that their competitors do not. The 
Commission recognizes that FINRA members could face additional indirect 
costs to expand their infrastructure, policies, and procedures that 
support TRACE reporting. However, the proposal is reasonably designed 
to minimize those costs. Many FINRA members that will be subject to the 
new reporting requirements for U.S. Treasury Securities already report 
transactions in other types of debt securities to TRACE, so their costs 
of complying with this proposal are likely to be incremental rather 
than wholesale. FINRA members who are active in the Treasury market are 
likely to be active in other fixed income markets, and are thus likely 
to be familiar with existing protocols for reporting transactions to 
TRACE. To the extent that certain firms become subject to TRACE 
reporting requirements for the first time (or firms that already carry 
out TRACE reporting from certain desks have other desks that do not 
currently trade TRACE-Eligible Securities and do not yet have TRACE 
capabilities), FINRA's proposal to allow transactions to be reported by 
end-of-day should provide such firms with some flexibility

[[Page 73175]]

to determine the most cost-effective way of meeting the new reporting 
requirements, while allowing regulators to obtain Treasury market 
transaction information in a reasonable timeframe.
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    \146\ Pursuant to Section 19(b)(5) of the Act, 15 U.S.C. 
78s(b)(5), the Commission shall consult with and consider the views 
of the Secretary of the Treasury prior to approving a proposed rule 
filed by FINRA that primarily concerns conduct related to 
transactions in government securities, including any proposed rule 
that would provide for public dissemination of transactions in U.S. 
Treasury Securities.
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    The Commission believes that the timeframes proposed by FINRA for 
reporting a transaction in a U.S. Treasury Security--on an end-of-day 
or next-day basis, depending on the time that the transaction was 
executed--are consistent with the Act. The Commission previously has 
approved a similar approach of allowing extended reporting timeframes 
when new asset classes were made TRACE-eligible and FINRA sought to 
make accommodations for the new compliance burdens.\147\
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    \147\ See Asset-Backed Securities Order, supra note 142, at 
9264-65 (implementing a T+1 reporting period for a six-month pilot 
period to ease the compliance burdens on those affected by the 
proposal).
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    The proposal generally extends existing TRACE reporting protocols, 
which the Commission has approved previously, to transactions in U.S. 
Treasury Securities. For example, the proposal retains FINRA's existing 
dual-sided reporting structure (where both parties are FINRA 
members),\148\ which has been utilized since TRACE's inception. The 
Commission believes that dual-sided reporting for transactions in U.S. 
Treasury Securities is consistent with the Act because having both 
sides report (where both parties are FINRA members) is reasonably 
designed to promote the accuracy of reported transaction information 
and, thus, the quality of the audit trail. As a general matter, the 
Commission believes that utilizing the existing TRACE reporting 
framework to the extent practicable should facilitate compliance and 
minimize the costs associated with the proposal. Members that currently 
report to TRACE generally will be able to leverage their existing 
reporting processes, with some modifications, to report transactions in 
U.S. Treasury Securities.
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    \148\ See FINRA Rule 6730(a).
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    FINRA proposed various changes to existing TRACE rules and 
definitions that will define the scope of U.S. Treasury securities and 
transactions that will become subject to the TRACE reporting 
requirements. For example, the proposal excludes transactions in 
savings bonds because such bonds are generally non-transferable and are 
therefore not marketable securities purchased and sold in the secondary 
market. Although trading a principal or interest component of a U.S. 
Treasury Security that has been separated under the STRIPS program 
would constitute a Reportable TRACE Transaction, the act of separating 
or reconstituting the components of a U.S. Treasury Security under the 
STRIPS program would not constitute a Reportable TRACE Transaction. 
This is because, for purposes of the trade reporting rules, FINRA 
considers a ``trade'' or a ``transaction'' to entail a change of 
beneficial ownership between parties.\149\ The Commission notes that 
this is consistent with FINRA's existing treatment of transactions that 
do not involve a change of beneficial ownership.\150\ For Treasury 
auctions, the Treasury Department maintains the auction data, which is 
available to regulators.\151\
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    \149\ See supra footnote 13.
    \150\ See id.
    \151\ See Notice, 81 FR at 48467.
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    Furthermore, the proposal excludes from reporting bona fide 
repurchase and reverse repurchase transactions involving TRACE-Eligible 
Securities. Historically, FINRA has taken the position that repurchase 
transactions and reverse repurchase transactions should not be reported 
to TRACE.\152\ According to FINRA, the transfer of securities 
effectuated as part of a repurchase or a reverse repurchase transaction 
is not the result of an investment decision but is more akin to 
collateral pledged as part of a secured financing.\153\ Therefore, 
FINRA views repurchase and reverse repurchase transactions as 
economically equivalent to financings, and the pricing components of 
such transactions are typically not the market value of the 
securities.\154\ The Commission believes that FINRA's proposed rules 
for defining the scope of U.S. Treasury securities and transactions 
that will become subject to the TRACE reporting requirements are 
consistent with the Act. If FINRA seeks to revise the scope of covered 
securities or transactions in the future, it would have to do so 
consistent with the requirements of the Act and, in particular, the 
rule filing requirements of Section 19(b) of the Act.
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    \152\ See id.
    \153\ See id.
    \154\ See id.
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    The Commission believes that it is consistent with the Act for 
FINRA to adopt certain new rules and to revise certain existing rules 
to accommodate particular features of U.S. Treasury securities or the 
Treasury market. The Commission believes, for example, that the new 
trade indicator required for When-Issued Transactions is reasonably 
designed to promote the accuracy of the audit trail and allow FINRA to 
better understand the price of a reported transaction. The Commission 
believes that the new ``.B'' and ``.S'' modifiers are reasonably 
designed to provide regulators with a more complete understanding of 
activity in the Treasury market by identifying transactions that are 
negotiated as part of a larger strategy.\155\ The Commission notes that 
FINRA has represented that it will work with members on implementing 
the new modifiers and will post any necessary guidance on its Web 
site.\156\
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    \155\ The Commission notes that Amendment No. 1 addresses the 
concerns of one commenter by revising the ``.S'' modifier to 
indicate that the modifier will apply to a strategy that meets the 
``.S'' criteria regardless of whether one or more of the 
transactions in the series is, in fact, off market. See Amendment 
No. 1; FINRA Response at 9.
    \156\ See FINRA Response at 9.
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    The proposal adds new FINRA Rule 6730, Supplementary Material .04, 
to require a member to report an electronically executed transaction in 
a U.S. Treasury Security to the finest increment of time captured in 
the member's system, but at a minimum in increments of seconds. The 
Commission notes that this requirement is consistent with existing 
FINRA rules that require a member to report a trade in an equity 
security in milliseconds if the member's system captures time in 
milliseconds.\157\ The Commission agrees with FINRA that capturing the 
time of execution in more granular increments, when available, could 
assist FINRA in sequencing trades and enhance its ability to surveil 
trading activity.\158\
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    \157\ See FINRA Rules 6380A, Supplementary Material .04; 6380B, 
Supplementary Material .04; 6622, Supplementary Material .04; and 
7440(a)(2). See also FINRA Regulatory Notice 14-21 (May 2014).
    \158\ See FINRA Response at 10-11.
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    FINRA stated that the effective date for the proposal shall be no 
later than 365 days following this approval, with the general reporting 
requirement preceding the requirement to use the ``.B'' and ``.S'' 
trade modifiers.\159\ As noted above, several commenters supported a 
one-year implementation period.\160\ The Commission believes that the 
proposed timeframe for implementation is consistent with the Act, and 
that the commenters have not raised any issue that would preclude 
approval of the proposal at this time. The Commission notes that FINRA 
has acknowledged the importance of timely publication of the technical 
specifications for reporting, and indicated that it would publish

[[Page 73176]]

technical specifications concurrent with this approval.\161\
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    \159\ See Notice, 81 FR at 48469. FINRA also represented that it 
will announce the effective date of this proposed rule change in a 
Regulatory Notice to be published no later than 90 days following 
this approval. See id.
    \160\ See supra note 125 and accompanying text.
    \161\ See FINRA Response at 14. See also Notice, 81 FR at 48469 
(FINRA's acknowledgement that sufficient lead-time between the 
publication of technical specifications and the implementation date 
is critical to firms' ability to meet the announced implementation 
date).
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    The proposal amends existing FINRA Rule 6750(b) to add U.S. 
Treasury Securities to the list of transaction types for which 
transaction information will not be disseminated. The Commission 
believes that it is consistent with the Act for FINRA to refrain from 
publicly disseminating information regarding transactions in U.S. 
Treasury Securities at this time. The Commission agrees that it is 
appropriate to study the transaction information that will be reported 
to regulators under this rule change before proceeding with any new 
proposal to provide for the public dissemination of information 
concerning transactions in U.S. Treasury Securities. The proposal also 
amends FINRA's existing rules to provide that, at this time, FINRA will 
not charge fees for transactions in U.S. Treasury Securities reported 
to TRACE. The Commission believes that it is within FINRA's discretion 
to refrain from charging fees for reporting transactions in U.S. 
Treasury Securities at this time. The Commission notes that FINRA would 
be required to file with the Commission, pursuant to Section 19(b)(1) 
of the Act, any proposal to establish transaction reporting fees for, 
or to provide for the public dissemination of, transactions in U.S. 
Treasury Securities.
    Pursuant to Section 19(b)(5) of the Act,\162\ the Commission 
consulted with and considered the views of the Treasury Department in 
determining to approve the proposed rule change. The Treasury 
Department supports FINRA's proposal to require its members to report 
transactions in U.S. Treasury Securities to TRACE.\163\ Pursuant to 
Section 19(b)(6) of the Act,\164\ the Commission has considered the 
sufficiency and appropriateness of existing laws and rules applicable 
to government securities brokers, government securities dealers, and 
their associated persons in approving the proposal. As noted above, 
regulators currently do not have ready access to information about 
transactions in the U.S. Treasury cash market, and the events of 
October 15, 2014, highlighted the importance of making available to 
regulators more comprehensive information concerning activity in this 
market.\165\ By requiring FINRA members, including those that are 
government securities brokers or dealers, to report transactions in 
U.S. Treasury Securities to TRACE, the new rules represent an important 
first step in providing regulators with more comprehensive information 
concerning activity in the U.S. Treasury cash market.
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    \162\ 15 U.S.C. 78s(b)(5) (providing that the Commission ``shall 
consult with and consider the views of the Secretary of the Treasury 
prior to approving a proposed rule filed by a registered securities 
association that primarily concerns conduct related to transactions 
in government securities, except where the Commission determines 
that an emergency exists requiring expeditious or summary action and 
publishes its reasons therefor'').
    \163\ Telephone conversation between Treasury Department staff 
and Stephen Luparello, Director, Division of Trading and Markets, et 
al., Commission, on October 14, 2016.
    \164\ 15 U.S.C. 78s(b)(6).
    \165\ See RFI Notice, 81 FR at 3931.
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V. Solicitation of Comments on Amendment No. 1

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether Amendment No. 1 
to 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-2016-027 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.
    All submissions should refer to File Number SR-FINRA-2016-027. 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 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 Number SR-FINRA-2016-027 and should be 
submitted on or before November 14, 2016.

VI. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 1

    The Commission finds good cause, pursuant to Section 19(b)(2) of 
the Act,\166\ for approving the proposed rule change, as modified by 
Amendment No. 1, prior to the 30th day after the publication of 
Amendment No. 1 in the Federal Register. The Commission believes that 
Amendment No. 1 addresses the commenter's suggestion that the ``.S'' 
modifier apply to transactions in a series that meet the ``.S'' 
criteria regardless of whether one or more of the transactions is 
executed away from the market.\167\ The Commission believes that the 
changes with respect to the ``.S'' modifier simplify the rule, and ease 
the compliance burden associated with it, by eliminating the need for 
members to determine whether a transaction was priced outside of the 
market at the time of execution. At the same time, the ``.S'' modifier 
will facilitate oversight and provide regulators with information and 
insights into trading activity by identifying transactions in U.S. 
Treasury Securities that were executed as part of a series of 
transactions. Accordingly, the Commission finds that good cause exists 
to approve the proposal, as modified by Amendment No. 1, on an 
accelerated basis.
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    \166\ 15 U.S.C. 78s(b)(2).
    \167\ See SIFMA Letter at 7.
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VII. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\168\ that the proposed rule change (SR-FINRA-2016-027), as 
modified by Amendment No. 1, is approved on an accelerated basis.
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    \168\ 15 U.S.C. 78s(b)(2).


[[Page 73177]]


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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\169\
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    \169\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-25604 Filed 10-21-16; 8:45 am]
 BILLING CODE 8011-01-P


