
[Federal Register Volume 82, Number 153 (Thursday, August 10, 2017)]
[Notices]
[Pages 37484-37485]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-16831]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81318; File No. SR-FINRA-2017-021]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Approving Proposed Rule Change To Make Available 
a New TRACE Security Activity Report

August 4, 2017.

I. Introduction

    On June 19, 2017, 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 amend FINRA Rule 7730 (Trade Reporting and 
Compliance Engine (``TRACE'')) to make available a new ``Security 
Activity Report.'' The proposed rule change was published for comment 
in the Federal Register on June 29, 2017.\3\ The Commission received 
two comments on the proposal.\4\ On August 3, 2017, FINRA submitted a 
letter responding to comments.\5\ As discussed below, the Commission is 
approving the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 81007 (June 23, 
2017), 82 FR 29602 (June 29, 2017) (``Notice'').
    \4\ See letters to Brent J. Fields, Secretary, Commission, from 
Bennett Golub, Chief Risk Officer, and Alexis Rosenblum, Director, 
BlackRock, Inc., dated July 20, 2017 (``BlackRock Letter''); and 
Sean Davy, Managing Director, Capital Markets Division, Securities 
Industry and Financial Markets Association (``SIFMA''), dated July 
20, 2017 (``SIFMA Letter'').
    \5\ See letter to Brent J. Fields, Secretary Commission, from 
Racquel L. Russell, Associate General Counsel, FINRA, dated August 
3, 2017 (``Response Letter'').
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II. Description of the Proposal

    FINRA Rule 7730, among other things, sets forth the TRACE data 
products offered by FINRA. FINRA proposed to amend Rule 7730 to make 
available a new Security Activity Report, which will provide aggregated 
statistics by security for TRACE-Eligible Securities that are corporate 
or agency bonds (collectively ``CA Bonds''). FINRA stated that the 
Security Activity Report will include basic descriptive elements for 
each CA Bond, such as the issuer's name and the security's coupon and 
maturity date, as well as aggregate transaction statistics. These 
statistics will include par value volume and number of customer buy 
transactions, par value volume and number of customer sell 
transactions, and par value volume and number of inter-dealer 
transactions.\6\ FINRA noted that, currently, transactions whose volume 
is over the dissemination cap \7\ becomes available only after 18 
months as part of the Historic TRACE Data product.\8\ FINRA will 
provide the Security Activity Report on a 90-day delay to address 
potential confidentiality concerns.
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    \6\ The Security Activity Report will reflect differing levels 
of par value volume detail depending on whether the transaction size 
is larger than the dissemination cap and whether there are more than 
six transactions occurring in a calendar month. Additionally, if a 
CA Bond has more than six transactions in a month, the par value 
volume traded would appear on the report within specified size 
categories along with a range of the number of transactions that 
occur within the specified volume size categories. These size 
categories will be announced in the Regulatory Notice which 
announces the effective date of the Security Activity Report.
    \7\ Currently, the actual par value traded is publicly 
disseminated only if it is below the size cap in that asset class. 
For transactions in investment grade CA bonds over a $5 million par 
value, TRACE disseminates the size as ``5MM+.'' For transactions in 
non-investment grade corporate bonds over a $1 million par value, 
TRACE disseminates the size as ``1MM+.''
    \8\ The Commission notes that on June 23, 2017 it approved a 
proposed rule change to reduce the minimum delay from 18 months to 
six months for transactions included in the Historic TRACE Data Sets 
relating to CA Bonds. This approval occurred after the current 
proposed rule change was filed with the Commission. See Securities 
Exchange Act Release No. 81011 (June 23, 2017), 82 FR 29597 (June 
29, 2017). The effective date of this change is October 2, 2017. See 
also, FINRA Regulatory Notice 17-23.
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    The Security Activity Report also will provide information 
regarding the number of unique MPIDs that report transactions in a 
particular security. The report will provide the aggregate activity of 
the five most active MPIDs in each CA Bond and the number of unique 
MPIDs for disseminated uncapped and capped transactions.\9\ In 
addition, the report will include the percentage, in aggregate, of the 
total number of transactions and the total par value volume traded by 
the top five MPIDs for each particular security.
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    \9\ FINRA stated that the number of unique reporting MPIDs will 
be provided by displaying either the actual number of unique MPIDs 
where there are six or more unique MPIDs or as ``1 to 5'' where 
there are five or fewer reporting MPIDs. Specific market 
participants that engaged in the transactions will not be identified 
in the Security Activity Report.
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    FINRA believes that the Security Activity Report might be useful 
for both business and regulatory purposes. For example, FINRA noted 
that members might use the information provided in the Security 
Activity Report to better ascertain their relative trading activity in 
particular CA Bonds. Interested parties also could use the information 
in the Security Activity Report in connection with regulatory 
obligations, such as assessing, classifying, and reviewing the 
liquidity risk of individual securities pursuant to Rule 22e-4 under 
the Investment Company Act.\10\
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    \10\ 17 CFR 270.22e-4.
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    FINRA has stated that it will announce in a Regulatory Notice the 
effective date of the proposed rule change, which will be no later than 
365 days following Commission approval.\11\ FINRA intends to establish 
a fee for the TRACE Security Activity Report in the future. The fee 
will be established pursuant to a separate rule filing.
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    \11\ In its Response Letter FINRA stated that it intends for the 
effective date for the Security Activity Report to be no sooner than 
February 1, 2018. See Response Letter at 2.
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III. Summary of Comments and FINRA's Response

    As previously noted, the Commission received two comment letters 
\12\ and a FINRA Response Letter \13\ on the proposed rule change. Both 
commenters expressed general support for the proposal and noted that 
the additional data provided by the Security Activity Report would 
assist in regulatory compliance with Rule 22e-4.\14\ One commenter 
raised concerns about the implementation, calculation, and the format 
of the Security Activity Report.\15\ This commenter noted that the 
delay period reduction for the Historic TRACE Data product from 18 
months to six months had the potential to impact market participant 
behavior, and recommended delaying the implementation of the Security 
Activity

[[Page 37485]]

Report for at least six months from the effective date of the reduced 
delay period.\16\ FINRA disagreed that an additional implementation 
delay related to the Historic TRACE Data product was necessary for the 
Security Activity Report. FINRA stated that proposed features of the 
Security Activity Report, such as the 90-day publication delay and 
other grouping of activity reduce information leakage risks and 
mitigate any potential impacts.\17\ FINRA stated that it intends for 
the effective date of the Security Activity Report to be no sooner than 
February 1, 2018.\18\
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    \12\ See supra note 4.
    \13\ See supra note 5.
    \14\ See SIFMA Letter at 1; BlackRock Letter at 1.
    \15\ See SIFMA Letter at 2-3.
    \16\ See id. at 2.
    \17\ See Response Letter at 2.
    \18\ See id.
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    This commenter also believed there would be confidentiality 
concerns if market concentration percentages were not aggregated across 
the top five MPIDs for each particular security.\19\ In its Response 
Letter, FINRA clarified and reiterated that the activity of the top 
five MPIDs will be expressed in aggregate figures.\20\
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    \19\ See SIFMA Letter at 2.
    \20\ See Response Letter at 2.
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    Finally, this commenter stated that it would be beneficial for 
FINRA to publicly share a draft template of the Security Activity 
Report so that market participants could educate themselves on the 
format and contents of the report.\21\ FINRA responded that it intends 
to post a file layout for the Security Activity Report on its Web site 
at least 30 days before the Security Activity Report's effective 
date.\22\
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    \21\ See SIFMA Letter at 2-3.
    \22\ See Response Letter at 2.
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IV. Discussion

    After careful consideration, the Commission finds that the proposed 
rule change is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to a national securities 
association.\23\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 15A(b)(6) of the Act,\24\ which 
requires, among other things, that FINRA rules be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest. The 
Commission does not believe that commenters raised any issue that would 
preclude approval of FINRA's proposal. The Commission notes that the 
Security Activity Report does not require member firms to provide FINRA 
with any additional data. The product is optional and responds to 
consumer demand for a more useful market data product. Finally, the 
Security Activity Report appears reasonably designed to promote 
transparency while minimizing the potential for information leakage.
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    \23\ In approving this proposed rule change, the Commission has 
considered the proposed rule change's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \24\ 15 U.S.C. 78o-3(b)(6).
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IV. Conclusion

    It is therefore ordered pursuant to Section 19(b)(2) of the Act 
\25\ that the proposed rule change (SR-FINRA-2017-021) be, and hereby 
is, approved.
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    \25\ 15 U.S.C. 78s(b)(2).
    \26\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-16831 Filed 8-9-17; 8:45 am]
 BILLING CODE 8011-01-P


