[Federal Register Volume 86, Number 14 (Monday, January 25, 2021)]
[Notices]
[Pages 6922-6944]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-01438]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90939; File No. SR-FINRA-2019-008]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Setting Aside Action by Delegated Authority and 
Approving a Proposed Rule Change, as Modified by Amendment No. 2, To 
Establish a Corporate Bond New Issue Reference Data Service

January 15, 2021.

I. Introduction

    On March 27, 2019, 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 establish a new issue reference data service 
for corporate bonds (``New Issue Reference Data Service'').\3\ Pursuant 
to the proposal, FINRA would require that underwriters report to FINRA 
a number of data elements for new issues in corporate debt securities 
and FINRA would disseminate such data to the public upon receipt.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The Commission published notice of the proposed rule change 
in the Federal Register on April 8, 2019. See Exchange Act Release 
No. 85488 (Apr. 2, 2019), 84 FR 13977 (``Notice''). On May 22, 2019, 
the Commission designated a longer period within which to approve 
the proposed rule change, disapprove the proposed rule change, or 
institute proceedings to determine whether the proposed rule change 
should be disapproved. See Exchange Act Release No. 85911, 84 FR 
24839 (May 29, 2019). On July 1, 2019, the Commission instituted 
proceedings under Section 19(b)(2)(B) of the Act, 15 U.S.C. 
78s(b)(2)(B), to determine whether to approve or disapprove the 
proposed rule change. See Exchange Act Release No. 86256, 84 FR 
32506 (Jul. 8, 2019). On October 3, 2019, FINRA filed Partial 
Amendment No. 1 to the proposed rule change, which was subsequently 
withdrawn on the same day due to a non-substantive administrative 
error. On October 3, 2019, FINRA filed partial Amendment No. 2 to 
the proposed rule change (``Amendment No. 2''). On October 4, 2019, 
the Commission issued a notice of filing of Amendment No. 2 to the 
proposed rule change and, pursuant to Section 19(b)(2) of the Act, 
the Commission designated a longer period for Commission action on 
proceedings to determine whether to disapprove the proposed rule 
change. See Exchange Act Release No. 87232, 84 FR 54712 (Oct. 10, 
2019).
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    On December 4, 2019, the Commission, acting through authority 
delegated to the Division of Trading and Markets (``Division''),\4\ 
approved the proposed rule change, as modified by Amendment No. 2 
(``Approval Order'').\5\

[[Page 6923]]

On December 18, 2019, Bloomberg, L.P. (``Bloomberg'' or ``Petitioner'') 
filed a petition for review of the Approval Order (``Petition for 
Review''). Pursuant to Commission Rule of Practice 431(e), the Approval 
Order was stayed by the filing with the Commission of a notice of 
intention to petition for review.\6\ On February 14, 2020, the 
Commission issued a scheduling order, pursuant to Commission Rule of 
Practice 431, granting the Petition for Review of the Approval Order 
and providing until March 16, 2020, for any party or other person to 
file a written statement in support of, or in opposition to, the 
Approval Order.\7\ On March 16, 2020, FINRA submitted a written 
statement in support of the Approval Order.\8\ On March 17, 2020, 
Petitioner submitted a corrected written statement in opposition to the 
Approval Order.\9\ On April 17, 2020, Petitioner submitted a Motion for 
Leave to Adduce Additional Evidence pursuant to Rule 452 of the 
Commission's Rules of Practice,\10\ attaching the declarations of Mark 
Flatman and David Miao of Bloomberg, L.P.\11\ On April 24, 2020, FINRA 
submitted an Opposition to the Bloomberg, L.P. Motion.\12\ On April 29, 
2020, Petitioner submitted a Reply in Support of the Bloomberg, L.P. 
Motion.\13\
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    \4\ 17 CFR 200.30-3(a)(12).
    \5\ See Exchange Act Release No. 87656, 84 FR 67491 (Dec. 10, 
2019).
    \6\ 17 CFR 201.431(e). See Letter to Stephanie Dumont, Senior 
Vice President and Director of Capital Markets Policy, FINRA (Dec. 
12, 2019) (providing notice of receipt of notice of intention to 
petition for review of delegated action and stay of order), 
available at https://www.sec.gov/rules/sro/finra/2019/34-87656-acknowledgement-letter.pdf.
    \7\ See Securities Exchange Act Release No. 88214, 85 FR 9887 
(Feb. 20, 2020).
    \8\ See FINRA's Statement in Support of Proposed Rule Change to 
Establish a Corporate Bond New Issue Reference Data (``FINRA 
Statement'').
    \9\ See Corrected Statement of Bloomberg, L.P. in Opposition to 
Approval of the Proposed Rule Change (``Petitioner Statement''). 
Petitioner's original written statement in opposition to the 
Approval Order was submitted on March 16, 2020. Petitioner stated 
that it submitted a corrected version on March 17, 2020 in order to 
correct non-substantive typographical errors and incorrect cross-
references.
    \10\ 17 CFR 201.452.
    \11\ See Motion of Bloomberg, L.P. for Leave to Adduce 
Additional Evidence (``Petitioner Motion''). See also Declaration of 
Mark Flatman and Declaration of David Miao (collectively, 
``Declarations'').
    \12\ See FINRA's Opposition to Motion of Bloomberg, L.P. for 
Leave to Adduce Additional Evidence (``FINRA Opposition'').
    \13\ See Reply of Bloomberg, L.P. in Support of its Motion for 
Leave to Adduce Additional Evidence. The Commission believes that 
allowing Petitioner to submit additional evidence would further the 
Commission's ability to understand the arguments presented by both 
parties and their relation to FINRA's proposal. Accordingly, the 
Commission grants the Petitioner Motion. The Declarations are 
considered below in Section III.A and Section III.C.
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    In response to the Petition for Review, the Commission has 
conducted a de novo review of FINRA's proposal, giving careful 
consideration to the entire record--including FINRA's amended proposal, 
the Petition for Review, and all comments and statements submitted--to 
determine whether the proposal is consistent with the requirements of 
the Act and the rules and regulations thereunder that are applicable to 
a national securities association. Under Section 19(b)(2)(C) of the 
Act, the Commission must approve the proposed rule change of a self-
regulatory organization (``SRO'') if the Commission finds that the 
proposed rule change is consistent with the requirements of the Act and 
the applicable rules and regulations thereunder; if it does not make 
such a finding, the Commission must disapprove the proposed rule 
change.\14\ Additionally, under Rule 700(b)(3) of the Commission's 
Rules of Practice, the ``burden to demonstrate that a proposed rule 
change is consistent with the Act and the rules and regulations issued 
thereunder . . . is on the self-regulatory organization that proposed 
the rule change.'' \15\ The description of a proposed rule change, its 
purpose and operation, its effect, and a legal analysis of its 
consistency with applicable requirements must all be sufficiently 
detailed and specific to support an affirmative Commission finding.\16\ 
Any failure of a self-regulatory organization to provide the 
information required by Rule 19b-4 and elicited on Form 19b-4 may 
result in the Commission not having a sufficient basis to make an 
affirmative finding that a proposed rule change is consistent with the 
Act and the rules and regulations thereunder that are applicable to the 
self-regulatory organization.\17\
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    \14\ 15 U.S.C. 78s(b)(2)(C).
    \15\ 17 CFR 201.700(b)(3).
    \16\ Id.
    \17\ See id. See also 17 CFR 240.19b-4.
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    The Commission has considered whether the proposal is consistent 
with the Act, including Section 15A(b)(6) of the Act, which requires 
that the rules of a national securities association be designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, 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, and not be designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers, to fix minimum profits, to impose any schedule or fix rates of 
commissions, allowances, discounts, or other fees to be charged by its 
members, or to regulate by virtue of any authority conferred by the Act 
matters not related to the purposes of the Act or the administration of 
the association; \18\ and Section 15A(b)(9) of the Act, which requires 
that the rules of a national securities association not impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act.\19\
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    \18\ 15 U.S.C. 78o-3(b)(6).
    \19\ 15 U.S.C. 78o-3(b)(9).
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    For the reasons discussed further herein, FINRA has met its burden 
to show that the proposed rule change is consistent with the Act, and 
this order sets aside the Approval Order and approves FINRA's proposed 
rule change, as amended. In particular, the Commission concludes that 
the record before the Commission demonstrates that FINRA's New Issue 
Reference Data Service should promote just and equitable principles of 
trade and foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitating transactions in newly issued corporate bonds, 
consistent with Section 15A(b)(6) of the Act. In addition, the record 
demonstrates that the New Issue Reference Data Service should not 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. Therefore, and as explained 
further below, the Commission finds the proposal consistent with 
Sections 15A(b)(6) and 15A(b)(9) of the Act.

II. Summary of the Proposal

    FINRA proposes to establish the New Issue Reference Data Service, 
which would provide a central depository for public dissemination of 
new issue corporate bond reference data. FINRA proposes to amend Rule 
6760 (Obligation to Provide Notice) \20\ to require that underwriters 
who are FINRA members and subject to Rule 6760 \21\ to report to FINRA 
a number of

[[Page 6924]]

data elements, including some already specified by the rule, for new 
issues in Corporate Debt Securities as defined in FINRA's rules.\22\ 
Proposed Rule 6760(b)(2) would require that, in addition to the 
information required by Rule 6760(b)(1),\23\ for a new issue in a 
Corporate Debt Security, excluding bonds issued by religious 
organizations or for religious purposes, the following information must 
be reported, if applicable: (A) The International Securities 
Identification Number (ISIN); (B) the currency; (C) the issue date; (D) 
the first settle date; (E) the interest accrual date; (F) the day count 
description; (G) the coupon frequency; (H) the first coupon payment 
date; (I) a Regulation S indicator; (J) the security type; (K) the bond 
type; (L) the first coupon period type; (M) a convertible indicator; 
(N) a call indicator; (O) the first call date; (P) a put indicator; (Q) 
the first put date; (R) the minimum increment; (S) the minimum piece/
denomination; (T) the issuance amount; (U) the first call price; (V) 
the first put price; (W) the coupon type; (X) rating (TRACE Grade); (Y) 
a perpetual maturity indicator; (Z) a Payment-In-Kind (PIK) indicator; 
(AA) first conversion date; (BB) first conversion ratio; (CC) spread; 
(DD) reference rate; (EE) floor; and (FF) underlying entity ticker.
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    \20\ FINRA would amend the title of the Rule to ``Obligation to 
Provide Notice and Dissemination of Corporate Debt Security New 
Issue Reference Data.''
    \21\ FINRA would amend Rule 6760(a)(1) to require that 
underwriters subject to the rule report required information for the 
purpose of providing market participants in the corporate debt 
security markets with reliable and timely new issue reference data 
to facilitate the trading and settling of these securities, in 
addition to the current purpose of facilitating trade reporting and 
dissemination in TRACE-Eligible Securities, as that term is defined 
in Rule 6710(a).
    \22\ FINRA proposes to move the definition of ``Corporate Debt 
Security,'' which is currently located in FINRA Rule 2232 (Customer 
Confirmations), into the TRACE Rule Series (specifically Rule 6710 
(Definitions)) and to make corresponding technical edits to Rule 
2232 to refer to the relocated definition in Rule 6710. In addition, 
FINRA proposes to make two changes to the definition of ``Corporate 
Debt Security,'' which FINRA states are technical, non-substantive 
edits that reflect the original intent of the definition and are 
consistent with current FINRA guidance. See Notice, at 13978, n.6. 
Specifically, FINRA proposes to revise the current definition of 
Corporate Debt Security to (i) clarify that the definition is 
limited to TRACE-Eligible Securities, and (ii) update the definition 
to exclude Securitized Products (defined in Rule 6710(m)), rather 
than Asset-Backed Securities (defined in Rule 6710(cc)).
    \23\ Rule 6760(b), proposed to be renumbered as Rule 6760(b)(1), 
currently requires the following information to be reported to 
FINRA: (A) The CUSIP number or if a CUSIP number is not available, a 
similar numeric identifier (e.g., a mortgage pool number); (B) the 
issuer name, or, for a Securitized Product, the names of the 
Securitizers; (C) the coupon rate; (D) the maturity; (E) whether 
Securities Act Rule 144A applies; (F) the time that the new issue is 
priced, and, if different, the time that the first transaction in 
the offering is executed; (G) a brief description of the issue 
(e.g., senior subordinated note, senior note); and (H) such other 
information FINRA deems necessary to properly implement the 
reporting and dissemination of a TRACE-Eligible Security, or if any 
of items (B) through (H) has not been determined or a CUSIP number 
(or a similar numeric identifier) is not assigned or is not 
available when notice must be given, such other information that 
FINRA deems necessary and is sufficient to identify the security 
accurately.
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    FINRA proposes to require underwriters to report all data fields 
for Corporate Debt Securities, as defined in FINRA's rules, prior to 
the first transaction in the security. FINRA would disseminate the 
corporate bond new issue reference data collected under Rule 6760 upon 
receipt.\24\ FINRA states that it will submit a separate filing to 
establish fees related to the New Issue Reference Data Service at a 
future date and will implement the service after those fees are 
adopted.\25\
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    \24\ FINRA states that under proposed Rule 6760(d), there may be 
some information collected under the rule for security 
classification or other purposes that would not be disseminated. 
This may include, for example, information about ratings that is 
restricted by agreement. In addition, CUSIP Global Services' 
(``CGS'') information would not be disseminated to subscribers that 
do not have a valid license regarding use of CGS data.
    \25\ See Amendment No. 2, at 4. FINRA originally proposed to 
make the corporate bond new issue reference data available to any 
person or organization for a fee of $250 per month for internal 
purposes only, and for a fee of $6,000 per month where the data are 
retransmitted or repackaged for delivery and dissemination to any 
outside person or organization. See Notice, at 13979. FINRA withdrew 
these proposed fees in Amendment No. 2. See supra note 3.
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III. Discussion and Commission Findings

    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.\26\ The 
Commission therefore approves the proposed rule change, as amended.
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    \26\ 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). Petitioner 
stated that under Section 3(f) of the Act, the Commission's review 
of FINRA's proposal must include an assessment of overall costs and 
benefits. See Petitioner Statement, at 33. The Commission considers 
costs and benefits when it reviews SRO rule filings and has done so 
with respect to this proposal. The Commission addresses comments 
about economic effects of the proposed rule change on efficiency, 
competition, and capital formation, including the general costs and 
benefits of the proposal, below in Sections III.A.3; III.B.3, 
III.C.3; III.D.3; III.E.3 and III.F.3.
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    As discussed below, the Commission believes that currently there is 
an inefficiency in the collection and availability of reference data 
\27\ for newly issued corporate bonds and that this inefficiency 
results in an information asymmetry in the market for newly issued 
corporate bond reference data that can disadvantage many market 
participants. While some market participants may have timely access to 
reference data by virtue of receiving it directly from underwriters or 
from those that obtain it from underwriters, many market participants 
do not. This information asymmetry inhibits these market participants 
from transacting in the secondary market for newly issued bonds, 
whether through electronic trading venues, over the phone or through 
other methods, at the time those bonds begin trading to the detriment 
of those market participants and the market for newly issued corporate 
bonds.\28\ The Commission believes it is important to make certain 
reference data available to market participants in a timely, 
accessible, and impartial manner, and further believes that FINRA's 
proposal is reasonably designed to address this information asymmetry 
to the benefit of the marketplace.
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    \27\ It is the Commission's understanding that such reference 
data include issuer and issue identifiers and details, such as 
maturity, coupon, par value, payment frequency, amortization 
details, call schedule and convertibility, among other reference 
data, which terms are required for identifying, valuing, and 
settling transactions in newly issued corporate bonds. See 
Recommendation, at 1.
    \28\ See generally infra notes 31-42 and 89-102 accompanying 
text.
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    The Commission believes the requirement for underwriters to report 
the reference data fields to FINRA prior to the first transaction in 
the security, coupled with FINRA's dissemination of the new issue 
reference data immediately upon receipt, will allow all market 
participants to have timely, basic information that is important for 
the identification, valuation, and settlement of a newly issued 
corporate bond in order to participate in trading in the secondary 
market without delay, whether through electronic trading venues, over 
the phone or through other methods. Improved reference data 
transparency should promote market efficiency and fair competition and 
enable broader participation by all market participants when a new 
issue corporate bond begins trading, which should also promote improved 
secondary market liquidity and lower costs when secondary trading 
begins. In sum, the Commission believes that FINRA's proposal will 
``promote just and equitable principles of trade, foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in'' newly issued corporate bonds, and ``remove 
impediments to and perfect the mechanism of a free and open market'' 
with respect to the market in such securities, consistent with Section 
15A(b)(6) of the Act. Furthermore, the Commission will monitor the 
progress of the New Issue Reference Data Service and its use by market 
participants and

[[Page 6925]]

consider whether further steps are necessary, including whether market 
participants should report certain data to the Commission.
    The Commission received a number of comment letters addressing the 
proposed rule change's consistency with the Act, specifically focusing 
on (1) whether information asymmetry exists in the current marketplace 
for new issue reference data; (2) the requirements for information 
reporting and distribution under the proposal; (3) FINRA's role as the 
centralized data source; (4) the proposal's burden on underwriters; (5) 
the proposal's effect on competition among reference data vendors; and 
(6) the lack of information regarding fees for the New Issue Reference 
Data Service.\29\ The Commission addresses each of these issues below.
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    \29\ Comments on the proposed rule change can be found at: 
https://www.sec.gov/comments/sr-finra-2019-008/srfinra2019008.htm.
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    First, the Commission addresses comments regarding the 
justification for the proposal and the proposal's consistency with 
Section 15A(b)(6) of the Act in Sections III.A, III.B and III.C below. 
The Commission believes that the record demonstrates three things 
clearly: (1) There is an inefficiency in the collection and 
availability of reference data that results in an information asymmetry 
in the corporate bond market that can impede secondary market trading 
by many market participants to their disadvantage because many market 
participants, including investors, intermediaries, trading platforms, 
and data vendors, do not have accurate, complete and timely access to 
corporate bond new issue reference data on the day a new issue begins 
trading in the secondary market; (2) the proposed New Issue Reference 
Data Service is reasonably designed to address this information 
asymmetry by providing reference data important for the identification, 
valuation, and settlement of newly issued corporate bonds to market 
participants when secondary trading begins; and (3) FINRA, as an SRO 
that is subject to Commission oversight, is an appropriate entity to 
provide market participants with accurate, complete, impartial and 
timely access to such corporate bond new issue reference data. As 
discussed further below, providing all market participants, including 
data vendors, on an impartial basis with basic information concerning a 
newly issued bond that market participants need in order to identify 
and value corporate bonds and settle corporate bond transactions should 
promote competition among market participants and improve the corporate 
bond market's overall function by enabling a broader array of market 
participants and service providers to engage in this market on the day 
a newly issued corporate bond begins trading in the secondary market. 
As a result, the Commission finds that FINRA's proposal is consistent 
with Section 15A(b)(6) of the Act.
    Second, the Commission addresses comments that the proposed 
information required to be collected and the timing for reporting such 
information under the proposal would be burdensome to underwriters in 
Section III.D. As discussed below, the Commission finds that such 
burdens imposed on underwriters by the proposal, including smaller 
underwriters, would be limited because of such underwriters' existing 
data collection and reporting practices with respect to the information 
FINRA proposes to be reported. Furthermore, the Commission believes 
that any burdens on underwriters are justified by the benefits of the 
proposal.
    Third, in Section III.E, the Commission addresses arguments raised 
that the proposal is inconsistent with Section 15A(b)(9) of the Act 
because it would burden competition by, among other things, reducing 
competition among reference data vendors and decreasing investment and 
innovation in the marketplace, ultimately leading to increased costs. 
The Commission finds that the proposal will not impose any burden on 
competition not necessary or appropriate in furtherance of the purposes 
of the Act. As explained below, the impact on competition is uncertain. 
It is possible that FINRA's proposal will have a positive impact on 
competition among data vendors. Additionally, the limited set of data 
proposed to be reported and disseminated should not supplant the demand 
for a more comprehensive reference database with enhanced data sets 
that contain additional fields that are not reported to or disseminated 
by FINRA. As a result, the Commission believes any burden on 
competition would both be limited and justified by the evidence in the 
record demonstrating an information asymmetry that can disadvantage 
many market participants due to the lack of timely access to basic 
information that is important for the identification, valuation and 
settlement of newly issued corporate bonds at the time a bond begins 
trading in the secondary market.
    Finally, in Section III.F the Commission addresses arguments raised 
that (1) the Commission could not fully assess the proposal's 
consistency with the Act without knowing either the proposed fees for, 
or the cost to build, the New Issue Reference Data Service; (2) 
separating the fee proposal into a subsequent filing allows FINRA to 
avoid regulatory and public scrutiny of the proposed fees; and (3) the 
Commission erred in failing to find that the proposal was consistent 
with Section 15A(b)(5) of the Act. As explained below, the Commission 
disagrees that it cannot adequately assess the proposal's consistency 
with the Act and its economic effects without knowing the fees that 
FINRA will charge for the proposed reference data service or the costs 
to build such service. Furthermore, the proposed fees may be properly 
filed as an immediately effective fee filing pursuant to Section 19 of 
the Act and the Commission is not required to make a finding that the 
proposal is consistent with Section 15A(b)(5) of the Act.

A. There is an Information Asymmetry That Exists in the Current 
Marketplace for Corporate Bond New Issue Reference Data That Can 
Disadvantage Many Market Participants

1. Comments on the Proposal
    The Commission received several comments in support of and in 
opposition to FINRA's proposal.\30\ Several commenters stated that 
currently there is no uniform, universally available mechanism for 
providing market participants with consistent and timely access to 
reference data about corporate bonds on the day a newly issued 
corporate bond

[[Page 6926]]

commences trading.\31\ One commenter noted that the current process for 
underwriters to provide data is ``tedious, prone to transcription 
errors, and must be repeated for every bond in which the reference data 
vendor or the end user is interested.'' \32\ Commenters also stated 
that currently underwriters and issuers do not provide reference data 
to all market participants at the same time.\33\ One commenter stated 
that new issue corporate bond terms and conditions today are often 
received delayed and incomplete.\34\
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    \30\ The Commission notes that FINRA's proposal is generally 
consistent with a unanimous recommendation from the SEC Fixed Income 
Market Structure Advisory Committee (``FIMSAC'') made to the 
Commission on October 29, 2018. See Fixed Income Market Structure 
Advisory Committee Recommendation (October 29, 2018) available at 
https://www.sec.gov/spotlight/fixed-income-advisory-committee/fimsac-corporate-bond-new-issue-reference-data-recommendation.pdf 
(``Recommendation''). The FIMSAC is a federal advisory committee 
formed in November 2017 to provide the Commission with diverse 
perspectives on the structure and operations of the U.S. fixed 
income markets, as well as advice and recommendations on matters 
related to fixed income market structure. The FIMSAC's charter is 
available at https://www.sec.gov/spotlight/fixed-income-advisory-committee/fimsac-charter-nov-2019.pdf. The membership includes 23 
individuals representing a range of perspectives on the fixed income 
markets including retail and institutional investors, corporate and 
municipal issuers, trading venues, institutional dealers, a retail 
dealer, a regional municipal securities dealer, a proprietary 
trading firm, a data provider, academics, and SROs. For a list of 
FIMSAC members, see https://www.sec.gov/spotlight/fixed-income-advisory-committee.
    \31\ See Recommendation at 2; Letter from Lynn Martin, President 
and COO, ICE Data Services, dated April 29, 2019 (``ICE Data 
Letter''), at 1-2; Letter from Marshall Nicholson and Thomas S. 
Vales, ICE Bonds dated April 29, 2019 (``ICE Bonds Letter''), at 1-
2; Letter from John Plansky, Executive Vice President and Chief 
Executive Officer, Charles River Development, dated May 24, 2019 
(``Charles River Letter''), at 2; and Letter from SEC Fixed Income 
Market Structure Advisory Committee, dated June 11, 2019 (``FIMSAC 
Letter''), at 1-2.
    \32\ See Harris Letter, at 2.
    \33\ See FIMSAC Letter, at 2; ICE Bonds Letter, at 2 (``Certain 
electronic trading venues that are not registered as ATSs may have 
access to new issuance reference data obtained from affiliated 
corporate entities which process primary market trades prior to the 
dissemination of the reference data.'').
    \34\ See ICE Bonds Letter, at 2.
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    Commenters stated that access to reference data is necessary for 
valuing, trading and settling corporate bonds.\35\ As access to this 
reference data is not available to all market participants prior to the 
beginning of trading in a new issue, commenters asserted that certain 
market participants, including many investors, intermediaries, trading 
platforms, and reference data providers, are currently at a competitive 
disadvantage.\36\ One commenter stated that ``[t]he information 
asymmetry which exists today adversely impacts the liquidity in the 
secondary markets for the first few hours or days of trading when 
significant trading occurs.'' \37\
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    \35\ See ICE Data Letter, at 2; Letter from Larry Harris, Fred 
V. Keenan Chair in Finance, U.S.C. Marshall School of Business, 
dated May 17, 2019 (``Harris Letter''), at 2-3; Charles River 
Letter, at 2; FIMSAC Letter, at 1-2.
    \36\ See ICE Data Letter, at 2; ICE Bonds Letter, at 2; FIMSAC 
Letter, at 2; Harris Letter, at 2-6; Charles River Letter, at 2 
(``[T]he proposed data service will enhance transparency in a manner 
that benefits both buy-side investors and the financial markets as a 
whole, by facilitating access to new issuance reference data for 
corporate bonds. This is especially valuable to the fixed income 
market, which has historically been more opaque than other more 
liquid asset classes.''). See also Transcript of FIMSAC Meeting 
(October 29, 2018), available at https://www.sec.gov/spotlight/fixed-income-advisory-committee/fimsac-102918transcript.txt 
(``FIMSAC Transcript''), Comments from Frederic Demesy, Refinitiv, 
at 0078 (``[A]t the moment, we see that there are some market 
anomalies where some of the vendors have access to information much 
earlier than other vendors. And that creates basically competitive 
advantage on certain platforms, which is in my view not ideal for 
having a transparent market.'').
    \37\ See ICE Bonds Letter, at 2.
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    Several commenters asserted that a centralized data reporting 
requirement for new corporate bond issues would increase the efficiency 
of the corporate bond market and reduce trading and research costs.\38\ 
One commenter stated that ``the creation of the data service will 
enhance operational efficiencies for buy-side investors by ensuring 
reliable, consistent and timely access to data, necessary for the 
seamless trading and settlement of new issue corporate bonds'' and 
``the proposed data service will help buy-side investors better manage 
their risk,'' including ``the reduced need for manual entries and 
overrides.'' \39\ One commenter stated that ``[t]he timely 
dissemination of complete reference data will allow retail investors to 
have more timely access to newly issued bonds for purchase and/or price 
discovery, eliminating unnecessary information asymmetry.'' \40\ 
Another commenter noted that a ``centralized data reporting requirement 
for such issues could benefit the industry and investors by enhancing 
market transparency, potentially aiding liquidity, reducing trading 
costs, and lowering the cost of capital for issuers.'' \41\ One 
commenter further stated that mandated reference data collection and 
dissemination promotes capital formation by lowering the costs of 
valuing bonds so that prices more accurately reflect all available 
information.\42\
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    \38\ See FIMSAC Letter, at 1-2; ICE Data Latter, at 2; Harris 
Letter, at 2-3; Charles River Letter, at 2.
    \39\ See Charles River Letter, at 2.
    \40\ See ICE Bonds Letter, at 2.
    \41\ See ICE Data Letter, at 2. See also Harris Letter, at 
3(``[R]educing the costs of investment research will lead to more 
informative prices and lower liquidity costs as more market 
participants make better-informed decisions about what to buy, sell, 
and hold. . . . The value of the reference data and the low costs to 
the industry of requiring that they should be delivered in some 
machine-readable form provide an extraordinary strong foundation for 
the Commission to mandate [reference data collection and 
dissemination].''); Charles River Letter, at 2 (``By providing 
market participants with direct access to new issuance reference 
data, the proposed service will reduce overall costs, while 
permitting third party vendors to retransmit and repackage the 
reference data for market participants who may opt for this service. 
The proposed service also will increase the efficiency and 
interoperability of the corporate bond market and help promote fair 
and open competition among market participants.''). See also FIMSAC 
Transcript, supra note 36, Comments from Spencer Gallagher, ICE Data 
Services, at 0069-72 (``there is one area that no investment or no 
level of ingenuity can solve and that is equal access to new issue 
reference data at or prior to first trade execution'').
    \42\ See Harris Letter, at 5.
---------------------------------------------------------------------------

    On the other hand, many commenters asserted that FINRA did not 
provide sufficient justification to support the need for the creation 
of the New Issue Reference Data Service as required under Section 
15A(b)(6) of the Act.\43\ In particular, Petitioner argued that FINRA 
provided no evidence that there is a market structure problem that 
requires regulatory intervention \44\ and that FINRA ``failed to 
demonstrate a market failure limiting timely access to accurate data. . 
. .'' \45\ Petitioner also stated that FINRA has no basis for its 
theory that the market for data services is uncompetitive; \46\ that 
FINRA's assertion that customers for data services are dissatisfied is 
unsupported by evidence; \47\ and that FINRA has provided no evidence 
that any trader or platform cannot get the information it demands, or 
that lack of information is impeding trading.\48\ Petitioner further

[[Page 6927]]

stated that ``the bond-trading market is already headed in the 
direction FINRA supports--without its intervention'' and that ``data 
and reporting show a clear acceleration in the marketplace toward 
electronic trading of new issues.'' \49\ Petitioner concluded that 
``the bond markets are healthy and growing robustly using existing 
market-based data services'' and that ``FINRA should not be allowed to 
oust market-based providers in favor of a regulatory utility without 
showing a substantial market failure.'' \50\
---------------------------------------------------------------------------

    \43\ See Letter from David R. Burton, Senior Fellow in Economic 
Policy, The Heritage Foundation, dated April 29, 2019 (``Heritage 
Letter''), at 1-2; Letter from Tom Quaadman, Executive Vice 
President, U.S. Chamber of Commerce, dated April 29, 2019 (``Chamber 
Letter''), at 2; Letter from Tyler Gellasch, Executive Director, 
Healthy Markets Association, dated April 29, 2019 (``Healthy Markets 
Letter''), at 4-5; Letter from Greg Babyak, Global Head of 
Regulatory Affairs, Bloomberg, L.P., dated April 29, 2019 
(``Petitioner Letter''), at 9-10. See also Letter from Tyler 
Gellasch, Executive Director, Healthy Markets Association, dated 
July 29, 2019 (``Healthy Markets Letter II''), at 4-6; Letter from 
Tyler Gellasch, Executive Director, Healthy Markets Association, 
dated October 25, 2019 (``Healthy Markets Letter III''); Letter from 
David R. Burton, Senior Fellow in Economic Policy, The Heritage 
Foundation, dated July 29, 2019 (``Heritage Letter II''), at 2; 
Letter from David R. Burton, Senior Fellow in Economic Policy, The 
Heritage Foundation, dated October 23, 2019 (``Heritage Letter 
III''), at 2; Letter from Tom Quaadman, Executive Vice President, 
U.S. Chamber of Commerce, dated July 29, 2019 (``Chamber Letter 
II''), at 3-4; Letter from Greg Babyak, Global Head of Regulatory 
Affairs, Bloomberg L.P., dated July 1, 2019 (``Petitioner Letter 
II''), at 4-7; Letter from Greg Babyak, Global Head of Regulatory 
Affairs, Bloomberg L.P., dated July 29, 2019 (``Petitioner Letter 
III''), at 5-8; Letter from Greg Babyak, Global Head of Regulatory 
Affairs, Bloomberg L.P., dated October 24, 2019 (``Petitioner Letter 
IV''), at 4; Letter from Greg Babyak, Global Head of Regulatory 
Affairs, Bloomberg L.P., dated November 27, 2019 (``Petitioner 
Letter V''), at 3-4; and Letter from David R. Burton, Senior Fellow 
in Economic Policy, The Heritage Foundation, dated March 13, 2020 
(``Heritage Letter IV'').
    \44\ See Petitioner Letter, at 12-13; Petitioner Letter II at 4-
6; Petitioner Letter III at 6-7; Petitioner Letter V, at 3. See also 
Petitioner Statement, at 2, (``No evidence indicates that current 
methods of consensual information distribution are impeding 
electronic trading.'').
    \45\ See Petition for Review, at 19.
    \46\ See Petitioner Statement, at 21-22. Petitioner also stated 
that while the proposal asserted barriers to entry, it mentioned 
only one such supposed barrier: the investment required to build a 
system to manage bond data. Petitioner argued that the fact that 
building a new business would require investment is not a barrier to 
entry and does not make a market uncompetitive. In addition, 
Petitioner stated that FINRA has not offered any evidence of the 
investment required to build such a system and how that would 
dissuade market entrants. See id.
    \47\ See id. at 22-23.
    \48\ See id., at 28. Petitioner stated that one anonymous person 
told FINRA it could not get the data it wanted from its current 
vendor and that FINRA has not reported any reason that the person 
could not fulfill its needs with a different, competing vendor. See 
id., at 28, n.19.
    \49\ See Petition for Review, at 22; Petitioner Statement, at 
24-28. Petitioner presented data regarding trading by alternative 
trading systems (``ATSs'') on pricing day to argue that electronic 
trading platforms can readily access new issue bond reference data, 
and that the market for new issue corporate bonds is healthy and 
already evolving in the manner that the FIMSAC desires. For example, 
this commenter provided data (for new issues from March 12, 2019 to 
April 11, 2019) demonstrating that ATSs arranged a trade in 43% of 
the new Jumbo-sized issues, 28% of the new Benchmark-sized issues, 
and 11% of medium-sized issues on the day the bond was free to 
trade. See Petitioner Letter, at 12-13; Petitioner Statement, at 25, 
n.15. In addition, this commenter presented evidence that over the 
past year, the number of Jumbo-sized new issues that traded 
electronically on the day they were priced more than doubled to 30%. 
See Petitioner Letter II, at 4-6; Petitioner Letter III, at 6; 
Petitioner Letter IV, at 4-5; Petitioner Statement, at 25, n.15. 
This commenter stated that since FINRA proposed its effort to 
standardize and centralize bond-reference data reporting, 
competition in this area has only increased, citing a recent effort 
by various financial institutions to streamline communications and 
data among market participants by connecting underwriters and 
investors. See Petitioner Letter IV, at 6. This commenter also 
pointed to an analysis from Greenwich Associates that it stated 
shows overall growth in ATS electronic corporate bond trading. See 
Petitioner Statement, at 25. This commenter further stated that 
based on data from February 2020 compiled by the commenter's market 
information, in mid-2018 the percentage of first-day trades over 
$250 million that were on ATSs increased to 39%, and electronic 
trading of the largest issues has steadily grown from 16% to over 
48%. See Petitioner Statement, at 27.
    \50\ See Petitioner Statement, at 21, 24.
---------------------------------------------------------------------------

    In addition, Petitioner stated that FINRA provided no evidence that 
the proposal would provide market participants with more complete, 
accurate, and timely data about new issues; reduce broken trades and 
errors; \51\ or reduce costs or duplicated efforts.\52\ Petitioner 
stated that FINRA suggests a number of hypothetical benefits that might 
flow from the proposal, such as more accurate data, but that such 
benefits ``are entirely speculative.'' \53\ Another commenter stated 
that ``[b]efore intervening in the existing market for information and 
granting itself a potentially lucrative monopoly on providing this 
information to market participants, FINRA should be required to 
factually demonstrate that . . . [the] benefits [of the proposal] are 
so substantial and clear to overcome the strong presumption that 
private actors in competitive markets are the best means of providing 
goods and services.'' \54\
---------------------------------------------------------------------------

    \51\ Petitioner stated that ``there appears to be plenty of time 
to correct errors before they enter the settlement and clearing 
process'' and presented evidence that over 91% of new issues settle 
three days or more after a new issue is priced and 66% settle four 
days or more after a new issue is priced. See Petitioner Letter, at 
10-11.
    \52\ See Petitioner Letter, at 9-14; Petitioner Letter II, at 4-
7; Petitioner Letter III, at 5-8. Petitioner stated that market 
participants currently demand more reference data fields than FINRA 
is proposing to collect; thus the proposal will not avoid 
``duplicative efforts'' and may fragment the market. See Petitioner 
Letter, at 13-14.
    \53\ See Petitioner Statement, at 3, 35. See also Heritage 
Letter V, at 2 (stating that FINRA has not conducted ``even the most 
rudimentary cost-benefit analysis.'').
    \54\ See Heritage Letter V, at 2.
---------------------------------------------------------------------------

2. FINRA Response to Comments
    In its response to the petitioner, FINRA stated that its proposal 
is ``designed to address a particular problem in today's market--
namely, that a number of market participants are not reasonably able to 
gain access to timely, comprehensive, and accurate corporate bond new 
issue reference data when the bonds begin trading.'' \55\ FINRA stated 
that the record provides sufficient support for its proposal, and that 
this problem is identified by the Fixed Income Market Structure 
Advisory Committee (``FIMSAC''), by FINRA's own independent outreach to 
a diverse set of market participants, by comments submitted in support 
of the proposal,\56\ and in FINRA's data analysis.\57\
---------------------------------------------------------------------------

    \55\ See FINRA Statement, at 3.
    \56\ FINRA cited comment letters noting that there currently 
exist issues with the availability, completeness, and timeliness of 
new issue reference data; and that the current information asymmetry 
with respect to such data harms liquidity, execution quality and 
competition in the corporate bond market. See Letter from Alexander 
Ellenberg, Associate General Counsel, FINRA, dated October 29, 2019 
(``Response Letter''), at 5 (citing to Harris Letter; ICE Bonds 
Letter; ICE Data Letter; Charles River Letter; and FIMSAC Letter). 
See also supra notes 31-42 and accompanying text.
    \57\ See FINRA Statement, at 3. See also Response Letter, at 3-
4; Notice, at 13980-83.
---------------------------------------------------------------------------

    FINRA stated that the robust public record supporting the proposal 
begins with the unanimous FIMSAC Recommendation.\58\ FINRA stated that 
FIMSAC's Technology and Electronic Trading Subcommittee 
(``Subcommittee''), which represents a cross-section of market 
participants, recognized that disparities exist among reference data 
vendors' access to new issue reference data depending on several 
factors, including the vendors' relationship with underwriters; that 
private data vendors are not obligated to provide impartial access to 
key new issue reference data; and that the resulting confusion 
increases transaction costs and impedes competition in the corporate 
bond markets.\59\ FINRA stated that to address these concerns, the 
Subcommittee recommended the establishment of a consolidated new issue 
reference data service that is made available to all subscribers in a 
timely fashion and recommended that FINRA operate the service and 
provide subscribers with impartial and commercially reasonable access, 
subject to applicable SRO regulation.\60\ FINRA stated that the 
Subcommittee received strong support for the Recommendation when it was 
presented for consideration by the full FIMSAC and from panelists who 
supported the Recommendation.\61\ FINRA pointed to statements by 
members of the FIMSAC and panelists at the FIMSAC meeting, including 
two data providers and an investment management firm, to refute the 
assertion that a well-functioning, competitive market currently exists 
for corporate new issue reference data, as suggested by some 
commenters, and to provide support that market participants bear the 
costs of the current information disparity.\62\ FINRA noted that the 
FIMSAC also subsequently reaffirmed the Recommendation in the FIMSAC 
Letter.
---------------------------------------------------------------------------

    \58\ See FINRA Statement, at 5; Response Letter, at 4-5. See 
also Recommendation, supra note 30.
    \59\ See FINRA Statement, at 6-7 (citing Recommendation, supra 
note 30).
    \60\ See FINRA Statement, at 7.
    \61\ See FINRA Statement, at 8.
    \62\ Specifically, FINRA pointed to (i) a statement by Richard 
McVey, MarketAxess, that ``there are indeed gaps in corporate bond 
fixed income reference data, both in terms of when that data are 
available with different reference data providers, as well as 
sometimes the accuracy;'' (ii) a statement from Spencer Gallagher, 
ICE Data Services, that ``there is one area that no investment or no 
level of ingenuity can solve and that is equal access to new issue 
reference data at or prior to first trade execution;'' (iii) 
statements from Frederic Demesy, Refinitiv, that ``at the moment, we 
see that there are some market anomalies where some of the vendors 
have access to information much earlier than other vendors,'' and 
``that creates basically competitive advantage on certain 
platforms,'' and that this disparity imposes ``higher costs for our 
customers;'' and (iv) statements from Alex Sedgwick, T. Rowe Price, 
noting that ``[h]istorically we have noticed cases where a new issue 
does take time to get set up on some of our electronic trading 
platforms, and that means that we can't necessarily go and use those 
electronic trading platforms right away.'' See FINRA Statement, at 
8-9; Response Letter, at 5 (each citing to FIMSAC Transcript).
---------------------------------------------------------------------------

    In addition, FINRA stated that it performed its ``own independent 
outreach to eleven market participants--

[[Page 6928]]

four data providers, three underwriters, two trading platforms, and two 
clearing firms--and heard the same problems as identified by the 
FIMSAC.'' \63\ Based on this outreach, FINRA determined that ``there is 
not currently consistent collection of new issue reference data 
according to established data standards, nor is there uniform 
distribution of the data to market participants in a timely manner.'' 
\64\ FINRA stated that its outreach indicated that data vendors receive 
new issue reference data through different channels at different times, 
and that as a result, market participants experience problems with 
trading and settling new issues of corporate bonds.\65\ For example, 
FINRA stated that if a trading platform does not have essential 
information about a new issue, it cannot identify the bond and set it 
up on its platform to trade.\66\ FINRA noted the experience of one 
trading platform that stated it could not facilitate trades in new 
issues on their first day of trading because the platform's reference 
data provider would only provide reference data relating to new issues 
the morning after issuance.\67\ In addition, FINRA stated that if 
trading platforms, trading firms, or investors receive inconsistent 
reference data, there is an increased likelihood of broken trades and 
reduced efficiency reconciling data for purposes of trading, clearance, 
and settlement.\68\ FINRA found from its outreach that inaccurate 
reference data create inconsistencies in trading and settlement and 
increase transaction costs for trading platforms, clearing firms, and 
electronic trading platforms.\69\
---------------------------------------------------------------------------

    \63\ See FINRA Statement, at 11; Response Letter, at 4; Notice, 
at 13980-81. FINRA stated that new issue reference data are 
generated by underwriters, aggregated by data providers, and then 
sold to various market participants for consumption, including 
trading and clearing firms, electronic trading platforms, broker-
dealers and bond investors. FINRA stated that it conducted outreach 
to understand this dissemination process, direct and indirect costs 
imposed by the process and ways it might be improved. See Notice, at 
13980.
    \64\ See Response Letter, at 4.
    \65\ See FINRA Statement, at 11; Response Letter, at 4; Notice, 
at 13981.
    \66\ See FINRA Statement, at 11.
    \67\ See FINRA Statement, at 11; Response Letter, at 4; Notice, 
at 13980, n.17.
    \68\ See FINRA Statement, at 11-12; Notice, at 13981.
    \69\ See Response Letter, at 4; Notice, at 13980.
---------------------------------------------------------------------------

    In response to comments that the need for the proposal is negated 
by data on the growth of electronic bond trading, FINRA argued that 
such data do not mitigate the concerns that the proposal is designed to 
address--namely, the lack of broadly available and accessible new issue 
reference data on the first day of secondary market trading.\70\ FINRA 
stated that ``electronic trading platforms may receive data and begin 
trading late, while still contributing to cumulative growth'' and that 
``data on the overall growth of electronic trading says nothing about 
whether the rate of growth is impacted or inhibited by the costs of 
limited access to reference data on the first day of trading.'' \71\ 
FINRA argued that the growth of electronic trading in corporate bonds 
actually makes impartial access to these data even more important.\72\
---------------------------------------------------------------------------

    \70\ See FINRA Statement, at 21-22.
    \71\ See FINRA Statement, at 22 (emphasis in original).
    \72\ See FINRA Statement, at 22.
---------------------------------------------------------------------------

    In response to comments on the proposal, FINRA provided an analysis 
of corporate bond transactional data reported to FINRA's Trade 
Reporting and Compliance Engine (``TRACE''), which FINRA stated is 
consistent with the problematic market conditions described by FIMSAC 
participants and commenters, and provides additional support for the 
proposal.\73\ Specifically, FINRA examined the time lapse between the 
first secondary market trade reported to TRACE and the first trade 
reported by ATSs for newly issued corporate bonds in 2018.\74\ FINRA 
found some ATSs experienced persistent lags between the first reported 
trades and first reported ATS trades, which FINRA stated suggested that 
some ATSs may not be receiving reference data in a timely fashion to 
allow them to set up new issues to begin trading on their 
platforms.\75\ In response, however, Petitioner stated that FINRA's 
analysis is flawed in that the data (i) do not show that untimely 
reference data is the cause of differences in the timing of trading on 
different platforms; (ii) include all new issue bonds, rather than 
limiting the scope to large issues that are more likely to trade 
electronically; and (iii) ignore more current data that show movement 
toward electronic trading is accelerating rapidly in 2019.\76\ In 
response to this commenter's objections, FINRA provided additional data 
from 2019, which it stated also demonstrate that some ATSs experienced 
persistent time lags before they began trading newly issued corporate 
bonds.\77\
---------------------------------------------------------------------------

    \73\ See Response Letter, at 6-7.
    \74\ See id.
    \75\ See id. See also FINRA Statement, at 22. FINRA found that 
for the first day of trading in corporate bond new issues, an ATS 
traded at most 3% of the 11,518 newly issued bonds, and that over 
the subsequent 10 days after issuance, ATSs represented an 
increasing percentage of trading. Id.
    \76\ See Petitioner Letter V, at 1-2; Petitioner Statement, at 
25-26.
    \77\ See FINRA Statement, at 22, 30. FINRA stated that while it 
recognizes the limitations of quantitative analysis given that TRACE 
data cannot currently identify trades on electronic trading 
platforms other than ATSs, such as trades facilitated by Petitioner, 
it continues to believe that, because ATSs represent one of the 
types of market participants that provided statements for the record 
of their difficulty receiving timely reference data access, this ATS 
analysis helps validate such qualitative evidence. See FINRA 
Statement, at 23.
---------------------------------------------------------------------------

    In response to comments that FINRA did not provide an estimate of 
costs and benefits,\78\ FINRA stated in its Response Letter that it 
provided a detailed analysis of the proposal's anticipated costs and 
benefits in its proposal.\79\ FINRA stated that it included an 
``Economic Impact Assessment'' in its proposal, which, among other 
things, described the current dissemination process of new issue 
reference data in the corporate bond market, benefits of the proposal, 
costs and negative impacts of the proposal, the anticipated effect of 
the proposal on competition among market participants and efficiency in 
the market, and alternative approaches considered by FINRA.\80\
---------------------------------------------------------------------------

    \78\ See supra notes 53-54 and accompanying text.
    \79\ See Response Letter, at 10. See also Notice, at 13981-83 
(providing FINRA's Economic Impact Assessment). However, Petitioner 
stated that ``[d]eciding to excise the fee analysis, in the face of 
overwhelming negative commentary, belies FINRA's claim to have 
provided a `detailed analysis of the Proposal's anticipated costs 
and benefits.' '' See Petitioner Letter V, at 4. See also Section 
III.F., infra.
    \80\ See Notice, at 13981-83.
---------------------------------------------------------------------------

    In its proposal, FINRA stated that it expects that the New Issue 
Reference Data Service will increase the transparency of the corporate 
bond market, especially around the issuance period, and that such 
increased transparency will benefit the market, including investors, 
trading platforms, clearing firms, data providers, issuers, and 
underwriters, in a number of ways.\81\ Specifically, FINRA stated that 
such transparency would provide benefits by: (i) Providing potential 
buyers with the opportunity to evaluate the bonds for investment, 
especially right after issuance, which would likely increase investment 
choices; (ii) allowing index operators the opportunity to evaluate new 
bonds for timely inclusion, which would help ensure that the index 
accurately represents the concurrent bond market condition; (iii) 
reducing broken trades

[[Page 6929]]

and errors in trading due to inconsistent information; (iv) increasing 
trading speed by removing delays due to manually correcting reference 
data errors; (v) potentially increasing trading volumes that might 
otherwise be lost when traders do not have reference data on newly 
issued bonds, thereby increasing liquidity and lowering the cost of 
capital for issuers; (vi) providing data providers with a complete and 
accurate source of data and reducing the need for data providers to 
manually collect missing data or correct errors in the new issue 
reference data; (vii) increasing awareness of new issuances, which may 
help underwriters in marketing and underwriting; and (viii) reducing 
the need for underwriters to manually research other reference data 
sources for proper procurement of information.\82\
---------------------------------------------------------------------------

    \81\ See Notice, at 13981. To support this statement, FINRA 
cited to various studies finding that TRACE implementation has 
demonstrated that transparency has facilitated trading and improved 
market quality. See FINRA's website for a list of TRACE Independent 
Academic Studies, available at http://www.finra.org/industry/trace/trace-independent-academic-studies. See id. at n.20.
    \82\ See Notice, at 13981.
---------------------------------------------------------------------------

    On the other hand, FINRA stated in its proposal that the New Issue 
Reference Data Service may impose costs on underwriters to report the 
additional reference data to FINRA through system upgrades or use of 
third-party vendors to report, and recognized that smaller underwriters 
may be burdened disproportionally.\83\ However, FINRA also stated that 
(i) it understands that underwriters do not anticipate incurring 
significant costs for reporting under the proposal and (ii) any 
additional burden on smaller underwriters may be alleviated because 
reporting to FINRA would reduce the need for underwriters to report to 
other parties and/or underwriters can leverage investments already made 
in the existing reporting system necessary under FINRA Rule 6760.\84\ 
In addition, FINRA noted that subscribers to FINRA's New Issue 
Reference Data Service will incur a subscription fee and setup cost, 
and FINRA stated that it intends to price the service as a utility 
provider using a cost-based approach.\85\ Finally, FINRA stated that a 
centralized source of new issue reference data may create a single 
point of failure if data providers stop collecting data on their own 
and solely rely on FINRA's data service.\86\ However, FINRA stated that 
it believes this is unlikely to happen because data providers will 
likely continue to collect a range of bond reference data beyond the 
limited fields provided by FINRA's service.\87\
---------------------------------------------------------------------------

    \83\ See Notice, at 13982.
    \84\ See id. See also Section III.D, infra.
    \85\ See Notice, at 13982; FINRA Statement, at 18.
    \86\ See Notice, at 13982.
    \87\ See Notice, at 13982. See also Section III.C, infra. For 
example, there are many other data provided by reference data 
providers concerning a bond issue, such as issuer information (e.g., 
fundamentals data, capital structure data), specific bond rating, 
bond trade and selling restrictions, classification data (industry, 
legal entity, etc.), corporate action data, ESG (Environmental, 
Social & Governance) data, dividend data, instrument analytics data, 
and security ownership data. See e.g., IHS Markit Reference Data 
Bonds Factsheet, available at https://cdn.ihs.com/www/pdf/Reference-Data-Bonds-factsheet.pdf; Bloomberg Reference Data Content and Data, 
available at https://www.bloomberg.com/professional/product/reference-data/.
---------------------------------------------------------------------------

3. Commission Discussion and Findings
    The Commission understands that currently there is an inefficiency 
in the collection of reference data for newly issued corporate bonds 
and that this inefficiency results in an information asymmetry in the 
market for newly issued corporate bond reference data. This information 
asymmetry exists because some market participants have access to 
reference data necessary for identifying, valuing and settling newly 
issued corporate bonds at the time such bonds begin trading in the 
secondary market, while many other market participants lack that 
information at the time secondary trading begins. This information 
asymmetry inhibits many market participants from transacting in the 
secondary market for newly issued bonds at the time those bonds begin 
trading which can disadvantage those market participants.\88\
---------------------------------------------------------------------------

    \88\ See generally supra notes 31-42 and accompanying text.
---------------------------------------------------------------------------

    The collection of reference data by market participants currently 
is inefficient and the challenges associated with collecting this data 
and making it available broadly to market participants in time to trade 
in the secondary market are significant.\89\ While some market 
participants may have timely access to reference data directly from 
underwriters or from those that obtain it from underwriters, many 
market participants do not. Underwriters may be unwilling to distribute 
reference data to all market participants that desire it out of concern 
that distributing the data to multiple market participants increases 
the risk of inaccuracies.\90\ Market participants who do not have 
access to reference data from a vendor that has timely access to such 
data from underwriters or do not otherwise have the necessary 
relationships with underwriters \91\ must expend substantial time and 
effort gathering information from multiple sources.\92\ For those that 
lack this access, the process of collecting data from multiple sources 
is time consuming, requires substantial effort in order to assure the 
completeness and accuracy of the information, and often results in 
participants having unequal access to

[[Page 6930]]

reference data on the first day a bond trades in the secondary market, 
ultimately resulting in an unnecessary market inefficiency.\93\
---------------------------------------------------------------------------

    \89\ See Notice, at 13980-13981 (describing in FINRA's Economic 
Impact Statement the current process for the collection and 
distribution of corporate bond reference data). The Commission notes 
that the process FINRA described in its Notice is consistent with 
the comments provided by reference data providers at the October 29, 
2018 FIMSAC meeting. See also FIMSAC Transcript, supra note 36, 
Comments from Spencer Gallagher, ICE Data Services, at 0069-72 
(``there is one area that no investment or no level of ingenuity can 
solve and that is equal access to new issue reference data at or 
prior to first trade execution''). See generally FIMSAC Transcript, 
supra note 36 (highlighting a detailed discussion among data vendors 
of the challenges with collecting and distributing reference data).
    \90\ See FIMSAC Transcript, supra note 36, Comments from Bob 
LoBue, J.P. Morgan, at 0080-81 (``We tend to not disseminate data to 
third party vendors off the corporate platform. I think the point of 
inaccuracies is the reason for that. So, we tend to use Bloomberg as 
our let's ensure it is accurate, and then people can source that 
information from that venue.''). Even if underwriters were to 
provide access to every market participant that sought to gain 
access to such information prior to the beginning of secondary 
market trading, that process would be inefficient as the 
underwriters would expend substantial effort providing such data to 
multiple parties and the recipients would likewise expend 
substantial effort to receive and ultimately utilize data from 
multiple parties.
    \91\ In the corporate bond market today, the Commission 
understands from market participants that Petitioner typically has 
the timeliest access to newly issued bond reference data on the 
first day a bond trades, as it enjoys the voluntary cooperation of 
underwriters. See FIMSAC Transcript, supra note 36, Comments from 
Bob LoBue, J.P. Morgan, at 0080-81 (``And I think the Refinitiv team 
and the ICE team intimating a competitive advantage for Bloomberg, 
there is no question that we do undertake getting our securities set 
up on the Bloomberg trading platform because that is what the 
industry predominately uses to book our tickets.''). See also FINRA 
Statement, at 3 (noting that Petitioner is the dominant private data 
vendor in today's market for corporate bond new issue reference data 
and ``often gains access to new issue reference data before other 
vendors and market participants.''). In his declaration, David Miao, 
the Global Head of Fixed Income Data at Bloomberg, L.P., states that 
he is ``not aware of any legal or structural barrier that prevents 
other vendors and market participants from accessing new issue 
reference data'' and that ``nothing prevents other vendors and 
market participants from accessing corporate bond new issue 
reference data in the same voluntary manner in which Bloomberg 
acquires it.'' Based on the information available to the Commission, 
the Commission disagrees. The statements of one of the largest 
underwriters of corporate bonds in the United States are 
particularly informative: Mr. Lobue stated at the October 29, 2018 
FIMSAC meeting that J.P. Morgan provides corporate bond reference 
data to Petitioner and does not provide it to other data vendors. 
See See FIMSAC Transcript, supra note 36, Comments from Bob LoBue, 
J.P. Morgan, at 0080-81.
    \92\ See e.g., supra notes 32-37; FIMSAC Transcript, supra note 
36, Comments from Spencer Gallagher, ICE Data Services, at 0069-72 
(``Distribution [of new issue reference data] is not consistent in 
both completeness of the content or timeliness of the delivery. . . 
. All said, none of the avenues [for securing new issue reference 
data], underwriter emails, new issue publishing announcement or 
issuer websites provide a comprehensive coverage in a timely manner. 
We piece all of this together as available to us. On the few cases 
where we see no information, we will see the data on Edgar, usually 
via prospectus. But that is well after the pricing event and clearly 
not sufficient for pre-trade and trade workflows.'').
    \93\ See id. See also FIMSAC Transcript, supra note 36, Comments 
from Spencer Gallagher, ICE Data Services, at 0069-72 (``there is 
one area that no investment or no level of ingenuity can solve and 
that is equal access to new issue reference data at or prior to 
first trade execution''); Comments from Spencer Gallagher, ICE Data 
Services, at 0069-72; Comments from Rick McVey, MarketAxess, at 0066 
(``there is significant manual effort today in getting new issue 
information into various databases. And that is prone to error. 
Reference data errors lead directly to trading errors.'').
---------------------------------------------------------------------------

    The Commission believes that the information asymmetry and 
resulting market inefficiency that exists can disadvantage many market 
participants because it hinders timely market-wide participation in the 
secondary market when a newly issued bond begins to trade, potentially 
negatively impacting secondary market liquidity. Comments received from 
investors, trading platforms, and data vendors support this finding. 
Commenters stated that the inability to participate in the secondary 
market raised a number of concerns.\94\ First, market participants that 
are unable to trade newly issued bonds due to a lack of information, 
whether they be intermediaries, investors or trading platforms,\95\ are 
at a competitive disadvantage to other market participants that have 
the information and ability to trade newly issued bonds on the first 
day of secondary trading when significant trading occurs.\96\ These 
market participants have fewer investment options to meet their own 
business and investment needs or those of their customers relative to 
market participants that have access to reference data when a newly 
issued bond begins trading.\97\ For example, as stated by one 
commenter, many ``retail investors and the broker dealers servicing 
them are disadvantaged by not being able to participate in the 
secondary markets during the critical time after a security is 
available to trade.'' \98\ Additionally, to the extent some electronic 
trading platforms do not have the information necessary to identify, 
value and settle newly issued corporate bonds when such bonds begin 
trading in the secondary market, these platforms may be at a 
competitive disadvantage to those that do have such information.\99\ 
Second, reduced participation in the secondary market due to this 
information asymmetry can adversely impact secondary market liquidity 
for newly issued bonds on the first day a bond trades and ultimately 
raise the cost of capital for issuers.\100\ It has been shown that 
corporate issuers pay more to issue bonds (i.e., bond offering yields 
are higher) when the expected liquidity in the secondary market is 
lower for those corporate bonds.\101\ Third, information asymmetry with 
respect to new issue reference data increases transaction and 
opportunity costs, which may be passed on to customers.\102\ The 
Commission also believes that the results of FINRA's outreach \103\ are 
consistent with the range of comments and statements concerning the 
lack of timely reference data and the resultant impact on many market 
participants' ability to participate in the market on the first day a 
new issue trades in the secondary market, and the potentially negative 
impacts on liquidity that result.\104\
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    \94\ See generally supra notes 31-42 and accompanying text for a 
discussion of commenter concerns about information asymmetry in the 
corporate bond market today that can disadvantage many market 
participants.
    \95\ Petitioner stated that there is currently a trend in the 
marketplace toward electronic trading of new issues and therefore 
concluded that the bond markets are healthy and growing robustly 
using existing market-based data services and the proposal is 
unnecessary. See supra notes 49-50. Petitioner presented data 
concerning ATS trading in new issues purporting to suggest that 
there is no current access problem relating to new issue bond 
reference data. See supra note 49. In response, FINRA also presented 
TRACE data concerning ATSs and conducted its own analysis, which 
FINRA stated suggests that some ATSs may not be receiving reference 
data in a timely fashion to allow them to begin trading a newly 
issued corporate bond. See supra notes 73-75 and 77 and accompanying 
text. Petitioner disputed FINRA's analysis as flawed. See supra note 
76. The Commission believes that the analyses of electronic trading 
in corporate new issues by ATSs provided by Petitioner and FINRA are 
necessarily limited, as there are a number of electronic bond 
trading platforms that are not regulated as ATSs and there are a 
number of other types of market participants, including investors, 
intermediaries and data vendors that may not have timely access to 
newly issued bond reference data to identify, value and settle bonds 
on the first day of trading in the secondary market. Therefore, 
these analyses, which focus on ATS trading in new issues, are not 
reflective of the market for newly issued corporate bonds as a 
whole.
    \96\ See ICE Data Letter, at 2; ICE Bonds Letter, at 2; FIMSAC 
Letter, at 2.
    \97\ See ICE Bonds Letter, at 2 (``The timely dissemination of 
complete reference data will allow retail investors to have more 
timely access to newly issued bonds for purchase and/or price 
discovery, eliminating unnecessary information asymmetry.''); 
Notice, at 13981 (discussing in FINRA's Economic Impact Assessment a 
variety of reasons why market participants that lack timely 
reference data today are at a competitive disadvantage to those 
market participants that do have timely access to reference data).
    \98\ See ICE Bonds Letter, at 2.
    \99\ See e.g., ICE Bonds Letter at 2; FIMSAC Letter at 2; FINRA 
Notice at 13980; FIMSAC Transcript, supra note 36, Comments from 
Rick McVey, MarketAxess, at 0065 (recognizing that not all trading 
venues have timely access to reference data which results in some 
venues being able to trade the bonds when they begin trading in the 
secondary market while others cannot).
    \100\ See ICE Data Letter, at 2 (``a centralized data reporting 
requirement for such issues could benefit the industry and investors 
by enhancing market transparency, potentially aiding liquidity, 
reducing trading costs, and lowering the cost of capital for 
issuers''); FIMSAC Letter, at 2. See also FIMSAC Transcript, supra 
note 36, Comments from Alex Sedgwick, T. Rowe Price, at 0084-85 
(``Electronic market-makers ultimately need this information to 
provide accurate pricing and accurate valuation for the prices that 
they are pushing out to the market. If this information is not 
available, that ultimately means that there are liquidity providers 
that may not be able to provide liquidity to us when those new 
issues are free to trade.'').
    \101\ See Goldstein, M.A., Hotchkiss, E.S., and Pedersen, D.J., 
2019. Secondary market liquidity and primary market pricing of 
corporate bonds. Journal of Risk and Financial Management 12, 1-17.
    \102\ See Recommendation at 2. See also FIMSAC Transcript, supra 
note 36, Comments from Alex Sedgwick, T. Rowe Price, at 0084-85 (So, 
when . . . we are trading on the desk, we need to be able to measure 
our execution against benchmarks. If it takes more than a couple of 
hours or even more than a day for those benchmarks to become 
available, that is an area where we may not be able to do accurate 
trade cost analysis. And that is a very important sort of supporting 
piece of information as we think about best execution on the trading 
desk.''); Comments from Frederic Demesy, Refinitiv, at 0078 (``[A]t 
the moment, we see that there are some market anomalies where some 
of the vendors have access to information much earlier than other 
vendors. And that creates basically competitive advantage on certain 
platforms, which is in my view not ideal for having a transparent 
market. It also incurs higher costs for our customers. The first one 
would be on vendors. Market participants will have to source the 
data from multiple vendors to ensure that all the information is 
available, so [there are] duplicating costs. There is also an 
operational cost related in terms of data quality. So, when you 
onboard multiple feeds, ICE Data Service and Refinitiv data is not 
automatically in the same format. So, the customer has to develop 
operational efficiency tools to standardize the data on their 
platform. And third is when the market participant gets things 
wrong, it can have a huge impact, missing trade opportunities but 
also reputational risks that would be the worst.'').
    \103\ FINRA's proposal was informed by FINRA's outreach to a 
diverse set of market participants--including several data 
providers, underwriters and trading platforms--and responses from 
these market participants ``demonstrated a regulatory need for 
consistent, uniform, and timely corporate bond new issue reference 
data.'' See supra notes 63-69 and accompanying text. See also 
Response Letter, at 4; Notice, at 13980-81. The concerns of market 
participants, including data vendors, trading venues, and investors, 
regarding the lack of timely reference data are described in detail 
above. Based on this outreach, FINRA observed that various market 
segments may be lacking accurate, complete and timely reference 
data, including electronic trading platforms and smaller market 
participants that may not afford multiple data vendor subscriptions. 
See Response Letter, at 4. See also Notice, at 13980.
    \104\ See e.g. Notice, at 13980, n.17 (``According to one 
trading platform, its reference data provider would only provide 
data relating to new issues the morning after issuance, which 
resulted in the firm's clients not being able to trade the bond when 
it began to trade.''). Petitioner argued that nothing prevented this 
platform from fulfilling its needs with a different, competing 
vendor. See Petitioner Statement, at 28, n.19. However, as further 
discussed herein, in the present market different vendors may have 
access to different reference data relating to new issues as there 
is no requirement that underwriters or issuers provide the same 
information to all reference data providers or provide it at the 
same time. See supra notes 88-93 and accompanying text.

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[[Page 6931]]

    In sum, the record reflects that an information asymmetry that can 
disadvantage many market participants currently exists in the market 
for newly issued corporate bond reference data. In the Commission's 
view, FINRA's proposal, as discussed further below, is reasonably 
designed to address this information asymmetry in the current market to 
the benefit of the marketplace.

B. The Proposal Is Reasonably Designed To Address Existing Information 
Asymmetry That can Disadvantage Many Market Participants by Providing 
Reference Data Important for the Identification, Valuation, and 
Settlement of Newly Issued Corporate Bonds When Secondary Trading 
Begins

1. Comments on the Proposal
    The Commission received several comments relating to the proposed 
data fields required to be reported and the timing for submission of 
such data fields. Several commenters requested that FINRA make 
modifications to and/or provide further clarity regarding certain data 
fields.\105\ One commenter stated that, while it did not disagree with 
or question the value of FINRA's proposed data fields, FINRA should 
provide information to support its selections of each of the proposed 
data fields.\106\ One commenter stated that the proposal would not 
require the disclosure of any data that is not already disclosed in 
required security registration statements and other required 
filings.\107\ In its comment letter the FIMSAC recommended that FINRA 
combine certain proposed data fields and include six additional data 
fields.\108\ Petitioner stated that FINRA's proposal to require 
underwriters to report both CUSIPs and ISINs would further entrench the 
monopoly enjoyed by CUSIP and ISIN, and would embed ISIN into the FINRA 
rulebook for the first time.\109\ Petitioner further stated that FINRA 
does not address the market consequences or additional costs to 
underwriters or end users that would result from mandating further 
usage of CUSIPs and ISINs.\110\ Petitioner recommended that FINRA 
consider allowing the use of free, open-source alternative security 
identifiers, such as the Financial Instrument Global Identifier 
(``FIGI''), in addition to or in the place of CUSIP and ISIN.\111\
---------------------------------------------------------------------------

    \105\ See Credit Roundtable Letter, at 1; ICE Data Letter, at 2-
3; SIFMA Letter, at 3; FIMSAC Letter, at 14; Letter from Christopher 
B. Killian, Managing Director, SIFMA, dated July 29, 2019 (``SIFMA 
Letter II''), at 2; Letter from Christopher B. Killian, Managing 
Director, SIFMA, dated October 24, 2019 (``SIFMA Letter III''), at 
2-3.
    \106\ See Healthy Markets Letter, at 4, 6; Healthy Markets 
Letter III, at 2.
    \107\ See Harris Letter, at 2, 66 (``The fields on the FINRA 
list are sufficient to value most bonds. . . . I believe that FINRA 
chose the fields wisely.'').
    \108\ See FIMSAC Letter, at 7-8, 10, 12-13. FIMSAC proposed 
combining the Maturity and Perpetual Maturity indicators into one 
existing field (Maturity Date) and the 144A Eligible and Regulation 
S indicators into one new field (Series). In addition, FIMSAC 
recommended requiring the following additional data fields: First 
Conversion Date; First Conversion Ratio; Spread; Reference Rate; 
Floor; and Underlying. The FIMSAC also provided supporting rationale 
for the data fields included in the proposal and the suggested 
additional data fields. See FIMSAC Letter at 2-3 and Schedule A.
    \109\ See Petitioner Letter I, at 17; Petitioner Letter, III, at 
11.
    \110\ See id.
    \111\ See Petitioner Letter I, at 18.
---------------------------------------------------------------------------

    One commenter stated that it could be challenging for underwriters 
to provide all of the data elements prior to the first trade and 
requested that the proposal be modified so that underwriters would only 
be required to report certain information prior to the first trade, 
with the remaining information required to be reported within 60 
minutes of the first trade.\112\ On the other hand, one commenter 
stated that phased reporting of data elements causes material 
inefficiencies in the intake and consumption of data and that 
eliminating phased reporting will lead to more complete and consistent 
reference data.\113\
---------------------------------------------------------------------------

    \112\ See Letter from Christopher B. Killian, Managing Director, 
SIFMA, dated April 29, 2019 (``SIFMA Letter''), at 1-2. See also 
Letter from Cathy Scott, Director, Fixed Income Forum, on behalf of 
The Credit Roundtable, dated April 29, 2019 (``Credit Roundtable 
Letter''), at 1 (cautioning that any data provision requirements on 
underwriters should not impede their ability to make markets in the 
new issue as soon as possible).
    \113\ See Charles River Letter, at 2. See also Healthy Markets 
Letter, at 4 (``[W]e do not disagree with FINRA's determination to 
require uniform pre-first trade reporting.'').
---------------------------------------------------------------------------

    Commenters also requested various other clarifications to the 
proposal.\114\
---------------------------------------------------------------------------

    \114\ Two commenters requested that FINRA clarify the meaning of 
the ``prior to the first transaction'' deadline for reporting 
reference data to FINRA. See ICE Data Letter, at 2; ICE Bonds 
Letter, at 2. One commenter requested FINRA clarify the process for 
underwriters to correct erroneously reported reference data. See 
Letter from Salman Banaei, Executive Director, IHS Markit, dated 
April 29, 2019 (``IHS Markit Letter''), at 2-3. Two commenters made 
technical suggestions regarding the methods for supplying and 
redistributing the required data. See SIFMA Letter, at 2; ICE Data 
Letter, at 3; SIFMA Letter III, at 2.
---------------------------------------------------------------------------

2. FINRA Response to Comments
    In response to the FIMSAC Letter, FINRA incorporated the FIMSAC's 
additional supporting rationale for the data fields into its filing and 
added the six additional data fields suggested by the FIMSAC.\115\ 
FINRA stated that it agrees that these six new fields are useful and 
appropriate to include in the proposal as they are important for 
settlement and valuation of floating rate notes and convertible 
bonds.\116\ FINRA further stated that it believes the six new fields 
would not materially increase the costs of the proposal on 
underwriters.\117\ In addition, in response to comments requesting 
clarification of certain data fields, Amendment No. 2 included 
additional detail relating to certain data fields.\118\
---------------------------------------------------------------------------

    \115\ See Amendment No. 2, at 5 and Exhibit 3. See also Response 
Letter, at 12-13.
    \116\ See Amendment No. 2, at 5 and Exhibit 3; Response Letter, 
at 13. FINRA stated that it also agrees with FIMSAC's recommendation 
to combine the Maturity and Perpetual Maturity indicators into one 
existing field (Maturity Date) and marked the amended Exhibit 3 to 
reflect that the maturity and perpetual maturity indicator fields 
will be tied together as combined fields for purposes of reporting 
the information. See Amendment No. 2, at 5, n.9, and Exhibit 3; 
Response Letter, at 13, n.41. With respect to FIMSAC's 
recommendation to combine the 144A Eligible and Regulation S 
indicator fields into a single ``Series'' field, FINRA stated that 
it believes it will be easier operationally to maintain the separate 
fields to limit potential confusion about other security offering 
types or issuances that may meet more than one offering type. See 
id.
    \117\ See Response Letter, at 13.
    \118\ See Amendment No. 2, at 5 and Exhibit 3; Response Letter, 
at 12-13. In particular, FINRA stated that it (i) provided 
additional guidance to clarify that the ratings data field does not 
require reporting specific ratings, but rather whether the security 
is Investment Grade or Non-Investment Grade, as those terms are 
defined in Rule 6710; and (ii) clarified the information to be 
reported for the security type, first coupon period type, minimum 
increment, and minimum piece/denomination data fields. See Amendment 
No. 2, at 5, n.10, and Exhibit 3; Response Letter, at 12-13, n.39.
---------------------------------------------------------------------------

    In response to comments regarding the timing of the reporting 
requirement, FINRA stated that it believes it is important to maintain 
the proposal's pre-first transaction reporting requirement.\119\ FINRA 
stated that the purpose of the pre-first trade requirement is to 
facilitate the collection and dissemination of all proposed new issue 
reference data fields before secondary trading in a security begins, 
and recognized supporting comments on this point.\120\ FINRA stated 
that, as

[[Page 6932]]

amended, it believes its proposal ``reflects a modest expansion of Rule 
6760 to include the basic set of essential new issue reference data 
fields that market participants require for pricing trading and 
settlement.'' \121\ FINRA stated that the proposed requirement for 
underwriters to report reference data for a new issue before the first 
trade in the bond, coupled with FINRA's dissemination of the new issue 
reference data immediately upon receipt, ``will allow market 
participants to receive the information in a timelier manner and more 
efficiently participate in market activity once a new issue begins 
secondary trading.'' \122\ In response to comments regarding the use of 
alternative securities identifiers, rather than CUSIP and ISIN, FINRA 
stated that it does not believe this element of the proposal requires 
new economic impact analysis since current FINRA Rule 6760 already 
requires underwriters to report a CUSIP number or a similar numeric 
identifier if a CUSIP number is not available.\123\
---------------------------------------------------------------------------

    \119\ See Response Letter, at 14. FINRA stated that ``[b]ased on 
conversations with underwriters, FINRA understands that underwriters 
do not anticipate incurring significant costs for reporting under 
this proposal.'' See Notice, at 13982.
    \120\ See Response Letter, at 14 (citing to ICE Bonds Letter, at 
2; and ICE Data Letter). In response to comments requesting 
clarification on what the term ``first transaction'' means, FINRA 
stated that ``it means the time of execution of the first 
transaction of the offering (i.e., the time of execution for the 
first reported primary transaction in the security), as specified 
currently in Rule 6760.'' See Response Letter, at 14. FINRA stated 
that it believes this position is consistent with the recommendation 
from ICE Data to provide clarification for the term ``first 
transaction'' consistent with MSRB Rule G-34. See Response Letter at 
14, n.45 (citing to ICE Data Letter, at 2).
    \121\ See FINRA Statement, at 10-11.
    \122\ See id.
    \123\ See FINRA Response Letter, at 9, n.28.
---------------------------------------------------------------------------

    FINRA further stated that it recognizes that commenters have 
requested further clarification of several data fields,\124\ and that 
FINRA believes such requests can be addressed with guidance provided in 
the customary course of new rule implementation, and FINRA will 
continue to engage with market participants as required to provide such 
guidance.\125\ In addition, FINRA stated that it intends to implement 
functionality to allow for underwriters to correct previously submitted 
data to FINRA for a significant period after receiving the initial Rule 
6760 submission and that FINRA will continue to engage with market 
participants on the appropriate business requirements for the reporting 
process.\126\ FINRA also stated that it may take a phased approach to 
implementation to promote compliance and data accuracy, where FINRA 
would make the reporting requirements effective for a brief time period 
to analyze and evaluate the accuracy of the reported data before 
implementing dissemination of the data.\127\
---------------------------------------------------------------------------

    \124\ See, e.g., SIFMA Letter III, at 2-3.
    \125\ See Response Letter, at 12-13.
    \126\ See id., at 14-15.
    \127\ See id., at 15.
---------------------------------------------------------------------------

3. Commission Discussion and Findings
    By helping eliminate the existing information asymmetry in access 
to reference data, the proposed collection and dissemination of the 
proposed data elements should promote (i) competition among market 
participants by facilitating broader market participation in the 
secondary market of a newly issued corporate bond on the first day that 
bond trades, (ii) improved secondary market liquidity when a bond 
becomes available to trade in the secondary market and lower cost of 
capital for issuers, and (iii) lower other costs by providing data 
vendors with a more efficient method of collecting reference data and 
eliminating existing market inefficiencies. As discussed further below, 
the Commission believes eliminating the information asymmetry with 
respect to newly issued bond reference data is consistent with Section 
15A(b)(6) of the Act as it will ``promote just and equitable principles 
of trade, foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitating transactions in'' newly issued corporate bonds, and 
``remove impediments to and perfect the mechanism of a free and open 
market'' with respect to the market in such securities. FINRA's 
proposal would require all FINRA member underwriters subject to Rule 
6760 to report to FINRA 32 new data elements for all new issues in 
Corporate Debt Securities, as defined in FINRA's rules. The required 
data fields proposed to be reported and disseminated, together with 
data fields already specified in the current rule, reflect all but one 
of the fields that were described in the Recommendation and in the 
supplemental FIMSAC Letter,\128\ and include additional data fields 
identified by FINRA during its supplemental industry outreach.\129\ As 
stated by FINRA, several fields specified in the proposed rule change 
are already required to be reported or are reported voluntarily on the 
FINRA TRACE New Issue Form.\130\ In addition to the FIMSAC,\131\ a 
number of commenters agreed with the required data fields put forth by 
FINRA.\132\ FINRA set forth a detailed description of each new required 
data field \133\ and the rationale for including the field, as follows: 
\134\
---------------------------------------------------------------------------

    \128\ See Recommendation at Schedule A; FIMSAC Letter at 
Schedule A. The one field from the Recommendation that FINRA did not 
include is ``Calculation Types (CALT).'' FINRA stated that it 
understands from industry outreach that this field leverages 
calculation methodology that is specific to one data vendor's 
protocols and may not be readily available to all underwriters that 
would be required to report information to FINRA under Rule 6760, or 
to consumers of the data. See Notice, at 13978, n.8.
    \129\ FINRA stated these additional fields were indicated by 
market participants as important in liquidity and risk assessment. 
See Notice, at 13978-79. See also Amendment No. 2, Exhibit 3.
    \130\ See Notice, at 13978. The FINRA TRACE New Issue Form is 
used by firms to set up securities pursuant to firms' existing 
obligations either under Rule 6760 or 6730 (Transaction Reporting). 
It allows for the submission of data fields required by these rules 
as well as additional data fields that underwriters often report 
voluntarily. As part of the proposal, FINRA would codify in Rule 
6760 the specific fields that have been deemed necessary under 
current Rule 6760(b) and therefore are mandatory for successful 
submission of the TRACE New Issue Form. See Notice, at 13978, n.9.
    \131\ See supra note 128 and accompanying text.
    \132\ See, e.g., Harris Letter, at 6 (``The fields on the FINRA 
list are sufficient to value most bonds. . . . I believe that FINRA 
chose the fields wisely.''); ICE Data Letter, at 2 (``ICE Data 
Services believes the scope of the Proposal is appropriate and we 
support the inclusion of the 30 data fields enumerated in the 
Proposal's Exhibit 3.'').
    \133\ FINRA Rule 6760 currently requires underwriters to report 
to FINRA the following information: Issuer; Coupon; CUSIP Number; 
Maturity; 144A Eligibility Indicator; the time that a new issue is 
priced and, if different, the time that the first transaction in the 
offering is executed; a brief description of the issue; and such 
other information as FINRA deems necessary to properly implement the 
reporting and dissemination of a TRACE-Eligible Security. FINRA's 
proposal will require that these data elements be reported to FINRA 
prior to the first transaction in the security in all instances.
    \134\ See Amendment No. 2, Exhibit 3. Similar rationale for each 
data field was also put forth by the FIMSAC. See FIMSAC Letter, at 
Schedule A. In addition, in Amendment No. 2, FINRA set forth its 
rationale for including certain data fields currently required to be 
reported under Rule 6760, as follows: (1) Issuer--necessary for 
settlement and valuation purposes; the investor needs to know the 
issuing entity of the bond; (2) Coupon--needed for settlement and 
valuation purposes; the coupon rate is needed for accrual/interest/
cash flow calculations; (3) CUSIP Number--needed to uniquely 
identify securities that trade, clear, and settle in North America, 
particularly in the United States; (4) Maturity--necessary for 
settlement and valuation purposes; this field is necessary in order 
to understand when the bond is due to pay back its principal at par; 
this field is used to back populate accruals and cash flows; and (5) 
144A Eligible Indicator--necessary for settlement purposes; this 
field is needed to distinguish 144A securities for QIB eligible 
investors. See Amendment No. 2, Exhibit 3. See also FIMSAC Letter, 
at Schedule A.
---------------------------------------------------------------------------

     ISIN Number--needed to uniquely identify securities that 
are traded and settled internationally outside of North America.
     Currency--necessary for settlement purposes in order to 
determine the currency of the principal, interest, or premium that will 
be paid or received at the time of distribution or settlement of a 
trade.
     Issue Date/First Settlement Date--needed for settlement 
purposes; required in order to populate the first settlement date of 
the bond; needed in order to settle the bond trade between 
counterparties when trading new issues.
     Interest Accrual Date--necessary for settlement and 
valuation purposes; needed in order to start the cash flow period of 
the coupon.

[[Page 6933]]

     Day Count Description--necessary for settlement and 
valuation purposes; needed to calculate the purchase accrued interest 
and coupon of the security.
     Coupon Frequency--necessary for settlement and valuation 
purposes; needed to determine how often the coupon payment is made 
within the year and to calculate the purchase accrued interest and 
coupon payments.
     First Coupon Payment Date--necessary for settlement and 
valuation purposes; needed to determine whether the coupon will have a 
short or long stub on its first coupon payment.
     Regulation S Indicator -necessary for settlement purposes; 
needed to distinguish Regulation S securities for non-U.S. entities.
     Security Type--needed to identify the type of security 
being traded and its terms/features.
     Bond Type--necessary for valuation purposes; needed as the 
bond classification dictates the payout order in the event of an issuer 
default; determines the liquidation preference which specifically 
affects the valuation of the security.
     First Coupon Period Type--necessary for settlement and 
valuation purposes; denotes whether the coupon will have a short or 
long stub on its first coupon payment depending on the security's issue 
date.
     Convertible Indicator--necessary for valuation purposes; 
needed to understand if the bond is convertible and to allow set up 
with the underlying equity and conversion price/conversion ratio.
     First Conversion Date--necessary for valuation purposes; 
needed to determine when the bond may be converted into stock.
     First Conversion Ratio--necessary for valuation purposes; 
needed to determine the number of shares into which each convertible 
bond can be converted.
     Call Indicator--necessary for valuation purposes; needed 
in order to know if the bond has call feature(s); needed when the 
security is created and will also have an effect on its valuation.
     First Call Date--necessary for valuation purposes; needed 
in order to know the first call date of the security and will have an 
effect on bond valuation.
     Put Indicator--necessary for valuation purposes; needed in 
order to know if the bond has puttable feature(s); needed when the 
security is created and will also have an effect on its valuation.
     First Put Date--necessary for valuation purposes; needed 
in order to know the first put date of the security and will have an 
effect on bond valuation.
     Minimum Increment--necessary for settlement purposes; 
needed in order to understand the minimum incremental amount of bonds 
that an entity can buy and settle at the depository.
     Minimum Piece/Denomination--necessary for settlement 
purposes; needed in order to understand the minimum tradeable amount of 
bonds that an entity can buy and settle at the depository.
     Spread; Reference Rate & Floor--necessary for settlement 
and valuation purposes; needed to build a cash flow table for the 
security which determines the coupon for the period; directly affects 
the purchase accrued interest and future interest distributions; needed 
to calculate the purchase and interest accrued.
     Underlying Entity Ticker--necessary for valuation 
purposes; needed to value convertible bonds.
     Issuance Amount--addresses the size of the deal, which is 
a data attribute for index inclusion criteria across almost every fixed 
income index; would have influence on ETF, liquidity, etc.\135\
---------------------------------------------------------------------------

    \135\ The Commission believes that FINRA's statement here is 
intended to convey that a bond's issuance amount (e.g., the total 
par amount issued) is an important piece of information for market 
participants because the size of the issuance impacts a bond's 
potential inclusion in ETFs and impacts a bond's secondary market 
liquidity.
---------------------------------------------------------------------------

     First Call Price & First Put Price--critical for option 
adjusted spread (OAS) and average life calculations; represent 
important fields for most clients (especially retail investors) when 
they gauge re-investment risk.
     Coupon Type--denotes potential complexity and predictable 
cash flow data.
     Rating (TRACE Grade)--important to assess risk; FINRA 
utilizes ratings to determine TRACE grade (Investment Grade or Non-
Investment Grade) which determines dissemination volume caps.
     Perpetual Maturity Indicator--important for pre-trade 
compliance; yield calculations generally use first call on perpetual 
securities.
     PIK Indicator--important for pre-trade compliance as it 
indicates cash flow implications and risk for many investors.
    As set forth above, FINRA has explained (and several commenters 
have agreed) \136\ that each data field is required to either identify, 
settle or value a newly issued corporate bond. The Commission agrees 
with FINRA's rationale for requiring each data field, and believes that 
the required data fields are appropriately tailored to facilitate the 
identification, valuation and settlement of newly issued corporate 
bonds.\137\ Furthermore, as discussed in detail in Section III.E below, 
the Commission believes FINRA's proposal encompasses a limited set of 
data that will enable broader market participation at the beginning of 
secondary market trading, but will not supplant the demand for more 
comprehensive data sets that contain additional fields not reported to 
or disseminated by FINRA.\138\
---------------------------------------------------------------------------

    \136\ See supra notes 131-132.
    \137\ See ICE Data Letter, at 2, FIMSAC Letter, at 2-3 and 
Schedule A and Harris Letter, at 6 (all commenting that FINRA's 
proposal included the necessary data elements for achieving the 
purpose of enabling market participants to participate in the 
secondary market when trading begins). The Commission does not 
believe that requiring the reporting of CUSIP and ISIN will cause 
any change in the manner underwriters procure this information today 
or the extent to which market participants rely on this information 
to identify specific securities. As FINRA recognized, CUSIP is 
already required to be reported to FINRA under FINRA Rule 6760. See, 
e.g., FINRA Response Letter, at 9, n.28. Furthermore, both CUSIP and 
ISIN are widely used today as primary methods for identifying 
securities. While consideration could be given by FINRA to accept 
the reporting of other securities identifiers if FINRA decided to 
explore that in the future, the Commission agrees with comments that 
CUSIP and ISIN are currently necessary data elements for market 
participants to identify specific securities, thereby enabling their 
participation in the secondary market when these securities begin 
trading. See e.g., FIMSAC Letter, at Schedule A; FINRA Letter, at 6. 
Regarding comments concerning the collection of alternative 
securities identifiers such as FIGI, the Commission recognizes that 
freely available, open alternatives to proprietary identifiers do 
not entail fees for storage, use, and redistribution, as is 
frequently the case for proprietary identifiers. The Commission also 
recognizes there are challenges to the adoption of alternatives to 
proprietary identifiers such as CUSIP and ISIN that are in 
widespread use, such as the need for such alternative identifiers to 
be supported in reference data and clearance and settlement systems 
in order for them to be viable alternatives to proprietary 
identifiers. A future proposed rule change could seek to lessen 
reliance on proprietary identifiers for regulatory reporting, 
including regulatory reporting related to corporate bonds. The 
Commission notes that FINRA could, if appropriate, file a proposed 
rule change with the Commission to supplement or allow alternatives 
to the securities identifier information that it will be collecting 
pursuant to this proposal. Any such proposal would be informed by 
the public notice and comment process required by the Act.
    \138\ There are many other data provided by data vendors that 
provide bond issue reference data, such as issuer information (e.g., 
fundamentals data, capital structure data), specific bond rating, 
bond trade and selling restrictions, classification data (industry, 
legal entity, etc.), corporate action data, ESG (Environmental, 
Social & Governance) data, dividend data, instrument analytics data, 
and security ownership data. See supra note 87.
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    In addition, the Commission agrees that it is important that all 
required data elements for new issues in corporate debt securities be 
reported prior to the first transaction in the security so that market 
participants will be able to participate in the secondary market

[[Page 6934]]

promptly.\139\ FINRA stated this approach--to require uniform pre-first 
trade reporting \140\--would allow FINRA to collect and make all of the 
data available immediately to market participants, resulting in a more 
consistent, timely, and complete data set that will support more 
efficient pricing, trading and settlement of bonds.\141\ As stated by 
FINRA and other commenters, improved reference data transparency should 
promote market efficiency and fair competition among all market 
participants by helping to ensure all market participants have access 
to consistent, timely and accurate reference data regarding newly 
issued corporate bonds.\142\ The Commission believes providing market 
participants with reference data important for their participation in 
the secondary market when a bond begins to trade should eliminate the 
information asymmetry described above, which would benefit the 
corporate bond market.\143\ Enabling broader participation by all 
market participants should promote (i) improved competition among 
market participants by providing all market participants with the 
ability to access the same investment options to meet their own 
business and investment needs or those of their customers at the time a 
bond becomes available in the secondary market, (ii) improved secondary 
market liquidity and lower the cost of capital for issuers as more 
market participants become able to participate in the secondary market 
on the first day of trading; and (iii) lower other costs by providing 
data vendors with a more efficient method of collecting reference data 
and eliminating existing market inefficiencies.\144\ Furthermore, the 
Commission agrees with commenters and believes that the provision of 
reference data will benefit all participants on electronic trading 
platforms, including investors and intermediaries, by enabling them to 
price and trade bonds based on consistent, accurate, and timely 
information, which is vital to meet the information needs of an 
increasingly electronic corporate bond market.\145\
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    \139\ Currently, for information reported under Rule 6760 for 
trade reporting purposes, the rule allows phased reporting in some 
cases. Specifically, for an offering of a security that is priced 
and begins trading on the same business day between 9:30 a.m. and 
4:00 p.m. Eastern Time, Rule 6760 requires ``as much of the 
information set forth in paragraph (b)(1) that is available prior to 
the execution of the first transaction of the offering, which must 
be sufficient to identify the security accurately, and such other 
information that FINRA deems necessary and provide all other 
information required under paragraph (b)(1) within 15 minutes of the 
Time of Execution of the first transaction.'' See Rule 6760(c).
    \140\ The Commission recognizes that there may be an incremental 
burden on underwriters; however, the Commission believes this burden 
will be mitigated both by the existence of current reporting 
infrastructures and the fact that the data elements to be reported 
are likely already in the possession of underwriters, given the use 
of this information in the newly issued bond's primary offering. See 
infra Section III.D.3.
    \141\ See Notice, at 13979. FINRA noted that the Recommendation 
stated that managing underwriters should be required to report the 
data elements to FINRA no later than reporting such data elements to 
any third party not involved in the offering, including reference 
data vendors. See Recommendation, at 3. See also supra note 113 for 
supporting comment letters.
    \142\ See Notice, at 13981. See also supra notes 31-42 and 
accompanying text.
    \143\ See supra Section III.A.3.
    \144\ See id. See also supra notes 90-104 and accompanying text 
for a discussion of concerns about information asymmetry in the 
corporate bond market today that can disadvantage many market 
participants. Petitioner argued that FINRA provided no evidence the 
proposal would reduce broken trade errors or reduce costs or 
duplicated efforts. See supra notes 51-52. In contrast, other 
commenters and market participants stated that FINRA's proposed data 
service would reduce costs, eliminate duplicated efforts, and reduce 
trading errors, as market participants would no longer have to 
source data from multiple vendors or enter data manually. See supra 
notes 31-42 and 92-103 and accompanying text. As discussed herein, 
the Commission believes the proposal would benefit the corporate 
bond market by, among other things, lowering costs and potentially 
reducing trading errors.
    \145\ See supra notes 37-41 and note 100. See also FIMSAC 
Transcript, supra note 36, Comments from Frederic Demesy, Refinitiv, 
at 0077-78 (``[W]e see a transformation in the bond markets where in 
the past market participants were expecting the data to be available 
at the end of day or the timeliness was not as important as it is 
now. Now, a market participant wants to have the information when 
the bond prices to set up their platforms to be able to trade. They 
want to have updates intraday, and that is a very big difference 
from what happened maybe two, three or five years ago where end of 
day updates was enough for them to operate. Now, the market 
participants want information intraday. And that forces market 
vendors . . . to rethink the way we distribute the reference data. 
And obviously the more the bond trades electronically, the more 
market participants would want to have this information on time.''); 
Comments from Alex Sedgwick, T. Rowe Price, at 0084-85 (``Electronic 
market-makers ultimately need this information to provide accurate 
pricing and accurate valuation for the prices that they are pushing 
out to the market. If this information is not available, that 
ultimately means that there are liquidity providers that may not be 
able to provide liquidity to us when those new issues are free to 
trade.'')
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    For these reasons, the Commission believes that FINRA's proposal is 
consistent with Section 15A(b)(6) of the Act as it will ``promote just 
and equitable principles of trade, foster cooperation and coordination 
with persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in'' newly 
issued corporate bonds, and ``remove impediments to and perfect the 
mechanism of a free and open market'' with respect to the market in 
such securities, consistent with Section 15A(b)(6) of the Act.\146\ The 
Commission believes it is important for all required data fields to be 
reported to FINRA prior to the first transaction in the security 
because this requirement, coupled with FINRA's dissemination of the new 
issue reference data immediately upon receipt, will allow all market 
participants to have timely, basic information that is important for 
the identification, valuation, and settlement of newly issued corporate 
bonds in order to participate in the secondary market without 
delay.\147\
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    \146\ One commenter stated that FINRA should be required to 
demonstrate that the benefits of the proposal are so substantial and 
clear to overcome the strong presumption that private actors in 
competitive markets are the best means of providing goods and 
services. See supra note 54 and accompanying text. Pursuant to the 
Act, the Commission must approve an SRO's proposed rule change if it 
finds that such proposed rule change is consistent with Act and the 
rules and regulations issued thereunder that are applicable to such 
organization. See Section 19(b)(2)(C)(i) of the Act. For the reasons 
set forth herein, the Commission finds that FINRA has made such a 
showing.
    \147\ See supra Section III.A and notes 90-104 and accompanying 
text for a discussion of concerns about information asymmetry in the 
corporate bond market today that can disadvantage many market 
participants; and note 145 and accompanying text. As discussed 
above, timely availability of this data should promote (i) 
competition, (ii) improve secondary market liquidity and lower cost 
of capital and (iii) lower other costs. In addition, FINRA has 
clearly and explicitly stated that it will provide guidance in the 
course of new rule implementation to provide any further 
clarification required regarding data fields, and will engage with 
market participants as required to provide such guidance. FINRA has 
also clearly and explicitly stated that it will engage with market 
participants on the appropriate business requirements for the 
reporting process and has stated that it may take a phased approach 
to implementation to promote compliance and data accuracy. See supra 
notes 125-127 and accompanying text.
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C. FINRA as Centralized Data Source

1. Comments on the Proposal
    Petitioner questioned whether a single SRO would provide more 
accurate, complete and timely service than competing private sector 
providers and noted that the impact of any errors in a centralized 
system would be magnified.\148\ Petitioner stated that ``[i]f trades 
need more accurate, compete and timely data, they can switch to one of 
several major data providers.'' \149\ Petitioner stated that the 
Approval Order did not explain ``why uniform (as opposed to accurate 
and accessible) data is necessary or desirable in a competitive 
market'' and that ``assuming uniformity were an important goal . . . , 
neither FINRA nor the [Approval Order] has explained why that justifies 
a sole-source provider.'' \150\ Petitioner

[[Page 6935]]

further stated that private vendors will have a diminished incentive to 
gather, verify, organize, maintain, and provide reference data 
information, and that FINRA will not have the financial incentive to do 
so in a cost-effective manner or to improve its technology for 
collecting or distributing bond data, and, as a result, traders' cost 
for bond reference data may increase.\151\ Another commenter opposed 
giving FINRA or any other utility or vendor a monopoly or competitive 
advantage in the collection and dissemination of corporate bond new 
issue reference data, stating that doing so may reduce the overall 
quality and timeliness, and increase the cost, of the data.\152\ 
Petitioner suggested that FINRA should have considered alternatives to 
the proposal, including ``develop[ing] certification criteria for 
vendors, or common data standards for underwriters, at far less cost 
than the construction of a new service, and at far less risk of a 
single point of failure'' \153\ and stated that the proposal violates 
the Act because it does not foster cooperation with existing data 
vendors and providers.\154\
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    \148\ See Petitioner Letter, at 9-10.
    \149\ See Petitioner Statement at 23.
    \150\ See Petitioner Statement, at 24.
    \151\ See Petitioner Letter III, at 5-6; Petition for Review, at 
31. This commenter further stated that the proposed centralized data 
service could achieve a dominant position regardless of whether an 
innovating company could have done a better job and that the 
proposed database, run as a ``regulatory utility,'' is likely to 
produce a service less valuable than what market-based providers 
would produce. See Petitioner Statement, at 37.
    \152\ See Letter from Larry Tabb, TABB Group, dated May 15, 2019 
(``Tabb Letter''), at 3. See also Petitioner Letter V, at 2.
    \153\ See Petitioner Statement, at 24.
    \154\ See Petitioner Statement, at 20.
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    Petitioner and another commenter stated that the proposal creates a 
conflict of interest for FINRA and reduces FINRA's standing as an 
independent regulatory force.\155\ The other commenter stated that 
FINRA has a pecuniary interest in promulgating the proposal and ``can 
use its regulatory authority to force underwriters to provide it with 
information and then sell the information to market participants at a 
profit.'' \156\ On the other hand, FIMSAC stated it would be concerned 
by any alternative construct to FINRA's proposal that would give 
increased market power to a single commercial data provider without a 
commensurate level of regulatory oversight.\157\
---------------------------------------------------------------------------

    \155\ See Petitioner Letter IV, at 5; Heritage Letter V, at 2. 
See also Petitioner Statement, at 31 (``The [proposal] . . . creates 
an inherent conflict between a public regulator and the private 
parties it regulates.'').
    \156\ See Heritage Letter V, at 2. See also Petitioner 
Statement, at 31 (stating that pursuant to the proposal, FINRA 
``would coerce underwriters to surrender bond-reference data and 
would (at least implicitly) compel broker-dealers to buy FINRA's 
data'' and that if the proposed database costs more than expected or 
does not achieve the purported benefits, FINRA may be motivated to 
take steps to save its own finances that, ``as a regulator, it is 
uniquely empowered to take.''). In Section III.F below, the 
Commission discusses comments regarding FINRA's potential fees for 
this service.
    \157\ See FIMSAC Letter, at 4. The FIMSAC stated that data 
vendors are conflicted by competing commercial interests and should 
not be in a position to determine who can have access to data 
necessary to value, trade and settle a newly issued corporate bond. 
See id. Petitioner, which has both a data business and an electronic 
bond trading platform, responded to this comment, stating that there 
is no basis for FIMSAC's claims that integrated firms are using 
their data business to harm competition in trading. Petitioner 
pointed to data showing that it holds only 3.2% of market share of 
domestic institutional electronic corporate bond trading, and argued 
that these data contradict any suggestion that the commenter has 
leveraged its data business to gain a competitive advantage for its 
electronic trading business. See Petitioner Letter II, at 2-4.
---------------------------------------------------------------------------

    A number of commenters questioned the quality of FINRA's current 
TRACE data, and pointed to a recent study that found that approximately 
20% of entries had errors.\158\ Petitioner stated that ``[t]he best 
predictor of whether FINRA will be able to run an accurate data system 
is its experience with the TRACE system, an existing system that is 
simpler than the as-yet-unbuilt system FINRA proposes'' and that 
``[n]othing in the record supports any inference that FINRA's new 
system would outperform the 20% error rate cited in the . . . Tabb 
Study.'' \159\
---------------------------------------------------------------------------

    \158\ See, e.g., Healthy Markets Letter II, at 5; Petitioner 
Letter III, at 5-6; and Petitioner Letter IV, at 4 (citing to Larry 
Tabb, Tabb Forum, ``An SEC-Mandated Corporate Bond Monopoly Will Not 
Help Quality'' (Mar. 21, 2019) (``Tabb Study'')). See also 
Petitioner Statement, at 29.
    \159\ See Petitioner Statement, at 30.
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2. FINRA Response to Comments
    In response to comments that private vendors should continue to 
provide this information rather than a single SRO,\160\ FINRA stated 
that ``[a] key element of the [p]roposal is that FINRA, as a not-for-
profit SRO, will provide a limited set of essential corporate bond new 
issue reference data as a public market utility on timely, reasonable, 
and non-discriminatory terms to anyone who chooses to receive it.'' 
\161\ FINRA noted that, in contrast, ``the private data vendors that 
today provide corporate bond new issue reference data are not bound by 
similar obligations, and the FIMSAC expressed particular concern that a 
dominant private data vendor has refused to license data, or has 
withheld it selectively, for anti-competitive reasons.'' \162\ FINRA 
stated that the current disparity among vendor access to reference data 
results from competitive barriers in the current market, ``as 
underwriters have relatively few incentives to report to data vendors 
other than the prevalent incumbent data vendor, i.e., Petitioner.'' 
\163\ FINRA further noted that the FIMSAC was particularly concerned 
that ``a dominant private vendor's ability to restrict access to new 
issue reference data has immediate and direct downstream impacts on the 
ability of other market participants to perform critical market 
functions such as pricing, trading, clearing, and settling new issues 
once the bonds begin trading in the secondary market.'' \164\ FINRA 
stated that comments from members and panelists at the FIMSAC meeting 
also provided support for the Subcommittee's recommended solution that 
FINRA establish and operate a consolidated, regulated data 
service.\165\ Furthermore, FINRA noted that the FIMSAC reaffirmed FINRA 
as ``the most logical and impartial choice'' to

[[Page 6936]]

establish and operate the data service in its comment letter, as FINRA 
would provide the data impartially ``to all market participants on 
objective and non-discriminatory terms.'' \166\ While FINRA 
acknowledged that the proposed data service may create a potential 
single point of failure,\167\ FINRA stated it continues to believe any 
concerns about the risks of consolidation do not outweigh the benefits 
of the data service, and that vendors are likely to continue collecting 
corporate bond new issue reference data.\168\
---------------------------------------------------------------------------

    \160\ See supra notes 148-152 and accompanying text.
    \161\ See FINRA Statement, at 2.
    \162\ See FINRA Statement, at 2 (citing Recommendation, supra 
note 30). In response, Petitioner stated that it submitted the 
Petitioner Motion and Declarations to rebut FINRA's allegations of 
anti-competitive conduct. Specifically, Petitioner stated that the 
Declarations demonstrate that Petitioner does not restrict access to 
its reference data service based on firms' willingness to use any of 
its trading services, or for any other anti-competitive reasons, and 
that Petitioner makes its reference data service broadly available 
on standard terms for standard use cases. See Petitioner Motion, at 
10. FINRA, on the other hand, stated that the Declarations do not 
directly address the specific concerns expressed by the FIMSAC and 
are immaterial in light of the well-developed record. See FINRA 
Opposition, at 6-7.
    \163\ See FINRA Statement, at 12.
    \164\ See FINRA Statement, at 2-3 (citing Recommendation, supra 
note 30). FINRA further stated that Petitioner is the dominant 
private data vendor in today's market for corporate bond new issue 
reference data and ``often gains access to new issue reference data 
before other vendors and market participants.'' See FINRA Statement, 
at 3. In response, Petitioner stated that neither the Recommendation 
nor the FIMSAC Letter suggested that one dominant private data 
vendor engaged in anti-competitive activity. See Petitioner Motion, 
at 3. In addition, Petitioner stated that the Declarations 
``conclusively rebut the notion that Petitioner engages in an 
anticompetitive leveraging of the new bond issuance functionality on 
the Petitioner Terminal service to gain preferential access to 
reference data.'' See Petitioner Motion, at 9. On the other hand, 
FINRA stated that the Declarations neither directly address nor 
dispel the concerns expressed by the FIMSAC and others that underlie 
the proposed rule change. See FINRA Opposition, at 6-9.
    \165\ Specifically, FINRA pointed to (i) a statement by Larry 
Harris, USC Marshall School of Business, that ``FINRA is best 
equipped to solve this problem;'' and (ii) a statement by Bob LoBue, 
J.P. Morgan, that the firm ``could probably populate [its existing 
process for providing new issue reference data to FINRA] a little 
bit deeper.'' See FINRA Statement, at 9 (citing to FIMSAC 
Transcript, supra note 36).
    \166\ See FINRA Statement, at 9-10 (citing the FIMSAC Letter). 
FINRA further noted that the FIMSAC articulated a ``concern that 
certain large reference data providers `have in the past, and could 
in the future, manage their data and trading businesses in a 
coordinated fashion--refusing to license their leading reference 
data products to trading platforms that they deem to be competitive 
with their own.' '' See id. at 10 (citing FIMSAC Letter, at 3-4).
    \167\ See supra note 153 and accompanying text.
    \168\ See Response Letter, at 10. However, one commenter stated 
that FINRA offers no reason why vendors would continue to fund their 
own research in addition to paying for FINRA's information. See 
Petitioner Letter V, at 3. See also Section III.E for a discussion 
of the proposal's impacts on competition.
---------------------------------------------------------------------------

    In response to comments that there exist alternatives to the 
proposal that would be less costly,\169\ FINRA noted that it considered 
alternatives and explained its rationale for the choices it made in its 
proposal.\170\ FINRA further stated that Petitioner's analysis that an 
SRO's proposed rule change cannot be approved if some alternative might 
also accomplish the same goal is flawed.\171\
---------------------------------------------------------------------------

    \169\ See supra note 153 and accompanying text.
    \170\ See FINRA Statement, at 25. See also Notice, at 13979 
(``FINRA alternatively considered maintaining the Rule's phased 
reporting approach for offerings in corporate debt securities 
subject to the proposal, with certain core information required 
prior to the first trade and an extended 60-minute window for 
remaining information, given the additional data fields that would 
be required to be reported under the proposal. However, FINRA 
believes that the proposed approach to require uniform pre-first 
trade reporting better supports the stated goals in the FIMSAC 
Recommendation to increase the efficiency of the corporate bond 
market and promote fair competition among all market 
participants.''); 13982-83 (``FINRA also considered whether there 
was an appropriate alternative approach that involved an expansion 
of the DTCC's NIIDS service to include corporate new issue reference 
data. However, based on operational and commercial reasons, 
including inefficiencies with integrating the existing FINRA 
reporting infrastructure with a separate DTCC infrastructure, FINRA 
concluded that expanding the current existing FINRA reporting and 
dissemination framework was a more effective and efficient approach 
. . .'').
    \171\ See FINRA Statement, at 25.
---------------------------------------------------------------------------

    In response to comments regarding alleged conflicts of interest and 
FINRA acting in a commercial rather than a regulatory role,\172\ FINRA 
stated that, as a non-profit registered securities association and SRO, 
it does not intend to compete with or displace private data 
vendors.\173\ FINRA added that it did not initiate the proposal for 
commercial benefit but did so in response to a specific recommendation 
and regulatory need identified by the FIMSAC.\174\ FINRA stated that 
the proposal is designed to achieve a clear regulatory objective--to 
provide more timely and accurate consolidation and dissemination of key 
corporate bond new issue reference data.\175\ Furthermore, FINRA noted 
that under Section 15A of the Act, it is charged with a number of 
responsibilities including, among others, removing impediments to a 
free and open market and fostering clearance, settlement, and 
information processing with respect to transactions in corporate bonds 
and other securities.\176\ FINRA stated that, in light of this mandate, 
the collection, consolidation and dissemination of fundamental security 
information is not a novel role for a registered securities 
association, and FINRA routinely provides other types of basic security 
information to the marketplace to, among other things, facilitate the 
clearing and settlement of securities and improve transparency.\177\ 
FINRA also noted that SRO regulation of new issue reference data is not 
novel, as the same kind of new issue reference data for municipal bonds 
are made available under rules adopted by the MSRB, which is charged 
with a similar mandate as FINRA in the municipal securities 
market.\178\ FINRA concluded that it believes that the establishment of 
a corporate bond new issue reference data service fits squarely within 
the scope of FINRA's affirmative regulatory authority under the 
Act.\179\
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    \172\ See supra notes 155-157 and accompanying text.
    \173\ See Response Letter, at 10.
    \174\ See id.
    \175\ See id.
    \176\ See FINRA Statement, at 2; Response Letter, at 9. See also 
Section 15A(b)(6) of the Act, 15 U.S.C. 78o-3(b)(6).
    \177\ See Response Letter, at 9-10. For example, FINRA makes 
available to the public all transaction data in corporate bonds 
through TRACE. See FINRA's TRACE Overview, available at https://www.finra.org/sites/default/files/TRACE_Overview.pdf. See also FINRA 
Statement, at 2. FINRA also makes details about corporate and agency 
debt securities available to FINRA members and provides a tool to 
the public that enables them to analyze and compare the costs of 
owning mutual funds. See TRACE OTC Corporate Bonds and Agency Debt 
User Guide, available at https://www.finra.org/sites/default/files/TRAQS-CA-user-guide-v4.7.pdf.pdf; FINRA Fund Analyzer, available at 
https://tools.finra.org/fund_analyzer/.
    \178\ See FINRA Statement, at 2.
    \179\ See FINRA Statement, at 2.
---------------------------------------------------------------------------

    In response to comments concerning the risk of consolidating the 
proposed corporate bond new issue reference data with FINRA and the 
timeliness and accuracy of current TRACE data,\180\ FINRA stated that 
there is key information missing from the analysis on which these 
commenters rely, and without such information it is difficult for FINRA 
to provide a meaningful response to the analysis.\181\ FINRA stated 
that based on its own review of TRACE and the same vendor's data, FINRA 
found different results, including a significant number of instances 
where it received data not yet available from the vendor.\182\ FINRA 
also stated that it would expect substantially fewer reconciliation 
differences if the proposal is approved because FINRA believes a number 
of the differences found in the analysis may have resulted from data 
fields that are not currently system-validated.\183\ In contrast, FINRA 
stated that the corporate bond new issue reference data fields would 
become system-validated under this proposal, as FINRA would employ 
systemic and operational checks for all of the data fields to determine 
if any fields are either missing or not conforming to expected format 
or standards at the time of submission.\184\ Furthermore, FINRA stated 
that FINRA's long history of successfully providing critical TRACE data 
to the markets since 2002 negates any concerns about TRACE' s 
accuracy.\185\
---------------------------------------------------------------------------

    \180\ See supra notes 148, 158-159 and accompanying text.
    \181\ See Response Letter, at 10-11; FINRA Statement, at 23-22. 
Specifically, with respect to the Tabb Study cited by certain 
commenters, FINRA stated that it is not clear what TRACE data was 
used for the analysis or which point in time during the trading day 
was used to compare TRACE data with the vendor's data. In addition, 
FINRA stated that the analysis does not explain which of the two 
sources (TRACE or the vendor) were deemed accurate (it only 
references ``reconciliation differences'') or whether the 
differences included cases where data were not present yet in either 
system. See id. In response, Petitioner stated that FINRA's response 
is ``puzzling'' as the Tabb Study states that it used the ``initial 
release'' of FINRA's own ``TRACE Corporate and Agency Master file,'' 
and stated that neither FINRA nor any other commenter contests that 
the concern is with the inaccuracy of FINRA's data. See Petitioner 
Letter V, at 2.
    \182\ See Response Letter, at 10-11; FINRA Statement, at 23-22.
    \183\ See id.
    \184\ See id. In response, Petitioner stated that FINRA's 
reliance on unspecified ``system-validated'' data is not enough to 
refute the historical evidence of ``a high error rate for 
comparatively simple data.'' See Petitioner Letter V, at 3.
    \185\ See FINRA Statement, at 24.
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3. Commission Discussion and Findings
a. Centralized Database Provider
    The Commission believes that FINRA is an appropriate entity to 
operate a centralized database for newly issued corporate bond 
reference data because of its status as a regulated SRO and its

[[Page 6937]]

accompanying regulatory obligations, and because of its demonstrated 
experience with the establishment and maintenance of databases used by 
the public.\186\ There is an information asymmetry in the market for 
newly issued corporate bond reference data.\187\ Specifically, there is 
a lack of broadly available and accessible new issue reference data on 
the first day of secondary market trading that impedes the efficiency 
and competition in the current marketplace.\188\ The Commission finds 
that FINRA's proposed reporting requirements and dissemination protocol 
of such data are reasonably designed to address this information 
asymmetry by facilitating access to timely and accurate new issue 
corporate bond reference data, consistent with Section 15A of the 
Act.\189\
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    \186\ See infra notes 193-197 and accompanying text.
    \187\ As discussed above, in the corporate bond market today, 
the Commission understands from market participants that Petitioner 
typically has the timeliest access to newly issued bond reference 
data on the first day a bond trades, as it enjoys the voluntary 
cooperation of underwriters. See supra note 91. While market 
participants and others have expressed concerns that Petitioner is 
engaged in anti-competitive conduct in the market for newly issued 
corporate bond reference data, the Commission is not making any 
findings herein regarding whether Petitioner has actually engaged in 
such conduct. See supra notes 162 and 164 and accompanying text.
    \188\ In contrast to the corporate bond market, the municipal 
securities market and Treasury market have centralized mechanisms in 
place that provide market-wide access to information about newly 
issued securities on the first day of trading. MSRB Rule G-34 
requires municipal securities underwriters to submit new issue 
information for municipal bonds to the New Issue Information 
Dissemination Service (``NIIDS''), which is operated by the 
Depository Trust and Clearing Corporation (``DTCC''). The FIMSAC 
noted that this information includes ten data elements required to 
set up an issue in the NIIDS, as well as up to 70 additional data 
elements. See Recommendation, at 1. In the Treasury market, the U.S. 
Department of the Treasury publishes details about upcoming 
issuances in a new issue calendar and immediately following each 
auction.
    \189\ See supra Section III.A.3 and Section III.B.3. One 
commenter argued that FINRA should have considered alternatives to 
the proposal to address information asymmetries in the market for 
newly issued corporate reference data. But, as discussed above, the 
Act requires that the Commission approve an SRO's proposed rule 
change if it finds that such proposed rule change is consistent with 
Act and the rules and regulations issued thereunder that are 
applicable to such organization. See Section 19(b)(2)(C)(i) of the 
Act. For the reasons set forth herein, the Commission finds that 
FINRA has made such a showing.
---------------------------------------------------------------------------

    The Commission believes that FINRA's status as an SRO will help 
ensure that it operates the New Issue Reference Data Service in a 
manner that will address the current information asymmetry in reference 
data availability on the first day of secondary market trading. 
Importantly, Section 15A of the Act will require FINRA to provide the 
New Issue Reference Data Service to market participants in a manner 
that is not unfairly discriminatory and on terms that are equitable and 
reasonable.\190\ Furthermore, as an SRO, the Commission oversees FINRA 
to ensure that it is carrying out its regulatory responsibilities. The 
Commission has the ability to review FINRA's proposed rule changes for 
consistency with the Act, which would include any proposed changes with 
respect to the operation of the New Issue Reference Data Service and, 
as discussed below, any proposed fees for accessing the database.\191\ 
The Commission also oversees FINRA through inspections of its 
operations and programs. Finally, FINRA has an obligation to operate 
consistent with requirements under the Act and with its own rules, and 
is required to enforce compliance by its members with the federal 
securities laws and FINRA's own rules.\192\
---------------------------------------------------------------------------

    \190\ See 15 U.S.C. 78o-3. See also FIMSAC Letter, at 3 
(recognizing the importance of the operator of a reference data to 
be subject these standards of conduct).
    \191\ Pursuant to Section 15A of the Act, FINRA, as a registered 
securities association, must establish rules that generally: (1) Are 
designed to prevent fraud and manipulation, promote just and 
equitable principles of trade, foster cooperation and coordination 
with persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, 
protect investors and the public interest; (2) provide for the 
equitable allocation of reasonable fees; (3) do not permit unfair 
discrimination; (4) do not impose any unnecessary or inappropriate 
burden on competition; and (5) with limited exceptions, allow any 
broker-dealer to become a member. See 5 U.S.C. 78s(g).
    \192\ See 5 U.S.C. 78s(g).
---------------------------------------------------------------------------

    In addition to being subject to a comprehensive regulatory regime, 
FINRA has extensive experience with collecting data from its members 
and disseminating such data to the public. For example, TRACE, which 
FINRA has operated since 2002, provides information to investors and 
other market participants about secondary market trades in corporate 
bonds and other debt securities that it collects from its member firms. 
Currently, TRACE disseminates information to the marketplace about 
corporate bond trades, including trade price and size, immediately upon 
receipt.\193\ U.S. secondary trading markets have greatly benefitted 
from the increased transparency that have resulted from FINRA's 
establishment, management and expansion of TRACE.\194\ In addition, 
FINRA currently operates the Order Audit Trail System (``OATS''), which 
was established in 1996.\195\ Pursuant to FINRA Rules, FINRA's members 
report data to OATS to create an integrated audit trail of order, 
quote, and trade information for all NMS stocks and OTC equity 
securities.\196\ The Commission believes that the New Issue Reference 
Data Service would be an appropriate extension of the data services 
that FINRA provides to the public and would benefit from FINRA's 
experience in collecting and disseminating data to the public; the 
Commission also notes that the proposal is limited to reference data 
regarding TRACE-eligible bonds.\197\
---------------------------------------------------------------------------

    \193\ See FINRA Regulation Notice 19-12 (April 12, 2019), 
available at https://www.sec.gov/spotlight/fixed-income-advisory-committee/finra-regulatory-notice-trace-19-12.pdf. In addition, 
FINRA makes details about corporate and agency debt securities 
available to FINRA members. See TRACE OTC Corporate Bonds and Agency 
Debt User Guide, available at https://www.finra.org/sites/default/files/TRAQS-CA-user-guide-v4.7.pdf.pdf.
    \194\ See, e.g., FIMSAC Letter, at 3; Hendrik Bessembinder, 
William Maxwell, and Kumar Venkataraman, ``Market Transparency, 
Liquidity Externalities, and Institutional Trading Costs in 
Corporate Bonds,'' Journal of Financial Economics 82, 251-288 
(2006), available at https://doi.org/10.1016/j.jfineco.2005.10.002; 
Michael A. Goldstein, Edith S. Hotchkiss, and Erik R. Sirri, 
``Transparency and Liquidity: A Controlled Experiment on Corporate 
Bonds,'' The Review of Financial Studies 20, 235-273 (2007), 
available at https://doi.org/10.1093/rfs/hhl020; Amy K. Edwards, 
Lawrence E. Harris, and Michael S. Piwowar, ``Corporate Bond Market 
Transaction Costs and Transparency,'' The Journal of Finance 62, 
1421-1451 (2007), available at https://doi.org/10.1111/j.1540-6261.2007.01240.x; and Dominique C. Badoer and Cem Demiroglu, ``The 
Relevance of Credit Ratings in Corporate Bond Markets,'' The Review 
of Financial Studies 32, 42-74 (2018), available at https://doi.org/10.1093/rfs/hhy031.
    \195\ See In the Matter of National Association of Securities 
Dealers, Inc., Order Instituting Public Proceedings Pursuant to 
Section 19(h)(1) of the Securities Exchange Act of 1934, Making 
Findings and Imposing Remedial Sanctions, Exchange Act Release No. 
37538 (August 8, 1996), Administrative Proceeding File No. 3-9056 
and Report Pursuant to Section 21(a) of the Securities Exchange Act 
of 1934 Regarding the NASD and The Nasdaq Stock Market LLC 
(``Nasdaq''). See also Securities Exchange Act Release No. 39729 
(March 6, 1998), 63 FR 12559 (March 13, 1998) (order approving 
proposed rules comprising OATS) (``OATS Approval Order'').
    \196\ Id. See also Securities Exchange Act Release No. 63311 
(November 12, 2010), 75 FR 70757 (November 18, 2010) (SR-FINRA-2010-
044) (order approving proposed rule change by FINRA relating to the 
expansion of OATS to all NMS stocks). While OATS data are not 
disseminated to the public, it is used by FINRA to recreate events 
in the lifecycle of an order and monitor the trading activity of 
member firms. See https://www.finra.org/filing-reporting/market-transparency-reporting/order-audit-trail-system-oats.
    \197\ The Commission also notes that the FIMSAC considered 
various alternatives to FINRA in its deliberations, including 
private sector providers, and settled on FINRA because it believed 
that FINRA was the most logical and impartial choice because it is 
subject to regulatory oversight by the Commission and because of 
underwriters' existing reporting mechanisms with FINRA. See FIMSAC 
Letter, at 3.

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[[Page 6938]]

b. Data Quality and Resilience
    Some commenters have expressed concerns that the New Issue 
Reference Data Service will harm corporate bond reference data quality 
and resilience, noting that (1) it would create a single point of 
failure, (2) FINRA would not be incentivized to maintain high quality 
data, and (3) current error rates in TRACE is evidence that FINRA's 
reference database will not be reliable.\198\ The Commission is not 
persuaded by these arguments. Regarding concerns about a single point 
of failure, it is not clear to the Commission that FINRA's New Issue 
Reference Data Service will indeed be a single point of failure.\199\ 
While some have suggested that FINRA's proposal would increase 
efficiencies due to the consolidation of reference data within one 
entity,\200\ it is the Commission's judgment that it is premature to 
draw conclusions about the impact of FINRA's proposal on the manner in 
which underwriters currently distribute data or how other data vendors 
conduct business or customers' demand for other data vendors' services. 
FINRA's proposal does not disrupt the ability of underwriters to 
continue reporting new issue reference data to data vendors. Because 
underwriters already have these data reporting processes in place and 
have incurred the costs of establishing those processes, underwriters 
may choose to continue to provide new issue reference data to data 
vendors as well as to FINRA. Should that be the case, private data 
vendors will continue to be incentivized to invest in their current 
methods of collection and distribution and concerns about a single 
point of failure will be mitigated. If market participants do in fact 
change their current practices and report new issue reference data to 
FINRA only,\201\ the Commission believes that FINRA's experience with 
establishing and maintaining databases such as TRACE and OATS and the 
Commission's regulatory oversight of FINRA will ensure that the New 
Issue Reference Data Service is designed and operated consistent with 
the Act.\202\
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    \198\ See supra notes 148, 151-152, and 158-159 and accompanying 
text.
    \199\ The Commission believes that data vendors will continue to 
compete for the provision of data services and expects that market 
participants will turn to a variety of sources for their data needs 
depending on the facts and circumstances at hand. See infra Section 
III.E for a discussion of the proposal's impact on competition.
    \200\ See, e.g., infra note 216 and accompanying text.
    \201\ See, e.g., FIMSAC Letter, at 3 and infra note 216 and 
accompanying text (describing the potential for underwriters to 
change their current practices by reporting reference data to FINRA 
only).
    \202\ As discussed above, the Commission oversees FINRA by, 
among other things, conducting inspections of its operations and 
programs to examine whether FINRA is operating consistent with Act 
requirements and its own rules. See supra Section III.C.3.a.
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    The Commission also believes that FINRA will be incented to build 
and maintain a high quality New Issue Reference Data Service. As 
discussed previously, it is possible that the current business 
processes for new issue reference data distribution remain, which would 
impose competitive pressures on FINRA to provide high quality new issue 
reference data. If FINRA does become the sole source of new issue 
reference data, however, the Commission believes that FINRA will build 
and maintain a high quality New Issue Reference Data Service, 
mitigating concerns about data quality and resilience, because of (i) 
FINRA's experience with the establishment and maintenance of databases 
such as TRACE and OATS, (ii) its status and regulatory obligations as a 
regulated SRO, and (iii) the Commission's oversight of FINRA, including 
our inspection and examination functions.
    Finally, the Commission is not persuaded that commenters' concerns 
about error rates in TRACE data call into question the ability of FINRA 
to build and maintain a reliable reference database. As discussed 
above, commenters have expressed concerns about FINRA's proposed 
reference database, arguing that ``reconciliation differences'' show 
that FINRA's current collection of bond data contains a high incidence 
of errors.\203\ On the other hand, FINRA has argued that 
``reconciliation differences'' do not necessarily mean errors nor 
demonstrate that FINRA's current collection of data has a high 
incidence of errors.\204\ Furthermore, FINRA states that it found 
different results based on its own review of TRACE data, including a 
significant number of instances where it received data not yet 
available from the vendor.\205\ This FINRA analysis suggests that a 
number of the ``reconciliation differences'' deemed to reflect FINRA 
errors may in fact be the simple result of FINRA possessing certain 
data that was not yet available to the vendor.
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    \203\ See supra notes 158-159 and accompanying text.
    \204\ In particular, FINRA states that the analysis does not 
explain which of the two sources (TRACE or the vendor) were deemed 
accurate (it only references ``reconciliation differences'') or 
whether the differences included cases where data were not present 
yet in either system. See Response Letter, at 11.
    \205\ See id.
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    Moreover, the Commission does not believe that the disputed 
comments concerning existing TRACE error rates call into question the 
ability of FINRA to build and maintain a reliable reference database 
for the following additional reasons.\206\ First, as discussed above, 
FINRA has an established track record of creating reliable databases of 
information gathered from its member firms and made available to the 
public.\207\ Additionally, FINRA has explicitly and clearly stated that 
it will engage with market participants on the appropriate business 
requirements for the reporting process, it intends to implement 
functionality to allow for underwriters to correct previously submitted 
data to FINRA for a significant period after receiving the initial Rule 
6760 submission, it may take a phased approach to implementation to 
promote compliance and data accuracy, and data reported to FINRA will 
be system-validated.\208\ The Commission expects FINRA to do these 
things and believes that FINRA is committed to establishing a reliable 
reference database, consistent with its statutory and regulatory 
obligations under the Act, and the Commission will continue to monitor 
closely FINRA's work and implementation of the New Issue Reference Data 
Service.\209\ Furthermore, as discussed above, the Commission oversees 
FINRA as an SRO and, to the extent that it is operating the database in 
a manner that violates the Act or the rules and regulations thereunder, 
the Commission will have recourse.
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    \206\ The Commission is not taking a position on the accuracy of 
either commenters' or FINRA's statements regarding error rates.
    \207\ See supra notes 193-197 and accompanying text.
    \208\ See Response Letter, at 11-15.
    \209\ In addition, as discussed below, the Commission believes 
that data vendors will likely continue to compete in the market for 
data. In addition to potentially competing in the market for new 
issue reference data by operating as they do today, these data 
vendors will also continue to compete based on differing value added 
services related to the required information and also based on 
additional data fields, data updates, and services related to the 
data and that such competition should continue to spur innovation 
and allay concerns regarding a single point of failure and error 
rates. See infra Section III.E.3.
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D. Burden on Underwriters

1. Comments on the Proposal
    Commenters expressed concerns about how FINRA's proposal might 
impact the underwriters that will be required to provide FINRA with new 
reference data elements for newly issued corporate bonds. One commenter 
argued that the proposal would increase regulatory and liability 
burdens for

[[Page 6939]]

underwriters without any clear benefit.\210\ This commenter and 
Petitioner argued that the proposed rule's compliance burden would 
disproportionately impact smaller underwriters.\211\ Another commenter 
stated that FINRA should be required to demonstrate ``that the benefits 
to information purchasers [of the proposal] would materially outweigh 
the unrecompensed costs imposed on underwriters.'' \212\ Petitioner 
argued that FINRA must include information regarding underwriter's 
costs of preparing for new infrastructure and compliance 
obligations.\213\
---------------------------------------------------------------------------

    \210\ See Chamber Letter, at 4 (``Underwriters would face 
potential liability for errors in reporting and calculation, while 
there is no clear benefit for this increased burden.''); Letter from 
Tom Quaadman, Executive Vice President, U.S. Chamber of Commerce, 
dated October 24, 2019 (``Chamber Letter III''), at 2.
    \211\ See Petitioner Letter IV, at 5. See also Chamber Letter 
III, at 3. Petitioner presented evidence of the size of underwritten 
investment grade corporate bonds in 2019, stating that ``through 
October 7, 33 underwriters have each underwritten more than $1 
billion (notional) year to date, while 59 other underwriters also 
have priced issues during 2019--overwhelmingly for small issues of 
less than $25 million'' and stated that FINRA has failed to address 
the differential impact of the proposed new compliance burden on 
different sized underwriters. See Petitioner Letter IV, at 5, n.10.
    \212\ See Heritage Letter V, at 2.
    \213\ See Petitioner Statement, at 17-18
---------------------------------------------------------------------------

    On the other hand, FIMSAC stated that it heard from underwriters 
that it would be relatively easy for them to report the new issue 
reference data to FINRA given their current established reporting 
mechanisms to TRACE and that underwriters could thereby avoid the 
duplicative effort involved in sending the same data multiple times to 
various reference data providers.\214\
---------------------------------------------------------------------------

    \214\ See FIMSAC Letter, at 3. As discussed above, it is the 
Commission's judgment that it is premature to draw conclusions about 
the impact of FINRA's proposal on the manner in which underwriters 
currently distribute data. See supra notes 200-202 and accompanying 
text.
---------------------------------------------------------------------------

2. Response to Comments
    In its proposal, FINRA stated that ``[b]ased on conversations with 
underwriters, FINRA understands that underwriters do not anticipate 
incurring significant costs for reporting under this proposal.'' \215\ 
In addition, FINRA acknowledged the concern that underwriters that 
underwrite fewer deals may be disproportionally burdened if there are 
fixed costs associated with amending an underwriter's reporting system 
to meet the additional requirements of the proposal, but stated that 
any such additional burden ``may be alleviated because reporting to 
FINRA would reduce or eliminate the need for underwriters to report to 
other parties, or by the fact that underwriters can leverage 
investments already made in the existing reporting system necessary 
under Rule 6760.'' \216\
---------------------------------------------------------------------------

    \215\ See Notice, at 13982.
    \216\ See id.
---------------------------------------------------------------------------

3. Commission Discussion and Findings
    The Commission believes that any burdens imposed on underwriters by 
the proposal, including smaller underwriters, would be limited because 
of such underwriters' existing data collection and reporting practices 
with respect to the information FINRA proposes to be reported.\217\ 
First, the Commission believes, and no commenter has disputed, that all 
underwriters, including small underwriters, should be able to leverage 
their existing infrastructure used to connect and report to FINRA with 
respect to the information required under the proposal. Underwriters 
today are already required to report certain data elements related to 
new issue bonds to FINRA pursuant to the requirements of current Rule 
6760.\218\ All underwriters of Corporate Debt Securities, as defined in 
FINRA's rules, have already developed data reporting mechanisms to 
FINRA for purposes of transmitting required data concerning these 
securities.\219\
---------------------------------------------------------------------------

    \217\ See, e.g., Recommendation, at 3 (``The FIMSAC recognizes 
that the creation of this service will impose costs on FINRA and the 
underwriters. Based on available information, the FIMSAC believes 
that the costs would be small relative to the value of the service 
as the required information to be reported is similar to the 
information that underwriters already provide directly to reference 
data vendors.''). See also supra notes 215-216 and accompanying 
text.
    \218\ Rule 6760(b), proposed to be renumbered as Rule 
6760(b)(1), currently requires the following information to be 
reported to FINRA: (A) The CUSIP number or if a CUSIP number is not 
available, a similar numeric identifier (e.g., a mortgage pool 
number); (B) the issuer name, or, for a Securitized Product, the 
names of the Securitizers; (C) the coupon rate; (D) the maturity; 
(E) whether Securities Act Rule 144A applies; (F) the time that the 
new issue is priced, and, if different, the time that the first 
transaction in the offering is executed; (G) a brief description of 
the issue (e.g., senior subordinated note, senior note); and (H) 
such other information FINRA deems necessary to properly implement 
the reporting and dissemination of a TRACE-Eligible Security, or if 
any of items (B) through (H) has not been determined or a CUSIP 
number (or a similar numeric identifier) is not assigned or is not 
available when notice must be given, such other information that 
FINRA deems necessary and is sufficient to identify the security 
accurately. See FINRA Rule 6760.
    \219\ Indeed, the purpose behind FIMSAC's recommendation to have 
FINRA establish this database, as opposed to another entity, was to 
minimize any burdens on underwriters by utilizing existing reporting 
infrastructures. See Recommendation supra note 30; FIMSAC Letter, at 
3.
---------------------------------------------------------------------------

    Second, the Commission believes that underwriters today are already 
collecting the additional information required under the 32 data 
elements in the proposal, and are already reporting such information to 
at least one private vendor on the first day a bond trades, given the 
need for this information by investors in the newly issued bond's 
primary offering.\220\ Underwriters should be able to leverage their 
existing data collection and reporting infrastructures to FINRA and 
private data vendors in order to meet their obligations under the 
proposal to report additional information to FINRA.\221\ Furthermore, 
because underwriters currently have infrastructure in place to report 
certain information to FINRA and the information required by the 
proposal to private data vendors, they are already incurring costs to 
update and maintain this existing infrastructure. As a result, the 
Commission believes the initial set-up costs resulting from the 
proposal on underwriters will be small and there would be no or very 
little additional ongoing costs as a result of the proposal that are 
not already being incurred by underwriters.
---------------------------------------------------------------------------

    \220\ See supra note 91. The Commission believes that it would 
be rare for an underwriter involved in the distribution of debt 
securities to be able to act as an underwriter and broker-dealer 
without having this information immediately available for its 
engagement with customers. Additionally, the Commission understands 
that technical implementation may require a phased approach, as 
stated by FINRA, to promote compliance and data accuracy. See 
Response Letter, at 15; supra notes 125-127 and accompanying text 
(describing FINRA's implementation plans).
    \221\ One commenter raised concerns about underwriters facing 
potential liability for errors in reporting. See supra note 210. 
While the Commission recognizes that underwriters may be subject to 
antifraud liability or FINRA enforcement actions, the Commission 
notes that the information to be provided to FINRA under this 
proposal is a subset of the information underwriters currently 
provide to investors in the primary offering. For this reason, the 
Commission believes that the risk of potential additional liability 
for reporting this subset of information to FINRA is minimized.
---------------------------------------------------------------------------

    The Commission also notes that underwriters may also be able to 
efficiently leverage the services of third-party vendors to comply with 
FINRA's new reporting requirements, as one commenter suggested.\222\ 
Moreover, the Commission believes that the incremental burden on 
underwriters to set up and maintain infrastructure to comply with 
FINRA's proposal, if any, is justified by the benefits to the market of 
eliminating information asymmetries, which should improve efficiency 
and competition.\223\
---------------------------------------------------------------------------

    \222\ See IHS Markit Letter, at 3.
    \223\ See supra Section III.B.3. See also FIMSAC Transcript, 
supra note 36, Comments from Larry Harris, at 0111 (noting that the 
burden on underwriters ``though it might be twice as large, is still 
extremely small and very, very small in comparison to the value of 
these data.'').

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

[[Page 6940]]

    Finally, the proposal would require uniform pre-first trade 
reporting to FINRA. Currently, for information reported under Rule 6760 
for trade reporting purposes, the rule generally requires pre-first 
trade reporting but allows some information to be reported within 15 
minutes of the first-trade.\224\ The Commission recognizes that there 
may be an incremental burden on underwriters to report certain 
information earlier than they were previously required; however, the 
Commission believes this burden will be mitigated both by the existence 
of current reporting infrastructures discussed above and the fact that 
the data elements to be reported are already in the possession of 
underwriters, given the use of this information in the newly issued 
bond's primary offering.
---------------------------------------------------------------------------

    \224\ See supra note 139.
---------------------------------------------------------------------------

E. Competition

1. Comments on the Proposal
    Several commenters argued that the proposal fails to adequately 
explain why the rule's burden on competition is necessary or 
appropriate consistent with Section 15A(b)(9) of the Act.\225\ A number 
of commenters asserted that the proposal would inappropriately displace 
competition among private sector reference data providers, which would 
impose costs on the market and could ultimately impede the quality of 
data available to market participants.\226\ Petitioner stated that the 
proposal would ``both limit vendors' demand and make it harder for 
vendors to obtain and distribute information from underwriters mandated 
to provide the information to FINRA.'' \227\ Petitioner stated that the 
proposal would establish a rival data service that would be a 
``government-privileged quasi-monopoly enjoying the advantage of 
compulsory access to data that market-based services must compete 
for.'' \228\ This commenter argued that ``[s]upplanting the current 
competitive system in favor of a compulsory government service'' is 
inconsistent with the Act.\229\
---------------------------------------------------------------------------

    \225\ See, e.g., Healthy Markets Letter II, at 5-6; Petitioner 
Letter III, at 8-11; Heritage Letter II; at 2-3; Petitioner Letter 
IV, at 4.
    \226\ See Heritage Letter, at 1-2; Heritage Letter V, at 3; 
Chamber Letter, at 2; Petitioner Letter, at 2-3; Healthy Markets 
Letter II, at 5; Tabb Letter, at 2-3. See also Petitioner Statement, 
at 3, 32-34.
    \227\ See Petition for Review, at 29.
    \228\ See Petitioner Statement, at 20.
    \229\ See id. at 21.
---------------------------------------------------------------------------

    Petitioner stated that the proposal ``would expand a key 
regulator's commercial role into new lines of heretofore competitive 
private business'' and stressed ``the likely chilling effect that this 
would have on investment and innovation.'' \230\ This commenter stated 
that the proposal would chill future innovation and investment 
``through the threat of SROs commandeering private markets'' and that 
``FINRA's willingness to enter new markets and provide new services 
undermines the incentives for private actors to invest and innovate.'' 
\231\ Petitioner stated that it and other similar companies have spent 
``tens of thousands of hours and millions of dollars over decades 
building attractive bond-reference data services'' and that ``FINRA's 
attempt to appropriate the space would cause incumbent providers to 
hesitate before investing more in capital-markets innovation.'' \232\
---------------------------------------------------------------------------

    \230\ See Petitioner Letter II, at 1. See also Petitioner Letter 
IV, at 5. This commenter compared the proposal to a previous FINRA 
proposal to create a facility to consolidate all quotation data in 
the over-the-counter equities market, which was ultimately withdrawn 
by FINRA. See Petitioner Letter V, at 3-4 (citing Securities 
Exchange Act Release No. 60999 (November 13, 2009), 74 FR 61183 
(November 23, 2009) (SR-FINRA-2009-077) (Notice of Filing of 
Proposed Rule Change Relating to the Restructuring of Quotation 
Collection and Dissemination for OTC Equity Securities).
    \231\ See Petition for Review, at 28, 30. See Petitioner 
Statement, at 32-33; 36.
    \232\ See Petitioner Statement, at 38.
---------------------------------------------------------------------------

    In contrast, commenters asserted that because of the limited set of 
data proposed to be captured by FINRA, the proposal would not supplant 
private sector market data providers.\233\ One of these commenters 
asserted that providing reference data in a manner similar to that 
proposed by FINRA promotes competition by reducing costs and barriers 
to entry for new entrants in the reference data provider market.\234\ 
This commenter noted that data vendors currently sell reference data 
products that provide data in addition to FINRA's proposed required 
data fields.\235\
---------------------------------------------------------------------------

    \233\ See FIMSAC Letter, at 3; Harris Letter at 4.
    \234\ See Harris Letter, at 4.
    \235\ See Harris Letter at 4 (noting that such additional data 
include ratings and indications of whether an issuer is currently in 
default, in an agreement to merge, or negotiating such an 
agreement). One commenter who argued the proposal would diminish 
competition amongst reference data providers nevertheless stated 
that market participants currently demand more reference data fields 
than FINRA is proposing to collect. See Petitioner Letter, at 13-14.
---------------------------------------------------------------------------

2. FINRA Response to Comments
    In response, FINRA reiterated that the proposed data service is not 
designed to affect the opportunity for private third party vendors to 
compete and is rather intended to promote competition among new 
reference data providers by, among other things, lowering barriers to 
entry and allowing competition on other dimensions, such as additional 
fields, updates to existing data based on subsequent events related to 
the security, presentation, ease of access, and integration with other 
data sets and systems deemed valuable by market participants.\236\ 
FINRA stated that its proposed data service is narrowly tailored to 
provide only the basic fields of reference data that are essential for 
trading and settling newly issued corporate bonds.\237\ FINRA argued 
that because of the proposal's narrow scope, it would not interfere 
with private data vendors' ability to compete to provide more enriched 
and value-added data, including data with supplementary fields and 
other value-added services.\238\
---------------------------------------------------------------------------

    \236\ See Response Letter, at 8-9. See also Notice, at 13982.
    \237\ See FINRA Statement, at 3; Response Letter, at 9.
    \238\ See FINRA Statement, at 3-4; Response Letter, at 9.
---------------------------------------------------------------------------

    FINRA noted that several commenters responding to the proposal, 
including those that operate alongside Petitioner in both the markets 
for reference data and trading services, agreed that the proposal would 
not displace reference data providers or chill private market 
investments and would instead enhance competition among market 
participants, level the playing field, and reduce overall costs.\239\ 
FINRA also noted that competition among reference data providers 
continues to exist in the municipal bond market, where there has long 
been a centralized, SRO-mandated data service similar to that proposed 
by FINRA.\240\
---------------------------------------------------------------------------

    \239\ See FINRA Statement, at 4, 27; Response Letter, at 8 
(citing to Harris Letter; FIMSAC Letter; ICE Data Letter; Charles 
River Letter). See also supra notes 233-234 and accompanying text.
    \240\ See FINRA Statement, at 4, 28.
---------------------------------------------------------------------------

    FINRA also stated that a key indicator of enhanced competition is 
the ability to reduce prices,\241\ and noted that a number of market 
participants stated that the proposal will lower the costs to obtain 
new issue reference data.\242\

[[Page 6941]]

FINRA stated it believes the proposal will promote competition in the 
markets both for reference data and trading in that providing all data 
vendors with timely access to a basic set of new issue reference data 
will level the playing field and allow vendors to compete on other 
value-added dimensions, which in turn will lower the costs of timely 
and impartial access to essential data (a barrier to entry) for trading 
firms.\243\ FINRA also argued that competition law is meant to protect 
competition, not competitors, and that a rule proposal does not burden 
competition in a market for services simply because it may impact the 
standing of one market competitor.\244\
---------------------------------------------------------------------------

    \241\ See FINRA Statement, at 25 (citing SEC Staff Memorandum, 
Current Guidance on Economic Analysis in SEC Rulemakings, at 11 
(March 16, 2012)).
    \242\ Specifically, FINRA cited to statements at the FIMSAC 
meeting and comment letters submitted in response to the proposal 
noting that the status quo currently results in higher costs for 
customers and that the proposal will reduce overall costs. See FINRA 
Statement, at 25-26 (citing to statements of Frederic Demesy, 
Refinitiv, FIMSAC Transcript, supra note 36; Harris Letter, at 4; 
and Charles River Letter). As further discussed below, FINRA has 
expressly and clearly committed that its fees for the New Issue 
Reference Data Service will be cost-based. See FINRA Statement, at 
18. In its filing with the Commission to adopt fees for the New 
Issue Reference Data Service, FINRA will be required to set forth 
why such cost-based fees meet the requirements of the Act, and the 
Commission will evaluate FINRA's eventual fee application based on 
the requirements of the Act and assess FINRA's proposed cost-based 
formula. See infra Section III.F.3.b.
    \243\ See FINRA Statement, at 12.
    \244\ See FINRA Statement, at 26. FINRA further argued that if 
an entity is a dominant incumbent and creates barriers to entry for 
users of its service, then impacting that entity's standing may be 
required to promote competition and relieve inappropriate burdens on 
competition. FINRA noted that the FIMSAC expressed particular 
concern that a dominant reference data vendor has limited other 
market participants' access to its data for anti-competitive 
purposes. See FINRA Statement, at 26 (citing FIMSAC Letter, at 4).
---------------------------------------------------------------------------

3. Commission Discussion and Findings
    The Commission believes that FINRA's proposal is designed to 
address an information asymmetry in the market for newly issued 
corporate bond reference data. Specifically, there is a lack of broadly 
available and accessible new issue reference data on the first day of 
secondary market trading that impedes the efficiency and competition in 
the current marketplace. The Commission believes that FINRA's proposal 
will improve competition among market participants, including 
investors, data vendors, and trading platforms, by providing all market 
participants with the ability to access the same investment products to 
meet their own business and investment needs or those of their 
customers at the time a bond becomes available in the secondary market. 
The Commission believes that the burden on competition imposed on 
private data vendors by the proposal should be minimal and is necessary 
or appropriate to further the purposes of Section 15A(b)(6) of the Act, 
namely to promote just and equitable principles of trade and foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in, newly issued corporate bonds.
    First, as discussed above, the impact of FINRA's proposal on the 
manner in which underwriters currently distribute data or how other 
data vendors conduct business is uncertain. It is possible, for 
example, that FINRA's proposal could have a positive impact on 
competition by lowering barriers to entry among data providers and 
enabling them to compete on a more level playing field.\245\ 
Additionally, for those vendors or market participants that may be 
getting reference data from underwriters directly, there is nothing in 
FINRA's proposal that prohibits underwriters from continuing to provide 
new issue reference data to data vendors as they do currently. Because 
underwriters already have these data reporting processes in place and 
have incurred the costs of establishing those processes, it is possible 
that despite the creation of a new database by FINRA, underwriters will 
continue to provide new issue reference data as they do today. Should 
that be the case, private data vendors will continue to enjoy the 
benefits of any investments made to acquire newly issued corporate bond 
reference data, which should limit any competitive impacts of FINRA's 
proposal.
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    \245\ See Notice, at 13981; FIMSAC Transcript, supra note 36, 
Comments from Frederic Demesy, Refinitiv, at 0078 (``[A]t the 
moment, we see that there are some market anomalies where some of 
the vendors have access to information much earlier than other 
vendors. And that creates basically competitive advantage on certain 
platforms, which is in my view not ideal for having a transparent 
market.''), Comments from Spencer Gallagher, ICE Data Services, at 
0069-72 (``there is one area that no investment or no level of 
ingenuity can solve and that is equal access to new issue reference 
data at or prior to first trade execution''); Harris Letter, at 4-5 
(describing anticipated pro-competitive impacts of the proposal on 
the data vendor market).
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    If market participants do in fact change their current practices 
and report new issue reference data to FINRA only,\246\ the Commission 
believes that FINRA's proposal will impose a limited burden on 
competition.\247\ There is nothing in FINRA's proposal that would 
require market participants to purchase the reported data directly from 
FINRA. The FINRA proposal only applies to new issue corporate bond data 
and does not contemplate collecting and disseminating other data not 
collected by FINRA (as described further below) or updates to these 
data throughout the life of the bond. For this reason, the Commission 
believes market participants would continue to procure data provided by 
parties other than FINRA. In addition, the Commission believes that 
many market participants may ultimately continue to rely on their 
existing data vendors as a single source for all security-specific data 
and rely on those vendors to incorporate the data proposed to be 
collected by FINRA. Otherwise, these market participants could incur 
the costs of collecting and maintaining two data sets--the data 
available from FINRA and the range of other data available from other 
data vendors as discussed further below. Furthermore, the information 
that FINRA will require to be reported is a limited set of data, 
leaving data vendors with space to continue competing on a variety of 
fronts. For example, reference data providers could offer additional 
value add-ons with respect to data reported to FINRA, such as 
additional data concerning the newly issued bond, enhanced 
presentation, analytical capabilities, ease of access, and integration 
with other data sets and systems.\248\ In addition, data vendors could 
offer additional services relating to the data, such as enhanced data 
scrubbing, if their customers demand such services. Indeed, as stated 
by one commenter, data vendors currently sell data products that 
provide data in addition to FINRA's proposed required data fields, and 
these additional data presumably provide value to their customers.\249\ 
In addition, the Commission understands that data vendors currently 
offer various services beyond the initial supply of the data set, such 
as the integration of such data into other data sets and systems, and 
data vendors would presumably continue to offer such services relating 
to the required reference data.\250\
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    \246\ See supra note 216 and accompanying text.
    \247\ As discussed in more detail in this section, the 
Commission expects that data vendors will continue to provide 
enhanced data services (e.g., adding additional data and making 
various analytical calculations based on the data in the New Issue 
Reference Data Service) to customers, and that market participants 
will turn to a variety of sources for their data needs depending on 
the facts and circumstances at hand.
    \248\ See, e.g., Response Letter, at 9.
    \249\ See Harris Letter at 4 (noting that such additional data 
include ratings and indications of whether an issuer is currently in 
default, in an agreement to merge, or negotiating such an 
agreement). Petitioner, who argued the proposal would diminish 
competition amongst reference data providers, nevertheless stated 
that market participants currently demand more reference data fields 
than FINRA is proposing to collect. See Petitioner Letter, at 13-14.
    \250\ For a description of various data vendor's bond reference 
data offerings, see e.g. https://www.bloomberg.com/professional/product/reference-data/; https://www.theice.com/market-data/pricing-and-analytics/reference-data; https://www.refinitiv.com/en/financial-data/market-data/reference-data; and https://www.ftserussell.com/data/fixed-income-data.
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    The Commission concludes that the limited set of data proposed to 
be reported and disseminated to allow for the identification, valuation 
and settlement of new issue corporate bonds is unlikely to supplant the 
demand for

[[Page 6942]]

a more comprehensive reference database with enhanced data sets that 
contain additional fields not reported to or disseminated by FINRA and 
additional services related to such data not provided by FINRA.\251\ 
The Commission believes that while FINRA's proposal will provide 
certain basic information for a bond on an impartial basis to market 
participants to allow for the identification, valuation, and settlement 
of newly-issued bonds, market participants will continue to require 
additional data and value-added services from reference data providers 
beyond what will be provided by FINRA. As such, the Commission believes 
that reference data providers will continue to compete and innovate in 
order to meet the additional needs of their customers, allaying 
commenters' concerns regarding potential increased costs, decreased 
data quality, and a chilling on investment and innovation.
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    \251\ See FIMSAC Letter, at 3. There are many other data 
provided by reference data providers concerning a bond issue, such 
as issuer information (e.g., fundamentals data, capital structure 
data), specific bond rating, bond trade and selling restrictions, 
classification data (industry, legal entity, etc.), corporate action 
data, ESG (Environmental, Social & Governance) data, dividend data, 
instrument analytics data, and security ownership data. See e.g., 
IHS Markit Reference Data Bonds Factsheet, available at https://cdn.ihs.com/www/pdf/Reference-Data-Bonds-factsheet.pdf; Bloomberg 
Reference Data Content and Data, available at https://www.bloomberg.com/professional/product/reference-data/.
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    For these reasons, the Commission believes that the potential 
benefits of the proposal discussed above, including furtherance of the 
purposes of Section 15A(b)(6), justify the minimal competitive burden 
on reference data vendors that may result from this proposal. The 
Commission thus finds that the proposal is consistent with Section 
15A(b)(9) of the Act, and does not impose any burden on competition not 
necessary or appropriate in furtherance of the purposes of the Act.

F. Fees

1. Comments on the Proposal
    As discussed above, in Amendment No. 2, FINRA withdrew the proposed 
subscription fees for receipt of corporate new issue reference data 
from the proposal and stated that it would submit a separate filing to 
establish fees related to the new issue reference data service at a 
future date and will implement the service after those fees become 
effective.\252\ In particular, several commenters believed that removal 
of fees from the proposal was problematic.\253\ These commenters stated 
that eliminating the fees from the proposal amounts to procedural 
maneuvering in order to avoid scrutiny, as any subsequent fee filing 
submitted by FINRA will be immediately effective upon filing with the 
Commission.\254\ Petitioner stated that ``FINRA should not be allowed 
to circumvent the Act's requirement of an affirmative finding of 
compliance with [Section] 15A(b)(5) by dodging the many comments 
critical of its unjustified fees.'' \255\ This commenter further stated 
that ``[b]y segregating and delaying the fee justification, the 
[a]mended [p]roposal would relieve FINRA of the burden of proving the 
reasonableness of the fees and charges associated with its new 
service.'' \256\
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    \252\ See Amendment No. 2, at 4.
    \253\ See Petitioner Letter IV, at 6-9; Chamber Letter III at 2-
3; Letter from John Thornton, Co-Chair, et al., Committee on Capital 
Markets Regulation, dated October 22, 2019 (``Committee Letter 
II''), at 2-3; Committee Letter III, at 2; Heritage Letter III, at 
2-3; Healthy Markets Letter III, at 2; SIFMA Letter III, at 3-4; 
Petitioner Letter V, at 4-5; Petitioner Statement, at 34-36.
    \254\ See Petitioner Letter IV, at 6-9; Chamber Letter III at 2-
3; Committee Letter II at 2-3; Committee Letter III, at 2; Heritage 
Letter III, at 2-3; Healthy Markets Letter III at 2; SIFMA Letter 
III at 3-4; and Petitioner Letter V, at 4-5. Some commenters pointed 
to the Commission's recent proposed rule change to amend Regulation 
NMS to rescind a provision that allows a proposed amendment to a 
national market system plan (``NMS plan'') that establishes or 
changes a fee or other charge to become effective upon filing, and 
argued that the concerns voiced by the Commission in that proposal 
are applicable to FINRA's current proposal. See Petitioner Letter 
IV, at 8; Chamber Letter III at 2; Committee Letter II at 2-3 
(citing to Commission, Proposed Rule, ``Rescission of Effective-Upon 
Filing Procedure for NMS Plan Fee Amendments,'' 84 FR 54794 (Oct. 
11, 2019) (``Proposed Regulation NMS Fee Amendment'')). See also 
Petitioner Statement, at 17-19.
    \255\ See Petition for Review, at 16; Petitioner Statement, at 
18.
    \256\ See Petitioner Statement, at 17; Petitioner Letter V, at 
4.
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    In addition, these commenters stated that the proposed fees form a 
critical part of FINRA's proposed newly issued bond-reference data 
service and that the Commission and the public cannot assess whether 
the benefits of the proposal outweigh the costs and competitive burdens 
without knowing the fees that FINRA would charge for the service.\257\ 
Petitioner further stated that FINRA has failed to provide any 
quantitative estimate for any costs that the proposal would 
impose.\258\ This commenter stated that FINRA failed to include any 
information regarding the cost of developing and operating the new data 
system and provided no information about whether the costs of the 
service for traders will be higher or lower than current prices.\259\ 
This commenter argued that FINRA must include information regarding the 
cost of building and operating the new reference data service, which 
FINRA proposes to pass on to market participants.\260\ Petitioner 
concluded that ``lacking any evidence from FINRA about the costs of its 
proposed data service, the Commission cannot approve the [proposal] 
consistent with the requirements of the Act.'' \261\
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    \257\ See Petitioner Letter IV, at 6-9; Chamber Letter III at 2-
3; Letter from John Thornton, Co-Chair, et al., Committee on Capital 
Markets Regulation, dated October 22, 2019 (``Committee Letter 
II''), at 2-3; Committee Letter III, at 2; Heritage Letter III, at 
2-3; Healthy Markets Letter III, at 2; SIFMA Letter III, at 3-4; 
Petitioner Letter V, at 4-5; Petitioner Statement, at 34-36.
    \258\ See Petitioner Statement, at 35.
    \259\ See Petitioner Statement, at 14, 36.
    \260\ See id. Petitioner also noted that FINRA's own 
representative acknowledged that FINRA's current TRACE system could 
not support a new data service and instead FINRA would need to build 
new reporting, validation and distribution infrastructure. See id., 
at 5-6 (citing to statements by Ola Persson, FINRA, FIMSAC 
Transcript, supra note 36, (``Speaking for FINRA, not the effort on 
behalf of the underwriters, but speaking for FINRA, we would have 
some work to do. The technology today does not lend itself very well 
to this. We would need to create the ability for underwriters to 
come in, give us partial information and have the ability to edit 
their own records, et cetera. Today, that is a . . . bit of a one-
way street. . . . We would also need to create a separate 
distribution channel for this. . . .'').
    \261\ See id. at 2, 12. See also Letter from Hal. S. Scott, 
President, Committee on Capital Markets Regulation, dated March 16, 
2020 (``Committee Letter III''), at 2 (``[B]ecause the [proposal] 
does not specify its proposed fees and underlying cost, the SEC 
cannot conduct the informed cost-benefit analysis necessary for 
approval . . .''); Heritage Letter V, at 2 (stating that FINRA 
should be required to demonstrate ``that the benefits to information 
purchasers would materially outweigh the unrecompensed costs imposed 
on underwriters. . . .'').
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    Petitioner further stated that the Commission erred in the Approval 
Order by not making a finding under Section 15A(b)(5) of the Act that 
the proposal provides for the equitable allocation of reasonable dues, 
fees, and other charges among members and issuers and other persons 
using any facility or system which FINRA operates or controls.\262\ 
This commenter stated that ``[t]o the extent the [Approval] Order 
suggests that requirement applies only to a `proposed fee filing' . . . 
it is wrong'' and, rather, that Section 15A(b)(5) applies to all the 
rules of the national securities association.\263\ Petitioner argued 
that the Commission must determine whether FINRA's current proposal 
provides for the equitable allocation of reasonable charges.\264\
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    \262\ See Petition for Review, at 12-13; Petitioner Statement, 
at 11-13.
    \263\ See Petition for Review, at 13; Petitioner Statement, at 
13.
    \264\ See Petitioner Statement, at 11. This commenter further 
argued that the proposal cannot satisfy the requirements of Section 
15(A)((b)(5) of the Act because FINRA has failed to provide any 
information regarding fees or an analysis of costs or ``margins.'' 
See Petitioner Statement, at 2, 13-16.

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[[Page 6943]]

2. FINRA Response to Comments
    In response, FINRA stated that it did not withdraw the fees from 
the current proposal to avoid subjecting the fees to further public 
comment, but rather so it could further evaluate an appropriate fee 
structure for the data service.\265\ FINRA stated that it believed that 
``with additional time, it could better assess the costs it incurs to 
develop the data service, and also better forecast the number of 
expected subscribers,'' and that this information would help it to 
better determine the proposed fees for the data service.\266\
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    \265\ See FINRA Statement, at 17; Response Letter, at 12, n.35. 
FINRA stated that it removed the fees so that it could further 
evaluate the appropriate fee structure in light of comments 
received, as well as new Commission staff guidance on SRO fee 
filings published after FINRA's initial proposal. See FINRA 
Statement, at 17.
    \266\ See FINRA Statement, at 17-18.
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    FINRA stated that it has committed to pricing the data service as a 
utility, using a cost-based formula, meaning that it will tie the 
subscription price of the data service to FINRA's costs and that FINRA 
will allow all market participants to subscribe to the data service on 
reasonable, disclosed terms, as required of SROs.\267\ In addition, 
FINRA stated that it will not employ discriminatory pricing or 
unreasonably refuse anyone access to the data, unlike the anti-
competitive practices the FIMSAC noted have been observed in the 
current private market.\268\
---------------------------------------------------------------------------

    \267\ See FINRA Statement, at 18.
    \268\ See id.
---------------------------------------------------------------------------

    FINRA stated that any new fees would be filed with the Commission 
in advance of the implementation of the newly issued corporate bond new 
issue reference data service and would be subject to applicable 
Commission rule filing requirements under the Act.\269\ In addition, 
FINRA argued that Petitioner's contentions that the proposal cannot be 
approved without including the proposed fees and that the Commission 
erred by not making an affirmative finding under Section 15A(b)(5) of 
the Act are is inconsistent with the plain text of the Act and 
longstanding Commission precedent.\270\
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    \269\ See FINRA Statement, at 18; Response Letter, at 12.
    \270\ See FINRA Statement, at 19-21 (citing to Section 
19(b)(3)(A) of the Act, Section 15(A)((b)(5) of the Act, and various 
immediately effective proposed rule changes filed by SROs to adopt 
fees).
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3. Commission Discussion and Findings
    A number of commenters expressed concerns about the lack of 
information regarding fees for the New Issue Reference Data Service, 
including (a) the appropriateness of separating the fees into a 
separate immediately effective filing; (b) the ability of the 
Commission to assess the proposal's consistency with the Act without 
knowing either the proposed fees for the service or the potential costs 
to FINRA for building the service; and (c) the application of Section 
15A(b)(5) to the proposal. The Commission addresses each of these 
issues below.
a. Fee Filings
    The Commission disagrees that separating the fee proposal into a 
subsequent filing would allow FINRA to avoid regulatory and public 
scrutiny of the proposed fees.\271\ FINRA cannot charge fees for the 
proposed data service until the Commission receives a proposed rule 
change that complies with the Act and Commission rules concerning 
proposed fee changes. All proposed rule changes, including proposed fee 
changes, are subject to public notice and comment and must be 
consistent with the Act. As required by Section 19(b)(1) of the Act, 
the Commission must publish notice of all proposed rule changes and 
must give interested persons an opportunity to comment, whether or not 
such proposed rule change is immediately effective or not. The 
instructions to Form 19b-4 state that the form ``is intended to elicit 
information necessary for the public to provide meaningful comment on 
the proposed rule change . . . and for the Commission to determine 
whether the proposed rule change . . . is consistent with the 
requirements of the Act and the rules and regulations thereunder . . . 
as applicable to the self- regulatory organization and in accordance 
with the requirements for each type of filing.'' A proposed fee filing 
must fully and fairly describe the operation of the applicable fee 
(including its effect on market participants) and do so in sufficient 
detail so that the public can understand the proposal sufficiently to 
provide meaningful comment and the Commission can determine whether the 
proposal is consistent with the Act. While FINRA may file its eventual 
fees for the New Issue Reference Data Service as immediately effective 
pursuant to Section 19(b)(3)(A) of the Act, the fee filing will be 
subject to the same notice and comment requirements as a proposed rule 
change that is not eligible to be filed as immediately effective. Thus, 
use of the immediately effective fee filing process will not allow 
FINRA to avoid commenter scrutiny for its proposed fees for the 
service.
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    \271\ The Commission notes that SROs are required by Section 
19(b) of the Act and Rule 19b-4 thereunder to file proposed rule 
changes with the Commission on Form 19b-4. The Act provides that a 
proposed rule change may not take effect unless it is approved by 
the Commission pursuant to Section 19(b)(2) of the Act, or it 
becomes immediately effective upon filing pursuant to Section 
19(b)(3)(A) of the Act. Furthermore, Section 19(b)(3)(A) of the Act 
states ``a proposed rule change shall take effect upon filing with 
the Commission if designated by the self-regulatory organization as 
. . . establishing or changing a due, fee, or other charge imposed 
by the self-regulatory organization on any person, whether or not 
the person is a member of the self-regulatory organization. . . .'' 
See 15 U.S.C. 78s(b)(3)(A). Rule 19b-4(f) under the Act specifies 
the types of proposed rule changes that may become immediately 
effective upon filing with the Commission, and includes those 
properly designated by the SROs as ``establishing or changing a due, 
fee, or other charge imposed by the self-regulatory organization.'' 
See Rule 19b-4(f)(2) under the Act.
---------------------------------------------------------------------------

    A proposed fee filing by a national securities association such as 
FINRA must also address all relevant statutory requirements, including 
Section 15A(b)(5) of the Act which requires that ``[t]he rules of the 
association provide for the equitable allocation of reasonable dues, 
fees, and other charges among members and issuers and other persons 
using any facility or system which the association operates or 
controls;'' Section 15A(b)(6) of the Act, which requires, in part, that 
the rules of an association are ``not designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers;'' and 
Section 15A(b)(9)of the Act, which requires, in part, that the rules of 
an association ``not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of this title.'' Regardless 
of whether a fee proposed by FINRA is effective upon filing with the 
Commission, the Commission assesses whether or not the fee proposal is 
consistent with the Act.\272\ If the Commission determines that a fee 
filing merits further review, the Commission may temporarily suspend it 
and issue an order instituting proceedings to determine whether to 
approve or disapprove the proposal.\273\ Such a

[[Page 6944]]

determination would be informed by any comments received on a fee 
filing. Therefore, the Commission does not believe that FINRA's use of 
the immediately effective fee filing process would allow FINRA to avoid 
regulatory scrutiny for its proposed fees for the service.
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    \272\ Furthermore, in contrast to Petitioner's assertion, FINRA 
has the burden of demonstrating that a proposed fee is consistent 
with the Act and the rules and regulations thereunder, regardless of 
whether the proposed fee is effective upon filing with the 
Commission. See Securities and Exchange Commission Rules of 
Practice, Rule 700(b)(3) (17 CFR 201.700(b)(3)). See also supra note 
256.
    \273\ See Section 19(b)(3)(C) of the Act, authorizing the 
Commission at any time within 60 days of the date of filing of a 
proposed rule change pursuant to Section 19(b)(1) of the Act, to 
summarily temporarily suspend the change in the rules of an SRO if 
it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, 
or otherwise in furtherance of the purposes of the Act, and Section 
19(b)(2)(B) of the Act, setting forth a notice and hearing procedure 
for an order instituting proceedings.
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    Finally, while the Commission outlined various concerns relating to 
effective-upon-filing fee changes for NMS plans under Rule 608(b) in 
the Proposed Regulation NMS Fee Amendment, we do not believe those 
concerns call into question our approach here. Fee filings in this 
context are governed by Section 19 of the Act rather than Rule 608. 
More importantly, as stated above, the Commission assesses whether or 
not any fee proposal filed under Section 19 of the Act is consistent 
with the Act. If the Commission determines that a fee filing pursuant 
to Section 19(b)(3)(A) merits further review, which may be informed by 
the required notice and comment process, the Commission may temporarily 
suspend it and issue an order instituting proceedings to determine 
whether to approve or disapprove the proposal.
b. Assessment of Proposal's Consistency With the Act
    The Commission further disagrees that it cannot adequately assess 
the proposal's consistency with the Act and its economic effects 
without knowing the fees that FINRA will charge for the proposed 
reference data service or the costs to build the service. The 
Commission has evaluated the economic effects, including the 
qualitative costs and benefits, of the proposal based on the record 
before it and has concluded that there is a lack of broadly available 
and accessible new issue reference data on the first day of secondary 
market trading that impedes the efficiency and competition in the 
current marketplace, and that FINRA's proposal would address this 
information asymmetry to the benefit of the market and market 
participants.\274\ The Commission's consideration of the proposal's 
economic effects, including the burden on underwriters, the proposal's 
impact on competition among market participants, including other data 
vendors, and its impact on efficiency and capital formation, as 
discussed above, is based upon the understanding that the fees assessed 
will be consistent with the Act and will be assessed using a cost-based 
formula. It is reasonable for the Commission to assume that any future 
fees assessed will be consistent with the Act because, as discussed 
above, if it believes such fees are not consistent with the Act, the 
Commission must suspend and disapprove them.\275\ The Commission will 
evaluate FINRA's eventual fee application based on the requirements of 
the Act and assess FINRA's proposed cost-based formula. It is that fee 
filing that will merit a consideration of FINRA's cost to build the New 
Issue Reference Data Service because the costs of the system, which 
will be better known once the system is built, will be necessary to 
assess whether FINRA has proposed a fee for that service that is 
consistent with the Act, including Section 15A(b)(5).\276\ FINRA has 
expressly and clearly committed that its fees will be cost-based, and 
it will be required to set forth why such cost-based fees meet the 
requirements of the Act. While commenters have raised concerns 
regarding FINRA's costs to build and operate the new reference data 
service,\277\ should FINRA hypothetically build a New Issue Reference 
Data Service at a high cost that would be unreasonable to pass on to 
end-users, FINRA would not be able to make a showing that any such fees 
proposed to be assessed on the basis of its cost to build the service 
are reasonable, as required by Section 15A(b)(5) of the Act. In such a 
case, as discussed above, the Commission would suspend and disapprove 
the proposal.
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    \274\ See generally Sections III.A and III.B; supra notes 31-42, 
89-102 and 139-145 and accompanying text.
    \275\ See supra note 273 and accompanying text.
    \276\ See supra note 266 and accompanying text.
    \277\ See supra notes 259-261 and accompanying text.
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c. Application of Section 15A(b)(5) to FINRA's Proposal
    The Commission disagrees with one commenter's argument that the 
Commission is required to make a finding under Section 15A(b)(5) of the 
Act that the current proposal ``provides for the equitable allocation 
of reasonable dues, fees, and other charges among members and issuers 
and other persons using any facility or system which the association 
operates or controls.'' The plain language of the Act necessitates that 
the proposal involve a due, fee or other charge in order to make such a 
finding concerning Section 15A(b)(5) of the Act.

IV. Conclusion

    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with the Act and the rules and regulations 
thereunder applicable to a national securities association.
    It is therefore ordered, pursuant to Rule 431 of the Commission's 
Rules of Practice, that the earlier action taken by delegated 
authority, Exchange Act Release No. 87656 (December 4, 2019), 84 FR 
67491 (December 10, 2019), is set aside and, pursuant to Section 
19(b)(2) of the Act, the proposed rule change (SR-FINRA-2019-008), as 
modified by Amendment No. 2, hereby is approved.

    By the Commission.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2021-01438 Filed 1-22-21; 8:45 am]
BILLING CODE 8011-01-P


