[Federal Register Volume 87, Number 107 (Friday, June 3, 2022)]
[Notices]
[Pages 33844-33851]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-11878]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95003; File No. SR-FINRA-2022-013]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend 
FINRA Rule 6730 To Enhance TRACE Reporting Obligations for U.S. 
Treasury Securities

May 27, 2022.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on May 23, 2022, the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by FINRA. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to amend FINRA Rule 6730 to: (i) Require members 
to report electronically executed transactions in U.S. Treasury 
Securities to FINRA's Trade Reporting and Compliance Engine (``TRACE'') 
in the finest increment captured by the system used to execute the 
transaction, subject to an exception for members with limited trading 
volume in U.S. Treasury Securities; and (ii) reduce the trade reporting 
timeframe for transactions in U.S. Treasury Securities to generally 
require reporting to TRACE as soon as practicable but no later than 60 
minutes.
    The text of the proposed rule change is available on FINRA's 
website at http://www.finra.org, at the principal office of FINRA and 
at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, FINRA included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. FINRA has prepared summaries, set forth in sections A, 
B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On July 10, 2017,\3\ FINRA members began reporting information on 
transactions in U.S. Treasury

[[Page 33845]]

Securities \4\ to TRACE.\5\ Information reported to TRACE regarding 
transactions in U.S. Treasury Securities is used for regulatory and 
other official sector purposes and is not disseminated publicly.\6\ 
Among other regulatory uses, FINRA makes the data available to the 
official sector to assist them in the monitoring and analysis of the 
U.S. Treasury Security markets.\7\
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    \3\ See Regulatory Notice 16-39 (October 2016); see also 
Securities Exchange Act Release No. 79116 (October 18, 2016), 81 FR 
73167 (October 24, 2016) (Order Granting Accelerated Approval of 
File No. SR-FINRA-2016-027).
    \4\ Under Rule 6710(p), a ``U.S. Treasury Security'' means a 
security, other than a savings bond, issued by the U.S. Department 
of the Treasury (the ``Treasury Department'') to fund the operations 
of the federal government or to retire such outstanding securities. 
The term ``U.S. Treasury Security'' also includes separate principal 
and interest components of a U.S. Treasury Security that has been 
separated pursuant to the Separate Trading of Registered Interest 
and Principal of Securities (STRIPS) program operated by the 
Treasury Department.
    \5\ TRACE is the FINRA-developed system that facilitates the 
mandatory reporting of over-the-counter transactions in eligible 
fixed income securities. See generally Rule 6700 Series.
    \6\ On March 10, 2020, FINRA began posting on its website 
weekly, aggregate data on the trading volume of U.S. Treasury 
Securities reported to TRACE. See FINRA Press Release, FINRA 
Launches New Data on Treasury Securities Trading Volume, https://www.finra.org/media-center/newsreleases/2020/finra-launches-new-data-treasury-securities-trading-volume; see also Securities 
Exchange Act Release No. 87837 (December 20, 2019), 84 FR 71986 
(December 30, 2019) (Order Approving File No. SR-FINRA-2019-028). 
Information on individual transactions in U.S. Treasury Securities 
is not published or disseminated.
    \7\ The Treasury Department, the Board of Governors of the 
Federal Reserve System (the ``Federal Reserve''), the Federal 
Reserve Bank of New York, the SEC and the U.S. Commodity Futures 
Trading Commission comprise the Inter-Agency Working Group for 
Treasury Market Surveillance (IAWG or ``official sector'').
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    Since members began reporting U.S. Treasury Security transaction 
information to TRACE,\8\ FINRA has continued to study the data and, in 
consultation with the Treasury Department, consider potential ways to 
enhance the quality and availability of the data for FINRA and the 
official sector. FINRA is now proposing two changes to its TRACE 
reporting rules to enhance the regulatory audit trail and require 
members to report transactions in U.S. Treasury Securities to FINRA in 
a more timely manner. The first proposed change would require members 
to report electronically executed transactions in U.S. Treasury 
Securities to TRACE in the finest increment captured by the system that 
executed the transaction, as discussed below. FINRA is proposing to 
provide an exception from the amended execution timestamp provision for 
members with limited trading volume in U.S. Treasury Securities. The 
second proposed change would reduce the reporting timeframe for 
transactions in U.S Treasury Securities, as discussed further below.
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    \8\ Currently, the TRACE reporting requirements apply only to 
FINRA members. However, FINRA notes that the Federal Reserve has 
approved a rule change that will require certain non-FINRA member 
banks to begin reporting information on transactions in specified 
fixed income securities, including U.S. Treasury Securities, to 
TRACE. See Agency Information Collection Activities: Announcement of 
Board Approval Under Delegated Authority and Submission to OMB, 86 
FR 59716 (October 28, 2021) (Federal Reserve approval to implement 
the Treasury Securities and Agency Debt and Mortgage-Backed 
Securities Reporting Requirements (FR 2956; OMB No. 7100-NEW)).
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Execution Timestamps
    Existing Supplementary Material .04 to Rule 6730 provides that, 
when reporting transactions in U.S. Treasury Securities executed 
electronically to TRACE, members must report the Time of Execution \9\ 
pursuant to paragraph (c)(8) of Rule 6730 to the finest increment of 
time captured by the member's system (e.g., millisecond, microsecond), 
but at a minimum, in increments of seconds.\10\ The ``member's system'' 
referenced in the existing rule refers to the system that is used to 
report the transaction to TRACE (i.e., the member's ``reporting 
system''). Under the existing rule and related guidance, if a member 
uses multiple systems to facilitate trade reporting and those systems 
differ in granularity, then the member may use the finest increment 
that is common across all systems.\11\ As a result, currently members 
may use a reporting system to report a trade to TRACE in an increment 
of time that is less precise than that captured by the system that is 
used to execute the transaction (i.e., the ``execution system'').\12\
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    \9\ Under Rule 6710(d), the ``Time of Execution'' generally 
means the time when the parties to a transaction agree to all of the 
terms of the transaction that are sufficient to calculate the dollar 
price of the trade.
    \10\ Existing Supplementary Material .04 provides that a member 
must report ``at a minimum, in increment of seconds.'' As discussed 
below, to avoid confusion, the proposed amendments update this 
language to clarify that members must report trades in an increment 
of ``no longer than a second'' and no shorter than a microsecond. 
TRACE currently cannot accept a Time of Execution in an increment 
that is finer than a microsecond. The proposed rule change would 
also make a non-substantive edit to Supplementary Material .04 to 
capitalize the defined term ``Time of Execution.''
    \11\ Specifically, TRACE Treasury FAQ #3.5.8 provides as 
follows: Question: Our firm will use two separate systems to 
facilitate trade reporting of U.S. Treasury Securities for different 
business lines. One system (``System A'') has the capability to 
capture the time of execution to the millisecond; however, the 
second system (``System B'') will only capture the time of execution 
to the second. Will our firm be required to update System B to 
capture the time of execution to the millisecond? Answer: No. The 
rule requires members to report the time of electronic executions to 
the finest increment of time captured in the member's system (e.g., 
millisecond, microsecond), but at a minimum, in increments of 
seconds. Since the firm would be reporting the time of execution to 
the finest increment captured by each system, the firm would not 
need to make any updates to System B to comply with a finer time 
increment.
    \12\ For purposes of Supplementary Material .04, FINRA would 
consider the relevant execution system to be the system used to 
execute the particular U.S. Treasury Security transaction being 
reported to TRACE, regardless of whether the member is using its own 
internal systems for execution or if the transaction is executed 
through an external system. For example, if a member executes a 
transaction in a U.S. Treasury Security through an alternative 
trading system (``ATS'') or other electronic trading platform, the 
member would be required to report in the finest increment of time 
captured by such ATS or electronic trading platform (but no finer 
than a microsecond, in line with TRACE system parameters).
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    To improve the granularity and consistency of transaction 
information for U.S. Treasury Securities, FINRA is proposing to amend 
Supplementary Material .04 to Rule 6730 to instead provide that, when 
reporting transactions in U.S. Treasury Securities executed 
electronically, members must report the Time of Execution pursuant to 
paragraph (c)(8) of Rule 6730 to the finest increment of time captured 
by the execution system (e.g., millisecond, microsecond), but reporting 
must be in an increment of (i) no longer than a second and (ii) no 
shorter than a microsecond. Amended Supplementary Material .04 would 
not require members to update execution systems for U.S. Treasury 
Securities--instead members must update their reporting systems, if 
necessary, to ensure that their TRACE reports reflect the finest 
increment of time captured by the execution system (but not finer than 
a microsecond).\13\ Therefore, a member may be required to update its 
reporting system for U.S. Treasury Securities if such reporting system 
does not currently report to TRACE to the same level of granularity as 
the execution system.\14\
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    \13\ The TRACE system does not accept trade reports in 
increments finer than a microsecond. Where a firm captures time in a 
finer increment, the firm must truncate the time when reporting the 
transaction to TRACE. Specifically, TRACE FAQ #3.5.37 provides as 
follows: Question: Is rounding permitted when reporting the Time of 
Execution of a U.S. Treasury Security transaction to TRACE? Answer: 
No. Members must accurately report a transaction's Time of Execution 
and are not permitted to round when reporting to TRACE. The TRACE 
system can accommodate reporting up to the microsecond and, where 
the firm captures time in an increment finer than microseconds, the 
firm must truncate when reporting to TRACE.
    \14\ See supra note 12. In connection with the proposed rule 
change, FINRA would also amend its existing TRACE FAQs to clarify 
that a member must report using the finest increment of time 
captured by the execution system, and therefore may need to update 
other systems to enable trade reporting using the execution system's 
level of timestamp granularity.
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    For example, if the execution system captures time in milliseconds 
but the reporting system for U.S. Treasury Security transactions 
reports the Time

[[Page 33846]]

of Execution in seconds, the member would be required to update its 
reporting system to report the Time of Execution in milliseconds. 
Similarly, if a member's reporting system reports transactions in U.S. 
Treasury Securities in milliseconds but the member executes trades on 
an ATS that captures the execution times in microseconds, the member 
would be required to update its reporting system to report the Time of 
Execution in microseconds. FINRA believes the proposed change would 
result in FINRA and the official sector receiving more precise 
information with respect to the Time of Execution of transactions in 
U.S. Treasury Securities, which would assist with trade matching and 
sequencing for U.S. Treasury Securities.
    FINRA is, however, proposing to add new Supplementary Material .07 
to Rule 6730 to provide a limited exception for members with limited 
trading volume in U.S. Treasury Securities from the proposed 
requirement to report electronically executed transactions in U.S. 
Treasury Securities to the finest increment of time captured by the 
execution system.\15\ The proposed Supplementary Material would define 
a ``member with limited trading volume in U.S. Treasury Securities'' as 
a member that executed transactions in U.S. Treasury Securities of $10 
million or less in average daily par value, computed by aggregating buy 
and sell transactions, during the preceding calendar year. Where a 
member's activity is below the proposed criteria during the preceding 
calendar year, such member would not be required to report transactions 
in U.S. Treasury Securities in the finest increment captured by the 
execution system and would be permitted to continue to report the Time 
of Execution for transactions in U.S. Treasury Securities executed 
electronically as it does today for the duration of the following 
calendar year.
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    \15\ The proposed rule change would also make non-substantive, 
conforming edits to the Supplementary Material to Rule 6730. 
Specifically, existing Supplementary Material .06 to Rule 6730 
provided a temporary exception for aggregate transaction reporting 
of U.S. Treasury Securities executed in ATS trading sessions. By its 
terms, that temporary exception expired on April 12, 2019. 
Therefore, FINRA is proposing to delete the temporary exception 
under existing Supplementary Material .06, renumber existing 
Supplementary Material .07 (ATS Identification of Non-FINRA Member 
Counterparties for Transactions in U.S. Treasury Securities) as 
Supplementary Material .06 and add the new exception for members 
with limited trading volume in U.S. Treasury Securities as new 
Supplementary Material .07.
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    Under the proposed rule change, a member that relies on the 
exception for limited trading volume would be required to confirm on an 
annual basis that it continues to meet the criteria for the exception 
based on its trading activity during the preceding calendar year. Where 
a member no longer meets the criteria for the exception based on its 
trading activity during a given preceding calendar year, the member may 
no longer rely on the exception beginning 90 days after the end of such 
calendar year, which FINRA believes would provide such members with a 
sufficient amount of time to make any systems changes that may be 
needed to comply with the amended timestamp requirement.\16\
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    \16\ Under the proposed rule change, once a member's activity 
falls outside of the scope of the proposed criteria based on its 
trading activity during a given preceding calendar year, such member 
generally may no longer rely on the exception beginning 90 days 
after the end of such calendar year, irrespective of whether it 
again meets the criteria in a subsequent calendar year. However, a 
member may consult with FINRA staff regarding the availability of 
the exception where the member has changed business lines or 
undergone a corporate restructuring that significantly impacts its 
level of activity in U.S. Treasury Securities.
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    As discussed further below in the Economic Impact Assessment, FINRA 
believes that providing an exception from the amended execution 
timestamp requirement is appropriate as it would apply the enhanced 
obligations under the rule and associated burdens to the members that 
engage in substantial trading activity in U.S. Treasury Securities 
(based on the $10 million average daily par value traded threshold).
Reporting Timeframe Reduction
    Under existing Rule 6730(a)(4)(A), transactions in U.S. Treasury 
Securities executed on a business day at or after 12:00:00 a.m. Eastern 
Time through 5:00:00 p.m. Eastern Time must be reported the same day 
during TRACE System Hours, i.e., 8:00:00 a.m. Eastern Time through 
6:29:59 p.m. Eastern Time.\17\ A transaction executed on a business day 
after 5:00:00 p.m. Eastern Time but before the TRACE system closes can 
be reported the same day before the TRACE system closes, but must be 
reported no later than the next business day (T+1) during TRACE System 
Hours, i.e., 8:00:00 a.m. Eastern Time through 6:29:59 p.m. Eastern 
Time, and, if reported on T+1, designated ``as/of'' and include the 
date of execution. Finally, a transaction executed on a business day at 
or after 6:30:00 p.m. Eastern Time through 11:59:59 p.m. Eastern Time 
(or a Saturday, a Sunday, a federal or religious holiday or other day 
on which the TRACE system is not open at any time during that day) must 
be reported the next business day (T+1) during TRACE System Hours, 
i.e., 8:00:00 a.m. Eastern Time through 6:29:59 p.m. Eastern Time, 
designated ``as/of,'' and include the date of execution.
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    \17\ Under Rule 6710(t), ``TRACE System Hours'' means the hours 
the TRACE system is open, which are 8:00:00 a.m. Eastern Time 
through 6:29:59 p.m. Eastern Time on a business day, unless 
otherwise announced by FINRA.
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    To provide more timely information about transactions in U.S. 
Treasury Securities, FINRA is proposing to amend Rule 6730(a)(4) to 
reduce the trade reporting timeframe as follows.\18\ Amended Rule 
6730(a)(4) would provide that transactions in U.S. Treasury Securities 
must be reported as soon as practicable, but no later than the 
following time periods.\19\ Amended Rule 6730(a)(4)(A) would require 
that a transaction executed on a business day at or after 12:00:00 a.m. 
Eastern Time through 7:59:59 a.m. Eastern Time must be reported the 
same day no later than 60 minutes after the TRACE system opens. A 
transaction executed on a business day at or after the time the TRACE 
system opens at 8:00:00 a.m. Eastern Time through when the TRACE system 
closes at 6:29:59 p.m. Eastern Time (standard TRACE System Hours) must 
be reported within 60 minutes of the Time of Execution, except that a 
transaction executed on a business day less than 60 minutes before 
6:30:00 p.m. Eastern Time can be reported the same day before the TRACE 
system closes, but must be reported no later than 60 minutes after the 
TRACE system opens the next business day (T+1), and if reported on T+1, 
designated ``as/of'' and

[[Page 33847]]

include the date of execution. Finally, a transaction executed on a 
business day at or after 6:30:00 p.m. Eastern Time through 11:59:59 
p.m. Eastern Time, or a Saturday, a Sunday, a federal or religious 
holiday or other day on which the TRACE system is not open at any time 
during that day (determined using Eastern Time) must be reported the 
next business day (T+1) no later than 60 minutes after the TRACE system 
opens, designated ``as/of,'' and include the date of execution.
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    \18\ FINRA is not proposing to provide an exception for members 
with limited trading activity in U.S. Treasury Securities from the 
proposed reduced reporting timeframe requirement.
    \19\ In connection with the proposed changes to Rule 6730(a)(4) 
discussed above, the proposed rule change would also make conforming 
changes to Supplementary Material .03 to Rule 6730, which sets forth 
standards for firms reporting transactions ``as soon as 
practicable'' after the Time of Execution in accordance with Rule 
6730(a). Existing Rule 6730.03 provides that ``[e]ach member with a 
trade reporting obligation pursuant to paragraph (a) above for a 
TRACE-Eligible Security that is subject to dissemination must adopt 
policies and procedures reasonably designed to comply with the 
requirement that transactions in TRACE-Eligible Securities be 
reported `as soon as practicable' by implementing systems that 
commence the trade reporting process at the Time of Execution 
without delay.'' Under the proposed rule change, the ``as soon as 
practicable'' standard would also apply to transactions in U.S. 
Treasury Securities, which are not subject to dissemination. 
Therefore, FINRA is proposing to update the first sentence of Rule 
6730.03 to provide that ``[e]ach member with an obligation to report 
a transaction in a TRACE-Eligible Security `as soon as practicable' 
pursuant to paragraph (a) of this Rule must adopt policies and 
procedures reasonably designed to comply with this requirement by 
implementing systems that commence the trade reporting process at 
the Time of Execution without delay.''
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    FINRA believes the proposal to require that members report 
transactions in U.S. Treasury Securities to TRACE as soon as 
practicable, but no later than within 60 minutes of the Time of 
Execution (or within 60 minutes after the TRACE system opens for trades 
executed during specified periods, as described above) is a beneficial 
next step towards providing FINRA and the official sector with more 
timely information about activity in the U.S. Treasury Security markets 
than the current reporting timeframe, including more timely data about 
intraday pricing and liquidity. As discussed further in the Economic 
Impact Assessment, FINRA also notes that members already report over 90 
percent of transactions in U.S. Treasury Securities within 60 minutes 
of the Time of Execution. FINRA will continue to consider whether 
further reducing the reporting timeframe for U.S. Treasury Securities 
may be beneficial.
    If the Commission approves the proposed rule change, FINRA will 
announce the effective date of the proposed rule change in a Regulatory 
Notice. The effective date will be no later than 365 days following 
publication of the Regulatory Notice announcing Commission approval of 
the proposed rule change.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\20\ which requires, among 
other things, that FINRA rules must be designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest.
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    \20\ 15 U.S.C. 78o-3(b)(6).
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    FINRA believes that the proposed rule change to align the 
granularity of the Time of Execution provided in TRACE reports with the 
granularity of timestamps in the system used to execute transactions in 
U.S. Treasury Securities will enhance the regulatory audit trail for 
U.S. Treasury Securities available to FINRA and the official sector by 
facilitating more efficient matching and sequencing of transactions in 
the audit trail data. FINRA also believes that providing an exception 
from the amended execution timestamp requirement for members with 
limited trading volume in U.S. Treasury Securities will reduce burdens 
for members with limited activity while continuing to ensure that FINRA 
and the official sector receives valuable audit trail information for 
U.S. Treasury Security trades. FINRA further believes that requiring 
members to report transactions in U.S. Treasury Securities to TRACE in 
a more timely manner will improve the availability to regulators of 
information regarding transactions in the U.S. Treasury Security 
markets, including more timely data about intraday pricing and 
liquidity.

B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.
Economic Impact Assessment
    FINRA has undertaken an economic impact assessment, as set forth 
below, to further analyze the regulatory need for the proposed rule 
change, its potential economic impacts, including anticipated costs, 
benefits, and distributional and competitive effects, relative to the 
current baseline, and the alternatives FINRA considered in assessing 
how best to meet its regulatory objective.
Regulatory Need
    Under the existing rule, members may report a trade to TRACE in an 
increment of time that is less precise than that captured by the 
execution system, which makes it difficult to match interdealer trades 
when two sides report at different time granularity because coarse 
granularity in timestamps makes sequencing trades less precise. To 
address this, the proposed amendment requires that, when reporting 
transactions in U.S. Treasury Securities executed electronically, 
members must report the Time of Execution to the finest increment of 
time captured by the execution system, but must report in an increment 
of time that is no longer than a second and no shorter than a 
microsecond.
    Under the existing rule, a transaction executed on a business day 
at or after 12:00:00 a.m. Eastern Time through 5:00:00 p.m. Eastern 
Time must be reported the same day during TRACE System Hours, while a 
transaction executed after 5:00:00 p.m. Eastern Time but before the 
TRACE system closes must be reported no later than the next business 
day (T+1) during TRACE System Hours. A transaction executed on a 
business day at or after 6:30:00 p.m. Eastern Time through 11:59:59 
p.m. Eastern time or on a non-business day must be reported the next 
business day (T+1) during TRACE System Hours. To improve the timeliness 
of the information reported to TRACE, the proposed amendment will 
require transactions in U.S. Treasury Securities to be reported as soon 
as practicable, but no later than 60 minutes from the Time of Execution 
(or within 60 minutes after the TRACE system opens for trades executed 
during specified periods), which would provide more timely information 
to regulators.
Economic Baseline
    The economic baseline of the proposed rule change is the existing 
TRACE U.S. Treasury Security reporting requirements, and member firms 
trading activities in these securities. FINRA has analyzed TRACE U.S. 
Treasury Security transaction reports during the sample period of July 
2020 to June 2021 by 729 members and 21 ATSs, \21\ during which there 
were approximately 336,612 transaction reports on average reported to 
TRACE per day.\22\ ATSs collectively accounted for 58.8 percent of 
these reports. Among the top 10 TRACE reporters for U.S. Treasury 
Securities, five are ATSs and five are non-ATS FINRA members. The top 
10 reporters collectively represented 71.8 percent of all TRACE U.S. 
Treasury Security reports, and the five ATSs accounted for 57.8 percent 
of the total. On average, there were 667 FINRA members that reported 
fewer than 100 transactions per day for the days on which they reported 
transactions in U.S. Treasury Securities.
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    \21\ In selecting a sample period, FINRA also analyzed trade 
reports during the 2020 calendar year, which includes the March 2020 
stress period, and found no significant difference in the statistics 
over the 2020 calendar year as compared to the statistics over the 
July 2020 to June 2021 period.
    \22\ The analysis considers all transaction reports for the 
purpose of the rule, and thus differs from the weekly aggregated 
statistics published by FINRA, which adjusts for multiple reporting 
of trades where a trade involves an ATS or both sides are FINRA 
members. See supra note 6.
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    During the sample period, 253 unique MPIDs reported transactions in 
U.S. Treasury Securities executed on or through an ATS to TRACE.\23\ Of 
the 253 MPIDs, 173 MPIDs reported transactions in seconds and 80 MPIDs 
reported

[[Page 33848]]

transactions in milliseconds or finer. Fifty-nine of the 173 reporters 
which reported in seconds had no more than $10 million in average daily 
par value traded. Thirty-four of the 80 reporters which reported in 
milliseconds or finer had no more than $10 million in average daily par 
value traded. There were approximately 70.2 million ATS transactions 
reported in the sample period across all 253 MPIDs. Most of these 
transactions (72.7 percent) were reported in milliseconds or finer.
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    \23\ FINRA has analyzed the number of transactions executed on 
or through an ATS because these are a readily identifiable subset of 
all electronically executed transactions.
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    Furthermore, for the sample period reviewed, FINRA analysis found 
that for transactions executed on business days between 8:00 a.m. and 
5:00 p.m., members reported 96.5 percent of transactions within 60 
minutes of the Time of Execution. Of the 749 MPIDs (either member firm 
or ATS) that reported transactions, 281 MPIDs always reported 
transactions within 60 minutes and 12 MPIDs always reported 
transactions more than 60 minutes after the execution. The remaining 
456 MPIDs reported transactions both within 60 minutes and after 60 
minutes of execution, of which 96.5 percent were reported within 60 
minutes of execution. FINRA also observed that of the transactions that 
were executed from 5:00 p.m. through 7:59:59 a.m. the next business day 
or on non-business days by 318 MPIDs, 95.5 percent of these 
transactions were reported within 60 minutes after the TRACE system 
opened. Of the 318 MPIDs, 109 always reported within 60 minutes after 
the TRACE system opened. Of the 318 MPIDs, 193 reported both within and 
after 60 minutes after the TRACE system opened.
Economic Impacts
    As discussed above, FINRA is proposing two enhancements to improve 
the quality and timeliness of the information reported to TRACE for 
transactions in U.S. Treasury Securities. The enhancements will result 
in benefits, including facilitating market oversight and providing 
FINRA and the official sector with valuable insight into U.S. Treasury 
Security transactions, thereby benefiting the markets and market 
participants, and strengthening investor protection.
    FINRA recognizes that the proposed enhancements may result in costs 
for members that trade U.S. Treasury Securities where members must 
implement changes to their processes and systems for reporting U.S. 
Treasury Securities transactions to TRACE.
    The proposed rule change may affect competition between member 
firms with reporting obligations and non-members engaging in U.S. 
Treasury Security trades. Such competitive impact could result from the 
extent to which members pass costs resulting from the reporting 
requirement to customers, either fully or partially. Customers may thus 
choose to trade using non-members who do not have TRACE reporting 
obligations. However, such substitutability would depend on, among 
other things, whether sufficient liquidity exists with these non-
reporting firms, and regulatory or practical limitations on where 
customers and institutions may trade. In addition, search and other 
costs may further impose a burden on customers that may limit such 
potential substitution. Substitution may also be limited where other 
regulators impose TRACE reporting requirements that align with the 
proposed rule change, for example when the Federal Reserve implements 
TRACE reporting for U.S. Treasury Securities for banks.\24\ The 
proposed rule change may also affect competition among reporting firms, 
where firms reporting only a limited number of trades may face the same 
costs of upgrading their systems and therefore find their limited 
trading in U.S. Treasury Securities less viable. The impact on such 
firms is expected to be mitigated as a result of the proposed exception 
for eligible members in connection with the proposed timestamp 
granularity provision, as described above.
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    \24\ See supra note 8.
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Execution Timestamps
    As discussed above, FINRA is proposing to require members to report 
electronically executed transactions in U.S. Treasury Securities in the 
finest increment of time as that captured by the execution system, but 
must report in an increment of time that is no longer than a second and 
no shorter than a microsecond. Finer time granularity in the audit 
trail will assist with trade matching and sequencing by allowing 
transactions to be matched more accurately and sequenced with more 
granularity. This facilitates market oversight by providing FINRA and 
the official sector with more information on U.S. Treasury Security 
transactions. It will result in costs for members that need to 
implement changes to their processes and systems.
    FINRA is proposing an exception from the timestamp granularity 
requirement for members that engage in limited activity in U.S. 
Treasury Securities--specifically, members that executed transactions 
in U.S. Treasury Securities of no more than $10 million in average 
daily par value traded (computed by aggregating buy and sell 
transactions over the prior calendar year). The $10 million threshold 
would provide relief for firms with limited activity (and for which the 
technological changes required may be more significant compared to 
their level of activity in this space) while continuing to ensure that 
FINRA receives valuable audit trail information for U.S. Treasury 
Security trades. Based on 2020 data which is the full calendar year 
members' activity will be measured, the proposed threshold would 
provide relief to 485 firms that, in the aggregate, accounted for 0.11% 
of the total par value traded.
Reporting Timeframe Reduction
    As discussed above, FINRA is proposing to reduce the timeframe for 
reporting transactions in U.S. Treasury Securities to TRACE to 
generally require reporting as soon as practicable but no later than 
within 60 minutes of the Time of Execution (or within 60 minutes after 
the TRACE system opens for trades executed during specified periods). 
This facilitates market oversight by providing FINRA and the official 
sector with more timely information on U.S. Treasury Security 
transactions. It will result in costs for members that need to 
implement changes to their processes and systems. As discussed in the 
baseline, members reported approximately 96 percent of transactions 
within 60 minutes of the Time of Execution.
    Some members who trade in U.S. Treasury Securities also trade in 
other types of TRACE-Eligible Securities that already require reporting 
in a shorter timeframe. For example, transactions in corporate bonds 
and Agency Debt Securities \25\ generally are required to be reported 
to FINRA as soon as practicable, but no later than within 15 minutes of 
the Time of Execution. In the sample period, of the 750 MPIDs that 
reported transactions in U.S. Treasury Securities, 691 MPIDs also 
reported transactions in corporate bonds and Agency Debt Securities. 
While these transactions may occur on separate

[[Page 33849]]

trading desks, to the extent that members are able to leverage existing 
technology within the firm, the costs associated with the proposed 
reporting timeframe changes for U.S. Treasury Securities could 
potentially be reduced.
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    \25\ Under Rule 6710(l), an ``Agency Debt Security'' means a 
debt security (i) issued or guaranteed by an Agency; (ii) issued or 
guaranteed by a Government-Sponsored Enterprise; or (iii) issued by 
a trust or other entity that was established or sponsored by a 
Government-Sponsored Enterprise for the purpose of issuing debt 
securities, where such enterprise provides collateral to the trust 
or other entity or retains a material net economic interest in the 
reference tranches associated with the securities issued by the 
trust or other entity. The term excludes a U.S. Treasury Security 
and a Securitized Product, where an Agency or a Government-Sponsored 
Enterprise is the Securitizer (or similar person), or the guarantor 
of the Securitized Product.
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Alternatives Considered
    FINRA considered several alternatives to the $10 million threshold 
for the exception from the timestamp granularity requirement. First, 
FINRA considered basing the relief on the number of trades reported 
rather than the par value traded. Based on its analysis, FINRA believes 
that average daily par value traded is a more appropriate measurement; 
specifically, some firms with fewer than 100 trades on average per day 
still had significant average trading volume. FINRA also considered 
basing the relief on different levels of trading activity, up to an 
average daily par value traded of $100 million (which is the threshold 
used by the Federal Reserve for bank reporting).\26\ FINRA determined 
that a $100 million threshold would result in the loss of valuable 
audit trail information for members that trade significant U.S. 
Treasury Security volumes. FINRA also analyzed firms at or below a $50 
million threshold, a $20 million threshold, and $15 million threshold 
and determined in each case that these thresholds were too high for 
purposes of the proposed exception and would result in the loss of 
valuable audit trail information. On balance, FINRA believes that the 
firms within scope of the proposed execution timestamp enhancement, 
using the proposed $10 million threshold, are active participants in 
the U.S. Treasury Security space and should be required to implement 
the U.S. Treasury Security reporting changes; therefore, this threshold 
would ensure that FINRA receives valuable audit trail information for 
U.S. Treasury Security trades from more active firms.
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    \26\ See supra note 8.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The proposed rule change was published for comment in Regulatory 
Notice 20-43 (December 2020). Nine comments were received in response 
to the Regulatory Notice. A copy of the Regulatory Notice is available 
on FINRA's website at http://www.finra.org. A list of the comment 
letters received in response to the Regulatory Notice is available on 
FINRA's website.\27\ Copies of the comment letters received in response 
to the Regulatory Notice are also available on FINRA's website. The 
comments received in response to the Regulatory Notice that relate to 
the instant proposal are summarized below.\28\
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    \27\ See SR-FINRA-2022-013 (Form 19b-4, Exhibit 2b) for a list 
of abbreviations assigned to commenters (available on FINRA's 
website at http://www.finra.org).
    \28\ FINRA notes that Regulatory Notice 20-43 solicited comment 
on a number of potential enhancements to TRACE reporting for U.S. 
Treasury Securities, including items that are not being proposed in 
the instant filing. Thus, Item II.C. of this filing is limited to a 
discussion of comments received in response to the Regulatory Notice 
that relate to the items being proposed herein.
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Execution Timestamps
    Comments regarding the proposed execution timestamp requirement 
were mixed. Citadel supported the proposal to increase the granularity 
of execution timestamps to match execution systems.\29\ EA supported 
normalizing the Time of Execution information received and the general 
language proposed in the Regulatory Notice, but stated that it should 
be revised to indicate best and worst boundaries, i.e., the worst being 
one second and the best one microsecond as currently supported by the 
TRACE facility.\30\ As discussed above, the proposed rule change would 
clarify that the Time of Execution must be reported in an increment of 
no longer than a second and no shorter than a microsecond.
---------------------------------------------------------------------------

    \29\ See Citadel at 4.
    \30\ See EA at 1-2.
---------------------------------------------------------------------------

    FIF did not support increasing the granularity of execution 
timestamps to match execution systems, stating that the proposal would 
require significant system changes to match the granularity of internal 
and third-party execution systems, and requested that FINRA provide 
additional insight into the objective of the proposal.\31\ SIFMA also 
generally did not support increasing the granularity of execution 
timestamps, stated that the proposal would present technological 
complexities, and asked that FINRA provide additional information 
regarding the objectives of the proposal so that execution time 
information can be structured in a way that reflects the complexities 
of market practice, firm systems, and interactions among market 
participants.\32\ SIFMA further stated that, while some firms already 
provide information at this level of granularity, it is not standard 
across firms, and that using the most granular time component within 
any element of larger systems would create substantial operational 
challenges. In addition, SIFMA noted that it is likely that firms 
receive timestamps at differing increments across venues (or 
potentially even products), and therefore it would not be an easy or 
straightforward undertaking to create the level of uniformity required 
by the proposal.
---------------------------------------------------------------------------

    \31\ See FIF at 5-6.
    \32\ See SIFMA at 4-5.
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    As discussed above, FINRA acknowledges that some members may need 
to make operational and technological changes to comply with the 
amended timestamp requirement. However, FINRA continues to believe that 
the benefits to the regulatory audit trail of aligning the timestamps 
reported to TRACE with those captured by the relevant execution system 
are appropriate. In particular, requiring firms to align the reporting 
system timestamp granularity to the level of granularity used in the 
execution system would result in more precise information with respect 
to the Time of Execution of transactions in U.S. Treasury Securities 
that would be available to FINRA and the official sector, which would 
assist with trade matching and sequencing for U.S. Treasury Securities. 
FINRA also notes that the proposed timestamp requirement would provide 
an exception for members with limited trading activity, which is 
intended to provide relief for firms with limited activity in the U.S. 
Treasury Security markets from making the operational and technological 
changes that may be needed to update their systems to comply with the 
new requirements.
    SIFMA raised concerns regarding the proposed requirement for 
transactions that are ``executed electronically,'' and stated that it 
is unclear which transactions would be within scope of the proposal, 
and further stated that creating a different standard for voice versus 
electronic trades would create confusion. SIFMA also asserted that it 
would be most effective from a technological perspective to apply the 
same timestamp standards across all TRACE-Eligible Securities, such 
that timestamp granularity for U.S. Treasury Securities would be 
informed by the limitations and structural constraints that shape 
reporting timestamps for other TRACE-Eligible Securities.
    With respect to commenter concerns regarding members' ability to 
accurately identify transactions that are ``executed electronically'' 
and the impact of establishing different standards for voice versus 
electronic trades, FINRA notes that the existing timestamp granularity 
provision for U.S. Treasury Securities in Rule 6730.04 specifically 
applies to transactions that are ``executed electronically,'' and FINRA 
is

[[Page 33850]]

not aware that there has been confusion regarding the scope of the 
current requirement that has resulted in compliance concerns for 
members. To the extent that members encounter interpretive questions, 
FINRA will work with the industry to provide guidance, as appropriate, 
with respect to the proposed amendments.
    FINRA appreciates commenter concerns regarding requiring a 
different timestamp granularity standard for U.S. Treasury Securities 
than for other TRACE-Eligible Securities. FINRA notes that, to the 
extent preferable, members may choose to make the systems changes 
required under the proposal for reporting all TRACE-Eligible Securities 
in the same increment as captured by the execution system used to 
execute the transaction (to the extent this is preferable to making the 
change solely for U.S. Treasury Securities). FINRA also notes that the 
proposal would not require that trades executed electronically be 
captured by execution systems in increments finer than a second; 
however, to the extent that the execution system uses a finer 
increment, the proposal would require that TRACE reports also reflect 
such finer increment (but no finer than a microsecond, in line with 
TRACE system parameters).
Reporting Timeframe Reduction
    Comments regarding reducing the reporting timeframe for U.S. 
Treasury Securities were generally supportive. EA supported the 
proposed 60-minute reporting timeframe, noting that it already reports 
transactions within this timeframe. EA stated that the 60-minute 
requirement would be a significant step forward while still allowing 
members sufficient time between execution and reporting to resolve any 
system issues.\33\ FIA PTG stated that there was no justification for 
the lengthy reporting window that exists today in light of the 
prevalence of electronic trading in this market.\34\ As such, FIA PTG 
stated that, at a minimum, it supported the proposed reduction to a 60-
minute timeframe, but would generally recommend further reducing the 
reporting timeframe to no greater than 15 minutes, congruent with 
current reporting requirements for corporate bonds. Additionally, with 
respect to on-the-run U.S. Treasury Securities, FIA PTG recommended a 
10-second reporting window to mirror U.S. equity markets, given the 
liquidity profile of the market for on-the-run U.S. Treasury 
Securities.
---------------------------------------------------------------------------

    \33\ See EA at 2.
    \34\ See FIA PTG at 1.
---------------------------------------------------------------------------

    Similarly, both Citadel and MFA supported the proposed reporting 
timeframe reduction, but both recommended further reducing the period 
to 15 minutes to harmonize reporting with corporate bonds.\35\ Citadel 
agreed that the proposed reduction would provide the official sector 
with access to more timely data regarding intraday pricing and 
liquidity dynamics. Citadel argued that market participants should be 
well-situated to comply with a 15-minute timeframe for U.S. Treasury 
Securities, noting that members already report approximately 95% of 
U.S. Treasury Security transactions within an hour after execution, 
despite not being required to report until end-of-day. Citadel further 
stated that harmonizing reporting timeframes is warranted given the 
ongoing consideration of whether to publicly report secondary market 
U.S. Treasury Security transactions, as public dissemination would 
require trading activity to be reported to FINRA as soon as possible 
following execution. MFA also argued that regulators should have the 
same timely data with respect to the U.S. Treasury Securities as they 
do for corporate bonds, noting that timely data is critical for 
regulators to perform their supervisory functions, especially in times 
of extreme market volatility.
---------------------------------------------------------------------------

    \35\ See Citadel at 1-2; MFA at 2.
---------------------------------------------------------------------------

    FIF stated that its members generally do not object to a reduction 
in the reporting timeframe. FIF stated that some members recommend a 
two-hour timeframe rather than the proposed 60-minute timeframe, while 
other FIF members recommend a shorter timeframe that is harmonized with 
requirements in other asset classes (i.e., 15 minutes for corporate 
bonds).\36\ SIFMA noted that, although shortening the reporting 
timeframe would be a substantial change, its members feel that some 
shortening of the reporting timeframe would be feasible for firm 
systems, provided that any change includes sufficient time for 
implementation and testing.\37\ However, SIFMA recommends moving to a 
reporting timeframe of, at most, two hours, rather than the proposed 
60-minute timeframe. SIFMA noted that operational challenges would be 
inherent in moving from the current reporting timeframe to the proposed 
60 minute-timeframe, including the impact of transmitting more data 
through systems on an intraday basis, as well as the potential for 
increased late reports, cancels and corrections. SIFMA also stated that 
the reporting timeframe should reflect the unique operational and 
market responsibilities of firms active in the U.S. Treasury Security 
market, noting for example that primary dealers have responsibilities 
to support auctions and open market activity, such that a wider 
reporting window would provide more flexibility to meet firms' other 
time-sensitive requirements.
---------------------------------------------------------------------------

    \36\ See FIF at 6.
    \37\ See SIFMA at 5-6.
---------------------------------------------------------------------------

    FINRA continues to believe that requiring members to report as soon 
as practicable, but no later than 60 minutes from the Time of Execution 
is appropriate for U.S. Treasury Securities. The proposed reporting 
timeframe would provide FINRA and the official sector with more timely 
data regarding U.S. Treasury Security transactions, which will 
significantly increase the ability of regulators to monitor intraday 
pricing and liquidity information in the U.S. Treasury Security 
markets. FINRA does not agree that a longer outer limit reporting 
timeframe than 60 minutes--e.g., two hours--would be appropriate, as it 
would reduce the timeliness of intraday data available to FINRA and the 
official sector. FINRA does not believe that the operational challenges 
of reporting within 60 minutes would be significantly greater than 
reporting within two hours. As discussed above in the Economic Impact 
Assessment, FINRA notes that members already report over 90 percent of 
transactions in U.S. Treasury Securities within 60 minutes of the Time 
of Execution. FINRA also does not believe that establishing an outer 
limit of 15 minutes or 10 seconds is appropriate. As noted above, 
individual transaction information for U.S. Treasury Securities is not 
publicly disseminated, and therefore the shorter timeframes that 
generally apply to disseminated transactions are not necessary for U.S. 
Treasury Securities. Thus, FINRA continues to believe that requiring 
members to report as soon as practicable, but no later than 60 minutes 
from the Time of Execution is appropriate for U.S. Treasury Securities 
as it would provide more timely information for regulatory use while 
balancing concerns regarding the burdens that would be imposed on 
reporting members.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days of such 
date (i) as the Commission may designate if it finds such longer period 
to be appropriate and publishes its reasons for so finding

[[Page 33851]]

or (ii) as to which the self-regulatory organization consents, the 
Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-FINRA-2022-013 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-FINRA-2022-013. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10 a.m. and 3 
p.m. Copies of such filing also will be available for inspection and 
copying at the principal office of FINRA. All comments received will be 
posted without change. Persons submitting comments are cautioned that 
we do not redact or edit personal identifying information from comment 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
FINRA-2022-013 and should be submitted on or before June 24, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\38\
---------------------------------------------------------------------------

    \38\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-11878 Filed 6-2-22; 8:45 am]
BILLING CODE 8011-01-P


