[Federal Register Volume 87, Number 157 (Tuesday, August 16, 2022)]
[Notices]
[Pages 50354-50358]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-17532]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95465; File No. SR-FINRA-2022-011]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Approving Proposed Rule Change To Expand TRACE 
Reporting Requirements to Trades in U.S. Dollar-Denominated Foreign 
Sovereign Debt Securities

August 10, 2022.

I. Introduction

    On May 6, 2022, the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend certain rules in the Rule 6700 Series 
(Trade Reporting and Compliance Engine (TRACE)) to require members to 
report to TRACE transactions in U.S. dollar-denominated foreign 
sovereign debt securities for regulatory purposes. The proposed rule 
change was published for comment in the Federal Register on May 17, 
2022.\3\ The Commission received four comment letters on the proposed 
rule change.\4\ On June 27, 2022, the Commission extended until August 
15, 2022, the time period within which to approve the proposed rule 
change, disapprove the proposed rule change, or institute proceedings 
to determine whether to disapprove the proposed rule change.\5\ FINRA 
submitted a response to the comments

[[Page 50355]]

on August 1, 2022.\6\ This order approves the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 94891 (May 11, 
2022), 87 FR 29980 (May 17, 2022) (``Notice'').
    \4\ See letters to Vanessa Countryman, Secretary, Commission, 
from Gerard O'Reilly, Co-CEO and Chief Investment Officer, 
Dimensional Fund Advisors LP (``Dimensional''), dated June 6, 2022 
(``Dimensional Letter''); Scott J. Preiss, Senior Vice President, 
Global Head, CUSIP Global Services (``CGS''), dated June 6, 2022 
(``CGS Letter''); Howard Meyerson, Managing Director, Financial 
Information Forum (``FIF''), dated June 7, 2022 (``FIF Letter''); 
and Christopher B. Killian, Managing Director, Securitization and 
Corporate Credit, Securities Industry and Financial Markets 
Association (``SIFMA''), dated June 7, 2022 (``SIFMA Letter'').
    \5\ See Securities Exchange Act Release No. 95161 (June 27, 
2022), 87 FR 39575 (July 1, 2022).
    \6\ See letter to Vanessa Countryman, Secretary, Commission, 
from Racquel L. Russell, FINRA, dated August 1, 2022 (``FINRA 
Response'').
---------------------------------------------------------------------------

II. Description of the Proposal

    FINRA Rule 6730(a) requires each FINRA member that is a Party to a 
Transaction \7\ in a TRACE-Eligible Security \8\ to report the 
transaction to TRACE. Currently, almost all U.S. dollar-denominated 
debt securities traded in the U.S., including U.S. dollar-denominated 
debt securities of foreign private issuers, are TRACE-Eligible 
Securities and therefore are subject to TRACE reporting requirements. 
However, the term TRACE-Eligible Security currently excludes any debt 
security that is issued by a foreign sovereign.
---------------------------------------------------------------------------

    \7\ See FINRA Rule 6710(e) (defining ``Party to a Transaction'' 
as ``an introducing broker-dealer, if any, an executing broker-
dealer, or a customer. `Customer' includes a broker-dealer that is 
not a FINRA member.'').
    \8\ See FINRA Rule 6710(a) (defining ``TRACE-Eligible Security'' 
as ``a debt security that is United States (`U.S.') dollar-
denominated and is: (1) issued by a U.S. or foreign private issuer, 
and, if a `restricted security' as defined in Securities Act Rule 
144(a)(3), sold pursuant to Securities Act Rule 144A; (2) issued or 
guaranteed by an Agency as defined in paragraph (k) or a Government-
Sponsored Enterprise as defined in paragraph (n); or (3) a U.S. 
Treasury Security as defined in paragraph (p). `TRACE-Eligible 
Security' does not include a debt security that is issued by a 
foreign sovereign or a Money Market Instrument as defined in 
paragraph (o).'').
---------------------------------------------------------------------------

    FINRA is now proposing to include U.S. dollar-denominated foreign 
sovereign debt securities within the definition of TRACE-Eligible 
Security, so that these securities would become subject to TRACE 
reporting. Specifically, FINRA proposes to amend paragraph (a) of Rule 
6710 (Definitions) to include the term ``Foreign Sovereign Debt 
Security'' in the definition of TRACE-Eligible Security, and to define 
``Foreign Sovereign Debt Security'' in paragraph (kk) of Rule 6710 as a 
debt security issued or guaranteed by the government of a foreign 
country, any political subdivision of a foreign country (e.g., state, 
provincial, or municipal governments), or a supranational entity.\9\ 
FINRA states that this proposed rule change would enhance FINRA's 
regulatory audit trail and provide FINRA with important transaction 
information on a growing segment of the market.\10\ In addition, FINRA 
states that it believes that the proposed rule change would advance 
FINRA's oversight of the fixed income markets without imposing 
significant burdens and costs on members because, as FINRA understands, 
U.S. dollar-denominated foreign sovereign debt securities generally 
trade at firms that already have TRACE reporting workflows in 
place.\11\
---------------------------------------------------------------------------

    \9\ FINRA states that a ``supranational entity'' would include 
multi-national organizations such as the International Bank for 
Reconstruction & Development (World Bank), the Inter-American 
Development Bank, the Asian Development Bank, the African 
Development Bank, the International Finance Corporation, and the 
European Investment Bank. See Notice, 87 FR at 29981, n. 6.
    \10\ See Notice, 87 FR at 29981.
    \11\ See id.
---------------------------------------------------------------------------

    FINRA states it is not at this time proposing to publicly 
disseminate any reports of transactions in U.S. dollar-denominated 
foreign sovereign debt securities. To reflect this, FINRA proposes to 
amend Rule 6750 (Dissemination of Transaction Information) to specify 
that FINRA will not disseminate information on transactions in foreign 
sovereign debt securities.\12\ FINRA states that, if the proposed rule 
change is adopted, FINRA will take a measured approach to potential 
dissemination, as it has taken historically with other TRACE-Eligible 
Securities and would first analyze the regulatory data to determine the 
appropriate contours of a potential dissemination framework.\13\
---------------------------------------------------------------------------

    \12\ See proposed FINRA Rule 6750(c)(5).
    \13\ See Notice, 87 FR at 29981, n. 10.
---------------------------------------------------------------------------

    In addition, FINRA is also proposing to amend Rule 6730 
(Transaction Reporting) to require transactions in U.S. dollar-
denominated foreign sovereign debt securities to be reported on a same-
day or next-day basis, depending on the time of execution.\14\ FINRA 
states that this reporting timeframe is appropriate because trades in 
U.S. dollar-denominated foreign sovereign debt securities would be 
reported for regulatory purposes only.\15\
---------------------------------------------------------------------------

    \14\ See proposed FINRA Rule 6730(a)(5); see also Notice, 87 FR 
at 29981. Under the proposed amendments, reportable transactions in 
foreign sovereign debt executed on a business day at or after 
12:00:00 a.m. Eastern Time (ET) through 5:00:00 p.m. ET would be 
required to be reported the same day during TRACE System Hours. 
Transactions executed on a business day after 5:00:00 p.m. ET but 
before the TRACE system closes would be required to be reported no 
later than the next business day (T+1) during TRACE System Hours, 
and, if reported on T+1, designated ``as/of'' and include the date 
of execution. Transactions executed on a business day at or after 
6:30:00 p.m. ET through 11:59:59 p.m. ET--or on a Saturday, a 
Sunday, a federal or religious holiday or other day on which the 
TRACE system is not open at any time during that day--would be 
required to be reported the next business day (T+1) during TRACE 
System Hours, designated ``as/of,'' and include the date of 
execution. See also FINRA Rule 6710(t) (defining ``TRACE System 
Hours'').
    \15\ See Notice, 87 FR at 29981.
---------------------------------------------------------------------------

    FINRA states that, as proposed, FINRA members would be required to 
report specific items of transaction information in line with existing 
requirements for TRACE-Eligible Securities.\16\ Among other things, 
trade reports would be required to include: the CUSIP or CINS number, 
or FINRA-assigned TRACE symbol; an identifier for the contra-party 
(either MPID, ``A'' for non-member affiliate, or ``C'' for customer); 
the side of the reporting party (buy or sell); the quantity of the 
transaction (i.e., face value amount of the transaction); the price of 
the transaction expressed as a percentage of face/par value; the time 
of execution; the date of execution (for ``as/of'' trades); the 
settlement date; any commission charged if the member is acting as 
agent; and any applicable trade modifiers.\17\ FINRA states that some 
foreign sovereign debt securities may not have a CUSIP or CINS number 
but may have been assigned another type of identifier (e.g., an ISIN). 
To facilitate trade reporting of U.S. dollar-denominated foreign 
sovereign debt, where a CUSIP or CINS is not available, FINRA states 
that it intends to permit members to report using a FINRA-assigned 
symbol that corresponds to the security's other identifier(s) (e.g., 
the FINRA-assigned symbol would be associated with the ISIN on the 
Security Master List).\18\
---------------------------------------------------------------------------

    \16\ See id. FINRA Rule 6730(c). FINRA also states that members' 
reporting obligations for transactions with a foreign component 
would continue to follow existing guidance. See Notice, 87 FR at 
29981 (citing, as an example, TRACE Frequently Asked Questions 
#3.1.65).
    \17\ See id.
    \18\ See Notice, 87 FR at 29981, n. 12. In addition, FINRA 
states that FINRA Rule 6730(a)(7) will continue to apply. Therefore, 
members remain obligated to make a good faith determination as to 
whether they have engaged in a reportable transaction in a TRACE-
Eligible Security and, if the TRACE-Eligible Security is not entered 
in the TRACE system, the member must promptly notify and provide 
FINRA Operations the information required under FINRA Rule 6760(b) 
prior to reporting the transaction. Id.
---------------------------------------------------------------------------

    FINRA further states that, if U.S. dollar-denominated foreign 
sovereign debt securities become subject to TRACE reporting 
requirements, as proposed, they would become subject to applicable 
transaction reporting fees.\19\ Specifically, U.S. dollar-denominated 
foreign sovereign debt securities would be subject to trade reporting 
fees pursuant to paragraph (b)(1) of FINRA Rule 7730 (Trade Reporting 
and Compliance Engine (TRACE)).\20\ Similarly, U.S. dollar-denominated 
foreign sovereign debt securities would become subject to FINRA's 
Trading Activity Fee at the rate applicable to

[[Page 50356]]

bonds, as set out in Section 1 of Schedule A to the FINRA By-Laws.
---------------------------------------------------------------------------

    \19\ See Notice, 87 FR at 29981.
    \20\ See FINRA Rule 7730(b)(1) (providing that, except for 
certain securitized products, a member ``shall be charged a trade 
reporting fee based upon a sliding scale ranging from $0.475 to 
$2.375 per transaction based on the size of the reported 
transaction.'').
---------------------------------------------------------------------------

    FINRA represents that it will announce the effective date of the 
rule change in a Regulatory Notice, and the effective date will be no 
later than 365 days following publication of the Regulatory Notice 
announcing Commission approval of the proposed rule change.\21\
---------------------------------------------------------------------------

    \21\ See Notice, 87 FR at 29982.
---------------------------------------------------------------------------

III. Summary of Comments and FINRA's Response

    The Commission received four comment letters regarding the proposed 
rule change.\22\ The commenters generally support the proposed rule 
change; \23\ as discussed below, however, some commenters also seek 
clarification and additional guidance on various aspects of the 
proposal or make suggestions for its modification. No commenter 
explicitly opposes the proposal.
---------------------------------------------------------------------------

    \22\ See supra note 4.
    \23\ See Dimensional Letter at 1 (``We support the Proposed Rule 
Change as it is a positive step toward increased transparency. . 
.''); CGS Letter at 2 (``CGS supports FINRA's proposal to expand the 
TRACE reporting requirements as described above, as it will add to 
market transparency for a growing segment of the fixed income 
market.''); FIF Letter at 1 (``FIF members support FINRA's decision 
to require reporting of foreign sovereign debt securities for 
regulatory purposes only.'').
---------------------------------------------------------------------------

Operational Concerns and Proposed Same Day Reporting Requirement

    Two commenters raise operational concerns regarding reporting of 
transactions in U.S. dollar-denominated foreign sovereign debt 
securities to TRACE where a CUSIP or CINS number is not assigned or 
available, particularly given the proposed same-day reporting 
timeframe.\24\ As described above, FINRA states that where a CUSIP or 
CINS is not available, FINRA intends to permit members to report using 
a FINRA-assigned symbol that corresponds to the security's other 
identifiers (e.g., the FINRA-assigned symbol would be associated with 
the ISIN on the Security Master List).\25\ However, commenters express 
concern that firms may have difficulty reporting on a timely basis in 
these circumstances if they must first obtain an identifier from FINRA, 
which, according to commenters, is a manual and time consuming 
process.\26\ To help alleviate this concern, one commenter requests 
that ISIN and FIGI identifiers be allowed for direct reporting, without 
the separate need to request a FINRA symbol, and that FINRA permit 
firms to request a symbol for a security where only an ISIN is 
available through the website process, so as to avoid a manual request 
process that can result in delays in the assignment of the FINRA 
symbol.\27\ Another commenter expresses concern regarding reporting to 
TRACE in accordance with a same day reporting requirement--particularly 
on the first day of trading for a security that has not yet been set 
up.\28\ This commenter recommends that FINRA's new issue request 
process be expanded prior to the implementation of the proposal to 
accept ISINs in lieu of CUSIP/CINS identifiers.\29\ This commenter also 
requests that, at a minimum, FINRA should allow T+1 reporting for 
securities that require manual set up in TRACE with a FINRA symbol.\30\ 
Another commenter states that the feasibility of the same-day reporting 
requirement is dependent on FINRA accepting a website submission of a 
new issue with only an ISIN, as discussed above, and questions the 
feasibility of a same-day reporting requirement for trades occurring 
prior to 5:00 p.m., particularly for trades executed outside the U.S or 
involving a foreign counterparty.\31\
---------------------------------------------------------------------------

    \24\ See FIF Letter at 3; SIFMA Letter at 2.
    \25\ See also Notice, 87 FR at 29981, n. 12.
    \26\ See FIF Letter at 3; SIFMA Letter at 2.
    \27\ See FIF Letter at 3-4.
    \28\ See SIFMA Letter at 2.
    \29\ See id.
    \30\ See id.
    \31\ See FIF Letter at 2.
---------------------------------------------------------------------------

    In response, FINRA states that it will update the new issue form 
process to permit members to submit the new issue form and receive a 
FINRA symbol based solely on an ISIN or a FIGI (irrespective of whether 
a CUSIP and CINS also are available) using the web-based process, which 
will obviate the need for members to call or email FINRA for assistance 
with setting up a symbol for a new issue that does not have a 
CUSIP.\32\ FINRA also notes that, according to CGS, the operator of the 
CUSIP system, a CUSIP or CINS is available for virtually all U.S. 
dollar-denominated debt securities for foreign issuers, both private 
and sovereign, and that it is a rare event that a CGS identifier is not 
available at the time the security becomes TRACE-eligible.\33\ Further, 
FINRA states that members may utilize machine-to-machine interaction to 
systematically upload required new issue information.\34\ FINRA 
believes that these measures address commenters' operational concerns, 
as well as those regarding the feasibility of reporting on a same-day 
basis. Therefore, FINRA states it is not recommending any amendments to 
the proposal and that it continues to believe that the same-day 
reporting requirement is appropriate.\35\
---------------------------------------------------------------------------

    \32\ See FINRA Response at 3.
    \33\ See FINRA Response at 3; see also CGS Letter at 2.
    \34\ See id.
    \35\ See id.
---------------------------------------------------------------------------

    Another commenter raises the possibility that assigning a FINRA 
symbol to multiple identifiers could create identifier mapping 
challenges or otherwise cause confusion, and states that, if there is a 
need to assign a FINRA symbol to a foreign debt security, it should be 
on a one-to-one basis with the corresponding and fungible CUSIP/CINS or 
ISIN.\36\ In response, FINRA states that it does not agree that 
associating a FINRA symbol with multiple identifiers creates any unique 
challenges in the context of the proposal, as an individual security 
currently may be assigned CUSIP/CINS, FIGI and ISIN identifiers.\37\ In 
addition, FINRA states that it seeks to avoid duplicative symbol 
assignments and confirms that FINRA-assigned symbols are intended to 
correspond, on a one-to-one basis, with a single security and any 
related identifiers.\38\
---------------------------------------------------------------------------

    \36\ See CGS Letter at 2.
    \37\ See FINRA Response at 3.
    \38\ See id.
---------------------------------------------------------------------------

Reporting Specifications

    Two commenters request clarification regarding which TRACE system 
protocols would apply to the reporting of U.S. dollar-denominated 
foreign sovereign debt.\39\ FINRA confirms that U.S. dollar denominated 
foreign sovereign will be reportable to the TRACE facility for 
corporate and agency debt and will be added as a new security subtype 
(in addition to corporates, agencies, equity linked notes, and church 
bonds).\40\ FINRA also states that it will create a new report card for 
member reporting of U.S. dollar-denominated foreign sovereign debt 
securities.\41\
---------------------------------------------------------------------------

    \39\ See SIFMA Letter at 4 (requesting that FINRA clarify which 
of the existing specifications would be used or if a new 
specification would be published); FIF Letter at 2 (requesting 
confirmation that FINRA intends to leverage the existing TRACE 
system for corporate and agency debt securities); see also FIF 
Letter at 6 (requesting guidance as to whether FINRA will issue 
separate report cards for reporting in foreign sovereign bonds or 
whether any of the current reports cards will be updated to include 
reporting for foreign sovereign bonds).
    \40\ See FINRA Response at 4.
    \41\ See id.
---------------------------------------------------------------------------

Implementation Timeframe

    One commenter recommends a 15-month implementation timeframe for 
the proposal.\42\ Another commenter requests that FINRA ensure that 
industry members are provided with a sufficient implementation 
timeframe

[[Page 50357]]

and asks that the timeframe run from the date that technical 
specifications and interpretive FAQs are published.\43\ In response, 
FINRA states that it would provide members with an adequate 
implementation period.\44\
---------------------------------------------------------------------------

    \42\ See SIFMA Letter at 3.
    \43\ See FIF Letter at 7.
    \44\ See FINRA Response at 4.
---------------------------------------------------------------------------

Scope of Defined Terms

    Some commenters express concerns in connection with identifying 
U.S. dollar-denominated foreign sovereign debt for purposes of 
reporting to TRACE.\45\ Two commenters state that it can be difficult 
to determine the Schedule B eligibility of an issuer and request that 
FINRA provide clarity on how foreign issuers should be classified.\46\ 
One commenter also requests guidance on how a member should communicate 
with FINRA if it disagrees with the current classification of a 
bond.\47\ Another commenter requests further guidance on terms used in 
the proposal related to the definition of ``foreign sovereign debt 
security.'' \48\ This commenter also states that FINRA should provide 
guidance as to how previously issued foreign sovereign debt will be set 
up in TRACE/added to the master file.\49\ In response, FINRA states 
that it regularly engages with members concerning operational and 
interpretive questions concerning TRACE reporting, including regarding 
whether and how a particular security is reportable to TRACE, if 
unclear.\50\ FINRA states that the proposal seeks to define ``foreign 
sovereign debt security'' as ``a debt security issued or guaranteed by 
the government of a foreign country, any political subdivision of a 
foreign country, or a supranational entity.'' \51\ FINRA states that, 
as is the case in determining the TRACE-eligibility of any security, 
FINRA would expect members to analyze the facts and circumstances of a 
security in light of the relevant definitions and guidance to ensure 
appropriate reporting to TRACE. FINRA states that TRACE rules currently 
require members to distinguish U.S. dollar-denominated debt of foreign 
sovereign issuers from that of foreign private issuers for purposes of 
TRACE reporting, and, as discussed in the proposal, FINRA has since 
2004 provided members with guidance specifically for this purpose.\52\ 
FINRA further states that members who are unable to determine whether a 
security falls within scope based on the rule and guidance should 
contact FINRA's Office of General Counsel for assistance.\53\
---------------------------------------------------------------------------

    \45\ See FIF Letter at 4-5; SIFMA Letter at 3.
    \46\ See id.
    \47\ See FIF Letter at 5.
    \48\ See SIFMA Letter at 3.
    \49\ See id.
    \50\ See FINRA Response at 4.
    \51\ See id.
    \52\ See FINRA Response at 4-5 (citing Notice to Members 04-90 
(December 2004)).
    \53\ See FINRA Response at 5.
---------------------------------------------------------------------------

    In addition, FINRA states that it intends to proactively update the 
TRACE security master list to include the securities that FINRA has 
identified as U.S. dollar-denominated foreign sovereign debt 
securities, consistent with FINRA's usual approach when a new product 
type becomes reportable to TRACE.\54\ FINRA states that it will make 
the updated security master list available to members in advance of the 
effective date.\55\ FINRA states, however, that, as FINRA has reminded 
members in the past with regard to other types of TRACE-eligible 
securities, members are obligated to have systems or processes in place 
to determine whether a transaction in a TRACE-eligible security has 
occurred and is, therefore, reportable, even if it was not included on 
the TRACE security master list at the time of the transaction.\56\ 
FINRA states that members who disagree with the current classification 
of a bond on the master list should contact FINRA Market 
Operations.\57\
---------------------------------------------------------------------------

    \54\ See id.
    \55\ See id.
    \56\ See id.
    \57\ See id.
---------------------------------------------------------------------------

Public Dissemination

    Several commenters express support for, or raise concerns 
regarding, the public dissemination of information with respect to 
transactions in U.S. dollar-denominated foreign sovereign debt 
securities.\58\ FINRA reiterates that it is not proposing to 
disseminate information with respect to transactions in U.S. dollar-
denominated foreign sovereign debt securities at this time, and states 
that it would observe its historical measured approach to dissemination 
following appropriate analysis.\59\ In addition, FINRA states that any 
determination to disseminate such transaction information would be 
subject to filing with the Commission.\60\
---------------------------------------------------------------------------

    \58\ See Dimensional Letter at 1 (strongly urging FINRA to 
publicly disseminate the relevant data as soon as practicable, 
stating that, if disseminated, FINRA should adopt a trade reporting 
timeframe that is consistent with the reporting timeframe for 
corporate and agency bond); FIF Letter at 1 (supporting FINRA's 
decision to require reporting for regulatory purposes only and 
taking a measured approach to potential dissemination in the 
future); SIFMA Letter at 4 (raising several concerns regarding any 
further real-time public dissemination, including that it could 
potentially impair liquidity and lead to information leakage, and 
stating that it does not believe that the benefits of dissemination 
outweigh the risks).
    \59\ See FINRA Response at 6.
    \60\ See id.
---------------------------------------------------------------------------

IV. Discussion and Commission Findings

    After carefully considering the proposal, the comments submitted 
and FINRA's response to the comments, 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.\61\ In particular, the Commission finds that 
the proposed rule change is consistent with Section 15A(b)(6) of the 
Act,\62\ which requires, among other things, 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, and, in general, to protect investors and the 
public interest. In addition, and as discussed below, the Commission 
further finds that the proposal is consistent with Section 15A(b)(5) of 
the Act,\63\ which requires, among other things, that FINRA rules 
provide for the equitable allocation of reasonable dues, fees, and 
other charges among members and issuers and other persons using any 
facility or system that FINRA operates or controls.
---------------------------------------------------------------------------

    \61\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \62\ 15 U.S.C. 78o-3(b)(6).
    \63\ 15 U.S.C. 78o-3(b)(5).
---------------------------------------------------------------------------

    Prior to TRACE's implementation, the National Association of 
Securities Dealers (``NASD'') (FINRA's predecessor) did not have 
routine access to comprehensive transaction information for the over-
the-counter corporate bond market, even though the NASD bore 
responsibility for surveilling and regulating that market. In 
originally approving TRACE, the Commission stated that obtaining such 
information to better conduct market surveillance was a fundamental 
means of promoting fairness and confidence in U.S. capital markets.\64\ 
Similarly, with respect to the over-the-counter market for U.S. dollar-
denominated foreign sovereign debt securities, FINRA currently does not 
possess the comprehensive transaction information that would help it 
carry out its statutory duties to surveil and regulate this segment of 
the market.\65\
---------------------------------------------------------------------------

    \64\ See Securities Exchange Act Release No. 43873 (January 23, 
2001) 66 FR 8131, 8136 (January 29, 2001).
    \65\ According to FINRA, almost all U.S. dollar-denominated debt 
securities traded in the U.S. are TRACE-Eligible Securities and 
therefore are subject to TRACE reporting requirements. This includes 
the U.S. dollar-denominated debt of foreign private issuers. Trades 
in the U.S. dollar-denominated debt of foreign sovereign issuers, 
however, are not subject currently to TRACE reporting. See Notice, 
supra note 3, 87 FR at 29980-81.

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

[[Page 50358]]

    The Commission believes, therefore, that it is reasonable and 
consistent with the Act for FINRA to designate U.S. dollar-denominated 
foreign sovereign debt securities as TRACE-Eligible Securities and to 
establish reporting requirements relating to such securities in the 
manner set forth in the proposal.\66\ Expanding TRACE to include U.S. 
dollar-denominated foreign sovereign debt securities is reasonably 
designed to help FINRA fulfill its mandate in Section 15A(b)(6) of the 
Act \67\ 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. In particular, the receipt 
of the transaction price, par value traded, and other transaction 
information in TRACE would create a better-informed surveillance 
program to help detect fraud, manipulation, unfair pricing, and other 
potential misconduct.
---------------------------------------------------------------------------

    \66\ The Commission notes that FINRA previously has expanded 
TRACE to require the reporting to TRACE of transactions in U.S. 
Treasury securities, asset-backed securities and agency debt 
securities. See Securities Exchange Act Release Nos. 79116 (Oct. 18, 
2016), 81 FR 73167 (Oct. 24, 2016) (order approving File No. SR-
FINRA-2016-027) (``Treasury Securities Order''); 61566 (February 22, 
2010), 75 FR 9262 (March 1, 2010) (order approving File No. SR-
FINRA-2009-065); and 60726 (September 28, 2009), 74 FR 50991 
(October 2, 2009) (order approving File No. SR-FINRA-2009-010).
    \67\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

    The Commission recognizes that firms covered by these new reporting 
requirements may incur certain compliance burdens. FINRA represents, 
however, that U.S. dollar-denominated sovereign debt securities 
generally trade at firms that already have TRACE reporting workflows in 
place, such that FINRA does not believe that the proposal would impose 
significant burdens and costs on FINRA members given the ability of 
these firms to leverage their existing reporting systems.\68\ Moreover, 
to the extent that other firms become subject to TRACE reporting 
requirements for the first time (or firms that already carry out TRACE 
reporting from certain desks have other desks that do not currently 
trade TRACE-Eligible Securities and do not yet have TRACE 
capabilities), the Commission notes that FINRA's proposal to allow 
transactions to be reported by end-of-day provides such firms with some 
flexibility to determine the most cost-effective way of meeting the new 
reporting requirements.
---------------------------------------------------------------------------

    \68\ See Notice, 87 FR at 29981. The Commission notes that FINRA 
estimates that the benefit from improved surveillance of member 
trading activity in U.S. dollar-denominated foreign sovereign debt 
securities outweighs the costs to members associated with complying 
with the proposed reporting requirement. See id. at 29985.
---------------------------------------------------------------------------

    The Commission has considered the commenters' operational concerns 
regarding reporting of transactions in U.S. dollar-denominated foreign 
sovereign debt securities to TRACE where a CUSIP or CINS number is not 
assigned or available. The Commission believes that FINRA's plans to 
permit members to receive a FINRA symbol based solely on an ISIN or a 
FIGI (irrespective of whether a CUSIP and CINS also are available) as 
well as to avoid duplicative symbol assignments, are reasonably 
designed to address the commenters' concerns, minimize burdens, and 
facilitate compliance with the proposal. With respect to comments 
expressing concern that assigning a FINRA symbol to multiple 
identifiers could create identifier mapping challenges, the Commission 
agrees with FINRA that associating a FINRA symbol with multiple 
identifiers does not create any unique challenges in the context of the 
proposal, as an individual security currently may be assigned CUSIP/
CINS, FIGI and ISIN identifiers.\69\
---------------------------------------------------------------------------

    \69\ See FINRA Response at 3.
---------------------------------------------------------------------------

    With regards to commenters' concerns regarding the implementation 
timeframe, FINRA states that it would provide members with an adequate 
implementation period.\70\ The Commission notes that FINRA's proposed 
process for setting an effective date provides FINRA with flexibility 
in determining an appropriate implementation period and setting the 
corresponding effective date.
---------------------------------------------------------------------------

    \70\ See FINRA Response at 4. The Commission notes that FINRA 
published the proposed rule change for comment in Regulatory Notice 
19-25 (July 2019). Four comments were received in response to the 
Regulatory Notice. See Notice, 87 FR at 29985.
---------------------------------------------------------------------------

    The Commission agrees with FINRA that the proposal does not 
represent unique challenges with respect of the scope of the defined 
terms, including those with respect to the definition of ``foreign 
sovereign debt security,'' and notes that TRACE rules currently require 
members to distinguish U.S. dollar-denominated debt of foreign 
sovereign issuers from that of foreign private issuers for purposes of 
TRACE reporting.
    The Commission has considered comments regarding public 
dissemination of information regarding transactions in U.S. dollar-
denominated foreign sovereign debt securities. The Commission agrees 
with FINRA that that it is appropriate to study the information 
reported to regulators under this rule change before proceeding with a 
proposal to provide for the public dissemination of information 
concerning transactions in U.S. dollar-denominated foreign sovereign 
debt securities, which FINRA notes is consistent with past 
practice.\71\
---------------------------------------------------------------------------

    \71\ See FINRA Response at 6; see also Notice, 87 FR at 29985.
---------------------------------------------------------------------------

    The Commission also recognizes that members would become subject to 
trade reporting fees and FINRA's Trading Activity Fee in connection 
with transactions in U.S. dollar-denominated foreign sovereign debt 
securities. FINRA represents, however, that the proposed fees are 
consistent with FINRA's existing framework under FINRA Rule 7730 and 
FINRA's Trading Activity fee for similar types of transactions required 
to be reported to TRACE, and that these fees would apply at established 
rates equally to members reporting transactions in U.S. dollar-
denominated foreign sovereign debt securities. Accordingly, the 
Commission further finds that the proposed application of trade 
reporting fees under FINRA Rule 7730 and FINRA's Trading Activity Fee 
to transactions in U.S. dollar-denominated foreign sovereign debt 
securities is consistent with Section 15A(b)(5) of the Act,\72\ which 
requires, among other things, that FINRA rules provide for the 
equitable allocation of reasonable dues, fees, and other charges among 
members and issuers and other persons using any facility or system that 
FINRA operates or controls.
---------------------------------------------------------------------------

    \72\ 15 U.S.C. 78o-3(b)(5).
---------------------------------------------------------------------------

    For the reasons noted above, the Commission finds that the proposed 
rule change is consistent with the Act.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\73\ that the proposed rule change (SR-FINRA-2022-011) is 
approved.\74\
---------------------------------------------------------------------------

    \73\ 15 U.S.C. 78s(b)(2).
    \74\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-17532 Filed 8-15-22; 8:45 am]
BILLING CODE 8011-01-P


