Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval to Proposed Rule Change, as Modified by Amendment No. 1, To Expand the Definition of “TRACE-Eligible Security”, 18271-18273 [E9-9059]

Download as PDF Federal Register / Vol. 74, No. 75 / Tuesday, April 21, 2009 / Notices post all comments on the Commission’s Internet Web site (https://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 inspection and copying 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 the filing will also be available for inspection and copying at the principal office of FINRA. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File No. SR–FINRA– 2009–023 and should be submitted on or before May 12, 2009. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.8 Florence E. Harmon, Deputy Secretary. [FR Doc. E9–9058 Filed 4–20–09; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–59768; File No. SR–FINRA– 2009–004] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval to Proposed Rule Change, as Modified by Amendment No. 1, To Expand the Definition of ‘‘TRACE–Eligible Security’’ April 14, 2009. mstockstill on PROD1PC66 with NOTICES I. Introduction On February 11, 2009, the Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) (f/k/a the National Association of Securities Dealers, Inc. (‘‘NASD’’)) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 8 17 CFR 200.30–3(a)(12). VerDate Nov<24>2008 20:25 Apr 20, 2009 Jkt 217001 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to expand the definition of ‘‘TRACE-eligible security’’ in FINRA Rule 6710(a). The proposed rule change was published for comment in the Federal Register on March 11, 2009.3 The Commission received two comments on the proposal.4 On April 9, 2009, FINRA filed Amendment No. 1 to the proposed rule change, in which FINRA also responded to the comments.5 The Commission is publishing this notice and order to solicit comments on Amendment No. 1 and to approve the proposed rule change, as modified by Amendment No. 1, on an accelerated basis. II. Description of the Proposed Rule Change The current definition of ‘‘TRACEeligible security’’ in Rule 6710(a) was adopted in 2002 and has not been amended. FINRA generally believes that this definition is sufficiently broad to require the reporting of, and provide price transparency for, a substantial portion of corporate debt securities that are eligible for public sale. However, FINRA has identified several situations where corporate debt securities that are eligible for public sale in the secondary market are trading without TRACE price transparency. According to FINRA, such securities are in many cases ‘‘exempted securities’’ under Section 3 of the Securities Act.6 For example, debt securities that are issued subject to the jurisdiction and approval of a court of competent jurisdiction in insolvency matters might be eligible for public sale but not TRACE-eligible because they are not registered under the Securities Act.7 In addition, debt securities issued as part of an issuer exchange offer effected pursuant to Section 3(a)(9) of the Securities Act 8 and those issued by a 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 Securities Exchange Act Release No. 59519 (March 5, 2009), 74 FR 10630 (‘‘Notice’’). 4 See letter from Beth N. Lowson, The Nelson Law Firm, LLC, to Elizabeth M. Murphy, Secretary, Commission, dated March 31, 2009 (‘‘Nelson Letter’’); letter from Sean C. Davy, Managing Director, Securities Industry and Financial Markets Association (‘‘SIFMA’’), to Elizabeth M. Murphy, Secretary, Commission, dated March 31, 2009 (‘‘SIFMA Letter’’). 5 See infra Section III. 6 15 U.S.C. 77c. 7 According to FINRA, if an insolvent corporation is reorganized under Chapter 11 of the U.S. Bankruptcy Code, new debt securities are often issued. The issuance is subject to the approval of the trustee and the securities are not required to be registered under the Securities Act. See 11 U.S.C. 101 et seq. 8 15 U.S.C. 77c(a)(9). For example, an issuer may exchange an issue of corporate debt securities that are registered under the Securities Act (and subject to both TRACE reporting and dissemination) for 2 17 PO 00000 Frm 00074 Fmt 4703 Sfmt 4703 18271 bank or other financial institutions under Section 3(a)(2) of the Securities Act 9 generally are not subject to TRACE reporting and dissemination for this reason. Therefore, FINRA has proposed to amend Rule 6710(a), the definition of ‘‘TRACE-eligible security,’’ by eliminating the requirement that such securities be ‘‘(1) registered under the Securities Act; or (2) issued pursuant to Section 4(2) of the Securities Act and purchased or sold pursuant to Securities Act Rule 144A.’’ This change would expand TRACE eligibility to include additional corporate debt securities that are eligible for public sale, and may have participation by retail investors. Moreover, FINRA notes that its obligation to conduct surveillance in the corporate bond market is not limited to transactions in securities that are registered under the Securities Act, and that its equity trade reporting rules generally apply to any equity securities eligible for public sale and do not consider registration a factor. FINRA believes that expanding TRACE eligibility in this manner ‘‘is vital to its mandate to regulate the market, to promote market integrity and to protect investors.’’ 10 FINRA also has proposed to add the phrase ‘‘and, if a ‘restricted security’ as defined in Securities Act Rule 144(a)(3)’’ in place of the deleted language discussed in the preceding paragraph. Thus, if a security were a restricted security, it would be TRACEeligible if it were sold pursuant to Rule 144A under the Securities Act 11 (assuming it meets the other requirements for TRACE eligibility). The current definition of TRACE-eligible security requires transaction reporting for some but not all of the large market in corporate debt securities that are restricted securities and sold to qualified institutional buyers (‘‘QIBs’’) 12 in transactions effected pursuant to Rule 144A. Although a significant number of restricted securities sold in Rule 144A transactions are preceded by an offering that is exempt under Section 4(2) of the Securities Act, the limitation in the current definition excludes other Rule 144A transactions that FINRA believes should be reported. Consequently, new securities that are not registered in reliance upon Section 3(a)(9), which permits such exchanges without registration of the new securities. Although the exchanged security was TRACE-eligible, the new security is not because it is not registered, as required by existing FINRA Rule 6710(a). 9 15 U.S.C. 77c(a)(2). 10 Notice, 74 FR at 10631. 11 17 CFR 230.144A. 12 See 17 CFR 230.144A(a)(1) (defining QIB). E:\FR\FM\21APN1.SGM 21APN1 18272 Federal Register / Vol. 74, No. 75 / Tuesday, April 21, 2009 / Notices mstockstill on PROD1PC66 with NOTICES FINRA proposed to amend Rule 6710(a) to include as TRACE eligible a restricted security if it is ‘‘sold pursuant to Securities Act Rule 144A.’’ III. Summary of Comments and Amendment No. 1 The Commission received two comments on the proposed rule change.13 One commenter expressed general support for FINRA’s efforts to broaden the range of securities that are subject to TRACE reporting and thus to increase price transparency in the corporate bond market generally. In addition, the commenter argued that the TRACE rules should be amended to eliminate from FINRA’s dissemination protocols the ‘‘volume caps’’ used when disseminating information on transactions above a certain size.14 FINRA declined to respond to that comment because it is not related to the proposed rule change. Another commenter argued that FINRA has ‘‘not provided any direction or clarity regarding the operational requirements’’ of reporting certain Regulation S 15 transactions that have not been assigned a CUSIP number. The commenter also expressed concerns that firms have not been able to assess the system changes necessary to comply with the proposed rule change, and therefore are unable to comment on what would be an appropriate implementation timeline.16 In addition, the commenter suggested that FINRA consider implementing a process for obtaining identifier information for securities (such as many Regulation S securities) for which no identifying information has previously been reported under FINRA Rule 6760, and requested that FINRA provide firms a reasonable grace period to report transactions in such securities.17 In response, FINRA stated that the proposed rule change does not require members to report bona fide off-shore Regulation S transactions to TRACE. If a security that is the subject of a Regulation S offering were subsequently part of a U.S. transaction that is required to be reported to TRACE, such securities generally would be assigned CUSIPs. FINRA stated, however, that it would provide guidance on reporting obligations if certain TRACE-eligible securities had for some reason not been assigned a CUSIP number. Finally, FINRA stated that it would establish an effective date that will provide firms 13 See supra note 4. Nelson Letter at 1. 15 17 CFR 230.901–905. 16 See SIFMA Letter at 1. 17 See id. at 2. 14 See VerDate Nov<24>2008 20:25 Apr 20, 2009 Jkt 217001 sufficient time to make any minor operational enhancements needed to report these types of transactions.18 FINRA also responded to the commenter’s request for a grace period to report transactions in securities offered under Regulation S and other securities that a member finds are not in the TRACE system at the time the member is required to report a transaction. FINRA responded that members that are a party to a transaction in a TRACE-eligible security are required to report the transaction, and if the CUSIP for a TRACE-eligible security is not in the TRACE system, a member must notify FINRA Operations promptly, provide the CUSIP and other identifying information, and thereafter report the member’s transaction. FINRA stated that it takes into account a delay in reporting that may occur if a member, upon trying to report a transaction, determines that the member first must notify FINRA Operations and provide the CUSIP and other identifying information for the security to be added to TRACE. Rather than supporting the proposed grace period, FINRA advises members to maintain a record of any notifications the member provides to FINRA Operations, which FINRA would view as a mitigating factor in reviewing the transaction report(s) in such security of members providing notification. FINRA further suggested that, where there has been prompt notification and reporting of a security as soon as possible after the security is included in TRACE, FINRA generally would not include such trades in any regulatory inquiry directed to the firm and that, generally, it would be unlikely for such late trades to form the factual basis for formal or informal action, absent other regulatory concerns or violations.19 Also in Amendment No. 1, FINRA deleted certain language from its Form 19b–4 wherein it discussed the purpose of the proposed rule change.20 These revisions are non-substantive and do not affect the proposed rule text. IV. Discussion After carefully considering the proposal and the comments submitted, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules 18 See Amendment No. 1 at 4. noted, however, that providing notification to FINRA Operations would not be viewed as a mitigating factor or circumstance during any review of late trade reports, if FINRA determines that the member was obligated under Rule 6760 to provide notice to FINRA Operations at or prior to the initial issuance of the TRACEeligible security. See Amendment No. 1 at 4. 20 See id. at 5. 19 FINRA PO 00000 Frm 00075 Fmt 4703 Sfmt 4703 and regulations thereunder applicable to a national securities association.21 In particular, the Commission finds that the proposed rule change is consistent with Section 15A(b)(6) of the Act,22 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. The Commission does not believe that the comments raise any issue that would preclude approval of the proposal. The Commission believes that it is reasonable and consistent with the Act for FINRA to broaden the definition of ‘‘TRACE-eligible security’’ in the manner set forth in the proposal. The larger universe of transactions in corporate debt securities that are subject to TRACE reporting should result in greater transparency for market participants and the public. Including in the audit trail additional corporate debt securities that are eligible for public sale (and that otherwise meet the standards for TRACE eligibility) should enhance FINRA’s surveillance efforts, as FINRA’s obligation to conduct surveillance in the corporate bond market is not limited to transactions in securities that are registered under the Securities Act. In addition, the Commission believes that amending the definition of ‘‘TRACE-eligible security’’ in Rule 6710(a) to include all restricted securities sold pursuant to Rule 144A, rather than only those preceded by an offering exempt pursuant to Securities Act Section 4(2), is a reasonable expansion of TRACE reporting. The additional transaction data will allow FINRA to obtain a more complete audit trail of transactions in corporate debt securities. The Commission finds good cause for approving the proposed rule change, as modified by Amendment No. 1 thereto, before the thirtieth day after the date of publication of notice of filing of Amendment No. 1 in the Federal Register. Amendment No. 1 makes only minor non-substantive changes to the proposal, which otherwise was subject to a full comment period. Therefore, the Commission finds good cause, consistent with Section 19(b)(2) of the Act, to approve the proposal, as modified by Amendment No. 1, on an accelerated basis. 21 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). 22 15 U.S.C. 78o–3(b)(6). E:\FR\FM\21APN1.SGM 21APN1 Federal Register / Vol. 74, No. 75 / Tuesday, April 21, 2009 / Notices V. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning Amendment No. 1, including whether Amendment No. 1 is consistent with the Act. Comments may be submitted by any of the following methods: mstockstill on PROD1PC66 with NOTICES Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File No. SR–FINRA–2009–004 on the subject line. Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–FINRA–2009–004. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://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 inspection and copying 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; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–FINRA–2009–004 and should be submitted on or before May 12, 2009. VI. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,23 that the 23 15 U.S.C. 78s(b)(2). VerDate Nov<24>2008 20:25 Apr 20, 2009 proposed rule change (File No. SR– FINRA–2009–004), as modified by Amendment No. 1 thereto, be, and hereby is, approved on an accelerated basis. For the Commission, by the Division of Trading and Markets, pursuant delegated authority.24 Florence E. Harmon, Deputy Secretary. [FR Doc. E9–9059 Filed 4–20–09; 8:45 am] BILLING CODE 8010–01–P SOCIAL SECURITY ADMINISTRATION [Docket No. SSA–2009–0025] Future Systems Technology Advisory Panel Meeting AGENCY: ACTION: Notice of third panel meeting. DATES: May 12, 2009, 9:15 a.m.–5 p.m. and May 13, 2009, 8:30 a.m.–12 p.m. Location: The Westin Alexandria. ADDRESSES: 400 Courthouse Square, Alexandria, VA 22314. SUPPLEMENTARY INFORMATION: Type of Meeting: The meeting is open to the public. Purpose: The Panel, under the Federal Advisory Committee Act of 1972, as amended, (hereinafter referred to as ‘‘the FACA’’) shall report to and provide the Commissioner of Social Security independent advice and recommendations on the future of systems technology and electronic services at the agency five to ten years into the future. The Panel will recommend a road map to aid SSA in determining what future systems technologies may be developed to assist in carrying out its statutory mission. Advice and recommendations can relate to SSA’s systems in the area of Internet application, customer service, or any other arena that would improve SSA’s ability to serve the American people. Agenda: The Panel will meet on Tuesday, May 12, 2009 from 9:15 a.m. until 5 p.m. and Wednesday, May 13, 2009 from 8:30 a.m. to 12 p.m. The agenda will be available on the Internet at https://www.ssa.gov/fstap/index.htm or available by e-mail or fax on request, one week prior to the starting date. During the third meeting, the Panel will have outside experts address items of interest and other relevant topics to the Panel. This additional information will further the Panel’s deliberations and the effort of the Panel subcommittees. 24 17 Jkt 217001 Social Security Administration (SSA). PO 00000 CFR 200.30–3(a)(12). Frm 00076 Fmt 4703 Sfmt 4703 18273 Public comments will be heard on Tuesday, May 12, 2009, from 4:30 p.m. until 5 p.m. Individuals interested in providing comments in person should contact the Panel staff as outlined below to schedule a time slot. Members of the public must schedule a time slot in order to comment. In the event public comments do not take the entire scheduled time period, the Panel may use that time to deliberate or conduct other Panel business. Each individual providing public comment will be acknowledged by the Chair in the order in which they are scheduled to testify and is limited to a maximum fiveminute, verbal presentation. In addition to or in lieu of public comments provided in person, individuals may provide written comments to the panel for their review and consideration. Comments in written or oral form are for informational purposes only for the Panel. Public comments will not be specifically addressed or receive a written response by the Panel. Contact Information: Records are kept of all proceedings and will be available for public inspection by appointment at the Panel office. Anyone requiring information regarding the Panel should contact the staff by: Mail addressed to SSA, Future Systems Technology Advisory Panel, Room 800, Altmeyer Building, 6401 Security Boulevard, Baltimore, MD 21235–0001; Telephone at 410–965– 6011; Fax at 410–965–0201; or E-mail to FSTAP@ssa.gov. Dated: April 15, 2009. Dianne L. Rose, Designated Federal Officer, Future Systems Technology Advisory Panel. [FR Doc. E9–9149 Filed 4–20–09; 8:45 am] BILLING CODE 4191–02–P DEPARTMENT OF TRANSPORTATION Maritime Administration [Docket No. MARAD–2009 0037 Requested Administrative Waiver of the Coastwise Trade Laws AGENCY: Maritime Administration, Department of Transportation. ACTION: Invitation for public comments on a requested administrative waiver of the Coastwise Trade Laws for the vessel Island Flyer. SUMMARY: As authorized by 46 U.S.C. 12121, the Secretary of Transportation, as represented by the Maritime Administration (MARAD), is authorized to grant waivers of the U.S.-build requirement of the coastwise laws under E:\FR\FM\21APN1.SGM 21APN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 74, Number 75 (Tuesday, April 21, 2009)]
[Notices]
[Pages 18271-18273]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-9059]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59768; File No. SR-FINRA-2009-004]

Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of Amendment No. 1 and Order Granting
Accelerated Approval to Proposed Rule Change, as Modified by Amendment
No. 1, To Expand the Definition of ``TRACE-Eligible Security''

April 14, 2009.

I. Introduction

On February 11, 2009, the Financial Industry Regulatory Authority,
Inc. (``FINRA'') (f/k/a the National Association of Securities Dealers,
Inc. (``NASD'')) 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 expand the definition of ``TRACE-eligible
security'' in FINRA Rule 6710(a). The proposed rule change was
published for comment in the Federal Register on March 11, 2009.\3\ The
Commission received two comments on the proposal.\4\ On April 9, 2009,
FINRA filed Amendment No. 1 to the proposed rule change, in which FINRA
also responded to the comments.\5\ The Commission is publishing this
notice and order to solicit comments on Amendment No. 1 and to approve
the proposed rule change, as modified by Amendment No. 1, on an
accelerated basis.
---------------------------------------------------------------------------

\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 59519 (March 5, 2009),
74 FR 10630 (``Notice'').
\4\ See letter from Beth N. Lowson, The Nelson Law Firm, LLC, to
Elizabeth M. Murphy, Secretary, Commission, dated March 31, 2009
(``Nelson Letter''); letter from Sean C. Davy, Managing Director,
Securities Industry and Financial Markets Association (``SIFMA''),
to Elizabeth M. Murphy, Secretary, Commission, dated March 31, 2009
(``SIFMA Letter'').
\5\ See infra Section III.
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change

The current definition of ``TRACE-eligible security'' in Rule
6710(a) was adopted in 2002 and has not been amended. FINRA generally
believes that this definition is sufficiently broad to require the
reporting of, and provide price transparency for, a substantial portion
of corporate debt securities that are eligible for public sale.
However, FINRA has identified several situations where corporate debt
securities that are eligible for public sale in the secondary market
are trading without TRACE price transparency. According to FINRA, such
securities are in many cases ``exempted securities'' under Section 3 of
the Securities Act.\6\ For example, debt securities that are issued
subject to the jurisdiction and approval of a court of competent
jurisdiction in insolvency matters might be eligible for public sale
but not TRACE-eligible because they are not registered under the
Securities Act.\7\ In addition, debt securities issued as part of an
issuer exchange offer effected pursuant to Section 3(a)(9) of the
Securities Act \8\ and those issued by a bank or other financial
institutions under Section 3(a)(2) of the Securities Act \9\ generally
are not subject to TRACE reporting and dissemination for this reason.
---------------------------------------------------------------------------

\6\ 15 U.S.C. 77c.
\7\ According to FINRA, if an insolvent corporation is
reorganized under Chapter 11 of the U.S. Bankruptcy Code, new debt
securities are often issued. The issuance is subject to the approval
of the trustee and the securities are not required to be registered
under the Securities Act. See 11 U.S.C. 101 et seq.
\8\ 15 U.S.C. 77c(a)(9). For example, an issuer may exchange an
issue of corporate debt securities that are registered under the
Securities Act (and subject to both TRACE reporting and
dissemination) for new securities that are not registered in
reliance upon Section 3(a)(9), which permits such exchanges without
registration of the new securities. Although the exchanged security
was TRACE-eligible, the new security is not because it is not
registered, as required by existing FINRA Rule 6710(a).
\9\ 15 U.S.C. 77c(a)(2).
---------------------------------------------------------------------------

Therefore, FINRA has proposed to amend Rule 6710(a), the definition
of ``TRACE-eligible security,'' by eliminating the requirement that
such securities be ``(1) registered under the Securities Act; or (2)
issued pursuant to Section 4(2) of the Securities Act and purchased or
sold pursuant to Securities Act Rule 144A.'' This change would expand
TRACE eligibility to include additional corporate debt securities that
are eligible for public sale, and may have participation by retail
investors. Moreover, FINRA notes that its obligation to conduct
surveillance in the corporate bond market is not limited to
transactions in securities that are registered under the Securities
Act, and that its equity trade reporting rules generally apply to any
equity securities eligible for public sale and do not consider
registration a factor. FINRA believes that expanding TRACE eligibility
in this manner ``is vital to its mandate to regulate the market, to
promote market integrity and to protect investors.'' \10\
---------------------------------------------------------------------------

\10\ Notice, 74 FR at 10631.
---------------------------------------------------------------------------

FINRA also has proposed to add the phrase ``and, if a `restricted
security' as defined in Securities Act Rule 144(a)(3)'' in place of the
deleted language discussed in the preceding paragraph. Thus, if a
security were a restricted security, it would be TRACE-eligible if it
were sold pursuant to Rule 144A under the Securities Act \11\ (assuming
it meets the other requirements for TRACE eligibility). The current
definition of TRACE-eligible security requires transaction reporting
for some but not all of the large market in corporate debt securities
that are restricted securities and sold to qualified institutional
buyers (``QIBs'') \12\ in transactions effected pursuant to Rule 144A.
Although a significant number of restricted securities sold in Rule
144A transactions are preceded by an offering that is exempt under
Section 4(2) of the Securities Act, the limitation in the current
definition excludes other Rule 144A transactions that FINRA believes
should be reported. Consequently,

[[Page 18272]]

FINRA proposed to amend Rule 6710(a) to include as TRACE eligible a
restricted security if it is ``sold pursuant to Securities Act Rule
144A.''
---------------------------------------------------------------------------

\11\ 17 CFR 230.144A.
\12\ See 17 CFR 230.144A(a)(1) (defining QIB).
---------------------------------------------------------------------------

III. Summary of Comments and Amendment No. 1

The Commission received two comments on the proposed rule
change.\13\ One commenter expressed general support for FINRA's efforts
to broaden the range of securities that are subject to TRACE reporting
and thus to increase price transparency in the corporate bond market
generally. In addition, the commenter argued that the TRACE rules
should be amended to eliminate from FINRA's dissemination protocols the
``volume caps'' used when disseminating information on transactions
above a certain size.\14\ FINRA declined to respond to that comment
because it is not related to the proposed rule change.
---------------------------------------------------------------------------

\13\ See supra note 4.
\14\ See Nelson Letter at 1.
---------------------------------------------------------------------------

Another commenter argued that FINRA has ``not provided any
direction or clarity regarding the operational requirements'' of
reporting certain Regulation S \15\ transactions that have not been
assigned a CUSIP number. The commenter also expressed concerns that
firms have not been able to assess the system changes necessary to
comply with the proposed rule change, and therefore are unable to
comment on what would be an appropriate implementation timeline.\16\ In
addition, the commenter suggested that FINRA consider implementing a
process for obtaining identifier information for securities (such as
many Regulation S securities) for which no identifying information has
previously been reported under FINRA Rule 6760, and requested that
FINRA provide firms a reasonable grace period to report transactions in
such securities.\17\
---------------------------------------------------------------------------

\15\ 17 CFR 230.901-905.
\16\ See SIFMA Letter at 1.
\17\ See id. at 2.
---------------------------------------------------------------------------

In response, FINRA stated that the proposed rule change does not
require members to report bona fide off-shore Regulation S transactions
to TRACE. If a security that is the subject of a Regulation S offering
were subsequently part of a U.S. transaction that is required to be
reported to TRACE, such securities generally would be assigned CUSIPs.
FINRA stated, however, that it would provide guidance on reporting
obligations if certain TRACE-eligible securities had for some reason
not been assigned a CUSIP number. Finally, FINRA stated that it would
establish an effective date that will provide firms sufficient time to
make any minor operational enhancements needed to report these types of
transactions.\18\
---------------------------------------------------------------------------

\18\ See Amendment No. 1 at 4.
---------------------------------------------------------------------------

FINRA also responded to the commenter's request for a grace period
to report transactions in securities offered under Regulation S and
other securities that a member finds are not in the TRACE system at the
time the member is required to report a transaction. FINRA responded
that members that are a party to a transaction in a TRACE-eligible
security are required to report the transaction, and if the CUSIP for a
TRACE-eligible security is not in the TRACE system, a member must
notify FINRA Operations promptly, provide the CUSIP and other
identifying information, and thereafter report the member's
transaction. FINRA stated that it takes into account a delay in
reporting that may occur if a member, upon trying to report a
transaction, determines that the member first must notify FINRA
Operations and provide the CUSIP and other identifying information for
the security to be added to TRACE. Rather than supporting the proposed
grace period, FINRA advises members to maintain a record of any
notifications the member provides to FINRA Operations, which FINRA
would view as a mitigating factor in reviewing the transaction
report(s) in such security of members providing notification. FINRA
further suggested that, where there has been prompt notification and
reporting of a security as soon as possible after the security is
included in TRACE, FINRA generally would not include such trades in any
regulatory inquiry directed to the firm and that, generally, it would
be unlikely for such late trades to form the factual basis for formal
or informal action, absent other regulatory concerns or violations.\19\
---------------------------------------------------------------------------

\19\ FINRA noted, however, that providing notification to FINRA
Operations would not be viewed as a mitigating factor or
circumstance during any review of late trade reports, if FINRA
determines that the member was obligated under Rule 6760 to provide
notice to FINRA Operations at or prior to the initial issuance of
the TRACE-eligible security. See Amendment No. 1 at 4.
---------------------------------------------------------------------------

Also in Amendment No. 1, FINRA deleted certain language from its
Form 19b-4 wherein it discussed the purpose of the proposed rule
change.\20\ These revisions are non-substantive and do not affect the
proposed rule text.
---------------------------------------------------------------------------

\20\ See id. at 5.
---------------------------------------------------------------------------

IV. Discussion

After carefully considering the proposal and the comments
submitted, 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.\21\ In particular, the Commission finds that the proposed
rule change is consistent with Section 15A(b)(6) of the Act,\22\ 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. The Commission does not believe that
the comments raise any issue that would preclude approval of the
proposal.
---------------------------------------------------------------------------

\21\ 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).
\22\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

The Commission believes that it is reasonable and consistent with
the Act for FINRA to broaden the definition of ``TRACE-eligible
security'' in the manner set forth in the proposal. The larger universe
of transactions in corporate debt securities that are subject to TRACE
reporting should result in greater transparency for market participants
and the public. Including in the audit trail additional corporate debt
securities that are eligible for public sale (and that otherwise meet
the standards for TRACE eligibility) should enhance FINRA's
surveillance efforts, as FINRA's obligation to conduct surveillance in
the corporate bond market is not limited to transactions in securities
that are registered under the Securities Act.
In addition, the Commission believes that amending the definition
of ``TRACE-eligible security'' in Rule 6710(a) to include all
restricted securities sold pursuant to Rule 144A, rather than only
those preceded by an offering exempt pursuant to Securities Act Section
4(2), is a reasonable expansion of TRACE reporting. The additional
transaction data will allow FINRA to obtain a more complete audit trail
of transactions in corporate debt securities.
The Commission finds good cause for approving the proposed rule
change, as modified by Amendment No. 1 thereto, before the thirtieth
day after the date of publication of notice of filing of Amendment No.
1 in the Federal Register. Amendment No. 1 makes only minor non-
substantive changes to the proposal, which otherwise was subject to a
full comment period. Therefore, the Commission finds good cause,
consistent with Section 19(b)(2) of the Act, to approve the proposal,
as modified by Amendment No. 1, on an accelerated basis.

[[Page 18273]]

V. Solicitation of Comments

Interested persons are invited to submit written data, views, and
arguments concerning Amendment No. 1, including whether Amendment No. 1
is consistent with the Act. Comments may be submitted by any of the
following methods:

Electronic Comments

Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File No. SR-FINRA-2009-004 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-FINRA-2009-004. This
file number should be included on the subject line if e-mail is used.
To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (https://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 inspection
and copying 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; the Commission does not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-FINRA-2009-004 and should be
submitted on or before May 12, 2009.

VI. Conclusion

It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\23\ that the proposed rule change (File No. SR-FINRA-2009-004), as
modified by Amendment No. 1 thereto, be, and hereby is, approved on an
accelerated basis.
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\23\ 15 U.S.C. 78s(b)(2).

For the Commission, by the Division of Trading and Markets,
pursuant delegated authority.\24\
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\24\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-9059 Filed 4-20-09; 8:45 am]
BILLING CODE 8010-01-P

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