Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of Amendment No. 2 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 2 Thereto, Expanding TRACE To Include Agency Debt Securities and Primary Market Transactions, 50991-50996 [E9-23729]
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Federal Register / Vol. 74, No. 190 / Friday, October 2, 2009 / Notices
Economic Injury (EIDL) Loan
Application Deadline Date: 06/28/2010.
ADDRESSES: Submit completed loan
applications to: U.S. Small Business
Administration, Processing And
Disbursement Center, 14925 Kingsport
Road, Fort Worth, TX 76155.
FOR FURTHER INFORMATION CONTACT: A.
Escobar, Office of Disaster Assistance,
U.S. Small Business Administration,
409 3rd Street, SW., Suite 6050,
Washington, DC 20416.
SUPPLEMENTARY INFORMATION: Notice is
hereby given that as a result of the
President’s major disaster declaration on
09/26/2009, Private Non-Profit
organizations that provide essential
services of governmental nature may file
disaster loan applications at the address
listed above or other locally announced
locations.
The following areas have been
determined to be adversely affected by
the disaster:
Primary Counties:
Carroll, Catoosa, Chattooga, Cobb,
Douglas, Gwinnett, Paulding,
Stephens, Walker.
The Interest Rates are:
Percent
Other (Including Non-Profit Organizations) With Credit Available
Elsewhere: ................................
Businesses And Non-Profit Organizations Without Credit Available Elsewhere: ........................
The number assigned to this disaster for physical damage is
118886 and for economic injury
is 118896.
4.500
4.000
(Catalog of Federal Domestic Assistance
Numbers 59002 and 59008)
James E. Rivera,
Acting Associate Administrator for Disaster
Assistance.
[FR Doc. E9–23776 Filed 10–1–09; 8:45 am]
BILLING CODE 8025–01–P
SMALL BUSINESS ADMINISTRATION
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Interest Rates
The Small Business Administration
publishes an interest rate called the
optional ‘‘peg’’ rate (13 CFR 120.214) on
a quarterly basis. This rate is a weighted
average cost of money to the
government for maturities similar to the
average SBA direct loan. This rate may
be used as a base rate for guaranteed
fluctuating interest rate SBA loans. This
rate will be 4.000 (4) percent for the
October–December quarter of FY 2009.
Pursuant to 13 CFR 120.921(b), the
maximum legal interest rate for any
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16:40 Oct 01, 2009
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third party lender’s commercial loan
which funds any portion of the cost of
a 504 project (see 13 CFR 120.801) shall
be 6% over the New York Prime rate or,
if that exceeds the maximum interest
rate permitted by the constitution or
laws of a given State, the maximum
interest rate will be the rate permitted
by the constitution or laws of the given
State.
Richard C. Blewett,
Acting Director, Office of Financial
Assistance.
[FR Doc. E9–23772 Filed 10–1–09; 8:45 am]
BILLING CODE P
[File No. 500–1]
In the Matter of Emergent Health Corp.;
Order of Suspension of Trading
September 30, 2009.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of Emergent
Health Corp. because questions have
arisen regarding the company’s issuance
of stock and trading in the company’s
stock.
The Commission is of the opinion that
the public interest and the protection of
investors require a suspension of trading
in the securities of the above-listed
company.
Therefore, it is ordered, pursuant to
Section 12(k) of the Securities Exchange
Act of 1934, that trading in the
securities of the above-listed company is
suspended for the period from 9:30 a.m.
EDT on September 30, 2009, through
11:59 p.m. EDT, on October 13, 2009.
By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. E9–23882 Filed 9–30–09; 11:15 am]
BILLING CODE 8011–01–P
Frm 00046
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–60726; File No. SR–FINRA–
2009–010]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing of
Amendment No. 2 and Order Granting
Accelerated Approval of a Proposed
Rule Change, as Modified by
Amendment No. 2 Thereto, Expanding
TRACE To Include Agency Debt
Securities and Primary Market
Transactions
September 28, 2009.
SECURITIES AND EXCHANGE
COMMISSION
PO 00000
50991
Fmt 4703
Sfmt 4703
I. Introduction
On March 18, 2009, the Financial
Industry Regulatory Authority, Inc.
(‘‘FINRA’’) (f/k/a National Association
of Securities Dealers, Inc. (‘‘NASD’’))
filed with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’),
pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a
proposed rule change to expand TRACE
to include Agency Debt Securities and
primary market transactions. On April
8, 2009, FINRA filed Amendment No. 1
to the proposal.3 The proposed rule
change, as amended, was published for
comment in the Federal Register on
April 16, 2009.4 The Commission
received eight comment letters in
response to the proposed rule change.5
On August 26, 2009, FINRA responded
to the comment letters 6 and filed
Amendment No. 2 to the proposed rule
change.7 The Commission is publishing
this notice and order to solicit
comments on Amendment No. 2 and to
approve the proposed rule change, as
modified by Amendment No. 2, on an
accelerated basis.
II. Description of the Proposal
Currently, FINRA utilizes the Trade
Reporting and Compliance Engine
(‘‘TRACE’’) to collect and disseminate
information on secondary over-the1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 Amendment No. 1 was a partial amendment
that: (1) Revised the description of the proposal to
accurately reflect the proposed rule text; (2)
amended the definition of ‘‘TRACE–Eligible
Security’’ to remove a parenthetical that was
inadvertently included in the original proposal; and
(3) made minor technical edits to the purposed rule
text.
4 Securities Exchange Act Release No. 59733
(April 8, 2009), 74 FR 17709 (‘‘Notice’’).
5 See infra note 12.
6 See letter from Sharon Zackula, Associate Vice
President and Associate General Counsel, FINRA, to
Elizabeth M. Murphy, Secretary, Commission, dated
August 26, 2009 (‘‘FINRA Response’’).
7 See infra Section III.
2 17
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Federal Register / Vol. 74, No. 190 / Friday, October 2, 2009 / Notices
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counter transactions in corporate debt
securities. FINRA has proposed to
extend TRACE to include most primary
market transactions as well as
transactions in debt securities that are
issued or guaranteed by a governmentsponsored enterprise or U.S.
government agency (‘‘Agency Debt
Securities’’). Specifically, the proposed
rule change would:
(1) In Rule 6710, amend the defined
terms (a) ‘‘TRACE–Eligible Security’’ to
include Agency Debt Securities; (b)
‘‘Reportable TRACE Transaction’’ to
include primary market transactions;
and (c) ‘‘Investment Grade’’ and ‘‘NonInvestment Grade’’ to classify unrated
Agency Debt Securities as investment
grade securities for purposes of the
dissemination provisions of the TRACE
rules;
(2) amend Rule 6710(a), to require
members to provide FINRA certain
information regarding debt securities
that are not assigned CUSIPs, but
otherwise meet TRACE eligibility
standards;
(3) in Rule 6710, delete the definition
of ‘‘Money Market Instrument’’
embedded in the term ‘‘TRACE–Eligible
Security’’ and add it as a separately
defined term in new proposed Rule
6710(o);
(4) in Rule 6710, add the defined
terms, ‘‘Agency,’’ ‘‘Agency Debt
Security,’’ ‘‘Asset-Backed Security,’’
‘‘Government-Sponsored Enterprise,’’
‘‘Money Market Instrument,’’ ‘‘U.S.
Treasury Security,’’ ‘‘List or Fixed
Offering Price Transaction,’’ and
‘‘Takedown Transaction;’’
(5) in Rule 6710, make certain
technical changes to a number of the
defined terms;
(6) in Rule 6730, establish reporting
requirements for primary market
transactions that are List or Fixed
Offering Price Transactions 8 or
Takedown Transactions; 9
8 The term ‘‘List or Fixed Offering Price
Transaction’’ means a primary market sale
transaction sold on the first day of trading of a new
issue: (i) by a sole underwriting, syndicate manager,
syndicate member or selling group member at the
published or stated list or fixed offering price, or
(ii) in the case of a primary market sale transaction
effected pursuant to Securities Act Rule 144A, by
an initial purchaser, syndicate manager, syndicate
member or selling group member at the published
or stated fixed offering price. See proposed FINRA
Rule 6710(q).
9 The term ‘‘Takedown Transaction’’ means a
primary market sale transaction sold on the first day
of trading of a new issue: (i) by a sole underwriter
or syndicate manager to a syndicate or selling group
member at a discount from the published or stated
list or fixed offering price, or (ii) in the case of a
primary market sale transaction effected pursuant to
Securities Act Rule 144A, by an initial purchaser
or syndicate manager to a syndicate or selling group
member at a discount from the published or stated
fixed offering price. See proposed FINRA Rule
6710(r).
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(7) in Rule 6750, provide that
transaction information for List or Fixed
Offering Price Transactions and
Takedown Transactions will not be
disseminated. FINRA has represented
that it will study the reported data for
these primary market transactions for a
period of time after reporting begins
and, at a later date, determine if
dissemination of the information is
appropriate and, if appropriate, develop
a dissemination strategy;
(8) in Rule 6760, amend the
requirements for members to provide
FINRA with notice of and information
about new issuances of TRACE-Eligible
Securities to facilitate timely reporting
of such securities in both primary and
secondary market transactions;
(9) establish new Rule 6770, which
would provide FINRA emergency
authority, to be exercised in
consultation with the Commission, that
would permit FINRA to suspend the
reporting and/or dissemination of
certain transactions in TRACE-Eligible
Securities, or the reporting of certain
data elements that are otherwise
required under Rule 6730 and/or the
dissemination of certain data elements
as market conditions warrant and for
such period of time as FINRA deemed
necessary; 10
(10) in Rule 7730, establish reporting
and market data fees for Agency Debt
Securities and primary market
transactions generally at the same rates
in effect for corporate bonds; 11 and
(11) amend various rules in the
FINRA Rule 6700 and 7730 series to
reflect minor technical, stylistic, or
confirming changes.
In its filing with the Commission,
FINRA acknowledged that its proposal
to extend TRACE reporting to include
Agency Debt Securities may result in
certain trading desks having to report
transactions to TRACE for the first time.
Consequently, FINRA represented that it
would continue to work with members
and third-party vendors to ensure
effective and efficient implementation.
FINRA further stated that it will
announce the effective date of the
proposed rule change in a Regulatory
Notice to be published no later than 60
days following Commission approval.
10 See
Amendment No. 2, infra Section III.
the proposal, for fee purposes, FINRA
will distinguish TRACE transaction data as two data
sets: one comprised of corporate bond transaction
information and the other comprised of Agency
Debt Security transaction information. The fee
schedule set forth in FINRA Rule 7730 would apply
to Agency Debt Securities and primary market
transactions. Additionally, FINRA has proposed to
amend the fees for ‘‘Web Browser Access,’’ which
would vary depending on factors such as the
number of users and whether the user(s) would
have access to one or both data sets.
11 Under
PO 00000
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According to FINRA, the effective date
will be no later than 180 days following
publication of the Regulatory Notice
announcing Commission approval.
III. Summary of Comments and
Amendment No. 2
The Commission received eight
comments on the proposed rule
change.12 Four commenters expressed
strong support for the proposal.13 Two
other commenters were not opposed to
FINRA’s proposal, but raised concerns
regarding operation and
implementation.14
Two commenters indicated support
for more transparency in the fixed
income markets, but opposed the
proposed rule change.15 Both
commenters believed that the market in
Agency Debt Securities is highly liquid
and questioned the need for expanding
TRACE to cover it.16 One of the
commenters stated that any expansion
of TRACE to include Agency Debt
Securities or primary market
transactions would impose significant
costs on firms that engage in such
transactions.17
FINRA responded that, although
multiple vendors provide data on
Agency Debt Securities, there is no
centralized public dissemination of
12 See letter from Robert F. Anderson, Senior
Managing Director, Fixed Income Trading, dated
April 17, 2009 (‘‘Anderson Letter’’); letter from Beth
N. Lowson, The Nelson Law Firm, LLC, dated May
5, 2009 (‘‘Nelson Letter’’); letter from Manisha
Kimmel, Executive Director, Financial Information
Forum, dated May 7, 2009 (‘‘FIF Letter’’); letter from
Heather Traeger, Associate Counsel, Investment
Company Institute, dated May 7, 2009 (‘‘ICI
Letter’’); letter from Joseph W. Sack, Managing
Director, Asset Management Group, Securities
Industry and Financial Markets Association, dated
May 7, 2009 (‘‘AMG–SIFMA Letter’’); letter from
Sean C. Davy, Managing Director and Robert
Toomey, Managing Director, and Associate General
Counsel, Capital Markets Group of Securities
Industry and Financial Markets Association, dated
May 7, 2009 (‘‘CMG–SIFMA Letter’’); letter from
Michael Decker and Mike Nicholas, Co-Chief
Executive Officers, Regional Bond Dealers
Association, dated May 7, 2009 (‘‘RBDA Letter’’);
letter from Don Winton, Crews & Associates, Inc.,
dated May 22, 2009 (Crews Letter’’) (collectively,
the ‘‘Comment Letters’’).
13 See Anderson Letter (supporting FINRA’s
overall goal of improving bond market
transparency); Nelson Letter (supporting the
proposal because it provides for increased price
transparency in the market by broadening the range
of securities trades that must be reported and
disseminated); AMG–SIFMA Letter (arguing that
real-time prices would be helpful to large asset
management firms with respect to trading activities,
portfolio management, and valuation activities); ICI
Letter (citing the benefits to investors in bonds and
noting that transparency helps to improve price
discovery and ensure the integrity of the debt
markets).
14 See Crews Letter; FIF Letter.
15 See CMG–SIFMA Letter; RBDA Letter.
16 See CMG–SIFMA Letter, at 1–2; RBDA Letter,
at 2.
17 See CMG–SIFMA Letter, at 1.
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Federal Register / Vol. 74, No. 190 / Friday, October 2, 2009 / Notices
information regarding transactions in
Agency Debt Securities. FINRA noted
that the pre-trade information available
is generally indicative, while post-trade
information—whether via a subscriber
service or at a publicly accessible Web
site—is not available at all. FINRA
concluded that ‘‘[t]he expansion of
TRACE will create consolidated posttrade transparency in Agency Debt
Securities, and the dissemination of
transaction information will assist in
price discovery and valuation processes
for all market participants and provide
retail investors access to price
information current not readily
available to non-professionals.’’18
Three commenters requested that the
distinction between primary and
secondary transactions be clarified for
reporting purposes.19 In its original
filing, FINRA proposed that member use
one of three indicators when reporting
transactions to distinguish between
primary and secondary transactions,
and to further distinguish List or Fixed
Offering Price Transactions and
Takedown Transactions from other
primary market transactions. In
response, FINRA revised Rule
6730(d)(4)(D) to eliminate the proposed
indicators for secondary market and
primary market transactions that are not
List or Fixed Offering Price Transactions
or Takedown Transactions. The rule
would retain the requirement that
members use the remaining proposed
indicator when reporting primary
market transactions that are List or
Fixed Offering Price Transactions and
Takedown transactions.20 One
commenter suggested that that the
definition of List or Fixed Offering Price
Transaction and Takedown Transaction
be amended for reporting purposes to
include primary market transactions
that are executed after the day of
pricing, but would otherwise qualify as
a List or Fixed Offering Price
Transaction or Takedown Transaction.
FINRA responded that it did not believe
that the definition should be amended
but, rather proposed to amend the
deadline for reporting all List or Fixed
Offering Price Transactions or
Takedown Transactions to no later than
T+1 during TRACE system hours. By
extending the reporting period to T+1,
FINRA would eliminate the distinction
between a transaction executed in
connection with an offering priced
before 5 p.m. ET and a transaction
executed as part of an offering priced on
the same day but after 5 p.m. ET when
18 FINRA
Response, at 3.
CMG–SIFMA Letter, at 5; RBDA Letter, at
3; FIF Letter, at 3.
20 See FINRA Response, at 5.
19 See
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the TRACE system is closed. FINRA
believes this change will address
operational concerns without negatively
impacting regulatory surveillance or
market transparency.21
One commenter also raised a
compliance concern with regard to
reverse inquiries.22 The commenter
argued that complying with the
proposed requirement to notify FINRA
about new issues ‘‘prior to the
commencement of primary market
transactions’’ would be impossible in
the case of a reverse inquiry, because
the new issue materializes and the
primary market transaction takes place
precisely upon the agreement of the
issuer to sell bonds at the terms
proposed by the investor. Accordingly,
the commenter recommended that
FINRA amend Rule 6760 so that
underwriting broker-dealers would be
required to notify FINRA within 15
minutes of commencement of primary
market trading after the underwriting of
the new issue, in the instances where it
is not possible to do so prior to the
commencement of primary market
transactions.23
In response, FINRA proposed to
amend Rule 6760 so that if a member is
involved in an intraday offering that is
priced and commences between 9:30
a.m. and 4 p.m. ET, the member would
be permitted to provide FINRA
Operations the required information
available prior to the execution of the
first transaction in the distribution or
offering. All other information required
under the rule would have to be
provided within 15 minutes of the time
of execution of the first transaction in
such distribution or offering.24
Two commenters stated that firms
should be permitted to rely on the
TRACE Issue Master to determine if a
security is TRACE-eligible.25 FINRA
responded that it has often stated that it
a firm’s obligation under Rule 6730 is to
report transactions in securities that
meet the definition of TRACE-Eligible
Security. FINRA further stated that if a
firm has a reporting obligation under
Rule 6730 in a security that is a TRACEEligible Security but is not included in
the TRACE Issue Master, the firm must
notify FINRA immediately and provide
the CUSIP and other information
necessary for FINRA to update the
21 See
id.
RBDA Letter, at 2–3. In a reverse inquiry,
investors or dealers determine an amount and type
of bond that they wish to purchase and approach
the issuer with a request to buy debt securities with
those features at a particular price. If the issuer
agrees, the bonds are issued and purchased.
23 See RBDA Letter, at 3.
24 See FINRA Response, at 5.
25 See CMG–SIFMA Letter, at 4; FIF Letter, at 1.
22 See
PO 00000
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Sfmt 4703
50993
TRACE Issue Master, allowing the firm
to report its transaction to TRACE
promptly and comply with its
obligations under FINRA Rule 6730.26
Additionally, one commenter objected
to including securities without a CUSIP
as TRACE-eligible due increased costs
and potential reporting errors, and
questioned whether incorporating such
securities into TRACE would contribute
to meaningful price discovery.27 FINRA
responded that only a small number of
securities trade without a CUSIP and
that, where a security is not identified
by a CUSIP, FINRA would work with
members to ensure effective and
efficient reporting.28
With regard to the expansion of
TRACE to include primary market
transactions, one commenter noted that
such expansion would impose
operational and compliance issues and
require firms to engage in extensive and
costly systems development.29
Consequently, the commenter urged
FINRA to provide up to 18 months from
the publication date of the technical
specifications to accommodate
necessary technical systems changes.30
The commenter further recommended a
phased-in compliance implementation
process, whereby the expanded
reporting requirements for transactions
in Agency Debt Securities be
implemented first, followed by
reporting in primary market transactions
for corporate bonds and primary market
transactions for Agency Debt Securities,
respectively.31 Another commenter
stated that 12 months would be needed
for systems development and testing
before the requirement for TRACE
reporting of Agency Debt Securities and
primary market transactions is
enforced.32
In response, FINRA recognized that
implementation of the proposal may
create short-term operational issues and
require a number of permanent
modifications to reporting and other
technology systems. FINRA stated that it
will work with members to address
issues and provide them sufficient
notice to modify their reporting
systems.33
One commenter raised the concern
that such expansion may cause
competitive disparities between FINRA
member firms, which are subject to
TRACE reporting, and bank government
26 See
FINRA Response, at 5.
FIF Letter, at 2–3.
28 See FINRA Response, at 6.
29 See CMG–SIFMA Letter, at 4.
30 See id., at 6–7.
31 See id., at 6.
32 See FIF Letter, at 3–4.
33 See FINRA Response, at 6.
27 See
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Federal Register / Vol. 74, No. 190 / Friday, October 2, 2009 / Notices
securities dealers, which are not.34
Further, the commenter asserted that
bank dealers would have an advantage
over FINRA members in competing for
the business of institutional investors
that wish to keep their trading activity
confidential.35 In response, FINRA
noted the statutory requirement that a
proposed rule not impose any burden
on competition not necessary or
appropriate in furtherance of the Act
and stated its belief that it is axiomatic
that increasing transparency in a
securities trading market appropriately
furthers the purposes of the Act.
Consequently, FINRA believes such
comments are without merit.36
Two commenters requested that
TRACE fees related to Agency Debt
Securities be reduced to the extent that
such fees are not necessary to cover
FINRA’s expenses in connection with
the collection and dissemination of
TRACE data.37 Another commenter
argued that charging a separate fee for
the use of Agency Debt Securities data
is unwarranted, and urged the
Commission to require FINRA to offer
data on corporate debt securities and
Agency Debt Securities as a single data
set, priced no higher than the current
rate for corporate bond data.38 FINRA
responded that it will undertake review
of the fee structure for Agency Debt
Securities after implementation of the
proposal, when FINRA can accurately
assess the trading volume and demand
for Agency Debt Securities data.39
Four commenters raised concerns
about trade modifications in TRACE.40
The commenters suggested that firms
acting in good faith should be able to
modify, cancel, or correct trade reports
without incurring fees or penalties and
that the TRACE platform be enhanced to
allow modifications to trades submitted,
rather than full re-submissions, which
could help eliminate duplicative
reporting.41 In response, FINRA asserted
that modifications of trade reports are
not relevant to the proposed rule
change, but that FINRA reviews
operational issues raised by firms on an
ongoing basis and will take the issue
under consideration.42 FINRA also
declined to address other commenters’
concerns that were outside the scope of
the proposal, including commenter
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34 See
CMG–SIFMA Letter, at 3.
id.
36 See FINRA Response, at 7.
37 See CMG–SIFMA Letter, at 4.
38 See RBDA Letter, at 4.
39 See FINRA Response, at 7.
40 See CMG–SIFMA Letter, at 5; RBDA Letter, at
4–5; Crews Letter, at 1–2; FIF Letter, at 2.
41 See CMG–SIFMA Letter, at 5.
42 See FINRA Response, at 6.
35 See
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16:40 Oct 01, 2009
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recommendations regarding
dissemination protocols.43
In Amendment No. 2, FINRA
proposed limited amendments to
various proposed reporting,
dissemination, and notification
provisions in the Rule 6700 series, and
to Rule 7730. FINRA further proposed to
add new Rule 6770 to provide
emergency authority to FINRA, in
consultation with the Commission, to
suspend reporting and/or dissemination
of certain transactions in TRACE–
Eligible Securities.
FINRA maintains that the proposed
amendments to the Rule 6700 series
address many of the substantive issues
raised by commenters.44 The proposed
amendments would extend the period to
report primary market transactions that
are List or Fixed Offering Price
Transactions or Takedown Transactions
to the close of the TRACE system on
T+1, and simplify the reporting of all
transactions by eliminating two of three
proposed indicators. In addition, the
proposed amendments would modify
Rule 6760, providing greater flexibility
to underwriters (or other persons
designated in the rule) that are required
to provide FINRA Operations notice and
are engaged in an offering that is priced
and commences between 9:30 a.m. and
4 p.m. ET. In conjunction with this
change, a member would be required to
indicate in its notice to FINRA
Operations the time that the new issue
is priced and, if different, the time that
primary transactions in the new issue
commence. FINRA also has proposed
certain other minor changes, including
non-substantive, clarifying, or
formatting changes to the Rule 6700
Series and Rule 7730.
Rule 6730
FINRA originally proposed that
primary market transactions that are List
or Fixed Offering Price Transactions or
Takedown Transactions be reported by
the end of the day on the day such
securities were priced, if the pricing
occurred by 5 p.m. In Amendment No.
2, FINRA is revising two provisions of
Rule 6730 regarding the reporting of
such transactions to address certain
concerns raised by the commenters.
Specifically, FINRA has proposed to
extend the reporting period by a full
day, requiring members to report List or
Fixed Offering Price Transactions and
Takedown Transactions not later than
T+1 during TRACE system hours, with
limited exceptions for transactions that
occur on weekends or holidays. For List
or Fixed Offering Price Transactions or
Rule 6760
In its original proposal, FINRA
proposed to amend the notice and
information reporting requirements in
Rule 6760. Specifically, a member
providing notice would be required to
include ‘‘the time the new issue is
priced.’’ Additionally, the original
proposal required that information be
provided ‘‘prior to the commencement
of primary market transactions.’’ In
Amendment No. 2, FINRA proposes to
43 See,
44 See
PO 00000
e.g., FINRA Response, at 3.
FINRA Response, at 8.
Takedown Transactions that are priced
on a Saturday, Sunday, or a federal or
religious holiday on which the TRACE
system is closed, Rule 6730(a)(5) as
revised by Amendment No. 2 would
require a member to report the
transaction the next business day at any
time during TRACE system hours.
Second, FINRA originally proposed
that members use one of three indicators
when reporting transactions in TRACEEligible Securities in proposed amended
Rule 6730(d)(4)(D). The purpose was to
distinguish between primary and
secondary market transactions, as
primary market transactions would be
reported for the first time, and to
distinguish List or Fixed Offering Price
Transactions and Takedown
Transactions from other primary market
transactions. Certain commenters raised
issues regarding the use of the three
proposed indicators.45
In Amendment No. 2, FINRA has
proposed to amend Rule 6730(d)(4)(D)
to eliminate the proposed indicators for
secondary market transactions and for
primary market transactions that are not
List or Fixed Offering Price Transactions
or Takedown Transactions. Rule
6730(d)(4)(D) would retain the
requirement that members use the
remaining proposed indicator when
reporting primary market transactions
that are List or Fixed Offering Price
Transactions and Takedown
Transactions. The remaining indicator
will enable FINRA to identify
transaction information received for
such transactions that will be
disseminated, which FINRA proposed
in the original rule filing. In addition,
FINRA will use the indicator for
surveillance purposes to determine if
members are properly categorizing
transactions as List or Fixed Offering
Price Transactions and Takedown
Transactions, and to determine if a
member is selecting the indicator
inappropriately to obtain the advantages
of more relaxed reporting requirements
or to avoid dissemination of selected
reported transactions.
Frm 00049
Fmt 4703
Sfmt 4703
45 See
CMG–SIFMA Letter, at 3; RBDA Letter, at
3.
E:\FR\FM\02OCN1.SGM
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Federal Register / Vol. 74, No. 190 / Friday, October 2, 2009 / Notices
amend the notification requirements for
new TRACE-Eligible Securities in Rule
6760 in response to comments. The
most significant amendment to Rule
6760, in Rule 6760(b), provides more
flexibility for underwriters (or other
designated persons) that are required to
give notice to FINRA Operations
regarding a new TRACE-Eligible
Security that is the subject of an offering
that is priced and commences on the
same business day between 9:30 a.m.
and 4 p.m. ET. The proposed
amendment would require the
underwriter (or other designated person)
to provide FINRA Operations as much
of the information required under the
rule that is available prior to the
execution of the first transaction in the
distribution or offering, and all other
information required under Rule 6760
within 15 minutes of the time of
execution of the first transaction in such
distribution or offering.46
FINRA also has proposed two
additional amendments to the member
notification requirements in Rule
6760(b). In response to comments
regarding the operational difficulties of
complying with TRACE requirements
for securities not having a CUSIP
number, FINRA proposes to amend Rule
6760(b) to permit the underwriter (or
another designated person) providing
the notice to submit, in lieu of a CUSIP,
‘‘a similar numeric identifier (or a
TRACE symbol, which is assigned by
FINRA upon request).’’ Also, FINRA
originally proposed that an underwriter
(or another designated person) notify
FINRA Operations of the time that a
new issue is priced. In Amendment No.
2, FINRA has proposed to add to such
requirement that a member provide the
time that the first transaction of the
distribution or offering of the new issue
is executed, if the time is different from
the time of pricing of the new issue. The
amended notification requirement
would enable FINRA to determine if
members comply with Rule 6760 to
provide notification when required.
FINRA believes that members’ timely
notification to FINRA Operations of new
TRACE-Eligible Securities that are about
to be offered plays a significant part of
the process of continuously updating
the TRACE system, and members that
fail to comply with Rule 6760 impair
the reporting of transactions by other
members and adversely affect price
transparency in the security during the
most active or one of the most active
trading periods in the security.
46 Rule 6760 does not apply to secondary
offerings or distributions.
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16:40 Oct 01, 2009
Jkt 220001
Proposed Rule 6770
In Amendment No. 2, FINRA
proposed new Rule 6770, which would
provide FINRA emergency authority to
suspend the reporting and/or
dissemination of certain transactions in
TRACE-Eligible Securities, or the
reporting of certain data elements that
are otherwise required under Rule 6730
and/or the dissemination of certain data
elements, as market conditions warrant
and for such period of time as FINRA
deems necessary. FINRA represented
that each action that FINRA might
consider under proposed Rule 6770
would be subject to review and
discussion with the Commission prior
to FINRA’s use of such authority.47
Although FINRA does not anticipate
that such emergency authority would be
used, FINRA believes it is prudent for
such authority to be in place.
Other Amendments
Finally, in Amendment No. 2, FINRA
proposed to incorporate nonsubstantive, technical, clarifying and
formatting amendments in the Rule
6700 series and Rule 7730.
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.48 In
particular, the Commission finds that
the proposed rule change is consistent
with Section 15A(b)(6) of the Act,49
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. Indeed, the Commission
believes that the proposal promotes the
goals of transparency, increased price
discovery, and debt market integrity
cited by several commenters.
In originally approving TRACE, the
Commission stated that price
transparency plays a fundamental role
in promoting fairness and efficiency of
U.S. capital markets and that market
surveillance was a fundamental means
of promoting fairness and confidence in
Amendment No. 2, at 6.
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).
49 15 U.S.C. 78o–3(b)(6).
50995
those markets.50 To further those goals,
the Commission believes that it is
reasonable and consistent with the Act
for FINRA to expand TRACE in the
manner set forth in the proposal.
Prior to TRACE’s implementation, the
NASD 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. Similarly, with
respect to the over-the-counter market
for Agency Debt Securities and for
primary market bond transactions,
FINRA currently does not possess the
comprehensive transaction information
that would help it carry out its statutory
duties to regulate the market. Expanding
TRACE to include Agency Debt
Securities and primary market
transactions will assist FINRA in
fulfilling its mandate in Section
15A(b)(6) of the Act 51 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.
Furthermore, the Commission
believes that the proposal is consistent
with Section 11A(a)(1)(C)(iii) of the
Act,52 in which Congress found that it
is in the public interest and appropriate
for the protection of investors and the
maintenance of fair and orderly markets
to assure the availability to brokers,
dealers, and investors of information
with respect to quotations and
transactions in securities. This proposal
furthers this goal by increasing the
amount of public information available
in the over-the-counter market for debt
securities. By increasing public
availability of information about
additional categories of debt, this
proposal is reasonably designed to
encourage greater participation in the
market by retail and institutional
investors, which should contribute to
deeper markets and increased
competition. Moreover, the additional
transaction data reported to TRACE will
allow FINRA to obtain a more complete
audit trail of transactions in the market
for TRACE-Eligible Securities. Although
the Commission acknowledges the
potential for firms covered by these new
reporting requirements to incur
additional compliance burdens and
costs, the Commission believes that any
such burdens are substantially
outweighed by the overall benefits of
increased transparency and access to
47 See
48 In
PO 00000
Frm 00050
Fmt 4703
Sfmt 4703
50 See Securities Exchange Act Release No. 43873
(January 23, 2001) 66 FR 8131, 8136 (January 29,
2001).
51 15 U.S.C. 78o–3(b)(6).
52 15 U.S.C. 78k–1(a)(1)(C)(iii).
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50996
Federal Register / Vol. 74, No. 190 / Friday, October 2, 2009 / Notices
more comprehensive trade information
in the fixed income markets.
The Commission further finds that the
proposed fees for: (1) Reporting of
Agency Debt Securities and primary
market transactions, (2) receipt of
market data for Agency Debt Securities
and primary market transactions, and
(3) subscribing to ‘‘Web Browser
Access’’ for TRACE reporting and/or
market data receipt are consistent with
Section 15A(b)(5) of the Act, 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.53 These fees are similar to
those that currently apply to corporate
debt securities.
V. Accelerated Approval
The Commission finds good cause,
pursuant to Section 19(b)(2) of the
Act,54 for approving the proposed rule
change, as modified by Amendment No.
2 thereto, prior to the 30th day after the
date of publication in the Federal
Register. The changes proposed in
Amendment No. 2 are minor and
technical in nature or designed to
respond to specific concerns raised by
commenters. With respect to the
proposed provision that would permit
FINRA to suspend TRACE reporting or
dissemination in certain emergency
circumstances, the Commission notes
that such authority could be exercised
only in consultation with the
Commission. Accordingly, the
Commission finds that good cause exists
to approve the proposal, as modified by
Amendment No. 2, on an accelerated
basis.
VI. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether Amendment No. 2 to
the proposed rule change is consistent
with the Act. Comments may be
submitted by any of the following
methods:
pwalker on DSK8KYBLC1PROD 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
Number SR–FINRA–2009–010 on the
subject line.
53 15
54 15
16:40 Oct 01, 2009
VII. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,55 that the
proposed rule change (SR–FINRA–
2009–010), as modified by Amendments
Nos. 1 and 2, be, and hereby is,
approved on an accelerated basis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.56
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–23729 Filed 10–1–09; 8:45 am]
[Public Notice 6778]
Culturally Significant Objects Imported
for Exhibition Determinations:
‘‘Rembrandt’s People’’
SUMMARY: Notice is hereby given of the
following determinations: Pursuant to
the authority vested in me by the Act of
October 19, 1965 (79 Stat. 985; 22 U.S.C.
2459), Executive Order 12047 of March
27, 1978, the Foreign Affairs Reform and
Restructuring Act of 1998 (112 Stat.
2681, et seq.; 22 U.S.C. 6501 note, et
seq.), Delegation of Authority No. 234 of
October 1, 1999, Delegation of Authority
No. 236 of October 19, 1999, as
amended, and Delegation of Authority
No. 257 of April 15, 2003 [68 FR 19875],
I hereby determine that the objects in
the exhibition: ‘‘Rembrandt’s People’’
imported from abroad for temporary
exhibition within the United States, are
of cultural significance. The objects are
imported pursuant to loan agreements
with the foreign owners or custodians.
I also determine that the exhibition or
display of the exhibit objects at the
Wadsworth Atheneum Museum of Art,
Hartford, CT, from on or about October
10, 2009, until on or about January 24,
2010, and at possible additional
exhibitions or venues yet to be
determined, is in the national interest.
Public Notice of these Determinations is
ordered to be published in the Federal
Register.
FOR FURTHER INFORMATION CONTACT: For
further information, including a list of
the exhibit objects, contact Julie
Simpson, Attorney-Adviser, Office of
the Legal Adviser, U.S. Department of
State (telephone: 202–632–6467). The
address is U.S. Department of State, L/
PD, SA–5, 2200 C Street, NW., Suite
5H03, Washington, DC 20522–0505.
Dated: September 28, 2009.
Maura M. Pally,
Deputy Assistant Secretary for Professional
and Cultural Exchanges, Bureau of
Educational and Cultural Affairs, Department
of State.
[FR Doc. E9–23813 Filed 10–1–09; 8:45 am]
BILLING CODE 4710–05–P
BILLING CODE 8011–01–P
56 17
Jkt 220001
DEPARTMENT OF STATE
• 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–2009–010. 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 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–
2009–010 and should be submitted on
or before October 23, 2009.
55 15
U.S.C. 78o–3(b)(5).
U.S.C. 78s(b)(2).
VerDate Nov<24>2008
Paper Comments
PO 00000
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
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]]>Agencies
[Federal Register Volume 74, Number 190 (Friday, October 2, 2009)]
[Notices]
[Pages 50991-50996]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-23729]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-60726; File No. SR-FINRA-2009-010]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of Amendment No. 2 and Order Granting
Accelerated Approval of a Proposed Rule Change, as Modified by
Amendment No. 2 Thereto, Expanding TRACE To Include Agency Debt
Securities and Primary Market Transactions
September 28, 2009.
I. Introduction
On March 18, 2009, the Financial Industry Regulatory Authority,
Inc. (``FINRA'') (f/k/a National Association of Securities Dealers,
Inc. (``NASD'')) filed with the Securities and Exchange Commission
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the ``Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to expand TRACE to include Agency
Debt Securities and primary market transactions. On April 8, 2009,
FINRA filed Amendment No. 1 to the proposal.\3\ The proposed rule
change, as amended, was published for comment in the Federal Register
on April 16, 2009.\4\ The Commission received eight comment letters in
response to the proposed rule change.\5\ On August 26, 2009, FINRA
responded to the comment letters \6\ and filed Amendment No. 2 to the
proposed rule change.\7\ The Commission is publishing this notice and
order to solicit comments on Amendment No. 2 and to approve the
proposed rule change, as modified by Amendment No. 2, on an accelerated
basis.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Amendment No. 1 was a partial amendment that: (1) Revised
the description of the proposal to accurately reflect the proposed
rule text; (2) amended the definition of ``TRACE-Eligible Security''
to remove a parenthetical that was inadvertently included in the
original proposal; and (3) made minor technical edits to the
purposed rule text.
\4\ Securities Exchange Act Release No. 59733 (April 8, 2009),
74 FR 17709 (``Notice'').
\5\ See infra note 12.
\6\ See letter from Sharon Zackula, Associate Vice President and
Associate General Counsel, FINRA, to Elizabeth M. Murphy, Secretary,
Commission, dated August 26, 2009 (``FINRA Response'').
\7\ See infra Section III.
---------------------------------------------------------------------------
II. Description of the Proposal
Currently, FINRA utilizes the Trade Reporting and Compliance Engine
(``TRACE'') to collect and disseminate information on secondary over-
the-
[[Page 50992]]
counter transactions in corporate debt securities. FINRA has proposed
to extend TRACE to include most primary market transactions as well as
transactions in debt securities that are issued or guaranteed by a
government-sponsored enterprise or U.S. government agency (``Agency
Debt Securities''). Specifically, the proposed rule change would:
(1) In Rule 6710, amend the defined terms (a) ``TRACE-Eligible
Security'' to include Agency Debt Securities; (b) ``Reportable TRACE
Transaction'' to include primary market transactions; and (c)
``Investment Grade'' and ``Non-Investment Grade'' to classify unrated
Agency Debt Securities as investment grade securities for purposes of
the dissemination provisions of the TRACE rules;
(2) amend Rule 6710(a), to require members to provide FINRA certain
information regarding debt securities that are not assigned CUSIPs, but
otherwise meet TRACE eligibility standards;
(3) in Rule 6710, delete the definition of ``Money Market
Instrument'' embedded in the term ``TRACE-Eligible Security'' and add
it as a separately defined term in new proposed Rule 6710(o);
(4) in Rule 6710, add the defined terms, ``Agency,'' ``Agency Debt
Security,'' ``Asset-Backed Security,'' ``Government-Sponsored
Enterprise,'' ``Money Market Instrument,'' ``U.S. Treasury Security,''
``List or Fixed Offering Price Transaction,'' and ``Takedown
Transaction;''
(5) in Rule 6710, make certain technical changes to a number of the
defined terms;
(6) in Rule 6730, establish reporting requirements for primary
market transactions that are List or Fixed Offering Price Transactions
\8\ or Takedown Transactions; \9\
---------------------------------------------------------------------------
\8\ The term ``List or Fixed Offering Price Transaction'' means
a primary market sale transaction sold on the first day of trading
of a new issue: (i) by a sole underwriting, syndicate manager,
syndicate member or selling group member at the published or stated
list or fixed offering price, or (ii) in the case of a primary
market sale transaction effected pursuant to Securities Act Rule
144A, by an initial purchaser, syndicate manager, syndicate member
or selling group member at the published or stated fixed offering
price. See proposed FINRA Rule 6710(q).
\9\ The term ``Takedown Transaction'' means a primary market
sale transaction sold on the first day of trading of a new issue:
(i) by a sole underwriter or syndicate manager to a syndicate or
selling group member at a discount from the published or stated list
or fixed offering price, or (ii) in the case of a primary market
sale transaction effected pursuant to Securities Act Rule 144A, by
an initial purchaser or syndicate manager to a syndicate or selling
group member at a discount from the published or stated fixed
offering price. See proposed FINRA Rule 6710(r).
---------------------------------------------------------------------------
(7) in Rule 6750, provide that transaction information for List or
Fixed Offering Price Transactions and Takedown Transactions will not be
disseminated. FINRA has represented that it will study the reported
data for these primary market transactions for a period of time after
reporting begins and, at a later date, determine if dissemination of
the information is appropriate and, if appropriate, develop a
dissemination strategy;
(8) in Rule 6760, amend the requirements for members to provide
FINRA with notice of and information about new issuances of TRACE-
Eligible Securities to facilitate timely reporting of such securities
in both primary and secondary market transactions;
(9) establish new Rule 6770, which would provide FINRA emergency
authority, to be exercised in consultation with the Commission, that
would permit FINRA to suspend the reporting and/or dissemination of
certain transactions in TRACE-Eligible Securities, or the reporting of
certain data elements that are otherwise required under Rule 6730 and/
or the dissemination of certain data elements as market conditions
warrant and for such period of time as FINRA deemed necessary; \10\
---------------------------------------------------------------------------
\10\ See Amendment No. 2, infra Section III.
---------------------------------------------------------------------------
(10) in Rule 7730, establish reporting and market data fees for
Agency Debt Securities and primary market transactions generally at the
same rates in effect for corporate bonds; \11\ and
---------------------------------------------------------------------------
\11\ Under the proposal, for fee purposes, FINRA will
distinguish TRACE transaction data as two data sets: one comprised
of corporate bond transaction information and the other comprised of
Agency Debt Security transaction information. The fee schedule set
forth in FINRA Rule 7730 would apply to Agency Debt Securities and
primary market transactions. Additionally, FINRA has proposed to
amend the fees for ``Web Browser Access,'' which would vary
depending on factors such as the number of users and whether the
user(s) would have access to one or both data sets.
---------------------------------------------------------------------------
(11) amend various rules in the FINRA Rule 6700 and 7730 series to
reflect minor technical, stylistic, or confirming changes.
In its filing with the Commission, FINRA acknowledged that its
proposal to extend TRACE reporting to include Agency Debt Securities
may result in certain trading desks having to report transactions to
TRACE for the first time. Consequently, FINRA represented that it would
continue to work with members and third-party vendors to ensure
effective and efficient implementation. FINRA further stated that it
will announce the effective date of the proposed rule change in a
Regulatory Notice to be published no later than 60 days following
Commission approval. According to FINRA, the effective date will be no
later than 180 days following publication of the Regulatory Notice
announcing Commission approval.
III. Summary of Comments and Amendment No. 2
The Commission received eight comments on the proposed rule
change.\12\ Four commenters expressed strong support for the
proposal.\13\ Two other commenters were not opposed to FINRA's
proposal, but raised concerns regarding operation and
implementation.\14\
---------------------------------------------------------------------------
\12\ See letter from Robert F. Anderson, Senior Managing
Director, Fixed Income Trading, dated April 17, 2009 (``Anderson
Letter''); letter from Beth N. Lowson, The Nelson Law Firm, LLC,
dated May 5, 2009 (``Nelson Letter''); letter from Manisha Kimmel,
Executive Director, Financial Information Forum, dated May 7, 2009
(``FIF Letter''); letter from Heather Traeger, Associate Counsel,
Investment Company Institute, dated May 7, 2009 (``ICI Letter'');
letter from Joseph W. Sack, Managing Director, Asset Management
Group, Securities Industry and Financial Markets Association, dated
May 7, 2009 (``AMG-SIFMA Letter''); letter from Sean C. Davy,
Managing Director and Robert Toomey, Managing Director, and
Associate General Counsel, Capital Markets Group of Securities
Industry and Financial Markets Association, dated May 7, 2009
(``CMG-SIFMA Letter''); letter from Michael Decker and Mike
Nicholas, Co-Chief Executive Officers, Regional Bond Dealers
Association, dated May 7, 2009 (``RBDA Letter''); letter from Don
Winton, Crews & Associates, Inc., dated May 22, 2009 (Crews
Letter'') (collectively, the ``Comment Letters'').
\13\ See Anderson Letter (supporting FINRA's overall goal of
improving bond market transparency); Nelson Letter (supporting the
proposal because it provides for increased price transparency in the
market by broadening the range of securities trades that must be
reported and disseminated); AMG-SIFMA Letter (arguing that real-time
prices would be helpful to large asset management firms with respect
to trading activities, portfolio management, and valuation
activities); ICI Letter (citing the benefits to investors in bonds
and noting that transparency helps to improve price discovery and
ensure the integrity of the debt markets).
\14\ See Crews Letter; FIF Letter.
---------------------------------------------------------------------------
Two commenters indicated support for more transparency in the fixed
income markets, but opposed the proposed rule change.\15\ Both
commenters believed that the market in Agency Debt Securities is highly
liquid and questioned the need for expanding TRACE to cover it.\16\ One
of the commenters stated that any expansion of TRACE to include Agency
Debt Securities or primary market transactions would impose significant
costs on firms that engage in such transactions.\17\
---------------------------------------------------------------------------
\15\ See CMG-SIFMA Letter; RBDA Letter.
\16\ See CMG-SIFMA Letter, at 1-2; RBDA Letter, at 2.
\17\ See CMG-SIFMA Letter, at 1.
---------------------------------------------------------------------------
FINRA responded that, although multiple vendors provide data on
Agency Debt Securities, there is no centralized public dissemination of
[[Page 50993]]
information regarding transactions in Agency Debt Securities. FINRA
noted that the pre-trade information available is generally indicative,
while post-trade information--whether via a subscriber service or at a
publicly accessible Web site--is not available at all. FINRA concluded
that ``[t]he expansion of TRACE will create consolidated post-trade
transparency in Agency Debt Securities, and the dissemination of
transaction information will assist in price discovery and valuation
processes for all market participants and provide retail investors
access to price information current not readily available to non-
professionals.''\18\
---------------------------------------------------------------------------
\18\ FINRA Response, at 3.
---------------------------------------------------------------------------
Three commenters requested that the distinction between primary and
secondary transactions be clarified for reporting purposes.\19\ In its
original filing, FINRA proposed that member use one of three indicators
when reporting transactions to distinguish between primary and
secondary transactions, and to further distinguish List or Fixed
Offering Price Transactions and Takedown Transactions from other
primary market transactions. In response, FINRA revised Rule
6730(d)(4)(D) to eliminate the proposed indicators for secondary market
and primary market transactions that are not List or Fixed Offering
Price Transactions or Takedown Transactions. The rule would retain the
requirement that members use the remaining proposed indicator when
reporting primary market transactions that are List or Fixed Offering
Price Transactions and Takedown transactions.\20\ One commenter
suggested that that the definition of List or Fixed Offering Price
Transaction and Takedown Transaction be amended for reporting purposes
to include primary market transactions that are executed after the day
of pricing, but would otherwise qualify as a List or Fixed Offering
Price Transaction or Takedown Transaction. FINRA responded that it did
not believe that the definition should be amended but, rather proposed
to amend the deadline for reporting all List or Fixed Offering Price
Transactions or Takedown Transactions to no later than T+1 during TRACE
system hours. By extending the reporting period to T+1, FINRA would
eliminate the distinction between a transaction executed in connection
with an offering priced before 5 p.m. ET and a transaction executed as
part of an offering priced on the same day but after 5 p.m. ET when the
TRACE system is closed. FINRA believes this change will address
operational concerns without negatively impacting regulatory
surveillance or market transparency.\21\
---------------------------------------------------------------------------
\19\ See CMG-SIFMA Letter, at 5; RBDA Letter, at 3; FIF Letter,
at 3.
\20\ See FINRA Response, at 5.
\21\ See id.
---------------------------------------------------------------------------
One commenter also raised a compliance concern with regard to
reverse inquiries.\22\ The commenter argued that complying with the
proposed requirement to notify FINRA about new issues ``prior to the
commencement of primary market transactions'' would be impossible in
the case of a reverse inquiry, because the new issue materializes and
the primary market transaction takes place precisely upon the agreement
of the issuer to sell bonds at the terms proposed by the investor.
Accordingly, the commenter recommended that FINRA amend Rule 6760 so
that underwriting broker-dealers would be required to notify FINRA
within 15 minutes of commencement of primary market trading after the
underwriting of the new issue, in the instances where it is not
possible to do so prior to the commencement of primary market
transactions.\23\
---------------------------------------------------------------------------
\22\ See RBDA Letter, at 2-3. In a reverse inquiry, investors or
dealers determine an amount and type of bond that they wish to
purchase and approach the issuer with a request to buy debt
securities with those features at a particular price. If the issuer
agrees, the bonds are issued and purchased.
\23\ See RBDA Letter, at 3.
---------------------------------------------------------------------------
In response, FINRA proposed to amend Rule 6760 so that if a member
is involved in an intraday offering that is priced and commences
between 9:30 a.m. and 4 p.m. ET, the member would be permitted to
provide FINRA Operations the required information available prior to
the execution of the first transaction in the distribution or offering.
All other information required under the rule would have to be provided
within 15 minutes of the time of execution of the first transaction in
such distribution or offering.\24\
---------------------------------------------------------------------------
\24\ See FINRA Response, at 5.
---------------------------------------------------------------------------
Two commenters stated that firms should be permitted to rely on the
TRACE Issue Master to determine if a security is TRACE-eligible.\25\
FINRA responded that it has often stated that it a firm's obligation
under Rule 6730 is to report transactions in securities that meet the
definition of TRACE-Eligible Security. FINRA further stated that if a
firm has a reporting obligation under Rule 6730 in a security that is a
TRACE-Eligible Security but is not included in the TRACE Issue Master,
the firm must notify FINRA immediately and provide the CUSIP and other
information necessary for FINRA to update the TRACE Issue Master,
allowing the firm to report its transaction to TRACE promptly and
comply with its obligations under FINRA Rule 6730.\26\ Additionally,
one commenter objected to including securities without a CUSIP as
TRACE-eligible due increased costs and potential reporting errors, and
questioned whether incorporating such securities into TRACE would
contribute to meaningful price discovery.\27\ FINRA responded that only
a small number of securities trade without a CUSIP and that, where a
security is not identified by a CUSIP, FINRA would work with members to
ensure effective and efficient reporting.\28\
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\25\ See CMG-SIFMA Letter, at 4; FIF Letter, at 1.
\26\ See FINRA Response, at 5.
\27\ See FIF Letter, at 2-3.
\28\ See FINRA Response, at 6.
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With regard to the expansion of TRACE to include primary market
transactions, one commenter noted that such expansion would impose
operational and compliance issues and require firms to engage in
extensive and costly systems development.\29\ Consequently, the
commenter urged FINRA to provide up to 18 months from the publication
date of the technical specifications to accommodate necessary technical
systems changes.\30\ The commenter further recommended a phased-in
compliance implementation process, whereby the expanded reporting
requirements for transactions in Agency Debt Securities be implemented
first, followed by reporting in primary market transactions for
corporate bonds and primary market transactions for Agency Debt
Securities, respectively.\31\ Another commenter stated that 12 months
would be needed for systems development and testing before the
requirement for TRACE reporting of Agency Debt Securities and primary
market transactions is enforced.\32\
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\29\ See CMG-SIFMA Letter, at 4.
\30\ See id., at 6-7.
\31\ See id., at 6.
\32\ See FIF Letter, at 3-4.
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In response, FINRA recognized that implementation of the proposal
may create short-term operational issues and require a number of
permanent modifications to reporting and other technology systems.
FINRA stated that it will work with members to address issues and
provide them sufficient notice to modify their reporting systems.\33\
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\33\ See FINRA Response, at 6.
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One commenter raised the concern that such expansion may cause
competitive disparities between FINRA member firms, which are subject
to TRACE reporting, and bank government
[[Page 50994]]
securities dealers, which are not.\34\ Further, the commenter asserted
that bank dealers would have an advantage over FINRA members in
competing for the business of institutional investors that wish to keep
their trading activity confidential.\35\ In response, FINRA noted the
statutory requirement that a proposed rule not impose any burden on
competition not necessary or appropriate in furtherance of the Act and
stated its belief that it is axiomatic that increasing transparency in
a securities trading market appropriately furthers the purposes of the
Act. Consequently, FINRA believes such comments are without merit.\36\
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\34\ See CMG-SIFMA Letter, at 3.
\35\ See id.
\36\ See FINRA Response, at 7.
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Two commenters requested that TRACE fees related to Agency Debt
Securities be reduced to the extent that such fees are not necessary to
cover FINRA's expenses in connection with the collection and
dissemination of TRACE data.\37\ Another commenter argued that charging
a separate fee for the use of Agency Debt Securities data is
unwarranted, and urged the Commission to require FINRA to offer data on
corporate debt securities and Agency Debt Securities as a single data
set, priced no higher than the current rate for corporate bond
data.\38\ FINRA responded that it will undertake review of the fee
structure for Agency Debt Securities after implementation of the
proposal, when FINRA can accurately assess the trading volume and
demand for Agency Debt Securities data.\39\
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\37\ See CMG-SIFMA Letter, at 4.
\38\ See RBDA Letter, at 4.
\39\ See FINRA Response, at 7.
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Four commenters raised concerns about trade modifications in
TRACE.\40\ The commenters suggested that firms acting in good faith
should be able to modify, cancel, or correct trade reports without
incurring fees or penalties and that the TRACE platform be enhanced to
allow modifications to trades submitted, rather than full re-
submissions, which could help eliminate duplicative reporting.\41\ In
response, FINRA asserted that modifications of trade reports are not
relevant to the proposed rule change, but that FINRA reviews
operational issues raised by firms on an ongoing basis and will take
the issue under consideration.\42\ FINRA also declined to address other
commenters' concerns that were outside the scope of the proposal,
including commenter recommendations regarding dissemination
protocols.\43\
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\40\ See CMG-SIFMA Letter, at 5; RBDA Letter, at 4-5; Crews
Letter, at 1-2; FIF Letter, at 2.
\41\ See CMG-SIFMA Letter, at 5.
\42\ See FINRA Response, at 6.
\43\ See, e.g., FINRA Response, at 3.
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In Amendment No. 2, FINRA proposed limited amendments to various
proposed reporting, dissemination, and notification provisions in the
Rule 6700 series, and to Rule 7730. FINRA further proposed to add new
Rule 6770 to provide emergency authority to FINRA, in consultation with
the Commission, to suspend reporting and/or dissemination of certain
transactions in TRACE-Eligible Securities.
FINRA maintains that the proposed amendments to the Rule 6700
series address many of the substantive issues raised by commenters.\44\
The proposed amendments would extend the period to report primary
market transactions that are List or Fixed Offering Price Transactions
or Takedown Transactions to the close of the TRACE system on T+1, and
simplify the reporting of all transactions by eliminating two of three
proposed indicators. In addition, the proposed amendments would modify
Rule 6760, providing greater flexibility to underwriters (or other
persons designated in the rule) that are required to provide FINRA
Operations notice and are engaged in an offering that is priced and
commences between 9:30 a.m. and 4 p.m. ET. In conjunction with this
change, a member would be required to indicate in its notice to FINRA
Operations the time that the new issue is priced and, if different, the
time that primary transactions in the new issue commence. FINRA also
has proposed certain other minor changes, including non-substantive,
clarifying, or formatting changes to the Rule 6700 Series and Rule
7730.
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\44\ See FINRA Response, at 8.
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Rule 6730
FINRA originally proposed that primary market transactions that are
List or Fixed Offering Price Transactions or Takedown Transactions be
reported by the end of the day on the day such securities were priced,
if the pricing occurred by 5 p.m. In Amendment No. 2, FINRA is revising
two provisions of Rule 6730 regarding the reporting of such
transactions to address certain concerns raised by the commenters.
Specifically, FINRA has proposed to extend the reporting period by a
full day, requiring members to report List or Fixed Offering Price
Transactions and Takedown Transactions not later than T+1 during TRACE
system hours, with limited exceptions for transactions that occur on
weekends or holidays. For List or Fixed Offering Price Transactions or
Takedown Transactions that are priced on a Saturday, Sunday, or a
federal or religious holiday on which the TRACE system is closed, Rule
6730(a)(5) as revised by Amendment No. 2 would require a member to
report the transaction the next business day at any time during TRACE
system hours.
Second, FINRA originally proposed that members use one of three
indicators when reporting transactions in TRACE-Eligible Securities in
proposed amended Rule 6730(d)(4)(D). The purpose was to distinguish
between primary and secondary market transactions, as primary market
transactions would be reported for the first time, and to distinguish
List or Fixed Offering Price Transactions and Takedown Transactions
from other primary market transactions. Certain commenters raised
issues regarding the use of the three proposed indicators.\45\
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\45\ See CMG-SIFMA Letter, at 3; RBDA Letter, at 3.
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In Amendment No. 2, FINRA has proposed to amend Rule 6730(d)(4)(D)
to eliminate the proposed indicators for secondary market transactions
and for primary market transactions that are not List or Fixed Offering
Price Transactions or Takedown Transactions. Rule 6730(d)(4)(D) would
retain the requirement that members use the remaining proposed
indicator when reporting primary market transactions that are List or
Fixed Offering Price Transactions and Takedown Transactions. The
remaining indicator will enable FINRA to identify transaction
information received for such transactions that will be disseminated,
which FINRA proposed in the original rule filing. In addition, FINRA
will use the indicator for surveillance purposes to determine if
members are properly categorizing transactions as List or Fixed
Offering Price Transactions and Takedown Transactions, and to determine
if a member is selecting the indicator inappropriately to obtain the
advantages of more relaxed reporting requirements or to avoid
dissemination of selected reported transactions.
Rule 6760
In its original proposal, FINRA proposed to amend the notice and
information reporting requirements in Rule 6760. Specifically, a member
providing notice would be required to include ``the time the new issue
is priced.'' Additionally, the original proposal required that
information be provided ``prior to the commencement of primary market
transactions.'' In Amendment No. 2, FINRA proposes to
[[Page 50995]]
amend the notification requirements for new TRACE-Eligible Securities
in Rule 6760 in response to comments. The most significant amendment to
Rule 6760, in Rule 6760(b), provides more flexibility for underwriters
(or other designated persons) that are required to give notice to FINRA
Operations regarding a new TRACE-Eligible Security that is the subject
of an offering that is priced and commences on the same business day
between 9:30 a.m. and 4 p.m. ET. The proposed amendment would require
the underwriter (or other designated person) to provide FINRA
Operations as much of the information required under the rule that is
available prior to the execution of the first transaction in the
distribution or offering, and all other information required under Rule
6760 within 15 minutes of the time of execution of the first
transaction in such distribution or offering.\46\
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\46\ Rule 6760 does not apply to secondary offerings or
distributions.
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FINRA also has proposed two additional amendments to the member
notification requirements in Rule 6760(b). In response to comments
regarding the operational difficulties of complying with TRACE
requirements for securities not having a CUSIP number, FINRA proposes
to amend Rule 6760(b) to permit the underwriter (or another designated
person) providing the notice to submit, in lieu of a CUSIP, ``a similar
numeric identifier (or a TRACE symbol, which is assigned by FINRA upon
request).'' Also, FINRA originally proposed that an underwriter (or
another designated person) notify FINRA Operations of the time that a
new issue is priced. In Amendment No. 2, FINRA has proposed to add to
such requirement that a member provide the time that the first
transaction of the distribution or offering of the new issue is
executed, if the time is different from the time of pricing of the new
issue. The amended notification requirement would enable FINRA to
determine if members comply with Rule 6760 to provide notification when
required. FINRA believes that members' timely notification to FINRA
Operations of new TRACE-Eligible Securities that are about to be
offered plays a significant part of the process of continuously
updating the TRACE system, and members that fail to comply with Rule
6760 impair the reporting of transactions by other members and
adversely affect price transparency in the security during the most
active or one of the most active trading periods in the security.
Proposed Rule 6770
In Amendment No. 2, FINRA proposed new Rule 6770, which would
provide FINRA emergency authority to suspend the reporting and/or
dissemination of certain transactions in TRACE-Eligible Securities, or
the reporting of certain data elements that are otherwise required
under Rule 6730 and/or the dissemination of certain data elements, as
market conditions warrant and for such period of time as FINRA deems
necessary. FINRA represented that each action that FINRA might consider
under proposed Rule 6770 would be subject to review and discussion with
the Commission prior to FINRA's use of such authority.\47\ Although
FINRA does not anticipate that such emergency authority would be used,
FINRA believes it is prudent for such authority to be in place.
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\47\ See Amendment No. 2, at 6.
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Other Amendments
Finally, in Amendment No. 2, FINRA proposed to incorporate non-
substantive, technical, clarifying and formatting amendments in the
Rule 6700 series and Rule 7730.
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.\48\ In particular, the Commission finds that the proposed
rule change is consistent with Section 15A(b)(6) of the Act,\49\ 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. Indeed, the Commission believes that the proposal promotes
the goals of transparency, increased price discovery, and debt market
integrity cited by several commenters.
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\48\ 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).
\49\ 15 U.S.C. 78o-3(b)(6).
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In originally approving TRACE, the Commission stated that price
transparency plays a fundamental role in promoting fairness and
efficiency of U.S. capital markets and that market surveillance was a
fundamental means of promoting fairness and confidence in those
markets.\50\ To further those goals, the Commission believes that it is
reasonable and consistent with the Act for FINRA to expand TRACE in the
manner set forth in the proposal.
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\50\ See Securities Exchange Act Release No. 43873 (January 23,
2001) 66 FR 8131, 8136 (January 29, 2001).
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Prior to TRACE's implementation, the NASD 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. Similarly, with respect to
the over-the-counter market for Agency Debt Securities and for primary
market bond transactions, FINRA currently does not possess the
comprehensive transaction information that would help it carry out its
statutory duties to regulate the market. Expanding TRACE to include
Agency Debt Securities and primary market transactions will assist
FINRA in fulfilling its mandate in Section 15A(b)(6) of the Act \51\ 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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\51\ 15 U.S.C. 78o-3(b)(6).
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Furthermore, the Commission believes that the proposal is
consistent with Section 11A(a)(1)(C)(iii) of the Act,\52\ in which
Congress found that it is in the public interest and appropriate for
the protection of investors and the maintenance of fair and orderly
markets to assure the availability to brokers, dealers, and investors
of information with respect to quotations and transactions in
securities. This proposal furthers this goal by increasing the amount
of public information available in the over-the-counter market for debt
securities. By increasing public availability of information about
additional categories of debt, this proposal is reasonably designed to
encourage greater participation in the market by retail and
institutional investors, which should contribute to deeper markets and
increased competition. Moreover, the additional transaction data
reported to TRACE will allow FINRA to obtain a more complete audit
trail of transactions in the market for TRACE-Eligible Securities.
Although the Commission acknowledges the potential for firms covered by
these new reporting requirements to incur additional compliance burdens
and costs, the Commission believes that any such burdens are
substantially outweighed by the overall benefits of increased
transparency and access to
[[Page 50996]]
more comprehensive trade information in the fixed income markets.
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\52\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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The Commission further finds that the proposed fees for: (1)
Reporting of Agency Debt Securities and primary market transactions,
(2) receipt of market data for Agency Debt Securities and primary
market transactions, and (3) subscribing to ``Web Browser Access'' for
TRACE reporting and/or market data receipt are consistent with Section
15A(b)(5) of the Act, 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.\53\ These fees are
similar to those that currently apply to corporate debt securities.
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\53\ 15 U.S.C. 78o-3(b)(5).
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V. Accelerated Approval
The Commission finds good cause, pursuant to Section 19(b)(2) of
the Act,\54\ for approving the proposed rule change, as modified by
Amendment No. 2 thereto, prior to the 30th day after the date of
publication in the Federal Register. The changes proposed in Amendment
No. 2 are minor and technical in nature or designed to respond to
specific concerns raised by commenters. With respect to the proposed
provision that would permit FINRA to suspend TRACE reporting or
dissemination in certain emergency circumstances, the Commission notes
that such authority could be exercised only in consultation with the
Commission. Accordingly, the Commission finds that good cause exists to
approve the proposal, as modified by Amendment No. 2, on an accelerated
basis.
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\54\ 15 U.S.C. 78s(b)(2).
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VI. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether Amendment No. 2
to 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 (https://www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-FINRA-2009-010 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-2009-010. 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 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-2009-010 and should be
submitted on or before October 23, 2009.
VII. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\55\ that the proposed rule change (SR-FINRA-2009-010), as modified
by Amendments Nos. 1 and 2, be, and hereby is, approved on an
accelerated basis.
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\55\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\56\
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\56\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-23729 Filed 10-1-09; 8:45 am]
BILLING CODE 8011-01-P
