Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of Proposed Rule Change Relating To Post-Trade Transparency for Agency Pass-Through Mortgage-Backed Securities Traded TBA, 76777-76781 [2011-31524]
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For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
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[FR Doc. 2011–31473 Filed 12–7–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–65877; File No. SR–FINRA–
2011–069]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing of
Proposed Rule Change Relating To
Post-Trade Transparency for Agency
Pass-Through Mortgage-Backed
Securities Traded TBA
December 2, 2011.
mstockstill on DSK4VPTVN1PROD with NOTICES
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 1 and Rule 19b-4 thereunder,2
notice is hereby given that, on
November 22, 2011, the Financial
Industry Regulatory Authority, Inc.
(‘‘FINRA’’) filed with the Securities and
Exchange Commission (the
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by FINRA. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
FINRA is proposing to amend FINRA
Rule 6730 to reduce the period to report
TRACE–Eligible Asset-Backed
14 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Securities that are Agency Pass-Through
Mortgage-Backed Securities traded to be
announced (‘‘TBA’’) (‘‘TBA
transactions’’) in two stages; FINRA
Rule 6750, to provide for the
dissemination of TBA transactions;
FINRA Rule 7730, to establish fees for
real-time TBA transaction data and
historical TBA transaction data; and
FINRA Rule 6730 and FINRA Rule 7730,
to delete references to a pilot program
that is no longer in effect and to
incorporate other minor administrative,
technical or clarifying changes. FINRA
also proposes to establish a
dissemination protocol providing that,
for a TBA transaction in excess of $50
million, the size (volume) of the
transaction would be displayed in
disseminated TRACE data as $50
million plus.
The text of the proposed rule change
is available on FINRA’s Web site at
https://www.finra.org, at the principal
office of FINRA and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
FINRA included statements concerning
the purpose of and basis for the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. FINRA has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
FINRA proposes amendments to the
Rule 6700 Series (the Trade Reporting
and Compliance Engine (‘‘TRACE’’)
rules) to provide greater transparency in
transactions in Asset-Backed Securities
that are TBA transactions.3 First, FINRA
proposes to amend Rule 6730 to reduce
the reporting period for TBA
transactions in two phases. Second,
FINRA proposes to amend Rule 6750 to
provide for the dissemination of
information on TBA transactions in realtime (i.e., immediately upon FINRA’s
receipt of the transaction report). Third,
in Rule 7730, FINRA proposes to
3 A TBA transaction is a transaction in a specific
type of Asset-Backed Security, an Agency PassThrough Mortgage-Backed Security as defined in
Rule 6710(v), traded ‘‘to be announced’’ as defined
in Rule 6710(u).
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establish fees: (i) For a data set of realtime TRACE disseminated TBA
transaction data at the same rates
currently in effect for similar real-time
TRACE disseminated data sets, and (ii)
for a data set of historic TRACE TBA
transaction data at the same rates
currently in effect for similar Historic
TRACE Data sets.4 FINRA also proposes
to delete references to a pilot program
that is no longer in effect and make
other minor technical, administrative or
clarifying amendments to Rule 6730 and
Rule 7730. Finally, FINRA proposes to
establish a limit or ‘‘cap’’ of $50 million
for disseminated TBA transactions as
part of FINRA’s dissemination policies
and protocols, so that the actual size of
a TBA transaction in excess of $50
million would be displayed as
‘‘$50MM+’’ in disseminated TRACE
data.
TBA Transactions
As defined in Rule 6710(v), an
Agency Pass-Through Mortgage-Backed
Security means:
a mortgage-backed security issued by an
Agency or a Government-Sponsored
Enterprise, for which the timely payment of
principal and interest is guaranteed by an
Agency or a Government-Sponsored
Enterprise, representing ownership interests
in a pool or pools of residential mortgage
loans with the security structured to ‘‘pass
through’’ the principal and interest payments
made by the mortgagees to the owners of the
pool(s) on a pro rata basis.5
As provided in Rule 6710(u), TBA
means:
‘‘to be announced’’ and refers to a
transaction in an Agency Pass-Through
Mortgage-Backed Security * * * where the
parties agree that the seller will deliver to the
buyer an Agency Pass-Through MortgageBacked Security of a specified face amount
and coupon from a specified Agency or
Government-Sponsored Enterprise program
representing a pool (or pools) of mortgages
(that are not specified by unique pool
number).
In a TBA transaction, the parties agree
on a price for delivering a given volume
of Agency Pass-Through MortgageBacked Securities at a specified future
date. The distinguishing feature of a
TBA transaction is that the actual
identity of the securities to be delivered
at settlement is not specified on the date
of execution (‘‘Trade Date’’). Instead, the
parties to the trade agree on only five
general parameters of the securities to
be delivered: issuer, mortgage type,
maturity, coupon, and month of
4 The term Historic TRACE Data is defined in
Rule 7730(f)(4).
5 The terms Agency and Government-Sponsored
Enterprise (GSE) are defined in, respectively, Rule
6710(k) and Rule 6710(n).
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settlement. Together, the securitization
process and the TBA market transform
what is a fundamentally heterogeneous
universe of individual mortgages and
mortgage pools (with myriad credit and
prepayment characteristics) into groups
of fungible—and therefore liquid—
fixed-income instruments.6
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Reduction of TBA Transaction
Reporting Period
Currently, Asset-Backed Securities
transactions (except certain pre-issuance
transactions in collateralized mortgage
obligations (‘‘CMOs’’) and real estate
mortgage investment conduits
(‘‘REMICs’’)) that are executed on a
business day through 5 p.m. Eastern
Time must be reported to TRACE on the
Trade Date during TRACE System
Hours, as provided in Rule
6730(a)(3)(A)(ii).7 In contrast, secondary
market transactions in all other TRACE–
Eligible Securities must be reported
within 15 minutes of the Time of
Execution.8 With certain exceptions,
transaction information on such
TRACE–Eligible Securities is
disseminated as soon as the transaction
is reported, and the 15-minute reporting
requirement results in meaningful price
transparency for market participants
trading such securities.9
In connection with proposing that
TBA transactions be disseminated realtime to the public and the market,
FINRA proposes to reduce the reporting
period for TBA transactions to 15
minutes to provide market participants
meaningful and timely price
information.
However, reduction of the reporting
period for TBA transactions would
occur in two stages to permit industry
participants to adjust policies and
procedures, and to make required
technological changes. First, for a pilot
program of approximately 180 days
duration, FINRA proposes to reduce the
reporting period for TBA transactions
from no later than the close of the
TRACE system on Trade Date to no later
than 45 minutes from the Time of
Execution (‘‘TBA Transaction Pilot
Program’’), as set forth in proposed Rule
6730(a)(3)(D)(i).10 Minor exceptions to
the general requirements are set forth in
proposed Rule 6730(a)(3)(D)(i)a., c. and
d.11 Second, after approximately 180
days, the TBA Transaction Pilot
Program would expire and the reporting
period would be reduced from no later
than 45 minutes from the Time of
Execution to 15 minutes from the Time
of Execution, as set forth in proposed
Rule 6730(a)(3)(D)(ii). Again, the
6 James Vichery and Joshua Wright, TBA Trading
and Liquidity in the Agency MBS Market, Federal
Reserve Bank of New York Staff Reports, no. 468
(August 2010), available at https://
www.newyorkfed.org/research/staff_reports/
sr468.pdf.
7 The terms Asset-Backed Security and TRACE
System Hours are defined in, respectively, Rule
6710(m) and Rule 6710(t). Rule 6730(a)(3)(B)(i)
addresses reporting requirements for Asset-Backed
Securities transactions executed after 5 p.m. Eastern
Time on a business day, and Rule 6730(a)(3)(B)(ii)
addresses reporting requirements for Asset-Backed
Securities transactions executed after TRACE
System Hours, or on a weekend or a holiday, or
other day on which the TRACE system is not open
at any time during that day.
In general, Asset-Backed Securities must be
reported to TRACE under Rules 6730(a)(3)(A) and
(B). Although CMOs and REMICs are Asset-Backed
Securities, for certain pre-issuance transactions in
CMOs and REMICs, the applicable reporting
provisions are set forth in Rule 6730(a)(3)(C), and
Rules 6730(a)(3)(A) and (B) do not apply.
As discussed, infra, FINRA proposes to renumber
Rule 6730(a)(3)(A)(ii) as Rule 6730(a)(3)(A).
8 The terms TRACE–Eligible Security and Time of
Execution are defined in, respectively, Rule 6710(a)
and Rule 6710(d).
9 Currently, transaction information on all types
of securities that are TRACE–Eligible Securities,
except Asset-Backed Securities, is disseminated as
provided in Rule 6750(a). However, FINRA does not
disseminate information on a transaction in a
TRACE–Eligible Security that is effected pursuant
to Securities Act Rule 144A (17 CFR 239.144A)
under Rule 6750(b)(1), certain transfers of
proprietary securities positions between a member
and another member or non-member broker-dealer
where the transfer is effected in connection with a
merger of one broker-dealer with the other brokerdealer or a direct or indirect acquisition of one
broker-dealer by the other broker-dealer or the other
broker-dealer’s parent under Rule 6750(b)(2), or
transactions that are List or Fixed Offering Price
Transactions or Takedown Transactions under Rule
6750(b)(3). The terms List or Fixed Offering Price
Transaction and Takedown Transaction are defined
in, respectively, Rule 6710(q) and Rule 6710(r).
10 To accommodate member requests that rule
changes requiring technology changes occur on a
Friday, if possible, the TBA Transaction Pilot
Program providing for 45-minute reporting may be
in effect for 180 days or for a few additional days
to fix the termination date of the TBA Transaction
Pilot Program on a Friday (i.e., if the 180th day is
not a Friday, the 45-minute requirement will expire
on the Friday next occurring that the TRACE system
is open).
11 Minor exceptions to the general requirement to
report TBA transactions no later than 45 minutes
from the Time of Execution are set forth in
proposed Rule 6730(a)(3)(D)(i)a., c. and d. Under
proposed Rule 6730(a)(3)(D)(i)a., transactions
executed on a business day at or after 12:00 a.m.
Eastern Time through 7:59:59 a.m. Eastern Time
must be reported the same day no later than 45
minutes after the TRACE system opens. Under
proposed Rule 6730(a)(3)(D)(i)c., transactions
executed on a business day less than 45 minutes
before 6:30 p.m. Eastern Time (the time the TRACE
system closes) must be reported no later than 45
minutes after the TRACE system opens the next
business day (T + 1), and if reported on T + 1,
designated ‘‘as/of’’ and include the date of
execution. Under proposed Rule 6730(a)(3)(D)(i)d.,
transactions executed on a business day at or after
6:30 p.m. Eastern Time through 11:59:59 p.m.
Eastern Time or on a Saturday, a Sunday, a federal
or religious holiday or other day on which the
TRACE system is not open at any time during that
day (determined using Eastern Time) must be
reported the next business day (T + 1), no later than
45 minutes after the TRACE system opens,
designated ‘‘as/of’’ and include the date of
execution.
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proposed rule change includes certain
limited exceptions for TBA transactions
executed shortly before the TRACE
system closes and when the TRACE
system is closed.12 FINRA would also
incorporate cross references to the
proposed reporting requirements
applicable solely to TBA transactions in
the reporting requirements applicable
generally to Asset-Backed Securities in
Rule 6730(a)(3)(A) and (B).
Dissemination of TBA Transaction Data
Although members began reporting
transactions in Asset-Backed Securities
to TRACE on May 16, 2011, FINRA
currently does not disseminate publicly
any of the Asset-Backed Securities
transaction data reported to TRACE.
Specifically, Rule 6750(b)(4) provides
that transaction information on TRACEEligible Securities that are Asset-Backed
Securities will not be disseminated.
However, when FINRA proposed the
dissemination restrictions in Rule
6750(b)(4) regarding Asset-Backed
Securities, FINRA represented that it
would study the Asset-Backed
Securities data after transaction
reporting began. In the Commission’s
order approving the proposed rule
change to define Asset-Backed
Securities as TRACE-Eligible Securities
and require reporting of Asset-Backed
Securities transactions, the Commission
noted FINRA’s intent to study AssetBacked Securities dissemination issues
prior to making any proposal to
disseminate some or all of such
information, and the Commission’s
historical support of efforts to improve
post-trade transparency in the fixed
income markets:
FINRA believes that information on AssetBacked Securities transactions should be
collected and analyzed before making any
decision regarding the utility of such
information for transparency purposes or the
consequences of dissemination on this
market. FINRA has stated that, after a period
of study, it would file a proposed rule change
12 After the TBA Transaction Pilot Program
expires, Rule 6730(a)(3)(D)(ii), which incorporates
by reference Rule 6730(a)(1), requires generally that
TBA transactions be reported no later than 15
minutes from the Time of Execution, with certain
minor exceptions for transactions executed near the
end of the TRACE System Hours, before and after
TRACE System Hours, and on weekends and
certain federal and religious holidays. See, e.g.,
Rule 6730(a)(1)(C). The exceptions are the same as
those that apply to members reporting transactions
in corporate bonds and Agency Debt Securities to
TRACE. (The SEC recently approved a proposed
rule change, which included reorganizing, without
substantive amendment, the provisions set forth in
current Rule 6730(a)(1)(C) as Rule 6730(a)(1)(A).
See Securities Exchange Act Release No. 65791
(November 18, 2011) (Order Approving File No.
SR–FINRA–2011–053). The rule change becomes
effective on February 6, 2012. See Regulatory Notice
11–53 (November 21, 2011).)
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if it determined that its study of the trading
data provides a reasonable basis to seek
dissemination of transaction information on
Asset-Backed Securities. The Commission
has historically been supportive of efforts to
improve post-trade transparency in the fixed
income markets and encourages FINRA to
carry out that study.13
mstockstill on DSK4VPTVN1PROD with NOTICES
Since reporting began on May 16,
2011, FINRA has reviewed AssetBacked Securities transaction data. The
reported Asset-Backed Securities
transaction data, as well as input from
market participants as FINRA prepared
to expand TRACE to include AssetBacked Securities, suggests that realtime disseminated TRACE transaction
data should be expanded to include
transaction information on TBA
transactions.
First, at the launch of Asset-Backed
Securities reporting, certain market
participants noted that TBA transactions
trade in a very liquid market and
suggested that FINRA consider
transparency in such transactions.
Second, as FINRA reviewed and
continues to review the data reported
for Asset-Backed Securities, including
TBA transactions, and studies the total
volume of TBA transactions, the
concentration of trading in such
securities, and the pricing disparity
among various types of Agency PassThrough Mortgage-Backed Securities
traded TBA to understand their
liquidity and fungibility, the data
supports FINRA’s proposal to
disseminate TBA transactions and
increase transparency in this market.
The market activity reported and
reviewed reveals that the TBA market is
generally active and liquid. In addition,
the degree of fungibility is high, with
substantial trading concentrated among
a relatively small universe of securities
as identified by a unique CUSIP number
(hereinafter, ‘‘CUSIP’’ means the
specific security identified by the
unique CUSIP number).14 The TBA
market has an average daily volume of
$248 billion traded in close to 8,000
average daily trades,15 and the average
daily volume of all TBA transactions is
approximately ten times the average
daily volume of the entire corporate
bond market.16 The correlation between
13 See Securities Exchange Act Release No. 61566
(February 22, 2010), 75 FR 9262, 9265 (March 1,
2010) (Order Approving File No. SR–FINRA–2009–
065).
14 CUSIP means Committee on Uniform Security
Identification Procedures.
15 The information is based upon FINRA’s review
of all TBA transactions reported to TRACE from
May 16, 2011 through October 28, 2011.
16 The information is based upon FINRA’s review
of transactions in all TRACE-Eligible Securities,
other than Agency Debt Securities, reported to
TRACE from May 16, 2011 through October 28,
2011.
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various TBA CUSIPs is high, and the
price of one TBA transaction may be
derived using available prices for TBA
transactions for a different issuer, a
different coupon rate, maturity, or a
combination thereof.17
Accordingly, FINRA proposes to
disseminate TBA transaction
information reported to TRACE in realtime.18 Specifically, Rule 6750(b)(4)
would be amended to provide that
FINRA will not disseminate information
on a transaction in an Asset-Backed
Security, except a transaction in an
Agency Pass-Through Mortgage-Backed
Security traded TBA.
Data and Fees
FINRA proposes to amend Rule 7730
to make available the real-time
disseminated TBA transaction data and
the historic TRACE data for TBA
transactions, and to establish the fees for
such TBA transaction data. First, FINRA
proposes to amend Rule 7730(c) to
establish the Asset-Backed Security data
set (‘‘ABS Data Set’’) as the third RealTime TRACE market data set. The ABS
Data Set will be limited to real-time
disseminated TBA transaction data
initially. The market data fee rates
currently in effect for similar Real-Time
TRACE market data sets (i.e., for the
Corporate Bond Data Set and the
Agency Data Set) in Rule 7730(c) would
be extended to the ABS Data Set.
Second, FINRA proposes to amend
Rule 7730(d) to establish a third historic
data product for TBA transactions
(‘‘Historic ABS Data Set’’) similar to the
data sets for corporate bonds (‘‘Historic
Corporate Bond Data Set’’) and Agency
Debt Securities (‘‘Historic Agency Data
Set’’) listed therein. FINRA also
proposes to establish fees for the
Historic ABS Data Set at the same rates
currently in effect in Rule 7730(d) for
the Historic Corporate Bond Data Set
and the Historic Agency Data Set. The
Historic ABS Data Set would include all
TBA transactions effected as of or after
May 16, 2011, and, among other things,
would include uncapped volume
information. However, like all other
Historic TRACE Data, TBA transaction
data to be included in the Historic ABS
17 From a review of all TBA transactions reported
to TRACE from May 16, 2011 through July 31, 2011,
the data shows that TBA transactions (with
different issuers, different coupon rates, and
different maturities) were priced consistently,
relative to each other.
18 FINRA’s TRACE system would disseminate
transaction information immediately upon receipt
of a transaction report.
FINRA continues to review Asset-Backed
Security transaction information in other sectors of
the Asset-Backed Securities market and, at a later
date, may propose that transactions in other AssetBacked Securities be subject to dissemination.
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Data Set would be released subject to a
delay of approximately 18 months from
the date of the transaction.19
Other Rule Changes
FINRA proposes to delete provisions
regarding an expired pilot program, and
to incorporate other minor
administrative, technical or clarifying
changes in Rule 6730 and Rule 7730.
FINRA proposes to delete Rule
6730(a)(3)(A)(i), the pilot program for
Asset-Backed Securities transaction
reporting that expired on November 18,
2011 (‘‘Pilot Program’’), Rule
6730(a)(3)(C)(i), which references the
Pilot Program and applies to certain preissuance CMOs and REMICs, and all
cross references to the two provisions in
Rule 6730(a)(3)(A), (B) and (C).20 In
addition, FINRA would incorporate
technical amendments to Rule
6730(a)(3)(C)(ii), and renumber Rule
6730(a)(3)(A)(ii) and Rule
6730(a)(3)(C)(ii) as, respectively, Rule
6730(a)(3)(A) and Rule 6730(a)(3)(C).21
Also in Rule 6730, FINRA proposes to
incorporate an introductory sentence in
Rule 6730(a)(3), stating that AssetBacked Securities transactions must be
reported as provided in that
subparagraph, and a caption to Rule
6730(a)(3)(C), regarding the reporting
requirements that apply to certain preissuance transactions involving CMOs
and REMICs. In addition, FINRA
proposes a technical amendment to
incorporate references in Rule
6730(a)(3)(A) and (B) to the proposed
reporting requirements for TBA
transactions in proposed Rule
6730(a)(3)(D).
In Rule 7730, FINRA proposes to add,
in paragraphs (d)(1)(A)(ii) and
(d)(1)(B)(ii) regarding Historic TRACE
Data, a sentence to clarify that the 2011
Historic Agency Data Set also will
include the 2010 Historic Agency Data
Set, and the 2013 Historic ABS Data Set
also will include the 2012 Historic ABS
19 Asset-Backed Securities transactions first began
to be reported to TRACE on May 16, 2011; thus, the
first Historic ABS Data Set would be available for
release approximately 18 months later, in early
2013.
20 Cross references to the Pilot Program would be
deleted in Rule 6730(a)(3)(A)(ii) (proposed
renumbered Rule 6730(a)(3)(A)), Rule 6730(a)(3)(B)
and Rule 6730(a)(3)(C)(ii) (proposed renumbered
Rule 6730(a)(3)(C)).
21 In Rule 6730(a)(3)(C)(ii) (proposed renumbered
Rule 6730(a)(3)(C)), FINRA proposes to delete the
words ‘‘After the expiration of the Pilot Program in
paragraph (a)(3)(A)(i), such transactions must be
reported the earlier of:’’ and add the following text
in the same place: ‘‘Transactions in Asset-Backed
Securities that are collateralized mortgage
obligations (CMOs) or real estate mortgage
investment conduits (REMICs) that are executed
before the issuance of the security must be reported
the earlier of:.’’
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Data Set.22 FINRA also proposes minor
technical amendments to Rule 7730(c)
and (d) to reflect that the number of
Data Sets and Historic Data Sets will
increase from two to three, and other
minor technical amendments to Rule
7730(b)(1) and Rule 7730(c) and (d).
Dissemination Cap
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Currently, there are two TRACE
dissemination protocols in place,
referred to as dissemination caps, under
which the actual size (volume) of a
transaction over a certain par value is
not displayed in disseminated TRACE
transaction data. For TRACE-Eligible
Securities that are rated Investment
Grade, the dissemination cap is $5
million ($5MM), and the size of
transactions in excess of $5MM is
displayed as ‘‘$5MM+.’’ For TRACEEligible Securities that are rated NonInvestment Grade, the dissemination
cap is $1 million ($1MM), and the size
of a transaction in excess of $1MM is
displayed as ‘‘$1MM+.’’ 23
FINRA has analyzed the distribution
of TBA trades to determine an
appropriate cap for these securities.
FINRA proposes initially to set a
dissemination cap for a TBA transaction
at $50 million (a ‘‘$50 million
dissemination cap’’). Accordingly, TBA
transactions greater than $50 million
would be displayed as ‘‘$50MM+.’’ At
this level, approximately 12 percent of
TBA transactions and approximately 63
percent of TBA transaction volume will
be subject to the $50 million
dissemination cap.24
FINRA 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. The effective
date will be no later than 180 days
following publication of the Regulatory
Notice announcing Commission
approval.
22 FINRA proposes not to add the clarification to
the fee chart in Rule 7730. Also, FINRA proposes
to delete a similar statement— ‘‘The 2003 Historic
Corporate Bond Data Set also includes the 2002
Historic Corporate Bond Data Set.’’—in two sections
of the fee chart in Rule 7730 summarizing Historic
TRACE Data fees. Also, FINRA proposes to delete
‘‘BTDS’’ in two sections of the fee chart in Rule
7730 summarizing market data fees.
23 The terms Investment Grade and NonInvestment Grade are defined in, respectively, Rule
6710((h) and Rule 6710(i).
24 In contrast, the existing caps for corporate
Investment Grade bonds limit the display of actual
size for approximately 1.6 percent of trades
representing 48 percent of par value traded, and, for
Agency Debt Securities, 6 percent of trades and 74
percent of par value. The information is based on
a review of all TBA transactions, and transactions
in Investment Grade corporate bonds and Agency
Debt Securities reported to TRACE from May 16,
2011 through September 30, 2011.
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2. Statutory Basis
FINRA believes that the proposed rule
change is consistent with the provisions
of Section 15A(b)(6) of the Act,25 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, and Section 15A(b)(5) of
the Act,26 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. FINRA believes that the
proposed rule change to increase fixed
income market transparency is designed
to prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, and,
generally to protect investors and the
public, because transparency in TBA
transactions will enhance the ability of
investors and other market participants
to identify and negotiate fair and
competitive prices for Agency PassThrough Mortgage-Backed Securities;
and because the dissemination of price
and other TBA transaction information
publicly will promote just and equitable
principles of trade among participants
in the more transparent market, and will
aid in the prevention of fraudulent and
manipulative acts and practices in the
TBA market. In addition, FINRA
believes that the proposed data fees for
the ABS Data Set (TBA transaction data
disseminated immediately upon receipt
by FINRA) and the Historic ABS Data
Set (TBA transaction data delayed for 18
months), which are proposed at the
same rates currently in effect for similar
TRACE corporate bond and Agency
Debt Securities data products, are
reasonable fees that are equitably
allocated among members, data vendors,
qualifying Tax-Exempt Organizations
and other TRACE data consumers.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
FINRA does not believe that the
proposed rule change will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
25 15
26 15
PO 00000
U.S.C. 78o–3(b)(6).
U.S.C. 78o–3(b)(5).
Frm 00092
Fmt 4703
Sfmt 4703
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve or disapprove
such proposed rule change, or
(B) Institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–FINRA–2011–069 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–2011–069. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet 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 Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
E:\FR\FM\08DEN1.SGM
08DEN1
Federal Register / Vol. 76, No. 236 / Thursday, December 8, 2011 / Notices
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–2011–069 and
should be submitted on or before
December 29, 2011.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.27
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2011–31524 Filed 12–7–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–65876; File No. SR–BX–
2011–078]
Self-Regulatory Organizations;
NASDAQ OMX BX, Inc.; Notice of Filing
and Immediate Effectiveness of
Proposed Rule Change Relating to
Routing Fees for BX
December 2, 2011.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that, on
November 22, 2011, NASDAQ OMX BX,
Inc. (the ‘‘Exchange’’ or ‘‘BX’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
mstockstill on DSK4VPTVN1PROD with NOTICES
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
BX is filing with the Commission a
proposed rule change to modify pricing
for BX members using the NASDAQ
OMX BX Equities System. The new
pricing will take effect immediately.
The text of the proposed rule change is
available at BX’s principal office, at
http:/nasdaqomxbx.cchwallstreet.com/,
at the Commission’s Public Reference
Room, and at https://www.sec.gov.
27 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
VerDate Mar<15>2010
15:59 Dec 07, 2011
Jkt 226001
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to adopt fees applicable to the
new routing services on the NASDAQ
OMX BX Equities Market.3 BX has a
pricing model under which members
are charged for the execution of quotes/
orders posted on the BX book (i.e.,
quotes/orders that provide liquidity),
while members receive a rebate for
orders that access liquidity; this is not
changing. The proposed fees, because
they apply to routed orders, will apply
only to orders executed at venues other
than the NASDAQ OMX BX Equities
Market.
BX proposes to amend BX Rule
7018(a) to adopt fees for the execution
of routed orders in securities priced at
$1 or more per share and BX Rule
7018(b) to adopt fees for routing of
securities priced at less than $1 per
share. In BX Rule 7018(a), the charges
depend on both where the order was
executed and the order’s routing
strategy, which is similar to NASDAQ
Rule 7018(a).4 The different routing
strategies, BSTG,5 BSCN,6 BMOP,7
BTFY 8 and BCRT,9 are defined in BX
Rule 4758 and correlate to some of the
routing strategies of NASDAQ, as
3 Securities Exchange Act Release No. 65470
(October 3, 2011), 76 FR 62489 (October 7, 2011)
(SR–BX–2011–048).
4 Similar to the fees proposed here, NASDAQ
bases the charge on the type of routing strategy
employed and where the order was executed,
because routing fees are generally intended to the
recoup the cost of routing the order to another
venue for execution. However, unlike BX, NASDAQ
also bases its routing fees on where the security is
listed. This is not a significant difference because
the proposed fees include a separate charge for
execution on the NYSE.
5 See BX Rule 4758(a)(1)(A)(iii).
6 See BX Rule 4758(a)(1)(A)(iv).
7 See BX Rule 4758(a)(1)(A)(vi).
8 See BX Rule 4758(a)(1)(A)(v).
9 See BX Rule 4758(a)(1)(A)(vii).
PO 00000
Frm 00093
Fmt 4703
Sfmt 4703
76781
explained below. The proposed BX
routing fees are the same as or less than
NASDAQ’s, which is also explained
further below.10
Respecting BSTG and BSCN orders,
the charge is $0.0023 per share executed
at NYSE and $0.0030 per share executed
at venues other than NYSE. Respecting
NASDAQ’s comparable STGY and
SCAN orders,11 this charge is the same
for shares executed on NYSE and also
the same as what NASDAQ charges for
routed executions at other venues in
NASDAQ-listed securities, NYSE-listed
securities and for securities listed on
exchanges other than NASDAQ or NYSE
($0.0030 per share).12 The Exchange
believes that charging the same routing
fees as NASDAQ should attract users to
its new routing program.
Respecting BMOP orders, the charge
is $0.0025 per share executed at NYSE
and $0.0035 per share executed at
venues other than NYSE. This is the
same as what NASDAQ charges for its
comparable MOPP orders,13 which is,
following the format of the NASDAQ fee
schedule: (i) for NASDAQ-listed
securities, $0.0035 per share; (ii) for
NYSE-listed securities, $0.0035 per
share executed at venues other than
NYSE or $0.0025 per share executed at
NYSE; and (iii) for securities listed on
exchanges other than NASDAQ or
NYSE, $0.0035 per share. The Exchange
has determined that this is the
appropriate charge to attract BMOP
orders to BX.
Respecting BTFY orders, the charge is
$0.0022 per share executed at NYSE and
$0.0005 per share executed at venues
other than NYSE, NASDAQ or PSX. For
orders that execute at PSX, BX will pass
through all fees assessed and rebates
offered by PSX and for orders that
execute at NASDAQ, BX will pass
through all fees assessed and rebates
offered by NASDAQ. BX, PSX and
NASDAQ are affiliates. This is the same
as what NASDAQ charges for its
comparable TFTY orders,14 which is
$0.0022 per share executed at NYSE and
$0.0005 per share executed at venues
other than NYSE, BX or PSX, regardless
of where the security is listed. For
orders that execute at BX, NASDAQ
gives a credit of $0.0014 for orders that
10 Pursuant to a November 28, 2011 conference
call with Commission staff, Edith Hallahan,
Principal Associate General Counsel, the
NASDAQ OMX Group, Inc., confirmed that the
proposed BX routing fees are the same as (not less
than) NASDAQ’s existing routing fees.
11 See NASDAQ Rule 4758(a)(1)(A)(iii) and (iv).
12 For NASDAQ-listed securities, there is no
separate, lower fee for orders executed at NYSE,
because NASDAQ-listed securities do not trade on
NYSE and thus would not route there.
13 See NASDAQ Rule 4758(a)(1)(A)(vi).
14 See NASDAQ Rule 4758(a)(1)(A)(v).
E:\FR\FM\08DEN1.SGM
08DEN1
]]>Agencies
[Federal Register Volume 76, Number 236 (Thursday, December 8, 2011)]
[Notices]
[Pages 76777-76781]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-31524]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-65877; File No. SR-FINRA-2011-069]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of Proposed Rule Change Relating To
Post-Trade Transparency for Agency Pass-Through Mortgage-Backed
Securities Traded TBA
December 2, 2011.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that, on November 22, 2011, the Financial Industry Regulatory
Authority, Inc. (``FINRA'') filed with the Securities and Exchange
Commission (the ``Commission'') the proposed rule change as described
in Items I, II, and III below, which Items have been prepared by FINRA.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to amend FINRA Rule 6730 to reduce the period to
report TRACE-Eligible Asset-Backed Securities that are Agency Pass-
Through Mortgage-Backed Securities traded to be announced (``TBA'')
(``TBA transactions'') in two stages; FINRA Rule 6750, to provide for
the dissemination of TBA transactions; FINRA Rule 7730, to establish
fees for real-time TBA transaction data and historical TBA transaction
data; and FINRA Rule 6730 and FINRA Rule 7730, to delete references to
a pilot program that is no longer in effect and to incorporate other
minor administrative, technical or clarifying changes. FINRA also
proposes to establish a dissemination protocol providing that, for a
TBA transaction in excess of $50 million, the size (volume) of the
transaction would be displayed in disseminated TRACE data as $50
million plus.
The text of the proposed rule change is available on FINRA's Web
site at https://www.finra.org, at the principal office of FINRA and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, FINRA included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. FINRA has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
FINRA proposes amendments to the Rule 6700 Series (the Trade
Reporting and Compliance Engine (``TRACE'') rules) to provide greater
transparency in transactions in Asset-Backed Securities that are TBA
transactions.\3\ First, FINRA proposes to amend Rule 6730 to reduce the
reporting period for TBA transactions in two phases. Second, FINRA
proposes to amend Rule 6750 to provide for the dissemination of
information on TBA transactions in real-time (i.e., immediately upon
FINRA's receipt of the transaction report). Third, in Rule 7730, FINRA
proposes to establish fees: (i) For a data set of real-time TRACE
disseminated TBA transaction data at the same rates currently in effect
for similar real-time TRACE disseminated data sets, and (ii) for a data
set of historic TRACE TBA transaction data at the same rates currently
in effect for similar Historic TRACE Data sets.\4\ FINRA also proposes
to delete references to a pilot program that is no longer in effect and
make other minor technical, administrative or clarifying amendments to
Rule 6730 and Rule 7730. Finally, FINRA proposes to establish a limit
or ``cap'' of $50 million for disseminated TBA transactions as part of
FINRA's dissemination policies and protocols, so that the actual size
of a TBA transaction in excess of $50 million would be displayed as
``$50MM+'' in disseminated TRACE data.
---------------------------------------------------------------------------
\3\ A TBA transaction is a transaction in a specific type of
Asset-Backed Security, an Agency Pass-Through Mortgage-Backed
Security as defined in Rule 6710(v), traded ``to be announced'' as
defined in Rule 6710(u).
\4\ The term Historic TRACE Data is defined in Rule 7730(f)(4).
---------------------------------------------------------------------------
TBA Transactions
As defined in Rule 6710(v), an Agency Pass-Through Mortgage-Backed
Security means:
a mortgage-backed security issued by an Agency or a Government-
Sponsored Enterprise, for which the timely payment of principal and
interest is guaranteed by an Agency or a Government-Sponsored
Enterprise, representing ownership interests in a pool or pools of
residential mortgage loans with the security structured to ``pass
through'' the principal and interest payments made by the mortgagees
to the owners of the pool(s) on a pro rata basis.\5\
---------------------------------------------------------------------------
\5\ The terms Agency and Government-Sponsored Enterprise (GSE)
are defined in, respectively, Rule 6710(k) and Rule 6710(n).
---------------------------------------------------------------------------
As provided in Rule 6710(u), TBA means:
``to be announced'' and refers to a transaction in an Agency
Pass-Through Mortgage-Backed Security * * * where the parties agree
that the seller will deliver to the buyer an Agency Pass-Through
Mortgage-Backed Security of a specified face amount and coupon from
a specified Agency or Government-Sponsored Enterprise program
representing a pool (or pools) of mortgages (that are not specified
by unique pool number).
In a TBA transaction, the parties agree on a price for delivering a
given volume of Agency Pass-Through Mortgage-Backed Securities at a
specified future date. The distinguishing feature of a TBA transaction
is that the actual identity of the securities to be delivered at
settlement is not specified on the date of execution (``Trade Date'').
Instead, the parties to the trade agree on only five general parameters
of the securities to be delivered: issuer, mortgage type, maturity,
coupon, and month of
[[Page 76778]]
settlement. Together, the securitization process and the TBA market
transform what is a fundamentally heterogeneous universe of individual
mortgages and mortgage pools (with myriad credit and prepayment
characteristics) into groups of fungible--and therefore liquid--fixed-
income instruments.\6\
---------------------------------------------------------------------------
\6\ James Vichery and Joshua Wright, TBA Trading and Liquidity
in the Agency MBS Market, Federal Reserve Bank of New York Staff
Reports, no. 468 (August 2010), available at https://www.newyorkfed.org/research/staff_reports/sr468.pdf.
---------------------------------------------------------------------------
Reduction of TBA Transaction Reporting Period
Currently, Asset-Backed Securities transactions (except certain
pre-issuance transactions in collateralized mortgage obligations
(``CMOs'') and real estate mortgage investment conduits (``REMICs''))
that are executed on a business day through 5 p.m. Eastern Time must be
reported to TRACE on the Trade Date during TRACE System Hours, as
provided in Rule 6730(a)(3)(A)(ii).\7\ In contrast, secondary market
transactions in all other TRACE-Eligible Securities must be reported
within 15 minutes of the Time of Execution.\8\ With certain exceptions,
transaction information on such TRACE-Eligible Securities is
disseminated as soon as the transaction is reported, and the 15-minute
reporting requirement results in meaningful price transparency for
market participants trading such securities.\9\
---------------------------------------------------------------------------
\7\ The terms Asset-Backed Security and TRACE System Hours are
defined in, respectively, Rule 6710(m) and Rule 6710(t). Rule
6730(a)(3)(B)(i) addresses reporting requirements for Asset-Backed
Securities transactions executed after 5 p.m. Eastern Time on a
business day, and Rule 6730(a)(3)(B)(ii) addresses reporting
requirements for Asset-Backed Securities transactions executed after
TRACE System Hours, or on a weekend or a holiday, or other day on
which the TRACE system is not open at any time during that day.
In general, Asset-Backed Securities must be reported to TRACE
under Rules 6730(a)(3)(A) and (B). Although CMOs and REMICs are
Asset-Backed Securities, for certain pre-issuance transactions in
CMOs and REMICs, the applicable reporting provisions are set forth
in Rule 6730(a)(3)(C), and Rules 6730(a)(3)(A) and (B) do not apply.
As discussed, infra, FINRA proposes to renumber Rule
6730(a)(3)(A)(ii) as Rule 6730(a)(3)(A).
\8\ The terms TRACE-Eligible Security and Time of Execution are
defined in, respectively, Rule 6710(a) and Rule 6710(d).
\9\ Currently, transaction information on all types of
securities that are TRACE-Eligible Securities, except Asset-Backed
Securities, is disseminated as provided in Rule 6750(a). However,
FINRA does not disseminate information on a transaction in a TRACE-
Eligible Security that is effected pursuant to Securities Act Rule
144A (17 CFR 239.144A) under Rule 6750(b)(1), certain transfers of
proprietary securities positions between a member and another member
or non-member broker-dealer where the transfer is effected in
connection with a merger of one broker-dealer with the other broker-
dealer or a direct or indirect acquisition of one broker-dealer by
the other broker-dealer or the other broker-dealer's parent under
Rule 6750(b)(2), or transactions that are List or Fixed Offering
Price Transactions or Takedown Transactions under Rule 6750(b)(3).
The terms List or Fixed Offering Price Transaction and Takedown
Transaction are defined in, respectively, Rule 6710(q) and Rule
6710(r).
---------------------------------------------------------------------------
In connection with proposing that TBA transactions be disseminated
real-time to the public and the market, FINRA proposes to reduce the
reporting period for TBA transactions to 15 minutes to provide market
participants meaningful and timely price information.
However, reduction of the reporting period for TBA transactions
would occur in two stages to permit industry participants to adjust
policies and procedures, and to make required technological changes.
First, for a pilot program of approximately 180 days duration, FINRA
proposes to reduce the reporting period for TBA transactions from no
later than the close of the TRACE system on Trade Date to no later than
45 minutes from the Time of Execution (``TBA Transaction Pilot
Program''), as set forth in proposed Rule 6730(a)(3)(D)(i).\10\ Minor
exceptions to the general requirements are set forth in proposed Rule
6730(a)(3)(D)(i)a., c. and d.\11\ Second, after approximately 180 days,
the TBA Transaction Pilot Program would expire and the reporting period
would be reduced from no later than 45 minutes from the Time of
Execution to 15 minutes from the Time of Execution, as set forth in
proposed Rule 6730(a)(3)(D)(ii). Again, the proposed rule change
includes certain limited exceptions for TBA transactions executed
shortly before the TRACE system closes and when the TRACE system is
closed.\12\ FINRA would also incorporate cross references to the
proposed reporting requirements applicable solely to TBA transactions
in the reporting requirements applicable generally to Asset-Backed
Securities in Rule 6730(a)(3)(A) and (B).
---------------------------------------------------------------------------
\10\ To accommodate member requests that rule changes requiring
technology changes occur on a Friday, if possible, the TBA
Transaction Pilot Program providing for 45-minute reporting may be
in effect for 180 days or for a few additional days to fix the
termination date of the TBA Transaction Pilot Program on a Friday
(i.e., if the 180th day is not a Friday, the 45-minute requirement
will expire on the Friday next occurring that the TRACE system is
open).
\11\ Minor exceptions to the general requirement to report TBA
transactions no later than 45 minutes from the Time of Execution are
set forth in proposed Rule 6730(a)(3)(D)(i)a., c. and d. Under
proposed Rule 6730(a)(3)(D)(i)a., transactions executed on a
business day at or after 12:00 a.m. Eastern Time through 7:59:59
a.m. Eastern Time must be reported the same day no later than 45
minutes after the TRACE system opens. Under proposed Rule
6730(a)(3)(D)(i)c., transactions executed on a business day less
than 45 minutes before 6:30 p.m. Eastern Time (the time the TRACE
system closes) must be reported no later than 45 minutes after the
TRACE system opens the next business day (T + 1), and if reported on
T + 1, designated ``as/of'' and include the date of execution. Under
proposed Rule 6730(a)(3)(D)(i)d., transactions executed on a
business day at or after 6:30 p.m. Eastern Time through 11:59:59
p.m. Eastern Time or on a Saturday, a Sunday, a federal or religious
holiday or other day on which the TRACE system is not open at any
time during that day (determined using Eastern Time) must be
reported the next business day (T + 1), no later than 45 minutes
after the TRACE system opens, designated ``as/of'' and include the
date of execution.
\12\ After the TBA Transaction Pilot Program expires, Rule
6730(a)(3)(D)(ii), which incorporates by reference Rule 6730(a)(1),
requires generally that TBA transactions be reported no later than
15 minutes from the Time of Execution, with certain minor exceptions
for transactions executed near the end of the TRACE System Hours,
before and after TRACE System Hours, and on weekends and certain
federal and religious holidays. See, e.g., Rule 6730(a)(1)(C). The
exceptions are the same as those that apply to members reporting
transactions in corporate bonds and Agency Debt Securities to TRACE.
(The SEC recently approved a proposed rule change, which included
reorganizing, without substantive amendment, the provisions set
forth in current Rule 6730(a)(1)(C) as Rule 6730(a)(1)(A). See
Securities Exchange Act Release No. 65791 (November 18, 2011) (Order
Approving File No. SR-FINRA-2011-053). The rule change becomes
effective on February 6, 2012. See Regulatory Notice 11-53 (November
21, 2011).)
---------------------------------------------------------------------------
Dissemination of TBA Transaction Data
Although members began reporting transactions in Asset-Backed
Securities to TRACE on May 16, 2011, FINRA currently does not
disseminate publicly any of the Asset-Backed Securities transaction
data reported to TRACE. Specifically, Rule 6750(b)(4) provides that
transaction information on TRACE-Eligible Securities that are Asset-
Backed Securities will not be disseminated.
However, when FINRA proposed the dissemination restrictions in Rule
6750(b)(4) regarding Asset-Backed Securities, FINRA represented that it
would study the Asset-Backed Securities data after transaction
reporting began. In the Commission's order approving the proposed rule
change to define Asset-Backed Securities as TRACE-Eligible Securities
and require reporting of Asset-Backed Securities transactions, the
Commission noted FINRA's intent to study Asset-Backed Securities
dissemination issues prior to making any proposal to disseminate some
or all of such information, and the Commission's historical support of
efforts to improve post-trade transparency in the fixed income markets:
FINRA believes that information on Asset-Backed Securities
transactions should be collected and analyzed before making any
decision regarding the utility of such information for transparency
purposes or the consequences of dissemination on this market. FINRA
has stated that, after a period of study, it would file a proposed
rule change
[[Page 76779]]
if it determined that its study of the trading data provides a
reasonable basis to seek dissemination of transaction information on
Asset-Backed Securities. The Commission has historically been
supportive of efforts to improve post-trade transparency in the
fixed income markets and encourages FINRA to carry out that
study.\13\
\13\ See Securities Exchange Act Release No. 61566 (February 22,
2010), 75 FR 9262, 9265 (March 1, 2010) (Order Approving File No.
SR-FINRA-2009-065).
---------------------------------------------------------------------------
Since reporting began on May 16, 2011, FINRA has reviewed Asset-
Backed Securities transaction data. The reported Asset-Backed
Securities transaction data, as well as input from market participants
as FINRA prepared to expand TRACE to include Asset-Backed Securities,
suggests that real-time disseminated TRACE transaction data should be
expanded to include transaction information on TBA transactions.
First, at the launch of Asset-Backed Securities reporting, certain
market participants noted that TBA transactions trade in a very liquid
market and suggested that FINRA consider transparency in such
transactions. Second, as FINRA reviewed and continues to review the
data reported for Asset-Backed Securities, including TBA transactions,
and studies the total volume of TBA transactions, the concentration of
trading in such securities, and the pricing disparity among various
types of Agency Pass-Through Mortgage-Backed Securities traded TBA to
understand their liquidity and fungibility, the data supports FINRA's
proposal to disseminate TBA transactions and increase transparency in
this market.
The market activity reported and reviewed reveals that the TBA
market is generally active and liquid. In addition, the degree of
fungibility is high, with substantial trading concentrated among a
relatively small universe of securities as identified by a unique CUSIP
number (hereinafter, ``CUSIP'' means the specific security identified
by the unique CUSIP number).\14\ The TBA market has an average daily
volume of $248 billion traded in close to 8,000 average daily
trades,\15\ and the average daily volume of all TBA transactions is
approximately ten times the average daily volume of the entire
corporate bond market.\16\ The correlation between various TBA CUSIPs
is high, and the price of one TBA transaction may be derived using
available prices for TBA transactions for a different issuer, a
different coupon rate, maturity, or a combination thereof.\17\
---------------------------------------------------------------------------
\14\ CUSIP means Committee on Uniform Security Identification
Procedures.
\15\ The information is based upon FINRA's review of all TBA
transactions reported to TRACE from May 16, 2011 through October 28,
2011.
\16\ The information is based upon FINRA's review of
transactions in all TRACE-Eligible Securities, other than Agency
Debt Securities, reported to TRACE from May 16, 2011 through October
28, 2011.
\17\ From a review of all TBA transactions reported to TRACE
from May 16, 2011 through July 31, 2011, the data shows that TBA
transactions (with different issuers, different coupon rates, and
different maturities) were priced consistently, relative to each
other.
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Accordingly, FINRA proposes to disseminate TBA transaction
information reported to TRACE in real-time.\18\ Specifically, Rule
6750(b)(4) would be amended to provide that FINRA will not disseminate
information on a transaction in an Asset-Backed Security, except a
transaction in an Agency Pass-Through Mortgage-Backed Security traded
TBA.
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\18\ FINRA's TRACE system would disseminate transaction
information immediately upon receipt of a transaction report.
FINRA continues to review Asset-Backed Security transaction
information in other sectors of the Asset-Backed Securities market
and, at a later date, may propose that transactions in other Asset-
Backed Securities be subject to dissemination.
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Data and Fees
FINRA proposes to amend Rule 7730 to make available the real-time
disseminated TBA transaction data and the historic TRACE data for TBA
transactions, and to establish the fees for such TBA transaction data.
First, FINRA proposes to amend Rule 7730(c) to establish the Asset-
Backed Security data set (``ABS Data Set'') as the third Real-Time
TRACE market data set. The ABS Data Set will be limited to real-time
disseminated TBA transaction data initially. The market data fee rates
currently in effect for similar Real-Time TRACE market data sets (i.e.,
for the Corporate Bond Data Set and the Agency Data Set) in Rule
7730(c) would be extended to the ABS Data Set.
Second, FINRA proposes to amend Rule 7730(d) to establish a third
historic data product for TBA transactions (``Historic ABS Data Set'')
similar to the data sets for corporate bonds (``Historic Corporate Bond
Data Set'') and Agency Debt Securities (``Historic Agency Data Set'')
listed therein. FINRA also proposes to establish fees for the Historic
ABS Data Set at the same rates currently in effect in Rule 7730(d) for
the Historic Corporate Bond Data Set and the Historic Agency Data Set.
The Historic ABS Data Set would include all TBA transactions effected
as of or after May 16, 2011, and, among other things, would include
uncapped volume information. However, like all other Historic TRACE
Data, TBA transaction data to be included in the Historic ABS Data Set
would be released subject to a delay of approximately 18 months from
the date of the transaction.\19\
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\19\ Asset-Backed Securities transactions first began to be
reported to TRACE on May 16, 2011; thus, the first Historic ABS Data
Set would be available for release approximately 18 months later, in
early 2013.
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Other Rule Changes
FINRA proposes to delete provisions regarding an expired pilot
program, and to incorporate other minor administrative, technical or
clarifying changes in Rule 6730 and Rule 7730.
FINRA proposes to delete Rule 6730(a)(3)(A)(i), the pilot program
for Asset-Backed Securities transaction reporting that expired on
November 18, 2011 (``Pilot Program''), Rule 6730(a)(3)(C)(i), which
references the Pilot Program and applies to certain pre-issuance CMOs
and REMICs, and all cross references to the two provisions in Rule
6730(a)(3)(A), (B) and (C).\20\ In addition, FINRA would incorporate
technical amendments to Rule 6730(a)(3)(C)(ii), and renumber Rule
6730(a)(3)(A)(ii) and Rule 6730(a)(3)(C)(ii) as, respectively, Rule
6730(a)(3)(A) and Rule 6730(a)(3)(C).\21\
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\20\ Cross references to the Pilot Program would be deleted in
Rule 6730(a)(3)(A)(ii) (proposed renumbered Rule 6730(a)(3)(A)),
Rule 6730(a)(3)(B) and Rule 6730(a)(3)(C)(ii) (proposed renumbered
Rule 6730(a)(3)(C)).
\21\ In Rule 6730(a)(3)(C)(ii) (proposed renumbered Rule
6730(a)(3)(C)), FINRA proposes to delete the words ``After the
expiration of the Pilot Program in paragraph (a)(3)(A)(i), such
transactions must be reported the earlier of:'' and add the
following text in the same place: ``Transactions in Asset-Backed
Securities that are collateralized mortgage obligations (CMOs) or
real estate mortgage investment conduits (REMICs) that are executed
before the issuance of the security must be reported the earlier
of:.''
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Also in Rule 6730, FINRA proposes to incorporate an introductory
sentence in Rule 6730(a)(3), stating that Asset-Backed Securities
transactions must be reported as provided in that subparagraph, and a
caption to Rule 6730(a)(3)(C), regarding the reporting requirements
that apply to certain pre-issuance transactions involving CMOs and
REMICs. In addition, FINRA proposes a technical amendment to
incorporate references in Rule 6730(a)(3)(A) and (B) to the proposed
reporting requirements for TBA transactions in proposed Rule
6730(a)(3)(D).
In Rule 7730, FINRA proposes to add, in paragraphs (d)(1)(A)(ii)
and (d)(1)(B)(ii) regarding Historic TRACE Data, a sentence to clarify
that the 2011 Historic Agency Data Set also will include the 2010
Historic Agency Data Set, and the 2013 Historic ABS Data Set also will
include the 2012 Historic ABS
[[Page 76780]]
Data Set.\22\ FINRA also proposes minor technical amendments to Rule
7730(c) and (d) to reflect that the number of Data Sets and Historic
Data Sets will increase from two to three, and other minor technical
amendments to Rule 7730(b)(1) and Rule 7730(c) and (d).
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\22\ FINRA proposes not to add the clarification to the fee
chart in Rule 7730. Also, FINRA proposes to delete a similar
statement-- ``The 2003 Historic Corporate Bond Data Set also
includes the 2002 Historic Corporate Bond Data Set.''--in two
sections of the fee chart in Rule 7730 summarizing Historic TRACE
Data fees. Also, FINRA proposes to delete ``BTDS'' in two sections
of the fee chart in Rule 7730 summarizing market data fees.
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Dissemination Cap
Currently, there are two TRACE dissemination protocols in place,
referred to as dissemination caps, under which the actual size (volume)
of a transaction over a certain par value is not displayed in
disseminated TRACE transaction data. For TRACE-Eligible Securities that
are rated Investment Grade, the dissemination cap is $5 million ($5MM),
and the size of transactions in excess of $5MM is displayed as
``$5MM+.'' For TRACE-Eligible Securities that are rated Non-Investment
Grade, the dissemination cap is $1 million ($1MM), and the size of a
transaction in excess of $1MM is displayed as ``$1MM+.'' \23\
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\23\ The terms Investment Grade and Non-Investment Grade are
defined in, respectively, Rule 6710((h) and Rule 6710(i).
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FINRA has analyzed the distribution of TBA trades to determine an
appropriate cap for these securities. FINRA proposes initially to set a
dissemination cap for a TBA transaction at $50 million (a ``$50 million
dissemination cap''). Accordingly, TBA transactions greater than $50
million would be displayed as ``$50MM+.'' At this level, approximately
12 percent of TBA transactions and approximately 63 percent of TBA
transaction volume will be subject to the $50 million dissemination
cap.\24\
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\24\ In contrast, the existing caps for corporate Investment
Grade bonds limit the display of actual size for approximately 1.6
percent of trades representing 48 percent of par value traded, and,
for Agency Debt Securities, 6 percent of trades and 74 percent of
par value. The information is based on a review of all TBA
transactions, and transactions in Investment Grade corporate bonds
and Agency Debt Securities reported to TRACE from May 16, 2011
through September 30, 2011.
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FINRA 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. The effective date will be no later than 180 days
following publication of the Regulatory Notice announcing Commission
approval.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\25\ 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, and Section 15A(b)(5) of the Act,\26\ 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. FINRA believes that the proposed rule change to
increase fixed income market transparency is designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, and, generally to protect investors and
the public, because transparency in TBA transactions will enhance the
ability of investors and other market participants to identify and
negotiate fair and competitive prices for Agency Pass-Through Mortgage-
Backed Securities; and because the dissemination of price and other TBA
transaction information publicly will promote just and equitable
principles of trade among participants in the more transparent market,
and will aid in the prevention of fraudulent and manipulative acts and
practices in the TBA market. In addition, FINRA believes that the
proposed data fees for the ABS Data Set (TBA transaction data
disseminated immediately upon receipt by FINRA) and the Historic ABS
Data Set (TBA transaction data delayed for 18 months), which are
proposed at the same rates currently in effect for similar TRACE
corporate bond and Agency Debt Securities data products, are reasonable
fees that are equitably allocated among members, data vendors,
qualifying Tax-Exempt Organizations and other TRACE data consumers.
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\25\ 15 U.S.C. 78o-3(b)(6).
\26\ 15 U.S.C. 78o-3(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
FINRA does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-FINRA-2011-069 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-2011-069. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet 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 Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
[[Page 76781]]
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-2011-069 and should be submitted on or before December 29,
2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
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\27\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-31524 Filed 12-7-11; 8:45 am]
BILLING CODE 8011-01-P
