Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change Relating to the Dissemination of Transactions in TRACE-Eligible Securities That Are Effected Pursuant to Securities Act Rule 144A, 44997-45001 [2013-17857]
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Federal Register / Vol. 78, No. 143 / Thursday, July 25, 2013 / Notices
any new, unique or substantive issues.
The proposed rule change eliminates
some requirements that Trading Permit
Holders otherwise would have to satisfy
to take advantage of the ‘‘noknowledge’’ exception; however, the
Exchange believes that the amended
information barrier requirements bring
the rule further in line with the
customer protection rule requirements
of other self-regulatory organizations. In
addition, the Exchange believes the
information barriers, as amended, will
be sufficiently adequate to allow
Trading Permit Holders to avail
themselves of the ‘‘no-knowledge’’
exception. The Exchange also believes
that the additional requirement to
maintain records of orders that rely on
the ‘‘no-knowledge’’ exception is
consistent with requirements already
imposed on market participants and
thus will not impose any additional
burdens on Trading Permit Holders.
The Commission believes that the
waiver of the 30-day operative delay is
consistent with the protection of
investors and the public interest
because the proposed rule will
harmonize the Exchange’s customer
order protection rules with the rules of
other self-regulatory organizations,17
and that the requirements that the
Exchange’s rules impose on Trading
Permit Holders will continue to ensure
that customer orders are afforded
sufficient protection. Therefore, the
Commission designates the proposal
operative upon filing.18
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is: (i) necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) otherwise in
furtherance of the purposes of the Act.
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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–CBOE–2013–074 on the
subject line.
SECURITIES AND EXCHANGE
COMMISSION
Paper Comments
[Release No. 34–70009; File No. SR–FINRA–
2013–029]
• 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–CBOE–2013–074. 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 on official business
days between the hours of 10:00 a.m.
and 3:00 p.m. Copies of such filing also
will be available for inspection and
copying at the principal offices of
CBOE. 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–CBOE–2013–074, and
should be submitted on or before
August 15, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–17862 Filed 7–24–13; 8:45 am]
BILLING CODE 8011–01–P
supra note 11.
purposes only of waiving the 30-day
operative delay, the Commission has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
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July 19, 2013.
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 July 17,
2013, the Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I, 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: (1)
FINRA Rule 6750 and the Trade
Reporting and Compliance Engine
(‘‘TRACE’’) dissemination protocols
regarding the dissemination of
transactions in TRACE-Eligible
Securities that are effected pursuant to
Rule 144A 3 under the Securities Act of
1933 4 (‘‘Rule 144A transactions’’); (2)
FINRA Rule 7730 to establish real-time
and historic data sets for Rule 144A
transaction data; and (3) FINRA Rule
7730 to clarify the definition of Historic
TRACE Data, to clarify other provisions
therein and incorporate other technical
amendments.5
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
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 17 CFR 230.144A.
4 15 U.S.C. 77a et seq. (hereinafter ‘‘Securities
Act’’).
5 The terms TRACE-Eligible Security and Historic
TRACE Data are defined in FINRA Rule 6710(a) and
FINRA Rule 7730(f)(4), respectively.
2 17
18 For
13:49 Jul 24, 2013
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a
Proposed Rule Change Relating to the
Dissemination of Transactions in
TRACE-Eligible Securities That Are
Effected Pursuant to Securities Act
Rule 144A
1 15
17 See
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19 17
CFR 200.30–3(a)(12).
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Federal Register / Vol. 78, No. 143 / Thursday, July 25, 2013 / Notices
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
FINRA rules and TRACE dissemination
protocols to provide greater
transparency in Rule 144A
transactions.6 FINRA proposes to amend
FINRA Rule 6750 to provide for the
dissemination of Rule 144A
transactions, provided the asset type
(e.g., corporate bonds) currently is
subject to dissemination under FINRA
Rule 6750. FINRA also proposes to
amend the dissemination protocols to
extend the dissemination caps currently
applicable to the non-Rule 144A
transactions in such asset type (e.g.,
non-Rule 144A corporate bond
transactions) to Rule 144A transactions
in such securities. In addition, FINRA
proposes to amend FINRA Rule 7730 to
establish a data set for real-time Rule
144A transaction data and a second data
set for historic Rule 144A transaction
data, to amend the definition of Historic
TRACE Data to reference the three data
sets currently included therein and the
proposed fourth data set, and to make
other clarifying and technical
amendments.
Rule 144A Transactions
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Securities Act Rule 144A 7 provides a
safe harbor from the registration
requirements of the Securities Act for
the resale of unregistered securities to
qualified institutional buyers (‘‘QIBs’’).8
Rule 144A transactions, as defined
herein, have been reported to FINRA
6 The discussion in the proposed rule change to
modify the FINRA Rule 6700 Series and Rule 7730
and in Regulatory Notice 12–39 (September 2012)
(FINRA’s request for comments regarding the
dissemination of Rule 144A transactions) is limited
to ‘‘Rule 144A transactions’’ as defined herein (i.e.,
in securities that are TRACE-Eligible Securities that
are effected pursuant to Securities Act Rule 144A
(17 CFR 230.144A)). (See also, infra, note 20 and
Item C below regarding Regulatory Notice 12–39
(September 2012).) Equity securities transactions
effected pursuant to Securities Act Rule 144A (17
CFR 230.144A) are not reported to TRACE and are
not the subject of this proposed rule change.
7 17 CFR 230.144A.
8 Qualified institutional buyer is defined in
Securities Act Rule 144A(a)(1). See 17 CFR
230.144A(a)(1).
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since TRACE inception on July 1, 2002.9
However, such Rule 144A transactions
have not been subject to dissemination
under FINRA Rule 6750(b)(1), in part to
avoid concerns about public solicitation
of 144A transactions. Such Rule 144A
transactions were effected subject to a
regulatory framework that included a
long-standing prohibition against
general solicitation in the offer and sale
of securities sold in accordance with
Securities Act Rule 144A.10 However,
because the TRACE rules currently do
not provide for dissemination of
transactions, price information is
limited in Rule 144A transactions in
TRACE-Eligible Securities. In the
absence of such data, it is difficult for
market participants to assess the quality
of Rule 144A transaction executions or
compare them to executions of similar
publicly traded securities of the same
issuer or similarly rated issuers.
Section 201 of the Jumpstart Our
Business Startups Act (the ‘‘JOBS
Act’’) 11 directed the SEC to eliminate
the prohibition against general
solicitation and general advertising in
offerings of securities pursuant to
Securities Act Rule 144A 12 and in
certain other private placements. To
implement Section 201(a)(2) of the JOBS
Act, the SEC amended Securities Act
Rule 144A(d)(1) 13 to provide that
securities may be offered pursuant to
Securities Act Rule 144A 14 to persons
9 In 2012, 628 unique dealers reported 2,100
average daily Rule 144A corporate bond
transactions, representing approximately $5 billion
average daily par value traded. In comparison,
1,500 dealers reported 42,000 average daily
corporate bond transactions (excluding Rule 144A
corporate bond transactions), representing
approximately $19 billion average daily par value
traded.
The statistical information herein refers to Rule
144A transactions in TRACE-Eligible Securities that
are referred to as ‘‘corporate bonds’’; this term
generally refers to corporate bonds and also other
types of securities (e.g., equity-linked notes, bonds
issued by religious organizations or for religious
purposes (e.g., ‘‘church bonds’’)), but excludes
Agency Debt Securities as defined in FINRA Rule
6710(l) and Asset-Backed Securities (‘‘ABS’’) as
defined in FINRA Rule 6710(m). The statistical
information is limited to corporate bond
transactions because, at this time, corporate bonds
are the only category of TRACE-Eligible Securities
that would be affected by the proposed rule change.
See note 24, infra.
10 17 CFR 230.144A.
11 The JOBS Act was enacted on April 5, 2012;
Public Law 112–106, 126 Stat. 306.
12 17 CFR 230.144A. Although the proposed rule
change is limited to Rule 144A transactions in
TRACE-Eligible Securities, which are debt
securities, Securities Act Rule 144A (17 CFR
230.144A), and the SEC’s amendments thereto, are
not so limited.
13 17 CFR 230.144A(d)(1).
14 17 CFR 230.144A. See Securities Act Release
No. 69959 (July 10, 2013) (Eliminating the
Prohibition Against General Solicitation and
General Advertising in Rule 506 and Rule 144A
Offerings) (File No. S7–07–12).
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other than QIBs,15 provided that the
securities are sold only to persons that
the seller and any person acting on
behalf of the seller reasonably believe
are QIBs.16 FINRA believes that the
proposed rule change regarding posttrade transparency in Rule 144A
transactions is in harmony with the
changes to Securities Act Rule 144A 17
recently approved by the SEC.18
In anticipation of the changes to
Securities Act Rule 144A,19 FINRA
published Regulatory Notice 12–39 in
September 2012 requesting comment
on, among other things, whether Rule
144A transactions should be
disseminated, and, if disseminated,
whether such transactions should be
subject to dissemination caps, whereby
the actual size of a transaction over a
certain par value is not displayed in
disseminated TRACE transaction data.20
As discussed below, FINRA received 12
comments addressing the dissemination
of Rule 144A transactions. Nine
commenters supported such
dissemination and three commenters
were opposed.21
Based on a review of the comments
and the benefits of increased
transparency in the U.S. debt markets
observed in the past decade, FINRA
proposes to disseminate information on
Rule 144A transactions, except for
transactions occurring in securities
which, by asset type, currently are not
required to be disseminated.
Specifically, FINRA proposes to amend
FINRA Rule 6750(a) to provide that
FINRA will disseminate information on
all transactions in TRACE-Eligible
Securities, including transactions
effected pursuant to Securities Act Rule
144A,22 immediately upon receipt of the
transaction report, except as provided in
paragraph (b). The proposed
amendment would eliminate the
exception to dissemination for Rule
15 See
supra note 8.
supra note 8.
17 17 CFR 230.144A.
18 See supra note 14.
19 17 CFR 230.144A.
20 In Regulatory Notice 12–39, FINRA also
requested comment on whether access to Rule 144A
transaction information, if disseminated, should be
disseminated publicly without limitation or on a
more limited basis, and, the impact, if any, that
dissemination might have on pricing and
investment decisions. FINRA also requested
comment on existing dissemination caps for
transactions in corporate bonds, Agency Debt
Securities (as defined in FINRA Rule 6710(l)) and
Asset-Backed Securities (‘‘ABS’’) (as defined in
FINRA Rule 6710(m)). FINRA is not proposing to
change any of the current dissemination caps at this
time.
21 See Item C below for the discussion of the
comments concerning dissemination of Rule 144A
transactions in response to Regulatory Notice 12–
39.
22 17 CFR 230.144A.
16 See
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144A transactions in FINRA Rule
6750(b), but retain the other exceptions
(i.e., under FINRA Rule 6750(b)(2) and
FINRA Rule 6750(b)(3), respectively,
certain transfers of proprietary securities
positions and List or Fixed Offering
Price Transactions and Takedown
Transactions are not disseminated; and
under FINRA Rule 6750(b)(4), including
amendments that will become effective
on July 22, 2013, Asset-Backed
Securities transactions, other than
transactions in Agency Pass-Through
Mortgage-Backed Securities and SBABacked ABS, are not disseminated.) 23
Accordingly, under the proposed rule
change, corporate bond transactions
effected as Rule 144A transactions and
reported to TRACE would be
disseminated.24
FINRA believes that the proposed rule
change to provide price transparency in
Rule 144A transactions will, in the
Securities Act Rule 144A 25 debt
markets, enhance pre-trade price
discovery, foster more competitive
pricing, reduce costs to investors and
assist market participants in
determining the quality of their
executions. In addition, transparency in
this sector may improve the quality of
the valuation of securities and
derivative positions for publicly issued
securities of the Securities Act Rule
144A 26 issuer and for similar securities.
in disseminated TRACE transaction
data. For corporate bonds 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 corporate
bonds 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+.’’ 27 FINRA
proposes that Rule 144A transactions be
disseminated subject to the same
dissemination caps that are currently in
effect for a non-Rule 144A transaction in
the applicable security (e.g., a non-Rule
144A transaction in an Investment
Grade corporate bond).28
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Dissemination Caps
FINRA has established TRACE
dissemination caps for TRACE data,
such that the actual size of a transaction
over a certain par value is not displayed
Data
FINRA proposes to amend FINRA
Rule 7730 to make available the realtime disseminated Rule 144A
transaction data and the Historic TRACE
Data for Rule 144A transactions. First,
FINRA proposes to amend FINRA Rule
7730(c) to establish the Rule 144A
transaction data set (‘‘Rule 144A Data
Set’’) similar to the data sets for
corporate bonds (‘‘Corporate Bond Data
Set’’), Agency Debt Securities (‘‘Agency
Data Set’’) and Asset-Backed Securities
(‘‘ABS Data Set’’). The Rule 144A Data
Set will consist of information
disseminated immediately upon receipt
of a transaction report for a Rule 144A
transaction.
Second, FINRA proposes to amend
FINRA Rule 7730(d) to establish a
historic data set for Rule 144A
transactions (‘‘Historic Rule 144A Data
23 The terms ‘‘List or Fixed Offering Price
Transaction,’’ ‘‘Takedown Transaction’’ ‘‘Agency
Pass-Through Mortgage-Backed Security,’’ and
‘‘SBA-Backed ABS’’ are defined in FINRA Rule
6710(q), FINRA Rule 6710(r), FINRA Rule 6710(v),
and FINRA Rule 6710(bb), respectively.
24 The proposed rule change would affect
disseminated information as follows: (1) Corporate
bonds—all corporate bonds are subject to
dissemination currently, and, as a result of the
proposed rule change, all Rule 144A transactions in
such securities would become subject to
dissemination; (2) Agency Debt Securities and ABS
currently disseminated or to be disseminated as of
July 22, 2013 (i.e., Agency Pass-Through MortgageBacked Securities traded To Be Announced
(‘‘TBA’’) and in Specified Pool Transactions and
SBA-Backed ABS traded TBA and in Specified Pool
Transactions)—there would be no additional
transactions disseminated as a result of the
proposed rule change because Securities Act Rule
144A (17 CFR 230.144A) is not used to effect
transactions in such securities; and (3) ABS not
currently subject to dissemination—when, in the
future, FINRA considers whether private-issuer
ABS should be subject to dissemination, FINRA
also would determine if Rule 144A transactions in
such types of ABS would be disseminated.
The terms To Be Announced and Specified Pool
Transaction are defined in FINRA Rule 6710(u) and
FINRA Rule 6710(x), respectively.
25 17 CFR 230.144A.
26 17 CFR 230.144A.
27 The dissemination cap for Investment Grade
corporate bonds (excluding those sold in Rule 144A
transactions) limits the display of actual size for
approximately 2.1 percent of trades representing
approximately 51.7 percent of total par value
traded. The dissemination cap for Non-Investment
Grade corporate bonds (excluding those sold in
Rule 144A transactions) limits the display of actual
size for approximately 15.6 percent of trades
representing approximately 84.3 percent of total par
value traded. The information is based on a review
of all transactions (excluding Rule 144A
transactions) in Investment Grade corporate bonds
and Non-Investment Grade corporate bonds
reported to TRACE from January 1, 2003 to
December 31, 2012.
The terms Investment Grade and Non-Investment
Grade are defined in, respectively, FINRA Rule
6710(h) and FINRA Rule 6710(i).
28 At this level, approximately 15.5 percent of all
Investment Grade Rule 144A transactions and
approximately 61.4 percent of par value traded in
such transactions would be disseminated subject to
the $5MM dissemination cap, and approximately
52.4 percent of all Non-Investment Grade Rule
144A transactions and approximately 89.9 percent
of par valued traded in such transactions would be
disseminated subject to the $1MM dissemination
cap. The information is based on a review of all
Rule 144A transactions in Investment Grade
corporate bonds and Non-Investment Grade
corporate bonds reported to TRACE from January 1,
2003 through December 31, 2012.
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44999
Set’’) similar to the data sets for
corporate bonds (‘‘Historic Corporate
Bond Data Set’’), Agency Debt Securities
(‘‘Historic Agency Data Set’’) and AssetBacked Securities (‘‘Historic ABS Data
Set’’) referenced in the rule. The
Historic Rule 144A Data Set would
include Rule 144A transactions in
securities subject to dissemination,
effected as of or after July 1, 2002, and,
among other things, would include
uncapped volume information.
However, like all other Historic TRACE
Data, Rule 144A transaction data
included in the Historic Rule 144A Data
Set would be released subject to a delay
of approximately 18 months from the
date of the transaction.
FINRA also proposes to amend the
definition of ‘‘Historic TRACE Data’’ in
FINRA Rule 7730(f)(4) to reference the
three existing data sets and the
proposed Historic Rule 144A Data Set
and make other clarifying and technical
amendments. Specifically, the
definition would be revised to clarify
that the Historic Corporate Bond Data
Set includes all historic transactions in
corporate bonds reported to TRACE,
except Rule 144A transactions in
corporate bonds; the Historic Agency
Data Set includes all historic
transactions in Agency Debt Securities
reported to TRACE; the Historic ABS
Data Set includes all historic
transactions in ABS reported to TRACE,
if transactions in the type of ABS are
subject to real-time dissemination under
FINRA Rule 6750, but excludes historic
Rule 144A transactions in ABS; and the
Historic Rule 144A Data Set includes all
historic Rule 144A transactions reported
to TRACE, except transactions involving
a type of TRACE-Eligible Security (e.g.,
certain ABS) that is not subject to realtime dissemination under FINRA Rule
6750.
Finally, FINRA proposes the
following additional, minor revisions to
FINRA Rule 7730. In FINRA Rule
7730(d)(1)(A)(ii) and FINRA Rule
7730(d)(1)(B)(ii), FINRA proposes to
clarify that the 2012 Historic ABS Data
Set includes the 2011 Historic ABS Data
Set. ABS began to be reported to TRACE
in May 2011 and, accordingly,
transactions from that time would be
included in the Historic ABS Data Set.
Proposed technical amendments to
FINRA Rule 7730(c)(1), FINRA Rule
7730(c)(2) and the table preceding such
provisions would clarify that the fees
therein apply only to the Corporate
Bond Data Set, Agency Data Set and
ABS Data Set. Similarly, proposed
technical amendments to FINRA Rule
7730(d)(1), FINRA Rule 7730(d)(2) and
the preceding table would clarify that
the fees therein apply only to the
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existing Historic Corporate Bond Data
Set, Historic Agency Data Set and
Historic ABS Data Set.29
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 270 days
following publication of the Regulatory
Notice announcing Commission
approval.
7730 and the dissemination protocols
and disseminate Rule 144A transactions
and establish real-time and historic Data
Sets of Rule 144A transactions will
provide transparency in a market sector
for the first time, which may foster more
competitive, negotiated, and fairer
pricing of Rule 144A transactions and
similar corporate bond transactions
between market participants, and, in
some cases, may result in lower prices
for investors.
2. Statutory Basis
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The proposed rule change was
published for comment in Regulatory
Notice 12–39 (September 2012).31
FINRA received 316 comments in
response to Regulatory Notice 12–39, of
which 12 comments directly addressed
the dissemination of Rule 144A
transactions, specifically whether Rule
144A transactions should be
disseminated, and if so, whether such
transactions should be disseminated
publicly or only to QIBs, and should be
subject to dissemination caps.32 A copy
of the Regulatory Notice is attached as
Exhibit 2a. Copies of the comment
letters received in response to the
Regulatory Notice are attached as
Exhibit 2c. Of the 12 comment letters
received that addressed the
dissemination of Rule 144A
transactions, nine were in favor of the
proposed rule change and three were
opposed.33
FINRA believes that the proposed rule
change is consistent with the provisions
of Section 15A(b)(6) of the Act,30 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 proposed rule
change to increase fixed income market
transparency and establish real-time and
historic data sets for Rule 144A
transactions is 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.
Transparency in Rule 144A transactions
will enhance the ability of investors and
other market participants to identify and
negotiate fair and competitive prices for
corporate bonds. The dissemination of
price and other Rule 144A transaction
information publicly also will aid in the
prevention of fraudulent and
manipulative acts and practices in the
corporate bond market.
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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. The
proposed rule change, which is of
limited scope and addresses the
proposed dissemination of Rule 144A
transactions and establishment of realtime and historic data sets of Rule 144A
transactions, does not impose any
additional costs or obligations under the
Rule 6700 Series, such as any new
reporting obligations on members or
other market participants as Rule 144A
transactions are currently required to be
reported to TRACE. In addition, as
noted above, FINRA’s proposal to
amend FINRA Rule 6750, FINRA Rule
29 FINRA will file a separate rule filing to address
the market data fees for the Rule 144A Data Set and
the Historic Rule 144A Data Set.
30 15 U.S.C. 78o–3(b)(6).
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31 In Regulatory Notice 12–39 FINRA also
requested comment on existing dissemination caps
for transactions in corporate bonds, Agency Debt
Securities and ABS. FINRA is not proposing to
change any of the current dissemination caps at this
time.
32 Most of the 316 comment letters were filed in
support of, or in opposition to, increasing or
eliminating the dissemination caps currently in
effect.
33 See nine comment letters that favored
dissemination of Rule 144A transactions: Letter
from Bill O’Neill, Sr. Portfolio Manager, Income
Research & Management, to Marcia E. Asquith,
Corporate Secretary, FINRA, dated September 17,
2012 (‘‘IRM’’); Letter from Jim Toffey, CEO,
Benchmark Solutions, Inc., to Marcia E. Asquith,
Corporate Secretary, FINRA, dated October 4, 2012
(‘‘Benchmark’’); Letter from Beth N. Lowson, The
Nelson Law Firm, LLC, to Marcia E. Asquith,
Corporate Secretary, FINRA, dated October 9, 2012
(‘‘Nelson Law’’); Letter from E.A. Repetto, CEO,
Dimensional Fund Advisors LP, to Marcia E.
Asquith, Corporate Secretary, FINRA, dated
November 6, 2012 (‘‘Dimensional’’); Letter from Lyn
Perlmuth, Director, Fixed Income Forum, The
Credit Roundtable, to Marcia E. Asquith, Corporate
Secretary, FINRA, dated November 7, 2012 (‘‘Credit
Roundtable’’); Letter from Scott Oswald, Sr.
Associate, Research, Bristlecone Advisors, LLC, to
Marcia E. Asquith, Corporate Secretary, FINRA,
dated November 9, 2012 (‘‘Bristlecone’’); Letter
from Dorothy Donohue, Deputy General Counsel,
Securities Regulation, The Investment Company
PO 00000
Frm 00079
Fmt 4703
Sfmt 4703
The comments in favor of
disseminating Rule 144A transactions
noted that the Rule 144A market has
significant volume, has matured and
increased in liquidity over the several
years that TRACE has been in effect, and
investors would benefit from increased
transparency.34 They further noted that
increased transparency is a valuable tool
in pre-trade price discovery 35 and is
associated with a decline in trading
costs for investors.36 Most of these
comments supported the same
dissemination caps for Rule 144A
transactions as are in effect for the
applicable public securities
transactions.37 One commenter, while
supportive of dissemination of Rule
144A transactions, suggested that no
dissemination caps be applied.38
The comments opposing
dissemination of Rule 144A transactions
indicated that transparency is not
necessary or appropriate since such
transactions are private in nature 39 and,
without the offering documents,
investors could be confused.40 One
comment opposing dissemination of
Rule 144A transactions further noted
that such private transactions are done
almost exclusively by institutions that
are capable of assessing and negotiating
the information needed to make
investment decisions.41
FINRA believes that on balance the
benefits of increased transparency as
noted above outweigh the concerns
expressed by commenters opposing the
dissemination of Rule 144A
transactions.
Institute, to Marcia E. Asquith, Corporate Secretary,
FINRA, dated November 12, 2012 (‘‘ICI’’); Letter
from David A. Hodges, Principal, Integra Wealth,
LLC, to Marcia E. Asquith, Corporate Secretary,
FINRA, dated November 15, 2012 (‘‘Integra’’); and
Letter from Mark Hepsworth, President, Pricing and
Reference Data, Interactive Data Corporation, to
Marcia E. Asquith, Corporate Secretary, FINRA,
dated November 19, 2012 (‘‘Interactive Data’’). See
also three comment letters that did not support
disseminating Rule 144A transactions: Letter from
Chris Killian, Managing Director, Securities
Industry and Financial Markets Association, to
Marcia E. Asquith, Corporate Secretary, FINRA,
dated November 16, 2012 (‘‘SIFMA’’); Letter from
Michael Nicholas, CEO, Bond Dealers of America,
to Marcia E. Asquith, Corporate Secretary, FINRA,
dated November 19, 2012 (‘‘BDA’’); and Letter from
Chris Melton, Executive Vice President, Coastal
Securities, to Marcia E. Asquith, Corporate
Secretary, FINRA, dated November 19, 2012
(‘‘Coastal Securities’’).
34 Credit Roundtable, ICI and Benchmark.
35 Benchmark and Nelson Law.
36 Dimensional.
37 Benchmark, IRM, Bristlecone, Credit
Roundtable, ICI, Dimensional, Integra and
Interactive Data.
38 Nelson Law.
39 Coastal Securities.
40 SIFMA.
41 BDA.
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ehiers on DSK2VPTVN1PROD with NOTICES
Federal Register / Vol. 78, No. 143 / Thursday, July 25, 2013 / Notices
After studying market data and
soliciting comment, FINRA believes that
investors would benefit from increased
transparency in Rule 144A transactions.
FINRA’s review of the reported
transactions indicates and commenters
note that the market in Rule 144A
transactions has significant volume, has
matured and has increased in liquidity
over the several years that TRACE has
been in effect. Although one comment
opposing dissemination of Rule 144A
transactions noted that the contra
parties to Rule 144A transactions are
almost exclusively institutions that are
capable of assessing and negotiating the
information needed to make investment
decisions, FINRA believes, based on
academic studies and the experience in
publicly traded corporate bonds, that
even in institutional markets more
transparent markets tend to reduce
spreads and trade execution costs,
which may be indicative of more
competitive prices for investors. In
addition, FINRA notes that
dissemination may assist market
participants in price discovery as well
as determining execution quality.
Finally, FINRA believes that
transparency in this sector may improve
the quality of pricing for valuation
purposes, which is critical for both
dealers and institutions.
In addition, FINRA does not believe
that providing price transparency in
Rule 144A transactions generally will
have an adverse impact on the liquidity
of the market. FINRA notes that
academic studies have not established a
relationship between transparency and a
reduction in liquidity of a specific
market sector. FINRA acknowledges,
however, that each market sector is
different, and intends to monitor the
market in Rule 144A transactions in
TRACE-Eligible Securities to determine
if there is an adverse impact to liquidity
or other factors, as FINRA has
previously done when introducing
transparency in other debt market
sectors.
A commenter raised concerns that
investors will be confused by
transparency in Rule 144A transactions.
FINRA does not believe that investor
confusion will result from such
transparency. FINRA does not believe
that non-QIB institutional customers
will be confused by access to Rule 144A
transaction data. First, FINRA believes
that establishing separate data sets for
Rule 144A transaction information
avoids potential investor confusion
since such transactions are not
comingled with non-Rule 144A
transactions and can be presented
separately and clearly marked as such.
In addition, such customers can use this
VerDate Mar<15>2010
13:49 Jul 24, 2013
Jkt 229001
information as an additional data point
in pricing bonds that they are eligible to
trade, and if they fail to recognize the
Rule 144A status of the trades and think
they can trade these precise bonds, their
broker will advise otherwise.
For the reasons discussed above,
FINRA believes that transparency
should be provided in Rule 144A
transactions and, accordingly, proposes
to amend FINRA Rule 6750 and the
TRACE dissemination protocols to
provide for dissemination of Rule 144A
transactions.
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–2013–029 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–2013–029. 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
PO 00000
Frm 00080
Fmt 4703
Sfmt 4703
45001
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
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
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–
2013–029 and should be submitted on
or before August 15, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.42
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–17857 Filed 7–24–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–70007; File No. SR–MIAX–
2013–21]
Self-Regulatory Organizations; Miami
International Securities Exchange LLC;
Order Approving Proposed Rule
Change To Modify the Allocation of
Directed Orders in Specific Limited
Situations
July 19, 2013.
I. Introduction
On May 22, 2013, Miami International
Securities Exchange LLC (the
‘‘Exchange’’ or ‘‘MIAX’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) 1 of the Securities Exchange Act
of 1934 (‘‘Act’’),2 and Rule 19b–4
thereunder,3 a proposed rule change to
modify its practice of allocating
Directed Orders. The proposed rule
change was published for comment in
42 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
E:\FR\FM\25JYN1.SGM
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]]>Agencies
[Federal Register Volume 78, Number 143 (Thursday, July 25, 2013)]
[Notices]
[Pages 44997-45001]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-17857]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70009; File No. SR-FINRA-2013-029]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a Proposed Rule Change Relating to
the Dissemination of Transactions in TRACE-Eligible Securities That Are
Effected Pursuant to Securities Act Rule 144A
July 19, 2013.
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 July 17, 2013, the Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I,
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: (1) FINRA Rule 6750 and the Trade
Reporting and Compliance Engine (``TRACE'') dissemination protocols
regarding the dissemination of transactions in TRACE-Eligible
Securities that are effected pursuant to Rule 144A \3\ under the
Securities Act of 1933 \4\ (``Rule 144A transactions''); (2) FINRA Rule
7730 to establish real-time and historic data sets for Rule 144A
transaction data; and (3) FINRA Rule 7730 to clarify the definition of
Historic TRACE Data, to clarify other provisions therein and
incorporate other technical amendments.\5\
---------------------------------------------------------------------------
\3\ 17 CFR 230.144A.
\4\ 15 U.S.C. 77a et seq. (hereinafter ``Securities Act'').
\5\ The terms TRACE-Eligible Security and Historic TRACE Data
are defined in FINRA Rule 6710(a) and FINRA Rule 7730(f)(4),
respectively.
---------------------------------------------------------------------------
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
[[Page 44998]]
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 FINRA rules and TRACE
dissemination protocols to provide greater transparency in Rule 144A
transactions.\6\ FINRA proposes to amend FINRA Rule 6750 to provide for
the dissemination of Rule 144A transactions, provided the asset type
(e.g., corporate bonds) currently is subject to dissemination under
FINRA Rule 6750. FINRA also proposes to amend the dissemination
protocols to extend the dissemination caps currently applicable to the
non-Rule 144A transactions in such asset type (e.g., non-Rule 144A
corporate bond transactions) to Rule 144A transactions in such
securities. In addition, FINRA proposes to amend FINRA Rule 7730 to
establish a data set for real-time Rule 144A transaction data and a
second data set for historic Rule 144A transaction data, to amend the
definition of Historic TRACE Data to reference the three data sets
currently included therein and the proposed fourth data set, and to
make other clarifying and technical amendments.
---------------------------------------------------------------------------
\6\ The discussion in the proposed rule change to modify the
FINRA Rule 6700 Series and Rule 7730 and in Regulatory Notice 12-39
(September 2012) (FINRA's request for comments regarding the
dissemination of Rule 144A transactions) is limited to ``Rule 144A
transactions'' as defined herein (i.e., in securities that are
TRACE-Eligible Securities that are effected pursuant to Securities
Act Rule 144A (17 CFR 230.144A)). (See also, infra, note 20 and Item
C below regarding Regulatory Notice 12-39 (September 2012).) Equity
securities transactions effected pursuant to Securities Act Rule
144A (17 CFR 230.144A) are not reported to TRACE and are not the
subject of this proposed rule change.
---------------------------------------------------------------------------
Rule 144A Transactions
Securities Act Rule 144A \7\ provides a safe harbor from the
registration requirements of the Securities Act for the resale of
unregistered securities to qualified institutional buyers
(``QIBs'').\8\ Rule 144A transactions, as defined herein, have been
reported to FINRA since TRACE inception on July 1, 2002.\9\ However,
such Rule 144A transactions have not been subject to dissemination
under FINRA Rule 6750(b)(1), in part to avoid concerns about public
solicitation of 144A transactions. Such Rule 144A transactions were
effected subject to a regulatory framework that included a long-
standing prohibition against general solicitation in the offer and sale
of securities sold in accordance with Securities Act Rule 144A.\10\
However, because the TRACE rules currently do not provide for
dissemination of transactions, price information is limited in Rule
144A transactions in TRACE-Eligible Securities. In the absence of such
data, it is difficult for market participants to assess the quality of
Rule 144A transaction executions or compare them to executions of
similar publicly traded securities of the same issuer or similarly
rated issuers.
---------------------------------------------------------------------------
\7\ 17 CFR 230.144A.
\8\ Qualified institutional buyer is defined in Securities Act
Rule 144A(a)(1). See 17 CFR 230.144A(a)(1).
\9\ In 2012, 628 unique dealers reported 2,100 average daily
Rule 144A corporate bond transactions, representing approximately $5
billion average daily par value traded. In comparison, 1,500 dealers
reported 42,000 average daily corporate bond transactions (excluding
Rule 144A corporate bond transactions), representing approximately
$19 billion average daily par value traded.
The statistical information herein refers to Rule 144A
transactions in TRACE-Eligible Securities that are referred to as
``corporate bonds''; this term generally refers to corporate bonds
and also other types of securities (e.g., equity-linked notes, bonds
issued by religious organizations or for religious purposes (e.g.,
``church bonds'')), but excludes Agency Debt Securities as defined
in FINRA Rule 6710(l) and Asset-Backed Securities (``ABS'') as
defined in FINRA Rule 6710(m). The statistical information is
limited to corporate bond transactions because, at this time,
corporate bonds are the only category of TRACE-Eligible Securities
that would be affected by the proposed rule change. See note 24,
infra.
\10\ 17 CFR 230.144A.
---------------------------------------------------------------------------
Section 201 of the Jumpstart Our Business Startups Act (the ``JOBS
Act'') \11\ directed the SEC to eliminate the prohibition against
general solicitation and general advertising in offerings of securities
pursuant to Securities Act Rule 144A \12\ and in certain other private
placements. To implement Section 201(a)(2) of the JOBS Act, the SEC
amended Securities Act Rule 144A(d)(1) \13\ to provide that securities
may be offered pursuant to Securities Act Rule 144A \14\ to persons
other than QIBs,\15\ provided that the securities are sold only to
persons that the seller and any person acting on behalf of the seller
reasonably believe are QIBs.\16\ FINRA believes that the proposed rule
change regarding post-trade transparency in Rule 144A transactions is
in harmony with the changes to Securities Act Rule 144A \17\ recently
approved by the SEC.\18\
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\11\ The JOBS Act was enacted on April 5, 2012; Public Law 112-
106, 126 Stat. 306.
\12\ 17 CFR 230.144A. Although the proposed rule change is
limited to Rule 144A transactions in TRACE-Eligible Securities,
which are debt securities, Securities Act Rule 144A (17 CFR
230.144A), and the SEC's amendments thereto, are not so limited.
\13\ 17 CFR 230.144A(d)(1).
\14\ 17 CFR 230.144A. See Securities Act Release No. 69959 (July
10, 2013) (Eliminating the Prohibition Against General Solicitation
and General Advertising in Rule 506 and Rule 144A Offerings) (File
No. S7-07-12).
\15\ See supra note 8.
\16\ See supra note 8.
\17\ 17 CFR 230.144A.
\18\ See supra note 14.
---------------------------------------------------------------------------
In anticipation of the changes to Securities Act Rule 144A,\19\
FINRA published Regulatory Notice 12-39 in September 2012 requesting
comment on, among other things, whether Rule 144A transactions should
be disseminated, and, if disseminated, whether such transactions should
be subject to dissemination caps, whereby the actual size of a
transaction over a certain par value is not displayed in disseminated
TRACE transaction data.\20\ As discussed below, FINRA received 12
comments addressing the dissemination of Rule 144A transactions. Nine
commenters supported such dissemination and three commenters were
opposed.\21\
---------------------------------------------------------------------------
\19\ 17 CFR 230.144A.
\20\ In Regulatory Notice 12-39, FINRA also requested comment on
whether access to Rule 144A transaction information, if
disseminated, should be disseminated publicly without limitation or
on a more limited basis, and, the impact, if any, that dissemination
might have on pricing and investment decisions. FINRA also requested
comment on existing dissemination caps for transactions in corporate
bonds, Agency Debt Securities (as defined in FINRA Rule 6710(l)) and
Asset-Backed Securities (``ABS'') (as defined in FINRA Rule
6710(m)). FINRA is not proposing to change any of the current
dissemination caps at this time.
\21\ See Item C below for the discussion of the comments
concerning dissemination of Rule 144A transactions in response to
Regulatory Notice 12-39.
---------------------------------------------------------------------------
Based on a review of the comments and the benefits of increased
transparency in the U.S. debt markets observed in the past decade,
FINRA proposes to disseminate information on Rule 144A transactions,
except for transactions occurring in securities which, by asset type,
currently are not required to be disseminated. Specifically, FINRA
proposes to amend FINRA Rule 6750(a) to provide that FINRA will
disseminate information on all transactions in TRACE-Eligible
Securities, including transactions effected pursuant to Securities Act
Rule 144A,\22\ immediately upon receipt of the transaction report,
except as provided in paragraph (b). The proposed amendment would
eliminate the exception to dissemination for Rule
[[Page 44999]]
144A transactions in FINRA Rule 6750(b), but retain the other
exceptions (i.e., under FINRA Rule 6750(b)(2) and FINRA Rule
6750(b)(3), respectively, certain transfers of proprietary securities
positions and List or Fixed Offering Price Transactions and Takedown
Transactions are not disseminated; and under FINRA Rule 6750(b)(4),
including amendments that will become effective on July 22, 2013,
Asset-Backed Securities transactions, other than transactions in Agency
Pass-Through Mortgage-Backed Securities and SBA-Backed ABS, are not
disseminated.) \23\ Accordingly, under the proposed rule change,
corporate bond transactions effected as Rule 144A transactions and
reported to TRACE would be disseminated.\24\
---------------------------------------------------------------------------
\22\ 17 CFR 230.144A.
\23\ The terms ``List or Fixed Offering Price Transaction,''
``Takedown Transaction'' ``Agency Pass-Through Mortgage-Backed
Security,'' and ``SBA-Backed ABS'' are defined in FINRA Rule
6710(q), FINRA Rule 6710(r), FINRA Rule 6710(v), and FINRA Rule
6710(bb), respectively.
\24\ The proposed rule change would affect disseminated
information as follows: (1) Corporate bonds--all corporate bonds are
subject to dissemination currently, and, as a result of the proposed
rule change, all Rule 144A transactions in such securities would
become subject to dissemination; (2) Agency Debt Securities and ABS
currently disseminated or to be disseminated as of July 22, 2013
(i.e., Agency Pass-Through Mortgage-Backed Securities traded To Be
Announced (``TBA'') and in Specified Pool Transactions and SBA-
Backed ABS traded TBA and in Specified Pool Transactions)--there
would be no additional transactions disseminated as a result of the
proposed rule change because Securities Act Rule 144A (17 CFR
230.144A) is not used to effect transactions in such securities; and
(3) ABS not currently subject to dissemination--when, in the future,
FINRA considers whether private-issuer ABS should be subject to
dissemination, FINRA also would determine if Rule 144A transactions
in such types of ABS would be disseminated.
The terms To Be Announced and Specified Pool Transaction are
defined in FINRA Rule 6710(u) and FINRA Rule 6710(x), respectively.
---------------------------------------------------------------------------
FINRA believes that the proposed rule change to provide price
transparency in Rule 144A transactions will, in the Securities Act Rule
144A \25\ debt markets, enhance pre-trade price discovery, foster more
competitive pricing, reduce costs to investors and assist market
participants in determining the quality of their executions. In
addition, transparency in this sector may improve the quality of the
valuation of securities and derivative positions for publicly issued
securities of the Securities Act Rule 144A \26\ issuer and for similar
securities.
---------------------------------------------------------------------------
\25\ 17 CFR 230.144A.
\26\ 17 CFR 230.144A.
---------------------------------------------------------------------------
Dissemination Caps
FINRA has established TRACE dissemination caps for TRACE data, such
that the actual size of a transaction over a certain par value is not
displayed in disseminated TRACE transaction data. For corporate bonds
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 corporate bonds 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+.'' \27\ FINRA
proposes that Rule 144A transactions be disseminated subject to the
same dissemination caps that are currently in effect for a non-Rule
144A transaction in the applicable security (e.g., a non-Rule 144A
transaction in an Investment Grade corporate bond).\28\
---------------------------------------------------------------------------
\27\ The dissemination cap for Investment Grade corporate bonds
(excluding those sold in Rule 144A transactions) limits the display
of actual size for approximately 2.1 percent of trades representing
approximately 51.7 percent of total par value traded. The
dissemination cap for Non-Investment Grade corporate bonds
(excluding those sold in Rule 144A transactions) limits the display
of actual size for approximately 15.6 percent of trades representing
approximately 84.3 percent of total par value traded. The
information is based on a review of all transactions (excluding Rule
144A transactions) in Investment Grade corporate bonds and Non-
Investment Grade corporate bonds reported to TRACE from January 1,
2003 to December 31, 2012.
The terms Investment Grade and Non-Investment Grade are defined
in, respectively, FINRA Rule 6710(h) and FINRA Rule 6710(i).
\28\ At this level, approximately 15.5 percent of all Investment
Grade Rule 144A transactions and approximately 61.4 percent of par
value traded in such transactions would be disseminated subject to
the $5MM dissemination cap, and approximately 52.4 percent of all
Non-Investment Grade Rule 144A transactions and approximately 89.9
percent of par valued traded in such transactions would be
disseminated subject to the $1MM dissemination cap. The information
is based on a review of all Rule 144A transactions in Investment
Grade corporate bonds and Non-Investment Grade corporate bonds
reported to TRACE from January 1, 2003 through December 31, 2012.
---------------------------------------------------------------------------
Data
FINRA proposes to amend FINRA Rule 7730 to make available the real-
time disseminated Rule 144A transaction data and the Historic TRACE
Data for Rule 144A transactions. First, FINRA proposes to amend FINRA
Rule 7730(c) to establish the Rule 144A transaction data set (``Rule
144A Data Set'') similar to the data sets for corporate bonds
(``Corporate Bond Data Set''), Agency Debt Securities (``Agency Data
Set'') and Asset-Backed Securities (``ABS Data Set''). The Rule 144A
Data Set will consist of information disseminated immediately upon
receipt of a transaction report for a Rule 144A transaction.
Second, FINRA proposes to amend FINRA Rule 7730(d) to establish a
historic data set for Rule 144A transactions (``Historic Rule 144A Data
Set'') similar to the data sets for corporate bonds (``Historic
Corporate Bond Data Set''), Agency Debt Securities (``Historic Agency
Data Set'') and Asset-Backed Securities (``Historic ABS Data Set'')
referenced in the rule. The Historic Rule 144A Data Set would include
Rule 144A transactions in securities subject to dissemination, effected
as of or after July 1, 2002, and, among other things, would include
uncapped volume information. However, like all other Historic TRACE
Data, Rule 144A transaction data included in the Historic Rule 144A
Data Set would be released subject to a delay of approximately 18
months from the date of the transaction.
FINRA also proposes to amend the definition of ``Historic TRACE
Data'' in FINRA Rule 7730(f)(4) to reference the three existing data
sets and the proposed Historic Rule 144A Data Set and make other
clarifying and technical amendments. Specifically, the definition would
be revised to clarify that the Historic Corporate Bond Data Set
includes all historic transactions in corporate bonds reported to
TRACE, except Rule 144A transactions in corporate bonds; the Historic
Agency Data Set includes all historic transactions in Agency Debt
Securities reported to TRACE; the Historic ABS Data Set includes all
historic transactions in ABS reported to TRACE, if transactions in the
type of ABS are subject to real-time dissemination under FINRA Rule
6750, but excludes historic Rule 144A transactions in ABS; and the
Historic Rule 144A Data Set includes all historic Rule 144A
transactions reported to TRACE, except transactions involving a type of
TRACE-Eligible Security (e.g., certain ABS) that is not subject to
real-time dissemination under FINRA Rule 6750.
Finally, FINRA proposes the following additional, minor revisions
to FINRA Rule 7730. In FINRA Rule 7730(d)(1)(A)(ii) and FINRA Rule
7730(d)(1)(B)(ii), FINRA proposes to clarify that the 2012 Historic ABS
Data Set includes the 2011 Historic ABS Data Set. ABS began to be
reported to TRACE in May 2011 and, accordingly, transactions from that
time would be included in the Historic ABS Data Set. Proposed technical
amendments to FINRA Rule 7730(c)(1), FINRA Rule 7730(c)(2) and the
table preceding such provisions would clarify that the fees therein
apply only to the Corporate Bond Data Set, Agency Data Set and ABS Data
Set. Similarly, proposed technical amendments to FINRA Rule 7730(d)(1),
FINRA Rule 7730(d)(2) and the preceding table would clarify that the
fees therein apply only to the
[[Page 45000]]
existing Historic Corporate Bond Data Set, Historic Agency Data Set and
Historic ABS Data Set.\29\
---------------------------------------------------------------------------
\29\ FINRA will file a separate rule filing to address the
market data fees for the Rule 144A Data Set and the Historic Rule
144A Data Set.
---------------------------------------------------------------------------
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 270 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,\30\ 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 proposed rule change to increase fixed income
market transparency and establish real-time and historic data sets for
Rule 144A transactions is 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. Transparency in Rule 144A transactions will enhance the ability
of investors and other market participants to identify and negotiate
fair and competitive prices for corporate bonds. The dissemination of
price and other Rule 144A transaction information publicly also will
aid in the prevention of fraudulent and manipulative acts and practices
in the corporate bond market.
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\30\ 15 U.S.C. 78o-3(b)(6).
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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. The proposed rule change, which
is of limited scope and addresses the proposed dissemination of Rule
144A transactions and establishment of real-time and historic data sets
of Rule 144A transactions, does not impose any additional costs or
obligations under the Rule 6700 Series, such as any new reporting
obligations on members or other market participants as Rule 144A
transactions are currently required to be reported to TRACE. In
addition, as noted above, FINRA's proposal to amend FINRA Rule 6750,
FINRA Rule 7730 and the dissemination protocols and disseminate Rule
144A transactions and establish real-time and historic Data Sets of
Rule 144A transactions will provide transparency in a market sector for
the first time, which may foster more competitive, negotiated, and
fairer pricing of Rule 144A transactions and similar corporate bond
transactions between market participants, and, in some cases, may
result in lower prices for investors.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The proposed rule change was published for comment in Regulatory
Notice 12-39 (September 2012).\31\ FINRA received 316 comments in
response to Regulatory Notice 12-39, of which 12 comments directly
addressed the dissemination of Rule 144A transactions, specifically
whether Rule 144A transactions should be disseminated, and if so,
whether such transactions should be disseminated publicly or only to
QIBs, and should be subject to dissemination caps.\32\ A copy of the
Regulatory Notice is attached as Exhibit 2a. Copies of the comment
letters received in response to the Regulatory Notice are attached as
Exhibit 2c. Of the 12 comment letters received that addressed the
dissemination of Rule 144A transactions, nine were in favor of the
proposed rule change and three were opposed.\33\
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\31\ In Regulatory Notice 12-39 FINRA also requested comment on
existing dissemination caps for transactions in corporate bonds,
Agency Debt Securities and ABS. FINRA is not proposing to change any
of the current dissemination caps at this time.
\32\ Most of the 316 comment letters were filed in support of,
or in opposition to, increasing or eliminating the dissemination
caps currently in effect.
\33\ See nine comment letters that favored dissemination of Rule
144A transactions: Letter from Bill O'Neill, Sr. Portfolio Manager,
Income Research & Management, to Marcia E. Asquith, Corporate
Secretary, FINRA, dated September 17, 2012 (``IRM''); Letter from
Jim Toffey, CEO, Benchmark Solutions, Inc., to Marcia E. Asquith,
Corporate Secretary, FINRA, dated October 4, 2012 (``Benchmark'');
Letter from Beth N. Lowson, The Nelson Law Firm, LLC, to Marcia E.
Asquith, Corporate Secretary, FINRA, dated October 9, 2012 (``Nelson
Law''); Letter from E.A. Repetto, CEO, Dimensional Fund Advisors LP,
to Marcia E. Asquith, Corporate Secretary, FINRA, dated November 6,
2012 (``Dimensional''); Letter from Lyn Perlmuth, Director, Fixed
Income Forum, The Credit Roundtable, to Marcia E. Asquith, Corporate
Secretary, FINRA, dated November 7, 2012 (``Credit Roundtable'');
Letter from Scott Oswald, Sr. Associate, Research, Bristlecone
Advisors, LLC, to Marcia E. Asquith, Corporate Secretary, FINRA,
dated November 9, 2012 (``Bristlecone''); Letter from Dorothy
Donohue, Deputy General Counsel, Securities Regulation, The
Investment Company Institute, to Marcia E. Asquith, Corporate
Secretary, FINRA, dated November 12, 2012 (``ICI''); Letter from
David A. Hodges, Principal, Integra Wealth, LLC, to Marcia E.
Asquith, Corporate Secretary, FINRA, dated November 15, 2012
(``Integra''); and Letter from Mark Hepsworth, President, Pricing
and Reference Data, Interactive Data Corporation, to Marcia E.
Asquith, Corporate Secretary, FINRA, dated November 19, 2012
(``Interactive Data''). See also three comment letters that did not
support disseminating Rule 144A transactions: Letter from Chris
Killian, Managing Director, Securities Industry and Financial
Markets Association, to Marcia E. Asquith, Corporate Secretary,
FINRA, dated November 16, 2012 (``SIFMA''); Letter from Michael
Nicholas, CEO, Bond Dealers of America, to Marcia E. Asquith,
Corporate Secretary, FINRA, dated November 19, 2012 (``BDA''); and
Letter from Chris Melton, Executive Vice President, Coastal
Securities, to Marcia E. Asquith, Corporate Secretary, FINRA, dated
November 19, 2012 (``Coastal Securities'').
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The comments in favor of disseminating Rule 144A transactions noted
that the Rule 144A market has significant volume, has matured and
increased in liquidity over the several years that TRACE has been in
effect, and investors would benefit from increased transparency.\34\
They further noted that increased transparency is a valuable tool in
pre-trade price discovery \35\ and is associated with a decline in
trading costs for investors.\36\ Most of these comments supported the
same dissemination caps for Rule 144A transactions as are in effect for
the applicable public securities transactions.\37\ One commenter, while
supportive of dissemination of Rule 144A transactions, suggested that
no dissemination caps be applied.\38\
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\34\ Credit Roundtable, ICI and Benchmark.
\35\ Benchmark and Nelson Law.
\36\ Dimensional.
\37\ Benchmark, IRM, Bristlecone, Credit Roundtable, ICI,
Dimensional, Integra and Interactive Data.
\38\ Nelson Law.
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The comments opposing dissemination of Rule 144A transactions
indicated that transparency is not necessary or appropriate since such
transactions are private in nature \39\ and, without the offering
documents, investors could be confused.\40\ One comment opposing
dissemination of Rule 144A transactions further noted that such private
transactions are done almost exclusively by institutions that are
capable of assessing and negotiating the information needed to make
investment decisions.\41\
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\39\ Coastal Securities.
\40\ SIFMA.
\41\ BDA.
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FINRA believes that on balance the benefits of increased
transparency as noted above outweigh the concerns expressed by
commenters opposing the dissemination of Rule 144A transactions.
[[Page 45001]]
After studying market data and soliciting comment, FINRA believes
that investors would benefit from increased transparency in Rule 144A
transactions. FINRA's review of the reported transactions indicates and
commenters note that the market in Rule 144A transactions has
significant volume, has matured and has increased in liquidity over the
several years that TRACE has been in effect. Although one comment
opposing dissemination of Rule 144A transactions noted that the contra
parties to Rule 144A transactions are almost exclusively institutions
that are capable of assessing and negotiating the information needed to
make investment decisions, FINRA believes, based on academic studies
and the experience in publicly traded corporate bonds, that even in
institutional markets more transparent markets tend to reduce spreads
and trade execution costs, which may be indicative of more competitive
prices for investors. In addition, FINRA notes that dissemination may
assist market participants in price discovery as well as determining
execution quality. Finally, FINRA believes that transparency in this
sector may improve the quality of pricing for valuation purposes, which
is critical for both dealers and institutions.
In addition, FINRA does not believe that providing price
transparency in Rule 144A transactions generally will have an adverse
impact on the liquidity of the market. FINRA notes that academic
studies have not established a relationship between transparency and a
reduction in liquidity of a specific market sector. FINRA acknowledges,
however, that each market sector is different, and intends to monitor
the market in Rule 144A transactions in TRACE-Eligible Securities to
determine if there is an adverse impact to liquidity or other factors,
as FINRA has previously done when introducing transparency in other
debt market sectors.
A commenter raised concerns that investors will be confused by
transparency in Rule 144A transactions. FINRA does not believe that
investor confusion will result from such transparency. FINRA does not
believe that non-QIB institutional customers will be confused by access
to Rule 144A transaction data. First, FINRA believes that establishing
separate data sets for Rule 144A transaction information avoids
potential investor confusion since such transactions are not comingled
with non-Rule 144A transactions and can be presented separately and
clearly marked as such. In addition, such customers can use this
information as an additional data point in pricing bonds that they are
eligible to trade, and if they fail to recognize the Rule 144A status
of the trades and think they can trade these precise bonds, their
broker will advise otherwise.
For the reasons discussed above, FINRA believes that transparency
should be provided in Rule 144A transactions and, accordingly, proposes
to amend FINRA Rule 6750 and the TRACE dissemination protocols to
provide for dissemination of Rule 144A transactions.
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-2013-029 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-2013-029. 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 business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the 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-2013-029 and should be
submitted on or before August 15, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\42\
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\42\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-17857 Filed 7-24-13; 8:45 am]
BILLING CODE 8011-01-P
