Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving Proposed Rule Change To Require Members To Report Transactions in TRACE-Eligible Securities as Soon as Practicable, 53375-53377 [2015-21868]

Download as PDF Federal Register / Vol. 80, No. 171 / Thursday, September 3, 2015 / Notices consistent with the Act. Comments may be submitted by any of the following methods: SECURITIES AND EXCHANGE COMMISSION Electronic Comments [Release No. 34–75782; File No. SR–FINRA– 2015–025] • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rulecomments@sec.gov. Please include File No. SR–EDGA–2015–34 on the subject line. Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving Proposed Rule Change To Require Members To Report Transactions in TRACE-Eligible Securities as Soon as Practicable Paper Comments August 28, 2015. • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. I. Introduction On July 2, 2015, Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to amend FINRA Rule 6730, which governs the reporting of eligible transactions to its Trade Reporting and Compliance Engine (‘‘TRACE’’). The proposed rule change was published for comment in the Federal Register on July 16, 2015.3 The Commission received two comment letters on the proposed rule change.4 FINRA responded to the comment letters on August 20, 2015.5 This order approves the proposed rule change. tkelley on DSK3SPTVN1PROD with NOTICES All submissions should refer to File No. SR–EDGA–2015–34. 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 (http://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 such filing will also be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File No. SR–EDGA– 2015–34 and should be submitted on or before September 24, 2015. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.28 Robert W. Errett, Deputy Secretary. [FR Doc. 2015–21872 Filed 9–2–15; 8:45 am] BILLING CODE 8011–01–P 28 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 14:42 Sep 02, 2015 Jkt 235001 II. Description of the Proposed Rule Change FINRA Rule 6730 currently requires that each FINRA member that is a Party to a Transaction 6 in a TRACE-Eligible Security 7 report the transaction within 15 minutes of the Time of Execution,8 unless a different time period for the security is otherwise specified in the 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 75428 (July 10, 2015), 80 FR 42149. 4 See letter from Darren Wasney, Program Manager, Financial Information Forum, to Robert W. Errett, Deputy Secretary, Commission, dated August 5, 2015 (‘‘FIF Letter’’) and letter from Michael Nicholas, Chief Executive Officer, Bond Dealers of America, to Secretary, Commission, dated August 6, 2015 (‘‘BDA Letter’’). 5 See letter from Racquel L. Russell, Associate General Counsel, FINRA, to Robert W. Errett, Deputy Secretary, Commission, dated August 20, 2015 (‘‘FINRA Response Letter’’). 6 FINRA Rule 6710(e) provides that a ‘‘Party to a Transaction’’ is an introducing broker-dealer, if any, an executing broker-dealer, or a customer. ‘‘Customer’’ includes a broker-dealer that is not a FINRA member. 7 See FINRA Rule 6710(a) (defining ‘‘TRACEEligible Security’’). 8 FINRA Rule 6710(d) provides, among other things, that the ‘‘Time of Execution’’ for a transaction in a TRACE-Eligible Security is the time when the Parties to a Transaction agree to all of the terms of the transaction that are sufficient to calculate the dollar price of the trade. 2 17 PO 00000 Frm 00099 Fmt 4703 Sfmt 4703 53375 rule. Otherwise, the transaction report will be deemed ‘‘late.’’ The proposed rule change amends Rule 6730 to provide that, for a TRACE-Eligible Security subject to dissemination, each member that is a Party to a Transaction must report the transaction to TRACE as soon as practicable, but no later than within 15 minutes of the Time of Execution or other timeframe specified in Rule 6730. Further, the proposed rule change adds new Supplementary Material .03 that requires members to adopt policies and procedures reasonably designed to comply with this amendedrequirement by implementing, without delay, systems that commence the trade reporting process at the Time of Execution. The proposed rule change also provides that, where a member has in place such reasonably designed policies, procedures, and systems, the member generally will not be viewed as violating the ‘‘as soon as practicable’’ reporting requirement because of delays that are due to extrinsic factors that are not reasonably predictable and where the member does not purposely intend to delay the reporting of the trade. The proposed rule change states that in no event may a member purposely withhold trade reports, for example, by programming its systems to delay reporting until the end of the reporting time period. The proposed rule change also recognizes that members may manually report transactions in TRACE-Eligible Securities and, as a result, the trade reporting process may not be completed as quickly as where an automated trade reporting system is used. FINRA states that, in these cases, in determining whether the member’s policies and procedures are reasonably designed to report the trade ‘‘as soon as practicable,’’ it will take into consideration the manual nature of the member’s trade reporting process. While the current rules provide time periods for members to conduct the necessary actions to report transactions, FINRA cites concerns about members delaying the reporting of executed transactions, particularly, for example, by imbedding into the trade reporting process deliberate delays until the end of the reporting time period. FINRA also represents that it observed instances that appear to indicate that firms have taken more time than is operationally necessary to report trades, which raises the possibility that certain firms may have intentionally delayed trade reporting, possibly to delay public dissemination of the trade. FINRA believes that such conduct is inconsistent with the purpose of the trade reporting rules and that it is E:\FR\FM\03SEN1.SGM 03SEN1 53376 Federal Register / Vol. 80, No. 171 / Thursday, September 3, 2015 / Notices important for public price transparency that members do not delay reporting executed transactions. FINRA already has taken certain steps to deter such conduct. Paragraph (a)(4) of Rule 6730 currently provides that members have an ongoing obligation to report transaction information promptly, accurately, and completely. In addition, FINRA previously has conveyed its expectation, through regulatory notices, that members not delay the reporting of transactions through certain communications with its members.9 FINRA now believes that Rule 6730 should be explicitly amended to prohibit delays, thereby promoting consistent and timely reporting by all members and improving the usefulness of disseminated TRACE information for regulators, investors, and other market participants. FINRA also states that the proposed rule change will clarify that intentionally delaying trade reporting is violative of a member’s ongoing obligation to report transaction information to TRACE promptly. FINRA anticipates that the proposal will not impose any significant new compliance costs on members. FINRA also represents that it understands that the vast majority of firms that report transactions to TRACE have automated their trade reporting systems, which may facilitate their ability to comply with the proposed rule change.10 FINRA acknowledges the additional timing needs for firms that manually report their TRACE trades and represents that it will consider those needs when evaluating the policies and procedures of those members. tkelley on DSK3SPTVN1PROD with NOTICES III. Summary of Comments and FINRA’s Response As noted above, the Commission received two comment letters on the proposed rule change 11 and a response 9 See, e.g., Trade Reporting Notice, May 10, 2011 (Reporting Asset-Backed Securities to the Trade Reporting and Compliance Engine) (although firms have up to two business days to report transactions in ABSs, firms should submit reports as soon as practicable after the execution of a transaction and throughout the trading day, rather than queuing such reports until the end of the reporting time period); Regulatory Notice 12–52 (December 2012) (transactions in securities subject to TRACE reporting requirements should be reported without delay, even though the TRACE rule generally allows for up to 15 minutes to report transactions in corporate and agency debt securities). 10 FINRA provided statistics, based on a review of TRACE trade reporting data from January 2014 through December 2014, that over 90% of trade reports in corporate and agency debt were submitted within five minutes of the time of execution and 79% were reported within one minute. Furthermore, approximately 71% of trade reports in securitized products were submitted within five minutes of execution, and over 55% were reported within one minute. 11 See supra note 4. VerDate Sep<11>2014 14:42 Sep 02, 2015 Jkt 235001 letter from FINRA.12 The comment letters and FINRA’s response are summarized below. The FIF Letter requests clarification regarding how the proposed rule change would apply to member firms and suggests that FINRA only include language explicitly stating that intentionally delaying reporting would constitute a violation of Rule 6730. The FIF Letter also suggests that FINRA eliminate the ‘‘as soon as practicable’’ language included in the proposed rule change.13 FINRA rejects this suggested change. While intentionally delaying reporting would constitute a violation of the proposed rule, FINRA states that the proposal puts an affirmative obligation on firms to implement efficient reporting systems, a goal that goes beyond the policing of intentional delays. FINRA notes the importance of price transparency to the investing public and the marketplace overall and states that each member should take steps to ensure that transaction information is reported promptly without taking more time than is operationally necessary.14 The FIF Letter also asks whether firms may be deemed in violation of the proposed rule under certain scenarios. The Letter inquires, for example, whether brokers, due to using different data providers and having different internal workflows, have different reporting time requirements.15 Further, the FIF Letter also asks whether firms would be expected to modify existing systems to comply with the proposed rule change.16 In its response letter, FINRA recognizes that members’ processes around TRACE reporting are diverse and may differ depending on the degree of automation, the method of order receipt and execution, and other factors. FINRA also states that it understands a certain amount of time is operationally needed for reporting and that its rule text acknowledged this. FINRA states that compliance with the rule would hinge on whether the member firm’s policies and procedures are reasonably designed to report trades as soon as practicable by having systems that commence reporting at the time of execution without delay.17 It also states that, if a member currently has such policies and procedures, then no further 12 See supra note 5. FIF Letter at 1–2. 14 See FINRA Response Letter at 1–2. 15 See FIF Letter at 2. 16 See FIF Letter at 2. 17 See FINRA Response Letter at 2. 13 See PO 00000 Frm 00100 Fmt 4703 Sfmt 4703 changes would be required to comply with the proposed rule change.18 The BDA Letter generally supports the proposal but suggests that FINRA alter the wording of the proposed rule text to read that members ‘‘generally will not be viewed as violating the ‘as soon as practicable’ requirement because of delays in trade reporting that are due to the facts and circumstances of the transaction.’’ 19 The BDA Letter cites some examples of intrinsic factors that it states can cause reporting delays, including changes in staff, routine dayto-day business and personnel issues, and transactions in complex securitized products or by telephone, which may require additional time for reporting. The BDA Letter states that firms experiencing reporting delays due to such factors should not be considered out of compliance.20 FINRA, in response, states that it agrees that the facts and circumstances of a transaction are one of the factors that may be considered in determining whether a transaction was reported as soon as practicable, but rejects the suggested modification. FINRA states that the intent of the proposed rule language is to provide comfort to members experiencing delays resulting from unpredictable extrinsic factors, which are by their nature outside of a member’s control. FINRA further provides that the predictable and routine factors noted by the BDA Letter (such as staff turnover, voice transactions, and trading in new or complex security types) are factors that should be considered when designing reporting systems to facilitate prompt transaction reporting. FINRA acknowledges, however, that the particulars of what operationally is necessary to report a specific trade or type of trade legitimately may vary depending on the circumstances.21 IV. Discussion and Commission Findings After careful review, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities association.22 In particular, the Commission finds that the proposed 18 See FINRA Response Letter at 3. BDA Letter at 1–2. The proposed rule provides that delays due to ‘‘extrinsic factors that are not reasonably predictable’’ will generally not be viewed as violative of Rule 6730. 20 See BDA Letter at 2–3. 21 See FINRA Letter 3–4. 22 In approving this proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 19 See E:\FR\FM\03SEN1.SGM 03SEN1 tkelley on DSK3SPTVN1PROD with NOTICES Federal Register / Vol. 80, No. 171 / Thursday, September 3, 2015 / Notices rule change is consistent with Section 15A(b)(2) of the Act,23 which requires, among other things, that FINRA be so organized and have the capacity to be able to carry out the purposes of the Act, to comply with the Act, and to enforce compliance by FINRA members and persons associated with members with the Act, the rules and regulations thereunder, and FINRA rules. The Commission also finds the proposed rule change consistent with Section 15A(b)(6) of the Act,24 which requires, among other things, that FINRA rules must be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest. The Commission believes that the proposed rule change is reasonably designed to clarify the manner in which firms must comply with existing FINRA Rule 6730(a)(4). The Commission believes that it is consistent with the Act for FINRA to explicitly prohibit the delay of transaction reporting and to require members to establish and implement policies and procedures that are reasonably designed to comply with the TRACE reporting requirement as amended. The Commission believes that the proposed rule change will promote timely trade reporting and thereby enhance public price transparency, consistent with the protection of investors and public interest. The Commission notes that FINRA recognizes that members may manually report transactions in TRACE-Eligible Securities and, as a result, the trade reporting process may not be completed as quickly as where an automated trade reporting system is used. The Commission believes it is appropriate that, in these cases, FINRA would take into consideration the manual nature of the member’s trade reporting process in determining whether its policies and procedures are reasonably designed to report the trade ‘‘as soon as practicable.’’ The Commission also notes that one commenter suggested removing the ‘‘as soon as practicable’’ requirement, while another commenter, who supported the requirement, suggested modifications to the proposed rule text to account for intrinsic factors that may delay reporting. Further, both commenters raised concerns about certain circumstances that may affect the timeliness of trade reporting, including the variations in member reporting mechanisms, routine business matters, 23 15 24 15 14:42 Sep 02, 2015 V. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,25 that the proposed rule change (SR–FINRA– 2015–025), be, and hereby is,approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.26 Robert W. Errett, Deputy Secretary. [FR Doc. 2015–21868 Filed 9–2–15; 8:45 am] BILLING CODE 8011–01–P 25 15 U.S.C. 78o–3(b)(2). U.S.C. 78o–3(b)(6). VerDate Sep<11>2014 or the complexity of the securities traded. The Commission believes FINRA’s decision not to modify the rule text as suggested by the commenters is appropriate. The Commission notes that FINRA acknowledges that reporting processes differ by member firm and by security and that its rule text already accounted for this. As FINRA notes, compliance with the rule would hinge on whether the member firm’s policies and procedures are reasonably designed to report trades as soon as practicable by having systems that commence reporting at the time of execution without delay. The Commission also notes that FINRA acknowledges that the facts and circumstances of a particular transaction are among the factors that may be considered in determining whether a transaction was reported as soon as practicable. Moreover, FINRA states that routine and predictable factors that affect the timing of reporting should be accounted for when a member designs policies, procedures, and systems for trade reporting, in contrast to unpredictable, extrinsic factors, which are by their nature outside of a member’s control. While the proposed rule would require firms to undertake an assessment of existing policies and procedures for compliance with the rule and may entail some additional costs for member firms that do not already have policies and procedures in place to report trades as soon as practicable, the Commission believes the proposed rule is be reasonably designed to achieve compliance with FINRA rules and the applicable federal securities law and regulations. Therefore, for the foregoing reasons, the Commission finds that the proposed rule change is consistent with the Act. 26 17 Jkt 235001 PO 00000 U.S.C. 78s(b)(2). CFR 200.30–3(a)(12). Frm 00101 Fmt 4703 Sfmt 4703 53377 SECURITIES AND EXCHANGE COMMISSION [Release No. IC–31799; File No. 812–14396] Full Circle Capital Corporation et al.; Notice of Application August 28, 2015. Securities and Exchange Commission (‘‘Commission’’). ACTION: Notice of application for an order pursuant to section 57(i) of the Investment Company Act of 1940 (the ‘‘Act’’) and rule 17d–1 under the Act to permit certain joint transactions otherwise prohibited by section 57(a)(4) of the Act and rule 17d–1 under the Act. AGENCY: Applicants request an order to permit a business development company (‘‘BDC’’) and certain affiliated investment funds to co-invest in portfolio companies with each other and with other affiliated investment funds. APPLICANTS: Full Circle Capital Corporation (the ‘‘Company’’), Full Circle Private Investments LLC (‘‘FCPI Fund’’), Full Circle Healthcare Capital, LLC (the ‘‘Healthcare Fund,’’ and together with FCPI Fund, the ‘‘Existing Funds’’), Full Circle Advisors, LLC (the ‘‘Adviser’’), Full Circle West, Inc., FC New Media, Inc., TransAmerican Asset Servicing Group, Inc., FC New Specialty Foods, Inc. and FC Takoda Holdings, LLC, (collectively, the ‘‘Full Circle Subsidiaries,’’ and together with the Company, the Existing Funds and the Adviser, the ‘‘Applicants’’). DATES: Filing Dates: The application was filed on December 4, 2014 and amended on May 1, 2015. HEARING OR NOTIFICATION OF HEARING: An order granting the requested relief will be issued unless the Commission orders a hearing. Interested persons may request a hearing by writing to the Commission’s Secretary and serving applicants with a copy of the request, personally or by mail. Hearing requests should be received by the Commission by 5:30 p.m. on September 22, 2015, and should be accompanied by proof of service on applicants, in the form of an affidavit or, for lawyers, a certificate of service. Pursuant to rule 0–5 under the Act, hearing requests should state the nature of the writer’s interest, any facts bearing upon the desirability of a hearing on the matter, the reason for the request, and the issues contested. Persons who wish to be notified of a hearing may request notification by writing to the Commission’s Secretary. ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F St., NE., Washington, DC 20549–1090. SUMMARY: E:\FR\FM\03SEN1.SGM 03SEN1

Agencies

[Federal Register Volume 80, Number 171 (Thursday, September 3, 2015)]
[Notices]
[Pages 53375-53377]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-21868]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75782; File No. SR-FINRA-2015-025]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Approving Proposed Rule Change To Require 
Members To Report Transactions in TRACE-Eligible Securities as Soon as 
Practicable

August 28, 2015.

I. Introduction

    On July 2, 2015, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend FINRA Rule 6730, which governs the 
reporting of eligible transactions to its Trade Reporting and 
Compliance Engine (``TRACE''). The proposed rule change was published 
for comment in the Federal Register on July 16, 2015.\3\ The Commission 
received two comment letters on the proposed rule change.\4\ FINRA 
responded to the comment letters on August 20, 2015.\5\ This order 
approves the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 75428 (July 10, 
2015), 80 FR 42149.
    \4\ See letter from Darren Wasney, Program Manager, Financial 
Information Forum, to Robert W. Errett, Deputy Secretary, 
Commission, dated August 5, 2015 (``FIF Letter'') and letter from 
Michael Nicholas, Chief Executive Officer, Bond Dealers of America, 
to Secretary, Commission, dated August 6, 2015 (``BDA Letter'').
    \5\ See letter from Racquel L. Russell, Associate General 
Counsel, FINRA, to Robert W. Errett, Deputy Secretary, Commission, 
dated August 20, 2015 (``FINRA Response Letter'').
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II. Description of the Proposed Rule Change

    FINRA Rule 6730 currently requires that each FINRA member that is a 
Party to a Transaction \6\ in a TRACE-Eligible Security \7\ report the 
transaction within 15 minutes of the Time of Execution,\8\ unless a 
different time period for the security is otherwise specified in the 
rule. Otherwise, the transaction report will be deemed ``late.'' The 
proposed rule change amends Rule 6730 to provide that, for a TRACE-
Eligible Security subject to dissemination, each member that is a Party 
to a Transaction must report the transaction to TRACE as soon as 
practicable, but no later than within 15 minutes of the Time of 
Execution or other timeframe specified in Rule 6730. Further, the 
proposed rule change adds new Supplementary Material .03 that requires 
members to adopt policies and procedures reasonably designed to comply 
with this amendedrequirement by implementing, without delay, systems 
that commence the trade reporting process at the Time of Execution. The 
proposed rule change also provides that, where a member has in place 
such reasonably designed policies, procedures, and systems, the member 
generally will not be viewed as violating the ``as soon as 
practicable'' reporting requirement because of delays that are due to 
extrinsic factors that are not reasonably predictable and where the 
member does not purposely intend to delay the reporting of the trade. 
The proposed rule change states that in no event may a member purposely 
withhold trade reports, for example, by programming its systems to 
delay reporting until the end of the reporting time period.
---------------------------------------------------------------------------

    \6\ FINRA Rule 6710(e) provides that a ``Party to a 
Transaction'' is an introducing broker-dealer, if any, an executing 
broker-dealer, or a customer. ``Customer'' includes a broker-dealer 
that is not a FINRA member.
    \7\ See FINRA Rule 6710(a) (defining ``TRACE-Eligible 
Security'').
    \8\ FINRA Rule 6710(d) provides, among other things, that the 
``Time of Execution'' for a transaction in a TRACE-Eligible Security 
is the time when the Parties to a Transaction agree to all of the 
terms of the transaction that are sufficient to calculate the dollar 
price of the trade.
---------------------------------------------------------------------------

    The proposed rule change also recognizes that members may manually 
report transactions in TRACE-Eligible Securities and, as a result, the 
trade reporting process may not be completed as quickly as where an 
automated trade reporting system is used. FINRA states that, in these 
cases, in determining whether the member's policies and procedures are 
reasonably designed to report the trade ``as soon as practicable,'' it 
will take into consideration the manual nature of the member's trade 
reporting process.
    While the current rules provide time periods for members to conduct 
the necessary actions to report transactions, FINRA cites concerns 
about members delaying the reporting of executed transactions, 
particularly, for example, by imbedding into the trade reporting 
process deliberate delays until the end of the reporting time period. 
FINRA also represents that it observed instances that appear to 
indicate that firms have taken more time than is operationally 
necessary to report trades, which raises the possibility that certain 
firms may have intentionally delayed trade reporting, possibly to delay 
public dissemination of the trade. FINRA believes that such conduct is 
inconsistent with the purpose of the trade reporting rules and that it 
is

[[Page 53376]]

important for public price transparency that members do not delay 
reporting executed transactions.
    FINRA already has taken certain steps to deter such conduct. 
Paragraph (a)(4) of Rule 6730 currently provides that members have an 
ongoing obligation to report transaction information promptly, 
accurately, and completely. In addition, FINRA previously has conveyed 
its expectation, through regulatory notices, that members not delay the 
reporting of transactions through certain communications with its 
members.\9\ FINRA now believes that Rule 6730 should be explicitly 
amended to prohibit delays, thereby promoting consistent and timely 
reporting by all members and improving the usefulness of disseminated 
TRACE information for regulators, investors, and other market 
participants. FINRA also states that the proposed rule change will 
clarify that intentionally delaying trade reporting is violative of a 
member's ongoing obligation to report transaction information to TRACE 
promptly.
---------------------------------------------------------------------------

    \9\ See, e.g., Trade Reporting Notice, May 10, 2011 (Reporting 
Asset-Backed Securities to the Trade Reporting and Compliance 
Engine) (although firms have up to two business days to report 
transactions in ABSs, firms should submit reports as soon as 
practicable after the execution of a transaction and throughout the 
trading day, rather than queuing such reports until the end of the 
reporting time period); Regulatory Notice 12-52 (December 2012) 
(transactions in securities subject to TRACE reporting requirements 
should be reported without delay, even though the TRACE rule 
generally allows for up to 15 minutes to report transactions in 
corporate and agency debt securities).
---------------------------------------------------------------------------

    FINRA anticipates that the proposal will not impose any significant 
new compliance costs on members. FINRA also represents that it 
understands that the vast majority of firms that report transactions to 
TRACE have automated their trade reporting systems, which may 
facilitate their ability to comply with the proposed rule change.\10\ 
FINRA acknowledges the additional timing needs for firms that manually 
report their TRACE trades and represents that it will consider those 
needs when evaluating the policies and procedures of those members.
---------------------------------------------------------------------------

    \10\ FINRA provided statistics, based on a review of TRACE trade 
reporting data from January 2014 through December 2014, that over 
90% of trade reports in corporate and agency debt were submitted 
within five minutes of the time of execution and 79% were reported 
within one minute. Furthermore, approximately 71% of trade reports 
in securitized products were submitted within five minutes of 
execution, and over 55% were reported within one minute.
---------------------------------------------------------------------------

III. Summary of Comments and FINRA's Response

    As noted above, the Commission received two comment letters on the 
proposed rule change \11\ and a response letter from FINRA.\12\ The 
comment letters and FINRA's response are summarized below.
---------------------------------------------------------------------------

    \11\ See supra note 4.
    \12\ See supra note 5.
---------------------------------------------------------------------------

    The FIF Letter requests clarification regarding how the proposed 
rule change would apply to member firms and suggests that FINRA only 
include language explicitly stating that intentionally delaying 
reporting would constitute a violation of Rule 6730. The FIF Letter 
also suggests that FINRA eliminate the ``as soon as practicable'' 
language included in the proposed rule change.\13\
---------------------------------------------------------------------------

    \13\ See FIF Letter at 1-2.
---------------------------------------------------------------------------

    FINRA rejects this suggested change. While intentionally delaying 
reporting would constitute a violation of the proposed rule, FINRA 
states that the proposal puts an affirmative obligation on firms to 
implement efficient reporting systems, a goal that goes beyond the 
policing of intentional delays. FINRA notes the importance of price 
transparency to the investing public and the marketplace overall and 
states that each member should take steps to ensure that transaction 
information is reported promptly without taking more time than is 
operationally necessary.\14\
---------------------------------------------------------------------------

    \14\ See FINRA Response Letter at 1-2.
---------------------------------------------------------------------------

    The FIF Letter also asks whether firms may be deemed in violation 
of the proposed rule under certain scenarios. The Letter inquires, for 
example, whether brokers, due to using different data providers and 
having different internal workflows, have different reporting time 
requirements.\15\ Further, the FIF Letter also asks whether firms would 
be expected to modify existing systems to comply with the proposed rule 
change.\16\
---------------------------------------------------------------------------

    \15\ See FIF Letter at 2.
    \16\ See FIF Letter at 2.
---------------------------------------------------------------------------

    In its response letter, FINRA recognizes that members' processes 
around TRACE reporting are diverse and may differ depending on the 
degree of automation, the method of order receipt and execution, and 
other factors. FINRA also states that it understands a certain amount 
of time is operationally needed for reporting and that its rule text 
acknowledged this. FINRA states that compliance with the rule would 
hinge on whether the member firm's policies and procedures are 
reasonably designed to report trades as soon as practicable by having 
systems that commence reporting at the time of execution without 
delay.\17\ It also states that, if a member currently has such policies 
and procedures, then no further changes would be required to comply 
with the proposed rule change.\18\
---------------------------------------------------------------------------

    \17\ See FINRA Response Letter at 2.
    \18\ See FINRA Response Letter at 3.
---------------------------------------------------------------------------

    The BDA Letter generally supports the proposal but suggests that 
FINRA alter the wording of the proposed rule text to read that members 
``generally will not be viewed as violating the `as soon as 
practicable' requirement because of delays in trade reporting that are 
due to the facts and circumstances of the transaction.'' \19\ The BDA 
Letter cites some examples of intrinsic factors that it states can 
cause reporting delays, including changes in staff, routine day-to-day 
business and personnel issues, and transactions in complex securitized 
products or by telephone, which may require additional time for 
reporting. The BDA Letter states that firms experiencing reporting 
delays due to such factors should not be considered out of 
compliance.\20\
---------------------------------------------------------------------------

    \19\ See BDA Letter at 1-2. The proposed rule provides that 
delays due to ``extrinsic factors that are not reasonably 
predictable'' will generally not be viewed as violative of Rule 
6730.
    \20\ See BDA Letter at 2-3.
---------------------------------------------------------------------------

    FINRA, in response, states that it agrees that the facts and 
circumstances of a transaction are one of the factors that may be 
considered in determining whether a transaction was reported as soon as 
practicable, but rejects the suggested modification. FINRA states that 
the intent of the proposed rule language is to provide comfort to 
members experiencing delays resulting from unpredictable extrinsic 
factors, which are by their nature outside of a member's control. FINRA 
further provides that the predictable and routine factors noted by the 
BDA Letter (such as staff turnover, voice transactions, and trading in 
new or complex security types) are factors that should be considered 
when designing reporting systems to facilitate prompt transaction 
reporting. FINRA acknowledges, however, that the particulars of what 
operationally is necessary to report a specific trade or type of trade 
legitimately may vary depending on the circumstances.\21\
---------------------------------------------------------------------------

    \21\ See FINRA Letter 3-4.
---------------------------------------------------------------------------

IV. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
association.\22\ In particular, the Commission finds that the proposed

[[Page 53377]]

rule change is consistent with Section 15A(b)(2) of the Act,\23\ which 
requires, among other things, that FINRA be so organized and have the 
capacity to be able to carry out the purposes of the Act, to comply 
with the Act, and to enforce compliance by FINRA members and persons 
associated with members with the Act, the rules and regulations 
thereunder, and FINRA rules. The Commission also finds the proposed 
rule change consistent with Section 15A(b)(6) of the Act,\24\ 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.
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    \22\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \23\ 15 U.S.C. 78o-3(b)(2).
    \24\ 15 U.S.C. 78o-3(b)(6).
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    The Commission believes that the proposed rule change is reasonably 
designed to clarify the manner in which firms must comply with existing 
FINRA Rule 6730(a)(4). The Commission believes that it is consistent 
with the Act for FINRA to explicitly prohibit the delay of transaction 
reporting and to require members to establish and implement policies 
and procedures that are reasonably designed to comply with the TRACE 
reporting requirement as amended. The Commission believes that the 
proposed rule change will promote timely trade reporting and thereby 
enhance public price transparency, consistent with the protection of 
investors and public interest.
    The Commission notes that FINRA recognizes that members may 
manually report transactions in TRACE-Eligible Securities and, as a 
result, the trade reporting process may not be completed as quickly as 
where an automated trade reporting system is used. The Commission 
believes it is appropriate that, in these cases, FINRA would take into 
consideration the manual nature of the member's trade reporting process 
in determining whether its policies and procedures are reasonably 
designed to report the trade ``as soon as practicable.''
    The Commission also notes that one commenter suggested removing the 
``as soon as practicable'' requirement, while another commenter, who 
supported the requirement, suggested modifications to the proposed rule 
text to account for intrinsic factors that may delay reporting. 
Further, both commenters raised concerns about certain circumstances 
that may affect the timeliness of trade reporting, including the 
variations in member reporting mechanisms, routine business matters, or 
the complexity of the securities traded.
    The Commission believes FINRA's decision not to modify the rule 
text as suggested by the commenters is appropriate. The Commission 
notes that FINRA acknowledges that reporting processes differ by member 
firm and by security and that its rule text already accounted for this. 
As FINRA notes, compliance with the rule would hinge on whether the 
member firm's policies and procedures are reasonably designed to report 
trades as soon as practicable by having systems that commence reporting 
at the time of execution without delay. The Commission also notes that 
FINRA acknowledges that the facts and circumstances of a particular 
transaction are among the factors that may be considered in determining 
whether a transaction was reported as soon as practicable. Moreover, 
FINRA states that routine and predictable factors that affect the 
timing of reporting should be accounted for when a member designs 
policies, procedures, and systems for trade reporting, in contrast to 
unpredictable, extrinsic factors, which are by their nature outside of 
a member's control.
    While the proposed rule would require firms to undertake an 
assessment of existing policies and procedures for compliance with the 
rule and may entail some additional costs for member firms that do not 
already have policies and procedures in place to report trades as soon 
as practicable, the Commission believes the proposed rule is be 
reasonably designed to achieve compliance with FINRA rules and the 
applicable federal securities law and regulations.
    Therefore, for the foregoing reasons, the Commission finds that the 
proposed rule change is consistent with the Act.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\25\ that the proposed rule change (SR-FINRA-2015-025), be, and 
hereby is, approved.
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    \25\ 15 U.S.C. 78s(b)(2).
    \26\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-21868 Filed 9-2-15; 8:45 am]
BILLING CODE 8011-01-P