Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend FINRA Rule 7730 To Reduce the Delay Period for the Historic TRACE Data Sets Relating to Corporate and Agency Debt Securities, 23385-23390 [2017-10307]

Download as PDF Federal Register / Vol. 82, No. 97 / Monday, May 22, 2017 / Notices mstockstill on DSK30JT082PROD with NOTICES determination of the theoretical minimum transmission time of information to the Exchange from other exchanges, and has affirmed that the delay is not ‘‘too short’’ so as to not allow the Exchange to achieve the purpose of the Delay Mechanism, nor is it ‘‘overly long’’ so as to be an unnecessary burden on market participants. Accordingly, the Commission finds that the Exchange’s proposed Delay Mechanism is designed to protect investors and the public interest in a manner that is not unfairly discriminatory and that does not impose an unnecessary or inappropriate burden on competition and is therefore consistent with Sections 6(b)(5) and 6(b)(8) of the Act.78 Further, as described above, all members of the Exchange would be equally subject to the Delay Mechanism, and no member would be permitted to avoid the delay by payment of a fee or through any other means. In addition, the Commission believes the Exchange’s proposal to subject all outbound routable orders to the Delay Mechanism is designed to ensure that the Exchange’s ability to provide outbound routing services under the proposal will be on substantively comparable terms to a third-party routing broker that is a member of the Exchange. In particular, both the Exchange routing logic and a third-party routing broker-dealer would experience 350 microseconds of oneway latency in receiving order information about routable orders from the Exchange’s matching engine. Although the Exchange’s proposal is not identical in all respects to the routing structure at another exchange with an access delay,79 the Commission believes that the Exchange’s proposal would not provide it with any structural or informational advantages in its provision of routing services as compared to a third-party broker-dealer member performing a similar function for itself or others. Therefore, the Commission believes that the Exchange’s proposal as applicable to routable orders would not be unfairly discriminatory and would not impose an inappropriate burden on competition and is therefore consistent with Sections 6(b)(5) and 6(b)(8) of the Act. The Commission acknowledges that, as commenters have noted, the 78 While some commenters expressed concern that intentional delays in protected quotations may increase market complexity and requested that the Commission impose a moratorium on new proposals to implement such delays, the Commission notes that it carefully considers each exchange proposal for consistency with the Act. 79 See IEX Rule 11.510. See also IEX Exchange Approval, supra note 73, 81 FR at 41157–60. VerDate Sep<11>2014 23:17 May 19, 2017 Jkt 241001 Exchange’s proposal would differ from the access delay on another exchange in that it would be software-based, as opposed to being implemented through a physical hardware mechanism. However, the Commission does not believe that a software-based delay is inherently inferior to a hardware-based delay or that this specific distinction is material to its analysis of the proposal, and the Commission notes that the Exchange would be required, as with any hardware-based delay, to comply with its rules requiring the Exchange to periodically monitor the actual latency and make adjustments as reasonably necessary to achieve consistency with the 350 microsecond target set forth in the proposed rule.80 Finally, the Commission does not believe that implementation of the Exchange’s Delay Mechanism would preclude the Exchange from maintaining an automated quotation. Similar to an existing access delay on another market,81 the duration of the proposed Delay Mechanism is well within the geographic and technological latencies experienced today, and the Commission believes that it would not impair a market participant’s ability to access a displayed quotation consistent with the goals of Rule 611.82 Accordingly, the proposed intentional one-way 350 microsecond delay is de minimis, and thus, following approval of the instant proposal, the Exchange can maintain a protected quotation when it operates the Delay Mechanism in the manner described above. 80 See Proposed Rule 1.1E(y). IEX Exchange Approval, supra note 73. 82 See Interpretation, supra note 30, 81 FR at 40792 (noting that, in response to technological and market developments since the adoption of Regulation NMS, the Commission has provided an updated interpretation of the meaning of the term ‘‘immediate’’ in Rule 600(b)(3) of Regulation NMS, when determining whether a trading center maintains an ‘‘automated quotation’’ for purposes of Rule 611 of Regulation NMS, to preclude any coding of automated systems or other type of intentional device that would delay the action taken with respect to a quotation unless such delay is de minimis, or as the Commission noted, so short as to not frustrate the purposes of Rule 611 by impairing fair and efficient access to an exchange’s quotations). The Commission further stated that such a de minimis access delay would satisfy Rules 600 and 611 under the updated interpretation even if it involved the use of an ‘‘intentional device’’ to delay access to an exchange’s quotation. See id. For purposes of determining whether an exchange access delay is de minimis, the Commission did not set out a specific threshold; however, Commission staff has determined that, today, any delay of less than one millisecond is a de minimis amount of delay in accessing an exchange’s facilities for purposes of the interpretation. See Commission Staff Guidance on Automated Quotations under Regulation NMS (June 17, 2016), https:// www.sec.gov/divisions/marketreg/automatedquotations-under-regulation-nms.htm. 81 See PO 00000 Frm 00216 Fmt 4703 Sfmt 4703 23385 V. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,83 that the proposed rule change (SR–NYSEMKT– 2017–05) be, and hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.84 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–10304 Filed 5–19–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–80685; File No. SR–FINRA– 2017–012] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend FINRA Rule 7730 To Reduce the Delay Period for the Historic TRACE Data Sets Relating to Corporate and Agency Debt Securities May 16, 2017. 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 May 12, 2017, 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 Rule 7730 to reduce the delay period for the Historic TRACE Data Sets relating to corporate and agency debt securities from 18 months to six months. The text of the proposed rule change is available on FINRA’s Web site at http://www.finra.org, at the principal office of FINRA and at the Commission’s Public Reference Room. 83 15 U.S.C. 78s(b)(2). CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 84 17 E:\FR\FM\22MYN1.SGM 22MYN1 23386 Federal Register / Vol. 82, No. 97 / Monday, May 22, 2017 / Notices II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, FINRA included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. FINRA has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change mstockstill on DSK30JT082PROD with NOTICES 1. Purpose Rule 7730 (Trade Reporting and Compliance Engine (TRACE)), among other things, sets forth the data products offered by FINRA relating to TRACE transaction information and the fees applicable to such products. FINRA’s data offerings include both real-time as well as delayed data for most TRACEEligible Securities.3 FINRA’s delayed data (‘‘Historic TRACE Data’’) contains historical transaction-level data for the following TRACE data sets: The Historic Corporate Bond Data Set, the Historic Agency Data Set, the Historic Securitized Product Data Set and the Historic Rule 144A Data Set.4 Rule 7730 provides that Historic TRACE Data will be delayed a minimum of 18 months and will not include Market Participant Identifier (‘‘MPID’’) information.5 The proposed rule change would reduce the delay period applicable to the Historic Corporate Bond Data Set and the 3 Rule 6710 (Definitions) provides that a ‘‘TRACEEligible Security’’ is a debt security that is United States dollar-denominated and issued by a U.S. or foreign private issuer, and, if a ‘‘restricted security’’ as defined in Securities Act Rule 144(a)(3), sold pursuant to Securities Act Rule 144A; or is a debt security that is U.S. dollar-denominated and issued or guaranteed by an Agency as defined in paragraph (k) or a Government-Sponsored Enterprise as defined in paragraph (n); or a U.S. Treasury Security as defined in paragraph (p). ‘‘TRACEEligible Security’’ does not include a debt security that is: Issued by a foreign sovereign or a Money Market Instrument as defined in paragraph (o). 4 Historic TRACE Data originally included only the Corporate Bond and Agency Data Sets; the Securitized Product (‘‘SP’’) Data Set and the Rule 144A Data Set were added to Historic TRACE Data later as information about transactions in those securities became subject to dissemination. Additional securities may be included in Historic TRACE Data as they become subject to dissemination. 5 The specific data elements provided in the Historic TRACE Data Sets are to be determined from time-to-time by FINRA in its discretion and as stated in a Regulatory Notice or other equivalent publication. See infra note 8. VerDate Sep<11>2014 23:17 May 19, 2017 Jkt 241001 Historic Agency Data Set and Rule 144A transactions in corresponding securities (together, ‘‘Corporate and Agency Historic TRACE Data’’), from 18 months to six months and would retain the criteria that MPIDs not be included.6 The Historic TRACE Data provisions and related fees became effective in 2010.7 Historic TRACE Data provides transaction-level data for all trades reported to TRACE in those classes of TRACE-Eligible Securities that currently are disseminated and includes, among other things, the price, date, time of execution, yield and uncapped volume for each transaction, provided the transaction is at least 18 months old.8 The 18-month delay period was adopted to address concerns regarding the possibility that the data, though 6 FINRA proposes to retain the current 18-month delay for the Historic SP Data Set. The Historic SP Data Set generally includes information on transactions in asset-backed securities (‘‘ABS’’), mortgage-backed securities (‘‘MBS’’), and Small Business Administration (‘‘SBA’’)-backed securities traded To Be Announced (‘‘TBA’’) and in specified pool transactions, collateralized mortgage-backed securities (‘‘CMBS’’), collateralized mortgage obligations (‘‘CMO’’) and collateralized debt obligations (‘‘CDO’’). While transaction information on ABSs, MBSs and TBAs are currently subject to dissemination and CMOs became subject to dissemination on March 20, 2017, FINRA does not yet disseminate transaction information on CMBSs or CDOs. FINRA issued a Regulatory Notice seeking comment on a proposal to disseminate such products. See Regulatory Notice 15–04 (February 2015) (FINRA Requests Comment on a Proposal to Disseminate Additional Securitized Products and to Reduce the Reporting Time Frame for These Products). Once all SPs become subject to dissemination, FINRA will consider whether a delay period of less than 18 months should apply to the Historic SP Data Set. 7 See Securities Exchange Act Release No. 61012 (November 16, 2009), 74 FR 61189 (November 23, 2009) (Order Approving File No. SR–FINRA–2007– 006). See also Regulatory Notice 10–14 (March 2010). 8 Historic TRACE Data also may include transactions or items of information that were not disseminated previously. For example, Historic TRACE Data includes exact trade volumes, rather than the capped amounts that are disseminated in real-time. The applicable real-time dissemination cap differs depending upon the type of TRACEEligible Security being reported. The caps are $5 million for agency debentures and corporate bonds that are rated investment grade; $1 million for corporate bonds that are rated non-investment grade; $25 million for agency pass-through mortgage-backed securities traded TBA for good delivery; and $10 million for agency pass-through mortgage-backed securities traded TBA not for good delivery, agency pass-through mortgage-backed securities traded in specified pool transactions, and SBA-backed asset-backed securities traded TBA and in specified pool transactions. Historic TRACE Data also is available for trade reports dating back to 2002, even for transactions that were not subject to public dissemination at the time. Similarly, while real-time information for specified pool transactions is disseminated based on security characteristics, Historic TRACE Data identifies securities by CUSIP. Historic TRACE Data also includes reports on both the buy- and sell-side of inter-dealer transactions, whereas only sell-side trade reports are subject to real-time dissemination. PO 00000 Frm 00217 Fmt 4703 Sfmt 4703 delayed, might be used to identify current trading, positions or the strategies of market participants.9 Since implementation, researchers and other non-dealers have been the primary subscribers to Historic TRACE Data. FINRA understands that the lack of usage by dealers is due to the 18month delay period for transactions included in Historic TRACE Data and market participants have indicated that a reduction in the delay period to six months would make the data more useful. In response, FINRA is proposing to reduce the delay period applicable to Corporate and Agency Historic TRACE Data from 18 months to six months. FINRA is not aware of any instances of complaints regarding information leakage under the 18-month delay timeframe, and believes that the delay period can be reduced, thereby increasing the utility of the Corporate and Agency Historic TRACE Data to market participants and promoting the goal of increased transparency for TRACE-Eligible Securities.10 FINRA also believes that a six-month delay will be sufficient to continue to address information leakage concerns.11 If the Commission approves the proposed rule change, 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 120 days following publication of the Regulatory Notice. 2. Statutory Basis FINRA believes that the proposed rule change is consistent with the provisions of Section 15A(b)(6) of the Act,12 which requires, among other things, that FINRA rules must be designed to prevent fraudulent and manipulative acts and practices, to promote just and 9 See Securities Exchange Act Release No. 56327 (August 28, 2007), 72 FR 51689 (September 10, 2007) (Notice of Filing of File No. SR–FINRA– 2007–006). See also Notice to Members 06–32 (June 2006). 10 FINRA is not proposing any changes to the fields made available in the Historic TRACE Data at this time, and notes that the data will continue to omit any identifying dealer information. Additional information regarding included fields is available in ‘‘Historic TRACE Data: Enhanced Historical Time and Sales—Trade Record File Layout’’ in the technical specifications. 11 FINRA notes that the Municipal Securities Rulemaking Board (MSRB) disseminates in realtime the exact par value on all transactions with a par value of $5 million or less, and includes an indicator (‘‘MM+’’) in place of the exact par value on transactions where the par value is greater than $5 million until the fifth business day. MSRB disseminates the exact par value on all transactions on the fifth day after the trade. 12 15 U.S.C. 78o–3(b)(6). E:\FR\FM\22MYN1.SGM 22MYN1 Federal Register / Vol. 82, No. 97 / Monday, May 22, 2017 / Notices 2,230,676, or approximately 74.5%, of the 2,992,946 daily corporate bond positions in the sample were reversed on the same day (number of days = 0). The average size of the positions in this category was approximately $0.8 million per CUSIP. 21.9% of the trades were reversed between one and 180 days. These trades had an average size of between $1.4 and $2.0 million. The remaining positions, approximately 3.6% of the sample, were reversed after 180 days (i.e., remained open for longer than 180 days). FINRA notes that the vast majority, approximately 79.2%, of 13 Historic TRACE Data does not include a ‘‘List or Fixed Offering Price Transaction’’ or ‘‘Takedown Transaction,’’ as defined in Rule 6710. 14 To ‘‘reverse’’ a position means entering into a trade on the opposite side of a position that flattens or reverses the position. For example, if long in a specific bond, a reversal would entail a sell trade in an amount that is equal to or greater than the amount of the original position. 15 Positions that are created in the last six months of the sample period are not included in the sample to prevent a bias in the results. 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. Economic Impact Analysis mstockstill on DSK30JT082PROD with NOTICES (a) Need for the Rule VerDate Sep<11>2014 23:17 May 19, 2017 Jkt 241001 (b) Regulatory Objective The proposed shorter delay period for Historic TRACE Data aims to increase the utility of Historic TRACE Data for market participants and others, thereby promoting the goal of increased transparency for TRACE-Eligible Securities. PO 00000 Frm 00218 Fmt 4703 Sfmt 4703 E:\FR\FM\22MYN1.SGM 22MYN1 EN22MY17.020</GPH> As discussed above, FINRA has received feedback from market participants that the current 18-month delay period may be too long to make Historic TRACE Data useful. Most subscribers to Historic TRACE Data (c) Economic Impacts FINRA’s existing Historic TRACE Data product provides transaction-level data on an 18-month delayed basis for all transactions that have been reported to TRACE in the classes of TRACEEligible Securities that currently are disseminated. As detailed above, FINRA is proposing to reduce the delay period for the Historic TRACE Data Sets relating to Corporate and Agency Debt securities from 18 months to six months. The proposed rule change would expand the benefits of FINRA’s TRACE initiatives by increasing the utility of the Corporate and Agency Historic TRACE Data Sets to market participants, as the proposed reduction in the delay period to six months would make the data more useful. The proposed rule change will not have any operational impact on firms, as the proposal does not require firms to provide FINRA with any additional data. The purchase of TRACE data products will continue to be optional for members and others. However, FINRA considered the potential for indirect costs regarding possible information leakage due to the reduction in the delay period applicable to the Corporate and Agency Historic TRACE Data Sets from 18 months to six months. To address those concerns and investigate whether the reduction in the delay period poses a risk for reverse engineering of positions, FINRA analyzed daily positions in 12,087 corporate and 10,109 agency bonds, that were issued between March 6, 2012 and February 5, 2014, by using trades between February 6, 2012 and February 5, 2016 that were reported to TRACE by 1,509 market participants.13 Figure 1 depicts the average number of days it takes to reverse 14 corporate bond positions and the average position size in the sample.15 equitable principles of trade, and, in general, to protect investors and the public interest. FINRA believes that reducing the delay period for the Corporate and Agency Historic TRACE Data will increase the utility of the data to market participants and others, thereby promoting the goal of increased transparency for TRACE-Eligible Securities, while continuing to incorporate a sufficient period of aging to address information leakage concerns. have been vendors and research firms; there have been very few member subscribers due to the length of the delay. 23387 23388 Federal Register / Vol. 82, No. 97 / Monday, May 22, 2017 / Notices of the CUSIPs (an average issuance amount of approximately $315 million). These 642 CUSIPs had an average of seven trades per CUSIP over the sample period, compared to 1,306 trades per CUSIP for the rest of the sample. These CUSIPs also were traded by fewer market participants, an average of 1.3, compared to an average of 42 market participants for the remaining 11,445 CUSIPs. There were only 862 positions in those 642 CUSIPs, with relatively large balances as a proportion to the issuance size, with an average balanceto-issuance size of 32.5%, compared to 0.3% for the remaining CUSIPs. Approximately 15% of the 862 positions were reversed between six and 18 months of acquisition, implying that the reduction in dissemination delay would impact a small portion of the holdings in the sample. This would suggest that the proposed rule, if it had been in place, would have provided little additional information to the public relative to these positions. These figures suggest that only a small portion of the corporate positions in the sample are reversed after 180 days of acquisitions. Moreover, only a few CUSIPs had positions with holding periods of more than 180 days, while such positions consisted of less than 0.02% of all daily corporate bond positions in the sample. Figure 2 depicts the average number of days it takes to reverse agency bond positions and the average position size in the sample. Of the 425,823 daily agency bond positions, 317,447, or approximately 74.5%, of the sample were reversed on the same day (number of days = 0). The average size of the positions in this category was approximately $2.5 million per CUSIP. Another 18.0% of the trades were reversed between one and 180 days. These trades had an average size of between $4.4 and $5.2 million. The remaining positions, approximately 7.4% of the sample, were still open for more than 180 days. Approximately 92.4%, of the positions in this category were still open at the end of our sample period.17 The positions that remained open for more than 180 days had an average size of $13.2 million.18 764 CUSIPs only had positions that were reversed after 180 days from acquisition. Another 497 CUSIPs only had positions that were reversed within 180 days. The remaining 8,848 CUSIPs had both positions that were reversed within 180 days and positions that were reversed after 180 days from acquisition. The 764 CUSIPs with positions that were reversed after 180 days were slightly smaller issues (an average issuance amount of approximately $110 million) than the rest of the CUSIPs (an average issuance amount of approximately $125 million). These 764 CUSIPs had an average of 1.7 trades per CUSIP over the sample period, compared to 175 trades per CUSIP for the rest of the sample. These CUSIPs also were traded by fewer market participants, an average of 1.1, compared to an average of 22 market participants for the remaining 9,345 CUSIPs (497 + 8,848) for positions that were reversed both within and after 180 days of acquisition. There were 816 positions in those 764 CUSIPS, with relatively larger balances (but not as large as those for corporate bonds) as a proportion to the issuance size, with an average balance-to-issuance size of 2.1%, compared to 0.2% for the rest of 16 The difference in the average size of positions that reversed after 180 days ($2.1 million) and positions that were reversed within 180 days ($0.9 million) is statistically significant at conventional levels. 17 FINRA staff also notes that approximately 93.3% of the open agency bond positions in the sample were open for more than 180 days as of February 5, 2016. 18 The difference in the average size of positions that reversed after 180 days ($13.2 million) and positions that are reversed within 180 days ($2.8 million) is statistically significant at conventional levels. VerDate Sep<11>2014 23:17 May 19, 2017 Jkt 241001 PO 00000 Frm 00219 Fmt 4703 Sfmt 4703 E:\FR\FM\22MYN1.SGM 22MYN1 EN22MY17.021</GPH> mstockstill on DSK30JT082PROD with NOTICES the positions in this category were still open at the end of our sample period (February 5, 2016). The positions that remained open for more than 180 days had an average size of $2.1 million.16 642 CUSIPs only had positions that were reversed after 180 days from acquisition. Another 1,402 CUSIPs only had positions that were reversed within 180 days. The remaining 10,043 CUSIPs had both positions that were reversed within 180 days and positions that were reversed after 180 days from acquisition. FINRA believes that the risk of reverse engineering would be higher for the 642 CUSIPs that only had positions that were still open after 180 days. These CUSIPs were for significantly smaller issues (average issuance amount of approximately $38 million) than the rest Federal Register / Vol. 82, No. 97 / Monday, May 22, 2017 / Notices the position balances (425,007) in the rest of the CUSIPs. Approximately 1% of the 816 positions were reversed between six and 18 months of acquisition, implying that the reduction in dissemination delay would impact a very small portion of the holdings in the agency bond sample. These figures suggest that only a small portion of the agency bond positions in the sample were reversed after 180 days of acquisition. Moreover, only a few CUSIPs related to positions with holding periods longer than 180 days, while such positions consisted of less than 0.02% of all daily agency bond positions in the sample. Based on the empirical evidence in the sample period, FINRA notes that information leakage, due to the reduction in the delay period applicable to the Corporate and Agency Historic TRACE Data Sets from 18 months to six months is a limited risk for smaller issues that are held by a limited number of market participants. As noted above, such issues are, on average, traded very infrequently. As such, the information leakage associated with these issues may be of limited use to market participants. To the extent that such market participants choose not to trade these issues as a result of the proposed dissemination delay, some CUSIPs may experience a decrease in liquidity. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others mstockstill on DSK30JT082PROD with NOTICES The proposed rule change was published for comment in Regulatory Notice 15–24 (June 2015). Four comment letters were received in response to the Notice.19 A copy of the Notice is attached as Exhibit 2a. The list of the commenters is attached as Exhibit 2b. Copies of the comment letters received in response to the Notice are attached as Exhibit 2c. SIFMA, BDA and Wharton supported the proposed reduction in the delay period for Historic TRACE Data from 18 months to six months. SIFMA noted that, if certain TRACE-Eligible Securities (not currently subject to 19 See Letter from Sean Davy, Managing Director, Securities Industry and Financial Markets Association, to Maria E. Asquith, Corporate Secretary, FINRA, dated August 24, 2015 (‘‘SIFMA’’); letter from Michael Nicholas, CEO, Bond Dealers of America, to Maria E. Asquith, Corporate Secretary, FINRA, dated August 24, 2015 (‘‘BDA’’); letter from Luis Palacios, Director of Research Services, The Wharton School, to Maria E. Asquith, Corporate Secretary, FINRA, dated September 10, 2015 (‘‘Wharton’’); and letter from Carrie Devorah, Founder, The Center for Copyrights Integrity, to Maria E. Asquith, Corporate Secretary, FINRA, dated September 14, 2015 (‘‘CCI’’). VerDate Sep<11>2014 23:17 May 19, 2017 Jkt 241001 dissemination) became subject to dissemination—i.e., CMOs, CMBSs and CDOs, FINRA should consider potential information leakage and liquidity issues for such securities prior to including them in Historic TRACE Data with a sixmonth, reduced delay. SIFMA suggested a phased-in approach to incorporating this subset of TRACE-Eligible Securities that would begin with an 18-month delay and that, ultimately, is reduced to six months once these products are subject to public dissemination. In response to this comment, and as discussed in Section II.A.1. of this filing, FINRA has revised the proposal to reduce the 18-month delay period to six months only for the Historic Corporate and Agency Data; the Historic SP Data Set will continue to be subject to an 18-month delay. FINRA will consider whether reducing the 18month delay period for the Historic SP Data Set is appropriate once all SPs have become subject to dissemination.20 CCI did not support the proposal and, among other things, raised privacy concerns, and stated that any data transmitted online has no privacy.21 FINRA notes that the Historic TRACE Data product consists of securityfocused transaction information, not customer information, and generally is available to any professional or nonprofessional party that subscribes, executes appropriate agreements and pays the applicable fee. In addition, while Historic TRACE Data includes delayed information for transactions that were not disseminated previously, the vast majority of the data included already has been disseminated publicly. Thus, in the unprecedented event of a breach involving Historic TRACE Data, FINRA does not believe this would present a harm to FINRA members or the market. 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 20 See supra note 6. also raised other issues that are not germane to the proposed reduction of the delay period for Historic TRACE Data and that, therefore, are not addressed herein. 21 CCI PO 00000 Frm 00220 Fmt 4703 Sfmt 4703 23389 (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–2017–012 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–FINRA–2017–012. 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 a.m. and 3 p.m. Copies of such filing also will be available for inspection and copying at the principal office of FINRA. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–FINRA–2017–012 and should be submitted on or before June 12, 2017. E:\FR\FM\22MYN1.SGM 22MYN1 23390 Federal Register / Vol. 82, No. 97 / Monday, May 22, 2017 / Notices For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.22 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–10307 Filed 5–19–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. IC–32638; 812–14735] Solar Capital Ltd., et al. May 17, 2017. Securities and Exchange Commission (‘‘Commission’’). ACTION: Notice. mstockstill on DSK30JT082PROD with NOTICES AGENCY: Notice of application for an order (‘‘Order’’) to amend a prior order under sections 17(d) and 57(i) of the Investment Company Act of 1940 (the ‘‘Act’’) and rule 17d–1 under the Act permitting certain joint transactions otherwise prohibited by sections 17(d) and 57(a)(4) of the Act and under rule 17d–1 under the Act. Applicants request an order that would permit certain business development companies (each, a ‘‘BDC’’) and certain closed-end investment companies to co-invest in portfolio companies with each other and with affiliated investment funds. The Order would supersede the prior order.1 Applicants: Solar Capital Ltd. (‘‘Solar Capital’’); Solar Senior Capital Ltd. (‘‘Solar Senior’’ and together with Solar Capital, the ‘‘Solar Funds’’); SUNS SPV LLC (‘‘Solar Senior Subsidiary’’) and Solar Capital Partners, LLC (‘‘Solar Adviser’’). Filing Dates: The application was filed on January 13, 2017, and amended on April 4, 2017 and May 4, 2017. 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 June 12, 2017, 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 22 17 CFR 200.30–3(a)(12). Capital Ltd., et al., Investment Company Act Rel. Nos. 31143 (Jul. 1, 2014) (notice) and 31187 (Jul. 28, 2014) (order). 1 Solar VerDate Sep<11>2014 23:17 May 19, 2017 Jkt 241001 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. Applicants: Michael S. Gross, Solar Capital Ltd., 500 Park Avenue, New York, NY 10022. FOR FURTHER INFORMATION CONTACT: Barbara T. Heussler, Senior Counsel, at (202) 551–6990 or Robert H. Shapiro, Branch Chief, at (202) 551–6821 (Division of Investment Management, Chief Counsel’s Office). SUPPLEMENTARY INFORMATION: The following is a summary of the application. The complete application may be obtained via the Commission’s Web site by searching for the file number, or for an applicant using the Company name box, at http:// www.sec.gov/search/search.htm or by calling (202) 551–8090. Summary of the Application 1. The Solar Funds are Maryland corporations organized as closed-end management investment companies that have elected to be regulated as BDC’s under section 54(a) of the Act.2 Solar Capital’s investment objective is to generate both current income and capital appreciation through debt and equity investment. Solar Senior’s investment objective is to seek to maximize current income consistent with the preservation of capital. The Solar Funds each have a five-member Board,3 of which the same three members serve as Non-Interested Directors.4 2. Solar Senior Subsidiary is a Wholly-Owned Investment Sub, as defined below, whose sole business purpose is to hold one or more investments on behalf of Solar Senior. Because it is a wholly-owned, consolidated subsidiary of Solar Senior, and Solar Senior’s investment adviser is Solar Adviser, Solar Adviser also manages the assets the Solar Senior Subsidiary. 3. Solar Adviser, a privately held investment adviser registered with the 2 Section 2(a)(48) of the Act defines a BDC to be any closed-end investment company that operates for the purpose of making investments in securities described in sections 55(a)(1) through 55(a)(3) of the Act and makes available significant managerial assistance with respect to the issuers of such securities. 3 The term ‘‘Board’’ refers to the Board of Directors of the relevant Regulated Fund. 4 The term ‘‘Non-Interested Directors’’ means, with respect to any Board, the directors who are not ‘‘interested persons’’ within the meaning of section 2(a)(19). PO 00000 Frm 00221 Fmt 4703 Sfmt 4703 Commission under the Investment Advisers Act of 1940 (the ‘‘Advisers Act’’), was organized as a limited liability company under the laws of the state of Delaware. Solar Adviser serves as the investment adviser to each of the Solar Funds. 4. Applicants seek an Order to permit a Regulated Fund 5 and one or more other Regulated Funds and/or one or more Affiliated Funds 6 to participate in the same investment opportunities through a proposed co-investment program (the ‘‘Co-Investment Program’’) where such participation would otherwise be prohibited under section 57(a)(4) and rule 17d–1 by (a) coinvesting with each other in securities issued by issuers in private placement transactions in which an Adviser negotiates terms in addition to price; 7 and (b) making additional investments in securities of such issuers, including through the exercise of warrants, conversion privileges, and other rights to purchase securities of the issuers (‘‘Follow-On Investments’’). ‘‘CoInvestment Transaction’’ means any transaction in which a Regulated Fund (or its Wholly-Owned Investment Sub) participated together with one or more other Regulated Funds and/or one or more Affiliated Funds in reliance on the requested Order. ‘‘Potential CoInvestment Transaction’’ means any investment opportunity in which a Regulated Fund (or its Wholly-Owned Investment Sub) could not participate together with one or more Affiliated Funds and/or one or more other Regulated Funds without obtaining and relying on the Order.8 5 ‘‘Regulated Fund’’ means Solar Capital, Solar Senior and any Future Regulated Fund. ‘‘Future Regulated Fund’’ means any closed-end management investment company (a) that is registered under the Act or has elected to be regulated as a BDC, (b) whose investment adviser is an Adviser, and (c) that intends to participate in the Co-Investment Program. The term ‘‘Adviser’’ means (a) Solar Adviser or its successors, and (b) any future investment adviser that controls, is controlled by, or is under common control with Solar Adviser and is registered as an investment adviser under the Advisers Act. The term ‘‘successor’’ means an entity that results from a reorganization into another jurisdiction or change in the type of business organization. 6 ‘‘Affiliated Fund’’ means any entity (a) whose investment adviser is an Adviser, (b) that would be an investment company but for section 3(c)(1) or 3(c)(7) of the Act, and (c) that intends to participate in the Co-Investment Program. 7 The term ‘‘private placement transactions’’ means transactions in which the offer and sale of securities by the issuer are exempt from registration under the Securities Act of 1933 (the ‘‘Securities Act’’). 8 All existing entities that currently intend to rely upon the requested Order have been named as applicants. Any other existing or future entity that subsequently relies on the Order will comply with the terms and conditions of the application. E:\FR\FM\22MYN1.SGM 22MYN1

Agencies

[Federal Register Volume 82, Number 97 (Monday, May 22, 2017)]
[Notices]
[Pages 23385-23390]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-10307]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80685; File No. SR-FINRA-2017-012]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend 
FINRA Rule 7730 To Reduce the Delay Period for the Historic TRACE Data 
Sets Relating to Corporate and Agency Debt Securities

May 16, 2017.
    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 May 12, 2017, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

    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 Rule 7730 to reduce the delay period 
for the Historic TRACE Data Sets relating to corporate and agency debt 
securities from 18 months to six months.
    The text of the proposed rule change is available on FINRA's Web 
site at http://www.finra.org, at the principal office of FINRA and at 
the Commission's Public Reference Room.

[[Page 23386]]

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, FINRA included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. FINRA has prepared summaries, set forth in sections A, 
B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Rule 7730 (Trade Reporting and Compliance Engine (TRACE)), among 
other things, sets forth the data products offered by FINRA relating to 
TRACE transaction information and the fees applicable to such products. 
FINRA's data offerings include both real-time as well as delayed data 
for most TRACE-Eligible Securities.\3\ FINRA's delayed data (``Historic 
TRACE Data'') contains historical transaction-level data for the 
following TRACE data sets: The Historic Corporate Bond Data Set, the 
Historic Agency Data Set, the Historic Securitized Product Data Set and 
the Historic Rule 144A Data Set.\4\ Rule 7730 provides that Historic 
TRACE Data will be delayed a minimum of 18 months and will not include 
Market Participant Identifier (``MPID'') information.\5\ The proposed 
rule change would reduce the delay period applicable to the Historic 
Corporate Bond Data Set and the Historic Agency Data Set and Rule 144A 
transactions in corresponding securities (together, ``Corporate and 
Agency Historic TRACE Data''), from 18 months to six months and would 
retain the criteria that MPIDs not be included.\6\
---------------------------------------------------------------------------

    \3\ Rule 6710 (Definitions) provides that a ``TRACE-Eligible 
Security'' is a debt security that is United States dollar-
denominated and issued by a U.S. or foreign private issuer, and, if 
a ``restricted security'' as defined in Securities Act Rule 
144(a)(3), sold pursuant to Securities Act Rule 144A; or is a debt 
security that is U.S. dollar-denominated and issued or guaranteed by 
an Agency as defined in paragraph (k) or a Government-Sponsored 
Enterprise as defined in paragraph (n); or a U.S. Treasury Security 
as defined in paragraph (p). ``TRACE-Eligible Security'' does not 
include a debt security that is: Issued by a foreign sovereign or a 
Money Market Instrument as defined in paragraph (o).
    \4\ Historic TRACE Data originally included only the Corporate 
Bond and Agency Data Sets; the Securitized Product (``SP'') Data Set 
and the Rule 144A Data Set were added to Historic TRACE Data later 
as information about transactions in those securities became subject 
to dissemination. Additional securities may be included in Historic 
TRACE Data as they become subject to dissemination.
    \5\ The specific data elements provided in the Historic TRACE 
Data Sets are to be determined from time-to-time by FINRA in its 
discretion and as stated in a Regulatory Notice or other equivalent 
publication. See infra note 8.
    \6\ FINRA proposes to retain the current 18-month delay for the 
Historic SP Data Set. The Historic SP Data Set generally includes 
information on transactions in asset-backed securities (``ABS''), 
mortgage-backed securities (``MBS''), and Small Business 
Administration (``SBA'')-backed securities traded To Be Announced 
(``TBA'') and in specified pool transactions, collateralized 
mortgage-backed securities (``CMBS''), collateralized mortgage 
obligations (``CMO'') and collateralized debt obligations (``CDO''). 
While transaction information on ABSs, MBSs and TBAs are currently 
subject to dissemination and CMOs became subject to dissemination on 
March 20, 2017, FINRA does not yet disseminate transaction 
information on CMBSs or CDOs. FINRA issued a Regulatory Notice 
seeking comment on a proposal to disseminate such products. See 
Regulatory Notice 15-04 (February 2015) (FINRA Requests Comment on a 
Proposal to Disseminate Additional Securitized Products and to 
Reduce the Reporting Time Frame for These Products). Once all SPs 
become subject to dissemination, FINRA will consider whether a delay 
period of less than 18 months should apply to the Historic SP Data 
Set.
---------------------------------------------------------------------------

    The Historic TRACE Data provisions and related fees became 
effective in 2010.\7\ Historic TRACE Data provides transaction-level 
data for all trades reported to TRACE in those classes of TRACE-
Eligible Securities that currently are disseminated and includes, among 
other things, the price, date, time of execution, yield and uncapped 
volume for each transaction, provided the transaction is at least 18 
months old.\8\ The 18-month delay period was adopted to address 
concerns regarding the possibility that the data, though delayed, might 
be used to identify current trading, positions or the strategies of 
market participants.\9\
---------------------------------------------------------------------------

    \7\ See Securities Exchange Act Release No. 61012 (November 16, 
2009), 74 FR 61189 (November 23, 2009) (Order Approving File No. SR-
FINRA-2007-006). See also Regulatory Notice 10-14 (March 2010).
    \8\ Historic TRACE Data also may include transactions or items 
of information that were not disseminated previously. For example, 
Historic TRACE Data includes exact trade volumes, rather than the 
capped amounts that are disseminated in real-time. The applicable 
real-time dissemination cap differs depending upon the type of 
TRACE-Eligible Security being reported. The caps are $5 million for 
agency debentures and corporate bonds that are rated investment 
grade; $1 million for corporate bonds that are rated non-investment 
grade; $25 million for agency pass-through mortgage-backed 
securities traded TBA for good delivery; and $10 million for agency 
pass-through mortgage-backed securities traded TBA not for good 
delivery, agency pass-through mortgage-backed securities traded in 
specified pool transactions, and SBA-backed asset-backed securities 
traded TBA and in specified pool transactions.
    Historic TRACE Data also is available for trade reports dating 
back to 2002, even for transactions that were not subject to public 
dissemination at the time. Similarly, while real-time information 
for specified pool transactions is disseminated based on security 
characteristics, Historic TRACE Data identifies securities by CUSIP. 
Historic TRACE Data also includes reports on both the buy- and sell-
side of inter-dealer transactions, whereas only sell-side trade 
reports are subject to real-time dissemination.
    \9\ See Securities Exchange Act Release No. 56327 (August 28, 
2007), 72 FR 51689 (September 10, 2007) (Notice of Filing of File 
No. SR-FINRA-2007-006). See also Notice to Members 06-32 (June 
2006).
---------------------------------------------------------------------------

    Since implementation, researchers and other non-dealers have been 
the primary subscribers to Historic TRACE Data. FINRA understands that 
the lack of usage by dealers is due to the 18-month delay period for 
transactions included in Historic TRACE Data and market participants 
have indicated that a reduction in the delay period to six months would 
make the data more useful.
    In response, FINRA is proposing to reduce the delay period 
applicable to Corporate and Agency Historic TRACE Data from 18 months 
to six months. FINRA is not aware of any instances of complaints 
regarding information leakage under the 18-month delay timeframe, and 
believes that the delay period can be reduced, thereby increasing the 
utility of the Corporate and Agency Historic TRACE Data to market 
participants and promoting the goal of increased transparency for 
TRACE-Eligible Securities.\10\ FINRA also believes that a six-month 
delay will be sufficient to continue to address information leakage 
concerns.\11\
---------------------------------------------------------------------------

    \10\ FINRA is not proposing any changes to the fields made 
available in the Historic TRACE Data at this time, and notes that 
the data will continue to omit any identifying dealer information. 
Additional information regarding included fields is available in 
``Historic TRACE Data: Enhanced Historical Time and Sales--Trade 
Record File Layout'' in the technical specifications.
    \11\ FINRA notes that the Municipal Securities Rulemaking Board 
(MSRB) disseminates in real-time the exact par value on all 
transactions with a par value of $5 million or less, and includes an 
indicator (``MM+'') in place of the exact par value on transactions 
where the par value is greater than $5 million until the fifth 
business day. MSRB disseminates the exact par value on all 
transactions on the fifth day after the trade.
---------------------------------------------------------------------------

    If the Commission approves the proposed rule change, 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 120 days following 
publication of the Regulatory Notice.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\12\ which requires, among 
other things, that FINRA rules must be designed to prevent fraudulent 
and manipulative acts and practices, to promote just and

[[Page 23387]]

equitable principles of trade, and, in general, to protect investors 
and the public interest.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

    FINRA believes that reducing the delay period for the Corporate and 
Agency Historic TRACE Data will increase the utility of the data to 
market participants and others, thereby promoting the goal of increased 
transparency for TRACE-Eligible Securities, while continuing to 
incorporate a sufficient period of aging to address information leakage 
concerns.

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.
Economic Impact Analysis
(a) Need for the Rule
    As discussed above, FINRA has received feedback from market 
participants that the current 18-month delay period may be too long to 
make Historic TRACE Data useful. Most subscribers to Historic TRACE 
Data have been vendors and research firms; there have been very few 
member subscribers due to the length of the delay.
(b) Regulatory Objective
    The proposed shorter delay period for Historic TRACE Data aims to 
increase the utility of Historic TRACE Data for market participants and 
others, thereby promoting the goal of increased transparency for TRACE-
Eligible Securities.
(c) Economic Impacts
    FINRA's existing Historic TRACE Data product provides transaction-
level data on an 18-month delayed basis for all transactions that have 
been reported to TRACE in the classes of TRACE-Eligible Securities that 
currently are disseminated. As detailed above, FINRA is proposing to 
reduce the delay period for the Historic TRACE Data Sets relating to 
Corporate and Agency Debt securities from 18 months to six months.
    The proposed rule change would expand the benefits of FINRA's TRACE 
initiatives by increasing the utility of the Corporate and Agency 
Historic TRACE Data Sets to market participants, as the proposed 
reduction in the delay period to six months would make the data more 
useful.
    The proposed rule change will not have any operational impact on 
firms, as the proposal does not require firms to provide FINRA with any 
additional data. The purchase of TRACE data products will continue to 
be optional for members and others. However, FINRA considered the 
potential for indirect costs regarding possible information leakage due 
to the reduction in the delay period applicable to the Corporate and 
Agency Historic TRACE Data Sets from 18 months to six months. To 
address those concerns and investigate whether the reduction in the 
delay period poses a risk for reverse engineering of positions, FINRA 
analyzed daily positions in 12,087 corporate and 10,109 agency bonds, 
that were issued between March 6, 2012 and February 5, 2014, by using 
trades between February 6, 2012 and February 5, 2016 that were reported 
to TRACE by 1,509 market participants.\13\
---------------------------------------------------------------------------

    \13\ Historic TRACE Data does not include a ``List or Fixed 
Offering Price Transaction'' or ``Takedown Transaction,'' as defined 
in Rule 6710.
---------------------------------------------------------------------------

    Figure 1 depicts the average number of days it takes to reverse 
\14\ corporate bond positions and the average position size in the 
sample.\15\
---------------------------------------------------------------------------

    \14\ To ``reverse'' a position means entering into a trade on 
the opposite side of a position that flattens or reverses the 
position. For example, if long in a specific bond, a reversal would 
entail a sell trade in an amount that is equal to or greater than 
the amount of the original position.
    \15\ Positions that are created in the last six months of the 
sample period are not included in the sample to prevent a bias in 
the results.
[GRAPHIC] [TIFF OMITTED] TN22MY17.020

    2,230,676, or approximately 74.5%, of the 2,992,946 daily corporate 
bond positions in the sample were reversed on the same day (number of 
days = 0). The average size of the positions in this category was 
approximately $0.8 million per CUSIP. 21.9% of the trades were reversed 
between one and 180 days. These trades had an average size of between 
$1.4 and $2.0 million. The remaining positions, approximately 3.6% of 
the sample, were reversed after 180 days (i.e., remained open for 
longer than 180 days). FINRA notes that the vast majority, 
approximately 79.2%, of

[[Page 23388]]

the positions in this category were still open at the end of our sample 
period (February 5, 2016). The positions that remained open for more 
than 180 days had an average size of $2.1 million.\16\
---------------------------------------------------------------------------

    \16\ The difference in the average size of positions that 
reversed after 180 days ($2.1 million) and positions that were 
reversed within 180 days ($0.9 million) is statistically significant 
at conventional levels.
---------------------------------------------------------------------------

    642 CUSIPs only had positions that were reversed after 180 days 
from acquisition. Another 1,402 CUSIPs only had positions that were 
reversed within 180 days. The remaining 10,043 CUSIPs had both 
positions that were reversed within 180 days and positions that were 
reversed after 180 days from acquisition.
    FINRA believes that the risk of reverse engineering would be higher 
for the 642 CUSIPs that only had positions that were still open after 
180 days. These CUSIPs were for significantly smaller issues (average 
issuance amount of approximately $38 million) than the rest of the 
CUSIPs (an average issuance amount of approximately $315 million). 
These 642 CUSIPs had an average of seven trades per CUSIP over the 
sample period, compared to 1,306 trades per CUSIP for the rest of the 
sample. These CUSIPs also were traded by fewer market participants, an 
average of 1.3, compared to an average of 42 market participants for 
the remaining 11,445 CUSIPs. There were only 862 positions in those 642 
CUSIPs, with relatively large balances as a proportion to the issuance 
size, with an average balance-to-issuance size of 32.5%, compared to 
0.3% for the remaining CUSIPs. Approximately 15% of the 862 positions 
were reversed between six and 18 months of acquisition, implying that 
the reduction in dissemination delay would impact a small portion of 
the holdings in the sample. This would suggest that the proposed rule, 
if it had been in place, would have provided little additional 
information to the public relative to these positions.
    These figures suggest that only a small portion of the corporate 
positions in the sample are reversed after 180 days of acquisitions. 
Moreover, only a few CUSIPs had positions with holding periods of more 
than 180 days, while such positions consisted of less than 0.02% of all 
daily corporate bond positions in the sample.
    Figure 2 depicts the average number of days it takes to reverse 
agency bond positions and the average position size in the sample.
[GRAPHIC] [TIFF OMITTED] TN22MY17.021

    Of the 425,823 daily agency bond positions, 317,447, or 
approximately 74.5%, of the sample were reversed on the same day 
(number of days = 0). The average size of the positions in this 
category was approximately $2.5 million per CUSIP. Another 18.0% of the 
trades were reversed between one and 180 days. These trades had an 
average size of between $4.4 and $5.2 million. The remaining positions, 
approximately 7.4% of the sample, were still open for more than 180 
days. Approximately 92.4%, of the positions in this category were still 
open at the end of our sample period.\17\ The positions that remained 
open for more than 180 days had an average size of $13.2 million.\18\
---------------------------------------------------------------------------

    \17\ FINRA staff also notes that approximately 93.3% of the open 
agency bond positions in the sample were open for more than 180 days 
as of February 5, 2016.
    \18\ The difference in the average size of positions that 
reversed after 180 days ($13.2 million) and positions that are 
reversed within 180 days ($2.8 million) is statistically significant 
at conventional levels.
---------------------------------------------------------------------------

    764 CUSIPs only had positions that were reversed after 180 days 
from acquisition. Another 497 CUSIPs only had positions that were 
reversed within 180 days. The remaining 8,848 CUSIPs had both positions 
that were reversed within 180 days and positions that were reversed 
after 180 days from acquisition.
    The 764 CUSIPs with positions that were reversed after 180 days 
were slightly smaller issues (an average issuance amount of 
approximately $110 million) than the rest of the CUSIPs (an average 
issuance amount of approximately $125 million). These 764 CUSIPs had an 
average of 1.7 trades per CUSIP over the sample period, compared to 175 
trades per CUSIP for the rest of the sample. These CUSIPs also were 
traded by fewer market participants, an average of 1.1, compared to an 
average of 22 market participants for the remaining 9,345 CUSIPs (497 + 
8,848) for positions that were reversed both within and after 180 days 
of acquisition. There were 816 positions in those 764 CUSIPS, with 
relatively larger balances (but not as large as those for corporate 
bonds) as a proportion to the issuance size, with an average balance-
to-issuance size of 2.1%, compared to 0.2% for the rest of

[[Page 23389]]

the position balances (425,007) in the rest of the CUSIPs. 
Approximately 1% of the 816 positions were reversed between six and 18 
months of acquisition, implying that the reduction in dissemination 
delay would impact a very small portion of the holdings in the agency 
bond sample.
    These figures suggest that only a small portion of the agency bond 
positions in the sample were reversed after 180 days of acquisition. 
Moreover, only a few CUSIPs related to positions with holding periods 
longer than 180 days, while such positions consisted of less than 0.02% 
of all daily agency bond positions in the sample.
    Based on the empirical evidence in the sample period, FINRA notes 
that information leakage, due to the reduction in the delay period 
applicable to the Corporate and Agency Historic TRACE Data Sets from 18 
months to six months is a limited risk for smaller issues that are held 
by a limited number of market participants. As noted above, such issues 
are, on average, traded very infrequently. As such, the information 
leakage associated with these issues may be of limited use to market 
participants. To the extent that such market participants choose not to 
trade these issues as a result of the proposed dissemination delay, 
some CUSIPs may experience a decrease in liquidity.

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 15-24 (June 2015). Four comment letters were received in 
response to the Notice.\19\ A copy of the Notice is attached as Exhibit 
2a. The list of the commenters is attached as Exhibit 2b. Copies of the 
comment letters received in response to the Notice are attached as 
Exhibit 2c.
---------------------------------------------------------------------------

    \19\ See Letter from Sean Davy, Managing Director, Securities 
Industry and Financial Markets Association, to Maria E. Asquith, 
Corporate Secretary, FINRA, dated August 24, 2015 (``SIFMA''); 
letter from Michael Nicholas, CEO, Bond Dealers of America, to Maria 
E. Asquith, Corporate Secretary, FINRA, dated August 24, 2015 
(``BDA''); letter from Luis Palacios, Director of Research Services, 
The Wharton School, to Maria E. Asquith, Corporate Secretary, FINRA, 
dated September 10, 2015 (``Wharton''); and letter from Carrie 
Devorah, Founder, The Center for Copyrights Integrity, to Maria E. 
Asquith, Corporate Secretary, FINRA, dated September 14, 2015 
(``CCI'').
---------------------------------------------------------------------------

    SIFMA, BDA and Wharton supported the proposed reduction in the 
delay period for Historic TRACE Data from 18 months to six months. 
SIFMA noted that, if certain TRACE-Eligible Securities (not currently 
subject to dissemination) became subject to dissemination--i.e., CMOs, 
CMBSs and CDOs, FINRA should consider potential information leakage and 
liquidity issues for such securities prior to including them in 
Historic TRACE Data with a six-month, reduced delay. SIFMA suggested a 
phased-in approach to incorporating this subset of TRACE-Eligible 
Securities that would begin with an 18-month delay and that, 
ultimately, is reduced to six months once these products are subject to 
public dissemination. In response to this comment, and as discussed in 
Section II.A.1. of this filing, FINRA has revised the proposal to 
reduce the 18-month delay period to six months only for the Historic 
Corporate and Agency Data; the Historic SP Data Set will continue to be 
subject to an 18-month delay. FINRA will consider whether reducing the 
18-month delay period for the Historic SP Data Set is appropriate once 
all SPs have become subject to dissemination.\20\
---------------------------------------------------------------------------

    \20\ See supra note 6.
---------------------------------------------------------------------------

    CCI did not support the proposal and, among other things, raised 
privacy concerns, and stated that any data transmitted online has no 
privacy.\21\ FINRA notes that the Historic TRACE Data product consists 
of security-focused transaction information, not customer information, 
and generally is available to any professional or non-professional 
party that subscribes, executes appropriate agreements and pays the 
applicable fee. In addition, while Historic TRACE Data includes delayed 
information for transactions that were not disseminated previously, the 
vast majority of the data included already has been disseminated 
publicly. Thus, in the unprecedented event of a breach involving 
Historic TRACE Data, FINRA does not believe this would present a harm 
to FINRA members or the market.
---------------------------------------------------------------------------

    \21\ CCI also raised other issues that are not germane to the 
proposed reduction of the delay period for Historic TRACE Data and 
that, therefore, are not addressed herein.
---------------------------------------------------------------------------

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-2017-012 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-FINRA-2017-012. 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 
a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of FINRA. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-FINRA-2017-012 and should be 
submitted on or before June 12, 2017.


[[Page 23390]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
---------------------------------------------------------------------------

    \22\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-10307 Filed 5-19-17; 8:45 am]
BILLING CODE 8011-01-P