Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend FINRA Rule 6732 and Expand the Scope of Exemptions That FINRA May Grant ATSs From the TRACE Reporting Requirements, 67996-67999 [2021-25988]
Download as PDF
<![CDATA[
67996
Federal Register / Vol. 86, No. 227 / Tuesday, November 30, 2021 / Notices
paper Form BA–9, (or in like format) on
a CD–ROM, or by File Transfer Protocol
(FTP), or Secure Email. Completion is
mandatory. One response is requested of
each respondent.
Previous Requests for Comments: The
RRB has already published the initial
60-day notice (86 FR 53120 on
September 24, 2021) required by 44
U.S.C. 3506(c)(2). That request elicited
no comments.
Information Collection Request (ICR)
Title: Railroad Separation Allowance
or Severance Pay Report.
OMB Control Number: 3220–0173.
Form(s) submitted: BA–9.
Type of request: Revision of a
currently approved collection.
Affected public: Private Sector;
Businesses or other for profits.
Abstract: Section 6 of the Railroad
Retirement Act provides for a lump-sum
payment to an employee or the
employee’s survivor equal to the Tier II
taxes paid by the employee on a
separation allowance or severance
payment for which the employee did
not receive credits toward retirement.
The collection obtains information
Annual
responses
Form No.
BA–9
BA–9
BA–9
BA–9
BA–9
Time
(minutes)
Burden
(hours)
(Paper) ...............................................................................................................................
(Internet) ............................................................................................................................
(CD–ROM) .........................................................................................................................
(Secure Email) ...................................................................................................................
(FTP) ..................................................................................................................................
100
215
10
25
10
76
15
76
76
76
127
54
13
32
13
Total ......................................................................................................................................
360
........................
239
Additional Information or Comments:
Copies of the forms and supporting
documents can be obtained from
Kennisha Tucker at (312) 469–2591 or
Kennisha.Tucker@rrb.gov. Comments
regarding the information collection
should be addressed to Brian Foster,
Railroad Retirement Board, 844 North
Rush Street, Chicago, Illinois 60611–
1275 or Brian.Foster@rrb.gov.
Written comments and
recommendations for the proposed
information collection should be sent
within 30 days of publication of this
notice to www.reginfo.gov/public/do/
PRAMain. Find this particular
information collection by selecting
‘‘Currently under 30-day Review—Open
for Public Comments’’ or by using the
search function.
Brian Foster,
Clearance Officer.
[FR Doc. 2021–26007 Filed 11–29–21; 8:45 am]
BILLING CODE 7905–01–P
lotter on DSK11XQN23PROD with NOTICES1
concerning the separation allowances
and severance payments paid from
railroad employers.
Changes proposed: The RRB proposes
no changes to the manual, CD–ROM,
secure email, or FTP Version of Form
BA–9. The RRB proposes the addition of
an internet equivalent version of Form
BA–9 to the information collection.
The burden estimate for the ICR is as
follows:
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–93651; File No. SR–FINRA–
2021–029]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a
Proposed Rule Change To Amend
FINRA Rule 6732 and Expand the
Scope of Exemptions That FINRA May
Grant ATSs From the TRACE
Reporting Requirements
November 23, 2021.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on November
15, 2021, the Financial Industry
Regulatory Authority, Inc. (‘‘FINRA’’)
filed with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
the proposed rule change as described
in Items I and II 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
6732 to provide FINRA with authority
to, subject to conditions, exempt
transactions by a member alternative
trading system (‘‘ATS’’) that meet
specified criteria from the transaction
1
2
VerDate Sep<11>2014
18:17 Nov 29, 2021
Jkt 256001
PO 00000
15 U.S.C. 78s(b)(1).
17 CFR 240.19b–4.
Frm 00098
Fmt 4703
Sfmt 4703
reporting obligations of FINRA Rule
6730 (Transaction Reporting).
The text of the proposed rule change
is available on FINRA’s website at
https://www.finra.org, at the principal
office of FINRA and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
FINRA included statements concerning
the purpose of and basis for the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. FINRA has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Rule 6730 generally requires that each
FINRA member that is a party to a
transaction in a TRACE-Eligible
Security 3 report the transaction to
3 ‘‘TRACE-Eligible Security’’ generally is defined
as a debt security that is U.S. dollar-denominated
and is: (1) 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; (2) issued or guaranteed
by an Agency as defined in paragraph (k) or a
Government-Sponsored Enterprise as defined in
paragraph (n); or (3) a U.S. Treasury Security as
E:\FR\FM\30NON1.SGM
30NON1
Federal Register / Vol. 86, No. 227 / Tuesday, November 30, 2021 / Notices
lotter on DSK11XQN23PROD with NOTICES1
TRACE within the period of time
prescribed in the rule. ‘‘Party to a
transaction’’ means an introducing
broker-dealer, if any, an executing
broker-dealer or a customer.4 Thus, in
transactions in a TRACE-Eligible
Security between members, each
member is a party to the transaction and
is required to report the transaction. An
ATS is a party to each transaction in a
TRACE-Eligible Security occurring
through its system and has a TRACE
transaction reporting obligation unless
an exception or exemption applies.5
FINRA adopted Rule 6732 (Exemption
from Trade Reporting Obligation for
Certain Alternative Trading Systems) in
response to concerns raised by members
regarding operational difficulties with
respect to certain transactions on an
ATS—particularly, with respect to ATS
models where the ATS does not always
have a role in the clearance and
settlement of transactions occurring on
its system.6 In such cases, because backend systems often are programmed to
clear against the contra-party identified
on TRACE trade reports, member
subscribers preferred to TRACE report
against the party with which they clear
and settle the trade (i.e., another
subscriber, rather than the ATS). Rule
6732 addresses these concerns by
providing FINRA with the authority,
subject to specified conditions, to
exempt the ATS from the TRACE
reporting requirement so that member
subscribers can report against their
contra-party for clearance and
settlement purposes. To be eligible for
the relief, the ATS must ensure, among
other things, that: The trade is between
FINRA members; the trade does not pass
through any ATS account; and the ATS
does not exchange TRACE-Eligible
Securities or funds on behalf of the
subscribers or take either side of the
trade for clearing or settlement purposes
(including, but not limited to, at DTC or
otherwise), or in any other way insert
itself into the trade.7
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). See Rule
6710(a).
4 ‘‘Customer’’ includes a broker-dealer that is not
a FINRA member.
5 See Regulatory Notice 14–53 (November 2014).
6 See Securities Exchange Act Release No. 76677
(December 17, 2015), 80 FR 79966 (December 23,
2015) (Notice of Filing and Immediate Effectiveness
of File No. SR–FINRA–2015–055).
7 An ATS granted an exemption pursuant to Rule
6732 continues to be deemed a ‘‘party’’ to the
transactions covered by the exemption; is required
to submit monthly files of all exempted trades to
FINRA; is required to remit to FINRA a transaction
reporting fee based on the fee schedule set forth in
Rule 7730(b)(1) for each exempted sell transaction
occurring on the ATS; and is required to enter into
VerDate Sep<11>2014
18:17 Nov 29, 2021
Jkt 256001
FINRA now is amending Rule 6732 to
expand the scope of transactions that
may be exempted under the rule to
include trades that involve only one
FINRA member (other than the ATS).
FINRA has observed that in many cases,
transactions on an ATS that involve
only one member are otherwise similar
to the transactions that are currently
eligible for exemptive relief under Rule
6732. Specifically, in such transactions,
the counterparties on the ATS (e.g., a
member and a bank) may clear directly
with each other rather than the ATS.
FINRA believes that expanding the
scope of the current exemption to
permit its use for transactions between
a member (other than the ATS) and a
non-member subscriber would extend
the benefits of the rule—including
simplifying compliance with TRACE
trade reporting obligations—for
additional ATS models and member
subscribers, while capturing
substantially the same regulatory
information and enabling public
dissemination of the transaction in a
more streamlined manner.
For example, under current reporting
requirements, where a member (BD)
sells a TRACE-Eligible Security to a
non-member (C) on an ATS, Rule 6730
generally requires that BD report a sale
to the ATS and the ATS report a buy
from BD. The ATS must also report the
corresponding sale to C.8 Under the
proposed expansion to the exemption,
where granted, the ATS would not be
required to report its transaction with
BD or C to TRACE. However, the overall
transaction would continue to be
transparent to the public, as the member
subscriber would report the transaction
with the non-member subscriber
counterparty and the trade would be
disseminated, subject to the limitations
on dissemination set forth in Rule 6750
(Dissemination of Transaction
Information).9
an agreement with each member subscriber that is
a ‘‘party to a transaction’’ with respect to any trade
for which the ATS is exempted specifying that
trades must be reported by such party pursuant to
Rule 6730(c)(13) identifying the trade as having
occurred on the ATS (using the ATS’s separate
MPID obtained in compliance with Rule 6720(c)).
8 In transactions between members, FINRA
disseminates only the sale transaction. However, in
a transaction between a member and a non-member,
FINRA disseminates the purchase or sale
transaction with the non-member.
9 Under Rule 6750(c) (Transaction Information
Not Disseminated), FINRA will not disseminate
information on a transaction in a TRACE-Eligible
Security that is: Appended with the non-member
affiliate-principal transaction indicator pursuant to
Rule 6730(d)(4)(E); a transfer of certain proprietary
securities positions effected in connection with a
merger or direct or indirect acquisition; a List or
Fixed Offering Price Transaction or a Takedown
Transaction; a Securitized Product that is: A CMBS;
a CDO; or a CMO if the CMO transaction value is
PO 00000
Frm 00099
Fmt 4703
Sfmt 4703
67997
Thus, for a sale transaction, BD would
be required to report to TRACE a sale to
C, identifying the trade as having
occurred on the ATS in its TRACE
report using the ATS’s separate
identifier obtained in compliance with
Rule 6720(c) (Alternative Trading
Systems). This sale transaction would
be disseminated upon receipt consistent
with Rule 6750.10 Similarly, for a
purchase transaction, BD would be
required to report to TRACE a buy from
C, identifying the trade as having
occurred on the ATS in its TRACE
report using the ATS’s separate
identifier. This purchase transaction
would be disseminated upon receipt
consistent with Rule 6750.11 In both
cases, the ATS would be required to
submit monthly files of all exempted
trades to FINRA as is required under the
existing exemption.
FINRA believes it is appropriate to
expand the eligibility criteria for the
Rule 6732 exemption to include
transactions between a member and
non-member because, where the parties
clear directly with each other, these
transactions can present the same
operational challenges for members as
trades between two members, and
granting the exemption with regard to
these types of trades would not
compromise transparency because such
transactions will continue to be trade
reported by members and disseminated
by FINRA in accordance with existing
rules. Moreover, exempt trades would
be disseminated by FINRA in a more
streamlined manner because there
would be one, rather than two,
disseminated trade reports in
connection with the transaction on the
ATS. In addition, the other conditions
for the exemption would continue to
apply, including the requirement that
any ATS granted an exemption must
enter into a written agreement with each
member that is a ‘‘Party to a
Transaction’’ with respect to exempted
trades, thereby ensuring that reporting
members are aware that the ATS has
been granted a Rule 6732 exemption
and that exempted trades on the ATS
are subject to different reporting
requirements—specifically, that the
reporting member must identify a party
other than the ATS as its contra-party
and identify the ATS on which the trade
had occurred in its TRACE reports. With
respect to a transaction between a
member and a non-member on an ATS
$1 million or more (calculated based upon original
principal balance) and the transaction does not
qualify for periodic dissemination under Rule
6750(b), except as may be otherwise provided in
Rule 7730; or a U.S. Treasury Security.
10 See supra note 9.
11 See supra note 9.
E:\FR\FM\30NON1.SGM
30NON1
67998
Federal Register / Vol. 86, No. 227 / Tuesday, November 30, 2021 / Notices
that is a ‘‘covered ATS’’ under Rule
6730.07, the ATS must provide to the
member subscriber (and the member
subscriber must report to TRACE using)
the FINRA-assigned identifier for each
non-FINRA member subscriber.12
If the Commission approves the
proposed rule change, FINRA will
announce the effective date of the
proposed rule change in a Regulatory
Notice. The effective date will be no
later than 365 days following
Commission approval of the proposed
rule change.
2. Statutory Basis
FINRA believes that the proposed rule
change is consistent with the provisions
of Section 15A(b)(6) of the Exchange
Act,13 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.
FINRA believes that the proposed rule
change will simplify compliance for
certain ATSs and their member
subscribers by permitting the ATS to
report on a periodic basis to FINRA and
permitting member subscribers to trade
report with the party against which it
will clear the trade. FINRA also notes
that the regulatory information captured
and the public transparency with
respect to exempted trades will not be
compromised because such transactions
will continue to be trade reported by
members and disseminated by FINRA in
accordance with existing rules.
lotter on DSK11XQN23PROD with NOTICES1
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 Exchange Act.
Any ATS that meets the criteria set forth
in the proposed rule would be able to
apply for the exemption with respect to
eligible transactions occurring on its
platform. In addition, irrespective of an
ATS’s model or whether the ATS is
granted an exemption pursuant to this
proposal, all ATSs that are a ‘‘party to
a transaction’’ must continue to pay a
transaction reporting fee based on the
fee schedule set forth in Rule 7730(b)(1)
for each exempted sell transaction
occurring through the ATS.
12 Likewise, an exempt ATS that is a ‘‘covered
ATS’’ under 6730.07 must use the FINRA-assigned
identifier to identify each non-FINRA member
subscriber in the monthly transaction files that are
required to be submitted to FINRA.
13 15 U.S.C. 78o–3(b)(6).
VerDate Sep<11>2014
18:17 Nov 29, 2021
Jkt 256001
Economic Impact Assessment
(a) Need for the Rule
As discussed above, an ATS is a party
to a transaction in any TRACE-eligible
securities occurring on that ATS. As
such, an ATS must report the
transaction to TRACE as provided for in
Rule 6730, unless an exception or
exemption applies. An ATS’s business
model structure impacts the way trades
are facilitated on the platform and,
therefore, which trades must be reported
to TRACE and by whom. In instances
where the functional activities of the
ATS are more limited with respect to a
transaction, as discussed above, FINRA
believes that the proposed rule change
is appropriate and may simplify
compliance for these ATSs and their
member subscribers and enables public
dissemination of these transactions in a
more streamlined manner.
(b) Economic Baseline
Rule 6732 provides FINRA with
authority to exempt an ATS from
TRACE transaction reporting
requirements where the transactions on
the ATS meet the conditions of Rule
6732. Not all ATSs that have been
granted the Rule 6732 exemption could
benefit from the proposed expanded
scope—which relates to trades between
a member and a non-member occurring
on the platform. However, to the extent
that trades on an ATS involve a member
and a non-member, then such ATS
could benefit from the expanded
exemption (if it satisfies the other
conditions in the rule). It is also
possible that other ATSs may adapt
their business models and become
eligible for the expanded exemption, or
that new entrants could arise that may
benefit from the proposed expanded
rule.
(c) Economic Impacts
FINRA has identified a small number
of current ATSs on which trades
between a member and a non-member
occur (i.e., trades that may potentially
fall within the scope of the additional
relief that the proposed exemption
would provide).14 If the exemption is
requested by and granted to an ATS,
member subscribers who execute trades
on such ATS may be impacted. Where
granted, an ATS that operates under the
exemption presumably would benefit
from reduced compliance costs by
shifting from contemporaneous
reporting of transactions to TRACE to
14 FINRA is unable to estimate the number of
transactions that may be covered under the
expanded scope of the exemption because
information on whether all trades meet all of the
rule’s conditions is not readily available.
PO 00000
Frm 00100
Fmt 4703
Sfmt 4703
periodic reporting and by paying a
reporting fee only on exempted sell
transactions.
An ATS that seeks and is granted an
exemption under this proposed rule
may incur costs to modify its system
and must update its policies and
procedures to reflect reporting
consistent with the requirements of the
rule. Each ATS may determine
independently whether it wants to
request the exemption, and, thus, it is
likely that an ATS would only seek this
exemption where it is preferable to
standard reporting requirements.
Where an ATS seeks and is granted
the exemption, member subscribers who
transact through the ATS also may incur
costs associated with modifying the
reporting system to identify the ATS on
TRACE reports (and to report the nonmember as its counter party). These
costs may include additional
programming and testing along with
updating policies and procedures.
Members may also benefit where they
prefer to trade report against the contraparty with which they will clear and
settle the trade. Both member
subscribers and ATSs may incur
additional costs associated with creating
and maintaining a written agreement
with respect to the reporting exempt
trades.
FINRA also considered the potential
impacts of the proposed rule on
investors and other parties that might
rely on TRACE reporting. The proposed
rule would not reduce the information
collected and disseminated by FINRA
on TRACE-eligible securities
transactions occurring on an ATS.
Member subscribers would continue to
report to TRACE transactions occurring
on an ATS that was granted the
exemption within the time prescribed
by FINRA rules and would identify the
ATS on which the trade occurred. In
addition, public transparency with
respect to exempted trades will not be
compromised because exempted
transactions will continue to be
disseminated by FINRA in accordance
with existing rules.
(d) Alternatives Considered
No alternatives were considered.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
E:\FR\FM\30NON1.SGM
30NON1
Federal Register / Vol. 86, No. 227 / Tuesday, November 30, 2021 / Notices
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
up to 90 days (i) as the Commission may
designate 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.
BILLING CODE 8011–01–P
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–2021–029 on the subject line.
lotter on DSK11XQN23PROD with NOTICES1
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–2021–029. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
18:17 Nov 29, 2021
Jkt 256001
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.15
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–25988 Filed 11–29–21; 8:45 am]
IV. Solicitation of Comments
VerDate Sep<11>2014
inspection and copying at the principal
office of FINRA. All comments received
will be posted without change. Persons
submitting comments are cautioned that
we do not redact or edit personal
identifying information from comment
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–FINRA–
2021–029, and should be submitted on
or before December 21, 2021.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–93670; File No. SR–FICC–
2021–008]
Self-Regulatory Organizations; Fixed
Income Clearing Corporation; Notice of
Filing and Immediate Effectiveness of
a Proposed Rule Change To Make
Certain Revisions and Clarifications to
the Rules
November 24, 2021.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on November
15, 2021, Fixed Income Clearing
Corporation (‘‘FICC’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II and III
below, which Items have been prepared
by the clearing agency. FICC filed the
proposed rule change pursuant to
Section 19(b)(3)(A) of the Act 3 and Rule
19b–4(f)(4) thereunder.4 The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
The proposed rule change consists of
modifications to the FICC Government
Securities Division (‘‘GSD’’) Rulebook
(‘‘GSD Rules’’), the FICC MortgageBacked Securities Division (‘‘MBSD’’)
Clearing Rules (‘‘MBSD Rules’’) and the
FICC MBSD EPN Rules (‘‘EPN Rules,’’
and together with the GSD Rules and
17 CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(4).
15
1 15
PO 00000
Frm 00101
Fmt 4703
Sfmt 4703
67999
the MBSD Rules, the ‘‘Rules’’) to (1)
incorporate in the Rules the affirmative
undertakings that Members currently
make in onboarding membership
agreements; (2) incorporate into the
Rules the governing law of agreements
and other documents provided to FICC
pursuant to the Rules; (3) clarify FICC’s
ability to rely on electronic signatures
on agreements and other documents
provided to FICC pursuant to the Rules;
and (4) clarify in the GSD Rules and
MBSD Rules that Members shall appoint
a duly authorized representative in
connection with their membership, and
remove the requirement that FICC
approve the form of power of attorney
or resolutions of the Member’s board of
directors that evidences such
authorization, as described in greater
detail below.5
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
In its filing with the Commission, the
clearing agency included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
clearing agency has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
(A) Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
1. Purpose
FICC is proposing amendments that
would clarify, simplify and improve the
disclosures in the Rules, primarily
related to onboarding and other
membership documentation between
FICC and its Members. FICC, along with
its affiliates, The Depository Trust
Company and National Securities
Clearing Corporation, has recently
completed a review of the templates of
onboarding agreements and other
documents that are provided to FICC in
connection with a firm’s application for
membership and the templates of
agreements and documents Members
may provide to FICC during the course
of their membership pursuant to the
Rules. In connection with this review,
5 Capitalized terms not defined herein are defined
in the GSD Rules, MBSD Rules and EPN Rules, as
applicable, available at https://www.dtcc.com/
legal/rules-and-procedures. GSD and MBSD have
several membership categories. For ease of
description, unless otherwise indicated by the
context, the term ‘‘Member’’ is used to refer to all
membership categories.
E:\FR\FM\30NON1.SGM
30NON1
]]>Agencies
[Federal Register Volume 86, Number 227 (Tuesday, November 30, 2021)]
[Notices]
[Pages 67996-67999]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-25988]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93651; File No. SR-FINRA-2021-029]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend
FINRA Rule 6732 and Expand the Scope of Exemptions That FINRA May Grant
ATSs From the TRACE Reporting Requirements
November 23, 2021.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on November 15, 2021, the Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by FINRA. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to amend Rule 6732 to provide FINRA with
authority to, subject to conditions, exempt transactions by a member
alternative trading system (``ATS'') that meet specified criteria from
the transaction reporting obligations of FINRA Rule 6730 (Transaction
Reporting).
The text of the proposed rule change is available on FINRA's
website at https://www.finra.org, at the principal office of FINRA and
at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, FINRA included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. FINRA has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Rule 6730 generally requires that each FINRA member that is a party
to a transaction in a TRACE-Eligible Security \3\ report the
transaction to
[[Page 67997]]
TRACE within the period of time prescribed in the rule. ``Party to a
transaction'' means an introducing broker-dealer, if any, an executing
broker-dealer or a customer.\4\ Thus, in transactions in a TRACE-
Eligible Security between members, each member is a party to the
transaction and is required to report the transaction. An ATS is a
party to each transaction in a TRACE-Eligible Security occurring
through its system and has a TRACE transaction reporting obligation
unless an exception or exemption applies.\5\
---------------------------------------------------------------------------
\3\ ``TRACE-Eligible Security'' generally is defined as a debt
security that is U.S. dollar-denominated and is: (1) 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; (2) issued or guaranteed by an Agency as
defined in paragraph (k) or a Government-Sponsored Enterprise as
defined in paragraph (n); or (3) 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). See Rule 6710(a).
\4\ ``Customer'' includes a broker-dealer that is not a FINRA
member.
\5\ See Regulatory Notice 14-53 (November 2014).
---------------------------------------------------------------------------
FINRA adopted Rule 6732 (Exemption from Trade Reporting Obligation
for Certain Alternative Trading Systems) in response to concerns raised
by members regarding operational difficulties with respect to certain
transactions on an ATS--particularly, with respect to ATS models where
the ATS does not always have a role in the clearance and settlement of
transactions occurring on its system.\6\ In such cases, because back-
end systems often are programmed to clear against the contra-party
identified on TRACE trade reports, member subscribers preferred to
TRACE report against the party with which they clear and settle the
trade (i.e., another subscriber, rather than the ATS). Rule 6732
addresses these concerns by providing FINRA with the authority, subject
to specified conditions, to exempt the ATS from the TRACE reporting
requirement so that member subscribers can report against their contra-
party for clearance and settlement purposes. To be eligible for the
relief, the ATS must ensure, among other things, that: The trade is
between FINRA members; the trade does not pass through any ATS account;
and the ATS does not exchange TRACE-Eligible Securities or funds on
behalf of the subscribers or take either side of the trade for clearing
or settlement purposes (including, but not limited to, at DTC or
otherwise), or in any other way insert itself into the trade.\7\
---------------------------------------------------------------------------
\6\ See Securities Exchange Act Release No. 76677 (December 17,
2015), 80 FR 79966 (December 23, 2015) (Notice of Filing and
Immediate Effectiveness of File No. SR-FINRA-2015-055).
\7\ An ATS granted an exemption pursuant to Rule 6732 continues
to be deemed a ``party'' to the transactions covered by the
exemption; is required to submit monthly files of all exempted
trades to FINRA; is required to remit to FINRA a transaction
reporting fee based on the fee schedule set forth in Rule 7730(b)(1)
for each exempted sell transaction occurring on the ATS; and is
required to enter into an agreement with each member subscriber that
is a ``party to a transaction'' with respect to any trade for which
the ATS is exempted specifying that trades must be reported by such
party pursuant to Rule 6730(c)(13) identifying the trade as having
occurred on the ATS (using the ATS's separate MPID obtained in
compliance with Rule 6720(c)).
---------------------------------------------------------------------------
FINRA now is amending Rule 6732 to expand the scope of transactions
that may be exempted under the rule to include trades that involve only
one FINRA member (other than the ATS). FINRA has observed that in many
cases, transactions on an ATS that involve only one member are
otherwise similar to the transactions that are currently eligible for
exemptive relief under Rule 6732. Specifically, in such transactions,
the counterparties on the ATS (e.g., a member and a bank) may clear
directly with each other rather than the ATS. FINRA believes that
expanding the scope of the current exemption to permit its use for
transactions between a member (other than the ATS) and a non-member
subscriber would extend the benefits of the rule--including simplifying
compliance with TRACE trade reporting obligations--for additional ATS
models and member subscribers, while capturing substantially the same
regulatory information and enabling public dissemination of the
transaction in a more streamlined manner.
For example, under current reporting requirements, where a member
(BD) sells a TRACE-Eligible Security to a non-member (C) on an ATS,
Rule 6730 generally requires that BD report a sale to the ATS and the
ATS report a buy from BD. The ATS must also report the corresponding
sale to C.\8\ Under the proposed expansion to the exemption, where
granted, the ATS would not be required to report its transaction with
BD or C to TRACE. However, the overall transaction would continue to be
transparent to the public, as the member subscriber would report the
transaction with the non-member subscriber counterparty and the trade
would be disseminated, subject to the limitations on dissemination set
forth in Rule 6750 (Dissemination of Transaction Information).\9\
---------------------------------------------------------------------------
\8\ In transactions between members, FINRA disseminates only the
sale transaction. However, in a transaction between a member and a
non-member, FINRA disseminates the purchase or sale transaction with
the non-member.
\9\ Under Rule 6750(c) (Transaction Information Not
Disseminated), FINRA will not disseminate information on a
transaction in a TRACE-Eligible Security that is: Appended with the
non-member affiliate-principal transaction indicator pursuant to
Rule 6730(d)(4)(E); a transfer of certain proprietary securities
positions effected in connection with a merger or direct or indirect
acquisition; a List or Fixed Offering Price Transaction or a
Takedown Transaction; a Securitized Product that is: A CMBS; a CDO;
or a CMO if the CMO transaction value is $1 million or more
(calculated based upon original principal balance) and the
transaction does not qualify for periodic dissemination under Rule
6750(b), except as may be otherwise provided in Rule 7730; or a U.S.
Treasury Security.
---------------------------------------------------------------------------
Thus, for a sale transaction, BD would be required to report to
TRACE a sale to C, identifying the trade as having occurred on the ATS
in its TRACE report using the ATS's separate identifier obtained in
compliance with Rule 6720(c) (Alternative Trading Systems). This sale
transaction would be disseminated upon receipt consistent with Rule
6750.\10\ Similarly, for a purchase transaction, BD would be required
to report to TRACE a buy from C, identifying the trade as having
occurred on the ATS in its TRACE report using the ATS's separate
identifier. This purchase transaction would be disseminated upon
receipt consistent with Rule 6750.\11\ In both cases, the ATS would be
required to submit monthly files of all exempted trades to FINRA as is
required under the existing exemption.
---------------------------------------------------------------------------
\10\ See supra note 9.
\11\ See supra note 9.
---------------------------------------------------------------------------
FINRA believes it is appropriate to expand the eligibility criteria
for the Rule 6732 exemption to include transactions between a member
and non-member because, where the parties clear directly with each
other, these transactions can present the same operational challenges
for members as trades between two members, and granting the exemption
with regard to these types of trades would not compromise transparency
because such transactions will continue to be trade reported by members
and disseminated by FINRA in accordance with existing rules. Moreover,
exempt trades would be disseminated by FINRA in a more streamlined
manner because there would be one, rather than two, disseminated trade
reports in connection with the transaction on the ATS. In addition, the
other conditions for the exemption would continue to apply, including
the requirement that any ATS granted an exemption must enter into a
written agreement with each member that is a ``Party to a Transaction''
with respect to exempted trades, thereby ensuring that reporting
members are aware that the ATS has been granted a Rule 6732 exemption
and that exempted trades on the ATS are subject to different reporting
requirements--specifically, that the reporting member must identify a
party other than the ATS as its contra-party and identify the ATS on
which the trade had occurred in its TRACE reports. With respect to a
transaction between a member and a non-member on an ATS
[[Page 67998]]
that is a ``covered ATS'' under Rule 6730.07, the ATS must provide to
the member subscriber (and the member subscriber must report to TRACE
using) the FINRA-assigned identifier for each non-FINRA member
subscriber.\12\
---------------------------------------------------------------------------
\12\ Likewise, an exempt ATS that is a ``covered ATS'' under
6730.07 must use the FINRA-assigned identifier to identify each non-
FINRA member subscriber in the monthly transaction files that are
required to be submitted to FINRA.
---------------------------------------------------------------------------
If the Commission approves the proposed rule change, FINRA will
announce the effective date of the proposed rule change in a Regulatory
Notice. The effective date will be no later than 365 days following
Commission approval of the proposed rule change.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Exchange Act,\13\ 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.
---------------------------------------------------------------------------
\13\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------
FINRA believes that the proposed rule change will simplify
compliance for certain ATSs and their member subscribers by permitting
the ATS to report on a periodic basis to FINRA and permitting member
subscribers to trade report with the party against which it will clear
the trade. FINRA also notes that the regulatory information captured
and the public transparency with respect to exempted trades will not be
compromised because such transactions will continue to be trade
reported by members and disseminated by FINRA in accordance with
existing rules.
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 Exchange Act. Any ATS that meets the
criteria set forth in the proposed rule would be able to apply for the
exemption with respect to eligible transactions occurring on its
platform. In addition, irrespective of an ATS's model or whether the
ATS is granted an exemption pursuant to this proposal, all ATSs that
are a ``party to a transaction'' must continue to pay a transaction
reporting fee based on the fee schedule set forth in Rule 7730(b)(1)
for each exempted sell transaction occurring through the ATS.
Economic Impact Assessment
(a) Need for the Rule
As discussed above, an ATS is a party to a transaction in any
TRACE-eligible securities occurring on that ATS. As such, an ATS must
report the transaction to TRACE as provided for in Rule 6730, unless an
exception or exemption applies. An ATS's business model structure
impacts the way trades are facilitated on the platform and, therefore,
which trades must be reported to TRACE and by whom. In instances where
the functional activities of the ATS are more limited with respect to a
transaction, as discussed above, FINRA believes that the proposed rule
change is appropriate and may simplify compliance for these ATSs and
their member subscribers and enables public dissemination of these
transactions in a more streamlined manner.
(b) Economic Baseline
Rule 6732 provides FINRA with authority to exempt an ATS from TRACE
transaction reporting requirements where the transactions on the ATS
meet the conditions of Rule 6732. Not all ATSs that have been granted
the Rule 6732 exemption could benefit from the proposed expanded
scope--which relates to trades between a member and a non-member
occurring on the platform. However, to the extent that trades on an ATS
involve a member and a non-member, then such ATS could benefit from the
expanded exemption (if it satisfies the other conditions in the rule).
It is also possible that other ATSs may adapt their business models and
become eligible for the expanded exemption, or that new entrants could
arise that may benefit from the proposed expanded rule.
(c) Economic Impacts
FINRA has identified a small number of current ATSs on which trades
between a member and a non-member occur (i.e., trades that may
potentially fall within the scope of the additional relief that the
proposed exemption would provide).\14\ If the exemption is requested by
and granted to an ATS, member subscribers who execute trades on such
ATS may be impacted. Where granted, an ATS that operates under the
exemption presumably would benefit from reduced compliance costs by
shifting from contemporaneous reporting of transactions to TRACE to
periodic reporting and by paying a reporting fee only on exempted sell
transactions.
---------------------------------------------------------------------------
\14\ FINRA is unable to estimate the number of transactions that
may be covered under the expanded scope of the exemption because
information on whether all trades meet all of the rule's conditions
is not readily available.
---------------------------------------------------------------------------
An ATS that seeks and is granted an exemption under this proposed
rule may incur costs to modify its system and must update its policies
and procedures to reflect reporting consistent with the requirements of
the rule. Each ATS may determine independently whether it wants to
request the exemption, and, thus, it is likely that an ATS would only
seek this exemption where it is preferable to standard reporting
requirements.
Where an ATS seeks and is granted the exemption, member subscribers
who transact through the ATS also may incur costs associated with
modifying the reporting system to identify the ATS on TRACE reports
(and to report the non-member as its counter party). These costs may
include additional programming and testing along with updating policies
and procedures. Members may also benefit where they prefer to trade
report against the contra-party with which they will clear and settle
the trade. Both member subscribers and ATSs may incur additional costs
associated with creating and maintaining a written agreement with
respect to the reporting exempt trades.
FINRA also considered the potential impacts of the proposed rule on
investors and other parties that might rely on TRACE reporting. The
proposed rule would not reduce the information collected and
disseminated by FINRA on TRACE-eligible securities transactions
occurring on an ATS. Member subscribers would continue to report to
TRACE transactions occurring on an ATS that was granted the exemption
within the time prescribed by FINRA rules and would identify the ATS on
which the trade occurred. In addition, public transparency with respect
to exempted trades will not be compromised because exempted
transactions will continue to be disseminated by FINRA in accordance
with existing rules.
(d) Alternatives Considered
No alternatives were considered.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
[[Page 67999]]
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 up to 90 days (i) as the
Commission may designate 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 [email protected]. Please include
File Number SR-FINRA-2021-029 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-2021-029. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of FINRA. All comments received
will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-FINRA-2021-029, and should be submitted
on or before December 21, 2021.
---------------------------------------------------------------------------
\15\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-25988 Filed 11-29-21; 8:45 am]
BILLING CODE 8011-01-P
