Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving Proposed Rule Change To Expand TRACE Reporting Requirements to Trades in U.S. Dollar-Denominated Foreign Sovereign Debt Securities, 50354-50358 [2022-17532]
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50354
Federal Register / Vol. 87, No. 157 / Tuesday, August 16, 2022 / Notices
Planned price adjustments. The
Governors’ Decision includes an
overview of the Postal Service’s planned
price changes, which is summarized in
the table below.
TABLE I–1—PROPOSED PRICE CHANGES
Average price
increase
(percent)
Product name
Domestic Competitive Products
Priority Mail Express ......................................................................................................................................................................
Retail .......................................................................................................................................................................................
Commercial Base ...................................................................................................................................................................
Commercial Plus ....................................................................................................................................................................
Priority Mail ....................................................................................................................................................................................
Retail .......................................................................................................................................................................................
Commercial Base ...................................................................................................................................................................
Commercial Plus ....................................................................................................................................................................
Parcel Select ..................................................................................................................................................................................
Destination Delivery Unit ........................................................................................................................................................
Destination Sectional Center Facility .....................................................................................................................................
Destination Network Distribution Center ................................................................................................................................
Lightweight ..............................................................................................................................................................................
Ground ....................................................................................................................................................................................
First-Class Package Service .........................................................................................................................................................
Retail .......................................................................................................................................................................................
Commercial .............................................................................................................................................................................
Retail Ground .................................................................................................................................................................................
2.7
2.8
2.1
2.1
6.3
6.3
6.1
6.1
10.2
5.9
12.8
12.8
0.0
4.2
8.3
8.2
8.4
5.8
Source: See Governors’ Decision No. 22–3 at 2.
II. Initial Administrative Actions
The Commission establishes Docket
No. CP2022–99 to consider the Postal
Service’s Notice. Interested persons may
express views and offer comments on
whether the planned changes are
consistent with 39 U.S.C. 3632, 3633,
and 3642, 39 CFR part 3035, and 39 CFR
3040 subparts B and E. Comments are
due no later than August 25, 2022. For
specific details of the planned price
changes, interested persons are
encouraged to review the Notice, which
is available on the Commission’s
website at www.prc.gov.
Pursuant to 39 U.S.C. 505,
Christopher C. Mohr is appointed to
serve as Public Representative to
represent the interests of the general
public in this docket.
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III. Ordering Paragraphs
It is ordered:
1. The Commission establishes Docket
No. CP2022–99 to provide interested
persons an opportunity to express views
and offer comments on whether the
planned changes are consistent with 39
U.S.C. 3632, 3633, and 3642, 39 CFR
part 3035, and 39 CFR 3040 subparts B
and E.
2. Comments are due no later than
August 25, 2022.
3. Pursuant to 39 U.S.C. 505, the
Commission appoints Christopher C.
Mohr to serve as an officer of the
Commission (Public Representative) to
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18:35 Aug 15, 2022
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represent the interests of the general
public in this docket.
4. The Secretary shall arrange for
publication of this Order in the Federal
Register.
By the Commission.
Jennie L. Jbara,
Alternate Certifying Officer.
[FR Doc. 2022–17628 Filed 8–15–22; 8:45 am]
BILLING CODE 7710–FW–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–95465; File No. SR–FINRA–
2022–011]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Order Approving
Proposed Rule Change To Expand
TRACE Reporting Requirements to
Trades in U.S. Dollar-Denominated
Foreign Sovereign Debt Securities
August 10, 2022.
I. Introduction
On May 6, 2022, the Financial
Industry Regulatory Authority, Inc.
(‘‘FINRA’’) filed with the Securities and
Exchange Commission (‘‘Commission’’),
pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a
1 15
2 17
PO 00000
U.S.C. 78s(b)(1).
CFR 240.19b–4.
Frm 00070
Fmt 4703
Sfmt 4703
proposed rule change to amend certain
rules in the Rule 6700 Series (Trade
Reporting and Compliance Engine
(TRACE)) to require members to report
to TRACE transactions in U.S. dollardenominated foreign sovereign debt
securities for regulatory purposes. The
proposed rule change was published for
comment in the Federal Register on
May 17, 2022.3 The Commission
received four comment letters on the
proposed rule change.4 On June 27,
2022, the Commission extended until
August 15, 2022, the time period within
which to approve the proposed rule
change, disapprove the proposed rule
change, or institute proceedings to
determine whether to disapprove the
proposed rule change.5 FINRA
submitted a response to the comments
3 See Securities Exchange Act Release No. 94891
(May 11, 2022), 87 FR 29980 (May 17, 2022)
(‘‘Notice’’).
4 See letters to Vanessa Countryman, Secretary,
Commission, from Gerard O’Reilly, Co-CEO and
Chief Investment Officer, Dimensional Fund
Advisors LP (‘‘Dimensional’’), dated June 6, 2022
(‘‘Dimensional Letter’’); Scott J. Preiss, Senior Vice
President, Global Head, CUSIP Global Services
(‘‘CGS’’), dated June 6, 2022 (‘‘CGS Letter’’);
Howard Meyerson, Managing Director, Financial
Information Forum (‘‘FIF’’), dated June 7, 2022
(‘‘FIF Letter’’); and Christopher B. Killian, Managing
Director, Securitization and Corporate Credit,
Securities Industry and Financial Markets
Association (‘‘SIFMA’’), dated June 7, 2022
(‘‘SIFMA Letter’’).
5 See Securities Exchange Act Release No. 95161
(June 27, 2022), 87 FR 39575 (July 1, 2022).
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Federal Register / Vol. 87, No. 157 / Tuesday, August 16, 2022 / Notices
on August 1, 2022.6 This order approves
the proposed rule change.
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II. Description of the Proposal
FINRA Rule 6730(a) requires each
FINRA member that is a Party to a
Transaction 7 in a TRACE-Eligible
Security 8 to report the transaction to
TRACE. Currently, almost all U.S.
dollar-denominated debt securities
traded in the U.S., including U.S. dollardenominated debt securities of foreign
private issuers, are TRACE-Eligible
Securities and therefore are subject to
TRACE reporting requirements.
However, the term TRACE-Eligible
Security currently excludes any debt
security that is issued by a foreign
sovereign.
FINRA is now proposing to include
U.S. dollar-denominated foreign
sovereign debt securities within the
definition of TRACE-Eligible Security,
so that these securities would become
subject to TRACE reporting.
Specifically, FINRA proposes to amend
paragraph (a) of Rule 6710 (Definitions)
to include the term ‘‘Foreign Sovereign
Debt Security’’ in the definition of
TRACE-Eligible Security, and to define
‘‘Foreign Sovereign Debt Security’’ in
paragraph (kk) of Rule 6710 as a debt
security issued or guaranteed by the
government of a foreign country, any
political subdivision of a foreign
country (e.g., state, provincial, or
municipal governments), or a
supranational entity.9 FINRA states that
this proposed rule change would
enhance FINRA’s regulatory audit trail
and provide FINRA with important
transaction information on a growing
segment of the market.10 In addition,
6 See letter to Vanessa Countryman, Secretary,
Commission, from Racquel L. Russell, FINRA, dated
August 1, 2022 (‘‘FINRA Response’’).
7 See FINRA Rule 6710(e) (defining ‘‘Party to a
Transaction’’ as ‘‘an introducing broker-dealer, if
any, an executing broker-dealer, or a customer.
‘Customer’ includes a broker-dealer that is not a
FINRA member.’’).
8 See FINRA Rule 6710(a) (defining ‘‘TRACEEligible Security’’ as ‘‘a debt security that is United
States (‘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 GovernmentSponsored 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).’’).
9 FINRA states that a ‘‘supranational entity’’
would include multi-national organizations such as
the International Bank for Reconstruction &
Development (World Bank), the Inter-American
Development Bank, the Asian Development Bank,
the African Development Bank, the International
Finance Corporation, and the European Investment
Bank. See Notice, 87 FR at 29981, n. 6.
10 See Notice, 87 FR at 29981.
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FINRA states that it believes that the
proposed rule change would advance
FINRA’s oversight of the fixed income
markets without imposing significant
burdens and costs on members because,
as FINRA understands, U.S. dollardenominated foreign sovereign debt
securities generally trade at firms that
already have TRACE reporting
workflows in place.11
FINRA states it is not at this time
proposing to publicly disseminate any
reports of transactions in U.S. dollardenominated foreign sovereign debt
securities. To reflect this, FINRA
proposes to amend Rule 6750
(Dissemination of Transaction
Information) to specify that FINRA will
not disseminate information on
transactions in foreign sovereign debt
securities.12 FINRA states that, if the
proposed rule change is adopted, FINRA
will take a measured approach to
potential dissemination, as it has taken
historically with other TRACE-Eligible
Securities and would first analyze the
regulatory data to determine the
appropriate contours of a potential
dissemination framework.13
In addition, FINRA is also proposing
to amend Rule 6730 (Transaction
Reporting) to require transactions in
U.S. dollar-denominated foreign
sovereign debt securities to be reported
on a same-day or next-day basis,
depending on the time of execution.14
FINRA states that this reporting
timeframe is appropriate because trades
in U.S. dollar-denominated foreign
sovereign debt securities would be
reported for regulatory purposes only.15
FINRA states that, as proposed,
FINRA members would be required to
report specific items of transaction
information in line with existing
requirements for TRACE-Eligible
id.
proposed FINRA Rule 6750(c)(5).
13 See Notice, 87 FR at 29981, n. 10.
14 See proposed FINRA Rule 6730(a)(5); see also
Notice, 87 FR at 29981. Under the proposed
amendments, reportable transactions in foreign
sovereign debt executed on a business day at or
after 12:00:00 a.m. Eastern Time (ET) through
5:00:00 p.m. ET would be required to be reported
the same day during TRACE System Hours.
Transactions executed on a business day after
5:00:00 p.m. ET but before the TRACE system closes
would be required to be reported no later than the
next business day (T+1) during TRACE System
Hours, and, if reported on T+1, designated ‘‘as/of’’
and include the date of execution. Transactions
executed on a business day at or after 6:30:00 p.m.
ET through 11:59:59 p.m. ET—or on a Saturday, a
Sunday, a federal or religious holiday or other day
on which the TRACE system is not open at any time
during that day—would be required to be reported
the next business day (T+1) during TRACE System
Hours, designated ‘‘as/of,’’ and include the date of
execution. See also FINRA Rule 6710(t) (defining
‘‘TRACE System Hours’’).
15 See Notice, 87 FR at 29981.
50355
Securities.16 Among other things, trade
reports would be required to include:
the CUSIP or CINS number, or FINRAassigned TRACE symbol; an identifier
for the contra-party (either MPID, ‘‘A’’
for non-member affiliate, or ‘‘C’’ for
customer); the side of the reporting
party (buy or sell); the quantity of the
transaction (i.e., face value amount of
the transaction); the price of the
transaction expressed as a percentage of
face/par value; the time of execution;
the date of execution (for ‘‘as/of’’
trades); the settlement date; any
commission charged if the member is
acting as agent; and any applicable trade
modifiers.17 FINRA states that some
foreign sovereign debt securities may
not have a CUSIP or CINS number but
may have been assigned another type of
identifier (e.g., an ISIN). To facilitate
trade reporting of U.S. dollardenominated foreign sovereign debt,
where a CUSIP or CINS is not available,
FINRA states that it intends to permit
members to report using a FINRAassigned symbol that corresponds to the
security’s other identifier(s) (e.g., the
FINRA-assigned symbol would be
associated with the ISIN on the Security
Master List).18
FINRA further states that, if U.S.
dollar-denominated foreign sovereign
debt securities become subject to
TRACE reporting requirements, as
proposed, they would become subject to
applicable transaction reporting fees.19
Specifically, U.S. dollar-denominated
foreign sovereign debt securities would
be subject to trade reporting fees
pursuant to paragraph (b)(1) of FINRA
Rule 7730 (Trade Reporting and
Compliance Engine (TRACE)).20
Similarly, U.S. dollar-denominated
foreign sovereign debt securities would
become subject to FINRA’s Trading
Activity Fee at the rate applicable to
11 See
12 See
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Fmt 4703
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16 See id. FINRA Rule 6730(c). FINRA also states
that members’ reporting obligations for transactions
with a foreign component would continue to follow
existing guidance. See Notice, 87 FR at 29981
(citing, as an example, TRACE Frequently Asked
Questions #3.1.65).
17 See id.
18 See Notice, 87 FR at 29981, n. 12. In addition,
FINRA states that FINRA Rule 6730(a)(7) will
continue to apply. Therefore, members remain
obligated to make a good faith determination as to
whether they have engaged in a reportable
transaction in a TRACE-Eligible Security and, if the
TRACE-Eligible Security is not entered in the
TRACE system, the member must promptly notify
and provide FINRA Operations the information
required under FINRA Rule 6760(b) prior to
reporting the transaction. Id.
19 See Notice, 87 FR at 29981.
20 See FINRA Rule 7730(b)(1) (providing that,
except for certain securitized products, a member
‘‘shall be charged a trade reporting fee based upon
a sliding scale ranging from $0.475 to $2.375 per
transaction based on the size of the reported
transaction.’’).
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Federal Register / Vol. 87, No. 157 / Tuesday, August 16, 2022 / Notices
bonds, as set out in Section 1 of
Schedule A to the FINRA By-Laws.
FINRA represents that it will
announce the effective date of the rule
change in a Regulatory Notice, and the
effective date will be no later than 365
days following publication of the
Regulatory Notice announcing
Commission approval of the proposed
rule change.21
III. Summary of Comments and
FINRA’s Response
The Commission received four
comment letters regarding the proposed
rule change.22 The commenters
generally support the proposed rule
change; 23 as discussed below, however,
some commenters also seek clarification
and additional guidance on various
aspects of the proposal or make
suggestions for its modification. No
commenter explicitly opposes the
proposal.
Operational Concerns and Proposed
Same Day Reporting Requirement
Two commenters raise operational
concerns regarding reporting of
transactions in U.S. dollar-denominated
foreign sovereign debt securities to
TRACE where a CUSIP or CINS number
is not assigned or available, particularly
given the proposed same-day reporting
timeframe.24 As described above,
FINRA states that where a CUSIP or
CINS is not available, FINRA intends to
permit members to report using a
FINRA-assigned symbol that
corresponds to the security’s other
identifiers (e.g., the FINRA-assigned
symbol would be associated with the
ISIN on the Security Master List).25
However, commenters express concern
that firms may have difficulty reporting
on a timely basis in these circumstances
if they must first obtain an identifier
from FINRA, which, according to
commenters, is a manual and time
consuming process.26 To help alleviate
this concern, one commenter requests
that ISIN and FIGI identifiers be allowed
for direct reporting, without the separate
need to request a FINRA symbol, and
that FINRA permit firms to request a
21 See
Notice, 87 FR at 29982.
supra note 4.
23 See Dimensional Letter at 1 (‘‘We support the
Proposed Rule Change as it is a positive step toward
increased transparency. . .’’); CGS Letter at 2
(‘‘CGS supports FINRA’s proposal to expand the
TRACE reporting requirements as described above,
as it will add to market transparency for a growing
segment of the fixed income market.’’); FIF Letter
at 1 (‘‘FIF members support FINRA’s decision to
require reporting of foreign sovereign debt
securities for regulatory purposes only.’’).
24 See FIF Letter at 3; SIFMA Letter at 2.
25 See also Notice, 87 FR at 29981, n. 12.
26 See FIF Letter at 3; SIFMA Letter at 2.
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22 See
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symbol for a security where only an
ISIN is available through the website
process, so as to avoid a manual request
process that can result in delays in the
assignment of the FINRA symbol.27
Another commenter expresses concern
regarding reporting to TRACE in
accordance with a same day reporting
requirement—particularly on the first
day of trading for a security that has not
yet been set up.28 This commenter
recommends that FINRA’s new issue
request process be expanded prior to the
implementation of the proposal to
accept ISINs in lieu of CUSIP/CINS
identifiers.29 This commenter also
requests that, at a minimum, FINRA
should allow T+1 reporting for
securities that require manual set up in
TRACE with a FINRA symbol.30
Another commenter states that the
feasibility of the same-day reporting
requirement is dependent on FINRA
accepting a website submission of a new
issue with only an ISIN, as discussed
above, and questions the feasibility of a
same-day reporting requirement for
trades occurring prior to 5:00 p.m.,
particularly for trades executed outside
the U.S or involving a foreign
counterparty.31
In response, FINRA states that it will
update the new issue form process to
permit members to submit the new issue
form and receive a FINRA symbol based
solely on an ISIN or a FIGI (irrespective
of whether a CUSIP and CINS also are
available) using the web-based process,
which will obviate the need for
members to call or email FINRA for
assistance with setting up a symbol for
a new issue that does not have a
CUSIP.32 FINRA also notes that,
according to CGS, the operator of the
CUSIP system, a CUSIP or CINS is
available for virtually all U.S. dollardenominated debt securities for foreign
issuers, both private and sovereign, and
that it is a rare event that a CGS
identifier is not available at the time the
security becomes TRACE-eligible.33
Further, FINRA states that members
may utilize machine-to-machine
interaction to systematically upload
required new issue information.34
FINRA believes that these measures
address commenters’ operational
concerns, as well as those regarding the
feasibility of reporting on a same-day
basis. Therefore, FINRA states it is not
27 See
FIF Letter at 3–4.
SIFMA Letter at 2.
29 See id.
30 See id.
31 See FIF Letter at 2.
32 See FINRA Response at 3.
33 See FINRA Response at 3; see also CGS Letter
at 2.
34 See id.
28 See
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recommending any amendments to the
proposal and that it continues to believe
that the same-day reporting requirement
is appropriate.35
Another commenter raises the
possibility that assigning a FINRA
symbol to multiple identifiers could
create identifier mapping challenges or
otherwise cause confusion, and states
that, if there is a need to assign a FINRA
symbol to a foreign debt security, it
should be on a one-to-one basis with the
corresponding and fungible CUSIP/
CINS or ISIN.36 In response, FINRA
states that it does not agree that
associating a FINRA symbol with
multiple identifiers creates any unique
challenges in the context of the
proposal, as an individual security
currently may be assigned CUSIP/CINS,
FIGI and ISIN identifiers.37 In addition,
FINRA states that it seeks to avoid
duplicative symbol assignments and
confirms that FINRA-assigned symbols
are intended to correspond, on a one-toone basis, with a single security and any
related identifiers.38
Reporting Specifications
Two commenters request clarification
regarding which TRACE system
protocols would apply to the reporting
of U.S. dollar-denominated foreign
sovereign debt.39 FINRA confirms that
U.S. dollar denominated foreign
sovereign will be reportable to the
TRACE facility for corporate and agency
debt and will be added as a new
security subtype (in addition to
corporates, agencies, equity linked
notes, and church bonds).40 FINRA also
states that it will create a new report
card for member reporting of U.S.
dollar-denominated foreign sovereign
debt securities.41
Implementation Timeframe
One commenter recommends a 15month implementation timeframe for
the proposal.42 Another commenter
requests that FINRA ensure that
industry members are provided with a
sufficient implementation timeframe
35 See
id.
CGS Letter at 2.
37 See FINRA Response at 3.
38 See id.
39 See SIFMA Letter at 4 (requesting that FINRA
clarify which of the existing specifications would
be used or if a new specification would be
published); FIF Letter at 2 (requesting confirmation
that FINRA intends to leverage the existing TRACE
system for corporate and agency debt securities);
see also FIF Letter at 6 (requesting guidance as to
whether FINRA will issue separate report cards for
reporting in foreign sovereign bonds or whether any
of the current reports cards will be updated to
include reporting for foreign sovereign bonds).
40 See FINRA Response at 4.
41 See id.
42 See SIFMA Letter at 3.
36 See
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and asks that the timeframe run from
the date that technical specifications
and interpretive FAQs are published.43
In response, FINRA states that it would
provide members with an adequate
implementation period.44
Scope of Defined Terms
Some commenters express concerns
in connection with identifying U.S.
dollar-denominated foreign sovereign
debt for purposes of reporting to
TRACE.45 Two commenters state that it
can be difficult to determine the
Schedule B eligibility of an issuer and
request that FINRA provide clarity on
how foreign issuers should be
classified.46 One commenter also
requests guidance on how a member
should communicate with FINRA if it
disagrees with the current classification
of a bond.47 Another commenter
requests further guidance on terms used
in the proposal related to the definition
of ‘‘foreign sovereign debt security.’’ 48
This commenter also states that FINRA
should provide guidance as to how
previously issued foreign sovereign debt
will be set up in TRACE/added to the
master file.49 In response, FINRA states
that it regularly engages with members
concerning operational and interpretive
questions concerning TRACE reporting,
including regarding whether and how a
particular security is reportable to
TRACE, if unclear.50 FINRA states that
the proposal seeks to define ‘‘foreign
sovereign debt security’’ as ‘‘a debt
security issued or guaranteed by the
government of a foreign country, any
political subdivision of a foreign
country, or a supranational entity.’’ 51
FINRA states that, as is the case in
determining the TRACE-eligibility of
any security, FINRA would expect
members to analyze the facts and
circumstances of a security in light of
the relevant definitions and guidance to
ensure appropriate reporting to TRACE.
FINRA states that TRACE rules
currently require members to
distinguish U.S. dollar-denominated
debt of foreign sovereign issuers from
that of foreign private issuers for
purposes of TRACE reporting, and, as
discussed in the proposal, FINRA has
since 2004 provided members with
guidance specifically for this purpose.52
43 See
FIF Letter at 7.
FINRA Response at 4.
45 See FIF Letter at 4–5; SIFMA Letter at 3.
46 See id.
47 See FIF Letter at 5.
48 See SIFMA Letter at 3.
49 See id.
50 See FINRA Response at 4.
51 See id.
52 See FINRA Response at 4–5 (citing Notice to
Members 04–90 (December 2004)).
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44 See
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FINRA further states that members who
are unable to determine whether a
security falls within scope based on the
rule and guidance should contact
FINRA’s Office of General Counsel for
assistance.53
In addition, FINRA states that it
intends to proactively update the
TRACE security master list to include
the securities that FINRA has identified
as U.S. dollar-denominated foreign
sovereign debt securities, consistent
with FINRA’s usual approach when a
new product type becomes reportable to
TRACE.54 FINRA states that it will make
the updated security master list
available to members in advance of the
effective date.55 FINRA states, however,
that, as FINRA has reminded members
in the past with regard to other types of
TRACE-eligible securities, members are
obligated to have systems or processes
in place to determine whether a
transaction in a TRACE-eligible security
has occurred and is, therefore,
reportable, even if it was not included
on the TRACE security master list at the
time of the transaction.56 FINRA states
that members who disagree with the
current classification of a bond on the
master list should contact FINRA
Market Operations.57
Public Dissemination
Several commenters express support
for, or raise concerns regarding, the
public dissemination of information
with respect to transactions in U.S.
dollar-denominated foreign sovereign
debt securities.58 FINRA reiterates that
it is not proposing to disseminate
information with respect to transactions
in U.S. dollar-denominated foreign
sovereign debt securities at this time,
and states that it would observe its
historical measured approach to
dissemination following appropriate
analysis.59 In addition, FINRA states
that any determination to disseminate
53 See
FINRA Response at 5.
id.
55 See id.
56 See id.
57 See id.
58 See Dimensional Letter at 1 (strongly urging
FINRA to publicly disseminate the relevant data as
soon as practicable, stating that, if disseminated,
FINRA should adopt a trade reporting timeframe
that is consistent with the reporting timeframe for
corporate and agency bond); FIF Letter at 1
(supporting FINRA’s decision to require reporting
for regulatory purposes only and taking a measured
approach to potential dissemination in the future);
SIFMA Letter at 4 (raising several concerns
regarding any further real-time public
dissemination, including that it could potentially
impair liquidity and lead to information leakage,
and stating that it does not believe that the benefits
of dissemination outweigh the risks).
59 See FINRA Response at 6.
54 See
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50357
such transaction information would be
subject to filing with the Commission.60
IV. Discussion and Commission
Findings
After carefully considering the
proposal, the comments submitted and
FINRA’s response to the comments, the
Commission finds that the proposed
rule change is consistent with the
requirements of the Act and the rules
and regulations thereunder applicable to
a national securities association.61 In
particular, the Commission finds that
the proposed rule change is consistent
with Section 15A(b)(6) of the Act,62
which requires, among other things, that
the rules of a national securities
association 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.
In addition, and as discussed below, the
Commission further finds that the
proposal is consistent with Section
15A(b)(5) of the Act,63 which requires,
among other things, that FINRA rules
provide for the equitable allocation of
reasonable dues, fees, and other charges
among members and issuers and other
persons using any facility or system that
FINRA operates or controls.
Prior to TRACE’s implementation, the
National Association of Securities
Dealers (‘‘NASD’’) (FINRA’s
predecessor) did not have routine access
to comprehensive transaction
information for the over-the-counter
corporate bond market, even though the
NASD bore responsibility for surveilling
and regulating that market. In originally
approving TRACE, the Commission
stated that obtaining such information
to better conduct market surveillance
was a fundamental means of promoting
fairness and confidence in U.S. capital
markets.64 Similarly, with respect to the
over-the-counter market for U.S. dollardenominated foreign sovereign debt
securities, FINRA currently does not
possess the comprehensive transaction
information that would help it carry out
its statutory duties to surveil and
regulate this segment of the market.65
60 See
id.
approving this proposal, the Commission has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
62 15 U.S.C. 78o–3(b)(6).
63 15 U.S.C. 78o–3(b)(5).
64 See Securities Exchange Act Release No. 43873
(January 23, 2001) 66 FR 8131, 8136 (January 29,
2001).
65 According to FINRA, almost all U.S. dollardenominated debt securities traded in the U.S. are
TRACE-Eligible Securities and therefore are subject
to TRACE reporting requirements. This includes the
61 In
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50358
Federal Register / Vol. 87, No. 157 / Tuesday, August 16, 2022 / Notices
lotter on DSK11XQN23PROD with NOTICES1
The Commission believes, therefore,
that it is reasonable and consistent with
the Act for FINRA to designate U.S.
dollar-denominated foreign sovereign
debt securities as TRACE-Eligible
Securities and to establish reporting
requirements relating to such securities
in the manner set forth in the
proposal.66 Expanding TRACE to
include U.S. dollar-denominated foreign
sovereign debt securities is reasonably
designed to help FINRA fulfill its
mandate in Section 15A(b)(6) of the
Act 67 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. In
particular, the receipt of the transaction
price, par value traded, and other
transaction information in TRACE
would create a better-informed
surveillance program to help detect
fraud, manipulation, unfair pricing, and
other potential misconduct.
The Commission recognizes that firms
covered by these new reporting
requirements may incur certain
compliance burdens. FINRA represents,
however, that U.S. dollar-denominated
sovereign debt securities generally trade
at firms that already have TRACE
reporting workflows in place, such that
FINRA does not believe that the
proposal would impose significant
burdens and costs on FINRA members
given the ability of these firms to
leverage their existing reporting
systems.68 Moreover, to the extent that
other firms become subject to TRACE
reporting requirements for the first time
(or firms that already carry out TRACE
reporting from certain desks have other
desks that do not currently trade
TRACE-Eligible Securities and do not
yet have TRACE capabilities), the
U.S. dollar-denominated debt of foreign private
issuers. Trades in the U.S. dollar-denominated debt
of foreign sovereign issuers, however, are not
subject currently to TRACE reporting. See Notice,
supra note 3, 87 FR at 29980–81.
66 The Commission notes that FINRA previously
has expanded TRACE to require the reporting to
TRACE of transactions in U.S. Treasury securities,
asset-backed securities and agency debt securities.
See Securities Exchange Act Release Nos. 79116
(Oct. 18, 2016), 81 FR 73167 (Oct. 24, 2016) (order
approving File No. SR–FINRA–2016–027)
(‘‘Treasury Securities Order’’); 61566 (February 22,
2010), 75 FR 9262 (March 1, 2010) (order approving
File No. SR–FINRA–2009–065); and 60726
(September 28, 2009), 74 FR 50991 (October 2,
2009) (order approving File No. SR–FINRA–2009–
010).
67 15 U.S.C. 78o–3(b)(6).
68 See Notice, 87 FR at 29981. The Commission
notes that FINRA estimates that the benefit from
improved surveillance of member trading activity in
U.S. dollar-denominated foreign sovereign debt
securities outweighs the costs to members
associated with complying with the proposed
reporting requirement. See id. at 29985.
VerDate Sep<11>2014
18:35 Aug 15, 2022
Jkt 256001
Commission notes that FINRA’s
proposal to allow transactions to be
reported by end-of-day provides such
firms with some flexibility to determine
the most cost-effective way of meeting
the new reporting requirements.
The Commission has considered the
commenters’ operational concerns
regarding reporting of transactions in
U.S. dollar-denominated foreign
sovereign debt securities to TRACE
where a CUSIP or CINS number is not
assigned or available. The Commission
believes that FINRA’s plans to permit
members to receive a FINRA symbol
based solely on an ISIN or a FIGI
(irrespective of whether a CUSIP and
CINS also are available) as well as to
avoid duplicative symbol assignments,
are reasonably designed to address the
commenters’ concerns, minimize
burdens, and facilitate compliance with
the proposal. With respect to comments
expressing concern that assigning a
FINRA symbol to multiple identifiers
could create identifier mapping
challenges, the Commission agrees with
FINRA that associating a FINRA symbol
with multiple identifiers does not create
any unique challenges in the context of
the proposal, as an individual security
currently may be assigned CUSIP/CINS,
FIGI and ISIN identifiers.69
With regards to commenters’ concerns
regarding the implementation
timeframe, FINRA states that it would
provide members with an adequate
implementation period.70 The
Commission notes that FINRA’s
proposed process for setting an effective
date provides FINRA with flexibility in
determining an appropriate
implementation period and setting the
corresponding effective date.
The Commission agrees with FINRA
that the proposal does not represent
unique challenges with respect of the
scope of the defined terms, including
those with respect to the definition of
‘‘foreign sovereign debt security,’’ and
notes that TRACE rules currently
require members to distinguish U.S.
dollar-denominated debt of foreign
sovereign issuers from that of foreign
private issuers for purposes of TRACE
reporting.
The Commission has considered
comments regarding public
dissemination of information regarding
transactions in U.S. dollar-denominated
foreign sovereign debt securities. The
Commission agrees with FINRA that
FINRA Response at 3.
FINRA Response at 4. The Commission
notes that FINRA published the proposed rule
change for comment in Regulatory Notice 19–25
(July 2019). Four comments were received in
response to the Regulatory Notice. See Notice, 87
FR at 29985.
that it is appropriate to study the
information reported to regulators under
this rule change before proceeding with
a proposal to provide for the public
dissemination of information
concerning transactions in U.S. dollardenominated foreign sovereign debt
securities, which FINRA notes is
consistent with past practice.71
The Commission also recognizes that
members would become subject to trade
reporting fees and FINRA’s Trading
Activity Fee in connection with
transactions in U.S. dollar-denominated
foreign sovereign debt securities. FINRA
represents, however, that the proposed
fees are consistent with FINRA’s
existing framework under FINRA Rule
7730 and FINRA’s Trading Activity fee
for similar types of transactions required
to be reported to TRACE, and that these
fees would apply at established rates
equally to members reporting
transactions in U.S. dollar-denominated
foreign sovereign debt securities.
Accordingly, the Commission further
finds that the proposed application of
trade reporting fees under FINRA Rule
7730 and FINRA’s Trading Activity Fee
to transactions in U.S. dollardenominated foreign sovereign debt
securities is consistent with Section
15A(b)(5) of the Act,72 which requires,
among other things, that FINRA rules
provide for the equitable allocation of
reasonable dues, fees, and other charges
among members and issuers and other
persons using any facility or system that
FINRA operates or controls.
For the reasons noted above, the
Commission finds that the proposed
rule change is consistent with the Act.
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,73 that the
proposed rule change (SR–FINRA–
2022–011) is approved.74
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022–17532 Filed 8–15–22; 8:45 am]
BILLING CODE 8011–01–P
69 See
70 See
PO 00000
Frm 00074
Fmt 4703
Sfmt 9990
71 See FINRA Response at 6; see also Notice, 87
FR at 29985.
72 15 U.S.C. 78o–3(b)(5).
73 15 U.S.C. 78s(b)(2).
74 17 CFR 200.30–3(a)(12).
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]]>Agencies
[Federal Register Volume 87, Number 157 (Tuesday, August 16, 2022)]
[Notices]
[Pages 50354-50358]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-17532]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95465; File No. SR-FINRA-2022-011]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Order Approving Proposed Rule Change To Expand TRACE
Reporting Requirements to Trades in U.S. Dollar-Denominated Foreign
Sovereign Debt Securities
August 10, 2022.
I. Introduction
On May 6, 2022, the Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to amend certain rules in the Rule 6700 Series
(Trade Reporting and Compliance Engine (TRACE)) to require members to
report to TRACE transactions in U.S. dollar-denominated foreign
sovereign debt securities for regulatory purposes. The proposed rule
change was published for comment in the Federal Register on May 17,
2022.\3\ The Commission received four comment letters on the proposed
rule change.\4\ On June 27, 2022, the Commission extended until August
15, 2022, the time period within which to approve the proposed rule
change, disapprove the proposed rule change, or institute proceedings
to determine whether to disapprove the proposed rule change.\5\ FINRA
submitted a response to the comments
[[Page 50355]]
on August 1, 2022.\6\ This order approves the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 94891 (May 11,
2022), 87 FR 29980 (May 17, 2022) (``Notice'').
\4\ See letters to Vanessa Countryman, Secretary, Commission,
from Gerard O'Reilly, Co-CEO and Chief Investment Officer,
Dimensional Fund Advisors LP (``Dimensional''), dated June 6, 2022
(``Dimensional Letter''); Scott J. Preiss, Senior Vice President,
Global Head, CUSIP Global Services (``CGS''), dated June 6, 2022
(``CGS Letter''); Howard Meyerson, Managing Director, Financial
Information Forum (``FIF''), dated June 7, 2022 (``FIF Letter'');
and Christopher B. Killian, Managing Director, Securitization and
Corporate Credit, Securities Industry and Financial Markets
Association (``SIFMA''), dated June 7, 2022 (``SIFMA Letter'').
\5\ See Securities Exchange Act Release No. 95161 (June 27,
2022), 87 FR 39575 (July 1, 2022).
\6\ See letter to Vanessa Countryman, Secretary, Commission,
from Racquel L. Russell, FINRA, dated August 1, 2022 (``FINRA
Response'').
---------------------------------------------------------------------------
II. Description of the Proposal
FINRA Rule 6730(a) requires each FINRA member that is a Party to a
Transaction \7\ in a TRACE-Eligible Security \8\ to report the
transaction to TRACE. Currently, almost all U.S. dollar-denominated
debt securities traded in the U.S., including U.S. dollar-denominated
debt securities of foreign private issuers, are TRACE-Eligible
Securities and therefore are subject to TRACE reporting requirements.
However, the term TRACE-Eligible Security currently excludes any debt
security that is issued by a foreign sovereign.
---------------------------------------------------------------------------
\7\ See FINRA Rule 6710(e) (defining ``Party to a Transaction''
as ``an introducing broker-dealer, if any, an executing broker-
dealer, or a customer. `Customer' includes a broker-dealer that is
not a FINRA member.'').
\8\ See FINRA Rule 6710(a) (defining ``TRACE-Eligible Security''
as ``a debt security that is United States (`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).'').
---------------------------------------------------------------------------
FINRA is now proposing to include U.S. dollar-denominated foreign
sovereign debt securities within the definition of TRACE-Eligible
Security, so that these securities would become subject to TRACE
reporting. Specifically, FINRA proposes to amend paragraph (a) of Rule
6710 (Definitions) to include the term ``Foreign Sovereign Debt
Security'' in the definition of TRACE-Eligible Security, and to define
``Foreign Sovereign Debt Security'' in paragraph (kk) of Rule 6710 as a
debt security issued or guaranteed by the government of a foreign
country, any political subdivision of a foreign country (e.g., state,
provincial, or municipal governments), or a supranational entity.\9\
FINRA states that this proposed rule change would enhance FINRA's
regulatory audit trail and provide FINRA with important transaction
information on a growing segment of the market.\10\ In addition, FINRA
states that it believes that the proposed rule change would advance
FINRA's oversight of the fixed income markets without imposing
significant burdens and costs on members because, as FINRA understands,
U.S. dollar-denominated foreign sovereign debt securities generally
trade at firms that already have TRACE reporting workflows in
place.\11\
---------------------------------------------------------------------------
\9\ FINRA states that a ``supranational entity'' would include
multi-national organizations such as the International Bank for
Reconstruction & Development (World Bank), the Inter-American
Development Bank, the Asian Development Bank, the African
Development Bank, the International Finance Corporation, and the
European Investment Bank. See Notice, 87 FR at 29981, n. 6.
\10\ See Notice, 87 FR at 29981.
\11\ See id.
---------------------------------------------------------------------------
FINRA states it is not at this time proposing to publicly
disseminate any reports of transactions in U.S. dollar-denominated
foreign sovereign debt securities. To reflect this, FINRA proposes to
amend Rule 6750 (Dissemination of Transaction Information) to specify
that FINRA will not disseminate information on transactions in foreign
sovereign debt securities.\12\ FINRA states that, if the proposed rule
change is adopted, FINRA will take a measured approach to potential
dissemination, as it has taken historically with other TRACE-Eligible
Securities and would first analyze the regulatory data to determine the
appropriate contours of a potential dissemination framework.\13\
---------------------------------------------------------------------------
\12\ See proposed FINRA Rule 6750(c)(5).
\13\ See Notice, 87 FR at 29981, n. 10.
---------------------------------------------------------------------------
In addition, FINRA is also proposing to amend Rule 6730
(Transaction Reporting) to require transactions in U.S. dollar-
denominated foreign sovereign debt securities to be reported on a same-
day or next-day basis, depending on the time of execution.\14\ FINRA
states that this reporting timeframe is appropriate because trades in
U.S. dollar-denominated foreign sovereign debt securities would be
reported for regulatory purposes only.\15\
---------------------------------------------------------------------------
\14\ See proposed FINRA Rule 6730(a)(5); see also Notice, 87 FR
at 29981. Under the proposed amendments, reportable transactions in
foreign sovereign debt executed on a business day at or after
12:00:00 a.m. Eastern Time (ET) through 5:00:00 p.m. ET would be
required to be reported the same day during TRACE System Hours.
Transactions executed on a business day after 5:00:00 p.m. ET but
before the TRACE system closes would be required to be reported no
later than the next business day (T+1) during TRACE System Hours,
and, if reported on T+1, designated ``as/of'' and include the date
of execution. Transactions executed on a business day at or after
6:30:00 p.m. ET through 11:59:59 p.m. ET--or on a Saturday, a
Sunday, a federal or religious holiday or other day on which the
TRACE system is not open at any time during that day--would be
required to be reported the next business day (T+1) during TRACE
System Hours, designated ``as/of,'' and include the date of
execution. See also FINRA Rule 6710(t) (defining ``TRACE System
Hours'').
\15\ See Notice, 87 FR at 29981.
---------------------------------------------------------------------------
FINRA states that, as proposed, FINRA members would be required to
report specific items of transaction information in line with existing
requirements for TRACE-Eligible Securities.\16\ Among other things,
trade reports would be required to include: the CUSIP or CINS number,
or FINRA-assigned TRACE symbol; an identifier for the contra-party
(either MPID, ``A'' for non-member affiliate, or ``C'' for customer);
the side of the reporting party (buy or sell); the quantity of the
transaction (i.e., face value amount of the transaction); the price of
the transaction expressed as a percentage of face/par value; the time
of execution; the date of execution (for ``as/of'' trades); the
settlement date; any commission charged if the member is acting as
agent; and any applicable trade modifiers.\17\ FINRA states that some
foreign sovereign debt securities may not have a CUSIP or CINS number
but may have been assigned another type of identifier (e.g., an ISIN).
To facilitate trade reporting of U.S. dollar-denominated foreign
sovereign debt, where a CUSIP or CINS is not available, FINRA states
that it intends to permit members to report using a FINRA-assigned
symbol that corresponds to the security's other identifier(s) (e.g.,
the FINRA-assigned symbol would be associated with the ISIN on the
Security Master List).\18\
---------------------------------------------------------------------------
\16\ See id. FINRA Rule 6730(c). FINRA also states that members'
reporting obligations for transactions with a foreign component
would continue to follow existing guidance. See Notice, 87 FR at
29981 (citing, as an example, TRACE Frequently Asked Questions
#3.1.65).
\17\ See id.
\18\ See Notice, 87 FR at 29981, n. 12. In addition, FINRA
states that FINRA Rule 6730(a)(7) will continue to apply. Therefore,
members remain obligated to make a good faith determination as to
whether they have engaged in a reportable transaction in a TRACE-
Eligible Security and, if the TRACE-Eligible Security is not entered
in the TRACE system, the member must promptly notify and provide
FINRA Operations the information required under FINRA Rule 6760(b)
prior to reporting the transaction. Id.
---------------------------------------------------------------------------
FINRA further states that, if U.S. dollar-denominated foreign
sovereign debt securities become subject to TRACE reporting
requirements, as proposed, they would become subject to applicable
transaction reporting fees.\19\ Specifically, U.S. dollar-denominated
foreign sovereign debt securities would be subject to trade reporting
fees pursuant to paragraph (b)(1) of FINRA Rule 7730 (Trade Reporting
and Compliance Engine (TRACE)).\20\ Similarly, U.S. dollar-denominated
foreign sovereign debt securities would become subject to FINRA's
Trading Activity Fee at the rate applicable to
[[Page 50356]]
bonds, as set out in Section 1 of Schedule A to the FINRA By-Laws.
---------------------------------------------------------------------------
\19\ See Notice, 87 FR at 29981.
\20\ See FINRA Rule 7730(b)(1) (providing that, except for
certain securitized products, a member ``shall be charged a trade
reporting fee based upon a sliding scale ranging from $0.475 to
$2.375 per transaction based on the size of the reported
transaction.'').
---------------------------------------------------------------------------
FINRA represents that it will announce the effective date of the
rule change in a Regulatory Notice, and the effective date will be no
later than 365 days following publication of the Regulatory Notice
announcing Commission approval of the proposed rule change.\21\
---------------------------------------------------------------------------
\21\ See Notice, 87 FR at 29982.
---------------------------------------------------------------------------
III. Summary of Comments and FINRA's Response
The Commission received four comment letters regarding the proposed
rule change.\22\ The commenters generally support the proposed rule
change; \23\ as discussed below, however, some commenters also seek
clarification and additional guidance on various aspects of the
proposal or make suggestions for its modification. No commenter
explicitly opposes the proposal.
---------------------------------------------------------------------------
\22\ See supra note 4.
\23\ See Dimensional Letter at 1 (``We support the Proposed Rule
Change as it is a positive step toward increased transparency. .
.''); CGS Letter at 2 (``CGS supports FINRA's proposal to expand the
TRACE reporting requirements as described above, as it will add to
market transparency for a growing segment of the fixed income
market.''); FIF Letter at 1 (``FIF members support FINRA's decision
to require reporting of foreign sovereign debt securities for
regulatory purposes only.'').
---------------------------------------------------------------------------
Operational Concerns and Proposed Same Day Reporting Requirement
Two commenters raise operational concerns regarding reporting of
transactions in U.S. dollar-denominated foreign sovereign debt
securities to TRACE where a CUSIP or CINS number is not assigned or
available, particularly given the proposed same-day reporting
timeframe.\24\ As described above, FINRA states that where a CUSIP or
CINS is not available, FINRA intends to permit members to report using
a FINRA-assigned symbol that corresponds to the security's other
identifiers (e.g., the FINRA-assigned symbol would be associated with
the ISIN on the Security Master List).\25\ However, commenters express
concern that firms may have difficulty reporting on a timely basis in
these circumstances if they must first obtain an identifier from FINRA,
which, according to commenters, is a manual and time consuming
process.\26\ To help alleviate this concern, one commenter requests
that ISIN and FIGI identifiers be allowed for direct reporting, without
the separate need to request a FINRA symbol, and that FINRA permit
firms to request a symbol for a security where only an ISIN is
available through the website process, so as to avoid a manual request
process that can result in delays in the assignment of the FINRA
symbol.\27\ Another commenter expresses concern regarding reporting to
TRACE in accordance with a same day reporting requirement--particularly
on the first day of trading for a security that has not yet been set
up.\28\ This commenter recommends that FINRA's new issue request
process be expanded prior to the implementation of the proposal to
accept ISINs in lieu of CUSIP/CINS identifiers.\29\ This commenter also
requests that, at a minimum, FINRA should allow T+1 reporting for
securities that require manual set up in TRACE with a FINRA symbol.\30\
Another commenter states that the feasibility of the same-day reporting
requirement is dependent on FINRA accepting a website submission of a
new issue with only an ISIN, as discussed above, and questions the
feasibility of a same-day reporting requirement for trades occurring
prior to 5:00 p.m., particularly for trades executed outside the U.S or
involving a foreign counterparty.\31\
---------------------------------------------------------------------------
\24\ See FIF Letter at 3; SIFMA Letter at 2.
\25\ See also Notice, 87 FR at 29981, n. 12.
\26\ See FIF Letter at 3; SIFMA Letter at 2.
\27\ See FIF Letter at 3-4.
\28\ See SIFMA Letter at 2.
\29\ See id.
\30\ See id.
\31\ See FIF Letter at 2.
---------------------------------------------------------------------------
In response, FINRA states that it will update the new issue form
process to permit members to submit the new issue form and receive a
FINRA symbol based solely on an ISIN or a FIGI (irrespective of whether
a CUSIP and CINS also are available) using the web-based process, which
will obviate the need for members to call or email FINRA for assistance
with setting up a symbol for a new issue that does not have a
CUSIP.\32\ FINRA also notes that, according to CGS, the operator of the
CUSIP system, a CUSIP or CINS is available for virtually all U.S.
dollar-denominated debt securities for foreign issuers, both private
and sovereign, and that it is a rare event that a CGS identifier is not
available at the time the security becomes TRACE-eligible.\33\ Further,
FINRA states that members may utilize machine-to-machine interaction to
systematically upload required new issue information.\34\ FINRA
believes that these measures address commenters' operational concerns,
as well as those regarding the feasibility of reporting on a same-day
basis. Therefore, FINRA states it is not recommending any amendments to
the proposal and that it continues to believe that the same-day
reporting requirement is appropriate.\35\
---------------------------------------------------------------------------
\32\ See FINRA Response at 3.
\33\ See FINRA Response at 3; see also CGS Letter at 2.
\34\ See id.
\35\ See id.
---------------------------------------------------------------------------
Another commenter raises the possibility that assigning a FINRA
symbol to multiple identifiers could create identifier mapping
challenges or otherwise cause confusion, and states that, if there is a
need to assign a FINRA symbol to a foreign debt security, it should be
on a one-to-one basis with the corresponding and fungible CUSIP/CINS or
ISIN.\36\ In response, FINRA states that it does not agree that
associating a FINRA symbol with multiple identifiers creates any unique
challenges in the context of the proposal, as an individual security
currently may be assigned CUSIP/CINS, FIGI and ISIN identifiers.\37\ In
addition, FINRA states that it seeks to avoid duplicative symbol
assignments and confirms that FINRA-assigned symbols are intended to
correspond, on a one-to-one basis, with a single security and any
related identifiers.\38\
---------------------------------------------------------------------------
\36\ See CGS Letter at 2.
\37\ See FINRA Response at 3.
\38\ See id.
---------------------------------------------------------------------------
Reporting Specifications
Two commenters request clarification regarding which TRACE system
protocols would apply to the reporting of U.S. dollar-denominated
foreign sovereign debt.\39\ FINRA confirms that U.S. dollar denominated
foreign sovereign will be reportable to the TRACE facility for
corporate and agency debt and will be added as a new security subtype
(in addition to corporates, agencies, equity linked notes, and church
bonds).\40\ FINRA also states that it will create a new report card for
member reporting of U.S. dollar-denominated foreign sovereign debt
securities.\41\
---------------------------------------------------------------------------
\39\ See SIFMA Letter at 4 (requesting that FINRA clarify which
of the existing specifications would be used or if a new
specification would be published); FIF Letter at 2 (requesting
confirmation that FINRA intends to leverage the existing TRACE
system for corporate and agency debt securities); see also FIF
Letter at 6 (requesting guidance as to whether FINRA will issue
separate report cards for reporting in foreign sovereign bonds or
whether any of the current reports cards will be updated to include
reporting for foreign sovereign bonds).
\40\ See FINRA Response at 4.
\41\ See id.
---------------------------------------------------------------------------
Implementation Timeframe
One commenter recommends a 15-month implementation timeframe for
the proposal.\42\ Another commenter requests that FINRA ensure that
industry members are provided with a sufficient implementation
timeframe
[[Page 50357]]
and asks that the timeframe run from the date that technical
specifications and interpretive FAQs are published.\43\ In response,
FINRA states that it would provide members with an adequate
implementation period.\44\
---------------------------------------------------------------------------
\42\ See SIFMA Letter at 3.
\43\ See FIF Letter at 7.
\44\ See FINRA Response at 4.
---------------------------------------------------------------------------
Scope of Defined Terms
Some commenters express concerns in connection with identifying
U.S. dollar-denominated foreign sovereign debt for purposes of
reporting to TRACE.\45\ Two commenters state that it can be difficult
to determine the Schedule B eligibility of an issuer and request that
FINRA provide clarity on how foreign issuers should be classified.\46\
One commenter also requests guidance on how a member should communicate
with FINRA if it disagrees with the current classification of a
bond.\47\ Another commenter requests further guidance on terms used in
the proposal related to the definition of ``foreign sovereign debt
security.'' \48\ This commenter also states that FINRA should provide
guidance as to how previously issued foreign sovereign debt will be set
up in TRACE/added to the master file.\49\ In response, FINRA states
that it regularly engages with members concerning operational and
interpretive questions concerning TRACE reporting, including regarding
whether and how a particular security is reportable to TRACE, if
unclear.\50\ FINRA states that the proposal seeks to define ``foreign
sovereign debt security'' as ``a debt security issued or guaranteed by
the government of a foreign country, any political subdivision of a
foreign country, or a supranational entity.'' \51\ FINRA states that,
as is the case in determining the TRACE-eligibility of any security,
FINRA would expect members to analyze the facts and circumstances of a
security in light of the relevant definitions and guidance to ensure
appropriate reporting to TRACE. FINRA states that TRACE rules currently
require members to distinguish U.S. dollar-denominated debt of foreign
sovereign issuers from that of foreign private issuers for purposes of
TRACE reporting, and, as discussed in the proposal, FINRA has since
2004 provided members with guidance specifically for this purpose.\52\
FINRA further states that members who are unable to determine whether a
security falls within scope based on the rule and guidance should
contact FINRA's Office of General Counsel for assistance.\53\
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\45\ See FIF Letter at 4-5; SIFMA Letter at 3.
\46\ See id.
\47\ See FIF Letter at 5.
\48\ See SIFMA Letter at 3.
\49\ See id.
\50\ See FINRA Response at 4.
\51\ See id.
\52\ See FINRA Response at 4-5 (citing Notice to Members 04-90
(December 2004)).
\53\ See FINRA Response at 5.
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In addition, FINRA states that it intends to proactively update the
TRACE security master list to include the securities that FINRA has
identified as U.S. dollar-denominated foreign sovereign debt
securities, consistent with FINRA's usual approach when a new product
type becomes reportable to TRACE.\54\ FINRA states that it will make
the updated security master list available to members in advance of the
effective date.\55\ FINRA states, however, that, as FINRA has reminded
members in the past with regard to other types of TRACE-eligible
securities, members are obligated to have systems or processes in place
to determine whether a transaction in a TRACE-eligible security has
occurred and is, therefore, reportable, even if it was not included on
the TRACE security master list at the time of the transaction.\56\
FINRA states that members who disagree with the current classification
of a bond on the master list should contact FINRA Market
Operations.\57\
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\54\ See id.
\55\ See id.
\56\ See id.
\57\ See id.
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Public Dissemination
Several commenters express support for, or raise concerns
regarding, the public dissemination of information with respect to
transactions in U.S. dollar-denominated foreign sovereign debt
securities.\58\ FINRA reiterates that it is not proposing to
disseminate information with respect to transactions in U.S. dollar-
denominated foreign sovereign debt securities at this time, and states
that it would observe its historical measured approach to dissemination
following appropriate analysis.\59\ In addition, FINRA states that any
determination to disseminate such transaction information would be
subject to filing with the Commission.\60\
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\58\ See Dimensional Letter at 1 (strongly urging FINRA to
publicly disseminate the relevant data as soon as practicable,
stating that, if disseminated, FINRA should adopt a trade reporting
timeframe that is consistent with the reporting timeframe for
corporate and agency bond); FIF Letter at 1 (supporting FINRA's
decision to require reporting for regulatory purposes only and
taking a measured approach to potential dissemination in the
future); SIFMA Letter at 4 (raising several concerns regarding any
further real-time public dissemination, including that it could
potentially impair liquidity and lead to information leakage, and
stating that it does not believe that the benefits of dissemination
outweigh the risks).
\59\ See FINRA Response at 6.
\60\ See id.
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IV. Discussion and Commission Findings
After carefully considering the proposal, the comments submitted
and FINRA's response to the comments, the Commission finds that the
proposed rule change is consistent with the requirements of the Act and
the rules and regulations thereunder applicable to a national
securities association.\61\ In particular, the Commission finds that
the proposed rule change is consistent with Section 15A(b)(6) of the
Act,\62\ which requires, among other things, that the rules of a
national securities association 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. In addition, and as discussed below, the Commission
further finds that the proposal is consistent with Section 15A(b)(5) of
the Act,\63\ which requires, among other things, that FINRA rules
provide for the equitable allocation of reasonable dues, fees, and
other charges among members and issuers and other persons using any
facility or system that FINRA operates or controls.
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\61\ In approving this proposal, the Commission has considered
the proposed rule's impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
\62\ 15 U.S.C. 78o-3(b)(6).
\63\ 15 U.S.C. 78o-3(b)(5).
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Prior to TRACE's implementation, the National Association of
Securities Dealers (``NASD'') (FINRA's predecessor) did not have
routine access to comprehensive transaction information for the over-
the-counter corporate bond market, even though the NASD bore
responsibility for surveilling and regulating that market. In
originally approving TRACE, the Commission stated that obtaining such
information to better conduct market surveillance was a fundamental
means of promoting fairness and confidence in U.S. capital markets.\64\
Similarly, with respect to the over-the-counter market for U.S. dollar-
denominated foreign sovereign debt securities, FINRA currently does not
possess the comprehensive transaction information that would help it
carry out its statutory duties to surveil and regulate this segment of
the market.\65\
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\64\ See Securities Exchange Act Release No. 43873 (January 23,
2001) 66 FR 8131, 8136 (January 29, 2001).
\65\ According to FINRA, almost all U.S. dollar-denominated debt
securities traded in the U.S. are TRACE-Eligible Securities and
therefore are subject to TRACE reporting requirements. This includes
the U.S. dollar-denominated debt of foreign private issuers. Trades
in the U.S. dollar-denominated debt of foreign sovereign issuers,
however, are not subject currently to TRACE reporting. See Notice,
supra note 3, 87 FR at 29980-81.
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[[Page 50358]]
The Commission believes, therefore, that it is reasonable and
consistent with the Act for FINRA to designate U.S. dollar-denominated
foreign sovereign debt securities as TRACE-Eligible Securities and to
establish reporting requirements relating to such securities in the
manner set forth in the proposal.\66\ Expanding TRACE to include U.S.
dollar-denominated foreign sovereign debt securities is reasonably
designed to help FINRA fulfill its mandate in Section 15A(b)(6) of the
Act \67\ 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. In particular, the receipt
of the transaction price, par value traded, and other transaction
information in TRACE would create a better-informed surveillance
program to help detect fraud, manipulation, unfair pricing, and other
potential misconduct.
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\66\ The Commission notes that FINRA previously has expanded
TRACE to require the reporting to TRACE of transactions in U.S.
Treasury securities, asset-backed securities and agency debt
securities. See Securities Exchange Act Release Nos. 79116 (Oct. 18,
2016), 81 FR 73167 (Oct. 24, 2016) (order approving File No. SR-
FINRA-2016-027) (``Treasury Securities Order''); 61566 (February 22,
2010), 75 FR 9262 (March 1, 2010) (order approving File No. SR-
FINRA-2009-065); and 60726 (September 28, 2009), 74 FR 50991
(October 2, 2009) (order approving File No. SR-FINRA-2009-010).
\67\ 15 U.S.C. 78o-3(b)(6).
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The Commission recognizes that firms covered by these new reporting
requirements may incur certain compliance burdens. FINRA represents,
however, that U.S. dollar-denominated sovereign debt securities
generally trade at firms that already have TRACE reporting workflows in
place, such that FINRA does not believe that the proposal would impose
significant burdens and costs on FINRA members given the ability of
these firms to leverage their existing reporting systems.\68\ Moreover,
to the extent that other firms become subject to TRACE reporting
requirements for the first time (or firms that already carry out TRACE
reporting from certain desks have other desks that do not currently
trade TRACE-Eligible Securities and do not yet have TRACE
capabilities), the Commission notes that FINRA's proposal to allow
transactions to be reported by end-of-day provides such firms with some
flexibility to determine the most cost-effective way of meeting the new
reporting requirements.
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\68\ See Notice, 87 FR at 29981. The Commission notes that FINRA
estimates that the benefit from improved surveillance of member
trading activity in U.S. dollar-denominated foreign sovereign debt
securities outweighs the costs to members associated with complying
with the proposed reporting requirement. See id. at 29985.
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The Commission has considered the commenters' operational concerns
regarding reporting of transactions in U.S. dollar-denominated foreign
sovereign debt securities to TRACE where a CUSIP or CINS number is not
assigned or available. The Commission believes that FINRA's plans to
permit members to receive a FINRA symbol based solely on an ISIN or a
FIGI (irrespective of whether a CUSIP and CINS also are available) as
well as to avoid duplicative symbol assignments, are reasonably
designed to address the commenters' concerns, minimize burdens, and
facilitate compliance with the proposal. With respect to comments
expressing concern that assigning a FINRA symbol to multiple
identifiers could create identifier mapping challenges, the Commission
agrees with FINRA that associating a FINRA symbol with multiple
identifiers does not create any unique challenges in the context of the
proposal, as an individual security currently may be assigned CUSIP/
CINS, FIGI and ISIN identifiers.\69\
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\69\ See FINRA Response at 3.
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With regards to commenters' concerns regarding the implementation
timeframe, FINRA states that it would provide members with an adequate
implementation period.\70\ The Commission notes that FINRA's proposed
process for setting an effective date provides FINRA with flexibility
in determining an appropriate implementation period and setting the
corresponding effective date.
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\70\ See FINRA Response at 4. The Commission notes that FINRA
published the proposed rule change for comment in Regulatory Notice
19-25 (July 2019). Four comments were received in response to the
Regulatory Notice. See Notice, 87 FR at 29985.
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The Commission agrees with FINRA that the proposal does not
represent unique challenges with respect of the scope of the defined
terms, including those with respect to the definition of ``foreign
sovereign debt security,'' and notes that TRACE rules currently require
members to distinguish U.S. dollar-denominated debt of foreign
sovereign issuers from that of foreign private issuers for purposes of
TRACE reporting.
The Commission has considered comments regarding public
dissemination of information regarding transactions in U.S. dollar-
denominated foreign sovereign debt securities. The Commission agrees
with FINRA that that it is appropriate to study the information
reported to regulators under this rule change before proceeding with a
proposal to provide for the public dissemination of information
concerning transactions in U.S. dollar-denominated foreign sovereign
debt securities, which FINRA notes is consistent with past
practice.\71\
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\71\ See FINRA Response at 6; see also Notice, 87 FR at 29985.
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The Commission also recognizes that members would become subject to
trade reporting fees and FINRA's Trading Activity Fee in connection
with transactions in U.S. dollar-denominated foreign sovereign debt
securities. FINRA represents, however, that the proposed fees are
consistent with FINRA's existing framework under FINRA Rule 7730 and
FINRA's Trading Activity fee for similar types of transactions required
to be reported to TRACE, and that these fees would apply at established
rates equally to members reporting transactions in U.S. dollar-
denominated foreign sovereign debt securities. Accordingly, the
Commission further finds that the proposed application of trade
reporting fees under FINRA Rule 7730 and FINRA's Trading Activity Fee
to transactions in U.S. dollar-denominated foreign sovereign debt
securities is consistent with Section 15A(b)(5) of the Act,\72\ which
requires, among other things, that FINRA rules provide for the
equitable allocation of reasonable dues, fees, and other charges among
members and issuers and other persons using any facility or system that
FINRA operates or controls.
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\72\ 15 U.S.C. 78o-3(b)(5).
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For the reasons noted above, the Commission finds that the proposed
rule change is consistent with the Act.
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\73\ that the proposed rule change (SR-FINRA-2022-011) is
approved.\74\
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\73\ 15 U.S.C. 78s(b)(2).
\74\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-17532 Filed 8-15-22; 8:45 am]
BILLING CODE 8011-01-P
