Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving a Proposed Rule Change To Amend FINRA Rule 6730 (Transaction Reporting) To Enhance TRACE Reporting Obligations for U.S. Treasury Securities, 54579-54583 [2022-19112]
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Federal Register / Vol. 87, No. 171 / Tuesday, September 6, 2022 / Notices
securities trading operations of
Participants and Industry Members and
their relative impact upon Company
resources and operations;
30. Commenters’ views on the
proposed changes to the funding
principle in Section 11.2(c) of the CAT
NMS Plan, including the elimination of
requirements related to a tiered fee
structure in which the fees charged are
based on market share for Participants
and Industry Members based on
message traffic, and comparability
between or among CAT Reporters;
31. Commenters’ views on the
proposed changes to Section 11.1(d) of
the CAT NMS Plan to remove references
to the assignment of tiers in order to
conform the Plan to the Executed Shares
Model; and
32. Commenters’ views on the
proposed changes to Section 11.3 of the
CAT NMS Plan in order to conform the
Plan to the Executed Shares Model by
revising the manner in which fees to
recover costs will be assessed on
Participants and Industry Members.
The Commission also requests that
commenters provide analysis to support
their views, if possible.
Interested persons are invited to
submit written data, views, and
arguments regarding whether the
proposals should be approved or
disapproved by September 27, 2022.
Any person who wishes to file a rebuttal
to any other person’s submission must
file that rebuttal October 11, 2022.
Comments may be submitted by any of
the following methods:
jspears on DSK121TN23PROD with NOTICES
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to. Please include
File Number 4–698 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 4–698. 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
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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
Participants’ principal offices. 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 4–698 and should be
submitted on or before September 27,
2022.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.472
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022–19111 Filed 9–2–22; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–95635; File No. SR–FINRA–
2022–013]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Order Approving a
Proposed Rule Change To Amend
FINRA Rule 6730 (Transaction
Reporting) To Enhance TRACE
Reporting Obligations for U.S.
Treasury Securities
August 30, 2022.
I. Introduction
On May 23, 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 FINRA
Rule 6730 (Transaction Reporting) to
Enhance TRACE Reporting Obligations
for U.S. Treasury Securities. The
proposed rule change was published for
comment in the Federal Register on
472 17
CFR 200.30–3(a)(85).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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54579
June 3, 2022.3 On July 13, 2022,
pursuant to Section 19(b)(2) of the Act,4
the Commission designated a longer
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
The Commission received five
comments on the proposal.6 FINRA
submitted a response to the comments
on August 18, 2022.7 This order
approves the proposed rule change.
II. Description of the Proposal
FINRA is proposing two changes to its
Trade Reporting and Compliance Engine
(‘‘TRACE’’) 8 reporting rules to enhance
the regulatory audit trail and require
members to report transactions in U.S.
Treasury Securities 9 to FINRA in a
more timely manner. Information
reported to TRACE regarding
transactions in U.S. Treasury
Securities 10 is used for regulatory and
3 See Securities Exchange Act Release No. 95003
(May 27, 2022), 87 FR 33844 (June 3, 2022)
(‘‘Notice’’).
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 95270
(July 13, 2022), 87 FR 43065 (July 19, 2022).
6 See letters to Vanessa Countryman, Secretary,
Commission, from Rob Toomey, Managing Direct &
Associate General Counsel, and Charles de Simone,
Managing Director, Technology and Operations,
Securities Industry and Financial Markets
Association (‘‘SIFMA’’), dated June 24, 2022
(‘‘SIFMA Letter’’); Howard Meyerson, Managing
Director, Financial Information Forum (‘‘FIF’’),
dated June 24, 2022 (‘‘FIF Letter’’); Gerard O’Reilly,
Co-CEO and Chief Investment Officer, Dimensional
Fund Advisors LP, dated June 22, 2022; Stephen
John Berger, Managing Director, Global Head of
Government & Regulatory Policy, Citadel Securities,
dated June 24, 2022 (‘‘Citadel Letter’’); Joanna
Mallers, Secretary, FIA Principal Traders Group,
dated June 24, 2022 (‘‘FIA Letter’’). The comment
letters are available at: https://www.sec.gov/
comments/sr-finra-2022-013/srfinra2022013.htm.
7 See letter to Vanessa Countryman, Secretary,
Commission, from Robert McNamee, FINRA, dated
August 18, 2022 (‘‘FINRA Response Letter’’).
8 TRACE is the FINRA-developed system that
facilitates the mandatory reporting of over-thecounter transactions in eligible fixed income
securities. See generally FINRA Rule 6700 Series.
9 Under Rule 6710(p), a ‘‘U.S. Treasury Security’’
means a security, other than a savings bond, issued
by the U.S. Department of the Treasury (the
‘‘Treasury Department’’) to fund the operations of
the federal government or to retire such outstanding
securities. The term ‘‘U.S. Treasury Security’’ also
includes separate principal and interest
components of a U.S. Treasury Security that has
been separated pursuant to the Separate Trading of
Registered Interest and Principal of Securities
(STRIPS) program operated by the Treasury
Department.
10 FINRA members began reporting information
on transactions in U.S. Treasury Securities to
TRACE on July 10, 2017. See FINRA Regulatory
Notice 16–39 (October 2016); see also Securities
Exchange Act Release No. 79116 (October 18, 2016),
81 FR 73167 (October 24, 2016) (Order Granting
Accelerated Approval of File No. SR–FINRA–2016–
027). See Notice, supra note 3, at 33844–45.
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other official sector 11 purposes and is
not disseminated publicly.12 Among
other regulatory uses, FINRA makes the
data available to the official sector to
assist in the monitoring and analysis of
the U.S. Treasury Security markets. The
first proposed change would require
members to report electronically
executed transactions in U.S. Treasury
Securities to TRACE in the finest
increment captured by the system that
executed the transaction. FINRA is
proposing to provide an exception from
the amended execution timestamp
provision for members with limited
trading volume in U.S. Treasury
Securities. The second proposed change
would reduce the reporting timeframe
for transactions in U.S. Treasury
Securities.
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Execution Timestamps
Existing Supplementary Material .04
to Rule 6730 provides that, when
reporting transactions in U.S. Treasury
Securities executed electronically to
TRACE, FINRA members must report
the Time of Execution 13 pursuant to
paragraph (c)(8) of Rule 6730 to the
finest increment of time captured by the
member’s system (e.g., millisecond,
microsecond), but at a minimum, in
increments of seconds.14 The
‘‘member’s system’’ referenced in the
existing rule refers to the system that is
used to report the transaction to TRACE
11 The Treasury Department, the Board of
Governors of the Federal Reserve System (the
‘‘Federal Reserve’’), the Federal Reserve Bank of
New York, the SEC and the U.S. Commodity
Futures Trading Commission comprise the InterAgency Working Group for Treasury Market
Surveillance (IAWG or ‘‘official sector’’).
12 On March 10, 2020, FINRA began posting on
its website weekly, aggregate data on the trading
volume of U.S. Treasury Securities reported to
TRACE. See FINRA Press Release, FINRA Launches
New Data on Treasury Securities Trading Volume,
https://www.finra.org/media-center/newsreleases/
2020/finra-launches-new-data-treasury-securitiestrading-volume; see also Securities Exchange Act
Release No. 87837 (December 20, 2019), 84 FR
71986 (December 30, 2019) (Order Approving File
No. SR–FINRA–2019–028). Information on
individual transactions in U.S. Treasury Securities
is not published or disseminated.
13 Under Rule 6710(d), the ‘‘Time of Execution’’
generally means the time when the parties to a
transaction agree to all of the terms of the
transaction that are sufficient to calculate the dollar
price of the trade.
14 Existing Supplementary Material .04 provides
that a member must report ‘‘at a minimum, in
increment of seconds.’’ As discussed below, FINRA
states that, to avoid confusion, the proposed
amendments update this language to clarify that
members must report trades in an increment of ‘‘no
longer than a second’’ and no shorter than a
microsecond. TRACE currently cannot accept a
Time of Execution in an increment that is finer than
a microsecond. The proposed rule change would
also make a non-substantive edit to Supplementary
Material .04 to capitalize the defined term ‘‘Time
of Execution.’’ See Notice, supra note 3, at 33845
n. 10.
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(i.e., the member’s ‘‘reporting system’’).
Under the existing FINRA rule and
related guidance, if a member uses
multiple systems to facilitate trade
reporting and those systems differ in
granularity, then the member may use
the finest increment that is common
across all systems.15 As a result,
currently FINRA members may use a
reporting system to report a trade to
TRACE in an increment of time that is
less precise than that captured by the
system that is used to execute the
transaction (i.e., the ‘‘execution
system’’).16
To improve the granularity and
consistency of transaction information
for U.S. Treasury Securities, FINRA is
proposing to amend Supplementary
Material .04 to Rule 6730 to instead
provide that, when reporting
transactions in U.S. Treasury Securities
executed electronically, members must
report the Time of Execution pursuant
to paragraph (c)(8) of Rule 6730 to the
finest increment of time captured by the
execution system (e.g., millisecond,
microsecond), but reporting must be in
an increment of (i) no longer than a
second and (ii) no shorter than a
microsecond. Amended Supplementary
Material .04 would not require FINRA
members to update execution systems
for U.S. Treasury Securities—instead
members must update their reporting
systems, if necessary, to ensure that
their TRACE reports reflect the finest
increment of time captured by the
execution system (but not finer than a
15 Specifically, TRACE Treasury FAQ #3.5.8
provides as follows: Question: Our firm will use
two separate systems to facilitate trade reporting of
U.S. Treasury Securities for different business lines.
One system (‘‘System A’’) has the capability to
capture the time of execution to the millisecond;
however, the second system (‘‘System B’’) will only
capture the time of execution to the second. Will
our firm be required to update System B to capture
the time of execution to the millisecond? Answer:
No. The rule requires members to report the time
of electronic executions to the finest increment of
time captured in the member’s system (e.g.,
millisecond, microsecond), but at a minimum, in
increments of seconds. Since the firm would be
reporting the time of execution to the finest
increment captured by each system, the firm would
not need to make any updates to System B to
comply with a finer time increment.
16 For purposes of Supplementary Material .04,
FINRA would consider the relevant execution
system to be the system used to execute the
particular U.S. Treasury Security transaction being
reported to TRACE, regardless of whether the
member is using its own internal systems for
execution or if the transaction is executed through
an external system. For example, if a member
executes a transaction in a U.S. Treasury Security
through an alternative trading system (‘‘ATS’’) or
other electronic trading platform, the member
would be required to report in the finest increment
of time captured by such ATS or electronic trading
platform (but no finer than a microsecond, in line
with TRACE system parameters). See Notice, supra
note 3, at 33845 n. 12.
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microsecond).17 Therefore, a FINRA
member may be required to update its
reporting system for U.S. Treasury
Securities if such reporting system does
not currently report to TRACE to the
same level of granularity as the
execution system.18
FINRA is also proposing to add new
Supplementary Material .07 to Rule
6730 to provide a limited exception for
members with limited trading volume in
U.S. Treasury Securities from the
proposed requirement to report
electronically executed transactions in
U.S. Treasury Securities to the finest
increment of time captured by the
execution system.19 The proposed
Supplementary Material would define a
‘‘member with limited trading volume
in U.S. Treasury Securities’’ as a FINRA
member that executed transactions in
U.S. Treasury Securities of $10 million
or less in average daily par value,
computed by aggregating buy and sell
transactions, during the preceding
calendar year. Where a member’s
activity is below the proposed criteria
during the preceding calendar year,
such member would not be required to
report transactions in U.S. Treasury
Securities in the finest increment
captured by the execution system and
would be permitted to continue to
17 The TRACE system does not accept trade
reports in increments finer than a microsecond.
Where a firm captures time in a finer increment, the
firm must truncate the time when reporting the
transaction to TRACE. Specifically, TRACE FAQ
#3.5.37 provides as follows: Question: Is rounding
permitted when reporting the Time of Execution of
a U.S. Treasury Security transaction to TRACE?
Answer: No. Members must accurately report a
transaction’s Time of Execution and are not
permitted to round when reporting to TRACE. The
TRACE system can accommodate reporting up to
the microsecond and, where the firm captures time
in an increment finer than microseconds, the firm
must truncate when reporting to TRACE. See
Notice, supra note 3, at 33845 n. 13.
18 See Notice, supra note 3, at 33845. In
connection with the proposed rule change, FINRA
also proposes to amend its existing TRACE FAQs
to clarify that a member must report using the finest
increment of time captured by the execution
system, and therefore may need to update other
systems to enable trade reporting using the
execution system’s level of timestamp granularity.
See Notice, supra note 3, at 33845 n. 14.
19 The proposed rule change would also make
non-substantive, conforming edits to the
Supplementary Material to Rule 6730. Specifically,
existing Supplementary Material .06 to Rule 6730
provided a temporary exception for aggregate
transaction reporting of U.S. Treasury Securities
executed in ATS trading sessions. By its terms, that
temporary exception expired on April 12, 2019.
Therefore, FINRA is proposing to delete the
temporary exception under existing Supplementary
Material .06, renumber existing Supplementary
Material .07 (ATS Identification of Non-FINRA
Member Counterparties for Transactions in U.S.
Treasury Securities) as Supplementary Material .06
and add the new exception for members with
limited trading volume in U.S. Treasury Securities
as new Supplementary Material .07. See Notice,
supra note 3, at 33846 n. 15.
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report the Time of Execution for
transactions in U.S. Treasury Securities
executed electronically as it does today
for the duration of the following
calendar year.
Under the proposed rule change, a
FINRA member that relies on the
exception for limited trading volume
would be required to confirm on an
annual basis that it continues to meet
the criteria for the exception based on
its trading activity during the preceding
calendar year. Where a member no
longer meets the criteria for the
exception based on its trading activity
during a given preceding calendar year,
the member may no longer rely on the
exception beginning 90 days after the
end of such calendar year, which FINRA
believes would provide such members
with a sufficient amount of time to make
any systems changes that may be
needed to comply with the amended
timestamp requirement.20
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Reporting Timeframe Reduction
Under existing Rule 6730(a)(4)(A),
transactions in U.S. Treasury Securities
executed on a business day at or after
12:00:00 a.m. Eastern Time through
5:00:00 p.m. Eastern Time must be
reported the same day during TRACE
System Hours, i.e., 8:00:00 a.m. Eastern
Time through 6:29:59 p.m. Eastern
Time.21 A transaction executed on a
business day after 5:00:00 p.m. Eastern
Time but before the TRACE system
closes can be reported the same day
before the TRACE system closes, but
must be reported no later than the next
business day (T+1) during TRACE
System Hours, i.e., 8:00:00 a.m. Eastern
Time through 6:29:59 p.m. Eastern
Time, and, if reported on T+1,
designated ‘‘as/of’’ and include the date
of execution. Finally, a transaction
executed on a business day at or after
6:30:00 p.m. Eastern Time through
11:59:59 p.m. Eastern Time (or a
Saturday, a Sunday, a federal or
religious holiday or other day on which
the TRACE system is not open at any
20 Under the proposed rule change, once a
member’s activity falls outside of the scope of the
proposed criteria based on its trading activity
during a given preceding calendar year, such
member generally may no longer rely on the
exception beginning 90 days after the end of such
calendar year, irrespective of whether it again meets
the criteria in a subsequent calendar year. However,
a member may consult with FINRA staff regarding
the availability of the exception where the member
has changed business lines or undergone a
corporate restructuring that significantly impacts its
level of activity in U.S. Treasury Securities. See
Notice, supra note 3, at 33846 n. 16.
21 Under Rule 6710(t), ‘‘TRACE System Hours’’
means the hours the TRACE system is open, which
are 8:00:00 a.m. Eastern Time through 6:29:59 p.m.
Eastern Time on a business day, unless otherwise
announced by FINRA.
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20:04 Sep 02, 2022
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time during that day) must be reported
the next business day (T+1) during
TRACE System Hours, i.e., 8:00:00 a.m.
Eastern Time through 6:29:59 p.m.
Eastern Time, designated ‘‘as/of,’’ and
include the date of execution.
To provide more timely information
about transactions in U.S. Treasury
Securities, FINRA is proposing to
amend Rule 6730(a)(4) to reduce the
trade reporting timeframe as follows.22
Amended Rule 6730(a)(4) would
provide that transactions in U.S.
Treasury Securities must be reported as
soon as practicable, but no later than the
following time periods.23 Amended
Rule 6730(a)(4)(A) would require that a
transaction executed on a business day
at or after 12:00:00 a.m. Eastern Time
through 7:59:59 a.m. Eastern Time must
be reported the same day no later than
60 minutes after the TRACE system
opens. A transaction executed on a
business day at or after the time the
TRACE system opens at 8:00:00 a.m.
Eastern Time through when the TRACE
system closes at 6:29:59 p.m. Eastern
Time (standard TRACE System Hours)
must be reported within 60 minutes of
the Time of Execution, except that a
transaction executed on a business day
less than 60 minutes before 6:30:00 p.m.
Eastern Time can be reported the same
day before the TRACE system closes,
but must be reported no later than 60
minutes after the TRACE system opens
the next business day (T+1), and if
reported on T+1, designated ‘‘as/of’’ and
include the date of execution. Finally, a
22 FINRA is not proposing to provide an
exception for members with limited trading activity
in U.S. Treasury Securities from the proposed
reduced reporting timeframe requirement. See
Notice, supra note 3, at 33846 n. 18.
23 In connection with the proposed changes to
Rule 6730(a)(4) discussed above, the proposed rule
change would also make conforming changes to
Supplementary Material .03 to Rule 6730, which
sets forth standards for firms reporting transactions
‘‘as soon as practicable’’ after the Time of Execution
in accordance with Rule 6730(a). Existing Rule
6730.03 provides that ‘‘[e]ach member with a trade
reporting obligation pursuant to paragraph (a) above
for a TRACE-Eligible Security that is subject to
dissemination must adopt policies and procedures
reasonably designed to comply with the
requirement that transactions in TRACE-Eligible
Securities be reported ‘as soon as practicable’ by
implementing systems that commence the trade
reporting process at the Time of Execution without
delay.’’ Under the proposed rule change, the ‘‘as
soon as practicable’’ standard would also apply to
transactions in U.S. Treasury Securities, which are
not subject to dissemination. Therefore, FINRA is
proposing to update the first sentence of Rule
6730.03 to provide that ‘‘[e]ach member with an
obligation to report a transaction in a TRACEEligible Security ‘as soon as practicable’ pursuant
to paragraph (a) of this Rule must adopt policies
and procedures reasonably designed to comply with
this requirement by implementing systems that
commence the trade reporting process at the Time
of Execution without delay.’’ See Notice, supra note
3, at 33846 n. 19.
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54581
transaction executed on a business day
at or after 6:30:00 p.m. Eastern Time
through 11:59:59 p.m. Eastern Time, or
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 (determined using
Eastern Time) must be reported the next
business day (T+1) no later than 60
minutes after the TRACE system opens,
designated ‘‘as/of,’’ and include the date
of execution.
FINRA represents that it 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
publication of the Regulatory Notice
announcing Commission approval of the
proposed rule change.
III. Discussion and Commission
Findings
After careful review of the proposed
rule change, the comment letters, 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.24 In
particular, the Commission finds that
the proposed rule change is consistent
with Section 15A(b)(6) of the Act,25
which requires, among other things, that
FINRA’s rules be designed to prevent
fraudulent and manipulative acts and
practices; promote just and equitable
principles of trade, and, in general,
protect investors and the public interest.
In particular, the proposed rule change
would enhance the regulatory audit trail
for U.S. Treasury Securities available to
FINRA and the official sector and assist
FINRA in carrying out its statutory
duties to surveil and regulate this
segment of the market.
Pursuant to Section 19(b)(5) of the
Act,26 the Commission consulted with
and considered the views of the
Treasury Department in determining to
approve the proposed rule change. The
Treasury Department indicated its
24 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
25 15 U.S.C. 78o–3(b)(6).
26 See 15 U.S.C. 78s(b)(5) (providing that the
Commission ‘‘shall consult with and consider the
views of the Secretary of the Treasury prior to
approving a proposed rule filed by a registered
securities association that primarily concerns
conduct related to transactions in government
securities, except where the Commission
determines that an emergency exists requiring
expeditious or summary action and publishes its
reasons therefor’’).
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discussed above, the current rule
permits FINRA members to report a
trade to TRACE in an increment of time
that is less precise than that captured by
the execution system, which makes it
difficult for FINRA to match and
sequence trades. The Commission
believes the proposed change is
reasonably designed to address this
concern as FINRA represents that finer
Execution Timestamps
time granularity in the audit trail would
As stated above, FINRA proposes to
allow transactions to be matched more
require members to report electronically accurately and sequenced with more
executed transactions in U.S. Treasury
precision, thus facilitating trade
Securities to TRACE in the finest
matching and sequencing for U.S.
increment captured by the system that
Treasury Securities. This, in turn,
executed the transaction. FINRA also
facilitates market oversight by providing
proposes to provide an exception from
FINRA and the official sector with more
the amended execution timestamp
useful information on U.S. Treasury
provision for members with limited
Security transactions. The Commission
trading volume in U.S. Treasury
also believes that providing an
Securities. Two commenters raised
exception from the amended execution
operational and technological concerns
timestamp requirement for FINRA
associated with this proposal 29 and two members with limited trading volume in
commenters requested clarification to
U.S. Treasury Securities is appropriate,
as the proposed exception would reduce
the definition of an electronically
burdens for FINRA members with
executed transaction.30
FINRA states that it acknowledges the limited activity.
The Commission recognizes that the
operational and technological changes
that members may need to undertake in proposed change may result in costs for
FINRA members that trade U.S.
order to comply with the proposed
change.31 FINRA also states its view that Treasury Securities where members
must implement changes to their
the benefits to the regulatory audit trail
processes and systems for reporting U.S.
of aligning the timestamps reported to
Treasury Securities transactions to
TRACE with those captured by the
TRACE. As discussed above, however,
relevant execution system are
appropriate.32 In response to comments the Commission believes that the
important regulatory purpose served by
seeking clarification to the definition of
the proposal justifies the potential
an electronically executed transaction,
FINRA notes that the current timestamp burdens. The Commission also
recognizes that the proposed change
granularity provision in TRACE
may also affect competition among
reporting rules already applies to
reporting firms, where firms reporting
transactions that are ‘‘executed
only a limited number of trades may
electronically’’ and further notes that it
face the same costs of upgrading their
encourages members to contact FINRA
systems and therefore find their limited
for guidance on whether a particular
trading in U.S. Treasury Securities less
transaction would be considered an
viable. The Commission nevertheless
electronically executed transaction.33
believes that the impact on such firms
The Commission believes that the
is expected to be mitigated by the
proposed change to align the level of
proposed exception for eligible FINRA
granularity provided in TRACE reports
members with limited trading volume,
with the level of granularity in the
as previously described.
execution systems will enhance the
regulatory audit trail for U.S. Treasury
Reporting Timeframe Reduction
Securities available to FINRA and the
As stated above, FINRA proposes to
official sector by facilitating more
shorten the reporting timeframe for
efficient matching and sequencing of
transactions in the audit trail data.34 As
support for the proposal.27 Furthermore,
pursuant to Section 19(b)(6) of the
Act,28 the Commission has considered
the sufficiency and appropriateness of
existing laws and rules applicable to
government securities brokers,
government securities dealers, and their
associated persons in approving the
proposal.
jspears on DSK121TN23PROD with NOTICES
27 See
Email from U.S. Treasury Department staff
to Justin Pica, Division of Trading and Markets,
Commission (August 25, 2022).
28 15 U.S.C. 78s(b)(6).
29 See SIFMA Letter at 3; FIF Letter at 2.
30 See SIFMA Letter at 3; FIF Letter at 2.
31 See FINRA Response Letter at 4–5.
32 See FINRA Response Letter at 5.
33 See id.
34 FINRA represents that, under the existing rule,
members may report a trade to TRACE in an
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increment of time that is less precise than that
captured by the execution system, which makes it
difficult for FINRA to match interdealer trades
when two sides report at different time granularity
because coarse granularity in timestamps makes
sequencing trades less precise. To address this
concern, the proposal requires that, when reporting
transactions in U.S. Treasury Securities executed
electronically, members must report the Time of
Execution to the finest increment of time captured
by the execution system, but must report in an
increment of time that is no longer than a second
and no shorter than a microsecond. See Notice,
supra note 3, at 33847.
PO 00000
Frm 00134
Fmt 4703
Sfmt 4703
transactions in U.S. Treasury Securities.
Two commenters support the proposal
to require members to report
transactions in U.S. Treasury Securities
to TRACE in a more timely manner.35
One commenter suggests that FINRA
postpone implementation of a shorter
reporting timeframe.36 This commenter
notes several current initiatives related
to TRACE, including the Treasury
Department’s recent publication of a
Request for Information 37 (RFI) on
additional post-trade transparency of
data regarding secondary market
transactions of U.S. Treasury Securities,
and suggests that implementing
technological and operational changes
now, followed by the possibility of
additional changes at a later date, would
be inefficient and could result in work
that is unnecessary in the long term.38
FINRA acknowledges the fact that
there are several current TRACE
initiatives 39 but notes that it does not
believe that there is any conflict
presented by advancing the proposal to
shorten the reporting timeframe for
transactions in U.S. Treasury Securities
and states that it does not believe that
the benefits of a shortened reporting
timeframe for transactions in U.S.
Treasury Securities are reduced in light
of these other initiatives.40 Further, in
response to concerns that the Treasury
Department’s RFI could result in a
proposal or recommendation to increase
transparency for transactions in U.S.
Treasury Securities,41 FINRA notes that
prior increases in transparency provided
by TRACE for other fixed income
35 See
Citadel Letter at 1; FIA Letter at 1–2.
SIFMA Letter at 1–2. This commenter also
encouraged FINRA to review the benefits of a
shortened reporting timeframe in light of how
FINRA and its regulatory partners are using TRACE
data, and to consider whether that use is impeded
by the current reporting timeframes and whether
there are any incremental benefits from a 60-minute
timeframe as opposed to an intermediate interval
(such as two hours, as originally recommended by
SIFMA). See id. In response, FINRA states that the
proposal strikes an appropriate balance to provide
FINRA and the official sector with more timely
information about U.S. Treasury Security market
activity, noting that members already report over 90
percent of transactions in U.S. Treasury Securities
within 60 minutes of the Time of Execution. See
FINRA Response Letter at 4.
37 See Treasury Department, Notice Seeking
Public Comment on Additional Transparency for
Secondary Market Transactions of Treasury
Securities, 87 FR 38259 (June 27, 2022) (Docket No.
TREAS–DO–2022–0012).
38 See SIFMA Letter at 2.
39 See, e.g., FINRA Regulatory Notice 22–17
(August 2, 2022) (FINRA Requests Comment on a
Proposal to Shorten the Trade Reporting Timeframe
for Transactions in Certain TRACE-Eligible
Securities From 15 Minutes to One Minute)
available at https://www.finra.org/rules-guidance/
notices/22-17.
40 See FINRA Response Letter at 3.
41 See SIFMA Letter at 2–3
36 See
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06SEN1
Federal Register / Vol. 87, No. 171 / Tuesday, September 6, 2022 / Notices
jspears on DSK121TN23PROD with NOTICES
products have been preceded by a
shortened reporting timeframe.42
The Commission believes that
shortening the timeframe for FINRA
members to report transactions in U.S.
Treasury Securities to TRACE to as soon
as practicable, but no later than within
60 minutes of the Time of Execution (or
within 60 minutes after the TRACE
system opens for trades executed during
specified periods, as described above)
will assist FINRA in carrying out its
statutory duties to surveil and regulate
this segment of the market by providing
FINRA with more timely information
about activity in the market for U.S.
Treasury Securities, including more
timely data about intraday pricing and
liquidity.
The Commission recognizes that the
proposal may result in costs for FINRA
members that need to implement
changes to their processes and systems.
The Commission notes that, according
to FINRA, approximately 96 percent of
U.S. Treasury Security transaction
reports were reported within 60 minutes
of the Time of Execution during a
sample period of July 2020 to June
2021.43 In addition, FINRA represents
that some FINRA members who trade in
U.S. Treasury Securities also trade in
other types of TRACE-Eligible Securities
that already require reporting within a
shorter timeframe.44 While these
transactions may occur on separate
trading desks, the Commission agrees
with FINRA that, to the extent that
members are able to leverage existing
technology within the firm, the costs
associated with the proposed reporting
timeframe changes for U.S. Treasury
Securities could potentially be reduced.
With respect to comments suggesting
that FINRA should review the benefits
of a shortened reporting timeframe in
light of how FINRA and its regulatory
partners are using TRACE data,45 the
Commission agrees with FINRA’s
assessment that the proposal strikes an
appropriate balance to provide FINRA
42 See FINRA Response Letter at 3. With respect
to the U.S. Treasury Department’s RFI, FINRA
further states that, should that initiative result in a
proposal or recommendation to increase
transparency for transactions in U.S. Treasury
Securities, such a result would harmonize with a
reduced reporting timeframe for U.S. Treasury
Securities. See id.
43 See Notice, supra note 3, at 33848.
44 For example, FINRA states that transactions in
corporate bonds and Agency Debt Securities
generally are required to be reported to FINRA as
soon as practicable, but no later than within 15
minutes of the Time of Execution. In the FINRA
sample period, of the 750 MPIDs that reported
transactions in U.S. Treasury Securities, 691 MPIDs
also reported transactions in corporate bonds and
Agency Debt Securities. See Notice, supra note 3,
at 33848.
45 See supra note 36 and accompanying text.
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20:04 Sep 02, 2022
Jkt 256001
and the official sector with more timely
information about U.S. Treasury
Security market activity. The
Commission notes that FINRA members
already report over 90 percent of
transactions in U.S. Treasury Securities
within 60 minutes of the Time of
Execution.46
Finally, the Commission believes that
it would not be appropriate to delay
implementation of the proposal beyond
the timeframe set forth in the Notice.
The Commission agrees with FINRA in
its assessment that the proposal does
not conflict with other TRACE-related
initiatives and that the benefits of a
shortened reporting timeframe for
transactions in U.S. Treasury Securities
are not reduced in light of these other
initiatives. Moreover, the Commission
believes that further delaying
implementation of the proposal would
undermine the regulatory interest that
the official sector and FINRA have in
obtaining access to more timely
information about activity in the market
for U.S. Treasury Securities.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,47 that the
proposed rule change (SR–FINRA–
2022–013) is approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.48
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022–19112 Filed 9–2–22; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 95637; File No. SR–ISE–2022–
17]
Self-Regulatory Organizations; Nasdaq
ISE, LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Adopt New Conflicts
of Interest Rules
August 30, 2022.
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 August
18, 2022, Nasdaq ISE, LLC (‘‘ISE’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
46 See
FINRA Response Letter at 4.
U.S.C. 78s(b)(2).
48 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
47 15
PO 00000
Frm 00135
Fmt 4703
Sfmt 4703
54583
III, below, which Items have been
prepared by the Exchange. The
Exchange filed the proposed rule change
as a ‘‘non-controversial’’ proposed rule
change pursuant to Section
19(b)(3)(A)(iii) of the Act 3 and Rule
19b–4(f)(6) thereunder.4 The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to adopt two
new rules within Sections 26 and 27 of
Options 10. Also, the Exchange
proposes to make other technical
amendments.
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/ise/rules, at the principal
office of the Exchange, 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, the
Exchange 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
Exchange 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
The Exchange proposes to adopt two
new rules within Sections 26 and 27 of
Options 10. Also, the Exchange
proposes to make technical amendments
to General 2, Organization and
Administration; Options 1, Section 1,
Definitions; and Options 4A, Section 12,
Terms of Index Options Contracts. Each
change is described below.
Proposed Options 10, Section 26
The Exchange proposes to adopt a
new Options 10, Section 26, titled
‘‘Transactions Involving ISE
Employees’’ that is substantively
identical to FINRA Rule 2070. This
proposed rule is intended to address
3 15
4 17
E:\FR\FM\06SEN1.SGM
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
06SEN1
Agencies
[Federal Register Volume 87, Number 171 (Tuesday, September 6, 2022)]
[Notices]
[Pages 54579-54583]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-19112]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95635; File No. SR-FINRA-2022-013]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Order Approving a Proposed Rule Change To Amend FINRA
Rule 6730 (Transaction Reporting) To Enhance TRACE Reporting
Obligations for U.S. Treasury Securities
August 30, 2022.
I. Introduction
On May 23, 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 FINRA Rule 6730 (Transaction Reporting)
to Enhance TRACE Reporting Obligations for U.S. Treasury Securities.
The proposed rule change was published for comment in the Federal
Register on June 3, 2022.\3\ On July 13, 2022, pursuant to Section
19(b)(2) of the Act,\4\ the Commission designated a longer 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\ The Commission received five
comments on the proposal.\6\ FINRA submitted a response to the comments
on August 18, 2022.\7\ 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. 95003 (May 27,
2022), 87 FR 33844 (June 3, 2022) (``Notice'').
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 95270 (July 13,
2022), 87 FR 43065 (July 19, 2022).
\6\ See letters to Vanessa Countryman, Secretary, Commission,
from Rob Toomey, Managing Direct & Associate General Counsel, and
Charles de Simone, Managing Director, Technology and Operations,
Securities Industry and Financial Markets Association (``SIFMA''),
dated June 24, 2022 (``SIFMA Letter''); Howard Meyerson, Managing
Director, Financial Information Forum (``FIF''), dated June 24, 2022
(``FIF Letter''); Gerard O'Reilly, Co-CEO and Chief Investment
Officer, Dimensional Fund Advisors LP, dated June 22, 2022; Stephen
John Berger, Managing Director, Global Head of Government &
Regulatory Policy, Citadel Securities, dated June 24, 2022
(``Citadel Letter''); Joanna Mallers, Secretary, FIA Principal
Traders Group, dated June 24, 2022 (``FIA Letter''). The comment
letters are available at: https://www.sec.gov/comments/sr-finra-2022-013/srfinra2022013.htm.
\7\ See letter to Vanessa Countryman, Secretary, Commission,
from Robert McNamee, FINRA, dated August 18, 2022 (``FINRA Response
Letter'').
---------------------------------------------------------------------------
II. Description of the Proposal
FINRA is proposing two changes to its Trade Reporting and
Compliance Engine (``TRACE'') \8\ reporting rules to enhance the
regulatory audit trail and require members to report transactions in
U.S. Treasury Securities \9\ to FINRA in a more timely manner.
Information reported to TRACE regarding transactions in U.S. Treasury
Securities \10\ is used for regulatory and
[[Page 54580]]
other official sector \11\ purposes and is not disseminated
publicly.\12\ Among other regulatory uses, FINRA makes the data
available to the official sector to assist in the monitoring and
analysis of the U.S. Treasury Security markets. The first proposed
change would require members to report electronically executed
transactions in U.S. Treasury Securities to TRACE in the finest
increment captured by the system that executed the transaction. FINRA
is proposing to provide an exception from the amended execution
timestamp provision for members with limited trading volume in U.S.
Treasury Securities. The second proposed change would reduce the
reporting timeframe for transactions in U.S. Treasury Securities.
---------------------------------------------------------------------------
\8\ TRACE is the FINRA-developed system that facilitates the
mandatory reporting of over-the-counter transactions in eligible
fixed income securities. See generally FINRA Rule 6700 Series.
\9\ Under Rule 6710(p), a ``U.S. Treasury Security'' means a
security, other than a savings bond, issued by the U.S. Department
of the Treasury (the ``Treasury Department'') to fund the operations
of the federal government or to retire such outstanding securities.
The term ``U.S. Treasury Security'' also includes separate principal
and interest components of a U.S. Treasury Security that has been
separated pursuant to the Separate Trading of Registered Interest
and Principal of Securities (STRIPS) program operated by the
Treasury Department.
\10\ FINRA members began reporting information on transactions
in U.S. Treasury Securities to TRACE on July 10, 2017. See FINRA
Regulatory Notice 16-39 (October 2016); see also Securities Exchange
Act Release No. 79116 (October 18, 2016), 81 FR 73167 (October 24,
2016) (Order Granting Accelerated Approval of File No. SR-FINRA-
2016-027). See Notice, supra note 3, at 33844-45.
\11\ The Treasury Department, the Board of Governors of the
Federal Reserve System (the ``Federal Reserve''), the Federal
Reserve Bank of New York, the SEC and the U.S. Commodity Futures
Trading Commission comprise the Inter-Agency Working Group for
Treasury Market Surveillance (IAWG or ``official sector'').
\12\ On March 10, 2020, FINRA began posting on its website
weekly, aggregate data on the trading volume of U.S. Treasury
Securities reported to TRACE. See FINRA Press Release, FINRA
Launches New Data on Treasury Securities Trading Volume, https://www.finra.org/media-center/newsreleases/2020/finra-launches-new-data-treasury-securities-trading-volume; see also Securities
Exchange Act Release No. 87837 (December 20, 2019), 84 FR 71986
(December 30, 2019) (Order Approving File No. SR-FINRA-2019-028).
Information on individual transactions in U.S. Treasury Securities
is not published or disseminated.
---------------------------------------------------------------------------
Execution Timestamps
Existing Supplementary Material .04 to Rule 6730 provides that,
when reporting transactions in U.S. Treasury Securities executed
electronically to TRACE, FINRA members must report the Time of
Execution \13\ pursuant to paragraph (c)(8) of Rule 6730 to the finest
increment of time captured by the member's system (e.g., millisecond,
microsecond), but at a minimum, in increments of seconds.\14\ The
``member's system'' referenced in the existing rule refers to the
system that is used to report the transaction to TRACE (i.e., the
member's ``reporting system''). Under the existing FINRA rule and
related guidance, if a member uses multiple systems to facilitate trade
reporting and those systems differ in granularity, then the member may
use the finest increment that is common across all systems.\15\ As a
result, currently FINRA members may use a reporting system to report a
trade to TRACE in an increment of time that is less precise than that
captured by the system that is used to execute the transaction (i.e.,
the ``execution system'').\16\
---------------------------------------------------------------------------
\13\ Under Rule 6710(d), the ``Time of Execution'' generally
means the time when the parties to a transaction agree to all of the
terms of the transaction that are sufficient to calculate the dollar
price of the trade.
\14\ Existing Supplementary Material .04 provides that a member
must report ``at a minimum, in increment of seconds.'' As discussed
below, FINRA states that, to avoid confusion, the proposed
amendments update this language to clarify that members must report
trades in an increment of ``no longer than a second'' and no shorter
than a microsecond. TRACE currently cannot accept a Time of
Execution in an increment that is finer than a microsecond. The
proposed rule change would also make a non-substantive edit to
Supplementary Material .04 to capitalize the defined term ``Time of
Execution.'' See Notice, supra note 3, at 33845 n. 10.
\15\ Specifically, TRACE Treasury FAQ #3.5.8 provides as
follows: Question: Our firm will use two separate systems to
facilitate trade reporting of U.S. Treasury Securities for different
business lines. One system (``System A'') has the capability to
capture the time of execution to the millisecond; however, the
second system (``System B'') will only capture the time of execution
to the second. Will our firm be required to update System B to
capture the time of execution to the millisecond? Answer: No. The
rule requires members to report the time of electronic executions to
the finest increment of time captured in the member's system (e.g.,
millisecond, microsecond), but at a minimum, in increments of
seconds. Since the firm would be reporting the time of execution to
the finest increment captured by each system, the firm would not
need to make any updates to System B to comply with a finer time
increment.
\16\ For purposes of Supplementary Material .04, FINRA would
consider the relevant execution system to be the system used to
execute the particular U.S. Treasury Security transaction being
reported to TRACE, regardless of whether the member is using its own
internal systems for execution or if the transaction is executed
through an external system. For example, if a member executes a
transaction in a U.S. Treasury Security through an alternative
trading system (``ATS'') or other electronic trading platform, the
member would be required to report in the finest increment of time
captured by such ATS or electronic trading platform (but no finer
than a microsecond, in line with TRACE system parameters). See
Notice, supra note 3, at 33845 n. 12.
---------------------------------------------------------------------------
To improve the granularity and consistency of transaction
information for U.S. Treasury Securities, FINRA is proposing to amend
Supplementary Material .04 to Rule 6730 to instead provide that, when
reporting transactions in U.S. Treasury Securities executed
electronically, members must report the Time of Execution pursuant to
paragraph (c)(8) of Rule 6730 to the finest increment of time captured
by the execution system (e.g., millisecond, microsecond), but reporting
must be in an increment of (i) no longer than a second and (ii) no
shorter than a microsecond. Amended Supplementary Material .04 would
not require FINRA members to update execution systems for U.S. Treasury
Securities--instead members must update their reporting systems, if
necessary, to ensure that their TRACE reports reflect the finest
increment of time captured by the execution system (but not finer than
a microsecond).\17\ Therefore, a FINRA member may be required to update
its reporting system for U.S. Treasury Securities if such reporting
system does not currently report to TRACE to the same level of
granularity as the execution system.\18\
---------------------------------------------------------------------------
\17\ The TRACE system does not accept trade reports in
increments finer than a microsecond. Where a firm captures time in a
finer increment, the firm must truncate the time when reporting the
transaction to TRACE. Specifically, TRACE FAQ #3.5.37 provides as
follows: Question: Is rounding permitted when reporting the Time of
Execution of a U.S. Treasury Security transaction to TRACE? Answer:
No. Members must accurately report a transaction's Time of Execution
and are not permitted to round when reporting to TRACE. The TRACE
system can accommodate reporting up to the microsecond and, where
the firm captures time in an increment finer than microseconds, the
firm must truncate when reporting to TRACE. See Notice, supra note
3, at 33845 n. 13.
\18\ See Notice, supra note 3, at 33845. In connection with the
proposed rule change, FINRA also proposes to amend its existing
TRACE FAQs to clarify that a member must report using the finest
increment of time captured by the execution system, and therefore
may need to update other systems to enable trade reporting using the
execution system's level of timestamp granularity. See Notice, supra
note 3, at 33845 n. 14.
---------------------------------------------------------------------------
FINRA is also proposing to add new Supplementary Material .07 to
Rule 6730 to provide a limited exception for members with limited
trading volume in U.S. Treasury Securities from the proposed
requirement to report electronically executed transactions in U.S.
Treasury Securities to the finest increment of time captured by the
execution system.\19\ The proposed Supplementary Material would define
a ``member with limited trading volume in U.S. Treasury Securities'' as
a FINRA member that executed transactions in U.S. Treasury Securities
of $10 million or less in average daily par value, computed by
aggregating buy and sell transactions, during the preceding calendar
year. Where a member's activity is below the proposed criteria during
the preceding calendar year, such member would not be required to
report transactions in U.S. Treasury Securities in the finest increment
captured by the execution system and would be permitted to continue to
[[Page 54581]]
report the Time of Execution for transactions in U.S. Treasury
Securities executed electronically as it does today for the duration of
the following calendar year.
---------------------------------------------------------------------------
\19\ The proposed rule change would also make non-substantive,
conforming edits to the Supplementary Material to Rule 6730.
Specifically, existing Supplementary Material .06 to Rule 6730
provided a temporary exception for aggregate transaction reporting
of U.S. Treasury Securities executed in ATS trading sessions. By its
terms, that temporary exception expired on April 12, 2019.
Therefore, FINRA is proposing to delete the temporary exception
under existing Supplementary Material .06, renumber existing
Supplementary Material .07 (ATS Identification of Non-FINRA Member
Counterparties for Transactions in U.S. Treasury Securities) as
Supplementary Material .06 and add the new exception for members
with limited trading volume in U.S. Treasury Securities as new
Supplementary Material .07. See Notice, supra note 3, at 33846 n.
15.
---------------------------------------------------------------------------
Under the proposed rule change, a FINRA member that relies on the
exception for limited trading volume would be required to confirm on an
annual basis that it continues to meet the criteria for the exception
based on its trading activity during the preceding calendar year. Where
a member no longer meets the criteria for the exception based on its
trading activity during a given preceding calendar year, the member may
no longer rely on the exception beginning 90 days after the end of such
calendar year, which FINRA believes would provide such members with a
sufficient amount of time to make any systems changes that may be
needed to comply with the amended timestamp requirement.\20\
---------------------------------------------------------------------------
\20\ Under the proposed rule change, once a member's activity
falls outside of the scope of the proposed criteria based on its
trading activity during a given preceding calendar year, such member
generally may no longer rely on the exception beginning 90 days
after the end of such calendar year, irrespective of whether it
again meets the criteria in a subsequent calendar year. However, a
member may consult with FINRA staff regarding the availability of
the exception where the member has changed business lines or
undergone a corporate restructuring that significantly impacts its
level of activity in U.S. Treasury Securities. See Notice, supra
note 3, at 33846 n. 16.
---------------------------------------------------------------------------
Reporting Timeframe Reduction
Under existing Rule 6730(a)(4)(A), transactions in U.S. Treasury
Securities executed on a business day at or after 12:00:00 a.m. Eastern
Time through 5:00:00 p.m. Eastern Time must be reported the same day
during TRACE System Hours, i.e., 8:00:00 a.m. Eastern Time through
6:29:59 p.m. Eastern Time.\21\ A transaction executed on a business day
after 5:00:00 p.m. Eastern Time but before the TRACE system closes can
be reported the same day before the TRACE system closes, but must be
reported no later than the next business day (T+1) during TRACE System
Hours, i.e., 8:00:00 a.m. Eastern Time through 6:29:59 p.m. Eastern
Time, and, if reported on T+1, designated ``as/of'' and include the
date of execution. Finally, a transaction executed on a business day at
or after 6:30:00 p.m. Eastern Time through 11:59:59 p.m. Eastern Time
(or 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) must
be reported the next business day (T+1) during TRACE System Hours,
i.e., 8:00:00 a.m. Eastern Time through 6:29:59 p.m. Eastern Time,
designated ``as/of,'' and include the date of execution.
---------------------------------------------------------------------------
\21\ Under Rule 6710(t), ``TRACE System Hours'' means the hours
the TRACE system is open, which are 8:00:00 a.m. Eastern Time
through 6:29:59 p.m. Eastern Time on a business day, unless
otherwise announced by FINRA.
---------------------------------------------------------------------------
To provide more timely information about transactions in U.S.
Treasury Securities, FINRA is proposing to amend Rule 6730(a)(4) to
reduce the trade reporting timeframe as follows.\22\ Amended Rule
6730(a)(4) would provide that transactions in U.S. Treasury Securities
must be reported as soon as practicable, but no later than the
following time periods.\23\ Amended Rule 6730(a)(4)(A) would require
that a transaction executed on a business day at or after 12:00:00 a.m.
Eastern Time through 7:59:59 a.m. Eastern Time must be reported the
same day no later than 60 minutes after the TRACE system opens. A
transaction executed on a business day at or after the time the TRACE
system opens at 8:00:00 a.m. Eastern Time through when the TRACE system
closes at 6:29:59 p.m. Eastern Time (standard TRACE System Hours) must
be reported within 60 minutes of the Time of Execution, except that a
transaction executed on a business day less than 60 minutes before
6:30:00 p.m. Eastern Time can be reported the same day before the TRACE
system closes, but must be reported no later than 60 minutes after the
TRACE system opens the next business day (T+1), and if reported on T+1,
designated ``as/of'' and include the date of execution. Finally, a
transaction executed on a business day at or after 6:30:00 p.m. Eastern
Time through 11:59:59 p.m. Eastern Time, or 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 (determined using Eastern Time)
must be reported the next business day (T+1) no later than 60 minutes
after the TRACE system opens, designated ``as/of,'' and include the
date of execution.
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\22\ FINRA is not proposing to provide an exception for members
with limited trading activity in U.S. Treasury Securities from the
proposed reduced reporting timeframe requirement. See Notice, supra
note 3, at 33846 n. 18.
\23\ In connection with the proposed changes to Rule 6730(a)(4)
discussed above, the proposed rule change would also make conforming
changes to Supplementary Material .03 to Rule 6730, which sets forth
standards for firms reporting transactions ``as soon as
practicable'' after the Time of Execution in accordance with Rule
6730(a). Existing Rule 6730.03 provides that ``[e]ach member with a
trade reporting obligation pursuant to paragraph (a) above for a
TRACE-Eligible Security that is subject to dissemination must adopt
policies and procedures reasonably designed to comply with the
requirement that transactions in TRACE-Eligible Securities be
reported `as soon as practicable' by implementing systems that
commence the trade reporting process at the Time of Execution
without delay.'' Under the proposed rule change, the ``as soon as
practicable'' standard would also apply to transactions in U.S.
Treasury Securities, which are not subject to dissemination.
Therefore, FINRA is proposing to update the first sentence of Rule
6730.03 to provide that ``[e]ach member with an obligation to report
a transaction in a TRACE-Eligible Security `as soon as practicable'
pursuant to paragraph (a) of this Rule must adopt policies and
procedures reasonably designed to comply with this requirement by
implementing systems that commence the trade reporting process at
the Time of Execution without delay.'' See Notice, supra note 3, at
33846 n. 19.
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FINRA represents that it 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 publication of the Regulatory Notice
announcing Commission approval of the proposed rule change.
III. Discussion and Commission Findings
After careful review of the proposed rule change, the comment
letters, 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.\24\ In particular, the Commission
finds that the proposed rule change is consistent with Section
15A(b)(6) of the Act,\25\ which requires, among other things, that
FINRA's rules be designed to prevent fraudulent and manipulative acts
and practices; promote just and equitable principles of trade, and, in
general, protect investors and the public interest. In particular, the
proposed rule change would enhance the regulatory audit trail for U.S.
Treasury Securities available to FINRA and the official sector and
assist FINRA in carrying out its statutory duties to surveil and
regulate this segment of the market.
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\24\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\25\ 15 U.S.C. 78o-3(b)(6).
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Pursuant to Section 19(b)(5) of the Act,\26\ the Commission
consulted with and considered the views of the Treasury Department in
determining to approve the proposed rule change. The Treasury
Department indicated its
[[Page 54582]]
support for the proposal.\27\ Furthermore, pursuant to Section 19(b)(6)
of the Act,\28\ the Commission has considered the sufficiency and
appropriateness of existing laws and rules applicable to government
securities brokers, government securities dealers, and their associated
persons in approving the proposal.
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\26\ See 15 U.S.C. 78s(b)(5) (providing that the Commission
``shall consult with and consider the views of the Secretary of the
Treasury prior to approving a proposed rule filed by a registered
securities association that primarily concerns conduct related to
transactions in government securities, except where the Commission
determines that an emergency exists requiring expeditious or summary
action and publishes its reasons therefor'').
\27\ See Email from U.S. Treasury Department staff to Justin
Pica, Division of Trading and Markets, Commission (August 25, 2022).
\28\ 15 U.S.C. 78s(b)(6).
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Execution Timestamps
As stated above, FINRA proposes to require members to report
electronically executed transactions in U.S. Treasury Securities to
TRACE in the finest increment captured by the system that executed the
transaction. FINRA also proposes to provide an exception from the
amended execution timestamp provision for members with limited trading
volume in U.S. Treasury Securities. Two commenters raised operational
and technological concerns associated with this proposal \29\ and two
commenters requested clarification to the definition of an
electronically executed transaction.\30\
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\29\ See SIFMA Letter at 3; FIF Letter at 2.
\30\ See SIFMA Letter at 3; FIF Letter at 2.
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FINRA states that it acknowledges the operational and technological
changes that members may need to undertake in order to comply with the
proposed change.\31\ FINRA also states its view that the benefits to
the regulatory audit trail of aligning the timestamps reported to TRACE
with those captured by the relevant execution system are
appropriate.\32\ In response to comments seeking clarification to the
definition of an electronically executed transaction, FINRA notes that
the current timestamp granularity provision in TRACE reporting rules
already applies to transactions that are ``executed electronically''
and further notes that it encourages members to contact FINRA for
guidance on whether a particular transaction would be considered an
electronically executed transaction.\33\
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\31\ See FINRA Response Letter at 4-5.
\32\ See FINRA Response Letter at 5.
\33\ See id.
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The Commission believes that the proposed change to align the level
of granularity provided in TRACE reports with the level of granularity
in the execution systems will enhance the regulatory audit trail for
U.S. Treasury Securities available to FINRA and the official sector by
facilitating more efficient matching and sequencing of transactions in
the audit trail data.\34\ As discussed above, the current rule permits
FINRA members to report a trade to TRACE in an increment of time that
is less precise than that captured by the execution system, which makes
it difficult for FINRA to match and sequence trades. The Commission
believes the proposed change is reasonably designed to address this
concern as FINRA represents that finer time granularity in the audit
trail would allow transactions to be matched more accurately and
sequenced with more precision, thus facilitating trade matching and
sequencing for U.S. Treasury Securities. This, in turn, facilitates
market oversight by providing FINRA and the official sector with more
useful information on U.S. Treasury Security transactions. The
Commission also believes that providing an exception from the amended
execution timestamp requirement for FINRA members with limited trading
volume in U.S. Treasury Securities is appropriate, as the proposed
exception would reduce burdens for FINRA members with limited activity.
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\34\ FINRA represents that, under the existing rule, members may
report a trade to TRACE in an increment of time that is less precise
than that captured by the execution system, which makes it difficult
for FINRA to match interdealer trades when two sides report at
different time granularity because coarse granularity in timestamps
makes sequencing trades less precise. To address this concern, the
proposal requires that, when reporting transactions in U.S. Treasury
Securities executed electronically, members must report the Time of
Execution to the finest increment of time captured by the execution
system, but must report in an increment of time that is no longer
than a second and no shorter than a microsecond. See Notice, supra
note 3, at 33847.
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The Commission recognizes that the proposed change may result in
costs for FINRA members that trade U.S. Treasury Securities where
members must implement changes to their processes and systems for
reporting U.S. Treasury Securities transactions to TRACE. As discussed
above, however, the Commission believes that the important regulatory
purpose served by the proposal justifies the potential burdens. The
Commission also recognizes that the proposed change may also affect
competition among reporting firms, where firms reporting only a limited
number of trades may face the same costs of upgrading their systems and
therefore find their limited trading in U.S. Treasury Securities less
viable. The Commission nevertheless believes that the impact on such
firms is expected to be mitigated by the proposed exception for
eligible FINRA members with limited trading volume, as previously
described.
Reporting Timeframe Reduction
As stated above, FINRA proposes to shorten the reporting timeframe
for transactions in U.S. Treasury Securities. Two commenters support
the proposal to require members to report transactions in U.S. Treasury
Securities to TRACE in a more timely manner.\35\ One commenter suggests
that FINRA postpone implementation of a shorter reporting
timeframe.\36\ This commenter notes several current initiatives related
to TRACE, including the Treasury Department's recent publication of a
Request for Information \37\ (RFI) on additional post-trade
transparency of data regarding secondary market transactions of U.S.
Treasury Securities, and suggests that implementing technological and
operational changes now, followed by the possibility of additional
changes at a later date, would be inefficient and could result in work
that is unnecessary in the long term.\38\
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\35\ See Citadel Letter at 1; FIA Letter at 1-2.
\36\ See SIFMA Letter at 1-2. This commenter also encouraged
FINRA to review the benefits of a shortened reporting timeframe in
light of how FINRA and its regulatory partners are using TRACE data,
and to consider whether that use is impeded by the current reporting
timeframes and whether there are any incremental benefits from a 60-
minute timeframe as opposed to an intermediate interval (such as two
hours, as originally recommended by SIFMA). See id. In response,
FINRA states that the proposal strikes an appropriate balance to
provide FINRA and the official sector with more timely information
about U.S. Treasury Security market activity, noting that members
already report over 90 percent of transactions in U.S. Treasury
Securities within 60 minutes of the Time of Execution. See FINRA
Response Letter at 4.
\37\ See Treasury Department, Notice Seeking Public Comment on
Additional Transparency for Secondary Market Transactions of
Treasury Securities, 87 FR 38259 (June 27, 2022) (Docket No. TREAS-
DO-2022-0012).
\38\ See SIFMA Letter at 2.
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FINRA acknowledges the fact that there are several current TRACE
initiatives \39\ but notes that it does not believe that there is any
conflict presented by advancing the proposal to shorten the reporting
timeframe for transactions in U.S. Treasury Securities and states that
it does not believe that the benefits of a shortened reporting
timeframe for transactions in U.S. Treasury Securities are reduced in
light of these other initiatives.\40\ Further, in response to concerns
that the Treasury Department's RFI could result in a proposal or
recommendation to increase transparency for transactions in U.S.
Treasury Securities,\41\ FINRA notes that prior increases in
transparency provided by TRACE for other fixed income
[[Page 54583]]
products have been preceded by a shortened reporting timeframe.\42\
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\39\ See, e.g., FINRA Regulatory Notice 22-17 (August 2, 2022)
(FINRA Requests Comment on a Proposal to Shorten the Trade Reporting
Timeframe for Transactions in Certain TRACE-Eligible Securities From
15 Minutes to One Minute) available at https://www.finra.org/rules-guidance/notices/22-17.
\40\ See FINRA Response Letter at 3.
\41\ See SIFMA Letter at 2-3
\42\ See FINRA Response Letter at 3. With respect to the U.S.
Treasury Department's RFI, FINRA further states that, should that
initiative result in a proposal or recommendation to increase
transparency for transactions in U.S. Treasury Securities, such a
result would harmonize with a reduced reporting timeframe for U.S.
Treasury Securities. See id.
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The Commission believes that shortening the timeframe for FINRA
members to report transactions in U.S. Treasury Securities to TRACE to
as soon as practicable, but no later than within 60 minutes of the Time
of Execution (or within 60 minutes after the TRACE system opens for
trades executed during specified periods, as described above) will
assist FINRA in carrying out its statutory duties to surveil and
regulate this segment of the market by providing FINRA with more timely
information about activity in the market for U.S. Treasury Securities,
including more timely data about intraday pricing and liquidity.
The Commission recognizes that the proposal may result in costs for
FINRA members that need to implement changes to their processes and
systems. The Commission notes that, according to FINRA, approximately
96 percent of U.S. Treasury Security transaction reports were reported
within 60 minutes of the Time of Execution during a sample period of
July 2020 to June 2021.\43\ In addition, FINRA represents that some
FINRA members who trade in U.S. Treasury Securities also trade in other
types of TRACE-Eligible Securities that already require reporting
within a shorter timeframe.\44\ While these transactions may occur on
separate trading desks, the Commission agrees with FINRA that, to the
extent that members are able to leverage existing technology within the
firm, the costs associated with the proposed reporting timeframe
changes for U.S. Treasury Securities could potentially be reduced. With
respect to comments suggesting that FINRA should review the benefits of
a shortened reporting timeframe in light of how FINRA and its
regulatory partners are using TRACE data,\45\ the Commission agrees
with FINRA's assessment that the proposal strikes an appropriate
balance to provide FINRA and the official sector with more timely
information about U.S. Treasury Security market activity. The
Commission notes that FINRA members already report over 90 percent of
transactions in U.S. Treasury Securities within 60 minutes of the Time
of Execution.\46\
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\43\ See Notice, supra note 3, at 33848.
\44\ For example, FINRA states that transactions in corporate
bonds and Agency Debt Securities generally are required to be
reported to FINRA as soon as practicable, but no later than within
15 minutes of the Time of Execution. In the FINRA sample period, of
the 750 MPIDs that reported transactions in U.S. Treasury
Securities, 691 MPIDs also reported transactions in corporate bonds
and Agency Debt Securities. See Notice, supra note 3, at 33848.
\45\ See supra note 36 and accompanying text.
\46\ See FINRA Response Letter at 4.
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Finally, the Commission believes that it would not be appropriate
to delay implementation of the proposal beyond the timeframe set forth
in the Notice. The Commission agrees with FINRA in its assessment that
the proposal does not conflict with other TRACE-related initiatives and
that the benefits of a shortened reporting timeframe for transactions
in U.S. Treasury Securities are not reduced in light of these other
initiatives. Moreover, the Commission believes that further delaying
implementation of the proposal would undermine the regulatory interest
that the official sector and FINRA have in obtaining access to more
timely information about activity in the market for U.S. Treasury
Securities.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\47\ that the proposed rule change (SR-FINRA-2022-013) is approved.
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\47\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\48\
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\48\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-19112 Filed 9-2-22; 8:45 am]
BILLING CODE 8011-01-P