Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change Relating to Dissemination of Information on Individual Transactions in U.S. Treasury Securities and Related Fees, 77388-77396 [2023-24758]
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Federal Register / Vol. 88, No. 216 / Thursday, November 9, 2023 / Notices
date of filing to allow Eligible Firms to
apply for FINRA membership pursuant
to proposed IM–1013–3 beginning on, or
as close as possible to, the November 6,
2023 effective date of amended
Exchange Act Rule 15b9–1. FINRA
stated that while under the proposed
rule change Eligible Firms must apply
for membership at least 120 days before
the September 6, 2024 compliance date
of amended Exchange Act Rule 15b9–1,
some firms have already inquired about
beginning the application process. For
those firms that wish to apply close to
the effective date, this will also provide
FINRA with additional time to process
such Eligible Firms’ applications and
provide more certainty that they will be
able to continue their business in
compliance with amended Exchange
Act Rule 15b9–1. For these reasons, the
Commission believes that waiving the
30-day operative delay is consistent
with the protection of investors and the
public interest. Therefore, the
Commission hereby waives the
operative delay and designates the
proposal operative upon filing.28
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
All submissions should refer to file
number SR–FINRA–2023–014. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of
FINRA. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–FINRA–2023–014 and should be
submitted on or before November 30,
2023.
IV. Solicitation of Comments
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.29
Sherry R. Haywood,
Assistant Secretary.
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include file number SR–
FINRA–2023–014 on the subject line.
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Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
28 For purposes only of waiving the 30-day
operative delay, the Commission has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
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[FR Doc. 2023–24759 Filed 11–8–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–98859; File No. SR–FINRA–
2023–015]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a
Proposed Rule Change Relating to
Dissemination of Information on
Individual Transactions in U.S.
Treasury Securities and Related Fees
November 3, 2023.
PO 00000
CFR 200.30–3(a)(12).
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Fmt 4703
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
FINRA is proposing to (1) amend
FINRA Rules 6710 and 6750 to provide
that FINRA will disseminate
information on individual transactions
in U.S. Treasury Securities that are Onthe-Run Nominal Coupons reported to
FINRA’s Trade Reporting and
Compliance Engine (‘‘TRACE’’) on an
end-of-day basis with specified
dissemination caps for large trades, and
(2) amend FINRA Rule 7730 to include
U.S. Treasury Securities within the
existing fee structure for end-of-day and
historic TRACE data.
The text of the proposed rule change
is available on FINRA’s website at
https://www.finra.org, at the principal
office of FINRA and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
FINRA included statements concerning
the purpose of and basis for the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. FINRA has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
On July 10, 2017,3 FINRA members
began reporting information on
transactions in U.S. Treasury
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See 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).
2 17
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
29 17
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on November
2, 2023, the Financial Industry
Regulatory Authority, Inc. (‘‘FINRA’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by FINRA. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
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Federal Register / Vol. 88, No. 216 / Thursday, November 9, 2023 / Notices
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Securities 4 to TRACE.5 In addition,
pursuant to requirements adopted by
the Board of Governors of the Federal
Reserve System (the ‘‘Federal Reserve
Board’’), on September 1, 2022, certain
banks that are not FINRA members
(‘‘covered depository institutions’’)
began reporting information on
transactions in specified fixed income
securities, including U.S. Treasury
Securities, to TRACE.6 Information
reported to TRACE regarding individual
transactions in U.S. Treasury Securities
is currently used for regulatory and
other official sector purposes only and
is not disseminated publicly. FINRA
makes the data regarding individual
transactions in U.S. Treasury Securities
available to the official sector to assist
them in the monitoring and analysis of
the U.S. Treasury Security markets.7
Since the commencement of TRACE
reporting for U.S. Treasury Securities,
FINRA has actively studied the reported
data and, in consultation with the
Treasury Department, considered ways
that it can enhance transparency in the
U.S. Treasury Security market. 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.8 In
February 2023, FINRA increased the
cadence of the aggregated volume data
it publishes for U.S. Treasury Securities
4 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.
5 TRACE is the FINRA-developed system that
facilitates the mandatory reporting of over-thecounter transactions in eligible fixed income
securities. See generally Rule 6700 Series.
6 See Agency Information Collection Activities:
Announcement of Board Approval Under Delegated
Authority and Submission to OMB, 86 FR 59716
(October 28, 2021) (Federal Reserve approval to
implement the Treasury Securities and Agency Debt
and Mortgage-Backed Securities Reporting
Requirements (FR 2956; OMB No. 7100–NEW)).
7 The Treasury Department, the Federal Reserve
Board, the Federal Reserve Bank of New York, the
SEC and the U.S. Commodity Futures Trading
Commission (CFTC) comprise the Inter-Agency
Working Group for Treasury Market Surveillance
(IAWG or ‘‘official sector’’).
8 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). FINRA also made
historical weekly aggregate data for transactions in
U.S. Treasury Securities reported since January
2019 available for download on its website.
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to daily, and enhanced the content of
the aggregate data by adding trade
counts and, for On-the-Run Nominal
Coupons,9 volume-weighted average
price information.10
In remarks at the 2022 U.S. Treasury
Market Conference,11 Under Secretary
for Domestic Finance Liang proposed a
policy of publicly releasing secondary
market transaction data for On-the-Run
Nominal Coupons, with end-of-day
dissemination and with appropriate cap
sizes. The Treasury Department’s views
on their policy proposal were informed
by a range of inputs, including
responses to a survey of the primary
dealers, analysis and recommendations
from the Treasury Borrowing Advisory
Committee (‘‘TBAC’’),12 and public
comments submitted in response to its
Request for Information (‘‘RFI’’) on
Additional Transparency for Secondary
Market Transactions of Treasury
Securities.13 The Treasury Department
concluded that transaction-level
transparency can provide important
benefits for the U.S. Treasury Securities
market, but should proceed in a gradual
and calibrated manner to mitigate risks
for large trades or for trades in less
liquid segments of the U.S. Treasury
Securities market. Accordingly, the
Treasury Department recommended that
the next step should be to release
transaction data for On-the-Run
Nominal Coupons, with end-of-day
dissemination and appropriate cap
sizes.14
Consistent with the Treasury
Department’s proposed policy, and in
furtherance of FINRA’s mission as a
national securities association to protect
investors and promote market integrity,
FINRA believes that providing
transaction-level information for trades
9 See infra note 20 and accompanying text for the
proposed definition of ‘‘On-the-Run Nominal
Coupon.’’
10 See Technical Notice, Enhancements to
Aggregated Reports and Statistics for U.S. Treasury
Securities, https://www.finra.org/filing-reporting/
trace/enhancements-weekly-aggregated-reportsstatistics-122822; see also Securities Exchange Act
Release No. 95438 (August 5, 2022), 87 FR 49626
(August 11, 2022) (Order Approving File No. SR–
FINRA–2022–017).
11 Remarks by Under Secretary for Domestic
Finance Nellie Liang at the 2022 Treasury Market
Conference (November 16, 2022), https://
home.treasury.gov/news/press-releases/jy1110
(‘‘Treasury Conference Remarks’’).
12 See Treasury Department, Additional Public
Transparency in Treasury Markets, (November
2022), https://home.treasury.gov/system/files/221/
TBACCharge1Q42022.pdf (‘‘TBAC Findings’’).
13 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).
14 See TBAC Findings, supra note 12, at 28–29;
Treasury Conference Remarks, supra note 11.
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77389
in On-the-Run Nominal Coupons, with
end-of-day dissemination and
appropriate cap sizes, is an appropriate
next step to increase transparency in
transactions in U.S. Treasury Securities.
Accordingly, as described in more detail
below and in consultation with the
Treasury Department, FINRA is
proposing to commence dissemination
of individual transaction information at
this time for On-the-Run Nominal
Coupons,15 on an end-of-day basis with
appropriate dissemination caps for large
trades. The proposed rule change would
not require any reporting changes by
members or covered depository
institutions.
Scope and Timing of Dissemination
Under Rule 6750(a), FINRA
disseminates information on all
transactions in TRACE-Eligible
Securities,16 including transactions
effected pursuant to Securities Act Rule
144A, immediately upon receipt of the
transaction report, except as provided in
paragraphs (b) and (c) of Rule 6750
(Dissemination of Transaction
Information). In relevant part, current
Rule 6750(c)(5) provides that FINRA
will not disseminate information on a
transaction in a TRACE-Eligible
Security that is a U.S. Treasury Security.
Under the proposed rule change,
FINRA would begin disseminating
individual transaction information for
On-the-Run Nominal Coupon U.S.
Treasury Securities on an end-of-day
basis. As for all individual TRACE
transaction information that FINRA
15 The proposed rule change would not affect
FINRA’s existing publication of aggregate U.S.
Treasury Security data. FINRA would continue to
publish daily and monthly aggregate U.S. Treasury
Security data on the same terms as it does today,
which include aggregate data on other types of U.S.
Treasury Securities in addition to On-the-Run
Nominal Coupons. See supra notes 8 and 10 and
accompanying text.
16 Rule 6710(a) generally defines a ‘‘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 Rule 6710(k) or a Government-Sponsored
Enterprise as defined in Rule 6710(n); or (3) a U.S.
Treasury Security as defined in Rule 6710(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 Rule
6710(o). Beginning on November 6, 2023, the
definition of ‘‘TRACE-Eligible Security’’ will be
amended to also include a Foreign Sovereign Debt
Security as defined in new paragraph (kk) of Rule
6710. See FINRA Adopts Amendments to Require
Reporting of Transactions in U.S. DollarDenominated Foreign Sovereign Debt Securities to
TRACE, Regulatory Notice 22–28 (December 2022);
see also Securities Exchange Act Release No. 95465
(August 10, 2022); 87 FR 50354 (August 16, 2022)
(Order Approving File No. SR–FINRA–2022–011)
(‘‘Foreign Sovereign Filing’’).
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Federal Register / Vol. 88, No. 216 / Thursday, November 9, 2023 / Notices
disseminates, the disseminated
transaction information for U.S.
Treasury Securities would be
anonymized, i.e., it would not include
the market participant identifier (MPID)
or other identifying information
regarding the parties to the trade.
However, consistent with other TRACE
products, the disseminated transaction
information would include counterparty
type (i.e., dealer, customer, affiliate, or
alternative trading system (‘‘ATS’’)), a
flag to indicate whether the trade was
executed on an ATS, and other trade
modifiers and indicators. To implement
such dissemination, FINRA is proposing
to amend Rule 6750(c)(5) (to be
redesignated as Rule 6750(d)(5)) to
provide that FINRA will not
disseminate information on a
transaction in a TRACE-Eligible
Security that is a U.S. Treasury Security
‘‘other than an On-the-Run Nominal
Coupon,’’ and to add a new paragraph
(c) to Rule 6750 providing that FINRA
will disseminate information on
individual transactions in On-the-Run
Nominal Coupons on an end-of-day
basis.17 Consistent with the Treasury
Department’s proposed policy, these
proposed amendments to Rule 6750
would provide for FINRA to
disseminate information on individual
transactions in U.S. Treasury Securities
on an end-of-day basis only, rather than
immediately upon receipt of the
transaction report, and would
specifically limit such dissemination to
On-the-Run Nominal Coupons.18 FINRA
believes that disseminating information
on individual transactions in On-theRun Nominal Coupons on an end-of-day
basis at this time would strike an
appropriate balance between enhancing
transparency by providing timely
information to the public about U.S.
Treasury Security market activity and
mitigating potential information leakage
concerns that could arise with a more
accelerated dissemination timeframe,
such as a real-time data feed.19 FINRA
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17 To
accommodate the addition of new paragraph
6750(c), the proposed rule change would
redesignate current Rule 6750(c) as Rule 6750(d),
and make conforming changes to the paragraph
cross-references in Rule 6750(a) and Supplementary
Material .01 to Rule 6750. The proposed rule text
also reflects the inclusion of Rule 6750(c)(6) (to be
redesignated as Rule 6750(d)(6)), which will be
added by the Foreign Sovereign Filing effective
November 6, 2023. See Foreign Sovereign Filing,
supra note 16.
18 The proposed dissemination would include all
transactions in On-the-Run Nominal Coupons
reported to TRACE, including both transactions
reported by FINRA members and transactions
reported by covered depository institutions
pursuant to rulemaking by the Federal Reserve. See
supra note 6 and accompanying text.
19 FINRA members are generally required to
report transactions in U.S. Treasury Securities to
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may in the future consider whether it
would be appropriate to disseminate
information for transactions in U.S.
Treasury Securities on a more
accelerated basis.
To provide clarity regarding the scope
of transactions in U.S. Treasury
Securities that would be subject to
individual dissemination under
amended Rule 6750, FINRA is
proposing to add a definition of ‘‘Onthe-Run Nominal Coupon’’ as new
paragraph (ll) of Rule 6710
(Definitions).20 Specifically, ‘‘On-theRun Nominal Coupon’’ would be
defined to mean the most recently
auctioned U.S. Treasury Security that is
a Treasury note or bond paying fixed
rate nominal coupons starting after the
close of the TRACE system on the day
of its Auction through the close of the
TRACE system on the day of the
Auction of a new issue for the next U.S.
Treasury Security of the same
maturity.21 For further clarity, the
proposed definition would specify that
On-the-Run Nominal Coupons do not
include Treasury bills, STRIPS,
Treasury Inflation-Protected Securities
(TIPS), floating rate notes (FRNs), or any
U.S. Treasury Security that is a Treasury
note or bond paying a fixed rate
nominal coupon that is not the most
recently issued U.S. Treasury Security
of a given maturity (i.e., off-the-run
nominal coupons).22 FINRA believes
this proposed definition is consistent
with Treasury Department usage and
industry practice in categorizing
different types of U.S. Treasury
Securities, and is also consistent with
how FINRA currently categorizes
different U.S. Treasury Securities for
purposes of groupings in its existing
TRACE within 60 minutes of the Time of Execution.
See Rule 6730(a)(4).
20 The proposed paragraph designation for the
new definition of ‘‘On-the-Run Nominal Coupon’’
in Rule 6710 reflects the inclusion of paragraphs (jj)
and (kk) in Rule 6710, which were added,
respectively, by the Corporate Bond New Issue
Reference Data Service Filing (see Securities
Exchange Act Release No. 90939 (January 15, 2021);
86 FR 6922 (January 25, 2021) (Order Approving
File No. SR–FINRA–2019–008)) and Foreign
Sovereign Filing. While the Corporate Bond New
Issue Reference Data Service Filing has not been
implemented, the Foreign Sovereign Filing will
become effective November 6, 2023. See Foreign
Sovereign Filing, supra note 16.
21 Under Rule 6710(gg), ‘‘Auction’’ means the
bidding process by which the Treasury Department
sells marketable securities to the public pursuant to
Part 356 of Title 31 of the Code of Federal
Regulations.
22 FINRA will identify the most recently
auctioned U.S. Treasury Security that is a Treasury
note or bond paying fixed rate nominal coupons as
an ‘‘On-the-Run Nominal Coupon’’ in TRACE
reference data beginning on the business day after
its auction.
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U.S. Treasury Security aggregate data.23
Consistent with the Treasury
Department’s proposed policy, FINRA
believes it is appropriate at this time to
limit dissemination of individual
transaction information to On-the-Run
Nominal Coupons. FINRA may in the
future consider whether it would be
appropriate to disseminate information
for transactions in other types of U.S.
Treasury Securities, such as off-the-run
nominal coupons.
Dissemination Protocols
As described above, under the
proposed rule change all individual
transactions in On-the-Run Nominal
Coupons reported to TRACE on a given
trading day would generally be included
in the end-of-day dissemination file for
such date. However, to further mitigate
concerns around information leakage for
large trades and in consideration of the
different risk and liquidity
characteristics among different U.S.
Treasury Security tenors, FINRA would
implement transaction size
dissemination caps to indicate that the
size of a trade was above a designated
threshold. This approach is consistent
with the Treasury Department’s
proposed policy as well as FINRA’s
existing dissemination protocols for
other types of TRACE-Eligible
Securities.
Accordingly, in consultation with the
Treasury Department, FINRA proposes
to apply the following transaction size
dissemination caps based on the
maturity of the On-the-Run Nominal
Coupon at issuance: 24
• Two Years: $250 million;
• Three Years: $250 million;
• Five Years: $250 million;
• Seven Years: $150 million;
• 10 Years: $150 million;
• 20 Years: $50 million; and
• 30 Years: $50 million.
Thus, for example, a $200 million
transaction in a 10-year On-the-Run
23 Information about the U.S. Treasury Security
aggregate statistics, including security subtypes and
groupings, is available at https://www.finra.org/
finra-data/browse-catalog/about-treasury.
24 FINRA would incorporate information about
these dissemination caps in the TRACE
dissemination protocols published on its website,
available at https://www.finra.org/filing-reporting/
trade-reporting-and-compliance-engine-trace/tracereporting-timeframes. Specifically, information
about the dissemination caps would be added as a
new bullet in the ‘‘Transparency’’ column of the
row of the table describing the protocols for
‘‘Treasury Bonds,’’ to read as follows: ‘‘Individual
transactions in On-the-Run Nominal Coupons are
disseminated on an end-of-day basis with security
identifiers (e.g., CUSIP) and the following
transaction size caps based on the maturity of the
security at issuance: 2 Years: $250 million; 3 Years:
$250 million; 5 Years: $250 million; 7 Years: $150
million; 10 Years: $150 million; 20 Years: $50
million; 30 Years: $50 million.’’
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Federal Register / Vol. 88, No. 216 / Thursday, November 9, 2023 / Notices
Nominal Coupon would be
disseminated with a trade size of
‘‘150MM+’’ rather than the actual dollar
amount of the trade.25 As discussed
further below, FINRA believes these
transaction size caps are appropriately
tailored to mitigate potential
information leakage concerns related to
large transactions given the different
liquidity and concentration
characteristics of the market for each
maturity. In consultation with the
Treasury Department and based on
ongoing analysis of the data, FINRA
may in the future make adjustments to
these dissemination caps to maintain
the appropriate balance between
enhanced transparency and protecting
against potential information leakage
that could negatively impact trading
behaviors. Any proposed future changes
to the dissemination caps would be filed
with the Commission pursuant to
Section 19(b)(1) of the Securities
Exchange Act of 1934.
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Dissemination Fees
FINRA is also proposing amendments
to Rule 7730 (Trade Reporting and
Compliance Engine) to expand the
existing fee framework for the TRACE
End-of-Day Transaction File and the
Historic TRACE Data product to include
data products providing for the
dissemination of information on
individual transactions in On-the-Run
Nominal Coupons. Rule 7730, among
other things, sets forth the TRACE data
products offered by FINRA in
connection with information on TRACEEligible Securities and associated data
fees.
Among other products, Rule 7730
provides for the dissemination of an
End-of-Day TRACE Transaction File and
Historic TRACE Data. Rule 7730(g)(6)
defines the End-of-Day TRACE
Transaction File to mean a daily file that
includes all transaction data
disseminated as part of Real-Time
TRACE transaction data on that day,
which is separately available for each
data set for which Real-Time TRACE
transaction data is available (i.e., the
Corporate Bond Data Set, Agency Data
Set, SP Data Set, and Rule 144A Data
Set) 26 and made available daily after the
25 As described further below, these
dissemination caps would apply for the end-of-day
dissemination file. Consistent with its approach to
other TRACE data products, FINRA also plans to
provide an Historic TRACE data product covering
the same scope of transactions, which would
provide the actual, uncapped transaction sizes on
a six-month delayed basis.
26 These data sets are defined in Rule 7730(c),
which sets forth the market data fees for Real-Time
TRACE transaction data. Under Rule 7730(g)(3),
‘‘Real-Time’’ is defined to mean that period of time
starting from the time of dissemination by FINRA
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TRACE system closes. Rule 7730(g)(4)
defines Historic TRACE Data to mean
historic transaction-level data with
elements to be determined from time to
time by FINRA in its discretion as stated
in a Regulatory Notice or other
equivalent publication, which will not
include market participant identifiers
(MPIDs). Historic TRACE Data is
separately available for each of the
Historic Corporate Bond Data Set, the
Historic Agency Data Set, the Historic
SP Data Set, and the Historic Rule 144A
Data Set, as defined in Rule
7730(g)(4)(A) through (D). Historic
Corporate Bond and Historic Agency
Data is delayed a minimum of six
months, while Historic SP Data is
delayed a minimum of 18 months and
Historic Rule 144A Data carries a delay
consistent with the delay period
applicable to the component security
type (e.g., the delay for a Rule 144A
transaction in a Securitized Product (SP)
is 18 months, while the delay for a Rule
144A transaction in a corporate bond is
six months). Generally, Historic TRACE
Data includes the same transaction
information as provided in the End-ofDay TRACE Transaction File for a given
period of time, except that the End-ofDay TRACE Transaction File includes
dissemination caps for large
transactions while the Historic TRACE
Data includes the actual, uncapped
transaction sizes.
Rule 7730 sets forth, among other
things, the fees applicable to receive the
End-of-Day TRACE Transaction File and
Historic TRACE Data from FINRA,
which apply individually for each data
set (i.e., a separate fee applies for each
of the Corporate Bond Data Set, Agency
Data Set, SP Data Set, and Rule 144A
Data Set). The fee for the End-of-Day
TRACE Transaction File is $750/month
per data set,27 with a lower $250/month
per data set fee available to qualifying
Tax-Exempt Organizations.28 The fee for
Historic TRACE Data is $2,000/calendar
year per data set, with a lower $500/
calendar year per data set fee available
to qualifying Tax-Exempt
Organizations.29 A single fee of $2,000
of transaction data on a TRACE-Eligible Security,
and ending no more than four hours thereafter.
27 There is no charge for receipt of the End-of-Day
TRACE Transaction file for a given data set for a
subscriber to the Vendor Real-Time Data feed for
that data set.
28 For purposes of Rule 7730, a Tax-Exempt
Organization means an organization that is
described in Section 501(c) of the Internal Revenue
Code (26 U.S.C. 501(c)) and has received
recognition of the exemption from federal income
taxes from the Internal Revenue Service. See Rule
7730(g)(2).
29 The $2,000 fee for non-qualifying Tax Exempt
Organizations is applicable where the subscriber
receives the data for internal use and internal and/
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77391
for development and set-up to receive
Historic TRACE Data also applies, with
a lower $1,000 development and set-up
fee available to qualifying Tax-Exempt
Organizations.30
FINRA is proposing that the End-ofDay TRACE Transaction File and
Historic Data include a new set of data
for U.S. Treasury Securities, as outlined
above, with the same fees for the
Treasury data set that exist for other sets
of TRACE-Eligible Securities. To
effectuate these changes, under the
proposed rule change, FINRA would
amend the existing definition of ‘‘Endof-Day TRACE Transaction File’’ in Rule
7730(g)(6) to include the End-of-Day
Transaction File for U.S. Treasury
Securities as a separately available daily
file that includes transaction data for
On-the-Run Nominal Coupons reported
to TRACE on that day.31 FINRA would
similarly amend the definition of
‘‘Historic TRACE Data’’ in Rule
7730(g)(4) to add a new definition of
‘‘Historic Treasury Data Set’’ to include
all historic transactions in On-the-Run
Nominal Coupons reported to TRACE.
Historic Treasury Data would also be
subject to a minimum six-month delay,
as is the case currently for the existing
Historic Corporate Bond and Historic
Agency Data sets.32 The addition of U.S.
Treasury Securities to the current
framework in Rule 7730 for the TRACE
End-of-Day Transaction File and
Historic TRACE Data products would
apply the existing data fees for each
current TRACE data set to the new U.S.
or external display application, but bulk redistribution of data is not permitted at this rate. A
non-qualifying Tax Exempt Organization seeking
bulk re-distribution of the Historic TRACE Data is
instead subject to a fee of $1/CUSIP per calendar
year (or part thereof) within a single data set of
Historic TRACE Data per each recipient of redistributed data, with a maximum fee per data set
of $1,000/calendar year (or part thereof) per each
recipient of re-distributed data. A qualifying TaxExempt Organization is subject to the $500/calendar
year per data set fee for internal use and internal
and/or external display application, with bulk redistribution of data permitted with certain
restrictions.
30 The development and set-up fee is a one-time
fee when a subscriber initially begins receiving
Historic TRACE Data for any data set. The fee does
not apply if a subscriber switches data sets, or adds
additional data sets, of Historic TRACE Data.
31 A clarifying edit would also be made to the first
sentence of Rule 7730(g)(6), which defines End-ofDay TRACE Transaction File for the existing data
sets, to clarify that it applies for Data Sets other
than U.S. Treasury Securities. This change is
necessary because the definition for other Data Sets
is based on data disseminated as part of Real-Time
TRACE transaction data on that day for a given data
set, which will not be applicable for U.S. Treasury
Securities.
32 A conforming change would also be made in
the description of Historic TRACE Data in Rule
7730(d) to add the Historic Treasury Data Set to the
list of data sets comprising Historic TRACE Data.
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Treasury data sets.33 FINRA believes
these fees are reasonable, and notes that,
as for any of the TRACE data sets,
subscribing to each product is optional
for members and others.
FINRA has an expansive and robust
regulatory program regarding U.S.
Treasury Securities, involving TRACE
reporting requirements; dissemination
of aggregate data and, if this filing is
approved, dissemination of individual
transaction data; surveillance and
examination for complete and accurate
reporting; and surveillance,
examinations, and enforcement for
manipulation and other unfair and
prohibited trading practices, both in the
U.S. Treasury Security market and
across markets and products. FINRA to
date has not implemented any
additional fees to recover its
implementation or ongoing operation
costs with respect to its regulatory
programs concerning activity in U.S.
Treasury Securities.34 FINRA continues
to review its revenue and cost structure
and consider ways to fund its operations
in this area. FINRA believes the fees
proposed in the instant filing are
reasonable given the incremental costs
to be incurred by FINRA in developing,
producing, and distributing the new
U.S. Treasury Security data sets and
providing ongoing administrative,
functional, and technical support to
subscribers. However, FINRA notes that
such fees will not, and are not designed
to, recover FINRA’s full costs with
respect to FINRA’s regulatory programs
regarding TRACE for U.S. Treasury
Securities; FINRA intends to further
consider the most appropriate fee
structure(s) to recover these costs.
If the Commission approves the
proposed rule change, FINRA will
announce the effective date of the
proposed rule change in a Regulatory
Notice.
2. Statutory Basis
FINRA believes that the proposed rule
change is consistent with the provisions
of Section 15A(b)(6) of the Act,35 which
requires, among other things, that
FINRA rules must be designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, and, in
ddrumheller on DSK120RN23PROD with NOTICES1
33 As
for other types of TRACE-Eligible Securities,
FINRA also anticipates making transaction
information for On-the-Run Nominal Coupons
available free of charge for personal, noncommercial purposes only through FINRA’s Fixed
Income Data website, available at https://
www.finra.org/finra-data/fixed-income.
34 FINRA notes that, unlike for other types of
TRACE-Eligible Securities, FINRA does not
currently charge reporting fees for transactions in
U.S. Treasury Securities.
35 15 U.S.C. 78o–3(b)(6).
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general, to protect investors and the
public interest, and Section 15A(b)(9) of
the Act,36 which requires that FINRA
rules not impose any burden on
competition that is not necessary or
appropriate. FINRA believes that the
proposal represents an important step in
enhancing transparency in the U.S.
Treasury Securities market, consistent
with the Treasury Department’s
proposed policy, by beginning
dissemination of individual transaction
information in a calibrated and careful
manner, on an end-of-day basis, limited
to On-the-Run Nominal Coupons, and
with appropriate dissemination caps for
large trades. FINRA believes that
providing this data to the public would
improve price transparency for U.S.
Treasury Securities, benefiting liquidity
and resilience in this critical market,
while also mitigating potential
information leakage concerns that could
negatively impact market behavior.
FINRA also believes that the proposed
rule change is consistent with the
provisions of Section 15A(b)(5) of the
Act,37 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. Pursuant to the proposed
rule change, FINRA will establish fees
for (i) the new End-of-Day TRACE
Transaction file for U.S. Treasury
Securities and (ii) the new Historic
TRACE Data product for U.S. Treasury
Securities. In each case, the fees will be
the same as those FINRA already
charges to receive each of the other data
sets for other types of TRACE-Eligible
Securities. FINRA believes these fees are
reasonable and are identical to existing
fees already in place for end-of-day and
historic data products for other types of
TRACE-Eligible Securities. FINRA
further notes that the fees will be
applied equally to all similarly situated
interested parties that choose to
subscribe to either data product, and
that subscribing to these data products
is optional for members and others.
Thus, FINRA believes that the
proposed rule change is in the public
interest and consistent with the Act.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
FINRA does not believe that the
proposed rule change will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
36 15
37 15
PO 00000
U.S.C. 78o–3(b)(9).
U.S.C. 78o–3(b)(5).
Frm 00136
Fmt 4703
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Economic Impact Assessment
FINRA has undertaken an economic
impact assessment, as set forth below, to
further analyze the regulatory need for
the proposed amendments to the
TRACE rules, their potential economic
impacts, and the alternatives considered
in assessing how to best meet FINRA’s
regulatory objectives.
Regulatory Need
Under existing rules, transaction-level
data in U.S. Treasury Securities
reported to TRACE is used for
regulatory and other official sector
purposes and is not publicly
disseminated.38 Currently, market
participants may access some post-trade
information for U.S. Treasury Securities
directly through multiple private
platforms. However, the data provided
by such private platforms is not
comprehensive, its content and format
might vary across venues, and the data
is available only to those trading on a
specific platform or subscribing to its
data services.
FINRA believes that the proposed
amendments relating to dissemination
of individual transaction information for
U.S. Treasury Securities are consistent
with FINRA’s ongoing TRACE
transparency initiatives. The proposal
may create a more level playing field,
increase understanding of market
activity, enhance market liquidity,
reduce transaction costs, and assist in
price efficiency and valuation.
Economic Baseline
FINRA analyzed secondary market
activity in U.S. Treasury Securities from
September 1, 2022, to February 28, 2023
using transactions reported to TRACE.39
During the six-month sample period,
there were 941 unique trade reporters
(904 broker-dealers, 17 ATSs, 15
depository institutions, and five
depository institution customers).40
Table 1 shows that, during the sample
38 As noted, FINRA shares this data with the
IAWG, which includes the Treasury Department,
The Federal Reserve Board, The Federal Reserve
Bank of New York, the SEC, and the CFTC. See
supra note 7.
39 The reported statistics include transactions
reported to TRACE by covered depository
institutions pursuant to Federal Reserve Board
requirements. Beginning September 1, 2022, certain
depository institutions (Covered Depository
Institutions) were required to report transactions in
U.S. Treasury Securities, agency debt securities and
agency mortgage-backed securities (Covered
Securities) to FINRA’s Trade Reporting and
Compliance Engine (TRACE). For more information,
see https://www.finra.org/filing-reporting/trace/
federal-reserve-depository-institution-reporting.
40 Reporting parties were identified using market
participant identifiers (MPIDs). Depository
institution customers are depository institutions
with buy-side activity only.
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Federal Register / Vol. 88, No. 216 / Thursday, November 9, 2023 / Notices
period, there were on average 302,120
trades per day in all U.S. Treasury
Securities with an average daily volume
of approximately $732.01 billion. Daily
trades in Treasury notes and bonds 41 on
average accounted for 77.6 percent of all
daily trades and 74.6 percent of the total
daily dollar volume in all U.S. Treasury
Securities, which also includes bills,
TIPS and STRIPS in addition to notes
and bonds.
TABLE 1—TRADING ACTIVITY IN TREASURY SECURITIES
Number of trades
Type
Average daily
(thousands)
Total .................................................................................................................
Dollar volume
Total
(MM)
Average daily
($B)
Total
($T)
302.12
36.56
732.01
88.57
63.17
234.56
2.82
1.57
7.64
28.38
0.34
0.19
165.89
546.27
16.30
3.55
20.07
66.10
1.97
0.43
83.45
148.87
11.36
58.44
10.10
18.01
1.38
7.07
270.64
301.00
78.65
81.72
32.75
36.42
9.52
9.89
157.14
144.98
19.01
17.54
251.15
480.86
30.39
58.18
Security Type
Bills ..................................................................................................................
Notes & Bonds .................................................................................................
TIPS .................................................................................................................
STRIPS ............................................................................................................
Counterparty Type *
Customer .........................................................................................................
Dealer ..............................................................................................................
Affiliate .............................................................................................................
PTF ..................................................................................................................
Venue
ATS ..................................................................................................................
Non-ATS ..........................................................................................................
* The ‘‘customer’’ counterparty type includes trades between broker-dealers and customers or between covered depository institutions and customers. The ‘‘dealer’’ counterparty type includes interdealer trades, trades between broker-dealers and covered depository institutions, as well as
trades among covered depository institutions. The ‘‘affiliate’’ counterparty type includes trades between broker-dealers and non-member affiliates
or trades between covered depository institutions and non-member affiliates. The ‘‘PTF’’ counterparty type includes trades conducted by principal
trading firms (PTFs) and other non-FINRA members on a ‘‘covered ATS,’’ as defined in FINRA Rule 6730.07.
Further analysis of the data shows
that the average daily number of trades
and average daily dollar volume of Onthe-Run Nominal Coupons were
approximately 166,240 and $392.80
billion respectively which were
substantially higher than the number
and volume of trades in off-the-run
nominal coupons (approximately 68,079
and $150.18 billion respectively).
Table 2 provides more detail
regarding the trades in the On-the-Run
Nominal Coupons that are subject to the
proposed amendments. On-the-Run
Nominal Coupons on average accounted
for approximately 55 percent of the total
daily number of trades and 53.7 percent
of the total daily volume of trades in
U.S. Treasury Securities during the
sample period.42 Separating out the
activity by maturity shows that 5-year
notes are the most actively traded both
in terms of the number and volume of
trades. The analysis also shows active
interdealer trading and electronic
trading, as proxied by ATS volume, in
this market segment and a substantial
volume of trades by non-FINRA
members, such as PTFs, on the ATS
platforms that are subject to Rule
6730.07.43
TABLE 2—TRADING ACTIVITY IN ON-THE-RUN NOMINAL COUPON TREASURY SECURITIES
Number of
trades
Dollar volume
Type
Average daily
(thousands)
Total .................................................................................................................
Average daily
($B)
Total
(MM)
Total
($T)
166.24
20.11
392.80
47.53
21.99
20.19
46.72
13.76
43.95
5.14
2.66
2.44
5.65
1.66
5.32
0.62
60.19
53.27
115.38
31.85
94.24
10.66
7.28
6.45
13.96
3.85
11.40
1.29
ddrumheller on DSK120RN23PROD with NOTICES1
Maturity
2Y .....................................................................................................................
3Y .....................................................................................................................
5Y .....................................................................................................................
7Y .....................................................................................................................
10Y ...................................................................................................................
20Y ...................................................................................................................
41 Treasury notes and bonds include nominal
coupon securities and 2-year FRNs.
42 The average transaction size in these securities
was $2.37 million. The median and the 99th
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percentile are approximately $1 million and $26.76
million, respectively.
43 The proportion of customer and non-ATS
trades are substantially lower in On-the-Run
Nominal Coupons compared to the broader
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Treasury Securities market. Trade sizes for
transactions in U.S. Treasury Securities that occur
on an ATS are, on average, smaller than non-ATS
trades.
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TABLE 2—TRADING ACTIVITY IN ON-THE-RUN NOMINAL COUPON TREASURY SECURITIES—Continued
Number of
trades
Dollar volume
Type
Average daily
(thousands)
30Y ...................................................................................................................
Average daily
($B)
Total
(MM)
Total
($T)
14.50
1.75
27.21
3.29
10.34
90.93
7.02
57.95
1.25
11.00
0.85
7.01
100.87
184.99
33.47
73.48
12.20
22.38
4.05
8.89
130.17
36.07
15.75
4.36
184.87
207.93
22.37
25.16
Counterparty Type
Customer .........................................................................................................
Dealer ..............................................................................................................
Affiliate .............................................................................................................
PTF ..................................................................................................................
Venue
ATS ..................................................................................................................
Non-ATS ..........................................................................................................
Economic Impacts
Given the unique and fundamental
role of the U.S. Treasury Securities
market in the global economy,
promoting the market’s liquidity,
efficient functioning, and resilience in
times of stress is crucial both to
Treasury market participants and the
broader financial system.
The following sections outline the
potential benefits and costs of the
proposed dissemination of end-of-day
and historical transaction-level
information for On-the-Run Nominal
Coupons, with appropriate
dissemination caps for large trades. The
discussion is informed by the public
comments submitted in response to the
Treasury Department’s RFI,44 the Sia
Partners/SIFMA survey results,45 TBAC
Findings,46 and the academic literature.
Anticipated Benefits
While the RFI and survey respondents
expressed mixed opinions on the impact
of increased transparency on market
liquidity and resilience, they broadly
supported a gradual and calibrated
approach to providing additional
transparency in the Treasury Security
market.47 The anticipated benefits
included reducing trading costs,
increasing liquidity, incentivizing
intermediation and promoting
additional participation, increasing
market confidence, enhancing risk
ddrumheller on DSK120RN23PROD with NOTICES1
44 See
supra note 13.
45 See Additional Transparency for Secondary
Market Transactions of Treasury Securities (October
2022), https://www.sifma.org/wp-content/uploads/
2022/10/FINAL-SIA-SIFMA-REPORT-AdditionalTransparency-for-Secondary-Market-Transactionsof-Treasury-Securities.pdf.
46 See TBAC Findings, supra note 12.
47 See, e.g., comment letters from CME Group Inc.
and JPMorgan Chase & Co., available at https://
www.regulations.gov/docket/TREAS-DO-20220012/comments.
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management, and higher market
resilience during times of stress.48 Some
respondents indicated that having
access to transaction-level information
could lead to improved price discovery
and trade execution for both investors
and dealers. Others indicated that
additional transparency would assist
quantitative trading firms as electronic
trading becomes more prevalent.49
The academic literature also provides
insights on the effects of post-trade
transparency in other fixed income
markets and investigates the effect of
transparency on price discovery, market
liquidity, and the welfare of different
classes of market participants. Several
studies found that the transparency
following the initiation of TRACE
resulted in substantially lower trading
costs and bid-ask spreads in the
corporate bond market, not only for
bonds whose trades were disseminated,
but for other bonds as well.50 Studies on
48 See, e.g., comment letters from Spatt, Hollifield
& Neklyudov; Jane Street Capital, LLC; MarketAxess
Holdings Inc.; and Citadel Securities, available at
https://www.regulations.gov/docket/TREAS-DO2022-0012/comments.
49 See Sia Partners/SIFMA survey, supra note 45,
at 9–10.
50 The studies interpret the effect on other bonds
as a ‘‘liquidity spillover’’ where the traded prices
of disseminated bonds provided useful information
for valuing bonds whose trades were not
disseminated. See Hendrik Bessembinder, William
Maxwell & Kumar Venkataraman, Market
Transparency, Liquidity Externalities, and
Institutional Trading Costs in Corporate Bonds,
82(2) Journal of Financial Economics 251–288
(2006); Amy K. Edwards, Lawrence E. Harris &
Michael S. Piwowar, Corporate Bond Market
Transaction Costs and Transparency, 62(3) The
Journal of Finance 1421–1451 (2007); Michael A.
Goldstein, Edith S. Hotchkiss & Erik R. Sirri,
Transparency and Liquidity: A Controlled
Experiment on Corporate Bonds, 20(2) The Review
of Financial Studies 235–273 (2007); Hendrik
Bessembinder & William Maxwell, Markets:
Transparency and the Corporate Bond Market, 22(2)
The Journal of Economic Perspectives 217–234
(2008).
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the impacts of post-trade transparency
in the municipal bond market and
securitized products market also
reported reduced transaction costs as a
result of additional transparency.51
These results are consistent with
investors’ ability to negotiate better
prices in the presence of post-trade
transparency.
FINRA believes that end-of-day public
dissemination of transaction
information on On-the-Run Nominal
Coupons, as described above, would
similarly benefit market participants by
providing access to a single-source,
comprehensive data set, subject to the
proposed fees. The availability of this
information, together with the historic
TRACE data product for U.S. Treasury
Securities, may also prompt further
research and facilitate a better
understanding of the U.S. Treasury
Securities market, ultimately benefiting
investors and other market participants
and providing insight into how to better
support the resiliency of the U.S.
Treasury Securities market in times of
stress.
Anticipated Costs
Market participants (and dealers in
particular) expressed a concern in
response to the Treasury Department’s
RFI and Sia Partners/SIFMA survey that
releasing transaction details could
potentially expose trading strategies or
51 See Erik R. Sirri, Report on Secondary Market
Trading in the Municipal Securities Market (2014),
https://www.msrb.org/sites/default/files/2022-09/
MSRB-Report-on-Secondary-Market-Trading-in-theMunicipal-Securities-Market.pdf; John Chalmers,
Yu Liu & Z. Jay Wang, The Difference a Day Makes:
Timely Disclosure and Trading Efficiency in the
Muni Market, 139(1) Journal of Financial
Economics 313–335 (2021); Paul Schultz &
Zhaogang Song, Transparency and Dealer Networks:
Evidence from the Initiation of Post-Trade
Reporting in the Mortgage Backed Security Market,
133(1) Journal of Financial Economics 113–133
(2019).
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ddrumheller on DSK120RN23PROD with NOTICES1
positions to competitors and impede
dealers’ ability to appropriately manage
risk and confidentially hedge their
positions. If true, this could decrease
intermediaries’ risk-taking capacity and
their willingness to participate, leading
to a decline in liquidity supply and
market resilience during stressed
conditions. These concerns were mostly
directed to the less-liquid market
segments, larger trade sizes, and realtime dissemination.52 Most commenters
and respondents believed that there was
limited risk to the delayed
dissemination of the transaction-level
information for On-the-Run Nominal
Coupons with appropriate transaction
size dissemination caps. Some RFI
commentors indicated that additional
transparency could impact market
participants’ trading behavior by
incentivizing market participants to
engage in smaller size trades or other
behaviors to avoid dissemination, such
as attempting to move flows outside the
U.S. market.53 Generally, the RFI and
survey respondents shared the view that
introducing additional post-trade
transparency in the U.S. Treasury
Securities market requires careful and
prudent implementation to avoid
disrupting market functioning.
The academic papers and industry
reports that studied the impacts of posttrade transparency in other markets
have found evidence of dealers’
reluctance to carry inventory in the
disseminated securities and moving
flow to alternative markets.54 Others
found evidence of difficulty in
executing larger trades, reduced trading
volume and transaction size—
particularly in riskier and less liquid
assets.55
Accordingly, the proposed rule
change incorporates multiple mitigants,
developed in consultation with the
Treasury Department, to address these
52 See, e.g., comment letters from Citigroup
Global Markets Inc.; Vanguard Group, Inc.; and the
joint comment letter from SIFMA, SIFMA AMG,
ABASA, and IIB, available at https://
www.regulations.gov/docket/TREAS-DO-20220012/comments.
53 See TBAC Findings, supra note 12, at 7.
54 See Hendrik Bessembinder & William Maxwell,
Markets: Transparency and the Corporate Bond
Market, 22(2) The Journal of Economic Perspectives
217–234 (2008).
55 See Paul Asquith, Thomas Covert & Parag A.
Pathak, The Effects of Mandatory Transparency in
Financial Market Design: Evidence from the
Corporate Bond Market (2019), available at https://
ssrn.com/abstract=2320623; Bruce Mizrach,
Analysis of Corporate Bond Liquidity (2015),
https://www.finra.org/sites/default/files/OCE_
researchnote_liquidity_2015_12.pdf; Greenwich
Associates, In Search of New Corporate Bond
Liquidity (2016) available at https://
www.greenwich.com/fixed-income-fx-cmds/searchnew-corporate-bond-liquidity; Schultz & Song,
supra note 51.
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concerns. First, the scope of the
proposed rule change is limited to only
transactions in On-the-Run Nominal
Coupons, which are highly liquid.
Second, delayed, end-of-day
dissemination would further protect
market participants against information
leakage. Third, FINRA has conducted
careful analysis and consulted with
Treasury to specify appropriate
transaction size dissemination caps
calibrated to the maturity, liquidity and
trading concentration in the underlying
security to preserve the anonymity of
market participants trading large
transactions. In setting the proposed
transaction size dissemination caps,
FINRA considered both the percentage
of traded market volume that would be
disseminated (versus reported) across
each maturity along with the daily
number of unique intermediaries
trading each security at or above the cap
size for each maturity. This approach
balances providing similar levels of
transparency across maturities with
sensitivity to information leakage
concerns regarding reverse engineering
of other market participants’ identities,
positions, or trading strategies. In this
regard, FINRA analyzed the
concentration of dealer activity and
market liquidity in trades above various
cap sizes in each specific Treasury
maturity.
The proposed dissemination caps
would—across all maturities—result in
0.09 percent of transactions being
capped. Specifically, for the two-year,
three-year, and five-year notes (which
would be subject to a $250 million
dollar cap), 0.08 percent, 0.08 percent,
and 0.03 percent of transactions,
respectively, would be capped upon
dissemination (i.e., because the size of
the trade was greater than $250 million);
for the seven-year and 10-year notes
(which would be subject to a $150
million dollar cap), 0.13 percent and
0.05 percent of transactions,
respectively, would be capped upon
dissemination (i.e., because the size of
the trade was greater than $150 million);
and for the 20-year and 30-year bonds
(which would be subject to a $50
million dollar cap), 0.39 percent and
0.29 percent of transactions,
respectively, would be capped upon
dissemination (i.e., because the size of
the trade was greater than $50 million).
There is no anticipated operational
impact on member firms as a result of
FINRA’s proposed end-of-day and
historical dissemination of On-the-Run
Nominal Coupon data, as reporting
requirements will remain unchanged.
As noted above, the disseminated data
would be available to market
participants for a fee. The proposed fees
PO 00000
Frm 00139
Fmt 4703
Sfmt 4703
77395
for the Treasury data set are the same as
those that exist for other types of
TRACE-Eligible Securities. FINRA does
not anticipate any negative competitive
effects as a result of the proposed fees.
The proposed end-of-day and historical
dissemination of transactions in On-theRun Nominal Coupon U.S. Treasury
Securities, subject to their related fees,
will provide an option for all market
participants, including smaller firms, to
access post-trade transparency in the
U.S. Treasury Securities market at a
reasonable cost. Some market
participants may choose to access the
data indirectly through their data
vendors as the vendors may externally
display the data.56 Those market
participants who choose to access the
data directly through FINRA may incur
an additional cost to set up the
technological infrastructure necessary to
access the data if they are not already
subscribed to other TRACE data
products. On balance, market
participants would only incur costs if
they determine that the benefits of
receiving the data outweigh the costs.
Alternatives Considered
FINRA, in consultation with the
Treasury Department, considered
several alternatives with respect to the
scope of the Treasury Securities that
would be subject to dissemination
under the proposed rule change,
dissemination timeframes, and
transaction size dissemination caps.
Scope of the Treasury Securities Subject
to Dissemination
Regarding the scope of the U.S.
Treasury Securities proposed to be
subject to dissemination, FINRA
considered including off-the-run and
other types of U.S. Treasury Securities.
However, since On-the-Run Nominal
Coupons are both highly liquid and
represent a significant portion of the
Treasury Securities volume, FINRA
believes that disseminating transactionlevel data for On-the-Run Nominal
Coupons would improve Treasury
Securities market transparency with
limited risk for market participants. The
RFI and survey respondents’ concerns
regarding the potential impact of
disseminating transaction data on their
ability to manage their inventory risk
were more pronounced for the lessliquid segments of the market, such as
off-the-run U.S. Treasury Securities.
56 The bulk re-distribution of the data is permitted
subject to a different fee structure or additional
restrictions, as discussed above.
E:\FR\FM\09NON1.SGM
09NON1
77396
Federal Register / Vol. 88, No. 216 / Thursday, November 9, 2023 / Notices
Dissemination Timeframe
FINRA also considered real-time and
less delayed dissemination of
transaction level data as potential
dissemination timeframe alternatives.
However, weighing the potential
benefits of providing the market with
more timely data against concerns about
protecting the confidentiality of market
participants’ positions and trading
strategies, FINRA believes that, on
balance, end-of-day dissemination will
prudently balance the timeliness of
transparency and concerns regarding
potential negative impacts. End-of-day
dissemination will provide FINRA and
others the ability to research the
proposed rule change’s impact.57
FINRA considered setting a single
transaction size dissemination cap
applicable to all transactions in On-theRun Nominal Coupons. However, since
liquidity and trading volume varies
across U.S. Treasury Securities with
different maturities, FINRA, in
consultation with the Treasury
Department, determined that it is
appropriate to propose dissemination
caps that are calibrated to the maturity,
liquidity, interest rate sensitivity, and
trading concentration of the underlying
U.S. Treasury Security.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
ddrumheller on DSK120RN23PROD with NOTICES1
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) by order approve or disapprove
such proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
57 FINRA also notes that covered depository
institutions that report to TRACE pursuant to
Federal Reserve Board requirements generally
report transactions in U.S. Treasury Securities to
TRACE by the end of the day. Thus, not all
transactions in U.S. Treasuries reported to TRACE
are subject to a one-hour timeframe, which is
another factor that FINRA considered in connection
with the proposed rule change.
18:22 Nov 08, 2023
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include file number SR–
FINRA–2023–015 on the subject line.
Paper Comments
Transaction Size Caps
VerDate Sep<11>2014
IV. Solicitation of Comments
Jkt 262001
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to file
number SR–FINRA–2023–015. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–FINRA–2023–015 and should be
submitted on or before November 30,
2023.
PO 00000
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.58
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–24758 Filed 11–8–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
35046; File No. 812–15392]
Kayne Anderson Energy Infrastructure
Fund, Inc., et al.
November 6, 2023.
Securities and Exchange
Commission (‘‘Commission’’ or ‘‘SEC’’).
ACTION: Notice.
AGENCY:
Notice of application for an order
(‘‘Order’’) under sections 17(d) and 57(i)
of the Investment Company Act of 1940
(the ‘‘Act’’) and rule 17d–1 under the
Act to permit certain joint transactions
otherwise prohibited by sections 17(d)
and 57(a)(4) of the Act and rule 17d–1
under the Act.
SUMMARY OF APPLICATION: Applicants
request an order to amend a previous
order granted by the Commission that
permits certain business development
companies (‘‘BDCs’’) and closed-end
management investment companies to
co-invest in portfolio companies with
each other and with certain affiliated
investment entities.
APPLICANTS: Kayne Anderson Energy
Infrastructure Fund, Inc., Kayne
Anderson Nextgen Energy &
Infrastructure, Inc., Kayne Anderson
BDC, Inc., Kayne DL 2021, Inc., Kayne
Anderson Capital Income Partners (QP),
L.P., Kayne Anderson Infrastructure
Income Fund, L.P., Kayne Anderson
Midstream Institutional Fund, L.P.,
Kayne Anderson MLP Fund, L.P., Kayne
Equity Yield Strategies, L.P., Kayne
Simplified Midstream, L.P., Kayne
Senior Credit Fund III, L.P., Kayne
Senior Credit III Offshore Fund, L.P.,
Kayne Liquid Credit Fund, L.P., KA
Credit Advisors, LLC, KA Credit
Advisors II, LLC, KA Fund Advisors,
LLC, Kayne Anderson Capital Advisors,
L.P., Kayne Anderson Fund Advisors,
LLC, Kayne Senior Credit III Manager,
L.P., Kayne Senior Credit Funding III,
LLC, Kayne Senior Credit Funding III
Offshore, LLC, Kayne Senior Credit III
Mini-Master Fund, L.P., Kayne Senior
Credit IV Manager, L.P., Kayne Senior
Credit Fund IV, L.P., Kayne Senior
Credit IV Mini-Master Fund, L.P., Kayne
Senior Credit IV Offshore Fund, L.P.,
58 17
Frm 00140
Fmt 4703
Sfmt 4703
E:\FR\FM\09NON1.SGM
CFR 200.30–3(a)(12).
09NON1
]]>Agencies
[Federal Register Volume 88, Number 216 (Thursday, November 9, 2023)]
[Notices]
[Pages 77388-77396]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-24758]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98859; File No. SR-FINRA-2023-015]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a Proposed Rule Change Relating to
Dissemination of Information on Individual Transactions in U.S.
Treasury Securities and Related Fees
November 3, 2023.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on November 2, 2023, the Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by FINRA. The Commission
is publishing this notice to solicit comments on the proposed rule
change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to (1) amend FINRA Rules 6710 and 6750 to
provide that FINRA will disseminate information on individual
transactions in U.S. Treasury Securities that are On-the-Run Nominal
Coupons reported to FINRA's Trade Reporting and Compliance Engine
(``TRACE'') on an end-of-day basis with specified dissemination caps
for large trades, and (2) amend FINRA Rule 7730 to include U.S.
Treasury Securities within the existing fee structure for end-of-day
and historic TRACE data.
The text of the proposed rule change is available on FINRA's
website at https://www.finra.org, at the principal office of FINRA and
at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, FINRA included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. FINRA has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
On July 10, 2017,\3\ FINRA members began reporting information on
transactions in U.S. Treasury
[[Page 77389]]
Securities \4\ to TRACE.\5\ In addition, pursuant to requirements
adopted by the Board of Governors of the Federal Reserve System (the
``Federal Reserve Board''), on September 1, 2022, certain banks that
are not FINRA members (``covered depository institutions'') began
reporting information on transactions in specified fixed income
securities, including U.S. Treasury Securities, to TRACE.\6\
Information reported to TRACE regarding individual transactions in U.S.
Treasury Securities is currently used for regulatory and other official
sector purposes only and is not disseminated publicly. FINRA makes the
data regarding individual transactions in U.S. Treasury Securities
available to the official sector to assist them in the monitoring and
analysis of the U.S. Treasury Security markets.\7\
---------------------------------------------------------------------------
\3\ See 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).
\4\ 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.
\5\ TRACE is the FINRA-developed system that facilitates the
mandatory reporting of over-the-counter transactions in eligible
fixed income securities. See generally Rule 6700 Series.
\6\ See Agency Information Collection Activities: Announcement
of Board Approval Under Delegated Authority and Submission to OMB,
86 FR 59716 (October 28, 2021) (Federal Reserve approval to
implement the Treasury Securities and Agency Debt and Mortgage-
Backed Securities Reporting Requirements (FR 2956; OMB No. 7100-
NEW)).
\7\ The Treasury Department, the Federal Reserve Board, the
Federal Reserve Bank of New York, the SEC and the U.S. Commodity
Futures Trading Commission (CFTC) comprise the Inter-Agency Working
Group for Treasury Market Surveillance (IAWG or ``official
sector'').
---------------------------------------------------------------------------
Since the commencement of TRACE reporting for U.S. Treasury
Securities, FINRA has actively studied the reported data and, in
consultation with the Treasury Department, considered ways that it can
enhance transparency in the U.S. Treasury Security market. 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.\8\ In
February 2023, FINRA increased the cadence of the aggregated volume
data it publishes for U.S. Treasury Securities to daily, and enhanced
the content of the aggregate data by adding trade counts and, for On-
the-Run Nominal Coupons,\9\ volume-weighted average price
information.\10\
---------------------------------------------------------------------------
\8\ 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). FINRA also made historical
weekly aggregate data for transactions in U.S. Treasury Securities
reported since January 2019 available for download on its website.
\9\ See infra note 20 and accompanying text for the proposed
definition of ``On-the-Run Nominal Coupon.''
\10\ See Technical Notice, Enhancements to Aggregated Reports
and Statistics for U.S. Treasury Securities, https://www.finra.org/filing-reporting/trace/enhancements-weekly-aggregated-reports-statistics-122822; see also Securities Exchange Act Release No.
95438 (August 5, 2022), 87 FR 49626 (August 11, 2022) (Order
Approving File No. SR-FINRA-2022-017).
---------------------------------------------------------------------------
In remarks at the 2022 U.S. Treasury Market Conference,\11\ Under
Secretary for Domestic Finance Liang proposed a policy of publicly
releasing secondary market transaction data for On-the-Run Nominal
Coupons, with end-of-day dissemination and with appropriate cap sizes.
The Treasury Department's views on their policy proposal were informed
by a range of inputs, including responses to a survey of the primary
dealers, analysis and recommendations from the Treasury Borrowing
Advisory Committee (``TBAC''),\12\ and public comments submitted in
response to its Request for Information (``RFI'') on Additional
Transparency for Secondary Market Transactions of Treasury
Securities.\13\ The Treasury Department concluded that transaction-
level transparency can provide important benefits for the U.S. Treasury
Securities market, but should proceed in a gradual and calibrated
manner to mitigate risks for large trades or for trades in less liquid
segments of the U.S. Treasury Securities market. Accordingly, the
Treasury Department recommended that the next step should be to release
transaction data for On-the-Run Nominal Coupons, with end-of-day
dissemination and appropriate cap sizes.\14\
---------------------------------------------------------------------------
\11\ Remarks by Under Secretary for Domestic Finance Nellie
Liang at the 2022 Treasury Market Conference (November 16, 2022),
https://home.treasury.gov/news/press-releases/jy1110 (``Treasury
Conference Remarks'').
\12\ See Treasury Department, Additional Public Transparency in
Treasury Markets, (November 2022), https://home.treasury.gov/system/files/221/TBACCharge1Q42022.pdf (``TBAC Findings'').
\13\ 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).
\14\ See TBAC Findings, supra note 12, at 28-29; Treasury
Conference Remarks, supra note 11.
---------------------------------------------------------------------------
Consistent with the Treasury Department's proposed policy, and in
furtherance of FINRA's mission as a national securities association to
protect investors and promote market integrity, FINRA believes that
providing transaction-level information for trades in On-the-Run
Nominal Coupons, with end-of-day dissemination and appropriate cap
sizes, is an appropriate next step to increase transparency in
transactions in U.S. Treasury Securities. Accordingly, as described in
more detail below and in consultation with the Treasury Department,
FINRA is proposing to commence dissemination of individual transaction
information at this time for On-the-Run Nominal Coupons,\15\ on an end-
of-day basis with appropriate dissemination caps for large trades. The
proposed rule change would not require any reporting changes by members
or covered depository institutions.
---------------------------------------------------------------------------
\15\ The proposed rule change would not affect FINRA's existing
publication of aggregate U.S. Treasury Security data. FINRA would
continue to publish daily and monthly aggregate U.S. Treasury
Security data on the same terms as it does today, which include
aggregate data on other types of U.S. Treasury Securities in
addition to On-the-Run Nominal Coupons. See supra notes 8 and 10 and
accompanying text.
---------------------------------------------------------------------------
Scope and Timing of Dissemination
Under Rule 6750(a), FINRA disseminates information on all
transactions in TRACE-Eligible Securities,\16\ including transactions
effected pursuant to Securities Act Rule 144A, immediately upon receipt
of the transaction report, except as provided in paragraphs (b) and (c)
of Rule 6750 (Dissemination of Transaction Information). In relevant
part, current Rule 6750(c)(5) provides that FINRA will not disseminate
information on a transaction in a TRACE-Eligible Security that is a
U.S. Treasury Security.
---------------------------------------------------------------------------
\16\ Rule 6710(a) generally defines a ``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 Rule 6710(k) or a
Government-Sponsored Enterprise as defined in Rule 6710(n); or (3) a
U.S. Treasury Security as defined in Rule 6710(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 Rule
6710(o). Beginning on November 6, 2023, the definition of ``TRACE-
Eligible Security'' will be amended to also include a Foreign
Sovereign Debt Security as defined in new paragraph (kk) of Rule
6710. See FINRA Adopts Amendments to Require Reporting of
Transactions in U.S. Dollar-Denominated Foreign Sovereign Debt
Securities to TRACE, Regulatory Notice 22-28 (December 2022); see
also Securities Exchange Act Release No. 95465 (August 10, 2022); 87
FR 50354 (August 16, 2022) (Order Approving File No. SR-FINRA-2022-
011) (``Foreign Sovereign Filing'').
---------------------------------------------------------------------------
Under the proposed rule change, FINRA would begin disseminating
individual transaction information for On-the-Run Nominal Coupon U.S.
Treasury Securities on an end-of-day basis. As for all individual TRACE
transaction information that FINRA
[[Page 77390]]
disseminates, the disseminated transaction information for U.S.
Treasury Securities would be anonymized, i.e., it would not include the
market participant identifier (MPID) or other identifying information
regarding the parties to the trade. However, consistent with other
TRACE products, the disseminated transaction information would include
counterparty type (i.e., dealer, customer, affiliate, or alternative
trading system (``ATS'')), a flag to indicate whether the trade was
executed on an ATS, and other trade modifiers and indicators. To
implement such dissemination, FINRA is proposing to amend Rule
6750(c)(5) (to be redesignated as Rule 6750(d)(5)) to provide that
FINRA will not disseminate information on a transaction in a TRACE-
Eligible Security that is a U.S. Treasury Security ``other than an On-
the-Run Nominal Coupon,'' and to add a new paragraph (c) to Rule 6750
providing that FINRA will disseminate information on individual
transactions in On-the-Run Nominal Coupons on an end-of-day basis.\17\
Consistent with the Treasury Department's proposed policy, these
proposed amendments to Rule 6750 would provide for FINRA to disseminate
information on individual transactions in U.S. Treasury Securities on
an end-of-day basis only, rather than immediately upon receipt of the
transaction report, and would specifically limit such dissemination to
On-the-Run Nominal Coupons.\18\ FINRA believes that disseminating
information on individual transactions in On-the-Run Nominal Coupons on
an end-of-day basis at this time would strike an appropriate balance
between enhancing transparency by providing timely information to the
public about U.S. Treasury Security market activity and mitigating
potential information leakage concerns that could arise with a more
accelerated dissemination timeframe, such as a real-time data feed.\19\
FINRA may in the future consider whether it would be appropriate to
disseminate information for transactions in U.S. Treasury Securities on
a more accelerated basis.
---------------------------------------------------------------------------
\17\ To accommodate the addition of new paragraph 6750(c), the
proposed rule change would redesignate current Rule 6750(c) as Rule
6750(d), and make conforming changes to the paragraph cross-
references in Rule 6750(a) and Supplementary Material .01 to Rule
6750. The proposed rule text also reflects the inclusion of Rule
6750(c)(6) (to be redesignated as Rule 6750(d)(6)), which will be
added by the Foreign Sovereign Filing effective November 6, 2023.
See Foreign Sovereign Filing, supra note 16.
\18\ The proposed dissemination would include all transactions
in On-the-Run Nominal Coupons reported to TRACE, including both
transactions reported by FINRA members and transactions reported by
covered depository institutions pursuant to rulemaking by the
Federal Reserve. See supra note 6 and accompanying text.
\19\ FINRA members are generally required to report transactions
in U.S. Treasury Securities to TRACE within 60 minutes of the Time
of Execution. See Rule 6730(a)(4).
---------------------------------------------------------------------------
To provide clarity regarding the scope of transactions in U.S.
Treasury Securities that would be subject to individual dissemination
under amended Rule 6750, FINRA is proposing to add a definition of
``On-the-Run Nominal Coupon'' as new paragraph (ll) of Rule 6710
(Definitions).\20\ Specifically, ``On-the-Run Nominal Coupon'' would be
defined to mean the most recently auctioned U.S. Treasury Security that
is a Treasury note or bond paying fixed rate nominal coupons starting
after the close of the TRACE system on the day of its Auction through
the close of the TRACE system on the day of the Auction of a new issue
for the next U.S. Treasury Security of the same maturity.\21\ For
further clarity, the proposed definition would specify that On-the-Run
Nominal Coupons do not include Treasury bills, STRIPS, Treasury
Inflation-Protected Securities (TIPS), floating rate notes (FRNs), or
any U.S. Treasury Security that is a Treasury note or bond paying a
fixed rate nominal coupon that is not the most recently issued U.S.
Treasury Security of a given maturity (i.e., off-the-run nominal
coupons).\22\ FINRA believes this proposed definition is consistent
with Treasury Department usage and industry practice in categorizing
different types of U.S. Treasury Securities, and is also consistent
with how FINRA currently categorizes different U.S. Treasury Securities
for purposes of groupings in its existing U.S. Treasury Security
aggregate data.\23\ Consistent with the Treasury Department's proposed
policy, FINRA believes it is appropriate at this time to limit
dissemination of individual transaction information to On-the-Run
Nominal Coupons. FINRA may in the future consider whether it would be
appropriate to disseminate information for transactions in other types
of U.S. Treasury Securities, such as off-the-run nominal coupons.
---------------------------------------------------------------------------
\20\ The proposed paragraph designation for the new definition
of ``On-the-Run Nominal Coupon'' in Rule 6710 reflects the inclusion
of paragraphs (jj) and (kk) in Rule 6710, which were added,
respectively, by the Corporate Bond New Issue Reference Data Service
Filing (see Securities Exchange Act Release No. 90939 (January 15,
2021); 86 FR 6922 (January 25, 2021) (Order Approving File No. SR-
FINRA-2019-008)) and Foreign Sovereign Filing. While the Corporate
Bond New Issue Reference Data Service Filing has not been
implemented, the Foreign Sovereign Filing will become effective
November 6, 2023. See Foreign Sovereign Filing, supra note 16.
\21\ Under Rule 6710(gg), ``Auction'' means the bidding process
by which the Treasury Department sells marketable securities to the
public pursuant to Part 356 of Title 31 of the Code of Federal
Regulations.
\22\ FINRA will identify the most recently auctioned U.S.
Treasury Security that is a Treasury note or bond paying fixed rate
nominal coupons as an ``On-the-Run Nominal Coupon'' in TRACE
reference data beginning on the business day after its auction.
\23\ Information about the U.S. Treasury Security aggregate
statistics, including security subtypes and groupings, is available
at https://www.finra.org/finra-data/browse-catalog/about-treasury.
---------------------------------------------------------------------------
Dissemination Protocols
As described above, under the proposed rule change all individual
transactions in On-the-Run Nominal Coupons reported to TRACE on a given
trading day would generally be included in the end-of-day dissemination
file for such date. However, to further mitigate concerns around
information leakage for large trades and in consideration of the
different risk and liquidity characteristics among different U.S.
Treasury Security tenors, FINRA would implement transaction size
dissemination caps to indicate that the size of a trade was above a
designated threshold. This approach is consistent with the Treasury
Department's proposed policy as well as FINRA's existing dissemination
protocols for other types of TRACE-Eligible Securities.
Accordingly, in consultation with the Treasury Department, FINRA
proposes to apply the following transaction size dissemination caps
based on the maturity of the On-the-Run Nominal Coupon at issuance:
\24\
---------------------------------------------------------------------------
\24\ FINRA would incorporate information about these
dissemination caps in the TRACE dissemination protocols published on
its website, available at https://www.finra.org/filing-reporting/trade-reporting-and-compliance-engine-trace/trace-reporting-timeframes. Specifically, information about the dissemination caps
would be added as a new bullet in the ``Transparency'' column of the
row of the table describing the protocols for ``Treasury Bonds,'' to
read as follows: ``Individual transactions in On-the-Run Nominal
Coupons are disseminated on an end-of-day basis with security
identifiers (e.g., CUSIP) and the following transaction size caps
based on the maturity of the security at issuance: 2 Years: $250
million; 3 Years: $250 million; 5 Years: $250 million; 7 Years: $150
million; 10 Years: $150 million; 20 Years: $50 million; 30 Years:
$50 million.''
---------------------------------------------------------------------------
Two Years: $250 million;
Three Years: $250 million;
Five Years: $250 million;
Seven Years: $150 million;
10 Years: $150 million;
20 Years: $50 million; and
30 Years: $50 million.
Thus, for example, a $200 million transaction in a 10-year On-the-
Run
[[Page 77391]]
Nominal Coupon would be disseminated with a trade size of ``150MM+''
rather than the actual dollar amount of the trade.\25\ As discussed
further below, FINRA believes these transaction size caps are
appropriately tailored to mitigate potential information leakage
concerns related to large transactions given the different liquidity
and concentration characteristics of the market for each maturity. In
consultation with the Treasury Department and based on ongoing analysis
of the data, FINRA may in the future make adjustments to these
dissemination caps to maintain the appropriate balance between enhanced
transparency and protecting against potential information leakage that
could negatively impact trading behaviors. Any proposed future changes
to the dissemination caps would be filed with the Commission pursuant
to Section 19(b)(1) of the Securities Exchange Act of 1934.
---------------------------------------------------------------------------
\25\ As described further below, these dissemination caps would
apply for the end-of-day dissemination file. Consistent with its
approach to other TRACE data products, FINRA also plans to provide
an Historic TRACE data product covering the same scope of
transactions, which would provide the actual, uncapped transaction
sizes on a six-month delayed basis.
---------------------------------------------------------------------------
Dissemination Fees
FINRA is also proposing amendments to Rule 7730 (Trade Reporting
and Compliance Engine) to expand the existing fee framework for the
TRACE End-of-Day Transaction File and the Historic TRACE Data product
to include data products providing for the dissemination of information
on individual transactions in On-the-Run Nominal Coupons. Rule 7730,
among other things, sets forth the TRACE data products offered by FINRA
in connection with information on TRACE-Eligible Securities and
associated data fees.
Among other products, Rule 7730 provides for the dissemination of
an End-of-Day TRACE Transaction File and Historic TRACE Data. Rule
7730(g)(6) defines the End-of-Day TRACE Transaction File to mean a
daily file that includes all transaction data disseminated as part of
Real-Time TRACE transaction data on that day, which is separately
available for each data set for which Real-Time TRACE transaction data
is available (i.e., the Corporate Bond Data Set, Agency Data Set, SP
Data Set, and Rule 144A Data Set) \26\ and made available daily after
the TRACE system closes. Rule 7730(g)(4) defines Historic TRACE Data to
mean historic transaction-level data with elements to be determined
from time to time by FINRA in its discretion as stated in a Regulatory
Notice or other equivalent publication, which will not include market
participant identifiers (MPIDs). Historic TRACE Data is separately
available for each of the Historic Corporate Bond Data Set, the
Historic Agency Data Set, the Historic SP Data Set, and the Historic
Rule 144A Data Set, as defined in Rule 7730(g)(4)(A) through (D).
Historic Corporate Bond and Historic Agency Data is delayed a minimum
of six months, while Historic SP Data is delayed a minimum of 18 months
and Historic Rule 144A Data carries a delay consistent with the delay
period applicable to the component security type (e.g., the delay for a
Rule 144A transaction in a Securitized Product (SP) is 18 months, while
the delay for a Rule 144A transaction in a corporate bond is six
months). Generally, Historic TRACE Data includes the same transaction
information as provided in the End-of-Day TRACE Transaction File for a
given period of time, except that the End-of-Day TRACE Transaction File
includes dissemination caps for large transactions while the Historic
TRACE Data includes the actual, uncapped transaction sizes.
---------------------------------------------------------------------------
\26\ These data sets are defined in Rule 7730(c), which sets
forth the market data fees for Real-Time TRACE transaction data.
Under Rule 7730(g)(3), ``Real-Time'' is defined to mean that period
of time starting from the time of dissemination by FINRA of
transaction data on a TRACE-Eligible Security, and ending no more
than four hours thereafter.
---------------------------------------------------------------------------
Rule 7730 sets forth, among other things, the fees applicable to
receive the End-of-Day TRACE Transaction File and Historic TRACE Data
from FINRA, which apply individually for each data set (i.e., a
separate fee applies for each of the Corporate Bond Data Set, Agency
Data Set, SP Data Set, and Rule 144A Data Set). The fee for the End-of-
Day TRACE Transaction File is $750/month per data set,\27\ with a lower
$250/month per data set fee available to qualifying Tax-Exempt
Organizations.\28\ The fee for Historic TRACE Data is $2,000/calendar
year per data set, with a lower $500/calendar year per data set fee
available to qualifying Tax-Exempt Organizations.\29\ A single fee of
$2,000 for development and set-up to receive Historic TRACE Data also
applies, with a lower $1,000 development and set-up fee available to
qualifying Tax-Exempt Organizations.\30\
---------------------------------------------------------------------------
\27\ There is no charge for receipt of the End-of-Day TRACE
Transaction file for a given data set for a subscriber to the Vendor
Real-Time Data feed for that data set.
\28\ For purposes of Rule 7730, a Tax-Exempt Organization means
an organization that is described in Section 501(c) of the Internal
Revenue Code (26 U.S.C. 501(c)) and has received recognition of the
exemption from federal income taxes from the Internal Revenue
Service. See Rule 7730(g)(2).
\29\ The $2,000 fee for non-qualifying Tax Exempt Organizations
is applicable where the subscriber receives the data for internal
use and internal and/or external display application, but bulk re-
distribution of data is not permitted at this rate. A non-qualifying
Tax Exempt Organization seeking bulk re-distribution of the Historic
TRACE Data is instead subject to a fee of $1/CUSIP per calendar year
(or part thereof) within a single data set of Historic TRACE Data
per each recipient of re-distributed data, with a maximum fee per
data set of $1,000/calendar year (or part thereof) per each
recipient of re-distributed data. A qualifying Tax-Exempt
Organization is subject to the $500/calendar year per data set fee
for internal use and internal and/or external display application,
with bulk re-distribution of data permitted with certain
restrictions.
\30\ The development and set-up fee is a one-time fee when a
subscriber initially begins receiving Historic TRACE Data for any
data set. The fee does not apply if a subscriber switches data sets,
or adds additional data sets, of Historic TRACE Data.
---------------------------------------------------------------------------
FINRA is proposing that the End-of-Day TRACE Transaction File and
Historic Data include a new set of data for U.S. Treasury Securities,
as outlined above, with the same fees for the Treasury data set that
exist for other sets of TRACE-Eligible Securities. To effectuate these
changes, under the proposed rule change, FINRA would amend the existing
definition of ``End-of-Day TRACE Transaction File'' in Rule 7730(g)(6)
to include the End-of-Day Transaction File for U.S. Treasury Securities
as a separately available daily file that includes transaction data for
On-the-Run Nominal Coupons reported to TRACE on that day.\31\ FINRA
would similarly amend the definition of ``Historic TRACE Data'' in Rule
7730(g)(4) to add a new definition of ``Historic Treasury Data Set'' to
include all historic transactions in On-the-Run Nominal Coupons
reported to TRACE. Historic Treasury Data would also be subject to a
minimum six-month delay, as is the case currently for the existing
Historic Corporate Bond and Historic Agency Data sets.\32\ The addition
of U.S. Treasury Securities to the current framework in Rule 7730 for
the TRACE End-of-Day Transaction File and Historic TRACE Data products
would apply the existing data fees for each current TRACE data set to
the new U.S.
[[Page 77392]]
Treasury data sets.\33\ FINRA believes these fees are reasonable, and
notes that, as for any of the TRACE data sets, subscribing to each
product is optional for members and others.
---------------------------------------------------------------------------
\31\ A clarifying edit would also be made to the first sentence
of Rule 7730(g)(6), which defines End-of-Day TRACE Transaction File
for the existing data sets, to clarify that it applies for Data Sets
other than U.S. Treasury Securities. This change is necessary
because the definition for other Data Sets is based on data
disseminated as part of Real-Time TRACE transaction data on that day
for a given data set, which will not be applicable for U.S. Treasury
Securities.
\32\ A conforming change would also be made in the description
of Historic TRACE Data in Rule 7730(d) to add the Historic Treasury
Data Set to the list of data sets comprising Historic TRACE Data.
\33\ As for other types of TRACE-Eligible Securities, FINRA also
anticipates making transaction information for On-the-Run Nominal
Coupons available free of charge for personal, non-commercial
purposes only through FINRA's Fixed Income Data website, available
at https://www.finra.org/finra-data/fixed-income.
---------------------------------------------------------------------------
FINRA has an expansive and robust regulatory program regarding U.S.
Treasury Securities, involving TRACE reporting requirements;
dissemination of aggregate data and, if this filing is approved,
dissemination of individual transaction data; surveillance and
examination for complete and accurate reporting; and surveillance,
examinations, and enforcement for manipulation and other unfair and
prohibited trading practices, both in the U.S. Treasury Security market
and across markets and products. FINRA to date has not implemented any
additional fees to recover its implementation or ongoing operation
costs with respect to its regulatory programs concerning activity in
U.S. Treasury Securities.\34\ FINRA continues to review its revenue and
cost structure and consider ways to fund its operations in this area.
FINRA believes the fees proposed in the instant filing are reasonable
given the incremental costs to be incurred by FINRA in developing,
producing, and distributing the new U.S. Treasury Security data sets
and providing ongoing administrative, functional, and technical support
to subscribers. However, FINRA notes that such fees will not, and are
not designed to, recover FINRA's full costs with respect to FINRA's
regulatory programs regarding TRACE for U.S. Treasury Securities; FINRA
intends to further consider the most appropriate fee structure(s) to
recover these costs.
---------------------------------------------------------------------------
\34\ FINRA notes that, unlike for other types of TRACE-Eligible
Securities, FINRA does not currently charge reporting fees for
transactions in U.S. Treasury Securities.
---------------------------------------------------------------------------
If the Commission approves the proposed rule change, FINRA will
announce the effective date of the proposed rule change in a Regulatory
Notice.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\35\ which requires, among
other things, that FINRA rules must be designed to prevent fraudulent
and manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest, and Section 15A(b)(9) of the Act,\36\ which requires
that FINRA rules not impose any burden on competition that is not
necessary or appropriate. FINRA believes that the proposal represents
an important step in enhancing transparency in the U.S. Treasury
Securities market, consistent with the Treasury Department's proposed
policy, by beginning dissemination of individual transaction
information in a calibrated and careful manner, on an end-of-day basis,
limited to On-the-Run Nominal Coupons, and with appropriate
dissemination caps for large trades. FINRA believes that providing this
data to the public would improve price transparency for U.S. Treasury
Securities, benefiting liquidity and resilience in this critical
market, while also mitigating potential information leakage concerns
that could negatively impact market behavior.
---------------------------------------------------------------------------
\35\ 15 U.S.C. 78o-3(b)(6).
\36\ 15 U.S.C. 78o-3(b)(9).
---------------------------------------------------------------------------
FINRA also believes that the proposed rule change is consistent
with the provisions of Section 15A(b)(5) of the Act,\37\ 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. Pursuant to the proposed rule change, FINRA
will establish fees for (i) the new End-of-Day TRACE Transaction file
for U.S. Treasury Securities and (ii) the new Historic TRACE Data
product for U.S. Treasury Securities. In each case, the fees will be
the same as those FINRA already charges to receive each of the other
data sets for other types of TRACE-Eligible Securities. FINRA believes
these fees are reasonable and are identical to existing fees already in
place for end-of-day and historic data products for other types of
TRACE-Eligible Securities. FINRA further notes that the fees will be
applied equally to all similarly situated interested parties that
choose to subscribe to either data product, and that subscribing to
these data products is optional for members and others.
---------------------------------------------------------------------------
\37\ 15 U.S.C. 78o-3(b)(5).
---------------------------------------------------------------------------
Thus, FINRA believes that the proposed rule change is in the public
interest and consistent with the Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
FINRA does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
Economic Impact Assessment
FINRA has undertaken an economic impact assessment, as set forth
below, to further analyze the regulatory need for the proposed
amendments to the TRACE rules, their potential economic impacts, and
the alternatives considered in assessing how to best meet FINRA's
regulatory objectives.
Regulatory Need
Under existing rules, transaction-level data in U.S. Treasury
Securities reported to TRACE is used for regulatory and other official
sector purposes and is not publicly disseminated.\38\ Currently, market
participants may access some post-trade information for U.S. Treasury
Securities directly through multiple private platforms. However, the
data provided by such private platforms is not comprehensive, its
content and format might vary across venues, and the data is available
only to those trading on a specific platform or subscribing to its data
services.
---------------------------------------------------------------------------
\38\ As noted, FINRA shares this data with the IAWG, which
includes the Treasury Department, The Federal Reserve Board, The
Federal Reserve Bank of New York, the SEC, and the CFTC. See supra
note 7.
---------------------------------------------------------------------------
FINRA believes that the proposed amendments relating to
dissemination of individual transaction information for U.S. Treasury
Securities are consistent with FINRA's ongoing TRACE transparency
initiatives. The proposal may create a more level playing field,
increase understanding of market activity, enhance market liquidity,
reduce transaction costs, and assist in price efficiency and valuation.
Economic Baseline
FINRA analyzed secondary market activity in U.S. Treasury
Securities from September 1, 2022, to February 28, 2023 using
transactions reported to TRACE.\39\ During the six-month sample period,
there were 941 unique trade reporters (904 broker-dealers, 17 ATSs, 15
depository institutions, and five depository institution
customers).\40\ Table 1 shows that, during the sample
[[Page 77393]]
period, there were on average 302,120 trades per day in all U.S.
Treasury Securities with an average daily volume of approximately
$732.01 billion. Daily trades in Treasury notes and bonds \41\ on
average accounted for 77.6 percent of all daily trades and 74.6 percent
of the total daily dollar volume in all U.S. Treasury Securities, which
also includes bills, TIPS and STRIPS in addition to notes and bonds.
---------------------------------------------------------------------------
\39\ The reported statistics include transactions reported to
TRACE by covered depository institutions pursuant to Federal Reserve
Board requirements. Beginning September 1, 2022, certain depository
institutions (Covered Depository Institutions) were required to
report transactions in U.S. Treasury Securities, agency debt
securities and agency mortgage-backed securities (Covered
Securities) to FINRA's Trade Reporting and Compliance Engine
(TRACE). For more information, see https://www.finra.org/filing-reporting/trace/federal-reserve-depository-institution-reporting.
\40\ Reporting parties were identified using market participant
identifiers (MPIDs). Depository institution customers are depository
institutions with buy-side activity only.
\41\ Treasury notes and bonds include nominal coupon securities
and 2-year FRNs.
Table 1--Trading Activity in Treasury Securities
----------------------------------------------------------------------------------------------------------------
Number of trades Dollar volume
---------------------------------------------------------------
Type Average daily Average daily
(thousands) Total (MM) ($B) Total ($T)
----------------------------------------------------------------------------------------------------------------
Total........................................... 302.12 36.56 732.01 88.57
----------------------------------------------------------------------------------------------------------------
Security Type
----------------------------------------------------------------------------------------------------------------
Bills........................................... 63.17 7.64 165.89 20.07
Notes & Bonds................................... 234.56 28.38 546.27 66.10
TIPS............................................ 2.82 0.34 16.30 1.97
STRIPS.......................................... 1.57 0.19 3.55 0.43
----------------------------------------------------------------------------------------------------------------
Counterparty Type *
----------------------------------------------------------------------------------------------------------------
Customer........................................ 83.45 10.10 270.64 32.75
Dealer.......................................... 148.87 18.01 301.00 36.42
Affiliate....................................... 11.36 1.38 78.65 9.52
PTF............................................. 58.44 7.07 81.72 9.89
----------------------------------------------------------------------------------------------------------------
Venue
----------------------------------------------------------------------------------------------------------------
ATS............................................. 157.14 19.01 251.15 30.39
Non-ATS......................................... 144.98 17.54 480.86 58.18
----------------------------------------------------------------------------------------------------------------
* The ``customer'' counterparty type includes trades between broker-dealers and customers or between covered
depository institutions and customers. The ``dealer'' counterparty type includes interdealer trades, trades
between broker-dealers and covered depository institutions, as well as trades among covered depository
institutions. The ``affiliate'' counterparty type includes trades between broker-dealers and non-member
affiliates or trades between covered depository institutions and non-member affiliates. The ``PTF''
counterparty type includes trades conducted by principal trading firms (PTFs) and other non-FINRA members on a
``covered ATS,'' as defined in FINRA Rule 6730.07.
Further analysis of the data shows that the average daily number of
trades and average daily dollar volume of On-the-Run Nominal Coupons
were approximately 166,240 and $392.80 billion respectively which were
substantially higher than the number and volume of trades in off-the-
run nominal coupons (approximately 68,079 and $150.18 billion
respectively).
Table 2 provides more detail regarding the trades in the On-the-Run
Nominal Coupons that are subject to the proposed amendments. On-the-Run
Nominal Coupons on average accounted for approximately 55 percent of
the total daily number of trades and 53.7 percent of the total daily
volume of trades in U.S. Treasury Securities during the sample
period.\42\ Separating out the activity by maturity shows that 5-year
notes are the most actively traded both in terms of the number and
volume of trades. The analysis also shows active interdealer trading
and electronic trading, as proxied by ATS volume, in this market
segment and a substantial volume of trades by non-FINRA members, such
as PTFs, on the ATS platforms that are subject to Rule 6730.07.\43\
---------------------------------------------------------------------------
\42\ The average transaction size in these securities was $2.37
million. The median and the 99th percentile are approximately $1
million and $26.76 million, respectively.
\43\ The proportion of customer and non-ATS trades are
substantially lower in On-the-Run Nominal Coupons compared to the
broader Treasury Securities market. Trade sizes for transactions in
U.S. Treasury Securities that occur on an ATS are, on average,
smaller than non-ATS trades.
Table 2--Trading Activity in On-the-Run Nominal Coupon Treasury Securities
----------------------------------------------------------------------------------------------------------------
Number of trades Dollar volume
---------------------------------------------------------------
Type Average daily Average daily
(thousands) Total (MM) ($B) Total ($T)
----------------------------------------------------------------------------------------------------------------
Total........................................... 166.24 20.11 392.80 47.53
----------------------------------------------------------------------------------------------------------------
Maturity
----------------------------------------------------------------------------------------------------------------
2Y.............................................. 21.99 2.66 60.19 7.28
3Y.............................................. 20.19 2.44 53.27 6.45
5Y.............................................. 46.72 5.65 115.38 13.96
7Y.............................................. 13.76 1.66 31.85 3.85
10Y............................................. 43.95 5.32 94.24 11.40
20Y............................................. 5.14 0.62 10.66 1.29
[[Page 77394]]
30Y............................................. 14.50 1.75 27.21 3.29
----------------------------------------------------------------------------------------------------------------
Counterparty Type
----------------------------------------------------------------------------------------------------------------
Customer........................................ 10.34 1.25 100.87 12.20
Dealer.......................................... 90.93 11.00 184.99 22.38
Affiliate....................................... 7.02 0.85 33.47 4.05
PTF............................................. 57.95 7.01 73.48 8.89
----------------------------------------------------------------------------------------------------------------
Venue
----------------------------------------------------------------------------------------------------------------
ATS............................................. 130.17 15.75 184.87 22.37
Non-ATS......................................... 36.07 4.36 207.93 25.16
----------------------------------------------------------------------------------------------------------------
Economic Impacts
Given the unique and fundamental role of the U.S. Treasury
Securities market in the global economy, promoting the market's
liquidity, efficient functioning, and resilience in times of stress is
crucial both to Treasury market participants and the broader financial
system.
The following sections outline the potential benefits and costs of
the proposed dissemination of end-of-day and historical transaction-
level information for On-the-Run Nominal Coupons, with appropriate
dissemination caps for large trades. The discussion is informed by the
public comments submitted in response to the Treasury Department's
RFI,\44\ the Sia Partners/SIFMA survey results,\45\ TBAC Findings,\46\
and the academic literature.
---------------------------------------------------------------------------
\44\ See supra note 13.
\45\ See Additional Transparency for Secondary Market
Transactions of Treasury Securities (October 2022), https://www.sifma.org/wp-content/uploads/2022/10/FINAL-SIA-SIFMA-REPORT-Additional-Transparency-for-Secondary-Market-Transactions-of-Treasury-Securities.pdf.
\46\ See TBAC Findings, supra note 12.
---------------------------------------------------------------------------
Anticipated Benefits
While the RFI and survey respondents expressed mixed opinions on
the impact of increased transparency on market liquidity and
resilience, they broadly supported a gradual and calibrated approach to
providing additional transparency in the Treasury Security market.\47\
The anticipated benefits included reducing trading costs, increasing
liquidity, incentivizing intermediation and promoting additional
participation, increasing market confidence, enhancing risk management,
and higher market resilience during times of stress.\48\ Some
respondents indicated that having access to transaction-level
information could lead to improved price discovery and trade execution
for both investors and dealers. Others indicated that additional
transparency would assist quantitative trading firms as electronic
trading becomes more prevalent.\49\
---------------------------------------------------------------------------
\47\ See, e.g., comment letters from CME Group Inc. and JPMorgan
Chase & Co., available at https://www.regulations.gov/docket/TREAS-DO-2022-0012/comments.
\48\ See, e.g., comment letters from Spatt, Hollifield &
Neklyudov; Jane Street Capital, LLC; MarketAxess Holdings Inc.; and
Citadel Securities, available at https://www.regulations.gov/docket/TREAS-DO-2022-0012/comments.
\49\ See Sia Partners/SIFMA survey, supra note 45, at 9-10.
---------------------------------------------------------------------------
The academic literature also provides insights on the effects of
post-trade transparency in other fixed income markets and investigates
the effect of transparency on price discovery, market liquidity, and
the welfare of different classes of market participants. Several
studies found that the transparency following the initiation of TRACE
resulted in substantially lower trading costs and bid-ask spreads in
the corporate bond market, not only for bonds whose trades were
disseminated, but for other bonds as well.\50\ Studies on the impacts
of post-trade transparency in the municipal bond market and securitized
products market also reported reduced transaction costs as a result of
additional transparency.\51\ These results are consistent with
investors' ability to negotiate better prices in the presence of post-
trade transparency.
---------------------------------------------------------------------------
\50\ The studies interpret the effect on other bonds as a
``liquidity spillover'' where the traded prices of disseminated
bonds provided useful information for valuing bonds whose trades
were not disseminated. See Hendrik Bessembinder, William Maxwell &
Kumar Venkataraman, Market Transparency, Liquidity Externalities,
and Institutional Trading Costs in Corporate Bonds, 82(2) Journal of
Financial Economics 251-288 (2006); Amy K. Edwards, Lawrence E.
Harris & Michael S. Piwowar, Corporate Bond Market Transaction Costs
and Transparency, 62(3) The Journal of Finance 1421-1451 (2007);
Michael A. Goldstein, Edith S. Hotchkiss & Erik R. Sirri,
Transparency and Liquidity: A Controlled Experiment on Corporate
Bonds, 20(2) The Review of Financial Studies 235-273 (2007); Hendrik
Bessembinder & William Maxwell, Markets: Transparency and the
Corporate Bond Market, 22(2) The Journal of Economic Perspectives
217-234 (2008).
\51\ See Erik R. Sirri, Report on Secondary Market Trading in
the Municipal Securities Market (2014), https://www.msrb.org/sites/default/files/2022-09/MSRB-Report-on-Secondary-Market-Trading-in-the-Municipal-Securities-Market.pdf; John Chalmers, Yu Liu & Z. Jay
Wang, The Difference a Day Makes: Timely Disclosure and Trading
Efficiency in the Muni Market, 139(1) Journal of Financial Economics
313-335 (2021); Paul Schultz & Zhaogang Song, Transparency and
Dealer Networks: Evidence from the Initiation of Post-Trade
Reporting in the Mortgage Backed Security Market, 133(1) Journal of
Financial Economics 113-133 (2019).
---------------------------------------------------------------------------
FINRA believes that end-of-day public dissemination of transaction
information on On-the-Run Nominal Coupons, as described above, would
similarly benefit market participants by providing access to a single-
source, comprehensive data set, subject to the proposed fees. The
availability of this information, together with the historic TRACE data
product for U.S. Treasury Securities, may also prompt further research
and facilitate a better understanding of the U.S. Treasury Securities
market, ultimately benefiting investors and other market participants
and providing insight into how to better support the resiliency of the
U.S. Treasury Securities market in times of stress.
Anticipated Costs
Market participants (and dealers in particular) expressed a concern
in response to the Treasury Department's RFI and Sia Partners/SIFMA
survey that releasing transaction details could potentially expose
trading strategies or
[[Page 77395]]
positions to competitors and impede dealers' ability to appropriately
manage risk and confidentially hedge their positions. If true, this
could decrease intermediaries' risk-taking capacity and their
willingness to participate, leading to a decline in liquidity supply
and market resilience during stressed conditions. These concerns were
mostly directed to the less-liquid market segments, larger trade sizes,
and real-time dissemination.\52\ Most commenters and respondents
believed that there was limited risk to the delayed dissemination of
the transaction-level information for On-the-Run Nominal Coupons with
appropriate transaction size dissemination caps. Some RFI commentors
indicated that additional transparency could impact market
participants' trading behavior by incentivizing market participants to
engage in smaller size trades or other behaviors to avoid
dissemination, such as attempting to move flows outside the U.S.
market.\53\ Generally, the RFI and survey respondents shared the view
that introducing additional post-trade transparency in the U.S.
Treasury Securities market requires careful and prudent implementation
to avoid disrupting market functioning.
---------------------------------------------------------------------------
\52\ See, e.g., comment letters from Citigroup Global Markets
Inc.; Vanguard Group, Inc.; and the joint comment letter from SIFMA,
SIFMA AMG, ABASA, and IIB, available at https://www.regulations.gov/docket/TREAS-DO-2022-0012/comments.
\53\ See TBAC Findings, supra note 12, at 7.
---------------------------------------------------------------------------
The academic papers and industry reports that studied the impacts
of post-trade transparency in other markets have found evidence of
dealers' reluctance to carry inventory in the disseminated securities
and moving flow to alternative markets.\54\ Others found evidence of
difficulty in executing larger trades, reduced trading volume and
transaction size--particularly in riskier and less liquid assets.\55\
---------------------------------------------------------------------------
\54\ See Hendrik Bessembinder & William Maxwell, Markets:
Transparency and the Corporate Bond Market, 22(2) The Journal of
Economic Perspectives 217-234 (2008).
\55\ See Paul Asquith, Thomas Covert & Parag A. Pathak, The
Effects of Mandatory Transparency in Financial Market Design:
Evidence from the Corporate Bond Market (2019), available at https://ssrn.com/abstract=2320623; Bruce Mizrach, Analysis of Corporate
Bond Liquidity (2015), https://www.finra.org/sites/default/files/OCE_researchnote_liquidity_2015_12.pdf; Greenwich Associates, In
Search of New Corporate Bond Liquidity (2016) available at https://www.greenwich.com/fixed-income-fx-cmds/search-new-corporate-bond-liquidity; Schultz & Song, supra note 51.
---------------------------------------------------------------------------
Accordingly, the proposed rule change incorporates multiple
mitigants, developed in consultation with the Treasury Department, to
address these concerns. First, the scope of the proposed rule change is
limited to only transactions in On-the-Run Nominal Coupons, which are
highly liquid. Second, delayed, end-of-day dissemination would further
protect market participants against information leakage. Third, FINRA
has conducted careful analysis and consulted with Treasury to specify
appropriate transaction size dissemination caps calibrated to the
maturity, liquidity and trading concentration in the underlying
security to preserve the anonymity of market participants trading large
transactions. In setting the proposed transaction size dissemination
caps, FINRA considered both the percentage of traded market volume that
would be disseminated (versus reported) across each maturity along with
the daily number of unique intermediaries trading each security at or
above the cap size for each maturity. This approach balances providing
similar levels of transparency across maturities with sensitivity to
information leakage concerns regarding reverse engineering of other
market participants' identities, positions, or trading strategies. In
this regard, FINRA analyzed the concentration of dealer activity and
market liquidity in trades above various cap sizes in each specific
Treasury maturity.
The proposed dissemination caps would--across all maturities--
result in 0.09 percent of transactions being capped. Specifically, for
the two-year, three-year, and five-year notes (which would be subject
to a $250 million dollar cap), 0.08 percent, 0.08 percent, and 0.03
percent of transactions, respectively, would be capped upon
dissemination (i.e., because the size of the trade was greater than
$250 million); for the seven-year and 10-year notes (which would be
subject to a $150 million dollar cap), 0.13 percent and 0.05 percent of
transactions, respectively, would be capped upon dissemination (i.e.,
because the size of the trade was greater than $150 million); and for
the 20-year and 30-year bonds (which would be subject to a $50 million
dollar cap), 0.39 percent and 0.29 percent of transactions,
respectively, would be capped upon dissemination (i.e., because the
size of the trade was greater than $50 million).
There is no anticipated operational impact on member firms as a
result of FINRA's proposed end-of-day and historical dissemination of
On-the-Run Nominal Coupon data, as reporting requirements will remain
unchanged. As noted above, the disseminated data would be available to
market participants for a fee. The proposed fees for the Treasury data
set are the same as those that exist for other types of TRACE-Eligible
Securities. FINRA does not anticipate any negative competitive effects
as a result of the proposed fees. The proposed end-of-day and
historical dissemination of transactions in On-the-Run Nominal Coupon
U.S. Treasury Securities, subject to their related fees, will provide
an option for all market participants, including smaller firms, to
access post-trade transparency in the U.S. Treasury Securities market
at a reasonable cost. Some market participants may choose to access the
data indirectly through their data vendors as the vendors may
externally display the data.\56\ Those market participants who choose
to access the data directly through FINRA may incur an additional cost
to set up the technological infrastructure necessary to access the data
if they are not already subscribed to other TRACE data products. On
balance, market participants would only incur costs if they determine
that the benefits of receiving the data outweigh the costs.
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\56\ The bulk re-distribution of the data is permitted subject
to a different fee structure or additional restrictions, as
discussed above.
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Alternatives Considered
FINRA, in consultation with the Treasury Department, considered
several alternatives with respect to the scope of the Treasury
Securities that would be subject to dissemination under the proposed
rule change, dissemination timeframes, and transaction size
dissemination caps.
Scope of the Treasury Securities Subject to Dissemination
Regarding the scope of the U.S. Treasury Securities proposed to be
subject to dissemination, FINRA considered including off-the-run and
other types of U.S. Treasury Securities. However, since On-the-Run
Nominal Coupons are both highly liquid and represent a significant
portion of the Treasury Securities volume, FINRA believes that
disseminating transaction-level data for On-the-Run Nominal Coupons
would improve Treasury Securities market transparency with limited risk
for market participants. The RFI and survey respondents' concerns
regarding the potential impact of disseminating transaction data on
their ability to manage their inventory risk were more pronounced for
the less-liquid segments of the market, such as off-the-run U.S.
Treasury Securities.
[[Page 77396]]
Dissemination Timeframe
FINRA also considered real-time and less delayed dissemination of
transaction level data as potential dissemination timeframe
alternatives. However, weighing the potential benefits of providing the
market with more timely data against concerns about protecting the
confidentiality of market participants' positions and trading
strategies, FINRA believes that, on balance, end-of-day dissemination
will prudently balance the timeliness of transparency and concerns
regarding potential negative impacts. End-of-day dissemination will
provide FINRA and others the ability to research the proposed rule
change's impact.\57\
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\57\ FINRA also notes that covered depository institutions that
report to TRACE pursuant to Federal Reserve Board requirements
generally report transactions in U.S. Treasury Securities to TRACE
by the end of the day. Thus, not all transactions in U.S. Treasuries
reported to TRACE are subject to a one-hour timeframe, which is
another factor that FINRA considered in connection with the proposed
rule change.
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Transaction Size Caps
FINRA considered setting a single transaction size dissemination
cap applicable to all transactions in On-the-Run Nominal Coupons.
However, since liquidity and trading volume varies across U.S. Treasury
Securities with different maturities, FINRA, in consultation with the
Treasury Department, determined that it is appropriate to propose
dissemination caps that are calibrated to the maturity, liquidity,
interest rate sensitivity, and trading concentration of the underlying
U.S. Treasury Security.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-FINRA-2023-015 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-FINRA-2023-015. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-FINRA-2023-015 and should be
submitted on or before November 30, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\58\
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\58\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-24758 Filed 11-8-23; 8:45 am]
BILLING CODE 8011-01-P
