Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend FINRA Rule 6730 (Transaction Reporting) To Reduce the 15-Minute TRACE Reporting Timeframe to One Minute, 5034-5047 [2024-01395]

Download as PDF 5034 Federal Register / Vol. 89, No. 17 / Thursday, January 25, 2024 / Notices 7. This estimate assumes that two-thirds (1,934) of the internal hours are spent by in-house attorneys to prepare the plan (1,934 hours × $484 estimated hourly rate = $936,056 per year) and that one-third (967) are spent by the fund’s board of directors to approve the plan (967 hours × $4,770 per hour = $4,612,590). 8. $936,056 + $4,612,590 = $5,548,646. The information provided under rule 18f–3 will not be kept confidential. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number. The public may view background documentation for this information collection at the following website: www.reginfo.gov. Find this particular information collection by selecting ‘‘Currently under 30-day Review—Open for Public Comments’’ or by using the search function. Written comments and recommendations for the proposed information collection should be sent within 30 days of publication of this notice by February 26, 2024 to (i) MBX.OMB.OIRA.SEC_desk_officer@ omb.eop.gov and (ii) David Bottom, Director/Chief Information Officer, Securities and Exchange Commission, c/ o John Pezzullo, 100 F Street NE, Washington, DC 20549, or by sending an email to: PRA_Mailbox@sec.gov. Dated: January 22, 2024. Sherry R. Haywood, Assistant Secretary. [FR Doc. 2024–01437 Filed 1–24–24; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–99404; File No. SR–FINRA– 2024–004] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend FINRA Rule 6730 (Transaction Reporting) To Reduce the 15-Minute TRACE Reporting Timeframe to One Minute khammond on DSKJM1Z7X2PROD with NOTICES 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 January 11, 2024, the Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by FINRA. The Commission is publishing this notice to FINRA is proposing to amend FINRA Rule 6730 to reduce the 15-minute TRACE reporting timeframe to one minute, with exceptions for member firms with de minimis reporting activity and for manual trades. 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 FINRA has collected and disseminated transaction information in fixed income securities through TRACE since 2002.3 Since the implementation of TRACE, the fixed income markets have changed dramatically, including a significant increase in the use of electronic trading platforms or other electronic communication protocols to facilitate the execution of transactions. With these changes, FINRA has been considering ways to modernize the reporting rules and provide for more timely, granular and informative data to enhance the value of disseminated transaction data. FINRA rules specify the applicable outer-limit reporting timeframe for different types of TRACE-Eligible 3 See Securities Exchange Act Release No. 43873 (January 23, 2001), 66 FR 8131 (January 29, 2001) (Order Approving File No. SR–NASD–99–65). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 17:22 Jan 24, 2024 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change (i) Background January 19, 2024. VerDate Sep<11>2014 solicit comments on the proposed rule change from interested persons. Jkt 262001 PO 00000 Frm 00144 Fmt 4703 Sfmt 4703 Securities,4 and these timeframes have been adjusted over time in line with changes in the markets. A 15-minute outer-limit reporting timeframe currently applies to most transactions 5 in corporate bonds, agency debt securities,6 asset-backed securities (ABS) 7 and agency pass-through mortgage-backed securities (MBS) traded to-be-announced (TBA) for good delivery (GD).8 The 15-minute reporting 4 ‘‘TRACE-Eligible Security’’ means a debt security that is United States (U.S.) dollardenominated and is: (1) issued by a U.S. or foreign private issuer, and, if a ‘‘restricted security’’ as defined in Securities Act Rule 144(a)(3), sold pursuant to Securities Act Rule 144A; (2) issued or guaranteed by an Agency as defined in paragraph (k) or a Government-Sponsored Enterprise as defined in paragraph (n); (3) a U.S. Treasury Security as defined in paragraph (p); or (4) a Foreign Sovereign Debt Security as defined in paragraph (kk). ‘‘TRACE-Eligible Security’’ does not include a debt security that is a Money Market Instrument as defined in paragraph (o). See Rule 6710(a). 5 A ‘‘List or Fixed Offering Price Transaction,’’ as defined in Rule 6710(q), and a ‘‘Takedown Transaction,’’ as defined in Rule 6710(r) are required to be reported to TRACE by the next business day (T+1). See Rule 6730(a)(2). 6 ‘‘Agency Debt Security’’ means a debt security (i) issued or guaranteed by an Agency as defined in paragraph (k); (ii) issued or guaranteed by a Government-Sponsored Enterprise as defined in paragraph (n); or (iii) issued by a trust or other entity that was established or sponsored by a Government-Sponsored Enterprise for the purpose of issuing debt securities, where such enterprise provides collateral to the trust or other entity or retains a material net economic interest in the reference tranches associated with the securities issued by the trust or other entity. The term excludes a U.S. Treasury Security as defined in paragraph (p) and a Securitized Product as defined in paragraph (m), where an Agency or a Government-Sponsored Enterprise is the Securitizer as defined in paragraph (s) (or similar person), or the guarantor of the Securitized Product. See Rule 6710(l). 7 ‘‘Asset-Backed Security’’ means a type of Securitized Product where the Asset-Backed Security is collateralized by any type of financial asset, such as a consumer or student loan, a lease, or a secured or unsecured receivable, and excludes: (i) a Securitized Product that is backed by residential or commercial mortgage loans, mortgagebacked securities, or other financial assets derivative of mortgage-backed securities; (ii) an SBA-Backed ABS as defined in paragraph (bb) traded To Be Announced as defined in paragraph (u) or in a Specified Pool Transaction as defined in paragraph (x); and (iii) a collateralized debt obligation. See Rule 6710(cc). 8 ‘‘Agency Pass-Through Mortgage-Backed Security’’ means a type of Securitized Product issued in conformity with a program of an Agency as defined in paragraph (k) or a GovernmentSponsored Enterprise (GSE) as defined in paragraph (n), for which the timely payment of principal and interest is guaranteed by the Agency or GSE, representing ownership interest in a pool (or pools) of mortgage loans structured to ‘‘pass through’’ the principal and interest payments to the holders of the security on a pro rata basis. See Rule 6710(v). ‘‘To Be Announced’’ (TBA) means a transaction in E:\FR\FM\25JAN1.SGM 25JAN1 Federal Register / Vol. 89, No. 17 / Thursday, January 25, 2024 / Notices khammond on DSKJM1Z7X2PROD with NOTICES timeframe has been in place for corporate bonds since 2005, and later was implemented for agency debt, ABS, and MBS TBA GD.9 Thus, today, transactions in these securities are generally required to be reported as soon as practicable 10 but no later than 15 minutes from the time of execution, and FINRA publicly disseminates information on the transaction immediately upon receipt.11 As discussed in more detail below, FINRA has found that 82.9 percent of trades in the TRACE-Eligible Securities an Agency Pass-Through Mortgage-Backed Security as defined in paragraph (v) or an SBA-Backed ABS as defined in paragraph (bb) where the parties agree that the seller will deliver to the buyer a pool or pool(s) of a specified face amount and meeting certain other criteria but the specific pool or pool(s) to be delivered at settlement is not specified at the Time of Execution, and includes TBA transactions ‘‘for good delivery’’ (GD) and TBA transactions ‘‘not for good delivery’’ (NGD). See Rule 6710(u). 9 In 2004, FINRA (then NASD) reduced the timeframe for reporting corporate bonds to within 15 minutes of the time of execution. See Securities Exchange Act Release No. 49845 (June 14, 2004), 69 FR 35088 (June 23, 2004) (Order Approving File No. SR–NASD–2004–057); see also Notice to Members 04–51 (July 2004). Agency debt has been subject to the 15-minute reporting timeframe since it became TRACE-Eligible in 2010. See Securities Exchange Act Release No. 60726 (September 28, 2009), 74 FR 50991 (October 2, 2009) (Order Approving File No. SR–FINRA–2009–010); see also Regulatory Notice 09–57 (September 2009). MBS TBA GD became subject to the 15-minute reporting timeframe in 2013, and the reporting timeframe for ABS was reduced to 15 minutes in 2015. See Securities Exchange Act Release No. 66829 (April 18, 2012), 77 FR 24748 (April 25, 2012) (Order Approving File No. SR–FINRA–2012–020); Securities Exchange Act Release No. 71607 (February 24, 2014), 79 FR 11481 (February 28, 2014) (Order Approving File No. SR– FINRA–2013–046); see also Regulatory Notices 12– 26 (May 2012) and 14–34 (August 2014). 10 In 2015, the SEC approved amendments to FINRA rules to require firms to report transactions in TRACE-Eligible Securities as soon as practicable. See Securities Exchange Act Release No. 75782 (August 28, 2015), 80 FR 53375 (September 3, 2015) (Order Approving File No. SR–FINRA 2015–025). 11 FINRA Rule 6730(a)(1) sets forth the requirements for when trades executed during different time periods throughout the day must be reported to TRACE. Currently, corporate, agency, ABS, and MBS TBA GD transactions executed on a business day at or after 12:00:00 a.m. Eastern Time (ET) through 7:59:59 a.m. ET must be reported the same day, no later than 15 minutes after the TRACE system opens. Transactions executed on a business day at or after 8:00:00 a.m. ET through 6:29:59 p.m. ET must be reported as soon as practicable, but no later than 15 minutes of the Time of Execution, except for transactions executed on a business day less than 15 minutes before 6:30 p.m. ET, which must be reported no later than 15 minutes after the TRACE system opens the next day (and, if reported on T+1, designated ‘‘as/of’’ with the date of execution). Finally, transactions executed on a business day at or after 6:30:00 p.m. ET through 11:59:59 p.m. ET, or trades executed on a Saturday, a Sunday, a federal or religious holiday, or other day on which the TRACE system is not open at any time during that day, must be reported on the next business day, no later than 15 minutes after the TRACE system opens (and must be designated ‘‘as/of’’ and include the date of execution). VerDate Sep<11>2014 17:22 Jan 24, 2024 Jkt 262001 that are currently subject to the 15minute outer-limit reporting timeframe were reported within one minute of execution. In light of the technological advances in the intervening 18 years since FINRA first adopted the 15-minute reporting requirement, including the increase in electronic trading, and consistent with FINRA’s longstanding goals of increasing transparency and improving access to timely transaction data, FINRA is proposing updates to modernize the reporting timeframes and provide timelier transparency. FINRA will continue to assess its TRACE reporting requirements and member reporting and consider whether any adjustments to the one-minute requirement are warranted. (ii) Proposed Rule Change To Implement One-Minute Reporting FINRA is proposing amendments to Rule 6730 (Transaction Reporting) to reduce the trade reporting timeframe for securities currently subject to the 15minute reporting outer limit to one minute, with exceptions for member firms with de minimis reporting activity and for manual trades, discussed further below. As is the case today, FINRA would make information on the transactions publicly available immediately upon receipt of the trade reports. Under existing Rule 6730(a)(1), transactions in corporate bonds, agency debt, ABS, and MBS TBA GD generally must be reported as soon as practicable, but no later than within 15 minutes of execution. Specifically, transactions executed on a business day at or after 12:00:00 a.m. ET through 7:59:59 a.m. ET must be reported the same day no later than 15 minutes after the TRACE system opens. Transactions executed on a business day at or after 8:00:00 a.m. ET through 6:29:59 p.m. ET must be reported no later than within 15 minutes of the Time of Execution, except for transactions executed on a business day less than 15 minutes before 6:30 p.m. ET, which must be reported no later than 15 minutes after the TRACE system opens the next day (and, if reported on T+1, designated ‘‘as/ of’’ with the date of execution). Finally, transactions executed on a business day at or after 6:30:00 p.m. ET through 11:59:59 p.m. ET, or trades executed on a Saturday, a Sunday, a federal or religious holiday, or other day on which the TRACE system is not open at any time during that day, must be reported on the next business day no later than 15 minutes after the TRACE system opens (and must be designated ‘‘as/of’’ and include the date of execution). PO 00000 Frm 00145 Fmt 4703 Sfmt 4703 5035 To provide more timely information about transactions in corporate bonds, agency debt, ABS, and MBS TBA GD, subject to the exceptions discussed below and as provided in Rule 6730(a)(2), FINRA is proposing to amend Rule 6730(a)(1) to reduce the trade reporting timeframe as follows. Amended Rule 6730(a)(1) would provide that transactions must be reported as soon as practicable, but no later than within one minute of the Time of Execution.12 Amended Rule 6730(a)(1)(B) would require that a transaction executed on a business day at or after 8:00:00 a.m. ET through 6:29:59 p.m. ET must be reported as soon as practicable, but no later than one minute from the Time of Execution, except that, a transaction executed on a business day less than one minute before 6:30:00 p.m. ET, must be reported no later than 15 minutes after the TRACE system opens the next business day (T+1) (and, if reported on T+1, designated ‘‘as/of’’ with the date of execution). Any trades executed on a business day prior to the open of the TRACE system, on a business day at or after 6:30:00 p.m. ET through 11:59:59 p.m. ET, or on a Saturday, a Sunday, a federal or religious holiday or other day on which the TRACE system is not open at any time during that day would continue to be reportable as soon as practicable on the next business day (T+1), but no later than within 15 minutes after the TRACE system opens (and must be designated ‘‘as/of,’’ as appropriate, and include the date of execution). (iii) Exceptions From One-Minute Reporting FINRA is proposing two exceptions from the one-minute reporting timeframe for: (1) member firms with ‘‘limited trading activity’’ in the TRACEEligible Securities that are subject to one-minute reporting; and (2) manual trades.13 12 Under Rule 6710(d), the ‘‘Time of Execution’’ generally means the time when the parties to a transaction agree to all of the terms of the transaction that are sufficient to calculate the dollar price of the trade. For transactions involving TRACE-Eligible Securities that are trading ‘‘when issued’’ on a yield basis, the ‘‘Time of Execution’’ is when the yield for the transaction has been agreed to by the parties to the transaction. 13 FINRA is also proposing a conforming amendment to Supplementary Material .03 to refer to the Rule generally rather than ‘‘paragraph (a)’’ to reflect that members reporting pursuant to one of the exceptions in new Supplementary Material .08 and .09 are still required to report their trades ‘‘as soon as practicable.’’ E:\FR\FM\25JAN1.SGM 25JAN1 5036 Federal Register / Vol. 89, No. 17 / Thursday, January 25, 2024 / Notices khammond on DSKJM1Z7X2PROD with NOTICES Exception for Members With ‘‘Limited Trading Activity’’ New Supplementary Material .08 would provide an exception to the oneminute reporting timeframe for members with ‘‘limited trading activity.’’ A member with ‘‘limited trading activity’’ would be defined as a member that, during one of the prior two calendar years, reported to TRACE fewer than 4,000 transactions in the TRACE-Eligible Securities that are subject to paragraphs (a)(1)(A) through (a)(1)(D) of Rule 6730 (i.e., corporate bonds, agency debt, ABS and MBS TBA GD), including any manual trades. Supplementary Material .08(b) would require members relying on the exception to confirm annually their qualification for the exception.14 As outlined in Supplementary Material .08(c), members qualifying for the exception would be required to report these trades as soon as practicable, but no later than within 15 minutes of the Time of Execution (or in the case of a trade executed outside of TRACE system hours, less than 15 minutes before 6:30 p.m. ET, or on a Saturday, a Sunday, a federal or religious holiday, or other day on which the TRACE system is not open at any time during that day, as soon as practicable, but no later than within 15 minutes after the TRACE system opens the next business day (T+1)). Members that exceeded the 4,000trade threshold two calendar years in a row would be required to comply with the one-minute reporting requirements of paragraphs (a)(1)(A) through (a)(1)(D) of the Rule beginning 90 days after the firm no longer meets the criteria for the exception (i.e., beginning 90 days after January 1 of the next calendar year). If a member’s reporting activity subsequently dropped below the 4,000trade threshold, the member would once again be eligible for the exception. For example, a member that reported 3,000 trades in the relevant TRACE-Eligible Securities to TRACE in 2022 and then 4,150 trades in 2023 would continue to be eligible for the exception in 2024; however, if the member then reported 4,100 trades in 2024, the member would be required to comply with the oneminute reporting requirements starting 90 days after January 1, 2025 (with January 1 being day one of 90). If the member proceeded to report 3,500 14 Evidence of this confirmation should be retained as part of the member’s books and records; however, members eligible for the exception will not need to take affirmative steps to have their trade reports processed pursuant to the exception’s 15minute reporting timeframe (e.g., members eligible for the exception will not need to submit a certification of eligibility to FINRA or add a modifier or indicator to their trade reports). VerDate Sep<11>2014 17:22 Jan 24, 2024 Jkt 262001 trades in 2025, the member would once again be eligible for the exception from one-minute reporting for 2026 under the two-year lookback. FINRA believes that the two-year lookback period for eligibility for the exception will accommodate fluctuations in trading activity that may be due to unusual market-wide events or unique client demands. Manual Trades Exception New Supplementary Material .09 would provide an exception for manual trades that would afford firms additional time to report transactions that are not electronic from end to end, as described further below. Where a trade qualifies for the manual trades exception, a 15-minute outer limit would apply for the first year following implementation; a 10-minute outer limit would apply for the second year; and a five-minute outer limit would apply thereafter. The manual trades exception would apply narrowly only to ‘‘transactions that are manually executed’’ or where a ‘‘member must manually enter any of the trade details or information necessary for reporting the trade through the TRAQS website or into a system that facilitates trade reporting to TRACE.’’ Thus, a trade that requires manual intervention at any point to complete the trade execution or reporting process would qualify for the manual trades exception. In that regard, while an exhaustive list cannot be provided here, FINRA contemplates that the exception would be available for a variety of situations that meet the specified criteria, including, for example: • where a member executes a trade 15 by manual or hybrid means, such as by telephone, email, or through a chat/ messaging function,16 and subsequently must manually enter into a system that facilitates trade reporting all or some of the information required to book the trade and report it to TRACE; • where allocations to individual accounts must be manually input in connection with a trade by a duallyregistered broker-dealer/investment adviser; 15 As noted above, for purposes of Rule 6730, the reporting timeframe is measured from the Time of Execution as defined by Rule 6710(d), which generally refers to the time that the parties have agreed to all of the terms of the transaction sufficient to calculate the dollar price of the trade (or yield, in the case of when-issued securities priced to a spread). 16 FINRA reminds members of their obligation to retain these electronic communications as part of their books and records, consistent with FINRA and SEC recordkeeping requirements. See, e.g., Notice to Members 03–33 (July 2003). PO 00000 Frm 00146 Fmt 4703 Sfmt 4703 • where an electronic trade is subject to manual review for risk management or regulatory compliance purposes and, as part of or following the review, the trade must be manually approved, amended, or released before the trade is reported to TRACE (e.g., a firm’s risk management procedures require a secondary approver for trades over a certain threshold; a firm’s best execution procedures require manually checking another market to confirm that a better price is not available to the customer); • where a member trades a bond for the first time and additional manual steps are necessary to set the bond up in the firm’s systems to book and report the trade (e.g., entering the CUSIP number and associated bond data into the firm’s system); and • where a member agrees to trade a basket of securities at a single price and manual action is required to calculate the price of component securities in the basket or to book and report the trade in component securities to TRACE. The above examples are illustrative of the types of circumstances in which, due to the manual nature of components of the trade execution or reporting process, reporting a transaction within one minute of the Time of Execution may be unfeasible, even where a member makes reasonable efforts to report the trade as soon as practicable (as required). FINRA also will assess members’ trade reporting in connection with manual trades to determine whether the five-minute trade reporting timeframe (to become applicable after two years) is appropriate, and will be prepared to make adjustments, as necessary. FINRA has extensive experience and data regarding members’ historic behaviors reporting transactions to TRACE under a myriad of scenarios. FINRA will be reviewing the use of the manual trades exception—members may not, in any case, purposely delay the execution or reporting of a transaction by handling any aspect of a trade manually or introducing manual steps following the Time of Execution. Additionally, in light of the overarching obligation to report trades as soon as practicable, members should consider the types of transactions in which they regularly engage and whether they can reasonably reduce the time between a trade’s Time of Execution and its reporting, and more generally must make a good faith effort to report their trades as soon as practicable. In addition, FINRA proposes to amend Rule 6730(d)(4) to require that any member that executes or reports a trade manually append a manual trade E:\FR\FM\25JAN1.SGM 25JAN1 Federal Register / Vol. 89, No. 17 / Thursday, January 25, 2024 / Notices indicator to the trade report so that FINRA can identify manual trades. The new manual trade indicator would be required regardless of whether the member reported the manual trade outside of the one-minute timeframe in reliance on the manual trades exception, which would provide FINRA with important insights into manual trading and the use of the exception. The manual trade indicator would be used for regulatory purposes and would not be included in the TRACE data publicly disseminated. Finally, FINRA is proposing to amend Rule 6730(f) to provide that a pattern or practice of late reporting may be considered conduct inconsistent with high standards of commercial honor and just and equitable principles of trade, in violation of Rule 2010, absent ‘‘reasonable justification’’ (in addition to the rule’s existing reference to ‘‘exceptional circumstances’’).17 FINRA believes that the addition of ‘‘reasonable justification’’ as a relevant factor in FINRA’s evaluation of a firm experiencing a pattern or practice of late reporting is appropriate given the proposed reduction in the trade reporting timeframe; 18 for example, to enable FINRA to determine that reasonable justification exists due to circumstances that could not reasonably be anticipated or prevented and that could not be resolved by the firm within the one minute reporting timeframe.19 khammond on DSKJM1Z7X2PROD with NOTICES 17 See, e.g., Rule 6623 describing ‘‘exceptional circumstances’’ as instances of system failure by a member or service bureau, or unusual market conditions, such as extreme volatility in a security, or in the market as a whole. 18 This proposed rule change would also make Rule 6730(f) consistent with other FINRA trade reporting rules that impose shorter reporting timeframes. See, e.g., Rule 6622(a)(4). 19 As is the case today, late trade statistics regarding trades reported outside of the applicable timeframe would be reflected in the Report Cards available to members. FINRA would update its Report Cards to take into consideration the proposed exception for firms with de minimis VerDate Sep<11>2014 17:22 Jan 24, 2024 Jkt 262001 However, members must have sufficiently robust systems with adequate capability and capacity to enable them to report in accordance with FINRA rules; thus, recurring systems issues in a member firm’s or a vendor’s systems would not be considered reasonable justification or exceptional circumstances under Rule 6730(f) to excuse a pattern or practice of late trade reporting.20 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,21 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, to remove impediments to and perfect the mechanism of a free and open market, and, in general, to protect investors and the public interest. FINRA believes that reducing the reporting timeframe to as soon as practicable, but no later than within one minute from the time of execution for corporate, agency, ABS and MBS TBA GD transactions helps achieve the purposes of the Act. As discussed above, the 15-minute reporting reporting activity and for manual trades. In addition, FINRA plans to enhance its TRACE Report Cards to include metrics that will facilitate members’ ability to track their eligibility for the de minimis exception. While these trade statistics will continue to be available to members on their TRACE Report Cards, these statistics are not publicly available. 20 See, e.g., FINRA Trade Reporting Frequently Asked Questions, Q206.21 available at https:// www.finra.org/filing-reporting/markettransparency-reporting/trade-reporting-faq. 21 15 U.S.C. 78o–3(b)(6). PO 00000 Frm 00147 Fmt 4703 Sfmt 4703 5037 timeframe has been in place for corporate bonds and agency debt securities since 2005. Since that time, the fixed income markets have changed dramatically, including a significant increase in the use of electronic trading platforms or other electronic communication protocols to facilitate the execution of transactions. With these changes, FINRA has been considering ways to modernize the rule and provide for more timely, granular and informative data to enhance the value of disseminated transaction data. FINRA believes that the proposed rule change helps achieve the purposes of the Act in that it will improve the timeliness of information reported to TRACE, thereby benefiting transparency and allowing investors and other market participants to obtain and evaluate more timely pricing information for these securities. FINRA also believes that the proposed exceptions from the oneminute reporting requirement for members with de minimis reporting activity and manual trades are appropriate in that they are tailored to balance the burdens on members with the benefits to transparency. 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 rule change, its potential economic impacts, including anticipated costs, benefits, and distributional and competitive effects, relative to the current baseline, and the alternatives considered in assessing how best to meet its regulatory objective. E:\FR\FM\25JAN1.SGM 25JAN1 5038 Federal Register / Vol. 89, No. 17 / Thursday, January 25, 2024 / Notices As described below in more detail, approximately 83 percent of transactions in TRACE-Eligible Securities currently subject to the 15minute reporting timeframe are reported within one minute of execution. However, there is significant variation in reporting timeframes within and across member firms of different sizes and across different products. The proposed de minimis and manual trades exceptions balance the benefits of timelier reporting with the potential costs of disrupting markets and disproportionally impacting less active and smaller participants. FINRA estimates that, as a result of this proposed rule change, after adjusting for the proposed de minimis exception, up to 16.4 percent of current annual trading volume, or 6.1 million trades and 20 trillion dollars in par value, might potentially be reported faster (this represents an upper end estimate— impacted by the extent to which firms do or do not rely on the proposed manual trades exception with respect to such trades (manual trades are not currently identifiable as such in TRACE data)).22 Regulatory Need As discussed previously, over the last 18 years there have been significant advancements in the fixed income markets, and in recognition of those advancements, FINRA is proposing to reduce the TRACE trade reporting timeframe for transactions in all TRACE-Eligible Securities that currently are subject to a 15-minute reporting timeframe. Timelier reporting provides more timely transaction information to the market, supporting more effective price formation and potentially decreasing trading costs and increasing liquidity. Economic Baseline The economic baseline stems from current Rule 6730, establishing a reporting requirement of as soon as practicable but no later than within 15 minutes of the Time of Execution. Factors that may affect the speed with which firms can report executions include, but are not limited to, security characteristics, recency of trading in a particular security, trading platform, execution method, reporting process and level of automation. Overall, in 2022 838 member firms reported trades in TRACE-Eligible Securities currently subject to the 15minute reporting timeframe, with 803, 443, 79, 216 and 173 member firms reporting trades in corporate bonds, agency debt, MBS TBA GD, equitylinked notes (ELNs) and ABS respectively.23 FINRA found that 83 percent of trades across TRACE-Eligible Securities currently subject to the 15minute reporting timeframe were reported within one minute of execution. Examining reporting times for these securities by individual reporters, FINRA found that within one minute: 43 percent of reporters submitted 75 percent of their trades; 34 percent of reporters submitted 85 percent of their trades; and 18 percent of reporters submitted 95 percent of their trades. Specifically, FINRA analyzed trade reporting times by dealers and alternative trading systems (ATSs) under the current 15-minute reporting timeframe using TRACE data from January 2022 through December 2022.24 The analysis measured the time between the trade Time of Execution and report time (and in cases where reports were later corrected or canceled, to the time of the initial report). The analysis focused on transactions executed at or after 8:00 a.m. ET and before 6:15 p.m. ET on business days, the time window during which trades must be reported on that day as soon as practicable, but no later than within 15 minutes of the Time of Execution.25 The sample excluded covered depository institutions’ trade reports in MBS TBA GD and agency-issued fixed income securities, as they are subject to the Federal Reserve’s rule rather than FINRA’s rule.26 Reporting Times Across Products FINRA examined the distribution of trade reports from one to 15 minutes from the Time of Execution for corporate bonds, agency debt, MBS TBA GD, ELNs and ABS.27 Table 1 shows that corporate bonds and MBS TBA GD were, on average, reported the fastest among the products, with around 83 and 84 percent of the trades reported within one minute, respectively. Agency debt followed closely behind at 81 percent. ELNs were at 67 percent and ABS were at 52 percent of trades reported within one minute. Commenters, discussion with FINRA advisory committees, and outreach to members indicated that ELNs and ABS trading and reporting frequently involve manual handling of some aspect of the trade execution or reporting process. TABLE 1—REPORTING TIMES ACROSS PRODUCT TYPES All products (%) Minutes from execution 1 ............................................................... 2 ............................................................... 3 ............................................................... 4 ............................................................... 5 ............................................................... 10 ............................................................. 15 ............................................................. Share of Reports ...................................... 82.9 91.7 96.1 97.0 97.6 99.0 99.4 100.0 khammond on DSKJM1Z7X2PROD with NOTICES Reporting Time by Trade Size FINRA examined whether reporting timeframes differ across trade sizes. For 22 See Discussion: Economic Impacts, Anticipated Benefits. 23 FINRA aggregated reports across MPIDs (market participant identifier) belonging to the same CRD (central registration depository) number and excluded covered depository institutions. VerDate Sep<11>2014 17:22 Jan 24, 2024 Jkt 262001 Corporate (%) Agency (%) 83.1 91.7 96.3 97.3 97.8 99.2 99.5 88.9 MBS TBA GD (%) 80.7 92.4 94.9 96.0 96.6 98.8 99.2 2.8 84.1 93.8 95.8 96.7 97.3 98.6 99.5 7.4 ELN (%) ABS (%) 66.5 70.9 74.8 76.3 77.3 80.7 81.8 0.5 51.5 66.9 75.2 80.5 85.1 93.2 97.6 0.3 certain products, large trades are more likely to be more complex or a voice trade, or otherwise require manual handling. FINRA examined the distribution of trade reports from one to 15 minutes from the Time of Execution 24 All analysis used this sample period unless otherwise specified. 25 See supra note 11. 26 Covered depository institutions started to report to TRACE on September 1, 2022. In the first three quarters of 2023, reports by covered depository institutions represented 6.6 percent, 0.8 percent and 0.7 percent of the total MBS TBA GD, agency debt and ABS trade reports, respectively. 27 Corporate bond trades represented 88.9 percent of the 37,252,591 total reports in the sample while MBS TBA GD, agency debt, ELN and ABS accounted for 7.4 percent, 2.8 percent, 0.5 percent, and 0.3 percent, respectively. PO 00000 Frm 00148 Fmt 4703 Sfmt 4703 E:\FR\FM\25JAN1.SGM 25JAN1 5039 Federal Register / Vol. 89, No. 17 / Thursday, January 25, 2024 / Notices for trades with a par value of less than $1 million, greater than or equal to $1 million but less than $5 million, greater than or equal to $5 million but less than $10 million, greater than or equal to $10 million but less than $25 million, and greater than or equal to $25 million. Panel A of Table 2 shows that approximately 93 percent of reported trades were for less than $5 million, with 74 to 84 percent reported within one minute and 95 to 98 percent reported within five minutes. Similarly, for trades greater than or equal to $5 million, 77 to 81 percent were reported within one minute and 95 to 96 percent were reported within five minutes. Panel B of Table 2 shows that, for corporate bonds and agency debt, smaller trades were reported faster while larger trades took longer to report. FINRA found that 84 percent of corporate bond trades smaller than $1 million were reported within one minute whereas 62 percent of trades greater than or equal to $25 million were reported within one minute. For agency debt, 84 percent of trades smaller than $1 million were reported within one minute whereas 44 percent of trades greater than or equal to $25 million were reported within one minute. Trade size did not appear to be strongly associated with reporting time for other products.28 TABLE 2—REPORTING TIME ACROSS TRADE SIZE <$1M (%) Minutes from execution $1–<$5M (%) $5–<$10M (%) $10–<$25M (%) >=$25M (%) Panel A: Reporting Time by Trade Size (Par Value Traded) 1 ........................................................................................... 2 ........................................................................................... 3 ........................................................................................... 4 ........................................................................................... 5 ........................................................................................... 10 ......................................................................................... 15 ......................................................................................... Share of reports ................................................................... 84.1 92.7 96.8 97.6 98.0 99.2 99.4 84.1 74.3 83.8 91.0 93.3 94.8 97.9 98.9 9.3 81.0 89.0 93.7 95.2 96.2 98.4 99.2 3.2 77.3 87.3 92.6 94.3 95.4 97.9 99.1 1.5 81.0 91.9 94.6 95.7 96.4 98.3 99.2 1.9 64.8 50.8 84.1 57.9 48.7 61.7 44.2 82.0 61.5 49.6 Panel B: Percentages of Trades Reported Within One Minute by Trade Size (Par Value Traded) Product: Corporate ...................................................................... Agency .......................................................................... MBS TBA GD ............................................................... ELN ............................................................................... ABS ............................................................................... Reporting Time by Reporter Activity Level FINRA compared trade reporting times across firms with different levels of activity to assess how the potential burdens stemming from the proposed rule change would be distributed across firms. The analysis measured reporters’ activity by number of trades in 2022 and assigned them to three activity groups: 84.3 83.6 80.4 66.6 53.5 73.1 62.6 80.9 62.8 48.2 where a reporter’s trades accounted for less than 0.01 percent, 0.01 through 0.1 percent, or greater than 0.1 percent of total reported trades.29 Table 3 shows that the distribution of par value traded was concentrated in more active reporters. Eighty-four different reporters were in the most active group (accounting for over 0.1 percent of reported trades each), and together their activity represented 95.5 percent of the 65.8 56.0 90.1 61.0 47.8 total par value traded. There were 149 different reporters with 0.01 to 0.1 percent of reported trades each and their reports accounted for 4.2 percent of the total par value traded. The last activity group had 605 different reporters with less than 0.01 percent of reported trades each and together their activity represented 0.3 percent of the par value traded. TABLE 3—REPORTING TIMES BY REPORTER ACTIVITY LEVEL Number of reporters khammond on DSKJM1Z7X2PROD with NOTICES Reporter activity level Activity Group 1—Reporters with >0.1% of Trade Counts ....... Activity Group 2—Reporters with 0.01 to 0.1 of Trade Counts Activity Group 3—Reporters with <0.01 of Trade Counts ........ All Reporters ............................................................................. Market share (trade counts) (%) 84 149 605 838 94.1 4.9 0.9 100.0 Market share (par value) (%) 95.5 4.2 0.3 100.0 On average, the most active trade reporters reported their trades to TRACE more quickly. Specifically, 84 percent of trades executed by the most active 28 MBS TBA GD trades represented 96 percent of the trades larger than $25M and 82 percent of them were reported within one minute. 29 FINRA looked at finer distinctions of reporter activity level, but it did not yield additional insight. VerDate Sep<11>2014 17:22 Jan 24, 2024 Jkt 262001 PO 00000 Frm 00149 Fmt 4703 Sfmt 4703 Reporters reporting at least 95% of trades within one minute (%) Trades reported within one minute (%) 84.0 67.7 50.8 82.9 34.5 14.8 17.0 18.4 Trades reported within five minutes (%) 98.0 91.7 86.2 97.6 Reporters reporting at least 95% of trades within five minutes (%) 86.9 55.7 48.6 53.7 reporters (with more than 0.1 percent of reported trades) were reported within E:\FR\FM\25JAN1.SGM 25JAN1 5040 Federal Register / Vol. 89, No. 17 / Thursday, January 25, 2024 / Notices one minute, and 98 percent of their trades were reported within five minutes. In comparison, approximately 51 percent of trades executed by reporters with less than 0.01 percent of reported trades were reported within one minute, and 86 percent were reported within five minutes. FINRA notes that even less-active reporters reported at least some material portion of their trades within one minute. In addition, FINRA examined the reporting times by individual reporters by measuring the percentage of firms that reported at least 95 percent of their trades within one minute. Overall, approximately 18 percent of reporters submitted 95 percent of their trades within one minute. When examined by reporter activity level, 35 percent of reporters with greater than 0.1 percent of trade reports submitted 95 percent of their trades within one minute, compared to 17 percent of reporters with less than 0.01 percent of trade reports. FINRA notes that most firms reported some material portion of their trades after one minute, regardless of their level of trading activity. Reporting Time for After Hours Trades FINRA examined trades that were executed during TRACE system hours and compared the findings to trades that were executed outside of these hours, which are subject to different reporting timeframe requirements. Table 4 shows that trades executed and reported after hours represented only 1.18 percent of total par value. In all cases, these trades took longer to report. For instance, less than 21 percent of trades executed between 6:15 and 6:29 p.m. ET were reported within one minute,30 while just over 49 percent of trades executed between 6:29 p.m. and 8:00 a.m. ET the next day or on non-business days were reported within one minute after the TRACE system opened.31 TABLE 4—REPORTING TIMES BY TIME OF DAY Minutes from execution Time group 1: 8:00 a.m. to 6:15 p.m. ET (%) Time group 2: 6:15 p.m. to 6:29 p.m. ET (%) Time group 3: before 8:00 a.m. or after 6:29 p.m. ET or nonbusiness day * (%) 82.9 91.7 96.1 97.0 97.6 99.0 99.4 98.8 20.9 26.3 36.7 57.1 71.9 96.2 96.2 0.0 49.2 81.4 90.4 92.9 93.9 96.6 96.8 1.2 1 ................................................................................................................................................... 2 ................................................................................................................................................... 3 ................................................................................................................................................... 4 ................................................................................................................................................... 5 ................................................................................................................................................... 10 ................................................................................................................................................. 15 ................................................................................................................................................. Share of Reports ......................................................................................................................... * For time group three, for trades before 8:00 a.m. ET, FINRA measured the reporting time from TRACE opening on the same business day; for trades after 6:29 p.m. ET or on non-business day, FINRA measured the reporting time from TRACE opening on the next business day. security master), which requires firms to engage in a set-up process to facilitate execution or trade reporting. FINRA examined the reporting time for bonds when they first start to trade in the secondary market. Table 5 shows that in the three-day period after secondary market trading commenced in a newly issued bond, 63 percent of trades were reported within one minute, as Execution and Trade Reporting Scenarios FINRA examined several trading scenarios, described further below, where trading or reporting could involve manual processes. When a bond starts to trade, the security may not be on the member firm’s security master (or on FINRA’s compared to 83 percent for trades executed more than three days after the first trade. Longer reporting times were associated with the commencement of secondary market trading in newly issued bonds, but not in cases where a firm first started to trade a bond that was not new to market (but where the firm had not previously traded the security). TABLE 5—REPORTING OF TRADES IN NEWLY ISSUED BONDS First three days of S1 trading (%) khammond on DSKJM1Z7X2PROD with NOTICES Minutes from execution 1 ............................................................................................................................................................................... 2 ............................................................................................................................................................................... 3 ............................................................................................................................................................................... 4 ............................................................................................................................................................................... 5 ............................................................................................................................................................................... 10 ............................................................................................................................................................................. 15 ............................................................................................................................................................................. Share of Reports ..................................................................................................................................................... 30 Under the current rule, these trades can be reported either on the same day before TRACE closes or the next business day no later than 15 minutes after the TRACE system opens. Under the VerDate Sep<11>2014 17:22 Jan 24, 2024 Jkt 262001 proposed rule change, such trades must be reported as soon as practicable on the same day, but no later than within one minute of the time of execution. PO 00000 Frm 00150 Fmt 4703 Sfmt 4703 63.1 77.3 83.5 86.3 88.0 92.0 93.5 1.7 All other days (%) 83.3 91.9 96.3 97.2 97.8 99.1 99.5 98.3 31 Under the current and proposed rules, these trades must be reported as soon as practicable, but no later than 15 minutes after the TRACE system opens. E:\FR\FM\25JAN1.SGM 25JAN1 5041 Federal Register / Vol. 89, No. 17 / Thursday, January 25, 2024 / Notices FINRA examined transaction reporting times for self-cleared trades as well as those cleared through thirdparty clearing firms and found that trades that are cleared through thirdparty clearing firms overall took longer to report. For trades cleared through a third party, 71 percent were reported within one minute, as compared to 85 percent for self-cleared trades. FINRA found that trades through some thirdparty clearing firms were reported as fast as self-cleared trades. There were also significant variations in trade reporting time by correspondent firms through the same third-party clearing firm. TABLE 6—THIRD-PARTY CLEARING Third party clearing (%) Minutes from execution 1 ............................................................................................................................................................................... 2 ............................................................................................................................................................................... 3 ............................................................................................................................................................................... 4 ............................................................................................................................................................................... 5 ............................................................................................................................................................................... 10 ............................................................................................................................................................................. 15 ............................................................................................................................................................................. Share of Reports ..................................................................................................................................................... FINRA examined transaction reporting times for trades that were subsequently suballocated across multiple accounts and found that, for allocated trades,32 68 percent were reported within one minute, as compared to 84 percent for other trades. FINRA found significant variation in 71.4 91.9 96.0 97.1 97.7 99.1 99.4 16.5 Self-clearing (%) 85.2 91.6 96.1 97.0 97.6 99.0 99.4 83.5 reporting time for allocated trades by different reporters.33 TABLE 7—ALLOCATED TRADES Allocation (%) Minutes from execution 1 ............................................................................................................................................................................... 2 ............................................................................................................................................................................... 3 ............................................................................................................................................................................... 4 ............................................................................................................................................................................... 5 ............................................................................................................................................................................... 10 ............................................................................................................................................................................. 15 ............................................................................................................................................................................. Share of Reports ..................................................................................................................................................... FINRA examined transaction reporting times for basket or portfolio trades and found that overall, these trades take longer to report. For portfolio trades,34 65 percent were reported within one minute, as compared to 85 percent for other trades. Within five minutes, 97.5 percent of portfolio trades were reported, as compared to 97.7 percent for other trades. FINRA also examined the reporting time by portfolio size. While larger baskets do tend to be reported more slowly, FINRA observed a range of reporting times for portfolio trades within the same basket size band—for example, 57.0 percent of portfolio trades in the 300–1,000 securities band are reported within one minute and 20.1 percent of portfolio trades in the 1,000+ 68.2 86.6 90.6 92.2 93.0 97.7 99.0 5.2 Nonallocation (%) 83.7 92.0 96.4 97.3 97.8 99.1 99.4 94.8 securities band are reported within one minute.35 There were also significant variations in the reporting time of portfolio trades by different reporters. This suggests that other factors (e.g., the technology employed) besides the size of the portfolio trade may be driving the reporting timeframe. TABLE 8—PORTFOLIO TRADES Portfolio trade (%) khammond on DSKJM1Z7X2PROD with NOTICES Minutes from execution 1 2 3 4 ............................................................................................................................................................................... ............................................................................................................................................................................... ............................................................................................................................................................................... ............................................................................................................................................................................... 32 An allocation flag does not exist in TRACE, so FINRA used heuristics to identify those trades. 33 Five out of 29 reporters that reported allocation trades were able to report 90 percent of their allocation trades within one minute. Seven more were able to report 90 percent of their allocation trades within five minutes. VerDate Sep<11>2014 17:22 Jan 24, 2024 Jkt 262001 34 FINRA used heuristics to identify portfolio trades since a portfolio trade identifier did not exist before May 15, 2023. 35 Over 99 percent of portfolio trades include a basket of less than 1,000 securities and the vast majority—nearly 85 percent—are baskets of less than 300 securities. Of the nearly 85 percent of PO 00000 Frm 00151 Fmt 4703 Sfmt 4703 65.3 83.1 94.2 96.5 Non-portfolio trade (%) 85.0 92.8 96.4 97.2 portfolio trades for baskets of less than 300 securities, over 97.9 percent of these are reported within five minutes; 96.9 percent of portfolio trades for baskets of between 300 and 1,000 securities are reported within five minutes; and 40.0 percent of the 0.69 percent of portfolio trades larger than 1,000 securities are reported within five minutes. E:\FR\FM\25JAN1.SGM 25JAN1 5042 Federal Register / Vol. 89, No. 17 / Thursday, January 25, 2024 / Notices TABLE 8—PORTFOLIO TRADES—Continued Portfolio trade (%) Minutes from execution 5 ............................................................................................................................................................................... 10 ............................................................................................................................................................................. 15 ............................................................................................................................................................................. Share of Reports ..................................................................................................................................................... FINRA analyzed the number of transactions executed on or through an ATS, which approximates a subset of electronically executed and reported transactions. ATS trades represented 28.1 percent of total trade reports during the sample period. Of those, 81.0 percent were reported within one minute and 93.9 percent were reported within two minutes. For non-ATS trades, which represented 71.9 percent of total reports (some of which may Non-portfolio trade (%) 97.5 99.1 99.5 9.5 97.7 99.1 99.4 90.5 qualify for the phased-in five-minute reporting timeframe available for manual trades), 83.7 percent were reported within one minute and 96.9 percent were reported within five minutes. TABLE 9—ATS TRADES ATS trade (%) Minutes from execution 1 ............................................................................................................................................................................... 2 ............................................................................................................................................................................... 3 ............................................................................................................................................................................... 4 ............................................................................................................................................................................... 5 ............................................................................................................................................................................... 10 ............................................................................................................................................................................. 15 ............................................................................................................................................................................. Share of Reports ..................................................................................................................................................... Economic Impacts khammond on DSKJM1Z7X2PROD with NOTICES Anticipated Benefits The proposed reporting timeframe reduction would require members to adopt enhancements to their current trade reporting processes to facilitate timelier reporting for transactions that currently are not reported within one minute (in 2022, 82.9 percent of the trades executed after 8:00 a.m. and before 6:15 p.m. E.T. were reported within one minute of execution). The proposed rule change therefore likely would result in quicker reporting and thus dissemination of transaction information for at least a portion of the approximately 17 percent of transactions that are not currently reported within one minute of execution. FINRA estimates that, after adjusting for the proposed de minimis exception, up to 16.4 percent, or 6.1 million trades and 20 trillion dollars in par value annually, might potentially be reported faster than today (these estimates would be adjusted further to account for manual trades—to the extent firms rely on the proposed exception with respect to such trades—which FINRA is currently unable to identify in the TRACE data). FINRA analyzed the number of transactions executed on or through an ATS, which approximates a subset of VerDate Sep<11>2014 17:22 Jan 24, 2024 Jkt 262001 electronically executed and reported transactions for which the manual trades exception will not be applicable. ATS trades represented 28.1 percent of total reports during the sample period. Of those, 81.0 percent were reported within one minute and 93.9 percent were reported within two minutes. This indicates that the proposed rule change will likely result in at least an additional 5.3 percent (28.1 percent × (1¥.81)) of total trades being reported within one minute (not accounting for the impact of the proposed de minimis exception). For the 71.9 percent nonATS trades (some of which may qualify for the manual trades exception), 96.9 percent were reported within five minutes. This indicates that the proposed rule change will likely result in at least another 2.2 percent (71.9 percent × (1¥.969)) of total trades being reported within five minutes in three years (not accounting for the impact of the proposed de minimis exception).36 A reduction in the time between trade execution and price dissemination would enhance transparency in the fixed income market and is consistent 36 FINRA also examined the reporting time for trades that were manually entered into the TRACE system through the TRAQS web interface rather than through the automated messaging protocol. The median time for web entry is four to five minutes. PO 00000 Frm 00152 Fmt 4703 Sfmt 4703 81.0 93.9 98.7 99.1 99.3 99.7 99.8 28.1 Non-ATS trade (%) 83.7 90.8 95.1 96.2 96.9 98.7 99.2 71.9 with the purposes of TRACE. Timelier reporting would allow FINRA to provide more timely pricing and other transaction information to the market, which supports more efficient price formation. Timely reporting has also been shown to increase dealer marketmaking activities in the municipal markets.37 While members may benefit 37 In the municipal bond market, research has shown that customer trade costs measured as effective spread decreased after the 2005 change in the trade reporting time requirement, which was from the end of a trading day to 15 minutes after execution. To the extent that more timely reporting may have a similar impact on other fixed income markets, FINRA expects that shortening the reporting timeframe would reduce customer trading costs. Timely reporting has also been shown to increase dealer market-making activities in the municipal markets, indicated by an increase in the overnight and over-the-week dealer capital committed to inventory, an increase in the number of dealers involved in completing a round-trip transaction, and more round-trip transactions that involve inventory taking. No similar studies were done in the corporate bond market, possibly due to the fact that the previous reporting timeframe reduction for corporate bonds coincided with other TRACE rule changes, so the effect was difficult to isolate. See Erik R. Sirri, Report on Secondary Market Trading in the Municipal Securities Market, July 2014 (Research Paper, Municipal Securities Rulemaking Board), https://www.msrb.org/sites/ default/files/2022-09/MSRB-Report-on-SecondaryMarket-Trading-in-the-Municipal-SecuritiesMarket.pdf; John Chalmers, Yu (Steve) Liu & Z. Jay Wang, The Differences a Day Makes: Timely Disclosure and Trading Efficiency in the Muni Market, 139(1) Journal of Financial Economics 313– 335 (2021). E:\FR\FM\25JAN1.SGM 25JAN1 Federal Register / Vol. 89, No. 17 / Thursday, January 25, 2024 / Notices directly from the expedited price discovery, investors are also likely to benefit from better execution prices from members. In particular, the proposed rule change would aid investors and other market participants in obtaining and evaluating pricing and other market information more quickly. For example, FINRA identified trades that fell into the one to 15-minute window after a prior trade of the same bond but executed before the prior trade was reported. These trades could have potentially benefited from the knowledge of the material terms of the prior (as yet unreported) trade had the prior trade been reported within one minute instead of 15 minutes.38 For corporate bonds, these trades represented 1.6 percent of the sample reports or 3.4 percent of par value (not accounting for the impact of the proposed de minimis or manual trades exceptions). Large trades took longer on average to report than smaller trades. Large trades may also have a greater impact on the direction of the market. To the extent the proposed rule change results in faster dissemination of pricing information for large trades, the market could benefit from earlier access to information that could be more indicative of market movement.39 khammond on DSKJM1Z7X2PROD with NOTICES Anticipated Costs FINRA believes that the proposed rule change would likely result in direct and indirect costs for members to implement changes to their processes and systems for reporting transactions to TRACE within the new timeframes. While members currently using a third-party reporting service may incur less costs, as these costs will likely be borne largely by the third-party reporting service which may spread the costs across all of the reporting firms using its services, those firms that do not currently use a third-party reporting service may opt to do so if the costs would be lower than building or augmenting their own system. However, as discussed above, FINRA proposes to provide relief for members with respect to manual trades and for members with 38 The analysis excluded trades by a reporter that was also a party to the prior trade. 39 Faster reporting of large trades may also level the information playing field in the market between dealers and other investors. Research shows that investors obtained economically large cost reductions on offsetting trades of a block position by dealers that occurred after, relative to before, the report of the block trade. See Stacey E. Jacobsen & Kumar Venkataraman, Asymmetric Information and Receiving Investor Outcomes in the Block Market for Corporate Bonds (March 23, 2023), available at SSRN: https://ssrn.com/abstract=4398494 or https:// dx.doi.org/10.2139/ssrn.4398494. VerDate Sep<11>2014 17:22 Jan 24, 2024 Jkt 262001 de minimis reporting activity, which should mitigate these costs. All members that execute or report a trade manually would incur costs to append the manual trade indicator. Most firms reported some material portion of their trades after one minute. This is true even for very active firms that may have a more sophisticated trade reporting infrastructure in place. For these trades, members may incur costs to modify their reporting systems and procedures to report more quickly and to monitor that the trades are reported in the required timeframe. The costs may be mitigated by the proposed relief for members with respect to manual trades and for members with de minimis reporting activity. Given current differences in access to trading and reporting technologies across firms, some firms may be impacted by the proposed rule change more than others. FINRA understands that larger and more active firms already employ reporting services and technologies to automate trade reporting and would be better positioned to absorb the costs of the proposal. Any impact on competition is likely to be limited, given the proposed exceptions described above. In particular, the de minimis exception would provide relief for those members for which the technological changes required may be more significant relative to their level of activity in this space. Based on 2022 data, the proposed de minimis threshold would provide relief to 640 (out of 838 currently active) members that, in the aggregate, accounted for 1.41 percent of trades or 0.43 percent of the total par value traded. Additionally, given trading in the fixed income products covered by the proposed rule change in many instances continues to involve manual intervention at some point to complete the trade execution or reporting process (e.g., trades executed by telephone, email, or chat or trades subject to manual review), requiring these trades to be reported in one minute could negatively impact market efficiency and competition. For example, customers might participate less in fixed income markets without the availability of voice brokerage services, or if these trades were pushed to electronic platforms, trading may become concentrated among fewer member firms, potentially reducing trading opportunities and liquidity. FINRA believes that the fiveminute exception for manual trades, coupled with the phase-in period, will allow firms relying upon some manual components in their trading or reporting process to continue to trade in these markets while complying with the new PO 00000 Frm 00153 Fmt 4703 Sfmt 4703 5043 requirements, and therefore limit the potential for a negative impact on these markets. Some firms close to exceeding the de minimis threshold may choose to reduce the number of trades to qualify for the exception. However, this may only happen infrequently given the twocalendar year lookback period. Coupled with the fact that members can again qualify for the exception and that members under the de minimis threshold accounted for only a very small portion of the market volume, FINRA expects that the impact on overall trading will be minimal. FINRA notes that as markets evolve or firms adjust to the new requirements, the number of dealers meeting the de minimis exception and the par value of their trades may change over time, even if the threshold for qualifying for the exception remains the same. Members qualifying for the de minimis exception will be exempted from the one-minute requirement for all of their trade reports, and therefore will not incur costs to modify their reporting procedures and systems to report more quickly. On the other hand, the proposed relief for manual trades will likely apply to only some reports of a firm. Thus, members that do not qualify for the de minimis exception— depending upon the circumstances— would be required to incur costs to comply with the five-minute reporting requirement for manual trades and oneminute reporting requirement for other trades. All members that execute or report a trade manually would be required to append the manual trade indicator, and members relying on the manual trades exception would be required to document their eligibility for the relief. Depending on the relative costs of investing in systems to report in a timelier manner, members may opt to change their practices around executing and reporting trades to comply in ways other than improving the reporting process, and such modifications might have implications for the way in which a member operates its business and manages competing tasks. Members may also be reluctant to conduct trades for which it will be difficult to comply with the shortened reporting timeframe instead of making system changes necessary to comply. However, any indirect costs incurred as a result are bounded by the costs of improving the reporting process. FINRA expects that members will choose to improve their reporting process if it is more cost effective than other compliance approaches. The cost effectiveness of improving the reporting process through E:\FR\FM\25JAN1.SGM 25JAN1 5044 Federal Register / Vol. 89, No. 17 / Thursday, January 25, 2024 / Notices khammond on DSKJM1Z7X2PROD with NOTICES direct investment is likely positively correlated with the percentage of a firm’s trades subject to the shortened reporting timeframes. Those firms that find it less cost effective—because a small number of trades will be impacted—are more likely to qualify for the de minimis exception. Alternatives Considered FINRA considered requiring members to report trades as soon as practicable but no later than five minutes from execution. In 2022, 82.9 percent of trades were reported within one minute after a trade execution. By comparison, in 2022 more than 97.6 percent of trades were reported in five minutes or less. Accordingly, reducing the required reporting time to as soon as practicable but no later than five minutes would enhance the timeliness of up to only 2.4 percent of the trades as compared to 17.1 percent by moving to no later than one minute. FINRA believes a fiveminute reporting requirement would not meaningfully advance the immediacy of information transparency for market participants. FINRA considered several alternatives to the threshold for the de minimis trading exception from the one-minute reporting requirement. First, FINRA considered basing the relief on the par value traded rather than the number of trade reports. A par value-based de minimis exception would require even less-active dealers to meet the oneminute reporting requirement if they engaged in significant aggregate dollar volume trading and thus this approach could result in more large trades being subject to the one-minute reporting requirement. However, FINRA believes that the number of trade reports submitted over the period is a more appropriate measurement. The number of trade reports tracks more closely the costs that firms incur when reporting and the necessary investments in speeding up their reporting. Additionally, the proposed exception (using the proposed 4,000-trade report threshold) would only impact a de minimis percent of par value traded. FINRA also considered a combination of the par value and the number of trades as the threshold for the de minimis exception, but that would have unnecessarily increased the complexity of the exception. FINRA also considered basing the exception on different levels of trading activity, for example, up to 10,000 trades. However, FINRA determined that a threshold above 4,000 trades would result in the loss of more timely information from members that trade significant volumes (74 members reporting between 4,000 and 10,000 VerDate Sep<11>2014 17:22 Jan 24, 2024 Jkt 262001 trades traded more than $1 billion par value, with the highest par value traded being $452 billion). Accordingly, FINRA believes that the scope of the proposed one-minute requirement will apply to firms that are active participants in the relevant TRACE-Eligible Securities and should be required to implement the reporting changes. Therefore, the proposed threshold for the de minimis exception (less than 4,000 trades during one of the prior two calendar years) will ensure that markets receive more timely information from more active firms. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others FINRA solicited comment on a proposal to reduce the 15-minute reporting timeframe to one minute in Regulatory Notice 22–17 (August 2022). Forty-four comments were received in response to the Regulatory Notice. A copy of the Regulatory Notice is available on FINRA’s website at https:// www.finra.org. A list of the comment letters received in response to the Regulatory Notice is available on FINRA’s website.40 Copies of the comment letters received in response to the Regulatory Notice are also available on FINRA’s website. Three commenters expressed overall support for the proposal,41 while other commenters expressed concerns about the proposal. The comments are summarized below. Small Firm Impact Commenters expressed concerns that implementation of the proposal would be costly for all member firms,42 but many commenters expressed particular concern that small member firms, including many minority, women, and veteran-owned broker-dealers, would be the most burdened by the implementation costs.43 Commenters believed that these firms would be most affected by the change (and stated that a significant portion of their trades are not already reported within or near one40 See SR–FINRA–2024–004 (Form 19b–4, Exhibit 2b) for a list of abbreviations assigned to commenters (available on FINRA’s website at https://www.finra.org). Commenters Anonymous, Barrientos, Coker, Dapena, Kienbaum, Moise, Purpura, Rogan, Seinfeld, Sosa, Steichen, and Tovar are collectively referred to as ‘‘Individual Commenters.’’ Commenter Crescent expressed its support of ASA’s letter, which is referenced specifically below. 41 See Dimensional; FIA PTG; HMA. 42 See ASA; BDA; Beech; Colliers; Falcon Square; HJS; ICE Bonds; InspereX; ISC; NatAlliance; RBI; SIFMA; UPitt Clinic; Wiley. 43 See Arkadios; ASA; BDA; Beech; Colliers; Falcon Square; IBI 1 and 2; Individual Commenters; InspereX; ISC; NatAlliance; RBI; SIFMA; UPitt Clinic; VFM; Wiley. PO 00000 Frm 00154 Fmt 4703 Sfmt 4703 minute) and would have fewer resources to make changes needed to meet the new timeframe.44 Some of these commenters expressed concern that many small broker-dealers would exit the market for fixed income secondary market trading because of the high implementation and compliance costs, harming the smaller retail investors that depend on small member firms for access to the market.45 To address these concerns, as described above, FINRA is proposing to provide an exception for members with de minimis reporting activity. FINRA believes that this exception, which would except firms with fewer than 4,000 transactions in the TRACEEligible Securities subject to paragraphs (a)(1)(A) through (a)(1)(D) of Rule 6730, is calibrated to provide relief to firms that engage in limited activity in the TRACE-Eligible Securities subject to the proposed one-minute reporting timeframe, and therefore may not have systems in place that would enable reporting within one minute. Member firms with ‘‘limited trading activity’’ as defined in proposed Supplementary Material .08(a) would continue to be subject to the 15-minute outer limit reporting timeframe. Reporting Feasibility Commenters identified several circumstances under which the nature of the execution or reporting process may make it unfeasible to report within one minute. In particular, commenters argued that manually executed or reported trades,46 including large trades that must then be manually allocated to multiple subaccounts 47 and some complex transactions that involve multiple securities,48 cannot feasibly be reported within one-minute. Some commenters argued that reducing the reporting timeframe to one minute in these instances would threaten the viability of these types of trades, negatively impacting liquidity 49 and harming the retail investors, who may not be accustomed to electronic trading, serviced by these firms.50 Commenters also raised other scenarios that they believe present operational obstacles to 44 See Arkadios; BDA; Beech; Colliers; Falcon Square; IBI 1 and 2; InspereX; Individual Commenters; ISC; NatAlliance; RBI; SIFMA; UPitt Clinic; VFM; Wiley. 45 See Arkadios; BDA; IBI 1 and 2; Individual Commenters; ISC; SIFMA; UPitt Clinic; VFM. 46 See ASA; BDA; Beech; BMO CM; Cambridge; FIF; HJS; HTD; IBI 1 and 2; ICI; InspereX; ISC; Lynch; SAMCO; Seaport; SIFMA; Wells Fargo; Wiley; WMBAA. 47 See BDA; BetaNXT; SIFMA; Wells Fargo. 48 See SAMCO; SIFMA; Wells Fargo. 49 See IBI 1; ICI; SIFMA. 50 See HJS; IBI 2; ISC; SIFMA. E:\FR\FM\25JAN1.SGM 25JAN1 Federal Register / Vol. 89, No. 17 / Thursday, January 25, 2024 / Notices khammond on DSKJM1Z7X2PROD with NOTICES reporting trades within one minute, such as where the security is not already in the firm’s security master (or on FINRA’s master list) due to the set-up process (internally or with FINRA),51 as well as trades executed when the TRACE system is not open that must be reported within one minute after the TRACE system re-opens the next trading day.52 With respect to commenters’ concern that certain types of transactions cannot feasibly be reported within one minute, FINRA believes that the exception for manual trades included in the proposed rule change will adequately address these concerns. New Supplementary Material .09 would phase in a fiveminute reporting standard for trades that involve manual intervention in the execution or reporting process. This exception would address commenters’ concern that reducing the reporting timeframe to one minute would threaten the viability of manual trades. Similarly, based on feedback from commenters and outreach to members, FINRA understands that other types of trades raised by commenters, such as some allocation trades and portfolio or list trades, may involve manual intervention in either the execution or reporting process 53 and, if so, would therefore qualify for the manual trades exception’s extended reporting timeframe. In that regard, 96.9 percent of non-ATS trades are already reported within five minutes; 97.5 percent of portfolio trades are already reported within five minutes; and 93 percent of allocation trades are already reported within five minutes. The phase-in period from implementation is intended to provide members with time to implement a reasonable process to comply with the reduced reporting timeframe with respect to their manual trades. Trades that do not qualify for the manual trades exception must be reported as soon as practical but no later than within one minute of the time of execution. As discussed above, FINRA has observed a range of reporting times for portfolio trades within the same basket size band 54 and similar variation in reporting times for allocation trades 51 See Anonymous; ASA; BDA; BetaNXT; FIF; SAMCO; SIFMA; Wells Fargo. 52 See FIF; SIFMA. FINRA notes that these trades would not be subject to the one-minute reporting timeframe under the proposed rule change and would continue to be subject to the current 15minute outer limit. 53 See SAMCO; SIFMA; Wells Fargo. 54 For example, 57.0 percent of portfolio trades in the 300–1,000 securities band were reported within one minute and 20.1 percent of portfolio trades in the 1,000+ securities band were reported within one minute. VerDate Sep<11>2014 17:22 Jan 24, 2024 Jkt 262001 depending on the reporter.55 This suggests that even large portfolio and allocation trades can be reported within one minute and other factors (e.g., the technology employed to execute or report the trade) contribute to the reporting timeframe. Commenters raised additional concerns that other operational obstacles might make reporting trades within one minute unfeasible. As mentioned above, FINRA believes many of the concerns raised should be addressed with the proposed exceptions; however, other instances described by commenters do not appear to warrant an exception. For example, with respect to comments that TRACE reporting through a third-party clearing firm presents an operational obstacle to one minute reporting, FINRA has observed that 71 percent of third-party cleared trades are reported within one minute (as compared to 85 percent for self-cleared trades), and there are significant variations in trade reporting time by correspondent firms through the same third-party clearing firm, which suggests that other factors contribute to the reporting timeframe. FINRA notes that many smaller members rely on their third-party clearing firms to report trades to TRACE. Under the proposed rule change, members with ‘‘limited trading activity’’ would continue to be subject to a 15-minute outer limit reporting standard. With respect to trades in securities that are not already in the member firm’s security master (or on FINRA’s master list), FINRA believes that the proposed rule change’s exception for manual trades should help alleviate commenters’ concerns. FINRA understands that setting up a security in a firm’s security master (or with FINRA) typically involves manual intervention. Thus, initial trades in such securities— where manual steps must be taken to set up the security at the firm or with FINRA before the trade(s) can be booked or reported—would be subject to the phased-in five-minute reporting standard for manual trades rather than the one-minute standard. In addition, in response to commenters’ concern regarding trades reportable to FINRA on the next business day, FINRA is proposing to retain a reporting timeframe of as soon as practicable but no later than within 15 minutes of when the TRACE system opens. 55 Sixty-eight percent of allocated trades were reported within a minute, with five out of 29 members that reported allocation trades able to report 90 percent of their allocation trades within one minute. PO 00000 Frm 00155 Fmt 4703 Sfmt 4703 5045 Market Impact While some commenters argued that the benefits associated with shortening the timeframe for trade reporting have not been sufficiently explained,56 FINRA agrees with other commenters that the proposed rule change will increase transparency,57 which has historically been shown to improve price discovery and reduce trading costs.58 FINRA believes that the proposed rule change’s exceptions for members with de minimis reporting activity and for manual trades will mitigate the potential for the proposed rule change to have a negative impact on liquidity or execution quality.59 With respect to commenters’ concerns that the more rapid dissemination of trades could negatively impact liquidity for block trades 60 and benefit algorithmic traders at the expense of retail and institutional investors,61 FINRA believes the current trade dissemination caps effectively mitigate these concerns, and note that members already have an obligation under the current Rule to report trades as soon as practicable and are not permitted to delay the reporting (and thus dissemination) of trades. FINRA recognizes that covered depository institutions will not be subject to the proposed rule change.62 However, FINRA continues to believe that the proposed rule change is appropriate at this time. First, until recently, covered depository institutions did not report transactions to TRACE at all,63 and they are not subject to the TRACE reporting requirement for all TRACE-Eligible Securities. In addition, covered depository institutions do not 56 See Arkadios; ASA; BDA; Cambridge; Falcon Square; HJS; HTD; IBI 2; InspereX; ISC; RBI; SAMCO; SIFMA; TRADEliance; Wells Fargo. 57 See Dimensional; FIA PTG; HMA. 58 See Discussion: Economic Impacts, Anticipated Benefits. 59 As discussed above, the proposed rule change’s exception for members with ‘‘limited trading activity’’ should address commenters’ concern that the proposal’s implementation costs may cause many small firms to exit the fixed income market, negatively impacting liquidity. See Falcon Square; IBI 1 and 2; Individual Commenters; InspereX; ISC; SIFMA; VFM; Wiley. Likewise, FINRA believes that the manual trades exception should address commenters’ concerns regarding the continued viability of manual trades and the ability to hedge large trades and trades in thinly traded securities, which FINRA understands are often executed manually. See IBI 1; ICI; SIFMA. Similarly, the exception for manual trades would provide an extended reporting timeframe to accommodate manual intervention in the trade execution or reporting process to conduct best execution and fair pricing reviews. See ASA; SIFMA. 60 See ICI; SIFMA. 61 See BMO CM; SIFMA; VFM. 62 See InspereX; SIFMA. 63 Covered depository institutions started to report to TRACE on September 1, 2022. See 86 FR 59716, 59717 (October 28, 2021). E:\FR\FM\25JAN1.SGM 25JAN1 5046 Federal Register / Vol. 89, No. 17 / Thursday, January 25, 2024 / Notices report a significant number of trades in agency debt since they began reporting to TRACE.64 While covered depository institutions are more active in the MBS TBA GD market, this activity has historically been concentrated in a few large institutions. FINRA believes that any potential competitive disadvantage is speculative. On balance, FINRA thinks the proposed rule change is appropriate and should improve the timing of market information. khammond on DSKJM1Z7X2PROD with NOTICES Other Issues While the proposed rule change may lead to an increase in reporting errors, corrections, and late reporting rates, particularly at the outset as members adapt to the proposed rule change’s new standards,65 FINRA expects that the impact to members’ accuracy and late reporting rates will largely be temporary, as accuracy and timeliness will increase as members adapt to the proposed rule change’s new standards. FINRA also intends to provide members with a sufficient implementation timeframe to make the changes necessary to comply with the reduced reporting timeframe (for example, approximately within 18 months from any SEC approval). As stated above, FINRA will announce the effective date of the proposed rule change in a Regulatory Notice. FINRA also believes that the extended reporting timeframes available for members with de minimis reporting activity and for manual trades will help mitigate these issues. FINRA likewise believes that the exception for manual trades will help mitigate commenters’ concern that errors will be less likely to be corrected within the reporting timeframe as FINRA understands that trade report corrections often involve manual intervention (e.g., a customer calling or instant messaging/chatting to request a change to the trade, which change is then manually made to the trade ticket/booking entry).66 Under such circumstances, the trade would qualify for the extended reporting timeframe applicable to manual trades.67 Additionally, in the event a trade report correction cannot be completed within the applicable timeframe, FINRA has historically taken 64 Covered depository institutions’ transactions in ABS are limited to SBA-Backed ABS. 65 See Arkadios; BDA; Beech; BMO CM; Cambridge; HJS; HTD; IBI 2; ICI; Individual Commenters; InspereX; SAMCO; Seaport; SIFMA; VFM. 66 See Arkadios; ASA; BDA; Beech; BMO CM; Cambridge; HJS; HTD; ICI; InspereX; SAMCO; Seaport; SIFMA; VFM. 67 To the extent the trade was originally fully electronic, when the member amends the trade report, it should add the Manual Trade Indicator. VerDate Sep<11>2014 17:22 Jan 24, 2024 Jkt 262001 into account whether cancels and corrections are driving untimely reporting and the reason(s) for the cancels and corrections in monitoring members for compliance with the Rule and assessing whether a firm has a ‘‘pattern or practice’’ of late reporting. Accordingly, FINRA believes that potential issues related to errors, corrections, and late reporting will not be significant and do not outweigh the proposed rule change’s potential benefits. Finally, commenters also suggested a number of alternatives to the proposal that they believed would improve the TRACE reporting regime, including implementing a phased-in approach to shortening the reporting timeframe,68 establishing a global securities master list,69 improving TRACE’s web-based reporting interfaces, reducing TRACE system latencies and providing more transparency regarding systems issues that may impact reporting,70 and providing additional guidance on members’ ‘‘as soon as practicable’’ reporting obligation and additional TRACE reporting metrics to members.71 FINRA determined to implement a phased-in approach to reducing the reporting timeframe to five minutes for manual trades in light of commenters’ concerns. However, FINRA does not believe that the alternatives proposed by commenters will provide improvements to the TRACE reporting regime similar to those of the proposed rule change. Accordingly, FINRA determined to move forward with the proposal while it also continues to consider other ways to provide more timely, granular and informative data to market participants and enhance the value of disseminated transaction data. 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: 68 See Arkadios; ICE Bonds; ICI; InspereX; TRADEliance; UPitt Clinic; SIFMA; VFM. 69 See SIFMA. For corporate bonds, FINRA has proposed establishing a reference data service for new issues. See Securities Exchange Act Release No. 85488 (April 2, 2019), 84 FR 13977 (April 8, 2019) (Notice of Filing of File No. SR–FINRA– 2019–008) (Proposed Rule Change to Establish a Corporate Bond New Issue Reference Data Service). 70 See SIFMA. 71 See FIF; SIFMA. PO 00000 Frm 00156 Fmt 4703 Sfmt 4703 (A) by order approve or disapprove such proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include file number SR– FINRA–2024–004 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–2024–004. 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–2024–004 and should be submitted on or before February 15, 2024. E:\FR\FM\25JAN1.SGM 25JAN1 Federal Register / Vol. 89, No. 17 / Thursday, January 25, 2024 / Notices For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.72 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2024–01395 Filed 1–24–24; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [SEC File No. 270–574, OMB Control No. 3235–0648] khammond on DSKJM1Z7X2PROD with NOTICES Submission for OMB Review; Comment Request; Extension: Rule 498 Upon Written Request, Copies Available From: Securities and Exchange Commission, Office of FOIA Services, 100 F Street NE, Washington, DC 20549–2736 Notice is hereby given that, pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) (‘‘Paperwork Reduction Act’’), the Securities and Exchange Commission (‘‘the Commission’’) has submitted to the Office of Management and Budget (‘‘OMB’’) a request for extension of the previously approved collection of information discussed below. Rule 498 (17 CFR 230.498) under the Securities Act of 1933 (15 U.S.C. 77a et seq.) (‘‘Securities Act’’) permits openend management investment companies (‘‘funds’’) to satisfy their prospectus delivery obligations under the Securities Act by sending or giving key information directly to investors in the form of a summary prospectus (‘‘Summary Prospectus’’) and providing the statutory prospectus on a website. Upon an investor’s request, funds are also required to send the statutory prospectus to the investor. In addition, under rule 498, a fund that relies on the rule to meet its statutory prospectus delivery obligations must make available, free of charge, the fund’s current Summary Prospectus, statutory prospectus, statement of additional information, and most recent annual and semi-annual reports to shareholders at the website address specified in the required Summary Prospectus legend (17 CFR 270.498(e)(1)). A Summary Prospectus that complies with rule 498 is deemed to be a prospectus that is authorized under Section 10(b) of the Securities Act and Section 24(g) of the Investment Company Act of 1940 (15 U.S.C. 80a–1 et seq.). The purpose of rule 498 is to enable a fund to provide investors with a Summary Prospectus containing key 72 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 17:22 Jan 24, 2024 Jkt 262001 information necessary to evaluate an investment in the fund. Unlike many other federal information collections, which are primarily for the use and benefit of the collecting agency, this information collection is primarily for the use and benefit of investors. The information filed with the Commission also permits the verification of compliance with securities law requirements and assures the public availability and dissemination of the information. Based on an analysis of fund filings, the Commission estimates that approximately 11,241 funds are using a Summary Prospectus. The Commission estimates that the annual hourly burden per fund associated with the compilation of the information required on the cover page or the beginning of the Summary Prospectus is 0.5 hours, and estimates that the annual hourly burden per fund to comply with the website posting requirement is approximately 1 hour, requiring a total of 1.5 hours per fund per year.1 Thus the total annual hour burden associated with these requirements of the rule is approximately 16,862.2 The Commission estimates that the annual cost burden is approximately $21,400 per fund, for a total annual cost burden of approximately $240,557,400.3 Estimates of the average burden hours are made solely for the purposes of the Paperwork Reduction Act and are not derived from a comprehensive or even a representative survey or study of the costs of Commission rules and forms. Under rule 498, use of the Summary Prospectus is voluntary, but the rule’s requirements regarding provision of the statutory prospectus upon investor request are mandatory for funds that elect to send or give a Summary Prospectus in reliance upon rule 498. The information provided under rule 498 will not be kept confidential. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number. The public may view background documentation for this information collection at the following website: www.reginfo.gov. Find this particular information collection by selecting ‘‘Currently under 30-day Review—Open for Public Comments’’ or by using the search function. Written comments and recommendations for the proposed 1 0.5 hours per fund + 1 hour per fund = 1.5 hours per fund. 2 1.5 hours per fund x 11,241 funds = 16,862 hours. 3 $21,400 per fund x 11,241 funds = $240,557,400. PO 00000 Frm 00157 Fmt 4703 Sfmt 4703 5047 information collection should be sent within 30 days of publication of this notice by February 26, 2024 to (i) MBX.OMB.OIRA.SEC_desk_officer@ omb.eop.gov and (ii) David Bottom, Director/Chief Information Officer, Securities and Exchange Commission, c/o John Pezzullo, 100 F Street NE, Washington, DC 20549, or by sending an email to: PRA_Mailbox@sec.gov. Dated: January 22, 2024. Sherry R. Haywood, Assistant Secretary. [FR Doc. 2024–01436 Filed 1–24–24; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–99396; File No. SR–ISE– 2024–03] Self-Regulatory Organizations; Nasdaq ISE LLC; Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 1, To List and Trade Options on iShares Bitcoin Trust January 19, 2024. 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 January 9, 2024, Nasdaq ISE, LLC (‘‘ISE’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I and II, below, which Items have been prepared by the Exchange. On January 11, 2024, the Exchange filed Amendment No. 1 to the proposal, which supersedes the original filing in its entirety. The Commission is publishing this notice to solicit comments on the proposed rule change, as modified by Amendment No. 1, from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Options 4, Section 3, Criteria for Underlying Securities. This Amendment No. 1 supersedes the original filing in its entirety. The text of the proposed rule change is available on the Exchange’s website at https://listingcenter.nasdaq.com/ rulebook/ise/rules, at the principal office of the Exchange, and at the Commission’s Public Reference Room. 1 15 2 17 E:\FR\FM\25JAN1.SGM U.S.C. 78s(b)(1). CFR 240.19b–4. 25JAN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 89, Number 17 (Thursday, January 25, 2024)]
[Notices]
[Pages 5034-5047]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-01395]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99404; File No. SR-FINRA-2024-004]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend 
FINRA Rule 6730 (Transaction Reporting) To Reduce the 15-Minute TRACE 
Reporting Timeframe to One Minute

January 19, 2024.
    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 January 11, 2024, the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission'') the proposed rule change as described in Items I, 
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 amend FINRA Rule 6730 to reduce the 15-minute 
TRACE reporting timeframe to one minute, with exceptions for member 
firms with de minimis reporting activity and for manual trades.
    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
(i) Background
    FINRA has collected and disseminated transaction information in 
fixed income securities through TRACE since 2002.\3\ Since the 
implementation of TRACE, the fixed income markets have changed 
dramatically, including a significant increase in the use of electronic 
trading platforms or other electronic communication protocols to 
facilitate the execution of transactions. With these changes, FINRA has 
been considering ways to modernize the reporting rules and provide for 
more timely, granular and informative data to enhance the value of 
disseminated transaction data.
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 43873 (January 23, 
2001), 66 FR 8131 (January 29, 2001) (Order Approving File No. SR-
NASD-99-65).
---------------------------------------------------------------------------

    FINRA rules specify the applicable outer-limit reporting timeframe 
for different types of TRACE-Eligible Securities,\4\ and these 
timeframes have been adjusted over time in line with changes in the 
markets. A 15-minute outer-limit reporting timeframe currently applies 
to most transactions \5\ in corporate bonds, agency debt securities,\6\ 
asset-backed securities (ABS) \7\ and agency pass-through mortgage-
backed securities (MBS) traded to-be-announced (TBA) for good delivery 
(GD).\8\ The 15-minute reporting

[[Page 5035]]

timeframe has been in place for corporate bonds since 2005, and later 
was implemented for agency debt, ABS, and MBS TBA GD.\9\
---------------------------------------------------------------------------

    \4\ ``TRACE-Eligible Security'' means a debt security that is 
United States (U.S.) dollar-denominated and is: (1) issued by a U.S. 
or foreign private issuer, and, if a ``restricted security'' as 
defined in Securities Act Rule 144(a)(3), sold pursuant to 
Securities Act Rule 144A; (2) issued or guaranteed by an Agency as 
defined in paragraph (k) or a Government-Sponsored Enterprise as 
defined in paragraph (n); (3) a U.S. Treasury Security as defined in 
paragraph (p); or (4) a Foreign Sovereign Debt Security as defined 
in paragraph (kk). ``TRACE-Eligible Security'' does not include a 
debt security that is a Money Market Instrument as defined in 
paragraph (o). See Rule 6710(a).
    \5\ A ``List or Fixed Offering Price Transaction,'' as defined 
in Rule 6710(q), and a ``Takedown Transaction,'' as defined in Rule 
6710(r) are required to be reported to TRACE by the next business 
day (T+1). See Rule 6730(a)(2).
    \6\ ``Agency Debt Security'' means a debt security (i) issued or 
guaranteed by an Agency as defined in paragraph (k); (ii) issued or 
guaranteed by a Government-Sponsored Enterprise as defined in 
paragraph (n); or (iii) issued by a trust or other entity that was 
established or sponsored by a Government-Sponsored Enterprise for 
the purpose of issuing debt securities, where such enterprise 
provides collateral to the trust or other entity or retains a 
material net economic interest in the reference tranches associated 
with the securities issued by the trust or other entity. The term 
excludes a U.S. Treasury Security as defined in paragraph (p) and a 
Securitized Product as defined in paragraph (m), where an Agency or 
a Government-Sponsored Enterprise is the Securitizer as defined in 
paragraph (s) (or similar person), or the guarantor of the 
Securitized Product. See Rule 6710(l).
    \7\ ``Asset-Backed Security'' means a type of Securitized 
Product where the Asset-Backed Security is collateralized by any 
type of financial asset, such as a consumer or student loan, a 
lease, or a secured or unsecured receivable, and excludes: (i) a 
Securitized Product that is backed by residential or commercial 
mortgage loans, mortgage-backed securities, or other financial 
assets derivative of mortgage-backed securities; (ii) an SBA-Backed 
ABS as defined in paragraph (bb) traded To Be Announced as defined 
in paragraph (u) or in a Specified Pool Transaction as defined in 
paragraph (x); and (iii) a collateralized debt obligation. See Rule 
6710(cc).
    \8\ ``Agency Pass-Through Mortgage-Backed Security'' means a 
type of Securitized Product issued in conformity with a program of 
an Agency as defined in paragraph (k) or a Government-Sponsored 
Enterprise (GSE) as defined in paragraph (n), for which the timely 
payment of principal and interest is guaranteed by the Agency or 
GSE, representing ownership interest in a pool (or pools) of 
mortgage loans structured to ``pass through'' the principal and 
interest payments to the holders of the security on a pro rata 
basis. See Rule 6710(v). ``To Be Announced'' (TBA) means a 
transaction in an Agency Pass-Through Mortgage-Backed Security as 
defined in paragraph (v) or an SBA-Backed ABS as defined in 
paragraph (bb) where the parties agree that the seller will deliver 
to the buyer a pool or pool(s) of a specified face amount and 
meeting certain other criteria but the specific pool or pool(s) to 
be delivered at settlement is not specified at the Time of 
Execution, and includes TBA transactions ``for good delivery'' (GD) 
and TBA transactions ``not for good delivery'' (NGD). See Rule 
6710(u).
    \9\ In 2004, FINRA (then NASD) reduced the timeframe for 
reporting corporate bonds to within 15 minutes of the time of 
execution. See Securities Exchange Act Release No. 49845 (June 14, 
2004), 69 FR 35088 (June 23, 2004) (Order Approving File No. SR-
NASD-2004-057); see also Notice to Members 04-51 (July 2004). Agency 
debt has been subject to the 15-minute reporting timeframe since it 
became TRACE-Eligible in 2010. See Securities Exchange Act Release 
No. 60726 (September 28, 2009), 74 FR 50991 (October 2, 2009) (Order 
Approving File No. SR-FINRA-2009-010); see also Regulatory Notice 
09-57 (September 2009). MBS TBA GD became subject to the 15-minute 
reporting timeframe in 2013, and the reporting timeframe for ABS was 
reduced to 15 minutes in 2015. See Securities Exchange Act Release 
No. 66829 (April 18, 2012), 77 FR 24748 (April 25, 2012) (Order 
Approving File No. SR-FINRA-2012-020); Securities Exchange Act 
Release No. 71607 (February 24, 2014), 79 FR 11481 (February 28, 
2014) (Order Approving File No. SR-FINRA-2013-046); see also 
Regulatory Notices 12-26 (May 2012) and 14-34 (August 2014).
---------------------------------------------------------------------------

    Thus, today, transactions in these securities are generally 
required to be reported as soon as practicable \10\ but no later than 
15 minutes from the time of execution, and FINRA publicly disseminates 
information on the transaction immediately upon receipt.\11\ As 
discussed in more detail below, FINRA has found that 82.9 percent of 
trades in the TRACE-Eligible Securities that are currently subject to 
the 15-minute outer-limit reporting timeframe were reported within one 
minute of execution. In light of the technological advances in the 
intervening 18 years since FINRA first adopted the 15-minute reporting 
requirement, including the increase in electronic trading, and 
consistent with FINRA's longstanding goals of increasing transparency 
and improving access to timely transaction data, FINRA is proposing 
updates to modernize the reporting timeframes and provide timelier 
transparency. FINRA will continue to assess its TRACE reporting 
requirements and member reporting and consider whether any adjustments 
to the one-minute requirement are warranted.
---------------------------------------------------------------------------

    \10\ In 2015, the SEC approved amendments to FINRA rules to 
require firms to report transactions in TRACE-Eligible Securities as 
soon as practicable. See Securities Exchange Act Release No. 75782 
(August 28, 2015), 80 FR 53375 (September 3, 2015) (Order Approving 
File No. SR-FINRA 2015-025).
    \11\ FINRA Rule 6730(a)(1) sets forth the requirements for when 
trades executed during different time periods throughout the day 
must be reported to TRACE. Currently, corporate, agency, ABS, and 
MBS TBA GD transactions executed on a business day at or after 
12:00:00 a.m. Eastern Time (ET) through 7:59:59 a.m. ET must be 
reported the same day, no later than 15 minutes after the TRACE 
system opens. Transactions executed on a business day at or after 
8:00:00 a.m. ET through 6:29:59 p.m. ET must be reported as soon as 
practicable, but no later than 15 minutes of the Time of Execution, 
except for transactions executed on a business day less than 15 
minutes before 6:30 p.m. ET, which must be reported no later than 15 
minutes after the TRACE system opens the next day (and, if reported 
on T+1, designated ``as/of'' with the date of execution). Finally, 
transactions executed on a business day at or after 6:30:00 p.m. ET 
through 11:59:59 p.m. ET, or trades executed on a Saturday, a 
Sunday, a federal or religious holiday, or other day on which the 
TRACE system is not open at any time during that day, must be 
reported on the next business day, no later than 15 minutes after 
the TRACE system opens (and must be designated ``as/of'' and include 
the date of execution).
---------------------------------------------------------------------------

(ii) Proposed Rule Change To Implement One-Minute Reporting
    FINRA is proposing amendments to Rule 6730 (Transaction Reporting) 
to reduce the trade reporting timeframe for securities currently 
subject to the 15-minute reporting outer limit to one minute, with 
exceptions for member firms with de minimis reporting activity and for 
manual trades, discussed further below. As is the case today, FINRA 
would make information on the transactions publicly available 
immediately upon receipt of the trade reports.
    Under existing Rule 6730(a)(1), transactions in corporate bonds, 
agency debt, ABS, and MBS TBA GD generally must be reported as soon as 
practicable, but no later than within 15 minutes of execution. 
Specifically, transactions executed on a business day at or after 
12:00:00 a.m. ET through 7:59:59 a.m. ET must be reported the same day 
no later than 15 minutes after the TRACE system opens. Transactions 
executed on a business day at or after 8:00:00 a.m. ET through 6:29:59 
p.m. ET must be reported no later than within 15 minutes of the Time of 
Execution, except for transactions executed on a business day less than 
15 minutes before 6:30 p.m. ET, which must be reported no later than 15 
minutes after the TRACE system opens the next day (and, if reported on 
T+1, designated ``as/of'' with the date of execution). Finally, 
transactions executed on a business day at or after 6:30:00 p.m. ET 
through 11:59:59 p.m. ET, or trades executed on a Saturday, a Sunday, a 
federal or religious holiday, or other day on which the TRACE system is 
not open at any time during that day, must be reported on the next 
business day no later than 15 minutes after the TRACE system opens (and 
must be designated ``as/of'' and include the date of execution).
    To provide more timely information about transactions in corporate 
bonds, agency debt, ABS, and MBS TBA GD, subject to the exceptions 
discussed below and as provided in Rule 6730(a)(2), FINRA is proposing 
to amend Rule 6730(a)(1) to reduce the trade reporting timeframe as 
follows. Amended Rule 6730(a)(1) would provide that transactions must 
be reported as soon as practicable, but no later than within one minute 
of the Time of Execution.\12\ Amended Rule 6730(a)(1)(B) would require 
that a transaction executed on a business day at or after 8:00:00 a.m. 
ET through 6:29:59 p.m. ET must be reported as soon as practicable, but 
no later than one minute from the Time of Execution, except that, a 
transaction executed on a business day less than one minute before 
6:30:00 p.m. ET, must be reported no later than 15 minutes after the 
TRACE system opens the next business day (T+1) (and, if reported on 
T+1, designated ``as/of'' with the date of execution). Any trades 
executed on a business day prior to the open of the TRACE system, on a 
business day at or after 6:30:00 p.m. ET through 11:59:59 p.m. ET, or 
on a Saturday, a Sunday, a federal or religious holiday or other day on 
which the TRACE system is not open at any time during that day would 
continue to be reportable as soon as practicable on the next business 
day (T+1), but no later than within 15 minutes after the TRACE system 
opens (and must be designated ``as/of,'' as appropriate, and include 
the date of execution).
---------------------------------------------------------------------------

    \12\ Under Rule 6710(d), the ``Time of Execution'' generally 
means the time when the parties to a transaction agree to all of the 
terms of the transaction that are sufficient to calculate the dollar 
price of the trade. For transactions involving TRACE-Eligible 
Securities that are trading ``when issued'' on a yield basis, the 
``Time of Execution'' is when the yield for the transaction has been 
agreed to by the parties to the transaction.
---------------------------------------------------------------------------

(iii) Exceptions From One-Minute Reporting
    FINRA is proposing two exceptions from the one-minute reporting 
timeframe for: (1) member firms with ``limited trading activity'' in 
the TRACE-Eligible Securities that are subject to one-minute reporting; 
and (2) manual trades.\13\
---------------------------------------------------------------------------

    \13\ FINRA is also proposing a conforming amendment to 
Supplementary Material .03 to refer to the Rule generally rather 
than ``paragraph (a)'' to reflect that members reporting pursuant to 
one of the exceptions in new Supplementary Material .08 and .09 are 
still required to report their trades ``as soon as practicable.''

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

[[Page 5036]]

Exception for Members With ``Limited Trading Activity''
    New Supplementary Material .08 would provide an exception to the 
one-minute reporting timeframe for members with ``limited trading 
activity.'' A member with ``limited trading activity'' would be defined 
as a member that, during one of the prior two calendar years, reported 
to TRACE fewer than 4,000 transactions in the TRACE-Eligible Securities 
that are subject to paragraphs (a)(1)(A) through (a)(1)(D) of Rule 6730 
(i.e., corporate bonds, agency debt, ABS and MBS TBA GD), including any 
manual trades. Supplementary Material .08(b) would require members 
relying on the exception to confirm annually their qualification for 
the exception.\14\ As outlined in Supplementary Material .08(c), 
members qualifying for the exception would be required to report these 
trades as soon as practicable, but no later than within 15 minutes of 
the Time of Execution (or in the case of a trade executed outside of 
TRACE system hours, less than 15 minutes before 6:30 p.m. ET, or on a 
Saturday, a Sunday, a federal or religious holiday, or other day on 
which the TRACE system is not open at any time during that day, as soon 
as practicable, but no later than within 15 minutes after the TRACE 
system opens the next business day (T+1)).
---------------------------------------------------------------------------

    \14\ Evidence of this confirmation should be retained as part of 
the member's books and records; however, members eligible for the 
exception will not need to take affirmative steps to have their 
trade reports processed pursuant to the exception's 15-minute 
reporting timeframe (e.g., members eligible for the exception will 
not need to submit a certification of eligibility to FINRA or add a 
modifier or indicator to their trade reports).
---------------------------------------------------------------------------

    Members that exceeded the 4,000-trade threshold two calendar years 
in a row would be required to comply with the one-minute reporting 
requirements of paragraphs (a)(1)(A) through (a)(1)(D) of the Rule 
beginning 90 days after the firm no longer meets the criteria for the 
exception (i.e., beginning 90 days after January 1 of the next calendar 
year). If a member's reporting activity subsequently dropped below the 
4,000-trade threshold, the member would once again be eligible for the 
exception. For example, a member that reported 3,000 trades in the 
relevant TRACE-Eligible Securities to TRACE in 2022 and then 4,150 
trades in 2023 would continue to be eligible for the exception in 2024; 
however, if the member then reported 4,100 trades in 2024, the member 
would be required to comply with the one-minute reporting requirements 
starting 90 days after January 1, 2025 (with January 1 being day one of 
90). If the member proceeded to report 3,500 trades in 2025, the member 
would once again be eligible for the exception from one-minute 
reporting for 2026 under the two-year lookback. FINRA believes that the 
two-year lookback period for eligibility for the exception will 
accommodate fluctuations in trading activity that may be due to unusual 
market-wide events or unique client demands.
Manual Trades Exception
    New Supplementary Material .09 would provide an exception for 
manual trades that would afford firms additional time to report 
transactions that are not electronic from end to end, as described 
further below. Where a trade qualifies for the manual trades exception, 
a 15-minute outer limit would apply for the first year following 
implementation; a 10-minute outer limit would apply for the second 
year; and a five-minute outer limit would apply thereafter.
    The manual trades exception would apply narrowly only to 
``transactions that are manually executed'' or where a ``member must 
manually enter any of the trade details or information necessary for 
reporting the trade through the TRAQS website or into a system that 
facilitates trade reporting to TRACE.'' Thus, a trade that requires 
manual intervention at any point to complete the trade execution or 
reporting process would qualify for the manual trades exception. In 
that regard, while an exhaustive list cannot be provided here, FINRA 
contemplates that the exception would be available for a variety of 
situations that meet the specified criteria, including, for example:
     where a member executes a trade \15\ by manual or hybrid 
means, such as by telephone, email, or through a chat/messaging 
function,\16\ and subsequently must manually enter into a system that 
facilitates trade reporting all or some of the information required to 
book the trade and report it to TRACE;
---------------------------------------------------------------------------

    \15\ As noted above, for purposes of Rule 6730, the reporting 
timeframe is measured from the Time of Execution as defined by Rule 
6710(d), which generally refers to the time that the parties have 
agreed to all of the terms of the transaction sufficient to 
calculate the dollar price of the trade (or yield, in the case of 
when-issued securities priced to a spread).
    \16\ FINRA reminds members of their obligation to retain these 
electronic communications as part of their books and records, 
consistent with FINRA and SEC recordkeeping requirements. See, e.g., 
Notice to Members 03-33 (July 2003).
---------------------------------------------------------------------------

     where allocations to individual accounts must be manually 
input in connection with a trade by a dually-registered broker-dealer/
investment adviser;
     where an electronic trade is subject to manual review for 
risk management or regulatory compliance purposes and, as part of or 
following the review, the trade must be manually approved, amended, or 
released before the trade is reported to TRACE (e.g., a firm's risk 
management procedures require a secondary approver for trades over a 
certain threshold; a firm's best execution procedures require manually 
checking another market to confirm that a better price is not available 
to the customer);
     where a member trades a bond for the first time and 
additional manual steps are necessary to set the bond up in the firm's 
systems to book and report the trade (e.g., entering the CUSIP number 
and associated bond data into the firm's system); and
     where a member agrees to trade a basket of securities at a 
single price and manual action is required to calculate the price of 
component securities in the basket or to book and report the trade in 
component securities to TRACE.
    The above examples are illustrative of the types of circumstances 
in which, due to the manual nature of components of the trade execution 
or reporting process, reporting a transaction within one minute of the 
Time of Execution may be unfeasible, even where a member makes 
reasonable efforts to report the trade as soon as practicable (as 
required). FINRA also will assess members' trade reporting in 
connection with manual trades to determine whether the five-minute 
trade reporting timeframe (to become applicable after two years) is 
appropriate, and will be prepared to make adjustments, as necessary.
    FINRA has extensive experience and data regarding members' historic 
behaviors reporting transactions to TRACE under a myriad of scenarios. 
FINRA will be reviewing the use of the manual trades exception--members 
may not, in any case, purposely delay the execution or reporting of a 
transaction by handling any aspect of a trade manually or introducing 
manual steps following the Time of Execution. Additionally, in light of 
the overarching obligation to report trades as soon as practicable, 
members should consider the types of transactions in which they 
regularly engage and whether they can reasonably reduce the time 
between a trade's Time of Execution and its reporting, and more 
generally must make a good faith effort to report their trades as soon 
as practicable.
    In addition, FINRA proposes to amend Rule 6730(d)(4) to require 
that any member that executes or reports a trade manually append a 
manual trade

[[Page 5037]]

indicator to the trade report so that FINRA can identify manual trades. 
The new manual trade indicator would be required regardless of whether 
the member reported the manual trade outside of the one-minute 
timeframe in reliance on the manual trades exception, which would 
provide FINRA with important insights into manual trading and the use 
of the exception. The manual trade indicator would be used for 
regulatory purposes and would not be included in the TRACE data 
publicly disseminated.
    Finally, FINRA is proposing to amend Rule 6730(f) to provide that a 
pattern or practice of late reporting may be considered conduct 
inconsistent with high standards of commercial honor and just and 
equitable principles of trade, in violation of Rule 2010, absent 
``reasonable justification'' (in addition to the rule's existing 
reference to ``exceptional circumstances'').\17\ FINRA believes that 
the addition of ``reasonable justification'' as a relevant factor in 
FINRA's evaluation of a firm experiencing a pattern or practice of late 
reporting is appropriate given the proposed reduction in the trade 
reporting timeframe; \18\ for example, to enable FINRA to determine 
that reasonable justification exists due to circumstances that could 
not reasonably be anticipated or prevented and that could not be 
resolved by the firm within the one minute reporting timeframe.\19\ 
However, members must have sufficiently robust systems with adequate 
capability and capacity to enable them to report in accordance with 
FINRA rules; thus, recurring systems issues in a member firm's or a 
vendor's systems would not be considered reasonable justification or 
exceptional circumstances under Rule 6730(f) to excuse a pattern or 
practice of late trade reporting.\20\
---------------------------------------------------------------------------

    \17\ See, e.g., Rule 6623 describing ``exceptional 
circumstances'' as instances of system failure by a member or 
service bureau, or unusual market conditions, such as extreme 
volatility in a security, or in the market as a whole.
    \18\ This proposed rule change would also make Rule 6730(f) 
consistent with other FINRA trade reporting rules that impose 
shorter reporting timeframes. See, e.g., Rule 6622(a)(4).
    \19\ As is the case today, late trade statistics regarding 
trades reported outside of the applicable timeframe would be 
reflected in the Report Cards available to members. FINRA would 
update its Report Cards to take into consideration the proposed 
exception for firms with de minimis reporting activity and for 
manual trades. In addition, FINRA plans to enhance its TRACE Report 
Cards to include metrics that will facilitate members' ability to 
track their eligibility for the de minimis exception. While these 
trade statistics will continue to be available to members on their 
TRACE Report Cards, these statistics are not publicly available.
    \20\ See, e.g., FINRA Trade Reporting Frequently Asked 
Questions, Q206.21 available at https://www.finra.org/filing-reporting/market-transparency-reporting/trade-reporting-faq.
---------------------------------------------------------------------------

    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,\21\ 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, to remove impediments to and perfect the mechanism 
of a free and open market, and, in general, to protect investors and 
the public interest.
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

    FINRA believes that reducing the reporting timeframe to as soon as 
practicable, but no later than within one minute from the time of 
execution for corporate, agency, ABS and MBS TBA GD transactions helps 
achieve the purposes of the Act. As discussed above, the 15-minute 
reporting timeframe has been in place for corporate bonds and agency 
debt securities since 2005. Since that time, the fixed income markets 
have changed dramatically, including a significant increase in the use 
of electronic trading platforms or other electronic communication 
protocols to facilitate the execution of transactions. With these 
changes, FINRA has been considering ways to modernize the rule and 
provide for more timely, granular and informative data to enhance the 
value of disseminated transaction data. FINRA believes that the 
proposed rule change helps achieve the purposes of the Act in that it 
will improve the timeliness of information reported to TRACE, thereby 
benefiting transparency and allowing investors and other market 
participants to obtain and evaluate more timely pricing information for 
these securities. FINRA also believes that the proposed exceptions from 
the one-minute reporting requirement for members with de minimis 
reporting activity and manual trades are appropriate in that they are 
tailored to balance the burdens on members with the benefits to 
transparency.

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 rule 
change, its potential economic impacts, including anticipated costs, 
benefits, and distributional and competitive effects, relative to the 
current baseline, and the alternatives considered in assessing how best 
to meet its regulatory objective.

[[Page 5038]]

    As described below in more detail, approximately 83 percent of 
transactions in TRACE-Eligible Securities currently subject to the 15-
minute reporting timeframe are reported within one minute of execution. 
However, there is significant variation in reporting timeframes within 
and across member firms of different sizes and across different 
products. The proposed de minimis and manual trades exceptions balance 
the benefits of timelier reporting with the potential costs of 
disrupting markets and disproportionally impacting less active and 
smaller participants. FINRA estimates that, as a result of this 
proposed rule change, after adjusting for the proposed de minimis 
exception, up to 16.4 percent of current annual trading volume, or 6.1 
million trades and 20 trillion dollars in par value, might potentially 
be reported faster (this represents an upper end estimate--impacted by 
the extent to which firms do or do not rely on the proposed manual 
trades exception with respect to such trades (manual trades are not 
currently identifiable as such in TRACE data)).\22\
---------------------------------------------------------------------------

    \22\ See Discussion: Economic Impacts, Anticipated Benefits.
---------------------------------------------------------------------------

Regulatory Need
    As discussed previously, over the last 18 years there have been 
significant advancements in the fixed income markets, and in 
recognition of those advancements, FINRA is proposing to reduce the 
TRACE trade reporting timeframe for transactions in all TRACE-Eligible 
Securities that currently are subject to a 15-minute reporting 
timeframe. Timelier reporting provides more timely transaction 
information to the market, supporting more effective price formation 
and potentially decreasing trading costs and increasing liquidity.
Economic Baseline
    The economic baseline stems from current Rule 6730, establishing a 
reporting requirement of as soon as practicable but no later than 
within 15 minutes of the Time of Execution. Factors that may affect the 
speed with which firms can report executions include, but are not 
limited to, security characteristics, recency of trading in a 
particular security, trading platform, execution method, reporting 
process and level of automation.
    Overall, in 2022 838 member firms reported trades in TRACE-Eligible 
Securities currently subject to the 15-minute reporting timeframe, with 
803, 443, 79, 216 and 173 member firms reporting trades in corporate 
bonds, agency debt, MBS TBA GD, equity-linked notes (ELNs) and ABS 
respectively.\23\ FINRA found that 83 percent of trades across TRACE-
Eligible Securities currently subject to the 15-minute reporting 
timeframe were reported within one minute of execution. Examining 
reporting times for these securities by individual reporters, FINRA 
found that within one minute: 43 percent of reporters submitted 75 
percent of their trades; 34 percent of reporters submitted 85 percent 
of their trades; and 18 percent of reporters submitted 95 percent of 
their trades.
---------------------------------------------------------------------------

    \23\ FINRA aggregated reports across MPIDs (market participant 
identifier) belonging to the same CRD (central registration 
depository) number and excluded covered depository institutions.
---------------------------------------------------------------------------

    Specifically, FINRA analyzed trade reporting times by dealers and 
alternative trading systems (ATSs) under the current 15-minute 
reporting timeframe using TRACE data from January 2022 through December 
2022.\24\ The analysis measured the time between the trade Time of 
Execution and report time (and in cases where reports were later 
corrected or canceled, to the time of the initial report). The analysis 
focused on transactions executed at or after 8:00 a.m. ET and before 
6:15 p.m. ET on business days, the time window during which trades must 
be reported on that day as soon as practicable, but no later than 
within 15 minutes of the Time of Execution.\25\ The sample excluded 
covered depository institutions' trade reports in MBS TBA GD and 
agency-issued fixed income securities, as they are subject to the 
Federal Reserve's rule rather than FINRA's rule.\26\
---------------------------------------------------------------------------

    \24\ All analysis used this sample period unless otherwise 
specified.
    \25\ See supra note 11.
    \26\ Covered depository institutions started to report to TRACE 
on September 1, 2022. In the first three quarters of 2023, reports 
by covered depository institutions represented 6.6 percent, 0.8 
percent and 0.7 percent of the total MBS TBA GD, agency debt and ABS 
trade reports, respectively.
---------------------------------------------------------------------------

Reporting Times Across Products
    FINRA examined the distribution of trade reports from one to 15 
minutes from the Time of Execution for corporate bonds, agency debt, 
MBS TBA GD, ELNs and ABS.\27\ Table 1 shows that corporate bonds and 
MBS TBA GD were, on average, reported the fastest among the products, 
with around 83 and 84 percent of the trades reported within one minute, 
respectively. Agency debt followed closely behind at 81 percent. ELNs 
were at 67 percent and ABS were at 52 percent of trades reported within 
one minute. Commenters, discussion with FINRA advisory committees, and 
outreach to members indicated that ELNs and ABS trading and reporting 
frequently involve manual handling of some aspect of the trade 
execution or reporting process.
---------------------------------------------------------------------------

    \27\ Corporate bond trades represented 88.9 percent of the 
37,252,591 total reports in the sample while MBS TBA GD, agency 
debt, ELN and ABS accounted for 7.4 percent, 2.8 percent, 0.5 
percent, and 0.3 percent, respectively.

                                                      Table 1--Reporting Times Across Product Types
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           All products
                 Minutes from execution                         (%)        Corporate (%)    Agency (%)    MBS TBA GD (%)      ELN (%)         ABS (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.......................................................            82.9            83.1            80.7            84.1            66.5            51.5
2.......................................................            91.7            91.7            92.4            93.8            70.9            66.9
3.......................................................            96.1            96.3            94.9            95.8            74.8            75.2
4.......................................................            97.0            97.3            96.0            96.7            76.3            80.5
5.......................................................            97.6            97.8            96.6            97.3            77.3            85.1
10......................................................            99.0            99.2            98.8            98.6            80.7            93.2
15......................................................            99.4            99.5            99.2            99.5            81.8            97.6
Share of Reports........................................           100.0            88.9             2.8             7.4             0.5             0.3
--------------------------------------------------------------------------------------------------------------------------------------------------------

Reporting Time by Trade Size
    FINRA examined whether reporting timeframes differ across trade 
sizes. For certain products, large trades are more likely to be more 
complex or a voice trade, or otherwise require manual handling. FINRA 
examined the distribution of trade reports from one to 15 minutes from 
the Time of Execution

[[Page 5039]]

for trades with a par value of less than $1 million, greater than or 
equal to $1 million but less than $5 million, greater than or equal to 
$5 million but less than $10 million, greater than or equal to $10 
million but less than $25 million, and greater than or equal to $25 
million. Panel A of Table 2 shows that approximately 93 percent of 
reported trades were for less than $5 million, with 74 to 84 percent 
reported within one minute and 95 to 98 percent reported within five 
minutes. Similarly, for trades greater than or equal to $5 million, 77 
to 81 percent were reported within one minute and 95 to 96 percent were 
reported within five minutes.
    Panel B of Table 2 shows that, for corporate bonds and agency debt, 
smaller trades were reported faster while larger trades took longer to 
report. FINRA found that 84 percent of corporate bond trades smaller 
than $1 million were reported within one minute whereas 62 percent of 
trades greater than or equal to $25 million were reported within one 
minute. For agency debt, 84 percent of trades smaller than $1 million 
were reported within one minute whereas 44 percent of trades greater 
than or equal to $25 million were reported within one minute. Trade 
size did not appear to be strongly associated with reporting time for 
other products.\28\
---------------------------------------------------------------------------

    \28\ MBS TBA GD trades represented 96 percent of the trades 
larger than $25M and 82 percent of them were reported within one 
minute.

                                    Table 2--Reporting Time Across Trade Size
----------------------------------------------------------------------------------------------------------------
     Minutes from execution          <$1M (%)       $1-<$5M (%)    $5-<$10M (%)    $10-<$25M (%)    >=$25M (%)
----------------------------------------------------------------------------------------------------------------
                            Panel A: Reporting Time by Trade Size (Par Value Traded)
----------------------------------------------------------------------------------------------------------------
1...............................            84.1            74.3            81.0            77.3            81.0
2...............................            92.7            83.8            89.0            87.3            91.9
3...............................            96.8            91.0            93.7            92.6            94.6
4...............................            97.6            93.3            95.2            94.3            95.7
5...............................            98.0            94.8            96.2            95.4            96.4
10..............................            99.2            97.9            98.4            97.9            98.3
15..............................            99.4            98.9            99.2            99.1            99.2
Share of reports................            84.1             9.3             3.2             1.5             1.9
----------------------------------------------------------------------------------------------------------------
           Panel B: Percentages of Trades Reported Within One Minute by Trade Size (Par Value Traded)
----------------------------------------------------------------------------------------------------------------
Product:
    Corporate...................            84.3            73.1            65.8            64.8            61.7
    Agency......................            83.6            62.6            56.0            50.8            44.2
    MBS TBA GD..................            80.4            80.9            90.1            84.1            82.0
    ELN.........................            66.6            62.8            61.0            57.9            61.5
    ABS.........................            53.5            48.2            47.8            48.7            49.6
----------------------------------------------------------------------------------------------------------------

Reporting Time by Reporter Activity Level
    FINRA compared trade reporting times across firms with different 
levels of activity to assess how the potential burdens stemming from 
the proposed rule change would be distributed across firms. The 
analysis measured reporters' activity by number of trades in 2022 and 
assigned them to three activity groups: where a reporter's trades 
accounted for less than 0.01 percent, 0.01 through 0.1 percent, or 
greater than 0.1 percent of total reported trades.\29\ Table 3 shows 
that the distribution of par value traded was concentrated in more 
active reporters. Eighty-four different reporters were in the most 
active group (accounting for over 0.1 percent of reported trades each), 
and together their activity represented 95.5 percent of the total par 
value traded. There were 149 different reporters with 0.01 to 0.1 
percent of reported trades each and their reports accounted for 4.2 
percent of the total par value traded. The last activity group had 605 
different reporters with less than 0.01 percent of reported trades each 
and together their activity represented 0.3 percent of the par value 
traded.
---------------------------------------------------------------------------

    \29\ FINRA looked at finer distinctions of reporter activity 
level, but it did not yield additional insight.

                                                   Table 3--Reporting Times by Reporter Activity Level
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                    Reporters                 Reporters
                                                                                                                    reporting                 reporting
                                                                               Market       Market       Trades      at least      Trades      at least
                   Reporter activity level                      Number of      share      share (par    reported      95% of      reported      95% of
                                                                reporters      (trade     value) (%)   within one     trades    within five     trades
                                                                            counts) (%)                minute (%)   within one  minutes (%)  within five
                                                                                                                    minute (%)               minutes (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Activity Group 1--Reporters with >0.1% of Trade Counts.......           84         94.1         95.5         84.0         34.5         98.0         86.9
Activity Group 2--Reporters with 0.01 to 0.1 of Trade Counts.          149          4.9          4.2         67.7         14.8         91.7         55.7
Activity Group 3--Reporters with <0.01 of Trade Counts.......          605          0.9          0.3         50.8         17.0         86.2         48.6
All Reporters................................................          838        100.0        100.0         82.9         18.4         97.6         53.7
--------------------------------------------------------------------------------------------------------------------------------------------------------

    On average, the most active trade reporters reported their trades 
to TRACE more quickly. Specifically, 84 percent of trades executed by 
the most active reporters (with more than 0.1 percent of reported 
trades) were reported within

[[Page 5040]]

one minute, and 98 percent of their trades were reported within five 
minutes. In comparison, approximately 51 percent of trades executed by 
reporters with less than 0.01 percent of reported trades were reported 
within one minute, and 86 percent were reported within five minutes. 
FINRA notes that even less-active reporters reported at least some 
material portion of their trades within one minute.
    In addition, FINRA examined the reporting times by individual 
reporters by measuring the percentage of firms that reported at least 
95 percent of their trades within one minute. Overall, approximately 18 
percent of reporters submitted 95 percent of their trades within one 
minute. When examined by reporter activity level, 35 percent of 
reporters with greater than 0.1 percent of trade reports submitted 95 
percent of their trades within one minute, compared to 17 percent of 
reporters with less than 0.01 percent of trade reports. FINRA notes 
that most firms reported some material portion of their trades after 
one minute, regardless of their level of trading activity.
Reporting Time for After Hours Trades
    FINRA examined trades that were executed during TRACE system hours 
and compared the findings to trades that were executed outside of these 
hours, which are subject to different reporting timeframe requirements. 
Table 4 shows that trades executed and reported after hours represented 
only 1.18 percent of total par value. In all cases, these trades took 
longer to report. For instance, less than 21 percent of trades executed 
between 6:15 and 6:29 p.m. ET were reported within one minute,\30\ 
while just over 49 percent of trades executed between 6:29 p.m. and 
8:00 a.m. ET the next day or on non-business days were reported within 
one minute after the TRACE system opened.\31\
---------------------------------------------------------------------------

    \30\ Under the current rule, these trades can be reported either 
on the same day before TRACE closes or the next business day no 
later than 15 minutes after the TRACE system opens. Under the 
proposed rule change, such trades must be reported as soon as 
practicable on the same day, but no later than within one minute of 
the time of execution.
    \31\ Under the current and proposed rules, these trades must be 
reported as soon as practicable, but no later than 15 minutes after 
the TRACE system opens.

                                     Table 4--Reporting Times by Time of Day
----------------------------------------------------------------------------------------------------------------
                                                                                                   Time group 3:
                                                                                                    before 8:00
                                                                   Time group 1:   Time group 2:   a.m. or after
                     Minutes from execution                        8:00 a.m. to    6:15 p.m. to    6:29 p.m. ET
                                                                   6:15 p.m. ET    6:29 p.m. ET       or non-
                                                                        (%)             (%)       business day *
                                                                                                        (%)
----------------------------------------------------------------------------------------------------------------
1...............................................................            82.9            20.9            49.2
2...............................................................            91.7            26.3            81.4
3...............................................................            96.1            36.7            90.4
4...............................................................            97.0            57.1            92.9
5...............................................................            97.6            71.9            93.9
10..............................................................            99.0            96.2            96.6
15..............................................................            99.4            96.2            96.8
Share of Reports................................................            98.8             0.0             1.2
----------------------------------------------------------------------------------------------------------------
* For time group three, for trades before 8:00 a.m. ET, FINRA measured the reporting time from TRACE opening on
  the same business day; for trades after 6:29 p.m. ET or on non-business day, FINRA measured the reporting time
  from TRACE opening on the next business day.

Execution and Trade Reporting Scenarios
    FINRA examined several trading scenarios, described further below, 
where trading or reporting could involve manual processes.
    When a bond starts to trade, the security may not be on the member 
firm's security master (or on FINRA's security master), which requires 
firms to engage in a set-up process to facilitate execution or trade 
reporting. FINRA examined the reporting time for bonds when they first 
start to trade in the secondary market. Table 5 shows that in the 
three-day period after secondary market trading commenced in a newly 
issued bond, 63 percent of trades were reported within one minute, as 
compared to 83 percent for trades executed more than three days after 
the first trade. Longer reporting times were associated with the 
commencement of secondary market trading in newly issued bonds, but not 
in cases where a firm first started to trade a bond that was not new to 
market (but where the firm had not previously traded the security).

           Table 5--Reporting of Trades in Newly Issued Bonds
------------------------------------------------------------------------
                                            First three
         Minutes from execution             days of S1    All other days
                                            trading (%)         (%)
------------------------------------------------------------------------
1.......................................            63.1            83.3
2.......................................            77.3            91.9
3.......................................            83.5            96.3
4.......................................            86.3            97.2
5.......................................            88.0            97.8
10......................................            92.0            99.1
15......................................            93.5            99.5
Share of Reports........................             1.7            98.3
------------------------------------------------------------------------


[[Page 5041]]

    FINRA examined transaction reporting times for self-cleared trades 
as well as those cleared through third-party clearing firms and found 
that trades that are cleared through third-party clearing firms overall 
took longer to report. For trades cleared through a third party, 71 
percent were reported within one minute, as compared to 85 percent for 
self-cleared trades. FINRA found that trades through some third-party 
clearing firms were reported as fast as self-cleared trades. There were 
also significant variations in trade reporting time by correspondent 
firms through the same third-party clearing firm.

                      Table 6--Third-Party Clearing
------------------------------------------------------------------------
                                            Third party    Self-clearing
         Minutes from execution            clearing (%)         (%)
------------------------------------------------------------------------
1.......................................            71.4            85.2
2.......................................            91.9            91.6
3.......................................            96.0            96.1
4.......................................            97.1            97.0
5.......................................            97.7            97.6
10......................................            99.1            99.0
15......................................            99.4            99.4
Share of Reports........................            16.5            83.5
------------------------------------------------------------------------

    FINRA examined transaction reporting times for trades that were 
subsequently suballocated across multiple accounts and found that, for 
allocated trades,\32\ 68 percent were reported within one minute, as 
compared to 84 percent for other trades. FINRA found significant 
variation in reporting time for allocated trades by different 
reporters.\33\
---------------------------------------------------------------------------

    \32\ An allocation flag does not exist in TRACE, so FINRA used 
heuristics to identify those trades.
    \33\ Five out of 29 reporters that reported allocation trades 
were able to report 90 percent of their allocation trades within one 
minute. Seven more were able to report 90 percent of their 
allocation trades within five minutes.

                        Table 7--Allocated Trades
------------------------------------------------------------------------
                                                               Non-
         Minutes from execution           Allocation (%)  allocation (%)
------------------------------------------------------------------------
1.......................................            68.2            83.7
2.......................................            86.6            92.0
3.......................................            90.6            96.4
4.......................................            92.2            97.3
5.......................................            93.0            97.8
10......................................            97.7            99.1
15......................................            99.0            99.4
Share of Reports........................             5.2            94.8
------------------------------------------------------------------------

    FINRA examined transaction reporting times for basket or portfolio 
trades and found that overall, these trades take longer to report. For 
portfolio trades,\34\ 65 percent were reported within one minute, as 
compared to 85 percent for other trades. Within five minutes, 97.5 
percent of portfolio trades were reported, as compared to 97.7 percent 
for other trades. FINRA also examined the reporting time by portfolio 
size. While larger baskets do tend to be reported more slowly, FINRA 
observed a range of reporting times for portfolio trades within the 
same basket size band--for example, 57.0 percent of portfolio trades in 
the 300-1,000 securities band are reported within one minute and 20.1 
percent of portfolio trades in the 1,000+ securities band are reported 
within one minute.\35\ There were also significant variations in the 
reporting time of portfolio trades by different reporters. This 
suggests that other factors (e.g., the technology employed) besides the 
size of the portfolio trade may be driving the reporting timeframe.
---------------------------------------------------------------------------

    \34\ FINRA used heuristics to identify portfolio trades since a 
portfolio trade identifier did not exist before May 15, 2023.
    \35\ Over 99 percent of portfolio trades include a basket of 
less than 1,000 securities and the vast majority--nearly 85 
percent--are baskets of less than 300 securities. Of the nearly 85 
percent of portfolio trades for baskets of less than 300 securities, 
over 97.9 percent of these are reported within five minutes; 96.9 
percent of portfolio trades for baskets of between 300 and 1,000 
securities are reported within five minutes; and 40.0 percent of the 
0.69 percent of portfolio trades larger than 1,000 securities are 
reported within five minutes.

                        Table 8--Portfolio Trades
------------------------------------------------------------------------
                                             Portfolio     Non-portfolio
         Minutes from execution              trade (%)       trade (%)
------------------------------------------------------------------------
1.......................................            65.3            85.0
2.......................................            83.1            92.8
3.......................................            94.2            96.4
4.......................................            96.5            97.2

[[Page 5042]]

 
5.......................................            97.5            97.7
10......................................            99.1            99.1
15......................................            99.5            99.4
Share of Reports........................             9.5            90.5
------------------------------------------------------------------------

    FINRA analyzed the number of transactions executed on or through an 
ATS, which approximates a subset of electronically executed and 
reported transactions. ATS trades represented 28.1 percent of total 
trade reports during the sample period. Of those, 81.0 percent were 
reported within one minute and 93.9 percent were reported within two 
minutes. For non-ATS trades, which represented 71.9 percent of total 
reports (some of which may qualify for the phased-in five-minute 
reporting timeframe available for manual trades), 83.7 percent were 
reported within one minute and 96.9 percent were reported within five 
minutes.

                           Table 9--ATS Trades
------------------------------------------------------------------------
                                                           Non-ATS trade
         Minutes from execution            ATS trade (%)        (%)
------------------------------------------------------------------------
1.......................................            81.0            83.7
2.......................................            93.9            90.8
3.......................................            98.7            95.1
4.......................................            99.1            96.2
5.......................................            99.3            96.9
10......................................            99.7            98.7
15......................................            99.8            99.2
Share of Reports........................            28.1            71.9
------------------------------------------------------------------------

Economic Impacts
Anticipated Benefits
    The proposed reporting timeframe reduction would require members to 
adopt enhancements to their current trade reporting processes to 
facilitate timelier reporting for transactions that currently are not 
reported within one minute (in 2022, 82.9 percent of the trades 
executed after 8:00 a.m. and before 6:15 p.m. E.T. were reported within 
one minute of execution). The proposed rule change therefore likely 
would result in quicker reporting and thus dissemination of transaction 
information for at least a portion of the approximately 17 percent of 
transactions that are not currently reported within one minute of 
execution. FINRA estimates that, after adjusting for the proposed de 
minimis exception, up to 16.4 percent, or 6.1 million trades and 20 
trillion dollars in par value annually, might potentially be reported 
faster than today (these estimates would be adjusted further to account 
for manual trades--to the extent firms rely on the proposed exception 
with respect to such trades--which FINRA is currently unable to 
identify in the TRACE data).
    FINRA analyzed the number of transactions executed on or through an 
ATS, which approximates a subset of electronically executed and 
reported transactions for which the manual trades exception will not be 
applicable. ATS trades represented 28.1 percent of total reports during 
the sample period. Of those, 81.0 percent were reported within one 
minute and 93.9 percent were reported within two minutes. This 
indicates that the proposed rule change will likely result in at least 
an additional 5.3 percent (28.1 percent x (1-.81)) of total trades 
being reported within one minute (not accounting for the impact of the 
proposed de minimis exception). For the 71.9 percent non-ATS trades 
(some of which may qualify for the manual trades exception), 96.9 
percent were reported within five minutes. This indicates that the 
proposed rule change will likely result in at least another 2.2 percent 
(71.9 percent x (1-.969)) of total trades being reported within five 
minutes in three years (not accounting for the impact of the proposed 
de minimis exception).\36\
---------------------------------------------------------------------------

    \36\ FINRA also examined the reporting time for trades that were 
manually entered into the TRACE system through the TRAQS web 
interface rather than through the automated messaging protocol. The 
median time for web entry is four to five minutes.
---------------------------------------------------------------------------

    A reduction in the time between trade execution and price 
dissemination would enhance transparency in the fixed income market and 
is consistent with the purposes of TRACE. Timelier reporting would 
allow FINRA to provide more timely pricing and other transaction 
information to the market, which supports more efficient price 
formation. Timely reporting has also been shown to increase dealer 
market-making activities in the municipal markets.\37\ While members 
may benefit

[[Page 5043]]

directly from the expedited price discovery, investors are also likely 
to benefit from better execution prices from members. In particular, 
the proposed rule change would aid investors and other market 
participants in obtaining and evaluating pricing and other market 
information more quickly. For example, FINRA identified trades that 
fell into the one to 15-minute window after a pri

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.