Federal Register / Vol. 83, No. 158 / Wednesday, August 15, 2018 / Notices 40601 

17 15 U.S.C. 78s(b)(3)(A). 

18 17 CFR 240.19b–4(f)(6). In addition, Rule 19b4(f)(6) requires a self-regulatory organization to give 

the Commission written notice of its intent to file 

the proposed rule change at least five business days 

prior to the date of filing of the proposed rule 

change, or such shorter time as designated by the 

Commission. The Exchange has satisfied this 

requirement. 

19 17 CFR 240.19b–4(f)(6). 

20 17 CFR 240.19b–4(f)(6)(iii). 

21See supra note 11. 

22For purposes only of waiving the 30-day 

operative delay, the Commission has considered the 

proposed rule’s impact on efficiency, competition, 

and capital formation. See 15 U.S.C. 78c(f). 

23 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

proposed rule change would have any 

significant impact on inter-market 

competition as the Exchange’s affiliated 

exchanges already allow after hours 

trading until 8:00 p.m. ET, and other 

markets are free to provide similar 

trading hours. Furthermore, the 

Exchange does not believe that the 

proposed rule change would have any 

significant impact on intra-market 

competition as all Members would be 

able to enter orders later in the day due 

to the extended After Hours Trading 

Session. 

(C) Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants or Others 

The Exchange has neither solicited 

nor received written comments on the 

proposed rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Because the foregoing proposed rule 

change does not: (i) Significantly affect 

the protection of investors or the public 

interest; (ii) impose any significant 

burden on competition; and (iii) become 

operative for 30 days from the date on 

which it was filed, or such shorter time 

as the Commission may designate, it has 

become effective pursuant to Section 

19(b)(3)(A) of the Act 17 and Rule 19b– 

4(f)(6) thereunder.18

A proposed rule change filed under 

Rule 19b–4(f)(6) 19 normally does not 

become operative for 30 days after the 

date of its filing. However, pursuant to 

Rule 19b–4(f)(6)(iii),20 the Commission 

may designate a shorter time if such 

action is consistent with the protection 

of investors and the public interest. The 

Exchange requests that the Commission 

waive the 30-day operative delay so that 

the proposal may become operative 

immediately upon filing. The Exchange 

represents that waiver of the 30-day 

operative delay will allow the Exchange 

to immediately provide a venue for 

market participants to source liquidity 

until 8:00 p.m. ET, similar to the 

operation of other exchanges. Because 

the proposed rules previously have been 

approved by the Commission for, and 

are substantively identical to those of, 

another listing exchange, the 

Commission believes does not believe 

that the proposal raises any novel or 

unique regulatory issues.21 Therefore, 

the Commission believes that waiving 

the 30-day operative delay is consistent 

with the protection of investors and the 

public interest. The Commission hereby 

waives the 30-day operative delay and 

designates the proposed rule change 

operative upon filing.22

At any time within 60 days of the 

filing of the proposed rule change, the 

Commission summarily may 

temporarily suspend such rule change if 

it appears to the Commission that such 

action is: (i) Necessary or appropriate in 

the public interest; (ii) for the protection 

of investors; or (iii) otherwise in 

furtherance of the purposes of the Act. 

If the Commission takes such action, the 

Commission shall institute proceedings 

to determine whether the proposed rule 

change should be approved or 

disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the proposal is 

consistent with the Act. Comments may 

be submitted by any of the following 

methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

CboeBZX–2018–057 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–CboeBZX–2018–057. 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 (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of such 

filing will also be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. All 

submissions should refer to File 

Number SR–CboeBZX–2018–057 and 

should be submitted on or before 

September 5, 2018. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.23

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2018–17490 Filed 8–14–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–83815; File No. SR–FINRA– 

2018–023] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Order Approving a 

Proposed Rule Change Relating to 

ATS Reporting to TRACE of 

Transactions in U.S. Treasury 

Securities 

August 9, 2018. 

I. Introduction 

On June 5, 2018, the Financial 

Industry Regulatory Authority, Inc. 

(‘‘FINRA’’) filed with the Securities and 

Exchange Commission (‘‘Commission’’), 

pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a 

proposed rule change to amend FINRA 

Rule 6730 to require certain alternative 

trading systems (‘‘ATSs’’) that report 

transactions in U.S. Treasury Securities 

to the Transaction Reporting and 

Compliance Engine (‘‘TRACE’’) to 

identify non-FINRA-member subscribers 

on those transaction reports. The 

proposed rule change was published for 


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40602 Federal Register / Vol. 83, No. 158 / Wednesday, August 15, 2018 / Notices 

3See Securities Exchange Act Release No. 83393 

(June 7, 2018), 83 FR 27643 (‘‘Notice’’). 

4See letter to Secretary, Commission, from 

Stephen John Berger, Managing Director, 

Government and Regulatory Policy, Citadel, dated 

July 5, 2018 (‘‘Citadel Letter’’); letter to Robert W. 

Errett, Deputy Secretary, Commission, from 

Theodore Bragg, Chief Executive Officer, Execution 

Access, LLC, dated July 3, 2018 (‘‘Execution Access 

Letter’’); letter to Brent J. Fields, Secretary, 

Commission, from Tyler Gellasch, Executive 

Director, The Healthy Markets Association, dated 

July 5, 2018 (‘‘Healthy Markets Letter’’). 

5See Securities Exchange Act Release No. 83722 

(July 26, 2018), 83 FR 37544 (Aug. 1, 2018). 

6See letter to Brent J. Fields, Secretary, 

Commission, from Racquel L. Russell, FINRA, dated 

August 6, 2018 (‘‘FINRA Response’’). 

7 17 CFR 242.300(a). 

8FINRA Rule 6710(p) defines ‘‘U.S. Treasury 

Security’’ to mean ‘‘a security, other than a savings 

bond, issued by the U.S. Department of the 

Treasury to fund the operations of the federal 

government or to retire such outstanding securities. 

The term ‘U.S. Treasury Security’ also includes 

separate principal and interest components of a 

U.S. Treasury Security that has been separated 

pursuant to the Separate Trading of Registered 

Interest and Principal of Securities (STRIPS) 

program operated by the U.S. Department of 

Treasury.’’ 

9See Securities Exchange Act Release No. 79116 

(October 18, 2016), 81 FR 73167 (October 24, 2016) 

(SR–FINRA–2016–027) (‘‘2016 Order’’). 

10See Notice, 83 FR at 27644; FINRA Regulatory 

Notice 16–39 (October 2016). 11See FINRA Rule 6750(c)(5) (providing that 

FINRA will not disseminate information on a 

transaction in a U.S. Treasury Security). See also 

Notice, 83 FR at 27644. 12See FINRA Rule 6730(a). See also FINRA Rules 

6710(a) and (e) (defining ‘‘TRACE-Eligible Security’’ 

and ‘‘Party to a Transaction,’’ respectively). 13See FINRA Rule 6730(c)(6). 14See Notice, 83 FR at 27644. See also FINRA’s 

Regulatory Notice 14–53 (November 2014) 

(reminding ATSs and ATS subscribers of their 

reporting obligations in TRACE-Eligible Securities). 

While there are limited exceptions to the reporting 

requirement that are available when all the 

counterparties are FINRA members, these 

exceptions do not apply to transactions on an ATS 

involving a non-FINRA member. See Notice, 83 FR 

at 27644, n. 6. FINRA has stated that, because each 

current ATS is a FINRA member, each ATS must 

report to TRACE all trading activity in TRACEEligible Securities that occurs on the ATS. See 

Notice, 83 FR at 27644. 

15See Notice, 83 FR at 27644. 16See id. In addition, if the non-FINRA member 

is an affiliate, the ATS must report the trade as a 

generic trade with a non-member affiliate by 

denoting the counterparty with an ‘‘A’’ identifier. 

See FINRA Rule 6730(c)(6). 

17See Notice, 83 FR at 27644. 

18Notice, 83 FR at 27644 (citing Treasury 

Department, A Financial System That Creates 

Economic Opportunities: Capital Markets, Report to 

President Donald J. Trump, Executive Order 13772 

on Core Principles for Regulating the United States 

Financial System, at 79–80 (October 2017) (‘‘Capital 

Markets Report’’), https://www.treasury.gov/presscenter/press-releases/Documents/A-FinancialSystem-Capital-Markets-FINAL-FINAL.pdf). 

19See id. (citing Capital Markets Report at 80). 

20See id. (citing Capital Markets Report at 80). 

21See id. 

22See id. 

23See proposed FINRA Rule 6730, 

Supplementary Material .07(a). See also Notice, 83 

FR at 27645. 

24See Notice, 83 FR at 27645. 

comment in the Federal Register on 

June 13, 2018.3 The Commission 

received three comment letters 

regarding the proposed rule change.4 On 

July 26, 2018, the Commission extended 

until September 11, 2018, the time 

period within which to approve the 

proposed rule change, disapprove the 

proposed rule change, or institute 

proceedings to determine whether to 

disapprove the proposed rule change.5

FINRA submitted a response to the 

comments on August 6, 2018.6 This 

order approves the proposed rule 

change. 

II. Description of Proposed Rule Change 

As described in further detail below, 

FINRA has proposed to add 

Supplementary Material .07 to existing 

FINRA Rule 6730 to require an ATS, as 

defined in Rule 300(a) of Regulation 

ATS,7 that effects transactions in U.S. 

Treasury Securities above a certain 

volume threshold to identify in its 

TRACE reports any counterparty to a 

Treasury transaction that is a nonFINRA member, using a market 

participant identifier (‘‘MPID’’) assigned 

by FINRA.8

A. Background 

On October 18, 2016, the Commission 

approved a proposed rule change that 

required FINRA members to report 

secondary market transactions in U.S. 

Treasury Securities to TRACE.9 FINRA 

members began reporting such 

transactions to TRACE on July 10, 

2017.10 Information in TRACE regarding 

transactions in U.S. Treasury Securities 

is for regulatory purposes only and is 

not disseminated publicly.11

Under FINRA’s rules, each FINRA 

member that is a Party to a Transaction 

in a TRACE-Eligible Security must 

report the transaction.12 A TRACE 

transaction report must include, among 

other things, the contra-party’s identifier 

(i.e., MPID, customer, or a non-member 

affiliate, as applicable).13 Transactions 

in U.S. Treasury Securities that occur on 

an ATS generally must be reported to 

TRACE by the counterparties, if they are 

FINRA members, and by the ATS 

itself.14 On a TRACE report, an ATS 

must identify a FINRA member 

counterparty by that counterparty’s 

MPID.15 However, for a transaction 

involving a non-FINRA-member 

customer, the ATS must report the trade 

utilizing a generic customer identifier 

(‘‘C’’).16

A significant amount of trading 

activity in U.S. Treasury Securities on 

ATSs involves market participants that 

are not registered as broker-dealers or 

are not FINRA members, including 

hedge funds, banks, and principal 

trading firms (‘‘PTFs’’).17 The 

Department of the Treasury stated in its 

October 2017 Capital Markets Report 

that ‘‘[t]rading activity [in U.S. Treasury 

Securities] on the major electronic 

interdealer platforms is dominated by 

PTFs, . . . and collectively they 

account for over half of all transaction 

volumes in the interdealer broker 

segment of the [cash Treasury] 

market.’’ 18 The Capital Markets Report 

stated that ‘‘a significant portion of PTF 

activity is anonymized in the TRACE 

data.’’ 19 The Treasury Department 

recommended requiring ATSs that 

facilitate transactions in U.S. Treasury 

Securities to identify customers in their 

trade reports.20 FINRA believes that 

requiring additional counterparty 

information in ATS TRACE reports for 

transactions in U.S. Treasury Securities 

would improve the effectiveness of 

FINRA’s surveillance patterns and help 

FINRA to identify potentially 

manipulative activity, including wash 

sales and prearranged trading activity.21

FINRA further believes that such 

information would facilitate a better 

understanding of Treasury market 

structure and liquidity.22

B. Proposed Changes to ATS Reporting 

Obligations 

FINRA has proposed to add 

Supplementary Material .07 to existing 

FINRA Rule 6730 to require each 

‘‘covered ATS,’’ as described below, to 

provide FINRA with a list of all of its 

non-FINRA-member subscribers and to 

obtain from FINRA an MPID for each 

such subscriber. Each covered ATS 

would then be required to identify a 

non-FINRA-member subscriber in the 

contra-party field of a TRACE report of 

a U.S. Treasury Security transaction 

using the MPID assigned by FINRA. A 

covered ATS would no longer be 

permitted to identify a contra-party to 

such a transaction using the ‘‘customer’’ 

or ‘‘non-member affiliate’’ identifier. 

Based on the list of non-FINRA-member 

subscribers that a covered ATS provides 

to FINRA, FINRA will assign each nonFINRA-member subscriber a unique 

MPID (to be used consistently across 

ATSs) and provide a list of those MPIDs 

to the ATS.23 This approach is designed 

to preserve the confidentiality of an 

individual ATS’s subscriber list, 

because FINRA will provide a covered 

ATS with a list of MPIDs only for its 

own subscribers.24

Proposed Supplementary Material 

.07(b) of FINRA Rule 6730 defines a 

‘‘covered ATS’’ as an ATS, as that term 

is defined in Rule 300 of Regulation 


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25FINRA stated that any member that meets the 

definition of ‘‘alternative trading system’’ set forth 

in Rule 300(a) of Regulation ATS will be required 

to comply with the new counterparty reporting 

requirements, regardless of whether the member is 

excepted from the requirements applicable to ATSs 

provided in Rule 301(b) of Regulation ATS (e.g., the 

exception applicable if the ATS limits its securities 

activities to government securities). See Notice, 83 

FR at 27644, n. 12 (citing 17 CFR 

242.301(a)(4)(ii)(A)). 

26See Notice, 83 FR at 27645, n. 13. 

27See id. 

28See Notice, 83 FR at 27645. 

29See id. FINRA also noted that, if the proposal 

is approved, FINRA intends to monitor the 

continued appropriateness of the $10 billion 

threshold, the impact of the exception on its audit 

trail, and potential negative impacts or changes in 

ATS or non-FINRA-member subscriber behavior. 

See id. 

30See id., 83 FR at 27644. 

31See id. 

32See id. 

33See id. 

34See id., 83 FR at 27645. 

35See id. 

36See proposed FINRA Rule 6730, 

Supplementary Material .07(c). 

37See Notice, 83 FR at 27645. 

38See proposed FINRA Rule 6730, 

Supplementary Material .07(d). 

39See supra note 4. 

40See Citadel Letter; Healthy Markets Letter. 

41See Citadel Letter at 1. 

42Healthy Markets Letter at 3. 

43Execution Access Letter at 2. 

44 Id. Another commenter agreed that banks 

should be subject to reporting requirements, but 

expressed the view that the ‘‘important effort’’ 

represented by the proposal should not be delayed 

or limited pending action with respect to the 

establishment of reporting obligations for banks. 

See Heathy Markets at 3. 

45Execution Access Letter at 3. 

46See FINRA Response at 1–2. 

ATS, that executed transactions in U.S. 

Treasury Securities against non-FINRAmember subscribers of $10 billion or 

more in monthly par value, computed 

by aggregating buy and sell transactions, 

for any two months in the preceding 

calendar quarter.25 FINRA has stated 

that, based on a review of U.S. Treasury 

Security transaction data reported to 

FINRA during a sample period, six 

ATSs would currently be considered 

covered ATSs.26 According to FINRA, 

these ATSs currently account for over 

99% of the trade reports submitted by 

ATSs to TRACE for transactions in U.S. 

Treasury Securities.27 FINRA believes 

that limiting the proposed counterparty 

identification requirement in this 

manner balances the burdens associated 

with complying with the proposed rule 

(i.e., providing FINRA a list of all nonFINRA-member subscribers, obtaining 

MPIDs, and using the assigned MPIDs in 

TRACE reporting) with the benefits 

sought to be achieved (i.e., obtaining 

additional granularity that will enhance 

the quality of U.S. Treasury Security 

transaction data).28 FINRA further 

believes that the proposal would 

improve the completeness of the 

information on U.S. Treasury Security 

transactions available to FINRA and the 

official sector, and that the absence of 

more detailed counterparty information 

from ATSs with activity levels below 

the proposed threshold would not 

materially affect the completeness of the 

audit trail.29

FINRA believes that the proposed rule 

change would result in an improvement 

to the effectiveness of FINRA’s 

surveillance patterns from the 

standpoint of greater granularity and 

thus more accurate pattern detection, 

including the increased ability to 

identify potentially manipulative 

activity.30 FINRA has stated that its 

ability to detect wash sales or 

prearranged trading activity would be 

improved if the audit trail included the 

identity of the non-FINRA-member 

counterparty rather than the generic 

customer indicator received today.31

The identity of the particular ATS 

subscriber allows the surveillance 

pattern to narrow down the potential 

universe of matching trades and thus 

more accurately detect instances of 

potential manipulation.32 FINRA 

concluded that the more granular detail 

that would be added to transaction 

reports by identifying non-FINRAmember counterparties would enhance 

FINRA’s surveillance program for U.S. 

Treasury Securities.33

FINRA has stated that it will 

announce the effective date of the 

proposed rule change in a Regulatory 

Notice to be published no later than 60 

days following Commission approval of 

the proposal, and that the effective date 

will be no later than 180 days following 

publication of that Regulatory Notice.34

Covered ATSs will be required to 

submit a list of their non-FINRAmember subscribers to FINRA at least 60 

days in advance of the effective date.35

An ATS that becomes a covered ATS in 

the future would be required to begin 

complying with the requirements of 

Supplementary Material .07 of FINRA 

Rule 6730 within 60 calendar days of 

the end of the calendar quarter in which 

it becomes a covered ATS.36 This 60- 

day period is designed to provide 

sufficient time for a newly covered ATS 

to provide FINRA with a list of, and 

obtain MPIDs for, its non-FINRAmember subscribers, and perform any 

necessary programming changes.37 Once 

an ATS is deemed a covered ATS, it 

must continue complying with the new 

counterparty reporting requirements 

even if its volume of executed 

transactions in U.S. Treasury Securities 

against non-FINRA-member subscribers 

falls below the threshold.38

III. Summary of Comments and 

FINRA’s Response 

The Commission received three 

comment letters regarding the 

proposal.39 Two commenters strongly 

supported the proposal.40 One of these 

commenters noted that making more 

Treasury market data readily available 

to the official sector would improve 

general monitoring and surveillance 

capabilities, including those designed to 

detect prohibited trading practices and 

potential risks to market stability.41

Similarly, the second commenter noted 

that the absence of information 

regarding the identity of non-FINRAmember counterparties is ‘‘a significant 

limitation for effective surveillance and 

oversight.’’ 42

The third commenter generally 

supported the goal of increased 

transparency in the U.S. Treasury 

market but did not think that the 

proposal ‘‘is sufficient or even 

necessarily an appropriate means of 

facilitating transparency among nonFINRA member participants in the 

Treasury market.’’ 43 This commenter 

warned that the proposal ‘‘may actually 

result in reduced transparency’’ because 

it might cause non-FINRA members to 

shift their trading in U.S. Treasury 

Securities ‘‘from FINRA member firms 

to non-FINRA member and bank 

affiliates that have no reporting 

responsibilities.’’ 44 The commenter 

concluded that ‘‘Congress or the SEC 

should consider requiring PTFs to 

register as broker-dealers such that 

FINRA, in turn, may require them to 

centrally clear their transactions and 

report their transactions to TRACE. 

Until such a requirement exists, the 

problem of market opacity will 

persist.’’ 45

In its response letter, FINRA 

acknowledged that reporting by nonFINRA members would provide a more 

complete picture of Treasury market 

activity, but believes that the proposal 

represents an appropriate next step to 

improve the usefulness of the Treasury 

transaction data currently reported 

through TRACE, given the limits of its 

jurisdictional authority.46 FINRA 

further noted that the Department of the 

Treasury, the Commission, the Federal 

Reserve Bank of New York, and the 

CFTC have stated that they are assessing 

effective means to ensure the collection 

of data regarding Treasury cash 

securities market transactions is 

comprehensive and includes 

information from institutions that are 


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47See id. at 2 (citing Joint Press Release, 

Department of the Treasury, et al., Statement 

Regarding Progress on the Review of the U.S. 

Treasury Market Structure since the July 2015 Joint 

Staff Report (August 2, 2016), https://www.sec.gov/ 

news/pressrelease/2016-155.html; Joint Press 

Release, U.S. Department of the Treasury, et al., 

Statement on Trade Reporting in the U.S. Treasury 

Market (May 16, 2016), https://www.sec.gov/news/ 

pressrelease/2016-90.html). 

48See id. at 2 (citing Press Release, Board of 

Governors of the Federal Reserve System (October 

21, 2016), https://www.federalreserve.gov/ 

newsevents/pressreleases/other20161021a.htm). 

49Execution Access Letter at 2. 

50See FINRA Response at 2. 

51See id. 

52See id. A second commenter who broadly 

supported the proposal also noted that the new 

counterparty reporting requirements ‘‘may lead to 

trading shifting to non-ATS or other venues’’ and 

observed that ‘‘it might be valuable to further 

expand the reporting obligations in the future.’’ 

Healthy Markets Letter at 3. 

53Execution Access Letter at 2–3. 

54 Id. at 3. 

55See FINRA Response at 3. 

56See id. 

57See id. In addition, an ATS that becomes a 

covered ATS in the future will have 60 calendar 

days from the end of the calendar quarter in which 

it becomes covered to begin complying with the 

requirements. See id. 

58See Healthy Markets Letter at 3–4. 

59See FINRA Response at 4. 

60 In approving this proposal, the Commission has 

considered the proposed rule’s impact on 

efficiency, competition, and capital formation. See 

15 U.S.C. 78c(f). 

61 15 U.S.C. 78o–3(b)(6). 

62 2016 Order, 81 FR at 73174. 

63Notice, 83 FR at 27644. 

64See supra note 18 and accompanying text. 

not FINRA members.47 FINRA also 

noted that the Federal Reserve Board 

has announced that it plans to collect 

data from banks for secondary market 

transactions in U.S. Treasury Securities 

and is discussing with FINRA whether 

TRACE could be leveraged to 

potentially serve as the Board’s 

collection agent for the data.48

Similarly, this commenter believed 

that ‘‘ATS participants whose trades are 

presently reported to TRACE only as 

‘customer’ trades—including banks, 

hedge funds, and PTFs—may choose to 

not become an ATS subscriber or refrain 

from trading on ATS’s to maintain 

anonymity and avoid regulatory 

oversight.’’ 49 FINRA acknowledged that 

the proposal could result in a change in 

behavior by non-FINRA members, but 

reiterated its understanding, expressed 

in the Notice, that most trading in the 

Treasury cash market is electronic and 

that member firms and non-FINRA 

venues do not currently have the 

capability to facilitate the volume of 

orders and trades that FINRA-member 

ATSs can facilitate through electronic 

systems.50 Accordingly, FINRA believes 

that the proposal is designed to apply to 

the trading venues most likely not to see 

a shift in volume away to other 

venues.51 FINRA also reiterated that it 

would monitor activity in U.S. Treasury 

Securities with respect to the operation 

of the proposal.52

The commenter also argued that the 

proposal ‘‘unfairly allocates to ATSs the 

significant operational costs and 

regulatory burdens of trade reporting’’ 53

and that ‘‘ATS’s will likely need to 

recoup these costs by passing them 

through to their customers.’’ 54 FINRA 

responded that it is sensitive to the need 

to balance the regulatory objectives of a 

proposal with the burdens and costs 

imposed on member firms, and sought 

to narrowly tailor the proposal by 

establishing a minimum volume 

threshold below which the 

identification requirements would not 

apply.55 FINRA also noted that, because 

firms currently must populate the 

counterparty field in their TRACE 

reports, the proposal will not require 

ATSs to undertake programming related 

to populating a new field, but rather 

will require them to use a FINRAassigned MPID in place of the current 

generic contra-party identifiers for 

‘‘customer’’ or ‘‘non-member 

affiliate.’’ 56 FINRA further noted that it 

intends to set an effective date for the 

proposal of approximately 180 days 

from the date of the Regulatory Notice 

announcing a Commission approval of 

the proposal, which is designed to 

provide ATSs with enough time to 

determine whether they are covered 

and, if so, to obtain MPIDs for nonFINRA-member subscribers and make 

any necessary programming changes.57

Finally, one of the commenters who 

broadly supported the proposal 

suggested that FINRA ultimately should 

require identification using the legal 

entity identifiers (‘‘LEIs’’) rather than 

MPIDs.58 FINRA responded that, at this 

time, MPIDs are the most appropriate 

identifier for TRACE reports because 

MPIDs are established and widely used 

by its members for purposes of reporting 

trade and counterparty information to 

FINRA.59

IV. Discussion and Commission 

Findings 

After carefully considering the 

proposal, the comments submitted, and 

FINRA’s response to the comments, the 

Commission finds that the proposed 

rule change is consistent with the 

requirements of the Act and the rules 

and regulations thereunder applicable to 

a national securities association.60 In 

particular, the Commission finds that 

the proposed rule change is consistent 

with Section 15A(b)(6) of the Act,61

which requires, among other things, that 

FINRA’s rules be designed to prevent 

fraudulent and manipulative acts and 

practices, to promote just and equitable 

principles of trade, and, in general, to 

protect investors and the public interest. 

The Commission called FINRA’s 2016 

proposal to expand TRACE reporting to 

include member transactions in U.S. 

Treasury Securities ‘‘an important first 

step in providing the official sector with 

more comprehensive data about the 

Treasury cash market.’’ 62 Currently, 

TRACE reports require specific 

identification only of FINRA member 

counterparties; non-FINRA-member 

counterparties are reported only as ‘‘C’’ 

for customer or ‘‘A’’ if the counterparty 

is a non-member affiliate. FINRA has 

now proposed to require covered ATSs 

to specifically identify all non-FINRAmember counterparties in their TRACE 

reports of U.S. Treasury Security 

transactions. The Commission concurs 

with FINRA’s assessment that ‘‘the 

additional detail that would be added to 

transaction reports by identifying nonFINRA member counterparties would 

enhance FINRA’s surveillance program 

for U.S. Treasury Securities.’’ 63 The 

Commission concludes, therefore, that 

expanding TRACE reporting of Treasury 

transactions in the manner described in 

the proposal is reasonably designed to 

help FINRA fulfill its mandate in 

Section 15A(b)(6) of the Act to prevent 

fraudulent and manipulative acts and 

practices, to promote just and equitable 

principles of trade, and, in general, to 

protect investors and the public interest. 

The Commission further believes that 

expanded reporting of counterparty 

identities in the manner described in 

the proposal will help to establish a 

more complete audit trail for 

transactions in U.S. Treasury Securities, 

thereby assisting regulators in detecting 

and deterring improper trading activity. 

More complete information regarding 

counterparty identity also will provide 

the official sector with a better 

understanding of the structure and 

characteristics of the U.S. Treasury cash 

market. The Commission notes that the 

proposal is consistent with the Treasury 

Department’s recommendation in the 

Capital Markets Report that FINRA 

members that facilitate transactions in 

U.S. Treasury Securities be required to 

identify customers in their reports of 

transactions in U.S. Treasury 

Securities.64

The Commission acknowledges the 

concerns of one commenter who argued 

that the proposal ‘‘does not do enough 

to achieve full transparency in the 

Treasury Market and may actually result 

in reduced transparency’’ and that some 

non-FINRA-member market participants 


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Federal Register / Vol. 83, No. 158 / Wednesday, August 15, 2018 / Notices 40605 

65Execution Access Letter at 2. 

66See supra notes 47–48 and accompanying text. 

67Notice, 83 FR at 27645. 

68FINRA stated that, based on a review of TRACE 

data over a sample period, only six ATSs that 

accounted for 99% of trade reports exceeded the 

proposed threshold. See Notice, 83 FR at 27645, at 

n. 13. 

69See FINRA Rule 6730, Supplementary Material 

.07(d). 70 15 U.S.C. 78s(b)(5) (providing that the 

Commission ‘‘shall consult with and consider the 

views of the Secretary of the Treasury prior to 

approving a proposed rule filed by a registered 

securities association that primarily concerns 

conduct related to transactions in government 

securities, except where the Commission 

determines that an emergency exists requiring 

expeditious or summary action and publishes its 

reasons therefor’’). 

71Telephone conversation with Treasury 

Department staff and Brett Redfearn, Director, 

Division of Trading and Markets, et al., on August 

3, 2018. 

72 15 U.S.C. 78s(b)(6). 

73 15 U.S.C. 78s(b)(2). 

74 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

might elect not to trade on covered 

ATSs ‘‘to maintain anonymity and avoid 

regulatory oversight.’’ 65 The 

Commission believes, nevertheless, that 

this comment does not preclude 

approval of the proposal at this time. 

Although some Treasury transactions 

will continue to be outside the scope of 

the new requirements, the new 

counterparty information reported by 

covered ATSs should greatly enhance 

surveillance capabilities and provide 

additional insights into the Treasury 

cash market. The Commission notes that 

other public sector authorities have 

expressed their intention to continue to 

assess effective means to ensure that 

reported data regarding the Treasury 

cash market is comprehensive and 

includes information from institutions 

that are not FINRA members.66

Furthermore, although theoretically 

possible, it might not be practical for 

non-FINRA members to shift their 

trading activity away from covered 

ATSs if covered ATSs continue to serve 

as significant pools of liquidity for U.S. 

Treasury Securities. The Commission 

notes that FINRA ‘‘intends to monitor 

. . . for any potential negative impacts 

or changes in ATS or non-member 

subscriber behavior.’’ 67

The Commission believes that the 

proposal is reasonably designed to 

minimize burdens on ATSs while still 

fulfilling the important policy objectives 

discussed above. The new non-FINRAmember identification requirements will 

apply only to ATSs that exceed the $10 

billion threshold. These ATS currently 

account for the vast majority of ATS 

transaction reports for transactions in 

U.S. Treasury Securities against nonFINRA members.68 Furthermore, the 

proposal does not appear likely to 

require covered ATSs to undertake 

significant programming work because 

new reporting fields will not be 

necessary. All ATSs that report to 

TRACE already utilize fields for 

counterparty identifiers and are familiar 

with the use of MPIDs for FINRA 

member counterparties. For Treasury 

transactions on covered ATSs, the 

proposal eliminates use of the generic 

‘‘C’’ and ‘‘A’’ identifiers and instead 

requires the ATS to populate the 

counterparty identifier field with an 

MPID in all cases, regardless of whether 

a particular counterparty is a FINRA 

member. Under the new rule, FINRA 

will assign MPIDs to all non-FINRAmember subscribers of covered ATSs 

who engage in Treasury transactions 

without employing a de minimis cut-off. 

The Commission believes that this is a 

reasonable means of simplifying 

compliance with the rule because 

covered ATSs will not have to analyze 

the transaction volume of non-FINRAmember subscribers to ascertain 

whether any of them become subject to 

or subsequently fall outside the scope of 

the rule. In addition, an ATS that 

reaches the $10 billion threshold will 

remain a covered ATS even if its 

volume of executed transactions in U.S. 

Treasury Securities subsequently falls 

below the $10 billion threshold.69 The 

Commission believes that this will 

simplify compliance with the new rule 

because an ATS will not be required to 

continue monitoring its volume of 

executions in U.S. Treasury Securities 

against non-FINRA-member subscribers 

once it has reached the $10 billion 

threshold. Finally, the Commission 

notes that the new rule will impose 

duties only on covered ATSs and not on 

any of their subscribers. 

Pursuant to Section 19(b)(5) of the 

Act,70 the Commission consulted with 

and considered the views of the 

Treasury Department in determining to 

approve the proposed rule change. The 

Treasury Department supports FINRA’s 

proposal to require covered ATSs to 

identify non-FINRA-member 

counterparties in their TRACE reports of 

Treasury transactions.71 Pursuant to 

Section 19(b)(6) of the Act,72 the 

Commission has considered the 

sufficiency and appropriateness of 

existing laws and rules applicable to 

government securities brokers, 

government securities dealers, and their 

associated persons in approving the 

proposal. As discussed above, ATSs 

currently report Treasury transactions 

using generic identifiers that do not 

specifically identify non-FINRAmember counterparties. By requiring 

covered ATSs to identify non-FINRAmember counterparties in their TRACE 

reports of Treasury transactions, the 

new rule will enhance FINRA’s 

surveillance program for U.S. Treasury 

Securities and provide the official sector 

with important additional information 

concerning activity in the U.S. Treasury 

cash market. 

V. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,73 that the 

proposed rule change (SR–FINRA– 

2018–023) is approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.74

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2018–17496 Filed 8–14–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–83814; File No. SR– 

PEARL–2018–17] 

Self-Regulatory Organizations: Notice 

of Filing and Immediate Effectiveness 

of a Proposed Rule Change by MIAX 

PEARL, LLC To Amend the MIAX 

PEARL Fee Schedule 

August 9, 2018. 

Pursuant to the provisions of Section 

19(b)(1) of the Securities Exchange Act 

of 1934 (‘‘Act’’) 1 and Rule 19b–4 

thereunder,2 notice is hereby given that 

on August 1, 2018, MIAX PEARL, LLC 

(‘‘MIAX PEARL’’ or ‘‘Exchange’’) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’) a 

proposed rule change as described in 

Items I, II, and III below, which Items 

have been prepared by the Exchange. 

The Commission is publishing this 

notice to solicit comments on the 

proposed rule change from interested 

persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange is filing a proposal to 

amend the MIAX PEARL Fee Schedule 

(the ‘‘Fee Schedule’’). 

The text of the proposed rule change 

is available on the Exchange’s website at 

http://www.miaxoptions.com/rulefilings/pearl at MIAX PEARL’s principal 

office, and at the Commission’s Public 

Reference Room. 


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