42732 Federal Register / Vol. 83, No. 164 / Thursday, August 23, 2018 / Notices 

18 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3Rule 6710 generally defines a ‘‘TRACE-Eligible 

Security’’ as: A debt security that is United States 

(‘‘U.S.’’) dollar-denominated and is: (1) Issued by a 

U.S. or foreign private issuer, and, if a ‘‘restricted 

security’’ as defined in Securities Act Rule 

144(a)(3), sold pursuant to Securities Act Rule 

144A; (2) issued or guaranteed by an Agency as 

defined in Rule 6710(k) or a Government-Sponsored 

Enterprise as defined in Rule 6710(n); or (3) a U.S. 

Treasury Security as defined in Rule 6710(p). 

‘‘TRACE-Eligible Security’’ does not include a debt 

security that is issued by a foreign sovereign or a 

Money Market Instrument as defined in Rule 

6710(o). 

4 ‘‘Agency Debt Security’’ generally includes a 

debt security (i) issued or guaranteed by an Agency 

as defined in Rule 6710(k); (ii) issued or guaranteed 

by a Government-Sponsored Enterprise (‘‘GSE’’) as 

defined in Rule 6710(n); or (iii) issued by a trust 

or other entity that was established or sponsored by 

a GSE 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. Rule 6710(n) provides that 

‘‘Government-Sponsored Enterprise’’ has the same 

meaning as defined in 2 U.S.C. 622(8). 

5Rule 6710 provides that ‘‘Investment Grade’’ 

means ‘‘a TRACE-Eligible Security that, if rated by 

only one nationally recognized statistical rating 

organization (‘‘NRSRO’’), is rated in one of the four 

highest generic rating categories; or if rated by more 

than one NRSRO, is rated in one of the four highest 

generic rating categories by all or a majority of such 

NRSROs; provided that if the NRSROs assign 

ratings that are evenly divided between (i) the four 

highest generic ratings and (ii) ratings lower than 

the four highest generic ratings, FINRA will classify 

the TRACE-Eligible Security as Non-Investment 

Grade for purposes of TRACE. If a TRACE-Eligible 

Security is unrated, for purposes of TRACE, FINRA 

may classify the TRACE-Eligible Security as an 

Investment Grade security. FINRA will classify an 

unrated Agency Debt Security as defined in [Rule 

6710(l)] as an Investment Grade security for 

purposes of the dissemination of transaction 

volume.’’ See FINRA Rule 6710(h). 

6Rule 6710 provides that ‘‘Non-Investment 

Grade’’ means ‘‘a TRACE-Eligible Security that, if 

rated by only one NRSRO, is rated lower than one 

of the four highest generic rating categories; or if 

rated by more than one NRSRO, is rated lower than 

one of the four highest generic rating categories by 

all or a majority of such NRSROs. Except as 

provided in paragraph (h), if a TRACE-Eligible 

Security is unrated, FINRA may classify the 

TRACE-Eligible Security as a Non-Investment Grade 

security.’’ See FINRA Rule 6710(i). 

7See Securities Exchange Act Release No. 59733 

(April 8, 2009), 74 FR 17709 (April 16, 2009) 

(Notice of Filing of File No. SR–FINRA–2009–010). 

8See supra note 7. 

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

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 

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

filing also will be available for 

inspection and copying at the 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–CBOE–2018–056 and 

should be submitted on or before 

September 7, 2018. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.18

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2018–18158 Filed 8–22–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–83882; File No. SR–FINRA– 

2018–032] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing of a 

Proposed Rule Change To Amend 

FINRA Rule 6710 To Modify the 

Dissemination Protocols for Agency 

Debt Securities 

August 17, 2018. 

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

Securities Exchange Act of 1934 

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

notice is hereby given that on August 

16, 2018, the Financial Industry 

Regulatory Authority, Inc. (‘‘FINRA’’) 

filed with the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change as described in 

Items I, II, and III below, which Items 

have been prepared by FINRA. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

FINRA is proposing to amend FINRA 

Rule 6710 to modify the dissemination 

protocols with respect to Agency Debt 

Securities. 

The text of the proposed rule change 

is available on FINRA’s website at 

http://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 the 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

FINRA requires members to report to 

the Trade Reporting and Compliance 

Engine (‘‘TRACE’’) transactions in 

TRACE-Eligible Securities,3 including 

securities that meet the definition of 

‘‘Agency Debt Security.’’ 4 FINRA 

disseminates transaction information on 

Agency Debt Securities and displays 

either the actual size (volume) of the 

transaction or a capped amount, 

depending on whether the security is 

rated as Investment Grade,5 NonInvestment Grade,6 or is unrated. For 

transactions in Agency Debt Securities 

that are either Investment Grade or 

unrated, FINRA disseminates the actual 

size of the trade for transactions less 

than or equal to $5 million in par value 

traded, thus providing actual 

transaction size up to $5 million, and 

disseminates ‘‘$5MM+’’ for trades 

exceeding $5 million in par value 

traded.7 For transactions in Agency Debt 

Securities that are Non-Investment 

Grade, FINRA disseminates the actual 

size of the trade for transactions less 

than or equal to $1 million in par value, 

and disseminates ‘‘1MM+’’ for trades 

exceeding $1 million in par value 

traded.8

FINRA is proposing to apply a $5 

million dissemination cap to all Agency 

Debt Securities, regardless of the rating 

assigned to the security. When adopting 

the original dissemination caps for 

Agency Debt Securities, FINRA believed 

that unrated Agency Debt Securities 

should default to the $5 million 

dissemination cap due to factors such as 

that they trade more consistently with 

Investment Grade securities that are 

subject to the $5 million dissemination 

cap. While Non-Investment Grade 

Agency Debt Securities have been 

disseminated with the $1 million 

dissemination cap, FINRA is not aware 

of the existence of any Non-Investment 

Grade Agency Debt Securities other than 

credit risk transfer securities (‘‘CRTs’’), 

a type of Agency Debt Security issued 

by Fannie Mae (‘‘Fannie’’) and Freddie 

Mac (‘‘Freddie’’). Based on experience 

gained with CRTs and in consultation 

with Fannie and Freddie, FINRA 


daltland on DSKBBV9HB2PROD with NOTICES
Federal Register / Vol. 83, No. 164 / Thursday, August 23, 2018 / Notices 42733 

9 15 U.S.C. 78o–3(b)(6). 

10Each CRT deal utilizes a senior/subordinate 

structure in which credit protection is provided to 

the senior class by the subordinate classes in 

priority order. The senior class and subordinate 

tranches, while part of the same CRT issuance, are 

separate securities and each are assigned a unique 

CUSIP. In addition, each CRT class can be further 

tranched to provide additional optionality for 

investors’ needs. As such, each CRT class is 

associated with multiple unique CUSIPs. We note 

that only the CUSIP associated with the senior 

tranche contributes to the amount of debt 

outstanding for a given CRT class. 

11For calendar year 2017, there were 11,341 

trades reported to TRACE, that include only one 

trade report for interdealer trades and one trade 

report for dealer to customer trades (one-sided trade 

data), in Investment Grade and unrated CRT 

CUSIPs, of which 20.8% were displayed as 

‘‘5MM+.’’ 

believes that it is appropriate to 

disseminate Non-Investment Grade 

CRTs with the $5 million dissemination 

cap. Because CRTs are the only type of 

Agency Debt Security rated less than 

Investment Grade, FINRA is proposing 

to simplify the dissemination structure 

by applying the $5 million 

dissemination cap to all Agency Debt 

Securities irrespective of rating. 

FINRA notes that transactions in the 

vast majority of securities issued by 

Fannie and Freddie are disseminated 

with the actual size of the trade 

(uncapped), and, of those that are 

capped, the vast majority are 

disseminated with the $5 million cap: 

94.4% of all transactions in direct 

obligations issued by Fannie and 

Freddie, including CRTs, currently are 

disseminated with the actual size of the 

trade. Of the remaining 5.6% that are 

capped (both at $1 million and $5 

million), 95% currently are 

disseminated with the $5 million cap. 

Thus, FINRA believes that the proposed 

modification to apply the $5 million 

dissemination cap to all Agency Debt 

Securities uniformly will have a 

minimal impact, while simplifying the 

dissemination structure and providing 

additional transparency in Agency Debt 

Securities. 

If the Commission approves the 

proposed rule change, FINRA 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. 

The effective date will be no later than 

120 days following publication of the 

Regulatory Notice announcing 

Commission approval. 

2. Statutory Basis 

FINRA believes that the proposed rule 

change is consistent with the provisions 

of Section 15A(b)(6) of the Act,9 which 

requires, among other things, that 

FINRA rules must be designed to 

prevent fraudulent and manipulative 

acts and practices, to promote just and 

equitable principles of trade, and, in 

general, to protect investors and the 

public interest. The proposed rule 

change would benefit investors in that 

it would simplify the dissemination 

structure by creating a uniform 

dissemination protocol for all Agency 

Debt Securities, and would increase 

transparency for transactions in NonInvestment Grade Agency Debt 

Securities over $1 million. Additionally, 

the proposed rule change would have a 

minimal impact as the vast majority of 

capped transactions in Agency Debt 

Securities are already disseminated with 

the $5 million cap. 

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 

analyze the potential economic impacts, 

including anticipated costs, benefits, 

and distributional and competitive 

effects, relative to the current baseline, 

and the alternatives FINRA considered 

in assessing how to best meet its 

regulatory objectives. 

Economic Baseline 

As of December 31, 2017, there were 

35 Investment Grade, 9 Non-Investment 

Grade, and 172 unrated CRT classes 

(based on TRACE data). FINRA notes 

that certain CRTs are currently the only 

type of Agency Debt Security with a 

Non-Investment Grade rating. The 

outstanding amount of these issues are 

$770 million, $350 million and $2,877 

million for Investment Grade, NonInvestment Grade and unrated issues 

respectively. Table 1 presents the 

number of trades reported to TRACE 

and nominal trade value of CRT CUSIPs 

by rating for the calendar year beginning 

January 1, 2017.10

TABLE 1 

Grade 

Trades Trade value 

Number Percent Dollars 

(millions) Percent 

Non-Investment ................................................................................................ 1,950 13.6 8,800.9 13.6 

Investment ....................................................................................................... 1,988 13.8 8,880.1 13.7 

Unrated ............................................................................................................ 10,423 72.6 47,077.7 72.7 

Under the existing dissemination 

protocols, Agency Debt Securities that 

are unrated or rated Investment Grade 

are disseminated with a $5 million 

dissemination cap, where trades over $5 

million are displayed as ‘‘5MM+.’’ NonInvestment Grade Agency Debt 

Securities are disseminated with a $1 

million dissemination cap, where trades 

over $1 million are displayed as 

‘‘1MM+.’’ Table 2 presents the number 

and percent of trades and nominal trade 

value disseminated with actual trade 

sizes or displayed with ‘‘5MM+’’ for 

Investment Grade or unrated CRT 

CUSIPs for calendar year 2017. These 

statistics include all trades reported to 

TRACE during the period, and thus 

would include two trade reports for 

interdealer trades and one trade report 

for dealer to customer trades (two-sided 

trade data).11


daltland on DSKBBV9HB2PROD with NOTICES
42734 Federal Register / Vol. 83, No. 164 / Thursday, August 23, 2018 / Notices 

12For calendar year 2017, there were 1,712 trades 

reported to TRACE, that include only one trade 

report for interdealer trades and one trade report for 

dealer to customer trades (one-sided trade data), in 

Non-Investment Grade CUSIPs, of which 88.3% 

were displayed as ‘‘1MM+.’’ 

13For instance, one study that examined 

corporate bond transactions in TRACE from January 

2003 through January 2005 found that ‘‘[c]osts are 

lower for bonds with transparent trade prices, and 

they drop when the TRACE system starts to 

publicly disseminate their prices. The results 

suggest that public traders benefit significantly from 

price transparency.’’ For additional details, see 

Amy K. Edwards, Lawrence E. Harris, and Michael 

S. Piwowar, Corporate Bond Market Transaction 

Costs and Transparency, Journal of Finance 62, No. 

3, 1421–1451 (2007). 

14See supra note 13. 

15See supra note 13. 

TABLE 2 

Grade 

Trades 

≤$5M >$5M 

Number Percent Number Percent 

Investment ....................................................................................................... 1,524 76.7 464 23.3 

Unrated ............................................................................................................ 8,435 80.9 1,988 19.1 

Trade value 

≤$5M >$5M 

Dollars 

(millions) Percent Dollars (millions) Percent 

Investment ....................................................................................................... 2,591.5 29.2 6,288.6 28.2 

Unrated ............................................................................................................ 22,390.9 47.6 24,686.7 46.6 

Table 3 presents the number and 

percent of trades and nominal trade 

value disseminated with actual trade 

sizes or displayed with ‘‘1MM+’’ for 

Non-Investment Grade CRT CUSIPs for 

calendar year 2017.12

TABLE 3 

Grade 

Trades 

≤$1M >$1M 

Number Percent Number Percent 

Non-Investment ................................................................................................ 222 11.4 1,728 88.6 

Trade value 

≤$1M >$1M 

Dollars 

(millions) Percent Dollars (millions) Percent 

Non-Investment ................................................................................................ 139.7 1.6 8,661.2 98.4 

Economic Impact 

Based on transactions during calendar 

year 2017, this proposal would have led 

to dissemination of additional trade size 

information for 1,112 trades in 82 CRT 

CUSIPs than disseminated under the 

current protocols. This increased 

transparency could have impacts on 

investors, market makers and issuers. 

Markets participants, especially 

uninformed investors, generally 

anticipate that they benefit from greater 

price transparency because, in the 

presence of this information, they are 

more likely to gain more timely 

information about the current price of 

an asset. Knowing this, they may be 

more willing to commit capital.13

At the same time, FINRA understands 

that some firms believe that 

transparency about the size of larger 

trades impedes their ability to commit 

capital and hence may have a negative 

impact on liquidity. Increasing 

transparency may increase the amount 

of information available to uninformed 

investors on transaction size and price. 

This may reduce the informed investors’ 

relative advantage by decreasing the 

bid-ask spread earned by an informed 

investor or increasing the bid-ask spread 

paid by an informed investor. 

Furthermore, firms may be less willing 

to trade as principal and hold these 

securities in inventory, leading to wider 

spreads or less depth, if they fear that 

investors may identify the firms’ 

inventory position.14 In addition, 

existing institutional investors that 

prefer trading in large sizes or at the 

current level of transparency in NonInvestment Grade CRTs may substitute 

trading in other asset classes, if the 

investors fear others may identify their 

holdings. The consensus of the 

academic literature studying the impact 

of transparency in a variety of settings 

in U.S. fixed income markets is that 

greater transparency is associated with 

lower costs to end customers and 

positive to neutral impacts on market 

liquidity.15 In addition, FINRA has 

discussed the proposed rule change 

with Fannie and Freddie, both of which 

support the application of the $5 

million dissemination cap to all CRTs. 

Alternatives 

No alternatives are under 

consideration. 


daltland on DSKBBV9HB2PROD with NOTICES
Federal Register / Vol. 83, No. 164 / Thursday, August 23, 2018 / Notices 42735 

16 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release Nos. 83729 

(July 27, 2018) 83 FR 37870 (August 2, 2018) (SR– 

ISE–2018–65); 83731 (July 27, 2018), 83 FR 37867 

(August 2, 2018) (SR–GEMX–2018–26); and 83730 

(July 27, 2018), 83 FR 37873 (August 2, 2018) (SR– 

MRX–2018–25). Nasdaq Phlx LLC was filed as SR– 

Phlx–2018–54. The Nasdaq Stock Market LLC will 

submit a similar filing to amend The Nasdaq 

Options Market LLC ports. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

Written comments were neither 

solicited nor received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period (i) 

as the Commission may designate up to 

90 days of such date if it finds such 

longer period to be appropriate and 

publishes its reasons for so finding or 

(ii) as to which the self-regulatory 

organization consents, the Commission 

will: 

(A) By order approve or disapprove 

such proposed rule change, or 

(B) institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

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

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

FINRA–2018–032 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–2018–032. 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 also will be available for 

inspection and copying at the principal 

office of FINRA. 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–FINRA– 

2018–032, and should be submitted on 

or before September 13, 2018. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.16

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2018–18167 Filed 8–22–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–83869; File No. SR–BX– 

2018–038] 

Self-Regulatory Organizations; Nasdaq 

BX, Inc.; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Codify the Definitions 

of the Protocols To Enter Quotes and 

Orders 

August 17, 2018. 

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

Securities Exchange Act of 1934 

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

notice is hereby given that on August 

14, 2018, Nasdaq BX, Inc. (‘‘BX’’ or 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I, II, and 

III, below, which Items have been 

prepared by 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 proposes to adopt new 

text at Chapter VI, Section 21 to codify 

the definitions of the protocols that 

Participants can use to enter quotes and 

orders on the Exchange. 

The text of the proposed rule change 

is available on the Exchange’s website at 

http://nasdaqbx.cchwallstreet.com/, at 

the principal office of the Exchange, and 

at the Commission’s Public Reference 

Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

forth in sections A, B, and C below, of 

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to adopt new 

rule text at Chapter VI, Section 21 to 

codify the Financial Information 

eXchange (‘‘FIX’’) and Specialized 

Quote Feed (‘‘SQF’’) protocols. The 

Exchange believes that codifying 

definitions of these protocols in its rules 

will increase transparency around its 

operations. The protocols used by 

Participants to submit quotes and orders 

play an important role in the operation 

of the System. The Exchange therefore 

believes that codifying definitions of 

these protocols in its rules will increase 

transparency around its operations. 

Furthermore, the proposed definitions 

will be harmonized where appropriate 

with definitions to be included in the 

rules of the Exchange’s affiliated options 

markets,3 including by using consistent 

terms to define the buckets of 

information transmitted, or the features 

available, on each protocol. 

The Exchange proposes to title 

Section 21 as ‘‘Order and Quote 

Protocols’’ and codify descriptions of 

the various protocols that Participants 

may use to enter quotes and orders on 

BX. The Exchange proposes to add a 


daltland on DSKBBV9HB2PROD with NOTICES