24748 Federal Register / Vol. 77, No. 80 / Wednesday, April 25, 2012 / Notices 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 66577 

(March 12, 2012), 77 FR 15827 (March 16, 2012) 

(‘‘Notice’’). 

4See Securities Exchange Act Release No. 60726 

(September 28, 2009), 74 FR 50991 (October 2, 

2009) (approving SR–FINRA–2009–010). 

5See Securities Exchange Act Release No. 61566 

(February 22, 2010), 75 FR 9262 (March 1, 2010) 

(approving SR–FINRA–2009–065). The term ‘‘Asset 

Backed Security’’ is defined in FINRA Rule 

6710(m). 

6See FINRA Rules 6710(m), (u), and (v). 

7See Notice, 77 FR at 15827–28. 

8See Notice, 77 FR at 15828. 

9See Notice, 77 FR at 15828 n.7. 

10See Notice, 77 FR at 15828, 15830. 

11See proposed Rule 6730(a)(3)(D)(i)b. 

Exceptions for transactions that are executed within 

45 minutes of the close of the TRACE system and 

for transactions executed when it is closed are set 

forth in subparts a., c., and d. of proposed Rule 

6730(a)(3)(D)(i). The term ‘‘Time of Execution’’ is 

defined in Rule 6710(d). 

12See proposed Rule 6730(a)(3)(D)(ii), which 

incorporates by reference Rule 6730(a)(1). Rule 

6730(a)(1) requires that transactions in TRACEEligible Securities be reported within 15 minutes of 

the Time of Execution, and also provides 

exceptions for transactions in TRACE-Eligible 

Securities that are executed shortly before the 

TRACE system closes and when it is closed. 

13See proposed Rule 6730(a)(3)(E)(i)b. Exceptions 

for transactions that are executed within two hours 

of the close of the TRACE system and for 

transactions executed when it is closed are set forth 

in subparts a., c., and d. of proposed Rule 

6730(a)(3)(E)(i). 

14See proposed Rule 6730(a)(3)(E)(ii)b. 

Exceptions for transactions that are executed within 

one hour of the close of the TRACE system and for 

transactions executed when it is closed are set forth 

in subparts a., c., and d. of proposed Rule 

6730(a)(3)(E)(ii). 

Exchange Commission, c/o Remi PavlikSimon, 6432 General Green Way, 

Alexandria, VA 22312 or send an email 

to PRA_Mailbox@sec.gov. 

Dated: April 19, 2012. 

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. 2012–9937 Filed 4–24–12; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–66829; File No. SR–FINRA– 

2012–020] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Order Granting 

Approval of Proposed Rule Change 

Relating to Post-Trade Transparency 

for Agency Pass-Through MortgageBacked Securities Traded TBA 

April 18, 2012. 

I. Introduction 

On March 1, 2012, 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 relating to posttrade transparency for Agency PassThrough Mortgage-Backed Securities 

(‘‘MBS’’) traded ‘‘to be announced’’ or 

‘‘TBA.’’ The proposed rule change was 

published for comment in the Federal 

Register on March 16, 2012.3 The 

Commission received no comments on 

the proposal. This order approves the 

proposed rule change. 

II. Description of the Proposal 

FINRA utilizes the Trade Reporting 

and Compliance Engine (‘‘TRACE’’) to 

collect from its members and publicly 

disseminate information on secondary 

over-the-counter transactions in 

corporate debt securities and Agency 

Debt Securities and certain primary 

market transactions.4 FINRA also 

utilizes TRACE to collect information 

on transactions in Asset-Backed 

Securities, but FINRA currently does 

not disseminate such information 

publicly.5 Agency Pass-Through 

Mortgage-Backed Securities traded TBA 

(‘‘MBS TBA’’) are a specific type of 

Asset-Backed Security.6 FINRA has 

proposed to amend its rules to reduce 

the reporting timeframe for and to 

provide for public dissemination of 

MBS TBA transactions, and to make 

certain other changes. 

Good Delivery and Not Good Delivery 

MBS TBA Transactions 

FINRA has proposed to amend the 

definition of TBA set forth in Rule 

6710(u) to identify two subsets of MBS 

TBA transactions: MBS TBA 

transactions ‘‘for good delivery’’ (‘‘MBS 

TBA Good Delivery’’) and MBS TBA 

transactions ‘‘not for good delivery’’ 

(‘‘MBS TBA Not Good Delivery’’). MBS 

TBA Good Delivery meet certain market 

standards and conventions, known 

generally as ‘‘good delivery guidelines;’’ 

MBS TBA Not Good Delivery do not 

meet those guidelines.7 Most newly 

issued MBS TBA are MBS TBA Good 

Delivery, and are composed primarily of 

standard loans such as 15- and 30-year 

fixed-rate single-family loans.8 Newly 

issued MBS TBA Not Good Delivery, on 

the other hand, include primarily nonstandard loans, such as interest-only 

mortgages, project/construction loans, 

and certain non-conforming mortgages 

on single family residences.9 According 

to FINRA, MBS TBA Good Delivery are 

the most liquid and account for the vast 

majority of MBS TBA transactions.10

Reduction of Reporting Period 

FINRA also has proposed to amend 

Rule 6730 to reduce the period for 

reporting MBS TBA transactions to 

TRACE. The reduction would occur in 

two stages for both MBS TBA Good 

Delivery and MBS TBA Not Good 

Delivery transactions, but the reduced 

reporting period for each type of MBS 

TBA transaction would be different. 

With respect to MBS TBA Good 

Delivery transactions, first, for a pilot 

program of approximately 180 days 

duration, FINRA has proposed to reduce 

the reporting period from no later than 

the close of the TRACE system on the 

date of execution to no later than 45 

minutes from the Time of Execution.11

Second, after approximately 180 days, 

the pilot program would expire and the 

reporting period would be reduced from 

no later than 45 minutes from the Time 

of Execution to no later than 15 minutes 

from the Time of Execution.12

With respect to MBS TBA Not Good 

Delivery transactions, first, for a pilot 

program of approximately 180 days 

duration, FINRA has proposed to reduce 

the reporting period from no later than 

the close of the TRACE system on the 

date of execution to no later than two 

hours from the Time of Execution.13

Second, after approximately 180 days, 

the pilot program would expire and the 

reporting period would be reduced from 

no later than two hours from the Time 

of Execution to no later than one hour 

from the Time of Execution.14

Dissemination of MBS TBA Transaction 

Information 

FINRA Rule 6750(b)(4) currently 

provides that transactions in AssetBacked Securities are not subject to 

dissemination. The proposal would 

amend Rule 6750(b)(4) to provide for 

dissemination of information on MBS 

TBA transactions immediately upon 

receipt of the transaction report. 

Specifically, FINRA has proposed to 

amend Rule 6750(b)(4) to provide that 

FINRA will not disseminate information 

on a transaction in an Asset-Backed 

Security, except an MBS TBA 

transaction. As a result of this proposed 

change and the reduced reporting 

periods that FINRA has proposed for 

MBS TBA transactions, information on 

MBS TBA Good Delivery and MBS TBA 

Not Good Delivery transactions would 

be disseminated within 45 minutes and 

two hours, respectively, of the Time of 

Execution during the pilot period. After 

the pilot period expires, information on 

MBS TBA Good Delivery and MBS TBA 

Not Good Delivery transactions would 

be disseminated within 15 minutes and 


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Federal Register / Vol. 77, No. 80 / Wednesday, April 25, 2012 / Notices 24749 

15See Notice, 77 FR at 15830. There are currently 

two dissemination caps already in place. For 

TRACE-Eligible Securities that are rated Investment 

Grade, there is a $5 million dissemination cap, and 

the size of transactions in excess of $5 million is 

displayed as ‘‘$5MM+.’’ See id. For TRACE-Eligible 

Securities that are rated Non-Investment Grade, 

there is a $1 million dissemination cap, and the size 

of a transaction in excess of $1 million is displayed 

as ‘‘$1MM+.’’ See id. The terms Investment Grade 

and Non-Investment Grade are defined in Rule 

6710(h) and Rule 6710(i), respectively. 

16The Historic ABS Data Set would include all 

MBS TBA transactions effected as of or after May 

16, 2011, and, among other things, would include 

uncapped volume information. See Notice, 77 FR at 

15831. However, like the other historic TRACE 

data, data for MBS TBA transactions to be included 

in the Historic ABS Data Set would be released 

subject to a delay of approximately 18 months from 

the date of the transaction. See id. 

17 In approving this proposed rule change, the 

Commission has considered the proposed rule’s 

impact on efficiency, competition, and capital 

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

18 15 U.S.C. 78o–3(b)(6). 

19See Securities Exchange Act Release No. 43873 

(January 23, 2001), 66 FR 8131, 8136 (January 29, 

2001). 

20See supra note 5. 

21The Commission notes further that the 15- 

minute reporting requirement applicable to MBS 

TBA Good Delivery after the pilot period is the 

same reporting requirement applicable to corporate 

bonds and Agency Debt Securities, i.e., other 

TRACE-Eligible Securities for which market data 

are already publicly disseminated. See Rule 

6730(a)(1). 

22The Commission notes that, as calculated by 

FINRA, the dissemination caps would have limited 

the display of actual size for approximately 84% of 

total volume traded in MBS TBA Good Delivery and 

85% of total volume traded in MBS TBA Not Good 

Delivery during the period May 16, 2011 through 

January 4, 2012. See Notice, 77 FR at 15830 and 

n.26. 

one hour, respectively, of the Time of 

Execution. 

Dissemination Caps 

FINRA has proposed dissemination 

caps for MBS TBA Good Delivery and 

MBS TBA Not Good Delivery 

transactions, which would prevent the 

display of the actual size (volume) of a 

transaction over a certain par value in 

the disseminated TRACE data.15 With 

respect to MBS TBA Good Delivery 

transactions, FINRA would set a 

dissemination cap of $25 million. 

Accordingly, MBS TBA Good Delivery 

transactions exceeding $25 million 

would be displayed in TRACE as 

‘‘$25MM+.’’ With respect to MBS TBA 

Not Good Delivery transactions, FINRA 

would set a dissemination cap of $10 

million. Accordingly, MBS TBA Not 

Good Delivery transactions exceeding 

$10 million would be displayed in 

TRACE as ‘‘$10MM+.’’ 

Data and Fees 

FINRA would amend Rule 7730 to 

make available the disseminated TRACE 

data for transactions in MBS TBA, and 

to establish fees for such data. 

Specifically, FINRA has proposed to 

amend Rule 7730(c) to establish a realtime market data set for disseminated 

Asset-Backed Security transaction 

information (‘‘ABS Data Set’’) and to 

amend Rule 7730(d) to establish a 

historic data set for such information 

(‘‘Historic ABS Data Set’’).16 The 

provisions of Rule 7730 that currently 

apply to the two existing real-time 

market and historic data sets (for 

corporate bonds and Agency Debt 

Securities), including the fees for receipt 

of such data, would be amended to 

include the ABS Data Set and Historic 

ABS Data Set. 

Other Rule Changes 

FINRA has proposed to delete 

provisions regarding an expired pilot 

program, and to make other minor 

administrative, technical, or clarifying 

changes in Rules 6730 and 7730. 

Regulatory Notice 

FINRA has indicated that it would 

announce the effective date of the 

proposed rule change in a Regulatory 

Notice to be published no later than 60 

days following Commission approval, 

and that the effective date be no later 

than 180 days following publication of 

that Regulatory Notice. 

III. Discussion and Commission 

Findings 

After carefully reviewing the 

proposal, 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.17 In particular, the 

Commission finds that the proposed 

rule change is consistent with Section 

15A(b)(6) of the Act,18 which requires, 

among other things, that FINRA 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. 

In approving the original TRACE 

rules, the Commission stated that price 

transparency plays a fundamental role 

in promoting fairness and efficiency of 

U.S. capital markets.19 To further the 

goal of increasing price transparency in 

the debt markets in general and the MBS 

TBA market in particular, the 

Commission now believes that it is 

reasonable and consistent with the Act 

for FINRA to extend post-trade price 

transparency to transactions in MBS 

TBA in the manner set forth in the 

proposal. 

As discussed above, FINRA uses 

TRACE to collect information on 

transactions in Asset-Backed Securities, 

including MBS TBA transactions, but to 

date, FINRA has not disseminated such 

information publicly.20 FINRA’s 

proposal, however, would make MBS 

TBA transaction information publicly 

available for the first time, both in nearreal time (subject to certain reporting 

delays, as detailed above) and on a 

historic basis. By increasing public 

availability of information about MBS 

TBA transactions, the proposal may 

encourage greater participation in the 

market, which could contribute to 

deeper liquidity and increased 

competition. In addition, the proposal 

appears reasonably designed to reduce 

the potential for manipulation and 

promote just and equitable principles of 

trade by allowing market participants to 

make more accurate assessments of, and 

enhancing their ability to negotiate fair 

and competitive prices in, the MBS TBA 

market. 

Moreover, the Commission believes 

that the proposed reduction in reporting 

times for MBS TBA transactions is an 

important corollary to the expansion of 

post-trade transparency for such 

transactions. Timelier reporting should 

be more conducive to the dissemination 

of meaningful (and close-to-real time) 

market data for MBS TBA transactions 

than FINRA’s current reporting regime 

for MBS TBA transactions.21 The 

Commission believes that reducing the 

reporting period as set forth in the 

proposal would result in important 

trade information reaching the market 

more quickly, thus contributing to 

enhanced price transparency for the 

MBS TBA asset class. 

Firms covered by these new reporting 

requirements for MBS TBA transactions 

could incur certain compliance burdens. 

However, the Commission believes that 

any such burdens are justified by the 

overall benefits of increasing 

transparency in the MBS market. The 

Commission notes that FINRA has 

proposed to shorten the reporting period 

for MBS TBA transactions in stages. The 

Commission believes that this approach 

is reasonably designed to ease the 

compliance burdens on those affected 

by the proposal without significantly 

compromising FINRA’s ability to 

disseminate more timely market data for 

MBS TBA transactions. 

The Commission recognizes that the 

dissemination caps FINRA has proposed 

would, to a certain extent, limit the 

transparency provided by FINRA’s 

proposal.22 However, the Commission 

notes that dissemination caps are 

already in place for transactions in other 


pmangrum on DSK3VPTVN1PROD with NOTICES
24750 Federal Register / Vol. 77, No. 80 / Wednesday, April 25, 2012 / Notices 

23See supra note 15. 

24See FINRA Rule 7730. 

25 15 U.S.C. 78s(b)(2). 

26 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3 17 CFR 240.19b–4(f)(6). 

TRACE-Eligible Securities.23 Moreover, 

public dissemination of MBS TBA 

transaction information has heretofore 

not existed in the MBS TBA market. The 

dissemination caps allow FINRA to 

implement post-trade price 

transparency in that market 

incrementally. FINRA has represented 

that it will continue to review the 

volume of and liquidity in the MBS 

TBA market and, if warranted in the 

future, may recommend that the 

dissemination caps be set at higher 

levels in order to provide additional 

transparency. 

Lastly, the Commission finds that 

FINRA’s proposed fees for MBS TBA 

market and historic transaction data are 

consistent with Section 15A(b)(5) of the 

Act, which requires, among other 

things, that FINRA rules provide for the 

equitable allocation of reasonable dues, 

fees, and other charges among members 

and issuers and other persons using any 

facility or system which the association 

operates or controls. These fees are 

similar to those that currently apply to 

corporate debt securities and Agency 

Debt Securities.24

IV. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,25 that the 

proposed rule change (SR–FINRA– 

2012–020) be, and it hereby is, 

approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.26

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2012–9840 Filed 4–24–12; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–66833; File No. SR– 

NYSEArca–2012–32] 

Self-Regulatory Organizations; NYSE 

Arca, Inc.; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change Amending NYSE Arca 

Equities Rule 7.31 To Specify How the 

Immediate-or-Cancel Time-in-Force 

Instructions Are Applicable to an MPL 

Order 

April 19, 2012. 

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 April 10, 

2012, NYSE Arca, Inc. (the ‘‘Exchange’’ 

or ‘‘NYSE Arca’’) filed with the 

Securities and Exchange Commission 

(the ‘‘Commission’’) the proposed rule 

change as described in Items I and II 

below, which Items have been prepared 

by the Exchange. The Exchange has 

designated the proposed rule change as 

constituting a rule change under Rule 

19b–4(f)(6) under the Act,3 which 

renders the proposal effective upon 

filing with the Commission. 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 amend 

NYSE Arca Equities Rule 7.31 to specify 

how the immediate-or-cancel (‘‘IOC’’) 

time-in-force instructions are applicable 

to an MPL Order. The text of the 

proposed rule change is available at the 

Exchange, www.nyse.com, and 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 

self-regulatory organization 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 those 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 parts 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 amend 

NYSE Arca Equities Rule 7.31 to specify 

how the IOC time-in-force instructions 

are applicable to an MPL Order. 

Background 

An MPL Order is a type of Working 

Order that has conditional or 

undisplayed price and/or size. As set 

forth in NYSE Arca Equities Rule 

7.31(h)(5), an MPL Order is a Passive 

Liquidity Order that is priced at the 

midpoint of the PBBO and does not 

trade through a Protected Quotation. An 

MPL Order has a minimum order entry 

size of one share and Users may specify 

a minimum executable size for an MPL 

Order, which must be no less than one 

share. If an MPL Order has a specified 

minimum executable size, it will 

execute against an incoming order that 

meets the minimum executable size and 

is priced at or better than the midpoint 

of the PBBO. If the leaves quantity 

becomes less than the minimum size, 

the minimum executable size restriction 

will no longer be enforced on 

executions. 

If the market is locked or crossed, the 

MPL Order will wait for the market to 

unlock or uncross before becoming 

eligible to trade again. MPL Orders are 

ranked in time priority for the purposes 

of execution as long as the midpoint is 

within the limit range of the order. MPL 

Orders always execute at the midpoint 

and do not receive price improvement. 

MPL Orders are valid for any session, 

but do not participate in auctions. 

Unlike Passive Liquidity Orders, MPL 

Orders are not exclusive to lead market 

makers (‘‘LMM’’) for securities for 

which the Exchange is the primary 

market. Users that choose not to trade 

with MPL Orders may mark incoming 

limit orders with a ‘‘No Midpoint 

Execution’’ designator and such limit 

orders will ignore MPL Orders. MPL 

Orders do not route out of the Exchange 

to other market centers. 

NYSE Arca Equities Rule 7.31 sets 

forth the time-in-force conditions that 

are available for orders entered at the 

Exchange. One such time-in-force 

condition is the IOC condition, which 

provides that a market or limit order 

that is marked IOC is to be executed in 

whole or in part as soon as such order 

is received, and the portion not so 

executed is to be treated as cancelled. 

Proposed Rule Change 

The Exchange proposes to add NYSE 

Arca Equities Rule 7.31(h)(6) to specify 

how the IOC time-in-force conditions 

are applicable to an MPL Order (an 

‘‘MPL–IOC Order’’). Because it is an 

MPL Order, the proposed MPL–IOC 

Order follows the same execution and 

priority rules of an MPL Order, 

including that it would be a Passive 

Liquidity Order that is priced at the 

midpoint of the PBBO, does not trade 

through Protected Quotations, always 

executes at the midpoint, does not 

receive price improvement, does not 

route to other market centers, is not 

limited to LMMs for securities listed on 

the Exchange, and will not trade with 

incoming limit orders with a ‘‘No 

Midpoint Execution’’ designator. 


pmangrum on DSK3VPTVN1PROD with NOTICES