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[Federal Register Volume 89, Number 187 (Thursday, September 26, 2024)]
[Notices]
[Pages 78930-78942]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-22027]

[[Page 78930]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101121; File No. SR-FINRA-2024-004]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Approving a Proposed Rule Change, as Modified by 
Partial Amendment No. 1, To Amend FINRA Rule 6730 (Transaction 
Reporting) To Reduce the 15-Minute TRACE Reporting Timeframe to One 
Minute

September 20, 2024.

I. Introduction

    On January 11, 2024, the Financial Industry Regulatory Authority, 
Inc. (``FINRA'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC''), 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 
reduce the 15-minute reporting timeframe for transactions reported to 
FINRA's Trade Reporting and Compliance Engine (``TRACE'') system to one 
minute, with exceptions for FINRA members with de minimis reporting 
activity and for manual trades. The proposed rule change was published 
for comment in the Federal Register on January 25, 2024.\3\ On February 
29, 2024, the Commission extended until April 24, 2024, 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.\4\ On April 22, 2024, the 
Commission instituted proceedings to determine whether to approve or 
disapprove the proposed rule change.\5\ On July 18, 2024, the 
Commission, pursuant to Section 19(b)(2) of the Act,\6\ designated 
September 20, 2024, as the date by which the Commission shall either 
approve or disapprove the proposed rule change.\7\ Also on July 18, 
2024, FINRA filed a partial amendment to the original proposal 
(``Partial Amendment No. 1''). On July 25, 2024, the Commission 
published notice of Partial Amendment No. 1.\8\ The Commission received 
comment letters in response to publications of the Notice, OIP, and 
Partial Amendment No. 1,\9\ as well as a letter from FINRA.\10\ This 
order approves the proposed rule change, as modified by Partial 
Amendment No. 1 (collectively, ``Proposal'').
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 99404 (January 19, 
2024), 89 FR 5034 (January 25, 2024) (``Notice'').
    \4\ See Securities Exchange Act Release No. 99640 (February 29, 
2024), 89 FR 16042 (March 6, 2024).
    \5\ See Securities Exchange Act Release No. 100006 (April 22, 
2024), 89 FR 32475 (April 26, 2024) (``OIP'').
    \6\ 15 U.S.C. 78s(b)(2).
    \7\ See Securities Exchange Act Release No. 100555 (July 18, 
2024), 89 FR 59948 (July 24, 2024).
    \8\ See Securities Exchange Act Release No. 100594 (July 25, 
2024), 89 FR 61514 (July 31, 2024) (``Partial Amendment No. 1'').
    \9\ Comments received are available at: https://www.sec.gov/comments/sr-finra-2024-004/srfinra2024004.htm.
    \10\ See Letter from Racquel L. Russell, Senior Vice President, 
Director of Capital Markets Policy, Office of General Counsel, 
FINRA, dated July 18, 2024, available at https://www.sec.gov/comments/sr-finra-2024-004/srfinra2024004-491763-1411786.pdf 
(``FINRA Letter'').
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II. Description of the Proposed Rule Change

    FINRA has collected and disseminated transaction information in 
fixed income securities through TRACE since 2002.\11\ FINRA rules 
currently specify the applicable outer-limit reporting timeframe for 
different types of TRACE-Eligible Securities.\12\ Most transactions 
\13\ in corporate bonds, agency debt securities,\14\ asset-backed 
securities (``ABS''),\15\ and agency pass-through mortgage-backed 
securities (``MBS'') traded to-be-announced (``TBA'') for good delivery 
(``GD'') \16\ must be reported within 15 minutes. The 15-minute 
reporting timeframe has been in place for corporate bonds since 
2005,\17\ and was implemented later for agency debt (2010),\18\ ABS 
(2015),\19\ and MBS TBA GD (2013).\20\ In 2015, the Commission approved 
FINRA rule amendments requiring FINRA members to report transactions in 
these TRACE-Eligible Securities as soon as practicable but no later 
than 15 minutes from the time of execution,\21\ and FINRA publicly 
disseminates information on these transactions immediately upon 
receipt. According to FINRA, ``in 2022, 82.9 percent of the trades [in 
TRACE-Eligible Securities] executed after 8:00 a.m. and before 6:15 
p.m. [Eastern Time (``ET'')] were reported within one minute of 
execution.'' \22\
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    \11\ See Securities Exchange Act Release No. 43873 (January 23, 
2001), 66 FR 8131 (January 29, 2001) (Order Approving File No. SR-
NASD-99-65).
    \12\ See FINRA Rule 6710(a) (providing a definition for ``TRACE-
Eligible Security'').
    \13\ 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).
    \14\ See FINRA Rule 6710(l) (providing a definition for ``Agency 
Debt Security'').
    \15\ See FINRA Rule 6710(cc) (providing a definition for 
``Asset-Backed Security'').
    \16\ See FINRA Rule 6710(v) (providing a definition for ``Agency 
Pass-Through Mortgage-Backed Security'') and FINRA Rule 6710(u) 
(providing a definition for ``To Be Announced'').
    \17\ 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).
    \18\ 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).
    \19\ See 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 Notice 14-34 (August 2014).
    \20\ See Securities Exchange Act Release No. 66829 (April 18, 
2012), 77 FR 24748 (April 25, 2012) (Order Approving File No. SR-
FINRA-2012-020); see also Regulatory Notice 12-26 (May 2012).
    \21\ See Securities Exchange Act Release No. 75782 (August 28, 
2015), 80 FR 53375 (September 3, 2015) (Order Approving File No. SR-
FINRA 2015-025).
    \22\ See Notice, 89 FR at Table 1.
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    According to FINRA, ``[s]ince 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.'' 
\23\ In light of these advances and consistent with FINRA's goals of 
increasing transparency and improving access to timely transaction 
data, FINRA proposed updates to modernize the reporting timeframes and 
provide timelier transparency.\24\
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    \23\ See id. at 5034.
    \24\ See id. at 5035.
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A. One-Minute Reporting

    FINRA proposed amendments to Rule 6730 to reduce the reporting 
timeframe for securities currently subject to the 15-minute reporting 
outer limit to one minute, with exceptions for FINRA member firms with 
de minimis reporting activity and for manual trades. FINRA would 
continue to make information on the transactions publicly available 
immediately upon receipt of the trade reports.\25\
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    \25\ See id.
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    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.\26\ 
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,\27\

[[Page 78931]]

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).
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    \26\ See supra notes 17-21.
    \27\ 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.
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    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. Amended Rule 6730(a)(1)(A) would provide that 
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 as soon as 
practicable after the TRACE system opens, but no later than within 15 
minutes after the TRACE system opens. 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).

B. Exceptions From One-Minute Reporting

    FINRA proposed two exceptions from the one-minute reporting 
timeframe for: (1) FINRA member firms with ``limited trading activity'' 
in the TRACE-Eligible Securities that are subject to one-minute 
reporting; and (2) manual trades.\28\
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    \28\ FINRA also proposed a conforming amendment to Supplementary 
Material .03 to refer to the Rule generally rather than ``paragraph 
(a)'' to reflect that FINRA 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.''
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1. Exception for FINRA Members With ``Limited Trading Activity''
    New Supplementary Material .08 would provide an exception to the 
one-minute reporting timeframe for FINRA members with ``limited trading 
activity.'' A FINRA member with ``limited trading activity'' would be 
defined as one 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. Proposed Supplementary Material .08(b) 
would require FINRA members relying on the exception to confirm 
annually their qualification for the exception.\29\ As outlined in 
proposed Supplementary Material .08(c), qualifying FINRA members would 
be required to report these trades as soon as practicable, but no later 
than within 15 minutes of the Time of Execution.\30\
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    \29\ Evidence of this confirmation should be retained as part of 
the FINRA member's books and records. However, FINRA members 
eligible for the exception will not need to take other affirmative 
steps to have their trade reports processed pursuant to the 
exception's 15-minute reporting timeframe, such as submitting a 
certification of eligibility to FINRA or adding a modifier or 
indicator to their trade reports. See Proposed FINRA Rule 6730 
Supplementary Material .08(b).
    \30\ However, a trade executed at or after 12:00:00 a.m. through 
7:59:59 a.m. ET would need to be reported as soon as practicable the 
same day, but no later than within 15 minutes after the TRACE system 
opens. Additionally, a trade executed on a business day at or after 
6:30:00 p.m. through 11:59:59 p.m. ET; on a business day less than 
15 minutes before 6:30 p.m. ET; or on a Saturday, Sunday, federal or 
religious holiday, or other day on which the TRACE system is not 
open at any time during that day, would need to be reported as soon 
as practicable, but no later than within 15 minutes after the TRACE 
system opens the next business day (T+1).
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    FINRA members exceeding the 4,000-trade threshold for each of two 
consecutive calendar years would need 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 member no longer meets the criteria 
for the exception (i.e., beginning 90 days after January 1 of the next 
calendar year). If a FINRA member's reporting activity subsequently 
dropped below the 4,000-trade threshold, the FINRA member would again 
be eligible for the exception.\31\
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    \31\ For example, a FINRA 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 FINRA 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 FINRA 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 states that it believes 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. See Notice, 89 FR at 5036.
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2. Manual Trades Exception
    New Supplementary Material .09 would provide an exception for 
manual trades that are not electronic from end to end. 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 and third years; and a five-
minute outer limit would apply thereafter.
    The manual trades exception would apply to ``transactions that are 
manually executed'' or where a ``[FINRA] 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.'' \32\ A trade that requires manual intervention at 
any point to complete the trade execution or reporting process would 
qualify.\33\ According to FINRA,\34\ it contemplates that the exception 
would be available for a variety of situations, including, for example:
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    \32\ See Notice, 89 FR at 5036.
    \33\ See id.
    \34\ See id.
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     where a FINRA member executes a trade \35\ by manual or 
hybrid means, such as by telephone, email, or through a chat/messaging 
function,\36\ and

[[Page 78932]]

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 (FINRA further explains ``that, where the only 
manual step involved is to prompt the electronic execution of a trade 
(e.g., click `accept'), the manual trades exception would not be 
available'' \37\); \38\
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    \35\ As stated 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). See Notice, 89 FR at n. 
15.
    \36\ See Notice, 89 FR at 5036. FINRA reminds its 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).
    \37\ FINRA Letter at 9.
    \38\ See Notice, 89 FR at 5036.
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     where allocations to individual accounts must be manually 
input in connection with a trade by a dually-registered broker-dealer/
investment adviser (FINRA states that if a block trade, allocated to 
individual accounts by a dually-registered broker-dealer/investment 
adviser, were ``executed electronically without manual intervention 
between its execution and reporting, the manual trades exception would 
not be available for that separately executed block trade'' \39\); \40\
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    \39\ FINRA Letter at 8.
    \40\ See Notice, 89 FR at 5036.
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     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) (FINRA explains that the exception ``would not be 
available with regard to trades that are subject to automated 
compliance/risk checks but that are not selected for manual review/
approval, or for trades that were subject to a pre-execution compliance 
or risk review, but that do not involve manual intervention between the 
time of execution and the trade report'' \41\); \42\
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    \41\ FINRA Letter at 9.
    \42\ See Notice, 89 FR at 5036.
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     where a FINRA 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); \43\ and
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    \43\ See id.
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     where a FINRA 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 (FINRA further states that 
``if manual action was not required to calculate the price of component 
securities included in the basket or other steps necessary to book and 
report the trades to TRACE, then the manual trades exception would not 
be available'' \44\).\45\
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    \44\ FINRA Letter at 8.
    \45\ See Notice, 89 FR at 5036.

According to FINRA, 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 
FINRA member makes reasonable efforts to report the trade as soon as 
practicable (as required). FINRA also states that it will assess FINRA 
members' trade reporting in connection with manual trades to determine 
whether the five-minute trade reporting timeframe (to become applicable 
after three years) \46\ is appropriate, and will be prepared to adjust, 
as necessary.\47\
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    \46\ FINRA Letter at 11.
    \47\ See Notice, 89 FR at 5036.
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    FINRA will review use of the manual trades exception. FINRA 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, FINRA 
states that, considering the overarching obligation to report trades as 
soon as practicable, FINRA 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.\48\
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    \48\ See id.
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    Under amended Rule 6730(d)(4), any FINRA member that executes or 
reports a trade manually would be required to append a manual trade 
indicator to the trade report. The indicator must be included in any 
manual trade, regardless of whether the FINRA member reports outside of 
the one-minute timeframe in reliance on the manual trades exception. 
FINRA states that application of the indicator would give FINRA 
important insight into manual trading and the use of the exception.\49\ 
The indicator would not be included in publicly disseminated TRACE 
data.\50\
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    \49\ See id. at 5037.
    \50\ See id.
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    Finally, FINRA proposed 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'').\51\ Recurring issues in 
the systems of a FINRA member firm or its vendor would not be 
considered a reasonable justification or exceptional circumstance that 
excuses a pattern or practice of late trade reporting.\52\
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    \51\ See, e.g., Rule 6623 describing ``exceptional 
circumstances'' as instances of system failure by a FINRA member or 
service bureau, or unusual market conditions, such as extreme 
volatility in a security, or in the market as a whole.
    \52\ 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.
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III. Summary of Comments, FINRA's Response, and Commission Findings

    After carefully reviewing the Notice, Partial Amendment No. 1, and 
comment letters received, the Commission finds that the Proposal is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
association.\53\ In particular, the Commission finds that the Proposal 
is consistent with Section 15A(b)(6) of the Act,\54\ which requires, 
among other things, that FINRA rules be designed to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system and, in general, to 
protect investors and the public interest; and are not designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers. The Commission also finds that the Proposal is consistent, in 
particular, with Section 15A(b)(9) of the Act,\55\ which requires that 
FINRA rules do not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.
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    \53\ 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); see also infra sections 
III.A (discussing the Proposal's impact on efficiency of U.S. 
capital markets); and III.B and III.G (discussing comments and 
responses regarding the Proposal's burden on competition).
    \54\ 15 U.S.C. 78o-3(b)(6).
    \55\ 15 U.S.C. 78o-3(b)(9).
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    In approving the original TRACE rules in 2002, the Commission 
stated that price transparency plays a fundamental role in promoting 
fairness and efficiency

[[Page 78933]]

of U.S. capital markets.\56\ Since 2002, FINRA has increased 
transparency by requiring more contemporaneous reporting and broadening 
the scope of securities included in TRACE. In 2005, FINRA shortened the 
deadline for reporting most transactions to TRACE to 15 minutes.\57\ 
From 2010 through 2013, FINRA gradually expanded the classes of TRACE-
eligible securities subject to reporting within 15 minutes.\58\ In 
2015, FINRA required FINRA member firms to report transactions in 
TRACE-Eligible Securities as soon as practicable but no later than 
within 15 minutes of the Time of Execution or other timeframe specified 
in FINRA Rule 6730.\59\
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    \56\ See supra note 11.
    \57\ See supra note 17.
    \58\ See supra notes 17-20.
    \59\ See supra note 21; see also https://www.finra.org/rules-guidance/notices/15-41.
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A. One-Minute Reporting

    The Commission received comments on the proposed rule change.\60\ 
Several commenters support the proposal to shorten the 15-minute TRACE 
reporting timeframe to one minute and its aim of increasing 
transparency in the fixed income markets.\61\ Some commenters support 
increasing price transparency in general through reporting but caution 
restraint and the need for broad exceptions, citing the potential for 
reduced liquidity and execution quality.\62\ Some commenters oppose one 
minute reporting, questioning the feasibility and cost of compliance 
due to technical limitations and the prevalence of manual 
processes.\63\ Some commenters that oppose one minute reporting state 
that if the Commission moves forward with the adoption of the one 
minute reporting requirement, it should only do so in conjunction with 
the manual trades and de minimis exceptions.\64\ Some commenters 
suggest FINRA withdraw the Proposal and instead require market 
participants to report trades as soon as practicable but no later than 
five minutes after execution.\65\ One commenter also states that the 
one-minute reporting timeframe for electronic trades ``will not 
meaningfully change the status quo for fully electronic trades,'' as 
``FINRA acknowledges that the overwhelming majority of fully electronic 
transactions are already reported within one minute.'' \66\ Some 
commenters that oppose one minute reporting state FINRA did not 
sufficiently justify the need for the rule.\67\ One commenter states 
that the Proposal ``lack[s] evidence of a market failure to justify'' 
the changes.\68\ Another commenter states that Commission should reject 
the Proposal as amended by Partial Amendment No. 1.\69\ This commenter 
states that ``FINRA and the Commission should improve the timeliness of 
TRACE reporting and dissemination,'' \70\ but also states that the 
manual trades exception ``eviscerates any potentially added value from 
the `electronic' provisions'' and ``encourages the return to `manual' 
trading by those seeking to avoid transparency.'' \71\
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    \60\ See supra note 9.
    \61\ See, e.g., Letter from Stephen John Berger, Managing 
Director, Global Head of Government and Regulatory Policy, Citadel 
(February 15, 2024) (``Citadel Letter I'') at 1; Letter from Joanna 
Mallers, Executive Director, FIA Principal Traders Group (February 
15, 2024) (``FIA PTG Letter'') at 1; Letter from Gerard O'Reilly, 
Co-Chief Executive Officer and Co-Chief Investment Officer, 
Dimensional Fund Advisors LP and David A. Plecha, Global Head of 
Fixed Income, Dimensional Fund Advisors LP (February 15, 2024) 
(``Dimensional Letter'') at 1; Letter from Ursula Baerlein (May 14, 
2024); Letter from Dylan Parker, Chief Executive Officer, Moment 
Technology (May 15, 2024) (``Moment Technology Letter'') at 1.
    \62\ See, e.g., Letter from Sarah A. Bessin, Deputy General 
Counsel, Investment Company Institute and Kevin Ercoline, Assistant 
General Counsel, Investment Company Institute (February 15, 2024) 
(``ICI Letter'') at 2; Letter from Frank Fairman, Managing Director, 
Piper Sandler (May 17, 2024) (``Piper Sandler Letter'') at 1.
    \63\ See, e.g., Letter from Kenneth E. Bentsen, Jr., President 
and CEO, Securities Industry and Financial Markets Association 
(February 15, 2024) (``SIFMA Letter I'') at 2; Letter from Kenneth 
E. Bentsen, Jr., President and CEO, Securities Industry and 
Financial Markets Association (May 17, 2024) (``SIFMA Letter II'') 
at 2 (suggesting transitioning to one-minute reporting would 
``expos[e] the broker-dealer community to significant regulatory 
risk and clients to diminished liquidity and service from their 
broker-dealers''); Letter from Christopher A. Iacovella, President & 
Chief Executive Officer, American Securities Association (February 
16, 2024) (``ASA Letter I'') at 2; Letter from Melissa P. Hoots, 
CEO/CCO, Falcon Square Capital (February 15, 2024) (``Falcon Letter 
I'') at 1-2; Letter from Melissa P. Hoots, CEO/CCO, Falcon Square 
Capital (August 21, 2024) (``Falcon Letter II'') at 2; Letter from 
Mark D. Griffin, SVP & Risk Control Manager, FHN Financial (May 17, 
2024) (``FHN Letter'') at 2; LPL Letter at 1; Letter from Michael 
Decker, Senior Vice President, Bond Dealers of America (February 15, 
2024) (``BDA Letter I'') at 2.
    \64\ See, e.g., SIFMA Letter I at 2; SIFMA Letter II at 2; FHN 
Letter at 2; BDA Letter I at 1; Letter from Michael Decker, Senior 
Vice President, Bond Dealers of America (May 17, 2024) (``BDA Letter 
II'') at 2; LPL Letter at 2.
    \65\ See Citadel at 4; FIA PTG at 4. But cf. SIFMA Letter II at 
9 (stating that any alternative proposal that materially differs 
from the existing Proposal must be subject to notice and comment 
rulemaking and an economic analysis).
    \66\ Letter from Stephen John Berger, Managing Director, Global 
Head of Government & Regulatory Policy, Citadel (August 13, 2024) 
(``Citadel Letter II'') at 1.
    \67\ See, e.g., Falcon Letter I at 1; ASA Letter I at 2; Letter 
from Christopher A. Iacovella, President & Chief Executive Officer, 
American Securities Association (May 17, 2024) (``ASA Letter II'') 
at 1-2; Letter from Christopher A. Iacovella, President & Chief 
Executive Officer, American Securities Association (August 21, 2024) 
(``ASA Letter III'') at 1-2; FHN Letter at 2; SIFMA Letter II at 2.
    \68\ See ASA Letter I at 1; see also Falcon Letter II at 2 
(``FINRA has still not substantiated the need for a reduction in 
reporting time for TRACE-eligible securities'').
    \69\ Letter from Tyler Gellasch, President and CEO, Healthy 
Markets Association (September 15, 2024) (``HMA Letter II'') at 1. 
This commenter states that it is writing to supplement its past 
support for shortening the TRACE reporting timeframe to more broadly 
object to the Proposal, citing, among other things, its prior 
comment letter on the Proposal. See id. (citing Letter from Tyler 
Gellasch, President and CEO, Healthy Markets Association (February 
15, 2024) (``HMA Letter I'')).
    \70\ HMA Letter II at 3.
    \71\ Id. at 1. This commenter also suggests changes to TRACE 
reporting protocols that are outside of the scope of the Proposal to 
provide for separate reports of information for price transparency 
and data useful to just regulators. See id. at 2.
---------------------------------------------------------------------------

    FINRA states that ``approximately 83% of transactions in TRACE-
eligible securities currently subject to the 15-minute reporting 
timeframe are reported within one minute of execution under 
requirements that, for some TRACE-eligible securities, have been in 
place for nearly 20 years, and FINRA believes it is appropriate and 
prudent to consider whether this timeframe continues to meet regulatory 
objectives given the passage of time and the changes in the fixed 
income securities industry in the intervening years.'' \72\ 
Additionally, FINRA states that it believes that ``identifying possible 
regulatory improvements need not be limited to instances where there 
has already been a market failure.'' \73\ FINRA further states that it 
continues to believe that the Proposal ``represents an important step 
in modernizing the trade reporting timeframes for TRACE-eligible 
securities to facilitate more timely transaction data, enhancing 
transparency and the value of disseminated transaction data by allowing 
investors and other market participants to obtain and evaluate more 
timely pricing information for the impacted securities.'' \74\ 
Additionally, with respect to feasibility of one-minute reporting, 
especially with respect to fully electronic allocated trades, FINRA 
acknowledges this concern and describes its approach to enforcement of 
late reporting of transactions to TRACE under the Proposal by stating 
``that a pattern or practice of late reporting without reasonable 
justification may be considered conduct inconsistent with high 
standards of commercial honor and just and equitable principles of 
trade, in violation of Rule 2010,'' but FINRA adds: ``In considering 
whether `reasonable justification' exists under proposed Rule 6730(f), 
FINRA will take into account factors such as the size and complexity of 
the trade, such as in the

[[Page 78934]]

case of allocation and portfolio trades.'' \75\
---------------------------------------------------------------------------

    \72\ FINRA Letter at 3.
    \73\ Id. at 3.
    \74\ Id. at 3-4.
    \75\ FINRA Response Letter at 17.
---------------------------------------------------------------------------

    As discussed below, the Proposal is consistent with the Exchange 
Act. In particular, the Proposal will further increase price 
transparency by reducing the 15-minute TRACE reporting window to one 
minute while providing appropriately tailored exceptions for manual 
trades and FINRA members with de minimis reporting activity. The as 
soon as practicable but no later than 15-minute deadline for reporting 
trades by FINRA member firms with de minimis reporting activity, 
representing 1.41% of trades or 0.43% of the total par value traded, 
would remain unchanged.\76\ FINRA states that the Proposal will likely 
result in at least an additional 5.3% of total trades reported within 
one minute.\77\ FINRA additionally estimates that, ``after adjusting 
for the proposed de minimis exception and prior to accounting for the 
manual exception, the Proposal could result in up to 16.4% of current 
annual trading volume, or up to 6.1 million trades and 20 trillion 
dollars in par value, being reported faster.'' \78\ Accordingly, the 
Commission views the Proposal as one that is reasonably designed to 
provide more timely trade reporting.
---------------------------------------------------------------------------

    \76\ See Notice, 89 FR at 5043.
    \77\ See Notice, 89 FR at 5042.
    \78\ Id. at 4.
---------------------------------------------------------------------------

    As the Commission has found previously, more timely reporting 
promotes fairness and efficiency of the U.S. capital markets.\79\ 
Accordingly, the Commission finds that the Proposal will promote fair 
and orderly markets and protect investors and the public interest by 
increasing market transparency and providing the market with more 
timely pricing information, which may improve price efficiency. And as 
discussed below, FINRA responded to comments regarding the feasibility 
of complying with a one minute reporting requirement, including the 
feasibility and cost of compliance due to technical limitations and the 
prevalence of manual processes.\80\ FINRA also responded to comments 
with respect to the feasibility of one-minute reporting for fully 
electronic allocated trades, for which FINRA provides data showing that 
68% of allocated trades already were reported within one minute and 
90.6% were reported within three minutes,\81\ describes its approach to 
enforcement,\82\ and states that it will continue to study reporting 
times to determine if any regulatory changes are appropriate.\83\ 
Moreover, FINRA responded to comments with respect to gamesmanship of 
the exceptions.\84\ After carefully reviewing the Notice, Partial 
Amendment No. 1, and comment letters received, the Commission views the 
Proposal as reasonably balancing the benefits of more contemporaneous 
transaction reporting and transparency against the burden of requiring 
all transactions to be reported within one minute. Furthermore, the 
Commission agrees with FINRA that improving rules need not require a 
previous market failure.\85\
---------------------------------------------------------------------------

    \79\ See supra notes 56-59 and accompanying text.
    \80\ See infra sections III.C and III.D (discussing comments, 
and FINRA's responses, on the de minimis and manual trades 
exceptions, including with respect to concerns regarding the 
feasibility of complying and the application of the rule in the 
context of manual trades).
    \81\ See FINRA Letter at 17 (citing Notice, 89 FR at 5034, 
5041).
    \82\ See supra note 75 and accompanying text.
    \83\ See FINRA Letter at 17.
    \84\ See infra notes 117 and 144 accompanying text.
    \85\ See infra section III.H (discussing that the Exchange Act 
does not require that a self-regulatory organization establish the 
existence of a market failure to justify a proposed rule change).
---------------------------------------------------------------------------

B. General Comments on Exceptions to One-Minute Reporting

    Commenters express varied views on the proposed exceptions to one 
minute reporting. Some commenters state the exceptions are essential to 
the success of the rule.\86\ These commenters cite the burdens of 
compliance with one-minute reporting on broker-dealers that rely on 
manual processes.\87\ Other commenters state that the exceptions are 
too narrow \88\ or too broad.\89\ One commenter states that for both 
exceptions, anything less than 15-minute reporting is infeasible and 
cites the issue that compliance costs associated with faster reporting 
could price small broker-dealers out of fixed income markets.\90\ One 
commenter that states the exceptions are too broad also states that the 
exceptions ``create significant risk to the efficacy and legal 
durability of the entire rule.'' \91\ This commenter also states that 
instead of improving market transparency the Proposal would 
``exacerbate, rather than reduce, information asymmetries.'' \92\ One 
commenter encourages FINRA to phase out both exceptions completely over 
time, which it states would incentivize FINRA members to modernize 
their execution processes.\93\ Another commenter states that both 
exceptions ``complicate the rollout of the reporting compression 
process and unnecessarily deprive market participants of information 
necessary to achieve full market transparency,'' and that 
``technological advances, particularly the use of APIs, make the need 
for these exceptions unnecessary and expensive relative the overall 
cost savings associated with transparency.'' \94\ Another commenter 
highlights that while 96.9% of non-ATS transactions are reported within 
five minutes, ``[i]t is curious that the Proposal would sanction an 
outer reporting limit that is 3 times longer than the time it takes to 
report the overwhelming majority of `manual' transactions today.'' \95\ 
The commenter states that this could contribute to undermining the 
transition to electronic trading in the fixed income markets.\96\ Two 
commenters respond that commenters critical of the exceptions as 
proposed fail to recognize unique features of fixed income markets, 
such as the prevalence of manual trading and the heterogeneity of 
market participants, that make broad exceptions necessary.\97\ One 
commenter also states that phasing out the de minimis exception, as 
suggested by another commenter, would drive small firms out of the 
fixed income business.\98\
---------------------------------------------------------------------------

    \86\ See, e.g., BDA Letter I at 1; BDA Letter II at 2; Letter 
from Michael Decker, Senior Vice President, Research and Public 
Policy, Bond Dealers of America (August 21, 2024) (``BDA Letter 
III'') at 2; Letter from Howard Meyerson, Managing Director, 
Financial Information Forum (February 15, 2024) (``FIF Letter I'') 
at 2; Letter from Howard Meyerson, Managing Director, Financial 
Information Forum (May 17, 2024) (``FIF Letter III'') at 2; SIFMA 
Letter I at 3-4; SIFMA Letter II at 2; FHN Letter at 2; Piper 
Sandler Letter at 1 (stating that the Proposal ``strike[s] an 
appropriate balance'').
    \87\ See BDA Letter I at 1; FIF Letter I at 2; FIF Letter III at 
2; LPL Financial Letter at 1-2; SIFMA Letter I at 3-4; SIFMA Letter 
II at 2; see also BDA Letter II at 4 (stating small broker-dealers 
benefit fixed income markets and would be especially negatively 
affected by higher compliance costs associated with the Proposal).
    \88\ See, e.g., ASA Letter I at 1-2; Falcon Letter I at 1.
    \89\ See, e.g., Dimensional Letter at 2; HMA Letter II at I; HMA 
Letter I at 9-12; Citadel Letter I at 2-3; FIA PTG Letter at 1-2; 
Moment Technology Letter at 1.
    \90\ See ASA Letter I at 2; see also Falcon Letter I at 4 
(``[O]ur fear is that the Filing will, over time, eliminate smaller 
fixed-income brokers''); Falcon Letter II at 1 (``Given the limits 
of [the de minimis and manual trades] exceptions, smaller broker-
dealers like us risk being driven out of the fixed-income markets 
due to prohibitive costs.''); ASA Letter III at 2 (stating that the 
commenter's concerns about the Proposal's potential harm to market 
competition, particularly for smaller and mid-sized broker-dealers, 
remain unaddressed).
    \91\ HMA Letter I at 2.
    \92\ HMA Letter II at 3 (stating that the manual trades 
exception creates an opportunity to avoid transparency).
    \93\ See Dimensional Letter at 2.
    \94\ Moment Technology Letter at 2.
    \95\ Citadel Letter II at 2.
    \96\ Id.
    \97\ See BDA Letter II at 2-3; SIFMA Letter II at 8.
    \98\ See BDA Letter II at 4.

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

[[Page 78935]]

    With respect to the manual trades exception, FINRA explains that 
``as is the case today, under the Proposal members would be required to 
report the subject transactions to TRACE--including manual trades--`as 
soon as practicable' but no later than the applicable outer limit from 
the time of execution. Therefore, the current reporting requirements 
already account for the various ways that trades can be executed.'' 
\99\
---------------------------------------------------------------------------

    \99\ FINRA Letter at 6 (citations omitted).
---------------------------------------------------------------------------

    The Commission finds that the Proposal would not impose any burden 
on competition not necessary or appropriate in furtherance of the 
purposes of the Act because it creates exceptions for manual trades and 
firms with de minimis reporting activity. In doing so, the Proposal 
takes into account competitive and liquidity concerns that could arise 
as a result of the costs associated with complying with a shortened 
reporting timeframe that could lead some FINRA members to curtail their 
activities, or lead some FINRA members with less trade volume to exit 
the market, and thereby reasonably balances the benefits to market 
participants of increased transparency while mitigating the burdens of 
a shortened trade reporting deadline. In this regard, the Proposal is 
also reasonably designed to not permit unfair discrimination between 
brokers or dealers.
    The Commission views the manual trades exception as facilitating 
greater transparency while still allowing needed time to report for 
trades with manual processes. Further, the phase-in of the manual 
trades exception's five-minute outer limit over three years is 
reasonably designed to provide FINRA members time during which to 
assess trade execution and post-trade processes and make changes 
necessary to meet a shorter reporting deadline, thereby facilitating 
any changes to manual interventions currently employed by FINRA members 
to complete the trade execution or reporting process.
    With respect to the de minimis exception, as discussed below, the 
exception reasonably and appropriately balances the burdens that would 
otherwise fall on FINRA members that process limited trade volume 
without diluting the overall benefits of the Proposal.\100\
---------------------------------------------------------------------------

    \100\ See infra section III.C (discussing comments, and FINRA's 
responses, on the de minimis exception, including FINRA's data in 
support of the threshold and look-back period for the exception, as 
well as the Commission view that the exception strikes an 
appropriate balance between fulfilling the goal of increased 
transparency and mitigating any disproportionate cost of compliance 
on certain, small FINRA members). Also, the Proposal would not phase 
out the de minims exception, as requested by a commenter and opposed 
by another commenter. See supra notes 93 and 98 and accompanying 
text; see also new Supplementary Material .08 and supra section 
II.B.1.
---------------------------------------------------------------------------

    FINRA responded to the comments regarding the de minimis and manual 
trades exceptions, including regarding whether the exceptions are too 
narrow or too broad, as well as the potential impact of the costs 
associated with faster reporting for small broker-dealers.\101\ After 
carefully reviewing the Notice, Partial Amendment No. 1, and comment 
letters received, including the FINRA Letter, the Commission views the 
Proposal as striking a reasonable balance between requiring more 
contemporaneous transaction reporting and transparency and the burden 
of requiring all transactions to be reported within one minute.\102\ 
The Proposal both facilitates greater transparency through faster post-
trade reporting and provides FINRA member firms with an exception from 
the one-minute reporting deadline that will permit continued reliance 
on manual processes and another for FINRA members that process limited 
trade volume. Additionally, the Commission disagrees with the comment 
that the exceptions ``unnecessarily'' deprive market participants of 
information; the Proposal and its exceptions are a reasonable balance 
between providing information to market participants, thereby 
increasing transparency, and mitigating the burdens of one-minute trade 
reporting.
---------------------------------------------------------------------------

    \101\ See infra section III.C and III.D (discussing comments, 
and FINRA's response, on the de minimis and manual trades 
exceptions, including those regarding the scope of the exceptions 
and impact on smaller broker-dealers).
    \102\ See FINRA Letter at 2-7, 14-15.
---------------------------------------------------------------------------

C. De Minimis Exception

    Several commenters specifically address the de minimis exception. 
Some commenters state support for the de minimis exception.\103\ One of 
these commenters states the de minimis exception is appropriately 
tailored to protect minority, veteran, and women owned business 
enterprises and small dealers from incurring significant costs.\104\ 
The commenter also states the proposed two-year look back period will 
prevent surprise application of the rule and allow newly impacted 
broker-dealers time to comply.\105\ Another commenter that supports the 
de minimis exception states that market participants falling under the 
threshold represent an insignificant portion of the market and that the 
exception will not materially affect market transparency.\106\ Some 
commenters state opposition to the de minimis exception.\107\ One of 
these commenters supports the logic behind the de minimis exception but 
states the proposed 4,000-trade report threshold is too low and 
insufficiently justified.\108\ This commenter also requests FINRA 
expand the threshold or at minimum provide more analysis to support its 
proposed limit.\109\ Another commenter that opposes the de minimis 
exception states FINRA did not sufficiently justify the need for the 
exception, nor its decisions to set the exception's threshold at 4,000 
annual trades and the lookback period for applicability of the 
threshold at two years.\110\ Additionally, this commenter states that 
the exception would create information asymmetries and could lead to 
gamesmanship, evasion, and market distortions.\111\ Further, the 
commenter stated that this exception could allow a firm that ``engaged 
in 5 trades in one year, and 100,000 trades'' the next to continue its 
15 minute reporting the following year.\112\ In addition, the de 
minimis exception, the commenter stated, ``could incentivize a firm 
seeking to mask its trading activities . . . to use an `excepted' 
broker to effectuate its trading.'' \113\
---------------------------------------------------------------------------

    \103\ See, e.g., SIFMA Letter I at 9; Letter from Kenneth E. 
Bentsen, Jr., President and CEO, Securities Industry and Financial 
Markets Association (August 21, 2024) (``SIFMA Letter III'') at 2; 
BDA Letter I at 2.
    \104\ See SIFMA Letter I at 9; SIMFA Letter II at 7; see also 
BDA Letter II at 4 (``Smaller dealers need [the de minimis] 
exception because many conduct the trade reporting process entirely 
manually.'')
    \105\ See SIFMA Letter I at 9; SIMFA Letter II at 7.
    \106\ See BDA Letter II at 4.
    \107\ See, e.g., Falcon Letter I at 2-4; see also HMA Letter I 
at 9-11, 13 (this commenter also more broadly opposes the Proposal, 
see HMA Letter II).
    \108\ See Falcon Letter I at 2-3; Falcon Letter II at 2-3.
    \109\ See id.
    \110\ See HMA Letter I at 11. As discussed above, this commenter 
supplemented its prior comments to more broadly object to the 
Proposal. See HMA Letter II at 1; supra note 69 and accompanying 
text.
    \111\ See HMA Letter I at 1 at 10.
    \112\ See id. at 11.
    \113\ See id. at 10.
---------------------------------------------------------------------------

    FINRA states ``that the proposed de minimis exception balances the 
regulatory goal of providing for timelier reporting with the impact and 
burdens on members that are less active in this space, including 
smaller market participants. In response to Regulatory Notice 22-17, 
numerous commenters expressed concern regarding the impact that a one-
minute reporting standard would have on small [FINRA] member firms, 
including minority, women, and veteran-owned broker-dealers. Some of 
these commenters believed that small broker-dealers would exit the 
market for fixed income secondary market trading

[[Page 78936]]

because of the high implementation and compliance costs and cautioned 
that this would harm retail investors that depend on small [FINRA] 
member firms for access to the market.'' \114\ Accordingly, FINRA 
believes the Proposal adequately established the need for the de 
minimis exception.\115\
---------------------------------------------------------------------------

    \114\ FINRA Letter at 14 (citations omitted).
    \115\ Id.
---------------------------------------------------------------------------

    Additionally, FINRA states that ``[w]ith respect to the 4,000-trade 
threshold (with a two-year lookback) for the de minimis exception, as 
discussed in the Proposal, FINRA believes that the proposed threshold 
is appropriately tailored to balance the compliance and implementation 
burdens on [FINRA] members with the benefits to transparency. Based on 
2022 data, the proposed de minimis threshold would provide relief to 
640 (out of 838 currently active) [FINRA] members that, in the 
aggregate, accounted for 1.41% of trades or 0.43% of the total par 
value traded. FINRA continues to believe that this threshold 
appropriately balances the benefits of timelier reporting with the 
potential costs of disrupting markets and disproportionally impacting 
less active and smaller participants. Additionally, based on FINRA's 
analysis of historical trading data over the last five years, FINRA 
does not believe that some of the concerns raised by HMA about the two-
year lookback are likely to occur (e.g., that a firm may go from five 
trades in one year to 100,000 the next). FINRA's analysis of trading 
data indicates that, in reality, the difference between a one- and two-
year lookback impacted only 11 firms annually, on average, whose 
activity increased over the 4,000-trade threshold by 67% on average and 
a maximum of 421%.'' \116\
---------------------------------------------------------------------------

    \116\ Id. at 14-15 (citations omitted).
---------------------------------------------------------------------------

    Further, FINRA responds to the comment that the exception may lead 
to ``gamesmanship, evasion, and market distortions'' by stating that 
``members relying on the de minimis exception continue to be subject to 
the requirement that they report their trades to TRACE as soon as 
practicable. Existing requirements under Rule 6730.03(a) make clear, 
among other things, that firms' policies and procedures must be 
reasonably designed to comply with the `as soon as practicable' 
reporting requirement by implementing systems that commence the trade 
reporting process at the time of execution without delay, and that 
`[i]n no event may a [FINRA] member purposely withhold trade reports, 
e.g., by programming its systems to delay reporting until the end of 
the reporting time period.' Second, to the extent commenters are 
concerned that market participants may begin routing orders to members 
qualifying for the de minimis exception to take advantage of the longer 
outer-limit reporting timeframe, FINRA notes that this would increase 
the member's activity level and, if significant, would cause the firm 
to no longer be eligible for the de minimis exception. As with the 
manual trades exception, FINRA has extensive trading data history for 
members and can monitor for unusual trading patterns that might 
indicate gamesmanship or efforts to delay the reporting of large 
trades.'' \117\
---------------------------------------------------------------------------

    \117\ Id. at 15.
---------------------------------------------------------------------------

    With respect to the de minimis exception, FINRA responded to the 
comments regarding whether the proposed 4,000-trade threshold is too 
low, including by providing data and analysis for the threshold and 
lookback period, and addressed the role of the exception in balancing 
the goal of timelier reporting and the burden on less active members, 
including smaller broker-dealers.\118\ After carefully reviewing the 
Notice, Partial Amendment No. 1, and comment letters received, 
including the FINRA Letter, the Commission views the de minimis 
exception as reasonably and appropriately balancing the burdens that 
would otherwise fall on FINRA members that process limited trade volume 
without diluting the overall benefits of the Proposal. As FINRA states, 
the de minimis exception is expected to cover 640 FINRA members, which 
account in aggregate for 1.41% of trades and 0.43% of total par value 
traded.\119\ The Commission is sensitive to comments cautioning that 
small broker-dealers may exit the market for fixed income secondary 
market trading because of the burdens associated with one-minute 
reporting.\120\ Retaining the 15 minute outside limit on reporting 
transactions by FINRA members qualifying for the de minimis exception 
would avoid imposing the burdens of compliance with one-minute 
reporting on less active market participants, including smaller broker-
dealers. At the same time, FINRA members qualifying for the de minimis 
exception report a relatively small portion of transactions. 
Accordingly, the Proposal strikes an appropriate balance between 
fulfilling the goal of increased transparency and mitigating any 
disproportionate cost of complying with a shorter reporting deadline on 
certain, small FINRA members.
---------------------------------------------------------------------------

    \118\ See supra notes 114-116 and accompanying text.
    \119\ See Notice, 89 FR at 5043.
    \120\ See supra note 90.
---------------------------------------------------------------------------

D. Manual Trades Exception

    Several commenters offer specific views about the scope of the 
manual trades exception. Some commenters characterize the manual trades 
exception as essential to ensuring compliance with the rule.\121\ One 
commenter states that the exception should be expanded to include 
certain fully electronic transactions that cannot feasibly be reported 
within one minute, such as transactions with a large number of post-
trade allocations, batch-processed trades, and trades involving 
multiple systems in trade workflow.\122\ This commenter states that 
transactions with a large number of post-trade allocations are 
especially difficult to report within one minute for broker-dealers 
also registered as investment advisers.\123\ Other commenters state 
support for FINRA's proposal to apply the exception to a scenario where 
a firm has not previously traded a bond.\124\ A commenter also states 
that FINRA should harmonize the scope of the manual trades exception 
with a similar proposal by the Municipal Securities Rulemaking Board 
(``MSRB'') that would apply to transactions in municipal 
securities.\125\ In addition, this commenter describes certain 
scenarios that could be experienced by a reporting firm, questioning 
whether the manual trades exception would apply and suggesting a 
dialogue with industry about such scenarios.\126\ A different commenter 
suggests that the exception apply to ``any manual intervention in

[[Page 78937]]

the trade execution or reporting process.'' \127\ Another commenter 
states that there should not be a manual trades exception, nor a 
distinction between manual and electronic trades at all.\128\
---------------------------------------------------------------------------

    \121\ See BDA Letter I at 1; BDA Letter II at 2; FIF Letter I at 
2; FIF Letter III at 2; SIFMA Letter I at 6; SIFMA Letter II at 3-6; 
SIFMA Letter III at 2; FHN Letter at 2.
    \122\ See SIFMA Letter I at 7-9; SIFMA Letter II at 6-7; SIFMA 
Letter III at 2; see also LPL Letter at 2.
    \123\ See SIFMA Letter I at 7-8; SIFMA Letter II at 5-7; SIFMA 
Letter III at 4; see also BDA Letter I at 3-4; BDA Letter II at 2 
(stating that reporting post-trade allocations in one minute 
sometimes ``is not feasible even in a fully automated 
environment''); FIF Letter I at 3; Falcon Letter II at 4 (stating 
that the concern about manual allocations also extends to broker-
dealers that are not dual-registrants).
    \124\ See FIF Letter I at 4; see also FIF Letter III at 3 
(requesting FINRA provide guidance that a firm would not be held to 
the applicable reporting timeframe in a scenario where FINRA is 
delayed in providing a symbol requested by a firm); BDA Letter III 
at 2 (stating that it would be ``difficult or impossible to report 
in less than 15 minutes'' trades when a firm trades a bond for the 
first time); SIFMA Letter III at n. 6 (referencing the time it 
currently takes to set up and report new bonds using FINRA's TRAQS 
and New Issue Portal).
    \125\ See FIF Letter I at 3.
    \126\ See Letter from Howard Meyerson, Managing Director, 
Financial Information Forum (February 26, 2024) (``FIF Letter II'') 
at 2-4; FIF Letter I at 3-4; FIF Letter III at 3.
    \127\ See Falcon Letter II at 4.
    \128\ See Citadel Letter II at 1-2.
---------------------------------------------------------------------------

    Several commenters state the manual trades exception is too 
broad.\129\ Some of these commenters state that FINRA failed to meet 
its burden to demonstrate consistency with the Act, particularly by 
failing to estimate the number of transactions expected to qualify for 
the manual trades exception,\130\ and one of these commenters states 
that the manual trades exception was not included in FINRA Regulatory 
Notice 22-17, which was issued by FINRA to solicit comment on 
shortening the trade reporting timeline from 15 minutes to one minute 
for certain TRACE-Eligible securities.\131\ These commenters 
questioning the lack of estimates in the Proposal raise the issue that 
a large proportion of the total number of trades currently reported 
outside of one minute could fall within the proposed rule's manual 
trades exception, undermining the goal of increasing post-trade 
transparency.\132\ These commenters also raise the issue that firms 
could build manual steps into the trade execution process as a means of 
qualifying for the longer manual trades reporting window.\133\ One 
commenter responds to this issue by stating that under the Proposal any 
action purposefully intended to extend the trade reporting time is a 
violation.\134\ The commenter also states that there is no evidence to 
suggest market participants intentionally delay reporting transactions, 
nor do market participants have any incentive to do so.\135\ This 
commenter disagrees with the comment that FINRA has not met the 
requirements of the Act, stating it is convinced FINRA demonstrated the 
Proposal's consistency with the Act by providing supporting information 
and statistics throughout the rulemaking process.\136\
---------------------------------------------------------------------------

    \129\ See, e.g., HMA Letter II at 2-3; HMA Letter I at 11-12; 
Citadel Letter I at 2-3; FIA PTG Letter at 2-4.
    \130\ See Citadel Letter I at 1-3; Citadel Letter II at 3-5; FIA 
PTG Letter at 2-3; see also Falcon Letter I at 1; Falcon Letter II 
at 2 (both stating that FINRA did not adequately justify the 
exceptions to the rule).
    \131\ See Citadel Letter I at 2.
    \132\ See Citadel Letter I at 2-3; FIA PTG Letter at 2; Citadel 
Letter II at 1-3.
    \133\ See Citadel Letter I at 3; FIA PTG at 3; see also HMA 
Letter I at 12 (stating that the Proposal as originally proposed did 
``not assuage our concerns that firms may intentionally add a 
`manual' component to their post-execution processes so as to avoid 
timely reporting (and dissemination) of their trading activity.''); 
HMA Letter II at 3 (stating that the Proposal, as modified by 
Partial Amendment No. 1, did not materially revise the extremely 
broad examples of manual trades and further offer relevant guidance 
as to when a manual component or process may nevertheless not 
qualify for the exception, and would lead to market abuses); supra 
note 92 and accompanying text.
    \134\ BDA Letter I at 3.
    \135\ Id.
    \136\ See BDA Letter II at 4.
---------------------------------------------------------------------------

    FINRA states that it disagrees with the comments that the manual 
trades exception should be eliminated and that the distinction between 
manual and electronic trades should not exist or that the manual trades 
exception should be expanded to include certain fully electronic 
trades. Specifically, as discussed above, FINRA states, ``as is the 
case today, under the Proposal members would be required to report the 
subject transactions to TRACE--including manual trades--`as soon as 
practicable' but no later than the applicable outer limit from the time 
of execution. Therefore, the current reporting requirements already 
account for the various ways that trades can be executed and the 
resultant differences in the reporting times--some trades may be 
reported in 30 seconds and others in two minutes today, depending upon 
the mode of execution and reporting, and what is practicable under the 
circumstances. Thus, the Proposal is not introducing tiers or causing 
additional variance; rather it is reducing the permissible variance by 
significantly refining the outer limit for both manual and electronic 
trades. The proposed five-minute outer limit for reporting that 
eventually would be applicable to manual trades recognizes, consistent 
with other FINRA trade reporting rules, that trades that are manually 
executed or reported may not be able to be reported as quickly as 
trades that are electronically executed and reported.'' \137\
---------------------------------------------------------------------------

    \137\ FINRA Letter at 6 (citations omitted).
---------------------------------------------------------------------------

    With respect to large post-trade allocations, batch-processed 
trades, and trades involving multiple systems in trade workflow, FINRA 
states that it ``contemplates that the manual trades exception would 
apply `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.' However, if manual action was not 
required to calculate the price of component securities included in the 
basket or other steps necessary to book and report the trades to TRACE, 
then the manual trades exception would not be available. Therefore, for 
example, if the firm employed an automated process to calculate prices 
for, and book and report the trades in, the component securities, the 
manual trades exception would not be available since this process was 
completed electronically without manual intervention.'' \138\ FINRA 
also states that, as discussed in the Proposal, ``FINRA examined 
transaction reporting times for trades that were subsequently 
suballocated across multiple accounts and found that, for allocated 
trades, 68% were reported within one minute, and 90.6% were reported 
within three minutes.'' \139\ FINRA also stated that it ``was unable to 
distinguish between allocations that involved manual intervention from 
fully electronic allocations in the data; therefore, reporting within 
one minute for fully electronic allocations may be greater than 68%.'' 
\140\ As discussed above, FINRA also acknowledges concerns with respect 
to feasibility of one-minute reporting, especially with respect to 
fully electronic allocated trades, and describes its approach to 
enforcement of late reporting of transactions to TRACE.\141\
---------------------------------------------------------------------------

    \138\ Id. at 8 (citations omitted, citing Notice, 89 FR at 5036, 
5045).
    \139\ Id. at 17 (citing Notice, 89 FR at 5034, 5041).
    \140\ Id. at 17 (citing Notice, 89 FR at 5034, 5041 n.32).
    \141\ See supra note 75 and accompanying text.
---------------------------------------------------------------------------

    With respect to post-trade allocations by broker-dealers also 
registered as investment advisers, FINRA states that the proposed rule 
``contemplates that the manual trades exception would apply `where 
allocations to individual accounts must be manually input in connection 
with a trade by a dually-registered broker-dealer/investment adviser.' 
'' \142\
---------------------------------------------------------------------------

    \142\ Id. at 7-8 (citing Notice, 89 FR at 5036, 5045).
---------------------------------------------------------------------------

    With respect to a scenario where a firm has not previously traded a 
bond, FINRA states that the proposed rule ``contemplates that the 
manual trades exception would be available `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).' '' \143\
---------------------------------------------------------------------------

    \143\ Id. at 7 (citing Notice, 89 FR at 5036, 5045).
---------------------------------------------------------------------------

    With respect to the comment that the manual trades exception 
incentivizes firms to build in manual processes in order to qualify for 
the exception, FINRA states that it ``has explicitly considered and 
addressed this concern in the Proposal. Specifically, the text of the 
manual trades exception would explicitly prohibit a [FINRA] member from 
`purposely delay[ing] the execution or reporting of a transaction by 
handling a trade manually or

[[Page 78938]]

introducing manual steps following the Time of Execution.' FINRA also 
is very familiar with [FINRA] members' usual reporting timeframes and 
possesses extensive data with which to establish a baseline for 
comparison in identifying changes in behavior. As noted in the 
Proposal, FINRA will review [FINRA] members' use of the manual trades 
exception and their reporting timeliness in light of their historic 
behaviors reporting transactions to TRACE. Thus, FINRA believes that 
the manual trades exception continues to be appropriate and balanced in 
order to support the overall goal of the Proposal--facilitating more 
timely access to market information--while ensuring that compliance is 
achievable for the subset of trades that rely on manual intervention 
between the trade's time of execution and when it is reported to 
TRACE.'' \144\
---------------------------------------------------------------------------

    \144\ FINRA Letter at 6-7 (citations omitted).
---------------------------------------------------------------------------

    The Proposal both facilitates greater transparency through faster 
post-trade reporting and provides FINRA member firms with an exception 
from the one-minute reporting deadline that will permit continued 
reliance on manual processes. The Commission agrees with FINRA's 
statement that ``the proposed five-minute outer limit for reporting 
that eventually would be applicable to manual trades recognizes, 
consistent with other FINRA trade reporting rules, that trades that are 
manually executed or reported may not be able to be reported as quickly 
as trades that are electronically executed and reported.'' \145\ 
Moreover, as described above,\146\ FINRA provided additional discussion 
in its letter in response to specific scenarios raised by commenters 
regarding the application of the proposed manual trades exception to 
large post-trade allocations, batch-processed trades, trades involving 
multiple systems in trade workflow, post-trade allocations by broker-
dealers also registered as investment advisers, and scenarios where 
firms have not previously traded a bond by clarifying that such 
scenarios would not qualify for the manual trades exception when manual 
intervention between the time of execution and the trade report does 
not occur. FINRA also provided data in support of not including fully 
electronic allocated trades in the manual trades exception and 
described its regulatory standard for potential violations of its 
reporting rules. Finally, with respect to the comment that the scope of 
the manual trades exception should be harmonized with the MSRB's 
proposal that would apply to transactions in municipal securities, the 
definitions of ``manual trades'' in proposed Supplementary Material .09 
to FINRA Rule 6730 and a ``trade with a manual component'' in proposed 
MSRB Rule G-14(d)(xii) \147\ are consistent.
---------------------------------------------------------------------------

    \145\ See supra note 137 and accompanying text.
    \146\ See supra notes 137-143 and accompanying text.
    \147\ See Exchange Act Release No. 99402 (Jan. 19, 2024), 89 FR 
5384.
---------------------------------------------------------------------------

    Additionally, the Proposal's manual trades exception is 
appropriately tailored for facilitating more timely access to market 
information as well as promoting compliance, and, as FINRA discussed in 
the Proposal, the manual trades exception included in the Proposal was 
informed by comments received in response to FINRA Regulatory Notice 
22-17. FINRA is not required under the Act to publish a FINRA notice 
soliciting comment on a potential proposed rule change prior to filing 
such change as a proposed rule change with the Commission. FINRA 
included the manual trades exception in the Proposal as well as a 
discussion of comments received on FINRA Regulatory Notice 22-17 \148\ 
and the Commission provided three 21-day public comment periods in 
connection with publication of the Notice, the OIP, and Partial 
Amendment No. 1. Furthermore, FINRA provided additional analysis and 
data in its comment letter.\149\ As FINRA states, ``the manual trades 
exception appropriately accommodates transactions that cannot feasibly 
be reported within one minute, balancing the burdens on members with 
the benefits to transparency.'' \150\ The Commission agrees: the manual 
trades exception provides a reasonable accommodation for transactions 
that cannot feasibly be reported within one minute, and FINRA has 
provided sufficient justification for the Proposal. The Commission 
anticipates that FINRA will monitor its members to ensure compliance 
with the ``as soon as practicable'' requirement and detect changes in 
reporting behavior. This should address concerns about manipulation. In 
particular, this should address comments regarding FINRA members 
purposefully delaying the reporting of transactions by building manual 
steps into the trade execution process and help ensure that the manual 
trades exception would not result in a degradation in trade reporting 
timeliness. Additionally, in response to comments concerning FINRA's 
lack of estimates of the number of trades that are expected to qualify 
for the manual trades exception, proposed changes to FINRA Rule 
6730(d)(4) would require FINRA members to ``append a manual trade 
indicator to the trade report so that FINRA can identify manual trades. 
The new manual trade indicator would be required regardless of whether 
the [FINRA] 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.'' \151\ Accordingly, the addition of the manual trade 
indicator will allow FINRA to collect data on the extent to which 
manual processes are employed by FINRA members, data that, due to the 
current lack of a manual trade indicator, is not currently available.
---------------------------------------------------------------------------

    \148\ See Notice, 89 FR at 5044-5046.
    \149\ See, e.g., notes 184-185 and accompanying text.
    \150\ See FINRA Letter at 10.
    \151\ See Notice, 89 FR at 5036-5037.
---------------------------------------------------------------------------

1. Manual Trade Indicator
    Several commenters offer specific views about the manual trade 
indicator. Some commenters state it would be more operationally 
feasible to flag trades subject to one-minute reporting, rather than 
flagging all manual trades.\152\ One of these commenters states that 
requiring personnel to identify the manual component of a trade will 
hinder compliance and delay reporting.\153\ Some commenters state that 
FINRA should offer an interim period during which firms are permitted, 
but not required, to report the manual trade indicator.\154\ One 
commenter requests clarification regarding the operation of the manual 
trade indicator in specific scenarios.\155\
---------------------------------------------------------------------------

    \152\ See BDA Letter I at 3; SIFMA Letter I at 9; SIFMA Letter 
II at 7-8.
    \153\ See SIFMA Letter II at 7.
    \154\ See FIF Letter I at 6; SIFMA Letter II at 8.
    \155\ See, e.g., FIF Letter I at 4-5.
---------------------------------------------------------------------------

    With respect to the manual trade indictor, FINRA states that rather 
than identifying electronic trades, ``identifying manual trades would 
be more appropriate from a regulatory perspective because manual trades 
are the universe of trades for which additional time may be warranted 
under the proposed framework, and requiring members to identify these 
trades would align the responsibility for assessing and representing 
the nature of the trade to FINRA with the legal framework for 
reporting. As stated in the Proposal, FINRA believes that the proposed 
manual trade indicator would provide FINRA with important insights into 
manual trading and the use of the exception.'' \156\
---------------------------------------------------------------------------

    \156\ FINRA Letter at 12.

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

[[Page 78939]]

    FINRA also responds to one commenter's requests for clarification 
about certain scenarios. With respect to the commenter's request for 
clarification about whether the manual trade indicator must be reported 
for trades that are manually corrected, FINRA states that ``As stated 
in the Proposal, `[t]o the extent the trade was originally fully 
electronic, when the member amends the trade report, it should add the 
Manual Trade Indicator.' '' \157\ For a commenter's request for 
clarification about whether the manual trade indicator is applicable to 
general systems fixes necessary to correct a technical issue that 
adversely impacted trade reporting, FINRA states that ``the manual 
trade indicator must be appended `[i]f reporting a transaction that is 
manually executed or where such 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.' '' \158\ Finally, in response to a commenter's request for 
clarification that the manual trade indicator would not be included in 
TRACE's trade report matching criteria, ``FINRA confirms that it does 
not intend to use the manual trade indicator in TRACE's trade report 
matching criteria.'' \159\
---------------------------------------------------------------------------

    \157\ Id. at 12.
    \158\ Id. at 13.
    \159\ Id.
---------------------------------------------------------------------------

    The Commission agrees with FINRA that the indicator should identify 
manual trades instead of electronic trades, and that the manual trade 
indicator will provide FINRA with important insight into the extent to 
which FINRA members utilize manual intervention between execution and 
trade reporting. Electronic trades will be required to be reported as 
soon as practicable but no later than one minute and adding a 
requirement for FINRA members to identify electronic trades could 
introduce a delay in reporting such electronic trades. Further, to the 
extent that the manual trade indicator requirement adds a burden on 
reporting manual trades that otherwise would not be present on 
electronic trades, FINRA members may have an incentive to eliminate 
manual intervention to complete the trade execution or reporting 
process, which would result in a greater number of electronic trades 
facilitating greater transparency through faster post-trade reporting. 
Accordingly, the manual trade indicator requirement reasonably balances 
the benefits gained against any compliance hinderance or reporting 
delay for manual trades. The Commission is not persuaded by the view 
that there should be an interim period for voluntary use of the manual 
trade indicator because such a period would reduce the benefits of the 
insights into manual trading and the use of the exception.
2. Five-Minute Reporting Phase-In
    Several commenters address the gradual phase-in of five-minute 
reporting written into the proposed rule for manual trades.\160\ 
Multiple commenters request FINRA propose for notice and comment each 
time it seeks to reduce the timeframe.\161\ One of these commenters 
also states that FINRA must consider that the proposed rule will be 
implemented alongside other regulatory initiatives, such as the 
shortened securities settlement cycle (T+1), and potentially other 
rules that have been proposed.\162\ Other commenters state that the 
absence of data in the Proposal justifying accelerated reporting 
timeframes for manual trades reflects insufficient understanding of the 
complexities involved in manual trade reporting.\163\ Another commenter 
states that FINRA's amendment to extend the 10-minute reporting 
timeframe from one year to two is ``encouraging.'' \164\
---------------------------------------------------------------------------

    \160\ See, e.g., ICI Letter at 3-4; Falcon Letter at 4; SIFMA 
Letter I at 6; SIFMA Letter II at 6; BDA Letter I at 2-3; ASA Letter 
II at 2.
    \161\ See ICI Letter at 3; see also SIFMA Letter I at 6 (stating 
that FINRA should conduct an impact assessment before reducing the 
reporting window for manual trades to five minutes); SIFMA Letter II 
at 6; ASA Letter II at 2 (stating that the proposal to gradually 
phase in the reporting window for manual trades without opportunity 
for formal industry input presents risk and complicates compliance 
for market participants); Falcon Letter at 4 (stating that FINRA 
must produce supporting data before proposing a mandatory phase-in 
period for the manual trades exception); LPL Letter at 2 (stating 
FINRA should examine impact on liquidity, depth, concentration, and 
transparency prior to further decreasing reporting times); BDA 
Letter II at 3, 5 (asking FINRA to commit to seeking public comment 
before any reduction in trade reporting times for manual trades 
takes effect). But see BDA Letter I at 3 (stating support for the 
phase-in approach, but asking FINRA to communicate with industry 
during the transition period regarding operational roadblocks that 
could arise). One commenter states that extension of the phase-in in 
Partial Amendment No. 1 does not address its earlier comment that 
any alteration of the compliance threshold should necessitate 
additional input from stakeholders, such as through a formal request 
for comment or a new proposal. See ASA Letter III at 1.
    \162\ See ICI Letter at 3-4.
    \163\ See ASA Letter II at 2; see also Falcon Letter II at 3-4.
    \164\ SIFMA Letter III at 3.
---------------------------------------------------------------------------

    FINRA states that it ``appreciates that members may be concerned by 
the degree to which some manual trades are not reported within five 
minutes today. In response to these comments, FINRA has amended the 
manual trades exception to provide FINRA members with an additional 
year to transition to five-minute reporting for manual trades.'' \165\ 
In particular, a FINRA member relying on the manual trades exception 
will be required to report the manual trade ``as soon as practicable 
and no later than within 15 minutes of the time of execution (for up to 
one calendar year from the effectiveness of the proposed amendments), 
within 10 minutes of the time of execution (for up to three calendar 
years from the effectiveness of the proposed amendments), and within 
five minutes of the time of execution (three or more calendar years 
from the effectiveness of the proposed amendments).'' \166\ FINRA's 
original proposal, as described in the Notice, would have required 
FINRA members relying on the manual trades exception to report such 
manual trades as soon as practicable but no later than five minutes of 
the time of execution two or more calendar years from the effectiveness 
of the proposed amendments.
---------------------------------------------------------------------------

    \165\ FINRA Letter at 10-11 (citations omitted).
    \166\ Id. at 11; see also Partial Amendment No. 1, 89 FR at 
61515.
---------------------------------------------------------------------------

    In addition to this extended phase-in timeline, FINRA states that 
it ``intends to closely study the trade reporting data (this will be 
facilitated by the manual trade indicator, which will allow FINRA to 
identify manual trades) and will continue its engagement with [FINRA] 
members on whether feasibility concerns continue to exist once firms 
review and revise their trade reporting processes in light of the 
Proposal. Moreover, within nine to 12 months of the effectiveness of 
the 10-minute outer-limit reporting timeframe for manual trades, FINRA 
intends to publish a Regulatory Notice soliciting comment from [FINRA] 
members regarding the operation and impact of the reduced reporting 
timeframe for these manual trades. FINRA would evaluate TRACE data and 
the comments received and consider if any measures are appropriate.'' 
\167\ FINRA states that such measures could include filing a ``proposed 
rule change with the Commission prior to the effectiveness of the five-
minute reporting timeframe to extend the implementation of, or 
eliminate, the five-minute reporting requirement for manual trades, as 
warranted.'' \168\
---------------------------------------------------------------------------

    \167\ Id.
    \168\ Id.
---------------------------------------------------------------------------

    The Commission views the phase-in of the manual trades exception's 
five-minute outer limit over three years as reasonably designed to 
provide FINRA members time during which to assess trade execution and 
post-trade processes

[[Page 78940]]

and make changes necessary to meet a shorter reporting deadline. As 
part of the Proposal, FINRA included in new Supplementary Material .09 
to FINRA Rule 6730 a schedule for implementing reductions in the 
deadline for reporting trades eligible for the manual trades exception. 
The three-year phase-in of the manual trades exception reasonably 
balances the costs of implementation with the goal of increased 
transparency, by giving FINRA members more time to meet the 
requirements. FINRA need not provide an additional round of notice and 
comment for every phase of the transition. But FINRA nonetheless 
intends to engage with and solicit comment from FINRA members 
throughout the phase-in period regarding implementation of the reduced 
reporting requirement for manual trades.\169\ The Commission will 
consider any future proposed rule changes filed with the Commission 
regarding the implementation. Additionally, in response to the comment 
stating that the Proposal would need to be implemented alongside other 
regulatory initiatives, the Commission views FINRA's statement that it 
``will endeavor to publish updated technical specifications as far as 
possible in advance of the effective date'' \170\ as a reasonable 
response, as the more time FINRA members are afforded to implement 
system changes to conform to updated technical specifications in 
support of the Proposal, the greater flexibility FINRA members will 
have to schedule such system changes. Further, in response to the 
comment specifically referencing the implementation of amendments to 
SEC rules to shorten the standard settlement cycle to T+1, the 
compliance date for such amendments was May 28, 2024.\171\ In addition, 
the other proposals cited by the commenter have not been adopted, so 
FINRA cannot take such possible regulatory changes into consideration 
in determining the compliance dates as part of this Proposal.
---------------------------------------------------------------------------

    \169\ See supra note 167 and accompanying text.
    \170\ FINRA Letter at 18.
    \171\ See Securities Exchange Act Release No. 96930 (February 
15, 2023), 88 FR 13872 (March 6, 2023); see also 17 CFR 240.15c6-1.
---------------------------------------------------------------------------

E. Reporting Requirement Consistency

    Several commenters discuss the consistent application of reporting 
requirements,\172\ including some that state that the differing 
reporting windows for manual and electronic trades violate the Act by 
discriminating based on the mode of execution and unduly burdening 
competition.\173\ Two commenters describe the potential negative 
consequences of applying different levels of post-trade transparency 
depending on a trade's mode of execution.\174\ One of these commenters 
states that ``[t]he massive disparity in timeliness of reporting 
between the two execution methods not only creates a significant risk 
of losing the benefits of transparency, but also creates new 
opportunities to manipulate markets.'' \175\
---------------------------------------------------------------------------

    \172\ See, e.g., Citadel Letter I at 1-3; HMA Letter II at 1-3; 
HMA Letter I at 8-9; BDA Letter II at 3.
    \173\ See Citadel Letter I at 3; FIA PTG Letter at 3-4.
    \174\ See Citadel Letter I at 1-3; HMA Letter II at 3
    \175\ See HMA Letter II at 3.
---------------------------------------------------------------------------

    Another commenter raises the issue of different reporting 
requirements under the proposal depending on a trade's time of 
execution.\176\ The commenter states that under the current rule, 
trades executed when TRACE is closed must be reported within 15 minutes 
of TRACE being open, mirroring the deadline for reporting of trades 
executed when TRACE is open.\177\ But, the commenter continues, under 
the Proposal, trades executed outside of the hours when TRACE is open 
will still be subject to the deadline to report within 15 minutes of 
TRACE being open while trades executed when TRACE is open will be 
subject to the new one minute requirement.\178\ The commenter urges 
consistent reporting times in this scenario.\179\ One commenter 
responds to this comment, stating that few bond trades take place after 
hours because of limited liquidity and that no evidence suggests market 
participants abuse existing exceptions to permit next-day reporting of 
after-hours trades.\180\
---------------------------------------------------------------------------

    \176\ See HMA Letter I at 8.
    \177\ See id.
    \178\ See id.
    \179\ See HMA Letter I at 9.
    \180\ BDA Letter II at 3.
---------------------------------------------------------------------------

    In response to the comment to make consistent the different times 
of reporting trades executed when TRACE is closed and open, FINRA 
states that ``the continued application of a 15-minute reporting 
timeframe to afterhours trades would impact a small portion of trading 
activity--only 1.18% of total par value. Consistent with [FINRA] 
members' obligation to report trades as soon as practicable, a 
significant portion of these trades are already reported well before 
the 15-minute outer limit, (e.g., over 90% of trades executed before 
8:00 a.m. or after 6:29 p.m. ET or on a nonbusiness day were reported 
within three minutes of the TRACE system open), and FINRA's analysis of 
trading near the close of TRACE system hours found no indication that 
market participants execute trades near the close of TRACE system hours 
to delay reporting. Accordingly, FINRA does not believe, at this time, 
that the potential benefits of a one-minute reporting requirement for 
afterhours trades outweigh the burdens such a requirement may impose. 
In particular, FINRA is sensitive to the concerns previously expressed 
by commenters that reporting afterhours trades within one minute of the 
TRACE system open would present operational obstacles. FINRA also notes 
that the Proposal's continued application of a 15-minute reporting 
timeframe for afterhours trades is consistent with the rules governing 
other trade reporting facilities.'' \181\
---------------------------------------------------------------------------

    \181\ FINRA Letter at 16-17 (citations omitted).
---------------------------------------------------------------------------

    With respect to the potential negative consequences of applying 
different levels of post-trade transparency depending on a trade's mode 
of execution, FINRA states that ``as is the case today, under the 
Proposal members would be required to report the subject transactions 
to TRACE--including manual trades--``as soon as practicable'' but no 
later than the applicable outer limit from the time of execution. 
Therefore, the current reporting requirements already account for the 
various ways that trades can be executed and the resultant differences 
in the reporting times.'' \182\
---------------------------------------------------------------------------

    \182\ FINRA Letter at 6 (citations omitted); see also supra 
section III.D (discussing comments and responses, including the 
Commission's views, on the potential for manipulation).
---------------------------------------------------------------------------

    The Proposal will set three outside limits for reporting 
transactions: a one-minute default deadline, a 15-minute deadline that 
will shorten to five minutes three years after the Proposal becomes 
operative for transactions eligible for the manual trades exception, 
and a 15-minute deadline for FINRA member firms with de minimis 
reporting activity. The Commission disagrees with the comment that this 
will result in varying levels of post-trade transparency or create new 
opportunities for market manipulation.\183\ The Proposal's varying 
reporting deadlines do not change the existing requirement that 
transactions be reported as soon as practicable, which applies to all 
transactions covered by the Proposal, and is accommodative of unique 
aspects of different transactions. Because of the current ``as soon as 
practicable'' requirement, FINRA-provided data show that 82.9% of 
transactions are reported within one minute, 97.6% reported within five 
minutes, and

[[Page 78941]]

99.4% reported within 15 minutes.\184\ Accordingly, transaction 
reporting times currently are variable. However, ``FINRA estimates 
that, after adjusting for the proposed de minimis exception and prior 
to accounting for the manual exception, the Proposal could result in up 
to 16.4% of current annual trading volume, or up to 6.1 million trades 
and 20 trillion dollars in par value, being reported faster. As further 
detailed in the Proposal, for non-ATS trades (some of which may qualify 
for the manual trades exception), 96.9% were reported within five 
minutes. Given that some non-ATS trades are fully electronic while 
others involve manual intervention between execution and trade 
reporting, FINRA conservatively estimates that the Proposal would 
result in at least another 2.03%, or over 755,000 trades representing 
approximately $3.702 trillion traded (accounting for the impact of the 
proposed de minimis exception), being reported faster.'' \185\ 
Additionally, FINRA states that ``[a]s evidenced by FINRA's analysis of 
trades executed between one and 15 minutes after a prior trade of the 
same bond but before the prior trade was reported, the Proposal could 
potentially benefit the ability to evaluate pricing in a substantial 
amount of trades--over 486,100 corporate bond trades alone representing 
approximately $459.6 billion traded (accounting for the impact of the 
proposed de minimis exception).'' \186\ Thus, the Proposal will reduce 
variation in reporting times by shortening the outer limit reporting 
time for FINRA member firms with more than de minimis reportable 
activity.
---------------------------------------------------------------------------

    \183\ See supra notes 174 and 176.
    \184\ See Notice, 89 FR at Table 1.
    \185\ FINRA Letter at 4 (citations omitted).
    \186\ Id. at 4-5.
---------------------------------------------------------------------------

    A similar proposed rule change by the MSRB,\187\ on which the MSRB 
closely coordinated with FINRA,\188\ would result in a consistent 
standard for trade reporting for municipal securities and the TRACE-
Eligible Securities covered by the Proposal. Accordingly, the 
Commission finds that the Proposal would foster cooperation and 
coordination between the MSRB and FINRA by establishing consistent 
trade reporting requirements across various classes of fixed income 
securities. Consistent trade reporting requirements for municipal 
securities covered by MSRB rules and the TRACE-Eligible Securities 
covered by the Proposal also may reduce compliance burdens resulting 
from inconsistent obligations and standards for different classes of 
fixed income securities.
---------------------------------------------------------------------------

    \187\ See supra note 147.
    \188\ See, e.g. Letter from Ernesto A. Lanza, Chief Regulatory 
and Policy Officer, MSRB, dated July 18, 2024, available at https://www.sec.gov/comments/sr-msrb-2024-01/srmsrb202401-491663-1411646.pdf.
---------------------------------------------------------------------------

F. Implementation Period

    Some commenters address the implementation period.\189\ Two 
commenters request an implementation period of two years from the time 
of approval due to the high cost of compliance.\190\ Another commenter 
states the cost of implementing the proposal is anticipated to be 
especially high for smaller firms and suggests an implementation period 
of at least 18 months from the date of publication of updated technical 
specifications and guidance.\191\ The commenter also requests that 
FINRA provide an expanded free testing period of 90 days instead of the 
standard free testing period of 30 days.\192\
---------------------------------------------------------------------------

    \189\ See, e.g., SIFMA Letter I at 10; BDA Letter I at 4; FIF 
Letter I at 5-7; SIFMA Letter II at 8.
    \190\ See SIFMA Letter I at 10; BDA Letter I at 4.
    \191\ See FIF Letter I at 5.
    \192\ See id. at 6-7; see also SIFMA Letter II at 8 (encouraging 
FINRA to eliminate its charge for testing and instead to offer no-
cost testing). Comments related to FINRA's free testing period and 
current practice to charge for testing after such free testing 
period are outside of the scope of this proposal.
---------------------------------------------------------------------------

    FINRA responds that it ``intends to provide [FINRA] members with a 
sufficient implementation timeframe (for example, approximately within 
18 months from any SEC approval) to make the changes necessary to 
comply with the Proposal. If approved by the SEC, FINRA will announce 
the effective date of the Proposal in a Regulatory Notice. As is 
generally the case for TRACE rule changes, FINRA will endeavor to 
publish updated technical specifications as far as possible in advance 
of the effective date(s) and will work with [FINRA] members to provide 
interpretive guidance, where needed.'' \193\
---------------------------------------------------------------------------

    \193\ FINRA Letter at 18.
---------------------------------------------------------------------------

    The Commission views FINRA's statements with respect to 
implementation as reasonable and appropriate. As stated above, FINRA 
intends to provide FINRA members with a sufficient implementation 
timeframe, publish updated technical specifications as far as possible 
in advance of the effective date, and be responsive to requests for 
interpretive guidance. FINRA represents that it will announce the 
effective date of the proposed rule change in a FINRA Regulatory 
Notice.

G. Consistency With the Administrative Procedure Act (``APA'')

    One commenter questions the proposed rule's consistency with the 
APA.\194\ This commenter asserts that FINRA filed the proposed rule at 
the direction of the Commission, and objects to the Commission's 
alleged use of self-regulatory organizations such as FINRA ``as a 
conduit to carry out rulemakings that are the ultimate responsibility 
of the Commission.'' \195\ The commenter further argues that there is 
``no demonstrable market failure in the fixed income markets that would 
justify reducing the reporting timeframe from 15 minutes to 1 minute.'' 
\196\
---------------------------------------------------------------------------

    \194\ See ASA Letter III at 2-3; ASA Letter II at 2; ASA Letter 
1 at 3.
    \195\ See id.; ASA Letter III at 2 & n.4.
    \196\ See ASA Letter III at 1; see also ASA Letter II at 2; ASA 
Letter I at 3.
---------------------------------------------------------------------------

    The Commission did not direct FINRA to file the proposed rule and 
it is not using FINRA as a conduit to enact the proposed rule.\197\ 
Rather, as FINRA explains, FINRA reassessed the TRACE trade reporting 
timeframe because FINRA believes that it is ``appropriate and prudent 
to consider whether this timeframe continues to meet regulatory 
objectives given the passage of time and the changes in the fixed 
income securities industry in the intervening years.'' \198\ FINRA 
designed the Proposal itself based on ``extensive data analysis,'' 
``carefully consider[ing] the different ways trades can be executed in 
the fixed income markets and craft[ing] the manual trades exception to 
address a range of execution and reporting scenarios to account for 
these differences.'' \199\ In support of the Proposal, FINRA states 
that it ``represents an important step in modernizing the trade 
reporting timeframes for TRACE-eligible securities to facilitate more 
timely transaction data, enhancing transparency and the value of 
disseminated transaction data by allowing investors and other market 
participants to obtain and evaluate more timely pricing information for 
the impacted securities.'' \200\
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    \197\ The commenter cites a speech by the Chair in stating to 
the contrary, but that speech does not specifically address the 
TRACE trade reporting timeframe at all. See ASA Letter III at 2 n.4 
(citing Gary Gensler, Chair, Securities and Exchange Commission, 
Prepared Remarks before SEC Speaks: U.S. Capital Markets and the 
Public Good (Apr. 2, 2024) (transcript available at https://www.sec.gov/newsroom/speeches-statements/prepared-remarks-sec-speaks-us-capital-markets-public-good). And, in any event, the 
speech reflects the views of the Chair alone, not the Commission.
    \198\ FINRA Letter at 3.
    \199\ Id.
    \200\ Id. at 3-4.

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[[Page 78942]]

    Nor does the Exchange Act require that a self-regulatory 
organization establish the existence of a market failure to justify a 
proposed rule change. Under Section 19(b) of the Exchange Act, the 
Commission must approve a rule change proposed by FINRA if the 
Commission finds that the proposed change is consistent with the 
requirements of the Act and the rules and regulations thereunder, 
including the requirements of section 15A(b).\201\ For the reasons 
discussed above, the Commission finds that the Proposal is consistent 
with those requirements because, among other things, it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system and, in general, to protect investors and the public 
interest; and is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers. The Proposal also does not 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.\202\
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    \201\ 15 U.S.C. 78o-3(b), 78s(b)(2)(C).
    \202\ The commenter's references to the Supreme Court's 
decisions in Loper Bright Enterprises v. Raimondo, 144 S. Ct. 2244 
(2024) and Ohio v. EPA, 144 S. Ct. 2040 (2024), are similarly 
misplaced. Loper Bright is inapposite because the question here is 
whether FINRA's proposed rule change is consistent with the 
requirements of Section 15A(b)--in which case the Exchange Act 
requires the Commission to approve it--not whether the Commission 
would have statutory authority to adopt its own market-wide rule. 
And Ohio is inapposite because we explain above why commenters' 
concerns do not establish that the Proposal is inconsistent with the 
requirements of the Act.
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H. Consultation With the Treasury Department

    Pursuant to section 19(b)(6) of the Act,\203\ 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 
proposed rule change. Pursuant to section 19(b)(5) of the Act,\204\ the 
Commission consulted with and considered the views of the Treasury 
Department in determining whether to approve the proposed rule change. 
The Treasury Department did not object to the proposed rule change.
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    \203\ 15 U.S.C. 78s(b)(6).
    \204\ 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'').
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IV. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\205\ that the proposed rule change (SR-FINRA-2024-004), as 
modified by Partial Amendment No. 1, be, and hereby is, approved.
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    \205\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\206\
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    \206\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-22027 Filed 9-25-24; 8:45 am]
BILLING CODE 8011-01-P
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