73670 Federal Register / Vol. 79, No. 238 / Thursday, December 11, 2014 / Notices 

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

2 17 CFR 240.19b–4. 

3Rule 6710 generally defines a ‘‘TRACE-Eligible 

Security’’ as: (1) A debt security that is U.S. dollardenominated and issued by a U.S. or foreign private 

issuer (and, if a ‘‘restricted security’’ as defined in 

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

Securities Act Rule 144A); or (2) a debt security that 

is U.S. dollar-denominated and issued or 

guaranteed by an ‘‘Agency’’ as defined in Rule 

6710(k) or a ‘‘Government-Sponsored Enterprise’’ as 

defined in Rule 6710(n). 

4FINRA Rule 6730(c)(6) provides that each 

TRACE trade report shall contain the contra-party’s 

identifier. 

5The proposed rule change would add a new 

definition to Rule 6710 to define ‘‘non-member 

affiliate’’ as a non-member entity that controls, is 

controlled by or is under common control with a 

member. For the purposes of this definition, 

‘‘control,’’ along with any derivative thereof, means 

legal, beneficial, or equitable ownership, directly or 

indirectly, of 25 percent or more of the capital stock 

(or other ownership interest, if not a corporation) 

of any entity ordinarily having voting rights. The 

term ‘‘common control’’ means the same natural 

person or entity controls two or more entities. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE., 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–FICC–2014–810, SR– 

NSCC–2014–811 or SR–DTC–2014–812. 

One of these file numbers should be 

included on the subject line if email is 

used. To help the Commission process 

and review your comments more 

efficiently, please use only one method. 

The Commission will post all comments 

on the Commission’s Internet Web site 

(http://www.sec.gov/rules/sro.shtml). 

Copies of the submission, all subsequent 

amendments, all written statements 

with respect to the Advance Notices that 

are filed with the Commission, and all 

written communications relating to the 

Advance Notices between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

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

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE., 

Washington, DC 20549, on official 

business days between the hours of 

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

filing also will be available for 

inspection and copying at the principal 

office of the Operating Subsidiaries and 

on DTCC’s Web site at http://dtcc.com/ 

legal/sec-rule-filings.aspx. All 

comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–FICC–2014–810, SR– 

NSCC–2014–811 or SR–DTC–2014–812 

and should be submitted on or before 

January 2, 2015. 

By the Commission. 

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2014–29005 Filed 12–10–14; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73762; File No. SR–FINRA– 

2014–050] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing of a 

Proposed Rule Change To Amend 

TRACE Rules To Require Members To 

Identify Transactions With NonMember Affiliates and To Change How 

FINRA Disseminates a Subset of Such 

Transactions 

December 5, 2014. 

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

Securities Exchange Act of 1934 

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

notice is hereby given that on November 

21, 2014, Financial Industry Regulatory 

Authority, Inc. (‘‘FINRA’’) filed with the 

Securities and Exchange Commission 

(‘‘SEC’’ or ‘‘Commission’’) the proposed 

rule change as described in Items I, II, 

and III below, which Items have been 

prepared by FINRA. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

FINRA is proposing to amend the 

FINRA Rule 6700 Series (Trade 

Reporting and Compliance Engine 

(TRACE)) to require members to identify 

transactions with non-member affiliates, 

and to change how FINRA disseminates 

a specific subset of these transactions. 

The text of the proposed rule change 

is available on FINRA’s Web site at 

http://www.finra.org, at the principal 

office of FINRA and at the 

Commission’s Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, 

FINRA included statements concerning 

the purpose of and basis for the 

proposed rule change and discussed any 

comments it received on the proposed 

rule change. The text of these statements 

may be examined at the places specified 

in Item IV below. FINRA has prepared 

summaries, set forth in sections A, B, 

and C below, of the most significant 

aspects of such statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

FINRA is amending the TRACE rules: 

(1) To add a new contra-party type to be 

used in TRACE reports to identify 

transactions with non-member affiliates, 

and (2) to require firms to identify when 

transactions with non-member affiliates 

meet specified conditions, so that 

FINRA can suppress dissemination of 

those trades. 

FINRA Rule 6730 (Transaction 

Reporting) sets forth the requirements 

applicable to members for reporting 

transactions in TRACE-Eligible 

Securities.3 Rule 6730(c) (Transaction 

Information To Be Reported) describes 

the items of information that must be 

included in a TRACE trade report. 

Among other things, members must 

identify the other side (i.e., contra-party 

or counterparty) for each transaction.4

Where the contra-party is a FINRA 

member, the reporting member must 

provide the contra-party’s designated 

Market Participant ID (‘‘MPID’’) in the 

trade report. All other contra-parties 

(including non-member affiliates) can 

only be identified as a ‘‘customer’’ when 

reporting the transaction to TRACE. 

FINRA is proposing to amend Rule 

6730 to introduce a new contra-party 

type to identify non-member affiliates of 

the member reporting the trade, and to 

disseminate publicly this contra-party 

identifier.5 Currently, as noted above, 

when a member engages in a transaction 

with a non-member affiliate, that 

transaction is reported by the member as 

a trade with a customer. Thus, the 

proposal would provide FINRA and 

market participants with additional 

identifying information regarding the 

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Federal Register / Vol. 79, No. 238 / Thursday, December 11, 2014 / Notices 73671 

6The proposal would not change the way that 

FINRA members report trades with affiliates that 

also are FINRA members; the reporting member 

would continue to identify the contra-party by 

MPID. FINRA believes that trades between members 

generally are arms-length, even if the member firms 

are affiliated. Furthermore, it is important for audit 

trail and surveillance purposes to obtain the MPID 

of all member contra-parties in submitted trade 

reports. 7 15 U.S.C. 78o–3(b)(6). 

contra-party in the case of member 

trades with non-member-affiliates.6

FINRA also proposes to require 

members to identify a narrow subset of 

transactions with non-member affiliates. 

Specifically, a member would need to 

flag transactions between itself and a 

non-member affiliate: (1) Where both 

parties are trading for their own 

account, and (2) where the transaction 

with the non-member affiliate occurs 

within the same day, at the same price 

and in the same security as a transaction 

engaged in by the member with a 

different counterparty. Identification of 

these transactions by members would 

enable FINRA to suppress the 

transactions from dissemination on the 

tape, which is desirable because they 

are not economically distinct 

transactions and provide the same 

pricing information as the disseminated 

transaction between the member and the 

other contra-party to the trade. 

The undesirability of disseminating 

these trades is illustrated by the 

following example. Firm A, a FINRA 

member, acquires a position in a 

TRACE-Eligible Security from another 

dealer, which Firm A reports for 

dissemination by TRACE. Firm A may 

choose to hold this security at a nonmember affiliate, which it accomplishes 

by a back-to-back trade to the affiliate on 

the same terms as it acquired the 

security. Currently, this back-to-back 

trade with the affiliate would also be 

reported by the member for 

dissemination by TRACE. FINRA 

believes that only one of the trade 

reports related to this overall transaction 

should be disseminated—specifically, 

the transaction between the member and 

the other dealer, but not the trade 

between the member and its nonmember affiliate. Dissemination of the 

transaction between the member and its 

non-member affiliate does not provide 

users of the disseminated data with 

useful information for pricing, valuation 

or risk evaluation purposes. 

FINRA would only suppress 

dissemination where a member 

purchases or sells a security and then, 

within the same trading day, engages in 

a back-to-back trade with its nonmember affiliate in the same security at 

the same price. Because the trade of the 

security between the member and its 

non-member affiliate represents a 

change in beneficial ownership between 

different legal entities, it is a reportable 

transaction and is publicly disseminated 

under the current rule. However, the 

fact that the trade occurs with a nonmember affiliated entity, during the 

same day and at the same price (no 

commission or mark-up was assessed) is 

indicia that the transaction is not an 

arms-length trade and, therefore, does 

not constitute the type of transaction 

that adds value to the tape. 

FINRA believes the proposal will 

improve the information currently 

received for regulatory purposes by 

providing additional information on the 

relationship between parties to a trade. 

For example, knowledge of a contraparty’s status as a non-member affiliate 

of the reporting member would be 

useful in FINRA’s regulatory program, 

which is reliant upon the completeness 

and accuracy of the information 

members report to TRACE. For example, 

the proposed rule change would support 

the operation of the patterns that surveil 

for pre-arranged trading, best execution, 

parking and fair pricing. Thus, FINRA 

expects that the addition of the nonmember affiliate contra-party identifier 

will facilitate a more effective program 

and reduce the number of false-positive 

alerts from surveillance patterns and 

regulatory inquiries from FINRA to 

member firms. FINRA also believes the 

rule change will improve the quality of 

the information disseminated for 

transparency purposes by suppressing 

transaction reports that are not 

economically distinct from a separately 

reported (and disseminated) leg, and by 

disseminating a new contra-party 

identifier in all cases when a trade is 

with a non-member affiliate. 

FINRA staff discussed the proposal 

with advisory committees in developing 

its approach. These parties were 

supportive of the proposal, believing 

that it would improve the value of the 

information submitted to the tape by 

reducing the instances in which 

duplicative trade information is 

disseminated publicly. Members of the 

committees also did not express any 

particular concerns with respect to the 

operational impacts or costs of the 

proposal. Further discussions with firms 

that would be directly impacted by the 

proposal also indicated that the 

proposal to suppress dissemination of 

these trades would be beneficial to 

market participants, and that the 

necessary technological changes would 

not be unduly burdensome given an 

adequate implementation timeframe. 

FINRA will announce the 

implementation date of the proposed 

rule change in a Regulatory Notice to be 

published no later than 60 days 

following Commission approval. The 

implementation date will be no later 

than 90 days following publication of 

the Regulatory Notice announcing 

Commission approval. 

2. Statutory Basis 

FINRA believes that the proposed rule 

change is consistent with the provisions 

of Section 15A(b)(6) of the Act,7 which 

requires, among other things, that 

FINRA rules must be designed to 

prevent fraudulent and manipulative 

acts and practices, to promote just and 

equitable principles of trade, and, in 

general, to protect investors and the 

public interest. 

As discussed above, FINRA believes 

the proposal would result in improved 

disseminated transaction information 

for TRACE-Eligible Securities by 

reducing the instances in which trade 

information for duplicative, noneconomic trades is disseminated 

publicly. Under the proposal, TRACE 

reports also would include more 

specific contra-party information by 

adding an additional contra-party type 

to identify non-member affiliates that 

would be used by FINRA for regulatory 

purposes and disseminated to investors 

and market participants. Thus, FINRA 

believes that the proposed rule change 

would enhance transparency by 

suppressing trade reports on 

transactions that are not economically 

distinct from a separately reported (and 

disseminated) leg, and the regulatory 

audit trail by providing additional 

granularity regarding the reporting 

firm’s relationship with its contra-party. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

FINRA does not believe that the 

proposed rule change will result in any 

burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. While the 

proposal would require firms to 

implement changes to identify covered 

transactions with a non-member 

affiliate, FINRA does not believe these 

changes would impose differential costs 

on similarly situated firms. Discussions 

with members indicate that, so long as 

sufficient implementation time is 

provided to make the necessary 

technological changes, the proposed 

rule change would not be unduly 

burdensome, given its benefits to 

transparency. In addition to the benefits 

to public transparency, the non-member 

affiliate contra-party identifier will 

facilitate a more effective regulatory 

program by allowing FINRA further 

insight into whether a member’s 

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73672 Federal Register / Vol. 79, No. 238 / Thursday, December 11, 2014 / Notices 

8 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Exchange Act Release No. 72279 (May 29, 

2014), 79 FR 32354 (June 4, 2014) (SR–ISE–2014– 

29). 

transaction is arms-length. In addition, 

FINRA anticipates the proposal would 

result in a reduction in the number of 

false-positive alerts from surveillance 

patterns and fewer regulatory inquiries 

from FINRA to member firms. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants or Others 

FINRA has not solicited, and does not 

intend to solicit, comments on this 

proposed rule change. FINRA has not 

received any written comments from 

members or other interested parties. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period (i) 

as the Commission may designate up to 

90 days of such date if it finds such 

longer period to be appropriate and 

publishes its reasons for so finding or 

(ii) as to which the self-regulatory 

organization consents, the Commission 

will: 

(A) By order approve or disapprove 

such proposed rule change, or 

(B) institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

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

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

FINRA–2014–050 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Brent J. Fields, Secretary, Securities 

and Exchange Commission, 100 F Street 

NE., Washington, DC 20549. 

All submissions should refer to File 

Number SR–FINRA–2014–050. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

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

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE., 

Washington, DC 20549, on official 

business days between the hours of 

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

filing also will be available for 

inspection and copying at the principal 

office of FINRA. All comments received 

will be posted without change; the 

Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR–FINRA– 

2014–050 and should be submitted on 

or before January 2, 2015. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.8

Brent J. Fields, 

Secretary. 

[FR Doc. 2014–29013 Filed 12–10–14; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73757; File No. SR–ISE– 

2014–55] 

Self-Regulatory Organizations; 

International Securities Exchange, 

LLC; Notice of Filing and Immediate 

Effectiveness of Proposed Rule 

Change To Extend the Penny Pilot 

Program 

December 5, 2014. 

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

Securities Exchange Act of 1934 (the 

‘‘Exchange Act’’),1 and Rule 19b–4 

thereunder,2 notice is hereby given that 

on December 1, 2014, the International 

Securities Exchange, LLC (the 

‘‘Exchange’’ or the ‘‘ISE’’) filed with the 

Securities and Exchange Commission 

the proposed rule change as described 

in Items I, II, and III below, which items 

have been prepared by the selfregulatory organization. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The ISE proposes to amend its rules 

relating to a pilot program to quote and 

to trade certain options in pennies 

(‘‘Penny Pilot Program’’). The text of the 

proposed rule change is available on the 

Exchange’s Web site www.ise.com, at 

the principal office of the Exchange, and 

at the Commission’s Public Reference 

Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

self-regulatory organization included 

statements concerning the purpose of, 

and basis for, the proposed rule change 

and discussed any comments it received 

on the proposed rule change. The text 

of these statements may be examined at 

the places specified in Item IV below. 

The self-regulatory organization has 

prepared summaries, set forth in 

sections A, B and C below, of the most 

significant aspects of such statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

Under the Penny Pilot Program, the 

minimum price variation for all 

participating options classes, except for 

the Nasdaq-100 Index Tracking Stock 

(‘‘QQQQ’’), the SPDR S&P 500 Exchange 

Traded Fund (‘‘SPY’’) and the iShares 

Russell 2000 Index Fund (‘‘IWM’’), is 

$0.01 for all quotations in options series 

that are quoted at less than $3 per 

contract and $0.05 for all quotations in 

options series that are quoted at $3 per 

contract or greater. QQQQ, SPY and 

IWM are quoted in $0.01 increments for 

all options series. The Penny Pilot 

Program is currently scheduled to 

expire on December 31, 2014.3 The 

Exchange proposes to extend the time 

period of the Penny Pilot Program 

through June 30, 2015, and to provide 

revised dates for adding replacement 

issues to the Penny Pilot Program. The 

Exchange proposes that any Penny Pilot 

Program issues that have been delisted 

may be replaced on the second trading 

day following January 1, 2015. The 

replacement issues will be selected 

based on trading activity for the six 

mstockstill on DSK4VPTVN1PROD with NOTICES