Document ID: SEC-2013-2011-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2013-11-26T05:00Z

[Federal Register Volume 78, Number 228 (Tuesday, November 26, 2013)]
[Notices]
[Pages 70602-70607]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-28273]

=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70906; File No. SR-FINRA-2013-046]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of a Proposed Rule Change Relating to 
TRACE Reporting and Dissemination of Transactions in Additional Asset-
Backed Securities

November 20, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

[[Page 70603]]

(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on November 13, 2013, the 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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 and the 
Trade Reporting and Compliance Engine (``TRACE'') dissemination 
protocols to disseminate additional Asset-Backed Securities 
transactions and, concomitantly, to reduce the reporting periods for 
such securities. FINRA also proposes to re-name as ``Securitized 
Products'' the broad group of securities currently defined as ``Asset-
Backed Securities,'' to re-define the term ``Asset-Backed Security'' 
more narrowly to mean the specific securities that FINRA proposes to 
disseminate in the proposed rule change, to make other definitional 
changes and to incorporate technical and conforming amendments to the 
FINRA Rule 6700 Series and FINRA Rule 7730 in connection with 
provisions that have expired and the amendments referenced above.
    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.\3\
---------------------------------------------------------------------------

    \3\ As part of the proposed rule change, FINRA submitted an 
Exhibit 4 and an Exhibit 5. The Exhibit 4 shows the text of the 
proposed rule change marked to show the proposed changes as compared 
to the FINRA Rule 6700 Series and FINRA Rule 7730 including 
amendments approved by the SEC as if such amendments were effective. 
See note 6. The Exhibit 5 shows the text of the proposed rule change 
marked to show the proposed changes as compared to the current rule 
text of the rules in accordance with the requirements of Form 19b-4.
---------------------------------------------------------------------------

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 proposes to amend the FINRA Rule 6700 Series and the TRACE 
dissemination protocols to provide for the dissemination of 
transactions in an additional group of Asset-Backed Securities. 
Transactions in such Asset-Backed Securities effected pursuant to Rule 
144A \4\ under the Securities Act of 1933 \5\ (``Rule 144A 
transactions'') will also be disseminated.\6\ Concomitantly, FINRA 
proposes to reduce the reporting period for such Asset-Backed 
Securities and incorporate two changes to the TRACE dissemination 
protocols. FINRA also proposes to re-name as Securitized Products the 
broad group of securities currently defined as Asset-Backed Securities 
in FINRA Rule 6710(m) and, in a proposed new definition in FINRA Rule 
6710(cc), to re-define the term Asset-Backed Security more narrowly to 
mean the specific securities that FINRA proposes to disseminate in the 
proposed rule change (e.g., asset-backed securities collateralized by 
pools of credit card receivables, student loans, auto loans, etc.).\7\ 
Also, in FINRA Rule 6710, FINRA proposes to add three new definitions 
and amend the defined terms ``List or Fixed Offering Price 
Transaction'' and ``Takedown Transaction'' to apply to certain primary 
market transactions in Asset-Backed Securities.\8\ Finally, in the 
FINRA Rule 6700 Series and FINRA Rule 7730, FINRA proposes to delete 
reporting provisions that have expired and incorporate additional 
technical and conforming amendments consistent with the above-
referenced proposed amendments to the FINRA Rule 6700 Series.
---------------------------------------------------------------------------

    \4\ 17 CFR 230.144A.
    \5\ 15 U.S.C. 77a et seq. (hereinafter ``Securities Act'').
    \6\ The SEC recently approved FINRA's proposed rule change to 
disseminate transactions in TRACE-Eligible Securities effected as 
Rule 144A transactions (provided that securities of the same type 
are subject to dissemination if effected in non-Rule 144A 
transactions). See Securities Exchange Act Release No. 70345 
(September 6, 2013), 78 FR 56251 (September 12, 2013) (Order 
Granting Approval of Proposed Rule Change Relating to the 
Dissemination of Transactions in TRACE-Eligible Securities that are 
Effected Pursuant to Securities Act Rule 144A); Securities Exchange 
Act Release No. 70691 (October 16, 2013), 78 FR 62788 (October 22, 
2013) (Notice of Filing and Immediate Effectiveness of a Proposed 
Rule Change Relating to TRACE Fees for Securities Act Rule 144A 
Transaction Data) (together, ``Rule 144A Dissemination 
Amendments''); and Regulatory Notice 13-35 (announcing June 30, 2014 
as the effective date for SR-FINRA-2013-029 and SR-FINRA-2013-043). 
As a result, when the proposed rule change to disseminate the 
designated group of Asset-Backed Securities is approved and becomes 
effective, both Rule 144A and non-Rule 144A transactions in such 
Asset-Backed Securities will be disseminated.
    \7\ Except when the context requires otherwise, hereinafter, 
FINRA uses the terms Securitized Product and Asset-Backed Security 
as if adopted (i.e., Asset-Backed Security means a narrow class of 
Securitized Product as defined in proposed FINRA Rule 6710(cc) and 
Securitized Product means the broader group of products and 
instruments, including Asset-Backed Securities).
    \8\ The terms List or Fixed Offering Price and Takedown 
Transaction are defined in, respectively, FINRA Rule 6710(q) and 
FINRA Rule 6710(r).
---------------------------------------------------------------------------

Definitions
Asset-Backed Security--Proposed FINRA Rule 6710(cc)
    FINRA proposes to re-define Asset-Backed Security more narrowly to 
describe a specific class of Securitized Products that is the subject 
of the proposed rule change. FINRA believes that the proposed narrower 
definition of Asset-Backed Security is consistent with industry usage. 
In addition, to clarify the scope of the term, FINRA proposes to 
specifically exclude three types of instruments from the term Asset-
Backed Security: (i) Agency Pass-Through Mortgage-Backed Securities 
traded to be announced (``TBA'') \9\ or in Specified Pool Transactions; 
\10\ (ii) SBA-Backed ABS \11\ traded TBA or in Specified Pool 
Transactions; and (iii) Collateralized Mortgage Obligations 
(``CMOs'').\12\ As re-defined in proposed FINRA Rule 6710(cc), the term 
``Asset-Backed Security'' means:
---------------------------------------------------------------------------

    \9\ The terms Agency Pass-Through Mortgage-Backed Security and 
To Be Announced (``TBA'') are defined, respectively, in FINRA Rule 
6710(v) and FINRA Rule 6710(u).
    \10\ The term Specified Pool Transaction is defined in FINRA 
Rule 6710(x).
    \11\ The term SBA-Backed ABS is defined in FINRA Rule 6710(bb).
    \12\ FINRA proposes to define the term Collateralized Mortgage 
Obligation in proposed FINRA Rule 6710(dd). See note 17.

    A type of Securitized Product where the Asset-Backed Security is 
collateralized by any type of financial asset, such as a consumer or 
student loan, a lease, or a secured or unsecured receivable, but 
excludes: (i) An Agency Pass-Through Mortgage-Backed Security as 
defined in paragraph (v) traded To Be Announced (``TBA'') as defined 
in paragraph (u) or in a Specified Pool Transaction as defined in 
paragraph (x); (ii) an SBA-Backed ABS as defined in paragraph (bb) 
traded TBA or in a Specified Pool Transaction; and (iii) a 
---------------------------------------------------------------------------
Collateralized Mortgage Obligation as defined in paragraph (dd).

    In addition, in proposed Supplementary Material .01 to FINRA Rule 
6710, FINRA provides additional

[[Page 70604]]

guidance regarding the scope of the defined term Asset-Backed 
Security.\13\
---------------------------------------------------------------------------

    \13\ Proposed Supplementary Material .01 to FINRA Rule 6710 
provides that Asset-Backed Security shall include, but is not 
limited to:
    Securities collateralized by the following types of assets and 
securities: Credit card receivables; automobile loans and leases; 
student loans; home equity loans and home equity lines of credit; 
aircraft leases; automobile floorplan and wholesale loans; 
motorcycle loans and leases; recreational vehicle loans; 
manufactured housing loans; commercial loans; tranches of other 
Asset-Backed Securities; reinsurance; timeshare obligations; loans 
or other financial instruments generating a stream of payments and 
guaranteed as to principal or interest (or both) by the Small 
Business Administration (traded other than to be announced (``TBA'') 
as defined in paragraph (u) or in a Specified Pool Transaction as 
defined in paragraph (x)); collateralized debt obligations; 
collateralized bond obligations; collateralized loan obligations; 
and Non-Agency Backed Commercial Mortgage-Backed Securities as 
defined in paragraph (ff).
---------------------------------------------------------------------------

Securitized Product--Amended FINRA Rule 6710(m)
    FINRA proposes to amend FINRA Rule 6710(m) to re-name as 
Securitized Products the broader group of securities currently defined 
as Asset-Backed Securities. The term Securitized Product is used widely 
to describe the broad group of securities, including various types of 
mortgage-backed securities that FINRA currently refers to in FINRA Rule 
6710(m). FINRA's proposal to adopt the term Securitized Product to 
apply to this wide range of structured and securitized instruments is 
consistent with industry usage.
    Proposed amended FINRA Rule 6710(m) also includes a technical 
amendment to change a reference to Section 3(a)(77)(A) of the Act \14\ 
to Section 3(a)(79)(A) of the Act.\15\ Section 3(a)(77) of the Act was 
renumbered in Section 101(b)(1) of the Jumpstart Our Business Startups 
Act (the ``JOBS Act'').\16\ Proposed amended FINRA Rule 6710(m) 
provides:
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78c(a)(77)(A).
    \15\ 15 U.S.C. 78c(a)(79)(A).
    \16\ 15 U.S.C. 78c(a)(77). The JOBS Act was enacted on April 5, 
2012; Public Law 112-106, 126 Stat. 306 (2012).

    ``Securitized Product'' means a security collateralized by any 
type of financial asset, such as a loan, a lease, a mortgage, or a 
secured or unsecured receivable, and includes but is not limited to 
an asset-backed security as defined in Section 3(a)(79)(A) of the 
Exchange Act, a synthetic asset-backed security, and any residual 
tranche or interest of any security specified above, which tranche 
or interest is a debt security for purposes of paragraph (a) and the 
Rule 6700 Series.
Other Definitions
    FINRA proposes to define Collateralized Mortgage Obligation, 
Agency-Backed Commercial Mortgage-Backed Security and Non-Agency-Backed 
Commercial Mortgage-Backed Security in, respectively, proposed FINRA 
Rule 6710(dd), proposed FINRA Rule 6710(ee) and proposed FINRA Rule 
6710(ff) to provide additional clarity regarding various classes of 
securities that are included in, or excluded from, the terms 
Securitized Product and Asset-Backed Security and the various 
dissemination and reporting requirements applicable to these different 
types of Securitized Products.\17\
---------------------------------------------------------------------------

    \17\ In proposed FINRA Rule 6710(dd), Collateralized Mortgage 
Obligation is defined as:
    A type of Securitized Product structured in multiple classes (or 
tranches) backed by Agency Pass-Through Mortgage-Backed Securities 
as defined in paragraph (v), mortgage loans, certificates backed by 
project loans or construction loans, other types of mortgage-backed 
securities or assets derivative of mortgage-backed securities, and 
includes a real estate mortgage investment conduit (``REMIC'') and 
an Agency-Backed Commercial Mortgage-Backed Security as defined in 
paragraph (ee).
    In proposed FINRA Rule 6710(ee), Agency-Backed Commercial 
Mortgage-Backed Security is defined as:
    A type of Securitized Product that is classified as a 
Collateralized Mortgage Obligation for purposes of the Rule 6700 
Series and Rule 7730 and is issued in conformity with a program of 
an Agency as defined in paragraph (k) or a Government-Sponsored 
Enterprise (``GSE'') as defined in paragraph (n), for which the 
timely payment of principal and interest is guaranteed by the Agency 
or GSE, representing ownership interest in a pool (or pools) of 
mortgage loans on commercial property.
    In proposed FINRA Rule 6710(ff), Non-Agency-BackedCommercial 
Mortgage-Backed Security is defined as:
    A type of Securitized Product that is classified as an Asset-
Backed Security for purposes of the Rule 6700 Series and Rule 7730 
and is issued by an entity other than an Agency as defined in 
paragraph (k) or a Government-Sponsored Enterprise (``GSE'') as 
defined in paragraph (n), representing ownership interest in a pool 
(or pools) of mortgage loans on commercial property.
---------------------------------------------------------------------------

Dissemination
    Currently, FINRA requires that virtually all transactions in U.S. 
dollar-denominated debt securities, except U.S. Treasury securities, 
foreign sovereign securities and municipal securities, be reported to 
TRACE, and most transactions reported are subject to dissemination 
immediately upon receipt of a transaction report.
    Securitized Products were the last major group of securities to be 
added to TRACE. After studying the liquidity and trading 
characteristics of various classes of Securitized Products, FINRA began 
to disseminate Securitized Products in phases, beginning with the 
dissemination of two very significant segments: TBA transactions and 
Specified Pool transactions in Agency Pass-Through Mortgage-Backed 
Securities and SBA-Backed ABS.\18\
---------------------------------------------------------------------------

    \18\ On November 12, 2012, FINRA began disseminating 
transactions in Agency Pass-Though Mortgage-Backed Securities traded 
TBA (``MBS TBA transactions''), which are the most liquid 
Securitized Products. See Securities Exchange Act Release No. 66829 
(April 18, 2012), 77 FR 24748 (April 25, 2012) (SEC Approval Order, 
File No. SR-FINRA-2012-020). See also Regulatory Notice 12-26 (May 
2012) and Regulatory Notice 12-48 (November 2012).
    On July 22, 2013, FINRA began disseminating Agency Pass-Through 
Mortgage-Backed Securities and SBA-Backed ABS traded in Specified 
Pool Transactions, which are correlated in pricing to MBS TBA 
transactions and TBA transactions in SBA-Backed ABS. See Securities 
Exchange Act Release No. 68084 (October 23, 2012), 77 FR 65436 
(October 26, 2012) (SEC Approval Order of File No. SR-FINRA-2012-
042) and Regulatory Notice 12-56 (December 2012).
---------------------------------------------------------------------------

    FINRA proposes that transactions in Asset-Backed Securities be 
disseminated, including Rule 144A transactions in such securities, to 
increase transparency in the bond market, and particularly in the 
market for Asset-Backed Securities.\19\ FINRA has reviewed substantial 
amounts of transaction data for Asset-Backed Securities since reporting 
began on May 16, 2011. The Asset-Backed Securities market is considered 
a largely institutional market.\20\ In 2012, the average daily par 
value traded in Asset-Backed Securities was $5.8 billion, which was 
approximately the same size of the market in publicly traded Non-
Investment Grade corporate bonds.\21\ Consistent with the institutional 
nature of Asset-Backed Securities transactions, although the size of 
the Asset-Backed Securities market is comparable to the market for 
publicly-traded Non-Investment Grade corporate bonds, there are 
substantially fewer trades in Asset-Backed Securities.
---------------------------------------------------------------------------

    \19\ See supra note 6, Rule 144A Dissemination Amendments.
    The proposed rule change to disseminate Asset-Backed Securities 
would be the third group of Securitized Products to be disseminated. 
FINRA continues to review the fourth subclass of Securitized 
Products--CMOs and Agency-Backed Commercial Mortgage-Backed 
Securities--and, at a later date, may propose that transactions in 
such Securitized Products be disseminated.
    \20\ There appear to be few retail customer transactions in the 
market; only 10 percent of all Asset-Backed Securities transactions 
with customers are for less than $100,000. (For purposes of 
assessing the level of retail and institutional customer 
participation in TRACE-Eligible Securities, FINRA considers a trade 
of less than $100,000 to be a reasonable proxy for retail customer 
participation.)
    \21\ The term Non-Investment Grade is defined in FINRA Rule 
6710(i).
---------------------------------------------------------------------------

    Based on the characteristics of the market, FINRA believes that the 
proposed additional price transparency in the Asset-Backed Securities 
market will enhance the ability of investors to identify and negotiate 
fair and

[[Page 70605]]

competitive prices for Asset-Backed Securities. Dissemination of Asset-
Backed Securities transactions may assist both buy and sell-side market 
participants in price discovery when pricing and trading such 
securities. In addition, in some types of Asset-Backed Securities, such 
as Asset-Backed Securities backed by auto loans, disseminating the 
pricing of one Asset-Backed Security will aid in pricing a different 
Asset-Backed Security where both securities are substantially similar 
and, to some degree, fungible (e.g., both Asset-Backed Securities are 
backed by pools of auto loans having approximately the same average 
duration and the same average coupon rate, and the borrowers, on 
average, posing the same level of credit risk). Also, FINRA believes 
that dissemination of such transactions will assist all market 
participants in determining the quality of their executions and firms 
in complying with their regulatory obligations. Further, transparency 
in this sector may improve the quality of pricing for valuation 
purposes, which is critical for both dealers and institutions.
    After dissemination begins, FINRA will observe the trading in 
Asset-Backed Securities to monitor the impact of price transparency in 
the market for Asset-Backed Securities as FINRA previously has done 
when initiating dissemination in any group of TRACE-Eligible 
Securities.
Reporting Reduction of Time to Report
    Members must report transactions in corporate bonds, Agency Debt 
Securities \22\ and MBS TBA transactions for good delivery (``MBS TBA 
GD'') no later than 15 minutes from the time of execution, and 
transaction information is disseminated immediately upon receipt of a 
transaction report.\23\ This 15-minute timeframe has proven effective 
in providing timely and meaningful transaction data to market 
participants.\24\
---------------------------------------------------------------------------

    \22\ The term Agency Debt Security is defined in FINRA Rule 
6710(l).
    \23\ FINRA implemented 15-minute reporting for MBS TBA GD on May 
18, 2013.
    \24\ FINRA has adopted longer periods to report transactions in 
a limited number of Securitized Products that are traded 
infrequently and by a limited group of market participants. MBS TBA 
transactions not for good delivery (``MBS TBA NGD'') must be 
reported no later than 60 minutes from the time of execution. SBA-
Backed ABS traded in TBA transactions and all Specified Pool 
Transactions (involving either Agency Pass-Through Mortgage-Backed 
Securities or SBA-Backed ABS) must be reported no later than 120 
minutes from the time of execution initially, and, after a pilot 
program expires on January 24, 2014, no later than 60 minutes from 
the time of execution.
---------------------------------------------------------------------------

    In connection with the proposal to disseminate Asset-Backed 
Securities transactions, FINRA proposes to reduce the period to report 
such transactions. Initially, the reporting period will be reduced from 
the end of the day on the trade date during TRACE System Hours to no 
later than 45 minutes from the time of execution as provided in 
proposed FINRA Rule 6730(a)(3)(B)(i)b.\25\ After approximately six 
months, the reporting period will be reduced again from no later than 
45 minutes from the time of execution to no later than 15 minutes from 
the time of execution as provided in proposed FINRA Rule 
6730(a)(3)(B)(ii).\26\
---------------------------------------------------------------------------

    \25\ See proposed FINRA Rule 6730(a)(3)(B)(i). Like the 
reporting requirements currently in effect for other TRACE-Eligible 
Securities, FINRA also proposes exceptions to the 45-minute 
timeframe for transactions executed near the end of the business day 
or when the TRACE system is not open. See proposed FINRA Rule 
6730(a)(3)(B)(i)a., c., and d.
    \26\ The transitional phase for reducing reporting timeframes in 
proposed FINRA Rule 6730(a)(3)(B)(i) will expire after approximately 
180 days. To accommodate member requests that, if possible, rule 
changes requiring technology changes occur on a Friday, proposed 
FINRA Rule 6730(a)(3)(B)(i) provides that the ABS Transitional Phase 
will expire on a Friday (i.e., on the 180th day, if a Friday, or, if 
the 180th day is not a Friday, on the Friday next occurring that the 
TRACE system is open).
    Proposed FINRA Rule 6730(a)(3)(B)(ii) incorporates by reference 
Rule 6730(a)(1)(A) through (D), which require members to report 
transactions no later than 15 minutes from the time of execution, 
subject to the same exceptions for transactions executed near the 
end of the business day or when the TRACE system is not open.
---------------------------------------------------------------------------

    Reducing the time to report Asset-Backed Securities transactions 
will provide more timely price and other transaction information to the 
market. Reducing the time to report in two phases will provide members 
a period to adjust policies and procedures and make required technical 
changes. FINRA notes that even under the end-of-day reporting 
requirements currently in place, members report approximately 63% of 
all Asset-Backed Securities transactions within 45 minutes of the time 
of execution, and approximately 50% of such transactions within 15 
minutes of the time of execution.\27\
---------------------------------------------------------------------------

    \27\ The data is based on Asset-Backed Securities transactions 
reported from December 1, 2011 through April 30, 2013.
---------------------------------------------------------------------------

List or Fixed Offering Price and Takedown Transactions
    Many Asset-Backed Securities are underwritten using a syndicated 
process that is similar to the offering process for corporate bonds. In 
syndicated offerings, there may be a number of transactions that occur 
at the list or fixed offering price (or the takedown price). Under the 
FINRA Rule 6700 Series and FINRA Rule 7730, FINRA provides more 
flexible treatment for TRACE-Eligible Securities transactions (except 
Securitized Products) that are effected in accordance with the fixed 
price and other requirements of a List or Fixed Offering Price 
Transaction, as defined in FINRA Rule 6710(q), or those of a Takedown 
Transaction, as defined in FINRA Rule 6710(r). The advantages of 
reporting under the provisions are three-fold: A member may report a 
List or Fixed Offering Price Transaction or a Takedown Transaction as 
late as T + 1 during TRACE system hours as provided in FINRA Rule 
6730(a)(2); such transactions are not disseminated as provided in FINRA 
Rule 6750(b)(3); and a member is not charged a reporting fee for such 
transactions as provided in FINRA Rule 7730(b)(1)(C).
    In light of the similarity of the offering process used to 
distribute corporate bonds and many Asset-Backed Securities, FINRA 
proposes to amend FINRA Rule 6710(q) and FINRA Rule 6710(r) to afford 
members that effect primary market Asset-Backed Securities transactions 
that meet all the requirements of a List or Fixed Offering Price 
Transaction or a Takedown Transaction the more flexible treatment set 
forth in FINRA Rule 6730(a)(2), FINRA Rule 6750(b)(3), and FINRA Rule 
7730(b)(1)(C) for such transactions.\28\
---------------------------------------------------------------------------

    \28\ All primary market transactions in other classes of 
Securitized Products will continue to be specifically excluded from 
the definitions of List or Fixed Offering Price Transaction and 
Takedown Transaction, because, in general, such Securitized Products 
are structured, offered and sold quite differently than corporate 
bonds (e.g., a large number of Securitized Products sales are for 
forward delivery, and most such securities are not underwritten 
using a syndicated process generating a large number of transactions 
occurring at the same price).
---------------------------------------------------------------------------

Dissemination Protocols
    FINRA proposes to amend the TRACE dissemination protocols to 
disseminate Asset-Backed Securities transactions subject to a $10 
million dissemination cap and not to include certain information in 
disseminated Asset-Backed Securities transaction data.
Dissemination Caps
    Currently, there are TRACE dissemination caps in place, under which 
the actual size (volume) of a transaction over a specified par value is 
not displayed in disseminated TRACE transaction data. A range of 
dissemination caps is in effect for various types of TRACE-Eligible 
Securities.\29\
---------------------------------------------------------------------------

    \29\ The dissemination caps applicable to transactions in 
various types of TRACE-Eligible Securities are: (a) $5 million (for 
Investment Grade corporate bonds and Agency Debt Securities); (b) $1 
million (for Non-Investment Grade corporate bonds); (c) $25 million 
(for MBS TBA GD); and (d) $10 million (for MBS TBA NGD, Agency Pass-
Through Mortgage-Backed Securities traded in Specified Pool 
transactions, and SBA-Backed ABS traded in TBA and Specified Pool 
transactions). The term Investment Grade is defined in FINRA Rule 
6710(h).

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

[[Page 70606]]

    FINRA analyzed the distribution of Asset-Backed Securities 
transactions, including Rule 144A transactions in such securities, to 
determine an appropriate dissemination cap, and proposes setting a $10 
million dissemination cap for such transactions. For a transaction in 
an Asset-Backed Security of less than $10 million (original par or 
principal value), the actual size will be disseminated, and for a 
transaction in an Asset-Backed Security greater than $10 million, 
``$10MM+'' will be disseminated.\30\ FINRA will monitor the effects of 
the $10MM+ dissemination cap on the Asset-Backed Securities market. The 
proposed dissemination cap size of $10 million is comparable to the 
dissemination caps for Non-Investment Grade corporate bonds, measured 
by the percentage of transactions and the par value to be disseminated 
subject to the dissemination caps, and more conservative than the 
dissemination caps in place for Investment Grade corporate bond 
transactions.\31\ FINRA believes that it is important to be 
conservative at the onset of dissemination and will observe the effects 
of the $10 million dissemination cap on the market. FINRA may propose 
modifications to the dissemination cap size in the future if warranted.
---------------------------------------------------------------------------

    \30\ Approximately 17.6 percent of trades and approximately 75.6 
percent of original par or principal value traded in Asset-Backed 
Securities transactions (other than Rule 144A transactions) will be 
disseminated subject to the $10MM+ dissemination cap. For Rule 144A 
transactions in Asset-Backed Securities, approximately 28.5 percent 
of trades and approximately 88.1 percent of original par or 
principal value traded will be disseminated subject to the $10MM+ 
dissemination cap. The information is based on transactions reported 
from May 16, 2011 through December 2012.
    \31\ Based on transactions reported from TRACE inception through 
December 2012.
---------------------------------------------------------------------------

Other Dissemination Protocols
    FINRA proposes that the dissemination protocols currently in use 
for most TRACE-Eligible Securities transactions be modified in two ways 
when applied to disseminated Asset-Backed Securities transactions. 
Current standard data elements that are disseminated for TRACE-Eligible 
Securities include, among other things, a dealer/customer indicator 
(indicating the type of contra party) and a buy/sell indicator.\32\ 
However, the Asset-Backed Securities market differs from the corporate 
bond market in that it is smaller and largely institutional. Noting the 
smaller number of participants in the Asset-Backed Securities market, 
market participants raised concerns regarding protecting the 
confidentiality of dealer and customer trading strategies, identities 
and positions in certain types of Asset-Backed Securities.
---------------------------------------------------------------------------

    \32\ Additional standard data elements include the CUSIP, the 
time and date of the transaction, price, and the size (subject to 
dissemination caps).
     Specified Pool Transactions are disseminated subject to 
modified dissemination protocols. See Securities Exchange Act 
Release No. 68084 (October 23, 2012), 77 FR 65436 (October 26, 2012) 
(SEC Approval Order of File No. SR-FINRA-2012-042) and Regulatory 
Notice 12-56 (December 2012).
---------------------------------------------------------------------------

    FINRA has considered these factors and proposes not to disseminate 
the dealer/customer and buy/sell indicators to address such concerns. 
FINRA believes that dissemination of Asset-Backed Securities 
transactions without these items will protect sensitive information 
regarding the trading strategies, identities and positions of investors 
and will not expose dealers to additional risk in providing liquidity, 
while providing market participants sufficient information about Asset-
Backed Securities transactions.
Additional Data Availability Under FINRA Rule 7730
    FINRA compiles disseminated real-time data for transactions, which 
is organized in three data sets: The Corporate Bond Data Set, the 
Agency Data Set and the ABS Data Set as provided in FINRA Rule 7730. In 
addition, in the Rule 144A Dissemination Amendments, FINRA established 
a Rule 144A Data Set.\33\ Historic TRACE Data is similarly 
organized.\34\
---------------------------------------------------------------------------

    \33\ See supra note 6, Rule 144A Dissemination Amendments.
    \34\ FINRA also established a Historic Rule 144A Data Set as 
part of the Rule 144A Dissemination Amendments. See supra note 6, 
Rule 144A Dissemination Amendments.
---------------------------------------------------------------------------

    Currently, Asset-Backed Securities data--organized as the ABS Data 
Set, and for Historic TRACE Data, as the Historic ABS Data Set--
includes all Securitized Products transactions that are disseminated 
(i.e., all TBA transactions and all Specified Pool Transactions).
    FINRA proposes to include the transaction information from 
disseminated Asset-Backed Securities transactions in the ABS Data Set 
(to be renamed the ``SP Data Set'') and the Historic ABS Data Set (to 
be renamed the ``Historic SP Data Set'').\35\ Asset-Backed Securities 
that are traded in Rule 144A transactions will be included in, 
respectively, the Rule 144A Data Set, when available, and the Historic 
Rule 144A Data Set, when available.
---------------------------------------------------------------------------

    \35\ The ABS Data Set and the Historic ABS Data Set will be re-
named, respectively, the SP Data Set and the Historic SP Data Set, 
as part of the amendments to the Rule 6700 Series and Rule 7730 in 
connection with re-naming as Securitized Products the broad group of 
securities currently referred to as Asset-Backed Securities and 
redefining the term Asset-Backed Securities more narrowly, as 
discussed, infra. A transaction in a disseminated TRACE-Eligible 
Security becomes available as part of Historic TRACE Data no earlier 
than 18 months after the specific transaction is reported to TRACE.
---------------------------------------------------------------------------

    FINRA does not propose to amend the fees currently in effect for 
the SP Data Set and the Historic SP Data Set. Similarly, when the Rule 
144A Data Set and the Historic Rule 144A Data Set become available, 
disseminated information regarding Rule 144A transactions in Asset-
Backed Securities will be included in such data sets without any change 
to the applicable fees.\36\
---------------------------------------------------------------------------

    \36\ See supra note 6, Rule 144A Dissemination Amendments.
---------------------------------------------------------------------------

Other Amendments
    The reporting requirements for Securitized Products that are MBS 
TBA GD and MBS TBA NGD are set forth in FINRA Rule 6730(a)(3)(D) and 
FINRA Rule 6730(a)(3)(E), respectively, and include references to two 
pilot programs that have expired. Reporting requirements for certain 
other Securitized Products in FINRA Rule 6730(a)(3) cross-reference 
these reporting provisions. FINRA proposes to eliminate the provisions 
that have expired and all cross-references thereto in FINRA Rule 
6730(a) and make conforming changes.\37\
---------------------------------------------------------------------------

    \37\ See proposed amendments to FINRA Rule 6730(a)(3)(D) through 
(G).
---------------------------------------------------------------------------

    Finally, FINRA proposes conforming and technical amendments to the 
FINRA Rule 6700 Series and FINRA Rule 7730 to reflect the proposed 
definitions, Securitized Product and Asset-Backed Security, and 
generally the use of the term Securitized Product in lieu of Asset-
Backed Security; to make similar changes in FINRA Rule 7730 to delete 
the terms ABS Data Set and Historic ABS Data Set and substitute the 
terms SP Data Set and Historic SP Data Set; and, to make other 
technical and conforming amendments consistent with the amendments 
described herein to the FINRA Rule 6700 Series.
    FINRA will announce the effective date of the proposed rule change 
in a Regulatory Notice to be published no later than 60 days following 
Commission approval. The effective date will be no later than 270 days 
following publication of the Regulatory Notice announcing Commission 
approval.

[[Page 70607]]

2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\38\ 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. FINRA believes that the proposed rule change will 
increase transparency in the Asset-Backed Securities market, which may 
enhance the ability of investors to engage in meaningful price 
discovery to identify and negotiate fair and competitive prices for 
Asset-Backed Securities. In addition, the proposed dissemination of 
Asset-Backed Securities transaction data will allow investors to 
compare their executions with executions in the same and similar 
securities in the market and may facilitate their assessment of the 
quality of the executions provided to them. Similarly, additional 
transparency in such securities transactions may assist broker-dealers 
in complying with their regulatory obligations regarding best 
execution. Finally, for broker-dealers and institutional investors that 
hold positions in such Asset-Backed Securities, the proposed increased 
transparency may enable them to improve the accuracy of their valuation 
of such positions. These enhancements in pricing, increased 
capabilities to compare execution quality in transactions, and more 
accurate valuation of positions that may result from the additional 
market transparency are designed to deter or prevent fraudulent and 
manipulative acts and practices, promote just and equitable principles 
of trade, and, in general, protect investors and the public interest.
---------------------------------------------------------------------------

    \38\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

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. Based on the characteristics of 
the market, FINRA believes that additional price transparency in the 
Asset-Backed Securities market may enhance the ability of investors to 
identify and negotiate fair and competitive prices for these 
securities. In addition, dissemination may assist institutional and 
retail customers in determining the quality of executions provided to 
them, which should incentivize broker-dealers to provide competitive 
executions in such securities.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) by order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-FINRA-2013-046 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-FINRA-2013-046. 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 the 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-2013-046 and should be 
submitted on or before December 17, 2013.
---------------------------------------------------------------------------

    \39\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\39\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-28273 Filed 11-25-13; 8:45 am]
BILLING CODE 8011-01-P