Document ID: SEC-2008-0967-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2008-07-14T04:00Z

[Federal Register: July 14, 2008 (Volume 73, Number 135)]
[Notices]               
[Page 40409]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14jy08-133]                         

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

SECURITIES AND EXCHANGE COMMISSION

Release No. 34-58115; File No. SR-FINRA-2007-026]

 
Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Approving Proposed Rule Change as Modified by 
Amendment No. 1 Thereto for TRACE To Disseminate Additional Data 
Elements Relating to Each Transaction

July 7, 2008.

I. Introduction

    On December 5, 2007, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') (f/k/a National Association of Securities Dealers, Inc. 
(``NASD'') \1\) filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ a 
proposal to adopt a policy to publicly disseminate additional data 
elements for corporate bond transactions that are reported to the Trade 
Reporting and Compliance Engine (``TRACE''). These additional elements 
are whether a transaction is an inter-dealer transaction or a 
transaction with a customer and, if the latter, whether the dealer is 
on the buy or the sell side. On May 20, 2008, FINRA filed Amendment No. 
1 to the proposed rule change. The proposal, as modified by Amendment 
No. 1, was published for comment in the Federal Register on June 2, 
2008.\4\ The Commission received one comment on the proposal.\5\ This 
order approves the proposed rule change.
---------------------------------------------------------------------------

    \1\ Effective July 30, 2007, FINRA was formed through the 
consolidation of NASD and the member regulatory functions of NYSE 
Regulation, Inc. Generally, pre-consolidation actions by NASD are 
referred to as FINRA actions, except for NASD Rules, when referenced 
singularly, and NASD Notices to Members. When FINRA files proposed 
rule changes to create a consolidated FINRA rule manual, such NASD 
rules and interpretations, as incorporated in the consolidated FINRA 
Manual, will no longer be referred to as ``NASD'' rules.
    \2\ 15 U.S.C. 78s(b)(1).
    \3\ 17 CFR 240.19b-4.
    \4\ Securities Exchange Act Release No. 34-57866 (May 23, 2008), 
73 FR 31518 (June 2, 2008) (SR-FINRA-2007-026).
    \5\ See submission via SEC WebForm from Rebecca E. Carsten, 
dated June 20, 2008.
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change

    Under the TRACE rules, a FINRA member that is party to a 
transaction in a TRACE-eligible security must report several types of 
information to the TRACE system--including whether it is buying or 
selling (``Buy/Sell data element'') and whether its counterparty is a 
broker-dealer or a customer (``Dealer/Customer data element'').\6\ 
Currently, these two data elements are not disseminated.\7\
---------------------------------------------------------------------------

    \6\ For an interdealer transaction, FINRA receives a TRACE 
report from each dealer but disseminates data reflecting only the 
information received from the sell side. For a customer transaction, 
only one side of the trade has to be reported--the dealer side--and 
FINRA disseminates the data from the dealer's report.
    \7\ The data elements that are disseminated include: The bond 
identifier (i.e., the TRACE symbol); the price inclusive of any 
mark-up, mark-down, or commission; the quantity (expressed as the 
total par value); the yield; the time of execution; and, if the 
transaction were executed on a day other than when TRACE data is 
being disseminated, the actual date of execution.
---------------------------------------------------------------------------

    FINRA has proposed that these two data elements now be publicly 
disseminated for each transaction. FINRA believes that these data 
elements would enhance market transparency by allowing TRACE users to 
better understand what a reported price actually represents. Customer 
transaction prices are ``all-in prices'' that include a mark-up/mark-
down or a commission, while interdealer transaction prices are not. A 
customer could compare the ``all-in price'' of its transaction with 
other customer transactions. Dealer pricing could be approximated by 
``backing out'' the mark-up, mark-down, or commission from the ``all-in 
price'' of a customer transaction.
    FINRA represented that it would announce the effective date of the 
proposed rule change in a Regulatory Notice to be published no later 
than 90 days following any Commission approval. The effective date 
would be no later than 120 days following publication of that 
Regulatory Notice.

III. Summary of Comments

    The Commission received one comment. The commenter strongly 
supported the proposal, arguing that dissemination of the additional 
data elements ``would improve the system tremendously.'' \8\
---------------------------------------------------------------------------

    \8\ See supra note 5.
---------------------------------------------------------------------------

IV. Discussion and Findings

    After carefully considering the proposal and the comment submitted, 
the Commission finds that the proposed rule change is consistent with 
the requirements of the Act and the rules and regulations thereunder 
applicable to a national securities association.\9\ In particular, the 
Commission finds that the proposed rule change is consistent with 
Section 15A(b)(6) of the Act,\10\ which requires, among other things, 
that FINRA rules be designed to prevent fraudulent and manipulative 
acts and practices, to promote just and equitable principles of trade, 
and, in general, to protect investors and the public interest. The 
Commission notes that it has previously approved the collection and 
real-time dissemination of similar transaction information for 
municipal securities.\11\ The Commission believes that the current 
proposal will make the corporate debt markets more transparent by 
allowing market participants to make more accurate assessments of 
reported prices for transactions in TRACE-eligible securities.
---------------------------------------------------------------------------

    \9\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \10\ 15 U.S.C. 78o-3(b)(6).
    \11\ See Securities Exchange Act Release No. 42241 (December 16, 
1999), 64 FR 72123 (December 23, 1999) (SR-MSRB-99-8) (requiring 
that transaction reports be disseminated for certain municipal 
securities transactions identifying the transaction as either a sale 
by a dealer to a customer, a purchase by a dealer from a customer, 
or an inter-dealer trade); Securities Exchange Act Release No. 50294 
(August 31, 2004), 69 FR 54170 (September 7, 2004) (SR-MSRB-2004-02) 
(implementing real-time reporting for most municipal securities 
transactions and adding a capacity field to reports to allow for the 
dissemination of data showing whether an inter-dealer trade was done 
as agent for a customer).
---------------------------------------------------------------------------

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\12\ that the proposed rule change (File No. SR-FINRA-2007-026) as 
modified by Amendment No. 1 thereto be, and hereby is, approved.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-15890 Filed 7-11-08; 8:45 am]

BILLING CODE 8010-01-P