Document ID: SEC-2012-1752-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2012-10-26T04:00Z

[Federal Register Volume 77, Number 208 (Friday, October 26, 2012)]
[Notices]
[Pages 65434-65436]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-26338]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68075; File No. SR-FINRA-2012-046]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of 
Proposed Rule Change To Amend the Definition of ``Money Market 
Instrument'' in FINRA Rule 6710(o)

October 22, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that, on October 11, 2012, 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 and II below, which Items have been prepared by FINRA. FINRA 
has designated the proposed rule change as constituting a ``non-
controversial'' rule change under paragraph (f)(6) of Rule 19b-4 under 
the Act,\3\ which renders the proposal effective upon receipt of this 
filing by the Commission. 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.
    \3\ 17 CFR 240.19b-4(f)(6).

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

[[Page 65435]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to exclude additional short-term discount notes 
from the definition of TRACE-Eligible Security in FINRA Rule 6710(a) by 
amending the definition of ``Money Market Instrument'' in FINRA Rule 
6710(o) of the Trade Reporting and Compliance Engine (TRACE) rules.
    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 proposes to amend the definition of ``Money Market 
Instrument'' in FINRA Rule 6710(o) for purposes of the TRACE rules. The 
proposed amendment would modify the definition of Money Market 
Instrument to include discount notes that are issued by an Agency or a 
Government-Sponsored Enterprise (hereinafter, referred to as agency 
discount notes) \4\ and have a maturity of one calendar year and one 
day or less from the date of issuance (i.e., not later than 366 days 
from the date of issuance, or if a leap year, not later than 367 days 
from the date of issuance), which would exclude such short-term 
instruments from the definition of TRACE-Eligible Security.
---------------------------------------------------------------------------

    \4\ The terms ``Agency'' and ``Government-Sponsored Enterprise'' 
are defined in FINRA Rules 6710(k) and 6710(n), respectively.
---------------------------------------------------------------------------

    Currently, a Money Market Instrument is defined in FINRA Rule 
6710(o) as ``a debt security that at issuance has a maturity of one 
year or less.'' Such products are excluded from the definition of 
TRACE-Eligible Security in FINRA Rule 6710(a) and thus are not subject 
to TRACE reporting and dissemination. FINRA interprets a Money Market 
Instrument to include an instrument with a 365 day term (or in a leap 
year, a 366 day term). For example, a debt security that is issued on 
September 15, 2012 and matures on September 14, 2013, is a Money Market 
Instrument (and thus not subject to TRACE reporting and dissemination). 
In contrast, an instrument that is issued on September 15, 2012 and 
matures on September 15, 2013 is not a Money Market Instrument (and 
thus is a TRACE-Eligible Security subject to TRACE reporting and 
dissemination).\5\
---------------------------------------------------------------------------

    \5\ One year or less is one calendar year (adjusted accordingly 
during a leap year), with the date of issuance counted as the first 
day.
---------------------------------------------------------------------------

    FINRA proposes to modify the definition of Money Market Instrument 
in FINRA Rule 6710(o) to include a significant number of agency 
discount notes. Consistent with a market convention that pre-dates 
TRACE, such agency discount notes are frequently issued and routinely 
mature 366 days (or, in a leap year, 367 days) from the date of 
issuance. Although these instruments are technically included in the 
universe of TRACE-Eligible Securities today, FINRA believes that such 
instruments should be treated as Money Market Instruments, which is 
consistent with the trading of such instruments, and not subject to 
TRACE reporting and dissemination. Accordingly, FINRA proposes to amend 
FINRA Rule 6710(o) to define ``Money Market Instrument'' as a ``debt 
security that at issuance has a maturity of one calendar year or less, 
or, if a discount note issued by an Agency, as defined in FINRA Rule 
6710(k), or a Government-Sponsored Enterprise, as defined in FINRA Rule 
6710(n), a maturity of one calendar year and one day or less.''
    FINRA believes that the proposed amendment is appropriate and would 
give effect to FINRA's intention to exclude money market instruments 
generally from TRACE. In addition, the proposed amendment would reduce 
any market confusion regarding the appropriate treatment of these 
short-term instruments. Moreover, excluding agency discount notes from 
TRACE reporting and dissemination should not adversely impact price 
transparency, as the agency discount notes are in demand and generally 
trade actively at narrow spreads.
    FINRA has filed the proposed rule change for immediate 
effectiveness and has requested that the SEC waive the requirement that 
the proposed rule change not become operative for 30 days after the 
date of the filing, such that FINRA can implement the proposed rule 
change immediately.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\6\ 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 to modify 
the definition of Money Market Instrument to include agency discount 
notes having a term of one calendar year and one day or less will 
protect investors and the public interest by reducing market confusion 
and possible misreporting and enhance market transparency by clarifying 
the short-term instruments that are to be reported to TRACE.
---------------------------------------------------------------------------

    \6\ 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.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \7\ and Rule 19b-
4(f)(6) thereunder.\8\
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
FINRA has satisfied this requirement.
---------------------------------------------------------------------------

    FINRA has requested that the Commission waive the 30-day operative 
delay. The Commission believes that waiving the 30-day operative delay 
is consistent with the protection of

[[Page 65436]]

investors and the public interest because such action should help 
minimize any market confusion regarding the TRACE-eligibility of agency 
discount notes. Therefore, the Commission hereby waives the 30-day 
operative delay and designates the proposal operative upon filing.\9\
---------------------------------------------------------------------------

    \9\ For purposes only of waiving the 30-day operative delay, the 
Commission has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

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-2012-046 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-2012-046. 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-2012-046 and should be 
submitted on or before November 16, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
---------------------------------------------------------------------------

    \10\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-26338 Filed 10-25-12; 8:45 am]
BILLING CODE 8011-01-P