Document ID: SEC-2011-1527-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2011-10-06T04:00Z

[Federal Register Volume 76, Number 194 (Thursday, October 6, 2011)]
[Notices]
[Pages 62128-62130]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-25861]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65459; File No. SR-FINRA-2011-053]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Proposed Rule Change to Amend 
Certain Trade Reporting and Compliance Rules

September 30, 2011.
    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 September 22, 2011, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to amend FINRA Rule 6730 regarding reporting a 
transaction in a TRACE-Eligible Security, other than a transaction in 
an Asset-Backed Security, on a non-business day, and reporting size 
(volume), commission and settlement, in order for FINRA to consolidate 
all TRACE-Eligible Securities transaction processing and data 
management on a single technology platform, the Multi Product Platform 
(``MPP'').
    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, on the 
Commission's Web site at http://www.sec.gov, 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
    Currently, TRACE-Eligible Securities that are Asset-Backed 
Securities are processed on FINRA's enhanced technology platform, 
MPP.\3\ FINRA proposes certain amendments to the reporting requirements 
of Rule 6730 of the Trade Reporting and Compliance Engine (TRACE) rules 
that will permit FINRA to migrate all other TRACE-Eligible Securities 
to MPP. The proposed amendments are substantially similar to 
requirements that currently apply to transactions in Asset-Backed 
Securities, and will simplify reporting a

[[Page 62129]]

transaction executed on a holiday or a weekend, the size of a 
transaction, commission, if charged, and settlement.
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    \3\ ``TRACE-Eligible Security'' and ``Asset-Backed Security'' 
are defined in, respectively, Rule 6710(a) and Rule 6710(m).
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    FINRA believes that the proposed consolidation of all TRACE-
Eligible Securities on MPP will improve TRACE reporting and provide 
several benefits to broker-dealers. First, the MPP program incorporates 
more current industry standards, conventions and terms, and the 
proposed amendments to Rule 6730 to incorporate those standards will 
clarify and simplify the reporting requirements, and reduce reporting 
errors and costs. For example, when quoting, trading and recording 
positions in books and records, generally, the size (volume) of a 
transaction or a position is stated as the total par or principal 
value, which is how size (volume) of a TRACE transaction would be 
reported on MPP.\4\ The proposed amendments should reduce the 
incidences of data ``translations'' made by a broker-dealer when 
transaction data is both recorded in internal firm systems and reported 
to TRACE, and therefore should reduce operational complexities and 
reporting errors and fees, improve compliance, and reduce system-
related costs. Second, MPP will provide broker-dealers a wider range of 
options for reporting, most notably providing support for the Financial 
Information eXchange (``FIX'') protocol. Third, MPP provides enhanced 
functionality for the management of TRACE data. Broker-dealers will be 
able to access TRACE-Eligible Securities data with greater ease and 
more quickly, including obtaining real-time intra-day data changes or 
additions. Fourth, standardizing most of the reporting requirements for 
TRACE-Eligible Securities and consolidating all TRACE-Eligible 
Securities on a single improved platform will allow broker-dealers to 
maintain one interface for all TRACE reporting, which should permit 
broker-dealers to reduce the operational complexity of reporting, 
improve the accuracy overall of their TRACE reporting, and eliminate 
costs associated with maintaining multiple technology platforms.
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    \4\ Similarly, the proposed change in Rule 6730 regarding 
settlement, which would require reporting of the actual date of 
settlement and delete the use of modifiers that are required 
currently in many instances, may simplify reporting settlement.
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    The proposed amendments to Rule 6730 regarding reporting a 
transaction executed on a holiday or a weekend, the size (volume) of a 
transaction, commission, if charged, and settlement are discussed 
below. In addition, the proposed rule change includes minor 
administrative, technical and clarifying changes.
TRACE-Eligible Securities Transactions Executed on a Non-Business Day
    Currently, as set forth in Rule 6730(a)(1)(D) and Rule 
6730(a)(2)(B), transactions in TRACE-Eligible Securities, except Asset-
Backed Securities, that are executed on a weekend, holiday or other day 
when the TRACE system is not open must be reported the next business 
day (T + 1), designated ``as/of,'' and are subject to two unique 
requirements. First, the date of execution (``Trade Date'') reported to 
TRACE is not the actual date the trade was executed; instead, a member 
must report as the Trade Date the day (i.e., T + 1) that the report 
must be timely submitted. Second, the execution time reported must be 
``12:01:00 a.m. Eastern Time'' (``00:01:00''), instead of the actual 
Time of Execution.\5\ The two requirements were established at the 
inception of TRACE because, at that time, the TRACE system did not 
recognize any day on which the TRACE system is closed as a valid Trade 
Date, and the two requirements allow FINRA to distinguish transactions 
in TRACE-Eligible Securities executed on non-business days from all 
other reported transactions.
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    \5\ ``Time of Execution'' is defined in Rule 6710(d). Also, when 
the reporting method used includes a ``special price memo'' field, 
the member must enter the actual date of execution and Time of 
Execution in such field.
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    FINRA has enhanced the TRACE system to recognize, for all types of 
TRACE-Eligible Securities, any calendar date as a valid Trade Date.\6\ 
Accordingly, FINRA proposes to amend Rule 6730(a)(1)(D) and Rule 
6730(a)(2)(B) to delete in both provisions the two unique requirements, 
which are no longer necessary, and to require members to report 
transactions executed on non-business days in the same manner that 
transactions executed after or before TRACE System Hours on business 
days are reported currently.\7\ FINRA also proposes to combine Rule 
6730(a)(1)(B) and Rule 6730(a)(1)(D) as renumbered amended Rule 
6730(a)(1)(D), and delete current Rule 6730(a)(1)(B). In addition, 
FINRA proposes to reorganize the reporting requirements in Rule 
6730(a)(1)(A) through Rule 6730(a)(1)(C) in chronological order and to 
incorporate minor technical changes.\8\
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    \6\ Previously, FINRA modified the TRACE system to recognize any 
calendar date as a valid Trade Date, but only as to transactions in 
Asset-Backed Securities. (See Securities Exchange Act Release No. 
64364 (April 28, 2011), 76 FR 25385 (May 4, 2011) (order approving 
File No. SR-FINRA-2011-012).) The rule changes became effective on 
May 16, 2011. (See Regulatory Notice 11-20 (May 2011).)
    \7\ ``TRACE System Hours'' is defined in Rule 6710(t).
    \8\ The reporting requirements now set forth in Rule 
6730(a)(1)(C) will be set forth in Rule 6730(a)(1)(A), and Rule 
6730(a)(1)(A) will be renumbered as Rule 6730(a)(1)(B), except the 
requirement relating to transactions executed less than 15 minutes 
before the TRACE System closes will be set forth separately as Rule 
6730(a)(1)(C).
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Size (Volume), Commission and Settlement Terms
    FINRA also proposes amendments to the technical requirements for 
reporting the size (volume) of a transaction, the commission, if any, 
and the settlement of transactions in TRACE-Eligible Securities, other 
than Asset-Backed Securities.
    Currently, FINRA requires members to report the size (volume) of a 
transaction in a TRACE-Eligible Security, other than an Asset-Backed 
Security, by reporting the number of bonds.\9\ For example, a sale of 
corporate bonds or Agency Debt Securities having a par or principal 
value of $10,000 is reported as a sale of 10 bonds.\10\ FINRA proposes 
to amend Rule 6730(c)(2) and Rule 6730(d)(2) to require a member to 
report the size of such transactions using the total par value or 
principal value traded, rather than the number of bonds.\11\
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    \9\ See Rule 6730(c)(2) and Rule 6730(d)(2).
    \10\ ``Agency Debt Security'' is defined in Rule 6710(l).
    \11\ Previously, FINRA adopted similar provisions for reporting 
the size (volume) of transactions in Asset-Backed Securities that do 
not amortize. (See Securities Exchange Act Release No. 61566 
(February 22, 2010), 75 FR 9262 (March 1, 2010) (order approving 
File No. SR-FINRA-2009-065).) The rule changes became effective on 
May 16, 2011. (See Regulatory Notice 11-20 (May 2011).)
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    FINRA proposes a similar change to the reporting of commissions. 
Under current Rule 6730(c)(11) and Rule 6730(d)(1), in those cases 
where a commission is charged in a transaction in a TRACE-Eligible 
Security, the commission must be reported ``stated in points per bond 
(e.g., for corporate bonds, 1 point equals $10.00 per bond).'' \12\ 
FINRA proposes to amend Rule 6730(c)(11) and Rule 6730(d)(1) to require 
members to report the total dollar amount of the commission, rather 
than the points per bond.\13\
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    \12\ Rule 6730(d)(1).
    \13\ Previously, FINRA adopted similar provisions for reporting 
a commission in a transaction in an Asset-Backed Security. (See 
Securities Exchange Act Release No. 61566 (February 22, 2010), 75 FR 
9262 (March 1, 2010) (order approving File No. SR-FINRA-2009-065).) 
The rule changes became effective on May 16, 2011. (See Regulatory 
Notice 11-20 (May 2011).)
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    FINRA also proposes to simplify the requirements for reporting the 
settlement of a TRACE-Eligible Security transaction. Currently, as 
provided in Rule 6730(d)(4)(B)(i), if a transaction,

[[Page 62130]]

other than a transaction in an Asset-Backed Security, will not settle 
on T + 3, a member must report the settlement using one of three 
modifiers.\14\ To streamline the requirements regarding settlement, new 
Rule 6730(c)(12) will require a member simply to report the date of 
settlement.\15\ In addition, FINRA proposes to delete Rule 
6730(d)(4)(B), which sets forth the three settlement modifiers that 
will no longer be used in TRACE reporting, and references to such 
modifiers in Rule 6730(d)(4)(C). FINRA also will renumber Rule 
6730(d)(4)(C), Rule 6730(d)(4)(D) and Rule 6730(d)(4)(E) 
accordingly.\16\
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    \14\ Current Rule 6730(c)(12) will be renumbered as Rule 
6730(c)(13). If a trade will not settle on T + 3, the three 
modifiers that are used to indicate the day the transaction will be 
settled are ``.c'' (date of execution), ``.nd'' (T + 1), or ``.sNN'' 
(settlement on a date other than the date of execution, T + 1 or T + 
3).
    \15\ Previously, FINRA adopted a similar requirement in 
connection with transactions in Asset-Backed Securities. (See 
Securities Exchange Act Release No. 61566 (February 22, 2010), 75 FR 
9262 (March 1, 2010) (order approving File No. SR-FINRA-2009-065) 
and Securities Exchange Act Release No. 64364 (April 28, 2011), 76 
FR 25385 (May 4, 2011) (order approving File No. SR-FINRA-2011-
012)). The rule changes in both rule filings became effective on May 
16, 2011. (See Regulatory Notice 11-20 (May 2011).)
    \16\ Rule 6730(d)(4)(C), Rule 6730(d)(4)(D) and Rule 
6730(d)(4)(E) will be renumbered, respectively, as Rule 
6730(d)(4)(B), Rule 6730(d)(4)(C) and Rule 6730(d)(4)(D).
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    Finally, FINRA proposes minor technical amendments to Rule 6730(a) 
through (d), including amendments to Rule 6730(b)(2) and Rule 
6730(c)(7) to delete redundant or unnecessary text and Rule 6730(d)(2) 
to clarify existing text.
    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 180 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,\17\ 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 
facilitate more timely and accurate reporting of the terms of 
transactions in TRACE-Eligible Securities for the protection of 
investors and in furtherance of the public interest.
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    \17\ 15 U.S.C. 78o-3(b)(6).
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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

    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 shall: 
(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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-FINRA-2011-053 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-2011-053. This 
file number should be included on the subject line if e-mail 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 a.m. and 3 p.m. Copies of the filing will also 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 No. SR-FINRA-2011-053 
and should be submitted on or before October 27, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
Elizabeth M. Murphy,
Secretary.
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    \18\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2011-25861 Filed 10-5-11; 8:45 am]
BILLING CODE 8011-01-P