Document ID: SEC-2019-1840-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial IndustryRegulatory Authority, Inc.
Posted Date: 2019-12-10T05:00Z

[Federal Register Volume 84, Number 237 (Tuesday, December 10, 2019)]
[Notices]
[Pages 67491-67504]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-26498]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87656; File No. SR-FINRA-2019-008]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Granting Approval of a Proposed Rule Change, as 
Modified by Amendment No. 2, To Establish a Corporate Bond New Issue 
Reference Data Service

December 4, 2019.

I. Introduction

    On March 27, 2019, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to establish a new issue reference data service 
for corporate bonds. The Commission published notice of filing of the 
proposed rule change in the Federal Register on April 8, 2019.\3\ On 
May 22, 2019, the Commission designated a longer period within which to 
approve the proposed rule change, disapprove the proposed rule change, 
or institute proceedings to determine whether the proposed rule change 
should be disapproved.\4\ On July 1, 2019, the Commission instituted 
proceedings under Section 19(b)(2)(B) of the Act \5\ to determine 
whether to approve or disapprove the proposed rule change.\6\ On 
October 3, 2019, FINRA filed partial Amendment No. 2 to the proposed 
rule change.\7\ On October 4, 2019, the Commission published notice of 
Amendment No. 2 to the proposed rule change and designated a longer 
period for Commission action on the proceedings to determine whether to 
approve or disapprove the proposed rule change.\8\ The Commission 
received comments on the proposal and one response to comments from 
FINRA.\9\ This order approves the proposed rule change, as modified by 
Amendment No. 2.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 85488 (April 2, 
2019), 84 FR 13977 (``Notice'').
    \4\ See Securities Exchange Act Release No. 85911, 83 FR 24839 
(May 29, 2019). The Commission designated July 7, 2019, as the date 
by which it should approve, disapprove, or institute proceedings to 
determine whether to disapprove the proposed rule change.
    \5\ 15 U.S.C. 78s(b)(2)(B).
    \6\ See Securities Exchange Act Release No. 86256, 84 FR 32506 
(July 8, 2019).
    \7\ Partial Amendment No. 1 was also filed on October 3, 2019 
and subsequently withdrawn on the same day due to a non-substantive 
administrative error and replaced with Amendment No. 2. In Amendment 
No. 2, the Exchange: (i) Withdrew the proposed fees for receipt of 
corporate new issue reference data in the proposal and stated that a 
separate proposed rule change would be filed to establish fees 
related to the corporate bond new issue reference data service at a 
future date prior to implementing the service; (ii) revised the list 
of data fields to be collected under the proposal to clarify certain 
proposed data fields and to add six new data fields; and (iii) 
included additional rationale for the data fields proposed to be 
collected. Amendment No. 2 is available at: https://www.sec.gov/comments/sr-finra-2019-008/srfinra2019008-6252424-192827.pdf.
    \8\ See Securities Exchange Act Release No. 87232, 84 FR 54712 
(October 10, 2019). The Commission extended the date by which the 
Commission shall approve or disapprove the proposed rule change to 
December 4, 2019.
    \9\ All comments on the proposed rule change, including FINRA's 
response to comments, are available at: https://www.sec.gov/comments/sr-finra-2019-008/srfinra2019008.htm.
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II. Summary of the Proposed Rule Change, as Modified by Amendment No. 2

    As described in more detail in the Notice and Amendment No. 2,\10\ 
FINRA proposes to establish a new issue reference data service for 
corporate bonds. FINRA states that its proposal is

[[Page 67492]]

in line with a recommendation from the SEC Fixed Income Market 
Structure Advisory Committee (``FIMSAC'').\11\ On October 29, 2018, the 
FIMSAC unanimously approved a recommendation from its Technology and 
Electronic Trading Subcommittee (``Subcommittee'') that the Commission, 
in conjunction with FINRA, establish a reference data service for 
corporate bonds which would contain specified data elements on TRACE-
eligible corporate bond new issues.\12\ FINRA's proposal would 
implement that recommendation, and in doing so, FINRA would establish a 
central depository for public dissemination of new issue corporate bond 
reference data.
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    \10\ See supra notes 3 and 7.
    \11\ The FIMSAC is a federal advisory committee formed in 
November 2017 to provide the Commission with diverse perspectives on 
the structure and operations of the U.S. fixed income markets, as 
well as advice and recommendations on matters related to fixed 
income market structure. The FIMSAC's charter is available at: 
https://www.sec.gov/spotlight/fixed-income-advisory-committee/fimsac-charter-nov-2019.pdf. The committee comprises 23 members. The 
membership includes individuals representing a range of perspectives 
on the fixed income markets including retail and institutional 
investors, corporate and municipal issuers, trading venues, 
institutional dealers, a retail dealer, a regional municipal 
securities dealer, a proprietary trading firm, a data provider, 
academics, and self-regulatory organizations (``SROs''). For a list 
of FIMSAC members, see https://www.sec.gov/spotlight/fixed-income-advisory-committee/fixed-income-market-structure-advisory-committee-subcommittees.htm.
    \12\ See Fixed Income Market Structure Advisory Committee 
Recommendation (October 29, 2018) available at: https://www.sec.gov/spotlight/fixed-income-advisory-committee/fimsac-corporate-bond-new-issue-reference-data-recommendation.pdf (``Recommendation''). In 
particular, the FIMSAC recommended that the Commission, in 
conjunction with FINRA, establish a new issue data service with the 
following elements: (i) The managing underwriter of all TRACE-
eligible corporate bond new issues, including registered offerings 
and unregistered Rule 144A offerings, would be required to send 
specified new issue information, as well any follow-up adjustments, 
electronically to a central database managed by FINRA; (ii) the 
managing underwriter would be required to submit the new issue 
information to FINRA no later than distribution of the information 
to any reference data vendor or other third party not involved in 
the offering; (iii) once the central database has all the required 
reporting information, FINRA will make the data available in a real-
time electronic format to reference data vendors and other market 
participants as determined by FINRA; and (iv) FINRA shall provide 
subscribers with access to the service on an impartial basis at fees 
determined on a commercially reasonable basis, subject to applicable 
regulation. The FIMSAC recommended that such data service provide 
the following new issue reference data fields: (a) Issuer; (b) 
coupon; (c) ISIN number; (d) CUSIP number; (e) currency; (f) issue 
date/first settle date; (g) interest accrual date; (h) day count 
description; (i) coupon frequency; (j) first coupon payment date; 
(k) maturity; (l) calculation types; (m) 144A eligible indicator; 
(n) Regulation S indicator; and (o) security type.
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    Specifically, FINRA is proposing to amend Rule 6760 (Obligation to 
Provide Notice) \13\ to require that underwriters subject to Rule 6760 
\14\ report to FINRA a number of data elements, including some already 
specified by the rule, for new issues in Corporate Debt Securities.\15\ 
Proposed Rule 6760(b)(2) would require that, in addition to the 
information required by Rule 6760(b)(1),\16\ for a new issue in a 
Corporate Debt Security, excluding bonds issued by religious 
organizations or for religious purposes, the following information must 
be reported, if applicable: (A) The International Securities 
Identification Number (ISIN); (B) the currency; (C) the issue date; (D) 
the first settle date; (E) the interest accrual date; (F) the day count 
description; (G) the coupon frequency; (H) the first coupon payment 
date; (I) a Regulation S indicator; (J) the security type; (K) the bond 
type; (L) the first coupon period type; (M) a convertible indicator; 
(N) a call indicator; (O) the first call date; (P) a put indicator; (Q) 
the first put date; (R) the minimum increment; (S) the minimum piece/
denomination; (T) the issuance amount; (U) the first call price; (V) 
the first put price; (W) the coupon type; (X) rating (TRACE Grade); (Y) 
a perpetual maturity indicator; (Z) a Payment-In-Kind (PIK) indicator; 
(AA) first conversion date; (BB) first conversion ratio; (CC) spread; 
(DD) reference rate; (EE) floor; and (FF) underlying entity ticker.
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    \13\ As part of the proposal, FINRA would amend the title of the 
Rule to ``Obligation to Provide Notice and Dissemination of 
Corporate Debt Security New Issue Reference Data.''
    \14\ As part of the proposal, FINRA would amend Rule 6760(a)(1) 
to clarify that underwriters subject to the rule must report 
required information for the purpose of providing market 
participants in the corporate debt security markets with reliable 
and timely new issue reference data to facilitate the trading and 
settling of these securities, in addition to the current purpose of 
facilitating trade reporting and dissemination in TRACE-Eligible 
Securities, as that term is defined in Rule 6710(a).
    \15\ In connection with the proposal, FINRA proposes to move the 
definition of ``Corporate Debt Security,'' which is currently 
located in FINRA Rule 2232 (Customer Confirmations), into the TRACE 
Rule Series (specifically Rule 6710 (Definitions)) and to make 
corresponding technical edits to Rule 2232 to refer to the relocated 
definition in Rule 6710. In addition, FINRA proposes to make two 
changes to the definition of ``Corporate Debt Security,'' which 
FINRA states are technical, non-substantive edits that reflect the 
original intent of the definition and are consistent with current 
FINRA guidance. See Notice, at 13978, n.6. Specifically, FINRA 
proposes to revise the current definition of Corporate Debt Security 
to (i) clarify that the definition is limited to TRACE-Eligible 
Securities, and (ii) update the definition to exclude Securitized 
Products (defined in Rule 6710(m)), rather than Asset-Backed 
Securities (defined in Rule 6710(cc)).
    \16\ Rule 6760(b), proposed to be renumbered as Rule 6760(b)(1), 
currently requires the following information to be reported to 
FINRA: (A) The CUSIP number or if a CUSIP number is not available, a 
similar numeric identifier (e.g., a mortgage pool number); (B) the 
issuer name, or, for a Securitized Product, the names of the 
Securitizers; (C) the coupon rate; (D) the maturity; (E) whether 
Securities Act Rule 144A applies; (F) the time that the new issue is 
priced, and, if different, the time that the first transaction in 
the offering is executed; (G) a brief description of the issue 
(e.g., senior subordinated note, senior note); and (H) such other 
information FINRA deems necessary to properly implement the 
reporting and dissemination of a TRACE-Eligible Security, or if any 
of items (B) through (H) has not been determined or a CUSIP number 
(or a similar numeric identifier) is not assigned or is not 
available when notice must be given, such other information that 
FINRA deems necessary and is sufficient to identify the security 
accurately.
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    FINRA proposes to require underwriters to report all data fields 
for Corporate Debt Securities prior to the first transaction in the 
security. FINRA would disseminate the corporate bond new issue 
reference data collected under Rule 6760 upon receipt.\17\ FINRA states 
that it will submit a separate filing to establish fees related to the 
new issue reference data service at a future date and will implement 
the service after those fees are adopted.\18\
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    \17\ FINRA states that under proposed Rule 6760(d), there may be 
some information collected under the rule for security 
classification or other purposes that would not be disseminated. 
This may include, for example, information about ratings that is 
restricted by agreement. In addition, CUSIP Global Services' 
(``CGS'') information would not be disseminated to subscribers that 
do not have a valid license regarding use of CGS data.
    \18\ See Amendment No. 2, at 4. FINRA originally proposed to 
make the corporate bond new issue reference data available to any 
person or organization for a fee of $250 per month for internal 
purposes only, and for a fee of $6,000 per month where the data is 
retransmitted or repackaged for delivery and dissemination to any 
outside person or organization. See Notice, at 13979. FINRA withdrew 
these proposed fees in Amendment No. 2. See supra note 7.
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    FINRA proposes to announce the effective date of the proposed rule 
change in a Regulatory Notice. The effective date will be no later than 
270 days following Commission approval.

III. Summary of Comments and Response Letter 19
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    \19\ Certain comments are not discussed below because they do 
not bear on the basis for the Commission's decision to approve the 
proposed rule. See, e.g., Letter from Christopher B. Killian, 
Managing Director, SIFMA, dated July 29, 2019 (``SIFMA Letter II''), 
at 2 (stating that if the proposal is approved, the Commission or 
FINRA should provide guidance that providing reference data 
information to FINRA's data service will not constitute an offer, an 
offer to sell, or a solicitation of an offer to buy for purposes of 
the Securities Act of 1933); Letter from Lynn Martin, President and 
COO, ICE Data Services, dated April 29, 2019 (``ICE Data Letter''), 
at 2 (stating that the final rule should specify that entities who 
are third parties involved in the offering are prohibited from 
sharing data with affiliated corporate entities).
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    A number of commenters generally supported the proposal,\20\ while 
other

[[Page 67493]]

commenters generally opposed the proposal.\21\
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    \20\ See ICE Data Letter; Letter from Cathy Scott, Director, 
Fixed Income Forum, on behalf of The Credit Roundtable, dated April 
29, 2019 (``Credit Roundtable Letter''); Letter from Salman Banaei, 
Executive Director, IHS Markit, dated April 29, 2019 (``IHS Markit 
Letter''); Letter from Marshall Nicholson and Thomas S. Vales, ICE 
Bonds dated April 29, 2019 (``ICE Bonds Letter''); Letter from 
Christopher B. Killian, Managing Director, SIFMA, dated April 29, 
2019 (``SIFMA Letter''); Letter from Larry Harris, Fred V. Keenan 
Chair in Finance, U.S.C. Marshall School of Business, dated May 17, 
2019 (``Harris Letter''); Letter from John Plansky, Executive Vice 
President and Chief Executive Officer, Charles River Development, 
dated May 24, 2019 (``Charles River Letter''); and Letter from SEC 
Fixed Income Market Structure Advisory Committee, dated June 11, 
2019 (``FIMSAC Letter''). One of these commenters stated that it 
supports the goals and conceptual basis of the proposed service but 
also stated that several complications and ambiguities in the 
proposal prevent it from ``expressly supporting the proposal,'' and 
it remains concerned about several aspects of the proposal (as 
discussed below). See SIFMA Letter II, at 1; Letter from Christopher 
B. Killian, Managing Director, SIFMA, dated October 24, 2019 
(``SIFMA Letter III'').
    \21\ See Letter from David R. Burton, Senior Fellow in Economic 
Policy, The Heritage Foundation, dated April 29, 2019 (``Heritage 
Letter''); Letter from Tom Quaadman, Executive Vice President, U.S. 
Chamber of Commerce, dated April 29, 2019 (``Chamber Letter''); 
Letter from Tyler Gellasch, Executive Director, Healthy Markets 
Association, dated April 29, 2019 (``Healthy Markets Letter''); 
Letter from Greg Babyak, Global Head of Regulatory Affairs, 
Bloomberg L.P. dated April 29, 2019 (``Bloomberg Letter''); Letter 
from Larry Tabb, TABB Group, dated May 15, 2019 (``Tabb Letter''); 
and Letter from John Thornton, Co-Chair, et al., Committee on 
Capital Markets Regulation, dated July 27, 2019 (``Committee 
Letter''). See also Letter from Greg Babyak, Global Head of 
Regulatory Affairs, Bloomberg L.P., dated July 1, 2019 (``Bloomberg 
Letter II''); Letter from Greg Babyak, Global Head of Regulatory 
Affairs, Bloomberg L.P., dated July 29, 2019 (``Bloomberg Letter 
III''); Letter from Greg Babyak, Global Head of Regulatory Affairs, 
Bloomberg L.P., dated October 24, 2019 (``Bloomberg Letter IV''); 
Letter from Tyler Gellasch, Executive Director, Healthy Markets 
Association, dated July 29, 2019 (``Healthy Markets Letter II''); 
Letter from Tyler Gellasch, Executive Director, Healthy Markets 
Association, dated October 25, 2019 (``Healthy Markets Letter 
III''); Letter from David R. Burton, Senior Fellow in Economic 
Policy, The Heritage Foundation, dated July 29, 2019 (``Heritage 
Letter II''); Letter from David R. Burton, Senior Fellow in Economic 
Policy, The Heritage Foundation, dated October 23, 2019 (``Heritage 
Letter III''); Letter from Tom Quaadman, Executive Vice President, 
U.S. Chamber of Commerce, dated July 29, 2019 (``Chamber Letter 
II''); Letter from Tom Quaadman, Executive Vice President, U.S. 
Chamber of Commerce, dated October 24, 2019 (``Chamber Letter 
III''); Letter from John Thornton, Co-Chair, et al., Committee on 
Capital Markets Regulation, dated October 22, 2019 (``Committee 
Letter II''); and Letter from Greg Babyak, Global Head of Regulatory 
Affairs, Bloomberg L.P., dated November 27, 2019 (``Bloomberg Letter 
V''). One of these commenters was generally supportive of the 
objective of providing market participants with greater data to 
facilitate the trading of corporate bonds, but opposed the proposal 
because of what it believed was insufficient justification. See 
Healthy Markets Letter, at 4, 7.
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A. Justification for the Creation of the New Issue Reference Data 
Service

    Several of the commenters stated that currently there is no 
uniform, universally available mechanism for providing market 
participants with consistent and timely access to reference data about 
corporate bonds on the day a newly issued corporate bond commences 
trading.\22\ These commenters stated that access to reference data is 
necessary for valuing, as well as trading and settling corporate 
bonds.\23\ As access to this reference data is not available to all 
market participants prior to the beginning of trading in a new issue, 
commenters asserted that certain market participants are currently at a 
competitive disadvantage.\24\ In addition, commenters asserted that a 
centralized data reporting requirement for new corporate bond issues 
would increase the efficiency of the corporate bond market and reduce 
trading and research costs.\25\
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    \22\ See ICE Data Letter, at 1-2; ICE Bonds Letter, at 1-2; 
Charles River Letter, at 2; FIMSAC Letter, at 1-2.
    \23\ See ICE Data Letter, at 2; Harris Letter, at 2-3; Charles 
River Letter, at 2; FIMSAC Letter, at 1-2.
    \24\ See ICE Data Letter, at 2; ICE Bonds Letter, at 2; FIMSAC 
Letter, at 2.
    \25\ See ICE Data Latter, at 2; Harris Letter, at 2-3; Charles 
River Letter, at 2.
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    On the other hand, many of the commenters asserted that FINRA did 
not provide sufficient justification to support the need for the 
creation of the new issue reference data service as required under 
Section 15A(b)(6) \26\ of the Act.\27\ In particular, one commenter 
argued that FINRA provided no evidence that (i) the proposal would 
provide market participants with more complete, accurate, and timely 
data about new issues; \28\ (ii) the proposal would reduce broken 
trades and errors; \29\ (iii) there is a market structure problem that 
requires regulatory intervention; \30\ and (iv) the proposal would 
reduce costs or duplicated efforts.\31\ One commenter argued that the 
proposal would increase regulatory and liability burdens for 
underwriters without any clear benefit,\32\ and another commenter 
argued that the proposed rule's compliance burden would 
disproportionately impact smaller underwriters.\33\
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    \26\ Section 15A(b)(6) of the Act requires, among other things, 
that the rules of a national securities association be designed to 
prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, 
and, in general, to protect investors and the public interest; and 
not to permit unfair discrimination between customers, issuers, 
brokers, or dealers. 15 U.S.C. 78o-3(b)(6).
    \27\ See Heritage Letter, at 1-2; Chamber Letter, at 2; Healthy 
Markets Letter, at 4-5; Bloomberg Letter, at 9-10. See also Healthy 
Markets Letter II, at 4-6; Healthy Markets Letter III; Heritage 
Letter II, at 2; Heritage Letter III, at 2; Chamber Letter II, at 3-
4; Bloomberg Letter II, at 4-7; Bloomberg Letter III, at 5-8; 
Bloomberg Letter IV, at 4; Bloomberg Letter V, at 3-4.
    \28\ The commenter stated that ``it is questionable whether a 
single SRO would provide more accurate, complete and timely service 
than competing private sector providers.'' See Bloomberg Letter, at 
9. In addition, the commenter stated that the impact of any errors 
in a centralized system would be magnified. See id., at 10.
    \29\ The commenter stated that ``there appears to be plenty of 
time to correct errors before they enter the settlement and clearing 
process'' and presented evidence that over 91% of new issues settle 
three days or more after a new issue is priced and 66% settle four 
days or more after a new issue is priced. See Bloomberg Letter, at 
10-11.
    \30\ See Bloomberg Letter, at 12-13; Bloomberg Letter II at 4-6; 
Bloomberg Letter III at 6-7; Bloomberg Letter V, at 3. This 
commenter presented data regarding alternative trading system 
(``ATS'') trading on pricing day to argue that electronic trading 
platforms can readily access new issue bond reference data, and that 
the market for new issue corporate bonds is healthy and already 
evolving in the manner that the FIMSAC desires. For example, this 
commenter provided data (for new issues from March 12, 2019 to April 
11, 2019) demonstrating that ATSs arranged a trade in 43% of the new 
Jumbo-sized issues, 28% of the new Benchmark-sized issues, and 11% 
of medium-sized issues on the day the bond was free to trade. See 
Bloomberg Letter, at 12-13. In addition, this commenter presented 
evidence that over the past year, the number of Jumbo-sized new 
issues that traded electronically on the day they were priced more 
than doubled to 30%. See Bloomberg Letter II, at 4-6; Bloomberg 
Letter III, at 6; and Bloomberg Letter IV, at 4-5. This commenter 
further stated that since FINRA proposed its effort to standardize 
and centralize bond-reference data reporting, competition in this 
area has only increased, citing a recent effort by various financial 
institutions to streamline communications and data among market 
participants by connecting underwriters and investors. See Bloomberg 
Letter IV, at 6.
    \31\ See Bloomberg Letter, at 9-14; Bloomberg Letter II, at 4-7; 
Bloomberg Letter III, at 5-8. This commenter stated that market 
participants currently demand more reference data fields than FINRA 
is proposing to collect; thus the proposal will not avoid 
``duplicative efforts'' and may fragment the market. See Bloomberg 
Letter, at 13-14. In addition, this commenter stated that FINRA will 
have no market incentive to improve its technology for collecting or 
distributing bond data, and that in the existing TRACE system, 20% 
of entries have errors. See Bloomberg Letter III, at 5-6.
    \32\ See Chamber Letter, at 4; Chamber Letter III, at 2.
    \33\ See Bloomberg Letter IV, at 5. See also Chamber Letter III, 
at 3.
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    In its response, FINRA stated that it believes the record provides 
sufficient support for the proposal, which is based on evidence FINRA 
received from market participants and analyzed in its filing.\34\ FINRA 
pointed to the economic impact assessment included in its filing and 
reiterated that the proposal ``was informed by outreach to eleven 
market participants--four data providers, three

[[Page 67494]]

underwriters, two trading platforms, and two clearing firms--which 
FINRA believes demonstrated a regulatory need for consistent, uniform, 
and timely corporate bond new issue reference data.'' \35\ Based on 
this outreach, FINRA determined that ``there is not currently 
consistent collection of new issue reference data according to 
established data standards, nor is there uniform distribution of the 
data to market participants in a timely manner.'' \36\ For example, 
FINRA noted the experience of one trading platform that stated its 
reference data provider would only provide data relating to new issues 
the morning after issuance, which resulted in the firm's clients not 
being able to trade new issues on the platform on the first day of 
trading.\37\ FINRA also stated that during its outreach it received 
comments from data vendors concerning the differences in their access 
to corporate bond new issue reference data.\38\
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    \34\ See Letter from Alexander Ellenberg, Associate General 
Counsel, FINRA, dated October 29, 2019 (``Response Letter''), at 3-
4. See also Notice, at 13980-83.
    \35\ See Response Letter, at 4. See also Notice, at 13980-81.
    \36\ See Response Letter, at 4.
    \37\ See id. See also Notice, at 13980, n.17.
    \38\ See Response Letter, at 4. See also Notice, at 13981.
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    FINRA further stated that during the outreach a number of problems 
were raised as a result of the lack of accurate, complete and timely 
corporate bond new issue reference data.\39\ Specifically, as the 
proposal noted, FINRA found that limited new issue reference data may 
prevent traders from identifying and evaluating newly issued bonds for 
trading (particularly small traders that cannot afford multiple data 
vendor subscriptions), and it may prevent electronic trading platforms 
from making newly issued corporate bonds available to trade.\40\ In 
addition, FINRA found from its outreach that inaccurate reference data 
create inconsistencies in trading and settlement and increases 
transaction costs for trading platforms, clearing firms, and electronic 
trading platforms.\41\
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    \39\ See Response Letter, at 4.
    \40\ See id. See also Notice, at 13980.
    \41\ See id.
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    In the Response Letter, FINRA stated that the robust public record 
supporting the unanimous FIMSAC Recommendation also provides support 
for the proposal.\42\ FINRA pointed to statements by members of the 
FIMSAC and panelists at the FIMSAC meeting, including a data provider 
and an investment management firm,\43\ to refute the assertion that a 
well-functioning, competitive market currently exists for corporate new 
issue reference data, as suggested by some commenters.\44\ In addition, 
FINRA stated that supporting comment letters submitted in response to 
the proposal further reinforce the regulatory need for the 
proposal.\45\
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    \42\ See Response Letter, at 4-5.
    \43\ Specifically, FINRA pointed to (i) a statement by the chair 
of the Subcommittee that developed the Recommendation that ``there 
are indeed gaps in corporate bond fixed income reference data, both 
in terms of when that data is available with different reference 
data providers, as well as sometimes the accuracy;'' (ii) a 
statement from a data provider panelist that ``there are some market 
anomalies where some of the vendors have access to information much 
earlier than other vendors,'' and ``that creates basically 
competitive advantage on certain platforms;'' and (iii) a statement 
from an investment management firm panelist noting that there are 
``cases where a new issue does take time to get set up on some of 
[the investment firm's] electronic trading platforms, and that means 
that we can't necessarily go and use those electronic trading 
platforms right away.'' See Response Letter, at 5 (citing to 
Transcript of FIMSAC Meeting (October 29, 2018), available at 
https://www.sec.gov/spotlight/fixed-income-advisory-committee/fimsac-102918transcript.txt).
    \44\ See Response Letter, at 5. See also supra note 27 and 
accompanying text.
    \45\ FINRA cited comment letters submitted in response to the 
proposal noting that there currently exist issues with the 
availability, completeness, and timeliness of new issue reference 
data; and that the current information asymmetry with respect to 
such data harms liquidity, execution quality and competition in the 
corporate bond market. See Response Letter, at 5 (citing to Harris 
Letter; ICE Bonds Letter; ICE Data Letter; Charles River Letter; and 
FIMSAC Letter). See also supra notes 22-25 and accompanying text.
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    In the Response Letter, FINRA provided an analysis of corporate 
bond transactional data reported to FINRA's TRACE, which FINRA stated 
is consistent with the problematic market conditions described by 
FIMSAC participants and commenters, and provides additional support for 
the proposal.\46\ Specifically, FINRA examined the time lapse between 
the first secondary market trade reported to TRACE and the first trade 
reported by ATSs for newly issued corporate bonds in 2018.\47\ FINRA 
found persistent lags between the first reported trades and first 
reported ATS trades, which FINRA stated suggested that some ATSs may 
not be receiving reference data in a timely fashion to allow them to 
set up new issues to begin trading on their platforms.\48\ In response, 
however, one commenter stated that FINRA's analysis is flawed in that 
the data (i) does not show that untimely reference data is the cause of 
differences in the timing of trading on different platforms, (ii) 
includes all new issue bonds, rather than limiting the scope to large 
issues that are more likely to trade electronically; and (iii) ignores 
more current data, which this commenter stated shows movement toward 
electronic trading is accelerating rapidly in 2019.\49\
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    \46\ See Response Letter, at 6-7.
    \47\ See id.
    \48\ See id. FINRA found that for the first day of trading in 
corporate bond new issues, an ATS traded at most 3% of the 11,518 
newly issued bonds, and that over the subsequent 10 days after 
issuance, ATSs represented an increasing percentage of trading.
    \49\ See Bloomberg Letter V, at 1-2.
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B. Competitive Impact and Data Quality

    Several commenters argued that the proposal fails to adequately 
explain why the rule's burden on competition is necessary or 
appropriate consistent with Section 15A (b)(9) \50\ of the Act.\51\ 
Some commenters asserted that the proposal would diminish competition 
among private sector reference data providers, which could ultimately 
impede the quality of data available to market participants.\52\ One of 
these commenters stated that the proposal ``would expand a key 
regulator's commercial role into new lines of heretofore competitive 
private business'' and stressed ``the likely chilling effect that this 
would have on investment and innovation.'' \53\ Another commenter 
opposed giving FINRA or any other utility or vendor a monopoly or 
competitive advantage in the collection and dissemination of corporate 
bond new issue reference data, stating that doing so may reduce the 
overall quality and timeliness, and increase the cost, of the data.\54\ 
One commenter stated that the proposal creates a conflict of interest 
and reduces FINRA's standing as an independent regulatory force.\55\
---------------------------------------------------------------------------

    \50\ Section 15A(b)(9) of the Act requires that the rules of a 
national securities association not impose any burden on competition 
not necessary or appropriate in furtherance of the purposes of the 
Act. 15 U.S.C. 78o-3(b)(9).
    \51\ See, e.g., Healthy Markets Letter II, at 5-6; Bloomberg 
Letter III, at 8-11; Heritage Letter II; at 2-3; Bloomberg Letter 
IV, at 4.
    \52\ See Heritage Letter, at 1-2; Chamber Letter, at 2; 
Bloomberg Letter, at 2-3; Healthy Markets Letter II, at 5; Tabb 
Letter, at 2-3. Some of these commenters questioned the quality of 
FINRA's current TRACE data, and pointed to a recent study that found 
that approximately 20% of entries had errors. See, e.g., Healthy 
Markets Letter II, at 5; Bloomberg Letter III, at 5-6; and Bloomberg 
Letter IV, at 4 (citing to Larry Tabb, Tabb Forum, ``An SEC-Mandated 
Corporate Bond Monopoly Will Not Help Quality'' (Mar. 21, 2019) 
(``Tabb Study'')). See also supra note 31.
    \53\ See Bloomberg Letter II, at 1. See also Bloomberg Letter 
IV, at 5. This commenter compared the proposal to a previous FINRA 
proposal to create a facility to consolidate all quotation data in 
the over-the-counter equities market, which was ultimately withdrawn 
by FINRA. See Bloomberg Letter V, at 3-4 (citing Securities Exchange 
Act Release No. 60999 (November 13, 2009), 74 FR 61183 (November 23, 
2009) (SR-FINRA-2009-077) (Notice of Filing of Proposed Rule Change 
Relating to the Restructuring of Quotation Collection and 
Dissemination for OTC Equity Securities).
    \54\ See Tabb Letter, at 3. See also Bloomberg Letter V, at 2.
    \55\ See Bloomberg Letter IV, at 5.

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[[Page 67495]]

    In contrast, one commenter asserted that because of the limited set 
of data proposed to be captured by FINRA, the proposal would not 
supplant private sector market data providers.\56\ This commenter also 
stated it would be concerned by any alternative construct to FINRA's 
proposal that would give increased market power to a single commercial 
data provider without a commensurate level of regulatory oversight, as 
data vendors are conflicted by competing commercial interests and 
should not be in a position to determine who can have access to data 
necessary to value, trade and settle a newly issued corporate bond.\57\ 
Another commenter asserted that providing reference data in a manner 
similar to that proposed by FINRA promotes competition by reducing 
barriers to entry for new entrants in the reference data provider 
market.\58\
---------------------------------------------------------------------------

    \56\ See FIMSAC Letter, at 3.
    \57\ See id. at 4. One commenter that has both a data business 
and an electronic bond trading platform stated that there is no 
basis for FIMSAC's claims that integrated firms are using their data 
business to harm competition in trading. The commenter pointed to 
data showing that it holds only 3.2% of market share of domestic 
institutional electronic corporate bond trading, and argued that 
this data contradicts any suggestion that the commenter has 
leveraged its data business to gain a competitive advantage for its 
electronic trading business. See Bloomberg Letter II, at 2-4.
    \58\ See Harris Letter, at 4.
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    In the Response Letter, FINRA reiterated that the proposed data 
service is not designed to affect the opportunity for private third 
party vendors to compete and is rather intended to promote competition 
among new reference data providers by, among other things, lowering 
barriers to entry and allowing competition on other dimensions, such as 
additional fields, updates to existing data based on subsequent events 
related to the security, presentation, ease of access, and integration 
to other data or metrics deemed valuable by market participants.\59\ 
FINRA stated that its proposed data service will provide only the basic 
fields necessary for trading and settling newly issued corporate bonds, 
and it would not inhibit reference data vendors' ability to 
redistribute the data with supplementary fields and other value-added 
services.\60\ FINRA also noted that several commenters responding to 
the proposal agreed that the proposal would not displace reference data 
providers and would instead increase competition and reduce overall 
costs.\61\
---------------------------------------------------------------------------

    \59\ See Response Letter, at 8-9. See also Notice, at 13982.
    \60\ See Response Letter, at 9.
    \61\ See id. at 8 (citing to Harris Letter; FIMSAC Letter; ICE 
Data Letter; Charles River Letter). See also supra notes 56-58 and 
accompanying text.
---------------------------------------------------------------------------

    In response to comments regarding alleged conflicts of interest and 
FINRA acting in a commercial rather than a regulatory role,\62\ FINRA 
stated that, as a non-profit registered securities association and 
self-regulatory organization, it does not intend to compete with or 
displace private data vendors.\63\ FINRA added that it did not initiate 
the proposal for commercial benefit but did so in response to a 
specific recommendation and regulatory need identified by the 
FIMSAC.\64\ FINRA stated that the proposal is designed to achieve a 
clear regulatory objective-- to provide more timely and accurate 
consolidation and dissemination of key corporate bond new issue 
reference data.\65\ Furthermore, FINRA noted that under Section 15A of 
the Act, it is charged with a number of responsibilities including, 
among others, developing rules that are designed to foster cooperation 
and coordination with persons engaged in clearing, settling, processing 
and facilitating transactions in securities.\66\ FINRA stated that, in 
light of this mandate, the collection, consolidation and dissemination 
of fundamental security information is not a novel role for a 
registered securities association, and FINRA routinely provides other 
types of basic security information to the marketplace to, among other 
things, facilitate the clearing and settlement of securities and 
improve transparency.\67\ FINRA stated that it provided a detailed 
analysis of the proposal's anticipated costs and benefits in its 
filing,\68\ and stated that the proposed new issue reference data 
service was modeled as a ``regulatory utility.'' \69\ FINRA stated that 
for the foregoing reasons, it believes that the establishment of a 
corporate bond new issue reference data service fits squarely within 
the scope of FINRA's affirmative regulatory authority under the 
Act.\70\
---------------------------------------------------------------------------

    \62\ See, e.g., supra notes 53 and 55 and accompanying text.
    \63\ See Response Letter, at 10.
    \64\ See id.
    \65\ See id.
    \66\ See id. at 9. See also Section 15A(b)(6) of the Act, 15 
U.S.C. 78o-3(b)(6).
    \67\ See Response Letter, at 9-10. For example, FINRA makes 
available to the public all transaction data in corporate bonds 
through TRACE. See FINRA's TRACE Overview, available at https://www.finra.org/sites/default/files/TRACE_Overview.pdf. FINRA also 
makes details about corporate and agency debt securities available 
to FINRA members and provides a tool to the public that enables them 
to analyze and compare the costs of owning mutual funds. See TRACE 
OTC Corporate Bonds and Agency Debt User Guide, available at: 
https://www.finra.org/sites/default/files/TRAQS-CA-user-guide-v4.7.pdf.pdf; FINRA Fund Analyzer, available at: https://tools.finra.org/fund_analyzer/.
    \68\ See Response Letter, at 10. See also Notice, at 13981-83 
(FINRA included an ``Economic Impact Assessment'' in its proposal, 
which, among other things, described the current dissemination 
process of new issue reference data in the corporate bond market, 
pricing of the proposed data service, benefits of the proposal, 
costs and negative impacts of the proposal, the anticipated effect 
of the proposal on competition among market participants and 
efficiency in the market, and alternative approaches considered by 
FINRA). In response, however, one commenter stated that ``[d]eciding 
to excise the fee analysis, in the face of overwhelming negative 
commentary, belies FINRA's claim to have provided a `detailed 
analysis of the Proposal's anticipated costs and benefits.' '' See 
Bloomberg Letter V, at 4. See also Section III.C. infra.
    \69\ See Response Letter, at 10.
    \70\ See id.
---------------------------------------------------------------------------

    While FINRA acknowledged that the proposed data service may create 
a potential single point of failure, it stated it continues to believe 
any concerns about the risks of consolidation do not outweigh the 
benefits of the data service, and that, as previously discussed, 
vendors are likely to continue collecting corporate bond new issue 
reference data.\71\ In response to comments concerning the risk of 
consolidating the proposed corporate bond new issue reference data with 
FINRA and the timeliness and accuracy of current TRACE data,\72\ FINRA 
stated that there is key information missing from the analysis on which 
these commenters rely, and without such information it is difficult for 
FINRA to provide a meaningful response to the analysis.\73\ FINRA 
stated that based on its own review of TRACE and the same vendor's 
data, FINRA found different results, including a significant number of 
instances where it received data not yet available from the vendor.\74\ 
FINRA

[[Page 67496]]

also stated that it would expect substantially fewer reconciliation 
differences if the proposal is approved because FINRA believes a number 
of the differences found in the analysis may have resulted from data 
fields that are not currently system-validated.\75\ In contrast, FINRA 
stated that the corporate bond new issue reference data fields would 
become system-validated under this proposal, as FINRA would employ 
systemic and operational checks for all of the data fields to determine 
if any fields are either missing or not conforming to expected format 
or standards at the time of submission.\76\
---------------------------------------------------------------------------

    \71\ See id. However, one commenter stated that FINRA offers no 
reason why vendors would continue to fund their own research in 
addition to paying for FINRA's information. See Bloomberg Letter V, 
at 3.
    \72\ See supra notes 52-54 and accompanying text.
    \73\ See Response Letter, at 10-11. Specifically, with respect 
to the Tabb Study cited by certain commenters, FINRA stated that it 
is not clear what TRACE data was used for the analysis or which 
point in time during the trading day was used to compare TRACE data 
with the vendor's data. In addition, FINRA states that the analysis 
does not explain which of the two sources (TRACE or the vendor) were 
deemed accurate (it only references ``reconciliation differences'') 
or whether the differences included cases where data was not present 
yet in either system. See id. In response, one commenter stated that 
FINRA's response is ``puzzling'' as the Tabb Study states that it 
used the ``initial release'' of FINRA's own ``TRACE Corporate and 
Agency Master file,'' and stated that neither FINRA nor any other 
commenter contests that the concern is with the inaccuracy of 
FINRA's data. See Bloomberg Letter V, at 2.
    \74\ See id. at 11.
    \75\ See id.
    \76\ See id. In response, one commenter stated that FINRA's 
reliance on unspecified ``system-validated'' data is not enough to 
refute the historical evidence of ``a high error rate for 
comparatively simple data.'' See Bloomberg Letter V, at 3.
---------------------------------------------------------------------------

C. Fees

    Commenters asserted that in order to meet its obligations under 
Section 15A(b)(5) of the Act,\77\ FINRA must provide more information 
to justify the fees\78\ it proposed to charge subscribers of the new 
issue reference data service.\79\ One of these commenters further 
stated that the data should either be available for free, or at a 
``truly low cost.'' ;\80\ Another commenter asserted that the $6,000 
per month fee for redistribution could be ``a considerable additional 
expense'' for its members.\81\
---------------------------------------------------------------------------

    \77\ Section 15A(b)(5) of the Act requires that the rules of a 
national securities association provide for the equitable allocation 
of reasonable dues, fees, and other charges among members and 
issuers and other persons using any facility or system which the 
association operates or controls. 15 U.S.C. 78o-3(b)(5).
    \78\ See supra note 18.
    \79\ See Chamber Letter, at 3-4; Healthy Markets Letter, at 5-6; 
SIFMA Letter, at 3-4; Bloomberg Letter, at 6-9; Harris Letter, at 7; 
Committee Letter, at 1-2; Heritage Letter II at 3. See also 
Bloomberg Letter III, at 3-4; Bloomberg Letter IV, at 6.
    \80\ See Harris Letter, at 7.
    \81\ See Credit Roundtable Letter, at 1.
---------------------------------------------------------------------------

    In response to these comments, in Amendment No. 2, FINRA withdrew 
the proposed subscription fees for receipt of corporate new issue 
reference data from the proposal.\82\ FINRA stated that, based on 
questions raised in the comments, FINRA is further evaluating the 
appropriate fee structure for the proposed data service and will submit 
a separate filing to establish fees related to the new issue reference 
data service at a future date and will implement the service after 
those fees become effective.\83\
---------------------------------------------------------------------------

    \82\ See Amendment No. 2, at 4.
    \83\ See Amendment No. 2, at 4.
---------------------------------------------------------------------------

    A number of commenters believed that removal of fees from the 
proposal was problematic.\84\ These commenters stated that the proposed 
fees form a critical part of FINRA's proposed newly issued bond-
reference data service and that the Commission and the public cannot 
assess whether the benefits of the proposal outweigh the costs and 
competitive burdens without knowing the fees that FINRA would charge 
for the service.\85\ In addition, these commenters stated that 
eliminating the fees from the proposal amounts to procedural 
maneuvering in order to avoid scrutiny, as any subsequent fee filing 
submitted by FINRA will be immediately effective upon filing with the 
Commission.\86\
---------------------------------------------------------------------------

    \84\ See Bloomberg Letter IV, at 6-9; Chamber Letter III at 2-3; 
Committee Letter II at 2-3; Heritage Letter III, at 2-3; Healthy 
Markets Letter III at 2; SIFMA Letter III at 3-4; and Bloomberg 
Letter V, at 4-5.
    \85\ See id.
    \86\ See id. Some commenters pointed to the Commission's recent 
proposed rule change to amend Regulation NMS to rescind a provision 
that allows a proposed amendment to a national market system plan 
(``NMS plan'') that establishes or changes a fee or other charge to 
become effective upon filing, and argued that the concerns voiced by 
the Commission in that proposal are applicable to FINRA's current 
proposal. See Bloomberg Letter IV, at 8; Chamber Letter III at 2; 
Committee Letter II at 2-3 (citing to Commission, Proposed Rule, 
``Rescission of Effective-Upon Filing Procedure for NMS Plan Fee 
Amendments,'' 84 FR 54794 (Oct. 11, 2019) (``Proposed Regulation NMS 
Fee Amendment'')).
---------------------------------------------------------------------------

    In response, FINRA stated that it did not withdraw the fees from 
the current proposal to avoid subjecting the fees to further public 
comment.\87\ FINRA stated that any new fees would be filed with the 
Commission in advance of the implementation of the newly issued 
corporate bond new issue reference data service and would be subject to 
applicable Commission rule filing requirements under the Act.\88\
---------------------------------------------------------------------------

    \87\ See Response Letter, at 12, n.35. However, one commenter 
responded that the problem is not that FINRA could entirely avoid 
subjecting the fees to public comment, but that the fee filing would 
be immediately effective before Commission scrutiny, and that this 
``would flip the burden of securing Commission intervention from 
FINRA to affected market participants.'' See Bloomberg Letter V, at 
4.
    \88\ See id.
---------------------------------------------------------------------------

D. Requested Modifications and Clarifications to the Proposal

    Several commenters requested that FINRA make various modifications 
or clarifications to its proposal. One commenter noted that the 
reference data ``would allow for efficient functioning of trading'' but 
stated that it could be challenging for underwriters to provide all of 
the data elements prior to the first trade and instead requested that 
underwriters only be required to report certain information prior to 
the first trade and that the remaining information should be reported 
within 60 minutes of the first trade.\89\ Two commenters requested that 
FINRA clarify the meaning of the ``prior to the first transaction'' 
deadline for reporting reference data to FINRA.\90\
---------------------------------------------------------------------------

    \89\ See SIFMA Letter, at 1-2. See also Credit Roundtable 
Letter, at 1 (cautioning that any data provision requirements on 
underwriters not impede their ability to make markets in the new 
issue as soon as possible).
    \90\ See ICE Data Letter, at 2; ICE Bonds Letter, at 2.
---------------------------------------------------------------------------

    In the Response Letter, FINRA stated that it believes it is 
important to maintain the proposal's pre-first transaction reporting 
requirement and that, on balance, the significant benefits of requiring 
all data fields to be reported pre-first trade outweigh the additional 
burdens on underwriters.\91\ FINRA stated that the purpose of the pre-
first trade requirement is to facilitate the collection and 
dissemination of all proposed new issue reference data fields before 
secondary trading in a security begins, and recognized supporting 
comments on this point.\92\ In response to comments requesting 
clarification on what the term ``first transaction'' means, FINRA 
stated that ``it means the time of execution of the first transaction 
of the offering (i.e., the time of execution for the first reported 
primary transaction in the security), as specified currently in Rule 
6760.'' \93\
---------------------------------------------------------------------------

    \91\ See Response Letter, at 14. FINRA stated that ``[b]ased on 
conversations with underwriters, FINRA understands that underwriters 
do not anticipate incurring significant costs for reporting under 
this proposal.'' See Notice, at 13982.
    \92\ See Response Letter, at 14 (citing to ICE Bonds Letter, at 
2; and ICE Data Letter).
    \93\ See Response Letter, at 14. FINRA stated that it believes 
this position is consistent with the recommendation from ICE Data to 
provide clarification for the term ``first transaction'' consistent 
with MSRB Rule G-34. See Response Letter at 14, n.45 (citing to ICE 
Data Letter, at 2).
---------------------------------------------------------------------------

    Several commenters requested FINRA make modifications to and/or 
provide further clarity regarding certain data fields.\94\ One 
commenter stated that while it did not disagree with FINRA's proposed 
data fields, FINRA should provide information to support its selections 
of each of the proposed data fields.\95\ In its comment letter, FIMSAC 
provided supporting rationale for the data fields included in the 
proposal \96\ and recommended that FINRA combine certain proposed data 
fields and include six additional data fields.\97\
---------------------------------------------------------------------------

    \94\ See Credit Roundtable Letter, at 1; ICE Data Letter, at 2-
3; SIFMA Letter, at 3; FIMSAC Letter, at 14; SIFMA Letter II, at 2; 
SIFMA Letter III, at 2-3.
    \95\ See Healthy Markets Letter, at 6; Healthy Markets Letter 
III, at 2.
    \96\ See FIMSAC Letter at 2-3 and Schedule A.
    \97\ See FIMSAC Letter, at 7-8, 10, 12-13. This commenter 
proposed combining the Maturity and Perpetual Maturity indicators 
into one existing field (Maturity Date) and the 144A Eligible and 
Regulation S indicators into one new field (Series). In addition, 
this commenter recommended requiring the following additional data 
fields: First Conversion Date; First Conversion Ratio; Spread; 
Reference Rate; Floor; and Underlying.

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

[[Page 67497]]

    In response, FINRA stated that it agrees with the FIMSAC's 
additional supporting rationale for the data fields and, in Amendment 
No. 2, FINRA incorporated this rationale into its filing.\98\ In 
addition, in Amendment No. 2, FINRA added the six additional data 
fields suggested by the FIMSAC.\99\ FINRA stated that it agrees that 
these six new fields are useful and appropriate to include in the 
proposal as they are important for settlement and valuation of floating 
rate notes and convertible bonds.\100\ FINRA further stated that it 
believes the six new fields would not materially increase the costs of 
the proposal on underwriters.\101\ In addition, in response to comments 
requesting clarification of certain data fields, Amendment No. 2 
included additional detail relating to certain data fields.\102\ In 
particular, FINRA stated that it (i) provided additional guidance to 
clarify that the ratings data field does not require reporting specific 
ratings, but rather whether the security is Investment Grade or Non-
Investment Grade, as those terms are defined in Rule 6710; and (ii) 
clarified the information to be reported for the security type, first 
coupon period type, minimum increment, and minimum piece/denomination 
data fields.\103\ FINRA further stated that it recognizes that 
commenters have requested further clarification of several data 
fields,\104\ and that FINRA believes such requests can be addressed 
with guidance provided in the customary course of new rule 
implementation, and FINRA will continue to engage with market 
participants as required to provide such guidance.\105\
---------------------------------------------------------------------------

    \98\ See Response Letter, at 12; Amendment No. 2, at 5 and 
Exhibit 3.
    \99\ See Amendment No. 2, at 5 and Exhibit 3. See also Response 
Letter, at 13.
    \100\ See Amendment No. 2, at 5 and Exhibit 3; Response Letter, 
at 13. FINRA stated that it also agrees with FIMSAC's recommendation 
to combine the Maturity and Perpetual Maturity indicators into one 
existing field (Maturity Date) and marked the amended Exhibit 3 to 
reflect that the maturity and perpetual maturity indicator fields 
will be tied together as combined fields for purposes of reporting 
the information, although they remain noted in Exhibit 3 as separate 
data fields to reflect that FINRA included the perpetual maturity 
indicator field based on its industry outreach. See Amendment No. 2, 
at 5, n.9, and Exhibit 3; Response Letter, at 13, n.41. With respect 
to FIMSAC's recommendation to combine the 144A Eligible and 
Regulation S indicator fields into a single ``Series'' field, FINRA 
stated that it believes it will be easier operationally to maintain 
the separate fields to limit potential confusion about other 
security offering types or issuances that may meet more than one 
offering type. See id.
    \101\ See Response Letter, at 13.
    \102\ See Amendment No. 2, at 5 and Exhibit 3; Response Letter, 
at 12-13.
    \103\ See Amendment No. 2, at 5, n.10, and Exhibit 3; Response 
Letter, at 12-13, n.39.
    \104\ See, e.g., SIFMA Letter III, at 2-3.
    \105\ See Response Letter, at 12-13.
---------------------------------------------------------------------------

    One commenter requested FINRA clarify the process for underwriters 
to correct erroneously reported reference data.\106\ Two commenters 
made technical suggestions regarding the methods for supplying and 
redistributing the required data.\107\
---------------------------------------------------------------------------

    \106\ See IHS Markit Letter, at 2-3.
    \107\ See SIFMA Letter, at 2; ICE Data Letter, at 3; SIFMA 
Letter III, at 2.
---------------------------------------------------------------------------

    In its Response Letter, FINRA stated that if the proposal is 
approved, FINRA will continue to engage with market participants on the 
appropriate business requirements for the reporting process.\108\ In 
addition, FINRA stated that it intends to implement functionality to 
allow for underwriters to correct previously submitted data to FINRA 
for a significant period after receiving the initial Rule 6760 
submission.\109\ FINRA also stated that it may take a phased approach 
to implementation to promote compliance and data accuracy.\110\
---------------------------------------------------------------------------

    \108\ See Response Letter, at 14.
    \109\ See id. at 14-15.
    \110\ See id. at 15.
---------------------------------------------------------------------------

IV. Discussion and Commission Findings

    After carefully reviewing the proposed rule change, the comment 
letters, and the Response Letter, the Commission finds that the 
proposed rule change, as modified by Amendment No. 2, is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities association.\111\ In 
particular, the Commission finds that the proposed rule change is 
consistent with Section 15A(b)(6) of the Act, which requires, among 
other things, that FINRA's rules be designed to prevent fraudulent and 
manipulative acts and practices, promote just and equitable principles 
of trade, foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitating transactions in securities, remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public interest; 
\112\ and Section 15A(b)(9) of the Act, which requires that FINRA rules 
not impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.\113\
---------------------------------------------------------------------------

    \111\ In approving this proposed rule change, the Commission has 
considered the proposed rule change's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f). The 
Commission addresses comments about economic effects of the proposed 
rule change on efficiency and competition in Sections IV.A.1, IV.B. 
and IV.C. below. The Commission does not believe that FINRA's 
proposal implicates capital formation in a notable way. However, to 
the extent capital formation is implicated, the Commission believes 
that the proposal would promote capital formation and, as discussed 
in more detail below with respect to the proposal's impact on 
efficiency and competition, FINRA's proposal could promote improved 
liquidity and price discovery in the secondary market by enabling 
more market participant participation in the secondary market on the 
first day a bond trades. As such, an investor may be more likely to 
participate in primary bond offerings if they are confident that 
they can resell the bond in the secondary market at an efficient 
price. If more investors are more likely to participate in primary 
bond offerings, corporations would have a broader investor base for 
raising capital in the corporate bond market.
    \112\ 15 U.S.C. 78o-3(b)(6).
    \113\ 15 U.S.C. 78o-3(b)(9).
---------------------------------------------------------------------------

A. Justification for the Proposal

    Several commenters argued that FINRA has not provided a sufficient 
justification under the Act for the proposal, and that, in particular, 
there is no market structure problem that requires regulatory 
intervention.\114\ The Commission disagrees; the record provides ample 
evidence supporting the proposed new issue reference database. In 
particular, as discussed below, the record demonstrates two things 
clearly: (1) Many market participants, including investors, trading 
platforms, and data vendors, do not have accurate, complete and timely 
access to corporate bond new issue reference data on the day a

[[Page 67498]]

new issue begins trading in the secondary market; and (2) the proposed 
data elements to be included in the FINRA database could provide such 
access, as they encompass data that allow for the identification, 
valuation, and settlement of newly issued corporate bonds.
---------------------------------------------------------------------------

    \114\ See supra notes 27-31 and accompanying text. Commenters 
also argued that FINRA provided no evidence the proposal would 
reduce broken trade errors or reduce costs or duplicated efforts. 
See supra notes 29 and 31. In contrast, other commenters and market 
participants stated that FINRA's proposed data service would reduce 
costs, eliminate duplicated efforts, and reduce trading errors, as 
market participants would no longer have to source data from 
multiple vendors or enter data manually. See supra note 25; infra 
notes 122-124. See also Harris Letter at 2 (noting the current 
process for underwriters to provide data is ``tedious, prone to 
transcription errors, and must be repeated for every bond in which 
the reference data vendor or the end user is interested''); Charles 
River Letter at 2 (stating that ``the creation of the data service 
will enhance operational efficiencies for buy-side investors by 
ensuring reliable, consistent and timely access to data, necessary 
for the seamless trading and settlement of new issue corporate 
data'' and ``the proposed data service will help buy-side investors 
better manage their risk,'' including ``the reduced need for manual 
entries and overrides.'') As further discussed below, the Commission 
believes the proposal would benefit the corporate bond market by 
helping to ensure all market participants have access to consistent, 
timely and accurate reference data regarding newly issued corporate 
bonds, which the Commission believes, among other things, may result 
in a reduction in costs for participants in the market and 
potentially a reduction in trading errors. See infra notes 125-128 
and accompanying text.
---------------------------------------------------------------------------

    As discussed further below, providing all market participants with 
basic information concerning a newly issued bond that market 
participants need in order to identify and value corporate bonds and 
settle corporate bond transactions should improve the corporate bond 
market's overall function by enabling a broader array of market 
participants and service providers to engage in this market on the day 
a newly issued corporate bond begins trading in the secondary market. 
As a result, the Commission finds that FINRA's proposal is consistent 
with Section 15A(b)(6) of the Act. The proposed corporate bond new 
issue reference database is designed to promote just and equitable 
principles of trade, foster cooperation and coordination with persons 
engaged in regulating, clearing, settling, processing information with 
respect to, and facilitating transactions in, corporate bond new 
issuances, and is also designed to remove impediments to and perfect 
the mechanism of a free and open market in such securities.
1. The Proposal Is Reasonably Designed To Address Gaps in the 
Availability of Accurate, Complete and Timely Access to Corporate Bond 
New Issue Reference Data
    The Commission believes that the record supports the conclusion 
that today many market participants, including investors, trading 
platforms, and data vendors, do not have accurate, complete and timely 
access to corporate bond new issue reference data to identify, value, 
and settle a bond at the time secondary market trading commences in a 
newly issued corporate bond. Several commenters specifically identified 
problems that currently exist with the availability, accuracy, and 
distribution of new issue corporate bond reference data, and believed 
that the proposal would address these problems.\115\ For example, one 
commenter stated that ``[t]he information asymmetry which exists today 
adversely impacts the liquidity in the secondary markets for the first 
few hours or days of trading when significant trading occurs'' and that 
``[t]he timely dissemination of complete reference data will allow 
retail investors to have more timely access to newly issued bonds for 
purchase and/or price discovery, eliminating unnecessary information 
asymmetry.'' \116\
---------------------------------------------------------------------------

    \115\ See, e.g., ICE Bonds Letter, at 2 (``Without a level 
playing field for new issue reference data, these retail investors 
and the broker dealers servicing them are disadvantaged by not being 
able to participate in the secondary markets during the critical 
time after a security is available to trade.''); Charles River 
Letter, at 2 (``Currently, phased reporting of data elements is 
permitted, causing material inefficiencies in the intake and 
consumption of data. Eliminating the phased reporting approach will 
lead to the availability of more complete and consistent reference 
data.'') See also supra notes 22-25 and accompanying text.
    \116\ See ICE Bonds Letter, at 2.
---------------------------------------------------------------------------

    In addition, as discussed at the October 29, 2018 FIMSAC meeting, 
current gaps exist in the market for fixed income reference data \117\ 
and thus the FIMSAC unanimously adopted the Recommendation on which the 
proposal is based.\118\ Specifically, currently in the U.S. corporate 
bond market, neither underwriters nor issuers are required to submit a 
full set of new issue reference data sufficient to identify, value, and 
settle a bond \119\ to a central depository for public 
dissemination,\120\ and without a full set of reference data fields, 
trading platforms are unable to list a bond for trading.\121\ In 
addition, currently no universal automated means exists for 
underwriters or issuers to distribute new issue data to corporate bond 
market participants.\122\ Furthermore, there is currently no 
requirement that underwriters or issuers provide information about a 
new issue to all reference data providers at the same time.\123\
---------------------------------------------------------------------------

    \117\ See Recommendation, at 1-2. See also Transcript from the 
October 29, 2018 Meeting of the FIMSAC (``FIMSAC Transcript''), 
Comments from Richard McVey, MarketAxess, at 0064-64 (stating that, 
following research and deliberations over the past quarter, ``we 
identified that there are indeed gaps in corporate bond fixed income 
reference data, both in the timing of when that data is available 
with different reference data providers, as well as sometimes the 
accuracy'' and that ``we consider both of those to be significant 
issues'').
    \118\ FIMSAC comprises experts and interested persons 
representing a broad array of fixed income market perspectives, 
including investors, issuers, dealers, trading venues, quantitative 
trading firms, SROs, service providers, and market observers. See 
supra note 11. In addition, the Recommendation states that input was 
considered from reference data providers, underwriters, the 
Municipal Securities Rulemaking Board (``MSRB''), and FINRA. See 
Recommendation, at 1.
    \119\ It is the Commission's understanding that such reference 
data include issuer and issue identifiers and details, such as 
maturity, coupon, par value, payment frequency, amortization 
details, call schedule and convertibility, among other terms and 
conditions. See Recommendation, at 1.
    \120\ See id. at 2. Under current FINRA Rule 6760, members that 
are underwriters of an initial offering of a TRACE-Eligible Security 
are required to submit certain specified information to FINRA prior 
to the execution of the first transaction of the offering to 
facilitate trade reporting and dissemination of transactions. See 
FINRA Rule 6760. The information required by the rule generally is 
limited to the fields needed to set up a bond on TRACE for trade 
reporting purposes, and does not include the more detailed data 
required to price and settle a bond trade. See Notice, at 13978. 
FINRA disseminates some of this new issue information as part of the 
Corporate Security Daily List; however, electronic trading platforms 
generally require more information to make new issues available to 
trade. See id.
    \121\ See FIMSAC Letter, at 1. The FIMSAC noted that the 
research of the Subcommittee indicated that ``the immediate trading 
of newly issued bonds is hampered by the lack of broad distribution 
of the required data fields . . .'' and that ``[i]n practice, each 
reference data provider is able to collect and disseminate new issue 
reference data at different speeds that vary by a few hours to 
several days.'' See id.
    \122\ See Recommendation, at 2. See also FIMSAC Transcript, 
Comments from Spencer Gallagher, ICE Data Services, at 0069-72 
(``Distribution [of new issue reference data] is not consistent in 
both completeness of the content or timeliness of the delivery. . . 
. All said, none of the avenues [for securing new issue reference 
data], underwriter emails, new issue publishing announcement or 
issuer websites provide a comprehensive coverage in a timely manner. 
We piece all of this together as available to us. On the few cases 
where we see no information, we will see the data on Edgar, usually 
via prospectus. But that is well after the pricing event and clearly 
not sufficient for pre-trade and trade workflows.'')
    \123\ See FIMSAC Letter, at 2. See also FIMSAC Transcript, 
Comments from Spencer Gallagher, ICE Data Services, at 0068 
(``[T]here is one area that no investment or no level of ingenuity 
can solve and that is equal access to new issue reference data at or 
prior to first trade execution. . . . [A]ccess and timeliness to 
fixed income reference data has a significant impact on the 
efficiency and inter-operability of the corporate bond markets.''); 
Comments from Bob LoBue, J.P. Morgan, at 0081 (``We do undertake 
some communications, and various dealers do it differently. I can 
comment on JP Morgan. We tend to not disseminate data to third party 
vendors off the corporate platform. I think the point of 
inaccuracies is the reason for that. So, we tend to use Bloomberg as 
our let's ensure it is accurate, and then people can source that 
information from that venue.'')
---------------------------------------------------------------------------

    Current gaps in the availability of new issue reference data 
increase transaction costs and impede competition in the corporate bond 
markets.\124\ As a result

[[Page 67499]]

of these market structure issues, in the Commission's view, having a 
single source of new issue reference data would benefit the corporate 
bond market.\125\ Among other things, reliable and timely reference 
data is necessary to support the efficient trading and settlement of 
corporate bonds; \126\ access to accurate and timely reference data is 
of growing importance as fixed income market participants increasingly 
rely on electronic trading platforms; \127\ and in order to support the 
trading of newly issued bonds on electronic platforms, it is necessary 
that all platform participants price and trade bonds based on 
consistent and accurate information.\128\
---------------------------------------------------------------------------

    \124\ See Recommendation at 2. See also FIMSAC Transcript, 
Comments from Frederic Demesy, Refinitiv, at 0078 (``[A]t the 
moment, we see that there are some market anomalies where some of 
the vendors have access to information much earlier than other 
vendors. And that creates basically competitive advantage on certain 
platforms, which is in my view not ideal for having a transparent 
market. It also incurs higher costs for our customers. The first one 
would be on vendors. Market participants will have to source the 
data from multiple vendors to ensure that all the information is 
available, so [there are] duplicating costs. There is also an 
operational cost related in terms of data quality. So, when you 
onboard multiple feeds, ICE Data Service and Refinitiv data is not 
automatically in the same format. So, the customer has to develop 
operational efficiency tools to standardize the data on their 
platform. And third is when the market participant gets things 
wrong, it can have a huge impact, missing trade opportunities but 
also reputational risks that would be the worst.''); Comments from 
Bob LoBue, J.P. Morgan, at 0080-81 (``And I think the Refinitiv team 
and the ICE team intimating a competitive advantage for Bloomberg, 
there is no question that we do undertake getting our securities set 
up on the Bloomberg trading platform because that is what the 
industry predominately uses to book our tickets.'')
    \125\ See Recommendation at 2.
    \126\ See Recommendation, at 1. See also FIMSAC Transcript, 
Comments from Alex Sedgwick, T. Rowe Price, at 0084-85 (``Electronic 
market-makers ultimately need this information to provide accurate 
pricing and accurate valuation for the prices that they are pushing 
out to the market. If this information is not available, that 
ultimately means that there are liquidity providers that may not be 
able to provide liquidity to us when those new issues are free to 
trade.''); (So, when . . . we are trading on the desk, we need to be 
able to measure our execution against benchmarks. If it takes more 
than a couple of hours or even more than a day for those benchmarks 
to become available, that is an area where we may not be able to do 
accurate trade cost analysis. And that is a very important sort of 
supporting piece of information as we think about best execution on 
the trading desk.'')
    \127\ See Recommendation, at 1. See also FIMSAC Transcript, 
Comments from Frederic Demesy, Refinitiv, at 0077-78 (``[W]e see a 
transformation in the bond markets where in the past market 
participants were expecting the data to be available at the end of 
day or the timeliness was not as important as it is now. Now, a 
market participant wants to have the information when the bond 
prices to set up their platforms to be able to trade. They want to 
have updates intraday, and that is a very big difference from what 
happened maybe two, three or five years ago where end of day updates 
was enough for them to operate. Now, the market participants want 
information intraday. And that forces market vendors . . . to 
rethink the way we distribute the reference data. And obviously the 
more the bond trades electronically, the more market participants 
would want to have this information on time.''); Comments from Alex 
Sedgwick, T. Rowe Price, at 0084 (``Historically, we have noticed 
cases where a new issue does take time to get set up on some of our 
electronic trading platforms, and that means that we can't 
necessarily go and use those electronic trading platforms right 
away. So, we have to trade them via voice or another venue.'')
    \128\ See Recommendation, at 1. See also FIMSAC Transcript, 
Comments from Alex Sedgwick, T. Rowe Price, at 0085 (``I think from 
our perspective, we are supportive of the proposal. Our focus is 
primarily on the automated delivery of accurate and timely data and 
ultimately minimizing secondary dependencies on the desk.'')
---------------------------------------------------------------------------

    FINRA's proposal was also informed by FINRA's outreach to a diverse 
set of market participants--including several data providers, 
underwriters and trading platforms--and that responses from these 
market participants ``demonstrated a regulatory need for consistent, 
uniform, and timely corporate bond new issue reference data.'' \129\ 
Based on this outreach, FINRA observed that various market segments may 
be lacking accurate, complete and timely reference data, including 
smaller traders that may not afford multiple data vendor subscriptions 
and electronic trading platforms.\130\ The Commission believes that the 
results of FINRA's outreach give credence to FIMSAC participants' 
complaints and commenters' statements concerning the lack of timely 
reference data and the resultant impact on their participation in the 
market on the first day a new issue trades in the secondary market.
---------------------------------------------------------------------------

    \129\ See Response Letter, at 4. See also Notice, at 13980-81. 
The concerns of market participants, including data vendors, trading 
venues, and investors, regarding the lack of timely reference data 
are described in detail above. See supra Section III.A. and this 
Section IV.A.1.
    \130\ See Response Letter, at 4. See also Notice, at 13980. In 
response to one commenter who presented data concerning ATS trading 
in new issues purporting to suggest that there is no current access 
problem relating to new issue bond reference data, FINRA reviewed 
TRACE data concerning ATSs and conducted its own analysis, which 
FINRA stated suggests that some ATSs may not be receiving reference 
data in a timely fashion to allow them to begin trading a newly 
issued corporate bond. See Response Letter, at 6-7. See also supra 
note 30. The same commenter disputed FINRA's analysis as flawed. See 
supra note 49. In the Commission's view, any analysis of electronic 
trading in corporate new issues by ATSs is necessarily limited, as 
there are a number of electronic bond trading platforms that are not 
registered as ATSs and there are a number of other types of market 
participants, including investors, intermediaries and data vendors 
that may not have timely access to newly issued bond reference data 
to identify, value and settle bonds on the first day of trading in 
the secondary market. Therefore, the analyses provided by the 
commenter and FINRA, which focus on ATS trading in new issues, is 
not reflective of the market for newly issued corporate bonds as a 
whole.
---------------------------------------------------------------------------

    In sum, the record reflects that a gap currently exists in the 
market of newly issued corporate bond reference data--i.e., the lack of 
broadly available and accessible new issue reference data on the first 
day of secondary market trading. And this gap can impede the efficiency 
and competition in the current marketplace. FINRA's proposal is 
reasonably designed to address this regulatory gap in the current 
market to the benefit of the marketplace.
    The proposal would require that all data elements for new issues in 
corporate debt securities be reported prior to the first transaction in 
the security.\131\ FINRA stated this approach--to require uniform pre-
first trade reporting--would allow FINRA to collect and make all of the 
data available immediately to market participants, resulting in a more 
consistent, timely and complete data set that will support more 
efficient pricing, trading and settlement of bonds.\132\ As discussed 
further below, the data required to be reported will allow market 
participants to identify, value and settle corporate bond 
transactions.\133\ For this reason, it is important for all such data 
fields to be reported to FINRA prior to the first transaction in the 
security. Furthermore, the Commission recognizes that there may be an 
incremental burden on underwriters; however, the Commission believes 
this burden will be mitigated both by the existence of current 
reporting infrastructures to FINRA and the fact that the data elements 
to be reported are likely already in the possession of underwriters, 
given the use of this information in the newly issued bond's primary 
offering.\134\
---------------------------------------------------------------------------

    \131\ Currently, for information reported under Rule 6760 for 
trade reporting purposes, the rule allows phased reporting in some 
cases. Specifically, for an offering of a security that is priced 
and begins trading on the same business day between 9:30 a.m. and 
4:00 p.m. Eastern Time, Rule 6760 requires certain information to be 
reported before the first trade in the security and remaining 
information within 15 minutes of the time of the first trade. 
Otherwise, the current rule requires all information to be reported 
before the first trade in the security. See Rule 6760.
    \132\ See Notice, at 13979. FINRA noted that the Recommendation 
stated that managing underwriters should be required to report the 
data elements to FINRA no later than reporting such data elements to 
any third party not involved in the offering, including reference 
data vendors. See Recommendation, at 3.
    \133\ See infra Section IV.A.2.
    \134\ See infra Section IV.B.
---------------------------------------------------------------------------

    FINRA has put forth a reasonable basis for requiring pre-first 
trade reporting of the reference data (i.e., to facilitate the 
collection and dissemination of all proposed new issue reference data 
fields before secondary trading begins), and we believe that FINRA's 
proposed reporting requirements and dissemination protocol of such data 
are reasonably designed to address a gap in the current market by 
facilitating access to timely and accurate new issue corporate bond 
reference data, consistent with Section 15A(b)(6) of the Act. The 
reporting of the reference data prior to the first transaction in the 
security and FINRA's dissemination of such information will enable 
FINRA to provide all market participants with the ability to have the 
information concerning a newly issued corporate bond in order to 
participate in the secondary market effectively when the bond begins 
trading, promoting market efficiency and fair competition among all 
market participants.
    Currently, the inability of market participants that lack reference 
data to trade newly issued corporate bonds reduces the breadth of 
participation in the secondary market, thereby

[[Page 67500]]

impacting liquidity, market efficiency and price competition.\135\ 
FINRA's proposal is designed to provide all investors with timely 
access to the same information to allow for the identification, 
valuation, and settlement of newly issued corporate bonds, promoting 
equitable principles of trade and protecting investors from the 
negative impacts of information asymmetry. As such, the Commission 
believes that the availability of the required newly issued corporate 
bond reference data to all market participants at the same time will in 
turn support the fair and efficient trading, valuation, and settlement 
of new issue corporate bonds by all market participants. For these 
reasons, the Commission believes that FINRA's proposal is consistent 
with Section 15A(b)(6) of the Act as it promotes just and equitable 
principles of trade and fosters cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitates transactions in newly 
issued corporate bonds.
---------------------------------------------------------------------------

    \135\ See e.g., Recommendation at 2 (noting that ``common access 
to timely and accurate corporate bond reference data would increase 
the efficiency and interoperability of the corporate bond market and 
promote fair competition among all market participants.'')
---------------------------------------------------------------------------

    In addition, and as noted by FINRA, the FIMSAC, and commenters, in 
considering the need for improved corporate new issue reference data, 
it is informative to look to the municipal bond market, which currently 
has a centralized reference data service.\136\ Specifically, pursuant 
to MSRB Rule G-34, underwriters must submit new issue information for 
municipal bonds to the New Issue Information Dissemination Services 
(``NIIDS''), which is operated by the Depository Trust and Clearing 
Corporation (``DTCC''). The information required to be reported 
includes all data elements that must be populated for DTCC to mark the 
issue as ``trade eligible.'' \137\ NIIDS then makes this new issue data 
immediately available to reference data providers that provide or sell 
such information to market participants.\138\ The FIMSAC found that the 
municipal bond market has largely avoided reference data access 
problems due to this structure.\139\
---------------------------------------------------------------------------

    \136\ See Notice, at 13982-83; Recommendation, at 1-2; ICE Data 
Letter, at 2 (``The current system for submitting and disseminating 
new issue information for municipal bonds established under MSRB 
Rule G-34 provides a successful model and we support the Proposal's 
intent to similarly collect and disseminate data for corporate bond 
new issues.'').
    \137\ The FIMSAC notes that this information includes ten data 
elements required to set up an issue in the NIIDS, as well as up to 
70 additional data elements. See Recommendation, at 1.
    \138\ See MSRB Rule G-34(a)(ii)(C).
    \139\ See Recommendation, at 2. See also FIMSAC Transcript, 
Comments from Spencer Gallagher, ICE Data Services, at 0070-74 
(``Conversely, in the muni market, we do not have this problem. We 
can clearly state when a reference data is available on municipal 
new issues. The award date and time is established and the data is 
made available prior to the first execution. For municipals, new 
issue reference data dissemination is mandated . . . . This was a 
positive transformation in the way municipal content was made 
available. We re-tooled our products to make sure our clients had 
increased access to data to fit the more efficient new issue 
dissemination and trade reporting requirements. This had a 
significant impact on the muni market as it could now depend [sic] 
sufficient content to execute pre-trade and trade activities without 
a scramble to secure the required new issue reference data.'')
---------------------------------------------------------------------------

    Some commenters argued that the proposal is materially unlike the 
MSRB's NIIDS, which should not be relied on by FINRA as precedent, 
because the circumstances surrounding the development and the 
implementation of the NIIDS were very different than those surrounding 
FINRA's proposal.\140\ But regardless of the development and 
implementation, the substance of FINRA's proposal is similar to the 
MSRB's NIIDS. At the time the MSRB proposed the rule requiring 
underwriters to report certain new issue reference data to NIIDS, it 
stated that such requirement was ``intended to ensure that the 
information reaches information vendors and is further re-disseminated 
for use in automated trade processing systems by the time that trade 
executions begin in a new issue.'' \141\ The MSRB articulated many of 
the same concerns noted by FINRA's proposal and raised by FIMSAC and 
other market participants, recognizing that access to necessary 
securities information depended not only on links with information 
vendors, but also on whether or not information vendors have 
information concerning the new issue.\142\ In particular, concern was 
expressed that not all information vendors had the necessary reference 
data at the time of the first trade because obtaining such information 
often required the voluntary cooperation of underwriters.\143\
---------------------------------------------------------------------------

    \140\ See Bloomberg Letter, at 14-15; Chamber Letter II, at 3-4.
    \141\ See Securities Exchange Act Release No. 57131 (January 11, 
2008), 73 FR 3295 (January 17, 2008) (MSRB-2007-08) (``MSRB NIIDS 
Proposal''), at 3297.
    \142\ See MSRB NIIDS Proposal, supra note 141.
    \143\ See id. at 3296.
---------------------------------------------------------------------------

    These very same concerns are at the core of FINRA's proposal and 
FIMSAC's recommendation with respect to the corporate bond market. The 
Commission therefore finds the impact of NIIDS informative for purposes 
of FINRA's proposal, and as market participants have noted, the NIIDS 
has had a positive impact on the market for new issue municipal 
bonds.\144\ As a result, taking into account the positive experience of 
market participants with the NIIDS, the Commission is further convinced 
that FINRA's proposal, which is similar to the NIIDS, is reasonably 
designed to achieve the purposes of Section 15A(b)(6) of the Act, 
including to promote just and equitable principles of trade and to 
remove impediments to and perfect the mechanism of a free and open 
market for new issue corporate bonds.
---------------------------------------------------------------------------

    \144\ See supra notes 136 and 139 and accompanying text.
---------------------------------------------------------------------------

2. The Proposed Data Elements Allow for the Identification, Valuation, 
and Settlement of Newly Issued Corporate Bonds

    The proposed data elements to be included in the database are 
appropriate and will allow for market participants to be able to 
participate in the secondary market of a newly issued corporate bond on 
the first day that bond trades. FINRA's proposal would require all 
underwriters to report to FINRA 32 new data elements for all new issues 
in Corporate Debt Securities. The required data fields proposed to be 
reported and disseminated, together with data fields already specified 
in the current rule, reflect all but one of the fields that were 
described in the Recommendation and in the supplemental FIMSAC 
Letter,\145\ and include additional data fields identified by FINRA 
during its supplemental industry outreach.\146\ As noted by FINRA, 
several fields specified in the proposed rule change are already 
required to be reported or are reported voluntarily on the FINRA TRACE 
New Issue Form.\147\ In addition to the

[[Page 67501]]

FIMSAC,\148\ a number of commenters agreed with the required data 
fields put forth by FINRA.\149\ FINRA set forth a detailed description 
of each new required data field \150\ and the rationale for including 
the field, as follows: \151\
---------------------------------------------------------------------------

    \145\ See Recommendation at Schedule A; FIMSAC Letter at 
Schedule A. The one field from the Recommendation that FINRA did not 
include is ``Calculation Types (CALT).'' FINRA stated that it 
understands from industry outreach that this field leverages 
calculation methodology that is specific to one data vendor's 
protocols and may not be readily available to all underwriters that 
would be required to report information to FINRA under Rule 6760, or 
to consumers of the data. See Notice, at 13978, n.8.
    \146\ FINRA stated these additional fields were indicated by 
market participants as important in liquidity and risk assessment. 
See Notice, at 13978-79. See also Amendment No. 2, Exhibit 3.
    \147\ See Notice, at 13978. The FINRA TRACE New Issue Form is 
used by firms to set up securities pursuant to firms' existing 
obligations either under Rule 6760 or 6730 (Transaction Reporting). 
It allows for the submission of data fields required by these rules 
as well as additional data fields that underwriters often report 
voluntarily. As part of the proposal, FINRA would codify in Rule 
6760 the specific fields that have been deemed necessary under 
current Rule 6760(b) and therefore are mandatory for successful 
submission of the TRACE New Issue Form. See Notice, at 13978, n.9.
    \148\ See supra note 145 and accompanying text.
    \149\ See, e.g., Harris Letter, at 6 (``The fields on the FINRA 
list are sufficient to value most bonds. . . . I believe that FINRA 
chose the fields wisely.''); ICE Data Letter, at 2 (``ICE Data 
Services believes the scope of the Proposal is appropriate and we 
support the inclusion of the 30 data fields enumerated in the 
Proposal's Exhibit 3.'').
    \150\ FINRA Rule 6760 currently requires underwriters to report 
to FINRA the following information: Issuer; Coupon; CUSIP Number; 
Maturity; 144A Eligibility Indicator; the time that a new issue is 
priced and, if different, the time that the first transaction in the 
offering is executed; a brief description of the issue; and such 
other information as FINRA deems necessary to properly implement the 
reporting and dissemination of a TRACE-Eligible Security. FINRA's 
proposal will require that these data elements be reported to FINRA 
prior to the first transaction in the security in all instances.
    \151\ See Amendment No. 2, Exhibit 3. Similar rationale for each 
data field was also put forth by the FIMSAC. See FIMSAC Letter, at 
Schedule A. In addition, in Amendment No. 2, FINRA set forth its 
rationale for including certain data fields currently required to be 
reported under Rule 6760, as follows: Issuer--necessary for 
settlement and valuation purposes; the investor needs to know the 
issuing entity of the bond; Coupon--needed for settlement and 
valuation purposes; the coupon rate is needed for accrual/interest/
cash flow calculations; CUSIP Number--needed to uniquely identify 
securities that trade, clear, and settle in North America, 
particularly in the United States; Maturity--necessary for 
settlement and valuation purposes; this field is necessary in order 
to understand when the bond is due to pay back its principal at par; 
this field is used to back populate accruals and cash flows; and 
144A Eligible Indicator--necessary for settlement purposes; this 
field is needed to distinguish 144A securities for QIB eligible 
investors. See Amendment No. 2, Exhibit 3. See also FIMSAC Letter, 
at Schedule A.
---------------------------------------------------------------------------

     ISIN Number--needed to uniquely identify securities that 
are traded and settled internationally outside of North America.
     Currency--necessary for settlement purposes in order to 
determine the currency of the principal, interest, or premium that will 
be paid or received at the time of distribution or settlement of a 
trade.
     Issue Date/First Settlement Date--needed for settlement 
purposes; it is required in order to populate the first settlement date 
of the bond; and when trading new issues, this field is needed in order 
to settle the bond trade between counterparties.
     Interest Accrual Date--necessary for settlement and 
valuation purposes; this field is needed in order to start the cash 
flow period of the coupon.
     Day Count Description--necessary for settlement and 
valuation purposes; this field is needed to calculate the purchase 
accrued interest and coupon of the security.
     Coupon Frequency--necessary for settlement and valuation 
purposes; this field is needed to determine how often the coupon 
payment is made within the year and to calculate the purchase accrued 
interest and coupon payments.
     First Coupon Payment Date--necessary for settlement and 
valuation purposes; this field is needed to determine whether the 
coupon will have a short or long stub on its first coupon payment.
     Regulation S Indicator--this field is necessary for 
settlement purposes; this field is needed to distinguish Regulation S 
securities for non-U.S. entities.
     Security Type -needed to identify the type of security 
being traded and its terms/features.
     Bond Type--necessary for valuation purposes; this field is 
needed as the bond classification dictates the payout order in the 
event of an issuer default; this field determines the liquidation 
preference which specifically affects the valuation of the security.
     First Coupon Period Type--necessary for settlement and 
valuation purposes; this field will denote whether the coupon will have 
a short or long stub on its first coupon payment depending on the 
security's issue date.
     Convertible Indicator--necessary for valuation purposes; 
this indicator is necessary to understand if the bond is convertible 
and to allow set up with the underlying equity and conversion price/
conversion ratio.
     First Conversion Date--necessary for valuation purposes as 
it is needed to determine when the bond may be converted into stock.
     First Conversion Ratio--necessary for valuation purposes 
as it is needed to determine the number of shares into which each 
convertible bond can be converted.
     Call Indicator--necessary for valuation purposes; this 
field is needed in order to know if the bond has call feature(s); this 
is needed when the security is created and will also have an effect on 
its valuation.
     First Call Date--necessary for valuation purposes; this 
field is needed in order to know the first call date of the security 
and will have an effect on bond valuation.
     Put Indicator--necessary for valuation purposes; this 
field is needed in order to know if the bond has puttable feature(s); 
this is needed when the security is created and will also have an 
effect on its valuation.
     First Put Date--necessary for valuation purposes; this 
field is needed in order to know the first put date of the security and 
will have an effect on bond valuation.
     Minimum Increment--necessary for settlement purposes; 
needed in order to understand the minimum incremental amount of bonds 
that an entity can buy and settle at the depository.
     Minimum Piece/Denomination--necessary for settlement 
purposes; needed in order to understand the minimum tradeable amount of 
bonds that an entity can buy and settle at the depository.
     Spread; Reference Rate & Floor--necessary for settlement 
and valuation purposes; needed to build a cash flow table for the 
security which determines the coupon for the period; directly affects 
the purchase accrued interest and future interest distributions; needed 
to calculate the purchase and interest accrued.
     Underlying Entity Ticker--necessary for valuation 
purposes; needed to value convertible bonds.
     Issuance Amount--addresses the size of the deal, which is 
a data attribute for index inclusion criteria across most every fixed 
income index; would have influence on ETF, liquidity, etc.
     First Call Price & First Put Price--critical for option 
adjusted spread (OAS) and average life calculations; represent 
important fields for most clients (especially retail investors) when 
they gauge re-investment risk.
     Coupon Type--field denotes potential complexity and 
predictable cash flow data.
     Rating (TRACE Grade)--important to assess risk; FINRA 
utilizes ratings to determine TRACE grade (Investment Grade or Non-
Investment Grade) which determines dissemination volume caps.
     Perpetual Maturity Indicator--field is used in pre-trade 
compliance; yield calculations generally use first call on perpetual 
securities.
     PIK Indicator--field used in pre-trade compliance as it 
indicates cash flow implications and risk for many investors.
    As set forth above, FINRA has explained (and commenters have 
agreed) \152\ that each data field is required to either identify, 
settle or value a newly issued corporate bond. FIMSAC confirmed FINRA's 
rational for including each data field.\153\ The Commission agrees with 
FINRA, and believes that because the proposed data fields allow for the 
identification, valuation and settlement of newly issued corporate 
bonds, the proposal for collecting and disseminating such data will 
``promote just and equitable principles of trade, foster cooperation 
and coordination with persons engaged

[[Page 67502]]

in regulating, clearing, settling, processing information with respect 
to, and facilitating transactions in'' newly issued corporate bonds, 
and ``remove impediments to and perfect the mechanism of a free and 
open market'' with respect to the market in such securities, consistent 
with Section 15A(b)(6) of the Act.
---------------------------------------------------------------------------

    \152\ See supra notes 148-149.
    \153\ See FIMSAC Letter, at 2-3 and Schedule A.
---------------------------------------------------------------------------

B. Burden on Underwriters

    As noted above, FINRA's proposal would require pre-first 
transaction reporting by all underwriters to FINRA of 40 data elements 
for all new issues in Corporate Debt Securities, which includes 32 new 
data elements not currently required. Some commenters raised concerns 
regarding increased burdens on underwriters due to such reporting 
requirements, and on small underwriters in particular.\154\ FINRA 
stated that ``[b]ased on conversations with underwriters, FINRA 
understands that underwriters do not anticipate incurring significant 
costs for reporting under this proposal.'' \155\ In addition, FINRA 
acknowledged the concern that underwriters that underwrite fewer deals 
may be disproportionally burdened if there are fixed costs associated 
with amending an underwriter's reporting system to meet the additional 
requirements of the proposal, but stated that any such additional 
burden ``may be alleviated because reporting to FINRA would reduce or 
eliminate the need for underwriters to report to other parties, or by 
the fact that underwriters can leverage investments already made in the 
existing reporting system necessary under Rule 6760.'' \156\ 
Furthermore, the FIMSAC stated that they heard from underwriters that 
it would be relatively easy for them to report the new issue reference 
data to FINRA given the current established reporting mechanisms to 
TRACE.\157\
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    \154\ See supra notes 32-33. One commenter presented evidence of 
the size of underwritten investment grade corporate bonds in 2019, 
stating that ``through October 7, 33 underwriters have each 
underwritten more than $1 billion (notional year to date, while 59 
other underwriters also have priced issues during 2019--
overwhelmingly for small issues of less than $25 million'' and 
stated that FINRA has failed to address the differential impact of 
the proposed new compliance burden on different sized underwriters. 
See Bloomberg Letter IV, at 5, n.10. Other commenters supported the 
proposal's pre-first transaction reporting requirement. See ICE 
Bonds Letter, at 2 (``In order to avoid disadvantaging ATS 
subscribers and their clients, we believe it is critical for the 
rule to establish conditions that allow ATS providers to access the 
data required to trade and settle a transaction in a new issue 
corporate bond prior to the start of secondary market trading''). 
See also ICE Data Letter, at 2.
    \155\ See Notice, at 13982.
    \156\ See id. See also FIMSAC Transcript, Comments from Spencer 
Gallagher, ICE Data Services, at 0074 (``Possibly, the 
centralization will work out in [the underwriters'] benefit as 
underwriters are distributing through just one pipe instead of the 
multiple pipes that they do today.'')
    \157\ See FIMSAC Letter, at 3. See also FIMSAC Transcript, 
Comments from Bob LoBue, J.P. Morgan, at 0080 (``We have a 15-minute 
window post-pricing to deliver the pricing information of FINRA for 
trace eligibility. And we could talk about . . . while we are 
delivering to FINRA, I think both FINRA and ourselves would say we 
could probably populate that a little bit deeper.'').
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    The Commission agrees that any increased burdens on underwriters, 
including smaller underwriters, would be limited. Underwriters, 
including small underwriters, are already required to report some 
information related to new issue bonds to FINRA.\158\ That means that 
all underwriters of Corporate Debt Securities have already developed 
data reporting mechanisms to FINRA for purposes of transmitting 
required data concerning these securities. Indeed, the purpose behind 
FIMSAC's recommendation to have FINRA establish this database, as 
opposed to another entity, was to minimize any burdens on underwriters 
by utilizing existing reporting infrastructures.\159\ While the 
proposed rule would require underwriters to report a larger number of 
data elements allowing for the identification, valuation, and 
settlement of a bond, the proposal itself merely expands upon an 
existing reporting requirement in FINRA's rules and requires 
underwriters to report additional data fields.\160\ The Commission 
recognizes that there may be an incremental burden on underwriters due 
to reporting additional data fields; however, the Commission believes 
this burden will be mitigated both by the existence of current 
reporting infrastructures to FINRA and the fact that the data elements 
to be reported are likely already in the possession of underwriters, 
given the need for this information by investors in the newly issued 
bond's primary offering. Furthermore, as discussed herein, the 
Commission believes that the proposal would benefit the corporate bond 
market by, among other things, reducing costs for participants in the 
market, and such benefits would outweigh any increased burdens on 
underwriters due to the proposal.\161\
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    \158\ See FINRA Rule 6760.
    \159\ See Recommendation supra note 12.
    \160\ In response to commenter concerns about underwriters 
facing potential liability for errors in reporting, the Commission 
recognizes that underwriters may be subject to antifraud liability. 
However, the Commission notes that the information to be provided to 
FINRA under this proposal is a subset of the information 
underwriters currently provide to investors in the primary offering. 
For this reason, the Commission believes that the risk of potential 
additional liability for reporting this subset of information to 
FINRA is minimized.
    \161\ See supra notes 114; 122-128 and accompanying text. 
Additionally, FINRA stated in its Response Letter that it believes 
it is important to maintain the proposal's pre-first transaction 
reporting requirement and that ``on balance, the significant 
benefits of requiring all data fields to be reported pre-first trade 
outweigh the additional burdens on underwriters.'' See Response 
Letter, at 14.
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C. Competition

    A number of commenters raised concerns that the proposal would 
diminish competition among private sector reference data providers by 
displacing existing for-profit competition with a regulator-provided 
service.\162\ On the other hand, FINRA, along with a number of other 
commenters,\163\ stated that the proposal would actually promote 
competition among data providers by reducing costs and barriers to 
entry.\164\ The proposal would require underwriters to report a limited 
set of data that will allow for the identification, valuation and 
settlement of new issue corporate bonds, leaving data vendors with 
space to continue competing on a variety of value-added services. 
Indeed, as noted by one commenter, data vendors currently sell 
reference data products that provide data in addition to FINRA's 
proposed required data fields, and these additional data presumably 
provide value to their customers.\165\
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    \162\ See supra notes 51-54 and accompanying text. These 
commenters were further concerned that diminished competition would 
result in a lack of innovation, poor data quality, and a potential 
single point of failure. See id. See also supra note 71. The 
Commission notes that FINRA's proposal is designed to provide 
information that will allow for the identification, valuation, and 
settlement of corporate bonds broadly to the market before such 
bonds begin trading in the secondary market. As discussed below, the 
Commission believes that data vendors will likely continue to 
compete based on differing value added services related to the 
required information and also based on additional data fields, data 
updates, and data quality and that such competition should continue 
to spur innovation and allay concerns regarding a single point of 
failure and error rates. Furthermore, FINRA has stated that the 
required data fields would be system validated fields, meaning that 
FINRA would employ systemic and operational checks for all of the 
data fields to determine if any fields are missing or not conforming 
to expected format or standards at the time of submission, and 
therefore the instance of reconciliation differences should be 
reduced. See supra notes 75-76 and accompanying text.
    \163\ See supra notes 56-58 and accompanying text.
    \164\ See Response Letter, at 8-9.
    \165\ See Harris Letter at 4 (noting that such additional data 
includes ratings and indications of whether an issuer is currently 
in default, in an agreement to merge, or negotiating such an 
agreement). One commenter who argued the proposal would diminish 
competition amongst reference data providers nevertheless stated 
that market participants currently demand more reference data fields 
than FINRA is proposing to collect. See Bloomberg Letter, at 13-14. 
In addition, this commenter noted that since FINRA's proposal was 
filed, competition in this area has increased. See supra note 30.

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[[Page 67503]]

    We conclude that, as the FIMSAC noted, the limited set of data 
proposed to be reported and disseminated to allow for the 
identification, valuation and settlement of new issue corporate bonds 
would not supplant the demand for a more comprehensive reference 
database with enhanced data sets that contain additional fields not 
reported to or disseminated by FINRA.\166\ For example, reference data 
providers could continue to provide the same data as would be 
disseminated by FINRA, while offering additional value add-ons with 
respect to such data, such as additional data concerning the newly 
issued bond, enhanced presentation, ease of access, and integration to 
other data.\167\ Moreover, any reference data provider that sources its 
initial reference data fields from FINRA would also have the 
opportunity to provide a value-added service by scrubbing the FINRA 
data before redistributing to its own subscribers to ensure acceptable 
data quality for its customers.\168\ Furthermore, the proposal only 
applies to new issue corporate bond data and does not contemplate 
collecting and disseminating updates to this data throughout the life 
of the bond. The Commission believes that while FINRA's proposal will 
provide certain basic information for a bond allowing for the 
identification, valuation, and settlement of newly-issued bonds, market 
participants will continue to require additional data and value-added 
services from reference data providers beyond what will be provided by 
FINRA. As such, the Commission believes that reference data providers 
will continue to compete and innovate in order to meet the additional 
needs of their customers. Furthermore, because of the limited scope of 
the data required to be reported pursuant to the proposal and the range 
of services provided by data vendors, the Commission believes that any 
negative competitive impact would be minimal. Finally, the potential 
benefits of the proposal discussed above, including furtherance of the 
purposes of Section 15A(b)(6), justify the minimal competitive burden 
on reference data vendors that may result from this proposal. The 
Commission thus finds that the proposal is consistent with Section 
15A(b)(9) of the Act, and does not impose any burden on competition not 
necessary or appropriate in furtherance of the purposes of the Act.
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    \166\ See FIMSAC Letter, at 3. There are many other data 
provided by reference data providers concerning a bond issue, such 
as issuer information (e.g., fundamentals data, capital structure 
data), specific bond rating, bond trade and selling restrictions, 
classification data (industry, legal entity, etc.), corporate action 
data, ESG (Environmental, Social & Governance) data, dividend data, 
instrument analytics data, and security ownership data. See e.g., 
IHS Markit Reference Data Bonds Factsheet, available at https://cdn.ihs.com/www/pdf/Reference-Data-Bonds-factsheet.pdf; Bloomberg 
Reference Data Content and Data, available at https://www.bloomberg.com/professional/product/reference-data/.
    \167\ See Response Letter, at 9.
    \168\ Commenters have expressed concerns about FINRA's proposed 
reference database in light of evidence that the commenters believe 
show that FINRA's current collection of bond data contains a high 
incidence of errors. See supra notes 52-54. In response, FINRA has 
stated that the Tabb Study cited by certain commenters is not clear 
as to what TRACE data was used for the analysis or which point in 
time during the trading day was used to compare TRACE data with the 
vendor's data, and that the analysis does not explain which of the 
two sources (TRACE or the vendor) were deemed accurate (it only 
references ``reconciliation differences'') or whether the 
differences included cases where data was not yet present in either 
system. See Response Letter, at 10-11. See also supra notes 73-76 
and accompanying text. In response, one commenter stated that 
FINRA's response is ``puzzling'' as the Tabb Study states that it 
used the ``initial release'' of FINRA's own ``TRACE Corporate and 
Agency Master file,'' and the commenter stated that neither FINRA 
nor any other commenter contests that the concern is with the 
inaccuracy of FINRA's data. See Bloomberg Letter V, at 2. The 
Commission is not persuaded that error rates (whatever they may be) 
in TRACE data call into question the reliability of FINRA's proposed 
reference database. In this regard, FINRA has stated that it will 
engage with market participants on the appropriate business 
requirements for the reporting process, it intends to implement 
functionality to allow for underwriters to correct previously 
submitted data to FINRA for a significant period after receiving the 
initial Rule 6760 submission, it may take a phased approach to 
implementation to promote compliance and data accuracy, and data 
reported to FINRA will be system-validated. See Response Letter, at 
11-15. The Commission believes that these statements indicate that 
FINRA is committed to establishing a reliable reference database.
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D. Fees

    A number of commenters asserted that FINRA did not provide enough 
information to justify the fees it proposed to charge subscribers of 
the new issue reference data service under Section 15A(b)(5) of the 
Act.\169\ In response, FINRA withdrew the proposed subscription fees 
from the proposal and stated that it will submit a separate filing to 
establish fees related to the new issue reference data service at a 
future date and will implement the service after those fees are 
adopted.\170\ Several commenters objected to the withdrawal of fees, 
stating that the proposed fees from a critical part of the proposal 
without which the Commission and the public cannot assess the costs of 
the proposal, and that filing such fees at a later date will cause such 
fees to be immediately effective upon filing, thus allowing FINRA to 
avoid regulatory and public scrutiny of the fees.\171\
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    \169\ See supra notes 79-81 and accompanying text.
    \170\ See Amendment No. 2, at 4.
    \171\ See supra notes 84-86. SROs are required by Section 19(b) 
of the Act and Rule 19b-4 thereunder to file proposed rule changes 
with the Commission on Form 19b-4. The Act provides that a proposed 
rule change may not take effect unless it is approved by the 
Commission pursuant to Section 19(b)(2) of the Act, or it becomes 
immediately effective upon filing pursuant to Section 19(b)(3)(A) of 
the Act. Rule 19b-4(f) under the Act specifies the types of proposed 
rule changes that may become immediately effective upon filing with 
the Commission, and includes those properly designated by the SROs 
as ``establishing or changing a due, fee, or other charge imposed by 
the self-regulatory organization.'' See Rule 19b-4(f)(2) under the 
Act.
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    The Commission disagrees that separating the fee proposal into a 
subsequent filing would allow FINRA to avoid regulatory and public 
scrutiny of the proposed fees. FINRA cannot charge fees for the 
proposed data service until the Commission receives a proposed rule 
change that complies with the Act and Commission rules concerning 
proposed fee changes. All proposed rule changes, including proposed fee 
changes, are subject to public notice and comment and must be 
consistent with the Act. As required by Section 19(b)(1) of the Act, 
the Commission must publish notice of all proposed rule changes and 
must give interested persons an opportunity to comment, whether or not 
such proposed rule change is immediately effective or not. The 
instructions to Form 19b-4 state that the form ``is intended to elicit 
information necessary for the public to provide meaningful comment on 
the proposed rule change . . . and for the Commission to determine 
whether the proposed rule change . . . is consistent with the 
requirements of the Act and the rules and regulations thereunder . . . 
as applicable to the self- regulatory organization and in accordance 
with the requirements for each type of filing.'' A proposed fee filing 
must fully and fairly describe the operation of the applicable fee 
(including its effect on market participants) and do so in sufficient 
detail so that the public can understand the proposal sufficiently to 
provide meaningful comment and the Commission can determine whether the 
proposal is consistent with the Act.
    A proposed fee filing by a national securities association such as 
FINRA must also address all relevant statutory requirements, including 
Section 15A(b)(5) of the Act which requires that ``[t]he rules of the 
association provide for the equitable allocation of reasonable dues, 
fees, and other charges among members and issuers and other persons

[[Page 67504]]

using any facility or system which the association operates or 
controls;'' Section 15A(b)(6) of the Act, which requires, in part, that 
the rules of an association are ``not designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers;'' and 
Section 15A(b)(9) of the Act, which requires, in part, that the rules 
of an association ``not impose any burden on competition not necessary 
or appropriate in furtherance of the purposes of this title.'' 
Regardless of whether a fee proposed by FINRA is effective upon filing 
with the Commission, the Commission assesses whether or not the fee 
proposal is consistent with the Act.\172\ If the Commission determines 
that a fee filing merits further review, which may be informed by the 
required notice and comment process, the Commission may temporarily 
suspend it and issue an order instituting proceedings to determine 
whether to approve or disapprove the proposal.\173\
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    \172\ Furthermore, in contrast to one commenter's assertion, 
FINRA has the burden of demonstrating that a proposed fee is 
consistent with the Act and the rules and regulations thereunder, 
regardless of whether the proposed fee is effective upon filing with 
the Commission. See Securities and Exchange Commission Rules of 
Practice, Rule 700 (b)(3) (17 CFR 201.700(b)(3)). See also supra 
note 87.
    \173\ See Section 19(b)(3)(C) of the Act, authorizing the 
Commission at any time within 60 days of the date of filing of a 
proposed rule change pursuant to Section 19(b)(1) of the Act, to 
summarily temporarily suspend the change in the rules of an SRO 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, and Section 
19(b)(2)(B) of the Act, setting forth a notice and hearing procedure 
for an order instituting proceedings.
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    The Commission further disagrees that it cannot adequately assess 
the proposal's consistency with the Act and its economic effects 
without knowing the fees that FINRA will charge for the proposed 
reference data service. As discussed above, the proposal is intended to 
provide accurate, complete, and timely access to basic information 
regarding newly issued corporate bonds and FINRA has stated that the 
proposal was modeled as a regulatory utility. The Commission's 
consideration of the proposal, including the burden on underwriters, 
the proposal's impact on competition among market participants, 
including other data vendors, and its impact on efficiency and capital 
formation, is based upon the understanding that the fees assessed will 
be consistent with these representations. And, based on that 
understanding, the Commission finds that the proposal is consistent 
with the Act. The Commission will also evaluate FINRA's eventual fee 
application based on this understanding.
    Finally, while the Commission outlined various concerns relating to 
effective-upon-filing fee changes for NMS plans under Rule 608(b) in 
the Proposed Regulation NMS Fee Amendment, we do not believe those 
concerns call into question our approach here. Fee filings in this 
context would, of course, be governed by Section 19 of the Act rather 
than Rule 608. More importantly, as stated above, the Commission 
assesses whether or not any fee proposal filed under Section 19 of the 
Act is consistent with the Act. If the Commission determines that a fee 
filing merits further review, which may be informed by the required 
notice and comment process, the Commission may temporarily suspend it 
and issue an order instituting proceedings to determine whether to 
approve or disapprove the proposal. And, again, the Commission will 
make that assessment in the context of FINRA's assertion that the new 
database was modeled as a regulatory utility.

V. Conclusion

    The Commission has carefully considered the proposal, as modified 
by Amendment No. 2, the comment letters received, and FINRA's Response 
Letter, and, for the reasons discussed throughout, finds that the 
proposal is consistent with Sections 15A(b)(6) and 15A(b)(9) of the 
Act.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\174\ that the proposed rule change (SR-FINRA-2019-008), as 
modified by Amendment No. 2 thereto, be, and it hereby is, approved.
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    \174\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\175\
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    \175\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-26498 Filed 12-9-19; 8:45 am]
 BILLING CODE 8011-01-P