Document ID: SEC-2016-2298-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2016-12-27T05:00Z

[Federal Register Volume 81, Number 248 (Tuesday, December 27, 2016)]
[Notices]
[Pages 95247-95250]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-31112]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79620; File No. SR-FINRA-2016-046]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Relating to Reporting Transactions in U.S. 
Treasury Securities to the Trade Reporting and Compliance Engine

December 20, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on December 14, 2016, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by FINRA. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to amend FINRA Rule 6710 to clarify the 
definitions of ``Auction Transaction'' and ``When-Issued Transaction'' 
for the purposes of reporting transactions in U.S. Treasury Securities 
to the Trade Reporting and Compliance Engine (``TRACE'').
    Below is the text of the proposed rule change. Proposed new 
language is in italics; proposed deletions are in brackets.
* * * * *

6000. QUOTATION AND TRANSACTION REPORTING FACILITIES

* * * * *

6700. TRADE REPORTING AND COMPLIANCE ENGINE (TRACE)

6710. Definitions

    The terms used in this Rule 6700 Series shall have the same meaning 
as those defined in the FINRA By-Laws and rules unless otherwise 
specified. For the purposes of this Rule 6700 Series, the following 
terms have the following meaning:
    (a) through (ee) No Change.
    (ff) ``Collateralized Debt Obligation'' (``CDO'') means a type of 
Securitized Product backed by fixed-income assets

[[Page 95248]]

(such as bonds, receivables on loans, or other debt) or derivatives of 
these fixed-income assets, structured in multiple classes or tranches 
with each class or tranche entitled to receive distributions of 
principal and/or interest in accordance with the requirements adopted 
for the specific class or tranche. A CDO includes, but is not limited 
to, a collateralized loan obligation (``CLO'') and a collateralized 
bond obligation (``CBO'').
    ([ff]gg) ``Auction'' means the bidding process by which the U.S. 
Department of the Treasury sells marketable securities to the public 
pursuant to Part 356 of Title 31 of the Code of Federal Regulations.
    ([gg]hh) ``Auction Transaction'' means [the purchase of] a 
transaction in which a member is awarded a U.S. Treasury Security in an 
Auction.
    ([hh]ii) ``When-Issued Transaction'' means a transaction in a U.S. 
Treasury Security that is executed before the [Auction for] issuance of 
the security.

   Supplementary Material: ------

    .01 No Change.
* * * * *

6730. Transaction Reporting

    (a) through (b) No Change.

(c) Transaction Information To Be Reported

    Each TRACE trade report shall contain the following information:
    (1) through (2) No Change.
    (3) Price of the transaction (or the elements necessary to 
calculate price, which are contract amount and accrued interest) or, 
for When-Issued Transactions in U.S. Treasury Securities executed 
before the Auction for the security, the yield as required by paragraph 
(d)(1) of this Rule[below];
    (4) through (14) No Change.

(d) Procedures for Reporting Price, Capacity, Volume

(1) Price

    (A) Except as noted in subparagraph (B) [for When-Issued 
Transactions in U.S. Treasury Securities], for principal transactions, 
report the price, which must include the mark-up or mark-down. 
(However, if a price field is not available, report the contract amount 
and, if applicable, the accrued interest.) For agency transactions, 
report the price, which must exclude the commission. (However, if a 
price field is not available, report the contract amount and, if 
applicable, the accrued interest.) Report the total dollar amount of 
the commission if one is assessed on the transaction. Notwithstanding 
the foregoing, a member is not required to include a commission, mark-
up or mark-down where one is not assessed on a trade-by-trade basis at 
the time of the transaction or where the amount is not known at the 
time the trade report is due. A member must use the ``No Remuneration'' 
indicator described in paragraph (d)(4)(F) where a trade report does 
not reflect either a commission, mark-up or mark-down, except for an 
inter-dealer transaction, a ``List or Fixed Offering Price 
Transaction,'' as defined in Rule 6710(q), or a ``Takedown 
Transaction,'' as defined in Rule 6710(r).
    (B) For When-Issued Transactions in U.S. Treasury Securities 
executed before the Auction for the security and conducted on a 
principal basis, report the yield, which must include the mark-up or 
mark-down, of the security in lieu of price. For When-Issued 
Transactions in U.S. Treasury Securities executed before the Auction 
for the security and conducted on an agency basis, report the yield, 
which must exclude the commission, of the security in lieu of price. 
Report the total dollar amount of the commission.
    (2) through (4) No Change.
    (e) through (f) No Change.

   Supplementary Material: ------

    .01 through .05 No Change.
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, FINRA included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. FINRA has prepared summaries, set forth in sections A, 
B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On October 18, 2016, the Commission approved a proposed rule change 
to require FINRA members to report certain transactions in U.S. 
Treasury Securities to TRACE.\3\ The reporting requirements will be 
implemented beginning July 10, 2017.\4\ As part of the proposed rule 
change, FINRA adopted three new defined terms to address members' 
reporting requirements involving transactions in U.S. Treasury 
Securities that occur on a ``when-issued'' basis or that occur as part 
of an auction of U.S. Treasury Securities: ``Auction,'' ``Auction 
Transaction,'' and ``When-Issued Transaction.'' FINRA is amending the 
definitions of ``Auction Transaction'' and ``When-Issued Transaction'' 
to clarify the application of those terms, and is amending Rule 6730 to 
clarify the reporting requirements in light of the changes to the 
definition of ``When-Issued Transaction.'' \5\
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    \3\ See Securities Exchange Act Release No. 79116 (October 18, 
2016), 81 FR 73167 (October 24, 2016) (Notice of Filing of Amendment 
No. 1 and Order Granting Accelerated Approval of File No. SR-FINRA-
2016-027).
    \4\ See Regulatory Notice 16-39 (October 2016).
    \5\ On September 23, 2016, the Commission approved SR-FINRA-
2016-023, which added a definition of ``Collateralized Debt 
Obligation'' to Rule 6710 as paragraph (ff). See Securities Exchange 
Act Release No. 78925 (September 23, 2016), 81 FR 67023 (September 
29, 2016) (Order Approving File No. SR-FINRA-2016-023). The proposed 
rule change also amends the paragraph designations for the 
definitions of ``Auction,'' ``Auction Transaction,'' and ``When-
Issued Transaction'' as (gg), (hh), and (ii), respectively.
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    First, FINRA is amending the terminology in the definition of 
``Auction Transaction'' to conform to the regulations applicable to 
auctions of U.S. Treasury Securities. As adopted, the term ``Auction 
Transaction'' is defined as ``the purchase of a U.S. Treasury Security 
in an Auction.'' \6\ Pursuant to the amendments to Rule 6730(e), 
Auction Transactions are exempt from the TRACE reporting requirements.
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    \6\ The term ``Auction'' means ``the bidding process by which 
the U.S. Department of the Treasury sells marketable securities to 
the public pursuant to Part 356 of Title 31 of the Code of Federal 
Regulations.''
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    When conducting auctions, the Department of the Treasury accepts 
bids and determines awards pursuant to the process set forth in the 
applicable regulations.\7\ Securities awarded during the auction 
process must then be paid for by the issue date established in the 
announcement for the auction.\8\ To incorporate the concept of 
``awards'' and maintain consistency with the applicable Treasury 
regulations, FINRA is amending the definition of ``Auction 
Transaction'' to mean ``the [sic] \9\ transaction in which a member is 
awarded a U.S. Treasury Security in an Auction.'' Consequently, the 
acquisition of U.S. Treasury Securities on the issue

[[Page 95249]]

date as a result of a successful bid in an Auction will not be 
reportable to TRACE by a FINRA member. Any secondary market 
transactions in the security following the initial acquisition on the 
issue date will be reportable.
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    \7\ See 31 CFR 356.20 (How does the Treasury determine auction 
awards?).
    \8\ See 31 CFR 356.25 (How does the settlement process work?).
    \9\ The proposed rule text states: `` `Auction Transaction' 
means a transaction in which a member is awarded a U.S. Treasury 
Security in an Auction.''
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    Second, FINRA is amending the definition of ``When-Issued 
Transaction'' to conform to more common usage of the term. As adopted, 
the term ``When-Issued Transaction'' was defined as ``a transaction in 
a U.S. Treasury Security that is executed before the Auction for the 
security.'' Although ``when-issued'' trading typically refers to any 
trading conducted between the announcement of an auction for a U.S. 
Treasury Security and the issue date, which can often be several days 
after the auction for the security, FINRA defined the term to extend 
only until the auction for the security to reflect the change in how 
transactions are priced before and after the auction (i.e., 
transactions are generally conducted on a yield basis before the 
auction and on a price basis after the auction).
    To conform the definition in the TRACE rules to more common usage, 
FINRA is amending the definition of ``When-Issued Transaction'' to mean 
``a transaction in a U.S. Treasury Security that is executed before the 
issuance of the security.'' Under the amendment, therefore, the timing 
of When-Issued Transactions will still commence with the announcement 
of the Auction, but any transaction in the security subject to the 
Auction will be considered a ``When-Issued Transaction'' until the date 
the security is issued rather than the date the security is auctioned. 
Members will still be required to report yield, rather than price, for 
When-Issued Transactions up until the Auction for the security and 
price following the Auction; however, all When-Issued Transactions, 
both before and after the Auction up until the issue date, must be 
reported with the appropriate indicator. Because of the change in 
definition, FINRA also is amending Rule 6730 to clarify that, although 
the definition of the term ``When-Issued Transaction'' is being 
amended, there are no changes as to how members report price or yield 
on these transactions.\10\
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    \10\ Similarly, the guidance FINRA has provided on the use of 
the When-Issued Transaction indicator and reopening transactions 
does not change as a result of these amendments. See Regulatory 
Notice 16-39 (October 2016).
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    FINRA has filed the proposed rule change for immediate 
effectiveness. The implementation date will be July 10, 2017.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\11\ which requires, among 
other things, that FINRA rules must be designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest. FINRA believes that the amendments will conform the 
terms in FINRA rules to their more common usage and use of these terms 
in applicable Treasury regulations. FINRA believes the amended 
definitions may reduce confusion regarding usage of the terms in the 
FINRA TRACE rules.
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    \11\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. Because the amendments are 
limited to conforming the terms in FINRA rules to their more common 
usage and to the use of the terms in applicable Treasury regulations, 
FINRA believes that amending the definitions may reduce confusion 
regarding usage of the terms and will not result in any burden on 
competition.

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

    Written comments were neither solicited nor received.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \12\ and Rule 19b-
4(f)(6) thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
FINRA has satisfied this requirement.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-FINRA-2016-046 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-FINRA-2016-046. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal office of FINRA. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make

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available publicly. All submissions should refer to File Number SR-
FINRA-2016-046, and should be submitted on or before January 17, 2017.
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    \14\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016-31112 Filed 12-23-16; 8:45 am]
 BILLING CODE 8011-01-P