Document ID: SEC-2007-1253-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2007-09-10T04:00Z

[Federal Register: September 10, 2007 (Volume 72, Number 174)]
[Notices]               
[Page 51689-51691]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10se07-88]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56327; File No. SR-FINRA-2007-006]

 
Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Proposed Rule Change Relating to 
Historic TRACE Data

August 28, 2007.
    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 August 9, 2007, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') (f/k/a National Association of Securities Dealers, Inc. 
(``NASD'')) filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been substantially 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: (1) Adopt a FINRA policy providing for 
public access to historic TRACE data (``Historic TRACE Data''); and (2) 
amend NASD Rule 7030 to: (i) Define Historic TRACE Data in proposed 
NASD Rule 7030(c)(3)(D); (ii) establish fees for Historic TRACE Data in 
proposed NASD Rule 7030(d); (iii) make conforming changes to the fee 
chart in NASD Rule 7030 and the definitions of ``Non-Professional,'' 
``Tax-Exempt Organization,'' and ``Real-Time'' in, respectively, 
paragraphs (A), (B), and (C) of NASD Rule 7030(c)(3); and (iv) renumber 
current NASD Rule 7030(c)(4) as NASD Rule 7030(e).\3\ The text of the 
proposed rule change is available at FINRA, on FINRA's Web site at 
http://www.finra.org, and in the Commission's Public Reference Room.

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    \3\ NASD Rule 7030 contains all TRACE fees; previously, such 
fees were set forth in NASD Rule 7010(k).
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

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

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

1. Purpose
    FINRA is proposing to adopt a FINRA policy providing for public 
access to Historic TRACE Data and to amend NASD Rule 7030 to establish 
fees to offset the costs of developing and maintaining the new Historic 
TRACE Data database and providing such data to vendors, members, and 
other users. The proposed amendments to NASD Rule 7030 would: (i) 
Define Historic TRACE Data in proposed NASD Rule 7030(c)(3)(D); (ii) 
establish fees for Historic TRACE Data in proposed NASD Rule 7030(d); 
(iii) make conforming changes to the fee chart in NASD Rule 7030 and 
the definitions of ``Non-Professional,'' ``Tax-Exempt Organization,'' 
and ``Real-Time'' in, respectively, paragraphs (A), (B), and (C) of 
NASD Rule 7030(c)(3); and (iv) renumber current NASD Rule 7030(c)(4) as 
NASD Rule 7030(e).

Historic TRACE Data

    TRACE data is the first complete database of transaction-level 
pricing information ever compiled on the over-the-counter (``OTC'') 
U.S. corporate bond market and, as such, may be of widespread interest 
to corporate bond market participants, other financial intermediaries, 
market observers, academicians, and financial regulators. To date, 
FINRA has made available publicly aggregated statistics from both 
disseminated and non-disseminated TRACE transaction information, but 
has done so in a manner to protect transaction-level non-disseminated 
data from being ascertained. Since TRACE began, many people have 
expressed interest in reviewing historic TRACE transaction-level data. 
FINRA believes it is important to provide access to this data, 
particularly for research purposes.\4\ The transaction data that will 
be provided include all transactions reported to TRACE since July 1, 
2002, except Rule 144A transactions defined below.\5\
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    \4\ Before submitting the proposal, FINRA (then known as NASD) 
sought member input about whether FINRA should release standard 
TRACE transaction-level data to the public; if access should be 
limited in any way; if the data should be redacted as to certain 
types of information; and if FINRA should provide access to any 
portion of the transaction-level historic data that previously had 
only been reported, but not disseminated. See NASD Notice to Members 
06-32 (June 2006). The sole commenter was The Bond Market 
Association (``TBMA'') (now known as the Securities Industry 
Financial Markets Association or ``SIFMA''). See comment letter from 
Mary C.M. Kuan, Vice President and Assistant General Counsel, TBMA, 
to Barbara Z. Sweeney, Office of the Corporate Secretary, NASD, 
dated August 14, 2006. TBMA supported obtaining access to the 
transaction-level historic data, provided that member participant 
identifiers (``MPIDs'') were deleted from the data and the data was 
sufficiently aged to eliminate any possible use of such data to 
identify current trading, positioning, or strategies of other market 
participants.
    \5\ In TRACE, Rule 144A transactions refers to transactions in 
TRACE-eligible securities ``issued pursuant to Section 4(2) of the 
Securities Act of 1933 (``Securities Act'') and purchased and sold 
pursuant to Rule 144A of the Securities Act of 1933.'' NASD Rule 
6210(a).
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    Historic TRACE Data will generally consist of basic transaction 
information such as the price, the date and time of execution, and the 
yield. It will include information on transactions not previously 
available,\6\ and contain

[[Page 51690]]

additional information per transaction than is disseminated in real-
time TRACE market data, such as actual trade volumes, rather than 
capped volume amounts that are disseminated as part of the real-time 
TRACE data. Historic TRACE Data will be updated quarterly and provided 
using quarterly files or reports. As referenced above, in response to 
concerns,\7\ currently FINRA intends to release only aged data in the 
Historic TRACE Data; transaction data will not be included in Historic 
TRACE Data quarterly files unless it has aged at least 18 months. 
Generally, FINRA will refer to the date the transaction was executed to 
determine whether the data should be released.
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    \6\ When TRACE began, daily transaction-level dissemination of 
information occurred in phases to gauge the relationship between 
transparent transaction information and its impact on liquidity. As 
a result, all public transactions in TRACE-eligible securities were 
not subject to dissemination until February 7, 2005.
    \7\ See note 4, supra.
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    It should be noted that FINRA may change the elements of Historic 
TRACE Data to respond to user needs, improve the usefulness of the 
data, and foster the extensive use of such data in research on the OTC 
corporate bond markets.\8\ Prior to its availability, the elements of 
Historic TRACE Data will be published by FINRA in a FINRA Notice or 
other equivalent publication. If any of the data elements change during 
a quarter, shortly before Historic TRACE Data becomes available, FINRA 
will publish a list providing more specific information about the types 
of information that will be included.
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    \8\ For example, data users, such as member firms or 
researchers, may determine that a particular data field reported but 
not provided in Historic TRACE Data is necessary or would be 
particularly helpful to analyze certain trends in the corporate bond 
market. Or, FINRA may amend NASD Rule 6230, the TRACE reporting 
requirements, and need or desire to make corresponding adjustments 
in Historic TRACE Data.
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    FINRA will provide access to Historic TRACE Data to persons such as 
members, other financial intermediaries, data vendors, and Tax-Exempt 
Organizations via existing data transmission facilities and vendors, 
and, on an ad hoc basis, to individuals upon request.

Fees

    FINRA proposes to amend FINRA Rule 7030 to adopt Historic TRACE 
Data fees in new paragraph (d) to offset the costs of developing and 
maintaining the new Historic TRACE Data database and providing such 
data to vendors, members, and other users. The proposed rule change 
includes reduced fees for qualifying Tax-Exempt Organizations to 
increase access to Historic TRACE Data. In addition, FINRA proposes to 
amend other provisions of NASD Rule 7030 to define Historic TRACE Data, 
make conforming changes to definitions and other provisions, and 
renumber subparagraph (c)(4) of NASD Rule 7030 as new subparagraph (e).

Definition

    TRACE fees are set forth in NASD Rule 7030. FINRA proposes to 
define Historic TRACE Data for purposes of NASD Rule 7030 to mean 
historic transaction-level data with elements to be determined by FINRA 
in its discretion.

Professionals

    Historic TRACE Data that are updated and provided on a quarterly 
basis to Professionals, including vendors, via existing data 
transmission facilities, will be subject to the following fees under 
proposed NASD Rule 7030(d)(1)(A): (1) An initial fee of $2,000, which 
includes development and set-up costs, and 2002 Historic TRACE Data; 
(2) a fee of $2,000 per calendar year of data, for 2003 Historic TRACE 
Data and each subsequent year of such data; and (3) a Bulk Re-
Distribution Fee of $1 per CUSIP per calendar year (or part thereof) of 
Historic TRACE Data per each recipient of re-distributed data, with a 
maximum fee of $1,000 per calendar year (or part thereof) of data per 
each recipient of re-distributed data. The 2002 Historic TRACE Data 
received as part of the Data Set-Up Fee, and all the subsequent years 
of TRACE Historic Data that may be purchased under the Data Fee would 
be enabled for internal use and internal and/or external desktop 
display distribution. Re-distribution, however, would be permitted only 
if the subscriber paid the third fee, the Bulk Re-Distribution Fee.

Tax-Exempt Organizations

    The reduced fee schedule for qualifying Tax-Exempt Organizations 
under proposed NASD Rule 7030(d)(1)(B) is: (1) A single, Data Set-Up 
Fee of $1,000, which includes development and set-up costs, and 2002 
Historic TRACE Data; and (2) a Data and Bulk Re-Distribution fee of 
$500 per calendar year of data, for 2003 Historic TRACE Data and each 
subsequent year of such data. The 2002 Historic TRACE Data received as 
part of the Data Set-Up Fee, and all the subsequent years of TRACE 
Historic Data that may be purchased under the Data and Bulk Re-
Distribution Fee would be enabled for internal use and internal and/or 
external desktop display distribution. In addition, the right to re-
distribute the data in bulk is included in the Data and Bulk Re-
Distribution Fee. However, to qualify for the Tax-Exempt Organization 
fees, an organization must be a Tax-Exempt Organization as defined in 
NASD Rule 7030(c)(3)(B), and, if it re-distributes Historic TRACE Data, 
must do so at no charge and limit re-distribution to Non-Professionals, 
as defined in NASD Rule 7030(c)(3)(A), or other Tax-Exempt 
Organizations that agree to be subject to the same data re-distribution 
protocols.

Non-Professionals

    Occasionally, FINRA may receive single, ad hoc requests from 
natural persons for Historic TRACE Data for purely personal, non-
commercial use. FINRA will provide Historic TRACE Data to such natural 
persons who are Non-Professionals as defined in NASD Rule 7030(c)(3)(A) 
if the person represents he or she is a Non-Professional, which 
includes representations that he or she will receive and use the 
Historic TRACE Data solely for his or her personal, non-commercial use 
and is not engaged in, and has no intention to engage in, any re-
distribution of all or any portion of such data. FINRA may impose a fee 
under NASD Rule 7030(e) to respond to such ad hoc requests. If FINRA 
charges a fee, it would do so to cover the administrative and 
operational costs of responding to such a request.

Other Changes to NASD Rule 7030

    FINRA proposes to make additional, minor conforming changes to NASD 
Rule 7030. First, FINRA proposes to amend the definitions of ``Non-
Professional,'' ``Tax-Exempt Organization,'' and ``Real-Time'' in, 
respectively, paragraphs (A), (B), and (C) of NASD Rule 7030(c)(3). 
Currently, the terms are defined solely for purposes of NASD Rule 
7030(c). The proposed changes would define the terms to apply to NASD 
Rule 7030 generally.
    Also, FINRA proposes additional minor, conforming changes to ``Tax-
Exempt Organization'' in NASD Rule 7030(c)(3)(B). Currently, the 
definition includes the condition: ``and obtains and uses Real-Time 
TRACE transaction data solely for redistribution to Non-Professionals, 
as defined for purposes of NASD Rule 7030(c), at no charge.'' FINRA 
proposes to retain the requirement, which is used to qualify a Tax-
Exempt Organization for a reduced fee (and any similar condition or 
qualification regarding redistribution of data, such as the new 
requirement in proposed NASD Rule 7030(d)(1)(B)(i) and (ii)), but to 
delete the condition from the defined term, Tax-Exempt Organization, in 
NASD Rule 7030(c)(3)(B) and insert it (or any similar condition or 
qualification) in the specific fee provision to which the condition (or 
any similar condition or

[[Page 51691]]

qualification) applies. The same condition--limiting the Tax-Exempt 
Organization to re-distributing data solely to Non-Professionals at no 
charge--is restated in the NASD Rule 7030 fee chart, in the Market Data 
Fee, ``Vendor Real-Time Data Feed--$400/month for Real-Time TRACE 
transaction data for qualifying Tax-Exempt Organizations.''
    Finally, FINRA proposes to renumber current NASD Rule 7030(c)(4) as 
NASD Rule 7030(e) so that the provision will apply to NASD Rule 7030 
generally.
    FINRA will announce the effective date of the proposed rule change 
in a Regulatory Notice to be published no later than 60 days following 
Commission approval. The effective date will be no later than 90 days 
following publication of the Regulatory Notice announcing Commission 
approval.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\9\ 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, and Section 15A(b)(5) of the Act,\10\ which requires, 
among other things, that FINRA rules provide for the equitable 
allocation of reasonable dues, fees, and other charges among members 
and issuers and other persons using any facility or system that FINRA 
operates or controls. FINRA believes that proposal to establish a 
policy to provide public access to Historic TRACE Data is consistent 
with Section 15A(b)(6) because such a policy will permit FINRA to 
provide freely Historic TRACE Data to anyone interested in analyzing 
and developing a greater understanding of the OTC U.S. corporate bond 
market, which is a market of tremendous breadth and size with impact on 
the U.S. and world economy, and the results of such understanding will 
protect investors and further the public interest, and with Section 
15A(b)(5) because the proposed fees for developing and maintaining 
Historic TRACE Data are reasonable and equitably allocated among all 
users of Historic TRACE Data to facilitate widespread access to and 
many uses of such data.
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    \9\ 15 U.S.C. 78o-3(b)(6).
    \10\ 15 U.S.C. 78o-3(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the proposed rule change will impose 
any burden on competition that is not necessary or appropriate in 
furtherance of purposes of the Act.

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

    The proposed rule change was published for comment in NASD Notice 
to Members 06-32 (June 2006). One comment was received in response to 
the Notice. As discussed previously, the commenter generally favored 
the proposal to provide access to transaction-level Historic TRACE 
Data, but suggested that data should not be provided until it aged at 
least 18 months. The commenter desired that the data be sufficiently 
``aged'' to address industry concerns that persons might be able to 
identify current trading, positioning, or strategies of competitors or 
other market participants if more current transaction-level data were 
released. In addition, the commenter suggested that members' MPIDs 
should not be included. FINRA has considered the comments and has 
incorporated such suggestions as described above.

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) As the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or     Send an e-mail to rule-comments@sec.gov. Please include 

File Number SR-FINRA-2007-006 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.
    All submissions should refer to File Number SR-FINRA-2007-006. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml
). Copies of the submission, all subsequent amendments, 

all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for inspection 
and copying in the Commission's Public Reference Room, 100 F Street, 
NE., Washington, DC 20549, on official business days between the hours 
of 10 a.m. and 3 p.m. Copies of 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 available publicly.
    All submissions should refer to File Number SR-FINRA-2007-006 and 
should be submitted on or before October 1, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-17683 Filed 9-7-07; 8:45 am]

BILLING CODE 8010-01-P