Document ID: SEC-2015-1190-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2015-07-16T04:00Z

[Federal Register Volume 80, Number 136 (Thursday, July 16, 2015)]
[Notices]
[Pages 42149-42151]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-17402]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75428; File No. SR-FINRA-2015-025]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend 
FINRA Rule 6730 (Transaction Reporting) To Require Members To Report 
Transactions in TRACE-Eligible Securities as Soon as Practicable

July 10, 2015.
    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 July 2, 2015, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') 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 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 codify that members are required to report 
transactions in TRACE-Eligible Securities subject to dissemination as 
soon as practicable.
    The text of the proposed rule change is available on FINRA's Web 
site at http://www.finra.org, at the principal office of FINRA and at 
the Commission's Public Reference Room.

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

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

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

1. Purpose
    FINRA Rule 6730 (Transaction Reporting) generally requires that 
each FINRA member that is a Party to a Transaction \3\ in a TRACE-
Eligible Security \4\ report the transaction within 15 minutes of the 
Time of Execution,\5\ unless a different time period for the security 
is otherwise specified in the rule, or the transaction report will be 
deemed ``late.'' Paragraph (a)(4) of Rule 6730 further provides that 
members have an ongoing obligation to report transaction information 
promptly, accurately and completely.\6\
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    \3\ Rule 6710(e) provides that a ``Party to a Transaction'' is 
an introducing broker-dealer, if any, an executing broker-dealer, or 
a customer. ``Customer'' includes a broker-dealer that is not a 
FINRA member.
    \4\ Rule 6710(a) provides that a ``TRACE-Eligible Security'' is 
a debt security that is United States dollar-denominated and issued 
by a U.S. or foreign private issuer, and, if a ``restricted 
security'' as defined in Securities Act Rule 144(a)(3), sold 
pursuant to Securities Act Rule 144A; or is a debt security that is 
U.S. dollar-denominated and issued or guaranteed by an Agency as 
defined in paragraph (k) or a Government-Sponsored Enterprise as 
defined in paragraph (n). ``TRACE-Eligible Security'' does not 
include a debt security that is: Issued by a foreign sovereign, a 
U.S. Treasury Security as defined in paragraph (p), or a Money 
Market Instrument as defined in paragraph (o).
    \5\ Among other things, Rule 6710(d) provides that the ``Time of 
Execution'' for a transaction in a TRACE-Eligible Security means the 
time when the Parties to a Transaction agree to all of the terms of 
the transaction that are sufficient to calculate the dollar price of 
the trade.
    \6\ While a member may employ an agent for the purpose of 
submitting transaction information, the primary responsibility for 
the timely, accurate and complete reporting of transaction 
information remains the non-delegable duty of the member obligated 
to report the transaction.
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    FINRA is filing this proposed rule change to codify that members 
are expected to report transactions in TRACE-Eligible Securities that 
are subject to dissemination as soon as practicable following the Time 
of Execution, and must not deliberately delay their reporting.\7\ While 
FINRA provides a time period for members to conduct the necessary 
actions to report transactions, FINRA believes it is important for 
public price transparency that members do not delay reporting executed 
transactions and has conveyed this expectation to members.\8\ FINRA

[[Page 42150]]

now proposes to amend Rule 6730 to provide in the rule text that each 
member that is a Party to a Transaction in a TRACE-Eligible Security 
that is subject to dissemination must report the transaction to TRACE 
as soon as practicable, but no later than within 15 minutes of the Time 
of Execution, or other timeframe specified in Rule 6730. Further, the 
proposed amendment includes new Supplementary Material .03 to provide 
additional guidance around FINRA's expectations regarding the 
timeliness of reports submitted to TRACE. Specifically, new Rule 
6730.03 provides that members must adopt policies and procedures 
reasonably designed to comply with the requirement that transactions in 
TRACE-Eligible Securities that are subject to dissemination be reported 
as soon as practicable by implementing systems that commence the trade 
reporting process at the Time of Execution without delay. In addition, 
where a member has such reasonably designed policies, procedures and 
systems in place, the member generally will not be viewed as violating 
the ``as soon as practicable'' requirement because of delays in trade 
reporting that are due to extrinsic factors that are not reasonably 
predictable and where the member does not purposely intend to delay the 
reporting of the trade. In no event may a member purposely withhold 
trade reports, e.g., by programming its systems to delay reporting 
until the end of the reporting time period.
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    \7\ FINRA Rule 6750 (Dissemination of Transaction Information) 
provides that FINRA will disseminate information on all transactions 
in TRACE-Eligible Securities, including transactions effected 
pursuant to Securities Act Rule 144A, immediately upon receipt of 
the transaction report, except as specified in the rule.
    \8\ For example, in a Notice regarding TRACE trade reporting 
obligations for transactions in Asset-Backed Securities (ABS), FINRA 
stated that, although firms have up to two business days to report 
transactions in ABSs, firms should submit reports as soon as 
practicable after the execution of a transaction and throughout the 
trading day, rather than queuing such reports until the end of the 
reporting time period. Trade Reporting Notice, May 10, 2011 
(Reporting Asset-Backed Securities to the Trade Reporting and 
Compliance Engine). In addition, in Regulatory Notice 12-52 
(December 2012), FINRA stated that transactions in securities 
subject to TRACE reporting requirements should be reported without 
delay, even though the TRACE rule generally allows for up to 15 
minutes to report transactions in corporate and agency debt 
securities. See also Letter from Brant K. Brown, Associate General 
Counsel, FINRA, to Elizabeth M. Murphy, Secretary, Securities and 
Exchange Commission, dated August 29, 2012 (Letter Responding to 
Comments received on SR-FINRA-2012-025). FINRA also has already 
codified the ``as soon as practicable'' requirement for the 
reporting of transactions to the equity trade reporting facilities, 
which require reporting as soon as practicable but no later than 10 
seconds after execution. See FINRA Rules 6282 (governing transaction 
reporting on the ADF), 6380A (governing transaction reporting on the 
FINRA/NASDAQ TRF), 6380B (governing transaction reporting on the 
FINRA/NYSE TRF) and 6622 (Transaction Reporting on the FINRA ORF).
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    The supplementary material also recognizes that members may 
manually report transactions in TRACE-Eligible Securities and, as a 
result, the trade reporting process may not be completed as quickly as 
where an automated trade reporting system is used. In these cases, 
FINRA will take into consideration the manual nature of the member's 
trade reporting process in determining whether the member's policies 
and procedures are reasonably designed to report the trade ``as soon as 
practicable'' after execution. FINRA believes that codifying this ``as 
soon as practicable'' requirement is necessary to promote consistent 
and timely reporting by all members and will improve the usefulness of 
disseminated TRACE information for investors.
    If the Commission approves the filing, 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 sooner than 30 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. In particular, the proposed rule would require that 
members report transactions in TRACE-Eligible Securities that are 
subject to dissemination as soon as practicable from the Time of 
Execution. FINRA believes it is important to ensure that members do not 
delay the reporting of executed transactions, particularly, for 
example, by imbedding into the trade reporting process deliberate 
delays until the end of the reporting time period. Specifically, the 
proposed rule change will help improve the value of transaction 
information for price transparency, which enhances its value for 
regulators, investors and other market participants.
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    \9\ 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.
Economic Impact Assessment
    The proposed rule change seeks to codify that members are expected 
to report transactions in TRACE-Eligible Securities as soon as 
practicable following the Time of Execution, and must not deliberately 
delay their reporting.
    The economic baseline of the proposed rule change is the current 
rules and industry practice relating to trade reporting. As discussed 
above, the proposed rule change is consistent with FINRA's current 
expectation that members submit trade reports as soon as practicable. 
Further, FINRA understands that the vast majority of firms that report 
transactions to TRACE have automated their trade reporting systems, 
which may facilitate their ability to comply with this rule.
    For example, based on a review of TRACE trade reporting data from 
January 2014 through December 2014, over 90% of trade reports in 
corporate and agency debt are submitted within five minutes of the time 
of execution, and 79% percent were reported within one minute. 
Approximately 71% of trade reports in securitized products are 
submitted within five minutes of execution, and over 55% were reported 
within one minute.
    FINRA recognizes that reporting within a short time frame may not 
mean that firms are reporting as soon as practicable, but does indicate 
general timeliness in reporting. FINRA has observed instances that 
appear to indicate firms have taken more time than is operationally 
necessary to report trades, which results in delays in transaction 
information reaching investors and other market participants, and may 
raise the possibility that certain firms may have intentionally delayed 
trade reporting, possibly to delay public dissemination of the trade. 
FINRA believes such conduct is inconsistent with the purpose of the 
trade reporting rules and further believes that explicitly prohibiting 
such conduct is important for the effective operation of the rule.
    Therefore, FINRA expects that the primary economic benefit arising 
from this proposed rule change will be a reduction in the delay between 
a transaction's Time of Execution and when a member reports the trade 
to TRACE, which will result in more timely information being 
disseminated to investors and other market participants. FINRA also 
believes that the proposal will provide further clarity as to the 
operation of Rule 6730--particularly in clarifying that intentionally 
delaying trade reporting is

[[Page 42151]]

violative of a member's ongoing obligation to report transaction 
information to TRACE promptly. FINRA anticipates that this rule will 
not impose any significant new compliance costs on members.

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

    Written comments were neither solicited nor received.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-FINRA-2015-025 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-FINRA-2015-025. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of FINRA. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-FINRA-2015-025 and should be 
submitted on or before August 6, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-17402 Filed 7-15-15; 8:45 am]
BILLING CODE 8011-01-P