Document ID: SEC-2009-1399-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2009-10-02T04:00Z

[Federal Register: October 2, 2009 (Volume 74, Number 190)]
[Notices]               
[Page 50991-50996]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02oc09-74]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60726; File No. SR-FINRA-2009-010]

 
Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Amendment No. 2 and Order Granting 
Accelerated Approval of a Proposed Rule Change, as Modified by 
Amendment No. 2 Thereto, Expanding TRACE To Include Agency Debt 
Securities and Primary Market Transactions

September 28, 2009.

I. Introduction

    On March 18, 2009, the Financial Industry Regulatory Authority, 
Inc. (``FINRA'') (f/k/a National Association of Securities Dealers, 
Inc. (``NASD'')) filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (the ``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to expand TRACE to include Agency 
Debt Securities and primary market transactions. On April 8, 2009, 
FINRA filed Amendment No. 1 to the proposal.\3\ The proposed rule 
change, as amended, was published for comment in the Federal Register 
on April 16, 2009.\4\ The Commission received eight comment letters in 
response to the proposed rule change.\5\ On August 26, 2009, FINRA 
responded to the comment letters \6\ and filed Amendment No. 2 to the 
proposed rule change.\7\ The Commission is publishing this notice and 
order to solicit comments on Amendment No. 2 and to approve the 
proposed rule change, as modified by Amendment No. 2, on an accelerated 
basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 was a partial amendment that: (1) Revised 
the description of the proposal to accurately reflect the proposed 
rule text; (2) amended the definition of ``TRACE-Eligible Security'' 
to remove a parenthetical that was inadvertently included in the 
original proposal; and (3) made minor technical edits to the 
purposed rule text.
    \4\ Securities Exchange Act Release No. 59733 (April 8, 2009), 
74 FR 17709 (``Notice'').
    \5\ See infra note 12.
    \6\ See letter from Sharon Zackula, Associate Vice President and 
Associate General Counsel, FINRA, to Elizabeth M. Murphy, Secretary, 
Commission, dated August 26, 2009 (``FINRA Response'').
    \7\ See infra Section III.
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II. Description of the Proposal

    Currently, FINRA utilizes the Trade Reporting and Compliance Engine 
(``TRACE'') to collect and disseminate information on secondary over-
the-

[[Page 50992]]

counter transactions in corporate debt securities. FINRA has proposed 
to extend TRACE to include most primary market transactions as well as 
transactions in debt securities that are issued or guaranteed by a 
government-sponsored enterprise or U.S. government agency (``Agency 
Debt Securities''). Specifically, the proposed rule change would:
    (1) In Rule 6710, amend the defined terms (a) ``TRACE-Eligible 
Security'' to include Agency Debt Securities; (b) ``Reportable TRACE 
Transaction'' to include primary market transactions; and (c) 
``Investment Grade'' and ``Non-Investment Grade'' to classify unrated 
Agency Debt Securities as investment grade securities for purposes of 
the dissemination provisions of the TRACE rules;
    (2) amend Rule 6710(a), to require members to provide FINRA certain 
information regarding debt securities that are not assigned CUSIPs, but 
otherwise meet TRACE eligibility standards;
    (3) in Rule 6710, delete the definition of ``Money Market 
Instrument'' embedded in the term ``TRACE-Eligible Security'' and add 
it as a separately defined term in new proposed Rule 6710(o);
    (4) in Rule 6710, add the defined terms, ``Agency,'' ``Agency Debt 
Security,'' ``Asset-Backed Security,'' ``Government-Sponsored 
Enterprise,'' ``Money Market Instrument,'' ``U.S. Treasury Security,'' 
``List or Fixed Offering Price Transaction,'' and ``Takedown 
Transaction;''
    (5) in Rule 6710, make certain technical changes to a number of the 
defined terms;
    (6) in Rule 6730, establish reporting requirements for primary 
market transactions that are List or Fixed Offering Price Transactions 
\8\ or Takedown Transactions; \9\
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    \8\ The term ``List or Fixed Offering Price Transaction'' means 
a primary market sale transaction sold on the first day of trading 
of a new issue: (i) by a sole underwriting, syndicate manager, 
syndicate member or selling group member at the published or stated 
list or fixed offering price, or (ii) in the case of a primary 
market sale transaction effected pursuant to Securities Act Rule 
144A, by an initial purchaser, syndicate manager, syndicate member 
or selling group member at the published or stated fixed offering 
price. See proposed FINRA Rule 6710(q).
    \9\ The term ``Takedown Transaction'' means a primary market 
sale transaction sold on the first day of trading of a new issue: 
(i) by a sole underwriter or syndicate manager to a syndicate or 
selling group member at a discount from the published or stated list 
or fixed offering price, or (ii) in the case of a primary market 
sale transaction effected pursuant to Securities Act Rule 144A, by 
an initial purchaser or syndicate manager to a syndicate or selling 
group member at a discount from the published or stated fixed 
offering price. See proposed FINRA Rule 6710(r).
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    (7) in Rule 6750, provide that transaction information for List or 
Fixed Offering Price Transactions and Takedown Transactions will not be 
disseminated. FINRA has represented that it will study the reported 
data for these primary market transactions for a period of time after 
reporting begins and, at a later date, determine if dissemination of 
the information is appropriate and, if appropriate, develop a 
dissemination strategy;
    (8) in Rule 6760, amend the requirements for members to provide 
FINRA with notice of and information about new issuances of TRACE-
Eligible Securities to facilitate timely reporting of such securities 
in both primary and secondary market transactions;
    (9) establish new Rule 6770, which would provide FINRA emergency 
authority, to be exercised in consultation with the Commission, that 
would permit FINRA to suspend the reporting and/or dissemination of 
certain transactions in TRACE-Eligible Securities, or the reporting of 
certain data elements that are otherwise required under Rule 6730 and/
or the dissemination of certain data elements as market conditions 
warrant and for such period of time as FINRA deemed necessary; \10\
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    \10\ See Amendment No. 2, infra Section III.
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    (10) in Rule 7730, establish reporting and market data fees for 
Agency Debt Securities and primary market transactions generally at the 
same rates in effect for corporate bonds; \11\ and
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    \11\ Under the proposal, for fee purposes, FINRA will 
distinguish TRACE transaction data as two data sets: one comprised 
of corporate bond transaction information and the other comprised of 
Agency Debt Security transaction information. The fee schedule set 
forth in FINRA Rule 7730 would apply to Agency Debt Securities and 
primary market transactions. Additionally, FINRA has proposed to 
amend the fees for ``Web Browser Access,'' which would vary 
depending on factors such as the number of users and whether the 
user(s) would have access to one or both data sets.
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    (11) amend various rules in the FINRA Rule 6700 and 7730 series to 
reflect minor technical, stylistic, or confirming changes.
    In its filing with the Commission, FINRA acknowledged that its 
proposal to extend TRACE reporting to include Agency Debt Securities 
may result in certain trading desks having to report transactions to 
TRACE for the first time. Consequently, FINRA represented that it would 
continue to work with members and third-party vendors to ensure 
effective and efficient implementation. FINRA further stated that it 
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. According to FINRA, the effective date will be no 
later than 180 days following publication of the Regulatory Notice 
announcing Commission approval.

III. Summary of Comments and Amendment No. 2

    The Commission received eight comments on the proposed rule 
change.\12\ Four commenters expressed strong support for the 
proposal.\13\ Two other commenters were not opposed to FINRA's 
proposal, but raised concerns regarding operation and 
implementation.\14\
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    \12\ See letter from Robert F. Anderson, Senior Managing 
Director, Fixed Income Trading, dated April 17, 2009 (``Anderson 
Letter''); letter from Beth N. Lowson, The Nelson Law Firm, LLC, 
dated May 5, 2009 (``Nelson Letter''); letter from Manisha Kimmel, 
Executive Director, Financial Information Forum, dated May 7, 2009 
(``FIF Letter''); letter from Heather Traeger, Associate Counsel, 
Investment Company Institute, dated May 7, 2009 (``ICI Letter''); 
letter from Joseph W. Sack, Managing Director, Asset Management 
Group, Securities Industry and Financial Markets Association, dated 
May 7, 2009 (``AMG-SIFMA Letter''); letter from Sean C. Davy, 
Managing Director and Robert Toomey, Managing Director, and 
Associate General Counsel, Capital Markets Group of Securities 
Industry and Financial Markets Association, dated May 7, 2009 
(``CMG-SIFMA Letter''); letter from Michael Decker and Mike 
Nicholas, Co-Chief Executive Officers, Regional Bond Dealers 
Association, dated May 7, 2009 (``RBDA Letter''); letter from Don 
Winton, Crews & Associates, Inc., dated May 22, 2009 (Crews 
Letter'') (collectively, the ``Comment Letters'').
    \13\ See Anderson Letter (supporting FINRA's overall goal of 
improving bond market transparency); Nelson Letter (supporting the 
proposal because it provides for increased price transparency in the 
market by broadening the range of securities trades that must be 
reported and disseminated); AMG-SIFMA Letter (arguing that real-time 
prices would be helpful to large asset management firms with respect 
to trading activities, portfolio management, and valuation 
activities); ICI Letter (citing the benefits to investors in bonds 
and noting that transparency helps to improve price discovery and 
ensure the integrity of the debt markets).
    \14\ See Crews Letter; FIF Letter.
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    Two commenters indicated support for more transparency in the fixed 
income markets, but opposed the proposed rule change.\15\ Both 
commenters believed that the market in Agency Debt Securities is highly 
liquid and questioned the need for expanding TRACE to cover it.\16\ One 
of the commenters stated that any expansion of TRACE to include Agency 
Debt Securities or primary market transactions would impose significant 
costs on firms that engage in such transactions.\17\
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    \15\ See CMG-SIFMA Letter; RBDA Letter.
    \16\ See CMG-SIFMA Letter, at 1-2; RBDA Letter, at 2.
    \17\ See CMG-SIFMA Letter, at 1.
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    FINRA responded that, although multiple vendors provide data on 
Agency Debt Securities, there is no centralized public dissemination of

[[Page 50993]]

information regarding transactions in Agency Debt Securities. FINRA 
noted that the pre-trade information available is generally indicative, 
while post-trade information--whether via a subscriber service or at a 
publicly accessible Web site--is not available at all. FINRA concluded 
that ``[t]he expansion of TRACE will create consolidated post-trade 
transparency in Agency Debt Securities, and the dissemination of 
transaction information will assist in price discovery and valuation 
processes for all market participants and provide retail investors 
access to price information current not readily available to non-
professionals.''\18\
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    \18\ FINRA Response, at 3.
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    Three commenters requested that the distinction between primary and 
secondary transactions be clarified for reporting purposes.\19\ In its 
original filing, FINRA proposed that member use one of three indicators 
when reporting transactions to distinguish between primary and 
secondary transactions, and to further distinguish List or Fixed 
Offering Price Transactions and Takedown Transactions from other 
primary market transactions. In response, FINRA revised Rule 
6730(d)(4)(D) to eliminate the proposed indicators for secondary market 
and primary market transactions that are not List or Fixed Offering 
Price Transactions or Takedown Transactions. The rule would retain the 
requirement that members use the remaining proposed indicator when 
reporting primary market transactions that are List or Fixed Offering 
Price Transactions and Takedown transactions.\20\ One commenter 
suggested that that the definition of List or Fixed Offering Price 
Transaction and Takedown Transaction be amended for reporting purposes 
to include primary market transactions that are executed after the day 
of pricing, but would otherwise qualify as a List or Fixed Offering 
Price Transaction or Takedown Transaction. FINRA responded that it did 
not believe that the definition should be amended but, rather proposed 
to amend the deadline for reporting all List or Fixed Offering Price 
Transactions or Takedown Transactions to no later than T+1 during TRACE 
system hours. By extending the reporting period to T+1, FINRA would 
eliminate the distinction between a transaction executed in connection 
with an offering priced before 5 p.m. ET and a transaction executed as 
part of an offering priced on the same day but after 5 p.m. ET when the 
TRACE system is closed. FINRA believes this change will address 
operational concerns without negatively impacting regulatory 
surveillance or market transparency.\21\
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    \19\ See CMG-SIFMA Letter, at 5; RBDA Letter, at 3; FIF Letter, 
at 3.
    \20\ See FINRA Response, at 5.
    \21\ See id.
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    One commenter also raised a compliance concern with regard to 
reverse inquiries.\22\ The commenter argued that complying with the 
proposed requirement to notify FINRA about new issues ``prior to the 
commencement of primary market transactions'' would be impossible in 
the case of a reverse inquiry, because the new issue materializes and 
the primary market transaction takes place precisely upon the agreement 
of the issuer to sell bonds at the terms proposed by the investor. 
Accordingly, the commenter recommended that FINRA amend Rule 6760 so 
that underwriting broker-dealers would be required to notify FINRA 
within 15 minutes of commencement of primary market trading after the 
underwriting of the new issue, in the instances where it is not 
possible to do so prior to the commencement of primary market 
transactions.\23\
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    \22\ See RBDA Letter, at 2-3. In a reverse inquiry, investors or 
dealers determine an amount and type of bond that they wish to 
purchase and approach the issuer with a request to buy debt 
securities with those features at a particular price. If the issuer 
agrees, the bonds are issued and purchased.
    \23\ See RBDA Letter, at 3.
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    In response, FINRA proposed to amend Rule 6760 so that if a member 
is involved in an intraday offering that is priced and commences 
between 9:30 a.m. and 4 p.m. ET, the member would be permitted to 
provide FINRA Operations the required information available prior to 
the execution of the first transaction in the distribution or offering. 
All other information required under the rule would have to be provided 
within 15 minutes of the time of execution of the first transaction in 
such distribution or offering.\24\
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    \24\ See FINRA Response, at 5.
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    Two commenters stated that firms should be permitted to rely on the 
TRACE Issue Master to determine if a security is TRACE-eligible.\25\ 
FINRA responded that it has often stated that it a firm's obligation 
under Rule 6730 is to report transactions in securities that meet the 
definition of TRACE-Eligible Security. FINRA further stated that if a 
firm has a reporting obligation under Rule 6730 in a security that is a 
TRACE-Eligible Security but is not included in the TRACE Issue Master, 
the firm must notify FINRA immediately and provide the CUSIP and other 
information necessary for FINRA to update the TRACE Issue Master, 
allowing the firm to report its transaction to TRACE promptly and 
comply with its obligations under FINRA Rule 6730.\26\ Additionally, 
one commenter objected to including securities without a CUSIP as 
TRACE-eligible due increased costs and potential reporting errors, and 
questioned whether incorporating such securities into TRACE would 
contribute to meaningful price discovery.\27\ FINRA responded that only 
a small number of securities trade without a CUSIP and that, where a 
security is not identified by a CUSIP, FINRA would work with members to 
ensure effective and efficient reporting.\28\
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    \25\ See CMG-SIFMA Letter, at 4; FIF Letter, at 1.
    \26\ See FINRA Response, at 5.
    \27\ See FIF Letter, at 2-3.
    \28\ See FINRA Response, at 6.
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    With regard to the expansion of TRACE to include primary market 
transactions, one commenter noted that such expansion would impose 
operational and compliance issues and require firms to engage in 
extensive and costly systems development.\29\ Consequently, the 
commenter urged FINRA to provide up to 18 months from the publication 
date of the technical specifications to accommodate necessary technical 
systems changes.\30\ The commenter further recommended a phased-in 
compliance implementation process, whereby the expanded reporting 
requirements for transactions in Agency Debt Securities be implemented 
first, followed by reporting in primary market transactions for 
corporate bonds and primary market transactions for Agency Debt 
Securities, respectively.\31\ Another commenter stated that 12 months 
would be needed for systems development and testing before the 
requirement for TRACE reporting of Agency Debt Securities and primary 
market transactions is enforced.\32\
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    \29\ See CMG-SIFMA Letter, at 4.
    \30\ See id., at 6-7.
    \31\ See id., at 6.
    \32\ See FIF Letter, at 3-4.
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    In response, FINRA recognized that implementation of the proposal 
may create short-term operational issues and require a number of 
permanent modifications to reporting and other technology systems. 
FINRA stated that it will work with members to address issues and 
provide them sufficient notice to modify their reporting systems.\33\
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    \33\ See FINRA Response, at 6.
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    One commenter raised the concern that such expansion may cause 
competitive disparities between FINRA member firms, which are subject 
to TRACE reporting, and bank government

[[Page 50994]]

securities dealers, which are not.\34\ Further, the commenter asserted 
that bank dealers would have an advantage over FINRA members in 
competing for the business of institutional investors that wish to keep 
their trading activity confidential.\35\ In response, FINRA noted the 
statutory requirement that a proposed rule not impose any burden on 
competition not necessary or appropriate in furtherance of the Act and 
stated its belief that it is axiomatic that increasing transparency in 
a securities trading market appropriately furthers the purposes of the 
Act. Consequently, FINRA believes such comments are without merit.\36\
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    \34\ See CMG-SIFMA Letter, at 3.
    \35\ See id.
    \36\ See FINRA Response, at 7.
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    Two commenters requested that TRACE fees related to Agency Debt 
Securities be reduced to the extent that such fees are not necessary to 
cover FINRA's expenses in connection with the collection and 
dissemination of TRACE data.\37\ Another commenter argued that charging 
a separate fee for the use of Agency Debt Securities data is 
unwarranted, and urged the Commission to require FINRA to offer data on 
corporate debt securities and Agency Debt Securities as a single data 
set, priced no higher than the current rate for corporate bond 
data.\38\ FINRA responded that it will undertake review of the fee 
structure for Agency Debt Securities after implementation of the 
proposal, when FINRA can accurately assess the trading volume and 
demand for Agency Debt Securities data.\39\
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    \37\ See CMG-SIFMA Letter, at 4.
    \38\ See RBDA Letter, at 4.
    \39\ See FINRA Response, at 7.
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    Four commenters raised concerns about trade modifications in 
TRACE.\40\ The commenters suggested that firms acting in good faith 
should be able to modify, cancel, or correct trade reports without 
incurring fees or penalties and that the TRACE platform be enhanced to 
allow modifications to trades submitted, rather than full re-
submissions, which could help eliminate duplicative reporting.\41\ In 
response, FINRA asserted that modifications of trade reports are not 
relevant to the proposed rule change, but that FINRA reviews 
operational issues raised by firms on an ongoing basis and will take 
the issue under consideration.\42\ FINRA also declined to address other 
commenters' concerns that were outside the scope of the proposal, 
including commenter recommendations regarding dissemination 
protocols.\43\
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    \40\ See CMG-SIFMA Letter, at 5; RBDA Letter, at 4-5; Crews 
Letter, at 1-2; FIF Letter, at 2.
    \41\ See CMG-SIFMA Letter, at 5.
    \42\ See FINRA Response, at 6.
    \43\ See, e.g., FINRA Response, at 3.
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    In Amendment No. 2, FINRA proposed limited amendments to various 
proposed reporting, dissemination, and notification provisions in the 
Rule 6700 series, and to Rule 7730. FINRA further proposed to add new 
Rule 6770 to provide emergency authority to FINRA, in consultation with 
the Commission, to suspend reporting and/or dissemination of certain 
transactions in TRACE-Eligible Securities.
    FINRA maintains that the proposed amendments to the Rule 6700 
series address many of the substantive issues raised by commenters.\44\ 
The proposed amendments would extend the period to report primary 
market transactions that are List or Fixed Offering Price Transactions 
or Takedown Transactions to the close of the TRACE system on T+1, and 
simplify the reporting of all transactions by eliminating two of three 
proposed indicators. In addition, the proposed amendments would modify 
Rule 6760, providing greater flexibility to underwriters (or other 
persons designated in the rule) that are required to provide FINRA 
Operations notice and are engaged in an offering that is priced and 
commences between 9:30 a.m. and 4 p.m. ET. In conjunction with this 
change, a member would be required to indicate in its notice to FINRA 
Operations the time that the new issue is priced and, if different, the 
time that primary transactions in the new issue commence. FINRA also 
has proposed certain other minor changes, including non-substantive, 
clarifying, or formatting changes to the Rule 6700 Series and Rule 
7730.
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    \44\ See FINRA Response, at 8.
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Rule 6730

    FINRA originally proposed that primary market transactions that are 
List or Fixed Offering Price Transactions or Takedown Transactions be 
reported by the end of the day on the day such securities were priced, 
if the pricing occurred by 5 p.m. In Amendment No. 2, FINRA is revising 
two provisions of Rule 6730 regarding the reporting of such 
transactions to address certain concerns raised by the commenters. 
Specifically, FINRA has proposed to extend the reporting period by a 
full day, requiring members to report List or Fixed Offering Price 
Transactions and Takedown Transactions not later than T+1 during TRACE 
system hours, with limited exceptions for transactions that occur on 
weekends or holidays. For List or Fixed Offering Price Transactions or 
Takedown Transactions that are priced on a Saturday, Sunday, or a 
federal or religious holiday on which the TRACE system is closed, Rule 
6730(a)(5) as revised by Amendment No. 2 would require a member to 
report the transaction the next business day at any time during TRACE 
system hours.
    Second, FINRA originally proposed that members use one of three 
indicators when reporting transactions in TRACE-Eligible Securities in 
proposed amended Rule 6730(d)(4)(D). The purpose was to distinguish 
between primary and secondary market transactions, as primary market 
transactions would be reported for the first time, and to distinguish 
List or Fixed Offering Price Transactions and Takedown Transactions 
from other primary market transactions. Certain commenters raised 
issues regarding the use of the three proposed indicators.\45\
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    \45\ See CMG-SIFMA Letter, at 3; RBDA Letter, at 3.
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    In Amendment No. 2, FINRA has proposed to amend Rule 6730(d)(4)(D) 
to eliminate the proposed indicators for secondary market transactions 
and for primary market transactions that are not List or Fixed Offering 
Price Transactions or Takedown Transactions. Rule 6730(d)(4)(D) would 
retain the requirement that members use the remaining proposed 
indicator when reporting primary market transactions that are List or 
Fixed Offering Price Transactions and Takedown Transactions. The 
remaining indicator will enable FINRA to identify transaction 
information received for such transactions that will be disseminated, 
which FINRA proposed in the original rule filing. In addition, FINRA 
will use the indicator for surveillance purposes to determine if 
members are properly categorizing transactions as List or Fixed 
Offering Price Transactions and Takedown Transactions, and to determine 
if a member is selecting the indicator inappropriately to obtain the 
advantages of more relaxed reporting requirements or to avoid 
dissemination of selected reported transactions.

Rule 6760

    In its original proposal, FINRA proposed to amend the notice and 
information reporting requirements in Rule 6760. Specifically, a member 
providing notice would be required to include ``the time the new issue 
is priced.'' Additionally, the original proposal required that 
information be provided ``prior to the commencement of primary market 
transactions.'' In Amendment No. 2, FINRA proposes to

[[Page 50995]]

amend the notification requirements for new TRACE-Eligible Securities 
in Rule 6760 in response to comments. The most significant amendment to 
Rule 6760, in Rule 6760(b), provides more flexibility for underwriters 
(or other designated persons) that are required to give notice to FINRA 
Operations regarding a new TRACE-Eligible Security that is the subject 
of an offering that is priced and commences on the same business day 
between 9:30 a.m. and 4 p.m. ET. The proposed amendment would require 
the underwriter (or other designated person) to provide FINRA 
Operations as much of the information required under the rule that is 
available prior to the execution of the first transaction in the 
distribution or offering, and all other information required under Rule 
6760 within 15 minutes of the time of execution of the first 
transaction in such distribution or offering.\46\
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    \46\ Rule 6760 does not apply to secondary offerings or 
distributions.
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    FINRA also has proposed two additional amendments to the member 
notification requirements in Rule 6760(b). In response to comments 
regarding the operational difficulties of complying with TRACE 
requirements for securities not having a CUSIP number, FINRA proposes 
to amend Rule 6760(b) to permit the underwriter (or another designated 
person) providing the notice to submit, in lieu of a CUSIP, ``a similar 
numeric identifier (or a TRACE symbol, which is assigned by FINRA upon 
request).'' Also, FINRA originally proposed that an underwriter (or 
another designated person) notify FINRA Operations of the time that a 
new issue is priced. In Amendment No. 2, FINRA has proposed to add to 
such requirement that a member provide the time that the first 
transaction of the distribution or offering of the new issue is 
executed, if the time is different from the time of pricing of the new 
issue. The amended notification requirement would enable FINRA to 
determine if members comply with Rule 6760 to provide notification when 
required. FINRA believes that members' timely notification to FINRA 
Operations of new TRACE-Eligible Securities that are about to be 
offered plays a significant part of the process of continuously 
updating the TRACE system, and members that fail to comply with Rule 
6760 impair the reporting of transactions by other members and 
adversely affect price transparency in the security during the most 
active or one of the most active trading periods in the security.

Proposed Rule 6770

    In Amendment No. 2, FINRA proposed new Rule 6770, which would 
provide FINRA emergency authority to suspend the reporting and/or 
dissemination of certain transactions in TRACE-Eligible Securities, or 
the reporting of certain data elements that are otherwise required 
under Rule 6730 and/or the dissemination of certain data elements, as 
market conditions warrant and for such period of time as FINRA deems 
necessary. FINRA represented that each action that FINRA might consider 
under proposed Rule 6770 would be subject to review and discussion with 
the Commission prior to FINRA's use of such authority.\47\ Although 
FINRA does not anticipate that such emergency authority would be used, 
FINRA believes it is prudent for such authority to be in place.
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    \47\ See Amendment No. 2, at 6.
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Other Amendments

    Finally, in Amendment No. 2, FINRA proposed to incorporate non-
substantive, technical, clarifying and formatting amendments in the 
Rule 6700 series and Rule 7730.

IV. Discussion

    After carefully considering the proposal and the comments 
submitted, the Commission finds that the proposed rule change is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
association.\48\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 15A(b)(6) of the Act,\49\ 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. The Commission does not believe that 
the comments raise any issue that would preclude approval of the 
proposal. Indeed, the Commission believes that the proposal promotes 
the goals of transparency, increased price discovery, and debt market 
integrity cited by several commenters.
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    \48\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \49\ 15 U.S.C. 78o-3(b)(6).
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    In originally approving TRACE, the Commission stated that price 
transparency plays a fundamental role in promoting fairness and 
efficiency of U.S. capital markets and that market surveillance was a 
fundamental means of promoting fairness and confidence in those 
markets.\50\ To further those goals, the Commission believes that it is 
reasonable and consistent with the Act for FINRA to expand TRACE in the 
manner set forth in the proposal.
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    \50\ See Securities Exchange Act Release No. 43873 (January 23, 
2001) 66 FR 8131, 8136 (January 29, 2001).
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    Prior to TRACE's implementation, the NASD did not have routine 
access to comprehensive transaction information for the over-the-
counter corporate bond market, even though the NASD bore responsibility 
for surveilling and regulating that market. Similarly, with respect to 
the over-the-counter market for Agency Debt Securities and for primary 
market bond transactions, FINRA currently does not possess the 
comprehensive transaction information that would help it carry out its 
statutory duties to regulate the market. Expanding TRACE to include 
Agency Debt Securities and primary market transactions will assist 
FINRA in fulfilling its mandate in Section 15A(b)(6) of the Act \51\ 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.
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    \51\ 15 U.S.C. 78o-3(b)(6).
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    Furthermore, the Commission believes that the proposal is 
consistent with Section 11A(a)(1)(C)(iii) of the Act,\52\ in which 
Congress found that it is in the public interest and appropriate for 
the protection of investors and the maintenance of fair and orderly 
markets to assure the availability to brokers, dealers, and investors 
of information with respect to quotations and transactions in 
securities. This proposal furthers this goal by increasing the amount 
of public information available in the over-the-counter market for debt 
securities. By increasing public availability of information about 
additional categories of debt, this proposal is reasonably designed to 
encourage greater participation in the market by retail and 
institutional investors, which should contribute to deeper markets and 
increased competition. Moreover, the additional transaction data 
reported to TRACE will allow FINRA to obtain a more complete audit 
trail of transactions in the market for TRACE-Eligible Securities. 
Although the Commission acknowledges the potential for firms covered by 
these new reporting requirements to incur additional compliance burdens 
and costs, the Commission believes that any such burdens are 
substantially outweighed by the overall benefits of increased 
transparency and access to

[[Page 50996]]

more comprehensive trade information in the fixed income markets.
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    \52\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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    The Commission further finds that the proposed fees for: (1) 
Reporting of Agency Debt Securities and primary market transactions, 
(2) receipt of market data for Agency Debt Securities and primary 
market transactions, and (3) subscribing to ``Web Browser Access'' for 
TRACE reporting and/or market data receipt are consistent with Section 
15A(b)(5) of the Act, 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.\53\ These fees are 
similar to those that currently apply to corporate debt securities.
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    \53\ 15 U.S.C. 78o-3(b)(5).
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V. Accelerated Approval

    The Commission finds good cause, pursuant to Section 19(b)(2) of 
the Act,\54\ for approving the proposed rule change, as modified by 
Amendment No. 2 thereto, prior to the 30th day after the date of 
publication in the Federal Register. The changes proposed in Amendment 
No. 2 are minor and technical in nature or designed to respond to 
specific concerns raised by commenters. With respect to the proposed 
provision that would permit FINRA to suspend TRACE reporting or 
dissemination in certain emergency circumstances, the Commission notes 
that such authority could be exercised only in consultation with the 
Commission. Accordingly, the Commission finds that good cause exists to 
approve the proposal, as modified by Amendment No. 2, on an accelerated 
basis.
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    \54\ 15 U.S.C. 78s(b)(2).
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VI. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether Amendment No. 2 
to 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-2009-010 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2009-010. 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 the filing will also be available for 
inspection and copying at the principal office of FINRA. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File No. SR-FINRA-2009-010 and should be 
submitted on or before October 23, 2009.

VII. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\55\ that the proposed rule change (SR-FINRA-2009-010), as modified 
by Amendments Nos. 1 and 2, be, and hereby is, approved on an 
accelerated basis.
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    \55\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\56\
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    \56\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-23729 Filed 10-1-09; 8:45 am]

BILLING CODE 8011-01-P