Document ID: SEC-2018-1573-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2018-10-11T04:00Z

[Federal Register Volume 83, Number 197 (Thursday, October 11, 2018)]
[Notices]
[Pages 51514-51515]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-22046]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84366; File No. SR-FINRA-2018-030]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Approving Proposed Rule Change To Amend FINRA 
Rule 7730 To Remove Computer-to-Computer Interface as a Technological 
Option for TRACE Reporting

October 4, 2018.

I. Introduction

    On August 15, 2018, the Financial Industry Regulatory Authority, 
Inc. (``FINRA'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to modify the technological connectivity options 
available to member firms for reporting transactions to the Transaction 
Reporting and Compliance Engine (``TRACE''). The proposed rule change 
was published for comment in the Federal Register on August 23, 
2018.\3\ The Commission received no comments on the proposed rule 
change. This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 83868 (August 17, 
2018), 83 FR 42741 (``Notice'').
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II. Description of the Proposal

    FINRA has proposed to amend Rule 7730 (Trade Reporting and 
Compliance Engine (TRACE)) to remove Computer-to-Computer Interface 
(``CTCI'') as a technological means of connectivity for use in 
reporting transactions to TRACE. CTCI was made available for TRACE 
reporting purposes at TRACE's inception. FINRA added Financial 
Information eXchange (``FIX'') as a protocol for transaction reporting 
to TRACE for securitized products in 2011 and for corporate and agency 
debt securities in 2012. FINRA has represented that approximately two 
thirds of member firms with direct connections, and half of the service 
bureaus, have migrated from CTCI to FIX.\4\ FINRA believes that the 
migration to FIX will continue for member firms and service bureaus as 
it is an immediately available and viable alternative to CTCI, and that 
removing CTCI as a connectivity option will reduce operational overhead 
and risk for FINRA.\5\
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    \4\ See id.
    \5\ See id.
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    Accordingly, FINRA has proposed to amend Rule 7730 to remove CTCI 
as a means of connectivity for members to report transactions to TRACE, 
leaving three currently available options: (i) Web browser access; (ii) 
FIX line access; or (iii) indirectly via third-party vendors (e.g., 
service bureaus).\6\ Member firms that currently use CTCI will be able 
to migrate at any point throughout the implementation period, during 
which FINRA will engage in outreach with the industry to provide 
information and assistance in connection with the migration.\7\ The 
operative date for the rule change will be February 3, 2020.\8\
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    \6\ See FINRA Rule 7730.
    \7\ See Notice, 83 FR at 42741. FINRA stated that, in addition 
to general industry outreach, FINRA will contact each member firm 
that directly reports to TRACE via CTCI by email and telephone to 
provide information and assistance in connection with the migration. 
See id. at n. 8.
    \8\ See id. at 42741.
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III. Discussion and Commission Findings

    After careful consideration, 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.\9\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 15A(b)(6) of the Act,\10\ which 
requires, among other things, that FINRA rules 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.
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    \9\ 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).
    \10\ 15 U.S.C. 78o-3(b)(6).
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    While Section 15A(b)(6) sets out principles to which the rules of a 
national securities association must adhere, it does not prescribe 
specific technological requirements for carrying out those principles. 
Thus, in a situation where an association requires information from its 
members to carry out its self-regulatory and market oversight 
functions, the association generally has discretion over establishing 
the means by which its members may be required to provide

[[Page 51515]]

that information. Currently, FINRA supports four technological 
protocols for its members to report transactions to TRACE. FINRA has 
proposed to discontinue supporting one of those four protocols, CTCI. 
The Commission believes that such action is a reasonable exercise of 
FINRA's discretion, for the following reasons.
    First, FINRA will continue to support three other technological 
protocols for reporting transactions to TRACE: FIX, web browser, and 
via third-party vendor. Second, FIX already is utilized by 
approximately half of the third-party vendors and two-thirds of member 
firms with direct reporting capability, and with the increase in the 
percentage of TRACE transactions reported via FIX there has been a 
concomitant decrease in CTCI usage.\11\ Third, supporting three instead 
of four reporting protocols would conserve FINRA resources and has some 
potential for reducing operational risks.\12\ Fourth, FINRA is taking 
reasonable steps to assist member firms that currently use CTCI and 
must transition to other reporting protocols. FINRA has stated that it 
will contact each such firm to offer assistance in connection with the 
migration, and is allowing over a year--until February 3, 2020--for 
affected firms to complete the migration.\13\ The Commission has no 
reason to believe that this proposal will impose undue burdens on FINRA 
member firms; the Commission notes that no comments on the proposal 
were submitted.
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    \11\ See Notice, 83 FR at 42741.
    \12\ See id. at 42741.
    \13\ See id. at n. 8.
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    For these reasons, the Commission believes the proposed rule change 
is consistent with the Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\14\ that the proposed rule change (SR-FINRA-2018-030) is approved.
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    \14\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-22046 Filed 10-10-18; 8:45 am]
 BILLING CODE 8011-01-P