Document ID: SEC-2018-0667-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2018-04-30T04:00Z

[Federal Register Volume 83, Number 83 (Monday, April 30, 2018)]
[Notices]
[Pages 18866-18868]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-08995]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83098; File No. SR-FINRA-2018-014]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Extend the Temporary Exception That Permits 
Aggregate Reporting for Certain ATS Transactions in U.S. Treasury 
Securities

April 24, 2018.
    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 April 16, 2018, 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 6730 (Transaction Reporting) 
to provide an extension of the temporary exception to permit member 
alternative trading systems (``ATSs'') and member subscribers to report 
aggregate trade information to TRACE for certain transactions in U.S. 
Treasury Securities.
    The text of the proposed rule change is available on FINRA's 
website 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    FINRA Rule 6730 sets forth a member's trade reporting obligations 
with regard to transactions in TRACE-Eligible Securities,\3\ which 
beginning on

[[Page 18867]]

July 10, 2017, included U.S. Treasury Securities.\4\ Pursuant to Rule 
6730, each FINRA member that is a ``Party to a Transaction'' \5\ in a 
TRACE-Eligible Security is obligated to report the transaction to TRACE 
within the prescribed period of time. Transaction information in U.S. 
Treasury Securities reported to TRACE currently is not subject to 
public dissemination.
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    \3\ ``TRACE-Eligible Security'' generally is defined as a debt 
security that is U.S. dollar-denominated and is: (1) 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; (2) issued or guaranteed by an Agency as 
defined in paragraph (k) or a Government-Sponsored Enterprise as 
defined in paragraph (n); or (3) a U.S. Treasury Security as defined 
in paragraph (p). ``TRACE-Eligible Security'' does not include a 
debt security that is issued by a foreign sovereign or a Money 
Market Instrument as defined in paragraph (o). See Rule 6710(a).
    Rule 6710(p) defines a ``U.S. Treasury Security'' as ``a 
security, other than a savings bond, issued by the U.S. Department 
of the Treasury to fund the operations of the federal government or 
to retire such outstanding securities.'' The term ``U.S. Treasury 
Security'' also includes separate principal and interest components 
of a U.S. Treasury Security that has been separated pursuant to the 
Separate Trading of Registered Interest and Principal of Securities 
(``STRIPS'') program operated by the U.S. Department of Treasury. 
See Rule 6710(p).
    \4\ 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). See also Regulatory Notice 16-39 (October 2016).
    \5\ See Rule 6710(e).
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    On June 23, 2017, FINRA filed a proposed rule change to, on a 
temporary basis, adopt Supplementary Material .06 (Temporary Exception 
for Aggregate Transaction Reporting of U.S. Treasury Securities 
Executed in ATS Trading Sessions) to permit members to report trades 
that occurred in a U.S. Treasury Security executed within discrete ATS 
trading sessions \6\ (sometimes referred to as ``work-up sessions'') 
\7\ on an aggregate, rather than individual, basis (``Aggregation 
Exception'').\8\
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    \6\ FINRA understands that ATSs that permit subscribers to trade 
U.S. Treasury Securities on their platforms may permit subscribers 
to initiate a ``trading session,'' which is a discrete or timed 
order-matching event during which one or more additional subscribers 
can interact with the original order on the opposite side of the 
market or add to the initial order on the same side of the market. 
Although it is possible that some trading sessions involve a single 
transaction between two counterparties like a typical trade, FINRA 
understands that most trading sessions include multiple participants 
on one or both sides of the market during the time period the 
trading session is open.
    \7\ Different members use varying nomenclature to describe 
trading sessions. For example, one member ATS refers to these 
sessions as ``workups'' or ``workup sessions.'' In addition, the 
length of time a session remains open and other characteristics of 
how a session is structured may change from member to member. As 
used in the proposed rule change, the term ``trading session'' is 
meant to capture all variations of such types of sessions that 
member ATSs may use.
    \8\ See Securities Exchange Act Release No. 81018 (June 26, 
2017), 82 FR 29956 (June 30, 2017) (Notice of Filing and Immediate 
Effectiveness of File No. SR-FINRA-2017-023) (``Original Filing'').
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    The Aggregation Exception provides relief to members with respect 
to the number of transactions required to be reported, the price 
reported, as well as the Time of Execution \9\ reported to TRACE. 
Specifically, the exception provided that ATSs and member subscribers 
are permitted to report transactions in U.S. Treasury Securities 
executed within discrete trading sessions by submitting a transaction 
report reflecting the aggregate amount of a U.S. Treasury Security 
purchased (sold) to another party during a single trading session at 
the average price of such transactions, with the Time of Execution 
communicated by the ATS,\10\ irrespective of the number of trades in 
the trading session. The Aggregation Exception was intended to provide 
members with additional time to complete the systems changes necessary 
to accurately report each individual transaction in a U.S. Treasury 
Security in the trading session as required by Rule 6730.\11\ Once the 
temporary exception sunsets, member ATSs and member subscribers are 
required to comply with Rule 6730 by separately reporting each 
individual trade that occurs during a trading session as well as the 
actual time and price at which each of these individual trades is 
executed.
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    \9\ Under Rule 6710(d), the ``Time of Execution'' for a 
transaction in any 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.''
    \10\ FINRA notes that, even where aggregation is not necessary 
because only the ATS and two subscribers ultimately participated in 
a trading session resulting in a single cross, the proposed rule 
change permits members the flexibility to report a Time of Execution 
that is communicated by the ATS to each party. Thus, even where the 
trading session involves only one cross, member TRACE reports may 
reflect a Time of Execution that is, for example, the beginning of 
the trading session or the end of the trading session.
    \11\ See Original Filing.
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    FINRA understands from discussions with multiple member ATSs that 
are active in the market for U.S. Treasury Securities that the systems 
changes necessary to comply with Rule 6730 will require substantial 
development and testing to complete and that, further, the systems 
changes required by subscriber members also are significant and cannot 
be completed by July 10, 2018. While we understand that member ATSs 
have begun the development work necessary to report individual 
execution information, additional time is necessary, including to 
develop an additional data feed to deliver execution level information 
to subscribers and vendors. We also understand that member subscribers 
require additional time to update their systems to consume the new 
execution information to be provided by the ATSs and to systematically 
incorporate this information in their TRACE reporting to FINRA. FINRA 
believes it is important that both member ATSs and member subscribers 
perform the programming and testing necessary to accurately and 
consistently report individual executions and the time of execution to 
TRACE to avoid inconsistencies in the audit trail. Thus, FINRA is 
proposing a nine-month extension of the temporary exception, until 
April 12, 2019. As a condition to the exception, a member ATS availing 
itself of this exception would continue to be required to provide 
individual transaction information for each trade in a U.S. Treasury 
Security occurring in a trading session to FINRA upon request. In 
addition, FINRA expects that necessary testing of new required 
functionality will commence well in advance of the extended deadline of 
April 12, 2019, but at a minimum, no later than January 12, 2019.
    FINRA has filed the proposed rule change for immediate 
effectiveness. The operative date of the proposed rule change will be 
July 10, 2018 and it will sunset on April 12, 2019, which FINRA 
believes will provide members with the additional time required to 
complete necessary systems changes to comply with Rule 6730 and result 
in a more accurate and complete TRACE audit trail for U.S. Treasury 
Securities.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\12\ 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. Based on discussions with multiple member ATSs, FINRA 
believes that additional time is necessary to permit members to program 
systems to comply with Rule 6730. FINRA believes it is appropriate to 
provide the proposed relief in recognition of the fact that impacted 
members are unable to implement necessary changes by the July 10, 2018. 
FINRA believes the proposal strikes an appropriate balance in that 
FINRA will continue to receive transaction information for purchases 
and sales that occur as part of an ATS trading session, albeit 
aggregated. In addition, FINRA notes that transparency will not be 
impacted by the proposed temporary relief because transaction 
information in U.S. Treasury Securities currently is not subject to 
public dissemination.
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    \12\ 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.
    The proposed rule change should benefit members whose trades are 
executed on member ATSs as part of a

[[Page 18868]]

trading session, as it provides members with additional time to build 
or upgrade systems to enable reporting of individual transactions in 
the trading session. While the proposed rule change will temporarily 
lessen the requirements on ATSs and their subscribers as compared to 
other market participants, FINRA believes the proposed rule change is 
appropriate to allow sufficient time to make the technological changes 
necessary to comply with the rule and such accommodation will be 
limited in duration. Moreover, FINRA retains the right to require a 
member ATS availing itself of this exception to provide individual 
transaction information for each trade in a U.S. Treasury Security 
occurring in a trading session upon request.
    The proposed temporary relief is not expected to undermine the 
potential benefits of Rule 6730, as the transaction information 
reflecting the aggregate size and average price of such transactions 
should still assist the regulators to conduct monitoring and 
surveillance of the U.S. Treasury Securities markets, in order to 
detect potential disruptive trading practices and risks to market 
stability.

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 \13\ and Rule 19b-
4(f)(6) thereunder.\14\
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 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. 
The Commission has waived the five-day pre-filing requirement in 
this case.
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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 [email protected]. Please include 
File Number SR-FINRA-2018-014 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-2018-014. 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 website (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 website 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. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-FINRA-2018-014 and should be submitted 
on or before May 21, 2018.

    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. 2018-08995 Filed 4-27-18; 8:45 am]
BILLING CODE 8011-01-P