[Federal Register Volume 81, Number 248 (Tuesday, December 27, 2016)]
[Notices]
[Pages 95247-95250]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-31112]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-79620; File No. SR-FINRA-2016-046]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change Relating to Reporting Transactions in U.S.
Treasury Securities to the Trade Reporting and Compliance Engine
December 20, 2016.
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 December 14, 2016, 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 6710 to clarify the
definitions of ``Auction Transaction'' and ``When-Issued Transaction''
for the purposes of reporting transactions in U.S. Treasury Securities
to the Trade Reporting and Compliance Engine (``TRACE'').
Below is the text of the proposed rule change. Proposed new
language is in italics; proposed deletions are in brackets.
* * * * *
6000. QUOTATION AND TRANSACTION REPORTING FACILITIES
* * * * *
6700. TRADE REPORTING AND COMPLIANCE ENGINE (TRACE)
6710. Definitions
The terms used in this Rule 6700 Series shall have the same meaning
as those defined in the FINRA By-Laws and rules unless otherwise
specified. For the purposes of this Rule 6700 Series, the following
terms have the following meaning:
(a) through (ee) No Change.
(ff) ``Collateralized Debt Obligation'' (``CDO'') means a type of
Securitized Product backed by fixed-income assets
[[Page 95248]]
(such as bonds, receivables on loans, or other debt) or derivatives of
these fixed-income assets, structured in multiple classes or tranches
with each class or tranche entitled to receive distributions of
principal and/or interest in accordance with the requirements adopted
for the specific class or tranche. A CDO includes, but is not limited
to, a collateralized loan obligation (``CLO'') and a collateralized
bond obligation (``CBO'').
([ff]gg) ``Auction'' means the bidding process by which the U.S.
Department of the Treasury sells marketable securities to the public
pursuant to Part 356 of Title 31 of the Code of Federal Regulations.
([gg]hh) ``Auction Transaction'' means [the purchase of] a
transaction in which a member is awarded a U.S. Treasury Security in an
Auction.
([hh]ii) ``When-Issued Transaction'' means a transaction in a U.S.
Treasury Security that is executed before the [Auction for] issuance of
the security.
Supplementary Material: ------
.01 No Change.
* * * * *
6730. Transaction Reporting
(a) through (b) No Change.
(c) Transaction Information To Be Reported
Each TRACE trade report shall contain the following information:
(1) through (2) No Change.
(3) Price of the transaction (or the elements necessary to
calculate price, which are contract amount and accrued interest) or,
for When-Issued Transactions in U.S. Treasury Securities executed
before the Auction for the security, the yield as required by paragraph
(d)(1) of this Rule[below];
(4) through (14) No Change.
(d) Procedures for Reporting Price, Capacity, Volume
(1) Price
(A) Except as noted in subparagraph (B) [for When-Issued
Transactions in U.S. Treasury Securities], for principal transactions,
report the price, which must include the mark-up or mark-down.
(However, if a price field is not available, report the contract amount
and, if applicable, the accrued interest.) For agency transactions,
report the price, which must exclude the commission. (However, if a
price field is not available, report the contract amount and, if
applicable, the accrued interest.) Report the total dollar amount of
the commission if one is assessed on the transaction. Notwithstanding
the foregoing, a member is not required to include a commission, mark-
up or mark-down where one is not assessed on a trade-by-trade basis at
the time of the transaction or where the amount is not known at the
time the trade report is due. A member must use the ``No Remuneration''
indicator described in paragraph (d)(4)(F) where a trade report does
not reflect either a commission, mark-up or mark-down, except for an
inter-dealer transaction, a ``List or Fixed Offering Price
Transaction,'' as defined in Rule 6710(q), or a ``Takedown
Transaction,'' as defined in Rule 6710(r).
(B) For When-Issued Transactions in U.S. Treasury Securities
executed before the Auction for the security and conducted on a
principal basis, report the yield, which must include the mark-up or
mark-down, of the security in lieu of price. For When-Issued
Transactions in U.S. Treasury Securities executed before the Auction
for the security and conducted on an agency basis, report the yield,
which must exclude the commission, of the security in lieu of price.
Report the total dollar amount of the commission.
(2) through (4) No Change.
(e) through (f) No Change.
Supplementary Material: ------
.01 through .05 No Change.
* * * * *
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
On October 18, 2016, the Commission approved a proposed rule change
to require FINRA members to report certain transactions in U.S.
Treasury Securities to TRACE.\3\ The reporting requirements will be
implemented beginning July 10, 2017.\4\ As part of the proposed rule
change, FINRA adopted three new defined terms to address members'
reporting requirements involving transactions in U.S. Treasury
Securities that occur on a ``when-issued'' basis or that occur as part
of an auction of U.S. Treasury Securities: ``Auction,'' ``Auction
Transaction,'' and ``When-Issued Transaction.'' FINRA is amending the
definitions of ``Auction Transaction'' and ``When-Issued Transaction''
to clarify the application of those terms, and is amending Rule 6730 to
clarify the reporting requirements in light of the changes to the
definition of ``When-Issued Transaction.'' \5\
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\3\ 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).
\4\ See Regulatory Notice 16-39 (October 2016).
\5\ On September 23, 2016, the Commission approved SR-FINRA-
2016-023, which added a definition of ``Collateralized Debt
Obligation'' to Rule 6710 as paragraph (ff). See Securities Exchange
Act Release No. 78925 (September 23, 2016), 81 FR 67023 (September
29, 2016) (Order Approving File No. SR-FINRA-2016-023). The proposed
rule change also amends the paragraph designations for the
definitions of ``Auction,'' ``Auction Transaction,'' and ``When-
Issued Transaction'' as (gg), (hh), and (ii), respectively.
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First, FINRA is amending the terminology in the definition of
``Auction Transaction'' to conform to the regulations applicable to
auctions of U.S. Treasury Securities. As adopted, the term ``Auction
Transaction'' is defined as ``the purchase of a U.S. Treasury Security
in an Auction.'' \6\ Pursuant to the amendments to Rule 6730(e),
Auction Transactions are exempt from the TRACE reporting requirements.
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\6\ The term ``Auction'' means ``the bidding process by which
the U.S. Department of the Treasury sells marketable securities to
the public pursuant to Part 356 of Title 31 of the Code of Federal
Regulations.''
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When conducting auctions, the Department of the Treasury accepts
bids and determines awards pursuant to the process set forth in the
applicable regulations.\7\ Securities awarded during the auction
process must then be paid for by the issue date established in the
announcement for the auction.\8\ To incorporate the concept of
``awards'' and maintain consistency with the applicable Treasury
regulations, FINRA is amending the definition of ``Auction
Transaction'' to mean ``the [sic] \9\ transaction in which a member is
awarded a U.S. Treasury Security in an Auction.'' Consequently, the
acquisition of U.S. Treasury Securities on the issue
[[Page 95249]]
date as a result of a successful bid in an Auction will not be
reportable to TRACE by a FINRA member. Any secondary market
transactions in the security following the initial acquisition on the
issue date will be reportable.
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\7\ See 31 CFR 356.20 (How does the Treasury determine auction
awards?).
\8\ See 31 CFR 356.25 (How does the settlement process work?).
\9\ The proposed rule text states: `` `Auction Transaction'
means a transaction in which a member is awarded a U.S. Treasury
Security in an Auction.''
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Second, FINRA is amending the definition of ``When-Issued
Transaction'' to conform to more common usage of the term. As adopted,
the term ``When-Issued Transaction'' was defined as ``a transaction in
a U.S. Treasury Security that is executed before the Auction for the
security.'' Although ``when-issued'' trading typically refers to any
trading conducted between the announcement of an auction for a U.S.
Treasury Security and the issue date, which can often be several days
after the auction for the security, FINRA defined the term to extend
only until the auction for the security to reflect the change in how
transactions are priced before and after the auction (i.e.,
transactions are generally conducted on a yield basis before the
auction and on a price basis after the auction).
To conform the definition in the TRACE rules to more common usage,
FINRA is amending the definition of ``When-Issued Transaction'' to mean
``a transaction in a U.S. Treasury Security that is executed before the
issuance of the security.'' Under the amendment, therefore, the timing
of When-Issued Transactions will still commence with the announcement
of the Auction, but any transaction in the security subject to the
Auction will be considered a ``When-Issued Transaction'' until the date
the security is issued rather than the date the security is auctioned.
Members will still be required to report yield, rather than price, for
When-Issued Transactions up until the Auction for the security and
price following the Auction; however, all When-Issued Transactions,
both before and after the Auction up until the issue date, must be
reported with the appropriate indicator. Because of the change in
definition, FINRA also is amending Rule 6730 to clarify that, although
the definition of the term ``When-Issued Transaction'' is being
amended, there are no changes as to how members report price or yield
on these transactions.\10\
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\10\ Similarly, the guidance FINRA has provided on the use of
the When-Issued Transaction indicator and reopening transactions
does not change as a result of these amendments. See Regulatory
Notice 16-39 (October 2016).
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FINRA has filed the proposed rule change for immediate
effectiveness. The implementation date will be July 10, 2017.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\11\ 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. FINRA believes that the amendments will conform the
terms in FINRA rules to their more common usage and use of these terms
in applicable Treasury regulations. FINRA believes the amended
definitions may reduce confusion regarding usage of the terms in the
FINRA TRACE rules.
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\11\ 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. Because the amendments are
limited to conforming the terms in FINRA rules to their more common
usage and to the use of the terms in applicable Treasury regulations,
FINRA believes that amending the definitions may reduce confusion
regarding usage of the terms and will not result in any burden on
competition.
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 \12\ and Rule 19b-
4(f)(6) thereunder.\13\
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\12\ 15 U.S.C. 78s(b)(3)(A).
\13\ 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.
FINRA has satisfied this requirement.
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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-2016-046 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2016-046. 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 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
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available publicly. All submissions should refer to File Number SR-
FINRA-2016-046, and should be submitted on or before January 17, 2017.
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\14\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016-31112 Filed 12-23-16; 8:45 am]
BILLING CODE 8011-01-P