Notice2022-19112
Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving a Proposed Rule Change To Amend FINRA Rule 6730 (Transaction Reporting) To Enhance TRACE Reporting Obligations for U.S. Treasury Securities
Primary source
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Published
September 6, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 171 (Tuesday, September 6, 2022)</title>
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[Federal Register Volume 87, Number 171 (Tuesday, September 6, 2022)]
[Notices]
[Pages 54579-54583]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-19112]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95635; File No. SR-FINRA-2022-013]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Order Approving a Proposed Rule Change To Amend FINRA
Rule 6730 (Transaction Reporting) To Enhance TRACE Reporting
Obligations for U.S. Treasury Securities
August 30, 2022.
I. Introduction
On May 23, 2022, 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 amend FINRA Rule 6730 (Transaction Reporting)
to Enhance TRACE Reporting Obligations for U.S. Treasury Securities.
The proposed rule change was published for comment in the Federal
Register on June 3, 2022.\3\ On July 13, 2022, pursuant to Section
19(b)(2) of the Act,\4\ the Commission designated a longer period
within which to approve the proposed rule change, disapprove the
proposed rule change, or institute proceedings to determine whether to
disapprove the proposed rule change.\5\ The Commission received five
comments on the proposal.\6\ FINRA submitted a response to the comments
on August 18, 2022.\7\ 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. 95003 (May 27,
2022), 87 FR 33844 (June 3, 2022) (``Notice'').
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 95270 (July 13,
2022), 87 FR 43065 (July 19, 2022).
\6\ See letters to Vanessa Countryman, Secretary, Commission,
from Rob Toomey, Managing Direct & Associate General Counsel, and
Charles de Simone, Managing Director, Technology and Operations,
Securities Industry and Financial Markets Association (``SIFMA''),
dated June 24, 2022 (``SIFMA Letter''); Howard Meyerson, Managing
Director, Financial Information Forum (``FIF''), dated June 24, 2022
(``FIF Letter''); Gerard O'Reilly, Co-CEO and Chief Investment
Officer, Dimensional Fund Advisors LP, dated June 22, 2022; Stephen
John Berger, Managing Director, Global Head of Government &
Regulatory Policy, Citadel Securities, dated June 24, 2022
(``Citadel Letter''); Joanna Mallers, Secretary, FIA Principal
Traders Group, dated June 24, 2022 (``FIA Letter''). The comment
letters are available at: <a href="https://www.sec.gov/comments/sr-finra-2022-013/srfinra2022013.htm">https://www.sec.gov/comments/sr-finra-2022-013/srfinra2022013.htm</a>.
\7\ See letter to Vanessa Countryman, Secretary, Commission,
from Robert McNamee, FINRA, dated August 18, 2022 (``FINRA Response
Letter'').
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II. Description of the Proposal
FINRA is proposing two changes to its Trade Reporting and
Compliance Engine (``TRACE'') \8\ reporting rules to enhance the
regulatory audit trail and require members to report transactions in
U.S. Treasury Securities \9\ to FINRA in a more timely manner.
Information reported to TRACE regarding transactions in U.S. Treasury
Securities \10\ is used for regulatory and
[[Page 54580]]
other official sector \11\ purposes and is not disseminated
publicly.\12\ Among other regulatory uses, FINRA makes the data
available to the official sector to assist in the monitoring and
analysis of the U.S. Treasury Security markets. The first proposed
change would require members to report electronically executed
transactions in U.S. Treasury Securities to TRACE in the finest
increment captured by the system that executed the transaction. FINRA
is proposing to provide an exception from the amended execution
timestamp provision for members with limited trading volume in U.S.
Treasury Securities. The second proposed change would reduce the
reporting timeframe for transactions in U.S. Treasury Securities.
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\8\ TRACE is the FINRA-developed system that facilitates the
mandatory reporting of over-the-counter transactions in eligible
fixed income securities. See generally FINRA Rule 6700 Series.
\9\ Under Rule 6710(p), a ``U.S. Treasury Security'' means a
security, other than a savings bond, issued by the U.S. Department
of the Treasury (the ``Treasury Department'') 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
Treasury Department.
\10\ FINRA members began reporting information on transactions
in U.S. Treasury Securities to TRACE on July 10, 2017. See FINRA
Regulatory Notice 16-39 (October 2016); see also Securities Exchange
Act Release No. 79116 (October 18, 2016), 81 FR 73167 (October 24,
2016) (Order Granting Accelerated Approval of File No. SR-FINRA-
2016-027). See Notice, supra note 3, at 33844-45.
\11\ The Treasury Department, the Board of Governors of the
Federal Reserve System (the ``Federal Reserve''), the Federal
Reserve Bank of New York, the SEC and the U.S. Commodity Futures
Trading Commission comprise the Inter-Agency Working Group for
Treasury Market Surveillance (IAWG or ``official sector'').
\12\ On March 10, 2020, FINRA began posting on its website
weekly, aggregate data on the trading volume of U.S. Treasury
Securities reported to TRACE. See FINRA Press Release, FINRA
Launches New Data on Treasury Securities Trading Volume, <a href="https://www.finra.org/media-center/newsreleases/2020/finra-launches-new-data-treasury-securities-trading-volume">https://www.finra.org/media-center/newsreleases/2020/finra-launches-new-data-treasury-securities-trading-volume</a>; see also Securities
Exchange Act Release No. 87837 (December 20, 2019), 84 FR 71986
(December 30, 2019) (Order Approving File No. SR-FINRA-2019-028).
Information on individual transactions in U.S. Treasury Securities
is not published or disseminated.
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Execution Timestamps
Existing Supplementary Material .04 to Rule 6730 provides that,
when reporting transactions in U.S. Treasury Securities executed
electronically to TRACE, FINRA members must report the Time of
Execution \13\ pursuant to paragraph (c)(8) of Rule 6730 to the finest
increment of time captured by the member's system (e.g., millisecond,
microsecond), but at a minimum, in increments of seconds.\14\ The
``member's system'' referenced in the existing rule refers to the
system that is used to report the transaction to TRACE (i.e., the
member's ``reporting system''). Under the existing FINRA rule and
related guidance, if a member uses multiple systems to facilitate trade
reporting and those systems differ in granularity, then the member may
use the finest increment that is common across all systems.\15\ As a
result, currently FINRA members may use a reporting system to report a
trade to TRACE in an increment of time that is less precise than that
captured by the system that is used to execute the transaction (i.e.,
the ``execution system'').\16\
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\13\ Under Rule 6710(d), the ``Time of Execution'' generally
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.
\14\ Existing Supplementary Material .04 provides that a member
must report ``at a minimum, in increment of seconds.'' As discussed
below, FINRA states that, to avoid confusion, the proposed
amendments update this language to clarify that members must report
trades in an increment of ``no longer than a second'' and no shorter
than a microsecond. TRACE currently cannot accept a Time of
Execution in an increment that is finer than a microsecond. The
proposed rule change would also make a non-substantive edit to
Supplementary Material .04 to capitalize the defined term ``Time of
Execution.'' See Notice, supra note 3, at 33845 n. 10.
\15\ Specifically, TRACE Treasury FAQ #3.5.8 provides as
follows: Question: Our firm will use two separate systems to
facilitate trade reporting of U.S. Treasury Securities for different
business lines. One system (``System A'') has the capability to
capture the time of execution to the millisecond; however, the
second system (``System B'') will only capture the time of execution
to the second. Will our firm be required to update System B to
capture the time of execution to the millisecond? Answer: No. The
rule requires members to report the time of electronic executions to
the finest increment of time captured in the member's system (e.g.,
millisecond, microsecond), but at a minimum, in increments of
seconds. Since the firm would be reporting the time of execution to
the finest increment captured by each system, the firm would not
need to make any updates to System B to comply with a finer time
increment.
\16\ For purposes of Supplementary Material .04, FINRA would
consider the relevant execution system to be the system used to
execute the particular U.S. Treasury Security transaction being
reported to TRACE, regardless of whether the member is using its own
internal systems for execution or if the transaction is executed
through an external system. For example, if a member executes a
transaction in a U.S. Treasury Security through an alternative
trading system (``ATS'') or other electronic trading platform, the
member would be required to report in the finest increment of time
captured by such ATS or electronic trading platform (but no finer
than a microsecond, in line with TRACE system parameters). See
Notice, supra note 3, at 33845 n. 12.
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To improve the granularity and consistency of transaction
information for U.S. Treasury Securities, FINRA is proposing to amend
Supplementary Material .04 to Rule 6730 to instead provide that, when
reporting transactions in U.S. Treasury Securities executed
electronically, members must report the Time of Execution pursuant to
paragraph (c)(8) of Rule 6730 to the finest increment of time captured
by the execution system (e.g., millisecond, microsecond), but reporting
must be in an increment of (i) no longer than a second and (ii) no
shorter than a microsecond. Amended Supplementary Material .04 would
not require FINRA members to update execution systems for U.S. Treasury
Securities--instead members must update their reporting systems, if
necessary, to ensure that their TRACE reports reflect the finest
increment of time captured by the execution system (but not finer than
a microsecond).\17\ Therefore, a FINRA member may be required to update
its reporting system for U.S. Treasury Securities if such reporting
system does not currently report to TRACE to the same level of
granularity as the execution system.\18\
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\17\ The TRACE system does not accept trade reports in
increments finer than a microsecond. Where a firm captures time in a
finer increment, the firm must truncate the time when reporting the
transaction to TRACE. Specifically, TRACE FAQ #3.5.37 provides as
follows: Question: Is rounding permitted when reporting the Time of
Execution of a U.S. Treasury Security transaction to TRACE? Answer:
No. Members must accurately report a transaction's Time of Execution
and are not permitted to round when reporting to TRACE. The TRACE
system can accommodate reporting up to the microsecond and, where
the firm captures time in an increment finer than microseconds, the
firm must truncate when reporting to TRACE. See Notice, supra note
3, at 33845 n. 13.
\18\ See Notice, supra note 3, at 33845. In connection with the
proposed rule change, FINRA also proposes to amend its existing
TRACE FAQs to clarify that a member must report using the finest
increment of time captured by the execution system, and therefore
may need to update other systems to enable trade reporting using the
execution system's level of timestamp granularity. See Notice, supra
note 3, at 33845 n. 14.
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FINRA is also proposing to add new Supplementary Material .07 to
Rule 6730 to provide a limited exception for members with limited
trading volume in U.S. Treasury Securities from the proposed
requirement to report electronically executed transactions in U.S.
Treasury Securities to the finest increment of time captured by the
execution system.\19\ The proposed Supplementary Material would define
a ``member with limited trading volume in U.S. Treasury Securities'' as
a FINRA member that executed transactions in U.S. Treasury Securities
of $10 million or less in average daily par value, computed by
aggregating buy and sell transactions, during the preceding calendar
year. Where a member's activity is below the proposed criteria during
the preceding calendar year, such member would not be required to
report transactions in U.S. Treasury Securities in the finest increment
captured by the execution system and would be permitted to continue to
[[Page 54581]]
report the Time of Execution for transactions in U.S. Treasury
Securities executed electronically as it does today for the duration of
the following calendar year.
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\19\ The proposed rule change would also make non-substantive,
conforming edits to the Supplementary Material to Rule 6730.
Specifically, existing Supplementary Material .06 to Rule 6730
provided a temporary exception for aggregate transaction reporting
of U.S. Treasury Securities executed in ATS trading sessions. By its
terms, that temporary exception expired on April 12, 2019.
Therefore, FINRA is proposing to delete the temporary exception
under existing Supplementary Material .06, renumber existing
Supplementary Material .07 (ATS Identification of Non-FINRA Member
Counterparties for Transactions in U.S. Treasury Securities) as
Supplementary Material .06 and add the new exception for members
with limited trading volume in U.S. Treasury Securities as new
Supplementary Material .07. See Notice, supra note 3, at 33846 n.
15.
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Under the proposed rule change, a FINRA member that relies on the
exception for limited trading volume would be required to confirm on an
annual basis that it continues to meet the criteria for the exception
based on its trading activity during the preceding calendar year. Where
a member no longer meets the criteria for the exception based on its
trading activity during a given preceding calendar year, the member may
no longer rely on the exception beginning 90 days after the end of such
calendar year, which FINRA believes would provide such members with a
sufficient amount of time to make any systems changes that may be
needed to comply with the amended timestamp requirement.\20\
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\20\ Under the proposed rule change, once a member's activity
falls outside of the scope of the proposed criteria based on its
trading activity during a given preceding calendar year, such member
generally may no longer rely on the exception beginning 90 days
after the end of such calendar year, irrespective of whether it
again meets the criteria in a subsequent calendar year. However, a
member may consult with FINRA staff regarding the availability of
the exception where the member has changed business lines or
undergone a corporate restructuring that significantly impacts its
level of activity in U.S. Treasury Securities. See Notice, supra
note 3, at 33846 n. 16.
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Reporting Timeframe Reduction
Under existing Rule 6730(a)(4)(A), transactions in U.S. Treasury
Securities executed on a business day at or after 12:00:00 a.m. Eastern
Time through 5:00:00 p.m. Eastern Time must be reported the same day
during TRACE System Hours, i.e., 8:00:00 a.m. Eastern Time through
6:29:59 p.m. Eastern Time.\21\ A transaction executed on a business day
after 5:00:00 p.m. Eastern Time but before the TRACE system closes can
be reported the same day before the TRACE system closes, but must be
reported no later than the next business day (T+1) during TRACE System
Hours, i.e., 8:00:00 a.m. Eastern Time through 6:29:59 p.m. Eastern
Time, and, if reported on T+1, designated ``as/of'' and include the
date of execution. Finally, a transaction executed on a business day at
or after 6:30:00 p.m. Eastern Time through 11:59:59 p.m. Eastern Time
(or a Saturday, a Sunday, a federal or religious holiday or other day
on which the TRACE system is not open at any time during that day) must
be reported the next business day (T+1) during TRACE System Hours,
i.e., 8:00:00 a.m. Eastern Time through 6:29:59 p.m. Eastern Time,
designated ``as/of,'' and include the date of execution.
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\21\ Under Rule 6710(t), ``TRACE System Hours'' means the hours
the TRACE system is open, which are 8:00:00 a.m. Eastern Time
through 6:29:59 p.m. Eastern Time on a business day, unless
otherwise announced by FINRA.
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To provide more timely information about transactions in U.S.
Treasury Securities, FINRA is proposing to amend Rule 6730(a)(4) to
reduce the trade reporting timeframe as follows.\22\ Amended Rule
6730(a)(4) would provide that transactions in U.S. Treasury Securities
must be reported as soon as practicable, but no later than the
following time periods.\23\ Amended Rule 6730(a)(4)(A) would require
that a transaction executed on a business day at or after 12:00:00 a.m.
Eastern Time through 7:59:59 a.m. Eastern Time must be reported the
same day no later than 60 minutes after the TRACE system opens. A
transaction executed on a business day at or after the time the TRACE
system opens at 8:00:00 a.m. Eastern Time through when the TRACE system
closes at 6:29:59 p.m. Eastern Time (standard TRACE System Hours) must
be reported within 60 minutes of the Time of Execution, except that a
transaction executed on a business day less than 60 minutes before
6:30:00 p.m. Eastern Time can be reported the same day before the TRACE
system closes, but must be reported no later than 60 minutes after the
TRACE system opens the next business day (T+1), and if reported on T+1,
designated ``as/of'' and include the date of execution. Finally, a
transaction executed on a business day at or after 6:30:00 p.m. Eastern
Time through 11:59:59 p.m. Eastern Time, or a Saturday, a Sunday, a
federal or religious holiday or other day on which the TRACE system is
not open at any time during that day (determined using Eastern Time)
must be reported the next business day (T+1) no later than 60 minutes
after the TRACE system opens, designated ``as/of,'' and include the
date of execution.
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\22\ FINRA is not proposing to provide an exception for members
with limited trading activity in U.S. Treasury Securities from the
proposed reduced reporting timeframe requirement. See Notice, supra
note 3, at 33846 n. 18.
\23\ In connection with the proposed changes to Rule 6730(a)(4)
discussed above, the proposed rule change would also make conforming
changes to Supplementary Material .03 to Rule 6730, which sets forth
standards for firms reporting transactions ``as soon as
practicable'' after the Time of Execution in accordance with Rule
6730(a). Existing Rule 6730.03 provides that ``[e]ach member with a
trade reporting obligation pursuant to paragraph (a) above for a
TRACE-Eligible Security that is subject to dissemination must adopt
policies and procedures reasonably designed to comply with the
requirement that transactions in TRACE-Eligible Securities be
reported `as soon as practicable' by implementing systems that
commence the trade reporting process at the Time of Execution
without delay.'' Under the proposed rule change, the ``as soon as
practicable'' standard would also apply to transactions in U.S.
Treasury Securities, which are not subject to dissemination.
Therefore, FINRA is proposing to update the first sentence of Rule
6730.03 to provide that ``[e]ach member with an obligation to report
a transaction in a TRACE-Eligible Security `as soon as practicable'
pursuant to paragraph (a) of this Rule must adopt policies and
procedures reasonably designed to comply with this requirement by
implementing systems that commence the trade reporting process at
the Time of Execution without delay.'' See Notice, supra note 3, at
33846 n. 19.
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FINRA represents that it will announce the effective date of the
proposed rule change in a Regulatory Notice. The effective date will be
no later than 365 days following publication of the Regulatory Notice
announcing Commission approval of the proposed rule change.
III. Discussion and Commission Findings
After careful review of the proposed rule change, the comment
letters, and FINRA's response to the comments, 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.\24\ In particular, the Commission
finds that the proposed rule change is consistent with Section
15A(b)(6) of the Act,\25\ which requires, among other things, that
FINRA's rules be designed to prevent fraudulent and manipulative acts
and practices; promote just and equitable principles of trade, and, in
general, protect investors and the public interest. In particular, the
proposed rule change would enhance the regulatory audit trail for U.S.
Treasury Securities available to FINRA and the official sector and
assist FINRA in carrying out its statutory duties to surveil and
regulate this segment of the market.
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\24\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\25\ 15 U.S.C. 78o-3(b)(6).
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Pursuant to Section 19(b)(5) of the Act,\26\ the Commission
consulted with and considered the views of the Treasury Department in
determining to approve the proposed rule change. The Treasury
Department indicated its
[[Page 54582]]
support for the proposal.\27\ Furthermore, pursuant to Section 19(b)(6)
of the Act,\28\ the Commission has considered the sufficiency and
appropriateness of existing laws and rules applicable to government
securities brokers, government securities dealers, and their associated
persons in approving the proposal.
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\26\ See 15 U.S.C. 78s(b)(5) (providing that the Commission
``shall consult with and consider the views of the Secretary of the
Treasury prior to approving a proposed rule filed by a registered
securities association that primarily concerns conduct related to
transactions in government securities, except where the Commission
determines that an emergency exists requiring expeditious or summary
action and publishes its reasons therefor'').
\27\ See Email from U.S. Treasury Department staff to Justin
Pica, Division of Trading and Markets, Commission (August 25, 2022).
\28\ 15 U.S.C. 78s(b)(6).
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Execution Timestamps
As stated above, FINRA proposes to require members to report
electronically executed transactions in U.S. Treasury Securities to
TRACE in the finest increment captured by the system that executed the
transaction. FINRA also proposes to provide an exception from the
amended execution timestamp provision for members with limited trading
volume in U.S. Treasury Securities. Two commenters raised operational
and technological concerns associated with this proposal \29\ and two
commenters requested clarification to the definition of an
electronically executed transaction.\30\
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\29\ See SIFMA Letter at 3; FIF Letter at 2.
\30\ See SIFMA Letter at 3; FIF Letter at 2.
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FINRA states that it acknowledges the operational and technological
changes that members may need to undertake in order to comply with the
proposed change.\31\ FINRA also states its view that the benefits to
the regulatory audit trail of aligning the timestamps reported to TRACE
with those captured by the relevant execution system are
appropriate.\32\ In response to comments seeking clarification to the
definition of an electronically executed transaction, FINRA notes that
the current timestamp granularity provision in TRACE reporting rules
already applies to transactions that are ``executed electronically''
and further notes that it encourages members to contact FINRA for
guidance on whether a particular transaction would be considered an
electronically executed transaction.\33\
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\31\ See FINRA Response Letter at 4-5.
\32\ See FINRA Response Letter at 5.
\33\ See id.
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The Commission believes that the proposed change to align the level
of granularity provided in TRACE reports with the level of granularity
in the execution systems will enhance the regulatory audit trail for
U.S. Treasury Securities available to FINRA and the official sector by
facilitating more efficient matching and sequencing of transactions in
the audit trail data.\34\ As discussed above, the current rule permits
FINRA members to report a trade to TRACE in an increment of time that
is less precise than that captured by the execution system, which makes
it difficult for FINRA to match and sequence trades. The Commission
believes the proposed change is reasonably designed to address this
concern as FINRA represents that finer time granularity in the audit
trail would allow transactions to be matched more accurately and
sequenced with more precision, thus facilitating trade matching and
sequencing for U.S. Treasury Securities. This, in turn, facilitates
market oversight by providing FINRA and the official sector with more
useful information on U.S. Treasury Security transactions. The
Commission also believes that providing an exception from the amended
execution timestamp requirement for FINRA members with limited trading
volume in U.S. Treasury Securities is appropriate, as the proposed
exception would reduce burdens for FINRA members with limited activity.
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\34\ FINRA represents that, under the existing rule, members may
report a trade to TRACE in an increment of time that is less precise
than that captured by the execution system, which makes it difficult
for FINRA to match interdealer trades when two sides report at
different time granularity because coarse granularity in timestamps
makes sequencing trades less precise. To address this concern, the
proposal requires that, when reporting transactions in U.S. Treasury
Securities executed electronically, members must report the Time of
Execution to the finest increment of time captured by the execution
system, but must report in an increment of time that is no longer
than a second and no shorter than a microsecond. See Notice, supra
note 3, at 33847.
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The Commission recognizes that the proposed change may result in
costs for FINRA members that trade U.S. Treasury Securities where
members must implement changes to their processes and systems for
reporting U.S. Treasury Securities transactions to TRACE. As discussed
above, however, the Commission believes that the important regulatory
purpose served by the proposal justifies the potential burdens. The
Commission also recognizes that the proposed change may also affect
competition among reporting firms, where firms reporting only a limited
number of trades may face the same costs of upgrading their systems and
therefore find their limited trading in U.S. Treasury Securities less
viable. The Commission nevertheless believes that the impact on such
firms is expected to be mitigated by the proposed exception for
eligible FINRA members with limited trading volume, as previously
described.
Reporting Timeframe Reduction
As stated above, FINRA proposes to shorten the reporting timeframe
for transactions in U.S. Treasury Securities. Two commenters support
the proposal to require members to report transactions in U.S. Treasury
Securities to TRACE in a more timely manner.\35\ One commenter suggests
that FINRA postpone implementation of a shorter reporting
timeframe.\36\ This commenter notes several current initiatives related
to TRACE, including the Treasury Department's recent publication of a
Request for Information \37\ (RFI) on additional post-trade
transparency of data regarding secondary market transactions of U.S.
Treasury Securities, and suggests that implementing technological and
operational changes now, followed by the possibility of additional
changes at a later date, would be inefficient and could result in work
that is unnecessary in the long term.\38\
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\35\ See Citadel Letter at 1; FIA Letter at 1-2.
\36\ See SIFMA Letter at 1-2. This commenter also encouraged
FINRA to review the benefits of a shortened reporting timeframe in
light of how FINRA and its regulatory partners are using TRACE data,
and to consider whether that use is impeded by the current reporting
timeframes and whether there are any incremental benefits from a 60-
minute timeframe as opposed to an intermediate interval (such as two
hours, as originally recommended by SIFMA). See id. In response,
FINRA states that the proposal strikes an appropriate balance to
provide FINRA and the official sector with more timely information
about U.S. Treasury Security market activity, noting that members
already report over 90 percent of transactions in U.S. Treasury
Securities within 60 minutes of the Time of Execution. See FINRA
Response Letter at 4.
\37\ See Treasury Department, Notice Seeking Public Comment on
Additional Transparency for Secondary Market Transactions of
Treasury Securities, 87 FR 38259 (June 27, 2022) (Docket No. TREAS-
DO-2022-0012).
\38\ See SIFMA Letter at 2.
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FINRA acknowledges the fact that there are several current TRACE
initiatives \39\ but notes that it does not believe that there is any
conflict presented by advancing the proposal to shorten the reporting
timeframe for transactions in U.S. Treasury Securities and states that
it does not believe that the benefits of a shortened reporting
timeframe for transactions in U.S. Treasury Securities are reduced in
light of these other initiatives.\40\ Further, in response to concerns
that the Treasury Department's RFI could result in a proposal or
recommendation to increase transparency for transactions in U.S.
Treasury Securities,\41\ FINRA notes that prior increases in
transparency provided by TRACE for other fixed income
[[Page 54583]]
products have been preceded by a shortened reporting timeframe.\42\
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\39\ See, e.g., FINRA Regulatory Notice 22-17 (August 2, 2022)
(FINRA Requests Comment on a Proposal to Shorten the Trade Reporting
Timeframe for Transactions in Certain TRACE-Eligible Securities From
15 Minutes to One Minute) available at <a href="https://www.finra.org/rules-guidance/notices/22-17">https://www.finra.org/rules-guidance/notices/22-17</a>.
\40\ See FINRA Response Letter at 3.
\41\ See SIFMA Letter at 2-3
\42\ See FINRA Response Letter at 3. With respect to the U.S.
Treasury Department's RFI, FINRA further states that, should that
initiative result in a proposal or recommendation to increase
transparency for transactions in U.S. Treasury Securities, such a
result would harmonize with a reduced reporting timeframe for U.S.
Treasury Securities. See id.
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The Commission believes that shortening the timeframe for FINRA
members to report transactions in U.S. Treasury Securities to TRACE to
as soon as practicable, but no later than within 60 minutes of the Time
of Execution (or within 60 minutes after the TRACE system opens for
trades executed during specified periods, as described above) will
assist FINRA in carrying out its statutory duties to surveil and
regulate this segment of the market by providing FINRA with more timely
information about activity in the market for U.S. Treasury Securities,
including more timely data about intraday pricing and liquidity.
The Commission recognizes that the proposal may result in costs for
FINRA members that need to implement changes to their processes and
systems. The Commission notes that, according to FINRA, approximately
96 percent of U.S. Treasury Security transaction reports were reported
within 60 minutes of the Time of Execution during a sample period of
July 2020 to June 2021.\43\ In addition, FINRA represents that some
FINRA members who trade in U.S. Treasury Securities also trade in other
types of TRACE-Eligible Securities that already require reporting
within a shorter timeframe.\44\ While these transactions may occur on
separate trading desks, the Commission agrees with FINRA that, to the
extent that members are able to leverage existing technology within the
firm, the costs associated with the proposed reporting timeframe
changes for U.S. Treasury Securities could potentially be reduced. With
respect to comments suggesting that FINRA should review the benefits of
a shortened reporting timeframe in light of how FINRA and its
regulatory partners are using TRACE data,\45\ the Commission agrees
with FINRA's assessment that the proposal strikes an appropriate
balance to provide FINRA and the official sector with more timely
information about U.S. Treasury Security market activity. The
Commission notes that FINRA members already report over 90 percent of
transactions in U.S. Treasury Securities within 60 minutes of the Time
of Execution.\46\
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\43\ See Notice, supra note 3, at 33848.
\44\ For example, FINRA states that transactions in corporate
bonds and Agency Debt Securities generally are required to be
reported to FINRA as soon as practicable, but no later than within
15 minutes of the Time of Execution. In the FINRA sample period, of
the 750 MPIDs that reported transactions in U.S. Treasury
Securities, 691 MPIDs also reported transactions in corporate bonds
and Agency Debt Securities. See Notice, supra note 3, at 33848.
\45\ See supra note 36 and accompanying text.
\46\ See FINRA Response Letter at 4.
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Finally, the Commission believes that it would not be appropriate
to delay implementation of the proposal beyond the timeframe set forth
in the Notice. The Commission agrees with FINRA in its assessment that
the proposal does not conflict with other TRACE-related initiatives and
that the benefits of a shortened reporting timeframe for transactions
in U.S. Treasury Securities are not reduced in light of these other
initiatives. Moreover, the Commission believes that further delaying
implementation of the proposal would undermine the regulatory interest
that the official sector and FINRA have in obtaining access to more
timely information about activity in the market for U.S. Treasury
Securities.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\47\ that the proposed rule change (SR-FINRA-2022-013) is approved.
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\47\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\48\
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\48\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-19112 Filed 9-2-22; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on September 6, 2022.
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