Notice2024-02804
Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving Proposed Rule Change Relating to Dissemination of Information on Individual Transactions in U.S. Treasury Securities and Related Fees
Primary source
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Published
February 12, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 29 (Monday, February 12, 2024)</title>
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[Federal Register Volume 89, Number 29 (Monday, February 12, 2024)]
[Notices]
[Pages 9883-9887]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-02804]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99487; File No. SR-FINRA-2023-015]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Order Approving Proposed Rule Change Relating to
Dissemination of Information on Individual Transactions in U.S.
Treasury Securities and Related Fees
February 7, 2024.
I. Introduction
On November 2, 2023, 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 (1) amend FINRA Rules 6710 and 6750 to provide
for end-of-day dissemination of data for individual transactions in
U.S. Treasury Securities that are On-the-Run Nominal Coupons reported
to FINRA's Trade Reporting and Compliance Engine (``TRACE'') with
specified dissemination caps for large trades, and (2) amend FINRA Rule
7730 to include U.S. Treasury Securities within the existing fee
structure for end-of-day and historic TRACE data. The proposed rule
change was published for comment in the Federal Register on November 9,
2023.\3\ The Commission received comments in response to the
proposal.\4\ FINRA responded to the comments on December 14, 2023.\5\
On December 19, 2023, the Commission extended until February 7, 2024,
the time 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.\6\ 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. 98859 (November 3,
2023), 88 FR 77388 (November 9, 2023) (``Notice'').
\4\ Comments received on the proposed rule change are available
at: <a href="https://www.sec.gov/comments/sr-finra-2023-015/srfinra2023015.htm">https://www.sec.gov/comments/sr-finra-2023-015/srfinra2023015.htm</a>. One comment did not address the substance of
FINRA's proposal. See Letter to Vanessa Countryman, Secretary,
Commission, from Adam Deyo (November 18, 2023) (``Deyo Letter'').
\5\ Letter to Vanessa Countryman, Secretary, Commission, from
Racquel Russell, Senior Vice President, Director of Capital Markets
Policy, FINRA (December 14, 2023) (``FINRA Response Letter'').
\6\ See Securities Exchange Act Release No. 99204 (December 19,
2023), 88 FR 88997 (December 26, 2023).
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II. Description of the Proposed Rule Change
Since 2016, FINRA has undertaken a series of initiatives in
consultation with the U.S. Department of the Treasury (``Treasury
Department'') to increase transaction reporting and transparency in the
market for U.S. Treasury Securities.\7\ On July 10, 2017, FINRA members
began reporting information on transactions in U.S. Treasury Securities
to TRACE.\8\ On March 10, 2020, FINRA began to publicly disseminate
aggregate data on U.S. Treasury Securities trading volume on a weekly
basis.\9\ In February 2023, FINRA increased the cadence of the
aggregated volume data it publishes for U.S. Treasury Securities to
daily, and enhanced the content of the aggregate data.\10\ Information
reported to TRACE regarding individual transactions in U.S. Treasury
Securities is currently used for regulatory and other official sector
purposes, but not disseminated publicly.\11\ In November 2022, the
Treasury Department proposed a policy of publicly releasing secondary
market transaction data for On-the-Run Nominal coupons,\12\ with end-
of-day
[[Page 9884]]
dissemination and with appropriate cap sizes.\13\
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\7\ ``U.S. Treasury Security'' means a security, other than a
savings bond, issued by 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 have been separated pursuant to the Separate Trading
of Registered Interest and Principal of Securities (``STRIPS'')
program operated by the Treasury Department. See FINRA Rule 6710(p).
\8\ 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).
\9\ 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). FINRA also made historical
weekly aggregate data for transactions in U.S. Treasury Securities
reported since January 2019 available for download on its website.
\10\ See Technical Notice, Enhancements to Aggregated Reports
and Statistics for U.S. Treasury Securities, <a href="https://www.finra.org/filing-reporting/trace/enhancements-weekly-aggregated-reports-statistics-jan2023">https://www.finra.org/filing-reporting/trace/enhancements-weekly-aggregated-reports-statistics-jan2023</a>.
\11\ FINRA makes data regarding individual transactions in U.S.
Treasury Securities available to the official sector to assist in
monitoring and analysis of the U.S. Treasury Securities market. The
Treasury Department, the Board of Governors of the Federal Reserve,
the Federal Reserve Bank of New York, the Commission, and the
Commodity Futures Trading Commission comprise the Inter-Agency
Working Group for Treasury Market Surveillance (``IAWG'' or
``official sector'').
\12\ See infra text accompanying notes 14-15 for a definition of
On-the-Run Nominal Coupon.
\13\ See Treasury Department, Additional Public Transparency in
Treasury Markets, 28-29 (November 2022), <a href="https://home.treasury.gov/system/files/221/TBACCharge1Q42022.pdf">https://home.treasury.gov/system/files/221/TBACCharge1Q42022.pdf</a>; Remarks by Under Secretary
for Domestic Finance Nellie Liang at the 2022 Treasury Market
Conference (November 16, 2022), <a href="https://home.treasury.gov/news/press-releases/jy1110">https://home.treasury.gov/news/press-releases/jy1110</a>.
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Dissemination of Transaction-Level Information
Under the proposed rule change, FINRA would begin disseminating
individual transaction information for On-the-Run Nominal Coupon U.S.
Treasury Securities on an end-of-day basis. The disseminated
transaction information would be anonymized, i.e., it would not include
the market participant identifier (``MPID'') or other information that
could be used to identify parties to the trade. However, consistent
with other TRACE products, the disseminated transaction information
would include counterparty type (i.e., dealer, customer, affiliate, or
alternative trading system (``ATS'')), a flag to indicate whether the
trade was executed on an ATS, and other trade modifiers and indicators.
To implement such dissemination, FINRA proposed to amend Rule
6750(c)(5) (to be redesignated as Rule 6750(d)(5)) to provide that
FINRA would not disseminate information on a transaction in a TRACE-
Eligible Security that is a U.S. Treasury Security ``other than an On-
the-Run Nominal Coupon.'' FINRA also proposed to add a new paragraph
(c) to Rule 6750 providing that FINRA would disseminate information on
individual transactions in On-the-Run Nominal Coupons on an end-of-day
basis.\14\ To further clarify the scope of transactions subject to
individual dissemination under amended Rule 6750, FINRA proposed to add
as new paragraph (ll) of Rule 6710 (Definitions) a definition of ``On-
the-Run Nominal Coupon,'' defined as the most recently auctioned U.S.
Treasury Security that is a Treasury note or bond paying fixed rate
nominal coupons starting after the close of the TRACE system on the day
of its Auction through the close of the TRACE system on the day of the
Auction of a new issue for the next U.S. Treasury Security of the same
maturity. The definition would specify that On-the-Run Nominal Coupons
do not include Treasury bills, STRIPS, Treasury Inflation-Protected
Securities, floating rate notes, or any U.S. Treasury Security that is
a Treasury note or bond paying a fixed rate nominal coupon that is not
the most recently issued U.S. Treasury Security of a given maturity
(i.e., off-the-run nominal coupons).\15\
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\14\ To accommodate the addition of new paragraph 6750(c), the
proposed rule change would redesignate current Rule 6750(c) as Rule
6750(d). The proposed rule change would also make conforming changes
to the paragraph cross-references in Rule 6750(a) and Supplementary
Material .01 to Rule 6750.
\15\ FINRA will identify the most recently auctioned U.S.
Treasury Security that is a Treasury note or bond paying fixed rate
nominal coupons as an ``On-the-Run Nominal Coupon'' in TRACE
reference data beginning on the business day after its auction.
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Dissemination Protocols
To mitigate concerns about information leakage for large trades,
FINRA proposed to implement transaction size caps above which the exact
size of the transaction would not be disseminated. In consultation with
the Treasury Department, FINRA proposed to apply the following
transaction size dissemination caps based on the maturity of the On-
the-Run Nominal Coupon at issuance: \16\
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\16\ FINRA would incorporate information about these
dissemination caps in the TRACE dissemination protocols published on
its website, available at <a href="https://www.finra.org/filing-reporting/trade-reporting-and-compliance-engine-trace/trace-reporting-timeframes">https://www.finra.org/filing-reporting/trade-reporting-and-compliance-engine-trace/trace-reporting-timeframes</a>. Specifically, information about the dissemination caps
would be added as a new bullet in the ``Transparency'' column of the
row of the table describing the protocols for ``Treasury Bonds,'' to
read as follows: ``Individual transactions in On-the-Run Nominal
Coupons are disseminated on an end-of-day basis with security
identifiers (e.g., CUSIP) and the following transaction size caps
based on the maturity of the security at issuance: 2 Years: $250
million; 3 Years: $250 million; 5 Years: $250 million; 7 Years: $150
million; 10 Years: $150 million; 20 Years: $50 million; 30 Years:
$50 million.''
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<bullet> Two Years: $250 million;
<bullet> Three Years: $250 million;
<bullet> Five Years: $250 million;
<bullet> Seven Years: $150 million;
<bullet> 10 Years: $150 million;
<bullet> 20 Years: $50 million; and
<bullet> 30 Years: $50 million.
Thus, for example, a $200 million transaction in a 10-year On-the-
Run Nominal Coupon would be disseminated with a trade size of
``150MM+'' rather than the actual dollar amount of the trade.\17\ In
consultation with the Treasury Department and based on ongoing analysis
of the data, FINRA may in the future adjust the dissemination caps to
maintain an appropriate balance between the benefits of transparency
and the threat of information leakage. Any proposed changes to the
dissemination caps would be filed with the Commission pursuant to
Section 19(b)(1) of the Act.
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\17\ As described further below, these dissemination caps would
apply for the end-of-day dissemination file. Consistent with its
approach to other TRACE data products, FINRA also plans to provide a
Historic TRACE data product covering the same scope of transactions,
which would provide the actual, uncapped transaction sizes on a six-
month delay.
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Dissemination Fees
FINRA also proposed to expand the existing fee framework for the
TRACE End-of-Day Transaction File \18\ and the Historic TRACE Data \19\
to include data products providing information on individual
transactions in On-the-Run Nominal Coupons. Generally, Historic TRACE
Data includes the same information as provided in the End-of-Day TRACE
Transaction File, except that the Historic TRACE Data does not include
dissemination caps for large transactions. Historic Treasury Data would
also be subject to a minimum six-month delay, as is the case for the
existing Historic Corporate Bond and Historic Agency Data sets.\20\
FINRA proposed that the End-of-Day TRACE Transaction File and Historic
Data include a new set of data for U.S. Treasury Securities with the
same fees that exist for other sets of TRACE-Eligible Securities.\21\
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\18\ The End-of-Day TRACE Transaction File includes all Real-
Time TRACE transaction data collected from that day. The File is
separately available for each data set for which Real-Time TRACE
transaction data is available (i.e., the Corporate Bond Data Set,
Agency Data Set, Securitized Product (``SP'') Data Set, and Rule
144A Data Set) and made public after the TRACE system closes each
day.
\19\ The Historic TRACE Data is also made separately available
for each data set after a fixed delay period that varies by asset
type. Historic Corporate Bond and Historic Agency Data are delayed a
minimum of six months; Historic SP Data is delayed a minimum of 18
months; and Historic Rule 144A Data carries a delay consistent with
the delay period applicable to the component security type (e.g.,
the delay for a Rule 144A transaction in a SP is 18 months, while
the delay for a Rule 144A transaction in a corporate bond is six
months).
\20\ A conforming change would also be made in the description
of Historic TRACE Data in Rule 7730(d) to add the Historic Treasury
Data Set to the list of data sets comprising Historic TRACE Data.
\21\ The current fee for the End-of-Day TRACE Transaction File
is $750/month per data set, with a lower $250/month per data set fee
available to qualifying Tax-Exempt Organizations. The fee for
Historic TRACE Data is $2,000/calendar year per data set, with a
lower $500/calendar year per data set fee available to qualifying
Tax-Exempt Organizations. A single fee of $2,000 for development and
set-up to receive Historic TRACE Data also applies, with a lower
$1,000 development and set-up fee available to qualifying Tax-Exempt
Organizations. See Rule 7730. As for other types of TRACE-Eligible
Securities, FINRA also anticipates making transaction information
for On-the-Run Nominal Coupons available free of charge for
personal, non-commercial purposes only through FINRA's Fixed Income
Data website, available at <a href="https://www.finra.org/finra-data/fixed-income">https://www.finra.org/finra-data/fixed-income</a>.
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III. Summary of Comments and FINRA's Response
The Commission received comments on the proposed rule change \22\
and a
[[Page 9885]]
response letter from FINRA.\23\ Several commenters support the proposal
and advocate further expansion of the reporting framework to include
transactions in different classes of securities and shortened reporting
timeframes.\24\ Of these commenters, one advocates setting concrete
parameters for evaluating the effects of the proposal and a timeline
for expanding reporting obligations.\25\ Three of these commenters
underscore the positive influence of market transparency on fairness,
efficiency, and pricing.\26\
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\22\ See supra note 4.
\23\ See supra note 5.
\24\ See Letter to Vanessa Countryman, Secretary, Commission,
from Stephen John Berger, Managing Director, Global Head of
Government and Regulatory Policy, Citadel (November 30, 2023)
(``Citadel Letter'') at 1-2; Letter to Vanessa Countryman,
Secretary, Commission, from Gerard O'Reilly, Co-CEO and Chief
Investment Officer, and David A. Plecha, Global Head of Fixed
Income, Dimensional (November 30, 2023) (``Dimensional Letter'') at
1; Letter to Vanessa Countryman, Secretary, Commission, from Joanna
Mallers, Secretary, FIA Principal Traders Group (November 30, 2023)
(``FIA PTG Letter'') at 1; Letter to Vanessa Countryman, Secretary,
Commission, from Ji[rcaron][iacute] Kr[oacute]l, Deputy CEO, Global
Head of Government Affairs, AIMA (December 20, 2023) (``AIMA
Letter'') at 2.
\25\ See FIA PTG Letter at 2. Additionally, this commenter
recommends the Commission reassess the economic analyses for certain
Commission rule proposals taking into consideration the impact of
this FINRA proposal on the economic baselines. See id. This comment
is out of scope for this proposed rule change because it does not
address the substance of this specific proposed rule change.
\26\ See Citadel Letter at 1; Dimensional Letter at 1; AIMA
Letter at 2.
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Some commenters state that the scope of securities subject to
transaction-level dissemination in the proposal should not have been
limited to On-the-Run Nominal Coupons.\27\ One commenter suggests
transaction-level dissemination be expanded to include transactions in
every security in the U.S. Treasury Security market,\28\ while two
others suggest initially subjecting to dissemination transactions in
first, second, and third old off-the-run U.S. Treasury Securities.\29\
Two of these commenters further suggest (1) shortening the reporting
timeframe to at most 15 minutes to harmonize Treasury market data with
data in other TRACE-eligible securities; \30\ and (2) calculating
transaction size caps based on a percentage of notional volume to
ensure market participants have a timely view of a sufficient portion
of transaction and pricing data.\31\ One of these commenters also
requests information regarding the percentage of notional volume that
would be capped under FINRA's proposed thresholds.\32\ Notwithstanding
its suggestions, this commenter describes FINRA's proposal as a
``welcome first step.'' \33\
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\27\ See generally Dimensional Letter; Citadel Letter; AIMA
Letter.
\28\ See Dimensional Letter at 2.
\29\ See Citadel Letter at 2; AIMA Letter at 2.
\30\ See Citadel Letter at 2; AIMA Letter at 2.
\31\ See Citadel Letter at 3; AIMA Letter at 2.
\32\ See Citadel Letter at 2-3.
\33\ Citadel Letter at 1.
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In response to suggestions that FINRA expand the scope of U.S.
Treasury Securities subject to reporting and shorten reporting
timeframes, FINRA states that future proposals would be based on
careful analysis and subject to proposed rule changes filed with the
Commission pursuant to Section 19(b)(1) of the Act.\34\ FINRA also
produces data showing the percentage of notional transaction volume
that would have been capped under the proposed thresholds during the
period from September 1, 2022, to February 28, 2023, for different
duration U.S. Treasury Securities.\35\
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\34\ See FINRA Response Letter at 3, n.5.
\35\ ``For the two-year, three-year, and five-year notes (which
would be subject to a $250 million cap), 14.21 percent, 14.76
percent, and 5.96 percent of notional volume traded, respectively,
would have been capped upon dissemination (i.e., because the size of
the trade was greater than $250 million); for the seven-year and 10-
year notes (which would be subject to a $150 million cap), 15.27
percent and 6.49 percent of notional volume traded, respectively,
would have been capped upon dissemination (i.e., because the size of
the trade was greater than $150 million); and for the 20-year and
30-year bonds (which would be subject to a $50 million cap), 19.87
percent and 14.87 percent of notional volume traded, respectively,
would have been capped upon dissemination (i.e., because the size of
the trade was greater than $50 million). Across all maturities,
10.30 percent of notional volume traded would have been capped.''
FINRA Response Letter at 3.
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While two commenters support the proposal's stated objective to
increase transparency in the market for U.S. Treasury Securities, they
raise concerns that transaction-level transparency, if mandated without
careful calibration, could cause information leakage, discourage
transactions, and hurt market liquidity, especially in any potential
future expansions of the proposal.\36\ One of these commenters states
that FINRA should collect and analyze at least 12 months of data under
the proposed regime before expanding the scope of reporting obligations
in any way.\37\
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\36\ See Letter to Vanessa Countryman, Secretary, Commission,
from Robert Toomey, Head of Capital Markets, Managing Director and
Associate General Counsel, SIFMA, and Lindsey Weber Keljo, Head,
SIFMA Asset Management Group (November 30, 2023) (``SIFMA AMG
Letter'') at 2-3; Letter to Vanessa Countryman, Secretary,
Commission, from Sarah A. Bessin, Deputy General Counsel, Investment
Company Institute (November 30, 2023) (``ICI Letter I'') at 2;
Letter to Vanessa Countryman, Secretary, Commission, from Sarah A.
Bessin, Deputy General Counsel, Investment Company Institute
(December 15, 2023) (``ICI Letter II'') at 2.
\37\ See SIFMA AMG Letter at 4.
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Both of these commenters refer to the importance of disclosure
limitations as a means of reducing information leakage.\38\ Both
commenters support aspects of the proposal that limit transaction-level
dissemination to transactions in On-the-Run Nominal Coupons,\39\ cap
disclosed transactions at set thresholds,\40\ and delay dissemination
to the end of each day.\41\ One of these commenters, despite supporting
dissemination caps in principle, states that FINRA has not made clear
the methodology and metrics used to determine cap levels.\42\ The
commenter requests FINRA explain how it determined the caps and provide
data supporting the thresholds it proposed.\43\
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\38\ See SIFMA AMG Letter at 3-5; ICI Letter I at 2; ICI Letter
II at 2.
\39\ See SIGMA AMG Letter at 4-5; ICI Letter I at 2; ICI Letter
II at 2.
\40\ See SIFMA AMG Letter at 3; ICI Letter I at 2; ICI Letter II
at 2.
\41\ See SIFMA AMG Letter at 4-5; ICI Letter I at 2; ICI Letter
II at 2.
\42\ See SIFMA AMG Letter at 3-4.
\43\ SIFMA AMG Letter at 4.
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FINRA replies in its letter that it set dissemination caps based on
careful analysis and in consultation with the Treasury Department.\44\
FINRA also lists some of the factors relevant in setting dissemination
caps, which include public feedback provided to the Treasury Department
by primary dealers,\45\ the impact of interest rates on U.S. Treasury
Securities trades across maturities (``dollar duration'' or ``DV01''),
and a market liquidity analysis for U.S. Treasury Securities of
different maturities.\46\
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\44\ FINRA Response Letter at 4.
\45\ Primary dealers are trading counterparties of the New York
Fed in its implementation of monetary policy and are expected, among
other things, to bid on a pro-rata basis in all Treasury auctions.
See <a href="https://www.newyorkfed.org/markets/primarydealers.html">https://www.newyorkfed.org/markets/primarydealers.html</a>. See also
<a href="https://home.treasury.gov/policy-issues/financing-the-government/quarterly-refunding/primary-dealers">https://home.treasury.gov/policy-issues/financing-the-government/quarterly-refunding/primary-dealers</a>.
\46\ FINRA Response Letter at 5-6.
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Specifically, FINRA explains that it considered the notional cap
sizes suggested by primary dealers' feedback to the Treasury Department
and translated these values to DV01.\47\ When translated to DV01, the
median suggested transaction caps ranged between $70,000 and
$190,000.\48\ FINRA, in consultation with the Treasury Department,
opted to consider as a baseline caps that approximately equated to
$100,000 DV01, though it also considered the percentage of traded
market volume that would be disseminated (versus reported) across each
maturity and the estimated amount of time it would take to liquidate a
position at the size of the cap. In addition, FINRA states that the
[[Page 9886]]
proposed caps were calibrated to the maturity, liquidity, and trading
concentration of the underlying security to preserve the anonymity of
market participants trading large transactions.\49\ FINRA explains that
it ultimately sought to balance the benefits of providing similar
levels of transparency across maturities with the risk that
dissemination of the largest transactions could permit market
participants to reverse engineer the identities, positions, and trading
strategies of others.\50\
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\47\ FINRA Response Letter at 5.
\48\ FINRA Response Letter at 5.
\49\ FINRA Response Letter at 5.
\50\ FINRA Response Letter at 5 (citing Notice, 88 FR at 77395).
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IV. Discussion and Commission Findings
After carefully reviewing the proposal and comment letters
received, 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.\51\ In particular, the Commission finds that the proposed
rule change is consistent with Section 15A(b)(6) of the Act,\52\ 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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\51\ 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).
\52\ 15 U.S.C. 78o-3(b)(6).
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In approving the original TRACE rules, the Commission stated that
price transparency plays a fundamental role in promoting fairness and
efficiency of U.S. capital markets.\53\ To further the goal of
increasing price transparency in the debt markets in general and the
U.S. Treasury Securities market in particular, it is reasonable and
consistent with the Act for FINRA to extend post-trade price
transparency to transactions in U.S. Treasury Securities in the manner
set forth in the proposal. Since 2017, FINRA has collected post-trade
transaction information for U.S. Treasury Securities through TRACE.\54\
In 2020, FINRA commenced public dissemination of aggregate data on U.S.
Treasury Securities trading volume on a weekly basis.\55\ In 2023,
FINRA shortened the publication time of aggregate data on U.S. Treasury
Securities from a weekly to a daily basis and increased the information
publicly disseminated to include, among other things, pricing
information for certain U.S. Treasury Securities.\56\ FINRA's current
proposal will further increase price transparency by making individual
transaction data available with an end-of-day dissemination and with
appropriate cap sizes and on a historical basis for U.S. Treasury
Securities that are On-the-Run Nominal Coupons.
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\53\ See Securities Exchange Act Release No. 43873 (January 23,
2001), 66 FR 8131, 8136 (January 29, 2001).
\54\ See supra note 8.
\55\ See supra note 9.
\56\ See supra note 10.
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The proposal is reasonably designed to preserve the confidentiality
of individual market participants and transactions. While commenters
described concerns that transaction-level transparency could cause
information leakage, discouraging transactions and impairing market
liquidity, the proposal is reasonably designed to mitigate these
concerns by incorporating transaction size dissemination caps, delaying
dissemination until the end of each day, and limiting the scope to On-
the-Run Nominal Coupons. This scope limitation is a reasonable first
step, instead of including every security in the U.S. Treasury Security
market, or specifically transactions in first, second, and third old
off-the-run U.S. Treasury Securities, as some commenters suggested.\57\
FINRA has affirmed that any changes in the level of transparency it
provides, including changes to the dissemination cap sizes or scope of
transactions included, would be based on careful analysis and filed
with the Commission as proposed rule changes pursuant to Section
19(b)(1) of the Act.\58\ In response to commenters, FINRA addressed the
request for additional information regarding FINRA's methodology for
setting the transaction size dissemination caps \59\ and the request
for data detailing the portion of notional value that may exceed the
transaction size dissemination caps.\60\ The proposal strikes an
appropriate balance between fulfilling the goal of increased
transparency and mitigating risks that could impair liquidity in the
market for U.S. Treasury Securities. While some commenters suggested
using a notional amount calculation method for the dissemination
caps,\61\ the proposal makes a reasonable choice of method of
calculating dissemination caps by calibrating them to the maturity,
liquidity, and trading concentration of the underlying securities to
preserve the anonymity of market participants trading large
transactions.
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\57\ See supra note 27.
\58\ See supra note 34.
\59\ See supra notes 47 through 50.
\60\ See supra note 35.
\61\ See supra note 31.
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Lastly, the proposed dissemination fees are consistent with the
Act. The TRACE U.S. Treasury Security end-of-day and historic data sets
are comparable, in terms of granularity and timeliness, to existing
data sets for other TRACE-eligible securities. Thus, charging the same
fee level for TRACE end-of-day and historic data products that include
U.S. Treasury Securities data as is currently charged for TRACE end-of-
day and historic data products that include data about securities other
than U.S. Treasury Securities, while maintaining the current fee levels
for those data products, is reasonable. Section 15A(b)(5) of the Act
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
which the association operates or controls. The rules that establish
the current TRACE end-of-day and historic data products have been
approved by the Commission, and the fees that FINRA proposes to charge
for information on individual transactions in U.S. Treasury Securities
are identical to those that currently apply for end-of-day and historic
data products for other types of TRACE-eligible securities,\62\ which
have been in effect for some time.\63\
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\62\ See FINRA Rule 7730.
\63\ See Securities Exchange Act Release No. 81995 (November 1,
2017), 82 FR 51658 (November 7, 2017) (SR-FINRA-2017-033) (notice of
filing and immediate effectiveness of fee for end-of-day data
product); Securities Exchange Act Release No. 61012 (November 16,
2009), 74 FR 61189 (November 23, 2009) (SR-FINRA-2007-006) (approval
order for the historic data product and related fee).
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Pursuant to Section 19(b)(5) of the Act,\64\ 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 support for the proposal.\65\ Pursuant to
[[Page 9887]]
Section 19(b)(6) of the Act,\66\ 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. The proposal will
benefit investors and market participants by promoting greater
transparency into the U.S. Treasury Securities market while also
maintaining the confidentiality of individual market participants and
transactions.
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\64\ 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'').
\65\ See, e.g., Remarks by Under Secretary for Domestic Finance
Nellie Liang at the 2023 Treasury Market Conference (November 16,
2023) (``We are hopeful that, after a review of the public comments,
the SEC will approve a final rule and the proposed dissemination by
FINRA for on-the-runs can begin soon afterwards.''), available at
<a href="https://home.treasury.gov/news/press-releases/jy1917">https://home.treasury.gov/news/press-releases/jy1917</a>.
\66\ 15 U.S.C. 78s(b)(6).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\67\ that the proposed rule change (SR-FINRA-2023-015) be, and
hereby is, approved.
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\67\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\68\
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\68\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-02804 Filed 2-9-24; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on February 12, 2024.
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