Notice2026-08785
Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend the FINRA Rule 6700 Series (Trade Reporting and Compliance Engine) (TRACE) To Expand the Scope of the Non-Member Affiliate-Principal Transaction Indicator to Also Include Member Affiliates
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
May 6, 2026
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 91 Issue 87 (Wednesday, May 6, 2026)</title>
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[Federal Register Volume 91, Number 87 (Wednesday, May 6, 2026)]
[Notices]
[Pages 24625-24630]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-08785]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-105352; File No. SR-FINRA-2026-009]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend
the FINRA Rule 6700 Series (Trade Reporting and Compliance Engine)
(TRACE) To Expand the Scope of the Non-Member Affiliate--Principal
Transaction Indicator to Also Include Member Affiliates
May 1, 2026.
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 22, 2026, the Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I,
II, and III 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 the FINRA Rule 6700 Series (Trade
Reporting and Compliance Engine) (``TRACE'') to expand the scope of the
non-member affiliate--principal transaction indicator to also include
member affiliates.
The text of the proposed rule change is available on FINRA's
website at <a href="http://www.finra.org">http://www.finra.org</a> and at the principal office of FINRA.
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
Statutory Basis for, the Proposed Rule Change
1. Purpose
FINRA is proposing amendments to improve transparency in TRACE-
Eligible Securities \3\ by streamlining dissemination of transactions
between a member and its member affiliate. The proposed rule change
seeks to accomplish this by expanding the scope of the current non-
member affiliate--principal transaction indicator. Originally adopted
in 2015, the non-member affiliate--principal transaction indicator
requires members to identify in TRACE reports transactions between the
member and its non-member affiliate, where the member also engaged in a
same-day, same-price transaction in the same security with another
contra-party.\4\ The non-member affiliate--principal transaction
indicator allows FINRA to suppress from dissemination inter-affiliate
transactions that do not provide pricing information different from the
disseminated transaction between the member and the other contra-party,
thereby improving transparency and addressing concerns regarding
potential investor confusion as to the level of trading activity in
TRACE-Eligible Securities.\5\
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\3\ ``TRACE-Eligible Security'' means a debt security that is
United States (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); (3) a U.S. Treasury Security as defined in
paragraph (p); or (4) a Foreign Sovereign Debt Security as defined
in paragraph (kk). ``TRACE-Eligible Security'' does not include a
debt security that is a Money Market Instrument as defined in
paragraph (o). See Rule 6710(a).
\4\ See Securities Exchange Act Release No. 74482 (March 11,
2015), 80 FR 13940 (March 17, 2015) (Order Approving File No. SR-
FINRA-2014-050) (``2015 Amendments''). See also Regulatory Notice
15-14 (May 2015).
\5\ FINRA determined that dissemination of these trades does not
provide investors with useful information for pricing, valuation or
risk evaluation purposes, and may in fact be distortive. See FINRA
Response to Comments, dated February 24, 2015, <a href="https://www.finra.org/sites/default/files/rule_filing_file/SR-FINRA-2014-050_AmendmentNo.1.pdf">https://www.finra.org/sites/default/files/rule_filing_file/SR-FINRA-2014-050_AmendmentNo.1.pdf</a> (``FINRA Response Letter'').
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FINRA is committed to continuously improving its regulatory
approach,
[[Page 24626]]
including by modernizing FINRA rules in response to member feedback.\6\
Members have raised concerns regarding the dissemination of certain
transactions between affiliated members that are similar to the
concerns raised in 2014 regarding transactions between members and non-
member affiliates--e.g., that the transactions are not economically
distinct and the disseminated information is duplicative.\7\ Thus,
FINRA is proposing changes to expand the use of the non-member
affiliate--principal transaction indicator to also include transactions
between member affiliates trading as principal where the transaction
with the member affiliate occurs within the same trading day, at the
same price, and in the same TRACE-Eligible Security as a transaction
executed by one of the members with another contra-party. To reflect
this expanded use, the indicator would be re-designated as the
Affiliate--Principal Transaction indicator.
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\6\ See Regulatory Notice 25-04 (March 2025).
\7\ See, e.g., Letter from Stephen John Berger, Managing
Director, Citadel Securities, to Jennifer P. Mitchell, Office of the
Corporate Secretary, FINRA, dated June 11, 2025 (``Citadel
Letter''); see also Letter from Joanna Mallers, Secretary, FIA
Principal Traders Group, to Jennifer P. Mitchell, Office of the
Corporate Secretary, FINRA, dated June 11, 2025 (``FIA PTG
Letter''); and Letter from Bernard V. Canepa, Managing Director and
Associate General Counsel, Securities Industry and Financial Markets
Association, to Jennifer P. Mitchell, Office of the Corporate
Secretary, FINRA, dated June 11, 2025 (``SIFMA Letter''). The
comment letters are included in the public comment file for
Regulatory Notice 25-04. See Item II.C., infra.
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Specifically, FINRA is proposing to amend Rule 6730(d)(4)(E) to
provide that, if a member and an ``affiliate,'' as defined in amended
Rule 6710, transact in a principal capacity in a TRACE-Eligible
Security, and the member reasonably believes that the member (or its
member affiliate, in the case of affiliated members) will engage (or
has already engaged) in a transaction in the same security within the
same day, at the same price, with another contra-party, the member must
select the Affiliate--Principal Transaction indicator.\8\ This expanded
approach is designed to continue to include qualifying transactions
between a member and a non-member affiliate and to expand the
applicability of the indicator by also including qualifying
transactions between a member and a member affiliate.
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\8\ To reflect the expanded applicability of the indicator,
FINRA is proposing to retitle Rule 6730(d)(4)(E) as ``Affiliate--
Principal Transaction Indicator'' and, as discussed further below,
to amend the definition of ``Non-member Affiliate'' in Rule 6710(ee)
and make conforming edits to Supplementary Material .02 and the
dissemination provisions of Rule 6750(d)(1).
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To accurately identify for suppression qualifying transactions
between affiliated members, proposed Rule 6730(d)(4)(E)(ii) would
require each member affiliate that is a party to the qualifying
transaction to append the Affiliate--Principal Transaction indicator to
its TRACE report. Specifically, proposed Rule 6730(d)(4)(E)(ii) would
require that, in a transaction between member affiliates, to append the
Affiliate--Principal Transaction indicator, both members must share a
reasonable belief that the member or its member affiliate will engage
(or has already engaged) in a transaction in the same security within
the same day, at the same price, with another contra-party. Because the
Affiliate--Principal Transaction indicator would be a matching field in
TRACE, either both member affiliates must append, or they both must not
append, the indicator when reporting (as contra-parties to each other)
their respective qualifying transaction(s) to TRACE.\9\
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\9\ In the event only one member affiliate appends the
Affiliate--Principal Transaction indicator to its TRACE report,
TRACE would still suppress from dissemination the sell-side trade
report. However, both members would receive a report of a mismatch
for that trade on their TRACE Match Status Reports.
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Proposed Rule 6730(d)(4)(E)(ii)'s ``reasonable belief'' requirement
is intended to limit the scope of the requirement to affiliated member
firms that operate pursuant to a business model where, in the ordinary
course, they share a reasonable belief related to relevant trade flow
patterns and can reasonably and systematically foresee the existence of
transactions to be appended with the indicator. The proposed rule
change's scope is thus tailored so that covered firms are able to build
systemic processes to append the indicator. The ``reasonable belief''
requirement is not intended to capture incidental same-day, same-price,
principal trades between member affiliates or to impose any obligation
to establish new information-sharing arrangements or otherwise discover
trading activity beyond the members' business needs in connection with
their transaction flows.\10\
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\10\ FINRA understands that members may have multiple member
affiliates (and in some cases, multiple desks at each entity,
including those separated by information barriers) that transact in
the same securities with each other as with other contra-parties.
With the inclusion of the ``reasonable belief'' language, the
proposed rule does not require members to seek to identify
incidental or unforeseeable trades between it and its affiliates
occurring on the same day and at the same price as a transaction
with another counterparty unless those trades are systemically
identifiable by each TRACE-reporting affiliate contra-party in the
normal course of business. As such, a firm is not required to append
the indicator to a transaction unless both members share a
reasonable belief that it or its member affiliate will engage (or
has already engaged) in a transaction in the same security within
the same day and at the same price, as a transaction with another
contra-party. This expectation is not altered after the fact, even
if, in retrospect, a very significant portion of member affiliates'
trades with each other ultimately occur on the same day, at the same
price and in the same security as a transaction with another
counterparty.
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Proposed Rule 6730(d)(4)(E)(iii) is intended to ensure that at
least one leg of a qualifying overall transaction is subject to
dissemination--particularly where one of the member affiliates trades
from or into their inventory and neither member affiliate engages in a
same-security, same-day, same-price transaction with an unaffiliated
contra-party. This provision addresses the concern that all legs of an
inter-affiliate transaction may be suppressed from dissemination.
Therefore, the proposed rule change specifies that, if a member has
engaged in a same-day, same-price transaction in the same security with
both a member affiliate and a non-member affiliate, and neither member
affiliate engages in a same-security, same-day, same-price transaction
with an unaffiliated contra-party, the member must only append the
Affiliate--Principal Transaction indicator to either: the trade report
with its member affiliate; or to the trade report for its transaction
with its non-member affiliate.
The below examples illustrate the expanded scope of the Affiliate--
Principal Transaction indicator.\11\
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\11\ Members should continue to report transactions with non-
member affiliates consistent with FAQ 3.1.48 of FINRA's Frequently
Asked Questions (FAQ) about the Trade Reporting and Compliance
Engine (TRACE), available at <a href="https://www.finra.org/filing-reporting/trace/faq">https://www.finra.org/filing-reporting/trace/faq</a>.
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Scenario 1: BD A and BD B are affiliated members who routinely
engage in back-to-back transactions with each other in TRACE-Eligible
Securities on the same day and at the same price as one of them trades
in the same securities with another contra-party. Under their existing
business models, BD A negotiates but does not trade directly with
customers or carry customer accounts; BD A sells to BD B at the price
at which it negotiated the sale with the customer; BD B sells the bonds
to the customer at that same price. Specifically, in this scenario, a
customer requests quotes from BD A through electronic chat and agrees
to a price of $98 for 50 ABC bonds. BD A sells 50 ABC bonds at $98 to
BD B, and BD B then sells 50 ABC bonds to the customer at $98. Both BD
A and BD B trade as principal and, due to their
[[Page 24627]]
business model, at the time of its TRACE report BD A and BD B shared a
reasonable belief that BD B would engage in a same-day, same-price,
principal transaction in ABC with another contra-party (i.e., the
customer).
TRACE Reporting:
<bullet> For the transaction between BD A and BD B, BD A must
report a principal sale of 50 ABC bonds at $98 to BD B, identifying BD
B by its MPID as the contra-party. BD B must report a principal
purchase of 50 ABC bonds at $98 from BD A, identifying BD A by its MPID
as the contra-party. Because BD A and BD B are affiliates, traded as
principal with each other, and shared a reasonable belief that BD B
will engage in a transaction in the same security, within the same day,
and at the same price, with another contra-party, both BD A and BD B
must append the Affiliate--Principal Transaction indicator to their
respective trade report.\12\ TRACE would not disseminate either of the
trade reports appended with the Affiliate--Principal Transaction
indicator.
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\12\ In this scenario, BD B engages in a subsequent qualifying
same-day, same-price transaction with its customer; however, if BD B
had not done so, BD A and BD B would be required to amend their
prior trade reports to remove the Affiliate--Principal Transaction
indicator. See proposed Rule 6730(d)(4)(E)(iv).
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<bullet> For the transaction between BD B and the customer, BD B
must report a principal sale of 50 ABC bonds at $98 to the customer,
identifying the customer as ``C.'' BD B would not append the
Affiliate--Principal Transaction indicator to this trade report because
BD B is not affiliated with the customer. TRACE would disseminate BD
B's sale to the customer.
Scenario 2: BD A and BD B are affiliated members who routinely
engage in back-to-back transactions with each other in TRACE-Eligible
Securities. Sometimes these transactions are at the same price at which
one of them trades with another contra-party and at other times a mark-
up/mark-down is applied. Specifically, in this scenario, BD A sells 50
ABC bonds at $98 to BD B, which BD A knows BD B will sell to its
customer. However, BD A does not know if BD B will sell the bonds to
its customer at $98 or at some other price--a determination that BD B
makes independent of BD A that is not systemically identifiable to BD A
in the normal course of business. Ultimately, BD B subsequently sells
50 ABC bonds to its customer at $98. Both BD A and BD B trade as
principal.
TRACE Reporting:
<bullet> For the transaction between BD A and BD B, BD A must
report a principal sale of 50 ABC bonds at $98 to BD B, identifying BD
B by its MPID as the contra-party. BD B must report a principal
purchase of 50 ABC bonds at $98 from BD A, identifying BD A by its MPID
as the contra-party. While BD A and BD B are affiliates and traded as
principal with each other, and BD B subsequently trades 50 ABC bonds
with its customer at the same price, BD A does not reasonably believe
that it or its member affiliate will engage (or has already engaged) in
a transaction in the same security, within the same day, and at the
same price, with another contra-party (i.e., both members did not share
a reasonable belief regarding the price and timing of the overall
transaction flow). Therefore, neither BD A nor BD B would append the
Affiliate--Principal Transaction indicator to their respective trade
report. TRACE would disseminate the BD A sell transaction.
<bullet> For the transaction between BD B and the customer, BD B
must report a principal sale of 50 ABC bonds at $98 to the customer,
identifying the customer as ``C.'' BD B would not append the
Affiliate--Principal Transaction indicator to its trade report because
BD B is not affiliated with the customer. TRACE would disseminate BD
B's sale to the customer.
Scenario 3: BD A and BD B are affiliated members who routinely
engage in back-to-back transactions with each other in TRACE-Eligible
Securities on the same day and at the same price as one of them trades
in the same securities with another contra-party. Under their existing
business models, BD A routinely moves its bond positions to be held at
BD B. Specifically, in this scenario, BD A purchases 50 ABC bonds at
$98 from an unaffiliated FINRA member, BD C, and on the same trading
day sells 50 ABC bonds to BD B at $98. Both BD A and BD B trade as
principal and, due to their business model, BD B reasonably believes
that BD A previously engaged in a same-day, same-price transaction in
ABC with another contra-party (i.e., BD C).
TRACE Reporting:
<bullet> For the transaction between BD A and BD C, BD A must
report a principal purchase of 50 ABC bonds at $98 from BD C,
identifying BD C by its MPID as the contra-party. TRACE would not
disseminate this trade report because it is an interdealer buy
transaction. BD C must report a sale of 50 ABC bonds at $98 to BD A,
identifying BD A by its MPID as the contra-party. TRACE would
disseminate this trade report. Neither BD A nor BD C would append the
Affiliate--Principal Transaction indicator to their trade reports
because BD A and BD C are not affiliates.
<bullet> For the transaction between BD A and BD B, BD A must
report a principal sale of 50 ABC bonds at $98 to BD B, identifying BD
B by its MPID as the contra-party. BD B must report a principal
purchase of 50 ABC bonds at $98 from BD A, identifying BD A by its MPID
as the contra-party. Because BD A and BD B are affiliates, traded as
principal with each other, and both share a reasonable belief that BD A
had already engaged in a transaction in the same security, within the
same day, and at the same price, with another contra-party, both BD A
and BD B must append the Affiliate--Principal Transaction indicator to
their respective trade report. TRACE would not disseminate either of
the trade reports appended with the Affiliate--Principal Transaction
indicator.
Scenario 4: BD A and BD B are affiliated members who routinely
engage in back-to-back transactions with each other in TRACE-Eligible
Securities on the same day and at the same price as one of them trades
in the same securities with a non-member affiliate. Under their
existing business models, BD A and BD B routinely transact with each
other, and BD A routinely transacts with non-member affiliate, NMA.
Specifically, in this scenario, BD B sells 50 ABC bonds at $99 to BD A
from its inventory, and on the same trading day, BD A later sells 50
ABC bonds to NMA at $99. Both BD A and BD B trade as principal and, due
to their business model, at the time of their TRACE report BD A and BD
B share a reasonable belief that BD A would engage in a same-day, same-
price, principal transaction in ABC with NMA.
TRACE Reporting:
<bullet> For the transaction between BD A and BD B, BD A must
report a principal purchase of 50 ABC bonds at $99 from BD B,
identifying BD B by its MPID as the contra-party. BD B must report a
principal sale of 50 ABC bonds at $99 to BD A, identifying BD A by its
MPID as the contra-party. Because BD A and BD B are affiliates, traded
as principal with each other, and both share a reasonable belief that
BD A will engage in a transaction in the same security, within the same
day, and at the same price, with a non-member affiliate, the
Affiliate--Principal Transaction indicator must either be appended to
(1) BD A's and BD B's trade reports for the transaction with each
other, or (2) BD A's trade report for the transaction with NMA.\13\
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\13\ In this scenario, BD A and BD B would not be required to
append the Affiliate--Principal Transaction indicator to their trade
reports in the event BD A chose instead to append the Affiliate--
Principal Transaction indicator to its trade report for the
transaction with NMA. If BD A appends the Affiliate--Principal
Transaction indicator to the trade report for the transaction with
NMA, neither BD A nor BD B may append the Affiliate--Principal
Transaction indicator to its trade report for the member-to-member
transaction. See proposed Rule 6730(d)(4)(E)(iii).
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[[Page 24628]]
<bullet> For the transaction between BD A and NMA, BD A must report
a principal sale of 50 ABC bonds at $99 to NMA, identifying NMA as
``A.'' BD A would only append the Affiliate--Principal Transaction
indicator to its trade report for the transaction with NMA if BD A and
BD B chose not to append the Affiliate--Principal Transaction indicator
to their trade reports for the inter-dealer transaction with each
other.\14\
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\14\ In this scenario, BD A would be required to append the
Affiliate--Principal Transaction indicator to its trade report for
the transaction with NMA if it and BD A did not append the
Affiliate--Principal Transaction indicator to their trade reports
for the inter-dealer transaction with each other. See proposed Rule
6730(d)(4)(E)(iii).
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<bullet> TRACE would disseminate either BD B's sale to BD A or BD
A's sale to the NMA, depending upon whether the Affiliate--Principal
Transaction indicator was appended to BD A's and BD B's trade reports
for their inter-dealer transaction with each other or to BD A's trade
report for the transaction with NMA.
As described above, the proposed rule change expands the
applicability of the indicator by including qualifying transactions
between member affiliates, in addition to qualifying transactions
between a member and non-member affiliate.\15\ The proposed amendments
are not intended to otherwise alter the requirements for applying the
indicator.\16\ As is the case for transactions covered under Rule
6730(d)(4)(E) today, under the proposed amendments, to qualify for the
Affiliate--Principal Transaction indicator, the quantity of the
transaction with the other contra-party must be equal to or greater
than the quantity of the transaction in the security between the member
affiliates.\17\
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\15\ As a result of changes to the rule text necessary to expand
the indicator to cover transactions between member affiliates and
because the related individual transactions can occur throughout the
day (i.e., the trade with the affiliate could come before the trade
with the contra-party, or vice versa) the proposed rule change
replaces the current ``reasonably expects'' language in Rule
6730(d)(4)(E) with the phrase ``reasonably believes.''
\16\ In addition, proposed Rule 6730(d)(4)(E)(iv) seeks to adopt
with respect to member affiliates the same obligations for
correcting trade reports as are currently in place regarding a
member's trade with a non-member affiliate. Specifically, proposed
Rule 6730(d)(4)(E)(iv) provides that a member is not required to
correct a prior trade report with its affiliate solely for the
purpose of appending the Affiliate--Principal Transaction indicator
if the member did not reasonably believe that it (or its member
affiliate, in the case of affiliated members) would engage (or had
already engaged) in a same-day, same-price transaction in the same
security with another contra-party at the time of the prior trade
report. If, however, a member appends the Affiliate--Principal
Transaction indicator to a trade report reflecting a transaction
with an affiliate and, ultimately, the member or its member
affiliate does not engage in a same-day, same-price transaction in
the same security with another contra-party, the member must correct
the prior trade report to exclude the Affiliate--Principal
Transaction indicator.
\17\ See FAQ 3.1.74, Frequently Asked Questions (FAQ) about the
Trade Reporting and Compliance Engine (TRACE), available at <a href="https://www.finra.org/filing-reporting/trace/faq">https://www.finra.org/filing-reporting/trace/faq</a>.
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Finally, the proposed rule change would make conforming amendments
to Rule 6710, Supplementary Material .02 to Rule 6730, and Rule 6750 to
reflect the expansion of the indicator to apply to transactions between
member affiliates. The proposed rule change would amend Rule 6710(ee)
to define an ``affiliate'' generally (rather than a ``non-member
affiliate''), without changes to the substantive requirements.\18\ The
proposed rule change would likewise amend Rule 6730.02 to replace
references to ``non-member affiliate'' with ``affiliate.'' As a result,
members subject to the requirement to append the indicator to
transactions with its member affiliate will now also be required to
identify those entities that would meet the definition of ``affiliate''
under proposed Rule 6710(ee) at least annually. However, consistent
with existing requirements, where the member has undergone an
organizational or operational restructuring that may impact its
affiliate relationships, it must promptly review and update, as
necessary, its identification of affiliates for purposes of Rule 6730.
The proposed rule change would also amend Rule 6750(d)(1) to provide
that FINRA will not disseminate information on a transaction in a
TRACE-Eligible Security that is identified with the Affiliate--
Principal Transaction indicator pursuant to Rule 6730(d)(4)(E).
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\18\ See proposed Rule 6710(ee), defining ``affiliate'' as an
entity that controls, is controlled by or is under common control
with a member. For the purposes of this definition, ``control,''
along with any derivative thereof, means legal, beneficial, or
equitable ownership, directly or indirectly, of 25 percent or more
of the capital stock (or other ownership interest, if not a
corporation) of any entity ordinarily having voting rights. The term
``common control'' means the same natural person or entity controls
two or more entities.
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If the Commission approves the proposed rule change, FINRA will
announce the effective date of the proposed rule change in a Regulatory
Notice.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\19\ 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, to remove impediments to and perfect the mechanism
of a free and open market, and, in general, to protect investors and
the public interest.
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\19\ 15 U.S.C. 78o-3(b)(6).
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FINRA believes that the proposed amendments to expand the
application of the non-member affiliate--principal transaction
indicator to include qualifying transactions between member affiliates
are appropriate and consistent with the Act. The expanded Affiliate--
Principal Transaction indicator is designed to capture trading member
relationships where there is a shared expectation between both member
affiliates with respect to the transaction based on their business
model and routine trade flow patterns, rather than incidental or
unforeseeable trades between member affiliates that reflect arm's
length trading. These transactions between member affiliates are not
economically distinct and reflect the same price as an offsetting
transaction with another contra-party and, as such, do not provide
meaningful pricing and volume information. Application of the
Affiliate--Principal Transaction indicator to these transactions would
enable FINRA to identify and suppress from public dissemination
transaction data that offers no new pricing, valuation or risk
evaluation information, reducing potential investor confusion as to the
level of trading activity in TRACE-Eligible Securities. Thus, FINRA
believes that the proposed rule change would improve transparency by
suppressing from public dissemination identified trade reports for
transactions that are not economically distinct from a separately
disseminated transaction with another contra-party.
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.
Economic Impact Assessment
FINRA has conducted an economic impact assessment to analyze the
regulatory need for the proposed rule change and its potential economic
impacts, including anticipated costs,
[[Page 24629]]
benefits, and distributional and competitive effects relative to the
current baseline, and the alternatives considered in assessing how best
to meet its regulatory objective.
Regulatory Need
As discussed above, affiliated member firms may engage in principal
transactions with each other in the same security, on the same day, and
at the same price as a transaction that one of them engages in with
another contra-party. FINRA currently requires identification of
similar transactions between a member and a non-member affiliate and
suppresses these trade reports from dissemination. The proposed
amendment will enable FINRA similarly to suppress from dissemination
these trades with an affiliated member that do not provide pricing
information different from the separately disseminated transaction
between the member and the other contra-party.
Economic Baseline
FINRA conducted an analysis using TRACE data from January 2025
through December 2025 to estimate the percentage of trades that could
be subject to the proposed rule change across TRACE-Eligible
Securities.\20\ This analysis provides an upper-bound estimate for both
the percentage of potentially qualifying inter-member-affiliate
transactions and the number of affected FINRA member firms. The
estimate is based on TRACE data that does not capture whether
affiliated members reasonably believed--based on their relationship,
business models, and expected trade flow patterns--that they or their
affiliated member engaged or would engage in a same-day, same-price,
principal transaction with another contra-party. Consequently, the
analysis is likely overinclusive in that it would capture incidental
same-day, same-price principal trades between member affiliates that
would not qualify for use of the indicator given the parameters of the
proposed rule change.
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\20\ For the purpose of this analysis, FINRA determined
affiliate relationships using FINRA's Central Registration
Depository criteria, which is consistent with the definition of
``affiliate'' proposed herein.
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FINRA's analysis of secondary market transactions indicates that
approximately 5.7 percent of transactions in corporate debt securities,
Agency Debt Securities,\21\ equity-linked notes (ELNs), and Foreign
Sovereign Debt Securities; \22\ 0.5 percent of transactions in
Securitized Products; \23\ and 2.1 percent of transactions in U.S.
Treasury Securities \24\ were between affiliated members where both
sides traded in a principal capacity and where at least one party
executed one or more same-day, same-security, same-price transactions
in the opposite direction with another contra-party, and the volume of
the transaction with the contra-party was equal to or greater than the
volume of the transaction between the affiliated members. Approximately
86 member firms engaged in such transactions, with 26 firms accounting
for approximately 99 percent of transaction reports within the scope of
the analysis (both member affiliate contra-parties' reports were
counted in this calculation). During the same period of January 2025
through December 2025, 4.0 percent of transactions in corporate debt
securities, Agency Debt Securities, ELNs, and Foreign Sovereign Debt
Securities; 0.3 percent of transactions in Securitized Products; and
1.5 percent of transactions in U.S. Treasury Securities were reported
as non-member affiliate principal transactions \25\ and withheld from
dissemination. Sixty member firms engaged in non-member affiliate
principal transactions, with 26 accounting for approximately 99 percent
of such trades across TRACE-Eligible Securities.
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\21\ ``Agency Debt Security'' means a debt security (i) issued
or guaranteed by an Agency as defined in paragraph (k); (ii) issued
or guaranteed by a Government-Sponsored Enterprise as defined in
paragraph (n); or (iii) issued by a trust or other entity that was
established or sponsored by a Government-Sponsored Enterprise for
the purpose of issuing debt securities, where such enterprise
provides collateral to the trust or other entity or retains a
material net economic interest in the reference tranches associated
with the securities issued by the trust or other entity. The term
excludes a U.S. Treasury Security as defined in paragraph (p) and a
Securitized Product as defined in paragraph (m), where an Agency or
a Government-Sponsored Enterprise is the Securitizer as defined in
paragraph (s) (or similar person), or the guarantor of the
Securitized Product. See Rule 6710(l).
\22\ ``Foreign Sovereign Debt Security'' means a debt security
issued or guaranteed by the government of a foreign country, any
political subdivision of a foreign country, or a supranational
entity. See Rule 6710(kk).
\23\ ``Securitized Product'' means a security collateralized by
any type of financial asset, such as a loan, a lease, a mortgage, or
a secured or unsecured receivable, and includes but is not limited
to an asset-backed security as defined in Section 3(a)(79)(A) of the
Exchange Act, a synthetic asset-backed security, and any residual
tranche or interest of any security specified above, which tranche
or interest is a debt security for purposes of paragraph (a) and the
Rule 6700 Series. See Rule 6710(m).
\24\ ``U.S. Treasury Security'' means 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).
\25\ The statistics on non-member affiliate principal
transactions are based on the existence of same day, same price,
principal trades between FINRA members and their non-member
affiliates that are not covered depository institutions subject to
the Board of Governors of the Federal Reserve System's Treasury
Securities and Agency Debt and Mortgage-Backed Securities Reporting
Requirements. See 86 FR 59716 (FR 2956; OMB No. 7100-NEW October 28,
2021).
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When a member firm executes same-day, same-price transactions in
the same security with both a member affiliate and a non-member
affiliate, and neither affiliated party trades with an unaffiliated
contra-party under the same conditions, the Affiliate--Principal
Transaction indicator must be appended to reports of only one of the
two trades between affiliates (see Scenario 4 above). FINRA's analysis
of secondary market transactions indicates that trades between member
affiliates potentially falling into this category represent
approximately 0.09 percent of transactions in corporate debt
securities, Agency Debt Securities, ELNs, and Foreign Sovereign Debt
Securities; less than 0.01 percent of transactions in Securitized
Products; and 0.14 percent of transactions in U.S. Treasury Securities.
Economic Benefits and Costs
Expanding the scope of the non-member affiliate--principal
transaction indicator to also include member affiliates would enhance
transparency by enabling FINRA to identify and remove from public
dissemination transactions that do not add value for pricing,
valuation, or risk evaluation purposes and may create confusion. For
example, trades with a member affiliate that offer no additional
pricing information from a separately reported and disseminated leg of
the same overall transaction may inflate the observed level of trading
activity in the market and impact the accuracy of bond market liquidity
measures.
Firms engaging in transactions that require the proposed indicator
may incur costs to identify such transactions and make system changes
for reporting. Where a member's business model involves shared
expectations with its member affiliate in connection with same-day,
same-price transactions as described above, these members would be
required to implement processes to accurately and consistently apply
the modifier.\26\ The costs to FINRA
[[Page 24630]]
members to use the Affiliate--Principal Transaction indicator are
likely to be less for firms already identifying and reporting non-
member affiliate trades, given that the proposed change expands the use
of an existing indicator used for non-member affiliate trades to also
capture affiliated member trades, rather than adding new system
functionality. Of the 86 member firms estimated to have engaged in same
day, same price, principal member-affiliate trades in 2025, 21 firms
(approximately 24%) also engaged in trades with non-member affiliates
reported with the non-member affiliate--principal transaction
indicator.
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\26\ As explained above, the ``reasonable belief'' requirement
limits the scope of the proposed rule change to member affiliates
that operate pursuant to a business model where, in the ordinary
course, they share a reasonable belief related to relevant trade
flow patterns and can reasonably and systematically foresee the
existence of transactions to be appended with the indicator. The
proposed rule change is not intended to capture incidental same-day,
same-price, principal trades between member affiliates or to impose
any obligation to establish new information-sharing arrangements or
otherwise discover trading activity beyond the members' business
needs in connection with their transaction flows. See supra note 10.
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As is the case with the existing non-member affiliate--principal
transaction indicator, the proposed rule change requires members to
correct a trade report to remove the Affiliate--Principal Transaction
indicator if they did not ultimately engage in a same-day trade with
another contra-party in the same security at the same price as with its
member affiliate. In addition, as is the case with the existing non-
member affiliate--principal transaction indicator, the proposed rule
change does not require members to correct a trade report if they do
not append the Affiliate--Principal Transaction indicator but
ultimately engage in a trade with another contra-party in the same
security, at the same price, on the same trading day. While this may
result in instances where qualifying trades between affiliated members
remain unflagged, the proposed amendment would continue to require that
inappropriately flagged transactions are corrected and disseminated,
while avoiding the operational burden on members to correct for non-
flagged trades that have already been disseminated.
Alternatives
No alternatives were considered.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
As noted above, FINRA received three comments in response to
Regulatory Notice 25-04 that involved the activities covered in the
proposal.\27\ All three commenters favored FINRA's consideration of
additional guidance around the treatment of transactions between
affiliated members.\28\ One commenter noted that ``FINRA rules already
allow members to identify and suppress the public dissemination of
riskless principal transactions involving non-member affiliates'' and
recommended that ``this practice should be extended to riskless
principal transactions involving affiliates that are FINRA members.''
\29\ The commenter stated that public dissemination by TRACE of such
transactions ``results in duplicative information that is not useful to
investors for pricing, valuation or risk purposes.'' \30\ Another
commenter identified the dissemination of affiliate trades as a top
priority for FINRA's consideration under Regulatory Notice 25-04.\31\
The third commenter called for additional guidance related to the
reporting of transactions between an affiliated member and another
member as compared to an affiliated member and non-member.\32\
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\27\ See supra note 7.
\28\ See supra note 7.
\29\ See Citadel Letter at 7.
\30\ See supra note 29.
\31\ See SIFMA Letter at 1.
\32\ See FIA PTG Letter at 3.
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FINRA believes that the instant proposal to expand the
applicability of the principal transaction indicator to include member
affiliates generally is consistent with commenters' feedback in
response to Regulatory Notice 25-04. As specifically recommended by one
commenter,\33\ the proposed rule change will expand the use of the non-
member affiliate--principal transaction indicator to include
transactions between member affiliates acting as principal where the
transaction with the member affiliate occurs within the same trading
day, at the same price, and in the same security as a transaction
executed by one of the members with a another contra-party, enabling
FINRA to suppress from dissemination transaction information that does
not add value for pricing, valuation or risk evaluation purposes.
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\33\ See Citadel Letter at 7.
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III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be 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
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#7002051c155d131f1d1d151e0403300315135e171f06"><span class="__cf_email__" data-cfemail="99ebecf5fcb4faf6f4f4fcf7edead9eafcfab7fef6ef">[email protected]</span></a>. Please include
file number SR-FINRA-2026-009 on the subject line.
Paper Comments
<bullet> 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-2026-009. 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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
Copies of the filing will be available for inspection and copying at
the principal office of FINRA. Do not include personal identifiable
information in submissions; you should submit only information that you
wish to make available publicly. We may redact in part or withhold
entirely from publication submitted material that is obscene or subject
to copyright protection. All submissions should refer to File Number
SR-FINRA-2026-009 and should be submitted on or before May 27, 2026.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\34\
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\34\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2026-08785 Filed 5-5-26; 8:45 am]
BILLING CODE 8011-01-P
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