[Federal Register Volume 81, Number 189 (Thursday, September 29, 2016)]
[Notices]
[Pages 67023-67027]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-23499]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78925; File No. SR-FINRA-2016-023]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Granting Approval of Proposed Rule Change 
Relating to TRACE Reporting and Dissemination of CMO Transactions

September 23, 2016.

I. Introduction

    On June 27, 2016, 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 related to Trade Reporting and Compliance Engine 
(``TRACE'') reporting and dissemination of transactions in 
Collateralized Mortgage Obligations (``CMOs'').\3\ The proposed rule 
change was published for comment in the Federal Register on July 6, 
2016.\4\ The Commission received three comments in response to the 
proposal.\5\ FINRA responded to the comments on September 14, 2016.\6\ 
FINRA extended the time period within which the Commission shall 
approve the proposed rule change, disapprove the proposed rule change, 
or institute proceedings to determine whether the proposed rule change 
should be disapproved to September 23, 2016.\7\ This order grants 
approval of the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The term ``Collateralized Mortgage Obligation'' is defined 
in FINRA Rule 6710(dd).
    \4\ See Securities Exchange Act Release No. 78196 (June 29, 
2016), 81 FR 44065 (``Notice'').
    \5\ See letters to Brent J. Fields, Secretary, Commission, from 
Mike Nicholas, Chief Executive Officer, BDA, dated July 27, 2016 
(``BDA Letter''); Lynn Martin, President and Chief Operating 
Officer, ICE Data Services, dated July 27, 2016 (``ICE Letter''); 
and Chris Killian, Managing Director, Securitization, SIFMA, dated 
July 27, 2016 (``SIFMA Letter'').
    \6\ See letter to Brent J. Fields, Secretary, Commission, from 
Alexander Ellenberg, Associate General Counsel, Regulatory Policy 
and Oversight, FINRA, dated September 14, 2016 (``FINRA Response 
Letter'').
    \7\ See letter to Katherine England, Assistant Director, 
Division of Trading and Markets, Commission, from Alexander L. 
Ellenberg, Assistant General Counsel, Regulatory Policy and 
Oversight, FINRA, dated August 9, 2016 (extending to September 9, 
2016); letter to Katherine England, Assistant Director, Division of 
Trading and Markets, Commission, from Alexander L. Ellenberg, 
Associate General Counsel, Regulatory Policy and Oversight, FINRA, 
dated September 2, 2016 (extending to September 23, 2016).
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change

    Historically, FINRA has utilized TRACE to collect from its members 
and publicly disseminate information on secondary, over-the-counter 
transactions in corporate debt securities, Agency Debt Securities,\8\ 
and certain primary market transactions. For certain other asset types, 
FINRA utilized TRACE to collect transaction information, but until 
recently, did not disseminate such information publicly. FINRA has been 
working to phase-in the dissemination of transaction information for 
these previously non-disseminated asset types. To date, FINRA has 
implemented dissemination of Agency Pass-Through Mortgage-Backed 
Securities and SBA-Backed ABS; \9\ TRACE-Eligible

[[Page 67024]]

Securities effected as Rule 144A transactions; \10\ and Asset-Backed 
Securities.\11\ The remaining types of Securitized Products \12\ not 
yet subject to dissemination are CMOs, commercial mortgage-backed 
securities (``CMBSs''), and collateralized debt obligations 
(``CDOs'').\13\ FINRA now has proposed to provide for public 
dissemination of certain information about CMO transactions,\14\ to 
reduce the time period within which a CMO transaction must be reported 
to TRACE, and to make conforming and technical revisions to its rules, 
as described below.
---------------------------------------------------------------------------

    \8\ The term ``Agency Debt Security'' is defined in FINRA Rule 
6710(l).
    \9\ On November 12, 2012, FINRA began disseminating transactions 
in Agency Pass-Through Mortgage-Backed Securities traded TBA. See 
Securities Exchange Act Release No. 66829 (April 18, 2012), 77 FR 
24748 (April 25, 2012) (approving SR-FINRA-2012-020); FINRA's 
Regulatory Notice 12-26 (May 2012) and Regulatory Notice 12-48 
(November 2012). On July 22, 2013, FINRA began disseminating 
transactions in Agency Pass-Through Mortgage-Backed Securities 
traded in Specified Pool Transactions and SBA-Backed ABS traded TBA 
or in Specified Pool Transactions. See Securities Exchange Act 
Release No. 68084 (October 23, 2012), 77 FR 65436 (October 26, 2012) 
(approving SR-FINRA-2012-042); FINRA's Regulatory Notice 12-56 
(December 2012). The terms ``TBA,'' ``Agency Pass-Through Mortgage-
Backed Security,'' ``Specified Pool Transaction,'' and ``SBA-Backed 
ABS'' are defined in FINRA Rule 6710(u), (v), (x), and (bb), 
respectively.
    \10\ On June 30, 2014, FINRA began disseminating transactions in 
TRACE-Eligible Securities effected as Rule 144A transactions, 
provided that such transactions were in securities that would be 
subject to dissemination if effected in non-Rule 144A transactions. 
See Securities Exchange Act Release No. 70345 (September 6, 2013), 
78 FR 56251 (September 12, 2013) (approving SR-FINRA-2013-029); 
Securities Exchange Act Release No. 70691 (October 16, 2013), 78 FR 
62788 (October 22, 2013) (SR-FINRA-2013-043); FINRA's Regulatory 
Notice 13-35 (October 2013). ``TRACE-Eligible Security'' is defined 
in FINRA Rule 6710(a).
    \11\ On June 1, 2015, FINRA began disseminating transactions in 
a group of newly-defined Asset-Backed Securities. See Securities 
Exchange Act Release No. 71607 (February 24, 2014), 79 FR 11481 
(February 28, 2014) (approving SR-FINRA-2013-046); FINRA's 
Regulatory Notice 14-34 (August 2014). ``Asset-Backed Security'' is 
defined in FINRA Rule 6710(cc).
    \12\ ``Securitized Product'' is defined in FINRA Rule 6710(m).
    \13\ See Notice, 81 FR at 44066.
    \14\ FINRA stated that CMOs are the largest and most actively 
traded of the remaining Securitized Product types and typically have 
relatively smaller transaction sizes than CMBSs and CDOs. See id.
---------------------------------------------------------------------------

Dissemination of CMO Transaction Information

    Currently, FINRA Rule 6750 states that FINRA will not disseminate 
information on a transaction in a TRACE-Eligible Security that is a 
Securitized Product, with the following exceptions: An Agency Pass-
Through Mortgage-Backed Security, an SBA-Backed ABS, and an Asset-
Backed Security.\15\ FINRA has proposed to revise this rule to provide 
for public dissemination of certain information on transactions in 
CMOs, including those effected pursuant to Rule 144A. Accordingly, 
FINRA has proposed to reframe the description of Securitized Products 
not subject to dissemination to delineate those Securitized Products 
that would remain outside of the scope of contemporaneous 
dissemination: CMBSs, CDOs,\16\ and certain CMOs.\17\
---------------------------------------------------------------------------

    \15\ See FINRA Rule 6750(b)(4).
    \16\ FINRA has proposed to define ``Collateralized Debt 
Obligation'' (``CDO'') to mean ``a type of Securitized Product 
backed by fixed-income assets (such as bonds, receivables on loans, 
or other debt) or derivatives of these fixed-income assets, 
structured in multiple classes or tranches with each class or 
tranche entitled to receive distributions of principal and/or 
interest in accordance with the requirements adopted for the 
specific class or tranche. A CDO includes, but is not limited to, a 
collateralized loan obligation (`CLO') and a collateralized bond 
obligation (`CBO').'' See proposed FINRA Rule 6710(ff). FINRA also 
has proposed to amend the definition of ``Asset-Backed Security'' to 
harmonize with the newly defined term ``CDO.'' See proposed FINRA 
Rule 6710(cc).
    \17\ See proposed FINRA Rule 6750(c)(4).
---------------------------------------------------------------------------

    Under the proposal, depending on the size of the transaction and 
the number of transactions in the CMO security in a given period, a CMO 
transaction could be subject to immediate trade-by-trade dissemination 
or periodic aggregate dissemination, or remain exempt from 
dissemination entirely. FINRA would immediately disseminate information 
about a CMO transaction having a value under $1 million (calculated 
based upon original principal balance of the particular CMO 
security).\18\ For a CMO transaction having a value of $1 million or 
more (calculated based upon original principal balance of the 
particular CMO security) and where there have been five or more 
transactions in that security of $1 million or more in the period 
reported by at least two different market participant identifiers 
(``MPIDs''), FINRA would disseminate aggregated information about 
transactions in that security on a weekly and/or monthly basis.\19\ If 
a CMO transaction does not meet the criteria for either immediate 
trade-by-trade dissemination or, based on recent activity in that 
particular CMO security, periodic aggregate dissemination, such 
transaction would not be subject to public dissemination in any form 
(but would, as described below, be available in the historic data 
sets).\20\
---------------------------------------------------------------------------

    \18\ See proposed FINRA Rule 6750(a).
    \19\ See proposed FINRA Rule 6750(b). For a particular CMO 
security, a weekly report would be issued for each week during which 
at least five transactions in that security of $1 million or more 
occurred and such transactions were reported by at least two unique 
MPIDs. A monthly report for a CMO security would be issued for each 
month during which at least five transactions in that security of $1 
million or more occurred and such transactions were reported by at 
least two unique MPIDs, regardless of whether such transactions had 
qualified for weekly reporting. FINRA stated that, for purposes of 
determining if a CMO security has been reported by at least two 
unique MPIDs, FINRA would consider an interdealer trade to be 
reported by one MPID (the sell side dealer), even though the trade 
would be reported by both sides of the transaction. See Notice, 81 
FR at 44066, n. 11.
    \20\ See proposed FINRA Rule 6750(c)(4).
---------------------------------------------------------------------------

Reduction of Reporting Period

    FINRA also proposed to amend FINRA Rule 6730 to reduce the period 
within which a member must report a CMO transaction executed on or 
after issuance and to implement a clearer deadline for reporting a CMO 
transaction executed prior to issuance. Currently, a CMO transaction 
executed on or after issuance must be reported to TRACE no later than 
the close of the TRACE system on the date of execution.\21\ FINRA has 
proposed to require that each CMO transaction be reported to TRACE 
within 60 minutes of execution.\22\ Currently, a CMO transaction 
executed before the date of issuance of the security must be reported 
to TRACE by the earlier of (i) the business day that the security is 
assigned a CUSIP, a similar numeric identifier, or a FINRA symbol; or 
(ii) the date of issuance of the security.\23\ Under the proposal, such 
a CMO transaction would need to be reported to TRACE no later than the 
first settlement date of the security.\24\
---------------------------------------------------------------------------

    \21\ See FINRA Rule 6730(a)(3)(A). This rule contains exceptions 
for transactions executed within 90 minutes of the close of the 
TRACE system and transactions executed when the system is closed.
    \22\ See proposed FINRA Rule 6730(a)(3)(H)(ii). Exceptions for 
transactions executed within 60 minutes of the close of the TRACE 
system and transactions executed when the system is closed are set 
forth in subparts (i), (iii), and (iv) of proposed FINRA Rule 
6730(a)(3)(H).
    \23\ See FINRA Rule 6730(a)(3)(C).
    \24\ See proposed FINRA Rule 6730(a)(3)(C). FINRA stated its 
belief that the proposal would provide a uniform reporting deadline 
that could be easily ascertained by all firms because new issuances 
in CMOs generally settle on the last business day of the month. 
FINRA explained that, under the current rule, some firms have had 
difficulty in determining with accuracy and in a timely manner when 
the reporting obligation has been triggered, due to inconsistencies 
in how underwriters and trading parties communicate relevant 
information. See Notice, 81 FR at 44067.
---------------------------------------------------------------------------

Data Availability

    The proposal would amend FINRA Rule 7730, which establishes various 
TRACE data products, to reflect the addition of CMO transactions to the 
applicable data sets. Currently, the ``SP Data Set'' for real-time data 
includes each transaction in a Securitized Product that is publicly 
disseminated, except for a Rule 144A transaction. Under the proposal, 
the SP Data Set would be expanded to include any transaction in a CMO 
security that is disseminated on an immediate trade-by-trade basis or 
included in a weekly or monthly aggregated report.\25\ Currently, the 
``Historic SP Data Set'' includes each historic transaction in a 
Securitized Product reported to TRACE, if a

[[Page 67025]]

transaction in that type of Securitized Product is subject to immediate 
trade-by-trade dissemination, but excludes a historic transaction in a 
Rule 144A security. Under the proposal, the Historic SP Data Set would 
be expanded to include all non-Rule 144A CMO transactions, even if not 
previously disseminated immediately or as part of a periodic 
report.\26\ Currently, the ``Rule 144A Data Set'' and the ``Historic 
Rule 144A Data Set'' include real-time data and historic data, 
respectively, for Rule 144A transactions reported to TRACE. Under the 
proposal, with respect to transactions in CMO securities issued 
pursuant to Rule 144A, the Rule 144A Data Set would be expanded to 
include transactions in CMO securities that had been disseminated on an 
immediate trade-by-trade basis or on a periodic aggregate basis, and 
the Historic Rule 144A Data Set would be expanded to include historic 
data on all CMO transactions, whether or not they had been subject to 
any form of dissemination previously.\27\ FINRA has not proposed to 
amend the fees currently in effect for the SP Data Set, Historic SP 
Data Set, Rule 144A Data Set, or Historic Rule 144A Data Set based on 
inclusion of this additional data.\28\
---------------------------------------------------------------------------

    \25\ See proposed FINRA Rule 7730(c).
    \26\ See proposed FINRA Rule 7730(f)(4)(C). See also Notice, 81 
FR at 44066, n. 12.
    \27\ See proposed FINRA Rule 7730(c), (f)(4)(D). See also 
Notice, 81 FR 44066, n. 12.
    \28\ See Notice, 81 FR at 44066, n. 12 (stating that ``[t]he 
inclusion of this additional data in such data sets will not affect 
the fees currently in effect'').
---------------------------------------------------------------------------

Other Technical Changes

    FINRA has proposed to amend a provision in FINRA Rule 6730(a) that 
provides general requirements for reporting Securitized Products to 
make clear that this provision will apply specifically to CDOs and 
CMBSs.\29\ FINRA also has proposed to eliminate certain provisions that 
have expired in FINRA Rule 6730(a).\30\ Finally, FINRA has proposed to 
make technical and conforming changes to the FINRA Rule 7730 and the 
Rule 6700 series to reflect the changes to the TRACE reporting and 
dissemination requirements for CMO transactions discussed above.\31\
---------------------------------------------------------------------------

    \29\ See proposed FINRA Rule 6730(a)(3)(A). FINRA noted that 
after the proposed rule change becomes effective, this provision 
would apply only to these two types of Securitized Products. See 
Notice, 81 FR at 44067, n. 15.
    \30\ See proposed FINRA Rule 6730(a)(3)(B).
    \31\ See Notice, 81 FR at 44065.
---------------------------------------------------------------------------

Effective Date of Proposed Rule Change

    FINRA has stated that it would announce the operative date of the 
proposed rule change in a Regulatory Notice to be published no later 
than 90 days following Commission approval, and that the operative date 
would be no later than 365 days following publication of that 
Regulatory Notice.\32\
---------------------------------------------------------------------------

    \32\ See id. at 44067.
---------------------------------------------------------------------------

III. Summary of Comments and FINRA's Response

    The Commission received three comments on the proposed rule change 
\33\ and a response letter from FINRA.\34\ All three commenters were 
generally supportive but suggested certain revisions to the proposal. 
For example, all three commenters questioned the proposed $1 million 
threshold for immediate trade-by-trade dissemination, but they 
suggested conflicting alternatives. One commenter argued that the $1 
million threshold is too high and suggested lowering the threshold to 
no more than $500,000 ``to ensure only truly retail-sized transactions 
are subject to real-time dissemination.'' \35\ This commenter stated 
that its members ``recognize the benefits to the market of greater 
price transparency, but at the same time recent experience with TBAs, 
specified pools, and other types of securities illustrate the 
detrimental impact overly broad TRACE dissemination can have, 
particularly with respect to the ability for market participants to 
easily transact in size.'' \36\ Further, this commenter noted that, 
because in the CMO market ``the securities are even less liquid and 
more unique, liquidity concerns are heightened.'' \37\
---------------------------------------------------------------------------

    \33\ See supra note 5.
    \34\ See supra note 6.
    \35\ SIFMA Letter at 1-2.
    \36\ Id. at 1.
    \37\ Id.
---------------------------------------------------------------------------

    Another commenter argued that the $1 million threshold is too low 
to meaningfully improve transparency and suggested that FINRA consider 
incrementally increasing the threshold in stages until all CMO 
transactions are disseminated on an immediate trade-by-trade basis.\38\ 
This commenter stated that limiting immediate dissemination to smaller 
CMO transactions could be confusing to retail and smaller institutional 
investors because the prices of smaller CMO trades are ``typically less 
representative of where near-term next trading levels are typically 
conducted.'' \39\ This commenter also recommended that FINRA set the 
initial threshold for immediate dissemination at $1 million based on 
the current principal balance, rather than on the original principal 
balance.\40\
---------------------------------------------------------------------------

    \38\ See ICE Letter at 2, 5.
    \39\ Id. at 3-4.
    \40\ See id. at 5.
---------------------------------------------------------------------------

    A third commenter requested that FINRA remove the $1 million 
threshold entirely, based on a view that the proposed thresholds for 
dissemination on a trade-by-trade or on a periodic aggregate basis 
``will create a bifurcated market that will disadvantage the smaller 
trades that will be disseminated in real-time and small-to-medium sized 
dealers that more frequently transact in smaller quantities compared to 
the largest dealers.'' \41\ This commenter predicted that institutional 
investors would ``avoid trading in sub-$1 million quantities . . . to 
avoid information leakage'' and ``seek to transact with financial 
institutions that are not required to report trades to TRACE.'' \42\ 
This commenter argued that greater trade-by-trade dissemination would 
have a negative impact on liquidity and the proposal would ``almost 
exclusively impair market liquidity for transactions of $1 million and 
less.'' \43\
---------------------------------------------------------------------------

    \41\ BDA Letter at 1.
    \42\ Id. at 1-2.
    \43\ Id. at 2.
---------------------------------------------------------------------------

    In response to these comments, FINRA stated that it ``continues to 
believe that the $1 million threshold is an appropriate balance between 
transparency and the risk of decreased liquidity provision.'' \44\ 
FINRA explained that it received similar comments on an earlier 
iteration of the proposal and took these comments into account when 
finalizing the proposed rule change, based on the reasons explained in 
the Notice and the economic analysis contained therein.\45\ FINRA also 
stated that it will assess whether there is a need for additional 
transparency in the future.\46\
---------------------------------------------------------------------------

    \44\ FINRA Response Letter at 2.
    \45\ See id.
    \46\ See id.
---------------------------------------------------------------------------

    One commenter recommended a higher minimum activity level threshold 
for new-issue CMO transactions to be included in periodic aggregate 
reports so that dissemination would focus on secondary market 
activity.\47\ FINRA responded that the proposed threshold of five 
transactions, combined with the use of periodic aggregate reports 
rather than trade-by-trade dissemination for certain transactions, 
should satisfy the commenter's concern and that FINRA's proposed 
approach was appropriate.\48\
---------------------------------------------------------------------------

    \47\ See SIFMA Letter at 2. This commenter also recommended that 
multiple dealer-to-dealer trades done in the same CMO security at 
the time of the initial distribution be counted as one trade for 
purposes of calculating the periodic aggregate dissemination 
threshold. See id.
    \48\ See FINRA Response Letter at 3.
---------------------------------------------------------------------------

    Another commenter suggested that the periodic aggregate reports 
should include the most recent trade price, as

[[Page 67026]]

this would allow retail investors to reference the last trade price 
when engaging in price discovery for future trades and thereby better 
align retail and institutional execution quality.\49\ FINRA responded 
that it previously considered including the last sale price in the 
reports, but modified an earlier version of the proposal to remove this 
and other data fields in response to concerns about the potential for 
reverse-engineering the data.\50\
---------------------------------------------------------------------------

    \49\ See ICE Letter at 5.
    \50\ See FINRA Response Letter at 4.
---------------------------------------------------------------------------

    Two commenters commented on the proposed shortening of the 
reporting period for CMO transactions executed on or after issuance 
from end-of-day to within 60 minutes of execution. One commenter 
supported this aspect of the proposal and stated that, as compared to 
an even shorter time period considered initially, this reporting period 
``is a vast improvement for smaller dealers that have fewer operational 
and trading personnel focused on trade reporting.'' \51\ Another 
commenter suggested a six-month pilot period to phase in the reduction 
in reporting time, as has been done for other product types.\52\ This 
commenter acknowledged that many of its members currently report CMO 
transactions in less than 60 minutes, but noted that this is not always 
the case and that a pilot period ``would help ensure that dealers are 
able to implement necessary system changes and avoid errors.'' \53\ 
FINRA responded that it initially considered a shorter reporting 
timeframe with a phased-in implementation period, but modified its 
proposal to a reporting period longer than either phase proposed 
initially ``to lessen the potential costs of the Proposal while still 
providing sufficiently timely transparency to the market.'' \54\ FINRA 
noted that 84% of CMO transactions are already reported to TRACE within 
60 minutes and that it continues to believe that the proposed reporting 
timeframe is appropriate and not unduly burdensome.\55\
---------------------------------------------------------------------------

    \51\ BDA Letter at 1. Under a previous version of the proposal, 
FINRA had considered reducing the reporting timeframe to 15 minutes. 
See Notice, 81 FR at 44071.
    \52\ See SIFMA Letter at 3.
    \53\ Id.
    \54\ FINRA Response Letter at 3-4.
    \55\ See id. at 4.
---------------------------------------------------------------------------

    Two commenters expressed their support for the revised reporting 
timeframe for CMO transactions executed before issuance. One commenter 
noted that its members strongly support the revised reporting time and 
that it had requested this change because of resource constraints faced 
by some small and mid-sized firms that prevent them from actively 
monitoring all CMO data feeds and thereby knowing if a particular CUSIP 
has been issued.\56\ Another commenter stated the new standard ``should 
provide dealers with sufficient flexibility to report a transaction as 
early as one or two days prior to the first settlement date, if 
settlement details are available.'' \57\
---------------------------------------------------------------------------

    \56\ See SIFMA Letter at 3.
    \57\ BDA Letter at 1.
---------------------------------------------------------------------------

    Finally, one commenter requested clarification of the definition of 
``CMO'' because the current definition encompasses Ginnie Mae Project 
Loans, which (according to the commenter) market participants consider 
agency CMBS, in apparent conflict with FINRA's stated intention that 
the proposed rule change would apply to CMOs, but not CMBSs or CDOs. 
This commenter suggested that project loan securities should be outside 
the scope of the proposed rule change and the definition of ``CMO'' 
should be adjusted accordingly.\58\ FINRA responded that agency CMBSs 
fall within the definition of ``CMO'' and are within the intended scope 
of the proposal, while other CMBSs that are not specifically included 
within the definition of ``CMO'' are not within scope.\59\
---------------------------------------------------------------------------

    \58\ See SIFMA Letter at 2-3.
    \59\ See FINRA Response Letter at 4.
---------------------------------------------------------------------------

IV. Discussion and Commission Findings

    After careful review, 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.\60\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 15A(b)(6) of the Act,\61\ which 
requires, among other things, that FINRA's 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.
---------------------------------------------------------------------------

    \60\ 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).
    \61\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

    On numerous occasions, the Commission has stated that price 
transparency plays a fundamental role in promoting the fairness and 
efficiency of U.S. capital markets.\62\ The Commission believes that, 
to further the goal of increasing price transparency in the debt 
markets in general and the CMO market in particular, it is reasonable 
and consistent with the Act for FINRA to extend post-trade price 
transparency to CMO transactions in the manner set forth in the 
proposal. FINRA will effect immediate trade-by-trade dissemination of 
CMO transactions with a transaction value under $1 million and issue 
periodic aggregate reports of transactions in a particular CMO security 
having a transaction value of $1 million or more and meeting thresholds 
for trading frequency and the number of members reporting transactions 
in that particular security. FINRA has not proposed either immediate 
trade-by-trade dissemination or periodic aggregate dissemination of CMO 
transactions with a transaction value of $1 million or more that do not 
meet those thresholds. The Commission acknowledges that this proposal 
thereby tailors public dissemination only to a segment of the CMO 
market in which there are smaller transactions or activity among a 
wider number of market participants. The Commission notes one 
commenter's concern that price levels for smaller transactions in a 
particular CMO security may be less representative of subsequent 
trading levels for that security \63\ and another commenter's concern 
that restricting immediate trade-by-trade public dissemination to only 
the smallest trades could impair market liquidity in that segment of 
the market.\64\ Nevertheless, the Commission believes that the proposal 
represents a reasonable first step to introduce post-trade transparency 
to this asset class, and in approving this proposal notes FINRA's 
representation that it ``will continue to monitor the market and assess 
the need for additional transparency.'' \65\
---------------------------------------------------------------------------

    \62\ See, e.g., Securities Exchange Act Release No. 43873 
(January 23, 2001), 66 FR 8131, 8136 (January 29, 2001) (SR-NASD-99-
65) (approving initial TRACE proposal).
    \63\ See ICE Letter at 3-4.
    \64\ See BDA Letter at 2.
    \65\ FINRA Response Letter at 2.
---------------------------------------------------------------------------

    The Commission believes that the proposed reduction in reporting 
times for CMO transactions executed on or after issuance appears 
reasonably designed to contribute to enhanced price transparency for 
CMOs. Additionally, the Commission believes that the proposed revision 
to the reporting period for CMO transactions executed prior to issuance 
will provide greater clarity to market participants and help promote 
compliance with applicable reporting rules.
    Furthermore, the Commission believes that including CMO transaction 
data in the various TRACE data sets is reasonable and consistent with 
the Act. The rules that establish these data sets have been approved by 
the

[[Page 67027]]

Commission,\66\ and expanding the data sets to include CMO transactions 
does not appear to raise any issues. Finally, the Commission believes 
that the proposal's minor, conforming, and technical revisions to FINRA 
Rule 7730 and the Rule 6700 series are consistent with the Act.
---------------------------------------------------------------------------

    \66\ See Securities Exchange Act Release No. 66829 (April 18, 
2012), 77 FR 24748 (April 25, 2012) (approving SR-FINRA-2012-020); 
Securities Exchange Act Release No. 68084 (October 23, 2012), 77 FR 
65436 (October 26, 2012) (approving SR-FINRA-2012-042); Securities 
Exchange Act Release No. 70345 (September 6, 2013), 78 FR 56251 
(September 12, 2013) (approving SR-FINRA-2013-029); Securities 
Exchange Act Release No. 71607 (February 24, 2014), 78 FR 11481 
(February 28, 2014) (approving SR-FINRA-2013-046).
---------------------------------------------------------------------------

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\67\ that the proposed rule change (SR-FINRA-2016-023) be, and 
hereby is, approved.
---------------------------------------------------------------------------

    \67\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\68\
---------------------------------------------------------------------------

    \68\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Brent J. Fields,
Secretary.
[FR Doc. 2016-23499 Filed 9-28-16; 8:45 am]
BILLING CODE 8011-01-P