[Federal Register Volume 81, Number 226 (Wednesday, November 23, 2016)]
[Notices]
[Pages 84659-84673]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-28190]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79346; File No. SR-FINRA-2016-032]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Amendment No. 1 and Order Granting 
Accelerated Approval of a Proposed Rule Change, as Modified by 
Amendment No. 1, Relating to FINRA Rule 2232 (Customer Confirmations) 
To Require Members To Disclose Additional Pricing Information on Retail 
Customer Confirmations Relating to Transactions in Certain Fixed Income 
Securities

November 17, 2016.

I. Introduction

    On August 12, 2016, the Financial Industry Regulatory Authority, 
Inc. (``FINRA'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to amend FINRA Rule 2232 to 
require FINRA members to disclose additional pricing information on 
retail customer confirmations relating to certain transactions in fixed 
income securities. The proposed rule change was published for comment 
in the Federal Register on August 19, 2016.\3\ The Commission received 
nine comment letters from eight commenters in response to the 
proposal.\4\ On September 28, 2016, pursuant to Section 19(b)(2) of the 
Act,\5\ the Commission designated a longer period within which to 
either approve the proposed rule change, disapprove the proposed rule 
change, or institute proceedings to determine whether to disapprove the 
proposed rule change.\6\ The Commission then received a letter from the 
SEC Office of the Investor Advocate, submitted to the public comment 
file, recommending approval of the proposed rule change.\7\ On November 
14, 2016, FINRA responded to the comments \8\ and filed Amendment No. 1 
to the proposal.\9\ The Commission is publishing this notice to solicit 
comment on Amendment No. 1 to the proposal from interested persons and 
is approving the proposed rule change, as modified by Amendment No. 1, 
on an accelerated basis.
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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. 78573 (Aug. 15, 
2016), 81 FR 55500 (Aug. 19, 2016) (``Notice'').
    \4\ See Letter from Manisha Kimmel, Chief Regulatory Officer, 
Wealth Management, Thomson Reuters, to Brent J. Fields, Secretary, 
Commission (Sept. 19, 2016) (``Thomson Reuters I''); Letter from 
Mary Lou Von Kaenel, Managing Director, Financial Information Forum, 
to Robert W. Errett, Deputy Secretary, Commission (Sept. 9, 2016) 
(``FIF''); Letter from Sean Davy, Managing Director, Capital Markets 
Division, and Leslie M. Norwood, Managing Director and Associate 
General Counsel, Municipal Securities Division, SIFMA, to Robert W. 
Errett, Deputy Secretary, Commission (Sept. 9, 2016) (``SIFMA''); 
Letter from Norman L. Ashkenas, Chief Compliance Officer, Fidelity 
Brokerage Services, LLC, and Richard J. O'Brien, Chief Compliance 
Officer, National Financial Services, LLC, to Brent J. Fields, 
Secretary, Commission (Sept. 9, 2016) (``Fidelity''); Letter from 
Mike Nicholas, Chief Executive Officer, Bond Dealers of America, to 
Brent J. Fields, Secretary, Commission (Sept. 9, 2016) (``BDA''); 
Letter from Robert J. McCarthy, Director of Regulatory Policy, Wells 
Fargo Advisors, LLC, to Robert W. Errett, Deputy Secretary, 
Commission (Sept. 9, 2016) (``Wells Fargo''); Letter from Scott A. 
Eichhorn, Practitioner in Residence and Supervising Attorney, 
Investor Rights Clinic, University of Miami, et al., to Brent 
Fields, Secretary, Commission (Sept. 8, 2016) (``UMiami''); Letter 
from Manisha Kimmel, Chief Regulatory Officer, Wealth Management, 
Thomson Reuters, to Brent J. Fields, Secretary, Commission (Sept. 8, 
2016) (``Thomson Reuters II''); and Letter from Hugh Berkson, 
President, PIABA, to Robert W. Errett, Deputy Secretary, Commission 
(Sept. 7, 2016) (``PIABA'').
    \5\ See 15 U.S.C. 78s(b)(2).
    \6\ See Securities Exchange Act Release No. 34-78965 (Sept. 28, 
2016), 81 FR 68492 (Oct. 4, 2016) (FINRA-2016-032).
    \7\ See Letter from Rick A. Fleming, Investor Advocate, Office 
of the Investor Advocate, to Commission (Nov. 7, 2016) (``Investor 
Advocate'').
    \8\ See Letter from Alexander Ellenberg, Associate General 
Counsel, FINRA, to Brent J. Fields, Secretary, Commission, dated 
November 14, 2016 (``FINRA Response Letter'').
    \9\ Amendment No. 1 is available on the Commission's Web site 
at: https://www.sec.gov/comments/sr-finra-2016-032/finra2016032-13.pdf.
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II. Description of the Proposal, as Modified by Amendment No. 1

A. Background

    FINRA proposes to amend FINRA Rule 2232 (Customer Confirmations) to 
require a member effecting certain transactions as principal with non-
institutional customers in a corporate debt or agency debt security to 
disclose the member's mark-up/mark-down from the prevailing market 
price (``PMP'') for the security on the customer confirmation.\10\ 
FINRA also proposes to require for all transactions in corporate or 
agency debt securities with non-institutional customers, irrespective 
of whether mark-up/mark-down disclosure is required, that the member 
provide on the confirmation (1) a reference, and hyperlink if the 
confirmation is electronic, to a Web page hosted by FINRA that contains 
publicly available trading data from FINRA's Trade Reporting and 
Compliance Engine

[[Page 84660]]

(``TRACE'') for the specific security that was traded, in a format 
specified by FINRA, along with a brief description of the type of 
information available on that page; and (2) the execution time of the 
customer transaction, expressed to the second.\11\
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    \10\ See Notice, supra note 3. For ease of reference, a ``non-
institutional customer'' is also alternatively referred to as a 
``retail customer'' or ``retail investor,'' which, among others are 
not included in the definition of an institutional customer.
    \11\ See Amendment No. 1, supra note 9, at 5. FINRA also 
proposes in Amendment No. 1 to add the term ``offsetting'' to 
proposed Rule 2232(c)(2) to conform the rule language to the 
language used to discuss conditions that trigger the disclosure 
requirement, and extend the implementation period of the proposal 
from one year to 18 months.
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    FINRA developed the proposal, as modified by Amendment No. 1, in 
coordination with the Municipal Securities Rulemaking Board (``MSRB'') 
to advance the goal of providing additional pricing information, 
including transaction cost information, to non-institutional customers 
in corporate, agency, and municipal debt securities.\12\ FINRA and the 
MSRB have worked toward consistent rule requirements in this area, as 
appropriate, to minimize the operational burdens for firms that are 
both FINRA members and MSRB registrants that transact in multiple types 
of fixed income securities.\13\ The proposal, as modified by Amendment 
No. 1, is before the Commission following a process in which FINRA 
twice solicited comment on related proposals, and subsequently 
incorporated modifications designed to address commenters' 
concerns.\14\
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    \12\ See, e.g., Notice, supra note 3, at 55500. The proposal, as 
modified by Amendment No. 1, would apply to corporate and agency 
debt securities. It would not apply to U.S. Treasury Securities. See 
proposed Rules 2232(c), (e), and (f); see also note 37 infra.
    \13\ The MSRB has filed with the Commission a proposal and 
amendment that is substantially similar to this proposal, as 
modified by Amendment No. 1. See Securities Exchange Act Release No. 
78777 (Sep. 7, 2016), 81 FR 62947 (Sep. 13, 2016) (SR-MSRB-2016-12) 
(``MSRB Proposal''); see also MSRB Amendment No. 1, available at: 
https://www.sec.gov/comments/sr-msrb-2016-12/msrb201612-11.pdf.
    \14\ See FINRA Regulatory Notice 14-52, Pricing Disclosure in 
the Fixed Income Markets: FINRA Requests Comment on a Proposed Rule 
Requiring Confirmation Disclosure of Pricing Information in Fixed 
Income Securities Transactions (Nov. 2014) (the ``Initial 
Proposal''), available at: http://www.finra.org/sites/default/files/notice_doc_file_ref/Notice_Regulatory_14-52.pdf. See also FINRA 
Regulatory Notice 15-36, Pricing Disclosure in the Fixed Income 
Markets: FINRA Requests Comment on a Revised Proposal Requiring 
Confirmation Disclosure of Pricing Information in Corporate and 
Agency Debt Securities Transactions (Oct. 2015) (``Revised 
Proposal''), available at: http://www.finra.org/sites/default/files/notice_doc_file_ref/Regulatory-Notice-15-36.pdf.
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    In November 2014, FINRA, concurrently with the MSRB, published a 
regulatory notice requesting comment on the Initial Proposal to require 
disclosure of pricing information for certain same-day, retail-sized 
principal transactions.\15\ In the Initial Proposal, FINRA proposed to 
require customer confirmation disclosure of additional pricing 
information when a member executes a sell (buy) transaction of 
``qualifying size'' with a customer and executes a buy (sell) 
transaction as principal with one or multiple parties in the same 
security within the same trading day, where the size of the customer 
transaction(s) would otherwise be satisfied by the size of one or more 
same-day principal transaction(s). To supplement the price to the 
customer, which currently is required to be provided on customer 
confirmations, members would additionally have been required to 
disclose (i) the price to the firm of the same-day trade (``reference 
price''); and (ii) the difference between those two prices. Designed to 
capture transactions with retail investors, the term ``qualifying 
size,'' was defined to include transactions of 100 bonds or less or 
bonds with a face value of $100,000 or less.
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    \15\ The Initial Proposal was published concurrently with a 
similar proposal by the MSRB. See MSRB Regulatory Notice 2014-20, 
Request for Comment on Draft Rule Amendments to Require Dealers to 
Provide Pricing Reference Information on Retail Customer 
Confirmations (Nov. 17, 2014), available at: http://www.msrb.org/~/
media/files/regulatory-notices/rfcs/2014-20.ashx.
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    As more fully summarized in the Notice, FINRA received a number of 
comments on the Initial Proposal.\16\ Some commenters supported FINRA's 
Initial Proposal, stating that the proposed confirmation disclosure 
would provide additional post-trade information that would be otherwise 
difficult for a retail investor to ascertain and would foster increased 
price competition in fixed income markets, which would ultimately lower 
investors' transaction costs.\17\ Some of these commenters urged FINRA 
to expand the Initial Proposal so that it would apply to all trades 
involving retail investors.\18\ But many commenters were critical of 
the Initial Proposal. Some commenters critical of the Initial Proposal 
believed that the proposed scope was overbroad, that a reference price 
was not necessarily a useful point of pricing information, and/or that 
FINRA's proposed methodologies for calculating the reference price were 
too complex.\19\ In response to the comments received, FINRA made 
several modifications to the Initial Proposal and solicited comment on 
a Revised Proposal.\20\ The modifications reflected in the Revised 
Proposal were designed to ensure that the disclosure applied to 
transactions with retail investors, enhance the utility of the 
disclosure, and reduce the operational complexity of providing the 
disclosure.\21\
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    \16\ See Notice, supra note 3, at 55507-55508 (summarizing 
comments received by FINRA on the Initial Proposal).
    \17\ See Notice, supra note 3, at 55507.
    \18\ Id.
    \19\ See Notice, supra note 3, at 55507-55508.
    \20\ See Revised Proposal, supra note 14.
    \21\ See Notice, supra note 3, at 55508 (explaining FINRA's 
modifications to the Initial Proposal in the Revised Proposal). 
FINRA's Revised Proposal included the following revisions: (i) 
Replacing the ``qualifying size'' requirement with an exclusion for 
transactions with institutional accounts, as defined in FINRA Rule 
4512(c); (ii) excluding transactions which are part of fixed-price 
offerings on the first trading day and which are sold at the fixed-
price offering price; (iii) excluding firm-side transactions that 
are conducted by a department or trading desk that is functionally 
separate from the retail-side trading desk; (iv) excluding trades 
where the member's principal trade was executed with an affiliate of 
the member and the affiliate's position that satisfied this trade 
was not acquired on the same trading day; (v) requiring members to 
provide a hyperlink to publicly available corporate and agency debt 
security trade data disseminated from TRACE on the customer 
confirmation; (vi) permitting members to omit the reference price in 
the event of a material change in the price of the security between 
the time of the member's principal trade and the customer trade; and 
(vii) permitting members to use alternative methodologies to 
determine the reference price in complex trade scenarios, provided 
the methodologies were adequately documented, and consistently 
applied. See Revised Proposal, supra note 14.
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    In response to similar comments received on its initial proposal, 
the MSRB incorporated several modifications to be consistent with 
FINRA's proposal; \22\ however, the MSRB proposed to depart from the 
``reference price'' approach and instead require that firms disclose 
the amount of mark-up/mark-down from the PMP for certain retail 
customer transactions.\23\ Specifically, the MSRB proposed to require 
firms to disclose their mark-up/mark-down on the retail customer's 
trade if the firm bought (sold) the security in one or more 
transactions in an aggregate trade size that met or exceeded the size 
of the sale (purchase) to (from) the non-institutional customer within 
two hours of the customer

[[Page 84661]]

transaction.\24\ The disclosed mark-up/mark-down would have been 
required to be expressed both as a total dollar amount and as a 
percentage of the PMP.\25\ Additionally, the MSRB proposed to require 
the disclosure of two additional data points on all customer 
confirmations, even those for which mark-up/mark-down disclosure was 
not required: A security-specific hyperlink to the publicly available 
municipal security trade data on the MSRB's Electronic Municipal Market 
Access (``EMMA'') Web site, and the time of execution of a customer's 
trade.\26\
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    \22\ See MSRB Regulatory Notice 2015-16, Request for Comment on 
Draft Rule Amendments to Require Confirmation Disclosure of Mark-ups 
for Specified Principal Transactions with Retail Customers (Sept. 
24, 2015), available at: http://www.msrb.org/~/media/files/
regulatory-notices/rfcs/2015-16.ashx. In its revised proposal, the 
MSRB, consistently with FINRA, proposed that certain categories of 
transactions be excluded from the disclosure requirement, including 
(i) transactions with institutional accounts; (ii) firm-side 
transactions if conducted by a ``functionally separate principal 
trading desk'' that had no knowledge of the non-institutional 
customer transaction; and (iii) customer transactions at list 
offering prices. For trades with an affiliate of the firm, the MSRB 
also proposed to ``look through'' the firm's trade with the 
affiliate to the affiliate's trade with the third party for purposes 
of determining whether disclosure would be required.
    \23\ See id.
    \24\ See id.
    \25\ See id.
    \26\ See id.
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    Although FINRA and the MSRB took different approaches in their 
revised proposals--diverging primarily on the questions of whether to 
require disclosure of reference price or mark-up/mark-down, and whether 
to specify a same-day or two-hour time frame--each acknowledged the 
importance of achieving a consistent approach and invited comments on 
the relative merits and shortcomings of both approaches.\27\ Following 
a second round of comments, publication of a third related proposal by 
the MSRB,\28\ as well as investor testing conducted jointly by FINRA 
and the MSRB in mid-2016,\29\ FINRA and the MSRB made a third round of 
revisions to achieve a consistent approach and filed the proposed rule 
changes, each as modified by Amendment No. 1, that are before the 
Commission.
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    \27\ See Revised Proposal, supra note 14; MSRB Regulatory Notice 
2015-16, supra note 22.
    \28\ See MSRB Regulatory Notice 2016-07, Request for Comment on 
Draft Amendments to MSRB Rule G-30 to Provide Guidance on Prevailing 
Market Price (Feb. 18, 2016), available at: http://www.msrb.org/~/
media/Files/Regulatory-Notices/RFCs/2016-07.ashx.
    \29\ See Notice, supra note 3 at 55502 n.14, 55503, 55504, 
referencing investor testing.
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B. Proposed Amendments to FINRA Rule 2232

1. Overview
    FINRA proposes to amend FINRA Rule 2232 (Customer Confirmations) to 
add new paragraphs (c)-(f). Proposed Rule 2232(c) would require that a 
customer confirmation for a transaction in a corporate or agency debt 
security include the member's mark-up/mark-down for the transaction, to 
be calculated in compliance with FINRA Rule 2121, expressed as a total 
dollar amount and as a percentage of the PMP if (1) the member effects 
a transaction in a principal capacity with a non-institutional customer 
and (2) the member purchased (sold) the security in one or more 
offsetting transactions in an aggregate trading size meeting or 
exceeding the size of such sale to (purchase from) the non-
institutional customer. Proposed Rule 2232(c) also would address how a 
member's transactions with affiliates are to be considered. Proposed 
Rule 2232(d) would specify limited exceptions.\30\
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    \30\ See proposed Rule 2232(d), regarding functionally separate 
trading desks and certain transactions in new issues.
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    Proposed Rule 2232(e), which is the subject of Amendment No. 1, 
additionally would require that for all transactions in corporate or 
agency debt securities with non-institutional customers, irrespective 
of whether mark-up/mark-down disclosure is required, the member provide 
on the confirmation (i) a reference, and hyperlink if the confirmation 
is electronic, to a Web page hosted by FINRA that contains TRACE 
publicly available trading data for the specific security that was 
traded, in a format specified by FINRA, along with a brief description 
of the type of information available on that page; and (ii) the 
execution time of the customer transaction, expressed to the 
second.\31\
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    \31\ See Amendment No. 1, supra note 9, at 5.
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    Proposed Rule 2232(f) would set forth defined terms.\32\
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    \32\ See proposed Rule 2232(f).
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    In addition, FINRA Rule 0150 would be amended to make the proposed 
rule change, as modified by Amendment No. 1, applicable to agency debt 
securities, but not to U.S. Treasury Securities.\33\
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    \33\ See note 12 supra; note 36 infra.
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2. Scope of the Mark-Up/Mark-Down Disclosure Requirement
    Under proposed Rule 2232(c), mark-up/mark-down disclosure would be 
required if: (1) The member is effecting a transaction in a principal 
capacity in a corporate or agency debt security with a non-
institutional customer, and (2) the member purchased (sold) the 
security in one or more offsetting transactions in an aggregate trading 
size meeting or exceeding the size of such sale to (purchase from) the 
non-institutional customer on the same trading day as the non-
institutional customer transaction.\34\
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    \34\ See Notice, supra note 3, at 55500. See also Amendment No. 
1, supra note 9, at 4, in which FINRA further clarifies that 
disclosure obligations are triggered by ``offsetting'' transactions, 
and not only by ``matched'' trades.
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    A non-institutional customer is a customer that does not have an 
institutional account, as defined in FINRA Rule 4512(c).\35\ In 
addition, the proposal, as modified by Amendment No. 1, would apply 
only to transactions in corporate debt securities, as defined in the 
proposed rule,\36\ and agency debt securities, as defined in FINRA Rule 
6710(l).\37\
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    \35\ See proposed Rule 2232(f)(4). See also FINRA Rule 4512(c), 
defining an institutional account as: An account of ``(1) a bank, 
savings and loan association, insurance company or registered 
investment company; (2) an investment adviser registered either with 
the SEC under Section 203 of the Investment Advisers Act or with a 
state securities commission (or any agency or office performing like 
functions); or (3) any other person (whether a natural person, 
corporation, partnership, trust or otherwise) with total assets of 
at least $50 million. FINRA states that use of this definition to 
define the scope of the proposal is appropriate because firms use 
this definition in other rule contexts and it will therefore reduce 
the implementation costs of the proposal. See Notice, supra note 3 
at 55501.
    \36\ The rule would define a corporate debt security as a ``debt 
security that is United States (``U.S.'') dollar-denominated and 
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, but does not include a Money Market 
Instrument as defined in FINRA Rule 6710(o) or an Asset-Backed 
Security as defined in FINRA Rule 6710(cc).'' See Proposed Rule 
2232(f).
    \37\ Existing FINRA Rule 6710(l) defines an agency debt security 
as ``a debt security (i) issued or guaranteed by an Agency as 
defined in paragraph (k); or (ii) issued or guaranteed by a 
Government-Sponsored Enterprise as defined in paragraph (n). 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 Notice, supra note 3, at 55501 n. 9.
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    Discussing the rationale for the mark-up/mark-down disclosure 
requirement generally, FINRA notes that while members already are 
required, pursuant to Securities Exchange Act Rule 10b-10 (``Rule 10b-
10''), to provide pricing information on customer confirmations, 
including transaction cost information, for transactions in equity 
securities where the member acted as principal, no comparable 
requirement currently exists for transactions in fixed-income 
securities.\38\ Discussing the same-day offsetting trade trigger for 
mark-up/mark-down disclosure more specifically, FINRA states that it 
believes that a full-day window (as compared to a shorter window such 
as two-hours) will ensure that more non-institutional investors receive 
the benefit of mark-up/mark-down disclosure; \39\ and adds that 
limiting the required disclosure to those instances where there is an 
offsetting trade in the same trading day will reduce the variability of 
the mark-up/mark-down

[[Page 84662]]

calculation.\40\ FINRA also emphasizes that a full-day window may make 
members less likely to alter their trading patterns to avoid the rule, 
as members would be required to hold positions overnight to avoid the 
customer confirmation disclosure requirement which action may be in 
contravention of a member's other obligations under FINRA rules.\41\
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    \38\ See Notice, supra note 3, at 55000 n.3.
    \39\ See Notice, supra note 3, at 55501 and 55509 (discussing 
data evidencing dispersion in mark-ups/mark-downs in firm principal/
customer trades in corporate and agency debt securities).
    \40\ See Notice, supra note 3, at 55501.
    \41\ See Notice, supra note 3, at 55501 n.11, in which FINRA 
notes that under FINRA Rule 5310 (Best Execution and 
Interpositioning) members are required to use reasonable diligence 
to ascertain the best market for the security and buy or sell in 
such market so that the resultant price to the customer is as 
favorable as possible under prevailing market conditions, and that 
under Supplementary Material .01 to FINRA Rule 5310 a member must 
make every effort to execute a marketable customer order that it 
receives fully and promptly. FINRA states that a firm found to 
purposefully delay the execution of a customer order to avoid the 
proposed disclosure may be in violation of the proposed rule, FINRA 
Rule 5310 and FINRA Rule 2010 (Standards of Commercial Honor and 
Principles of Trade).
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    For purposes of determining whether the mark-up/mark-down 
disclosure requirement would be triggered, proposed Rule 2232(c) also 
addresses how a member's transactions with affiliates are to be 
considered. If a member executes an offsetting principal trade(s) with 
an affiliate, the rule would require a member to determine whether the 
transaction was an ``arms-length transaction.'' \42\ The rule defines 
an arms-length transaction as ``a transaction that was conducted 
through a competitive process in which non-affiliate firms could also 
participate, and where the affiliate relationship did not influence the 
price paid or proceeds received by the member.'' \43\ If the 
transaction is not an arms-length-transaction, the rule would require 
the member to ``look through'' to the time and terms of the affiliate's 
separate purchase (sale) of the security with a third party to 
determine whether the confirmation disclosure requirement is 
applicable.\44\ FINRA states that sourcing liquidity through a non-
arms-length transaction with an affiliate is functionally equivalent to 
selling out of its own inventory, and therefore that it is appropriate 
in the case of a non-arm's length transaction to require a member to 
``look through'' to the affiliate's transaction with a third party to 
determine whether the disclosure requirement is triggered.\45\
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    \42\ See Notice, supra note 3, at 55501.
    \43\ As a general matter, FINRA would expect that the 
competitive process used in an ``arms-length'' transaction, e.g., 
the request for pricing or platform for posting bids and offers, is 
one in which non-affiliates have frequently participated. See 
Notice, supra note 3, at 55501-2.
    \44\ See Notice, supra note 3, at 55502 n.12. FINRA adds that, 
in a non-arms-length transaction with an affiliate, the member also 
would be required to ``look-through'' to the affiliate's transaction 
with a third party and related cost or proceeds by the affiliate as 
the basis for determining the member's calculation of the mark-up/
mark-down pursuant to FINRA Rule 2121 (Fair Prices and Commissions) 
See id.
    \45\ See Notice, supra note 3, at 55502.
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    The proposed rule also specifies two exceptions from the disclosure 
requirement. First, if the member's offsetting same-day firm principal 
trade was executed by a trading desk that is functionally separate from 
the member's trading desk that executed the transaction with the non-
institutional customer, the principal trade by that separate trading 
desk would not trigger the confirmation disclosure requirement.\46\ To 
avail itself of this exception, a member must have in place policies 
and procedures reasonably designed to ensure that the functionally 
separate principal trading desk through which the member purchase or 
sale was executed had no knowledge of the customer transaction.\47\ For 
example, in the case of a purchase/sale transaction with a non-
institutional customer effected by the retail trading desk, if a 
functionally separate institutional trading desk within the same member 
firm effected a purchase/sale in the same security to service an 
institutional customer, that trade would not trigger the disclosure 
requirement, provided that the institutional trading desk was operated 
pursuant to policies and procedures reasonably designed to ensure that 
institutional desk through which the member purchase or member sale was 
executed had no knowledge of the non-institutional customer 
transaction.\48\ In addition, the rule does not apply if the member 
acquired the security in a fixed-price offering and sold the security 
to non-institutional customer(s) at the fixed-price offering price on 
the day the securities were acquired.\49\
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    \46\ See Proposed Rule 2232(d)(1).
    \47\ See id. In the Notice, FINRA notes that the separate 
trading desk exception would only determine whether or not the 
proposed disclosure requirement has been triggered and would not 
change a member's existing requirements relating to the calculation 
of its mark-up/mark-down under FINRA Rule 2121. See Notice, supra 
note 3, at 55502 n.13.
    \48\ FINRA further explains that a firm could not use the 
functionally separate trading desk exception to avoid the proposed 
disclosure requirement if the institutional desk was used to source 
securities by the retail desk. See Notice, supra note 3, at 55502.
    \49\ See Proposed Rule 2232(d)(2).
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3. Information To Be Disclosed and/or Provided
a. Mark-Up/Mark-Down
    Rule 2232(c) would require that the member's mark-up/mark-down for 
the transaction be calculated in compliance with FINRA Rule 2121 and 
expressed as a total dollar amount and as a percentage of the PMP.\50\ 
FINRA represents that its determination to require disclosure of both 
the total dollar amount and the percentage of the PMP is supported by 
investor testing, which found disclosure of this information in both 
forms would be more useful than disclosure of the information in only 
one of these forms.\51\ FINRA also explains that members currently are 
already subject to FINRA Rule 2121, including Supplementary Material 
.02 to FINRA Rule 2121, which provides extensive guidance on how to 
determine the PMP and calculate mark-ups/mark-downs for the fixed-
income securities to which the proposal would apply, including a 
presumption to use contemporaneous cost or proceeds.\52\ FINRA 
recognizes that the determination of the PMP of a particular security 
may not be identical across member firms.\53\ FINRA states that members 
would be expected to have reasonable policies and procedures in place 
to determine the PMP in a manner consistent with FINRA Rule 2121, and 
that such policies and procedures be applied consistently across 
customers.\54\ Regarding when a mark-up/mark-down is to be calculated 
and disclosed, FINRA notes that the mark-up on a customer trade should 
``generally be established at the time of that trade'' and states that 
members may generate customer confirmations that include a mark-up/
mark-down disclosure on an intra-day basis.\55\
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    \50\ See Proposed Rule 2232(c).
    \51\ See Notice, supra note 3, at 55502 n.14.
    \52\ See Notice, supra note 3, at 55502.
    \53\ Id.
    \54\ Id.
    \55\ See Notice supra note 3, at 55506. See also notes 128-130, 
infra, and accompanying text (discussing FINRA's response to 
commenters concerned about the proposal's potential to disrupt the 
intra-day confirmation generation process).
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b. Reference/HyperLink to TRACE and Execution Time of Trade
    FINRA initially represented that it would submit a separate filing 
proposing that confirmations include a hyperlink to publicly available 
TRACE data and the execution time of the customer trade.\56\ FINRA 
stated that comments received on the Revised Proposal and the results 
of investor testing justified the addition of these requirements.\57\ 
In response to comments urging FINRA and the MSRB to harmonize both the 
substance and the time frames of their proposals, FINRA proposes in 
Amendment No. 1 to

[[Page 84663]]

include these requirements in the same manner and form as the MSRB has 
proposed.\58\ Specifically, proposed Rule 2232(e) would require that 
for all transactions in corporate or agency debt securities with non-
institutional customers, the member provide on the confirmation (1) a 
reference, and hyperlink if the confirmation is electronic, to a Web 
page hosted by FINRA that contains TRACE publicly available trading 
data for the specific security that was traded, in a format specified 
by FINRA, along with a brief description of the type of information 
available on that page; and (2) the execution time of the customer 
transaction, expressed to the second.\59\ Amendment No. 1, in which 
FINRA proposes to require inclusion of these additional data points, is 
more fully discussed below.
---------------------------------------------------------------------------

    \56\ See Notice, supra note 3, at 55502 n.14.
    \57\ Id.
    \58\ See Amendment No. 1, supra note 9, at 4. See also MSRB 
Proposal, supra note 13, at 62950-62951; MSRB Amendment No. 1, supra 
note 13, at 4-5.
    \59\ See Amendment No. 1, supra note 9, at 5; proposed Rule 
2232(e).
---------------------------------------------------------------------------

C. Effective Date of the Proposed Rule Change
    FINRA represents that it will announce the effective date of the 
proposed rule change and the specific implementation date in a 
Regulatory Notice to be published no later than 90 days following 
Commission approval of the proposal. FINRA initially proposed that the 
effective date would be no later than 12 months following Commission 
approval of the proposal. In Amendment No. 1, FINRA proposes to extend 
the effective date to 18 months following Commission approval of the 
proposal.\60\
---------------------------------------------------------------------------

    \60\ See Notice, supra note 3, at 55503; Amendment No. 1, supra 
note 9, at 12.
---------------------------------------------------------------------------

III. Summary of Comments and FINRA Response Letter, Investor Advocate 
Recommendation, Amendment No. 1

    The Commission received nine comment letters from eight commenters, 
regarding the proposed rule change, and a letter from the Investor 
Advocate recommending approval of the proposed rule change.\61\ Many of 
the commenters expressed support for the goals of the proposal.\62\ 
Many commenters, however, expressed some concern about implementing the 
proposal and requested guidance or certain changes to the proposal to 
facilitate and reduce the costs of implementation.\63\ Areas of concern 
included: (1) The scope of the proposal; (2) methodology and timing for 
calculating the PMP; (3) acceptable ways to present mark-up/mark-down 
disclosure information on the customer confirmation; (4) areas of 
inconsistency with MSRB Proposal; and (5) the effective date of the 
proposed rule change due to its anticipated costs.
---------------------------------------------------------------------------

    \61\ See supra notes 4 and 7. The views of the Investor Advocate 
are noted in the context of specific issues raised by commenters, as 
well as separately.
    \62\ See PIABA, at 1 (stating that increased transparency on 
customer confirmation is a necessary step); Wells Fargo, at 3 
(supporting FINRA's efforts to improve price transparency in fixed 
income markets); Fidelity, at 2 (noting Fidelity's appreciation of 
regulatory efforts to improve price transparency in the fixed income 
markets); BDA, at 1 (accepting that retail investors could benefit 
from disclosure of mark-up (mark-down) on same-day trades); SIFMA, 
at 1 (expressing support for FINRA's objective to enhance fixed 
income price transparency for retail investors). See also UMiami, at 
1-3 (more generally expressing support for the proposal). See also 
Investor Advocate, supra note 7, at 2 (recommending that the 
Commission approve the proposal).
    \63\ See generally SIFMA; BDA, Thomson Reuters II; Wells Fargo; 
Fidelity; FIF. Among these commenters SIFMA and Wells Fargo 
suggested that FINRA instead pursue a proposal focusing exclusively 
on providing information about prevailing market conditions through 
TRACE. See SIFMA, at 2; Wells Fargo, at 2.
---------------------------------------------------------------------------

A. Scope of the Proposal

    Several commenters addressed the same-day offsetting trade aspect 
of the proposal's scope. One commenter stated that the same-day window 
was too limited.\64\ Some commenters expressed concern about the 
operational impact of the same-day window. Specifically, two commenters 
were concerned that the same-day nature of the proposal would require a 
member to look forward to transactions occurring after the execution of 
the non-institutional trade to determine whether that trade requires 
mark-up/mark-down disclosure, and that this would disrupt the 
confirmation process.\65\ One of these commenters urged FINRA to 
eliminate the ``look-forward requirement'' so that members could 
determine the need for disclosure at the time of trade.\66\ Another 
commenter advocated eliminating not only the look-forward aspect of the 
proposal, but also the look-back aspect.\67\ According to this 
commenter, mark-up/mark-down disclosure should be provided for all 
retail customer transactions.\68\
---------------------------------------------------------------------------

    \64\ See PIABA, at 1-2. This commenter encouraged FINRA to 
emphasize that ``[a]ny intentional delay of a customer execution to 
avoid the proposed rule . . . would be contrary to [Best Execution] 
duties to customers.'' But see Investor Advocate, supra note 7, at 7 
(stating that a same-day window of time for disclosure was 
appropriate and that a full-day window would deter members from 
adjusting their behavior to avoid the disclosure requirements.)
    \65\ See Thomson Reuters II, at 3; FIF, at 2, 4-5.
    \66\ See Thomson Reuters II, at 3. This commenter also noted 
that members choosing to provide mark-up/mark-down disclosure on all 
confirmations in order to ease implementation of the rule might 
hesitate to do so unless they could provide additional text on 
customer confirmations to put the mark-up/mark-down disclosure ``in 
context.'' Id.
    \67\ See FIF, at 2, 4-5. FIF suggested that the ``trigger'' be 
eliminated from the rule to avoid members having to wait to 
determine if a trigger trade occurred later in the day (look-
forward) or to assess whether a trigger trade existed at the end of 
the day (look-back). Id.
    \68\ See id.
---------------------------------------------------------------------------

    In response, FINRA stated that it ``continues to believe that a 
same-day timeframe is an appropriate trigger for disclosure.'' \69\ 
FINRA acknowledged that members could incur costs to identify customer 
trades subject to the proposal's disclosure requirements.\70\ However, 
FINRA indicated that members could avoid the cost associated with the 
look-forward aspect of the rule by choosing to ``provide mark-up 
disclosure more broadly if they find it beneficial to do so.'' \71\ 
FINRA also noted that members' best execution obligations and 
surveillance by FINRA should deter inappropriate gaming of the same-day 
trigger.\72\
---------------------------------------------------------------------------

    \69\ See FINRA Response Letter, at 3.
    \70\ See FINRA Response Letter, at 4.
    \71\ See FINRA Response Letter, at 4-5.
    \72\ See FINRA Response Letter, at 3.
---------------------------------------------------------------------------

    One commenter requested clarification on FINRA's statement in the 
Notice that disclosure is triggered when a member executes one or more 
offsetting principal transaction(s) on the same trading day. This 
commenter asked whether the confirmation disclosure requirement is 
triggered only when a customer trade has an offsetting principal trade 
or if a firm must continue to disclose its mark-up/mark-down until the 
triggering trade has been exhausted, at which point the firm may choose 
to continue to disclose or not.\73\
---------------------------------------------------------------------------

    \73\ See SIFMA, at 8.
---------------------------------------------------------------------------

    FINRA responded that there must be offsetting customer and firm 
principal trades for the disclosure requirement to be triggered, and 
explained that if a member purchased 100 bonds at 9:30 a.m., and then 
satisfied three customer buy orders for 50 bonds each in the same 
security on the same day without purchasing any more of the bonds, the 
proposal would require mark-up disclosure on two of the three trades, 
since one of the trades would have been satisfied by selling out of the 
member's inventory rather than through an offsetting principal 
transaction by the member.\74\ In addition, FINRA noted that, in 
Amendment No. 1, it was proposing to provide added clarity on this 
point by adding the term ``offsetting'' to Rule 2232(c)(2) to conform 
the rule language to the

[[Page 84664]]

language used to discuss conditions that trigger the disclosure 
requirement.\75\ FINRA further explained that the proposal applies to 
``offsetting'' transactions, and is not limited to ``matched'' 
trades.\76\ FINRA also noted in its response to comments that a member 
could ``develop reasonable policies and procedures to identify and 
account for offsetting trades that trigger the [p]roposal, provided the 
member applies those policies and procedures in a consistent manner.'' 
\77\
---------------------------------------------------------------------------

    \74\ See FINRA Response Letter, at 4-5.
    \75\ See FINRA Response Letter, at 4 n.16.
    \76\ See id. See also Amendment No. 1, supra note 9, at 4; MSRB 
Amendment No. 1, supra note 13, at 4 n.6.
    \77\ See FINRA Response Letter, at 5.
---------------------------------------------------------------------------

    One commenter questioned how the proposal would apply to certain 
small institutions that may fall into FINRA's definition of ``non-
institutional customer,'' but trade via accounts that settle on a 
delivery versus payment/receive versus payment (DVP/RVP) basis and rely 
on confirmations generated through the Depository Trust and Clearing 
Corporation's institutional delivery (DTCC ID) system.\78\ Because it 
is possible for those firms to receive confirms through the DTCC ID 
process, the commenter asked FINRA to clarify whether its proposal 
requires modifications to the DTCC ID system.\79\
---------------------------------------------------------------------------

    \78\ See Thomson Reuters II, at 2.
    \79\ See id.
---------------------------------------------------------------------------

    FINRA responded that it believes that few non-institutional 
accounts settle on a DVP/RVP basis and that it would not be appropriate 
to exempt such accounts from the scope of the proposal.\80\ FINRA noted 
that non-institutional accounts that settle on a DVP/RVP basis using 
the services of the DTCC ID system ``could receive mark-up disclosure 
without necessitating changes to the DTCC ID system, whether through 
free text fields currently in the system or by other means.'' \81\ 
Accordingly, FINRA stated that it continues to believe that mark-up/
mark-down disclosure ``is appropriate for any account that does not 
qualify as an institutional account.'' \82\
---------------------------------------------------------------------------

    \80\ See FINRA Response Letter, at 11.
    \81\ See id.
    \82\ See id.
---------------------------------------------------------------------------

    Another commenter questioned whether FINRA planned to broaden the 
scope of the rule to cover financial products other than corporate debt 
and agency securities, asking if the rule would be expanded to include 
other financial products like TRACE eligible mortgage backed 
securities, TBAs, asset backed securities or Treasuries.\83\
---------------------------------------------------------------------------

    \83\ See FIF, at 8. FINRA did not respond directly to this 
comment. However, the Commission notes that FINRA's rationale for 
the proposal is based in part on the data it has analyzed for TRACE 
and that this comment is beyond the scope of FINRA's present 
proposal, which applies to transactions in corporate or agency debt 
securities See Notice, supra, at note 3, at 55503-55507.
---------------------------------------------------------------------------

    One commenter addressed the exception for trades executed by a 
functionally separate trading desk. That commenter seemed to conflate 
this exception with a separate provision in the proposed rule change 
that would require a firm to ``look through'' a non-arms-length 
transaction with its affiliate to determine whether the proposed 
disclosure obligations are applicable.\84\ Specifically, the commenter 
characterized the functionally separate trading desk exception, as an 
exception to the ``look through'' requirement.\85\
---------------------------------------------------------------------------

    \84\ See FIF, at 5 n.8.
    \85\ See FIF, at 5 n.8.
---------------------------------------------------------------------------

    In response, FINRA clarified that the look-through provision and 
functionally separate desk exception are separate provisions of the 
proposal, intended to operate independently of each other.\86\ FINRA 
noted that it is possible that both provisions may be applicable to the 
same trade; however, each provision would need to be analyzed and 
applied on its own.\87\
---------------------------------------------------------------------------

    \86\ See FINRA Response Letter, at 3 n.11.
    \87\ Id.
---------------------------------------------------------------------------

B. Mark-Up/Mark-Down Disclosure

1. Determination of PMP and Mark-Up/Mark-Down in Accordance with FINRA 
Rule 2121
    The Investor Advocate supported the mark-up/mark-down disclosure 
requirement, stating that this approach has advantages over the 
reference price approach FINRA contemplated in the Initial Proposal and 
the Revised Proposal because the mark-up/mark-down approach ``provides 
retail investors with the relevant information about the actual 
compensation the retail investor is paying the dealer for the 
transaction . . . [and] reflects market conditions and has the 
potential to provide a more accurate benchmark for calculating 
transaction costs.'' \88\ Another commenter did not believe that a 
mark-up/mark-down disclosure requirement was better than the approach 
contemplated in the Initial Proposal and the Revised Proposal.\89\
---------------------------------------------------------------------------

    \88\ See Investor Advocate, supra note 7, at 7-8; see also 
Section III.F. infra.
    \89\ See PIABA, at 2.
---------------------------------------------------------------------------

    Other commenters expressed concern about the need to determine PMP 
in accordance with FINRA Rule 2121, believing that this requirement 
would be operationally burdensome.\90\ These commenters requested that 
FINRA provide additional guidance on how members may determine PMP and 
calculate mark-ups/mark-downs to facilitate compliance with the 
rule.\91\ Specifically, these two commenters believed that members 
would need to automate the determination of PMP in order to 
consistently produce accurate values in the limited time afforded.\92\ 
One commenter believed that it would be ``simply unworkable'' to 
automate the guidance set forth in FINRA Rule 2121 in a manner that 
would allow members to calculate and disclose mark-ups/mark-downs on a 
systematic basis.\93\ The other commenter stated that FINRA Rule 2121 
would not be easy to convert to the automated operational framework 
that would be required to comply with the proposed rule change.\94\ 
Both commenters particularly emphasized that it would be difficult to 
automate factors in the waterfall that require a subjective analysis of 
facts and circumstances.\95\ One of these commenters further questioned 
whether these challenges could result in the disclosure of inaccurate 
information on customer confirmations.\96\
---------------------------------------------------------------------------

    \90\ See, e.g., BDA, at 3-4; SIFMA, at 5-7.
    \91\ See id.
    \92\ See id.
    \93\ See SIFMA, at 5-7.
    \94\ See BDA, at 3-4.
    \95\ See BDA, at 3-4 (identifying the portion of FINRA Rule 2121 
that directs firms to consider ``similar securities''); SIFMA at 6-7 
(identifying the portion of FINRA Rule 2121 that directs firms to 
consider whether ``news was issued . . . that had an effect on the 
perceived value of the debt security'').
    \96\ See BDA, at 4.
---------------------------------------------------------------------------

    In addition, one commenter requested explicit guidance from FINRA 
that the use of ``reasonable policies and procedures'' would permit 
member firms to use ``alternative methodologies'' to determine PMP in 
an automated manner.\97\ This commenter, SIFMA, particularly requested 
that members be permitted to make reasonable assumptions in calculating 
PMP ``that do not follow the prescriptive waterfall.'' \98\ SIFMA 
suggested that FINRA ``clarify'' that reasonable policies for automated 
calculation of PMP may include pulling prices from: Third-party pricing 
vendors, the firm's trading book or inventory market-to-market and 
contemporaneous trades, or ``some variation thereof.'' \99\ SIFMA also 
requested that it be deemed reasonable for FINRA members to choose to 
calculate PMP based solely on the contemporaneous cost of the 
offsetting transaction, without further automating the waterfall.\100\
---------------------------------------------------------------------------

    \97\ See SIFMA, at 5-7.
    \98\ See SIFMA, at 7.
    \99\ See SIFMA, at 6.
    \100\ Id.

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

[[Page 84665]]

    In addition, SIFMA suggested that FINRA clarify that members may 
adjust their PMP determination to account for certain characteristics 
that may affect pricing, such as ``the discount or premium inherent in 
pricing small or institutional-size transactions,'' the ``difference 
between inter-dealer and customer markets,'' the size of a transaction, 
and the ``side of the market.'' \101\ SIFMA further requested that 
FINRA provide specific examples demonstrating how to calculate PMP in 
order to aid the development of reasonable policies, procedures, and 
methodologies.\102\
---------------------------------------------------------------------------

    \101\ See SIFMA, at 9.
    \102\ See SIFMA, at 10.
---------------------------------------------------------------------------

    In response to comments, FINRA stated that it continues to believe 
that mark-up/mark-down disclosure should be based on FINRA Rule 2121 
guidance.\103\ FINRA noted that members have been subject to FINRA Rule 
2121 for ten years, and that it has provided a consistent, prescriptive 
framework for PMP determination.\104\ FINRA believes that the continued 
use of FINRA Rule 2121 will foster more comparable mark-up/mark-down 
disclosures across firms.\105\ FINRA emphasized that it expects a very 
significant percentage of the trades that require mark-up/mark-down 
disclosure to have relatively close-in-time offsetting principal 
trades, which would presumptively establish PMP under the first step of 
FINRA Rule 2121.02 and, therefore, FINRA did not believe that the 
proposal's reliance on FINRA Rule 2121 would present logistical 
operational challenges to the degree argued by commenters.\106\
---------------------------------------------------------------------------

    \103\ See FINRA Response Letter, at 7.
    \104\ See FINRA Response Letter, at 7-8. FINRA noted that BDA, 
while commenting on the potential complexity of automating FINRA 
Rule 2121 guidance, nevertheless acknowledged that the principles 
and processes that guide fair pricing assessments--i.e., FINRA Rule 
2121--are an appropriate guide for the confirmation disclosure 
process. Id. See also Investor Advocate, supra note 7, at 8 (opining 
that a PMP-based approach provides retail investors with relevant 
information that reflects market conditions and potentially a more 
accurate benchmark for calculating transaction costs than a 
``reference price'' approach).
    \105\ See FINRA Response Letter, at 8.
    \106\ See FINRA Response Letter, at 7-8.
---------------------------------------------------------------------------

    FINRA also addressed commenters' requests for additional guidance 
on establishing reasonable policies and procedures to comply with FINRA 
Rule 2121.02. FINRA indicated that it did not believe a member's PMP 
determination under FINRA Rule 2121 must be fully and strictly 
automated.\107\ FINRA nevertheless stated that members may rely on 
reasonable policies and procedures to facilitate automated PMP 
determination, provided these policies and procedures are consistent 
with FINRA Rule 2121.\108\ Explaining how the use of reasonable 
policies and procedures would be consistent with FINRA Rule 2121, FINRA 
stated that members could, for example, make reasonable judgments about 
how they apply FINRA Rule 2121. For example, members could calculate 
contemporaneous costs (proceeds) at the preliminary stage of the FINRA 
Rule 2121 analysis in cases where the member has multiple principal 
trades that offset one or more customer trades subject to 
disclosure.\109\ Members also could establish a methodology to adjust 
contemporaneous costs and proceeds in cases where the member's 
offsetting trades that trigger disclosure under the proposal are both 
customer transactions, to avoid ``double counting'' in the mark-up and 
mark-down it disclosed to each customer.\110\ FINRA did not believe, 
however, that additional adjustments to contemporaneous cost 
calculations, such as adjustments to reflect the size or side of a 
contemporaneous trade, as SIFMA requested, are consistent with FINRA 
Rule 2121.\111\ Providing further examples, FINRA noted that members 
could develop policies and procedures to address subsequent steps of 
the FINRA Rule 2121 guidance.\112\ FINRA believes that certain 
judgments could be documented up front with the requisite assumptions 
explained in a member's procedures, including decisions regarding 
whether a transaction is ``contemporaneous,'' whether there is trade or 
quotation activity in a subject or similar security, and what economic 
models provide about the price of an illiquid security.\113\ FINRA 
acknowledged that these steps involve potentially subjective judgments, 
such as the relative weight of trade or quote activity in a given 
security, or the number or type of characteristics a different security 
must share with a given security to be considered ``similar,'' \114\ 
but believes, based on outreach to firms and its own experience with 
market data, that there are ways for members to represent subjective 
judgments with objective logic that could be documented and applied 
consistently through reasonable policies and procedures.\115\ In 
particular, FINRA stated that it understands that many members already 
have in place some systematic approach to fixed income pricing that 
allows them to provide traders with automated pricing information or to 
run compliance checks against the prices that traders use to mark their 
inventory each day.\116\ Although current systems may not evaluate 
pricing information exactly as set out in FINRA Rule 2121, FINRA noted 
that the existence of such systems illustrates the possibility for 
programming the kinds of decision-making required by FINRA Rule 
2121.\117\ FINRA therefore believes that FINRA Rule 2121 is subject to 
automation without the need for the ``artificial intelligence'' that 
SIFMA suggested would be required.\118\
---------------------------------------------------------------------------

    \107\ See FINRA Response Letter, at 8 n.32.
    \108\ See FINRA Response Letter, at 8.
    \109\ See id. FINRA noted, citing the Revised Proposal, that it 
previously provided detailed guidance to illustrate the average 
weighted price or last price methodologies that might be appropriate 
in this scenario. See id.
    \110\ See id.
    \111\ See id.
    \112\ See id.
    \113\ See FINRA Response Letter, at 8-9.
    \114\ See FINRA Response Letter, at 9.
    \115\ See id.
    \116\ See id.
    \117\ See id.
    \118\ See id.
---------------------------------------------------------------------------

    Further, in response to comments suggesting that members be 
permitted to use third-party pricing services, FINRA stated that, under 
the proposal, members would not be prohibited from engaging third-party 
service providers to document and perform the steps of the FINRA Rule 
2121 analysis, particularly those that look beyond a firm's own 
transaction history to more broadly available information.\119\ FINRA 
added, however, that members employing such services would retain 
compliance responsibility, and it would be incumbent on them to perform 
the due diligence necessary to ensure that third-party service 
providers were providing them with calculations performed consistently 
with FINRA Rule 2121.\120\ FINRA cautioned that members would be 
expected to perform regular reviews of their policies and procedures 
for mark-up/mark-down disclosure--whether the procedures document steps 
taken within a member's own operations or the member's oversight of 
third party vendors--to ensure they are adequate, appropriate, and 
consistently applied.\121\
---------------------------------------------------------------------------

    \119\ See id.
    \120\ See id.
    \121\ See id.
---------------------------------------------------------------------------

    Recognizing that members may have more detailed, specific 
implementation questions FINRA represented that it would work closely 
with the industry and the MSRB during the implementation period to 
issue further guidance as necessary.\122\
---------------------------------------------------------------------------

    \122\ See id.

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

[[Page 84666]]

2. Time of PMP Determination and Mark-Up/Mark-Down Disclosure
    Commenters also addressed the time at which PMP must be determined 
and the mark-up/mark-down must be calculated and disclosed. Although 
some commenters believed that the Notice was clear that the proposal 
permitted members to determine PMP at the time of the customer trade to 
avoid delay in the confirmation process,\123\ others sought 
confirmation and requested additional detail on the determination of 
PMP at the time of the customer trade.\124\ Specifically, one commenter 
believed that FINRA had made clear that the PMP determination for 
calculating a mark-up could be done at the time of trade, but sought 
confirmation from FINRA that this would also be so for purposes of 
calculating a mark-down.\125\ Another commenter asked FINRA to 
acknowledge that changes to the price to the customer would not 
necessitate changes to the PMP from which the disclosure was calculated 
and also that members need not resend a corrected confirmation based 
solely on the occurrence of a subsequent transaction or events that 
might otherwise be relevant.\126\ This commenter also requested that 
FINRA provide assurance that an automated calculation of PMP for the 
purpose of mark-up/mark-down disclosure, based only on the information 
available at the time of the trade, would not be deemed incorrect by 
regulators for the purposes of a fair pricing determination.\127\
---------------------------------------------------------------------------

    \123\ See Thomson Reuters II, at 2; Fidelity, at 4.
    \124\ See Wells Fargo, at 3-4; SIFMA, at 8.
    \125\ See Wells Fargo, at 3-4.
    \126\ See SIFMA, at 8.
    \127\ See SIFMA, at 7.
---------------------------------------------------------------------------

    As noted above, with regard to timing questions, FINRA responded 
that members may maintain real-time, intra-day confirmation generation 
processes, stating that ``members may determine PMP, as a final matter 
for disclosure purposes, based on the information the member has 
available to it as a result of reasonable diligence at the time the 
member inputs the PMP and associated mark-up information into its 
systems to generate a confirmation,'' \128\ which is generally at the 
time of the trade.\129\ FINRA also confirmed that it would not expect 
members to send revised confirmations solely based on the occurrence of 
a subsequent transaction or event that would otherwise be relevant to 
PMP calculation under FINRA Rule 2121.02.\130\ FINRA added that, 
notwithstanding this guidance, it did not believe it was necessary to 
make a formal distinction between PMP determination for disclosure 
purposes as opposed to other regulatory purposes, as requested by 
SIFMA.\131\
---------------------------------------------------------------------------

    \128\ See FINRA Response Letter, at 6. FINRA adds that it will 
conduct surveillance to protect against potential gaming of this 
guidance, as it will with other elements of the proposal. FINRA 
further states that it would find it inconsistent with the proposal, 
associated guidance, and potentially other FINRA rules as well if a 
member manipulated the order or timing of its trades to result in 
more favorable PMP calculations. See FINRA Response Letter at 6 
n.21.
    \129\ See supra note 55 and accompanying text.
    \130\ See id.
    \131\ See FINRA Response Letter, at 6 n.22.
---------------------------------------------------------------------------

C. Presentation of Mark-Up/Mark-Down Information on Customer 
Confirmations

    FINRA proposes to require that mark-ups/mark-downs be disclosed on 
confirmations as a total dollar amount (i.e., the dollar difference 
between the customer's price and the security's PMP), and as a 
percentage amount (i.e., the mark-up's percentage of the security's 
PMP). Several commenters noted that the new disclosures required by the 
proposal might cause investor confusion, as different members may 
determine the PMP for the same security differently, resulting in a 
lack of comparability or consistency across customer 
confirmations.\132\ One commenter encouraged FINRA to address this 
issue by monitoring and reviewing relevant policies and 
procedures.\133\ Other commenters sought clarity on members' ability to 
provide various explanatory statements or qualifying language on the 
confirmation. Two commenters, for instance, argued that firms should be 
permitted to label or qualify the mark-up/mark-down disclosed on the 
confirmation as ``estimated'' or ``approximate.'' \134\ Commenters 
therefore suggested that members be allowed to add a description of the 
member's process for calculating mark-ups and mark-downs \135\ or to 
explain that the determination of PMP for a particular security may not 
be identical across firms.\136\ Others suggested that members be 
permitted to describe the meaning of the mark-up/mark-down,\137\ or to 
indicate that it may not reflect profit to the member \138\ or the 
exact compensation to the member.\139\ One commenter suggested that, to 
``standardize retail investor understanding,'' acceptable explanatory 
text should be drafted and prepared by FINRA.\140\
---------------------------------------------------------------------------

    \132\ See Wells Fargo, at 4; SIFMA, at 3; Fidelity, at 3; PIABA, 
at 2. See also Notice, supra note 3, at 55506.
    \133\ See PIABA, at 2.
    \134\ See Fidelity, at 3; SIFMA, at 4.
    \135\ See Wells Fargo, at 4; Fidelity, at 3.
    \136\ See SIFMA, at 4.
    \137\ See Fidelity, at 3.
    \138\ See Wells Fargo, at 4-5; SIFMA, at 4. See also Thomson 
Reuters II, at 3 (noting that firms may not want to provide mark-up/
mark-down disclosure on all confirms without the ability to include 
text indicating that the mark-up/mark-down may not reflect the 
profit to the firm).
    \139\ See Fidelity, at 3.
    \140\ Id.
---------------------------------------------------------------------------

    FINRA responded by reiterating that the determination of the PMP of 
a particular security may not be identical across firms.\141\ According 
to FINRA, this is the reason that it will expect members to have 
reasonable policies and procedures in place to determine PMP and to 
apply these policies and procedures consistently across customers.\142\ 
FINRA also made clear that it does not believe that members should be 
permitted to label the required mark-up/mark-down disclosure as an 
``estimate'' or an ``approximate'' figure, as such labels have the 
potential to unduly suggest an unreliability of the disclosures or 
otherwise diminish their value.\143\ However, FINRA believes that a 
member would not be prohibited from including language on confirmations 
that provides explanation of PMP as a concept, or provides detail about 
the member's methodology for determining PMP (or notes the availability 
of information about methodology upon request), provided such 
statements are accurate.\144\ In response to commenters' requests for 
FINRA to provide standardized or sample disclosures that would be 
appropriate under the proposal, FINRA represented that it will engage 
with members to evaluate the potential need for and use of such 
guidance.\145\
---------------------------------------------------------------------------

    \141\ See FINRA Response Letter, at 10.
    \142\ See id.
    \143\ See id.
    \144\ See id.
    \145\ See id.
---------------------------------------------------------------------------

D. Harmonization With the MSRB Proposal and Amendment No. 1

    Commenters generally urged harmonization with the MSRB 
Proposal,\146\ focusing mostly on the MSRB's proposal to require firms 
to include a security-specific hyperlink to EMMA and the execution time 
of the customer's trade on the confirmation,\147\ and FINRA's statement 
that it would propose those requirements in a separate filing.\148\
---------------------------------------------------------------------------

    \146\ See, e.g., Wells Fargo, at 2; BDA, at 2; SIFMA, at 2-3; 
Thomson Reuters II, at 1-2. See also Investor Advocate, supra note 
7, at 6.
    \147\ See MSRB Proposal, supra note 13, at 62950-62951.
    \148\ See Notice, supra note 3, at 55502 n.14.
---------------------------------------------------------------------------

    Although two commenters urged FINRA and the MSRB to harmonize

[[Page 84667]]

their approach, they did not address the substance of the MSRB's 
proposal to include a security-specific hyperlink to EMMA.\149\ 
However, two other commenters expressly opposed the inclusion of a 
security-specific hyperlink, despite their general support for 
harmonization with the MSRB.\150\ These commenters asserted that 
customers who typically receive paper confirmations would likely not 
type in the long universal resource locator (``URL'') of a security-
specific hyperlink into an internet browser.\151\ One commenter also 
stated that it would be difficult to maintain security-specific 
hyperlinks \152\ and that inclusion of a security-specific hyperlink 
would reduce the amount of space available on an already-crowded 
confirmation.\153\ The other commenter believed that FINRA should 
provide only a general hyperlink to publicly available TRACE data.\154\ 
One commenter suggested that FINRA delay any requirement to include a 
hyperlink to TRACE on customer confirmations until the mark-up/mark-
down disclosure requirement had been fully implemented.\155\
---------------------------------------------------------------------------

    \149\ See BDA, at 2; SIFMA, at 12. In subsequent letters 
regarding the MSRB Proposal, however, both commenters recommended 
that FINRA and the MSRB allow firms to provide a general hyperlink 
to TRACE and/or EMMA, rather than a security-specific hyperlink. See 
Letter from Mike Nicholas, Chief Executive Officer, Bond Dealers of 
America, to Brent J. Fields, Secretary, Securities and Exchange 
Commission (Oct. 4, 2016) (``BDA II''), at 4; Letter from Leslie M. 
Norwood, Managing Director and Associate General Counsel, Municipal 
Securities Division, and Sean Davy, Managing Director, Capital 
Markets Division, SIFMA, to Brent J. Fields, Secretary, Securities 
and Exchange Commission (Oct. 3, 2016) (``SIFMA II''), at 13. They 
nevertheless continued to stress harmonization as the critical 
point. See id.
    \150\ See Thomson Reuters II, at 3; FIF, at 9.
    \151\ See Thomson Reuters II, at 3 (also stating that investors 
typing in a long URL would make mistakes in doing so); FIF, at 9. 
See also SIFMA II, at 13 (stating that investors typing in a long 
URL would make mistakes in doing so).
    \152\ See FIF, at 8. See also BDA II, at 4 (noting that dealers 
are concerned that web addresses to specific security pages may 
change without their knowledge).
    \153\ See FIF, at 8. In a subsequent letter regarding the MSRB 
Proposal, however, FIF made it clear that their preference was to 
remove the requirement for a hyperlink altogether. See Letter from 
Mary Lou Von Kaenel, Managing Director, Financial Information Forum, 
to Brent J. Fields, Secretary, Securities and Exchange Commission 
(Oct. 4, 2016) (``FIF II''), at 8. See also SIFMA II, at 13 (noting 
that a short, general hyperlink would reduce the amount of space 
needed on a confirmation to fulfill the requirement).
    \154\ See Thomson Reuters II, at 3. See also BDA II, at p. 4 
(recommending that FINRA and the MSRB provide a general hyperlink to 
search page); SIFMA II, at 13 (recommending that FINRA and the MSRB 
allow firms to provide a general hyperlink).
    \155\ See SIFMA, at 12. In subsequent letters regarding the MSRB 
Proposal, three commenters added recommendations that the MSRB delay 
action on this particular issue in order to coordinate with FINRA. 
See FIF II, at 8; Letter from Norman L. Ashkenas, Chief Compliance 
Officer, Fidelity Brokerage Services, LLC, and Richard J. O'Brien, 
Chief Compliance Officer, National Financial Services, LLC, to Brent 
J. Fields, Secretary, Securities and Exchange Commission (Oct. 4, 
2016) (``Fidelity II''), at 5; Letter from Robert J. McCarthy, 
Director of Regulatory Policy, Wells Fargo Advisors, LLC, to Brent 
J. Fields, Secretary, Securities and Exchange Commission (Oct. 4, 
2016) (``Wells Fargo II''), at 5.
---------------------------------------------------------------------------

    With respect to the inclusion of the time of trade on customer 
confirmations, two commenters urged FINRA and the MSRB to harmonize 
their approach, but did not address the substance of the MSRB's 
proposal to include the time of trade on customer confirmations.\156\ 
One commenter, despite its general support for harmonization with the 
MSRB Proposal, opposed the inclusion of the time of the trade on 
customer confirmations, stating that including the time of trade would 
not only be costly, but that mark-up/mark-down disclosure would obviate 
the need for this disclosure.\157\ This commenter also stressed the 
practical difficulties on providing this disclosure.\158\ One commenter 
suggested that FINRA delay any requirement to include the time of trade 
on customer confirmations until the mark-up/mark-down disclosure 
requirement had been fully implemented.\159\
---------------------------------------------------------------------------

    \156\ See BDA, at 2; SIFMA, at 12.
    \157\ See FIF, at 8.
    \158\ See id. (expressing concerns about providing this 
disclosure in the context of trade modifications, cancellations or 
corrections, and in the context of block trades subsequently 
allocated to sub-accounts). Fidelity did not address this issue in 
its letter regarding the FINRA proposal, but it did echo the 
concerns expressed by FIF in a subsequent letter regarding the MSRB 
Proposal. See Fidelity II, at 5.
    \159\ See SIFMA, at 12. In subsequent letters regarding the MSRB 
Proposal, two commenters added recommendations that the MSRB delay 
action on this particular issue in order to coordinate with FINRA. 
See FIF II, at 8; Fidelity II, at 5.
---------------------------------------------------------------------------

    In response, FINRA agreed with commenters that it was important to 
harmonize with the MSRB on both of these items.\160\ FINRA pointed out 
that it solicited comments on these potential requirements in the 
Revised Proposal and that it had reviewed the comments submitted to the 
MSRB regarding its proposal.\161\ After reviewing all such comments, 
FINRA determined that it was appropriate to require disclosure of a 
security-specific hyperlink to TRACE and time of execution on customer 
confirmations, and it further stated that the additional requirements 
could be implemented in a way that would mitigate the concerns raised 
by commenters.\162\ Accordingly, FINRA submitted Amendment No. 1 to 
propose requirements that it believes to be ``identical to the MSRB's 
proposed requirements in all material respects,'' stating that this 
would further a ``more harmonized implementation schedule.'' \163\
---------------------------------------------------------------------------

    \160\ See FINRA Response Letter, at 11.
    \161\ See id.
    \162\ See id. See also Amendment No. 1, supra note 9, at 12.
    \163\ See Amendment No. 1, supra note 9, at 4.
---------------------------------------------------------------------------

E. Anticipated Costs of Implementing the Proposed Rule Change by the 
Proposed Effective Date

    Several commenters stated that the cost and complexity of the 
proposed rule change would make it difficult to implement by the 
proposed effective date. Commenters particularly emphasized the need 
for significant systems and programming modifications on their part and 
on the part of their third-party vendors.\164\ They also asserted that 
it would be particularly challenging to implement such changes in light 
of other regulatory initiatives slated to become effective in the near 
future.\165\ One commenter requested that FINRA or the Commission 
perform additional outreach to the industry to gather information on 
the operational costs,\166\ while two commenters felt the burdens 
imposed by the proposal were so high that they questioned whether an 
adequate cost-benefit analysis had been performed.\167\
---------------------------------------------------------------------------

    \164\ See, e.g., FIF, at 1-2, 7; Fidelity, at 5.
    \165\ See BDA, at 2-3; SIFMA, at 11-12; Fidelity, at 5-6; 
Thomson Reuters II, at 4; FIF, at 2. Commenters identified the 
following initiatives: (1) The U.S. Department of Labor's conflict 
of interest rule, see 81 FR 20946 (Apr. 8, 2016); (2) amendments to 
FINRA Rule 4210 for mortgage security margin, see Securities 
Exchange Act Release No. 76148 (Oct. 14, 2015), 80 FR 63603 (Oct. 
20, 2015) (FINRA-2016-036); (3) the proposed transition to a T+2 
settlement cycle, see Securities Exchange Act Release No. 78962 
(September 28, 2016), 81 FR 69240 (October 5, 2016); (4) amendments 
to TRACE to support Treasuries, see Securities Exchange Release Act 
No. 78359 (July 19, 2016), 81 FR 48465 (July 25, 2016) (FINRA-2016-
027); (5) the Consolidated Audit Trail, see Securities Exchange Act 
Release No. 77724 (Apr. 27, 2016), 81 FR 30614 (May 17, 2016); and 
(6) the Financial Crimes Enforcement Network's Customer Due 
Diligence Requirements for Financial Institutions, see 81 FR 29398 
(May 11, 2016).
    \166\ See BDA, at 4.
    \167\ See SIFMA, at 2; FIF, at 3.
---------------------------------------------------------------------------

    In light of these issues, most commenters urged FINRA and the MSRB 
to agree on a harmonized implementation time frame longer than the one-
year period set forth in the proposal. Commenters suggested time frames 
ranging from 18 months to three years.\168\ Two commenters further

[[Page 84668]]

proposed a phased approach that would first focus on PMP determination 
and then focus on calculation of the mark-up/mark-down and presentation 
of this information on customer confirmations.\169\
---------------------------------------------------------------------------

    \168\ See BDA, at 3 (requesting an 18-month period); FIF, at 3 
(requesting a minimum of 18-21 months); Fidelity, at 5 (requesting a 
two-year period); Thomson Reuters II, at 4 (requesting a two- to 
three-year period); Wells Fargo, at 4 (requesting a three-year 
period, while acknowledging that a shorter time frame might be 
feasible); SIFMA, at 11-12 (requesting a three-year period, while 
acknowledging that a shorter time frame might be feasible). In a 
subsequent letter regarding the MSRB Proposal, BDA requests a two-
year period. See BDA II, at 4-5.
    \169\ See Fidelity, at 6; FIF, at 3.
---------------------------------------------------------------------------

    By contrast, one commenter and the Investor Advocate believed that 
a one-year implementation period was reasonable.\170\ The commenter 
argued that the benefits of the proposed rule change far outweighed any 
associated costs.\171\ This commenter noted that firms already have an 
obligation to calculate mark-ups/mark-downs in compliance with FINRA 
Rule 2121 and maintained that the proposal would impose a limited 
burden, insofar as it only requires members to provide disclosure in 
instances when offsetting sales (purchases) occur within the same 
trading day.\172\ Furthermore, this commenter believed that the 
proposed mark-up/mark-down disclosures might actually stimulate the 
market by increasing investor confidence, which could create more 
competitive prices and reduce transaction costs.\173\
---------------------------------------------------------------------------

    \170\ See UMiami, at 3; Investor Advocate, supra note 7, at 10-
11.
    \171\ See UMiami, at 3.
    \172\ See UMiami, at 2-3.
    \173\ See UMiami, at 3.
---------------------------------------------------------------------------

    FINRA responded that it continues to believe that the proposal is 
justified.\174\ FINRA stated that it ``included significant economic 
analysis in the [p]roposal, which was based on a multi-year process 
during which FINRA published two Regulatory Notices to solicit feedback 
on the potential impacts of additional pricing disclosure.'' \175\ 
FINRA represented that it understands the cost concerns expressed by 
commenters and the firms FINRA has spoken with, particularly those 
associated with altering the current practice of near straight-through 
processing of confirmations after a transaction and the potential for 
regulatory and legal risk associated with errors, but added that it has 
received no additional data about the magnitude of these costs.\176\
---------------------------------------------------------------------------

    \174\ See FINRA Response Letter, at 12. See also Amendment No. 
1, supra note 9, at 12.
    \175\ See FINRA Response Letter, at 12.
    \176\ See id.
---------------------------------------------------------------------------

    FINRA stated that the proposal's economic impact assessment was 
premised on the adherence to FINRA Rule 2121 guidance by members, and 
thus, for members that are not reasonably following FINRA Rule 2121's 
step-by-step guidance to determine PMP in the manner they would need to 
under the proposal, the implementation costs of the proposal may be 
substantially higher than for other firms.\177\ However, in the absence 
of any new data on potential costs that FINRA did not already consider 
in the proposal, FINRA continues to believe that the proposal's 
economic impact assessment was sufficient and appropriate.\178\ FINRA 
also believes that the guidance provided in the FINRA Response Letter 
may reduce the potential costs or burdens of the proposal.\179\ To 
further reduce potential costs or burdens, FINRA further noted that it 
was proposing in Amendment No. 1 to harmonize the proposal with the 
MSRB Proposal, as amended, and extend the implementation time frame 
from one year to 18 months.\180\
---------------------------------------------------------------------------

    \177\ See id.
    \178\ See id.
    \179\ See id.
    \180\ See FINRA Response Letter, at 11, 13; see also Amendment 
No. 1, supra note 9, at 3.
---------------------------------------------------------------------------

F. Recommendation of the Investor Advocate

    As noted above, the Investor Advocate submitted to the public 
comment file its recommendation to the Commission that the Commission 
approve the proposed rule change.\181\ In its recommendation, the 
Investor Advocate stated its belief that the proposed rule change's 
``enhancements to pricing disclosure in the fixed income markets are 
long overdue and will greatly benefit retail investors.'' \182\ 
Specifically, the Investor Advocate noted that the required mark-up/
mark-down disclosures will better equip retail investors ``to evaluate 
transactions and the quality of service provided to them by a firm,'' 
help regulators and retail investors detect improper dealer practices, 
and make it less likely that dealers will charge excessive mark-
ups.\183\ Ultimately, the Investor Advocate focused its attention on 
``four key issues''--consistency of approach between FINRA and the 
MSRB; same-day disclosure window; the use of PMP as the basis for 
calculating mark-ups; and the need for dealers to look through 
transactions with affiliates--as the focus of its review, and stated 
``each of these issues has been resolved to our satisfaction'' in the 
proposed rule change.\184\
---------------------------------------------------------------------------

    \181\ See Investor Advocate, supra note 7.
    \182\ See Investor Advocate, supra note 7, at 2.
    \183\ See id.
    \184\ See Investor Advocate, supra note 7, at 6.
---------------------------------------------------------------------------

    With respect to FINRA and the MSRB adopting consistent rules 
related to confirmation disclosure, the Investor Advocate highlighted 
that the proposed rule change and the MSRB Proposal ``provide a 
coordinated and consistent approach to mark-up disclosure in corporate 
and municipal bond transactions.'' \185\ Accordingly, the Investor 
Advocate concluded that ``this deliberative approach will lead to 
consistent disclosures across the fixed income markets and will provide 
retail investors with better post-trade price transparency.'' \186\
---------------------------------------------------------------------------

    \185\ See id.
    \186\ See id.
---------------------------------------------------------------------------

    Addressing the same-day disclosure window, the Investor Advocate 
noted its agreement ``that the window of time for disclosure should be 
the full trading day.'' \187\ According to the Investor Advocate, a 
shorter time-frame--e.g., the two-hour window previously proposed by 
the MSRB--could inappropriately incentivize dealers to alter their 
trading practices to avoid the obligation to disclose mark-ups.\188\
---------------------------------------------------------------------------

    \187\ See Investor Advocate, supra note 7, at 7.
    \188\ See id.
---------------------------------------------------------------------------

    Discussing the proposed rule change's use of PMP as the basis for 
mark-up disclosure, the Investor Advocate stated its belief that the 
PMP-based disclosure has advantages over the initially proposed 
reference price-based disclosure.\189\ Specifically, the Investor 
Advocate noted that though the ``PMP-based disclosure may lead to 
disclosure of a smaller cost to retail investors under certain 
circumstances . . . the PMP-based approach provides retail investors 
with the relevant information about the actual compensation the retail 
investor is paying the dealer for the transaction . . . [and] . . . 
[i]t reflects market conditions and has the potential to provide a more 
accurate benchmark for calculating transaction costs.'' \190\ Moreover, 
the Investor Advocate notes that the PMP-based disclosure regime could 
more easily be expanded beyond the presently contemplated same-day 
disclosure window.\191\ As a result, the Investor Advocate stated its 
support for the use of the PMP-based disclosure regime.\192\ Finally, 
the Investor Advocate stated its support for the proposed rule change's 
requirement that dealers express the mark-up both as a total dollar 
amount and as a percentage of the PMP.\193\
---------------------------------------------------------------------------

    \189\ See id.
    \190\ See Investor Advocate, supra note 7, at 7-8.
    \191\ See Investor Advocate, supra note 7, at 8.
    \192\ See Investor Advocate, supra note 7, at 8-9.
    \193\ See Investor Advocate, supra note 7, at 9.
---------------------------------------------------------------------------

    With respect to dealer transactions with affiliates, the Investor 
Advocate highlighted its concern with dealer-affiliate trading 
arrangements, and concluded that the proposed rule change ``satisfies 
[the Investor

[[Page 84669]]

Advocate's] concerns by making clear that a dealer must look through 
non-arms-length transactions with affiliates to calculate PMP.'' \194\
---------------------------------------------------------------------------

    \194\ See Investor Advocate, supra note 7, at 9-10.
---------------------------------------------------------------------------

    Finally, with respect to the implementation of the proposed rule 
change, the Investor Advocate stated its support for a one-year 
implementation period, noting that such period would be reasonable 
despite the technical and system changes that might be required for 
compliance with the proposed rule change.\195\
---------------------------------------------------------------------------

    \195\ See Investor Advocate, supra note 7, at 10-11.
---------------------------------------------------------------------------

G. Amendment No. 1

    To complement the mark-up/mark-down disclosure proposal and further 
harmonize its proposal with the MSRB Proposal, FINRA proposes in 
Amendment No. 1 to require that for all transactions in corporate or 
agency debt securities with non-institutional customers, irrespective 
of whether mark-up/mark-down disclosure is required, the member provide 
on the confirmation the following additional information: (1) A 
reference, and a hyperlink if the confirmation is electronic, to a Web 
page hosted by FINRA that contains TRACE publicly available trading 
data for the specific security that was traded, in a format specified 
by FINRA, along with a brief description of the type of information 
available on that page; and (2) the execution time of the transaction, 
expressed to the second.\196\
---------------------------------------------------------------------------

    \196\ See Amendment No. 1, supra note 9, at 5; proposed Rule 
2232(e). As discussed above, FINRA also proposes in Amendment No. 1. 
to add the term ``offsetting'' to proposed Rule 2232(c)(2) to 
conform the rule language to the language used to discuss conditions 
that trigger the disclosure requirement, and extend the 
implementation period of the proposal from one year to 18 months. 
See Amendment No. 1, supra note 9, at 3. See also supra notes 75-
77and accompanying text.
---------------------------------------------------------------------------

    In support of the Amendment, FINRA notes that four commenters--BDA, 
Thomson Reuters, SIFMA, and FIF--addressed FINRA's statement in the 
Notice that it intended to submit an additional filing to require 
members to add disclosures to non-institutional confirmations of the 
time of trade and a hyperlink to trade data reported to TRACE, and that 
three of these commenters asked that FINRA conform its forthcoming 
filing to parallel requirements included in the MSRB Proposal.\197\ In 
addition, in support of the proposed additional requirements, FINRA 
discusses comments received on the Initial and Revised Proposals. 
Regarding the reference/hyperlink to TRACE, FINRA notes that one 
commenter stated in response to Regulatory Notice 14-52 that providing 
CUSIP-specific hyperlinks to TRACE on customer confirmations would be 
``fairly easy'' if FINRA adopts a retail customer-friendly hyperlink 
protocol.\198\ In addition, FINRA states that three commenters on 
Regulatory Notice 15-36 supported adding a hyperlink to TRACE data in 
some form,\199\ although one commenter requested a short URL \200\ and 
one preferred a general hyperlink to the TRACE Web site.\201\ Regarding 
comments on the proposed requirement to disclose the time of the 
execution of the customer transaction, FINRA notes that some commenters 
on Regulatory Notice 15-36 supported including the time of execution of 
the customer trade because it would allow customers to identify their 
trade on TRACE and understand the market for the security at the time 
of their trade,\202\ and that others opposed it as unnecessary and 
costly.\203\
---------------------------------------------------------------------------

    \197\ See Amendment No. 1, supra note 9, at 4. FINRA noted that 
the Investor Advocate also stated generally that it is important for 
FINRA and the MSRB to adopt consistent rules related to confirmation 
disclosure. Id.
    \198\ See Amendment No. 1, supra note 9, at 10.
    \199\ See Amendment No. 1, supra note 9, at 11.
    \200\ See id.
    \201\ See Amendment No. 1, supra note 9, at 12.
    \202\ See Amendment No. 1, supra note 9, at 11.
    \203\ See id.
---------------------------------------------------------------------------

    FINRA represents that it also has evaluated the comments submitted 
on the MSRB Proposal, which includes the proposed additional 
requirements.\204\ FINRA states that the commenters that opposed these 
elements of the MSRB's Proposal did so primarily on the basis of 
harmonization, because FINRA had not yet proposed the same 
requirements, and on the basis of operational cost or burden.\205\
---------------------------------------------------------------------------

    \204\ See Amendment No. 1, supra note 9, at 12.
    \205\ See id.
---------------------------------------------------------------------------

    FINRA believes that the proposed additional requirements are 
consistent with the Act because they will provide retail customers with 
meaningful and useful additional information that is either not readily 
available through existing data sources, or is not always known or 
easily accessible to investors.\206\ FINRA notes that its conduct of 
investor testing indicated that investors would find the proposed 
additional information useful, and that their inclusion will better 
enable customers to evaluate the cost of the services that members 
provide, and will promote transparency into members' pricing practices 
and encourage communications between members and their customers about 
the execution of their fixed income transactions.\207\
---------------------------------------------------------------------------

    \206\ See Amendment No. 1, supra note 9, at 7.
    \207\ See id.
---------------------------------------------------------------------------

    Addressing cost concerns that commenters have raised regarding the 
proposed additional requirements,\208\ FINRA represents that it is 
developing technology that it believes may mitigate costs associated 
with modifying systems to include the required security-specific 
reference or hyperlink to TRACE data prior to the rule's implementation 
date.\209\ In addition, while FINRA recognizes that there will be 
operational burdens associated with the time of execution requirement, 
FINRA believes that the systems to capture this information for 
provision to customers should already be in place, given that current 
rules already require members to capture and maintain this information 
with respect to each customer transaction.\210\ As a result, FINRA 
expects the cost to implement the proposed additional requirements to 
be limited.\211\
---------------------------------------------------------------------------

    \208\ See Amendment No. 1, supra note 9, at 9.
    \209\ See Amendment No. 1, supra note 9, at 9-10. Specifically, 
FINRA is in the process of developing a Web page linkage system that 
will create a short, uniform hyperlink template that could be 
included on customer confirmations. FINRA anticipates that the 
hyperlink template would include a short domain name followed by a 
slash and the specific security CUSIP. FINRA believes that, by 
developing this short, uniform hyperlink template, it can limit the 
space required on each confirmation for the required TRACE reference 
or hyperlink. FINRA also believes a short, uniform hyperlink 
template would make automation of the requirement more feasible, 
since the hyperlink would only include two pieces of information: 
(1) The short domain name, which would remain constant; and (2) the 
security-specific CUSIP, which members already include on customer 
confirmations. FINRA intends to work with firms to obtain input and 
expects to finalize and publish the short uniform hyperlink template 
well before the rule takes effect, with sufficient time for further 
feedback and implementation.
    \210\ See Amendment No. 1, supra note 9, at 7.
    \211\ See Amendment No. 1, supra note 9, at 9.
---------------------------------------------------------------------------

    FINRA represents that it has thoroughly and carefully evaluated all 
of the comments that relate to the additional requirements it proposes 
in Amendment No. 1, and believes it is appropriate to pursue these 
requirements as an amendment to the proposal in response to the strong 
call from commenters to harmonize the proposed disclosure requirements 
put forth by FINRA and the MSRB.\212\ In addition, FINRA believes it 
has modified the requirements in a way that significantly mitigates the 
operational concerns that commenters have identified, particularly with 
respect to the format for the required reference or hyperlink to TRACE 
data.\213\ FINRA also notes that it is extending the implementation 
timeline for the proposal from one year to eighteen months, which it 
believes should

[[Page 84670]]

mitigate the commenters' potential concerns with these requirements 
even further.\214\ FINRA believes that the extension of the time period 
for implementation of the rule is an appropriate balance of the 
commenters' concerns and the desire to begin delivering additional 
pricing information to retail customers.\215\
---------------------------------------------------------------------------

    \212\ See Amendment No. 1, supra note 9, at 10-12.
    \213\ See Amendment No. 1, supra note 9, at 12.
    \214\ See id.
    \215\ See id.
---------------------------------------------------------------------------

IV. Discussion and Commission Findings

    After carefully considering the proposed rule change, the comments 
received, the FINRA Response Letter, and Amendment No. 1, the 
Commission finds that the proposed rule change, as modified by 
Amendment No.1, is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to a national securities 
association. In particular, the Commission finds that the proposed rule 
change, as modified by Amendment No. 1, is consistent with Section 
15A(b)(6) of the Act,\216\ 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, and Section 
15A(b)(9) of the Act,\217\ which requires the rules of a national 
securities association not impose any burden on competition not 
necessary or appropriate in furtherance of the Exchange Act.
---------------------------------------------------------------------------

    \216\ 15 U.S.C. 78o-3(b)(6).
    \217\ 15 U.S.C. 78o-3(b)(9).
---------------------------------------------------------------------------

A. Mark-Up/Mark-Down Disclosure

    The Commission notes that the goal of improving transaction cost 
transparency in fixed-income markets for retail investors has long been 
pursued by the Commission.\218\ The Commission believes that the 
establishment of a requirement that FINRA members disclose mark-ups/
mark-downs to retail investors, as proposed, will advance the goal of 
providing retail investors with meaningful and useful information about 
the pricing of their fixed-income transactions.\219\
---------------------------------------------------------------------------

    \218\ See Securities & Exchange Commission, Report on the 
Municipal Securities Market (July 31, 2012) (``2012 Report''), 
available at: https://www.sec.gov/news/studies/2012/munireport073112.pdf (recommending that the MSRB consider possible 
rule changes that would require dealers acting on a riskless 
principal basis to disclose on the customer confirmation the amount 
of any mark-up or mark-down and that Commission consider whether a 
comparable change should be made to Rule 10b-10 with respect to 
confirmation disclosure of mark-ups and mark-downs in riskless 
principal transactions for corporate bonds); Chair Mary Jo White, 
Securities and Exchange Commission, Intermediation in the Modern 
Securities Markets: Putting Technology and Competition to Work for 
Investors (June 20, 2014), available at: https://www.sec.gov/News/Speech/Detail/Speech/1370542122012 (Chair White noting that to help 
investors better understand the cost of their fixed income 
transactions, staff will work with FINRA and the MSRB in their 
efforts to develop rules regarding disclosure of mark-ups in certain 
principal transactions for both corporate and municipal bonds); 
Statement on Edward D. Jones Enforcement Action (August 13, 2015), 
available at: https://www.sec.gov/news/statement/statement-on-edward-jones-enforcement-action.html (Commissioners Luis A. Aguilar, 
Daniel M. Gallagher, Kara M. Stein, and Michael S. Piwowar, stating, 
``We encourage the Financial Industry Regulatory Authority (FINRA) 
and the Municipal Securities Rulemaking Board (MSRB) to complete 
rules mandating transparency of mark-ups and mark-downs, even in 
riskless principal trades.''). See also Investor Advocate, supra 
note 7, at 2 (supporting the proposed rule change and stating that 
enhancements to pricing disclosure in the fixed-income markets are 
``long overdue and will greatly benefit retail investors''); 
Recommendation of the Investor Advisory Committee to Enhance 
Information for Bond Market Investors (June 7, 2016), available at: 
https://www.sec.gov/spotlight/investor-advisory-committee-2012/recommendation-enhance-information-bond-market-investors-060716.pdf 
(recommending that the Commission work with FINRA and the MSRB to 
finalize mark-up/mark-down disclosure proposals).
    \219\ As FINRA notes, while SEC Rule 10b-10 requires members to 
provide pricing information, including transaction cost information, 
in connection with a purchase or sale of equity securities where the 
member acted as principle, no comparable requirement currently 
exists for transactions in fixed-income securities. See 17 CFR 
240.10b-10(a)(2); Notice, supra note 3, at 55500.
---------------------------------------------------------------------------

    The Commission believes the proposal, as modified by Amendment No. 
1, is reasonably designed to ensure that mark-ups/mark-downs are 
disclosed to retail investors, at least when a member has effected a 
same-day off-setting transaction, while limiting the impact of 
operational challenges for members. For example, in response to 
commenters concerned that the proposal would disrupt intra-day 
confirmation generation processes, FINRA has clarified that members 
need not wait until the end of the day to determine the information to 
be included in a confirmation, and may maintain real-time, intra-day 
confirmation generation processes; and, further, that members will not 
be expected to send revised confirmations solely based on the 
occurrence of a subsequent transaction or event that would otherwise be 
relevant to the determination of PMP under FINRA Rule 2121.02.\220\
---------------------------------------------------------------------------

    \220\ See supra notes 128-130 and accompanying text.
---------------------------------------------------------------------------

    Under the proposal, disclosed mark-ups/mark-downs are to be 
calculated in compliance with FINRA Rule 2121, and expressed as a total 
dollar amount and as a percentage of the PMP.\221\ The Commission 
believes that this information will, for example, promote transparency 
of members' pricing practices and encourage dialogue between members 
and retail investors about the costs associated with their 
transactions, thereby better enabling retail investors to evaluate 
their transaction costs and potentially promoting price competition 
among member firms.
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    \221\ See Notice, supra note 3, at 55500-55502.
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    As discussed above, concerns were raised that the proposal's 
requirement to determine PMP in compliance with FINRA Rule 2121 and the 
supplementary material thereunder would make it difficult for members 
to automate PMP determinations at the time of the trade.\222\ The 
Commission believes that FINRA has adequately responded to these 
concerns, and that the price and mark-up/mark-down disclosed to the 
customer on a confirmation must reflect the actual PMP the member used 
to price and mark-up/mark-down the transaction at the time of the 
trade. The Commission believes that it is feasible to automate the 
determination of PMP in accordance with FINRA Rule 2121 to the extent a 
member chooses to do so, and agrees with FINRA that a firm's election 
to use automated processes to support pricing of retail trades, and 
thus determine the PMP, would not justify departure from the current 
requirement that members price securities in accordance with FINRA Rule 
2121.\223\ When it approved FINRA Rule 2121.02, the Commission stated 
that such guidance is consistent with long-standing Commission and 
judicial precedent regarding fair mark-ups, and that it:
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    \222\ See notes 90-96, supra, and accompanying text.
    \223\ See notes 103-106, supra, and accompanying text.

provides a framework that specifically establishes contemporaneous 
cost as the presumptive prevailing market price, but also identifies 
certain dynamic factors that are relevant to whether contemporaneous 
cost or alternative values provide the most appropriate measure of 
prevailing market price. The Commission believes that the factors 
that govern when a dealer may depart from contemporaneous cost and 
that set forth alternative measures the dealer may use are 
reasonably designed to provide greater certainty to dealers and 
investors while providing an appropriate level of flexibility for 
dealers to consider alternative market factors when pricing debt 
securities.\224\
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    \224\ See Securities Exchange Act Release No. 55638 (Apr. 16, 
2007), 72 FR 20150, 20154 (Apr. 23, 2007) (NASD-2003-141).

The Commission believes this reasoning remains sound and is not 
persuaded that the proposed requirement to disclose mark-ups/mark-downs 
on customer confirmations necessitates an

[[Page 84671]]

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approach contrary to FINRA Rule 2121.02.

    Further, in response to commenters that requested additional 
guidance concerning how they could develop reasonable policies and 
procedures to comply with the rule,\225\ FINRA states that members may 
rely on reasonable policies and procedures to facilitate the 
determination of PMP, provided they do so consistent with FINRA Rule 
2121.\226\ More specifically, FINRA explained that a member could, for 
example, develop reasonable policies and procedures to: (i) Employ a 
methodology to determine PMP when there are multiple principal trades 
that offset one or more customer trades subject to disclosure; (ii) 
employ a methodology to adjust contemporaneous cost and proceeds in 
cases where the member's offsetting trades that trigger disclosure 
under the proposal are both customer transactions; and/or (iii) employ 
the use of economic models provided by a third-party pricing 
service.\227\ Because the determination of the PMP of a particular 
security may not be identical across firms, FINRA will expect members 
to have reasonable policies and procedures in place to determine PMP 
and to apply these policies and procedures consistently across 
customers.\228\ FINRA also has proposed to extend the implementation 
date of the proposal, as modified by Amendment No. 1, from one year to 
18 months,\229\ and represented that it will work closely with the 
industry and MSRB during the rule's implementation period to issue 
further guidance as necessary.\230\ The Commission believes FINRA's 
response appropriately addresses commenters' concerns regarding 
implementation of the proposal.
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    \225\ See notes 97-102, supra, and accompanying text.
    \226\ See note 108, supra, and accompanying text.
    \227\ See notes 109-121, supra, and accompanying text.
    \228\ See note 141-142, supra, and accompanying text.
    \229\ See Amendment No. 1, supra note 9, at 12.
    \230\ See note 122, supra, and accompanying text.
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    Also, as discussed above, commenters had questions regarding the 
presentation of mark-up/mark-down information on customer 
confirmations, and in particular sought FINRA's concurrence that it 
would be acceptable to label the required mark-up/mark-down disclosure 
as an ``estimate'' or an ``approximate'' figure.\231\ The Commission 
agrees with FINRA,\232\ and does not believe that it would be 
consistent with the Act or the proposal for members to label the 
required mark-up/mark-down disclosure as an ``estimate'' or an 
``approximate'' figure, or to otherwise suggest that the member is not 
disclosing the actual amount of the mark-up/mark-down it determined to 
charge the customer. However, the proposal is appropriately flexible to 
permit a member to include language on confirmations that explains PMP 
as a concept, or that details the member's methodology for determining 
PMP, or notes the availability of information about methodology upon 
request, provided such statements are accurate.\233\ The Commission 
emphasizes that members will be required to disclose the actual amount 
of the mark-up/mark-down that they have determined to charge the 
customer, in accordance with FINRA Rule 2121, and the amendments to 
FINRA Rule 2232 being approved hereby.
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    \231\ See notes 132-140, supra, and accompanying text.
    \232\ See notes 141-145, supra, and accompanying text.
    \233\ See notes 144-145, supra, and accompanying text.
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B. Harmonization With the MSRB Proposal: Requirement To Provide TRACE 
Reference/Hyperlink and Time of Execution on All Non-Institutional 
Customer Confirmations

    The Commission also believes that FINRA's proposal to require 
members to reference (or include, if the confirmation is electronic) a 
security-specific hyperlink to a Web page hosted by FINRA that contains 
TRACE publicly available trade data and to disclose the time of trade 
execution on all retail trade confirmations, is reasonably designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, to protect investors, and in the 
public interest, and does not impose any burden on competition not 
necessary or appropriate in furtherance of the Act, and is therefore 
consistent with the Act.
    In the Commission's view, providing a retail investor with a 
security-specific reference or hyperlink on the trade confirmation and 
the time of trade execution will facilitate retail customers obtaining 
a comprehensive view of the market for their securities, including the 
market as of the time of trade. The Commission believes that these 
items will complement FINRA's existing order-handling obligations 
(e.g., best execution) by providing retail investors with meaningful 
and useful information with which they will be able to independently 
evaluate the quality of execution obtained from a firm.
    Although some commenters urged a general hyperlink to TRACE 
publicly available trade data, rather than a security-specific 
hyperlink,\234\ FINRA believes that a security-specific hyperlink will 
better enable retail investors, who typically have less ready access to 
market and pricing information than institutional customers, to access 
important data related to fixed-income securities, providing them with 
a more comprehensive picture of the market for a security on a given 
day, and ultimately assist them in understanding and comparing the 
transaction costs associated with their purchases and sales of fixed 
income securities.\235\ Further, in Amendment No. 1, FINRA represents 
that the proposed requirements can be implemented in a way that 
mitigates the concerns raised by commenters, as FINRA intends to 
develop technology that it believes may reduce the costs associated 
with modifying systems to include the required security-specific 
reference or hyperlink prior to the rule's implementation date.\236\ 
The Commission has carefully considered Amendment No. 1 in light of 
comments received urging FINRA and the MSRB to harmonize both the 
substance and timing of their proposals,\237\ as well comments 
submitted on the MSRB Proposal which proposed analogous 
requirements.\238\ The Commission concurs with FINRA that the time of 
execution along with a security-specific reference or hyperlink on a 
customer confirmation would provide customers with the ability to 
obtain a comprehensive view of the market for their security at the 
time of trade.
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    \234\ See notes 150-154, supra, and accompanying text.
    \235\ See Amendment No. 1, supra note 9, at 6.
    \236\ See Amendment No. 1, supra note 9, at 9.
    \237\ See note 146, supra, and accompanying text.
    \238\ See Wells Fargo II; Fidelity II; BDA II; FIF II; SIFMA II; 
Thomson Reuters II. See also Letter from Paige W. Pierce, President 
and CEO, RW Smith & Associates, LLC, to Brent J. Fields, Secretary, 
Commission (Oct. 4, 2016).
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C. Efficiency, Competition, and Capital Formation

    In approving the proposed rule change, as modified by Amendment No. 
1, the Commission has considered its impact on efficiency, competition, 
and capital formation.\239\ The Commission believes that the proposed 
rule change, as modified by Amendment No. 1, could affect efficiency, 
competition, and capital formation in several ways.
---------------------------------------------------------------------------

    \239\ 15 U.S.C. 78c(f).
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    The Commission believes that the proposed rule could have an impact 
on competition among broker-dealers. For instance, costs associated 
with the proposed rule could raise barriers to

[[Page 84672]]

entry in the non-institutional trading market. Further, in the Notice, 
FINRA considers the possibility that the mark-up/mark-down disclosure 
proposal could have a differing operational impact and costs across 
members.\240\ FINRA acknowledges that the proposal could result in 
higher costs for small broker-dealers and broker-dealers less active in 
non-institutional trading, that the proposed rule could lead small 
broker-dealers to consolidate with large broker-dealers, or to exit the 
market, but believes that FINRA's data analysis suggested that this 
effect could be limited.\241\ Additionally, the Commission believes 
that the proposal provides members with the flexibility to develop cost 
effective policies and procedures for complying with the proposed rule 
change, as modified by Amendment No. 1,that reflect their business 
needs and are consistent with the regulatory objectives of the 
proposal.
---------------------------------------------------------------------------

    \240\ See Notice, supra note 3, at 55505-55506.
    \241\ See Notice, supra note 3, at 55506.
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    By increasing disclosure requirements in non-institutional customer 
confirmation, the proposed rule could improve efficiency--in 
particular, price efficiency--and the improvement in pricing efficiency 
could promote capital formation. The Commission believes that mark-up/
mark-down disclosure and the inclusion of a security-specific 
reference/hyperlink to TRACE data on non-institutional customer 
confirmations would promote price competition among broker-dealers and 
improve trade execution quality. An increase in price competition among 
broker-dealers would lower transaction costs on non-institutional 
customer trades. To the extent that the proposed rule lowers 
transaction costs on non-institutional customer trades, the proposed 
rule could improve the pricing efficiency and price discovery process. 
The quality of the price discovery process has implications for 
efficiency and capital formation, as prices that accurately convey 
information about fundamental value improve the efficiency with which 
capital is allocated across projects and firms. Furthermore, to the 
extent that the proposed rule lowers transaction costs on non-
institutional customer trades, the proposed rule could lower bond 
financing costs for projects and firms.
    As noted above, the Commission received nine comment letters on the 
filing. The Commission believes that FINRA considered carefully and 
responded adequately to the concerns raised by commenters. For all of 
the foregoing reasons, including those discussed in the FINRA Response 
Letter, the Commission believes the proposal is reasonably designed to 
help FINRA fulfill its mandate in Section 15A(b)(6) of the Act which 
requires 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, and Section 15A(b)(9) of the Act, which requires, 
among other things, that FINRA's rules do not impose any burden on 
competition not necessary or appropriate in furtherance of the purposes 
of the Act.
    Pursuant to Section 19(b)(5) of the Act,\242\ the Commission 
consulted with and considered the views of the Treasury Department in 
determining whether to approve the proposed rule change, as modified by 
Amendment No. 1. The Treasury Department did not object to the 
proposal, as modified by Amendment No. 1. Pursuant to Section 19(b)(6) 
of the Act,\243\ the Commission has considered the sufficiency and 
appropriateness of existing laws and rules applicable to government 
securities brokers, government securities dealers, and their associated 
persons in approving the proposal.
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    \242\ 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'').
    \243\ 15 U.S.C. 78s(b)(6).
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V. Solicitation of Comments on Amendment No. 1

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether Amendment No. 1 
to the proposed rule change is consistent with the Act. Comments may be 
submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-FINRA-2016-032 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-FINRA-2016-032. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change, as 
modified by Amendment No. 1, that are filed with the Commission, and 
all written communications relating to the proposed rule change, as 
modified by Amendment No. 1, between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for Web site 
viewing and printing in the Commission's Public Reference Room, 100 F 
Street NE., Washington, DC 20549, on official business days between the 
hours of 10:00 a.m. and 3:00 p.m. Copies of the filing will also be 
available for inspection and copying at the principal office of FINRA. 
All comments received will be posted without change; the Commission 
does not edit personal identifying information from submissions. You 
should submit only information that you wish to make available 
publicly. All submissions should refer to File Number SR-FINRA-2016-032 
and should be submitted on or before December 14, 2016.

VI. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 1

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 1, prior to the thirtieth day 
after the date of publication of notice of the filing of Amendment No. 
1 in the Federal Register. Amendment No. 1 supplements the proposed 
rule change by amending FINRA Rule 2232 to require members to provide 
the following additional information on customer confirmations: (1) A 
reference, and a hyperlink if the confirmation is electronic, to a Web 
page hosted by FINRA that contains TRACE publicly available trading 
data for the specific security that was traded, in a format specified 
by FINRA, along with a brief description of the type of information 
available on that page; and (2) the execution time of the transaction, 
expressed to the second. FINRA also proposes in Amendment No. 1. to add 
the term ``offsetting'' to proposed Rule 2232(c)(2) to conform the rule 
language to the language used to discuss conditions that trigger the 
disclosure requirement, and extend the

[[Page 84673]]

implementation period of the proposal from one year to 18 months.
    The Commission finds that requiring members to include a reference 
or hyperlink to a security-specific TRACE Web page and include the time 
of trade on all retail customer confirmations is responsive to 
commenters' requests for harmonization of the FINRA Proposal and MSRB 
Proposal and therefore helped the Commission find that the proposed 
rule change, as modified by Amendment No. 1, is consistent with Section 
15A(b)(6) of the Act,\244\ 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, and Section 
15A(b)(9) of the Act,\245\ which requires, among other things, that 
FINRA's rules do not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act. The Commission 
notes that the addition of the term ``offsetting'' to the rule is 
solely a clarification for the avoidance of doubt and that the change 
does not alter the substance of the rule. Furthermore, extension of the 
implementation period of the proposal from one year to 18 months is 
appropriate and responsive to the operational and implementation 
concerns raised by commenters. The Commission also notes that after 
consideration of the comments the MSRB received on its proposal to 
require a security-specific hyperlink to EMMA and the execution time of 
the transaction, the MSRB amended its proposal in a manner that is 
identical to the Amendment No. 1 that FINRA has filed.\246\ The 
Commission notes that it today has approved the MSRB Proposal, as 
modified by MSRB Amendment No. 1, and believes that in the interests of 
promoting efficiency in the implementation of both proposals, it is 
appropriate to approve FINRA's proposal, as modified by Amendment No. 
1, concurrently. Accordingly, the Commission finds good cause, pursuant 
to Section 19(b)(2) of the Exchange Act,\247\ to approve the proposed 
rule change, as modified by Amendment No. 1, on an accelerated basis.
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    \244\ 15 U.S.C. 78o 3(b)(6).
    \245\ 15 U.S.C. 78o 3(b)(9).
    \246\ See MSRB Amendment No. 1, supra note 13, at 4-5.
    \247\ 15 U.S.C. 78s(b)(2).
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V. Conclusion

    It Is Therefore Ordered, pursuant to Section 19(b)(2) of the 
Act,\248\ that the proposed rule change (SR-FINRA-2016-032), as 
modified by Amendment No. 1, is approved on an accelerated basis.
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    \248\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\249\
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    \249\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-28190 Filed 11-22-16; 8:45 am]
 BILLING CODE 8011-01-P