[Federal Register Volume 83, Number 197 (Thursday, October 11, 2018)]
[Notices]
[Pages 51514-51515]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-22046]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-84366; File No. SR-FINRA-2018-030]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Order Approving Proposed Rule Change To Amend FINRA
Rule 7730 To Remove Computer-to-Computer Interface as a Technological
Option for TRACE Reporting
October 4, 2018.
I. Introduction
On August 15, 2018, the Financial Industry Regulatory Authority,
Inc. (``FINRA'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to modify the technological connectivity options
available to member firms for reporting transactions to the Transaction
Reporting and Compliance Engine (``TRACE''). The proposed rule change
was published for comment in the Federal Register on August 23,
2018.\3\ The Commission received no comments on the proposed rule
change. This order approves the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 83868 (August 17,
2018), 83 FR 42741 (``Notice'').
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II. Description of the Proposal
FINRA has proposed to amend Rule 7730 (Trade Reporting and
Compliance Engine (TRACE)) to remove Computer-to-Computer Interface
(``CTCI'') as a technological means of connectivity for use in
reporting transactions to TRACE. CTCI was made available for TRACE
reporting purposes at TRACE's inception. FINRA added Financial
Information eXchange (``FIX'') as a protocol for transaction reporting
to TRACE for securitized products in 2011 and for corporate and agency
debt securities in 2012. FINRA has represented that approximately two
thirds of member firms with direct connections, and half of the service
bureaus, have migrated from CTCI to FIX.\4\ FINRA believes that the
migration to FIX will continue for member firms and service bureaus as
it is an immediately available and viable alternative to CTCI, and that
removing CTCI as a connectivity option will reduce operational overhead
and risk for FINRA.\5\
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\4\ See id.
\5\ See id.
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Accordingly, FINRA has proposed to amend Rule 7730 to remove CTCI
as a means of connectivity for members to report transactions to TRACE,
leaving three currently available options: (i) Web browser access; (ii)
FIX line access; or (iii) indirectly via third-party vendors (e.g.,
service bureaus).\6\ Member firms that currently use CTCI will be able
to migrate at any point throughout the implementation period, during
which FINRA will engage in outreach with the industry to provide
information and assistance in connection with the migration.\7\ The
operative date for the rule change will be February 3, 2020.\8\
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\6\ See FINRA Rule 7730.
\7\ See Notice, 83 FR at 42741. FINRA stated that, in addition
to general industry outreach, FINRA will contact each member firm
that directly reports to TRACE via CTCI by email and telephone to
provide information and assistance in connection with the migration.
See id. at n. 8.
\8\ See id. at 42741.
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III. Discussion and Commission Findings
After careful consideration, the Commission finds that the proposed
rule change is consistent with the requirements of the Act and the
rules and regulations thereunder applicable to a national securities
association.\9\ In particular, the Commission finds that the proposed
rule change is consistent with Section 15A(b)(6) of the Act,\10\ which
requires, among other things, that FINRA rules be designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, and, in general, to protect investors
and the public interest.
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\9\ In approving this proposal, the Commission has considered
the proposed rule's impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
\10\ 15 U.S.C. 78o-3(b)(6).
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While Section 15A(b)(6) sets out principles to which the rules of a
national securities association must adhere, it does not prescribe
specific technological requirements for carrying out those principles.
Thus, in a situation where an association requires information from its
members to carry out its self-regulatory and market oversight
functions, the association generally has discretion over establishing
the means by which its members may be required to provide
[[Page 51515]]
that information. Currently, FINRA supports four technological
protocols for its members to report transactions to TRACE. FINRA has
proposed to discontinue supporting one of those four protocols, CTCI.
The Commission believes that such action is a reasonable exercise of
FINRA's discretion, for the following reasons.
First, FINRA will continue to support three other technological
protocols for reporting transactions to TRACE: FIX, web browser, and
via third-party vendor. Second, FIX already is utilized by
approximately half of the third-party vendors and two-thirds of member
firms with direct reporting capability, and with the increase in the
percentage of TRACE transactions reported via FIX there has been a
concomitant decrease in CTCI usage.\11\ Third, supporting three instead
of four reporting protocols would conserve FINRA resources and has some
potential for reducing operational risks.\12\ Fourth, FINRA is taking
reasonable steps to assist member firms that currently use CTCI and
must transition to other reporting protocols. FINRA has stated that it
will contact each such firm to offer assistance in connection with the
migration, and is allowing over a year--until February 3, 2020--for
affected firms to complete the migration.\13\ The Commission has no
reason to believe that this proposal will impose undue burdens on FINRA
member firms; the Commission notes that no comments on the proposal
were submitted.
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\11\ See Notice, 83 FR at 42741.
\12\ See id. at 42741.
\13\ See id. at n. 8.
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For these reasons, the Commission believes the proposed rule change
is consistent with the Act.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\14\ that the proposed rule change (SR-FINRA-2018-030) is approved.
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\14\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-22046 Filed 10-10-18; 8:45 am]
BILLING CODE 8011-01-P