[Federal Register Volume 84, Number 130 (Monday, July 8, 2019)]
[Notices]
[Pages 32506-32508]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-14401]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86256; File No. SR-FINRA-2019-008]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Instituting Proceedings To Determine Whether To 
Approve or Disapprove a Proposed Rule Change To Establish a Corporate 
Bond New Issue Reference Data Service

July 1, 2019.

I. Introduction

    On March 27, 2019, 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 establish a new issue reference data service 
for corporate bonds. The Commission published notice of filing of the 
proposed rule change in the Federal Register on April 8, 2019.\3\ On 
May 22, 2019, the Commission designated a longer period within which to 
approve the proposed rule change, disapprove the proposed rule change, 
or institute proceedings to determine whether the proposed rule change 
should be disapproved.\4\ The Commission has received thirteen comment 
letters on the proposal.\5\ This order institutes proceedings under 
Section 19(b)(2)(B) of the Act \6\ to determine whether to approve or 
disapprove 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. 85488 (April 2, 
2019), 84 FR 13977 (``Notice'').
    \4\ See Securities Exchange Act Release No. 85911, 83 FR 24839 
(May 29, 2019).
    The Commission designated July 7, 2019, as the date by which it 
should approve, disapprove, or institute proceedings to determine 
whether to disapprove the proposed rule change.
    \5\ See Letters from: (1) Cathy Scott, Director, Fixed Income 
Forum, on behalf of The Credit Roundtable, dated April 29, 2019 
(``Credit Roundtable Letter''); (2) Salman Banaei, Executive 
Director, IHS Markit, dated April 29, 2019 (``IHS Markit Letter''); 
(3) David R. Burton, Senior Fellow in Economic Policy, The Heritage 
Foundation, dated April 29, 2019 (``Heritage Foundation Letter''); 
(4) Tom Quaadman, Executive Vice President, U.S. Chamber of 
Commerce, dated April 29, 2019 (``Chamber Letter''); (5) Lynn 
Martin, President and COO, ICE Data Services, dated April 29, 2019 
(``ICE Data Letter''); (6) Tyler Gellasch, Executive Director, 
Healthy Markets Association, dated April 29, 2019 (``Healthy Markets 
Letter''); (7) Greg Babyak, Global Head of Regulatory Affairs, 
Bloomberg L.P. dated April 29, 2019 (``Bloomberg Letter''); (8) 
Marshall Nicholson and Thomas S. Vales, ICE Bonds dated April 29, 
2019 (``ICE Bonds Letter''); (9) Christopher B. Killian, Managing 
Director, SIFMA, dated April 29, 2019 (``SIFMA Letter''); (10) Larry 
Tabb, TABB Group, dated May 15, 2019 (``Tabb Letter''); (11) Larry 
Harris, Fred V. Keenan Chair in Finance, U.S.C. Marshall School of 
Business, dated May 17, 2019 (``Harris Letter''); (12) John Plansky, 
Executive Vice President and Chief Executive Officer, Charles River 
Development, dated May 24, 2019 (``Charles River Letter''); and (13) 
SEC Fixed Income Market Structure Advisory Committee, dated June 11, 
2019 (``FIMSAC Letter''). All comments on the proposed rule change 
are available at: https://www.sec.gov/comments/sr-finra-2019-008/srfinra2019008.htm.
    \6\ 15 U.S.C. 78s(b)(2)(B).
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II. Summary of the Proposed Rule Change

    As described in more detail in the Notice, FINRA proposes to 
establish a new issue reference data service for corporate bonds. FINRA 
states that its proposal is in line with a recommendation from the SEC 
Fixed Income Market Structure Advisory Committee, which recommended 
that FINRA establish a new issue data service which would contain 
specified data elements on TRACE-eligible corporate bond new issues.\7\
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    \7\ See Fixed Income Market Structure Advisory Committee 
Recommendation (October 29, 2018) available at: https://www.sec.gov/spotlight/fixed-income-advisory-committee/fimsac-corporate-bond-new-issue-reference-data-recommendation.pdf.
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    Specifically, FINRA is proposing to amend Rule 6760 to require that 
underwriters subject to Rule 6760 \8\ report to FINRA a number of data 
elements, including some already specified by the rule, for new issues 
in corporate debt securities.\9\ FINRA proposes to require underwriters 
to report all these data fields prior to the first transaction in the 
security.
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    \8\ As part of the proposal, FINRA would amend Rule 6760(a)(1) 
to clarify that underwriters subject to the Rule must report 
required information for the purpose of providing market 
participants in the corporate debt security markets with reliable 
and timely new issue reference data to facilitate the trading and 
settling of these securities, in addition to the current purpose of 
facilitating trade reporting and dissemination in TRACE-Eligible 
Securities.
    \9\ In connection with the proposal, FINRA also would make two 
technical, non-substantive, clarifying edits to the definition of 
corporate debt security that is currently located in FINRA Rule 2232 
(Customer Confirmations). First, FINRA would clarify that the 
definition of corporate debt security is limited to TRACE-Eligible 
Securities.
    Second, FINRA would update the definition of corporate debt 
security to exclude the class of assets defined as Securitized 
Products in Rule 6710(m), rather than Asset-Backed Securities, 
defined in Rule 6710(cc).
    FINRA also proposes to relocate the revised definition of 
corporate debt security into the TRACE Rule Series. FINRA believes 
it makes sense to include the definition in Rule 6710 where it would 
sit alongside a number of other TRACE definitions for fixed income 
asset types. FINRA would make corresponding technical edits to Rule 
2232 to refer to the relocated definition in Rule 6710.
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    FINRA would disseminate the corporate bond new issue reference data 
collected under Rule 6760 upon receipt.\10\ That data would be provided 
to subscribers for fees that FINRA states are determined on a 
commercially reasonable basis. In particular, FINRA proposes to make 
the corporate bond new issue reference data available to any person or 
organization for a fee of $250 per month if used for internal purposes 
only, and for a fee of $6,000 per month where the subscriber 
retransmits or repackages the data for delivery and dissemination 
outside the organization. FINRA notes that because the charge includes 
unlimited redistribution rights, FINRA would assess it only once on the 
party that subscribes to receive the data from FINRA. Accordingly, 
FINRA would not assess any charge on firms that receive the data from 
data vendors or other market participants that have subscribed for 
redistribution rights, nor would FINRA increase the amount charged to 
the subscriber based on how often it redistributes the data. FINRA 
states that it anticipates that many market participants, including 
clearing firms and correspondent firms, are likely to receive the data 
from data vendors to which they currently subscribe in lieu of 
developing processes to receive the data directly from FINRA.
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    \10\ FINRA states that under proposed Rule 6760(d), there may be 
some information collected under the Rule for security 
classification or other purposes that would not be disseminated. 
This may include, for example, information about ratings that is 
restricted by agreement. In addition, CUSIP Global Services' 
(``CGS'') information would not be disseminated to subscribers that 
do not have a valid license regarding use of CGS data.
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    If the Commission approves the filing, FINRA proposes to announce 
the

[[Page 32507]]

effective date of the proposed rule change in a Regulatory Notice to be 
published no later than 90 days following publication of the Regulatory 
Notice. The effective date will be no later than 270 days following 
Commission approval.

III. Summary of the Comments

    Seven commenters expressly supported the proposal.\11\ Several of 
these commenters stated that currently there is no uniform, universally 
available mechanism for providing market participants with consistent 
and timely access to reference data about corporate bonds on the day a 
newly issued corporate bond commences trading.\12\ These commenters 
added that access to reference data is necessary for valuing, as well 
as trading and settling corporate bonds.\13\ As access to this 
reference data is not available to all market participants prior to the 
beginning of trading in a new issue, commenters assert that certain 
market participants are currently at a competitive disadvantage.\14\
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    \11\ See IHS Markit Letter; ICE Data Letter; SIFMA Letter; ICE 
Bonds Letter; Harris Letter; Charles River Letter; FIMSAC Letter.
    \12\ See ICE Data Letter, at 1-2; ICE Bonds Letter, at 1-2; 
Charles River Letter, at 2; FIMSAC Letter, at 1-2.
    \13\ See ICE Data Letter, at 2; Charles River Letter, at 2; 
FIMSAC Letter, at 1-2.
    \14\ See ICE Data Letter, at 2; ICE Bonds Letter, at 2; FIMSAC 
Letter, at 2.
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    Notwithstanding their support for the proposal, several of these 
commenters requested that FINRA make various modifications or 
clarifications to its proposal. One commenter noted that the reference 
data ``would allow for efficient functioning of trading'' but stated 
that it could be challenging for underwriters to provide all of the 
data elements prior to the first trade and instead requested that 
underwriters only be required to report certain information prior to 
the first trade and that the remaining information should be reported 
within 60 minutes of the first trade.\15\ Two commenters requested that 
FINRA clarify the meaning of the ``prior to the first transaction'' 
deadline for reporting reference data to FINRA.\16\ Another commenter 
requested FINRA clarify the process for underwriters to correct 
erroneously reported reference data.\17\ Several commenters requested 
FINRA provide further clarity regarding the definitions of certain data 
fields so as to better understand what would be required to be 
reported.\18\ One commenter stated that while it did not disagree with 
FINRA's proposed data fields, FINRA should provide information to 
support its selections of each of the proposed data fields.\19\ In 
addition, one commenter recommended FINRA combine certain proposed data 
fields as well as include six additional data fields.\20\
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    \15\ See SIFMA Letter, at 1-2. See also Credit Roundtable 
Letter, at 1 (cautioning that any data provision requirements on 
underwriters not impede their ability to make markets in the new 
issue as soon as possible).
    \16\ See ICE Data Letter, at 2; ICE Bonds Letter, at 2.
    \17\ See IHS Markit Letter, at 2-3.
    \18\ See ICE Data Letter, at 2-3; SIFMA Letter, at 3; FIMSAC 
Letter, at 14.
    \19\ See Healthy Markets Letter, at 6.
    \20\ See FIMSAC Letter, at 7-8, 10, 12-13.
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    Four commenters asserted that FINRA did not provide sufficient 
justification to support the need for the creation of the new issue 
reference data service.\21\ Three of those commenters further asserted 
that the proposal would diminish competition among private sector 
reference data providers, which could ultimately impede the quality of 
data available to market participants.\22\ In contrast, one commenter 
asserted that the because of the limited set of data proposed to be 
captured by FINRA, the proposal would not supplant private sector 
market data providers.\23\ Another commenter asserted that providing 
reference data in a manner similar to that proposed by FINRA promotes 
competition by reducing barriers to entry for new entrants in the 
reference data provider market.\24\
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    \21\ See Heritage Foundation Letter, at 1; Chamber Letter, at 2; 
Healthy Markets Letter, at 4-5; Bloomberg Letter, at 9-10.
    \22\ See Heritage Foundation Letter, at 1; Chamber Letter, at 2; 
Bloomberg Letter, at 2-3. See also Tabb Letter, at 2-3.
    \23\ See FIMSAC Letter, at 3.
    \24\ See Harris Letter, at 4.
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    Five commenters asserted that in order to meet its obligations 
under the Act, FINRA must provide more information to justify the fees 
it proposed to charge subscribers of the new issue reference data 
service.\25\ One of these commenters further stated that the data 
should either be available for free, or at a ``truly low cost.'' \26\ 
Another commenter asserted that the $6,000 per month fee for 
redistribution could be ``a considerable additional expense'' for its 
members.\27\
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    \25\ See Chamber Letter, at 3-4; Healthy Markets Letter, at 5-6; 
SIFMA Letter, at 3-4; Bloomberg Letter, at 6-9; Harris Letter, at 7.
    \26\ See Harris Letter, at 7.
    \27\ See Credit Roundtable Letter, at 1.
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IV. Proceedings To Determine Whether To Approve or Disapprove the FINRA 
Proposal

    The Commission is instituting proceedings pursuant to Section 
19(b)(2) of the Act \28\ to determine whether the proposed rule change 
should be approved or disapproved. Further, pursuant to Section 
19(b)(2)(B) of the Act,\29\ the Commission is hereby providing notice 
of the grounds for disapproval under consideration. The Commission 
believes it is appropriate to institute proceedings at this time in 
view of the legal and policy issues raised by the proposal. Institution 
of proceedings does not indicate, however, that the Commission has 
reached any conclusions with respect to any of the issues involved.
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    \28\ 15 U.S.C. 78s(b)(2).
    \29\ 15U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the Act also 
provides that proceedings to determine whether to disapprove a 
proposed rule change must be concluded within 180 days of the date 
of publication of notice of the filing of the proposed rule change. 
See id. The time for conclusion of the proceedings may be extended 
for up to 60 days if the Commission finds good cause for such 
extension and publishes its reasons for so finding, or if the self-
regulatory organization consents to the longer period. See id.
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    In particular, the Commission is instituting proceedings to allow 
for additional analysis of the proposed rule change's consistency with: 
(1) Section 15A(b)(5) of the Act, which requires, among other things, 
that FINRA rules provide for the equitable allocation of reasonable 
dues, fees and other charges among members and issuers and other 
persons using any facility or system which FINRA operates or controls; 
\30\ (2) Section 15A(b)(6) of the Act, which requires, among other 
things, that FINRA rules promote just and equitable principles of 
trade, foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitating transactions in securities, remove impediments to and 
perfect the mechanism of a free and open market, and, in general, 
protect investors and the public interest; \31\ and (3) Section 
15A(b)(9) of the Act, which requires that FINRA rules not impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act.\32\
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    \30\ 15 U.S.C. 78o-3(b)(5).
    \31\ 15 U.S.C. 78o-3(b)(6).
    \32\ 15 U.S.C. 78o-3(b)(9).
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V. Commission's Solicitation of Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues raised by the proposal. In particular, the Commission invites 
the written views of interested persons concerning whether the proposal 
is consistent with Sections 15A(b)(5), 15A(b)(6) and 15A(b)(9) of the 
Act, or any other provision of the Act or rule or regulation 
thereunder.

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Although there do not appear to be any issues relevant to approval or 
disapproval which would be facilitated by an oral presentation of 
views, data, and arguments, the Commission will consider, pursuant to 
Rule 19b-4, any request for an opportunity to make an oral 
presentation.\33\
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    \33\ Section 19(b)(2) of the Act, as amended by the Securities 
Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by a self-regulatory 
organization. See Securities Act Amendments of 1975, Senate Comm. on 
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
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    Such comments should be submitted by July 29, 2019. Rebuttal 
comments should be submitted by August 12, 2019.
    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-2019-008 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-FINRA-2019-008. The file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change 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 website 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 such filing also will be available for inspection 
and copying at the principal office of FINRA. All comments received 
will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make publicly available. All submissions 
should refer to File Number SR-FINRA-2019-008 and should be submitted 
on or before July 29, 2019. Rebuttal comments should be submitted by 
August 12, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\34\
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    \34\ 17 CFR 200.30-3(a)(57).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-14401 Filed 7-5-19; 8:45 am]
 BILLING CODE 8011-01-P