July 20, 2017
Robert W. Errett
Deputy Secretary
Securities and Exchange Commission
100 F Street NE.
Washington, DC 20549-1090
Re: SR-FINRA-2017-021,
Proposed Rule Change to Amend FINRA Rule 7730 to Make Available a New
Trade Reporting and Compliance Engine (“TRACE”) Security Activity Report
Dear Mr. Errett:
The Securities Industry and Financial Markets Association (“SIFMA”)1 appreciates the opportunity to comment on the Financial Industry Regulatory Authority’s (“FINRA’s”) Rule Filing SR FINRA-2017-021 (the “Proposal”). The Proposal would make available a new TRACE Security Activity Report (the “Report”), which would provide aggregated statistics by security for TRACE-Eligible Securities that are corporate or agency bonds. SIFMA generally supports FINRA’s efforts to design the Report to be useful to interested parties for business as well as regulatory purposes, including liquidity risk obligations pursuant to Rule 22e-4 under the Investment Company Act.2 Additionally, we appreciate the fact that FINRA acknowledges the potential for reverse engineering of the information contained in the Report and has attempted to mitigate those concerns. In general, FINRA’s proposed measures such as the 90-day dissemination delay, displaying information in buckets, and the fact that aggregate volume would reflect actual volume only where there are six or more total disseminated capped transactions during the calendar month, will surely assist in mitigating any potential concerns over information leakage.
While we are generally supportive of the policy goals underlying the Proposal and the overall structure of the requirements, we note the following comments for your consideration. The Proposal states that FINRA believes the Report could benefit market participants and others interested in corporate and agency bond transaction data, including information on actual transaction volume that currently would not be ascertainable for 18 months after the date of the transaction (as part of the Historic TRACE Data product). However, we note that FINRA recently published a rule proposal to reduce the delay period for the Historic TRACE data sets relating to corporate and agency debt securities from 18 months to six months. The proposal has since been approved by the SEC3 and FINRA subsequently announced an effective date of October 2, 2017.4 As a result, information on unmasked transaction volumes will be disseminated into the marketplace after six months and have the potential to more significantly impact market participant behavior. Accordingly, SIFMA recommends that FINRA allow market participants time to adapt to the reduction of the delay period for the Historical Data Product by staging the implementation of the Report at least six months after the October 2, 2017 effective date. The staging of the releases would appropriately allow for the market to digest and adapt incrementally given historical concerns over information leakage. We believe that the proposed staging would still provide sufficient time for market participants to benefit from the Report in advance of the applicable compliance dates for the requirements under Rule 22e-4.
1 SIFMA is the voice of the U.S. securities industry. We represent the broker-dealers, banks and asset managers whose nearly 1 million employees provide access to the capital markets, raising over $2.5 trillion for businesses and municipalities in the U.S., serving clients with over $18.5 trillion in assets and managing more than $67 trillion in assets for individual and institutional clients including mutual funds and retirement plans. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA). For more information, visit http://www.sifma.org.
2 See SEC Press Release (October 13, 2016) (SEC Adopts Rules to Modernize Information Reported by Funds, Require Liquidity Risk Management Programs, and Permit Swing Pricing). See also 17 CFR 270.22e-4.
3 See SEC Press Release (June 23, 2016) (Order Granting Approval of Proposed Rule Change to Reduce the Delay Period for Transactions Included in the Historic TRACE Data Sets Relating to Corporate and Agency Debt Securities).
4 See FINRA Regulatory Notice 17-23