Submitted Electronically to: [email protected]
Vanessa Countryman
Acting Director
Office of the Secretary
Securities and Exchange Commission
100 F Street NE,
Washington, DC 20549–1090
Re: Proposed Rule Change to Establish a Corporate Bond New Issue Reference Data Service [Release No. 34–85488; File No. SR–FINRA– 2019–008]
Dear Ms. Countryman,
SIFMA1 is pleased to respond to this request for comment (“RFC”) on proposed rules that would implement a new issue reference data service for corporate bonds that would be administered by FINRA (“Service”), generally in line with a recommendation from the SEC’s Fixed Income Market Structure Advisory Committee (“FIMSAC”). SIFMA supports the mission of the FIMSAC, and some of its members participate on the FIMSAC. SIFMA similarly supports the goals and conceptual basis of the proposed Service. Our comments on the specifics of the RFC are outlined in this letter.
1. Requirement that all data elements be reported for new issues prior to the first transaction in the security
SIFMA members are concerned that the proposal simultaneously adds new data submission requirements and shortens the timeframe under which the data needs to be submitted. This creates a risk that firms will not be able to meet this new timeline because final pricing terms are generally not available until pricing is complete, and it can be a challenge to quickly report all of the required information given the manual and operationally intensive nature of the submission process.
SIFMA would support the alternative approach considered by FINRA – that certain key information (e.g., the fields currently required to set up a security on TRACE) be reported before the first trade, and a 60-minute window be available for the remaining information.2 A 60 minute window would allow sufficient time for a lead underwriter to have a final set of pricing documents and related information and to upload the information to FINRA in a timely and accurate manner. It also bears noting that underwriters may have a number of deals pricing at the same time or within close proximity, which could make immediate submission of information difficult if not impossible.
SIFMA does not believe that this alternative approach would have a material negative impact on information availability to the market, as all required information would be available within an hour of the first trade at worst, and it would allow for efficient functioning of trading markets for newly issued securities.
A related concern involves instances where a FINRA member wishing to trade in the secondary market encounters a security that was not set up on TRACE at issuance but should have been. It currently is challenging for our members to provide all of the set up data required by the current rules in a timely manner in these situations. If FINRA expects a dealer to supply each of the fields outlined in the proposal for a bond for which it was not involved in underwriting – something FINRA should clarify — we believe it will be challenging for firms to submit this information to FINRA within 15 minutes. We believe that, at a minimum, greater leniency regarding set up timing is appropriate.
2. Mechanism of Submission
Will the new mandatory fields be added to the TRACE new-issue form or will a different form be created? Footnote 9 references codifying in the rules the fields that are currently required but does not speak to the newly required fields.3 Expanding the current form would appear to be the simplest option, albeit noting the challenges in submitting all data elements prior to the first transaction in the security, as covered in section 1 above.
Second, given the additional fields that member firms will be required to submit, it is incumbent upon FINRA to provide for greater ease of supplying this information. At a minimum, FINRA should modernize the entry forms to:
(1) auto-populate fields that will typically have the same answer (PIK indicator – No, perpetual maturity indicator – No, Reg S indicator – No) so that firms generally will not need to touch these fields (unless the security has that feature, which for these items is expected to be rare);
(2) allow firms to upload multiple tranches at once; and
(3) allow firms to edit the new issue form – to add additional data points determined at a later time, and to correct mistakes though an online process instead of a phone call.
All that said, given the additional data proposed to be required by this rule, the ability to use an API becomes much more important, if not necessary, to deliver this information in a more efficient, timely, and accurate manner. FINRA should expedite the exploration of business requirements for the development of such an interface.
Note: Items 3-7 below will discuss a number of issues with specific data fields. At the outset, we’d like to make clear our understanding that the proposed changes to rules and the discussion surrounding them in the RFC in no way impact the current definition of “TRACE eligible security”.
1 SIFMA is the leading trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets. On behalf of our industry’s nearly 1 million employees, we advocate on legislation, regulation and business policy, affecting retail and institutional investors, equity and fixed income markets and related products and services. We serve as an industry coordinating body to promote fair and orderly markets, informed regulatory compliance, and efficient market operations and resiliency. We also provide a forum for industry policy and professional development. 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 page 13983 of the proposed rule
3 See footnote 9. “As part of this proposal, FINRA would codify in Rule 6760 the specific fields that have been deemed necessary under current Rule 6760(b) and therefore are mandatory for successful submission of the TRACE New Issue Form”