[Federal Register Volume 86, Number 232 (Tuesday, December 7, 2021)]
[Notices]
[Pages 69337-69349]
[FR Doc No: 2021-26452]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93699; File No. SR-FINRA-2021-030]

Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of Proposed Rule Change To Amend
FINRA Rule 6730 To Require Members To Append Modifiers to Delayed
Treasury Spot and Portfolio Trades When Reporting to TRACE

December 1, 2021.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on November 22, 2021, the Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by FINRA. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    FINRA is proposing to amend FINRA Rule 6730 to require members to
append modifiers to identify delayed Treasury spot and portfolio trades
when reporting to FINRA's Trade Reporting and Compliance Engine
(``TRACE'').
    The text of the proposed rule change is available on FINRA's
website at http://www.finra.org, at the principal office of FINRA and
at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, FINRA included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. FINRA has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On February 10, 2020, the Commission's Fixed Income Market
Structure Advisory Committee (``FIMSAC'') unanimously approved a
recommendation from its Technology and Electronic Trading Subcommittee
for FINRA to amend its TRACE \3\ reporting rules to provide additional
information on two types of trades in corporate bond TRACE-Eligible
Securities \4\ (``FIMSAC Recommendation'').\5\ Specifically, the FIMSAC
recommended that FINRA amend its TRACE reporting rules to require
members to: (1) Identify corporate bond trades where the price of the
trade is based on a spread to a benchmark U.S. Treasury Security \6\
that was agreed upon earlier in the day (referred to as a ``delayed
Treasury spot trade'') and report the time at which the spread was
agreed upon; and (2) identify corporate bond trades that are part of a
larger portfolio trade. Because the price reported to TRACE for these
two types of trades may not reflect the market prices at the time the
trades are reported and disseminated, the FIMSAC believed that
reporting and disseminating this additional information would improve
price transparency in the corporate bond market.\7\
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    \3\ TRACE is the FINRA-developed system that facilitates the
mandatory reporting of over-the-counter transactions in eligible
fixed income securities. See generally Rule 6700 Series.
    \4\ Rule 6710(a) generally defines a ``TRACE-Eligible Security''
as a debt security that is United States (``U.S.'') dollar-
denominated and is: (1) 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; (2) issued or
guaranteed by an Agency as defined in Rule 6710(k) or a Government-
Sponsored Enterprise as defined in Rule 6710(n); or (3) a U.S.
Treasury Security as defined in Rule 6710(p). ``TRACE-Eligible
Security'' does not include a debt security that is issued by a
foreign sovereign or a Money Market Instrument as defined in Rule
6710(o).
    \5\ See FIMSAC, Recommendation Regarding Additional TRACE
Reporting Indicators for Corporate Bond Trades (February 10, 2020).
https://www.sec.gov/spotlight/fixed-income-advisory-committee/fimsac-additional-trace-flags-recommendation.pdf.
    \6\ Rule 6710 defines a ``U.S. Treasury Security'' as ``a
security, other than a savings bond, issued by the U.S. Department
of the Treasury to fund the operations of the federal government or
to retire such outstanding securities.'' The term ``U.S. Treasury
Security'' also includes separate principal and interest components
of a U.S. Treasury Security that has been separated pursuant to the
Separate Trading of Registered Interest and Principal of Securities
(STRIPS) program operated by the U.S. Department of Treasury. See
Rule 6710(p).
    \7\ See FIMSAC Recommendation at 1. FINRA reminds members that,
pursuant to Rule 3110, they must have policies and procedures in
place that are reasonably designed to ensure compliance with the
TRACE reporting rules, including the accurate reporting of
applicable trade modifiers or indicators. Firms also must be able to
demonstrate that a transaction meets the applicable conditions
associated with a particular modifier or indicator.
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    On July 16, 2020, FINRA published Regulatory Notice 20-24 to
solicit public comment on potential changes to its TRACE reporting
rules in line with the FIMSAC's recommendations. FINRA also sought
comment on whether any modifications to the scope of the FIMSAC's
recommended approach might be appropriate.\8\ As discussed in greater
detail below, FINRA received seven comments in response to Regulatory
Notice 20-24. After further consideration, FINRA is proposing the
FIMSAC-recommended changes to the TRACE reporting rules to append
modifiers to identify both delayed Treasury spot trades and portfolio
trades, with modifications to the portfolio trade provision to clarify
and simplify its conditions (based on feedback received in response to
Regulatory Notice 20-24), as further discussed below.
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    \8\ See FINRA Requests Comment on Proposed Changes to TRACE
Reporting Relating to Delayed Treasury Spot and Portfolio Trades,
Regulatory Notice 20-24 (July 2020).
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Delayed Treasury Spot Trades
    For purposes of the proposed amendment, a delayed Treasury spot
trade is a transaction in a corporate bond that occurs on the basis of
a spread to a benchmark U.S. Treasury Security, where the agreed upon
spread is later converted to a dollar price by ``spotting'' the
benchmark U.S. Treasury Security at a designated time. For example,
parties may determine to trade a corporate bond based on an agreed
spread to a specified U.S. Treasury Security at 10:00 a.m. (e.g., 150
bps over the 10 Year Treasury yield), but the dollar price is
determined later, e.g., at 3:00 p.m., when the parties ``spot'' the
spread against the agreed benchmark U.S. Treasury Security yield (e.g.,
a reported dollar price of 97.5, expressed as a percentage of par
value, calculated by applying the agreed spread of 150 bps to the 10
Year Treasury yield at 3:00 p.m.). The TRACE reporting rules generally
require members to report transactions in corporate bonds within 15
minutes of the Time of Execution,\9\ which is the time when the parties
agree to all of the terms of the transaction that are sufficient to
calculate the dollar price of the trade.\10\ Therefore, in the above
scenario, the delayed Treasury spot trade is reportable at 3:00 p.m.,
which is when the dollar price has been determined. Because the spread
was negotiated earlier in the day, the dollar price reported at 3:00
p.m. may be away from the current market price for the security.
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    \9\ See Rule 6730(a).
    \10\ See Rule 6710(d).
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    The FIMSAC believed that a specific modifier to identify delayed
Treasury spot trades, along with disseminating the time at which the
spread was agreed (e.g., 10:00 a.m.), would both alert market
participants that the spread-based economics of the trade had been
agreed upon earlier in the day as well as provide market participants
with the ability to estimate the agreed-upon spread.\11\
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    \11\ See FIMSAC Recommendation at 2.
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    Consistent with the FIMSAC Recommendation, FINRA is proposing
amendments to Rule 6730 to provide additional transparency into delayed
Treasury spot trades. Specifically, FINRA is proposing to amend Rule
6730: (1) Add new paragraph (d)(4)(H) to require that a member append a
new modifier \12\ when reporting a delayed Treasury spot trade--i.e., a
transaction in a corporate bond,\13\ the price of which is based on a
spread to the yield of a U.S. Treasury Security and where the spread
was agreed upon that day prior to the Time of Execution of the
transaction; \14\ and (2) add new paragraph (c)(14) to require that the
member report the time at which the spread for a delayed Treasury spot
trade was agreed upon.\15\ Both the new delayed Treasury spot modifier
and the time at which the spread was agreed would be disseminated
through TRACE,

together with other information on the transaction, immediately upon
receipt of the transaction report.\16\
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    \12\ As for other TRACE modifiers and indicators under Rule
6730, the specific format for the new delayed Treasury spot trade
modifier would be published in TRACE technical specifications.
    \13\ The FIMSAC Recommendation related to delayed Treasury spot
trades was limited to corporate bond trades. See FIMSAC
Recommendation at 1. Similarly, FINRA proposes to limit use of the
new modifier to transactions in corporate bonds (i.e., CUSIPs that
are disseminated as part of the TRACE Corporate Bond Data Set). A
CUSIP, standing for the Committee on Uniform Security Identification
Procedures, is a 9-character alphanumeric code that identifies a
North American security for the purposes of facilitating clearing
and settlement of trades. FINRA may in the future consider applying
the delayed Treasury spot modifier and associated requirement to
report the time at which the spread was agreed to other types of
TRACE-Eligible Securities, such as Agency Debt Securities.
    \14\ FINRA is also proposing a non-substantive, stylistic change
to the title of paragraph (d)(4) of Rule 6730, so that it refers to
``Modifiers and Indicators'' rather than ``Modifiers; Indicators''.
    \15\ As a result of this addition, current paragraph (c)(14) of
Rule 6730 would be renumbered as paragraph (c)(15).
    \16\ FINRA generally disseminates information on transactions in
TRACE-Eligible Securities immediately upon receipt of the
transaction report, except as otherwise provided in Rule 6750. See
Rule 6750(a).
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    FINRA believes that, by specifically identifying delayed Treasury
spot trades, the proposed rule change will enhance FINRA's regulatory
audit trail data and improve price transparency for corporate bond
market participants by identifying transactions whose prices may not be
at the current market for the security.\17\ FINRA also believes that
disseminating the time that the spread was agreed will further enhance
price transparency by providing market participants with the ability to
estimate the agreed-upon-spread.\18\
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    \17\ The FIMSAC considered several potential means of improving
transparency around Treasury spot trades, including whether the
terms (including the agreed spread and applicable Treasury
benchmark) should be reported to TRACE within 15 minutes of the
parties' agreement to all of the terms of the transaction other than
the price of the Treasury. The FIMSAC noted that, while these
alternatives would allow market participants to fully understand the
spread-based economics of the trade at the time at which they are
agreed, the recommended approach would be simpler and more cost-
effective to implement, assuming the need for reporting parties to
enhance the initial TRACE report with the calculated dollar price of
the trade when the delayed spot trade is ``spotted'' later in the
day. See FIMSAC Recommendation at 2 n.3. Following implementation,
FINRA will assess the reported data regarding delayed Treasury spot
trades and continue to engage with industry participants regarding
whether any future changes may be appropriate to further improve
transparency.
    \18\ FINRA understands that the most common pricing benchmark
used for delayed Treasury spot trades is the on-the-run U.S.
Treasury Security with the maturity that corresponds to the maturity
of the corporate bond being priced. For example, market participants
would use the most recently issued 10-year U.S. Treasury Security as
the benchmark to price a 10-year corporate bond.
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Portfolio Trades
    FINRA also is proposing a new modifier to identify portfolio
trades.\19\ For purposes of the proposed amendment, a ``portfolio
trade'' is a trade between only two parties for a basket of corporate
bonds at a single aggregate price for the entire basket. For example, a
market participant may seek to trade a portfolio consisting of 50
corporate bonds. The parties may obtain mid-market prices for each of
the 50 component bonds as a framework for the pricing, and, during the
negotiation process, ultimately agree on a uniform spread, resulting in
an aggregate dollar price for the entire portfolio. In such cases,
members must report to TRACE a trade for each individual bond in the
basket with an attributed dollar price for each bond. While, in many
cases, the reported price for each corporate bond in a portfolio trade
is in line with the security's current market price, in other cases--
based on, for example, the liquidity profile of a specific bond or
other factors--the attributed price reported for an individual security
may deviate from its current market price.
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    \19\ As noted below, the specific format and requirements for
both the new delayed Treasury spot modifier and the new portfolio
trade modifier would be published in TRACE technical specifications.
Where a specific trade meets the criteria for both modifiers, such
specifications may require the use of a third, single modifier
indicating that both the delayed Treasury spot modifier and the
portfolio trade modifier apply to the trade.
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    The FIMSAC believed it would be beneficial if market participants
were able to identify with certainty which trades were part of a
portfolio trade because of the possibility that the reported price may
not be reflective of the independent market for the bond.\20\ The
FIMSAC therefore recommended that FINRA amend its TRACE reporting rules
to identify corporate bond trades: (i) Executed between only two
parties; (ii) involving a basket of securities of at least 30 unique
issuers; (iii) for a single agreed price for the entire basket; and
(iv) executed on an all-or-none or most-or-none basis.\21\
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    \20\ The FIMSAC acknowledged that market participants currently
may be able to surmise which TRACE reports are part of a portfolio
trade, based on a common time of execution or the characteristics of
the components. See FIMSAC Recommendation at 2.
    \21\ See FIMSAC Recommendation at 4.
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    In line with the FIMSAC's recommendation, FINRA is proposing to
amend Rule 6730 to provide additional transparency into portfolio
trades. Specifically, FINRA is proposing to add new paragraph (d)(4)(I)
to Rule 6730 to require that a member append a new modifier \22\ if
reporting a transaction in a corporate bond: \23\ (i) Executed between
only two parties; (ii) involving a basket of corporate bonds of at
least 10 unique issues; and (iii) for a single agreed price for the
entire basket (``Portfolio Trade Definition''). The new portfolio trade
modifier would be disseminated through TRACE, together with other
information on the transaction, immediately upon receipt of the
transaction report. Based on feedback from commenters, the scope of
FINRA's proposed Portfolio Trade Definition differs from the FIMSAC
recommended definition in two ways, as discussed further below.
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    \22\ As for other TRACE modifiers and indicators under Rule
6730(d)(4), the specific format for the new portfolio trade modifier
would be published in TRACE technical specifications.
    \23\ The FIMSAC Recommendation related to portfolio trades was
limited to corporate bond trades. See FIMSAC Recommendation at 2.
Similarly, FINRA proposes to limit use of the new modifier to
transactions in corporate bonds (i.e., CUSIPs that are disseminated
as part of the TRACE Corporate Bond Data Set). FINRA may in the
future consider expanding the portfolio trade modifier to cover
other types of TRACE-Eligible Securities, such as Agency Debt
Securities.
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    Both the FIMSAC recommendation and the proposal would limit use of
the portfolio trade modifier to instances where the trade is executed
between only two parties at a single agreed price for the entire
basket. However, instead of applying the portfolio modifier to
transactions involving a basket of corporate bonds of 30 or more unique
issuers (as recommended by the FIMSAC), FINRA is proposing to apply the
portfolio trade modifier to transactions involving a basket of
corporate bonds of at least 10 unique issues/securities (i.e.,
individual securities counted using security identifiers such as CUSIPs
or TRACE symbols). As described in further detail below, FINRA received
several comments on this aspect of the proposal. Commenters stated that
basing the numerical threshold on the number of issuers represented in
a portfolio rather than the number of securities would be challenging
to implement and would raise interpretive issues, and therefore
suggested instead basing the threshold on the number of unique
corporate bond securities in the portfolio. Commenters believed that
this alternative approach would effectively identify portfolio trades
while avoiding challenges that would be associated with correctly
identifying bonds associated with a particular issuer. Commenters also
stated that basing the threshold on the number of unique issues would
be simpler and more easily automatable for members to implement. FINRA
agrees that using individual securities, rather than issuers, would
provide a simpler and more effective way to identify portfolio trades
for purposes of the new modifier. Therefore, FINRA is proposing to base
the size threshold condition in prong (ii) of the Portfolio Trade
Definition on the number of unique issues in the basket of corporate
bonds.
    Second, the FIMSAC recommended setting the size threshold for
portfolio trades at 30 unique issuers. As described in further detail
below, FINRA also received comments on the appropriate basket size,
with commenters expressing a range of views on the most appropriate
threshold. After further consideration, FINRA is proposing to modify
the size threshold in prong (ii) of the Portfolio Trade Definition by
lowering the threshold from 30 to 10 unique securities. FINRA believes
that lowering the threshold for

use of the portfolio trade modifier to 10 would provide greater
informational benefits to market participants by capturing a greater
number of transactions that satisfy the other conditions of the
Portfolio Trade Definition.
    Consistent with the FIMSAC Recommendation, prong (iii) of the
Portfolio Trade Definition would apply the new modifier to transactions
entered into ``for a single agreed price'' for the entire basket. As
described above, this prong represents the key characteristic of
portfolio trades, i.e., that the transaction is entered into at an
agreed aggregate price for the entire basket (as opposed to
individually negotiated trades), which may result in the attributed
price reported for individual securities in the basket being away from
their current market price.
    FINRA notes that the FIMSAC also recommended that the Portfolio
Trade Definition include a requirement that the basket be executed on
an ``all-or-none or most-or-none basis.'' \24\ One commenter suggested
deleting the reference to ``most-or-none'' in this proposed prong
because a definition of ``most-or-none'' does not currently exist in
current market practice and the concept is not well understood. After
further consideration, FINRA believes that removing this prong in its
entirety would reduce the proposal's complexity without reducing the
new modifier's informational value. FINRA is therefore not proposing to
include an ``all-or-none or most-or-none'' prong as part of the
Portfolio Trade Definition. Therefore, if two parties agree on a price
with respect to a basket of bonds, the component trades would be
identified with the new portfolio trade modifier so long as the
resulting basket trade includes the minimum of 10 unique issues at a
single agreed price, regardless of the number of securities that
originally were contemplated as part of the basket.
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    \24\ See FIMSAC Recommendation at 4.
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    If the Commission approves the proposed rule change, FINRA will
announce the effective date(s) of the proposed rule change in a
Regulatory Notice.\25\ FINRA will publish a Regulatory Notice
announcing the effective date(s) of the proposed amendments pursuant to
Rule 6730(d)(4)(H) and (I) no later than 90 days following Commission
approval, and the effective date(s) will be no later than 365 days
following publication of the Regulatory Notice. FINRA will publish a
Regulatory Notice announcing the effective date of the proposed
amendments pursuant to Rule 6730(c)(14) once determined.\26\
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    \25\ FINRA may implement the proposed modifier requirements
(pursuant to proposed Rule 6730(d)(4)(H) and (I)) separately from
the proposed requirement to report the time at which the spread was
agreed (pursuant to proposed Rule 6730(c)(14)).
    \26\ FINRA is currently in the process of developing and
implementing enhancements to its reporting systems, including TRACE.
Because the proposed requirement to report the time at which the
spread was agreed for a delayed Treasury spot trade under Rule
6730(c) would require the addition of a new TRACE reporting field,
FINRA intends to set the effective date for this requirement at a
later date following completion of TRACE system changes.
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2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\27\ which requires, among
other things, that FINRA rules must 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. FINRA believes that the proposed rule change to
improve transparency for delayed Treasury spot and portfolio trades is
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, and, generally, to
protect investors and the public.
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    \27\ 15 U.S.C. 78o-3(b)(6).
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    FINRA believes that the proposed rule change will improve
transparency into pricing in the corporate bond market and enhance
FINRA's regulatory audit trail data by specifically identifying delayed
Treasury spot trades and portfolio trades, which are two types of
trades where the price may not be reflective of the current market
price at the time the trades are reported and disseminated. FINRA also
believes that the proposed rule change will enable market participants
and investors to better understand pricing for delayed Treasury spot
trades by requiring members to report the time at which the spread was
agreed, which will provide market participants with the ability to
estimate the agreed-upon-spread for such trades.

B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
Economic Impact Assessment
Regulatory Objective
    As discussed above, delayed Treasury spot trades and portfolio
trades may not be reflective of the current market price for the bonds
and may be less informative for market participants that rely on TRACE
for price discovery or other analyses. The proposed modifiers would
specifically identify these types of trades and add the time at which
the spread was agreed upon in disseminated data.
Economic Baseline

A. Delayed Treasury Spot Trades

    Because delayed Treasury spot trades are currently not identified
in the TRACE data, the economic baseline first establishes the TRACE
reported trades most likely to be associated with delayed Treasury spot
trades. Using TRACE data from June 2020 to May 2021, FINRA examined the
daily average concentration of corporate bond trades around 3:00 p.m.,
which FINRA understands to be the ``spotting'' time usually used by
dealers for delayed Treasury spot trades. Figures F1-1 and F1-2 below
compare the percentage of trades during the 3:00 p.m. to 3:14 p.m. time
interval with: (1) The average percentage of trades for all 15-minute
intervals before 3:00 p.m.; and (2) and the average percentage of
trades for all 15-minute intervals after 3:14 p.m. Figures F1-1 and F1-
2 also provide these trade distributions based on the size of trades
and for all trades combined. These data are likely to either overcount
the number of delayed Treasury spot trades because some of the trades
executed in the time interval are not delayed Treasury spot trades, or
undercount because they exclude delayed Treasury spot trades executed
at other times during the day. Nevertheless, FINRA believes this
methodology will provide a reasonable baseline for the analysis.
    Figure F1-1 provides statistics for customer trades in investment
grade bonds and Figure F1-2 provides statistics for inter-dealer trades
in investment grade bonds. Figures F1-1 and F1-2 show that, across all
trade sizes in investment grade bonds, volumes in the 3:00 p.m. trade
interval are larger than both the pre-3:00 p.m. and the post-3:14 p.m.
intervals. For investment grade customer trades, the 3:00 p.m. volumes
are several times larger than both the pre-3:00 p.m. and the post-3:14
p.m. intervals. Figures F1-3 and F1-4 provide similar information for
trades in non-investment grade bonds. These figures show that the
differences in trades across the time intervals are much less material
in non-investment grade bond trades. Although trades during the 3:00
p.m. to 3:14 p.m. time interval may not all be delayed spot trades, the
jump in investment grade bond volume during

the period is consistent with FINRA's understanding of when delayed
Treasury spot trades are priced and reported (regardless of when the
spread was agreed upon).
BILLING CODE 4910-13-P
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[GRAPHIC] [TIFF OMITTED] TN07DE21.001

B. Portfolio Trades

    Evidence supports the hypothesis that portfolio trading has been
increasing over time.\28\ An analysis by Morgan Stanley shows that $88
billion in portfolio trades were executed from January 2019 through
November 2019, compared to virtually none in 2017.\29\ The analysis
also shows that portfolio trades with 140 bonds or more increased
tenfold since 2018. According to a Financial Times article citing
Greenwich Associates' survey of 67 bond traders, more than 50% of the
traders have executed a portfolio trade in the past year.\30\
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    \28\ See infra notes 29 and 30.
    \29\ See Jennifer Surane & Matthew Leising, Bond Trade That's
Gone from Zero to $88 Billion in Two Years, Bloomberg (Nov. 18,
2019), https://www.bloomberg.com/news/articles/2019-11-18/the-bond-trade-that-s-gone-from-zero-to-88-billion-in-two-years.
    \30\ See Joe Rennison, Robert Armstrong & Robin Wigglesworth,
The New Kings of the Bond Market, Financial Times (Jan. 22, 2020),
https://www.ft.com/content/9d6e520e-3ba8-11ea-b232-000f4477fbca.
Among those traders, 75% executed the portfolio trade with dealers
while the remaining did so through other means such as an electronic
trading platform.
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    FINRA computed the annual percentage of trades that can be
classified as portfolio trades of increasing portfolio sizes from 2015
to 2020 using TRACE data. For purposes of these calculations, a
``portfolio trade'' is a trade of a basket of corporate bonds between
only two parties at the same execution time.\31\ ``Portfolio size'' is
defined as the number of unique CUSIPs contained in the basket. This
analysis demonstrates that portfolio trades reported to TRACE grew
significantly in the past six years. For example, Table 1 shows that
the percentage of customer portfolio trades involving at least 10
CUSIPs more than quadrupled from

1.34% in 2015 to 5.64% in 2020. For portfolio trades involving at least
30 CUSIPs, the percentage of trades increased from 0.29% in 2015 to
3.60% in 2020. Inter-dealer portfolio trades grew at an even higher
rate, albeit from a lower base level.
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    \31\ Using current TRACE data, FINRA can only approximate
``portfolio trades'' as defined in the proposed rule change.
Specifically, the analysis may include trades that are not executed
at a single agreed price for the entire basket or that are not
limited to two parties. As a result, the method used in this
analysis may include as a ``portfolio trade'' some trades that would
fall outside of the scope using the criteria set forth in the
proposed rule change. However, FINRA believes that the method used
in these calculations is reasonable for purposes of the analysis
given the scope of information currently available in TRACE.
[GRAPHIC] [TIFF OMITTED] TN07DE21.002

BILLING CODE 4910-13-C
Economic Impact
1. Delayed Treasury Spot Trades
    A modifier identifying delayed Treasury spot trades would add
valuable information to disseminated TRACE data by indicating that the
reported price may not be at the current market. The new disseminated
time field would benefit the market because market participants can use
it to reasonably evaluate the spread at the time when the spread was
agreed upon and compare it to other trades at or near the same time.
Together, these additions will increase post-trade price transparency.
    Members would be required to make systems changes to accommodate
the new modifier and time field. This would represent a fixed cost to
FINRA members that report corporate bond transactions priced through a
delayed Treasury spot process. The cost may be higher for members that
house information regarding the time of spotting in a different
platform or system that is not connected to its TRACE reporting
system.\32\ FINRA expects that the ongoing variable cost of reporting
the new modifier and populating the time field will be low for firms as
costs currently are incurred for existing TRACE reporting.
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    \32\ See SIFMA Letter, infra note 37.
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2. Portfolio Trades
    A modifier identifying trades executed as part of a portfolio trade
would allow market participants to identify with certainty which trades

occurred at attributed prices as part of a portfolio trade. With this
information, market participants could better identify trade prices
that may not reflect the market price for the individual bond. This
modifier will improve post-trade price transparency. While some market
participants may be capable of inferring portfolio trades from current
disseminated data,\33\ the added modifier may particularly benefit
smaller market participants, market observers and researchers who may
not have systems in place to actively screen for portfolio trades using
currently available data.
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    \33\ See SIFMA Letter, infra note 37.
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    FINRA members would incur costs associated with making system
changes required to accommodate the new modifier. This would represent
a fixed cost to FINRA members that execute and report portfolio trades.
The variable cost of reporting the new modifier should be minimal to
firms as costs are currently incurred for existing TRACE reporting. In
addition, while market participants currently may infer that some
trades may be portfolio trades, they cannot do so with certainty. The
FIMSAC noted that there may be an increased theoretical risk that a
market participant may identify the seller of a portfolio trade if
these trades are identified in disseminated data.\34\ FINRA requested
comments on the possibility of increased risk and members did not raise
concerns regarding such risk.
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    \34\ See FIMSAC Recommendation at 2.
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3. Effects on Competition
    FINRA does not believe that the proposed modifiers will unduly
burden competition. The costs for a firm to modify the reporting
process for the proposed modifiers will be proportional to the fixed
cost of the firm's reporting system, and thus be helped by similar
factors. For example, firms with no activities in delayed Treasury spot
trades or portfolio trades may not need to update their system; firms
with limited activities may choose to manually input the new modifiers;
and firms can also use third party reporting system vendors, which are
intended to take advantage of lower costs due to economy of scale.
Alternatives Considered
    With respect to the proposed delayed Treasury spot provisions,
FINRA considered requiring firms to report the available terms
(including the agreed spread and applicable Treasury benchmark) of
delayed Treasury spot trades within 15 minutes of the parties'
agreement to the spread and benchmark. FIMSAC noted this alternative in
its recommendation and stated that, while this construct would allow
market participants to fully understand the spread-based economics of
the trade at the point at which they are agreed, the proposed approach
will be simpler and more cost-effective to implement and would avoid
the need for reporting parties to enhance the initial TRACE report with
the calculated dollar price of the trade when the delayed spot trade is
``spotted'' later in the day.\35\ FINRA agrees and also believes that
the proposed approach is beneficial in requiring reporting of the
dollar price of the transaction once determined, which is then
disseminated immediately upon receipt.
---------------------------------------------------------------------------

    \35\ See note 17 supra.
---------------------------------------------------------------------------

    With respect to the proposed portfolio modifier, FINRA considered
other thresholds for the number of unique issues to qualify as a
portfolio trade, such as 30 unique issues, similar to the FIMSAC
recommendation to identify trades involving a basket of at least 30
unique issuers (rather than issues), or as few as 2 unique issues, as
suggested by some commenters. Lowering the threshold generally captures
more portfolio trades and therefore provides greater informational
benefits to market participants. It may also discourage traders from
splitting up portfolio trades into smaller lists that do not meet the
specified criteria to avoid identifying trades under the proposal. On
the other hand, setting the threshold too low reduces the usefulness of
the identifier. Portfolio trades are used to diversify individual bond
risk and save on trading costs. Most of these benefits will diminish as
the portfolio size becomes small. The deviation of individual bond
price in a portfolio from market price will likely be less as the
number of bonds in the portfolio decreases. The proposed threshold of
10 strikes an appropriate balance between the trade-offs and is also
recommended by some commenters.\36\
---------------------------------------------------------------------------

    \36\ See Jane Street Letter and SIFMA Letter, infra note 37.
---------------------------------------------------------------------------

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

    The proposed rule change was published for comment in Regulatory
Notice 20-24 (July 2020). Seven comments were received in response to
the Regulatory Notice.\37\ A copy of the Regulatory Notice is available
on FINRA's website at http://www.finra.org. A list of the comment
letters received in response to Regulatory Notice 20-24 is available on
FINRA's website.\38\ Copies of the comment letters received in response
to the Regulatory Notice are also available on FINRA's website. The
comments are summarized below.
---------------------------------------------------------------------------

    \37\ See Comment submission from Melinda Ramirez, Consultant,
dated July 19, 2020 (stating only ``Thank you for the opportunity to
invest.'' [sic]); letter from Gregory Babyak, Global Head of
Regulatory Affairs, Bloomberg L.P., to Jennifer Piorko Mitchell,
Office of the Corporate Secretary, FINRA, dated September 14, 2020
(``Bloomberg Letter''); letter from Howard Meyerson, Managing
Director, Financial Information Forum, to Jennifer Piorko Mitchell,
Office of the Corporate Secretary, FINRA, dated September 14, 2020
(``FIF Letter''); letter from Kathleen Callahan, FIX Operations
Director, FIX Trading Community, to Jennifer Piorko Mitchell, Office
of the Corporate Secretary, FINRA, dated September 14, 2020 (``FIX
Letter''); letter from Matt Berger, Global Head of Fixed Income and
Commodities, Jane Street Capital, LLC, to Jennifer Piorko Mitchell,
Office of the Corporate Secretary, FINRA, dated September 14, 2020
(``Jane Street Letter''); letter from Chris Killian, Managing
Director, Securitization and Credit, SIFMA, to Jennifer Piorko
Mitchell, Office of the Corporate Secretary, FINRA, dated September
15, 2020 (``SIFMA Letter''); and letter from Michael Grogan, V.P. &
Head of US Fixed Income Trading--Investment Grade, Dwayne Middleton,
V.P. & Head of Fixed Income Trading, Brian Rubin, V.P. & Head of US
Fixed Income Trading--Below Investment Grade and Jonathan Siegel,
V.P. & Senior Legal Counsel--Legislative & Regulatory Affairs, T.
Rowe Price, to Jennifer Piorko Mitchell, Office of the Corporate
Secretary, FINRA, dated September 15, 2020 (``T. Rowe Price
Letter'').
    \38\ See SR-FINRA-2021-030 (Form 19b-4, Exhibit 2b) (available
on FINRA's website at http://www.finra.org).
---------------------------------------------------------------------------

Delayed Treasury Spot Trades
    Bloomberg, Jane Street and T. Rowe Price supported the proposal to
require members to identify corporate bond trades where the price of
the trade is based on a spread to a benchmark U.S. Treasury Security
that was agreed upon earlier in the day and report the time at which
the spread was agreed upon.\39\ Bloomberg stated that the proposal
``adds an incredible amount of value, insight and transparency into
TRACE data,'' including by making it possible for ``market participants
to derive intraday credit spread moves in specific corporate bond
issues and issuers.'' \40\ Jane Street noted that while market
participants would initially incur costs to modify trading reporting
procedures to provide this information, such costs are outweighed by
the benefit of obtaining additional information about delayed Treasury
spot trades.\41\ T. Rowe Price noted that the reported dollar price for
delayed Treasury spot trades may not take into account market or
issuer-specific developments that have occurred throughout the day,
such that

the proposal would benefit investment advisers and other market
participant by providing timely and definitive clarity on whether
reported transactions are delayed Treasury spot trades, and further
would support price formation.\42\ T. Rowe Price also noted benefits of
the proposal to transaction cost analysis and the portfolio valuation
process for institutional investors.\43\
---------------------------------------------------------------------------

    \39\ See Bloomberg Letter at 2; Janes Street Letter at 1-2; T.
Rowe Price Letter at 1.
    \40\ See Bloomberg Letter at 2.
    \41\ See Jane Street Letter at 2.
    \42\ See T. Rowe Price Letter at 1-2.
    \43\ See T. Rowe Price Letter at 2.
---------------------------------------------------------------------------

    SIFMA expressed mixed views on the delayed Treasury spot trade
proposal. SIFMA noted that its members ``both see benefits to this
proposal but also have material questions including the overall benefit
vs. cost balancing.'' \44\ SIFMA stated that a potential benefit of the
proposal would be to provide a ``clearer picture, retrospectively, as
to liquidity flows throughout the day.'' \45\ However, SIFMA noted that
some of its members indicated that the technical implementation of this
proposal is complex, particularly around the new time field.\46\ SIFMA
also highlighted that the fixed-cost burden presented by the proposal
would be more meaningful for smaller, non-primary dealers, which could
lead such dealers to use manual processes for trade reporting or no
longer engage in these type of trades.\47\
---------------------------------------------------------------------------

    \44\ See SIFMA Letter at 3.
    \45\ See SIFMA Letter at 4.
    \46\ See SIFMA Letter at 4.
    \47\ See SIFMA Letter at 4.
---------------------------------------------------------------------------

    FIF did not support the delayed Treasury spot proposal, noting that
the proposal would require firms to implement significant system
changes.\48\ FIF stated that its members advised that dealer systems do
not currently store the time the original terms are agreed in a manner
that would enable reporting to TRACE on a timely basis, such that
implementation would require significant cost and work for firms to
upgrade various systems.\49\ FIF instead proposed that FINRA consider
mandating that the SpecialPriceIndicator tag, or another existing TRACE
tag, be marked as instructed by FINRA to identify delayed Treasury spot
trades.\50\ FIF stated that this alternative would signal to the market
that the terms of the trade were not agreed based on current market
conditions.\51\
---------------------------------------------------------------------------

    \48\ See FIF Letter at 2.
    \49\ See FIF Letter at 2.
    \50\ See FIF Letter at 2.
    \51\ See FIF Letter at 2.
---------------------------------------------------------------------------

    FINRA agrees with commenters that the proposal relating to delayed
Treasury spot trades will provide significant benefits to market
participants and investors by enhancing transparency into corporate
bond pricing for these types of trades. FINRA acknowledges that
implementing the proposal will require members to make systems changes
to identify Treasury spot trades and append the modifiers, as well as
to capture and report the time at which the spread was agreed. FINRA
believes, however, that the ongoing transparency benefits of reporting
and disseminating this additional information will outweigh the initial
costs required to modify trade reporting systems to enable gathering
and reporting this new information. FINRA does not believe that use of
an existing TRACE modifier or indicator, such as the special price tag,
would sufficiently differentiate delayed Treasury spot trades in
disseminated TRACE data or its regulatory audit trail data, nor would
use of such a tag provide information about the time that the spread
was agreed such that market participants can estimate the agreed-upon
spread for such trades.\52\
---------------------------------------------------------------------------

    \52\ The ``special price'' modifier must be appended when a
transaction is executed at a price based on arm's length negotiation
and done for investment, commercial or trading considerations, but
does not reflect current market pricing. See FINRA Rule
6730(d)(4)(A) and Notice to Members 05-77 (November 2005). Thus a
member must first make a determination, on a trade-by-trade basis,
that a price is off-market before it appends the special price
modifier.
---------------------------------------------------------------------------

    SIFMA also responded to two specific requests for comment in
Regulatory Notice 20-24 concerning the proposed Treasury spot modifier.
First, FINRA asked whether it should consider requiring firms to report
the spread, either at the time the spread is agreed or later in the
day, and, if reported at the time the spread is agreed, whether the
dollar price should also be reported later in the day. SIFMA responded
that FINRA should have enough information from the proposed trade
reports to derive an estimate of the spread without requiring reporting
of this additional data.\53\ SIFMA also noted that, in any case,
dealers should not have to submit two reports, or amend a previous
report, for the same trade.\54\ As described above, FINRA is not
modifying the proposal to require reporting of the spread or to require
members to submit two reports for the same trade.\55\ Second, FINRA
requested comment on its understanding that most common pricing
benchmark used for delayed Treasury spot trades is the on-the-run U.S.
Treasury Security with the maturity that corresponds to the maturity of
the corporate bond being priced. SIFMA stated that its members share
that understanding.\56\
---------------------------------------------------------------------------

    \53\ See SIFMA Letter at 4.
    \54\ See SIFMA Letter at 4-5.
    \55\ See note 17 supra.
    \56\ See SIFMA Letter at 5.
---------------------------------------------------------------------------

    FIX didn't express a substantive view on the proposed amendments
but suggested that it can assist in developing standard solutions for
reporting of the proposed new delayed Treasury spot trade modifier.\57\
For example, FIX noted that adding the capability for FINRA to capture
the time that the spread was agreed would be a minimal extension to an
existing concept in FIX, specifically the TrdRegTimestamps field.\58\
FINRA notes that it supports several technical standards for reporting
of trade information to TRACE, including FIX, and that the specific
format and requirements for the new delayed Treasury spot modifier and
reporting field for the time the spread was agreed would be published
in TRACE technical specifications. As noted above, where a specific
trade meets the criteria for both modifiers, such specifications may
require the use of a third, single modifier indicating that both the
delayed Treasury spot modifier and the portfolio trade modifier apply
to the trade.
---------------------------------------------------------------------------

    \57\ See FIX letter at 3.
    \58\ See FIX letter at 2.
---------------------------------------------------------------------------

Portfolio Trades
    T. Rowe Price supported the proposal to require members to identify
corporate bond trades that are components of a larger portfolio trade,
as defined in the FIMSAC Recommendation.\59\ T. Rowe Price noted that
the prices reported to TRACE for transactions that are part of a
portfolio trade may not be at the current market for the security and
that the proposal would benefit investment advisers and other market
participants by providing timely and definitive clarity on whether a
transaction is part of a portfolio trade, and further would support
price formation.\60\ T. Rowe Price also noted benefits of the proposal
to transaction cost analysis and the portfolio valuation process for
institutional investors.\61\
---------------------------------------------------------------------------

    \59\ See T. Rowe Price Letter at 1.
    \60\ See T. Rowe Price Letter at 1-2.
    \61\ See T. Rowe Price Letter at 2.
---------------------------------------------------------------------------

    FIF, Bloomberg and Jane Street generally supported the proposal but
suggested certain modifications to the conditions for trades that would
qualify for the proposed portfolio trade modifier under the FIMSAC
Recommendation,\62\ while SIFMA expressed generally mixed views on the
portfolio trade proposal.\63\
---------------------------------------------------------------------------

    \62\ See FIF Letter at 1-2; Bloomberg Letter at 3-4; Jane Street
Letter at 2.
    \63\ See SIFMA Letter at 1-3.

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

    FIF and SIFMA recommended that prong (ii) of the Portfolio Trade
Definition be changed to a threshold based on the number of unique
issues or securities, rather than the number of unique issuers.\64\ FIF
noted that shifting to a security basis for this prong would avoid
challenges in identifying and processing which bonds are associated
with a particular issuer and would result in more trades being reported
as portfolio trades, which would provide greater transparency and
enhance FINRA's audit trail.\65\ FIF also stated that basing the
determination of a portfolio trade on the number of unique issuers
would raise the question of whether bonds of affiliated issuers should
be counted as one or multiple issuers, and highlighted in particular
bonds issued by special purpose vehicle subsidiaries.\66\ SIFMA stated
that while it understands that using the number of unique issuers is
intended to scope in diversified portfolio trades, its members raised
the concern that doing so would be more complicated to implement than
basing the threshold on the number of securities in the portfolio.\67\
SIFMA noted several examples of potential complications that could
arise by using unique issuers, such as determining how to treat
affiliates and subsidiaries and how guarantees might affect the
analysis.\68\ SIFMA stated that these issues would require market
participants to generate large lists of bonds and determine how to
attribute each bond to a unique issuer, which would not be easily
automatable and would introduce the risk of errors and omissions in
TRACE reporting.\69\ FINRA agrees with these commenters that using a
threshold based on the number of individual securities, rather than
issuers, to determine when to append the portfolio trade modifier would
result in a clearer and easier to implement approach to identifying
portfolio trades, and has modified the proposal accordingly.
---------------------------------------------------------------------------

    \64\ See FIF Letter at 2; SIFMA Letter at 2-3.
    \65\ See FIF Letter at 2-3.
    \66\ See FIF Letter at 3.
    \67\ See SIFMA Letter at 2-3.
    \68\ See SIFMA Letter at 3.
    \69\ See SIFMA Letter at 3.
---------------------------------------------------------------------------

    Jane Street, Bloomberg, FIF and SIFMA commented on the threshold
number for appending the portfolio trade modifier, which the FIMSAC
recommendation set at 30. FIF stated that a trade involving fewer than
30 unique issuers should still be considered a portfolio trade if it
meets the other conditions in the definition.\70\ Jane Street stated
that 30 unique issuers is too high and recommended that a basket
containing bonds from at least 10 unique issuers should be reported
using the portfolio trade modifier, which would maximize the
informational benefit of the new modifier since many portfolio trades
contain bonds of between 10 and 30 unique issuers.\71\ SIFMA stated
that some of its members believe that a lower number of securities
would be more appropriate, such as 10, while other of its members are
comfortable with the proposed 30 or an even higher number.\72\
Bloomberg recommended that TRACE should identify every situation where
two or more securities are transacted at an agreed upon price where the
price may not reflect the current market price for the bonds.\73\ As
described above, FINRA has modified the proposal by lowering the
threshold from 30 to 10. FINRA believes that lowering the threshold for
portfolio trades that would be identified by the new modifier in this
manner would provide greater informational benefits to market
participants. However, FINRA believes that a lower threshold than 10
issues, such as two or more securities, would be over-inclusive and
reduce the usefulness of the modifier.
---------------------------------------------------------------------------

    \70\ See FIF Letter at 2.
    \71\ See Jane Street Letter at 2.
    \72\ See SIFMA Letter at 3.
    \73\ See Bloomberg Letter at 4.
---------------------------------------------------------------------------

    With respect to the proposed prong requiring that a portfolio trade
must be executed on an all or none or most or none basis, Bloomberg
noted that an ``all-or-none'' designation is ``an execution constraint
that is well defined in all markets'' but that the concept of ``most-
or-none'' does not currently exist and would require further
clarification around what number of constituents in the basket
constitutes ``most.'' \74\ Bloomberg therefore recommended using a
definition of a basket that focuses on executions, rather than order
designations.\75\ As described above, FINRA agrees that this aspect of
the initial proposal is not well-understood and believes that the
Portfolio Trade Definition would be best implemented without an ``all-
or-none or most-or-none'' prong. Therefore, under the current
formulation, if two parties enter into negotiations with respect to a
basket of bonds, the component trades would be identified with the new
portfolio trade modifier so long as the resulting basket trade meets
the other conditions specified in the Portfolio Trade Definition.
---------------------------------------------------------------------------

    \74\ See Bloomberg Letter at 3-4.
    \75\ See Bloomberg Letter at 4.
---------------------------------------------------------------------------

    SIFMA also commented more broadly on the portfolio trade proposal.
SIFMA stated that its members see two aspects to the portfolio trade
proposal: (1) The identification of portfolio trades vs. other kinds of
trades and (2) the identification of potentially off-market trades.\76\
With respect to the first aspect, SIFMA noted that, while the proposal
would make it easier to identify portfolio trades, some of its members
believe it is already fairly easy to identify portfolio trades today
without the specific modifier.\77\ However, SIFMA also noted that other
of its members believe that the proposal would benefit smaller market
participants, market observers and researchers, who may not have
systems in place to actively screen for portfolio trades using
currently available data.\78\ SIFMA noted that some of its members have
concerns about the potential impact on liquidity resulting from
disclosure of trading strategies, while other members did not believe
that this is a material concern. With respect to the second aspect,
SIFMA stated that some of its members have questioned the
appropriateness of a flag that does not provide definitive information
regarding whether the price is off-market, since a price in a portfolio
trade may or may not be off-market.\79\ SIFMA noted that dealers are
already expected to review each line item in a portfolio trade to
determine if it is off-market and, if so, append the existing special
price indicator in TRACE reports. SIFMA stated that one potential
benefit of the proposal could be to reduce compliance burdens if the
new portfolio trade modifier replaces the special price indicator for
components of portfolio trades.\80\ On a related point, SIFMA asked
FINRA to confirm that the portfolio trade modifier would be taken into
account in fair pricing reviews.\81\ SIFMA also stated dealers should
not face an undue burden to explain why a price on a trade identified
as a portfolio trade was off-market.\82\ FINRA confirms that the
portfolio trade modifier would be taken into account in FINRA's reviews
of members' trading activities, including fair pricing reviews, along
with any other indicators or modifiers that may be appended to
individual trades (such as the special price indicator, where
applicable). However, the new portfolio trade modifier would

not replace any other applicable indicators or modifiers, including the
special price indicator, where applicable. FINRA continues to believe
that, on balance, identification of portfolio trades through the
proposed portfolio trade modifier would improve market transparency and
provide greater certainty to market participants and investors
regarding such trades.
---------------------------------------------------------------------------

    \76\ See SIFMA Letter at 1.
    \77\ See SIFMA Letter at 2. SIFMA also expressed concern that
the proposal shifts TRACE away from being a price transparency tool
into a tool that provides trading strategy details. See id.
    \78\ See SIFMA Letter at 2.
    \79\ See SIFMA Letter at 2.
    \80\ See SIFMA Letter at 2.
    \81\ See SIFMA Letter at 2.
    \82\ See SIFMA Letter at 2.
---------------------------------------------------------------------------

    Bloomberg also commented more generally on the portfolio trade
proposal. Bloomberg stated that it has significant reservations about
the portfolio trade proposal because there would be significant
incentives for liquidity seekers to avoid sending baskets that meet
criteria.\83\ Specifically, Bloomberg noted that dissemination of
individual components of portfolio trades as unrelated transactions in
TRACE data, as it is today, protects liquidity seekers, while appending
the proposed modifier could lead to significant information leakage
such that market participants would understand both why and how the
trade was executed.\84\ Bloomberg expressed concern that the modifier
would therefore be problematic because it would alert the market that a
change in portfolio strategy had occurred, for example by allowing
participants to reverse engineer a particular institution's views on a
particular issue, which could dampen liquidity. Bloomberg stated that
these concerns would reduce the transparency benefits sought by the
proposal because liquidity seekers and providers may simply split up
their baskets into smaller lists that do not meet the proposed criteria
for the portfolio trade modifier.\85\ Bloomberg also suggested that
transparency could be enhanced by instead identifying every situation
where two or more securities are transacted at an agreed upon price
where the price may not reflect the current market price for the bonds,
drawing an analogy to reporting modifiers used for equities in the
public data feeds to indicate transactions with special circumstances
that impact price.\86\ As discussed above, FINRA believes that, on
balance, identification of portfolio trades through the new proposed
portfolio trade modifier would improve market transparency and provide
greater certainty to market participants and investors regarding such
trades. With respect to Bloomberg's suggestion to identify any
portfolio trades involving two or more securities, as discussed above
FINRA believes such a low threshold would be over-inclusive and would
reduce the usefulness of the modifier, while a threshold of 10
securities as proposed would benefit market participants by providing
greater transparency into pricing in the corporate bond market, while
avoiding capturing transactions that are not portfolio trades, as that
term is commonly understood in the market. In addition, as discussed
above, FINRA believes lowering the threshold to 10 unique issues (from
the threshold of 30 set forth in the FIMSAC Recommendation) may
discourage traders from splitting up portfolio trades into smaller
lists that do not meet the specified criteria for the proposed modifier
to avoid identifying the trade under the proposal.
---------------------------------------------------------------------------

    \83\ See Bloomberg Letter at 3.
    \84\ See Bloomberg Letter at 3.
    \85\ See Bloomberg Letter at 3.
    \86\ See Bloomberg Letter at 4.
---------------------------------------------------------------------------

    FIF requested guidance on application of the portfolio trade
proposal in certain scenarios. Specifically, FIF stated that its
members request guidance on whether non-TRACE-Eligible Securities
should be counted toward the portfolio basket size threshold where a
portfolio trade involves some bonds that are TRACE-Eligible Securities
and other bonds that are not TRACE-Eligible Securities.\87\ FINRA
confirms that a security that is a non-TRACE Eligible Security, as well
as a security other than a corporate bond that is a TRACE Eligible
Security, should not be counted toward the portfolio basket size
threshold. FIF also asked for guidance on the definition of a ``single
agreed price'' in the context of a portfolio trade.\88\ FINRA is
clarifying that a portfolio trade would be considered to be executed
for a ``single agreed price'' for the entire basket where the overall
price for the basket has been negotiated or agreed on an aggregate
basis, including where the parties used a pricing list or pricing
service as the starting point for negotiations but the final price was
determined by applying a uniform spread to all securities in the
basket. However, where the parties simply aggregate individual prices
obtained from a pricing list or service without further negotiation,
this would not be considered within the scope of the proposed portfolio
trade modifier.\89\ FIF further asked whether a portfolio trade
involving a delayed spotting process would qualify as a portfolio
trade.\90\ FINRA notes that, where a trade meets the conditions for
applying multiple modifiers, all applicable modifiers should be
appended unless otherwise provided for in the TRACE technical
specifications. Thus, in the scenario presented by FIF, the trade may
qualify for the delayed Treasury spot modifier if the trades are based
on a spread to the yield of a U.S. Treasury Security and the spread was
agreed upon that day prior to the Time of Execution of the transaction.
If the trade also involved at least 10 unique securities and was
transacted for a single agreed price for the entire basket and the
other conditions of the Portfolio Trade Definition have been met, the
trade must also be appended with the portfolio trade modifier. The
specific format and requirements for the new modifiers would be
published in TRACE technical specifications, which may require the use
of a third, single modifier indicating that both the delayed Treasury
spot modifier and the portfolio trade modifier apply to the trade. As
noted below, FINRA will work with members to provide further
interpretive guidance, where needed.
---------------------------------------------------------------------------

    \87\ See FIF Letter at 3.
    \88\ See FIF Letter at 3.
    \89\ For example, consistent with the FIMSAC's recommendation,
the ``single agreed price'' prong would ``exclude normal multi-
dealer list trades that originate as either an electronic OWIC or a
BWIC as such protocols result in a competitively negotiated price
for each security in the list.'' See FIMSAC Recommendation at 3 n.5.
    \90\ See FIF Letter at 3. Specifically, FIF asked whether the
following scenario would constitute a portfolio trade: (i) A third-
party publishes reference prices for a universe of bonds at a set
time each day at 3 p.m.; (ii) at 10 a.m. two firms agree to trade a
basket of securities that represents a subset of this universe based
upon the as-of-yet unpublished 3 p.m. reference price; and (iii) at
3:30 p.m. the two firms review the prices published at 3 p.m. for
the basket constituents and come to consensus on the final price,
which is an aggregate of the constituent prices. FIF further asked
whether the existence of any offset to the price (e.g., the 3pm
reference price plus a fixed markup) would change whether the basket
in this scenario would be considered a portfolio trade.
---------------------------------------------------------------------------

    FIX suggested that it can assist in developing standard solutions
for reporting the proposed new portfolio trade modifier.\91\ For
example, FIX noted that the TrdType and TrdSubType fields could be used
to identify portfolio trades.\92\ FINRA notes that it supports several
technical standards for reporting of trade information to TRACE,
including FIX, and that the specific format and requirements for the
new portfolio trade modifier would be published in TRACE technical
specifications.
---------------------------------------------------------------------------

    \91\ See FIX letter at 3.
    \92\ See FIX letter at 2.
---------------------------------------------------------------------------

Implementation Period
    FIF, Bloomberg and SIFMA commented on the implementation period
that would be necessary with respect to both the delayed Treasury spot
and portfolio trade aspects of the proposal. FIF requested that the
implementation timeline for the changes

commence upon the publication of updated technical specifications and
the issuance of FAQs by FINRA, given the significant technical work
that will be required to implement the proposal and various issues
where the industry will require interpretive guidance from FINRA.\93\
SIFMA stated that a significant amount of lead time would be needed
before the implementation date for the delayed Treasury spot trade
proposal, ``on the order of 18 months or more.'' \94\ Bloomberg noted
the ``significant change in workflow'' that would be required to
implement the delayed Treasury spot proposal, particularly with respect
to recording and reporting the time that the spread was agreed.\95\
Bloomberg also noted that consumers of TRACE data will need
specifications in advance to make changes to systems to ingest the
updated data feed and interpret the data.\96\ Bloomberg therefore
recommended that FINRA provide the industry with ``plenty of time'' to
accommodate the changes and that FINRA should conduct outreach with
members to determine an appropriate amount of lead time following
FINRA's release of FAQs and TRACE messaging specifications needed to
code, test and implement the necessary changes.\97\ Bloomberg also
noted similar implementation issues and made the same recommendation
with respect to the portfolio trade aspect of the proposal.\98\
---------------------------------------------------------------------------

    \93\ See FIF Letter at 3.
    \94\ See SIFMA Letter at 4.
    \95\ See Bloomberg Letter at 2-3.
    \96\ See Bloomberg Letter at 3.
    \97\ See Bloomberg Letter at 3.
    \98\ See Bloomberg Letter at 5.
---------------------------------------------------------------------------

    FINRA acknowledges that members reporting to TRACE require an
appropriate amount of time to implement the systems and other changes
necessary to report the additional information required under the
proposed rule change. As noted above, if the Commission approves the
proposed rule change, FINRA will announce the effective date(s) of the
proposed rule change in a Regulatory Notice.\99\ FINRA will publish a
Regulatory Notice announcing the effective date(s) of the proposed
amendments pursuant to Rule 6730(d)(4)(H) and (I) no later than 90 days
following Commission approval, and the effective date(s) will be no
later than 365 days following publication of the Regulatory Notice.
FINRA will publish a Regulatory Notice announcing the effective date of
the proposed amendments pursuant to Rule 6730(c)(14) once
determined.\100\ As is generally the case for TRACE rule changes, FINRA
will endeavor to publish updated technical specifications as far as
possible in advance of the effective date(s) and will work with members
to provide interpretive guidance, where needed.
---------------------------------------------------------------------------

    \99\ See supra note 25.
    \100\ See supra note 26.
---------------------------------------------------------------------------

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. In particular, the Commission
requests comment on whether the proposal should be expanded to require
FINRA members to report, with respect to delayed Treasury spot trades,
the actual yield spread (``spread'') between the corporate bond and the
U.S. Treasury Security that is agreed between the counterparties; and
(2) the CUSIP number (or another identifier) of the specific U.S.
Treasury Security that serves as the basis for the spread calculation.
Presently, with respect to Treasury spot trades, FINRA is proposing to
require only that a member append a new modifier when reporting a
delayed Treasury spot trade and the time at which the spread for the
delayed Treasury spot trade was agreed upon.
    FINRA discussed earlier in this notice that the FIMSAC considered
these additional options but ultimately did not recommend them. FINRA
also discussed the SIFMA comment to its Regulatory Notice preceding
this filing, where SIFMA stated that market observers ``should have
enough information from the proposed trade reports to derive an
estimate of the spread without requiring reporting of this additional
data.'' FINRA also stated that it requested comment on its
understanding that most common pricing benchmark used for delayed
Treasury spot trades is the on-the-run U.S. Treasury Security with the
maturity that corresponds to the maturity of the corporate bond being
priced; SIFMA stated that its members share that understanding.
Therefore, FINRA has not proposed to require these additional two data
elements but stated above that it ``will assess the reported data
regarding delayed Treasury spot trades and continue to engage with
industry participants regarding whether any future changes may be
appropriate to further improve transparency.'' In light of this
background, commenters are invited to provide views on the following:
    1. How easy or difficult would it be for market observers to
``derive an estimate of the spread'' having only the time that the
spread was agreed between the counterparties to the delayed Treasury
spot trade? How confident are market observers that their estimates are
accurate? Would reporting and public dissemination of the actual spread
for each specific delayed Treasury spot trade and the benchmark CUSIP
used for the spread be preferable?
    2. Do FINRA members who engage in delayed Treasury spot trades keep
a record of the agreed upon spread and the benchmark CUSIP for a
specific trade in any internal systems? Could FINRA members who engage
in delayed Treasury spot trades capture the agreed upon spread and the
benchmark CUSIP used for the spread on a specific trade in the same
location as the time the spread was agreed to that FINRA is proposing
to be reported in this proposal? Whatever the case, please describe the
burdens that would be associated with reporting the actual spread and
the CUSIP number (or other identifier) of the benchmark U.S. Treasury
Security.
    3. The current proposal, if approved by the Commission, would
require members to add a new modifier to a delayed Treasury spot trade
and to report the time at which the spread for the delayed Treasury
spot trade was agreed upon. Affected reporting members would have to
make systems changes to report these additional data elements for all
delayed Treasury spot trades. What would be the incremental burden of
the systems changes necessary to report two additional data elements--
the agreed upon spread and the CUSIP or other identifier of the
benchmark U.S. Treasury Security--at same time? What would be the costs
of adding these two additional data elements in the future, as part of
a separate systems upgrade, relative to

implementing all four data elements as part of the same upgrade?
    4. How confident are market observers that they share the same
understanding as the counterparties to a delayed Treasury spot trade of
the specific U.S. Treasury Security used as the benchmark? Are there
delayed Treasury spot trades where the time to maturity for the
corporate bond does not correspond exactly to any U.S. Treasury
Security so there is ambiguity as to what U.S. Treasury Security would
serve as the benchmark? Is there a clear market convention for
benchmarking off-the-run corporate securities for which the maturities
fall between two on-the-run Treasury securities (for example, 4-year
maturities, 6-year maturities, etc.)?
    5. Do you believe it would be appropriate for FINRA to disseminate
its assumption of the U.S. Treasury Security used as the benchmark for
a delayed Treasury spot trade, even if FINRA does not require it to be
reported by members? Why or why not? 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-2021-030 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-2021-030. 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 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 available publicly. All submissions
should refer to File Number SR-FINRA-2021-030 and should be submitted
on or before December 28, 2021.
---------------------------------------------------------------------------

    \101\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\101\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-26452 Filed 12-6-21; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 86, Number 11 (Tuesday, January 19, 2021)]
[Notices]
[Pages 5186-5188]
[FR Doc No: 2021-01070]

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ENVIRONMENTAL PROTECTION AGENCY

[EPA-HQ-OAR-2016-0731; FRL-10017-49-OAR]

Proposed Information Collection Request; Renewal; EPA's Methane
Challenge Program

AGENCY: Environmental Protection Agency (EPA).

ACTION: Notice.

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SUMMARY: The Environmental Protection Agency is planning to submit a
renewal information collection request (ICR), ``EPA's Natural Gas STAR
and Methane Challenge Programs'' (EPA ICR No. 2547.01, OMB Control No.
2060-0722) to the Office of Management and Budget (OMB) for review and
approval in accordance with the Paperwork Reduction Act (44 U.S.C. 3501
et seq.). Before doing so, EPA is soliciting public comments on
specific aspects of the proposed information collection as described
below. Specifically, EPA is proposing to merge the ICR with ``EPA's
Natural Gas STAR Program'' (EPA ICR

No. 2004-0082, OMB Control No. 2060-0328). This is a renewal with
modification of the existing ICR, which is currently approved through
August 31, 2021. An Agency may not conduct or sponsor, and a person is
not required to respond to, a collection of information unless it
displays a currently valid OMB control number.

DATES: Comments must be submitted on or before March 22, 2021.

ADDRESSES: Submit your comments, referencing Docket ID No. EPA-HQ-OAR-
2016-0731 online using www.regulations.gov (our preferred method), by
email to<EMAIL_ADDRESS>or by mail to: EPA Docket Center,
Environmental Protection Agency, Mail Code 28221T, 1200 Pennsylvania
Ave. NW, Washington, DC 20460.
    EPA's policy is that all comments received will be included in the
public docket without change including any personal information
provided, unless the comment includes profanity, threats, information
claimed to be Confidential Business Information (CBI) or other
information whose disclosure is restricted by statute.

FOR FURTHER INFORMATION CONTACT: Patrick Lau, Office of Atmospheric
Programs, Climate Change Division, (6207A), Environmental Protection
Agency, 1200 Pennsylvania Ave. NW, Washington, DC 20460; telephone
number:<PHONE_NUMBER>; email address<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION: Supporting documents for the two existing
ICR, which explain in detail the information that the EPA will be
collecting, are available in the public docket for this ICR and the
Natural Gas STAR ICR (Docket ID: EPA-HQ-OAR-2016-2004-0082). The docket
can be viewed online at www.regulations.gov or in person at the EPA
Docket Center, WJC West, Room 3334, 1301 Constitution Ave. NW,
Washington, DC. The telephone number for the Docket Center is 202-566-
1744. For additional information about EPA's public docket, visit
http://www.epa.gov/dockets.
    Pursuant to section 3506(c)(2)(A) of the PRA, EPA is soliciting
comments and information to enable it to: (i) Evaluate whether the
proposed collection of information is Necessary for the proper
performance of the functions of the Agency, including whether the
information will have practical utility; (ii) evaluate the accuracy of
the Agency's estimate of the burden of the proposed collection of
information, including the validity of the methodology and assumptions
used; (iii) enhance the quality, utility, and clarity of the
information to be collected; and (iv) minimize the burden of the
collection of information on those who are to respond, including
through the use of appropriate automated electronic, mechanical, or
other technological collection techniques or other forms of information
technology, e.g., permitting electronic submission of responses. EPA
will consider the comments received and amend the ICR as appropriate.
The final ICR package will then be submitted to OMB for review and
approval. At that time, EPA will issue another Federal Register notice
to announce the submission of the ICR to OMB and the opportunity to
submit additional comments to OMB.
    Abstract: The Natural Gas STAR and Methane Challenge programs
(``Gas STAR Programs'') are voluntary programs sponsored by the U.S.
Environmental Protection Agency (EPA) that encourage oil and natural
gas companies to adopt cost effective technologies and practice that
improve operational efficiency and reduce methane emissions. Methane is
the primary component of natural gas and a potent greenhouse gas. The
Programs work with oil and natural gas companies in the production,
gathering & boosting, processing, transmission & storage, and
distribution segments to remove barriers that inhibit the
implementation of technologies and practices that reduce methane
emissions. The Programs effectively promote the adoption of emission
reduction technologies and practices by helping partners evaluate Best
Management Practices (BMPs) in the context of their current operations
and implement them where cost-effective. Implementation of the
Programs' BMPs saves participants money, improves operational
efficiency, and enhances the protection of the environment. Combining
the ICR's for the Methane Challenge and the Natural Gas STAR programs
is expected to streamline partners' engagement with the programs and
simplify communications about reporting.
    Form Numbers: The Natural Gas STAR and Methane Challenge Programs
each have Partnership Agreements (``PA'') that describe the terms of
participation in the Program. A company that wishes to become a Natural
Gas STAR or Methane Challenge partner signs and submits the applicable
PA to EPA. The PA forms covered under this ICR include:
     Natural Gas STAR Program--Partnership Agreement: EPA Form
No. 5900-105
     Methane Challenge Program--Partnership Agreement for Best
Management Practice Commitment Option: EPA Form No. 5900-412
     Methane Challenge Program--Partnership Agreement for ONE
Future Emissions Intensity Commitment Option: EPA Form No. 5900-411
    Partners agree to complete and submit a Natural Gas STAR or Methane
Challenge Implementation Plan (as applicable) within six to twelve
months of signing the PA. The Implementation Plan forms covered under
this ICR include:
     Natural Gas STAR Program--Production Implementation Plan:
EPA Form No. 5900-103
     Natural Gas STAR Program--Transmission Implementation
Plan: EPA Form No. 5900-109
     Natural Gas STAR Program--Distribution Implementation
Plan: EPA Form No. 5900-97
     Natural Gas STAR Program--Gathering and Processing
Implementation Plan: EPA Form No. 5900-100
     Methane Challenge Program--Implementation Plan Template:
EPA Form No. 5900-410
    After one full year of participation in either Program, partners
submit an annual report documenting the previous year's methane
emission reduction activities. Partners only need to submit the
applicable form(s) for the Program/commitment option/segments they have
joined. The annual reporting forms covered under this ICR include:

 Natural Gas STAR Program--Production Reporting Form: EPA Form
No. 5900-104
 Natural Gas STAR Program--Transmission Reporting Form: EPA
Form No. 5900-95
 Natural Gas STAR Program--Distribution Reporting Form: EPA
Form No. 5900-99
 Natural Gas STAR Program--Gathering and Processing Reporting
Form: EPA Form No. 5900-102
 Methane Challenge Program--BMP Commitment Option Reporting
Form: EPA Form No. 5900-434
 Methane Challenge Program--ONE Future Commitment Option
Reporting Form: EPA Form No. 5900-435

    Upon becoming a partner in the Methane Challenge Program, companies
are given an opportunity to draft and submit a Historical Actions Fact
Sheet, which provides information on historical methane reduction
actions taken prior to joining Methane Challenge. A two-page fact sheet
template is made available to partner companies and allows entry of up
to five key methane mitigation activities, including text, photos, and
graphics.

Submitting this document is not a requirement of the Methane Challenge
Program partnership. The fact sheet template covered under this ICR is:
 Methane Challenge Program--Historical Actions Fact Sheet
Template: EPA Form No. 5900-413

    Respondents/affected entities: The Natural Gas STAR Programs are
open to companies in the production segment of the oil industry, and to
companies in the production, gathering & boosting, processing,
transmission & storage, and distribution segments of the natural gas
industry.
    Respondent's obligation to respond: Voluntary.
    Estimated number of respondents: 97 (Natural Gas STAR) and 58
(Methane Challenge) partners, and 50 vendors (total).
    Frequency of response: Annual for partners and semi-annual for
vendors.
    Total estimated burden: 2,846 hours (per year) for the Natural Gas
STAR Program plus 2,978 hours (per year) for the Methane Challenge
Program. Burden is defined at 5 CFR 1320.03(b).
    Total estimated cost: $268,577.00 (per year) for the Natural Gas
STAR Program plus $268,952 hours (per year) for the Methane Challenge
Program. There are no capital/start-up costs or O&M costs associated
with this information collection.
    Changes in Estimates: EPA expects that the burden associated with
the final ICR submission for the Methane Challenge Program will
increase compared to its previous estimated burden due to modifying
this ICR to include the addition of respondents from the Natural Gas
STAR Program. However, the final total burden for the total of the two
programs is not expected to exceed the sum of the burdens for Natural
Gas STAR and Methane Challenge Programs.

Hans Christopher Grundler,
Director, Office of Atmospheric Programs.
[FR Doc. 2021-01070 Filed 1-15-21; 8:45 am]
BILLING CODE 6560-50-P


[Federal Register Volume 77, Number 94 (Tuesday, May 15, 2012)]
[Notices]
[Pages 28653-28655]
[FR Doc No: 2012-11721]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66953; File No. SR-CBOE-2012-041]

Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Amend the Fees Schedule

May 9, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on April 30, 2012, the Chicago Board Options Exchange,
Incorporated (the ``Exchange'' or ``CBOE'') filed with the Securities
and Exchange Commission (the ``Commission'') the proposed rule change
as described in Items I, II, and III below, which Items have been
prepared by the Exchange. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change

    The Exchange proposes to amend its Fees Schedule. The text of the
proposed rule change is available on the Exchange's Web site (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's
Office of the Secretary, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of

the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend its Fees Schedule's Volume Incentive
Program (the ``Program''), which was implemented on January 1, 2012.\3\
The Program credits Trading Permit Holders (``TPHs'') certain per
contract amounts resulting from each public customer order transmitted
by that TPH which is executed electronically on the Exchange in all
multiply-listed option classes (excluding QCC trades and executions
related to contracts that are routed to one or more exchanges in
connection with the Options Order Protection and Locked/Crossed Market
Plan referenced in Rule 6.80), provided the TPH meets certain volume
thresholds in a month. The volume thresholds are calculated based on
the customer contracts per day (``CPD'') entered and executed over the
course of the month.\4\
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 66054 (December 23,
2011), 76 FR 82332 (December 30, 2011) (SR-CBOE-2011-120).
    \4\ See Exchange Fees Schedule, Section 21.
---------------------------------------------------------------------------

    Under the current top tier of the Program, a TPH trading more than
375,000 CPD gets a $0.20 per contract rebate for all CPD traded above
375,000. While the Program is intended to attract greater customer
volume, which benefits all market participants, the potential for an
industry-wide volume surge could mean CBOE's average daily volume (ADV)
also increases, commensurate with the industry, to a level unexpected
during the design of the Program. As such, the Program's ADV thresholds
would no longer reflect actual conditions. The lack of a CPD ceiling
means that the Exchange could potentially be giving back a $0.20 per
contract rebate on an extremely high, unlimited amount of contracts.
The Program is intended to attract greater customer volume, which
benefits all market participants, but it is not economically feasible
to be providing an unlimited number of $0.20 rebates (the Exchange
needs to retain much of the fees collected to maintain its
administrative and regulatory operations). As such, the Exchange
proposes to cap the $0.20 per contract rebate tier at 650,000 CPD. For
all CPD traded above 650,000, the Exchange will continue offering a
rebate, but that rebate will be reduced to $0.05 per contract. The
addition of this new tier would ensure that the economic balances in
the program would remain in place in the event of an unexpected volume
surge.
    This change is to take effect May 1, 2012.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of Section 6(b) of the
Act.\5\ Specifically, the Exchange believes the proposed rule change is
consistent with Section 6(b)(4) of the Act,\6\ which provides that
Exchange rules may provide for the equitable allocation of reasonable
dues, fees, and other charges among its Trading Permit Holders and
other persons using its facilities. Capping the Program's $0.20 per
contract rebate at 650,000 CPD and providing a $0.05 per contract
rebate for all CPD traded above 650,000 CPD is reasonable because those
[sic] any TPH trading above 650,000 CPD will still be receiving a
rebate for such trading activity (a rebate that they did not receive
prior to the adoption of the Program). This change is equitable and not
unfairly discriminatory because it only affects the contracts above
650,001 CPD; any TPH trading above 650,000 CPD will still receive the
$0.20 per contract rebate for contracts 375,001-650,000 CPD. Further,
this change is equitable and not unfairly discriminatory because it is
necessary to ensure the economic viability of the Program. Without the
change, in the event of an unexpected volume surge, the Program itself
may cease to be economically rational for the Exchange, and might have
to be eliminated. Such elimination would prevent any TPH trading above
650,000 CPD from receiving any rebates, as well as all other TPHs
benefiting from the Program (and eliminate the spillover benefits of
increased liquidity and tighter spreads that are experienced by all
other market participants).
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    CBOE does not believe that the proposed rule change will impose any
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received comments on the
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) \7\ of the Act and paragraph (f) of Rule 19b-4 \8\
thereunder. At any time within 60 days of the filing of the proposed
rule change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether 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_ADDRESS>Please include
File Number SR-CBOE-2012-041 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-CBOE-2012-041. 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 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 Web site viewing and printing in the Commission's Public
Reference Room on official business days between the hours of 10 a.m.
and 3 p.m. Copies of such filing also will be available for inspection
and copying at the principal offices of the Exchange. 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-CBOE-2012-041, and should be
submitted on or before June 5, 2012.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\9\
---------------------------------------------------------------------------

    \9\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-11721 Filed 5-14-12; 8:45 am]
BILLING CODE 8011-01-P