[Federal Register Volume 84, Number 67 (Monday, April 8, 2019)]
[Notices]
[Pages 13977-13983]
[FR Doc No: 2019-06786]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85488; File No. SR-FINRA-2019-008]

Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a Proposed Rule Change To
Establish a Corporate Bond New Issue Reference Data Service

April 2, 2019.
    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 March 27, 2019, 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 enhance the collection and dissemination of
new issue reference data for corporate bonds and charge associated
fees.
    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 the
Statutory Basis for, the Proposed Rule Change

1. Purpose
    FINRA is submitting this proposed rule change to establish a new
issue reference data service for corporate bonds, consistent with a
recommendation from the SEC's Fixed Income Market Structure Advisory
Committee (``FIMSAC'').
Background
    On October 29, 2018, the FIMSAC unanimously approved a
recommendation from its Technology and Electronic Trading Subcommittee
to establish a new issue reference data service for corporate bonds
(``FIMSAC Recommendation'').\3\ Specifically, the FIMSAC Recommendation
urged FINRA to establish a consolidated, comprehensive, and accurate
data set for corporate bond new issues. Today, market participants rely
on corporate bond reference data providers for this information.
However, each reference data provider collects and disseminates new
issue reference data from different sources and at different speeds
that vary

by a few hours to several days, resulting in data that may not be
consistent, timely and accurate across reference data providers.
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    \3\ See Recommendation to Establish a New Issue Reference Data
Service for Corporate Bonds, (October 29, 2018), https://www.sec.gov/spotlight/fixed-income-advisory-committee/fimsac-corporate-bond-new-issue-reference-data-recommendation.pdf.
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    The FIMSAC Recommendation states that reliable, consistent and
timely reference data is necessary to support the efficient trading and
settlement of bonds. A centralized reference data source is
increasingly important as market participants rely more on electronic
trading platforms, so that all platform participants price and trade
bonds based on consistent and accurate information.
    In considering the need for improved corporate new issue reference
data, the FIMSAC looked to the municipal bond market, where there is a
centralized reference data service. The Municipal Securities Rulemaking
Board (``MSRB'') requires the underwriter of a new issue of municipal
securities to communicate information to ensure that market
participants have timely access to information necessary to report,
compare, confirm, settle and clear transactions in the new issue.
Specifically, under MSRB Rule G-34, underwriters must submit new issue
information to the New Issue Information Dissemination Service
(``NIIDS''), operated by the Depository Trust and Clearing Corporation
(``DTCC''). NIIDS then makes this information immediately available to
reference data providers.
    To achieve its purpose, the FIMSAC stated that FINRA should expand
its existing rules so that it can similarly collect and disseminate
comprehensive reference data for corporate bond new issues. Currently,
under Rule 6760 (Obligation to Provide Notice), members that are
underwriters of an initial offering of a TRACE-Eligible Security are
required to submit certain specified information to FINRA prior to the
execution of the first transaction of the offering to facilitate trade
reporting and dissemination of transactions.\4\ The information
required by the rule generally is limited to the fields needed to set
up a bond on TRACE for trade reporting purposes (e.g., the CUSIP
number, the issuer name, the coupon rate, the maturity, whether Rule
144A applies, and a brief description of the bond). FINRA disseminates
some of this new issue information as part of the Corporate Security
Daily List; however, electronic trading platforms generally require
more information to make new issues available to trade.\5\
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    \4\ In cases where a new issue is priced and begins trading on
the same day, Rule 6760 requires certain data elements--those
sufficient to identify the security accurately--to be reported
before the execution of the first transaction, and all remaining
data elements to be reported within 15 minutes of the Time of
Execution of the first transaction.
    \5\ The information distributed on the Corporate Security Daily
List may only be used to support trade reporting and may not be
redistributed. The Daily List includes some mandatory new issue
information currently collected from underwriters pursuant to Rule
6760, which is then made available at no charge through an
application program interface (``API''). The Daily List would not be
impacted by this proposal.
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    The FIMSAC Recommendation asked that FINRA build on the existing
Rule 6760 requirements to establish a new issue data service with more
comprehensive information. The FIMSAC stated that FINRA was best
situated to carry out the Recommendation because it would be an
incremental addition to current practices, both for FINRA and the
underwriters that must report new issue information.
Proposal
    In line with the FIMSAC Recommendation, FINRA is proposing to amend
Rule 6760 to specify a number of data elements, in addition to those
already specified by the rule, which must be submitted for new issues
in corporate debt securities.\6\ Under the proposed rule change,
underwriters subject to Rule 6760 \7\ would be required to report the
following additional data elements: (A) The International Securities
Identification Number (``ISIN''); (B) the currency; (C) the issue date;
(D) the first settle date; (E) the interest accrual date; (F) the day
count description; (G) the coupon frequency; (H) the first coupon
payment date; (I) a Regulation S indicator; (J) the security type; (K)
the bond type; (L) the first coupon period type; (M) a convertible
indicator; (N) a call indicator; (O) the first call date; (P) a put
indicator; (Q) the first put date; (R) the minimum increment; (S) the
minimum piece/denomination; (T) the issuance amount; (U) the first call
price; (V) the first put price; (W) the coupon type; (X) rating; (Y) a
perpetual maturity indicator; and (Z) a Payment-In-Kind (PIK)
indicator.
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    \6\ In connection with the proposal, FINRA also would make two
technical, non-substantive, clarifying edits to the definition of
corporate debt security that is currently located in FINRA Rule 2232
(Customer Confirmations). First, FINRA would clarify that the
definition of corporate debt security is limited to TRACE-Eligible
Securities. This clarification reflects the original intent of the
definition and is consistent with current FINRA guidance. See FINRA
Fixed Income Confirmation Disclosure FAQ 1.12, http://www.finra.org/industry/faq-fixed-income-confirmation-disclosure-frequently-asked-questions-faq.
    Second, FINRA would update the definition of corporate debt
security to exclude the class of assets defined as Securitized
Products in Rule 6710(m), rather than Asset-Backed Securities,
defined in Rule 6710(cc). When the definition of corporate debt
security was first drafted, FINRA did not yet have a defined term
for Securitized Products, only Asset-Backed Securities. Since that
time, FINRA added the term Securitized Products, which includes
Asset-Backed Securities. Accordingly, this is a clarifying change
that simply updates the terms referred to in the corporate debt
security definition; this clarifying change also reflects the
original intent of the definition and is consistent with current
FINRA guidance. See FINRA Fixed Income Confirmation Disclosure FAQ
1.11.
    FINRA also proposes to relocate the revised definition of
corporate debt security into the TRACE Rule Series. FINRA believes
it makes sense to include the definition in Rule 6710 where it would
sit alongside a number of other TRACE definitions for fixed income
asset types. FINRA would make corresponding technical edits to Rule
2232 to refer to the relocated definition in Rule 6710.
    \7\ As part of the proposal, FINRA would amend Rule 6760(a)(1)
to clarify that underwriters subject to the Rule must report
required information for the purpose of providing market
participants in the corporate debt security markets with reliable
and timely new issue reference data to facilitate the trading and
settling of these securities, in addition to the current purpose of
facilitating trade reporting and dissemination in TRACE-Eligible
Securities.
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    These data fields, together with certain data fields specified in
the current Rule, reflect all but one of the fields that were described
in the FIMSAC Recommendation, as well as additional fields identified
during supplemental industry outreach conducted by FINRA.\8\ FINRA also
notes that several fields specified in the proposed rule change are
already required to be reported or are reported voluntarily on the
FINRA TRACE New Issue Form.\9\ FINRA has attached as Exhibit 3 a
detailed list of the corporate bond new issue reference data fields
that specifies whether the fields are currently mandatory or voluntary
and includes a description of each field.
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    \8\ The one field from the FIMSAC Recommendation that FINRA has
not included in this proposal is ``Calculation Types (CALT).'' FINRA
understands from industry outreach that this field, as it is
included in the FIMSAC Recommendation, leverages calculation
methodology that is specific to one data vendor's protocols and may
not be readily available to all underwriters that would be required
to report information to FINRA under Rule 6760, or to consumers of
the data. The FIMSAC Recommendation noted that the preliminary list
of data fields was developed based on discussions with market
participants, but that it should be finalized based on further
analysis by FINRA and the SEC. See FIMSAC Recommendation at pg. 3
n.2.
    \9\ The FINRA TRACE New Issue Form is used by firms to set up
securities pursuant to firms' existing obligations either under Rule
6760 or 6730 (Transaction Reporting). It allows for the submission
of data fields required by these rules as well as additional data
fields that underwriters often report voluntarily. As part of this
proposal, FINRA would codify in Rule 6760 the specific fields that
have been deemed necessary under current Rule 6760(b) and therefore
are mandatory for successful submission of the TRACE New Issue Form.
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    In addition, for the fields that FINRA added to the proposal based
on additional industry outreach ((T) through (Z) above), Exhibit 3
describes FINRA's rationale for their inclusion in

the proposal. These attributes were indicated by market participants as
important in liquidity and risk assessment. Issue amount is an
indication of potential liquidity of the issue in general and also in
particular as it is in many cases among the criteria used for index
consideration. Other proposed fields (coupon type, PIK, perpetual
maturity indicator and the complementing put information) provide
further context and are descriptive of the cash flow profile and
considerations in risk assessment and pre-trade compliance efforts.
Additionally, FINRA utilizes ratings to determine TRACE grade
(Investment Grade or Non-Investment Grade) which in turn determines
dissemination volume caps.
    The proposal also would require that all data elements be reported
for new issues in corporate debt securities prior to the first
transaction in the security. Currently, for information reported under
Rule 6760 for trade reporting purposes, the Rule allows phased
reporting in some cases. Specifically, for an offering of a security
that is priced and begins trading on the same business day between 9:30
a.m. and 4:00 p.m. Eastern Time, Rule 6760 requires certain information
to be reported before the first trade in the security and remaining
information within 15 minutes of the time of the first trade.
Otherwise, the current Rule requires all information to be reported
before the first trade in the security.
    As noted above, FINRA is proposing to amend Rule 6760 to require
all data fields for new issues in corporate debt securities to be
reported prior to the first trade. FINRA alternatively considered
maintaining the Rule's phased reporting approach for offerings in
corporate debt securities subject to the proposal, with certain core
information required prior to the first trade and an extended 60-minute
window for remaining information, given the additional data fields that
would be required to be reported under the proposal. However, FINRA
believes that the proposed approach to require uniform pre-first trade
reporting better supports the stated goals in the FIMSAC Recommendation
to increase the efficiency of the corporate bond market and promote
fair competition among all market participants. Specifically, a uniform
reporting approach would allow FINRA to collect and make all of the
data available immediately to market participants, resulting in a more
consistent, timely and complete data set that will support more
efficient pricing, trading and settlement of bonds. FINRA also believes
that the proposed uniform reporting approach better advances the
element in the FIMSAC Recommendation stating that managing underwriters
should be required to report the data elements to FINRA no later than
reporting such data elements to any third party not involved in the
offering, including reference data vendors. Uniform pre-first trade
reporting furthers this element, while not unduly constraining the
sharing of data that may be necessary as part of the underwriting
process.\10\ On balance, FINRA believes the significant benefits of
uniform pre-first trade reporting outweigh the additional burdens on
underwriters, but invites interested parties to submit comments on this
(or any) aspect of the proposal.
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    \10\ See FIMSAC Recommendation at pg. 3.
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    Further in line with the FIMSAC Recommendation, FINRA would
disseminate corporate bond new issue reference data collected under
Rule 6760 upon receipt and provide subscribers with access to the data
for fees determined on a commercially reasonable basis.\11\ Under Rule
7730 (Trade Reporting and Compliance Engine (TRACE)), FINRA would make
the corporate bond new issue reference data available to any person or
organization for a fee of $250 per month for internal purposes only,
and for a fee of $6,000 per month where the data is retransmitted or
repackaged for delivery and dissemination outside the organization.
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    \11\ Under proposed Rule 6760(d), there may be some information
collected under the Rule for security classification or other
purposes that would not be disseminated. This may include, for
example, information about ratings that is restricted by agreement.
In addition, CUSIP Global Services' (``CGS'') information would not
be disseminated to subscribers that do not have a valid license
regarding use of CGS data.
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    This data would be accessible by all member firms and other market
participants and data users, with the fees assessed only on those that
choose to subscribe. The $6,000 charge for redistribution would apply
to any retransmission or redistribution of the data to any party other
than the subscriber. For example, the redistribution charge would apply
to a firm that displays the data on a website to its clients or
customers, or to a clearing firm that displays or otherwise makes the
data available to its correspondents. However, FINRA notes that because
the charge includes unlimited redistribution rights, FINRA would assess
it only once on the party that subscribes. Accordingly, FINRA would not
assess any charge on firms that receive the data from data vendors or
other market participants that have subscribed for redistribution
rights, nor would FINRA increase the amount charged to the subscriber
based on how often it redistributes the data. As discussed further
below, FINRA anticipates that many market participants, including
clearing firms and correspondent firms, will receive the data from data
vendors consistent with what they do today.
    If the Commission approves the filing, FINRA will announce the
effective date of the proposed rule change in a Regulatory Notice to be
published no later than 90 days following publication of the Regulatory
Notice. The effective date will be no later than 270 days following
Commission approval. Based on implementation of this proposal, FINRA
would evaluate a potential expansion of the new issue reference data
service to include other debt products.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\12\ 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, to foster cooperation and coordination with
persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in
securities, to remove impediments to and perfect the mechanism of a
free and open market, and, in general, to protect investors and the
public interest. FINRA also believes that the proposed rule change is
consistent with the provisions of Section 15A(b)(5) of the Act,\13\
which requires, among other things, that FINRA rules provide for the
equitable allocation of reasonable dues, fees and other charges among
members and issuers and other persons using any facility or system that
FINRA operates or controls.
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    \12\ 15 U.S.C. 78o-3(b)(6).
    \13\ 15 U.S.C. 78o-3(b)(5).
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    The proposed changes to Rule 6760 are designed to improve
transparency and efficiency in the corporate bond markets, consistent
with Section 15A(b)(6).\14\ The proposal would do so by providing
market participants in the corporate bond markets with reliable and
timely new issue reference data to facilitate secondary trading in and
settlement of these instruments, particularly during the period when

new issues first start trading in the secondary markets. As discussed
throughout the filing, the proposal would advance the FIMSAC
Recommendation, which was intended to address the lack of a reliable
and timely centralized source for corporate bond new issue reference
data. The FIMSAC Recommendation explained that reliable, consistent and
timely reference data is necessary to support the efficient trading and
settlement of bonds, and is increasingly important as market
participants rely more on electronic trading platforms. FINRA believes
that the proposed new issue data reporting and dissemination
requirements in Rule 6760 are designed to and will support and further
the efficient trading and settlement of bonds, provide uniform and
timely access to important new issue corporate reference data, and
otherwise promote the objectives of Section 15A(b)(6).
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    \14\ Related changes to the definition of corporate debt
security in Rule 2232 are technical, non-substantive, and
clarifying, and are intended to support the proposed changes to Rule
6760, consistent with Section 15A(b)(6).
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    FINRA further believes that the proposed fees for the corporate
bond new issue reference data service contemplated by Rule 7730 are
fair, equitable, reasonable, and not unfairly discriminatory. As
discussed in the next section with respect to anticipated economic
impacts of the proposal, the proposed fees would price the corporate
bond new issue reference data service as a utility, using cost plus
margin pricing, which FINRA believes is a reasonable means to meet
ongoing operating costs related to the initiative. The data service
would be available on the same terms to any party that wished to
subscribe with two flat prices, one for internal use only and one for
redistribution. FINRA believes that the proposed fee structure will
allow for broad distribution of the new issue reference data to market
participants, and that the fees are reasonably designed to cover
FINRA's ongoing operational costs. Specifically, the proposed fee
structure reflects FINRA's estimates of the ongoing operational costs
related to the new proposed data service, including direct staff
allocated to the initiative, and related functions, including
technology, legal, billing, and finance. Accordingly, FINRA believes
the proposed fees are reasonably designed to recover the costs of the
data service with equitable and not unfairly discriminatory charges
based on subscribers' use of the data for their business purposes.
FINRA notes that the proposed fee structure, with use-based tiers that
are based on projected costs, is consistent with fees the SEC
previously has approved. The SEC has stated its belief that a ``use-
based approach is consistent with equitable distribution of fees'' and
approved use-based fees when reasonably related to costs.\15\
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    \15\ See Securities Exchange Act Release No. 72280 (May 29,
2014), 79 FR 32351, 32353 (June 4, 2014) (Order Approving File No.
SR-FINRA-2014-018) (approving fees for ATS data that varied
according to use and discussing the Commission's prior approval of
similar use-based TRACE fees).
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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 Need
    Currently in the corporate bond market, new issue reference data is
not collected consistently or with established data standards, nor is
it uniformly distributed to market participants in a timely manner.
Data providers collect new issue reference data from different sources,
typically underwriters, which often results in incomplete and
inconsistent data. This holds true for any individual data provider and
for the aggregate data collected; that is, even if a market participant
gained access to all commercial products available today, the data may
not be complete, reliable or timely for all new issues. The speed that
data providers collect and disseminate data also varies and can be as
long as several days.
    There are significant frictions in the corporate bond market that
have made finding a solution to this problem difficult. First, because
data is provided voluntarily by underwriters today, data providers may
not be able to assure the completeness, accuracy and timeliness of the
information. Second, underwriters may have differing incentives with
respect to the importance of providing the information to data
providers.\16\ Finally, because data providers are paid, at least in
part, for the data they collect, there is little incentive to share
information among themselves.
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    \16\ For example, underwriters may provide the information to
data providers who also provide services in the underwriting process
like modeling and pricing of the bonds, or to data providers who
also provide trading platforms.
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    The lack of accurate, complete and timely corporate bond new issue
reference data imposes costs to various market participants. Incomplete
new issue reference data prevents traders from identifying and
evaluating newly issued bonds for trading.\17\ This may lead to loss of
trading opportunities for traders, loss of business for trading
platforms, and less demand for the initial subscription of the bond
issuance, all of which can hurt issuers and underwriters, decreasing
demand and liquidity for bonds. Variation of reference data
completeness across data providers puts small traders who cannot afford
multiple data providers at a disadvantage in accessing the new issue
market. For trading platforms, clearing firms and electronic trading
platforms, inaccurate reference data creates inconsistencies in trading
and the settlement process and increases transaction costs. The lack of
centralized data sources forces data providers and trading platforms to
manually collect or correct data, which can be costly.
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    \17\ According to one trading platform, its reference data
provider would only provide data relating to new issues the morning
after issuance, which resulted in the firm's clients not being able
to trade the bond when it began to trade (usually the previous
afternoon).
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Baseline
    This section explains the current dissemination process of the new
issue reference data in the corporate bond market, including summary
statistics on the new issuance market and underwriters.
    In 2018, 22,385 TRACE-Eligible corporate debt securities were
issued, including corporate bonds and equity linked notes. New issue
reference data is generated by underwriters. It is usually aggregated
by data providers and then sold to various market participants for
consumption, including trading and clearing firms, electronic trading
platforms, broker-dealers and bond investors. As noted above, FINRA
conducted outreach to understand the dissemination process, direct and
indirect costs imposed by the process, and ways it might be
improved.\18\
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    \18\ FINRA talked to four data providers, three underwriters,
two trading platforms, and two clearing firms.
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    To facilitate trade reporting, as discussed above, underwriters are
required to report limited new issue information to FINRA under Rule
6760. Underwriters also often provide additional new issue reference
data to FINRA on a voluntary basis on the FINRA TRACE New Issue Form.
Besides regulatory reporting to FINRA, underwriters follow different
practices to report reference data on new corporate bond issues to
other parties. To facilitate trading of corporate bonds, underwriters
usually report some of the data to their clients, which are generally
institutional investors. Some also report to certain aggregators and
media vendors. No standard exists among underwriters on whom to report
new

issuances to, what fields to include and on what timeline, so the
dissemination of new issue reference data is fragmented and
inconsistent.
    Based on FINRA's conversations with data providers, no systematic
ways exist for data providers to obtain complete, timely and reliable
reference information on corporate bond new issues. Individual
underwriters send new issue reference information to some data
providers, often through email or term sheets. However, data providers
rely on various sources for collecting the reference data for other new
issues, including preliminary deal documents, issuers, vendor data,
pricing wires and final prospectuses. Since information is collected
through different sources, the coverage of new issues varies by data
providers and, as a result, data can be inconsistent. The speed at
which data providers collect reference data also varies. Any individual
data provider might have reference data for only a subset of the newly
issued bonds on the pricing day when bonds are sold in the primary
market. The coverage may rise through the trading day and reach its
steady level several days after the issuance.
    FINRA understands that individual firms typically gain access today
to new issue reference data by purchasing the services of one or more
third-party data vendors. Introducing firms may gain access to the
information via their clearing firm, which provides the data as part of
its services. Similarly, some firms may grant access to the new pricing
information to their clients, either directly or through some research
product.
    FINRA understands that trading platforms typically subscribe to
data providers and augment their reference data from other sources,
such as term sheets and websites to collect missing reference
information. Clients of trading platforms rely on the platforms to
provide new issue reference data.
    Electronic trading platforms capture a significant portion of the
corporate bond trading volume. The U.S. Treasury Department estimates
that electronic platforms have captured 20% of investment grade
corporate bond trading.\19\ According to Greenwich Associates' 2017
U.S. Fixed-Income Study, almost 85% of investors in investment grade
instruments surveyed use electronic trading, and close to 73% of
investors in high-yield instruments do.
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    \19\ See Jake Liebschutz and Brian Smith, Examining Corporate
Bond Liquidity and Market Structure, (March 7, 2016), https://www.treasury.gov/connect/blog/Pages/Examining-Corporate-Bond-Liquidity-and-Market-Structure.aspx.
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Economic Impacts
Pricing of the Proposed Service
    New issue reference data is essential for the pricing and trading
of bonds and the proper functioning of the corporate bond market.
However, building such data requires extensive coordination among
market participants and manual data collection, compilation and
cleaning efforts for each data vendor. By using a regulatory
requirement to centralize data reporting to FINRA, FINRA could reduce
these duplicated efforts and thus costs, while improving the accuracy,
completeness and timeliness of the information made available. FINRA is
proposing to price the reference data as a utility, using cost plus
margin pricing. This ensures that market participants get accurate and
timely reference data, while limiting the price of new issue reference
data as a barrier to entry to bond market participants.
    Besides improving the quality of new issue reference data available
to the market, FINRA believes that the data service will promote fair
and reasonable pricing for reference data by introducing an alternative
source in addition to what is provided by the incumbent data providers.
As discussed in more detail below, currently underwriters have
relatively few incentives to report to data providers other than the
prevalent incumbent data providers. The incumbent data providers face
less competition because of the complexity of building the database as
discussed previously, leading to a relatively high barrier to entry. By
providing an alternative option for the data at cost plus margin, the
service will exert disciplinary pressure on the current pricing for the
data. The proposed service may not be the only collector of reference
data. Data providers may continue to collect data from their existing
sources and on a range of bond reference data beyond the limited fields
provided in the proposed service. By lowering the barrier to entry and
allowing data providers to compete on other dimensions and value-added
services, the service would promote competitive pricing of the
reference data.
Benefits
    The proposed service would be a central source for collecting and
disseminating new issue reference data, and would provide market
participants with more complete, accurate and timely data about new
issues. FINRA expects that the new issue reference data service will
increase the transparency of the corporate bond market, especially
around the issuance period. Historically, TRACE implementation has
demonstrated that transparency has facilitated trading and improved
market quality.\20\ Thus, FINRA believes that the increased
transparency as a result of the proposed reference data service will
also benefit the market.
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    \20\ See FINRA's website for a list of TRACE Independent
Academic Studies, available at http://www.finra.org/industry/trace/trace-independent-academic-studies.
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    Accurate and timely information about newly issued corporate bonds
would allow potential buyers the opportunity to evaluate the bonds for
investment, especially right after issuance. This likely increases
their investment choices. Index operators would also have the
opportunity to evaluate new bonds for timely inclusion. This helps
ensure that the index accurately represents the concurrent bond market
condition.
    Accurate and timely new issue data also would benefit trading
platforms and clearing firms by reducing broken trades and errors in
trading due to inconsistent information. It also would increase trading
speed by removing delays due to manually correcting reference data
errors. Accurate and timely new issue reference data may also increase
trading volumes that might otherwise be lost when traders do not have
reference data on newly issued bonds.
    A central source for new issue reference data would likely benefit
most data providers by providing them with a complete, accurate and
relatively low cost source of data. It would reduce the need for data
providers to manually collect missing data or correct errors in the new
issue reference data.
    Issuers and underwriters may benefit from the service as well. The
new issue reference data service may reduce trading costs and increase
trading volume as discussed above. To the extent that this results in
increased liquidity, it will lower the cost of capital for issuers.
Increased awareness of the new issuances may also help underwriters in
marketing and underwriting. Underwriters may also benefit from the
reference data that underwriters collectively submit by reducing the
need to manually research other reference data sources for proper
procurement of information.
Costs and Negative Impacts
    The proposed rule change may impose costs on underwriters to report

the additional reference data to FINRA. Currently, underwriters provide
limited corporate bond reference data to FINRA, some required under
Rule 6760 and some voluntarily, and they may provide information to one
or more data vendors. The costs associated with providing the new
proposed reference data fields to FINRA depends on underwriters'
current reporting systems, the speed at which they currently are able
to provide this information, and the timing with which they report the
data today. Reporting additional fields to FINRA as outlined in the
proposed rule may require upgrades to their current system for
reporting to incorporate both the new fields as well as to meet the new
timing required by the proposed rule change. Underwriters may also
incur costs when they choose to use third-party vendors to report the
reference data, although FINRA anticipates that underwriters will
decide to report themselves or through a third party based on their
cost and efficiencies. Based on conversations with underwriters, FINRA
understands that underwriters do not anticipate incurring significant
costs for reporting under this proposal.
    The underwriter market is highly skewed towards large underwriters,
with 71.24% of dollar volume being led by the ten largest underwriters
in the first three quarters of 2018, according to Bloomberg league
tables. This may create a concern that underwriters that underwrite
fewer deals may be burdened disproportionally if there are fixed costs
associated with amending an underwriter's reporting system to meet the
additional requirements for new issue reference data submission as set
forth in the proposal. Additional burden may be alleviated because
reporting to FINRA would reduce or eliminate the need for underwriters
to report to other parties, or by the fact that underwriters can
leverage investments already made in the existing reporting system
necessary under Rule 6760.
    Subscribers to FINRA's new issue reference data service will incur
a subscription fee and setup cost. Subscribers may pay the lower fee
for internal usage of the data or pay the higher fee for redistributing
the data. Firms redistributing the data may pass on the cost to their
clients; however, FINRA will not charge redistributors anything beyond
the flat $6,000 per month charge regardless of how often it
redistributes the data. Thus those firms gaining access indirectly, for
example through a clearing firm, may be charged by the clearing firm as
part of their agreements. However, FINRA expects that any incremental
additional cost charged by a redistributor to cover new issue reference
data may be relatively low because FINRA would allow unlimited
redistribution rights for the $6,000 monthly charge. FINRA also
believes that the incremental additional costs charged by
redistributors may be relatively low compared to the current cost that
subscribers incur to obtain new issue reference data for corporate
bonds. FINRA anticipates that many market participants will receive the
data from redistributors, consistent with what they do today.
    A centralized source of new issue reference data is more efficient
than the current process of sourcing reference data, and FINRA intends
to price the service as a utility provider. Subscribers would be able
to access the full data stream from a single source rather than have to
engage in multiple contracts or limit their access to data. Direct
subscription to the reference data service is completely voluntary, so
any subscription indicates that the benefit outweighs the cost and
thus, it will not impose a regulatory burden on subscribers. For those
firms that gain access indirectly through another subscriber, costs may
decrease if the costs to subscribers to obtain new issue reference data
is lower and some or all of those savings are passed onto the firms.
    Finally, a centralized source of new issue reference data may
create a single point of failure in the new issue reference data market
if data providers stop collecting data on their own and solely rely on
the data service. We expect this is unlikely to happen because data
providers will likely continue to collect a range of bond reference
data beyond the limited fields provided in the proposed service in
order to provide value added services to their offerings.
Competition and Efficiency
    The proposed service will likely affect competition among market
participants. FINRA believes the service will promote competition in
general while ensuring the essential functioning of the bond market by
providing accurate and timely data for pricing and trading of corporate
bonds.
    The proposed service may increase competition among data providers.
FINRA learned through discussions with market participants that the
quality and timeliness of reference data varies greatly across data
providers. Underwriters provide the reference data and in return
receive a benefit. Given the prevalence of the incumbent data
provider's service, underwriters have less incentive to report to other
data providers. This might create a high barrier to entry for other
data providers.\21\ By providing an option of complete and timely new
issue reference data to data providers, the proposed service would
promote competition by lowering the barrier to entry. Data providers
can compete on other dimensions, such as presentation, ease of access,
integration with other data, supplementary fields and other value-added
services.
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    \21\ For example, one trading platform/data provider told FINRA
that a reference data contract with the incumbent provider of new
issue data is prohibitively expensive, so it has to use other less
expensive reference data sources and a higher degree of manual
intervention.
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    The proposed service also would promote competition among firms by
lowering the barrier to entry for broker-dealers trading newly issued
corporate bonds. For example, accurate and timely information about
newly issued corporate bonds at relatively low cost would especially
benefit small broker-dealers that would otherwise have less access to
such information.
    The proposed service would increase efficiency by providing data
providers with the essential fields on the complete set of new
issuances on which they can build their reference data. It reduces the
need for data providers and trading platforms to manually correct
errors and fill in missing data.\22\
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    \22\ For example, one trading platform told FINRA that in
addition to the cost of their contract with the reference data
provider, they hired an employee specifically to maintain the
integrity of the new issue reference data and the estimated cost for
the person-hours needed for this is about $150k/year.
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Alternatives Considered
    FINRA understands that for the municipal bonds new issue reference
data service required by the MSRB and operated by DTCC, costs may be
recovered from generally applicable connectivity fees to underwriters,
service providers, and information vendors that use NIIDS. FINRA has
determined that rather than imposing connectivity fees on underwriters,
which could be ultimately passed on to other users, it is more
appropriate to recover fees from parties that choose to receive and use
the data for their business purposes.
    FINRA also considered whether there was an appropriate alternative
approach that involved an expansion of the DTCC's NIIDS service to
include corporate new issue reference data. However, based on
operational and commercial reasons, including inefficiencies with
integrating the existing FINRA reporting infrastructure with a separate
DTCC infrastructure, FINRA concluded that expanding the

current existing FINRA reporting and dissemination framework was a more
effective and efficient approach. In addition, the current proposal
reflects the unanimous view of the FIMSAC, which stated that FINRA was
best situated to carry out the Recommendation because it would be an
incremental addition to current practices, both for FINRA and the
underwriters that must report corporate new issue information.
    In addition, as discussed above, FINRA considered an alternative,
phased reporting approach, with certain core information required prior
to the first trade and an extended 60-minute window for remaining
information. FINRA is not proposing this alternative approach for the
reasons discussed above, but FINRA invites interested parties to submit
comments on this or any other element of the proposal.

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

    Written comments were neither solicited nor received. As noted
above, the proposed rule change is based on the FIMSAC Recommendation,
which was published on the SEC website but did not generate any written
comments.

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 up to 90 days (i) as the
Commission may designate 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. Comments may be submitted by any of
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include
File Number SR-FINRA-2019-008 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-FINRA-2019-008. 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 the 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-2019-008, and should be submitted
on or before April 29, 2019.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-06786 Filed 4-5-19; 8:45 am]
 BILLING CODE 8011-01-P