[Federal Register Volume 81, Number 161 (Friday, August 19, 2016)]
[Notices]
[Pages 55500-55510]
[FR Doc No: 2016-19773]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78573; File No. SR-FINRA-2016-032]

Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a Proposed Rule Change Relating to
FINRA Rule 2232 (Customer Confirmations) To Require Members To Disclose
Additional Pricing Information on Retail Customer Confirmations
Relating to Transactions in Fixed Income Securities

August 15, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'' or ``SEA'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby
given that on August 12, 2016, 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 2232 (Customer Confirmations) to
require members to disclose additional pricing information on retail
customer confirmations relating to transactions in fixed income
securities.
    The text of the proposed rule change is available on FINRA's Web
site 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 proposing to amend Rule 2232 to require members to provide
additional pricing information on customer confirmations in connection
with non-municipal fixed income transactions with retail customers.
Specifically, if a member trades as principal with a non-institutional
customer in a corporate debt or agency debt security, the member must
disclose the member's mark-up or mark-down from the prevailing market
price for the security on the customer confirmation, if the member also
executes one or more offsetting principal transaction(s) on the same
trading day on the same side as the customer trade, the aggregate size
of which meets or exceeds the size of the customer trade.
    While members are already required, pursuant to SEA Rule 10b-10, to
provide customers with pricing information, including transaction cost
information, in connection with transactions in equity securities where
the member acted as principal, no comparable requirement currently
exists for transactions in fixed income securities.\3\ Based on
statistics that are discussed in greater detail below, FINRA believes
that some customers pay materially higher mark-ups or mark-downs in
retail size trades than other customers for the same fixed income
security. FINRA believes that the proposed requirement will provide
meaningful and useful pricing information to retail customers in fixed
income securities. FINRA believes that the proposal will better enable
customers to evaluate the cost and quality of the execution service
that members provide, will promote transparency into firms' pricing
practices, and will encourage communications between firms and their
customers about the pricing of their fixed income transactions.
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    \3\ See 17 CFR 240.10b-10. Under Rule 10b-10, where a member is
acting as principal for its own account and is not a market maker in
an equity security, and receives a customer order in that equity
security that it executes by means of a principal trade to offset
the contemporaneous trade with the customer, the rule requires the
member to disclose the difference between the price to the customer
and the dealer's contemporaneous purchase (for customer purchases)
or sale price (for customer sales). See Rule 10b-10(a)(2)(ii)(A).
Where the firm acts as principal for any other transaction in an NMS
stock, or an equity security that is listed on a national securities
exchange and is subject to last sale reporting, the rule requires
the member to report the reported trade price, the price to the
customer in the transaction, and the difference, if any, between the
reported trade price and the price to the customer. See Rule 10b-
10(a)(2)(ii)(B).
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    As described in greater detail in Item II.C. below, FINRA initially
solicited comment on a related proposal in Regulatory Notice 14-52
(``initial proposal''),\4\ and subsequently on a revised proposal in
Regulatory Notice 15-36 (``revised proposal'').\5\ FINRA also has been
working with the MSRB to develop similar proposals, as appropriate, to
ensure consistent disclosures to customers across debt securities and
to reduce the operational burdens for firms that trade multiple fixed
income securities. As such, the MSRB has been developing its own
pricing information disclosure proposal, and FINRA and the MSRB
published their initial and revised proposals concurrently.\6\ FINRA
understands that the MSRB intends to file a substantially similar rule
change.
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    \4\ See Regulatory Notice 14-52 (November 2014).
    \5\ See Regulatory Notice 15-36 (October 2015).
    \6\ See MSRB Regulatory Notice 2015-16 (September 2015), MSRB
Regulatory Notice 2014-20 (November 2014).
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    Provided below is a more detailed description of each aspect of the
proposed rule change.
Scope of the Disclosure Requirement
    The proposed rule applies where the member buys (or sells) a
security on a principal basis from (or to) a non-institutional customer
and engages in one or more offsetting principal trades on the same
trading day in the same security, where the size of the member's
offsetting principal trade(s), in the aggregate, equals or exceeds the
size of the customer trade. A non-institutional customer is a customer
account that is not an institutional account, as defined

in Rule 4512(c).\7\ In addition, the proposed rule applies only to
transactions in corporate debt securities, as defined in the proposed
rule,\8\ and agency debt securities, as defined in Rule 6710(l).\9\
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    \7\ Rule 4512(c) defines an institutional account as an account
of ``(1) a bank, savings and loan association, insurance company or
registered investment company; (2) an investment adviser registered
either with the SEC under Section 203 of the Investment Advisers Act
or with a state securities commission (or any agency or office
performing like functions); or (3) any other person (whether a
natural person, corporation, partnership, trust or otherwise) with
total assets of at least $50 million.''
    \8\ The proposed rule defines a corporate debt security as a
``debt security that is United States (``U.S.'') dollar-denominated
and 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, but does not include a Money Market
Instrument as defined in Rule 6710(o) or an Asset-Backed Security as
defined in Rule 6710(cc).''
    \9\ Rule 6710(l) defines an agency debt security as ``a debt
security (i) issued or guaranteed by an Agency as defined in
paragraph (k); or (ii) issued or guaranteed by a Government-
Sponsored Enterprise as defined in paragraph (n). The term excludes
a U.S. Treasury Security as defined in paragraph (p) and a
Securitized Product as defined in paragraph (m), where an Agency or
a Government-Sponsored Enterprise is the Securitizer as defined in
paragraph (s) (or similar person), or the guarantor of the
Securitized Product.'' To make the proposed changes to Rule 2232
applicable to agency debt securities, as part of this proposal,
FINRA will amend Rule 0150 to add Rule 2232 to the list of FINRA
rules that apply to ``exempted securities,'' except municipal
securities.
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    FINRA believes that the proposed rule provides meaningful pricing
information to individual investors that would most benefit from such
disclosure, while not imposing unduly burdensome disclosure
requirements on members. FINRA believes that requiring disclosure for
retail customers, i.e., accounts that are not institutional accounts,
is appropriate because retail customers typically have less ready
access to market and pricing information than institutional customers.
FINRA believes that using the definition of an institutional account as
set forth in Rule 4512(c) to define the scope of the proposal is
appropriate because firms use this definition in other rule contexts,
therefore reducing the implementation costs associated with this
proposal.\10\
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    \10\ As discussed in greater detail below, FINRA initially
proposed that the disclosure requirement would apply to customer
trades of a ``qualifying size,'' which was defined as customer
transactions involving 100 bonds or less or bonds with a face amount
of $100,000 or less, based on reported quantity. In response to
comments that the proposed size-based standard could either exclude
retail customer transactions above that amount from the proposed
disclosure, or subject institutional transactions below that amount
to the proposed disclosure, FINRA revised the proposal to
incorporate the Rule 4512(c) definition of an institutional account.
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Same Day Triggering Timeframe
    FINRA believes that it is appropriate to require disclosure of the
mark-up or mark-down where the firm's offsetting principal trade(s)
equaled or exceeded the size of the customer trade on the same trading
day. To the extent that a member will often use its contemporaneous
cost or proceeds, e.g., the price it paid or received for the bond, as
the prevailing market price for purposes of calculating the mark-up or
mark-down, FINRA believes that limiting the disclosure to those
instances where there is an offsetting trade in the same trading day
will reduce the variability of the mark-up and mark-down calculation.
    As is discussed in greater detail in Item II.C., a number of
commenters stated that the window for triggering disclosure should be
limited to two hours. Among other things, commenters argued that a two-
hour window would be easier to implement, and would more closely
capture riskless principal trades, which would align the proposed
disclosure to the riskless principal disclosure requirements for equity
securities under Rule 10b-10.
    As is also discussed below, FINRA has generated statistics, based
on trade data reported to the Trade Reporting and Compliance Engine
(``TRACE''), that indicate that the majority of firm principal/customer
trades that occur within the same trading day occur within thirty
minutes of one another. Nonetheless, FINRA believes that there are
added benefits to requiring disclosure for trades that occur within the
same trading day, rather than only trades that occur within two hours.
First, the full-day window will ensure that more investors receive
mark-up or mark-down disclosure, even where their trades occur more
than two-hours from the firm principal trade (but still occur on the
same trading day). Second, the full-day window may make members less
likely to alter their trading patterns in response to the proposed
rule, as members would be required to hold positions overnight to avoid
the proposed disclosure.\11\ Finally, as is discussed further below,
TRACE data for 3Q15 shows a material difference between the median
mark-up/mark-down and the mark-ups/mark-downs at the tail of the
distribution, indicating that some customers (those at the tail of the
distribution) paid considerably more than others (at the median of the
distribution). This data indicates that there is variability in the
difference in prices paid in both firm principal and customer trades
that occurred close in time to one another, e.g., within 30 minutes,
and in firm principal and customer trades that did not occur close in
time to one another. Based on this data, FINRA believes that the
proposed disclosure would provide valuable information for customers
whose trades occurred on the same trading day as the firm principal
trade, regardless of whether those trades occurred close in time.
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    \11\ It is important to note that, under Rule 5310 (Best
Execution and Interpositioning), members must use reasonable
diligence to ascertain the best market for the security and buy or
sell in such market so that the resultant price to the customer is
as favorable as possible under prevailing market conditions.
Supplementary Material .01 to Rule 5310 further emphasizes that a
member must make every effort to execute a marketable customer order
that it receives fully and promptly. Any intentional delay of a
customer execution to avoid the proposed rule or otherwise would be
contrary to these duties to customers. If the proposed rule change
is approved, FINRA will monitor trading patterns to ensure firms are
not purposely delaying a customer execution to avoid the disclosure.
A firm found to purposefully delay the execution of a customer order
to avoid the proposed disclosure may be in violation of the proposed
rule, Rule 5310 and Rule 2010 (Standards of Commercial Honor and
Principles of Trade).
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    Some commenters recommended that FINRA limit the disclosure
obligation to riskless principal transactions involving retail
investors, as this would more accurately reflect dealer compensation
and transaction costs, and would be more consistent with the stated
objectives of the SEC in this area. These commenters would apply the
proposed rule to riskless principal transactions as previously defined
in the equity context by the Commission, where the broker-dealer has an
``order in hand'' at the time of execution. However, FINRA believes
that it may be difficult to objectively define, implement and monitor a
riskless principal trigger standard for fixed income securities and
also believes that using the riskless principal standard ultimately is
too narrow and that customers will benefit from the disclosure
irrespective of whether the firm's capacity on the transaction was
riskless principal.
Non-Arms-Length Affiliate Transactions
    With respect to the offsetting principal trade(s), where a member
buys from, or sells to, certain affiliates, the proposal would require
the member to ``look through'' the member's transaction with the
affiliate to the affiliate's transaction with a third party in
determining when the security was acquired and whether the ``same
trading day'' requirement has been triggered. Specifically, FINRA
proposes to require members to apply the ``look through'' where a
member's transaction with its affiliate was not at arms-length. For

purposes of the proposed rule change, an ``arms-length transaction''
would be considered a transaction that was conducted through a
competitive process in which non-affiliate firms could also
participate--e.g., pricing sought from multiple firms, or the posting
of multiple bids and offers--and where the affiliate relationship did
not influence the price paid or proceeds received by the member. As a
general matter, FINRA would expect that the competitive process used in
an ``arms-length'' transaction, e.g., the request for pricing or
platform for posting bids and offers, is one in which non-affiliates
have frequently participated. FINRA believes that sourcing liquidity
through a non-arms-length transaction with an affiliate is functionally
equivalent to selling out of its own inventory for purposes of the
proposed disclosure trigger. FINRA therefore believes it is appropriate
in those circumstances to require a member to ``look through'' its
transaction with its affiliate to the affiliate's transaction with a
third party to determine whether the proposed rule applies in these
circumstances.\12\
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    \12\ Similarly, in a non-arms-length transaction with an
affiliate, the member also would be required to ``look-through'' to
the affiliate's transaction with a third party and related cost or
proceeds by the affiliate as the basis for determining the member's
calculation of the mark-up or mark-down pursuant to Rule 2121 (Fair
Prices and Commissions).
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Exceptions for Functionally Separate Trading Desks and Fixed-Price
Offerings
    The proposed rule also contains two exceptions from the proposed
disclosure requirement. First, if the offsetting same day firm
principal trade was executed by a trading desk that is functionally
separate from the firm's trading desk that executed the transaction
with the customer, the principal trade by that separate trading desk
would not trigger the disclosure requirement. Firms must have in place
policies and procedures reasonably designed to ensure that the
functionally separate principal trading desk through which the member
purchase or member sale was executed had no knowledge of the customer
transaction.\13\ FINRA believes that this exception is appropriate
because it recognizes the operational cost and complexity that may
result in requiring a firm principal trade executed by a separate,
unrelated trading desk as the basis for determining whether a mark-up
or mark-down disclosure is triggered on the customer confirmation. For
example, the exception would allow an institutional desk within a firm
to service an institutional customer without necessarily triggering the
disclosure requirement for an unrelated trade performed by a separate
retail desk within the firm. At the same time, in requiring that the
member have policies and procedures in place that are reasonably
designed to ensure that the functionally separate principal trading
desk had no knowledge of the customer transaction, FINRA believes that
the exception is sufficiently rigorous to minimize concerns about the
potential misuse of the exception. In other words, in the example
above, the firm could not use the functionally separate trading desk
exception to avoid the proposed disclosure requirement if trades at the
institutional desk were used to source transactions at the retail desk.
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    \13\ This exception is distinguished from the ``look through''
provision noted above, whereby the customer transaction is being
sourced through a non-arms-length transaction with the affiliate.
Under the separate trading desk exception, functionally separate
trading desks are required to have policies and procedures in place
that are reasonably designed to ensure that trades on the
functionally separate desks are executed with no knowledge of each
other and reflect unrelated trading decisions. Additionally, FINRA
notes that this exception would only apply to determine whether or
not the proposed disclosure requirement has been triggered; it does
not change a member's existing requirements relating to the
calculation of its mark-up or mark-down under Rule 2121.
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    FINRA also believes that this exception is appropriate and
consistent with the concept of functional and legal separation that
exists in connection with other regulatory requirements, such as SEC
Regulation SHO, and notes that some members already maintain
functionally separate trading desks to comply with these requirements.
    Second, the proposed rule would not apply if the member acquired
the security in a fixed-price offering and sold the security to non-
institutional customers at the same fixed-price offering price on the
day the securities were acquired. In a fixed-price offering, the
compensation paid to the firm, such as the underwriting fee, is paid
for by the issuer and described in the prospectus. Given the
availability of information in connection with a fixed-price offering,
FINRA believes that the proposed disclosure is not warranted in those
instances where the security is sold at the fixed-price offering price.
Proposed Information To Be Disclosed on the Customer Confirmation
    If the transaction meets the criteria described above, the member
would be required to disclose the member's mark-up or mark-down from
the prevailing market price for the security. The mark-up or mark-down
would be calculated in compliance with Rule 2121 and the supplementary
material thereunder, and would be expressed both as a total dollar
amount and as a percentage of the prevailing market price.\14\ FINRA
believes that it is appropriate to require firms to calculate the mark-
up in compliance with Rule 2121, as Supplementary Material .02 to Rule
2121 provides extensive guidance on how to calculate the mark-up for
the fixed income securities to which the proposal would apply,
including a presumption to use contemporaneous cost or proceeds. While
some commenters noted the operational cost and complexity of
implementing a previous iteration of this proposal, FINRA notes that
firms are currently subject to Rule 2121 and are required to evaluate
the mark-ups that they charge in connection with trades to ensure that
they are fair and not excessive.\15\ FINRA notes that the proposal does
not alter the requirements of Rule 2121, or otherwise intend to modify
how firms calculate mark-ups. FINRA recognizes that the determination
of the prevailing market price of a particular security may not be
identical across firms and FINRA will expect that firms have reasonable
policies and procedures in place to calculate the prevailing market
price and that such policies and procedures are applied consistently
across customers. Although the Supplementary Material to Rule 2121
provides extensive guidance, to the extent that firms have additional
interpretive questions on the application of Rule 2121 to specific
scenarios, FINRA will issue additional guidance as necessary.
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    \14\ FINRA and the MSRB conducted investor testing which
indicated that investors found that disclosing the mark-up or mark-
down both as a dollar amount and as a percentage of the prevailing
market price would be more useful than only disclosing it in one of
those forms. FINRA and the MSRB also solicited comment on whether to
require members to disclose additional information on the trade
confirmation for trades with retail customers, including whether
firms should provide a link to TRACE, and whether firms should
disclose the time of the customer trade. In response to comments
received and support based on investor testing, FINRA intends to
submit a rule filing in the near future that proposes these
requirements.
    \15\ Because the proposed mark-up disclosure is not triggered
unless an offsetting principal trade occurred on the same day, FINRA
anticipates that the number of customer trades that will use a price
other than the price of a contemporaneous trade as the prevailing
market price are small. Using 3Q15 data, of the retail-size customer
trades that have an offsetting firm principal trade on the same
trading day, over 83 percent of those trades occurred within 30
minutes of each other. In 10.5 percent of these instances, an
intervening trade, either by the same firm or a different market
participant, occurred. Given the close time proximity between the
majority of firm principal and customer trades, and the fact that
most of these trades did not have an intervening trade, firms will
typically use their contemporaneous cost as the prevailing market
price.

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    FINRA believes that the proposal will provide retail customers with
several important benefits. As discussed above, members are not
required to provide customers who buy or sell fixed income securities
with the same pricing information regarding mark-ups and mark-downs as
customers who buy or sell equity securities. FINRA believes that
requiring mark-up/mark-down disclosure will provide retail investors in
non-municipal fixed income securities in transactions covered by the
rule with comparable information to what retail investors in equity
securities currently receive. FINRA believes that this disclosure will
better assist fixed income investors in understanding and comparing the
transaction costs associated with their purchases and sales.
    If the Commission approves the proposed rule change, FINRA will
announce the effective date of the proposed rule change no later than
90 days following Commission approval. The effective date will be no
later than 365 days following Commission approval.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\16\ 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, and Section 15A(b)(9) of the Act,\17\ which requires
that FINRA rules not impose any burden on competition that is not
necessary or appropriate.
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    \16\ 15 U.S.C. 78o-3(b)(6).
    \17\ 15 U.S.C. 78o-3(b)(9).
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    FINRA believes that this proposed rule change is consistent with
the Act because it will provide retail customers with meaningful and
useful additional pricing information that retail customers cannot
readily obtain through existing data sources such as TRACE. This belief
is supported by investor testing, which indicates that investors find
aspects of the proposed requirements useful, including disclosing the
mark-up or mark-down both as a dollar amount and as a percentage of the
prevailing market price. FINRA believes that some customers pay
materially more for trades in fixed income securities than other
customers in comparable trades. FINRA believes that the proposed rule
will better enable customers to evaluate the cost of the services that
members provide by helping customers understand mark-ups or mark-downs
from the prevailing market prices in specific transactions. FINRA
further believes that this type of information will promote
transparency into members' pricing practices and encourage
communications between members and their customers about the execution
of their fixed income transactions. This proposal also will provide
customers with additional information that may assist them in detecting
practices that are possibly improper, which would supplement FINRA's
own surveillance and enforcement program.

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. The proposed changes will apply
equally to all similarly situated members. Additionally, all members
already have an obligation to calculate mark-ups to ensure compliance
with Rule 2121.
Economic Impact Assessment
(a) Need for the Rule
    FINRA is concerned that retail investors in fixed income securities
currently are limited in their ability to understand and compare
transaction costs associated with their purchases and sales. Investor
testing conducted by FINRA and the MSRB reveals that investors lack a
clear understanding of the concepts and definitions of mark-up and
mark-down and their role in dealer compensation. The proposed
disclosure is expected to provide retail investors with valuable
pricing information, encourage investor participation in the fixed
income markets, and foster price competition among dealers, which may
lower transaction costs for retail transactions in fixed income
securities.
    The staff's analysis of TRACE data for 3Q15 finds a large
difference between the estimated median mark-up/mark-down and the tail
of the distribution, indicating that some customers paid considerably
more than others in similar trades.\18\ For example, for retail size
(100 or fewer bonds) investment grade corporate debt transactions in
3Q15, the median estimated mark-up on customer buy orders was 0.53
percent, whereas the 95th percentile was more than four times higher
(2.23 percent), suggesting that while the mark-up was half a percent or
less on 50 percent of these orders, five percent of the orders
(representing approximately 7,000 trades) had mark-ups of more than two
percent.\19\ Similarly, the median estimated mark-up for retail size
corporate debt transactions in high-yield and unrated securities in
3Q15 was 0.83 percent and the 95th percentile was 2.96 percent.
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    \18\ The mark-up and mark-down calculations involved matching
customer trades to offsetting same-day principal trades by the same
dealer in the same CUSIP. This included matching same-sized trades
as well as trades of different sizes where there was no same-sized
match (e.g., a dealer purchase of 100 corporate bonds matched to two
sales to customers of 50 corporate bonds each). The mark-ups (mark-
downs) on customer buys (sells) correspond to the percentage
difference in price in customer trades and the offsetting principal
trade. In cases when the offsetting principal trade was also a
customer trade, the combined mark-up and mark-down (``spread'') on
these roundtrip transactions was calculated as the percentage
difference in price between the customer buy and the customer sell.
    \19\ Most matched trades occurred close in time to each other.
For example, among mark-up pairs of retail size customer purchases
in investment grade corporate bonds in 3Q15, approximately 80
percent of the paired trades occurred within 30 seconds of each
other. Nonetheless, the estimated mark-ups and mark-downs were
calculated based on matching customer trades to offsetting same-day
principal trades by the same dealer in the same CUSIP, and thus may
be different from the ones calculated based on the prevailing market
price.
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    Some market participants suggested that the proposed disclosure
might not be meaningful because the observed dispersion in mark-ups
might be explained by bond- or execution-specific characteristics. The
staff's analysis of TRACE data for 3Q15 does not find relationships
between mark-ups and bond- or execution-specific characteristics that
would fundamentally undermine the value of the proposed requirement.
    Specifically, some market participants asserted that high mark-ups
might be adequate compensation for enhanced execution price. For
example, it was argued that a dealer might reasonably charge a high
mark-up on a customer purchase if the transaction price was lower than
the prevailing market price. To examine the relationship between mark-
up and price, the staff compared the price of each retail size customer
purchase (sale) of a bond to all prices of retail size customer
purchases (sales) of the same bond in 3Q15 to measure relative
execution price.\20\ The analysis

finds that higher estimated mark-ups were associated with higher, not
lower, purchase prices as compared to all the purchase prices of the
same bond in the same quarter. For instance, for retail size customer
purchases of investment grade corporate bonds, the trades with the
lowest estimated mark-ups (below the fifth percentile) had an average
price percentile ranking of 35. In contrast, the trades with the
highest estimated mark-ups (above the 95th percentile) had an average
price percentile ranking of 63.
    Some market participants asserted that high mark-ups and mark-downs
might be caused by exceptionally low transaction quantities. For
example, it was argued that a high mark-up on a customer purchase order
of only three bonds might be justified by the high search cost. The
analysis of TRACE data for 3Q15 finds no evidence that the highest
estimated mark-ups were associated with unusually low quantities. For
instance, for retail size customer purchases of investment grade
corporate bonds, the median quantity of the trades with the highest
estimated mark-ups (above the 95th percentile) was 20 bonds. Moreover,
the median quantity did not change much for trades with different
estimated mark-up levels.\21\
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    \20\ The sample only includes customer transactions that can be
matched with offsetting same-day principal trades. In addition, the
staff notes that the metric of relative execution price would be
less reliable if fixed income security prices fluctuated widely
within 3Q15. However, the monthly volatility of 10-year Treasury
rates in 3Q15 was always below the average level of the prior 10
years, indicating that the interest rate volatility was moderate
during the quarter. Treasury securities are considered to be free of
default risk, and therefore are commonly used as a reliable interest
rate benchmark for a wide range of private market transactions.
    \21\ The median quantity was 28 bonds for trades with mark-ups
below the fifth percentile, 15 bonds for trades with mark-ups
between the 25th and 50th percentiles, and 20 bonds for trades with
mark-ups between the fifth and 10th percentiles, the 10th and 25th
percentiles, the 50th and 75th percentiles, the 75th and 90th
percentiles, and the 90th and 95th percentiles.
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    As discussed above, the mark-up and mark-down estimation involves
matching same-sized trades as well as trades of different sizes where
there was no same-sized match (e.g., a dealer purchase of 100 corporate
bonds matched to two sales to customers of 50 corporate bonds each).
Some market participants asserted that the practice of breaking down a
large transaction into smaller offsetting customer trades might lead to
lower mark-ups due to the economies of scale, and thus might help
explain the observed dispersion in mark-ups. The analysis of TRACE data
for 3Q15 finds that splitting a larger principal trade into multiple
smaller offsetting customer trades was associated with higher, not
lower, mark-ups.
    The analysis of TRACE data for 3Q15 also shows that the observed
differences in estimated mark-ups were unlikely to be solely driven by
bond characteristics. The results for retail size customer purchases of
investment grade corporate bonds serve as an example. Among the bonds
that had the highest estimated mark-ups (above the 95th percentile),
approximately 77 percent also had trades with estimated mark-ups below
the median. Moreover, these 77 percent of bonds traded more frequently
with estimated below-median mark-ups. Further, the staff's analysis
finds that bonds with higher trading frequencies in 3Q15, and
presumably higher liquidity, had higher estimated mark-ups.\22\
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    \22\ The analysis also finds a negative but limited impact of
credit rating on the level of mark-ups.
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    In conclusion, the observed large dispersion in mark-ups and mark-
downs do not appear to principally reflect bond or execution
characteristics. The proposed disclosure is expected to provide
customers with valuable and consistent information to understand,
compare and evaluate transaction costs associated with their trades.
(b) Economic Baseline
    The proposal would impact broker-dealers in the retail market of
corporate and agency debt securities by imposing confirmation
disclosure requirements on certain customer transactions. In 3Q15, the
average daily number of retail size customer trades was 18,330 in
corporate debt securities and 676 in agency debt securities. The
transactions were mainly concentrated among large firms. For example,
the top 20 broker-dealers with the highest volumes accounted for
roughly 70 percent of the transactions for both corporate and agency
debt securities.
    It is estimated that approximately 59 percent of the retail size
customer trades in corporate debt securities in 3Q15 would have been
subject to the disclosure requirement if the proposed rule had been in
place.\23\ These disclosure-eligible trades were reported by about 800
dealers but were concentrated among large dealers. As discussed above,
dealers already have an obligation to calculate their mark-ups for
principal transactions in non-municipal fixed income securities to
ensure compliance with Rule 2121.
---------------------------------------------------------------------------

    \23\ The percentage of eligible transactions may be
overestimated as some matched trades may be transactions with
affiliates or other trading desks.
---------------------------------------------------------------------------

(c) Economic Impacts
(i) Benefits
    FINRA believes that the proposal will provide retail customers with
meaningful and useful pricing information that these customers cannot
readily obtain through TRACE data. As evidenced by investor testing,
investors consider it important to know how much firms charge for
transactions in fixed income securities, yet they are unfamiliar with
mark-ups and mark-downs. FINRA believes that the pricing information
will better enable customers to evaluate the cost and quality of the
services that members provide by helping customers understand mark-ups
or mark-downs from the prevailing market prices in specific
transactions. FINRA further believes that this type of information will
promote transparency into members' pricing practices and encourage
communications between members and their customers about the pricing of
their fixed income transactions. By providing additional pricing
information to customers, this proposal may encourage customers to seek
out other dealers that might offer more competitive prices for the
services offered, which may incentivize members to offer more
competitive prices to their retail customers. Any resulting reduction
in the differential between the prevailing market price and the price
paid by the customer would reduce transaction costs paid by investors
and enhance investor confidence in the alignment between transaction
costs and the value of the services received, which may encourage wider
participation by investors in the retail segments of the corporate and
agency debt market.\24\
---------------------------------------------------------------------------

    \24\ FINRA notes that this proposal may also provide regulatory
benefits, as disclosing additional pricing information to customers
may assist them in detecting practices that are possibly improper,
which would supplement FINRA's own surveillance and enforcement
program.
---------------------------------------------------------------------------

(ii) Costs
    FINRA recognizes that the proposal would impose burdens and costs
on members. In both Regulatory Notices 14-52 and 15-36, FINRA
specifically solicited comment on the potential costs of the proposal
to members.\25\ For example, in Regulatory Notice 15-36, FINRA asked
about the anticipated costs to firms in developing and implementing
systems to comply with the revised proposal and the anticipated on-
going costs associated with the revised proposal. FINRA asked members
to provide the estimates of these costs, and the assumptions underlying
those estimates. While commenters stated that the initial and the
revised proposals would impose significant implementation costs on
firms, no commenters provided specific cost

estimates or a framework to assess anticipated costs.
---------------------------------------------------------------------------

    \25\ Regulatory Notices 14-52 and 15-36 proposed to require
members to disclose a ``reference price,'' while this proposal
requires mark-up disclosure, as determined from the prevailing
market price. As discussed below, requiring mark-up disclosure
rather than reference price disclosure may result in lower
compliance costs.
---------------------------------------------------------------------------

    Among other things, the proposal would require members to develop
and deploy a methodology to satisfy the disclosure requirement,
identify trades subject to the disclosure, convey the mark-up on the
customer confirmation, and adopt policies and procedures to track and
ensure compliance with the requirement. To apply the ``look through''
to non-arms-length transactions with affiliates, members would also
need to obtain the price paid or proceeds received and the time of the
affiliate's trade with the third party. FINRA is also aware, however,
that some members already provide a form of mark-up disclosure for
their customers, and may therefore incur fewer costs in complying with
the proposed disclosure requirement.
    The proposal would require firms to examine transactions occurring
both before and after a customer trade execution to determine whether
the trade is subject to the disclosure requirement. FINRA recognizes
that the forward-looking approach (comparison to trades occurring after
customer trades) may be difficult to implement in some current
confirmation processing systems. Some firms with such systems stated
that they would need to both maintain the current systems and build
entirely new systems to comply with the proposed rule change. The
operational impact of the proposal would be more material to these
firms.
(iii) Effect on Competition
    FINRA believes that the proposal would improve price transparency,
enhance investor confidence, and promote price competition among
dealers in the retail market of corporate and agency debt securities.
Increased participation by retail investors and competitive pressure
may lead to lower transaction costs.
    In response to Regulatory Notices 14-52 and 15-36, some commenters
stated that the costs associated with increased pricing disclosure may
lead some dealers to exit the retail market. Some commenters noted that
the requirement to disclose pricing information if the firm principal
trade and the customer trade occurred on the same trading day would
disproportionately impact smaller firms, as larger firms would be more
able to hold positions overnight and not trigger the proposed
requirement.
    For each dealer's retail size customer trades in corporate bonds in
3Q15, the staff estimated the percentage of trades with offsetting
same-day principal transactions. While large firms had a lower average
percentage of matched trades than small firms, the difference appeared
to be much greater between firms that were more active in the retail
corporate bond market and firms that were less active.\26\ For example,
for the top 20 firms that are most active in the retail corporate bond
market (as measured by the total number of retail size customer trades
in principal capacity in the corporate bond market in 3Q15), on average
52 percent of the trades made by those firms qualified as matched
trades.\27\ In contrast, the average percentage of matched trades was
88 percent for all other firms. Therefore, it is possible that large
firms and firms that are more active in the retail corporate bond
market have greater capacity to hold inventory and source retail trades
from that inventory, and therefore are less likely to trigger the
proposed disclosure requirement.
---------------------------------------------------------------------------

    \26\ FINRA considers firms with 150 or fewer registered
representatives as small firms and 500 or more as large firms. The
average percentage of matched retail size customer transactions of
corporate bonds in 3Q15 was 89 percent for small firms and 82
percent for large firms. The difference was statistically
significant. While the most active firms in the retail corporate
bond market tend to be large, well-known firms, there are
exceptions.
    \27\ As retail transactions are proxied by trades of 100 bonds
or less, some retail size trades by the more active firms may be
institutional transactions.
---------------------------------------------------------------------------

    Large firms and firms that are more active in the retail corporate
bond market may respond to this proposal differently than other firms.
Market participants indicated to FINRA that the costs to altering the
trade processing and reporting systems for instances where the
triggering principal trade occurred after the customer trade would be
substantial. FINRA anticipates that large and more active firms are
more likely to provide the disclosure to all retail customers even
where a triggering principal trade has not occurred at the time of the
customer trade because it would likely be less expensive than other
methods of ensuring compliance with the proposed rule. FINRA
understands that it is unlikely for less active firms to trade with a
retail customer without an offsetting transaction. In the cases that
they do, they may choose not to provide the disclosure to all retail
customers, but then incur the costs of providing the trade processing
information at the end of the day, cancelling and correcting the
confirmation trade report at the end of the day for any retail trade
that subsequently met the reporting requirements of the proposed rule.
It is also possible that firms may choose to avoid entering into any
trade that would subsequently trigger a reporting obligation, e.g., by
holding a position overnight.
    More generally, FINRA understands that some firms are considering
providing the mark-up/mark-down disclosure on all retail trades,
regardless of whether the dealers' offsetting trade is made within the
same day or not. Similarly, some firms have proposed to provide mark-
up/mark-down disclosure on both retail and non-retail transactions to
lower the costs associated with identifying disclosure-eligible trades.
Providing any additional disclosure would be voluntary to firms, and
would likely only occur where the benefits, including reduced
implementation costs, outweighed the costs imposed. For example, a firm
that voluntarily provides disclosure on all retail principal
transactions (regardless of whether there was an offsetting transaction
on the same trading day) would be able to avoid the forward-looking
aspect of the proposal and its associated costs. As well, providing
additional disclosures may limit the differential impact on smaller
firms. And, as discussed above, FINRA notes that any intentional delay
of a customer execution to avoid the proposed rule would be contrary to
a firm's duties to customers under Rules 2010 and 5310. If the proposed
rule is approved, FINRA will monitor trading patterns to ensure firms
are not purposely delaying a customer execution to avoid the
disclosure.
    The staff also analyzed TRACE data for 3Q15 to understand the
relationship between mark-ups and firm characteristics. The analysis
finds that large firms and firms that are more active in the retail
corporate bond market tend not to be represented within the tail of the
largest estimated mark-ups and mark-downs in the distribution in the
sample examined. For example, large firms accounted for 85 percent of
all retail size customer purchases of investment grade corporate bonds
in 3Q15, but only 61 percent of the trades with the highest estimated
mark-ups (above the 95th percentile).\28\ Similarly, the top 20 firms
as measured by the total number of retail size customer trades in
principal capacity in the corporate bond market in 3Q15 accounted for
68 percent of all retail size customer purchases of investment grade
corporate bonds in 3Q15, but only 28 percent of the trades with the
highest estimated mark-ups. These relationships remain significant
after controlling for bond and execution characteristics. To

the extent that the proposed disclosure may lead to changes in investor
and firm behaviors, it can logically be anticipated to have a greater
impact on firms currently charging relatively high mark-ups and mark-
downs. Therefore, the analysis implies that the associated economic
costs may be higher to some small firms and firms less active in retail
customer trades.
---------------------------------------------------------------------------

    \28\ The sample only includes customer transactions that can be
matched with offsetting same-day principal trades.
---------------------------------------------------------------------------

    However, it is important to note that small firms tend to be
overrepresented within both the tail of the highest and the tail of the
lowest mark-ups and mark-downs in the sample examined. In other words,
while a disproportionate number of small firms charged relatively high
mark-ups, there were also a disproportionate number of small firms that
charged relatively low mark-ups. For example, small firms accounted for
8 percent of all retail size customer purchases of investment grade
corporate bonds in 3Q15, but 18 percent of the trades with the lowest
estimated mark-ups (below the 5th percentile). This implies that some
small firms offering competitive prices may benefit from the proposed
disclosure.
    Moreover, small firms are more likely to have their customer
confirmations generated by clearing firms. To the extent that clearing
firms will not pass along the full implementation costs to each
introducing firm, small firms may incur lower costs than large firms to
comply with the proposed rule change.
    Therefore, while it is possible that the costs associated with the
proposal may lead small dealers to consolidate with large dealers or to
exit the market, the effect may be limited. FINRA recognizes that
increased concentration in the retail market for fixed income
transactions could impact retail costs, by either increasing or
decreasing those costs. FINRA also recognizes the potential for members
to shift some of the compliance costs on to customers.
(iv) Other Considerations
    As initially proposed, FINRA would have required members to
disclose a ``reference price,'' which used a baseline that is derived
from the price that was actually paid by the firm for the bond that
same day, and the differential between that reference price and the
price to the customer. In response to both the initial proposal and the
revised proposal, commenters raised concerns about the usefulness of
reference price disclosure, and the potential burdens associated with
implementing such disclosure. Based on concerns raised by commenters
about the potential burdens associated with reference price disclosure,
FINRA is now amending the proposal to require mark-up disclosure, as
determined from the prevailing market price. FINRA believes that
requiring mark-up disclosure rather than reference price disclosure may
result in lower compliance costs, as members are already required under
Rule 2121 to ensure that mark-ups and mark-downs are fair, and
therefore should be calculating mark-ups to ensure compliance with Rule
2121. While FINRA notes that some members may generate customer
confirmations on an intra-day basis, FINRA notes that the mark-up on
the customer trade should generally be established at the time of that
trade, which should reduce the impact of this proposal upon the
confirmation generation process. While firms may still need to delay
confirmation generation until the end of the day for at least some
portion of disclosure-eligible trades due to the forward-looking aspect
of the proposal, FINRA again notes that firms that voluntarily choose
to provide disclosure on all retail trades could continue to provide
confirmations intra-day, as the forward-looking aspect of the proposal
would no longer be relevant.
    FINRA recognizes that the determination of the prevailing market
price may not be identical across firms and thus may result in a lack
of comparability or consistency in disclosures, especially for thinly
traded securities. FINRA expects that firms have reasonable policies
and procedures in place to calculate the prevailing market price in a
manner consistent with Rule 2121 and that such policies and procedures
are applied consistently across customers.
    FINRA believes that requiring disclosure for non-institutional
accounts may lessen some of the costs and complexity associated with
this proposal by allowing firms to use an existing distinction that
already is integrated into their operations.
(d) Alternatives Considered
    As discussed above and below, FINRA considered several alternative
approaches and modified the proposal to reduce potential burdens and
costs on member firms. For example, FINRA had proposed the disclosure
of a ``reference price,'' but then amended the proposal to require the
disclosure of the mark-up or mark-down from the prevailing market
price. Similarly, a ``qualifying size'' requirement was replaced with
an exclusion for transactions that involve an institutional account. In
response to comments and concerns, FINRA also proposes to exclude from
the proposed disclosure those transactions which are part of fixed-
price offerings on their first trading day and which are sold at the
fixed-price offering price, and firm-side transactions that are
conducted by a department or desk that is functionally separate from
the retail-side desk. Where the member's principal trade was executed
with an affiliate of the member in a transaction that was not at arms-
length, FINRA proposes to require a member to ``look through'' its
trade with the affiliate to the affiliate's trade with the third party
to determine whether disclosure is required.

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

    This proposal was published for comment in Regulatory Notice 14-52
(November 2014) and Regulatory Notice 15-36 (October 2015). Thirty-two
comments were received in response to Regulatory Notice 14-52,\29\ and
eighteen

comments were received in response to Regulatory Notice 15-36.\30\ A
copy of Regulatory Notice 14-52 is attached as Exhibit 2a. A list of
comment letters received in response to Regulatory Notice 14-52 is
attached as Exhibit 2b, and copies of the comment letters received in
response to Regulatory Notice 14-52 are attached as Exhibit 2c. A copy
of Regulatory Notice 15-36 is attached as Exhibit 2d. A list of comment
letters received in response to Regulatory Notice 15-36 is attached as
Exhibit 2e, and copies of the comment letters received in response to
Regulatory Notice 15-36 are attached as Exhibit 2f.
---------------------------------------------------------------------------

    \29\ See Letter from Michael Nicholas, CEO, Bond Dealers of
America, to Marcia E. Asquith, Corporate Secretary, FINRA, dated
January 20, 2015 (``BDA Letter I''); letter from John T. Macklin,
Director of Operations, Brean Capital, LLC, to Marcia E. Asquith,
Corporate Secretary, FINRA, dated January 20, 2015 (``Brean
Letter''); letter from Richard Bryant, President, Capital Investment
Group, to Marcia E. Asquith, Corporate Secretary, FINRA, dated
August 4, 2015 (``CIG Letter''); letter from Micah Hauptman,
Financial Services Counsel, Consumer Federation of America, to
Marcia E. Asquith, Corporate Secretary, FINRA, dated January 20,
2015 (``CFA Letter I''); letter from Chris Melton, Executive Vice
President, Coastal Securities, to Marcia E. Asquith, Corporate
Secretary, FINRA, dated January 16, 2015 (``Coastal Securities
Letter I''); letter from Michael S. Nichols, Principal, Cutter
Advisors Group, dated December 5, 2014 (``Cutter Letter''); letter
from Larry E. Fondren, President and CEO, DelphX LLC, to Marcia E.
Asquith, Corporate Secretary, FINRA, dated January 7, 2015 (``DelphX
Letter''); Letter from Herbert Diamant, President, Diamant
Investments Corp., to Marcia E. Asquith, Corporate Secretary, FINRA,
dated January 9, 2015 (``Diamant Letter I''); letter from Robert A.
Eder, to Cynthia Friedlander, FINRA, dated December 30, 2014 (``Eder
Letter I''); letter from Robert A. Eder, dated April 1, 2015 (``Eder
Letter II); letter from Norman L. Ashkenas, CCO, Fidelity Brokerage
Services LLC and Richard J. O'Brien, CCO, National Financial
Services, LLC, to Marcia E. Asquith, Corporate Secretary, FINRA,
dated January 20, 2015 (``Fidelity Letter I''); letter from Darren
Wasney, Program Manager, Financial Information Forum, to Marcia E.
Asquith, Corporate Secretary, FINRA, dated January 20, 2015 (``FIF
Letter I''); letter from David T. Bellaire, Executive Vice President
and General Counsel, Financial Services Institute, to Marcia E.
Asquith, Corporate Secretary, FINRA, dated January 20, 2015 (``FSI
Institute Letter I''); letter from Rick Foster, Vice-President and
Senior Counsel, Financial Services Roundtable, to Marcia E. Asquith,
Corporate Secretary, FINRA, dated January 20, 2015 (``Financial
Services Roundtable Letter''); letter from Fintegra, LLC (``Fintegra
Letter''); letter from Alexander I. Rorke, Senior Managing Director,
Hilliard Lyons, to Marcia E. Asquith, Corporate Secretary, FINRA,
dated January 20, 2015 (``Hilliard Letter''); letter from Thomas E.
Dannenberg, President and CEO, Hutchinson Shockey Erley and Co., to
Ronald W. Smith, Corporate Secretary, MSRB, dated January 20, 2015;
letter from Andrew Hausman, President, Interactive Data, to Marcia
E. Asquith, Corporate Secretary, FINRA, dated January 20, 2015
(``Interactive Data Letter''); letter from Scott A. Hayes, President
and CEO, Institutional Securities Corp., to Marcia E. Asquith,
Corporate Secretary, FINRA, dated January 2, 2015 (``ISC Letter'');
letter from Vincent Lumia, Managing Director, Morgan Stanley Smith
Barney LLC, to Marcia E. Asquith, Corporate Secretary, FINRA, dated
January 20, 2015 (``Morgan Stanley Letter I''); letter from Jed
Bandes, President, Mutual Trust Co. of America Securities, dated
December 23, 2014 (``Mutual Trust Letter''); letter from Hugh D.
Berkson, Executive Vice-President, Public Investors Arbitration Bar
Association, to Marcia E. Asquith, Corporate Secretary, FINRA, dated
January 20, 2015 (``PIABA Letter I''); letter from Joseph R.V.
Romano, President, Romano Brothers and Co., to Marcia E. Asquith,
Corporate Secretary, FINRA, dated January 19, 2015 (``Romano
Letter''); letter from Paige W. Pierce, President and CEO, RW Smith
& Associates, LLC, dated January 21, 2015 (``RW Smith Letter I'');
letter from Rick A. Fleming, Investor Advocate, SEC, to Marcia E.
Asquith, Corporate Secretary, FINRA, dated January 20, 2015 (``SEC
Investor Advocate Letter I''); letter from Sean Davy, Managing
Director and David L. Cohen, Managing Director, SIFMA, to Marcia E.
Asquith, Corporate Secretary, FINRA, dated January 20, 2015 (``SIFMA
Letter I''); letter from Robert A. Muh, CEO, Sutter Securities Inc.,
to Marcia E. Asquith, Corporate Secretary, FINRA, dated January 20,
2015 (``Sutter Securities Letter''); letter from Karin Tex, dated
January 12, 2015 (``Tex Letter''); letter from Kyle C. Wootten,
Deputy Director--Compliance and Regulatory, Thomson Reuters, to
Marcia E. Asquith, Corporate Secretary, FINRA, dated January 16,
2015 (``Thomson Reuters Letter I''); letter to Cynthia Friedlander
from Scott D. Baines, Principal, Umpqua Investments, Inc., dated
January 20, 2015 (“Umpqua Investments Letter''); letter from
Bonnie K. Wachtel, CEO, and Wendie L. Wachtel, COO, Wachtel and & Co
Inc., to Marcia E. Asquith, Corporate Secretary, FINRA, dated
January 16, 2015 (``Wachtel Letter''); letter from Robert J.
McCarthy, Director of Regulatory Policy, Wells Fargo Advisors, LLC,
to Marcia E. Asquith, Corporate Secretary, FINRA, dated January 20,
2015 (``Wells Fargo Letter I'').
    \30\ See Letter from Michael Nicholas, Bond Dealers of America,
to Marcia E. Asquith, Corporate Secretary, FINRA, dated December 11,
2015 (``BDA Letter II''); letter from Micah Hauptman, Consumer
Federation of America, to Marcia E. Asquith, Corporate Secretary,
FINRA, dated December 11, 2015 (``CFA Letter II''); letter from Kurt
N. Schacht and Linda L. Rittenhouse, CFA Institute, to Marcia E.
Asquith, Corporate Secretary, FINRA, dated December 11, 2015 (``CFA
Institute Letter''); letter from Chris Melton, Coastal Securities,
to Marcia E. Asquith, Corporate Secretary, FINRA (``Coastal
Securities Letter II''); letter from Herbert Diamant, Diamant
Investment Corporation, to Marcia E. Asquith, Corporate Secretary,
FINRA, dated November 30, 2015 (``Diamant Letter II''); letter from
Norman L. Ashkenas and Richard J. O'Brien, Fidelity Investments, to
Marcia E. Asquith, Corporate Secretary, FINRA, dated December 11,
2015 (``Fidelity Letter II''); letter from Darren Wasney, Financial
Information Forum, to Marcia E. Asquith, Corporate Secretary, FINRA,
dated December 11, 2015 (``FIF Letter II''); letter from David T.
Bellaire, Financial Services Institute, to Marcia E. Asquith,
Corporate Secretary, FINRA, dated December 11, 2015, (``FSI
Institute Letter II''); letter from David P. Bergers, LPL Financial
LLC, to Marcia E. Asquith, Corporate Secretary, FINRA, dated
December 10, 2015 (``LPL Letter''); letter from Elizabeth Dennis,
Morgan Stanley Smith Barney LLC, to Marcia E. Asquith, Corporate
Secretary, FINRA, dated December 11, 2015 (``Morgan Stanley Letter
II''); letter from Hugh D. Berkson, Public Investors Arbitration Bar
Association, to Marcia E. Asquith, Corporate Secretary, FINRA, dated
December 8, 2015 (``PIABA Letter II''); letter from Paige W. Pierce,
RW Smith and Associates, LLC, to Marcia E. Asquith, Corporate
Secretary, FINRA, dated December 11, 2015 (``RW Smith Letter II'');
letter from Jason Clague, Charles Schwab and Co., to Marcia E.
Asquith, Corporate Secretary, FINRA, dated December 11, 2015
(``Schwab Letter''); letter from Rick A. Fleming, Office of the
Investor Advocate, SEC, to Marcia E. Asquith, Corporate Secretary,
FINRA, dated December 11, 2015 (``SEC Investor Advocate Letter
II''); letter from Sean Davy and Leslie M. Norwood, Securities
Industry and Financial Markets Association, to Marcia E. Asquith,
Corporate Secretary, FINRA, dated December 11, 2015 (``SIFMA Letter
II''); letter from Manisha Kimmel, Thomson Reuters, to Marcia E.
Asquith, Corporate Secretary, FINRA, dated December 11, 2015
(``Thomson Reuters Letter II''); letter from Thomas S. Vales, TMC
Bonds LLC, to Marcia E. Asquith, Corporate Secretary, FINRA, dated
December 11, 2015 (``TMC Bonds Letter''); letter from Robert J.
McCarthy, Wells Fargo Advisors LLC, to Marcia E. Asquith, Corporate
Secretary, FINRA, dated December 11, 2015 (``Wells Fargo Letter
II'').
---------------------------------------------------------------------------

Summary of Initial Proposal and Comments Received
    As proposed in Regulatory Notice 14-52, if a firm sold to a
customer and bought the same security as principal from another party
on the same trading day, the firm would have been required to disclose
on the customer confirmation (i) the price to the customer; (ii) the
price to the firm of the same-day trade (reference price); and (iii)
the difference between those two prices.\31\ The initial proposal would
apply where the transaction with the customer was of a ``qualifying
size,'' of 100 bonds or less or bonds with a face value of $100,000 or
less, which was designed to capture those trades that are retail in
nature.
---------------------------------------------------------------------------

    \31\ The initial proposal would also apply to instances where
the firm buys bonds from a customer and sells the same bonds as
principal to another party on the same trading day.
---------------------------------------------------------------------------

    Of the 31 comments FINRA received on the proposal, 6 supported the
proposal, while 25 commenters generally opposed the proposal or made
recommendations on ways to narrow substantially the scope of the
proposal. Generally, commenters that supported the proposal stated that
the proposed confirmation disclosure would provide additional post-
trade information to investors that would be otherwise difficult to
ascertain.\32\ Three commenters, including the CFA and the SEC Investor
Advocate, stated that this additional information would put investors
in a better position to assess whether they are paying fair prices and
the quality of the services provided by their broker-dealer, and also
could assist investors in detecting improper practices.\33\ The CFA and
DelphX indicated that the proposal would foster increased price
competition in fixed income markets, which would ultimately lower
investors' transaction costs.\34\ Two commenters recommended that the
proposal not be limited to retail trades under the proposed size
threshold, but that disclosure should be made on all trades involving
retail customers, regardless of size.\35\
---------------------------------------------------------------------------

    \32\ See, e.g., SEC Investor Advocate Letter I at 2.
    \33\ See CFA Letter I at 1; DelphX Letter at 2; SEC Investor
Advocate Letter I at 2.
    \34\ See CFA Letter I at 1; DelphX Letter at 3.
    \35\ See Eder Letter I at 1; PIABA Letter I at 2.
---------------------------------------------------------------------------

    Other commenters opposed the proposal on several grounds.
Commenters questioned whether the proposed disclosure would provide
investors with useful information,\36\ or whether the disclosure would
simply create confusion among investors.\37\ Commenters asserted that
the proposed methodology for calculating the reference price is overly
complex\38\ and would be costly for firms to implement.\39\ Commenters
also indicated the proposal could cause some dealers to exit the retail
broker market, either because firms would be reluctant to adapt to the
new disclosure requirement, or because of increased costs and the
potentially lower profits.\40\
---------------------------------------------------------------------------

    \36\ See Diamant Letter at 5; Romano Letter at 3-4; Sutter
Securities Letter at 2.
    \37\ See BDA Letter I at 4-5; Diamant Letter I at 6; FSI
Institute Letter I at 3; Morgan Stanley Letter I at 2; SIFMA Letter
I at 17; Wells Fargo Letter I at 5; CIG Letter at 1.
    \38\ See Fidelity Letter I at 4; FIF Letter I at 2; SIFMA Letter
I at 24-26; Thomson Reuters Letter I at 6; Wells Fargo Letter I at
8.
    \39\ See BDA Letter I at 2-3; Diamant Letter I at 7-8; Fidelity
Letter I at 4-5; FIF Letter I at 2; FSI Institute Letter I at 5;
Financial Services Roundtable Letter at 5; Morgan Stanley Letter I
at 3; Wells Fargo Letter I at 7-8; Umpqua Investments Letter at 1.
    \40\ See Brean Letter at 1; Diamant Letter I at 7; FSI Institute
Letter I at 8; Umpqua Investments Letter at 1.
---------------------------------------------------------------------------

    Several commenters suggested ways to narrow the scope of the
proposal. Some commenters recommended that FINRA limit the disclosure
obligation to riskless principal transactions involving retail
investors, as this would more accurately reflect dealer compensation

and transaction costs,\41\ and would be more consistent with the stated
objectives of the SEC in this area and of the proposal itself.\42\ Some
commenters suggested that the proposed rule should apply to riskless
principal transactions as previously defined by the Commission, wherein
the broker-dealer has an ``order in hand'' at the time of
execution.\43\ One commenter, however, did not think that such a
limitation would appreciably reduce the complexity or cost of the
proposal.\44\ Commenters also suggested that FINRA eliminate
institutional trades from the scope of the proposal: For example, by
not covering institutional accounts as defined in FINRA Rule 4512, or
sophisticated municipal market professionals as defined in MSRB Rule D-
15.\45\ Both Fidelity and SIFMA stated that the proposal should permit
trading desks that are separately operated within a firm to match only
their own trades for purposes of pricing disclosure.\46\ Morgan Stanley
and SIFMA also stated that transactions between affiliates should not
constitute a firm principal trade that, if accompanied by a same-day
customer trade, would trigger the disclosure requirement.\47\
Commenters also suggested that the proposal exempt the disclosure of
mark-ups on new issues.\48\ One commenter suggested that this exemption
should exempt the disclosure of mark-up/mark-downs on transactions in
new issues executed at the public offering price on the date of the
issue's sale.\49\
---------------------------------------------------------------------------

    \41\ See Hilliard Letter at 2; Morgan Stanley Letter I at 2;
SIFMA Letter I at 29; Wells Fargo Letter I at 11.
    \42\ See SIFMA Letter I at 31.
    \43\ See Hilliard Letter at 2; SIFMA Letter I at 30; Wells Fargo
Letter I at 11.
    \44\ See Thomson Reuters Letter at 7.
    \45\ See BDA Letter I at 6; FIF Letter I at 3; Morgan Stanley
Letter I at 3.
    \46\ See Fidelity Letter I at 8; SIFMA Letter I at 36.
    \47\ See Morgan Stanley Letter I at 3; SIFMA Letter I at 21.
    \48\ See BDA Letter I at 6; Coastal Securities Letter I at 1;
SIFMA Letter I at 22.
    \49\ See Coastal Securities Letter I at 1.
---------------------------------------------------------------------------

    Rather than proposing reference price disclosure, several
commenters suggested that FINRA instead enhance TRACE, in part by
providing greater investor education about TRACE,\50\ and requiring
firms to make those systems more accessible \51\ by, for example,
providing more near-real-time TRACE information to investors \52\ or
providing a link to TRACE on customer confirmations,\53\ or by
aggregating all TRACE data on a single Web site.\54\
---------------------------------------------------------------------------

    \50\ See Fidelity Letter I at 7; FSI Institute Letter I at 6-7;
Financial Services Roundtable Letter at 6; Hilliard Letter at 3;
Morgan Stanley Letter I at 2; SIFMA Letter I at 15-16.
    \51\ See Thomson Reuters Letter I at 7.
    \52\ See Wells Fargo Letter I at 7. Other commenters noted the
difficulty of providing TRACE/EMMA data on the confirmation. See
Romano letter at 4.
    \53\ See Fidelity Letter I at 7; FSI Institute Letter I at 6;
Hilliard Letter at 3; Morgan Stanley Letter I at 2; SIFMA Letter I
at 15-16.
    \54\ See FIF Letter I at 4; FSI Institute Letter I at 6; Romano
Letter at 3-4; SIFMA Letter I at 15-16.
---------------------------------------------------------------------------

    In response to the comments received on Regulatory Notice 14-52,
FINRA proposed several modifications to the proposal. First, FINRA
proposed to replace the qualifying size requirement with an exclusion
for transactions that involve an institutional account, as defined in
FINRA Rule 4512(c). This would ensure that all eligible transactions
involving retail customers, regardless of size or face amount, would be
subject to the proposed disclosure and was responsive to firms'
concerns about using disparate definitions of a retail customer.
Second, FINRA proposed to exclude from the proposed disclosure those
transactions which are part of fixed-price offerings on their first
trading day and which are sold at the fixed-price offering price.
Variable price offerings would remain subject to the proposed
disclosure.\55\
---------------------------------------------------------------------------

    \55\ In a fixed-price offering, bonds are generally sold at par
and at the same price to all investors, and the compensation paid to
the firm, such as the underwriting fee, is captured in the
prospectus. In contrast, variable price offerings are reported as
secondary trades, may involve investors paying different prices, and
may be difficult for firms to distinguish from other kinds of
secondary trades.
---------------------------------------------------------------------------

    Third, in response to concerns from commenters that having the
disclosure requirements triggered by trades made by separate trading
departments or desks would undermine the legal and operational
separation of those desks, FINRA staff proposed to exclude firm-side
transactions from the proposed disclosure that are conducted by a
department or desk that is functionally separate from the retail-side
desk, e.g., where the firm can demonstrate through policies and
procedures that the firm-side transaction was made by an institutional
desk for an institutional customer that is separate from the retail
desk and the retail customer, and that the institutional desk had no
knowledge of the retail order. However, if, for example, the
transactions and positions of the separate department or desk are
regularly used to effect the transactions at the retail desk, this
exception would not apply.
    Fourth, in response to concerns from commenters about having the
disclosure requirements triggered by trades between affiliates, FINRA
proposed to exclude trades where the member's principal trade was
executed with an affiliate of the member and the affiliate's position
that satisfied this trade was not acquired on the same trading day.
Some commenters stated that acquiring a security through an affiliate
was functionally similar to an inventory trade, and that using this
trade as the basis for a reference price calculation would be of
limited value, especially if the affiliate acquired its position over
multiple trading days.\56\ To the extent that disclosure is not
required where the firm principal trade occurs on a previous trading
day, e.g., the firm sells the security to a customer out of its
inventory, this exception would apply a similar concept to trades
involving affiliates. Fifth, to address concerns raised by commenters
that customers may be confused by reference price information provided
on volatile trading days where there are large price swings between the
time of the trade with the customer and the firm's own trade, FINRA
proposed that firms be required to provide a link to TRACE on the
customer confirmation, and permitted firms to omit the reference price
in the event of a material change in the price of the security between
the time of the firm principal trade and the customer trade. Sixth, in
response to concerns about the operational burdens associated with
determining the reference price for certain ``complex'' trade
scenarios, FINRA would permit members to use alternative methodologies
for more complex trades.\57\
---------------------------------------------------------------------------

    \56\ See SIFMA Letter I at 21.
    \57\ FINRA proposed that, where there is a principal transaction
and a customer transaction of the same size (or the principal
transaction exceeds the size of the customer trade) without
intervening trades within the same trading day, the price of the
principal trade should be used as the reference price. However,
where there is not a same-size principal and customer trade scenario
or there are one or more intervening trades of a different size, the
staff proposed that firms should be allowed to employ a reasonable
alternative methodology in calculating the reference price, such as
the average weighted price of the firm trades that equal or exceed
the size of the customer trade, or the price of the last same-day
trade executed as principal by the firm prior to the customer trade
(or closest in time if executed after), irrespective of the size of
that principal trade. FINRA also proposed that the firm must
adequately document, and consistently apply, its chosen methodology.
---------------------------------------------------------------------------

    As discussed above, FINRA developed its initial proposal in
consultation with the MSRB, and the initial FINRA and MSRB proposals
were substantially similar. However, in response to comments, the MSRB
proposed a different disclosure framework than FINRA. Specifically, the
MSRB proposed requiring a firm to disclose the amount of the firm's
mark-

up (or mark-down) from the prevailing market price for certain retail
customer transactions, rather than the reference price paid by the firm
and the differential between the reference price and the price paid by
the customer. Under the MSRB's proposal, the firm would be required to
disclose its mark-up or mark-down if the firm bought (sold) the
security in one or more transactions in an aggregate trade size that
met or exceeded the size of the sale (purchase) to (from) the customer
within two hours of the customer transaction. The disclosed mark-up
would be required to be expressed both as a total dollar amount and as
a percentage. The MSRB also proposed exempting firms from disclosure
when the firm and customer trades were conducted by functionally
separate trading desks. For trades among affiliates, the MSRB proposed
to ``look through'' the firm's trade with the affiliate to the
affiliate's trade with the third party for purposes of determining
whether disclosure is required. Additionally, the MSRB proposed to
require the disclosure of two additional data points, even if mark-up
disclosure would not be required under the MSRB's proposal. First, the
MSRB proposed to require firms to add a CUSIP-specific link to EMMA on
all customer confirmations. Second, the MSRB proposed to require on all
customer confirmations the disclosure of the time of execution of a
customer's trade.
    Given the importance of achieving a coordinated approach with the
MSRB, in Regulatory Notice 15-36 soliciting comment on the revised
proposal, FINRA included a description of the MSRB's mark-up disclosure
approach and invited comments on any relative merits and shortcomings
of the MSRB's approach as compared to FINRA's revised approach.
Summary of Revised Proposal and Comments Received
    In response to the revised proposal, some commenters reiterated
that retail investors would benefit from some form of enhanced price
disclosure. For example, the CFA stated that increased price disclosure
would provide investors with the opportunity to make more informed
investment decisions, and would foster increased price competition in
the fixed income markets.\58\ The SEC Investor Advocate stated that
some kind of regulatory solution was necessary, as retail investors in
fixed income securities ``remain disadvantaged by the lack of
information they receive in confirmation statements.'' \59\ The PIABA
stated that abuse of undisclosed mark-ups and mark-downs is not a
hypothetical problem, and that making additional pricing information
available could result in customers being charged more favorable
prices.\60\
---------------------------------------------------------------------------

    \58\ See CFA Letter II at 6.
    \59\ See SEC Investor Advocate Letter II at 2.
    \60\ See PIABA Letter II at 3.
---------------------------------------------------------------------------

    A number of commenters supported disclosing the mark-up, as based
on the prevailing market price, instead of the reference price.\61\ BDA
recommended that the disclosure should be displayed either in dollar
terms or as a percentage of the markup relative to the inter-dealer
price.\62\ Both BDA and Schwab stated that the reference price proposal
would be costly, difficult for firms to implement and for retail
customers to understand, and may not provide customers with meaningful
information about the costs associated with particular
transactions.\63\ Schwab noted that, under the reference price
proposal, a customer may receive disclosure for the execution of one
lot of a particular order, but not for another lot of the same
order.\64\ Schwab stated that the reference price proposal would also
reflect market fluctuations, so that a customer may infer that the
dealer lost money on a transaction with a customer, even if a mark-up
was charged.\65\ Fidelity stated that the proposed disclosure
requirement should focus on the difference between the price the
customer was charged for a fixed income security and the prevailing
market price of the fixed income security.\66\ While Fidelity agreed
that a dealer's actual contemporaneous costs or proceeds are a
reasonable proxy for the prevailing market price in some situations, it
stated that there are many situations in which a dealer's costs or
proceeds are not a reasonable proxy for the prevailing market
price.\67\ Fidelity proposed that the prevailing market price be
defined as the dealer's best available price for the subject security
under the best available market at the time of trade execution.\68\
Fidelity proposed different methodologies that dealers could apply when
determining the prevailing market price, including (1) looking at a
trader's mark-to-market at the end of the day; (2) contemporaneous
cost; (3) top of book; and (4) vendor solutions that offer real time
valuations for certain securities.\69\
---------------------------------------------------------------------------

    \61\ See BDA Letter II at 6; Fidelity Letter II at 5; FSI
Institute Letter II at 5; LPL Letter at 1; Schwab Letter at 3-4; SEC
Investor Advocate Letter II at 5.
    \62\ See BDA Letter II at 2.
    \63\ See BDA Letter II at 4-5; Schwab Letter at 2.
    \64\ See Schwab Letter at 2.
    \65\ See Schwab Letter at 2.
    \66\ See Fidelity Letter II at 7-8.
    \67\ Id.
    \68\ Id. at 7.
    \69\ Id. at 8.
---------------------------------------------------------------------------

    Other commenters noted that the reference price proposal could
negatively impact firms' efforts to generate timely confirmations.\70\
In supporting the mark-up disclosure approach, the SEC Investor
Advocate noted that mark-up disclosure, although it may lead to
disclosure of a smaller cost to an investor under some circumstances,
nonetheless provides relevant information about the actual compensation
the investor is paying the dealer for the transaction, reflects market
conditions and has the potential to provide a more accurate benchmark
for calculating transaction costs.\71\ LPL noted that mark-up
disclosure would be relevant to retail transactions in all kinds of
fixed income securities that might be the subject of future disclosure
requirements.\72\
---------------------------------------------------------------------------

    \70\ See Fidelity Letter II at 11; FIF Letter II at 3; Schwab
Letter at 4.
    \71\ See SEC Investor Advocate Letter II at 5.
    \72\ See LPL Letter at 4.
---------------------------------------------------------------------------

    Some commenters opposed requiring that the firm principal and
customer trades occur closer in time to each other, such as two hours,
as had relatedly been proposed by the MSRB. The CFA and the SEC
Investor Advocate noted that a shorter timeframe would increase the
possibility that firms would attempt to evade the disclosure
requirement by holding onto positions.\73\ Other commenters, including
Morgan Stanley and SIFMA, indicated that the timeframe for disclosure
should be shortened to the two-hour window.\74\ These commenters stated
that the two-hour window would capture the majority of the trades at
issue, and also be easier to implement.\75\ Commenters stated that the
concern that a shorter timeframe would facilitate gaming of the
disclosure requirement was misplaced, as it was unlikely that firms
would change trading patterns and increase risk exposure merely to
avoid disclosure.\76\ They also said that FINRA has sufficient access
to data to determine if firms were attempting to game the two-hour
disclosure window.\77\
---------------------------------------------------------------------------

    \73\ See CFA Letter II at 2; SEC Investor Advocate Letter II at
5.
    \74\ See Diamant Letter II at 7; Morgan Stanley Letter II at 3;
SIFMA Letter II at 7.
    \75\ See Diamant Letter II at 7; Morgan Stanley Letter II at 3;
SIFMA Letter II at 7.
    \76\ See Morgan Stanley Letter II at 3; RW Smith Letter II at 2;
SIFMA Letter II at 10.
    \77\ See RW Smith Letter II at 2.
---------------------------------------------------------------------------

    Commenters generally supported the change of the scope of the
proposal from the ``qualifying size'' standard (transactions involving
100 bonds or

less or $100,000 face amount or less) to transactions with non-
institutional accounts.\78\ The CFA noted that the revised standard
would help ensure that all retail transactions would receive
disclosure, regardless of size.\79\
---------------------------------------------------------------------------

    \78\ See CFA Letter II at 4; CFA Institute Letter at 3; Coastal
Securities Letter II; PIABA Letter II at 2; Schwab Letter at 5;
SIFMA Letter II at 15.
    \79\ See CFA Letter II at 4.
---------------------------------------------------------------------------

    Three commenters opposed the proposal to require firms to disclose
the time of the execution of the customer transaction.\80\ FIF stated
that this proposal would create additional expense for firms, and could
not be adjusted in connection with any trade modifications,
cancellations or corrections.\81\ FIF also indicated that the execution
time was not necessary for securities that trade infrequently, as
investors should not have difficulty ascertaining the prevailing market
price at the time of their trade.\82\ Schwab indicated that this would
not be a necessary data point for investors.\83\
---------------------------------------------------------------------------

    \80\ See FIF Letter at 5; Schwab Letter at 6; SIFMA Letter at
16.
    \81\ See FIF Letter at 5.
    \82\ See FIF Letter at 6.
    \83\ See Schwab Letter at 6.
---------------------------------------------------------------------------

    Other commenters, however, supported including the time of
execution of the customer trade. Thomson Reuters stated that including
the time of execution would allow retail investors to more easily
identify relevant trade data on TRACE \84\ and FSI stated that this
would allow investors to understand the market for their security at
the time of their trade.\85\
---------------------------------------------------------------------------

    \84\ See Thomson Reuters Letter at 2.
    \85\ See FSI Letter at 7.
---------------------------------------------------------------------------

    Commenters also supported adding a general link to TRACE.\86\ FSI
and SIFMA supported the proposal to add a link to the TRACE Web site on
customer confirmations instead of a CUSIP-specific link, as a CUSIP-
specific link could be inaccurate or misleading, and could be difficult
for firms to implement.\87\ BDA stated that a general link to the main
TRACE page would be operationally easier to achieve.\88\
---------------------------------------------------------------------------

    \86\ See BDA Letter II at 3; Coastal Securities Letter II; FSI
Institute Letter II at 6.
    \87\ See FSI Institute Letter II at 6; SIFMA Letter II at 19.
    \88\ See BDA Letter II at 3.
---------------------------------------------------------------------------

    Commenters supported the proposed exclusion for transactions
involving separate trading desks,\89\ although Schwab indicated that
this exception should be subject to information barriers and rigorous
oversight.\90\ The CFA suggested FINRA specifically require, in the
rule text, that firms have policies and procedures in place to ensure
functional separation,\91\ and the SEC Investor Advocate suggested that
FINRA provide greater guidance as to what constitutes a functional
separation.\92\
---------------------------------------------------------------------------

    \89\ See CFA Institute Letter at 5; Schwab Letter at 6; SIFMA
Letter II at 15.
    \90\ See Schwab Letter at 6.
    \91\ See CFA Letter II at 5.
    \92\ See SEC Investor Advocate Letter II at 6.
---------------------------------------------------------------------------

    Some commenters supported the proposal, in cases of transactions
between affiliates, to ``look through'' to the affiliate's principal
transaction for purposes of determining whether disclosure is
required.\93\ FIF and Thomson Reuters stated, however, that not all
firms are able to ``look through'' principal trades, given information
barriers and the fact that firms often conduct inter-dealer business on
a completely separate platform than the retail business.\94\
---------------------------------------------------------------------------

    \93\ See CFA Institute Letter at 5; Fidelity Letter II at 11-12;
PIABA Letter II at 2; Schwab Letter at 6; SIFMA Letter II at 18.
    \94\ See FIF Letter II at 5; Thomson Reuters Letter II at 3.
---------------------------------------------------------------------------

    With respect to the proposed exemption for fixed-price new issues,
the two commenters that addressed this issue, CFA Institute and SIFMA,
supported the proposed exemption.\95\
---------------------------------------------------------------------------

    \95\ See CFA Institute Letter at 4; SIFMA Letter II at 15.
---------------------------------------------------------------------------

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. 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-FINRA-2016-032 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-2016-032. 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, 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 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-FINRA-2016-032, and should
be submitted on or before September 9, 2016.
---------------------------------------------------------------------------

    \96\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\96\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-19773 Filed 8-18-16; 8:45 am]
 BILLING CODE 8011-01-P