FINRA Requests Comment on a New Academic TRACE Data Product
Trade Reporting and Compliance Engine (TRACE)
Request for Comment
Referenced Rules and Notices
FINRA Rule 7730
Regulatory Notice 10-14
Regulatory Notice 15-24
Securities Act Rule 144A
Historic TRACE Data
TRACE Transaction Data
FINRA is soliciting comment on a proposal to create a new Academic TRACE Data product that would be available to institutions of higher education. FINRA and the Municipal Securities Rulemaking Board (MSRB) have been engaged in ongoing dialogue to support a coordinated approach to potential rulemaking in this area. The MSRB also is publishing a notice soliciting comment on a similar proposal that would establish a historical data product of post-trade municipal securities transaction data collected though the MSRB's Real-time Reporting System (RTRS) for institutions of higher education.1
The proposed rule text is attached as Appendix A. Selected key terms from the User Agreement for the proposed new Academic TRACE Data product is attached as Appendix B.
Questions regarding this Notice should be directed to:
FINRA encourages all interested parties to comment on the proposal. Comments must be received by September 14, 2015.
Member firms and other interested parties can submit their comments using the following methods:
Marcia E. Asquith
Office of the Corporate Secretary
1735 K Street, NW
Washington, DC 20006-1506
To help FINRA process and review comments more efficiently, persons should use only one method to comment on the proposal.2
Before becoming effective, the proposed rule change must be filed with the Securities and Exchange Commission (SEC) pursuant to Section 19(b) of the Securities and Exchange Act.3
Important Notes: The only comments that FINRA will consider are those submitted pursuant to the methods described above. All comments received in response to this Notice will be made available to the public on the FINRA website. In general, FINRA will post comments as they are received.
Background and Discussion
FINRA Rule 7730 sets forth the TRACE data products offered by FINRA. FINRA's data offerings include both real-time as well as aged historical data for most TRACE-eligible securities.4 FINRA is soliciting comment on proposed changes to create a new Academic TRACE Data product, which would be made available solely to institutions of higher education and would include masked dealer identities.
Academic TRACE Data
FINRA periodically receives requests from academics for enhanced historical TRACE data. FINRA's existing Historic TRACE Data product provides transaction-level data on an 18-month delayed basis for all transactions that have been reported to TRACE in the classes of TRACE-eligible securities that currently are disseminated.5 While Historic TRACE Data is used by academic researchers today, it does not include any identifying information regarding the dealer reporting each transaction. Thus, where a researcher wishes to track the behavior of an individual dealer—even anonymously—the existing Historic TRACE Data product would not allow for this type of observation. As a result, academics have requested that FINRA make available an enhanced version of Historic TRACE Data that would include dealer identification.
In response to these requests from academics, FINRA is proposing to create a new Academic TRACE Data product that would include masked market participant identifiers (MPIDs). As noted previously, masked MPID information may be useful to academics in a variety of ways—for example, to enable researchers to track activity by individual dealers or group of dealers and observe their behaviors in studying the impact of various events on measures such as intermediation costs, dealer participation and liquidity. Academic TRACE Data would be made available only to academics (i.e., requests originating from an institution of higher education) for a fee of $500 per data set per calendar year (with a one-time initial set-up fee of $500), and would include the same security classes as included in Historic TRACE Data.6
While FINRA understands that masked dealer identifications may be very useful to academics in connection with their research activities, we also appreciate that firms may be concerned regarding the potential for reverse engineering of dealer identities (even though masked). To address this issue, in addition to masking dealer MPIDs, FINRA proposes to take further measures to allay such concerns, including to: (1) explicitly require subscribers to agree that they will not attempt to reverse engineer the identity of any market participant; (2) prohibit the redistribution of data in the Academic TRACE Data product; (3) require users to disclose each intended use of the data (including a description of each study being performed and the names of each individual who will have access to the data for the study); and (4) require that the data be returned or destroyed if the agreement is terminated. Select key terms intended to be included in the User Agreement to safeguard the data are attached in Appendix B. In addition, the transactions included in the Academic TRACE Data product will be aged no less than 24 months.
Economic Impact Analysis
Need for the Rule
As discussed above, FINRA has received requests from academics for access to historical TRACE data that provides sufficient information to allow them to track the behaviors of individual dealers, even on an anonymous basis.
The proposed new Academic TRACE Data product with masked MPIDs is expected to enable academics to conduct research on a variety of topics related to dealer activities, which could enhance understanding of the fixed-income market and its participants.
The proposal will not have any direct operational impact on firms, as it does not require firms to provide FINRA with any additional data. The purchase of TRACE data products will continue to be optional.
The proposed Academic TRACE Data product with masked MPIDs may promote academic research on dealer behaviors; it also may raise concerns regarding the potential for reverse engineering of dealer identities. FINRA will explore this issue further using available data and information obtained through the comment process.
Request for Comment
FINRA requests comment on all aspects of the proposal. FINRA requests that commenters provide empirical data or other factual support for their comments wherever possible. FINRA specifically requests comment concerning the following issues.
1.See MSRB Notice 2015-10 (July 16, 2015), on www.rnsrb.org.
2. FINRA will not edit personal identifying information, such as names or email addresses, from submissions. Persons should submit only information that they wish to make publicly available. See Notice to Members 03-73 (November 2003) (Online Availability of Comments) for more information.
3.See SEA Section 19 and rules thereunder. After a proposed rule change is filed with the SEC, the proposed rule change generally is published for public comment in the Federal Register. Some proposed rule changes take effect immediately upon filing with the SEC. See SEA Section 19(b)(3) and SEA Rule 19b-4.
4. FINRA adopted the Historic TRACE Data rule and related fees in 2010. See Securities Exchange Act Release No. 61012 (November 16, 2009), 74 FR 61189 (November 23, 2009) (Order Approving File No. SR-FINRA-2007-006). See also Regulatory Notice 10-14 (March 2010).
5. FINRA recently published a Regulatory Notice seeking comment on a proposal to shorten the delay period for the Historic TRACE Data product from 18 months to six months. See Regulatory Notice 15-24 (June 2015). That proposal would not impact the proposed 24-month delay for the Academic TRACE Data product.
6. Historic TRACE Data is transaction-level data and includes the following data sets: the Historic Corporate Bond Data Set, the Historic Agency Data Set, the Historic Securitized Product Data Set, and the Historic Rule 144A Data Set. Historic TRACE Data originally included only the Corporate Bond and Agency Data Sets; the Securitized Product and Rule 144A Data Sets were added to Historic TRACE Data later as information about transactions in those securities became subject to dissemination. Additional securities may be included in the data sets as they become subject to dissemination.
Below is the text of the proposed rule change. Proposed new language is underlined; proposed deletions are in brackets.
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7000. CLEARING, TRANSACTION AND ORDER DATA REQUIREMENTS, AND FACILITY CHARGES
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7700. CHARGES FOR OTC REPORTING FACILITY, OTC BULLETIN BOARD AND TRADE REPORTING AND COMPLIANCE ENGINE SERVICES
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7730. Trade Reporting and Compliance Engine (TRACE)
The following charges shall be paid by participants for the use of the Trade Reporting and Compliance Engine ("TRACE"):
|System Fees||Transaction Reporting Fees||Data Fees|
|* * * * *||* * * * *||* * * * *|
|Academic TRACE Data: Set-Up Fee—a single fee of $500 for development and set-up to receive Academic TRACE Data.|
|Academic TRACE Data: Fee—$500/calendar year per Data Set for receipt of Academic TRACE Data. Redistribution of data is not permitted.|
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Selected key terms of proposed data agreement. Some of these terms may be modified in the final version of the agreement.
Restrictions and Redistribution
Publication of Derivative Works
All Data results included in any draft or final version provided to or made available in any way whatsoever, to any third party, shall be sufficiently aggregated to ensure that no third party can identify any specific FINRA Member, or reverse engineer any specific transaction. Licensee shall inform all of its Internal Users and Authorized Users to act accordingly and shall take reasonable measures to ensure their compliance. Any disclosure of the identity of any FINRA Member, whether willful or accidental, is considered a material breach of the agreement and will result in immediate Termination of the agreement for Cause.
Immediately upon conclusion or termination of the agreement for any reason, Licensee shall, without additional cost to or demand from FINRA, return to FINRA in an orderly and expeditious manner or destroy all information, records, documentation, data, and other property supplied to Licensee by and for FINRA, and shall certify in writing that it has done so.