Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Granting Approval of a Proposed Rule Change, as Modified by Amendment No. 2, To Establish a Corporate Bond New Issue Reference Data Service

15 U.S.C. 78s(b)(1).

17 CFR 240.19b-4.

See Securities Exchange Act Release No. 85488 (April 2, 2019), 84 FR 13977 (“Notice”).

See Securities Exchange Act Release No. 85911, 83 FR 24839 (May 29, 2019). The Commission designated July 7, 2019, as the date by which it should approve, disapprove, or institute proceedings to determine whether to disapprove the proposed rule change.

15 U.S.C. 78s(b)(2)(B).

See Securities Exchange Act Release No. 86256, 84 FR 32506 (July 8, 2019).

Partial Amendment No. 1 was also filed on October 3, 2019 and subsequently withdrawn on the same day due to a non-substantive administrative error and replaced with Amendment No. 2. In Amendment No. 2, the Exchange: (i) Withdrew the proposed fees for receipt of corporate new issue reference data in the proposal and stated that a separate proposed rule change would be filed to establish fees related to the corporate bond new issue reference data service at a future date prior to implementing the service; (ii) revised the list of data fields to be collected under the proposal to clarify certain proposed data fields and to add six new data fields; and (iii) included additional rationale for the data fields proposed to be collected. Amendment No. 2 is available at: https://www.sec.gov/comments/sr-finra-2019-008/srfinra2019008-6252424-192827.pdf .

See Securities Exchange Act Release No. 87232, 84 FR 54712 (October 10, 2019). The Commission extended the date by which the Commission shall approve or disapprove the proposed rule change to December 4, 2019.

All comments on the proposed rule change, including FINRA's response to comments, are available at: https://www.sec.gov/comments/sr-finra-2019-008/srfinra2019008.htm .

See supra notes 3 and 7.

The FIMSAC is a federal advisory committee formed in November 2017 to provide the Commission with diverse perspectives on the structure and operations of the U.S. fixed income markets, as well as advice and recommendations on matters related to fixed income market structure. The FIMSAC's charter is available at: https://www.sec.gov/spotlight/fixed-income-advisory-committee/fimsac-charter-nov-2019.pdf . The committee comprises 23 members. The membership includes individuals representing a range of perspectives on the fixed income markets including retail and institutional investors, corporate and municipal issuers, trading venues, institutional dealers, a retail dealer, a regional municipal securities dealer, a proprietary trading firm, a data provider, academics, and self-regulatory organizations (“SROs”). For a list of FIMSAC members, see https://www.sec.gov/spotlight/fixed-income-advisory-committee/fixed-income-market-structure-advisory-committee-subcommittees.htm .

See Fixed Income Market Structure Advisory Committee Recommendation (October 29, 2018) available at: https://www.sec.gov/spotlight/fixed-income-advisory-committee/fimsac-corporate-bond-new-issue-reference-data-recommendation.pdf (“Recommendation”). In particular, the FIMSAC recommended that the Commission, in conjunction with FINRA, establish a new issue data service with the following elements: (i) The managing underwriter of all TRACE-eligible corporate bond new issues, including registered offerings and unregistered Rule 144A offerings, would be required to send specified new issue information, as well any follow-up adjustments, electronically to a central database managed by FINRA; (ii) the managing underwriter would be required to submit the new issue information to FINRA no later than distribution of the information to any reference data vendor or other third party not involved in the offering; (iii) once the central database has all the required reporting information, FINRA will make the data available in a real-time electronic format to reference data vendors and other market participants as determined by FINRA; and (iv) FINRA shall provide subscribers with access to the service on an impartial basis at fees determined on a commercially reasonable basis, subject to applicable regulation. The FIMSAC recommended that such data service provide the following new issue reference data fields: (a) Issuer; (b) coupon; (c) ISIN number; (d) CUSIP number; (e) currency; (f) issue date/first settle date; (g) interest accrual date; (h) day count description; (i) coupon frequency; (j) first coupon payment date; (k) maturity; (l) calculation types; (m) 144A eligible indicator; (n) Regulation S indicator; and (o) security type.

As part of the proposal, FINRA would amend the title of the Rule to “Obligation to Provide Notice and Dissemination of Corporate Debt Security New Issue Reference Data.”

As part of the proposal, FINRA would amend Rule 6760(a)(1) to clarify that underwriters subject to the rule must report required information for the purpose of providing market participants in the corporate debt security markets with reliable and timely new issue reference data to facilitate the trading and settling of these securities, in addition to the current purpose of facilitating trade reporting and dissemination in TRACE-Eligible Securities, as that term is defined in Rule 6710(a).

In connection with the proposal, FINRA proposes to move the definition of “Corporate Debt Security,” which is currently located in FINRA Rule 2232 (Customer Confirmations), into the TRACE Rule Series (specifically Rule 6710 (Definitions)) and to make corresponding technical edits to Rule 2232 to refer to the relocated definition in Rule 6710. In addition, FINRA proposes to make two changes to the definition of “Corporate Debt Security,” which FINRA states are technical, non-substantive edits that reflect the original intent of the definition and are consistent with current FINRA guidance. See Notice, at 13978, n.6. Specifically, FINRA proposes to revise the current definition of Corporate Debt Security to (i) clarify that the definition is limited to TRACE-Eligible Securities, and (ii) update the definition to exclude Securitized Products (defined in Rule 6710(m)), rather than Asset-Backed Securities (defined in Rule 6710(cc)).

Rule 6760(b), proposed to be renumbered as Rule 6760(b)(1), currently requires the following information to be reported to FINRA: (A) The CUSIP number or if a CUSIP number is not available, a similar numeric identifier (e.g., a mortgage pool number); (B) the issuer name, or, for a Securitized Product, the names of the Securitizers; (C) the coupon rate; (D) the maturity; (E) whether Securities Act Rule 144A applies; (F) the time that the new issue is priced, and, if different, the time that the first transaction in the offering is executed; (G) a brief description of the issue (e.g., senior subordinated note, senior note); and (H) such other information FINRA deems necessary to properly implement the reporting and dissemination of a TRACE-Eligible Security, or if any of items (B) through (H) has not been determined or a CUSIP number (or a similar numeric identifier) is not assigned or is not available when notice must be given, such other information that FINRA deems necessary and is sufficient to identify the security accurately.

FINRA states that under proposed Rule 6760(d), there may be some information collected under the rule for security classification or other purposes that would not be disseminated. This may include, for example, information about ratings that is restricted by agreement. In addition, CUSIP Global Services' (“CGS”) information would not be disseminated to subscribers that do not have a valid license regarding use of CGS data.

See Amendment No. 2, at 4. FINRA originally proposed to make the corporate bond new issue reference data available to any person or organization for a fee of $250 per month for internal purposes only, and for a fee of $6,000 per month where the data is retransmitted or repackaged for delivery and dissemination to any outside person or organization. See Notice, at 13979. FINRA withdrew these proposed fees in Amendment No. 2. See supra note 7.

Certain comments are not discussed below because they do not bear on the basis for the Commission's decision to approve the proposed rule. See, e.g., Letter from Christopher B. Killian, Managing Director, SIFMA, dated July 29, 2019 (“SIFMA Letter II”), at 2 (stating that if the proposal is approved, the Commission or FINRA should provide guidance that providing reference data information to FINRA's data service will not constitute an offer, an offer to sell, or a solicitation of an offer to buy for purposes of the Securities Act of 1933); Letter from Lynn Martin, President and COO, ICE Data Services, dated April 29, 2019 (“ICE Data Letter”), at 2 (stating that the final rule should specify that entities who are third parties involved in the offering are prohibited from sharing data with affiliated corporate entities).

See ICE Data Letter; Letter from Cathy Scott, Director, Fixed Income Forum, on behalf of The Credit Roundtable, dated April 29, 2019 (“Credit Roundtable Letter”); Letter from Salman Banaei, Executive Director, IHS Markit, dated April 29, 2019 (“IHS Markit Letter”); Letter from Marshall Nicholson and Thomas S. Vales, ICE Bonds dated April 29, 2019 (“ICE Bonds Letter”); Letter from Christopher B. Killian, Managing Director, SIFMA, dated April 29, 2019 (“SIFMA Letter”); Letter from Larry Harris, Fred V. Keenan Chair in Finance, U.S.C. Marshall School of Business, dated May 17, 2019 (“Harris Letter”); Letter from John Plansky, Executive Vice President and Chief Executive Officer, Charles River Development, dated May 24, 2019 (“Charles River Letter”); and Letter from SEC Fixed Income Market Structure Advisory Committee, dated June 11, 2019 (“FIMSAC Letter”). One of these commenters stated that it supports the goals and conceptual basis of the proposed service but also stated that several complications and ambiguities in the proposal prevent it from “expressly supporting the proposal,” and it remains concerned about several aspects of the proposal (as discussed below). See SIFMA Letter II, at 1; Letter from Christopher B. Killian, Managing Director, SIFMA, dated October 24, 2019 (“SIFMA Letter III”).

See Letter from David R. Burton, Senior Fellow in Economic Policy, The Heritage Foundation, dated April 29, 2019 (“Heritage Letter”); Letter from Tom Quaadman, Executive Vice President, U.S. Chamber of Commerce, dated April 29, 2019 (“Chamber Letter”); Letter from Tyler Gellasch, Executive Director, Healthy Markets Association, dated April 29, 2019 (“Healthy Markets Letter”); Letter from Greg Babyak, Global Head of Regulatory Affairs, Bloomberg L.P. dated April 29, 2019 (“Bloomberg Letter”); Letter from Larry Tabb, TABB Group, dated May 15, 2019 (“Tabb Letter”); and Letter from John Thornton, Co-Chair, et al., Committee on Capital Markets Regulation, dated July 27, 2019 (“Committee Letter”). See also Letter from Greg Babyak, Global Head of Regulatory Affairs, Bloomberg L.P., dated July 1, 2019 (“Bloomberg Letter II”); Letter from Greg Babyak, Global Head of Regulatory Affairs, Bloomberg L.P., dated July 29, 2019 (“Bloomberg Letter III”); Letter from Greg Babyak, Global Head of Regulatory Affairs, Bloomberg L.P., dated October 24, 2019 (“Bloomberg Letter IV”); Letter from Tyler Gellasch, Executive Director, Healthy Markets Association, dated July 29, 2019 (“Healthy Markets Letter II”); Letter from Tyler Gellasch, Executive Director, Healthy Markets Association, dated October 25, 2019 (“Healthy Markets Letter III”); Letter from David R. Burton, Senior Fellow in Economic Policy, The Heritage Foundation, dated July 29, 2019 (“Heritage Letter II”); Letter from David R. Burton, Senior Fellow in Economic Policy, The Heritage Foundation, dated October 23, 2019 (“Heritage Letter III”); Letter from Tom Quaadman, Executive Vice President, U.S. Chamber of Commerce, dated July 29, 2019 (“Chamber Letter II”); Letter from Tom Quaadman, Executive Vice President, U.S. Chamber of Commerce, dated October 24, 2019 (“Chamber Letter III”); Letter from John Thornton, Co-Chair, et al., Committee on Capital Markets Regulation, dated October 22, 2019 (“Committee Letter II”); and Letter from Greg Babyak, Global Head of Regulatory Affairs, Bloomberg L.P., dated November 27, 2019 (“Bloomberg Letter V”). One of these commenters was generally supportive of the objective of providing market participants with greater data to facilitate the trading of corporate bonds, but opposed the proposal because of what it believed was insufficient justification. See Healthy Markets Letter, at 4, 7.

See ICE Data Letter, at 1-2; ICE Bonds Letter, at 1-2; Charles River Letter, at 2; FIMSAC Letter, at 1-2.

See ICE Data Letter, at 2; Harris Letter, at 2-3; Charles River Letter, at 2; FIMSAC Letter, at 1-2.

See ICE Data Letter, at 2; ICE Bonds Letter, at 2; FIMSAC Letter, at 2.

See ICE Data Latter, at 2; Harris Letter, at 2-3; Charles River Letter, at 2.

Section 15A(b)(6) of the Act requires, among other things, that the rules of a national securities association be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest; and not to permit unfair discrimination between customers, issuers, brokers, or dealers. 15 U.S.C. 78 o-3(b)(6).

See Heritage Letter, at 1-2; Chamber Letter, at 2; Healthy Markets Letter, at 4-5; Bloomberg Letter, at 9-10. See also Healthy Markets Letter II, at 4-6; Healthy Markets Letter III; Heritage Letter II, at 2; Heritage Letter III, at 2; Chamber Letter II, at 3-4; Bloomberg Letter II, at 4-7; Bloomberg Letter III, at 5-8; Bloomberg Letter IV, at 4; Bloomberg Letter V, at 3-4.

The commenter stated that “it is questionable whether a single SRO would provide more accurate, complete and timely service than competing private sector providers.” See Bloomberg Letter, at 9. In addition, the commenter stated that the impact of any errors in a centralized system would be magnified. See id., at 10.

The commenter stated that “there appears to be plenty of time to correct errors before they enter the settlement and clearing process” and presented evidence that over 91% of new issues settle three days or more after a new issue is priced and 66% settle four days or more after a new issue is priced. See Bloomberg Letter, at 10-11.

See Bloomberg Letter, at 12-13; Bloomberg Letter II at 4-6; Bloomberg Letter III at 6-7; Bloomberg Letter V, at 3. This commenter presented data regarding alternative trading system (“ATS”) trading on pricing day to argue that electronic trading platforms can readily access new issue bond reference data, and that the market for new issue corporate bonds is healthy and already evolving in the manner that the FIMSAC desires. For example, this commenter provided data (for new issues from March 12, 2019 to April 11, 2019) demonstrating that ATSs arranged a trade in 43% of the new Jumbo-sized issues, 28% of the new Benchmark-sized issues, and 11% of medium-sized issues on the day the bond was free to trade. See Bloomberg Letter, at 12-13. In addition, this commenter presented evidence that over the past year, the number of Jumbo-sized new issues that traded electronically on the day they were priced more than doubled to 30%. See Bloomberg Letter II, at 4-6; Bloomberg Letter III, at 6; and Bloomberg Letter IV, at 4-5. This commenter further stated that since FINRA proposed its effort to standardize and centralize bond-reference data reporting, competition in this area has only increased, citing a recent effort by various financial institutions to streamline communications and data among market participants by connecting underwriters and investors. See Bloomberg Letter IV, at 6.

See Bloomberg Letter, at 9-14; Bloomberg Letter II, at 4-7; Bloomberg Letter III, at 5-8. This commenter stated that market participants currently demand more reference data fields than FINRA is proposing to collect; thus the proposal will not avoid “duplicative efforts” and may fragment the market. See Bloomberg Letter, at 13-14. In addition, this commenter stated that FINRA will have no market incentive to improve its technology for collecting or distributing bond data, and that in the existing TRACE system, 20% of entries have errors. See Bloomberg Letter III, at 5-6.

See Chamber Letter, at 4; Chamber Letter III, at 2.

See Bloomberg Letter IV, at 5. See also Chamber Letter III, at 3.

See Letter from Alexander Ellenberg, Associate General Counsel, FINRA, dated October 29, 2019 (“Response Letter”), at 3-4. See also Notice, at 13980-83.

See Response Letter, at 4. See also Notice, at 13980-81.

See Response Letter, at 4.

See id. See also Notice, at 13980, n.17.

See Response Letter, at 4. See also Notice, at 13981.

See Response Letter, at 4.

See id. See also Notice, at 13980.

See id.

See Response Letter, at 4-5.

Specifically, FINRA pointed to (i) a statement by the chair of the Subcommittee that developed the Recommendation that “there are indeed gaps in corporate bond fixed income reference data, both in terms of when that data is available with different reference data providers, as well as sometimes the accuracy;” (ii) a statement from a data provider panelist that “there are some market anomalies where some of the vendors have access to information much earlier than other vendors,” and “that creates basically competitive advantage on certain platforms;” and (iii) a statement from an investment management firm panelist noting that there are “cases where a new issue does take time to get set up on some of [the investment firm's] electronic trading platforms, and that means that we can't necessarily go and use those electronic trading platforms right away.” See Response Letter, at 5 (citing to Transcript of FIMSAC Meeting (October 29, 2018), available at https://www.sec.gov/spotlight/fixed-income-advisory-committee/fimsac-102918transcript.txt ).

See Response Letter, at 5. See also supra note 27 and accompanying text.

FINRA cited comment letters submitted in response to the proposal noting that there currently exist issues with the availability, completeness, and timeliness of new issue reference data; and that the current information asymmetry with respect to such data harms liquidity, execution quality and competition in the corporate bond market. See Response Letter, at 5 (citing to Harris Letter; ICE Bonds Letter; ICE Data Letter; Charles River Letter; and FIMSAC Letter). See also supra notes 22-25 and accompanying text.

See Response Letter, at 6-7.

See id.

See id. FINRA found that for the first day of trading in corporate bond new issues, an ATS traded at most 3% of the 11,518 newly issued bonds, and that over the subsequent 10 days after issuance, ATSs represented an increasing percentage of trading.

See Bloomberg Letter V, at 1-2.

Section 15A(b)(9) of the Act requires that the rules of a national securities association not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. 15 U.S.C. 78 o-3(b)(9).

See, e.g., Healthy Markets Letter II, at 5-6; Bloomberg Letter III, at 8-11; Heritage Letter II; at 2-3; Bloomberg Letter IV, at 4.

See Heritage Letter, at 1-2; Chamber Letter, at 2; Bloomberg Letter, at 2-3; Healthy Markets Letter II, at 5; Tabb Letter, at 2-3. Some of these commenters questioned the quality of FINRA's current TRACE data, and pointed to a recent study that found that approximately 20% of entries had errors. See, e.g., Healthy Markets Letter II, at 5; Bloomberg Letter III, at 5-6; and Bloomberg Letter IV, at 4 (citing to Larry Tabb, Tabb Forum, “An SEC-Mandated Corporate Bond Monopoly Will Not Help Quality” (Mar. 21, 2019) (“Tabb Study”)). See also supra note 31.

See Bloomberg Letter II, at 1. See also Bloomberg Letter IV, at 5. This commenter compared the proposal to a previous FINRA proposal to create a facility to consolidate all quotation data in the over-the-counter equities market, which was ultimately withdrawn by FINRA. See Bloomberg Letter V, at 3-4 (citing Securities Exchange Act Release No. 60999 (November 13, 2009), 74 FR 61183 (November 23, 2009) (SR-FINRA-2009-077) (Notice of Filing of Proposed Rule Change Relating to the Restructuring of Quotation Collection and Dissemination for OTC Equity Securities).

See Tabb Letter, at 3. See also Bloomberg Letter V, at 2.

See Bloomberg Letter IV, at 5.

See FIMSAC Letter, at 3.

See id. at 4. One commenter that has both a data business and an electronic bond trading platform stated that there is no basis for FIMSAC's claims that integrated firms are using their data business to harm competition in trading. The commenter pointed to data showing that it holds only 3.2% of market share of domestic institutional electronic corporate bond trading, and argued that this data contradicts any suggestion that the commenter has leveraged its data business to gain a competitive advantage for its electronic trading business. See Bloomberg Letter II, at 2-4.

See Harris Letter, at 4.

See Response Letter, at 8-9. See also Notice, at 13982.

See Response Letter, at 9.

See id. at 8 (citing to Harris Letter; FIMSAC Letter; ICE Data Letter; Charles River Letter). See also supra notes 56-58 and accompanying text.

See, e.g., supra notes 53 and 55 and accompanying text.

See Response Letter, at 10.

See id.

See id.

See id. at 9. See also Section 15A(b)(6) of the Act, 15 U.S.C. 78 o-3(b)(6).

See Response Letter, at 9-10. For example, FINRA makes available to the public all transaction data in corporate bonds through TRACE. See FINRA's TRACE Overview, available at https://www.finra.org/sites/default/files/TRACE_Overview.pdf . FINRA also makes details about corporate and agency debt securities available to FINRA members and provides a tool to the public that enables them to analyze and compare the costs of owning mutual funds. See TRACE OTC Corporate Bonds and Agency Debt User Guide, available at: https://www.finra.org/sites/default/files/TRAQS-CA-user-guide-v4.7.pdf.pdf ; FINRA Fund Analyzer, available at: https://tools.finra.org/fund_analyzer/ .

See Response Letter, at 10. See also Notice, at 13981-83 (FINRA included an “Economic Impact Assessment” in its proposal, which, among other things, described the current dissemination process of new issue reference data in the corporate bond market, pricing of the proposed data service, benefits of the proposal, costs and negative impacts of the proposal, the anticipated effect of the proposal on competition among market participants and efficiency in the market, and alternative approaches considered by FINRA). In response, however, one commenter stated that “[d]eciding to excise the fee analysis, in the face of overwhelming negative commentary, belies FINRA's claim to have provided a `detailed analysis of the Proposal's anticipated costs and benefits.' ” See Bloomberg Letter V, at 4. See also Section III.C. infra.

See Response Letter, at 10.

See id.

See id. However, one commenter stated that FINRA offers no reason why vendors would continue to fund their own research in addition to paying for FINRA's information. See Bloomberg Letter V, at 3.

See supra notes 52-54 and accompanying text.

See Response Letter, at 10-11. Specifically, with respect to the Tabb Study cited by certain commenters, FINRA stated that it is not clear what TRACE data was used for the analysis or which point in time during the trading day was used to compare TRACE data with the vendor's data. In addition, FINRA states that the analysis does not explain which of the two sources (TRACE or the vendor) were deemed accurate (it only references “reconciliation differences”) or whether the differences included cases where data was not present yet in either system. See id. In response, one commenter stated that FINRA's response is “puzzling” as the Tabb Study states that it used the “initial release” of FINRA's own “TRACE Corporate and Agency Master file,” and stated that neither FINRA nor any other commenter contests that the concern is with the inaccuracy of FINRA's data. See Bloomberg Letter V, at 2.

See id. at 11.

See id.

See id. In response, one commenter stated that FINRA's reliance on unspecified “system-validated” data is not enough to refute the historical evidence of “a high error rate for comparatively simple data.” See Bloomberg Letter V, at 3.

Section 15A(b)(5) of the Act requires that the rules of a national securities association provide for the equitable allocation of reasonable dues, fees, and other charges among members and issuers and other persons using any facility or system which the association operates or controls. 15 U.S.C. 78 o-3(b)(5).

See supra note 18.

See Chamber Letter, at 3-4; Healthy Markets Letter, at 5-6; SIFMA Letter, at 3-4; Bloomberg Letter, at 6-9; Harris Letter, at 7; Committee Letter, at 1-2; Heritage Letter II at 3. See also Bloomberg Letter III, at 3-4; Bloomberg Letter IV, at 6.

See Harris Letter, at 7.

See Credit Roundtable Letter, at 1.

See Amendment No. 2, at 4.

See Amendment No. 2, at 4.

See Bloomberg Letter IV, at 6-9; Chamber Letter III at 2-3; Committee Letter II at 2-3; Heritage Letter III, at 2-3; Healthy Markets Letter III at 2; SIFMA Letter III at 3-4; and Bloomberg Letter V, at 4-5.

See id.

See id. Some commenters pointed to the Commission's recent proposed rule change to amend Regulation NMS to rescind a provision that allows a proposed amendment to a national market system plan (“NMS plan”) that establishes or changes a fee or other charge to become effective upon filing, and argued that the concerns voiced by the Commission in that proposal are applicable to FINRA's current proposal. See Bloomberg Letter IV, at 8; Chamber Letter III at 2; Committee Letter II at 2-3 (citing to Commission, Proposed Rule, “Rescission of Effective-Upon Filing Procedure for NMS Plan Fee Amendments,” 84 FR 54794 (Oct. 11, 2019) (“Proposed Regulation NMS Fee Amendment”)).

See Response Letter, at 12, n.35. However, one commenter responded that the problem is not that FINRA could entirely avoid subjecting the fees to public comment, but that the fee filing would be immediately effective before Commission scrutiny, and that this “would flip the burden of securing Commission intervention from FINRA to affected market participants.” See Bloomberg Letter V, at 4.

See id.

See SIFMA Letter, at 1-2. See also Credit Roundtable Letter, at 1 (cautioning that any data provision requirements on underwriters not impede their ability to make markets in the new issue as soon as possible).

See ICE Data Letter, at 2; ICE Bonds Letter, at 2.

See Response Letter, at 14. FINRA stated that “[b]ased on conversations with underwriters, FINRA understands that underwriters do not anticipate incurring significant costs for reporting under this proposal.” See Notice, at 13982.

See Response Letter, at 14 (citing to ICE Bonds Letter, at 2; and ICE Data Letter).

See Response Letter, at 14. FINRA stated that it believes this position is consistent with the recommendation from ICE Data to provide clarification for the term “first transaction” consistent with MSRB Rule G-34. See Response Letter at 14, n.45 (citing to ICE Data Letter, at 2).

See Credit Roundtable Letter, at 1; ICE Data Letter, at 2-3; SIFMA Letter, at 3; FIMSAC Letter, at 14; SIFMA Letter II, at 2; SIFMA Letter III, at 2-3.

See Healthy Markets Letter, at 6; Healthy Markets Letter III, at 2.

See FIMSAC Letter at 2-3 and Schedule A.

See FIMSAC Letter, at 7-8, 10, 12-13. This commenter proposed combining the Maturity and Perpetual Maturity indicators into one existing field (Maturity Date) and the 144A Eligible and Regulation S indicators into one new field (Series). In addition, this commenter recommended requiring the following additional data fields: First Conversion Date; First Conversion Ratio; Spread; Reference Rate; Floor; and Underlying.

See Response Letter, at 12; Amendment No. 2, at 5 and Exhibit 3.

See Amendment No. 2, at 5 and Exhibit 3. See also Response Letter, at 13.

See Amendment No. 2, at 5 and Exhibit 3; Response Letter, at 13. FINRA stated that it also agrees with FIMSAC's recommendation to combine the Maturity and Perpetual Maturity indicators into one existing field (Maturity Date) and marked the amended Exhibit 3 to reflect that the maturity and perpetual maturity indicator fields will be tied together as combined fields for purposes of reporting the information, although they remain noted in Exhibit 3 as separate data fields to reflect that FINRA included the perpetual maturity indicator field based on its industry outreach. See Amendment No. 2, at 5, n.9, and Exhibit 3; Response Letter, at 13, n.41. With respect to FIMSAC's recommendation to combine the 144A Eligible and Regulation S indicator fields into a single “Series” field, FINRA stated that it believes it will be easier operationally to maintain the separate fields to limit potential confusion about other security offering types or issuances that may meet more than one offering type. See id.

See Response Letter, at 13.

See Amendment No. 2, at 5 and Exhibit 3; Response Letter, at 12-13.

See Amendment No. 2, at 5, n.10, and Exhibit 3; Response Letter, at 12-13, n.39.

See, e.g., SIFMA Letter III, at 2-3.

See Response Letter, at 12-13.

See IHS Markit Letter, at 2-3.

See SIFMA Letter, at 2; ICE Data Letter, at 3; SIFMA Letter III, at 2.

See Response Letter, at 14.

See id. at 14-15.

See id. at 15.

In approving this proposed rule change, the Commission has considered the proposed rule change's impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). The Commission addresses comments about economic effects of the proposed rule change on efficiency and competition in Sections IV.A.1, IV.B. and IV.C. below. The Commission does not believe that FINRA's proposal implicates capital formation in a notable way. However, to the extent capital formation is implicated, the Commission believes that the proposal would promote capital formation and, as discussed in more detail below with respect to the proposal's impact on efficiency and competition, FINRA's proposal could promote improved liquidity and price discovery in the secondary market by enabling more market participant participation in the secondary market on the first day a bond trades. As such, an investor may be more likely to participate in primary bond offerings if they are confident that they can resell the bond in the secondary market at an efficient price. If more investors are more likely to participate in primary bond offerings, corporations would have a broader investor base for raising capital in the corporate bond market.

15 U.S.C. 78 o-3(b)(6).

15 U.S.C. 78 o-3(b)(9).

See supra notes 27-31 and accompanying text. Commenters also argued that FINRA provided no evidence the proposal would reduce broken trade errors or reduce costs or duplicated efforts. See supra notes 29 and 31. In contrast, other commenters and market participants stated that FINRA's proposed data service would reduce costs, eliminate duplicated efforts, and reduce trading errors, as market participants would no longer have to source data from multiple vendors or enter data manually. See supra note 25; infra notes 122-124. See also Harris Letter at 2 (noting the current process for underwriters to provide data is “tedious, prone to transcription errors, and must be repeated for every bond in which the reference data vendor or the end user is interested”); Charles River Letter at 2 (stating that “the creation of the data service will enhance operational efficiencies for buy-side investors by ensuring reliable, consistent and timely access to data, necessary for the seamless trading and settlement of new issue corporate data” and “the proposed data service will help buy-side investors better manage their risk,” including “the reduced need for manual entries and overrides.”) As further discussed below, the Commission believes the proposal would benefit the corporate bond market by helping to ensure all market participants have access to consistent, timely and accurate reference data regarding newly issued corporate bonds, which the Commission believes, among other things, may result in a reduction in costs for participants in the market and potentially a reduction in trading errors. See infra notes 125-128 and accompanying text.

See, e.g., ICE Bonds Letter, at 2 (“Without a level playing field for new issue reference data, these retail investors and the broker dealers servicing them are disadvantaged by not being able to participate in the secondary markets during the critical time after a security is available to trade.”); Charles River Letter, at 2 (“Currently, phased reporting of data elements is permitted, causing material inefficiencies in the intake and consumption of data. Eliminating the phased reporting approach will lead to the availability of more complete and consistent reference data.”) See also supra notes 22-25 and accompanying text.

See ICE Bonds Letter, at 2.

See Recommendation, at 1-2. See also Transcript from the October 29, 2018 Meeting of the FIMSAC (“FIMSAC Transcript”), Comments from Richard McVey, MarketAxess, at 0064-64 (stating that, following research and deliberations over the past quarter, “we identified that there are indeed gaps in corporate bond fixed income reference data, both in the timing of when that data is available with different reference data providers, as well as sometimes the accuracy” and that “we consider both of those to be significant issues”).

FIMSAC comprises experts and interested persons representing a broad array of fixed income market perspectives, including investors, issuers, dealers, trading venues, quantitative trading firms, SROs, service providers, and market observers. See supra note 11. In addition, the Recommendation states that input was considered from reference data providers, underwriters, the Municipal Securities Rulemaking Board (“MSRB”), and FINRA. See Recommendation, at 1.

It is the Commission's understanding that such reference data include issuer and issue identifiers and details, such as maturity, coupon, par value, payment frequency, amortization details, call schedule and convertibility, among other terms and conditions. See Recommendation, at 1.

See id. at 2. Under current FINRA Rule 6760, members that are underwriters of an initial offering of a TRACE-Eligible Security are required to submit certain specified information to FINRA prior to the execution of the first transaction of the offering to facilitate trade reporting and dissemination of transactions. See FINRA Rule 6760. The information required by the rule generally is limited to the fields needed to set up a bond on TRACE for trade reporting purposes, and does not include the more detailed data required to price and settle a bond trade. See Notice, at 13978. FINRA disseminates some of this new issue information as part of the Corporate Security Daily List; however, electronic trading platforms generally require more information to make new issues available to trade. See id.

See FIMSAC Letter, at 1. The FIMSAC noted that the research of the Subcommittee indicated that “the immediate trading of newly issued bonds is hampered by the lack of broad distribution of the required data fields . . .” and that “[i]n practice, each reference data provider is able to collect and disseminate new issue reference data at different speeds that vary by a few hours to several days.” See id.

See Recommendation, at 2. See also FIMSAC Transcript, Comments from Spencer Gallagher, ICE Data Services, at 0069-72 (“Distribution [of new issue reference data] is not consistent in both completeness of the content or timeliness of the delivery. . . . All said, none of the avenues [for securing new issue reference data], underwriter emails, new issue publishing announcement or issuer websites provide a comprehensive coverage in a timely manner. We piece all of this together as available to us. On the few cases where we see no information, we will see the data on Edgar, usually via prospectus. But that is well after the pricing event and clearly not sufficient for pre-trade and trade workflows.”)

See FIMSAC Letter, at 2. See also FIMSAC Transcript, Comments from Spencer Gallagher, ICE Data Services, at 0068 (“[T]here is one area that no investment or no level of ingenuity can solve and that is equal access to new issue reference data at or prior to first trade execution. . . . [A]ccess and timeliness to fixed income reference data has a significant impact on the efficiency and inter-operability of the corporate bond markets.”); Comments from Bob LoBue, J.P. Morgan, at 0081 (“We do undertake some communications, and various dealers do it differently. I can comment on JP Morgan. We tend to not disseminate data to third party vendors off the corporate platform. I think the point of inaccuracies is the reason for that. So, we tend to use Bloomberg as our let's ensure it is accurate, and then people can source that information from that venue.”)

See Recommendation at 2. See also FIMSAC Transcript, Comments from Frederic Demesy, Refinitiv, at 0078 (“[A]t the moment, we see that there are some market anomalies where some of the vendors have access to information much earlier than other vendors. And that creates basically competitive advantage on certain platforms, which is in my view not ideal for having a transparent market. It also incurs higher costs for our customers. The first one would be on vendors. Market participants will have to source the data from multiple vendors to ensure that all the information is available, so [there are] duplicating costs. There is also an operational cost related in terms of data quality. So, when you onboard multiple feeds, ICE Data Service and Refinitiv data is not automatically in the same format. So, the customer has to develop operational efficiency tools to standardize the data on their platform. And third is when the market participant gets things wrong, it can have a huge impact, missing trade opportunities but also reputational risks that would be the worst.”); Comments from Bob LoBue, J.P. Morgan, at 0080-81 (“And I think the Refinitiv team and the ICE team intimating a competitive advantage for Bloomberg, there is no question that we do undertake getting our securities set up on the Bloomberg trading platform because that is what the industry predominately uses to book our tickets.”)

See Recommendation at 2.

See Recommendation, at 1. See also FIMSAC Transcript, Comments from Alex Sedgwick, T. Rowe Price, at 0084-85 (“Electronic market-makers ultimately need this information to provide accurate pricing and accurate valuation for the prices that they are pushing out to the market. If this information is not available, that ultimately means that there are liquidity providers that may not be able to provide liquidity to us when those new issues are free to trade.”); (So, when . . . we are trading on the desk, we need to be able to measure our execution against benchmarks. If it takes more than a couple of hours or even more than a day for those benchmarks to become available, that is an area where we may not be able to do accurate trade cost analysis. And that is a very important sort of supporting piece of information as we think about best execution on the trading desk.”)

See Recommendation, at 1. See also FIMSAC Transcript, Comments from Frederic Demesy, Refinitiv, at 0077-78 (“[W]e see a transformation in the bond markets where in the past market participants were expecting the data to be available at the end of day or the timeliness was not as important as it is now. Now, a market participant wants to have the information when the bond prices to set up their platforms to be able to trade. They want to have updates intraday, and that is a very big difference from what happened maybe two, three or five years ago where end of day updates was enough for them to operate. Now, the market participants want information intraday. And that forces market vendors . . . to rethink the way we distribute the reference data. And obviously the more the bond trades electronically, the more market participants would want to have this information on time.”); Comments from Alex Sedgwick, T. Rowe Price, at 0084 (“Historically, we have noticed cases where a new issue does take time to get set up on some of our electronic trading platforms, and that means that we can't necessarily go and use those electronic trading platforms right away. So, we have to trade them via voice or another venue.”)

See Recommendation, at 1. See also FIMSAC Transcript, Comments from Alex Sedgwick, T. Rowe Price, at 0085 (“I think from our perspective, we are supportive of the proposal. Our focus is primarily on the automated delivery of accurate and timely data and ultimately minimizing secondary dependencies on the desk.”)

See Response Letter, at 4. See also Notice, at 13980-81. The concerns of market participants, including data vendors, trading venues, and investors, regarding the lack of timely reference data are described in detail above. See supra Section III.A. and this Section IV.A.1.

See Response Letter, at 4. See also Notice, at 13980. In response to one commenter who presented data concerning ATS trading in new issues purporting to suggest that there is no current access problem relating to new issue bond reference data, FINRA reviewed TRACE data concerning ATSs and conducted its own analysis, which FINRA stated suggests that some ATSs may not be receiving reference data in a timely fashion to allow them to begin trading a newly issued corporate bond. See Response Letter, at 6-7. See also supra note 30. The same commenter disputed FINRA's analysis as flawed. See supra note 49. In the Commission's view, any analysis of electronic trading in corporate new issues by ATSs is necessarily limited, as there are a number of electronic bond trading platforms that are not registered as ATSs and there are a number of other types of market participants, including investors, intermediaries and data vendors that may not have timely access to newly issued bond reference data to identify, value and settle bonds on the first day of trading in the secondary market. Therefore, the analyses provided by the commenter and FINRA, which focus on ATS trading in new issues, is not reflective of the market for newly issued corporate bonds as a whole.

Currently, for information reported under Rule 6760 for trade reporting purposes, the rule allows phased reporting in some cases. Specifically, for an offering of a security that is priced and begins trading on the same business day between 9:30 a.m. and 4:00 p.m. Eastern Time, Rule 6760 requires certain information to be reported before the first trade in the security and remaining information within 15 minutes of the time of the first trade. Otherwise, the current rule requires all information to be reported before the first trade in the security. See Rule 6760.

See Notice, at 13979. FINRA noted that the Recommendation stated that managing underwriters should be required to report the data elements to FINRA no later than reporting such data elements to any third party not involved in the offering, including reference data vendors. See Recommendation, at 3.

See infra Section IV.A.2.

See infra Section IV.B.

See e.g., Recommendation at 2 (noting that “common access to timely and accurate corporate bond reference data would increase the efficiency and interoperability of the corporate bond market and promote fair competition among all market participants.”)

See Notice, at 13982-83; Recommendation, at 1-2; ICE Data Letter, at 2 (“The current system for submitting and disseminating new issue information for municipal bonds established under MSRB Rule G-34 provides a successful model and we support the Proposal's intent to similarly collect and disseminate data for corporate bond new issues.”).

The FIMSAC notes that this information includes ten data elements required to set up an issue in the NIIDS, as well as up to 70 additional data elements. See Recommendation, at 1.

See MSRB Rule G-34(a)(ii)(C).

See Recommendation, at 2. See also FIMSAC Transcript, Comments from Spencer Gallagher, ICE Data Services, at 0070-74 (“Conversely, in the muni market, we do not have this problem. We can clearly state when a reference data is available on municipal new issues. The award date and time is established and the data is made available prior to the first execution. For municipals, new issue reference data dissemination is mandated . . . . This was a positive transformation in the way municipal content was made available. We re-tooled our products to make sure our clients had increased access to data to fit the more efficient new issue dissemination and trade reporting requirements. This had a significant impact on the muni market as it could now depend [sic] sufficient content to execute pre-trade and trade activities without a scramble to secure the required new issue reference data.”)

See Bloomberg Letter, at 14-15; Chamber Letter II, at 3-4.

See Securities Exchange Act Release No. 57131 (January 11, 2008), 73 FR 3295 (January 17, 2008) (MSRB-2007-08) (“MSRB NIIDS Proposal”), at 3297.

See MSRB NIIDS Proposal, supra note 141.

See id. at 3296.

See supra notes 136 and 139 and accompanying text.

See Recommendation at Schedule A; FIMSAC Letter at Schedule A. The one field from the Recommendation that FINRA did not include is “Calculation Types (CALT).” FINRA stated that it understands from industry outreach that this field leverages calculation methodology that is specific to one data vendor's protocols and may not be readily available to all underwriters that would be required to report information to FINRA under Rule 6760, or to consumers of the data. See Notice, at 13978, n.8.

FINRA stated these additional fields were indicated by market participants as important in liquidity and risk assessment. See Notice, at 13978-79. See also Amendment No. 2, Exhibit 3.

See Notice, at 13978. The FINRA TRACE New Issue Form is used by firms to set up securities pursuant to firms' existing obligations either under Rule 6760 or 6730 (Transaction Reporting). It allows for the submission of data fields required by these rules as well as additional data fields that underwriters often report voluntarily. As part of the proposal, FINRA would codify in Rule 6760 the specific fields that have been deemed necessary under current Rule 6760(b) and therefore are mandatory for successful submission of the TRACE New Issue Form. See Notice, at 13978, n.9.

See supra note 145 and accompanying text.

See, e.g., Harris Letter, at 6 (“The fields on the FINRA list are sufficient to value most bonds. . . . I believe that FINRA chose the fields wisely.”); ICE Data Letter, at 2 (“ICE Data Services believes the scope of the Proposal is appropriate and we support the inclusion of the 30 data fields enumerated in the Proposal's Exhibit 3.”).

FINRA Rule 6760 currently requires underwriters to report to FINRA the following information: Issuer; Coupon; CUSIP Number; Maturity; 144A Eligibility Indicator; the time that a new issue is priced and, if different, the time that the first transaction in the offering is executed; a brief description of the issue; and such other information as FINRA deems necessary to properly implement the reporting and dissemination of a TRACE-Eligible Security. FINRA's proposal will require that these data elements be reported to FINRA prior to the first transaction in the security in all instances.

See Amendment No. 2, Exhibit 3. Similar rationale for each data field was also put forth by the FIMSAC. See FIMSAC Letter, at Schedule A. In addition, in Amendment No. 2, FINRA set forth its rationale for including certain data fields currently required to be reported under Rule 6760, as follows: Issuer—necessary for settlement and valuation purposes; the investor needs to know the issuing entity of the bond; Coupon—needed for settlement and valuation purposes; the coupon rate is needed for accrual/interest/cash flow calculations; CUSIP Number—needed to uniquely identify securities that trade, clear, and settle in North America, particularly in the United States; Maturity—necessary for settlement and valuation purposes; this field is necessary in order to understand when the bond is due to pay back its principal at par; this field is used to back populate accruals and cash flows; and 144A Eligible Indicator—necessary for settlement purposes; this field is needed to distinguish 144A securities for QIB eligible investors. See Amendment No. 2, Exhibit 3. See also FIMSAC Letter, at Schedule A.

See supra notes 148-149.

See FIMSAC Letter, at 2-3 and Schedule A.

See supra notes 32-33. One commenter presented evidence of the size of underwritten investment grade corporate bonds in 2019, stating that “through October 7, 33 underwriters have each underwritten more than $1 billion (notional year to date, while 59 other underwriters also have priced issues during 2019—overwhelmingly for small issues of less than $25 million” and stated that FINRA has failed to address the differential impact of the proposed new compliance burden on different sized underwriters. See Bloomberg Letter IV, at 5, n.10. Other commenters supported the proposal's pre-first transaction reporting requirement. See ICE Bonds Letter, at 2 (“In order to avoid disadvantaging ATS subscribers and their clients, we believe it is critical for the rule to establish conditions that allow ATS providers to access the data required to trade and settle a transaction in a new issue corporate bond prior to the start of secondary market trading”). See also ICE Data Letter, at 2.

See Notice, at 13982.

See id. See also FIMSAC Transcript, Comments from Spencer Gallagher, ICE Data Services, at 0074 (“Possibly, the centralization will work out in [the underwriters'] benefit as underwriters are distributing through just one pipe instead of the multiple pipes that they do today.”)

See FIMSAC Letter, at 3. See also FIMSAC Transcript, Comments from Bob LoBue, J.P. Morgan, at 0080 (“We have a 15-minute window post-pricing to deliver the pricing information of FINRA for trace eligibility. And we could talk about . . . while we are delivering to FINRA, I think both FINRA and ourselves would say we could probably populate that a little bit deeper.”).

See FINRA Rule 6760.

See Recommendation supra note 12.

In response to commenter concerns about underwriters facing potential liability for errors in reporting, the Commission recognizes that underwriters may be subject to antifraud liability. However, the Commission notes that the information to be provided to FINRA under this proposal is a subset of the information underwriters currently provide to investors in the primary offering. For this reason, the Commission believes that the risk of potential additional liability for reporting this subset of information to FINRA is minimized.

See supra notes 114; 122-128 and accompanying text. Additionally, FINRA stated in its Response Letter that it believes it is important to maintain the proposal's pre-first transaction reporting requirement and that “on balance, the significant benefits of requiring all data fields to be reported pre-first trade outweigh the additional burdens on underwriters.” See Response Letter, at 14.

See supra notes 51-54 and accompanying text. These commenters were further concerned that diminished competition would result in a lack of innovation, poor data quality, and a potential single point of failure. See id. See also supra note 71. The Commission notes that FINRA's proposal is designed to provide information that will allow for the identification, valuation, and settlement of corporate bonds broadly to the market before such bonds begin trading in the secondary market. As discussed below, the Commission believes that data vendors will likely continue to compete based on differing value added services related to the required information and also based on additional data fields, data updates, and data quality and that such competition should continue to spur innovation and allay concerns regarding a single point of failure and error rates. Furthermore, FINRA has stated that the required data fields would be system validated fields, meaning that FINRA would employ systemic and operational checks for all of the data fields to determine if any fields are missing or not conforming to expected format or standards at the time of submission, and therefore the instance of reconciliation differences should be reduced. See supra notes 75-76 and accompanying text.

See supra notes 56-58 and accompanying text.

See Response Letter, at 8-9.

See Harris Letter at 4 (noting that such additional data includes ratings and indications of whether an issuer is currently in default, in an agreement to merge, or negotiating such an agreement). One commenter who argued the proposal would diminish competition amongst reference data providers nevertheless stated that market participants currently demand more reference data fields than FINRA is proposing to collect. See Bloomberg Letter, at 13-14. In addition, this commenter noted that since FINRA's proposal was filed, competition in this area has increased. See supra note 30.

See FIMSAC Letter, at 3. There are many other data provided by reference data providers concerning a bond issue, such as issuer information (e.g., fundamentals data, capital structure data), specific bond rating, bond trade and selling restrictions, classification data (industry, legal entity, etc.), corporate action data, ESG (Environmental, Social & Governance) data, dividend data, instrument analytics data, and security ownership data. See e.g., IHS Markit Reference Data Bonds Factsheet, available at https://cdn.ihs.com/www/pdf/Reference-Data-Bonds-factsheet.pdf;; Bloomberg Reference Data Content and Data, available at https://www.bloomberg.com/professional/product/reference-data/.

See Response Letter, at 9.

Commenters have expressed concerns about FINRA's proposed reference database in light of evidence that the commenters believe show that FINRA's current collection of bond data contains a high incidence of errors. See supra notes 52-54. In response, FINRA has stated that the Tabb Study cited by certain commenters is not clear as to what TRACE data was used for the analysis or which point in time during the trading day was used to compare TRACE data with the vendor's data, and that the analysis does not explain which of the two sources (TRACE or the vendor) were deemed accurate (it only references “reconciliation differences”) or whether the differences included cases where data was not yet present in either system. See Response Letter, at 10-11. See also supra notes 73-76 and accompanying text. In response, one commenter stated that FINRA's response is “puzzling” as the Tabb Study states that it used the “initial release” of FINRA's own “TRACE Corporate and Agency Master file,” and the commenter stated that neither FINRA nor any other commenter contests that the concern is with the inaccuracy of FINRA's data. See Bloomberg Letter V, at 2. The Commission is not persuaded that error rates (whatever they may be) in TRACE data call into question the reliability of FINRA's proposed reference database. In this regard, FINRA has stated that it will engage with market participants on the appropriate business requirements for the reporting process, it intends to implement functionality to allow for underwriters to correct previously submitted data to FINRA for a significant period after receiving the initial Rule 6760 submission, it may take a phased approach to implementation to promote compliance and data accuracy, and data reported to FINRA will be system-validated. See Response Letter, at 11-15. The Commission believes that these statements indicate that FINRA is committed to establishing a reliable reference database.

See supra notes 79-81 and accompanying text.

See Amendment No. 2, at 4.

See supra notes 84-86. SROs are required by Section 19(b) of the Act and Rule 19b-4 thereunder to file proposed rule changes with the Commission on Form 19b-4. The Act provides that a proposed rule change may not take effect unless it is approved by the Commission pursuant to Section 19(b)(2) of the Act, or it becomes immediately effective upon filing pursuant to Section 19(b)(3)(A) of the Act. Rule 19b-4(f) under the Act specifies the types of proposed rule changes that may become immediately effective upon filing with the Commission, and includes those properly designated by the SROs as “establishing or changing a due, fee, or other charge imposed by the self-regulatory organization.” See Rule 19b-4(f)(2) under the Act.

Furthermore, in contrast to one commenter's assertion, FINRA has the burden of demonstrating that a proposed fee is consistent with the Act and the rules and regulations thereunder, regardless of whether the proposed fee is effective upon filing with the Commission. See Securities and Exchange Commission Rules of Practice, Rule 700 (b)(3) (17 CFR 201.700(b)(3)). See also supra note 87.

See Section 19(b)(3)(C) of the Act, authorizing the Commission at any time within 60 days of the date of filing of a proposed rule change pursuant to Section 19(b)(1) of the Act, to summarily temporarily suspend the change in the rules of an SRO if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act, and Section 19(b)(2)(B) of the Act, setting forth a notice and hearing procedure for an order instituting proceedings.

15 U.S.C. 78s(b)(2).