FINRA Manual: Contents
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13-15 SEC Approves Amendments to FINRA Rule 6730(d) (2) Requiring Firms to Report Factor in Asset-Backed Securities Transactions Executed in Agency Capacity and Subject to Commission Charges; Effective Date: July 22, 2013
Trace Reporting and Compliance Engine (TRACE)
To Be Announced (TBA)
Referenced Rules & Notices
FINRA Rule 6710
FINRA Rule 6730
FINRA Rule 6750
Regulatory Notice 12-56
The SEC approved amendments to FINRA Rule 6730(d)(2) to require firms to report to TRACE the factor for each transaction in an asset-backed security (ABS) (except an ABS traded To Be Announced (TBA)),1 in the limited instances when firms effect such transactions as agent and charge a commission.2 The effective date is July 22, 2013.
The amended rule text is set forth in Attachment A.
Questions regarding this Notice may be directed to:
Background and Discussion
Currently, under FINRA Rules 6730(c)(2) and (d)(2), firms must report the size of transactions in TRACE-eligible securities,3 including certain ABS, by reporting the total par or principal value of the debt securities traded. However, in a transaction in an ABS that is backed by mortgages or other assets that amortize over the life of the security (i.e., an amortizing ABS), instead of reporting the total par or principal value, a firm reports two items from which the size is calculable: (1) the original face value of the transaction; and (2) the factor, but only if the factor used to execute the transaction is not the most current factor that is publicly available at the time of execution of the transaction (a non-conforming factor).4
FINRA amended FINRA Rule 6730(d)(2) to modify the requirement for reporting the size of a limited number of ABS transactions and to restate the current requirements. The modified requirement is set forth in FINRA Rule 6730(d)(2)(B)(iv) and requires a firm to report the factor to TRACE for every transaction in an ABS (except TBA transactions) in the limited instances when the firm effects that ABS transaction as agent and charges a commission. The amendment is necessary to ensure the accuracy of the disseminated price of an ABS transaction,5 which, if traded on an agency basis and subject to a commission charge, is calculated using the factor, the price and other information reported by a firm that is party to the transaction.
FINRA also restated the current requirements of FINRA Rule 6730(d)(2) as paragraphs (d)(2)(A), (d)(2)(B)(i), (d)(2)(B)(ii) and (d)(2)(B)(iii). Paragraph (d)(2)(A) restates the current requirement that a firm report the total par value or principal value of a transaction in a TRACE-eligible security, except an ABS transaction. Paragraph (d)(2)(B), which applies to ABS transactions, restates the current requirements that a firm report:
1 See FINRA Rule 6710(m) for the definition of asset-backed security; FINRA Rule 6710(u) for the definition of To Be Announced; and, as discussed below, FINRA Rule 6710(w) for the definition of factor.
2 See Securities Exchange Act Release No. 69037 (March 5, 2013), 78 FR 15790 (March 12, 2013) (SEC Order Approving File No. SR-FINRA-2012-052).
3 See FINRA Rule 6710(a) for the definition of TRACE-eligible security.
4 As provided in FINRA Rule 6710(w), factor means the decimal value representing the proportion of the outstanding principal value or remaining face amount of a pool of assets underlying a security to the original principal value or original face amount of such assets.
5 Specified pool transactions are subject to dissemination beginning on July 22, 2013. See Securities Exchange Act Release No. 68084 (October 23, 2012), 77 FR 65436 (October 26, 2012) (SEC Order Approving File No. SR-FINRA-2012-042 regarding a proposal to disseminate agency pass-through mortgage-backed securities traded in specified pool transactions and SBA-backed ABS traded TBA and in specified pool transactions) and Regulatory Notice 12-56 (announcing July 22, 2013, as the effective date of SR-FINRA-2012-042). FINRA also notes that transactions in additional ABS market segments may be disseminated under FINRA Rule 6750 in the future.
New language is underlined; deletions are in brackets.
For a transaction in a TRACE-Eligible Security, except an Asset-Backed Security, [R]report the total par value or principal value of the security [bonds] traded.
• • • Supplementary Material: ---------------
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