FINRA Manual: Contents
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10-23 SEC Approves Reporting Asset-Backed Securities Transactions to TRACE and Related Fees; Effective Date: February 14, 2011
Trade Reporting and Compliance Engine (TRACE)
FINRA Rule 6710
FINRA Rule 6720
FINRA Rule 6730
FINRA Rule 6750
FINRA Rule 6760
FINRA Rule 7730
Securities Act Rule 144A
SEA Section 19
Effective February 14, 2011, firms must begin reporting asset- and mortgage-backed securities transactions to TRACE. FINRA will not disseminate the data; it will collect and study the transaction data and may propose to disseminate it in the future.
In addition, reporting fees for asset- and mortgage-backed securities transactions, and other related amendments to TRACE and FINRA rules will go into effect on this day.1
The amended rule text is available at www.finra.org/notices/10-23.
Questions regarding this Notice should be directed to:
Background & Discussion
The TRACE Rules (the FINRA Rule 6700 Series) provide for the reporting of transactions in TRACE-Eligible Securities to TRACE and the dissemination of transaction information, with limited exceptions.2 TRACE reporting and data fees are set forth in FINRA Rule 7730.
In 2009, FINRA proposed two major expansions of TRACE.3 The first major expansion, which became effective March 1, 2010, added debt securities issued or guaranteed by U.S. federal agencies and government-sponsored enterprises (GSEs) (collectively, Agency Debt Securities) as TRACE-Eligible Securities.4 In addition, primary market transactions became reportable to TRACE, fee provisions were amended regarding both Agency Debt Securities and primary market transactions, and FINRA was granted certain emergency authority.5
On February 22, 2010, the SEC approved the second major proposed expansion of TRACE to include Asset-Backed Securities as TRACE-Eligible Securities, to require the reporting of Asset-Backed Securities transactions and to establish reporting fees. The significant changes to the TRACE Rules and FINRA Rule 7730 related to Asset-Backed Securities include:
As noted on the previous page, FINRA will not disseminate transactions in Asset-Backed Securities when the Asset-Backed Securities amendments become effective. Instead, FINRA intends to collect and study the transaction data. After a review is undertaken, FINRA may propose to disseminate Asset-Backed Securities transaction data. Any proposal to do so will be filed with the SEC under Section 19(b) of the Securities Exchange Act as a proposed rule change, providing firms and the public an opportunity to comment.
FINRA is aware that the Asset-Backed Securities amendments will require firms to make significant operational and technological changes to incorporate the requirements in firms' business operations, technologies, and compliance and supervisory systems. Accordingly, FINRA has designated the effective date as February 14, 2011.
In addition, FINRA has extended the period to report a transaction in an Asset-Backed Security from the date of trade during TRACE System Hours to T+1 during TRACE System Hours under a six-month pilot program. Extending the reporting period during the six-month pilot program also will provide firms the time needed to make the changes required to timely and accurately report Asset-Backed Securities transactions. The pilot program will end on Sunday August 14, 2011, at 11:59:59 p.m., Eastern Time.
1 See Exchange Act Release No. 61566 (February 22, 2010), 75 FR 9262 (March 1, 2010) (Order Approving File No. SR-FINRA-2009-065) (Asset-Back Securities filing).
2 FINRA disseminates information on publicly traded TRACE-Eligible Securities immediately upon receipt of the transaction report by TRACE. Under Rule 6750(b), a transaction is not disseminated if it is: (1) effected under Securities Act Rule 144A; (2) part of a transfer of multiple proprietary positions to effect an acquisition, merger or a similar combination involving multiple broker-dealers that qualifies under Rule 6750(b)(2); or (3) a primary market transaction that is a List or Fixed Offering Price Transaction or a Takedown Transaction. As discussed below, primary market transactions, including List or Fixed Offering Price Transactions and Takedown Transactions, became subject to TRACE reporting on March 1, 2010.
3 See Exchange Act Release No. 60727 (September 28, 2009), 74 FR 50991 (October 2, 2009) (Order Approving File No. SR-FINRA-2009-010) (the Agency Debt Securities filing) and Asset-Backed Securities filing, supra note 1.
4 See Agency Debt Securities filing, supra note 3. The amended definition of TRACE-Eligible Security that became effective on March 1, 2010, continued to exclude Asset-Backed Securities.
5 See Agency Debt Securities filing, supra note 3. The rule change modified the definition of "Reportable TRACE Transaction" in Rule 6710(c), which previously was limited to secondary market transactions. Certain primary market transactions—those defined as List or Fixed Price Offering Transactions in Rule 6710(q) and Takedown Transactions in Rule 6710(r)—are not required to be reported until close of business on T+1. Also, such transactions are not disseminated. See supra note 2.
The amendments to Rule 7730 established TRACE reporting and data fees for transactions in Agency Debt Securities at the same rates applicable to corporate bonds, Also, under amended Rule 7730, a member is not required to pay a reporting fee when reporting a List or Fixed Offering Price Transaction or a Takedown Transaction.
New Rule 6770 provides FINRA emergency authority to suspend the reporting and/or dissemination of certain transactions in TRACE-Eligible Securities or the reporting of certain data elements as market conditions warrant and in consultation with the SEC.
6 A firm's use of a numeric identifier other than a CUSIP is not limited to Asset-Backed Securities.
8 See Exchange Act Release No. 61948 (April 20, 2010), 75 FR 22670 (April 29, 2010)(Notice of Filing and Request for Comment of Immediately Effective Proposed Rule Change SR-FINRA-2010-019).