Daily Rules, Proposed Rules, and Notices of the Federal Government
FINRA utilizes the Trade Reporting and Compliance Engine ("TRACE") to collect from its members and publicly disseminate information on secondary over-the-counter transactions in corporate debt securities and Agency Debt Securities and certain primary market transactions. FINRA also utilizes TRACE to collect information on transactions in Asset-Backed Securities but, until recently, FINRA did not disseminate such information publicly.
FINRA has proposed to amend its Rule 6730 to reduce the period for reporting MBS SPT and SBA-Backed ABS transactions to TRACE. The reduction would occur in two stages. First, for a pilot program of approximately 180 days, FINRA will reduce the reporting period from no later than the close of the TRACE system on the date of execution to no later than two hours from the Time of Execution.
Recently, FINRA Rule 6750(b)(4) was amended to provide for dissemination of information on MBS TBA transactions immediately upon receipt of the transaction report.
The dissemination of information on MBS SPT and SBA Backed ABS transactions will be subject to certain dissemination protocols, in addition to the dissemination cap discussed below. SBA-Backed ABS TBA transactions will be subject to the same protocols that apply to MBS TBA transactions "not for good delivery" and standard data elements will be displayed.
With respect to MBS SPT and SBA Backed ABS SPT transactions, however, FINRA has proposed not to disseminate the specific CUSIP of the security traded. Instead, FINRA has proposed to disseminate certain publicly available data elements that correspond to the reported CUSIP (without actually disseminating the CUSIP).
FINRA has proposed a dissemination cap of $10 million for MBS SPT and SBA Backed ABS transactions, which would prevent the display in disseminated TRACE data of the actual size (volume) of MBS SPT and SBA Backed ABS transactions with a par value over $10 million; rather, such transactions will be displayed as "10MM+."
FINRA has proposed to amend FINRA Rule 6710 to add "SBA-Backed ABS" as a defined term
FINRA has stated that it would announce the effective date of the proposed rule change in a
After careful review, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities association.
In approving the original TRACE rules, the Commission stated that price transparency plays a fundamental role in promoting fairness and efficiency of U.S. capital markets.
As discussed above, FINRA recently amended its rules to provide for public dissemination (and timelier reporting to TRACE) of information on transactions in MBS TBA.
Further, the Commission believes that the proposed dissemination protocols for MBS SPT and SBA-Backed ABS SPT transactions, pursuant to which specified data elements would be disseminated in lieu of actual CUSIPs, strike an appropriate balance between providing meaningful post-trade transparency and, at the same time, reducing the potential for "reverse engineering" of transaction data that could permit identification of a market participant and/or its trading strategy. According to FINRA, part of the valuation analysis of any Asset-Backed Security includes a projection of its cash flow which, in turn, relies on
Additionally, the proposed reduction in reporting times for MBS SPT and SBA-Backed ABS transactions is an important corollary to the expansion of post-trade transparency for such transactions. Timelier reporting should be more conducive to the dissemination of meaningful (and close-to-real time) MBS SPT and SBA-Backed ABS transaction information. The Commission believes that reducing the reporting period as set forth in the proposal would result in important trade information reaching the market more quickly, thus contributing to enhanced price transparency for the MBS SPT and SBA-Backed ABS asset classes.
Firms covered by these new reporting requirements for MBS SPT and SBA-Backed ABS transactions could incur certain compliance burdens. However, the Commission believes that any such burdens are justified by the overall benefits of increasing transparency in the MBS SPT and SBA-Backed ABS markets. The Commission notes that FINRA has proposed to shorten the reporting period for MBS SPT and SBA-Backed ABS transactions in stages. The Commission believes that this approach is reasonably designed to ease the compliance burdens on those affected by the proposal without significantly compromising FINRA's ability to disseminate more timely transaction information for MBS SPT and SBA-Backed ABS transactions.
The Commission recognizes that the $10 million dissemination cap FINRA has proposed would, to a certain extent, limit the transparency provided by FINRA's proposal.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,