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The Financial Industry Regulatory Authority Finra Proposes Trade Reporting and Compliance Engine TM and others Database Expansion

By Amarendra Bhushan for CEOWORLD Magazine Updated:October 1, 2009

The Financial Industry Regulatory Authority (FINRA) today is proposing the expansion of FINRA’s Trade Reporting and Compliance Engine TM (TRACE TM) to include all asset-backed securities (ABSs), including mortgage-backed securities (MBSs) and collateralized debt obligations (CDOs). As with the original implementation of TRACE in 2002, FINRA would initially only collect ABS transaction data. After detailed analysis and observation of the market, FINRA would determine whether dissemination of ABS data is appropriate.

“For regulators, there is a demonstrated need for ABS market information,” said Richard G. Ketchum, FINRA Chairman and Chief Executive Officer. “Greater disclosure around these securities directly linked to the credit crisis will allow for more effective oversight with a deeper understanding of market dynamics.”

TRACE reporting of ABS transactions would provide to FINRA trade prices, volume and other information. FINRA’s ability to supervise the market would be enhanced through a better-informed surveillance program designed to detect fraud, manipulation, unfair pricing and other misconduct that violates federal securities laws and FINRA rules.

Generally, FINRA favors transparency in the debt securities markets. Indeed, real-time dissemination of transaction information is provided for nearly all TRACE-eligible securities. FINRA also believes that the transparency in corporate bonds provided by TRACE today has contributed to better pricing, more precise valuations and reduced investor costs.

However, the characteristics of the ABS market differ sufficiently from the corporate debt market, to the extent that FINRA believes close study of ABS information and the broader market is required to determine if dissemination of ABS market data is beneficial.

The plan for ABS disclosure to FINRA, filed as a rule change with the Securities and Exchange Commission (SEC) today, follows the SEC’s approval earlier this week of TRACE reporting for debt issued by federal government agencies, government corporations and government-sponsored enterprises (GSEs), as well as primary market transactions in new issues. The reporting for the government agencies and the primary market goes into effect March 1, 2010.

With that recent SEC approval, and if the SEC approves the expansion to ABS transactions, 70 percent of the U.S. debt market would be subject to FINRA market surveillance, up from the current 27 percent. This includes market surveillance FINRA conducts on the Municipal Securities Rulemaking Board’s behalf. Firms would report post-trade data for all publicly traded debt securities except money market instruments and U.S. Treasury securities.

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