Updating TRACE Reporting Timeframes
By Robert Cook, President and CEO, FINRA
In September 2024, the SEC approved amendments (Amendments) to FINRA’s TRACE reporting rules to reduce the current 15-minute timeframe for reporting transactions in relevant fixed income securities.1 For the reasons described below, I have directed FINRA staff to not set an effective date for these Amendments. Instead, in light of questions and concerns that have been raised regarding the Amendments, FINRA staff will work expeditiously on developing and filing with the SEC substantive changes to the Amendments that take into consideration these questions and concerns.
By way of background, the Amendments were the latest initiative in FINRA’s decades-long history of periodically enhancing TRACE to improve the price transparency available to participants in the fixed income markets. During the rulemaking process that led to the Amendments, FINRA member firms, trade associations and other market participants provided extensive and valuable input that helped shape the new requirements. For example, although the Amendments are sometimes described as imposing a “one-minute” reporting requirement, based on this input the one-minute deadline in the Amendments would apply only to transactions in relevant securities that are executed and reported fully electronically from end-to-end. The Amendments include important exceptions for all other trades, which are referred to in the Amendments as “manual” trades.2 In addition, based on feedback regarding the potential impact of the Amendments on smaller firms, there is a “de minimis” exception for firms engaged in limited trading activity in the relevant securities.3
Nevertheless, following SEC approval of the Amendments, FINRA has continued to hear questions and concerns about implementing shorter reporting requirements in the manner contemplated under the Amendments and the potential for unintended consequences for the markets. Some of these questions and concerns were considered during the rulemaking process, while others raise new issues or shed new light on issues that were previously raised.4
We believe it is important to take more time to consider these questions and concerns and develop appropriate responses. FINRA’s historic approach to enhancing TRACE over time has been characterized by making careful and deliberate changes that seek to “do no harm” to our nation’s fixed income markets. Consistent with that philosophy, during the rulemaking process for the Amendments FINRA had already recognized that further engagement regarding the reduced reporting timeframes would be useful, and that modifications to the Amendments might be warranted.5
Accordingly, as noted above, FINRA will not set an effective date for the Amendments in their current form. Instead, FINRA staff will work expeditiously on preparing a new filing with the SEC to make substantive changes to the Amendments. We expect these changes, at a minimum, will propose less significant reductions to current reporting timeframes for manual trades and will address other TRACE requirements that may unnecessarily delay reporting, such as current requirements for reporting trade allocations. The new filing with the SEC proposing these changes will be published for public comment and will require SEC approval before becoming effective.
We appreciate the willingness of member firms and other market participants to share with us their perspectives and concerns regarding the Amendments, and in the coming months we welcome continued engagement regarding potential modifications to the Amendments. In addition, given the similar changes that the Municipal Securities Rulemaking Board (MSRB) has made to trade reporting requirements for municipal securities, we also intend to engage with the MSRB regarding any further review of such requirements it may undertake.
1 The Trade Reporting and Compliance Engine (TRACE) is the FINRA-developed service that facilitates reporting and dissemination of over-the-counter transactions in eligible fixed income securities.
2 “Manual” trades cover trades involving any manual steps between trade execution and trade reporting, such as in connection with executing a voice trade, reporting a trade manually, or conducting a manual compliance or risk/credit review for a trade. Under the Amendments, these manual trades would be reported within 15 minutes for the first year following the implementation date, within 10 minutes for the next two years, and within five minutes thereafter.
3 The “de minimis” exception is expected to cover 75% of firms reporting trades in the relevant securities to TRACE. Because the Amendments would not apply to these firms, they would continue to be subject to the existing 15-minute timeframe.
4 These include: questions about the scope of the manual exception; concerns regarding the feasibility of the new deadlines for reporting particular types of manual trades, especially with the automatic drop-down from 10 minutes to five minutes; concerns about one-off scenarios when the reporting deadlines cannot be met (e.g., because of systems or connectivity issues, unusual market conditions, and the size and complexity of the trade); questions about whether other existing TRACE requirements should be modified to facilitate more timely reporting (e.g., the treatment of allocations or the treatment of correction reports); and whether FINRA could enhance the “report cards” it currently provides firms regarding how their TRACE reporting compares to other firms.
5 For example, FINRA committed to an extended phase-in timeline for manual trades and, within nine to 12 months of the effectiveness of the 10-minute reporting timeframe for manual trades, to publishing a Regulatory Notice soliciting comments regarding the reduced reporting timeframe for manual trades. See also Order Approving a Proposed Rule Change, as Modified by Partial Amendment No. 1, To Amend FINRA Rule 6730 (Transaction Reporting) To Reduce the 15-Minute TRACE Reporting Timeframe to One Minute, Release No. 34–101121 (Sept. 20, 2024). FINRA stated that future measures could include filing a proposal with the SEC prior to the effectiveness of the five-minute reporting timeframe to extend the implementation of, or eliminate, the five-minute reporting requirement for manual trades, as warranted.