FINRA Successfully Launches Reporting of Treasury Transactions, Providing Regulators with Enhanced Insight into Treasury Market

WASHINGTON — A new requirement for securities firms to report certain transactions in Treasury securities to FINRA was implemented successfully yesterday, providing regulators with a new tool to increase understanding and enhance surveillance of this bellwether market.

The rule requires that FINRA member firms report secondary-market transactions in Treasury securities except savings bonds to TRACE, FINRA’s Trade Reporting and Compliance Engine.

“The Treasury market is the deepest, most liquid and most widely followed government-securities market in the world, and it is critical that regulators receive the data necessary to inform effective oversight of the market,” said FINRA President and CEO Robert W. Cook. “Our existing TRACE utility has been ideally positioned to receive this important regulatory information in a manner that minimizes the incremental burden on member firms.”

At this time, FINRA is not charging transaction-level fees and is not publicly disseminating information on transactions in Treasuries. FINRA is including the information in the TRACE regulatory feed it provides to federal financial agencies in order to enhance their oversight and knowledge of the Treasury markets.

The implementation follows months of preparation by FINRA and its member firms, beginning in October 2016 when FINRA published a notice as well as technical specifications. That was followed by months of making a testing facility available, three separate industry tests and three educational conference calls, as well as numerous additional informational memos.

Also in October 2016, the Federal Reserve Board announced that it plans to collect data from banks for secondary-market transactions in U.S. Treasury securities and will enter into negotiations with FINRA to potentially act as the Board’s collection agent for the data.

Background

July 2015 – In response to unexplained volatility in the Treasury market in October 2014, a joint staff report was published by an interagency working group consisting of the Department of the Treasury, the Board of Governors of the Federal Reserve System, the Federal Reserve Bank of New York, the Securities and Exchange Commission and the Commodity Futures Trading Commission. The report included preliminary findings on the volatility, described the current state of the Treasury market, and proposed four “next steps” in understanding the evolution of the market. Among these steps was an assessment of the data available to regulators and to the public regarding the cash market for Treasuries.

January 2016 – The Treasury Department published a Request for Information (RFI) seeking public comment on structural changes in the U.S. Treasury market and their implications for market functioning. The RFI expanded on the four “next steps,” and requested comment on official-sector access to data regarding the cash market for Treasuries and whether dissemination of Treasury market transaction data to the public would be beneficial.

May 2016 – After reviewing the comment letters, the Treasury Department and the Securities and Exchange Commission announced that they were “working together to explore efficient and effective means of collecting U.S. Treasury cash market transaction information,” and they requested that FINRA “consider a proposal to require its member brokers and dealers to report Treasury cash market transactions to a centralized repository.”

July 2016 – In response to the request, FINRA proposed the new reporting requirement.

October 2016 – FINRA received SEC approval of the proposal, announced an implementation date of July 10, 2017, and began months of preparation work and testing with the industry to help ensure a smooth transition to the new reporting requirement.

FINRA is dedicated to investor protection and market integrity. It regulates one critical part of the securities industry – brokerage firms doing business with the public in the United States. FINRA, overseen by the SEC, writes rules, examines for and enforces compliance with FINRA rules and federal securities laws, registers broker-dealer personnel and offers them education and training, and informs the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers a dispute resolution forum for investors and brokerage firms and their registered employees. For more information, visit www.finra.org.