FINRA requested comment on proposed amendments to FINRA Rule 6730 that would require firms to identify corporate bond trades (i) where the trade price is based on a delayed Treasury spot trade, which is one that "was priced earlier in the day based on the spread to a U.S. Treasury Security" and (ii) that are within a larger portfolio trade.
In a regulatory notice, FINRA elaborated that under the proposed amendments, firms would have to report the time of agreement with regard to delayed Treasury spot delays. Additionally, FINRA stated that in relation to corporate bond trades within a larger portfolio trade, firms would have to report on corporate trade bonds that (i) are executed amongst two parties, (ii) involve "a basket of corporate bond securities of at least 30 unique users," (iii) are for a "single agreed price" among an entire basket and (iv) are executed on "all-or-none or most-or-none" basis.
With regard to delayed Treasury spot trades, FINRA is seeking comment on:
- whether the proposed amendments would (i) provide information that is useful to the marketplace, (ii) benefit some market participants more substantially than others or (iii) result in potential operational or other challenges;
- the timeframe necessary for firms to make the changes to their systems required to implement the proposal; and
- potential modifications or alternatives to the proposed amendments.
With regard to corporate bond traders within larger portfolio trades, FINRA is seeking comment on:
- the appropriateness of the proposed parameters;
- the likelihood that market participants will be able to identify such information if the trades are identified in disseminated data;
- costs associated with such additional identification; and
- potential modifications or alternatives to the proposed amendments.
Comments on the proposed amendments must be received by September 14, 2020.
Commentary
This proposal is part of FINRA's ongoing efforts to bring greater transparency to bond market transactions. In this case, the proposal addresses two types of transactions in which the reported price may not reflect the current market price. The issue for market participants is whether the benefits of obtaining additional information as to these types of transactions warrants the additional implementation costs. TRACE reporting is fertile ground for enforcement action. The more information firms are required to provide, the greater the opportunity for error and risk of regulatory sanction.
Primary Sources
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