Federal Policy Focus

Both the FINRA and MSRB proposals feature significant analyses of trade reporting speeds. The MSRB proposal states that 77 percent of municipal trades are already reported within one minute, and the FINRA proposal states that 82 percent of TRACE-eligible trades are reported within one minute. Both proposals suggest that moving all trades to a one-minute standard is doable and cost-effective while requesting comment on possible problems and issues.

BDA provided comments to both agencies in October. We told MSRB and FINRA that “there are good reasons why dealers are not already reporting 100 percent of trades within one minute despite both Rules explicitly or effectively requiring trade reporting ‘as soon as practicable.’” We cite several situational reasons why some trades cannot be reported within one minute, including, for example, if that firm has never traded that bond before or for trades entered manually. We asked both agencies to withdraw their proposals. Short of that we said “If the MSRB and FINRA decide to move forward with one-minute reporting despite the predictable negative outcomes, we recommend significant changes to the Proposals, including maintaining 15-minute reporting for trades executed by telephone, manually inputted into RTRS or TRACE, cleared through third-party clearing firms, allocated to a dually registered RIA’s sub-accounts, or trades that require a dealer to populate their security record before reporting.”
The comments received by both agencies were overwhelmingly opposed to the proposal. We will continue to press the MSRB and FINRA on their trade reporting initiative.

The proposed amendment would require FINRA-member dealers to collect customer variation margin on most sales of new-issue agency MBS or take a comparable capital charge when the market moves against a customer position.

In a statement we filed in response to the review, BDA told the SEC that "Maintaining the stay is imperative given the many and immediate harms that the Proposed Rule Change would have on market participants." We also told the Commission that they "should deny the 2021 Proposed Rule Change and continue to deny effectiveness to SR-FINRA-2015-036, insofar as that Rule would subject forward-settling transactions in federal government mortgage-backed securities ("Agency MBS") to margin requirements."

In an additional, expected action, FINRA recently extended the deadline for compliance with the 2016 changes to Rule 4210, already approved by the Commission, to October 24, 2023.

In our letter to FINRA on the proposal, BDA opposed the change “because it would create a cumbersome and expensive mechanism for trade reporting and because FINRA has not appropriately scoped the full effects of the proposal, relying instead on estimates of the volume of trades that would be affected.” We told FINRA that a large majority of trade reporting is conducted by OMS vendors and that those vendors system architecture does not currently support reporting trades before they are fully executed with a known dollar price. Adapting systems to accommodate the rule change would be expensive and time consuming.

We also critiqued FINRA’s economic analysis of the proposal on the basis that it uses speculative assumptions about the volume of trades that would be affected by the rule changes. Instead of moving forward with the current proposal we asked FINRA to consider a rule change where DTSTs would continue to be reported when all trade terms including the dollar price are known, but those trade reports would be flagged as DTSTs and would include the time that the spread to Treasuries was established.

We also raised the issue of the DTST proposal in the context of a previous FINRA proposal to shorten the TRACE trade reporting time from 15 minutes after execution to one minute. “If FINRA adopts both one-minute trade reporting and dual reporting for DTST trades as proposed in the Notice, we ask that the proposals be adopted separately with a long period of time between the effective dates of both amendments in order to ensure firms are fully prepared to comply with both,” we said.

We plan to maintain our advocacy around this proposal.

SEC Rule 15c2-11 requires dealers to review issuer financial information prior to publishing quotes to “quotation mediums” for over-the-counter securities. 2020 amendments to the Rule specify that the issuer financial information must also be publicly accessible.

On November 30, 2022 the SEC issued a third staff no-action letter related to applying Rule 15c2-11 to fixed income quotations. Under the revised approach, the no-action letter that applied to bond quotations in 2022 will effectively remain in place for 2023 and 2024. The principal change is that dealers can continue to publish quotations for 144A securities if the issuer’s financial are available to potential buyers; they do not have to be available publicly.

BDA has been working with SIFMA on this issue. There is currently a joint BDA-SIFMA working group focused on identifying and addressing key compliance questions associated with applying 15c2-11 to fixed income quotations.

FINRA in 2019 proposed to establish and operate a Corporate Bond New Issue Reference Data Service, a database of corporate bond new issues. The proposal arose from a recommendation to establish a corporate bond reference database from the SEC's now idle Fixed Income Market Structure Advisory Committee. Under the proposal underwriters would be required to submit to FINRA 32 descriptive data fields for the new corporate deals they underwrite. FINRA would repackage and sell the data via subscriptions.

BDA told the SEC “Throughout the rulemaking process around the Proposal, FINRA has failed to provide robust cost estimates either for expenses that would be incurred by firms themselves or costs that would be incurred by FINRA.” “We urge the Commission withhold further support of the Proposal until the SEC and the public have a full accounting of the project’s costs,” we told the SEC.

The SEC approved the FINRA proposal under delegated authority in December 2019. Since then, the FINRA proposal has gone into “Commission review” with the approval stayed. Bloomberg has also challenged the FINRA proposal in litigation. Recently the DC Circuit Court ruled in that case “the Commission failed to respond adequately to Bloomberg’s concerns about the cost of building and maintaining the program and the extent to which those costs – which could conceivably amount to millions, or tens of millions of dollars – will be borne by market participants.”