Technical Notice

TRACE System Modification to Support Trade Reporting of Equity-Linked Notes

As stated in the Trade Reporting Notice dated February 22, 2008, member firms must use the Trade Reporting and Compliance Engine (TRACE) System to report transactions of equity-linked notes (ELNs) that are not listed on a national securities exchange. Currently, TRACE accepts reports of ELNs with a par value of $1000 and executed at a price that is a percentage of par. Effective August 4, 2008, TRACE will be modified to accept trade reports of ELNs that trade in shares as units and executed at prices that are an absolute value (i.e., dollar amount per share). To support this modification, the following system changes will also be implemented:

 

  • The TRACE Issue Master available via download from the TRACE website and through the NASDAQ Security Framework SFTP facility will be modified to include a new field - Security Type. The Security Type field will identify ELNs with the value "E". All other corporate bonds will be identified with the value "C".

  • A new file will be available from the TRACE website and SFTP facility. The Issue Par Value file will identify all TRACE securities where the par value is other than 1000. This file will aid in distinguishing ELNs that trade in shares as units.1

  • The Daily List (both viewable and downloadable versions) will be modified to include the Security Type and Par Value fields.

  • The Bond Trade Dissemination Service (BTDS) will be modified by introducing new values to the Quantity Indicator field to identify ELNs that trade in shares as units.

 

Impact to TRACE Reporting Participants

 

  • For trades of ELNs that trade in shares as units, firms must submit the number of shares traded. The price entered should reflect the dollar price per share.

  • For trades of ELNs with a par value of $1000, firms must submit the number of bonds traded. The price entered should reflect the
    percentage of par .

  • Trade reports of ELNs can be submitted via the TRACE Website, CTCI or the NSCC RTTM system. Please refer to the TRACE User Guide and respective CTCI and RTTM Messaging Specifications for updates concerning trade reporting of ELNs.


Impact to BTDS Data Vendors

 

BTDS will be modified by introducing new values to the Quantity Indicator field to identify ELNs that trade in shares as units. The value "C" will denote an ELN trade where the disseminated quantity is "capped", and the value "S" will denote an ELN trade where the disseminated quantity is the actual amount reported. ELNs with a par value of $1000 will utilize the current Quantity Indicator values ("E" for capped quantities, "A" for uncapped quantities). Regardless of whether the ELN is traded in shares or has a par value of $1000, ELNs will follow current cap rules that depend on the quality rating of the security (trades of High Yield and Unrated issues greater than 1,000,000 quantity will be disseminated as 1MM+; trades of Investment Grade issues greater than 5,000,000 quantity will be disseminated as 5MM+).

 

 

Examples:

 

ELN Security Attributes
(Security Type = E)

Quantity
Indicator

Trade Amount
Reported

Quantity
Disseminated

Par Value = 1000 Rating = High Yield or Non-Rated

A

1,000

1000000

Par Value = 1000 Rating = High Yield or Non-Rated

E

1,001

1MM+

Rating = High Yield or Non-Rated Par Value = 1

S

1,000,000

1000000

Rating = High Yield or Non-Rated Par Value = 1 

C

1,000,001 

1MM+

Par Value = 1000
Rating = Investment Grade

A

5,000

5000000

Par Value = 1000
Rating = Investment Grade

E

5,001

5MM+

Par Value = 1
Rating = Investment Grade

S

5,000,000

5000000

Par Value = 1
Rating = Investment Grade

C

5,000,001

5MM+

 

 

Please note, the BTDS Trade, Cancel and Correction message formats will not change for this implementation. Please refer to the BTDS Messaging Specifications for updates concerning dissemination of ELN trades.

 

 

TRACE Data Files

 

  • Reporting firms and data vendors are advised to refer to the modified Issue Master files to identify ELN securities (Security Type = E) that are reportable to TRACE, and to the new Issue Par Value files to identify ELNs that trade in shares as units (where the Par Value = 1). 

  • The Daily List will be modified to contain the new Security Type and Par Value fields. 

  • The file changes supporting the ELN implementation are detailed in the TRACE User Guide and Instructions for SFTP Downloading of TRACE Data Files documents.


Technical Documentation

The TRACE User Guide, CTCI Specifications, RTTM Specifications, BTDS Specifications and Instructions for SFTP Downloading have been revised to reflect the system changes supporting the ELN implementation. All the revised technical documents can be found on the Documentation page.

Testing


A User Acceptance Test of these system changes is scheduled for Saturday July 26, 2008. Reporting firms and BTDS data vendors are encouraged to participate in the test in order to prepare for the August 4th implementation. FINRA will issue a subsequent notice with details on registering for the test, and a test script will be made available as well.


Questions


Questions concerning these system modifications and the user acceptance test should be directed to Orlando Cortes at (212) 858-5143 or FINRA Product Management at (866) 899-2107.

Questions concerning the reporting requirements of ELN trades should be directed to: 

 

  • tracefeedback@finra.org;
  • FINRA Operations at (866) 776-0800;
  • Elliot Levine, Chief Counsel, Transparency Services at (202) 728-8405;
  • Patrick Geraghty, Director, Market Regulation at (240) 386-4973; or
  • Office of General Counsel at (202) 728-8071.

 

1 In the future, the Issue Par Value file will be used to identify all other corporate bonds other than ELNs that have a par value other than $1000.