TRACE FAQ - Rules & Complance

Do prime brokers have any reporting obligation?
Prime brokers that are FINRA members acting as an executing broker have a TRACE reporting obligation.

Who needs to sign up for TRACE reporting?
Any FINRA member who transacts business in a TRACE-eligible issue or an introducing or executing broker.

How do I know when a bond that I think is TRACE-eligible is reportable?

FINRA makes available a list of TRACE-eligible bonds. This list, distributed at approximately 6:30 a.m. EST will contain reportable bonds for the current business day. The bond list is available on the FINRA site at: http://cxa.marketwatch.com/finra/BondCenter/Default.aspx via ftp download. (If a bond is added intra-day, you will be alerted.)

 

If your system cannot process a start of day bond master, FINRA publishes the Issue Master at 8 p.m. EST for the next business day. Firms should check the morning Cusip list for late additions.

If I don't do business in corporate bonds, do I have to sign up for TRACE reporting, since TRACE applies to all FINRA members?
No

Do off-shore subsidiaries of FINRA members have to submit trade reports to TRACE?

The TRACE reporting obligations apply only to FINRA member firms.

 

If the bond is transferred from a domestic FINRA member firm to a foreign subsidiary or affiliate and beneficial ownership has changed, a transaction needs to be reported by the member firm. This transaction would be reportable as a sale between the domestic B/D and the foreign entity. Similarly, if a foreign affiliate sold bonds to the FINRA member firm, the FINRA member would need to report the buy.

 

FINRA recognizes that firms may have different arrangements to handle global trading and that the reporting obligation may need to be assessed on an individual basis. Please email as detailed information as possible and provide the name of a contact person, that person’s direct telephone number and e-mail address. Your e-mail will be forwarded to FINRA’s Office of General Counsel, which will evaluate your situation on a case-by-case basis.

Are repurchase agreements ("Repos") reportable to TRACE if the securities involved are TRACE-eligible?
For purposes of TRACE reporting, bona fide properly documented repo transactions are not viewed as transactions in the secondary market for the purchase and sale of corporate bonds, but, rather, as financing transactions for members.

Are tender offers reportable?

Sales of bonds from bondholders directly to the issuer or third party purchaser pursuant to a public tender offer effected in accordance with SEC rules are not reportable transactions. In such a tender offer, a FINRA member that acts as a dealer manager/agent for the issuer or third party purchaser would not have a reporting obligation. However, a FINRA member that acts as principal and purchases bonds and then resells them to the issuer/third party purchaser or a member that acts as agent for the seller would have a reporting obligation with respect to purchases from the bondholder.

 

For interpretive guidance, see Notice to Members 02-76, Question 13, “Issuer Open Market Repurchase Transactions.”

If a bond is in the TRACE database while the issue is still in the primary market, is it misreporting to submit a TRACE report on a transaction?

Yes. Until secondary market OTC trading officially begins, no TRACE reports may be submitted. In order to capture the first day of secondary market trading, it is necessary to set up a new issue in the TRACE database as soon as the requisite information (under Rule 6260) is supplied to FINRA Market Operations. It is the firms' responsibility to make sure that if automated systems are used to report transactions to TRACE, only secondary market transactions are transmitted. If TRACE reporting is a default in such a system, firms must have the ability to override this default.

If I buy or sell a sinking fund bond that trades on yield to average life, don't I use this yield when reporting to TRACE?
No. Under TRACE Rule 6230 (c)(13), a member must report the lower of yield to call or yield to maturity, even if the transaction was effected using a different standard. For interpretive guidance, please see Notice to Members 02-76 , Question 7.

How do I comment on TRACE rule filings?
All commenters should e-mail the SEC or submit comments via letter. For simple instructions please go to www.sec.gov/rules/submitcomments.htm

How do lead underwriters contact Market Operations to provide new CUSIPs for set up in TRACE prior to secondary market trading? What information needs to be provided?

A managing underwriter (or, if there is no managing underwriter, the group of underwriters) must contact Market Operations in writing, by e-mail or fax (240) 386-6225. Please include contact information (name and direct telephone number) with the information provided.

 

When providing the CUSIP number, also provide: issuer name (e.g.: Tenneco Automotive, Inc.); coupon rate (e.g.: 11.625); maturity (ex: 10/15/09); brief description of the issue (e.g.: first mortgage notes, senior notes, senior subordinated notes, series B); and whether the issue is a private placement issued pursuant to Rule 144A (e.g.: Rule 144A=Y; Rule 144A=N). If the final coupon, month, and day are not yet available, provide the CUSIP number and the final maturity year until the complete information is available. Also required to be provided is the information needed by FINRA to determine if the new issue will be subject to dissemination.

 

Under Rule 6260, managing underwriters are required to make a good faith determination that the security is a TRACE-eligible security before submitting the information to FINRAMarket Operations. Such language is intended to preclude submission of clearly ineligible security types (e.g., CDOs, municipal bonds). Members are reminded that the final determination of TRACE eligibility is made by FINRA and not by the members. Accordingly, unless a security is clearly ineligible, it is to be submitted to TRACE.

 

For interpretive guidance on Rule 6260, please refer to Notice To Members 03-45.

If my firm is a selling agent for a medium-term note issuer, and the issuer is responsible for CUSIP assignment in bulk, is my firm still responsible for providing new issue information to FINRA Market Operations?
Yes. Firms should implement the procedures necessary to ensure that the issuer provides the firm with the CUSIP in a timely manner such that the firm can comply with its obligations under Rule 6260.

In a wrap fee account scenario, if a broker/dealer has an outside investment advisor (“I/A”) advising customer accounts, does the I/A have to call the broker/dealer and inform the broker/dealer what the I/A traded, so that the broker/dealer in which the I/A’s account resides can report?
A member firm can serve as the domicile for the all the accounts of a customer. If the customer retains an outside, non-FINRA member advisor, and that advisor executes away from the domiciling firm, only the FINRA member that directly negotiated/executed the transaction, and/or is otherwise a party to the transaction with the I/A, incurs a trade reporting obligation versus “C”, the I/A. If the FINRA member firm where the I/A accounts are domiciled acts in a custodial capacity only and otherwise is not a party to the transaction, the member has no reporting obligation.

If my firm's managed account area executes a trade, does it have any reporting obligation to TRACE? (My firm owns an MAA that is not a separate asset management subsidiary or separate investment advisor. It can execute away from my desk on an agency basis only.)
Yes. The TRACE Rules do not allow for separating any part of a firm, even if it acts like a buy-side entity, for trade reporting purposes. Either the MAA must inform your desk that it has transacted business on behalf of the accounts it manages so that the desk can report the transactions to TRACE within the mandated time frame, or the MAA must input the TRACE reports itself. There is still only one MPID representing your firm, and business transacted by the MAA runs through an account of your firm. (Essentially, the person in the MAA has his own trading desk at your firm, and the MAA is responsible for effecting a change in beneficial ownership.) The activity between your firm – off whatever desk – and its end customers is subject to regulatory reporting and possible dissemination of transaction information, as well as to surveillance.

How much time do I have to resubmit my trade if it was rejected?
For interpretive guidance, please refer to current NTM 05-28.

What are the reporting obligations in transactions involving hedge funds that are subsidiaries of a registered B/D?
If the hedge funds have registered as FINRA members, or are FINRA member subsidiaries of a registered B/D, they are subject to the same dual-side reporting obligation under the Rule 6200 series as any other member firm.

Who reports trades executed through electronic trading systems that are themselves broker/dealers?
All FINRA members that are “parties to a transaction” have a trade reporting obligation under TRACE Rules. Where two FINRA members effect/execute a transaction through an electronic trading system that is registered as a broker/dealer, both members, as well as the electronic trading system would have a trade reporting obligation.

Do I have a reporting obligation to TRACE if I am an inter-dealer broker between two firms, and the two broker/dealers write the ticket with each other?

An inter-dealer broker that negotiates and/or executes a transaction is a party to the transaction and has a reporting obligation. An IDB that negotiates a transaction as an agent must report the buy from one member and the sell to the other, and these two dealer firms must submit TRACE reports.

 

The reporting obligation of an IDB may need to be assessed on an individual basis. Please e-mail as detailed information as possible and provide the name of a contact person, that person’s direct telephone number and e-mail address. Your e-mail will be forwarded to FINRA’s Chief Counsel and Senior Advisor to Market Operations and Information Services and to the Office of General Counsel, and your situation will be evaluated on a case-by-case basis.

What happens if my firm gets an order from a Customer, and my Customer wants to “Step- Out” to another firm?
A Step-Out allows Broker/Dealer A (executing broker) to “Step Out,” or allocate all or part of a trade to another broker/dealer (Broker/Dealer B). The only reportable event is the transaction between the executing firm (Broker/Dealer A) and its customer. Where Broker/Dealer B performs nothing more than a clearing function in the Step out, Broker/Dealer B does not have a reporting obligation. This scenario assumes that the position is held in a non-proprietary account at Broker/Dealer B used for clearing purposes only. Step-Outs serve as a position transfer between firms, rather than a trade. They represent a post-trade processing function that occurs outside TRACE. Since the other broker/dealer is neither involved in the execution nor otherwise a party to the transaction, you, Broker/Dealer A, have no reporting responsibility versus them, and they have no reporting responsibility versus you. Your dealings are with your customer and should be reported as such.