Reporting of Mortgage and Asset Backed Securities (Securitized Products) Frequently Asked Questions (FAQ)


Reporting

  1. When will the TRACE amendments expanding TRACE to include ABS become effective?
  2. What numeric identifiers will be accepted by the TRACE system when reporting transactions in asset- and mortgage-backed securities?
  3. In instances where two CUSIPs are available (for example, a specified pool is also a TBA eligible pool which has both a specified pool CUSIP and a TBA CUSIP) what CUSIP should be used when reporting the transaction to TRACE?
  4. In circumstances involving Agency/GSE MBS where member firms buy new pool(s) from originator, a pool number may be known, but a CUSIP for the pool may not yet be assigned. In such circumstances, how should transactions be reported where final CUSIP is not known?
  5. Is the creation of an Agency or GSE MBS through an "swap" or "guarantor swap" program reportable to TRACE?
  6. Are purchases of whole mortgage loans by an Agency or GSE under a "cash" program TRACE reportable?
  7. Are trade assignments of a TBA transaction reportable to TRACE?
  8. Given the fact pattern above, assume the parties utilized an automated assignment function that resulted in a non-negotiated system-generated price whose only purpose was to allow the parties to effect pair off trades. If the sole purpose of those pair off trades was to net and/or settle the original TRACE reported trades with no change to the original trade values and final settlement, and no new open positions, would such pair-off trades be reportable to TRACE?
  9. In the course of an offering, is the sale of a CMO or REMIC security from the issuer to the underwriter/initial purchaser a TRACE reportable transaction?
  10. When a firm participates in an Agency or GSE "Mega", "Giant", "Platinum", "MACR", "RCR", or "MX" program, is the delivery of MBS to the GSE or the receipt of the new "Mega", "Giant", "Platinum", "MACR", "RCR", or "MX" MBS TRACE reportable?
  11. Reserved
  12. How should a trade be reported if it is executed using an estimated factor, but is settled on the published factor?
  13. How should a transaction in a Non-Economic Residual Interest ("NERI") be reported where the seller funds the purchase of the NERI?
  14. Should multi-leg transactions such as butterfly transactions be reported with the dollar roll indicator?
  15. What modifier should be reported to FINRA if both the weighted average price modifier (.W) and another eligible modifier specified in the Trade Modifier 4 field (.O, .N, .L or .D) apply to the same transaction?
  16. For amortizing Asset-Backed Securities where par value is not used to determine the size (volume) of the transaction, Rule 6730(d)(2) requires the reporting of "the original face value of such security and the Factor used. . . if such factor is not the most current factor. . . ." Does "original face value of such security" refer to the face value of the security that is the subject of the transaction?
  17. Generally, how should TBA trades be reported?
  18. In regard to TBA trades, will amended trade reports be required when mortgage pool allocations are made during the settlement process?
  19. For ABS transactions such as TBAs with or without a stipulation, if price or face amount is modified after execution, is an amended trade report required?
  20. If an TBA ARM trade is executed with a stipulation (for example, variance on coupon, month to roll and/or final delivery amount) should a member report that transaction with a stipulation indicator pursuant to FINRA Rule 6730 (d)(4)(e)(ii)?
  21. If a list of specified pools of the same product/coupon is traded, can those transactions be reported in the form of a TBA with STIP (where the STIP references the list of pools traded) with a quantity of the current face of the list, or should it be reported as individual specified pool trades?
  22. As part of the securitization/issuance process, an originator of ARM loans may place allowable variances on coupon and/or month to roll and/or final delivery amount applicable to the pool to be delivered. TBA ARM transactions are executed at a specific price and/or yield (coupon) however in certain circumstances, when loans are delivered, changes in coupon, month to roll and/or final delivery amounts within the variances stipulated by the originator may result in price adjustments in order to maintain the yield agreed upon at transaction execution (typically referred to as "yield maintenance"). Would such price adjustments require an amended transaction report?
  23. As part of the securitization/issuance process, an originator of Small Business Administration (SBA) pools or Multi-Family Agency Pass-Through Mortgage-Backed Securities traded to be announced (TBA) (Multi-Family MBS TBAs) may include as a condition to a transaction an allowable variance regarding the settlement date or the final total dollar value of the pool(s) to be delivered on settlement date (final delivery amount). However, when the SBA pool transaction or the Multi-Family MBS TBA transaction is executed, the transaction is done at a specific price and/or yield (coupon), which must be reported to TRACE on the date of execution. Subsequently, when the SBA pool(s) or the pool(s) for the Multi-Family MBS TBA are delivered for settlement, if the settlement date or the final delivery amount has changed (or, if the final price is adjusted due to and based upon the change of settlement date or the change in the final delivery amount), and the changes are within the allowable variance to which the parties previously agreed, is a firm required to report the transaction again (i.e., file an amended transaction report)?
  24. Under FINRA Rule 6730(a)(3)(C), a firm must report a CMO or REMIC transaction on the earlier of the business day that the security is assigned a CUSIP, a similar numeric identifier or a FINRA symbol, or the date of issuance of the security. When the event triggering the reporting requirement is the "business day that the security is assigned a CUSIP," if the final structure of the CMO has not been determined or the CUSIP is not yet publicly available, is the reporting requirement triggered? 
  25. Under Rule 6760, notice must be provided to TRACE regarding a CMO or a REMIC when transactions are effected prior to the issuance of the security "on the date of issuance" or upon the occurrence of an "other event that establishes the reference date that determines when a reporting period begins under Rule 6730(a)(3)(C)." As noted above, an "other event" includes "the business day that the security is assigned a CUSIP. . ." Does FINRA interpret the phrase "the business day that the security is assigned a CUSIP" in the same manner the phrase is interpreted under Rule 6730(a)(3)(C)? 
  26. In certain TBA with Stipulation transactions and Specified Pool transactions, an originator, as part of the securitization/issuance process, may place allowable variances de minimis in nature, relating to loan composition or size, which would affect the size (volume) of the transaction. Such variances, however, would not affect the price of the transaction. Would such volume adjustments within the stipulated variance require an amended transaction report?  
  27. Where a TRACE-eligible security trades on the basis of par or face value, how should price be reported regarding transactions where such price is significantly above or below par or face value?
  28. Are securities issued by Freddie Mac under the Tax Exempt Bond Securitization (TEBS) program (also known as "M Bonds") within the definition of "TRACE-Eligible Security" and required to be reported to TRACE?

 

Reporting

 

1. When will the TRACE amendments expanding TRACE to include ABS become effective?
As announced in Regulatory Notice 10-55, the effective date is May 16th 2011.
2. What numeric identifiers will be accepted by the TRACE system when reporting transactions in asset- and mortgage-backed securities?
Firms must report transactions to TRACE using either a CUSIP or FINRA symbol. For Agency Pass-Through securities, FINRA plans to include pool numbers, as applicable, on the TRACE Issue Master along with CUSIP numbers and FINRA symbols for reference purposes.
3. In instances where two CUSIPs are available (for example, a specified pool is also a TBA eligible pool which has both a specified pool CUSIP and a TBA CUSIP) what CUSIP should be used when reporting the transaction to TRACE?
Transaction reports should include the CUSIP used by the parties to the transaction at the time of execution.
4. In circumstances involving Agency/GSE MBS where member firms buy new pool(s) from originator, a pool number may be known, but a CUSIP for the pool may not yet be assigned. In such circumstances, how should transactions be reported where final CUSIP is not known?
Firms should report such transactions using the TBA CUSIPs. If a specific pool to be delivered is known at the time of trade execution, such transaction report should include the stipulation indicator.
  • In the future, FINRA will change this guidance to require firms to submit such trades with the specified pool, “.O” indicator. In a separate notice FINRA will provide the effective date for this requirement. FINRA understands that this guidance may require firms to make certain technology changes to accommodate reporting applicable transactions with a specified pool indicator. FINRA wishes to give firms necessary time to make such changes. Firms should maintain applicable books and records to insure, among other things, the ability to readily identify such transactions as specified pool transactions.
5. Is the creation of an Agency or GSE MBS through an "swap" or "guarantor swap" program reportable to TRACE?
No, where a lender selects and pools a group of conforming mortgage loans that meet a GSE’s underwriting standards and “swaps” them with no cash or other consideration for a GSE issue and guaranteed MBS, such swap is not TRACE reportable.
6. Are purchases of whole mortgage loans by an Agency or GSE under a "cash" program TRACE reportable?
No, as whole mortgage loans do not meet the definition of TRACE eligible security.
7. Are trade assignments of a TBA transaction reportable to TRACE?
Certain trade assignments that are effected to facilitate settlement obligations are not reportable to TRACE, even if there is a change in counterparty from customer to firm. Such trade assignments must not result in any changes to the material terms, such as price and quantity, of the transactions that are reportable to TRACE. Below is an example of the trade assignment process. Firms must maintain necessary and adequate books and records (e.g., Trade Assignment Notice) and relevant written policies and procedures regarding such assignments, in part to insure that assignments are not used to avoid trade reporting obligations, obscure counterparty capacity or counterparty identification.

Firm A sells an MBS to Customer X at 101
Customer X then sells the MBS to Firm B at 103

Firm A receives notice of assignment from Customer X

Firm A books offsetting buy trade to Customer X at 103
Firm A books new sell assignment trade with Firm B at 103

At settlement
Firm A and Customer X sell and buy trade is paired off with money difference paid by Firm A to Customer X
Firm A settles DVP with Firm B.

In the example above, the Firm A sale to Customer X and the Firm B purchase from Customer X would be reportable to TRACE. After receiving the notice of assignment, Firm A’s offsetting buy trade and its new sell assignment trade would not be TRACE reportable.
8. Given the fact pattern above, assume the parties utilized an automated assignment function that resulted in a non-negotiated system-generated price whose only purpose was to allow the parties to effect pair off trades. If the sole purpose of those pair off trades was to net and/or settle the original TRACE reported trades with no change to the original trade values and final settlement, and no new open positions, would such pair-off trades be reportable to TRACE?
No. As with the fact pattern above, firms must maintain necessary and adequate books and records and relevant written policies and procedures regarding such assignments, in part to insure that such assignments are not used to avoid trade reporting obligations, obscure counterparty capacity or counterparty identification.
9. In the course of an offering, is the sale of a CMO or REMIC security from the issuer to the underwriter/initial purchaser a TRACE reportable transaction?
No.
10. When a firm participates in an Agency or GSE "Mega", "Giant", "Platinum", "MACR", "RCR", or "MX" program, is the delivery of MBS to the GSE or the receipt of the new "Mega", "Giant", "Platinum", "MACR", "RCR", or "MX" MBS TRACE reportable?
No. However, regarding the Freddie Mac MACR program, the Fannie Mae RCR program and the Ginnie Mae MX program, when notifying FINRA of a new security pursuant to Rule 6760, also include required information for the MACR, RCR or MX certificates.
11. Reserved
 Updated: 8/1/13
12. How should a trade be reported if it is executed using an estimated factor, but is settled on the published factor?
FINRA Rule 6730(d)(2) requires for amortizing Asset-Backed Securities where par value is not used to determine size(volume) of a transaction, to report the face value of the security traded and the Factor used to execute the transaction, if such Factor is not the most current Factor publically available at Time of Execution. If the estimated Factor is something other than the most current Factor publically available at the Time of Execution, then such Factor must be reported to TRACE. An amended trade report is not required to reflect trade settlement based on the then-current published Factor. However, an amended trade report would be required if settlement occurred at a factor other than the then-current published Factor.
13. How should a transaction in a Non-Economic Residual Interest ("NERI") be reported where the seller funds the purchase of the NERI?
In such circumstances, price should be reported as 1 with the Special Price indicator set to "Y", noting "NERI" or "Non-Economical Residual Interest" in the Special Price Memo field. Actual purchase price (notwithstanding any funding) should be reported as volume.
14. Should multi-leg transactions such as butterfly transactions be reported with the dollar roll indicator?
Each leg of any multi-leg transaction must be reported to TRACE. Rule 6710(z) defines a "Dollar Roll" as a simultaneous sale and purchase of an Agency Pass-Through Mortgage-Backed Security, for different settlement dates, where the initial seller agrees to take delivery, upon settlement of the re-purchase transaction, of the same or substantially similar securities. Both legs of a Dollar Roll transaction should be reported with the Dollar Roll indicator. Multi-leg transactions that do not meet the definition of Dollar Roll should not get reported with the Dollar Roll indicator.
15. What modifier should be reported to FINRA if both the weighted average price modifier (.W) and another eligible modifier specified in the Trade Modifier 4 field (.O, .N, .L or .D) apply to the same transaction?
If both the weighted average price (.W) modifier and another eligible modifier specified in Trade Modifier 4 (.O, .N, .L or .D) apply to the same transaction, do not report the weighted average price modifier.
16. For amortizing Asset-Backed Securities where par value is not used to determine the size (volume) of the transaction, Rule 6730(d)(2) requires the reporting of "the original face value of such security and the Factor used. . . if such factor is not the most current factor. . . ." Does "original face value of such security" refer to the face value of the security that is the subject of the transaction?
Yes. For example, assume the face value at issuance of an amortizing Asset-Backed Security is $100 million. The transaction is for $25 million. Report $25 million as the size (volume) of the transaction.
17. Generally, how should TBA trades be reported?
As noted in FINRA's December 22, 2009 response to comments, firms should report TBA transactions to TRACE using generic CUSIPs when the trade is executed. Except in instances where the coupon falls outside the published range for a particular TBA security, firms should adhere to the TBA CUSIP algorithm for Federal Agency Pools as set forth by CUSIP Global Services when reporting TBA transactions, Further guidance includes:
  • For products where the actual coupon does not conform to the ¼ point represented in the TBA CUSIP, firms are instructed to round the coupon down to the nearest quarter point for the purposes of determining which TBA CUSIP to use for TRACE reporting. For example, an ARM pool with a coupon of 5.12% should be reported on the TBA CUSIP representing a coupon of 5% and matching the characteristics for the remaining terms with regards to product, agency or GSE, maturity, and settlement month.
  • An IO ARM pool traded TBA should be reported on the TBA CUSIP representing ARMS (currently product code 16), and matching the characteristics for the remaining terms with regards to agency or GSE, coupon, maturity, and settlement month.
  • For products where the maturity does not conform to those represented by the TBA CUSIP algorithm and the product code does not include the option of "other" with regards to maturity, firms are instructed to round to the nearest maturity for the purposes of determining which TBA CUSIP to use for TRACE reporting.
  • For products where the coupon falls outside the range currently published by CUSIP Global Services, firms are instructed to contact Market Operations for security set up.
18. In regard to TBA trades, will amended trade reports be required when mortgage pool allocations are made during the settlement process?
Firms are not required to amend TBA trades with mortgage pool numbers when allocations are made in the settlement process, in conformity with conventions regarding permitted variances, as such allocations do not impact price and are solely a settlement function.
FINRA reminds firms that trade reports that are amended outside the required reporting time (i.e., within 15 minutes from the time of execution for Agency Pass-Through MBS Traded TBA for Good Delivery) will cause the trade report to be deemed late and reflected as such on the firm’s report card. See Reporting of Corporate and Agency Debt FAQ #1.11.
19. For ABS transactions such as TBAs with or without a stipulation, if price or face amount is modified after execution, is an amended trade report required?
Yes, as with any transaction in a TRACE Eligible Security any modifications to reported transaction information requires an amended trade report.
20. If an TBA ARM trade is executed with a stipulation (for example, variance on coupon, month to roll and/or final delivery amount) should a member report that transaction with a stipulation indicator pursuant to FINRA Rule 6730 (d)(4)(e)(ii)?
Yes.
21. If a list of specified pools of the same product/coupon is traded, can those transactions be reported in the form of a TBA with STIP (where the STIP references the list of pools traded) with a quantity of the current face of the list, or should it be reported as individual specified pool trades?
Such transactions should be reported as individual specified pool trades.
22. As part of the securitization/issuance process, an originator of ARM loans may place allowable variances on coupon and/or month to roll and/or final delivery amount applicable to the pool to be delivered. TBA ARM transactions are executed at a specific price and/or yield (coupon) however in certain circumstances, when loans are delivered, changes in coupon, month to roll and/or final delivery amounts within the variances stipulated by the originator may result in price adjustments in order to maintain the yield agreed upon at transaction execution (typically referred to as "yield maintenance"). Would such price adjustments require an amended transaction report?
Where the originator is not a “party to a transaction” as defined in FINRA rule 6710(e) and the originator’s stipulation(s) and the related price adjustment resulting from the “yield maintenance” are passed on to the final purchaser in a stipulated TBA ARM transaction, no amended transaction report would be required. The original transaction report must be inclusive of all member transaction remuneration. However, any price adjustments that occur resulting from loans delivered outside of any stipulation(s)/variance(s) would be subject to an amended transaction report. Firms must maintain accurate and adequate books and records and relevant written policies and procedures regarding such transactions, including a record of the stipulation(s) for each transaction, to insure in part, that such stipulation(s) are bona fide and not used to avoid trade reporting obligations or obscure accurate price and volume reporting.
23. As part of the securitization/issuance process, an originator of Small Business Administration (SBA) pools or Multi-Family Agency Pass-Through Mortgage-Backed Securities traded to be announced (TBA) (Multi-Family MBS TBAs) may include as a condition to a transaction an allowable variance regarding the settlement date or the final total dollar value of the pool(s) to be delivered on settlement date (final delivery amount). However, when the SBA pool transaction or the Multi-Family MBS TBA transaction is executed, the transaction is done at a specific price and/or yield (coupon), which must be reported to TRACE on the date of execution. Subsequently, when the SBA pool(s) or the pool(s) for the Multi-Family MBS TBA are delivered for settlement, if the settlement date or the final delivery amount has changed (or, if the final price is adjusted due to and based upon the change of settlement date or the change in the final delivery amount), and the changes are within the allowable variance to which the parties previously agreed, is a firm required to report the transaction again (i.e., file an amended transaction report)?
If the originator includes an allowable variance(s) regarding the settlement date or the final delivery amount in good faith as a condition in a transaction in an SBA pool or a Multi-Family MBS TBA (and is not establishing an allowable variance(s) for the purpose of avoiding trade reporting obligations), and there is a change (a variance) at settlement, a firm is not required to file an amended transaction report, as long as the change is within the allowable variance to which the parties previously agreed. For example, when there is a change in the final delivery amount that is within the allowable variance, and the parties adjust the final price to maintain the yield agreed upon on the date of execution, a firm is not required to file an amended transaction report. Also, when there is a change in the settlement date within the allowable variance, and the parties adjust the final price due to the change of the settlement date, a firm is not required to file an amended transaction report. However, if there is a change in the final delivery amount or the settlement date that is not within the allowable variance (and any price adjustments made in connection with a change in the final delivery amount and/or settlement date that is not within the allowable variance), a firm would be required to file an amended transaction report.

Firms must maintain accurate and adequate books and records and relevant written policies and procedures regarding the transactions, including a record of the allowable variances to which the parties agreed for each transaction, to evidence, among other things, that the variances are bona fide and not used to avoid trade reporting obligations or accurate price and volume reporting. FINRA also reminds firms that the original transaction report for the transactions must include all of the firm’s transaction-related remuneration.
24. Under FINRA Rule 6730(a)(3)(C), a firm must report a CMO or REMIC transaction on the earlier of the business day that the security is assigned a CUSIP, a similar numeric identifier or a FINRA symbol, or the date of issuance of the security. When the event triggering the reporting requirement is the "business day that the security is assigned a CUSIP," if the final structure of the CMO has not been determined or the CUSIP is not yet publicly available, is the reporting requirement triggered? 
No. FINRA interprets the phrase "the business day the security is assigned a CUSIP" to mean that the CUSIP is assigned and publicly available and the final structure of the CMO or REMIC has been determined. If these conditions are met, then the reporting requirement is triggered.

Posted: 8/1/13
25. Under Rule 6760, notice must be provided to TRACE regarding a CMO or a REMIC when transactions are effected prior to the issuance of the security "on the date of issuance" or upon the occurrence of an "other event that establishes the reference date that determines when a reporting period begins under Rule 6730(a)(3)(C)." As noted above, an "other event" includes "the business day that the security is assigned a CUSIP. . ." Does FINRA interpret the phrase "the business day that the security is assigned a CUSIP" in the same manner the phrase is interpreted under Rule 6730(a)(3)(C)?  
Yes, FINRA interprets the phrase "the business day that the security is assigned a CUSIP" in the same manner the phrase is interpreted under Rule 6730(a)(3)(C). As a result, in most cases, "the business day that the security is assigned a CUSIP" is the same date the final offering document/prospectus becomes available to underwriters/initial purchasers.

On that date, the managing underwriter (or other person designated under Rule 6760) has an obligation to provide notice and information to FINRA regarding the TRACE-eligible security as provided in FINRA Rule 6760(c)(2). FINRA notes that the date that the final offering document/prospectus becomes available to underwriters (or initial purchasers) is referred to as the "print date" by certain government-sponsored enterprises.

An underwriter must submit information regarding the security as required in Rule 6760(b) in accordance with the FINRA new issue form for ABS/CMO, and should refer to the Instructions for the ABS/CMO new issue form and the definitions and examples provided for each field.

In addition to notifying FINRA under Rule 6760, FINRA encourages underwriters to inform participants in the offering of the final structure of the CMO or REMIC, and when the CMO or REMIC security has been added to TRACE and is available for trade reporting.

Posted: 8/1/13
26. In certain TBA with Stipulation transactions and Specified Pool transactions, an originator, as part of the securitization/issuance process, may place allowable variances de minimis in nature, relating to loan composition or size, which would affect the size (volume) of the transaction. Such variances, however, would not affect the price of the transaction. Would such volume adjustments within the stipulated variance require an amended transaction report?  
No. A firm should not submit an amended or corrected transaction report where variances are de minimis and do not affect the price of the transaction. However, any price adjustments would be subject to an amended transaction report. Firms must maintain accurate and adequate books and records and relevant written policies and procedures regarding such transactions, including a record of the allowable variances for each transaction, to ensure, in part, that such variances are bona fide and not used to avoid trade reporting obligations or obscure accurate price and volume reporting.

Posted: 1/14/14
27. Where a TRACE-eligible security trades on the basis of par or face value, how should price be reported regarding transactions where such price is significantly above or below par or face value?
For most TRACE-eligible securities, the price at which the trade was executed should be reported as a percentage of par or face value. In the price field, TRACE accommodates four digits to the left of the decimal point and six to the right (i.e., 9999.999999). However, in instances where the percentage of par or face value exceeds the permitted values in the price field, the maximum or minimum value permitted should be reported. In addition, the Special Price Indicator should be selected, and the actual price should be entered in the Special Price Reason field.

For example, if the price expressed as percentage of par or face value exceeds 9,999.999999%, the price should be reported as 9999.999999, the Special Price Indicator should be selected, and the actual price should be entered in the Special Price Reason field. Similarly, if the price, expressed as percentage of par or face value, is less than .000001%, the price should be reported as .000001, the Special Price Indicator should be selected, and the actual price should be entered in the Special Price Reason field.

Posted: 5/22/14
28. Are securities issued by Freddie Mac under the Tax Exempt Bond Securitization (TEBS) program (also known as "M Bonds") within the definition of "TRACE-Eligible Security" and required to be reported to TRACE?
Yes. Securities issued by Freddie Mac under its TEBS program meet the definition of "TRACE-Eligible Security" and are subject to FINRA's rules as such, including TRACE transaction reporting pursuant to FINRA Rule 6730. For further information on the program, please reference the Freddie Mac informational materials.

Posted: 6/25/14
    Last Updated: 6/25/2014