TRACE System Enhancement to Support Trade Reporting of Asset- and Mortgage-Backed Securities (Securitized Products)

Effective February 14, 2011, member firms will be required to report to TRACE trades executed in asset- and mortgage-backed securities (Securitized Products) (see Regulatory Notice 10-23 for details).

 

TRACE Technology Changes

 

FINRA is pleased to announce that it has begun upgrading the technology underlying fixed income reporting, and Securitized Products will be the first set of securities reported with the enhanced functionality. The changes will bring significant benefits to FINRA member firms and reflect feedback about TRACE from firms. The enhancements include, among others:

  • support of trade reporting using FIX interactive messaging protocol (version 4.4);
  • dissemination of new securities added to TRACE via the FIX protocol;
  • enhanced Web functionality for trade reporting management;
  • eliminating the "No/Was" terminology and expanding Cancels and Corrections to prior-day submissions;
  • permitting the use of weekends and holidays as valid trade dates;
  • reporting of actual settlement date; and
  • reporting of par value traded (as opposed to number of bonds).

FINRA will implement the new functionality in February of 2011, so that it will be available for reporting Securitized Products to TRACE.

 

FINRA will announce separately when corporate and agency debt instruments will be migrated to the upgraded technology. In addition to releasing detailed information about changes to TRACE as each product is upgraded to the new technology, FINRA also will hold forums to answer questions about the new features.

 

Securitized Products Trade Reporting

 

Firms may use Computer-to-Computer Interface (CTCI) protocol to report Securitized Product (SP) trades to TRACE. As with current CTCI messaging for TRACE reporting of corporate and agency debt trades, CTCI for SP trade reporting uses formatted input and acknowledgement messages for trade entry, cancels and corrections.

 

The new trade reporting for SP will offer enhanced functionality currently not available in TRACE. Among the differences firms will notice is the ability to cancel and correct trades submitted on a prior day without having to submit reversals and reversal/as-of combinations. TRACE for SP will retain up to 20 business days of data (on a rolling basis), allowing for accurate audit trails of subsequent cancels and corrections. Trades submitted prior to the 20-day period may still be corrected via Historical Cancels and Historical Corrections. TRACE for SP will also allow firms to perform cancels and corrections using either the TRACE Control Number or a firm's own trade reference number (Client Trade Identifier).

 

Other differences include reporting commission as dollar amounts (rather than on a points-per- bond basis); support of reporting miscellaneous fees; reporting actual settlement date rather than reporting a settlement modifier; and reporting weekends and holidays as valid trade dates.1

 

Please refer to the new Securitized Products CTCI Specifications document (PDF 473 KB) for detailed field definitions and inbound/outbound trade entry, cancel and correction message layouts, as well as requirements for using the proper cancel and correction message types and use of the Client Trade Identifier for trade management.

 

In addition to trade reporting via CTCI, FINRA is pleased to offer trade reporting for SP using FIX protocol (version 4.4). FINRA will issue a Technical Notice in the coming weeks advising firms of the publication of the FIX specifications for SP trade reporting. (FINRA will also issue Technical Notices on other aspects of SP and the new technology, including a new Web-based interface, new issue dissemination using Secure FTP and FIX protocols, and testing schedules for the SP implementation.)

 

Please direct questions concerning the CTCI specifications for SP, as well as the planned TRACE technical enhancements, to Orlando Cortes , Director of FINRA Product Management.

 

 

1 Please note that the technical specifications referred to above for reporting transactions in Asset-Backed Securities (which includes mortgage-backed securities and other securitized products) (ABSs) differ from the Rule 6700 Series (the version scheduled to take effect on February 14, 2011) regarding two ABS reporting requirements: reporting weekend and holiday ABS executions, and reporting ABS settlements. For both reporting requirements, FINRA intends to file amendments and obtain SEC approval prior to the February 14, 2011, effective date to conform the rule text to the technical specifications. Please note that these changes apply ONLY to trade reporting in ABSs.

  • Rule 6730(a)(6)(B)(iii) stipulates that ABS transactions executed on weekends, federal or religious holidays on which the TRACE system is closed should be reported the following business day, and the date of execution must be the following business day (the day the[y] transaction is reported). The technical specifications indicate that the actual date that the ABS transaction is executed should be the date of execution reported, even for trades executed on weekends, Federal or religious holidays. Rule 6730(a)(6)(B)(ii) and (iii) will be amended to reflect that, for all ABS transactions, the actual date of execution should be reported (including ABS trades executed on weekends, Federal or religious holidays).
  • Rule 6730(d)(4)(B)(ii) states that for ABS transactions, the actual settlement date of the transaction should be reported. In addition to that, the rule requires that an indicator be appended that indicates if the settlement date represents "regular way" or not "regular way." The technical specification does not include this indicator, and the rule will be modified to eliminate the requirement that an indication of "regular way" or not "regular way" be included in the trade report."