2017 EXAMINATION FINDINGS REPORT

December 6, 2017

TRACE Reporting

FINRA observed some firms that engaged in institutional sales of fixed income securities frequently did not comply with certain key TRACE reporting rules—FINRA Rules 6730(a)(7),23 6730(b)(1) and (2),24 and 6730(c)(8).25 Specifically, FINRA found that some firms:

  • failed to report transactions in some TRACE-eligible securities because they relied on the master list of TRACE-eligible securities published by FINRA, and did not have a system or process to determine if a transaction involved a security that was not set up in TRACE at the time of the transaction;
  • reported transactions to TRACE late—more than 15 minutes from the time of execution—and inaccurately, providing the execution time as the time the transaction was entered into the firm’s order management system, not the actual time of execution; and
  • failed to detect deficiencies such as those described above, in part because they failed to establish and maintain a supervisory system reasonably designed to achieve compliance with certain TRACE reporting obligations.

End Notes

23 Providing that, if a member makes a good faith determination that a transaction involves a TRACE-eligible security, the member must report the transaction, and if the security is not set up in the TRACE system, the member must promptly contact FINRA prior to reporting the transaction.

24 Requiring that, in a transaction between two members, each member must submit a trade report and, in a transaction between a member and a non-member (including a customer) the member must submit a trade report.

25 Requiring that members report the time of execution of a transaction.