Regulatory Notice 14-23

FINRA Issues an Interpretation to Clarify the Classification and Trade Reporting of Certain “Hybrid” Securities to FINRA

Effective Date: June 16, 2014

Executive Summary

FINRA is publishing this Notice to provide additional information on how trades in certain securities that have both debt- and equity-like features (hybrid securities) must be reported to FINRA. Specifically, the SEC approved an interpretation regarding the appropriate trade reporting facility to which firms should report transactions in the following three types of hybrid securities: (1) unlisted depositary shares having a liquidation preference of $1,000 or more; (2) unlisted non-convertible, preferred securities having a liquidation preference of $1,000 or more; and (3) unlisted capital trust securities (also referred to as trust preferred securities) (together, “covered hybrid securities”).

In accordance with this interpretation, on June 16, 2014, firms will be required to report transactions in covered hybrid securities to the Trade Reporting and Compliance Engine (TRACE). However, firms may request the set-up of a new hybrid security for trade reporting purposes in accordance with this interpretation prior to that date. A list of covered hybrid securities that will be moved from the OTC Reporting Facility (ORF) to TRACE on June 16, 2014, is attached as Appendix A.

Questions regarding this Notice should be directed to:

  • Ola Persson, Vice President, Transparency Services, at (212) 858-4796 or by email; or
  • Racquel Russell, Associate General Counsel, Office of General Counsel, at (202) 728-8363 or by email.