TRACE facilitates the mandatory reporting of over-the-counter (OTC) transactions in certain fixed income securities and provides increased price transparency to market participants and investors. The FINRA Rule 6700 Series (Trade Reporting and Compliance Engine (TRACE)) addresses transaction reporting requirements to TRACE and, effective July 10, 2017, firms were required to report to TRACE certain transactions in U.S. Treasury Securities.
FINRA observed that some firms engaging in institutional sales of fixed income securities did not comply with certain key TRACE reporting rules, specifically FINRA Rules 6730(a)(7), 6730(b)(1) and (2), 6730(c)(8) and 6730(d)(4)(E) (Transaction Reporting) (as well as many of the same rules discussed in the 2017 Report on FINRA Examination Findings).
- Overreliance on FINRA List – Some firms failed to report transactions in TRACE-eligible securities24 because they relied on the master list of TRACE-eligible securities published by FINRA and did not have a system or process to determine whether a reportable transaction involved a TRACE-eligible security that was not set up in TRACE at the time of the transaction.
- Late and Inaccurate Reporting – Some firms reported transactions to TRACE late—more than 15 minutes from the time of execution—and inaccurately provided the time the transaction was entered into the firms’ order management system as the execution time, not the actual time of execution.
- Inaccurate Indicators and Identifiers – In some instances, firms reported transactions with non-member affiliates using an inaccurate contra-party identifier and incorrectly appended the non-member affiliate-principal transaction indicator to transactions with their non-member affiliates without satisfying the requirements necessary to append the indicator.
- Insufficient WSPs – Some firms failed to detect deficiencies, such as those described above, because they failed to establish and maintain a supervisory system reasonably designed to achieve compliance with certain TRACE reporting obligations.
24 FINRA Rule 6710(a) (Definitions).