Beech Hill Securities Comment On Regulatory Notice 22-17
Sean Rogan
Beech Hill Securities, Inc.
It is Beech Hill Securities (BHS) opinion, that FINRA’s proposal to amend Rule 6730 to reduce TRACE reporting timelines to 1-minute will adversely affect the ability of small to mid-sized firms to participate in Fixed Income reportable securities. Given it is cost prohibitive, most small to mid-size firms do not utilize automated trade reporting systems (E.g., Bloomberg TOMS). Rule 6730 proposal for a 1-minute reporting timeline, would not only inhibit small to midsize firm participation but would work in favor of larger firms, making the market less transparent, more concentrated, and less competitive for better price discovery. Small to mid-size Broker-Dealers are utilizing manual means for booking and reporting fixed income trades, here is an example of a standard trade cycle: 1- Trader confirms trade via phone/ firm monitored chat/ Bloomberg VCON 2- Trader forwards time stamped paper ticket or Bloomberg VCON to operations / middle office personnel 3- Operations/ Middle office receives ticket / email VCON 4- Operations/ Middle office staff must then review and manually book trade in to clearing firms’ systems for allocation/ reporting purposes 5- Clearing firm reports trade to TRACE Considering the above example, it is not practical that this can all be accomplished in 1-minute from the time the trader has confirmed the trade with the client/counterparty to reporting to TRACE. In addition, it is BHS’s opinion that this proposal will result in a much greater number of trade errors which would include bad price, size and cusip errors, causing less efficient and effective trade reporting. In effect, we believe this proposal will make TRACE data less accurate, less transparent, and less reliable. Based on our experience the TRACE reporting facility is commonly used by industry professionals and much less by retail or institutions. Further, industry personnel use many different tools to contemplate pricing, the difference between 15-minute and 1-minute from that perspective provides limited added value. To reiterate, this proposed rule implementation will work to the advantage of larger firms who have the existing infrastructure, in which smaller firms because of rule violations on trade reporting will be dissuaded from participating. This will have the unintended consequence of creating a less competitive market, to the detriment of the greater good of the public, which is what the spirit of this rule’s intended goal of “transparency” is meant to address.
Beech Hill Securities Comment On Regulatory Notice 22-17
It is Beech Hill Securities (BHS) opinion, that FINRA’s proposal to amend Rule 6730 to reduce TRACE reporting timelines to 1-minute will adversely affect the ability of small to mid-sized firms to participate in Fixed Income reportable securities. Given it is cost prohibitive, most small to mid-size firms do not utilize automated trade reporting systems (E.g., Bloomberg TOMS). Rule 6730 proposal for a 1-minute reporting timeline, would not only inhibit small to midsize firm participation but would work in favor of larger firms, making the market less transparent, more concentrated, and less competitive for better price discovery. Small to mid-size Broker-Dealers are utilizing manual means for booking and reporting fixed income trades, here is an example of a standard trade cycle: 1- Trader confirms trade via phone/ firm monitored chat/ Bloomberg VCON 2- Trader forwards time stamped paper ticket or Bloomberg VCON to operations / middle office personnel 3- Operations/ Middle office receives ticket / email VCON 4- Operations/ Middle office staff must then review and manually book trade in to clearing firms’ systems for allocation/ reporting purposes 5- Clearing firm reports trade to TRACE Considering the above example, it is not practical that this can all be accomplished in 1-minute from the time the trader has confirmed the trade with the client/counterparty to reporting to TRACE. In addition, it is BHS’s opinion that this proposal will result in a much greater number of trade errors which would include bad price, size and cusip errors, causing less efficient and effective trade reporting. In effect, we believe this proposal will make TRACE data less accurate, less transparent, and less reliable. Based on our experience the TRACE reporting facility is commonly used by industry professionals and much less by retail or institutions. Further, industry personnel use many different tools to contemplate pricing, the difference between 15-minute and 1-minute from that perspective provides limited added value. To reiterate, this proposed rule implementation will work to the advantage of larger firms who have the existing infrastructure, in which smaller firms because of rule violations on trade reporting will be dissuaded from participating. This will have the unintended consequence of creating a less competitive market, to the detriment of the greater good of the public, which is what the spirit of this rule’s intended goal of “transparency” is meant to address.