FINRA Alert! Order Approving Proposed Rule Change to Expand TRACE Reporting Requirements to Trades in U.S. Dollar-Denominated Foreign Sovereign Debt Securities.


34-95161: Notice of Designation of a Longer Period for Commission Action on a Proposed Rule Change to Expand TRACE Reporting Requirements to Trades in U.S. Dollar-Denominated Foreign Sovereign Debt Securities
34-94891: Notice of Filing of a Proposed Rule Change to Expand TRACE Reporting Requirements to Trades in U.S. Dollar-Denominated Foreign Sovereign Debt Securities
Additional Materials: Exhibit 2a, Exhibit 2b, Exhibit 5


On May 6, 2022, the Financial Industry Regulatory Authority, Inc. (“FINRA”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) and Rule 19b-4 thereunder, a proposed rule change to amend certain rules in the Rule 6700 Series (Trade Reporting and Compliance Engine (TRACE)) to require members to report to TRACE transactions in U.S. dollar-denominated foreign sovereign debt securities for regulatory purposes.

The proposed rule change was published for comment in the Federal Register on May 17, 2022. The Commission received four comment letters on the proposed rule change. On June 27, 2022, the Commission extended until August 15, 2022, the time period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to disapprove the proposed rule change. FINRA submitted a response to the comments on August 1, 2022. This order approves the proposed rule change.

Description of proposal

FINRA Rule 6730(a) requires each FINRA member that is a Party to a Transaction in a TRACE-Eligible Security to report the transaction to TRACE.

Currently, almost all U.S. dollar denominated debt securities traded in the U.S., including U.S. dollar-denominated debt securities of foreign private issuers, are TRACE-Eligible Securities and therefore are subject to TRACE reporting requirements. However, the term TRACE-Eligible Security currently excludes any debt security that is issued by a foreign sovereign.

FINRA is now proposing to include U.S. dollar-denominated foreign sovereign debt securities within the definition of TRACE-Eligible Security, so that these securities would become subject to TRACE reporting.

Specifically, FINRA proposes to amend paragraph (a) of Rule 6710 (Definitions) to include the term “Foreign Sovereign Debt Security” in the definition of TRACE-Eligible Security, and to define “Foreign Sovereign Debt Security” of Rule 6710 as a debt security issued or guaranteed by the government of a foreign country, any political subdivision of a foreign country (e.g., state, provincial, or municipal governments), or a supranational entity.

FINRA states that this proposed rule change would enhance FINRA’s regulatory audit trail and provide FINRA with important transaction information on a growing segment of the market.

FINRA states it is not at this time proposing to publicly disseminate any reports of transactions in U.S. dollar-denominated foreign sovereign debt securities. To reflect this, FINRA proposes to amend Rule 6750 (Dissemination of Transaction Information) to specify that FINRA will not disseminate information on transactions in foreign sovereign debt securities.

FINRA states that, if the proposed rule change is adopted, FINRA will take a measured approach to potential dissemination, as it has taken historically with other TRACE-Eligible Securities and would first analyze the regulatory data to determine the appropriate contours of a potential dissemination framework.

FINRA is also proposing to amend Rule 6730 (Transaction Reporting) to require transactions in U.S. dollar-denominated foreign sovereign debt securities to be reported on a same-day or next-day basis, depending on the time of execution. FINRA states that this reporting timeframe is appropriate because trades in U.S. dollar-denominated foreign sovereign debt securities would be reported for regulatory purposes only.

Among other things, trade reports would be required to include:

  • the CUSIP or CINS number, or FINRA-assigned TRACE symbol;
  • an identifier for the contra-party (either MPID, “A” for non-member affiliate, or “C” for customer);
  • the side of the reporting party (buy or sell);
  • the quantity of the transaction (i.e., face value amount of the transaction); the price of the transaction expressed as a percentage of face/par value;
  • the time of execution; the date of execution (for “as/of” trades);
  • the settlement date;
  • any commission charged if the member is acting as agent; and any applicable trade modifiers.

FINRA states that some foreign sovereign debt securities may not have a CUSIP or CINS number but may have been assigned another type of identifier (e.g., an ISIN). To facilitate trade reporting of U.S. dollar-denominated foreign sovereign debt, where a CUSIP or CINS is not available, FINRA states that it intends to permit members to report using a FINRA-assigned symbol that corresponds to the security’s other identifier(s) (e.g., the FINRA-assigned symbol would be associated with the ISIN on the Security Master List).

FINRA further states that, if U.S. dollar-denominated foreign sovereign debt securities become subject to TRACE reporting requirements, as proposed, they would become subject to applicable transaction reporting fees.

Summary of comments

They received four comment letters regarding the proposed rule change. The commenters generally support the proposed rule change (nobody explicitly opposing) but this comment is interesting:

Other notes:

  1. Prior to TRACE’s implementation, the National Association of Securities Dealers (“NASD”) (FINRA’s predecessor) did not have routine access to comprehensive transaction information for the over-the-counter corporate bond market, even though the NASD bore responsibility for surveilling and regulating that market.
  2. In originally approving TRACE, the Commission stated that obtaining such information to better conduct market surveillance was a fundamental means of promoting fairness and confidence in U.S. capital markets.
  3. Similarly, with respect to the over-the-counter market for U.S. dollar-denominated foreign sovereign debt securities, FINRA currently does not possess the comprehensive transaction information that would help it carry out its statutory duties to surveil and regulate this segment of the market.
  4. Expanding TRACE to include U.S. dollar-denominated foreign sovereign debt securities is reasonably designed to help FINRA fulfill its mandate to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest. In particular, the receipt of the transaction price, par value traded, and other transaction information in TRACE would create a better-informed surveillance program to help detect fraud, manipulation, unfair pricing, and other potential misconduct.
  5. FINRA states that it would provide members with an adequate implementation period.

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