On January 11, 2024, the Financial Industry Regulatory Authority, Inc. (“FINRA”) filed with the Securities and Exchange Commission (“SEC”) a proposed rule change (the “Proposal”) to amend FINRA Rule 6730 to reduce the Trade Reporting and Compliance Engine (“TRACE”) reporting timeframe to one minute, with exceptions for (i) members with “limited trading activity” in TRACE-eligible securities that are subject to one-minute reporting and (ii) manual trades. Currently, FINRA Rule 6730 applies a 15-minute outer-limit reporting timeframe to most transactions in corporate bonds, agency debt securities, asset-based securities (“ABS”) and agency pass-through mortgage-backed securities traded to-be-announced for good delivery (“MBS TBA GD”). As is the case today, FINRA would make information on the transactions reported pursuant to FINRA Rule 6730 publicly available immediately upon receipt.
With respect to the first exception, a member with “limited trading activity” would be defined as a member that, during one of the prior two calendar years, reported to TRACE fewer than 4,000 transactions in the TRACE-eligible securities that are subject to FINRA Rule 6730(a)(1)(A) through (a)(1)(D) (i.e., corporate bonds, agency debt, ABS and MBS TBA GD), including any manual trades. Members qualifying for the exception would be required to report these trades as soon as practicable, but no later than within 15 minutes of the time of execution (or in the case of a trade executed outside of TRACE system hours, less than 15 minutes before 6:30 p.m. ET, or on a Saturday, a Sunday, a federal or religious holiday, or other day on which the TRACE system is not open at any time during that day, as soon as practicable, but no later than within 15 minutes after the TRACE system opens the next business day (T+1)).
The manual trades exception generally would apply to trades that require manual intervention at any point to complete the trade execution or reporting process. Where a trade qualifies for the exception, a 15-minute outer limit would apply for the first year following implementation, a 10-minute outer limit would apply for the second year, and a five-minute outer limit would apply thereafter.
FINRA also proposes to amend FINRA Rule 6730(f) to provide that a pattern or practice of late reporting may be considered conduct inconsistent with high standards of commercial honor and just and equitable principles of trade (FINRA Rule 2010), absent “reasonable justification” (in addition to the rule’s existing reference to “exceptional circumstances”). FINRA believes the addition of “reasonable justification” as a relevant factor in FINRA’s evaluation of a firm experiencing a pattern or practice of late reporting is appropriate given the proposed reduction in the trade reporting timeframe. However, FINRA also emphasized that members must have sufficiently robust systems with adequate capability and capacity to enable them to report in accordance with FINRA rules; that is, recurring systems issues in a firm’s or a vendor’s systems would not be considered “reasonable justification” or “exceptional circumstances” to excuse a pattern or practice of late trade reporting.
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