BDA today filed a comment letter with FINRA in opposition to their proposal to amend TRACE trade reporting rules for delayed Treasury spot trades, secondary corporate bond trades where the spread to Treasuries is established early in the day but where the Treasury spot takes place later in the day at an agreed upon time. Under current rules, the dollar price is established and the trade reported after the Treasury spot based on Treasury levels at the time.
FINRA has proposed that dealers would need to make two trade reports for delayed Treasury spot trades, once when the spread is agreed to and again when the dollar price is established, both within 15 minutes of “execution.”
BDA told FINRA we oppose the proposal “because it would create a cumbersome and expensive mechanism for trade reporting and because FINRA has not appropriately scoped the full effects of the proposal, relying instead on estimates of the volume of trades that would be affected.” BDA also told FINRA that OMS vendors would be responsible for implementing the proposal operationally, but that OMS vendors “currently are not able to report trades in the manner prescribed in the Notice.” “OMSs would need to make substantial changes to their systems architecture to make incomplete trades reportable,” we said in our letter.
We also challenged FINRA’s economic analysis of the proposal, stating “we do not believe [FINRA’s estimate of the volume of trades affected] is accurate enough to base a significant Rule change as in the Notice.” We urged FINRA to adopt the 2020 recommendation of the SEC’s Fixed Income Market Structure Advisory Committee with respect to delayed Treasury spot trades. Under the FIMSAC proposal, dealers would continue to make a single trade report at the time of the Treasury spot. but that trade report would include a flag indicator that it is a delayed Treasury spot trade and also include the time the spread to Treasuries was agreed to.
BDA’s comment letter is available here. Please call if you have any questions.