BDA Seeks Feedback on SEC FIMSAC’s TRACE Pilot Program Recommendation

The SEC and FINRA are considering the FIMSAC’s recommendation and could choose to adopt it with a formal proposal at any time. Please let BDA staff know as soon as possible if your firm has a position or concern regarding the TRACE pilot.

As you may know, at its April 9, 2018 meeting, the SEC’s Fixed Income Market Structure Advisory Committee (FIMSAC) made a recommendation to the SEC to implement a pilot program related to TRACE block trade reporting. Under current TRACE rules, all key data for all trades in TRACE-eligible corporate bonds are reported to FINRA within 15 minutes of the trade. Certain trade data are masked before disseminating publicly.

For trades in investment grade bonds of a par size of $5 million or larger, those trade sizes currently are publicly reported as “+5MM” rather than showing the actual trade size. For non-investment grade bonds, trade sizes above $1 million par are reported at “+1MM”. In both cases all other details of the trade are disseminated in real time, and the actual trade sizes are disseminated publicly six months after the end of the calendar quarter in which they occur.

FIMSAC’s Transparency Subcommittee has argued that corporate market liquidity would be enhanced by amending the dissemination rules for large block trades in TRACE-eligible corporate bonds. Under the FIMSAC recommendation, FINRA would implement a one-year pilot program for a limited universe of TRACE-eligible corporate bonds where the dissemination rules for the pilot group would be temporarily amended. Under the pilot program, bonds under the pilot would be subject to amended dissemination rules.

IG trades trades above $10 million par would be reported at “+10MM”. Trades in non-IG bonds above $5 million would be reported as “+5MM”. Trades below the mask thresholds would continue to be reported and disseminated in near real time, including actual trade sizes. Masked trades would be reported within the current 15-minute window, but would be held for dissemination. No information at all for the trade would be released until 48 hours after reporting, and then with masked sizes. Actual trade sizes for masked trades would be disseminated three months after the end of the calendar year when they occur.

The pilot program proposes to both expand and reduce price transparency. By raising the masking thresholds from $5 to $10 million for IG and from $1 to $5 million for non-IG, the pilot program would expand the universe of trades where actual trade size is disseminated publicly. However, the pilot would also impose delays in the dissemination of masked trades, from immediate under current rules to 48 hours after the trade under the pilot.

Global banks generally support the pilot recommendation. SIFMA filed a comment letter in support of the recommendation (located here). Citi filed a presentation with the FIMSAC which provided data analysis in support of the pilot recommendation (located here). 

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