Securities Regulation Daily SEC approves rule requiring TRACE reporting of transactions in U.S. Treasury securities
Wednesday, October 19, 2016

SEC approves rule requiring TRACE reporting of transactions in U.S. Treasury securities

SEC approves rule requiring TRACE reporting of transactions in U.S. Treasury securities

By Kevin Kulling, J.D.

The SEC has approved a proposed FINRA Rule change to require FINRA members to report secondary market transactions in U.S. Treasury securities to the Trade Reporting and Compliance Engine, or TRACE. The new requirement becomes effective July 10, 2017.

FINRA Rule Amendment. According to the SEC Order Granting Approval of the proposed rule change, FINRA will not disseminate information it receives on the transactions and it will not charge fees on transactions in U.S. Treasury securities reported to TRACE. FINRA Rule 6730 currently requires the reporting of transactions in all "TRACE-eligible" securities. Under the amendments, the term will include "U.S. Treasury securities," which includes all securities issued by the Treasury Department, with the exception of savings bonds. Therefore, the TRACE reporting requirements will apply to all marketable Treasuries, including Treasury bills, notes, bonds, and inflation protected securities (TIPS).

As is currently the case with all TRACE reporting obligations, any FINRA member firm that is a party to a transaction in a TRACE-eligible security is required to report the transaction. Accordingly, a reportable TRACE transaction inn U.S. Treasury securities between two FINRA member firms must be reported by both firms.

Reasons for proposals. The FINRA proposal followed an October 15, 2014, "flash crash" involving the market for U.S. Treasury securities, futures, and other closely related instruments. Subsequently, an interagency working group consisting of representatives from the Commission, the Treasury Department, the Board of Governors of the Federal Reserve, The Federal Reserve Bank of New York, and the CFTC issued a joint staff report analyzing the structure of the U.S. Treasury market and the conditions that contributed to the market volatility.

The Joint Staff Report proposed several steps in understanding the Treasury market, including an assessment of the data about the market available to the public and to the official sector. In a Request for Information seeking public comment, the Treasury Department observed that the official sector does not currently receive any regular reporting of Treasury cash market transactions and that the need for more comprehensive official sector access to data, particularly with respect to U.S. Treasury cash market activity is clear.

After receiving public comment, the SEC and Treasury requested FINRA to consider a proposal to require its members to report transactions in U.S. Treasury securities to a centralized repository.

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