The SEC recently approved amendments to the Trade Reporting and Compliance Engine (TRACE) rules. FINRA Rule 6730 will require member firms to report the TRACE-eligible transactions (mostly trades in bonds) as soon as practicable, but no later than within 15 minutes of the time of execution. This revision and guidance presents an opportunity to review the TRACE rules and regulations. FINRA’s notice to members is here.

Q: When must firms report transactions in TRACE-eligible securities?

A: Once the new rule goes into effect, transactions must be reported as soon as practicable, but not later than 15 minutes after the time of execution when the TRACE system is open.

An exception is available for transactions executed less than 15 minutes prior to the TRACE system closing (i.e. at 6:15 p.m. or later) which may be reported within 15 minutes after the TRACE system opens the next business day (T + 1), and if reported on T + 1, designated “as/of” the trade date, but this report must still be filed as soon as practicable.

Q: What are the TRACE system hours?

A: The TRACE system is open from 8:00:00 a.m. Eastern Time through 6:29:59 p.m. Eastern Time each business day.

Q: What is a TRACE-eligible security?

A: TRACE-Eligible Securities include U.S. Dollar denominated debt securities issued by corporations (e.g. corporate bonds), agencies (Ginnie Mae), GSEs (Freddie Mac or Fannie Mae) and asset-backed securities. Transactions in Trace-eligible securities effected via Rule 144A transactions must be reported to TRACE.

Q: What securities are not TRACE-eligible?

A: Certain transactions in debt securities are not reported to TRACE, including transactions in debt securities issued by the US Treasury (T-bonds, T-Notes, T-bills); sovereign foreign governments (e.g. Mexico, Germany, etc); and money market instruments

Q: Can a firm purposely withhold trade reports until the end of the reporting period? For example, design its system to delay trade reporting until 14 minutes and 59 second following a trade?

A: No. This would be a violation of the letter and the spirit of FINRA Rule 6730 (Transaction Reporting) as well as the New Supplementary Material that specifically clarifies that this type of reporting delay is prohibited. Trades in Trace-eligible securities must be reported as soon as practicable.

Knopman Note

When preparing for a FINRA exam it is important to stay abreast of all recent rule changes and clarifications. Please visit the Knopman blog, login and download your study supplements, and contact your instructor as a part of your study process to make sure you are in the best position to pass your exam.

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