Changes to FINRA Rule 6700 Series

By Jose Fernandez

Timely trade reporting continues to be a focus of regulators as they look to improve transparency and price discovery in the marketplace. FINRA has indicated through recent regulatory actions that enhancing the audit trail with information on growing market segments will support better-informed surveillance and regulation. These actions include the expanded CAT/CAIS reporting requirements, the proposal to reduce the reporting timeframes on certain fixed income securities, and additional refinement of current reporting requirements. In light of this regulatory focus, consistent oversight and review of trade reporting policies, procedures, and controls should be a priority.

Rule 6700 Series Amendments Effective November 6, 2023

Amendments to Require Reporting of Transactions in U.S. Dollar-Denominated Foreign Sovereign Debt Securities – SR-FINRA-2022-011

FINRA has adopted amendments to Rule 6730, requiring firms to report transactions in U.S. dollar-denominated foreign sovereign debt securities to TRACE. “Foreign sovereign debt security” is defined as a debt security issued or guaranteed by the government of a foreign country, any political subdivision of a foreign country or a supranational entity. While FINRA will update and make available the TRACE security master list to include “foreign sovereign debt securities,” it reminds members of their obligations under TRACE rules to have systems and processes in place to determine if whether a transaction in a TRACE-eligible security has occurred, even if it wasn’t included on the TRACE security master list at the time of the transaction.

Enhancements to TRACE Reporting for U.S. Treasury Securities (Rule 6730.04) (Rule 6730.07) – SR-FINRA-2022-013

To improve the granularity and consistency of transaction information, FINRA is amending the rule to require that, when reporting transactions in Treasury securities executed electronically, member firms must report the Time of Execution to the finest increment of time captured by the execution system (e.g., millisecond, microsecond); however, no longer than a second and no shorter than a microsecond.

In addition, the adoption of Supplementary Material .07 to Rule 6730 provides a limited exception to the finest increment reporting requirement for member firms with limited trading volume in Treasury securities. Firms meeting this exception (annual certification required) would be able to continue reporting the Time of Execution for Treasury securities executed electronically as it does today for the duration of the following calendar year.

Where a member firm no longer meets the criteria for the exception, it may no longer rely on the exception beginning 90 days after the end of such calendar year, irrespective of whether it again meets the criteria in a subsequent calendar year.

Standardized Price Reporting – Revisions to TRACE FAQ #3.5.25

FINRA is revising its guidance to standardize the price format used for reporting transactions in Treasury bills and FRNs by requiring all transactions to be reported using the dollar price.

Additional information can be obtained by also reviewing Regulatory Notice 22-27 , Regulatory Notice 22-28 and FINRA’s TRACE FAQs.

What Firms Should Be Doing

Amendments to TRACE reporting mark a significant step forward in enhancing financial transparency and investor protection. Generally speaking, firms must maintain good governance and control across all trade reporting functions. This includes daily oversight, remediation of issues, and change management controls. Change management includes adopting to the new regulatory requirements as well as ANY other changes to systems, personnel, and processing related to trading activities.  

To ensure continued compliance with TRACE reporting requirements and recently adopted and proposed amendments, firms should:

Given the scrutiny and penalties that have been assessed, partnering with a team of experts to conduct an independent assessment makes sense. Oyster’s team of trade reporting experts with real-world experience is uniquely positioned to offer assistance and perspective on trade reporting compliance topics. Having served in supervisory, operations and technology roles, we are aware of the daily challenges and stress faced by the trading desks, operations, and technology teams. Our experts are familiar with potential pitfalls and can effectively evaluate and test for compliance, conduct a comprehensive assessment of supervision practices and identify control gaps.

About The Author
Photo of Jose Fernandez

Jose Fernandez

Jose’s executive experience includes responsibility for the overall coordination and ongoing improvement of operational support functions and processes including Client Onboarding, Operational, Counterparty and Market Risk, Regulatory Compliance, Audit, Profit/Loss management and reporting, Vendor Management and Technology.