Regulators are once again receiving pushback from dealer groups for continued efforts to move to a one-minute trade reporting standard, where criticisms range from questioning why such a proposal could ever work in fixed income markets to begin with, to constructive advice on how to further strengthen the exceptions they have proposed.
This recent round of comment letters is in response to amendments to the original proposals, which build on the exceptions for manual and de minimis trading activity. The proposal from the Municipal Securities Rulemaking Board includes changes to the de minimis threshold, to 2500 RTRS-reportable trades from 1800, and both the MSRB and Financial Industry Regulatory Authority detail a longer step down period for manual trades, including two years for the ten minute window. Dealers welcomed these changes.
"These changes to the original proposal and commitments by FINRA and the MSRB to seek further comment is encouraging," wrote Kenneth Bentsen, president and chief executive officer of the Securities Industry and Financial Markets Association. "A two-year pause at 10 minutes, and the solicitation of further comment from market participants as to the effects of the shift from 15 minutes to 10 minutes, will help allow for this important review."
"Both the manual trade exceptions and the de minimis exception are made stronger by the changes in the proposals," wrote Michael Decker, senior vice president, research and public policy at the Bond Dealers of America. "However, as we have stated in previous communications on this issue, we remain concerned about the limitations imposed by the manual trades exception for advisory post-trade allocations reporting on dually registered broker-dealers and investment advisors."
Decker added that it is common for firms to buy bonds in a large block trade, which under FINRA rules proposed here, would have to be reported as individual trades to TRACE if the broker dealer is dually registered. "Sometimes those allocations can number in the thousands, and reporting all within one minute is not feasible even in a fully automated environment," he wrote.
Bonds traded for the first time are another issue, as the bond's descriptive information such as the CUSIP would not be in the firm's trade processing system, and would therefore require more than a minute to be reported.
For others, the recent amendments do nothing to address the main concerns of the original proposal, which even those in favor of the amendments discussed as concerns.
"The recent amendments submitted by the MSRB and FINRA, which in part, will extend the phase-in for manual trades, still do nothing to address one of our main arguments which is that any alteration of the compliance threshold should necessitate additional input from stakeholders," wrote Chris Iacovella, president and chief executive officer of the American Securities Association. "This could be achieved through a formal Request for Comment or a new proposal. Such a request should be accompanied by a robust justification, supported by concrete data, explaining why an accelerated reporting timeline is essential for market integrity."
All of the dealer groups go back to their same line of reasoning voiced in almost every comment letter on this issue, that there isn't strong justification for the change.
"We are not convinced that shortened trade reporting times would materially contribute to market transparency," Decker wrote, adding that broker dealers "are already explicitly or effectively required to report trades as soon as practicable and we do not believe the rule changes addressed in the Proposals would significantly enhance information available to market participants."
"Nevertheless we recognize that FINRA and the MSRB have been constructive and responsive in developing the Proposals," Decker wrote. "We generally believe the Proposals are workable if they retain robust de minimis and manual trade exceptions. We again urge a further exemption be provided to post-trade allocations where the street-side trade is timely reported within one minute."
The original proposal is currently under Securities and Exchange Commission review.
