Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Thursday, October 1, 2009

FINRA Proposes Expansion of TRACE to All ABSs

FINRA is proposing the expansion of FINRA's Trade Reporting and Compliance Engine TM (TRACE TM) to include all asset-backed securities (ABSs), including mortgage-backed securities (MBSs) and collateralized debt obligations (CDOs). As with the original implementation of TRACE in 2002, FINRA would initially only collect ABS transaction data. After detailed analysis and observation of the market, FINRA would determine whether dissemination of ABS data is appropriate.

 TRACE reporting of ABS transactions would provide to FINRA trade prices, volume and other information. Generally, FINRA favors transparency in the debt securities markets. Indeed, real-time dissemination of transaction information is provided for nearly all TRACE-eligible securities. FINRA also believes that the transparency in corporate bonds provided by TRACE today has contributed to better pricing, more precise valuations and reduced investor costs.

 However, the characteristics of the ABS market differ sufficiently from the corporate debt market, to the extent that FINRA believes close study of ABS information and the broader market is required to determine if dissemination of ABS market data is beneficial.  The plan for ABS disclosure to FINRA, filed as a rule change with the SEC, follows the SEC's approval earlier this week of TRACE reporting for debt issued by federal government agencies, government corporations and government-sponsored enterprises (GSEs), as well as primary market transactions in new issues. The reporting for the government agencies and the primary market goes into effect March 1, 2010.

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