SIFMA Opposes FINRA's Proposed Approach to Delayed Treasury Spot Trade Reporting

SIFMA and SIFMA Asset Management Group (the "Associations") opposed FINRA's proposal regarding reporting requirements for delayed Treasury spot trades in corporate debt securities.

The proposal would create a two-part reporting regime (one report at the time of the spread agreement and another following execution), and impose additional reporting requirements (including reference CUSIP and the time of agreement).

In their joint comments, the Associations argued that there is no meaningful information gap in the current reporting, given that (i) FINRA Rule 6730(d)(4)(A) ("Transaction Reporting") already requires members to affix a "special price modifier" when a transaction is not executed at a price that reflects the current market price of a security and (ii) the reference CUSIP can be determined with great reliability by the market, based on the maturity of the corporate bond that was traded and given long-standing market practice. The Associations urged that any proposed changes balance the significant costs and implementation burdens associated with the proposal against the negligible benefits.

Further, the Associations questioned the motive behind proposing the two-report approach, as it was not supported by any other regulatory entity, including the SEC Fixed Income Market Structure Advisory Committee, or even most commenters.

The Associations cautioned that requiring dealers to submit trade information prior to execution may cause confusion in the event that the terms of the trade change before execution, which the Associations said is fairly common. In addition, the Associations expressed concern that the fixed costs required for compliance with the proposal would cause smaller broker-dealers to stop offering delayed spot trades altogether, as only those members with sufficient volume would have the incentive to bear those costs. As a result, they argued, liquidity in delayed spot trade markets may suffer. SIFMA AMG noted that while its "members generally favor enhanced transparency and appreciate the intention of the proposed approach . . . this degree of transparency will undoubtedly compromise much needed liquidity without commensurate benefit."

The Associations also requested further clarity on certain aspects of the proposal, including (i) how reporting systems would be modified to accept two distinct trade reports, (ii) the cost involved in filing the reports, (iii) what constitutes a delayed spot trade (e.g., are mere operational delays sufficient or is an express customer request required) and (iv) how amendments or cancellations post-agreement, but pre-execution, would be addressed.