FINRA Seeks Agency Debt Transparency


Market regulator FINRA looks to raise TRACE’s post-trade dissemination cap for all agency debt to a uniform $5-million threshold, according to a recent filing with the US Securities and Exchange Commission.

The proposed modification would “have a minimal impact while simplifying the dissemination structure and providing additional transparency in agency-debt securities,” wrote the authors of the filing.

Currently, TRACE disseminates transactions larger than $ 5 million in investment grade and unrated securities as “$5MM+,” while capping non-investment grade securities with a $1-million threshold.

The $1-million threshold for non-investment grade agency debt manages to catch 88.6 percent of transactions and 98.4 percent of the approximately $8.8 billion non-investment grade market, according to the regulator.

“This looks like something that is very overdue,” said Ken Monahan, vice president, market structure and technology at Greenwich Associates, told Markets Media. “Less than two percent of the volume is reported at volume scale versus the investment grade and unrated markets which are 30 percent and almost 50 percent respectively.”

Monahan also noted that the regulator’s proposal might not have as great of an impact to the market than the adjustments to the post-trade dissemination caps for corporate bonds that the Commission’s Fixed Income Market Structure Advisory Committee made during its April meeting due to the size of the respective markets.

FINRA estimated that a threshold change would only affect 5.6 percent of agency debt transactions that TRACE while it disseminates 94.4 percent of total transactions with their actual trade size.

Raising the non-investment grade cap in 2017 would have led TRACE to disseminate trade-size information for 1,112 trades in 82 CRT CUSIPS, according to the filing’s authors.

“This increased transparency could have impacts on investors, market makers, and issuers, the authors wrote. “Markets participants, especially uninformed investors, generally anticipate that they benefit from greater price transparency because, in the presence of this information, they are more likely to gain more timely information about the current price of an asset. Knowing this, they may be more willing to commit capital.”

The Commission is accepting industry comments on the filing and will need to approve, reject, or call for an extended comment period by October 1.

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