The SEC published for comment in the Federal Register a proposed FINRA rule change that would expand the definition of "Agency Debt Securities," as used in the Trade Reporting and Compliance Engine ("TRACE") rules. The definition would be expanded to include credit risk transfer securities ("CRTs") issued by Fannie Mae- or Freddie Mac-sponsored trusts.
As previously covered, Agency Debt Securities currently include those issued or guaranteed by Government Sponsored Entities ("GSEs"). As a result of changes made by Fannie Mae and Freddie Mac in their issuance structures, CRTs will no longer be issued as direct debt obligations of the GSEs; instead, they will be issued by sponsored trusts, with proceeds from CRT sales managed by a third-party trustee. Under the current rules, such transactions would be defined as corporate debt, and subject to a lower transaction size dissemination cap – i.e., for corporate debt, sizes of transactions over $1 million are not disclosed, while for CRTs, transaction size is currently disclosed up to $5 million. Expanding the definition of Agency Debt Securities would allow for the continued public dissemination of trade sizes up to $5 million.
FINRA filed the rule change for immediate effectiveness. The SEC requested that all comments be submitted by June 14, 2018.
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