FINRA reminded broker-dealers that OTC transactions in TRACE-eligible securities are subject to TRACE reporting even if the security is listed on a national securities exchange. The exemption from TRACE reporting for listed bonds applies only where the transaction is executed on, and reported to, a national securities exchange and the transaction information is disseminated publicly; the exemption does not extend to OTC transactions in those bonds.
Commentary / Mark Highman
While this FINRA Notice relates to the scope of a single exemption from TRACE reporting, it's worth noting that FINRA included TRACE reporting deficiencies in its December 2018 Examinations Findings Report. These deficiencies included late and inaccurate TRACE reports, use of the wrong identifiers in transactions with affiliates, and deficiencies in firms' written supervisory procedures for TRACE reporting. Firms should thus consider reviewing their TRACE reporting procedures for compliance with applicable requirements, including reliance on any reporting exemptions. As FINRA generally views each deficient report (or failure to report) as a separate breach of the TRACE Rules, systematic reporting issues may result in significant fines.
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