June 7, 2022
Submitted electronically to: [email protected]
Ms. Vanessa Countryman
Secretary, Securities and Exchange Commission
100 F St., NE
Washington, DC 20549
Re: File Number SR-FINRA-2022-011: TRACE Reporting for USD Sovereigns
Dear Ms. Countryman,
SIFMA1 is pleased to respond to File Number SR-2022-011 regarding FINRA’s proposed TRACE reporting requirements for U.S. dollar denominated foreign sovereign and supranational securities (hereafter, “Proposal”).2 SIFMA members are active participants in fixed-income markets covered by the Proposal.
A. Summary of the Proposal
The proposal would generally require FINRA-member broker-dealers to report USD foreign sovereign and supranational (referred to in this letter as “SSA”) trades to the TRACE system on a same-day basis. FINRA would not disseminate these reports. We submitted comments to FINRA on a related Regulatory Notice in 2019 and our comments today are fairly similar.3
B. Comments on Reporting of Transactions
1. International Nature of Sovereign Trading
SIFMA members understand FINRA’s desire for regulatory reporting of transactions in these securities for the purposes of its supervisory activities, however, we believe it is important to recognize that FINRA will not receive comprehensive information regarding SSA trading. In contrast to most other TRACE-eligible markets, a significant amount of trading in SSA debt does not occur at FINRA-member broker dealers, instead occurring in off-shore transactions executed by non-US entities. Accordingly, FINRA will not get the full picture of market activity, which should be kept in mind as FINRA analyzes data and supervises its member broker-dealers.
2. Security Identifiers
As we discussed in our response to FINRA’s Regulatory Notice that preceded this proposal, the lack of CUSIP numbers presents a general operational challenge for members trading SSA debt. Based on feedback from our members, we believe FINRA-member broker-dealers will fairly commonly encounter situations where they trade a bond that is not yet set up in TRACE, and also does not have a CUSIP or CINS number. The necessary next step in these situations is to call FINRA to obtain a symbol. Obtaining a FINRA identifier where a CUSIP is not used, while a solution, is neither efficient nor automatable.
We suggested in our 2019 response to FINRA that a partial solution is for FINRA to allow for the submission of ISINs, which may be broadly available when a CUSIP is not. In this proposal, FINRA indicates that “where a CUSIP or CINS is not available…the FINRA-assigned symbol would be associated with the ISIN” This is helpful for a dealer trading a previously set up security who could link an ISIN to a FINRA symbol in the master file when a CUSIP is not available.
1 SIFMA is the leading trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets. On behalf of our industry’s one million employees, we advocate on legislation, regulation and business policy affecting retail and institutional investors, equity and fixed income markets and related products and services. We serve as an industry coordinating body to promote fair and orderly markets, informed regulatory compliance, and efficient market operations and resiliency. We also provide a forum for industry policy and professional development. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA).
2 87 FR 29980, available here: https://www.federalregister.gov/documents/2022/05/17/2022-10508/self-regulatory-organizations-financialindustry-regulatory-authority-inc-notice-of-filing-of-a 3 Letter from SIFMA to FINRA (September 24, 2019), available here: https://www.finra.org/sites/default/files/2019-09/19-
25_SIFMA_Comment.pdf. (“SIFMA 2019 Letter”)