The Regional Bond Dealers Association (RBDA) has called on the Financial Industry Regulatory Authority (FINRA) to suspend the Trade Reporting and Compliance Engine (TRACE) reporting of agency debt trades until bank dealers are required to comply with similar rules.

In a letter to the Federal Reserve Bank and the Financial Industry Regulatory Authority, the RBDA said that requiring only the broker-dealers that are not affiliated with banks to provide the ABS and MBS data created an unlevel playing field and severely limited the amount of price transparency available to investors and other market participants.

According to the RBDA, bank-affiliated dealers account for all 15 of the top U.S. debt and equity underwriters as recently as 2008.

The RBDA said it was already seeing a clear market reaction to this regulatory imbalance. On March 1, the day FINRA expanded TRACE reporting to include government agency debt, a number of financial institutions began taking steps to ensure that agency trades were handled by entities which, because of their status as banks, were beyond the reach of FINRA’s rules.

“We applaud FINRA’s commitment to transparency however, the exclusion of a large class of agency debt market participants compromises the reliability of the information that is ultimately reported and fails to protect the very market participants FINRA intended to help,”  said Mike Nicholas, CEO of the RBDA.

Last month the Securities and Exchange Commission (SEC) approved FINRA’s — the U.S. brokerage industry’s main regulator — plans for collecting trading data on ABS and MBS for TRACE.

FINRA’s proposal for ABS calls for it to consider disclosing real time data. In its request to the SEC, FINRA said it decided against immediate public price disclosure because of the potential for misleading investors or making trades harder to execute.

FINRA’s new initiative would extend coverage to approximately $5.3 trillion of MBS with government-backed guarantees and $3.6 trillion of unguaranteed securitized debt.

FINRA is planning to unveil its formal plan for collecting and reporting data within 60 days. It will also call for the collection of data no later than 270 days after that, with six more months needed to begin disclosure once and if the SEC approves a new proposal.  

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