The first recommendations made by the US Securities and Exchange Commission’s Fixed Income Market Structure Advisory Committee are starting to bear fruit.
The Financial Industry Regulatory Authority has filed a proposed rule change that would permit the self-regulatory organization to provide expanded reference data regarding newly-issued corporate bonds.
Under FINRA’s Rule 6760, the regulator currently collects six data fields for newly-issued bonds (CUSIP number, issuer name, coupon rate, maturity, 144A status, and a brief bond description).
The fields provide enough data from the underwriters to meet the TRACE-reporting mandates and not much more, according to the FIMSAC corporate bond transparency subcommittee in its October 2018 recommendation to the SEC.
“It does not include the more detailed data required to price and style a bond trade, such as the information needed to calculate accrued interest and net money,” wrote the proposal’s authors.
The subcommittee proposed that the SEC, in conjunction with FINRA, establish a new data service that would expand the number of data fields underwriters would be required to report electronically to FINRA to 26 fields.
After reaching out to the industry, FINRA’s proposal includes the 19 fields that the subcommittee included in its recommendation’s Schedule A as well as issuance amount, first call price, first put price, coupon type, rating, perpetual maturity indicator, and a payment-in-kind indicator.
Under the proposed rule change, underwriters would need to provide the necessary reference data before a bond’s first trade.
Once FINRA makes the new standalone reference data service, it would not change existing transaction-data feeds, a FINRA spokesperson told Markets Media.
“There is no requirement that anyone buy the services just because they are otherwise already subscribing to a TRACE data product,” the spokesperson added.
Subscribing to the new feed would incur a subscription fee and setup costs, but FINRA also plans to offer a redistribution and retransmission license for third-party data resellers.
The SRO also recommended in its SEC filing that the regulator should consider whether to expand the data service offering to include reference data regarding seasoned issues as well as corporate actions.
“Bond reference data is not static,” wrote the FINRA authors. “Many corporate actions, such as bond default, partial redemptions, tender offer, exchange offer, and consent solicitations, can impact the price and trading of a bond.”
Although FINRA does not have a specific launch window for the new service, the spokesperson noted that FINRA would have up to 90 days to announce the effective date of the rule change and that the effective date would be no later than 270 days after the publication of the notice.
