New York, NY, February 15, 2024 – In a comment letter filed with the SEC today, SIFMA and SIFMA AMG raise concerns with proposals from FINRA and the MSRB to shorten the timeframe for reporting transactions in covered fixed income securities to each of the SRO’s respective trade reporting systems to one minute.  SIFMA and SIFMA AMG note that efforts to improve transparency in the fixed income markets need to be implemented carefully, and caution that a one-size-fits-all approach is not consistent with the unique characteristics of these markets, which largely trade over the counter.

“The fixed income markets, including the municipal securities market, are not the equity market, and remain predominantly an over-the-counter market where elements of trading and post-execution processing rely on manual processes, or are subject to still developing and non-comprehensive automation.  We do not believe an across-the-board one-minute reporting requirement is feasible due to the lack of full post-trade automation stemming from the importance of bilateral negotiation in many fixed income markets,” notes the letter.

Fixed-income trading most commonly takes place by voice, messaging systems, or on other platforms that do not enable end-to-end straight through processing, which is necessary for faster trade reporting.  Additionally, there are millions of CUSIPs available to trade in the fixed income markets, all of which need current reference data at both the broker-dealer and the regulatory reporting system maintained by FINRA or MSRB.  Trades may be done on a portfolio basis where large sets of bonds are traded together, or trades may require post-trade allocations to tens of thousands of advisory accounts.  Additionally, many firm policies and procedures involve post-trade risk management or compliance reviews.

For these and other reasons outlined in the comment letter, SIFMA believes a robust manual trade exemption and de minimis exemption (to protect smaller broker-dealers), would be required if these proposals move forward, but, “[are] not a panacea, and further, even one minute reporting for certain fully-electronic trades remains unworkable.”

“To this point, the SROs have developed targeted reporting and dissemination regimes for different markets: standards for investment grade corporates differ from high yield instruments, which differ from collateralized loan obligations, which differ from municipal bonds, which differ from good-delivery TBA mortgage-backed securities, and so on. These tailored standards appropriately reflect the differing natures of distinct fixed-income markets.  If a general reporting time reduction to one-minute without appropriate and necessary exceptions and flexibility is adopted for those products which currently have a 15-minute deadline, SIFMA believes that rules must contain appropriate distinctions between markets where trading is more automated and features more straight-through processing (STP), and those that rely on voice trading and other manual forms of communication.

Finally, SIFMA and SIFMA AMG believe that “faster reporting should not expose members to excessive non-compliance risk or jeopardize the liquidity of the underlying fixed-income markets, which are diverse and important to the U.S. economy.  As such, if regulators desire certain products move to a one-minute reporting timeframe, we believe a phased-in exception that recognizes the evolving OTC nature of the fixed-income markets is essential.”

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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).

SIFMA’s Asset Management Group (SIFMA AMG) brings the asset management community together to provide views on U.S. and global policy and to create industry best practices. SIFMA AMG’s members represent U.S. and global asset management firms – both independent and broker-dealer affiliated – whose combined assets under management exceed $62 trillion. The clients of SIFMA AMG member firms include, among others, tens of millions of individual investors, registered investment companies, endowments, public and private pension funds, UCITS and private funds such as hedge funds and private equity funds.