Amendments to FINRA Rule 6700 Series Go Effective Date 7/22/13.

[ by Howard Haykin ]

The SEC gave FINRA the 'green light' to implement proposed revisions to FINRA Rules and TRACE Dissemination Protocols.  The changes pertain to transactions in two groupings:   (i) agency pass-through mortgage-backed securities (MBS) traded in specified pool transactions;  and,  (ii) asset-backed securities (ABSs) backed by loans guaranteed as to principal and interest by the Small Business Administration (SBA-backed ABS) and traded in specified pool transactions or to be announced (TBA). 

The rule changes also would reduce the time to report such transactions. 

Background and Discussion.   Among the substantive amendments to FINRA rules:

Dissemination.  

• Amended FINRA Rule 6750(b)(4)  - providing for dissemination of MBS specified pool and SBA-backed  ABS specified pool transactions and SBA-backed  ABS transactions traded TBA immediately upon receipt of a transaction report.

• Modified dissemination protocols for MBS and SBA-backed ABS specified pool transactions.  In lieu of disseminating the CUSIP, FINRA will disseminate transaction information using reference data elements, in ranges (after truncating and rounding), that describe the characteristics of the traded pool.
• e.g.-  for MBS specified pool transactions, FINRA will disseminate:

   

  • the coupon and weighted average coupon (WAC),
  • the original maturity and weighted average maturity (WAM),
  • the original loan-to-value (original LTV)
  • the average loan size (ALS), and the weighted average loan age (WALA), subject to display ranges.
• To identify the type of security traded, FINRA will disseminate:

   

  • agency or government-sponsored-enterprise (GSE),
  • product type
  • amortization type.
  • Additional details re: the information that will be disseminated initially, including sample values and display ranges, is set forth on Attachment A of FINRA's announcement.

• SBA-backed  ABS transactions traded TBA will be subject to the same dissemination protocols established for MBS transactions traded TBA -  e.g., the CUSIP will be disseminated).

• Dissemination cap for MBS specified pool transactions and SBA-backed ABS transactions will be $10 million.

• Reporting Time Periods. FINRA amended Rule 6730 to establish requirements for reporting MBS specified pool and SBA-backed  ABS transactions.

• FINRA Rule 6730(a)(3)(F)(i) and FINRA Rule 6730(a)(3)(G)(i) provide that, for a pilot program that will expire on 1/24/14: 

   

  • MBS specified pool transactions and SBA-backed  ABS transactions, respectively, must be reported no later than 120 minutes from the time of execution, subject to minor exceptions to the general requirement for transactions executed shortly before the TRACE system closes and when the TRACE system is closed.

• After 1/24/14, FINRA Rule 6730(a)(3)(F)(ii) and FINRA Rule 6730(a) (3)(G)(ii) provide that:

   

  • MBS specified pool transactions and SBA-backed ABS transactions, respectively, must be reported no later than 60 minutes from the time of execution, subject again to exceptions to the reporting time frames for transactions executed shortly before the TRACE system closes and when the TRACE system is closed.

Definitions.

• FINRA adopted a definition of SBA-backed  ABS in FINRA Rule 6710(bb).
• FINRA amended in Rule 6710(u), the definition of “TBA.”
• FINRA amended in Rule 6710(x), the definition of “specified pool transaction,” to include references to transactions in SBA-backed  ABS.
• FINRA incorporated minor, technical changes to the definition of “agency pass-through mortgage-backed security” in FINRA Rule 6710(v).

FINRA Staff Contacts.   Direct questions to:  Elliot Levine, AVP and Counsel, Transparency Services, at (202) 728-8405; or  Sharon Zackula, AVP and Associate General Counsel, Office of General Counsel, at (202) 728-8985.

For further details, go to:   [FINRA RegNote 12-56, December 2012 ].