[ by Howard Haykin ] FINRA's latest proposed rule changes to the FINRA Rule 6700 Series and TRACE dissemination protocols were approved by the SEC and are scheduled to go into effect on 11/5/12. Executive Summary. The amendments apply to transactions in TRACE-eligible securities that are agency pass-through mortgage-backed securities ("MBS's") that are traded to be announced ('TBA' transactions).  The SEC also approved amendments to TRACE data fees, under FINRA Rule 7730, for such TBA transactions.  Lastly, the amendments include the deletion of the reference to an expired pilot program and minor technical changes.  As noted above, the effective date is November 5, 2012. FINRA Staff Contacts. Direct questions to:  Patrick Geraghty, Director, Market Reg. - (240) 386-4973; Elliot Levine, AVP and Counsel, Transparency Services - (202) 728-8405; or, Sharon Zackula, AVP and Assoc. General Counsel, Office of General Counsel -  (202) 728-8985. Background and Discussion. FINRA amended the TRACE rules and dissemination protocols to provide for the dissemination of agency pass-through mortgage-backed securities traded in TBA transactions, which will significantly increase transparency in the TBA market. FINRA also reduced the reporting periods for TBA transactions to improve the timeliness and value of the transaction information to be disseminated, and incorporated certain other amendments. The substantive amendments to the FINRA rules are as follows:

• Dissemination. FINRA amended Rule 6750(b)(4) to provide for the dissemination of TBA transactions immediately upon receipt of a transaction report. Under TRACE dissemination protocols, TBA transactions for which good delivery may be made (TBA transactions GD) will be disseminated subject to a $25 million dissemination cap and TBA transactions in products that are not traded for good delivery (TBA transactions NGD) will be disseminated subject to a $10 million dissemination cap.

• Reporting Time Periods. FINRA amended Rule 6730 to establish requirements for reporting TBA transactions GD and TBA transactions NGD.

• TBA Transactions GD. FINRA Rule  6730(a)(3)(D)(i) provides that for a pilot program that will expire on May 10, 2013, TBA transactions GD must be reported no later than 45 minutes from the time of execution, subject to minor exceptions for TBA transactions GD executed shortly before the TRACE system closes and when the TRACE system is closed.  After May 10, 2013, FINRA Rule 6730(a)(3)(D)(ii) provides that TBA transactions GD must be reported no later than 15 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.

• TBA Transactions NGD. FINRA Rule 6730(a)(3)(E)(i) provides that for a pilot program that will expire on May 10, 2013, TBA transactions NGD ust be reported no later than 120 minutes from the time of execution, subject to minor exceptions for TBA transactions NGD executed shortly before the TRACE system closes or when the TRACE system is closed. After May 10, 2013, FINRA Rule 6730(a)(3)(E)(ii) provides that TBA transactions NGD 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 amended Rule 6710(u), the definition of “TBA,” to incorporate the concepts “for good delivery” and “not for good delivery.”

• Fees. FINRA amended Rule 7730 to establish fees for current market data for TBA transactions and aged TBA transaction data (historic TRACE data). The fees are set at the same rate currently in effect for other current TRACE market data and historic TRACE data.

For further details, go to:  [FINRA Reg Note 12-26, May 2012].