New rules will change TRACE transaction reporting and notification requirements:  (i) FINRA Rule 6700 Series, TRACE rules,  and (ii) reporting fees in FINRA Rule 7730, - both of which relate primarily to Asset-Backed Securities ("ABS's"), and the method of calculating the Trading Activity Fee (TAF) for such securities in Schedule A of the FINRA By-Laws.  The change takes effect Monday, 5/16. 

For complete details, go to:   [FINRA RegNote 11-20, May 2011, "SEC Approves Amendments .."].  The rule change originally was announced in RegNote 10-55. 

        Direct questions to FINRA Staff:  Brant Brown, Office of General Counsel (OGC), (202) 728-6927 (re: TAF);  Patrick Geraghty, Director - Market Reg., (240) 386-4973;  Elliot Levine, Transparency Services, (202) 728-8405; or Sharon Zackula, OGC, (202) 728-8985.

        TRACE Reporting of Transactions ... in TRACE-eligible securities, and dissemination of such information, with some exceptions.  TRACE reporting and data fees are set forth in FINRA Rule 7730.  FINRA uses the TAF to fund its member regulation activities.  In early 2010, the SEC approved a FINRA rule filing which:

• amends the TRACE rules to classify ABS's, MBS's and similar securities - collectively, ABS's - TRACE-Eligible Securities;
• requires that ABS transactions be reported to TRACE;
• modifies certain reporting requirements and notification provisions; and,
• in Rule 7730, establishes reporting fees for transactions in ABS.

In April 2011, the SEC approved additional amendments to TRACE rules and FINRA Rule 7730 which, in large part, address issues relating to the reporting of, and fees applicable to, ABS transactions.  The amendments include: 

• adding the defined term “Securitizer”; incorporating minor amendments to clarify, simplify or conform the defined terms “TRACE-Eligible Security,” “Reportable TRACE Transaction,” “Agency Debt Security,” “Asset-Backed Security” and “TRACE System Hours”; and deleting the defined terms “Issuing Entity” and “Sponsor” in FINRA Rule 6710;
• renumbering as FINRA Rule 6730(a)(3) the ABS reporting requirements previously set forth in FINRA Rule 6730(a)(6);
• re-setting the expiration of the Pilot Program for reporting ABS transactions to provide that the Pilot Program will expire on Friday, November 18, 2011, in FINRA Rule 6730(a) (3)(A)(i);
• consolidating and simplifying reporting requirements for ABS transactions that are executed other than during TRACE System Hours in FINRA Rule 6730(a)(3)(B)(ii);
• adding alternative reporting requirements for ABS transactions that are CMO's or REMIC transactions that occur prior to the issuance of the CMO or REMIC (called pre-issuance CMOs/REMICs) as:

1. FINRA Rule 6730(a)(3)(C)(i) during the Pilot Program; and
2. FINRA Rule 6730(a)(3)(C)(ii) after the expiration of the Pilot Program;

• simplifying how settlement is reported for ABS transactions by deleting the requirement to select an indicator that the transaction will be settled regular way (or not settled regular way) in FINRA Rule 6730(d)(4)(B)(ii);
• adding notification requirements to apply to Securitizers of ABS and alternative notification requirements for pre-issuance CMOs/REMICs in FINRA Rule 6760; and
• adding the Financial Information eXchange (FIX) as a method to report transactions to TRACE and establish a system-related FIX fee in FINRA Rule 7730.

Notice concludes with a discussion on TAF's.