Keeping up with New TRACE Reporting Requirements for Mortgage-Backed Securities, Treasuries and Agencies

How Electronic Markets Can Help Close the Reporting Gap

By: Hadley Manfredi, Director, Agency MBS, Tradeweb and  Justin Monahan, Director, Agency MBS, Tradeweb

Starting on September 1 of this year, Financial Industry Regulatory Authority (FINRA) regulatory requirements went into effect, which require more mortgage-backed security (MBS), U.S. Treasury and agency debt market participants to report their transactions to FINRA’s Trade Reporting and Compliance Engine (TRACE). Under the new mandate, bank depositories with average daily transaction volumes over $100 million, for U.S. Treasury debt, or over $50 million, for agency-issued debt and MBS, during the 12-month period ending September 30 of the prior year, must report their trade data to TRACE for public dissemination.

While the new requirements provide more transparency, they also create new complexities. Participants are now tasked with capturing and reporting more information, faster. The level of granularity of information and the speed at which it must be provided for these types of trades – on both sides of a trade – is a fundamentally new challenge for some.

The Case for Electronic Fixed Income Trading

While the marketplace has been trading TBAs, Treasuries and Agency debt electronically for a long time, and has reaped the benefits of that workflow, certain instruments picked up by the new regulation have historically been traded voice, and thereby more manually. Specified pools, for example, are still widely traded voice or via a manual process, which is incredibly time-consuming.

When counterparties trade in the specified pool market, they need to negotiate the trade, confirm the economics, then key those details into their respective trade capture and reporting systems. The manual intervention required in this sequence tends to be a recipe for trade errors and reporting latency and is a clear indication from where the Fed’s 16,500-hour compliance burden estimate came. That is, of course, unless they are trading specified pools electronically. Tradeweb offers an electronic solution, SP Marketplace, to do just that. Whereas voice trades require a manual, labor-intensive data collection and reporting processes, electronic trades executed on the Tradeweb platform automatically capture critical information and move it directly into client and dealer internal systems for processing to TRACE.

STP/Trade Capture

When executing on the Tradeweb platform, clients have multiple options as to how they want to receive trade information. Tradeweb works closely with a long list of Order Management Systems (OMS) to provide Straight-through-Processing (STP) of execution reports, trade details and economics via FIX messages. Clients can also take advantage of on-demand transferable flat files and email confirmations generated immediately after a trade is executed. A client’s own trade information and history is also available for reference at any point with full audit trails.   

Constantly Innovating

As disclosure requirements like these become increasingly common and as the reporting windows associated with them continue to shorten, market participants who have long appreciated the benefits of trading electronically in other fixed income asset classes are now adopting and applying similar solutions to optimize the specified pool trade lifecycle. From the initial trade to execution and reporting, electronic trading is becoming the efficient way to adapt and keep up with industry regulation changes. This, paired with continual innovation and collaboration that addresses our clients’ changing needs, has led to increased participation with 21% of our MBS institutional client base trading specified pools on our platform in 2022 versus just 12% five years ago.

Click here to learn more about our Specified Pool Platform.  

Related Content:
SP Marketplace: Breakthrough Trading for Specified Pools