The Financial Industry Regulatory Authority (FINRA) has significantly increased transparency in mortgage-backed securities (MBS) issued by Fannie Mae, Freddie Mac and Ginnie Mae, as well as in securities backed by loans guaranteed by the Small Business Administration (SBA) through its new Trade Reporting and Compliance Engine (TRACE) offering. Through TRACE, FINRA will begin to disseminate information for so-called specified pool transactions in agency pass-through mortgage-backed securities and SBA-backed securities. This represents approximately 3,500 trades, totaling $18 billion in par value, on an average daily basis.
"With today's announcement, TRACE has brought historic transparency to the mortgage-backed market, and we will shortly file with the SEC to bring transparency also to asset-backed securities, including those backed by auto loans, credit card receivables and student loans," said FINRA Vice President Ola Persson.
TRACE will disseminate transaction information such as the time of the trade, price and volume. For security identification, in lieu of the CUSIP, FINRA will provide the key characteristics of the security. Transactions must be reported to TRACE within two hours of execution, and are disseminated as soon as received (the reporting timeframe will be reduced to one hour after six months).
On Nov. 12, 2012, FINRA began disseminating transaction information for agency pass-through mortgage-backed securities traded "to-be-announced" (TBA). Together, the market for agency pass-through mortgage-backed securities traded either TBA or specified and SBA-backed securities represent over 90 percent of the par value traded in all asset- and mortgage-backed securities.
Market professionals are able to access the information via major market data vendors. Retail investors will have free access to this data through FINRA's Market Data Center starting next July 29. In addition to making transaction information available, FINRA has developed a comprehensive online learning center – Smart Bond Investing – where retail investors can become familiar with the full range of bond types, features and considerations when investing in bonds.
In addition to increased transparency in agency pass-through mortgage-backed securities, FINRA recently announced that it will soon file proposed rule amendments with the SEC to disseminate transactions in additional types of asset-backed securities, such as those backed by credit card receivables, automobile and student loans, and a variety of other credits.