Broker-Dealer firms are required under FINRA Rule 6730 (Transaction Reporting) to report the “time of execution” of a transaction in TRACE trade reports. The time of execution is defined as the time when the parties to a transaction in a TRACE-eligible security agree to the material terms of the transaction (such as price and quantity) and can calculate the dollar price of the trade.
If a trade is executed on a firm’s trading desk at 11:30:00 ET, but isn’t entered into the firm’s system until 11:55:23 ET, which is reported to TRACE as the execution time? Time of execution is not necessarily the time at which the trade information is entered into the firm’s processing system. The time of execution reported to TRACE would be 11:30:00 ET, because that’s when the trade was actually executed.
When a firm executes an inter-dealer transaction on behalf of a corresponding customer order, the firm may be required to record the same time of execution for both the inter-dealer and customer trades. If the material terms of both the inter-dealer and the customer transactions are agreed upon at the same time, the firm must report the same time of execution for both transactions.
Sometimes, a firm will send an electronic communication to its counterparty to provide the details of a trade that has already been agreed upon in all material aspects. The time at which this notification was sent should not be reported to TRACE as the time of execution – the material aspects were agreed upon before the notice was sent. The time of execution on the TRACE transaction report must reflect the time of the agreement, not the time at which the notice is sent.
Even in circumstances where TRACE rules allow firms to report a transaction on T+1, firms must report both the time of execution and the date of trade execution on the TRACE report. When a firm executes a transaction after TRACE system hours, or on a non-business day, the time of execution is still required to be submitted to TRACE. Again, that is the time at which the trade is executed – not the time that the trade report is submitted.
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Time of execution for a transaction in a new issue is determined in the same way it is for secondary transactions: there must be an agreement with regard to the material terms of the transaction. Even if a firm receives a firm commitment to purchase a TRACE-eligible security when it’s issued, there is not necessarily a time of execution yet. If there has been no determination of final material terms – price, coupon, quantity, etc. – then there is no time of execution, despite the initial commitment.
What if a TRACE-eligible security is trading “when issued” on a yield basis? The time of execution is when the yield for the transaction has been agreed to by the parties of the transaction. For a transaction in a TRACE-eligible security where the yield for the transaction is established by determining the yield from one or more designated securities and adding the agreed upon “yield spread” – e.g. “benchmark securities” – the time of execution occurs when the parties to the transaction have agreed upon a yield.
More information about FINRA Rule 6730 and TRACE trade reports can be found here on the FINRA website.