The U.S. Financial Industry Regulatory Authority is proposing a major expansion of its bond transparency initiative known as the Trade Compliance and Reporting Engine (TRACE).

TRACE was established in July 2002 to bring transparency to the corporate bond market, and became fully operational by February 2005, providing real-time, public dissemination of transaction and price data for all corporate bond trades in the secondary market. FINRA is proposing to expand its data to include debt issued by federal government agencies, government corporations and government sponsored enterprises, as well as primary market transactions in new issues.

Approval of the proposal by the U.S. Securities and Exchange Commission would nearly double the number of bonds included in TRACE reporting, it said. Roughly 25,000 government agency, corporation and GSE bonds would become TRACE-eligible, in addition to the approximately 30,000 corporate bonds now on TRACE. Retail investor activity in the government agency and GSE bond markets is believed to be comparable to retail activity in the corporate bond market, it noted.

“We believe that transparency is an extremely important ingredient for investor participation in a market,” said FINRA executive vice president Steven Joachim. “Based on our experience with corporate bonds, this expansion should help all investors — especially retail investors — get better prices, because TRACE has shown that transparency helps to reduce bid-ask spreads. Most important, expanding TRACE into these bond markets will enhance market integrity for all participants and will help protect retail investors by putting better sales and pricing information in their hands.”

The SEC is expected to publish the TRACE expansion proposal and seek public comment in the near future.

IE