The US Financial Industry Regulatory Authority is prepared to file a rule proposal with the Securities and Exchange Commission to require the collection and dissemination of reference data for new corporate bonds.
The new rules are understood to be based on a proposal from an SEC subcommittee examining whether access to bond reference data is damaging the efficiency and interoperability of the fixed income market.
FINRA’s board approved the rule proposal at its March meeting and will file the proposal with the SEC, according to sources.
If it passes review by SEC staff, the rule proposal will published for public comment.
The SEC declined to comment. FINRA declined to say when the rule would be filed with the SEC.
In October the subcommittee tasked FINRA with creating a single central source of new issue reference data on par with what’s available in the municipal bond market.
During the October hearing, Larry Harris, the Fred V Keenan Chair in Finance and professor of finance and business economics at the USC Marshall School of Business, told the subcommittee that reference data has two purposes in the corporate bond market.
“We spent most of our time talking about the first purpose, which is to allow people to reliably settle trades so that they know what they are trading and can figure out the final payments and so forth,” Harris said.
“The second purpose is that it allows people to value bonds. And this is an extremely important purpose because dealers and investors need to know what a bond is worth so that they can confidently trade it.”
The central source would have to include new issue reference data, updates to reference data for seasoned issues, and be disseminated in real time to all vendors and market participants. Such vendors include Refinitiv (the parent company of IFR), Bloomberg and Informa Global Markets.
The data service would require underwriters to submit new issue information to FINRA at the same time it makes the data available to any reference data vendor - eliminating any favoured vendor status.
Reference data includes issuer and issue identifiers and details, such as maturity, coupon, par value, payment frequency, amortisation details, call schedule and convertibility, among other terms and conditions.
Under the system, FINRA would make the data available in a real-time electronic format to other vendors and market participants - for a fee.
Currently, underwriters distribute this data after a bond prices, but distribution is not regulated and is considered inconsistent.
Underwriters have been wary of being held responsible for inaccurate information provided on the fly as deals are being priced. But their ability to keep regulators from bringing order to the collection and dissemination of data may be at an end.
The process for corporate bonds has lagged the process in municipal bonds, where underwriters for new muni bonds submit all information required for a dealer to report and produce a customer trade confirmation no later than two hours after the time of “formal award” of the new issue.
In contrast, in the US corporate bond market, neither underwriters nor issuers are currently required to submit a full set of new issue reference data.
