‘Measured’ Approach to Mortgage-Bond Transparency Seen by Finra

Six years after a global financial crisis exacerbated by the lack of transparency in the market for U.S. mortgage debt, regulators are planning only a small step toward offering the public more information on trading.

The Financial Industry Regulatory Authority’s board yesterday authorized the industry-funded watchdog’s staff to seek comment on a proposal to expand its dissemination of transaction data to more types of securitized debt. The notes include home-loan securities without government backing and collateralized debt obligations, Chairman and Chief Executive Officer Rick Ketchum said in a video posted on Finra’s website.

Unlike what’s been available with corporate bonds starting in 2002, the plan would only offer real-time, trade-by-trade information on the additional categories of securities when transaction sizes fall below $1 million, Ketchum said. Summary information on trading in larger amounts would come on a weekly or monthly basis, he said.

“We get that this is a complicated slice of the market,” Ketchum said. “That’s why we’re taking a conservative and measured approach to increasing transparency in the space.”

The plan is meant to protect market participants and not disrupt trading while increasing transparency, he said.

Finra has been expanding its Trade Compliance and Reporting Engine, known as Trace, to securitized debt after murkiness in the market for securities backed by loans and leases contributed to the financial crisis by fueling doubt about the health of banks and funds.

In 2011, Finra began disclosing daily market-level information culled from data on securitized-debt trades it started collecting earlier, and later began offering the public data on individual trades of certain types of the notes in ways that are more limited than Trace’s approach for corporate securities and debt from government-related issuers.

Other new types of bonds with trading information that would be publicly reported by Trace under Finra’s proposal include government-backed mortgage debt known as agency collateralized mortgage obligations and commercial-mortgage securities, Ketchum said.

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