In September 2009, FINRA issued Regulatory Notice 09-57 to notify members that the Securities and Exchange Commission (the "SEC") approved amendments to the Trade Reporting and Compliance Engine ("TRACE") Rules and FINRA Rule 7730 relating to TRACE. The Rule became effective March 1, 2010 but many firms are still struggling to implement TRACE into their daily operating procedures.

Prior to the new Rule, most church bonds were not considered TRACE eligible since they were not being DTC registered. However, FINRA has made clear that the new rule applies, whether or not the bonds are trading through traditional brokerage channels or whether a check is being submitted to the broker-dealer and then forwarded to a trust company without passing through a traditional brokerage account. The change is due to the inclusion of primary market transactions in the new definition of TRACE eligible securities.

With most church bond broker-dealers not having formal clearing arrangements, this rule change represents either the commitment of additional personnel to manually enter transactions via the TRACE website or the commitment to a significant investment in either technology or a formal clearing arrangement to facilitate automated reporting. The timing of the reporting is also important as there is a fifteen minute window to report a trade once it has been paid. This will be another significant adjustment for firms who receive most payments via the U.S. mail rather than by wire transfer.

While this is a time of uncertainty for many firms, FINRA staff have expressed a willingness to assist the church bond industry in the transition. They have expressed a desire to better understand our business and the hardship imposed by the new rule. If you would like to be included in future conference calls and/or correspondene on this issue, please email your contact information to info@cobiacompliance.com.