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July 10, 2020

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July 09, 2020

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Proposed Changes to Financial Industry Regulatory Authority (FINRA) Classification of Hybrid Securities for Trade Reporting Purposes

On March 26, the comment period ended for a Financial Industry Regulatory Authority, Inc. proposed rule change to adopt an interpretation to clarify the classification of a hybrid security with both debt- and equity-like features for trade reporting purposes. Generally, under FINRA Rule 6622, over-the-counter (OTC) transactions in “OTC Equity Securities” must be reported to the OTC Reporting Facility (ORF), while FINRA Rule 6700 Series requires that transactions in “TRACE-Eligible Securities” be reported to the Trade Reporting and Compliance Engine (TRACE). FINRA proposed including depositary shares in OTC Equity Securities and including capital trust securities and trust preferred securities not listed on a national securities exchange in TRACE-Eligible Securities. In response to a Securities Industry and Financial Markets Association (SIFMA) comment letter, FINRA amended the rule to include depositary shares or preferred securities with a liquidation preference of $1,000 or more and not listed on a national security exchange in TRACE‑Eligible Securities and not in OTC Equity Securities. The proposed changes do not change the text of the rule. 

 

The original Federal Register notice is available here

The Federal Register notice of the amendment is available here.

 

©2020 Katten Muchin Rosenman LLPNational Law Review, Volume IV, Number 87

TRENDING LEGAL ANALYSIS


About this Author

Henry Bregstein, Katten Muchin Law Firm, Financial Institutions Legal Specialist
Partner

Henry Bregstein is the global co-chair of the firm’s Financial Services practice and a member of the firm’s Executive Committee and Board of Directors. In his role as partner in the Financial Services practice, he advises banks, domestic and offshore hedge funds, private equity funds, life insurance companies, family offices, sovereign wealth funds, investment advisers and broker-dealers on regulatory, securities, tax, finance, licensing, corporate and other legal matters.

Henry provides guidance on fund formation and regulatory compliance and advice related to...

212-940-6615
Wendy E. Cohen, Financial Services Lawyer, Katten Muchin Law firm
Partner

Wendy E. Cohen represents investment managers and other sponsors of domestic and offshore securities and commodities hedge funds, funds of funds and other public and private pooled investment vehicles, as well as their service providers, including their managers, brokers, financial intermediaries and other financial institutions, and investment professionals. She provides advice on all corporate and related matters facing investment funds, including structure and organization, ongoing operations, restructuring and dissolution.

Having practiced for...

212-940-3846
Guy Dempsey Jr., Bank Regulations Legal Specialist, Katten Muchin
Partner

Guy C. Dempsey Jr. concentrates his practice on derivatives and structured products and on bank regulation. He advises clients on derivatives transactions of all types across all asset classes, as well as on the corporate governance, regulatory, collateral, compliance, insolvency and litigation issues associated with such products.

Much of Guy’s work involves helping bank and non-bank clients analyze the details and impact of the Dodd-Frank Act. He maintains deep knowledge of the banking laws and regulations relating to capital markets activities....

212-940-8593
Kevin M. Foley, Finance Lawyer, Katten Llaw Firm
Partner

Kevin M. Foley has extensive experience in commodities law and advises a wide range of clients, both in the United States and abroad, on compliance with the Commodity Exchange Act and the rules of the Commodity Futures Trading Commission (CFTC) affecting traditional exchange-traded products, as well as the over-the-counter markets involving swaps and other derivative instruments. His clients include futures commission merchants, derivatives clearing organizations, designated contract markets, foreign boards of trade and an industry trade association.

...

312-902-5372