Securities Litigation

The Financial Industry Regulatory Authority (FINRA) announced last week that it is seeking comment on a proposal to create a new academic Trade Reporting and Compliance Engine (TRACE) data set. While academic researchers already use historic TRACE data, the data currently available to researchers does not include identifying information about dealer identities. The new data product, which would be available solely to institutions of higher education, would include masked dealer identities. FINRA's proposal, which is similar to a proposal recently made by the Municipal Securities Rulemaking Board (MSRB), has its origins in requests from academics that FINRA provide them with access to enhanced historic TRACE data that would include dealer identification. Now, in conjunction with other proposals regarding TRACE data, FINRA has proposed to create an academic TRACE data product that would include masked market participant identifiers (MPIDs). The hope is that masked MPID information would allow researchers to track and analyze dealers or groups of dealers and to observe their behaviors to better understand how certain events affect "measures such as intermediation costs, dealer participation and liquidity." In order to address the likely concern that academics would reverse engineer dealer identities, FINRA has proposed that it (a) require subscribers to agree not to reverse engineer the identity of any market participant, (b) prohibit redistribution of academic TRACE data, (c) require users to disclose their intended use of academic TRACE data, and (d) require that academic TRACE data be returned or destroyed if FINRA or a user terminates a user agreement. Even with these safeguards, it seems inevitable that there will be concerns about protecting the identities of market participants. The deadline for comments is September 14, 2015.