On February 2, the Financial Industry Regulatory Authority (FINRA) issued a regulatory notice (Regulatory Notice 21-02) on modifications to its Trade Reporting and Compliance Engine (TRACE) dissemination protocols applicable to agency pass-through mortgage-backed securities and Small Business Administration (SBA)-backed asset-backed securities traded in specified pool transactions.
FINRA disseminates a Reference Data Identifier (RDID) for specified pool transactions. The RDID represents approximated values for underlying data elements, such as the original loan-to-value (LTV) ratio, original maturity and coupon, widely used to project cash flows and prepayment rates.
Beginning on May 17, FINRA is modifying the convention for rounding one underlying data element, the original LTV ratio, for purposes of the groupings that are represented by the RDIDs disseminated through TRACE for specified pool transactions.
LTV ratios will be segmented into eight categories between zero and 121+, and FINRA will show the LTV as the upper limit of the applicable category, as follows:
- for an LTV up to 20 percent, the LTV will be shown as 20 percent (e.g., an LTV of 12 percent will be shown as 20 percent);
- for an LTV between 21 percent and 40 percent, the LTV will be shown as 40 percent (e.g., an LTV of 21 percent will be shown as 40 percent);
- for an LTV between 41 percent and 60 percent, the LTV will be shown as 60 percent (e.g., an LTV of 60 percent will be shown as 60 percent);
- for an LTV between 61 percent and 80 percent, the LTV will be shown as 80 percent (e.g., an LTV of 70 percent will be shown as 80 percent);
- for an LTV between 81 percent and 93 percent, the LTV will be shown as 93 percent (e.g., an LTV of 90 percent will be shown as 93 percent);
- for an LTV between 94 percent and 100 percent, the LTV will be shown as 100 percent (e.g., an LTV of 100 percent will be shown as 100 percent);
- for an LTV between 101 percent and 120 percent, the LTV will be shown as 120 percent (e.g., an LTV of 105 percent will be shown as 120 percent); and
- for an LTV of 121 percent or greater, the LTV will be shown as 121+ (e.g., an LTV of 125 percent will be shown as 121+).
The amendment will become effective on May 17.