Understanding the 48-Hour Rule

Transparency in Mortgage-Backed Securities Trading
The 48-Hour Rule

The 48-Hour Rule

Transparency in Mortgage-Backed Securities Trading

In the intricate landscape of mortgage-backed securities (MBS), the 48-hour rule stands as a beacon of transparency and fairness. Enforced by the Securities Industry and Financial Markets Association (SIFMA), this rule mandates that sellers disclose crucial information about MBS to buyers at least 48 hours before trade settlement. 

In this article, we will explore the significance of the 48-hour rule and its impact on the MBS trading process.

What exactly is the 48-Hour Rule?

The 48-hour rule is an integral part of the mortgage world. It's all about making sure everyone knows what they're getting into when buying or selling to-be-announced (TBA) mortgage-backed securities (MBS). Before 3 p.m. Eastern Time, 48 hours before the trade is settled, sellers have to tell buyers all about the pool of mortgages behind the MBS. This rule is looked after by the Securities Industry and Financial Markets Association (SIFMA), formerly known by names like the Public Securities Association or Bond Market Association. This rule helps keep things transparent and fair in the market.

When trading MBS, the specifics of the underlying mortgages may not be known, but agreements on factors like price and coupon are reached. This keeps things moving smoothly and keeps the market liquid. It's interesting to note that the TBA market, where these securities are traded, is the second most traded after the U.S. Treasury market.

Navigating the 48-Hour Rule

Mortgage-backed securities (MBS) are bonds backed by mortgage loans, where similar loans are grouped into pools and sold as securities to investors. The interest and principal payments to investors are based on the payments made by the borrowers of the underlying mortgages, with interest payments distributed monthly.

A to-be-announced (TBA) trade is essentially a contract to trade MBS on a specified date, without detailing the pool number, quantity of pools, or exact amount involved. This lack of specificity is because the TBA market operates on the assumption that MBS pools are interchangeable, facilitating trading and liquidity.

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The 48-hour rule is a crucial aspect of the mortgage allocation process, aimed at enhancing transparency in TBA trade settlements. This rule mandates that the seller of a particular MBS must disclose the mortgages comprising that MBS to the buyer at least 48 hours before the trade settlement. Typically, this disclosure occurs the day after the trade is executed, aligning with the standard T+3 settlement date.

The 48-Hour Rule within the TBA Process

The TBA process benefits both buyers and sellers. It fosters increased liquidity in the MBS market by consolidating thousands of diverse mortgage-backed securities into a handful of contracts.

Participating in TBA trades entails mutual agreement on essential parameters like issuer maturity, coupon, price, par amount, and settlement date. The specific securities involved in each trade are unveiled 48 hours prior to the settlement.

Originating in the 1970s, the TBA market was established to streamline the trading of MBS issued by Fannie Mae, Freddie Mac, and Ginnie Mae, providing mortgage lenders with a means to hedge their origination pipelines.

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The TBA market boasts the highest liquidity among secondary markets for mortgage loans, driving substantial market activity. Remarkably, the trading volume in the TBA market ranks second only to that of the U.S. Treasury market.


The 48-hour rule within the realm of mortgage-backed securities is not merely a regulatory requirement but a vital mechanism for maintaining transparency and liquidity in the market. Originating in the 1970s, it has evolved to become an integral part of the TBA trading process, facilitating smoother transactions and enhancing market efficiency.

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