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arXiv · 2607.22639

TRACE: Business Rule-Grounded Reasoning Curriculum for Knowledge-Preserving Parametric Tool Retrieval in Enterprise LLMs

Sai Shruthi Sistla·Ashutosh Hathidara·Christopher Toukmaji·Mayank Shrivastava·Karthikeyan Asokkumar
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Abstract

Parametric retrieval enables LLMs to retrieve tools implicitly by assigning each API a unique virtual token and training the model to generate it via constrained beam search. Toolsense shows that this regime has two critical drawbacks: it destroys parametric tool knowledge during training, and its beam-search decoding is too slow for real-time deployment. We introduce TRACE (Tool Retrieval via Augmented Chain-of-thought and Enterprise rules), a two-stage curriculum that resolves this dissociation. Stage 1 reuses the multi-format memorization SFT from ToolSense to seed tool knowledge with LoRA. Stage 2 is our core contribution: the model is trained to emit a thinking trace before producing a JSON list of tool tokens, using two data sources -- RRB pairs from ToolSense and queries synthesized to target business rules curated by domain experts -- both augmented with reasoning traces. This training objective preserves Stage 1 MCQ and QA probing accuracy while enabling single-beam greedy decoding at production latency. Evaluated on a combined enterprise catalog of 8,300+ tools across two enterprise product lines, TRACE training for Stage 2 not only preserves but improves tool understanding: MCQ accuracy gains +3.2 pp and QA probing gains +9 pp over Stage 1. On retrieval, TRACE achieves ~86% recall on Domain A and ~60% on Domain B -- compared to embedding baseline performance of ~27% & ~52% -- both with single-beam greedy decoding, making it directly deployable at production latency.

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Sai Shruthi Sistla, Ashutosh Hathidara, Christopher Toukmaji, Mayank Shrivastava, Karthikeyan Asokkumar. 2026-06-22. TRACE: Business Rule-Grounded Reasoning Curriculum for Knowledge-Preserving Parametric Tool Retrieval in Enterprise LLMs. https://arxiv.org/abs/2607.22639

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