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NASD Amends Proposal Concerning Corporate Bond Facility
Washington, DC, December 8, 2000 - The Securities and Exchange Commission published for comment the National Association of Securities Dealers, Inc.’s amendments to its rulemaking proposal that would create a corporate bond trade reporting and transaction dissemination facility. Comments on the amended proposal are due by December 20, 2000.
The original NASD proposal, issued last year, would require NASD members to submit corporate bond trade reports to Nasdaq’s Trade Reporting and Comparison Entry Service (TRACE). TRACE would then disseminate certain transaction information to the public via data vendors. The amended proposal reflects the comments the NASD received on that proposal.
TRACE Ownership, Operation, and Governance
To address concerns expressed by commenters regarding Nasdaq’s role in the TRACE initiative, particularly that it would have an exclusive franchise over the provision of trade comparison services for corporate bond trades, the amended proposal clarifies that the NASD, and not Nasdaq, would exercise full ownership and operational control over the TRACE project, including day-to-day administration and the information collection process. Also, to provide the SEC with appropriate regulatory oversight, the NASD proposes to register with the SEC as an exclusive securities information processor (ESIP) under Section 11A of the Exchange Act. Further, the NASD would create a new committee, the Bond Transaction Reporting Committee (BTRC) that would advise the NASD Board of Governors on issues related to the operation of TRACE, including future NASD proposals to phase in dissemination and the setting of fees for dissemination of real-time TRACE data to the public. The BTRC would also review the effects on liquidity associated with disseminating fixed-income transaction information, and recommend appropriate timeframes for public dissemination of smaller, less actively traded issues.
Collection and Dissemination of Data
The amended proposal would extend the proposed six-month phase-in period for reporting corporate bond transactions to nine months, which would consist of two phases. During Phase I (a three-month period), NASD members would report all transactions in TRACE-eligible securities within one hour of trade execution. During Phase II (a six-month period), NASD members would continue to report all transactions in TRACE-eligible securities within one hour of trade execution.
Addition of a Yield Value to TRACE Trade Reports
In response to public comments, the amended proposal includes a yield requirement to TRACE trade reports, which would be determined in conformity with Rule 10b-10 under the Exchange Act. The amended proposal notes that this requirement is consistent with firms’ existing requirement to provide this information to customers as part of the transaction confirmation process.