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NASD Proposes to Create a Corporate Bond Facility
Washington, DC, December 16, 1999 - The Securities and Exchange Commission has published for comment proposed rules by the National Association of Securities Dealers, Inc. (NASD) to establish a corporate bond trade reporting and transaction dissemination facility. This proposal is designed to improve corporate bond transparency and to create a database of transactions to enable regulators to take a proactive role in supervising the corporate debt market and to better detect fraud and foster investor confidence in the fairness of the corporate debt market. Simultaneously with the effectiveness of the proposed rules governing corporate bond trade reporting, the NASD will eliminate Nasdaq’s Fixed Income Pricing System.
Under the proposal, beginning in Spring 2000, NASD members would be obligated to report trades to Nasdaq’s Trade Reporting and Comparison Entry Service (TRACE) of all secondary transactions in specified U.S. corporate bonds within one hour of trade execution. After an initial six-month period, Nasdaq will disseminate trade reports to the public through market data vendors and the initial one-hour trade reporting time frame will be reduced to 15 minutes.
The NASD has proposed that corporate bond trades reported to TRACE include the following information:
- CUSIP number or NASD symbol;
- price – inclusive of mark-up, mark-down, and stated commission;
- contra-party’s NASD symbol or "C" for customer;
- date and time of trade execution; and
- capacity—principal (with riskless principal reported as principal), agent or agency cross.
Under the proposal, the following trade report information would be disseminated to market data vendors for public use: (1) NASD symbol; (2) CUSIP number; (3) date/time of execution of trade; (4) price; (5) yield; and (6) actual quantity of bonds traded.
Under the proposal, trade reporting would be mandated for the following corporate debt securities:
- U.S. dollar denominated debt securities issued by U.S. and private foreign corporations that are registered with the SEC and eligible for book-entry services at Depository Trust Company (DTC);
- Rule 144A U.S. high-yield debt securities designated as "PORTAL Debt Securities" in Nasdaq’s PORTAL Market; and
- Rule 144A investment grade debt securities eligible for book-entry services at DTC.
Bonds that would not be subject to the reporting requirements include: government securities, sovereign or development bank debt, mortgage or asset-backed securities, collateralized mortgage obligations, or money market instruments.
Comments on the NASD proposal are due to the SEC by February 8, 2000.