I. Introduction
On January 5, 2001, the National Association of Securities Dealers, Inc. (“NASD”) filed with the Securities and Exchange Commission (“Commission”) pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) and Rule 19b-4 thereunder, a proposed rule change relating to dual reporting of transactions in certain fixed income securities. The Federal Register published the proposed rule change for comment on February 2, 2001. The Commission received no comments on the proposal. This order approves the proposed rule change.
17 CFR 240.19b-4.
66 FR 8822 (February 2, 2001).
II. Description of the Proposed Rule Change
In conjunction with the Commission's approval of rules governing the NASD's Trade Reporting and Comparison Entry Service (“TRACE Rules” or “Rule 6200 Series”) (SR-NASD-99-65). NASD is proposing to amend one of the TRACE Rules, NASD Rule 6230(b). The proposed amendment requires a member to submit a trade report to the NASD if the member is either the buy- or the sell-side of a member-to-member transaction in an eligible fixed income security under the Rule 6200 Series. Rule 6230(b) currently requires only the member who represents the sell-side to submit a trade report to the NASD.
On January 23, 201, the Commission approved NASD Rules 6210 through 6260 relating to reporting and dissemination of transaction information on eligible fixed income securities, and granted accelerated approval to Amendment No. 4 to those Rules. Securities Exchange Act Release No. 43873 (January 23, 2001); 66 FR 8131 (January 29, 2001). The NASD has represented that it will rename TRACE, as it does not include a comparison feature.
The NASD is proposing the amendment to Rule 6230(b) to provide for reporting by both the buy- and sell-sides of a transaction by two NASD members (“dual trade reporting”) in order to improve the quality of the transaction data that the NASD collects for surveillance purposes. The amendment is proposed in lieu of previously proposed Rule 6231, which would have required that both sides to a trade submit to the NASD duplicate copies of the clearing reports submitted to their registered clearing agency. The NASD proposed Rule 6231 in Amendment No. 2 to SR-NASD-99-65, but withdrew it in Amendment No. 4 in response to industry comment that it was overly burdensome. Although the proposed amendment to Rule 6230(b) requires the dual real-time reporting to sell-side and buy-side trade information, only the sell-side information will be disseminated, thus avoiding the dissemination of two trade reports for the same trade. The buy-side information that is collected will be used strictly for regulatory purposes.
The NASD proposed Rule 6231 in Amendment No. 2 to SR-NASD-99-65. See Securities Exchange Act Rel. No. 43616 (November 24, 2000); 65 FR 71174 (November 29, 2000).
See note 9, infra. The MASD withdrew previously proposed Rule 6231 at the same time it amended the TRACE proposal to eliminate the proposed optional comparison feature of the TRACE facility. See Amendment No. 4 to SR-NASD-99-65, Securities Exchange Act Rel. No. 43873 (January 23, 2001); 66 FR 8131 (January 29, 2001).
III. Discussion
The Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a registered securities association. In particular, the Commission finds that the proposed rule change is consistent with the provisions of section 15A(b)(6) of the Act, which requires among other things, that the NASD's rules must be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and in general, to protect investors and the public interest.
In approving the proposal, the Commission has considered its impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
15 U.S.C. 78 o-3(b)(6).
The rule change requires both the buy- and sell-side of a transaction between two NASD members to report transaction information to the NASD. The NASD has represented that such dual trade reporting will improve the quality of the transaction data that the NASD collects for surveillance purposes. The Commission recognizes the value of crosschecking trade data submitted by one reporting dealer with information from the counterparty, and believes that the proposed amendment is an appropriate way to encourage complete and accurate transaction reporting without placing undue regulatory burdens on market participants. The Commission finds that the proposed rule change requiring dual transaction reporting will contribute to the reliability of transaction information and thereby enhance price transparency in and regulatory surveillance of the corporate bond market, which are the twin goals of the TRACE Rules. In addition, the Commission notes that several comments on previously proposed Rule 6231 indicated that dual trade reporting would require fewer programming changes.
See Letters from Noland Cheng, Chairman, Fixed Income Transparency Subcommittee of the Securities Industry Association's Operations Committee (December 20, 2000) and Messrs. William H. James, III, 1999 Chairman, Vincent Murray, 2000 Chairman, and Thomas Thees, 2001 Chairman, Corporate Bond Division, The Bond Market Association (December 20, 2000). These comments noted that previously Rule 6231, contained in the original TRACE Rules in SR-NASD-99-65, would have required member firms to engage in additional software development efforts and would have required member firms to duplicate the existing clearance data transmission and retention process by re-sending this data to the NASD after having sent it to the clearing entities.
IV. Conclusion
For the foregoing reasons, the Commission finds that the proposal to amend NASD Rule 6230(b) is consistent with the requirements of the Act and the rules and regulations thereunder.
It is Therefore Ordered, pursuant to section 19(b)(2) of the Act, that the proposed rule change (SR-NASD-01-04) is approved.
For the Commission, by the Division of Market Regulation, pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-5795 Filed 3-8-01; 8:45 am]
BILLING CODE 8010-01-M