[Federal Register Volume 66, Number 23 (Friday, February 2, 2001)]
[Notices]
[Pages 8822-8823]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-2817]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43894; File No. SR-NASD-01-04]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the National Association of Securities Dealers, Inc. Relating 
to Dual Reporting of Transactions in Certain Fixed Income Securities

January 26, 2001.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on January 5, 2001, the National Association of Securities Dealers, 
Inc. (``NASD'' or ``Association'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change as 
described in Items, I, II, and III below, which Items have been 
prepared by the NASD. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The NASD proposes to amend NASD Rule 6230(b) to require trade 
reports in transactions in eligible fixed income securities between two 
members to be filed with the NASD by each member. Below is the text of 
the proposed rule change. Proposed new language is underlined; proposed 
deletions are in brackets.
* * * * *

6200. TRADE REPORTING AND COMPARISON ENTRY SERVICE (TRACE)

* * * * *
6230. Transaction Reporting
    (a) No change.
    (b) Which Party Reports Transaction
    Trade data input obligations are as follows:
    (1) In transactions between two members, both members [the member 
representing the sell-side] shall submit a trade report to TRACE;
    (2) In transactions involving a member and a non-member, including 
a customer, the member shall submit a trade report to TRACE.
    (c)-(f) No change.
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the NASD included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The NASD has prepared summaries, set forth in sections 
A, B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    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),\3\ NASD is proposing 
an amendment to NASD Rule 6230(b). The proposed amendment would require 
a member to submit a trade report to the NASD if the member is either 
the buy- or the sell-side of a transaction in an eligible fixed income 
security under the Rule 6200 Series. Rules 6230(b), as approved, 
currently requires only the member who represents the sell-side to 
submit a trade report to the NASD.
    The Association is proposing the amendment to Rule 6230(b) to 
provide for reporting by both the buy- and sell-side of the transaction 
(``dual trade reporting'') in order to improve the quality of the 
transaction data for surveillance purposes. The amendment is proposed 
in lieu of previously proposed rule 6231, which the Association deleted 
from SR-NASD-99-65 when it filed Amendment No. 4 thereto.\4\ Deleted 
rule 6231 would have required that both sides to a trade submit to the 
NASD duplicate copies of the transaction information they submitted to 
their registered clearing agency for purposes of clearance and 
settlement of their trades. The Association deleted proposed rule 6231 
from the rule 6200 Series in response to industry comments. Although 
the Association deleted from SR-NASD-99-95 proposed rule 6231 based on 
industry comments that the proposed rule was overly burdensome, for 
regulatory purposes the NASD represents that it must receive reports 
from both sides of trades in eligible fixed income securities. As a 
result, the NASD is proposing to amend rules 6230(b) because the 
amended provision would provide the NASD with the information it 
believes is necessary to conduct market surveillance. In addition, the 
proposed revision to rule 6230(b) is believed to be less burdensome to 
the industry than previously proposed rule 6231 for the following 
reason. As previously structured, the TRACE rules would have required 
members to engage in two software development efforts--one to comply 
with the requirement to report sell-side information within one hour to 
the Association in rule 6230 and another to meet the requirements of 
Rule 5231 for the submission of clearing information at the close of 
business. The proposed amendment to rule 6230(b) will allow members to 
engage in one software development effort to comply with TRACE 
requirements.
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    \3\ On January 23, 2001, 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).
    \4\ The NASD filed Amendment No. 4 to SR-NASD-99-65 on January 
5, 2001.
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    Although the Association's proposal will require the dual real-time 
reporting of sell-side and buy-side trade

[[Page 8823]]

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 for regulatory 
purposes.
2. Statutory Basis
    The NASD believes 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 practice, to promote just and 
equitable principles of trade, and in general, to protect investors and 
the public interest. the NASD's proposed rule change, if approved, will 
establish additional rules for the reporting of information on eligible 
fixed income transactions that will provide the NASD, as the self-
regulatory organization designated to regulate the over-the-counter 
markets, with heightened capabilities to regulate the fixed income 
markets in order to prevent fraudulent and manipulative acts and 
practices. The proposed rule change, by requiring reporting of such 
transaction information, will protect investors and the public 
interest, by among other things, increasing transparency in the fixed 
income markets.

B. Self-Regulatory Organization's Statement on Burden on Competition

    NASD does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended. See the amended 
statement on burden on competition contained in Amendment No. 4 to SR-
NASD-99-65, which also fully applies to this current rule proposal.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    While comments were neither solicited nor received concerning this 
rule proposal, several commenters on SR-NASD-99-65 indicated that a 
dual trade reporting approach for eligible fixed income securities is 
appropriate.\5\ These comments confirmed that previously proposed rule 
6231, contained in the original TRACEE 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 Association after having sent it to the clearing entities. 
In light of these comments, the Association is proposing this rule 
change to require dual trade reporting to the Association for 
transactions of eligible fixed income securities between two members as 
a less burdensome approach.
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    \5\ 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).
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III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Association consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    The Commission invites interested persons to submit written data, 
views and arguments concerning the foregoing, including whether the 
proposed rule change is consistent with the Act. Persons making written 
submissions should file six copies thereof with the Secretary, 
Securities and Exchange Commission, 450 Fifth Street, NW., Washington, 
DC 20549-0609. Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
file with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for inspection and 
copying in the Commission's Public Reference Room. Copies of such 
filing will also be available for inspection and copying at the 
principal office of the NASD. All submissions should refer to File No. 
SR-NASD-01-04 and should be submitted by February 23, 2001.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.b
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    \b\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-2817 Filed 2-1-01; 8:45 am]
BILLING CODE 8010-01-M