[Federal Register Volume 66, Number 47 (Friday, March 9, 2001)]
[Notices]
[Pages 14234-14235]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-5795]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44039; File No. SR-NASD-01-04]


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

March 5, 2001.

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'') \1\ and Rule 19b-4 thereunder,\2\ 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.\3\ The Commission 
received no comments on the proposal. This order approves the proposed 
rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 66 FR 8822 (February 2, 2001).
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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).\4\ 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.
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    \4\ 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.
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    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.\5\ 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.\6\ 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.
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    \5\ 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).
    \6\ 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).
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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.\7\ 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.\8\
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    \7\ In approving the proposal, the Commission has considered its 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
    \8\ 15 U.S.C. 78o-3(b)(6).
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    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

[[Page 14235]]

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.\9\
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    \9\ 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.
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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.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-5795 Filed 3-8-01; 8:45 am]
BILLING CODE 8010-01-M