[Federal Register Volume 67, Number 6 (Wednesday, January 9, 2002)]
[Notices]
[Pages 1255-1256]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-523]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45229; File No. SR-NASD-2001-91]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by National Association of 
Securities Dealers, Inc. Relating to Establishing Effective Date of 
Rules Requiring Debt Securities Reporting and Dissemination (TRACE 
Rules)

January 3, 2002.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on December 13, 2001, the National Association of Securities 
Dealers, Inc. (``NASD'' or ``Association''), through its wholly-owned 
subsidiary, NASD Regulation, Inc. (``NASD Regulation''), 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 NASD Regulation. NASD Regulation has designated the 
proposed rule change as constituting a stated policy, practice, or 
interpretation with respect to the meaning, administration, or 
enforcement of an existing rule series under paragraph (f)(1) of Rule 
19b-4 under the Act.\3\ 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.
    \3\ 17 CFR 240.19b-4(f)(1).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    NASD Regulation is filing a proposed rule change to establish July 
1, 2002 as the effective date for the new Rule 6200 Series (``TRACE 
Rules''). The TRACE Rules, when effective, will require NASD members to 
report secondary market transactions in eligible debt securities to the 
NASD and will subject certain transaction information to dissemination. 
The NASD also is proposing to replace the term, ``Trade Reporting and 
Comparison Entry Service'' with ``Trade Reporting and Compliance 
Engine.'' This change preserves the ``TRACE'' acronym, by which the 
system is commonly known, while more accurately describing the 
functions of the TRACE system.\4\
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    \4\ The SEC approved the Rule 6200 Series on January 23, 2001. 
See Securities Exchange Act Release No. 43873 (January 23, 2001); 66 
FR 8131 (January 29, 2001) (SR-NASD-99-65) (``TRACE Approval 
Order'').
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    Below is the text of the proposed rule change. Proposed new 
language is italicized; proposed deletions are [bracketed].
* * * * *
6200. Trade Reporting and Compliance Engine (Trace) [Trade Reporting 
and Comparison Entry Service (Trace)]
6210. Definitions
    The terms used in this Rule 6200 Series shall have the same meaning 
as those defined in the Association's By-Laws and Rules unless 
otherwise specified.
    (a) No change.
    (b) The term ``Trade Reporting and Compliance Engine'' [``Trade 
Reporting And Comparison Entry Service''] or ``TRACE'' shall mean the 
automated system owned and operated by the NASD that, among other 
things, accommodates reporting and dissemination of transaction reports 
where applicable in TRACE-eligible securities and which may submit 
``locked-in'' trades to National Securities Clearing Corporation for 
clearance and settlement and provide participants with monitoring and 
risk management capabilities to facilitate a ``locked-in'' trading 
environment.
    (c) through (i). 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, NASD Regulation 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. NASD Regulation 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
    The NASD is filing the proposed rule change to establish July 1, 
2002 as the effective date of the TRACE Rules and to substitute the 
term, ``Trade Reporting and Compliance Engine,'' within the rules for 
the term, ``Trade Reporting and Comparison Entry Service,'' as 
discussed in greater detail below.
    a. Effective Date. The NASD is filing the proposed rule change to 
establish July 1, 2002 as the effective date of the

[[Page 1256]]

TRACE Rules. The TRACE Rules, when effective, will require NASD members 
to report secondary market transactions in eligible debt securities to 
the NASD and will subject certain transaction information to 
dissemination.
    In the TRACE Approval Order, the Commission stated that the 
effective date of the TRACE Rules should be 180 days after the date 
that the NASD provided technical specifications concerning TRACE to 
members to allow members to make the system changes necessary to comply 
with TRACE.\5\ On June 1, 2001, the NASD published technical 
specifications.\6\ Subsequently, the NASD targeted the first day of 
reporting under the TRACE system as February 4, 2002,\7\ which was the 
time the NASD estimated was needed to complete development of the 
system, provide members and vendors time to implement the 
specifications published on June 1, 2001, and avoid the implementation 
of an industry-wide regulatory program during a major holiday.
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    \5\ See Amendment No. 4 to SR-NASD-99-65, dated January 5, 2001, 
p. 4.
    \6\ See NASD Regulation web site at http://www.nasdr.com/trace.htm.
    \7\ The NASD clarified the timing of its targeting of the 
February 4, 2002 date in a telephone conversation between Sharon K. 
Zackula, Assistant General Counsel, NASD Regulation and Gordon 
Fuller, Counsel to the Assistant Director, Division of Market 
Regulation, Commission (January 3, 2002).
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    The NASD represents that, since the September 11, 2001 terrorist 
attacks, it has worked with its members to help the securities industry 
recover from the attacks. As part of this process, the NASD is delaying 
the TRACE implementation date to allow its members the time they need 
to re-establish, to the extent possible, normal business operations. 
The NASD determined that the original February 2002 implementation date 
would have been a hardship on the industry in its efforts to recover 
from September 11. Accordingly, the NASD is proposing to implement the 
TRACE system, including the TRACE Rules, on July 1, 2002.
    b. Renaming the Initiative. At the same time, the NASD proposes to 
substitute a new term, ``Trade Reporting and Compliance Engine,'' for 
the term used for the TRACE system and related rules approved by the 
SEC on January 23, 2001. The current term, ``Trading Reporting and 
Comparison Entry Service,'' was developed when the NASD proposed to 
provide comparison services as part of the TRACE initiative. In the 
TRACE Approval Order, the Commission noted that the NASD intended to 
rename the system and the related rules.\8\ By substituting the new 
term, ``Trade Reporting and Compliance Engine,'' the NASD is able to 
eliminate the reference to the comparison function, which will no 
longer be part of TRACE, while preserving the acronym, ``TRACE,'' which 
is currently in widespread use.
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    \8\ TRACE Approval Order, 66 FR 8131, 8132, n. 11.
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(b) Statutory Basis
    NASD Regulation 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 Association'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. The NASD's proposed rule 
change, if approved, will implement existing rules for the reporting 
and dissemination of information on eligible debt securities 
transactions. NASD believes that the proposed rule change will provide 
the NASD, as the self-regulatory organization designated to regulate 
the over-the-counter markets, with heightened capabilities to regulate 
the debt securities markets to prevent fraudulent and manipulative acts 
and practices; and that the proposed rule change, by requiring 
reporting and dissemination of such transaction information, will 
protect investors and the public interest by, among other things, 
increasing transparency in the debt securities markets.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    NASD Regulation 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.

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

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    The proposed rule change has been filed by the Association as a 
stated policy, practice, or interpretation with respect to the meaning, 
administration, or enforcement of an existing rule series under Rule 
19b-4(f)(1) under the Act.\9\ It has become effective pursuant to 
Section 19(b)(3)(A) of the Act and Rule 19b-4(f)(1) thereunder.
    At any time within 60 days of this filing, the Commission may 
summarily abrogate this proposal if it appears to the Commission that 
such action is necessary or appropriate in the public interest, for the 
protection of investors, or otherwise in furtherance of the purpose of 
the Act.
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    \9\ 17 CFR 240.19b-4(f)(1).
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IV. Solicitation of Comments

    Interested persons are invited 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. Copies 
of the submission, all subsequent amendments, all written statements 
with respect to the proposed rule change that are filed 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-2001-91 and 
should be submitted by January 30, 2002.
    For the Commission, by the Division of Market Regulation, pursuant 
to delegated authority.\10\
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    \10\ 17 CFR 200.30-(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-523 Filed 1-8-02; 8:45 am]
BILLING CODE 8010-01-M