[Federal Register Volume 68, Number 61 (Monday, March 31, 2003)]
[Notices]
[Pages 15490-15492]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-7613]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47566; File No. SR-NASD-2003-41]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. To Disseminate Up to Thirty Additional 
Corporate Bonds Under the Trade Reporting and Compliance Engine 
(``TRACE'') Rules

March 25, 2003.
    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 March 18, 2003, the National Association of Securities Dealers, Inc. 
(``NASD'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by NASD. 
NASD has designated the proposed rule change as constituting a ``non-
controversial'' rule change pursuant to section 19(b)(3)(A)(iii) of the 
Act,\3\ and Rule 19b-4(f)(6) thereunder,\4\ which renders the proposal 
effective upon filing with the Commission.\5\ 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\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
    \5\ NASD asked the Commission to waive the 30-day operative 
delay. See Rule 19b-4(f)(6)(iii). 17 CFR 240.19b-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASD is proposing to amend Rule 6250(a)(4) to increase the number 
of TRACE-eligible securities to be disseminated under the rule from 90 
securities to up to 120 securities. Below is the text of the proposed 
rule change. Proposed new language is in italics; proposed deletions 
are in brackets.
* * * * *

6250. Dissemination of Corporate Bond Trade Information

(a) General Dissemination Standard
    Immediately upon receipt of transaction reports received at or 
after 8:00 a.m. through 6:29:59 p.m. Eastern Time, NASD will 
disseminate transaction information (except that market aggregate 
information and last sale information will not be updated after 5:15 
p.m. Eastern Time) in the securities described below.
    (1) No Change.
    (2) No Change.
    (3) No Change.
    (4) Ninety to 120 TRACE-eligible securities designated by NASD that 
are rated ``Baa/BBB'' at the time of designation, according to the 
following standards.
    (A) Three groups, each composed of up to 50 [30] TRACE-eligible 
securities (Group 1, Group 2, and Group 3), but collectively not 
exceeding 120 shall be designated by NASD. At the time of designation, 
each TRACE-eligible security in Group 1 must be rated ``Baa1/BBB+[;]'' 
and each TRACE-eligible security in Group 2 and Group 3 must be rated, 
respectively, ``Baa2/BBB-[,]'' and ``Baa3/BBB-.[,]'' [provided that if] 
If a TRACE-eligible security is rated one of the ``Baa'' ratings by 
Moody's and one of the ``BBB'' ratings by S&P and the ratings indicate 
two different levels of credit quality, the lower of the two ratings 
will be used to determine the group to which a debt

[[Page 15491]]

security will be assigned under this paragraph (a)(4).
    (B) No Change.
    (C) No Change.
    (b) through (d) 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 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 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 purpose of the proposed rule change is to amend Rule 6250(a)(4) 
to increase the number of TRACE-eligible securities rated ``Baa/BBB'' 
\6\ that will be subject to dissemination from 90 bonds to up to 120 
bonds. This minor adjustment in the number of ``Baa/BBB''-rated bonds 
to be disseminated under the Trade Reporting and Compliance Engine 
(``TRACE'') rules is being proposed so that NASD may continue to 
increase transparency as appropriate, while being cognizant of the 
potential adverse effects, if any, that transparency may have on the 
liquidity of the corporate bond market.
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    \6\ Moody's Investors Service, Inc. (``Moody's'') is a 
nationally recognized statistical rating organization. Moody's is a 
registered trademark of Moody's Investors Service. Moody's ratings 
are proprietary to Moody's and are protected by copyright and other 
intellectual property laws. Moody's licenses ratings to NASD. 
Ratings may not be copied or otherwise reproduced, repackaged, 
further transmitted, transferred, disseminated, redistributed or 
resold, or stored for subsequent use for any purpose, in whole or in 
part, in any form or manner or by any means whatsoever, by any 
person without Moody's prior written consent.
    Standard & Poor's, a division of the McGraw-Hill Companies, Inc. 
(``S&P''), is a nationally recognized statistical rating 
organization. S&P's ratings are proprietary to S&P and are protected 
by copyright and other intellectual property laws. S&P licenses 
ratings to NASD. Ratings may not be copied or otherwise reproduced, 
repackaged, further transmitted, transferred, disseminated, 
redistributed or resold, or stored for subsequent use for any 
purpose, in whole or in part, in any form or manner or by any means 
whatsoever, by any person without S&P's prior written consent.
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    On July 1, 2002, when TRACE began, transaction information was 
disseminated in two types of corporate bonds: (1) TRACE-eligible 
securities having an initial issuance size of $1 billion or greater 
that are Investment Grade at the time of receipt of the transaction 
report; and (2) 50 actively traded TRACE-eligible securities that are 
Non-Investment Grade and meet other criteria set forth in Rule 
6250(a)(2). Approximately 540 corporate bonds were disseminated under 
the two categories.
    On December 6, 2002, NASD filed SR-NASD-2002-174, a proposal to 
increase substantially the dissemination of Investment Grade TRACE-
eligible securities. NASD proposed, and obtained approval from the SEC, 
to increase transparency by requiring dissemination of price and other 
transaction information in two additional categories of corporate 
bonds. They are: (1) Any TRACE-eligible security that is Investment 
Grade, is rated by Moody's as ``A3'' or higher, and by S&P's as ``A-'' 
or higher, and has an original issue size of $100 million or greater; 
and (2) ninety TRACE-eligible securities rated ``Baa/BBB'' at the time 
of designation, with the bonds being identified in three subgroups to 
represent the ``Baa/BBB'' credit spectrum (i.e., ``Baa1/BBB+,'' ``Baa2/
BBB,'' and ``Baa3/BBB-'').\7\
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    \7\ Securities Exchange Act Release No. 47302 (January 31, 
2003), 68 FR 6233 (February 6, 2003) (order approving SR-NASD-2002-
174).
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    On March 3, 2003, NASD began disseminating the TRACE-eligible 
securities rated ``A3/A-'' or higher and with original issue size of 
100 million or greater, which increased the number of bonds subject to 
dissemination to over 4,000 corporate bonds.\8\ However, NASD withheld 
the dissemination of ninety bonds rated ``Baa/BBB'' to provide time to 
assure that the bonds designated for dissemination were appropriately 
diverse and representative of the ``Baa/BBB''-rated group. During the 
bond identification process, NASD, based on guidance from independent 
economists, determined that the database of disseminated transaction 
data on ``triple-B-rated bonds'' should be increased to include 
transaction information on up to 120 TRACE-eligible securities to 
increase transparency in a sufficient number of ``Baa/BBB'' bonds to 
improve significantly the quality of the data to be collected. The 
increased transparency will provide a better foundation for determining 
the effect, if any, of transparency on liquidity.
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    \8\ See NASD Notice to Members 03-12 (February 2003).
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2. Statutory Basis
    NASD believes that the proposed rule change is consistent with the 
provisions of section 15A(b)(6) of the Act,\9\ which requires, among 
other things, that 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. NASD believes that the proposed rule change requiring 
the dissemination of up to 30 additional ``Baa/BBB''-rated TRACE-
eligible securities will protect investors and the public interest by 
increasing transparency in the debt securities markets and serving as 
an appropriately designed database to aid NASD in determining if 
transparency has an adverse effect on the liquidity of the bond market.
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    \9\ 15 U.S.C. 78o-3(b)(6).
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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.

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

    Written comments on this proposed rule change were neither 
solicited nor received. However, written comments were solicited 
concerning the dissemination of a representative group of bonds rated 
``Baa/BBB'' with the publication for notice and comment of SR-NASD-
2002-174, and two comment letters were received. NASD represents that 
these two comment letters generally favored the NASD's proposed rule 
change.\10\ After considering the comments, the SEC approved SR-NASD-
2002-174 on January 31, 2003.\11\ NASD represents that its proposal in 
this rule filing is a minor, non-controversial proposed change to the 
provision in Rule 6250(a)(4) providing for the dissemination of TRACE-
eligible securities rated ``Baa/BBB.''
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    \10\ Securities Exchange Act Release No. 47057 (December 19, 
2002), 67 FR 79210 (December 27, 2002) (notice of filing of and 
request for comment on SR-NASD-2002-174).
    \11\ See note 7, supra.
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III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the proposed rule change: (i) Does not significantly affect 
the protection of investors or the public

[[Page 15492]]

interest; (ii) does not impose any significant burden on competition; 
and (iii) does not become operative for 30 days (or such shorter time 
as the Commission may designate if consistent with the protection of 
investors and the public interest) from the date on which it was filed, 
the proposed rule change has become effective pursuant to section 
19(b)(3)(A) of the Act \12\ and Rule 19b-4(f)(6) thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative prior to 30 days after the date of the filing. 
However, Rule 19b-4(f)(6)(iii) permits the Commission to designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest; provided that the self-regulatory 
organization has given the Commission written notice of its intent to 
file the proposed rule change, along with a brief description and text 
of the proposed rule change, at least five business days prior to the 
date of filing of the proposed rule change, or such shorter time as 
designated by the Commission. NASD has requested that the Commission 
waive the 30-day operative delay, as specified in Rule 19b-
4(f)(6)(iii),\14\ because (1) the public interest is furthered and the 
protection of investors is enhanced by increasing transparency in the 
``Baa/BBB''-rated segment of the corporate bond market; (2) NASD 
briefly deferred the dissemination of ``Baa/BBB''-rated TRACE-eligible 
securities in order to designate a representative group of such 
securities; and (3) for the convenience of investors, broker-dealers, 
other market participants, and NASD, NASD will initiate the 
dissemination of all the ``Baa/BBB''-rated corporate bonds approved for 
dissemination on the same date, which will occur as soon as possible 
after the filing of this rule filing. The Commission believes that 
waiving the 30-day operative delay is consistent with the protection of 
investors and the public interest. Acceleration of the operative date 
will permit NASD to expand dissemination of ``Baa/BBB''-rated corporate 
bonds immediately. For these reasons, the Commission designates the 
proposal to be effective and operative upon filing with the 
Commission.\15\
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    \14\ 17 CFR 240.19b-4(f)(6)(iii).
    \15\ For purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate such rule change 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 purposes of the Act.\16\
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    \16\ See section 19(b)(3)(C) of the Act, 15 U.S.C. 78s(b)(3)(C).
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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 proposal 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 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 NASD. All submissions 
should refer to file number SR-NASD-2003-41 and should be submitted by 
April 21, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 03-7613 Filed 3-28-03; 8:45 am]
BILLING CODE 8010-01-P