[Federal Register Volume 68, Number 122 (Wednesday, June 25, 2003)]
[Notices]
[Pages 37886-37887]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-15974]



[[Page 37886]]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48056; File No. SR-NASD-2003-78]


Self-Regulatory Organizations; Order Granting Accelerated 
Approval To Proposed Rule Change by the National Association of 
Securities Dealers, Inc. To Amend Rule 6230 To Reduce TRACE Reporting 
Period

June 18, 2003.

I. Introduction

    On May 2, 2003, the National Association of Securities Dealers, 
Inc. (``NASD'') filed with the Securities and Exchange Commission 
(``SEC'' or ``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 to amend Rule 6230 to reduce the 
Trade Reporting and Compliance Engine (``TRACE'') reporting period from 
75 minutes to 45 minutes. Notice of the proposed rule change was 
published for comment in the Federal Register on May 20, 2003.\3\ The 
Commission received one comment letter regarding the proposal.\4\ This 
order grants accelerated approval to the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 47856 (May 14, 2003), 68 
FR 27605.
    \4\ See letter from Michele C. David, Vice President and 
Assistant General Counsel. The Bond Market Association (``TBMA''), 
to Jonathan G. Katz, Secretary, Commission, dated June 10, 2003 
(``TBMA's Letter''). TBMA's Letter is described in Section IV, 
infra.
---------------------------------------------------------------------------

II. Background

    On January 23, 2001, the Commission approved the TRACE Rules to 
establish a corporate bond trade reporting and transaction 
dissemination facility and to eliminate Nasdaq's Fixed Income Pricing 
System (``FIPS'').\5\ Subsequently, on March 5, 2001, the Commission 
approved amendments to the TRACE Rules requiring trade reports in 
transactions between two NASD members to be filed by each member.\6\ In 
addition, on January 3, 2002, the Commission issued a notice stating 
that certain other amendments to the TRACE Rules had become effective 
on filing.\7\ On June 28, 2002, the Commission approved a proposed rule 
change to establish fees for the use of TRACE on a pilot basis for six 
months,\8\ and also approved proposed amendments to the TRACE Rules to 
make technical changes to the TRACE Rules and clarify certain 
provisions of those Rules prior to implementation of TRACE.\9\
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 43873 (January 23, 
2001), 66 FR 8131 (January 29, 2001), (File No. SR-NASD-1999-65). 
FIPS, which was operated by Nasdaq, collected transaction and 
quotation information on domestic, registered, non-convertible high-
yield corporate bonds.
    \6\ See Securities Exchange Act Release No. 44039 (March 5, 
2001), 66 FR 14234 (March 9, 2001) (File No. SR-NASD-2001-04).
    \7\ See Securities Exchange Act Release No. 45229 (January 3, 
2002), 67 FR 1255 (January 9, 2002) (File No. SR-NASD-2001-91).
    \8\ See Securities Exchange Act Release No. 46145 (June 28, 
2002), 67 FR 44911 (July 5, 2002) (File No. SR-NASD-2002-63).
    \9\ See Securities Exchange Act Release No. 46144 (June 28, 
2002), 67 FR 44907 (July 5, 2002) (File No. SR-NASD-2002-46).
---------------------------------------------------------------------------

    The TRACE Rules became effective on July 1, 2002. On that day, 
members began to report transactions in TRACE-eligible securities, and 
the TRACE system began the dissemination of certain reported 
information. On November 22, 2002, the Commission issued a notice 
stating that NASD was reducing certain TRACE fees for the fourth 
quarter of 2002.\10\ On December 19, 2002, the Commission issued a 
notice stating that an extension of the pilot program for TRACE fees to 
February 28, 2003 and a modification of the pilot effective January 1, 
2003 had become effective on filing.\11\
---------------------------------------------------------------------------

    \10\ See Securities Exchange Act Release No. 46893 (November 22, 
2002), 67 FR 72008 (December 3, 2002) (SR-NASD-2002-167).
    \11\ See Securities Exchange Act Release No. 47056 (December 19, 
2002), 67 FR 79205 (December 27, 2002) (File No. SR-NASD-2002-176).
---------------------------------------------------------------------------

    On January 31, 2003, the Commission approved a proposed rule change 
relating to increasing dissemination of debt securities transaction 
information under the TRACE rules.\12\ On March 4, 2003, the Commission 
issued a notice stating that another extension of the pilot program for 
TRACE fees to June 30, 2003 and a modification of the pilot had become 
effective on filing.\13\ On March 25, 2003, the Commission issued a 
notice of filing and immediate effectiveness of a proposed rule change 
by NASD to disseminate up to thirty additional corporate bonds under 
the TRACE rules.\14\
---------------------------------------------------------------------------

    \12\ See Securities Exchange Act Release No. 47302 (January 31, 
2003), 68 FR 6233 (February 6, 2003) (File NO. SR-NASD-2002-174).
    \13\ See Securities Exchange Act Release No. 47444 (March 4, 
2003), 68 FR 11602 (March 11, 2003), (File No. SR-NASD-2003-25).
    \14\ See Securities Exchange Act Release No. 47566 (March 25, 
2003), 68 FR 15490 (March 31, 2003) (File No. SR-NASD-2003-41).
---------------------------------------------------------------------------

III. Description of the Proposal

    NASD Rule 6230(a) currently requires a member that is a party to a 
transaction in a TRACE-eligible security to report the transaction 
information to TRACE within 75 minutes of the time of execution.\15\
---------------------------------------------------------------------------

    \15\ Limited exceptions to the general requirement are stated in 
Rule 6230(a)(1) through (4), which provide for reporting a 
transaction the next business day that the TRACE system is open in 
certain circumstances. Specifically, in Rule 6230(a)(1), a member 
currently may elect to report a transaction the next business day 
that the TRACE system is open at any time within 75 minutes after 
the TRACE system opens, if the member executed the trade the prior 
business day less than 75 minutes before the TRACE system closed. 
(Currently, on a business day, the TRACE system is open from 8 a.m. 
Eastern Time to 6:30 p.m. Eastern Time to receive reports.) In Rule 
6230(a)(2) through (4), members are directed how to report trades 
that occur (1) after TRACE system hours, (2) before TRACE system 
hours, or (3) on a weekend or a holiday. In each case, the member 
must report the transaction the next business day that the TRACE 
system is open within 75 minutes of the opening.
---------------------------------------------------------------------------

    NASD is proposing to reduce the period to report from 75 minutes to 
45 minutes. In new Rule 6230(a), the general requirement to report 
transaction information within 75 minutes of the time of execution is 
restated as 45 minutes. In addition, NASD is proposing to amend the 
next-day reporting exceptions in Rules 6230(a)(1) through (4) to 
require that the report be filed within 45 minutes of the time the 
TRACE system opens instead of the current 75 minutes. These amendments 
would go into effect October 1, 2003. The proposal is discussed in 
greater detail in the Commission's notice soliciting public comment on 
the proposal.\16\
---------------------------------------------------------------------------

    \16\ See supra, note 3.
---------------------------------------------------------------------------

IV. Discussion

    After careful consideration, the Commission finds that the proposed 
rule change is consistent with the Act and the rules and regulations 
promulgated thereunder applicable to a registered securities 
association and, in particular, with the requirements of section 
15A(b)(6) of the Act.\17\ Specifically, the Commission finds that 
approval of the proposed rule change is consistent with section 
15A(b)(6) of the Act in that it is 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.\18\
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78o-3(b)(6).
    \18\ In approving this proposed rule change, the Commission has 
considered the proposal's impact on efficiency, competition, and 
capital formation. 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    The Commission believes that reducing the reporting period from 75 
minutes to 45 minutes would result in important trade information 
reaching the market in a timelier manner, thus improving price 
transparency under TRACE. The Commission also believes that the 
proposed rule change will

[[Page 37887]]

provide regulators with heightened capabilities to regulate and provide 
surveillance of the debt securities markets to prevent fraudulent and 
manipulative acts and practices. In addition, the Commission believes 
that this reduction is an important step in achieving the ultimate goal 
of reducing the reporting period to 15 minutes after the industry 
acquires greater experience with reporting.\19\
---------------------------------------------------------------------------

    \19\ See Securities Exchange Act Release No. 43873 (January 23, 
2001), 66 FR 8131 (January 29, 2001) (File No. SR-NASD-1999-65).
---------------------------------------------------------------------------

    As previously noted, the Commission received one comment letter 
from TBMA on the proposed rule change.\20\ TBMA strongly supports the 
proposal because they believe it will provide timelier and therefore 
more useful trade information to investors and other market 
participants that will support and increase the efficiency of the 
markets for the bonds that are subject to the transparency 
requirements. TBMA's Letter also noted that they support further 
efforts to enhance the timeliness of trade reports contingent on 
further efforts to develop reporting mechanisms that make such efforts 
feasible. The Commission supports NASD's goals for increasing 
timeliness of trade reporting and believes that setting goals may 
provide incentive for market participants to enhance reporting 
mechanisms if necessary to facilitate those goals. The Commission 
believes the current reduction `` from 75 minutes to 45 minutes--is an 
important step toward achieving the NASD's goal of 15-minute reporting.
---------------------------------------------------------------------------

    \20\ See supra, note 4.
---------------------------------------------------------------------------

    TBMA's Letter also stated that it should be clear that narrowing 
the time requirements for reporting trade information does not 
presuppose that all information reported should be disseminated, or 
that all information that is disseminated should be disseminated on a 
``real-time'' basis. The Commission agrees that the reduction in the 
reporting interval in this proposal does not presuppose real-time 
dissemination of reported transaction information on all corporate 
bonds. The issues of further reductions in reporting intervals and 
expanded dissemination are expected to be addressed in the context of 
future filings with the Commission, but those issues are not before the 
Commission at this time.
    Accordingly, the Commission finds good cause, pursuant to section 
19(b)(2) of the Act,\21\ for approving the proposed rule change prior 
to the thirtieth day after the date of publication of notice thereof in 
the Federal Register. The Commission believes that granting accelerated 
approval will allow member firms to receive prior notification, by 
several months, of the deadline to implement the reduced reporting 
period on October 1, 2003.
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

V. Conclusion

    For the reasons discussed above, the Commission finds that the 
proposal is consistent with the Act and the rules and regulations 
thereunder.
    It is therefore ordered, pursuant to section 19(b)(2) of the Act 
\22\, that the proposed rule change (SR-NASD-2003-78), be, and hereby 
is, approved.
---------------------------------------------------------------------------

    \22\ Id.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\23\
---------------------------------------------------------------------------

    \23\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-15974 Filed 6-24-03; 8:45 am]
BILLING CODE 8010-01-P