[Federal Register Volume 68, Number 130 (Tuesday, July 8, 2003)]
[Notices]
[Pages 40727-40729]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-17143]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48113; File No. SR-NASD-2003-99]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the National Association of Securities Dealers, Inc. Relating 
to Proposed Amendment to Rule 6260 Regarding New Issue Notification 
Procedures for TRACE-Eligible Securities

June 30, 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 June 19, 2003, the National Association of Securities Dealers, Inc. 
(``NASD'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission'') the proposed rule change as described in Items I, 
II, and III below, which Items have been prepared by 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

    NASD is proposing to amend Rule 6260(a) and (b) to require members 
to provide additional, descriptive information in the notice that is 
sent to NASD and identifies the basic terms of a new TRACE-eligible 
security (``new issue notification''), and to provide the information 
required in Rule 6250(b) by e-mail or facsimile. Rule 6260 is one of 
the Trade Reporting and Compliance Engine (``TRACE'') rules. Below is 
the text of the proposed rule change. Proposed new language is in 
italics; proposed deletions are in brackets.
* * * * *
6200. Trade Reporting and Compliance Engine (TRACE)
6260. Managing Underwriter Obligation To Obtain CUSIP
    (a) In order to facilitate trade reporting and dissemination of 
secondary transactions in TRACE-eligible securities, the member that is 
the

[[Page 40728]]

managing underwriter of any newly issued TRACE-eligible security must 
obtain and provide information by e-mail or facsimile to the TRACE 
Operations Center as required under paragraph (b). If a managing 
underwriter is not appointed, the group of underwriters must comply 
with paragraph (b).
    (b) For such TRACE-eligible securities, the managing underwriter 
must provide to the TRACE Operations Center, by email or facsimile: (1) 
the CUSIP number; (2) the issuer name; (3) the coupon rate; (4) the 
maturity; (5) whether Rule 144A applies; [and](6) a brief description 
of the issue (e.g., senior subordinated note, senior note)[,]; and, (7) 
information, as determined by NASD, that is required to determine if a 
TRACE-eligible security must be disseminated under Rule 6250 (e.g., 
size of issue and rating), or if any of items (2) through (7)[(6)] has 
not been determined, such other information as NASD deems necessary. 
The managing underwriter must obtain the CUSIP number and provide it 
and the information listed as (2) through (7)[(6)] not later than 5 
p.m. on the business day preceding the day that the registration 
statement becomes effective, or, if registration is not required, the 
day before the securities will be priced. If an issuer notifies a 
managing underwriter, or the issuer and the managing underwriter 
determine, that the TRACE-eligible securities of the issuer shall be 
priced, offered and sold the same business day in an intra-day offering 
under Rule 415 of the Securities Act of 1933 or Rule 144A of the 
Securities Act of 1933, the managing underwriter shall provide the 
information not later than 5 p.m. on the day that the securities are 
priced and offered, provided that if such securities are priced and 
offered on or after 5 p.m., the managing underwriter shall provide the 
information not later than 5 p.m. on the next business day. The 
managing underwriter must make a good faith determination that the 
security is a TRACE-eligible security before submitting the information 
to the TRACE Operations Center.
* * * * *

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
    NASD Rule 6260 currently requires a member that is the managing 
underwriter of the initial offering of a TRACE-eligible security to 
notify NASD and provide certain descriptive information about the 
security at the time of the initial offering of the security (``new 
issue notification''). Specifically, Rule 6260(b) currently requires 
that the new issue notification include: (a) The CUSIP number; (2) the 
issuer name; (3) the coupon rate; (4) the maturity; (5) whether Rule 
144A applies; and (6) a brief description of the issue (e.g., a senior 
subordinated note, a senior note). In addition, the rule provides, if 
such information has not been determined, the member must provide such 
other information as NASD deems necessary. The purpose of Rule 6260 is 
to require members that are acting in a capacity of managing 
underwriter or are otherwise designated in the course of an offering of 
a TRACE-eligible security to notify NASD by certain times set forth in 
the rule so that the TRACE system is able to capture, and, when 
applicable, disseminate transaction information as soon as secondary 
trading begins.
    NASD is proposing to amend Rule 6260(a) and (b) to explicitly 
require that members provide information relating to dissemination 
eligibility in the new issue notification. The additional information 
to be required is the information needed to determine if a new TRACE-
eligible security is subject to dissemination.
    The current ``phasing-in'' of dissemination was developed in 
response to industry concerns that dissemination might adversely affect 
the bond markets.\3\ Certain market participants urged that 
dissemination occur over time, by phasing in the requirement for 
specifically defined groups of securities with certain characteristics. 
To properly administer dissemination, NASD must obtain and assess 
information about a TRACE-eligible security to determine if 
dissemination is required under Rule 6250 at the same time that NASD 
obtains identifying information about a new TRACE-eligible security to 
properly and timely enter the security into the TRACE system.
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    \3\ See Securities Exchange Act Release No. 43873 (January 23, 
2001), 66 FR 8131, 8133-8135, 8141-8142 (January 29, 2001) (order 
approving SR-NASD-99-65).
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    The proposed additional information requirements in Rule 6260 are 
directly related to the increasing complexity of the dissemination 
requirements in effect and anticipated under Rule 6250.\4\ Recently, 
the SEC approved amendments to Rule 6250 that established additional 
criteria for determining dissemination.\5\ NASD must review the 
additional criteria, such as the original issue size and the ratings of 
a new TRACE-eligible security, to determine if the transaction 
information for a security must be disseminated under Rule 6250.\6\ 
This information is

[[Page 40729]]

readily available to members responsible for compliance with Rule 6260 
in a particular offering, and members would be able to provide this 
additional information as part of the Rule 6260 compliance process with 
little difficulty. Moreover, in the future, NASD may propose additional 
standards for dissemination to the SEC under Rule 6250. If additional 
standards are proposed and adopted, NASD would be required to identify 
and analyze additional characteristics of a security to determine if 
the security is subject to dissemination immediately before trading 
begins. The proposed amendment to Rule 6260(b), as drafted, will allow 
NASD to require members to submit the descriptive information that is 
then relevant in making a dissemination determination under Rule 6250.
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    \4\ On July 1, 2002, when TRACE began, under Rule 6250, NASD was 
required to disseminate transaction information on only two 
categories of TRACE-eligible securities: (1) Investment Grade 
securities having an initial issuance size of $1 billion or greater; 
and (2) 50 Non-Investment Grade securities designated by NASD 
according to a variety of criteria set forth in the Rule. See Rule 
6250(a)(1) and (2), respectively.
    \5\ On January 31, 2003, the SEC approved amendments to Rule 
6250, requiring NASD to disseminate transaction information on two 
additional categories of debt securities. Under new paragraph (a)(3) 
of Rule 6250, NASD disseminates transaction information on any 
TRACE-eligible security that is Investment Grade, is rated by 
Moody's Investors Service, Inc. as ``A3'' or higher, and by Standard 
& Poor's, a division of McGraw Hill Co., Inc. as ``A-'' or higher, 
and has an original issue size of $100 million or greater. Under new 
paragraph (a)(4), NASD disseminates transaction information on 
approximately 120 TRACE-eligible securities designated by NASD that 
are rated ``Baa/BBB'' at the time of designation. See Securities 
Exchange Act Release No. 47302 (January 31, 2003), 68 FR 6233 
(February 6, 2003) (order approving SR-NASD-2002-174), and 
Securities Exchange Act Release No. 47566 (March 25, 2003), 68 FR 
15490 (March 31, 2003) (notice of filing and immediate effectiveness 
of SR-NASD-2003-41).
    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.
    \6\ For example, to administer the current dissemination 
provisions of Rule 6250, when a member provides NASD a new issue 
notification, generally NASD would expect the member to include both 
the original issue size of the offering and the rating of the 
security.
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    NASD is also proposing that the new issue notification be submitted 
via email or facsimile to NASD. Currently, many members e-mail the new 
issue notification to NASD. Some members have provided the new issue 
notification by telephone. Members that provide the new issue 
notification by telephone would be required to provide it by email or a 
facsimile in order to comply with the proposed amendment.
2. Statutory Basis
    NASD believes that the proposed rule change is consistent with the 
provisions of section 15A(b)(6) of the Act,\7\ 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, if 
approved, will enhance transparency in the debt securities markets and 
will provide NASD, as the self-regulatory organization designated to 
regulate the over-the-counter markets, with heightened capabilities to 
regulate and provide surveillance of the debt securities markets to 
prevent fraudulent and manipulative acts and practices for the 
protection of investors and the public interest.
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    \7\ 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 were neither solicited nor received.

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 self-regulatory organization 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

    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 20549-0609. 
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-2003-99 and should 
be submitted by July 29, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-17143 Filed 7-7-03; 8:45 am]
BILLING CODE 8010-01-P