[Federal Register Volume 68, Number 245 (Monday, December 22, 2003)]
[Notices]
[Pages 71207-71209]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-31451]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48926; File No. SR-NASD-2003-182]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the National Association of Securities Dealers, Inc. Relating 
to Proposed Amendments to ``TRACE-Eligible Security'' and an Exemption 
to Trade Reporting

December 15, 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 December 5, 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: (1) Amend Rule 6210(a) to clarify certain 
terms used in the definition, ``TRACE-eligible security''; (2) amend 
NASD Rule 6230(e)(2) to expand the trade reporting exemption to 
qualifying transactions in any TRACE-eligible security that is listed 
and quoted on the Nasdaq Stock Market, Inc. (``Nasdaq''); and (3) make 
conforming amendments to the defined term, ``reportable TRACE 
transaction,'' in Rule 6210(c). Rules 6210 and 6230 are part 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)

6210. Definitions

    The terms used in this Rule 6200 Series shall have the same meaning 
as those defined in NASD's By-Laws and Rules unless otherwise 
specified.
    (a) The term ``TRACE-eligible security'' shall mean all United 
States dollar denominated debt securities that are depository eligible 
securities under Rule 11310(d); Investment Grade or Non-Investment 
Grade; issued by United States and/or foreign private issuers 
[corporations]; and: (1) registered under the Securities Act of 1933 
[with the Securities and Exchange Commission] or (2) issued pursuant to 
Section 4(2) of the Securities Act of 1933 and purchased and sold 
pursuant to Rule 144A of the Securities Act of 1933. The term ``TRACE-
eligible security'' excludes debt issued by government-sponsored 
entities, mortgage- or asset-backed securities, collaterallized 
mortgage obligations, and money market instruments. For purposes of the 
Rule 6200 Series, the term ``money market instrument'' means a debt 
security that at issuance has a maturity of one year or less.
    (b) No Change.
    (c) The term ``reportable TRACE transaction'' shall mean any 
secondary market transaction in a TRACE-eligible security except 
transactions in TRACE-eligible securities that are listed on a national 
securities exchange registered under Section 6 of the Securities 
Exchange Act of 1934, when such transactions are executed on, and 
reported to the exchange and the transaction information is 
disseminated publicly, or transactions in [convertible debt] TRACE-
eligible securities that are

[[Page 71208]]

listed and quoted on the Nasdaq Stock Market, Inc. (Nasdaq), when such 
transactions are reported to Nasdaq and the transaction information is 
disseminated publicly.
    (d) through (i) No Change.
* * * * *

6230. Transaction Reporting

    (a) through (d) No Change.
    (e) Transactions [Not Required To Be Reported] Exempt From 
Reporting.
    The following types of transactions shall not be reported:
    (1) Transactions that are part of a primary distribution by an 
issuer.[;]
    (2) Transactions in TRACE-eligible securities that are listed on a 
national securities exchange, when such transactions are executed on 
and reported to the exchange and the transaction information is 
disseminated publicly, and transactions in [convertible debt] TRACE-
eligible securities that are listed and quoted on Nasdaq, when such 
transactions are reported to Nasdaq and the transaction information is 
disseminated publicly.[; and]
    (3) No Change.
    (f) No Change.
* * * * *

I. 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
    ``TRACE-Eligible Security.'' NASD proposes to amend Rule 6210(a) to 
clarify two terms in the definition, ``TRACE-eligible security.'' 
First, NASD proposes to replace ``registered with the Securities and 
Exchange Commission'' in Rule 6210(a) with ``registered under the 
Securities Act of 1933'' to clarify the intended scope of that term.
    Second, NASD proposes to clarify that TRACE-eligible securities 
include the debt securities of all U.S. and foreign private issuers 
generally, by substituting the word ``issuers'' for ``corporations.'' 
Although most issuers of securities are organized as corporations, this 
amendment makes clear that the debt securities of issuers that use 
another form of business organization are TRACE-eligible securities, 
provided that all the other conditions set forth in Rule 6210(a) are 
met.
    Trade Reporting Exemption for Nasdaq-Listed Debt Securities. NASD 
has determined that the exemption from trade reporting in Rule 
6230(e)(2), relating to debt securities listed and quoted on Nasdaq, is 
inappropriately narrow. The proposed amendment to Rule 6230(e)(2) will 
clarify and expand the exemption for certain transactions in TRACE-
eligible debt securities that are listed on Nasdaq. NASD is also 
proposing conforming changes to Rule 6210(c).
    Currently, Rule 6230(e)(2) provides, in relevant part, that a 
transaction in a TRACE-eligible security is exempt from reporting if 
the transaction is in a convertible debt security that is listed and 
quoted on Nasdaq, the transaction is reported to Nasdaq, and the 
transaction information is disseminated publicly. The proposed 
amendment to Rule 6230(e)(2) will exempt a member from reporting to 
TRACE a transaction in any TRACE-eligible security that is listed and 
quoted on Nasdaq, rather than only convertible debt securities, 
provided that the other two requirements for the exemption are also 
present (i.e., the transaction is reported to Nasdaq and the 
transaction information is disseminated publicly).
    The purpose of the provision is to exempt from the TRACE reporting 
requirements a transaction in a TRACE-eligible security if the 
transaction in the Nasdaq-listed and -quoted security is already 
subject to regulatory reporting, and the information reported is being 
made available to the public through dissemination.\3\ At the time that 
the provision relating to Nasdaq was adopted, the provision was limited 
to Nasdaq-listed and -quoted convertible debt securities because it was 
believed that these were the only debt securities at issue. As the 
market in equity-linked debt securities has developed, NASD believes 
that the language of the exemption should be broader to clarify that 
the same types of transactions in these and similar securities that may 
be listed and quoted on Nasdaq should also be exempt from reporting. 
NASD also proposes to make conforming changes to the defined term, 
``reportable TRACE transaction,'' in Rule 6210(c).
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    \3\ Rule 6230(e)(2) also includes an exemption from reporting 
for transactions in TRACE-eligible securities that are listed on a 
national securities exchange, when the transactions are executed on 
and reported to the exchange, and transaction information is 
disseminated publicly.
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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,\4\ 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 provide NASD, as the self-regulatory organization 
designated to regulate the over-the-counter markets, with appropriate 
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 in the public interest.
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    \4\ 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

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Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609. Comments may also be submitted 
electronically at the following e-mail address: [email protected]. 
All comment letters should refer to File No. SR-NASD-2003-182. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review comments more efficiently, 
comments should be sent in hardcopy or by e-mail but not by both 
methods. 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-2003-182 and should be submitted by January 12, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\5\

    \5\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-31451 Filed 12-19-03; 8:45 am]
BILLING CODE 8010-01-P