Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Order Approving a Proposed Rule Change and Notice of Filing and Order Granting Accelerated Approval of Amendment No. 1 Thereto Relating to the Dissemination of TRACE Trade Information, 634-636 [E5-8283]
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634
Federal Register / Vol. 71, No. 3 / Thursday, January 5, 2006 / Notices
that the ‘‘[t]he SIA Letter objected to the
proposed rule change on the grounds
that by requiring the AML Officer to be
an associated person of the member
firm, the proposed rule change would
not permit larger member firms to
designate an individual as the AML
Officer unless that individual was an
employee of the member itself.’’ 14
NASD clarified, however, that because
NASD considers designated AML
compliance persons to be associated
persons for purposes of their activities
on behalf of the member, the
permissible structures for establishing
AML programs are similar under the
NASD proposal and the NYSE
proposal.15 Specifically, the NASD
expressed the view that the NASD
proposal ‘‘would not prohibit a member
that is part of a diversified financial
institution from designating an AML
Officer that is employed by the
member’s parent company, sister
company, or other affiliate; however, if
such a person is designated as a
member’s AML Officer, NASD would
consider that person to be an associated
person of the member with respect to
those activities performed on behalf of
the member.’’ 16
The NRS Letter requested clarification
regarding which types of broker-dealers
are required to test their AML
procedures annually and which are
permitted to have their AML programs
tested every two years.17 The NASD
Response indicated that in ‘‘assessing
how often a member must conduct
independent tests, members should
begin with the premise that they must
test annually.’’ 18 NASD also noted that
each member ‘‘should determine
whether its business activities meet the
requirements set forth in the rule’’ for
testing every two years.19 In addition,
NASD stated: ‘‘If, after assessing its
status, a member finds that there is an
ambiguity in the application of the
express standards for testing its AML
program every two years (rather than on
an annual or more frequent basis) to
specific factual settings, the member
may either seek interpretive guidance
cchase on PROD1PC60 with NOTICES
14 NASD
Response, supra note 5, at 4.
15 NASD Response, supra note 5, at 2–3. In
footnote 6 of the NASD Response, the NASD
clarified that while the Notice states ‘‘that ‘[s]erving
as an AML Officer, by itself, would not make a
person an associated person of an NASD member,’
as further discussed with the SEC staff, NASD
believes that the AML Officer would be an
associated person of the member, but only with
respect to the activities performed on behalf of the
member.’’
16 NASD Response, supra note 5, at 3–4.
17 NRS Letter, supra note 4, at 1–2.
18 NASD Response, supra note 5, at 5.
19 Id.
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17:06 Jan 04, 2006
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from NASD staff or test the program on
at least an annual basis.’’ 20
IV. Discussion and Findings
After careful review, the Commission
finds that the proposed rule change is
consistent with the provisions of
Section 15A(b)(6) of the Act,21 which
requires, among other things, that NASD
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 Commission believes that the
proposed rule change is designed to
accomplish these ends by requiring
members to conduct periodic tests of
their AML compliance programs,
preserve the independence of their
testing personnel, and ensure the
accuracy of their AML compliance
person information.
V. Conclusions
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,22 that the
proposed rule change, as amended (SR–
NASD–2005–066), be, and it hereby is,
approved.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.23
Nancy M. Morris,
Secretary.
[FR Doc. E5–8282 Filed 1–4–06; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–53031; File No. SR–NASD–
2005–120]
Self-Regulatory Organizations;
National Association of Securities
Dealers, Inc.; Order Approving a
Proposed Rule Change and Notice of
Filing and Order Granting Accelerated
Approval of Amendment No. 1 Thereto
Relating to the Dissemination of
TRACE Trade Information
December 28, 2005.
I. Introduction
On October 14, 2005, 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
20 Id.
21 15
U.S.C. 78o–3(b)(6).
U.S.C. 78s(b)(2).
23 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
22 15
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Fmt 4703
Sfmt 4703
thereunder,2 a proposed rule change to
amend NASD Rule 6250, which
addresses dissemination of transaction
information collected by NASD’s Trade
Reporting and Compliance Engine
(‘‘TRACE’’). The proposed rule change
was published for comment in the
Federal Register on November 7, 2005.3
The Commission received one comment
letter on the proposal, from The Bond
Market Association (‘‘BMA’’).4 On
December 14, 2005, NASD submitted a
response to the BMA Letter 5 and filed
an amendment to the proposed rule
change (‘‘Amendment No. 1’’).6 This
order approves the proposed rule
change and issues notice of the filing of,
and approves on an accelerated basis,
Amendment No. 1.
II. Description of the Proposed Rule
Change
Background
On January 23, 2001, the Commission
approved NASD rules to establish
TRACE, a facility for collecting and
disseminating information on corporate
bond transactions and to eliminate
Nasdaq’s Fixed Income Pricing System
(‘‘FIPS’’).7 The TRACE rules became
effective on July 1, 2002. Initially,
TRACE disseminated transaction
information only on investment-grade
securities with an initial issuance size of
$1 billion or greater, and on 50 highyield issues previously reported in the
FIPS system (the ‘‘FIPS 50’’). On January
31, 2003, the Commission approved an
NASD proposal to expand TRACE
dissemination to cover roughly 75% of
the average daily trading volume of
investment-grade securities.8 On
September 3, 2004, the Commission
approved an NASD proposal to expand
dissemination to include most
secondary market transactions in all
TRACE-eligible securities (except
2 17
CFR 240.19b–4.
Exchange Act Release No. 52700
(October 28, 2005), 70 FR 67523 (‘‘Notice’’).
4 See letter from Micah S. Green, President and
CEO, BMA, to Jonathan G. Katz, Secretary,
Commission, dated November 29, 2005 (’’BMA
Letter’’).
5 See letter from Sharon K. Zackula, Associate
General Counsel, NASD, to Katherine A. England,
Assistant Director, Division of Market Regulation,
Commission, dated December 14, 2005 (‘‘NASD
Response Letter’’).
6 In Amendment No. 1, NASD provided a
description of the implementation process for the
proposed rule change and requested accelerated
approval of the proposal.
7 See Securities Exchange Act Release No. 43873
(January 23, 2001), 66 FR 8131 (January 29, 2001).
FIPS, which was operated by Nasdaq, collected
transaction and quotation information on domestic,
registered, non-convertible high-yield corporate
bonds.
8 See Securities Exchange Act Release No. 47302
(January 31, 2003), 68 FR 6233 (February 6, 2003).
3 Securities
E:\FR\FM\05JAN1.SGM
05JAN1
Federal Register / Vol. 71, No. 3 / Thursday, January 5, 2006 / Notices
transactions effected pursuant to Rule
144A of the Securities Act of 1933
(‘‘Rule 144A transactions’’)).9 However,
that proposal allowed for dissemination
delays for securities rated BBB or lower
in the new issue aftermarket and for
larger transactions in infrequently
traded, non-investment-grade bonds in
the secondary market other than the
new issue aftermarket. According to
NASD, data on approximately 99% of
all transactions and 95% of par value in
TRACE-eligible securities are now
disseminated immediately upon receipt
by TRACE.
Current Proposal
NASD is proposing to amend NASD
Rule 6250 to eliminate all remaining
delays in the dissemination of
information on transactions in TRACEeligible securities (except Rule 144A
transactions). Henceforth, information
on all transactions (except Rule 144A
transactions) would be disseminated
immediately upon receipt of the
transaction report. This proposed rule
change represents the latest in a series
of NASD proposals to gradually enhance
transparency for transactions in TRACEeligible securities.
Amendment No. 1
In Amendment No. 1, NASD
described the implementation process
for the proposed rule change and
requested accelerated approval for the
amended proposal. Upon effectiveness
of the proposal, NASD will look to the
date(s) on which transactions are
executed and reported to determine the
applicable dissemination protocol for
TRACE-eligible securities that are still
subject to delayed dissemination. For
transactions that are both executed and
reported prior to the effective date of
this proposal, the old dissemination
protocols will continue to apply, and
information on these transactions will
not be disseminated until the period of
delay has run. Any transaction that is
executed prior to the effective date but
reported after the effective date (i.e.,
reported late on an as/of basis) will be
subject to the new protocols and
disseminated immediately.
cchase on PROD1PC60 with NOTICES
III. Summary of Comments and NASD’s
Response
As noted above, the Commission
received one comment letter from the
BMA on the proposal, to which NASD
has filed a response letter. In its letter,
the BMA expressed its belief that the
proposed immediate dissemination of
9 See Securities Exchange Act Release No. 50317
(September 3, 2004), 69 FR 55202 (September 13,
2004) (‘‘September 2004 Order’’).
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17:06 Jan 04, 2006
Jkt 208001
transaction information for illiquid,
high-yield corporate debt securities
‘‘will further harm liquidity for this
segment of the market.’’ 10 Citing
anecdotal evidence from ‘‘many U.S.
dealers, EU fund managers trading U.S.
high yield securities, and reported in
the press,’’ 11 the BMA claimed that
‘‘TRACE has already hampered the
ability of dealers and investors to trade
large blocks of less liquid, lower-rated
securities, and has led to increased
market volatility for these securities.’’ 12
The BMA urged NASD staff to continue
to monitor the effect of TRACE on
liquidity and, if necessary, to reconsider
the immediate dissemination of TRACE
information.13 The BMA also requested
that NASD release historical TRACE
data to the public so that industry
participants can conduct independent
analyses and research on the effects of
transparency on liquidity.14
In its response letter, NASD rejected
the BMA’s claim that the proposal
would harm liquidity in the high-yield
segment of the corporate bond market.
NASD argued that such claims are not
substantiated by research. NASD noted,
for example, that the Bond Transaction
Reporting Committee (‘‘BTRC’’) 15 found
no evidence that TRACE dissemination
has harmed liquidity and voted
unanimously to support the current
proposal.16 NASD indicated that it will
continue to assess the impact of
dissemination on trading and liquidity
in TRACE-eligible securities 17 and
stated that consideration of a request to
provide non-public, historic data held
by NASD in its capacity as a regulator
is not relevant to consideration of the
proposal.18
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning Amendment No.
1, including whether Amendment No. 1
is consistent with the Act. Comments
may be submitted by any of the
following methods:
10 BMA
Letter at 2.
at 2–3.
12 Id. at 3.
13 See id. at 3.
14 See id. at 3–4.
15 The BTRC is the advisory committee that was
formed to advise NASD on liquidity issues and on
how dissemination of TRACE information should
be increased over time. The BTRC has ten members,
five of whom were recommended by the staff of
NASD and the other five of whom were
recommended by the BMA.
16 See NASD Response Letter at 2.
17 See id.
18 See id. at 3.
11 Id.
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Frm 00056
Fmt 4703
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635
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–NASD–2005–120 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Nancy M. Morris, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–9303.
All submissions should refer to File
Number SR–NASD–2005–120. This file
number should be included on the
subject line if e-mail is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). 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 also will be
available for inspection and copying at
the principal office of NASD. All
comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number SR–NASD–2005–120 and
should be submitted on or before
January 26, 2006.
V. Discussion
After careful consideration, the
Commission finds that the proposed
rule change, as amended, is consistent
with the Act and the rules and
regulations thereunder applicable to a
national securities association.19
Specifically, the Commission believes
that the proposal is consistent with
Section 15A(b)(6) of the Act 20 in that it
is designed to prevent fraudulent and
19 In approving this proposal, the Commission has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
20 15 U.S.C. 78o–3(b)(6).
E:\FR\FM\05JAN1.SGM
05JAN1
cchase on PROD1PC60 with NOTICES
636
Federal Register / Vol. 71, No. 3 / Thursday, January 5, 2006 / Notices
manipulative acts and practices, to
promote just and equitable principles of
trade, and, in general, to protect
investors and the public interest.
In the September 2004 Order, the
Commission approved a TRACE rule to
expand transaction dissemination to
include secondary market transactions
in all TRACE-eligible securities (except
Rule 144A transactions), with
information on transactions in certain
securities disseminated on a delayed
basis. In that order, the Commission
expressed concern that the remaining
dissemination delays could
unnecessarily restrict the availability of
useful transaction information to
investors. The Commission noted that
the two studies commissioned by NASD
to address the relationship between
transparency and liquidity found no
conclusive evidence that TRACE
dissemination has had an adverse effect
on liquidity. Therefore, the Commission
stated that it expected NASD to submit
a proposed rule change to eliminate the
remaining delays in disseminating
TRACE information no later than
November 1, 2005.21 NASD has done so.
The Commission believes that this
proposal, by eliminating all remaining
delays in the dissemination of
transaction information on TRACEeligible securities (except Rule 144A
transactions), should provide investors
with more up-to-date, and hence more
reliable, transaction information for
these securities and enhance overall
transparency in the corporate bond
market. Enhanced transparency for
these remaining TRACE-eligible
securities should increase the fairness
and efficiency of the debt markets,
thereby promoting the protection of
investors and the public interest. In
regard to the BMA’s comment that
increased transparency has harmed
liquidity in high-yield debt securities,
the Commission notes that the BTRC
has reviewed TRACE statistical data,
econometric analyses, and other
information and has found no
conclusive evidence that the recently
increased levels of transparency in these
securities have adversely affected
corporate bond market liquidity.
Furthermore, the BTRC has
recommended to NASD that information
on all transactions in TRACE-eligible
securities (except Rule 144A
transactions) be disseminated
immediately upon NASD’s receipt of the
transaction report. The Commission has
not been presented with any objective
evidence to support the BMA’s assertion
that immediate dissemination of
transaction information harms liquidity
for high-yield debt securities.
The Commission finds good cause for
approving Amendment No. 1 to the
proposed rule change prior to the
thirtieth day after the date of
publication of notice of filing thereof in
the Federal Register pursuant to Section
19(b)(2) of the Act.22 Amendment No. 1
does not make any substantive changes
to the proposal but rather offers
technical guidance about how
transaction data in the affected TRACEeligible securities will be disseminated
in the few days immediately after the
rule change becomes effective.
Accordingly, the Commission believes
that the accelerated approval of
Amendment No. 1 is appropriate.
VI. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,23 that the
proposed rule change (SR–NASD–2005–
120) is approved and that Amendment
No. 1 thereto is hereby approved on an
accelerated basis.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.24
Nancy M. Morris,
Secretary.
[FR Doc. E5–8283 Filed 1–4–06; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–53034; File No. SR–PCX–
2005–139]
Self-Regulatory Organizations; Pacific
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change and Amendment No. 1
Thereto Relating to the Certificate of
Incorporation of PCX Holdings, Inc.
December 28, 2005.
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
19, 2005, the Pacific Exchange, Inc.
(‘‘PCX’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by PCX. On December 23, 2005, PCX
filed Amendment No. 1 to the proposed
22 15
U.S.C. 78s(b)(2).
23 Id.
24 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
21 See
69 FR at 55204.
VerDate Aug<31>2005
17:06 Jan 04, 2006
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PO 00000
Frm 00057
Fmt 4703
Sfmt 4703
rule change.3 PCX filed the proposed
rule change pursuant to Section
19(b)(3)(A) of the Act,4 and Rule 19b–
4(f)(6) thereunder,5 which renders the
proposal effective upon filing with the
Commission. The Commission is
publishing this notice to solicit
comments on the proposed rule change,
as amended, from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
PCX proposes to submit to the
Commission a proposed rule change to
extend temporary exceptions from the
voting and ownership limitations in the
certificate of incorporation of PCX
Holdings, Inc. (‘‘PCXH’’), a Delaware
corporation and a parent company of
PCX, approved by the Commission in an
order issued on September 22, 2005 (the
‘‘SEC Order’’) 6, so as to allow (a)
Archipelago Holdings, Inc.
(‘‘Archipelago’’), a Delaware corporation
and the ultimate parent company of
PCXH and PCX, to continue to (i) own
Wave Securities, L.L.C. (‘‘Wave’’) until
January 31, 2006 and (ii) own and
operate the ATS Inbound Router
Function (as defined below) of
Archipelago Trading Services, Inc.
(‘‘ATS’’) and the Inbound Router
Clearing Function (as defined below) of
Archipelago Securities, L.L.C.
(‘‘Archipelago Securities’’) until January
31, 2006, and (b) Gerald D. Putnam,
Chairman and Chief Executive Officer of
Archipelago (‘‘Mr. Putnam’’), to own in
excess of 5% of Terra Nova Trading,
L.L.C. (‘‘TNT’’) and continue to serve as
a director of TAL Financial Services
(‘‘TAL’’) until January 31, 2006, in each
case, subject to the conditions set forth
in this filing.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
PCX 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. PCX has prepared
summaries, set forth in Sections A, B,
3 In Amendment No. 1, the Exchange modified
the duration of certain extensions that the Exchange
proposed in the original filing and made certain
technical amendments to the original filing.
4 15 U.S.C. 78s(b)(3)(A).
5 17 CFR 240.19b–4(f)(6).
6 See Securities Exchange Act Release No. 52497
(September 22, 2005), 70 FR 56949 (September 29,
2005) (the ‘‘SEC Order’’).
E:\FR\FM\05JAN1.SGM
05JAN1
]]>Agencies
[Federal Register Volume 71, Number 3 (Thursday, January 5, 2006)]
[Notices]
[Pages 634-636]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-8283]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-53031; File No. SR-NASD-2005-120]
Self-Regulatory Organizations; National Association of Securities
Dealers, Inc.; Order Approving a Proposed Rule Change and Notice of
Filing and Order Granting Accelerated Approval of Amendment No. 1
Thereto Relating to the Dissemination of TRACE Trade Information
December 28, 2005.
I. Introduction
On October 14, 2005, 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 NASD Rule 6250, which
addresses dissemination of transaction information collected by NASD's
Trade Reporting and Compliance Engine (``TRACE''). The proposed rule
change was published for comment in the Federal Register on November 7,
2005.\3\ The Commission received one comment letter on the proposal,
from The Bond Market Association (``BMA'').\4\ On December 14, 2005,
NASD submitted a response to the BMA Letter \5\ and filed an amendment
to the proposed rule change (``Amendment No. 1'').\6\ This order
approves the proposed rule change and issues notice of the filing of,
and approves on an accelerated basis, Amendment No. 1.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 52700 (October 28,
2005), 70 FR 67523 (``Notice'').
\4\ See letter from Micah S. Green, President and CEO, BMA, to
Jonathan G. Katz, Secretary, Commission, dated November 29, 2005
(''BMA Letter'').
\5\ See letter from Sharon K. Zackula, Associate General
Counsel, NASD, to Katherine A. England, Assistant Director, Division
of Market Regulation, Commission, dated December 14, 2005 (``NASD
Response Letter'').
\6\ In Amendment No. 1, NASD provided a description of the
implementation process for the proposed rule change and requested
accelerated approval of the proposal.
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
Background
On January 23, 2001, the Commission approved NASD rules to
establish TRACE, a facility for collecting and disseminating
information on corporate bond transactions and to eliminate Nasdaq's
Fixed Income Pricing System (``FIPS'').\7\ The TRACE rules became
effective on July 1, 2002. Initially, TRACE disseminated transaction
information only on investment-grade securities with an initial
issuance size of $1 billion or greater, and on 50 high-yield issues
previously reported in the FIPS system (the ``FIPS 50''). On January
31, 2003, the Commission approved an NASD proposal to expand TRACE
dissemination to cover roughly 75% of the average daily trading volume
of investment-grade securities.\8\ On September 3, 2004, the Commission
approved an NASD proposal to expand dissemination to include most
secondary market transactions in all TRACE-eligible securities (except
[[Page 635]]
transactions effected pursuant to Rule 144A of the Securities Act of
1933 (``Rule 144A transactions'')).\9\ However, that proposal allowed
for dissemination delays for securities rated BBB or lower in the new
issue aftermarket and for larger transactions in infrequently traded,
non-investment-grade bonds in the secondary market other than the new
issue aftermarket. According to NASD, data on approximately 99% of all
transactions and 95% of par value in TRACE-eligible securities are now
disseminated immediately upon receipt by TRACE.
---------------------------------------------------------------------------
\7\ See Securities Exchange Act Release No. 43873 (January 23,
2001), 66 FR 8131 (January 29, 2001). FIPS, which was operated by
Nasdaq, collected transaction and quotation information on domestic,
registered, non-convertible high-yield corporate bonds.
\8\ See Securities Exchange Act Release No. 47302 (January 31,
2003), 68 FR 6233 (February 6, 2003).
\9\ See Securities Exchange Act Release No. 50317 (September 3,
2004), 69 FR 55202 (September 13, 2004) (``September 2004 Order'').
---------------------------------------------------------------------------
Current Proposal
NASD is proposing to amend NASD Rule 6250 to eliminate all
remaining delays in the dissemination of information on transactions in
TRACE-eligible securities (except Rule 144A transactions). Henceforth,
information on all transactions (except Rule 144A transactions) would
be disseminated immediately upon receipt of the transaction report.
This proposed rule change represents the latest in a series of NASD
proposals to gradually enhance transparency for transactions in TRACE-
eligible securities.
Amendment No. 1
In Amendment No. 1, NASD described the implementation process for
the proposed rule change and requested accelerated approval for the
amended proposal. Upon effectiveness of the proposal, NASD will look to
the date(s) on which transactions are executed and reported to
determine the applicable dissemination protocol for TRACE-eligible
securities that are still subject to delayed dissemination. For
transactions that are both executed and reported prior to the effective
date of this proposal, the old dissemination protocols will continue to
apply, and information on these transactions will not be disseminated
until the period of delay has run. Any transaction that is executed
prior to the effective date but reported after the effective date
(i.e., reported late on an as/of basis) will be subject to the new
protocols and disseminated immediately.
III. Summary of Comments and NASD's Response
As noted above, the Commission received one comment letter from the
BMA on the proposal, to which NASD has filed a response letter. In its
letter, the BMA expressed its belief that the proposed immediate
dissemination of transaction information for illiquid, high-yield
corporate debt securities ``will further harm liquidity for this
segment of the market.'' \10\ Citing anecdotal evidence from ``many
U.S. dealers, EU fund managers trading U.S. high yield securities, and
reported in the press,'' \11\ the BMA claimed that ``TRACE has already
hampered the ability of dealers and investors to trade large blocks of
less liquid, lower-rated securities, and has led to increased market
volatility for these securities.'' \12\ The BMA urged NASD staff to
continue to monitor the effect of TRACE on liquidity and, if necessary,
to reconsider the immediate dissemination of TRACE information.\13\ The
BMA also requested that NASD release historical TRACE data to the
public so that industry participants can conduct independent analyses
and research on the effects of transparency on liquidity.\14\
---------------------------------------------------------------------------
\10\ BMA Letter at 2.
\11\ Id. at 2-3.
\12\ Id. at 3.
\13\ See id. at 3.
\14\ See id. at 3-4.
---------------------------------------------------------------------------
In its response letter, NASD rejected the BMA's claim that the
proposal would harm liquidity in the high-yield segment of the
corporate bond market. NASD argued that such claims are not
substantiated by research. NASD noted, for example, that the Bond
Transaction Reporting Committee (``BTRC'') \15\ found no evidence that
TRACE dissemination has harmed liquidity and voted unanimously to
support the current proposal.\16\ NASD indicated that it will continue
to assess the impact of dissemination on trading and liquidity in
TRACE-eligible securities \17\ and stated that consideration of a
request to provide non-public, historic data held by NASD in its
capacity as a regulator is not relevant to consideration of the
proposal.\18\
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\15\ The BTRC is the advisory committee that was formed to
advise NASD on liquidity issues and on how dissemination of TRACE
information should be increased over time. The BTRC has ten members,
five of whom were recommended by the staff of NASD and the other
five of whom were recommended by the BMA.
\16\ See NASD Response Letter at 2.
\17\ See id.
\18\ See id. at 3.
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning Amendment No. 1, including whether Amendment No. 1
is consistent with the Act. Comments may be submitted by any of the
following methods:
Electronic Comments
Use the Commission's Internet comment form (https://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NASD-2005-120 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-9303.
All submissions should refer to File Number SR-NASD-2005-120. This
file number should be included on the subject line if e-mail is used.
To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (https://www.sec.gov/
rules/sro.shtml). 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 also will be available for inspection and copying at the
principal office of NASD. All comments received will be posted without
change; the Commission does not edit personal identifying information
from submissions. You should submit only information that you wish to
make available publicly. All submissions should refer to File Number
SR-NASD-2005-120 and should be submitted on or before January 26, 2006.
V. Discussion
After careful consideration, the Commission finds that the proposed
rule change, as amended, is consistent with the Act and the rules and
regulations thereunder applicable to a national securities
association.\19\ Specifically, the Commission believes that the
proposal is consistent with Section 15A(b)(6) of the Act \20\ in that
it is designed to prevent fraudulent and
[[Page 636]]
manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest.
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\19\ In approving this proposal, the Commission has considered
the proposed rule's impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
\20\ 15 U.S.C. 78o-3(b)(6).
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In the September 2004 Order, the Commission approved a TRACE rule
to expand transaction dissemination to include secondary market
transactions in all TRACE-eligible securities (except Rule 144A
transactions), with information on transactions in certain securities
disseminated on a delayed basis. In that order, the Commission
expressed concern that the remaining dissemination delays could
unnecessarily restrict the availability of useful transaction
information to investors. The Commission noted that the two studies
commissioned by NASD to address the relationship between transparency
and liquidity found no conclusive evidence that TRACE dissemination has
had an adverse effect on liquidity. Therefore, the Commission stated
that it expected NASD to submit a proposed rule change to eliminate the
remaining delays in disseminating TRACE information no later than
November 1, 2005.\21\ NASD has done so.
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\21\ See 69 FR at 55204.
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The Commission believes that this proposal, by eliminating all
remaining delays in the dissemination of transaction information on
TRACE-eligible securities (except Rule 144A transactions), should
provide investors with more up-to-date, and hence more reliable,
transaction information for these securities and enhance overall
transparency in the corporate bond market. Enhanced transparency for
these remaining TRACE-eligible securities should increase the fairness
and efficiency of the debt markets, thereby promoting the protection of
investors and the public interest. In regard to the BMA's comment that
increased transparency has harmed liquidity in high-yield debt
securities, the Commission notes that the BTRC has reviewed TRACE
statistical data, econometric analyses, and other information and has
found no conclusive evidence that the recently increased levels of
transparency in these securities have adversely affected corporate bond
market liquidity. Furthermore, the BTRC has recommended to NASD that
information on all transactions in TRACE-eligible securities (except
Rule 144A transactions) be disseminated immediately upon NASD's receipt
of the transaction report. The Commission has not been presented with
any objective evidence to support the BMA's assertion that immediate
dissemination of transaction information harms liquidity for high-yield
debt securities.
The Commission finds good cause for approving Amendment No. 1 to
the proposed rule change prior to the thirtieth day after the date of
publication of notice of filing thereof in the Federal Register
pursuant to Section 19(b)(2) of the Act.\22\ Amendment No. 1 does not
make any substantive changes to the proposal but rather offers
technical guidance about how transaction data in the affected TRACE-
eligible securities will be disseminated in the few days immediately
after the rule change becomes effective. Accordingly, the Commission
believes that the accelerated approval of Amendment No. 1 is
appropriate.
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\22\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\23\ that the proposed rule change (SR-NASD-2005-120) is approved
and that Amendment No. 1 thereto is hereby approved on an accelerated
basis.
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\23\ Id.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\24\
Nancy M. Morris,
Secretary.
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\24\ 17 CFR 200.30-3(a)(12).
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[FR Doc. E5-8283 Filed 1-4-06; 8:45 am]
BILLING CODE 8010-01-P
