SEC approves reporting system for bond trades

`Trace' operation intended to beam light into a `dark corner'

January 24, 2001|By BLOOMBERG NEWS

WASHINGTON - The Securities and Exchange Commission approved a program yesterday that, for the first time, will collect and distribute information on trading in the $3.4 trillion corporate bond market.

The agency, whose chairman, Arthur Levitt, has called corporate bonds a "needlessly dark corner of our capital markets," cleared a package of rules drafted by the National Association of Securities Dealers. The program, which will be operated by the NASD, creates the Trade Reporting and Comparison Entry system, known as Trace, which will collect data on all corporate-bond trades for use by federal regulators, including enforcement offices watching for improper spreads in corporate-bond trades.

In the first phases of the plan, only part of the data will be released to the public, regulators said. Bond dealers had warned that releasing most bond prices to the public could hurt "liquidity," or supply and demand, in the thinly traded corporate bond market.

During the first three months of the plan, firms must report to regulators all transactions within one hour of doing a trade. NASD will immediately publish prices involving investment grade bonds of $1 billion or more. Three months later, the one-hour maximum time period to submit trade reports will be reduced to 15 minutes.

Over the next six months, an eight-member committee selected by NASD's board will experiment with and evaluate the release of prices on smaller size bonds.

The rules will take effect six months after the NASD supplies firms with "technical specifications" for the Trace system.

Investors currently have no clearinghouse from which to get speedy information about prices and spreads on most debt bought and sold in the corporate bond market.

Pressured by the House of Representatives, the NASD in 1999 proposed that all NASD members publicly disseminate most corporate bond prices within 15 minutes of trade execution.

Anxious bond dealers said releasing prices for all bonds within 15 minutes could hurt liquidity in a market where bonds trade infrequently.

The Bond Market Association, an industry trade group, recommended the phased-in approach. The association launched a voluntary corporate bond-price reporting system in 1999, but the program covers only inter-dealer trades, or roughly 30 percent of corporate trades.

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