December 15, 1992
TO: BOARD OF GOVERNORS NO. 89-92
SEC RULES COMMITTEE NO. 93-92
ACCOUNTING/TREASURERS COMMITTEE NO. 46-92
RE: NASD PROPOSED REPORTING SYSTEM FOR HIGH YIELD BONDS
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The SEC is soliciting comments on rules proposed by the
NASD that would require NASD members to report transactions in
all high yield bonds traded over-the-counter to the NASD for
regulatory purposes and require real time trade reporting for 30
to 50 of the most liquid high yield bonds, through a system
called the Fixed Income Pricing System ("FIPS"). FIPS is
intended to facilitate the collection, processing and
dissemination of real-time, firm quotations of high yield bonds
and to provide for hourly dissemination of high/low trading
ranges and accumulated volume for each bond quoted in the system.
A brief summary of certain aspects of the proposal is set
forth below. A copy of the SEC’s release soliciting comments is
attached.
Inclusion in FIPS. Under the proposal, the most liquid
tier of high yield bonds would be selected for inclusion in FIPS.
Issuers of such bonds would not make listing applications;
instead, a subcommittee of the NASD’s Fixed Income Committee
would create a list of the bonds to be included, based on their
trading characteristics (e.g., volume, price, name recognition,
research following, and industry diversification). Initially,
the list would comprise approximately 30 bonds, to be expanded to
no less than 50 bonds within one year.
Quotation Requirements. NASD members that hold themselves
out as brokers or dealers in high yield bonds quoted in the
system would be required to participate in FIPS and to transmit
their quotations to the system for dissemination to the public.
Quotations would be required to be continuous and firm to all
members submitting offers to trade at the quoted prices and
sizes. Dealers could submit quotes directly or through a
broker’s broker in order to assure anonymity.
Transaction Reporting. The proposal would require members
to submit trade reports for all transactions in bonds listed on
FIPS within five minutes of execution. The proposal specifies
which party in various types of transactions would be required to
report the trade. (For example, in transactions between a FIPS
dealer and a FIPS broker, the broker would be required to
report.) Hourly calculations of high and low trading price
ranges and accumulated volume statistics would be disseminated to
the public.
In addition, NASD members would be required to report
information on trades in high yield bonds not included in FIPS to
the NASD for surveillance purposes. Such reporting could be done
at any time during the trading day, but in any event no later
than 5 p.m. eastern time.
Market Surveillance. The proposal indicates that the
NASD’s Market Surveillance department will use quotation and
transactional data on high yield bonds to monitor for insider
trading, and other possible abuses. The data also will serve as
the basis for on-site examinations for violations of the NASD’s
mark-up policy and reviews of agency commissions, best execution,
market manipulation and capital requirements.
* * * * *
Comments on the proposal are due no later than December 31,
1992. If there are comments you would like the Institute to
consider for inclusion in a comment letter, please contact the
Frances Stadler at 202/955-3514 (or, in her absence, Craig Tyle
at 202/955-3522) by Monday, December 28.
Matthew P. Fink
President
Attachment