December 13, 2000
Jonathan G. Katz, Secretary
Securities & Exchange Committee
450 Fifth Street, NW
Washington, DC 20549-0609
Re: File No. SR-NASD-99-65, Amendment2
Dear Mr. Katz,
The Regional Municipal Operations Association (RMOA) is glad to have the opportunity to respond to the above referenced NASD TRACE proposal. As you are aware, RMOA is a securities industry association organized in 1987 and currently comprised of operations professionals from regional broker dealers, banks and utilities. The scope of the organization expanded years ago to include all fixed income products. RMOA has been involved with bond transparency issues for many years and has reviewed past proposals with regulators and utilities.
RMOA fully supports the industry's goal to achieve full fixed income price transparency for the OTC Corporate Bond marketplace. However, the organization has a number of issues with that the revised rule filing and still cannot support the revised NASD proposal. Our concerns are outlined below.
I. Dual Submission of Trades
The TRACE proposal calls for only the sell side to be reported initially, within hourly increments. It also calls for all bond transactions that normally are reported to the clearing agency (DTCC) to be also reported to the NASD. RMOA believes this dual submission is unproductive and unnecessary.
The municipal bond transparency model works efficiently today and could be utilized for corporate bond transparency. The municipal model has the advantage of firms only having to submit their trades once, to DTCC, to accomplish both trade comparison and to meet transparency obligations. DTCC forwards the trades to the MSRB for transparency needs. RMOA recommends that a similar approach be developed for corporate bonds.
II. Implementation Schedule
If the NASD rule filing is approved by year-end, RMOA understands the following timeframes would be established:
While Phase I is aggressive, it is achievable provided firms are made aware of system requirements immediately.
The Phase II fifteen minute requirement will probably necessitate that firms develop an interactive trade reporting capability. RMOA does not believe it is practical for the entire street to build an interactive capability in one year. Migration of participants to a real time environment will be a major effort. Realizing that dealers will need to migrate to real time prior to T+1 is clearly different to building, testing and implementing such a system by the end of 2001.
III. Optional Comparison
The NASD rule filing refers to an optional comparison system. RMOA believes that all fixed income comparison needs to be centralized into one central matching utility. The adoption of an optional comparison system will confuse firms and ultimately result in comparison breaks and uncompared trades.
IV. Incorporate Municipal Requirements into Transparency Effort
To promote standardization of fixed income processing, RMOA believes it is vital that the bond transparency solution incorporates the MSRB's municipal bond requirements as well as the NASD's corporate bond requirements.
One format should be developed for both markets. A single format adds value to dealers by supporting T+1 initiatives for early submission and furthering the goal of a single pipeline for fixed income processing. It removes the burden of dealers having to separately program for multiple marketplaces. The MSRB needs to be part of the process from the start.
RMOA fully supports the goal of achieving Price Transparency for the fixed income marketplace. RMOA feels the best way to accomplish transparency is by leveraging off existing arrangements which the industry's infrastructure has already developed. Doing so provides the NASD with timely trade information while minimizing expense and systems development at firms. It also facilitates the municipal marketplace.
We firmly believe the requirement to submit within fifteen minutes of trade execution by the end of 2001 imposes an undue hardship on the industry and is unrealistic.
We look forward to working with the NASD and the SEC to achieve price transparency aims for the marketplace.
Very truly yours,