NASD to Give More Bond Prices to Public
Thu Nov 21, 4:18 PM ET Add Business - Reuters to My Yahoo!
By Jonathan Stempel
NEW YORK (Reuters) - In a move that may make the sale of corporate bonds fairer for more investors, the NASD's board of governors said on Thursday it approved a plan to publicly distribute pricing data for 4,200 high quality bonds, up more than eightfold from the current 500.
The NASD, a non-profit organization that represents about 5,400 brokerage firms, said it plans to dispense the data through its Trade Reporting and Compliance Engine, known as TRACE, which it launched in July. The expansion requires the approval of the U.S. Securities and Exchange Commission (news - web sites).
"It's a good thing for us," said Michael Mullaney, a portfolio manager who helps invest Fiduciary Trust Co. in Boston. "I want as few surprises in my portfolios as possible, and it helps us get better pricing when we have access to more information."
Improving price disclosure, or transparency, in the now $4 trillion U.S. corporate bond market was a key goal of former SEC Chairman Arthur Levitt.
TRACE, which is available to individual investors at the NASD's Web site, (http//www.nasd.com), already contains real-time price data on bonds from many well-known investment-grade issuers, such as Ford Motor Co.'s (NYSE:F - news) and General Electric Co.'s (NYSE:GE - news) finance arms.
Its 500 bonds, comprising issues of $1 billion or larger, account for about half of U.S. investment-grade corporate bond trading volume, the NASD said, The additional 3,700 would boost that percentage to 75 percent, it said. TRACE also carries data on 50 high-yield, or "junk," bonds.
"When there is transparency, and everyone can see the same information, they are encouraged to play on a level playing field," said Douglas Shulman, the NASD's president of regulatory services and operations, in an interview. "More information benefits investors from an protection standpoint, and makes them more comfortable investing."
MORE LOWER-RATED BONDS
The NASD said the new bonds would include U.S. investment-grade bond issues originally totaling $100 million or more, and rated at least in the "single-A" category, a medium investment grade. The NASD said it also wants to distribute data on 90 bonds rated in the "triple-B" category.
Some Wall Street bond professionals fear that making too much pricing information available might actually decrease bond liquidity -- if, for example, a rarely traded bond were traded once at an unusually low price.
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Shulman said that the NASD is taking a "measured approach" to expanding TRACE by not, for now, adding tiny bond issues or more junk bonds.
Micah Green, president of the Bond Market Association, a trade group, endorsed the NASD proposal. "The question the NASD will have to confront going forward is whether the market for high-yield bonds would be helped or harmed by the same level of transparency," he said in a statement.
John Heine, an SEC spokesman, said the Commission has 35 days to consider expanding TRACE after the NASD publishes its proposal in the Federal Register, and that the review period may be extended.
Shulman said the NASD plans to submit its proposal to the SEC in the next couple of weeks, and hopes to expand Trace early in 2003. |
