Letters to NASD Members Regarding Reduction of TRACE-Related Fees

December 26, 2002

 

Dear TRACE Participant:

 

NASD is pleased to announce that it has reduced TRACE-related fees as of January 1, 2003. This letter explains the upcoming reductions, trade reporting fees, cancel and correct fees, and Web browser fees that will be affected.

 

NASD has been committed to an ongoing review of TRACE-related fees to ensure that fees are reasonable and equitable for TRACE participants. As you know, TRACE has been operating under a pilot fee schedule since the Securities and Exchange Commission (SEC) approved the initial fees on June 28, 2002. The pilot program was scheduled to expire on December 28, 2002. On December 12, 2002, NASD submitted a rule filing for immediate effectiveness with the SEC that extends the pilot program of TRACE fees to February 28, 2003 and reduces certain fees as of January 1, 2003. To view the complete text of the fee filing submitted to the SEC, please visit the TRACE Web Pages.

 

Prior to the expiration of the extended pilot program of fees on February 28, 2003, NASD expects to seek approval of a permanent fee structure. Based on ongoing experience with TRACE, NASD expects to continue reviewing TRACE fees during 2003 and make additional changes to the TRACE fee structure as warranted.

In the near term, however, there are some significant fee changes that NASD believes will be of immediate benefit to members.

 

Introduction of Trade Report Only Web Browser

 

Numerous firms have reported to NASD staff that they handle only a small volume of TRACE transactions each month and therefore would like a more cost-effective Web browser. In response, on January 1, 2003, NASD will introduce a new Web browser that includes TRACE reporting and data retrieval capabilities, but does not include TRACE market data. Participants will now be able to elect the service level (Level I or Level II) that best suits their needs.

 

  • Level I service provides a member firm with a trade reporting mechanism only. No real-time TRACE market data will be available. This "no frills" browser service will cost only $25 per month per user ID and should meet the needs of firms that only occasionally trade corporate bonds.
  • Level II is the full-service Web browser that provides a member firm with trade reporting capabilities and access to real-time TRACE market data. All Web browser users that want the full-service Level II Web browser will be charged $85 per month, per user ID. The multi-browser discount will be discontinued, since NASD expects that firms will elect to have a combination of Level I and Level II Web browsers based on the needs of their personnel (thereby reducing a firm's overall browser service cost).


Currently, since only the full-service Web browser is available, all participants are registered for Level II full-service Web browser access. To switch to Level I Web browser service or to a combination of Level I and Level II service, participants must submit a modified TRACE Order Form, available online, requesting Level I service. Members may begin submitting these requests immediately via email or via facsimile to NASD Market Operations at (240) 386-6225. Please forward all original documentation to NASD Market Operations, 9509 Key West Avenue, 5th Floor, Rockville, MD 20850. If NASD receives your request during the month of January, you will be charged the lower rate of $25 for the entire month. Requests coming in after January 31, 2003 will be charged on a pro rata basis as received.

 

Reduction of Trade Reporting Fees

 

Trade reporting volume has been higher than anticipated. As a result, as of January 1, 2003, trade reporting fees will be reduced by 5 percent. The fees will continue to be calculated on a sliding scale based upon the size of the transaction. The fees will range from $0.475 to $2.375 as follows:

  • trades up to and including $200,000 par value will be charged a $0.475 fee per trade;
  • trades between $201,000 par value and $999,999 par value will be charged a fee of $0.002375 multiplied by the number of bonds per trade; and
  • trades of $1,000,000 par value or more will be charged a fee of $2.375 per trade.

Reduction of Cancel/Correct Fees

 

The volume of cancel and correct transactions continues to be high. As of January 1, 2003, the charge for cancels, reversals, and corrects will be reduced by 50 percent, from $3.00 to $1.50 per trade. NASD expects that this will reduce some of the financial burden on firms. The charge for late "as of" trade reports will remain at $3.00 per trade as an incentive to member firms to report on time.

 

Other Changes

 

NASD originally provided participants the option of reporting TRACE data through the Web browser over a secure private data network rather than over the Internet and had offered participants the option of receiving daily faxed updates of the list of TRACE-eligible securities. Due to low subscription levels, NASD will be discontinuing these services as of January 1, 2003. Other TRACE-related fees will remain the same for the remainder of the pilot.

 

NASD expects to continue to review and reassess TRACE fees over time, and we will keep the membership informed of all developments. If you have any questions or concerns, please contact the TRACE team. For questions specifically relating to TRACE agreements and TRACE Order Forms, including any change in browser service, we have created a brand new toll-free number, 866-776-0800.

 

Sincerely,

 

Justin Tubiolo Signature

 

Justin Tubiolo
Vice President
Fixed Income
Market Operations and Information Services
NASD