If a member transmits orders to buy and sell TRACE-eligible securities to other broker-dealers for the benefit of various proprietary accounts of foreign affiliates of the member, the member is acting as agent and must report the transactions under Rule 6230.


November 13, 2002

 

Danny Ho
Vice President
Commerzbank Securities
1251 Avenue of the Americas
22nd Floor
New York, NY 10020

 

Dear Mr. Ho:

 

I am responding to your email inquiries dated May 17, May 23, June 4 and June 11, 2002, in which you ask if Commerzbank Securities, a registered broker-dealer and member of the NASD (“Commerzbank USA”), must report certain transactions to TRACE when such transactions are effected by Commerzbank USA for accounts maintained at Commerzbank USA and beneficially owned by various foreign affiliates of Commerzbank USA.

 

Background

 

The foreign parent of Commerzbank USA and other affiliates of Commerzbank USA located outside the U.S. maintain proprietary accounts at Commerzbank USA. Commerzbank USA has discretion to trade such accounts, and exercises that discretion by buying and selling securities on behalf of such affiliates with other broker-dealers that are registered with the U. S. Securities and Exchange Commission and are NASD members. Commerzbank USA sends buy and sell orders on behalf of the foreign affiliate’s proprietary account to a broker-dealer for execution, and when the counterparty has executed the transaction, the transaction is also cleared and settled at Commerzbank USA. You ask specifically if Commerzbank USA has an obligation to report the transaction under Rule 6230 if the security is a TRACE-eligible security?

 

Analysis

 

Commerzbank USA is required to report the transaction under Rule 6230, which requires a member to report a transaction in a TRACE-eligible bond to NASD if the member is a party to the transaction. A member is a party to the transaction when acting as a principal or an agent. In the transactions described in your correspondence, Commerzbank USA maintains various proprietary accounts on behalf of its foreign parent and other foreign affiliates. Commerzbank USA transmits orders to other broker-dealers to buy and sell securities for the benefit of the proprietary accounts beneficially owned by Commerzbank’s foreign affilates. When Commerzbank USA provides these services, it is acting as an agent in the transactions and must report the transactions under Rule 6230.

 

I hope this letter is responsive to your inquiry. Please note that the opinions expressed in this letter are staff opinions only and have not been reviewed or endorsed by the Board of NASD. This letter responds only to the issues you have raised based on the facts as you have described them in your communications, and does not necessarily address any other rule or interpretation of NASD or all the possible regulatory and legal issues involved.

 

Very truly yours,

 

 

 

Sharon K. Zackula
Assistant General Counsel

 

cc: Cathleen Shine, Senior Vice President and District Director, District 10