NASD's Fully Implemented "TRACE" Brings Unprecedented Transparency to Corporate Bond Market
Washington, D.C.— In what may be the most significant innovation benefiting retail bond investors in decades, NASD today begins full dissemination of transaction and price data on the entire universe of corporate bonds – which currently number approximately 29,000.
Full implementation of NASD’s TRACE – for Trade Reporting and Compliance Engine – means real-time dissemination of transaction and price data for 99 percent of corporate bond trades. The remaining one percent of trades, which are being reported on a delayed basis, involve infrequently traded bonds that almost exclusively involve dealers and institutional investors rather than retail investors.
Constantly updated corporate bond transaction data, along with aggregate end-of-day activity statistics (most active bonds, total volume, advances and declines, new highs and lows) are available to retail investors free of charge on NASD’s Web site at www.nasdbondinfo.com. TRACE real-time data is also available on the Bond Market Association’s Web site at www.investinginbonds.com.
"This is a market that has been largely a mystery to retail investors – even though two out of three corporate bond transactions are carried out at the retail level,” said Doug Shulman, NASD’s President of Markets, Services and Information. “NASD believes there is no better way to build investor trust than for the markets to operate in total daylight. And it’s hard to argue that an investor should know less when he makes a loan to a company by buying a bond than when he buys an equity stake in the same company by purchasing a stock.
“The corporate bond market is no longer solely the domain of savvy institutional investors,” Shulman said. “Individual investors who prospered during the stock market’s historic boom have now experienced major declines in equities and have turned to the bond market to invest a portion of their money. And as 76 million baby boomers get closer to retirement, they are moving more and more of their assets from equity investments to fixed income investments. There is no doubt that the corporate bond market will only grow in size and in importance to individual investors.”
By disseminating accurate and timely trading information, TRACE enhances the integrity of the corporate bond market and creates a level playing field for all investors. Specifically, retail investors can determine:
- Whether the bond they’re interested in has traded recently. Because many bonds don’t trade regularly, investors will be able to judge whether a ready market will exist if they want to sell the bond before its maturity or call date.
- Whether they are getting a fair price. Investors will be able to determine what the bond they’re interested in sold for in the most recent transactions.
- Whether the price of the bond they’re interested in has been rising or falling recently, which will help them determine whether this is the right time to buy or sell that bond.
- Whether the bond they’re interested in tends to trade in a pattern similar to other bonds in the overall market, in its particular industry, or within the same credit rating category.
NASD is taking additional steps to educate investors about bond market investing and to increase and enhance the quality of the disclosures they receive when making bond transactions. NASD is currently preparing rule proposals to increase broker-dealer disclosure to individual investors at point of sale and in post-trade confirmations. NASD will also add an online learning center called Smart Bond Investing to its investor education resources in the next 30 days.
A recent NASD survey indicates that individual investors know little about how bond markets work. For instance, only 40 percent understood that bond prices fall as interest rates rise. Another 34 percent either thought there is no fee for buying or selling a bond, or they did not know whether they were paying a fee for bond transactions.
NASD is working with a number of popular financial Web sites to make TRACE data even more accessible, and TRACE aggregate statistics are published daily in the New York Times. Bond industry professional users can access TRACE data through a variety of data vendors.
TRACE was officially launched in July 2002, reporting initially on 500 bonds. In April 2003 TRACE increased its reporting to 4,600 bonds, and jumped to 17,000 bonds last October.
Currently, dealers must report corporate bond transactions to TRACE within 30 minutes, and that window will be reduced to 15 minutes in July. In practice, most bond transactions are already being reported in shorter time frames. At the end of 2004, more than 82 percent of transactions were reported in five minutes or less.
Investors can obtain more information about, and the disciplinary record of, any NASD-registered broker or brokerage firm by using NASD's BrokerCheck. NASD makes BrokerCheck available at no charge to the public. In 2003, members of the public used this service to conduct more than 2.8 million searches for existing brokers or firms and requested almost 180,000 reports in cases where disclosable information existed on a broker or firm. Investors can link directly to BrokerCheck at www.nasdbrokercheck.com. Investors can also access this service by calling 1-800-289-9999.
NASD is the leading private-sector provider of financial regulatory services, dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. NASD touches virtually every aspect of the securities business - from registering and educating all industry participants, to examining securities firms, enforcing both NASD rules and the federal securities laws, and administering the largest dispute resolution forum for investors and member firms. For more information, please visit our Web Site at www.nasd.com.