January 23, 2003
The Honorable Harvey L. Pitt Mr. Robert R. Glauber Dear Messrs. Pitt, Glauber, and Green: I am writing with respect to the Securities and Exchange Commission (SEC) and National Association of Securities Dealers (NASD) annual progress reports, dated December 31, 2002 and December 16, 2002, respectively, on initiatives to improve corporate bond transparency. I appreciate your sharing this information with the Committee on Financial Services, which now has jurisdiction over these matters. By letter dated September 29, 1998, following the hearing before this Committee’s Subcommittee on Finance and Hazardous Materials on improving price competition for bonds, I asked the SEC and NASD to submit progress reports to this Committee in each year through 2003. On June 14, 1999, the House passed, by a vote of 332-1, H.R. 1400, the Bond Price Competition Improvement Act of 1999, which I cosponsored, while former SEC Chairman Arthur Levitt also pushed for better disclosure of corporate bond trading data, calling it a "needlessly dark corner" of the U.S. markets. I retain a strong interest in this matter and commend you for the substantial progress that you have made despite delays and challenges in the wake of the Sept. 11 terrorist attacks and the market slump. Your reports indicate that the Trade Reporting and Compliance Engine (TRACE) was implemented on July 1, 2002. SEC Chairman Pitt’s transmittal letter observes that "the implementation of TRACE will greatly increase the transparency of the corporate bond market and enhance the ability of the NASD to conduct surveillance of this important market." The SEC report notes that the number of alternative trading systems that trade debt securities has remained relatively unchanged from last year, i.e., 24 systems as compared to 23 at this time last year, reflecting significant consolidation as trading firms have merged or ceased operations. In addition, the SEC reports that trading volume on these systems remains low. The NASD report notes that 1,881 NASD member firms out of 5,448 have signed up for TRACE reporting, and that the TRACE-reportable universe currently consists of over 24,600 corporate debt issues. The report indicates that dissemination occurs for 536 of these issues, with 469 of these being the largest, most liquid investment grade bonds, and 50 being noninvestment grade bonds that were transferred from the high-yield FIPS system when it was dismantled. Although limited in number, the bonds currently subject to dissemination represent approximately 51% of daily TRACE-eligible investment grade volume and 40% of the daily transactions, and, for TRACE-eligible noninvestment grade debt, 10% of daily volume and 11% of daily transactions, according to the NASD report. I look forward to improvement in these numbers. The NASD report also announces the implementation of a public TRACE website where investors can gain access to disseminated data free of charge. I commend you for this important feature and, noting that it is a work in progress, encourage you to work with users to make it as useful and the information as timely as possible. I also note from the NASD report that a Bond Transaction Reporting Committee (BTRC) was formed in 2001 for the purpose of studying and reporting to the NASD Board on, among other things, the effect that the dissemination of price and other information in TRACE-eligible securities transactions has upon the liquidity of those markets. This is an important issue. Equally important, however, is the impact that dissemination of this information has upon price competition and the narrowing of spreads; I respectfully request that your final progress reports cover these two important investor protection issues as well. In closing, I note and thank Mr. Glauber for his kind words about me, my staff, and the other members of this Committee "for the continued effort to better inform and protect the investing public and all market participants." I assure you that I will continue to encourage and support efforts to ensure that our markets are the fairest and most transparent possible for investors. Sincerely, JOHN D. DINGELL cc: The Honorable W. J. "Billy" Tauzin, Chairman The Honorable Michael G. Oxley, Chairman The Honorable Barney Frank, Ranking Member | |
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