
[Federal Register: September 18, 2008 (Volume 73, Number 182)]
[Notices]               
[Page 54193-54194]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18se08-93]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58520; File No. SR-FINRA-2008-040]

 
Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Approving Proposed Rule Change To Eliminate the 
Requirement To Report Yield to TRACE and for FINRA To Calculate and 
Disseminate a Standard Yield

September 11, 2008.

I. Introduction

    On July 17, 2008, the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposal to eliminate the requirement for members to report yield to 
the Trade Reporting and Compliance Engine (``TRACE'') in connection 
with a transaction in a TRACE-eligible security, and instead for TRACE 
to calculate and disseminate a ``standard

[[Page 54194]]

yield.'' The proposal was published for comment in the Federal Register 
on August 7, 2008.\3\ The Commission received no comments on the 
proposal. This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 58283 (August 1, 2008), 
73 FR 46108 (August 7, 2008) (SR-FINRA-2008-040).
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II. Background

    NASD Rule 6230(c) currently requires a member, in connection with a 
transaction in a TRACE-eligible security, to report various pieces of 
information to TRACE, including, for most transactions, the lower of 
yield to call or yield to maturity.\4\ Upon receipt of that trade 
report, TRACE disseminates certain information about the transaction 
(except if it is a Rule 144A transaction), including the yield as 
reported by the member. TRACE calculates the standard yield \5\ but 
generally does not disseminate it.\6\
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    \4\ The member is not required to report yield if the TRACE-
eligible security is in default; the interest rate on the security 
floats; the interest rate will or may be ``stepped-up'' or 
``stepped-down'', and the amount of increase or decrease is an 
unknown variable; the security is a pay-in-kind (``PIK'') security; 
the principal or interest to be paid is an unknown variable or is an 
amount that is not currently ascertainable; or if FINRA determines 
that reporting yield would provide inaccurate or misleading 
information concerning the price of, or trading in, the security. 
See NASD Rule 6230(c)(13).
    \5\ FINRA stated that the standard yield in TRACE: (1) Is 
calculated as the internal rate of return according to a discounted 
cash flow model; (2) is calculated, in a principal trade, on the 
reported price, which includes the mark-up/mark-down, and in an 
agency trade, on the reported price and reported commission; (3) 
does not include any fees or charges that are not included, in a 
principal trade, as part of the reported price, and in an agency 
trade, in the reported commission; (4) is calculated as the lower of 
yield to call (if the bond is callable) and yield to maturity, or 
so-called ``yield-to-worst;'' and (5) is calculated utilizing a 
methodology that is widely used by professionals in the securities 
industry.
    \6\ Standard yield is included in the disseminated TRACE data 
when the member is required to report yield but fails to do so.
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    FINRA has proposed (1) to eliminate the requirement for members to 
report yield; and (2) to disseminate the standard yield in most 
cases.\7\ FINRA stated that there currently is no uniformity in the 
manner by which members calculate yield, and that disseminating 
standard yield--calculated according to a single formula and with a 
uniform set of assumptions--will provide more useful information to 
market participants. Moreover, FINRA believes that it may be useful for 
customers to compare the standard yield in a transaction as reported by 
TRACE against the member-calculated yield that the member provides on 
the customer confirmation required by Rule 10b-10 under the Act.\8\
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    \7\ TRACE would not disseminate a standard yield for any 
transaction where a member currently is not required to report yield 
under NASD Rule 6230(c)(13). See supra note 4.
    \8\ 17 CFR 240.10b-10.
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    Vendors. FINRA also has proposed to require that data vendors and 
redistributors that provide TRACE information display the yield. 
However, certain vendors desire to disseminate a yield calculated by 
the vendor, rather than the standard yield. FINRA would permit this 
flexibility, provided that a vendor displaying a yield other than the 
standard yield disclose that fact.
    Effective Date. FINRA will announce the effective date of the 
proposed rule change in a Regulatory Notice to be published no later 
than 60 days following Commission approval. The effective date would be 
no later than 90 days following publication of that Regulatory Notice.

III. Discussion and Findings

    After careful consideration, the Commission finds that the proposed 
rule change is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to a national securities 
association.\9\ In particular, the Commission finds that the proposed 
rule change is consistent with section 15A(b)(6) of the Act,\10\ which 
requires, among other things, that FINRA rules be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, and in general to protect investors and 
the public interest. The Commission believes that the proposal will 
likely improve transparency in the corporate debt markets by making 
available a standard yield for most transactions that is calculated 
using an industry-recognized formula with a uniform set of assumptions. 
At the same time, the proposal reduces regulatory burdens by relieving 
FINRA members of the obligation to calculate and report yield for each 
transaction in a TRACE-eligible security.
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    \9\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \10\ 15 U.S.C. 78o-3(b)(6).
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IV. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\11\ that the proposed rule change (File No. SR-FINRA-2008-040) be, 
and hereby is, approved.
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    \11\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-21762 Filed 9-17-08; 8:45 am]

BILLING CODE 8010-01-P
