The National Association of Securities Dealers began full dissemination of transaction and price data on the entire universe of corporate bonds today, a development that it suggests, “may be the most significant innovation benefiting retail bond investors in decades”.

Full implementation of NASD’s Trade Reporting and Compliance Engine (TRACE) means real-time dissemination of transaction and price data for 99% of corporate bond trades.

TRACE was officially launched by NASD 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. It now covers almost all the 29,000 corporate bonds.

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% of transactions were reported in five minutes or less.

“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, in a release. “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.”

A recent NASD survey indicates that individual investors know little about how bond markets work. For instance, only 40% understood that bond prices fall as interest rates rise. Another 34% 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.

“The corporate bond market is no longer solely the domain of savvy institutional investors,” Shulman said. “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, the NASD says. Specifically, retail investors can determine:Ul>

  • whether the bond they’re interested in has traded recently;
  • whether they are getting a fair price;
  • whether the price of the bond they’re interested in has been rising or falling recently; and
  • 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 says it will add an online learning center called Smart Bond Investing to its investor education resources in the next 30 days.

    NASD is the leading private-sector provider of financial regulatory services in the United States.