SEC Approves Publicly Reporting Trades of Privately Placed Bonds

September 18, 2013 Leave a comment

SEC Approves Publicly Reporting Trades of Privately Placed Bonds

The U.S. Securities and Exchange Commission approved a plan to publicly report trades of privately placed corporate bonds. The Financial Industry Regulatory Authority, the private-sector overseer of U.S. brokerages, asked the SEC for permission to use the Trace price-reporting system for the securities, and the U.S. government agency authorized the proposal on Sept. 6. Finra will announce the start of the system within 60 days of the SEC’s decision.“In approving the original Trace rules, the commission stated that price transparency plays a fundamental role in promoting the fairness and efficiency of U.S. capital markets,” the SEC said in its Sept. 6 statement. “To further the goal of increasing price transparency in the debt markets in general and the market for rule 144A securities in particular, the commission now believes that it is reasonable and consistent with the act for Finra to extend post-trade price transparency to Rule 144A transactions.”

Trace reporting, which was introduced in four stages beginning in 2002, has reduced trading of corporate bonds while cutting price volatility in the $4.2 trillion-a-year market, researchers at the Massachusetts Institute of Technology and Harvard University said earlier this month. Junk bond trading fell 15.2 percent and price dispersion shrank 8.5 percent in the 90 days after the final three phases started, according to the study that used Finra data.

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The price and size of trades of privately placed corporate bonds will be reported through Trace. As is also the case with regular corporate bonds tracked by Trace, the system won’t reveal the size of transactions greater than $5 million for investment-grade securities and $1 million for high-yield, high-risk debt — or bonds rated below Baa3 by Moody’s Investors Service and lower than BBB- at Standard & Poor’s — according to the SEC decision.

The change follows the Jumpstart Our Business Startups Act, a U.S. law approved last year that eliminated the prohibition against advertising private placements. Finra said it previously didn’t report trades of these securities to avoid violating that ban.

To contact the reporter on this story: Matthew Leising in New York at mleising@bloomberg.net

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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