The TRACE system provides information for all investors on approximately 29,000 corporate bonds, according to a press release from regulator. The 1% that are not covered are reported on a delayed basis and involve infrequently traded bonds that usually involve dealers and institutions, not retail investors.
The system is in place so investors can see what corporate bonds have traded recently, whether they are getting a fair price, whether a bond price has been rising or falling as of late, and whether a bond trades in patterns that are similar to the market as a whole, according to the news release.
Currently, dealers must report corporate bond transactions to TRACE within 30 minutes. The window will be shorted to 15 minutes in July, according to NASD. However, in practice, most trades – 82% as of December – are reported within five minutes.
The push behind this system comes largely to inform retail investors of the most up-to-date information on bond trading. “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 the news 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.”
TRACE was launched in July 2002 and initially reported on 500 corporate bonds. Since then, the number of bonds included has steadily increased to now include almost the entire market.