TY - JOUR T1 - TRACE JF - The Journal of Trading SP - 49 LP - 66 DO - 10.3905/jot.2007.669801 VL - 2 IS - 1 AU - Harrell Smith Y1 - 2006/12/31 UR - https://pm-research.com/content/2/1/49.abstract N2 - The US corporate bond market has always been plagued by a severe lack of liquidity. Although corporate debt accounts for 20% of the overall US bond market by outstanding notional, average daily trade volumes are relatively small, accounting for only 2.2% of total US fixed income transactions. Once new issues emerge from an initial frenzy of trade activity, they tend to settle into "real money" buy-side accounts, where they can languish for years until maturity. In such an environment, dealers had no incentive to implement a price reporting mechanism that would shed light on an opaque, illiquid, and highly profitable market. As a result, prices were often inconsistent, varying widely even for trades of similar size executed within a few minutes of one another. The National Association of Securities Dealers' (NASD's) Trade Reporting and Compliance Engine (TRACE) represents the first major initiative aimed at making the US credit markets transparent. Launched in July 2002 and rolled out over the course of the next three years, TRACE promised to make the credit market more efficient via the timely dissemination of prices. This report presents an overview of TRACE, focusing on both technology and market structure issues, and provides an analysis of its potential impact on the dealer, buy-side, and retail investment communities.TOPICS: Legal and regulatory issues for structured finance, exchanges/markets/clearinghouses ER -