[Federal Register Volume 77, Number 26 (Wednesday, February 8, 2012)]
[Notices]
[Pages 6615-6618]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-2831]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-66309; File No. SR-MSRB-2012-01]
Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Notice of Filing of Amendments to Rule G-14, on Reports of Sales
or Purchases, Including the Rule G-14 RTRS Procedures, and Amendments
to the Real-Time Transaction Reporting System
February 2, 2012.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is
hereby given that on January 20, 2012, the Municipal Securities
Rulemaking Board (``MSRB'') filed with the Securities and Exchange
Commission (``SEC'' or ``Commission'') the proposed rule change as
described in Items I, II, and III below, which Items have been prepared
by the MSRB. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The MSRB is filing with the SEC a proposed rule change consisting
of amendments to Rule G-14, Reports of Sales or Purchases, including
the Rule G-14 RTRS Procedures, and amendments to the Real-Time
Transaction Reporting System (``RTRS'') information system and
subscription service (the ``RTRS Facility''; collectively, ``proposed
rule change''). The proposed changes to Rule G-14 would remove certain
outdated information. The proposed changes to the RTRS Facility would
(A) remove certain outdated information and amend certain definitions
to reflect current system operating hours and business days; (B) add an
RTRS-calculated yield to the information disseminated for inter-dealer
transactions; (C) remove certain infrequently used data reporting
requirements; (D) require dealers to submit dollar prices for certain
trades; and (E) reduce the number of customer trades suppressed from
dissemination because of potentially erroneous price/yield
calculations. The MSRB proposes that the proposed rule change be
implemented in three phases, as further described herein.
The text of the proposed rule change is available on the MSRB's Web
site at www.msrb.org/Rules-and-
[[Page 6616]]
Interpretations/SEC-Filings/2012-Filings.aspx, at the MSRB's principal
office, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the MSRB included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The MSRB has prepared summaries, set forth in Sections
A, B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Amendments to Rule G-14, on Reports of Sales or Purchases, and Rule
G-14 RTRS Procedures. MSRB Rule G-14 requires brokers, dealers, and
municipal securities dealers (collectively, ``dealers'') to report
certain information about each purchase and sale transaction effected
in municipal securities to RTRS. Such transaction information is made
available to the public, the SEC, the Financial Industry Regulatory
Authority (``FINRA'') and certain federal bank regulatory agencies to
assist in the inspection for compliance with and enforcement of MSRB
rules. The reporting requirements are further outlined in Rule G-14
RTRS Procedures and the RTRS Users Manual.\3\
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\3\ Rule G-14 RTRS Procedures are included in the text of MSRB
Rule G-14, and the RTRS Users Manual is available on the MSRB Web
site at www.msrb.org. The RTRS Users Manual will be revised as
necessary to reflect the changes made by the proposed rule change.
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The proposed rule change would amend Rule G-14 and the Rule G-14
RTRS Procedures to update certain references (such as references to the
National Association of Securities Dealers, the predecessor of FINRA);
eliminate certain provisions that are no longer relevant (such as
provisions relating to testing during the original RTRS start-up
period) or that, by their original terms, have expired; and conform
terms in certain definitions.
Amendments to the RTRS Facility. The RTRS Facility provides for the
collection and dissemination of information about transactions
occurring in the municipal securities market, and requires dealers to
submit information about each purchase and sale transaction effected in
municipal securities. The proposed rule change would (A) remove certain
outdated information and reporting requirements and amend certain
definitions to reflect current system operating hours and business
days; (B) modify RTRS specifications to perform certain yield
calculations for inter-dealer transactions; (C) remove certain
infrequently used data reporting requirements; (D) require dealers to
submit dollar prices for certain trades; and (E) modify RTRS
specifications to reduce the number of trades suppressed from
dissemination because of erroneous price and yield calculations.
Remove certain outdated information and conform definitions to
reflect current system operating hours and business days. The proposed
rule change would remove references throughout the text of the RTRS
Facility to prior amendments to Rule G-14, to certain testing
requirements and to the implementation plan relevant to the initial
phases of the RTRS system; update current hours of operation; conform
certain definitions to reflect such change; and make non-substantive
revisions to the language of certain portions of the RTRS Facility to
reflect the passage of time since its initial approval.
Yields on inter-dealer transactions. Inter-dealer transaction
reporting is accomplished by both the purchasing and selling dealers
submitting information about the transaction to the DTCC's real-time
trade matching system (``RTTM''). Information submitted to RTTM is
forwarded to RTRS for trade reporting. For most inter-dealer
transactions, dealers report final money, par amount and accrued
interest to RTTM--as opposed to a dollar price and yield \4\ as is done
for customer trades--and RTRS computes a dollar price from these values
for inter-dealer transaction price dissemination.\5\ Currently, RTRS
does not compute a corresponding yield from the RTRS-computed dollar
price for dissemination, resulting in a disparity between what is
disseminated for inter-dealer and customer transactions.
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\4\ Dollar price and yield on customer transactions are required
to be computed in the same manner as required under MSRB Rule G-
15(a), on customer confirmations. Accordingly, from the transaction
dollar price, dealers report yield calculated to the lower of an in-
whole call feature or maturity.
\5\ For transactions in new issue securities traded on a when,
as and if issued basis prior to the closing date being known,
dealers only report a dollar price or yield since a final money and
accrued interest calculation cannot be performed.
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To facilitate yield-based comparisons of transaction data across
securities, the proposed rule change would cause RTRS to be
reprogrammed to perform this calculation so that a yield for most
inter-dealer transactions would be added to the information
disseminated from RTRS, thereby improving the usefulness of the inter-
dealer data disseminated to subscribers and displayed on the MSRB's
Electronic Municipal Market Access (EMMA[reg]) Web site.\6\ Since
EMMA[reg] is a subscriber to the RTRS real-time subscription service,
the yield disseminated for inter-dealer transactions also would be
displayed on EMMA[reg] in the same manner as it would be provided to
RTRS subscribers.\7\ This amendment to the RTRS Facility is reflected
in the changes under the heading ``Price Dissemination by RTRS--List of
Information Items to be Disseminated'' and ``MSRB Real-Time Transaction
Data Subscription Service--Description--Transaction Data Disseminated--
Yield (if applicable),'' and conforming changes to the RTRS Users
Manual will be made.
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\6\ In addition to calculating and disseminating yield for
future inter-dealer transactions, amendments to RTRS specifications
would calculate and disseminate yields for historical inter-dealer
transactions in RTRS to the extent that such calculations can be
accurately performed.
\7\ Since the RTRS subscription service already includes a field
for yield, no significant system changes should be necessary for
existing RTRS subscribers to receive yields on inter-dealer
transactions.
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Transaction reporting requirements. MSRB rules on transaction
reporting contain two requirements that were included in the original
design for RTRS in 2005 to provide additional details about certain
transactions for use in market surveillance. These requirements have
applied to few transactions, yet continue to generate questions from
dealers, and have provided only limited value for use in market
surveillance. The proposed rule change would revise the RTRS
specifications to remove these requirements.
The first of these two requirements relates to inter-dealer
transactions and requires the identity of an ``intermediate dealer,''
or correspondent of a clearing broker that passes data to the clearing
broker about transactions effected by a third dealer (``effecting
dealer''), to be included on applicable trade reports. One of the
original purposes of having the intermediate dealer included in a trade
report was to assist market surveillance staff by having an additional
dealer associated with a transaction reported in the event that the
effecting dealer's identity was erroneously reported. However, few
[[Page 6617]]
transaction reports contain such an intermediate dealer and, since the
November 2009 enhancement to transaction reporting to add the effecting
broker to the matching criteria in RTTM, the identity of the effecting
dealer is rarely, if ever, erroneous. The proposed rule change would
delete the requirement for dealers to identify the intermediate dealer.
This amendment to the RTRS Facility is reflected by the deletion of the
penultimate paragraph under the heading ``RTRS Facility--Enhancement of
Information Available to Regulators,'' and conforming changes to the
RTRS Users Manual will be made.
The second requirement applies to any transaction effected at a
price that substantially differs from the market price as a result of
the parties to the transaction agreeing to significantly deviate from a
normal settlement cycle. For such transactions, dealers are required to
include an identifier on the trade report that allows the trade report
to be entered into the RTRS audit trail yet suppressed from price
dissemination. Since a small number of transactions are reported with
this identifier, for example only .01% of trade reports were identified
with this indicator in August 2011, these transactions could be
reported using the generic ``away from market'' indicator used for
reporting any transaction at a price that differs from the current
market price for the security to simplify transaction reporting
requirements. Thus, concurrently with the elimination of the
intermediate dealer reporting requirement, the RTRS Users Manual would
be revised to delete the ``away from market--extraordinary settlement''
special condition indicator from RTRS and require that such
transactions be reported using the generic ``away from market''
indicator.
Reporting dollar price for all inter-dealer transactions. RTRS
currently computes a dollar price for inter-dealer transactions using
the final money, par amount and accrued interest submitted to DTCC.
Since the information reported for inter-dealer transactions also is
used by DTCC for purposes of clearance and settlement, DTCC procedures
require dealers to report par value as an expression of the number of
bonds traded as opposed to the actual par amount traded. If the par
value of a security is no longer a $1,000 multiple because, for
example, the issuer has prepaid a portion of the principal on a
security on a pro rata basis, dealers continue to report for inter-
dealer transactions par value expressed as the number of bonds (i.e.
ten bonds would be reported as $10,000 par value). Transactions between
dealers in this security would result in erroneous RTRS-calculated
dollar prices since the final money reported by the dealers would be
based on a transaction in a security for which each bond costs less
than $1,000.\8\
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\8\ For example, if an issuer has prepaid 50% of the principal
on a $1,000 denominated security, each bond would cost $500 so a
transaction of 10 bonds at ``par'' would be reported with a par
value of $10,000 and final money of $5000 resulting in an RTRS-
computed dollar price of $50. This anomaly only occurs on inter-
dealer transactions since customer transactions are reported with a
dollar price and yield. In this example, the dollar price on a
customer transaction in this security would be reported as $100, or
100% of the principal amount.
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Since MSRB transaction reporting for inter-dealer transactions
began in 1994, a very small portion of inter-dealer transactions have
been in securities with a non-standard $1,000 par multiple.\9\ However,
primarily since many Build America Bonds issued in recent years
included partial call features with a pro-rata redemption provision,
there is a likelihood that many more securities may contain par values
that are no longer $1,000 multiples. In addition, there have been press
reports that more securities may be issued in nontraditional
denominations, such as securities issued in $25 par amounts similar to
preferred stock and other ``mini bonds'' with sub-$1,000 principal
values.
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\9\ Historically, this problem primarily has been limited to
transactions in certain municipal collateralized mortgage
obligations.
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To ensure that the dollar price disseminated for inter-dealer
transactions remains accurate and to minimize the impact on dealer
operations as well as the clearance and settlement use of the data
submitted to DTCC, the MSRB proposes to require dealers to report--in
addition to the information currently reported for inter-dealer
transactions--the contractual dollar price at which the transaction was
executed.\10\ This amendment to the RTRS Facility is reflected in the
changes under the heading ``MSRB Real-Time Transaction Data
Subscription Service--Description--Transaction Data Disseminated--
Dollar Price,'' and conforming changes to the RTRS Users Manual will be
made.
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\10\ For data quality purposes, RTRS would compare the buy and
sell-side contractual dollar prices and return errors to dealers in
the event of a material difference between the two reported dollar
prices and continue to calculate a dollar price from the reported
final money, par value and accrued interest. Since the dealer
reported dollar price would not be used for clearance or settlement
at DTCC, this data field would be able to be modified in RTRS by
dealers to correct errors, even after trade matching had occurred.
In the event that the dollar prices disagree between dealers, RTRS
would disseminate the RTRS-calculated dollar price and if the dealer
reported dollar prices agree yet differ from the RTRS-calculated
dollar price (which would occur if the security par value is no
longer a $1,000 multiple) RTRS would disseminate the dealer reported
dollar price.
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Increase dissemination of customer transactions. As described
above, dealer reports of customer transactions include both a dollar
price and yield. Depending on whether the transaction was executed on
the basis of a dollar price or yield, a corresponding value must be
computed and reported to RTRS by the dealer consistent with the
customer confirmation requirements so that the corresponding value
reflects a value to the lower of an in-whole call feature or maturity.
RTRS also computes the dollar price from the reported yield on customer
transactions using security descriptive information from the RTRS
security master as a data quality check to ensure that the reported
information is accurate. Currently, this data quality check returns an
error to dealers and suppresses the transaction from being disseminated
in the event that the dollar price computed by RTRS does not exactly
match the dollar price reported by the dealer. Dealers receiving this
error are required to review the information reported and, if
incorrect, modify the transaction information in RTRS. However, in some
cases, dealers submit correct information yet RTRS computes an
erroneous dollar price as a result of an error in the security
descriptive information used by RTRS.\11\
In 2010, of those trades receiving this error, over 75% of the
reported dollar prices disagreed with the RTRS-calculated dollar price
by less than one dollar. To increase the number of customer
transactions disseminated, the proposed rule change would cause RTRS to
be reprogrammed to adjust the tolerance of the error code so that the
error would continue to be returned to dealers for customer
transactions where the reported dollar price disagrees with the RTRS
calculated price but allow the trade report to be disseminated so long
as the dealer and RTRS-calculated dollar prices are within $1 of each
other. Further, since the disseminated dollar price would be unable to
be exactly verified, RTRS would also be programmed to include with the
disseminated trade report an indicator that the dollar price of these
trades was unable to be verified. Thus, concurrently with the amendment
to require dollar price reporting for all inter-dealer transactions,
the RTRS
[[Page 6618]]
Users Manual would be revised to reflect these changes in programming.
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\11\ In these cases, there is no action the dealer can take to
disseminate the trade report and, to ensure the integrity of RTRS,
the MSRB does not manually manipulate trade data or security
descriptive information to cause the trade to meet the criteria of
the error code.
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Phased Effective Dates of Proposed Rule Change. The MSRB proposes
that the proposed rule change be implemented in three phases. Those
changes to Rule G-14, the Rule G-14 RTRS Procedures, and the RTRS
Facility removing outdated provisions and amending certain definitions,
as described above under the caption ``Amendments to the RTRS
Facility--Remove certain outdated information and conform definitions
to reflect current system operating hours and business days'', would be
made effective upon approval by the SEC. Those changes to the RTRS
Facility not requiring dealers to perform significant system changes,
as described above under the captions ``Amendments to the RTRS
Facility--Yields on inter-dealer transactions'' and ``Amendments to the
RTRS Facility--Transaction reporting requirements'', would be made
effective on April 30, 2012. Those changes to the RTRS Facility
requiring dealers and subscribers to the RTRS subscription service to
make significant system changes, as described above under the captions
``Amendments to the RTRS Facility--Reporting dollar price for all
inter-dealer transactions'' and ``Amendments to the RTRS Facility--
Increase dissemination of customer transactions'', would be made
effective on a date to be announced by the MSRB in a notice published
on the MSRB Web site, which date shall be no later than November 30,
2012 and shall be announced no later than 30 days prior to the
effective date thereof.
2. Statutory Basis
The MSRB believes that the proposed rule change is consistent with
Section 15B(b)(2)(C) of the Exchange Act, which provides that the
MSRB's rules shall:
be designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to
foster cooperation and coordination with persons engaged in
regulating, clearing, settling, processing information with respect
to, and facilitating transactions in municipal securities and
municipal financial products, to remove impediments to and perfect
the mechanism of a free and open market in municipal securities and
municipal financial products, and, in general, to protect investors,
municipal entities, obligated persons, and the public interest.
The MSRB believes that the proposed rule change is consistent with
the Exchange Act. The proposed rule change would remove impediments to
and perfect the mechanism of a free and open market in municipal
securities by improving trade reporting and market transparency. The
proposed rule change would facilitate comparison of trade data across
securities and within data for a security, thereby contributing to
fairer pricing; improve the reliability and accuracy of price
information disseminated for inter-dealer transactions, and increase
the number of customer transactions disseminated to the market. These
changes would contribute to the MSRB's continuing efforts to improve
market transparency and to protect investors and the public interest.
B. Self-Regulatory Organization's Statement on Burden on Competition
The MSRB does not believe that the proposed rule change will impose
any burden on competition not necessary or appropriate in furtherance
of the purposes of the Exchange Act. The proposed rule change would be
applicable to all dealers and would be made effective over a period of
time, thereby allowing dealers sufficient time to make the necessary
changes to their systems. The improved reliability of inter-dealer
price information, the improved ability to compare prices, and the
increase in customer trades disseminated to the market would outweigh
any potential negative impact on dealers.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Exchange Act. Comments may be submitted
by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-MSRB-2012-01 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-MSRB-2012-01. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml.). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of such filing also will be available for
inspection and copying at the MSRB's offices. All comments received
will be posted without change; the Commission does not edit personal
identifying information from submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-MSRB-2012-01 and should be submitted on
or before February 29, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\12\
Kevin M. O'Neill,
Deputy Secretary.
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\12\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2012-2831 Filed 2-7-12; 8:45 am]
BILLING CODE 8011-01-P