Federal Register, Volume 64 Issue 107 (Friday, June 4, 1999)

[Federal Register Volume 64, Number 107 (Friday, June 4, 1999)]
[Notices]
[Pages 30078-30081]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-14113]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41457; File No. SR-MSRB-99-03]

Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the Municipal Securities
Rulemaking Board Relating to Reports of Sales and Purchases, Pursuant
to Rule G-14

May 26, 1999.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on April 28, 1999, the Municipal Securities Rulemaking Board (``Board''
or ``MSRB'') filed with the Securities and Exchange Commission
(``Commission'' or ``SEC'') a proposed rule change (File No. SR-MSRB-
99-03). The proposed rule change is described in Items I, II, and III
below, which Items have been prepared by the Board. The MSRB has
designated this proposal as one constituting a stated policy, practice
or interpretation with respect to the enforcement of an existing rule
under Section 19(b)(3)(A) \3\ of the Act which renders the proposal
effective upon receipt of the filing by the Commission. 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.
\3\ 15 U.S.C. 78s(b)(3)(A).
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change

The Board is filing a proposed rule change concerning the Board's
Transaction Reporting Program. The proposed rule change states the
Board's intention to publish for comments a sample Daily Transaction
Report which covers a five day period and contains information on
individual transactions in frequently-traded municipal securities, as
reported by dealers under Rule G-14.
The proposed rule change is as follows in italics:

Notice--Sample Transparency Reports With Data on Individual
Transactions in Frequently-Traded Securities Available for Review

A long standing goal of the Municipal Securities Rulemaking Board
is providing market participants with more information about the value
of securities.\4\ Toward this end, the Board

[[Page 30079]]

established its Transaction Reporting Program, which has provided
increasing levels of information during the past five years. The Board
has consistently stated that its ultimate goal for the Program is to
collect and make available transaction information in a comprehensive
and contemporaneous manner.\5\
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\4\ See ``From the Chairman,'' MSRB Reports, Vol. 8, No. 5
(December 1988) at 2.
\5\See, e.g., ``Board to Proceed with Pilot Program to
Disseminate Inter-Dealer Transaction Information,'' MSRB Reports,
Vol. 14, No. 1 (January 1994) at 13; ``Reporting Inter-Dealer
Transactions to the Board: Rule G-14,'' MSRB Reports, Vol. 14, No. 5
(December 1994) at 3-6; and ``Transaction Reporting Program for
Municipal Securities,'' MSRB Reports, Vol. 15, No. 1 (April 1995) at
11-15.
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The Board is now publishing for comment sample Daily Transaction
Reports with individual transaction information for issues that trade
four or more times on an give day. The sample Daily Transaction Reports
represents the next step in making transaction price information more
readily available to investors and other market participants. Release
of the sample reports builds upon tow earlier phases of transparency--
the Board's Inter-Dealer Daily Report and the Combined Daily Report.

Background

The Inter-Daily Report

The Board began disseminating price and volume information on
municipal securities on January 1995 with the production of the Inter-
Dealer Daily Report. Each business day since its inauguration, this
report has provided statistics on total inter-dealer market activity
the previous day and information about price and volume for each
frequently traded issue--i.e., each issue that was traded between
dealers four or more times during the day. The report includes the
total par value traded in each frequently traded issue, the high and
low prices, and average prices of representative trades.\6\
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\6\ The average price of all trades with par value between
$100,000 and $1 million is displayed in the report.
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The initial design of the Inter-Dealer Daily Report was based upon
the distinctive aspects of the municipal securities market that
distinguish it from the exchange-listed and NASDAQ markets, where
transaction price transparency is the norm. A primary distinguishing
characteristic of the municipal securities market is the large number
of outstanding issues. There are approximately 1.3 million municipal
securities that are distinct, non-fungible entities for purposes of
trading and reporting, compared to a much smaller number of equity
issues, and their frequency of trading also differs substantially from
patterns in the exchange and NASDAQ markets. While, on any given day, a
certain number of municipal securities are traded frequently, the
identity of these frequently traded issues is continually changing over
time. Another distinguishing characteristic is that, in the municipal
securities market, most issues are purchased by ``buy and hold''
investors relatively quickly after initial issuance. When frequent
trading does occur in an issue, it generally occurs in connection with
issuance and then subsides.
The Board identified a reporting threshold of four trades a day in
1994, based upon its belief that reporting an isolated transaction in a
security does not necessarily provide a reliable indicator of ``market
price'' and might be misleading to an observer not familiar with the
market. At the same time, the Board made a commitment to review the use
of the Inter-Dealer Daily Report as experience was obtained and to
consider expanding the information included.⁷ In its
approval order for the Inter-Dealer Daily Report, the Commission noted
that the MSRB, in proceeding to subsequent levels of transparency,
``should continue to work toward publicly disseminating the maximum
level of useful information to the public while ensuring that the
information and manner in which it is presented is not misleading.''
^{8
---------------------------------------------------------------------------}7 See Securities Exchange Act Release No. 34458 (July 28,
1994).
8 See Securities Exchange Act Release No. 34955 (November 9,
1994).
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The Combined Daily Report

The Board proposed in August 1996 to expand the transparency
program by adding to the daily public report information about
transactions between dealers and their customers.⁹ The
Commission approved the expansion in November 1996.¹⁰
Dealers have been required to report customer transaction information
to the Board since March 1, 1998, and the Board began production of a
Combined Daily Report which incorporated both inter-dealer and customer
transaction information on August 24, 1998.¹¹ This report,
which is made available on T+1 prior to the beginning of the trading
day, is used by market participants to help gauge the value of
municipal securities.
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9 See ``Board to Proceed with Customer Transaction Reporting
Program,'' MSRB Reports, Vol. 16, No. 3 (September 1996) at 3-10.
10 See Securities Exchange Act Release No. 37998 (November 29,
1996).
11 See ``Availability of Information on Transactions in
Municipal Securities: Rule G-14,'' MSRB Reports, Vol. 19, No. 1
(February 1999) at 23.
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The Board currently has nine subscribers to the Combined Daily
Report. Most of these are information vendors that redistribute to
their own subscribers and/or use the information in various securities
valuation products that they market. The Board has used the customer
transaction information to create a surveillance database of all trade
data which is has made available to the Commission, the National
Association of Securities Dealers (NASD) and the bank regulatory
agencies for market surveillance and enforcement purposes.

Proposed New Daily Transaction Report

As a step to increase transparency beyond the market summary
information provided in Combined Daily Reports, the Board now is
proposing to make data available on individual transactions in
securities that were traded four or more times on the previous day and
is publishing samples of a new Daily Transaction Report for comments.
The new Daily Transaction Report, once it receives Commission approval
and becomes operational, would substantially increase the amount of
available information compared to that provided in the Combined Daily
Report. Currently, the Combined Daily Report provides a one-line
summary of trading in each of approximately 1,072 frequently-traded
issues. In comparison, for each transaction in a frequently-traded
security,¹² the sample Daily Transaction Reports display the
CUSIP number and a short description of the traded issue, the time of
trade execution, the par value traded, and the dollar price of the
trade.¹³ As part of the format of the sample Reports, prices
of sales to customers, which represent the

[[Page 30080]]

prices that customers can expect to pay when purchasing securities, are
in a column separate from prices of all other trades (i.e., purchases
from a customer or inter-dealer trades), which represent wholesale
market activity. Issues are ordered by frequency of trading, and,
within an issue, trades are displayed in order of time of trade, from
the earliest reported time of trade to the latest.¹⁴ Trade
data now being received by the Board indicates that the new Daily
Transaction Reports on average would provide detailed information daily
on approximately 9,000 individual transactions in the 1,000 frequently-
traded issues. As these statistics illustrate, the detailed transaction
data in the new Reports would increase greatly the amount of available
municipal securities price information and would display a more
complete picture of the market than any existing public records.
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12 In determining whether a reported transactions will be
included for purposes of the Daily Report eligibility, certain
transaction records are eliminated from consideration if they
contain what appear to be obvious errors (e.g., invalid or unknown
CUSIP number, missing dollar price). The Board continually monitors
the data it receives for errors and informs the dealer or its agent
of each error that would eliminate a transaction from the Report.
The Board is working continually with dealers and enforcement
agencies such as the NASD to improve the quality of reported data
and dealer compliance with rule G-14 reporting requirements.
13 An attempt is made to calculate a dollar price on when-issued
transactions submitted with a yield but no dollar price. In such a
case, if there is sufficient securities data available to calculate
dollar price from yield (e.g., if coupon or dated date are not
known) or if the dollar price cannot be calculated using a standard
semiannual compounding formula and a 30/360 day-count, the
transaction is not included in the Daily Transaction Report. See
``Public Reporting of Transactions in Municipal Securities: Rule G-
14,'' MSRB Reports, Vol. 18, No. 2 (August 1998) at 25-27.
14 Where trades were reported with invalid or no time of trade,
the report shows the time of trade as ``0'' and these trades are
listed first within the issue.
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Five sample Daily Transaction Reports will be available beginning
April 29, 1999. The Reports will include information on transactions
reported to the Board by midnight on trade date between March 22 and
March 26, 1999. The sample Daily Transaction Reports will be available
on the Board's Web site at WWW.MSRB.ORG. Subscribers to the current
Inter-Dealer Daily Report also will be able to access the sample
Reports through the computer bulletin board that they normally use to
access Daily Reports. Printed copies will be available for inspection
at the Board's offices.
The Board intends to disseminate the Daily Transaction Report by a
service similar to that now used for the Inter-Dealer and Combined
Daily Reports. In this service, electronic files are made available via
the Transaction Reporting System's Bulletin Board. Electronic versions
of the reports will be made available by approximately 7:00 am each
business day to subscribers. The Board will continue to make the
surveillance database of all trade data, including dealer identities,
available to the Commission, the NASD and the bank regulatory agencies.

Comments Requested

The Board invites comment on the format of Daily Transaction
Reports so that the Board can make the new Reports as useful as
possible. Is the organization of the proposed Report appropriate for
effective use? When operational, should the proposed reports be made
available electronically by the same means and in the same computerized
formats as the Inter-Dealer and Combined Daily Reports? Is there value
in continuing to produce the Combined Daily Report, which summarizes
the price and volume data of the Daily Transaction Report? The Board
requests that comment on the sample Daily Transaction Report be made in
writing prior to July 1, 1999.

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 Board 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
texts of these statements may be examined at the places specified in
Item IV below. The Board has prepared summaries, set forth in Section
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
As a step to increase transparency beyond the market summary
information provided in Combined Daily Reports, the Board intends to
publish a sample Daily Transaction Report covering a five day period
containing information on individual transactions in frequently-traded
municipal securities, as reported by dealers under Rule G-14. The
sample Daily Transaction Report represents the next step in
disseminating meaningful and comprehensive transaction information. The
Board is inviting comments from market participants and the public on
the format to be used in disseminating large quantities of information
about individual transactions.
The new Daily Transaction Report, once it receives Commission
approval and becomes operational, would substantially increase the
amount of information available compared to that currently provided in
the Combined Daily Report. Currently, the Combined Daily Report
provides a one-line summary of trading in each of approximately 1,072
frequently-traded issues. In comparison, for each transaction in a
frequently-traded security, the sample Daily Transaction Report will
display the CUSIP number and a short description of the traded issue,
the time of trade execution, the par value traded, and the dollar price
of the trade. In addition, the sample Daily Transaction Report shows
prices of sales to customers, which represent the prices that customers
can expect to pay when purchasing securities, in a column separate from
prices of all other trades (i.e., purchases from a customer or inter-
dealer trades), which represent wholesale market activity. Issues will
be ordered by frequency of trading and within an issue trades will be
displayed in order of time of trade, from the earliest reported time of
trade to the latest. Trade data now being received by the Board
indicates that the new Daily Transaction Reports on average would
provide detailed information daily on approximately 9,000 individual
transactions in the 1,000 frequently-traded issues. As these statistics
illustrate, the detailed transaction data in the new Reports should
increase greatly the amount of available municipal securities price
information and should display a more complete picture of the market
than any existing public records.
2. Basis
The Board believes the proposed rule change is consistent with
Section 15B(b)(2)(C) of the Act, which provides that the Board'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, to remove
impediments to and perfect the mechanism of a free and open market in
municipal securities, and, in general, to protect investors and the
public interest.

B. Self-Regulatory Organization's Statement on Burden on Competition

The Board does not believe that the proposed rule change will
impose any burden on competition in that it applies equally to all
dealers in municipal securities.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received from Members, Participants, or Others

Written comments have been solicited. However, none have been
received to date.

III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action

The Board has designated this proposed rule change as constituting
a

[[Page 30081]]

stated policy, practice, or interpretation with respect to the meaning,
administration, or enforcement of an existing Board rule under section
19(b)(3)(A) \15\ of the Act, and rule 19b-4(f)(1) thereunder,\16\ which
renders the proposed rule change effective upon receipt of this filing
by the Commission. The proposed rule change describes the plan for the
Board to provide sample data from the Board's Transaction Reporting
System so that the Board can obtain comment on the format of a new
Daily Transaction Report and move expeditiously forward with its
previously announced plan to make public transaction data more useful
and comprehensive. At any time within sixty days of the filing of the
proposed rule change, the Commission may summarily abrogate such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
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\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ 17 U.S.C. 240.19b-4(f)(1).
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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 Act. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW, Washington, D.C. 20549-0609.
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 inspection and copying in the
Commission's Public Reference Room. Copies of the filing will also be
available for inspection and copying at the Board's principal offices.
All submissions should refer to File No. SR-MSRB-99-03 and should be
submitted by June 25. 1999.

For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-14113 Filed 6-3-99; 8:45 am]
BILLING CODE 8010-01-M