

[Federal Register: September 14, 2006 (Volume 71, Number 178)]
[Notices]               
[Page 54323-54325]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14se06-73]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54416; File No. SR-MSRB-2006-07]

 
Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Notice of Filing of Proposed Rule Change to MSRB Rule G-14 RTRS 
Procedures Relating to ``List Offering Price'' and ``Takedown'' 
Transactions

 September 8, 2006.
    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 August 15, 2006, the Municipal Securities Rulemaking Board (``MSRB'' 
or ``Board'') 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 substantially 
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 Commission a proposed rule change to 
Rule G-14 RTRS Procedures under Rule G-14, Reports of Sales or 
Purchases, to expand the usage of ``list offering price'' transactions 
to include certain inter-dealer ``takedown'' transactions and to 
require the reporting of these transactions as ``list offering price'' 
transactions on the first day of trading of a new issue. The text of 
the proposed rule change is available on the MSRB's Web site (http://www.msrb.org
), 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
    MSRB Rule G-14 requires brokers, dealers, and municipal securities 
dealers (collectively ``dealers'') to report information about each 
purchase and sale transaction effected in municipal securities to the 
Real-Time Transaction Reporting System (``RTRS'') in the manner 
prescribed by Rule G-14 RTRS Procedures. Rule G-14 requires that 
transactions effected with a time of trade during the hours of the RTRS 
business day be reported within fifteen minutes of the time of trade to 
an RTRS Portal.
    Under MSRB Rule G-14 RTRS Procedures, paragraph (a)(ii), there are 
three exceptions to this fifteen minute reporting requirement. The 
exception addressed by the proposed rule change currently allows 
syndicate managers, syndicate members and selling group members that 
effect trades in new issues on the first day of trading at the list 
offering price to report such trades by the end of the day on which the 
trades were executed.\3\ This exception is known as the ``List Offering 
Price'' exception.
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    \3\ The other two exceptions to the fifteen minute reporting 
rule are: (1) A dealer effecting a trade in a short-term instrument 
under nine months in effective maturity (including variable rate 
instruments, auction rate products, and commercial paper) shall 
report such trades by the end of the business day on which the 
trades were executed; and (2) a dealer shall report a trade within 
three hours of the time of trade if certain conditions apply. See 
MSRB Rule G-14 RTRS Procedures (a)(ii)(B) and (C).
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    The ``List Offering Price'' is defined as the publicly announced 
initial offering price at which a new issue of municipal securities is 
to be offered to the public.\4\ The MSRB provided the end-of-day 
reporting deadline for these customer transactions because of the 
substantial operational difficulties underwriters would face in 
reporting large numbers of List Offering Price transactions within a 
fifteen-minute window after the formal award. The MSRB also concluded 
that real-time dissemination of large numbers of primary market 
transactions occurring at the same price would not offer a substantial 
benefit to RTRS transparency objectives.
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    \4\ If the price is not publicly disseminated (e.g., if the 
security is a ``not reoffered'' maturity within a serial issue), the 
price is not a List Offering Price. See ``Reminder Notice on List 
Offering Price and Three-hour Exception for Real-Time Transaction 
Reporting: Rule G-14,'' MSRB Notice 2004-40 (December 10, 2004).
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    For purposes of RTRS transaction reporting, a ``Takedown'' 
transaction is

[[Page 54324]]

a primary market sale transaction executed on the first day of trading 
of a new issue by a sole underwriter or syndicate manager to a 
syndicate or selling group member at a discount from the List Offering 
Price. In a 2004 notice, the MSRB stated that these inter-dealer 
transactions must be reported within fifteen minutes of the time of 
execution and that they do not fall within the List Offering Price end-
of-day exception.\5\ As experience with real-time transaction reporting 
has increased, however, industry members have pointed out that Takedown 
transactions share many of the same characteristics as List Offering 
Price transactions. A high volume of Takedown transactions on the first 
day of trading in a new issue, for example, often presents operational 
difficulties for underwriters attempting to report all of their 
Takedown transactions within a fifteen-minute window. It also has been 
noted that prices for both Takedown transactions and List Offering 
Price transactions are set under an offering price agreement for the 
new issue and therefore do not necessarily reflect market prices at the 
time the transaction is effected. Thus, the proposed rule change would 
expand the definition of List Offering Price to include Takedown 
transactions, require use of an indicator on reports of all List 
Offering Price and Takedown transactions, and retain the end of the day 
exception from the normal fifteen minute reporting deadline for the 
expanded category of ``List Offering Price/Takedown'' transactions.\6\
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    \5\ See id.
    \6\ These List Offering Price/Takedown transactions would be 
designated with the same special condition indicator currently in 
use for List Offering Price transactions. The technical requirements 
for the current List Offering Price indicator are summarized in the 
Specifications for Real-Time Reporting of Municipal Securities 
Transactions which is available on-line at http://www.msrb.org. The 

draft revisions to the Specifications for the indicator identifying 
the List Offering Price/Takedown Transactions may be found in 
``Request for Comment on Draft Procedures for Reporting Special 
Condition Indicators on Certain New Issue Transactions,'' MSRB 
Notice 2006-10 (April 21, 2006).
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    The proposed List Offering Price/Takedown indicator would be 
required to be used by dealers when reporting any primary market sale 
transaction executed on the first day of trading of a new issue:
     By a sole underwriter, syndicate manager, syndicate member 
or selling group member at the published list offering price for the 
security (``List Offering Price Transaction''); or
     By a sole underwriter or syndicate manager to a syndicate 
or selling group member at a discount from the published list offering 
price for the security (``RTRS Takedown Transaction'').
    The indicator would be included on MSRB price transparency reports 
to designate to transparency report users that the trade report does 
not represent a normal secondary market transaction. The proposed rule 
change recognizes the similarities between List Offering Price and 
Takedown transactions and the dissimilarities between these 
transactions and secondary market transactions in a new issue. Since 
the secondary market transactions in a new issue are likely to provide 
the best gauge of the current market value for a new issue and may be 
reported to RTRS simultaneously with List Offering Price and Takedown 
transactions, the MSRB believes that transparency reports on the first 
day of trading for a new issue would be more useful if List Offering 
Price and Takedown transactions were identified with a special 
condition indicator.
2. Statutory Basis
    The MSRB believes that the proposed rule change is consistent with 
Section 15B(b)(2)(C) of the Act,\7\ 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, 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.
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    \7\ 15 U.S.C. 78o-4(b)(2)(C).
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    The MSRB believes that the proposed rule change is consistent with 
the Act because it will allow the municipal securities industry to 
produce more accurate trade reporting and transparency and will enhance 
surveillance data used by enforcement agencies.

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

    The MSRB does not believe that the proposed rule change will result 
in any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act since it would apply equally to 
all dealers.

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

    On April 21, 2006, the MSRB published for comment a notice with 
respect to reporting procedures for List Offering Price and Takedown 
transactions.\8\ In response, the MSRB received six comment letters 
from: The Bond Market Association (``TBMA''), Jerry L. Chapman, Private 
Investor (``Chapman''), Digital Assurance Certification LLC (``DAC''), 
First Southwest Company (``First Southwest''), Nuveen Investments 
(``Nuveen'') and Wulff, Hansen & Co. (``Wulff, Hansen'').\9\
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    \8\ MSRB Notice 2006-10 (April 21, 2006).
    \9\ The comment letter from Wulff, Hansen did not address the 
issues relating to List Offering Price and Takedown transactions in 
MSRB Notice 2006-10 (April 21, 2006). Rather, the comment letter 
discussed other aspects of the Notice that are not relevant to this 
rule filing.
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    TBMA, Chapman, DAC and Nuveen all indicated support for including 
Takedown trades in the definition of list price transactions and 
allowing such transactions to be reported by the end of the day. 
Chapman stated that he is ``happy to see the MSRB is * * * recognizing 
[that] a takedown trade is a list trade.'' First Southwest supported 
the proposal to include Takedown transactions ``within the definition 
of List Offering Price'' and giving such transactions the end-of-day 
exception from real-time reporting.\10\
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    \10\ First Southwest, however, opposed the proposal in MSRB 
Notice 2006-10 (April 21, 2006) that dealers would be required to 
use a special condition indicator for these transactions. The 
indicator, however, must be mandatory in order to be useful in 
distinguishing List Offering Price and Takedown transactions from 
secondary market transactions.
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    After reviewing these comments, the MSRB approved the draft 
amendments for filing with the SEC.

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

    The MSRB proposes an effective date for the proposed rule change of 
January 8, 2007. Within 35 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 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

[[Page 54325]]

change is consistent with the 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 e-mail to rule-comments@sec.gov. Please include 

File Number SR-MSRB-2006-07 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-MSRB-2006-07. This file 
number should be included on the subject line if e-mail 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 inspection and 
copying in the Commission's Public Reference Room. 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-2006-07 and should be submitted on or before October 5, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E6-15230 Filed 9-13-06; 8:45 am]

BILLING CODE 8010-01-P
