
[Federal Register Volume 77, Number 58 (Monday, March 26, 2012)]
[Notices]
[Pages 17557-17560]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-7132]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66622, File No. SR-MSRB-2012-01]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Order Granting Approval 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

March 20, 2012.

I. Introduction

    On January 20, 2012, the Municipal Securities Rulemaking Board 
(``MSRB'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Exchange Act''),\1\ and Rule 19b-4 
thereunder,\2\ 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. The proposed rule change was published for comment in the 
Federal Register on February 8, 2012.\3\ The Commission received no 
comments on the proposed rule change. This order approves the proposed 
rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 66309 (February 2, 
2012), 77 FR 6615.
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II. Background and Description of Proposal

    The proposed rule change consists 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G-14 would remove certain outdated information.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the RTRS Facility would (A) remove certain outdated information and 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.
    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.\4\
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    \4\ 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

[[Page 17558]]

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 \5\ as is done 
for customer trades--and RTRS computes a dollar price from these values 
for inter-dealer transaction price dissemination.\6\ 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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    \5\ 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.
    \6\ 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[supreg]) Web site.\7\ Since 
EMMA[supreg] is a subscriber to the RTRS real-time subscription 
service, the yield disseminated for inter-dealer transactions also 
would be displayed on EMMA[supreg] in the same manner as it would be 
provided to RTRS subscribers.\8\ 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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    \7\ 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.
    \8\ 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 
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.\9\
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    \9\ 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 $5,000 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

[[Page 17559]]

multiple.\10\ 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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    \10\ 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.\11\ 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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    \11\ 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.\12\
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    \12\ 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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    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 Users Manual would be revised to reflect these changes in 
programming.
    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.

III. Discussion and Commission Findings

    The Commission has carefully considered the proposed rule change 
and finds that the proposed rule change is consistent with the 
requirements of the Exchange Act and the rules and regulations 
thereunder applicable to the MSRB.\13\ In particular, 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.\14\
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    \13\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition and capital formation. 15 U.S.C. 78c(f).
    \14\ 15 U.S.C. 78o-4(b)(2)(C).
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    The Commission believes that the proposed rule change is consistent 
with the Exchange Act because 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

[[Page 17560]]

transactions, and increase the number of customer transactions 
disseminated to the market. The Commission believes that these changes 
would contribute to the MSRB's continuing efforts to improve market 
transparency and to protect investors and the public interest.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\15\ that the proposed rule change (SR-MSRB-2012-01) be, 
and it hereby is, approved.
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    \15\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-7132 Filed 3-23-12; 8:45 am]
BILLING CODE 8011-01-P


