
[Federal Register Volume 77, Number 177 (Wednesday, September 12, 2012)]
[Notices]
[Pages 56244-56247]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-22395]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67792; File No. SR-MSRB-2012-07]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Notice of Filing of Proposed Amendments to the Real-Time 
Transaction Reporting System Information System and Subscription 
Service

September 6, 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 August 24, 2012, the Municipal Securities 
Rulemaking Board (``MSRB'') filed with the Securities and Exchange 
Commission (``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 Commission a proposed rule change 
consisting of amendments to the Real-Time Transaction Reporting System 
(``RTRS'') information system and subscription service (collectively, 
``proposed rule change''). The proposed rule change will enhance the 
transaction data publicly disseminated from RTRS in real-time by 
including the exact par value on all transactions with a par value of 
$5 million or less and including an indicator of ``MM+'' in place of 
the exact par value on transactions where the par value is greater than 
$5 million. The exact par value of transactions where the par value is 
greater than $5 million would be disseminated from RTRS five business 
days later.
    The text of the proposed rule change is available on the MSRB's Web 
site at www.msrb.org/Rules-and-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
    RTRS is a facility for the collection and dissemination of 
information about transactions occurring in the municipal securities 
market. Currently, transaction information disseminated from RTRS 
includes the exact par value on all transactions with a par value of $1 
million or less but includes an indicator of ``1MM+'' in place of the 
exact par value on transactions where the par value is greater than $1 
million. The exact par value of such transactions is disseminated from 
RTRS five business days later. The proposed rule change would enhance 
the transaction data publicly disseminated from RTRS in real-time by 
including the exact par value on all transactions with a par value of 
$5 million or less and including an indicator of ``MM+'' in place of 
the exact par value on transactions where the par value is greater than 
$5 million. The exact par value of transactions where the par value is 
greater than $5 million would be disseminated from RTRS five business 
days later.
Background
    MSRB Rule G-14, on transaction reporting, requires brokers, dealers 
and municipal securities dealers (collectively ``dealers'') to report 
all transactions in municipal securities to RTRS within fifteen minutes 
of the time of trade, with limited exceptions. Since the implementation 
of RTRS in 2005, the MSRB has made transaction data available to the 
public through subscription services designed to achieve the widest 
possible dissemination of transaction information with the goal of 
ensuring the fairest and most accurate pricing of municipal securities 
transactions.
    In addition to subscription services, MSRB makes publicly available 
for free transaction data on the Electronic Municipal Market Access 
(EMMA[supreg]) Web site. Since the launch of EMMA as a pilot in 2008, 
MSRB has incorporated into the display of market-wide and security 
specific information all transaction data disseminated from RTRS so 
that transaction information

[[Page 56245]]

would be available on the EMMA Web site simultaneously with the 
availability of information to subscribers to the RTRS subscription 
service.
Large Trade Size Masking
    In connection with the MSRB's predecessor end-of-day trade 
reporting system and the subsequent development of RTRS, MSRB received 
comments that, given the prevalence of thinly traded securities in the 
municipal securities market, it sometimes is possible to identify 
institutional investors and dealers by the exact par value included on 
trade reports. It was noted that, where the market for a specific 
security is thin and only one or two dealers are active, revealing the 
exact par amount also may convey information about a dealer's inventory 
(i.e., size of position and acquisition cost) and allow other dealers 
to use this information to trade against the dealer's position, thus 
reducing the incentive for a dealer to take large positions in these 
circumstances.
    To address these concerns, transaction information disseminated 
through RTRS subscription services and displayed on EMMA includes an 
indicator of ``1MM+'' for any trade with a par value greater than $1 
million. This indicator is replaced with the exact par value of the 
trade five business days later. The MSRB implemented this approach to 
help to preserve the anonymity of trading parties while not detracting 
in a substantial way from the benefits of price transparency.\3\ The 
MSRB noted that it would review this masking policy as it gains 
experience with real-time transparency.\4\
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    \3\ See MSRB Notice 2003-12 (April 7, 2003).
    \4\ See MSRB Notice 2004-13 (June 1, 2004). See also Exchange 
Act Release No. 49902 (June 22, 2004), 69 FR 38925 (June 29, 2004), 
approved Exchange Act Release No. 50294 (August 31, 2004), 69 FR 
54170 (September 7, 2004).
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    In January 2012, the Government Accountability Office (``GAO'') 
published a report on municipal securities market structure, pricing, 
and regulation, as required by Section 977 of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act.\5\ In this report the GAO, 
among other conclusions, concluded that individual investors generally 
have less information about transaction prices than institutional 
investors. The GAO, which had interviewed a broad range of market 
participants, including institutional investors, observed that: ``Some 
of these [institutional] investors said that even though MSRB's RTRS 
system did not disclose total transaction amounts for trades over $1 
million--which the system reports as trade amounts of `$1+ million'--
they typically were aware of the amount and the price of these large 
transactions through their relationships with broker-dealers.''
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    \5\ U. S. Government Accountability Office, Municipal 
Securities: Overview of Market Structure, Pricing, and Regulation, 
GAO-12-265, January 17, 2012.
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    A foundational principal of RTRS is that all market participants 
would have equal access to transaction information. The GAO observation 
that certain market participants are able to determine, through their 
relationships with dealers, the par amount of large transactions for 
which the par value is masked in RTRS subscription services and on EMMA 
undermines the purpose of masking the exact par value. Further, if 
certain market participants are able to determine exact par values yet 
the information disseminated by RTRS masks exact par values, then the 
foundational principal of RTRS has been compromised since the equality 
of access to transaction information is lost for the five business day 
period that certain institutional customers have access to the exact 
par value while the rest of the marketplace must await the unmasking of 
such information by RTRS five business days after the trade was 
reported.
    To ensure that as many market participants as possible have access 
to the same amount of information about each transaction disseminated 
from RTRS and to further promote price transparency consistent with the 
MSRB's intent to review its masking policy as it gained experience with 
real-time transparency, the proposed rule change would enhance the 
transaction data publicly disseminated from RTRS in real-time by 
including the exact par value on all transactions with a par value of 
$5 million or less. While the MSRB considered discontinuing masking of 
the exact par value on transactions where the par value is greater than 
$1 million, with the result that RTRS subscription services and EMMA 
would include the exact par value on all transactions when initially 
disseminated to the public, as more fully discussed in the MSRB's 
statement on comments received on the proposed rule change, dealers and 
institutional investors oppose eliminating the practice of masking 
large trade sizes and cited concerns related to adverse impacts on 
liquidity. However, these commenters stated that raising the par value 
threshold for masking large trade sizes would provide additional 
transparency to the municipal market without adversely impacting 
liquidity. Based upon 2011 trade data, the number of trades that were 
subject to the over $1 million trade size mask was 342,906 and, if the 
trade size mask was raised to par values over $5 million, this number 
would have been 97,124 trades.
    The MSRB believes that raising the par value threshold to par 
values over $5 million would be an appropriate first step to take in 
the short term as it would greatly reduce the number of trades subject 
to the par value mask. The MSRB plans to continue to evaluate whether 
this threshold can be raised further or completely eliminated with a 
view towards bringing full transparency of exact par values to the 
municipal market in real-time.\6\ As part of the MSRB's Long-Range Plan 
for Market Transparency Products,\7\ the MSRB plans to undertake an 
initiative to reengineer RTRS. Through the RTRS reengineering 
initiative, additional industry comment will be solicited on long-term 
measures for increasing transparency of large trade sizes or 
alternative methods of disseminating such information. MSRB also plans 
to evaluate any impacts on liquidity from the near-term increase of the 
trade size mask threshold to $5 million to assist it in determining 
whether any future changes to this threshold are merited or could 
result in unanticipated consequences.
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    \6\ As part of the proposed rule change, the MSRB plans to use a 
different indicator for disseminating those par values that are 
greater than $5 million. Currently, the MSRB disseminates an 
indicator of ``1MM+'' to indicate par values greater than $1 
million. Instead of changing this to ``5MM+'', the MSRB plans to 
include an indicator of ``MM+'' so that the par value threshold 
could be changed in the future without requiring subscribers to make 
system changes to accommodate a new indicator.
    \7\ See MSRB Notice 2012-06 (February 23, 2012).
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Effective Date of Proposed Rule Change
    The MSRB proposes that the proposed rule change be made effective 
on November 5, 2012 to coincide with other planned changes to RTRS.\8\
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    \8\ See MSRB Notice 2012-42 (August 10, 2012).
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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.


[[Page 56246]]


    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 increasing the number of transactions disseminated from 
RTRS in real-time that include the exact par value, which would ensure 
more market participants have equal access to information about 
transactions disseminated from RTRS. This change would contribute to 
the MSRB's continuing efforts to improve market transparency and to 
protect investors, municipal entities, obligated persons and the public 
interest.

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

    The MSRB does not believe the proposed rule change will impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Exchange Act. Information disseminated by RTRS is 
available to all persons on an equal and non-discriminatory basis. The 
information disseminated from RTRS real-time, including the exact par 
value on all transactions with a par value of $5 million or less, will 
be available to all subscribers simultaneously with the availability of 
the information through the EMMA web portal. In addition to making the 
information available for free on the EMMA web portal to all members of 
the public, the MSRB makes the information collected by RTRS available 
by subscription on an equal and non-discriminatory basis without 
imposing restrictions on subscribers from, or imposing additional 
charges on subscribers for, re-disseminating such information or 
otherwise adding value-added services and products based on such 
information on terms determined by each subscriber.\9\
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    \9\ The MSRB notes that subscribers may be subject to 
proprietary rights of third parties in information provided by such 
third parties that is made available through the subscription.
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    In addition, the proposed rule change would not impose any burden 
on dealers or any other market participant in connection with the 
reporting of data to the MSRB since dealers already are, and would 
continue to be, required to report the full principal amount of 
transactions to the MSRB, regardless of trade size. Thus, no change in 
submitter inputs to RTRS would be required. The large trade size 
indicator is applied automatically by the MSRB's systems and will 
require minimal programming efforts on the part of the MSRB. The MSRB 
estimates that implementing the proposed rule change will require one 
to two weeks of work for the equivalent of one full time employee. Some 
subscribers to the RTRS subscription service may bear minimal one-time 
programming and/or database costs to be able to accept and process a 
value of ``MM+'' rather than ``1MM+,'' likely of equal or lesser 
magnitude than the costs the MSRB would bear in making its own 
programming changes. The MSRB believes that an effective date of 
November 5, 2012 will provide subscribers with sufficient time to make 
any required changes in due course without causing material disruptions 
to their information technology plans or budgets.

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

    On June 1, 2012, the MSRB published a notice requesting comment on 
enhancing the transaction data publicly disseminated in real-time from 
RTRS by including the exact par value on all transactions disseminated 
(``June 2012 Notice'').\10\ The June 2012 Notice solicited input on 
whether the masking of trade size has been effective at achieving its 
initial purpose. In addition, the June 2012 Notice sought comment on 
whether the benefits, if any, of retaining such masking outweigh the 
potential negative effects of withholding such information known to 
certain institutional investors from the broader marketplace. Further, 
the MSRB sought comment on whether other methods exist for market 
participants to determine the exact or relative size of large trades 
and to infer the identity of parties to the transaction from the RTRS 
trade data history, such as through public filings by certain 
institutional investors through the SEC's EDGAR system or other 
sources, that otherwise undermine the effectiveness of trade size 
masking in achieving its initial purpose. Finally, the June 2012 Notice 
requested that market participants believing that such masking should 
be continued should provide justification for doing so in light of the 
GAO findings and the foundational principles for RTRS, as well as 
suggestions for alternatives to discontinuing par value masking that 
would further the initial purpose of such practice while reducing or 
eliminating the selective dissemination of such information.
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    \10\ See MSRB Notice 2012-29 (June 1, 2012).
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    In response to the June 2012 Notice, comment letters were received 
from: Benchmark Solutions, Bond Dealers of America (``BDA''), 
Government Finance Officers Association (``GFOA''), Investment Company 
Institute (``ICI''), Securities Industry and Financial Markets 
Association (``SIFMA''), and Stifel Nicolaus. Summaries of those 
comments and the MSRB's responses follow.
    All commenters were supportive of providing additional transparency 
of exact par values of large trades; however, commenters differed on 
whether the practice of masking large trade sizes should be eliminated 
altogether.
    Benchmark Solutions and GFOA stated support for eliminating the 
practice of masking large trade sizes. Benchmark Solutions stated that 
disseminating exact par values in real-time would provide investors 
with equal access to information and facilitate pricing bonds in the 
traded security as well as in other comparable securities.\11\ While 
GFOA acknowledged the reasons why the practice of masking large trade 
sizes was originally implemented, it stated that MSRB should ``look to 
developing appropriate guidance to address those concerns rather than 
using the masking of pricing information as a means to this end.''
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    \11\ Benchmark Solutions also provided comments related to 
shortening the fifteen minute timeframe for dealers to report 
transactions to RTRS. In the future, the MSRB plans to request 
comment on shortening the fifteen minute reporting deadline and this 
comment will be considered with any other comments received at that 
time.
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    BDA, ICI, SIFMA and Stifel Nicolaus stated opposition to 
eliminating the practice of masking large trade sizes. BDA stated that 
institutional investors ``may materially alter their trading 
practices'' if exact par values are disseminated in real-time, which 
``may prove disruptive to the municipal markets.'' Stifel Nicolaus 
noted that disseminating exact par values in real-time could 
``eliminate the anonymity of the buyer and seller * * * [which] is 
valued in the market and assists in the maintenance of liquidity.'' 
SIFMA noted that ``a significant portion of trading activity in the 
municipal market involves dealers taking bonds into inventory with no 
identified buyers'' and without the anonymity provided by large trade 
size masking, it stated that some dealers that regularly engage in 
large block trades ``may become less willing to bid on investors' 
positions.'' However, SIFMA acknowledged that other dealers ``stated 
that eliminating the mask would not have an effect on their market 
activity.'' ICI stated that ``increased transparency could diminish 
market liquidity'' and noted that ``secondary market liquidity for 
investors is provided by dealers that are willing to risk their capital 
pending the

[[Page 56247]]

location of customers who are willing to purchase a block of bonds.''
    As an alternative to eliminating the practice of masking large 
trade sizes altogether, ICI, SIFMA and Stifel Nicolaus suggested that 
the trade size masking threshold in RTRS be raised from the current $1 
million level to those trades in par values that exceed $5 million.\12\
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    \12\ In response to the question in the June 2012 Notice of 
whether other methods exist for market participants to determine the 
exact or relative size of large trades and to infer the identity of 
parties to the transaction from the RTRS trade data history, SIFMA 
noted that the SEC's EDGAR system does not serve as a source of such 
information and that while there are ``publicly available sources of 
information [that] detail[ ] portfolio holdings of certain 
institutional investors * * * it is sometimes not possible to 
reliably determine actual trade sizes for 1MM+ trade reports from 
publicly available information.''
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    Discussion. Representatives of both dealers and institutional 
investors stated consistent concerns about the potential adverse 
effects on liquidity that could arise from eliminating the practice of 
masking large trade sizes. The MSRB notes that these commenters did not 
refute the GAO observation that certain market participants are able to 
determine, through their relationships with dealers, the par amount of 
large transactions for which the par value is masked, but acknowledges 
the commenters' view that a certain level of anonymity continues to 
exist in the reports of large trades for which the exact par value is 
masked. The MSRB is sensitive to the views of those commenters that 
argued for eliminating the practice of masking large trade sizes as it 
would ensure that a foundational principal of RTRS to provide all 
market participants with equal access to transaction information is 
achieved. However, the comments received did not provide specific 
evidence that the benefits to transparency from disseminating exact par 
values in real-time outweigh potential adverse impacts on liquidity and 
the MSRB does not currently have its own data to assess any such 
impact. Thus, while the MSRB continues to believe that the municipal 
securities market will benefit from full transparency on all 
transactions, the MSRB has determined that it would be appropriate to 
take an initial interim step toward that ultimate goal that will allow 
the MSRB to assess the impact of such transparency on trades in sizes 
ranging between $1 million and $5 million. Information derived from 
such interim step would assist the MSRB in determining whether 
increased trade size transparency results in adverse effects on market 
liquidity.
    While dealers and institutional investors oppose eliminating the 
practice of masking large trade sizes, these commenters stated that 
raising the par value threshold for masking large trade sizes would 
provide additional transparency to the municipal market without 
adversely impacting liquidity. Based upon 2011 trade data, the number 
of trades that were subject to the over $1 million trade size mask was 
342,906 and if the trade size mask was raised to par values over $5 
million, this number would have been 97,124 trades. MSRB believes that 
raising the par value threshold to par values over $5 million would be 
an appropriate first step to take in the short term as it would greatly 
reduce the number of trades subject to the par value mask. However, as 
noted above, the MSRB plans to continue to evaluate whether this 
threshold can be raised with a view towards bringing full transparency 
of exact par values to the municipal market in real-time.

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 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 rule-comments@sec.gov. Please include 
File Number SR-MSRB-2012-07 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-2012-07. 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 
10:00 a.m. and 3:00 p.m. Copies of the 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-2012-07, and should be submitted on 
or before October 3, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-22395 Filed 9-11-12; 8:45 am]
BILLING CODE 8011-01-P


