
[Federal Register Volume 80, Number 104 (Monday, June 1, 2015)]
[Notices]
[Pages 31084-31087]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-13082]



[[Page 31084]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75039; File No. SR-MSRB-2015-02]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Order Granting Approval of a Proposed Rule Change Consisting of 
Proposed Amendments to the MSRB Rule G-14 RTRS Procedures, and the 
Real-Time Transaction Reporting System and Subscription Service

May 22, 2015.

I. Introduction

    On March 19, 2015, the Municipal Securities Rulemaking Board (the 
``MSRB'' or ``Board'') filed with the Securities and Exchange 
Commission (the ``SEC'' or ``Commission''), pursuant to Section 
19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 
19b-4 thereunder,\2\ a proposed rule change consisting of proposed 
amendments to the MSRB Rule G-14 RTRS procedures, and the Real-Time 
Transaction Reporting System and subscription service (the ``proposed 
rule change''). The proposed rule change was published for comment in 
the Federal Register on March 27, 2015.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 74564 (March 23, 2015), 
80 FR 16466 (March 27, 2015) (the ``Proposing Release'').
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    The Commission received three comment letters on the proposed rule 
change.\4\ On May 20, 2015, the MSRB submitted a response to these 
comments.\5\ This order approves the proposed rule change.
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    \4\ See Letters from Leslie M. Norwood, Managing Director and 
Associate General Counsel, Securities Industry and Financial Markets 
Association (``SIFMA''), dated April 17, 2015 (``SIFMA Letter''); 
Michael Nicholas, Chief Executive Officer, Bond Dealers of America 
(``BDA''), dated April 17, 2015 (``BDA Letter''); and David T. 
Bellaire, Esq., Executive Vice President & General Counsel, 
Financial Services Institute (``FSI''), dated April 17, 2015 (``FSI 
Letter'').
    \5\ See Letter from Justin R. Pica, Director of Product 
Management--Market Transparency, MSRB, dated May 20, 2015 (``MSRB 
Response Letter'').
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II. Description of the Proposed Rule Change

    Rule G-14 on reports of sales or purchases requires brokers, 
dealers and municipal securities dealers (collectively ``dealers'') to 
report all executed transactions in municipal securities to the MSRB's 
Real-Time Transaction Reporting System (``RTRS'') within 15 minutes of 
the time of trade, with limited exceptions.\6\ The MSRB makes certain 
transaction data reported to RTRS available to the general public 
through the Electronic Municipal Market Access (``EMMA'') Web site at 
no cost, and disseminates such data through paid subscription services 
to market data vendors, institutional market participants and others 
that subscribe to the data feed.\7\ The MSRB believes that RTRS serves 
the dual objectives of price transparency and market surveillance.\8\ 
According to the MSRB, the proposed rule change would enhance the post-
trade price transparency information provided through RTRS.\9\ A full 
description of the proposed rule change is contained in the Proposing 
Release.
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    \6\ See supra note 3.
    \7\ Id.
    \8\ Id.
    \9\ Id.
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1. Expanding the Application of Existing List Offering Price and 
Takedown Transaction Indicator

    The MSRB stated that the proposed rule change would expand the 
application of the List Offering Price and Takedown Transaction 
indicators to sale transactions by distribution participant dealers to 
customers at the list offering price and sale transactions by a sole 
underwriter or syndicate manager to distribution participant 
dealers.\10\ The MSRB stated that since the introduction of the List 
Offering Price indicator in 2005 and Takedown Transaction indicator in 
2007, certain market practices in this area have evolved and the 
proposed rule change would expand the application of the indicators to 
require reporting of such market practices to RTRS.\11\
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    \10\ Id.
    \11\ Id.
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2. Eliminating the Requirement for Dealers To Report Yield on Customer 
Trade Reports

    The MSRB stated that the proposed rule change would eliminate the 
requirement for dealers to include yield on customer trade reports.\12\ 
The MSRB represented that it would calculate and disseminate yield on 
customer trade reports, consistent with the manner in which it 
calculates and includes in disseminated RTRS information yield on 
inter-dealer trades.\13\ The MSRB believes that this would remove one 
aspect of a dealer's burden in reporting customer transactions to the 
MSRB in compliance with MSRB Rule G-14 and ensure that the calculation 
and dissemination of yields for both inter-dealer and customer 
transactions are consistent.\14\
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    \12\ Id.
    \13\ Id.
    \14\ Id.
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3. Establishing a New Indicator for Customer Trades Involving Non-
Transaction-Based Compensation Arrangements

    The MSRB stated that the proposed rule change would require dealers 
to include a new indicator on their trade reports that would be 
disseminated publicly to distinguish customer transactions that do not 
include a dealer compensation component and those that include a mark-
up, mark-down, or a commission.\15\ The MSRB believes the proposed rule 
change would improve the usefulness of the transaction information 
disseminated publicly.\16\
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    \15\ Id.
    \16\ Id.
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4. Establishing a New Indicator for ATS Transactions

    The MSRB stated that the proposed rule change would establish an 
additional new indicator to better ascertain the extent to which 
alternative trading systems (``ATSs'') are used in the municipal market 
and to indicate to market participants on disseminated transaction 
information that an ATS was used.\17\ The MSRB believes that 
identifying in disseminated transaction information that an ATS was 
employed should facilitate higher quality research and analysis of 
market structure by providing information about the extent to which 
ATSs are used and should complement the existing indicator disseminated 
for transactions involving a broker's broker.\18\
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    \17\ Id.
    \18\ Id.
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5. Effective Date of the Proposed Rule Change/Testing Period

    The MSRB proposed that an effective date for the proposed rule 
change would be announced by the MSRB in a notice published on the 
MSRB's Web site.\19\ The MSRB stated that the date would be no later 
than May 23, 2016, and announced no later than sixty (60) days prior to 
the effective date.\20\ The MSRB believed that such effective date 
would provide time for the MSRB to undertake the programming changes to 
implement the proposed rule change, as well as provide an adequate 
testing period for dealers and subscribers that interface with 
RTRS.\21\ Also, the MSRB plans to provide a six month testing period in 
advance of the effective date.\22\
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    \19\ Id.
    \20\ Id.
    \21\ Id.
    \22\ Id.

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[[Page 31085]]

III. Summary of Comments Received and the MSRB's Response

    As noted previously, the Commission received three comment letters 
on the proposed rule change.\23\ FSI generally supports the proposed 
rule change.\24\ BDA generally supports the proposed rule change but 
suggested an extension of the testing period.\25\ SIFMA expresses 
concerns and provides suggestions about certain aspects of the proposed 
rule change.\26\ A full description of the comments and response by the 
MSRB are contained in the comments letters and MSRB Response Letter, 
respectively.\27\
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    \23\ See supra notes 4 and 5.
    \24\ See FSI Letter.
    \25\ See BDA Letter.
    \26\ See SIFMA Letter.
    \27\ See supra notes 4 and 5.
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1. Expanding the Application of Existing List Offering Price and 
Takedown Transaction Indicator

    SIFMA generally supports this aspect of the proposed rule 
change.\28\ However, SIFMA requests that if dealers are currently using 
the List Offering Price and Takedown Transaction indicator for group 
net or net designated orders, or for distribution agreement trades, 
that they be permitted to continue to do so until the proposed rule 
change is effective, without risk of an enforcement action.\29\ The 
MSRB responded by stating that it does not believe it would be fair to 
those dealers that have not programmed systems to use the existing List 
Offering Price and Takedown Transaction indicator in the expanded 
manner contemplated in the proposed rule change to advance the timing 
of the effective date of this component of the proposed rule 
change.\30\ Also, the MSRB does not believe such a request is relevant 
to a determination of whether to approve the proposed rule change.\31\
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    \28\ See SIFMA Letter.
    \29\ Id.
    \30\ See MSRB Response Letter.
    \31\ Id.
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2. Eliminating the Requirement for Dealers To Report Yield on Customer 
Trade Reports

    SIFMA generally supports this aspect of the proposed rule 
change.\32\ However, SIFMA notes that reporting yield on trade reports 
alerts dealers to trades where the dealer calculated yield is outside 
the acceptable tolerance from the MSRB calculated yield.\33\ SIFMA 
notes that such alert mechanism would be eliminated if the proposed 
rule change is approved.\34\ The MSRB responded by noting that while 
such alert mechanism does provide benefit in identifying security 
master and day count discrepancies, the MSRB does not believe that this 
benefit outweighs the burden on dealers associated with researching and 
reconciling all questionable errors.\35\ Also, the MSRB notes that 
dealers would continue to be able to compare dealer calculated yields 
with MSRB calculated yields by viewing MSRB calculated yields on the 
EMMA Web site.\36\
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    \32\ See SIFMA Letter.
    \33\ Id.
    \34\ Id.
    \35\ See MSRB Response Letter.
    \36\ Id.
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    In addition, SIFMA continues to have concerns that the proposed 
rule change may lead to investor confusion because not all transactions 
are consummated based on yield to worst.\37\ SIFMA believes that there 
are many reasons and scenarios why the dealer calculated yield and the 
MSRB's calculations of yield might not match, such as trading based on 
yield-to-average life for continuously callable securities, and 
differences in day counts relating to questionable holidays or market 
closes.\38\ The MSRB responded by stating that the MSRB yield 
calculations under the proposed rule change would be done in a manner 
consistent with the requirements of MSRB Rule G-15(a) on customer 
confirmations.\39\ Accordingly, the MSRB believes irrespective of the 
basis on which the transaction was executed, the yield calculation 
performed by RTRS under the proposed rule change would match the 
calculation as required to be performed by dealers when generating 
customer confirmations.\40\ Also, the MSRB states that with regard to 
the potential for differing MSRB and dealer call information resulting 
in differing MSRB and dealer calculated yields, the MSRB plans to 
display the call price and date to which yield was calculated, which 
should provide sufficient transparency to the inputs used in MSRB yield 
calculations to explain any calculation differences that arise.\41\
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    \37\ See SIFMA Letter.
    \38\ Id.
    \39\ See MSRB Response Letter.
    \40\ Id.
    \41\ Id.
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3. Establishing a New Indicator for Customer Trades Involving Non-
Transaction-Based Compensation Arrangements

    SIFMA acknowledges that the establishment of a new indicator to 
indicate trades with non-transaction-based compensation would be 
helpful for transparency purposes.\42\ However, SIFMA suggest that a 
more cost efficient alternative would be for the MSRB to disseminate 
information it already collects: Whether a trade is done as agent or as 
principal, and whether the MSRB has added commission in to 
``normalize'' agency trades.\43\ The MSRB responded by stating it 
believes that to ensure that this new indicator applies to all 
transactions involving non-transaction-based compensation, it is 
critical that the indicator apply to principal trades that do not 
include a mark-up or mark-down.\44\ The MSRB also believes that it is 
important for dealers to affirmatively indicate on agency transactions 
that no commission was charged using the new indicator.\45\ The MSRB 
believes this would provide for an additional data quality measure as 
well as enable dealers to program systems to include the indicator for 
all transactions involving non-transaction-based compensation as 
opposed to only a subset of such transactions.\46\
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    \42\ See SIFMA Letter.
    \43\ Id.
    \44\ See MSRB Response Letter.
    \45\ Id.
    \46\ Id.
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    In addition, SIFMA suggests modifying the proposed definition of 
``non-transaction-based compensation arrangement transaction.'' \47\ 
Specifically, SIFMA requests that the definition be limited to 
transactions involving non-transaction-based compensation ``in a 
customer account that is subject to an arrangement that does not 
provide for dealer compensation to be paid on a transaction-based 
basis.'' \48\ The MSRB responded by stating that it is not proposing to 
limit the application of the indicator in this manner because this 
indicator is intended to distinguish in price transparency data all 
customer transactions that do not include a dealer compensation 
component from those that include a mark-up, mark-down or commission 
and is not intended to distinguish such transactions based on the type 
of compensation arrangement associated with a customer account.\49\
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    \47\ See SIFMA Letter.
    \48\ Id.
    \49\ See MSRB Response Letter.
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4. Establishing a New Indicator for ATS Transactions

    SIFMA suggests an alternative where the MSRB is responsible for 
flagging ATS trades when an ATS firm takes a principal position between 
a buyer and a seller, similar to how it currently flags trades between 
dealers and municipal securities broker's brokers.\50\ SIFMA believes 
this would eliminate the unnecessary and burdensome requirements of the 
proposed rule

[[Page 31086]]

change.\51\ The MSRB responded by stating that it believes a consistent 
approach should be taken for all transactions executed using the 
services of an ATS by requiring dealers to include the ATS indicator on 
trade reports, regardless of whether the ATS takes a principal 
position.\52\ Also, the MSRB believes that this approach would reduce 
the potential for dealer confusion surrounding the requirement to 
include the ATS indicator and would help ensure that a dealer currently 
using the services of an ATS that takes a principal position is 
prepared to include an ATS indicator on trade reports if that ATS 
determines in the future to change its business practice and not take a 
principal position between the buyer and seller.\53\
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    \50\ See SIFMA Letter.
    \51\ Id.
    \52\ See MSRB Response Letter.
    \53\ Id.
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5. Economic Considerations

    SIFMA expresses concern about the costs and burdens associated with 
the proposed rule change.\54\ SIFMA believes that evaluating the costs 
and burdens of new regulation and weighing those costs against any 
benefits derived from such new regulation, is critical to ensure 
efficient regulation.\55\ SIFMA states that the proposed rule change 
will drive up transaction costs and certain aspects of the proposed 
rule change do not measure up to the costs and burdens that will be 
imposed upon dealers.\56\ The MSRB responded by noting that in each of 
the three solicitations for public comment the MSRB requested input on 
the operational costs and burdens of each proposed change as well as 
the benefits that could be achieved.\57\ According to the MSRB, the 
responses from commenters, to the extent they addressed those issues, 
well informed the MSRB's determination to seek those changes that would 
balance the improvements to post-trade price transparency with the 
regulatory burdens that would be imposed on dealers.\58\ Also, the 
comments received through the public comment process enabled the MSRB 
to refine a broad set of potential changes that could be made to the 
limited set of changes in the proposed rule change.\59\ The MSRB 
believes that the proposed rule change best balances the improvements 
to post-trade price transparency that would be gained with the 
regulatory burdens that would be imposed on dealers.\60\
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    \54\ See SIFMA Letter.
    \55\ Id.
    \56\ Id.
    \57\ See MSRB Response Letter.
    \58\ Id.
    \59\ Id.
    \60\ Id.
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6. Effective Date of the Proposed Rule Change/Testing Period

    SIFMA requests that the MSRB publish technical specifications 
related to the proposed rule change at least nine months prior to the 
effective date of the proposed rule change.\61\ BDA notes that smaller 
dealers with fewer IT resources may need more than six months to make 
changes necessary to comply with the proposal.\62\ Specifically, BDA 
requests a testing period of at least nine months prior to 
implementation.\63\ The MSRB anticipates publishing updated technical 
specifications in early September 2015.\64\ In response to comments 
from SIFMA and BDA, the MSRB now intends to set a specific effective 
date of May 23, 2016, which is the latest effective date contemplated 
by the proposed rule change. The MSRB believes this effective date 
would likely provide dealers and subscribers with nearly nine months to 
make necessary system changes after publication by the MSRB of 
technical specifications.\65\
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    \61\ See SIFMA Letter.
    \62\ See BDA Letter.
    \63\ Id.
    \64\ See MSRB Response Letter.
    \65\ Id.
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IV. Discussion and Commission Findings

    The Commission has carefully considered the proposed rule change, 
the comments received, and the MSRB's response to such comments. The 
Commission finds that the proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to the MSRB.
    In particular, the Commission finds that the proposed rule change 
is consistent with Section 15B(b)(2)(C) of the Act,\66\ which requires, 
among other things, that the rules of the MSRB 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 Commission believes that the proposed rule change 
is consistent with Section 15B(b)(2)(C) of the Act because the proposed 
rule change is reasonably designed to remove impediments to and perfect 
the mechanism of a free and open market in municipal securities by 
increasing the quality and usefulness of the post-trade price 
transparency information provided through RTRS. As noted by the MSRB, 
the (i) expansion of the application of the existing List Offering 
Price and Takedown Transaction indicator to cases involving 
distribution participant dealers and takedown transactions that are not 
at a discount from the list offering price, (ii) establishment of a new 
indicator for customer trades involving non-transaction-based 
compensation arrangements, and (iii) establishment of a new indicator 
for ATS transactions would enable users of the post-trade price 
transparency information provided through RTRS to better understand the 
pricing of certain transactions as well as how such transactions were 
executed.\67\ As further noted by the MSRB, identifying in disseminated 
transaction information that an ATS was employed should facilitate 
higher quality research and analysis of market structure by providing 
information about the extent to which ATSs are used and should 
complement the existing indicator disseminated for transactions 
involving a broker's broker.\68\ Accordingly, the Commission believes 
that the proposed rule 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.
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    \66\ 15 U.S.C. 78o-4(b)(2)(C).
    \67\ See supra note 4.
    \68\ Id.
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    In approving the proposed rule change, the Commission has 
considered the proposed rule change's impact on efficiency, 
competition, and capital formation.\69\ The Commission recognizes that 
the proposed rule change would impose a burden on dealers and 
subscribers that interface with RTRS to comply with the reporting and 
dissemination of the new indicators that would be required by the 
proposed rule change. However, the Commission believes that the 
potential burden created by the proposed rule change is likely 
outweighed by the benefits, such as increasing the quality and 
usefulness of post-trade price transparency information. Also, the 
Commission believes that the proposed rule change includes 
accommodations that help promote efficiency. Specifically, the

[[Page 31087]]

proposed rule change would eliminate the requirement for dealers to 
include yield on customer trade reports. The Commission believes that 
this would remove one aspect of a dealer's burden in reporting customer 
transactions to the MSRB in compliance with MSRB Rule G-14. 
Furthermore, the MSRB has revised its implementation schedule in 
response to comments from BDA and SIFMA, which would likely provide 
dealers and subscribers with nearly nine months to make necessary 
system changes after publication by the MSRB of the technical 
specifications. This accommodation would likely provide dealers and 
subscribers with sufficient time to make any required changes in due 
course without causing adverse disruptions. The Commission does not 
believe that the proposed rule change would impose any burden on 
competition not necessary or appropriate in furtherance of the purposes 
of the Act because the requirements of the proposed rule change would 
apply equally to all dealers who report trade information to RTRS.
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    \69\ 15 U.S.C. 78c(f).
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    As noted above, the Commission received three comment letters on 
the filing. The Commission believes that the MSRB considered carefully 
and responded adequately to comments and concerns regarding the 
proposed rule change. Although one commenter suggested changes and 
opposed certain aspects of the proposed rule change, the Commission 
notes that no commenters argued that the proposed rule change was 
inconsistent with the applicable provisions of the Act.
    For the reasons noted above, including those discussed in the MSRB 
Response Letter, the Commission believes that the proposed rule change 
is consistent with the Act.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\70\ that the proposed rule change (SR-MSRB-2015-02) be, and hereby 
is, approved.
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    \70\ 15 U.S.C. 78s(b)(2).

    For the Commission, pursuant to delegated authority.\71\
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    \71\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-13082 Filed 5-29-15; 8:45 am]
 BILLING CODE 8011-01-P


