
[Federal Register Volume 81, Number 181 (Monday, September 19, 2016)]
[Notices]
[Pages 64215-64218]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-22419]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78826; File No. SR-MSRB-2016-09]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Notice of Filing of Amendment No. 1 and Order Granting 
Accelerated Approval of a Proposed Rule Change, as Modified by 
Amendment No. 1, To Establish the MSRB Academic Historical Transaction 
Data Product

September 13, 2016.

I. Introduction

    On June 30, 2016, 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 establish an academic historical transaction data product 
(the ``proposed rule change''). The proposed rule change was published 
for comment in the Federal Register on July 20, 2016.\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. 78323 (July 14, 2016) 
(the ``Notice of Filing''), 81 FR 47211 (July 20, 2016).
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    The Commission received two comment letters on the proposed rule 
change.\4\ On August 29, 2016, the MSRB responded to the comments 
received by the Commission \5\ and on August 31, 2016, the MSRB filed 
Amendment No. 1 to the proposed rule change (``Amendment No. 1'').\6\ 
The Commission is publishing this notice to solicit comments on 
Amendment No. 1 to the proposed rule change from interested persons and 
is approving the proposed rule change, as modified by Amendment No. 1, 
on an accelerated basis.
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    \4\ See Letters to Secretary, Commission, from Sean Davy, 
Managing Director, Capital Markets Division, and Leslie M. Norwood, 
Managing Director & Associate General Counsel, Municipal Securities 
Division, Securities Industry and Financial Markets Association 
(``SIFMA''), dated July 27, 2016 (the ``SIFMA Letter''); and Mike 
Nicholas, Chief Executive Officer, Bond Dealers of America 
(``BDA''), dated August 9, 2016 (the ``BDA Letter'').
    \5\ See Letter to Secretary, Commission, from Carl E. Tugberk, 
Assistant General Counsel, MSRB, dated August 29, 2016 (the ``MSRB 
Response Letter'').
    \6\ See Letter to Secretary, Commission, from Carl E. Tugberk, 
Assistant General Counsel, MSRB, dated August 31, 2016 (the ``MSRB 
Amendment Letter''), available at https://www.sec.gov/comments/sr-msrb-2016-09/msrb201609-4.pdf. In Amendment No. 1, the MSRB 
partially amended the text of the proposed rule change to conform 
the description of the RTRS Academic Data Product in the RTRS 
facility to the description intended by the MSRB and fully described 
in the Notice of Filing.
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II. Description of Proposed Rule Change

    The proposed rule change consists of proposed amendments to the 
MSRB's facility for the Real-Time Transaction Reporting System 
(``RTRS'') to establish an historical data product to provide 
institutions of higher education (``academic institutions'') with post-
trade municipal securities transaction data collected through RTRS 
(``MSRB Academic Historical Transaction Data Product,'' hereafter 
referred to as ``RTRS Academic Data Product'') for purchase.\7\
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    \7\ See Notice of Filing.
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    MSRB Rule G-14 requires dealers to report trade information to the 
RTRS on all executed transactions in municipal securities within 15 
minutes of the time of trade, with limited exceptions.\8\ The MSRB then 
makes much, but not all, of the reported data publicly available on the 
Electronic Municipal Market Access (``EMMA'') Web site, through 
subscription services or historical data sets.\9\ The data that are 
made available through the EMMA Web site do not include any information 
regarding the identity of the dealers that reported the transactions, 
and thus, according to the MSRB, limit a researcher's ability to fully 
understand secondary market trading practices.\10\ According to the 
MSRB, the absence of any dealer identifiers in the EMMA data caused 
certain academics to request that the MSRB develop an enhanced version 
of RTRS trade data that includes dealer

[[Page 64216]]

identifiers.\11\ As noted in the Notice of Filing, following the 
requests from members of the academic community, the MSRB published the 
Request for Comment on Establishment of an Academic Historical Trade 
Data Product on July 16, 2015 (the ``Request for Comment'') to solicit 
comments from market participants on a proposed academic historical 
trade data product.\12\
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    \8\ Id.
    \9\ Id.
    \10\ Id.
    \11\ Id.
    \12\ Id.
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    As stated in the Notice of Filing, after careful consideration of 
the comments received in response to the Request for Comment, the MSRB 
decided to make the RTRS Academic Data Product available only to 
academic institutions, to include anonymous dealer identifiers therein, 
and to populate the new data product with the same transactions 
included in the RTRS historical data sets currently available with the 
exclusion of list offering price and takedown transactions.\13\ 
According to the MSRB, the proposed rule change will allow the MSRB to 
provide academics with trade data that include anonymous dealer 
identifiers while providing protections against the potential for 
reverse engineering of trade data.\14\ With respect to protecting 
against reverse engineering, the MSRB stated in the Notice of Filing 
that any academic institution that wishes to obtain the RTRS Academic 
Data Product will have to agree: (1) Not to attempt to attempt to 
reverse engineer the identity of any dealer; (2) not to redistribute 
the data in the RTRS Academic Data Product; (3) to disclose each 
intended use of the data; (4) to ensure that any data presented in work 
product be sufficiently aggregated so as to prevent reverse engineering 
of any dealer or transaction; and (5) to return or destroy the data if 
the agreement is terminated.\15\
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    \13\ Id.
    \14\ Id.
    \15\ Id.
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    The MSRB stated in the Notice of Filing that the effective date of 
the proposed rule change will be announced in a regulatory notice to be 
published no later than 90 days from the date of this Order, and such 
effective date will be no later than 270 days following publication of 
the regulatory notice announcing Commission approval of the proposed 
rule change.\16\
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    \16\ Id.
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III. Summary of Comments Received and MSRB's Responses to Comments

    As noted previously, the Commission received two comment letters on 
the proposed rule change, and the MSRB Response Letter. One commenter--
SIFMA--generally supported the proposed rule change, while the other 
commenter--BDA--generally opposed the proposed rule change.
    While generally supportive of the proposed rule change, SIFMA 
expressed the view that the MSRB could make modifications to provide 
additional protections against the potential for reverse engineering 
the data without impeding its goals of promoting academic access and 
research.\17\ SIFMA stated that the potential impact of reverse 
engineering could include deciphering a dealer's trading strategies and 
revealing confidential business information relating to specific client 
transactions.\18\
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    \17\ See SIFMA Letter.
    \18\ Id.
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    BDA, however, argued that the proposed rule change would expose 
dealers and their customers to unnecessary risks.\19\ For example, BDA 
stated that ``[i]t is very likely that, as a consequence of this 
proposal, private and non-educational entities will end up possessing 
full trade history including dealer names for every trade released.'' 
\20\
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    \19\ See BDA Letter.
    \20\ Id.
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    SIFMA and BDA offered differing views on the MSRB's efforts to 
mitigate the risk of reverse engineering of the historical trade data 
provided to academics. SIFMA approved of the MSRB's decision to exclude 
list offering price and takedown transactions from the data product and 
noted that such exclusion would mitigate the risk of reverse 
engineering.\21\ SIFMA also acknowledged that the proposed aging period 
of 36 months (expanded from 24 months in the Request for Comment) would 
help reduce the risk of reverse engineering, but thought that an aging 
period of no less than 48 months would be more appropriate.\22\ BDA 
also acknowledged that excluding list offering price and takedown 
transactions from the data product, expanding the aging period, and 
masking dealer identifiers would make reverse engineering more 
difficult, but ultimately concluded that these measures were not 
sufficient to reduce the risk of reverse engineering to an acceptable 
level.\23\
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    \21\ See SIFMA Letter; see also MSRB Amendment Letter.
    \22\ See SIFMA Letter.
    \23\ See BDA Letter; see also MSRB Amendment Letter.
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    With respect to protecting dealer identities, both SIFMA and BDA 
reiterated their respective suggestions that the MSRB make the 
transaction data available according to groupings of comparable dealers 
instead of on an individual level, arguing that masked dealer 
identifiers might not effectively protect dealer identities.\24\
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    \24\ Id.; see also SIFMA Letter. The MSRB addressed these 
comments in the Notice of Filing.
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    SIFMA and BDA also offered suggestions regarding strengthening and 
enforcing the proposed user agreements. SIFMA urged the MSRB to develop 
``robust operational frameworks around the execution and ongoing 
oversight of user agreements . . . [in order to] further mitigate 
concerns of reverse engineering and information leakage.'' \25\ BDA 
stated that although the proposed user agreements are designed to 
prevent the redistribution of data, federal and state freedom of 
information (``FOIA'') laws could defeat such intention if the 
transaction data is held by a public university and classified as a 
public record.\26\ In addition, BDA raised concerns about data 
security, suggesting that the data could be subject to hacking or data 
theft during transmission or when held by an institution of higher 
education.\27\
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    \25\ See SIFMA Letter.
    \26\ See BDA Letter.
    \27\ Id.
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    In response to these comments, the MSRB stated that it ``continues 
to believe that the proposed rule change strikes the appropriate 
balance between addressing risks regarding potential reverse 
engineering with facilitating the ability of academic researchers to 
study the market for municipal securities.'' \28\ With respect to 
SIFMA's comments, the MSRB noted in its response that ``SIFMA's 
comments are substantially similar to previous comments submitted in 
response to the Request for Comment'' and that the MSRB addressed those 
comments in the Notice of Filing.\29\
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    \28\ See MSRB Response Letter.
    \29\ Id.
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    In response to BDA's data security-related comments, the MSRB 
stated that it ``understands and appreciates'' BDA's data security 
concerns and agrees that it cannot guarantee the security of data 
provided to academics through the proposed RTRS Academic Data 
Product.\30\ Nonetheless, the MSRB then noted its belief that the terms 
of the user agreements relating to the RTRS Academic Data Product will 
``mitigate those risks.'' \31\ To that end, the MSRB stated that it 
expects each user agreement to include the following:
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    \30\ Id.
    \31\ Id.

    (1) a prohibition on reverse engineering; (2) a provision 
requiring the use of commercially

[[Page 64217]]

reasonable measures to protect data, including, for example, the use 
of user IDs and passwords, and other forms of entitlements to gain 
access to the data; (3) a definition of the term `Internal User' to 
clarify to whom access to the data may be provided; and (4) a 
requirement that users have reasonable security procedures in the 
place(s) where the data are used, accessed, processed, stored, and/
or transmitted to ensure the data remain secure from unauthorized 
access, including specific requirements regarding physical and 
logical access, encryption, and network and system security.\32\
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    \32\ Id.

In addition to contractual data security measures like those listed 
above, the MSRB also stated its intention to encrypt data delivered to 
users.\33\
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    \33\ Id.
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    In response to BDA's FOIA law-related comments, the MSRB recognized 
the possibility that certain recipients of RTRS Academic Data Product 
data might be subject to FOIA laws that could require the disclosure of 
certain trade data but, notwithstanding such risk, noted that federal 
and state FOIA laws include a variety of exemptions that would likely 
prevent disclosure of data delivered to users of the RTRS Academic Data 
Product.\34\ The MSRB also stated its expectation that the user 
agreements ``will require academic institutions to notify the MSRB of 
any . . . requests under federal or state FOIA [l]aws prior to any 
disclosure, claim any and all applicable exemptions from such requests 
and provide the MSRB the opportunity to seek an injunction, protective 
order, or confidential treatment, and limit any disclosure ultimately 
required to the minimum legally necessary.'' \35\
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    \34\ Id.
    \35\ Id.
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IV. Discussion and Commission Findings

    The Commission has carefully considered the proposed rule change, 
as modified by Amendment No. 1, the comments letters received, and the 
MSRB Response Letter. 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,\36\ 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 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 prevent fraudulent and manipulative acts and 
practices, promote just and equitable principles of trade, and remove 
impediments to and perfect the mechanism of a free and open market in 
municipal securities by enabling subscribers to the RTRS Academic Data 
Product to better understand the pricing practices and trading 
behaviors of participants in the municipal securities market and 
thereby facilitate higher quality research and analysis of the 
municipal securities market. Furthermore, the Commission believes that 
by enhancing transparency in the municipal securities market, the 
proposed rule change is reasonably designed to protect investors, 
municipal entities, obligated persons, and the public interest.
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    \36\ 15 U.S.C. 78o-4(b)(2)(C).
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    In approving the proposed rule change, the Commission has also 
considered the impact of the proposed rule change on efficiency, 
competition, and capital formation.\37\ 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.
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    \37\ 15 U.S.C. 78c(f).
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    For the reasons noted above, the Commission believes that the 
proposed rule change, as modified by Amendment No. 1, is consistent 
with the Act.

V. Solicitation of Comments on Amendment No. 1

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 1, including whether the proposed 
rule change, as modified by Amendment No.1, 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-2016-09 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549.

All submissions should refer to File Number SR-MSRB-2016-09. 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 principal office of the MSRB. 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-2016-09 and should be 
submitted on or before October 11, 2016.

VI. Accelerated Approval of Proposed Rule Change as Modified by 
Amendment No. 1

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 1, prior to the 30th day after the 
date of publication of Amendment No. 1 in the Federal Register. As 
discussed above, Amendment No. 1 partially amends the text of the 
proposed rule change to conform the description of the RTRS Academic 
Data Product in the RTRS facility to the description intended by the 
MSRB.\38\ The proposed rule change, as described in the Notice of 
Filing, contemplated the exclusion of list offering price and takedown 
transactions; however, the proposed text of the proposed rule change 
did not include any reference to such

[[Page 64218]]

exclusion.\39\ According to the MSRB, it was the MSRB's intent to 
include the exclusion in the proposed rule change, thus the MSRB 
submitted Amendment No. 1 in order to conform the proposed description 
of the RTRS Academic Data Product in the RTRS facility with the 
description thereof in the Notice of Filing.\40\
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    \38\ Supra note 6.
    \39\ See Notice of Filing.
    \40\ See MSRB Amendment Letter.
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    As noted by the MSRB, Amendment No. 1 is consistent with the 
purpose of the proposed rule change and does not raise any significant 
new issues not already addressed by commenters.\41\
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    \41\ Id.
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    For the foregoing reasons, the Commission finds good cause for 
approving the proposed rule change, as modified by Amendment No. 1, on 
an accelerated basis, pursuant to Section 19(b)(2) of the Act.

VII. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\42\ that the proposed rule change, as modified by Amendment No. 1 
(SR-MSRB-2016-09) be, and hereby is, approved on an accelerated basis.
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    \42\ 15 U.S.C. 78s(b)(2).

    For the Commission, pursuant to delegated authority.\43\
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    \43\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-22419 Filed 9-16-16; 8:45 am]
 BILLING CODE 8011-01-P


