[Federal Register Volume 60, Number 130 (Friday, July 7, 1995)]
[Notices]
[Pages 35442-35443]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-16655]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-35917; File No. SR-MSRB-95-03]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Order Approving Proposed Rule Change Relating to the Submission 
of Transaction Information for Confirmation, Clearance, and Settlement 
of Transactions with Customers

June 28, 1995.
    On March 23, 1995, the Municipal Securities Rulemaking Board 
(``MSRB'') filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change (File No. SR-MSRB-95-3) under 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ 
to amend MSRB rule G-15 regarding the confirmation, clearance, and 
settlement of transactions with customers. Notice of the proposal was 
published in the Federal Register on May 10, 1995.\2\ No comment 
letters were received. For the reasons discussed below, the Commission 
is approving the proposed rule change to become effective thirty days 
from the date of approval by the Commission.

    \1\ 15 U.S.C. 78(b)(1) (1988).
    \2\ Securities Exchange Act Release No. 35675 (May 4, 1995), 60 
FR 24950.
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I. Description

    On October 6, 1993, the Commission adopted Rule 15c6-1 under the 
Act, which establishes three business days after the trade date 
(``T+3'') instead of five business days (``T+5'') as the standard 
settlement time frame for most broker-dealer transactions.\3\ 
Recognizing the differences between the corporate and municipal 
securities markets and the unique role the MSRB has in overseeing the 
municipal securities market, the Commission did not include municipal 
securities within the scope of Rule 15c6-1.\4\ The Commission, however, 
did formally request that the MSRB undertake a commitment to T+3 
settlement for municipal securities to ensure consistency in settlement 
cycles in the corporate and municipal markets.

    \3\ Securities Exchange Act Release No. 33023 (October 6, 1993), 
58 FR 52891 (release adopting Rule 15c6-1). On November 16, 1994, 
the Commission changed the effective date of Rule 15c6-1 from June 
1, 1995, to June 7, 1995. Securities Exchange Act Release No. 34952 
(November 9, 1994), 59 FR 59137.
    \4\ Securities Exchange Act Release No. 33023 (October 6, 1993), 
58 FR 52891.
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    On February 28, 1995, the Commission approved amendments to MSRB 
rules G-12 on uniform practice and rule G-15 on confirmation, 

[[Page 35443]]
clearance, and settlement of transactions with customers. These 
amendments established three business days as the standard settlement 
time frame for regular-way transactions in municipal securities.\5\ The 
MSRB reviewed its rules to determine whether or not additional rule 
changes were necessary to facilitate the movement to T+3 settlement and 
determined that additional amendments to rule G-15 are necessary to 
facilitate T+3 settlement for municipal securities transactions.

    \5\ Securities Exchange Act Release No. 35427 (February 28, 
1995), 60 FR 12798 [File No. SR-MSRB-94-10].
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    Currently, rule G-15(d) states that a dealer shall give to send to 
a DVP/RVP customer a confirmation with respect to an execution of an 
order no later than the close of business on the next business day 
after execution (``T+1'').\6\ The rule does not specify the timing for 
the submission of transaction data to an automated confirmation/
acknowledgement system although it did require that nearly all 
municipal securities transactions with institutional customers be 
processed in such a system.\7\ As amended, rule G-15(d) now will 
require dealers to give or send the confirmation and to submit 
transaction data on an automated confirmation/acknowledgement system on 
the trade date rather than on T+1.\8\

    \6\ The terms ``DVP/RVP customer'' and ``institutional 
customer'' both refer to customers whose transactions with dealers 
are settled on a delivery versus payment or receipt versus payment 
basis.
    \7\ The automated clearance and settlement process includes 
several steps. Initially, dealers submit transaction information to 
an automated confirmation/acknowledgement system followed by the 
institutional customer receiving notification requesting 
acknowledgement of the transaction through the automated system. 
Once the institutional customer acknowledges the transaction, the 
transaction is then ready for automated settlement to occur at the 
depository on settlement date.
    \8\ Rule G-15(a) states that a confirmation containing certain 
information must be given or sent to each customer. Some dealers use 
an automated confirmation/acknowledgement system as the exclusive 
mechanism for confirmation transactions to DVP/RVP customers (i.e., 
no paper confirmation is sent). The MSRB has stated that use of an 
automated confirmation/acknowledgement system to deliver a 
confirmation meeting the information requirements of rule G-15(a) is 
permissible as long as all information required by rule G-15(a) is 
included on the electronic confirmation generated by that system. 
The MSRB, however, has not specified that an automated confirmation/
acknowledgement system is the exclusive mechanism for sending 
confirmation information required by rule G-15(a) to DVP/RVP 
customers. Some dealers continue to use both the automated 
confirmation/acknowledgement system and also send paper 
confirmations.
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II. Discussion

    Section 15B(b)(2)(C) of the Act provides that the MSRB has the 
authority to adopt rules to foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in municipal 
securities.\9\ The Commission believes the proposed rule change is 
consistent with Section 15B(b)(2)(C) of the Act because the proposal 
will foster cooperation and coordination with persons engaged in the 
clearance and settlement of municipal securities by providing a 
standard, specific time (i.e., on the date of execution) for broker/
dealers extending DVP/RVP privileges to institutional customers to 
submit transaction information to an automated confirmation/
acknowledgement system of a registered clearing agency and to give or 
send confirmation to those customers. The Commission believes the 
proposal also fosters cooperation and coordination with persons engaged 
in the processing of information with respect to municipal securities 
transactions because the success of the proposed Phase II of the MSRB's 
Transaction Reporting Program will depend on timely and accurate 
submission of institutional customer transaction data on trade date to 
the automated confirmation/acknowledgement system.\10\

    \9\ 15 U.S.C. 78o-3(b)(2)(C) (1988).
    \10\ For a complete description of Phase II of the MSRB's 
Transaction Reporting Program, refer to ``Transaction Reporting 
Program for Municipal Securities: Phase II,'' MSRB Reports, Vol. 15, 
No. 1 (April 1995).
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    Furthermore, in a T+3 settlement environment the proposal should 
help to ensure more timely confirmation and acknowledgement of DVP/RVP 
customer transactions. With a T+3 settlement cycle, less time will 
exist for the communications between dealers and institutional 
customers necessary to clear and settle transactions. Accordingly, by 
requiring the transaction data to be submitted to an automated 
confirmation/acknowledgement system on trade date, the likelihood that 
trades between municipal dealers and institutional customers will fail 
to settlement on T+3 is greatly reduced.
    The Commission has requested and the MSRB has agreed to monitor the 
abilities of municipal securities broker-dealers to meet the new 
deadline set forth in amended Rule G-15(d) and to report the results of 
its findings to the Commission six months from the date of 
implementation of the rule change.\11\

    \11\ Conversation between Judith A. Somerville, Uniform Practice 
Specialist, MSRB, and Peggy Robb Blake, Attorney, Division of Market 
Regulation, Commission (June 29, 1995).
III. Conclusion

    The Commission finds that the MSRB's proposal is consistent with 
the requirements of the Act and particularly with Section 15B(b)(2)(C).
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-MSRB-95-03) be, and hereby 
is approved and will become effective thirty days from the date of 
approval by the Commission.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\12\

    \12\ 17 CFR 200.300-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-16655 Filed 7-6-95; 8:45 am]
BILLING CODE 8010-01-M