[Federal Register Volume 63, Number 71 (Tuesday, April 14, 1998)]
[Notices]
[Pages 18242-18244]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-9806]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39835; File No. SR-MSRB-98-5]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Municipal Securities 
Rulemaking Board Relating to the Board's Transaction Reporting Program

April 7, 1998.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on April 1, 
1998, the Municipal Securities Rulemaking Board (``Board'' or ``MSRB'') 
filed with the Securities and Exchange Commission (``Commission'' or 
``SEC'') a proposed rule change (File No. SR-MSRB-98-5). The proposed 
rule change is described in Items I, II, and III below, which Items 
have been prepared by the Board. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.

I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The MSRB is filing herewith a proposed rule change concerning the 
Board's Transaction Reporting Program (``Reporting Program''). The 
proposed rule change states the Board's intention to publish for 
comment five sample Daily Reports containing summary price and volume 
information on inter-dealer and customer municipal securities 
transactions reported by dealers under rule G-14. The proposed rule 
change also states that the Board intends to make the Daily Report 
available on an operational basis in the third quarter of 1998. The 
proposed rule change is as follows.

Notice--Sample Transaction Reporting Data Available for Review

    Since 1995, rule G-14 has required dealers to report to the MSRB 
their inter-dealer transactions in municipal securities via the 
automated comparison system for municipal securities operated by 
National Securities Clearing Corporation (``NSCC''). The Board has used 
this information to create a database of transaction information used 
by regulators for market surveillance purposes. The Board also uses the 
reported transaction information to create a daily public report 
summarizing price and volume information for municipal securities that 
were reported as trading in the inter-dealer market four or more times 
on the previous business day. The Daily Report, which is made available 
on T+1 prior to the beginning of the trading day, is used by market 
participants to help gauge the value of municipal securities. The Board 
currently has eight subscribers to the Daily Report. Most of the 
subscribers are information vendors that redistribute the information 
to their own subscribers and/or use the information in various 
securities valuation products that they market.
    In 1996, the Board filed plans with the Commission to add 
transactions between dealers and customers to the Reporting Program. 
Customer transaction data will be included in the surveillance database 
that the Board makes available to market regulators, and in the Daily 
Reports of price and volume activity. Since March 1, 1998, dealers have 
been required to submit customer transaction data on a daily basis.\1\ 
Beginning April 9, 1998, the MSRB will publish samples of a proposed 
Daily Report that includes both customer and inter-dealer transaction 
data and will invite public comment on the sample reports.
---------------------------------------------------------------------------

    \1\ See Exchange Act Release No. 37998 (Nov. 29, 1996), 61 FR 
64782 (December 6, 1996) (approval of amendment to rule G-14); 
Exchange Act Release No. 39495 (December 29, 1997), 63 FR 585 
(January 6, 1998) (delay of effectiveness to March 1, 1998).
---------------------------------------------------------------------------

    The criteria for inclusion of municipal securities on the sample 
Daily Reports are the same as for the current inter-dealer Daily 
Report. If a municipal security (identified by a CUSIP number) is 
reported as having been traded four or more times on a given day, the 
high, low and average price and par value total of all of the trades 
reported in that security will be on the Daily Report on the next 
morning. Calculation of average price also is the same as in the 
current inter-dealer Daily Report. It is an arithmetic mean and is 
based exclusively on reported transactions (if any) between $100,000 
and $1,000,000 in par value.
    In applying the criteria for producing the sample Daily Reports, 
inter-dealer and customer transactions are considered together. This 
means that any combination of inter-dealer and customer transactions 
totaling four or more qualifies that CUSIP for inclusion of price 
information for that CUSIP on the Daily Report. In determining whether 
a reported transaction will be included for purposes of the Daily 
Report eligibility, certain transaction records are eliminated from 
consideration if they contain what appear to be obvious errors (e.g., 
invalid or unknown CUSIP number, missing dollar price). An attempt is 
made to calculate a dollar price on when-issued transactions submitted 
with a yield, but no dollar price. However, such transactions are not 
considered for Daily Report purposes if there is insufficient 
securities data (e.g., coupon and dated date) to calculate dollar price 
from yield or if there is an indication that the securities are not 
calculated using a standard semiannual compounding formula and a 30/360 
day-count.
    The sample Daily Reports will be available beginning Thursday, 
April 9, 1998. The five sample Daily Reports will include information 
on transactions reported to the Board, by midnight on trade date, 
between March 30, 1998 and April 3, 1998. Market participants may wish 
to comment on the Daily Reports, particularly with respect to the 
format of the reports, so that the Board can make the Daily Reports as 
useful as possible. The sample Daily Reports will be available on the 
Board's Web site at WWW.MSRB.ORG and will be available in printed form 
from the Board's offices. Subscribers to the current inter-dealer Daily 
Report will be able to access the sample Daily Reports through the 
computer bulletin board that they normally use to access Daily Reports.
    The Board requests that comment on the sample Daily Report be made 
in writing prior to May 8, 1998. The Board plans to make the Daily 
Report available on a daily basis during the third quarter of 1998. 
Prior to that time, the Board must file a plan with the Commission that 
specifies the final format of the report and that announces the yearly 
subscription price.

II. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    In its filing with the Commission, the Board included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comment it received on the proposed rule change. The 
texts of these statements may be examined at the places specified in 
Item IV below. The Board 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
    Since 1995, rule G-14 has required dealers to report to the MSRB 
their inter-dealer transactions in municipal

[[Page 18243]]

securities via the automated comparison system for municipal securities 
operated by the NSCC. The Board has used this information to create a 
database of transaction information that can be used for market 
surveillance purposes and to produce daily report summarizing price and 
volume information for municipal securities that traded four or more 
times in the inter-dealer market on the previous business day.
    In 1996, the Board filed plans with the Commission to add 
transactions between dealers and customers to the Transaction Reporting 
Program.\2\ This will allow the Board to include customer transaction 
data in the surveillance database that the Board makes available to 
market regulators, and in the Daily Reports of price and volume 
activity in the market. The 1996 filing included an amendment to rule 
G-14, requiring dealers to report their customer transactions in 
municipal securities to the Board in certain prescribed formats.\3\ The 
Commission approved this amendment and it became effective March 1, 
1998.\4\ The Board has been receiving customer transaction data since 
that time and is now ready to publish samples of a proposed Daily 
Report that includes both customer and inter-dealer transactions.
---------------------------------------------------------------------------

    \2\ Exchange Act Release No. 37859 (Oct. 23, 1996), 61 FR 56072 
(October 23, 1996).
    \3\ See MSRB Rule G-14(b)(ii) and Rule G-14 Transaction 
Reporting Procedures.
    \4\ Securities Exchange Act Release 37998 (Nov. 29, 1996) 
(approval of amendment to rule G-14); Securities Exchange Act 
Release 39495 (Dec. 29, 1997) (delay of effectiveness to March 1, 
1998).
---------------------------------------------------------------------------

    The criteria for inclusion of municipal securities on the sample 
Daily Reports will be the same as in the current inter-dealer Daily 
Report. If a municipal security (i.e., CUSIP number) is reported as 
having been traded four or more times on a given day, the high, low and 
average price and par value total of all of the trades reported in that 
security will be on the Daily Report on the next morning. Calculation 
of average price will be an arithmetic mean and will be based 
exclusively on reported transactions (if any) between $100,000 and 
$1,000,000 in par value. In applying these criteria, inter-dealer and 
customer transactions will be considered together. This means that any 
combination of inter-dealer and customer transactions totaling four or 
more will trigger the inclusion of price information for that CUSIP on 
the Daily Report.
    The five sample Daily Reports being released for comment will 
include information on inter-dealer and customer transactions reported 
to the Board, on trade date, between March 30, 1998 and April 3, 1998. 
They will be released during the week of April 7, 1998. The sample 
Daily Reports will be available on the Board's Web site at WWW.MSRB.ORG 
will be available in printed form from the Board's offices. Subscribers 
to the current inter-dealer Daily Report will be able to access the 
sample Daily Reports through the normal means of accessing Daily 
Reports, which is a computer bulletin board.
    Although the Board is now receiving customer transaction data from 
dealers, it is not yet prepared to begin production of Daily Reports 
containing summary price and volume information on an operational 
basis. This is due to several factors, including the need for further 
testing of the software that produces the Daily Report, the need for 
additional efforts to assure that the data within the Daily Report 
reliably reflects transaction data reported to the Board, and the need 
for additional analysis to help assure that the data submitted by 
dealers is accurate, timely and complete. Prior to operational status 
being achieved, it also will be necessary for the Board to convert its 
current testing and development computer systems to operational 
systems, which require higher standards of reliability and operational 
readiness. The Board estimates that these objectives can be attained 
during the third quarter of 1998. Prior to that time, the Board will 
file a more complete plan with the final format of the Daily Reports 
and a detailed description of the process by which the Daily Report is 
produced.
2. Statutory Basis
    The Board believes that the proposed rule change is consistent with 
Section 15B(b) (C) of the Act, which provides that the Board'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, to remove 
impediments to and perfect the mechanism of a free and open market 
in municipal securities, and, in general, to protect investors and 
the public interest.

    The Board believes that the proposed rule change is necessary so 
that Daily Report operations can begin as soon as possible. The Board 
believes that the operation of the Reporting Program, in general, will 
facilitate the statutory purposes noted above because the Reporting 
Program will provide an additional degree of price transparency in the 
municipal securities market and will provide a surveillance audit trail 
that may be used by market regulators in furtherance of their 
regulatory purposes.

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

    The Board does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act since it would apply equally to 
all brokers, dealers and municipal securities dealers and merely 
provides sample data for comment for a program the general parameters 
of which previously have been approved by the Commission.

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

    Written comments were neither requested nor received on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    The Board has designated this proposed rule change as constituting 
a stated policy, practice, or interpretation with respect to the 
meaning, administration, or enforcement or an existing Board rule under 
Section 19(b)(3)(A) of the Act, which renders the proposed rule change 
effective upon receipt of this filing by the Commission. The proposed 
rule change merely describes the plan for the Board to provide a sample 
of transaction data from the municipal securities market so that the 
Board can expeditiously continue with its plan, previously approved by 
the Commission, to add customer transaction data to the existing 
Reporting Program. At any time within sixty days of the filing of the 
proposed rule change, the Commission may summarily abrogate such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

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. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549. 
Copies of the submission, all subsequent

[[Page 18244]]

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, 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 
inspection and copying in the Commission's Public Reference Room. 
Copies of the filing will also be available for inspection and copying 
at the Board's principal offices. All submissions should refer to File 
No. SR-MSRB-98-5 and should be submitted by May 5, 1998.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority, 17 CFR 200.30-3(a)(12).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-9806 Filed 4-13-98; 8:45 am]
BILLING CODE 8010-01-M