[Federal Register Volume 63, Number 165 (Wednesday, August 26, 1998)]
[Notices]
[Pages 45544-45545]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-22841]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40337; File No. SR-MSRB-98-9]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Order Granting Approval to Proposed Rule Change Relating to 
Reports of Sales and Purchases, Pursuant to MSRB Rule G-14

August 19, 1998.

I. Introduction

    On June 17, 1998, the Municipal Securities Rulemaking Board 
(``Board'' or ``MSRB'') filed with the Securities and Exchange 
Commission (``Commission'' or ``SEC'') a proposed rule change pursuant 
to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') 
\1\ and Rule 19b-4 thereunder \2\ to institute a service (``the 
Service'') to provide daily reports from the Board's Transaction 
Reporting Program (``the Program''). The daily reports will summarize 
information about customer and inter-dealer transactions in municipal 
securities reported to the Board under MSRB Rule G-14. The Board 
proposed to establish a fee for an annual subscription to the Service 
of $15,000. The proposed rule change was published for comment in the 
Federal Register on July 13 1998.\3\ No comments were received. This 
order approves the proposal.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Exchange Act Release No. 40176 (July 7, 1998) 63 FR 37608 
(July 13, 1998).
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II. Description of the Proposal

Background and Description of the Program

    Since 1995, Rule G-14 has required brokers, dealers, and municipal 
securities dealers (``dealers'') to report to the Board 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 that can be 
used for market surveillance purposes and for inspection and 
enforcement by agencies and organizations charged with enforcement of 
Board rules. The Board also uses the reported transaction information 
to create the Inter-Dealer Daily Report, which is used by market 
participants to help gauge the value of municipal securities. The Board 
currently has eight subscribers to the Inter-Dealer Daily Report. Most 
of these are information vendors that redistribute the information to 
their own subscribers and/or use the information in various securities 
valuation products that they market.\4\
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    \4\ The current subscribers are Bloomberg Financial Markets, 
Chapdelaine & Company, Dow Jones Telerate, Interactive Data Corp., 
J.J. Kenny Co., Inc., Muller Data Corp., Smith Barney, Inc., and 
TradeHistory, LLC.
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    In 1996, the Board filed with the Commission an amendment to Rule 
G-14 to require dealers to report their customer transactions in 
municipal securities to the Board in certain prescribed formats and a 
description of the changes to the Program necessary to add customer 
transaction information.\5\ The Board would use the information to 
produce a daily public report (the ``Combined Daily Report'') 
summarizing prices and volumes of trading in the municipal securities 
market during the previous day. The Commission approved the amendment 
and changes, and customer trades have been reported by dealers to the 
Board since March 1, 1998.\6\ In March 1998, the Board filed with the 
Commission its intention to release samples of the Combined Daily 
Report for public comment and to make the Report available on an 
operational basis in the third quarter of 1998.\7\
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    \5\ Exchange Act Release No. 37859 (Oct. 23, 1996) 61 FR 56072 
(Oct. 30, 1996).
    \6\ Exchange Act Release No. 37998 (Nov. 29, 1996) 61 FR 64782 
(Dec. 6, 1996) (approval of amendment to rule G-14); Exchange Act 
Release No. 39495 (Dec. 29, 1997) 63 FR 585 (Jan. 6, 1998) (Delay of 
effectiveness to March 1, 1998).
    \7\ Exchange Act Release No. 39835 (Apr. 7, 1998), 63 FR 18242 
(Apr. 14, 1998).
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    The criteria for including municipal securities information on the 
proposed Combined Daily Report will be the same as that described in 
the Board's March 1998 filing to produce sample daily reports. These 
are essentially the same as the criteria for the current Inter-Dealer 
Daily Report. If a municipal security (identified by its CUSIP number) 
is reported, in compliance with Rule G-14, as having been traded four 
or more times on a given day, then the high, low, and average price and 
total par value of all the reported trades in that security will be on 
the Combined Daily Report the next morning. The average price will be 
calculated as the arithmetic mean of reported transaction prices of 
those trades between $100,000 and $1,000,000 in par value. This 
reporting band is meant to exclude odd lots and very large trades from 
the average price. 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 in one CUSIP will trigger the inclusion of price information in 
the Combined Daily Report.
    The Board expects to make the Combined Daily Report Service 
available during the third quarter of 1998, and has stated that it will 
file with the Commission, in advance, an exact date for beginning 
operation. In addition to the Combined Daily Report Service, the Board 
also will use the data reported by dealers under Rule G-14 to create a 
surveillance database available to regulatory agencies and 
organizations responsible for enforcement of Board rules. The 
surveillance database will not be available to regulators until early 
1999.

Description of the Combined Daily Report

    Once all transaction information for a business day has been 
received, the Board's computerized Transaction Processing System 
(``TRS'') generates the Combined Daily Report. As noted, both inter-
dealer and customer trades are counted to determine whether an

[[Page 45545]]

issue (CUSIP number) was traded four or more times. Based upon 
transaction data reported to the Board in March, April and May 1998, it 
appears that approximately one thousand issues will be traded four or 
more times on a typical day.
    The Combined Daily Report includes summary information describing 
the day's market in municipal securities. The summary covers all 
municipal securities trades, regardless of frequency of trading. The 
following data elements for each issue would be published in the 
Combined Daily Report: (1) The CUSIP number that identifies the issue; 
(2) A short description of the issue that was traded; (3) The total 
number of trades in the issue (both inter-dealer and customer) that 
were reported to the MSRB; (4) The total dollar value of all trades in 
the issue on the trade date; (5) The highest price of all trades in the 
issue; (6) The lowest price of all trades in the issue; (7) The 
arithmetic mean of all trades whose par values were between $100,000 
and $1,000,000; (8) The number of trades whose par values were between 
$100,000 and $1,000,000; (9) Whether the issue was traded while in 
``when,'' ``as,'' and ``if issued'' status; and (10) Assumed settlement 
date.\8\
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    \8\ In some cases, it is necessary to assume a settlement date 
to calculate price from yield for inclusion of the price in the 
Combined Daily Report. The assumed settlement date for both inter-
dealer and customer trades will be 15 business days after the trade 
date (T+15). When it has been necessary to assume a settlement date, 
this date will be shown on the Combined Daily Report.
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Review Process for Customer Transaction Data Used in Combined Daily 
Report

    Customer transaction records submitted by dealers are reviewed 
automatically as part of data processing within the TRS. Trade records 
are excluded from eligibility for the Combined Daily Report if: (i) the 
trade date reported in the record is for a day other than the day being 
reported in the Combined Daily Report; (ii) the trade record or the 
file containing the trade record is not in the required format or 
otherwise violates stated system input requirements; \9\ (iii) the 
submitter of the file has not filed with the Board the required 
information to identity itself; (iv) the trade record contains a dealer 
identifier that is unknown to the Board; \10\ (v) the information 
contained in the trade record is so substantially outside expected 
parameters that an input error is suspected; (vi) the CUSIP number 
submitted is not known to be a valid CUSIP number for a municipal 
securities issues; \11\ or (vii) the trade record contains no dollar 
price and a dollar price cannot be calculated from the reported yield 
on the transaction using the Board's available data about the security 
and standard yield-to-price calculation techniques for securities with 
periodic interest payments and with more than six months to redemption, 
contained in Board rule G-33(b)(i)(B)(2).\12\
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    \9\ Format requirements and input procedures are described in 
``Board to Proceed with Customer Transaction Reporting Program: Rule 
G-14'' (MSRB Reports, Vol. 16, No. 3 (September 1996) at 3-16). This 
document, along with explanatory questions and answers and the 
latest information on the Program, can be found on the Board's World 
Wide Web site (www.msrb.org).
    \10\ To identify dealers, the Board uses symbols assigned to 
dealers by the NASD. Dealers are required to obtain a valid symbol 
under Rule G-14(b)(iii). The transaction reporting procedures 
contained within Rule G-14 also require that each dealer effecting 
customer transactions provide the Board with certain contact 
information and testing-related information.
    \11\ The Board currently receives updated information on 
municipal securities CUSIP numbers each day from the CUSIP Service 
Bureau and J.J. Kenny Co., Inc.
    \12\ The current software used for calculation is provided by 
TIPs, Inc. The securities information used to calculate price from 
yield currently is provided by J.J. Kenny Co., Inc.
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III. Discussion

    The Commission finds that the proposed rule change is consistent 
with Section 15B(b)(2)(C) of the Act,\13\ which requires, in pertinent 
part, that the Board's rules ``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 * * * 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.'' \14\
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    \13\ 15 U.S.C. 78o-4(b)(2)(C).
    \14\ In approving this rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition and 
capital formation. 15 U.S.C. 78c(f).
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    The Commission believes that the Service will increase transparency 
in the municipal securities market by adding information about 
transactions between dealers and customers to the information currently 
disseminated by the Program. This should promote investor confidence in 
the market and its pricing mechanism.
    The Combined Report's format will be the same as that of the Inter-
Dealer Report, which should simplify use of the new report. The Board 
represents that if experience with the Combined Daily Report indicates 
revisions are needed, it will revise the format to ensure that the 
Program will continue to provide market transparency to market 
participants. The Commission notes that the Board does not expect or 
intend to make a profit from the Service.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\15\ that the proposed rule change (SR-MSRB-98-9) is approved.

    \15\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-22841 Filed 8-25-98; 8:45 am]
BILLING CODE 8010-01-M