[Federal Register Volume 64, Number 107 (Friday, June 4, 1999)]
[Notices]
[Pages 30078-30081]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-14113]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41457; File No. SR-MSRB-99-03]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Municipal Securities 
Rulemaking Board Relating to Reports of Sales and Purchases, Pursuant 
to Rule G-14

May 26, 1999.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on April 28, 1999, 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-
99-03). The proposed rule change is described in Items I, II, and III 
below, which Items have been prepared by the Board. The MSRB has 
designated this proposal as one constituting a stated policy, practice 
or interpretation with respect to the enforcement of an existing rule 
under Section 19(b)(3)(A) \3\ of the Act which renders the proposal 
effective upon receipt of the filing by the Commission. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Board is filing a proposed rule change concerning the Board's 
Transaction Reporting Program. The proposed rule change states the 
Board's intention to publish for comments a sample Daily Transaction 
Report which covers a five day period and contains information on 
individual transactions in frequently-traded municipal securities, as 
reported by dealers under Rule G-14.
    The proposed rule change is as follows in italics:

Notice--Sample Transparency Reports With Data on Individual 
Transactions in Frequently-Traded Securities Available for Review

    A long standing goal of the Municipal Securities Rulemaking Board 
is providing market participants with more information about the value 
of securities.\4\ Toward this end, the Board

[[Page 30079]]

established its Transaction Reporting Program, which has provided 
increasing levels of information during the past five years. The Board 
has consistently stated that its ultimate goal for the Program is to 
collect and make available transaction information in a comprehensive 
and contemporaneous manner.\5\
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    \4\ See ``From the Chairman,'' MSRB Reports, Vol. 8, No. 5 
(December 1988) at 2.
    \5\See, e.g., ``Board to Proceed with Pilot Program to 
Disseminate Inter-Dealer Transaction Information,'' MSRB Reports, 
Vol. 14, No. 1 (January 1994) at 13; ``Reporting Inter-Dealer 
Transactions to the Board: Rule G-14,'' MSRB Reports, Vol. 14, No. 5 
(December 1994) at 3-6; and ``Transaction Reporting Program for 
Municipal Securities,'' MSRB Reports, Vol. 15, No. 1 (April 1995) at 
11-15.
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    The Board is now publishing for comment sample Daily Transaction 
Reports with individual transaction information for issues that trade 
four or more times on an give day. The sample Daily Transaction Reports 
represents the next step in making transaction price information more 
readily available to investors and other market participants. Release 
of the sample reports builds upon tow earlier phases of transparency--
the Board's Inter-Dealer Daily Report and the Combined Daily Report.

Background

The Inter-Daily Report

    The Board began disseminating price and volume information on 
municipal securities on January 1995 with the production of the Inter-
Dealer Daily Report. Each business day since its inauguration, this 
report has provided statistics on total inter-dealer market activity 
the previous day and information about price and volume for each 
frequently traded issue--i.e., each issue that was traded between 
dealers four or more times during the day. The report includes the 
total par value traded in each frequently traded issue, the high and 
low prices, and average prices of representative trades.\6\
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    \6\ The average price of all trades with par value between 
$100,000 and $1 million is displayed in the report.
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    The initial design of the Inter-Dealer Daily Report was based upon 
the distinctive aspects of the municipal securities market that 
distinguish it from the exchange-listed and NASDAQ markets, where 
transaction price transparency is the norm. A primary distinguishing 
characteristic of the municipal securities market is the large number 
of outstanding issues. There are approximately 1.3 million municipal 
securities that are distinct, non-fungible entities for purposes of 
trading and reporting, compared to a much smaller number of equity 
issues, and their frequency of trading also differs substantially from 
patterns in the exchange and NASDAQ markets. While, on any given day, a 
certain number of municipal securities are traded frequently, the 
identity of these frequently traded issues is continually changing over 
time. Another distinguishing characteristic is that, in the municipal 
securities market, most issues are purchased by ``buy and hold'' 
investors relatively quickly after initial issuance. When frequent 
trading does occur in an issue, it generally occurs in connection with 
issuance and then subsides.
    The Board identified a reporting threshold of four trades a day in 
1994, based upon its belief that reporting an isolated transaction in a 
security does not necessarily provide a reliable indicator of ``market 
price'' and might be misleading to an observer not familiar with the 
market. At the same time, the Board made a commitment to review the use 
of the Inter-Dealer Daily Report as experience was obtained and to 
consider expanding the information included.7 In its 
approval order for the Inter-Dealer Daily Report, the Commission noted 
that the MSRB, in proceeding to subsequent levels of transparency, 
``should continue to work toward publicly disseminating the maximum 
level of useful information to the public while ensuring that the 
information and manner in which it is presented is not misleading.'' 
8
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    7 See Securities Exchange Act Release No. 34458 (July 28, 
1994).
    8 See Securities Exchange Act Release No. 34955 (November 9, 
1994).
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The Combined Daily Report

    The Board proposed in August 1996 to expand the transparency 
program by adding to the daily public report information about 
transactions between dealers and their customers.9 The 
Commission approved the expansion in November 1996.10 
Dealers have been required to report customer transaction information 
to the Board since March 1, 1998, and the Board began production of a 
Combined Daily Report which incorporated both inter-dealer and customer 
transaction information on August 24, 1998.11 This 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.
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    9 See ``Board to Proceed with Customer Transaction Reporting 
Program,'' MSRB Reports, Vol. 16, No. 3 (September 1996) at 3-10.
    10 See Securities Exchange Act Release No. 37998 (November 29, 
1996).
    11 See ``Availability of Information on Transactions in 
Municipal Securities: Rule G-14,'' MSRB Reports, Vol. 19, No. 1 
(February 1999) at 23.
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    The Board currently has nine subscribers to the Combined Daily 
Report. Most of these are information vendors that redistribute to 
their own subscribers and/or use the information in various securities 
valuation products that they market. The Board has used the customer 
transaction information to create a surveillance database of all trade 
data which is has made available to the Commission, the National 
Association of Securities Dealers (NASD) and the bank regulatory 
agencies for market surveillance and enforcement purposes.

Proposed New Daily Transaction Report

    As a step to increase transparency beyond the market summary 
information provided in Combined Daily Reports, the Board now is 
proposing to make data available on individual transactions in 
securities that were traded four or more times on the previous day and 
is publishing samples of a new Daily Transaction Report for comments. 
The new Daily Transaction Report, once it receives Commission approval 
and becomes operational, would substantially increase the amount of 
available information compared to that provided in the Combined Daily 
Report. Currently, the Combined Daily Report provides a one-line 
summary of trading in each of approximately 1,072 frequently-traded 
issues. In comparison, for each transaction in a frequently-traded 
security,12 the sample Daily Transaction Reports display the 
CUSIP number and a short description of the traded issue, the time of 
trade execution, the par value traded, and the dollar price of the 
trade.13 As part of the format of the sample Reports, prices 
of sales to customers, which represent the

[[Page 30080]]

prices that customers can expect to pay when purchasing securities, are 
in a column separate from prices of all other trades (i.e., purchases 
from a customer or inter-dealer trades), which represent wholesale 
market activity. Issues are ordered by frequency of trading, and, 
within an issue, trades are displayed in order of time of trade, from 
the earliest reported time of trade to the latest.14 Trade 
data now being received by the Board indicates that the new Daily 
Transaction Reports on average would provide detailed information daily 
on approximately 9,000 individual transactions in the 1,000 frequently-
traded issues. As these statistics illustrate, the detailed transaction 
data in the new Reports would increase greatly the amount of available 
municipal securities price information and would display a more 
complete picture of the market than any existing public records.
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    12 In determining whether a reported transactions 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). The Board continually monitors 
the data it receives for errors and informs the dealer or its agent 
of each error that would eliminate a transaction from the Report. 
The Board is working continually with dealers and enforcement 
agencies such as the NASD to improve the quality of reported data 
and dealer compliance with rule G-14 reporting requirements.
    13 An attempt is made to calculate a dollar price on when-issued 
transactions submitted with a yield but no dollar price. In such a 
case, if there is sufficient securities data available to calculate 
dollar price from yield (e.g., if coupon or dated date are not 
known) or if the dollar price cannot be calculated using a standard 
semiannual compounding formula and a 30/360 day-count, the 
transaction is not included in the Daily Transaction Report. See 
``Public Reporting of Transactions in Municipal Securities: Rule G-
14,'' MSRB Reports, Vol. 18, No. 2 (August 1998) at 25-27.
    14 Where trades were reported with invalid or no time of trade, 
the report shows the time of trade as ``0'' and these trades are 
listed first within the issue.
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    Five sample Daily Transaction Reports will be available beginning 
April 29, 1999. The Reports will include information on transactions 
reported to the Board by midnight on trade date between March 22 and 
March 26, 1999. The sample Daily Transaction Reports will be available 
on the Board's Web site at WWW.MSRB.ORG. Subscribers to the current 
Inter-Dealer Daily Report also will be able to access the sample 
Reports through the computer bulletin board that they normally use to 
access Daily Reports. Printed copies will be available for inspection 
at the Board's offices.
    The Board intends to disseminate the Daily Transaction Report by a 
service similar to that now used for the Inter-Dealer and Combined 
Daily Reports. In this service, electronic files are made available via 
the Transaction Reporting System's Bulletin Board. Electronic versions 
of the reports will be made available by approximately 7:00 am each 
business day to subscribers. The Board will continue to make the 
surveillance database of all trade data, including dealer identities, 
available to the Commission, the NASD and the bank regulatory agencies.

Comments Requested

    The Board invites comment on the format of Daily Transaction 
Reports so that the Board can make the new Reports as useful as 
possible. Is the organization of the proposed Report appropriate for 
effective use? When operational, should the proposed reports be made 
available electronically by the same means and in the same computerized 
formats as the Inter-Dealer and Combined Daily Reports? Is there value 
in continuing to produce the Combined Daily Report, which summarizes 
the price and volume data of the Daily Transaction Report? The Board 
requests that comment on the sample Daily Transaction Report be made in 
writing prior to July 1, 1999.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, 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 comments 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 Section 
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
    As a step to increase transparency beyond the market summary 
information provided in Combined Daily Reports, the Board intends to 
publish a sample Daily Transaction Report covering a five day period 
containing information on individual transactions in frequently-traded 
municipal securities, as reported by dealers under Rule G-14. The 
sample Daily Transaction Report represents the next step in 
disseminating meaningful and comprehensive transaction information. The 
Board is inviting comments from market participants and the public on 
the format to be used in disseminating large quantities of information 
about individual transactions.
    The new Daily Transaction Report, once it receives Commission 
approval and becomes operational, would substantially increase the 
amount of information available compared to that currently provided in 
the Combined Daily Report. Currently, the Combined Daily Report 
provides a one-line summary of trading in each of approximately 1,072 
frequently-traded issues. In comparison, for each transaction in a 
frequently-traded security, the sample Daily Transaction Report will 
display the CUSIP number and a short description of the traded issue, 
the time of trade execution, the par value traded, and the dollar price 
of the trade. In addition, the sample Daily Transaction Report shows 
prices of sales to customers, which represent the prices that customers 
can expect to pay when purchasing securities, in a column separate from 
prices of all other trades (i.e., purchases from a customer or inter-
dealer trades), which represent wholesale market activity. Issues will 
be ordered by frequency of trading and within an issue trades will be 
displayed in order of time of trade, from the earliest reported time of 
trade to the latest. Trade data now being received by the Board 
indicates that the new Daily Transaction Reports on average would 
provide detailed information daily on approximately 9,000 individual 
transactions in the 1,000 frequently-traded issues. As these statistics 
illustrate, the detailed transaction data in the new Reports should 
increase greatly the amount of available municipal securities price 
information and should display a more complete picture of the market 
than any existing public records.
2. Basis
    The Board believes the proposed rule change is consistent with 
Section 15B(b)(2)(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.

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 in that it applies equally to all 
dealers in municipal securities.

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

    Written comments have been solicited. However, none have been 
received to date.

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

[[Page 30081]]

stated policy, practice, or interpretation with respect to the meaning, 
administration, or enforcement of an existing Board rule under section 
19(b)(3)(A) \15\ of the Act, and rule 19b-4(f)(1) thereunder,\16\ which 
renders the proposed rule change effective upon receipt of this filing 
by the Commission. The proposed rule change describes the plan for the 
Board to provide sample data from the Board's Transaction Reporting 
System so that the Board can obtain comment on the format of a new 
Daily Transaction Report and move expeditiously forward with its 
previously announced plan to make public transaction data more useful 
and comprehensive. 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.
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 U.S.C. 240.19b-4(f)(1).
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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, D.C. 20549-0609. 
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 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-99-03 and should be 
submitted by June 25. 1999.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-14113 Filed 6-3-99; 8:45 am]
BILLING CODE 8010-01-M