[Federal Register Volume 67, Number 89 (Wednesday, May 8, 2002)]
[Notices]
[Pages 30989-30990]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-11394]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45861, File No. SR-MSRB-2002-04]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Order Granting Approval of Proposed Rule Change by the Relating 
to Rule G-14, on Reports of Sales or Purchases

May 1, 2002.
    On March 27, 2002 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-2002-04) pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder.\2\ The 
proposed rule change relates to MSRB Rule G-14, on reports of sales or 
purchases, to increase transparency in the municipal securities market. 
The proposed rule change does not change the wording of Rule G-14.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    The Commission published the proposed rule change in the Federal 
Register on April 4, 2002. The Commission received five comment letters 
relating to the forgoing proposed rule change. This order approves the 
proposal.

I. Description of the Proposed Rule Change

    The Board has a long-standing policy to increase price transparency 
in the municipal securities market, with the ultimate goal of 
disseminating comprehensive and contemporaneous pricing data. One 
product of the Board's Transaction Reporting Program is its Daily 
Transaction Report (the ``Report''), which has been provided to 
subscribers each day since January 2000. The report is made available 
each morning by 7:00 am and includes details of transactions in 
municipal securities which were ``frequently traded'' the previous 
business day. Since the beginning of the Transaction Reporting Program 
in 1995, ``frequently traded'' securities have been defined as those 
that were traded four or more times on a given business day.
    Since 1995, the Board has made ongoing efforts to increase price 
transparency in the municipal securities market in measured steps, 
culminating in comprehensive, real-time price transparency. The first 
price transparency report, begun in 1995, was a T+1 report that 
summarized inter-dealer trades in frequently traded municipal 
securities. In 1998, the Board added customer trades to the T+1 summary 
reports, and in January 2000 began publishing individual transaction 
data on frequently traded securities in addition to summarizing their 
high, low and average prices. The Board has also introduced 
``comprehensive'' transaction reports for this market, which list all 
municipal securities transactions (regardless of frequency of trading), 
but which are available no less than two weeks after trade date.\3\
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    \3\ The first comprehensive report was introduced in October 
2000 and listed all trades after a one month delay. The latest 
comprehensive report began operation in November 2001 and has a two-
week delay. See Release No. 34-44894, 66 FR 51485 (October 9, 2001).
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    At this time, the Board believes that the next appropriate step in 
this process is to change the threshold for determining that a 
municipal security is ``frequently traded'' for purposes of the T+1 
transparency report. The proposed rule change would lower the threshold 
from four to three trades per day. By lowering the threshold, the 
proposal would increase substantially the proportion of municipal 
securities market activity that is reported on the day after trading. 
The present report, with a threshold of four or more trades per day, 
includes an average of 11,600 trades in 1,100 different issues, with a 
total par value of about 3.9 billion dollars. Under the proposed 
threshold, the report is expected to include an average of 14,400 
trades in 2,600 issues, with a total par value of about 5.2 billion 
dollars. This represents a 24 percent increase in the number of trades 
reported, a more-than-twofold increase in the number of issues 
reported, and a 33 percent increase in par value reported.\4\
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    \4\ These data are based upon market activity from April 1, 2001 
through July 31, 2001.
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    The enhanced Daily Transaction Report with the three-trade 
threshold will replace the current report and will be available each 
day to subscribers via the Internet.\5\ Subscribers to the current 
Service receive the report free of charge, and their subscriptions will 
continue with implementation of the proposed Service. New subscriptions 
will be available free to parties who sign a subscription agreement. In 
addition, recent reports will continue to be available for examination, 
also free of charge, at the Board's Public Access Facility in 
Alexandria, VA.
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    \5\ The enhanced report will be available to subscribers as soon 
as practical after SEC approval of the proposed rule change. It is 
estimated that the period between approval and implementation will 
not exceed two weeks.
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II. Summary of Comments

    The Commission received seven comment letters, from two persons, on 
the proposal.\6\ One of the seven comment letters expressed support for 
the forgoing proposed rule change. The other six comment letters 
opposed the proposal.
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    \6\ See letter from John M. Ramsey, Vice President and Senior 
Regulatory Counsel, The Bond Market Association (``TBMA''), to 
Jonathan G. Katz, Secretary, Commission, dated April 24, 2002; three 
electronic letters from Kevin Olson, Municipalbonds.com, to SEC 
Commissioners, dated April 19, 2002; electronic letter from Kevin 
Olson, Municipalbonds.com, to Commissioners, dated April 11, 2002; 
and two electronic letters from Kevin Olson, Municipalbonds.com, 
dated April 10, 2002.
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    The comment letter received from TBMA, commends the MSRB's proposed 
initiative as a mechanism to increase transparency in the municipal 
securities market.\7\ The letter expresses that decreasing the 
threshold from four to three trades will provide more reliable 
indicators of market price while avoiding the dissemination of 
misleading prices from isolated transactions. However, the letter 
cautioned that reporting isolated trades, bonds that trade only once or 
twice on a given day, may require greater MSRB evaluation.
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    \7\ See letter from TBMA, note 6, supra.
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    The six comment letters received from Municipalbonds.com criticized 
the MSRB's proposed rule change as ineffective. In general, the letters 
from Municipalbonds.com expressed that more attention should be given 
to the price reporting system by releasing all information, including 
identities, which correlates with the trade.\8\ The first comment 
letter received from Municipalbonds.com stated that more transaction 
information is ``useless'' if the daily transaction reports ``are not 
being ruled on, watched or utilized by appropriate oversight or 
enforcement

[[Page 30990]]

authorities''.\9\ The same comment letter offered two alternative 
considerations ``to facilitate fair pricing'' such as, initiating ``a 
system of identified * * * market makers for any, all or specific 
municipal bonds' or requiring municipal securities traders to ``inform 
or quote two-sided markets instead of just their bid or offer side.'' 
\10\
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    \8\ See letters from Municipalbonds.com, note 6, supra.
    \9\ See letter from Municipalbonds.com dated April 10, 2002, 
note 6, supra.
    \10\ Id.
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    Subsequent letters sent from Municipalbonds.com continued to 
address reporting inefficiencies. In addition to the two alternatives 
discussed above, Municipalbonds.com challenged the MSRB to respond to 
the problem of reporting errors, which Municipalbonds.com has 
identified.\11\
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    \11\ See letters from Municipalbonds.com, dated April 19, 2002, 
note 6, supra.
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III. Discussion

    The Commission must approve a proposed MSRB rule change if the 
Commission finds that the proposal is consistent with the requirements 
set forth under the Exchange Act and the rules and regulations 
thereunder, which govern the MSRB.\12\ The language of Section 
15B(b)(2)(C) of the Exchange Act requires that the MSRB's rules must be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principals of trade, to foster cooperation 
and coordination with persons engaged in regulating, settling, 
processing information with respect to, and facilitating transactions 
in securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national system, and, in general, to protect 
investors and the public interest.\13\
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    \12\ Additionally, in approving this rule, the Commission notes 
that it has considered the proposed rule's impact on efficiency, 
competition and capital formation. 15 U.S.C. 78c(f).
    \13\ 15 U.S.C. 78o-4(b)(2)(C).
    \13\ 15 U.S.C. 78o-4(b)(2)(C).
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    After careful review, the Commission finds that the MSRB's proposed 
rule change consisting of an amendment to Rule G-14, on professional 
qualifications, which relates to municipal fund securities limited 
principals, meets the statutory standard. The Commission believes that 
this proposed rule change is consistent with the requirements of the 
Exchange Act, and the rules and regulations thereunder. In addition, 
the Commission finds that the proposed rule is consistent with the 
requirements of Section 15B(b)(2)(C) of the Exchange Act, set forth 
above.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\14\ that the proposed rule change (File No. SR-MSRB-2002-
04) be and hereby is, approved.
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    \14\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 02-11394 Filed 5-7-02; 8:45 am]
BILLING CODE 8010-01-P