[Federal Register Volume 67, Number 165 (Monday, August 26, 2002)]
[Notices]
[Pages 54831-54832]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-21607]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46380; File No. SR-MSRB-2002-07]


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

August 19, 2002.
    On July 3, 2002, pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (the ``Act'' or ``Exchange Act''),\1\ and Rule 
19b-4 thereunder,\2\ 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-2002-07). The proposed rule change relates to MSRB Rule G-14, 
on Reports of Sales or Purchases.
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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 for comment in 
the Federal Register on July 17, 2002.\3\ The Commission received one 
comment letter relating to the forgoing proposed rule change. The 
proposed rule change does not change the wording of Rule G-14. This 
order approves the Board's proposal.
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    \3\ See Release No. 34-46180 (July 10, 2002), 67 FR 47012.
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I. Description of the Proposed Rule Change

    To add greater transparency in the municipal securities market, the 
MSRB filed with the Commission the forgoing proposed rule change. The 
MSRB 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. Since 1995, the MSRB 
has expanded the scope of the public transparency reports in several 
steps. Each step has provided industry participants and the public 
successively more information about the market.\4\
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    \4\ The MSRB's report summarizing prices for issues that are 
frequently traded on the inter-dealer market began operation in 
1995; in 1998, dealer-customer prices were added in a second summary 
report; in January 2000, a report with details of trades in 
frequently traded issues was added; in October 2000, a monthly 
comprehensive report, covering all transactions effected during the 
previous month, began operation; and in November 2001, a daily 
comprehensive report was begun, with trades effected two weeks 
earlier.
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    In May, 2001, the MSRB announced its plan to begin reporting trades 
in ``real time'' on a schedule coordinated with the industry's 
timetable for migration to an environment of next-day settlement of 
securities transactions.\5\ To attain real-time reporting, the MSRB 
intends in the future to file an amendment to Rule G-14 to require 
dealers to report their trades within 15 minutes of the time they are 
effected. The planned implementation date for real-time reporting is 
now set for mid-2004.
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    \5\ See ``Real-Time Reporting of Municipal Securities 
Transactions,'' MSRB Reports, Vol. 21, No. 2 (July 2001) at 31-36.
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    Prior to the implementation of real-time transaction reporting, the 
MSRB intends to continue to increase transparency in the market using 
the currently available data. As its next step, the MSRB is now 
proposing to disseminate the Daily Comprehensive Report with a one-week 
delay. The proposed Report would contain details of all municipal 
securities transactions that were effected during the trading day one 
week earlier. Data about each trade on the proposed Report would be the 
same as that on the current Daily Comprehensive Transaction Report. For 
each trade, the proposed Report, like the current report, would show 
the trade date, the CUSIP number of the issue traded, a short issue 
description, the par value traded, the time of trade reported by the 
dealer, the price of the transaction, and the dealer-reported yield of 
the transaction, if any. Each transaction would be categorized as a 
sale by a dealer to a customer, a purchase from a customer, or an 
inter-dealer trade.
    The current Daily Comprehensive Report began operation on November 
1, 2001.\6\ The proposed Report, with a one-week delay, would replace 
the current report that has a two-week delay.
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    \6\ See Release No. 34-44894 (October 2, 2001), 66 FR 51485 
(October 9, 2001).
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Description of Service

    Like the current two-week delayed report, the new Report will be 
available daily to subscribers. Subscribers to the current two-week 
delayed report would continue to access the proposed Report via the 
Internet and download copies from the MSRB's computer using a password-
protected FTP account. The MSRB expects that the proposed Report would 
be available within two weeks of approval by the Commission.
    The MSRB will continue the established annual fee for the Service 
of $2,000. The fee is structured approximately to defray the MSRB's 
costs for production of daily data sets, operation of 
telecommunications lines, and subscription maintenance. Subscription 
fees that have been paid for the two-week delayed report will be 
applied toward the one-week delayed report.
    To enable the MSRB to compile a comprehensive trades database for 
enforcement purposes, dealers report a small amount of data after trade 
date, and a few trades may be added, deleted or amended as late as a 
few weeks after trade date.\7\ To ensure that subscribers to the report 
have access to those trades, the MSRB will make available each day an 
``updated'' report containing all trades effected one month previously. 
This will enable subscribers to see the effect of changes reported by 
dealers after the one-week report was disseminated.
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    \7\ See Release No. 34-43060 (July 20, 2000), 65 FR 46188-46189 
(July 27, 2000) at note 7. Approximately one percent of the trades 
in the database have data submitted between one week and one month 
after trade date.
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II. Summary of Comments

    The Commission received one comment letter addressing the proposed 
rule change.\8\ In addition to offering support for the proposed rule 
change, this letter provided suggestions on how to advance price 
transparency in the future.
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    \8\ Letter from Frank Chin, Salomon Smith Barney, Chair, 
Municipal Executive Committee, The Bond Market Association, to Mr. 
Jonathan G. Katz, Secretary, Commission, dated August 8, 2002.
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    The comment letter, from The Bond Market Association (``TBMA''), 
expressed strong support of the MSRB's initiative to decrease the time 
interval for transparency of all reported bonds.\9\ The TBMA expressed 
its belief that decreasing the dissemination of trade data to one-week 
delay, from two-weeks, may enhance the value of the data to all market 
participants. Moreover, the more current information would not confuse 
investors or adversely impact the municipal market.\10\ But, with its 
support of the proposal, the letter urges the MSRB to create a process 
for evaluating any adverse market impacts that may result from 
disseminating trade information for ``very inactive bonds''.\11\ This 
process of evaluation would involve several critical questions relating 
to the objective and relevancy of ``full transparency'' in the 
municipal market.\12\ TBMA believes that price dissemination on a next-
day basis for all bonds that trade only once per day

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``would not necessarily provide useful information to investors and 
other market participants or could adversely affect liquidity and be 
misleading.'' \13\ Furthermore, the TBMA believes that trading activity 
that is limited to a single trade may reflect insufficient market 
interest to justify dissemination.
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    \9\ See id at page 2.
    \10\ See id.
    \11\ The TBMA letter makes reference to the recent Commission 
approval of the MSRB's proposed rule change that decreases the trade 
threshold for information dissemination to three trades per day from 
four trades. See Release No. 34-45861 (May 1, 2002) 67 FR 30989.
    \12\ See TBMA letter at page 3.
    \13\ See id at page 2.
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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 Act and the rules and regulations thereunder, which 
govern the MSRB.\14\ The language of Section 15B(b)(2)(C) of the 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 in 
municipal securities, and, in general, to protect investors and the 
public interest.\15\
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    \14\ 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).
    \15\ 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 relating to Rule G-14, on Reports of Sales or Purchases, 
meets the requisite statutory standard. The Commission believes that 
this proposed rule change is consistent with the requirements of the 
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 Act, as set forth above.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\16\ that the proposed rule change (File No. SR-MSRB-2002-
07) be and hereby is, approved.
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    \16\ 15 U.S.C. 78s(b)(2).

    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).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-21607 Filed 8-23-02; 8:45 am]
BILLING CODE 8010-01-P