[Federal Register Volume 67, Number 202 (Friday, October 18, 2002)]
[Notices]
[Pages 64435-64437]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-26515]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46636; File No. SR-MSRB-2002-10]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Notice of Filing of Proposed Rule Change Relating to Rule G-14, 
on Reports of Sales or Purchases

October 10, 2002.
    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 September 24, 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-2002-10) as described in Items I, II, and III below, which 
Items have been prepared by the MSRB. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The MSRB has filed with the Commission a proposed rule change with 
regard to Rule G-14, on reports of sales or purchases, to increase 
transparency in the municipal securities market. The proposed rule 
change would not change the wording of Rule G-14.

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 MSRB 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 MSRB has prepared summaries, set forth in Sections 
A, B, and C below, of

[[Page 64436]]

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
    (a) 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, which has been provided to subscribers each day 
since January 2000. The report is made available each morning by 7 a.m. 
and includes details of transactions in municipal securities which were 
``frequently traded'' the previous business day. From the beginning of 
the Transaction Reporting Program in 1994 through the spring of 2002, 
``frequently traded'' securities were defined as those that were traded 
four or more times on a given business day. In May 2002, the Board 
defined ``frequently traded'' securities as those that were traded 
three or more times on a given day.\3\
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    \3\ See Release No. 34-45861 (May 1, 2002) 67 FR 30989-30990.
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    When transparency was initially being introduced into the municipal 
securities market, the Board was concerned that an observer unfamiliar 
with the market might mistake an isolated reported transaction or pair 
of transactions as providing a reliable indicator of ``market price.'' 
Because of this concern, the Board adopted the ``frequently traded'' 
threshold of four trades. At the same time, the Board has made a 
commitment to review the use of these reports as experience is obtained 
and eventually to move to transparency reporting on a more 
contemporaneous and comprehensive basis.\4\
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    \4\ See, e.g., ``Board to Proceed with Pilot Program to 
Disseminate Inter-Dealer Transaction Information,'' MSRB Reports, 
Vol. 14, No. 1 (January 1994). In its approval order for the Inter-
Dealer Daily Report, the Securities and Exchange Commission noted 
that the Board, 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.'' 
See Release No.34-34955 (November 9, 1994) 59 FR 59810.
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    Since 1994, 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 report, published the 
day after trading (``T+1''), 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, 
as well, to publish individual transaction data on frequently traded 
securities. 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 one week after trade date.\5\
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    \5\ 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 August 2002 and has a one-
week delay. See Release No. 34-46380 (August 19, 2002) 67 FR 54831-
54832.
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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 
information about a municipal security is to be disseminated in the T+1 
Daily Transaction Report. The proposed rule change would lower the 
threshold from three to two trades per day.

Impact of Proposed Report on Transparency

    The proposed threshold would increase substantially the proportion 
of municipal securities market activity that is reported on the day 
after trading. On a typical day, there are approximately 26,000 
transactions in about 10,000 issues, with a total par value traded of 
about $9.5 billion. The present Daily Transaction Report, with a 
threshold of three or more trades per day, includes an average of 
14,400 trades in 2,600 different issues, with a total par value of 
about $5.2 billion. Under the proposed threshold, the report is 
expected to include an average of 19,760 trades in 5,600 issues, with a 
total par value of about $7.7 billion. This represents a 37 percent 
increase in the number of trades reported, a more-than-twofold increase 
in the number of issues reported, and a 48 percent increase in par 
value reported.\6\
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    \6\ Data is based upon market activity from April 1, 2001 
through July 31, 2001.
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Description of Service

    The enhanced Daily Transaction Report with the two-trade threshold 
will replace the current report and will be made available each day to 
subscribers via the Internet. Subscribers to the current Service 
receive the report free of charge, and their subscriptions will 
continue should the proposed Service be implemented. 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.

Implementation Schedule

    The enhanced report will be available to subscribers as soon as 
practical after Commission approval of the proposed rule change. It is 
estimated that the period between approval and implementation will not 
exceed two weeks.
2. Basis
    The MSRB has adopted the proposed rule change pursuant to Section 
15B(b)(2)(I) of the Act, which authorizes the MSRB to adopt rules that 
provide for the operation and administration of the Board.

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

    The MSRB 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 on the proposed rule change were not solicited, 
but the Board had earlier received a comment letter from The Bond 
Market Association (``TBMA'') in reference to the August 2002 change to 
the comprehensive daily report, in which TBMA also commented on the 
Board's announced plan to lower the threshold to two trades.\7\ In its 
letter, TBMA expressed its continued support for the Board's steps to 
expand transparency in the municipal securities market. TBMA also 
stated its belief that T+1 dissemination of information on bonds that 
have traded at least twice a day ``would provide useful information to 
investors and other market participants and is not likely to have a 
deleterious impact on the market for such bonds or mislead investors.'' 
\8\
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    \7\ See letter from Frank Chin, Chair, Municipal Executive 
Committee, The Bond Market Association, to Jonathan G. Katz, 
Secretary, U.S. Securities and Exchange Commission, dated August 8, 
2002.
    \8\ Id., at 2.
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    TBMA did state a reservation regarding the method of counting 
trades toward the reporting threshold. TBMA believes that when a dealer 
``matches or crosses purchase and sale transactions,'' this constitutes 
a single trade because this is the economic reality of such

[[Page 64437]]

transactions, regardless of whether dealers report two transactions to 
the MSRB.\9\
    Consistent with the Board's previous decisions,\10\ the transaction 
reporting system will continue to treat two transactions that 
constitute ``matched'' or ``crossed'' transactions like other trades. 
In the general case, only the dealer that effects a purchase and 
subsequent sale could identify the two trades as crossed agency trades 
or matched riskless principal transactions. The transaction reporting 
system does not require dealers to match the two sides of agency trades 
nor specifically to match or identify riskless principal transactions. 
Therefore, it is not possible to count those trades differently in the 
current system for purposes of the T+1 reporting threshold.
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    \9\ Id.
    \10\ In 1994, a commentator made a similar suggestion with 
reference to the Board's filing that initiated the transaction 
reporting program. The commentator a brokers' broker, suggested that 
the Board should count as one transaction the situation in which a 
brokers' broker purchases securities from a dealer and sells them to 
another dealer. The Board noted in its reply that these are 
``riskless principal'' transactions and that other dealers may also 
riskless principal transactions. The Board noted that its 
transaction reporting system would treat the sale to the 
intermediate dealer (e.g., the brokers' broker) and the intermediate 
dealer's subsequent sale as two transactions, and that it would 
treat these trades like any other trades.
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III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding, or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (a) by order approve such proposed rule change, or
    (b) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
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 20549-0609. Copies of 
the submissions, 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 MSRB's principal offices. All submissions 
should refer to File No. SR-MSRB-2002-10 and should be submitted by 
November 8, 2002.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-26515 Filed 10-17-02; 8:45 am]
BILLING CODE 8010-01-P