[Federal Register Volume 68, Number 101 (Tuesday, May 27, 2003)]
[Notices]
[Pages 28865-28866]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-13097]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47888; File No. SR-MSRB-2003-02]


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

May 19, 2003.
    On April 7, 2003, Municipal Securities Rulemaking Board (``MSRB'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to section 19(b)(1) of the Securities and Exchange Act of 1934 
(the ``Exchange Act'') and Rule 19b-4 thereunder,\1\ a proposed rule 
change (File No. SR-MSRB-2003-02). The proposed rule change relates to 
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) and 17 CFR 240.19b-4 thereunder.
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    The proposed rule change was published for notice and comment in 
the Federal Register on April 15, 2003.\2\ The Commission received two 
comment letters on the proposed rule change.\3\ This order approves the 
proposed rule change.
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    \2\ See Release No. 34-47650 (April 8, 2003) 68 FR 18313.
    \3\ May 7, 2003 letter from Kevin Olson, Municipalbonds.com to 
SEC Commissioners, Commission (``Olsen letter''); May 9, 2003 letter 
from John M. Ramsay, Senior Vice President and Regulatory Counsel, 
The Bond Market Association to Jonathan G. Katz, Secretary, 
Commission (``TBMA letter'').
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I. Description of the Proposed Rule Change

    The MSRB's T+1 Daily Report and the Comprehensive Report are made 
available for market professionals seeking information on market price 
levels and trading activity for individual securities. In preparation 
for the move to real-time price transparency in mid-2004, the MSRB 
believes that the trading threshold in the T+1 Daily Reports should be 
eliminated to further increase the price transparency that is available 
on T+1. The current transaction threshold for the T+1 Daily Report is 
two or more trades per day. Under the proposed rule change, all trades 
reported by dealers on trade date would be made visible on T+1.
    The MSRB's proposed rule change is part of the MSRB's longstanding 
plan to introduce transparency in measured steps. The MSRB believes 
that these steps allow the market time to adjust to new situations 
presented by each new level of price transparency. The proposed rule 
change would increase the number of trades and issues appearing each 
day on the T+1 Daily Report. Furthermore, the MSRB believes that the 
proposal will increase price transparency for municipal securities by 
increasing the amount of price data available on the day after trade 
date.

II. Summary of Comments

    The Commission received two comment letters relating to the 
proposed rule change that express concerns. The TBMA letter expressed 
concerns about ``the potential impact of real-time transparency on the 
market for less-frequently traded bonds.'' Although TBMA indicated that 
it does not oppose the move to next-day transparency, it suggests that 
``it should only be undertaken in connection with a more deliberate 
study of potential liquidity effects from a move to real-time 
transparency, consistent with the approach taken by the NASD and 
endorsed by the Commission in the area of corporate bond 
transparency.'' \4\ It expressed concern about the possible negative 
effects on liquidity from price dissemination. TBMA believes that ``for 
inactively traded bonds, the publication of price information, 
particularly in block size, may provide information to other market 
participants that would affect the ability of a holder of the same 
bonds to sell them without incurring a loss.'' Thus, TBMA supports the 
MSRB's proposal to display a large trade indicator for trades of $1 
million or more instead of revealing the actual par value traded in the 
T+1 Daily Report. TBMA has formed a ``Price Transparency Task Force'' 
to conduct an analysis of the liquidity issue.\5\ TBMA believes that 
examining the impact of next-day price transparency could be useful for 
considering potential liquidity impacts in the move towards real-time 
dissemination and that further steps to increase transparency in both 
the municipal and corporate bond markets should be delayed until the 
conclusion of such a study.
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    \4\ See TBMA letter at 1.
    \5\ Id. at 3.
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    The Olsen letter supports the MSRB's proposed elimination of the 
trading threshold in the T+1 Daily Report.\6\ However, he strongly 
opposes the MSRB's proposal to use a large trade indicator instead of 
the specific amount of trades of $1 million or more. Olsen

[[Page 28866]]

believes that the change is ``unacceptable'' and that smaller investors 
deserve ``full reporting and trade information.''\7\
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    \6\ Providing next-day transparency has been one of Olsen's key 
market demands. Olsen's other demands include, ``(1) dealer 
identifiers be attached, and (2) if there are reporting errors [sic] 
they be corrected and explained in a dedicated and public error 
report.'' See Olsen letter at 1.
    \7\ Id.
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III. Discussion and Commission Findings

    Section 19(b) of the Exchange Act \8\ requires the Commission to 
approve the proposed rule change filed by the MSRB if the Commission 
finds that the proposed rule change is consistent with the requirements 
of the Exchange Act and the rules and regulations thereunder. The 
Commission has reviewed carefully the proposed rule change, and the 
comments received, and finds that the modification to the transaction 
threshold on the T+1 Daily Report, as described in the proposed rule 
change, is consistent with the requirements of the Exchange Act and the 
rules and regulations thereunder that govern the MSRB.\9\ 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.\10\
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    \8\ 15 U.S.C. 78s(b).
    \9\ 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).
    \10\ 1015 U.S.C. 78o-4(b)(2)(C).
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    The Commission supports the ongoing efforts of the MSRB to increase 
transparency in the municipal securities market and notes the careful 
and deliberate manner in which it has proceeded to do so over the last 
nine years.\11\ This approach has provided an opportunity for the 
market to adjust incrementally. It has also permitted the Board, the 
Commission and market participants to observe whether any market 
disruption has been caused by the release of an increasing amount of 
trading data. No significant disruption has been observed. The 
Commission expects that market participants will adjust to the release 
of information regarding all daily trades in a similar manner.
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    \11\ The MSRB began to collect information from reports of 
inter-dealer trades in 1994 and began issuing a summary report of 
such trades in January of 1995. In March of 1998, reporting of 
customer trades began, followed by the release of a summary report 
of combined inter-dealer and customer trades in August 1998. In 
January 2000, the Board began releasing a report on T+1 of all bonds 
that traded four or more times daily. In May 2002, the MSRB lowered 
the threshold from four to three trades on the T+1 Daily Report. In 
November 2002, the MSRB lowered the trade threshold to two trades 
per day. See Release No. 34-34955 (November 9, 1994), 59 FR 59810; 
Release No. 34-45861 (May 1, 2002), 67 FR 30989; Release No. 34-
46819 (November 12, 2002), 67 FR 69779.
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    The Commission believes that the proposal will provide the benefit 
of price transparency to the municipal securities market while 
addressing the TBMA's concerns regarding potentially negative effects 
from disclosure of the size of specific institutional trades. The 
release of such transaction data facilitates the flow of information 
for use by market professionals and pricing services.\12\ In addition, 
increased transparency leads to greater market efficiency and increased 
accuracy in pricing municipal securities being traded in the secondary 
market. The Commission believes that the proposal is an appropriate 
prepatory step towards the 2004 implementation of real time disclosure 
in both the municipal and corporate bond markets.\13\
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    \12\ The T+1 Daily Report has been well received by market 
professionals and investors seeking information on market price 
levels and trading activity for municipal securities and has 
garnered greater and greater use over time.
    \13\ The Commission believes that the MSRB's real time trade 
reporting initiative should be accorded the highest priority and 
implemented as soon as possible, but not later than the current mid-
2004 deadline.
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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-2003-
02) 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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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-13097 Filed 5-23-03; 8:45 am]
BILLING CODE 8010-01-P