[Federal Register Volume 69, Number 124 (Tuesday, June 29, 2004)]
[Notices]
[Pages 38925-38941]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-14676]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49902; File No. SR-MSRB-2004-02]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Municipal Securities Rulemaking Board Relating to 
Proposed Amendments to the MSRB's Rule G-12(f) on Automated Comparison 
and G-14 on Transaction Reporting, and to the Implementation of a 
Facility for Real-Time Transaction Reporting and Price Dissemination

June 22, 2004.
    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 June 2, 2004, the Municipal Securities Rulemaking Board (``MSRB'' or 
``Board'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission'') the proposed rule change 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's proposed rule change relates to Rule G-14, on 
transaction reporting, Rule G-12(f), on automated comparison, and the 
implementation of a facility for real-time transaction reporting and 
price dissemination (the ``Real-Time Transaction Reporting System'' or 
``RTRS''). Below is the text of the proposed rule change. Proposed new 
language is in italics; proposed deletions are in brackets.
* * * * *

Rule G-12. Uniform Practice

    (a)-(e) No change.
    (f) Use of Automated Comparison, Clearance and Settlement Systems.
    (i) Notwithstanding the provisions of sections (c) and (d) of this 
rule, [a] an Inter-Dealer T[t]ransaction E[e]ligible for [automated 
trade] C[c]omparison by a C[c]learing A[a]gency R[r]egistered with the 
[Securities and Exchange] Commission (registered clearing agency) shall 
be compared through a registered clearing agency. Each party to such a 
transaction shall submit or cause to be submitted to a registered 
clearing agency all information and instructions required from the 
party by the registered clearing agency for automated comparison of the 
transaction to occur. Each transaction effected during the RTRS 
Business Day shall be submitted for comparison within 15 minutes of the 
Time of Trade, unless the transaction is subject to an exception 
specified in the Rule G-14 RTRS Procedures paragraph (a)(ii), in which 
case it shall be submitted for comparison in the time frame specified 
in the Rule G-14 RTRS Procedures paragraph (a)(ii). Transactions 
effected outside the hours of an RTRS Business Day shall be submitted 
no later than 15 minutes after the beginning of the next RTRS Business 
Day. In the event that a transaction submitted to a registered clearing 
agency for comparison in accordance with the requirements of this 
paragraph (i) shall fail to compare, the party submitting such 
transaction shall, as soon as possible, use the [post-original-
comparison] procedures provided by the registered clearing agency in 
connection with such transaction until such time as the transaction is 
compared or final notification of a failure to compare the transaction 
is received from the contra-party. A broker, dealer or municipal 
securities dealer (``dealer'') that effects inter-dealer transactions 
eligible for comparison by a clearing agency

[[Page 38926]]

registered with the Commission shall ensure that submissions made 
against it in the comparison system are monitored for the purpose of 
ensuring that correct trade information alleged against it is 
acknowledged promptly and that erroneous information alleged concerning 
its side of a trade (or its side of a purported trade) is corrected 
promptly through the procedures of the registered securities clearing 
agency or the MSRB.
    (ii) No change.
    (iii) No change.
    (iv) Definitions.
    (A) ``Inter-Dealer Transaction Eligible for Comparison by a 
Clearing Agency Registered with the Commission'' means a contract for 
purchase and sale between one dealer and another dealer, resulting in a 
contractual obligation for one such dealer to transfer municipal 
securities to the other dealer involved in the transaction, and which 
contract is eligible for comparison under the procedures of an 
automated comparison system operated by a registered clearing agency.
    (B) ``Time of Trade'' is defined in Rule G-14 Transaction Reporting 
Procedures.
    (C) The ``RTRS Business Day'' is defined in Rule G-14 RTRS 
Transaction Reporting Procedures.

Rule G-14. Reports of Sales or Purchases

    (a) No change.
    (b) Transaction Reporting Requirements.
    (i) Each broker, dealer or municipal securities dealer (``dealer'') 
shall report to the Board or its designee information about [its] each 
purchase and sale transaction[s] effected in municipal securities to 
the Real-time Transaction Reporting System (``RTRS'') in the manner 
prescribed by Rule G-14 RTRS Procedures and the RTRS Users Manual 
[extent required by, and using the formats and within the timeframes 
specified in, Rule G-14 Transaction Reporting Procedures]. Transaction 
information collected by the Board under this rule will be used to make 
public reports of market activity and prices and to assess transaction 
fees. The transaction information will be made available by the Board 
to the Commission, securities associations registered under Section 15A 
of the Act and other appropriate regulatory agencies defined in Section 
3(a)(34)(A) of the Act to assist in the inspection for compliance with 
and the enforcement of Board rules.
    (ii) The information specified in the [Transaction Reporting] Rule 
G-14 RTRS Procedures is critical to public reporting of prices for 
transparency purposes and to the compilation of an audit trail for 
regulatory purposes. All [brokers, dealers and municipal securities] 
dealers have an ongoing obligation to report this information promptly, 
accurately and completely. The [broker, dealer or municipal securities] 
dealer may employ an agent for the purpose of submitting [customer] 
transaction information; however the primary responsibility for the 
timely and accurate submission remains with the [broker, dealer or 
municipal securities] dealer that effected the transaction. A dealer 
that acts as a submitter for another dealer has specific responsibility 
to ensure that transaction reporting requirements are met with respect 
to those aspects of the reporting process that are under the 
Submitter's control. A dealer that submits inter-dealer municipal 
securities transactions for comparison, either for itself or on behalf 
of another dealer, has specific responsibility to ensure that 
transaction reporting requirements are met with respect to those 
aspects of the comparison process that are under the Submitter's 
control.
    (iii) To identify its transactions for reporting purposes, each 
[broker, dealer and municipal securities] dealer shall obtain a unique 
[executing] broker symbol from the National Association of Securities 
Dealers, Inc.
    (iv) Each dealer shall provide to the Board on Form RTRS 
information necessary to ensure that its trade reports can be processed 
correctly. Such information includes the manner in which transactions 
will be reported, the broker symbol used by the dealer, the identity of 
and information on any intermediary to be used as a Submitter, 
information on personnel that can be contacted if there are problems in 
RTRS submissions, and information necessary for systems testing with 
RTRS. Information provided on Form RTRS shall be kept current by 
notifying the MSRB when contact information or other information 
provided on the form changes.
    (v) Testing Requirements.
    (A) Prior to submitting transaction data under RTRS Procedures, a 
dealer must successfully test its ability to interface with RTRS as 
described in the RTRS Users Manual.
    (B) Testing During RTRS Start-Up
    (1) Testing facilities will be made available at least six months 
prior to the announced effective date of these transaction reporting 
procedures (``Announced RTRS Start-Up Date''). Except as provided in 
the subparagraph below, each dealer shall be prepared for testing no 
later than three months prior to the Announced RTRS Start-Up Date and 
shall either have successfully tested its RTRS capabilities or have 
scheduled a testing date with the MSRB by that time.
    (2) A dealer electing to use only the Web-based trade input method 
of transaction reporting and that has averaged submissions of five or 
fewer trades during a one-year period beginning in July 2003 shall be 
required to test its RTRS capabilities no later than one month prior to 
the Announced RTRS Start-Up Date.
    (vi) The following transactions shall not be reported under Rule G-
14:
    (A) Transactions in securities without assigned CUSIP numbers;
    (B) Transactions in Municipal Fund Securities; and
    (C) Inter-dealer transactions for principal movement of securities 
between dealers that are not inter-dealer transactions eligible for 
comparison in a clearing agency registered with the Commission.

Rule G-14RTRS [Transaction Reporting] Procedures

    [(a) Inter-Dealer Transactions.]
    [(i) Except as described in paragraph (ii) of this section (a), 
each broker, dealer and municipal securities dealer shall report all 
transactions with other brokers, dealers or municipal securities 
dealers to the Board's designee for receiving such transaction 
information. The Board has designated National Securities Clearing 
Corporation (NSCC) for this purpose. A broker, dealer or municipal 
securities dealer shall report a transaction by submitting or causing 
to be submitted to NSCC information in such format and within such 
timeframe as required by NSCC to produce a compared trade for the 
transaction in the initial comparison cycle on the night of trade date 
in the automated comparison system operated by NSCC. Such transaction 
information may be submitted to NSCC directly or to another registered 
clearing agency linked for the purpose of automated comparison with 
NSCC.]
    [The information submitted in accordance with this procedure shall 
include the time of trade execution and the identity of the brokers, 
dealers, or municipal securities dealers that execute the transaction 
in addition to the identity of the entities that clear the transaction. 
If clearing/introducing broker arrangements are used for transactions, 
the introducing brokers shall be identified as the ``executing 
brokers.'' If the settlement date of a transaction is known by the 
broker, dealer or municipal securities dealer, the report made to NSCC 
also shall

[[Page 38927]]

include a value for accrued interest in the format prescribed by NSCC.]
    [(ii) A transaction that is not eligible to be compared in the 
automated comparison system operated by NSCC (because of the lack of a 
CUSIP number for the security or other reasons) shall not be required 
to be reported under this section (a). A transaction that is subject to 
a ``one-sided'' submission procedure in the automated comparison system 
operated by NSCC shall be reported only by the broker, dealer or 
municipal securities dealer that is required to submit the transaction 
information under the one-sided submission procedure.]
    [(b) Customer Transactions]
    [(i) Each broker, dealer and municipal securities dealer shall 
report to the Board all transactions with customers effected after 
March 1, 1998, except as described in paragraph (iii) of this section 
(b). A broker, dealer or municipal securities dealer shall report a 
transaction by submitting or causing to be submitted to the Board, by 
midnight of trade date, the customer transaction information specified 
in paragraph (ii) of this section (b) in such format and manner 
specified in the current User's Manual for Customer Transaction 
Reporting. The broker, dealer or municipal securities dealer shall 
promptly report cancellation of the trade or corrections to any 
required data items.]
    [(ii) The information submitted in accordance with this procedure 
shall include: the CUSIP number of the security; the trade date; the 
time of trade execution; the executing broker symbol identifying the 
broker, dealer or municipal securities dealer that effected the 
transaction; a symbol indicating the capacity of the broker, dealer or 
municipal securities dealer as buyer or seller in the transaction; the 
par value traded; the dollar price of the transaction, exclusive of any 
commission; the yield of the transaction; a symbol indicating the 
capacity of the broker, dealer or municipal securities dealer as agent 
for the customer or principal in the transaction; the commission, if 
any; the settlement date, if known to the broker, dealer or municipal 
securities dealer; a control number, determined by the broker, dealer 
or municipal securities dealer, identifying the transaction; and a 
symbol indicating whether the trade has previously been reported to the 
Board, and, if so, the control number used by the broker, dealer or 
municipal securities dealer for the previous report.]
    [(iii) The following transactions shall not be required to be 
reported under this section (b):
    (A) a transaction in a municipal security that is ineligible for 
assignment of a CUSIP number by the Board or its designee; and
    (B) a transaction in a municipal fund security.]
    [(iv) Each broker, dealer and municipal securities dealer effecting 
customer transactions in municipal securities, including introducing 
and clearing brokers, shall provide to the Board the name and telephone 
number of a person responsible for testing that firm's capabilities to 
report customer transaction information. Each broker, dealer or 
municipal securities dealer shall test such capabilities in a manner 
and according to the requirements specified in the current User's 
Manual for Customer Transaction Reporting. This paragraph (iv) shall 
take effect July 1, 1997.]
    (a) General Procedures.
    (i) The Board has designated three RTRS Portals for dealers to use 
in the submission of transaction information. Transaction data 
submissions must conform to the formats specified for the RTRS Portal 
used for the trade submission. The RTRS Portals may be used as follows: 

    (A) The message-based trade input RTRS Portal operated by National 
Securities Clearing Corporation (NSCC) (``Message Portal'') may be used 
for any trade record submission or trade record modification. 
    (B) The RTRS Web-based trade input method (``RTRS Web Portal'' or 
``RTRS Web'') operated by the MSRB may be used for low volume 
transaction submissions and for modifications of trade records, but 
cannot be used for submitting or amending inter-dealer transaction data 
that is used in the comparison process. Comparison data instead must be 
entered into the comparison system using a method authorized by the 
registered clearing agency. 
    (C) The NSCC Real-Time Trade Matching (``RTTM'') Web-based trade 
input method (``RTTM Web Portal'' or ``RTTM Web'') may be used only for 
submitting or modifying data with respect to Inter-Dealer Transactions 
Eligible for Comparison. 
    (ii) Transactions effected with a Time of Trade during the hours of 
the RTRS Business Day shall be reported within 15 minutes of Time of 
Trade to an RTRS Portal except in the following situations: 
    (A) Syndicate managers, syndicate members and selling group members 
that effect trades in new issues on the first day of trading at the 
list offering price shall report such trades by the end of the day on 
which the trades were executed. 
    (B) A dealer effecting trades in short-term instruments under nine 
months in effective maturity, including variable rate instruments, 
auction rate products, and commercial paper shall report such trades by 
the end of the RTRS Business Day on which the trades were executed. 
    (C) A dealer shall report a trade within three hours of the Time of 
Trade if all the following conditions apply: (1) The CUSIP number and 
indicative data of the issue traded are not in the securities master 
file used by the dealer to process trades for confirmations, clearance 
and settlement; (2) the dealer has not traded the issue in the previous 
year; and (3) the dealer is not a syndicate manager or syndicate member 
for the issue. If fewer than three hours of the RTRS Business Day 
remain after the Time of Trade, the trade shall be reported no later 
than 15 minutes after the beginning of the next RTRS Business Day. This 
provision (C) will cease to be effective one year after the Announced 
RTRS Start-Up Date. 
    (iii) Transactions effected with a Time of Trade outside the hours 
of the RTRS Business Day shall be reported no later than 15 minutes 
after the beginning of the next RTRS Business Day.
    (iv) Transaction data that is not submitted in a timely and 
accurate manner in accordance with these Procedures shall be submitted 
or corrected as soon as possible.
    (v) Information on the status of trade reports in RTRS is available 
through the Message Portal, through the RTRS Web Portal, or via 
electronic mail. Trade status information from RTRS indicating a 
problem or potential problem with reported trade data must be reviewed 
and addressed promptly to ensure that the information being 
disseminated by RTRS is as accurate and timely as possible.
    (vi) RTRS Portals will be open for transmission of transaction data 
and status of trade reports beginning 30 minutes prior to the beginning 
of the RTRS Business Day and ending 90 minutes after the end of the 
RTRS Business Day.
    (b) Reporting Requirements for Specific Types of Transactions.
    (i) Inter-Dealer Transactions Eligible for Comparison by a Clearing 
Agency Registered with the Commission.
    (A) Bilateral Submissions: Inter-Dealer Transactions Eligible for 
Trade Comparison at a Clearing Agency Registered with the Commission 
(registered clearing agency) shall be reported by each dealer 
submitting, or causing to be submitted, such

[[Page 38928]]

transaction records required by the registered clearing agency to 
achieve comparison of the transaction. The transaction records also 
shall include the additional trade information for such trades listed 
in the Specifications for Real-Time Reporting of Municipal Securities 
Transactions contained in the RTRS Users Manual.
    (B) Unilateral Submissions: For transactions that, under the rules 
of the registered clearing agency, are deemed compared upon submission 
by one side of the transaction (unilateral submissions), a submission 
is not required by the contra-side of the transaction. The contra-side, 
however, must monitor such submissions to ensure that data representing 
its side of the trade is correct and use procedures of the registered 
clearing agency to correct the trade data if it is not.
    (ii) Customer Transactions. Reports of transactions with customers 
shall include the specific items of information listed for such 
transactions in the Specifications for Real-Time Reporting of Municipal 
Securities Transactions.
    (iii) Agency Transactions With Customers Effected By An Introducing 
Broker Against Principal Account of its Clearing Broker. Reports of 
agency transactions effected by an introducing broker for a customer 
against the principal account of its clearing broker shall include the 
specific items of information listed in the Specifications for Real-
Time Reporting of Municipal Securities Transactions for ``Inter-Dealer 
Regulatory-Only'' trades.
    (c) RTRS Users Manual. The RTRS Users Manual is comprised of the 
Specifications for Real-Time Reporting of Municipal Securities 
Transactions, the Users Guide for RTRS Web, Testing Procedures, 
guidance on how to report specific types of transactions and other 
information relevant to transaction reporting under Rule G-14. The RTRS 
Users Manual is located at www.msrb.org and may be updated from time to 
time with additional guidance or revisions to existing documents.
    (d) Definitions.
    (i) ``RTRS'' or ``Real-Time Transaction Reporting System'' is a 
facility operated by the MSRB. RTRS receives municipal securities 
transaction reports submitted by dealers pursuant to Rule G-14, 
disseminates price and volume information in real time for transparency 
purposes, and otherwise processes information pursuant to Rule G-14.
    (ii) The ``RTRS Business Day'' is 7:30 a.m. to 6:30 p.m., Eastern 
Time, Monday through Friday, on each business day as defined in Rule G-
12(b)(i)(B).
    (iii) ``Time of Trade'' is the time at which a contract is formed 
for a sale or purchase of municipal securities at a set quantity and 
set price.
    (iv) ``Submitter'' means a dealer, or service bureau acting on 
behalf of a dealer, that has been authorized to interface with RTRS for 
the purposes of entering transaction data into the system.
    (v) ``Inter-Dealer Transaction Eligible for Automated Comparison by 
a Clearing Agency Registered with the Commission'' is defined in MSRB 
Rule G-12(f)(iv).
    (vi) ``Municipal Fund Securities'' is defined in Rule D-12.
* * * * *

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 
text 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 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
    The purpose of the proposed rule change is to increase transparency 
and to enhance the surveillance database and audit trail of transaction 
data used by enforcement agencies. The proposed rule change contains 
draft amendments to MSRB rules that would require brokers, dealers and 
municipal securities dealers (``dealers'') to report transactions in 
municipal securities to RTRS within 15 minutes of the time of trade 
execution instead of by midnight on trade date, as is currently 
required. Upon receipt of this transaction data, RTRS would immediately 
perform automated error checking and would electronically disseminate 
prices, providing the municipal securities market with real-time 
transaction price transparency.
    The proposed RTRS facility for real-time collection and 
dissemination of transaction prices is planned to become operational in 
January 2005, at which time MSRB would begin to disseminate transaction 
data electronically in real time. MSRB expects to make a second filing 
on the RTRS facility in the future, stating the date of effectiveness, 
describing the technical means of data dissemination, and proposing 
fees to be charged for RTRS data products.
    The proposed RTRS facility would replace the existing Transaction 
Reporting System (TRS), which currently receives and disseminates 
transaction data in an overnight batch process. The proposed amendments 
to Rules G-12 and G-14 require dealer participation in RTRS and are 
designed to ensure that transactions are reported to RTRS in a timely 
manner. The proposed amendments are described in section (ii) below and 
the proposed RTRS facility is described in section (iii) below.
    (i) Overview. 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.\3\ The Board implemented a limited transaction reporting 
facility (the ``Transaction Reporting System'' or ``TRS'') for the 
municipal securities market in 1995 and has since increased price 
transparency in the municipal securities market in measured steps.\4\

[[Page 38929]]

The proposed rule change represents the final stage of the evolution of 
price transparency in the municipal securities market, which is a 
system for comprehensive, real-time price dissemination.
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    \3\ See ``Planned Pilot Program for Publishing Inter-Dealer 
Transaction Information,'' MSRB Reports, Vol. 13, No. 3 (June 1993) 
at 3 and ``Board to Proceed with Pilot Program to Disseminate Inter-
Dealer Transaction Information,'' MSRB Reports, Vol. 14, No. 1 
(January 1994) at 13.
    \4\ The MSRB's first public price transparency report, the T+1 
Daily Report, was initiated in 1995. It was disseminated daily on 
the day after trade date and summarized high, low and average inter-
dealer prices for issues that met a trading threshold of four or 
more trades in the inter-dealer market. See Release Number 34-34955 
(November 9, 1994), 59 FR 59810 (November 18, 1994). In 1998, the 
MSRB added customer trade data to the report. See Rel. No. 34-37998 
(November 29, 1996), 61 FR 64782, and Rel. No. 34-40349 (August 20, 
1998), 63 FR 45545. In January 2000, the MSRB further enhanced the 
T+1 Daily Report by publishing individual transaction data (rather 
than high, low and average prices) for each issue that met the 
threshold of four or more trades. See Rel. No. 34-42241 (December 
16, 1999), 64 FR 72123. In October 2000 the MSRB began disseminating 
a Monthly Comprehensive Report, which lists all municipal securities 
transactions regardless of frequency of trading. This report covers 
all trades done during the previous month and includes late-reported 
trades, inter-dealer trades compared after trade date, and 
transaction data corrected by dealers after trade date, as well as 
infrequently traded issues. See Rel. No. 34-43426 (October 10, 
2000). In October 2001, the MSRB began disseminating a Daily 
Comprehensive Report of all trades done on a single day two weeks 
earlier. See Rel. No. 34-44894 (October 2, 2001), 65 FR 61367. As 
the market became familiar with these reports, the MSRB began the 
process of lowering the trading threshold in the T+1 Daily Report to 
make more trade data available on a T+1 basis. In May 2002, the MSRB 
changed the trading threshold for the T+1 Daily Report to three 
trades. See Rel. No. 34-45861 (May 1, 2002), 67 FR 30989. In August 
2002, the delay for the Daily Comprehensive Report was changed from 
two weeks to one week. At the same time, the MSRB began 
disseminating a daily report of all trades done on a single day one 
month earlier, to enable users of the report to update their 
databases each day with trades reported or corrected more than one 
week after trade date. See Rel. No. 34-46380 (August 19, 2002), 67 
FR 54831. In November 2002, the MSRB changed the trading threshold 
for the T+1 Daily Report from three trades to two trades. See Rel. 
No. 34-46819 (November 12, 2002), 67 FR 69779. In June 2003, the 
trading threshold was dropped and all T-submitted trades were 
disseminated on T+1. At the same time, the display of par values on 
this report were changed to show the exact par for trades of $1 
million or less and ``1MM+'' for par over $1 million. See Rel. No. 
34-47888 (May 19, 2003), 68 FR 28865.
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    The Board believes that a number of benefits to the market will 
accrue as a result of making real-time price information available, 
including more efficient pricing and enhanced investor confidence. The 
MSRB recognizes that, because of the unique features of the municipal 
securities market, real-time price transparency for municipal 
securities will not necessarily function in the same manner as in the 
major equity markets. Since less that one percent of outstanding 
municipal securities trade on a given day, an investor holding 
municipal securities often will not be able simply to view ``last 
sale'' information to obtain an exact market price, as generally can be 
done for exchange-traded or NASDAQ listed stocks. Nevertheless, real-
time prices will provide important information on the market conditions 
for individual securities that are trading on a given day, and this 
information often can be extrapolated to assist in the accurate 
valuation of similar municipal issues that are not actively traded on a 
given day.
    With respect to efficiency of pricing mechanisms, the transaction 
data available from TRS show that, while much of the market trades 
within a narrow range, there are instances in which intra-day prices 
for specific issues vary substantially, even when no apparent news or 
transaction size differences account for the different valuations. This 
fact is not intended to suggest that instances of substantial intra-day 
price volatility would be eliminated by real-time price transparency, 
particularly when the market is assimilating new information about 
interest rates or the credit quality of specific issues. However, the 
transaction data do suggest that the efficiency of pricing in some 
cases might be improved substantially if prices are made accessible on 
a real-time basis, as is done in many other securities markets. In 
general, real-time price transparency should benefit the market by 
helping to ensure that information relevant to the value of municipal 
securities issues is incorporated more quickly and reliably into 
transaction prices.
    The Board also believes that real-time price transparency will 
enhance investor confidence by providing, for the first time, a 
comprehensive and contemporaneous view of the market, accessible to any 
interested party. There is a significant demand by sophisticated 
investors to see where municipal bonds are trading as part of their 
research and investment strategies for fixed-income products. Real-time 
price transparency will increase confidence that the best market price 
for specific securities has been located. For both institutional and 
retail investors, the open availability of market prices should instill 
greater confidence that pricing mechanisms in the market are fair, open 
and efficient.
    (ii) Proposed Amendments to Rules G-12(f) and G-14. As discussed 
below, the procedures for dealers to report inter-dealer transactions 
to RTRS are integrated with the central comparison system to provide a 
cost-effective mechanism for dealers to report transactions in real-
time.\5\ The proposed rule change thus includes amendments both to Rule 
G-14 on transaction reporting and Rule G-12(f) on automated comparison. 
The Rule G-14 Procedures would also be amended.
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    \5\ Automated comparison, which is required for inter-dealer 
transactions by rule G-12(f)(i), is accomplished by a clearing 
corporation registered with the Commission under section 17A of the 
Act. It is the first step in the clearance and settlement of an 
inter-dealer transaction and generally involves the matching of 
trade data submitted by both sides of an inter-dealer trade. Only 
one registered securities clearing corporation--National Securities 
Clearing Corporation--compares municipal securities transactions and 
is thus a central point for trade data in the municipal securities 
market. Consequently, the Board chose to use NSCC as the main portal 
for RTRS data submission and, with respect to inter-dealer 
transactions, to allow the comparison submission to also serve the 
purpose of transaction reporting.
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    Rule G-12(f). Rule G-12(f)(i) currently requires that an inter-
dealer transaction eligible for automated trade comparison through the 
facilities of a clearing agency registered with the Commission 
(``registered clearing agency'') shall be compared through a registered 
clearing agency. Each party to the transaction must submit or cause to 
be submitted to the registered clearing agency all the information 
required by the registered clearing agency for automated comparison to 
occur. If a transaction fails to compare, the parties must use the 
procedures provided by the registered clearing agency to attain 
comparison, unless one of the parties provides the other with final 
notification of failure to compare. (Sections (ii) and (iii) of Rule G-
12(f) pertain to other aspects of clearance and settlement unchanged by 
the proposed amendment.)
    The proposed amendment to Rule G-12(f)(i) would contain a new 
requirement that inter-dealer trades effected during the RTRS Business 
Day, when eligible for automated comparison, be submitted to a 
registered clearing agency within 15 minutes of the time of trade. The 
RTRS Business Day (7:30 a.m. through 6:30 p.m.) \6\ is defined in 
proposed Rule G-14. There would be limited exceptions to the 15-minute 
requirement, as detailed below. The proposed amendment would add a 
requirement, identical to that in the proposed amendment to Rule G-14, 
that inter-dealer trades effected outside the hours of the RTRS 
Business Day be submitted for comparison within 15 minutes of the start 
of the next RTRS Business Day. It also notes a dealer's obligation to 
monitor submissions made against it in the real-time comparison system 
and to use the procedures provided by the clearing agency to address 
any erroneous information concerning its side of a transaction that may 
be submitted by a contra-party.
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    \6\ All times given are Eastern.
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    Rule G-14 and Rule G-14 Procedures. The current Rule G-14 and the 
associated Rule G-14 Procedures require that dealers report their 
trades to the MSRB by midnight of trade date. The existing Rule G-14 
Procedures exempt from reporting requirements transactions in municipal 
securities that are ineligible for assignment of a CUSIP number, 
transactions in municipal fund securities and the (rare) inter-dealer 
transactions that are not eligible for automated comparison. The 
current Rule G-14 Procedures also require each dealer to provide to the 
MSRB information about a person responsible for testing the dealer's 
capabilities to report customer transactions, and require the dealer to 
conduct such testing.
    The proposed amendment to Rule G-14 would require the dealer to 
report information about its transactions to the MSRB or its designee 
in the manner required by RTRS Transaction Reporting Procedures, which 
in most cases require the report to be made within 15 minutes of the 
time of trade execution. The proposed amendment would retain without 
change the prohibition against reporting fictitious or fraudulent 
transactions, the statement of the

[[Page 38930]]

purpose of transaction reporting, and the requirement for the dealer to 
obtain an identifying symbol.
    As in the current transaction reporting system, a dealer will be 
able to use an intermediary, e.g., its clearing broker, to submit 
transaction reports. The MSRB expects those dealers that are not self-
clearing to submit inter-dealer trades through their clearing broker as 
they do today. The language articulating dealer responsibility for 
timely and accurate reporting is clarified in the proposed amendment, 
reflecting existing policy of the MSRB. It notes that, while the dealer 
that effected the transaction has the primary responsibility to ensure 
timely and accurate transaction reporting, any dealer that submits 
information for transaction reporting on behalf of another dealer has a 
specific responsibility to ensure that transaction reporting 
requirements are met with respect to the activities under the dealer's 
control.
    The proposed amendment would require each dealer to provide the 
MSRB with information needed to process transactions correctly on a new 
form, Form RTRS. The dealer would indicate thereon the method it will 
use to submit trade reports, its broker symbol, the identity of any 
intermediary or agent it will use to report transactions, contact 
information for dealer testing and operations staff and whether the 
dealer acts in the capacity of a broker's broker.\7\ The proposed 
amendment also continues to maintain the current exemptions for 
transactions in municipal securities that are ineligible for assignment 
of a CUSIP number, transactions in municipal fund securities and the 
(rare) inter-dealer transactions that are not eligible for automated 
comparison.
---------------------------------------------------------------------------

    \7\ Broker's brokers are dealers that hold themselves out to 
effect transactions exclusively between dealers, on an agency or 
riskless principal basis, and that do not take inventory positions 
in municipal securities. A broker's broker therefore always has 
matched purchase and sale transactions in the inter-dealer market. 
The requirement for a dealer to designate whether it is acting as a 
broker's broker will be used to mark transaction reports 
disseminated by RTRS. This is done to allow RTRS data users to 
distinguish these matched trades from other inter-dealer trading 
activity.
---------------------------------------------------------------------------

    Finally, as in the current Rule G-14 Procedures, a mandatory 
testing requirement is included in the proposed amendment. Testing 
would be required of dealers making the transition from the current 
Transaction Reporting System to RTRS, and also would be required of 
dealers that begin reporting transactions in the future. The MSRB will 
make testing facilities available to dealers at least six months before 
the announced effective date of the Proposed Rule Change (``Announced 
RTRS Start-Up Date''). Each dealer will have to be prepared to test its 
use of RTRS no later than three months before the Announced RTRS Start-
Up Date and must schedule a test date by that time unless it has 
already successfully tested its RTRS capabilities. However, dealers 
that have effected an average of five or fewer transactions per week 
during the preceding year and that will use only the Web-based method 
must successfully test their RTRS capabilities one month before the 
Announced RTRS Start-Up Date.
    The proposed RTRS Procedures would replace the current Rule G-14 
Procedures used for TRS data submission with a new set of requirements 
specific to RTRS. The RTRS Procedures generally would require dealers 
to report trades to the MSRB within 15 minutes, using either a message-
based or Web-based reporting method.\8\ The 15-minute requirement would 
apply to all reportable trades effected during the RTRS Business Day, 
with the following limited exceptions:
---------------------------------------------------------------------------

    \8\ In using the message-based method of trade reporting, the 
dealer would send electronic messages containing trade data from the 
dealer's computer to NSCC and receive interactive feedback, also as 
electronic messages. NSCC would act as a ``portal,'' relaying the 
messages to and from the MSRB's RTRS. Each trade would be reported 
with a message. In using the Web-based method, the dealer would 
enter trade data to RTRS through an Internet browser on the dealer's 
personal computer and would receive RTRS feedback that would appear 
on the screen. These two methods are further described in connection 
with the proposed Facility.
---------------------------------------------------------------------------

     Syndicate managers, syndicate members and selling group 
members that effect trades in new issues at the list offering price 
would be required to report such trades by the end of the first day of 
trading in the issue.
     Dealers would be required to report trades in short-term 
issues such as variable rate instruments, auction rate products, and 
commercial paper by the end of the day in which the trades are 
effected.
     On a temporary basis, a dealer would be required to report 
trades within three hours of the time of trade if the CUSIP number and 
indicative data of the issue traded are not in the dealer's securities 
master file, the dealer has not traded the issue in the previous year, 
and the dealer is not a syndicate manager or syndicate member for the 
issue. This provision would sunset automatically one year after RTRS 
implementation.
    The Board established the above exceptions after it received a 
number of comments on its exposure draft of the proposed rule change 
that indicated that dealers would face serious and in some cases 
insurmountable operational challenges in processing and reporting the 
above types of trades within 15 minutes using the processing systems 
available at this time. The challenges that are the basis for the 
reporting exceptions are discussed further in the section discussing 
comments received on the proposed rule change.
    Under the proposed amendment to Rule G-14, trades effected outside 
the RTRS Business Day would have to be reported no later than 15 
minutes after the beginning of the next Business Day. RTRS will be 
available to receive trade reports for at least 90 minutes after the 
end of an RTRS Business Day and at least 30 minutes before the 
beginning of the next RTRS Business Day, i.e., from 7:00 a.m. through 
8:00 p.m.\9\ The RTRS Procedures would require that a dealer that does 
not submit transaction data in a timely or accurate manner must submit 
or correct the data as soon as possible. RTRS will provide to the 
submitter of data an indication of the status of each trade, i.e., 
whether an error has been found in the input. The effecting dealer (and 
its clearing broker that submits data, if any) would be required to 
monitor the status of each trade report as shown in RTRS, and to review 
and address any problem or potential problem.
---------------------------------------------------------------------------

    \9\ As noted below, submissions may be made to RTRS via the 
Internet from 6:00 a.m. to 9:00 p.m.
---------------------------------------------------------------------------

    The RTRS Procedures provide specific requirements for reporting 
different types of transactions. As is the case currently in TRS, if an 
inter-dealer transaction is eligible for comparison at a registered 
clearing agency, the dealer or its clearing broker would satisfy the 
transaction reporting requirement by submitting the transaction to the 
registered clearing agency to achieve comparison. The inter-dealer 
trade submission would have to satisfy the requirements of the 
registered clearing agency and would have to include the additional 
information required by the MSRB in its Specifications for Real-Time 
Reporting of Municipal Securities Transactions.\10\ To achieve 
comparison, both parties to the inter-dealer trade would have to submit 
or cause to be submitted a trade report to the registered clearing 
agency, unless the trade is one deemed by the clearing agency to be 
compared upon submission by the party on one side of the trade 
(unilateral submission).\11\ The contra-

[[Page 38931]]

party would not be required to report a trade subject to unilateral 
submission but, to ensure the accuracy of trade information in RTRS, 
would be required to monitor such submissions against it to ensure that 
the data submitted against it is correct, and to use procedures of the 
registered clearing agency to correct the trade data if it is not.
---------------------------------------------------------------------------

    \10\ See ``Revised Specifications for the Real-Time Transaction 
Reporting System, Version 1.2,'' MSRB Notice 2004-2 (January 23, 
2004), on www.msrb.org.
    \11\ For example, currently only the syndicate manager is 
required by NSCC to report its sales of new issue securities to 
syndicate members. NSCC deems such a trade compared on receipt of 
the syndicate manager's submission.
---------------------------------------------------------------------------

    Also similar to existing TRS requirements, transactions with 
customers would be reported by including the information required by 
the Specifications for Real-time Reporting of Municipal Securities 
Transactions. The extended reporting deadlines for new issue securities 
traded at the list price, securities not traded in the previous year 
and variable-rate securities would apply to customer transactions in 
the same way as they would to inter-dealer transactions.
    The RTRS Procedures contain a new requirement that an agency trade 
effected for a customer by an introducing broker against the principal 
account of its clearing broker must be reported with data including the 
identity and role of the clearing broker. The information that will be 
required in this ``inter-dealer regulatory-only'' (``IDRO'') report is 
nearly the same as that in a unilateral submission of an inter-dealer 
trade. The IDRO reporting requirement represents a change from the 
existing transaction reporting system for municipal securities, in 
which the introducing broker reports an agency transaction with the 
customer, but no report is made of the offsetting side of the agency 
transaction if it is executed against the clearing broker's account. 
The change is being made at the request of NASD to provide a more 
complete audit trail for surveillance purposes, and is further 
described below in connection with the enhancements that will be 
available to regulators in the real-time environment. This change also 
provides greater consistency with the manner in which similar 
transactions are handled in the TRACE transaction reporting system for 
corporate bonds.
    RTRS will also have new requirements for dealers to report 
indicators to show: ``special condition'' trades that might be effected 
at a price other than the market price. The dealer would provide a code 
identifying the reason for the special condition, such as that a trade 
was done ``flat.'' These indicators will enhance the market 
surveillance functions of the current reporting system and are 
described below in the section, ``Enhancement of information available 
to regulators.''
    The RTRS Users Manual will give detailed guidance on how specific 
trading situations are handled and will include the Specifications for 
Real-Time Reporting of Municipal Securities Transactions,\12\ the Users 
Guide for RTRS Web, and the Testing Procedures. The Users Manual will 
be located at www.msrb.org and may be updated from time to time.
---------------------------------------------------------------------------

    \12\ See ``Revised Specifications for the Real-Time Transaction 
Reporting System, Version 1.2,'' MSRB Notice 2004-2 (January 23, 
2004), on www.msrb.org.
---------------------------------------------------------------------------

    (iii) Proposed RTRS Facility.
    The MSRB has coordinated its plans for the RTRS facility with the 
new real-time comparison system for municipal and corporate bonds (the 
``Real-Time Trade Matching'' or ``RTTM'' system) now being implemented 
by National Securities Clearing Corporation (NSCC).\13\ The use of the 
NSCC telecommunication facility as a data collection point or 
``Portal'' for transaction data and the use of a standard common format 
for trade reporting and automated comparison through NSCC are intended 
to reduce dealer costs in complying with the 15-minute transaction 
reporting requirement. Retail and institutional customer transactions 
and IDRO reports also will be reported through NSCC using the same 
record format as used for inter-dealer trades.\14\ NSCC will not 
process customer transactions in the comparison system, but will 
forward the data to the MSRB and thus allow dealers to avoid setting up 
separate telecommunications links and facilities specifically for trade 
reporting to the MSRB.\15\ In this manner NSCC and MSRB have attempted 
to provide a means for dealers to leverage their systems development 
work to satisfy two goals at once--that of real-time transaction 
reporting and real-time comparison of inter-dealer transactions. In 
this regard, the development plans for both systems have been 
coordinated to provide the greatest efficiencies possible for dealers.
---------------------------------------------------------------------------

    \13\ NSCC is a clearing agency registered under the Act.
    \14\ For RTTM message specifications, see Interactive Messaging: 
NSCC Participant Specifications for Matching Input and Output 
Version 1.0 (March 31, 2003), and ``Modifications to RTTM Messaging 
Specifications,'' FICC CMU RTTM New Project Update Issue 6 (April 
20, 2004), on www.ficc.com.
    \15\ By agreement with the MSRB, NSCC will not charge dealers 
for serving as the portal for customer transaction data, but MSRB 
will reimburse NSCC for any system costs that are attributable 
exclusively to this function.
---------------------------------------------------------------------------

    Improved Functionality. The objective of real-time transaction 
reporting is to make price and volume information publicly available as 
soon as possible after trades are executed. Real-time reporting will 
also bring improved functionality to dealers and enforcement agencies, 
compared with the current batch-oriented reporting system. These 
improvements include:
     The ability to correct regulatory data, such as time of 
trade, on inter-dealer trade reports;
     The ability for a dealer to ensure the accuracy of 
regulatory information such as the time of trade, even when that 
information is reported on its behalf by a clearing broker;
     The capability for dealers to report their capacity as 
agent in inter-dealer trades; and
     Improvements in the ``audit trail'' of trade information.
    Submission of Transaction Reports by Intermediaries. As in the 
current transaction reporting system, a dealer will be able to use an 
intermediary, i.e., its clearing broker or service bureau, to submit 
transaction reports to RTRS. Also following current policies, inter-
dealer transaction reporting and comparison will be accomplished using 
one transaction report. The MSRB expects those dealers that are not 
self-clearing to submit inter-dealer trades through their clearing 
broker as they do today. However, these dealers must ensure that the 
clearing broker will be able to submit the trade report satisfying both 
comparison and transaction reporting requirements within 15 minutes of 
the time of trade. Both dealers in this case will have the 
responsibility to work together to ensure that such trade submissions 
are timely and accurate. It will be possible for the correspondent to 
submit customer trade reports directly to the MSRB or for the clearing 
broker to submit on the correspondent's behalf.
    Message-Based and Web-Based Input Methods. Two format options will 
be available for submission of data into RTRS: 1) message-based trade 
input, and 2) Web-based trade input. In message-based trade input, each 
trade is submitted as a ``message'' in a standardized format. A trade 
input message consists of a sequence of data tags and data fields--for 
example, the tag ``SETT'' followed by a date field indicates the 
settlement date of the trade. For real-time trade reporting and 
comparison, the format standard is the ISO 15022 format established by 
the International Organization for Standardization.\16\ Each message is 
sent

[[Page 38932]]

as a separate unit between two computers. The fact that a trade message 
is the basic telecommunications unit enables real-time reporting, 
comparison and interactive feedback. Messages are well-suited to 
automated high-volume operations and to ``straight-through processing'' 
methods.
---------------------------------------------------------------------------

    \16\ The ISO 15022 format is also used by NSCC's parent 
organization, the Fixed Income Clearing Corporation, for processing 
government, mortgage-backed, corporate, and unit interest trust 
securities.
---------------------------------------------------------------------------

    In using the Web-based method, the dealer manually accesses a Web 
site through an Internet browser to enter, correct or view trade data. 
As described below, different Web sites are used depending whether the 
data is entered for both comparison and regulatory reporting or only 
for reporting purposes. The Web-based method requires no system 
development work beyond setting up an Internet connection and obtaining 
the appropriate user ID, password and security safeguards. However, Web 
input is manual and it will not be possible to interface the Web-based 
method with the dealer's processing system. Therefore, exclusive use of 
the Web-based method for submitting transactions generally will be 
appropriate only for relatively low-volume submitters.
    For high-volume submitters of transaction data, such as large 
dealers, clearing brokers and service bureaus, the only efficient and 
practical means for initial trade submission is likely to be message-
based. The extent of systems work necessary for interfacing with RTRS 
(and with RTTM) in this case will be dependent in large part on whether 
the submitter currently captures trade data in real time for 
processing. Submitters that have prepared for real-time transaction 
reporting and comparison by converting from overnight batch processing 
systems to ones with a more real-time or straight-through processing 
approach should find the necessary systems changes comparatively minor.
    Dealers may use the message-based method, the Web-based method, or 
both. Some high-volume dealers may submit the initial trade report as a 
message, review their submission and the RTRS status information on a 
Web site, and make corrections manually using Web-based trade input. 
Instead of using the Web, dealers may also submit corrections in 
message format. Alternatively, some low-volume dealers may use the 
message-based system if messaging is made available to them by clearing 
brokers or service bureaus.\17\
---------------------------------------------------------------------------

    \17\ See ``Operational Overview of MSRB's Real-Time Transaction 
Reporting System,'' MSRB Notice 2003-13 (April 7, 2003), on 
www.msrb.org.
---------------------------------------------------------------------------

    RTRS Portals. In the proposed amendment to the G-14 RTRS 
Transaction Reporting Procedures, the MSRB has designated three RTRS 
``Portals'' for the receipt of municipal securities trade data. Each 
Portal has a different policy governing the type of trade data it can 
accept. Message-based trade input must go through the Message Portal, 
but Web-based trade input may go through either the RTRS Web Portal or 
the RTTM Web Portal.
     The Message Portal is operated by NSCC and accepts any 
type of municipal security trade submission or modification. All trade 
messages that the dealer indicates should be forwarded to RTRS will be 
relayed to RTRS by NSCC. In addition, messages that the dealer 
indicates should be processed by the comparison system will be routed 
to RTTM.\18\
---------------------------------------------------------------------------

    \18\ Use of the Message Portal for trade comparison is currently 
restricted to NSCC participants.
---------------------------------------------------------------------------

     The RTRS Web Portal is operated by the MSRB and accepts 
any municipal security trade submission or modification except data 
that would initially report or modify inter-dealer transaction data 
used in the comparison process. (Comparison data instead must be 
entered into the comparison system using a method authorized by NSCC 
such as the Message Portal or the RTTM Web Portal). The RTRS Web Portal 
may be used to report or correct (a) customer trade data, (b) IDRO 
data, and (c) inter-dealer trade data, but only if that data is not 
used in comparison. For example, a dealer may use the RTRS Web Portal 
to correct an inter-dealer trade record with regard to the time of 
trade or dealer capacity, but not to correct (or to input initially) 
the CUSIP number, par or price of the trade.
     The RTTM Web Portal is operated by NSCC for comparison 
purposes.\19\ It may be used to report or correct both ``comparison 
data'' (CUSIP number, par, price, etc.) and ``regulatory reporting 
data'' (time of trade, etc.), if that data is associated with an inter-
dealer transaction eligible for comparison. The RTTM Web Portal may not 
be used to report or correct customer or IDRO trade records.
---------------------------------------------------------------------------

    \19\ Use of the RTTM Web Portal is restricted to NSCC 
participants.
---------------------------------------------------------------------------

    All RTRS Portals will be open to receive trade data for at least 90 
minutes after the end of an RTRS Business Day and 30 minutes before the 
beginning of the next Business Day, i.e., they will be open at least 
from 7 a.m. through 8 p.m. The RTRS Web Portal will be open for an 
additional 60 minutes at the beginning and end of the RTRS Business 
Day, i.e., it will be open from 6 a.m. to 9 p.m.
    Measurement of Timely Reporting. The time taken to report the trade 
will be measured by comparing the time of trade reported by the dealer 
with the time of receipt of the trade report at the designated RTRS 
Portal. RTRS will assess each trade against its reporting deadline (15 
minutes, three hours, or end-of-day). Trades not received by the 
appropriate reporting deadline will be considered late.
    Enhancement of Information Available to Regulators. MSRB has worked 
with NASD and other regulators to improve the audit trail and other 
surveillance capabilities that will be available once data is collected 
on a real-time basis. Some of these changes will require modifications 
or additions to existing transaction reporting procedures observed by 
dealers. One addition concerns the situation in which one dealer passes 
an order to a second dealer for execution directly out of the second 
dealer's principal account, with settlement made directly between the 
second dealer and the party placing the order. The situation requiring 
this ``Inter-Dealer Regulatory-Only'' or ``IDRO'' report typically 
occurs when a fully disclosed introducing broker submits a customer 
order to its clearing broker for execution, and the clearing broker 
executes and settles directly with the introducing broker's customer. 
The current TRS system requires only one trade report in this 
situation--a customer trade report from the introducing broker. RTRS 
procedures will require another trade report showing the identity and 
role of the clearing broker--it will be described as an Inter-Dealer 
Regulatory-Only transaction. The new trade report was requested by the 
NASD to provide a more complete audit trail for surveillance 
purposes.\20\
---------------------------------------------------------------------------

    \20\ To satisfy the need for this audit trail requirement the 
execution of the order by the clearing broker for the correspondent 
will be considered to constitute an inter-dealer ``transaction'' 
between the two dealers even though no principal position transfers 
between the two dealers. (The principal position in these situations 
moves directly from the clearing broker to the customer.) If a 
principal position does transfer between dealers, the trade is an 
``Inter-dealer Transaction Eligible for Comparison,'' and the trade 
must be compared and reported, even though settlement between the 
parties may occur only as a movement on the books of the clearing 
broker. This is consistent with existing G-14 policy in TRS.
---------------------------------------------------------------------------

    The current transaction reporting procedures require a dealer 
effecting a trade ``as agent'' for a customer to designate its capacity 
on the customer trade report. This requirement will remain in RTRS. 
Inter-dealer transaction reports currently do not require a capacity 
field to show whether the inter-dealer trade was done as agent for a

[[Page 38933]]

customer, but RTRS will add such a requirement.\21\
---------------------------------------------------------------------------

    \21\ The dealer is not required to link the inter-dealer and 
customer transaction reports associated with agency transactions.
---------------------------------------------------------------------------

    Another new feature added in the real-time environment is the 
Special Condition Code. RTRS will require a dealer that executes a 
trade with certain special conditions to code the trade report 
accordingly. For example, if there is a specific reason for a trade 
being reported at a price that is not a true market price, the dealer 
will indicate this with a Special Condition Code. A trade report with a 
Special Condition Code that is indicative of an off-market price will 
not be disseminated by RTRS, but will be made available to regulatory 
agencies for market surveillance and inspection purposes. Some Special 
Condition Codes will not be indicative of an off-market price but will 
report conditions such as a security that is traded ``flat.'' \22\
---------------------------------------------------------------------------

    \22\ The MSRB in its June 2003 Notice requesting comment on 
plans for real-time reporting (discussed below), referred to some of 
what are now termed Special Condition Codes as ``Special Price 
Reason Codes.''
---------------------------------------------------------------------------

    RTRS will also add the reporting of a code by which a dealer will 
indicate that a price being reported was derived as part of a 
``weighted average price'' transaction. A weighted average price 
transaction is one in which a dealer agrees to purchase up to a certain 
quantity of securities for a customer at market prices during the day, 
culminating with one sale transaction to the customer of the aggregate 
par value, with a price representing a weighted average of the dealer's 
purchases. The Price Dissemination Plan currently calls for displaying 
the ``weighted average price'' code along with other data about the 
transaction.
    Another data element added for surveillance purposes is the 
identifier of an ``intermediate dealer'' in a transaction. This applies 
to a situation in which a dealer is a correspondent of an NSCC 
participant and this correspondent passes data to its clearing broker 
about a trade effected by a third dealer. Since the dealer that 
effected the trade is a correspondent of the clearing broker's 
correspondent, this dealer is termed the ``correspondent's 
correspondent.'' The proposed reporting procedures would require that 
if there are three dealers on one side of an inter-dealer trade, all 
three dealers must be identified in the trade report: The clearing 
broker, its correspondent, and the correspondent's correspondent. (If 
there are only one or two dealers on a side, as will usually be the 
case, the new ``correspondent's correspondent'' field will be omitted.)
    Finally, although it does not require any change in dealer 
procedures, RTRS will provide regulators with the record of all changes 
reported by a dealer after its initial trade submission. This is an 
enhancement over the current system, which reports the results of trade 
modifications but does not show the initial submission or the 
subsequent change records. RTRS will provide reports to regulators 
showing each modification or cancellation of a trade report, including 
the time the change was made. The MSRB plans also to provide regulators 
with real-time connections to RTRS. This will enable regulatory agency 
staff to obtain routine reports of transactions more quickly than is 
now possible.
    RTRS Processing. Following is a description of key steps in RTRS 
processing with regard to input requirements, input data flow, format 
edits, submitter validation, timestamping, lateness checking, content 
validation, feedback, modification and cancellation, and the 
maintenance of the surveillance database.
     Input Requirements. The basic transaction information 
proposed to be reported by a dealer in RTRS will be similar to that 
reported in the existing transaction reporting system. This information 
supports both the price transparency and surveillance functions of the 
system. The complete list of data elements required on a trade report 
are in Specifications for Real-time Reporting of Municipal Securities 
Transactions \23\ and will be included within the RTRS Users Manual, 
available at www.msrb.org.
---------------------------------------------------------------------------

    \23\ See ``Revised Specifications for the Real-Time Transaction 
Reporting System, Version 1.2,'' MSRB Notice 2004-2 (January 23, 
2004), on www.msrb.org.
---------------------------------------------------------------------------

     Input data flow. RTRS receives information about each 
trade separately as an electronic message and processes each trade 
individually.\24\ All inter-dealer trade messages that contain initial 
values or modifications to data elements needed for comparison (e.g., 
dollar price or par) come to RTRS as messages via RTTM or as input to 
the RTTM Web. Inter-dealer trade messages that affect only data 
elements needed for regulatory reporting (e.g., time of trade) come to 
RTRS either as messages via the RTTM network, or as Web-based input via 
the RTTM Web or RTRS Web. Customer and IDRO messages, since they 
contain data needed exclusively for regulatory reporting, come to RTRS 
as messages via the RTTM network or as input to the RTRS Web (but not 
via the RTTM Web).
---------------------------------------------------------------------------

    \24\ Screen input through either Web Portal is converted into 
message format by the appropriate Web server and sent from that 
server to the RTRS host computer.
---------------------------------------------------------------------------

     Format edits. Each message will be edited to verify that 
its format is correct.\25\ This involves checking that required data 
elements are present in the correct form (e.g., dates are in date 
format and money amounts are in decimal format) and with the correct 
number of digits or characters. Messages that fail these edits will not 
be processed further and an error message describing the deficiency 
will be returned to the submitter. Both RTTM and RTRS will conduct 
format edits. Input from Web-based screens will have been checked 
before it is transferred from the user's personal computer to the Web 
server.
---------------------------------------------------------------------------

    \25\ Message formats are defined in detail in the Specifications 
for Real-time Reporting of Municipal Securities.
---------------------------------------------------------------------------

     Submitter validation. RTRS will accept input only from 
parties known to the MSRB. Trade messages routed through RTTM are 
checked by RTTM and rejected unless submitted to RTTM by an NSCC 
participant. The message is checked again when received by RTRS and is 
not processed further unless it bears the identifier of a clearing 
broker or service bureau known to the MSRB. RTRS further checks each 
trade message to verify that the dealer has previously authorized the 
submitter to report trades on its behalf. RTRS Web-based input is 
validated at multiple levels. First, the user cannot log on to RTRS 
unless he or she enters a user identifier and password issued by the 
MSRB. RTRS security controls allow a dealer access only to trades in 
which it was a party or which it has submitted on behalf of another 
dealer. Finally, the dealer-submitter combination is validated in the 
same way as input from RTTM, above.
     Timestamping. To enforce the rule on timely reporting of 
trades in the real-time environment, each trade message will be given 
an electronic timestamp, accurate to the second, when it is received. 
RTRS will interpret the timestamp as the time the trade was reported. 
Messages that are input through the Message Portal or the RTTM Web 
Portal will be timestamped by RTTM, and messages submitted via the RTRS 
Web Portal will be timestamped by the RTRS server. By this means, any 
delays that may occur in application processing or telecommunications 
connections between RTTM and the MSRB will not affect the assessment of 
the time the trade was reported.

[[Page 38934]]

     Lateness checking. The dealer will include an indicator in 
the trade message that shows the deadline that it understands applies 
to the trade report.\26\ RTRS will determine whether the trade was 
received by the deadline. If the dealer indicates it has not traded the 
security in the previous year and therefore may report the trade up to 
three hours after the time of trade, RTRS will check whether the 
dealer's trading history is as claimed. If a trade is reported late, an 
error message indicating this fact will be sent to the submitter at the 
end of processing.
---------------------------------------------------------------------------

    \26\ As noted, trades must be reported within 15 minutes of the 
time of trade, except for new issue trades by syndicate managers or 
members at the list price (for which the deadline is the end of the 
first day of trading), trades in variable rate products or 
commercial paper (for which the deadline is the end of trade date), 
and trades in securities which the dealer has not traded in the 
previous year (for which the deadline is three hours from the time 
of trade).
---------------------------------------------------------------------------

     Content edits. The values in the reported trade will be 
checked to determine that they are within reasonable limits, in order 
to detect input errors such as misplaced decimal points. The 
relationship between values is checked (e.g., the settlement date may 
not precede the trade date) and crucial data elements are verified 
against reference tables (e.g., the identifier of the dealer that 
effected the trade must be present in the RTRS dealer reference table). 
Finally, for those trades where the dollar price and yield are 
reported, the consistency of price and yield will be verified when 
possible.
     Feedback. If a dealer's message is deficient, RTRS 
interactive feedback will provide descriptive detail. MSRB anticipates 
that this feedback will help dealers to detect and correct errors 
quickly.
    RTRS will generate an acknowledgement or error message for every 
reported trade, except inter-dealer trades that have passed RTTM edits 
and which do not have any RTRS errors. (These trades will already have 
been acknowledged by RTTM.) The acknowledgement/error message is sent 
to the dealer and/or submitter in the format(s) that the dealer or 
submitter has previously requested. The available feedback formats are 
message or e-mail. In addition, the dealer and the submitter may view 
the trade, and any errors found, using RTRS Web.
    Feedback will indicate to the dealer whether the trade is error-
free or late, and whether it is questionable or unsatisfactory for 
reporting purposes. A ``questionable'' trade message is one that 
appears to have an error, but which may be correct depending on 
circumstances. Examples are a trade with a yield that exceeds ten 
percent of the dollar price (bonds traded very close to a premium call 
may have a very high nominal yield, but this is most likely an input 
error) or a reported time of trade before 0600 hours (trading is 
allowed at any time of day, but this is most likely intended to be a 
time in the afternoon, e.g., 5 p.m. reported as 0500). Under the 
proposed Rule G-14 RTRS Transaction Reporting Procedures, paragraph 
(e), dealers must examine such trade reports to determine if they are 
in fact erroneous and, if so, correct them. A trade is ``unsatisfactory 
for reporting purposes'' if it is missing an essential data element, is 
defective in some way that prevents it from being processed, or cannot 
be included in the surveillance database or publicly reported. Examples 
of ``unsatisfactory'' conditions are a reported trade date in the 
future, a missing dealer symbol, and an incorrect CUSIP check digit. 
Certain modification attempts are also unsatisfactory, such as a 
modification that cannot be matched with any previous message from the 
dealer.
     Modification and cancellation. Under the proposed rule 
change, the dealer is responsible for timely and accurate submission of 
trade reports. The dealer must monitor its reported trades by any of 
the available feedback methods and must correct any errors as soon as 
possible. If a dealer is unable to report a trade within the deadline, 
it must report the trade as soon as possible. RTRS will produce 
statistics on dealer performance in timely submission and timely 
correction of errors and will provide the statistics to dealers.
    RTRS will enable dealers to submit, modify and cancel messages for 
all types of trades. Unlike the current transaction reporting system in 
which only customer trades can be modified to correct regulatory data, 
RTRS will support such changes for all trade types.
     Surveillance database. The RTRS Surveillance Database will 
store each message submitted by a dealer or service bureau. Audit trail 
reports will provide regulators with information about trades effected 
by a dealer, trades in specific CUSIPs, highest/lowest prices for a 
CUSIP within a day or other time period, and specific data elements 
such as trades with Special Condition Codes reported by a dealer. Other 
reports will show all modifications and cancellations reported by a 
dealer.
    Testing and Contact Requirements. As described in connection with 
the proposed Rule G-14 Procedures, successful testing will be required 
of RTRS submitters to ensure a working interface with RTRS prior to the 
date for system operations. The proposed Procedures would require 
dealers to test their use of RTRS before reporting any trades. The MSRB 
will make testing facilities available to dealers at least six months 
before the announced effective date of the Proposed Rule Change 
(``Announced RTRS Start-Up Date''). Testing would be required of 
dealers making the transition from the current Transaction Reporting 
System to RTRS, and also required of dealers that begin reporting 
transactions in the future. Each dealer will have to be prepared to 
test its use of RTRS no later than three months before the Announced 
RTRS Start-Up Date and must schedule a test date by that time unless it 
has already successfully tested its RTRS capabilities. However, dealers 
that have effected an average of five or fewer transactions per week 
during the preceding year and that will use only the Web-based method 
must successfully test their RTRS capabilities one month before the 
Announced RTRS Start-Up Date.
    The requirement for testing and submission of a new ``Form RTRS'' 
with the name of a contact person is reflected in the new proposed 
language for Rule G-14.
    (iv) Price Dissemination by RTRS. Description of Service. Real-time 
price data will be available by subscription, after subscribers sign an 
agreement regarding re-dissemination. During the RTRS Business Day, 
price data will be disseminated in real time, immediately after 
receipt. Modifications and cancellations submitted by dealers that 
apply to earlier trade submissions will also be disseminated in real 
time.
    The technical means of data dissemination are not yet determined. 
MSRB expects to make a second filing on the RTRS facility in the future 
with proposals for fees to be charged for the various RTRS data 
products.
    In addition to real-time reports, the MSRB plans to continue 
providing reports each morning covering the previous day's trades (T+1 
reports), as well as daily reports covering all trades done on the 
trading day one week earlier (T+5 reports), and monthly reports 
covering all trades done during the previous month.
    Trades to be Disseminated. During the RTRS Business Day, the MSRB 
will disseminate data on all transactions as soon as they are received, 
except for two types of dealer submissions. The exceptions, which will 
be stored in the surveillance database but not disseminated in real-
time, are trades marked as by the dealer as having prices other than 
market prices, using a

[[Page 38935]]

Special Condition Code,\27\ and reports of ``inter-dealer regulatory-
only'' transactions. These have already been described.
---------------------------------------------------------------------------

    \27\ In an inter-dealer trade, if either dealer indicates the 
trade was done at a special price, RTRS considers the entire trade 
to be a special price trade.
---------------------------------------------------------------------------

    List of Information Items to be Disseminated. The specific items 
proposed to be disseminated by RTRS for price transparency purposes 
are:
     CUSIP number and description of the issue traded;
     Par value of the transaction if one million dollars or 
under; otherwise reported as ``1MM+'';
     Dollar price;
     Yield (for inter-dealer new issue transactions done on a 
yield basis and for all customer transactions in non-defaulted 
securities where the transaction is done on a yield basis or if the 
yield can be computed from dollar price);
     Date and time of trade;
     Whether the transaction was a (i) purchase from a 
customer; (ii) sale to a customer; or (iii) inter-dealer transaction;
     Indicator that an inter-dealer transaction was done by a 
broker's broker and, if so, the broker's broker role as buyer or 
seller;
     When-issued indicator, if any;
     Syndicate list price indicator, if any;
     Assumed settlement date, if initial settlement date is not 
known at time of trade;
     Indicator that dollar price was computed by MSRB using an 
estimated settlement date for an issue on which the initial settlement 
date has not been set;
     Indicator that a trade was done at the weighted average 
price of trades done earlier in the day;
     Modification/Cancellation indicator, if any;
     RTRS broadcast time, date and sequential trade message 
number; and
     RTRS Control Number.
    Transactions Done During RTRS Business Day. As noted, under the 
proposed rule language, dealers would with limited exceptions report 
within 15 minutes of the time of trade all transactions done during the 
RTRS Business Day. Trade submissions made during the RTRS Business Day 
will be disseminated within a few minutes of receipt.
    Dissemination of Compared or Uncompared Inter-Dealer Trades. Unless 
the trade report contains errors or is subject to an exception, 
transactions reported by dealers during the RTRS Business Day would be 
disseminated within a few minutes after receipt at the designated RTRS 
Portal. The current plan for dissemination of prices calls for inter-
dealer price information to be published only after comparison is 
achieved on the trade, as done in the current system. Comparison of the 
inter-dealer trade ensures the reliability of the data that was 
submitted, since the buyer's and the seller's details are matched. 
However, RTRS is being designed with the flexibility to disseminate 
uncompared inter-dealer transaction data if it is found that a 
substantial proportion of trades take longer than 15 minutes to be 
compared.\28\
---------------------------------------------------------------------------

    \28\ Unlike inter-dealer transactions, which have two 
submissions (both a buy side and a sell side) that must be compared, 
customer trades, which comprise approximately 80% of all reported 
trades, do not require comparison and will be disseminated as soon 
as automated error checks are completed.
---------------------------------------------------------------------------

    Transactions Done Outside the RTRS Business Day. Under the proposed 
rule change, dealers would be required to report transactions done 
outside of the RTRS Business Day, but would not be required to do so on 
a real-time basis. Instead, trades would be reported within the first 
15 minutes of the next RTRS Business Day, at which time they would be 
disseminated.
    Late Trade Reports and Trade Data Modifications. Trades that are 
not reported within the timeframe set by the proposed rule change would 
be considered late. Late trade reports and trade modifications will be 
disseminated RTRS as soon as received if they are submitted during the 
RTRS Business Day and at the start of the next Business Day otherwise.
    Broker's Broker Indicator. Trades by broker's brokers will be 
marked as such on disseminated trade reports and the buy/sell indicator 
will show whether the broker's broker was buying or selling. Because 
broker's broker trades occur in matched pairs that, in market terms, 
many observers view as representing one movement of securities between 
two dealers, the Board believes it will be helpful to RTRS data users 
if broker's brokers' trades are identified as such in trade reports.

(v) Implementation Schedule

    RTRS development is proceeding on the following schedule.
2004
April--Beta testing with dealers began
July--Certification testing with dealers begins
July-Dec.--Dealers that have passed certification testing with RTTM and 
RTRS may report trades using new formats
October--Dealers that have not yet completed certification testing must 
schedule test, unless dealer reports an average of fewer than five 
trades per week (low-volume dealers)
November--Low-volume dealers that have not yet completed certification 
testing must schedule test
Dec. 15--All dealers must complete certification testing
2005
January--Real-time comparison and reporting requirements would become 
effective
2. Statutory Basis
    The MSRB believes that the proposed rule change is consistent with 
section 15B(b)(2)(C) of the Act,\29\ 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 * * *'' \30\ The MSRB believes that the proposed rule 
change is consistent with the Act in that it will provide the market 
with more efficient pricing information and will enhance investor 
confidence in the market.
---------------------------------------------------------------------------

    \29\ 15 U.S.C. 78o-4(b)(2)(C).
    \30\ Id.
---------------------------------------------------------------------------

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

    The Board does not believe that the proposed rule change will 
result in any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act, since it would apply 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

(i) Introduction
    Comments on the proposed rule change were solicited in a notice 
dated June 13, 2003 (the ``June 2003 Notice'').\31\
---------------------------------------------------------------------------

    \31\ ``Request for Comment: Plan for Real-Time Price 
Reporting,'' MSRB Notice 2003-23 (June 13, 2003), on www.msrb.org.
---------------------------------------------------------------------------

    The MSRB received comments from:


[[Page 38936]]


Alliance Capital Management Corporation (``Alliance Capital'') \32\
---------------------------------------------------------------------------

    \32\ Letter from R. B. Davidson, III and Fred S. Cohen, Alliance 
Capital, to Justin Pica, MSRB, dated August 27, 2003.
---------------------------------------------------------------------------

The Asset Managers Forum (``AMF'') of the Bond Market Association \33\
---------------------------------------------------------------------------

    \33\ Letter from Kenneth Juster, The Asset Managers Forum, to 
Harold L. Johnson, MSRB, dated September 15, 2003.
---------------------------------------------------------------------------

William Blair & Company LLC (``Blair'') \34\
---------------------------------------------------------------------------

    \34\ Letter from James D. McKinney, William Blair and Co., to 
Harold L. Johnson, MSRB, dated September 14, 2003.
---------------------------------------------------------------------------

The Bond Market Association: Letter dated September 11, 2003 regarding 
operational issues (``BMA I'') \35\
---------------------------------------------------------------------------

    \35\ Letter from Lynette Kelly Hotchkiss, The Bond Market 
Association, to Harold L. Johnson, MSRB, dated September 11, 2003.
---------------------------------------------------------------------------

BMA: Letter dated September 12, 2003 regarding price dissemination 
(``BMA II'') \36\
---------------------------------------------------------------------------

    \36\ Letter from Lynette Kelly Hotchkiss, The Bond Market 
Association, to Harold L. Johnson, MSRB, dated September 12, 2003.
---------------------------------------------------------------------------

Cobey, Jacobson & Gordon, Inc. (``Cobey Jacobson'') \37\
---------------------------------------------------------------------------

    \37\ Letter from H. Todd Cobey, Cobey, Jacobson & Gordon, Inc., 
to Christopher Taylor, MSRB, dated August 7, 2003.
---------------------------------------------------------------------------

Financial Information Forum (``FIF'') \38\
---------------------------------------------------------------------------

    \38\ Letter from W. Leo McBlain and Thomas J. Jordan, Financial 
Information Forum, to Harold L. Johnson, MSRB, dated September 12, 
2003.
---------------------------------------------------------------------------

Fixed Income Securities, LLC (FIS) \39\
---------------------------------------------------------------------------

    \39\ Letter from Jim Dillahunty, Fixed Income Securities, LLC, 
to John Baughman, MSRB, dated October 31, 2003.
---------------------------------------------------------------------------

Griffin, Kubik, Stephens & Thompson, Inc. (5 e-mails) (``Griffin, 
Kubik'') \40\
---------------------------------------------------------------------------

    \40\ E-mails from Brian J. Battle, Jeff S. Kellough, Shane S. 
Kranov and Tom W. Boylen, Griffin, Kubik, Stephens & Thompson, Inc., 
to Justin Pica, MSRB, dated October 3, 2003.
---------------------------------------------------------------------------

Hartfield, Titus & Donnelly, LLC (``Hartfield'') \41\
---------------------------------------------------------------------------

    \41\ Letter from John J. Lynch, Jr., to Harold L. Johnson, MSRB, 
dated October 1, 2003.
---------------------------------------------------------------------------

Huntleigh Securities Corporation (``Huntleigh'') \42\
---------------------------------------------------------------------------

    \42\ Letter from John A. Bohrmann and Catherine T. Marshall, 
Huntleigh Securities Corp., to Larry Lawrence, MSRB, dated September 
24, 2003.
---------------------------------------------------------------------------

Regional Municipal Operations Association (``RMOA'') \43\
---------------------------------------------------------------------------

    \43\ Letter from Thomas Sargant, Regional Municipal Operations 
Association, to Harold L. Johnson, MSRB, dated September 25, 2003.
---------------------------------------------------------------------------

The Charles Schwab Corporation (``Schwab'') \44\
---------------------------------------------------------------------------

    \44\ Letter from Diana Kohanski, The Charles Schwab Corporation, 
to Justin Pica, MSRB, dated September 8, 2003.
---------------------------------------------------------------------------

Seattle-Northwest Securities Corporation (``Seattle-Northwest'') \45\
---------------------------------------------------------------------------

    \45\ Letter from John Rose and Maud Daudon, Seattle-Northwest 
Securities Corp., to Harold L. Johnson, MSRB, dated October 13, 
2003.
---------------------------------------------------------------------------

Siebert Brandford Shank & Co., LLC (``Siebert'') \46\
---------------------------------------------------------------------------

    \46\ Letter from Harold Durk, Siebert Brandford Shank & Co., 
LLC, to Harold L. Johnson, MSRB, dated September 12, 2003.
---------------------------------------------------------------------------

Southlake Capital, LLC (``Southlake'') \47\
---------------------------------------------------------------------------

    \47\ Letter from Richard L. Sandow, Southlake Capital, LLC, to 
Harold L. Johnson, MSRB, dated June 13, 2003.
---------------------------------------------------------------------------

UBS Financial Services, Inc. (``UBS'') \48\
---------------------------------------------------------------------------

    \48\ Letter from Charles Paviolitis, UBS Financial Services, 
Inc., to Justin Pica, MSRB, dated August 29, 2003.
---------------------------------------------------------------------------

The Vanguard Group (``Vanguard'') \49\
---------------------------------------------------------------------------

    \49\ Letter from John J. Brennan, The Vanguard Group, to Harold 
L. Johnson, MSRB, dated September 9, 2003.
---------------------------------------------------------------------------

Wachovia Bank, NA (``Wachovia'') \50\
---------------------------------------------------------------------------

    \50\ Letter from Donna M. D'Orazio, Wachovia Bank, NA, to Harold 
L. Johnson, MSRB, dated September 15, 2003.
---------------------------------------------------------------------------

Wedbush Morgan Securities (``Wedbush'') \51\
---------------------------------------------------------------------------

    \51\ Letter from David Colville, Wedbush Morgan Securities, to 
Harold L. Johnson, MSRB, dated October 9, 2003.
---------------------------------------------------------------------------

(ii) Comments on Real-Time Transparency
    In the June Notice, the MSRB noted that it believes that real-time 
trade transparency will benefit the municipal securities market. The 
MSRB also noted that it had committed to reaching this goal. 
Commentators on the June Notice, however, are divided on whether 
transparency is generally beneficial to the market and on whether real-
time transparency would harm the secondary market for certain 
infrequently traded issues. Two commentators believe that transparency 
generally benefits the municipal market and support the role of the 
MSRB in moving toward real-time price transparency. One commentator 
states that in general the MSRB proposal ``would improve the 
transparency of the municipal securities markets and provide 
substantial benefits to the investing public.'' One commentator 
believes that real-time reporting will ``enhance investor confidence in 
the municipal market'' and that ``while there will be short-term 
dislocations, eventually increased transparency will benefit all market 
participants.'' One commentator expresses the belief that the interests 
of mutual fund shareholders and individual bondholders ``are surely 
best served with the highest degree of price transparency'' and that 
``any short-term dislocations would be inconsequential compared to the 
long-term benefits offered by the MSRB's proposal.''
    Other commentators believe there is little increased benefit to 
greater transparency. They are concerned about negative liquidity 
effects, investor impacts and the possibility that dealers might exit 
the market if their spreads are narrowed. Three commentators believe 
that transparency will cause dealers to leave the market and therefore 
will adversely affect investors.
(iii) Comments on Operational Aspects
    15-Minute Reporting Requirement. Four commentators express their 
concern about the operational resources necessary to achieve real-time 
reporting. One commentator ``wholeheartedly supports the approach MSRB 
has taken in using RTTM for submission of transaction data to RTRS'' 
and ``commend[s] the MSRB for coordinating the move to RTRS to coincide 
with NSCC's transition to RTTM.'' However, four commentators state 
concerns about the cost of redesign to the industry that will be 
necessary for compliance with the 15-minute reporting requirement and 
the possibility that the operating costs for small firms may make them 
less competitive with large firms.
    The MSRB has designed RTRS to minimize the redesign and operational 
costs to report trades in real-time. The implementation date of real-
time transaction reporting, originally scheduled for 1997, has been 
delayed by the MSRB several times to give dealers additional time to 
make changes in bond processing systems necessary to capture trade data 
and process it on a real-time basis.\52\ The current focus on straight-
through processing of securities transactions provides the best 
possible environment to make the conversion to real-time transaction 
reporting.\53\ In particular, the contemporaneous development of RTTM 
by NSCC will allow dealers to leverage their systems development work 
to satisfy two goals at once--that of real-time transaction reporting 
and real-time comparison of inter-dealer transactions. For trades that 
are not eligible for comparison, NSCC will not process the transaction 
data submitted, but will immediately forward the data to the MSRB. This 
will allow dealers to avoid setting up separate telecommunications 
links and facilities specifically for trade reporting these trades to 
the MSRB.
---------------------------------------------------------------------------

    \52\ See, e.g., ``Real Time Reporting of Municipal Securities 
Transactions,'' MSRB Reports, Vol. 21, No. 2 (July 2001), and 
``Plans for MSRB's Real-Time Transaction Reporting System,'' MSRB 
Notice 2003-3 (February 3, 2003), on www.msrb.org.
    \53\ See, e.g., ``SIA Board Endorses Program to Modernize 
Clearing, Settlement Process for Securities,'' SIA Press Release 
(July 18, 2002) on www.sia.com.
---------------------------------------------------------------------------

    Schedule for Phase-In of Real-Time Reporting. Five commentators 
state their belief that there should be a phased-in approach to dealer 
testing and implementation of RTRS. One of these commentators states 
that dealers require a minimum of six months of testing of RTRS after 
RTTM is fully operational, and proposes that after six months of RTTM 
operation, dealers would begin

[[Page 38937]]

submitting most inter-dealer trades through RTTM under the 15-minute 
reporting requirement. Two commentators would initiate reporting of 
customer trades using messages sent through RTTM at the same time as 
inter-dealer trades, but would delay subjecting customer trades to the 
15-minute requirement until dealers have six months of experience with 
real-time inter-dealer trade reporting.
    One commentator suggests that during the testing and phase-in 
period the MSRB provide ``progress reports'' that would help dealers 
measure their success and become aware of areas that need improvement. 
This commentator believes that regulators, in assessing individual 
firms' performance, should not use the progress reports. One 
commentator states that dealers ``will need the co-operation of the 
enforcement agencies in recognizing the difference between non-
compliance and growing pains.''
    The MSRB notes that in December 2003 it announced a revised 
schedule that extended the RTRS operational start date from mid-2004 to 
January 2005 and thereby provided six more calendar months for dealer 
system preparation. The MSRB believes this went far to allay the 
concerns expressed above relating to dealer readiness for real-time 
transaction reporting. Under the revised schedule, RTRS was available 
for beta testing with dealers in April 2004. In July 2004, RTRS will go 
into parallel operation with RTTM. Dealers will continue to be able to 
test with RTRS from this point onward, and, in addition, may at any 
time before January 2005 opt voluntarily to submit trades in the 
message format and to discontinue using the current batch format. 
Dealers voluntarily using the message format before 2005 will be 
encouraged to submit trade reports in real time, but the current end-
of-day requirement will remain in effect until 2005.
    Based on the above schedule, the MSRB is not aware of an 
operational reason to phase in the customer trade reporting requirement 
six months after the inter-dealer reporting requirement as requested by 
some commentators. Both customer and inter-dealer trades accordingly 
are proposed to become subject to the 15-minute requirement in January 
2005.
    With regard to the request for compliance progress reports, the 
MSRB plans during the testing period to make reports available to each 
dealer showing the dealer's performance on the various compliance 
parameters, along with industry averages for each parameter. To the 
extent that these reports will relate to dealer performance during the 
test period on 15-minute reporting (rather than the existing 
requirement to report by midnight of trade date), the MSRB notes that 
the performance data is not intended to relevant for enforcing existing 
``end-of-day'' reporting requirements.
    Exemption from the 15-Minute Requirement for Syndicate and Other 
New Issue Trades. Several commentators discuss the reporting of trades 
by an underwriting syndicate and other trades in new municipal 
securities issues. One commentator states that there are so many 
transactions associated with a new issue that it may be physically 
impossible to enter them all within 15 minutes. Two commentators note 
that CUSIP numbers and ``indicative data'' (securities descriptive data 
needed to make price/yield calculations and to confirm a transaction, 
such as dated date, coupon and maturity) are often not available to 
market participants, especially dealers that are not in an underwriting 
syndicate, on the first day of trading of new issues. Regarding 
syndicates, one commentator states that ``the Syndicate Manager always 
has the complete details before the Selling Members, putting the 
Selling Members at a disadvantage.''
    In addition, five commentators question the value of reporting 
syndicate trades because, as one commentator states, ``on sale date, 
the new issue transactions are done at a price that is already publicly 
known by way of the public offering itself,'' and therefore there is 
little need for real-time disclosure of these new issue prices. One 
commentator notes that the price reported on the first official day of 
trading in an issue may reflect an agreement based on market conditions 
on a day that precedes the initial trade date for the issue. This 
commentator further states that trade reports on the initial trade date 
for a new issue may consist of both primary market trades (possibly 
based on prices agreed to days before) and secondary market trades 
reflecting that day's market environment, which, it says, might mislead 
some investors as to prevailing market prices on the initial trade 
date.
    Five commentators propose that reports of new issues should be 
required by the end of the first trading day or, if the CUSIP number is 
still not available, the next day. One commentator states that ``this 
should be considered a temporary reprieve and the industry should begin 
to search for a more permanent solution.'' One commentator proposes a 
flag for trades in the primary or secondary market to indicate that a 
submission has exceeded the 15-minute window because the CUSIP had to 
be added to the firm's or to its vendor's security master file.
    The MSRB agrees, in light of the large number of pre-sale 
commitments that a syndicate manager or syndicate member may have to 
report when a bond purchase agreement is signed or an award is 
announced, that it may be burdensome and even impossible in some cases 
for a syndicate manager or member to report all of these transactions 
within 15 minutes using systems that are currently available to 
dealers. Accordingly, the planned changes to Rules G-12(f) and G-14 
will allow syndicate managers, syndicate members and selling group 
members to report their trades done at the list offering price as late 
as at the end of the day on which the issue was traded. They would be 
required to include in the trade report an indicator to show that the 
trade is a ``syndicate price trade,'' i.e., a trade done by a syndicate 
manager or member at the list offering price on the first day of 
trading. Once a new issue has been released for trading, normal 
transaction reporting rules will apply to the syndicate manager and 
members and they will be required to enter trades within 15 minutes of 
the time of trade, as they also will be required to do for trades done 
at other than the publicly stated list price.
    With respect to the concern that syndicate prices are mixed in with 
``secondary market'' prices on the initial trade date, the MSRB plans 
to disseminate the ``syndicate list price'' indicator with the trade as 
part of the transparency reports. The MSRB also will monitor this area 
to see if additional action is warranted. With respect to the concern 
that it is sometimes difficult for dealers to obtain issue information 
such as CUSIP numbers in order to submit trades within 15 minutes,\54\ 
the MSRB is reviewing possible modifications to Rule G-34 on CUSIP 
numbers and new issue requirements to enhance the availability of this 
information and to ensure that trades are submitted in a timely manner 
after execution occurs in the new issue market.
---------------------------------------------------------------------------

    \54\ For a discussion of this concern, see ``Real-Time 
Transaction Reporting: Revised Schedule and Operational Plan,'' MSRB 
Notice 2003-44 (December 11, 2003) on www.msrb.org.
---------------------------------------------------------------------------

    The comments on adding new CUSIP numbers and indicative data for 
new issues are addressed in the next paragraph, since a similar topic 
arises in connection with some secondary market transactions.
    Exemption for Trades in Issues Not Traded in the Prior Year. Six

[[Page 38938]]

commentators discuss secondary market trades of securities that have 
not been traded for a long time.\55\ They state that it is not 
practical for a dealer to keep all 1.5 million CUSIP numbers in its 
securities master file in preparation for a possible trade, and that it 
is not possible to obtain and enter a CUSIP number and indicative data 
for such a security within 15 minutes of the trade. These commentators 
cite times ranging up to several hours as being necessary, depending on 
circumstances.\56\ The same considerations would apply to a dealer that 
is not a member of a syndicate and that is trading a new issue for the 
first time.
---------------------------------------------------------------------------

    \55\ One commentator states the problem is exacerbated for West 
Coast firms that use East Coast clearing firms and that trade late 
in the afternoon Pacific Time.
    \56\ One commentator states that up to two hours are necessary 
and another states that setup can take more than three hours. One 
commentator states that ``this process is normally measured in 
hours, not minutes.'' One commentator depends upon a service bureau 
where setting up a CUSIP ``can take quite a bit of time.'' One 
commentator, without citing details, states a concern about the time 
to set up non-investment grade paper. One commentator states that 
even dealers that have integrated data services with their 
processing systems still take approximately 7-11 minutes to set up a 
security traded in the secondary market, if it was not already set 
up.
---------------------------------------------------------------------------

    The MSRB understands that, using existing systems, a dealer that 
does not currently have a CUSIP number in its security master file 
might reasonably take as much as three hours to enter the issue into 
its securities master, even when best efforts are applied. Therefore, 
the proposed rule change will provide, when a dealer has not traded an 
issue within the past year, that a three-hour trade reporting 
requirement will apply rather than a 15-minute reporting requirement. 
The dealer will be required to code the trade report with an indicator 
to show that the report was delayed because of the need to add the 
CUSIP number to the dealer's master file. Because the MSRB believes it 
is practical for a dealer's securities master file to hold all the 
CUSIP numbers it has traded in the previous year, a dealer will not be 
allowed to use this exemption for a particular CUSIP more than once 
during the year it is in operation. Trades that the dealer indicates 
are delayed because of the need to add the CUSIP number will be checked 
against the dealer's previous transaction reports to ensure that the 
issue had not been traded by that dealer during the past year. The 
three-hour requirement also would apply to new issue securities that a 
dealer trades for the first time, as long as the dealer in question is 
not the syndicate manager or a syndicate member. This should address 
concerns dealers have about obtaining new issue information on issues 
that they are not underwriting. The MSRB believes that syndicate 
managers and syndicate members do have, or should have, timely access 
to information on a new issue that they are underwriting.
    The three-hour provision will expire or ``sunset'' automatically 
after one year from the date of RTRS implementation. During this year, 
MSRB plans to work with dealers, trade associations and information 
vendors to ensure that industry efforts are being made to speed up the 
process of updating securities master files and that indicative data 
provided by the various commercial services meets dealer needs with 
respect to 15-minute transaction reporting with respect to quality and 
consistency as well as speed.
    Exemption for Variable and Short-Term Instruments. Two commentators 
note that short-term instruments such as variable rate demand 
obligations (VRDOs), commercial paper and auction rate instruments 
typically are traded at par or at the clearing bid rate, and three 
commentators state that there is limited benefit to disseminating such 
prices in real time. Two commentators cite the difficulty of real-time 
reporting of transactions in these instruments, since they are sold at 
auction with unpredictable results and are large issues involving 
numerous investors. They believe that trades in short-term instruments 
should be reported at the end of the day rather than within 15 minutes. 
However, one commentator states that VRDO reporting should be reported 
in real time because ``it is preferable to have a consistent procedure 
for submitting these trades.''
    The MSRB understands that trades in variable rate products 
(including auction rate products) and commercial paper frequently are 
processed in a different manner than other fixed rate municipal 
securities. Because it may present significant operational challenges 
for dealers to incorporate these instruments in the 15-minute reporting 
stream, the proposed rule change would require that trades in short-
term instruments, including variable rate and auction rate products and 
commercial paper, be reported by the end of the day rather than within 
15 minutes. The dealer will include an indicator in the trade report to 
show that the security is being reported outside the 15-minute window 
for this reason. The proposed rule change would require that trades in 
longer-term notes (i.e., securities with a fixed or zero interest rate 
and over nine months in maturity) be subject to normal reporting rules.
    The MSRB does not currently plan to require reports of yields or 
reset rates on variable rate and auction rate products, but continues 
to be interested in price transparency in this area. Accordingly, the 
MSRB will explore other ways to provide transparency for the short-term 
rates that are being set in reofferings and in variable rate and 
auction products.
    Discrepancies in Timestamps on Inter-Dealer Trades. The BMA states 
that its members ``question the basis upon which the valid timestamp 
[on a trade report] will be determined in the case of an inter-dealer 
discrepancy,'' and it asks the MSRB to clarify this point. RTRS 
processing will assume that if there are different times on sides of an 
inter-dealer trade, the earlier time is correct. If the times differ by 
more than 15 minutes, RTRS will send messages to parties on both sides 
informing them of the difference, but RTRS will not mark either time as 
invalid. The MSRB plans to review this assumption as experience is 
gained with real-time reporting.
    ATS Indicator. The June 2003 notice requested comments about 
designating certain trades that are done through alternative trading 
systems (ATSs). The BMA states that the expectation that ATS trades 
will be reported is ``both problematic and unnecessary'' and asks for 
additional information from the MSRB about the utility of reporting and 
disseminating the ATS designation. This commentator states that trading 
information through ATSs is already reported to the SEC and that the 
SEC might make such information available to the MSRB.\57\ Hartfield 
states that, while it is registered as an ATS, it does not execute 
trades with broker-dealers through electronic means, but instead 
functions as a voice-broker. In light of this, the commentator believes 
``the identification of our trades as ATS trades will be confusing, and 
provide inaccurate data.''
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    \57\ The MSRB understands that the SEC does not have trade-level 
data on ATS trades similar to the RTRS trade-level data. ATSs send 
quarterly summaries of activity to the SEC but they do not report to 
the SEC each transaction price and size.
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    The commentators have raised issues that would be problematic for 
real-time reporting in the case of an ATS dealer in municipal 
securities that also does non-ATS trades. The MSRB plans to review the 
issue to determine whether there is another way to enhance existing 
audit trail capabilities with respect to electronically executed trades 
without identifying traditional voice brokered trades as ``ATS'' 
transactions. At this time, the MSRB is dropping the requirement for 
dealers to identify ATS trades, but is retaining the field in the 
reporting format for potential use later.

[[Page 38939]]

When RTRS is initially implemented, dealers will not be required to 
populate the ATS indicator in trade reports.
    RTRS Business Day. The June 2003 Notice requested comment on the 
proposed requirement to report trades within 15 minutes if the trades 
are done during the ``RTRS Business Day,'' defined as the period 
between 7:30 a.m. and 6:30 p.m. Eastern time. The time of receipt of an 
electronic trade report would be the time of its arrival at NSCC. 
Trades reported during the Business Day would be disseminated in real-
time. Transactions effected outside of the RTRS Business Day would have 
to be reported by dealers no later than 15 minutes after the start of 
the next RTRS Business Day. Schwab states that it ``prefer[s] to follow 
the same procedures used in GSCC reporting'' but does not specify the 
GSCC procedures or their advantages. Hartfield agrees with the MSRB's 
proposal that the RTRS business day would be defined to extend from 
7:30 a.m. to 6:30 p.m. The proposed rule change retains the definition 
of the RTRS Business Day contained in the June 2003 Notice.
(iv) Comments on Trades To Be Disseminated
    Divided Views on Infrequently Traded Issues. Some commentators that 
generally support transparency nevertheless express concern about its 
effect on liquidity in certain market segments. The BMA describes its 
concern as being focused on issues that are ``concentrated in the hands 
of a few dealers or buy-side institutions'' which are traded ``when a 
bond has been outstanding for a considerable period of time or has a 
low or uncertain credit standing''.\58\ The BMA also suggests that an 
economic study should be conducted to examine the issue. The BMA 
states,
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    \58\ See note 36 supra, at 4.

* * * Immediate price dissemination for bonds that are infrequently 
traded and difficult to trade will likely mean that dealers will 
either be less willing to supply liquidity to the market by buying 
bonds in these circumstances, or else will only buy them at a 
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discounted price that accounts for this additional risk.* * * \59\

    \59\ Id.
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    The opposite view is expressed by Vanguard, which proposes that all 
trades should be disseminated. Vanguard believes that the goals of 
real-time price transparency should apply to ``actively traded 
securities and, especially, inactively traded ones.'' It states, ``we 
strongly oppose * * * the exclusion of inactively traded securities 
from the reporting regime.''
    Proposals to Phase-In Real-Time Price Dissemination. Several 
commentators suggested that a phased implementation, in which some 
issues are held back from real-time dissemination in the initial phase, 
might ease liquidity concerns. Seattle Northwest, without proposing 
details, states that dissemination should be phased-in ``in order to 
further study the impact on liquidity of infrequently traded bonds.'' 
The BMA \60\ proposes that the MSRB immediately disseminate trades in 
all bonds rated ``A'' or higher and all trades of $1 million or less, 
regardless of rating. Under this proposal, trades in bonds rated below 
``A'' that are over $1 million in size would not be disseminated in 
real-time.\61\ Alliance Capital, which also stated that it would like 
``more disclosure of trading in blocks greater than $1 million,'' 
proposes deferring dissemination of trades in bonds rated below ``AA-'' 
and phasing in the remainder of trades.
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    \60\ The Asset Managers Forum, which describes itself as an 
independent affiliate of the BMA, agrees with the BMA proposals.
    \61\ Trades in all bonds will be disseminated one week after 
trade date, as they are now. No commentators oppose this feature.
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    In considering the comments on phasing in real-time transparency, 
the MSRB weighed the potential for liquidity problems against the 
potential for transparency benefits. The MSRB believes that any 
liquidity problems that may occur are likely to be temporary and will 
resolve over time as market participants make adjustments in response 
to the more transparent environment. The MSRB also believes that the 
potential for transparency benefits, such as more accurate pricing, 
lower transaction costs for investors and increased investor 
confidence, outweighs the potential for short-term liquidity problems. 
On this basis, the MSRB has determined that, with the exception of 
issues that are not required to be reported by dealers within 15 
minutes of the trade, all transactions should be disseminated in real-
time as they are executed.
(v) Comments on Information To Be Disseminated
    Display of Par Value. The current TRS system produces reports that 
display actual par value on all transactions of $1 million or less that 
were effected the previous day and an indicator for larger trades 
stating only that the trade size was over $1 million. The ``par value 
screen'' for trades over $1 million was adopted by the MSRB in 2002 
because of concerns that the exact par value of large trades tends to 
identify the market participants involved in those trades in thinly 
traded issues.\62\ In connection with its phase-in proposal, the BMA 
suggests that real-time trade reports disclose par value of 
transactions in investment-grade securities, showing actual trade size 
for trades up to $5 million in par value, with actual par value shown 
for the remaining trades on a report made one week later, as is done 
today. Alliance Capital also states that more information on par value 
should be shown on trade reports. Wachovia ``strongly agree[s]'' with 
the MSRB's current policy of displaying ``1MM+'' for all trades of $1 
million or more to prevent easy identification of the trading parties.
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    \62\ TRS publishes a comprehensive transparency report one week 
after trade date, which includes dealer error corrections and late 
trade reports. This report shows the actual par value for trades 
over $1 million.
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    Because the primary purpose of real-time transparency is to provide 
price information, and because the concern over identifying parties to 
transactions in real-time with exact par values of large trades, the 
MSRB at this time is proposing to retain the policy of displaying the 
exact par value for trades of $1 million or less and displaying 
``1MM+'' for larger trades. The same values will be displayed on 
reports published each morning covering the previous day's trades (T+1 
reports). As currently, exact par values of all trades will be 
disseminated five business days after trade date. The MSRB will review 
this policy as it gains experience with real-time transparency.
    Broker's Broker's Transactions. The June 2003 Notice asked whether 
RTRS trade reporting could in some way address concerns that have been 
expressed about the reporting of broker's broker's trades in the same 
way as other inter-dealer trades. It can be argued that this format 
``double counts'' this movement of securities between dealers since 
many observers consider the broker's broker's two trades effectively to 
be only one ``trade'' in the market. Hartfield, a broker's broker, 
comments that MSRB should not disseminate broker's broker's trades at 
all because ``these trades do not accurately reflect the information 
intended by price transparency, i.e., PRICE information. * * *'' UBS 
[at 3] believes ``identifiers used to indicate * * * broker's broker 
trades * * * will help avoid double counting. * * *'' RMOA states that 
these trades should be reported because ``including them would not 
exaggerate volume but would clearly reflect the path the bond has 
taken.''

[[Page 38940]]

    The MSRB has determined to disseminate broker's brokers' trades 
along with an indicator that they were effected by a broker's broker, 
and to indicate whether the broker's broker bought or sold the 
security. As noted above, broker's broker trades occur in matched pairs 
that, in market terms, many observers view as representing one movement 
of securities between two dealers. Accordingly, the Board believes it 
will be helpful to RTRS data users if broker's broker's trades are 
identified as such in trade reports.
    Agency and Riskless Principal Transactions. As with broker's 
brokers' trades, users of TRS data sometimes have been confused over 
reports of agency transactions by dealers. In TRS, and as planned in 
RTRS, the dealer reports both sides of an agency transaction and these 
trade reports are each disseminated, even though many observers 
consider it to be one trade. In response to the June 2003 Notice, one 
commentator, UBS, suggested that agency and riskless principal 
indicators be disseminated in trade records to avoid the double 
counting issue inherent in these situations.
    Although new capabilities in RTRS would allow the system to 
identify agency trades on disseminated reports of inter-dealer trades, 
RTRS will have no capability to identify riskless principal trades. 
Indicating agency trades without similarly marking riskless principal 
transactions would introduce inconsistent treatment of two types of 
transactions that most observers consider to be equivalent in economic 
terms. Therefore, RTRS will not disseminate agency or riskless 
principal indicators in its transparency reports.
    Inter-Dealer Regulatory-Only Reports. Another double counting issue 
concerns the new type of trade report in RTRS termed the Inter-Dealer 
Regulatory-Only or ``IDRO'' report (described above). The MSRB has 
determined not to disseminate IDRO reports as trades. The IDRO is 
reported to the MSRB for audit trail purposes and is substantially 
different than a true, principal-to-principal, trade between dealers. 
Each IDRO is related to a separately reported and disclosed transaction 
with a customer. Given the existence of the reported customer trade 
showing the net price paid by the customer, the IDRO imparts no 
additional market pricing information.
    Trades Reported at Prices Other than the Market Price. The June 
2003 Notice asked whether codes showing that a trade was done at a 
price different than the true market price should be disseminated or 
whether off-market trades should be disseminated at all. It also asked 
dealers to describe specific reasons that might cause a transaction to 
be effected at an off-market price. RMOA gives as an example of a 
special price a premium price paid to cover a Depository Trust 
Corporation short position.
    Under current practices, trades done at a price different than the 
market price are not separately indicated by dealers reporting trades 
to TRS. When such trade reports are received, they are disseminated and 
contribute to intra-day price discrepancies seen in the current T+1 
reports. Therefore, the MSRB has determined not to disseminate trades 
that the dealer indicates as trades done at other than the market 
price. (Certain Special Condition Codes will be indicative of prices 
other than the market price.\63\) All special price trades nevertheless 
will be kept in the RTRS database for surveillance purposes for use by 
the NASD, SEC and bank regulatory agencies. RTRS will, however, 
disseminate ``weighted average'' trades that are received, with an 
indicator to that effect.
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    \63\ As previously noted, the June 2003 Notice used the term 
``Special Price Reason Code'' to refer to some of what are currently 
called Special Condition Codes.
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    Transaction Control Numbers. RTRS will assign a ``control number'' 
to each transaction reported by a dealer. This is a unique number that 
will apply to the initial submission and subsequent corrections or 
cancellations of trade data.\64\ The June 2003 Notice asked for views 
on the use of the RTRS control number to track trade report corrections 
and modifications. The intent was to obtain comment both on the 
operational question of dealers using the control number to refer to a 
submission when making a change, and on the question of disseminating 
the control number so that a user of public trade information can tell 
when a trade has been changed after it is first disclosed. In response, 
Schwab, RMOA and UBS state that they agree with the MSRB's proposed use 
of the control number on trade information disseminated by RTRS.
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    \64\ In making trade corrections, a dealer may refer to a 
transaction using either the RTRS control number or its own control 
number.
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    The MSRB plans to disseminate trade corrections and modifications 
in real time, including the RTRS control number on original trades and 
on any subsequent changes in the trade. This will enable users of real-
time information to more easily update their databases when dealers 
make changes to trades that have been reported and disseminated.
    Comment on National Matrix. Blair states that instead of increasing 
transparency, a national matrix should be established that would 
provide investors with yield information via the MSRB's Web site and 
the Wall Street Journal. The MSRB notes that private vendors publish 
matrix-type information in the form of various daily scales, and 
believes it would add little benefit for the MSRB to publish a matrix.

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 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-MSRB-2004-02 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number SR-MSRB-2004-02. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule

[[Page 38941]]

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 such filing also will be available for 
inspection and copying at the Board's principal offices. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-MSRB-2004-02 and should be 
submitted on or before July 20, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\65\
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    \65\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 04-14676 Filed 6-28-04; 8:45 am]
BILLING CODE 8010-01-P