[Federal Register Volume 70, Number 245 (Thursday, December 22, 2005)]
[Notices]
[Pages 76092-76094]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-7692]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52967; File No. SR-MSRB-2005-16]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Notice of Filing and Order Granting Accelerated Approval of 
Proposed Rule Change to MSRB Rule G-14 RTRS Procedures, Paragraph 
(a)(ii)(C) To Extend the Expiration Date of the Three Hour Exception

December 16, 2005.
    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 December 13, 2005, 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 and II 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 is filing with the Commission a proposed rule change to 
paragraph (a)(ii)(C) of Rule G-14 RTRS Procedures under Rule G-14 
Reports of Sales or Purchases, to extend the expiration date of the 
three hour exception to the 15 minute reporting deadline. The text of 
the proposed rule change is available on the MSRB's Web site (http://www.msrb.org), at the MSRB's principal office, and at the Commission's 
Public Reference Room.

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 statutory 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
    MSRB Rule G-14 trade reporting procedures require that transactions 
effected with a time of trade during the hours of the Real-Time 
Transaction Reporting System (``RTRS'') business day be reported within 
15 minutes of the time of trade to an RTRS Portal. Under MSRB Rule G-
14, there are three exceptions to this 15 minute reporting requirement. 
The exception addressed by the proposed rule change allows a dealer 
three hours to report a security that the dealer has not traded in the 
previous year.\3\ This exception is not available to a managing 
underwriter or syndicate member. The MSRB included a sunset date of 
January 31, 2006 for the three hour exception in order to provide 
incentive for information vendors and the industry to move to real-time 
techniques for securities master updates. This exception was designed 
to give a dealer time to add a security to its securities master file 
so that a trade can be reported through the dealer's automated 
processing systems.
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    \3\ The other two exceptions to the 15 minute reporting rule 
are: (1) that 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 are permitted to report these 
trades by the end of the day on which they were executed; and (2) 
that a dealer effecting a trade in a short-term instrument 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 business day on which the 
trades were executed. See MSRB Rule G-14 RTRS Procedures (a)(ii)(A), 
(B).
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    Historically, dealers have not been able to maintain a database of 
formatted municipal securities information for the full universe of 
approximately 1.5 million municipal securities due to the cost of 
mainframe storage. A securities master file contains the information 
about a municipal security issue that is necessary for a dealer to be 
able to process transactions in the issue. It includes such items as 
interest rate, dated date, interest payment cycle, put and call 
schedules. This data is stored in the dealer's trade processing system 
in a database commonly called the ``securities master file.'' \4\ The 
dealer's securities master file sometimes contains information only for 
securities held in custody for customers and for securities that have 
been recently traded. In that case, if a dealer trades a secondary 
market security that is not in its securities master file, the relevant 
securities information must be obtained from a vendor by the dealer 
before the trade can be processed.
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    \4\ Many dealers use service bureaus for various trade 
processing functions, including the maintenance of securities master 
files. Securities master file update procedures for service bureaus 
and the challenges in moving to a real-time environment for service 
bureaus are the same as those described for dealers.
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    Since implementation of real-time transaction reporting on January 
31, 2005, the municipal securities industry has made some progress in 
improving timely access to information on municipal securities. Some 
dealers and service bureaus have elected to store the full universe of 
municipal securities in their securities master files. In addition, 
some links have been set up so that dealers are able to obtain a real-
time update from a vendor upon request after an issue is traded for the 
first time. Notwithstanding some progress, dealers have indicated that 
difficulty continues to exist in ensuring adequate real-time access to 
securities data for the 1.5 million outstanding municipal securities 
and are concerned about the upcoming expiration of the three hour 
exception. This delay in obtaining relevant security information can 
cause the dealer's trade to be reported as late. The Bond Market 
Association (``TBMA'') has requested that MSRB extend the three hour 
exception to provide additional time for the industry to develop 
solutions to the problems of disseminating municipal securities 
information.
    The MSRB believes that the industry can complete the necessary 
systems changes to address access to securities information in the 
secondary market by December 29, 2006. The MSRB does not intend to 
provide any additional extensions beyond this date. This date will 
allow the municipal securities industry to work on solutions for 
dealers to obtain municipal securities information in a timely manner 
from information vendors in order to process trades not in the dealer's 
securities master file.
    For new issue transactions, a dealer's access to necessary 
securities information depends not only on its link with the 
information vendor but also on whether that vendor itself has the 
information on the new issue. Vendors currently obtain much of their 
new issue information through voluntary cooperation from underwriters. 
This process does not always result in all the vendors having the 
necessary securities information by the time of formal award when trade 
executions begin. Dealers trading a new issue for the first time need 
the three hour exception from the 15 minute trade reporting for their 
first trades in a new issue because the securities information is not 
available at

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the time the trade is executed.\5\ The industry has expressed concern 
that it needs more time to work on the current infrastructure for the 
collection and dissemination of securities information in order to move 
towards real-time techniques to update securities master files and 
thereby allow dealers to report trades within 15 minutes. Accordingly, 
the MSRB is proposing an extension of the three hour exception for 
when, as and if issued transactions to December 31, 2007.
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    \5\ In the new issue market, information vendors seek to collect 
information on each issue and deliver it to customers in time for 
trade reporting in the new issue. There are several challenges for 
vendors and dealers to meet the reporting deadlines. For example, 
there are approximately 15,000 new municipal issues that must be set 
up in databases each month. Another problem for the industry is the 
fact that approximately 85 different information fields for each 
issue must be successfully gathered, which in large part depends on 
the timely cooperation of the underwriters.
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    In addition, in order to expedite the process of moving to real-
time techniques for securities master updates by vendors and the 
industry with a particular emphasis on newly issued securities, TBMA 
and The Depository Trust Company (``DTC'') are currently working on a 
project that will address inefficiencies in the collection of new 
information securities data. As proposed, DTC will act as a central 
collection point for standardized electronic files of new issue 
information provided by underwriters. DTC then would provide the 
information in real-time to information vendors. Underwriters would 
provide the information to DTC on a specific timeframe. This project is 
scheduled for implementation in the last half of 2007. It will make it 
possible for dealers to report new issue trades earlier and will 
eliminate the need for the three hour exception for new issue trades. 
An extension of the three hour exception for when, as and if issued 
transactions to December 31, 2007, will also allow time for this 
project to be implemented and for initial operational details to be 
addressed before the 15 minute reporting requirement becomes effective 
for trades that currently qualify for the three hour exception.
    The proposed rule would revise MSRB Rule G-14 RTRS Procedures 
(a)(ii)(C) by deleting the language regarding the expiration of the 
three hour exception on January 31, 2006 and replacing the language to 
state that for when, as and if issued transactions, the three hour 
exception to the 15 minute reporting rule will expire on December 31, 
2007; and for all other transactions, the exception will expire on 
December 29, 2006.
2. Statutory Basis
    The MSRB believes that the proposed rule change is consistent with 
section 15B(b)(2)(C) of the Act,\6\ which requires that the rules of 
the MSRB 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.* * * '' \7\
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    \6\ 15 U.S.C. 78o-4(b)(2)(C).
    \7\ Id.
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    The MSRB believes that the proposed rule change is consistent with 
the Act because it will allow for the municipal securities industry to 
produce increased accurate trade reporting and transparency, and will 
enhance surveillance data used by enforcement agencies. This proposed 
rule change will foster cooperation and coordination within the 
municipal securities industry with the ultimate goal of disseminating 
accurate real-time pricing data.

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

    The MSRB does not believe that the proposed rule change will impose 
any burden on competition since it would apply equally to all brokers, 
dealers and municipal securities dealers.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received on this 
proposed rule change.

III. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to the MSRB \8\ and, in particular, the 
requirements of Section 15B(b)(2)(C) of the Act and the rules and 
regulations thereunder.\9\ Section 15B(b)(2)(C) of the Act requires, 
among other things, that the MSRB's rules 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.\10\
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    \8\ In approving this rule the Commission notes that it has 
considered the proposed rule's impact on efficiency, competition and 
capital formation. 15 U.S.C. 78c(f).
    \9\ 15 U.S.C. 78o-4(b)(2)(C).
    \10\ Id.
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    The Commission finds good cause for approving the proposed rule 
change prior to the 30th day of the date of publication of the notice 
thereof in the Federal Register. The Commission notes that (i) the 
three hour exception to the 15-minute transaction reporting will 
automatically expire on January 31, 2006; and (ii) the industry needs 
more time to correct the inadequacies in the current industry 
infrastructure for collecting and disseminating securities information 
so as to implement real-time techniques for securities master updates. 
Therefore, the Commission finds that there is good cause, consistent 
with Section 19(b)(2) of the Act,\11\ to approve the proposed change on 
an accelerated basis.
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    \11\ 15 U.S.C. 78s(b)(2).
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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-2005-16 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-9303.

All submissions should refer to File Number SR-MSRB-2005-16. 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

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amendments, all written statements with respect to the proposed rule 
change that are filed with the Commission, and all written 
communications relating to the proposed rule change between the 
Commission and any person, other than those that may be withheld from 
the public in accordance with the provisions of 5 U.S.C. 552, will be 
available for inspection and copying in the Commission's Public 
Reference Room. Copies of such filing also will be available for 
inspection and copying at the principal office of the MSRB. 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-2005-16 and should be 
submitted on or before January 12, 2006.
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    \12\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
Jonathan G. Katz,
 Secretary.
[FR Doc. E5-7692 Filed 12-21-05; 8:45 am]
BILLING CODE 8010-01-P