[Federal Register Volume 81, Number 49 (Monday, March 14, 2016)]
[Notices]
[Pages 13426-13429]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-05586]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-77316; File No. SR-MSRB-2016-03]
Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Notice of Filing and Immediate Effectiveness of a Proposed Rule
Change Consisting of an Amendment to Rule G-33, on Calculations, and an
Interpretive Notice
March 8, 2016.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\
notice is hereby given that on February 23, 2016, the Municipal
Securities Rulemaking Board (the ``MSRB'' or ``Board'') filed with the
Securities and Exchange Commission (the ``Commission'' or ``SEC'') 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 filed with the Commission a proposed rule change
consisting of a proposed amendment to Rule G-33, on calculations, and a
proposed interpretive notice (the ``proposed rule change''). The MSRB
has designated the proposed rule change as ``non-controversial''
pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule
[[Page 13427]]
19b-4(f)(6) \4\ thereunder, which renders it effective upon filing with
the Commission. A proposed rule change filed under Rule 19b-4(f)(6) \5\
normally does not become operative prior to 30 days after the date of
filing. Rule 19b-4(f)(6)(iii),\6\ however, permits the Commission to
designate a shorter time if such action is consistent with the
protection of investors and the public interest. Immediate utilization
of the amended pricing formula contained in the proposed rule change
will result in more accurate price and yield data reported to the MSRB,
which will, in turn, result in more accurate data disseminated to the
public. The MSRB requests the Commission waive the 30-day operative
delay. Such waiver would allow the MSRB to establish a compliance date
of July 18, 2016 for all dealers to conform to the amended pricing
formula, while allowing dealers the flexibility to immediately utilize
the amended pricing formula pursuant to the proposed interpretive
notice.
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\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
\5\ Id.
\6\ 17 CFR 240.19b-4(f)(6)(iii).
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The text of the proposed rule change is available on the MSRB's Web
site at www.msrb.org/Rules-and-Interpretations/SEC-Filings/2016-Filings.aspx, 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 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 proposed rule change would revise the mathematical formula in
Rule G-33(b)(i)(B)(2), which governs how brokers, dealers, and
municipal securities dealers (collectively ``dealers'') calculate the
dollar price of interest-bearing municipal securities with periodic
interest payments (e.g., daily, monthly, quarterly or annually) that
have more than six months to redemption (the ``pricing formula,'' as
amended by the proposed rule change, the ``amended pricing formula'').
The proposed rule change would also clarify that the amended pricing
formula is applicable for the calculations of municipal securities with
periodic interest payments and more than one coupon period to
redemption. The proposed rule change would similarly clarify that the
formulas in Rules G-33(b)(i)(B)(1) and G-33(b)(ii)(B)(1), which are not
being changed, are applicable for the calculations of municipal
securities with periodic interest payments and less than six months to
redemption.
The amended pricing formula would replace a formula that was
originally designed to accommodate the technologies available at the
time of its adoption several decades ago and reflected the limited
capabilities of those technologies to efficiently conduct the more
complex and advanced calculation of the amended pricing formula.\7\
Recognizing that it resulted in only marginally less accurate price
reporting on a relatively small number of transactions, the
accommodation was made to presume that interest-bearing municipal
securities with periodic interest payments and with more than one
coupon period to redemption pay interest on a semi-annual basis. With
improved access to more technologically advanced methods of computing
dollar prices and yields, the amended pricing formula would dispense
with the six-month presumption and instead require the use of a
calculation method for yield and dollar price that is based on the
actual interest payment frequency of the security. Modernizing the
pricing formula would recognize the use of enhanced calculators by many
market participants and produce more accurate price and yield data
reported to the MSRB's Real-Time Transaction Reporting System
(``RTRS''),\8\ which the MSRB subsequently disseminates to the market
and displays on its Electronic Municipal Market Access
(``EMMA[supreg]'') system.\9\
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\7\ See e.g., Use of formulas: Annual interest securities, June
6, 1983. Available at http://www.msrb.org/Rules-and-Interpretations/MSRB-Rules/General/Rule-G-33.aspx?tab=2 (``1983 interpretive
letter'').
\8\ The proposed amendments will conform the rule text regarding
the required manner of calculation by dealers to the manner in which
the MSRB currently calculates dollar price and yield for such
securities in RTRS.
\9\ EMMA is a registered trademark of the MSRB.
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In addition, the MSRB is proposing an interpretive notice
(``Notice'') concerning the application of the amended pricing formula
to afford dealers the flexibility to utilize the amended pricing
formula prior to the mandatory compliance date.
Proposed Amendment to Rule G-33
Rule G-33 prescribes standard formulas for the computation of
accrued interest, dollar price and yield, and related computations.
Specifically, Rule G-33(b)(i)(B)(2) requires that, for interest-bearing
municipal securities with periodic interest payments and more than one
coupon period to redemption, dealers compute the dollar price of such
securities using a formula that accounts for the present value of all
future coupon payments and presumes a semi-annual payment of interest
rather than the actual interest payment frequency of the security
(e.g., monthly or quarterly).\10\ By reference, Rule G-33(b)(ii)(B)(2)
requires the use of the formula in Rule G-33(b)(i)(B)(2) when
calculating the yield on such municipal securities with periodic
interest payments and more than one coupon period to redemption.
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\10\ The formula also accounts for the present value of the
redemption amount and the accrued interest to be paid to the seller.
Those elements of the calculation are not being changed.
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The proposed rule change would require, for securities subject to
Rule G-33(b)(i)(B)(2), that the dollar price for transactions effected
on the basis of yield be computed in accordance with the amended
pricing formula below:
[GRAPHIC] [TIFF OMITTED] TN14MR16.000
[[Page 13428]]
The amended pricing formula modifies the pricing formula currently
prescribed by Rule G-33(b)(i)(B)(2) by eliminating the presumption in
the calculation that interest-bearing municipal securities with
periodic interest payments, and more than one coupon period to
redemption, pay interest on a semi-annual basis. Rather than calculate
for a variable of yield divided by 2 (presumed semi-annual interest
payment), the amended pricing formula requires dividing yield by ``M''
where ``M'' is the number of interest payment periods per year standard
for the security involved in the transaction.\11\
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\11\ All other variables remain the same and the symbols for the
formula are as defined in Rule G-33(b)(i)(B)(2).
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In addition, the proposed rule change would modify subparagraphs
(b)(i)(B)(2) and (b)(ii)(B)(2) to clarify the applicability of the
formula in Rule G-33(b)(i)(B)(2).\12\ Because the amended pricing
formula is adapted to future coupon payments that occur more frequently
or less frequently than semi-annually, it is more accurate to provide
that the formula is applicable for the calculations of securities with
more than one coupon period to redemption rather than ``with more than
six months to redemption.'' The proposed rule change would also make a
corresponding change to subparagraphs (b)(i)(B)(1) and (b)(ii)(B)(1).
Specifically the proposed rule change would clarify that the formulas
in Rule G-33(b)(i)(B)(1) and G-33(b)(ii)(B)(1) are applicable for
calculating dollar price and yield, respectively, on securities with
one coupon period or less to redemption rather than ``with six months
or less to redemption.''
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\12\ By reference, despite computing for a different end
variable, G-33(b)(ii)(B)(2) uses the pricing formula in
(b)(i)(B)(2).
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Proposed Interpretive Notice
With the current, wide availability of advanced calculator models,
dealers may want to utilize the more precise amended pricing formula
prior to the compliance date. The proposed interpretive notice would
provide that, prior to the compliance date for Rule G-33, as amended by
the proposed rule change, dealers would be in compliance with the
current rule if they calculate price and yield on interest-bearing
securities with periodic interest payments and more than one coupon
period to redemption factoring in the actual interest frequency in the
formula rather than assuming a semi-annual interest payment.
The MSRB believes that allowing dealers this flexibility could
benefit transparency without creating any material discrepancies in
pricing information. Transactions in interest-bearing securities with
periodic interest payments (e.g., monthly, quarterly or annually) have
typically accounted for less than .05 percent of all transactions
reported to the MSRB annually and, as the MSRB previously recognized,
calculations for these securities that presume a semi-annual interest
payment rather than the actual interest payment frequency ``produce
slightly less accurate results.'' \13\
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\13\ As a result of the amended pricing formula, the MSRB will
delete the 1983 interpretive letter from its Rule Book.
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2. Statutory Basis
The MSRB believes that the proposed rule change is consistent with
Section 15B(b)(2)(C) of the Act, which requires, in pertinent part,
that the MSRB's rules shall be designed 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 and municipal financial products, to remove impediments to
and perfect the mechanism of a free and open market in municipal
securities and municipal financial products, and, in general, to
protect investors, municipal entities, obligated persons, and the
public interest.
The MSRB believes that the amended pricing formula will improve the
accuracy of the reporting of the dollar prices and yields on
transactions in interest-bearing municipal securities that pay interest
on a periodic basis. Additionally, the MSRB believes that the proposed
interpretive notice will afford dealers the flexibility to utilize the
more precise formula prior to the compliance date.
B. Self-Regulatory Organization's Statement on Burden on Competition
Section 15B(b)(2)(C) \14\ of the Act requires that MSRB rules not
be designed to impose any burden on competition not necessary or
appropriate in furtherance of the purposes of the Act.
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\14\ 15 U.S.C. 78o-4(b)(2)(C).
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In determining whether this standard has been met, the MSRB
attempted to evaluate the number of firms that may need to make changes
to comply with the proposed amendment and the likely challenges
associated with compliance. In reviewing data from 2015, the MSRB
observed that a very small percentage, approximately \1/10\ of 1
percent, of municipal securities reported to RTRS pay interest on a
periodic basis and trading in those securities accounted for less than
\1/4\ of 1 percent of customer transactions reported to the MSRB. The
MSRB believes that the impact of the proposed amendments would be very
small and would not impose any additional burdens on competition that
are not necessary or appropriate in furtherance of the purposes of the
Exchange Act.
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 the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Pursuant to Section 19(b)(3)(A) \15\ of the Act and Rule 19b-
4(f)(6) \16\ thereunder, the MSRB has designated the proposed rule
change as one that affects a change that does not: (i) Significantly
affect the protection of investors or the public interest; (ii) impose
any significant burden on competition; and (iii) become operative for
30 days from the date on which it was filed, or such shorter time as
the Commission may designate. A proposed rule change filed under Rule
19b-4(f)(6) normally does not become operative until 30 days after the
date of filing.\17\ However, Rule 19b-4(f)(6)(iii) permits the
Commission to designate a shorter time if consistent with the
protection of investors and the public interest.\18\
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\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ 17 CFR 240.19b-4(f)(6).
\17\ Id.
\18\ In addition, Rule 19b-4(f)(6)(iii) requires a self-
regulatory organization to give the Commission written notice of its
intent to file a proposed rule change, along with a brief
description and text of such proposed rule change, at least five
business days prior to the date of filing, or such shorter time as
designated by the Commission. The MSRB fulfilled this obligation.
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The MSRB has requested that the Commission waive the 30-day
operative delay specified in Rule 19b-4(f)(6)(iii).\19\ The waiver of
the 30-day operative delay will allow dealers to immediately utilize
the amended pricing formula before the July 18, 2016, compliance date.
According to the MSRB, immediate utilization of the amended pricing
formula will result in more accurate price and yield data reported to
the MSRB, which will, in turn, result in more accurate data
disseminated to the public. The Commission believes that
[[Page 13429]]
waiving the 30-day operative delay is consistent with the protection of
investors and the public interest as it will allow dealers to
immediately begin providing more accurate price and yield data to the
MSRB, which reflects the actual frequency of interest payments.
Accordingly, the Commission hereby waives the 30-day operative delay
specified in Rule 19b-4(f)(6)(iii) and designates the proposed rule
change to be operative upon filing.\20\
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\19\ See SR-MSRB-2016-03 (filed with the Commission on February
23, 2016).
\20\ For the purpose of waiving the 30-day operative delay for
this proposal, the Commission has considered the proposed rule's
impact on efficiency, competition, and capital formation. See 15
U.S.C. 78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
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 email to [email protected]. Please include
File Number SR-MSRB-2016-03 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549.
All submissions should refer to File Number SR-MSRB-2016-03. This file
number should be included on the subject line if email 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 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 Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549 on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the 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-2016-03 and should be
submitted on or before April 4, 2016.
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\21\ 17 CFR 200.30-3(a)(12).
For the Commission, pursuant to delegated authority.\21\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-05586 Filed 3-11-16; 8:45 am]
BILLING CODE 8011-01-P