[Federal Register Volume 81, Number 139 (Wednesday, July 20, 2016)]
[Notices]
[Pages 47211-47217]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-17094]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78323; File No. SR-MSRB-2016-09]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Notice of Filing of a Proposed Rule Change To Establish the MSRB 
Academic Historical Transaction Data Product

July 14, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Exchange Act'' or ``Act'') \1\ and Rule 19b-4 thereunder,\2\ 
notice is hereby given that on June 30, 2016, the Municipal Securities 
Rulemaking Board (the ``MSRB'' or ``Board'') filed with the Securities 
and Exchange Commission (the ``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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(i).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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 to the 
MSRB's facility for the Real-Time Transaction Reporting System 
(``RTRS'') to establish an historical data product to provide 
institutions of higher education (``academic institutions'') with post-
trade municipal securities transaction data collected through RTRS 
(``MSRB Academic Historical Transaction Data Product,'' hereafter 
referred to as ``RTRS Academic Data Product'') for purchase (``proposed 
rule change''). If approved by the Commission, the MSRB will announce 
the effective date of the proposed rule change in a regulatory notice 
to be published no later than 90 days following Commission approval. 
The effective date will be no later than 270 days following publication 
of the regulatory notice announcing Commission approval.
    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.

[[Page 47212]]

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 MSRB is the federal regulatory entity with primary 
responsibility under the Exchange Act for rulemaking for the municipal 
securities market. Under the Exchange Act, the MSRB is charged with 
adopting rules with respect to transactions in municipal securities 
effected by brokers, dealers and municipal securities dealers 
(``dealers'') and the municipal advisory activities of municipal 
advisors.
    In addition to developing its comprehensive body of rules governing 
the activities of dealers and municipal advisors, the MSRB has 
undertaken to create various market transparency products in 
furtherance of its statutory duties and its mission, which is, in part, 
to promote a fair and efficient municipal securities market through the 
collection and dissemination of market information. Historically, the 
MSRB has operated information systems to collect key disclosure 
documents and transaction data to create a central warehouse of 
information that made most of these documents and data available to the 
market--the Electronic Municipal Market Access (``EMMA[supreg]'') \3\ 
Web site. The MSRB makes post-trade transaction data available to the 
general public through the EMMA Web site at no cost, and to data 
vendors, industry utilities and others on a subscription basis through 
a real-time data feed and on a delayed basis.
---------------------------------------------------------------------------

    \3\ EMMA[supreg] is a registered trademark of the MSRB.
---------------------------------------------------------------------------

    MSRB Rule G-14, on transaction reporting, requires dealers to 
report all executed transactions in municipal securities to RTRS within 
15 minutes of the time of trade, with limited exceptions.\4\ RTRS 
serves the dual objectives of price transparency and market 
surveillance. While a comprehensive database of transactions is needed 
for the surveillance function of RTRS, the MSRB does not believe that 
all information or transactions reported to RTRS are necessary to serve 
the transparency objective of the system and, therefore, such 
information does not qualify for public dissemination. Among other 
information, the executing broker symbol, which provides the identity 
of each dealer that executed a transaction reported to RTRS, is not 
publicly disseminated. The information facility for RTRS serves to 
outline the high-level parameters by which the MSRB operates the 
system.
---------------------------------------------------------------------------

    \4\ Transactions in securities without CUSIP numbers, 
transactions in municipal fund securities and certain inter-dealer 
securities movements not eligible for comparison through a clearing 
agency are the only transactions exempt from the reporting 
requirements of Rule G-14.
---------------------------------------------------------------------------

    While currently used by researchers from academic institutions 
(``academics''), through subscription services or in historical data 
sets, the RTRS data available on the EMMA Web site do not include any 
identifying information regarding the dealer reporting each 
transaction. Thus, the information disseminated from RTRS would not 
allow such an academic to attribute transactions to the dealers that 
facilitated them--even anonymously. As a result, some academics have 
asked whether the MSRB could make an enhanced version of RTRS trade 
data available that includes dealer identifiers. Further, on July 15, 
2014, the MSRB published a Report on Secondary Market Trading in the 
Municipal Securities Market that utilized dealer identifiers to gain a 
better understanding of secondary market trading practices in the 
municipal securities market, including basic patterns of trading, 
pricing differentials associated with trading patterns and the impact 
of price transparency on pricing differentials. However, academics 
wishing to replicate the methodology employed in this report are unable 
to do so, as it relies, in part, on dealer identifiers.
    In July 2015, in response to these requests from academics, the 
MSRB published a request for comment, proposing to create a new RTRS 
Academic Data Product that would include anonymized dealer identifiers 
(``draft proposal'').\5\ In response to the Request for Comment, the 
MSRB received 13 comment letters, mostly supporting the draft 
proposal.\6\ After carefully considering all of the comments received, 
the MSRB determined to file this proposed rule change to the RTRS 
facility to create the RTRS Academic Data Product, which would be made 
available only to academic institutions and would include the same 
transactions included in the current RTRS historical transaction data 
sets, with the exclusion of list offering price and takedown 
transactions, which can be used to identify primary market 
transactions.\7\
---------------------------------------------------------------------------

    \5\ MSRB Notice 2015-10 (July 16, 2015) (``Request for 
Comment'').
    \6\ See infra note 11.
    \7\ In addition, the MSRB intends to establish a fee for the 
RTRS Academic Data Product prior to the effective date of the 
proposed rule change. The fee will be established pursuant to a 
separate rule filing.
---------------------------------------------------------------------------

    While the MSRB understands that anonymized dealer identifiers may 
be highly useful to academic institutions in connection with their 
research activities, the MSRB also recognizes that dealers may be 
concerned with the potential for reverse engineering of anonymized 
dealer identifiers to determine dealer identities. To address this 
issue, in addition to anonymizing dealer identifiers, the MSRB would 
take additional measures, including:
     Providing unique data sets with different anonymized 
dealer identifiers to each academic;
     excluding list offering price and takedown transactions;
     explicitly requiring subscribers to agree that they will 
not attempt to reverse engineer the identity of any dealer;
     prohibiting the redistribution of the data in the RTRS 
Academic Data Product;
     requiring users to disclose each intended use of the data 
(including a description of each study being performed and the names of 
each individual who will have access to the data for the study);
     requiring users to ensure that any data presented in work 
product be sufficiently aggregated so as to prevent reverse engineering 
of any dealer or transaction;
     requiring that the data be returned or destroyed if the 
agreement is terminated; and
     aging all the transactions included in the RTRS Academic 
Data Product for no less than 36 months.
    The establishment of the RTRS Academic Data Product would add to 
the MSRB's current offering of data products and further the MSRB's 
mission to improve the transparency of the municipal securities market 
by facilitating access to municipal market data for academic 
institutions. While academic institutions currently have access to the 
post-trade municipal securities transaction data disseminated from 
RTRS, the RTRS Academic Data Product would improve the usefulness

[[Page 47213]]

of this data by enabling academics to distinguish transactions executed 
by different dealers.
2. Statutory Basis
    Section 15B(b)(2) of the Exchange Act \8\ provides that:
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78o-4(b)(2).

    [T]he Board shall propose and adopt rules to effect the purposes 
of this title with respect to transactions in municipal securities 
effected by [dealers] and advice provided to or on behalf of 
municipal entities or obligated persons by [dealers] and municipal 
advisors with respect to municipal financial products, the issuance 
of municipal securities, and solicitations of municipal entities or 
---------------------------------------------------------------------------
obligated persons undertaken by [dealers] and municipal advisors.

    Section 15B(b)(2)(C) of the Exchange Act,\9\ provides that the 
MSRB's rules shall:
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78o-4(b)(2)(C).

    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 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 proposed rule change is consistent with 
Sections 15B(b)(2) and 15B(b)(2)(C) of the Exchange Act because it 
would prevent fraudulent and manipulative acts and practices, promote 
just and equitable principles of trade, and remove impediments to and 
perfect the mechanism of a free and open market in municipal 
securities. Specifically, the RTRS Academic Data Product would enable 
subscribers of the product to better understand the pricing of certain 
transactions, as well as how such transactions were executed, which 
should, in turn, facilitate higher quality research and analysis. 
Overall, the proposed rule change would contribute to the MSRB's 
continuing efforts to improve market transparency and to protect 
investors, municipal entities, obligated persons and the public 
interest.

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

    Section 15B(b)(2)(C) of the Exchange Act \10\ 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. In 
determining whether these standards have been met, the MSRB was guided 
by the Board's Policy on the Use of Economic Analysis in MSRB 
Rulemaking. In accordance with this policy, the Board has evaluated the 
potential impacts on competition of the proposed rule change, including 
in comparison to reasonable alternative regulatory approaches, relative 
to the baseline. The MSRB also considered other economic impacts of the 
proposed rule change and has addressed comments relevant to these 
impacts in other sections of this document.
---------------------------------------------------------------------------

    \10\ Id.
---------------------------------------------------------------------------

    The MSRB believes that the availability of this data may further 
research, which could help the MSRB and other regulators: Prevent 
fraudulent and manipulative acts and practices; facilitate transactions 
in municipal securities and municipal financial products; remove 
impediments to and perfect the mechanism of a free and open market in 
municipal securities and municipal financial products; and protect 
investors, municipal entities, obligated persons and the public 
interest.
    The MSRB acknowledges the potential for reverse engineering of 
anonymized dealer identifiers to determine dealer identities and has 
taken a number of measures to reduce this risk and mitigate any 
potential impact. Given these measures and the aforementioned benefits, 
the MSRB does not believe that the proposed rule change will impose any 
additional burdens on competition, relative to the baseline, that are 
not necessary or appropriate in furtherance of the purposes of the Act.

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

    The MSRB received 13 comment letters in response to the Request for 
Comment.\11\ The comment letters are summarized below by topic, and the 
MSRB's responses are provided.
---------------------------------------------------------------------------

    \11\ See letters from: Robert Doty, American Governmental 
Financial Services (``AGFS''), dated August 24, 2015; Robert 
Kravchuck, et al., Association for Budgeting and Financial 
Management (``ABFM''), dated September 13, 2015; Michael Nicholas, 
Chief Executive Officer, Bond Dealers of America (``BDA''), dated 
August 24, 2015; Daniel Bergstresser (``Bergstresser''), Associate 
Professor of Finance, Brandeis University, International Business 
School, dated September 14, 2015; Chris Melton, Executive Vice 
President, Coastal Securities (``Coastal'') dated August 5, 2015; 
Patrick J. Cusatis (``Cusatis''), Associate Professor of Finance, 
Penn State Harrisburg, School of Business Administration, dated 
September 10, 2015; Jonathan L. Gifford (``Gifford''), Professor and 
Director of Center for Transportation P3 Policy, George Mason 
University, dated September 1, 2015; Andrew Glassberg 
(``Glassberg''), dated August 17, 2015; Lawrence Harris 
(``Harris''), Professor of Finance and Business Economics, 
University of Southern California, Marshall School of Business, 
dated September 6, 2015; John Mousseau (``Mousseau''), dated July 
29, 2015; Norman White et al., New York University, Leonard N. Stern 
School of Business (``NYU Stern''), dated September 16, 2015; James 
R. Ramsey (``Ramsey''), President, University of Louisville, dated 
September 4, 2015; Sean Davy, Managing Director, Capital Markets 
Division, and David L. Cohen, Managing Director and Associate 
General Counsel, Municipal Securities Division, Securities Industry 
and Financial Markets Association (``SIFMA''), dated September 11, 
2015.
---------------------------------------------------------------------------

Support for the Proposed Rule Change
    In response to the Request for Comment, several commenters 
expressed strong general support for the creation of the RTRS Academic 
Data Product. ABFM, AGFS, Bergstresser, Cusatis, Glassberg, NYU Stern 
and Ramsey believe it would improve the quality of academic research 
on, and contribute to enhanced transparency in, the municipal 
securities market. Further, Gifford opined that the draft proposal 
would allow for better cost-benefit analysis of public-private 
partnership projects that access the municipal securities market, and 
Coastal stated that trade data that would be made available by the 
draft proposal would contribute to academic research of the municipal 
securities market and that it should be supported. Finally, Harris 
strongly supports the RTRS Academic Data Product and commented that the 
draft proposal would ``allow the MSRB to better regulate markets for 
the public good.''
Risk of Reverse Engineering Trade Data
    In the Request for Comment, the MSRB recognized that dealers may be 
concerned with the potential for reverse engineering of anonymized 
dealer identifiers to determine dealer identities from the data 
provided by the RTRS Academic Data Product, and it proposed several 
measures to prevent and deter those that would try to reverse engineer 
the trade data. Several commenters addressed this issue and proposed 
modifications to the draft proposal for purposes of preventing reverse 
engineering.
General Comments
    BDA expressed concern that the draft proposal would allow reverse 
engineering of a dealer's trading/investment strategy and the 
requirements of the subscription agreement would not sufficiently 
protect dealers, thus, exposing them to an ``unnecessary business 
risk.'' BDA further stated that data on municipal

[[Page 47214]]

securities transactions that are currently available to the public for 
academic research ``include a sufficient level of detail to support 
rigorous study.'' SIFMA also expressed concern that the proposed 
anonymization of dealer identifiers would not effectively protect 
dealer identities. Harris commented that use of the RTRS Academic Data 
Product may result in some reverse engineering, which may cause some 
level of harm to dealers, but he also stated that, while he believes 
engaging in reverse engineering would be inappropriate, it may ``serve 
the public interest'' by revealing ``price differentials (known as 
markups by many) . . . to [dealers'] customers.'' ABFM commented that 
the planned terms of the subscription agreement intended to prevent 
reverse engineering would be a sufficient deterrent.
    Since the inception of this rulemaking initiative, the MSRB has 
been acutely aware of the potential for reverse engineering the trade 
data that would be included in the RTRS Academic Data Product. Indeed, 
the MSRB acknowledges that the data provided in the RTRS Academic Data 
Product could be reverse engineered. However, the MSRB believes that 
the measures it would take--e.g., anonymizing dealer identifiers, 
imposing liability on subscribers of the data for breaching the terms 
of the subscription agreement (which would, among other things, include 
a provision prohibiting reverse engineering), and limiting subscribers 
to academic institutions--, on balance, sufficiently reduce the risk of 
reverse engineering, and of harm resulting therefrom. Further, in 
response to the concerns raised by commenters, the MSRB is now 
proposing to: Increase the aging requirement for the trade data from 24 
to 36 months prior to its release; provide unique data sets with 
different anonymized dealer identifiers to each academic, which may 
both help guard against coordinated efforts at attempting reverse 
engineering dealer identities, as well as assist in identifying the 
source of conduct that violates the subscription agreement; exclude 
list offering price and take down transactions, which can be used to 
identify primary market transactions; require users to ensure the 
sufficient aggregation of any data presented in work product, which 
would protect against reverse engineering by readers of published 
works; and not include primary offering trades in the trade data. 
Overall, the MSRB has proposed numerous measures that should mitigate 
the risk of reverse engineering, and the residual risk is warranted by 
the benefits to the municipal securities market that would result from 
creation of the RTRS Academic Data Product and greater transparency of 
dealer behavior. The MSRB may consider amending or discontinuing the 
RTRS Academic Data Product, as currently proposed, if future experience 
shows that anonymized dealer identifiers are reverse engineered by 
researchers.
Aging Trade Data
    As noted above, as part of the MSRB's effort to prevent and deter 
reverse engineering of dealer identities, the draft proposal required 
that the trade data made available to subscribers of the RTRS Academic 
Data Product would be for trades that were executed at least 24 months 
prior to the date that they were provided to the subscriber. SIFMA 
stated, in combination with other concerns about the draft proposal, 
that 24 months is too short of a time period to adequately protect 
against reverse engineering, and, instead, suggested that the MSRB age 
the trade data for 48 months. In contrast, ABFM believed 12 months, 
rather than 24, would be a sufficient time period to ensure that trades 
could not be reverse engineered, and Ramsey also suggested 12 months 
would be preferable to 24 months to ensure the data is timely. Harris 
argued that 24 months would be more than sufficient for aging the data 
to remove the usefulness of that data for the purpose of reverse 
engineering, in part, because he believes dealer positions change in no 
more than two months, and he also noted that as few as six or up to 12 
months would be a better length of time because it would allay the 
concerns of dealers and allow for the ``identifying [of] parasitic 
trading strategies as quickly as possible.'' Coastal believes 12 months 
would be too short a time period to sufficiently mitigate the reverse 
engineering risk but that 24 months would be appropriate and would not 
encumber research because, in its opinion, municipal securities market 
practices and conditions are ``slow to evolve,'' making the data still 
relevant to academics studying market behavior.
    Based on careful consideration of all of the diverse comments on 
this issue, the MSRB believes, at this time, that a 36-month period is 
appropriate to protect against, and mitigate the risk and potential 
harm from, any reverse engineering, while still providing useful trade 
data for academics to study.
Grouped Versus Individual Dealer Identifiers
    In the draft proposal, the MSRB proposed anonymizing identifiers 
for each individual dealer for the trade data made available through 
the RTRS Academic Data Product to protect against the potential of 
subscribers reverse engineering the data to determine dealer 
identities. A few commenters suggested alternative methods to anonymize 
dealer identities. Specifically, BDA stated that grouping dealers by 
size, as opposed to issuing individual anonymized identifiers, would 
better protect the trade data from reverse engineering if the MSRB does 
not plan on changing the dealer identifiers on a regular basis because, 
without periodic changes, it would become easier to identify dealers 
based on trading data over a long period of time. SIFMA similarly 
supported making the trade data available through ``groupings of 
comparable dealers,'' arguing that the MSRB and FINRA should ``adopt 
the peer group criteria used in MSRB and FINRA report cards to 
aggregate dealers into reportable groups.'' Further, Coastal stated 
that, if dealers were not grouped by size, then reverse engineering 
would likely occur, while grouping by size would not substantially 
encumber research uses of the trade data. Coastal also argued that 
contracting with subscribers to prevent reverse engineering would not 
be effective, and BDA noted that any subscription agreement would not 
extend to readers of studies produced by subscribers.
    In support of individual identifiers, Harris stated that the 
``empirical work [of academics] requires high quality data that can 
inform their analyses as to what dealers do. Dealer identities thus 
need to be revealed, at a minimum in anonymized form, so that academics 
can understand how dealer trading decisions relate to their previous 
trading decisions.'' To this point, Harris stated that grouping dealers 
would likely provide better trade data than is currently available to 
academics, but that such grouped data would not provide academics with 
the information needed to understand specific dealer behavior. He 
stated, ``[D]ealer decisions to offer, not offer, and take liquidity 
are made by individual dealers in response to their individual needs 
and inventory conditions. Groups of dealers acting in concert do not 
make these decisions. To better understand these decisions, you must 
see who is making them.'' Additionally, Bergstresser argued that 
grouping dealers by size would substantially hinder the purpose of the 
RTRS Academic Data Product because it would reduce ``the information 
content of the data [and] would negate the entire purpose of having 
(anonymized) dealer identities, which is to be able to identify

[[Page 47215]]

round-trip transactions.'' Similarly, Ramsey stated that anonymizing 
dealer identifiers would be reasonable if it allowed tracking unique 
trades, which groupings by size or volume would not, and ABFM commented 
that the potential beneficial research that could result from the RTRS 
Academic Data Product with individual dealer identifiers would likely 
be much greater than if ``the dealer identifier is less precise (e.g., 
a categorical identifier based on dealer size or average daily trading 
volume).''
    The MSRB believes, at this time, that it would better further the 
principal purpose of creating the RTRS Academic Data Product--namely, 
to foster detailed research and analysis of municipal securities 
trading--if the trade data identifies dealers individually rather than 
by group. The MSRB believes that grouping dealers would result in too 
great a reduction in the usefulness of the RTRS Academic Data Product, 
and, as previously mentioned, that the protections incorporated in the 
proposed rule change, including, but not limited to, the 36-month aging 
of the data, and terms planned to be included in the subscription 
agreement will, on balance, adequately mitigate the risk of reverse 
engineering without the grouping of dealers.
Primary Offering Data
    As proposed in the Request for Comment, the RTRS Academic Data 
Product would make trade data available from transactions in both the 
primary and secondary markets. SIFMA believes that the potential for 
reverse engineering primary market trade data is particularly acute 
because, in its view, the currently available public data that does not 
have dealer identifiers is already subject to reverse engineering. 
SIFMA recommended that, if made available on a dealer-by-dealer basis, 
the data provided by the RTRS Academic Data Product exclude primary 
trades from the data set and periodically scramble dealer identifiers.
    The MSRB agrees with SIFMA regarding primary market trades, in 
light of trade data products currently offered by the MSRB to provide 
academics and other interested parties with information about the 
primary market for municipal securities. Therefore, the RTRS Academic 
Data Product would not include list offering price and takedown 
transactions, which can be used to identify primary market 
transactions.
Release of Full Trade Sizes in RTRS Academic Data Product
    Harris commented that the RTRS Academic Data Product should provide 
full trade sizes and that the utility of the RTRS Academic Data Product 
would be reduced if the trade data did not reveal the sizes of the 
largest trades.
    The MSRB understands the potential issues academic researchers 
could encounter if the full size of trades is not included in the trade 
data, and, therefore, the proposed rule change would provide the full 
size of each trade that is included in the RTRS Academic Data Product.
Limiting RTRS Academic Data Product to Academic Institutions
    As proposed in the Request for Comment, the RTRS Academic Data 
Product would only be made available to academics in connection with 
their research activities. Commenters had differing views as to whether 
or not the subscriber base should be larger. First, Bergstresser 
suggested that the MSRB broaden the set of individuals who could have 
access to the RTRS Academic Data Product to include, for example, 
researchers associated with the Federal Reserve Board, individual 
Federal Reserve Banks, and other institutions such as the Brookings 
Institution, the American Enterprise Institute, and the Urban 
Institute. Bergstresser stated further that excluding researchers from 
such institutions would be ``inappropriate and would hamper the 
progress of research on the municipal bond market.'' Second, Harris 
stated that ``[i]t would not be fair or in the public interest if 
interested industry groups could not replicate academic studies or 
produce their own'' and that the RTRS Academic Data Product should be 
available to anyone. Harris added that the trade data needs to be made 
widely available so that academics can have a reasonable expectation 
that others will replicate, and potentially challenge, the research 
they conduct on the trade data. In contrast, Coastal argued that the 
availability of the RTRS Academic Data Product should be limited to 
academics to provide additional protection against reverse engineering 
of the trade data. ABFM affirmatively stated that it took no position 
on whether the data product should be limited to, or expanded beyond, 
academics, but stated that the MSRB should not base access to the RTRS 
Academic Data Product on the content, or results, of the requesting 
researcher's previously published works. Similarly, Harris also stated 
that access to the RTRS Academic Data Product should not be made 
contingent on the resulting research produced. Finally, SIFMA stated 
that the RTRS Academic Data Product should be available to ``[a]ny not-
for-profit that has a separately identifiable Research Department and 
regularly publishes research reports'' on the same terms that it would 
be available to academics, but only if other modifications suggested by 
SIFMA were made, such as anonymizing dealer identities by group and 
aging the data for 48 months.
    The establishment of the RTRS Academic Data Product was conceived 
as a means of advancing a goal of the MSRB's Long-Range Plan for Market 
Transparency Products \12\ by facilitating access to municipal market 
data for academics to conduct research on the municipal securities 
market. The MSRB believes that limiting the availability of the RTRS 
Academic Data Product to academic institutions will facilitate 
transparency, while not exposing the trade data to institutions or 
organizations that could have a more direct incentive to use the trade 
data for commercial purposes. The MSRB is committed to increasing 
market transparency and, in the future, after the use of the RTRS 
Academic Data Product has been observed, the MSRB may reconsider 
providing access to the data to a larger group of researchers. However, 
at this time, the MSRB believes that limiting the RTRS Academic Data 
Product to academic institutions helps address the concerns of dealers 
about the use of the data, while advancing the purpose of the product 
to foster academic research on the municipal securities market.
---------------------------------------------------------------------------

    \12\ MSRB Long-Range Plan for Market Transparency Products 
(January 27, 2012), available at: http://www.msrb.org/msrb1/pdfs/Long-Range-Plan.pdf.
---------------------------------------------------------------------------

Pricing of the RTRS Academic Data Product
    As proposed in the Request for Comment, the RTRS Academic Data 
Product would be made available for a fee of $500 per calendar-year 
data set (with a one-time initial set-up fee of $500).\13\ Harris 
commented that academics should either pay a reduced rate, when 
compared to the fee charged to industry participants and their various 
organizations and consultants, or be given access for free because, in 
his opinion, academics are often not paid to conduct their research 
while the

[[Page 47216]]

public obtains a benefit from the research being conducted. ABFM 
believes the fee is reasonable.
---------------------------------------------------------------------------

    \13\ The MSRB notes that the Request for Comment proposed the 
availability of the RTRS Academic Data Product in calendar-year data 
sets, but, as it does with other data products and as described 
above, the MSRB would make the RTRS Academic Data Product available 
on a rolling basis in one-year data sets.
---------------------------------------------------------------------------

    As noted above, the MSRB intends to establish a fee for the RTRS 
Academic Data Product prior to the effective date of the proposed rule 
change. The fee will be established pursuant to a separate rule filing 
in which Harris' comment will be addressed.\14\
---------------------------------------------------------------------------

    \14\ See supra note 7.
---------------------------------------------------------------------------

Subscription Agreement
    As part of the Request for Comment, the MSRB included a draft 
description of the subscription agreement into which recipients of the 
RTRS Academic Data Product (``Recipients'') would be required to enter 
with the MSRB before access to the data would be granted (``Draft 
Agreement''). Some commenters requested clarification of, and others 
raised concerns about potential issues that could arise from, the terms 
of the Draft Agreement.
Liability for Breach of Draft Agreement
    The MSRB included a liability provision in the Draft Agreement to, 
in part, deter and prevent reverse engineering and/or other misuse of 
the trade data provided by the RTRS Academic Data Product. Several 
commenters expressed concern regarding this provision that would hold 
Recipients ``liable to the MSRB for any breach of the [Draft Agreement] 
resulting from the action/inaction of Recipient's internal users or any 
other individual or entity that accesses the [RTRS Academic Data 
Product] via Recipient or to whom Recipient provides any derivative 
works.'' In particular, ABFM commented that the inclusion of the 
provision would be overly burdensome for academic institutions and may 
preclude some from subscribing. ABFM further suggested, as an 
alternative, that liability be limited to two times the price paid by 
the Recipient for the data and that holding a Recipient liable to the 
extent described by the Draft Agreement would be unreasonable. 
Bergstresser, Cusatis and Ramsey expressed similar views, and each 
stated that the liability exposure could prevent an academic 
institution from signing the Draft Agreement and using the RTRS 
Academic Data Product. In contrast, Harris stated that the terms of the 
Draft Agreement generally were sufficient and not unduly restrictive.
Publication of Works Based on Data
    In the Request for Comment, the MSRB asked whether academics would 
be opposed to including, as a term of the agreement, a requirement that 
a copy of all derivative works that rely on the RTRS Academic Data 
Product be provided to the MSRB upon publication. In response, Harris 
requested that the MSRB provide more specifics regarding what is meant 
by the term ``publication'' because, in his view, academics may have 
differing understandings of when works of research are considered 
``published.'' Harris further stated that, if academics are required to 
send published works to the MSRB, they should only be required to do so 
after the work is no longer described by its author as a ``Working 
Draft--Not for Quotation--Subject to Change'' and can be found via an 
internet search. ABFM stated that it believes that academics would not 
be opposed to providing the MSRB with all published works relying on 
the data from the RTRS Academic Data Product, so long as the MSRB did 
not require the academic to share authorship of the work or the 
copyright of such works.
Permissible Use and Security of the Trade Data
    SIFMA commented that the draft proposal did not state who at 
academic institutions would be able to access the trade data and 
requested that the MSRB modify the draft proposal to include 
``parameters around who may be considered an `Internal User' or 
`Recipient/Licensee.' '' In addition, SIFMA also suggested that the 
MSRB further limit ``Authorized Use'' to serve the purpose of research 
and to exclude any commercial use of the trade data. Overall, SIFMA 
expressed a concern that the creation of the RTRS Academic Data Product 
would lead to an inevitable data breach, revealing dealer trading and 
distribution strategies, which could have a negative impact on market 
liquidity. Similarly, BDA noted that nothing in the Draft Agreement 
would require academic institutions to have a minimum level of data 
security protections in place, making the data susceptible to theft.
    The MSRB understands and appreciates the comments provided in 
response to the terms of the Draft Agreement presented in the Request 
for Comment. The MSRB included those terms and solicited comment on 
them primarily to determine whether to establish the RTRS Academic Data 
Product, and the subscription agreement into which academics and/or 
academic institutions would be required to enter (``Final Agreement''), 
and the terms thereof, have yet to be finalized. If the RTRS Academic 
Data Product is approved, the MSRB will, as it does for all of its 
subscription service agreements, conduct a thorough legal and risk 
analysis to ensure that it is adequately protected from possible 
breaches of the agreement, as well as consider the potential burdens 
placed on all parties to the agreement in light of the intended 
benefits. In performing this analysis, the MSRB will take all of the 
above comments into consideration.
    As noted above, given the potential risk of the trade data included 
in the RTRS Academic Data Product being reverse engineered, the MSRB 
believes the subscription agreement will be an important complement to 
the measures included in the proposal to mitigate that risk. As such, 
the MSRB expects that the Final Agreement will include a liability 
provision substantially similar to the one included in the Draft 
Agreement to deter and prevent reverse engineering and other potential 
breaches of the agreement. The MSRB also expects that the Final 
Agreement will include a definition of ``publication'' to provide 
clarity to academics on what work product to provide to the MSRB and 
when, and will not require any form of joint authorship with the MSRB. 
Finally, the MSRB expects that the Final Agreement will define 
``Internal User'' to clarify to whom access to the data may be provided 
and require reasonable security measures to protect the data from 
unauthorized access by controlling how they are used, accessed, 
processed, stored and/or transmitted.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period of up to 90 days (i) as 
the Commission may designate 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 or disapprove 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

[[Page 47217]]

     Send an email to [email protected]. Please include 
File Number SR-MSRB-2016-09 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-2016-09. 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-2016-09 and should be 
submitted on or before August 10, 2016.

    For the Commission, pursuant to delegated authority.\15\
Jill M. Peterson,
Assistant Secretary.
---------------------------------------------------------------------------

    \15\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

[FR Doc. 2016-17094 Filed 7-19-16; 8:45 am]
 BILLING CODE 8011-01-P