[Federal Register Volume 89, Number 147 (Wednesday, July 31, 2024)]
[Notices]
[Pages 61516-61518]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-16796]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100589; File No. SR-MSRB-2024-01]
Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Notice of Filing of Amendment No. 1 to Proposed Rule Change
Consisting of Amendments to MSRB Rule G-14 To Shorten the Timeframe for
Reporting Trades in Municipal Securities to the MSRB
July 25, 2024.
I. Introduction
On January 12, 2024, the Municipal Securities Rulemaking Board
(``MSRB'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'' or ``Exchange Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to (1) amend MSRB Rule G-14
(``Rule G-14''), on reports of sales or purchases, to (i) shorten the
amount of time within which brokers, dealers, and municipal securities
dealers (collectively, ``dealers,'' and each individually, a
``dealer'') must report most transactions to the MSRB; and (ii) require
dealers to report certain transactions with a new trade indicator, and
make certain clarifying amendments, and (2) make conforming amendments
to MSRB Rule G-12, on uniform practice (``Rule G-12''), and the MSRB's
Real-Time Transaction Reporting System (``RTRS'') Information Facility
(``IF-1'') to reflect the shortened reporting timeframe (collectively,
the ``proposed rule change'').\3\ The proposed rule change was
published for comment in the Federal Register on January 26, 2024.\4\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Exchange Act Release No. 99402 (Jan. 19, 2024), 89 FR
5384 (Jan. 26, 2024) (``Notice'').
\4\ Id. at 5384.
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The Commission received comments in response to the proposed rule
change.\5\ On April 22, 2024, the Commission instituted proceedings
under Section 19(b)(2)(B) of the Act \6\ to determine whether to
approve or disapprove the proposed rule change.
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\5\ Comment letters received by the Commission are available on
our website at https://www.sec.gov/comments/sr-msrb-2024-01/srmsrb202401.htm.
\6\ 15 U.S.C. 78s(b)(2)(B).
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On July 18, 2024, the Commission, pursuant to Section 19(b)(2) of
the Act,\7\ designated September 20, 2024, as the date by which the
Commission shall either approve or disapprove the
[[Page 61517]]
proposed rule change.\8\ On July 18, 2024, the MSRB responded to
comments \9\ and filed Amendment No. 1 to the original proposed rule
change (``Amendment No. 1''). The text of Amendment No. 1 is available
on the MSRB's website.\10\
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\7\ 15 U.S.C. 78s(b)(2).
\8\ See Exchange Act Release No. 100557 (July 18, 2024), 89 FR
59951 (July 24, 2024) (``Extension'').
\9\ See Letter from Ernesto A. Lanza, Chief Regulatory and
Policy Officer, MSRB, to Secretary, Commission, dated July 18, 2024,
available at https://www.sec.gov/comments/sr-msrb-2024-01/srmsrb202401-491663-1411646.pdf.
\10\ Amendment No. 1 is available at https://www.msrb.org/sites/default/files/2024-07/MSRB-2024-01-A-1.pdf.
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II. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Amendment
As described further below, the MSRB filed Amendment No. 1 to amend
the proposed rule change to (i) revise the definition of a ``dealer
with limited trading activity'' in proposed subsection (d)(xi) of Rule
G-14 RTRS Procedures \11\ and (ii) modify the pace of phasing-in the
shortened reporting timeframe for a ``trade with a manual component''
in proposed Supplementary Material .02(b).
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\11\ The MSRB stated that the revision to the proposed
definition of dealer with limited trading activity does not have a
material impact on the MSRB's economic analysis included in the
original proposed rule change. See Amendment No. 1 at 9.
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A. Exception for Dealers With Limited Trading Activity
The MSRB noted that upon further review of the methodology used for
proposing a 1,800-trade threshold for qualifying for the dealer with
limited trading activity exception in the original proposed rule
change, the MSRB had determined to increase the threshold to 2,500
trades in connection with a modification of its methodology.\12\
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\12\ See Amendment No. 1 at 7.
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In establishing the original proposed threshold of 1,800 trades,
the MSRB explained that it had used an approach, consistent with other
instances where MSRB rules and related transparency activities had been
based on inter-dealer trade activity, that relied solely on the sell-
side inter dealer trade reports to avoid, for those specific purposes,
potential double counting if both the sell-side and buy-side were
used.\13\ The MSRB stated that the calculations discussed in the Notice
underlying the 1,800-trade threshold in the proposed definition of
``dealer with limited trading activity'' resulted in a lower threshold
and did not fully account for inter-dealer trade reports since only the
sell-side inter-dealer trade reports were taken into account.\14\ In
order to maintain comparability with the threshold used by the
Financial Industry Regulatory Authority, Inc. (``FINRA'') in its
proposed definition of ``member with limited trading activity'' \15\
and in light of the plain meaning of the language of the MRSB's
proposed definition of ``dealer with limited trading activity,'' the
MSRB explained that it had recalculated the appropriate threshold for
such definition to be 2,500 trades, taking into account both sell-side
and buy-side inter-dealer trade reports together with reports of dealer
trades with customers, regardless of whether the dealer bought or sold
in the customer transaction.\16\ The MSRB also stated that Amendment
No. 1 would add clarifying language to reflect that the threshold is
based on both sell-side and buy-side inter-dealer and customer trade
reports.\17\ Thus, proposed subparagraph (d)(xi) of Rule G-14 RTRS
Procedures would define a dealer with limited trading activity as a
dealer that, during at least one of the two prior consecutive calendar
years, reported to an RTRS Portal fewer than 2,500 purchase or sale
transactions with customers or other dealers, excluding certain
exempted transactions as specified therein.\18\ The MSRB further noted
that the proposed new threshold would continue to account for only a
very small portion of the market volume and therefore would have
minimal impact on overall trading.\19\
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\13\ Id. at 7-8.
\14\ Id. at 8.
\15\ See Exchange Act Release No. 99404 (Jan. 19, 2024), 89 FR
5034 (Jan. 24, 2024) (``FINRA Notice'').
\16\ See Amendment No. 1 at 8. The MSRB explained that reports
of dealer trades with customers, regardless of whether the dealer
bought or sold in the transaction, were included in the original
methodology and continue to be included in the revised methodology.
Based on this change in methodology, the total number of trade
reports in 2022 has changed to 16.8 million when counting both the
buy-side and the sell-side trades for inter-dealer trades.
Previously, when only counting the sell side trades for inter-dealer
trades, the total number of reported trades in 2022 was 12.1
million. See Amendment No. 1 n. 21.
\17\ See Amendment No. 1 at 8.
\18\ Id.
\19\ See Amendment No. 1 at 9. The MSRB stated that the revised
number of transactions under Amendment No. 1 would be expected to
continue to capture approximately 1.5 percent of the trades in the
municipal securities markets in a given calendar year, based on
transaction data from calendar year 2022.
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B. Exception for Trades With a Manual Component
The MSRB noted concerns expressed by commenters regarding potential
difficulties in achieving dramatically shortened reporting timeframes
for at least some trades with a manual component and whether dealers
would have sufficient time to make the necessary changes to processes
and technology to achieve such shortened timeframes, and determined to
modify the pace of phasing-in the shortened reporting timeframe for
trades with a manual component to extend the period during which such
trades would be reportable by no later than 10 minutes after the Time
of Trade from one year to two years.\20\
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\20\ See Amendment No. 1 at 9.
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The MSRB explained that Amendment No. 1 would, in part, amend
proposed Supplementary Material .02(b) to provide in clause (ii) that a
trade with a manual component must be reported no later than 10 minutes
after the Time of Trade for the second and third calendar years (rather
than only the second year) from the effective date of the proposed rule
change and to provide in clause (iii) that a trade with a manual
component would become reportable no later than five minutes after the
Time of Trade after the conclusion of the third calendar year (rather
than the second calendar year) from the effective date of the proposed
rule change.\21\
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\21\ Id.
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The MSRB further explained that the proposed rule change sets out a
phased-in implementation of the exception for manual trades that would
provide for an ultimate five-minute timeframe for the reporting of such
trades. The MSRB also noted that no further reductions in such
timeframe, and no elimination of the manual trade exception, could be
possible without additional formal rulemaking by the MSRB that would be
filed with the Commission, and that any such change would be subject to
the required notice and comment process under Section 19 of the
Exchange Act.\22\
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\22\ 15 U.S.C. 78s. See Amendment No. 1 at 9.
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Furthermore, the MSRB stated that it would monitor the
implementation of the proposed rule change and, going forward, would
analyze trade data related to the operation of the proposed two new
exceptions to, among other things, determine whether the eventual five-
minute trade reporting timeframe that would become applicable after two
years continues to be feasible and appropriate in light of the
empirical data collected through the earlier phases of
implementation.\23\ The MSRB further explained that it would be
prepared to take action to provide appropriate guidance or undertake
appropriate modifications in connection with the phase-in of the manual
trade exception should circumstances warrant any such action,
including, but not limited to
[[Page 61518]]
potentially filing a proposed rule change to extend the implementation
period for the eventual five-minute timeframe for trades with a manual
component.\24\
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\23\ See Amendment No. 1 at 9.
\24\ Id.
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As noted by the MSRB, Amendment No. 1 would provide for a modified
phase-in of the shortened reporting timeframe for trades with a manual
component that the MSRB believes would foster a more orderly transition
to more rapid reporting of manual trades.\25\ Additionally, the MSRB
explained that Amendment No. 1 would allow the MSRB to undertake a more
meaningful and timely analysis of potential impacts of the intermediate
10-minute reporting stage in the phase-in process.\26\ Specifically,
the MSRB observed the extended timeframe would provide more time and
data for the MSRB to understand whether any adverse impacts have
developed as a result of the shortened reporting timeframe to 10
minutes so that the MSRB can determine whether it should undertake
additional rulemaking to modify implementation or phase-in of the final
step to a five-minute timeframe.\27\
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\25\ Id. at 10.
\26\ Id.
\27\ Id.
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III. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the filing as
amended by Amendment No. 1 is consistent with the Act. Comments may be
submitted by any of the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-MSRB-2024-01 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-2024-01. 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 website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all 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 website 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. We may redact in
part or withhold entirely from publication submitted material that is
obscene or subject to copyright protection.
All submissions should refer to File Number SR-MSRB-2024-01 and
should be submitted on or before August 21, 2024.
For the Commission, pursuant to delegated authority.\28\
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\28\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-16796 Filed 7-30-24; 8:45 am]
BILLING CODE 8011-01-P