[Federal Register Volume 65, Number 201 (Tuesday, October 17, 2000)]
[Notices]
[Pages 61367-61369]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-26545]


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SECURITIES AND EXCHANGE COMMISSION

(Release No. 34-43426; File No. SR-MSRB-00-08)


Self-Regulatory (Organizations; Municipal Securities Rulemaking 
Board; Order Approving Proposed Rule Change Relating to Reports of 
Sales and Purchases, Pursuant to Rule G-14

October 10, 2000.

I. Introduction

    On June 15, 2000, the Municipal Securities Rulemaking Board 
(``MSRB'' or ``Board'') submitted to the Securities and Exchange 
Commission (``SEC'' or ``Commission'') pursuant to Section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change relating to reports of sales and 
purchases, pursuant to MSRB Rule G-14. The proposed rule change was 
published for comment in the Federal Register on July 27, 2000.\3\ The 
Commission received one comment letter on the proposal.\4\ This order 
approves the Board's proposal.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 43060 (July 23, 
2000), 65 FR 46188.
    \4\ See letter from Lynette K. Hotchkiss, Vice President and 
Associate General Counsel, The Bond Market Association, to Jonathan 
G. Katz, Secretary, SEC, dated August 11, 2000.
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II. Description of the Proposal

a. Introduction

    According to the Board, one of its long-standing policies is to 
increase price transparency in the municipal

[[Page 61368]]

securities market. Since 1995, the Board has expanded the scope of 
public transparency in several steps.\5\ Each step has provided 
industry participants and the public successively more information 
about the market.
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    \5\ The Board began distributing a report summarizing prices for 
issues that are frequently traded on the inter-dealer market in 
1995; in 1998, dealer-customer prices were added in a second summary 
report; and in January 2000, a report with details of trades in 
frequently traded issues was added. See Securities Exchange Act 
Release No. 42241 (December 16, 1999), 64 FR 72123 (December 23, 
1999). The proposed rule change would not affect the summary and 
detailed public reports of frequently traded issues.
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    The Board's reports currently provide information about 
``frequently traded'' municipal securities. ``Frequently traded'' 
municipal securities are those municipal securities that trade four or 
more times on a given business day. The existing reports are produced 
daily on a T + 1 basis, i.e., with information for trades effected 
during the proceeding day.
    In designing the first T + 1 transparency report and subsequent 
enhanced versions, the Board adopted the threshold of four trades a day 
because of its concern that an isolated transaction may not necessarily 
provide a reliable indicator of ``market price''and might be misleading 
to an observer not familiar with the market. At the same time, the 
Board committed to review the use of these reports and eventually to 
move to a more contemporaneous and comprehensive price transparency 
report.\6\
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    \6\ See, e.g., ``Board to Proceed with Pilot Program to 
Disseminate Inter-Dealer Transaction Information,'' MSRB Reports, 
Vol. 14, No. 1 (January 1994). In its approval order for the Inter-
Dealer Daily Report, the SEC noted that the Board, in proceeding to 
subsequent levels of transparency, ``should continue to work toward 
publicly disseminating the maximum level of useful information to 
the public while ensuring that the information and manner in which 
it is presented is not misleading.'' See Securities Exchange Act 
Release No. 34955 (November 9, 1994), 59 FR 59810 (November 18, 
1994).
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b. Proposed Report

    The Board is now proposing to make publicly available a 
Comprehensive Transaction Report that would include information on all 
individual municipal securities transactions. For each trade, the 
proposed Report would show the trade date, the CUSIP number of the 
issue traded, a short description of the issue, the par value traded, 
the time of the trade report by the dealer, the price of the 
transaction, and the reported yield of transaction, if any. Each 
transaction would be categorized as a sale by a dealer to a customer, a 
purchase from a customer, or an inter-dealer trade.
    In addition to information on infrequently traded issues, the 
proposed Report would provide information on two other types of trades 
not in the current Daily Transaction Reports: trades reported late 
(after trade date), and corrected trades (trades reported incorrectly 
on trade date that subsequently are corrected by the dealer.\7\
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    \7\ To enable the Board to compile a comprehensive trade 
database for enforcement purposes, dealers report certain data after 
trade date. These data are not available to the Board in time to be 
included in the T + 1 daily reports. The post-T data also include 
``corrections'' to trades that were initially reported inaccurately 
with regard to price, par, etc. Corrected and late trades in 
frequently traded issues amount to about 6 percent of the number of 
trades included in the current T + 1 daily reports.
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    The proposed Comprehensive Transaction Report would be made 
available once a month to subscribers. The Board would send subscribers 
each month a compact disk containing all trades effected during the 
previous calender month. The Board plans to make sample disks with a 
single month's data available to prospective users without charge, so 
that they may determine whether they wish to subscribe.
    The Board is proposing to establish a fee of $2,000 for an annual 
subscription. According to the Board, the proposed fee is structured to 
defray the Board's cost for production of 12 monthly data sets, 
transcription to compact disks, mailing, and subscription maintenance.

III. Summary of Comment Letters

    The Commission received one comment letter regarding the proposed 
rule change.\8\ The following summarizes the issues raised in the 
comment letter and the MSRB's response.\9\
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    \8\ See supra note 4.
    \9\ See letter from Larry Lawrence, Policy and Technical 
Advisor, MSRB, to Kelly Riley, Division of Market Regulation, SEC, 
dated September 1, 2000.
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    The commenter generally supported the Board's goal of providing 
comprehensive and contemporaneous transaction reports but provided 
several suggestions that it believed would increase the utility of the 
proposed Comprehensive Transaction Report. First, the commenter 
suggested that the Board release transaction data for trades that occur 
30 days prior on a daily basis rather than a cumulative monthly basis 
at the end of the following month. The commenter noted that the 
proposed dissemination system could result in data that was 60 days old 
by the time of dissemination, limiting the usefulness of the data. 
Second, the commenter suggested that the Board make the data available 
over the Internet on secure, password protected sites, rather that 
solely in compact disk format. The commenter believes that an Internet 
delivery system would be more easily downloaded and used by subscribers 
and would reduce the cost of the service. Finally, the commenter sought 
confirmation that the annual subscription fee charged for the service 
was directly related to the actual cost of disseminating the data to 
ensure that the service would not become a profit center for the Board.
    In response, the Board noted that releasing data on a monthly basis 
is currently the most cost-effective and technologically efficient 
method. The Board recognizes that some data will be over a month old at 
the time of its release but noted that it is evaluating the means to 
release the data more contemporaneously in the future. With respect to 
the commenter's suggestion that the Board make the historical 
transaction data available via the Internet, the Board noted that to do 
so would require an extremely large file that would take a 
prohibitively long time to download. The Board stated that providing 
the historical data via the Internet also would create technical and 
technical-support issues for the Board. The Board noted, however, that 
it would continue to consider alternative delivery methods in the 
future.
    Finally, in response to the commenter's request for confirmation 
regarding the subscription fees proposed to be charged for the 
historical data, the Board stated that the subscription fees will not 
be so high as to create a profit center for the Board, nor so low that 
the service would require a subsidy from dealer assessments. The Board 
reiterated that it is attempting to defray the approximate cost of 
disseminating the data and of establishing and maintaining subscriber 
accounts.

IV. Discussion

    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 Board.\10\ In particular, the Commission 
believes the proposed rule change is consistent with Section 
15B(b)(2)(C) of the Act,\11\ which requires, among other things, that 
the rules of the Board be designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation with persons engaged in

[[Page 61369]]

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.
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    \10\ In approving this rule, the Commission has considered the 
proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \11\ 15 U.S.C. 78o-4(b)(2)(C).
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    The Commission finds that the proposed Comprehensive Transaction 
Report is consistent with the Act because it will enhance transparency 
in the municipal securities market. The proposed Report will provide 
municipal securities participants with more transaction information 
about issues currently being traded. In particular, the MSRB represents 
that participants will now have access to three times as many 
transactions as are included in the current T + 1 daily reports. 
According to the MSRB, on average, 29,000 transactions would be 
reported per day. Also, the MSRB represents that the number of issues 
reported would increase from about 1,600 on a typical day to about 
14,000.\12\ Furthermore, the proposed Report expands the current T + 1 
reports by also including trades reported late and corrected trades. 
Thus, this detailed Report will allow municipal securities market 
participants to monitor and analyze individual trades in infrequently 
traded securities, which should better assist them in making informed 
investment decisions.
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    \12\ These trade volume statistics are based on February 2000 
market activity.
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    The proposed Report should also enhance the price discovery process 
by providing a more complete picture of the municipal securities 
market. The proposed Report will contain detailed price information 
regarding frequently traded issues as well as detailed price 
information regarding infrequently traded municipal securities, i.e., 
those traded once, twice, or three times in a given day.
    The Commission commends the MSRB's efforts to increase municipal 
market transparency by looking for means to update its reporting 
programs and systems. The Commission, however, believes that the MSRB 
should continue to work towards including more information on 
infrequently traded issues on a T + 1 basis, by shortening the delay 
for publication of the Comprehensive Transaction Report, or by other 
collection and dissemination methods. The Commission supports the 
MSRB's goal to ultimately provide comprehensive and contemporaneous 
transaction reports to the market.
    The Commission is satisfied with the Board's response to the 
comment letter. While the comment letter provided valid and helpful 
suggestions, the Board stated that it could not undertake the changes 
relating to the delivery method and the timing of delivery of the 
historical data at this time due to technology and cost constraints. 
The Board did commit, however, to consider the suggestions in the 
future once the service becomes operative and the Board has more 
experience with the needs of subscribers. The Commission believes that 
it would not be in the public interest to postpone the dissemination of 
the historical data as proposed until the delivery method and time of 
delivery could be modified to satisfy the commenter's suggestions. 
Finally, the Commission believes that the Board's statement that the 
subscription fees will neither generate profits for the Board nor 
create the need for dealers to subsidize its operations is consistent 
with the requirements of Section 15B(b)(2)(C) of the Act.\13\
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    \13\ 15 U.S.C. o-4(b)(2)(C).
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    In conclusion, the Commission finds that the proposed rule change 
is consistent with the Act because it provides municipal securities 
market participants with more detailed market data upon which they will 
be able to make more informed investment decisions. Thus, the proposed 
rule change should enhance the transparency of the municipal securities 
market.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\14\ that the proposed rule change (SR-MSRB-00-08) is hereby 
approved.
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    \14\ 15 U.S.C. 78s(b)(2).

    By the Commission, for the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-26545 Filed 10-16-00; 8:45 am]
BILLING CODE 8010-01-M