[Federal Register Volume 61, Number 2 (Wednesday, January 3, 1996)]
[Notices]
[Pages 202-204]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-00040]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 36640; File No. SR-MSRB-94-14]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Order Approving a Proposed Rule Change Relating to the 
Settlement Dates for ``When, As and If Issued'' Transactions, the 
Confirmation of Inter-Dealer Transactions, and Providing New Issue 
Information to Registered Securities Clearing Agencies

December 27, 1995.
    On August 15, 1995, the Municipal Securities Rulemaking Board 
(``MSRB'') filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change (File No. SR-MSRB-95-14) 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'').\1\ Notice of the proposal was published in the Federal 
Register on October 16, 1995.\2\ No comment letters were received. For 
the reasons discussed below, the Commission is granting approval of the 
proposed rule change.

    \1\ 15 U.S.C. Sec. 78s(b)(1) (1988).
    \2\ Securities Exchange Act Release No. 36352 (October 6, 1995), 
60 FR 53652 [File No. SR-MSRB-95-14] (notice of filing of proposed 
rule change).
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I. Description of the Proposal

    On February 28, 1995, the Commission approved amendments to MSRB 
rules G-12(b) and G-15(b) redefining regular-way settlement as three 
rather than five business days after the trade date (``T+3 
settlement'').\3\ Since that time, the MSRB has been reviewing its 
rules to determine other appropriate changes to accommodate T+3 
settlement within the municipal securities market.

    \3\ Securities Exchange Act Release No. 35427 (February 28, 
1995), 60 FR 12798 [File No. SR-MSRB-94-10] (order approving 
proposed rule change).
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    Consequently, the MSRB is amending rules G-12 and G-34 to modify 
the requirements for setting settlement dates for ``when, as and if 
issued'' (collectively ``when-issued'') transactions and for the 
confirmation of inter-dealer transactions. The MSRB also is modifying 
and reorganizing the requirements for providing new issue information 
to registered securities clearing agencies. Finally, the MSRB is making 
technical changes to rule language to clarify the different processing 
requirements for transactions that are eligible for automated 
comparison through the facilities of a registered clearing agency as 
opposed to those that are not eligible. The MSRB designed these 
amendments to advance T+3 settlement in the municipal securities 
market, to generally facilitate automated clearance and settlement of 
municipal securities, and to support the MSRB's Transaction Reporting 
Program.\4\

    \4\ MSRB rule G-14 sets forth the Transaction Reporting 
Procedures for inter-dealer transactions.
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    MSRB rule G-12(f) requires all inter-dealer transactions eligible 
for automated comparison to be compared in an automated comparison 
system operated by a registered clearing agency. Revised MSRB rule G-
12(b) requires that the settlement date for when-issued transactions 
eligible for automated comparison shall not be earlier than two 
business days after notification of the initial settlement date for the 
issue is provided by the managing underwriter to the registered 
clearing agency.\5\ This change reflects current capabilities of the 
automated comparison system to process when-issued transactions upon 
two days notice of the settlement date from the underwriter.

    \5\ Former MSRB rule G-12(b)(ii)(c) required the underwriter to 
provide the initial settlement date for a new issue to the 
registered clearing agency offering automated comparison services as 
soon as the initial settlement date was known or immediately upon a 
change. This requirement continues in effect by cross-reference in 
revised rule G-12(b)(2)(C) to new rule G-34(a)(ii)(D)(2). Generally, 
the automated comparison system requires two days advance notice of 
the initial settlement date of an issue from the underwriter to 
process when-issued transactions for the underwriter and all other 
dealers.
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    Prior to the current amendment, MSRB rule G-12(b) required that the 
settlement date of a when-issued transaction for the rare inter-dealer 
transactions not eligible for automated comparison could not be earlier 
than the fifth business day following the date the physical 
confirmation indicating the final settlement date was sent (six days 
for syndicate transactions).\6\ Under the revised rule, the settlement 
date for such ineligible when-issued transactions, including syndicate 
transactions, shall not be earlier than the third business day 
following the date that the confirmation indicating the final 
settlement date is sent.

    \6\ Nearly all new issue municipal securities are eligible for 
automated comparison with the exception of those that do not meet 
the CUSIP numbering eligibility requirements.
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    Furthermore, the MSRB amended rule G-12(c) concerning the sending 
of confirmations for inter-dealer transactions not eligible for 
automated comparison. For such ineligible when-issued transactions, the 
MSRB is reducing the time period for sending (i) the initial 
confirmation from two business days to one business day after trade 
date and (ii) the final confirmation from five business days to three 
business days prior to final settlement. For regular-way transactions 
ineligible for automated comparison, the MSRB is changing the 
requirement for sending a confirmation from one business day after 
trade date to trade date.
    In addition, the MSRB is amending rule G-34 to require underwriters 
to submit interest rate and final maturity information about new issues 
to the registered clearing agency offering comparison services as soon 
as such information is known and to reorganize the existing 
requirements of the rule. The MSRB is aware of instances in which 
incomplete or inaccurate security descriptions for new issue municipal 
securities are available in the initial days of trading in the issue. 
The MSRB's Transaction Reporting Program and participants in the 
municipal securities market rely on accurate and complete security 
descriptions in the automated comparison system. The new requirement is 
designed to ensure that the registered securities clearing agencies 
have the information necessary to provide accurate descriptions and to 
calculate accurately final money amounts. Because the MSRB's 
Transaction Reporting Program is linked to the National Securities 
Clearing Corporation's (``NSCC'') automated comparison system,\7\ the 
proposed amendment also will facilitate accurate prices and security 
descriptions in the NSCC system.

    \7\ As set forth in detail in MSRB rule G-14, brokers, dealers, 
or municipal securities dealers must submit or cause the submission 
of specified transaction information for any transaction eligible to 
be compared in NSCC's automated system directly to NSCC or to 
another registered clearing agency linked with NSCC for the purpose 
of automated comparison.
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    The requirement that an underwriter provide the registered clearing 
agency with notification of the settlement date as soon as it is known 
is being moved from rule G-12(b) to rule G-34. The placement of this 
requirement within rule G-34 is part of the MSRB's plan to include 
basic new issue requirements for underwriters within one rule.\8\ 
Finally, the MSRB is making technical changes in rule language to 
clarify the different processing requirements for transactions that are 
eligible for automated comparison as opposed to 

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those transactions that are ineligible for automated comparison.

    \8\ As amended, Rule G-34 will require underwriters for new 
issues of municipal securities to carry out certain functions. 
Generally, underwriters must apply for depository eligibility, 
attain CUSIP numbers, communicate CUSIP numbers and the initial 
trade date to syndicate and selling group members, and, for any new 
issue eligible for automated comparison, to provide the clearing 
agency responsible for comparing when, as and if issued transactions 
with final interest rate and maturity information and the settlement 
date as soon as they are known.
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II. Discussion

    Section 15B(b)(2)(C) \9\ of the Act authorizes the MSRB to adopt 
rules to foster cooperative and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitating transactions in municipal securities. The MSRB also 
has the authority to adopt rules 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. The Commission 
believes the MSRB's proposed rule change is consistent with the 
requirements of Section 15B(b)(2)(C) because it will require earlier 
confirmation of certain inter-dealer when-issued and regular way 
transactions and require a shorter settlement cycle for certain inter-
dealer when-issued transactions. Furthermore, the amendments will 
conform the MSRB's rules regarding the settlement dates for when-issued 
transactions eligible for automated comparison at a registered clearing 
agency with the clearing agency's processing capabilities for these 
transactions. Finally, the amendments require underwriters to provide 
registered clearing agencies with interest rate and final maturity 
information about new issues as soon as such information is known. This 
should help ensure that clearing agencies have the information 
necessary to calculate accurately final money amounts and to provide 
complete and accurate descriptions of new issues in the automated 
comparison system and should promote accurate pricing and securities 
descriptions in the MSRB Transaction Reporting System which is linked 
to the automated comparison system.

    \9\ 15 U.S.C. Sec. 78o-4(b)(2)(C).
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    Collectively, the amendments should facilitate automated comparison 
of transactions in municipal securities and foster cooperation and 
coordination with persons involved in the clearance and settlement of 
municipal securities by making MSRB rules and clearing agency 
processing capabilities consistent thus enabling the municipal 
securities market to maximize the benefits and efficiencies from the 
automated comparison system and by helping to ensure more timely 
confirmation of certain municipal transactions thereby increasing the 
likelihood that such transactions will settle within the shorter 
settlement cycle established in this proposal. Finally, the proposal 
should remove impediments to and perfect the mechanisms of a free and 
open market in municipal securities by requiring more efficient and 
accurate reporting of transaction information by underwriters to 
clearing agencies and thus to the MSRB Transaction Reporting System.

III. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act and 
in particular Section 15B of the Act and the rules and regulations 
thereunder.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-MSRB-95-14) be, and hereby 
is, approved.
    For the Commission by the Division of Market Regulation, pursuant 
to delegated authority.\10\

    \10\ 17 CFR 200.30-3(a)(12) (1994).
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Jonathan G. Katz,
Secretary.
[FR Doc. 96-00040 Filed 1-2-96; 8:45 am]
BILLING CODE 8010-01-M