This section contains interpretive guidance issued by the MSRB that establishes a regulatory standard and clarifies the application of the principles of an MSRB rule and may provide more information about the obligations and prohibited conduct under the rule. Learn about the differences between interpretive guidance and other resources the MSRB provides.
INTERPRETIVE NOTICE ON RULE G33 ON CALCULATIONS FOR SECURITIES WITH PERIODIC INTEREST PAYMENTS

February 23, 2016
Rule G33 generally requires that brokers, dealers, and municipal securities dealers (“dealers”) effecting transactions in municipal securities compute yields and dollar prices in accordance with the formulas prescribed.
Prior to an amendment effective February 23, 2016, Rule G33(b)(i)(B)(2) and, by reference, (b)(ii)(B)(2), provided that, for interestbearing municipal securities with periodic interest payments and more than six months to redemption, dealers compute the dollar price or yield using a formula that accounted for the present value of all future coupon payments and a semiannual payment of interest. The formula in Rule G33(b)(i)(B)(2) now provides a more precise pricing calculation when computing yields and dollar prices on securities with periodic interest payments and more than one coupon payment to redemption. Under the amended pricing formula, rather than presuming a semiannual interest payment, the formula requires factoring in the actual interest payment frequency of the security (e.g., monthly, quarterly or annually).
The compliance date for Rule G33, as amended, is July 18, 2016.
Prior to July 18, 2016, a dealer will be deemed to be in compliance with Rules G33(b)(i)(B)(2) and G33(b)(ii)(B)(2) if calculating dollar price or yield for interestbearing municipal securities with periodic interest payments and more than six months to redemption using the actual interest payment frequency rather than assuming a semiannual payment. Beginning July 18, 2016, the compliance date for Rule G33, as amended, all dealers will be required to factor in the actual interest payment frequency in calculating dollar price and yield for such securities.
NOTICE OF INTERPRETATION CONCERNING PRICE CALCULATION FOR SECURITIES WITH AN INITIAL NONINTEREST PAYING PERIOD: RULE G33

August 25, 1986
The Board has adopted a method for calculating the price of securities for which there are no scheduled interest payments for an initial period, generally for several years, after which periodic interest payments are scheduled. These securities, known by such names as "Growth and Income Securities," and "Capital Appreciation/Future Income Securities," function essentially as "zero coupon" securities for a period of time after issuance, accruing interest which is payable only upon redemption. On a certain date after issuance ("the interest commencement date"), the securities begin to accrue interest for semiannual payment.
In March 1986, the Board published for comment a proposed method of calculating price from yield for such securities.[1] The Board received five comments on the proposed method, four expressing support for the method and one expressing no opinion. The commentators generally noted that the proposed method appeared to be accurate and could be used on bond calculators commonly available in the industry. The Board has adopted the proposed method of calculation, set forth below, as an interpretation of rule G33 on calculations.
The general formula for calculating the price of securities with periodic interest payments is contained in rule G33(b)(i)(B)(2). For securities with periodic payments, but with an initial noninterest paying period, this formula also is used.[2] For settlement dates occurring prior to the interest commencement date the price is computed by means of the following twostep process. First, a hypothetical price of the securities at the interest commencement date is calculated using the interest commencement date as the hypothetical settlement date,[3] the interest rate ("R" in the formula) for the securities during the interest payment period and the yield ("Y" in the formula) at which the securities are sold. This hypothetical price is computed to not less than six decimal places, and then is used as the redemption value ("RV" in the formula) in a second calculation using the G33(b)(i)(B)(2) formula, with the interest commencement date as the redemption date, the actual settlement date for the transaction as the settlement date, and a value of zero for R, the interest rate. The resultant price, using the formula in G33(b)(i)(B)(2), is the correct price of the securities.[4]
The price of such securities for settlement dates occurring after the interest commencement date, of course, should be calculated as for any other securities with periodic interest payments.[5]
[1] MSRB Reports, Vol. 6, No. 2 (March 1986) at 13.
[2] This interpretation is not meant to apply to securities which have a long first coupon period, but which otherwise are periodic interest paying securities.
[3] For settlement dates less than 6 months to the hypothetical redemption date, the formula in rule G33(b)(ii)(B)(1) should be used in lieu of the formula in rule G33(b)(ii)(B)(2).
[4] Rule G12(c)(v)(I) and G15(a)(i)(I) [currently codified at rule G15(a)(i)(A)(5)(c)] require that securities be priced to the lowest of price to call, pricetopar option, or price to maturity. Thus, the redemption date used for this calculation method should be the date of an "in whole" refunding call if this would result in a lower dollar price than a computation to maturity.
[5] The formula in G33(b)(i)(B)(1) should be used for calculations in which settlement date is 6 months or less to redemption date.
NOTICE ON RECENTLY EFFECTIVE CHANGES IN CALCULATIONS RULE

May 31, 1984
The Municipal Securities Rulemaking Board has recently received a number of inquiries from members of the municipal securities industry and others concerning certain of the provisions of rule G33 on calculations. In particular, such persons have inquired concerning the acceptability under the rule of the practice of interpolation as a method of determining dollar price from yield. Such persons have also asked whether the rule permits a dealer effecting a transaction at a yield price equal to the interest rate on the securities to presume that the dollar price on the transaction is "100."
The Board wishes to remind members of the industry that both of these practices are no longer permissible. Board rule G33 generally requires that yields and dollar prices on transactions effected by municipal securities brokers and dealers be computed in accordance with the formulas prescribed in the rule directly to the settlement date of the transaction. Subparagraph (b)(i)(C) of the rule permitted, until January 1, 1984, the use of the dollar price "100" as the presumed result on transactions in securities with a redemption value of par effected at a yield price equal to the interest rate on the securities. Subparagraph (b)(i)(D) of the rule permitted, until January 1, 1984, the use of interpolation as a method of deriving a dollar price. Since the effectiveness of both of these provisions lapsed as of January 1, 1984, therefore, these practices are no longer in compliance with the requirements of the rule; dollar prices on all transactions effected on a yield basis (including transactions effected on a yield basis equal to the interest rate) should therefore be computed directly to the settlement date of the transaction.
The Board notes that the rule continues to permit a municipal securities broker or dealer to effect a transaction in dollar price terms. Therefore, a dealer wishing to offer or sell a security at par may continue to effect the transaction on a direct dollar price basis at a price of "100."
Use of formulas: annual interest securities

June 6, 1983
Use of formulas: annual interest securities. I am writing in response to your letter of June 1, 1983 regarding the appropriate method of calculating yield and dollar price on periodicinterest municipal securities which pay interest on an annual, rather than the more customary semiannual, basis. You note in your letter that Board rule G33 requires the use for purposes of computations of yield and dollar price on such securities of a formula which presumes semiannual payment of interest (i.e., that formula set forth in subparagraph (b)(i)(B)(2) of the rule). You suggest that the rule should be amended to require the use of a formula that recognizes the annual interest payment cycle on the securities.
As I indicated to you in our previous telephone conversation on this subject, the industry has traditionally disregarded the unusual nature of the interest payment cycle on these securities when computing yields and dollar prices on them, and has followed the practice of using the standard formula for computing yield and dollar price on a security paying interest on a semiannual basis for these purposes. As a result of this traditional practice, all of the calculators presently available for use by industry members when computing yields and dollar prices have been designed in accordance with the assumption that all periodicinterest municipal securities pay interest on a semiannual basis; these calculator models cannot be used to compute yields and dollar prices on such securities on any other basis. Therefore, the adoption of a requirement that yields and dollar prices on securities which pay interest on an annual basis be computed by means of a formula which recognizes the annual nature of the interest payment cycle, such as you suggest, would render all of the existing calculator models obsolete, and require that all industry members incur the cost of purchasing new calculator equipment capable of performing such computations (equipment which does not, to my knowledge, exist as of yet).
It is because of the substantial compliance expense that would have been imposed on the industry that the Board declined to adopt a requirement such as you suggest at the time rule G33 was promulgated, even though it recognized that the requirement that was adopted mandated the use of a formula that would produce slightly less accurate results. MSRB interpretation of June 6, 1983.
Day counting: day counts on notes

December 9, 1982
Day counting: day counts on notes. As I indicated in my letter of October 4, your September 27 letter regarding the inclusion on a customer confirmation of information with respect to the day count method used on a transaction was referred to the Board for its consideration at the December meeting. In your letter you noted that Board rule G33 on calculations requires that
[c]omputations under the requirements of [the] rule shall be made on the basis of a thirtyday month and a threehundredsixtyday year, or, in the case of computations on securities paying interest solely at redemption, on the day count basis selected by the issuer of the securities.
You indicated that your bank has recently experienced problems with transactions in municipal notes ("securities paying interest solely at redemption") on which the issuer has selected a day count basis other than the traditional "30/360" basis, with the problems resulting from one party to the transaction using an incorrect day count method. You suggested that this type of problem could be partially alleviated by requiring that a municipal securities dealer selling a security on which an unusual day count method is used specify the day count method on the confirmation of the transaction.
The Board shares your concern that a failure to identify the day count method used on a particular security may subsequently cause problems in completing a transaction. Therefore, the Board believes that the parties to a transaction should exchange information at the time of trade concerning any unusual day count method used on the securities involved in the transaction. Since the party selling the securities is more likely to be aware of the unusual day count, it would be desirable that sellers take steps to ensure that they advise the contraparties on transactions of the method to be used.
The Board does not, however, believe that it would be appropriate to require that this information be stated on the confirmation. The Board reached this determination based on its perception that the space available on the confirmation for the details of the securities description is quite limited and its belief that information regarding the day count method may not be sufficiently material to warrant its inclusion in the securities description. MSRB interpretation of December 9, 1982.
Day counting: securities dated on the 15th of a month

June 2, 1982
Day counting: securities dated on the 15th of a month. I am writing in response to your letter of May 26, 1982 in which you inquire as to the correct day count for calculation purposes on a security which is dated on the 15th of a month and pays interest on the first of a following month. In your letter you pose the example of a security dated on June 15, 1982 and paying interest on July 1, 1982, and you inquire whether the July 1, 1982 coupon on such security should have a value of 15 or 16 days of accrued interest.
As you know, Board rule G33 provides the following formula for use on computations of day counts on securities calculated on a "30/360" day basis:
Number of days = (Y2  Y1) 360 + (M2  M1) 30 + (D2  D1)
In this formula, the variables "Y1," "M1," and "D1" are defined as the year, month, and day, respectively, of the date on which the computation period begins (June 15, 1982, in your example), and "Y2," "M2," and "D2" as the year, month, and day of the date on which the computation period ends (July 1, 1982, in your example). In the situation you present, therefore, the number of days in the period would correctly be computed as follows:
Number of days = (1982  1982) 360 + (7  6) 30 + (1  15)
or
Number of days = (0) 360 + (1) 30 + ( 14)
or
Number of days = 0 + 30 + (  14)
or
Number of days = 16 days
If figured correctly, therefore, the coupon for such a period should have a value of 16 days of accrued interest. If the coupon is for a longer period of time, this particular portion of that longer period would still correctly be counted as 16 days (e.g., the day count on a coupon for the period June 15 to September 1 would correctly be figured as 76 days, consisting of 16 days for the period June 15 to July 1, and 30 days each for the months of July and August).
The error of computing the day count for such a period as 15 days apparently arises from an assumption that, on a security dated on the 15th of a month, accrued interest is owed only for the "second half" of that month. In reality, of course, the 15th of a month is not the first day of the "second half" of that month, but rather is the last day of the "first half" of that month (since a 30day month consists of two 15day halfmonths, the first half being from the 1st to the 15th, and the second half being from the 16th to the 30th). Again, it can clearly be seen that the correct day count for such a period is 16 days. MSRB interpretation of June 2, 1982.