MSRB NOTICE 2000-20 (JUNE 15, 2000)


Proposed Service Filed

The proposed service will offer a new Comprehensive Transaction Report, containing historical transaction information on all transactions in municipal securities reported to the Board by dealers under Board rule G-14.  The proposed Report will be available on a delayed basis, once a month, covering the previous month’s trading.

Questions about rule G-14 and the Comprehensive Transaction Report may be directed to Larry M. Lawrence, Policy and Technology Advisor.  Questions about subscriptions to the proposed service may be directed to Thomas A. Hutton, Director, Municipal Securities Information Library.

On June 15, 2000, the Board filed with the Securities and Exchange Commission a proposed change to rule G-14 that would institute a service to provide historical information on all transactions in municipal securities.[1]  The transaction information on the proposed Comprehensive Transaction Report would come from reports made to the Board by brokers, dealers and municipal securities dealers (“dealers”) under rule G-14, which currently requires dealers to report essentially all inter-dealer and customer transactions in municipal securities to the Board by midnight of trade date. 

The proposed Comprehensive Transaction Report would be available by a subscription service.  Each month, computer-readable compact disks, each containing information on all trades done during the previous month, would be provided to subscribers.  The subscription fee would be $2,000 per year.

Purpose of the Report

The Board has a long-standing policy to increase price transparency in the municipal securities market, with the ultimate goal of disseminating comprehensive and contemporaneous pricing data.  Since 1995, the Board has expanded the scope of the public transparency reports in several steps.  Each step has provided industry participants and the public successively more information about the market.[2]

Until now, all the Board’s reports have provided information about “frequently traded” municipal securities.  “Frequently traded” securities are those that were traded 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 preceding 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 the 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 made a commitment to review the use of these reports as experience was obtained and eventually to move to a more contemporaneous and comprehensive price transparency report.[3]

The Board believes that the next appropriate step in this process is to add, on a delayed basis, information on transactions in infrequently traded securities – those that were traded once, twice or three times on a given day.  The Board therefore is proposing to release data about each trade in a Comprehensive Transaction Report that would be made available approximately 30 days after month-end.  In proposing this Report, the Board is responding to informal requests from prospective subscribers to the current transparency reports.  These persons have noted they could compile more complete databases of price information, which would be helpful in evaluating current trades, if historical data on infrequently traded issues were available.  For example, comprehensive data might enable “matrix pricing” analysts to refine their evaluations of securities, and might help dealers to establish more accurate market prices for their current inventories.  The comprehensive data also would be useful to persons studying the market from a market research or an academic perspective.  Several prospective users of comprehensive data have mentioned that these data would be useful even if only available on a delayed basis rather than on T+1.

The proposed Report would be the fourth product offered by the Board to increase the amount of price transparency in the municipal securities market.  The three existing products all provide information on “frequently traded” issues – issues on which at least four transaction reports were received for a given trade date.  The existing products are produced and made available electronically by approximately 7:00 a.m. each business day and cover the previous day’s trading.  In contrast, the proposed Comprehensive Transaction Report would provide information on every municipal security transaction, including transactions in issues that are traded less than four times during a day.  The Comprehensive Transaction Report would be made available on a delayed (historical) basis, once a month, covering the previous month’s trading.

As experience is gained with reporting of all transactions on a delayed basis, the Board will evaluate how best to expand price reporting in subsequent steps, for example, by including more data 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.  As the Board previously has noted, its goal is ultimately to provide comprehensive and contemporaneous transaction reports to the market.[4]

Description of Proposed Report

The proposed Comprehensive Transaction Report would provide information on individual municipal securities transactions.  Data about each trade on the proposed Report would be similar to that on the current Daily Transaction Report.  For each trade, the proposed Report would show the trade date, the CUSIP number of the issue traded, a short issue description, the par value traded, the time of trade reported by the dealer, the price of the transaction, and the dealer-reported yield of the 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.

Impact of Proposed Report on Transparency

The proposed Comprehensive Transaction Report would represent a substantial increase in the number of trades on which information is made available.  An average of about 29,000 transactions per day would be included, which is more than three times as many as are included in the current T+1 daily reports.  The number of issues reported would increase from about 1,600 on a typical day to about 14,000.[5]

In addition to information on infrequently traded issues, the proposed Report also 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).  These would improve the accuracy of the reported information as well as make it more comprehensive.[6]

Description of Proposed Service

The proposed Service would make the Comprehensive Transaction Report available once a month to subscribers. The Board would send subscribers each month a compact disk containing all trades effected during the previous calendar month.  The Board plans to make sample disks with a single month’s data available to prospective users without charge, so that they make determine whether they wish to subscribe.  The Board is establishing a fee for an annual subscription to the Service of $2,000.

June 15, 2000

[1] File No. SR-MSRB-00-8.  Comments on the proposed amendment may be made to the Commission and should refer to this file number.

[2] The report summarizing prices for issues that are frequently traded on the inter-dealer market began operation 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.  The proposed rule change would not affect the summary and detailed public reports of frequently traded issues.

[3] See, e.g., “Board to Proceed with Pilot Program to Disseminate Inter-Dealer Transaction Information,” MSRB Reports, Vol. 14, No. 1 (January 1994). 

[4] See Securities Exchange Act Release No. 34-42090 (November 2, 1999), 64 FR 60865.

[5] These trade volume statistics are based on February 2000 market activity.

[6] To enable the Board to compile a comprehensive trades database for enforcement purposes, dealers report certain data after trade date.  These data are, of course, 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.  All together, corrected and late trades in frequently traded issues amount to about six percent of the number of trades in the current T+1 daily reports.