MSRB NOTICE 2004-13 (JUNE 1, 2004)

REAL-TIME TRANSACTION REPORTING: NOTICE OF FILING OF PROPOSED RULE CHANGE TO RULES G-14 AND G-12(F)

On June 1, 2004, the Municipal Securities Rulemaking Board (“the Board” or “MSRB”) filed with the Securities and Exchange Commission (“SEC”) a proposed rule change regarding Rule G-14, on transaction reporting, Rule G-12(f),on automated comparison of inter-dealer transactions, and the implementation of a facility for real-time transaction reporting and price dissemination (the “Real-Time Transaction Reporting System” or “RTRS”).[1] The purpose of the proposed rule change is to increase price transparency in the municipal securities market and to enhance the surveillance database and audit trail used by enforcement agencies. The proposed change to Rule G-14 would require brokers, dealers and municipal securities dealers (“dealers”) to report transactions in municipal securities within 15 minutes of the time of trade execution instead of by midnight on trade date, as is currently required. The proposed change to Rule G-12(f) would require dealers to submit inter-dealer transactions to the central comparison system within the same time frame.[2]

The proposed rule change is planned to become effective in January 2005, at which time MSRB would begin to disseminate transaction data electronically in real time. MSRB expects to make a second filing on the RTRS facility in the future, stating the date of effectiveness, describing the technical means of data dissemination, and proposing fees to be charged for RTRS data products.

The MSRB 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.[3] The MSRB implemented a limited transaction reporting facility for the municipal securities market in 1995 and has since increased price transparency in the municipal securities market in a series of measured steps. The proposed rule change represents the final stage in the evolution of price transparency in the municipal securities market, which is a system for comprehensive, real-time price dissemination.

This notice is a summary of the proposed rule change. Full details may be found in the SEC filing.

COMMENTS RECEIVED ON REAL-TIME REPORTING

The MSRB on several occasions has published notices describing RTRS and the changes planned for Rule G-14 and Rule G-12(f).[4] In a June 2003 notice, comments on the planned changes were solicited and in response 20 comment letters were received. The MSRB carefully considered each of the comments. Following is a summary of comments on the dissemination plan for real-time trade data, and the MSRB’s determinations.[5]

Comments on Phasing In of Real-Time Price Dissemination

Commentators are divided on whether transparency is generally beneficial to the market and on whether real-time transparency would harm the secondary market for certain infrequently traded issues. Five commentators support the role of the MSRB in moving toward real-time price transparency and believe that long-term benefits will accrue to market participants. Other commentators believe there is little increased benefit to greater transparency; for example, two commentators state concern about negative liquidity effects, investor impacts and the possibility that dealers might exit the market if their spreads are narrowed. In addition, some commentators generally support transparency but express concern about its effect on liquidity in certain market segments. One commentator describes its concern about liquidity of issues that are “concentrated in the hands of a few dealers or buy-side institutions” which are traded “when a bond has been outstanding for a considerable period of time or has a low or uncertain credit standing.” The opposite view is expressed by a commentator that believes all transactions should be subject to real-time price transparency and specifically opposes the exclusion of inactively traded securities. Several commentators suggest that liquidity concerns might be eased by a phased implementation, in which some issues are held back from real-time dissemination in the initial phase.

In considering these comments, the MSRB weighed the potential for liquidity problems against the potential for transparency benefits. The MSRB believes that any liquidity problems that may occur are likely to be temporary and will resolve over time as market participants make adjustments in response to the more transparent environment. The MSRB also believes that the potential transparency benefits, such as more accurate pricing, lower transaction costs for investors and increased investor confidence, outweigh the potential for short-term liquidity problems. On this basis, the MSRB has determined that, with the exception of issues that are not required to be reported by dealers within 15 minutes of trade execution for operational reasons, all transactions should be disseminated in real time as they are executed.

Comments on Information to be Disseminated

Display of par value. Two commentators suggest that trade reports disseminated in real-time should disclose the exact par value of smaller trades but that for larger trades (e.g., trades with par value over $1 million or over $5 million) the reports should indicate only that the trade size was “1MM+” or “5MM+.” They suggest that the exact par should be disseminated one week after trade date, as is done today.[6]

The MSRB understands that the par value of a trade over $1 million is potentially valuable information in analyzing trade data. However, the MSRB also understands that the par value of a transaction tends to allow identification of trading parties, and that this information could be used to the disadvantage of the parties so identified. Because the purpose of real-time transparency is to provide price information rather than to identify parties to transactions in real-time, the MSRB at this time is proposing to retain the policy of displaying the exact par value for trades of $1 million or less and displaying “1MM+” for larger trades. The same values will be displayed on reports published each morning covering the previous day’s trades (“T+1 reports”). As is done currently, exact par values of all trades will be disseminated five business days after trade date. The MSRB will review this policy as it gains experience with real-time transparency.

Broker’s brokers’ transactions. Commentators recommend that trades by broker’s brokers should be designated as such when they are disseminated in transparency reports.[7] Broker’s broker trades occur in matched pairs that, in market terms, many observers view as representing one movement of securities between two dealers. The MSRB has determined to disseminate broker’s broker trades along with an indicator that they were effected by a broker’s broker, and to indicate whether the broker’s broker bought or sold the security. The MSRB believes it will be helpful to RTRS data users if broker’s broker trades are identified as such in trade reports, to avoid the possibility of “double counting” trades in which a broker’s broker effects matched purchase and sale transactions.

Indicators of agency and riskless principal transactions. As with broker’s broker trades, users of current transaction data sometimes have been confused over reports of inter-dealer agency transactions by dealers. In the current system, and as planned in RTRS, the dealer reports both sides of an inter-dealer agency transaction and these trade reports are each disseminated, even though many observers consider them to constitute one trade. In response to the June 2003 Notice, one commentator suggested that agency and riskless principal indicators be disseminated in trade records to allow data users to avoid the double counting issue inherent in these situations.

Although new capabilities in RTRS would allow the system to identify agency trades on disseminated reports of inter-dealer trades, RTRS will have no capability to identify riskless principal trades. Indicating agency trades without similarly marking riskless principal transactions would introduce inconsistent treatment of two types of transactions that most observers consider to be equivalent in economic terms. Therefore, RTRS will not disseminate agency or riskless principal indicators in its transparency reports.

PROPOSED AMENDMENTS TO RULES G-12(f) AND G-14

Under the proposed amendments, RTRS would be integrated with the real-time central comparison system to provide dealers with a cost-effective mechanism to report transactions in real time over the same telecommunications links and using the same formats as will be used to achieve comparison of inter-dealer trades. The proposed rule change includes amendments both to Rule G-14 on transaction reporting and Rule G-12(f) on automated comparison as well as a plan for dissemination of prices in real-time. The text of the proposed amendments is shown at the end of this notice.

Under the proposed amendments, dealers will use a “message-based” or “Web-based” trade reporting method (or a combination of these). Using the message-based method of trade reporting, the dealer will send electronic messages containing trade data to National Securities Clearing Corporation (“NSCC”) and receive interactive feedback messages from RTRS. The NSCC Real-Time Trade Matching (“RTTM”) system will relay the messages to and from RTRS. Using the Web-based method, the dealer will access the RTTM Web site through an Internet browser to enter inter-dealer trade data and send it to the NSCC network for automated comparison and forwarding to RTRS, or access the RTRS Web site to enter trade data directly to RTRS. Feedback regarding the status of submitted trade data will be available via the Web sites. (Feedback will also be available via message and e-mail.) The Web-based method is intended for dealers with a low volume of input, and for any dealers making changes to transaction data.

The proposed amendment to Rule G-12(f)(i) on inter-dealer trade comparison would require that:

  • Each inter-dealer trade effected during the RTRS Business Day (7:30 a.m. through 6:30 p.m. Eastern time), if eligible for automated comparison, must be submitted to a registered clearing agency within 15 minutes of the time of trade, unless the trade is subject to an exception from 15 minute reporting, as described below.
  • Inter-dealer trades effected outside the hours of the RTRS Business Day must be submitted for comparison within 15 minutes of the start of the next RTRS Business Day.
  • Each dealer must monitor submissions made against it in the real-time comparison system and must use the procedures provided by the clearing agency or the MSRB to address any erroneous information concerning its side of a transaction that may be submitted by a contra-party.

The proposed amendment to Rule G-14 on transaction reporting would require that:

  • Each dealer must report information about its transactions to the MSRB or its designee in the manner required by RTRS Transaction Reporting Procedures (discussed below), which in most cases require the report to be made within 15 minutes of the time of trade execution.
  • Any dealer that submits information for transaction reporting on behalf of another dealer has a specific responsibility to ensure that transaction reporting requirements are met with respect to the activities under the submitter’s control.
  • Each dealer must provide the MSRB with information needed to process transactions correctly on a new form, Form RTRS. The dealer would indicate the method it will use to submit trade reports, its broker symbol, the identity of any intermediary or agent it will use to report transactions, contact information for dealer testing and operations staff, and whether the dealer acts in the capacity of a broker’s broker.
  • Dealers must undergo mandatory testing while making the transition from the current transaction reporting system to RTRS. Testing is also required of dealers that will begin reporting transactions in the future (i.e., even if the dealer is not making a transition from the current system).
  • Each dealer must be prepared to test its use of RTRS no later than three months before January 2005 (that is, by October 1, 2004) and must schedule a test date by that time unless it has already successfully tested its RTRS capabilities. However, dealers that have effected an average of five or fewer transactions per week during the preceding year and that will use only the Web-based method of trade reporting must successfully test their RTRS capabilities no later than one month before January 2005 (that is, by December 1, 2004).

The proposed amendment would retain without change the prohibition against reporting fictitious or fraudulent transactions, the statement of the purpose of transaction reporting,[8] and the requirement for the dealer to obtain an identifying symbol.

The proposed amendment to Rule G-14 also states that:

  • The MSRB will make testing facilities available to dealers at least six months before January 2005 (that is, in July 2004).
  • Exemptions from reporting for transactions in municipal securities apply to those securities that are ineligible for assignment of a CUSIP number, to municipal fund securities and to the (rare) inter-dealer transactions that are not eligible for automated comparison.

The proposed amendment to the Transaction Reporting Procedures contains the following requirements:

  • Generally dealers must report trades to the MSRB within 15 minutes. The 15-minute requirement would apply to all reportable trades effected during the RTRS Business Day, with the following limited exceptions for operational reasons:
  • Syndicate managers and syndicate members that effect trades in new issues at the list offering price would be required to report such trades by the end of the first day of trading in the issue.
  • Dealers would be required to report trades in short-term instruments such as variable rate securities, auction rate products, and commercial paper by the end of the day in which the trades are effected.
  • On a temporary basis, a dealer would be allowed to report trades within three hours of the time of trade if the CUSIP number and indicative data of the issue traded are not in the dealer’s securities master file, the dealer has not traded the issue in the previous year, and the dealer is not a syndicate manager or syndicate member for the issue. This provision would sunset automatically one year after RTRS implementation.

With respect to the concern that it is sometimes difficult for dealers to obtain issue information such as CUSIP numbers in order to submit trades within 15 minutes,[9] the MSRB is reviewing possible modifications to Rule G-34 on CUSIP numbers and new issue requirements to enhance the availability of this information and to ensure that trades are submitted in a timely manner after execution occurs in the new issue market.

The proposed amendment to the Transaction Reporting Procedures would also provide as follows:

  • Dealers would use the message-based method, the RTTM Web or the RTRS Web, as described above, for trade reporting. Transaction data submissions would have to conform to the format specifications for each method.
  • Trades effected outside the RTRS Business Day must be reported no later than 15 minutes after the beginning of the next RTRS Business Day.
  • A dealer that does not submit transaction data in a timely or accurate manner must submit or correct the data as soon as possible. RTRS will provide information to the submitter of data that indicates the status of each trade, i.e., whether it was submitted timely and whether errors have been found in the input. The effecting dealer (and its clearing broker that submits data, if any) would be required to monitor the status of each trade report as shown in RTRS, and to review and address any problem or potential problem. RTRS will produce statistics on dealer performance in timely submission and timely correction of errors and will provide the statistics to dealers.
  • Trade reports would include the information required by the MSRB in its Specifications for Real-Time Reporting of Municipal Securities Transactions and, for inter-dealer reports, would have to include the information required by the registered clearing agency (NSCC) as well.
  • Dealers must report agency trades effected for a customer by a fully disclosed introducing broker against a principal account of its clearing broker. The report would include the identity and role of the clearing broker. The information in this “inter-dealer regulatory-only” (“IDRO”) report, which resembles a unilateral submission of an inter-dealer trade, is described in the Specifications for Real-Time Reporting of Municipal Securities Transactions.
  • Additional, detailed information on how transaction reports must be formatted and reported would be included in the RTRS Users Manual. The RTRS Users Manual includes the Specifications for Real-Time Reporting of Municipal Securities Transactions, the Users Guide for RTRS Web, and the Testing Procedures, as well as other guidance on how to report specific types of transactions. The Users Manual will be located at www.msrb.org and may be updated from time to time with additional guidance or revisions to existing documents.

PROPOSED RTRS FACILITY

Under the proposed amendment to Rule G-14, the NSCC telecommunication network will serve as a data collection point or “portal” for transaction data and a standard common format will be used for trade reporting and automated comparison through NSCC. These shared features are intended to reduce dealer costs in complying with the 15-minute transaction reporting requirement.

Retail and institutional customer transactions and IDRO reports also will be reported through the NSCC message portal using the same record format as used for inter-dealer trades. NSCC will not process customer transactions in the comparison system, but will forward customer trade data to the MSRB and thus allow dealers to avoid setting up separate telecommunications links and facilities specifically for trade reporting to the MSRB.[10]

Compared to the present batch method of reporting trades, RTRS will bring improved functionality, including:

  • The ability to correct regulatory data, such as time of trade, on inter-dealer trade reports;
  • The ability for a dealer to ensure the accuracy of regulatory data even when that information is reported on its behalf by a clearing broker or service bureau;
  • The capability for dealers to report their capacity as agent in inter-dealer trades; and
  • An improved “audit trail” of trade information for enforcement agencies. [11]

Enhancement of information available to enforcement agencies

Some changes to improve audit trail and surveillance capabilities for enforcement agencies will require modifications or additions to existing transaction reporting procedures. The inputs required from the dealer to support the improved audit trail are set out in the Specifications for Real-Time Reporting of Municipal Securities Transactions. The improved features are:

  • The reporting of inter-dealer regulatory-only (“IDRO”) transactions, described above.
  • The reporting of the dealer’s capacity (as agent for a customer or as principal) in inter-dealer trades.[12]
  • The addition of a “special condition” code. RTRS will require a dealer to code a trade report with if it has certain special conditions. For example, if there is a specific reason for a trade being reported at a price that is not a true market price, the dealer will indicate this with a code. A trade report with a special condition code that is indicative of an off-market price will not be disseminated by RTRS, but will be made available to regulatory agencies for market surveillance and inspection purposes. Some special condition codes will not necessarily indicate an off-market price but will report conditions such as a security that is traded “flat.”[13]
  • The addition of a “weighted average price” code. An average price transaction is one in which a dealer agrees to purchase up to a certain quantity of securities for a customer at market prices during the day, culminating with one sale transaction to the customer of the aggregate par value, with a price representing a weighted average of the dealer’s purchases. Dealers would be required to code the sale to the customer in this case as a weighted average. The price dissemination plan currently calls for displaying the “weighted average price” code along with other data about the transaction.
  • The reporting of an “intermediate dealer,” if any, in an inter-dealer transaction. This applies to an inter-dealer trade in which a dealer is a correspondent of an NSCC participant and the correspondent passes data to its clearing broker about a trade effected by a third dealer. The term “intermediate dealer” is used to identify the dealer between the NSCC participant and the dealer that effected the trade. The dealer that effected the trade is a correspondent of the intermediate dealer and is termed the “correspondent’s correspondent.” The proposed reporting procedures would require that all three dealers be identified in the trade report: the clearing broker, its correspondent (the intermediate dealer), and the correspondent’s correspondent.

Input Requirements

The basic transaction information proposed to be reported by a dealer in RTRS will be similar to that reported in the existing transaction reporting system. The complete list of data elements required on a trade report and the range of valid values are found in the Specifications for Real-Time Reporting of Municipal Securities Transactions.

Measurement of Timely Reporting

Trades not received by the appropriate deadline will be considered late. The time taken to report the trade would be measured by comparing the time of trade reported by the dealer with the time of receipt of the trade report at the designated RTRS portal.

Post-Implementation Performance Reports

As with the current transaction reporting system, MSRB will make reports available to each dealer showing the dealer’s performance on the various compliance parameters, along with industry averages for each parameter.

DATA DISSEMINATION PLAN

Description of Data Dissemination Service

During the RTRS Business Day, price data will be disseminated in real time immediately after receipt. Modifications and cancellations submitted by dealers that apply to earlier trade submissions will also be disseminated in real time. Subscriptions to the real-time data product will be available to subscribers that sign an agreement regarding re-dissemination, similar to the current subscription agreement.

The technical means of data dissemination are not yet determined. MSRB expects to make a second filing on the RTRS facility in the future with a description of data products, the means of dissemination, and proposals for fees to be charged for subscriptions to the data products, along with the exact operational starting date for RTRS in January 2005.

In addition to real-time reports, the MSRB plans to continue providing reports each morning covering the previous day’s trades (“T+1 reports”), as well as daily reports covering all trades done on the trading day one week earlier (“T+5 reports”), and monthly reports covering all trades done during the previous month.

Trades to be Disseminated

During the RTRS Business Day, the MSRB will disseminate data on all transactions as soon as they are received, except for two types of dealer submissions. The exceptions, which will be stored in the surveillance database but not disseminated in real-time, are trades marked by the dealer as non-market price trades and reports of “inter-dealer regulatory-only” transactions, described above.

List of Information Items to be Disseminated

The specific items proposed to be disseminated by RTRS for price transparency purposes are:

  • CUSIP number and description of the issue traded;
  • Par value of the transaction if $1 million or less, or par displayed as “1MM+” for transactions over $1 million in size;
  • Dollar price;
  • Yield (for inter-dealer new issue transactions done on a yield basis and for all customer transactions in non-defaulted securities where the transaction is done on a yield basis or if the yield can be computed from dollar price);
  • Date and time of trade;
  • When-issued indicator, if any;
  • Syndicate list price indicator, if any;
  • Assumed settlement date, if initial settlement date is not known at time of trade;
  • Indicator that dollar price was computed by MSRB using an estimated settlement date for an issue on which the initial settlement date has not been set;
  • Indicator that the transaction was a (i) purchase from a customer; (ii) sale to a customer; or (iii) inter-dealer transaction;
  • Indicator that an inter-dealer transaction was done by a broker’s broker and the broker’s broker role as buyer or seller;
  • Indicator that a trade was done at the weighted average price of trades done earlier in the day;
  • Modification/cancellation indicator, if any;
  • RTRS broadcast time, date and sequential trade message number; and
  • RTRS Control Number.

Discussion of Selected Information Items to be Disseminated

Dissemination of Compared or Uncompared Inter-Dealer Trades. Current plans are that inter-dealer trades will be disseminated after they are compared, which will ensure that the details of the trade are agreed to by both parties to the trade. However, RTRS is being designed with the flexibility to disseminate uncompared inter-dealer transaction data if it is found that a substantial proportion of trades take longer than 15 minutes to be compared.[14]

Broker’s Brokers’ Transactions. As noted, RTRS will disseminate broker’s brokers’ trades along with an indicator that they were effected by a broker’s broker, and an indication whether the broker’s broker bought or sold the security. The identity of the broker’s broker will not be disseminated.

RTRS Transaction Control Number. RTRS will assign a “control number” to each transaction reported by a dealer. This is a unique number that will apply to the initial submission and subsequent corrections or cancellations of trade data.[15] The MSRB plans to disseminate trade corrections and modifications in real time, including the RTRS control number on original trades and on any subsequent changes in the trade.

Implementation Schedule

RTRS development is proceeding on the following schedule.

2004

April - June Beta testing with Dealers
July Certification testing with dealers begins
July - Dec. Dealers that have passed certification testing with RTTM and RTRS may report trades using new formats
October Dealers that have not yet completed certification testing must schedule the test, unless dealer reports an average of fewer than five trades per week (“low-volume dealers”)
December 1 Low-volume dealers that have not yet completed certification testing must have completed the test
December 15 All dealers must complete certification testing

2005

January Planned date of effectiveness of proposed rule change requiring real-time transaction reporting

June 1, 2004

PROPOSED AMENDMENT TO RULE G-12(f)[16]

Rule G-12 (f) Use of Automated Comparison, Clearance, and Settlement Systems

(i)Notwithstanding the provisions of sections (c) and (d) of this rule, a an Inter-Dealer T[t]ransaction E[e]ligible for [automated trade] C[c]omparison by a C[c]learing A[a]gency R[r]egistered with the [Securities and Exchange] Commission (registered clearing agency) shall be compared through a registered clearing agency. Each party to such a transaction shall submit or cause to be submitted to a registered clearing agency all information and instructions required from the party by the registered clearing agency for automated comparison of the transaction to occur. Each transaction effected during the RTRS Business Day shall be submitted for comparison within 15 minutes of the Time of Trade, unless the transaction is subject to an exception specified in the Rule G-14 RTRS Procedures paragraph (a)(ii), in which case it shall be submitted for comparison in the time frame specified in the Rule G-14 RTRS Procedures paragraph (a)(ii). Transactions effected outside the hours of an RTRS Business Day shall be submitted no later than 15 minutes after the beginning of the next RTRS Business Day. In the event that a transaction submitted to a registered clearing agency for comparison in accordance with the requirements of this paragraph (i) shall fail to compare, the party submitting such transaction shall, as soon as possible, use the [post-original-comparison] procedures provided by the registered clearing agency in connection with such transaction until such time as the transaction is compared or final notification of a failure to compare the transaction is received from the contra-party. A broker, dealer or municipal securities dealer (“dealer”) that effects inter-dealer transactions eligible for comparison by a clearing agency registered with the Commission shall ensure that submissions made against it in the comparison system are monitored for the purpose of ensuring that correct trade information alleged against it is acknowledged promptly and that erroneous information alleged concerning its side of a trade (or its side of a purported trade) is corrected promptly through the procedures of the registered securities clearing agency or the MSRB.

(ii) No change.

(iii) No change.

(iv) Definitions.

(A) “Inter-Dealer Transaction Eligible for Comparison by a Clearing Agency Registered with the Commission” means a contract for purchase and sale between one dealer and another dealer, resulting in a contractual obligation for one such dealer to transfer municipal securities to the other dealer involved in the transaction, and which contract is eligible for comparison under the procedures of an automated comparison system operated by a registered clearing agency.

(B) “Time of Trade” is defined in Rule G-14 Transaction Reporting Procedures.

(C) The "RTRS Business Day” is defined in Rule G-14 RTRS Transaction Reporting Procedures.

PROPOSED AMENDMENT TO RULE G-14 AND RTRS PROCEDURES

Rule G-14. Reports of Sales or Purchases

(a) No change.

(b) Transaction Reporting Requirements.

(i) Each broker, dealer or municipal securities dealer (“dealer”) shall report to the Board or its designee information about [its] each purchase and sale transaction[s] effected in municipal securities to the Real-time Transaction Reporting System (“RTRS”) in the manner prescribed by Rule G-14 RTRS Procedures and the RTRS Users Manual [extent required by, and using the formats and within the timeframes specified in, Rule G-14 Transaction Reporting Procedures]. Transaction information collected by the Board under this rule will be used to make public reports of market activity and prices and to assess transaction fees. The transaction information will be made available by the Board to the Commission, securities associations registered under Section 15A of the Act and other appropriate regulatory agencies defined in Section 3(a)(34)(A) of the Act to assist in the inspection for compliance with and the enforcement of Board rules.

(ii) The information specified in the [Transaction Reporting] Rule G-14 RTRS Procedures is critical to public reporting of prices for transparency purposes and to the compilation of an audit trail for regulatory purposes. All [brokers, dealers and municipal securities]dealers have an ongoing obligation to report this information promptly, accurately and completely. The [broker dealer or municipal securities]dealer may employ an agent for the purpose of submitting [customer] transaction information; however the primary responsibility for the timely and accurate submission remains with the [broker, dealer or municipal securities] dealer that effected the transaction. A dealer that acts as a submitter for another dealer has specific responsibility to ensure that transaction reporting requirements are met with respect to those aspects of the reporting process that are under the Submitter’s control. A dealer that submits inter-dealer municipal securities transactions for comparison, either for itself or on behalf of another dealer, has specific responsibility to ensure that transaction reporting requirements are met with respect to those aspects of the comparison process that are under the Submitter’s control.

(iii) To identify its transactions for reporting purposes, each [broker, dealer and municipal securities] dealer shall obtain a unique [executing] broker symbol from the National Association of Securities Dealers, Inc.

(iv) Each dealer shall provide to the Board on Form RTRS information necessary to ensure that its trade reports can be processed correctly. Such information includes the manner in which transactions will be reported, the broker symbol used by the dealer, the identity of and information on any intermediary to be used as a Submitter, information on personnel that can be contacted if there are problems in RTRS submissions, and information necessary for systems testing with RTRS. Information provided on Form RTRS shall be kept current by notifying the MSRB when contact information or other information provided on the form changes.

(v) Testing Requirements.

(A) Prior to submitting transaction data under RTRS Procedures, a dealer must successfully test its ability to interface with RTRS as described in the RTRS Users Manual.

(B) Testing During RTRS Start-Up.

(1) Testing facilities will be made available at least six months prior to the announced effective date of these transaction reporting procedures (“Announced RTRS Start-Up Date”). Except as provided in the subparagraph below, each dealer shall be prepared for testing no later than three months prior to the Announced RTRS Start-Up Date and shall either have successfully tested its RTRS capabilities or have scheduled a testing date with the MSRB by that time.

(2) A dealer electing to use only the Web-based trade input method of transaction reporting and that has averaged submissions of five or fewer trades during a one-year period beginning in July 2003 shall be required to test its RTRS capabilities no later than one month prior to the Announced RTRS Start-Up Date.

(vi) The following transactions shall not be reported under Rule G-14:

(A) Transactions in securities without assigned CUSIP numbers;

(B) Transactions in Municipal Fund Securities; and

(C) Inter-dealer transactions for principal movement of securities between dealers that are not inter-dealer transactions eligible for comparison in a clearing agency registered with the Commission.

Rule G-14 [Transaction Reporting] RTRS Procedures

[(a) Inter-Dealer Transactions.

(i) Except as described in paragraph (ii) of this section (a), each broker, dealer and municipal securities dealer shall report all transactions with other brokers, dealers or municipal securities dealers to the Board’s designee for receiving such transaction information. The Board has designated National Securities Clearing Corporation (NSCC) for this purpose. A broker, dealer or municipal securities dealer shall report a transaction by submitting or causing to be submitted to NSCC information in such format and within such timeframe as required by NSCC to produce a compared trade for the transaction in the initial comparison cycle on the night of trade date in the automated comparison system operated by NSCC. Such transaction information may be submitted to NSCC directly or to another registered clearing agency linked for the purpose of automated comparison with NSCC.

The information submitted in accordance with this procedure shall include the time of trade execution and the identity of the brokers, dealers, or municipal securities dealers that execute the transaction in addition to the identity of the entities that clear the transaction. If clearing/introducing broker arrangements are used for transactions, the introducing brokers shall be identified as the "executing brokers." If the settlement date of a transaction is known by the broker, dealer or municipal securities dealer, the report made to NSCC also shall include a value for accrued interest in the format prescribed by NSCC.

(ii) A transaction that is not eligible to be compared in the automated comparison system operated by NSCC (because of the lack of a CUSIP number for the security or other reasons) shall not be required to be reported under this section (a). A transaction that is subject to a "one-sided" submission procedure in the automated comparison system operated by NSCC shall be reported only by the broker, dealer or municipal securities dealer that is required to submit the transaction information under the one-sided submission procedure.

(b) Customer Transactions

(i) Each broker, dealer and municipal securities dealer shall report to the Board all transactions with customers effected after March 1, 1998, except as described in paragraph (iii) of this section (b). A broker, dealer or municipal securities dealer shall report a transaction by submitting or causing to be submitted to the Board, by midnight of trade date, the customer transaction information specified in paragraph (ii) of this section (b) in such format and manner specified in the current User's Manual for Customer Transaction Reporting. The broker, dealer or municipal securities dealer shall promptly report cancellation of the trade or corrections to any required data items.

(ii) The information submitted in accordance with this procedure shall include: the CUSIP number of the security; the trade date; the time of trade execution; the executing broker symbol identifying the broker, dealer or municipal securities dealer that effected the transaction; a symbol indicating the capacity of the broker, dealer or municipal securities dealer as buyer or seller in the transaction; the par value traded; the dollar price of the transaction, exclusive of any commission; the yield of the transaction; a symbol indicating the capacity of the broker, dealer or municipal securities dealer as agent for the customer or principal in the transaction; the commission, if any; the settlement date, if known to the broker, dealer or municipal securities dealer; a control number, determined by the broker, dealer or municipal securities dealer, identifying the transaction; and a symbol indicating whether the trade has previously been reported to the Board, and, if so, the control number used by the broker, dealer or municipal securities dealer for the previous report.

(iii) The following transactions shall not be required to be reported under this section (b):

(A) a transaction in a municipal security that is ineligible for assignment of a CUSIP number by the Board or its designee; and

(B) a transaction in a municipal fund security.

(iv) Each broker, dealer and municipal securities dealer effecting customer transactions in municipal securities, including introducing and clearing brokers, shall provide to the Board the name and telephone number of a person responsible for testing that firm’s capabilities to report customer transaction information. Each broker, dealer or municipal securities dealer shall test such capabilities in a manner and according to the requirements specified in the current User’s Manual for Customer Transaction Reporting. This paragraph (iv) shall take effect July 1, 1997.]

(a) General Procedures.

(i) The Board has designated three RTRS Portals for dealers to use in the submission of transaction information. Transaction data submissions must conform to the formats specified for the RTRS Portal used for the trade submission. The RTRS Portals may be used as follows:

(A) The message-based trade input RTRS Portal operated by National Securities Clearing Corporation (NSCC) (“Message Portal”) may be used for any trade record submission or trade record modification.

(B) The RTRS Web-based trade input method (“RTRS Web Portal” or “RTRS Web”) operated by the MSRB may be used for low volume transaction submissions and for modifications of trade records, but cannot be used for submitting or amending inter-dealer transaction data that is used in the comparison process. Comparison data instead must be entered into the comparison system using a method authorized by the registered clearing agency.

(C) The NSCC Real-Time Trade Matching (“RTTM”) Web-based trade input method (“RTTM Web Portal” or “RTTM Web”) may be used only for submitting or modifying data with respect to Inter-Dealer Transactions Eligible for Comparison.

(ii) Transactions effected with a Time of Trade during the hours of the RTRS Business Day shall be reported within 15 minutes of Time of Trade to an RTRS Portal except in the following situations:

(A) Syndicate managers, syndicate members and selling group members that effect trades in new issues on the first day of trading at the list offering price shall report such trades by the end of the day on which the trades were executed.

(B) A dealer effecting trades in short-term instruments under nine months in effective maturity, including variable rate instruments, auction rate products, and commercial paper shall report such trades by the end of the RTRS Business Day on which the trades were executed.

(C) A dealer shall report a trade within three hours of the Time of Trade if all the following conditions apply: (A) the CUSIP number and indicative data of the issue traded are not in the securities master file used by the dealer to process trades for confirmations, clearance and settlement; (B) the dealer has not traded the issue in the previous year; and (C) the dealer is not a syndicate manager or syndicate member for the issue. If fewer than three hours of the RTRS Business Day remain after the Time of Trade, the trade shall be reported no later than 15 minutes after the beginning of the next RTRS Business Day. This provision (iii) will cease to be effective one year after the Announced RTRS Start-Up Date.

(iii) Transactions effected with a Time of Trade outside the hours of the RTRS Business Day shall be reported no later than 15 minutes after the beginning of the next RTRS Business Day.

(iv) Transaction data that is not submitted in a timely and accurate manner in accordance with these Procedures shall be submitted or corrected as soon as possible.

(v) Information on the status of trade reports in RTRS is available through the Message Portal, through the RTRS Web Portal, or via electronic mail. Trade status information from RTRS indicating a problem or potential problem with reported trade data must be reviewed and addressed promptly to ensure that the information being disseminated by RTRS is as accurate and timely as possible.

(vi) RTRS Portals will be open for transmission of transaction data and status of trade reports beginning 30 minutes prior to the beginning of the RTRS Business Day and ending 90 minutes after the end of the RTRS Business Day.

(b) Reporting Requirements for Specific Types of Transactions.

(i) Inter-Dealer Transactions Eligible for Automated Comparison by a Clearing Agency Registered with the Commission

(A) Bilateral Submissions: Inter-Dealer transactions Eligible for Trade Comparison at a Clearing Agency Registered with the Commission (registered clearing agency) shall be reported by each dealer submitting, or causing to be submitted, such transaction records required by the registered clearing agency to achieve comparison of the transaction. The transaction records also shall include the additional trade information for such trades listed in the Specifications for Real-Time Reporting of Municipal Securities Transactions contained in the RTRS User Manual.

(B) Unilateral Submissions: For transactions that, under the rules of the registered clearing agency, are deemed compared upon submission by one side of the transaction (unilateral submissions), a submission is not required by the contra-side of the transaction. The contra-side, however, must monitor such submissions to ensure that data representing its side of the trade is correct and use procedures of the registered clearing agency to correct the trade data if it is not.

(ii) Customer Transactions. Reports of transactions with customers shall include the specific items of information listed for such transactions in the Specifications for Real-Time Reporting of Municipal Securities Transactions.

(iii) Agency Transactions With Customers Effected By An Introducing Broker Against Principal Account of its Clearing Broker. Reports of agency transactions effected by an introducing broker for a customer against the principal account of its clearing broker shall include the specific items of information listed in the Specifications for Real-Time Reporting of Municipal Securities Transactions for “Inter-Dealer Regulatory-Only” trades.

(c) RTRS Users Manual. The RTRS Users Manual is comprised of the Specifications for Real-Time Reporting of Municipal Securities Transactions, the Users Guide for RTRS Web, Testing Procedures, guidance on how to report specific types of transactions and other information relevant to transaction reporting under Rule G-14. The RTRS Users Manual is located at www.msrb.org and may be updated from time to time with additional guidance or revisions to existing documents.

(d) Definitions.

(i) “RTRS” or “Real-Time Transaction Reporting System” is a facility operated by the Board. RTRS receives municipal securities transaction reports submitted by dealers pursuant to Rule G-14, disseminates price and volume information in real time for transparency purposes, and otherwise processes information pursuant to Rule G-14.

(ii) The “RTRS Business Day” is 7:30 a.m. to 6:30 pm, Eastern Time, Monday through Friday, on each business day as defined in Rule G-12(b)(i)(B).

(iii) “Time of Trade” is the time at which a contract is formed for a sale or purchase of municipal securities at a set quantity and set price.

(iv) “Submitter” means a dealer, or service bureau acting on behalf of a dealer, that has been authorized to interface with RTRS for the purposes of entering transaction data into the system.

(v) “Inter-Dealer Transaction Eligible for Automated Comparison by a Clearing Agency Registered with the Commission” is defined in MSRB Rule G-12(f)(i).

(vi) “Municipal Fund Securities” is defined in Rule D-12.



[1] File No. SR-MSRB-2004-02. Comments should be directed to the SEC.

[2] The inter-dealer transaction data submitted for automated comparison under Rule G-12(f) would be forwarded to the MSRB by the comparison system for purposes of transaction reporting under Rule G-14. The single submission would incorporate both trade comparison and regulatory reporting data elements.

[3] See “Planned Pilot Program for Publishing Inter-Dealer Transaction Information,” MSRB Reports, Vol. 13, No. 3 (June 1993) at 3, and “Board to Proceed with Pilot Program to Disseminate Inter-Dealer Transaction Information,” MSRB Reports, Vol. 14, No. 1 (January 1994) at 13.

[4] See, e.g., MSRB Notice 2003-3, “Plans for MSRB’s Real-Time Transaction Reporting System” (February 3, 2003), Notice 2003-5, “Real-Time Transaction Reporting: Joint Seminar Announcement and Registration Information” (February 26, 2003), Notice 2003-23, “Request for Comment: Plan for Real-Time Reporting” (June 13, 2003), and Notice 2003-44, “Real-Time Transaction Reporting: Revised Schedule and Operational Plan” (December 11, 2003), all available on www.msrb.org.

[5] A summary of comments on the operational plan for real-time transaction reporting and of the MSRB’s determinations was published in December 2003. See Notice 2003-44, “Real-Time Transaction Reporting: Revised Schedule and Operational Plan” (December 11, 2003) on www.msrb.org.

[6] Currently the price reports disseminated on the day after trade date show the exact par of trades of $1 million or less, and “1MM+” for larger trades. The exact par of all trades is disseminated one week after trade date.

[7] Broker’s brokers are dealers that hold themselves out as effecting transactions exclusively between dealers on an agency or riskless principal basis and that do not take inventory positions in municipal securities. A broker’s broker therefore always has matched pairs of purchase and sale transactions in the inter-dealer market.

[8] Rule G-14 states that transaction information collected by the MSRB will be used to make public reports of market activity and prices and to assess transaction fees, and by the SEC and enforcement agencies to assist in the inspection for compliance with and enforcement of MSRB rules.

[9] For a discussion of this concern, see Notice 2003-44, “Real-Time Transaction Reporting: Revised Schedule and Operational Plan” (December 11, 2003).

[10] By agreement with the MSRB, NSCC will not charge dealers for serving as the portal for customer transaction data. MSRB will reimburse NSCC for system costs that are attributable exclusively to this function.

[11] The MSRB plans also to provide regulators with real-time connections to RTRS. This will enable regulatory agency staff to obtain routine reports of transactions more quickly than is now possible. In addition, although it does not require any change in dealer procedures, RTRS will provide regulators with the record of all changes to trade data reported by a dealer after its initial trade submission. This is an enhancement over the current system, which reports the results of trade modifications but does not have preformatted reports of the initial submission or the subsequent change records. RTRS will provide preformatted reports to regulators showing each modification or cancellation of a trade report, including the time the change was made.

[12] The current transaction reporting procedures for trades with customers require the dealer to designate its capacity on the customer trade report. This requirement will remain in RTRS.

[13] The June 2003 Notice requesting comment on plans for real-time reporting referred to the special condition code as the “special price reason code.”

[14] Unlike inter-dealer transactions, which have two submissions (both a buy side and a sell side) that must be compared, customer trades, which comprise approximately 80% of all reported trades, do not require comparison and will be disseminated as soon as automated error checks are completed.

[15] In making trade corrections, a dealer may refer to a transaction using either the RTRS control number or its own control number.

[16] Underlining indicates new language; brackets indicate deletions.