MSRB NOTICE 2005-02 (JANUARY 10, 2005)

REAL-TIME TRANSACTION REPORTING: RULE G-14

Full implementation of real-time transaction reporting rules will take place on January 31, 2005.[1]  As dealers prepare for this event, various questions related to transaction reporting requirements and the transition to real-time transaction reporting have been posed to MSRB staff.  Some of the subjects frequently discussed with dealers are included below.

Regulatory Information Required on Inter-Dealer Transactions

Rule G-12(f) requires dealers to submit data on their inter-dealer transactions in municipal securities to National Securities Clearing Corporation (NSCC) for automated comparison.  The same inter-dealer trade record submitted to NSCC for comparison also is used to satisfy the transaction reporting requirements of Rule G-14.  However, satisfying the requirements for successful trade comparison under Rule G-12(f) does not, by itself, satisfy a dealer’s transaction reporting requirements.  Dealers using the new RTTM Web capabilities provided by NSCC to compare trades should be particularly careful to ensure that all MSRB-required data is being properly entered.   

For real-time transaction reporting, the Specifications for Real-Time Reporting of Municipal Securities Transactions lists the trade details required by NSCC for comparison and the additional items of information required by the MSRB.  Dealers are required to provide both types of information on inter-dealer trade reports submitted for comparison at NSCC.  As is currently required in the present “batch” transaction reporting system, these additional items include, among others, time of trade and the Effecting Broker Symbol (EBS) for both the sell-side and buy-side of each transaction.  Beginning January 31, 2005, each dealer that is a party to a transaction also will be required to identify whether it acted as agent or as principal on the transaction. 

These items of information required by the MSRB on inter-dealer trade reports are necessary for a complete audit trail.  Failure to correctly include these additional items on inter-dealer trade reports represents a violation of Rule G-14.[2]  Time of trade and EBS have been required reporting fields for many years and the MSRB has noted that a number of trade reports are now being entered through RTTM Web without this information.  

Processing Step Out Deliveries

Beginning January 10, 2005 the procedure for comparing “step out deliveries” through NSCC’s automated comparison system changes.[3]  A “step out delivery” for this purpose is a transfer of securities between dealers using the facilities of NSCC’s automated comparison system that is not the result of a purchase-sale transaction between the dealers.[4]  Since trade data submitted for automated comparison also is sent to the MSRB to satisfy a dealer’s requirement to report transactions, dealers effecting “step out deliveries” should refer to NSCC’s procedures so that the delivery is not reported to the MSRB as a transaction.[5]  The MSRB reminds dealers that erroneously reporting a “step out delivery” as an inter-dealer transaction is a violation of Rule G-14.  Similarly, it is a violation of Rule G-14 for a dealer to use the “step out” procedure on an inter-dealer purchase-sale transaction.  Questions about whether a particular type of delivery is reportable as an inter-dealer purchase-sale transaction may be directed to MSRB staff and additional clarifying notices will be published as necessary.

Clarification of “Time of Trade” on Transaction Reports

Dealers are required to include time of trade (along with trade date) on all transaction reports.  Transaction reporting procedures define “time of trade” as the time when a contract is formed for a sale or purchase of municipal securities at a set price and set quantity.  For transaction reporting purposes, this is considered to be the same as the time that a trade is “executed.”  Although existing recordkeeping rules and trade reporting rules already require the dealer to know the time of trade, the requirement in real-time transaction reporting to report most transactions within fifteen minutes of the time of trade places additional importance on the term.[6]  

The time that the trade is executed is not necessarily the time that the trade information is entered into the dealer’s processing system.  For example, if a trade is executed on a trading desk but not entered for processing until later, the time of execution (not the time of entering the record into the processing system) is required as the “time of trade.”  Similarly, when a dealer executes a transaction outside of the RTRS Business Day,[7] the time the trade was executed (rather than the time that the trade report is made) is the “time of trade” required to be reported.

For new issue securities, a transaction effected on a “when, as and if issued” basis cannot be executed, confirmed and reported until the municipal security has been formally awarded by the issuer.  For a negotiated issue, this “time of formal award” is defined as the time of the signing of the bond purchase agreement and for competitive issues it is the time of the official award by the issuer.  While dealers may take orders for securities and make conditional trading commitments prior to the award, dealers can not execute transactions, send confirmations or make a trade report prior to the time of formal award.  Once a new issue of municipal securities has been formally awarded, trade executions can begin.  The time of execution then is reported to the MSRB on the trade report.[8] 

Questions about this notice may be directed to Justin Pica, Uniform Practice Specialist.  General questions about transaction reporting or the transition to real-time transaction reporting should be directed to a Transaction Reporting Assistant.

January 10, 2005


[1] See “Notice of Filing of Implementation Plan for Real-Time Transaction Reporting System,” MSRB Notice 2004-36, November 15, 2004.  See also “Approval by the SEC of Real-Time Transaction Reporting and Price Dissemination: Rules G-12(f) and G-14,” MSRB Notice 2004-29, September 2, 2004.

[2] Dealers should take special care to ensure that these items of information are included on “as of” submissions of trade data and when a dealer “affirms” a trade via RTTM web.  Dealers that choose to affirm trades via RTTM web should be aware that when a dealer selects a trade record listed on the NSCC advisory report, only those trade details necessary for comparison are automatically populated on the RTTM web trade entry screen.  To satisfy the requirements of Rule G-14 dealers must manually input those data elements identified as “required by MSRB” on the RTTM web trade entry screen prior to “affirming” a trade.  For additional information on including these additional items on RTTM Web, see NSCC Important Notice A5961/P&S5531, “CMU RTTM Web Screen Enhancements to Accommodate Regulatory Reporting for Municipal Bonds,” January 6, 2005, on www.nscc.com.

[3] The current procedure is detailed in “Notice on Deliveries of Step Out Transactions Through the Automated Comparison System,” MSRB Notice 2004-9, March 3, 2004.

[4] For example, a selling dealer may choose to use NSCC’s “step out delivery” procedure when an investment advisor instructs it to deliver securities to an account housed at another dealer.  The movement of securities between the selling dealer and the dealer housing the account is not a purchase-sale transaction and must not be reported to the MSRB as such.  Another example was provided in “Notice on Certain Inter-Dealer Transfers of Municipal Securities: Rules G-12(f) and G-14,” MSRB Notice 2004-14, June 4, 2004.

[5] NSCC Important Notice A5943/P&S5513, “Changes to Municipal Bond ‘Step Out’ Processing,” December 2, 2004, on www.nscc.com.

[6] There are several exceptions available to dealers from the requirement to report within fifteen minutes.  Under those exceptions: (i) dealers that are members of a syndicate or selling group that effect trades in a new issue at the list offering price may report trades by the end of the first day of trading, (ii) trades in short-term instruments such as variable rate securities, auction rate products, and commercial paper may be reported by the end of the day on which the trades are effected; and (iii) for the first year of real-time transaction reporting, dealers that are not syndicate managers or syndicate members and that have not traded an issue in the previous year may report trades within three hours of the time of trade execution.

[7] Transactions effected during the RTRS Business Day (from 7:30 A.M to 6:30 P.M. Eastern time) are required to be reported in real-time.  Transactions effected outside of those hours are required to be reported within fifteen minutes after the start of the next RTRS Business Day.

[8] For a more in-depth discussion of time of trade on transactions in new issue securities, see “Notice Requesting Comment on Draft Amendments to Rule G-34 to Facilitate Real-Time Transaction Reporting and Explaining Time of Trade for Reporting New Issue Trades,” MSRB Notice 2004-18, June 18, 2004.