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MSRB NOTICE 2004-38 (NOVEMBER 22, 2004)

NOTICE OF FILING OF PROPOSED RULE CHANGE TO RULE G-34 TO FACILITATE REAL-TIME TRANSACTION REPORTING

 

 

On November 18, 2004, the Municipal Securities Rulemaking Board (MSRB) filed with the Securities and Exchange Commission (SEC) a proposed rule change to Rule G-34, on CUSIP numbers and new issue requirements, to facilitate real-time transaction reporting of new issue municipal securities.[1]  Upon approval by the SEC, the proposed rule change would become effective January 31, 2005.

Beginning January 31, 2005, the transaction reporting process for municipal securities will convert to a “real-time” process, with most trades being subject to a 15-minute reporting requirement.[2]  Two exceptions in Rule G-14 apply to some transactions done on the first day of trading in a new issue.  Under those exceptions: (i) dealers that are members of a syndicate or selling group[3] that effect trades in a new issue at the list offering price may report trades by the end of the first day of trading; and (ii) dealers that are not syndicate or selling group members and that have not traded an issue in the previous year may report trades within three hours of the time of trade execution.[4]  While many trades executed during the first day of trading will qualify for one of these exceptions, other trades (e.g., “non-list price” trades by syndicate or selling group members) will have to be reported within 15 minutes of trade execution.  It also should be noted that the three-hour reporting exception, which will generally be available to dealers outside the underwriting group on the first day of trading, will require accelerated reporting of trades compared with the current end-of-day reporting requirement. 

Rule G-34 requires underwriters[5] to take certain steps to ensure that the issues they underwrite can be processed in the market’s systems for clearance, settlement and transaction reporting and the proposed rule change modifies these provisions to ensure that dealers can report trades in a timely manner in a real-time processing environment.  Since the timing for trade reports in a real-time environment generally will be measured from the time of trade execution rather than the day that the trade occurs, the proposed rule change replaces the concept of “initial trade date” with “time of formal award” as the earliest time that a trade in the new issue can be executed, confirmed and reported.  For negotiated issues, “time of formal award” is the time that the bond purchase agreement (BPA) is executed and for competitive issues, it is the time of the issuer’s official announcement of the award.  The proposed rule change also seeks to accelerate the time that underwriters notify other dealers of CUSIP numbers, identifying information and the “time of formal award.”  The proposed rule change requires underwriters to disseminate this information “as soon as possible,” with the dissemination of all necessary information to be made no later than the time of the underwriter’s first trade executions in the new issue, and requires underwriters to make this information accessible to dealers other than just those in the underwriting group in order to allow those dealers to report transactions correctly.  Finally, modifications to the deadlines for obtaining CUSIP numbers are included in the proposed rule change to ensure that CUSIP numbers will always be available before the first transactions in the issue are executed.[6]

On June 18, 2004, the MSRB published draft amendments to Rule G-34 for comment.[7]  In response to the June 2004 notice, the MSRB received 2 comment letters.  The MSRB specifically requested comment on whether electronic venues exist in the marketplace by which underwriters could communicate CUSIP numbers, identifying information and the time of formal award to industry members on a real-time basis.  The MSRB stated that if such a venue did not exist, the MSRB could offer to provide a special-purpose solution.  Based on the comments received indicating that existing industry systems can provide broad real-time dissemination of information to industry members, the MSRB has decided not offer to provide a special-purpose solution for making announcements to market participants.  However, the MSRB will review the operation of industry systems for disseminating information and will readdress this issue if necessary in the future.  

The proposed rule change will not become effective until approval by the SEC.  Persons wishing to comment to the SEC should refer to file number SR-MSRB-2004-08.

November 22, 2004

Rule G-34: CUSIP Numbers and New Issue Requirements*

(a) New Issue Securities.

(i) Assignment of CUSIP Numbers.

(A) Except as otherwise provided in this section (a), each broker, dealer or municipal securities dealer who acquires, whether as principal or agent, a new issue of municipal securities from the issuer of such securities for the purpose of distributing such new issue (“underwriter”) shall apply in writing to the Board or its designee for assignment of a CUSIP number or numbers to such new issue. The [broker, dealer or municipal securities dealer] underwriter shall make such application as promptly as possible, but in no event later than, in the case of negotiated sales, a time sufficient to ensure assignment of a CUSIP number or numbers [on or] prior to the [business day on which] time the contract to purchase the securities from the issuer is executed; or, in the case of competitive sales, the [date of award] time of the first execution of a transaction in the new issue by the underwriter. A broker, dealer or municipal securities dealer acting as a financial advisor to an issuer in connection with a competitive sale of an issue shall ensure that application for a CUSIP number or numbers is made in sufficient time to permit assignment of CUSIP numbers prior to the [date] time of award. [The broker, dealer or municipal securities dealer shall provide to the Board or its designee] In making an application for CUSIP number assignment, the following information shall be provided:

(1) - (8)  No changes.

(B) The information required by subparagraph (i)(A) of this section (a) shall be provided in accordance with the provisions of this subparagraph. [At the time application is made the broker, dealer or municipal securities dealer making such application shall provide to the Board or its designee a] The application shall include a copy of a notice of sale, official statement, legal opinion, or other similar documentation prepared by or on behalf of the issuer, or portions of such documentation, reflecting the information required by subparagraph (i)(A) of this section (a). Such documentation may be submitted in preliminary form if no final documentation is available at the time of application. In such event the final documentation, or the relevant portions of such documentation, reflecting any changes in the information required by subparagraph (i)(A) of this section (a) shall be submitted when such documentation becomes available. If no such documentation, whether in preliminary or final form, is available at the time application for CUSIP number assignment is made, such copy shall be provided promptly after the documentation becomes available.

(C) The provisions of paragraph (i) of this section (a) shall not apply with respect to any new issue of municipal securities on which the issuer or a person acting on behalf of the issuer has submitted an application for assignment of a CUSIP number or numbers. [to such issue to the Board or its designee.]

(D) In the event that the proceeds of the new issue will be used, in whole or in part, to refund an outstanding issue or issues of municipal securities in such a way that part but not all of the outstanding issue or issues previously assigned a single CUSIP number is to be refunded to one or more redemption date(s) and price(s) (or all of an outstanding issue is to be refunded to more than one redemption date and price), the broker, dealer or municipal securities dealer shall apply in writing to the Board or its designee for a reassignment of a CUSIP number to each part of the outstanding issue refunded to a particular redemption date and price and shall provide to the Board or its designee the following information on the issue or issues to be refunded:

(1) – (3) No changes.

The [broker, dealer or municipal securities dealer] underwriter also shall provide documentation supporting the information provided pursuant to the requirements of this subparagraph (D).

(ii) Application for Depository Eligibility, CUSIP Number Affixture and Initial Communications. Each [broker, dealer or municipal securities dealer who acquires, whether as principal or agent, a new issue of municipal securities from the issuer of such securities for the purpose of distributing such new issue ("]underwriter [")] shall carry out the following functions:

(A) – (B) No changes.

(C) The underwriter[, on initial trade date,] shall [communicate] as promptly as possible announce each item of information listed below in a manner reasonably designed to reach market participants that may trade the new issue.  All information shall be announced no later than the time of the first execution of a transaction in the new issue by the underwriter. [the following information to syndicate and selling group members]:

(1) No changes.

(2) the [initial trade date] time of formal award.  For purposes of this subparagraph (a)(ii)(C), [initial trade date] time of formal award shall mean, for competitive issues, [either] the [date] time [of] the issuer announces the award, [or the first date allocations are made to syndicate or selling group members, whichever date is later,] and, for negotiated issues, [either] the [date] time [on which] the contract to purchase the securities from the issuer is executed[, or the first date allocations are made to syndicate or selling group members, whichever date is later].

(D) No changes.

(iii) No changes.


[1] SR-MSRB-2004-08, November 18, 2004.

[2] SR-MSRB-2004-07, November 12, 2004; see “Notice of Filing of Implementation Plan for Real-Time Transaction Reporting System,” MSRB Notice 2004-36, dated November 15, 2004 at www.msrb.org.  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, dated September 2, 2004 at www.msrb.org.

[3] References to “syndicate and selling group members” in this context are meant to include managers of syndicates as well as sole underwriters or placement agents in non-syndicated offerings.

[4] See “Real-Time Transaction Reporting: Notice of Filing of Proposed Rule Change to Rules G-14 and G-12(f),” MSRB Notice 2004-13, dated June 1, 2004 on www.msrb.org.

[5]  Except where context indicates otherwise, references to “underwriter” in the context of Rule G-34 are meant to include placement agents as well as dealers that purchase securities from the issuer as principal.  If there is an underwriting syndicate, the lead manager is considered to be the underwriter for purposes of Rule G-34. 

[6]  The proposed rule change also includes technical changes to Rule G-34 for clarifying and stylistic purposes.

[7] “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, dated June 18, 2004 on www.msrb.org.

*Underlining indicates new language; brackets denote deletions

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