MSRB NOTICE 2005-13 (MARCH 2, 2005)

Reminder Regarding Modification and Cancellation Of Transaction Reports: Rule G-14

Executive Summary

The Municipal Securities Rulemaking Board (“MSRB”) reminds brokers, dealers and municipal securities dealers (collectively “dealers”) of the need to report municipal securities transactions accurately and to minimize the submission of modifications and cancellations to the Real-Time Transaction Reporting System (“RTRS”).  Each transaction initially should be reported correctly to RTRS.  Thereafter, only changes necessary to achieve accurate and complete transaction reporting should be submitted to RTRS.  Changes should be rare since properly reported transactions should not need to be corrected.

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Under Rule G-14, dealers are required to report all transactions to the MSRB and to report accurately and completely the information specified in the Rule G-14 RTRS Procedures (“Procedures”).  Trades that are reported with errors affect the accuracy of the information published in price transparency reports as well as the audit trail information retained in the surveillance database.[1]

The MSRB has published notices to dealers reminding them of their obligation to report transactions correctly and to monitor error reports the MSRB sends them.[2]  Each trade should be reported correctly in the dealer’s initial submission of trade data to RTRS and, for inter-dealer trades, to the Real-time Trade Matching (“RTTM”) system as well.  Changes should be rare since properly reported transactions should not need to be corrected.  If, however, a transaction is reported with incorrect or missing attributes (such as price or capacity), the Procedures require the dealer to correct the report as soon as possible.[3]  When RTRS sends certain error messages to a dealer, the dealer is required to correct the trade report.[4]  Dealers can make those corrections, or other necessary corrections in reported data, by modifying the trade report or by cancelling the report and submitting a correct replacement.[5]  If it is necessary to modify a report, modification is preferred over cancellation and resubmission.[6] 

Dealers should not change trade reports when the transaction attribute that changes is not required to be reported by MSRB or NSCC.  For example, if only the account representative associated with a transaction changes, the report to the MSRB should not be changed, as this information is not required to be reported to the MSRB under Rule G-14.  Dealers should take care that, if a modification or cancellation is submitted that is not responding to an RTRS error message, the dealer is correcting or cancelling an erroneous report.[7]

RTRS counts the number of modifications and cancellations submitted by each dealer.  The MSRB provides statistics to the NASD and other enforcement agencies that measure dealer performance in modifying and cancelling transactions, as well as error rates of original submissions.  Dealers that excessively modify or cancel trade reports will have above-average rates in these statistical reports.  Dealers therefore should change trade reports only when appropriate to attain accurate and complete reporting under Rule G-14 and the Procedures.

Dealers can monitor their reporting of transactions in compliance with Rule G-14 in several ways.  The MSRB currently provides information to dealers about their reporting performance.  Any error detected by RTRS is reported back to the submitter by electronic message and is shown to the submitter and the executing dealer on the RTRS Web screen.[8]  RTRS also sends e-mail error messages to dealers on request. The RTRS Web screen lists all trades cancelled by the dealer, under its Advanced Search feature.   In addition, beginning in March 2005, the MSRB plans to make available to dealers the same statistics provided to the enforcement agencies, in a report entitled “G-12(f)/G-14 Compliance Data from RTRS.”  This will be available monthly on the first Monday after the 15^th of the month.  A dealer’s report will include its statistics for the most recent full month and for the previous month.[9]  It will also include summary statistics for the municipal securities industry so that the dealer can compare its performance to the industry’s.  Further information about how a dealer can obtain its compliance statistics will be posted in March on the MSRB web site, www.msrb.org.

For additional information on the services the MSRB provides to assist dealers in complying with Rule G-14, please visit the Transaction Reporting section of www.msrb.org, or call the MSRB at 703-797-6600 and ask to speak with a Transaction Reporting Assistant.

March 2, 2005