MSRB NOTICE 2008-18 (APRIL 7, 2008)

REMINDER REGARDING DISCREPANCIES IN REPORTS OF INTER-DEALER TRANSACTIONS

The MSRB recently has received inquiries from dealers regarding how to detect and minimize discrepancies in matched inter-dealer transactions.  This notice reminds dealers about tools in the Real-Time Transaction Reporting (RTRS) System that are available to help improve performance in reporting inter-dealer transactions.

Reports Showing the Incidence of Discrepancies

Dealers may obtain two reports through RTRS Web that show information submitted by both parties to matched inter-dealer trades.  The Discrepancy Error Code Report provides a list of inter-dealer transactions where the parties have submitted different values for accrued interest, time of trade, or effecting broker symbol (EBS).[1]  The Destination Error Code Report provides a list of inter-dealer transactions where either or both parties have indicated a “destination” other than RTRS for the trade report.[2]  This reminder notice focuses on the Discrepancy Report.

The Discrepancy Report has three sections, each for one error condition:

Q19F: Accrued Interest Different on Buyer and Seller Sides.

This section lists inter-dealer trades where the accrued interest submitted by one party differs from the accrued interest submitted by the contra-party.

Q22F: Seller and Buyer Times of Trade Differ by More Than 15 Minutes.

This section lists inter-dealer trades where the time of trade submitted by one party differs from the time of trade submitted by the contra-party by more than 15 minutes.

Q44F: Contra Party You Indicated is not the Contra Party on the Matching Side.  This section lists inter-dealer trades where the effecting broker and contra-party effecting broker submitted by one party differs from the effecting broker and contra-party effecting broker submitted by the contra-party. 

Dealers have asked specifically how to reduce the incidence of Q44F, or “mismatched EBS,” in which dealers submit different EBSs to identify one another.  Below is the Q44F section of a simulated Discrepancy Report with two hypothetical trades.  Both trades are between Dealer A and Dealer B, but the EBSs are mismatched in different ways.  In the first trade, Dealer A misidentified its contra-party as “X” rather than “B.”  In the second trade Dealer B has misidentified its contra-party as “Y.”

When accrued interest, trade time or EBS values are different in a matched trade, the Discrepancy Report shows both parties the same information about the trade.  The report shows that a mismatch has occurred but does not indicate which side is correct.  Each trade listed on the Discrepancy Report has at least one side with erroneous information.  Each party is responsible to identify any inaccurate information it submitted and to correct the submission as soon as possible.[3]  However, a “Questionable” error does not necessarily mean that both sides of the trade report are in error.  If one party finds that it reported the trade correctly, it does not have to respond to the error message.[4]

The party that submitted an incorrect EBS or time of trade can correct it by submitting a modification of the trade report.  Accrued interest in a matched trade cannot be modified; to change it, both parties must agree to reverse and resubmit the trade with correct information

To reduce the incidence of mismatches, dealers should undertake at least two activities.  First, a dealer regularly should review trade status information from RTRS regarding its submissions.  Note that trade status information is available formatted as colored symbols indicating “questionable,” “cancelled,” etc.[5] on RTRS Web trade screens. Status information is also available as RTRS error messages, which are sent in real-time as soon as submissions from both sides are processed.  The Discrepancy and Destination Reports are alternate formats which enable a dealer to review all submissions that matched on a specified date.  These reports augment the status information by showing both sides of the trade.  Second, having identified mismatches, a dealer should identify the root cause of any incorrect submissions and remedy the cause.

Usage of Reports by Dealers

The MSRB notes that, while some dealers regularly request Discrepancy and Destination Reports from RTRS, other dealers that effect inter-dealer trades do not request them.  Dealers are reminded of the requirement in Rule G-14 RTRS Procedures (a)(v) that:

[i]nformation 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.

As noted, trade status information is available in several formats.  Dealers receiving error codes Q19F, Q22F and Q44F are not required to use status information in a particular format, but they must review at least one.  It is recommended that dealers obtain the Discrepancy Report if they are receiving “mismatch” errors Q19F, Q22F or Q44F.

April 7, 2008