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