The MSRB has received reports of problems with automated comparison and transaction reporting of certain inter-dealer transactions involving syndicate managers.  These reports indicate that some dealers may have incorrectly identified some of their when, as and if issued ("when-issued") transactions in new issue municipal securities as "syndicate transactions."  The MSRB reminds dealers that erroneous coding of comparison reports is a violation of Rule G-14, on transaction reporting, and that transactions with dealers that are not members of the syndicate or selling group for a new issue, by definition, cannot be considered "syndicate transactions" for purposes of comparison procedures.

MSRB Rule G-12(f), on automated comparison of inter-dealer transactions, requires dealers to submit for automated comparison all transactions eligible for comparison under National Securities Clearing Corporation's (NSCC) rules and procedures.  For transactions by a syndicate manager with syndicate or selling group members, NSCC procedures call for the use of a special "syndicate" submission, which does not require a submission by the contra-side for comparison to occur.[1]  Transactions between syndicate managers and dealers that are not members of the syndicate or selling group are not "syndicate transactions" under NSCC's rules and procedures and both the selling and purchasing dealers are required to report its side to the transaction for automated comparison. 

Various problems arise in the comparison process if the parties to a trade do not follow the correct procedures for comparison of the trade.  Moreover, since the trade report submitted for comparison also serves as the transaction report to the MSRB, identifying a transaction as a "syndicate transaction" in trade reports, when such transaction is not a syndicate transaction under NSCC's rules and procedures, represents a violation of a dealer's obligation to accurately report transactions to the MSRB under Rule G-14.

The MSRB has received inquiries from dealers as to whether they must report purchase and sale transactions that arise from repurchase agreements as "transactions" under Rule G-14, on transaction reporting. Typically, a bona fide, properly documented repurchase agreement ("repo") is an agreement consisting of two transactions whereby one party purchases securities from a second party, and the second party agrees to repurchase the securities on a certain future date at a price that will produce an agreed-upon rate of return. The parties may be dealers, investors, or others. There is a repo program known to the MSRB in which one party to the repo transaction is a dealer and the other party is a customer, so this type of repo results in a sequence of two customer transactions.

The Transaction Reporting Program, which disseminates prices of municipal securities trades reported to the Board by dealers under Rule G-14, has an objective to provide price transparency about the current market. Repos, however, are not the type of transactions that were intended for reporting under Rule G-14. This is because the paired transactions of a repo function as a financing agreement and the underlying transactions, while technically purchase-sale agreements, are not necessarily effected at market prices. Since there is no way in today's batch Transaction Reporting System to suppress customer transaction reports from being portrayed as market prices, dealers should not report repos to the current Transaction Reporting Program. This approach is consistent with the practice for reporting of corporate bond transactions to the NASD's TRACE system, in that NASD advises dealers not to report corporate bond repo transactions.[1]

In January 2005, the MSRB plans to begin operation of the Real-Time Transaction Reporting System (RTRS) and to require reporting of transactions in real-time under a proposed change to Rule G-14.[2] In RTRS there is an indicator by which a dealer can report that a trade was done under special conditions, including trades done at other than the market price.[3] The MSRB plans to amend the RTRS specifications to add a value to this indicator by which a dealer would report that a transaction was done at a price away from the market because it was a customer transaction and was part of a repo. Such reporting will support the creation of a complete "audit trail" for market surveillance purposes. The indicator in this case will cause the trade to be suppressed from publication to avoid misleading transparency reports.

When the RTRS Specification is amended to add the value for "repo not at market price," an effective date will be stated for required reporting of such repos. Between January 2005 and the effective date of the amended Specification, dealers have the option to report such repos, or not, depending upon the configuration of their trade reporting systems. Before the effective date, if a dealer reports a repo that is a customer transaction away from the market, the report should include the value "R004" in the SPXR field, to indicate that it is a non-market price with "reason not listed" among currently used values.