Applicability of Trade Reporting for Certain Allocations to Customer Accounts By Dually-Registered Broker-Dealers/Investment Advisers¹

[Th]e MSRB acknowledges that in certain circumstances a customer allocation may be subject to trade reporting under Rule G-14. However, the MSRB observes that in the case of a purchase of a block order by a dually registered dealer/investment adviser (“BD/IA firm”) of municipal securities that are then allocated internally to advisory accounts at the same price as the block order (i.e., without transaction-based compensation, such as with a non-transaction-based wrap or similar advisory fee), the MSRB historically has only required that the original block order be reported and not the subsequent related allocations to customers in advisory accounts where, with respect to any such allocation, the BD/IA firm is acting as an investment adviser to such account directing an internal delivery of a portion of such block of municipal securities acquired by the BD/IA firm to the advisory account.²  This treatment would continue based on the core principle that, as a price transparency system, RTRS seeks to disseminate publicly only such pricing information that is indicative of market prices and not price information that may not reliably reflect such market prices. The MSRB believes that publishing price information for smaller customer allocations that were priced based on the larger block price of the original block trade is not only unlikely to be indicative of market prices, but could also be misleading.³

¹Excerpt from Letter to Secretary, Securities and Exchange Commission, from Ernesto A. Lanza, Chief Regulatory and Policy Officer, MSRB, dated September 5, 2025, at 5–6, available at https://www.msrb.org/sites/default/files/2025-09/SR-MSRB-2025-01-MSRB-Response-to-Comments_0.pdf (internal citations renumbered). See also Securities Exchange Act of 1934 (“Exchange Act”) Release No. 103987 (Sept. 16, 2025), File No. SR-MSRB-2025-01, 90 FR 45274, 45277 nn.58–60 and accompanying text (Sept. 19, 2025).

²See, e.g., Exchange Act Release No. 74564 (Mar. 23, 2015), 80 FR 16466, 16466 n.4 (Mar. 27, 2025), File No. SR-MSRB-2015-02 (“RTRS serves as an audit trail for municipal securities trading, with the exception of certain internal movements of securities within dealers that currently are not required to be reported”). See also MSRB Notice 2008-19, MSRB Seeks Comment on the Reporting of Proprietary Desk Transactions under Rule G-14, on Reports of Sales or Purchase (Apr. 11, 2008) (the “Prop Desk RFC”) (“Currently, internal movements of securities within a dealer organization are not considered to be reportable under Rule G-14.”). In the Prop Desk RFC, the MSRB proposed potentially requiring reporting to RTRS internal movements between a dealer’s proprietary desk and another part of the same dealer firm. The MSRB determined not to establish such a requirement with respect to such internal movements and continued to adhere to its position that internal movements are not reportable to RTRS. Of course, while the allocation is not reportable, the BD/IA firm would be subject to the full panoply of investment adviser duties, including a fiduciary duty to its customer, when it acts in this capacity as an investment adviser with respect to the customer’s advisory account.

³See, e.g., MSRB Notice 2003-20, Notice on Reporting and Comparison of Certain Transactions Effected by Investment Advisors: Rules G-12(f) and G-14 (May 23, 2003) (discussing the appropriateness of reporting only the price of the single block order trade with a third-party investment adviser rather than individual smaller transfers and allocations directed by such adviser that would be reportable at the same price as the block trade).

The MSRB has become aware of problems in transaction reporting as a result of dealers "bunching" certain inter-dealer transactions in the comparison system.  Recently, some dealers have reported the sum of two trades as one transaction in instances when two dealers effected two trades with each other in the same issue and at the same price.  When two transactions are effected, two transactions should be reflected in each dealer's books and records and two transactions are required to be reported to the MSRB.  The time of trade for each transaction also must accurately reflect the time at which a contractual commitment was formed for each quantity of securities.  For example, if Dealer A purchases $50,000 of a municipal issue at a price of par from Dealer B at 11:00 am and then purchases an additional $50,000 at par from Dealer B at 2:00 pm, two transactions are required to be reflected on each dealers' books and records and two transactions are required to be reported to the MSRB. 

Since the same inter-dealer trade record submitted for automated comparison under Rule G-12(f) also is used to satisfy the requirements of Rule G-14, on transaction reporting, each inter-dealer transaction should be submitted for automated comparison separately in order to comply with Rule G-14's requirement to report all transactions.  Failure to do so causes erroneous information concerning transaction size and time of trade to appear in the transparency reports published by the MSRB as well as in the audit trail used by regulators and enforcement agencies.  To the extent that dealers use the records generated by the comparison system for purposes of complying with MSRB Rule G-8, on recordkeeping, it may also create erroneous information as to the size of transactions effected or time of trade execution.