MSRB Notice 2003-7 (March 3, 2003)

Reminder Regarding MSRB Rule G-14 Transaction Reporting Requirements


          The Municipal Securities Rulemaking Board (“MSRB”) and NASD would like to remind brokers, dealers and municipal securities dealers (collectively “dealers”) about the requirements of MSRB Rule G-14, on transaction reporting.  This document also describes services provided by the MSRB designed to assist dealers in complying with Rule G-14. 

          Transactions reported to the MSRB under Rule G-14 are made available to the NASD and other regulators for their market surveillance and enforcement activities.  The MSRB also makes public price information on municipal securities transactions using data reported by dealers.  One product is the Daily Report of Frequently Traded Securities (“Daily Report”) that is made available to subscribers each morning by 7:00 am.  Currently, it includes details of transactions in municipal securities issues that were “frequently traded” the previous business day.[1]  The Daily Report is one of the primary public sources of municipal securities price information and is used by a variety of industry participants to evaluate municipal securities. [2] 

            Dealers can monitor their municipal transaction reporting compliance in several ways.  For customer and inter-dealer transaction reporting, the MSRB Dealer Feedback System (“DFS”) provides monthly statistical information on transactions reported by a dealer to the MSRB and information about individual transactions reported by a dealer to the MSRB.  For daily feedback on customer trades reported, the MSRB provides dealers a “customer report edit register” on the day after trades were submitted.  This product indicates trades successfully submitted and those that contained errors or possible errors.[3]  For inter-dealer transactions, National Securities Clearing Corporation (“NSCC”) provides to its members daily files, sometimes called “contract sheets,” that can be used to check the content and status of the transactions the member has submitted.

Inter-Dealer Transactions

          Even before Rule G-14 imposed requirements for transaction reporting, MSRB Rule G-12(f), on use of automated comparison, clearance and settlement systems, required dealers to submit data on their inter-dealer transactions in municipal securities to a registered clearing agency for automated comparison on trade date (“T”).  NSCC provides the automated comparison services for transactions in municipal securities.  The same inter-dealer trade record dealers submit to NSCC for comparison also is used to satisfy the requirements of MSRB Rule G-14 to report inter-dealer transactions to the MSRB.  NSCC forwards the transaction data it receives from dealers to the MSRB so that dealers do not have to send a separate record to the MSRB.  However, satisfying the requirements for successful trade comparison under Rule G-12(f) does not, by itself, necessarily satisfy a dealer’s Rule G-14 transaction reporting requirements.  In addition to the trade information necessary for a successful trade comparison, Rule G-14 requires dealers to submit accrued interest, time of trade (in military format) and the effecting brokers’ (both buy and sell side) four-letter identifiers, also known as executing broker symbols (“EBS”).  Failure to include accrued interest, time of trade and EBS when submitting transaction information to NSCC’s automated comparison system is a violation of MSRB Rule G-14 on transaction reporting even though the trade may compare on T.

          As noted above, the MSRB provides dealers with statistical measures of compliance with some important aspects of MSRB Rules G-12 and G-14 through its Dealer Feedback System.[4]  The statistics available for inter-dealer trades include:

Note on Stamped Advisories

          Firms often stamp advisories on T+1 after failing to submit accurate inter-dealer transaction information on trade date.  A stamped advisory essentially is a message sent through the NSCC comparison system by the clearing firm on one side of a trade indicating that it agrees with the trade details submitted by the contra party. 

          A significant percentage of stamped advisories is a concern for two reasons.  First, trades compared via a stamped advisory cannot be published in the Daily Report because they do not compare on trade date.  Second, unless the dealer stamping the advisory verifies every data element submitted by the contra party (including accrued interest, time of trade and EBS) stamping the advisory may effectively confirm erroneous data about the trade, which will be included in the surveillance data provided to market regulators.  With particular respect to EBS, both the MSRB and the NASD have observed that dealers do not always include accurate contra parties’ EBSs in transaction reports.  As a result, when a firm “stamps” a contra party’s submission, its own EBS may not be correctly included in the transaction report sent to the MSRB.

          In lieu of stamping an advisory, it is possible for a dealer to submit an “as of” trade record to match an advisory pending against it.  This serves the same purpose as stamping an advisory but in addition allows the dealer to input its own EBS (and other data elements) and thus ensure the accuracy of the information about its side of the trade.  While the trade will still be reported late, the data about the trade will be more likely to be correct.

Note on Clearing Broker-Correspondent Issues

          While Rule G-14 notes that accurate and timely transaction reporting is primarily a responsibility of the firm that effected a trade, it also notes that a firm may use an agent or intermediary to submit trade information on its behalf.  For inter-dealer trades, a direct member of NSCC must be used to input transaction data if the dealer effecting the transaction is not itself a direct member.  This Rule G-14 requirement that a clearing broker and correspondent work together to submit transaction reporting data in a timely and accurate manner is the same as exists in Rule G-12(f) on inter-dealer comparison.

          Where there is a clearing-correspondent relationship between dealers, timely and accurate submission of trade data to NSCC generally requires specific action by both the direct member of NSCC (who clears the trade) as well as the correspondent firm.  The MSRB has noted that the responsibility for proper trade submission is shared between the correspondent and its clearing broker.[7]  Clearing brokers, their correspondents and their contra-parties all have a responsibility to work together to resolve inaccurate or untimely information on transactions in municipal securities.  A clearing firm’s use of a large number of stamped advisories may indicate systemic problems with the clearing broker’s procedures, the correspondents’ procedures, or both.[8] 

Customer Transactions

          Dealers that engage in municipal securities transactions with customers also are required to submit accurate and complete trade information to the MSRB by midnight of trade date under Rule G-14.  MSRB customer transaction reporting requirements include the reporting of time of trade and the dealer’s EBS for each trade. 

          Dealers have flexibility in the way they report customer transactions to the MSRB Transaction Reporting System.  The three options available allow dealers to: 1) transmit customer transaction data directly to NSCC, which, using its communications line with MSRB, forwards trade data to the MSRB the evening on which it is received; 2) send the data via an intermediary, such as a clearing broker or service bureau, to NSCC, which forwards the data to the MSRB; or 3) submit the data directly to the MSRB using a PC dial-up connection and software provided by the MSRB.

          The MSRB Dealer Feedback System also provides dealers with performance statistics for customer trade reporting.  These statistics include:

Questions / Further Information

          Questions about this notice may be directed to staff at either MSRB or NASD.  At MSRB, contact P. John Baughman, Senior Data Analyst, or Justin R. Pica, Uniform Practice Specialist, at (703) 797-6600.  At NASD’s Department of Member Regulation, contact Malcolm Northam, Director, Fixed Income Securities, at (202) 728-8085, or Cynthia Friedlander, Regulatory Specialist, at (202) 728-8133.  For more information on transaction reporting, including questions and answers and the customer transaction reporting system user guide, or to sign up for the Dealer Feedback System, we encourage dealers to visit the MSRB Web site at www.msrb.org, particularly the Municipal Price Reporting / Transaction Reporting System section.



[1]          The Daily Report is available by subscription at no cost.  Currently, “frequently traded” securities are those that traded two or more times during a trading day.  As noted below, inter-dealer transactions must be compared on trade date to be eligible for this report.

[2]          The MSRB also publishes a “Daily Comprehensive Report,” providing details of all municipal securities transactions that were effected during the trading day one week earlier.  The Daily Comprehensive Report is available by subscription for $2,000 per year.  Along with trades in issues that are not “frequently traded,” this report includes transactions reported to the MSRB late, inter-dealer trades compared after trade date, and transaction data corrected by dealers after trade date.

[3]          A dealer may call the MSRB at (703) 797-6600 and ask to speak with a Transaction Reporting Assistant who can check to see if its firm is signed up for this free service.

[4]          A complete description of the service is available at www.msrb.org in the Municipal Price Reporting / Transaction Reporting System section.  NASD also has informed dealers of this service in “Municipal Transaction Reporting Compliance Information,” Regulatory and Compliance Alert (Summer 2002).

[5]          Under NSCC procedures, no buy-side trade report should be submitted for comparison against a syndicate “takedown” trade submitted by the syndicate manager.  Syndicate transactions are “one-sided submissions” and compare automatically after being submitted by the syndicate manager.  Paragraph (a) (ii) of Rule G-14 procedures thus requires that only the syndicate manager submit the trade.

[6]             The EBS statistics reflect the aggregate number of such errors found in transaction data submitted by a particular NSCC member firm for itself and/or for its correspondents.  This statistic cannot be generated individually for each correspondent because the EBS needed to identify the correspondent is itself missing or invalid.  EBS statistics only measure the validity of the input the submitter provides to identify its own side of the trade and do not measure the accuracy with which a dealer uses EBSs to identify its contra-parties.

[7]          In 1994, the MSRB stated that, “introducing brokers share the responsibility for complying with [Rule G-12(f)] with their clearing brokers.  Introducing brokers who fail to submit transaction information in a timely and accurate manner could subject either or both parties to enforcement action for violating [Rule G-12(f)].”  See “Enforcement Initiative,” MSRB Reports, Vol. 14, No. 3 (June 1994) at 35.  NASD has since reiterated this policy; see the following articles in Regulatory and Compliance Alert: “Introducing Firm Responsibility When Reporting Municipal Trades Through Service Bureaus and Clearing Firms” (Winter 2000) and “Municipal Securities Transaction Reporting Compliance Information” (Spring 2001). 

[8]           As explained above, one of the problems often associated with stamped advisories is that the EBS on transaction records may be missing or inaccurate.  Since a clearing broker may have many correspondents, stamping an advisory can make it impossible for market regulators to know which correspondent actually effected the trade.

[9]           Of course, if the initial information reported to the MSRB, such as total par value, is changed, the trade record must be amended to make it correct.

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