[Federal Register: April 15, 2003 (Volume 68, Number 72)]
[Notices]
[Page 18313-18315]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15ap03-129]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-47650; File No. SR-MSRB-2003-02]
Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Notice of Filing of Proposed Rule Change Relating to Rule G-14,
on Reports of Sales or Purchases
April 8, 2003.
Pursuant to section 19(b)(1) of the Securities and Exchange Act of
1934 (the ``Exchange Act'') and Rule 19b-4 thereunder,\1\ notice is
hereby given that on April 7, 2003, the Municipal Securities Rulemaking
Board (``MSRB'') filed with the Securities and Exchange Commission
(``Commission'') a proposed rule change (File No. SR-MSRB-2003-02) (the
``proposed rule change'') described in Items I, II, and III below,
which Items have been prepared by the MSRB. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
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\1\ 15 U.S.C. 78s(b)(1) and 17 CFR 240.19b-4 thereunder.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The MSRB has filed with the Commission a proposed rule change with
regard to Rule G-14, on reports of sales or purchases, to increase
transparency in the municipal securities market. The proposed rule
change would not change the wording of Rule G-14.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the MSRB included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The MSRB has prepared summaries, set forth in Section A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to increase price
transparency for municipal securities by increasing the amount of price
data available on the day after trade date.
Background Information
Since the implementation of the inter-dealer trade reporting system
in 1995, the MSRB has been increasing price transparency in the
municipal securities market in measured steps.\2\ The first price
transparency report was a T+1 report that summarized high, low and
average inter-dealer prices for issues that met a trading threshold of
four or more trades in the inter-dealer market. In 1998, the MSRB
implemented the customer transaction reporting system and customer
transaction data was added to the T+1 summary report. The trading
threshold of four trades was retained, but since it applied regardless
of whether the trades were inter-dealer or customer, many more issues
met the trading threshold and were subject to price reporting. In
January 2000, the MSRB further enhanced the T+1 report by publishing
individual transaction data (rather than high, low and average prices)
for each issue contained in the report.
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\2\ This plan has been discussed in many notices since 1994.
See, e.g., ``Board to Proceed with Pilot Program to Disseminate
Inter-Dealer Transaction Information,'' MSRB Reports, Vol. 14, No. 1
(January 1994).
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In October 2000 the MSRB began offering a comprehensive transaction
report, which lists all municipal securities transactions (regardless
of frequency of trading) and includes late-reported trades, inter-
dealer trades compared after trade date, and transaction data corrected
by dealers after trade date. The Comprehensive Report began with a
minimum one-month delay in trade publication. That delay has gradually
been reduced such that the report currently is disseminated on a daily
basis, one week after trade date. To make more trade data available on
a T+1 basis, in 2002, the MSRB began the process of lowering the
trading threshold in the T+1 Daily Report. In May 2002, the MSRB
changed the trading threshold to three trades.\3\ In November 2002, the
trading threshold was lowered to two trades.\4\
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\3\ See Release No. 34-45861 (May 1, 2002), 67 FR 30989.
\4\ See Release No. 34-46819 (November 12, 2002), 67 FR 69779.
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The T+1 Daily Report and the Comprehensive Report have been well
received by market professionals seeking information on market price
levels and trading activity for individual securities.\5\ The reports
have garnered greater and greater use over time, both with market
professionals and through free, customer-oriented outlets such as
``InvestingInBonds.com'' operated by The Bond Market Association
(``TBMA''). At this time, in preparation for the move to real-time
price transparency in mid-2004, the MSRB believes that the trading
threshold in the T+1 Daily Reports should be eliminated to further
increase the price transparency that is available on T+1.
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\5\ Currently, the MSRB has twenty-four subscribers to the T+1
Daily Report and fifty-one to Comprehensive Report.
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Proposed Changes in the T+1 Daily Report
The MSRB has noted since the outset of its transparency initiative
that, as the market obtains experience with price transparency, price
reports eventually would need to occur on a more contemporaneous and
comprehensive basis, culminating with real-time transaction
reporting.\6\ The proposal to change the T+1 Daily Report at this time
is part of the MSRB's longstanding plan to introduce transparency in
measured steps, allowing the market time to adjust to new situations
presented by each new level of price transparency. As an example, when
price reports were first introduced in 1995, the MSRB was concerned
that an observer might be misled if he or she considered an isolated
transaction or pair of transactions as providing the same
[[Page 18314]]
indicator of ``market price'' as a stock exchange quotation. The MSRB
believes that, considering the unique nature of the municipal
securities market, the market has adapted very well to price
transparency. The MSRB is not aware of any problems occurring similar
to the concerns expressed in 1995. The reception of the Comprehensive
Report and the previous lowering of trading thresholds on the T+1 Daily
Report has been positive and the use of the data in those reports by
market professionals and pricing services has increased the efficiency
and accuracy with which issues are priced in the secondary market.
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\6\ See, e.g., ``Board to Proceed with Pilot Program to
Disseminate Inter-Dealer Transaction Information,'' MSRB Reports,
Vol. 14, No. 1 (January 1994).
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The proposed rule change would increase substantially the number of
trades and issues appearing each day on the T+1 Daily Report. On a
typical trading day, dealers report approximately 26,000 transactions
in 10,000 issues, with a total par value traded of about $9.5
billion.\7\ The present T+1 Daily Report, with a trading threshold of
two or more trades per day, includes an average of 19,760 trades in
5,600 issues, with a total par value of about $7.7 billion. Currently,
only about 76% of transactions reported on trade date are shown on the
report. Under the proposed rule change, all trades reported by dealers
on trade date would be made visible on T+1.
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\7\ This baseline data is based upon market activity from April
1, 2001 through July 31, 2001.
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Although the MSRB believes it is appropriate to increase T+1
transparency at this time, and to move forward with its plans for real-
time trade reporting in mid-2004, the MSRB also is mindful of concerns
expressed by dealers that further increases in transparency on a more
contemporaneous basis could have an effect on liquidity. One concern
sometimes noted is that because of the nature of the municipal
securities market, including the prevalence of thinly traded issues, it
sometimes is possible to identify institutional investors and dealers
by the exact par value given on trade reports. For example, it might be
common market knowledge that a $4.25 million position in an issue
initially was purchased in the primary market by a specific
institution. Trade reports in the secondary market showing this exact
par value later being sold then could reveal the identity of that party
as well as the price received. Where the market for a specific security
is thin and only one or two dealers are active, revealing the exact par
amount also may convey information about a dealer's inventory (i.e.,
size of position and acquisition cost). Other dealers may use this
information to trade against the dealer's position, reducing the
incentive for a dealer to take large positions in these circumstances.
In response to these concerns, the MSRB proposes to take a step
similar to that used by the NASD's ``TRACE'' system in the corporate
bond market and to display par value of large trades with a large trade
indicator rather than the exact par value.\8\ While this will result in
less information being made visible on T+1 about par value traded, the
MSRB believes that it will help to preserve the anonymity of trading
parties and will not detract in a substantial way from the benefits of
the price transparency it provides.
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\8\ See NASD Notice to Members 01-18, ``Fixed Income Transaction
Reporting and Dissemiantion,'' March 2001.
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The enhanced Daily Report with the frequently traded threshold
removed would replace the current T+1 Daily Report and would be made
available each day to subscribers via the Internet. Subscribers to the
current Service receive the report free of charge, and their
subscriptions would continue. New subscriptions would continue to be
available free to parties who sign a subscription agreement. In
addition, recent reports would continue to be available for
examination, also free of charge, at the MSRB's Public Access Facility
in Alexandria, VA.
The MSRB will continue to produce its Comprehensive Report on a
one-week delay basis with details about all transactions traded one-
week prior. The Comprehensive Report will continue to provide
information on the size of each transaction including the exact par
amount reported to the MSRB on transactions in amounts greater than one
million dollars. The Comprehensive Report also will continue to be
useful since it will include details of transactions reported to the
MSRB late, inter-dealer trades compared after trade date, and any
transaction data corrected by dealers after trade date.
Implementation Schedule
The enhanced report would be available to subscribers as soon as
practical after Commission approval of the proposed rule change. It is
estimated that the period between approval and implementation would not
exceed four weeks.
2. Basis
The MSRB has adopted the proposed rule change pursuant to Section
15B(b)(2)(I) of the Exchange Act, which authorizes the MSRB to adopt
rules that provide for the operation and administration of the Board.
B. Self-regulatory Organization's Statement on Burden on Competition
The MSRB does not believe that the proposed rule change will impose
any burden on competition in that it applies equally to all dealers in
municipal securities.
C. Self-Regulatory Organization's Statement of Comments on the Proposed
Rule Change Received From Member, Participants, or Others
Written comments on the proposed rule change were not solicited,
but the MSRB had earlier received a copy of a comment letter from TBMA
to the Commission in reference to proposed rule change SR-MSRB-2002-07
regarding shortening the delay in publication of the Comprehensive
Report from two weeks after trade date to a one-week delay.\9\ In its
letter, the TBMA expressed its continued support for the MSRB's steps
to expand transparency in the municipal securities market. TBMA also
stated a concern that price dissemination on a next-day basis for all
issues that trade only once per day would not necessarily provide
useful information to investors and other market participants or could
adversely affect liquidity or might be misleading.
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\9\ See letter from Frank Chin, Chair, Municipal Executive
Committee, TBMA, to Jonathan G. Katz, Secretary, Commission, dated
August 8, 2002.
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As noted above, the final reduction of the T+1 trading threshold is
part of a long-term plan for measured increases in transparency. The
Board believes that prior experience with the program indicates both
that the additional information provided by the proposed rule change
will be useful and will not be misconstrued by users of the data, who
now have experience with the price information and know how to
interpret it.
As noted above, the MSRB also has considered the concerns expressed
by the TBMA that further increases in transparency on a more
contemporaneous basis could have an effect on liquidity. The MSRB
believes that the proposal to display par value of transactions over
one million dollars with a large trade indicator rather than exact par
value will ameliorate these concerns.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of publication of this notice in the
Federal
[[Page 18315]]
Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding, or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the forgoing. Persons making written submission
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609.
Copies of the submissions, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for inspection and copying in the
Commission's Public Reference Room. Copies of the filing will also be
available for inspection and copying at the MSRB's principal offices.
All submissions should refer to File No. SR-MSRB-2002-14 and should be
submitted by May 6, 2003.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-9109 Filed 4-14-03; 8:45 am]
BILLING CODE 8010-01-P